Q3 2019 Earnings Call
At this time the company would like to remind listeners that during the call management may make forward looking statements actual results may differ from the forward looking statements that management may make today.
Additional information regarding the factors that could cause such differences appealing and DNA section.
<unk> Form 10-K .
Oh by the company with the Securities and Exchange Commission also during today's conference call. The company May discuss non-GAAP financial measures as defined by asking you see regulation G. The GAAP financial measure most directly comparable to each non-GAAP financial measures discussed.
Consummation of the differences between each non-GAAP financial measure and comparable GAAP financial measure can be found in the company's website.
Www Dot Oh Green Dot com.
The press release regarding the company's third quarter 2019 earnings before turning the call over to Mark Holiday, Chairman and Chief Executive Officer, SL Green Realty Corp.
Those of you participating in the Q when they push another call. Please limit your questions two per person. Thank you I will now turn the call over to Mark holidays. Please go ahead mark.
Okay. Thank you good afternoon, everyone. Thank you for joining our call today.
Third quarter ended up being very much in line with our expectations and puts us on a very good glide path to meet many of our full year goals and objectives. We've made great headway on a number of strategic fronts and we believe as the company continues to shrink simplify develop and lease that shareholders will benefit from.
These actions that are focusing all of our resources on creating significant value within the remaining portfolio.
It appears based on stock performance that this value creation is neither appreciated nor understood by the public markets, but time and time again through sale of noncore and mature assets. We are realizing price isn't profits that routinely and dramatically outpaced the values implied by your stock price.
The recent sale the news building a two twentys 42nd Street for $815 million is another such example of this having generated substantial gains over an 18 year hold period in fact, the Unlevered <unk> was 11% compounded over that period of time.
True champion of investments.
This sale comes on top of the 9.1 billion dollar gross asset value of other product. We have sold just since 2016, which has generated $3.4 billion of net proceeds to the company and we have no intention of stopping there we are already at work.
Signing up additional sales baskets that don't meet our long term plan and we will provide more detail on these planned dispositions at our upcoming December investor meeting.
These assets will largely be in the 500 million dollar under range to take advantage of is still active and healthy market for Leverageable Midtown assets that can be acquired for an equity check size up $250 million for less we will also expand or joint venture investments in premier portfolio assets.
That we intend to hold where the book like the initiative, we just launched to identify capital partner for our exciting New development project at one Madison Avenue and more on that.
One Madison is now 100% complete on design development drawings, and we expect to have a complete biddable package of Cds by April and be in full blown a redevelopment by sometime middle of 2020.
And it response to this early stage project has been impressive and we're quite confident that we're building the right product in the right market at a rental price point that appeals to a wide variety of users.
On the leasing front.
We are well ahead of schedule and leasing volume and projected mark to market, which is causing our AFFO to be trending towards the high side of our estimated range notwithstanding aggressive dispositions and intended reductions in the debt and preferred equity portfolio. Both dilutive activities has offset in part by debt.
Auction and stock buyback.
Another 71000 square feet of Manhattan office space leased so far by us in our portfolio. We're not in October we now stand at 1.25 million square feet lease for 2019.
Now add another 260000 square feet of leases that are out for signature with signings expected imminently plus an additional 1.4 million square feet of leasing pipeline on top of that.
And you have to make use of what we hope will be a very big yearend for this company.
We expect to add.
Nearly 100 basis points of occupancy between now and year end, bringing us to our original goal for the year and at 22% Mark to market on our Manhattan leases, which is where we are currently we are far ahead of our goal and expect to improve on that oh by the by year end.
Of particular note the current pipeline of leases. It stands at about 1.65 million square feet is the highest we've ever experienced with no single leasing the pipeline exceeding 335000 square feet, which is a testament to the broad underlying strength the demand from tenants across all sectors.
And that completely excludes all ongoing discussions we're having one madison none of that isn't that stated pipeline. So leasing activity Manhattan widely is Ah.
It is is robust and a it's within that environment that we had been.
Achieving our successes this year and the market as a whole is trending towards last year's record setting totals fueled by the 10th consecutive year, a private sector and office using job growth in New York City.
Job growth is being driven of course by technology in health care with lesser gains, but games, Nonetheless, and financing business services. There is been nearly 23 million square feet of leasing through Q3 and expectations are for the full year total to again eclipse 30 million square.
Our feet in Manhattan large block in high rent demand has been concentrated around new construction projects and one Vanderbilt has been a big beneficiary of this trend. This transformational project at the Crossroads Midtown is now 61% lease after the recent signing of an additional full floor.
To the Carlyle group, representing Carlyle's second expansion of their since their original lease bringing their total presence in the building to approximately.
<unk> hundred 65000 square feet or thereabouts.
Of course, there continues to be a number of ongoing and advanced negotiations for additional space and we feel comfortable that we're on track to meet our goal.
For the year and more importantly, vastly exceed our original underwriting for this project.
That we first unveiled in 2015, we topped out the steel at one Vanderbilt at 1401 feet on September 18, just a almost one month ago.
And we broadcast the images of local 40 ironworkers standing on top of the buildings hundred 57.
Foot spire.
In celebration of this amazing amazing accomplishment.
The ribbon cutting is still scheduled for August four 2020, a full three months ahead of our original schedule.
So with that.
In the words of Andrew Mathias reports of New York's demise or greatly exaggerated and we if you want to hear more and we hope you do.
Please join us at our Investor Conference on December nine, where we'll unveil our view of 2020 and UPT and provide an update on our very.
You know we think thoughtful.
And executable strategic plan with that I'd like to open it up for questions.
As a reminder to ask a question human nature Press Star one on your telephone to withdraw your question press the pound key please standby well be compiled the Q and a roster.
And our first question from Manny Korchman from Citi. Your line is now open.
Hey, guys good afternoon.
Mark you mentioned that the.
The sweet spot for deals being sure that you under $50 million equity check deals under 500 million are you seeing any other sort of changes in the market other than and then the size and has a buyer pool at all change in the United those assets are larger launch.
Yeah, I'll start off Angela.
We'll give you some some thoughts and commentary about the market.
The market has become I think more domestic in nature, so and the amount of fund raising.
Going on in the real estate sector right now with private funds is.
Extraordinary and.
We see no dearth of capital.
For many of the different classes or food groups of projects. We can offer I think development seems to be.
The most interesting for a lot of people, but also you know in order of priority probably value plus.
You know a value a core plus and core.
Different buyers respond, but a very very high proportion of domestic investors flush with capital, but all I don't want to say constrained, but all looking for check sizes that probably top out.
At about 250 million above that there were still buyers.
It's just you know it's dinner probably than it was a year or two ago and I think you know in large part that's just directly attributable to the absence of.
You know the Chinese buyer, who.
He is not really participating the market at this point although other.
Groups are filling in that void and the market still you know continues to be.
Firm and aided by declining interest rates so.
Additional thoughts on a.
After market.
Yes.
I agree I think the debt markets or.
Very very aggressive right now and there's a lot of foreign capital coming into the market via the death as opposed to via the equity they seem to.
The more comfortable playing in that seat these days.
But that's fueling transactions like a 711 fifth Avenue, where that equity check even though that's a larger deal size is still only going to be around that $250 million level with a very high level of financing.
Got it thanks, and then in terms of your comments on the tech companies being obviously the.
Leading demand source or in the city right now how does that.
Play into your portfolio and is that a reason that you're looking more on on the west side.
I just want to I didn't say it was a leading source its it's where a lot of the growth is coming from by far the market is still dominated by financial services.
You know tech is taking a.
You know is growing off of a very small base. So every addition to tech is very meaningful but you know the 30 million square feet. That's referenced the majority of that you know demand or you know.
23 current 30 projected for the full year is certainly not tech I think you know the basic business services Finance Health care, you know certainly technology media will form part of it but I. Just you know I just want to be careful is not the majority of that leasing is not technology.
Okay.
Well I mean, you know the Big news is that technology is a growing percentage of the.
The tenant demand.
Financial services to Mark's point had been the the meter of whats at least of the industries the lease space, particularly in Midtown year to date, followed by Jeremy broadly.
And I think within the within Tami INTECH, specifically, what's really changed you've heard of says in the past.
He is in this current cycle, it's the story of the.
Large well established profitable mainline tech companies. So it's not the started up young.
You know.
Companies without without a bottom line.
And.
We think that's attached as an industry, that's growing it's going to continue to grow and our portfolio.
Some well.
Suited.
Building stood to be receivers for that industry, One Madison Avenue in particular, Foursixty West 34th Street, our Lewis our newest acquisition.
50 history, all our ideal buildings for.
Is that kind of profile.
Thank you. Our next question comes from Michael Lewis from Suntrust. Your line is now open.
Great. Thank you.
Just based on your you are in place leases than what you think the current asking rents are it looks like you're looking at some.
Rent roll Downs for Q, and then and Nick and next year as well.
I was just wondering is that kind of a broad based thing or is there a few large.
A large roll downs, and maybe you could point us to.
Oh, it's Matt Mike I think there's a there's a mix in there you're probably going to schedule includes all storage retail office everything in there I'd say, there's nothing no one driver in there and Weve pretty.
Steadily beat the numbers that we put out there as evidenced by the Mark to market, we've achieved to date and what we see for the balance of this year and into next so.
Theres nothing when you're rolling off of older vintage leases that have escalations for 10 years. Your benchmark is is a high number.
But we are by and large still seeing positive mark to markets in the in the portfolio.
Okay, Great and then for my second question I just wanted to ask.
How how you evaluate and maybe we should evaluate the effectiveness of the stock repurchase program.
Company has a long history of strong NPV growth.
But the any of the consensus any of you right now it's the lowest it's been an a few years and the stock price you already talked about.
So I'm just curious how do we have we know and look at this and how do you look at it and know that this has been a good use of capital.
We look at it solely as a as an investment alternative I mean, that's in and when we line up the investments.
Almost almost every time the stock repurchase wins out because we're buying.
More interest.
In a portfolio that gets better and better as we shed some of the noncore assets and we're buying it at deep discount to.
Private market value in our own internal values.
For assets that we own control operate and there's really very little in the way of risk of unknown or there's really nothing in the way of risk of unknown. So we look at that.
Both absolute return and risk adjusted as by far the best place to park or money and we do believe that.
Program has been.
Please success that we've been able to.
You know continued to make significant.
Gains in our embedded any V.
In a market that probably in the past year.
Values topped out a year ago, maybe you know cap rates are probably why 25 to 50 basis points that would have an enormous effect on value to your point about hey, the any of these are dropping well if cap rates are gapping out 20, 550 basis points, you would expect to see that obviously, but the point is we did much much more mitigation.
And of that almost eliminated all of that down downflow risk because of the stock buyback program and the gains on that program I think will be fully.
Appreciate it and realized when we stabilize the eight development assets. We now have in portfolio. It is that there's just an enormous pipeline of assets that we buy into every time, we buy or stock.
At essentially below cost and when we achieved stabilize value we impose that on an ever decreasing shareholder base. I think you know the results were very powerful at that point, whether we get credit for it or not now in the public markets, we can't entirely control, but we we certainly see the.
Benefits on paper of an investment program that yields the highest returns.
Thank you. Our next question is from John Kim from BMO Capital markets. Your line is now open.
Thank you I was wondering if you could provide more color on them.
And this morning.
As far as your expected investment yield.
And also it's just part of strategy.
Health kitchen, along with worldwide Plaza like more attractive.
Going forward.
Well on the first question I think we'll unveil some of those economics in December we Havent closed on the access yet so I'd like to yes, we're just in contract.
But in general development plan, where the period between contract close shortly after close we'll put our development team together, we're going to get you know like numbers. We've done the underwriting we know the kinds of returns under different scenarios. We think are achievable the asset isn't an opportunity zone, we will likely use it as it received.
Our there's a lot of different benefits we get from.
From this asset in different ways. We can we think we can make outsized returns here returns that would be on par with stock buyback as I just mentioned, but.
With that said I don't think we're prepared on this call to go through really detailing that other than to say we're in contract and give you a little information about what it is as Steve you can respond to the target margin.
This is a prewar building.
Member construction.
Timber and brick.
So it's it's got the you know the creative cool factor that everybody searches for in today's world hardwood floors would be seems oversize windows.
Kind of an industrial.
Understood and.
We'll we'll celebrate that as part of our redevelopment and repositioning of the building it's been owner occupied for a good number of years at this point. So it's not a product that is familiar to the brokerage community.
Therefore step one will be.
Introducing the ability to the brokers screen educating them about the opportunity. It's an ideal ability that could go multitenant. Good juices easily have one big Senate take down.
The space that we've got and.
And it's got a few a.
Bruce setbacks do a great outdoor space as well so we're excited about it.
And and you know, we got a little bit air rights to play with that we find somebody that wants to take advantage that we can offer that up as part of the menu choices as well.
And my second question is on the observation deck I think your last presentation.
And 1.8 million visitors annually and $39 ticket price.
And I'm wondering if any of the major assumptions changed.
Not materially I mean, you know, we have different scenarios or which go up from there in terms of viewership not not in terms of ticket price.
So I'd say one eight is the underwritten floor if you will.
That would be operating it far less than full capacity, where most of these because not all these objects operate.
So, we'll we'll hopefully clips those numbers, but are the underwriting in what we've shown.
Publicly.
Generally and decembers have been.
At those metrics.
And that's something that.
Based on.
Yesterday.
No not not you know not much I think investor day, we're going to focus not exclusively but primarily on.
The development projects that we.
That that I mentioned at the outset at the outset to give.
More color on those and really to convey the enormous earnings and profit potential of those properties. Upon completion some of which are as early as you know 21 as late as 20 324.
Thank you.
Thank you. Our next question is from Alexander Goldfarb from Sandler Oneill. Your line is now open.
Hey, good afternoon, two questions first for for Steve Steve can you just comment a little bit on your sense of the market you have sort of post we work.
The from broker decks looks like last year, the co working where big leasing driver last year and this year, they dialed back, but obviously with the failed IPO. We work has pulled back more so one are you seeing.
An absolute impacted and leasing volume overall, we worked pulling back in the study and then into your stance or something happened to them do you think that landlords or other operators would step band or you think that some of those tenants may not least their space if it if they weren't leasing Anna we work building.
Okay, well I think a couple of things to help put it in perspective co working generally speaking is only.
One 3.5% of the overall Manhattan market.
And when you look at sort of the Midtown Submarket, where we have the bulk of our portfolio.
It's only 1.5%.
Exposure to we work.
So.
What you've seen in the co working industry over the last couple of years.
Including ones, we work they have migrated away from true co working and it's it's been more of a focus on the enterprise model. So when you think of industrious.
No tell and we works focus for the past couple of years.
The enterprise model, what that means that's leasing large blocks of space to companies that have a thousand employees or more.
So if we work to work to fill which we don't believe they're going to but if there were to fill the enterprise tenants are easily converted over to a direct tenancy with the landlord take our exposure to we work in particular elected to Herald square, where 100% of that space is occupied and leased to.
Amazon. So if there were no we work Amazon would simply be alternative to step into that lease other next there'd be no interruption of services and no no.
Great Good our income.
So I think.
Co working generally speaking with the enterprise model helps help sort of stabilize.
The landlords exposure to the industry and I think where we are.
Going to see a little bit of pull back from the industry as they sort of find their way going forward, but you've seen other drivers in the market to tick up the slot with the big Tech tenants in particular.
Okay and and then the second question is on the DP book you guys are starting to pull it back as you guys have indicated you wed over the course of the year, but it's also been incredible source of not only.
Again, but also opportunities like to 712, Madison or two Harold or three Columbus et cetera.
So as you guys reduce the DP E book is there not a concern but sort of a risk that maybe a lot of the good fodder that you guys have gotten out of it you may not get out of it going forward or there's enough in that E book, where you can still get sort of.
The the successful deals versus just the generic refinancing deals that get paid off in normal course.
Well I think the intention is definitely the stay active in the DP market and I may it may take the form of more syndications, where we're selling larger pieces of positions, but stuff, but but retaining.
Total positions I don't I think we we always put a high value on.
That aspect of the program and the ability to on Earth opportunities through the program. So we definitely intend to continue that a pace and if anything as you said, we'll shift away from more of just the bread and butter income.
Producing opportunities and try to shift towards.
Assets that have more potential for ultimately, making a deal with ownership or some equity upside.
Cetera.
Thank you I would add to that operators.
DP is a very important part of this program.
Whether the balances you know 2.3 or 2.1 point 7 billion, it's still by market standards, probably the largest.
Position of subordinate debt interest of any holder in New York City. So it's a big program.
And we've got a lot of relationships to lot of positions.
Modulating that balance up and down.
It's something we've always done in times, sometimes market response in this case.
It's a source of liquidity for us.
For stock buyback and debt reduction so you know its.
There's no hard and fast rule here, but at the moment, it's trending down which is planned in 2020 will have a new play.
Thank you Sir our next question is from Derrick Johnson from Deutsche Bank. Your line is now fan.
Thank you hi, everyone I've been getting a lot of client questions regarding high leverage levels. So I'd like to get your take on how you look at leverage and.
How are you planning on balancing buybacks and debt repayment going forward given the elevated leverage levels right now.
Well I mean again.
In every presentation, we don't we don't believe our leverage levels are elevated.
Yes, I think theres, that's a popular misconception, but if you look at things by LTV.
Actually underlevered and we feel we're very reasonably levered on it on a debt to EBITDA basis. So.
We don't we don't believe our leverage levels are elevated and we've kept within the guidance we issued at the beginning of the year.
Aspect to end the year within those bands.
For where we laid out the share buyback program is going to take us. So.
No not on a few of and yes, I think I'd agree with Andrey another program the share buyback program was predicated on leverage neutrality. It has been throughout.
That is our view going forward as well and in an LTV basis.
And just point we are.
Prudently if not under Levered.
Okay, Great and then just switching gears to one bandy.
Hopefully mr. dwells in the room.
How are things going with the top floors and leasing discussions progressing.
I don't know if there're any executed loot leases on the top floors that you would share.
You see them coming in higher or lower than you underwrote and until we expect greater than 200 per square foot.
The levels. Thank you sure.
Ill remind you that we've already signed one lease in the house floors with Mcdermott will in memory, which is one of our early leases.
In the building.
And then.
The rent was in line with our underwrite for that part of the building, we're trading paper with the with tenants.
<unk>.
As we speak today.
And are hopeful that.
Well you have some good news reports and they're not too distant future on some signed leases not part of the building.
So.
As as we as we generally expected when we started the leasing exercise one Vanderbilt we knew that the building with lease on the bottom up partly because that's where the larger tenants who make their decisions further out in time would focus.
And the smaller tenants because of building.
Tapers its form to get the smaller floor plates when you get the top a house those tenants who make their decisions closer to their current lease expirations. They would be less those would be loss to lease and that's what we're experience what we expected it's what we're experiencing.
And we're completely confident that the rents that we've signed to date to do deals that were negotiating and the balance of the building will lease up.
In line with plant.
Thank you.
Our next question is from Steve to kind of walk from Evercore ISI. Your line is now fan.
Thanks, Mark I guess I, just wanted to try and follow up on the buyback program I mean, I realize you will give a little bit more detail at the investor day, but to date, you've been able to tax efficiently sell a lot of assets and I'm just wondering.
How deep DAP full as my understanding was the tax efficiency pool was sort of shrinking and I didn't know if that meant you had to use the DP E book to kind of Affectuate more buybacks. So is there any color you can sort of share with us on that.
Well look I don't.
We'll see what we.
Go through and don't go through in December I mean, the every deal has a unique.
Structure and tax planning.
Optimization model and it's very hard to generalize I'm not.
Trying to avoid the question I'm just like every deal is different.
And every deal a solution is different to you know.
To maximize after tax net net cash flow proceeds we've done a great job of that I think if we saw.
In into it as you as you were and I think you'd hear that for most but thats not what you hear from us if if anything I think what you hear in December as we want to go further we are fully committed to this program.
And we believe it's a program that is working.
As it as it's as we mapped it out.
Well the stock price, which you know unfortunately.
Is the thing we control the lease but.
We like where we're headed and we think we have the fuel to do more.
Partially from asset sales and partially as was always intended from DP, but the downdraft in DP that you've seen one is a little bit more just sort of cyclical timing too you know were little pickier right now about the kinds of deals we're doing and you know we're not we're not toughened.
The upper standards, but we're certainly not relaxing standards like some other lenders might be and I think you know we've done to.
Just incredible job over the 21 years in this company of.
Creating well call it best of class track record with respect to a New York City Mezz preferred feel on mortgage.
Rates of return.
And loss history, So you know.
Yes, I wouldn't linked those two things together, but yet as a source for buyback, but we see continued ability.
To sell assets until big assets and manage the tax situation in ways, where we'll be able to continue to do buyback with.
Most if not all the proceeds and but I I wouldn't expect.
A full.
Presentation of that in December because I.
It's just not something that I think is in the interest of the company and our shareholders for us to do other than just to let you know that we're doing it and we feel we can go deeper.
Right, but you don't feel like it would require a lot of 10 31 exchanges in order to tax shelter.
Gains, which typically if you've got big gains you got to pay him out or yes, no. It wouldn't required that I mean, we're doing a little of that it just so happens on.
On.
With the district 50, we're doing 10 10, Washington's fit but that's that's just because for those two deals they married up in a way that work. So we're doing it but we havent really done much in the way Tenthirty ones I don't think in the past.
A year or two and yes, we might do more tenthirty once going forward, but not.
It's not linked to the buyback program. So I'm trying to say, we'll do tenthirty ones, where the makes sense and we're going to sell assets, where we can and use our DP to buy back stock, where we can and we think we have a.
Away to go if we ever ran into a situation where you know we had again and we had to do a special dividend.
We are 100% comfortable with that we just haven't been in that position.
What will we be there or not with the news building, that's something I guess, Matt will give further guidance on in December or next year, you know beginning next year when we close.
If we do we do and but we think we have strategies, where we won't have to we want to do very big one so you know.
I would just I can't generalize it I would just say, let's take it as it goes.
Okay, and then second I know the you've got a large lease with Ralph Lauren coming up.
We ended the year and you've got a building there with.
Ground lease it sort of.
Coming up for reset is there any color you can just sort of provide you know as it relates to the leasing that space or how we should be thinking about kind of the burn off of that lease and and kind of the redevelopment and capitalization at building moving forward.
Well, yes.
The police we was in place for about 15 years.
And the deal for US has been very very profitable we've.
We have taken at all or basis, and then some from the original purchase so at this point we're in a profit participation really with no downside at least the original capital investment and now we're looking to maximize the next building as positive on all I would you guys got positive NOI without polo, So we're still making that on basically no basis and.
Now, it's our job to figure out how to create a new 15 year assets out of that.
Which we would typically do with a with a fairly you know middle of the road redevelopment program for an asset that's in a great location and we can deliver at a very competitive price point, but we will likely wait until.
The rent Reval.
Before committing any substantial sums and new capital So we know exactly.
What the.
What the economic returns look like to us once that's known and where we're preparing our 2020 guidance.
Without leasing up that space and we feel we're in a very good place you know.
Without it if we are to lease it in 2020, thatll be upside, but thats not the plan right now, but when I say that.
Yes, Steve is out there showing the building are showing that space you know the space. So we shows better when this new tenant in there right. Now poll is still operating I think they maybe even or extending to talk a bit or little for a couple of months on performance, but yes, I mean.
Let's let's first get the space, which we know right now it's fully leased building.
And it's a high cash flow and believe we will get it back we will develop a redevelopment plan. We will take you through the rent revaluation, we think we're in a good position there.
Given how that works and given the state of the market and then be in a position to share with you specifics as to.
You know tower lease up and capital and NOI creation, but.
It's all.
We look at it all is upside to our baseline at this point.
Thank you kindly limit yourselves to two questions I'm next questions from Blaine Heck from Wells Fargo. Your line is now open.
Thanks, Good afternoon, Steve can you talk a little bit about capex trends out there it looks like your T.I.s per foot in concessions on find deals were just a little higher this quarter, but we've heard from other sources that concessions maybe leveling off in the market can you just talk about what you're seeing on the ground at this point.
Well I know I've been saying that concessions have leveled off since the second half of last year.
Our numbers fluctuate depending on.
How much of a of the leasing that we do it anyone point in time is our new leases for raw space versus renewals versus.
Installations that may be lease by new tenants that have a salvage value to it so it's.
But to do an apples to apples comparison for long term of lease on raw space.
Concessions have generally been around $100 a foot anti sometimes will a little heavier on the higher price point runs, sometimes a little lowered on more some of them more commodity buildings, but when you blend that together with renewals and.
Retrofits.
Thats, what pulls that weighted average down.
You know broadly speaking I think concessions have have been leveled for quite awhile.
Certainly the free rents is definitely leveled off more than a year ago.
All right that's helpful and I guess related to that given the current supply demand dynamics you guys are seeing in the market. You think you could give us updated thoughts on expected not effective market rent growth or decline and Manhattan over the next 12 months and maybe which Submarkets you think are poised to outperform.
<unk> or underperform at that average.
Plants, Matt I think thats, a little bit of commentary you should wait for December tier.
Fair enough thanks, guys.
Thank you. Our next question from James Feldman from Bank of America Merrill Lynch. Your line is now open.
Thank you.
So I guess sticking with Capex Dana we get a lot of questions about whose portfolio need have needs to be upgraded to be competitive can you just talk through as you think across your portfolio and what percentage of your asset base do you think is kind of.
In trying to fighting condition trick.
And how much you think actually still needs to have whether its lobby upgrades or other types of upgrades as you think about the next couple of your I think.
All but 625 you know a.
Probably meets that maybe 750 threerd.
Two out of 30 something assets I would say are.
Indeed, we may be considering round trip or as you know where we've done. It already you know 10, 15 20 years ago, where were you know, it's not like one and done so.
Our capex spend has been drifting down.
On the was called the steady state portfolio, we've been we've been devoting the money to new developments separate issue, but on on the same store portfolio.
Our capex spend for base building and redevelop is down materially.
And it was for 19, it will be I think again for for 20 for sure.
625, Mad you heard me speak about before at some point that could be 20, 122 that'll be a that'll be on our docket for you know for sure and.
And 753rd you know not at not not a heavy spend but we'll be doing some work there because that's where we have some vacancy coming up and.
It's been time and its lifecycle, where we should be.
You know attending to that property, but by and large I'd say where in excellent shape you know.
In terms of our buildings, just walk him and you'll see they're all going to freshen redundant look right. It does add to that tomorrow point, we we continually reinvest in the buildings.
By way of example over the past year and after so we redid the lobby in public areas of 11 85 out of the Americas, and we redid for 61 fifth.
So not huge repositioning efforts, but the money that we spend has been very effective and contributed to some very effective leasing as well.
Okay. That's helpful. And then just latest thoughts on the street retail market have you seen any change over the last quarter. So.
I would say it's hard to.
Okay quarter to quarter as a as a barometer for I mean, we announced the graph lease on Madison and this still still decent activity. We just don't have a lot of vacancy to lease right now so.
It's it's.
That's still a.
Correcting market from the top and I think a lot of landlords are holding out because they have capital structure issues for rents that were sort of yesterday's rents as opposed to today's rents spot.
We've been able to meet the market in circumstance, where where we've needed to and.
Tracked high quality time, we've got we've got good good activity on one Vanderbilt we have like.
A corner or left on Madison that we've got multiple deals were negotiating.
We are going through the early stages of a repositioning worldwide Plaza retail we've got some risk there were negotiating so.
On first Gen. We have activity on on the same store portfolio as Andrew said, it's like leased so you know.
We're in great shape.
All right. Thank you.
Thank you.
Next question from Nick Yulico from Scotiabank. Your line is now open.
Thanks, Steve I was hoping you could talk through some of the leasing activity.
On somebody other larger tenant expirations, you have coming up putting aside 625 mass and maybe you could talk about 11, 85, Abbvie Americas remove NHL and news Corp.
I'm, leaving and then also the dance magazine group space.
So starting with a low at 85.
We have role in that building over the next couple of years, we're not we're sitting with a modest amount of space right now we're trading proposals.
With one tenant for two floors with another tenant for as for for as much as five floors.
Not to suggest that either of those tenants will will end up executing leases on but we're getting good exposure to the market and feel very good about the space because most of it's a high up in the building and as I said earlier. The building is recently received.
US some capital enhancements with a new lobby new entrants through elevator jobs and they looked at it looks fantastic.
On the advanced space advance the sort of spread which is causing us just for those don't know.
They are spread between 711 third Avenue 45, Lexington Avenue and.
Some 50 Threerd Avenue.
750, Threerd Avenue, we have leases out on two of the floors 711 third Avenue, we have leases out on two of their floors.
On a 45 Lexington, where they've got the bulk of the space. We're trading of proposals for on another 80000 square feet. So.
Space doesn't come back to us for.
Depending on which building is anywhere between a year to three years out. So I think we're going to knock off a good chunk if not the majority of it in advance of lease expiration.
Okay. Good to hear thanks, and then on one Madison market I think you said redevelopment could start by middle of next year and I'm. Just wondering does that mean that credit Suisse will would move out early ahead of the December expiration and then you know what does that mean for I guess, the rough timeframe for delivery of the new build.
Thing and I guess, Matt how should we think about.
Well what point the building gets removed becomes capitalize and removed from SFL. Thanks.
So.
Where we're going to start doing soft demo actually in the beginning of the year and then we'll do some more invasive demo towards the.
Second or third quarter of next year.
Hi Credit Suisse I think there out of you know most not all the space, but they're certainly not to most of the space and so.
We have you know.
Arrangements with not just Chris with some of the other smaller sometimes there where we will be able to launch this project in the middle of next year and.
Have a timeline that would bring us to a T. C O by the end by Middle to end of the third quarter 23. So it's not it's not a long, particularly long development given the complexities of a tower overbuild.
On a building that you know is.
You know is going to go through a complete.
Repositioning with.
New facade and new.
New lobby redevelopment new store fronts.
Outdoor space creation, it's going to be it's going be incredible project.
Equal in my mind in many ways to one Vanderbilt just different but but sort of equally exciting and.
Equally attractive to two tenant base that wants to be there. So.
Thats, the timeline and that hasn't really changed since.
Whatever timeline, we've spoken about initially it's always been to 2020 start in kind of a middle to just after middle of 23 finish that and to answer your question on capitalization cannibalization starts whenever CS vacates whenever that might be their lease expiration right. Now is end of 2020.
So the calculation would start then if they left earlier started that point, yes, they still have some presence there right.
Thank you. Our next question is from Vikram Malhotra from Morgan Stanley . Your line is now open.
Thanks for taking the question just wondering a couple of specific ones.
Just on any updated thoughts on.
Plans around a worldwide given the news on on crab it.
Without us history there.
Well I mean.
I have asked move I think it's like 20 2024, four so that's going to be.
That's going to be or we're going to be we have plans, but there you know if I said they were a preliminary nature I'd be a I'd be a understating it.
You know, it's 19, they're in their hard through 24.
Five years is a lot of time for a lot of different things to happen, which we thought through in terms of redevelopment or advanced leasing or growth within the building et cetera and.
So we'll I'm not sure I'd say with the question what does the question exactly.
I, just firstly I mean, any other thoughts around I mean, you have a JV there any other talks on.
You know any any cap any any capital in the building any changes are on kind of no.
Wait too early for let me from here, it's just I don't want to not answer maybe it's just trust me when I say, it's like way too early.
Yeah under that guys, we'd be planning for our entire portfolio you know I mean, I remember our average lease term in his portfolio is nine to 10 years. So nine to 10 years, we have 30 million feet role I mean, that's so there's always space.
Something that's five years out.
There were only 25% of.
That's you know it's too.
Five years out.
For a built building, it's really quite excellent space it'll have to be tailored you know to someone.
At that time, with a refresh and or if you need to but who knows what's going to happen next five years in terms of the kind of demand that may materialize for that whether previous has to hold over or not I mean, it's just all sorts of variables that its way way too early.
You have any kind of serious dialogue about now in my opinion I think that's right I'm just saying, that's that's where we are fair enough.
And then just on the follow space.
But just on the on what potentially can be capitalized.
For redevelopment or can you can you give a sense of how that might play out.
So capitalization is based on.
Property level debt at its stated interest rate. If there is any in the case is X 25, there isn't to and then you would capitalize based on.
Book basis at the weighted average cost of debt at the company.
At the point that the building is.
Vacate and put into redevelopment.
Okay, Great and then just one last thing Frank can verify the mcdonalds.
These given their relocated is that.
It can you give us any sense of planned there.
In times square.
Well I mean, the spaces on the market they've they've vacated they continue to pay rent through.
2003.
So 2023 so.
We're going to we're going to market the space and hope to find a quality tenant, but we're also going to be careful about who we select.
As we have Mcdonald's theres still paying rent.
Thank you kindly limit yourselves to two questions. Our next question is from Anthony Paolone from JP Morgan. Your line is now open.
Hi, Thanks.
Just two quick ones, one I think Mark you mentioned at the outset, a 100 basis points of occupancy pick up I think in the fourth quarter.
Anything particular, driving that or is it well the 1.7 million square foot pipeline.
We're going to try and make as much of that as humanly possible by these 31.
He is a lotta, there's a lot of money lines going around this place right now as to where it's going to ultimately land by today well. That's you know that line is already set.
By December 9th which is Investor day, and then the ultimate. These 31, if you want in that pool, we can call you after.
Yeah, but is that it shows that at least numbers out right commands sleep.
That the least number always leased square footage occupancy up from 95 three to the goal a 96 too. So we're right on the trajectory we expected to be as of the ended the quarter.
Yes, that's not to say there is not work to Peter.
No, it's not not locked and loaded we got to sign a bunch of leases, but really I think thats you know that's what we're here to do for the next two and half months.
Okay got it and then just second one I know you and Vornado did nice job with 280 Park a few years ago.
It seems like you had gotten some lift in rents from that project, but.
Maybe just a small deal, but I noticed in the shop in the quarter.
You had a deal that rolled down like 20% just curiously.
Was there anything to read into that in terms, where rents and less Park Avenue core Doormat Dawn.
No. It was a small deal of a tenant that went bust on us.
As I recall was at a 5000 square foot.
That was in a prebuilt space that.
Reflecting the fact, we put about capital until that unit, but we have leases.
That are in negotiation right now.
Much larger than that one belt, one little tenant in the you know high Eightys too low one hundreds so very healthy rents much higher than where the building was predevelopment I used to be up 55 to $65 building and now its a.
85, $220 building, depending on where you are.
And we've got a we don't have a lot of we have very little vacancy to begin with them. We're in a little role. So what we've got to play with is also with the best parts of the building because the base of the buildings all lucked out long term.
Thank you at this time I am showing no further questions I would like to turn the call back over to Mark holiday for closing remarks, Okay, well I guess no questions may be no wins on the line, but for those that are.
We again, thank you for giving us the hour and joint answering the questions and mostly look forward to see will view.
Right and early nine o'clock kick off December nine.
As of Lincoln Center.
And.
We.
Promise to keep interesting.
Thank you it.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.