SL Green Realty Corp

Thank you everybody for joining us and welcome to the SL Green Realty's Corp second quarter 2023 earnings results conference call. This conference call is being recorded. At this time the company would like to remind listeners that during the call management may make forward-looking statements. You should not rely on forward-looking 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 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 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 second quarter 2023 earnings and in our supplemental information included in our current report on Form 8K relating to our second quarter 2023 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 like to turn the call over to Mark Holliday. Please go ahead, Mark.

Thank you and good afternoon, everyone. Welcome to SL Green's earnings call. I want to thank all of you for joining us today as we review the second quarter's results and discuss our progress on our 2023 business plan. I want to begin by commending the entire SL Green team on a very strong half of year, this first half, particularly as we were confronted by the dual challenges of a partially remote workforce and increasing interest rates. But headwinds notwithstanding, our team added to the year's accomplishments in meaningful ways during this second quarter. No one in the business works harder for shareholders than the men and women of SL Green who lead by example and show what can be achieved by a 300-person corporate workforce that is present, productive, and positive every single day of the week. By the numbers, it was a solid quarter. As our FFO was above expectations, we leased another 410,000 square feet of office space. Our same-store NOI increased by 3.6%. and our same-store office occupancy at quarter's end was slightly ahead of our original projections back in December. These performance stats are in stark contrast with the negative drumbeat of media coverage proclaiming the demise of office space. We continue to see demand building as businesses who hit the pause button during the prior three years are more and more frequently acting on plans for future growth, particularly in the finance sector, which accounted for about 38% of market leasing during the second quarter, as well as business services, healthcare, and education sectors, all of which continue to be active and all of which help to mitigate the pause in the tech sector. While overall leasing in the market in the first half of the year was below historical average, SL Green has garnered more than its fair share and has now entered into year-to-date leases totaling 950,000 square feet of space leased, and we are trading paper with a lot more tenants, evidenced by our 1.1 million square foot leasing pipeline, more than two-thirds of which represents new leasing activity. Midtown continues to outperform with the lowest availability rate and the highest leasing volume among all Manhattan submarkets. This affirms our core property strategy and should enable us to gain occupancy during the second half of the year from what we believed to be our current low point. However, the financial stats only tell part of the story, as significant progress was also made on the property front. Of course, the highlight for the quarter was the completion of our joint venture partnership with Mori Trust. The transaction culminates years of relationship building, affirms the global allure of investing in trophy assets and prime corridors, and now fully resets ownership and capital stack in what is a case study of opportunistic investment, enforcement, and recapitalization of an important asset on Park Avenue. We continue to evaluate and refine different redevelopment scenarios and hope to commence physical work towards the end of this year. I want to acknowledge the extraordinary efforts of our Chief Investment Officer, Harrison Satomer, who was backed up by Young Han, our SVP of Investments. They literally worked day and night for months on end to ensure the successful completion of an important component of our business plan. This is our first partnership with Mori Trust, and they have already proven themselves to be excellent partners. We are making great progress on other fronts as well. At One Madison, we now believe we can obtain a TCO for the project in September of this year, a full three months ahead of schedule, and open our doors to tenants in the second quarter of 2024. The ability for us once again to deliver ahead of schedule and under budget is a testament to the efforts of Robert Schiffer, Robert DeWitt, our amazing head of construction, and John Krush, our project executive, along with our partners at Heinz. Additionally, it accelerates the receipt of $577 million from our partners on the project, which is triggered upon the TCO of the project later this next quarter. I'm also pleased to report that during the second quarter, we topped out 760 Madison and began marketing that project. The project is absolutely spectacular. Excited to show it to shareholders who have not yet seen it. Please walk by, check it out. It's already impacted the skyline in the historical district of Upper East Side, Madison Avenue. a very positive way it's been extremely well received by the market and we're proud to have you know initiated this project and fostered along with our partners at Giorgio Armani we already have several units under contract with significant interest on the balance of the units at prices which will be market leading for Upper East Side condos a testament to the power of of the SL Green and Giorgio Armani brands Envision. We expect to turn over the retail to Armani by end of September, and rent would start right away. First, closings on residential units will commence in June of next year, with all net proceeds of sale available for use by us, as there is no indebtedness against the project. We'll have more commentary on the sales effort and pricing metrics on our next earnings call which I guess is in October. Finally, we received our TCO for 15 Beekman this month and plan to turn over the project fully to Pace University in August. The props here go to the SL Green team of Peter Flint, John Hefferon, and Jason Pistusen. And if that weren't enough, a reminder that in April, just after our last earnings call, we closed the refinancing of 919 3rd Avenue, proof that the credit markets are still available for the highest quality office assets and reputable sponsors. So the first half of the year is now in the books, but no rest for the team. We're going to continue to forge ahead through the rest of the summer to set the table for a successful second half of year. Management is completely aligned with our shareholders, and we will work hard to create value, generate earnings, and protect the dividend. Thank you. Operator, we can take some questions.

Certainly. Ladies and gentlemen, if you would like to ask a question at this time, please press star 1-1 on your touchtone telephone. Again, for any questions, please press star 1-1. We do ask that you please limit yourself to two questions. One moment while we take our first question. And our first question will come from Michael Lewis of True Securities. Your line is open.