Q2 2023 SL Green Realty Corp Earnings Call
Okay.
Thank you everybody for joining us and welcome to the SL Green Realty Corp. Second quarter 2023 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.
Should not rely on forward looking statements as predictions of future events and actual results and events may differ from any forward looking statements that management may make today are forward looking statements made by management on this call are based on their assumptions and beliefs as of today additional information regarding the risks uncertainties and other factors that could cause such differences.
Two up here 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.
During today's conference call. The company May discuss non-GAAP financial measures as 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.
E W that SL green Dot com by selecting the press release regarding the company's second quarter 2023 earnings and in our supplemental information included in our current report on form 8-K relating to our second quarter 2023 earnings before turning the call over to Marc Holliday, Chairman and Chief Executive Officer of SL Green.
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 like to turn the call over to Marc Holliday. Please go ahead Marc.
Thank you and good afternoon, everyone welcome to SL Green's earnings call.
I'm wondering why thank all of you for joining US today as we review the second quarter's results and discuss our progress on our 'twenty to 'twenty three business plan.
I want to begin by.
By commending the entire SL green team on a very strong half of year. This first half.
Particularly as we were confronted by the dual challenges of a partially remote workforce and increasing interest rates.
But headwinds notwithstanding our team added to the year's accomplishments in meaningful ways. During this second quarter no. One in the business works harder for shareholders and the men and women of vessel Green, who lead by example, and show what can be achieved by a 300 person corporate workforce that is present productive and <unk>.
Positive every single day of the week.
By the numbers it was a solid quarter as our F. F. O was above expectations. We leased another 410000 square feet of office space, Our same store NOI increased by three 6%.
And our same store office occupancy at quarter's end was slightly ahead of our original projections back in December .
These performance stats are in Stark contrast, with the negative drumbeat immediate coverage proclaiming the demise of office space.
We continue to see demand building as businesses, who hit the pause button during the prior three years or more and more frequently acting on plans for future growth, particularly in the finance sector, which accounted for about 38% of market leasing during the second quarter as well as business services.
<unk> care and education sectors, all of which continue to be active and all of which helped to mitigate the pause in the tech sector. While overall leasing in the market in the first half of the year was below historical average and so green has garnered more than its fair share and has now entered into year to date leases totaling 900.
Third and 50000 square feet of space leased and we're trading paper with a lot more tenants evidenced by our 1.1 million square foot leasing pipeline more than two thirds of which represents new leasing activity.
Midtown continues to outperform with the lowest availability rate and the highest leasing volume among all Manhattan Submarkets. This affirms our core property strategy and should enable us to gain occupancy during the second half of the year from what we believe to be our current low point.
However, the financial stats only tell part of the story as significant progress was also made on the property front of course, the highlight for the quarter was the completion of our joint venture partnership with Mori Trust. The transaction culminates years of relationship building affirms the global allure of investing in trophy assets in Prime Court.
Doors and now fully resets ownership in capital stack and what is a case study of opportunistic investment enforcement and recapitalization of an important asset on Park Avenue.
We continue to evaluate and refine different redevelopment scenarios and hope to commence physical work towards the end of this year.
Want to acknowledge the extraordinary efforts of our Chief investment Officer Harrisons, the tumor who was backed up by young Han our SVP of investments. They literally worked day and night for months on end to ensure the successful completion of an important component of our business plan.
[laughter].
This is our first partnership with Mori Trust and they have already proven themselves to be excellent partners, we are making great progress on other fronts as well at one Madison. We now believe we can obtain a T. C O for the project in September of this year, a full three months ahead of schedule and open our doors to tenants in the second quarter of 'twenty.
24, the ability for us once again to deliver ahead of schedule and under budget is a testament to the efforts of Robert Schiffer, Robert to Whit are amazing head of construction and John Crusher project executive along with our partners at Heinz. Additionally, it accelerates the receipt of 570.
$7 million from our partners on the project.
Is triggered upon the T C O of the project later this next.
Next quarter.
I'm also pleased to report that during the second quarter, we topped out 760, Madison and began marketing that project. The project is absolutely spectacular excited to show it to our shareholders who have not yet seen it. Please walk by check it out it's already impacted the skyline.
And the historical district of Upper East side Madison Avenue in a very positive way, it's been extremely well received by the market and we're proud to have initiated this project and fostered along with our partners at Georgia Armani.
We already have several units under contract with significant interest on the balance of the units at prices, which will be market, leading for upper east side condos, a testament to the power of the SL Green in Georgia, Armani brands and vision.
We expect to turn it over to retail to our money by end of September and rent would start right away first closings on residential units will commence in June of next year with all net proceeds of sale available for use by US as there is no indebtedness against the project, we will have more commentary on the sales effort and pricing.
Tricks on our earnings on our next earnings call, which I guess is in October .
Finally, we received our T C O for 15 Beekman this month and plan to turn it over the project fully to pace University.
In August the props here would go to the SL Green team of Peter Flynn, John Heffernan, and Jason <unk>.
And if that weren't enough a reminder, that in April just after our last earnings call. We closed the refinancing of 919 third Avenue proof that the credit markets are still available for the highest quality office assets and reputable sponsors.
So the first half of the year is now in the books, but no rest for the team we're going to continue to forge ahead through the rest of the summer to set the table for a successful second half of year Matt.
Management is completely aligned with our shareholders and we will work hard to create value generate earnings and protect the dividend. Thank you.
Okay.
Sure.
Later, we can take some questions certainly ladies and gentlemen, if you would like to ask a question at this time. Please press star one one on your Touchtone telephone again for any questions. Please press star one one we do ask that you. Please limit yourself to two questions one moment, while we take our first question.
And our first question will come from Michael Lewis of True Securities. Your line is open.
Great. Thank you my.
My first question is for Matt I wanted to ask about your debt, Sir your debt coverage ratios, particularly the fixed charge coverage ratio realm.
Relative to your covenant keeps coming up in conversation.
Our fixed charge coverage fell to one seven times this quarter. The covenants one four times can you just maybe discuss the mechanics and how close do you expect that ratio to get to the covenant over the next few quarters.
Yes sure.
Read some of the commentary about it.
Somewhat surprised that he gets that much attention its a pretty simple calc, it's consolidated only.
The calculus is just the covenant and.
It's been impacted one buy rates our rates are up but also been impacted by 245 Park.
Being a wholly owned consolidated asset for about three quarters now.
Now that that is a JV it rolls out of that calculation and that in of itself improves the calc and we obviously watch all of our covenants and our metrics very very closely.
Or not as fussed about that one is people seem to be out in the market.
Great.
Withstanding a big move in rate.
Should we expect that coverage ratio to improve from here as a trough or do you think it gets a little tighter before before it goes back up it will get tighter before it gets better because the effect of $2 45 has to work its way through the trailing 12 calc. So.
It goes lower before it gets better but just by having 245 in the JV.
As the JV debt alone improves it.
That was a sub one coverage asset.
Okay got it thank you.
My second question about portfolio occupancy so.
You can correct me if I'm wrong I think you said at your Investor Day in December you trough around 90% in <unk> and rebound to about 92% in the second half of the year.
I think what we're talking about if youre at least percentage, which was $89 eight so just about exactly what you predicted.
So my question is do you still expect to reach that 92% this year or has that expectation changed and maybe tie and kind of how.
No the leasing pipeline had been building in the early part of the year what are your C&I kind of conversion and in turn on that until leases, yes, just want to make sure I answered. The question I mean, I think we were 89 eight or something for the quarter, we expect that to be a low point I think I said that in my.
Commentary and are we.
We expect to gain occupancy from here, regardless of which direction. The market goes just based on our pipeline and visibility I mean, our you know all that we set out 'twenty one goals a year.
They're all stretch goals.
We are we never make all but we generally make most are certainly more than half and.
We're going to do everything possible I forget the exact metric on the on the occupancy stat for the year was 92 4002 for it so we're going to try and end of the year certainly are.
They're as closely as possible, we've got a big pipeline if everything falls into place. Then you know I think we have a chance of doing it and.
If if it doesn't we'll be damn close so I mean, that's why we called stretch goals, we don't make them easy.
You know to be anywhere above 90 in a market. That's you know 18.
18% vacant I think has enormous testament to Steve the roles and his team.
Thank you.
And one moment for our next question.
And our next question will come from Steve Sochua ever.
Evercore ISI your line is open Steve.
Great. Thanks, Good afternoon, Mark maybe you could just touch on the dispositions and you know what.
What your expectations are for either further sells at one Vanderbilt you know what your plans are potentially for additional sales of $2 45, and maybe other assets that you've got on the market today.
Well.
I think are our big focus now is on one Vanderbilt.
And.
The reception there is very good as you would expect I consider one Vanderbilt just objectively, although it's hard not to be biased you know one of the best.
Best.
Office buildings are a joke.
And in the city and it's got an amazing Blue chip rent roll has got great embedded financing low rate financing in place.
It's a it's just a wonderful asset and as you would expect.
The.
Reception in the investment community.
Has been a high level of interest and I'd say that that's going to get a lot of our attention now.
Now through the end of the year. So so that's that on the on the one Madison front I'm sorry on the 245 park from which I think is the other asset you mentioned I don't know I I think.
No there.
The redevelopment program that we are designing and working through is so good and I think now with the leasing.
Being probably ahead of where we expect it to be at this point both in terms of Steve the leases, we signed with give me, though he says you know.
245.
EQ EQT Murphy.
And then we expanded about 10000 square feet Angelo Gordon.
Okay, and we have others.
Pending we are trading papers proposals up six proposals out so.
Not unlike one Vanderbilt where we initially went out to sell I think it was down by up to 40% we wound up selling 30 now we're going out for additional 10, we may do the other 25% towards the end of this year, we may hold back and get some more leasing done let's say.
Okay.
Okay and I'm just wondering if you can provide any color on the 625 Madison situation I know, there's been a lot of back and forth with different defaults in the ground leases and the land position is there anything you can sort of provide us on that front today well. It's always you know until there's some ongoing litigation.
And surrounding this asset you know that there was a rent reset I think we've talked about on the last call or is that.
It happened after the last call, but we disclosed in our Qs in the Q. Okay. So there was a rent reset it was.
Somewhat higher than we had anticipated although.
Far far below I think what the.
What the fee owner had been.
Putting into the market at that point, which was actually very deleterious to our position because there was discussions of rent levels of double or more which were really never to be the case and.
We took a write down on the lease hold portion of the asset in this quarter.
And on the other side you know from previous commentary that we have a mezzanine position.
On the fee, which.
Has come due and we'll see how things shake out there.
There is a foreclosure date scheduled for August eight.
On that asset.
So we will know quite.
Quite soon how things will shake out there.
Okay.
One moment for our next question.
And our next question.
We will be coming from Alexander Goldfarb.
Piper Sandler your line is open Alexander.
Oh, great Hey.
Good afternoon. Thank you.
Mark.
Andy are.
Your commentary at the start you said that you guys are working hard.
And to protect the dividend.
So just wanted to explore that a bit more.
Matt you always say, hey dividend gets reassessed at the end of the year and you'll probably tell me. The same thing right now, but if you guys you guys seem to be on the plan for this year you've done the $2 45 sale it seems like $2 45.
Leasing is going well one vandy is next up for disposition doesn't seem like anything is out of whack.
Should we take your comment Mark about the dividend that we should think about the current level being maintained into next year or was the comment more just a holistic point that hey, you guys are in charge of shareholders' capital you husband to the best that you can you do everything to preserve.
The dividend, but obviously.
<unk> could change I'm, just trying to understand which way to read the comment okay well.
Yes, that's it.
There's a lot of ways I guess, you can read it the way the way I meant it to be because it's the way we approach it and believing the dividend as I guess, you know akin to what you just said, Alex which is that we.
We think when people invest in SL green and buy our stock. It's a it's a blended play people one current return and they want evidence of our ability to.
Be able to generate cash flow either through ordinary operations or gain on assets and be able to reward shareholders throughout the year with a dividend. In addition to doing our redevelopments and developments and creating growth and driving our share.
Share value and you know in most years, that's reflected in some years.
Like we have today.
We are the market sentiment is very negative.
We just work our way through that but I think what I wanted to stay.
The state is that we believe that a dividend is an important component of the overall investment thesis for anybody investment stock, we all own the stock at the managerial level for most of US It is the.
Largest if not almost exclusive source of our net worth is the stock that we own and we want to create value and we want to create cash flow and see distributions the form of dividends. So we are you know.
Very comfortable with where the dividend is today given the earnings that we're generating and the gains are.
That we're generating on some of these very important sales will do next year's business plan next year.
We'll have a sit down in November December and we'll roll that entire plan out with our objectives and our earnings levels et cetera.
But suffice it to say, which is what I said earlier is we take all of those points very seriously and our goal is as best as possible to.
Maintain the levels.
As much as we can.
The next question is is on compensation every year.
For whatever reason it seems to always be a big topic ahead of the shareholder meeting. This year you guys put out some really interesting data just showing the fact that like Mark your comp was 40% lower than the stated value the rest of the team, 30% lower but here's the rub is that shareholders are sort of disservice because you guys.
100%, you realize you know 30 or 40% less than Youre expensing.
People, obviously don't get paid at sort of this reward and so is there is there something better that like the consultants or people can put in place that better ties.
As to performance, but something that actually is more directly correlates not only to you guys getting paid for results delivered but also to the P&L because right now <unk> is being penalized because it's.
It's not paying it just seems like the current system doesn't seem to be an ideal one. So just I didn't know if you guys have thoughts around that.
I thought I'd ask got it.
Let me I'm going to let Matt address the accounting issues with respect to that I'll just give you the.
The philosophy is at the top levels of the company and our EVP.
And even down to the SPP are ranked <unk> for sure.
Big believers and creating the alignment and having a large portion of total compensation in the form of stock.
In some cases, it's a very very high percentage I don't have them our fingertips, but.
Some of our cases it might be 75 to 80, 85% of our total compensation and in other cases, maybe half, but in all cases material.
And I think that makes sense I mean, if I were you know I am a shareholder and as a shareholder and as.
As a in all my different hats, I wear I think that it is the best at creating the alignment I referred to earlier.
And I don't see us moving away from what I would call proportionately more stock compensation as you move up.
Up the ranks as a component of total compensation now how those planes are structured.
And the charges that are taken upfront versus charges that could be taken later fixed charges variable charges and we've done that.
You make a good point, Alex I mean, the the challenge with the accounting for these plans is once the charges.
Are the cost of the plans from an accounting perspective, our established day, one they do not change.
The plans are valued we were talking stock plans or outperformance plans, which have multi year measurement periods investing periods. The accounting rules say you value that plan day, one and if its worth full value to the recipient at the end the accounting charges. What it is if it's worth zero or close to zero to the recipients. The charge is still the same and.
These plans have not been paying anywhere near where they are expected to so theyre not in.
Retention tool, but the charge is still flowing through G&A and more than 50% of our G&A is noncash primarily related to stock based compensation because we do believe it's a it's an important part of.
The program.
The challenge is finding the right form of stock based compensation so.
So that the expense to the company is mitigated and actually more closely mirrors the benefit to the recipient because these plans I'll say it again largely hit expense in a disproportionate way in this environment.
Then they benefit the recipient.
Thank you.
One moment for our next question.
And our next question will come from Tom Catherwood.
<unk> Tom Your line is open.
Excellent. Thanks, so much.
Maybe one for Steve to start out.
Nice uptick in leasing.
We used the number of your buildings, one that jumped out to US was was gray bar and I, just probably reflects the pickup in small tenant demand that you've referenced over the last few quarters.
But on the other side of that what's the market like for one large block demand right now and are there specific submarkets or buildings in your portfolio that are garnering more of that large block demand.
Yes, it's a great question because.
What we saw in the first half of the year, particularly if you read a lot of <unk>.
Market reports from some of the brokerage houses that are out there.
Is that leasing overall velocity in the marketplace has been.
Very modest year to date, despite the success that we've had within our portfolio.
And a large a lot of the leasing.
The leases that have been signed this year has really been on the smaller side of the market. There was we started off the year.
Very few.
Larger size requirements are active in the market, but having said that.
In the past.
30 45 days.
We've seen a lot of a lot of increase both in tenant tours and proposals that we've received.
For larger size tenants. So that's good news.
Just to put a little meat on the bone, we've got 16 active proposals.
That we're trading paper with right now that range between 45 and 300000 square feet.
Eight of those proposals.
Came across our door only within the past two weeks.
Three of those 16 proposals of good sized good sized tenant requirements are in our $1 1 million square foot pipeline. So it shows you. There is there is a.
A growing wave of larger tenants that have re entered the market and hopefully that's going to pay off for.
Leasing success for the overall marketplace and certainly within our portfolio as we go into the second half of the year.
Got it I appreciate that Steve.
Then kind of second one from me maybe mark over on one Madison you mentioned the early completion and how that gets you access to your JV partner's contribution sooner rather than later.
Kind of two parter there first when is the new expected T. C O date and second win in the press release, you mentioned <unk>.
Our restructuring alone so that you could invest more in amenities and invest some of the savings what's envisioned amenity wise.
And then kind of what more does that building need from investment standpoint.
So.
First question I think the original original original completion date was December of.
2023 that was for Tcf, we move that forward in a later when we kicked off and got our GMP under our belt a few years ago to November of 2023, and then we internally kind of felt like we could maybe hit October and now.
The team is.
Pushing hard for September .
It'll middle to end of September .
So when do we expect it we expect it as soon as possible I don't know where were aiming for and for middle to end of September I Hope, we get there we should get there, but you've got weather and all sorts of other issues.
But we should get there, but regardless.
The bigger point is we ran a great project.
We are at the final or whatever two three or four yard line are almost done property looks great. We're way way ahead of schedule.
Thanks to the good work of the people I mentioned in <unk> and.
Hundreds of thousands of others, who worked very hard to get the building to this point.
And the primary mission is to get the job done right, but the secondary mission is to get it done expediently. So we can.
Button, it up and get tenants moved in and open the building and have it be a great addition to the neighborhood in terms of the amenities I think we had something on the order of $60 million of construction cost savings.
That was the ultimate cost of the project.
We are now projecting relative to the original GMP.
<unk> saved contingency and other <unk>.
<unk>, which is which is great. Some of that obviously is being retained some.
We will go to defray higher interest expense, but we took a.
A very significant amount of that and we are constructing an amazing.
Rooftop indoor our top indoor outdoor rooftop venue.
That I think will rival some of the great rooftops in and around the city that'll be there is both a tenant amenity and also as.
Some very.
Attractive an exclusive event space that can be <unk>.
Activated evenings weekends.
As well as I mentioned earlier being I think a world class amenity for our for the building the amount of investment we're making in one Madison amenities overall that which was planned and that which we added it.
Exceeds that of what we did at one Vanderbilt and I think one Vanderbilt is recognized as having an amazing amenity program. So.
This.
At its completion with the market and the Daniel Boulud stake place in an exclusive tenant Commons and the Chelsea piers for little Fitness Center and upstairs this kind of a piece their resistance.
This Rockwell David Rockwell group designed rooftop amenity in the aggregate is going to make one Madison just an amazing.
Destination experience.
Got it can't wait to see it thanks Paul.
Our next summer.
Alright next question one ROIC for our next question.
And our next question will come from John Kim of BMO capital markets. John Your line is open.
Thank you.
I suppose you had your mic drop moment with the $2 45 Park sale.
Now that that's done and you are expecting proceeds of one Madison potentially JV sale at one Vanderbilt.
In your view is that enough to avoid a credit rating downgrade from for Moody's.
Okay.
Yeah.
It's a question I can't answer definitively because they they have moved.
Somewhat as a result of the market not just as a result of of US I'll say this is it.
As it relates to the ratings I mean, we're focused on a business plan that puts us in a financial position that we feel is prudent and we want to be in it is not a stated objective to SAP.
Satisfy moody's or any one of the other rating agencies.
Our ratings are important but the fixed income market has not been a reliable source of funding for us.
And the ratings will come back as a byproduct of an execution of the business plan, but it's not the goal of the business plan.
If Moody's makes them move that's fine if they don't that's fine as well, we think we're executing on a pretty business plan for our business and for the shareholders.
I would add to the mic drop moments.
Not just capital transaction, but leasing of space.
Where we're at these levels with increased interest costs and a vacancy rate.
I said before was our low point.
We now think we are going to be able to turn the tide and start building occupancy again.
And as we do that has as much or more effect if you will.
On an improving.
Ratio as any of the other things you mentioned so.
I would say stay tuned we've got a big pipeline and we think the market is starting to come around and we're believers in this market and that that'll be as.
As big a help as anything.
<unk>.
Another asset that you've had some leasing success with I think with GIC.
<unk> Park, but there are still some tenant departures.
Schedules in the debt maturity next year.
How confident are you that you'll be able to refinance that asset an economically viable to them for you.
Andrew you want to.
You want to address.
I know you've been involved with two ATM and the.
Yeah.
Fortunately $2 80.
It's in the hottest submarket in Manhattan.
Park Avenue corridor.
Have a strong interest in the space that's coming available.
And we're constantly in discussions.
With with the existing lenders on the property and other obviously other lenders.
Around the world like we accessed for 919 third Avenue and we're we think we have a great business plan with vornado on that asset.
Steven Glen Weiss are working on it day in day out and.
Yes, I think there is some some very positive developments that are possible given the building's location.
The renovation we did there.
And.
It's getting a lot of attention because of the profile of the asset and I think we're confident that there's a there's a good future for us at that asset.
I appreciate it thank you.
Our next question.
And our next question will come from.
Heck of Wells Fargo Blaine Your line is open.
Great. Thanks can you talk in general about asset pricing in the market, what sort of cap rates and IRR are potential investors targeting and how large is the bifurcation between well positioned assets like 245 park versus more commodity type buildings.
Andrew.
Well I think.
We probably never seen a gap as high.
As currently in terms of.
Well located in a monetized buildings.
Versus.
More call it class B and C buildings.
Which fortunately, we really have rotated the SL green portfolio I would hope so.
We still have sub markets that are struggling in the financial district for sure.
Third Avenue, just a lot of inventory.
But investors are very attuned to that and I think you saw that with the 245 Park transaction.
Youll see it in further transactions, where they're willing to.
Pay up for the stability of improved monetize.
And.
If you have a.
Off the beaten path asset or an asset that has not been.
Invested in an amount of <unk>.
It's honestly.
There's not a lot of comps out there.
Most of the comps or are.
Lenders lender and loan related rather than owners selling so.
It's a it's a huge gap.
In answer to your question, but we do feel investor demand for short for the former for well located are monetized and improved.
<unk> continues to be there in New York City.
Okay, Great and then for my second question kind of related to that it seems like we're still seeing the flight to quality trend play out with net absorption and leasing activity taking place at higher rent buildings, but just curious if youre seeing any better activity at the lower rent buildings within your portfolio or is it still realm.
Typically soft in that segment.
No.
I think as we've commented in.
Maybe the last call and certainly over the last several months.
We've seen an increase in activity.
The more price sensitive buildings.
<unk> being a good barometer of that part of the marketplace, where our vacancy in that building right now is around 12%.
And that's from Ohio, we were up around 15%, 16%. So we've had good velocity in that building, we're starting to see more deal flow and the other in similar type buildings.
Very good example of that is 11 to $85 six which was very slow to lease getting leasing traction last year as a lot of the market potential was on the <unk>.
Best in class buildings.
And right now 185 Scott.
Plus seven active proposals that are in negotiation for the building.
And let's say you know lets say.
Rice sensitive rent sensitive type of building.
But it also sits in one of the two best Submarkets.
Right Now Park Avenue, the 67 to <unk> at a quarter being the two best.
Another stat worth knowing is that.
62% of the good leasing year to date in Manhattan.
Been done and what is termed as commodity type buildings. So clearly you're seeing kind of a reawakening of that part of the market has got a long way to go before where it's at.
In a healthy place, but the good news, it's starting to happen.
Great. Thanks, guys.
One moment for our next question.
And our next question will come from Anthony alone.
J P. Morgan your line is open Anthony.
Great. Thank you first question is just I think your guidance or at the Investor Day, I think youre disposition guidance was $2 billion and so I just wanted to understand make sure $2 45, you're treating that as a 1 billion or the $1 74, and then also things like the $5 70 and change.
To get from your RMA partners, and then any cash from the DP book, maybe over the rest of the year as some of those mature like does that all roll into the 2 billion I just want to try to clarify like what's what's coming in the second half.
The the $2 billion.
Just use 245 as an example, it would be a $1 billion, so 50% of $2 billion.
That's what would feed the goal of 577 of proceeds on one Madison from our partners is not part of that.
<unk> is not part of that it is pro rata share of sold assets that feed the calc.
And getting to that goal will be a function of the assets. We have in the market currently as well as where we ended up with one Vanderbilt, which we said its an opportunistic sale that we've had out there for the last couple of years, we were marketing and interest and would hope to get one done, but you don't want to be opportunistic about it and with regard to another interest sale.
And 245 park, there's likely upside to where we sold the first interest. So we may play that out a bit and and watch the redevelopment and lease up leasing has been strong and you mentioned that earlier, what's the redevelopment and lease up take place before we bring another interest the market well so with that being said, Matt. If the goal was 2 billion and that's just what.
I'm hearing that from a from Anthony.
If we were to defer the second at the 25% up we would not that would be 500 million.
So so there is I mean.
That doesn't mean, we won't identify other assets to solve for that.
But that that one.
I said, we're doing it out of a position of strength I feel very good about $2 45.
Our capitalization, they're our partner.
And while it was.
We got the big part done this year.
A smaller part to go.
This isn't about.
This is about making money for shareholders. So if we think we're going to do a lot better.
Next year.
After we get a lot more leasing traction then we may differ but that you know.
It doesn't necessarily mean.
We couldnt get there if we decided to go forward with it now.
This means we have to do what we think is.
Best optimize returns.
Okay understand that even with that being said that it sounds like between the RMA partner capital and maybe some amount of sales you'll have cash coming in over the second half of the year, that's pretty meaningful and so my second question just.
Can you maybe remind us of the priorities of where you see that cash going whether it's wider credit buyback other asset acquisitions like whatever.
Priority is debt repayment.
Earmark the entire 577 come in from our partners towards debt repayment all of the proceeds from 245 went to debt repayment.
We are still paused share buyback since the middle of last year that was largely a function of the rate environment and where leverage levels were.
We have.
Have a goal to be more on offense as we get into later 'twenty three particularly 24 that was the purpose of our business plan and 23 execute sales increase liquidity reduced leverage and go back on offense. We are still still on that program, but for the time being we need to get through the remainder of the 23 business plan.
Okay. Thank you.
And one moment for our next question.
And our next question will come from Ronald Camden.
Morgan Stanley Ronald Your line is open.
Great couple of quick ones. So just.
Go back to the DP book.
<unk> talked about $289 million of investments.
Non accrual.
I appreciate $2 $25 million of that.
25 Madison I.
I think you said on August <unk>, there will be a resolution so it.
Should we be expecting you to take over that asset or whether it's some of the other scenarios are there and then the follow up to that is the remaining.
Sort of $65 million.
Our $55 million plus or minus.
Non accrual could you just comment on what the situation there and what the plan is.
So on 625% will.
We'll stick to what we said earlier, we have to be sensitive to what's going on with the with the asset but needless to say there is a foreclosure proceeding on August state.
If if that when a certain direction then that effect we said.
Six one than the remainder of the assets.
I think your question was what happens with those.
Yes exactly.
Whats the whats the plan on those that are on non accrual are you taking over.
Just curious.
I don't think we can generalize.
Ronald.
Every asset.
It could be extended could be restructured.
<unk> could be.
Turned into equity I, I don't want to generalize and we're not going to go through asset by asset.
It's not what we do but.
Suffice it to say that the remaining book is quite small.
At this point in terms of number of assets its not small in terms of dollars, but I think like more than a third of it is represented by 625.
And for that you'll just have to.
All of Us wait and see what the outcome is after August eight we've already said that.
For the balance most of it is.
Performing but for how much is nonperforming. After this 645 50 60, so for 50 to 60 million, we'll see how it goes I mean, we will.
We're going to do whatever we can to optimize either restructure extend.
Possibly for close.
Helpful. If I could just sneak one in for my follow up just going back to the $5 45 guide at the midpoint.
You had the you had some other income come in this quarter. The forward curve is move just can you talk through how you're thinking about sort of that.
Our guidance for the year and some of the puts and takes and where it's trending.
Trending within the range. If we were outside the range. We would have we would have moved it but given rates in the balance of the business plan next year.
The back half of the year, we feel good with the range where awareness.
Thank you.
One moment for our next question.
And our next question will come from Anthony Powell.
Barclays Anthony Your line is open.
Hi, Good afternoon, just a question on the dividend going back to a prior question I noticed that the payout ratio of F&B went above 90%. So maybe if you can go over I guess, what your medium term dividend policy as it is at a comparable ratio for you.
So if you recall, we set a dividend level that as every year dividend levels based on taxable income so the popular measure.
Other than taxable income is.
We set our dividend at what was at the time, 100% of RFID RFID is slightly better than we projected so maybe we're slightly under 100%, but it all comes back taxable income and as I think we alluded to earlier our program.
In line with what we expected it to be and therefore, the dividend is exactly where we expected it to be.
And then maybe one more if you can comment I guess there were some reports about an asset in Chicago that may be turned over to you and office building.
So would that be a potential sale or art or.
Or is that you can't comment on that at all so Harry to Tomer.
Has been handling the part of the $2 45.
Claim that.
Doesn't really relate to the asset but relates to the guarantees and the judgments we received against the prior owner <unk>.
If you recall I think we discussed in prior calls and certainly it's it's.
Been publicized that we.
Received $185 million judgment.
Which has grown far higher since with interest in passage of time that et cetera, and the additional claims.
And as a component of that claim.
We've exercised against some assets inherit can shed some light on that sure.
Sure. So there's two assets that we currently have a line of sight to right now.
Continue to pursue additional assets under that $185 million judgment. The one that you referenced in Chicago.
That asset is currently working through a bankruptcy process and we're trying to monetize the position that we have there.
Asset as an asset in Orange town, New York that asset has no debt against it and we're working with stakeholders and the town to monetize that position as well.
And just to be clear, we have no basis in either of those positions and no liabilities that we have.
On the corporate level.
Okay. Thank you.
One moment for our next question.
Our next question is going to come from Michael Griffin as city.
Michael Your line is open.
Great. Thanks, maybe just coming to the leasing pipeline with comments and Mark's prepared remarks about the $1 1 million square feet about two thirds of those are new leases can you give us some more color on each of these expansions as it tenants looking to keep the same size and then the rails I think you mentioned in a previous question that you have a lot of large tenants that are in the pipeline.
How likely are some of these to close and any color on that would be appreciated.
I'll start with the last part anything thats in the pipeline.
As.
Is it deal, which we think has a high probability of other closing or if it's a proposal that's being negotiated being converted over to through lease negotiation.
So beyond the $1 1 million.
Square feet. There is a significant number of proposals that are being.
<unk> negotiated with prospective tenants.
It's early days in discussion with those tests.
Immature for us to then make it part of the pipeline.
What composes the pipeline two thirds of it as a financial service tenants the balance being.
Law firms and professional services, a little bit of a.
A little bit of education, a little bit of medical beyond that but.
By and large financial services is driving driving the train right now.
And then have our biggest proposals when I referred to earlier the 16 largest proposals that were actively trading paper back and forth with seven of those tenants are.
From the fire sector and four from legal.
So.
As far as whether their expansions or not it's a little bit of everything a I'd say a lot of the financial service guys are driven by expansion of <unk>.
The law firms are driven by either consolidations or lease explorations.
The balance of the tenancy is.
No.
It's a mixed bag. Some are some are downsizing somewhere upsizing some are just being a replacing like in Cogs.
No no discernible trend one way or the other.
That's helpful. And then maybe just a question on the balance sheet for Matt I know, you've got about $300 million of national swaps burning off. This month is the plan to leave that is floating I know you've done a good job of managing our floating rate exposure call. It over the past year, but would you plan to swap that back for fixed and if you are what kind of rate do you think you would get on that thank you.
There is actually a schedule of our derivatives now in the supplemental we added last quarter Youll see there that maturing swaps are replaced already with forward starting swaps, we put those in place a while ago. So we have no.
Near term swap maturities at all.
Great. Thank you.
Okay.
Good morning, gentlemen, our next question.
Okay.
And our next question will come from Caitlin Burrows of Goldman Sachs. Your line is open Caitlin.
Hi, good afternoon.
Maybe just back to the fixed charge coverage ratio and your expected trend going forward, Matt you mentioned that it would go down before.
Given that you now expect one Madison JV partner prestige Darren. Thank you I guess, what makes it get worse before it better.
I'm still being conservative if we get the.
T C O in late September those proceeds wouldn't come in until fourth quarter.
So obviously those proceeds help it it's a function of whether we get it in the third quarter or early fourth and that could be a matter of days.
Got it okay. So once it and that should make the trough.
Exactly.
Okay.
And then just on dispositions you mentioned earlier, how Youre golar take generally a stretch and it sounds like further sales at 245 Park and one Vanderbilt could be somewhat opportunistic I guess as we think about the $2 billion goal. How important is it to you that you reach you get pretty close to that target and I just wanted to make the interaction because if I don't I don't.
Getting into the narrative.
Yes, I did not say one Vanderbilt was an opportunistic sale.
He was asked the question earlier in my commentary was that.
There is a lot of interest and one Vanderbilt it's got primary amount of our focus right now and we're going to do everything to get that deal done this year. So.
I'm not sure I think that's inconsistent with what I just heard.
To make that clarification.
So if you could.
If you could re ask me the question.
Yes, I guess I was just thinking with the $2 billion goal.
Kind of what is the focus and obviously if one Vanderbilt gets done that could be a decent piece of it.
Whether that gets done or not how does that kind of impact your focus on potential smaller asset I'm still not getting let me let me just.
What we pushed a lot of this was previously said.
<unk> hundred $45 1 billion of it.
The 500 million on one mad.
We may choose to defer.
Let's see to $2 45, we may choose to defer.
And one Vanderbilt we're moving ahead.
Ahead on and Theres a lot of interest.
So that's that's where we are.
And then there were a couple of other properties that you guys had pointed out 2015.
Seven day well.
I mean, there's other deals we're working on but those are I don't want say, they're not I mean, they are material, but theyre not.
I keep my eye on one or $2 45, one Vanderbilt the 577 million that's triggered to come in.
The condo proceeds we're gonna be getting next year the rent on a money that is going to be triggered on turnover on September 30, I mean these are the big things and then there's this there's other we're always in the market I mean, there's a retail deal we're working on right now.
Was there anything in the script that we been there has been significant interest on some of the retail assets, we own our Madison Avenue in there.
Theres one that transaction that's in the works currently yes, but I mean, we do that every quarter, that's not a I'm trying to just highlight the big things on this call.
Got it okay. Thanks for clearing that up.
Thank you.
One moment for our next question.
Okay.
And our last question will come from Nick <unk>.
Go with Scotia Bank.
Your line is open Nik.
Hi, Yes, just a clarification question on page 19 of the Sup, where you give your NOI breakdown of the portfolio.
Went down sequentially was that all due to the onetime L brands payment in the first quarter correct.
Okay, great. Thank you.
Okay.
Operator.
I'm showing no further questions I would now like to hand, the call back to management for closing remarks, Okay 259, So we did our job well and we appreciate.
<unk> all the questions.
And we thank you for listening in we thank you for being shareholders and.
For those of you that arent, we hope you'll become so Andrew.
Look forward to speaking again in three months time.
And ladies and gentlemen. This concludes today's conference. Thank you for your participation you may now disconnect.
Okay.
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Okay.
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