SL Green Realty (SLG) 8-K Other Events

Exhibit 99.1

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 8, “Financial Statements and Supplementary Data” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 8-K.

In connection with our Annual Report on Form 10-K, we are restating our historical audited consolidated financial statements as a result of Statement of Financial Accounting Standards No. 144, or SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”.  During the periods presented below, we classified five properties as held for sale and, in compliance with SFAS No. 144, have reported revenue and expenses from these properties as discontinued operations, net of minority interest, for each period presented in our Annual Report on Form 10-K.  This reclassification had no effect on our reported net income or funds from operations.

We are also providing updated summary selected financial information, which is included below reflecting the prior period reclassification as discontinued operations of the property classified as held for sale during 2005.

	Year Ended December 31,
Operating Data	2004			2003			2002			2001			2000
(In thousands, except per share data)
Total revenue	$	343,718		$	281,670		$	210,728		$	215,759		$	194,555
Operating expenses	84,475			72,246			48,482			48,021			47,635
Real estate taxes	48,030			39,832			24,539			25,249			25,066
Ground rent	16,179			13,562			12,637			12,579			12,660
Interest	61,636			44,404			34,321			42,754			38,047
Depreciation and amortization	51,495			41,628			32,400			31,606			27,934
Marketing, general and administration	30,279			17,131			13,282			15,374			11,561
Total expenses	292,094			228,803			165,661			175,583			162,903
Income from continuing operations before items	51,624			52,867			45,067			40,176			31,652
Equity in net (loss) income from affiliates	—			(196		)	292			(1,054		)	378
Equity in net income of unconsolidated joint ventures	44,037			14,871			18,383			8,607			3,108
Income from continuing operations before minority interest and gain on sales	95,661			67,542			63,742			47,729			35,138
Minority interest	(5,630		)	(4,117		)	(3,708		)	(3,395		)	(5,942		)
Income before gains on sale and cumulative effect of accounting charge	90,031			63,425			60,034			44,334			29,196
Gain on sale of properties/preferred investments	22,012			3,087			—			4,956			41,416
Cumulative effect of change in accounting principle	—			—			—			(532		)	—
Income from continuing operations	112,043			66,512			60,034			48,758			70,612
Discontinued operations (net of minority interest)	97,387			31,647			14,297			14,243			15,605
Net income	209,430			98,159			74,331			63,001			86,217
Preferred dividends and accretion	(16,258		)	(7,712		)	(9,690		)	(9,658		)	(9,626		)
Income available to common shareholders	$	193,172		$	90,447		$	64,641		$	53,343		$	76,591
Net income per common share – Basic	$	4.93		$	2.80		$	2.14		$	1.98		$	3.14
Net income per common share – Diluted	$	4.75		$	2.66		$	2.09		$	1.94		$	2.93
Cash dividends declared per common share	$	2.04		$	1.895		$	1.7925		$	1.605		$	1.475
Basic weighted average common shares outstanding	39,171			32,265			30,236			26,993			24,373
Diluted weighted average common shares and common share equivalents outstanding	43,078			38,970			37,786			29,808			31,818

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Balance Sheet Data

	As of December 31,
(In thousands)	2004		2003		2002		2001		2000
Commercial real estate, before accumulated depreciation	$	1,756,104	$	1,346,431	$	975,776	$	984,375	$	895,810
Total assets	2,751,881		2,261,841		1,473,170		1,371,577		1,161,154
Mortgage notes payable, revolving credit facilities and term loans	1,150,376		1,119,449		541,503		504,831		460,716
Minority interests	75,064		54,791		44,718		46,430		43,326
Preferred Income Equity Redeemable Shares SM	—		—		111,721		111,231		110,774
Stockholders’ equity	1,347,880		950,782		626,645		612,908		455,073

Other Data

	Year Ended December 31,
(In thousands)	2004			2003			2002			2001			2000
Funds from operations available to common shareholders (1)	$	162,377		$	128,780		$	116,230		$	94,416		$	74,698
Funds from operations available to all shareholders (1)	162,377			135,473			125,430			103,616			83,898
Net cash provided by operating activities	116,264			78,250			101,948			80,588			53,806
Net cash used in investment activities	(220,851		)	(491,369		)	(52,328		)	(420,061		)	(38,699		)
Net cash provided by (used in) financing activities	101,836			393,645			(4,793		)	341,873			(25,875		)

(1)Funds From Operations, or FFO, is a widely recognized measure of REIT performance.  We compute FFO in accordance with standards established by the National Association of Real Estate Investment Trusts, or NAREIT, which may not be comparable to FFO reported by other REITs that do not compute FFO in accordance with the NAREIT definition, or that interpret the NAREIT definition differently than we do.  The revised White Paper on FFO approved by the Board of Governors of NAREIT in April 2002 defines FFO as net income (loss) (computed in accordance with generally accepted accounting principles, or GAAP), excluding gains (or losses) from debt restructuring and sales of properties, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures.  We present FFO because we consider it an important supplemental measure of our operating performance and believe that it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITS, particularly those that own and operate commercial office properties.  We also use FFO as one of several criteria to determine performance-based bonuses for members of our senior management.  FFO is intended to exclude GAAP historical cost depreciation and amortization of real estate and related assets, which assumes that the value of real estate assets diminishes ratably over time.  Historically, however, real estate values have risen or fallen with market conditions.  Because FFO excludes depreciation and amortization unique to real estate, gains and losses from property dispositions and extraordinary items, it provides a performance measure that, when compared year over year, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, interest costs, providing perspective not immediately apparent from net income.  FFO does not represent cash generated from operating activities in accordance with GAAP and should not be considered as an alternative to net income (determined in accordance with GAAP), as an indication of our financial performance or to cash flow from operating activities (determined in accordance with GAAP) as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make cash distributions.

A reconciliation of FFO to net income computed in accordance with GAAP is provided under the heading of “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Funds From Operations.”

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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.

The following discussion related to our consolidated financial statements should be read in conjunction with the financial statements appearing in Item 8 of this Form 8-K.

Improving fundamentals, which we discussed in 2003 continued to improve during 2004, with a slight pause during the third quarter.  New York City’s unemployment rate decreased to 6.2%, the lowest rate since March 2001 and further narrowing the gap with the national unemployment rate.  Payroll jobs increased with professional and business services firms leading the way in additions. Securities industry profits and employment continued their rebound since the low levels of 2002, and are projecting a 12.8% increase in industry profits and 3.5% to 4.0% growth in employment during 2005.  Additionally, New York City tourism and hotel occupancies, leading indicators of an improving economy, recorded their highest levels since the year 2000.

Recovery of the commercial real estate market that began in 2003 clearly solidified in 2004, with material gains in leasing activity and absorption. New leasing activity was up 30% for the year and absorption finished the year positive for the first time since 2000.  The strong Midtown market accounted for much of the improvement.  More than half of the total leasing activity came from Class A space in Midtown, and the overall Midtown vacancy rate dropped from 12% to 10% year over year.  For the first time in nearly four years, Midtown posted positive absorption of 4.4 million square feet compared with negative 4.0 million square feet in 2003.  This increase in leasing activity was led by financial services firms, law firms and accounting services firms.  We signed 293 office leases totaling 1.8 million square feet during 2004.  Although asking rents were down for the overall Manhattan market, they showed improvement in Midtown.  New cash rents on previously occupied space by new tenants at our Same Store Properties increased by 0.5% over previous cash rent paid by the old tenant for the same space.

During 2004, only 3.9 million square feet, or 2% of total Midtown office inventory, of new office space was added, the majority of which was fully leased as of year-end.  In a supply-constrained market, there are few signs of a reprieve, with only 5.6 million square feet under construction as of year-end and a handful of large blocks of contiguous space.  We ended the year at 96.5% weighted average occupancy, excluding the recently acquired 625 Madison Avenue, and have signed leases totaling more than 300,000 square feet thus far in 2005.

Sales activity in 2004 surpassed the record set in 2003, as total volume reached $14.5 billion.  During 2004, we sold three properties at a blended rate of $338 per square foot for total sales proceeds of $549.0 million. Properties sold included 1466 Broadway, 17 Battery Place North and a 75% interest in One Park Avenue.  Proceeds from these dispositions were recycled in four separate investments totaling approximately $780.0 million, or $305 per square foot on average.  Acquisitions included 625 Madison Avenue, 750 Third Avenue, 485 Lexington Avenue and 19 West 44^th Street.

Our outlook for 2005 is a continuation of the solid performance demonstrated in 2004.

As of December 31, 2004, our wholly-owned properties consisted of 20 commercial properties encompassing approximately 8.8 million rentable square feet located primarily in midtown Manhattan, a borough of New York City, or Manhattan.  As of December 31, 2004, the weighted average occupancy (total leased square feet divided by total available square feet) of the wholly-owned properties was 94.5%.  Our portfolio also includes ownership interests in unconsolidated joint ventures, which own eight commercial properties in Manhattan, encompassing approximately 8.2 million rentable square feet, and which had a weighted average occupancy of 96.9% as of December 31, 2004.  In addition, we manage three office properties owned by third parties and affiliated companies encompassing approximately 1.0 million rentable square feet.

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

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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.

Rental Property

On a periodic basis, our management team assesses whether there are any indicators that the value of our real estate properties, including joint venture properties and assets held for sale, and structured finance investments may be impaired.  If the carrying amount of the property is greater than the estimated expected future cash flow (undiscounted and without interest charges) of the asset or sales price, impairment has occurred.  We will then record an impairment loss equal to the difference between the carrying amount and the fair value of the asset.  We do not believe that the value of any of our rental properties or structured finance investments was impaired at December 31, 2004 and 2003.

In accordance with SFAS 141, “Business Combinations,” we allocate the purchase price of real estate to land and building and, if determined to be material, intangibles, such as the value of above, below and at-market leases and origination costs associated with the in-place leases.  We depreciate the amount allocated to building and other intangible assets over their estimated useful lives, which generally range from three to 40 years.  The values of the above and below market leases are amortized and recorded as either an increase (in the case of below market leases) or a decrease (in the case of above market leases) to rental income over the remaining term of the associated lease.  The value associated with in-place leases and tenant relationships are amortized over the expected term of the relationship, which includes an estimated probability of the lease renewal, and its estimated term.  If a tenant vacates its space prior to the contractual termination of the lease and no rental payments are being made on the lease, any unamortized balance of the related intangible will be written off.  The tenant improvements and origination costs are amortized as an expense over the remaining life of the lease (or charged against earnings if the lease is terminated prior to its contractual expiration date).  We assess fair value of the leases based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information.  Estimates of future cash flows are based on a number of factors including the historical operating results, known trends, and market/economic conditions that may affect the property.

Investment in Unconsolidated Joint Ventures

We accounted for our investments in unconsolidated joint ventures under the equity method of accounting as we exercise significant influence, but do not control these entities and are not considered to be the primary beneficiary under FIN 46.  In all the joint ventures, the rights of the minority investor are both protective as well as participating.  These rights preclude us from consolidating these investments.  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.  Any difference between the carrying amount of these investments on our balance sheet and the underlying equity in net assets is amortized as an adjustment to equity in net income (loss) of unconsolidated joint ventures over the lesser of the joint venture term or 40 years.  See Note 6.  None of the joint venture debt is recourse to us.

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 accompanying 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 balance sheet is net of such allowance.

Interest income on structured finance investments is recognized over the life of the investment using the effective interest method and recognized on the accrual basis.  Fees received in connection with loan commitments are deferred until the loan is funded and are then recognized over the term of the loan as an adjustment to yield.  Anticipated exit fees, whose collection is expected, are also recognized over the term of the loan as an adjustment to yield.  Fees on commitments that expire unused are recognized at expiration.

Income recognition is generally suspended for structured finance investments 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 income and principal becomes doubtful.  Income recognition is resumed when the loan becomes contractually current and performance is demonstrated to be resumed.

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our tenants to make required rent 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.

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Reserve for Possible Credit Losses

The expense for possible credit losses in connection with structured finance investments is the charge to earnings to increase the allowance for possible credit losses to the level that we estimate to be adequate considering delinquencies, loss experience and collateral quality.  Other factors considered relate to geographic trends and product diversification, the size of the portfolio and current economic conditions.  Based upon these factors, we establish the provision for possible credit losses by category of asset.  When it is probable that we will be unable to collect all amounts contractually due, the account is considered impaired.

Where impairment is indicated, a valuation write-down or write-off is measured based upon the excess of the recorded investment amount over the net fair value of the collateral, as reduced by selling costs.  Any deficiency between the carrying amount of an asset and the net sales price of repossessed collateral is charged to the allowance for credit losses.  No reserve for impairment was required at December 31, 2004 or 2003.

Derivative Instruments

In the normal course of business, we use a variety of derivative instruments to manage, or hedge, interest rate risk.  We require that hedging derivative instruments be effective in reducing the interest rate risk exposure that they are designated to hedge.  This effectiveness is essential for qualifying 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, 2004 to the year ended December 31, 2003

The following comparison for the year ended December 31, 2004, or 2004, to the year ended December 31, 2003, or 2003, makes reference to the following:  (i) the effect of the “Same Store Properties,” which represents all properties owned by us at January 1, 2003 and at December 31, 2004 and totaled 15 of our 20 wholly-owned properties, represented approximately 61% of our annualized rental revenue, (ii) the effect of the “Acquisitions,” which represents all properties acquired in 2003, namely, 220 East 42^nd Street (February 2003), 125 Broad Street (March 2003) and 461 Fifth Avenue (October 2003) and in 2004, namely, 750 Third Avenue (July 2004) and 625 Madison Avenue (October 2004), and (iii) ”Other,” which represents corporate level items not allocable to specific properties and eEmerge.  Assets classified as held for sale in 2003, namely 50 West 23^rd Street, 1370 Broadway and 875 Bridgeport Avenue, Shelton, CT and in 2004, namely, 1466 Broadway and 17 Battery Place are excluded from the following discussion.  In 2005, 1414 Avenue of the Americas was classified as held for sale.  It was sold on April 12, 2005.  It has also been excluded from the following discussion.

Rental Revenues (in millions)	2004			2003		$ Change			% Change
Rental revenue	$	240.4		$	210.0	$	30.4		14.5	%
Escalation and reimbursement revenue	44.4			39.1		5.3			13.6
Total	$	284.8		$	249.1	$	35.7		14.3	%
Same Store Properties	$	202.4		$	196.4	$	6.0		3.1	%
Acquisitions	83.4			50.6		32.8			64.8
Other	(1.0		)	2.1		(3.1		)	(147.6	)
Total	$	284.8		$	249.1	$	35.7		14.3	%

Despite a decrease in weighted average occupancy in the Same Store Properties from 95.8% in 2003 to 95.2% in 2004, rental revenue in the Same Store Properties increased because new cash rents on previously occupied space by new tenants at Same Store Properties was 0.5% higher than the previously fully escalated rent (i.e., the latest annual rent paid on the same space by the old tenant).

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At December 31, 2004, we estimated that the current market rents on our wholly-owned properties were approximately 15.3% higher than then existing in-place fully escalated rents.  Approximately 15.9% of the space leased at wholly-owned properties expires during 2005.  This excludes approximately 440,000 square feet of in-place leases at 750 Third Avenue, which will remain in place after Teachers Insurance lease ends in December 2005.  We believe that occupancy rates at the Same Store Properties will increase to approximately 96% in 2005.

The increase in escalation and reimbursement revenue was primarily due to the recoveries at the Same Store Properties ($1.6 million) and the Acquisitions ($4.1 million).  This was offset by a decrease in Other entities ($0.4 million).  The increase in recoveries at the Same Store Properties was primarily due to real estate tax recoveries ($0.9 million) and operating expense recoveries ($0.3 million).  We recovered approximately 95% of our electric costs at our Same Store Properties during 2004.

Investment and Other Income (in millions)	2004		2003		$ Change		% Change
Equity in net income of unconsolidated joint ventures	$	44.0	$	14.9	$	29.1	195.3	%
Investment and preferred equity income	39.1		22.1		17.0		76.9
Other	19.9		10.5		9.4		89.5
Total	$	103.0	$	47.5	$	55.5	116.8	%

The increase in equity in net income of unconsolidated joint ventures was primarily due to our acquisition of a 45% interest in 1221 Avenue of the Americas in late December 2003 ($28.4 million).  This was partially offset by a reduction in our interest in One Park Avenue from 55% to 16.7% ($2.5 million).  Occupancy at our joint venture properties increased from 95.8% in 2003 to 96.9% in 2004.  At December 31, 2004, we estimated that current market rents at our joint venture properties were approximately 19.1% higher than then existing in-place fully escalated rents.  Approximately 15.4% of the space leased at our joint venture properties expires during 2005.

The increase in investment income from structured finance investments was primarily due to the weighted average investment balance outstanding and yield being $285.0 million and 10.5%, respectively, for 2004 compared to $135.8 million and 11.7%, respectively, for 2003.  In addition, we recognized a $4.2 million gain in 2004 offset by a $4.5 million gain in 2003 from a partial distribution from a joint venture, which owned a mortgage position in a portfolio of office and industrial properties.  The balance of the increase is primarily from the amortization of origination fees, the receipt of exit fees and accelerated origination fees due to the redemption of certain investments (approximately $3.7 million).

The increase in other income was primarily due to lease buy-out income ($0.8 million), fee income earned by GKK Manager, an affiliate of ours and the external manager of Gramercy Capital Corp., or Gramercy, (approximately $1.3 million) and fee income earned by the service corporation ($4.2 million), which was accounted for under the equity method prior to July 1, 2003.  In addition, we recognized an incentive distribution resulting from the sale of an interest in One Park ($4.3 million).  This was offset by a reduction in gains from the sale of non-real estate assets ($0.4 million) and asset management fees ($1.4 million).

Property Operating Expenses (in millions)	2004		2003		$ Change		% Change
Operating expenses (excluding electric)	$	65.3	$	54.6	$	10.7	19.6	%
Electric costs	19.2		17.6		1.6		9.1
Real estate taxes	48.0		39.8		8.2		20.6
Ground rent	16.2		13.6		2.6		19.1
Total	$	148.7	$	125.6	$	23.1	18.4	%
Same Store Properties	$	99.7	$	95.0	$	4.7	4.9	%
Acquisitions	39.1		24.5		14.6		59.6
Other	9.9		6.1		3.8		62.3
Total	$	148.7	$	125.6	$	23.1	18.4	%

Same Store Properties operating expenses, excluding real estate taxes ($2.6 million), increased approximately $2.0 million.  There were increases in payroll and cleaning costs ($0.9 million) and repairs, maintenance and security expenses ($1.3 million).  This was offset by reductions in advertising, insurance, professional and management costs ($0.1 million) and utility costs ($0.1 million).

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The increase in real estate taxes was primarily attributable to the Same Store Properties ($2.6 million) due to higher assessed property values and increased tax rates and the Acquisitions ($5.6 million).

Other Expenses (in millions)	2004		2003		$ Change		% Change
Interest expense	$	61.6	$	44.4	$	17.2	38.7	%
Depreciation and amortization expense	51.5		41.6		9.9		23.8
Marketing, general and administrative expenses	30.3		17.1		13.2		77.2
Total	$	143.4	$	103.1	$	40.3	39.1	%

The increase in interest expense was primarily attributable to costs associated with new investment activity and the funding of ongoing capital projects and working capital requirements.  The weighted average interest rate decreased from 5.66% for the year ended December 31, 2003 to 5.61% for the year ended December 31, 2004.  As a result of the new investment activity, the weighted average debt balance increased from $756.4 million as of December 31, 2003 to $1.1 billion as of December 31, 2004.

Marketing, general and administrative expenses increased primarily as a result of higher compensation costs including a one-time charge related to a restricted stock award, administrative and compensation costs associated with GKK Manager, and higher professional fees primarily due to implementation of the requirements of Section 404 of the Sarbanes-Oxley Act of 2002.  Marketing, general and administrative costs represented 8.7% of total revenues in 2004 compared to 6.0% in 2003.

Comparison of the year ended December 31, 2003 to the year ended December 31, 2002

The following comparison for the year ended December 31, 2003, or 2003, to the year ended December 31, 2002, or 2002, makes reference to the following:  (i) the effect of the “Same Store Properties,” which represented all properties owned by us at January 1, 2002 and at December 31, 2003 and totaled 15 of our 20 wholly-owned properties, representing approximately 75% of our annualized rental revenue, (ii) the effect of the “Acquisitions,” which represents all properties acquired in 2003, namely, 220 East 42^nd Street (February 2003), 125 Broad Street (March 2003) and 461 Fifth Avenue (October 2003), and (iii) ”Other,” which represents corporate level items not allocable to specific properties and eEmerge.  Assets classified as held for sale in 2003, namely 50 West 23^rd Street, 1370 Broadway and 875 Bridgeport Avenue, Shelton, CT. and in 2004, namely 1466 Broadway and 17 Battery Place, are excluded from the following discussion.  In 2005, 1414 Avenue of the Americas was classified as held for sale.  It has also been excluded from the following discussion.

Rental Revenues (in millions)	2003		2002			$ Change		% Change
Rental revenue	$	210.0	$	157.2		$	52.8	33.6	%
Escalation and reimbursement revenue	39.1		24.8			14.3		57.7
Total	$	249.1	$	182.0		$	67.1	36.9	%
Same Store Properties	$	196.4	$	182.5		$	13.9	7.6	%
Acquisitions	50.6		—			50.6		—
Other	2.1		(0.5		)	2.6		520.0
Total	$	249.1	$	182.0		$	67.1	36.9	%

Despite a decrease in occupancy in the Same Store Properties from 96.9% in 2002 to 95.8% in 2003, rental revenue in the Same Store Properties increased because new cash rents on previously occupied space by new tenants at Same Store Properties was 6.5% higher than the previously fully escalated rent (i.e., the latest annual rent paid on the same space by the old tenant).

At December 31, 2003, we estimated that the current market rents on our wholly-owned properties were approximately 1.0% higher than then existing in-place fully escalated rents.  Approximately 8.0% of the space leased at wholly-owned properties expires during 2004.  We believed that occupancy rates would remain relatively flat at the Same Store Properties in 2004.

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The increase in escalation and reimbursement revenue was primarily due to the recoveries at the Same Store Properties ($9.0 million) and the Acquisitions ($5.4 million).  The increase in recoveries at the Same Store Properties was due to real estate tax recoveries ($6.5 million), operating expense recoveries ($1.4 million) and electric recoveries ($1.1 million).  We recovered approximately 90% of our electric costs at our Same Store Properties during 2003.

Investment and Other Income (in millions)	2003		2002		$ Change			% Change
Equity in net income of unconsolidated joint ventures	$	14.9	$	18.4	$	(3.5	)	(19.0	)%
Investment and preferred equity income	22.1		23.2		(1.1		)	(4.7	)
Other	10.5		5.5		5.0			90.9
Total	$	47.5	$	47.1	$	0.4		0.9	%

The decrease in equity in net income of unconsolidated joint ventures was primarily due to lower occupancy levels in 2003 compared to 2002.  Occupancy at our joint venture properties decreased from 97.3% in 2002 to 95.8% in 2003.  At December 31, 2003, we estimated that current market rents at our joint venture properties would be approximately 14.4% higher than then existing in-place fully escalated rents.  Approximately 3.7% of the space leased at our joint venture properties was expected to expire during 2004.  Our acquisition of a 45% interest in 1221 Avenue of the Americas in late December 2003 was expected to significantly increase our equity in net income of unconsolidated joint ventures in 2004.

The decrease in investment income from structured finance investments primarily represents a decrease in preferred equity income ($3.7 million) as a result of the redemption of the preferred equity investment in 220 East 42^nd Street in March 2003.  This was partially offset by an increase in investment income from mezzanine transactions ($2.7 million).  The weighted average investment balance outstanding and yield were $135.8 million and 11.72%, respectively, for 2003 compared to $160.4 million and 13.1%, respectively, for 2002.

The increase in other income was primarily due to lease buyout income ($0.7 million) and gains from the sale of non-real estate assets ($1.1 million).  The balance represents fee income earned by the service corporation ($3.3 million), which was accounted for under the equity method prior to July 1, 2003.

Property Operating Expenses (in millions)	2003		2002		$ Change		% Change
Operating expenses (excluding electric)	$	54.6	$	35.1	$	19.5	55.6	%
Electric costs	17.6		13.4		4.2		31.3
Real estate taxes	39.8		24.5		15.3		62.4
Ground rent	13.6		12.6		1.0		7.9
Total	$	125.6	$	85.6	$	40.0	46.7	%
Same Store Properties	$	95.0	$	82.3	$	12.7	15.4	%
2003 Acquisitions	24.5		—		24.5		—
Other	6.1		3.3		2.8		84.9
Total	$	125.6	$	85.6	$	40.0	46.7	%

Same Store Properties operating expenses, excluding real estate taxes ($7.0 million), increased approximately $5.3 million.  There were increases in insurance premiums from policy renewals ($2.1 million), advertising, professional and management costs ($1.2 million), repairs, maintenance and security expenses ($0.4 million) and utility costs ($1.8 million).

The increase in electric costs was primarily due to higher electric usage in 2003 compared to 2002 as well as an increase in the square footage of wholly-owned properties.

The increase in real estate taxes was primarily attributable to the Same Store Properties ($7.0 million) due to higher assessed property values and increased tax rates and the Acquisitions ($8.3 million).

Other Expenses (in millions)	2003		2002		$ Change		% Change
Interest expense	$	44.4	$	34.3	$	10.1	29.4	%
Depreciation and amortization expense	41.6		32.4		9.2		28.4
Marketing, general and administrative expenses	17.1		13.3		3.8		28.6
Total	$	103.1	$	80.0	$	23.1	28.9	%

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The increase in interest expense was primarily attributable to costs associated with new investment activity ($15.1 million) and the funding of ongoing capital projects and working capital requirements ($0.3 million).  This was partially offset by reduced interest costs due to dispositions ($4.4 million) and floating rate debt ($0.5 million), due to the weighted average interest rate decreasing from 6.31% for the year ended December 31, 2002 to 5.66% for the year ended December 31, 2003.  As a result of the new investment activity, the weighted average debt balance increased from $555.6 million as of December 31, 2002 to $756.4 million as of December 31, 2003.

Marketing, general and administrative expenses increased primarily as a result of higher compensation awards.  Despite this, we have reduced our marketing, general and administrative costs to 6.0% of total revenues in 2003 compared to 6.2% in 2002.

Liquidity and Capital Resources

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 will include: (1) cash flow from operations; (2) borrowings under our secured and unsecured revolving credit facilities; (3) other forms of secured or unsecured financing; (4) proceeds from common or preferred equity or debt offerings by us or the Operating Partnership (including issuances of limited partnership units in the Operating Partnership); and (5) net proceeds from divestitures of properties and redemptions and participations of structured finance investments.  Cash flow from operations is primarily dependent upon the occupancy level of our portfolio, the net effective rental rates achieved on our leases, the collectibility 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 also continue to serve as a source of capital for acquisitions.  We believe that our sources of working capital, specifically our cash flow from operations and borrowings available under our unsecured and secured revolving credit facilities, and our ability to access private and public debt and equity capital, are adequate for us to meet our short-term and long-term liquidity requirements for the foreseeable future.  With the commencement of operations of Gramercy Capital Corp. (NYSE:GKK) in August 2004, there will be a reduced focus on direct structured finance investments made by us.

Cash Flows

2004 Compared to 2003

Net cash provided by operating activities increased $38.0 million to $116.3 million for the year ended December 31, 2004 compared to $78.3 million for the year ended December 31, 2003.  Operating cash flow was primarily generated by the Same Store Properties and Acquisitions, as well as the structured finance investments.

Net cash used in investing activities decreased $270.5 million to $220.9 million for the year ended December 31, 2004 compared to $491.4 million used during the year ended December 31, 2003.  The primary reason for the decrease was due to the net proceeds received upon the sales of 17 Battery Place North and 1466 Broadway in 2004 ($220.3 million) compared to the proceeds from the sales of 50 West 23^rd Street, 1370 Broadway and Shaws in 2003 ($119.1 million).  In addition, we had increased distributions from our joint ventures due to the refinancing of 1515 Broadway, 1250 Broadway and One Park as well as the sale of an interest in One Park ($193.1 million), which was offset by new joint venture investments, including 19 West 44^th Street, 485 Lexington Avenue and Gramercy Capital Corp. ($79.8 million). In comparison, during 2003, we purchased an interest in 1221 Avenue of the Americas of which our share of the cash invested was approximately $385.1 million and received distributions from our joint ventures ($36.5 million).  There was an increase in acquisitions and capital improvements in 2004 ($388.2 million and $31.3 million, respectively) as compared to 2003 ($81.2 million and $22.5 million, respectively).  This relates primarily to the acquisitions of 625 Madison Avenue and 750 Third Avenue in 2004 compared to the acquisitions of 220 East 42^nd Street and condominium interests in 125 Broad Street in 2003.  We made new structured finance investments, net of redemptions, totaling $132.9 million in 2004 compared to $126.7 million in 2003.

Net cash provided by financing activities decreased $291.8 million to $101.8 million for the year ended December 31, 2004 compared to $393.6 million used during the year ended December 31, 2003.  The decrease was primarily due to the receipt of proceeds from the January and August 2004 common stock offering (approximately $138.6 million) and the May and July 2004 preferred stock offerings ($96.3 million) which was offset by the December 2003 preferred stock offering ($152.5 million).  This was offset by net mortgage debt and credit facility borrowings (approximately $379.8 million).

2003 Compared to 2002

Net cash provided by operating activities decreased $23.6 million to $78.3 million for the year ended December 31, 2003 compared to $101.9 million for the year ended December 31, 2002.  Operating cash flow was primarily generated by the Same Store Properties and 2003 Acquisitions, as well as the structured finance investments, but was reduced by the decrease in operating cash flow from the properties sold in 2003.

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Net cash used in investing activities increased $439.1 million to $491.4 million for the year ended December 31, 2003 compared to $52.3 million for the year ended December 31, 2002.  The increase was due primarily to the purchase of 1221 Avenue of the Americas in 2003 of which our share of the cash invested was approximately $385.1 million.  This was offset by the receipt of net proceeds from the sale of 50 West 23^rd Street, 1370 Broadway and 875 Bridgeport Avenue, Shelton, CT ($119.1 million).  In addition, there was an increase in acquisitions and capital improvements in 2003 ($81.2 million and $22.5 million, respectively) as compared to 2002 (none and $26.7 million, respectively).  This relates primarily to the acquisitions of 220 East 42^nd Street, condominium interests in 125 Broad Street and 461 Fifth Avenue.  In addition, there were net originations of structured finance investments ($169.3 million) in 2003 compared to 2002.

Net cash provided by financing activities increased $398.4 million to $393.6 million for the year ended December 31, 2003 compared to $4.8 million of net cash used for the year ended December 31, 2002.  The increase was primarily due to new mortgage financings and draws under our credit facilities and term loans ($598.0 million) being greater than repayments ($346.9 million).  In addition we received net proceeds of $152.5 million from the sale of our 7.625% Series C cumulative redeemable preferred stock in 2003.

Capitalization

As of December 31, 2004, we had 40,875,989 shares of common stock, 2,530,942 units of limited partnership interest in our Operating Partnership, 6,300,000 shares of our 7.625% Series C cumulative redeemable preferred stock, or Series C preferred stock and 4,000,000 shares of our 7.875% Series D cumulative redeemable preferred stock, or Series D preferred stock, outstanding.

In August 2004, we sold 1,350,000 shares of our common stock.  The net proceeds from this offering (approximately $65.0 million) were used to pay down our unsecured revolving credit facility.

In April 2004, we issued 2,450,000 shares of our Series D preferred stock for cash.  The shares of Series D preferred stock have a liquidation preference of $25.00 per share and will be redeemable at par for cash at our option on or after May 27, 2009.  The net proceeds from this offering (approximately $59.0 million) were used principally to repay amounts outstanding under our secured and unsecured revolving credit facilities.  In July 2004, we issued an additional 1,550,000 shares of our Series D preferred stock, raising additional net proceeds of approximately $37.3 million.

In January 2004, we sold 1,800,000 shares of our common stock.  The net proceeds from this offering (approximately $73.6 million) were used to pay down our unsecured revolving credit facility.

On December 12, 2003, we sold 6,300,000 shares of our Series C preferred stock.  A portion of the net proceeds from this offering ($152.0 million) were used to pay down our secured and unsecured revolving credit facilities.

On September 30, 2003, we converted our 4,600,000 PIERS into 4,698,880 shares of our common stock.

We currently have the ability to issue up to an aggregate amount of approximately $334.5 million of our common and preferred stock, depository shares and warrants under our current shelf registration statement, which was declared effective in March 2004.

Rights Plan

We adopted a shareholder rights plan which provides, among other things, that when specified events occur, our common shareholders will be entitled to purchase from us a newly created series of junior preferred shares, subject to our ownership limit described below.  The preferred share purchase rights are triggered by the earlier to occur of (1) ten days after the date of a purchase announcement that a person or group acting in concert has acquired, or obtained the right to acquire, beneficial ownership of 17% or more of our outstanding shares of common stock or (2) ten business days after the commencement of or announcement of an intention to make a tender offer or exchange offer, the consummation of which would result in the acquiring person becoming the beneficial owner of 17% or more of our outstanding common stock.  The preferred share purchase rights would cause substantial dilution to a person or group that attempts to acquire us on terms not approved by our board of directors.

Dividend Reinvestment and Stock Purchase Plan

We filed a registration statement with the SEC for our dividend reinvestment and stock purchase plan, or DRIP, which was declared effective on September 10, 2001.  The DRIP commenced on September 24, 2001.  We registered 3,000,000 shares of common stock under the DRIP.

During the years ended December 31, 2004 and 2003, we issued 194,863 and 68,453 common shares and received approximately $8.9 million and $2.5 million of proceeds from dividend reinvestments and/or stock purchases under the DRIP, respectively.  DRIP shares may be issued at a discount to the market price.

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2003 Long-Term Outperformance Compensation Program

Our board of directors has adopted a long-term, seven-year compensation program for certain members of senior management.  The program, which measures our performance over a 48-month period (unless terminated earlier) commencing April 1, 2003, provides that holders of our common equity are to achieve a 40% total return, or baseline return, during the measurement period over a base share price of $30.07 per share before any restricted stock awards are granted.  Plan participants will receive an award of restricted stock in an amount between 8% and 10% of the excess total return over the baseline return.  At the end of the four-year measurement period, 40% of the award will vest on the measurement date and 60% of the award will vest ratably over the subsequent three years based on continued employment.  Any restricted stock to be issued under the program will be allocated from our 1997 Stock Option and Incentive Plan, as amended, which was previously approved through a shareholder vote in May 2002.  We will record the expense of the restricted stock award in accordance with Financial Accounting Standards Board, or FASB, Statement No. 123, “Accounting for Stock-Based Compensation”.  The fair value of the award on the date of grant was determined to be $3.2 million.  Forty percent of the award will be amortized over four years and the balance will be amortized at 20% per year over five, six and seven years, respectively, such that 20% of year five, 16.67% of year six and 14.29% of year seven will be recorded in year one.  The total value of the award (capped at $25.5 million) will determine the number of shares assumed to be issued for purposes of calculating diluted earnings per share.  Compensation expense of $0.65 million and $0.5 million related to this plan was recorded during the years ended December 31, 2004 and 2003, respectively.

Deferred Stock Compensation Plan for Directors

Under our Independent Director’s Deferral Program, which commenced July 2004, our non-employee directors may elect to defer up to 100% of their annual retainer fee, chairman fees and meeting fees.  Unless otherwise elected by a participant, fees deferred under the program shall be credited in the form of phantom stock units.  The phantom stock units are convertible into an equal number of shares of common stock upon such directors’ termination of service from the Board of Directors or a change in control by us, as defined by the program.  Phantom stock units are credited to each non-employee director quarterly using the closing price of our common stock on the applicable dividend record date for the respective quarter.  Each participating non-employee director’s account is also credited for an equivalent amount of phantom stock units based on the dividend rate for each quarter.

During the six months ended December 31, 2004, 1,000 phantom stock units were earned.  As of December 31, 2004, there were approximately 1,000 phantom stock units outstanding.

Market Capitalization

At December 31, 2004, borrowings under our mortgage loans, secured and unsecured revolving credit facilities and term loans (excluding our share of joint venture debt of $565.2 million) represented 28.5% of our consolidated market capitalization of $4.0 billion (based on a common stock price of $60.55 per share, the closing price of our common stock on the New York Stock Exchange on December 31, 2004).  Market capitalization includes our consolidated debt, common and preferred stock and the conversion of all units of limited partnership interest in our Operating Partnership, but excludes our share of joint venture debt.

Indebtedness

The table below summarizes our consolidated mortgage debt, secured and unsecured revolving credit facilities and term loans outstanding at December 31, 2004 and 2003, respectively (in thousands).

	December 31,
Debt Summary:	2004			2003
Balance
Fixed rate	$	614,476		$	515,871
Variable rate — hedged	425,000			270,000
Total fixed rate	1,039,476			785,871
Variable rate	—			267,578
Variable rate—supporting variable rate assets	110,900			66,000
Total variable rate	110,900			333,578
Total	$	1,150,376		$	1,119,449
Percent of Total Debt:
Total fixed rate	90.36		%	70.20		%
Variable rate	9.64		%	29.80		%
Total	100.00		%	100.00		%
Effective Interest Rate for the Year:
Fixed rate	6.12		%	6.77		%
Variable rate	2.86		%	2.85		%
Effective interest rate	5.61		%	5.66		%

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The variable rate debt shown above bears interest at an interest rate based on LIBOR (2.40% and 1.12% at December 31, 2004 and 2003, respectively).  Our consolidated debt at December 31, 2004 had a weighted average term to maturity of approximately 5.6 years.

As of December 31, 2004, we had ten structured finance investments collateralizing our secured revolving credit facility.

Certain of our structured finance investments, totaling $138.3 million, are variable rate investments which mitigate our exposure to interest rate changes on our unhedged variable rate debt.

Mortgage Financing

As of December 31, 2004, our total mortgage debt (excluding our share of joint venture debt of approximately $565.2 million) consisted of approximately $614.5 million of fixed rate debt, including hedged variable rate debt, with an effective weighted average interest rate of approximately 6.76% and no unhedged variable rate debt.

Revolving Credit Facilities

Unsecured Revolving Credit Facility

We currently have a $300.0 million unsecured revolving credit facility, which matures in March 2006.  This unsecured revolving credit facility has an automatic one-year extension option provided that there are no events of default under the loan agreement.  In September 2004, this unsecured revolving credit facility was modified to reduce interest rate spreads by between 25 basis points and 35 basis points and currently carries a spread of 120 basis points over the 30-day LIBOR.  At December 31, 2004, nothing was outstanding under this unsecured revolving credit facility.  Availability under this unsecured revolving credit facility at December 31, 2004 was reduced by the issuance of letters of credit in the amount of $4.0 million.

Secured Revolving Credit Facilities

In March 2004, we increased our $75.0 million secured revolving credit facility to $125.0 million and extended the maturity date to December 2006.  This secured revolving credit facility is secured by various structured finance investments.  In September 2004, this secured revolving credit facility was modified to reduce interest rate spreads by between 25 basis points and 35 basis points and currently carries a spread of 120 basis points over the 30-day LIBOR.  At December 31, 2004, $92.0 million was outstanding under this secured revolving credit facility and carried an effective all-in annual weighted average interest rate of 4.13%.

In connection with a structured finance transaction, which closed in June 2004, we entered into a secured term loan for $18.9 million.  This loan, which matured in January 2005, carried an interest rate of 200 basis points over the one-month LIBOR (effective all-in rate of 3.77% for the year ended December 31, 2004).  This loan was repaid in January 2005.

Term Loans

In December 2002, we obtained a $150.0 million unsecured term loan.  Effective June 2003, this unsecured term loan was increased to $200.0 million and the term was extended by six months to June 2008.  In August 2004, the unsecured term loan was increased to $325.0 million and the maturity date was further extended to August 2009.  As part of the amendment, the interest rate spreads were reduced by between 25 basis points and 30 basis points.  As of December 31, 2004, we had $325.0 million outstanding under the unsecured term loan at the rate of 125 basis points over LIBOR.  To limit our exposure to the variable LIBOR rate we entered into various swap agreements to fix the LIBOR rate on the entire unsecured term loan.  The effective all-in annual weighted average interest rate on the unsecured term loan was 4.96% for 2004.

In December 2003, we entered into an unsecured non-recourse term loan for $67.6 million and repaid the mortgage on 555 West 57^th Street.  The terms of this loan were the same as those on the 555 West 57^th Street mortgage. As a result, this loan, which was to mature in November 2004, carried an effective interest rate of 8.10%.  This loan was repaid on April 30, 2004.

In December 2003, we closed on a $100.0 million five-year non-recourse term loan, secured by a pledge of our ownership interest in 1221 Avenue of the Americas.  This term loan has a floating rate of 150 basis points over the current LIBOR rate and carried an effective all-in annual weighted average interest rate of 3.54%.  During April 2004, we entered into a swap agreement to fix the LIBOR at a blended all-in interest rate of 5.10% through December 2008.

Restrictive Covenants

The terms of our unsecured and secured revolving credit facilities and term loans include certain restrictions and covenants which limit, among other things, the payment of dividends (as discussed below), the incurrence of additional indebtedness, the incurrence of liens and the disposition of assets, and which require compliance with financial ratios relating to the minimum amount of tangible net worth, the minimum amount of debt service coverage, the minimum amount of fixed charge coverage, the maximum amount of unsecured indebtedness, the minimum amount of unencumbered property debt service coverage and certain investment limitations.

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The dividend restriction referred to above provides that, except to enable us to continue to qualify as a REIT for Federal income tax purposes, we will not during any four consecutive fiscal quarters make distributions with respect to common stock or other equity interests in an aggregate amount in excess of 90% of funds from operations for such period, subject to certain other adjustments.  As of December 31, 2004 and 2003, we were in compliance with all such covenants.

Market Rate Risk

We are exposed to changes in interest rates primarily from our floating rate borrowing arrangements.  We use interest rate derivative instruments to manage exposure to interest rate changes.  A hypothetical 100 basis point increase in interest rates along the entire interest rate curve for 2004 and 2003, would increase our annual interest cost by approximately $1.1 million and $3.4 million and would increase our share of joint venture annual interest cost by approximately $2.8 million and $2.3 million, respectively.

We recognize all derivatives on the balance sheet at fair value.  Derivatives that are not hedges must be adjusted to fair value through income.  If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the 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.

Approximately $1.0 billion of our long-term debt bears interest at fixed rates, and therefore the fair value of these instruments is affected by changes in the market interest rates.  The interest rate on our variable rate debt and joint venture debt as of December 31, 2004 ranged from LIBOR plus 90 basis points to LIBOR plus 286 basis points.

Contractual Obligations

Combined aggregate principal maturities of mortgages and notes payable, revolving credit facilities, term loan, our share of joint venture debt, excluding extension options, estimated interest expense, and our obligations under our capital lease and ground leases, as of December 31, 2004 are as follows:

	Property Mortgages		Revolving Credit Facilities		Term Loans		Capital Lease		Ground Leases		Estimated Interest Expense		Total		Joint Venture Debt
2005	$	51,405	$	18,900	$	—	$	1,322	$	18,381	$	62,427	$	152,435	$	17,240
2006	4,388		92,000		—		1,416		17,488		58,306		173,598		376,728
2007	83,012		—		1,324		1,416		16,594		53,275		155,621		53,723
2008	9,857		—		98,676		1,416		16,594		47,677		174,220		21,923
2009	33,031		—		325,000		1,416		16,594		36,339		412,380		779
Thereafter	432,783		—		—		53,320		329,971		75,953		892,027		94,817
	$	614,476	$	110,900	$	425,000	$	60,306	$	415,622	$	333,977	$	1,960,281	$	565,210

Off-Balance Sheet Arrangements

We have a number of off-balance sheet investments, including joint ventures and structured finance 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, “Structured Finance Investments” and Note 6, “Investments in Unconsolidated Joint Ventures” in the accompanying financial statements.  Additional information about the debt of our unconsolidated joint ventures is included in “Contractual Obligations” above.

Capital Expenditures

We estimate that for the year ending December 31, 2005, we will incur approximately $60.0 million of capital expenditures (including tenant improvements and leasing commissions) on existing wholly-owned properties and our share of capital expenditures at our joint venture properties will be approximately $23.4 million.  Of those total capital expenditures, approximately $6.8 million for wholly-owned properties and $7.8 million for our share of capital expenditures at our joint venture properties are dedicated to redevelopment costs, including compliance with New York City local law 11.  We expect to fund these capital expenditures with operating cash flow, borrowings under our credit facilities, additional property level mortgage financings, and cash on hand.  Future property acquisitions may require substantial capital investments for refurbishment and leasing costs.  We expect that these financing requirements will be met in a similar fashion.  We believe that we will have sufficient resources to satisfy our capital needs during the next 12-month period.  Thereafter, we expect that our capital needs will be met through a combination of net cash provided by operations, borrowings, potential asset sales or additional equity or debt issuances.

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Dividends

We expect to pay dividends to our stockholders based on the distributions we receive from the Operating Partnership primarily from property revenues net of operating expenses or, if necessary, from working capital or borrowings.

To maintain our qualification as a REIT, we must pay annual dividends to our stockholders of at least 90% of our REIT taxable income, determined before taking into consideration the dividends paid deduction and net capital gains.  We intend to continue to pay regular quarterly dividends to our stockholders.  Based on our current annual dividend rate of $2.16 per share, we would pay approximately $89.8 million in dividends to our common stockholders.  Before we pay any dividend, whether for Federal income tax purposes or otherwise, which would only be paid out of available cash to the extent permitted under our unsecured and secured credit facilities, and our unsecured term loan, we must first meet both our operating requirements and scheduled debt service on our mortgages and loans payable.

Related Party Transactions

Cleaning Services

First Quality Maintenance, L.P., or First Quality, provides cleaning, extermination and related services with respect to certain of the properties owned by us.  First Quality is owned by Gary Green, a son of Stephen L. Green, our chairman of the Board and former chief executive officer.  First Quality also provides additional services directly to tenants on a separately negotiated basis.  The aggregate amount of fees paid by us to First Quality for services provided (excluding services provided directly to tenants) was approximately $4.6 million in 2004, $4.3 million in 2003 and $3.4 million in 2002.  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.  First Quality leases 12,290 square feet of space at 70 West 36th Street pursuant to a lease that expires on December 31, 2012 and provides for annual rental payments of approximately $323,000.

Security Services

Classic Security LLC, or Classic Security, provides security services with respect to certain properties owned by us.  Classic Security is owned by Gary Green, a son of Stephen L. Green.  The aggregate amount of fees paid by us for such services was approximately $4.1 million in 2004, $3.7 million in 2003 and $3.2 million in 2002.

Messenger Services

Bright Star Couriers LLC, or Bright Star, provides messenger services with respect to certain properties owned by us.  Bright Star is owned by Gary Green, a son of Stephen L. Green.  The aggregate amount of fees paid by us for such services was approximately $203,000 in 2004, $145,000 in 2003 and $87,000 in 2002.

Leases

Nancy Peck and Company leases 2,013 square feet of space at 420 Lexington Avenue, New York, New York pursuant to a lease that expires on June 30, 2005 and provides for annual rental payments of approximately $65,000.  Nancy Peck and Company is owned by Nancy Peck, the wife of Stephen L. Green.  The rent due under the lease is offset against a consulting fee, of $10,000 per month; an affiliate pays to her under a consulting agreement, which is cancelable upon 30-days notice.

Management Fees

S.L. Green Management Corp. receives property management fees from certain entities in which Stephen L. Green owns an interest.  The aggregate amount of fees paid to S.L. Green Management Corp. from such entities was approximately $258,000 in 2004, $237,000 in 2003 and $242,000 in 2002.

Management Indebtedness

In January 2001, Mr. Marc Holliday, then our president, received a non-recourse loan from us in the principal amount of $1,000,000 pursuant to his amended and restated employment and non-competition agreement he executed at that time.  This loan bears interest at the applicable federal rate per annum and is secured by a pledge of certain of Mr. Holliday’s shares of our common stock.  The principal of and interest on this loan is forgivable upon our attainment of specified financial performance goals prior to December 31, 2006, provided that Mr. Holliday remains employed by us until January 2007.  In April 2000, Mr. Holliday received a loan from us in the principal amount of $300,000, with a maturity date of July 2003.  This loan bears interest at a rate of 6.60% per annum and is secured by a pledge of certain of Mr. Holliday’s shares of our common stock.  In May 2002, Mr. Holliday entered into a loan modification agreement with us in order to modify the repayment terms of the $300,000 loan.  Pursuant to the agreement, $100,000

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(plus accrued interest thereon) is forgivable on each of January 1, 2004, January 1, 2005 and January 1, 2006, provided that Mr. Holliday remains employed by us through each of such date.  The balance outstanding on this loan, including accrued interest, was $200,000 on December 31, 2004.  In addition, the $300,000 loan shall be forgiven if and when the $1,000,000 loan that Mr. Holliday received pursuant to his amended and restated employment and non-competition agreement is forgiven.

Brokerage Services

Sonnenblick-Goldman Company, a nationally recognized real estate investment banking firm, provided mortgage brokerage services with respect to securing approximately $80.0 million of first mortgage financing in 2003.  Mr. Morton Holliday, the father of Mr. Marc Holliday, was a Managing Director of Sonnenblick at the time of the financing.  The fees paid by us to Sonnenblick for such services was approximately $400,000 in 2003.  In 2003, we also paid $623,000 to Sonnenblick in connection with the acquisition of 461 Fifth Avenue.  In 2004, our 1515 Broadway joint venture paid approximately $885,000 to Sonnenblick in connection with securing a $425.0 million first mortgage for the property.

Gramercy Capital Corp.

Our related party transactions with Gramercy are discussed in Note 13, “Related Party Transactions” in the accompanying financial statements.

Other

Insurance

We carry comprehensive all risk (fire, flood, extended coverage and rental loss insurance) and liability insurance with respect to our property portfolio.  This policy has a limit of $350 million of terrorism coverage for the properties in our portfolio and expires in October 2005.  1515 Broadway has stand-alone insurance coverage, which provides for full all risk coverage, but has a limit of $425 million in terrorism coverage.  This policy will expire in October 2005.  We also have a separate policy for 1221 Avenue of the Americas in which we participate with the Rockefeller Group Inc. in a blanket policy providing $1.4 billion of all risk property insurance along with $1.0 billion of insurance for terrorism.  While we believe our insurance coverage is appropriate, in the event of a major catastrophe resulting from an act of terrorism, we may not have sufficient coverage to replace a significant property.  We do not know if sufficient insurance coverage will be available when the current policies expire, nor do we know the costs for obtaining renewal policies containing terms similar to our current policies.  In addition, our policies may not cover properties that we may acquire in the future, and additional insurance may need to be obtained prior to October 2005.

Our debt instruments, consisting of mortgage loans secured by our properties (which are generally non-recourse to us), mezzanine loans, ground leases and our secured and unsecured revolving credit facilities and unsecured term loans, contain customary covenants requiring us to maintain insurance.  There can be no assurance that the lenders or ground lessors under these instruments will not take the position that a total or partial exclusion from all risk insurance coverage for losses due to terrorist acts is a breach of these debt and ground lease instruments that allows the lenders or ground lessors to declare an event of default and accelerate repayment of debt or recapture of ground lease positions.  In addition, if lenders insist on full coverage for these risks, it would adversely affect our ability to finance and/or refinance our properties and to expand our portfolio or result in substantially higher insurance premiums.

Funds from Operations

Funds from Operations, or FFO, is a widely recognized measure of REIT performance.  We compute FFO in accordance with standards established by the National Association of Real Estate Investment Trusts, or NAREIT, which may not be comparable to FFO reported by other REITs that do not compute FFO in accordance with the NAREIT definition, or that interpret the NAREIT definition differently than we do.  The revised White Paper on FFO approved by the Board of Governors of NAREIT in April 2002 defines FFO as net income (loss) (computed in accordance with Generally Accepted Accounting Principles, or GAAP), excluding gains (or losses) from debt restructuring and sales of properties, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures.  We present FFO because we consider it an important supplemental measure of our operating performance and believe that it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, particularly those that own and operate commercial office properties.  We also use FFO as one of several criteria to determine performance-based bonuses for members of our senior management.  FFO is intended to exclude GAAP historical cost depreciation and amortization of real estate and related assets, which assumes that the value of real estate assets diminishes ratably over time.  Historically, however, real estate values have risen or fallen with market conditions.  Because FFO excludes depreciation and amortization unique to real estate, gains and losses from property dispositions and extraordinary items, it provides a performance measure that, when compared year over year, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, interest costs, providing perspective not immediately apparent from net income.  FFO does not represent

15

cash generated from operating activities in accordance with GAAP and should not be considered as an alternative to net income (determined in accordance with GAAP), as an indication of our financial performance or to cash flow from operating activities (determined in accordance with GAAP) as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make cash distributions.

FFO for the years ended December 31, 2004, 2003 and 2002 are as follows (in thousands):

	Year Ended December 31,
	2004			2003			2002
Net income available to common shareholders	$	193,172		$	90,447		$	64,641
Add:
Depreciation and amortization	51,495			41,628			32,400
Minority interest	5,630			4,038			3,708
FFO from discontinued operations	11,642			17,456			22,524
FFO adjustment for unconsolidated joint ventures	23,817			13,982			11,025
Accretion of convertible preferred shares	—			394			490
Less:
Income from discontinued operations	(7,017		)	(10,320		)	(14,297		)
Gain on sale of discontinued operations	(90,370		)	(21,327		)	—
Gain on sale of joint venture property	(22,012		)	(3,087		)	—
Amortization of deferred financing costs and depreciation on non-rental real estate assets	(3,980		)	(4,431		)	(4,261		)
Funds from Operations - available to common shareholders	162,377			128,780			116,230
Dividends on convertible preferred shares	—			6,693			9,200
Funds from Operations - available to all shareholders	$	162,377		$	135,473		$	125,430
Cash flows provided by operating activities	$	116,264		$	78,250		$	101,948
Cash flows used in investing activities	$	(220,851	)	$	(491,369	)	$	(52,328	)
Cash flows provided by (used in) financing activities	$	101,836		$	393,645		$	(4,793	)

Inflation

Substantially all of the 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 may be at least partially offset by the contractual rent increases and expense escalations described above.

Forward-Looking Information

This report includes certain statements that may be deemed to be “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act.  Such forward-looking statements relate to, without limitation, our future capital expenditures, dividends and acquisitions (including the amount and nature thereof) and other development trends of the real estate industry and the Manhattan office market, business strategies, and the expansion and growth of our operations.  These 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.  We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Act and Section 21E of the Exchange Act.  Such statements are subject to a number of assumptions, risks and uncertainties which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by these forward-looking 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.  Readers are cautioned not to place undue reliance on these forward-looking statements.  Among the factors about which we have made assumptions are:

•general economic or business (particularly real estate) conditions, either nationally or in New York City, being less favorable than expected;

•reduced demand for office space;

•risks of real estate acquisitions;

•risks of structured finance investments;

•availability and creditworthiness of prospective tenants;

16

•adverse changes in the real estate markets, including increasing vacancy, decreasing rental revenue and increasing insurance costs;

•availability of capital (debt and equity);

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

•market interest rates could adversely affect the market price of our common stock, as well as our performance and cash flows;

•our ability to satisfy complex rules in order for us to qualify as a REIT, for federal income tax purposes, our Operating Partnership’s ability to satisfy the rules in order for it to qualify as a partnership for federal income tax purposes, the ability of certain of our subsidiaries to qualify as REITs and certain of our subsidiaries to qualify as taxable REIT subsidiaries for federal income tax purposes and our ability and the ability of our subsidiaries to operate effectively within the limitations imposed by these rules;

•accounting principles and policies and guidelines applicable to REITs;

•competition with other companies;

•the continuing threat of terrorist attacks on the national, regional and local economies including, in particular, the New York City area and our tenants;

•legislative or regulatory changes adversely affecting real estate investment trusts and the real estate business; and

•environmental, regulatory and/or safety requirements.

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of future events, new information or otherwise.

The risks included here are not exhaustive.  Other sections of this report may include additional factors that could adversely affect the Company’s business and financial performance.  Moreover, the Company operates in a very competitive and rapidly changing environment.  New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on the Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.  Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

17

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 principal cash flows based upon maturity dates of our debt obligations and mortgage receivables and the related weighted-average interest rates by expected maturity dates as of December 31, 2004 (in thousands):

			Long-Term Debt						Mortgage Receivables
Date	Fixed Rate		Average Interest Rate		Variable Rate		Average Interest Rate		Amount		Weighted Yield
2005	$	51,405	5.77	%	$	18,900	3.22	%	$	26,045	13.32	%
2006	4,388		5.76	%	92,000		3.20	%	112,278		8.38	%
2007	84,336		5.75	%	—		—	%	—		—	%
2008	108,533		5.92	%	—		—	%	—		—	%
2009	358,031		6.29	%	—		—	%	211,704		10.68	%
Thereafter	432,783		5.81	%	—		—	%	—		—	%
Total	$	1,039,476	5.85	%	$	110,900	3.21	%	$	350,027	10.05	%
Fair Value	$	1,051,262			$	110,900			$	350,027

The table below presents the gross principal cash flows based upon maturity dates of our share of our joint venture debt obligations and the related weighted-average interest rates by expected maturity dates as of December 31, 2004 (in thousands):

	Long Term Debt
Date	Fixed Rate		Average Interest Rate		Variable Rate		Average Interest Rate
2005	$	914	5.63	%	$	16,326	3.48	%
2006 (1)	147,728		5.63	%	229,000		3.40	%
2007	1,048		6.30	%	52,675		4.04	%
2008	21,923		6.30	%	—		—	%
2009	779		6.50	%	—		—	%
Thereafter	94,817		5.94	%	—		—	%
Total	$	267,209	6.00	%	$	298,001	3.51	%
Fair Value	$	270,842			$	298,001

(1)Included in this item is $297,000 based on the contractual maturity dates of the debt on 1515 Broadway and 1250 Broadway. These loans have three one-year as-of-right extension options.

The table below lists all of our derivative instruments, which are hedging variable rate debt, including joint ventures, and their related fair value as of December 31, 2004 (in thousands):

	Asset Hedged	Benchmark Rate	Notional Value		Strike Rate		Effective Date	Expiration Date	Fair Value
Interest Rate Swap	Term loan	LIBOR	$	65,000	4.010	%	11/2001	8/2005	(501		)
Interest Rate Swap	Term loan	LIBOR	—		3.300	%	8/2005	9/2006	146
Interest Rate Swap	Term loan	LIBOR	—		4.330	%	9/2006	6/2008	(315		)
Interest Rate Swap	Term loan	LIBOR	100,000		4.060	%	12/2003	12/2007	(1,468		)
Interest Rate Swap	Term loan	LIBOR	35,000		4.113	%	12/2004	6/2008	(547		)
Interest Rate Swap	Term loan	LIBOR	100,000		2.330	%	4/2004	5/2006	1,057
Interest Rate Swap	Term loan	LIBOR	—		4.650	%	5/2006	12/2008	(1,435		)
Interest Rate Swap	Term loan	LIBOR	125,000		2.710	%	9/2004	9/2006	1,091
Interest Rate Swap	Term loan	LIBOR	—		4.352	%	9/2006	8/2009	(450		)
Interest Rate Swap (1)	—	LIBOR	94,000		4.463	%	12/2004	12/2014	1,075
Total Consolidated Hedges			$	519,000					$	(1,347	)
Interest Rate Swap (2)	1250 Broadway	LIBOR	$	46,750	4.038	%	11/2001	1/2005	$	(21	)
Interest Rate Swap (2)	1515 Broadway	LIBOR	100,000		1.855	%	6/2004	6/2005	369
Total Joint Venture Hedges			$	146,750					$	348

In addition to these derivative instruments, our joint venture loan agreements require the joint ventures to purchase interest rate caps on their debt.  All these interest rate caps were out of the money and had no value at December 31, 2004.

(1)This hedge has been established in contemplation of a 10-year mortgage refinancing.

(2)This represents a hedge on a portion of our share of the unconsolidated joint venture debt.

18

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Financial Statements and Schedules

SL GREEN REALTY CORP.

Notes to Consolidated Financial Statements

Schedules

Schedule III Real Estate and Accumulated Depreciation as of December 31, 2004

All other schedules are omitted because they are not required or the required information is shown in the financial statements or notes thereto.

19

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of SL Green Realty Corp.

We have audited the accompanying consolidated balance sheets of SL Green Realty Corp. as of December 31, 2004 and 2003, and the related consolidated statements of income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2004.  Our audits also included the financial statement schedule listed in the Index as Item 8.  These financial statements and schedule are the responsibility of SL Green Realty Corp.’s management.  Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of SL Green Realty Corp. at December 31, 2004 and 2003, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.  Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of SL Green Realty Corp.’s internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 3, 2005 expressed an unqualified opinion thereon.

	/s/ Ernst & Young LLP
New York, New York
March 3, 2005, except for Note 24 as to which the date is April 12, 2005

20

SL Green Realty Corp.

Consolidated Balance Sheets

(Amounts in thousands, except per share data)

	December 31,
	2004			2003
Assets
Commercial real estate properties, at cost:
Land and land interests	$	206,824		$	168,032
Building and improvements	1,065,654			849,013
Building leasehold and improvements	471,418			317,178
Property under capital lease	12,208			12,208
	1,756,104			1,346,431
Less: accumulated depreciation	(176,238		)	(156,768		)
	1,579,866			1,189,663
Cash and cash equivalents	35,795			38,546
Restricted cash	56,417			59,542
Tenant and other receivables, net of allowance of $8,921 and $7,533 in 2004 and 2003, respectively	15,248			14,533
Related party receivables	5,027			5,242
Deferred rents receivable, net of allowance of $6,541 and $7,017 in 2004 and 2003, respectively	61,302			63,131
Structured finance investments, net of discount of $1,895 and $44 in 2004 and 2003, respectively	350,027			218,989
Investments in unconsolidated joint ventures	557,089			590,064
Deferred costs, net	47,869			39,277
Other assets	43,241			42,854
Total assets	$	2,751,881		$	2,261,841
Liabilities and Stockholders’ Equity
Mortgage notes payable	$	614,476		$	515,871
Revolving credit facilities	110,900			236,000
Term loans	425,000			367,578
Derivative instruments at fair value	1,347			9,009
Accrued interest payable	4,494			3,500
Accounts payable and accrued expenses	72,298			43,835
Deferred revenue/gain	18,648			8,526
Capitalized lease obligation	16,442			16,168
Deferred land leases payable	15,723			15,166
Dividend and distributions payable	27,553			18,647
Security deposits	22,056			21,968
Total liabilities	1,328,937			1,256,268
Commitments and Contingencies
Minority interest in Operating Partnership	74,555			54,281
Minority interest in partially-owned entities	509			510
Stockholders’ Equity
Series C preferred stock, $0.01 par value, $25.00 liquidation preference, 6,300 issued and outstanding at December 31, 2004 and 2003, respectively	151,981			151,981
Series D preferred stock, $0.01 par value, $25.00 liquidation preference, 4,000 and none issued and outstanding at December 31, 2004 and 2003, respectively	96,321			—
Common stock, $0.01 par value 100,000 shares authorized and 40,876 and 36,016 issued and outstanding at December 31, 2004 and 2003, respectively	409			360
Additional paid-in-capital	917,613			728,882
Deferred compensation plans	(15,273		)	(8,446		)
Accumulated other comprehensive income (loss)	5,647			(961		)
Retained earnings	191,182			78,966
Total stockholders’ equity	1,347,880			950,782
Total liabilities and stockholders’ equity	$	2,751,881		$	2,261,841

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

21

SL Green Realty Corp.

Consolidated Statements Of Income

(Amounts in thousands, except per share data)

	Year Ended December 31,
	2004			2003			2002
Revenues
Rental revenue, net	$	240,350		$	209,984		$	157,189
Escalation and reimbursement	44,391			39,144			24,843
Investment income	28,232			17,988			15,396
Preferred equity income	10,862			4,098			7,780
Other income	19,883			10,456			5,520
Total revenues	343,718			281,670			210,728
Expenses
Operating expenses including $8,956 (2004), $8,081 (2003) and $6,745 (2002) to affiliates	84,475			72,246			48,482
Real estate taxes	48,030			39,832			24,539
Ground rent	16,179			13,562			12,637
Interest	61,636			44,404			34,321
Depreciation and amortization	51,495			41,628			32,400
Marketing, general and administrative	30,279			17,131			13,282
Total expenses	292,094			228,803			165,661
Income from continuing operations before equity in net (loss) income from affiliates, equity in net income of unconsolidated joint ventures, minority interest, and discontinued operations	51,624			52,867			45,067
Equity in net (loss) income from affiliates	—			(196		)	292
Equity in net income of unconsolidated joint ventures	44,037			14,871			18,383
Income from continuing operations before gain on sale, minority interest, and discontinued operations	95,661			67,542			63,742
Equity in net gain on sale of interest in unconsolidated joint venture	22,012			3,087			—
Minority interest in partially-owned entities	—			(79		)	—
Minority interest in Operating Partnership attributable to continuing operations	(5,630		)	(4,038		)	(3,708		)
Income from continuing operations	112,043			66,512			60,034
Net income from discontinued operations, net of minority interest	7,017			10,320			14,297
Gain on sale of discontinued operations, net of minority interest	90,370			21,327			—
Net income	209,430			98,159			74,331
Preferred stock dividends	(16,258		)	(7,318		)	(9,200		)
Preferred stock accretion	—			(394		)	(490		)
Net income available to common shareholders	$	193,172		$	90,447		$	64,641
Basic earnings per share:
Net income from continuing operations before gain on sale and discontinued operations	$	1.88		$	1.73		$	1.67
Net income from discontinued operations	0.18			0.32			0.47
Gain on sale of discontinued operations	2.31			0.66			—
Gain on sale of joint venture property	0.56			0.09			—
Net income available to common shareholders	$	4.93		$	2.80		$	2.14
Diluted earnings per share:
Net income from continuing operations before gain on sale and discontinued operations	$	1.85		$	1.71		$	1.69
Net income from discontinued operations	0.17			0.28			0.40
Gain on sale of discontinued operations	2.22			0.59			—
Gain on sale of joint venture property	0.51			0.08			—
Net income available to common shareholders	$	4.75		$	2.66		$	2.09
Basic weighted average common shares outstanding	39,171			32,265			30,236
Diluted weighted average common shares and common share equivalents outstanding	43,078			38,970			37,786

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

22

SL Green Realty Corp.

Consolidated Statements of Stockholders’ Equity

(Amounts in thousands, except per share data)

	Series C		Series D		Common Stock				Additional			Deferred			Accumulated Other
	Preferred Stock		Preferred Stock		Shares		Par Value		Paid- In-Capital			Compensation Plans			Comprehensive Loss			Retained Earnings			Total			Comprehensive Income
Balance at December 31, 2001	$	—	$	—	29,978		$	300	$	583,350		$	(7,515	)	$	(2,911	)	$	39,684		$	612,908		$	61,010
Comprehensive Income:
Net income																		74,331			74,331			$	74,331
Net unrealized loss on derivative instruments															(7,829		)				(7,829		)	(7,829		)
SL Green’s share of joint venture net unrealized loss on derivative instruments																								(3,434		)
Preferred dividends & accretion requirement																		(9,690		)	(9,690		)
Redemption of units					155		1		3,128												3,129
Deferred compensation plan & stock award, net					(33	)			(537		)	534									(3		)
Amortization of deferred compensation plan												1,419									1,419
Proceeds from stock options exercised					322		3		6,644												6,647
Cash distributions declared ($1.7925 per common share of which none represented a return of capital for federal income tax purposes)																		(54,267		)	(54,267		)
Balance at December 31, 2002	—		—		30,422		304		592,585			(5,562		)	(10,740		)	50,058			626,645			$	63,068
Comprehensive Income:
Net income																		98,159			98,159			$	98,159
Net unrealized gain on derivative instruments															9,779						9,779			9,779
SL Green’s share of joint venture net unrealized gain on derivative instruments																								1,474
Preferred dividends & accretion requirement																		(7,712		)	(7,712		)
Redemption of units					267		3		5,699												5,702
Proceeds from dividend reinvestment plan					68		1		3,650												3,651
Deferred compensation plan & stock award, net					213		2		6,668			(6,670		)							—
Amortization of deferred compensation plan												3,786									3,786
Conversion of preferred stock					4,699		47		112,059												112,106
Net proceeds from preferred stock offering	151,981																				151,981
Proceeds from stock options exercised					347		3		7,589												7,592
Stock-based compensation – fair value									632												632
Cash distributions declared ($1.8950 per common share of which none represented a return of capital for federal income tax purposes)																		(61,539		)	(61,539		)
Balance at December 31, 2003	151,981		—		36,016		360		728,882			(8,446		)	(961		)	78,966			950,782			$	109,412
Comprehensive Income:
Net income																		209,430			209,430			$	209,430
Net unrealized gain on derivative instruments															6,608						6,608			6,608
SL Green’s share of joint venture net unrealized gain on derivative instruments																								2,155
Preferred dividends																		(16,258		)	(16,258		)
Redemption of units					81		1		1,912												1,913
Proceeds from dividend reinvestment plan					195		2		7,728												7,730
Deferred compensation plan & stock award, net					353		4		14,141			(14,144		)							1
Amortization of deferred compensation plan												7,317									7,317
Net proceeds from common stock offerings					3,150		31		138,599												138,630
Net proceeds from preferred stock offerings			96,321																		96,321
Proceeds from stock options exercised					1,081		11		25,372												25,383
Stock-based compensation – fair value									979												979
Cash distributions declared ($2.04 per common share of which none represented a return of capital for federal income tax purposes)																		(80,956		)	(80,956		)
Balance at December 31, 2004	$	151,981	$	96,321	40,876		$	409	$	917,613		$	(15,273	)	$	5,647		$	191,182		$	1,347,880		$	218,193

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

23

SL Green Realty Corp.

Consolidated Statements Of Cash Flows

(Amounts in thousands, except per share data)

	Year Ended December 31,
	2004			2003			2002
Operating Activities
Net income	$	209,430		$	98,159		$	74,331
Adjustment to reconcile net income to net cash provided by operating activities:
Non-cash adjustments related to income from discontinued operations	9,938			8,633			8,286
Depreciation and amortization	51,495			41,628			32,400
Amortization of discount on structured finance investments	(210		)	(161		)	388
Gain on sale of discontinued operations	(95,680		)	(22,849		)	—
Equity in net loss (income) from affiliates	—			196			(292		)
Equity in net income from unconsolidated joint ventures	(44,037		)	(14,870		)	(18,383		)
Equity in gain on sale of unconsolidated joint venture	(22,012		)	(3,087		)	—
Minority interest	5,630			4,117			3,708
Deferred rents receivable	(7,741		)	(9,094		)	(8,929		)
Allowance for bad debts	1,388			1,606			2,298
Amortization of deferred compensation	7,317			3,786			1,419
Changes in operating assets and liabilities:
Restricted cash – operations	3,430			3,313			6,455
Tenant and other receivables	(5,553		)	(8,184		)	(604		)
Related party receivables	215			(1,742		)	(1,370		)
Deferred lease costs	(16,409		)	(5,446		)	(7,297		)
Other assets	(2,348		)	(16,290		)	(6,452		)
Accounts payable, accrued expenses and other liabilities	25,528			(5,062		)	15,479
Deferred revenue	(4,674		)	3,057			(29		)
Deferred land lease payable	557			540			540
Net cash provided by operating activities	116,264			78,250			101,948
Investing Activities
Acquisitions of real estate property	(388,157		)	(81,214		)	—
Additions to land, buildings and improvements	(31,295		)	(22,532		)	(26,675		)
Restricted cash – capital improvements/acquisitions	(2,127		)	(33,773		)	2,887
Investment in and advances to affiliates	—			2,361			(490		)
Distribution from affiliate	—			—			739
Investments in unconsolidated joint ventures	(79,827		)	(385,067		)	(93,881		)
Distributions from unconsolidated joint ventures	193,144			36,469			22,482
Net proceeds from disposition of rental property	220,300			119,075			—
Structured finance investments net of repayments/participations	(132,889		)	(126,688		)	42,610
Net cash used in investing activities	(220,851		)	(491,369		)	(52,328		)
Financing Activities
Proceeds from mortgage notes payable	—			245,000			—
Repayments of mortgage notes payable	(3,395		)	(298,294		)	(21,496		)
Proceeds from revolving credit facilities and term loans	840,900			628,000			275,000
Repayments of revolving credit facilities and term loans	(908,578		)	(266,000		)	(195,931		)
Proceeds from stock options exercised and dividend reinvestment plan	25,383			11,243			6,647
Net proceeds from sale of common/preferred stock	234,951			152,539			—
Capitalized lease obligation	274			306			288
Dividends and distributions paid	(85,240		)	(70,868		)	(66,592		)
Deferred loan costs	(2,459		)	(8,281		)	(2,709		)
Net cash provided by (used in) financing activities	101,836			393,645			(4,793		)
Net (decrease) increase in cash and cash equivalents	(2,751		)	(19,474		)	44,827
Cash and cash equivalents at beginning of period	38,546			58,020			13,193
Cash and cash equivalents at end of period	$	35,795		$	38,546		$	58,020
Supplemental cash flow disclosures
Interest paid	$	61,716		$	44,256		$	36,725

In December 2004, 2003 and 2002, the Company declared quarterly distributions per share of $0.54, $0.50 and $0.465, respectively.  These distributions were paid in January 2005, 2004 and 2003, respectively.

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

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SL Green Realty Corp.

Notes to Consolidated Financial Statements

December 31, 2004

1.  Organization and Basis of Presentation

SL Green Realty Corp., also referred to as the Company or SL Green, 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.  The Operating Partnership received a contribution of interest in the real estate properties, as well as 95% of the economic interest in the management, leasing and construction companies, which are referred to as the Service Corporation.  The Company 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 reduce or avoid the payment of Federal income taxes at the corporate level.  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.

Substantially all of our assets are held by, and our operations are conducted through, the Operating Partnership.  The Company is the sole managing general partner of the Operating Partnership.  As of December 31, 2004, minority investors held, in the aggregate, a5.8%limited partnership interest in the Operating Partnership.

As of December 31, 2004, our wholly-owned properties consisted of 20 commercial properties encompassing approximately 8.8 million rentable square feet located primarily in midtown Manhattan, a borough of New York City, or Manhattan.  As of December 31, 2004, the weighted average occupancy (total leased square feet divided by total available square feet) of the wholly-owned properties was 94.5%.  Our portfolio also includes ownership interests in unconsolidated joint ventures, which own eight commercial properties in Manhattan, encompassing approximately 8.2 million rentable square feet, and which had a weighted average occupancy of 96.9% as of December 31, 2004.  In addition, we manage three office properties owned by third parties and affiliated companies encompassing approximately 1.0 million rentable square feet.

Partnership Agreement

In accordance with the partnership agreement of the Operating Partnership, or the Operating Partnership Agreement, we allocate all distributions and profits and losses in proportion to the percentage ownership interests of the respective partners.  As the managing general partner of the Operating Partnership, we are required to take such reasonable efforts, as determined by us in our sole discretion, to cause the Operating Partnership to distribute sufficient amounts to enable the payment of sufficient dividends by us to avoid any Federal income or excise tax at the Company level. Under the Operating Partnership Agreement each limited partner will have the right to redeem units of limited partnership interest for cash, or if we so elect, shares of our common stock on a one-for-one basis.  In addition, we are prohibited from selling 673 First Avenue and 470 Park Avenue South before August 2009.

2.  Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include our accounts and those of our subsidiaries, which are wholly-owned or controlled by us or entities, which are variable interest entities in which we are the primary beneficiaries under the Financial Accounting Standards Board, or FASB, Interpretation No. 46, or FIN 46, “Consolidation of Variable Interest Entities - an Interpretation of ARB No. 51.” See Note 5 and Note 6.  Entities, which we do not control, and entities which are variable interest entities, but where we are not the primary beneficiary are accounted for under the equity method.  In December 2003, the FASB issued a revision of FIN 46, “Interpretation No. 46R,” to clarify the provisions of FIN 46.  The application of Interpretation No. 46R is required in financial statements of public companies for periods ending after March 15, 2004.  The adoption of this pronouncement effective July 1, 2003 for the Service Corporation had no impact on our results of operations or cash flows, but resulted in a gross-up of assets and liabilities by approximately $2,543,000 and $629,000, respectively.  See Note 7.  The adoption of this pronouncement effective January 2004, for our structured finance portfolio and joint ventures, had no impact on our financial condition, net income or cash flows as none of these investments were determined to be variable interest entities.  See Note 6.  All significant intercompany balances and transactions have been eliminated.

Investment in Commercial Real Estate Properties

Rental properties are stated at cost less accumulated depreciation and amortization.  Costs directly related to the acquisition and redevelopment of rental 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.

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In accordance with Statement of Financial Accounting Standards, or SFAS, No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, a property to be disposed of is reported at the lower of its carrying amount or its estimated fair value, less its cost to sell.  Once an asset is held for sale, depreciation expense and straight-line rent adjustments are no longer recorded and the historic results are reclassified as discontinued operations. See Note 4.

Properties are depreciated using the straight-line method over the estimated useful lives of the assets.  The estimated useful lives are as follows:

Category	Term
Building (fee ownership)	40 years
Building improvements	shorter of remaining life of the building or useful life
Building (leasehold interest)	lesser of 40 years or remaining term of the lease
Property under capital lease	remaining lease term
Furniture and fixtures	four to seven years
Tenant improvements	shorter of remaining term of the lease or useful life

Depreciation expense (including amortization of the capital lease asset) amounted to approximately $43.1 million, $38.3 million and $29.5 million for the years ended December 31, 2004, 2003 and 2002, respectively.

On a periodic basis, we assess whether there are any indicators that the value of our real estate properties may be impaired or that its carrying value may not be recoverable.  A property’s value is considered impaired if management’s estimate of the aggregate future cash flows (undiscounted and without interest charges) to be generated by the property are less than the carrying value of the property.  To the extent impairment has occurred, the loss shall be measured as the excess of the carrying amount of the property over the fair value of the property.  We do not believe that the value of any of our rental properties was impaired at December 31, 2004 and 2003.

Results of operations of properties acquired are included in the Statement of Operations from the date of acquisition.

In accordance with SFAS No. 141, “Business Combinations,” we allocate the purchase price of real estate to land and building and, if determined to be material, intangibles, such as the value of above, below and at-market leases and origination costs associated with the in-place leases.  We depreciate the amount allocated to building and other intangible assets over their estimated useful lives, which generally range from three to 40 years.  The values of the above and below market leases are amortized and recorded as either an increase (in the case of below market leases) or a decrease (in the case of above market leases) to rental income over the remaining term of the associated lease.  The value associated with in-place leases and tenant relationships are amortized over the expected term of the relationship, which includes an estimated probability of the lease renewal, and its estimated term.  If a tenant vacates its space prior to the contractual termination of the lease and no rental payments are being made on the lease, any unamortized balance of the related intangible will be written off.  The tenant improvements and origination costs are amortized as an expense over the remaining life of the lease (or charged against earnings if the lease is terminated prior to its contractual expiration date).  We assess fair value of the leases based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information.  Estimates of future cash flows are based on a number of factors including the historical operating results, known trends, and market/economic conditions that may affect the property.

As a result of our evaluations, under SFAS No. 141, of acquisitions made, we recorded a deferred asset of approximately $10.0 million and $3.0 million representing the net value of acquired above and below market leases and assumed lease origination costs for the years ended December 31, 2004 and 2003, respectively.  For the years ended December 31, 2004 and 2003, we recognized an increase of $62,000, and a decrease of $155,000 in rental revenue, respectively, for the amortization of above market leases and a reduction in lease origination costs, resulting from the reallocation of the purchase price of the applicable properties.  We also recorded a deferred liability of approximately $3.2 million representing the value of a mortgage loan assumed at an above market interest rate.  For the years ended December 31, 2004 and 2003, we recognized a $657,000 and $457,000 reduction in interest expense for the amortization of the above market mortgage, respectively.

Cash and Cash Equivalents

We consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Investment in Unconsolidated Joint Ventures

We accounted for our investments in unconsolidated joint ventures under the equity method of accounting as we exercise significant influence, but do not control these entities and are not considered to be the primary beneficiary under FIN 46.  In all the joint ventures,

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the rights of the minority investor are both protective as well as participating.  These rights preclude us from consolidating these investments.  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.  Any difference between the carrying amount of these investments on our balance sheet and the underlying equity in net assets is amortized as an adjustment to equity in net income (loss) of unconsolidated joint ventures over the lesser of the joint venture term or 40 years.  See Note 6.  None of the joint venture debt is recourse to us.

Restricted Cash

Restricted cash primarily consists of security deposits held on behalf of our tenants as well as capital improvement and real estate tax escrows required under certain loan agreements.

Deferred Lease Costs

Deferred lease costs consist of fees and direct costs incurred to initiate and renew operating leases and are amortized on a straight-line basis over the related lease term.  Certain of our employees provide leasing services to the wholly-owned properties.  A portion of their compensation, approximating $1.7 million for each of the years ended December 31, 2004, 2003 and 2002, respectively, was capitalized and is amortized over an estimated average lease term of seven years.

Deferred Financing Costs

Deferred financing costs represent commitment fees, legal and other third party costs associated with obtaining commitments for financing which result in a closing of such financing. These costs are amortized over the terms of the respective agreements. Unamortized deferred financing costs are expensed when the associated debt is refinanced or repaid before maturity. Costs incurred in seeking financial transactions which do not close are expensed in the period in which it is determined that the financing will not close.

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 accompanying 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 balance sheet is net of such allowance.

In addition to base rent, our tenants also generally will pay their pro rata share of increases in real estate taxes and operating expenses for the building over a base year.  In some leases, in lieu of paying additional rent based upon increases in building operating expenses, the tenant will pay additional rent based upon increases in the wage rate paid to porters over the porters’ wage rate in effect during a base year or increases in the consumer price index over the index value in effect during a base year.  In addition, many of our leases contain fixed percentage increases over the base rent to cover escalations.

Electricity is most often supplied by the landlord either on a sub-metered basis, or rent inclusion basis (i.e., a fixed fee is included in the rent for electricity, which amount may increase based upon increases in electricity rates or increases in electrical usage by the tenant).  Base building services other than electricity (such as heat, air conditioning and freight elevator service during business hours, and base building cleaning) typically are provided at no additional cost, with the tenant paying additional rent only for services which exceed base building services or for services which are provided other than during normal business hours.

These escalations are based on actual expenses incurred in the prior calendar year.  If the expenses in the current year are different from those in the prior year, then during the current year, the escalations will be adjusted to reflect the actual expenses for the current year.

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

Interest income on structured finance investments is recognized over the life of the investment using the effective interest method and recognized on the accrual basis.  Fees received in connection with loan commitments are deferred until the loan is funded and are then recognized over the term of the loan as an adjustment to yield.  Anticipated exit fees, whose collection is expected, are also recognized over the term of the loan as an adjustment to yield.  Fees on commitments that expire unused are recognized at expiration.

Income recognition is generally suspended for structured finance investments 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 income and principal becomes doubtful.  Income recognition is resumed when the loan becomes contractually current and performance is demonstrated to be resumed.

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

Reserve for Possible Credit Losses

The expense for possible credit losses in connection with structured finance investments is the charge to earnings to increase the allowance for possible credit losses to the level that we estimate to be adequate considering delinquencies, loss experience and collateral quality.  Other factors considered relate to geographic trends and product diversification, the size of the portfolio and current economic conditions.  Based upon these factors, we establish the provision for possible credit losses by category of asset.  When it is probable that we will be unable to collect all amounts contractually due, the account is considered impaired.

Where impairment is indicated, a valuation write-down or write-off is measured based upon the excess of the recorded investment amount over the net fair value of the collateral, as reduced by selling costs.  Any deficiency between the carrying amount of an asset and the net sales price of repossessed collateral is charged to the allowance for credit losses.  No reserve for impairment was required at December 31, 2004 or 2003.

Rent Expense

Rent expense is recognized on a straight-line basis over the initial term of the lease.  The excess of the rent expense recognized over the amounts contractually due pursuant to the underlying lease is included in the deferred land lease payable in the accompanying balance sheets.

Income Taxes

We are taxed as a REIT under Section 856(c) of the Code.  As a REIT, we generally are not subject to Federal income tax.  To maintain our qualification as a REIT, we must distribute at least 90% of our REIT taxable income to our stockholders and meet certain other requirements.  If we fail to qualify as a REIT in any taxable year, we will be subject to Federal income tax on our taxable income at regular corporate rates.  We may also be subject to certain state, local and franchise taxes.  Under certain circumstances, Federal income and excise taxes may be due on our undistributed taxable income.

Pursuant to amendments to the Code that became effective January 1, 2001, we have elected or may elect to treat certain of our existing or newly created corporate subsidiaries as taxable REIT subsidiaries, or TRS.  In general, a TRS of ours may perform non-customary services for our tenants, hold assets that we cannot hold directly and generally may engage in any real estate or non-real estate related business.  A TRS is subject to corporate Federal income tax.  Our TRS’s generate no income or are marginally profitable, resulting in minimal or no Federal income tax liability for these entities.

Underwriting Commissions and Costs

Underwriting commissions and costs incurred in connection with our stock offerings are reflected as a reduction of additional paid-in-capital.

Stock-Based Employee Compensation Plans

We have a stock-based employee compensation plan, described more fully in Note 15.  Prior to 2003, we accounted for this plan under Accounting Principles Board Opinion No. 25, or APB 25, “Accounting for Stock Issued to Employees,” and related interpretations.  No stock-based employee compensation cost was reflected in net income prior to January 1, 2003, as all awards granted under such plan had an intrinsic value of zero on the date of grant.  Effective January 1, 2003, we adopted the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation.”  Under the prospective method of adoption we selected under the provisions of SFAS No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure,” the recognition provisions apply to all employee awards granted, modified, or settled after January 1, 2003.  In December 2004, the FASB revised SFAS No. 123 through the issuance of SFAS No. 123 “Shared Based Payment”, revised, or SFAS No. 123-R.  SFAS No. 123-R is effective for us commencing in the third quarter of 2005.  SFAS No. 123-R, among other things, eliminates the alternative to use the intrinsic value method of accounting for stock-based compensation and requires entities to recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards (with limited exceptions).  The fair-value based method in SFAS No. 123-R is similar to the fair-value based method in SFAS No. 123 in most respects, subject to certain key differences.  We are in the process of evaluating the impact of such key differences between SFAS No. 123 and SFAS No. 123-R, but do not currently believe that the adoption of SFAS No. 123-R will have a material impact on us, as we have applied the fair value method of accounting for stock-based compensation since January 1, 2003.

The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable.  In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility.  Because our plan has characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in our opinion, the

28

existing models do not necessarily provide a reliable single measure of the fair value of our employee stock options.

Compensation cost for stock options, if any, is recognized ratably over the vesting period of the award.  Our policy is to grant options with an exercise price equal to the quoted closing market price of our stock on the business day preceding the grant date.  Awards of stock, restricted stock or employee loans to purchase stock, which may be forgiven over a period of time, are expensed as compensation on a current basis over the benefit period.

The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions for grants in 2004, 2003 and 2002.

	2004		2003		2002
Dividend yield	5.00	%	5.00	%	5.50	%
Expected life of option	5 years		5 years		5 years
Risk-free interest rate	4.00	%	4.00	%	5.00	%
Expected stock price volatility	14.40	%	17.91	%	18.91	%

The following table illustrates the effect on net income available to common shareholders and earnings per share if the fair value method had been applied to all outstanding and unvested stock options for the years ended December 31, 2004, 2003 and 2002 (in thousands):

	Year Ended December 31,
	2004			2003			2002
Net income available to common shareholders	$	193,172		$	90,447		$	64,641
Deduct stock option expense-all awards	(1,677		)	(1,529		)	(2,130		)
Add back stock option expense included in net income	331			147			—
Allocation of compensation expense to minority interest	93			102			145
Pro forma net income available to common shareholders	$	191,919		$	89,167		$	62,656
Basic earnings per common share-historical	$	4.93		$	2.80		$	2.14
Basic earnings per common share-pro forma	$	4.90		$	2.76		$	2.07
Diluted earnings per common share-historical	$	4.75		$	2.66		$	2.09
Diluted earnings per common share-pro forma	$	4.71		$	2.62		$	2.03

The effects of applying SFAS No. 123 in this pro forma disclosure are not indicative of the impact future awards may have on our results of operations.

Derivative Instruments

In the normal course of business, we use a variety of derivative instruments to manage, or hedge, interest rate risk.  We require that hedging derivative instruments are effective in reducing the interest rate risk exposure that they are designated to hedge.  This effectiveness is essential for qualifying 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.

In the normal course of business, we are exposed to the effect of interest rate changes and limit these risks by following established risk management policies and procedures including the use of derivatives.  To address exposure to interest rates, derivatives are used primarily to fix the rate on debt based on floating-rate indices and manage the cost of borrowing obligations.

We use a variety of commonly used derivative products that are considered plain vanilla derivatives.  These derivatives typically include interest rate swaps, caps, collars and floors.  We expressly prohibit the use of unconventional derivative instruments and using derivative instruments for trading or speculative purposes. Further, we have a policy of only entering into contracts with major financial institutions based upon their credit ratings and other factors.

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We may employ swaps, forwards or purchased options to hedge qualifying forecasted transactions.  Gains and losses related to these transactions are deferred and recognized in net income as interest expense in the same period or periods that the underlying transaction occurs, expires or is otherwise terminated.

Hedges that are reported at fair value and presented on the balance sheet could be characterized as either cash flow hedges or fair value hedges.  Interest rate caps and collars are examples of cash flow hedges.  Cash flow hedges address the risk associated with future cash flows of debt transactions.  All hedges held by us are deemed to be fully effective in meeting the hedging objectives established by our corporate policy governing interest rate risk management and as such no net gains or losses were reported in earnings.  The changes in fair value of hedge instruments are reflected in accumulated other comprehensive loss.  For derivative instruments not designated as hedging instruments, the gain or loss, resulting from the change in the estimated fair value of the derivative instruments, is recognized in current earnings during the period of change.

Earnings Per Share

We present both basic and diluted earnings per share, or EPS.  Basic EPS excludes dilution and is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period.  Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, where such exercise or conversion would result in a lower EPS amount.  This also includes units of limited partnership interest.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Concentrations of Credit Risk

Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash investments, structured finance investments and accounts receivable.  We place our cash investments in excess of insured amounts with high quality financial institutions.  The collateral securing our structured finance investments is primarily located in the greater New York area. See Note 5.  We perform ongoing credit evaluations of our tenants and require certain tenants to provide security deposits or letters of credit.  Though these security deposits and letters of credit are insufficient to meet the total value of a tenant’s lease obligation, they are a measure of good faith and a source of funds to offset the economic costs associated with lost rent and the costs associated with re-tenanting the space.  Although the properties in our real estate portfolio are primarily located in Manhattan, the tenants located in these buildings operate in various industries.  Other than the tenant at 750 Third Avenue, which is subject to a master lease through December 2005 and who contributes approximately 10.0% of our annualized rent, no single tenant in the wholly-owned properties contributes more than 4.2% of our annualized rent at December 31, 2004.  Approximately 20% and 9% of our annualized rent was attributable to 420 Lexington Avenue and 555 West 57^th Street, respectively, for the year ended December 31, 2002.  Approximately 18% and 13% of our annualized rent was attributable to 420 Lexington Avenue and 220 East 42^nd Street, respectively, for the year ended December 31, 2003.  Approximately 16%, 12% and 10% of our annualized rent was attributable to 420 Lexington Avenue, 220 East 42^nd Street and 750 Third Avenue, respectively, for the year ended December 31, 2004.  One borrower accounted for more than 10.0% of the revenue earned on structured finance investments at December 31, 2004.  Currently 76.9% of our workforce which service substantially all of our properties is covered by three collective bargaining agreements.

Reclassification

Certain prior year balances have been reclassified to conform with the current year presentation and to comply with SFAS No. 144.

3.  Property Acquisitions

2004 Acquisitions

In July 2004, we acquired the 780,000 square foot office property located at 750 Third Avenue, or 750 Third, for $255.0 million.  The acquisition was initially funded using proceeds from our unsecured revolving credit facility.  At closing, TIAA-CREF, a AAA-rated company, entered into an operating lease for the entire building.  At the expiration of such operating lease, in December 2005, the building will be approximately 25% vacant.

In October 2004, we acquired the long-term leasehold in the 563,000 square foot office property at 625 Madison Avenue, or 625 Madison, for $231.5 million.  The property was acquired with borrowings under our unsecured revolving credit facility, approximately

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306,000 units of limited partnership interest in our Operating Partnership, having an aggregate value of approximately $15.5 million, and the assumption of a $102.0 million mortgage loan held by the New York State Teacher’s Retirement System.  The mortgage has a fixed annual interest rate of 6.27% and will mature in November 2015.  The property is subject to a ground lease with a final expiration date of June 30, 2054.

2003 Acquisitions

In February 2003, we acquired the 1.1 million square foot office property located at 220 East 42^nd Street, Manhattan, known as The News Building, a property located in the Grand Central and United Nations marketplace, for a purchase price of approximately $265.0 million.  Prior to the acquisition, we held a $53.5 million preferred equity investment in the property that was redeemed in full at closing.  In connection with the redemption, we earned a redemption premium totaling approximately $4.4 million, which was accounted for as a reduction in the cost basis, resulting in an adjusted purchase price of $260.6 million.  In connection with this acquisition, we assumed a $158.0 million mortgage, which was due to mature in September 2004 and bore interest at LIBOR plus 1.76%, and issued approximately 376,000 units of limited partnership interest in our Operating Partnership having an aggregate value of approximately $11.3 million.  The remaining $42.2 million of the purchase price was funded from proceeds from the sales of 50 West 23^rd Street and 875 Bridgeport Avenue, Shelton, CT, and borrowings under our unsecured revolving credit facility, which included the repayment of a $28.5 million mezzanine loan on the property.  In December 2003, we refinanced the $158.0 million mortgage with a new $210.0 million 10-year mortgage at a fixed interest rate of 5.23%. See Note 9.  We agreed that for a period of seven years after the acquisition, we would not take certain action that would adversely affect the tax positions of certain of the partners who received units of limited partnership interest in our Operating Partnership and who held interests in this property prior to the acquisition.

In March 2003, we acquired condominium interests in 125 Broad Street, Manhattan, encompassing approximately 525,000 square feet of office space for approximately $92.0 million.  We assumed the $76.6 million first mortgage currently encumbering this property.  The mortgage matures in October 2007 and bears interest at 8.29%.  In addition, we issued 51,667 units of limited partnership interest in our Operating Partnership having an aggregate value of approximately $1.6 million.  The balance of the purchase price was funded from proceeds from the sales of 50 West 23^rd Street and 875 Bridgeport Avenue.  At acquisition this property was encumbered by a ground lease.  However, we acquired our portion of the underlying fee interest for approximately $6.0 million in June 2004.  We agreed that for a period of three years following the acquisition, we would not take certain action that would adversely affect the tax positions of certain of the partners who received units of limited partnership interest in our Operating Partnership and who held interests in this property prior to the acquisition.

In October 2003, we acquired the long-term leasehold interest in 461 Fifth Avenue, Manhattan, for $60.9 million.  The leasehold acquisition was funded, in part, with the proceeds from the sale of 1370 Broadway, Manhattan, which closed in July 2003.  As a 1031 tax-free exchange, the transaction enabled us to defer gains from the sale of 1370 Broadway and from the sale of 17 Battery Place South, Manhattan, which gain was initially re-invested in 1370 Broadway.  The balance of the acquisition was funded using our unsecured revolving credit facility.

2002 Acquisitions

During the year ended December 31, 2002, we did not acquire any wholly-owned properties.

Pro Forma

The following table (in thousands, except per share amounts) summarizes, on an unaudited pro forma basis, our combined results of operations for the years ended December 31, 2004 and 2003 as though the acquisitions of 220 East 42^nd Street (February 2003) and 125 Broad Street (March 2003), the $210.0 million refinancing of 220 East 42^nd Street (December 2003), the equity investment in 1221 Avenue of the Americas (December 2003) (see Note 6), the acquisition of 750 Third and the equity investment in 485 Lexington (July 2004) and the acquisition of 625 Madison Avenue (October 2004) were completed on January 1, 2003 and the December 2003 7.625% Series C cumulative redeemable preferred stock, or the Series C preferred stock, the January and August 2004 common stock and the April and July 2004 7.875% Series D cumulative redeemable preferred stock, or the Series D preferred stock, were issued on that date.

	2004		2003
Pro forma revenues	$	378,924	$	347,054
Pro forma net income	$	191,280	$	102,407
Pro forma earnings per common share-basic	$	4.77	$	2.89
Pro forma earnings per common share and common share equivalents-diluted	$	4.61	$	2.79
Pro forma common shares-basic	40,111		35,415
Pro forma common share and common share equivalents-diluted	44,308		42,427

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4.  Property Dispositions and Assets Held for Sale

In October 2004, we sold 17 Battery Place North for approximately $70.0 million, realizing a gain of approximately $22.5 million.  The net proceeds were reinvested into the acquisition of 750 Third to effectuate a 1031 tax-free exchange.

In November 2004, we sold 1466 Broadway for approximately $160.0 million, realizing a gain of approximately $73.2 million.  The net proceeds were reinvested into the acquisition of 750 Third to effectuate a 1031 tax-free exchange.

In March 2003, we sold 50 West 23^rd Street for $66.0 million.  We acquired the building at the time of our initial public offering in August of 1997, at a purchase price of approximately $36.6 million.  Since that time, the building was upgraded and repositioned enabling us to realize a gain of approximately $19.2 million.  The proceeds of the sale were used to pay off an existing $21.0 million first mortgage and substantially all of the balance was reinvested into the acquisitions of The News Building and 125 Broad Street to effectuate a partial 1031 tax-free exchange.

In May 2003, we sold 875 Bridgeport Avenue, Shelton, CT, or Shaws, for approximately $16.2 million and the buyer assumed the existing $14.8 million first mortgage.  The net proceeds were reinvested into the acquisitions of The News Building and 125 Broad Street to effectuate a partial 1031 tax-free exchange.

In July 2003, we sold 1370 Broadway for $57.5 million, realizing a gain of approximately $4.0 million.  The net proceeds were reinvested into the acquisition of 461 Fifth Avenue to effectuate a 1031 tax-free exchange.

During the year ended December 31, 2002, we did not dispose of any wholly-owned properties.

At December 31, 2004, discontinued operations included the results of operations of real estate assets sold during the three years then ended or held for sale at that date.  This included 50 West 23^rd Street which was sold in March 2003, Shaws which was sold in May 2003, 1370 Broadway which was sold in July 2003, 17 Battery Place North which was sold in October 2004 and 1466 Broadway which was sold in November 2004.  Discontinued operations also includes 1414 Avenue of the Americas which was sold in April 2005.  The following table summarizes income from discontinued operations (net of minority interest) and the related realized gain on sale of discontinued operations (net of minority interest) for the years ended December 31, 2004, 2003 and 2002 (in thousands).

	Year EndedDecember 31,
	2004			2003			2002
Revenues
Rental revenue	$	21,214		$	30,092		$	38,784
Escalation and reimbursement revenues	2,893			4,271			4,421
Other income	234			568			220
Total revenues	24,341			34,931			43,425
Operating expense	7,474			9,564			10,807
Real estate taxes	4,148			5,949			6,140
Interest	1,074			1,985			3,895
Depreciation and amortization	4,216			6,375			7,242
Total expenses	16,912			23,873			28,084
Income from discontinued operations	7,429			11,058			15,341
Gain on disposition of discontinued operations	95,680			22,850			—
Minority interest in operating partnership	(5,722		)	(2,261		)	(1,044		)
Income from discontinued operations, net of minority interest	$	97,387		$	31,647		$	14,297

5.  Structured Finance Investments

During the years ended December 31, 2004 and 2003, we originated approximately $309.6 million and $165.5 million in structured finance and preferred equity investments (net of discount), respectively.  There were also approximately $178.6 million and $92.1 million in repayments and participations during those years, respectively.  At December 31, 2004, 2003 and 2002 all loans were performing in accordance with the terms of the loan agreements.

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As of December 31, 2004 and 2003, we held the following structured finance investments, excluding preferred equity investments, with a current yield of 10.2% (in thousands):

Loan Type	Gross Investment		Senior Financing		2004 Principal Outstanding		2003 Principal Outstanding		Initial Maturity Date
Mezzanine Loan (1) (2)	$	15,000	$	102,000	$	14,471	$	12,445	October 2013
Mezzanine Loan (1) (3)	3,500		28,000		3,500		3,500		September 2021
Mezzanine Loan (1)	40,000		184,000		40,000		—		February 2014
Mezzanine Loan	20,000		90,000		20,000		—		June 2006
Mezzanine Loan (4)	31,500		110,000		31,278		—		January 2006
Mezzanine Loan (5)	—		—		—		24,957		April 2004
Mezzanine Loan	—		—		—		15,000		January 2005
Junior Participation (6)	11,000		46,500		11,000		11,000		May 2005
Junior Participation (6) (7)	30,000		125,000		15,045		30,000		September 2005
Junior Participation (1)	37,500		477,500		37,500		—		January 2014
Junior Participation (1)	4,000		44,000		3,964		3,993		August 2010
Junior Participation	36,000		130,000		36,000		—		April 2006
Junior Participation	25,000		39,000		25,000		—		June 2006
Junior Participation	6,994		133,000		5,269		—		June 2014
Junior Participation (1)	11,000		53,000		11,000		—		November 2009
Junior Participation (1)	21,000		115,000		21,000		—		November 2009
Junior Participation	—		—		—		500		December 2004
Junior Participation (8)	—		—		—		14,926		November 2004
Junior Participation	—		—		—		15,000		September 2005
	$	292,494	$	1,677,000	$	275,027	$	131,321

(1)	This is a fixed rate loan.
(2)	This is an amortizing loan.
(3)	The maturity date may be accelerated to July 2006 upon the occurrence of certain events.
(4)	This investment was subject to an $18.9 million loan at a rate of 200 basis points over the 30-day LIBOR.  The loan matured and was repaid in January 2005.
(5)	In July 2001, this loan was contributed to a joint venture with Prudential Real Estate Investors, or PREI.  We retained a 50% interest in the loan.  The original investment was $50.0 million.  This investment was redeemed in April 2004.
(6)	These loans are subject to three one-year extension options from the initial maturity date.
(7)	This loan is fully funded.  A portion of the initially funded loan was sold to a third party at par value.
(8)	On April 12, 2002, this loan, with an original investment of $30.0 million was contributed to our joint venture with PREI. The Company retained a 50% interest in the loan.  This loan was redeemed in January 2004.

Preferred Equity Investments

As of December 31, 2004 and 2003, we held the following preferred equity investments with a current yield of 10.43% (in thousands):

Type	Gross Investment		Senior Financing		2004 Amount Outstanding		2003 Amount Outstanding		Initial Maturity Date
Preferred equity (1) (2)	$	—	$	—	$	—	$	7,809	May 2006
Preferred equity (1) (3)	75,000		481,000		75,000		—		July 2014
Preferred equity (1) (4)	—		—		—		59,380		April 2004
Preferred equity (5)	—		—		—		5,479		July 2007
Preferred equity (5)	—		—		—		8,000		January 2006
Preferred equity (6)	—		—		—		7,000		August 2006
	$	75,000	$	481,000	$	75,000	$	87,668

(1)	This is a fixed rate investment.
(2)	The investment is subject to extension options. We will also participate in the appreciation of the property upon sale to a third party above a specified threshold. This investment was redeemed in December 2004.
(3)	An affiliate of ours owns an interest in the first mortgage of the underlying property.
(4)	This investment was redeemed on April 1, 2004.
(5)	This investment was redeemed in July 2004.
(6)	This investment was redeemed in March 2004 in connection with the acquisition of 19 West 44th Street. See Note 6.

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6.  Investment in Unconsolidated Joint Ventures

Rockefeller Group International Inc. Joint Venture

In December 2003, we purchased a 45% ownership interest in 1221 Avenue of the Americas for $450.0 million from The McGraw-Hill Companies, or MHC.  MHC is a tenant at the property and accounted for approximately 14.6% of property’s annualized rent at December 31, 2004.  Rockefeller Group International, Inc. retained its 55% ownership interest in 1221 Avenue of the Americas and continues to manage the property.  For the year ended December 31, 2004, we recognized an increase in net equity in unconsolidated joint ventures of approximately $685,000 as a result of amortizing the SFAS No. 141 adjustment.

1221 Avenue of the Americas, known as The McGraw-Hill Companies building, is an approximately 2.55 million square foot, 50-story class “A” office building located in Rockefeller Center.

The gross purchase price of $450.0 million was partially funded by the assumption of 45% of underlying property indebtedness of $175.0 million, or $78.8 million, and the balance was paid in cash.  This loan, which matures in December 2006, has an interest rate based on the Eurodollar plus 95 basis points (effective all-in weighted average interest rate for the year ended December 31, 2004 was 2.36%).  We funded the cash component, in part, with proceeds from our offering of our Series C preferred stock (net proceeds of approximately $152.0 million) that closed in December 2003.  The balance of the proceeds was funded with our unsecured revolving credit facility and a $100.0 million non-recourse term loan.

Morgan Stanley Joint Ventures

MSSG I

In December 2000, we, together with Morgan Stanley Real Estate Fund, or MSREF, through the MSSG I joint venture, acquired 180 Madison Avenue, Manhattan, for approximately $41.3 million, excluding closing costs.  The property is a 265,000 square foot, 23-story building.  In addition to holding a 49.9% ownership interest in the property, we act as the operating member for the joint venture, and are responsible for leasing and managing the property.  During 2004, 2003 and 2002, we earned approximately $362,000, $281,000 and $331,000 for such services, respectively.  The acquisition was partially funded by a $32.0 million mortgage from M&T Bank.  The loan, which was to mature in December 2005, carried a fixed interest rate of 7.81%.  The mortgage was interest only until January 2002, at which time principal payments began.  In July 2003, this mortgage was repaid and replaced with a five year $45.0 million first mortgage.  The mortgage carries a fixed interest rate of 4.57% per annum and is interest only for the first year, after which time principal repayments begin.  The joint venture agreement provides us with the opportunity to gain certain economic benefits based on the financial performance of the property.

MSSG II

In January 2001, we, together with MSREF, through the MSSG II joint venture, acquired 469 Seventh Avenue, Manhattan, for approximately $45.7 million, excluding closing costs.  The property is a 253,000 square foot, 16-story office building.  In addition to holding a 35% ownership interest in the property, we acted as the operating member for the joint venture, and were responsible for leasing and managing the property.  During 2002, we earned approximately $137,000, for such services.  The acquisition was partially funded by a $36.0 million mortgage from LBHI.  The loan, which was to mature in February 2003, carried a fixed interest rate of 7.84% from the acquisition date through March 2001, and thereafter, the interest rate was LIBOR plus 210 basis points.

In June 2002, the MSSG II joint venture sold 469 Seventh Avenue for a gross sales price of $53.1 million, excluding closing costs.  MSSG II realized a gain of approximately $4.8 million on the sale of which our share was approximately $1.7 million.  In addition, the $36.0 million mortgage was repaid in full.  As part of the sale, we made a preferred equity investment of $6.0 million in the entity acquiring the asset.  As a result of this continuing investment, we deferred recognition of our share of the gain until our preferred investment was redeemed in 2004.

MSSG III

In May 2000, we sold a 65% interest, for cash, in the property located at 321 West 44^th Street to MSREF, valuing the property at approximately $28.0 million.  We realized a gain of approximately $4.8 million on this transaction and retained a 35% interest in the property (with a carrying value of approximately $6.5 million), which was contributed to MSSG I.  We acquired the 203,000 square foot building, located in the Times Square sub-market of Manhattan in March 1998.  Simultaneous with the closing of this joint venture, the venture received a $22.0 million mortgage for the acquisition and capital improvement program, which was estimated at approximately $3.3 million.  The interest only mortgage was scheduled to mature in April 2004 and had an interest rate based on

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LIBOR plus 250 basis points.  In addition to retaining a 35% economic interest in the property, we, acting as the operating member for the joint venture, were responsible for redevelopment, construction, leasing and management of the property.  During 2003 and 2002, we earned approximately $147,000 and $227,000 respectively, for such services.  The venture agreement provided us with the opportunity to gain certain economic benefits based on the financial performance of the property.

In December 2003, the MSSG III joint venture, sold the property for a gross sales price of $35.0 million, excluding closing costs.  MSSG III realized a gain of approximately $271,000 on the sale of which our share was approximately $95,000.  We also recognized a gain of approximately $3.0 million, which had been deferred at the time we sold the property to the joint venture.

City Investment Fund Joint Ventures

19 West 44^th Street

In March 2004, we, through a joint venture with The City Investment Fund, or CIF, acquired the property located at 19 West 44^th Street, or 19 West, for $67.0 million, including the assumption of a $47.2 million mortgage, with the potential for up to an additional $2.0 million in consideration based on property performance.  This was satisfied in December 2004 for $1.25 million.  We previously held a $7.0 million preferred equity investment in the property that was redeemed at the closing.  We now hold a 35% equity interest in the property.  The joint venture financed the transaction by assuming the existing $31.8 million first mortgage and a $15.4 million mezzanine loan with all-in weighted interest rates of 2.35% and 8.5%, respectively. The effective all-in weighted average interest rate for the year ended December 31, 2004 was 4.54%.  The mortgage matures in September 2005 and is open for prepayment in April 2005.

19 West is an approximately 292,000 square foot office building located between Fifth and Sixth Avenues.  We act as the operating partner for the joint venture and are responsible for leasing and managing the property.  During the year ended December 31, 2004, we earned approximately $171,000 for such services.  The joint venture agreement provides us with the opportunity to gain certain economic benefits based on the financial performance of the property.

485 Lexington Avenue

In July 2004, we acquired a 30.0% equity interest in the 921,000 square foot office building located at 485 Lexington Avenue, or 485 Lexington, through a joint venture with CIF and the Witkoff Group.  The purchase price for 485 Lexington was $225.0 million.  The joint venture has arranged for a loan facility to fund 75% of the acquisition and anticipated re-tenanting costs of 485 Lexington.  Consistent with our prior joint venture arrangements, we act as the operating partner and day-to-day manager of the venture and are entitled to management fees, leasing commissions and incentive fees.  During the year ended December 31, 2004, we earned approximately $104,000 for such services.  At closing, TIAA-CREF entered into an operating lease for the entire building.  Upon expiration of the operating lease in December 2005, it is anticipated that TIAA-CREF will vacate all of the space it occupies in 485 Lexington (approximately 870,000 square feet).

Simultaneous with the closing of 485 Lexington, the joint venture closed on a $240.0 million loan.  The loan, which bears interest at 200 basis points over the 30-day LIBOR, is for three years and has two one-year extension options.  At closing, the joint venture drew down approximately $175.3 million.  The balance will be used to fund the redevelopment program on an as-needed basis.  The effective all-in weighted average interest rate for the year ended December 31, 2004 was 3.84%.

SITQ Immobilier Joint Ventures

One Park Avenue

In May 2001, we entered into a joint venture with respect to the ownership of our interests in One Park Avenue, Manhattan, or One Park, with SITQ Immobilier, a subsidiary of Caisse de depot et placement du Quebec, or SITQ.  The property is a 913,000 square foot office building.  Under the terms of the joint venture, SITQ purchased a 45% interest in our interests in the property based upon a gross aggregate price of $233.9 million, exclusive of closing costs and reimbursements.  No gain or loss was recorded as a result of this transaction.  The $150.0 million mortgage was assumed by the joint venture.  The interest only mortgage, which was scheduled to mature in January 2004, was extended for one year.  This mortgage had an interest rate based on LIBOR plus 150 basis points (2.74% at December 31, 2003).  We provided management and leasing services for One Park.  During 2004, 2003 and 2002, we earned approximately $0.8 million, $1.7 million and $1.1 million, respectively, for such services.  During 2004, 2003 and 2002, we earned approximately $618,000, $757,000 and $797,000 in asset management fees, respectively.  The various ownership interests in the mortgage positions of One Park, held through this joint venture, provided for substantially all of the economic interest in the property

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and gave the joint venture the sole option to purchase the ground lease position.  Accordingly, we accounted for this joint venture as having an ownership interest in the property.

In May 2004, the joint venture sold a 75% interest to an affiliate of Credit Suisse First Boston (see below).

1250 Broadway

In November 2001, we sold a 45% interest in 1250 Broadway, Manhattan, or 1250 Broadway, to SITQ based on the property’s valuation of approximately $121.5 million.  No gain or loss was recorded as a result of this transaction.  This property is a 670,000 square foot office building.  This property was subject to an $85.0 million mortgage.  The interest only mortgage was scheduled to mature in October 2004 and had a one-year renewal option.  The mortgage had an interest rate based on LIBOR plus 250 basis points (3.62% at December 31, 2003).  We entered into a swap agreement on our share of the joint venture first mortgage.  The swap effectively fixed the LIBOR rate at 4.04% through January 2005.  In July 2004, we refinanced 1250 Broadway with a $115.0 million mortgage.  The interest only loan carries an interest rate of 120 basis points over the 30-day LIBOR (effective all-in weighted average interest rate of 6.29% for the year ended December 31, 2004).  The loan matures in August 2006 and is subject to three one-year as-of-right renewal extensions.  We provide management and leasing services for 1250 Broadway.  During 2004, 2003 and 2002, we earned approximately $781,000, $695,000 and $642,000, respectively, for such services.  During each of the years ended December 31, 2004, 2003 and 2002, we earned $240,000, $900,000 and $900,000, respectively, in asset management fees.

1515 Broadway

In May 2002, we, along with SITQ, acquired 1515 Broadway, Manhattan, or 1515 Broadway, for a gross purchase price of approximately $483.5 million.  The property is a 1.75 million square foot, 54-story office tower located on Broadway between 44^th and 45^th Streets.  The property was acquired in a joint venture with us retaining an approximate 55% non-controlling interest in the asset.  Under a tax protection agreement established to protect the limited partners of the partnership that transferred 1515 Broadway to the joint venture, the joint venture has agreed not to adversely affect the limited partners’ tax positions before December 2011.  We provide management and leasing services for 1515 Broadway.  During 2004, 2003 and 2002, we earned approximately $2.6 million, $1.4 million and $828,000, respectively, for such services.  During 2004, 2003 and 2002, we earned approximately $979,000, $898,000 and $612,000, respectively, in asset management fees.

1515 Broadway was acquired with a $275.0 million first mortgage and $60.0 million of mezzanine loans, or the Mezzanine Loans.  The balance of the proceeds were funded from our unsecured line of credit and from SITQ’s capital contribution to the joint venture.  The $275.0 million first mortgage carried an interest rate of 145 basis points over the 30-day LIBOR.  The Mezzanine Loans consisted of two $30.0 million loans.  The first mezzanine loan carried an interest rate of 350 basis points over the 30-day LIBOR.  The second mezzanine loan carried an interest rate of 450 basis points over the 30-day LIBOR.  We entered into a swap agreement on $100.0 million of our share of the joint venture first mortgage.  The swap effectively fixed the LIBOR rate on the $100.0 million at 2.299% through June 2004.  This swap was extended for one year at a fixed LIBOR rate of 1.855%.  In June 2004, we refinanced the property with a $425.0 million first mortgage.  The interest only mortgage carries an interest rate of 90 basis points over the 30-day LIBOR.  The all-in weighted average effective interest rate was 3.62% for the year ended December 31, 2004.  The mortgage matures in July 2006 and is subject to three one-year as-of-right renewal options.

One tenant, whose leases end between 2008 and 2015, represents approximately 81.4% of this joint venture’s annualized rent at December 31, 2004.

Credit Suisse First Boston Joint Venture

In May 2004, Credit Suisse First Boston LLC, or CSFB, through a wholly owned affiliate, acquired a 75% interest in One Park.  The interest was acquired from a joint venture comprised of SITQ and us.  Simultaneous with the closing of the acquisition, the new joint venture completed a refinancing of the property with an affiliate of CSFB.

CSFB’s affiliated entity acquired its equity interest for $60.0 million.  The acquisition was based on a total valuation of approximately $318.5 million.  The $238.5 million 10-year interest only loan bears interest at a fixed rate of 5.8% and replaced the existing $150.0 million floating rate loan, which was scheduled to mature in January 2005. We received $83.0 million in net proceeds, which were used to pay down our unsecured revolving credit facility.  We have retained a 16.7% interest in the new venture, which may be increased substantially based upon the financial performance of the property.  SITQ retained an 8.3% interest.  We will manage the venture, in addition to continuing our responsibility of leasing and managing the property.  During 2004, we earned approximately $940,000 for these services.  During the year ended December 31, 2004, we earned approximately $17,000 in asset management fees.

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We accounted for the transaction as a sale of interests and recognized a gain on sale of approximately $22 million.  Our initial book basis in the new joint venture is approximately $4.0 million and it will be accounted for under the equity method.  In addition, we earned a $4.3 million incentive fee earned pursuant to the prior joint venture agreement with SITQ.

Prudential Real Estate Investors Joint Venture

In February 2000, we acquired a 49.9% interest in a joint venture, which owned 100 Park Avenue, Manhattan, or 100 Park, for $95.8 million.  100 Park is an 834,000 square foot, 36-story office building.  The purchase price was funded through a combination of cash and a seller provided mortgage on the property of $112.0 million.  In August 2000, AIG/SunAmerica issued a $120.0 million mortgage collateralized by the property located at 100 Park, which replaced the pre-existing $112.0 million mortgage.  The 8.00% fixed rate loan has a ten-year term.  Interest only was payable through October 1, 2001 and thereafter principal repayments are due through maturity.  We provide managing and leasing services for 100 Park.  During 2004, 2003 and 2002, we earned approximately $767,000, $757,000 and $631,000 for such services, respectively.

Gramercy Capital Corp.

In April 2004, we formed Gramercy Capital Corp., or Gramercy, a specialty finance company focused on originating and acquiring loans and other fixed-income investments secured by commercial and multi-family real estate.  Gramercy will continue our structured finance business as a separate public company.  Gramercy intends to operate as and qualify as a REIT for federal income tax purposes.  In July 2004, Gramercy sold 12,500,000 shares of common stock in its initial public offering at a price of $15.00 per share, for a total offering of $187.5 million.  Gramercy’s common stock is listed on the New York Stock Exchange under the symbol “GKK.”  As part of the offering, which closed on August 2, 2004, we purchased 3,125,000 shares, or 25%, of Gramercy, for a total investment of approximately $46.9 million.  The market value of our investment in Gramercy was approximately $64.4 million on December 31, 2004.  In January 2005, we purchased an additional 1,275,000 shares of common stock of Gramercy, increasing out total investment to approximately $68.9 million.  We currently hold 4,710,000 shares of Gramercy common stock.  Gramercy is a variable interest entity, but we are not the primary beneficiary.  Due to the significant influence we have over Gramercy, we account for our investment under the equity method of accounting.

GKK Manager LLC, or the Manager, an affiliate of ours, entered into a management agreement with Gramercy, which provides for an initial term through December 2007, with automatic one-year extension options and subject to certain termination rights.  Gramercy will pay us an annual management fee equal to 1.75% of their stockholders’ equity (as defined in the management agreement).  For the period from April 12, 2004 through December 31, 2004, we received an aggregate of approximately $1.3 million in fees under this agreement.

We, along with the Manager, hold Class B limited partner interests for a nominal percentage of Gramercy’s operating partnership.  We and the Manager currently own 85 units and 15 units of the Class B limited partner interests, respectively.  In the future this may be reduced to 70 units and 30 units, respectively.  To provide an incentive for the Manager to enhance the value of the common stock, we, along with the Manager, are entitled to an incentive return payable through the Class B limited partner interests equal to 25% of the amount by which funds from operations (as defined in Gramercy’s partnership agreement) plus certain accounting gains exceed the product of the weighted average stockholders’ equity of Gramercy multiplied by 9.5% (divided by 4 to adjust for quarterly calculations).  We will record any distributions on the Class B limited partner interests as an incentive distribution income in the period when earned and when receipt of such amounts have become probable and reasonably estimable in accordance with Gramercy’s partnership agreement.  No amounts were earned or accrued under this agreement as of December 31, 2004.  Due to the control we have over the Manager, we consolidate the accounts of the Manager into ours.

Gramercy is obligated to reimburse the Manager for its costs incurred under an asset servicing agreement and an outsource agreement between us and the Manager.  The asset servicing agreement provides for an annual fee of 0.15% of the book value of Gramercy’s investments, excluding certain defined investments.  The outsourcing agreement provides a fee of $1.25 million per year, increasing 3% annually over the prior year.  For the period from April 12, 2004 through December 31, 2004, the Manager received an aggregate of approximately $637,000 under the outsourcing and asset servicing agreements.

During that same period Gramercy reimbursed approximately $2.4 million to us for organizational costs incurred in connection with the formation of Gramercy, the formation of its affiliates, the initial public offering, and to reimburse us for consulting fees paid to Gramercy’s Chief Operating Officer and Chief Financial Officer, respectively.

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The condensed combined balance sheets for the unconsolidated joint ventures, including Gramercy, at December 31, 2004 and 2003, are as follows (in thousands):

	2004		2003
Assets
Commercial real estate property, net	$	2,420,851	$	2,045,337
Structured finance investments	411,478		—
Other assets	304,230		290,373
Total assets	$	3,136,559	$	2,335,710
Liabilities and members’ equity
Mortgage payable	$	1,576,201	$	907,875
Other liabilities	98,960		88,629
Members’ equity	1,461,398		1,339,206
Total liabilities and members’ equity	$	3,136,559	$	2,335,710
Company’s net investment in unconsolidated joint ventures	$	557,089	$	590,064

The condensed combined statements of operations for the unconsolidated joint ventures from acquisition date through December 31, 2004 are as follows (in thousands):

	2004		2003		2002
Total revenues	$	345,389	$	176,889	$	154,685
Operating expenses	83,249		48,988		39,831
Real estate taxes	59,545		33,741		23,430
Interest	48,839		34,295		32,019
Depreciation and amortization	56,820		30,232		24,362
Total expenses	248,453		147,256		119,642
Net income before gain on sale	$	96,936	$	29,633	$	35,043
Company’s equity in net income of unconsolidated joint ventures	$	44,037	$	14,871	$	18,383

7.  Investment in and Advances to Affiliates

Service Corporation

In order to maintain our qualification as a REIT while realizing income from management, leasing and construction contracts from third parties and joint venture properties, all of the management operations are conducted through the Service Corporation.  We, through our Operating Partnership, own 100% of the non-voting common stock (representing 95% of the total equity) of the Service Corporation.  Through dividends on its equity interest, our Operating Partnership receives substantially all of the cash flow from the Service Corporation’s operations.  All of the voting common stock of the Service Corporation (representing 5% of the total equity) is held by our affiliate.  This controlling interest gives the affiliate the power to elect all directors of the Service Corporation.  Prior to July 1, 2003, we accounted for our investment in the Service Corporation on the equity basis of accounting because we had significant influence with respect to management and operations, but did not control the entity.  The Service Corporation is considered to be a variable interest entity under FIN 46 and we are the primary beneficiary.  Therefore, effective July 1, 2003, we consolidated the operations of the Service Corporation.  For the year ended December 31, 2004 and the six months ended December 31, 2003, the Service Corporation earned approximately $7.7 million and $3.3 million of revenue and incurred approximately $6.3 million and $3.3 million in expenses, respectively.  Effective January 1, 2001, the Service Corporation elected to be taxed as a TRS.

All of the management, leasing and construction services with respect to the properties wholly-owned by us are conducted through SL Green Management LLC which is 100% owned by our Operating Partnership.

eEmerge

In May 2000, our Operating Partnership formed eEmerge, Inc., a Delaware corporation, or eEmerge, in partnership with Fluid Ventures LLC, or Fluid.  In March 2001, we bought out Fluid’s entire ownership interest in eEmerge.  eEmerge is a separately managed, self-funded company that provides fully-wired and furnished office space, services and support to businesses.

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We, through our Operating Partnership, owned all the non-voting common stock of eEmerge.  Through dividends on our equity interest, our Operating Partnership received approximately 100% of the cash flow from eEmerge operations.  All of the voting common stock was held by an affiliate.  This controlling interest gave the affiliate the power to elect all the directors of eEmerge.  We accounted for our investment in eEmerge on the equity basis of accounting because although we had significant influence with respect to management and operations, we did not control the entity.  Effective March 2002, we acquired all the voting common stock previously held by the affiliate.  As a result, we control all the common stock of eEmerge.  Effective with the quarter ended March 31, 2002, we consolidated the operations of eEmerge.  Effective January 1, 2001, eEmerge elected to be taxed as a TRS.

In June 2000, eEmerge and Eureka Broadband Corporation, or Eureka, formed eEmerge.NYC LLC, a Delaware limited liability company, or ENYC, whereby eEmerge has a 95% interest and Eureka has a 5% interest in ENYC.  ENYC operates a 50,200 square foot fractional office suites business.  ENYC entered into a 10-year lease with our Operating Partnership for its premises, which is located at 440 Ninth Avenue, Manhattan.  Allocations of net profits, net losses and distributions are made in accordance with the Limited Liability Company Agreement of ENYC.  Effective with the quarter ended March 31, 2002, we consolidated the operations of ENYC.

The net book value of our investment as of December 31, 2004 and 2003 was approximately $3.4 million and $4.0 million, respectively.  Management currently believes that, assuming future increases in rental revenue in excess of inflation, it will be possible to recover the net book value of the investment through future operating cash flows.  However, there is a possibility that eEmerge will not generate sufficient future operating cash flows for us to recover our investment.  As a result of this risk factor, management may in the future determine that it is necessary to write down a portion of the net book value of the investment.

8.  Deferred Costs

Deferred costs at December 31 consisted of the following (in thousands):

	2004			2003
Deferred financing	$	20,356		$	22,464
Deferred leasing	62,184			49,131
	82,540			71,595
Less accumulated amortization	(34,671		)	(32,318		)
	$	47,869		$	39,277

9.  Mortgage Notes Payable

The first mortgage notes payable collateralized by the respective properties and assignment of leases at December 31, 2004 and 2003, respectively, were as follows (in thousands):

Property	Maturity Date	Interest Rate		2004		2003
1414 Avenue of the Americas (1)	5/1/09	7.87	%	$	13,325	$	13,532
70 West 36th Street (1)	5/1/09	7.87	%	11,611		11,791
711 Third Avenue (1)	9/10/05	8.13	%	47,602		48,036
420 Lexington Avenue (1)	11/1/10	8.44	%	119,412		121,324
673 First Avenue (1)	2/11/13	5.67	%	35,000		35,000
125 Broad Street (2)	10/11/07	8.29	%	75,526		76,188
220 East 42nd Street (1)	12/9/13	5.23	%	210,000		210,000
625 Madison Avenue	11/1/15	6.27	%	102,000		—
Total fixed rate debt				614,476		515,871
Total floating rate debt				—		—
Total mortgage notes payable				$	614,476	$	515,871

(1)Held in bankruptcy remote special purpose entity.

(2)This mortgage has an initial maturity date of October 11, 2007 and a contractual maturity date of October 11, 2030.

At December 31, 2004 and 2003 the net book value of the properties collateralizing the mortgage notes was approximately $852.1 million and $594.7 million, respectively.

For the year ended December 31, 2004, we incurred approximately $62.7 million of interest expense, excluding approximately $433,000, which was capitalized.

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Principal Maturities

Combined aggregate principal maturities of mortgages and notes payable, secured and unsecured revolving credit facilities, term loans and our share of joint venture debt as of December 31, 2004, excluding extension options, were as follows (in thousands):

	Scheduled Amortization		Principal Repayments		Revolving Credit Facilities		TermLoans		Total		Joint Venture Debt
2005	$	4,158	$	47,247	$	18,900	$	—	$	70,305	$	17,240
2006	4,388		—		92,000		—		96,388		376,728
2007	9,671		73,341		—		1,324		84,336		53,723
2008	9,857		—		—		98,676		108,533		21,923
2009	10,207		22,824		—		325,000		358,031		779
Thereafter	38,404		394,379		—		—		432,783		94,817
	$	76,685	$	537,791	$	110,900	$	425,000	$	1,150,376	$	565,210

Mortgage Recording Tax - Hypothecated Loan

Our Operating Partnership mortgage tax credit loans totaled approximately $45.5 million from LBHI at December 31, 2003.  As of December 31, 2004, the LBHI facility was discontinued.  All mortgage tax credit loans had been utilized.  These loans were collateralized by the mortgage encumbering the Operating Partnership’s interests in 290 Madison Avenue.  The loans were also collateralized by an equivalent amount of our cash, which was held by LBHI and invested in US Treasury securities.  Interest earned on the cash collateral was applied by LBHI to service the loans with interest rates commensurate with that of a portfolio of six-month US Treasury securities, which was to mature on June 1, 2005.  Our Operating Partnership and LBHI each had the right of offset and therefore the loans and the cash collateral were presented on a net basis in the consolidated balance sheet.  Under the terms of the LBHI facility, no fees were due to the lender until such time as the facility was utilized.  When a preserved mortgage was assigned to a third party or was used by us in a financing transaction, finance costs were incurred and were only calculated at that time.  These costs were then accounted for based on the nature of the transaction.  If the mortgage credits were sold to a third party, the finance costs were written off directly against the gain on sale of the credits.  If the mortgage credits were used by us, the finance costs were deferred and amortized over the term of the new related mortgage.  The amortization period was dependent on the term of the new mortgage.  The purpose of these loans was to temporarily preserve mortgage recording tax credits for future potential acquisitions of real property, which we may make, the financing of which may include property level debt, or refinancings for which these credits would be applicable and provide a financial savings.  At the same time, the underlying mortgage remains as a bona fide debt to LBHI.  The loans were considered utilized when the loan balance of the facility decreased due to the assignment of the preserved mortgage to a property, which we were acquiring with debt or was being financed by us, or to a third party for the same purposes.

10.  Revolving Credit Facilities

Unsecured Revolving Credit Facility

In September 2004, we modified our $300.0 million unsecured revolving credit facility.  We have a one-time option to increase the capacity under the unsecured revolving credit facility to $375.0 million at any time prior to the maturity date.  The unsecured revolving credit facility matures in March 2006, and has a one-year extension option.  It bears interest at a spread ranging from 105 basis points to 135 basis points over LIBOR, based on our leverage ratio, currently 120 basis points.  The unsecured revolving credit facility also requires a 15 to 25 basis point fee on the unused balance payable annually in arrears. At December 31, 2004, nothing was outstanding under this facility.  Availability under the unsecured revolving credit facility at December 31, 2004 was further reduced by the issuance of letters of credit in the amount of $4.0 million.  The unsecured revolving credit facility includes certain restrictions and covenants (see restrictive covenants below).

Secured Revolving Credit Facility

In December 2001, we obtained a $75.0 million secured revolving credit facility.  The secured revolving credit facility had a term of two years with a one-year extension option.  The extension option was exercised in December 2003.  This facility was further extended and now matures in December 2006.  The facility was increased to $125.0 million in March 2004.  In September 2004, we reduced the interest rate spread to a spread ranging from 105 basis points to 135 basis points over LIBOR, based on our leverage ratios, currently 120 basis points, and is secured by various structured finance investments.  At December 31, 2004, $92.0 million was outstanding and carried an effective all-in annual weighted average interest rate of 4.13%.  The secured revolving credit facility includes certain restrictions and covenants, which are similar to those under the unsecured revolving credit facility (see restrictive covenants below).

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In connection with a structured finance transaction, which closed in June 2004, we entered into a secured term loan for $18.9 million.  This loan, which was scheduled to mature in December 2004, was extended to January 2005.  It carried an interest rate of 200 basis points over the one-month LIBOR (effective all-in rate of 3.77% for the year ended December 31, 2004).  This loan was repaid in January 2005.

Term Loans

In December 2002, we obtained a $150.0 million unsecured term loan.  Effective June 2003, the unsecured term loan was increased to $200.0 million and the term was extended by six months to June 2008.  In August 2004, the unsecured term loan was further increased to $325.0 million and the maturity date was further extended to August 2009.  This term loan bears interest at a spread ranging from 110 basis points to 140 basis points over LIBOR, based on our leverage ratio. As of December 31, 2004, we had $325.0 million outstanding under the unsecured term loan at the rate of 125 basis points over LIBOR.  To limit our exposure to the variable LIBOR rate we entered into various swap agreements to fix the LIBOR rate on the entire unsecured term loan.  The LIBOR rate was fixed for a blended all-in rate of 4.50%.  The effective all-in interest rate on the unsecured term loan was 4.96% for the year ended at December 31, 2004.

In December 2003, we entered into an unsecured non-recourse term loan for $67.6 million, and repaid the mortgage on 555 West 57^th Street.  The terms of this loan were the same as those on the 555 West 57^th Street mortgage.  As a result, this loan carried an effective quarterly interest rate of 8.10 percent due to a LIBOR floor of 6.10% plus 200 basis points.  This loan was repaid in April 2004.

In December 2003, we closed on a $100.0 million five-year non-recourse term loan secured by a pledge of our ownership interest in 1221 Avenue of the Americas.  This term loan has a floating rate of 150 basis points over the current LIBOR rate (effective all-in rate of 3.54% for the year ended December 31, 2004).  During April 2004, we entered into a serial step-swap commencing April 2004 with an initial 24-month all-in rate of 3.83% and a blended all-in rate of 5.10% with a final maturity date in December 2008.

Restrictive Covenants

The terms of the unsecured and secured revolving credit facilities and the term loans include certain restrictions and covenants which limit, among other things, the payment of dividends (as discussed below), the incurrence of additional indebtedness, the incurrence of liens and the disposition of assets, and which require compliance with financial ratios relating to the minimum amount of tangible net worth, the minimum amount of debt service coverage, and fixed charge coverage, the maximum amount of unsecured indebtedness, the minimum amount of unencumbered property debt service coverage and certain investment limitations.  The dividend restriction referred to above provides that, except to enable us to continue to qualify as a REIT for Federal Income Tax purposes, we will not during any four consecutive fiscal quarters make distributions with respect to common stock or other equity interests in an aggregate amount in excess of 90% of funds from operations for such period, subject to certain other adjustments.  As of December 31, 2004 and 2003, we were in compliance with all such covenants.

11.  Fair Value of Financial Instruments

The following disclosures of estimated fair value were determined by management, using available market information and appropriate valuation methodologies.  Considerable judgment is necessary to interpret market data and develop estimated fair value.  Accordingly, the estimates presented herein are not necessarily indicative of the amounts we could realize on disposition of the financial instruments.  The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

Cash equivalents, accounts receivable, accounts payable, and revolving credit facilities balances reasonably approximate their fair values due to the short maturities of these items.  Mortgage notes payable and the unsecured term loans have an estimated fair value based on discounted cash flow models of approximately $1.1 billion, which exceeded the book value of the related fixed rate debt by approximately $11.8 million.  Structured finance investments are carried at amounts, which reasonably approximate their fair value as determined by us.

Disclosure about fair value of financial instruments is based on pertinent information available to us as of December 31, 2004.  Although we are not aware of any factors that would significantly affect the reasonable fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date and current estimates of fair value may differ significantly from the amounts presented herein.

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12.  Rental Income

The Operating Partnership is the lessor and the sublessor to tenants under operating leases with expiration dates ranging from January 1, 2005 to 2023.  The minimum rental amounts due under the leases are generally either subject to scheduled fixed increases or adjustments.  The leases generally also require that the tenants reimburse us for increases in certain operating costs and real estate taxes above their base year costs.  Approximate future minimum rents to be received over the next five years and thereafter for non-cancelable operating leases in effect at December 31, 2004 for the wholly-owned properties and our share of joint venture properties are as follows (in thousands):

	Wholly-Owned Properties		Joint VentureProperties
2005	$	266,574	$126,684
2006	240,971		120,911
2007	230,446		115,903
2008	210,555		104,709
2009	189,754		99,564
Thereafter	690,709		435,058
	$	1,829,009	$1,002,829

13.  Related Party Transactions

Cleaning Services

First Quality Maintenance, L.P., or First Quality, provides cleaning, extermination and related services with respect to certain of the properties owned by us.  First Quality is owned by Gary Green, a son of Stephen L. Green, the chairman of our board of directors and former chief executive officer.  First Quality also provides additional services directly to tenants on a separately negotiated basis.  The aggregate amount of fees paid by us to First Quality for services provided (excluding services provided directly to tenants) was approximately $4.6 million in 2004, $4.3 million in 2003 and $3.4 million in 2002.  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.  First Quality leases 12,290 square feet of space at 70 West 36th Street pursuant to a lease that expires on December 31, 2012 and provides for annual rental payments of approximately $323,000.

Security Services

Classic Security LLC, or Classic Security, provides security services with respect to certain properties owned by us.  Classic Security is owned by Gary Green, a son of Stephen L. Green.  The aggregate amount of fees paid by us for such services was approximately $4.1 million in 2004, $3.7 million in 2003 and $3.2 million in 2002.

Messenger Services

Bright Star Couriers LLC, or Bright Star, provides messenger services with respect to certain properties owned by us.  Bright Star is owned by Gary Green, a son of Stephen L. Green.  The aggregate amount of fees paid by us for such services was approximately $203,000 in 2004, $145,000 in 2003 and $87,000 in 2002.

Leases

Nancy Peck and Company leases 2,013 square feet of space at 420 Lexington Avenue, pursuant to a lease that expires on June 30, 2005 and provides for annual rental payments of approximately $65,000.  Nancy Peck and Company is owned by Nancy Peck, the wife of Stephen L. Green.  The rent due pursuant to the lease is offset against a consulting fee of $10,000 per month an affiliate pays to her pursuant to a consulting agreement, which is cancelable upon 30-days notice.

Brokerage Services

Sonnenblick-Goldman Company, or Sonnenblick, a nationally recognized real estate investment banking firm, provided mortgage brokerage services with respect to securing approximately $80.0 million of first mortgage financing in 2003.  Mr. Morton Holliday, the father of Mr. Marc Holliday, was a Managing Director of Sonnenblick at the time of the financings.  We paid approximately $400,000 in 2003 to Sonnenblick for such services.  In 2003, we also paid $623,000 to Sonnenblick in connection with the acquisition of 461 Fifth Avenue.  In 2004, our 1515 Broadway joint venture paid approximately $855,000 to Sonnenblick in connection with securing a $425.0 million first mortgage for the property.

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Management Fees

S.L. Green Management Corp. receives property management fees from an entity in which Stephen L. Green owns an interest.  The aggregate amount of fees paid to S.L. Green Management Corp. from such entity was approximately $258,000 in 2004, $237,000 in 2003, and $242,000 in 2002.

Amounts due from (to) related parties at December 31 consisted of the following (in thousands):

	2004		2003
17 Battery Condominium Association	$	207	$	290
Due from joint ventures	—		282
Officers and employees	1,681		1,743
Other	3,139		2,927
Related party receivables	$	5,027	$	5,242

Management Indebtedness

In January 2001, Mr. Marc Holliday, then our president, received a non-recourse loan from us in the principal amount of $1.0 million pursuant to his amended and restated employment and non-competition agreement he executed at the time.  This loan bears interest at the applicable federal rate per annum and is secured by a pledge of certain of Mr. Holliday’s shares of our common stock.  The principal of and interest on this loan is forgivable upon our attainment of specified financial performance goals prior to December 31, 2006, provided that Mr. Holliday remains employed by us until January 17, 2007.  In April 2000, Mr. Holliday received a loan from us in the principal amount of $300,000 with a maturity date of July 2003.  This loan bears interest at a rate of 6.60% per annum and is secured by a pledge of certain of Mr. Holliday’s shares of our common stock.  In May 2002, Mr. Holliday entered into a loan modification agreement with us in order to modify the repayment terms of the $300,000 loan.  Pursuant to the agreement, $100,000 (plus accrued interest thereon) is forgivable on each of January 1, 2004, January 1, 2005 and January 1, 2006, provided that Mr. Holliday remains employed by us through each of such date.  The balance outstanding on this loan, including accrued interest, was approximately $200,000 on December 31, 2004.  In addition, the $300,000 loan shall be forgiven if and when the $1.0 million loan that Mr. Holliday received pursuant to his amended and restated employment and non-competition agreement is forgiven.

Gramercy Capital Corp.

See Note 6. Investment in Unconsolidated Joint Ventures – Gramercy Capital Corp. for disclosure on related party transactions between Gramercy and us.

14.  Convertible Preferred Stock

Our 4,600,000 8% Preferred Income Equity Redeemable Shares, or PIERS, were converted into 4,698,880 shares of common stock on September 30, 2003.  No charge was recorded to earnings, as the conversion was not a redemption or an induced conversion to common stock.  They were non-voting and were convertible at any time at the option of the holder into our common stock at a conversion price of $24.475 per share.  The PIERS received annual dividends of $2.00 per share paid on a quarterly basis and dividends were cumulative, subject to certain provisions.  The PIERS were initially recorded net of underwriters discount and issuance costs.  These costs were being accreted over the expected term of the PIERS using the effective interest method.

15.  Stockholders’ Equity

Common Stock

Our authorized capital stock consists of 200,000,000 shares, $.01 par value, of which we have authorized the issuance of up to 100,000,000 shares of common stock, $.01 par value per share, 75,000,000 shares of excess stock, at $.01 par value per share, and 25,000,000 shares of preferred stock, par value $.01 per share.  As of December 31, 2004, 40,875,989 shares of common stock and no shares of excess stock were issued and outstanding.

In January 2004, we sold 1,800,000 shares of our common stock at a gross price of $42.33 per share.  The net proceeds from this offering (approximately $73.6 million) were used to pay down our unsecured revolving credit facility.

In August 2004, we sold 1,350,000 shares of our common stock at a gross price of $48.50 per share.  The net proceeds from this offering (approximately $65.0 million) were used to pay down our unsecured revolving credit facility.

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We filed a $500.0 million shelf registration statement, which was declared effective by the Securities and Exchange Commission, or SEC, in March 2004.  This registration statement provides us with the ability to issue common and preferred stock, depository shares and warrants.  We currently have $334.5 million available under the shelf.

Perpetual Preferred Stock

In December 2003, we sold 6,300,000 shares of 7.625% Series C cumulative redeemable preferred stock, or the Series C preferred stock, (including the underwriters’ over-allotment option of 700,000 shares) with a mandatory liquidation preference of $25.00 per share.  Net proceeds from this offering (approximately $152.0 million) were used principally to repay amounts outstanding under our secured and unsecured revolving credit facilities.  The Series C preferred stock receive annual dividends of $1.90625 per share paid on a quarterly basis and dividends are cumulative, subject to certain provisions.  On or after December 12, 2008, we may redeem the Series C preferred stock at par for cash at our option.  The Series C preferred stock was recorded net of underwriters discount and issuance costs.

In April 2004, we issued 2,450,000 shares of our 7.875% Series D cumulative redeemable preferred stock, or the Series D preferred stock, with a mandatory liquidation preference of $25.00 per share.  Net proceeds from this offering (approximately $59.0 million) were used principally to repay amounts outstanding under our secured and unsecured revolving credit facilities.  The Series D preferred stock receive annual dividends of $1.96875 per share paid on a quarterly basis and dividends are cumulative, subject to certain provisions.  On or after May 27, 2009, we may redeem the Series D preferred stock at par for cash at our option.  The Series D preferred stock was recorded net of underwriters discount and issuance costs.  In July 2004, we issued an additional 1,550,000 shares of Series D preferred stock, raising additional net proceeds of approximately $37.3 million.

Rights Plan

In February 2000, our board of directors authorized a distribution of one preferred share purchase right, or Right, for each outstanding share of common stock under a shareholder rights plan. This distribution was made to all holders of record of the common stock on March 31, 2000.  Each Right entitles the registered holder to purchase from the Company one one-hundredth of a share of Series B junior participating preferred stock, par value $0.01 per share, or Preferred Shares, at a price of $60.00 per one one-hundredth of a Preferred Share, or Purchase Price, subject to adjustment as provided in the rights agreement.  The Rights expire on March 5, 2010, unless we extend the expiration date or the Right is redeemed or exchanged earlier.

The Rights are attached to each share of common stock.  The Rights are generally exercisable only if a person or group becomes the beneficial owner of 17% or more of the outstanding common stock or announces a tender offer for 17% or more of the outstanding common stock, or Acquiring Person.  In the event that a person or group becomes an Acquiring Person, each holder of a Right, excluding the Acquiring Person, will have the right to receive, upon exercise, common stock having a market value equal to two times the Purchase Price of the Preferred Shares.

Dividend Reinvestment and Stock Purchase Plan

We filed a registration statement with the SEC for our dividend reinvestment and stock purchase plan, or DRIP, which was declared effective on September 10, 2001, and commenced on September 24, 2001.  We registered 3,000,000 shares of our common stock under the DRIP.

During the years ended December 31, 2004 and 2003, 194,863 and 68,453 shares were issued and approximately $8.9 million and $2.5 million of proceeds were received, respectively, from dividend reinvestments and/or stock purchases under the DRIP.  DRIP shares may be issued at a discount to the market price.

2003 Long-Term Outperformance Compensation Program

Our board of directors has adopted a long-term, seven-year compensation program for senior management.  The program, which measures our performance over a 48-month period (unless terminated earlier) commencing April 1, 2003, provides that holders of our common equity are to achieve a 40% total return during the measurement period over a base of $30.07 per share before any restricted stock awards are granted.  Management will receive an award of restricted stock in an amount between 8% and 10% of the excess return over the baseline return.  At the end of the four-year measurement period, 40% of the award will vest on the measurement date and 60% of the award will vest ratably over the subsequent three years based on continued employment.  Any restricted stock to be issued under the program will be allocated from our Stock Option Plan (as defined below), which was previously approved through a stockholder vote in May 2002.  We record the expense of the restricted stock award in accordance with SFAS 123.  The fair value of the award on the date of grant was determined to be $3.2 million.  Forty percent of the value of the award will be amortized over four years and the balance will be amortized at 20% per year over five, six and seven years, respectively, such that 20% of year five, 16.67% of year six, and 14.29% of year seven will be recorded in year one.  The total value of the award (capped at $25.5 million)

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will determine the number of shares assumed to be issued for purposes of calculating diluted earnings per share.  Compensation expense of $650,000 and $485,000 was recorded during the years ended December 31, 2004 and 2003, respectively.

Deferred Stock Compensation Plan for Directors

Under our Independent Director’s Deferral Program, which commenced July 2004, our non-employee directors may elect to defer up to 100% of their annual retainer fee, chairman fees and meeting fees.  Unless otherwise elected by a participant, fees deferred under the program shall be credited in the form of phantom stock units.  The phantom stock units are convertible into an equal number of shares of common stock upon such directors’ termination of service from the Board of Directors or a change in control by us, as defined by the program.  Phantom stock units are credited to each non-employee director quarterly using the closing price of our common stock on the applicable dividend record date for the respective quarter.  Each participating non-employee director’s account is also credited for an equivalent amount of phantom stock units based on the dividend rate for each quarter.

During the six months ended December 31, 2004, 1,000 phantom stock units were earned.  As of December 31, 2004, there were approximately 1,000 phantom stock units outstanding.

Stock Option Plan

During August 1997, we instituted the 1997 Stock Option and Incentive Plan, or the Stock Option Plan.  The Stock Option Plan was amended in December 1997, March 1998, March 1999 and May 2002.  The Stock Option Plan, as amended, authorizes (i) the grant of stock options that qualify as incentive stock options under Section 422 of the Code, or ISOs, (ii) the grant of stock options that do not qualify, or NQSOs, (iii) the grant of stock options in lieu of cash Directors’ fees and (iv) grants of shares of restricted and unrestricted common stock.  The exercise price of stock options are determined by our compensation committee, but may not be less than 100% of the fair market value of the shares of our common stock on the date of grant.  At December 31, 2004, approximately 3,113,873 shares of our common stock were reserved for issuance under the Stock Option Plan.

Options granted under the Stock Option Plan are exercisable at the fair market value on the date of grant and, subject to termination of employment, expire ten years from the date of grant, are not transferable other than on death, and are generally exercisable in three to five annual installments commencing one year from the date of grant.

A summary of the status of our stock options as of December 31, 2004, 2003 and 2002 and changes during the years then ended are presented below:

	2004					2003					2002
	Options Outstanding			Weighted Average Exercise Price		Options Outstanding			Weighted Average Exercise Price		Options Outstanding			Weighted Average Exercise Price
Balance at beginning of year	3,250,231			$	26.80	3,278,663			$	25.49	2,598,066			$	23.76
Granted	132,333			$	43.77	327,000			$	35.09	1,050,000			$	28.25
Exercised	(1,080,835		)	$	23.40	(347,099		)	$	22.14	(321,846		)	$	20.64
Lapsed or cancelled	(131,967		)	$	28.67	(8,333		)	$	24.52	(47,557		)	$	23.32
Balance at end of year	2,169,762			$	29.39	3,250,231			$	26.80	3,278,663			$	25.49
Options exercisable at end of year	789,785			$	26.54	1,404,467			$	23.41	1,182,902			$	22.62
Weighted average fair value of options granted during the year	$	475,000				$	1,150,000				$	3,515,000

All options were granted within a price range of $18.44 to $54.82.  The remaining weighted average contractual life of the options was 7.2 years.

Earnings Per Share

Earnings per share for the years ended December 31, is computed as follows (in thousands):

Numerator (Income)	2004		2003		2002
Basic Earnings:
Income available to common shareholders	$	193,172	$	90,447	$	64,641
Effect of Dilutive Securities:
Redemption of units to common shares	11,352		6,299		4,752
Preferred Stock (as converted to common stock)	—		7,087		9,690
Stock options	—		—		—
Diluted Earnings:
Income available to common shareholders	$	204,524	$	103,833	$	79,083

Denominator Weighted Average (Shares)	2004	2003	2002
Basic Shares:
Shares available to common shareholders	39,171	32,265	30,236
Effect of Dilutive Securities:
Redemption of units to common shares	2,302	2,305	2,208
Preferred Stock (as converted to common stock)	—	3,491	4,699
Stock-based compensation plans	1,605	909	643
Diluted Shares	43,078	38,970	37,786

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16.  Minority Interest

The unit holders represent the minority interest ownership in our Operating Partnership.  As of December 31, 2004 and 2003, the minority interest unit holders owned 5.8% (2,530,942 units) and 6.0% (2,305,955 units) of our Operating Partnership, respectively.  At December 31, 2004, 2,530,942 shares of our common stock were reserved for the conversion of units of limited partnership interest in our Operating Partnership.

In February 2003, our Operating Partnership issued 376,000 units of limited partnership interest in connection with the acquisition of 220 East 42^nd Street.

In March 2003, our Operating Partnership issued 51,667 units of limited partnership interest in connection with the acquisition of condominium interests in 125 Broad Street.

In October 2004, our Operating Partnership issued 306,000 units of limited partnership interest in connection with the acquisition of 625 Madison Avenue.

17.  Benefit Plans

The building employees are covered by multi-employer defined benefit pension plans and post-retirement health and welfare plans. Contributions to these plans amounted to approximately $3.4 million; $3.3 million and $2.7 million during the years ended December 31, 2004, 2003 and 2002, respectively.  Separate actuarial information regarding such plans is not made available to the contributing employers by the union administrators or trustees, since the plans do not maintain separate records for each reporting unit.

Executive Stock Compensation

During July 1998, we issued 150,000 shares in connection with an employment contract.  These shares vest annually at rates of 15% to 35% and were recorded at fair value.  At December 31, 2004, 143,650 of these shares had vested.  We recorded compensation expense of approximately $604,000, $445,000 and $713,000 for the years ended December 31, 2004, 2003 and 2002, respectively.

Effective January 1, 1999, we implemented a deferred compensation plan, or the Deferred Plan, covering certain of our executives.  In connection with the Deferred Plan, we issued 351,750, 211,750 and 17,500 restricted shares in 2004, 2003 and 2002, respectively.  The shares issued under the Deferred Plan were granted to certain executives and vesting will occur annually upon our meeting established financial performance criteria.  Annual vesting occurs at rates ranging from 15% to 35% once performance criteria are reached.  As of December 31, 2004, 421,020 of these shares had vested and 110,650 had been retired.  We recorded compensation expense of approximately $7.1 million, including a one-time charge related to a restricted stock award, $2.0 million and $685,000 for the years ended December 31, 2004, 2003 and 2002, respectively.

401(K) Plan

During August 1997, we implemented a 401(K) Savings/Retirement Plan, or the 401(K) Plan, to cover eligible employees of ours, and any designated affiliate.  The 401(K) Plan permits eligible employees to defer up to 15% of their annual compensation, subject to certain limitations imposed by the Code.  The employees’ elective deferrals are immediately vested and non-forfeitable upon contribution to the 401(K) Plan.  During 2000, we amended our 401(K) Plan to include a matching contribution, subject to ERISA limitations, equal to 50% of the first 4% of annual compensation deferred by an employee.  During 2003, we amended our 401(K) Plan to provide for discretionary matching contributions only.  For the years ended December 31, 2004, 2003 and 2002, we made matching contributions of approximately $149,000, none and $140,000, respectively.

18.  Commitments and Contingencies

We and our Operating Partnership are not presently involved in any material litigation nor, to our knowledge, is any material litigation threatened against us or our properties, other than routine litigation arising in the ordinary course of business.  Management believes the costs, if any, incurred by us and our Operating Partnership related to this litigation will not materially affect our financial position, operating results or liquidity.

On October 24, 2001, an accident occurred at 215 Park Avenue South, a property which we manage, but do not own.  Personal injury and wrongful death claims were filed against us and others by 11 persons.  We believe that there is sufficient insurance coverage to cover the cost of such claims, as well as any other personal injury or property claims, which may arise.  We believe that we have no monetary exposure under the lawsuit.

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We entered into employment agreements with certain executives.  Six executives have employment agreements, which expire between November 2005 and January 2010.  The minimum cash-based compensation, including base salary and guaranteed bonus payments, associated with these employment agreements totals approximately $3.8 million for 2005.

During March 1998, we acquired an operating sub-leasehold position at 420 Lexington Avenue.  The operating sub-leasehold position requires annual ground lease payments totaling $6.0 million and sub-leasehold position payments totaling $1.1 million (excluding an operating sub-lease position purchased January 1999).  The ground lease and sub-leasehold positions expire 2008.  We may extend the positions through 2029 at market rents.

The property located at 1140 Avenue of the Americas operates under a net ground lease ($348,000 annually) with a term expiration date of 2016 and with an option to renew for an additional 50 years.

The property located at 711 Third Avenue operates under an operating sub-lease, which expires in 2083.  Under the sub-lease, we are responsible for ground rent payments of $1.6 million annually, which increased to $3.1 million in July 2001 and will continue for the next ten years.  The ground rent is reset after year ten based on the estimated fair market value of the property.

The property located at 461 Fifth Avenue operates under a ground lease (approximately $1.8 million annually) with a term expiration date of 2006 and with three options to renew for an additional 21 years each, followed by a fourth option for 15 years.  We also have an option to purchase the ground lease for a fixed price on a specific date.

In April 1988, the SL Green predecessor entered into a lease agreement for property at 673 First Avenue, which has been capitalized for financial statement purposes.  Land was estimated to be approximately 70% of the fair marketvalue of the property. The portion of the lease attributed to land is classified as an operating lease and the remainder as a capital lease.  The initial lease term is 49 years with an option for an additional 26 years.  Beginning in lease years 11 and 25, the lessor is entitled to additional rent as defined by the lease agreement.

We continue to lease the 673 First Avenue property, which has been classified as a capital lease with a cost basis of $12.2 million and cumulative amortization of $4.2 million and $3.9 million at December 31, 2004 and 2003, respectively.

The following is a schedule of future minimum lease payments under capital leases and noncancellable operating leases with initial terms in excess of one year as of December 31, 2004 (in thousands):

December 31,	Capital lease			Non-cancellable operating leases
2005	$	1,322		$	18,381
2006	1,416			17,488
2007	1,416			16,594
2008	1,416			16,594
2009	1,416			16,594
Thereafter	53,320			329,971
Total minimum lease payments	60,306			$	415,622
Less amount representing interest	(43,864		)
Present value of net minimum lease payments	$	16,442

19.Financial Instruments: Derivatives and Hedging

SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” which became effective January 1, 2001, requires us to recognize all derivatives on the balance sheet at fair value.  Derivatives that are not hedges must be adjusted to fair value through income.  If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the 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 will be immediately recognized in earnings.  SFAS No. 133 may increase or decrease reported net income and stockholders’ equity prospectively, depending on future levels of interest rates and other variables affecting the fair values of derivative instruments and hedged items, but will have no effect on cash flows.

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The following table summarizes the notional and fair value of our derivative financial instruments at December 31, 2004.  The notional value is an indication of the extent of our involvement in these instruments at that time, but does not represent exposure to credit, interest rate or market risks (in thousands).

	Notional Value		Strike Rate		Effective Date	Expiration Date	Fair Value
Interest Rate Swap	$	65,000	4.010	%	11/2001	8/2005	(501	)
Interest Rate Swap	$	—	3.300	%	8/2005	9/2006	146
Interest Rate Swap	$	—	4.330	%	9/2006	6/2008	(315	)
Interest Rate Swap	$	100,000	4.060	%	12/2003	12/2007	(1,468	)
Interest Rate Swap	$	35,000	4.113	%	12/2004	6/2008	(547	)
Interest Rate Swap	$	100,000	2.330	%	4/2004	5/2006	1,057
Interest Rate Swap	$	—	4.650	%	5/2006	12/2008	(1,435	)
Interest Rate Swap	$	125,000	2.710	%	9/2004	9/2006	1,091
Interest Rate Swap	$	—	4.352	%	9/2006	8/2009	(450	)
Interest Rate Swap (1)	$	94,000	4.463	%	12/2004	12/2014	1,075

(1)  We anticipate entering into a 10-year financing during the first half of 2005 in connection with the refinancing of a property mortgage.

On December 31, 2004, the derivative instruments were reported as an obligation at their fair value of approximately $1.4 million.  Offsetting adjustments are represented as deferred gains or losses in Accumulated Other Comprehensive Income of $5.7 million, including a gain of approximately $7.2 million from the settlement of a forward swap.  This gain is being amortized over the ten-year term of its related mortgage obligation from December 2003.  Currently, all of our derivative instruments are designated as effective hedging instruments.

Over time, the realized and unrealized gains and losses held in Accumulated Other Comprehensive Income (Loss) will be reclassified into earnings as interest expense in the same periods in which the hedged interest payments affect earnings.  We estimate that approximately $1.2 million of the current balance held in Accumulated Other Comprehensive Loss will be reclassified into earnings within the next 12 months.

We are hedging exposure to variability in future cash flows for forecasted transactions in addition to anticipated future interest payments on existing debt.

20.  Environmental Matters

Our management believes that the properties are in compliance in all material respects with applicable Federal, state and local ordinances and regulations regarding environmental issues.  Management is not aware of any environmental liability that it believes would have a materially adverse impact on our financial position, results of operations or cash flows.  Management is unaware of any instances in which it would incur significant environmental cost if any of the properties were sold.

21.  Segment Information

We are a REIT engaged in owning, managing, leasing, acquiring and repositioning office properties in Manhattan and have two reportable segments, office real estate and structured finance investments.  We evaluate real estate performance and allocate resources based on contribution to income from continuing operations.

Our real estate portfolio is primarily located in the geographical market of Manhattan.  The primary sources of revenue are generated from tenant rents and escalations and reimbursement revenue.  Real estate property operating expenses consist primarily of security, maintenance, utility costs, real estate taxes and ground rent expense (at certain applicable properties).  See Note 5 for additional details on our structured finance investments.

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Selected results of operations for the years ended December 31, 2004, 2003 and 2002, and selected asset information as of December 31, 2004 and 2003, regarding our operating segments are as follows (in thousands):

	Real Estate Segment		Structured Finance Segment		Total Company
Total revenues
Year ended:
December 31, 2004	$	304,624	$	39,094	$	343,718
December 31, 2003	259,584		22,086		281,670
December 31, 2002	187,552		23,176		210,728
Income from continuing operations:
Year ended:
December 31, 2004	$	81,454	$	30,589	$	112,043
December 31, 2003	47,761		18,751		66,512
December 31, 2002	44,588		15,446		60,034
Total assets
As of:
December 31, 2004	$	2,401,854	$	350,027	$	2,751,881
December 31, 2003	2,042,852		218,989		2,261,841

Income from continuing operations represents total revenues less total expenses for the real estate segment and total revenues less allocated interest expense for the structured finance segment.  Interest costs for the structured finance segment are imputed assuming 100% leverage at our unsecured revolving credit facility borrowing cost.  We do not allocate marketing, general and administrative expenses (approximately $30.3 million, $17.1 million and $13.3 million for the years ended December 31, 2004, 2003 and 2002, respectively) to the structured finance segment, since it bases performance on the individual segments prior to allocating marketing, general and administrative expenses.  All other expenses, except interest, relate entirely to the real estate assets.

There were no transactions between the above two segments.

The table below reconciles income from continuing operations before minority interest to net income available to common shareholders for the years ended December 31, 2004, 2003 and 2002 (in thousands):

	Years ended December 31,
	2004			2003			2002
Income from continuing operations before adjustments	$	95,661		$	67,542		$	63,742
Equity in net gain on sale of joint venture property	22,012			3,087			—
Minority interest in operating partnership attributable to continuing operations	(5,630		)	(4,038		)	(3,708		)
Minority interest in partially-owned entities	—			(79		)	—
Net income from continuing operations	112,043			66,512			60,034
Income from discontinued operations, net of minority interest	7,017			10,320			14,297
Gain on sale of discontinued operations, net of minority interest	90,370			21,327			—
Net income	209,430			98,159			74,331
Preferred stock dividends and accretion	(16,258		)	(7,712		)	(9,690		)
Net income available for common shareholders	$	193,172		$	90,447		$	64,641

22.  Supplemental Disclosure of Non-Cash Investing and Financing Activities

	Years ended December 31,
	2004			2003
Issuance of common stock as deferred compensation	$	14,144		$	6,670
Derivative instruments at fair value	(1,347		)	(9,009		)
Issuance of units of limited partnership interest in connection with acquisition	15,466			12,845
Assumption of mortgage notes payable upon acquisition of real estate	102,000			234,641
Fair value of above and below market leases (SFAS No. 141) in connection with acquisitions	10,050			(2,995		)
Fair value of debt assumed (SFAS No. 141) in connection with acquisition	—			3,232
Redemption premium purchase price adjustment	—			4,380
Assignment of mortgage note payable upon sale of real estate	—			14,814
Conversion of preferred equity investment	—			53,500
Conversion of Series A preferred stock	—			112,112
Assumption of our share of joint venture mortgage note payable	—			78,750
Tenant improvements and leasing commissions payable	3,611			14,533

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23.  Quarterly Financial Data (unaudited)

As a result of the adoption of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” and SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 62, Amendment of FASB Statement No. 13, and Technical Corrections,” we are providing updated summary selected quarterly financial information, which is included below reflecting the prior period reclassification as discontinued operations of the properties classified as held for sale during 2004.

Quarterly data for the last two years is presented in the tables below.

2004 Quarter Ended	December 31			September 30			June 30			March 31
Total revenues	$	94,114		$	85,868		$	82,711		$	81,025
Income net of minority interest and before gain on sale	24,809			22,722			25,225			17,443
Equity in net gain on sale of joint venture property	—			—			22,012			—
Discontinued operations	1,486			2,428			1,594			1,512
Gain on sale of discontinued operations	90,199			—			—			—
Net income before preferred dividends	116,494			25,150			48,831			18,955
Preferred dividends and accretion	(4,969		)	(4,843		)	(3,446		)	(3,000		)
Income available to common shareholders	$	111,525		$	20,307		$	45,385		$	15,955
Net income per common share-Basic	$	2.75		$	0.52		$	1.18		$	0.42
Net income per common share-Diluted	$	2.64		$	0.49		$	1.13		$	0.40

2003 Quarter Ended	December 31			September 30			June 30			March 31
Total revenues	$	79,632		$	74,714		$	67,458		$	59,866
Income net of minority interest and before gain on sale	16,967			16,109			15,521			14,891
Equity in net gain on sale of joint venture property	3,087			—			—			—
Discontinued operations	2,143			1,787			2,752			3,632
Gain on sale of discontinued operations	—			3,745			(300		)	17,824
Net income before preferred dividends	22,197			21,641			17,973			36,347
Preferred dividends and accretion	(625		)	(2,224		)	(2,431		)	(2,431		)
Income available to common shareholders	$	21,572		$	19,417		$	15,542		$	33,916
Net income per common share-Basic	$	0.60		$	0.62		$	0.50		$	1.11
Net income per common share-Diluted	$	0.58		$	0.59		$	0.49		$	1.01

24.  Subsequent Events

In January 2005, we entered into an agreement to acquire the fee interest in 28 West 44th Street, the former headquarters of The New Yorker magazine, for $105.0 million.  The property was acquired from a Chicago-based real estate investment company.  The transaction closed in February 2005.  The property is a 21-story; 359,000 square foot building located two blocks from Grand Central Station, and is directly across the street from 19 W. 44th Street, also owned by us.  The property is currently 87% leased.  The property was acquired with funds initially drawn under our unsecured revolving credit facility and funds advanced by a lender on account of its taking by assignment an existing mortgage encumbering the property.

Our Board of Directors approved a restricted stock award to a group of our executive officers and members of senior management.  The restricted stock award was issued on February 1, 2005 in an aggregate amount of 199,700 shares and will vest over a five year period subject to the recipients remaining our employee, with 60% of the award vesting on the fourth and fifth anniversary of the award.  Recipients will have the right to receive dividends on their respective shares of restricted stock commencing on the date of issuance.  We will also provide for a tax gross-up on the awards.  The shares of restricted stock are being issued under our Stock Option Plan.

On April 12, 2005, we sold 1414 Avenue of the Americas for approximately $60.5 million.  We expect to recognize a gain of approximately $35.0 million from the sale.  The sale was effectuated through a reverse 1031 exchange with 625 Madison Avenue, which will result in substantially all of the taxable gain on sale being deferred.

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SL Green Realty Corp.

Schedule III-Real Estate And Accumulated Depreciation

December 31, 2004

(Dollars in thousands)

Column A	Column B		Column C Initial Cost				Column D Cost Capitalized Subsequent To Acquisition				Column E Gross Amount at Which Carried at Close of Period						Column F		Column G	Column H	Column I
Description (1)	Encumbrances		Land		Building & Improvements		Land		Building & Improvements		Land		Building & Improvements		Total		Accumulated Depreciation		Date of Construction	Date Acquired	Life on Which Depreciation is Computed
70 West 36th Street	$	11,611	$	1,517	$	7,830	$	13	$	6,587	$	1,530	$	14,417	$	15,947	$	6,570		12/19/84	Various
1414 Ave. of Amer.	13,325		2,948		6,936		60		4,371		3,008		11,307		14,315		2,533			6/18/96	Various
673 First Ave.	35,000		—		43,618		—		4,735		—		48,353		48,353		20,131			8/20/97	Various
470 Park Ave. So.	—		3,750		22,040		1		17,588		3,751		39,628		43,379		16,376			8/20/97	Various
1372 Broadway	—		10,478		42,187		67		10,758		10,545		52,945		63,490		11,823			8/20/97	Various
1140 Ave. of Amer.	—		—		21,304		—		5,893		—		27,197		27,197		5,058			8/20/97	Various
110 E. 42nd Street	—		3,680		14,842		26		5,313		3,706		20,155		23,861		5,553			9/15/97	Various
420 Lexington Ave.	119,412		—		107,824		—		57,922		—		165,746		165,746		32,442			3/18/98	Various
440 Ninth Ave.	—		6,326		25,402		—		20,346		6,326		45,748		52,074		12,215			6/1/98	Various
711 Third Avenue	47,602		19,843		42,486		—		15,230		19,843		57,716		77,559		12,027			5/20/98	Various
555 W. 57th Street	—		18,845		78,698		—		15,958		18,845		94,656		113,501		14,825			1/1/99	Various
286 Madison Ave	—		2,474		10,332		—		2,857		2,474		13,189		15,663		1,877			5/24/99	Various
290 Madison Ave.	—		1,576		6,616		—		369		1,576		6,985		8,561		993			5/24/99	Various
292 Madison Ave.	—		5,949		24,141		—		5,848		5,949		29,989		35,938		4,069			5/24/99	Various
317 Madison Ave.	—		21,205		85,551		—		11,973		21,205		97,524		118,729		9,700			6/7/01	Various
220 East 42nd Street	210,000		50,373		201,184		635		12,586		51,008		213,770		264,778		10,424			2/13/03	Various
125 Broad Street	75,526		5,965		96,611		—		636		5,965		97,247		103,212		4,243			3/28/03	Various
461 Fifth Avenue	—		—		62,652		—		542		—		63,194		63,194		1,963			10/1/03	Various
750 Third Avenue	—		51,093		205,307		—		6		51,093		205,313		256,406		2,184			7/28/04	Various
625 Madison Ave.	102,000		—		244,097		—		104		—		244,201		244,201		1,230			10/19/04	Various
	$	614,476	$	206,022	$	1,349,658	$	802	$	199,622	$	206,824	$	1,549,280	$	1,756,104	$	176,238

(1)All properties located in New York, New York

The changes in real estate for the three years ended December 31, 2004 are as follows:

	2004				2003				2002
Balance at beginning of year	$		1,346,431		$		975,777		$	984,375
Property acquisitions	509,102				410,937				—
Improvements	34,380				31,617				32,123
Retirements/disposals	(133,809			)	(71,900			)	(40,721			)
Balance at end of year	$	1,756,104			$	1,346,431			$		975,777

The aggregate cost of land, buildings and improvements, before depreciation, for Federal income tax purposes at December 31, 2004 was approximately $1.4 billion.

The changes in accumulated depreciation, exclusive of amounts relating to equipment, autos, and furniture and fixtures, for the three years ended December 31, 2004, are as follows:

	2004				2003				2002
Balance at beginning of year	$		156,768		$	126,669			$	100,776
Depreciation for year	42,417				37,614				30,907
Retirements/disposals	(22,947			)	(7,515			)	(5,014			)
Balance at end of year	$	176,238			$		156,768		$		126,669

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