SL Green Realty Corp

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Thank you, everybody, for joining us, and welcome to SL Green Realty Corp's second quarter 2022 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 risk, 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. Also, during today's conference call, the company may discuss non-GAAP financial measures as defined by Regulation G under the Securities Act. The GAAP financial measures most directly comparable to each non-GAAP financial measure discussed and the reconciliation of the differences between each non-GAAP financial measures and the comparable GAAP financial measures can be found on both the company's website at the www.slgreen.com by selecting the press release regarding the company's second quarter 2022 earnings and in our supplemental information filed with our current report on Form 8K relating to our second quarter 2022 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 your questions to two per person. Thank you. I will now turn the call over to Mark Holliday. Please go ahead, Mark.

Thank you, and good afternoon, everyone. Appreciate you joining us today. I hope you're somewhere cool this afternoon, but mostly I hope you are in your office with your colleagues listening in for this today as we are all here at SL Green each and every day, five days a week, doing what we do and what helped us achieve or what we got done in this quarter. And I want to say how pleased I truly am with the company's achievements during this recent quarter. and throughout this year, everybody has been working really, really hard to get done as much as we possibly can towards our long-term goals and objectives for the year. It's been a volatile and challenging environment to navigate as we emerge from this most unusual two-year period, which required us really to write a new playbook to address the unprecedented restrictions and the unprecedented nature of this market. And I feel that we did so thoughtfully, skillfully, and we hope that those results of the first half will continue throughout the second half as we continue to outperform within our market. The same store portfolio now sits at 92% leased after 1.1 million square feet of office leases that we signed year to date. and we have a current and active pipeline of another 1.1 million square feet of leases and transactions, which we will be working tirelessly to convert to close deals between now and year end. While SL Green's second quarter closed leasing transactions was below average, this is not to be unexpected due to the front-loaded activity we had in the first quarter which followed a lot of activity we had in Q4, 2021, and a precursor to what we hope will be, um, you know, back to our average levels for, uh, Q3 and four. So, you know, there is a level of, uh, uh, of cyclicality to how and when we can time these leases, but, you know, we feel as we sit here today, uh, we are on track. And while, uh, Midtown Manhattan leasing velocity in Q2 was down. It was just down 4% below first quarter levels. However, it also represented a 33% year-over-year increase, and 81% of midtown leasing took place in Class A buildings. Tenant demand is shifting, as some of the big technology tenants, which expanded rapidly, have pulled back as they adapt to new workforce patterns. But financial firms continue to be very active in this market. In fact, the finance sector, which represented only about a third of the overall leasing activity in the prior two years during the pandemic, this finance sector accounted for half of all leases signed in Q2, and it also accounts for a disproportionate amount of our pipeline that I mentioned earlier. So we're happy to see that that sector is taking up a little bit of slack the technology sector is that they just the space they've taken over the you know over the over the many recent years we're also seeing a marked increase in tours and proposals from small to medium-sized tenants in buildings such as gray bar and 110 green street and most notably we believe that when tenants are faced with a market that gives them choices there's going to be a flight to quality mainly within that five to ten minute walk major transportation and commutation hubs and that plays into the strength of this well-located and highly improved SL green portfolio when you look past the headlines and take a closer look at the data it points to some very positive trends within New York City that if current trajectory continues will serve to restore equilibrium in this market first and foremost the jobs recovery in New York City continues at a robust pace and much more so than average and much more than we've seen in prior years, as 51,000 jobs were added in April and May, of which 21,000 jobs were categorized as office using. And hot off the presses today, maybe an hour ago or so, it appears that New York City added another 22,000 jobs in June as we inch closer to restoring 100% of pre-pandemic employment levels. In fact, through May, office-using jobs were 92% recovered from early 2020, and overall employment was about 77% recovered through May, and both of those numbers will now improve as a result of the data that just came out today. So that's good news. Also, space utilization in our portfolio, which we began tracking throughout pandemic as looking at physical occupancy as a percentage of pre-pandemic physical occupancy. July, this month, represents our best month of physical occupancy in over two years, with weekly portfolio averages reaching close to 45%, and that's adjusted to 55% when looking at the peak days of Tuesday, Wednesday, and Thursday, and it's July, and it's hot. So we do expect those numbers to improve markedly in September and, you know, there on out through the end of the year. You know, there's, again, looking at data in terms of the performance of our all important financial sector, Wall Street member firms on the NYSE reported in the first quarter $7.7 billion of profits. And while that was down measurably, from q1 2021 that's coming off of a record uh quarterly profit in 2021 but the 7.7 billion to put it into uh more what i'll call normal context is far better than the five-year pre-pandemic average of 5.6 billion and so while you know a lot of comparisons will be made to 21 of financial performance including uh big bank uh big five banks net income results for the quarter. It's all measured to pretty much record years in 20 and 21. But when you look at normalized years for New York City, the financial sector is still generating profits off of the trading volatility that is serving to somewhat mitigate these lower banking and advisory fees. And we do still see a lot of activity coming, leasing activity and expansion activity coming out of the finance sector. So that's That I think is very good news, and we can talk more about that in the Q&A. Tourism is another bright spot. Visitors to New York City, which had peaked at over 60 million pre-pandemic or as low as 30 million during pandemic, are now 85% recovered, and that's with relatively low participation from international visitors, which are expected to rebound in 2023. at which point full recovery is expected next year. And that's consistent with what we basically had discussed in our December investor meeting in terms of expectations, because that drives so much in terms of retail expenditures and hotel nights and boosts this economy in many ways. And I think Summit is fully reflective of this pent-up demand and energy that we see in New York City right now is we welcomed yesterday, this was Wednesday in July, 6,400 customers to Summit One Vanderbilt, and we will celebrate our one millionth customer next week, well ahead of original expectations and achieved on a fairly limited operating schedule that we've maintained since October 21st, 2021. So we're only nine months into it. we're going to have a nice celebration next week when the 1 millionth customer walks through our turnstiles it's for all these reasons and many more that we continue to have the confidence and conviction of our business plan in New York City you know that's not to say it's without challenges the capital markets are more difficult now than they've been in a long time primarily driven by by a dearth of debt capital. But this is a market where reputation, relationship, and record come into play. And, you know, there's a diversion of people who can get things done and people who are going to have a harder time getting things done. And, you know, I think 450 Park, which just closed, I think, in the past few weeks or past month, is as good a proxy as any for what our capabilities are in this market to acquire, I think, one of the most exceptionally located commercial assets in all of New York City on 57th and Park, further expanding our Park Avenue presence at a basis we found very attractive and then demonstrated our ability to capitalize that deal with 75% brand new fresh equity in this market environment and close an acquisition loan with one of our relationship and corporate lenders on terms that were really pretty much dead on underwriting. So that is, I think, just a demonstration of what this platform can do, what we expect we will continue to do throughout This market is more opportunities arise. A hundred church refinancing on a different level tells the same story. And that also closed in the second quarter. So, you know, more on that for Matt. But all in all, it's a challenging market, but we rise to the challenge. It's a market that I think has a lot of headline overhang right now. But I do think There is a lot of good news out there in the market directionally that we can build upon throughout the rest of this year into next year. And that will, you know, help New York recover because this recovery was never expected to be immediate. We expected this to be, you know, a multi-year recovery into 23, maybe even 24. But the point is we're heading in the right direction. and portfolio is in great shape, and we're going to keep our full attention on the task at hand and try and deliver for our shareholders. So now we want to turn it over to Matt. DiLiberto has got a little bit more commentary on the financial results.