Q4 2023 SL Green Realty Corp Earnings Call
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Well, ladies and gentlemen, thank you for standing by please standby your conference will begin here momentarily I can't ladies and gentlemen, Thank you for standing by your conference will begin momentarily.
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Thank you everybody for joining us and welcome to SL Green Realty Corp, fourth 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 you should not rely on forward looking statement.
That's protection.
Future events and actual results and events may differ 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 additional information regarding the risks uncertainties and other factors that could cause such differences to appear are set forth in the risk factors and energy in a section of the company's latest Form 10-K and.
Another subsequent reports filed by the company with the security 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.
The GAAP financial measures most directly comparable to each non-GAAP financial measure discussed and the reconciliation of the differences between each non-GAAP financial measures and the comparable GAAP financial measures can be found on the company's website at www Dot SL Green Dot com.
By selecting the press release regarding the company's first quarter 2023 earnings and in our supplemental information included in our current report on form 8-K relating to our fourth quarter 2023 earnings.
Before turning the call over to Marc Holliday, Chairman and Chief Executive Officer of SL Green Realty Corp.
Marc Holliday: I would like to ask those of you participating in the question and answer session.
Marc Holliday: Of the call. Please limit your questions to two per person. Thank you I would like to turn the call over to Marc Holliday. Please go ahead Marc.
Marc Holliday: Okay, Hi, Thank you good afternoon, and I'm glad everybody could join us today.
Marc Holliday: I'm extremely happy and I'm extremely proud with how we ended 2023 navigating what was a challenging year.
And showing that we have turned the corner going into 'twenty 'twenty four which.
Just a few weeks into the year and only seven weeks on from our Investor Conference.
Marc Holliday: But we already have so much new activity that we want to talk about and share with you today.
Marc Holliday: Normally I don't like to repeat the earnings press release, most of you have it you've read it.
Marc Holliday:
Marc Holliday: And I don't like to do that on these calls, but I think today is different I think it deserves a moment to reflect on what we have achieved in the fourth quarter and at the outset of the year. During these first few weeks.
Marc Holliday: At two Herald, we increased our ownership in a well located asset in fully resolved a 182 and a half million leasehold mortgage all of which was accomplished for very little out of pocket.
Marc Holliday: Theres more work to be done for sure, but we're on our way to stabilizing this asset.
They're with seismic news in New York City retail this month with Jeff Sutton, our long term partner and friend and among the best retail dealmakers in the city.
Marc Holliday: Jeff.
Jeff Sutton: If you listen again, I know, what you're thinking the best retail dealmaker in the city.
Pulled off not one but two amazing deals 717 fifth Avenue sold for $963 million generating full repayment of the capital stack towards distributions to sudden and ourselves equating to approximately $8000 per square foot of sale price.
Jeff Sutton: And to prove this isn't an outlier right across the street add another legacy Green Wharton asset proud of bought 720 and 734 fifth after $835 million.
Jeff Sutton: A deal that was also just recently.
Marc Holliday: Closed and these steels developed.
Marc Holliday: So quickly.
Marc Holliday: And confidently and I think it's very very exciting for the city.
Marc Holliday: We had a third great example of user acquisitions in the retail space and the 30 past 30 days.
Jeff Sutton: With the Swiss retailer, a cree buying the entire retail condo that we owned at $21 66 Street for over $40 million and exceeding $7000 per square foot, thereby putting an exclamation point on the trend of retailers, making permanent commitments to New York City through the purchase of desirable.
Jeff Sutton: Retail assets. This is it creates second purchase for missile green over the past year. We expect this trend to continue as we are already aware of another transaction in the works in that part of town.
Marc Holliday: Obviously 717 wasn't an anomaly and confidence in fifth Avenue and high Street retail in New York City is once again on the rise, but let me remind you.
Marc Holliday: Some of the headlines.
Joe: Joe from the past few years relatively recent headlines when ft declared the death of high Street retail cranes talked about a retail apocalypse on fifth.
Joe: And New York Times concluded that retail has abandoned Manhattan.
Joe: My point here is simply that people often underestimate how quickly things can change from these sort of.
Joe: Hysterical media headlines to record setting transactions just a few years later I urge you all to keep this in mind when you reach similar headlines about the office sector speaking of office. We ended the year strong with over 500000 square feet of New York Office leasing in the fourth quarter, which enabled us to report an uptick.
Marc Holliday: Occupancy for the second consecutive quarter. After having stated publicly last summer that we believe the market.
Marc Holliday: Essentially hit bottom.
Marc Holliday: And <unk> recently reported that SL Green signed the greatest number of triple digit leases and all of New York City last year. There is good news on the debt front as well. We gave you a business plan in early December with ambitious plans to extend modify upwards of $5 billion in debt, which certainly gives.
Marc Holliday: <unk>, new meaning to the definition of stretch goals are happy to report that even before the year ended we put the first one on the board with seven day, which we successfully extended for three years at terms that are favorable for the asset and should help us get a JV done on that asset.
Marc Holliday: Another aspirational goal, we set of $1 billion of debt reduction.
Marc Holliday: This year on the heels of $1 billion of debt reduction last year, and we've accomplished already over $200 million of that reduction.
Marc Holliday: Sitting here in sort of mid Jan.
Marc Holliday: So not to be overshadowed by all this great news our Premier development on 760, Madison, which has really set a I think a new standard for upper Eastside.
Marc Holliday: Bespoke New York luxury and we just signed a contract. This morning for the ninth floor, bringing us to six out of 10 units spoken for with a contract out on a seventh.
Marc Holliday: So we're off to a great start.
Marc Holliday: Certainly confident in our business plan and optimistic about the city's continued recovery, where we have some positive indicators to report.
Marc Holliday: The city's OMB forecast for 'twenty 'twenty four is hot off the press and looks really good with over 90000 private sector jobs forecasted for this year and another 97000 jobs forecasted for 2025, certainly continuing to bring new York's employment base to record highs.
Marc Holliday: As or more importantly, after a year, where we saw slippage in the office using employment.
Marc Holliday: The city is forecasting a robust reversal that will more than make up for those losses with 42000 office using jobs projected for this year and that would also set.
Marc Holliday: Office using record in 2024, so kudos to the Adams and Hopewell administration, and all involved for helping to bring back tourism improved security and implement pro business policies. As a result of all that we are launching a fund raising efforts to amass a minimum of a $1 billion.
Marc Holliday: Capital allocation too.
Jeff Sutton: Become active participants in this city's ongoing recovery and resiliency in fact after we get off the phone we're heading to the airport and we're on a plane to Asia to formally kick off those efforts. We're excited about the prospects of this got a lot of excellent response in inbound inquiries on these efforts.
Marc Holliday: Most importantly, what we're doing along with other announced deal shows that new capital is forming in this market. The second indicator that we passed the bottom of course, the first indicator being our statements to you in July of last year with that happy to open it up for questions.
Marc Holliday: Thank you if you have a question if you would like to ask a question at this time. Please press star one on your telephone and wait for your name to be announced.
Marc Holliday: I would like to withdraw your question. Please press star one again, one moment, while we compile our Q&A roster.
Marc Holliday: And our first question is going to come from the line of Steve <unk> with Evercore ISI. Your line is open. Please go ahead.
Marc Holliday: Yes, thanks, good afternoon.
Steve Sakwa: Mark I was just wondering if you could provide a little bit more color on the two Herald transaction I think just what the bank did and effectively letting you.
Marc Holliday: Basically pay out that mortgage for close to zero as you.
Marc Holliday: Yes, it's a great deal for you I think everyone. Here is just trying to understand kind of the house and the whys and and how that deal ultimately kind of unfolds and how youre thinking about the economics of that deal.
Marc Holliday: No.
Marc Holliday: I take that as kudos for getting a great job done on that deal.
Marc Holliday: I think that.
Marc Holliday: Everybody in this market as you know trying to come together to May.
Marc Holliday: Make sure that these assets have a safe landing.
Marc Holliday: This is a great asset I love the location I think its well I know, it's Ulta is number one.
Marc Holliday: Location in sales per foot in some tier four.
Marc Holliday: 400.
Marc Holliday: Our store portfolio throughout the country 1500, sorry, 1500 throughout the country number one.
Marc Holliday: That says something.
Marc Holliday: But it also says that it is an asset that we're going to have to.
Marc Holliday:
Marc Holliday: You know really start to think about.
Marc Holliday: What's the best use the beauty is theres a lot of different.
Marc Holliday: Options and alternatives that we can look at here.
Marc Holliday: It's great for office, it's an unbelievable retail location right across macys.
Marc Holliday: It's in a part of town, that's seeing a lot of capital investment and upgrade.
Marc Holliday: It has the ability to flex as residential both dormitory, which we've actually seen because mercury colleges is there and potentially four.
Marc Holliday: Some conversion to other residential use.
Marc Holliday:
Marc Holliday: A lot of options and that's what we like we like deals that give us optionality.
Marc Holliday: We got to roll up our sleeves here.
Marc Holliday: And you know what.
Marc Holliday: Writing the capital stack is just.
Marc Holliday: It's just it's just part one but executing the business plan over time will be part two and hopefully all of us.
Jeff Sutton: <unk> our partners and.
Jeff Sutton: And others will come out of this.
Jeff Sutton: With something good to talk about in.
Jeff Sutton: In the future.
Jeff Sutton: Okay and then my second question I think at the Investor Day, you talked about mark to market being in the 2% to 5% range for 2024.
However, when I look at the disclosure that you have towards the back of the supplemental where you provide your lease expiration schedule and your expectations of asking rents today. It looks like the 24 leases in both wholly owned and unconsolidated show roll Downs and I realize these are just asking rents and they're different from.
Steve Sakwa: Maybe what gets signed but is there just any way to kind of tie those two together are what are we missing kind of on the schedule on page 40, and what you provided at the Investor Day, Steve It's Steve <unk>.
Steve Sakwa: So.
Steve Sakwa: As we look at our pipeline right now.
Steve Sakwa: The mark to market associated with the pending transactions, where the prospective deals that we think are likely to convert the deals.
Steve Sakwa: The mark to market on any particular deal it's kind of all over the board I would say half of them or a positive up have more are down.
Steve Sakwa: To varying degrees, but there within our <unk>.
Steve Sakwa: One 4 million square foot pipeline.
Steve Sakwa: <unk>.
Steve Sakwa: We are.
Steve Sakwa: There are enough large deals with very significant mark to markets that are positive that will drive the overall overall average up.
Steve Sakwa: Got it.
Steve Sakwa: You.
Steve Sakwa: Thank you and one moment as we move on to our next question.
Steve Sakwa: And our next question is going to come from the line of Alexander Goldfarb with Piper Sandler. Your line is open. Please go ahead.
Steve Sakwa: Hi, yes. Thank you good afternoon, and congrats on two Herald.
Steve Sakwa: Mark before you get on that plane to Asia, just wanted to understand better how investors.
Marc Holliday: International or domestic institutional investors are thinking about investing in your debt fund versus investing in real estate directly I mean, youre out with potentially a one vanderbilt stake, but you're all set with the debt funding just trying to understand how private capital is thinking about those two options.
It's a good question, Alex I mean, it's different flavors for different investors some investors have different pockets for both.
Alex: It's not exclusive I didn't mean to imply that just FYI. We're go.
Alex: The debt fund is one element of what we're having meetings about.
Alex: I think we've got over 20, some odd meetings lined up over a five day period and there's a lot to talk about.
Alex: That fund is certainly exciting as our some of our JV in equity.
Marc Holliday: Opportunities that we'll be talking about in addition to some of the other things that we're involved with and the entertainment hospitality World. So we've got full agenda.
Marc Holliday: Certain certain of these investors.
Marc Holliday: Our credit oriented and that's the way they want to play it others are.
Jeff Sutton: Sort of high end long term equity oriented investors.
Jeff Sutton: And the ones that <unk>.
Jeff Sutton: Best or both.
Jeff Sutton: And.
Jeff Sutton: And Trust me will be.
Jeff Sutton: Putting lots of opportunities out there. The key is is to make sure that this all of these meetings not just this is just one leg of many legs that we'll be doing over the next couple of months trips Oh.
Jeff Sutton: Both domestically and internationally not just to talk about the fun, but to talk about what's going on in New York City.
Jeff Sutton: On the office front on the retail front on the credit opportunities.
Jeff Sutton: Tourism hotels are going to ADR and occupancy.
Jeff Sutton: Occupancy going up significantly job growth I think there were 24000 new businesses since pandemic.
Jeff Sutton: Created in New York, that's more than most cities, even perhaps so if I can amazing store.
Story that I think needs to be told because.
Jeff Sutton: The comments I made earlier.
Jeff Sutton: Rely only on the headlines you get sort of a different impression of what's taken place on the ground.
Jeff Sutton: Okay and then second question is Matt.
Jeff Sutton: Just thinking about two herald as a template for other deals.
Jeff Sutton: For the.
Jeff Sutton: There's 10 Standalone strategic assets can you give us a sense of how many of your loans are held directly versus <unk> just trying to.
Matt: Your stand.
Matt: Your ability to negotiate can you negotiate as well with the <unk> special Servicers you can if it's being held directly by a financial institution.
Harrison: Yes, it's Matt I'm going to kick this one over to to Harrison to.
Harrison: To answer the first question off the top of my head I think it's about four or five loans that sit in the <unk> MBS.
Harrison: <unk> balance sheet and.
Harrison: And we've had great. Good negotiations with both see MBS lenders in the special Servicers as well as balance sheet. So I wouldn't say that either option is restricted to us.
Harrison: There are obviously, some more complexities when working with C MBS lenders, but.
Marc Holliday: We're working through that on a few loans now as part of the $5 billion plan.
Marc Holliday: And we're well underway in those negotiations.
Marc Holliday: Thank you.
Marc Holliday: Thank you and one moment as we move on to our next question.
Marc Holliday: And our next question is come from the line of Tom Catherwood with <unk>. Your line is open. Please go ahead.
Marc Holliday: Thank you and good afternoon, everyone, Steve Let me going back to your answer to a previous question you mentioned kind of several large leases that should bump up the mark to market average for the year.
Steve Sakwa: A bulk of your activity in 'twenty three at least earlier on 23 was more small and midsized leases. What are you seeing as far as tenant sizes and the pipeline has that is it starting to skew you're starting to see the kind of larger tenants coming back in the market or is it still mainly dominated by those.
Steve Sakwa: Smaller requirements.
Steve Sakwa: Well we've got.
A couple of points right now our pipelines almost 1.400 million square feet. That's up over 100, thousands were where we were at Investor Conference and.
Steve Sakwa: And in the face of signing over 100000 square feet of leases since that time period as well.
Steve Sakwa:
Steve Sakwa: I would say probably.
Steve Sakwa: 60% or more of the deals pending right now our financial services businesses, I don't think thats necessarily commentary.
Steve Sakwa: As if they are the sole driver in the market as a matter of fact, we're seeing a lot of tour activity from <unk>.
Steve Sakwa: All firms government education, even some tech firms right now it just happens to be a reflection of where we have availability within our portfolio.
Marc Holliday: And it's a pretty broad range of sizes.
Marc Holliday: A lot of activity in some of the more moderate price billings like Graybar building is about a third avenue buildings that are kind of small to mid size requirements, but then some of the bigger financial service tenants.
Marc Holliday: We've got a number of.
Marc Holliday: Notably large deals that are in negotiation.
Marc Holliday: Every single one of them was driven by those tenants, having a growth component of the.
Marc Holliday: Special requirement.
Marc Holliday: Okay.
Marc Holliday: Thanks, I appreciate that Steve and then for second question, maybe Mark or Matt.
Marc Holliday: First off congrats on getting the refinancing done at seven day, and Mark had mentioned the $5 billion of Refinancings, you had laid out at the Investor Conference.
Mark I: We're early in the year, but kind of what are the next priorities on your list when it comes to refinancing and how are those conversations trending so far.
Mark I: I think just just for Brett for Conciseness.
We set out asset by asset in December, which we've never done before.
Brett Conciseness: Our plan and we noted in each case, where we thought we would be able to be successful in getting some kind of modification and extension done on.
Brett Conciseness: Yes.
Steve Sakwa: That debt has maturities mostly in 'twenty four 'twenty five 'twenty six we want to try and take care of almost all of certainly 'twenty four 'twenty five and with the goal of getting.
Steve Sakwa: New maturity dates of <unk>, 27, and a 27 and beyond so really 28.
Steve Sakwa: And so in terms of like next priority that group of assets is all the priority I think theres five or six.
Jeff Sutton: In total that were probably working on in various stages.
Jeff Sutton:
Speaker Change: And it's look like nothing's easy in this market for sure but between what we showed you last year.
Speaker Change: And what we continue to show in this quarter is theres going to be differentiation in this market between.
Speaker Change: Sponsors that partners and lenders are going to want to work with.
Speaker Change: Sponsors, where lenders and partners may not want to I mean, it's it happens every time you get a bit of a market dislocation like this.
Speaker Change: Theres, a theres a weeding out process.
Speaker Change: And then the market recovers.
Speaker Change: Sometime in the future it happens again so.
Speaker Change: I'm, just happy and feel fortunate that as a company.
Speaker Change: We've got the reputation and the platform and the resources to be able to work productively with our counterparties.
Speaker Change: He's trying to come up with solutions that are sort of the best available solutions for all sometimes a great solution sometimes there.
Speaker Change: Uh huh.
Speaker Change: More painful solutions, but we're always trying to do it.
Speaker Change: In a way that knowing that.
Speaker Change: These counterparties are people in this market, we have to deal with year after year after year and what comes around.
Speaker Change: From these efforts I think pay off for us in the future. So I feel pretty good about where we are in.
Speaker Change: The job we have ahead of us this year and next to get.
Speaker Change: All of that that sort of firmly landed restructured extended on terms that we can do.
Speaker Change: That we can manage but it's only January.
Mark I: I appreciate it thanks Mark.
Mark I: Thank you and one moment as we move on to our next question.
Mark I: Our next question is going to come from the line of John Kim with BMO capital markets. Your line is open. Please go ahead.
Mark I: Thank you.
Mark I: Kudos.
Mark I: Two Herald square.
Mark I: But going forward the cost of carry is still pretty high given the ground lease and it sounds like if you can reposition that it's going to be fairly capital intensive.
Mark I: At this point are you more inclined to sell it or joint venture the asset or do you plan to keep it on balance sheet.
Mark I: And will this day, new alternative strategy portfolio.
Harry: This is Harry.
Harry: Right now we're working through various avenues, we got through the.
Harry: The first path of this which is with the land lease of lender.
Harry: But we have a lot of time here.
Harry: We've got a lot of time, we're working through the asset we know it very well we've owned it for a few years now.
Harry: And we're working through the avenues in what presented to you over the coming quarters. Yeah. I think this is this is a business plan that we'll be developing over the course of the year.
Harry: It's not one we highlighted for you guys in December.
Harry: Our priorities were elsewhere now.
Harry: Now that there.
Harry: There is a reordering of the capital stack. It's it's now feasible to start thinking about long term value.
Harry: But we can't do it in a day or two I mean, this is something we're going to study and we're going to be testing the market.
Harry: And certainly bye bye.
Harry: Six months to 12 months, we're going to have a game plan for this asset and we're going to try to.
Harry: On a reset basis something that might not have worked.
Harry: Formula will work now and that's that's the process we're going through.
Harry: In this situation.
Harry: And we will stay in your Asps and should we just view this as option value going forward.
Yes for now John that will stay and ASB.
Okay Mike.
Second question is on your month to month leases or hold over it looks like it was 200000 square feet combined which is higher than previous quarters. I was wondering if you can just comment on the likelihood of these tenants moving out versus renewing or just remaining in that in the March month to month portfolio.
Harry: I think a lot of that is driven by some of the tendency of 625 Madison Avenue.
Mike: That's right yes.
Mike: Is there a technically been terminated their holdovers, so that building because he knows in contract for sale. So it's.
Mike: It's not really an indicator of anything else thats going on in the broader market.
Mike: Right.
Okay. Thank you.
Mike: Thank you and one moment as we move on to our next question.
Mike: Our next question is going to come from the line of Anthony Pallone with J P. Morgan. Your line is open. Please go ahead.
Mike: Yes. Thank you Mark you talked about the.
Mark: The big retail trades that occurred earlier in your comments can you just talk about any shift in sentiment there that you've picked up in terms of investing in office and whether thats changed much.
Mark: Well I think that goes back to the pools of capital that I was referring to sorry, yes, I'd say, it's changed a lot.
Mark: There's like I don't know, how many billions and billions of dollars of announced capital forming for credit and equity.
Mark I: Targeting not exclusively but certainly.
Mark I: A significant amount is going to be targeted towards the office sector, including our own efforts and that's the first sign of.
Mark I: Yes. This is this is a playbook you guys have seen a couple of times before it is not it's not anybody's first rodeo and.
Mark I: It's.
Mark I: It's already been four years since pandemic.
Mark I: And.
Mark I: The business fundamentals in the city are very strong.
Mark I: And people are back to work and.
Mark I: It's time for a lot of investors who have been.
Mark I: Sort of off.
Mark I: Office, except for what I'll call sort of the special assets.
Mark I: In great locations.
Cetera: Cetera, I mean, those those kinds of assets rolled through this period of time with Champs.
Speaker Change: But there is there is a lot of other buildings out there that need to be attended to and I think youre going to see the liquidity break.
Speaker Change: And the first step are these.
Speaker Change: Capital pools, forming and then the institution the institutions will follow right behind in my opinion.
Brett Conciseness: Okay and then just second one you may have given this out and maybe I missed it but on the debt fund how much is going to be SL Greens.
Brett Conciseness: Co investment.
Brett Conciseness: Okay.
Brett Conciseness: Well, we know, but I think thats TBD in terms of announcement.
Brett Conciseness: So I would say standby I guess is.
Brett Conciseness: It's not a question I mean, we.
Brett Conciseness: As you know we tend to like to have real skin in the game, I mean, where investors as much as where managers of monies for others.
Brett Conciseness: So we will have real skin in this game, but it has to fit within our overall liquidity program for the year and we will.
Brett Conciseness: We feel very good about the levels were going out with will.
Brett Conciseness: Show, our confidence and belief in this in this program.
Brett Conciseness: Okay. Thank you.
Brett Conciseness: Thank you and one moment as we move on to our next question.
Brett Conciseness: Our next question comes from the line of Vikram Malhotra with Mizuho. Your line is open. Please go ahead.
Steve: Thanks for taking the questions I, just wanted to maybe Steve or even matters.
Steve: You talked a lot about market improvement the job outlook picture looking better and return to work and all of that.
Steve: Trying to square square that with if you look at the leasing pipeline that you mentioned plus.
Plus the exploration and factor in renewal rates I'm, just trying to square all of that with how your latest thoughts on occupancy and then tying that occupancy back Mac, perhaps to ultimate Fad Fad cash flow generation. It just seems like there could be a big lag between all the lease up the known move outs et <unk>.
Steve: Before you actually see a meaningful inflection in an underlying fraud generation. Thanks.
Marc Holliday: Yes, the obviously sitting here in January having given guidance that seven weeks ago.
Steve Sakwa: Say, we're on plan and the pipeline is actually probably a little bigger Steve.
Marc Holliday: As Steve said, then it was back in the Investor Conference, even after signing 100000 feet in January 100000 feet.
Steve Sakwa: In December the pipeline still grow so it puts us in based on whats in the pipeline puts us squarely on our targets for occupancy increase.
Steve Sakwa: Which is going from 90 at the end of the year with a goal of 91 six by the end of 'twenty four.
Steve Sakwa: The goal of 2 million square feet of leasing this is a great start towards those goals as to how that translates back through to to Fad, Yeah of course Theres a lag.
Marc Holliday: Particularly when you're doing new leasing and you've seen that over the last couple of years it lags.
Marc Holliday: Occupancy is going down the roll down takes time to roll through and the same thing will happen on the roll up so do we see the biggest benefit of going from 90% to 91 six in the 'twenty four fad no. It will roll through in the coming years, but we are on the right trajectory.
Marc Holliday: Consistent with the plan, we laid out in December.
Marc Holliday: Got it Okay, and then just sorry to go back to.
Marc Holliday: I know you've had a lot of questions on two herald, but.
Marc Holliday: Just two clarifications, one can you give us any color or maybe even just based on precedent like how should we think about the ground lease reset I believe it's 2027 and then related to that you mentioned there are a variety of strategies that you have in mind, but.
Marc Holliday: Perhaps you can give us some color about timeline because.
Marc Holliday: Today, if you look at a lot of office buildings, where decades, where values are you would argue like equity value has been diminished tremendously and you need to sort of take perhaps a long enough timeframe to think about value creation.
Marc Holliday: And given this building I think is what 20 or 30% leaves. It seems like there is a very heavy left so I'm just trying to get more talk around how youre thinking about it.
Marc Holliday: The ground lease and then be value creation.
Marc Holliday: Well the value creation question is.
Marc Holliday: I tried to address earlier I mean step one is come up with our plans.
Marc Holliday: I can't really as far as I can go with that at this moment is.
Marc Holliday: This is an asset we have.
Marc Holliday: We've probably been involved with redeveloped and maximize assets like this.
For the last 27 years and.
Marc Holliday: I think we've done 124 million square feet of investment almost all of which is exclusively midtown much of which is as light.
Marc Holliday: Two Herald.
Marc Holliday: So this doesn't present.
Marc Holliday: In my opinion the unique challenges.
Marc Holliday: You might be referring to we look at this as opportunity I love the flexibility and I like the location and we'll come up with a plan.
Marc Holliday: The comment about it's going to take a very long time I don't know about that I mean, I heard a lot of that on 625 Madison.
Marc Holliday: And that turned into a very.
Marc Holliday: Excellent resolution for this company and very quick period of time, So I wouldn't.
Marc Holliday: I wouldn't.
Marc Holliday: Subscribe to the notion that it's going to take a long period or a short period of time, we're going to.
Marc Holliday: Just manage it the way we manage the <unk>.
Marc Holliday: 30 million square feet were involved with and I have no particular concern.
Marc Holliday: About anything unique to this asset I think it's a very good asset.
Marc Holliday: It's.
Jeff Sutton: It's vacant because we had a tenant go out.
Jeff Sutton: There's no mystery I think prior to the tenant going out it was like very well leased.
Jeff Sutton: So building, sometimes go from well leased.
Jeff Sutton: Some vacancy you when a tenant rolls out, but then you.
Jeff Sutton: Resolve that vacancy and I mentioned, we can do at a number of different ways and we're going to look to optimize it so that's that.
Jeff Sutton: On the ground lease there's a reset I don't know theres much to talk about there. It's early but there is a reset I don't know.
Jeff Sutton: I have the details on the recent 27 is correct I would just say we have a well aligned fee owner here, they want to see us maximize and create value.
Jeff Sutton: Sure I won't be surprised to hear we're in active negotiations with them.
Jeff Sutton: Yes to give us the opportunity to maximize the value here so.
Jeff Sutton: We're working through that and it'll be part of the updates as we get through the year.
Jeff Sutton: No that was my comment I guess, just I was wondering if there was something more specific because no.
Jeff Sutton: Then I would say.
Jeff Sutton: Linda.
Jeff Sutton: I would stay tuned and in June.
Jeff Sutton: And our next call actually it won't be honest I would say give us six months and we may have more to come on a business plan.
Jeff Sutton: But we don't have it yet I just.
Jeff Sutton: I was just surprised like in January for the lender.
Jeff Sutton: $180 million loan, Okay, and like the way you described it it sounded like there was a lot of optionality.
Jeff Sutton: All right.
Jeff Sutton: The lender was okay with seven and Thats why I thought there was something more specific to this asset.
Jeff Sutton: My comment yeah I understand.
Jeff Sutton: Thank you and we'll definitely readdress. It later this year.
Jeff Sutton: Thank you.
Jeff Sutton: Thank you and one moment as we move on to our next question.
Jeff Sutton: Hi.
Jeff Sutton: Our next question comes from the line of <unk> with Bank of America.
Jeff Sutton: One is open. Please go ahead.
Jeff Sutton: Hi impressive outcome on the southern one seven fifth Avenue sale are you seeing third party demand at these levels for high Street retail beyond the user buyers we've seen in the detail in the deck.
Jeff Sutton: That you've mentioned in your opening remark yes.
Jeff Sutton: Excellent question.
Jeff Sutton: We've got Brett Hershey failed.
Jeff Sutton: No.
Jeff Sutton: All of our retail and strategic.
Jeff Sutton: Why don't you. So the question is putting user demand aside how is the sort of the high end rental market.
Jeff Sutton: The high end rental market.
Jeff Sutton: It was really being driven by Madison Avenue to start.
Jeff Sutton: We had the likes of balance.
Jeff Sutton: Valentino and Jimmy Choo, and you're in Mcqueen Van Cleef I'll sign big leases on Madison Avenue in the past year.
Jeff Sutton: Fifth Avenue is right behind in starting to pick up and that'll be nice to see 717 failed on fifth Avenue.
Jeff Sutton: Cruise Av.
Jeff Sutton: Investors I mean related and their acquisition of 625 Madison, a big part of that transaction is value recognition of the retail.
Marc Holliday: They are an investor and obviously not a user so.
Marc Holliday: There are more behind that.
Marc Holliday: We will be sharing that.
Marc Holliday: Months to come.
Marc Holliday: Okay.
Marc Holliday: Matt can you talk to how you're thinking about your floating rate exposure today guidance that was set out in December and look to reduce your exposure down to single digits by year end 'twenty three has anything changed on this front and would you be comfortable operating.
Matt: At the current levels are higher.
Matt: No I think we're on the path, we expect it to be on most of the fixed rate.
Matt: Debt that we have today is fixed even beyond the end of the year. So there's not much we can do with that as to the.
Matt: The other floating rate debt a lot of that is what we expect to take out as you reduce debt over the course of the year.
Matt: In fact, taking out 717 reduces our floating rate exposure by itself taking down the revolver addresses the rest.
Matt: And we still want to protect ourselves, even though that the rate environment has gotten a little bit more constructive than the forward curve looks to be coming down.
Matt: Wanted to be prudent and protective.
Matt: Put a hedge on late last year.
Matt: Forward, starting hedge that's what's flowing through earnings.
Rates were higher than they are today, which is why it had a negative mark to market, but it is protective exercise for.
Matt: Something we expect next year at the end of the year, it's protecting the balance sheet.
Matt: We at this point again.
Optimistic about where the rate environment is headed but we still want to be prudent and keep that floating rate debt fairly low.
Thank you.
Matt: Thank you and one moment as we move on to our next question.
Speaker Change: And our next question is going to come from the line of Blaine Heck with Wells Fargo. Your line is open. Please go ahead.
Blaine Heck: Thanks. Good afternoon. So we're hearing that the park Avenue corridor has gotten really tight at this point given the strong tenant interest in that sub market are you seeing a spillover effect in any specific submarkets or maybe buildings within your portfolio that are now seeing more interest.
Blaine Heck: That kind of tier one space is getting leased up.
Blaine Heck: Yes, I don't think its unique to park Avenue, but Youre right Park Avenue has got an availability.
Blaine Heck: That's something.
Blaine Heck: Something like nine 4% so by historical standards, you would say it's at least at equilibrium if not tilting more back to the landlord is having more leverage on transactions because of the limited supply.
Lack of big blocks expected to come on the market anytime in the near future, but take you to a different level, which as you've seen with the absence of any new construction coming online in the short term.
Blaine Heck: You've seen a lot of the new buildings and newer or heavily renovated buildings.
Blaine Heck: Filling up so the beneficiary of that as Ben Park Avenue Six Avenue Rock Center.
Blaine Heck: And anything around.
Blaine Heck: The Grand Central terminal is all seeing more tenant demand.
Blaine Heck: So I think it's more tests are being forced to shop various parts of Midtown.
Blaine Heck: Clearly the tenants drive is the majority of tenants to focus their attention on the Midtown market as opposed to the far west side market or certainly the downtown market and where we're seeing that spillover.
Blaine Heck: On all parts of our portfolio.
Great. Thanks, Steve and then the second one just a quick one with respect to Herald square as it stands now that the NOI at that asset cover the ground lease payments.
Steve Sakwa: Next question.
I'm, sorry can you repeat that does the NOI.
Steve: At the at two Herald does that cover the ground lease payment that you guys have there.
Steve: Yes.
Blaine Heck: No it doesn't in its current occupancy Blaine.
Blaine Heck: Part of the reason it didn't ASB portfolio.
Great. Thank you.
Blaine Heck: Yeah.
Blaine Heck: Thank you and one moment as we move on to our next question.
And our next question comes from the line of Peter Hambro fits with Jefferies. Your line is open. Please go ahead.
Blaine Heck: Yes. Thank you so I think the EPS guidance raise was.
Blaine Heck: <unk> 38.
Blaine Heck: And the range, there and the <unk> guidance range for us.
Blaine Heck: A dollar on the nodes. So I think you said it was mostly related to gains on the debt extinguishment, but just wondering if there's any offsetting items or any other moving pieces in there that.
Blaine Heck: Cause a difference in the magnitude of the rates between those two yes.
Blaine Heck: Guidance adjustment for <unk> is purely the <unk>.
Blaine Heck: Off the two Harold discounted debt extinguishment.
Blaine Heck: Offset by taking out the generic $20 million gain we had in there so that that math works out to exactly one dollar that happens between the dollar and <unk> and $1 38, I think of.
Marc Holliday: Net income as the gain we will recognize on 717 that asset did not have.
Marc Holliday: Basis on the books and so it is essentially all game.
Marc Holliday: Okay got it.
Marc Holliday: And then one other question on two Herald. So I think you guys kind of cover everything from.
Marc Holliday: From a lender's perspective, I guess from your.
Marc Holliday: Partner's perspective.
Could you talk about the motivation for them it seems like.
Marc Holliday: It was just a.
Marc Holliday: A situation, where they wanted to walk away from the asset. So you are taking over almost full control for I think it has had no consideration in the press release.
Marc Holliday: Are you just trying to cover that and what the motivation was on a reason was from their perspective.
Marc Holliday: Yes, I appreciate the question I don't want to speak for our partner on this call and what their motivations were unfortunately, not much I can get into there but.
Marc Holliday: We'll continue to update you on two Herald as we go on throughout the rest of the year.
Marc Holliday: Alright, I guess.
Marc Holliday: Put another way or anything that.
Marc Holliday: It's obviously, a very favorable resolution for you anything specific to the situation.
Jeff Sutton: Influence that I guess.
Jeff Sutton: Yes, I mean, yes.
Jeff Sutton: As you know they are still in the deal with.
Some minority interest, but they still have an interest in the asset and.
Jeff Sutton: And beyond that I, just again don't want to get into how they are thinking about it.
Jeff Sutton: What their motivations were okay.
Jeff Sutton: Okay.
Jeff Sutton: Okay.
Thank you.
Jeff Sutton: Thank you and one moment as we move on to our next question.
Jeff Sutton: Our next question is going to come from the line of Ronald Camden with Morgan Stanley. Your line is open. Please go ahead.
Ronald Camden: Great Hey, just two quick ones. So first is just on the trips to Asia that you're talking about after this call. I was just wondering was that sort of related to the one vanderbilt or the $2 45 Park JV and maybe can you provide an update how conversations are going at any any sort of timing.
Ronald Camden: If that deal itself of course all of them.
Ronald Camden: Everything I would say our whole business plan is on the table not just.
Ronald Camden: I know, there's a lot of <unk>.
Jeff Sutton: Questions I'm getting about this issue because I mentioned it we.
Jeff Sutton: We do this like every couple of weeks.
Jeff Sutton: No.
Not to Asia, but.
Jeff Sutton: All over the country in different parts of the world were visiting <unk>.
Jeff Sutton: <unk> lenders and on these trips.
Jeff Sutton: We made some targeted but we're talking about.
Jeff Sutton: Everything Thats part of our business plan really for 'twenty four.
Jeff Sutton: And that's how we got to get it done I mean, it's you got to start early if we want to get it done by end of year end.
Marc Holliday: And so things like <unk> $2 45, I don't know seven day and everything else. We've talked about in December yeah, I mean, there'll be there'll be discussions, we're having on each and every one of those.
Brett Conciseness: On <unk> in particular, how you wanted to give an update yes consistent with.
Brett Conciseness: The message we delivered in December.
Marc Holliday: We're in active negotiations on the interest.
Brett Conciseness: These negotiations that were involved in their confirming exactly what should we set what we said which is there is global and domestic demand for this one of a kind asset and that's obvious to every investor we're speaking of negotiating with.
Mark I: And as Mark said, we're still unplanned and planned for this year.
Mark I: Okay.
Mark: Great and my second question is just taking a stab at two Herald and taken a step back the plateau. The alternative strategy portfolio has 10 assets.
Mark: And two.
Harold Discounted: Harold Congrats on the deal.
Harold Discounted: Get sorted Don and.
Harold Discounted: And what looks like it's.
Harold Congrats: And economic sort of decision from the bank. So the question is sort of like out of all of these other assets in the ASP.
Harold Congrats: As to Harold just unique.
Harold Congrats: Or are there other assets that look and feel the same and which ones where you can have such an outcome.
Harold Congrats: <unk>.
Yes, it's Matt So first of all correct. It's not 10 anymore. It's nine assets of 717 was in there too and that's not sold.
Harold Congrats: In creating this.
Harold Congrats: Or segregating. This portfolio. We said you know there's there's very little if any NAV carried for these assets on the street.
Harold Congrats: Don't generate a lot of any earnings don't have book value. So they kind of we're unique from the rest of the core portfolio, but theres a lot of interesting opportunities that may come out of them.
Harold Congrats: Two two out of the 10 happened in the first.
Harold Congrats: <unk> 30 days of the year.
Harold Congrats: 217 into our business.
Harold Congrats: Are there more opportunities to come out of there.
Jeff Sutton: Yes, we're working on a couple of other things, but working on a lot. So we're going to get it which is what we've been doing with these assets and again, why we wouldn't put them off and its own portfolio.
Jeff Sutton: I can't characterize whether any of them are exactly like the two herald or exactly like a 717.
Brett Conciseness: But the reason we are carrying these assets. The way. We are is because there is there is embedded value that might not be appreciated we're going to look to mine it.
Brett Conciseness: Helpful. Thanks, so much.
Brett Conciseness: Thank you and one moment as we move on to our next question.
Brett Conciseness: And our next question is going to come from the line of Michael Griffin with Citi. Your line is open. Please go ahead.
Brett Conciseness: Great. Thanks, maybe just a question on the leasing pipeline can you give us a sense, if it's mostly new or renewal leases that are there and then on the confession concession front is it fair to say that it's stabilized or maybe even decline somewhat particularly in AR.
Brett Conciseness: Very high performing Submarket like Park Avenue.
Michael Griffin: I'll take the second part first I don't think the concessions have come down I think they've been stable for all of last year.
Michael Griffin: I think theres, a little more strength, particularly on park Avenue to your point on the renewal side than there was on versus new deals.
Michael Griffin: It's still it's still.
Michael Griffin: Fences for millennials perspective, as far as the concession packages go.
Michael Griffin: <unk>.
Michael Griffin: But I think we I think we hit the stabilization point.
Early last year. So that's the good news of that story.
Michael Griffin: And then as far as.
Michael Griffin: Renewals versus new deals.
Michael Griffin:
Michael Griffin: It's driven sort of 50 50 between new and renewal, but each of the a lot of our bigger renewals also have very significant expansion components in them and that's I think.
Michael Griffin: Pretty noteworthy because it's if you really were.
Michael Griffin: Went through every one of our deals that are out there to see so much growth, particularly with intended from the financial.
Michael Griffin: Services sector, but also some of the law firm tenants that are coming through a door.
Michael Griffin: We're seeing a lot more.
Michael Griffin: Growth a lot more confidence a lot more willingness to commit significant capital by the tenant.
Michael Griffin: They look to rebuild a rebrand their spaces. So that makes us all feel pretty good about where we stand right now.
Michael Griffin: Great that's helpful.
Michael Griffin: And then just on the DTE book I'm curious, if you're seeing any more appetite or opportunities for future originations given the distress and dislocation that we've seen out in the market well.
Michael Griffin: Well thats really the underpinnings of.
Michael Griffin: Of the of the opportunity fund that we're in the process of.
Michael Griffin: Marketing and raising we see a lot of opportunities I mean, we see many many opportunities, but obviously no different than in prior markets only select ones that we think.
Michael Griffin: Of interest to us and where we wanted to play our capital.
Michael Griffin: But the opportunity set so big that we want to have some third parties alongside with us to take advantage fully like.
Michael Griffin: Like we've done in past recoveries.
Michael Griffin: I've always said you know a lot of the money is made in the first year or two coming out of recovery I feel like that's where we are now.
Michael Griffin: <unk>.
Michael Griffin: Want to make sure we got our ducks lined up to take advantage of things, we very possibly May Act preemptively and then backfill with the funds we will see how these things go but yes, we are.
Jeff Sutton: We're seeing a lot right now and I think that's the first step towards a more normalized institutional participation once we can illuminate.
Jeff Sutton: Where values and levels are especially in this environment, where we've got falling rates, which I think will certainly.
Harold Congrats: He's the.
Harold Congrats: The liquidity pipeline and get things going again.
Harold Congrats: Great. That's it for me thanks for the time.
Harold Congrats: Thanks.
Harold Congrats: Thank you and one moment as we move on to our next question.
Harold Congrats: And our next question is going to come from the line of Caitlin Burrows with Goldman Sachs. Your line is open. Please go ahead.
Caitlin Burrows: Hi, Good afternoon, everyone. Maybe just a question on leasing broadly the starting rent per square foot on leases signed in the quarter was pretty high at 105 per square foot and included.
Caitlin Burrows: As you mentioned some leasing at 280 Park and 245 Park. So I was wondering could you talk more about how tenant activity and leasing activity is shaping up across the portfolio, including some of the more affordable buildings.
Caitlin Burrows: Well.
Caitlin Burrows: Yes.
Marc Holliday: <unk> were high because we did some big deals on Park Avenue.
Marc Holliday: And there were driven by some of our higher price point buildings, but as we sit here right now looking at the pipeline.
Marc Holliday: Of the four.
400000 square feet of leases that we have out right now.
Marc Holliday: I'm just looking at all this real quick.
Marc Holliday: Every single one of those with the exception of one moderate sized deal is in more of the moderate price point buildings. So 45, Lexington Avenue eliminated five six gray bar, 711th or things like that so those are rents that are generally in the 60 to 70 $70 price point as opposed to the.
Marc Holliday: Triple digit rents that you saw us prints of some of our Park Avenue.
Marc Holliday: Buildings.
Marc Holliday: At the end of last year.
Marc Holliday: Okay got it and maybe just as a follow up to that kind of list of deals that youre looking at do you have a sense for if those tenants are ones that are generally renewing space they were already in and if there.
Marc Holliday: Turning to if they like moving in from somewhere else, where they might have been coming from yeah, well I mentioned earlier that.
Marc Holliday: Of the $1 million for pipeline, it's roughly 50 50 between renewals and and.
Marc Holliday: And new tenants and on the renewals.
Marc Holliday: 95% of those are tenants that are renewing in place as opposed to relocating to a different building or different space within our portfolio.
Marc Holliday:
Marc Holliday: What's not really articulated well as far as showing is 50 50 is that a good number of our.
The deals that we're working on right now have significant expansion components, whether they be renewal deals or.
Marc Holliday: New tenants coming into the portfolio.
Marc Holliday: Sorry by expansion component Youre, saying, they are extending or they have an option to extend in the future no meaning they are making they are searching for larger spaces.
Marc Holliday: Thank you.
Marc Holliday: Thank you and one moment for our next question.
Marc Holliday: Okay.
Marc Holliday: And our next question comes from the line of Nick <unk> with Scotiabank. Your line is open. Please go ahead.
Marc Holliday: Thanks, I just wanted to go back to two herald and be clear here.
Marc Holliday: Did you already own any piece of the mortgage there or.
Marc Holliday: Buy it at some point like in the last year and that's what's affecting the net payment number that you're citing.
Nick Yulico: I don't understand the question did we is it third party data do we own any of it is that your question Nick Yes, exactly all third party, we didn't own any okay.
Nick Yulico: And then just on the second part was it was there also was there any piece of Mezz or prep piece. There that also affected the ability to get higher equity in the joint venture is the Wall Street Journal asking.
Nick Yulico: I'm just trying to clear up it's never it's not very clear in the in.
Nick Yulico: In your press release here was now the answer is no none of that.
Nick Yulico: Thank you no problem.
Nick Yulico: Thank you and I would now like to turn the conference back over to Marc Holliday for closing remarks.
Nick Yulico: Okay.
Nick Yulico: This was this was a good two Herald conference call.
Nick Yulico: And I'm glad we got some other things in there as well.
Nick Yulico: That arent in the ISP portfolio.
Nick Yulico: And I appreciate very much those that muscle through to the end. We thank you for the support for listening in.
Nick Yulico: Getting to work.
Nick Yulico: On the fund who will talk to you in three months. Thank you.
Nick Yulico: Yes.
Nick Yulico: This concludes today's conference call. Thank you for participating you may now disconnect.
Nick Yulico: Okay.
Nick Yulico: [music].
Nick Yulico: Okay.
Nick Yulico: Okay.