SL Green Realty Corp

Thank you, everybody, for joining us, and welcome to SL Green Realty Corp's second quarter 2021 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. Additional information regarding the risks, uncertainties, and other factors that could cause such differences appear in the Risk Factors and M&A section of the company's latest form, 10-K, and other subsequent reports filed by the company with the Securities 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 gap financial measure most directly comparable to each non-gap financial measure discussed and the reconciliation of the differences between each non-gap financial measure and the comparable gap financial measure can be found on both the company's website at www.slgreen.com by selecting the press release regarding the company's second quarter 2021 earnings. and in our supplemental information filed with our current report on Form 8K relating to our second quarter of 2021 earnings. Before turning the call over to Mark 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 yourselves to two questions per person. Thank you. I will now turn the call over to Mark Holliday. Please go ahead, Mark.

Thank you and good afternoon, everyone. We appreciate you joining the call today and giving us an opportunity to review the second quarter earnings with you. I have some items that I'll open up with and obviously we'll then turn it over for some questions and answers to whatever is on everyone's mind today. But, you know, starting with the quarter, we accomplished quite a bit in these three months. Since our last call with you, we successfully completed several asset sales, a significant joint venture that we closed this morning, an important fee acquisition, over half a million square feet of office leasing, over 2 million shares of stock buybacks, and maybe most notably, a record-setting $3 billion SASB financing of One Vanderbilt. Our first half accomplishments have exceeded much of our earlier goals and objectives, and we are now very well situated to benefit from what we believe will be an even better market environment in the second half of this year. At the beginning of and throughout the year, I shared my optimism with you for a sharply rebounding New York, and when I survey where we are mid-year, I think that optimism was well-founded. With the year-to-date total return exceeding 30 percent through yesterday's close, Our stock has performed very well as the market is resetting its views of the New York economy after COVID-related restrictions were lifted on May 19th. Average physical occupancy in SLG's portfolio is approaching 25% as tenants are reopening their doors and more and more workers return to the office. Business leaders are now more than ever voicing their strong support, preference, and adherence to continued work-from-home model. I'm sorry, continued work-from-office model. I see a lot of raised eyebrows here. Continued work-from-office model in a collaborative, communicative, and physically present manner. The majority of our tenants are planning for their workers to return after Labor Day, and more importantly, we do not see any material trends in hot desking or shrinking footprints. To the contrary, we see a trend of businesses availing themselves at this moment in time in the market to lock in space and make investments in improved work environments, technology, and amenities as a way of competing for talent and making a compelling case to their employees for work from office. The space plans we are reviewing today that are submitted by tenants as they begin their build-outs have decidedly more common space, amenities, food and beverage offerings, collaborative meeting spaces, specialty areas, de-densified workstations, breakout rooms for privacy, and generally more thoughtful and efficient and healthy use of space. Within our portfolio, this has led to almost 1 million square feet of new and renewal office leasing at rents that are generally flat with expiring escalated rents and TI packages that are marginally higher than pre-COVID levels. We are currently tracking about half a percentage point higher in occupancy than originally projected at the beginning of the year. And with over 600,000 square feet of additional leasing and pipeline, we hope to maintain outperformance through year end. Foot traffic at our properties has increased considerably in response to a strong underlying New York City business economy, calls for return to office, and a slow but steady jobs recovery. There are about 6 to 7,000 new office jobs being created monthly, which trend is expected to continue and result in reattaining pre-COVID office employment levels by mid-2022. Interestingly, the job creators to date are being led by information and technology and professional business services, while the greatest amount of leasing demand seems to be coming from the finance sector. Wall Street profits, which ended 2020 with a near record $51 billion in profits, has already posted $18 billion in profits in just the first quarter. And the big five banks reported 150% increase in second quarter earnings year over year, and last year was a good year for the banks. There is now essentially a war for talent among large companies and high-growth businesses, a competition that New York City will win given its diverse, educated, and highly skilled workforce and deep talent pool. It should come as no surprise that New York City personal and corporate income tax collections are at all-time record levels of $15 billion and $5 billion, respectively. It is in this economic backdrop, with record low interest rates and substantial investment capital for deployment, that we believe New York City is situated to outperform other major markets, on a near and long-term basis. Looking forward into the coming quarter, we've got many milestones and achievements that we are busy to, you know, to be able to report positive movement on next time we speak, such as making ready for workers returning to the office after Labor Day, completion of demo, and all the column reinforcements for the commencement of vertical construction next month at 1 Madison. The commencement of marketing all of the residential units at 185 Broadway will begin next week. The commencement of full demolition of 760 Madison Avenue, now that we just received our DOB permit, to make way for the new Giorgio Armani retail boutique and condominiums. We have planned additional asset sales that we expect to achieve in the third and fourth quarters of the year. with much of the proceeds going towards additional stock buybacks consistent with the original plan. And certainly, and maybe most excitedly, the grand opening of Summit One Vanderbilt on October 21st. It's something that we've been working on for three years, and we fully expect and hope it will become one of the top performing and most visited experiential attractions in New York City once it opens. And that now is well within our sights and looking forward to the opening of Summit. So with that, I would say the third quarter financial results were all in line. Second quarter financial results were all in line with our expectations. And we're happy to open it up now to take questions on any of the specifics.

Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from the line of Caitlin Burrows from Goldman Sachs. Your line is now open.