Q1 2022 SL Green Realty Corp Earnings Call
Today's conference is scheduled to begin shortly please continue to standby and thank you for your patience.
[music].
[music].
Thank you everybody for joining us and welcome to see.
Corp's first quarter 2022 earnings result 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 looking statements as predictions of future events actual results and events may differ from.
From any forward looking statements that management may make today.
All forward looking statements made by management on this call are based on their assumptions and beliefs as of today.
Information regarding the risks of uncertainties and other factors that could cause such differences to appear are set forth in the risk factors and MD&A sections of the company's latest Form 10-K and other subsequent reports filed 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 regulation G. Under the Securities Act gas.
Cancel measure most directly comparable to each non-GAAP financial measures discussed and a reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found on both the company's web site at www that SL Green Dot com by selecting the press release regarding the company's first quarter 2022.
Earnings and in our supplemental information filed with our current report on form 8-K relating to our first quarter 2022 earnings.
Before turning the call over to Marc Holliday, Chairman and Chief Executive Officer of SL Green Realty Corp, I ask that those of you participating in the Q&A portion of the call to please limit your questions to two per person.
Thank you I will now turn the call to Marc Holliday. Please go ahead Marc.
Thank you good afternoon, everyone and I appreciate you joining us all today for SL Green's first quarter conference call. We very much appreciate the opportunity to discuss with you the company's results and activities and provide some of our thoughts on the overall state of the commercial market in New York City.
I'm happy to say notwithstanding the challenging operating environment of the recent past and so Greens portfolio is dramatically outperforming the overall Manhattan office market reaffirming its place as new York's leading commercial real estate company and demonstrating its ability to adapt to an ever changing market.
We've done over 4 million square feet of leasing in our office portfolio since the beginning of 'twenty 'twenty, keeping our occupancy at approximately 93%, which is more than 10 full percentage points higher than the overall Manhattan office market and its expected to rise above 94% by the end of 'twenty two.
Two.
Focusing on current results and so green signed nearly 900000 square feet of leases in the first three and a half months of 'twenty two 2022 alone, including the blockbuster announcement of Ibm's 328000 square foot long term anchor lease at our transformative one Madison Avenue development.
Our new leased to a global information services company encompassing 236000 square feet for their new headquarters at 100 Park Avenue into signed lease with U N women for an 85000 square foot renewal at 220 East 42nd Street more commonly known as the news building.
Even after all of that activity, we still have an impressive pipeline of leases totaling another 900000 square feet, which we hope and expect to execute upon throughout the remainder of the year. In addition to building new pipeline throughout.
With one Vanderbilt Avenue now 97% leased the demand we are experiencing and leases. We are signing is not just for new space, but rather for highly improved amenities and well located space, which comprises the entirety of our portfolio.
The success of our portfolio through the pandemic is the direct result of a multi year strategy to narrow our focus on the best buildings in the best locations and as a result, our portfolio was without question the strongest it's ever been and getting even better with the announcement yesterday of the.
<unk> of $4 50 Park Avenue to our roster of Premier buildings, we have worked incredibly hard over the past five years to transform our portfolio into the force that is today concentrated within resurgent east Midtown with all the attributes that tenants have come to demand health and wellness.
Exceptional amenities, great location easy commute ability and high design looking at our portfolio today, we are lean strong and highly concentrated in our core prime assets over the past several years, we've dramatically reduced or entirely eliminated ancillary.
This lines selling off our suburban portfolio, minimizing our retail and residential portfolios and having our debt and preferred equity book, our core office portfolio remains of similar size.
You know from when we embarked at the outset, but we've replaced many smaller noncore assets with fewer bigger higher quality properties, thus, giving us an edge on efficiency and new developments is now a much bigger component of our portfolio and will only grow as one Madison 76.
Madison Seven day, and 15 Beekman move towards completion and stabilization and at the center of it all is one Vanderbilt I try one fifth development and the most successful building a 2021 leading in east Midtown Renaissance and defining a new standard for office in New York and around the World.
The response has been overwhelming with more than 375000 square feet of leases signed in 2021 at record breaking rents. The success of Olivier has sparked a broader east Midtown revival with massive investment taking place across the district now as the city's strongest.
Leasing, which is occurring in core east Midtown to.
The building itself has become the locus of activity in Midtown helping to draw people back last year. As you know we opened Danielle balloons will par beyond at one Vanderbilt signaling the return of the New York restaurant scene in Midtown we knew the demand was there, but we've been completely blown away with the reaction is every dinner table, it's been taken since opening.
With long waitlist to boot.
In October we upped the ante celebrating the launch of summit, one Vanderbilt and immersive experience. Unlike anything else in New York. This was another major milestone for New York signaling to domestic and global tourists alike that the city is open for entertainment and new and exciting things can come out of even the most.
Trying of circumstances in just 149 days of operations summit, one Vanderbilt generated over 550000 total visitors from 57 countries around the globe quickly, becoming the hottest new attraction in New York City within a competitive landscape for entertainment attractions.
Looking ahead, one Madison is poised to transform Midtown South just as one Vanderbilt sparked a resurgence of east Midtown Ibms decision to sign on as an anchor tenant is massive for New York City signaling the long term health of the city and the ongoing attraction of Midtown South.
When Madison follows the one Vanderbilt playbook by leveraging its retail space.
Bring an amenity to the building tenants that adds value with Chelsea piers delivering a 56000 square foot fitness facility when Madison responds in every way to the ongoing rapid transformation and work culture that has brought a heightened desire for healthy productive.
The focused work environments, we're bringing the same approach to a series of new development projects, including 760, Madison Seven day 15, Beekman, all centered around modern and luxurious design curated amenities and outdoor space offerings and look.
To the future. There is reason for optimism based on the continuing job growth in New York City, 84% of office jobs have already been recovered in full recovery as projected by O M. B to occur by middle of 'twenty to 'twenty, three with 24000 office using.
Jobs expected to be created in 2022 alone.
Everyday we see and feel and New York City coming alive. We are proud to be a part of New York city's comeback and we will continue to look for ways to capitalize on the current market environment to deliver value to our shareholders.
And we are happy now to take your questions.
Thank you to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
A reminder, react.
Questions to two per person.
Our first question comes from Alexander Goldfarb with Piper Sandler Your line is open.
Hey, good afternoon, good afternoon down there.
Two questions are.
The first question is for Steve.
Certainly you know the headline one Vanderbilt been great for Midtown.
As you look at the buildings in the Grand Central market, our tenant still saying you know brand new construction, that's where we want to be so the bias is whether it's the far west side or downtown to new buildings or are you seeing tenants increasingly look at older vintage assets in the Grand Central markets I'm trying to figure out.
As older vintage in Grand Central becoming more competitive and basically how this relates to $4 50 Park.
Well I think all you have to do is look at the 235000 foot lease that we did at 100 Park Avenue to answer that question right. It's a vintage building, but it's been heavily renovated over the years in <unk>.
And we're seeing a similar sort of activity throughout our portfolio, where we have well located recently upgraded our med <unk> products. So it's clearly not a bias simply to new construction, but better a bias to good quality.
Well positioned our product.
Okay, and then secondly.
450 Park.
With our business plan in mind for that product.
Is is spot on in a well located high design building, we're going on monetized it.
And you know, it's it's a sweet spot for financial firms, which is one of the biggest drivers are four four tenant demand right now.
Okay, and then Andrew on.
The D. P E book rates are obviously up big.
Think about a third of your D. P book or so is a is floating or your spreads on the overall book fixed so as rates go up and down you are making the same spread or is there no I wont say mismatch, but is there are the funding costs different than your your the interest rates.
That you're receiving such that the spreads going to vary as interest rates are rising.
No.
<unk> hedged if you will I mean.
The floating rate assets of fixed spreads over the floating index, which resets every 30 60 or 90 days depending on the documents.
The new loans that we're looking at originating are also primarily floating to increase that sort of floating rate hedge that the debt book provides us versus our floating rate liabilities.
Okay. Thanks.
And we don't have any leverage any specific leverage on the book today. So it's only funded off the corporate line of credit basically.
Okay.
Our next question comes from Jamie Feldman with Bank of America. Your line is open.
Great. Thank you.
I guess I just was hoping to maybe just take the policy.
Where you think tenants are in terms of how they're going to use the space going forward I know a lot of companies offices or backup and maybe people arent back fully theyre, giving flexibility on how many days a week just as you're talking to your your tenants I mean, what do you think the future looks like in terms of how many days a week people will be in the office are they gonna be hotel ing.
Just any color you can provide on kind of just the latest thoughts.
I don't know that you know companies yet know definitively.
How they'll be using their offices within the near term I think the to me. The best takeaway is evidence of what tenants as long term.
Expectations are for office space being the center of business activity and that sort of relates back to the 4 million square feet.
Long term leases or mostly long term leases, we signed are all during pandemic.
Where tenants have gone through and thoughtfully considered how they want to use their space clearly D. Densify from the plans we saw three and four years ago to loosen up the footprint says is as it were and also to incorporate.
Significantly more.
Non.
Work, Oh office space or non workstation space for.
For all the different things we've talked about over the past few calls in terms of collaboration space.
Food and beverage lounges.
Conference facilities breakout room, smothering rooms, wellness rooms, et cetera, and I think the plans are exciting there were more thoughtful I think by and large all the new space being built today are are is more productive space for employees more appreciated.
<unk> employs more appreciated by clients.
And there seems to be less.
You know mono focus on density and efficiency and it's more on sustainability.
Inability helpfulness and productivity I think that's that's been the big shift, we see and whether.
Tenants employee base are coming back three days, a week four or five days, a week, which seems pretty clear is that every one of those employees are still landing at a unique.
Work station.
And I think the days of hot Desking, you're sharing.
Is reduced now from what it was as people tend to want their own space their own environment.
And the commitments of space being made by tenants are generally for the same or more space.
<unk> footprint than previously at least in our portfolio of 27 million feet. That's what we're seeing.
35% of the tenants in our portfolio are expanding.
For those that have signed leases for renewal in the portfolio. So you know clearly we're not seeing a trend.
Like existed before the Densification trend was one of the toughest.
We faced over close to a 10 to 15 year period, Predating Covid that really seems to be somewhat halted if you will and instead are these kind of new and inventive floor plans, which create.
Hospitality like environments.
That anywhere between.
<unk>.
Incentivize employees back to the office or help on recruitment and retention, we see that as the trend of the future and you know you can speak to the businesses. We have 900 tenants in our portfolio speak speak to any you know.
Grouping subset of them and I think they'll tell you how much focus space planning now gets and it doesn't seem to be a trend towards smaller space, but if you ask them specifically, how many people what days I don't know that they know that yet I just know that our.
Portfolio is experiencing physical occupancy levels between 40 and 50% between.
Just on what day of the week. It is and you know those levels are starting to feel really good and you know getting back to the utilization you know we've seen in the past we have a ways to go but I think we're heading in the right direction.
Alright, Thank you and I guess for my my second question.
Turning to Matt, Matt I know you've maintained guidance I assume there's a lot of moving pieces, though I mean, clearly rates are probably higher than.
Do you expect it to start the year can you just talk about kind of what's up and what's down.
Based on what you originally expected.
As you think about the guidance.
Really the topic as rates I mean, the operationally everything we saw in the first quarter was right on top of our expectations on every metric.
And for the balance of the year from an operating perspective.
We're seeing exactly what we expected to see when we gave guidance in December it's really a question of rates right now and if you recall back when we gave guidance we do Cushing the forward curve on our floating rate debt by 50 basis points, which gives us room for the curve to move traditionally it hasn't this year it has.
We put 50 basis points on it back in December and the.
The forward curve has pushed through that 50 basis points and beyond so it leaves us within the range, but certainly looks like you.
Are you trending towards the lower end of the range just as a function of the movement in rates.
And would you say there is anything that's offsetting that or its pretty much everything is as expected other than rate.
I mean, the activity, we're seeing in the portfolio NOI was a tick better than the first quarter.
I'm not spreading one quarter out over the remaining nine necessarily but we've seen some indications of better improve better performance in the operating portfolio in the first three months of that carries out yeah that would offset it.
But otherwise pretty much in line across the board with what we expected.
Okay, great. Thank you.
Yeah.
Our next question comes from Marshman with Citi. Your line is open.
Hey, it's Michael Bilerman here with Manny Marc I was wondering if you could maybe spend some time just elaborating a little bit on the growth in the investment management program.
And maybe just talk about it from the perspective of obviously you've had venture partners for a long time and you've utilizes a very successfully to refinance and recycle capital.
If you think about 450 Park Avenue going into that north of $13 a foot, obviously, you're buying your stock well south of that well over half of that discount.
And so I'm just trying to understand how much do you want to sell existing assets to grow the platform versus making incremental and I recognize you have you're constantly doing things in their organizations constantly in motion.
Just help sort of frame everything is.
As you progress down this road of really creating this platform.
Well I mean as you as you point out.
Michael.
We've been.
We've been doing deals with partners for decades.
And we consider ourselves.
You know a very good partner for people, who want to invest in a in New York City, specifically Manhattan.
And we've had a very good track record with our investors both domestic and in all over the world and we want to continue that.
Cause you know quite frankly for us its been a bit of a more reliable source of equity through the years and through cycles than the public markets have been.
There have been times in the past public markets have been.
Favorable completely closed.
And then I'd say I can't really say that over the past four or five years. So it's we have to lean into on behalf of our shareholders heavily.
Accessing what I would say the most dependable dependable consistent and appropriately priced equity capital isn't that that tends to be a domestic and four in a private equity so.
So for that reason, we're not only continuing along that path, where we're increasing it and really what I think you're you're seeing there.
Is a shift from a company that's been very transactional over the lets call. It prior two decades.
Recall that our August is our 25th year as a public company on the NYSE will be celebrating that that that milestone date in August and September of this year.
And we've I think the evolution has been to one where we now want to weave.
We've built a significant brand value are.
We have an excellent platform, we have excellent people, we have excellent systems and controls and procedures and security and marketing and leasing and everything that goes into it so now with.
I think we move into a phase of transactional company into franchise and platform company, where we can.
Utilize our expertise in this very narrow.
Slice of the market, albeit very sizable size.
Very sizable part of the market to.
Become a provider and co investor of best of class.
Services for excellent real estate, which seems to always be in demand in New York City, regardless of market cycle and regardless of interest rates.
Environment, and I think $4 50 will be an excellent litmus test of that thesis.
A property that even at the the per square foot price you reference are.
We think represents extraordinary value.
Given its location were what I would call maybe the bluest chip of locations arguably in New York City 57th in Park.
The building is an excellent boutique.
Class a building that I think.
Under our stewardship will be able to bring a new vision to that property.
For amenity and service.
And and improvement such that we should be attaining.
Rents at the very highest levels just short maybe of what one Vanderbilt commence in new construction and therefore on that basis, there's real runway. There for US you mentioned 1300 foot. There's no reason buildings on Park Avenue Couldnt routinely be approaching two.
A foot and certainly above four building new buildings like one Vanderbilt so.
So we see significant upside.
We also see significant attraction.
Because for people there is a wealth of investors adaptive investors out there who want to invest with.
The best sponsorship in the best properties in the best location in New York City, and $4 50 I hope.
We'd like to thank <unk> checks all those boxes and you know the proof will be in the execution.
So I guess it doesn't sound like are you already in discussions with existing or future partners.
I guess stepping back from it.
This is the first big deal you acquisition.
2018, right. So I think it's a pretty massive signal, especially at a time, where you've been shrinking the base how much equity capital is out there for office assets, because I think one of the other things mark that you've been demonstrating.
Back like two weeks already by buying back 35, 40% of your shares like you shrunk, so dramatically and protected <unk> and grow NAV by selling assets and buying back your stock at a discount.
I guess at what point is there enough like I remember last summer when you and I had this conversation on the call about is there enough equity capital had taken office REIT.
Alright, you felt your equity cap on them on an NAV basis down to you know holiday <unk>.
Seven $8 billion is there enough equity if you lever up the entity.
You maintain the franchise, but you don't have to worry about the public markets I guess, that's the question.
The question was.
For 450 Park I'll take myself up off the floor here.
There's lots of equity for $4 50 Park Avenue that's for sure.
Spectacular success with.
Pretty much all of our joint venture partners in the past if you go down the list we've delivered.
Astonishing market, leading returns to these investors and therefore, given our track record and given the fact that we have the conviction to buy this building.
The inbound calls have been.
They've been great. The coal coal volume has been very encouraging and people are anxious to invest in New York and invest with SL Green for sure.
There is a deep pool for a single asset deal for for corporate deal I don't think we're commenting on that at this time.
But and I don't think its relevant to <unk> to $4 50, I mean, we're talking about the investment management class platforms and asset by asset platform.
Andrew has answered the question the investor pool in today's market.
Worldwide and domestic and as deep.
Thank you. Our next question comes from Steve Sokolov with Evercore ISI. Your line is open yes.
Yes, thanks, good afternoon.
I guess I wanted to maybe touch on capital allocation and just get.
We get a better sense for share buybacks versus acquisitions via the JV.
Debt pay down just given kind of where the balance sheet as mark and the fact that roughly 20% of the balance sheet floating rate debt. How are you sort of prioritizing our thinking about capital allocation from here forward.
Well look.
The capital allocation decision as you know fluid and changes you know quarter.
Quarter by quarter, or you know day by day, almost so I think at a time of rising interest rates were going to put more emphasis.
If you will just on a on a relative basis on on debt repayment because debt repayment becomes more accretive.
Relative to.
What it looked like win.
Three to four months ago. So we've been I think you know as we've been buying back debt. We've also been rich I'm, sorry buying back stock. We've also been retiring debt. So we've been trying to maintain that neutrality, but in a market like this I think will probably overweight.
Debt repayment our debt retirement over.
I'd say now through year end.
We'll see where.
Rates settle not in the next month or two but in the next you know.
12 to 18 months, where rates settle whether they continue an upward trajectory or they level off kind of as the yield curve would suggest or possibly retreat as they did in 2019. After a spike in 2018. So don't know we try to maintain at <unk>.
All times of relative.
Neutrality view neutral.
Our approach to interest rates, meaning the yield curve itself is the best arbiter of.
Future expectations.
That's that's that's served us well over 25 years and we also build in a cushion which is why in the first quarter with our cushion.
We still came out.
Right on top of where we expect it to be notwithstanding the increase in the short end of the rate so.
Think.
$4 50 Park.
While I think it's indicative of where our heads are going forward I wouldn't read too much into it I mean.
We used to do I think like a couple of billion dollars a year of acquisitions and that was kind of a routine for US you know this is a unique opportunity to order 57th quarter of 57th in Park, we got it at what we feel was a very attractive price relative to its prior history and we think there is upside and we think it is high.
We syndicated deals so I put it in the category of a almost a no brainer for somebody like US who specializes in this market and in this asset class to sort of seize the moment and take the opportunity to take the asset down, but there's still an overarching recognition that.
So we want to be defensive in an inflationary environment and with future asset sale proceeds.
I would expect a lot of that disproportionately to be oriented towards debt reduction there you go.
Okay, great. Thanks, and then I know this is kind of been a topic that's come up a few times and it.
It might be hard to really speak to but you know the the New York The Downstate gaming license just trying to understand sort of where your head is around that as it relates to SL Green and is this something where you know you want to really try and be partners with a gaming company and go through the licensing process. It would be on the operator side or are you looking at this more of.
Hey, we'd like the casino in one of our buildings, because we think it attracts people and we want to be more of a landlord to the casino I'm just trying to sort of figure out how you're sort of thinking about that in there.
It's a good question and it's not that we're not you know that we can't speak about it.
Just want to hold off probably until the next call to speak about it I think it's a little premature and I don't want to speak off the cuff other than to say.
We think it's a big opportunity for New York City, We think it's a big opportunity potentially for SL Green.
I believe the city should end up with.
Not one but two of the three licenses I think that's.
Completely.
Appropriate in terms of.
How best to allocate licenses.
Over an area known.
Turning to nobody has downstate and capture different segments of the market because different locations will appeal to different.
Customers and consumers and in that regard we've studied it closely and I feel New York, New York City can handle.
Not one but two of the three licenses and I think that the.
The single best location for a license is.
Manhattan and within Manhattan, I feel the absolute best most obvious least impactful and most globally accepted area will be times square. So so you know we're on that.
No that that opportunity, but in terms of how we'll participate who will participate with and.
What shape that May take I'd say, that's a conversation that is not right for today, but maybe on the next call.
Okay. Thanks, that's it for me.
Thank you our next <unk> comes from Derek Johnston with Deutsche Bank. Your line is open.
Hi, everyone. Thank you.
We see a lot of focus on the competitive, but but healthy New York City leasing backdrop at least in desirable submarkets, but elevated concessions probably important to win deals and investors are going to focus on rent spreads. So how do you view spreads in concessions trending as we move through 'twenty.
22, and I guess, you know what's changed since the Investor event in December on those slides.
Well I don't think the concessions.
Have changed quite frankly, I think there's as we've said at Investor day, and I think probably certainly through the starting through the second half of last year up until today, we think concessions leveled off as you could statistically you could see in the broader market, where there's evidence that they may have in certain cases.
Already started to trend down a little bit.
We posted some big numbers for this quarter, but do you have to appreciate that of the 800000 square feet of leases that we signed seven hundreds of thousands square feet of that were with new tenants.
So it just so happens that we had a quarter that was disproportionately weighted to new tenants as opposed to renewal tenants renewal tenants are typically.
Have a lower concession package. So therefore, the weighted average is a is a lower number than what we posted this quarter.
But if you drill down on a deal by deal basis, I still think concessions are depending on the building and the size and the length of the lease or somewhere between that 110 and $130 a foot in ti on a on a 10 year term I think concessions for free rent have been sort of in that 40.
<unk>.
14 months free rent period roughly.
That's where it's been for the past year or so so and that's what we're experiencing throughout our portfolio, but when you do a tremendous amount of leasing to new tenants on long term leases and then all of a sudden.
Paints the picture to suggest that maybe concessions of increase and I don't think Thats. The fact at all.
Okay great.
And then look I B M really big win at one Madison, We do know it's early on but do you envision.
Potentially another anchor tenant in place may be even later this year and do you see the success at one Vanderbilt potentially driving early pre leasing interest and demand.
For one Madison, especially given what we see as an employer quest for newness.
We've got a lot of we've got we've got a number of of tenants that were speaking to at one Madison, we're in advanced discussions with.
With some of them and we're very hopeful that we're going to have some additional announcements before the end of the year.
And the momentum is.
Is going to build on itself I think if we do additional leasing this year and we can eclipse.
The 50% Mark.
It will probably be a little patient with the rest of the leasing because we'd be dealing with.
Parts of the building that we'd be excited to be showing in marketing. Once the building is is topped off.
There's really no substitute for standing on you know on these floors and taking in these incredible.
Views and vistas of the park.
You know of downtown of some of the surrounding landmarks and the amenities will be further along and I think as good as the amended these are in one Vanderbilt we're going to try and equal around do ourselves that one Matt.
Thanks, guys.
Our next question comes from Caitlin Burrows with Sachs. Your line is open.
Hi, Good afternoon, everyone, maybe back to the 450 Park acquisition could you give some color on.
Kind of how it came to be was it marketed.
And then going forward, how much and over what time you think.
Joint venturing out of pieces could happen and what amount of amenity investment could be made.
Sure the property was the.
It was marketed.
Sort of a targeted way.
The sellers had some particular requirements that we were able to meet we think uniquely or that put us in a smaller group.
And.
I would expect the syndication to at.
At least start with by closing in June of the asset.
And be completed.
By the summer.
And on the amenity front I'd say, we're still assessing exactly what level of.
Investment and we want to make in the building.
But we do intend to market. This at the very high end of the Park Avenue Plaza District offerings and the amount of these will be commensurate with that.
Got it Okay, and then maybe just on the lease.
You guys did at 100 park that had been meaningfully negative impact on leasing spreads I know it was only one lease but it was a large one so just wondering if you could go through the decision to re lease that space to that user at a lower rent rather than lease it to someone else or avoid meaningful investment have been needed in order to improve the rents. It does seem a little surprising given the local.
Right by Grand Central or anything else you can share there.
No remember that the.
The majority of that space. So it really all of that space of the of the large block was in the bottom half of the building so large floor plates the darker part of the building.
The rents that we do.
Received for that lease I think are the same rents we would have received pre COVID-19 quite frankly, I don't think.
I don't think it's a function of investments.
Negative mark to market is simply a function of the fact that we had a tenant rolling off at a very high escalated rent.
So it is not it is absolutely right.
Not a and.
Cater of rental rates on the on the broader market simply.
Of a one off lease where the tenant rolling off was escalated way way above the market.
Got it okay. Thanks.
Our next question comes from John Kim BMO capital markets. Your line is open.
Thank you I'll be the analysts on the call asking about 625, Madison and any update on the ground lease suite that.
And if it is a possibility that the asset is just give it up.
Well no update on the ground rent revolve is still hasnt been a.
Arbitrated decision, but that process is ongoing.
And then we own two positions there our leasehold position and a position in the debt recall.
So.
Which position you're referring to.
The lease position.
It really depends on the arbitrator rent.
We've sort of shared our returns on that position assuming it assuming we walk away, which we certainly have not made a decision to do are still positive. It was a great investment for the company.
We're going to play out the arbitration process.
Sort of see where it goes we still are huge fans of.
Madison between 58%, 59% think the site and the location has enormous potential.
Potential.
But given today's market, we're going to take our our optionality to evaluate everything.
Okay, and then Mark a follow up on the casino license.
Commentary you mentioned potentially speaking about it on the next call.
Just wanted to ask do you think of this decision will be made by then and then im assuming youre talking about $50 15 Broadway how does that feasibly work, if the asset 100% leased yeah I'm not at Liberty to describe yet what building or buildings, we've targeted for.
For potential.
Gaming use.
Possibly in the next call we will be but.
In terms of a decision being made by next call I would say no. That's a this is a process that is likely not to be fully and finally decided until I think the end of the year or possibly first quarter of next year. So the process will get going but this is going to be.
I think the way it's been set up a very thoughtful deliberate process.
That is being conducted by the state, but being is going to also incorporate.
You know home rule, if you will and local support issues at <unk>.
In our case the city level, which I also think is appropriate.
And.
This is kind of a watershed moment for downstate, New York to be issued these licenses. So I would expect the process to be.
Thoughtful rigorous.
And.
I believe in this scale of time I look at it will be done.
On a on a reasonable timeframe, but that doesn't that doesn't mean three months from now it probably is more like a end of year or first quarter next year.
Yeah.
Thank you.
Thank you as a reminder to ask a question. Please press Star then one on your Touchstone telephone.
Next question comes from Ronald Camden with Morgan Stanley . Your line is open.
Hey, the first question is just on Capex in the 10-K, you had sort of $82 million for recurring Capex and one wait for development and redevelopment now with sort of the leasing activity.
And the recent acquisitions and so forth are those.
Those numbers changing at all or how are we should we think about sort of the capex going forward.
No none of the.
You know I'll call. It Fad capital is is changing as I said earlier, we're right on our business plan for the year as the $4 50 touched on you know a fairly modest.
The addition, you know some of that spend will happen this year, but it will likely be a JV spend.
And then the asset is.
Under occupied right now so there will be leasing capital overtime, but again in a JV structure, so a fairly modest overall for us.
Great and then just sticking with $4 50.
Can you share sort of the maybe a little bit more color on the economics, whether it's cap rates or targeted IRR. Both for 450 and also just in general what Youre seeing in the markets overall.
Hi.
Well I think it's.
Roughly a 4% going in.
Return.
Recall, though the asset is about 18% vacancy.
So we will be undertaking a lease up program there.
And we expect our IRR is in the.
Mid teens type returns.
Which for an asset of this quality level, we're very excited about.
Yes.
Thanks.
Thank you. Our next question comes <unk> <unk> with Scotiabank. Your line is open.
Thanks.
But first question is just on the lease term income.
From the JV pool can you just say what that related to and you know what.
Was that also like a surprise sort of termination that contributed to some of the.
Q quarter over quarter occupancy drop.
No that was all actually projected.
Well talking about the tenants, but it was.
Predominantly at 11 Madison.
And then we had a little bit more at.
One of the other JV properties.
But nothing nothing unexpected to 80 park had a little bit.
Okay. Thanks, and then just second question for you Matt is.
On the interest rate swaps that are in place that are expiring.
Next year I guess, what is the stress the thinking on that I mean, you're just going to kind of wait until next year to resolve it.
Is there any chance that Theres an earnings impact this year as you move to replace more expensive swaps.
Sure. So they they do we have a series of swaps that we put on.
Years ago that mature in early in mid 'twenty three.
It goes back to the question, we got earlier and I think mark addressed it on on debt repayment as we look at.
Incremental proceeds from asset sales or wherever they may come.
Gonna be bias towards debt repayment and the debt underlying those swaps will be targets.
Okay. Thanks, Paul just as.
As I talked about incremental proceeds it's worth reminding everybody that.
In late 2023, when we Tcl one Madison, we get funds in.
From our JV partner substantial funds in excess of $500 million, which can be used for debt repayment.
Thank you.
Thank you and I'm currently showing no further questions at this time I'd like to turn the call back over to Marc Holliday for closing remarks.
Great well.
For anybody left on the line. Thank you for listening and for the questions.
And we've got a lot of exciting things ahead.
Over the next few months until we speak again in July and we look forward to it and everybody have a good spring beginning of summer.
This concludes today's conference call. Thank you for participating you may now disconnect.
[music].
Okay.
[music].
Okay.
And then.
[music].
Yes.
Yes.
[music].
Yes.
Yeah.
[music].
Yes.
Yes.
Yes.
Okay.
[music].