SL Green Realty Corp

Thank you everybody for joining us and welcome to the SL Green Realty Corp's third quarter 2020 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. Actual results may differ from any forward-looking statements that management may make today. Additional information regarding the risk, uncertainties, and other factors that could cause such differences appear in the MDMA section of the company's latest form, 10-K, and other subsequent reports filed by the company with the Securities and Exchange Commission. Also, during today's conference call, the company may discuss non-GAAP financial measures as defined by Regulation G under the Securities Act. 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 third quarter 2020 earnings and in our supplemental information filed with our current report on Form 8K. relating to our third quarter 2020 earnings. Before turning the call over to Marc Holliday, Chairman and Chief Executive Officer of SL Green Realty Corp, I ask that those of you participating in the Q&A portion of the call, please limit your questions to two per person. Thank you. I will now turn the call over to Marc Holliday. Please go ahead, Marc.

Thank you. Good afternoon, everyone, and thank you for being with us today. I'm joined here by Andrew Mathias, Matt DiLiberto, Ed Piccinich, Steve Durels, David Schombraun, Andy Levine, and Maggie Hui, as well as several others. And we're all together here socially distant and looking forward to a good earnings call today. So yesterday we released our earnings for the third quarter of 2020. And for the most part, the results and achievements met or exceeded our expectations. and are aligned with our corporate goals, which were, of course, altered back in March and April at the outset of the pandemic, which you might recall from our Q1 call. Our earnings for the quarter were in line as we track towards the higher end of our revised guidance rate, so we're pleased with that. And our office and overall collections remain relatively strong, surprisingly strong, at 97% and 92% respectively, something that we're quite quite proud of as it relates to the rigorous nature of our underwriting and our diligence and just the superior quality of our tenant base this far into the pandemic. Our occupancy dipped but finished the quarter above 94%. We are aggressively managing our operating expenses in order to maximize our bottom line throughout generating of savings in excess of $30 million of operating expenses year to date realized without sacrificing service to our tenants. We leased approximately 187,000 square feet of Manhattan office spaces, slightly less than we had hoped for, but the pipeline looks very good at 825,000 square feet of leases and term sheets pending or in negotiation. So that pipeline number has actually increased. While we do not expect to certainly close all of that activity by year end, We are on track to lease 1.2 million square feet for the full year, a lofty goal we reset for ourselves in April at a time of great uncertainty when there was not really good visibility as to what we could achieve. And as we sit here now, we feel that it's attainable and working hard to make those numbers for the year. Through additional focused reductions in savings We also managed to reduce total G&A by $10 million to approximately $90 million projected for the full year. And we, along with others, are benefiting from significant interest savings due to the Fed's easy monetary policy. While generally pleased with these results, it doesn't nearly tell the entire story of what we have achieved as a company in the past seven months, how we achieved it, or what our current metrics are for measuring success in the pandemic economy. The city's economy is essentially on pause right now as much focus is on the containment of COVID-19 and the traditional financial measures that we in our industry look to. We don't think they really apply during these highly irregular times. The focus has changed. And at this moment in time, our focus has shifted and we are driven more than ever to help promote this great city, work with our hardest hit tenants to sustain their businesses, create a safe and secure environment within our portfolio for building occupants and their employees, invest in the future of New York City and lead by example. And I'm happy to say that we feel there's no real estate company in our market that exceeds our efforts in these areas We are batting 1,000 in these areas. It all stems from SL Green's extraordinary employees who are 100% work from office, not from home. We accomplish this safely, smartly, and with enthusiasm for doing something positive for our families, our company, and our economy. We wish and encourage other companies to do the same for the sake of their employees, many of whom feel disconnected and frustrated by the isolation of working from home for the sake of local businesses who want to work and want to call their employees back to business and who rely on the 1.5 million office-using workforce in New York City for their sales. These businesses need everyone back in the city and back in their office spaces to make a go of it. And for the sake of the city, which has provided so much to so many, So lots of reasons that go far beyond the productivity of work from office, but that really relate to the whole ecosystem of an economy, which is why we have such a stout belief in work from office and school from classrooms and all the rest. So on June 15th, SL Green employees returned to work at 420 Lexington Avenue. and inner satellite office building offices and we are working overtime with a sense of purpose and urgency that has expressed itself in many ways over these past months. First and foremost, we quickly established new operating procedures and protocols for our buildings combined with infrastructure upgrades which make the building safe and secure for the employees that have returned to work and the employees that work in the buildings, the building employees themselves. and the feedback so far has been nothing short of excellent. Next, we worked to secure several construction sites so that construction could continue uninterrupted, on schedule and on budget. We then went to work with our most impacted retail tenants and in many cases worked out arrangements to provide deferrals and concessions to help them through this difficult period. Turning now to our office tenants, We recognized this interim period as a moment of uncertainty, so we injected flexibility into the conversation with short-term lease extensions and increased free rent, both of which was met with real appreciation for those tenants that wanted to take advantage of those parameters, particularly those who had near-term lease expiration. So a lot of our activity recently, as Steve can sort of expound upon, has been in the renewal area, much more so than prior years. Next, S.L. Green and Chef Daniel Balloud established Food First, a nonprofit foundation created to provide free, nutritious meals to frontline medical personnel, first responders, and the many food insecure New Yorkers. On the same token, the organization has helped the hard-hit restaurant industry reopen some of their kitchens and re-employ staff who have been laid off due to closures. To date, we are proud to have prepared and delivered 400,000 free meals to over 100 locations throughout the city, the logistics of which are managed entirely by SL Green. On the business front, SL Green continues to invest in New York in many ways that we believe create long-term value for the company. and there was no greater example of this than the completion of one Vanderbilt on September 14th, three months ahead of schedule and $100 million below budget. 50 invited guests, industry leaders, civic advocates and elected officials attended the ribbon cutting that we held in the newly completed Vanderbilt Plaza as we celebrated this great and permanent achievement for New York, including $220 million of public realm and transportation improvements. Just two weeks later, we were a top 185 Broadway for the on-time topping out of the project, which is the first new residential construction in downtown being built under the affordable New York housing program. And just blocks away from 185, SL Green commenced demolition of 126 Nassau Street for a $220 million fully committed development project for Pace University, inclusive of dorms, classrooms, and other school and educational facilities. It's a major, major project for Pace and for their expansion, and this project is completely capitalized with joint venture equity and construction financing that we closed during this quarter. Finally, there were a number of other sale and DPE disposition transactions concluded during the quarter, the proceeds of which fortified our $1 billion liquidity plan that we set forth back in April, reduced corporate indebtedness, and enabled us to continue our share repurchase program. So you see that we've been quite busy these past three months over the summer and accomplished quite a lot with much more to come in Q4. Yes, it's true that economic activity in New York City slowed considerably in the third quarter. Leasing activity was sharply reduced, vacancies rose, and investment sales declined. However, this is entirely to be expected from a city on pause and a city whose number one priority right now is containment of COVID to such a degree that the city is one of the safest cities by most COVID measures than any city in the country. Further digging into the data, there are encouraging signs. Wall Street profits for the first half of the year were spectacular, nearly $28 billion, which is much higher than an average full year of earnings for these banks. After a seismic 820,000 private sector jobs were shed in April, nearly one-third of them have since been restored, a rate of recovery that is actually faster than we saw after the tech crash in early 2000 and the great financial recession in 07-08, albeit recovering from a lower starting point. The office-using job recovery is somewhat slower. but there has been sequential office using job growth in July and August and September and we hope to see that trend continue in October and throughout the year. Notwithstanding that the city projected a loss of $9 billion of tax revenues, its $90 billion budget is balanced for fiscal year ending 2021 and the city is now working on balancing the budget for fiscal year 22 helped by reduced interest costs, higher than expected profits from the financial sector that I mentioned earlier, retail spending that is actually holding up fairly well and further aided by the prior stimulus benefit that many of New York residents and businesses received and hopes for future stimulus in the near term. So while we read the analyst reports last night that were fairly neutral on our results and Somewhat pessimistic on New York City fundamentals, we have an entirely different view on how we measure the quarter. We think it was an extraordinary quarter. We think we accomplished much for the company, for our employees, for our tenants, and the local businesses, and the city's economy, of which we are an inextricable part. and we take great pride in what we've done and what is yet to come. So this city we all know has been written off many times before and has always rebounded stronger than ever. New York City is our home. We are fully committed here and we believe strongly in its future. The city's future in many ways is Essel Green's future and we have conviction that its underlying fundamentals, spirit, diversity and everything great about this city will continue to set New York apart as the greatest city in the world. So before we open it up for questions, which we'll do momentarily, I want to talk about one further piece of good news, which is our investor conference slated for December 7th of this year. After much deliberation and input from the investor community, we have decided, true to form, that our 2020 investor conference will be live and in person at the now iconic One Vanderbilt Avenue Auditorium on our new amenity floor, which will be sort of unveiled in December and open in January to tenants. And we will have all COVID precautions in place. So at this event, we will obviously look forward to presenting our business plan for 2021 and our outlook for the future of New York City. With that, operator, I'd like to turn it over for questions.

Ladies and gentlemen, to ask a question, please press star 1 in your touch-tone telephone. To remove yourself from the question queue, please press the pound key. Again, press star 1 in your touch-tone telephone. Please stand by while we compile the Q&A roster. Our first question comes from the line of John Kemp of BMO Capital Markets. Your line is open.