SL Green Realty CEO Discusses Q3 2010 Results - Earnings Call Transcript

SL Green Realty CEO Discusses Q3 2010 Results - Earnings Call Transcript
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SL Green Realty Corporation (

SLG

)

Q3 2010 Earnings Call

October 26, 2010 2:00 p.m. ET

Executives

Heidi Gillette – Director of IR

Marc Holliday – CEO

Greg Hughes – CFO and COO

Andrew Mathias – President and Chief Investment Officer

Steve Durels – EVP, Director of Leasing and Real Property

Analysts

John Guinee – Steifel Nicolaus

Jay Habermann – Goldman Sachs

Rob Stevenson – Macquarie Capital

Robert Salisbury - UBS

Jamie Feldman – Bank of America/Merrill Lynch

Michael Bilerman - Citi

Josh Attie – Citi

Brendan Maiorana – Wells Fargo Securities

Michael Knott – Green Street Advisors.

Jordan Sadler – KeyBanc

Susanne Kim – Credit Suisse

Sri Nagarajan – FBR Capital Markets

Presentation

Operator

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» SL Green Realty Corp. Q3 2009 Earnings Call Transcript

Good day, Ladies and Gentlemen, welcome to the Third Quarter 2010 SL Green Realty Earnings Conference Call. My name is Erica and I will be your coordinator for today.

At this time all participants are on a listen-only mode. We will be facilitating a question-and-answer session at the end of the conference. (Operator Instructions)

I would now like to turn the presentation over to your host for today’s call, Ms. Heidi Gillette, with SL Green, please proceed.

Heidi Gillette

Thank you everybody for joining us and welcome to SL Green Realty Corp’s Third Quarter 2010 Earnings Results Conference Call. This conference call is being recorded.

At this time, the company would like to remind the listeners that during the call, management may make forward-looking statements. Actual results may differ from predictions that management may make today. Additional information regarding the factors that could cause such differences appear in the MD&A section of the company’s Form 10-K and the other reports filed with the Securities and Exchange Commission.

Also, during today’s call the company may discuss non-GAAP financial measures as defined by SEC Regulation G. The GAAP financial measure most directly comparable to each non-GAAP financial measure discussed in the reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found on the company’s Website at, www.slgreen.com, by selecting the Press Release regarding the company’s third quarter earnings.

Before turning the call over to Marc Holliday, Chief Executive Officer of LS Green Realty Corp's, I would like to announced that the SL Green’s, 2010 Annual Investor Conference will be held in New York City, on Monday, December 6.

To find out if you are eligible to attend this event, or if you are an institutional investor and you would like to receive further information regarding the details of the event, please email

slg2010@slgreen.com

, again that’s

slg2010@slgreen.com

.

For today’s call, I would like to ask those of you participating in the Q&A portion of the call to please limit your questions to two per person.

Thank you. I will now turn the call over to Marc Holliday, please go ahead Marc.

Marc Holliday

Thank you very much, Heidi. Please mark that date down, it’s an important date coming up in December for our investor conference. Hope many or all of you can attend. I want to welcome you today’s call to review our third quarter earnings and activity. We had a number of notable accomplishments over the summer. First and foremost, our core portfolio operating results were very much in line with our increasingly optimistic outlook as market fundamental in Manhattan continue to improve, and rising levels of business earnings, confidence, and space demand, are translating into reduced concessions and modestly increasing rents.

We held steady our same-store occupancy at about 94 1/2 %, and we expect that figure will begin to rise in the ensuing quarters indicating a bottom of what turned out to be only a marginal occupancy decline over the past three years of somewhere at or under 300 basis points in total.

Also, new rents on DO signed in the third quarter, slightly exceeded expired rents. But it’s more important not for the magnitude of the increase, but where the average rents currently sit in the portfolio, which for those expiring leases were only in the low $40 per square foot, leaving substantial room for upside as average rents in our buildings increased over $50 per square foot over the next several years, beginning ‘11.

With 2010, the visible improvements have been in our tenant concessions, which have serially declined each quarter in 2010, and free rent on leases that commence in the third quarter which averaged just somewhere between 3 and 4 months. While it is apparent in the operating metrics, which are firming, what is less apparent, the more important to note, is that market activity over the next 3 to 6 months should drive Midtown Manhattan vacancy levels to under 11%, and result in somewhere between 5% and 10% increases in the face amount of rent in 2011.

One of the leading stats underlining our rental forecast is the amount of vacant sublease space available for rent, which is now under 5 million square feet in Midtown after peaking at double-bend numbers less than 18 months ago.

We currently have multiple offers in for space at 100 Church Street, which continues to demonstrate that if you have the flexibility to price space at the market-clearing levels, tenants will migrate towards, and even pay a premium for these buildings with well-capitalized ownership.

Notwithstanding, what we believe to be pent up demand, current indicators appear more muted as private sector job gains have been slow to accelerate. New York’s largest leading businesses are generally sitting on sizable sums of cash, in some cases holding on to it, and other cases dividending it out to shareholders, but hesitant generally to invest that cash in growth, and new business lines, and new employees until they have a clearer and more acceptable picture in the political landscape, taxation, and new regulations.

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