Download pdf - SL Creen Realty Corp (SLG) Earnings Report: Q3 2015 ... · by selecting the press release regarding the company's third quarter 2015 earnings. Before turning the call over to Marc

CompanyName:SLGreenRealtyCorpCompanyTicker:SLGSector:FinancialIndustry:RealEstate

EventDescription:Q32015EarningsCallMarketCapasofEventDate:11.71BPriceasofEventDate:119.24

©2014TheStreet,Inc.Al l R ightsReserved Page1of21

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




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




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




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




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?


Ithinkit'smoreofanopportunitytogetbetterrisk-adjustedreturns,whichmeanseitherchargingmoreforcapitalatasimilarpositioninthecapitalstructureortakingtheopportunitytomovemoreseniorinthecapitalstructureandchargesortofthesameaswewerepreviouslygettingforjunior.Therewas




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.




SoIthinkit'sacombinationofthosetwotypesofprofiles.

That'sjustontheequityportion.I'mnotspeakingtothestructuredfinancepipeline,whichAndrewspoketoseparatelyorcanaddmorecommentarytoseparately.I'mjusttalkingaboutfeeopportunitiesthatweareworkingoncurrentlythatifthingssetupwiththerightprocessandtherightpricingcouldresultinsomeadditionalacquisitionsoverthenextthreetofivemonths.


Justtoadd,Michael,ifyoulookat110Greeneand187Broadway,thetwotransactionsweannouncedinthequarter,thosearecompletelyoffmarket.Nevermarketed,one-on-onenegotiationsandstructureddealswherewewereabletodeliverthesellerequivalentormorenetproceedswithoutthemgoingandtakingafullcashpricefromthemarket.Wearestillseeingthosetypesofopportunitiesassortofwealwayshave;they'rejustlongerleadtimeandtheymatureastheyarereadywithoutthepressureofamarketedprocess.Sowestilldohavealotofthosetypesofdealsinthepipeline.

MannyKorchman (Analyst-Citigroup):

It'sMannyherewithMichael.Ifwelookatthe885Thirddeal,canyoujustclueusinastohowthatwasstructuredandwhytherewassuchabigpreferredequitycomponent?Andonthepreferred,ifyoucouldjustgiveusthetermandtherate?


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




techtenants,theywereallveryhighquality,likeInfor,Microsoft,and--whoelsedowehavethere?Yelp.

SoIdon'tknowthatthat--thatdoesn'traiseanyredflagsforusonthecreditsideofthings.Ithinkwe'vesoldpropertiesinthepastwherewefelttherewassomecreditexposurestotryandheadoffwhatmaybecomingdownthepike,butIwouldsimplysaythatjustlookatthesupplementalwiththedisclosureofourtenantprofileandyouwillseethatregardlessofhowthatmarketdevelopedovertime,thereisalwaysgoingtobeupsanddownsinwhatisessentiallyacyclicalandemergingkindofindustry.Idon'tseethathavinganyimpact,anymaterialimpactontheportfolioasithasn'tinyearspast.


Ithinkaverysmallfractionofthe5%oftechMarcreferredtoisatallreliantonventurefunding,whichIthinkismaybe1%?

MarcHolliday(CEO):

Almost.


Iwouldn'teven--1%ofthe5%maybe,not20%ofthe5%.Idon'tthinkventurefundingisatallrelevanttoourtenancywhatsoever.Thetechtenantswehavearelargepublictenants.Wetookameasurethisquartertosellthe36thStreetassetwhichhadanexposuretoventurefundedtypetenant.


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




2020,2021,fortenantsinthat50,000to0.25millionsquarefootrangeit'salittleearly,whichmaybeisobviousbutIjustwantedtostatethat.

ButthereceptiongenerallyhasbeenexcellentandIdon'tthinkthepricepointswehaveestablishedforthebuildingaregoingtobearesistancelevelforthesetypesoftenants.


Okay,gotyou.Thankyou.

Operator :

VincentChao,DeutscheBank.

VincentChao (Analyst-DeutscheBank):

Goodafternoon,everyone.Justwantedtogobacktoguidanceforasecondhere,understandingthatthesecondquarterinarowofraisehere,butgiventhemagnitudeofthebeathereinthequarterandsomeofthedriversthere,Iwouldhavethoughtitwouldhavebeenalittlebitbiggerraise.SoIwasjustwonderingifyoucouldprovidesomemorecoloronsortofwhatthekeydriversoftheupsidehereare.Doesseemlikeyouaretrackingwellaheadonthesame-storefrontandleasingvelocitysoundsverystrongaswellrelativetoyourexpectations.


Withonlytwomonthslefttogo,Ifeellikeourvisibilitythroughtheendoftheyearisprettysolidatthispoint.Alotofwhatwereportedinthethirdquarterwasexpectedups,downs,andotherwise;slightlyaheadonahandfulofthingsthatputusinthepositionofgenerallyincreasesequentiallythroughthequartersunless(technicaldifficulty)outperformanceandtherehasbeen.Butbyandlarge,thisstuffthatwesawinthethirdquarterwasinlinewithexpectations.

Alotoftheleasingmomentumthatwehave,whenIsaywe'reexcitedabout2016,that'sreallygoingtohaveanimpactin2016andbeyond;notforthelasttwomonths,threemonthsoftheyear.


Okay,sotherealestatetaxwascontemplated,Iguess.Okay.Justanotherquestionintermsofthetotaloveralldemandthatyouareseeing,wetalkedaboutsortofthetechcomponentofit.Justcuriousifthere'sanyothershiftsorchangesthatyou'veseenandsortofwherethedemandiscomingfrominNewYork.


Financialservicesisreally--whatwasmissedinthelastconversationwasit'snotsomuchaboutwhereTAMIis,eventhoughthatwasthebigstoryforlastyear.ThedifferencethisyearisthatfinancialserviceshasbeenthedriverofleasingactivityacrosstheManhattanmarket.Certainlywithinourpipeline,we'vegotleasesout.100,000squarefeetofthatisfinancialservices-related.Andinthepermsheetstage,we'vegotalmost300,000squarefeetofdealscomingwithfinancialservicetypetenants.Sostrongdemandthere.

Theotherdriver,healthcarecontinuestobeabigportioninManhattan.Sodoeseducation,theadministrativesideofeducation.Weareseeingsomelargeleasescometothepipelineoffofthataswell.





Okay,thanks.

Operator :

JohnKim,BMOCapitalMarkets.

JohnKim(Analyst-BMOCapitalMarkets):

Thankyou.Ihadacouplequestionsonretail.Thisperiodyousignedahighrentdealat125ParkAvenue.Canyouprovidesomecoloronthekindoftenantyousignedthere,whetherornotthiswasconversionspace;andifitwasconversionspace,howmanyotheropportunitiesdoyouhavetoconvertofficeorlobbyintoretail?


Iguessat125Park,Ithinkwesignedtwodealsthisquarter;Haworth,whichistheshowroomtenantonthegroundandsecondfloor.Andthenwedidconvertabunchofbasementandstoragebaseintoretail,combinedwithaunitonthefirstfloorandsignedamajorfitnessoperatorintothespace,opengym.

SoIthinkthatisveryindicativeoftheworkdayinanddayoutourretailgroupisdoing,diligencingtheassetsweowninadditiontotheassetswearepurchasingtotrytofindareaswherewecanexpandtheretailfootprintandconvertlowerrevenue-generatingspaceintohigherrevenue-generatingspace.Sothereisalotmoreofthatopportunityintheportfolio.


Doyouhaveanestimateastohowmuchthatmaybe?


WehadputupaslideinDecember,butthatwillhavetobemodifiedbecausesomeoftheleasinghastakenplacethisyear.ButtheslideinDecemberthatIrecallwassomethinglike$160millionofincrementalNOIoverthenextfiveyears,ourshare--thatrepresentsourshare--comingstrictlyfromretailassets.

Nowinthatregard,there'sbeenretailleasingbutwe'veaddedretailassets,sowewillhavetodothatreconciliationforyouinDecember,butsufficeittosay,itisenormous.Ilookatthatnumberascomingfromtheretail,whichisnotasegmentofthebusinesswehavealotofcapitaldevotedtolikewedoontheofficesector,muchmorecapitaldevotedthere.SopoundforpoundthatkindofNOIliftoverthenextfiveyearscomingfromthatsegmentisenormous.

ButlikeIsaid,wedon't--Ican'ttellyouatthemomenttheexactamountofNOIexpectationwehavefromretailoverthenextfiveyears.WewillhavethatforyouinDecember.


Okay.Thenmysecondquestiononretailisthepotentialre-leasingspreadsgoingforward.Lookingatslide50andyouraskingrentsestimates,itlookslikeactuallywentdownforthreeofthefourretailbucketsyouhavecomparedtothesecondquarter.AndIwaswonderinghowmuchofthiswasduetothemixthathaschangedcomparedtomaybeyourmoreconservativeviewsonretailormaybesomesoftnessontheretailmarket.


John,it'sMatt.It'smoreamix.Thatportfoliosoldsomestuffbasedonoccupiedspace,sodependingon




whenspacerollsin,rollsoutthatcouldchange,butcertainlyourviewofretailhasnotchanged.


We'renotseeingrentaldeclinesinanyofourretailassets,ifthat'sthequestion.

MarcHolliday(CEO):

Themark-to-marketthatwasassociatedwiththepresentationIwasreferringtojustearliergeneratedthat$160million-ishofincrementalNOIhadamark-to-market,asIrecall,ofabout100%.SoIdon'tknowhowthatcomparestothissupplemental.Howdoesitcomparetothesupplemental?


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.


Okay,thankyou.

Operator :

TayoOkusanya,Jefferies.

T ayoOkusanya(Analyst-Jefferies):

Goodafternoon,everyone.Goodquarter.Matt,justaquickoneforyou.Whenwedothinkaboutthesourcesandusesoffundsoverthenextfewquarters,againtheslightgapyoustillhavelefttofullyfund11Mad;couldyoutellmeabouthowlargethatisandwhetheryouexpectallthattocomefromthedebtrefinancingthatyouaretalkingabout?Andifthatindeedisthecase,ifyoudoendupwithexcessproceedsistheideatocontinuetodelevergoingforward?


Marctalkedaboutincrementalassetsalesoverandabove1745asbeingsourcesofcapitalforotheraccretiveopportunities.Justspeakingtowhatweliketocallthe11Madisonrubric,thetotalityoftheacquisitionandthesalesthatwehavefeedintoit.Butfor1745thesaleshaveallbeencompletedconsistentwithourplan,sothatleavesuswithfinancingsandrefinancingsthatareinprocessthatgenerateincrementalcapitaltotheprogram.

MarcHolliday(CEO):

Andjusttoexpandonthat,inJuneweputupapresentationwhichshowedafundingplanfor11Madisonbutalsofor$400millionofadditionalacquisitions.Weareabout$200millionofequitythroughthat




$400millionsothat--wewillsellmoreassetslikelybeyond1745Broadway,asImentionedearlier,andthosewillgotofundthoseincrementalacquisitionstofilloutthe$200millionandthenpossiblybeyondthataswellbecausewewillgobeyond.

Butifthequestionisjusttocloseoutthe11Madison,IthinkwhatIsaidearlierwas1745plustherefinancingsclosesout11.


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?


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




knockabigchunkofthatofftheboard.


Okay.AndareyouseeinganyshiftsintermsofthedifferentavenuesorpartsofMidtownintermsofwherepeoplewanttobeorwhattheyarewillingtopay?IknowyousignedtheBloombergdealearlierthisyearonThirdAvenue.


ParkAvenue,therentsareupbutthesupplyiswaydown.ParkAvenuehasgotoneofthelowestavailabilityratesrightnowintown.RightaroundGrandCentral,comparedtoayearagothere'sbeenalotofleasingvelocityintheGrandCentralsubmarket.ButIreallycan'tpointyoutosaythatthedemandisfocusedononeavenue,onesubmarket,oronesizeortypeoftenant.

Interestingtonotethattwoyearsagowewould'vebeentalkingabouthowThirdAvenuehadalotofsupply.NowallofasuddenThirdAvenuehasreturnedtoitshistoricalnormasfarasavailability.Ifyoutakeourbuildingon711ThirdAvenue,wherewehaveanumberofdealsthatwearenegotiating,therentsthere,whichisprobablyourmostcommodity-likebuildingwhereyouwouldthinkwouldbetheweakestpartasfarasrentgrowth,wehaveseenagood$10increaseonrentsonthenumberofdealsthatwearenegotiatingtodayversuswherewewould'vebeenayearago.


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?


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?





Itmakestotalsense.

MarcHolliday(CEO):

Anyway,that'swhyIwantedtosortofjustclotureitthere.Idon'twantthose90%numberfloatingaround.Thisisaverysecurefeeassetwithalotofsubordinateequitybelowitintheformofalong-termoperatingleaseholdpositionownedbyforeignentitiesthatareinstitutionalinnatureandIthinktheyhaveatonofequityvalueinthatdeal.


Right,Iguessthereasonthefeepositiontradedforthepriceittradedisbecauseithaslimitedupsidebecausethereisafixed-pricerepurchaseoff.

MarcHolliday(CEO):

Iwouldlookatthismoreasalowleveragemortgagebondthatwearetrading.That'sthedeal--thiswasatestamenttoAndrew.HestructuredthreeofthesedealsbackinIthinkitwas2005,2006,2007

Sotwoofthosedealswefullyresolved.WemadeIthinkverysignificantreturnsonthe2Heraldand292.Nowthisdeal,uponclosing,fullyresolved;wewillhaveachievedessentiallya10%to10.5%IRRonwhatIlookatessentiallyasaAAAbondposition.


Okay,that'shelpfulandthatexplainsit.Iappreciatethat.

Thesecondquestionisontheoriginationsinthequarter,the7.2%,isthatjustareflectionofgoingaftersomeseniormortgagesand,therefore,weshouldexpectmoreofthe10%goingforward?Ordoyouthinkthatbecauseyouguysmaybegoingmoreseniorthat10%maycomedownmoretowards9%?


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.


Perfect,thankyouverymuch.

Operator :




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.


Ithinkthat'sthreequestions,John,rightaftertheoperator(multiplespeakers).

MarcHolliday(CEO):

Well,butheaskedthemallatonce,somaybeit'sokay.


I'mnotanaccountant,though,soitonlylookedliketwo.

MarcHolliday(CEO):

Sointermsofthefirstone,Idon'tthinkweputalistoutthere.


Wedidn'tpublishalistofassets.Wepublishedanaggregatesalevolume.

MarcHolliday(CEO):

Wehadaninternallist,Iwouldsay,thatwasalltheassetswe'resellingandthensome,becausewewerekindoftriangulatingthemarket,ifyouwill,totryandfigureoutofauniverseofassetswhichislargerthanwhatwesoldwherecouldwegetthebestexecutions.Andwethinkwe,hopefully,achievedthat.

Sotheanswerisnolist;alltheassetswesoldwerewithintheuniverseofwhatweintendedtosellandwethinkwesoldtheonesthatwecouldgetthebestexecutiononrelativetoourinternalassessmentofvalue.That'sone.

Two,thelenderon$1.4billion.


Itisathree-handedCMBSdealwiththreemajormarketbanks.Theyaredoinga--theydoasingleassetdeal,David?

DavidSchonbraun (CoChiefInvestmentOfficer):




Partofitwasputinasingleassetandtherestwereputintoseparateconduitdeals.


Gotyou,okay.AndthenHomeLoanBankboard?

DavidSchonbraun (CoChiefInvestmentOfficer):

Look,IthinkwehavebeenrunningacaptiveinsuranceforoveradecadenowandaspartofthatwehaveaccesstotheFederalHomeLoanBank,whichprovidesusveryefficientcapitaltofinancesomeofourstructuredpositionswith.Sowe'regoingtotakeadvantageofit.

Itallowsusto,insteadofsellingAnotes,originatemoreseniorpositionsandfinancethemandhavehigherretaineddeals.SoIthinkwemaydomoreofitlater,butitisabigadvantagetousonago-forwardbasis.


Thankyou.

Operator :

JimSullivan,CowenGroup.

JimSullivan (Analyst-CowenandCompany):

Thankyou.Firstofall,justtogobackon885andIknowit'saverycomplicatedstructurethatwasputinplacethere,but,Andrew,Ithinkwhenyoudescribedthepricingonthetransactionyoutalkedaboutachievinga10%IRRontheinvestment.

AsIrecall,atthe2020resetontheleasethere'sanoptionthatIthinkyoureferredtoearlierandIthoughtthatoptionwaspricedtodeliveranunleveredIRRofabout7.5%.DoIhavethatright?


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.


Themortgageontheleasehold,wasn'tthatataprettyhighcoupon?Wasn'tthatover6%Iwanttosay?


Mortgageonourfeeortheleaseholds?





Onthelease.


Wedon'tholdthelease.Itwaspurchasedbyagroupthatputamortgageonit.Idon'thonestlyrecallorknowwhattherateisonthatleaseholdmortgage,butthatleaseholdmortgageisjuniortous.

MarcHolliday(CEO):

Thatwouldn'thaveaneffectonourreturn.


Isee,okay.Andthenthesecondquestionformeonthestructuredfinancebook.Thisisamodelingquestion,buttheaverageweightedoutstandingactuallywentdownquarteroverquarter.Ithinkthecouponwentdownaswellandyettheincomewentup.

Andmaybeintermsofhelpingustomodelthisgoingforward,whataccountsforthehigheryieldonthelowerbalanceandthelowercoupon?


It'sMatt.Whenwereceiverepayments,ifthere'sanexitfeethathasn'tbeenamortizedin--that'sthecaseforthepositionsthatgotrepaidthisquarter--thatwouldbereflectedinincomeinthequarterofrepayment.


AndsointhinkingaboutitforQ4,weshouldassumeasimilarkindofpremiumlevelyieldonthebook?


Therunrateyieldwouldbeconsistentwithwhatwe'veshownonaverageforthelastseveralquarters.Theincomestreamwillbeaffectedbythelowerbalancethatweareleadingoffthefourthquarterthattrendsupwardasweoriginatemoredealstowardsthemiddletothebackhalfofthequarter,buttheportfolioyieldremainsfairlyconsistent.Isaidwewillendtheyearjustnorthof10%.

MarcHolliday(CEO):

It'smostlyafunctionofusnotcontrollingthetimingofrepayments.Wecananticipatethemandtrytomodelthemcomingin,butyoudon'tknowwhenexactlytheyaregoingtocomein.Someoftheexitfeesarevariableinamountdependingontimingofrepayment.


Okay,verygood.

Operator :

BrendanMaiorana,WellsFargo.

BrendanMaiorana(Analyst-WellsFargoSecurities):

Thanks.Steve,youalludedto17expirations.Iwaswonderingifyoucouldmaybehandicapwhat'slikelywithOmnicomat220East42ndwhereyou'vegotabigexpirationin2017.





We'reintermsheetdiscussionwiththemaboutretainingsome,butnotall,oftheirspace.


Itlookslikerentsaremidtolow40s.Howdoesthatcomparetomarket?


There'sgoingtobeamassivemark-to-marketinthatbuilding.

MarcHolliday(CEO):

Whetherit'swithOmnicomorareplacementtenant.


Sure.Andthenjustsecondquestion.Occupancylevel97%,Ithinkit'skindofanall-timehigh.Yourportfolioqualityishigherthanithaseverbeenaswell.Butis97%occupancysustainable,oristhat--shouldweexpectthattomigratedownalittlebitoverthenextcouplequarters?

MarcHolliday(CEO):

Wearetellingourguysit'snotnearlyenough,soIdon'tknow.There'salotofsquarefootagebetween97%and100%.


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--?


Twoweeks.

MarcHolliday(CEO):

Twoweeksawayfromdone.Andwehopeandexpectwhenthosepre-buildsaredonethattheywillbehotcommoditiesinaverygoodbuilding.SoIthinkthere'sstillupsidewithinthatportfolio,buttheupsidereallyisn'tjustleasingupavacantspace.

We'vegotalotofdevelopmentpipeline.We'vegotvacantspacepipelineinthegrowthportfoliothatisnotinthesamestoreandwe'vegotbig,bigmark-to-marketintheofficeportfolio,andthenmassivelymoresointheretailportfolio.SoIdon'tthinkwearesufferingfromalackofareastoidentifyforwherethegrowthiscomingfrom,whichiswhyIthinkwearevery,veryoptimisticaboutwherewe'reheadedfor2016.





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




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.


Okay,makessense.Iguesssortofrelatedtothat,youguysmadesomebullishcommentsinyouropeningremarksaboutthedemandfromoverseasinvestorsinManhattan.Justcurious;areyouseeinganyselectsovereignwealthbuyersthataretakingastepbackorgettinglessaggressiveorjustanyevidencethatbidding[tenants]mightbespinningasamarginalbuyerortwoiskindofonthesidelinesnow?

MarcHolliday(CEO):

Idon'tthinkanythingwecanpointto.Isthereany--anybody?Nothingwecanpointto,Jed.


Okay,fairenough.Thanks.

MarcHolliday(CEO):

Thankyou,everyone.Thatisitforthequeue,soforanyonewho'sleftonweappreciateyouhanginginthere.IhopethatwecanseeyouinDecember,andthat'sit.Thankyou.

Operator :

Ladiesandgentlemen,thankyouforparticipatingintoday'sconference.Thisconcludestoday'sprogram.

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