CompanyName:SLGreenRealtyCorpCompanyTicker:SLGSector:FinancialIndustry:RealEstate
EventDescription:Q32015EarningsCallMarketCapasofEventDate:11.71BPriceasofEventDate:119.24
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SLCreenRealtyCorp(SLG)EarningsReport:Q32015ConferenceCallTranscriptThefollowingSLCreenRealtyCorpconferencecalltookplaceonOctober22,2015,02:00PMET.Thisisatranscriptofthatearningscall:
CompanyPart icipants
MarcHolliday;SLGreenRealtyCorp.;CEOAndrewMathias;SLGreenRealtyCorp.;PresidentMattDiLiberto;SLGreenRealtyCorp.;CFOSteveDurels;SLGreenRealtyCorp.;EVPDirectorofLeasingandRealPropertyDavidSchonbraun;SLGreenRealtyCorp.;CoChiefInvestmentOfficer
OtherPart icipants
RossNussbaum;UBS;AnalystNickYulico;UBS;AnalystMichaelBilerman;Citigroup;AnalystMannyKorchman;Citigroup;AnalystTonyPaolone;JPMorgan;AnalystVincentChao;DeutscheBank;AnalystJohnKim;BMOCapitalMarkets;AnalystTayoOkusanya;Jefferies;AnalystJamieFeldman;BofAMerrillLynch;AnalystAlexanderGoldfarb;SandlerO 'Neill&Partners;AnalystJohnGuinee;StifelNicolaus;AnalystJimSullivan;CowenandCompany;AnalystBrendanMaiorana;WellsFargoSecurities;AnalystJordanSadler;KeyBancCapitalMarkets;AnalystCraigMailman;KeyBancCapitalMarkets;AnalystJedReagan;GreenStreetAdvisors;Analyst
MANAGEMENTDISCUSSIONSECTION
Operator :
WelcometoSLGreenRealtyCorp.'sthirdquarter2015earningsresultsconferencecall.
Thisconferencecallisbeingrecorded.
Atthistime,thecompanywouldliketoremindourlistenersthatduringthecall,managementmaymakeforward-lookingstatements.Actualresultsmaydifferfromforward-lookingstatementsthatmanagementmaymaketoday.AdditionalinformationregardingthefactorsthatcouldcausesuchdifferencesappearintheMD&Asectionofthecompany'sForm10-KandotherreportsfiledbythecompanywiththeSecuritiesandExchangeCommission.
Alsoduringtoday'sconferencecall,thecompanymaydiscussnon-GAAPfinancialmeasuresasdefinedbytheSECRegulationG.TheGAAPfinancialmeasuresmostdirectlycomparabletoeachnon-GAAPfinancialmeasurediscussedinthereconciliationofeachdifferencesbetweeneachnon-GAAPfinancialmeasure
CompanyName:SLGreenRealtyCorpCompanyTicker:SLGSector:FinancialIndustry:RealEstate
EventDescription:Q32015EarningsCallMarketCapasofEventDate:11.71BPriceasofEventDate:119.24
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andthecomparableGAAPfinancialmeasurecanbefoundonthecompany'swebsiteatwww.SLGreen.combyselectingthepressreleaseregardingthecompany'sthirdquarter2015earnings.
BeforeturningthecallovertoMarcHolliday,ChiefExecutiveOfficerofSLGreenRealtyCorp.,IaskthatthoseofyouparticipatingintheQ&Aportionofthecallpleaselimityourquestionstotwoperperson.
Thankyou.IwillnowturnthecallovertoMarcHolliday.Pleasegoahead.
MarcHolliday(CEO):
Thankyou.Goodafternoon.Welcome.
JusttoconfirmyouaredialedintotheSLGreenthirdquarterearningscallandwhataquarteritwas.
Wehadanenjoyablesummerexecutingonninedifferentdispositiontransactionsthatwerepartofadesignedanddeliveredstrategytotakeadvantageoffavorablemarketconditionsthatexistcurrently,reducestructuralcomplexitywhereitexists,andreduceoverallleverage,andbackfundtheclosingoftheacquisitionof11MadisonAvenue,a$2.6billioniconicassetlocatedonMadisonSquareParkandhousingtheUSheadquartersofCSandSony.Intotal,thesetransactionsaggregatedto$1.7billionofactivity,whichuponclosingswillgeneratealmost$680millionofnetproceedsforthecompany.
Andmostimportantly,theManhattansalesweretransactedatanaveragecaprateof3.3%oncurrentcashNOI.That'slessthanthe3.5%capratebogeywehadsetforthtoshareholdersinJune.Thisshoulddispel,inmyopinion,fornowanynotionthatmacroexternalforceshavereducedorrepressedthedesireofinternationalinvestorstocovetprimeManhattanrealestateassets.
AndalistofveryrecenttransactionsthatIwillrunthroughrightnow,andrecentisdefinedasthelastthreeorfourmonths,sincetheendofQ2,wasthepurchaseofasubstantialinterestintheTrinityportfoliobyNorges,aNorwegianinvestor;arecentlyannounceddealinexcessof$5billiontoacquiretheStuyTownresidentialcomplexincombinationwithCanadianinvestorIvanhoeCambridge;Alianz'srecapitalizationof114FifthAvenue,aGermaninvestor;a520FifthAvenueacquisitionbyaChineseinvestordonenottoolongago;370LexingtonwaspurchasedbyaJapaneseinvestor;andinthelistofdispositionsImentionedearlier,thereweretwospecifictransactionsthatinvolveforeigncapital.Soclearlythatmarketstillseemstobe,inouropinion,verymuchthere,verymuchalive.
Andwhilewewerebusynegotiatinganddocumentingthetermsofthesedispositions,wealsomanagedtotakeadvantageofseveralvalue-addopportunitiessuchasouracquisitionoftheSoHoBuildingat110GreeneStreet,thedevelopmentassemblageat187Broadway,andthedevelopmentassemblageontheUpperEastSide.
IhopeourshareholderswilljoinmeinextendingmycomplimentstothemenandwomenontheSLGreenteamthatworkedwithurgencythroughoutthesummertobringaboutthisextraordinaryresult.Thenetresultisthatwewillmeetourfundinggoalsforthe$3billionof2015acquisitions,obviouslyinclusiveof11Madison,uponthesaleofjustonemoreasset,1745Broadway,whichwehavejustintroducedintothemarket,andthecompletionofseveralpendingrefinancings.
Notwithstandingtheseachievements,wewillcontinuetoselladditionalassetsinordertoaccretivelyfundthesignificantpipelineofinvestmentopportunitiesthatwearecurrentlyworkingon.Wewill--welookatassetsalesofthekindthatweareexecutingrightnowasbeingtheabsolutebestformofequitycapitaltofundthisopportunisticpipeline.
Andinlookingathowthecaprate,theresultingsalecapratesrelatetoourportfolioandthevaluationofourportfolio,I'malwaysinterestedbythefactthatat$120ashare,roughlywhereourstockprice
CompanyName:SLGreenRealtyCorpCompanyTicker:SLGSector:FinancialIndustry:RealEstate
EventDescription:Q32015EarningsCallMarketCapasofEventDate:11.71BPriceasofEventDate:119.24
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tradestoday,thatisanimpliedcaprateonManhattanassetsof5.3%.Andtosortofgetrighttoit,ifyouweretovaluethatsameportfolioofManhattanassetsata4%capratethatwouldbe$153ashare,andata3.5%capratethat's$173ashare.SothatisnotanopinionofNAV,perse,onewayortheother;it'ssimplythestraightmaththatresultswhenyouapplythekindofcapratesthatweroutinelysee,notjustinthedealsthatwehaveexecutedonduringthelastthreeorfourmonths,butreallyifyoulookbackoverthelastyearortwothekindofresultswegetwhenweputoutprime,stableManhattanassetsforrecyclingthatthesearethekindofresultswegettimeandtimeagain.So,however,thatgetsdigested,wewantedtobringthattolight.
Iwanttoturnnowtotheleasingside.Theleasingshouldnotatallbeovershadowedbytheenormousvolumeofactivityonthetransactionalside,becausetheleasingresultsforthequarterwereonceagainexceptionallystrongandinlinewithourincreasedgoalsfortheyear.Wecontinuetoachieveapproximately15%mark-to-marketonnewManhattanofficeleasesand,infact,thatnumberishigherforthesame-storeleaseswehaveexecutedduringjustthefirstthreeweeksofOctober.
Sointotal,wehaveleased63,000squarefeetinOctober,inthefirstthreeweeks;someofwhichweresame-store,someofwhichwerenot.And,moreimportantly,wehaveapipelineofleasingactivitytotaling1.4millionsquarefeet,whichissubstantiallyhigherthaneachofthelastthreequarters.Iwouldsayeachofthelastthreequartersaveragedabout1millionsquarefeetofpipeline.
Weannounceditat1.4millionsquarefeetofpipeline,ofwhich750,000squarefeetofleasesareeitherinnegotiationoroutforsignature.Mostofthatisinnegotiation,butasI'vesaidbefore,theleasesinnegotiationhaveavery,veryhighprobabilitytraditionallyofclosing.Andwewouldhopetoclosemost,ifnotall,ofthat750,000squarefeet,althoughnotnecessarilyall,byyear-end;butthatpipelineisgrowing,notshrinking.
I'msurewewillbeaskedtoexpanduponthatactivityduringtheQ&Aportionofthecall,butthetakeawayIwouldhopeisavibrantleasingmarketthatdidnottakeapauseduringtheslower,morevolatilesummermonths.
Sowiththat,I'mgoingtoturnitovertoAndrewMathias,whoIthinkisgoingtogiveyoualittlemoreinsightintosomeofthisactivityaswellasthestructuredfinanceactivitiesforthequarter.
AndrewMathias (President):
Thanks,Marc.Ourbigannouncementsthisquarterwerethesalesofourfeepositionat885ThirdAvenueandournewstudenthousingdevelopmentat33Beekman.885bringstoaclosethelastofthe2007/2008feepositionswepurchased.
Ourreturnsinthisprogramwereextraordinary,takinghighly-secureseniorpositionsinassets,applyingappropriatefixed-ratelong-termleverage,andlettingthepositionsappreciate.885willgenerateanIRRinexcessof10%,combinedwithover17%IRRon2Heraldand15.5%IRRon292Madison;extraordinaryreturnsforourshareholdersonAAArisktypepositions.Don'tthinkthisbusinesslineisdiscontinuedaswecontinuetoactivelylookforadditionalopportunitiestocomplement635MadisonAvenueand562FifthAvenueinourcurrentfeeportfolio.
At33Beekman,onTuesdayourteamjoinedPaceUniversity'sseniormanagementteamtocuttheribbononwhatwebelievetobethetalleststudenthousingprojectinthecountryat382feet.I'mveryproudofourconstructionteamfordeliveringthisground-upprojectontimeandonbudget,successfullynavigatingthemanycomplexitiesofthesite.PaceisthrilledandWednesdayweannouncedacontracttoselltheassettoaforeignbuyerataverycompellingcaprateof3.9%.
InadditiontoanextraordinaryreturnonourinvestmentwithaprojectedpropertylevelIRRinexcessof
CompanyName:SLGreenRealtyCorpCompanyTicker:SLGSector:FinancialIndustry:RealEstate
EventDescription:Q32015EarningsCallMarketCapasofEventDate:11.71BPriceasofEventDate:119.24
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40%,weexpecttoreceiveapromoteonthedealinexcessof$10millionwhenitclosesearlynextyear.Needlesstosay,wearehardatworkidentifyingnewsitestocontinuethisbusinesslineaswell,wherewehavehadextraordinaryprofitsinourstudenthousingdivision.WeexpectmorenewsonthesalesfrontsinthefourthquarteraswecontinuetotakeadvantageofgreatmarketconditionsinManhattan.
OnDPE,debtandpreferredequity,netoriginationsloweddownabitthisquarterasseveralrepaymentsweanticipatedrolledinoverthecourseofthequarter.Thatsaid,wehaveaveryfulsomepipelineforfourthquarteranddebtmarketdislocation,whichshookthingsupabitinAugust,isgivingusanextraordinaryopportunitytomaintainorinsomecasesevenincreaseretainedyieldsonpositionsinthatpipeline.Sowewouldexpecttoclosetheyearontargetandwithextraordinaryprofitabilityandhighrelativereturns.
Withthat,IwouldliketoturnitovertoMatt.
MattDiLiberto (CFO):
Thanks,Andrew.Ourthirdquarterresultsshowcasedthestrongperformancefrombothourrealestateanddebtandpreferredequityportfolios,aswellasthesuccessfulexecutionofourpublicly-disseminatedrealestatedispositionandreinvestmentstrategy.Takingintoconsiderationtheseresultsandlookingaheadtothefourthquarter,afterjustincreasingguidancebackinJuly,weareagainincreasingourNAREITdefinedFFOguidancerange$6.34to$6.37pershare,puttingusontrackforalmost9%FFOgrowthyearoveryear.
Lookingthroughthethirdquarterresults,intherealestateportfoliotheeffectoftheacquisitionof11MadisononAugust18and110GreeneStreetattheendofJulycontributedtoanincreaseinseverallineitemsontheincomestatementaswellascashNOIs,partiallyoffsetbythesaleofan80%interestin131-137SpringStreetonAugust4.Excludingtheeffectofthosetransactions,ourpropertyoperatingresultscontinuetoseethebenefitsofincreasingportfoliooccupancyinManhattanwhichnowstandsatover97%onaleasebasisinthesame-storeportfolioandmark-to-marketsinexcessofourexpectations,coupledwiththecontinuedcontainmentofoperatingexpenses.
Historically,operatingexpensesaremuchhigherinthethirdquarterthantheyareinthesecondandthatiswhatwesawagainthisyear.Itwasamuchmoremodestincreasethanexpected.Allthesefactorshavecontributedtosame-storeNOIgrowthof4.6%throughthefirstninemonthsandputusonapathtoendtheyearwellaheadofourgoalof3.6%.
Inthedebtandpreferredequityportfolio,ourbalancedecreasedto$1.5billionaswereceivedrepaymentstotaling$262millionduringthequarter,whichwasconsistentwithourexpectations.AsAndrewoutlined,wehaveasignificantpipelineofneworiginationsforthefourthquarterandyieldsthatexceedthe8.5%weexpectedtoachievein2015.Thispipelineofactivity,whichisweightedtowardsthebackhalfofthequarter,willbringourportfoliobalancetobetween$1.7billionand$1.8billionbytheendoftheyearwiththeoverallportfolioyieldremainingnorthof10%.
Inotherincome,theFFOfromourrealestateanddebttopreferredequityportfolioswascomplementedbya$5millionreductionintheprior-yeartaxobligationsofourtaxableREITsubsidiary.Thisbenefitcomesasaresultofanenormousamountofanalysisbyourtaxprofessionalswhoreviewedthecost-sharingstructurebetweenourTRSandouroperatingpartnership,includingthereimbursementofcorporateoverheadbytheTRS.Asyouallknow,weareveryfocusedoncreatingefficienciesthroughtaxstructuringandstrategyineverythingwedo,sokudostoourtaxdirector,MikeBarber,forhiseffortsinthisregard.
Alsoincludedinotherincomeduringthequarterwastherecognitionofleaseterminationpaymentstotalingabout$4million.Aswehavesaidinthepast,wedon'tviewleaseterminationincomeas
CompanyName:SLGreenRealtyCorpCompanyTicker:SLGSector:FinancialIndustry:RealEstate
EventDescription:Q32015EarningsCallMarketCapasofEventDate:11.71BPriceasofEventDate:119.24
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nonrecurringsincehistoricallywehaverecognizedsomelevelofleaseterminationincomevirtuallyeveryquarter.Thisissimplytheacceleratedrecognitionofleaseincomethatweotherwisewouldhavereceivedovertime.
Ontheexpenseside,givenallofourinvestmentactivityduringthequarterhighlightedbytheacquisitionsof11Madisonand110Greene,werecognizedasignificantamountoftransactioncosts,somewhatmorethanweanticipated.Asalways,weareconservativeinourviewoftransactioncostsgiventhatwearesoactiveandthatconservatismremainsasweheadintothefourthquarterwithafullpipelineofactivityahead.
Allthingsconsidered,weareverypleasedtoberaisingguidanceforthesecondconsecutivequarter.Ithinkwearesetupverynicelyheadedinto2016.We'reexcitedforthequartersaheadandwelookforwardtounveilingour2015earningsguidanceinearlyDecember.
Inthatregard,beforeIturnitbacktoMarcIwanttoremindeveryonethatour18thannualinvestorconferenceisbeingheldonDecember7hereinNewYorkCity.Itishardtobelievewe'vebeenholdingthisnowfor18years.It'safull-dayeventchock-fullofinformationandmaybeevenabitofentertainment.
Invitationswillbegoingoutinthenextcoupleofweeks.Ifyoulikemoreinformationinthemealtime,pleaseemailus.Theemailaddressesisinourpressrelease,butit'[email protected].
Withthat,backtoMarc.
MarcHolliday(CEO):
Okay,thankyou,Matt.We'regoingtoopenitupforQ&A.IjustdowanttoechoMatt'ssentimentsthatwecertainlyhopeeveryonelisteninginwillbeabletomakeittotheshareholdereventinDecember.That'swherewearegoingtoreallygetintonotsomuchareviewofthepast,butreallyalookforwardinto2016,becauseweareextremelyexcitedaswearesittingherenowaboutthedevelopmentopportunities,embeddedgrowthwithintheportfolios,andalltheotherthingsthatwehavelinedupwe'regoingtobereadytotalktoaboutin2016.SolookforwardtoseeingyouinDecember.
Withthat,wewillopenuptoQ&A.
QUESTIONS&ANSWERS
Operator :
(OperatorInstructions)MannyKorchman,Citi.Itlookslikeheremovedhimself.
RossNussbaum,UBS.
RossNussbaum(Analyst-UBS):
Canyoutalkalittlebitaboutthestructuredfinancebook?Inparticular,itsoundslikeyouareactuallyprettybullishaboutpotentialoriginationsherestemmingfromsomeoftheturmoilinthefixedincomemarkets,butI'mcurioushowyouthinkaboutwhether--what'sgoneoninthefixedincomemarkethasbeenabitofacanaryinthecoalmineandperhapsshouldyouuseitasanopportunitytoletsomeoftheportfoliorolloffandderiskthatpartofthebusinessalittle.Andhowdoyoubalancethosetwoviews?
AndrewMathias (President):
Ithinkit'smoreofanopportunitytogetbetterrisk-adjustedreturns,whichmeanseitherchargingmoreforcapitalatasimilarpositioninthecapitalstructureortakingtheopportunitytomovemoreseniorinthecapitalstructureandchargesortofthesameaswewerepreviouslygettingforjunior.Therewas
CompanyName:SLGreenRealtyCorpCompanyTicker:SLGSector:FinancialIndustry:RealEstate
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quiteabitofdislocationintheCMBSmarketinAugust,andeverytimethereisthatkindofdislocationwefindextraordinaryopportunitiessortofshakingoutwhereyouhavecapitalstructuresthatareshortproceedsbecausepeoplegetcarvedbackintheCMBSmarket.
SoIthinkit'sless--weviewitaslesstimetopauseandmoretimetotakeadvantage,butmakesurethatweareincreasingourrisk-adjustedreturnsatsortofwhateverportionofthecapitalstructurewearelendingat.
RossNussbaum(Analyst-UBS):
Okay.I'mgoingtoletNickYulicoaskoursecondquestion.
NickYulico (Analyst-UBS):
Thanks.IwashopingyoucouldtalkalittlebitmoreaboutNewYorkCity,whereyouthinktheoverallmarketisrightnowforrentgrowth.There'ssortofadebateaboutwhetherit's5%,whetherit'slowerthanthat,whetherit's10%forthebestbuildings.Maybeifyoucouldjusttalkalittlebitaboutwhatyouareseeinginthemarketforrentgrowthandhowit'strendedthisyearandhowyouthinkitmightmoveintonextyearfortheoverallmarket.Thanks.
SteveDurels (EVPDirectorofLeasingandRealProperty):
Well,youcansliceanddiceit20differentwaysdependingonthequalityofthebuildings,thesubmarket,thebaseversusthetower,thevarioussizesoftenantrequirementsandthentheprofileoftherequirementitself.Iwouldsay,generallyspeaking--andlet'ssortoffocusonMidtownbecauseMidtownhasbeenextremelyactivethisyear--rentgrowththisyearhasbeenstrongacrosstheboard.Wehaven'treallyseenanyletupindemandonwhetherit'sthebottomorthetoporonthemorepricesensitiveversusthehighpricepointproduct.
IwouldsaythatoverallMidtownhasgotmoreopportunityforrentgrowththandoesMidtownSouth,atleastinthenearterm,becausethere'smoreinventoryavailableandthedemandisgoingtofollowwherethesupplyis.Andthere'salotofleasingvelocityindealsinthepipelineforMidtownrightnow.Sotoputanumberonit,betweennowand12monthsfromnowIwouldbeverysurprisedifwedidn'tseeatleast7%to8%ofrentgrowth.
NickYulico (Analyst-UBS):
Allright,thanks.That'shelpful,Steve.
Operator :
MannyKorchman,Citi.
MichaelBilerman (Analyst-Citigroup):
Allright,it'sMichaelBilerman.Twoquestions,onefromme.Marc,inyouropeningcommentsyoutalkedaboutapipelineofaccretiveandthenyoucalledthemopportunisticopportunities.I'mjustwonderingifyoucanshareormaybeperhapsAndrewcansharesortofwhatdoesthatencompassintermsofsizing,butalsothetypesofdealsthatweshouldbeexpectingfromthispipeline.
MarcHolliday(CEO):
Ithinkthat--Idon'tthinkwewanttocompletelygiveitaway,sowegenericallydescribeitasthekindofstuffwehavebeenbuyingtosomeextent.Soitisamixtureofhigh-qualityofficeandmoreopportunisticmixed-use,meaningeitherresiretailorofficeretailproductsinsomeof--intheMidtownSouthmarket.
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SoIthinkit'sacombinationofthosetwotypesofprofiles.
That'sjustontheequityportion.I'mnotspeakingtothestructuredfinancepipeline,whichAndrewspoketoseparatelyorcanaddmorecommentarytoseparately.I'mjusttalkingaboutfeeopportunitiesthatweareworkingoncurrentlythatifthingssetupwiththerightprocessandtherightpricingcouldresultinsomeadditionalacquisitionsoverthenextthreetofivemonths.
AndrewMathias (President):
Justtoadd,Michael,ifyoulookat110Greeneand187Broadway,thetwotransactionsweannouncedinthequarter,thosearecompletelyoffmarket.Nevermarketed,one-on-onenegotiationsandstructureddealswherewewereabletodeliverthesellerequivalentormorenetproceedswithoutthemgoingandtakingafullcashpricefromthemarket.Wearestillseeingthosetypesofopportunitiesassortofwealwayshave;they'rejustlongerleadtimeandtheymatureastheyarereadywithoutthepressureofamarketedprocess.Sowestilldohavealotofthosetypesofdealsinthepipeline.
MannyKorchman (Analyst-Citigroup):
It'sMannyherewithMichael.Ifwelookatthe885Thirddeal,canyoujustclueusinastohowthatwasstructuredandwhytherewassuchabigpreferredequitycomponent?Andonthepreferred,ifyoucouldjustgiveusthetermandtherate?
AndrewMathias (President):
Sure,Ithinkthepreferredequitytermisfiveyears.Theratewillwindupbeinginthehigh5%rangeandIthinkourthinkingtherewasthestructurecontainsalotofvariabilityin2020andpartofthemotivationforsellingtheassetnowistohavecertaintyasopposedtothatvariabilityofoutcomein2020.Sousprovidingthepreferredallowedustogetagoodcashreturnintheinterimandnotbefirstinlinedependingonwhathappenswiththeassetin2020.
MannyKorchman (Analyst-Citigroup):
Okay,thanks.
Operator :
TonyPaolone,JPMorgan.
T onyPaolone (Analyst-JPMorgan):
Thanks,goodafternoon.Thisweekthere'ssomeconcernsthathaveemergedaroundtechtenancyoutontheWestCoast.AndwithTAMIhavingdrivenalotofthegrowthinNewYork,canyougiveussomeviewsonhowyouseethatspace,particularlyasitrelatestotenantcreditandventurefundingandhowyouguysthinkaboutthatrightnow?
MarcHolliday(CEO):
Yougottoremember,Tony--Idon'thavethenumberinfrontofme.I'mgoingtoguesswehave5%orlessexposuretopuretechtenantsandcertainlythetypeofTAMItenantsthatyou'retalkingabout,whichwouldbecreditconcerntenants,Ithinkit'saverysmallportionoftheportfolio.Traditionallywehavehadverylittlelossinthatsegment,evenwhenthereweretimesofdistressbackin2000,2001,etc.
SoIthinkthatthewaywethinkaboutitiskindofthewaywerunthebusiness,whichisorientedtowardscompaniesthatarelargelyinvestmentgrade,established,biggercompanies.WehavemadesomeinvestmentsintheMidtownSoutharealike635,646,buteveninthatbuilding,whichhasafairamountof
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techtenants,theywereallveryhighquality,likeInfor,Microsoft,and--whoelsedowehavethere?Yelp.
SoIdon'tknowthatthat--thatdoesn'traiseanyredflagsforusonthecreditsideofthings.Ithinkwe'vesoldpropertiesinthepastwherewefelttherewassomecreditexposurestotryandheadoffwhatmaybecomingdownthepike,butIwouldsimplysaythatjustlookatthesupplementalwiththedisclosureofourtenantprofileandyouwillseethatregardlessofhowthatmarketdevelopedovertime,thereisalwaysgoingtobeupsanddownsinwhatisessentiallyacyclicalandemergingkindofindustry.Idon'tseethathavinganyimpact,anymaterialimpactontheportfolioasithasn'tinyearspast.
AndrewMathias (President):
Ithinkaverysmallfractionofthe5%oftechMarcreferredtoisatallreliantonventurefunding,whichIthinkismaybe1%?
MarcHolliday(CEO):
Almost.
AndrewMathias (President):
Iwouldn'teven--1%ofthe5%maybe,not20%ofthe5%.Idon'tthinkventurefundingisatallrelevanttoourtenancywhatsoever.Thetechtenantswehavearelargepublictenants.Wetookameasurethisquartertosellthe36thStreetassetwhichhadanexposuretoventurefundedtypetenant.
T onyPaolone (Analyst-JPMorgan):
Gotyou,thankyou.Mysecondquestionon1Vanderbilt,canyougiveusasenseastohowyouthinkaboutdepthofmarketfortenantsatthatpricepoint?Ithinkthere'ssomeotherproductgoingupatafairlysimilarlyhighpricepointandthenyouhavesortofthealternativeoftheWestSideorDowntownatamuchlowernewconstructionpricepoint.Soasyouguysmoveforwardwiththatproject,howwouldyouthinkaboutjustthepotouttherethatyoucangogetatthatpricepoint?
MarcHolliday(CEO):
Tony,Ithinkwe'regoingtogothroughthatinanextensiveamountofdetailinDecemberandIwouldurgeyoutowaittillthentohearfromSteveandsomeofthebrokerswehaveworkingonthedealthataregoingtotakeyouthroughthebuilding
Itreally,Ithink--whenyousaythere'sotherbuildingsgoingupofasimilar,thereisreallyalmostnonesoIdon't--.There'smaybe425Park,althoughthatalready--themajorityofthatisanchoredandwhat'sleftisverysmallfloorplates.SoIactuallydon'tknowanythingthatisgoingupthatwillbedeliveringin2020thatIwouldcallcompetitiveproductinaAAAlocation.
Thetenantsthatwillbelookingforlargeblocksofuses,between500,000and1millionsquarefeetandover,ontheWestSidereallydon'tevenenterourtargetmarketforthemostpart,becauseweseethisbuildinglikelybeingtenantedbytenantsranginganywherefrom50,000feetto250,000feetlookingforveryhighend,veryhighlyamenitized,veryhighdesigned,verywelllocated,brand-newofficespaceat--withviewsthataresortofunparalleledinMidtownbecauseoftheheightofthebuilding.SoIdon'tthinkthere'salotofcompetition.
Thatdoesn'tmeanwedon'thavetothinklongandhardaboutwhoisthattenantbaseandhowarewegoingtoattackthem.AndthatwewillgointoingreatdetailinDecember,butsufficeittosaythereceptiontothebuildingfromthetenantcommunitysofarhasbeenexcellent.Ifanything,giventhatit'sonly2015andwearetalkingaboutoccupancyin2021,2020possessiondatesforoccupancy,endof
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2020,2021,fortenantsinthat50,000to0.25millionsquarefootrangeit'salittleearly,whichmaybeisobviousbutIjustwantedtostatethat.
ButthereceptiongenerallyhasbeenexcellentandIdon'tthinkthepricepointswehaveestablishedforthebuildingaregoingtobearesistancelevelforthesetypesoftenants.
T onyPaolone (Analyst-JPMorgan):
Okay,gotyou.Thankyou.
Operator :
VincentChao,DeutscheBank.
VincentChao (Analyst-DeutscheBank):
Goodafternoon,everyone.Justwantedtogobacktoguidanceforasecondhere,understandingthatthesecondquarterinarowofraisehere,butgiventhemagnitudeofthebeathereinthequarterandsomeofthedriversthere,Iwouldhavethoughtitwouldhavebeenalittlebitbiggerraise.SoIwasjustwonderingifyoucouldprovidesomemorecoloronsortofwhatthekeydriversoftheupsidehereare.Doesseemlikeyouaretrackingwellaheadonthesame-storefrontandleasingvelocitysoundsverystrongaswellrelativetoyourexpectations.
MattDiLiberto (CFO):
Withonlytwomonthslefttogo,Ifeellikeourvisibilitythroughtheendoftheyearisprettysolidatthispoint.Alotofwhatwereportedinthethirdquarterwasexpectedups,downs,andotherwise;slightlyaheadonahandfulofthingsthatputusinthepositionofgenerallyincreasesequentiallythroughthequartersunless(technicaldifficulty)outperformanceandtherehasbeen.Butbyandlarge,thisstuffthatwesawinthethirdquarterwasinlinewithexpectations.
Alotoftheleasingmomentumthatwehave,whenIsaywe'reexcitedabout2016,that'sreallygoingtohaveanimpactin2016andbeyond;notforthelasttwomonths,threemonthsoftheyear.
VincentChao (Analyst-DeutscheBank):
Okay,sotherealestatetaxwascontemplated,Iguess.Okay.Justanotherquestionintermsofthetotaloveralldemandthatyouareseeing,wetalkedaboutsortofthetechcomponentofit.Justcuriousifthere'sanyothershiftsorchangesthatyou'veseenandsortofwherethedemandiscomingfrominNewYork.
SteveDurels (EVPDirectorofLeasingandRealProperty):
Financialservicesisreally--whatwasmissedinthelastconversationwasit'snotsomuchaboutwhereTAMIis,eventhoughthatwasthebigstoryforlastyear.ThedifferencethisyearisthatfinancialserviceshasbeenthedriverofleasingactivityacrosstheManhattanmarket.Certainlywithinourpipeline,we'vegotleasesout.100,000squarefeetofthatisfinancialservices-related.Andinthepermsheetstage,we'vegotalmost300,000squarefeetofdealscomingwithfinancialservicetypetenants.Sostrongdemandthere.
Theotherdriver,healthcarecontinuestobeabigportioninManhattan.Sodoeseducation,theadministrativesideofeducation.Weareseeingsomelargeleasescometothepipelineoffofthataswell.
VincentChao (Analyst-DeutscheBank):
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Okay,thanks.
Operator :
JohnKim,BMOCapitalMarkets.
JohnKim(Analyst-BMOCapitalMarkets):
Thankyou.Ihadacouplequestionsonretail.Thisperiodyousignedahighrentdealat125ParkAvenue.Canyouprovidesomecoloronthekindoftenantyousignedthere,whetherornotthiswasconversionspace;andifitwasconversionspace,howmanyotheropportunitiesdoyouhavetoconvertofficeorlobbyintoretail?
AndrewMathias (President):
Iguessat125Park,Ithinkwesignedtwodealsthisquarter;Haworth,whichistheshowroomtenantonthegroundandsecondfloor.Andthenwedidconvertabunchofbasementandstoragebaseintoretail,combinedwithaunitonthefirstfloorandsignedamajorfitnessoperatorintothespace,opengym.
SoIthinkthatisveryindicativeoftheworkdayinanddayoutourretailgroupisdoing,diligencingtheassetsweowninadditiontotheassetswearepurchasingtotrytofindareaswherewecanexpandtheretailfootprintandconvertlowerrevenue-generatingspaceintohigherrevenue-generatingspace.Sothereisalotmoreofthatopportunityintheportfolio.
JohnKim(Analyst-BMOCapitalMarkets):
Doyouhaveanestimateastohowmuchthatmaybe?
AndrewMathias (President):
WehadputupaslideinDecember,butthatwillhavetobemodifiedbecausesomeoftheleasinghastakenplacethisyear.ButtheslideinDecemberthatIrecallwassomethinglike$160millionofincrementalNOIoverthenextfiveyears,ourshare--thatrepresentsourshare--comingstrictlyfromretailassets.
Nowinthatregard,there'sbeenretailleasingbutwe'veaddedretailassets,sowewillhavetodothatreconciliationforyouinDecember,butsufficeittosay,itisenormous.Ilookatthatnumberascomingfromtheretail,whichisnotasegmentofthebusinesswehavealotofcapitaldevotedtolikewedoontheofficesector,muchmorecapitaldevotedthere.SopoundforpoundthatkindofNOIliftoverthenextfiveyearscomingfromthatsegmentisenormous.
ButlikeIsaid,wedon't--Ican'ttellyouatthemomenttheexactamountofNOIexpectationwehavefromretailoverthenextfiveyears.WewillhavethatforyouinDecember.
JohnKim(Analyst-BMOCapitalMarkets):
Okay.Thenmysecondquestiononretailisthepotentialre-leasingspreadsgoingforward.Lookingatslide50andyouraskingrentsestimates,itlookslikeactuallywentdownforthreeofthefourretailbucketsyouhavecomparedtothesecondquarter.AndIwaswonderinghowmuchofthiswasduetothemixthathaschangedcomparedtomaybeyourmoreconservativeviewsonretailormaybesomesoftnessontheretailmarket.
MattDiLiberto (CFO):
John,it'sMatt.It'smoreamix.Thatportfoliosoldsomestuffbasedonoccupiedspace,sodependingon
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whenspacerollsin,rollsoutthatcouldchange,butcertainlyourviewofretailhasnotchanged.
AndrewMathias (President):
We'renotseeingrentaldeclinesinanyofourretailassets,ifthat'sthequestion.
MarcHolliday(CEO):
Themark-to-marketthatwasassociatedwiththepresentationIwasreferringtojustearliergeneratedthat$160million-ishofincrementalNOIhadamark-to-market,asIrecall,ofabout100%.SoIdon'tknowhowthatcomparestothissupplemental.Howdoesitcomparetothesupplemental?
MattDiLiberto (CFO):
It'sallthesamesetofnumbers.
MarcHolliday(CEO):
About100%,right?SoIthinkit'sfairtosayonaveragetherearesomepropertieswehaveinwhatIwillcalltheprimeretailsegmentwhererentsmaybemarking200%,300%,400%,literally,tomarketandthenthere'sotheraspectswhichare20%,30%,40%.Butonaverage,atleastasoflastDecember,itwasabout100%.
AndasAndrewsaid,wearenot--wehavenotreducedretailrentsIdon'tthinkanywhereintheportfolio.Steve,canyouthinkofanywhere?Soithastobesolelymixortheoccupancythatiscomingupinanygivenyear;somehashighermark-to-market,somelower.But,again,Iwouldlookatitmoreonaportfoliobasisasopposedtoanyindividualquarteroryear,andonthatbasisit'sabout100%embeddedgrowth.
JohnKim(Analyst-BMOCapitalMarkets):
Okay,thankyou.
Operator :
TayoOkusanya,Jefferies.
T ayoOkusanya(Analyst-Jefferies):
Goodafternoon,everyone.Goodquarter.Matt,justaquickoneforyou.Whenwedothinkaboutthesourcesandusesoffundsoverthenextfewquarters,againtheslightgapyoustillhavelefttofullyfund11Mad;couldyoutellmeabouthowlargethatisandwhetheryouexpectallthattocomefromthedebtrefinancingthatyouaretalkingabout?Andifthatindeedisthecase,ifyoudoendupwithexcessproceedsistheideatocontinuetodelevergoingforward?
MattDiLiberto (CFO):
Marctalkedaboutincrementalassetsalesoverandabove1745asbeingsourcesofcapitalforotheraccretiveopportunities.Justspeakingtowhatweliketocallthe11Madisonrubric,thetotalityoftheacquisitionandthesalesthatwehavefeedintoit.Butfor1745thesaleshaveallbeencompletedconsistentwithourplan,sothatleavesuswithfinancingsandrefinancingsthatareinprocessthatgenerateincrementalcapitaltotheprogram.
MarcHolliday(CEO):
Andjusttoexpandonthat,inJuneweputupapresentationwhichshowedafundingplanfor11Madisonbutalsofor$400millionofadditionalacquisitions.Weareabout$200millionofequitythroughthat
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$400millionsothat--wewillsellmoreassetslikelybeyond1745Broadway,asImentionedearlier,andthosewillgotofundthoseincrementalacquisitionstofilloutthe$200millionandthenpossiblybeyondthataswellbecausewewillgobeyond.
Butifthequestionisjusttocloseoutthe11Madison,IthinkwhatIsaidearlierwas1745plustherefinancingsclosesout11.
MattDiLiberto (CFO):
Andastodelevering,Tayo,obviouslyweclosed11Madisonusingourcorporateliquidityandcorporatefacilities,sonowwitheverysalethatweconsummatethatwillgodownto--aspartoftherubric.Thatwillgobacktopay--repaythosefacilities,takingleveragebackdown.
MarcHolliday(CEO):
Butifyoulookatwherewestartedtheyearandwherewefinishedattheendofconsummatingallthesetransactions,allofourleverageratiosbasedon2015EBITDAisrightbackinline.Andthenin2016itimprovesasweexpect2016EBITDAtoexceed2015EBITDA.Soweshouldhaveimprovementinallthoseratios,notwithstandingtheenormousactivity,theenormousacquisitionthatwewereabletoachievebyourselveswithoutpartner,withoutissuinganycommonequity.
AndobviouslyasmarketsimprovetheATMbecomesanoptiondowntheroad,butclearlyatthelevelswe'veexperiencedwehavebeenrelyingsolelyontheassetsalesandthat'sproventobeanexcellentstrategywethink.
T ayoOkusanya(Analyst-Jefferies):
That'sveryhelpful.Thanksfortheclarification.
Operator :
JamieFeldman,BankofAmericaMerrillLynch.
JamieFeldman (Analyst-BofAMerrillLynch):
Thankyou.Justfocusingontheleasingpipeline,canyoutalkabouthowmuchofthatpipelineisnewversusrenewal?Andthenalsomaybebreakitoutintothedifferentsizesyou'reseeing.Ithinkyoumentionedthereisacouplehundredthousandsquarefootpotentialfinancialservicesusers.
Andthen,justthinkingaboutthedifferentcorridors,areyouseeingmoredemandforhigh-endParkAvenue,SixthAvenue,MidtownSouth?
SteveDurels (EVPDirectorofLeasingandRealProperty):
We'vegot--oftheleasesthatareout,themajorityofitisnewdeals.Inthepipelineofdealsthatarebeingnegotiated,it'sprobablysortofat50/50.Asfaraslocations,themajorityofdealsthatweareworkingonareallMidtown.ThereisascatteringofstopsspreaddowntownorMidtownSouth,butthemajorityofitisMidtown.
What'sinterestingisthatagoodchunkof--Iwouldsayaverylargepercentageofthedealsthatweareworkingon,bothinpipelineand/orleasesthatareout,areforspacesthataren'tbecomingavailablein2017,whetherthoseareearlyrenewalsorwhethertheyareforwardcommitmentsforspacethatweknowwearegettingbackin2017.Sothat'swherealotofourattentionisrightnow.Wehaveverygoodvisibility,obviously,throughtheendofthisyearandformostof2016,butwe'vegotagooddealofrolein2017andthegoodnewsonthatiswe'vegotsomeverylargedealsinthepipelinethataregoingto
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knockabigchunkofthatofftheboard.
JamieFeldman (Analyst-BofAMerrillLynch):
Okay.AndareyouseeinganyshiftsintermsofthedifferentavenuesorpartsofMidtownintermsofwherepeoplewanttobeorwhattheyarewillingtopay?IknowyousignedtheBloombergdealearlierthisyearonThirdAvenue.
SteveDurels (EVPDirectorofLeasingandRealProperty):
ParkAvenue,therentsareupbutthesupplyiswaydown.ParkAvenuehasgotoneofthelowestavailabilityratesrightnowintown.RightaroundGrandCentral,comparedtoayearagothere'sbeenalotofleasingvelocityintheGrandCentralsubmarket.ButIreallycan'tpointyoutosaythatthedemandisfocusedononeavenue,onesubmarket,oronesizeortypeoftenant.
Interestingtonotethattwoyearsagowewould'vebeentalkingabouthowThirdAvenuehadalotofsupply.NowallofasuddenThirdAvenuehasreturnedtoitshistoricalnormasfarasavailability.Ifyoutakeourbuildingon711ThirdAvenue,wherewehaveanumberofdealsthatwearenegotiating,therentsthere,whichisprobablyourmostcommodity-likebuildingwhereyouwouldthinkwouldbetheweakestpartasfarasrentgrowth,wehaveseenagood$10increaseonrentsonthenumberofdealsthatwearenegotiatingtodayversuswherewewould'vebeenayearago.
JamieFeldman (Analyst-BofAMerrillLynch):
Okay,great.Thankyou.
Operator :
AlexanderGoldfarb,SandlerO 'Neill.
AlexanderGoldfarb(Analyst-SandlerO 'Neill&Partners):
Great,thankyouandgoodafternoon.First,Marc,justgoingbackto885Third.Ifmymathisright,itlookslikeyourpreferredequityisbetweenthe60%and90%LTVandIthinkyousaidthat(multiplespeakers).
MarcHolliday(CEO):
No,no,no,notright.Howdidyouget--?Idon'twantto--aspartofefficiency.90%LTV(multiplespeakers).Whatareyouusingforassetvalue?
AlexanderGoldfarb(Analyst-SandlerO 'Neill&Partners):
Iwasusinginyourpressreleasethe$453millionandthendeductingthemortgageandthendeductingthe(multiplespeakers).
MarcHolliday(CEO):
Alex,it'safeeposition--you'veonlygotlikehalftheequation.There'saleaseholdbehindthefee.Weownthefee;wetradedthefee.Thefeeisapartialinterestoftheoverallvalueoftheproperty.
There'saleaseholderouttherethatwouldliketothinktheyhavesizable,sizableequityvaluebehindthefeeposition.There'sactuallyover$100millionofinstitutionaldebtandthenthere'sIthinkover$100millionofinvestedequity,andwhateverit'sworthit'sworth.Butthere'sno--thisisno90%ofvalue.Thisislike--IwouldequateitalmosttoAAAbond.
Doesthatmakesense,Alex?
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AlexanderGoldfarb(Analyst-SandlerO 'Neill&Partners):
Itmakestotalsense.
MarcHolliday(CEO):
Anyway,that'swhyIwantedtosortofjustclotureitthere.Idon'twantthose90%numberfloatingaround.Thisisaverysecurefeeassetwithalotofsubordinateequitybelowitintheformofalong-termoperatingleaseholdpositionownedbyforeignentitiesthatareinstitutionalinnatureandIthinktheyhaveatonofequityvalueinthatdeal.
AlexanderGoldfarb(Analyst-SandlerO 'Neill&Partners):
Right,Iguessthereasonthefeepositiontradedforthepriceittradedisbecauseithaslimitedupsidebecausethereisafixed-pricerepurchaseoff.
MarcHolliday(CEO):
Iwouldlookatthismoreasalowleveragemortgagebondthatwearetrading.That'sthedeal--thiswasatestamenttoAndrew.HestructuredthreeofthesedealsbackinIthinkitwas2005,2006,2007
Sotwoofthosedealswefullyresolved.WemadeIthinkverysignificantreturnsonthe2Heraldand292.Nowthisdeal,uponclosing,fullyresolved;wewillhaveachievedessentiallya10%to10.5%IRRonwhatIlookatessentiallyasaAAAbondposition.
AlexanderGoldfarb(Analyst-SandlerO 'Neill&Partners):
Okay,that'shelpfulandthatexplainsit.Iappreciatethat.
Thesecondquestionisontheoriginationsinthequarter,the7.2%,isthatjustareflectionofgoingaftersomeseniormortgagesand,therefore,weshouldexpectmoreofthe10%goingforward?Ordoyouthinkthatbecauseyouguysmaybegoingmoreseniorthat10%maycomedownmoretowards9%?
AndrewMathias (President):
Iwouldexpectourholdpositionstobemoreintheoverallaverageofourbook,inthe9%,10%range.It'sreflectiveofthefactthatwehaveputamortgageonthebooksandhaven'tsyndicatedtheseniorportionofityet.
MarcHolliday(CEO):
ThereagainIwouldjustliketoraisethepointasyoutalkabout10%,forearningspurposeswemodeled8.5%,not10%.It's,intheworldofdebt,abigdifference.Sowehadbeenachieving10%becausewehadbeenoutperformingourprojections.
Ourtarget,justsowe'reonthesamepage,isnot10%.Our,let'ssay,guidanceinanycaseis8.5%onablendedbasisbetweenwhatevertheprofilebookofmortgageinsupportofthedebthasbeen.Andrewissayingthatislikelytocontinue,andifitdoes,thenweshouldmeetorexceed8.5%.Hopefully10%,butIjustwouldn't--Iwouldcautionyouonusingthatasyourtarget.
AlexanderGoldfarb(Analyst-SandlerO 'Neill&Partners):
Perfect,thankyouverymuch.
Operator :
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Asareminder,pleaselimityourselftotwoquestions.
JohnGuinee,Stifel.
JohnGuinee (Analyst-StifelNicolaus):
Thankyou,twoquickoneswhicharegoingtosoundlikethree.First,ofthe--whenyoufirstannouncedthe11Madison,myrecollectionisyougavealaundrylistofassetsthatyouweregoingtosellandforgivemefornotbeingabletokeeptrack;butwereanyofthatoriginallaundrylistnotyetannounced,i.e.,didn'thappen?
Second,justoutofpurelyidlecuriosity,whoisthelenderona$1.4billion10-yearloan?Then,three,what'sthemagnitudeoftheadvantageoftheFederalHomeLoanBankofNewYorkrelationship?
MarcHolliday(CEO):
Okay,let'stickthemoff.
MattDiLiberto (CFO):
Ithinkthat'sthreequestions,John,rightaftertheoperator(multiplespeakers).
MarcHolliday(CEO):
Well,butheaskedthemallatonce,somaybeit'sokay.
JohnGuinee (Analyst-StifelNicolaus):
I'mnotanaccountant,though,soitonlylookedliketwo.
MarcHolliday(CEO):
Sointermsofthefirstone,Idon'tthinkweputalistoutthere.
AndrewMathias (President):
Wedidn'tpublishalistofassets.Wepublishedanaggregatesalevolume.
MarcHolliday(CEO):
Wehadaninternallist,Iwouldsay,thatwasalltheassetswe'resellingandthensome,becausewewerekindoftriangulatingthemarket,ifyouwill,totryandfigureoutofauniverseofassetswhichislargerthanwhatwesoldwherecouldwegetthebestexecutions.Andwethinkwe,hopefully,achievedthat.
Sotheanswerisnolist;alltheassetswesoldwerewithintheuniverseofwhatweintendedtosellandwethinkwesoldtheonesthatwecouldgetthebestexecutiononrelativetoourinternalassessmentofvalue.That'sone.
Two,thelenderon$1.4billion.
AndrewMathias (President):
Itisathree-handedCMBSdealwiththreemajormarketbanks.Theyaredoinga--theydoasingleassetdeal,David?
DavidSchonbraun (CoChiefInvestmentOfficer):
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Partofitwasputinasingleassetandtherestwereputintoseparateconduitdeals.
JohnGuinee (Analyst-StifelNicolaus):
Gotyou,okay.AndthenHomeLoanBankboard?
DavidSchonbraun (CoChiefInvestmentOfficer):
Look,IthinkwehavebeenrunningacaptiveinsuranceforoveradecadenowandaspartofthatwehaveaccesstotheFederalHomeLoanBank,whichprovidesusveryefficientcapitaltofinancesomeofourstructuredpositionswith.Sowe'regoingtotakeadvantageofit.
Itallowsusto,insteadofsellingAnotes,originatemoreseniorpositionsandfinancethemandhavehigherretaineddeals.SoIthinkwemaydomoreofitlater,butitisabigadvantagetousonago-forwardbasis.
JohnGuinee (Analyst-StifelNicolaus):
Thankyou.
Operator :
JimSullivan,CowenGroup.
JimSullivan (Analyst-CowenandCompany):
Thankyou.Firstofall,justtogobackon885andIknowit'saverycomplicatedstructurethatwasputinplacethere,but,Andrew,Ithinkwhenyoudescribedthepricingonthetransactionyoutalkedaboutachievinga10%IRRontheinvestment.
AsIrecall,atthe2020resetontheleasethere'sanoptionthatIthinkyoureferredtoearlierandIthoughtthatoptionwaspricedtodeliveranunleveredIRRofabout7.5%.DoIhavethatright?
AndrewMathias (President):
It's7%unlevered,whichleversupto10%,soyes.Thenorthof10%isaleveredIRR.
MarcHolliday(CEO):
Wealways--onwhatIcallequity-typedealswealwayspinpointunleveredreturns.Thistypeofinvestmentwherewedon'thavetheoperatingpositionandithasstatedyieldandatakeoutin2020,welookatstrictlyasastructuredinvestmentakintosomethingthatwouldbealmostinDPEportfolioandwe'relookingatIRRsoncashoutthedoor.
Sothe10.5%IthinkIRRisequivalenttoessentiallylikea10.5%weachievedonaninvestmentinDPE.ThisjusthappenstobenotDPE;ithappenstobeastructuredpieceofit.Andleveredbyalowrate,alowadvanceratefirstmortgage.
JimSullivan (Analyst-CowenandCompany):
Themortgageontheleasehold,wasn'tthatataprettyhighcoupon?Wasn'tthatover6%Iwanttosay?
AndrewMathias (President):
Mortgageonourfeeortheleaseholds?
JimSullivan (Analyst-CowenandCompany):
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Onthelease.
AndrewMathias (President):
Wedon'tholdthelease.Itwaspurchasedbyagroupthatputamortgageonit.Idon'thonestlyrecallorknowwhattherateisonthatleaseholdmortgage,butthatleaseholdmortgageisjuniortous.
MarcHolliday(CEO):
Thatwouldn'thaveaneffectonourreturn.
JimSullivan (Analyst-CowenandCompany):
Isee,okay.Andthenthesecondquestionformeonthestructuredfinancebook.Thisisamodelingquestion,buttheaverageweightedoutstandingactuallywentdownquarteroverquarter.Ithinkthecouponwentdownaswellandyettheincomewentup.
Andmaybeintermsofhelpingustomodelthisgoingforward,whataccountsforthehigheryieldonthelowerbalanceandthelowercoupon?
MattDiLiberto (CFO):
It'sMatt.Whenwereceiverepayments,ifthere'sanexitfeethathasn'tbeenamortizedin--that'sthecaseforthepositionsthatgotrepaidthisquarter--thatwouldbereflectedinincomeinthequarterofrepayment.
JimSullivan (Analyst-CowenandCompany):
AndsointhinkingaboutitforQ4,weshouldassumeasimilarkindofpremiumlevelyieldonthebook?
MattDiLiberto (CFO):
Therunrateyieldwouldbeconsistentwithwhatwe'veshownonaverageforthelastseveralquarters.Theincomestreamwillbeaffectedbythelowerbalancethatweareleadingoffthefourthquarterthattrendsupwardasweoriginatemoredealstowardsthemiddletothebackhalfofthequarter,buttheportfolioyieldremainsfairlyconsistent.Isaidwewillendtheyearjustnorthof10%.
MarcHolliday(CEO):
It'smostlyafunctionofusnotcontrollingthetimingofrepayments.Wecananticipatethemandtrytomodelthemcomingin,butyoudon'tknowwhenexactlytheyaregoingtocomein.Someoftheexitfeesarevariableinamountdependingontimingofrepayment.
JimSullivan (Analyst-CowenandCompany):
Okay,verygood.
Operator :
BrendanMaiorana,WellsFargo.
BrendanMaiorana(Analyst-WellsFargoSecurities):
Thanks.Steve,youalludedto17expirations.Iwaswonderingifyoucouldmaybehandicapwhat'slikelywithOmnicomat220East42ndwhereyou'vegotabigexpirationin2017.
SteveDurels (EVPDirectorofLeasingandRealProperty):
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We'reintermsheetdiscussionwiththemaboutretainingsome,butnotall,oftheirspace.
BrendanMaiorana(Analyst-WellsFargoSecurities):
Itlookslikerentsaremidtolow40s.Howdoesthatcomparetomarket?
SteveDurels (EVPDirectorofLeasingandRealProperty):
There'sgoingtobeamassivemark-to-marketinthatbuilding.
MarcHolliday(CEO):
Whetherit'swithOmnicomorareplacementtenant.
BrendanMaiorana(Analyst-WellsFargoSecurities):
Sure.Andthenjustsecondquestion.Occupancylevel97%,Ithinkit'skindofanall-timehigh.Yourportfolioqualityishigherthanithaseverbeenaswell.Butis97%occupancysustainable,oristhat--shouldweexpectthattomigratedownalittlebitoverthenextcouplequarters?
MarcHolliday(CEO):
Wearetellingourguysit'snotnearlyenough,soIdon'tknow.There'salotofsquarefootagebetween97%and100%.
SteveDurels (EVPDirectorofLeasingandRealProperty):
Thanksforasking.
MarcHolliday(CEO):
Andsotheansweris,no,there'spocketsofvacancywe'renothappyexist.We'reattackingthose,albeitdiminishing.Wehaveacquirednewvacancythat'snotinthatsame-storeportfolio,likeTower46.
Let'shearitfortheFirTreetransaction.Itseemstohavegottenalittlelosttoday,butthatwasagreatinauguraldealattheTower46building.Goodtenant,goodterms;we'rehappytokickthatbuildingoffsuccessfullywiththatrent.Andwe'vegotalotofreallygoodlookingpre-buildsthatbasicallyaredone,Steve,or--?
SteveDurels (EVPDirectorofLeasingandRealProperty):
Twoweeks.
MarcHolliday(CEO):
Twoweeksawayfromdone.Andwehopeandexpectwhenthosepre-buildsaredonethattheywillbehotcommoditiesinaverygoodbuilding.SoIthinkthere'sstillupsidewithinthatportfolio,buttheupsidereallyisn'tjustleasingupavacantspace.
We'vegotalotofdevelopmentpipeline.We'vegotvacantspacepipelineinthegrowthportfoliothatisnotinthesamestoreandwe'vegotbig,bigmark-to-marketintheofficeportfolio,andthenmassivelymoresointheretailportfolio.SoIdon'tthinkwearesufferingfromalackofareastoidentifyforwherethegrowthiscomingfrom,whichiswhyIthinkwearevery,veryoptimisticaboutwherewe'reheadedfor2016.
BrendanMaiorana(Analyst-WellsFargoSecurities):
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Allright.We'lllookforwardtothosegoalsinDecember.Thanks.
Operator :
CraigMailman,KeyBancCapitalMarkets.
JordanSadler (Analyst-KeyBancCapitalMarkets):
It'sJordanSadlerherewithCraig.I'llaskthefirstone.DidyouguyshavealookatStuyTownthistimearound?Wasthatonyourradar?
MarcHolliday(CEO):
Shortanswer,no.Ithinkaprojectofthatscalewiththepoliticalcomplexitiesthereandoursortofhistoricalexperiencetheredidnotmakethetopofthelist.
JordanSadler (Analyst-KeyBancCapitalMarkets):
Okay,that'sfair.Craighasone.
CraigMailman (Analyst-KeyBancCapitalMarkets):
OnthedecisiontoselltheFifthAvenueretail,justthoughtsthereasyouguyshistoricallyhavetakentheopportunitytomakethemoneyonthelease,andthisoneyouguysblewoutalittlebitearlierbeforeyoureallydidanywork.Isitsomethingspecificaboutthatsiteor--Iguessjustgeneralthoughtsonthat?
MarcHolliday(CEO):
Ithinkitwasmorethe--weusuallymakethemoneyontheleasebutifwecanmakethemoneyweweregoingtomakeontheleasewithoutbuildingitanddoingthelease,thenitseemedlikeagoodopportunitytotakemoneyoffthetableandget--takeadvantageofanextraordinarybuy,whichFredandtheretailteammadeandnothavetobuild.
MarcHolliday(CEO):
180MaidenLaneisagoodexampleofthatsamestrategy.Mostofwhatwebuyweexecute.Asinthecasewith180andthis--thesepropertiesonFifth,sometimesyougetanofferthatissocompellingit'sontothenext.Thereisalotofpropertyouttheretoreposition.
CraigMailman (Analyst-KeyBancCapitalMarkets):
Great,thanks.
Operator :
JedReagan,GreenStreetAdvisors.
JedReagan (Analyst-GreenStreetAdvisors):
Goodafternoon,guys.Otherthan1745Broadway,canyougiveanycoloronotherassetsthatareoutinthemarkettodayandmaybebrackethowmuchyouthinkyoumightbeabletosellinthenextsixtoninemonthsmaybeontopofthe1745andwhatyou'vealreadyannouncedthelastcouplemonths?Isthisanotherbilliondollarskindofterritoryworthofstufformaybejustsomecolorthere?
MarcHolliday(CEO):
IthinkwewillcoveritinDecember.Rightnowthefocusforusforthepastfourorfivemonthshasbeenon
CompanyName:SLGreenRealtyCorpCompanyTicker:SLGSector:FinancialIndustry:RealEstate
EventDescription:Q32015EarningsCallMarketCapasofEventDate:11.71BPriceasofEventDate:119.24
©2014TheStreet,Inc.Al l R ightsReserved Page20of21
executingaverydeliberateplanthatweputforthinJune.We'reatthetailendofthat.
Wearenowputtinginplaceournewplan,ifyouwill,forthenextbatchofinvestmentsthatwehavebeenminingandwethinkarecomingtofruition.Howbestwearegoingtofundthoseandfromwhichassetswe'regoingtobesellingorcapitalwe'regoingtoberaisingintheformofJVequity.Thatisthecapitalraisedintoday'senvironmentthatwelookatasanalternativetosellingexistingassetsandJV-ingofnewassets.
Welikedverymuchwhatweboughtthisyearsowedidn'tJVIdon'tthinkanyofthatproduct.SoHocameasaJV,butwedidn'ttakeanypartnersthere;or11Madisonoron187ortheEastsideportfolio,correct?Wecanalwaysusethat,theabilitytoaccessprivateequity,thepartnershipasameansofmoderatingwhatwesellordon'tselltofundthosekindofdeals.
Thathasn'tbeendecided,nordoesitneedtobeatthispoint,butwillbeoverthenextthreetofivemonthsasweexecuteonthoseopportunities.
JedReagan (Analyst-GreenStreetAdvisors):
Okay,makessense.Iguesssortofrelatedtothat,youguysmadesomebullishcommentsinyouropeningremarksaboutthedemandfromoverseasinvestorsinManhattan.Justcurious;areyouseeinganyselectsovereignwealthbuyersthataretakingastepbackorgettinglessaggressiveorjustanyevidencethatbidding[tenants]mightbespinningasamarginalbuyerortwoiskindofonthesidelinesnow?
MarcHolliday(CEO):
Idon'tthinkanythingwecanpointto.Isthereany--anybody?Nothingwecanpointto,Jed.
JedReagan (Analyst-GreenStreetAdvisors):
Okay,fairenough.Thanks.
MarcHolliday(CEO):
Thankyou,everyone.Thatisitforthequeue,soforanyonewho'sleftonweappreciateyouhanginginthere.IhopethatwecanseeyouinDecember,andthat'sit.Thankyou.
Operator :
Ladiesandgentlemen,thankyouforparticipatingintoday'sconference.Thisconcludestoday'sprogram.
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CompanyName:SLGreenRealtyCorpCompanyTicker:SLGSector:FinancialIndustry:RealEstate
EventDescription:Q32015EarningsCallMarketCapasofEventDate:11.71BPriceasofEventDate:119.24
©2014TheStreet,Inc.Al l R ightsReserved Page21of21
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