Q2 2026 SL Green Realty Corp Earnings Call

July 23, 2026

[Company Representative] (SL Green Realty Corp): You're ready?

Speaker #2: You're ready?

Operator: Thank you everybody for joining us. Welcome to SL Green Realty Corp Q2 2026 Earnings Results Conference Call. We will begin shortly. Thank you everybody for joining us. Welcome to SL Green Realty Corp's Q2 2026 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 statements as predictions of future events, as 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.

Operator: Thank you everybody for joining us. Welcome to SL Green Realty Corp. Q2 2026 Earnings Results Conference Call. We will begin shortly. Thank you everybody for joining us. Welcome to SL Green Realty Corp. Q2 2026 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 statements as predictions of future events, as 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.

Speaker #1: Thank you, everybody, for joining us, and welcome to SL Green Realty Corp. Second Quarter 2026 Earnings Results Conference Call. We will begin shortly. Thank you, everybody, for joining us, and welcome to SL Green Realty Corp. Second Quarter 2026 Earnings Results Conference Call.

Speaker #1: 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.

Speaker #1: You should not rely on forward-looking statements as predictions of future events, as actual results and events may differ from any forward-looking statements that management may make today.

Speaker #1: 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 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.

Operator: Additional information regarding the risks, uncertainties, and other factors that could cause such differences to appear are set forth in the Risk Factors and MD&A sections of the company's latest Form 10-K and other subsequent reports filed by the company with the Securities and Exchange Commission. 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 www.slgreen.com by selecting the press release regarding the company's Q2 2026 earnings, and in our supplemental information included in our current report on Form 8-K relating to our Q2 2026 earnings.

Speaker #1: 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 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 the company's website at www.slgreen.com.

Speaker #1: By selecting the press release regarding the company's second quarter 2026 earnings and in our supplemental information included in our current report on Form 8-K relating to our second quarter 2026 earnings.

Speaker #1: Before turning the call over to Marc Holliday, Chairman and Chief Executive Officer of SL Green Realty Corp, I ask that those of you participating in the Q&A portion of the call please limit your questions to two per person.

Operator: Before turning the call over to Marc Holliday, Chairman and Chief Executive Officer of SL Green Realty Corp, I ask that those of you participating in the Q&A portion of the call to please limit your questions to two per person. Thank you. I will now turn the call over to Marc Holliday. Please go ahead, Marc.

Speaker #1: Thank you. I will now turn the call over to Marc Holliday. Please go ahead, Marc.

Speaker #3: Thank you very much. Good afternoon, and thank you all for joining us. It may be the dead of summer, but our team is, of course, hard at work.

Marc Holliday: Thank you very much. Good afternoon, and thank you all for joining us. It may be the dead of summer, but our team is, of course, hard at work. This is truly when we shine the brightest, completely dialed in on our business plan and outworking the market. That hustle really showed up this quarter. Much of what we predicted at our investor conference in December is now playing out in ways that directly drive earnings and improves cash flow. We forecasted that the leasing progress we've made over the past two and a half extraordinary years would become apparent in our economic occupancy, and it certainly did this quarter, up a remarkable 300 basis points as concessions continue to burn off and overall vacancy dwindles.

Speaker #3: This is truly when we shine the brightest—completely dialed in on our business plan and outworking the market. That hustle really showed up this quarter.

Speaker #3: Much of what we predicted at our investor conference in December is now playing out in ways that directly drive earnings and improve cash flow.

Speaker #3: We forecasted that the leasing progress we've made over the past two and a half extraordinary years would become apparent in our economic occupancy, and it certainly did this quarter.

Speaker #3: Up a remarkable 300 basis points as concessions continue to burn off and overall vacancy dwindles. At the same time, we're putting the significant leasing costs associated with the lease-up behind us, and leverage and coverage ratios are improving, which we also saw in this second quarter.

Marc Holliday: At the same time, we're putting the significant leasing costs associated with the lease-up behind us, and leverage and coverage ratios are improving, which we also saw in this Q2. On the leasing front, the story remains the same. A growing scarcity of premier space in desirable Midtown districts has turned the tables in our favor. We now know that we'll exceed our leasing goals again this year. It's just a question of whether it'll be by a wide margin or a really wide margin. We don't have that visibility yet, so it's too soon to reforecast, but the trend continues to move in the right direction. We are also seeing very positive momentum at SUMMIT, both here at One Vanderbilt and on our projects around the world.

Speaker #3: Our outlook remains the same. A growing scarcity of premier space in desirable Midtown districts has turned the tables in our favor. We now know that we'll exceed our leasing goals again this year.

Speaker #3: It's just a question of whether it will be by a wide margin or a really wide margin. We don't have that visibility yet, so it's too soon to reforecast, but the trend continues to move in the right direction.

Speaker #3: We are also seeing very positive momentum at Summit, both here at One Vanderbilt and on our projects around the world. Even with reduced overall tourism in the city this year, we enjoyed the highest attendance among all of our competitors and introduced a number of new ticketed experiences that we expect will continue to drive revenue.

Marc Holliday: Even with reduced overall tourism in the city this year, we enjoyed the highest attendance amongst all of our competitors and introduced a number of new ticketed experiences that we expect will continue to drive revenue. We are on track to open Paris next summer in 2027 and in Tokyo in 2030 as we continue to see enormous growth potential for this business. Most importantly, the backdrop to our performance this quarter and moving forward is the extraordinary and prolonged surge in business activity in New York City. Our economy is in a league of its own compared to any other CBD in the country or indeed even the world, driven by financial services sector performing as well as I've ever seen it.

Speaker #3: We are on track to open in Paris next summer, in 2027, and in Tokyo in 2030, as we continue to see enormous growth potential for this business.

Speaker #3: Most importantly, the backdrop to our performance this quarter, and moving forward, is the extraordinary and prolonged surge in business activity in New York City.

Speaker #3: Our economy is in a league of its own compared to any other CBD in the country, or indeed even the world, driven by a financial services sector performing as well as I've ever seen it.

Speaker #3: Wall Street profits hit $21 billion in the first quarter alone—the second highest first quarter that has ever been recorded in approximately 40-plus years of tracking this metric.

Marc Holliday: Wall Street profits hit $21 billion in Q1 alone, the second highest Q1 that has ever been recorded in approximately 40 plus years of tracking this metric. The Big Five money center banks just reported, and Q2 profits are up a whopping 50% year-over-year, and that's coming off a very strong year. Office-using jobs are up by 12,000 year-to-date, according to the city's OMB, and a strong showing for only 6 months of the year, with further growth projected for the balance of the year. We've also seen tech growth driven by AI, and we're obviously getting more than our fair share of those leases, including the lease we announced last night for 100,000 square feet at 11 Madison. It's not just the financial services and tech.

Speaker #3: The big five money center banks just reported, and second quarter profits are up a whopping 50% year over year—and that's coming off a very strong year.

Speaker #3: Office-using jobs are up by 12,000 year to date, according to the city's OMB—a strong showing for only six months of the year, with further growth projected for the balance of the year.

Speaker #3: We've also seen tech growth driven by AI, and we're obviously getting more than our fair share of those leases, including the lease we announced last night for 100,000 square feet at 11 Madison.

Speaker #3: It's not just the financial services and tech. It's truly a broad-based growth in demand momentum that we see here in the city. As just one example, the healthcare sector continues to grow and added 20,000 jobs year to date, many of which do land in office space like MSK at 885 Third and the Hospital for Special Surgery at 1521 First.

Marc Holliday: It's truly a broad-based growth and demand momentum that we see here in the city. As just one example, the healthcare sector continues to grow and added 20,000 jobs year-to-date, many of which do land in office space like MSK at 885 Third and the Hospital for Special Surgery at 1520 First. NYU Langone Health has a significant footprint at One Park. New York City-based companies raised $10.8 billion in venture capital funding in Q2 alone, and that brings it to $21.1 billion year-to-date. Both of those metrics are double the same respective amounts in the measurement periods in 2025. The city is-

Speaker #3: And NYU Medical has a significant footprint at One Park. New York City-based companies raised $10.8 billion in venture capital funding in Q2 alone, and that brings it to $21.1 billion year to date. Both of those metrics are double the same respective amounts in the measurement periods in 2025.

Speaker #3: The city is, you know, I think experiencing one of the largest resurgences I've seen. The tax receipts are very good. The city just passed its budget in June.

Marc Holliday: I think experiencing one of the largest resurgences I've seen. The tax receipts are very good. The city just passed its budget in June. It's another balanced budget with rainy day reserves, and I feel like we're in very good standing, and this is what all adds up to about 50 million square feet of office space leased in the past 4 quarters. That has to be a record. It was a very strong quarter. I'm incredibly proud of our team, and I remain very optimistic about the direction of the city and the economic activity that supports our performance. Finally, before we open it up for questions, I want to address our big guidance revision for this quarter. The revision is great news and certainly represents the culmination of efforts, not just over the past 3 months, but over the many years leading up to this.

Speaker #3: It's another balanced budget, with rainy day reserves, and I feel like we're in, you know, very good standing. This all adds up to about 50 million square feet of office space leased in the past four quarters.

Speaker #3: That has to be a record. It was a very strong quarter. I'm incredibly proud of our team, and I remain very optimistic about the direction of the city and the economic activity that supports our performance.

Speaker #3: Finally, before we open it up for questions, I want to address our big guidance revision for this quarter. The revision is great news and certainly represents the culmination of efforts not just over the past three months, but over the many years leading up to this.

Speaker #3: We've executed a deliberate strategy to invest what was needed to move our occupancy back toward 95%, and we're now reaching a positive inflection point.

Marc Holliday: We've executed a deliberate strategy to invest what was needed to move our occupancy back toward 95%, and we're now reaching a positive inflection point. This should not be a big surprise since we forecasted this positive momentum back in December. Maybe the magnitude is even more than we expected, but it's obviously a pleasant result. Matt, if you would, please elaborate on the underpinnings of this significant guidance revision.

Speaker #3: This should not be a big surprise, since we forecasted this positive momentum back in December. Maybe the magnitude is even more than we expected, but it's obviously a pleasant result.

Speaker #3: Matt, if you would, please elaborate on the underpinnings of this significant guidance revision.

Speaker #2: Thanks, Marc. It is clear we have had a fantastic first six months of 2026, exceeding our expectations on several fronts, including our second quarter reported results.

Matt DiLiberto: Thanks, Marc. It is clear we have had a fantastic first six months of 2026, exceeding our expectations on several fronts, including our Q2 reported results. We are excited to be able to translate these successes into a significant upward FFO guidance revision of $1.20 a share, more than 26%, the vast majority of which is recurring. In the Manhattan office portfolio, revenues benefit from strong leasing, particularly early renewals and the lease of a free build space, both of which have immediate earnings benefit, along with a conscious effort to accelerate GAAP revenue recognition by delivering space to tenants more rapidly. Which is coupled with phenomenal expense containment as always by our operations team to drive $0.20 a share of incremental FFO in 2026 from the real estate portfolio, $0.10 of which we recognized in Q2.

Speaker #2: And we are excited to be able to translate these successes into a significant upward FFO guidance revision of $1.20 a share, more than 26%, the vast majority of which is recurring.

Speaker #2: In the Manhattan office portfolio, revenues benefit from strong leasing, particularly early renewals, and the lease above Freebuilt space, both of which have an immediate earnings benefit.

Speaker #2: Along with a conscious effort to accelerate gap revenue recognition by delivering space to tenants more rapidly. Which is coupled with phenomenal expense containment, as always, by our operations team, to drive 20 cents a share of incremental FFO in 2026 from the real estate portfolio, 10% of which we recognized in the second 10 cents of which we recognized in the second quarter.

Speaker #2: While visibility into the execution of the remainder of our 2026 business plan over the next six months also provides us the opportunity to generate additional fee and other income, which we expect to contribute an additional $0.20 per share of FFO.

Matt DiLiberto: While visibility into the execution of the remainder of our 2026 business plan over the next six months also provides us the opportunity to generate additional fee and other income, which we expect to contribute an additional $0.20 a share of FFO. Now, if we had simply increased FFO guidance by $0.40 a share for these operational successes, we would've been thrilled. That equates to about a 9% increase at the midpoint. Because we built one of the most successful, and more importantly, profitable buildings in the country here at One Vanderbilt, we're able to add another $0.80 of recurring, not one time, FFO to our guidance revision. This property has generated so much cash flow that we repatriated all of our invested equity long ago.

Speaker #2: Now, if we had simply increased FFO guidance by $0.40 per share for these operational successes, we would have been thrilled. That equates to about a 9% increase at the midpoint.

Speaker #2: But because we built one of the most successful and, more importantly, profitable buildings in the country here at One Vanderbilt, we're able to add another $0.80 of recurring—not one-time—FFO to our guidance revision.

Speaker #2: This property has generated so much cash flow that we repatriated all of our invested equity long ago. That cash flow, and the excess of our share of GAAP net income at the property, caused the carrying value of our investment to go negative.

Matt DiLiberto: That cash flow, in excess of our share of GAAP net income at the property, caused the carrying value of our investment to go negative. GAAP allows you to carry a negative basis, but only up to the value of any known or potential tenant obligation. At the end of Q1, our negative basis reached the maximum allowed under GAAP. Starting in Q2, One Vanderbilt's incremental FFO contribution is calculated based on the sum of two things. First, amortization of the negative carrying value over the term of the related tenant obligations. This amortization component alone is approximately $21 million a year through the early part of 2031. Plus, the difference between cash distributions we receive from One Vanderbilt and our share of GAAP net income.

Speaker #2: GAAP allows you to carry a negative basis, but only up to the value of any known or potential tenant obligations. At the end of the first quarter, our negative basis reached the maximum allowed under GAAP.

Speaker #2: So, starting in the second quarter, One Vanderbilt's incremental FFO contribution is calculated based on the sum of two things. First, amortization of the negative carrying value over the term of the related tenant obligations.

Speaker #2: This amortization component alone is approximately $21 million a year through the early part of 2031, plus the difference between cash distributions we receive from One Vanderbilt and our share of GAAP net income.

Speaker #2: Going forward, every dollar of cash distribution out of One Vanderbilt that's in excess of gap net income is incremental FFO to us. The total of these two components contributes an additional 80 cents a share of FFO in '26, 35 cents of which we recorded in the second quarter, and based on current projections, is to contribute is expected to contribute as much or more to FFO next year.

Matt DiLiberto: Going forward, every dollar of cash distribution out of One Vanderbilt that's in excess of GAAP net income is incremental FFO to us. The total of these two components contributes an additional $0.80 a share of FFO in 2026, $0.35 of which we recorded in Q2, and based on current projections, is expected to contribute as much or more to FFO next year. The way I look at it, this is essentially flowing deferred cash profits from the project through earnings and further evidence of the incredible success of One Vanderbilt. More importantly, a testament to the hard work of the best employees in New York real estate that work here. With that, operator, we can open it up for questions.

Speaker #2: The way I look at it, this is essentially flowing deferred cash profits from the project through earnings, and it's further evidence of the incredible success of One Vanderbilt.

Speaker #2: More importantly, it's a testament to the hard work of the best employees in New York real estate who work here. With that, operator, we can open it up for questions.

Speaker #1: Certainly. As a reminder, to ask a question, please press *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 again.

Operator: Certainly. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Our first question will be coming from the line of Nicholas Yulico of Scotiabank. Your line is open, Nicholas.

Speaker #1: And our first question will be coming from the line of Nicholas Ilico of Scotiabank. Your line is open, Nicholas.

Speaker #4: Great. Thanks. Hi, everyone. In certain, maybe we could start on the leasing side. The mark-to-market, again, this quarter was strong. You know, above guidance.

Nicholas Yulico: Great. Thanks. Hi, everyone. Maybe if we could start on the leasing side. The mark to market, again, this quarter was strong, above guidance. Can you just talk about if there's specific buildings driving that activity, sub-markets, or if this is actually just sort of a broad-based improvement?

Speaker #4: Can you just talk about what you know? Are there specific buildings driving that activity, or is it more about submarkets, or is it actually just sort of a broad-based improvement?

Speaker #3: Well, let's start with: it's a broad-based improvement. But then, within the portfolio, there are some particularly notable transactions and buildings that are really seeing rent appreciation.

Steven Durels: Well, let's start with it's a broad-based improvement, but then within the portfolio, there's some particularly notable transactions and buildings that are really seeing rent appreciation. Anything on Park Avenue, we've raised rents dramatically. Sixth Avenue, for instance, 1185 Sixth, rents are up dramatically. Across the portfolio, we've been consistently raising asking rents throughout the year. 245 Park Avenue, where we've done a lot of leasing this year. We've got some deals pending to replace some tenants that at OVA, rents are going to be up dramatically. I think, what we saw this quarter, we're going to see it again next quarter.

Steve Durels: Well, let's start with it's a broad-based improvement, but then within the portfolio, there's some particularly notable transactions and buildings that are really seeing rent appreciation. Anything on Park Avenue, we've raised rents dramatically. Sixth Avenue, for instance, 1185 Sixth, rents are up dramatically. Across the portfolio, we've been consistently raising asking rents throughout the year. 245 Park Avenue, where we've done a lot of leasing this year. We've got some deals pending to replace some tenants that at OVA, rents are going to be up dramatically. I think, what we saw this quarter, we're going to see it again next quarter.

Speaker #3: Anything on Park Avenue, we've raised rents dramatically. Sixth Avenue, for instance, at 1185 Sixth, rents are up dramatically. And then across the portfolio, we've been consistently raising asking rents throughout the year.

Speaker #3: So, you know, 245 Park Avenue, where we've done a lot of leasing this year—we've got some deals pending to replace some tenants that are at OVA. Rents are going to be up dramatically.

Speaker #3: So I think, you know, what we saw this quarter, we're going to see—we're going to see it again next quarter.

Speaker #4: Okay, thanks. And then my second question is just going back to One Vanderbilt. You know, it's 100% leased. And as we think about it, I know you've said before there's a significant mark-to-market embedded in that asset.

Nicholas Yulico: Okay, thanks. Second question is just going back to One Vanderbilt, 100% leased. As we think about it, I know you've said before there's a significant mark to market embedded in that asset. Is there any opportunity to perhaps move an existing tenant to 346 Madison, your new development project, and unlock some of that mark to market in One Vanderbilt through that process?

Speaker #4: Is there any opportunity to perhaps move an existing tenant to, you know, 346 Madison, your new development project, and unlock, you know, some of that mark-to-market in One Vanderbilt through that process?

Speaker #3: Well, less so at, you know, moving. You know, it's a little early to talk about 346 Madison, since it's five years away. But there are opportunities that we're pursuing.

Steven Durels: Well, it's a little early to talk about 346 Madison since it's five years away. There are opportunities that we're pursuing for tenants that have either outgrown their space, and we're recapturing some of those spaces, and then accommodating tenants that need expansion space in the building. We've got several pending transactions, and you'll see those leases, I expect to sign this quarter, and the rents will be up in a To really, I think, illuminates the fact that the building's in-place rents are well below our current market.

Steve Durels: Well, it's a little early to talk about 346 Madison since it's five years away. There are opportunities that we're pursuing for tenants that have either outgrown their space, and we're recapturing some of those spaces, and then accommodating tenants that need expansion space in the building. We've got several pending transactions, and you'll see those leases, I expect to sign this quarter, and the rents will be up in a To really, I think, illuminates the fact that the building's in-place rents are well below our current market.

Speaker #3: For tenants that have either outgrown their space—and we're recapturing some of those spaces—and then accommodating tenants that need expansion space in the building.

Speaker #3: So we've got, you know, several pending transactions, and you'll see, you know, those leases I expect to sign this quarter. And the rents will be up in a, you know, to really, I think, illuminate the fact that the building is in-place rents are well below current market.

Speaker #4: Okay. Thanks, guys.

Nicholas Yulico: Okay. Thanks, guys.

Speaker #1: And our next question will be coming from the line of Alexander Goldfarb of Piper Sandler. Your line is open.

Operator: Our next question will be coming from the line of Alexander Goldfarb of Piper Sandler. Your line is open.

Speaker #5: Hey, good afternoon down there. Two questions. Marc or Steve, the pace of this office recovery is just—it's incredible. I mean, it's like what the dot-com was, maybe even better.

Alexander Goldfarb: Hey, good afternoon down there. Two questions. Marc or Steve, the pace of this office recovery is just incredible. I mean, it's like what the dotcom was, maybe even better. Is it solely just the lack of supply, or what do you think is causing companies to clamor for so much space so quickly? It's just, as I say, we haven't seen this in decades. Just trying to understand if it's lack of supply or something else.

Speaker #5: Is it solely just the lack of supply, or what do you think is causing companies to clamor for so much space so quickly? And even be willing—like, as I say, we haven't seen this in decades.

Speaker #5: I'm just trying to understand if it's a lack of supply or something else.

Speaker #6: You know, four things. One, the economy in New York City is doing extremely well. And, you know, profits drive growth; growth drives demand for space.

Marc Holliday: Four things. One, the economy in New York City is doing extremely well, and profits drive growth drives demand for space. It's broad-based, as I mentioned earlier, and there's no sign of abatement right now, because things are really just firing on all cylinders across almost all sectors. That is kind of like the tip of the spear, if you will. Second, we just are in a situation where there's almost no additional space to speak of in a 400 million square foot market, and that's really looking out over the next five years or so. That's because a lot of projects during 2020 and 2024 either got delayed or shelved or changed or whatever. As a result, you just can't flip a switch and produce that space.

Speaker #6: It's broad-based, as I mentioned earlier, and there's no sign of abatement right now because things are really just, you know, firing on all cylinders across almost all sectors.

Speaker #6: And you know, that is kind of like the tip of the spear, if you will. Second, we just are in a situation where there's almost no addition to space to speak of.

Speaker #6: You know, a 400 million square foot market, and that's really looking out over the next five years or so. And that's because a lot of projects during 2020 to 2024 either got delayed, shelved, changed, or whatever.

Speaker #6: And as a result, you just can't flip a switch and produce that space. It takes a lot of time, effort, money, and foresight to be able to open up the inventory.

Marc Holliday: It takes a lot of time and effort and money and foresight to be able to open up the inventory. This isn't like one of those borderless markets that are out in other CBDs around the country where you have constant new product replacing old. Here, it's much more delicate, especially in a fully built out Midtown. Scarcity, I'd say, is the second major issue. Thirdly, you had companies that were just sitting on the sidelines, uncertain as to what direction they were headed, and we had some very lean years back in 2020 through 2023.

Speaker #6: This isn't like one of those, you know, borderless markets that are out in other CBDs around the country, where you have constant new product replacing old.

Speaker #6: Here, it's much more delicate, especially in a fully built-out Midtown. So, scarcity, I'd say, is the second major issue. Thirdly, you had companies that were just sitting on the sidelines, uncertain as to what direction they were headed.

Speaker #6: And we had some very linear years back in 2020 through 2023. And then now we’ve been the beneficiary, especially in ’25 and ’26, of, you know, just companies that have plans for the future that are so ambitious and so affirmative that, you know, the issue we face right now is not just delivering space.

Marc Holliday: Now we've been the beneficiary, especially in 2025 and 2026, of just companies that have plans for the future that are so ambitious and so affirmative, that the issue we face right now is not just delivering space, it's giving tenants confidence that once they lease space, we'll have more growth options for them, either within those buildings or surrounding buildings to satisfy their future growth needs. It kind of feeds on each other, and it's turned into smart businesses wanting to put away their long-term space plans for 10, 15, 20 years now and not have to deal with the unknown down the road. I would say, fourth major point is conversions. You heard me on this back in 2024.

Speaker #6: It's giving tenants confidence that once they lease space, we'll have more growth options for them, either within those buildings or surrounding buildings, to satisfy their future growth needs.

Speaker #6: And you know, it kind of feeds on each other. And it's, you know, turned into smart businesses wanting to put away their long-term space plans for 10, 15, 20 years.

Speaker #6: Now, and not have to deal with the unknown, you know, down the road. And I would say, you know, the fourth major point is conversions.

Speaker #6: You heard me on this back in '24. This was something I identified as what I thought was going to be one of the most significant trends in favor of diminishing office supply, and, you know, sort of a winnowing of secondary and tertiary office space being converted into primary and, you know, very attractive residential space and much-needed rental apartments.

Marc Holliday: This was something I identified as what I thought was going to be one of the most significant trends, in favor of diminishing office supply and sort of a winnowing of secondary and tertiary office space, being converted into primary and very attractive residential space and much needed rental apartments. As a result, you have an inventory that's actually dropping and is bringing up the middle and bottom of the market into rates that become economic for the business. That's why Steve said earlier, we're experiencing rental growth across all facets of the business. I think that taken together really should not be surprising because we've been on these themes for months and months, maybe years and years. I think what you're just seeing is that playing itself out in a very predictable way.

Speaker #6: And as a result, you have an inventory that's actually dropping, and it's bringing up the middle and bottom of the market into rates that, you know, become economic.

Speaker #6: For the business. So that's why, you know, Steve said earlier, we're experiencing rental growth across all facets of the business. So, you know, I think that, taken together, really should not be a surprise, because we've been on these themes for, you know, months and months, maybe years and years.

Speaker #6: And I think what you're just seeing is, you know, that playing itself out in a very predictable way. And as long as the economy stays, you know, as robust as it is, we don't see this abating any time soon.

Marc Holliday: As long as the economy stays robust as it is, we don't see this abating anytime soon.

Speaker #5: And then, so Marc, just on that point about the office-to-resi conversions, do you see most of that pipeline continuing on, or is your view that we'll suddenly get a bunch of buildings that were planned to be converted come back to office—and maybe that's competition?

Alexander Goldfarb: Marc, just on that point on the office to resi conversions, do you see most of that pipeline continuing on, or is your view that we'll suddenly get a bunch of buildings that were planned to be converted, come back to office, and maybe that's competition?

Speaker #6: Oh, you know, that's an interesting question. That we'll have to see play out. You know, I'd say right now, for the projects that have been what I'll call "lit," and/or have been permitted or are about to be permitted, I think you're going to see them all go through as conversions.

Marc Holliday: That's an interesting question that we'll have to see play out. I'd say right now for the projects that have been, what I'll call lit, and/or have been permitted or are about to be permitted, I think you're going to see them all go through as conversions. Before, I would say the economics were in favor of residential. I'd say office at that segment of the market is closing the gap. Maybe it's getting closer to a push, but you have to remember, aside from just the pure economics of rental value and cost to convert, you still get a pretty strong financing edge with residential, where spreads are tighter than office, and a stronger cap rate environment to sell into or JV into, as you saw on 7 Dey, where I think the cap rate was about a 5% or 5.1%.

Speaker #6: Because before, I would say the economics were in favor of residential. I'd say office, you know, that segment of the market is closing the gap.

Speaker #6: And you know, maybe it's getting closer to a push. But you have to remember, aside from just the pure economics of rental value and cost to convert, you still get a pretty strong financing edge with residential, where spreads are tighter than office.

Speaker #6: And a stronger cap rate environment to sell into or JV into. As you saw on Seven Day, where I think the cap rate was about 5 or 5.1 percent.

Marc Holliday: I think some projects will command better than that, depending on location. I think the gap is narrowing, but still tilts in favor of conversion for a number of these buildings. That could change in a year or two, and you may hit an equilibrium.

Speaker #6: You know, and that's—I think some projects will command better than that, depending on location. So I think the gap is narrowing, but it still tilts in favor of conversion for a number of these buildings.

Speaker #6: But that could change in a year or two, and you may hit an equilibrium.

Speaker #5: Thank you.

Alexander Goldfarb: Thank you.

Speaker #1: Our next question will be coming from the line of Steve Sakwa of Evercore ISI. Steve, your line is open.

Operator: Our next call and question will be coming from the line of Steve Sakwa of Evercore ISI. Steve, your line is open.

Speaker #3: Yeah, thanks. I know you guys had an ambitious debt refinancing and, you know, capital markets transaction program for 2026. Could you maybe just kind of give us an update on where you are with refinancing and asset sales for the year?

Steve Sakwa: Yeah, thanks. I know you guys had an ambitious debt refinancing and capital markets transaction program for 2026. Could you maybe just kind of give us an update, kind of where you are on refinancing and asset sales for the year?

Speaker #6: Yeah, sure. So just talking about the capital markets more broadly, I would say the shifting macro landscape since the start of the year and the resulting benchmark rate widening have tried to interfere with the natural trajectory of the market.

Harrison Sitomer: Yeah, sure. Just talking about the capital markets more broadly, I would say the shifting macro landscape since the start of the year and the resulting benchmark rate widening, they've tried to interfere with the natural trajectory of the market. But these are moments where New York City shines. Marc always says New York City is the AAA investment of our sector. Despite not having the wind at our back, we continue to see what I would call unending domestic and international demand for quality Midtown Manhattan product. Just this morning, we saw a report that was issued and published in Crain's about how Manhattan's investment sales market jumped 50% annually in the H1, which marked the strongest H1 since 2022, when interest rates were just starting to rise.

Speaker #6: But these are moments where New York City shines. You know, Marc always says New York City is the AAA investment of our sector. So despite not having the wind at our back, we continue to see what I would call unending domestic and international demand for quality Midtown Manhattan product.

Speaker #6: Just this morning, we saw a report that was issued and published in Crain’s about how Manhattan’s investment sales market jumped 50 percent annually in the first half of the year, which marked the strongest first half since 2022, when interest rates were just starting to rise.

Speaker #6: So, when we look at transactions over this past quarter, you know, the development sector, we completed our partnership with Mori Building at 346 Madison.

Harrison Sitomer: When we look at transactions over this past quarter, the development sector, we completed our partnership with Mori Building at 346 Madison. This is our third transaction with Mori Building. Mori is a remarkable partner. They are incredible developers and visionaries, and we are proud to be able to launch this project with them. We shook hands on our partnership within only a few months of us closing on our acquisition. I think that really speaks volumes to the quality of what we will be building and the trust between our two organizations. In the core office sector, we entered into contract to sell 10 East 53rd Street. That cap rate was approximately 5.7% for a side street building. That sale will complete a successful transaction for SL Green, and notably, it is about a 3.5x multiple on the acquisition of our partner's interest in 2024.

Speaker #6: This is our third transaction with Mori Building. Mori is a remarkable partner. They've been—incredible developers and visionaries. And we're proud to be able to launch this project with them.

Speaker #6: We shook hands on our partnership within only a few months of us closing one of our acquisitions. And I think that really speaks volumes to the quality of what we'll be building.

Speaker #6: And the trust between our two organizations. In the core office sector, we entered into a contract to sell 10 East 53rd Street. That cap rate was approximately 5.7 percent for a side street building.

Speaker #6: That sale will complete a successful transaction for SL Green. And notably, it's about a 3.5 times multiple on the acquisition of our partners' interest in 2024.

Speaker #6: And another example is our good friends' purchase of Park Avenue Plaza, which was a highly competitive process. And that's on the heels of their purchase of 623 Fifth.

Harrison Sitomer: Another example is our good friends' purchase of Park Avenue Plaza, which was a highly competitive process, and that is on the heels of their purchase of 623 Fifth. In portfolio deals, I assume everyone has seen the rumors in the press regarding a potential transaction for the Hudson Square portfolio. I would say most interestingly, much of this quarter's demand was driven by domestic and long-term investors in our sector. Most of those groups were on the sidelines for quite some time. Between availability of debt capital, the strong fundamental performance that you have been hearing on this call, and the diversity of investor base that we saw this past quarter, I would say this is one of the better investment sales backdrops we have seen in quite some time.

Speaker #6: And then in portfolio deals, I assume everyone’s seen the rumors in the press regarding a potential transaction for the Hudson Square portfolio. So I would say, most interestingly, much of this quarter’s demand was driven by domestic and long-term investors in our sector.

Speaker #6: Most of those groups were on the sidelines for quite some time. So, between the availability of debt capital, the strong fundamental performance that you've been hearing about on this call, and the diversity of investor base that we saw this past quarter, I would say this is one of the better investment sales backdrops we've seen in quite some time.

Speaker #6: With respect to our program more specifically, we've completed or are in contract on four of the 11 deals in the plan. I expect we will be announcing two additional deals soon.

Harrison Sitomer: With respect to our program, more specifically, we have completed or are in contract on four of the 11 deals in the plan. I expect we will be announcing two additional deals soon, and then we are going to get started on the remaining five deals that are in the plan. As most of you know, our disposition plan this year was weighted to H2 as we strategically launch sales throughout the year, and the team is gearing up to launch on those remaining transactions. We can talk more about the debt capital markets, but I would say specifically to our plan, the next one up in the queue is 245 Park. That one is in advanced stages right now, and I expect that we will have more to announce and discuss in the coming months.

Speaker #6: And then we're going to get started on the remaining five deals that are in the plan. As most of you know, our disposition plan this year was weighted to the second half.

Speaker #6: As we strategically launch sales throughout the year, and the team is gearing up to launch on those remaining transactions, we can talk more about the debt capital markets. But I would say, specifically to our plan, the next one up in the queue is 245 Park.

Speaker #6: That one is in advanced stages right now, and I expect that we'll have more to announce and discuss in the coming months.

Speaker #3: Great, thanks. Marc, I don't know if you could maybe just comment on 1515 Broadway. I know you were disappointed with the casino outcome.

Steve Sakwa: Great, thanks. Marc, I do not know if you could maybe just comment on 1515 Broadway. I know you were disappointed with the casino outcome, but have you guys kind of given more thought to sort of the long-term plans for that building? If so, when do you think that kind of takes more shape?

Speaker #3: But have you guys kind of given more thought to, sort of, the long-term, you know, plans for that building? And if so, you know, when do you think, you know, that kind of takes more shape?

Speaker #6: Yeah, you know, look, we shook off the disappointment back—I guess it was last September, I want to say. Amazing how, you know, time goes so quickly.

Marc Holliday: Yeah. Look, we shook off the disappointment back, I guess it was last September, I want to say. Amazing how time goes so quickly. It is a shame because I think we would have been close to open when we all would be walking into the casino. Since then, we have had the opportunity to assess a lot of plans, and what I have come to appreciate even more is that we are in a very good spot, I think, with 1515. One, Paramount, after being acquired by Skydance, and now having an agreement to merge in with or acquire Warner Bros. to create, I think, one of the most powerful and largest media companies in the world. Hold it. We good? Okay.

Speaker #6: It's a shame, because I think we would have been close to open when we were all going to be walking into the casino. But since then, we've had the opportunity to assess a lot of plans.

Speaker #6: And what I've come to appreciate even more is that we're in a very good spot, I think, with 1515. You know, one, Paramount, after being acquired by Skydance, and now, you know, having an agreement to merge with or acquire Warner Brothers.

Speaker #6: To create, I think, you know, one of the most powerful and largest media companies in the world.

Speaker #3: That.

Speaker #6: Hold it. We good? Okay. One of the most powerful media companies in the world, you know, puts 1515 kind of squarely back in the mix.

Marc Holliday: One of the most powerful media companies in the world, puts 1515 squarely back in the mix for longer term use by that combined entity, I will call it Skydance for the moment. I do not know that they have their plans all sorted out yet. My guess is not from the conversations we had, and also given that that merger is not yet closed. Certainly, the combined entity is going to employ, I think, more than 4,000 people. I think a lot of those jobs can and will stay, hopefully in New York City, and we would expect to be a net beneficiary of that. With all that said, you have to remember that the debt is on rapid amortization over there.

Speaker #6: For, you know, longer-term use by that combined entity—I’ll call it Skydance for the moment—I don’t know, you know, that they have their plans all sorted out yet.

Speaker #6: My guess is not from you know, from what from the conversations we had and also given that that merger is not yet closed. But, you know, certainly, the combined entity is going to employ, I think, more than 4,000 people.

Speaker #6: I think a lot of those jobs can and will stay, hopefully, in New York City, and we would expect to be a net beneficiary of that.

Speaker #6: Now, with all that said, you have to remember that the debt is on rapid amortization over there. So, at the expiration of the Paramount lease, we have very low debt outstanding on that particular mortgage, which again gives us flexibility to consider other types of conversion options to maximize entertainment uses.

Marc Holliday: At the expiration of the Paramount lease, we have very low debt outstanding on that particular mortgage, which again, gives us flexibility to consider other types of conversion options to maximize entertainment uses, which I think is really highest and best for Times Square and for that asset. Signage opportunities far and away above what currently exists. Really make it a mixed use destination, entertainment, theater, live theater, live music, media office capital of Times Square. I think there is going to be a lot more to say on that. Time-wise, Steve, I think is next year. I think, like I said, until things are clearer with our primary tenant over in that building or sole tenant in that building, there will not be a lot to do. I think as soon as that transaction is culminated, we could be very active over there.

Speaker #6: Which I think is really the highest and best use for Times Square and for that asset. Signage opportunities are far and away above what currently exists.

Speaker #6: And, you know, really make it kind of a mixed-use destination—entertainment, theater, live theater, live music, media, office capital—of Times Square. So I think there's going to be a lot more to say on that.

Speaker #6: Time-wise, Steve, I think, is next year. You know, because I think, like I said, until things are clearer with our, you know, primary tenant over in that building—or sole tenant in that building—you know, there won't be a lot to do.

Speaker #6: But I think as soon as that transaction's culminated, we could be very active over there. And I'm very positive on that particular property right now.

Marc Holliday: I am very positive on that particular property right now.

Speaker #3: Great, thank you.

Steve Sakwa: Great. Thank you.

Speaker #1: And our next question will be coming from the line of Tom Catherwood of BTIG. Your line is open, Tom.

Operator: Our next question will be coming from the line of Thomas Catherwood of BTIG. Your line is open, Tom.

Speaker #5: Thank you. Good afternoon, everybody. Marc, I want to go back to something you said in your prepared remarks, when you were talking about the step function and economic occupancy in Q2.

Thomas Catherwood: Thank you. Good afternoon, everybody. Marc, I want to go back to something you said in your prepared remarks when you were talking about the step function and economic occupancy in Q2. Maybe view it from a different angle. We think of vacancy leasing and how it eventually drives economic occupancy. There's a good portion of your portfolio that are leases that were signed 2020 to 2023, when tenants were focused on shorter term renewals. Do you have a sense of, for that portion of COVID vintage loans or leases, what's the embedded mark to market on that maybe it's not reflected in economic occupancy right now, but in the next year, two years, three years, really starts to roll into the numbers?

Tom Catherwood: Thank you. Good afternoon, everybody. Marc, I want to go back to something you said in your prepared remarks when you were talking about the step function and economic occupancy in Q2. Maybe view it from a different angle. We think of vacancy leasing and how it eventually drives economic occupancy. There's a good portion of your portfolio that are leases that were signed 2020 to 2023, when tenants were focused on shorter term renewals. Do you have a sense of, for that portion of COVID vintage loans or leases, what's the embedded mark to market on that maybe it's not reflected in economic occupancy right now, but in the next year, two years, three years, really starts to roll into the numbers?

Speaker #5: Maybe view it from a different angle. We think of vacancy leasing and how it eventually drives economic occupancy. But there's a good portion of your portfolio that are leases that were signed 2020 to 2023, when tenants were focused on shorter-term renewals.

Speaker #5: Do you have a sense of, kind of, you know, for that portion of COVID-vintage loans or leases, what's the embedded mark-to-market on that? Maybe it's not reflected in economic occupancy right now, but in the next year, two years, three years, it really starts to roll into the numbers?

Speaker #6: Yeah, I mean, look, I don't have that number. And I'm looking at Steve and Matt, and they're not—they're not giving me the high sign here that they have it.

Marc Holliday: Yeah. Look, I don't have that number, and I'm looking at Steve and Matt, and they're not giving me the high sign here that they have it. I'm going to give you a little bit more gut and instinct. I would say, I'm going to give you a broad range between 10% and 20%. I think just given based off of our increases in our asking and taking rents that Steve referred to earlier. I have a better sense building by building how we've moved rents up sort of incrementally over the past two and a half years. I think typically the range of increase is minimally 10%, probably as much as 15% or 20%. I don't know, a building like One Vanderbilt more than that, but we're fully leased here.

Speaker #6: So I'm going to give you a little bit more gut and instinct. I would say I'm going to give you a broad range between 10% and 20%.

Speaker #6: I think just given, based off of our increases in our asking and taking rents that Steve referred to earlier, I have a better sense, building by building, how we've moved rents up, you know, sort of incrementally over the past, you know, two, two and a half years.

Speaker #6: And I think, you know, typically the range of increase is minimally 10 percent, probably as much as 15 or 20 percent. I mean, I don't know, a building like One Vanderbilt, more than that.

Speaker #6: But that's, you know, that's— that's, you know, we're fully leased here. So, I would say a safe bet is 15%-ish, you know, on, you know, when those— what you called "COVID-er" leases come up for renewal.

Marc Holliday: I would say a safe bet is 15%-ish, when those, what you call COVID-era leases come up for renewal. I'm giving you that more touch and feel. I don't have the numbers in front of me, but I don't think it's less than that. Steve, do you have anything?

Speaker #6: But I'm giving you that more touch and feel than—like, I don't have the numbers in front of me. But I don't think it's less than that.

Speaker #6: Steve, do you have anything? Well, I think there’s a couple of thoughts with regards to it. You know, a lot of the deals that we did during COVID were even shorter-term.

Steven Durels: Well, I think there's a couple of thoughts with regards to it. A lot of the deals that we did during COVID were even shorter term. We're five, six years past COVID at this point. A lot of those deals we were doing at that point in time were three, four, five years, one. Secondly is, if you'll recall, the net effectives may have dropped more than the face rents. Face rents were probably down about 10% from where they were at the beginning of 2020. Since that time, face rents have dramatically increased throughout the portfolio, and certainly as our portfolio, the complexion of our portfolio has changed over the years. You're seeing much bigger rent appreciation on parts of the portfolio, particularly Park and sixth Avenue buildings.

Steve Durels: Well, I think there's a couple of thoughts with regards to it. A lot of the deals that we did during COVID were even shorter term. We're five, six years past COVID at this point. A lot of those deals we were doing at that point in time were three, four, five years, one. Secondly is, if you'll recall, the net effectives may have dropped more than the face rents. Face rents were probably down about 10% from where they were at the beginning of 2020. Since that time, face rents have dramatically increased throughout the portfolio, and certainly as our portfolio, the complexion of our portfolio has changed over the years. You're seeing much bigger rent appreciation on parts of the portfolio, particularly Park and sixth Avenue buildings.

Speaker #6: I mean, we're five, six years past COVID at this point. So a lot of those deals we were doing at that point in time were, you know, three, four, five years.

Speaker #6: One. Secondly is, if you'll recall, the net effectives may have dropped more than the face rents. Face rents were probably down about 10 percent from where they were at the end of the beginning of 2020.

Speaker #6: And since that time, face rents have dramatically increased throughout the portfolio. And certainly, as our portfolio—the complexion of our portfolio—has changed over the years.

Speaker #6: You're seeing much bigger rent appreciation on parts of the portfolio, particularly, you know, Park and 6th Avenue buildings. And with the stabilization of concessions over the past year and a half, you know, not only are the face rents going up, but the net effectives are going up as well.

Steven Durels: With the stabilization of concessions over the past year and a half, the net effectives, not only are the face rents going up, but the net effectives are going up as well. I think we're probably past the moment in time where those kick the can deals, those leases have probably already come back, and we've attended to them as part of our leasing over the last couple of years. Particularly if you look at our rollover schedule over the next couple of years, we don't have any big chunky expirations. Certainly nothing of consequence this year that's not already being attended to. Our largest lease next year is like 150,000 square feet, and that's one lease.

Steve Durels: With the stabilization of concessions over the past year and a half, the net effectives, not only are the face rents going up, but the net effectives are going up as well. I think we're probably past the moment in time where those kick the can deals, those leases have probably already come back, and we've attended to them as part of our leasing over the last couple of years. Particularly if you look at our rollover schedule over the next couple of years, we don't have any big chunky expirations. Certainly nothing of consequence this year that's not already being attended to. Our largest lease next year is like 150,000 square feet, and that's one lease.

Speaker #6: So, I think we're probably past the moment in time where those 'kick the can' deals—you know, those leases—have probably already come back.

Speaker #6: And we've attended to them as part of our leasing over the last couple of years. Particularly, if you look at our rollover schedule over the next couple of years, we don't have any big, you know, chunky expirations.

Speaker #6: Certainly, nothing of consequence this year that's not already being attended to. And our largest lease next year is, like, 150,000 square feet—and that's one lease.

Speaker #6: So, yeah. But with that said, we're going to be mining opportunities that are non-contractual. And that's really where I think you're going to see the growth come from—it's really three things, four things.

Marc Holliday: Yeah, with that said, we're going to be mining opportunities that are non-contractual.

Steven Durels: In a big way.

Steve Durels: In a big way.

Marc Holliday: Where I think you're going to see the growth come from is really four things. One, nominal face rent increases. Steven and I just spoke about that. Two, stabilized lease concessions for new deals, maybe even slightly contracting. Three, a much higher prevalence of renewal to new.

Speaker #6: One, nominal face rent increases—Steve and I just spoke about that. Two, stabilized lease concessions for new deals, maybe even slightly contracting. Three, a much higher prevalence of renewal to new.

Speaker #6: Early renewal. Early—well, renewal to new, I was going to bear forth. Which, you know, we're saving considerable. That's where your net effective rents are going to be far higher than 15% to 20%.

Steven Durels: Early renewal.

Steve Durels: Early renewal.

Marc Holliday: Well, renewal to new, I was going to go fourth. Which we're saving considerable. That's where your net effective rents are going to be far higher than 15% to 20%, because you're getting that kick on face rent, and then you're getting a compounded effect on reduced TI and free rent. Lastly, we're mining the portfolio for every expiration between now and 2032. We are out there like five, six years forward, hitting every tenant right now trying to do blend and extend deals, early renewals, trying to get blend in rental uptick and defer out some capital costs. I think you're going to see in H2, we're going to get some good traction there. All of that is what we are busy at work on. You got to hit the market when the market's there, and we recognize that.

Speaker #6: Because you're getting that kick on face rent, and then you're, you know, getting a compounded effect on reduced TI and free rent. And then lastly, we're mining the portfolio for every expiration between now and 2032.

Speaker #6: I mean, we are out there like five, six years forward, hitting every tenant right now, trying to do blend-and-extend deals, early renewals, trying to get, you know, blend in rental uptick and defer out, you know, some capital costs.

Speaker #6: And I think you're going to see, in the second half of the year, we're going to get some good traction there. And so all of that is what we are busy at work on.

Speaker #6: I mean, you know, when you—you know, you got to hit the market when the market's there. And we recognize that.

Speaker #6: And we're not just focused on the next year or two. We're focused on the next five or six, with an intense eye on saving capital dollars and trying to max out face rents.

Matt DiLiberto: We're not just focused on the next year or two. We're focused on the next five or six, with an intense eye on saving capital dollars and trying to max out face rents.

Speaker #5: Got it. Got to appreciate that color. And then, last one for me—maybe Harry—just want to touch on the debt fund. You've had success deploying capital there.

Thomas Catherwood: Got it. Got to appreciate that color. Last one from me, maybe Harry, just want to touch on the debt fund. You've had success deploying capital there. How do you see that opportunity set potentially evolving as the New York market continues to improve and traditional lenders start to get more comfortable with office? Do you have to focus on a different part of the cap stack or kind of shift strategy in any way?

Tom Catherwood: Got it. Got to appreciate that color. Last one from me, maybe Harry, just want to touch on the debt fund. You've had success deploying capital there. How do you see that opportunity set potentially evolving as the New York market continues to improve and traditional lenders start to get more comfortable with office? Do you have to focus on a different part of the cap stack or kind of shift strategy in any way?

Speaker #5: How do you see that opportunity set potentially evolving as the New York market continues to improve and traditional lenders start to get more comfortable with office?

Speaker #5: Do you have to focus on a different part of the cap stack or kind of shift strategy in any way?

Speaker #6: Yeah, look, so we've done approximately $600 million of deployment through close of yesterday. We have a handful of opportunities in the pipeline today that, you know, we're working through.

Harrison Sitomer: Yeah, look, we've done approximately $600 million of deployment through call yesterday. We have a handful of opportunities in the pipeline today that we're working through. I think these are moments where our team shines. We had obviously a lot of opportunity in front of us last year into the beginning of this year as the capital stacks start to tighten. For us, this is now about financial engineering and working with senior lenders, trying to get the tightest senior financing, much like the execution you saw us do on our balance sheet years ago at 550 Madison. This is where we go out, work with our relationships. There's a deal we just closed in the debt fund.

Speaker #6: And I think, you know, these are moments where our team shines. I mean, we had, obviously, a lot of opportunity in front of us last year into the beginning of this year as the capital stack started to tighten.

Speaker #6: For us, this is now about financial engineering and working with senior lenders, trying to get the tightest senior financing—much like the execution you saw us do on our balance sheet years ago at 550 Madison.

Speaker #6: And this is where we go out and work with our relationships. There's a deal we just closed in the debt fund. We're not disclosing transactions in the debt fund, but there's a deal we just did where we went out, originated the entire stack, syndicated out the senior, and syndicated out the subordinate mezz.

Harrison Sitomer: We're not disclosing transactions in the debt fund, there's a deal we just did, where we went out, originated the entire stack, syndicated out a senior, syndicated out a subordinate mezz, and were able to get to our yield requirements. For us, this is where our team focuses on our relationships and builds capital stacks to get to our yields.

Speaker #6: And we're able to get to our yield requirements. So, for us, this is where our team focuses on our relationships and builds capital stacks to get to our yields.

Speaker #5: Got it. Appreciate the thoughts. Thanks, everyone.

Thomas Catherwood: Got it. Appreciate the thoughts. Thanks, everyone.

Tom Catherwood: Got it. Appreciate the thoughts. Thanks, everyone.

Speaker #1: And our next question will be coming from the line of John Kim of BMO Capital Markets. Your line is open.

Operator: Our next question will be coming from the line of John Kim of BMO Capital Markets. Your line is open.

Speaker #2: Thank you. I wanted to follow up on what drove the $0.20 of operational uplift this year, and what surprised you. You didn't raise same-store occupancy guidance.

John Kim: Thank you. I wanted to follow up on what drove the $0.20 of operational uplift this year and what surprised you. You didn't raise same-store occupancy guidance. I'm assuming a lot of this is timing and the economic occupancy is moving up, but is it purely just a better renewal rate in terms of retention of your tenants and more leasing of pre-built space? I'm just trying to understand why such a big uplift relative to expectations.

Speaker #2: I'm assuming a lot of this is timing, and the economic occupancy is moving up. But is it purely just a better renewal rate in terms of retention of your tenants, and more leasing of pre-built space?

Speaker #2: I'm just trying to understand why there's such a big uplift relative to expectations.

Speaker #6: Sure. Yeah, I I thought I'd hit that in the in the opening comments. But it's you you reiterated the biggest ones. And Stephen Mark highlighted that as, you know, a catalyst to what we're seeing.

Matt DiLiberto: Sure. Yeah, I thought I hit that in the opening comments, but you read the biggest ones. Steve and Marc highlighted that as a catalyst to what we're seeing. Renewals and early renewals. If you're looking at NOI, everybody's very focused on GAAP revenue recognition and economic occupancy. Renewals and early renewals are instant gratification when it comes to GAAP revenue recognition. We're doing more of those. We've also made a conscious effort, because we talk about turning on GAAP revenue recognition is triggered by the turnover of space to tenants. We are working with our tenants, and our own team is hustling to try and turn over space even faster so we can turn that earnings spigot on. Just from an expense perspective, we budget very conservatively. We're ahead on expenses.

Speaker #6: Renewals and early renewals—if you're looking at NOI, right—I was very focused on GAAP revenue recognition and economic occupancy. Renewals and early renewals are instant gratification when it comes to GAAP revenue recognition.

Speaker #6: And we're doing more of those. We've also made a conscious effort because we talk about, you know, turning on GAAP revenue recognition is triggered by the turnover of space to tenants.

Speaker #6: We are working with our tenants, and our own team is hustling to try and turn over space even faster so we can turn that earnings spigot on.

Speaker #6: And then, just from an expense perspective, you know, we budget very conservatively. We're ahead on expenses, and the combination of those things—the $0.10 of the $0.20—we already recognized in the second quarter.

Matt DiLiberto: The combination of those things, that $0.10 of the $0.20 we already recognized in Q2. That was $0.10 ahead of our expectations just in Q2. You have $0.10 left for the balance of the year, which is a combination of those handful of items.

Speaker #6: That was $0.10 ahead of our expectations just in Q2. So we have $0.10 left for the balance of the year, which is a combination of those handful of items.

Speaker #2: Okay. And then I also want to follow up on the refinancing plan for the year. And in particular, 245 Park—the leasing has been very strong.

John Kim: Okay. I also wanted to follow up on the refinancing plan for the year, and in particular, 245 Park. The leasing has been very strong. The redevelopment is underway. Now with the tenure moving up above the asset's mortgage rate, how does that impact either the timing of some of the refinancing or sales, and the valuation of the asset?

Speaker #2: The redevelopment is underway. But now, with the 10-year moving up above the asset's mortgage rate, how does that impact either the timing of some of the refinancing or sales, and the valuation of the asset?

Speaker #6: Sure. So, as I just spoke earlier about equity capital markets and a bit on 245, let me now talk about the credit markets more generally.

Harrison Sitomer: Sure. I spoke earlier about equity capital markets and a bit on 245, but let me just talk about the credit markets more generally. We continue to be encouraged by the strength of what we're seeing in the credit markets. We've seen approximately $11 billion of CMBS originations year to date. That figure, same period last year, was about $8.5 billion. The two biggest deals that got done this past quarter was the $1.9 billion financing of 2 Manhattan West. I see here the $1.8 billion financing of 9 West 57th Street. I think one of the best data points that we've seen out there is really this tightening of the AAA spreads. We're now seeing AAAs tight in sub 100. Overall spreads on the deals that are getting done are in the mid to high 100s, depending on last dollar LTV.

Speaker #6: You know, we continue to be encouraged by the strength of what we're seeing in the credit markets. We've seen approximately $11 billion of CMBS originations year to date.

Speaker #6: That figure, for the same period last year, was about $8.5 billion. The two biggest deals that got done this past quarter were the $1.9 billion financing of Two Manhattan West.

Speaker #6: I see here the $1.8 billion financing of Nine West 57th Street. And I think what's one of the best data points that we've seen out there is really this tightening of the AAA spreads.

Speaker #6: We're now seeing AAAs tighten to sub-100, and overall spreads on the deals that are getting done are in the mid- to high-100s, depending on last dollar LTV.

Speaker #6: And I would say, interestingly, when you compare it across all asset classes, spreads on single-borrower CMBS AAAs for trophy office are now trading in line and, in some cases, inside of what we're seeing for spreads on industrial, multifamily, and self-storage.

Harrison Sitomer: I would say, interestingly, when you compare it across all asset classes, spreads on single borrower CMBS AAAs for trophy office are now trading in line, and in some cases inside of what we're seeing for spreads on industrial, multifamily, and self-storage. I think the bond market is starting to appreciate what we're seeing in the trophy office asset class. We're going to be big beneficiaries of that on 245 Park financing. That's in process now, and I think you'll see a lot more illumination on that as we launch to the rating agencies and data becomes public. I would say from a spread perspective, we're very confident in the execution that we're seeing. Of course, the benchmark, as you noted, is not cooperating with us. That's obviously outside of our control.

Speaker #6: So, I think the bond market is starting to appreciate what we're seeing in the trophy office asset class. We're going to be big beneficiaries of that on the 245 Park financing.

Speaker #6: That's in process now, and I think you'll see a lot more illumination on that as we launch the rating agencies and data becomes public.

Speaker #6: But I would say, from a spread perspective, we're very confident in the execution that we're seeing. Of course, the benchmark, as you noted, is not cooperating with us.

Speaker #6: That's obviously outside of our control. But, you know, Matt can speak to some of the hedging that we're putting in place to ensure that we have the proper protections at the right times in the market.

Harrison Sitomer: Matt can speak to some of the hedging that we are putting in place, to ensure that we have the proper protections at the right times in the market.

Speaker #6: Yeah. You know, as has been customary for the last few years in this rate environment, we are maintaining a very cautious stance when it comes to rates.

Matt DiLiberto: Yeah. As has been customary for the last few years in this rate environment, we are maintaining a very cautious stance when it comes to rates. We are hedging out well ahead of time financings like 245 to protect against rising rates. The bulk of our debt remains hedged as well. We were at one point 70/30 fixed to float. We remain more like 90/10. Hedging existing and hedging forward for the foreseeable future.

Speaker #6: We're hedging out, well ahead of time, financings like 245 to protect against rising rates. The bulk of our debt remains hedged as well. We were at one point 70/30 fixed to float.

Speaker #6: We remain more like 90/10, so hedging existing and hedging forward for the foreseeable future.

Speaker #2: Great. Thank you.

John Kim: Great. Thank you.

Speaker #1: And our next question will be coming from the line of Blaine Heck of Wells Fargo. Your line is open.

Operator: Our next question will be coming from the line of Blayne Heck of Wells Fargo. Your line is open.

Speaker #5: Great, thanks. Sorry if I missed this, but just on the leasing pipeline—I think it stood at 900,000 square feet last quarter. Can you give us an update there?

Blayne Heckel: Great. Thanks. Sorry if I missed this, just on the leasing pipeline, I think it stood at 900,000 square feet last quarter. Can you give us an update there, the mix between new and renewal, and how much of the renewal activity is pull forward renewals?

Blaine Heck: Great. Thanks. Sorry if I missed this, just on the leasing pipeline, I think it stood at 900,000 square feet last quarter. Can you give us an update there, the mix between new and renewal, and how much of the renewal activity is pull forward renewals?

Speaker #5: The mix between new and renewal and how much of the renewal activity is pulled forward, renewals?

Steven Durels: Well, there's a 900,000 square foot pipeline. It's roughly 50% new, 50% renewal. Of that 900,000 square feet, 400,000 square feet of it are leases that are in active negotiation and essentially very far advanced negotiation, I'll say. The balance are term sheets, which we expect to convert over to leases. As far as the renewals, most of the renewals are I don't have a perfect answer to it, they're near term renewals. They're not early renewals for the majority of that square footage.

Steve Durels: Well, there's a 900,000 square foot pipeline. It's roughly 50% new, 50% renewal. Of that 900,000 square feet, 400,000 square feet of it are leases that are in active negotiation and essentially very far advanced negotiation, I'll say. The balance are term sheets, which we expect to convert over to leases. As far as the renewals, most of the renewals are I don't have a perfect answer to it, they're near term renewals. They're not early renewals for the majority of that square footage.

Speaker #7: Well, there's a 900,000-square-foot pipeline. It's roughly 50% new and 50% renewal. And of that 900,000 square feet, 400,000 square feet of it are leases that are in active negotiation and, essentially, you know, very far advanced negotiation, I'll say.

Speaker #7: And the balance are term sheets, which we expect to convert over to leases. As far as the renewals, most of the renewals are, you know, I would— I don't have a perfect answer to it.

Speaker #7: But they're near-term renewals; they're not early renewals. For the majority, that's square footage.

Speaker #5: Great, thanks, Steve. And then, second question, just a follow-up for Harrison or Mark. Can you just walk us through the thought process you all went through, kind of, on 346 Madison?

Blayne Heckel: Great. Thanks, Steve. Second question, just a follow-up for Harrison or Marc. Can you just walk us through the thought process you all went through kind of on 346 Madison? Was there any consideration of either selling a smaller stake or waiting for some leasing activity to potentially push the valuation a little higher? Did you just see this as something you wanted to do for timing or relationship reasons?

Blaine Heck: Great. Thanks, Steve. Second question, just a follow-up for Harrison or Marc. Can you just walk us through the thought process you all went through kind of on 346 Madison? Was there any consideration of either selling a smaller stake or waiting for some leasing activity to potentially push the valuation a little higher? Did you just see this as something you wanted to do for timing or relationship reasons?

Speaker #5: Was there any consideration of either selling a smaller stake, or waiting for some leasing activity to potentially push the valuation a little higher? Did you just see this as, you know, something you wanted to do for timing or relationship reasons?

Speaker #6: Well, I mean, we did it first and foremost for business reasons. You know, I love fully capitalized deals—development deals, you know. You never want to take for granted, you know, a moment in the market, and, you know, we do have very special relationships with many of our JV partners.

Harrison Sitomer: Well, we did it first and foremost for business reasons. I love fully capitalized deals, development deals. You never want to take for granted a moment in the market. We do have very special relationships with many of our JV partners, Mori Building on 346 Madison, certainly among them. We've gotten to a point with many of our co-investors where it's a symbiotic relationship where we count on their partnership and they count on our delivery of opportunities in this city, which the good ones are few and far between. We were able to get our standard package, if you will, of JV enhancements, for being the ones to source and execute the deal. In the case of Mori Building, they're also a really good co-developer. These are folks that have built as much as anybody in Tokyo, Azabudai Hills, Toranomon Hills, Roppongi Hills.

Speaker #6: Mori Building on 346 Madison is certainly among them. And, you know, we've gotten to a point with many of our co-investors where it's a symbiotic relationship—where we count on their partnership, and they count on our delivery of opportunities in this city, which, the good ones, are few and far between.

Speaker #6: We were able to get our standard package, if you will, of JV enhancements for being the ones to source and execute the deal.

Speaker #6: But, you know, in the case of Mori Building, they're also a really good co-developer. I mean, these are folks that have built as much as anybody in Tokyo—Azabudai Hills, Toranomon Hills, Roppongi Hills.

Speaker #6: These are fabulous investments. I think there'll be opportunities for us, you know, either way—you know, both opportunities for us and for them.

Harrison Sitomer: These are fabulous investments. I think there'll be opportunities for us each ways, both opportunities for us and for them. We had their commitment early on. There's a lot of planning that needs to happen and happen early, and having a good partner like Mori together with us at the early stage makes the entire development go much easier. We reserved enough that we plan in the future to probably syndicate equity further down the line. Maybe when we sign our first leases or maybe when the project's completed or maybe when it's recapitalized. That'll be for a later date. The combination of de-risking through capitalization day one, getting the kind of economic deal we set out for, and then some, point two, and the solidification of relationship, point three. On we go to the next one.

Speaker #6: We had their commitment early on. There's a lot of planning that needs to happen, and happen early, and having a good partner like Mori together with us at the early stage makes the entire development go much easier.

Speaker #6: We reserved enough that we plan in the future to probably syndicate equity further down the line, maybe when we sign our first leases, or maybe when the project is completed, or maybe when it's recapitalized.

Speaker #6: That'll be for a later date. But, you know, the combination of de-risking through capitalization day one getting the kind of economic deal we set out for, you know, and then some, you know, point two, and the solidification of relationship point three.

Speaker #6: And on we go to the, you know, the next one. I mean, we are a volume shop. And while developments are bespoke and long-term, and they get a lot of our senior-level attention, there are lots more deals for this company to do in this market.

Harrison Sitomer: We are a volume shop, and while developments are bespoke and long-term and they get a lot of our senior level attention, there's lots more deals for this company to do in this market, both long-term and opportunistic.

Speaker #6: Both long-term and opportunistic. And we want to be flush with capital to take advantage of this market. And, you know, I think we've proven our ability to do so.

Marc Holliday: We want to be flush with capital to take advantage of this market. I think we've proven our ability to do so over our decades in the business, but certainly over, I would say, the past three to five years. We're happy with how it turned out.

Speaker #6: And, you know, over our decades in the business—but certainly over, I would say, the past three to five years—we're happy with how it turned out.

Speaker #5: Yeah, that all makes sense. Thanks, Marc.

Blayne Heckel: Yep. That all makes sense. Thanks, Marc.

Blaine Heck: Yep. That all makes sense. Thanks, Marc.

Speaker #1: And our next question will come from the line of Peter Abramowitz of Deutsche Bank. Your line is open, Peter.

Operator: Our next question will be coming from the line of Peter Abramowitz of Deutsche Bank. Your line is open, Peter.

Speaker #5: Hi, thank you for taking the questions. The first one is just in relation to the guidance raise and this kind of expected ramp in NOI and fee income, maybe faster than you were expecting.

Peter Abramowitz: Hi, thank you for taking the questions. First one is just in relation to the guidance raise and this kind of expected ramp in NOI and fee income may be faster than you were expecting at the beginning of the year. Just wanted to ask, how does that sort of impact when you think you will start to see an inflection in FAD? I think previously you have kind of messaged that the expectation would be end of 2027 or early 2028. Just curious for any updated thoughts on that in relation to the guidance raise.

Speaker #5: At the beginning of the year, I just wanted to ask: how does that sort of impact when you think you'll start to see an inflection in FAD?

Speaker #5: I think previously you've kind of messaged that the expectation would be end of '27 or early 2028. But just curious for any updated thoughts on that in relation to the guidance raise.

Speaker #6: Yeah, I would say where the trajectory that we're on is slightly ahead. But, you know, '27 into '28, you know, with the break-even point in '28, is still the path that we are on at this point.

Matt DiLiberto: Yeah, I would say the trajectory that we are on is slightly ahead. 2027 into 2028, with the breakeven point in 2028 is still the path that we are on at this point.

Speaker #5: Okay, thanks, Matt. And then a second one, just on Summit. I think, Marc, you had some commentary around tourism maybe being a little bit weaker in the city this year.

Peter Abramowitz: Okay. Thanks, Matt. A second one just on SUMMIT. I think, Marc, you had some commentary around tourism maybe being a little bit weaker in the city this year. Just on SUMMIT, I am kind of curious, was there any noticeable impact from World Cup travelers in Q2 and into Q3? Sort of how are you thinking about that impact as it relates to the full-year results?

Speaker #5: Just on Summit, I'm kind of curious. Was there any noticeable impact from World Cup travelers in the second quarter and into the third? Sort of, how are you thinking about that impact as it relates to the full-year results?

Speaker #6: Yeah. Well, look, I, you know, I mean, the FIFA games—there were eight of them, including, you know, the much-watched finals. And there was definitely a bump that I think all hospitality got from those events.

Marc Holliday: Well, look, the FIFA games, there were eight of them, including the much-watched finals. There was definitely a bump that I think all hospitality got from those events. It's hard for me to parse how much of that was FIFA driven versus we're in the heat of the summer right now, and Summit typically does very well June, July, August. Certainly, I look at the numbers daily, and the past, I would say, four weeks in particular have been very strong. Daily ticket sales exceeding 400,000 a day is fairly typical. Those are end-of-year holiday numbers, so I'm happy with that. People love Summit. It's all ages, all walks of life, domestic tourism, tri-state residents, foreign tourism. People love going. They repeat, they go back.

Speaker #6: It's hard for me to parse how much of that was FIFA-driven versus, you know, we're in the heat of the summer right now. And, you know, Summit typically does very well June, July, August.

Speaker #6: And certainly, you know, I look at the numbers daily. And the past, I would say, four weeks in particular have been, you know, very strong.

Speaker #6: You know, ticket sales—daily ticket sales exceeding 400,000 and some odd a day—is fairly typical. So those are like end-of-year holiday numbers.

Speaker #6: So I'm happy with that. People love Summit—you know, it's all ages, all walks of life: domestic tourism, tri-state residents, foreign tourism.

Speaker #6: People love going. They repeat, they go back. You know, I think our year-over-year attendance numbers are down a few points, but really modest, because most of that was in the more challenging beginning of this year when we were up against weather and other issues.

Marc Holliday: I think our year-over-year attendance numbers are down a few points, really modest because most of that was in the more challenging beginning of this year when we were up against weather and other issues. I would say since May, numbers have been sort of right back to where we had them. I'm hoping and expecting that through the ability to manage variable operating expense and also have a big H2, that we'll finish up right on our numbers, which are market leading. They're well ahead of the other observatory attractions, both in terms of average ticket price and attendance because it is a very special experience that I'm now excited to be bringing to major cities like Paris and Tokyo, and more to come.

Speaker #6: But I would say, since May, numbers have been sort of right back to where we had them. And I'm hoping and expecting that through the ability to manage variable operating expense and also have a big second half of the year, that we'll finish up right on our numbers, which are market-leading. You know, they're well ahead of the other observatory attractions, both in terms of average ticket price and attendance.

Speaker #6: Because it is a very special experience that I'm now excited to be bringing to major cities like Paris and Tokyo, with more to come.

Speaker #6: You know, we've got a lot in the queue. And maybe, you know, more on that in December, because I always like to hold something back for December.

Marc Holliday: We've got a lot in the queue, maybe more on that in December because I always like to hold something back for December. We're hard at work trying to bring Summit to everyone around the world for people who can't get here. I think the momentum will build, the experience will get even better, the team is very excited about the future.

Speaker #6: But we, you know, we're hard at work, you know, trying to bring Summit to everyone around the world, for people who can't get here.

Speaker #6: And I think it's going to be—it'll just, the momentum will build, and the experience will get even better. And, you know, the team is very excited about the future.

Speaker #5: All right. Appreciate the color. Thank you for your time.

Peter Abramowitz: All right. Appreciate the color. Thank you for the time.

Speaker #1: And our next question will come from the line of Anthony Pallone of JPMorgan. Your line is open, Anthony.

Operator: Our next question will come from the line of Anthony Paolone of JPMorgan Chase. Your line is open, Anthony.

Speaker #5: Thanks. Good afternoon. Can you maybe give us a sense of cap rates and what to expect on your dispositions over the balance of the year, maybe even bucket them depending on whether it's things like, maybe, a 245 Park stake or resi or something like that?

Anthony Paolone: Thanks. Good afternoon. Can you maybe give us a sense of cap rates and what to expect on your dispositions over the balance of the year? Maybe even bucket them, depending on whether it's things like maybe a 245 Park stake or resi or something like that?

Matt DiLiberto: Look, for competitive purposes, obviously, we wouldn't want cap rates on any specific transactions out there. I think the best data points to look at right now are what we completed. We just announced 10 East 53rd Street. That's a core office building on a side street. That got done at a 5.7% cap rate. We announced 7 Dey. That's a core residential asset. Residential and retail, forgive me. That got done at a 5.0%. I think you'll continue to see assets trade in those types of ranges, but I don't think we'll go along any specific number or tied to any specific asset at this point.

Speaker #6: You know, look, for competitive purposes, obviously, we wouldn't want cap rates on any specific transactions out there. I think the best data points to look at right now are what we completed.

Speaker #6: We just announced 10 East 53rd Street. That's a core office building on a side street, and that got done at a 5.7% cap rate.

Speaker #6: We announced 7 Day. That's a core residential asset. That got done at a residential and retail—forgive me. That got done at a 5.0.

Speaker #6: And I think you'll continue to see, you know, assets trade in those types of ranges. But I don't think we'll go long any specific number or tie to any specific asset at this point.

Speaker #5: Okay, and then just my other question. On 750 Third and 346 Madison—you obviously had the incident with the other conversion close by, on 750 Third.

Anthony Paolone: Okay. Then just my other question, on 753rd and 346 Madison, you obviously had the incident with the other conversion close by on 753rd, and then there's some press on 346 Madison that maybe a neighboring property's delaying you or something. Can you comment on just the progress on those two deals and whether anything gets interrupted on either of those in terms of timeline or plans?

Speaker #5: And then there’s some press on 346 Madison that maybe a neighboring property is delaying you or something. Can you comment on the progress on those two deals and whether anything gets interrupted on either of those in terms of timeline or plans?

Speaker #6: Okay, let me just make sure. The question is 750 and 346 litigation. That's two questions. Okay, 346—what litigation? Oh, oh, oh. Okay, so 750.

Marc Holliday: Okay. Let me just make sure. The question is 750.

Robert DeWitt: 346 litigation that's been.

Marc Holliday: That's two questions. Okay. 346 what?

Robert DeWitt: The litigation.

Marc Holliday: Okay. 750. I've got with me Bob, there was a question about what are we doing over at our building to ensure integrity of the execution or what happened over at 52.

Speaker #6: I want to make sure I got the question. We are, you know—I've got with me Bob, who has a question about what we are doing over at our building to ensure integrity of the execution, or what happened over at Fuzzy?

Robert DeWitt: It was, do we see any interruption on our project at 750?

Speaker #3: Was there any interruption on our project at 750?

Marc Holliday: Okay. No. There's no interruption on the project, debt or equity capital, from what took place at a property on 42nd Street, which I assume many of you are aware of what happened there was, basically, as far as we know, and it's not yet official, human error. Something that has zero extrapolation to our project and therefore, our debt and equity is not impacted by that in any way. We expect to have that transaction closed in Q3, both debt and equity. We're on a path. I feel great about the project. I think it will be the top rental project in that, let's call it, Midtown. I don't know which one you know.

Speaker #6: Okay. No, no. You know, there's interruption on the project—debt or equity capital—from, you know, what took place at a property on 42nd Street, which I assume many of you are aware of what happened there.

Speaker #6: It was, you know, basically as far as we know—and it's not yet official—human error. And, you know, it's something that has zero extrapolation to our project and therefore, you know, our debt and equity are not impacted by that in any way.

Speaker #6: We expect to have that transaction closed in the third quarter—both debt and equity. We're on a path; I feel great about the project.

Speaker #6: I think it will be the top rental project in, you know, that—let's call it, you know, Midtown. I don't know what you call it.

Speaker #6: You know, in that particular Third Avenue, Midtown submarket, as it expanded all the way over, you know, to Second and to First.

Robert DeWitt: Submarket.

Marc Holliday: In that particular Third Avenue Midtown submarket, as expanded all the way over to Second and First. The design is extraordinary. The amenity package we have for that building is like none other. We're having a lot of fun with it, and we're able to do it in a way with domestically sourced products to keep it within our original budget, which I think was around total cost $800 million, plus or minus. I've got my head of construction here making his debut after 122 conference calls that we've done since 1997. Robert DeWitt, the man behind the curtain who shepherds under Edward Piccinich's watchful eyes, our developments at One Vanderbilt, One Madison, now 346, certainly the conversion on 750.

Speaker #6: The design is extraordinary. The amenity package we have for that building is like none other. We're having a lot of fun with it.

Speaker #6: And we're able to do it in a way with domestically sourced products to keep it, you know, within our original budget, which I think was around total cost—$800 million, plus or minus.

Speaker #6: I've got my Head of Construction here making his debut after 122 conference calls that we've done since 1997. Robert DeWitt, the man behind the curtain, who shepherds—under Ed Piknich's watchful eyes—our developments at One Vanderbilt, One Madison, now 346, and certainly the conversion on 750.

Speaker #6: Bob, a little bit, you know, just a minute on what controls we have in place at 750 to ensure structural integrity, you know, which on a project like 750 is actually I'm going to say a fairly easy lift for us relative to the kinds of things we've done at 1 Madison and elsewhere.

Marc Holliday: Bob, a little bit, just a minute on what controls we have in place at 750 to ensure structural integrity, which on a project like 750 is actually, I'm going to say, a fairly easy lift for us relative to the kinds of things we've done at One Madison and elsewhere. I think it could be illuminating if you would share that.

Speaker #6: But I think it could be illuminating if you would share that.

Speaker #3: Sure. Thanks, Mark. Thanks for the intro. We have numerous layers of oversight, review, inspection, and approvals before any structural demolition or overbuild is authorized to proceed.

Robert DeWitt: Sure. Thanks, Marc. Thanks for the intro. We have numerous layers of oversight, review, inspection, and approvals before any structural demolition or overbuild is authorized to proceed. We've got a world-class design team, independent and major New York City construction manager, third-party special inspectors, as well as our own dedicated staff overseeing the day-to-day execution of the project. We have extensive procedures in place to track the execution of the structural reinforcement of columns and beams at all levels of the project. Ultimately, each location is tracked with detailed photographs and logged electronically in our online tracking software by our construction manager and design team. Once reinforcement is confirmed complete by the subcontractor and the construction managers, an independent third-party special inspector performs their inspection and confirms the work is complete per the plans and specifications before any further work can continue.

Speaker #3: We've got a world-class design team, an independent and major New York City construction manager, third-party special inspectors, as well as our own dedicated staff overseeing the day-to-day execution of the project.

Speaker #3: We have extensive procedures in place to track the execution of the structural reinforcement of columns and beams at all levels of the project. Ultimately, each location is tracked with detailed photographs and logged electronically in our online tracking software by our construction manager and design team.

Speaker #3: Once reinforcement is confirmed, completed by the subcontractor and the construction managers, an independent third-party special inspector performs their inspection and confirms the work is complete.

Speaker #3: Per the plans and specifications, before any further work can continue. And finally, no structural additions, demolition, or overbuild activities are permitted to commence until all required structural reinforcement has been completed.

Robert DeWitt: Finally, no structural additions, demolition, or overbuild activities are permitted to commence until all required structural reinforcement has been completed, all inspections have been approved, all tracking documentation is in place and verified, and all structural stability requirements have been satisfied and confirmed in a pre-transfer and pre-overbuild conference that includes all members of the design team and development team. This process is not only standard for our 750 project, but any project we complete across the portfolio that involves structural overbuild or structural work.

Speaker #3: All inspections have been approved. All tracking documentation is in place and verified. All structural stability requirements have been satisfied and confirmed in a pre-transfer and pre-overbuild conference that includes all members of the design team and development team.

Speaker #3: This process is not only standard for our 750 project, but for any project we complete across the portfolio that involves structural overbuild or structural work.

Speaker #6: Thank you, sir. So that is where we stand on 750. As to—I think the question was on 346. The litigation you're referring to is for some access across to the adjoining building.

Marc Holliday: Thank you, sir. That's a rock star. That is where we stand on 750. As to, I think the question was on 346, the litigation you're referring to is for some access across the adjoining building. That's fairly, I hate to say routine in New York City development. There should be a lot of neighborly love and access, but you often have to make a visit downtown to lay out the parameters of exactly what level of access, monitoring, building protection, et cetera. We did it on OVA, we've done it on other buildings, we did it here. When people build next to us, we're on the other side of that, and I think that'll all be sorted out next month in August. Ahead of our demolition, we anticipate no adverse outcome and no adverse impact on timeline.

Speaker #6: That's fairly—I hate to say—routine in New York City development. You know, there should be a lot of neighborly love and access, but you often have to, you know, make a visit downtown to lay out the parameters of exactly what level of access, monitoring, building protection, et cetera.

Speaker #6: You know, we did it on OVA. We've done it on other buildings. We did it here. When people build next to us, we're on the other side of that.

Speaker #6: And I think that'll all be sorted out next month, in August. Ahead of our demolition, we anticipate no adverse outcome and no adverse impact on timeline.

Speaker #5: Okay, great. Thanks for all the callers.

Anthony Paolone: Okay, great. Thanks a lot, Carla.

Speaker #1: And our next question will come from the line of Seth Bergy at Citi. Your line is open, Seth.

Operator: Our next question will come from the line of Seth Bergey at Citigroup. Your line is open, Seth.

Speaker #7: Hi. Thanks for taking my question. I guess just a first one. You did $14 million of buyback activity in the quarter.

Seth Bergey: Hi, thanks. To take my question. I guess just the first one, you kind of deeded $14 million of buyback activity in the quarter, and I know the dispositions are kind of back half weighted. I guess just thinking about the use of those proceeds, how do additional buybacks compare to your goals of debt paydown on a relative basis?

Speaker #7: And I know the dispositions are kind of back halfway too. I guess, just thinking about the use of those proceeds, how do additional buybacks compare to your goals of debt paydown on a relative basis?

Speaker #6: Yeah. Our goal is to make the most with what we have, and that takes different forms at different times—development, opportunistic investment, buybacks, debt paydown.

Marc Holliday: Yeah. Our goal is to make the most with what we have. That takes different forms at different times, development, opportunistic investment, buybacks, debt paydown. We had said, I think for a while now, when we felt we were in a position either with deals done, deals in contract, or deals within our sites, that we have incremental liquidity, that we would use that incremental liquidity for buybacks. We were in that position towards the end of Q2. We did dip into the market at a point in time that we felt the price was not nearly reflective of the underlying value of this platform. I think with the intense focus of the analysts and shareholder community on earnings, and I understand that because we focus on that too, there's also an intense lift on valuation.

Speaker #6: We had said I think, you know, for a while now with when we felt we were in a position either with deals done, deals pending, you know, deals in contract, or deals within you know, within our sites.

Speaker #6: We have incremental liquidity, and we would use that incremental liquidity for buybacks. We were in that position towards the end of the second quarter.

Speaker #6: We did dip into the market at a point in time when we felt the price was not nearly reflective of the underlying value of this platform.

Speaker #6: I think with, you know, the intense focus of the analysts and shareholder community on earnings—and I understand that, because we focus on that too.

Speaker #6: There's also, you know, an intense lift on valuation. I mean, these, you know, our assets, which are already premier assets, are becoming more valuable with each passing day, with every bit we lease up.

Marc Holliday: Our assets, which are already premier assets, are becoming more valuable with each passing day, with every bit we lease up and with every bit we improve and winnow some of the low growth assets and redeploy into high growth assets. We feel not just really good about leasing, we feel not just good about where our earnings and cash flow is headed, but we feel good about underlying valuation. We saw what we consider to be a structural disconnect in Q2. We put some money to deploy and what I often consider to be the best and most obvious way to invest in yourselves, because we believe in ourselves, and I think we'll be rewarded over the long term for those investments, which we may or may not do more of as time goes forward. We'll just see what the landscape is at that time.

Speaker #6: And with every bit, we improve. And, you know, in Winnow, some of the low-growth assets are redeploying to high-growth assets. So we feel not just really good about leasing.

Speaker #6: We feel not just good about where our earnings and cash flow are headed, but we feel good about underlying valuation. And we saw what we considered to be a structural disconnect in the second quarter.

Speaker #6: We put some money to deploy in, you know, what I often consider to be the best and most obvious way to invest in yourselves.

Speaker #6: Because we believe in ourselves, and I think we'll be rewarded over the long term for those investments, which we may or may not do more of as time goes forward.

Speaker #6: You know, we’ll just see what the landscape is at that time. The great thing is, we’ve got so many different, you know, levers to push at any moment in time to try and optimize return for shareholders that even though our focus is in one market, it’s a pretty damn big market.

Marc Holliday: The great thing is we've got so many different levers to push at any moment in time to try and optimize return for shareholders that even though our focus is in one market, it's a pretty damn big market, and there's lots of opportunity and lots of ways for us to deploy capital and make money.

Speaker #6: And there's lots of opportunity and lots of ways for us to deploy capital and make money.

Speaker #7: Thanks, that's helpful. And then with just the $0.80 of FFO, kind of related to some of the basis accounting, and then having some component of maybe fair value adjustments on derivatives.

Seth Bergey: Thanks. That's helpful. Then, with just the $0.80 of FFO kind of related to some of the basis accounting and then having some component of kind of maybe fair value adjustments on derivatives, have you put any thought into disclosing either a core or a real estate FFO metric to kind of give the investor community a better sense of the underlying earnings performance of the business?

Speaker #7: Have you put any thought into disclosing either a core or a real estate FFO metric to give the investor community a better sense of the underlying earnings performance of the business?

Speaker #3: No, I don't believe in violating what NAREIT says is FFO and creating your own. So we do it as reported, as everybody should, and that's the best way to compare across companies.

Matt DiLiberto: No. I don't believe in violating what NAREIT says is FFO and creating your own. We do it as reported, as everybody should, and that's the best way to compare across companies.

Speaker #7: Thanks.

Seth Bergey: Thanks.

Speaker #1: And our next question will come from the line of Vicram Mahaltra of Mizuho. Your line is open.

Operator: Our next question will come from the line of Vikram Malhotra of Mizuho. Your line is open.

Vikram Malhotra: Afternoon. Thanks for taking the call and congrats on a strong print. Just two clarifications. I guess, you referenced FAD and breakeven. I was just wondering if you can clarify, what do you mean by breakeven? Matt, could you, at least for 2026, give a sense of how the CapEx should trend in the H2 relative to the H1?

Speaker #7: Good afternoon. Thanks for taking the call, and, you know, obviously, congrats on a strong print. Just two clarifications. I guess, you referenced FAD and break-even.

Speaker #7: I was just wondering if you can clarify what you mean by break-even. And Matt, could you at least for '26 give us a sense of how the capex should trend in the back half relative to the first half?

Speaker #3: Sure. Yeah. Our capex tends to be a little back-ended, just because, you know, we get budgets approved, and then you've got to get to spending, that's our spend.

Matt DiLiberto: Sure. Yeah. CapEx tends to be a little back-ended, just because we get budgets approved and then you got to get to spending, that's our spend and reimbursement to tenants. Historically, capital spend is higher in the H2 than the H1, but since that's largely out of our control, we can't say for certain how that plays out. The commentary on 2028 is the same thing we said back on our Q1 call, with FAD steadily improving 2026 into 2027. 2028, you are breakeven as against coverage of your dividend.

Speaker #3: And reimbursement to tenants. So historically, capital spend is higher in the back half than in the first. But since that's largely out of our control, we can't say for certain how that plays out.

Speaker #3: And the commentary on '28 is, you know, the same thing we said back on our first quarter call. You know, with FAD steadily improving, '26 into '27.

Speaker #3: But '28, you are, you know, break-even as against coverage of your dividend.

Vikram Malhotra: Dividend. Okay. That makes sense. Then I guess just now given what you talked about in terms of more interest, the capital markets opening even wider, is there a way you can share with us, like as of today, you sold East Fifty-Third, I think it was a five-seven, but how should we think about the range of cap rates for, say, like newer built core asset versus maybe a older, needs CapEx or just a lease-up opportunity. How should we think about Manhattan and the range of cap rates, older versus new product?

Speaker #7: Dividend. Okay, that makes sense. And then, I guess just now, given what you talked about in terms of more interest in capital markets, even opening even wider...

Speaker #7: Is there a way you can share with us, as of today—you know, you sold East 53rd. I think it was at 57.

Speaker #7: But how should we think about the range of cap rates for, say, a newly built core asset versus maybe an older, you know, needs-CapEx or just a lease-up opportunity?

Speaker #7: How should we think about Manhattan and the range of cap rates for older versus new product?

Marc Holliday: Vikram, cap rates, I subscribe, are really driven by two things, embedded growth, expected growth within the asset, and a view on rates. You can get a low cap rate with an old building and a high cap rate with a newer building. It's not really new versus old. When cap rates compress is when the market believes you're going to have above average earnings momentum and growth. If that growth in NOI projection over three, five, seven, 10 years outstrips your view of where rates are headed, then you're going to have a compressed cap rate, and it could often be below your financing cost. It's not uncommon to have cap rates strip lower than your financing costs when you have embedded growth.

Speaker #6: So, Vikram, you know, cap rates, I subscribe, are really driven by two things: embedded growth—expected growth within the asset—and a view on, you know, cap rate with an old building versus a high cap rate with a newer building.

Speaker #6: It's not really new versus old. It's, you know, when cap rates compress is when the market believes you're going to have above-average earnings momentum and growth.

Speaker #6: And you know, if that growth in NOI projection over 3, 5, 7, 10 years, you know, outstrips your view of, you know, where rates are headed, then you're going to have a compressed cap rate.

Speaker #6: And it could often be below your financing costs. You know, it's not uncommon to have, you know, cap rates drip lower than your financing costs when you have embedded growth.

Speaker #6: And right now, you know, when we see nominal rents and net effective rents increasing at these kind of rates, you know, as long as interest rates are roughly stable—and that's, you know, that's a caveat.

Marc Holliday: Right now, when we see nominal rents and net effective rents increasing at these kind of rates, as long as interest rates are roughly stable, and that's a caveat, then I think you'll see cap rates compress. Notwithstanding, it's a higher than historical interest rate environment because people are investing for growth. They want to borrow in $2026 and repay in $2036 and have a lot of nominal growth along the way. When you have that circumstance, you can have premier growth assets sub five. I think the bulk of what we own is between five and six, and there's really not much in our portfolio that trades north of six, in my opinion. I'm not giving you market cap rates, I'm giving you cap rates for our portfolio.

Speaker #6: Then I think you'll see cap rates compress, notwithstanding it's a higher-than-historical interest rate environment, because people are investing for growth. You know, they want to borrow in 2026 dollars and repay in 2036 dollars.

Speaker #6: And have a lot of, you know, nominal growth along the way. And when you have that circumstance, you can have premier growth assets sub-5.

Speaker #6: I think the bulk of what we own is between 5 and 6. And there's really not much in our portfolio that trades north of 6, in my opinion.

Speaker #6: That's not—I'm not giving you market cap rates. I'm giving you cap rates for our portfolio. The way I look at our assets, you know, I don't think we have much of an appetite to trade in the 6.5% to 7% range.

Marc Holliday: The way I look at our assets, I don't think we have much of an appetite to trade in the six and a half to seven range, even if that were the market, which I don't think it is for our assets. I think it's decidedly between five and six. Certain assets are sub five. Very few might be a touch over six. That's kind of a broad range of how we view. The tighter I think occupancy in the city in our portfolio gets and the more net effective rents improve, I think the more you may see those cap rates dip. Then if you get a little interest rate relief, then it's all bets off. We've seen that. We've seen how fast it can go in your direction or five years ago, go against your direction.

Speaker #6: Even if that were the market, which I don't think it is for our assets. So, I think it's decidedly between 5 and 6. Certain assets are sub-5.

Speaker #6: Very few might be a touch over 6. That's kind of a broad range of how we view it, and the tighter I think occupancy in the city in our portfolio gets and the more net effective rents improve, I think the more you may see those cap rates dip.

Speaker #6: And then if you get a little interest rate relief, you know, then it's all bets off. And we've seen that. You know, we've seen how fast it can, you know, go in your direction, or, you know, five years ago, go against your direction.

Speaker #6: But I think right now we're in, you know, we're in the place we want to be. And I think that's why, you know, you saw us dip into the buyback market.

Marc Holliday: I think right now we're in the place we want to be, and I think that's why you saw us dip into the buyback market again, which we haven't done in many years. I think that's a fair assessment of cap rates.

Speaker #6: Again, which we haven't done in many years. And, you know, I think that's a fair assessment of cap rates.

Speaker #7: Okay, thank you. That was helpful. Just one last one, Matt. You have a fair amount of debt coming due next year, and I guess, concurrently, also a bunch of swaps expiring.

Vikram Malhotra: Okay. Thank you. That was helpful. Just one last one, Matt. You have a fair amount of debt coming due next year, and I guess concurrently, also a bunch of swaps expiring. You talked about asset sales, but just maybe can you give us an update, specifically the plan for 2027?

Speaker #7: You talked about asset sales, but could you maybe give us an update specifically on the plan for 2027?

Speaker #3: Yes, I plan to do that in December. Thanks for your third question.

Matt DiLiberto: Yes, I plan to do that in December. Thanks for your third question.

Speaker #7: Any early preview?

Vikram Malhotra: Any early preview?

Speaker #3: No.

Matt DiLiberto: No.

Speaker #7: Thanks so much.

Vikram Malhotra: Thanks so much.

Matt DiLiberto: Yes.

Speaker #1: And our next question will be coming from the line of Ronald Camden of Morgan Stanley. Your line is open.

Operator: Our next question will be coming from the line of Ron Kamdem of Morgan Stanley. Your line is open.

Speaker #7: Hey, great. Just two quick ones. My first one: I know we talked about sort of the least occupancy target of 95%, and potentially exceeding that.

Ron Kamdem: Hey, great. Just two quick ones. My first one, I know we talked about sort of the leased occupancy target of 95% and potentially exceeding that, any sort of color where the commenced occupancy ends the year? The reason I ask is at the investor day, I think you guys caught a lot of attention on the same store NOI for 2027 over 10%, potentially. Just would love to understand where the commenced occupancy ends and if that's still sort of a good target or realistic. Thanks.

Speaker #7: But any sort of color where the commencement occupancy ends the year? And the reason I ask is that, at the Investor Day, I think you guys caught a lot of attention on the same-store NOI for '27—over 10% potentially.

Speaker #7: And I would just love to understand where the commence occupancy ends, and if that's still a good target or a realistic thing.

Speaker #3: Yeah, it's a good question. You know, we are trending ahead of our same-store NOI projections for 2026, which is great. But then it calls into question, well, that's increasing your benchmark.

Matt DiLiberto: Yeah, it's a good question. We are trending ahead of our same store NOI projections for 2026, which is great, it calls into question, well, that's increasing your benchmark, what does it mean for 2027? The trajectory into 2027 is such that we still expect to be in excess of 10% same store NOI, cash NOI growth in 2027 as well, even though 2026 is outperforming. As to occupancy, you're talking about commenced occupancy. I think the more relevant is probably economic occupancy. That's what flows through earnings. Commenced is more of a legal term. Economic occupancy, we expected to close the gap to leased occupancy by at least half of what it was at the end of 2025, by the end of 2026, we are on that trajectory.

Speaker #3: So what does it mean for 2027? The trajectory into 2027 is such that we still expect to be in excess of 10 percent same-store NOI cash NOI growth in 2027 as well.

Speaker #3: Even though 26 is outperforming. As to occupancy, you're talking about commenced occupancy. I think the more relevant measure is probably economic occupancy. That's what flows through earnings—commenced is more of a legal term.

Speaker #3: Economic occupancy—we expect to close the gap to leased occupancy by at least half of what it was at the end of 2025, by the end of 2026.

Speaker #3: And we are on that trajectory.

Speaker #7: Great. And then my follow-up is on the alternative strategy portfolio. Just any updates on 1 Harold Square? I mean, I see 605 Fifth or 3 Y Plaza.

Ron Kamdem: Great. My follow-up is on the alternative strategy portfolio. Just any updates on Two Herald Square? I see 655 Fifth, Worldwide Plaza. Just any traction there? Any movement on those assets? Thanks.

Speaker #7: Just any traction there? Any movement on those assets? Thanks.

Speaker #6: You know, Ron, Harry had to leave for a 3. We hung in there as long as we could, but he had a hard stop at 3.

Marc Holliday: Ron, Harry had to leave for 3:00. We hung in there as long as we could. He had a hard stop at 3:00. He really is the one to hit those questions. I will have him call you on those.

Speaker #6: He really is the one to hit those questions. I will have him call you on those, but, like you know.

Speaker #7: Okay. We'll follow up.

Ron Kamdem: Okay.

Marc Holliday: But like-

Ron Kamdem: We'll follow up. No issue.

Marc Holliday: in terms of what I can say sort of broadly is that they're good assets that for different reasons, need to be recapitalized. I think that's obvious. Worldwide Plaza, it was the move-out of the main tenant, McGrath. In the case of Two Herald, there was the Amazon/WeWork lease expiration, I guess it will be. 650, that one, I think that's still yet to be played out. Needs to be recapped, and will be recapped, but that's a good piece of real estate on Fifth Ave leased to a great tenant. I look at all of those as assets that have some challenges, not fundamental real estate challenges, but capitalization challenges.

Speaker #6: In terms of what I can say, you know, sort of broadly, is that, you know, they're good assets that, for different reasons, need to be recapitalized.

Speaker #6: I mean, I think that's obvious. You know, Worldwide Plaza—it was the move-out of the main tenant, Cravath. In the case of QHarold, you know, there was the Amazon/WeWork.

Speaker #6: You know, lease expiration, I guess, you know, it will be. And 650, you know, that one I think, you know, there's that's still yet to be played out.

Speaker #6: I mean, it needs to be recapped, and it will be recapped. But you know, that's a good piece of real estate on Fifth Ave, at least to a great tenant.

Speaker #6: So I look at all of those as assets that have some challenges—not fundamental real estate challenges, but, you know, capitalization challenges. I think we've proven time and time again in that ASP portfolio and otherwise, an ability to get in and work with the various stakeholders to try to get to a solution for everybody that's the optimal solution on the table.

Marc Holliday: I think we've proven, time and time again, in that ASP portfolio and otherwise, an ability to get in and work with the various stakeholders to try to get to a solution for everybody that's the optimal solution on the table. We're committed to trying to make it work. On each of those assets, each one needs to be restructured, and either we'll be successful or we won't. Just to reiterate, those are assets that contribute little in the way of earnings and really nothing in the way of NAV as we perceive it. We have no recourse to speak of on those assets, and I look at them as just three opportunities that we are giving attention to. We're not committing a lot of capital to, and probably won't, but we might, under the right set of circumstances, commit some.

Speaker #6: And, you know, we're committed to trying to make it work on each of those assets. But each one needs, you know, to be restructured.

Speaker #6: And either we'll be successful or we won't. But, you know, just to reiterate, those are assets that contribute little in the way of earnings.

Speaker #6: And really nothing in the way of NAV as we perceive it. We have no recourse to speak of on those assets, and I look at them as just three opportunities that we are giving attention to.

Speaker #6: We're not committing a lot of capital to it, and probably won't. But, you know, we might under the right set of circumstances commit some. And, you know, that's yet to be played out.

Marc Holliday: Yet to be played out, but we're hanging in there. I think the stakeholders recognize we've done all we could do in those circumstances, and I think we're kind of in the batter's box, if you will, to be the ones to help put those assets back on safe footing. If we do, we may get a surprise to the upside.

Speaker #6: But we're hanging in there. And, you know, I think the stakeholders recognize we've done, you know, all we could do in those circumstances. And I think we're kind of in the, you know, in the batter's box, if you will, to be the ones to help put those assets back on safe footing.

Speaker #6: And if we do, we may get a surprise to the upside.

Speaker #7: Helpful. Thank you.

Ron Kamdem: Helpful. Thank you.

Speaker #1: And our next question will come from the line of Brendan Lynch of Barclays. And as a friendly reminder, please limit yourself to two questions.

Operator: Our next question will come from the line of Brendan Lynch of Barclays. As a friendly reminder, please limit yourself to two questions.

Speaker #3: Sure. I'll limit myself to one question. On the concession environment, one of your peers has argued it's hard to get free rent down below a month per year of lease term, which you guys were able to do this year.

Brendan Lynch: Sure. I'll limit myself to one question. On the concession environment, one of your peers has argued it's hard to get free rent down below a month per year of lease term, which you guys were able to do this quarter. The argument being that if you need the time to build out the space, clients kind of resist having double cash rent during the build-out period, and they'd rather have higher face rents. The question is, how low do you anticipate you can get free rent going forward?

Speaker #3: Or, excuse me, this quarter. And the argument being that you need the time to build out the space. The clients kind of resist having double cash rent during the build-out period.

Speaker #3: And they'd rather have higher face rents. So the question is, how low do you anticipate you can get free rent going forward?

Speaker #5: Well, you have to differentiate between new tenants coming into the portfolio versus renewal leases. And, as I think Marc made the point earlier, the net effectives and the concessions—net effectives rise and the concessions tighten.

Steven Durels: Well, you had to differentiate between new tenants coming into the portfolio versus renewal leases. I think Marc made the point earlier that the net effectives rise and the concessions tighten when we're doing renewal deals. Assuming that it's, take a typical 5-year renewal, when the market is at its peak, generally its free rent is maybe 2 or 3 months. Today, we're kind of in the 3 to 4 months, 3 probably being the average on a typical kind of 5-year renewal for most of these small to mid-size deals. New transactions, if it's a 10-year lease, I think that's generally when I would not be surprised to see free rent ultimately get down to kind of the 10-month free rent for a 10-year transaction.

Steve Durels: Well, you had to differentiate between new tenants coming into the portfolio versus renewal leases. I think Marc made the point earlier that the net effectives rise and the concessions tighten when we're doing renewal deals. Assuming that it's, take a typical 5-year renewal, when the market is at its peak, generally its free rent is maybe 2 or 3 months. Today, we're kind of in the 3 to 4 months, 3 probably being the average on a typical kind of 5-year renewal for most of these small to mid-size deals. New transactions, if it's a 10-year lease, I think that's generally when I would not be surprised to see free rent ultimately get down to kind of the 10-month free rent for a 10-year transaction.

Speaker #5: When we're doing renewal deals. So assuming that it's a take a typical five-year renewal, you know, when the market is at its peak generally, it's free rent is, you know, maybe two or three months.

Speaker #5: Today we're kind of in the three to four months range—three probably being the average on a typical five-year renewal, four for most of the deals, you know, these small- to mid-sized deals.

Speaker #5: New transactions, if it's a 10-year lease, you know, I think that generally when you know, you I would not be surprised to see free rent ultimately get down to kind of the 10-month free rent for a 10-year transaction.

Speaker #3: Okay. Very good. Thank you.

Brendan Lynch: Okay. Very good. Thank you.

Speaker #5: Yep.

Steven Durels: Yep.

Steve Durels: Yep.

Speaker #1: And our next question will come from the line of Caitlin Barrows of Goldman Sachs. Your line is open.

Operator: Our next question will come from the line of Caitlin Burrows of Goldman Sachs. Your line is open.

Speaker #8: Hi, everyone. Sorry it’s so late. Just a quick one on the One Vanderbilt — $0.80 of additional income. I guess it seems like something that you guys would have had some visibility into.

Caitlin Burrows: Hi, everyone. Sorry it's so late. Just a quick one on the One Vanderbilt $0.80 of additional income. I guess it seems like something that you guys would have had some visibility into. I guess why wait until now to talk about the boost to FFO? More importantly, what will cause fluctuations over each quarter going forward? Like if the Q2 contribution was $0.35, why isn't Q2 to Q4 total like over a dollar?

Speaker #8: So I guess, why wait until now to talk about the boost to FFO? And then, more importantly, what will cause fluctuations over each quarter going forward?

Speaker #8: So, like, if the Q2 contribution was $0.35, why isn't the Q2 to Q4 total like over a dollar?

Speaker #3: So the first answer is, if we have visibility into it and we get affirmation of the treatment, we would include it. We didn't have that until we included it this quarter.

Matt DiLiberto: The first answer is if we have visibility into it and we get affirmation of the treatment, we would include it. We didn't have that until we included it this quarter and vetted it all the way through all of the rules, auditors, NAREIT and everybody else involved. When that was vetted through, and we had eclipsed the threshold only after the end of Q1, it wouldn't apply till Q2, and that's when we employed it and we'll use it going forward. What impacts it going forward is most importantly distributions. As I went through the math earlier, there's what I'll call a fixed component of the calc and a variable component of the calc. The variable component is cash distributions as compared to what would conventionally be GAAP equity pickup.

Speaker #3: And vetted it all the way through all of the rules, auditors, NARE, and everybody else involved. So, when that was vetted through and we had eclipsed the threshold, it was only after the end of the first quarter.

Speaker #3: So it wouldn't apply until the second quarter, and that's when we employed it. We'll use it going forward. What impacts it going forward is, most importantly, distributions.

Speaker #3: As I went through the math earlier, there's what I'll call a fixed component of the calc, and a variable component of the calc.

Speaker #3: The variable component is cash distributions, as compared to what would conventionally be GAAP equity pickup. And as cash distributions increase or decrease, so does the FFO contribution.

Matt DiLiberto: As cash distributions increase or decrease, so does the FFO contribution. It's almost equivalent to a cash basis of accounting. As we look forward, we look carefully at distributions. If we need cash for something, we'll hold it back. If we don't, we'll distribute more, and those distributions will impact quarter-to-quarter FFO recognition.

Speaker #3: It's almost equivalent to a cash basis of accounting. So, as we look forward, we look carefully at distributions. If we need cash for something, we'll hold it back.

Speaker #3: If we don't, we'll distribute more. And those distributions will impact quarter-to-quarter income and FFO recognition.

Speaker #8: Okay, thank you. And then just on Summit One Vanderbilt, you guys were talking about how well it's doing. I know last year Ascent was offline for part of Q2.

Caitlin Burrows: Okay. Thank you. Just on SUMMIT One Vanderbilt, you guys were talking about how well it's doing. I know last year, Ascent was offline for part of Q2, but I believe it was online for all of Q2 2026. I was just wondering if the Q2 2026 expectations were in line with your expectations, and if there's any changes to the full-year 2026 expectations.

Speaker #8: But I believe it was online for all of Q2 '26, so I was just wondering if the Q2 '26 expectations were in line with your expectations.

Speaker #8: And if there are any changes to the full-year '26 expectations.

Marc Holliday: No, Caitlin, as I said earlier, I think that I started seeing the turn in numbers late May, June. The latter part of Q2, I think Q3, you are going to see some good numbers. The downs I referenced were really January through May, or January through part of May. It is not really Ascent driven. We had to reintroduce Descent because we had it down for maintenance for a while. It is back up. It is running. It is great. Very popular, and that will be a part of what you will see in Q3 is the multiple effect of Ascent at full throttle, plus ticket sales back to many days where we are selling out. Weather has been great, et cetera. I am very optimistic for Summit in what is a challenging market. I think if you look around at some of the other objects

Speaker #6: No, it's Caitlin. As I said earlier, I think that I started seeing the turn in numbers in late May or June. So, you know, the latter part of Q2. I think Q3, you're going to see some good numbers.

Speaker #6: The downs I referenced were really January through May, or January through part of May. It's not really Ascent-driven. I mean, we had to reintroduce Descent because we had it down for, you know, for maintenance for a while.

Speaker #6: It's back up. It's running. It's great. Very popular. And you know, that'll be a part of what you'll see in Q3 is the you know, multiple effect of Ascent at full throttle plus you know, plus ticket sales back to many, many days where we're selling out.

Speaker #6: Whether it's been great, et cetera. So, I'm very optimistic for Summit. And you know, what is a challenge in the market? I think if you look around at some of the other objects, where foreign tourism particularly has been substandard for the year.

Marc Holliday: where foreign tourism particularly has been substandard for the year. It is made up a little bit by domestic tourism, but it is still down overall. I think some of our competitors have had to resort to discounting tickets. We have been able to keep our rents high. We do not participate in the CityPASS program, probably the only object I know that does not participate in that program, which generally discounts the tickets just because we have a great following, and it serves as a great attraction both for new attendees and repeat attendees. I think we are going to have a very good H2 of the year. Whatever we experienced in the H1, we were able to somewhat mitigate through management of variable expenses. I think the team did a great job there.

Speaker #6: It's made up a little bit by domestic tourism, but it's still down overall. And I think some of our competitors have had to resort to discounting tickets.

Speaker #6: We've been able to keep our rents high. You know, we don't participate in the PASS program. We're probably the only object I know that doesn't participate in that program, which generally, you know, discounts the tickets, just because, you know, we have a great following.

Speaker #6: And it serves as a great attraction, both for new attendees and repeat attendees. I think we're going to have a very good second half of the year.

Speaker #6: And whatever we experienced in the first half, we were able to somewhat, you know, mitigate through management of variable expenses. I think the team did a great job there.

Speaker #8: Okay. Got it. Thanks.

Caitlin Burrows: Okay. Got it. Thanks.

Speaker #1: And our next question will come from the line of Michael Lewis of Truist Securities. Your line is open.

Operator: Our next question will come from the line of Michael Lewis of Truist Securities. Your line is open.

Michael Lewis: Thank you for running long here. The AI leasing is obviously very strong, and I know some of those tenants are large players, some of the largest companies in the world, but some of them are not. Kind of similar to when the early days of the internet, the internet worked, but not all the companies did, and there's a lot of AI companies. I'm just wondering, from an office landlord's perspective, what are you seeing in terms of credit quality, and are there AI tenants where you say, Oh, I'm going to pass on that one. It worries me a little. Alternatively, are there ones where you say, Wow, the growth could be really explosive there. That one might be worth a shot. I'm just wondering what you kind of see the breadth of the AI demand.

Speaker #7: Thank you for running long here. The AI leasing is obviously very strong, and I know some of those tenants are large players—some of the largest companies in the world.

Speaker #7: But some of them are not. So you know, kind of similar to when the you know, the early days of the internet, the internet worked, but not all the companies did.

Speaker #7: And there's a lot of AI companies. I'm just wondering, you know, from an office landlord's perspective, what are you seeing in terms of, you know, credit quality? And, you know, are there AI tenants where you say, "Oh, I'm going to pass on that one?"

Speaker #7: It worries me a little. Alternatively, are there ones where you say, "Wow, the growth could be really explosive there? That one, you know, might be worth a shot?"

Speaker #7: I'm just, you know, wondering what you kind of see as the breadth of the AI demand.

Speaker #5: Well, I think there are a couple of things to point out to you. You know, the good news is, broadly speaking, the technology industry is back in a big way, leasing space in Manhattan.

Steven Durels: Well, I think there's a couple things to point out to you. The good news is, broadly speaking, the technology industry is back in a big way leasing space in Manhattan. There's nine and a half million square feet of active tech searches going on right now. Of that, two and a half million square feet are AI tenants. Important to differentiate so that people don't believe that just because it's tech, therefore it must be AI. That's not the case. That's one. Two, during the dot-com days, we were very conscious about not being overexposed to that industry, and we were very limiting as to the deals and the size of deals that we did. There is a big difference between what we saw of dot-com tenants during that market period versus the AI tenants that we're seeing today.

Steve Durels: Well, I think there's a couple things to point out to you. The good news is, broadly speaking, the technology industry is back in a big way leasing space in Manhattan. There's nine and a half million square feet of active tech searches going on right now. Of that, two and a half million square feet are AI tenants. Important to differentiate so that people don't believe that just because it's tech, therefore it must be AI. That's not the case. That's one. Two, during the dot-com days, we were very conscious about not being overexposed to that industry, and we were very limiting as to the deals and the size of deals that we did. There is a big difference between what we saw of dot-com tenants during that market period versus the AI tenants that we're seeing today.

Speaker #5: There's 9.5 million square feet of active tech searches going on right now. Of that, 2.5 million square feet are AI tenants.

Speaker #5: It's so important to differentiate, so that people don't believe that just because it's tech, it must be AI. That's not the case. That's one.

Speaker #5: Two, you know, during the dot com days, we were very conscious about not having being overexposed to that industry. And we were and we were very limiting as to you know, the deals and the size of deals that we did.

Speaker #5: So but there's a big difference between what we saw of dot com tenants you know, during that market period versus the AI tenants that we're seeing today.

Speaker #5: Most of the tenants that of any consequence that have come through our doors are firms with you know, that are well capitalized. They have big revenue versus the dot com tenants, which many of them had no revenue.

Steven Durels: Most of the tenants that, of any consequence, that have come through our doors are firms that are well-capitalized. They have big revenue versus the dot-com tenants, which many of them had no revenue. A lot of these tenants have big revenue in place. Having said that, there will be winners and losers, no doubt about it, and we've consciously limited our exposure to the AI industry to somewhere between 1% to 2% of the portfolio. Most of that industry is Midtown South, as far as where the tech and AI tenants like to locate themselves. Our buildings in that part of town, at this moment in time, and for the foreseeable future, are 100% leased.

Steve Durels: Most of the tenants that, of any consequence, that have come through our doors are firms that are well-capitalized. They have big revenue versus the dot-com tenants, which many of them had no revenue. A lot of these tenants have big revenue in place. Having said that, there will be winners and losers, no doubt about it, and we've consciously limited our exposure to the AI industry to somewhere between 1% to 2% of the portfolio. Most of that industry is Midtown South, as far as where the tech and AI tenants like to locate themselves. Our buildings in that part of town, at this moment in time, and for the foreseeable future, are 100% leased.

Speaker #5: A lot of these tenants have big, big revenue in place. But having said that, there will be winners and losers—no doubt about it.

Speaker #5: And we've consciously limited our exposure to the AI industry to somewhere between 1% and 2% of the portfolio. And, you know, most of that industry is Midtown South.

Speaker #5: As far as where the tech and AI tenants like to locate themselves, our buildings in that part of town, at this moment in time and for the foreseeable future, are 100% leased.

Speaker #7: Okay, great. And then my last question—somebody earlier, you know, asked about an alternative FFO metric. I don't—I'd prefer not to have another FFO metric to worry about.

Michael Lewis: Okay. Great. My last question. Somebody earlier asked about an alternative FFO metric. I'd prefer not to have another FFO metric to worry about, but I might propose something to all the office companies as far as net effective rent comparison. This 18% cash spread is great. I've done this on your call, and I've done this on other office calls. I pulled up your Q2 2016 SUP and your Q2 2021 SUP, and I look at the rent, the free rent divided by the term, the TI divided by the term. Whenever I look over it seems like net effective rent goes up like 2.5%, 3% a year. I don't know if it keeps up with OpEx.

Speaker #7: But I might propose something to all the office companies as far as net effective rent comparison. So, this 18% cash spread is great, and I've done this on your call.

Speaker #7: And I've done this on other office calls, right? I pulled up your Q2 '16 stuff and your Q2 '21 stuff. And I just, you know, I look at the rent of free rent divided by the term, the TI divided by the term.

Speaker #7: And whenever I look it over, it seems like net effective rent goes up, like, 2.5%, 3% a year. I don’t even—I don’t know if it keeps up with OpEx.

Speaker #7: But I guess my question is, right, when you look at that 18% cash rent spread—which tells us a lot—you know, what would it be if you looked at the annual rents on a net effective basis, right?

Michael Lewis: I guess my question is, when you look at that 18% cash rent spread, which tells us a lot, what would it be if you looked at the annual rents on a net effective basis? You talked about those are spiking up. I can never see it in the number. Does that make sense?

Speaker #7: You talked about those are spiking up, but I could never find—I could never see it in the numbers. Does that make sense? I guess we're trying to interpret your question, Mike.

Matt DiLiberto: I guess we're trying to interpret your question, Mike. You're asking what?

Speaker #7: You're asking what? So, yeah, I guess I'm asking if net effective rents are really going up that much, because I can't see it.

Michael Lewis: Yeah, I guess I'm asking if net effective rents are really going up that much because I can't see it.

Speaker #7: You're okay. So, the question is, what is net effective rent growth? Eighteen percent is the face rent. What's net effective?

Matt DiLiberto: Okay. The question is.

Steven Durels: Wait.

Steve Durels: Wait.

Matt DiLiberto: What is net effective rent growth? 18% is the face rent. What's net effective?

Steven Durels: What's net effective rent growth?

Steve Durels: What's net effective rent growth?

Speaker #5: What's net effective rent growth?

Speaker #7: Well, let's just go this way. I mean, if concessions have been stable for the past, call it at least a year and a half, so if the base rents are up— you know— materially, your net effectives are up materially.

Matt DiLiberto: Well, let's just go this way. If concessions have been stable for the past, call it, at least a year and a half, if the face rents are up materially, net effectives are up materially.

Speaker #5: Well, I think a measure of it would be, you know, you have to look over a two- to three-year period. If you have FFO growth and AFO growth that exceeds the FFO growth, that differential largely would be, you know, or at least partially driven by, you know, leasing cost savings, no?

Steven Durels: Well, I think a measure of it would be. You have to look over a two, three-year period. If you have FFO growth and AFFO growth that exceeds the FFO growth, that differential largely would be or at least partially driven by leasing cost savings now, on first gen at least, right? We don't track, what do you call it? Net effective growth because it's very hard. I'll give you an example. The question becomes, do you amortize all the TI?

Steve Durels: Well, I think a measure of it would be. You have to look over a two, three-year period. If you have FFO growth and AFFO growth that exceeds the FFO growth, that differential largely would be or at least partially driven by leasing cost savings now, on first gen at least, right? We don't track, what do you call it? Net effective growth because it's very hard. I'll give you an example. The question becomes, do you amortize all the TI?

Speaker #5: On first gen at least, right? You know, we don't track, you know, what do you call it, net effective growth, because it's very hard. I'll give an example.

Speaker #5: The question just becomes, do you amortize all the TI over the period of the lease to calculate net effective, or do you assume some salvage value?

Marc Holliday: Over the period of the lease to calculate net effective, or do you assume some salvage value? Some leases yes, some no. TI is one of the biggest components, and to just assume that all TI is written off over a 10-year lease term, I don't think is accurate. It's sort of dependent on the quality of the tenant's installation. It's just not that simple. I'm striving for as high a renewal probability as possible, 75% plus, and keeping the concessions down to three to six months on a renewal, and TIs of paint and carpet. That's the ultimate. In which case, even if rents are flat, replacement rents, your net effectives will be up by almost 100%. In order to drive the rental rates, it's not just leasing concessions. You have to invest in your buildings.

Speaker #5: Some leases, yes; some, no. You know? And, you know, TI is one of the biggest components, and to just assume that all TI is written off over a 10-year lease term I don't think is accurate.

Speaker #5: Or it's sort of dependent on the quality of the tenant's installation, so it's just not that simple. And, you know, I mean, really the way we—I'm striving for as high a renewal probability as possible, 75% plus.

Speaker #5: And keeping the concessions down to three to six months on a renewal, and, you know, TIs of paint and carpet—that's the ultimate. In which case, you know, even if rents are flat—even if rents are flat, replacement rents—your net effectives will be up by almost 100%.

Speaker #5: So, you know, in order to drive the rental rates, it's not just leasing concessions. You have to invest in your buildings. You have to invest in amenities and lobbies and roofs and everything.

Marc Holliday: You have to invest in amenities and lobbies, roofs and everything. That's why what may seem like, jeez, I should be looking at 50% net effective growth. Yeah, we spend a lot of capital on the buildings themselves in order to drive nominal rents. It's not just about direct leasing costs. I think that we're managing to try and get FFO growth at a consistent level, and I think 3% to 5% a year nominal growth. Anything above that is gravy. That or more on cash flow growth. You should see that in our numbers as 2026 compares to 2025, and then when we get to 2027 and 2028, I think you'll see it. To give you an exact percentage increase in net effective, we don't have that number.

Speaker #5: So that's why, you know, what may seem like, 'Jesus, I should be looking at—' Yeah, but we spend a lot of capital on the buildings themselves in order to drive nominal rents.

Speaker #5: It's not just about direct leasing costs. So, you know, I think that—I mean, we're managing to try and get FFO growth, you know, at a consistent level.

Speaker #5: And I think 3% to 5% a year, you know, nominal growth—anything above that is gravy. And, you know, that or more on cash flow growth.

Speaker #5: And you should see that in our numbers as 2026 compares to 2025. And then, when we get to 2027 and 2028, I think you'll see it.

Speaker #5: But, you know, to give you an exact percentage increase in net effective, we don't have that number.

Speaker #7: Thank you.

Michael Lewis: Thank you.

Speaker #5: All right, thank you for the calls, everyone, and have a great rest of your summer. We will be heading right back into the pit.

Marc Holliday: All right. Thank you for the calls, everyone, and have a great rest of your summers. We will be heading right back into the pit and start to plant the seeds for a great Q3, and we'll speak to you all in October.

Speaker #5: And start to put together, you know, plant the seeds for a great Q3. And we'll speak to you all in October.

Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

Q2 2026 SL Green Realty Corp Earnings Call

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