SL Green Realty's CEO Discusses Q3 2011 Results - Earnings Call Transcript

SL Green Realty (SLG)

Q3 2011 Earnings Call

October 27, 2011 2:00 pm ET

Executives

Steven M. Durels - Executive Vice President and Director of Leasing

Matt DiLiberto -

Andrew W. Mathias - President

Stephen L. Green - Founder, Chairman and Chairman of Executive Committee

Heidi Gillette - Director of Investor Relations

James Mead - Chief Financial Officer

Marc Holliday - Chief Executive Officer, Director and Member of Executive Committee

Analysts

Jonathan Habermann - Goldman Sachs Group Inc., Research Division

Ross T. Nussbaum - UBS Investment Bank, Research Division

Blaine Heck - Wells Fargo Securities, LLC, Research Division

James C. Feldman - BofA Merrill Lynch, Research Division

Jordan Sadler - KeyBanc Capital Markets Inc., Research Division

Joshua Attie - Citigroup Inc, Research Division

Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division

Anthony Paolone - JP Morgan Chase & Co, Research Division

Sheila McGrath - Keefe, Bruyette, & Woods, Inc., Research Division

Steven Benyik - Jefferies & Company, Inc., Research Division

Michael Knott - Green Street Advisors, Inc., Research Division

John W. Guinee - Stifel, Nicolaus & Co., Inc., Research Division

Robert Stevenson - Macquarie Research

Presentation

Operator

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Good day, ladies and gentlemen, and welcome to the Third Quarter 2011 SL Green Realty Earnings Conference Call. My name is Katie, and I'll be your coordinator for today. [Operator Instructions] I would now like to now hand the call over to Heidi Gillette. Please proceed.

Heidi Gillette

Thank you everybody for joining us, and welcome to SL Green Realty Corp's Third Quarter 2011 Earnings Results Conference Call. This conference call is being recorded.

At this time, the company would also like to remind listeners that during the call, management may make forward-looking statements. Actual results may differ from the forward-looking statements 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 other reports filed by the company 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 on the company's website at www.slgreen.com by selecting Press Release regarding the company's third quarter earnings.

Before turning the call over to Marc Holliday, Chief Executive Officer of SL Green Realty Corp., I would like to ask that you please mark your calendars for Monday, December 5, for SL Green's Annual Investor Conference. If you would like to be added to the e-mailing list, please e-mail your full contact information to slg.2011@slgreen.com. For those of you participating in the Q&A portion of the call, again, please limit your questions to 2 per person.

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

Marc Holliday

Thank you, Heidi, and good afternoon, everyone. Thank you for joining us in what I know is a busy day of calls for many of you. I'm obviously very pleased with our results for the third quarter reported last evening and has reinforced this morning by several additional announcements we made for activities largely occurring after the quarter's results.

We take great satisfaction in knowing that these results were distributed throughout all major areas of the firm, including leasing, operations, investments, finance.

With respect to leasing, the stats underscore what was anonymously productive, busy summer with over 625,000 square feet of leases signed and 60 different transactions in Manhattan alone. Accordingly, we have already met our leasing goals for the New York portfolio only 9 months into the year, and I still expect that we will eclipse to 2 million square foot mark for the full year, consistent with my guidance back in July.

Industry is represented by this leasing activity, ran the gamut from healthcare, media, to fashion and apparel, insurance and finance. However, again, notably absent from our portfolio this quarter was any significant activity among the banking and security sector, a theme we've been conveying to you throughout the year. And that theme is the fact that the other 60% -- 60%, 65% of the industries in Manhattan are picking up the bulk of the activity in new and renewal leasing while the commercial banks and investment banks tend to be in somewhat of a neutral mode at this point.

As I mentioned earlier, we have a fairly good remaining pipeline of activity for the fourth quarter. At the moment, we certainly don't see tenants backing off of their desire to lock in today's rates with some growth and expansion included in most instances. Operationally, we had good core performance as evidenced by positive mark-to-markets, same-store NOI growth, occupancy gains and continuing expense control. As you may recall, we set very ambitious operating performance measures for ourselves at the beginning of the year and with a little over 2 months to go, it certainly seems we will meet or exceed all of these targets.

That's obviously, for us, a very fortunate position to be in given the most recent headwinds of the current market and also in light of the extraordinary amount of investment activity that we undertook throughout the year, requiring us to access sufficient debt and equity capital to fund those activities at all point throughout this year. A high level of investment activity demonstrated over the past 4 months is typical of the way in which we actively manage our portfolio for growth, monetization of significant gains and simply don't adopt a hold-and-wait strategy.

On the intake, we concluded 3 significant transactions, predominantly all off the market and all extremely high quality and in excellent locations in Midtown Manhattan. Within our very profitable retail business line, the DFR transaction 1552 Broadway and 747 Madison Avenue fits squarely within such program and will provide for near and long-term upside to this company.

The DFR opportunity came about through the mining of our extensive relationships, both with the seller and with Stonehenge, a prominent and successful New York City owner and operator of multi-family properties throughout Manhattan. Likewise, the deal at 1552 and 1560 Broadway came about as a result of our relationship with ownership at 1560 Broadway and our proprietary strategy of creating almost 50,000 square feet of retail and signage opportunity in a prime location in Times Square. And that transaction, in conjunction with our partner, Jeff Sutton, we will able to reposition this property and realize on its upside potential in the near term.

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