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SL Green Realty Corporation (



Q4 2010 Earnings Call

January 25, 2011 5:00 p.m. ET


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


John Guinee – Steifel Nicolaus

Steve Sakwa – ISI Group

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Rob Stevenson – Macquarie Capital

Brendan Maiorana – Wells Fargo Securities

Tony Paolone – JP Morgan

Jay Habermann – Goldman Sachs

Vincent Chu – Deutsche Bank

Jamie Feldman – Bank of America/Merrill Lynch

Rob Stevenson – Macquarie Capital

Ross Nussbaum - UBS

Jordan Sadler-KeyBanc Capital Market

Steve Bennett – Jefferies

Tom Truxillo – Bank of America/Merrill Lynch

Susanne Kim – Credit Suisse

Michael Bilerman – Citi

Josh Attie – Citi

Michael Knott – Green Street Advisors.



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Good afternoon, and thank you for joining us. Welcome to the SL Green Realty Corp’s, Fourth Quarter and Year-End 2010 Earnings Results Conference Call. This conference call is being recorded.

I would now turn it over to Heidi Gillette, of SL Green.

Heidi Gillette

Good afternoon, all. 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 SEC.

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 and the reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found on the company’s current report on Form 8-K filed with the SEC today. And the press release and supplemental materials regarding the company’s fourth quarter and year-end earnings included therein, all of which are available in the investor section of our website,


In December, executive management provided substantial commentary at its investor conference addressing both past performance as well as detailing the estimates for 2011. Therefore, for today’s call we will be utilizing an abbreviated format from that of other quarters past. Initial commentary will come only from Chief Executive Officer, Marc Holliday, then we turn the call over immediately to Q&A. As a reminder, for the Q&A section, please limit your questions to two per person. Thank you, I will now the call over to Marc Holliday. Please go ahead Marc.

Marc Holliday

Thank you, Heidi. Good afternoon, and thank you all for joining us today. We were pleased to close out the year with a solid fourth quarter in which occupancy was up sequentially, same-store NOI was up year over year, and earnings came in slightly higher than we had forecasted.

SLG portfolio leasing volume in Manhattan topped out at over 800,000 square feet for the quarter, which is reflective of the continued strengthening of the Manhattan leasing market.

In December and January alone, we signed major new and renewal leases with Acom at 100 Park Avenue, Greater New York at 555 West 57


, New York State at 100 Church Street, Wells Fargo at 100 Park, and CUNY, the City University of New York, also at 555 West 57


Street. That’s all essentially within under 60 days.

Looking at the broader Midtown market, there was 5 ½ million square feet of net absorption in 2010 driving the vacancy rate below 11% in Midtown to right around 10 1/2 % as we stand today. Of that amount, less than 3% is sublet space and a smaller proportion of that is what we would term competitive.

As detailed in our December investor conference, there are only about a half dozen continuous blocks in Midtown in excess of 250,000 square feet, and the large block requirements in the market right now far exceed that inventory.

Tenants known or rumored to be looking at the space 200,000 square feet and above includes such firms as Nomura, UBS, Bank of America, Morgan Stanley, Hobbis Advertising, J.Crew, Credit Agricola, Oppenhimer & Co., Coach, Wells Fargo, WilmerHale, Morrison Foerster, in addition to many, many others.

Anecdotally, I would say this activity is at the highest level I’ve seen in the market in any January, a traditionally slow month, exceeding anything I’ve seen and recalled since 2006.

The reason driving this activity in large part can be attributed to the private sector job growth in Manhattan, which amounted for about 50,000 private sector jobs added in New York City in 2010. Of that, about half or 25,000 were office-sector using jobs.

The prediction for 2011 by city forecast was for less than that amount, and if you recall, in December I had given a range of 10,000 to 20,000 office-using job growth for the year, which exceeded the cities estimates.

I fully expect the city is going to come out and revise its estimates sometime in February to reflect the effects of the extension of the Bush-era tax cuts, the lowering of FICA payroll deductions by 2 percentage points, and the effects – the positive effects of [inaudible] which I think will be most positively felt and effected here in New York City. All of which, I believe will result in about another 50,000 private sector jobs being added to the payrolls in ’11, about 25,000 of which will be or should be office-using jobs. Which means that with another 5 million square feet of absorption in 2011, I think we may inch our way closer to that equilibrium number of around 9% which is the point at which I think that pricing power will be at least neutral, or at least going back to an economically rational market for net effective rents and start to put the market favorable nature back into the hands of the landlords.

In addition to an improving leasing market, external growth drove earnings in 2010. Much of this activity was reviewed last month at the investor conference, but since that date there has been additional activity including the buyout of City Investment Fund’s interest in 521 5


Avenue, the closing of the purchase of three fee interest in Midtown Manhattan office buildings in the GKK transaction, and additional investments in debt and preferred equity securities bringing total structured finance investments for the year to almost $500 million.

As Heidi mentioned earlier, we’re going to curtail the prepared remarks and we’re going to jump right into Q&A. I would urge all of you who haven’t either reviewed the transcript or done the playback for our investor conference just a month and half ago, I think if you do that you’ll find an extraordinary amount of information. I think it was about 2 ½ hours plus of strategic insight for 2011; our views on the market, inventory, how current trends related to historic trends, and a lot of data and strategic rationale for the structure finance portfolio. Much more than we can cover and should cover on an earnings call, but all of which was covered in great detail in December.

We set out goals and objectives and guidance in December. We maintained all of that today. It was an ambitious set of goals and objectives but it’s one we feel we’re off to a very good start in 2011, and should be well on track to meeting our objectives.

The market momentum, generally I would characterize as one of declining vacancy, obviously declining sublet availabilities, tenants with real requirements for big blocks as I mentioned earlier, little to no new inventory being added, and very low interest rate environment and private sector and office-using job growth.

That’s a great confluence of factors that I think will put us well on track to meeting or exceeding our estimates which were given very early on. In fact, over a year ago when we talked about 25% rental growth from trough rents back in 2009. I think you’ve seen at 5 to 10% growth in our portfolio and in the market already. You’ve seen shrinking concessions, and I know that over that three-year period we should be well in hand to achieve that 25% target or more.

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