Fitch Rates SL Green Realty Corp.'s IDR at 'BB+'; Outlook Negative

SL Green Realty Corp.

--IDR 'BB+'.

--Perpetual preferred stock 'BB-'.

SL Green Operating Partnership, L.P.

--IDR 'BB+';

--Revolving credit facility 'BB+';

--Senior unsecured notes 'BB+';

Fitch has affirmed the ratings of Reckson Operating Partnership, L.P. as follows:

Reckson Operating Partnership, L.P.

--IDR affirmed at 'BB+'

--Senior unsecured notes affirmed at 'BB+'.

Fitch has revised the Rating Outlook to Negative from Stable.

The ratings reflect Fitch's view that the consistent performance of SLG's portfolio as evidenced by a 94.8% occupancy as of March 31, 2009, same-store NOI growth during the quarter ended March 31, 2009 of 2.5%, and unencumbered asset coverage of unsecured debt, which at 1.4 times (x) as of March 31, 2009, based on Fitch's calculation, provides modest protection to unsecured bondholders.

The ratings are further supported by SLG's leverage and coverage ratios. SLG's debt-to-recurring EBITDA ratio was 8.3x as of March 31, 2009 compared to 8.5x at Dec. 31, 2008 and 9.6x at Dec. 31, 2007, and SLG has a solid fixed-charge coverage ratio (defined as recurring EBITDA less capital expenditures and straight-line rents, divided by interest expense, capitalized interest, and distributions on preferred stock) of 1.9x for the 12 months ended March 31, 2009, up from 1.7x in 2008.

While SLG has drawn approximately $1.4 billion of its $1.5 billion line of credit, Fitch estimates that the company has over $700 million of cash, pro forma for net proceeds of approximately $387 million from its recent common equity offering. Fitch notes that SLG's liquidity surplus of over $400 million, supported by a sizeable cash balance, a manageable debt maturity schedule, and SLG's most recent actions to reduce its common dividend and issue equity to delever the balance sheet provide SLG with adequate liquidity and limit refinance risk over the next two years.

The ratings also point to the strength of SLG's management team. In addition, the company's ratios under its unsecured credit facilities' financial covenants do not hinder the company's financial flexibility.

Offsetting these credit positives, Fitch notes that while same property NOI growth was positive for the quarter ended March 31, 2009, it has declined from 4.2% and 12.2% as of fourth quarter 2008 (4Q'08) and 1Q'08, respectively, while occupancy for the Manhattan portfolio has remained relatively stable at 96.2% in 1Q'09, compared to 96.7% and 96.3% as of 4Q'08, and 1Q'08, respectively. Fitch anticipates further deterioration in operating performance, as challenging New York City office property fundamentals are likely to persist for several years.

Fitch remains concerned that SLG's usage of secured debt limits financial flexibility and protection for unsecured creditors. Fitch calculates that SLG's unencumbered assets - based on undepreciated book values, to unsecured debt coverage has been below 1.5x since 2007. The ratings also acknowledge the volatile Manhattan office market, where the bulk of SLG's assets exist, the impact of the constrained credit markets and SLG's exposure to financial services tenants, which account for 41% of SLG's combined base rental revenues, all of which expose SLG's portfolio to increased market risk and refinance risk, respectively.

Consistent with Fitch's criteria, 'Parent and Subsidiary Rating Linkage' dated June 19, 2008 and available on 'www.fitchratings.com', the Reckson IDR ranks pari passu with that of SLG due to strong legal, operational and strategic ties between SLG and Reckson and a stronger Reckson standalone credit profile relative to that of standalone SLG.

The two notch differential between SLG's IDR and its preferred stock is consistent with Fitch's criteria for corporate entities with an IDR of 'BB+' and further reflects the fact that SLG's preferred stock does not contain covenant protections comparable to those within debt agreements governing SLG's senior unsecured debt obligations.

In addition, based on Fitch's criteria report, 'Equity Credit for Hybrids & Other Capital Securities', SLG's preferred stock is 75% equity-like and 25% debt-like since SLG's preferred stock is perpetual and has no covenants, but has a cumulative deferral option. Debt plus 25% of preferred stock-to-recurring EBITDA was 8.4x as of March 31, 2009, compared with 8.6x as of Dec. 31, 2008.

The Negative Outlook centers on the weakening office property fundamentals in Manhattan, the geographic concentration of SLG's portfolio of office properties in only New York City, Connecticut and Westchester, NY, SLG's modest pool of unencumbered assets relative to its unsecured debt, and the increased potential for refinance risk due to SLG's sizeable mortgages on single assets.

Fitch's existing ratings and Outlook for SLG could come under pressure if (i) Fitch-defined fixed charge coverage were to fall to 1.5x or lower for several consecutive quarters, (ii) if SLG were to have a liquidity shortfall, (iii) if total debt to annualized recurring EBITDA were to increase above 10.0x and (iv) if SLG's unencumbered asset to unsecured debt coverage ratio were to fall below 1.1x.

Conversely, the current ratings or Outlook may improve if (i) Fitch-defined fixed charge coverage were to remain above to 2.5x for several consecutive quarters, (ii) if SLG were to sustain a liquidity surplus of at least $100 million, (iii) if total debt to annualized recurring EBITDA were to sustain below 8.5x and (iv) if SLG's unencumbered asset to unsecured debt coverage ratio were to sustain above 1.75x.

SLG is a self-administered and self-managed real estate investment trust that predominantly acquires, owns, repositions and manages Manhattan and suburban office properties. As of March 31, 2009, the company owned 29 New York City office properties totaling approximately 23,211,200 square feet (sf), and 32 suburban assets totaling 6,986,500 sf. SLG also held investment interests in, eight retail properties, three development properties, and two land interests. SLG had $11.1 billion in total book assets and $3.7 billion in total shareholders' equity as of March 31, 2009.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 'www.fitchratings.com'. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site. The ratings for SL Green Realty Corp. and SL Green Operating Partnership, L.P. have been initiated by Fitch as a service to investors.

SOURCE: Fitch Ratings

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