SL Green Realty Corp

Thank you everybody for joining us and welcome to SL Green Realty Corp's fourth quarter 2024 earning 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 prediction 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 and 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 Security and Exchange Commission. Also during today's conference call, the company may discuss non-GAAP financial measures as defined by Regulations 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 measure and the comparable GAAP financial measure can be found on the company's website in our current report on Form 8K relating to our fourth quarter 2024 earnings. Before turning the call over to Mark Holliday, Chairman and Chief Executive Officer of SL Green Road T-Corps, 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'll now turn the call over to Mark Holliday. Please go ahead, Mark.

Okay, thank you, and thank you for all dialing in today. It's great to speak to everyone as we kick off another exciting year, 2025. We're ready to dive into it. In years past, my opening remarks in January are typically brief, coming on the heels of what is a very comprehensive presentation we do for our institutional investors at the December Investor Conference, which was just seven weeks ago. It was a very exciting moment for the company in December, and for our team, because it really capped a pinnacle year where we achieved so much. Having come through some fairly tough years, It was nice to see our strategy pay big dividends for our shareholders, and we posted market-leading returns, and it was a great affirmation, if you will, of a strategy that we stuck to and hung in there, and now I think we're entering a period of time, which I mentioned in December, I think this is going to be possibly some of the best years we've had at the company possibly ever, given the dynamics of what we see in this market. We finished the year strong with 188 individual leasing deals, totaling 3.6 million square feet. That's our third highest leasing year ever. We closed on our opportunistic debt fund in December. That really came just within a short period of time of when we launched it earlier in the year. I think it was February or March, and we have additional closings occurring that we expect We'll round the fund out to over $1 billion in the first half of the year. There are opportunities that are far, far beyond what that $1 billion will provide for us. So the good news is we expect to have opportunities to deploy and to continue our historically successful debt-preferred equity platform in this fully discretionary fund format, and I think it's a real feather in the cap of this team and this platform to have been able to close this fund that quickly and what will be, you know, robustly in terms of amount for a first-time closed-end fund issuer, and we look forward to rolling out many additional strategies in the future. At its core, the most important stat is that we ended the year at 92.5% occupancy, and we're projecting over 93% leased occupancy in the coming year. Our business is fundamentally about filling office buildings with tenants. And when we get close to that 95% range and we are closing in on it, that's when we can really begin to push rents, rein in concessions, and see building values increase at above average rates. In December, we had 900,000 square feet of pipelines. That was the stat that we announced at our investor conference. We've already leased just in those seven weeks, 250,000 square feet since then. And we still have about 900,000 square feet of pipeline. So we're getting stuff done, but we're also immediately refilling that pipeline, which is what it's all about, refilling and growing that pipeline. And it's only January, which is usually a slow time in the market, but not here and not this year. In fact, there was a lot of good news in the earnings release yesterday. We had very strong profits that you saw. We continued on a path of, you know, sort of making the market in New York City with a lot of transactional activity. And we certainly got a lot of leasing done as well. I think close to 1.8 million square feet in the fourth quarter. Since that time, so as not to let too much grass grow into the feet, we've announced two big expansions already with leading companies this year. Yesterday, we announced the signing of IBM to a 93,000 square foot expansion at One Madison. That's about a 33% expansion over the square footage that they had originally committed to just within the past 18 to 24 months. So rapid growth Good for IBM. I'm sure part of that is due to their, you know, successes they're having, particularly, you know, a rapidly growing footprint in the AI industry. And also, you know, they're one of the many, many firms out there that are getting people back to work five days and are benefiting from, you know, collaboration in, you know, buildings that are designed, you know, to accommodate tenants like them. Aries added another 38,000 square feet. That was about a 10% growth in footprint, a little more actually, at 245 Park. And that's a building that's undergoing a significant repositioning and is also now a massive success. So we leveraged off that success that we're having leasing in our premier buildings and our premier Park Avenue portfolio by closing on 500 Park Avenue. We closed a couple of days ago. It's a great post-war landmark building designed by SOM. It's a building where we can bring our brand of hospitality, high-end amenities, service, capital improvements to move rents meaningfully higher and make it another key holding of ours on Park Avenue. We're very proud to make that addition. And we got brand new debt from Wells Fargo on that property. on terms that I think were very competitive and reflective of the building, its location, the opportunity, and sponsorship. The market on PARC, I'll just sort of keep harping on that, it's about as tight as I've ever seen it. Its least occupancy is about 7%, vacancy, I should say, is 7% or less, and dropping. And you can extrapolate that to trophy buildings throughout New York. There's about 38 buildings defined as trophy buildings. They account for 46 million square feet. That's over 10% of the market is trophy. The availability rate in those 46 million square feet is 6.7%. Notably, that's down almost 200 basis points from where it was just in the third quarter of 2025. That's what I mean when I talk about, you know, the rapidity with which things can tighten up when you get a confluence of diminishing supply and escalating demand. When I look out at the year ahead, my optimism is driven by all of this activity that I'm talking about, but also just by the fundamental economic success of New York City on so many levels. On job creation, the city's OMB is forecasting about 38,000 new office-using jobs in 2025. Those jobs will be coming out of the finance, business services, and information technology sectors. That translates into millions and millions of square feet of new absorption for each one of those bodies, and those are not work-from-home bodies for the most part. Combine that with the fact that on-site attendance is rising every month as companies are calling people back to the office four and five days a week, we expect to see very strong demand for office space throughout 2025, and we'll just continue to monitor and keep you all updated on these quarterly calls throughout the year. The revenue line item, moving away just from office-specific metrics, looking at the city overall, personal income tax receipts are way up, driven largely by the extraordinary profits being realized in the finance sector. You know we track and bring to your attention from time to time, the Wall Street member firm profits. They were $36 billion through September. They're expected to be $48 billion of profits through the end of 24 when they finally report on that. That would make it the third highest year ever in that category. And that drives corporate tax collections. That drives personal income tax collections on increased compensation. Combine that also with the fact that the city has been spending over the past couple of years three to four billion annually on dealing with the severe migrant crisis that New York City was experiencing more acutely than many other cities throughout the country. But now we've seen a trend towards shelter closures, which should accelerate, I believe, under this new administration and should be a big pickup for the city in saved costs as that crisis begins to become more manageable for the city, both in terms of space and support services for those community people. All of this occurs at a time when there's real scarcity of well-located, amenitized space in Manhattan. I said in the December investor conference, there are zero new ground-up office projects currently underway in core Midtown. And with four to seven-year timelines for major projects, The reality is that inventory is only going to get scarcer in the coming years due to that imbalance between timeline for demand and the realities of when the space can be delivered, in the best case. Space is going to be even more constrained. You've heard us talk about the office to residential conversion trend, which is moving ahead, and it's moving ahead rapidly. We are tracking about 15 million square feet of residential space that's being built out of office buildings being converted. Some of those deals are moving ahead. Some are announced. Some are being capitalized. But that subset is the subset we track. And I think it marries up with the city's numbers. That's extraordinary. If you look back over decades and decades, the city office inventory does not shrink. It stays static. It goes up modestly. It rarely shrinks, and if so, by tiny amounts. But to be talking about 15 million square feet possibly coming off the rolls as we sit here today, and I think that number could be in excess of 25 million square feet when you look back in time five to seven years from now, that is kind of like a double compounder to have accelerating demand while you've got diminishing supply and no obvious path for immediate delivery of new product because of the long lead times. And that is a recipe that I think makes us very optimistic for achieving our goals in 25 and beyond. I've always said that this conversion opportunity is kind of a triple win. It takes obsolete space off the market, it addresses the housing crisis in a big way, and it revitalizes New York's prime and primary central business district, Midtown, that needs 24-7 activity, not activity just during business hours. So we'll keep tracking that. We're participating in that as well. And you heard us announce that we are kicking off this year. We have kicked off, to be more accurate, the conversion of 750 3rd Avenue. The plans, which we unveiled in December, I think are spectacular. We're going to add approximately 650 units of new housing on 3rd Avenue, take that space off the market, and create real lifestyle amenity in that location, which will only act as an incentive to other buildings on 3rd and 2nd to do the same. And that's on top of the Pfizer former headquarters. That's a lot of square feet. It's probably over a million square feet in the headquarters, well over a million square feet that is coming off the market and is being converted by Metroloft. Yeah, by Metroloft. So anyway, it's just going to build and build on itself. And, you know, I would keep your eye, you know, fixedly attuned on to that. You know, so when we said in December we are out there on the hunt for another big development site in Manhattan, something we could do on a scale of a one Vanderbilt or one Madison. Uh, those are the reasons, you know, we think now is the time, uh, but you know, taking into account the lead time that, uh, it, it takes to get those buildings control approved and built. Um, you know, finally it's been exciting couple of months on the hospitality and entertainment side of our business. We're quickly becoming, you know, uh, a hospitality, branded hospitality, and a great restaurateur within the city. Not only did Mike Williams summarize a record-breaking year for Summit One Vanderbilt with over two and a quarter million visitors upstairs, we've now done over six million visitors since we opened at Summit One Vanderbilt, and it's contributing significant profits at the building level and to our company. But we also, it was announced yesterday The new location for the Paris expansion of Summit will be at the incredibly designed Triangle Tower in the 15th arrondissement of Paris. It has the most amazing views of the Eiffel Tower in the entire city. We're working again with our partner and incredible artist, Kenzo Digital, on a new bespoke concept for Paris. And it's going to be a lot of shared DNA with what we've got at Summit One Vanderbilt, but bringing everything up a level beyond anything we could have comprehended when we designed this first four years ago for New York. And we opened, in partnership with Danielle Ballou, Danielle's first steakhouse, La Tete d'Or, at One Madison. For my liking, it's the best steakhouse in the city, and I think maybe one of the best restaurants in New York, period. And combined with our Michelin-starred restaurants, Joji and Le Pavillon, I think we've proven our chops in the high-end culinary world with the incredible Dynex team and Danielle Balloud. And you could say we're only an Italian restaurant away from having most of the major food groups covered. So thank you for your support in 24. We hope and look forward to being on this journey with you in 25. And let's open it up for questions.

Thank you. At this time, we'll conduct the question and answer session. To ask a question, you'll need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please limit yourself to two questions. Please stand by while we compile the Q&A roster. And our first question comes from the line of Nick Uliko of Scotiabank. Your line is now open.