This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk02: Hello, everyone. Please stand by. We will begin momentarily.
spk13: Thank you for your patience. Again, please stand by. We will begin momentarily.
spk02: Thank you everybody for joining us and welcome to the SL Green Realty Corp's first quarter 2024 earnings results conference call. This 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 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 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 fourth quarter 2024 earnings and in our supplemental information included in our current report on form 8K relating to our first quarter 2024 earnings. Before turning the call over to Mark Holliday, Chairman and Chief Executive Officer of SL Green Realty Court. I ask that those of you participating in the Q&A portion of the call, please limit yourself to two questions per person. Thank you. I will now turn the call over to Mark Holliday. Please go ahead, Mark.
spk08: Okay, good afternoon, and thank you all for joining us today. We appreciate the opportunity to discuss with you our results for the first quarter and review with you our recent announcements. It's been years since I've felt this optimistic about the trajectory of our business. After a challenging few years where we navigated unprecedented change by keeping focused and working harder than ever, we've emerged with a stronger portfolio, a more exciting and diversified business, and an even sharper strategy moving forward. Certainly nobody did more than us when it came to leasing within our portfolio, developing extraordinary projects, capitalizing on market dislocation, and recapitalizing deals when others didn't. Our reputation and extraordinary relationships within the lending community allowed us to create plans to extend their debt maturities, capitalize, and move forward. We're in the early innings of what we believe will be a period of market improvement fueled by the strength of New York City's resurgent financial sector, signs of a reemergence of the tech sector, and a new generation of workers who recognize that career advancement and relationship building doesn't happen at home. Now as we enter what we expect to be a period of significant growth and opportunity, we are encouraged by the market fundamentals which we believe are shifting to become tailwinds. Even in this higher interest rate environment, there's a solid foundation of positive economic momentum among our strong and stable tenant base. The diversity of New York City's economy is reflected in our portfolio and is one of the core strengths of this market compared to other cities, a market where a record 192 leases were signed last year at triple digit rents. And contrary to the media hype, the vast majority of these premium leases were not signed in new construction projects, but rather in well-located, easily commutable, and highly amenitized existing buildings. This aligns extremely well with SL Green's portfolio and the elevated office experience in which our hospitality group specializes. And the leasing results for the first quarter certainly support the case. We leased over 630,000 square feet of space at an average starting rent of $93 per square foot, one-third of which were renewals and two-thirds of which were new leases. On the investment front, we launched a $1 billion opportunistic debt fund in February, the only one of this scale that is entirely New York City-centric. This fund will allow us to capitalize on current capital market dislocation through the discounted acquisition of existing debt investments and the origination of new high-yielding debt instruments. Fundamentally, we are looking to replicate our approach for the last 26 years of investing in the best properties in New York City via strategic debt investments. The feedback is that no one is better positioned to take advantage of the moment in this market as we are, and our initial closings are targeted for sometime this summer. Just this past week, the governor and the legislature have reached agreement on a comprehensive office to residential conversion bill, which should be printed tomorrow and voted upon and signed this weekend. The conversion program is particularly targeted to existing midtown office buildings south of 96th Street and lower Manhattan office buildings as well. SL Green has played an instrumental role in helping to get this legislation passed as part of the state's new fiscal budget, and we applaud Governor Hochul, the Senate, and the Assembly on the doorstep of passing this landmark office to residential conversion bill, which I believe will have a transformative effect on this office market, much in the same way that we called very early on the transformative effect that East side access would have on the park Avenue corridor. I see this as being, you know, even more impactful than that event and certainly more comprehensive in a midtown and downtown, uh, encapsulated way by incentivizing the conversion of underutilized obsolete office space to housing. This vital legislation will uniquely address three of New York's most pressing challenges. Amidst record high Manhattan office vacancy, the bill will create stability in the commercial office market, produce the affordable and market rate housing we need to overcome the city's housing crisis, and generate foot traffic to support local retailers and restaurants in New York's central business districts. While many of these conversions under the new program will be taking place over the next three to five years, the impact will be felt immediately as owners remove their buildings from office space inventory and relocate out existing tenants into other buildings. Ultimately, we believe that somewhere between 25 to 40 million square feet of rentable space will convert under this program. If this bears out as we think, the result would be a significant reduction in available space far accelerated from whatever would otherwise have occurred simply through natural absorption of space via demand. Thanks to the leadership of the governor and our elected officials in Albany, as well as to Mayor Adams for his City of Yes zoning initiatives, the private sector is now positioned to again invest in New York City's housing future. As part of a new conversion incentive bill, we are planning to be among the first out of the blocks with the conversion of 753rd Avenue from office to residential use. The conversion of 753rd will spur on this important new development for the city, and there'll be more to come on this throughout the year. Lastly, we made enormous progress over the past year with our partners, Caesars Entertainment and Roc Nation, on our vision for Caesars Palace Times Square. We had the opportunity to meet with hundreds of stakeholders, grow our coalition, and gain significant support. We now know that this will be a long process with bids likely not due until 2025 and we will use this time to continue strengthening our bid because the project is worth the extra effort and Times Square stands to gain so much. One thing we know for sure, ours is the only proposal that is a true New York approach to gaming, providing benefits far beyond its walls. Thank you and we'd like to Take your questions on the quarters results, please.
spk13: Operator questions? Can we ... Operator, are you there? Yeah, I was the operator.
spk02: Operator, to answer your 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. Please stand by while we compile the Q&A roster.
spk13: Our first question comes from Alexander Goldfarb with Piper Sandler.
spk02: Your line's open.
spk15: Hey, good afternoon. Mark, let me first go to the office to resi conversion. I guess a two-part question, and hopefully Matt doesn't say that's all my questions, but if we look at what Douglas Emmett did out in Hawaii, they've been able to convert a building floor by floor so they didn't have to take it out of service. Obviously, for you guys, you've done 750, I think it's pretty fully vacant. But one, does this accelerate your plans and thoughts on how you would convert buildings? And then two, the buildings that are coming out, that 25 to 40 million square feet, are those really competitive with you guys? Meaning if those buildings go out of service, does that really force more office demand into your portfolio? Or what do you think the carry-on impact of that 25 to 40 million going offline is?
spk08: Yeah, well, you know, some of these buildings, you know, they're all competitive to a certain extent because they form the bottom of the market or, you know, the bottom middle of the market. These are not bad buildings. They're just what I would call secondary buildings. Secondary buildings do not mean bad buildings. Some of them, when I use the term obsolete, it just means that they don't really warrant the full-scale capital redevelopment and amenitization of redevelopment relative to the types of rents that can be achieved in light of the concessions that would have to be given. So they're not bad buildings. The buildings in Midtown definitely, you know, by eliminating such a vast quantity of space and taking the tenants out of those buildings and relocating them into existing space, like we did at, you know, 753rd is a perfect example. It's a good office building. It just, in our eyes, had a better, higher and better use. And we've relocated many of those tenants out into our portfolio and other surrounding buildings. So don't get the impression that these midtown buildings are bad buildings, simply because I use the term secondary or obsolete. They're just buildings that can be optimized as residential and should be optimized as residential. and don't necessarily warrant the same level of investment as buildings that we have where, you know, we're achieving a $90 square foot and above that's where that investment should go. And, you know, these buildings that might otherwise be $60 a foot or thereabouts on office rentable might be a hundred dollars a foot on resi square footage equivalent. So it's, it's, you know, it's a, it becomes very clear. And, you know, your comment about, um, You know, what Douglas Emmett is doing in Honolulu, I think it's spot on. I mean, obviously it's a different market, different size of market, but the point is the same. There was an example of one building having a fairly significant impact on an office market. Imagine dozens of buildings converting, being taken offline, tenants being relocated out. The way this bill is structured to get the maximum tax benefits is You have to file for your permits by sometime in 26. That means you gotta get going right now. This isn't one of those wait and see and I'll get to it in 27, 28, 29. This is intended smartly to coerce not just ultimate transition to building, but expedited transition to building because we wanna see this affordable housing and market and workforce housing problem addressed right now, not five, 10 years down the road So the tax benefits, I think, to me, look intentionally coercive in a way that's very positive for Citi and positive for affordable renters who need solutions sooner than later.
spk15: Okay. Second question is, the $2 billion of debt that you guys did clearly, I think, exceeded what anyone would have expected, especially with only $40 million of debt pay down. But as you guys look to future asset sales and really the stake sales out of one Vanderbilt and others of your top tier assets. Does the calculus change? Cause everything's interconnected, right? You do refinancing, you do better than you expect. It means less pressure to sell a stake here, do other things. How does the 2 billion that you have achieved so far, does that change anything that you've laid out at your investor day, you know, either accelerating things or taking the pressure off the need off to do other things?
spk08: Well, I mean, look, you know, it doesn't, it's, it's not changing our business plan. We don't, you know, We don't feel pressured. We're enjoying this. This is what we do and this is what we've done and what I've done for 33 years. We're in this because we love it, we enjoy it, and we view this as progress. We view this as putting points on the board for our shareholders. And we enjoy watching the impact on the stock and turning the tide and seeing New York come back. So we don't feel any more or less pressure to do anything. Our business plan remains the same. which is we do intend to, you know, seller JV certain buildings, which we've identified in the beginning of the year, plus along the year, we may, you know, add or eliminate from that mix. But the aggregate amount of activity is still our goal and objective for the year, both with regards to debt modification expenses and restructurings. As much as we just announced, We still have four or five big important deals that we're working on to go. And then two, you know, on the disposition front, you know, we think that the appetite both domestic and internationally for the best well-located premium assets remains very strong. And we, you know, remain committed to working through the monetization events of these assets like we've done, you know, for decades now as we harvest our gains and reinvest.
spk04: Thank you.
spk02: Thank you. One moment for our next question. And our next question comes from John Kim with BMO Capital Markets. Your line's now open.
spk05: Thank you. I had a question on earnings, excluding all the debt extinguishment and other one-time items. It was $0.98 for the quarter, which on a run rate basis seems kind of modest. I was wondering if this is a good run rate and what's your visibility on additional one-time items, whether it's debt extinguishment or sourcing any fees from your debt fund?
spk07: Yeah, John, it's Matt. So I read quite a bit of commentary out there that this was a miss, which kind of threw me because, Actually, the quarter was ahead on our numbers. And if you look at what our guidance adjustment was, our new guidance range, what the adjustment we made back in January, the adjustment we made last night are due to the incremental DPO gains, discounted debt extinguishment gains at 2 Herald, 280 Park, and 719-7. That would say all of the other assumptions that fed our guidance back in December are intact. So if the first quarter, we don't guide on a quarter-by-quarter basis, we guide on a full-year basis. And full-year guidance is the same so if it was it struck people as low in the first quarter uh that's relative to their models not ours we were ahead of our model by a few pennies excuse me mostly on the noi and summit side um and if people you know need to adjust their models to reflect higher in the second third and fourth quarters to get back to the core number that we guided to uh they should do that our quarterly earnings are not linear we have Fee streams that come through that make them lumpy. We have NOI building over the course of the year as we increase occupancy. So, you know, first quarter was better than our expectations and our full year guidance is intact.
spk05: Can I ask about 280 Park and the loan refinancing? It seems like there's very little residual equity in the assets. You didn't have to pay down any of the senior mortgages. although part of the MES, what was really in it for the senior lenders on this transaction?
spk09: First, just to make a statement up front, disagree with the assessment about the residual equity. Not at all. With respect to just the market in general, and then I'll speak about 280, as we saw with all these extensions and what we're seeing both in the CMBS and the balance sheet side, and as we demonstrated with all those announcements, We're able to get substantial runway and term on all these deals, and in return, the lenders want to see some form of skin in the game. At 280, we put up reserves for leasing costs that we were otherwise going to spend at the asset, and in assets that have free cash flow, the lenders were looking for some form of skin in the game, which we demonstrated through some symbolic pay downs. As we've been telling people on the past few earnings calls, these are lenders that we have big relationships with, and they have tremendous faith in us. So you should expect to see more of what we got done over the past quarter as we get done the balance of the $5 billion program.
spk05: Great. Thank you.
spk13: Thank you. One moment for our next question. And our next question comes from Tom Catherwood with BTIG.
spk02: Your line's now open.
spk16: Thank you. Good afternoon, everybody. Obviously, very strong quarter on the leasing front, and Mark, you sound convinced on the durability of this demand. How does your leasing pipeline compare to the you know, 1.4 million square feet roughly that you had at the start of last quarter. And could you provide some more color on the reemergence of the tech sector that you mentioned in your remarks?
spk08: Yeah, I'm going to actually hand that ball off to Steve Durrells so we can go right to the source here because he's in charge of that pipeline, obviously, and can go into some discussion about, you know, after having done, by the way, big leasing in the fourth quarter, big leasing in the first quarter, you would think that pipeline's depleted, but maybe not. And on the tech sector, we have some thoughts on that as well.
spk11: Sure. So just to give you a little color on the pipeline, we actually have grown the pipeline despite very strong leasing in the first quarter. We're now at a current pipeline of over 1.6 million square feet. Of that 1.6 million, 840,000 square feet of it is actually leases that are out in current negotiation as opposed to over 700,000 square feet of term sheets that are in negotiation. Of that, two-thirds of the space are new tenants as opposed to renewal tenants. And I think another point to make within the pipeline is that of the leases that are out almost 500 000 square feet of those leases cover current vacancy within the same store portfolio with regards to the uh increasing demand from the tech sector there's over five million square feet of uh current tech tenants that are being tracked in the market today not necessarily just within our portfolio obviously but active tech requirements that are with tenants that are searching the market That's a 53% increase from a year ago. And just to give you a flavor, you know, we've seen tenants like Intuit and Fanatics and Figma and a couple other big household names that have started to kick tires in the market as a result of adding headcount to their Manhattan employee population.
spk16: That's great. Thank you for that, Steve. And then maybe on dispositions, obviously it was great to see 719-7th and Palisades go into contract. And we understand that the mix can potentially shift throughout the year, though the aggregate remains the same. That said, is OVA, the partial interest sale there, still in the plan? And what is the expected closing on 625 Madison?
spk08: You know, those assets are still very much in the plan, in active negotiations, documenting big deals. Big deals don't happen quick, nor, you know, do they need to be rushed. But we're confident in their outcome. And, you know, in terms of timing, I don't know if we've given any guidance beyond this year. I mean, we hope to get them, you know, buttoned up sooner than later. Certainly OVA, which is more advanced. The second one you said was, did you say OVA? ESB 625. 625. 625 closing? That one's in contract.
spk17: Yeah.
spk08: So is the question there about closing timeframe on 625?
spk17: Yes. Okay.
spk08: That deal is slated to close at the end of this month. And so it's, you know, another two weeks or so. And, you know, we're going through the motions with the buyer to go through that closing process and, you know, expect that to happen in this second quarter. And OVA, I mentioned, we're steaming away on. And then 245 Park is another one that we're getting enormous traction on leasing. We have more leases pending that are in that million six. The JV execution is enhanced for all of us. The company shareholders, everybody, the more leasing we get done, the better. So we're just going to keep leasing. ahead of even really having started the redevelopment, but on the promise of the redevelopment and the commitment of the redevelopment, which I think is going to make it one of the best non-new buildings on Park Avenue.
spk16: Great. Appreciate the answers. Thanks, everyone.
spk08: Thanks.
spk02: Thank you. One moment for our next question. And our next question comes from Ronald Camden with Morgan Stanley, your line's now open.
spk14: Great. Hey, just two quick ones from me. Just staying on the leasing front, if I could just add, if you could talk about sort of the mark-to-market on the leases and the pipeline, because I saw you reiterated sort of expectation on both sort of the occupancy targets as well as the leasing volumes this year, which, you know, based on the pipeline, it sounds like you're well on track. But maybe talk a little bit about the mark-to-market. Thanks.
spk11: Yeah, just to give some color on, you know, the negative mark to market in the first quarter were really driven by two buildings. We had a number of leases at Graybar Building and 800 3rd Avenue that, you know, sort of drove the negative mark to market for the overall leasing for the quarter. On balance, most of the leases signed in the rest of the portfolio were We're generally positive. So it's unfortunate that we had a couple of stragglers that pulled us down. But as we look forward into leases that are out right now, and then beyond that, the overall pipeline of 1,600,000 square feet, we've got some big positive markets. And that's what gives us the confidence to assure ourselves that we're going to be positive for the year.
spk14: Great. And then just my last one, and I guess it kind of ties into asset sales, which you just touched on, but just taking a step back on terms of the target of the year of how much sort of debt you wanted to take out on the balance sheet. If you think about sort of the refinancing success you had, the plan for the asset sales, how is that sort of trending? Is there in line with expectations? Could you even do better? Just trying to get a sense of how much debt can come off the balance sheet this year. Thanks.
spk07: You know, what Mark said earlier is that our business plan, you know, remains intact and that's true. So we laid out in December, you know, north of a billion dollars of debt reduction through execution of this plan. So at a minimum, we would expect that. But we've had some additional success in things like the discounted debt extinguishment at Two Herald and some asset sales we didn't have wired in like 717 and 719 in Palisades. So that would see us, you know, be even ahead of that original target that we laid out back in December, if we execute the entire business plan we have laid out. Great. Thanks so much.
spk02: Thank you. One moment for our next question.
spk13: Our next question comes from Michael Griffin with Citi. Your line's now open.
spk03: Great, thanks. Maybe just going back to the refinancing for a bit that you did in the quarter, should we take this as an indication that lenders are more willing to work with owners as opposed to having to take back the keys? Or is it mainly specific to the existing relationships that you have in the market?
spk08: Yeah, I don't want to generalize the activity to anything beyond SL Green, our assets, relationships etc I think it's a still a tough market out there and you know as Harry said earlier it's going to come a lot down to belief in the sponsor the sponsors plan making sure skin is in the game equity in the deal etc and where it all lines up I think you know lenders many lenders have and will conclude that That's the best path towards loan resolution optimization and payoff. But that isn't necessarily every case. You see throughout the city, there's examples of what we've done, and there's examples that have gone in the other direction. And it's going to take a while to work through all of the effects of the interest rate increases which have occurred over the past two years. But, you know, we feel very fortunate that we're positioned in a way that we think we can manage through all of that in a very, you know, steady, responsible way and position ourself for growth this year, which I think is what you're hearing. And, you know, with the backdrop of improving leasing market and office to resi conversion program, you know, it harkens back to what I said earlier today. I think the trajectory we're on is very, very good. And, you know,
spk03: know we're optimistic but i i don't know i don't think you can really uh just sort of generalize or from that or extrapolate them gotcha uh that's helpful and then maybe a question on the 10 east 53rd transaction you're just looking at this property the rents seem relatively attractive call it in the mid to high 80s it's fully leased it seems cash flow positive i'm curious if you can give any insight as to why your JV partner decided to exit that building? And could we see, I guess, the potential for more of the same for some of your other joint venture relationships and exiting some of these properties?
spk09: We have a policy here not to comment on what our partners or lenders are thinking and don't want to put words in their mouth. But we'll continue to look for opportunity. We invest in real estate. And if we see opportunities that make sense for us, we're going to continue to do it.
spk03: Great. That's it for me.
spk02: Thanks for the time.
spk13: Thank you. One moment for our next question. Our next question comes from Camille Bonnell with Bank of America. Your line is now open.
spk00: Hi, everyone. Can you speak to the thought process of moving forward with the disposals of 719 and the conference center, just given these assets were not in your December pipeline? And how should we be thinking about further leveraging opportunities since you're working on another $3 billion?
spk09: Yeah, in both instances, those are opportunities that were in front of us. They came up. Certainly, as it pertains to Palisades, it was not an asset that we had a long term strategy for and not part of our core business plan. But again, continue to look for us to mine opportunities as they sit in front of us, even if they're not in the main business plan.
spk00: Okay. And as you work through your disposition and deleveraging program, how do you think about the earnings volatility when more and more of your cash flows are becoming weighted to ancillary income?
spk07: Well, yeah, no, I don't, I don't think that's the case at all, but you know, we are building ancillary income streams. I don't want to, I don't think it's becoming disproportionate to that. We're trying to grow things like our special servicing business that we're going into the fund business and you know, we're managing you know, joint venture interests. That's, that's good business. It's diversifying the revenue streams, which you should do separate and aside. We have plans as we always do to acquire assets, dispose of assets. We have had a deleveraging strategy for a couple of years and, We have more of that this year, and then we're going back on offense. So I think they're kind of separate and distinct. We'll continue to try and grow and diversify the income streams while managing the balance sheet and the portfolio with opportunistic acquisitions in this position.
spk08: Yeah, I wouldn't want to minimalize the attractiveness or the importance of a business line like Summit and Summit Entertainment and the ability to grow that globally. You know, technically you can call it, I guess, an ancillary business income line, but I look at it as a substantial additional attractive business that we've developed organically in-house. It's very profitable. It was fairly capital light. We're working to expand that into other locations now and making good progress. And I think it's quite an important reason overall to be interested in attracting Tesla Green stock is not only our prowess in what we do in commercial space in New York City, but what we're doing in the areas of hospitality, food and beverage, entertainment, you know, soon hopefully in the funds management business, definitely already deep into the special servicing business, which is a fee-for-service business where we've gotten incredible traction over the past, well, really since inception. I don't know, we didn't mention, we just got an additional rating from Morningstar. What's the acronym? DBRS. DBRS Morningstar just gave us our third designation as an accredited special servicer, large loans, SASB loans. These are accreditations, not easy to come by. And having that now from S&P and Fitch and Morningstar, you know, gives us an ability to create all sorts of new client and customer relationships. I think we've got close to 10 billion specially serviced right now, and that's on top of about another 7 billion that we've serviced previously, and we're just getting started there. So they're important business lines. We focus on them. We have people internally who specialize in those areas, and we're looking to grow all of them.
spk06: Thank you.
spk02: Thank you.
spk13: One moment for our next question. Our next question comes from the line of Amatayo Okusanya with Deutsche Bank. Your line is now open. Amatayo, your line is open. Please check your mute button.
spk04: Hi, good afternoon. Can you hear me?
spk07: We can now.
spk04: Excellent. Could you talk a little bit about the lumpiness of earnings in Summit? Specifically, I'm kind of wondering whether that's why you may have been getting some of these notes in first quarter saying it was an earnings miss, given that probably most of the earnings associated with that business happens over the summer.
spk07: I got to restrain that. Yeah. Mark's going to hold me down because if I hear earnings miss one more time, I'm probably going to lose my mind. So there was no miss. If we missed anybody's model, it's because your model was wrong, not the numbers. Separately, as to Summit, it is actually fairly linear. The fourth quarter is slightly better, and the first quarter is slightly lower. We actually do only shut down for two weeks a year at Summit, and that happens in the first quarter. And obviously, the fourth quarter is buoyed by you know, holiday sales. But generally speaking, the summit is pretty linear because we're sold out just about every time slot and every day and maxed out.
spk04: Interesting.
spk13: Okay. Thank you. Thank you. One moment for our next question. Our next question comes from the line of Peter Abramowitz with Jefferies.
spk02: Your line's now open.
spk06: Thank you, yes. Just continuing on kind of the topic of the earnings trajectory throughout the year, I think if we back out the debt extinguishment and one-time items, it's implying about $1.11 per quarter for second through fourth quarter versus kind of the $0.98 without the debt extinguishment in the first quarter. So just kind of curious if you could provide an overview. I know you said it's lumpy throughout the year, but if we average it out, should be getting to that 111. So what kind of bridges the gap from, you know, first quarter to where you expect it to be for the rest of the year?
spk07: So I'm not going to give quarterly guidance. We don't, never will. We give annual guidance. The earnings can be lumpy depending on, you know, Success fees that come in through special servicing or fees recognized on, you know, sale transactions or the like. So, you know, we give full year guidance and, you know, there is an acceleration of income, obviously, off the first quarter because the first quarter is low. And obviously that's not going to, if you run rate that, it's not going to get to the full year guidance that we gave. You know, how it bounces quarter to quarter is going to be dependent on how deals close or special servicing fees are recognized or how occupancy takes shape. But we are confident in the full year number, and that's why we maintained it.
spk06: Got it. So I guess to the extent that, you know, if you're expecting, say, an acceleration on the NOI side, is that mainly just improving occupancy?
spk07: Yes, of course. I mean, we leased 1.8 million square feet last year. We're going to lease 2 million square feet this year. Occupancy is increasing. Rents are increasing. That translates into NOI increasing.
spk06: That's all for me. Thanks.
spk13: Thank you. One moment for our next question. Our next question comes from Steve Sackwell with Evercore ISI.
spk02: Your line's now open.
spk10: Yeah, great. Thanks. Matt, I just wanted to ask about the earnings miss in the quarter. I'm just kidding.
spk07: You're banned, Steve. That's it.
spk10: Okay. Um, Mark, I know you don't like to talk about kind of partners, um, but I guess the transaction at two 80, your ability with tornado to basically pay off the, the Mez portion of that at 50 cents on the dollar was, you know, just a bit eyeopening. And I know you can't speak for your partner specifically, but was that a situation where maybe their cost basis wasn't at full par and that gave them some flexibility to do something with you at a lower rate? Cause you know, if there was a view to have a lot of, uh, equity value in the building. I know if you were sitting in their shoes, you might not sell it at 50 cents on the dollar. So I think we're just trying to get our arms around. It's a great execution on your part, how that sort of maybe played out.
spk08: I got to tell you, I think in times like this, trying to overthink and overread people's motives is dangerous. This is a foreign lender who who has their own set of mandates, issues, objectives, things that we don't know and can't get into and don't really want to get into. This is not at all unusual. There are lenders that have mandates to kind of reduce real estate as a percent of assets, period. And it's not a wrong or a right objective. It's an objective and it's not an unusual objective. And in those cases, there can be negotiations around, you know, what is and isn't the right, you know, price and value for a dead instrument at a moment in time that looks, you know, to want to be liquefied and monetized in an environment that I said earlier is still capital constrained, but getting better. Then there are those that will restructure and term out and hang in there and have different objectives. We all know how to calculate how much equity is and isn't in a deal. You run the numbers. The numbers derive a current and a stabilized value, and that's how we've always done it. Rates vary and values vary, but I don't think it's a black box. And we believe there's equity in the deal. I think the lender probably believed there was certainly stabilized future equity in the deal. But I think that's disconnected from what any party decides to do at a moment in time here in April or March or April of 2024. You do what's in your best interest at the moment. And to take a moment like that and try and extrapolate as to what this building is going to be worth. When does the debt mature, Harry? September 28th. September 28th. So, you know, we'll revisit this issue like, you know, close to 29th, you know, and we'll have the conversation then about, you know, the equity in the deal in 29th. I think this building, you know, is going to ultimately respond well to this market. I mean, we're working hard to lease it up. I think we did the Antares lease, right? 76,000 square feet. Wearing the props on that, Steve Sackler. Come on, baby. And we've got more pending. So us and Vornado are in it for the duration. The duration is defined, I guess, for the next four and a half years. And every party did what was in their best interest. It's not a war. It's not a fight. It's not a gamesmanship thing. I think it was This was a sensible business deal. Everybody decided where they wanted to be, and on we go.
spk10: Okay, great. Thanks for the color. Maybe, Matt, on the dividend, just how are you guys thinking about the dividend? If you've got these investment opportunities in front of you, just remind us kind of where the dividend is in relation to taxable net income, and might that dividend be served better either through debt reduction or through kind of the investments that you made, say, at 10 East 53rd?
spk07: Yeah, the dividend was set based on taxable income, which 100% of taxable income, that's the basis for it. And, you know, we've been monitoring that closely because we've been generating incremental gains. These DPO gains are taxable income as well. But we have, you know, strategies we can employ and, you know, try to maintain that taxable income trajectory that we've been on to keep the $3. So, you know, very comfortable with our $3 as we were when we set out, even more so now. And, you know, we'll look at the dividend again at the end of the year, but we've said over and over again how important the dividend is to us.
spk17: Great. Thank you.
spk02: Thank you.
spk13: One moment for our next question. Our next question comes from Caitlin Burrows with Goldman Sachs.
spk02: Your line's now open.
spk01: Hi. Good afternoon, everyone. Like you mentioned earlier, 4Q was an active leasing quarter. 1Q was too. We've heard from some industrial companies that we've heard from some in industrial REITs that companies are being hesitant about signing big leases. So I was just wondering, are you seeing any of this hesitancy related to macro uncertainty play out in your pipeline, or does it just seem like a different story?
spk11: No, not at all. I mean, there's no doubt that if you looked at the stats for, you know, overall market stats for the first quarter, big tenants, you know, there was a dearth of big leases signed. But if you looked, you know, scratched the surface on the pipeline and deals pending not only within our portfolio, but if you looked on a tenants in the market list, you know, active tenant searches that are out there, There's some very, very large requirements. I don't recall a moment in time where I had the same number of large leases out or term sheets out with large tenants that we do today. So I think what you saw in the first quarter is simply a quirk in timing. There were a lot of big deals signed in the fourth quarter. And I think you're going to see a bunch of big leases signed second quarter and through the balance of this year. And one other point I'll make is that the vast majority of big leases that are being signed or were signed in the first quarter were all relocations. And those are long-term commitments by tenants of size as they bring their employees back to the office.
spk01: Got it. And then I know earlier you guys talked about some of the disposition and JV outlooks. Just going back to 245 Park briefly, were you saying that you're planning to maybe do more leasing before focusing on the additional JV sale? Or is that something that's kind of moving along and could be done anytime? Any update on the 245 Park JV in particular?
spk09: Yeah, you know, a message we I think also delivered down at Citi was, you know, this is a big focus for us for the second half of the year. We've got some leasing in pipeline that we're trying to complete, as Mark noted, and I think it will package very well as we get into the second half of the year and get some more of these business plan objectives done through the first half of the year.
spk01: Got it. Okay, thanks.
spk13: Operator, do we have any more questions?
spk02: Our next question comes from Blaine Heck with Wells Fargo. Please go ahead.
spk17: Great, thanks. Just two quick ones for me. Just following up on the potential sales of interest at OVA and 245 Park, obviously we've seen some fluctuation in foreign exchange rates and a pretty dramatic recent increase in the 10-year. So I guess the question is, Have those dynamics impacted the interest level from any of the prospective investors on those deals? I guess, has anyone fallen out of the running?
spk09: No.
spk17: All right. Fair enough. And then I think you mentioned putting some leasing cost reserves in as part of the modification of the 280 park loan. Can you quantify how much that was?
spk09: The amount that we put in collectively with Bernado was approximately 68 million dollars.
spk13: So 34 each.
spk02: Thank you. This concludes the question and answer session. I would now like to turn the call back over to Chairman and CEO Mark Holliday for closing remarks.
spk08: Thank you. You know, again, kudos to the whole team here at SO Green because I know they listen in this call it was a great great launch to the year fantastic three months and we're busy at work here making sure that when we speak again in three months we'll have hopefully some equally good news maybe even better news and you know we look forward to it thank you thank you this concludes today's conference call thank you for participating you may now disconnect
Disclaimer