Thank you, everybody, for joining us, and welcome to the SL Green Realty Corp's Third 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 third quarter 2023 earnings and in our supplemental information included in our current report on Form 8-K relating to our third quarter 2023 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 over to Marc Holliday. Please go ahead, Marc.

Okay, thank you. Good afternoon, everyone. We're obviously holding this call at a moment of great global stress, but we will do our best today to focus in on the Company's third quarter performance and what we're seeing in the market. While the current market remains challenging, we did have a number of very positive developments and milestones that I'll summarize for you right now because they were hard-fought, and we're proud of them. First, we celebrated completion of One Madison Avenue with the receipt of our temporary certificate of occupancy, marking the completion of the building construction, three months ahead of schedule and well under budget. Importantly, this milestone triggered the final $577 million equity payment from our joint venture partners, which we already received and used to repay an equivalent amount of unsecured debt. Earlier this month, we launched sales at 760 Madison Avenue, the beautifully designed and executed Giorgio Armani Residences, with half of the 10 units already spoken for and negotiations pending on additional units. We have also substantially completed the Armani retail store and restaurant and are in the process of turning the space over to Armani to commence the lease. Building off our positive experience and sales momentum at 760 Madison, I'm now happy to report that we have successfully acquired the fee interest in 625 Madison Avenue through a UCC foreclosure of our mezzanine loan and we are now in control of the fee. All litigation with the previous fee owner has been resolved and we are finalizing our business plan, which we intend to unveil in December. We closed with our joint venture partners on two extremely well-executed loan extensions at 719 Seventh Avenue and 115 Spring Street, bringing our total refinancing extensions and modifications to $3.2 billion for the year, reducing our combined debt by $1 billion and additional extensions and pay downs are planned for the near future. And yesterday, we announced the sale of our interest alongside our partners in 21 East 66th Street for a gross total value of $40 million, demonstrating the resiliency of demand for Upper Madison Avenue boutique and retail properties. Perhaps most significantly, for the first time in the last 16 quarters, you have to go all the way back to December of 2019, I can report that same-store occupancy trended up in this past quarter with projections of a slow but steady climb that should continue into the next quarter and on into 2024. This is an important moment that signifies the stabilizing of the operating portfolio assets. The trend is in our favor as companies continue calling people back to work with news this past week of another 500,000 workers being called back and expected back this January. It's important to note we are sitting in a good position at 1.1 million square feet of pipeline leasing activity with nearly half of that amount represented by 20 leases that are either in negotiation or out for signature, indicating a high probability of closure of those particular transactions. Those leases are split about evenly by square footage between new and renewal leases. Decision timelines for tenants are lengthier than average, which has delayed some of the occupancy gains we had hoped to achieve this year, but directionally, it appears that predictions of an existential crisis from New York City office buildings are way, way overblown. And in fact, more and more of New York City's leading businesses are championing physical presence in the workplace as the best and most meaningful way of building community, promoting teamwork, establishing relationships, and maximizing productivity. We will continue to enhance and amenitize our core properties to provide maximum convenience and benefits to a workforce today that is looking for elevated workplace experiences. We, along with the rest of the real estate industry, are impacted by the sharp and rapid rate increases experienced over just the past 18 months, but we are implementing our strategic plan to complete our development projects, lease up the portfolio, sell in JV certain assets, pay down indebtedness, refinance and extend debt maturities, and hedge our exposure to future increasing interest rates. And we are going to succeed. We will talk at greater length about our 2024 strategic plan at our upcoming investor conference, but rest assured that we are ready for this moment of great opportunity, and we intend to take advantage of market repricing and the liquid borrower dislocation through growth in our asset management business. So as we look into 2024, we see reasons for real optimism. We have a plan to execute and a new generation of leaders to help execute it. That last part is bittersweet for me and for the Company as we prepare to say farewell to Andrew Mathias. After 26 years and over, in my estimation, 100 earnings calls, today will be his last earnings call for the Company. While this was an extraordinarily hard decision, it's the right time for the Company and probably the right time for Andrew as well. He can speak to that. But one thing that's for certain is that he's made an invaluable contribution from the time we first embarked on a new trajectory to become the biggest and best real estate Company in New York City, and the rest is history. Andrew is a partner and a friend, and I'm happy that he will continue as a Director of the Company and as an adviser to me. Andrew will undoubtedly have the opportunity to move on to other things, and we will have the opportunity to bring up some of the younger talent we've been mentoring to assume positions of leadership as we're ready for incredible opportunities that will be before us in the new year. I want to take this opportunity to thank Andrew on behalf of the entire Company; Andrew's dedication and loyalty have been essential in accomplishing things for this Company that were unimaginable 25 years ago. On a personal note, Andrew and I have been side-by-side for nearly 30 years in work and in friendship. What an incredible ride it's been. Now I'd like to hand it off to Andrew to say a few words.

Thank you, Marc. It has truly been a long and amazing run for the kid from Buffalo, who never expected anything like this kind of experience in his life. I appreciate all the relationships with shareholders and analysts that have formed over the years, seen many come, many go, many stay, and kept in touch with them in their new positions. And it's quite an industry, quite a business, and we've written a lot of ups and downs together. I would just say we have a great and deep bench of talent at this Company, some known, some not so young anymore. But I'm confident that SL Green will be the best positioned Company by far for a recovery when it comes, and it will inevitably come. I look forward to continued involvement in the Company's success as a Board member as long as they'll have me and as an adviser to Marc, and all the words and kind reach out, I've gotten over the last couple of weeks are greatly appreciated. So, thank you.

That's great. Thank you, Andrew. And I guess we'll end on that note and open it up for questions, operator?

Thank you. Our first question comes from John Kim from BMO Capital Markets.

Thank you. Congratulations and best wishes to Andrew. Can you talk more or elaborate more on the decision at this time for him to leave the Company? Who's going to take over the day-to-day responsibilities if he's got a non-compete, and what the G&A savings will be going forward?

Okay. So, I think if I understood you correctly, the first question was about why now. It's a challenging decision, and there's never really a perfect time. However, we recognize that we are entering a new chapter at SL Green starting in 2024, full of exciting new opportunities. We have remarkable younger professionals who have been with us for 10, 15, or even 20 years, and we believe this is the ideal moment for restructuring to enable that talent to rise to the occasion. This timing will help them build relationships with a new generation of lenders, partners, and co-investors, which we believe is beneficial for the Company. Andrew remains on the board and continues to advise me, playing a critical role that I see as a gain rather than a loss, and I believe this change is advantageous for both the Company and Andrew, who will undoubtedly have many incredible opportunities ahead of him. Regarding the vision of responsibility or something similar, we prefer not to be reactive. I want us to be deliberate. The Board and I will spend the next few months discussing how we will approach the succession and leadership roles moving forward. I expect that by 2024, we will have more announcements to share. In the meantime, Andrew will be here through year-end, and there's much to accomplish. As you know, we will continue working diligently until December 31, and then we'll evaluate our positioning. We will ensure that nothing is overlooked as we move into 2024. Now, I believe Matt wants to address some of the numerical issues.

Yes. G&A savings on a run rate basis between $10 million and $11 million.

Okay. I wanted to ask about condo sales at 760 Madison, you report near your FFO, not a core number. So, is it fair to assume that condo sale gains will be included in earnings next year?

Proceeds from condo sales, to the extent they close in '24, would have an earnings benefit; the gains on those sales themselves are not FFO.

But, this is new development, correct?

This is 760 Madison, a retail condo with a long-term lease to Armani at the base, which has now been turned over to Armani. There are 10 condo units above, half of which have already been reserved. We expect to receive the proceeds in late 2024, and those will be utilized. However, the gains from these sales will not be considered FFO, which I believe was the essence of your inquiry.

Okay. Thank you very much.

Thank you. One moment for our next question. Our next question comes from the line of Steve Sakwa from Evercore ISI.

Thanks. Good afternoon and congrats to Andrew, best wishes. I guess maybe on the leasing front, Marc or Steve, could you maybe just break down the pipeline a little bit and just maybe talk about the types of buildings that you see the most demand for and the types of tenants, whether they be financial services, law firms, any big tech that's kind of hearing its head out of its hibernation?

Sure. As Marc mentioned, we currently have 1.1 million square feet in our pipeline, with numerous other prospects that aren't yet ready to be included. Of the existing pipeline, 67% of the leases come from financial services. The remainder includes a mix of healthcare, government, non-profits, and business services. Financial services are clearly the primary driver at this time. Many of our larger leases are in high-quality buildings, particularly on Park Avenue, which is seeing significant activity at 280 Park, 245 Park, and 100 Park with ongoing leases or deals pending. The encouraging news, as we noted in our last earnings call, is that we are seeing increased foot traffic and proposals in the rest of our portfolio, especially in more price-sensitive buildings. This is a positive sign. The next step is to convert this interest into leases, and I believe we will continue to gain momentum as we approach the end of the year and into early next year.

Okay, thanks. And then second question, I don't know, maybe Marc or Andrew, you guys had talked about doing some additional asset sales and dispositions, One Vanderbilt possibly maybe even selling down a little bit more of 245. Can you maybe just talk about the disposition market and what you're seeing just in light of where interest rates are and the economic uncertainty? How are you thinking about that and the impact to maybe leverage moving forward over the next year?

Sure, Steve, it's Andrew. We're still actively out there, as you saw Marc mention the sale of the Retail Condo on Madison. We're talking to groups really from around the world, regarding some of the other interests either a further interest in 245, which we haven't really made a decision on yet. And certainly, the interest in One Vanderbilt. And it's just trying to balance the right timing and matching up with the requirements that a lot of these firms have. So I'd like to turn it over to Harry to have him speak a little further. He just got back from Asia about what you're seeing from investor demand out there.

Sure. Thanks, Andrew. So as Andrew mentioned, we just returned from our quarterly roadshow in Asia. We're continuing to hear from foreign investors that they're interested in making select new office investments, and they really do believe in the fundamentals for quality office, more specific to us. They believe in our ability to underwrite business plans, execute in this market and get stuff done. So, the one variable that foreign investors are still very focused on are U.S. interest rates and in some cases, the impact that has on Forex rates, specifically as it relates to the U.S. dollar to certain Asian currencies. We're helping push back against that with the fact in some of these countries they have very low borrowing rates. You saw us successfully navigate through that last quarter at 245 Park. We're very focused on OVA. It was a high priority of ours, we're going to be putting a lot of pressure to get that done. And I would expect to see good momentum for that in the next few months.

Great, thank you.

I've been very happy with the response we're getting. Obviously, that we got on 245 Park Premier Asset, Premier location and that we're getting on One Vanderbilt multiple party, counterparties, highly interested different parts of not only Asia but around the world and working hard to try and get something done by year-end, and we'll see how that comes up.

Thank you. One moment for our next question. Our next question comes from the line of Alexander Goldfarb from Piper Sandler.

Hey, good afternoon. Andrew, congrats, Mazel Tov. I guess this is it for you having to do the earnings call. So, congrats and look forward to where the New York asset columns have your next real estate deals. Two questions here. The first question, Matt, capitalized interest, always sort of the bane of modeling. You guys, you did the One Madison delivery. You've got the $577 million. You also closed on 625 Madison, so maybe you could just put some framework about how we should think about interest expense next year, the impact of capitalized interest just given those moving pieces?

Yes. Capitalized interest is a tough thing to model even here. It's a complicated exercise, particularly when you have joint venture interests in multiple development and redevelopment projects, but specific to your question, something like the proceeds at One Madison, which is a fully capitalized property because it's in full development, when you get $577 million in, that reduces our investment in the asset by $577 million, and therefore, you can't capitalize interest on that $577 million, use whatever interest rate you want. It's based on our consolidated weighted average interest rate, so call that 4.5%, 4.5% times 577 is a big number that's lower capitalized interest. Other assets like 625 or anything else for that matter that gets leased up as leasing comes on, capitalized interest goes down. So there's an offset to NOI coming on from interest capitalization. So yes, there will be some significant changes as you roll through 2024 and into maybe even 2025 as One Madison comes online, NOI benefit, capitalized interest reduction, and so I'm optimistic that people will start to flow those through their models. I haven't seen it flow through just yet, but I'm sure as people tune up their forward-looking models that will appear.

It seems that the significant factor is clearly the One Madison, which is beneficial. Regarding 625, just for clarification, since you've recently added that, will it lower interest because now that building is on your books and you're capitalizing it? Or were you already accounting for it? I want to ensure that by adding 625, we are properly considering that.

We had a leasehold investment previously, right? We wrote it off back in the second quarter prior to it being written off, that would have been capitalized interest against that investment. Now there will be capitalized interest against the new investment. So there will still be capitalized interest, but on a different investment amount.

Okay. The second question is regarding Andrew's departure. Marc, you mentioned the importance of developing the younger talent within the organization. Andrew had a significant role in the Mezz and preferred business, which your company has maintained for a long time. Should we interpret your comments to mean that others will step up and the Mezz business will be revitalized once interest rates and transaction markets begin to stabilize? Or does Andrew's departure indicate a potential reduction in the Mezz business?

Yes, it's a good question. Andrew sort of presided over the whole Company, which included an investment bench, probably 20 investment professionals led by Harry Sitomer, Brett Herschenfeld, Rob Schiffer, all of whom have worked on, I don't know, countless billions and billions of debt and equity investments under Andrew's and my tutelage over the years. Remember, we've been doing this business for, well, since 1998 or '99, I forget. So it's always been core to us, I would say, on average, anywhere between $1 billion to $3 billion a year of gross originations and backing up that team, we have Andrew Falk, who's Head of Special Servicing and runs that business and has a team under him helping him. There are other young guys behind that with that Harry can elaborate on. But the bench is deep. The bench is very experienced we are very much in a state in that business, like no illusion whatsoever that we're not going to be in that business in what I hope will be a very, very big way in 2024, '25, and '26. I think there's going to be three years of very solid opportunities. A year ago, I said 12 months, six months ago, I said six months. What you're going to hear in December, I think, is the opportunities now and where you should expect that as we have settled out the other aspects of our business plan with respect to paying down debt, hedging, monetizing assets, then full focus is going to pivot to new investments and assume that we are in deep conversations with mid-cap capital partners about putting the capital together both in the discretionary and in a managed account situation for various ways of taking advantage of this market opportunity that I think is going to be nothing like what we've seen in probably 30 years. I have to dial back to my first experiences in late '80s, early '90s to sort of get a comparable benchmark. So yes, I mean, active or continuing the program, I'd say, is an understatement.

Thank you. One moment for our next question. Our next question comes from the line of Camille Bonnel from Bank of America.

Hello, can you talk about the drivers behind the update to full year guidance, which implies your midpoint has changed, excluding one-time items? And with only one more quarter to go, can you talk to the big swing factors that we should consider given you tap the range so wide?

Yes, Camille, it's Matt. You're a bit hard to hear. The first question was regarding the specifics of our guidance revision. We have a total non-recurring charge of $0.27 related to Andrew, which includes $0.10 for severance and $0.17 for accelerated stock-based compensation that would have been accounted for over the coming years. This partially contributes to the anticipated G&A savings of $10 million to $11 million on a run rate basis. However, performance across the rest of the company has been modestly better than expected. Without those charges, we would have adjusted the rest of the range upward by a few cents. We maintain a relatively wide range because we still have a considerable amount of execution remaining, and this largely depends on the timing of the One Vanderbilt joint venture interest sale, whether it occurs in 2023 or 2024, which impacts FFO. Therefore, we are keeping the range at the same $0.30 level as before while mainly adjusting for Andrew's charges.

Got it. And thinking about your operating model and continued transition to asset-light strategy, are there any further cost-saving programs you're considering to implement from an operating RD&A standpoint?

Could you repeat the question?

Are there any cost savings or G&A or set to asset management?

We are consistently meeting as a team, especially the operational and construction members, who are engaged in daily discussions to review property-level operational expense budgets for the upcoming year. We are actively searching for savings opportunities to keep our expenses close to a net zero increase, even in a challenging inflationary environment, while ensuring we continue to provide top-tier service. Our reputation and the quality of our services are paramount, and we remain fully focused on these objectives. Regarding our capital programs, our prior investments in the buildings allow us to take a lighter approach to capital expenditures in 2024 and possibly into 2025, without compromising any building quality. Most buildings have been fully upgraded with enhanced amenities, security systems, and necessary replacements. While there are still some projects to address, I believe we will enter 2024 in a strong position concerning operating expense control and capital cost management. If we look specifically at general and administrative expenses, we are recognized as a leader among our peers in managing and reducing these costs. At its highest, our G&A was approximately $100 million.

This year, we anticipate bringing in around $90 million, and I expect that through effective planning and cost-saving measures, we will achieve less than that next year. We'll have more clarity in December, but I believe it's reasonable to say it will be below $90 million. This trend is quite unique in our industry, yet we are managing to achieve more with fewer resources, and our building performance and service quality remain at their highest. I may be able to provide more details in December, but we will be focusing on conserving operating expenses, improving capital efficiency, and reducing general and administrative costs as we move into next year.

That's helpful. And final question for Matt on the balance sheet. I know you've managed to swap your exposure to your swap expiries to its respective debt maturities, but how are you thinking about cap maturities? For instance, 10 East 53rd Street and 220 East 42nd Street have final debt maturities in 2025 for the caps are maturing next year?

Sure. Happy to answer it. And I'll save the operator the trouble of reminding people two questions only, please. But Camille, I'll give you a free one. We do hedge when we swap as far out as the debt to which those swaps are associated goes. As it relates to caps, caps are often a requirement of the underlying financing. And specific to the two instances you referenced, we have JV partners. So we are not able to make a unilateral decision to put a cap in place without the sign-off of our partner. We agree with our partners on the terms with regard to those two, we agreed to a one-year cap, and those caps need to be put back as is required by the financing.

Thank you. One moment for our next question. Our next question comes from the line of Blaine Heck from Wells Fargo.

Great, thanks. Can you just talk about the lending environment and maybe touch on where interest rates stand for high-quality office buildings now, how the pool of lenders that are actively lending to office may have changed and what they're looking for with respect to loan-to-value and debt service coverage ratios?

Sure. This is Harry. So look, we're continuing to navigate through the current debt capital markets environment, given the prominence of who we are and what we mean to this market, we're working with our depth of relationships modifying existing, modifying, extending existing secured debt. We're seeing a capitulation in the market from the lenders. And we think we're really well positioned right now to work with these lenders on terms that make sense, given their confidence in us to be the right steward of this portfolio. We're getting very well ahead of our existing debt maturities. In most cases, we're looking three years out at this point. As Marc mentioned earlier, we already executed two deals in this quarter. And I would expect to see us do some larger ones over the course of the next few months leading to the end of the year. Each refinancing that we're looking at, we're assessing prudently putting in new capital and trying to very conservatively underwrite any money that's going in as we think about these refinancings.

All right. That's helpful. For my second question, Matt, you talked about the fixed charge coverage ratio on the last call and your expectation for it to tighten relative to your covenant before expanding. Can you just comment on the movement quarter-over-quarter and whether that magnitude was in line with your expectation, whether we should see the third quarter as likely to be the bottom for the metric? And I guess any stress testing you've done relative to kind of where rates would have to go to trip that covenant?

Yes. You're right. On the last call, I did say I would expect it to trend down into Q3. I'll remind people how this calc works. It's a consolidated only calculation. So there's only a handful of properties that flow through. Layered on top of that is our tent preferred equity income, offset by G&A, and then essentially corporate debt and any consolidated debt on the other side of the equation. So that metric has been and will continue to be for several more quarters, weighed down by 245 and a higher corporate debt load. So we got $577 million of proceeds from our partners at One Madison; we got that towards the tail-end of the quarter. That had no effect on the quarter but will obviously benefit the forward quarters as that flows through over the next 12 months. The same effect as 245 Park, which was a consolidated property for the better part of the year before we sold the JV interest, it comes out of the consolidated calculation, but does so over a 12-month period. So it has to roll through over time. The trajectory we're on was third quarter is we would trend lower into third quarter and then bounce off of that. Obviously, the timing of things could affect that. If we referenced One Vanderbilt, that has an effect because that is an income generator for the fourth quarter. If we did that in the fourth versus the first that might have an effect, but the trajectory of this is to be naturally higher through EBITDA growth and also through lower interest expense as a result of consolidated interest expense as a result of reduced corporate debt and reduced consolidated property debt.

Great, thanks. And Andrew, thanks for the help over the years and best of luck with everything.

Thanks very much.

Thank you. One moment for our next question. Our next question comes from the line of Peter Abramowitz from Jefferies.

Yes, just first wanted to ask, within that leasing pipeline, kind of what's the interest in the remaining space at One Madison, what sort of coverage do you have on that? And how are kind of the rents there trending relative to your expectations?

We're in active term sheet negotiation with four different tenants right now covering, let's see, about 200,000 square feet of space. It's a mix between tech, fintech type tenants I would say is sort of the dominant theme there. All of the rents that are being discussed are at or above underwrite. And I'm not going to get too far out of them, but other than to say that I feel really positive about our prospects on at least two or three of those tenants. And hopefully, we'll have more to report if not by the end of the year then very shortly thereafter.

Got it. Thanks, Steve. And then one other. Just as we kind of look forward in our model, thinking about '24, just a reminder, in terms of the moving parts, any large expirations to think about in the portfolio or no move-outs?

Two things. I would say that we have, I think, absolute transparency on all of the expirations in '24 and probably even into '25, quite frankly, as to whether or not tenants are staying or going, certainly the tenants of size, all of those are built into our current projections in the budgets that we're building currently for next year. The only one that may be new news to people is CBS downside; they renewed and then downsized a little bit of 555 but it's not really moving the needle anywhere.

Thank you. One moment for our next question. Our next question comes from the line of Ronald Kamdem from Morgan Stanley.

Congrats, Matt, on a great job. Just really quickly, my two quick ones are, so seven day and 185 Broadway, I think were previous planned sales. I know the loans maturing this quarter. What's the update there? Are you most likely to extend the loan on those two assets?

With respect to the debt, we are very close to finalizing a multiyear extension there on very favorable terms. So we'll be wrapping that up, hopefully, shortly. And then with respect to the joint venture partnership, we're in active negotiations and discussions with groups that they're very interested in resi product. There's a lot of interest we're seeing throughout the globe on that, and we'll be looking to get something done there soon after we wrap up the debt.

Great. Regarding the potential joint venture at One Vanderbilt, could you share your thoughts on it, especially considering the recent significant rate adjustments? Is the project still the same size? Have there been any changes in the investors involved, such as new investors joining or existing ones dropping out? How have these rate changes influenced the ongoing discussions and your strategy for One Vanderbilt?

For foreign investors interested in core products, the assets are quite distinct due to two or three attributes that are rare in the country. They are substantial, have a very long weighted average lease term, and feature highly favorable locked-in, low-rate debt for another 8 to 8.5 years. This is a great building. As rates increase, these assets stand out as one of, if not the best, core investments that those with core capital can utilize for the remainder of this year or early 2024, whenever we finalize the deal, which we are working diligently on. We have not noticed any decrease in interest as rates rise; the existing debt becomes more valuable on a mark-to-market basis, and the lease stream remains unchanged. It's difficult to predict interest rates or cap rates 10 to 15 years down the line as that would just be speculation. Therefore, the building is well-protected in that regard. We've received positive feedback, and we hope to reach a conclusion soon.

Thank you. One moment for our next question. Our next question comes from the line of Caitlin Burrows from Goldman Sachs.

Maybe just on the occupancy front, you mentioned earlier in response to the guidance question. The various parts of the business are going better than expected. It does seem like to meet the occupancy target for the same-store Manhattan portfolio, you need a significant pickup in the fourth quarter. So just wondering, based on where we are today and the visibility that you have kind of the outlook for occupancy increasing materially in the near term?

Yes. So we had a very heavy goal of north of 92%. We will not make that goal. Marc alluded to in his comments that we have a good pipeline, we've already done 1.3 million square feet of leasing. We have 1.1 million square feet of pipeline, but deals are taking longer to get done. And therefore, the occupancy is picking up but at a slower trajectory than we had anticipated. So we do expect it to pick up into '23 and into '24 as we close on the pipeline, but we will be short of the 92% that we had laid out at the beginning of the year.

Yes, I just want to clarify that I understand it's a bit nuanced. We have our internal projections and the goals we've set for ourselves, including what I refer to as stretch goals. Achieving 92% occupancy in a market that is 75% vacant is an ambitious target. We are trying to be realistic while also pushing ourselves. I typically set about 18 to 21 goals a year, and although if all were projected, we would meet them all, we usually accomplish around 60% to 75% of those goals intentionally. The fact that our occupancy is trending upwards and is expected to be in the 90s is a remarkable achievement in a market that has remained relatively stable with around 18% vacancy throughout the year. The pipeline is more indicative of our future than our exact occupancy on December 31. It suggests we'll have a strong December, January, and February with a 1.1 million square foot pipeline. Typically, these deals take three to five months to finalize, setting us up well for next year. I recognize that the headlines might focus on us reaching 92% and potentially coming in at around 90% or 91%, but the important part is the trend, the pipeline, and our confidence that we reached the lowest vacancy rate in the second quarter. We saw a shift in the third quarter and anticipate continuing that momentum into 2024, aiming for 92% occupancy or higher next year. We will have the definitive numbers in December, but that's where we stand. We also aimed to sign 1.7 million square feet of leases, and currently, we are close to 1.3 million. There’s a good chance we will exceed our lease signing target, which also bodes well for 2024, but we're operating with narrow margins. Let's focus on reaching that 92% and closing those deals quickly.

Got it. And yes, I appreciate that you guys have mentioned that those goals can be stretched goals. Maybe then separately on the dividend. I know last call you mentioned you want to keep the dividend as close to the current levels as possible. So just wanted to see if you thought the G&A savings you're pursuing could help you maintain the dividend next year? Or any updated thoughts to share?

Yes. In the previous call, I discussed the importance of dividends, especially as some companies were cutting or eliminating them. I still believe that dividends are a fundamental reason people invest in REIT stocks, and we will strive to maintain that dividend as much as possible, considering our FFO and FAD for the year. However, we haven't released next year's numbers yet, so I can't provide specific figures at this moment. Our focus is on FFO, FAD, and taxable income. Everything we're doing to reduce capital expenditures and cut costs is aimed at meeting our obligations and ensuring we can pay a dividend. We'll finalize next year's dividend level during our board meeting in December, based on taxable income. We understand its significance and are aligned with our shareholders, and we'll do our best to maintain it.

Thank you. One moment for our next question. Our next question comes from the line of Michael Griffin from Citi.

Maybe getting back to the potential asset sales. I'm curious if you can give some color around return hurdles or IRR that potential investment partners are looking for in order to get interested?

The market is broad, and as it evolves, there will be various ways to engage, leading to different return hurdles. Some investors will focus on first lien positions, which will require more debt, while others may pursue equity positions. It's reasonable to suggest that the return hurdles have increased across the board by approximately 250 to 300 basis points compared to before the interest rate hikes. For instance, returns that were in the low teens could rise to the mid or high teens, and an unlevered discount rate that was 7.5% might increase to around 10%. The specifics will depend on the asset class and the nature of the investment, whether it's ownership or mezzanine origination. Overall, expecting a 250 to 300 basis point increase in return requirements seems like a sensible estimate. What do you think, Andrew?

I agree.

What you're seeing are.

Yes. I think that's all a good number.

Great. And then, Marc, I know you mentioned in your prepared remarks at the time that it’s been taking to sign leases that have increased. Should we take this as maybe the new normal for signing leases going forward? Or was there something specific about these leases this year getting signed in terms of being elongated that kind of put a drag on occupancy?

Yes, that's a good question. To answer it, we need to consider the economic outlook for next year. The current timeline for decisions is less about uncertainty and more about having increased options. People are exploring their choices more than before, as they have more options available. I believe that those serious potential tenants in the market will eventually sign leases this year or next year, likely at the amounts they are considering. They are just taking more time to evaluate these opportunities before they decide on one. What used to take about six months might now take eight or nine months. However, as quality spaces continue to get leased, which we are already observing, and as much of the vacant space that was planned before the pandemic gets filled, I expect that actions will decrease and timelines will shorten again.

Thank you. I would now like to turn the conference back over to Marc Holliday for closing remarks.

Okay. My only closing remark today is that we have a special day coming up in December. It's on December 4 at 9 a.m. Please come and hear from us. We look forward to this event every year. Make sure to get your invites; it should be an exciting day for us. Thank you, and have a great day.

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