SL Green Realty Corp. Q1 2010 Earnings Call Transcript

SL Green Realty Corp. Q1 2010 Earnings Call Transcript
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SL Green Realty Corp. (SLG)

Q1 2010 Earnings Call

April 27, 2010 2:00 pm ET

Executives

Marc Holliday – CEO

Andrew Mathias – President & CIO

Greg Hughes – CFO

Steve Durels – EVP

Heidi Gillette - IR

Analysts

Steve Sakwa - ISI Group

Jamie Feldman – BofA/Merrill Lynch

John Guinee - Stifel Nicolaus

Jay Habermann - Goldman Sachs

Michael Knott – Green Street Advisors

Russ Nussbaum – UBS

Mitch Germain – JMP Securities

Jordan Sadler - KeyBanc

Brendan Maiorana – Wells Fargo

Suzanne Kim – Credit Suisse

Michael Bilerman – Citi

Presentation

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Good day ladies and gentlemen and welcome to the first quarter 2010 SL Green Realty earnings conference call. (Operator Instructions) I would now like to turn the conference over to your host for today, Ms. Heidi Gillette, Director of Investor Relations; please proceed.

Heidi Gillette

Thank you everybody for joining us and welcome to SL Green Realty Corp’s first 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-Q and the other reports filed with the Securities and Exchange Commission. Also during today’s conference 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 at the company’s website at www.slgreen.com, by selecting the press release regarding the company’s first quarter earnings.

Before turning the call over the Marc Holliday, Chief Executive Officer, SL Green Realty Corp, we would like to remind you participating in the Q&A portion of the call, to please limit your questions to two per person. Thank you.

Go ahead, Mr. Holliday.

Marc Holliday

Thank you all for joining us this afternoon. We appreciate you tearing yourselves away from the Goldman Sachs senate hearings to allow us to review with you the quarter’s results that were announced early last evening.

We had another solid quarter that was very much in line with the guidance we gave out in December at our investor meeting and again when we reinforced it with everyone on our last call in January. As forecasted 2010 is proving to be a transitional year for this company as we continue to raise capital through the issuance of securities for continued deleveraging but also demonstrating a renewed focus on deploying capital into new opportunities which we believe will position us for success and growth into the next phase of this business cycle.

Through the issuance of unsecured debt and preferred equity we were able to term out our liabilities, reduce overall indebtedness, and execute on over $700 million of new investment activity in the past seven months.

This investment activity is comprised of completing the foreclosure and commencement of repositioning at 100 Church Street, the newly contracted investment in 600 Lexington Avenue, the investment in 510 Madison Avenue mortgage and mezzanine positions, and another $140 million other new structured finance investments secured by New York City Commercial Properties.

This brings our total amount of structured finance investments to $787 million, an amount that’s roughly equivalent to last quarter, $500 million of which is secured by 7.2 million square feet of Manhattan office properties.

Notwithstanding the dilutive effects of the capital raising and deleveraging I believe that through our strategic debt repurchases, new investment activity, and careful management of operating expenses, and capital improvements, we remain on track with our prior earnings guidance.

The investments that we are now making follow a belief that we began conveying to the market back in December, that market fundamentals had bottomed out and were beginning to improve, that the City’s economic activity was beginning to pick up as evidenced by certain leading indicators we follow and that pent up capital for well located prime Manhattan assets would emerge and begin driving cap rates down to 5.5% to 6%.

During the first quarter we have acted on these convictions and have been pleased to see that the City’s rebound continues at a slow but steadily improving pace. On the jobs front in New York City, March was strong across the board with the addition of 12,700 private sector jobs, 3,000 of which were created in the professional business services sector which is essentially the heart of the SLG portfolio.

There were also gains in banking and real estate as well as temporary job services, education and health, and 1700 new jobs in leisure and hospitality. Even construction posted 2500 additional jobs in March which is typically very cyclical but certainly headed in the right direction and we’re very hopeful that this will continue to be the case in the future but the jobs growth is definitely pointing towards a renewed vibrancy in New York City.

And the improving job picture has resulted in a modestly improving leasing market as well. During the first quarter approximately 3.5 million square feet was leaded in Midtown, chipping away at Midtown’s vacancy rate which hovers now at around 12.6%, 12.7%. Notably of this amount the sublet rate is down to around 3% right now with close to two million square feet of sublet space having been taken off the market in the past nine months.

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