Q2 2021 SL Green Realty Corp Earnings Call
Thank you everybody for joining us and welcome to SL Green Realty Corp, Second quarter 2021 earnings results Conference call. This conference call is being recorded at this time the company would like to remind listeners that during the call management may make forward looking statements you should not rely on forward.
And statements as predictions of future events actual results and events may differ from any forward looking statements that and management may make the day all.
Forward looking statements made by management on this call are based on their own son, chins and beliefs as of today additional information regarding the risks uncertainties and other factors that could cause such differences appear and the risk factors and M&A action on the company's latest form 10-K, and other subsequent reports filed by the <unk>.
And what the Securities and Exchange Commission.
So during today's conference call the company May discuss non-GAAP financial measures and.
Defined by regulation G. Under the Securities Act, the GAAP financial measure most directly comparable to each non-GAAP financial measure discussed and the reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found on both the company's website at www dot.
And so green dot com by selecting the press release regarding the company's second quarter 2021 earnings and in our supplemental information filed with our current report on form 8-K relating to our second quarter of 2021 earnings before turning the call over to Marc Holliday, Chairman and Chief Exec.
And of officer of SL Green Realty Corp, I ask that those of you participating in the Q&A portion on the call to please limit yourselves to 2 questions per person. Thank you I will now turn the call over to Marc Holliday. Please go ahead Marc.
Thank you and good afternoon, everyone. We appreciate you joining the call today, and giving US an opportunity to review the second quarter earnings with you I have some.
Items that I'll open up with and obviously will.
And then turn it over for some questions and answers to whatever is on everyone's mind today, but you know starting with the quarter. We we accomplished quite a bit in these 3 months since our last call with you. We successfully completed several asset sales significant joint venture that we can.
Closed this morning, and important fee acquisition over half a million square feet of office leasing over 2 million shares of stock buybacks and maybe most notably a record setting 3 billion dollar SaaS b financing of 1 Vanderbilt.
Our first half accomplishments have exceeded much of our earlier goals and objectives and we are now.
Very well situated to benefit from what we believe will be and even better market environment and the second half of this year.
At the beginning of and throughout the year I shared my optimism with you for a sharply rebounding and New York and when I Survey, where we are at mid year, I think that optimism was well founded with.
With a year to day total return exceeding 30% through yesterday's close our stock has performed very well as the market is resetting its views of the New York economy. After Covid related restrictions were lifted on may 19th.
Average physical occupancy and S. O Gs portfolio is approaching 25% as tenants are reopening their doors and more and more workers returned to the office.
Business leaders are now more than ever voicing their strong support preference and adherence to continued work from home model I'm, sorry continued work from office model and see a lot of raised eyebrows here.
Continued work from office model, and a collaborative communicative and physically present matter.
The majority of our tenants are planning for their workers to return after labor day and more importantly, we do not see any material trends and hot desking, we're shrinking footprints to the contrary, we see a trend of businesses availing themselves of this moment in time and the market to lock in space and make investments and improved work.
<unk> technology and amenities as a way of competing for talent and making a compelling case to their employees for work from office the.
The space planes. We're reviewing today are that are submitted by tenants as they begin their build outs.
Have decidedly more common space amenities food and beverage offerings collaborative meeting spaces specialty areas day, densify workstations breakout rooms from privacy and generally more thoughtful and efficient and healthy use of space.
And within our portfolio. This has led to almost 1 million square feet of new and renewal office leasing at rents that are generally flat with expiring escalated rents and ti packages that are marginally higher than pre COVID-19 levels.
We are currently tracking about half a percentage point higher and occupancy than originally projected at the beginning of the year and with over 600000 square feet of additional leasing and pipeline, we hope to maintain our performance through year end.
Foot traffic at our properties has increased considerably in response to a strong underlying New York City business economy calls for return to office and a slow but steady jobs recovery.
There are about 6 to 7000, new office jobs being created monthly which trend is expected to continue and result, and retaining pre COVID-19 office employment levels by mid 2020.2.
Interestingly the job creators to date are being led by <unk>.
Information and technology and professional business services, while the greatest amount of leasing demand seems to be coming from the finance sector.
Wall Street profits, which ended 2020 with a near record $51 billion and profits is already posted 18 billion in profit and just the first quarter.
And the big 5 banks reported 150% increase and second quarter earnings year over year and last year was a good year for the banks.
There is now essentially a war for talent among large companies and high growth businesses. Our competition net New York City will win given its diverse educated and highly skilled work force and deep talent pool.
It should come as no surprise that New York City personal and corporate income tax collections are at all time record levels of 15 billion and 5 billion respectively. It is and this economic backdrop.
And with record low interest rates and substantial investment capital for deployment that we believe New York City is situated to outperform other major markets on a near and long term basis looking forward into the coming quarter, we've got many milestones and achievements.
And that we are busy to.
You know to be able to report positive movement on on the next time, we speak such as Richard making ready for workers returning to the office after labor day.
<unk> of demo and all the column reinforcement for the commencement of vertical construction next month at 1 Madison.
And the commencement of marketing.
On the residential units at 185 Broadway will begin next week.
The commencement of full demolition of 760 Madison Avenue now that we just received our D O b permit.
To make way for the new Georgia, Armani retail boutique and condominiums.
We have planned additional asset sales that we expect to achieve the third and fourth quarters of the year.
And with much of the proceeds going towards additional stock buybacks consistent with the original plan.
And.
Certainly and maybe most excitedly the grand opening of summit, 1 Vanderbilt on October 21st.
Something that we've been working on for 3 years, and we fully expect and hope it will become 1 of the top performing and most visited experiential attractions and New York City once it opens and.
And that now is well within our sites and looking forward to the opening of summit.
So with that I would say the third quarter.
Financial results were all in line.
Second quarter financial results were all in line with.
You know our expectations and we're happy to open it up now to take questions on any of the specifics.
Thank you as a reminder to ask a question you will need to press star 1 on your telephone to win.
And your question press the bounty.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Caitlin Burrows from Goldman Sachs. Your line is now open.
Oh, Hi, good afternoon, and you commented on the first quarter call that lease concessions had stabilized and it appears from the sign leasing data you provided that this was indeed, the case and the second quarter. So just wondering if you could go through what Youre seeing on the concession side have they stabilized and are they perhaps even improving yet.
Yes.
And I, certainly don't think they've improved but.
Stabilized we saw stabilization starting in the fourth quarter of last year, and Thats carried and form 4 and through today.
And it's.
And it's very important that when you look at the numbers.
Warner over quarter, and you really need to get through it and understand the.
And the complexion of the deals that are signed and any 1 particular quarter weather heavily weighted towards raw space or space its been retrofitted.
Renewal deals versus new deals, but on balance what we've seen is T is for raw space long term deals.
Generally and that 110 to $1.30 range, that's been consistent for the past.
6 to 9 months.
And free rents anywhere from 12 to 14 months typically for new deals and inclusive of construction time.
And then obviously, depending on whether it's a renewal deal or shorter term durations and those concessions can be.
Dramatically less than Washington.
Caitlin and I just wanted to add to that I see a lot of commentary about T is and what the brokers are saying about <unk> I would caution and a couple of ways 1.
Brokers talking up the book for their client tenants, saying T. I's are going up and up is I think you have to be you know you have to be very discerning when you look at that data versus.
And what we disclose on a quarterly basis Mac and take you through the actual ti disclosures for the quarter, but on a half a million and over half a million square feet of leasing. Our T is were I think relatively efficient and as I said and my commentary it and.
And that are marginally above pre COVID-19 levels for.
For both new and renewal deals and we don't buy up rents. So you have to.
T is have to be talked about in connection with the rents our rents, which I also said and the commentary on marginally flat with previous escalated rents those.
And those rents could be higher if we bought the rents up with more Ti and that is that's.
That's a strategy that some of our competition will do its not good or bad. It's just it's not what we do we are we meet the market on rents and we try and keep the T is as efficient as possible and you have to look at the 2 and tandem so odd for.
For the commentary out there it would be on these you know vast we escalate and T is I think you have to compare it to what we actually have done for the quarter and the year. Marc can you sort of review again with what those numbers aren't yet so we reported.
Reported last night that for the second quarter. This on.
Excluding the 1 Vanderbilt leasing since the numbers are dramatically different and 1 Vanderbilt on the.
Rest of the portfolio.
<unk> were $17, a foot and that compared to a significantly higher number last quarter, but to Steve's point on <unk>.
Never look at quarter to quarter, because it depends on the buildings and the spaces and also the blend between new and renewal.
We had a significant portion of our leasing this quarter and renewal leasing and Ti there was almost zero.
On 1 lease it was zero and 100000 and for at least.
On the new leases, it's $59 a foot.
So it's a blend every quarter.
For the for the year our T is on on the comparable space is $40 a foot.
And that is pretty close to the historical average media and maybe marginally higher and all dependent on the blend between new and renewal and what buildings releasing it.
Got it okay. Thanks for that and then maybe just a question on 1 Vanderbilt you guys have clearly made a lot of progress there on leasing up. So just wondering if you could give some comments on the rents there and how the rents and concessions and trending.
Relative to your underwriting and versus recent quarters.
Well it's.
The trending is it's it's basically we're almost we're almost stabilized we're at about 90% leased.
We have a couple of leases and pipeline that we hope to get done.
1 to 3 or 3 weeks or so bring us over 90% at that point, obviously, we're going to work hard to get to full occupancy but.
We'll be very selective about how we finish off essentially the top of the building those 2 or 3 or 4 floors at the top which are you know a higher rent floors and very special floors and we're so far ahead in terms of velocity.
And whether you know that may be a 'twenty 2 event, we'll see I mean, hopefully sooner, but certainly we haven't planned for sooner.
And you know the the NOI and the rental levels are.
Right on top of underwriting maybe certainly slightly ahead on velocity, probably right on top on economics, and you know we've gone through every December what those underlying assumptions are what those NOI goalposts are we're trending towards the high end of those goalposts with an expected.
NOI at stabilization and I think of close to 215 million I think is the you know is on 220, yes.
And 215.
Between 200, and 215 million, depending on which year you pick but that's in the next 2 years or so so you know the.
<unk>.
And the valuation of that.
Of that stream of flow supported a $5 billion, plus appraisal and and 3 billion dollar financing execution.
And you know where.
It it closes out the chapter of pretty much on what was just the.
A transformational project for the company.
Got it thank you.
Thank you. Our next question comes from the line of Alex Goldfarb from Piper Sandler Your line is now from.
Hi, Thank you hey, good afternoon.
So 2 questions.
Steve maybe I'll start with you.
And with everything that's gone on and you were reading articles about delta very and companies like Apple delaying returned to office you guys. Obviously are pretty active on the leasing front, but the gap of the leased rate versus occupancy.
Has widened in Europe and in your view in totality. When do you think the market will have will stop the negative absorption do you think that you.
At the end of this year do you think Thats 22, or do you think it's going to take longer than that.
Boy.
And that's sort of speculative Alex.
I don't think I'm going to venture a guess is still like exactly when return on.
I will say this I think the trend line I think the general consensus.
From our position and supported by the brokerage community.
On the first quarter of this year.
The market has hit its bottom.
And the trend line is that with increasing velocity and.
And a strong economy and and expectation of.
Of tenants and employees reoccupied and the spaces.
After labor day that.
You know.
It's sort of all green lights at this point as far as the market repairing itself, how long that process takes on that.
That's a crystal ball I don't have but you know from our position as we sit with a portfolio, that's well leased and well positioned on the marketplace.
I think that will outperform.
The market and total and certainly our experience on 1 Vanderbilt and what we're seeing and Russell portfolio with support on expectation.
Okay, and then on the asset sales front can.
Can you guys just give an update on the Kenneth Cole.
Site I.
I think you guys had pad potentially looked at that maybe for a life science conversion, whether you guys see that or sell it we had heard from conversations that perhaps the site would be could be conceived as a last mile warehouse site. So can you give just sort of your sense on that because it seems like that could be a potential source of some meaningful data.
Yeah.
Yeah.
Well.
It is and our life Sciences corridor for the city.
And we are in the process of.
Lying for a ULA upon the site.
Which would be a significant increase to the potential square footage at that asset and at the same time, we had a sale process that was ongoing and continues and we're evaluating offers for the assets through that sales process. So yeah. That's it.
It's a small asset for us, but 1 that is getting a lot of focus just because the tenant and area of the city.
Hot right now and we're working on a couple of different options to try to maximize value that.
And Andrew do you think Thats, a second half resolution or that spills into next year.
While the Europe would be an 18 month process. So I'm not sure if it will be a resolution on the second half.
And our joint venture or if we decide to hold it and take it down on the ULA path and be a longer term redevelopment assets.
Okay.
Yes.
Thank you. Our next question comes from the line and Michael Lewis from <unk> Securities. Your line is now open.
Thank you.
My first question I guess following up on something that Alex asked about as I talk to investors today I heard a lot about apple pushing back there.
The return to office and a lot about the Delta variant.
And maybe maybe help us set the goalposts.
I hope this concern that post labor day, maybe it becomes a bust everybody starts pushing back I mean, maybe help us whats the expectation for physical occupancy post labor day, where you would say things are trending and the right direction vs.
What that number might be that that could cause some concern kind of and expectation post labor day, what the what the office.
Physical occupancy it would look like.
Look.
I don't think we're in a position.
And I think that's what Steve said on the last day to Alex as well.
We survey our tenants.
We've also seen larger surveys like there was a Goldman research survey that survey and much broader swath of tenants.
And I think we can only speak to what the current expectations are.
But I don't know that we can modify those expectations.
And Delta variant may or may not pretend and the fall.
There is the the consensus.
And the reports.
Which is echoed by our tenant base is very decisive whereas 80%.
Of workers expect to be essentially back to a full work week.
By no later than early 'twenty 2.
Starting in earnest after labor day, and that's kind of what we've been saying for 6 months now.
The work week was never 5 days a week. The work week was kind of you know 4.4 and a quarter days of week, 4 and a half maybe and that may shrink to in office work week.
4 O or for 1.
And there's no.
No narrative within our portfolio, where we speak to people going to $5.43 days a week at home.
It really.
And this is what we said on the last call.
As more and the nature of might there be floating a work from home days and.
And flexibility built into our schedule, but it doesn't reduce desks and it doesn't more importantly, reduce the recognition by the business leaders you see notwithstanding apple and they want to push back there.
Returned by a month.
And if they push it back by month, they push it back by month the commentary you're hearing from US is commentary you should think about over a period of years to come not no.
And September versus October because that really has no bearing on our performance of our portfolio.
We'll be prepared for return for workers more robust and we have today come right. After labor day, because that's what our tenants are telling us whether the delta variant is going to cause that to be delayed by a month or so.
Don't know, but even if we did no it really wouldn't change anything we're doing here at <unk>.
And our business and I don't think it would change anything that tenants are doing for their 5 and 10 year long term planning because that really is evidenced by the ink on the leases, which was 1 million square foot of leases done and the first half 600000 pending everybody's fully familiar with the Delta variant.
And think it's a secret.
Everyone knows that's out there and we're going to take precautions against it the incidence of Covid and our portfolio as.
And as.
Workers have returned is almost.
And I'll say, none to negligible so so.
I continue to maintain the safest place to be is and healthy offices, which have policies and protocols in place and you know where the spread may be taking place it's not within the SL green portfolio that I can tell you and I don't think it's going to cause people not to return.
No to offices in New York City is about 60% vaccinated hopefully that number goes up I think the office population is more highly vaccinated. If you take our office as a.
As a as a.
A barometer of that it's much higher than 60 per cent, it's higher than 80%. So.
We're just not in a position to comment on Delta variant, but if we are in a position to say that everything we see and hear leads us to believe that businesses are.
Waiting.
The opportunity to get everybody in and that the plans are to commence in September.
Michael I would just add we're signing leases many leases with companies that are not back on the office. Yet. So are the people you are talking to saying those people are signing leases and never coming back to the office.
No I don't think that's the case.
And we're looking at lease velocity.
So if there.
And the tenants I think business leaders have spoken and there's no there's no illusion that.
This that fortune 500 companies are going 5 days a week work from home.
And for those that do I think they'll competitively suffer but thats and Thats my opinion.
That all makes sense and actually answered a couple of my questions on maybe.
Maybe I'll ask.
I think we're we're about 1 year out from the the reset on the ground lease on 625, Madison and I know you've been asked about this from time to time.
I don't know if theres any update or indication of.
What that rent increase would be but also maybe the timing of when we'll know.
What what that will be.
No no update and status there the rent.
On the rent reset of the middle of next year and the rental the non before then but there's no update and status.
I would say were actively engaged and.
With our team on on the process surrounding the rent revaluation. So the process is underway.
And the team is hard at work on it and it is about a 1 year process. It's just the way.
And it works.
Thank you.
Thank you. Our next question comes from the line of Blaine Heck from Wells Fargo and your line is now.
Great Thanks, and good afternoon.
Lee from Marc or Steve I wanted to follow up on some of the nuances and the return to office. If possible are you guys seeing any major difference and the pace of the increase in utilization or physical occupancy between newer higher quality buildings that had better overall office environments versus more commodity building.
And that may be weren't really updated much during the pandemic and may have less of the and energetic feel for lack of a better way of phrasing. It.
Yes, I mean, theres no doubt that tenants.
Tenants and their employees.
And are gravitating towards better quality buildings with better healthier work environments.
Which is why you've seen and our portfolio certainly at 1 Vanderbilt where we are.
We're starting to see the tenants on board as it finished their construction, but throughout the rest of the portfolio, where we put so much effort.
Due to upgrading air filtration with 14.
14, 15, and 16 level of filtration and such that it produces the healthiest work environment possible and enhanced cleaning and other protocols that we've implemented.
But on a.
As as it is.
The months have gone by essentially we've seen.
And almost a 1% increase in physical occupancy.
As each week goes by last week were at 22% occupied.
Throughout the portfolio.
And.
2 or 3 months ago, we were as low as 11%. So it's.
There's a there's a wave of tenants that are coming back and their employees are telling about it.
But clearly.
And that favor the healthy healthier buildings and their employees want to see it and feel it.
Great that's helpful. Steve and maybe 1 more quick 1 for you I know, it's still somewhat early in your process, but can you give us any any color on the interest from prospective tenants at 1 Madison.
Okay.
Yes.
And specifically what I heard Steve.
And with you.
And.
I would say that.
For where we stand and in the deal.
In the development, which is <unk>.
3 plus years ahead of completion.
Relative to that same point and time on 1 Vanderbilt.
On the interest level the early interest level is far higher.
Good morning.
Large tenants are the ones that are.
Moving fairly decisively within just a small selective band I think of competitive properties.
That can meet their needs for and a 2023 beginning of 2024 moving.
Obviously, we have 1.4 million square feet.
To offer but the beauty of 1 Madison is we've got sort of building within a building we've got.
93000 square foot podium floors that are relatively more affordable price and then we've got state of the art.
Even more efficient.
Tower floors at 35000 feet that appeal towards a different segment of the market. So we're seeing activity on both right now.
And we're seeing activity I would say and a volume ahead of what we would've expected from large tenants over 3 years out from from completion.
I would say that some of the interest is not is fairly signet serious interest in terms of.
People, taking hard looks and.
Even.
Some pay per being passed back and forth. So.
With that said.
We have no anticipation of signing a lease and 21 that was not in our guidance.
We really I think on the numbers we had.
Put out there and December had talked about mid second half of 'twenty 2.
So I would say that where we sit today I still feel very good about that guidance, well, obviously try and exceed it.
And based on.
Most importantly based on the early feedback I think we have the right product to the right product and the right area with the right amenity mix.
That I believe strongly is going to be leased and there's going to be at least consistent with our projections.
So.
The early feedback is good.
And I'd say were marginally ahead of where we expect to be.
But I wouldn't think that's going to translate into anything announce herbal and 21, nor nor did we expect it to.
Great. Thanks, Marc.
Thank you. Our next question comes from the line of Manny Korchman from Citi. Your line is now open.
Hey, good afternoon, everyone.
And.
I don't know if this one's for maybe Marc but on the sale of <unk> to 'twenty.
He's forty-second did anything change and the market that made you want to JV that rather and sell to outright as you had planned to a few months ago.
Andrew on show that was entirely I was resolved to own it long term.
So Andrew on sort of the evolution of how we.
Got to where we got 2 which was again and above average above expected execution.
I think the.
We were able to achieve a price that was equivalent to the pre COVID-19 price. If you adjust for the deposit that we retained on the sale.
And we're pretty optimistic about the prospects.
The building because it has a great base of very long term lease space and.
And some low rent rolling space that.
And I would say our view for that the.
And the prospects for that space has gotten more positive over the last couple of years. So.
Whereas it was a price we were willing to sell we're quite happy to hold 50% of the building we got great financing done.
Last April and May on the asset and we just decided there was there was upside and the rent roll that we wanted to continue mining.
I think it's I think it's another great data point.
The global appetite for.
Well positioned Midtown real estate.
It's a sizable deal.
I think it's reflective.
Of this disconnect between private market that really is looking for yield looking for high credit.
Yield, which obviously the news building forwards.
It's Andrew said very well financed.
And you know and this market there seems to be no shortage of capital.
And that wants to deploy into deals like that.
So.
Good good.
Good data point from the market a good data point for our portfolio.
And.
Taken in isolation I would combine that with the success, we achieved a 1200 a foot on $635.641, 6 and the deal. We did at the end of last year at 410, 10th which was nearly $1 billion for develop a newly completed asset.
And.
A plethora of other deals that we've started.
Started and finished and a and APA.
Post Covid world.
Thanks for that additional color Marc.
To dig into your point on.
Capital out there for a second.
Do you think that there is big and appetite for taking out whether it be a larger single asset or.
A larger portfolio of assets or do you really think that the capital sources today are focused on.
And more.
More.
Swallowable single asset.
Deals.
But don't take that larger commitment of capital.
Well.
And just to put some meat on the bones and a larger smaller it's yes.
Thank the largest.
I think the largest investments.
For single assets may be small portfolios is in that check range of 500 million I think is a sweet spot for large deals I think if it approaches 1 billion and you start to you know.
Thin out very rapidly.
As to.
Who can write that check and it's not it's not commentary I don't think on the attractiveness of the opportunity or maybe even the desire it's just that.
You know a $1 billion plus checks are.
You know railroad to come by and.
And anything between $500 million and 1 billion will normally take care of even the largest of New York City assets on an outright purchase or JV and.
And to aggregate up.
Buildings to make a portfolio deal.
You can do it and for people, who can write that check I think it's enormous opportunity. There is just less people and less groups that can handle it.
At those levels.
Thanks for that.
Thank you. Our next question comes from the line of Frank Lee from BMO. Your line is now open.
Hi, good afternoon, everyone.
Questions for Steve.
Can you provide any additional color on the 600000 leasing pipeline, what's the <unk>.
Take down between new versus renewal and what type of tenants are and pipeline and if you are able to provide the average lease term.
Yes.
So we have 355000 square feet of.
The leases and execution or or in negotiation and another 264000 square feet of term sheets, which we think have a.
High degree of probability of conversion over to lease and of the.
Pieces that are out.
There is roughly 300000 square feet of new tenants and above.
<unk> 30000 square feet of 35000 square feet of renewal tenants.
And then on the term sheets.
It's roughly 200000 square feet of new and 68000 square feet of renewal tenants and then as far as the complexion of the.
Tenants.
With the leases that are either out or out for signature.
39% of the square footage is on.
And our legal tenants law firms, 29%, our financial service tenants and 17% are tech tenants.
By and large mirrors, what we've seen.
And leasing velocity and year to date.
Little flip flop on the on the.
Legal versus financial services, whereas financial services is clearly led the market to date.
But.
And our pipeline, we've got 1 larger wall from Jobin Skus.
Excuse the debt down.
A little bit but.
And just to broaden the answer a little bit.
Where we're seeing most activity and the marketplace is.
Financial services throughout the portfolio.
Disproportionate number of leases and maybe that total square footage, but disproportionate number of leases that are up with financial service tenants.
Okay. So it sounds like the majority of the leasing pipeline is coming from new leases.
And do you have a sense of what's driving this is our these tenants looking to upgrade space or just simply looking to relocate.
<unk> seen across the market you have seen.
Our pivot by tenants that have sort of moved away from.
The short term renewals and also said that there aren't short terminals, but.
There was a lot more activity with tenants that are making long term new lease commitments.
Get back to business as usual.
Looking to create new work environments.
Change the densification of how they operate their companies.
And tenants are growing more on the offensive where they're not.
And not just hibernating and place scared of scared of the world, but now that theyre getting past COVID-19 and they're getting back to business as usual and that philosophy is picking up and that's why we're seeing more relocations.
Okay, great. Thank you.
Thank you. Our next question comes from the line of Steve <unk> from Evercore ISI. Your line is now open.
Thanks, Marc I was just wondering if you could comment I know leasing spreads bounce around quarter to quarter and same store NOI is choppy and can add some unusual comparisons, but youre leasing spreads year to date are only down maybe 1 or 2% I know your expectation was down 5 to 10 at the Investor day.
On same store NOI growth is a little weaker than you had projected so do you have any comments about the back half on either of those trends and anything that may be playing out as expected or better than you thought.
I mean again, we don't look.
And everything over the course of the year I mean, we budget based on the quarters per year, we do a re forecast, which we just finished up based on the balance of the year and on that basis.
We feel like most of our goals and objectives, we are either on track or maybe hope to exceed.
And Theres 18 of them so.
I'm just.
In general, they're obviously going to be ones that were stretch, we may or may not hit and miss by a little but I'd say by and large we are on track or ahead.
Wouldn't you know, whether we're a couple of points above or below and in July we have our numbers run out through the end of the year I think mark to market were pretty much on track.
With that or maybe slightly ahead of our of our projections as with velocity.
And Matt can address the same store.
Same store.
Other metrics, we are on on a full year basis.
On our expectations, maybe slightly ahead.
You've got to remember the first half of this year is comping to mostly a pre COVID-19 comp. The first 6 months of last year, whereas the last 6 months will comp too.
Host Covid last 6 months of last year, so the comps will be better and that'll trend us what looks to be off from our expectations and the first half of the year that'll put us back on our expectations for the for the back half of the year. The other thing I would say and I alluded to it earlier.
You can't really just look at the Red because you've got to got to take that capital and to play.
Think we're probably ahead on net effective relative to budget.
Because our capital and Q2.
And was.
It was down.
We sit here talking about well you know as Ti up 30%, 20% and temperature.
Our tis were down and the second quarter now they may be up again, and the third and fourth and you know.
We feel like for the full year.
We're on or ahead of schedule relative to what our capital budget was meeting.
Within our capital budget.
A little hard to do quarter to quarter, but we certainly are not experiencing the trauma on concessions that I read about and all the tenant broker reports and I. Just think you have taken a little bit of a green salt.
Okay. Thanks second question, you alluded to bringing more assets to market second half of the year can you just maybe help frame out sort of the potential size.
Or bucket of asset sales and then the corollary to that is obviously share buybacks I think we're much stronger and Q2s and them and certainly we thought and we thought it would be a little more backend loaded, but how do we think about asset sales back half of the year and share buybacks back half of the year.
And I would say, we're reviewing our business plan based on the.
The success that we've had with the assets we've rolled out to date and the fact that the.
The appetite out there as voracious for New York City assets on a relatively quick closing basis. So it's.
Reexamining the art of the possible from the second half and we definitely will be back active and the capital markets.
Can't dimension and exactly how large at this time.
Share buybacks, Matt can speak to but yes, and consistent with what you've seen us do and the first half of the year. The bias is to use proceeds from asset sales for share repurchases, we only do share buybacks with the proceeds from asset sales, but we have taken the opportunity to pay down debt to keep the leverage levels and line.
And with.
And with some of the asset sales to so to Andrew's point on dimension and get depending on what the dimension is and what that does to the balance sheet again, our bias is to buy back stock with the proceeds unless we need to pay down debt to manage that leverage level.
That's it thanks.
Thank you. Our next question comes from the line of Jamie Feldman from Bank of America. Your line is now and then.
Thank you.
Steve I was hoping to get a little bit more granular on the leasing pipeline or at least kind of that the segments of demand.
Everything we've seen is that the most active candidates and the market and certainly you guys have I think that the 1 Vanderbilt had been that kind of higher and boutique type finance.
The law firm.
And as people are thinking about getting back to the office how should we think about that next group kind of maybe larger tenants, but not quite as high and and what are they looking for is it still a focus around grand Central and do you think that theyre going to look at other parts of the market I'm just curious what kind of at what stage 2 is going to look like in terms of.
Yes on New York leasing picking up after the pandemic.
Well, maybe a couple of other sandbox.
Round off.
And color commentary on leasing and other than the very specific percentages I gave on the loss answer.
I think we're seeing certainly more focus on trends and centric located buildings.
And certainly more focus on buildings that are monetized.
And our focus on buildings that have a healthier workplace environment.
The good news and all of that is by comparison to the first half of the year, we're starting to see more tours and proposals a and b.
And negotiations on the cash.
And a smaller tenants and the market what.
And what we saw on the first half of the year, where a lot of activity on the.
Premier buildings and class a product, but now we're starting to see life for the smaller guys and the more commodity buildings, so and our portfolio. If you use grey bar is a good example of that we've got a lot more leasing activity and that buildings and we have and the first half of the year, which.
1.1 and Thats.
And prior market disruptions and it was always a small guidance that visited the big guys pulled out of the market. This is the first time microwave and remember that the big guys were the ones driving the market.
And.
And a small investor on the sidelines, but I think as we're getting past COVID-19. Those smaller commodity guys are now starting to a way you can come back into the market and we're certainly seeing it.
And our Grand Central portfolio and some.
On the more commodity type of product like a gray bar or 711 and third Avenue.
Okay. Thank you.
And then and now that we know who won that.
That.
Primary for mayor any thoughts on what Eric Adams, and mean per New York Real estate.
And some of the concerns around crime.
And maybe cost.
Operating costs per landlords.
Any early read.
Well, there's still a general election, you know to go and November so.
Eric looks.
Well positioned.
You know to become next mayor, but I think when you speak to him. He's still has work to do before.
Before that it's mission accomplished and.
I think that on a more broad context.
Looking at <unk>.
Increased voter turnout there was like an extra 150000 voters than usual and the city that doesn't have high voter turnout to begin with I think demonstrated.
And the.
The positive results of activism within the resident and business community to get people to get out the vote to make sure that all voices were heard and not just a segment of the voice is heard and.
And the top 2 leading candidates where both considered.
Moderate candidates candidates, who believed and safety.
Safety and affordable housing, but and working with.
Businesses.
To create an environment that is.
That will be favorable for the next 4 years and.
I think that was a major and.
A positive step forward and I think eric's going to do.
Great job, if he when if and when it becomes mayor and.
And.
I think he.
<unk>.
Seen him and the past worked through difficult land use issues and other issues and his and as Bert.
<unk> and Brooklyn.
And we have respect for what he brings to the table and a total package of being able to work with the policing and security community.
And the business community the minority community.
On the homeless and people who are you.
Our.
And the need the affordable rent.
Segment of the market and.
And we're looking forward to.
Continuing to have good relations with city Hall, and do our part and more than anything else, we want to do our part to you.
Help improve transportation infrastructure, the built environment contribute towards affordable housing like we did with Sky and what 85 Broadway and we will do everything possible to support him and his administration just like we have with our mayor Deblasio and his administration.
Okay. Thank you.
Thank you. Our next question comes from the line of Craig Mailman from Keybanc capital markets. Your line is now from.
Hey, everyone I know lease terms have been kind of a long gaining from the contracts and you saw it really depend on Mike but.
Are any tenants looking for more flexibility in terms of early outs and some of the longer leases. They are taking is that.
Something that's taking hold or not a conversation.
Whenever you have got.
A market, where the tenant feel that they've got.
And more leverage than they had previously.
And 1 of the things that go for part of their overall negotiations with greater flexibility and I don't think Thats driven.
Covid post Covid state of the economy, a different perspective on.
On the on the real estate market and its just that.
Tenants.
Come to the table asking for a lot of different components on their transactions. So yeah, we're seeing requests for more flexibility.
And whether it's to shed space midterm or castle early but having said that the number of times that we actually acquiesce to it and.
Do you have that kind of flexibility is still very very rare it's not day.
Foregone conclusion that just because you asked for it and youre going to get it.
Okay. That's helpful. And then just on the 1 vandy financing.
And after you guys repaid the $1 billion 750 that you had out.
What can you just talk about the excess proceeds how much of that needs to be kind of retained within the JV for anything laid out and.
The <unk> stocks vs.
And how much if any is kind of being returned to partners as excess proceeds on return on capital.
Sure it's Matt so.
At closing, we had about 1 billion.
5 and a half out on the construction financing, we repaid that and then after reserves.
First costs, and then predominantly reserves 4 executed leasing tis and free rent that type of thing.
$650 million was repatriated back to to SL Green, which then went to all pay down debt.
Okay, great. Thank you.
Thank you. Our next question comes from the line of Anthony Powell alone from J P. Morgan. Your line is now from.
Great. Thanks.
So I guess for maybe Marc or Andrew with the valuation you got on <unk>.
And where do you think that puts land values and and what does that do for your appetite to pursue other potential large scale projects or even and even tear downs for that matter.
And.
Oh well.
There are some and some other sites trading around grand central or in the market at least.
And.
And I would say.
And that's indicating a strong strong land values and the Grand Central area.
On.
We just just specific to grand central.
We're seeing.
Yes.
The biggest impact to us is really 1 Madison, where we are.
Very confident with the decision we made with that asset and think we have a chance to.
Replicate or exceed the success, we've had on 1 Vanderbilt with 1 Madison so.
Thats, where it sort of.
Impacts us the most I think more so than taking on another large scale development.
And this immediate area, because we sort of have on ongoing and 1 Madison.
Okay.
And then just my second 1 is maybe for Matt.
Can you give us and guideposts or any additional color as we think about <unk> from <unk> to <unk> with the.
And I think the way it them and Watkins I don't know, if theyre moving out or not or if there are holding over and just how to think about that as we roll the numbers.
Sure, Yes later and Watkins left in June.
Ended June was the expiration of their lease so they are out that asset will move into redevelopment phase now for the balance of the year.
<unk> is somewhat a function not just of NOI, but of the other things that we have and the business plan. So.
Depending on the timing of things third quarter could be.
Equal to or slightly below the second quarter, and then fourth quarter Pops up on.
Or the inverse of that we have some things in the pipe that are timing dependent and whether or not they happen and third or fourth we're indifferent too because as I said earlier, we're giving annual guidance. We don't look at stuff on a on a quarterly basis as long as we're within our annual guidance and we are squarely within our range as we sit now.
Just to add to that later on and Watkins when we took control of the build and we knew that they were they had already signed a lease to move out of the building. So it was no surprise to us.
So when we bought the building we bought within touch through a redevelopment plan and that plan has now been fully designed and is and the early stages of beginning to execute.
Okay. Thanks.
Thank you. Our next question comes from the line of background now low Chow from Morgan Stanley. Your line is now from.
Thanks, So much Matt Matt maybe just sticking with you on not necessarily the successful but.
From 1 Vanderbilt can you just clarify on give us the sort of GAAP contribution you baked in for.
And for each quarter, and the third and fourth quarter.
And then what's your expectation for the summit in the fourth quarter.
So and sticking with the commentary so far I won't give quarterly guidance.
But I will stick with my annual number of low Thirty's GAAP NOI contribution from.
And from 1 Vanderbilt for 2021, our summit numbers were opened on October 21.
We have modeled and very conservative ramp.
So the contribution for the back half of the year is very light.
Okay. That's helpful.
And then just on <unk>.
And the street retail portfolio can you just clarify on give us more color on 85 fifth Avenue I think it showed 100% occupied the prior quarter, but not this quarter.
Can you just clarify what went on there.
So under lease shouldnt be on.
Opposite.
Now did you say, 100% occupied on 100% vacant.
No it was Vic and this quarter, so last quarter, that's putting on.
I guess on the rigs that we.
And we signed the lease yesterday for the space all of it.
Long term lease so next quarter on reflect occupied again, yes anthropologie.
And they left and we felt we signed a lease at all.
From you taken wind out of the sales for third quarter.
We're seeing us too.
And forcing us to go we just signed a full building lease on that deal yesterday.
Okay, and you got to leave something on the bones for Q3 months.
So the street retail is fully back these back up and we leased.
At least again no worries.
Okay, any any any comment or any color on the economics relative to where it was prior.
We are proud is.
We'll talk about it more and you're using your third question of too.
And we will talk about it more when we are when we revealed the deal.
Okay.
And as good so I just have I guess.
That color offline just 1.1 kind of clarification you talked a lot about.
Capital, obviously buybacks and terms they were capital deployment and B.
All the developments that you're doing but just didn't dying with your commentary about New York coming back near term long term.
And 1 of your peers from the Big JV.
Focus on their markets, but also look at more value add.
Development.
Type acquisitions, and just wondering your appetite from your own on.
And on focusing on something like that or value add buildings in terms of acquisitions, but also just given the debt markets growing the DP DP book from here.
Well we are.
Very actively.
Pursuing and desirous of.
And not just value add full.
Full on ground up development opportunities.
We have value add opportunities. We've acted on recently like 85 third which is I think a great example of that and that well underway.
750, <unk> redeveloped within the portfolio.
We have other deals like that and pipeline, we closed a <unk> deal in Q2.
We just.
Closing.
Have other pipeline for Q3, we expect to close and be able to discuss on the next call. So I mean, we're very much and business.
You know, we've got like 7 active development deals and redevelopment deals going on right now we have fairly active pipeline of opportunity, but disproportionately just given the.
Extreme divergence of value and stock price.
And we've decided to allocate most.
Free cash flow towards the stock buyback and we'll continue to do so.
Okay fair enough. Thanks, so much.
Thank you. Our next question comes from from line of Nick <unk> from Scotia Bank. Your line is now from.
Thanks, Hi, everyone page page 38 is on the <unk>.
Lease explorations I just had a question there if you look last quarter. It was talking about there being 450000 square feet of explorations and the second quarter still listed over 400000, and this quarter and so I'm just trying to understand what it looks like you have now additional months.
On tenants in the portfolio and maybe you could provide some clarity on that and how much and this is office versus retail.
Wow.
You're in the weeds on that 1 net but.
All I will say theres holdover tenants from quarter to quarter, so that will probably contribute to it as to the complexion of it.
And I don't know that 1 off the top of my head so I can.
Research and further and get back to you offline.
Okay. Appreciate that thanks, I guess my other question and it's just.
As we think about the leasing activity that's in the pipeline that Steve was talking about earlier and then we relate that back to page 29.
And the software you do give the occupied number for same store versus the least number.
And.
That spread is can verbs closer meaning that you know you used to have and you tend to have higher lease number then and occupied number you still do but it's not as big of a spread.
I'm just trying to think about that that leasing that's in the pipeline.
What that means in terms of your lease number and the same store portfolio is that could be and to that.
I think we addressed that earlier and saying we are still comfortable with the goals and objectives, we put out there including occupancy and.
And would hope to exceed our goal which was 93%.
By the end of the year.
Okay. Thanks, everyone.
Yeah.
Thank you at this time lines showing no further questions I would like to turn the call back over to Marc Holliday for closing remarks.
Okay well.
I appreciate the opportunity.
For those still on to discuss our all that we accomplished and.
Q2.
It's a great 3 months.
We will be working hard.
<unk> III and look forward to speaking to you again.
This concludes today's conference call and thank you for participating you may now disconnect.
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