Thank you everybody for joining us, and welcome to SL Green Realty Corp's First 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 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 is 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 first quarter 2022 earnings and in our supplemental information filed with our current report on Form 8-K relating to our first quarter 2022 earnings. Before turning the call over to Marc 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 to Marc Holliday. Please go ahead, Marc.

Thank you. Good afternoon, everyone. And I appreciate you joining us all today for SL Green's First Quarter Conference Call. We very much appreciate the opportunity to discuss with you the company's results and activities and provide some of our thoughts on the overall state of the commercial market in New York City. I'm happy to say, notwithstanding the challenging operating environment of the recent past, SL Green's portfolio is dramatically outperforming the overall Manhattan office market, reaffirming its place as New York's leading commercial real estate company and demonstrating its ability to adapt to an ever-changing market. We've done over 4 million square feet of leasing in our office portfolio since the beginning of 2020, keeping our occupancy at approximately 93%, which is more than 10 full percentage points higher than the overall Manhattan office market and is expected to rise above 94% by the end of 2022. Focusing on current results, SL Green signed nearly 900,000 square feet of leases in the first 3.5 months of 2022 alone, including the blockbuster announcement of IBM's 328,000 square foot long-term anchor lease at our transformative One Madison Avenue development. A new lease to a global information services company, encompassing 236,000 square feet for their new headquarters at 100 Park Avenue and the signed lease with UN Women for an 85,000 square foot renewal at 220 East 42nd Street, more commonly known as the news building. Even after all that activity, we still have an impressive pipeline of leases totaling another 900,000 square feet, which we hope and expect to execute upon throughout the remainder of the year in addition to building new pipeline throughout. With One Vanderbilt Avenue now 97% leased, the demand we are experiencing and leases we are signing is not just for new space, but rather for highly improved amenitized and well-located space, which comprises the entirety of our portfolio. The success of our portfolio through the pandemic is the direct result of a multi-year strategy to narrow our focus on the best buildings, in the best locations, and as a result, our portfolio is without question the strongest it's ever been and getting even better with the announcement yesterday of the addition of 450 Park Avenue to our roster of premier buildings. We have worked incredibly hard over the past five years to transform our portfolio into the force that it is today, concentrated within resurgent East Midtown with all the attributes that tenants have come to demand: health and wellness, exceptional amenities, great location, easy commutability, and high design. Looking at our portfolio today, we are lean, strong and highly concentrated in our core prime assets. Over the past several years, we've dramatically reduced or entirely eliminated ancillary business lines, selling off our suburban portfolio, minimizing our retail and residential portfolios and having our debt and preferred equity book. Our core office portfolio remains at a similar size from when we embarked at the outset, but we've replaced many smaller non-core assets with fewer, bigger, higher-quality properties, thus giving us an edge on efficiency. And new developments are now a much bigger component of our portfolio and will only grow as One Madison, 760 Madison, 7 Day and 15 Beekman move towards completion and stabilization. At the center of it all is One Vanderbilt, a triumphant development and the most successful building of 2021, leading in East Midtown renaissance and defining a new standard for office in New York and around the world. The response has been overwhelming with more than 375,000 square feet of leases signed in 2021 at record-breaking rents. The success of OVA has sparked a broader East Midtown revival with massive investment taking place across the district now as the city's strongest leasing, which is occurring in core East Midtown. The building itself has become the locus of activity in Midtown, helping to draw people back. Last year, as you know, we opened Daniel Boulud's Le Pavillon at One Vanderbilt, signaling the return of the New York restaurant scene in Midtown. We knew the demand was there, but we've been completely blown away with the reaction as every dinner table has been taken since opening with long waitlists to boot. In October, we upped the ante by celebrating the launch of Summit One Vanderbilt, an immersive experience unlike anything else in New York. This was another major milestone for New York signaling to domestic and global tourists alike that the city is open for entertainment and new and exciting things can come out of even the most trying of circumstances. In just 149 days of operations, Summit One Vanderbilt generated over 550,000 total visitors from 57 countries around the globe, quickly becoming the hottest new attraction in New York City within the competitive landscape for entertainment attractions. Looking ahead, One Madison is poised to transform Midtown South just as One Vanderbilt sparked the resurgence of East Midtown. IBM's decision to sign on as an anchor tenant is massive for New York City, signaling the long-term health of the city, and the ongoing attraction of Midtown South. One Madison follows the One Vanderbilt playbook by leveraging its retail space to bring an amenity to the building, tenants that adds value with Chelsea Piers, delivering a 56,000 square foot fitness facility. One Madison responds in every way to the ongoing rapid transformation and work culture that has brought a heightened desire for healthy, productive, hospitality-focused work environments. We're bringing the same approach to a series of new development projects, including 760 Madison, 7 Day, 15 Beekman, all centered around modern and luxurious design, curated amenities and outdoor space offerings. And looking to the future, there is reason for optimism based on the continuing job growth in New York City. 84% of office jobs have already been recovered and full recovery is projected by OMB to occur by mid-2023 with 24,000 office-using jobs expected to be created in 2022 alone. Every day, we see and feel New York City coming alive. We are proud to be a part of New York City's comeback and we'll continue to look for ways to capitalize on the current market environment to deliver value to our shareholders. Thank you. And we are happy now to take your questions.

Thank you. Our first question comes from Alexander Goldfarb with Piper Sandler. Your line is open.

Hey, Good afternoon to everyone. Two questions, so the first question is for Steve. Certainly headlined One Vanderbilt been great for Midtown. As you look at the buildings in the Grand Central market, are tenants still saying brand new construction, that's where we want to be, so the bias is, whether it's the far Westside or Downtown to new buildings? Or are you seeing tenants increasingly look at older vintage assets in the Grand Central market? So I'm trying to figure out, is older vintage and Grand Central becoming more competitive? And basically, how this relates to 450 Park?

Well, I think all you have to do is look at the 235,000-foot lease that we did at 100 Park Avenue to answer that question. Right? It's a vintage building. But it's been heavily renovated over the years and amenitized. And we're seeing a similar sort of activity throughout our portfolio, where we have well-located, recently upgraded amenitized product. So it's clearly not a bias simply to new construction, but better a bias to good quality well-positioned product.

Okay. Andrew, regarding the DPE book, rates have significantly increased, and I believe about a third of your DPE book is floating. Are your spreads for the overall book fixed, meaning as rates fluctuate, do you maintain the same spread, or is there a difference between your funding costs and the interest rates you're earning, so that the spreads will change as interest rates rise?

Now we're hedged, if you will. I mean, the floating-rate assets have fixed spreads over the floating index, which resets every 30, 60, or 90 days depending on the documents. The new loans that we're looking at originating are also primarily floating to increase that sort of floating rate hedge that the debt book provides us versus our floating rate liabilities.

Okay, thanks.

And we don't have any leverage, any specific leverage on the book today. So it's only funded off the corporate line of credit basically.

Our next question comes from Jamie Feldman with Bank of America. Your line is open.

Thank you. I was hoping to get a sense of how you think tenants will utilize the space moving forward. Many offices are open again, but employees may not be fully returning and are given flexibility regarding how many days they work each week. As you converse with your tenants, what does the future look like in terms of the number of days people will spend in the office? Will they be using hoteling arrangements? Any insights you can share on this would be appreciated.

Many companies are still figuring out how they will utilize their offices in the near future. The key takeaway is that tenants are demonstrating a long-term belief in the importance of office space as a hub for business activity. This is reflected in the 4 million square feet of long-term leases we signed during the pandemic, where tenants have re-evaluated their space usage, shifting away from the high-density plans of three or four years ago to create more open environments. They are also incorporating more non-workstation areas for collaboration, dining, lounges, conference rooms, and wellness spaces. Overall, the new office spaces being developed are designed to enhance productivity, be more valued by employees and clients, and focus less on density and efficiency. Instead, the emphasis is on sustainability and creating helpful environments. It seems that while employees may be coming back to the office three or four days a week, they still prefer to have their own workstations rather than sharing or hot desking. Most tenants in our 27 million square foot portfolio are either maintaining or expanding their space requirements, with 35% of tenants renewing leases opting for more space. The previous trend toward densification, which posed significant challenges over the past decade and a half before COVID, appears to have stalled. Instead, we are seeing innovative floor plans that foster a hospitality-like atmosphere aimed at bringing employees back to the office and aiding recruitment and retention. Conversations with our 900 tenants indicate that space planning is a significant focus, with no clear trend toward smaller spaces. However, I cannot provide specific details on the number of people or the exact days they will be in the office. Currently, our portfolio is experiencing occupancy levels between 40% and 50%, depending on the day, and these levels are improving steadily towards previous utilization rates. We still have some progress to make, but the direction is encouraging.

All right, thank you. And I guess for my second question, turning to Matt. Matt, I know you maintain guidance. I assume there's a lot of moving pieces though. I mean clearly, rates are probably higher than you expected to start the year. Can you just talk about kind of what's up and what's down based on what you originally expected as you think the guidance?

The main topic is rates. Operationally, everything we observed in the first quarter aligned with our expectations across all metrics. For the remainder of the year, from an operational standpoint, we are witnessing precisely what we anticipated when we provided guidance in December. Rates are significantly impacting us right now. When we issued the guidance, we applied a cushion of 50 basis points to the forward curve on our floating rate debt, allowing for some movement in the curve. Historically, this has not been the case, but this year it has changed. We added that 50 basis points back in December, and now the forward curve has surpassed that, putting us within the expected range. However, it appears that we are trending towards the lower end of that range due to the changes in rates.

And would you say there's anything that offsetting that or it's pretty much everything is as expected other than rate?

I believe that with the activity we're observing in the portfolio, net operating income was slightly better in the first quarter. While I'm not projecting this one quarter's performance onto the remaining nine, we have noticed signs of improved performance in the operating portfolio during the first three months, which should continue. That would help balance things out. Overall, the results have been largely in line with our expectations.

Our next question comes from Manny Korchman with Citi. Your line is open.

Hi, Michael Bilerman here with Manny. Marc, could you elaborate on the growth and investment management program? I'm interested in your perspective on leveraging venture partners that you've worked with for a long time to refinance and recycle capital. Considering 450 Park Avenue, which is priced above $1,300 a foot while your stock is valued significantly lower, I'm trying to understand your strategy. How do you balance selling existing assets to expand the platform versus making incremental changes? I know you're always active and the organization is in constant motion, so could you help clarify this as you continue to develop the platform?

We've been working with partners for many years and see ourselves as a strong ally for those looking to invest in New York City, particularly Manhattan. Our track record with both domestic and international investors has been very positive, and we aim to maintain that. Over the years, this has proven to be a more consistent source of equity than the public markets, which have had their ups and downs. In recent years, we've observed that public markets have not been as favorable. Therefore, we are focusing on tapping into the most reliable and properly valued equity capital, which often comes from domestic and foreign private equity. This strategy is not only continuing but also growing. We are shifting from a company that was once very transactional to one that is building brand value and enhancing our platform. We have strong people, systems, and procedures in place, and are now evolving into a franchise and platform company. This will allow us to leverage our expertise in a significant part of the market to offer and co-invest in top-notch real estate services, which continue to be in demand in New York City, irrespective of market cycles and interest rate changes. The property at 450 Park Avenue will be a crucial test of our approach. We believe it represents exceptional value due to its prime location, which we consider to be one of the best in New York City. It's a high-end boutique Class A building, and under our management, we plan to enhance its vision for amenities and services, aiming to achieve rents close to those of new developments like One Vanderbilt. We see a lot of potential, and there's no reason why buildings on Park Avenue couldn't reach prices above $2,000 per square foot, especially with new constructions. We are confident that many investors want to partner with the best in the finest locations, and we believe 450 Park Avenue meets those criteria. The results will speak for themselves.

Are you currently engaging in discussions with existing or potential partners? Looking at the bigger picture, this is the first major acquisition since 2018, which signals a lot, particularly at a time when you've been reducing your base. What is the amount of equity capital available for office assets? Additionally, Marc, you've shown that you've repurchased shares from two REITs, buying back 35% to 40% of your shares, while still managing to shrink dramatically and protect your net asset value, even increasing it by selling assets and repurchasing your stock at a discount.

Got it. At what point is there enough capital? I recall our conversation last summer about whether there is sufficient equity to take an office REIT private. You reduced your equity capital based on net asset value to around $8 billion, or between $7.5 billion and $8 billion. Is there enough equity if you leverage the entity to maintain the franchise without having to worry about the public markets? There is definitely a lot of equity available for 450 Park Avenue. We have seen tremendous success with nearly all of our joint venture partners in the past, particularly those who joined us early on. We have provided impressive market-leading returns to these investors. Given our strong track record and our confidence in purchasing this building, the inbound interest has been very positive. The volume of calls we are receiving is encouraging, and many people are eager to invest in New York and partner with SL Green. There is a substantial interest in a single asset deal. However, we are not prepared to comment on a corporate deal at this time.

It's not relevant to 450. We're discussing the investment management class platforms and the asset-by-asset platform. I believe Andrew has addressed the question regarding the investor pool in today's market.

It’s worldwide and domestic and it's deep.

Thank you. Our next question comes from Steve Sakwa with Evercore ISI. Your line is open.

Yeah, thanks. Good afternoon. I guess I want to maybe touch on capital allocation and just get a better sense for share buybacks versus acquisitions via the JV versus debt pay down. Just given kind of where the balance sheet is Marc, and the fact that roughly 20% of the balance sheet is floating rate debt, how are you sort of prioritizing or thinking about capital allocation from here forward?

The capital allocation decision is flexible and can change frequently. In an environment of rising interest rates, we will focus more on debt repayment, which becomes more beneficial compared to the last few months. We've been buying back stock while also paying down debt, aiming to keep a balance. However, in the current market, we believe it’s likely we will prioritize debt repayment through the end of the year. We'll monitor where rates settle over the next 12 to 18 months to see if they continue to rise, stabilize, or potentially decrease as they did in 2019 after a spike in 2018. We try to maintain a balanced approach to interest rates, using the yield curve as a guide for future expectations, which has worked for us over the last 25 years. In the first quarter, our strategy allowed us to meet our goals despite the recent increases in short-term rates. Regarding 450 Park, it's a reflection of our direction, but I wouldn't overanalyze it. Previously, we would routinely make billions in acquisitions each year. The opportunity at 257 Park was favorable and we believe it offers potential upside. It makes sense for us to seize this opportunity given our expertise in this market and asset class. Still, we recognize the need to be cautious in an inflationary environment, and we expect that most proceeds from future asset sales will be directed toward reducing debt.

Okay, great. Thanks. And then, I know this has kind of been a topic that's come up a few times and it might be hard to really speak to, but the New York, the Downstate gaming license. Just trying to understand sort of where your head is around that as it relates to SL Green? And this is something where you want to really try and be partners with a gaming company and go through the licensing process and be on the operator side or are you looking at this more of, hey, we'd like the casino in one of our buildings, because we think it attracts people and we want to be more of a landlord to the casino? I'm just trying to sort of figure out how you're sort of thinking about that?

That's a good question, and I appreciate your interest. However, I would prefer to wait until the next call to discuss it further. I believe it's a bit early to share too much right now, but I can say that we see significant potential for New York City, and particularly for SL Green. I think the city should ultimately secure two out of the three licenses, which seems reasonable regarding license distribution in the downstate area to appeal to various market segments since different locations will attract different customers. We've researched this thoroughly and feel confident that New York City can accommodate two of the licenses. In my view, Manhattan is the prime location for a license, with Times Square standing out as the best, most suitable, least disruptive, and globally recognized area. We are pursuing this opportunity, but details about how we will engage, who we will partner with, and the specifics of our involvement are discussions better suited for a future call.

Okay. Thanks. That's it for me.

Thank you. Our next comes from Derek Johnston with Deutsche Bank. Your line is open.

Hi, everyone. Thank you. We see a lot of focus on the competitive, but healthy New York City leasing backdrop, at least in desirable sub-markets, but elevated concessions probably important to win deals and investors are going to focus on rent spreads. So how do you view spreads and concessions trending as we move through 2022? And I guess what's changed since the Investor event in December on those lines?

I don't believe the concessions have changed. As we mentioned at Investor Day and throughout the second half of last year up until now, we think concessions have leveled off. Statistically, there is evidence in the broader market that they may have begun to trend down in some cases. While we reported significant numbers for this quarter, it’s important to note that of the 800,000 square feet of leases signed, 700,000 square feet were with new tenants. This quarter was disproportionately weighted toward new tenants rather than renewal tenants, who typically receive lower concession packages. Consequently, the weighted average is lower than what we posted this quarter. On a deal-by-deal basis, I believe concessions generally range between $110 and $130 per square foot in tenant improvement on a 10-year lease. The free rent concessions have been around a 14-month period for about a year now. This trend is what we're seeing across our portfolio. However, when a significant amount of leasing is done with new tenants on long-term leases, it might suggest that concessions have increased, but I don't think that's the case.

Okay, great. And then look, IBM really big win at One Madison. We do know it's early on, but do you envision potentially another anchor tenant in place, maybe even later this year? And do you see the success at One Vanderbilt potentially driving early pre-leasing interest and demand for One Madison, especially given what we see as an employer quest for newness?

We have several tenants we are currently in discussions with at One Madison. We are in advanced talks with some of them and are optimistic about making additional announcements before the year ends.

Yeah. And the momentum is going to build on itself. I think if we do additional leasing this year and we can eclipse roughly the 50% mark, we will probably be a little patient with the rest of the leasing, because we'd be dealing with parts of the building that we'd be excited to be showing in marketing once the building is topped off, because there's really no substitute for standing on these floors and taking in these incredible views investors of the park of downtown of some of the surrounding landmarks and the amenities will be further along. And I think as good as the amenities are in One Vanderbilt, we're going to try and equal or do ourselves at One Madison.

Our next question comes from Caitlin Burrows with Sachs. Your line is open.

Hi, good afternoon, everyone. Maybe back to the 450 Park acquisition, could you give some color on kind of how it came to be? Was it marketed? And then going forward how much and over what time you think the joint venturing out of pieces could happen? And what amount of amenity investment could be made?

The property was marketed in a targeted manner, and the sellers had specific requirements that we were able to fulfill, which positioned us favorably. I anticipate that the syndication will begin with the closing of the asset in June and should be finalized by summer. Regarding amenities, we are still evaluating the level of investment we want to make in the building, but we plan to market it at the very high end of the Park Avenue Plaza District offerings, with amenities reflecting that standard.

Got it. Okay. And then maybe just on the lease that you guys did at 100 Park that had been meaningfully negative impact on leasing spreads. I know it was only one lease, but it was a large one. So just wondering if you could go through the decision to release that space to that user at a lower rent rather than lease it to someone else? Or would meaningful investment have been needed in order to improve the rents? It does seem a little surprising given the location right by Grand Central. Anything else you can share there.

The majority of that space was located in the lower part of the building, which has a large floor plate. The rental rates we received for that lease are comparable to what we would have received before COVID. This situation is not related to our investments. The negative market adjustment is solely due to a tenant leaving who was paying significantly higher rents. It does not reflect rental rates in the wider market; it’s just a specific case with a lease where the outgoing tenant had elevated rents compared to the current market.

Got it. Okay, thanks.

Our next question comes from John Kim with BMO Capital Markets. Your line is open.

Thank you. I'll be the analysts on the call asking about 625 Madison and any update on the ground lease reset? And if it's a possibility that the asset is just given up?

Well, no update on the ground rent reveals, there's still hasn't been an arbitrated decision, but that process is ongoing. And then we own two positions there, a leasehold position and a position in the debt recall, so which position you are referring to?

The lease division.

It really depends on the arbitrated rent. We've shared our returns on that position, assuming we walk away, which we certainly have not decided to do. Our returns are still positive; it was a great investment for the company. However, we will proceed with the arbitration process and see where it leads us. We continue to be very enthusiastic about Madison, particularly the area between 58th and 59th. I believe the location has tremendous potential, but given the current market, we will take our time to evaluate all options.

Okay. And then Marc, a follow-up on the casino license commentary. You mentioned potentially speaking about it on the next call, so just wanted to ask, if you think the decision will be made by then? And then, I'm assuming you're talking about 1515 Broadway, how does that feasibly work if the assets are 100% leased?

I'm not able to disclose which buildings we've identified for potential gaming use just yet. We may have more information in the next call, but I don’t expect a decision to be made by then. This is a process that is likely to continue until the end of the year or possibly into the first quarter of next year. While the process will be initiated, it is designed to be thoughtful and deliberate, involving local governance and community support, particularly at the city level, which I believe is appropriate. This is a significant moment for downstate New York as these licenses are granted, so I anticipate the process will be thorough and meticulous. I expect it will take a reasonable amount of time, but that likely extends beyond three months, more towards the end of the year or the first quarter of next year.

Thank you.

Thank you. Our next question comes from Ronald Kamdem with Morgan Stanley. Your line is open.

Hey. The first question is just on CapEx. In the 10-K you had sort of $82 million for recurring CapEx and want to wait for development and redevelopment. Now, with sort of the leasing activity and the recent acquisitions and so forth, are those numbers changing at all? Or how we should think about sort of the CapEx going forward?

No, none of the, I'll call it FAD capital is changing. As I said earlier, we're right on our business plan for the year as the 450, I touched on a fairly modest amenity addition, some of that spend will happen this year, but it will likely be a JV spend and then the asset is under-occupied right now, so there will be leasing capital over time, but again in a JV structure, so fairly modest overall for us.

Great. And then, just sticking with 450, you share sort of the maybe a little bit more color on the economics, whether it's cap rates or targeted IRR both for 450 and also just in general what you're seeing in the markets overall? Thanks.

Well, I think it's roughly 4% going in return. Recall though the asset has about 18% vacancy. So we will be undertaking a lease-up program there, and we expect IRRs in the mid-teens type returns. Which for an asset of this quality level, we're very excited about.

Thank you. Our next question comes from Nicholas Yulico with Scotiabank. Your line is open.

Well, thanks. The first question is just on the lease term income from the JV pool. Can you just say what that related to? And is that also like a surprise sort of termination that contributed to some of the quarter-over-quarter occupancy drop?

No, that was all actually projected. I won't talk about the tenants, but it was predominantly at 11 Madison and then we had a little bit more at one of the other JV properties, but nothing unexpected, 280 Park has a little bit.

Thank you. And I’m currently showing no further questions at this time. I'd like to turn the call back over to Marc Holliday for closing remarks.

Great. Well, for anybody left on the line, thank you for listening and for the questions. And we've got a lot of exciting things ahead over the next few months until we speak again in July and we look forward to it. And everybody has a good spring and beginning of summer.

This concludes today's conference call. Thank you for participating. You may now disconnect.