SL Green Realty achieves over 92% occupancy, maintains positive outlook despite gaming license setback

OPERATOR - (00:02:28)

Thank you, everybody, for joining us and welcome to SL Green Realty Corp's third quarter 2025 earnings results conference Call. This conference call is being recorded at this time. The Company would like to remind listeners that during the call management may make forward looking statements. You should not rely on forward looking statements as predictions of future events as actual results and events may differ from any forward looking statements that management may make today. All forward looking statements made by management on this call are based on their assumptions and beliefs as of today. Additional information regarding the risk, uncertainties and other factors that could cause such differences to appear are set forth in the risk factors and MD&A section of the company's latest Form 10K and other subsequent 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 Regulation G under the securities Act. The GAAP financial measures most directly comparable to each non-GAAP financial measure discussed and the reconciliation of differences between each non-GAAP financial measures and the comparable GAAP financial measures can be found on both the company's website at www.by selecting the press release regarding the company's third quarter 2025 earnings and and our supplemental information included in our current report on Form 8K relating to our third quarter 2025 earnings. Before turning the call over to Mark Holliday, Chairman and Chief Executive Officer of SL Green Realty Corp. I ask that 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 Mark Holliday. Please go ahead.

Mark Holliday - Chairman and Chief Executive Officer - (00:04:58)

Mark, thank you for joining us this afternoon. To recap what was undoubtedly a very busy and a very productive quarter, as the Wall Street Journal reported just this week, the New York office market is roaring back and you can see it across every aspect of our business. We have now signed more than 1.9 million square feet leases to date just this year and we are finalizing paperwork on leases that will take us well over 2 million square feet with 2 and a half months of the year still to go. These are extraordinary numbers coming on the heels of such a big leasing year. In 2026 it was over 3 million square feet of leasing and one of our highest leasing years ever. So back to back years, extraordinary result and as a result we've increased our occupancy significantly quarter over quarter, climbing above 92% as of the end of September and we're on track to hit our goal of 93.2% by the end of this year. I'm especially proud of the incredible momentum at One Madison, where three huge leases this quarter have brought occupancy over 91% on that development project and we're on Track to reach 93% leased by the end of the year, at which point we expect to have just a single available floor left to lease, putting us in a position to execute a significant upsize refinancing in 2026. And the market outlook for the remainder of the year is good. With the strong pace of leasing we saw in Midtown Manhattan during Q3, expected to continue on into Q4 and beyond. Accelerating office to residential conversions combined with limited new construction is creating a scarcity dynamic in the high end space market which is expected to drive market vacancy rates lower and net effective rents higher. With tenant demand and rents continuing to rise, particularly in the Park Avenue corridor, last night we announced the acquisition of Park Avenue Tower for $730 million. This is a very targeted marketplace acquiring a well leased asset with rents considerably under market and where we see significant near term upside from rapidly increasing rents, we add Park Avenue Tower to our growing collection of premier Park Avenue assets. 1 Vanderbilt 500 Park 450 Park 280 Park 245 Park 125 Park 100 park not to mention all those just off of Park. No one can come close to this concentration of Premier properties along our Park Avenue spine, nor our track record of profitable acquisitions over the past five years. We saw the heightened demand for well located Park Avenue and Grand Central assets long before the competition and now it's truly paying off. Earlier in the quarter we delivered on our goal of identifying a major new development site, acquiring 346 Madison Avenue and 11 East 44th across the street from One Vanderbilt. This is the perfect place to build the next great building on the heels of what we accomplished at OVA and OMA at a time there is very little new quality office inventory being delivered in Midtown over the next five years. So this is the exact right time we want to be launching on this office development project. We think we can get this done by 2030, delivering right behind two projects we expect will be completed and fully leased well before our Delivery date. Extel's 570 Fifth Avenue and BXP's 343 Madison Avenue, both of which are in advanced negotiations with tenants covering much of the space they have available in those buildings. And that basically leaves little to no competition for what we'll be delivering on our new project in 2030. We're looking at smaller floor plate building than one Vanderbilt geared to boutique financial tenants paying on average over $200 per square foot. We'll have more on this project in December when hopefully we see many of you at our annual investor conference. I should note that we were very busy in the third quarter also in our debt business and particularly with our SLG Opportunistic Debt Fund where closings now stand at a billion dollars with additional closings expected in November before we finally close the fund to new investment. I'm also pleased to report that we've commenced deployments out of the fund which amount to about $220 million as we speak, which is anticipated to rise to over $400 million by the end of this year. We are also beginning to plan for additional fundraising strategies for 2026 that we'll discuss in more detail at our December investor conference. And finally, we successfully completed a $1.4 billion refinancing at 11 Madison with our joint venture partner PGIMM at a rate of approximately 5.6%, which we were very happy with that outcome and it's reflective of a deep pool of buyers for sizable quality Manhattan office SASB financings. I'd be remiss if I didn't mention the disappointment we felt in not advancing in the state process for a gaming license. You know, we put our heart and soul into Caesar's Palace, Times Square and it was an enormous loss for New York City and for the large coalition of community stakeholders that stood to gain so much from this project. Despite the outcome. We cannot be prouder of the enormous effort that the entire company put behind this proposal from the start of the project. It reflected SL Green at our best. Bold, community minded and rooted in New York. It would have improved Times Square, created thousands of good jobs and served as an economic engine for every business in the area for generations to come. We truly did leave it all on the field and I have no regrets whatsoever about our proposal, but many regrets about the outcome of a process that put so much power in the hands of so few. There should be at least one casino in Manhattan. I think that's obvious. And Times Square was the exact right location, but the process was designed to make that impossible, at least for the time being. Positive outcome is that we know we have an extremely valuable asset of 1515 Broadway, whether its future is as office or as an entertainment and hospitality use. We have plenty of time to sort that out since the building is fully leased through mid-2031 and you'll be hearing more about that in the near future. Before I open the line for questions, I just want to say that this is an incredibly exciting time in the city at the doorstep of the AI Industrial Revolution, and especially exciting time in our company housing the companies that are the new frontier of demand, both in tech and financial services. You can see that we are executing our business plan for the year with ruthless efficiency, taking advantage of dislocations in the market and reaping the rewards of an ideally located portfolio of properties expertly assembled over the years. I know you've heard this from us before, but it's increasingly undeniable. Demand for amenitized core Midtown assets is literally off the charts. And the lack of supply is driving up rents for the foreseeable future. With that, I'd like to open it up for questions.

OPERATOR - (00:12:59)

Thank you. To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11. Again, in fairness to all, we please ask that you limit yourself to two questions. One moment as we compile our Q and A roster. And our first question is going to come from the line of Steve Sequoia with Evercore isi. Your line is open. Please go ahead.

Steve Sequoia - (00:13:27)

Yes, thanks. Good afternoon. Maybe just starting on the leasing front, Mark or Steve, just maybe can you comment on the activity from big tech? I guess there's been some just discussions about them maybe picking up their activity levels. And you guys definitely signed some tech firms down at One Madison Avenue (OMA) in the quarter. But just maybe, what are you seeing from the large tech firms in the city today? Thank you.

Mark Holliday - Chairman and Chief Executive Officer - (00:13:51)

I think, and you've heard me say this for the past couple of earnings calls, I think tech is back in a big way, driven largely by AI. We've seen some big AI requirements. As a matter of fact, one of the 92,000 square foot leases we signed was with an AI firm. So we're feeling. We're feeling that that demand is here to stay and the driving absorption and the driving rents, particularly in the Midtown South market.

Steve Sequoia - (00:14:26)

Okay, maybe follow up just on the transaction. Mark. Obviously you guys announced Park Avenue Tower, but I think it was pretty well known that a number of public companies and private took a look at another public office company which wasn't successful by any. And I'm just curious, when you kind of look at the two deals and the underwriting, I guess, how did you kind of think about the large public MA deal versus the one-off deal where you were successful?

Mark Holliday - Chairman and Chief Executive Officer - (00:14:56)

Well, I mean, everything we're looking at is always a relative analysis of where we're going to deploy our capital. So clearly, we had in our sights at the time looking at 623 Fifth Paramount Reeds, the 346 development site, and, you know, just the beginnings of Park Avenue Tower. You know, that was kind of like on the late stages of our, you know, you know, decision matrix there and 590 Madison. So, I mean, there was a lot on the market in a very short period of time. I think what's interesting to note is it all cleared. So whether your perception, Steve, is that something went cheap or something went full or whatever, we looked at every one of those deals hard, and we made our decision of where to plant our flag. And that was 346, and that was Park Avenue Tower. And I'm extremely happy with the outcome, both of what we got and what we passed on. So, you know, any deal you can always reach and try and win it if, you know, if you have the resources to. But, you know, I like to think after 28 years of, you know, this group being at the leadership of this company, we exert a lot of discipline and we, you know, we target the deals we like and where we think there's relative value and. And we constrain ourselves and deals where we. Where we don't. So I don't know if that answers your question, but that's how I look at those deals.

Steve Sequoia - (00:16:47)

Yeah, I mean, I can follow up offline. What was the question, Steve? I didn't hit it. What was the question? Well, I guess I'm just trying to, you know, maybe dig a little deeper on just maybe the opportunity set. And like, I guess I would have maybe thought that a. A public company could do better merging with another public company and squeeze more synergies than a private equity firm might.

Mark Holliday - Chairman and Chief Executive Officer - (00:17:09)

Get from buying that same platform. Steve, when you say a public company, the public company was a compilation of six assets. So you got to evaluate the six assets and put a value on them and then figure out what all the frictional costs of transfer are versus a standalone single asset. We did all that. And, you know, I think the issue is not so much whether you think one went cheap and one went expensive. I think, you know, the issue is, like I said, billions and billions of dollars cleared. That's probably close to $10 billion of product there. You know, that all cleared the pipe at probably relatively good market terms. So I think that's the big story, Steve, is that not, you know, why did. I don't know why a public company traded to one and a private company traded to, you know, an individual asset traded to a REIT. From our perspective, it's where we saw the most value period. I don't, I don't care if we're buying, you know, I don't care if I'm buying debt or assets or a public company or whatever it is. We want to buy relatively good risk adjusted returns, you know, or going in cap rate on park avenue is about 6%. You know, our leveraged returns are well into the mid teens and you know, it's a rock-solid rent roll. It's under market. We're going to lease the hell out of the portfolio and you know, perform some upgrades and I think, you know, people will be, you know, make the building as you know, part of the SL Green family of Park Avenue buildings and make it very desirable and enviable. Blackstone did a very good job putting investing in the, the project over the years. But time flies and some of those improvements are already a bit dated and you have to revisit and do it again, which we will do. But you know, fortunately there's the building's in pretty good shape and I think we made a really good buy on that project. That's it.

Steve Sequoia - (00:19:09)

Okay, thanks. Appreciate the color.

OPERATOR - (00:19:13)

Thank you. And one moment for our next question. Next question is going to come from the line of John Kim with BMO Capital Markets. Your line is open. Please go ahead. Thank you.

John Kim - Equity Analyst - (00:19:27)

I had a question on a two part question on cash lease spreads. Basically just what drove it to be slightly negative this quarter. And also we noticed this quarter that less than half the leases signed are part of your mark to market calculation. And can you just remind us on the methodology and why you include replacement leases, a timeframe rather than just the prior rents on that space.

Matt - (00:19:54)

Hey John, it's Matt. So I'll kind of go in reverse order and then Steve can talk about the quarter itself. Yeah, mark to market the way we do it. So let's talk about how we do it. Is benchmark based on. First it's space that was occupied within the last 12 months. So if a tenant expired in August of last year and we re tenanted the space this year, it's not in mark to market. Even though August of last year feels like yesterday and the comparison is fully escalated rents. Meaning if it's at least done 10 years ago, it's the base rent plus the expense escalations that happened over that term as against the day one cash rent of the new lease. Now I've heard that maybe that's too conservative, too punishing a way to do the math, but that is the way we do it. And it's only on for every quarter, a fraction of the space. You made the point that it's only 300,000ft, which is about 1% of our entire portfolio in any quarter. Clearly that can be then swayed by any one lease in any one building in that given quarter. And with that I'll turn over to Steve just to talk about the third quarter itself.

Steve Sequoia - (00:21:00)

Yeah, it's a nutty calculation because it's not indicative of the market. And just drill a point into it is, we signed 54 leases in the third quarter and our mark to market was driven by the anomaly of two single leases. If not for those two leases, we would have shown a positive mark to market. So it shows you how little relevance the mark to market calculation is as an indicator of the overall health of the marketplace.

John Kim - Equity Analyst - (00:21:33)

My second question is for mark on 1515 Broadway. Just based on your commentary, is the vision of obtaining a casino at this property completely dead? One of the remaining proposals has come to life. And when do you think you'll make a decision as far as potentially converting this into a different use?

Mark Holliday - Chairman and Chief Executive Officer - (00:21:54)

Yeah, no, I don't think by any means it's, to use your terms, completely dead. I think the whole process and the outcome is still unknown. How many bidders will there be, you know, how many licenses will be awarded, you know, and whether, if any are held back, there'll be another shot, you know, for casinos in Manhattan or otherwise to come into play. So I think this is still a process playing out. But, you know, we are evaluating all options from our current situation with our existing tenant, which has just gotten financially much stronger through its buyout from Skydance and the subsequent strength in both business announcements and stock price movement, as well as what we uncovered through this multi year process of repositioning, unearthing pockets of opportunity we think are very interesting as it relates to immersive, invested destination entertainment uses combined with hotel and hospitality offerings in the tower. The building converts perfectly and obviously, you know, keeping alive a hope for the future of a possible casino if a license remains available. So we're going to evaluate all options. The beautiful thing is right now we've got so much flexibility because our debt per square foot is I think like 375 a foot or thereabouts. So we have complete financial flexibility. The buildings net leased through I think the middle of 2031 and the cash flow is significant from the property. And, you know, that's a good scenario for us to sort of look at all options, you know, commence multiple negotiations and try and end up in the best place. I think the debt yield on the debt currently is like 13%. It's probably the highest in our portfolio.

John Kim - Equity Analyst - (00:24:06)

Thank you.

OPERATOR - (00:24:08)

Thank you. And one moment for our next question. Our next question comes from the line of Anthony Paoloni with JPMorgan. Your line is open. Please go ahead.

Anthony Paoloni - (00:24:19)

Great, thank you. My first question is when you think. About 346 and even like the north of $200 rents, you're getting it at OVA. Can you just talk about depth of market at that rental price point versus. Kind of where the rest of a. Lot of Park Avenue is and Park Avenue tower down in the low one hundreds.

Mark Holliday - Chairman and Chief Executive Officer - (00:24:41)

Well, Steve can chime in with rents, but I don't want to go through rent by rent by rent. But, but I would not say Park Avenue is in the low one hundreds. Park Avenue is decidedly, I would say mid one hundreds or even higher on average. So Steve can sort of address Park Avenue rents generally. But new building rents in or around Park Avenue is kind of rare inventory. And I do think today one, those deals are going to have to underwrite two, two and a quarter a foot or higher on average relative to new costs. I think we bought 346 Madison, you know, well enough that we have some room and cushion there, you know, to go forward with the site that we've, that you know, we've acquired and the, you know, ability to max out the zoning pursuant to Midtown east rezoning and also through landmark zoning. So, so we feel, I feel very good about our basis on 346. It's not a big building. We talk about depth of demand. There's like 25 million plus or minus tenants in the market looking for space kind of like this. The building at 346 will be about 800,000 square feet. So you know, it's, I think things are decisively tilted in the supply and demand metric in favor of having the space, being able to deliver the space and meeting the market at those rents. But if you want to compare, it's a little apples and oranges. We want to compare those rents with, let's call it Park Avenue rents and buildings built in the 50s, 60s and 70s. Steve, you can answer that.

Steve Sequoia - (00:26:27)

Well, just a couple points. If you look at the buildings within our own portfolio, whether they're 40, 50 year old buildings like a 245 Park a 280 Park Avenue, we're seeing massive rent Appreciation in those buildings. You know, we're doing deals today. 20% higher rents than we were doing at the beginning of this year. So that's 10 months of rent appreciation. The other point, I guess what you're trying to inquire is like, you know, what's the level of tenant demand? As Mark said, there's actually 27 million square feet of tenant activity in the marketplace. But most notable about that, there's 72 tenants that are being tracked right now that have requirements of more than 100,000 square feet. So there's not nearly enough supply to support the tenant demand that's out there as we see it here at this moment in time.

Anthony Paoloni - (00:27:24)

Okay, got it. Thank you for that. In the market, Steve said, are over 50,000. There's 72 with requirements of over 100,000 square feet. Right. And how many square feet is that. Do you know of? And don't know the total aggregate.

Steve Sequoia - (00:27:35)

Okay. But yeah, the point is we need, like, five of those. 10, not 72.

Anthony Paoloni - (00:27:41)

Got it, thanks. And then just second one from me on Park Avenue Tower. Can you just talk about just how. You plan to finance it and just you talked about the debt fund a little bit, but just what's the appetite for equity to partner up with you all at this point?

Steve Sequoia - (00:27:59)

Well, just working through the capital stack on the credit side, I'll tell you that in the past 12 hours, I've been inundated with lenders reaching out both bond buyers, balance sheet lenders, banks, all trying to get their hands on financing. This pricing is getting very tight. Just again, in the past 12 hours, based on inbounds we've received. And I would expect to see us finance this through either again, bank execution or through cmbs. And we'll make that decision in the next couple of weeks. And then on the order of magnitude, in terms of size of debt, roughly around $475 million against the purchase price, which is roughly around 65% of the purchase price. And then on the equity side, plan is to close this through the balance sheet. We've already gotten inbounds, just like on the debt side from equity investors looking to discuss this project. And I'll also note we've gotten similar inbounds from Equity investors on 346 Madison as well. We'll evaluate those options and make sure that we're not leaving any money on the table by bringing in partners too soon into these projects.

Anthony Paoloni - (00:29:12)

Okay, thank you.

OPERATOR - (00:29:15)

Thank you. And one moment for our next question. Our next question will come from the line of Nicholas Ulico With Scotiabank. Your line is open. Please go ahead.

Nicholas Ulico - (00:29:26)

Thanks. Just going back to Park Avenue Tower. Can you just talk a little bit. More about, you know, where the occupancy of the asset is, what's, you know, and then also, you know, in place rents first market, Just a feel for.

Mark Holliday - Chairman and Chief Executive Officer - (00:29:40)

Sort of how big that gap is. Yeah, sure. So in place Occupancy today is 95%. There was a lease that actually signed the day of contract signing that brought it to 95% and there's a pending lease out there right now with a hedge fund tenant that will bring it to just over 96%. And in terms of in place rents, the in place rents today are about 125 foot blended. I'll let Steve speak to market and the amount of appreciation we see in those rents. But I think a critical component of this is this is a cash flowing asset. Building needs very limited capital. You know, Mark talked about some refreshing that we'll do, you know, to really brand it through the SL Green platform. But Blackstone did a great job with this asset and you know, this is really investment focused on, you know, appreciation that we're going to see in the Park Avenue cool corridor over the coming years. And I'll let Steve speak to that.

Steve Sequoia - (00:30:41)

You know, a lot of the building in certainly the bottom third of the property is put to bed for the next five or six years at least. So where there's opportunity, which is the mid rise, the tower of the building, those rents are easily in the, you know, mid 150 to well over $200 a square foot depending on the floor that you're on. And that's as we sit today. And if we continue to see the kind of appreciation in rents and the way we've experienced throughout this year, then it's easy to see where those rents are headed in the not too distant future.

Nicholas Ulico - (00:31:14)

Okay, thanks, that's helpful. Second question I guess is for Matt, just in terms of ffo, which I know it's now quarterly issue where there's maybe some noise in the numbers and you talked about last quarter, I think that you could have a larger than expected debt extinguishment gain happened in the quarter yet you know, the guidance, I don't think you changed. So just maybe you could just sort of walk through some of the pieces of that and thinking about, you know, versus you know, original guidance kind of where you're standing on FFO and any items we should be thinking about for the fourth quarter. Thanks.

Matt - (00:31:51)

Sure, sure. Yeah, I mean you start off with the right theme. You know, every quarter has its puts and takes. I'm a champion of eliminating quarterly reporting as a result. But, you know, as to ffo, we did have an incremental gain above and beyond our $20 million DPO gain over at 1552. That, of course was offset by the transaction costs of about $0.17, that charge that we took in the third quarter and then the other side of that in the third quarter and into the fourth. You know, we do have a feature up at Summit called Ascent that is down for maintenance. It was down for the entirety of the third quarter that hit the FFO numbers that hit same store results as a result of, you know, percentage rent that it pays. We expect that to come on in the fourth quarter, but it is still going to be down for a period. Of the fourth quarter. And as a result of, you know, some, some sales that we have delayed or deferred, you know, we are carrying more line balance for longer in the year than we originally anticipated. So interest expense is up and fee income is a little behind where we expected interest expense, you know, probably $0.20 over the course of, you know, the third and fourth quarters as against what we expected, the vast majority of that being as a result of carrying a higher line balance.

Nicholas Ulico - (00:33:17)

Okay, thanks.

OPERATOR - (00:33:19)

Thank you. And one moment for our next question. Our next question comes from the line of Lane Heck with Wells Fargo. Your line is open. Please go ahead.

Lane Heck - (00:33:29)

Great, thanks. Just following up on the leasing market, given the tightness that's emerged in some of your key sub markets, are you seeing any moderation on the concession side, whether that's lower ti's or free rent?

Mark Holliday - Chairman and Chief Executive Officer - (00:33:42)

Yeah, we're starting to see that, you know, some early tightening in concessions. Certainly on the top end of the market, you know, where you're seeing sort of that disproportionate base rent increase, you're also seeing some tightening of the concession. So, you know, I would say we're seeing examples where the Ti is down 5 to $10 a square foot, where the free rent's been brought in. You know, if you said the high water mark was 18 months a month of free rent, now it's down to the 14 to 15, 16 months of free rent. And that's kind of new news over the past, I would say three months or so, where it's more common than it is an anomaly. And it's, you know, and it's probably, you know, the top third of the market is where it's most pronounced.

Lane Heck - (00:34:36)

Great, that's helpful. And then second question, can you comment on the King and Spalding lease that's expiring this month at 1185 6. Are there any sub tenants there that you're working with to go direct or any commentary on potential tenant interest in backfilling that lease and maybe also where you think the market rents are relative to what King and Spalding is paying?

Steve Sequoia - (00:35:00)

Yeah, well, they subleased a little bit of their space and we're in discussions with some of those subtenants, but we're also in with leases out on a couple of the floors with, with replacement tenants. There's new tenants to the portfolio. Rents have been rising in that part of the building. It's, you know, it's a better part of the building. So I would say rents are, you know, we've seen probably a 10 to 15% rise in our taking rents in that building over the past six months. Having said that, the mark, the market on it will be down. King Spalding rolled off about, you know, a heavy rent, but that's reflective of the fact that it has escalated over a lot of years. Not and does not indicate, you know, the good news of how we've seen the rents over the past 12 months rise in that building.

Lane Heck - (00:35:52)

Okay, great. Thanks, Steve.

OPERATOR - (00:35:55)

Thank you. One moment for our next question. Our next question will be from the line of Alexander Goldfroud with Piper Sandler. Your line is open. Please go ahead.

Alexander Goldfroud - (00:36:06)

Hey, thank you. Good afternoon, Mark. So, two questions here. First, Mark, just going back to your comments on the casino. You guys have done a lot of public private one. Vanderbilt, of course, you were with the MTA in the city. Would you say the casino experience is a one off or is your view that the way the city is doing public private partnerships has changed and therefore may make you a little bit more cautious next time there's something similar that comes along?

Mark Holliday - Chairman and Chief Executive Officer - (00:36:37)

Well, look, I still have a lot of faith in our ability to work with certainly this current administration and city council to get things done. It's usually a win win situation. I think this is more of an anomaly where, you know, it needed a leader. You know, you needed someone to stand up for what's right and, you know, to sort of do the right thing and, you know, sort of not, you know, give in to the pressure of the vocal minority. I think many in our elected government do both at the city and state level. I think in general, we have very good leaders, very good legislators at the state level, very good council people who are thoughtful. In Manhattan, which is the universe we deal with in particular, I would not call this extrapolatable or it doesn't diminish our desire to want to do the things we do in terms of breathing new life into older buildings, rehabilitating landmarks, developing new properties, providing market rate and affordable housing, supporting all the charities and philanthropies we do, most notably food first for the food needy. I mean, you know, we are New York and New York's been good to us and we want to return the favor. I think this was more of a one off example of some, you know, misguided few on that CAC community that just didn't get it. And as a result, you know, it'll remain in a sort of a time bubble for the time being until we take another run at the goal line, maybe with others at trying to come up with something transformational for Times Square, which should be something that is an iconic asset for the city. Not just for tourists that want to go through and take pictures, but for people who, including locals and people from the city and around the boroughs who want to, you know, shop there, dine there, stay there, you know, go to Broadway and go to other forms of entertainment there. I think there's more work to be done.

Alexander Goldfroud - (00:38:52)

Okay, second question is, Steve, obviously we talked, you gave a good discussion of lease spreads as it's presented. But just curious, as you're mapping out your rents, given that there's dwindling availability, no supply for the next five years or so, are you seeing faster escalations, meaning in prior cycles where you had a starting rent and the finishing rent? Are you seeing that pace accelerate now where there's much more growth over the. Course of the lease?

Steve Sequoia - (00:39:21)

Or has there been no change despite the market tightening in the pace of growth between the starting rent and the final rent of the term? Well, you know, remember the. How the rent grows over the term of the lease is really a function of a pass through and escalations of operating and tax increases. So that's not really a base rent increase. That's just what gives parity for the landlord to stay neutral to his numbers on day one. We do get a base rent increase midterm, typically, and that can be anywhere from five to twenty dollars a foot, depending on what the base frame is. But I don't think that's. I don't think that's. Those increases are necessarily driven by an improving market where we're seeing, I think, consistent with where we've seen other market recoveries over the years past. You know, these things tend to move very quickly, so that when the market recovers and starts to go up. It doesn't go up in small, little, you know, 2, 3% a year. It goes up in big moves of 7, 8, 10% a year. And that's what we're seeing in the market right now. Started off on Park Avenue, started to spread over to 6th Avenue, Rock center, and now you're seeing the overflow come on to Fifth and Madison. And even if you can believe it, Third Avenue is now seeing rent appreciation. So I think we're in the early days of significant rent increases because of the lack of supply and strong tenant demand. And we see no reason why that's going to abate over the foreseeable future.

Alexander Goldfroud - (00:41:05)

Thank you.

OPERATOR - (00:41:07)

Thank you. One moment for our next question. Our next question comes from the line of Ronald Camden with Morgan family. Your line is open. Please go ahead.

Ronald Camden - (00:41:18)

Hey, great. Just my first one was just going back. I think you mentioned the ascent as sort of a headwind. The same store. But now I see Same Store down 1.6% year to date. I think at the investor day, I think you were looking for 1 to 2%. Just wondering, was that all the ascent to Delta or what else is going into that number? And how do we think about. As you're rolling into 20, 26 factors to consider.

Matt - (00:41:45)

Yeah, just our guidance for same store cash noi was half a percent up to 1.5% down. So we're only 0.1% below the bottom end of our range. Remember, guidance and goals are different. Right. We stretch our goals to try and get above the guidance range. We actually would be squarely within the guidance range if it wasn't for a cent being offline. And again, they pay percentage rent. And then uniquely, we had a tenant of, you know, fairly significant size convert ti to free rent, which is an option in their lease, rarely taken advantage of. They did. And that impacts. It's not no incremental dollars out of our pocket, but it's a change in the treatment of those dollars and it hits cash noi. Otherwise we'd be squarely within our guidance range.

Ronald Camden - (00:42:37)

Got it. So what was baked into the goals that maybe is not materializing?

Matt - (00:42:44)

Nothing baked into the goals. The goals are, hey, let's outperform our guidance.

Ronald Camden - (00:42:48)

Got it. If the cent were online, would it put it into the.

Ron - (00:42:55)

Okay, my second question, if I may. Just on the sort of the development, you know, obviously you bought the land and so forth. Any sort of incremental color on just the amount of capital needs and again, funding, because I know you also are managing sort of the Balance sheet leverage as well.

Ronald Camden - (00:43:15)

Thanks.

Ron - (00:43:20)

Ron. Can you get that question one more time, please? Sorry about that. On the asset that you bought that you're planning to do a development on, just thoughts on cost and funding and potential impact on the balance sheet. Thanks.

Mark Holliday - Chairman and Chief Executive Officer - (00:43:38)

So you're talking about 346 Madison. We'll do a deeper dive on 346 once we get out to the investor conference talking about plans and cost returns and the like. As a general matter, as you've seen us do on one Vanderbilt and one Madison, likely capitalization would involve construction financing and a JV partner. So as we said today, that's our funding strategy. We'll give you more detail when we get out to December.

Ronald Camden - (00:44:07)

Great. Thanks so much.

OPERATOR - (00:44:12)

Thank you. And one moment for our next question. Our next question comes from the line of Seth Bergey with Citi. Your line is open. Please go ahead.

Seth Bergey - (00:44:24)

Thanks for taking my question. You know, just given the leasing activity to date, kind of at the 1.9 million square foot and you've done or announced an incremental 390,000 square foot since your last leasing update, do you have a sense of kind of where you could get to by the end of the year?

Mark Holliday - Chairman and Chief Executive Officer - (00:44:42)

You know, we're not, we don't give quarterly guidance on leasing. I mean, we have a million square foot pipeline. So, you know, I would sort of be guided by that. You know, exactly. You know, you know what that translates into. I don't want to get caught in what's going to close by December 31st. What's going to close January 5th. We're going to, we're going to vastly exceed 2 million feet. I mean, you know, that's clear. I mean, you know, will we exceed two and a quarter, two and a half million feet? That's to be seen. You know, I mean, we, we generally run at a clip any, let's call it average 500,000ft a quarter. You know, if you miss by a week or two, it could be a little less. If you accelerate by a week or two, it could be in the sixes plus. But you know, if we're at 1 million 900 now, then I would think, you know, for the quarter we should be on something close to a half a million run rate. And I'd be sort of guided, but we can't give any detailed guidance, you know, for the next two and a half months. But you know, we're going to be 20% plus or minus ahead of our original projections.

Seth Bergey - (00:45:44)

Okay, thanks. That's helpful. And then you mentioned 20% rents were 20% higher in some spaces than they were at the beginning of the year. Do you have a sense of how much of the portfolio is kind of at below market rents or an overall portfolio mark to market?

Mark Holliday - Chairman and Chief Executive Officer - (00:46:02)

No, I mean, not at our fingertips. We would have to go through and do a real granular calculation, building by building, space by space. But that's not something that we, that we, that we do. Generally speaking, I can tell you there's, you know, where we have a lot of leasing activity or where we've done a lot of leasing activity. You know, whether it be Park Avenue, 6th Avenue, or even some of the 3rd Avenue and Graybar building examples, that's just where we happen to have a lot of activity. We've seen rents generally up somewhere between 10 to 20%, depending on the building that we're talking about over the last ten months.

Seth Bergey - (00:46:48)

Great, thanks.

OPERATOR - (00:46:51)

Thank you. And one moment for our next question. Our next question is going to come from the line of Michael Lewis with Truist Securities. Your line is open. Please go ahead.

Michael Lewis - (00:47:02)

Great, thank you. On 1515 Broadway. Has Paramount already determined it'll move out in 2031, or is it possible that just becomes a renewal? I don't know if that makes sense for them or for you.

Mark Holliday - Chairman and Chief Executive Officer - (00:47:16)

Oh, I don't think there's any determination that I'm aware of that's been made. You know, we had dialogue and negotiations in connection with the casino, but that's completely different. And apart from the steady state situation now, and, you know, I have no reason to believe one way or the other they're going to stay or go at the end of 2031, you know, they're happy with the building, you know, and I mean, like 2031, I think in the, in the realm of planning for these guys is eons away. They just bought the company. So I think they're going to have to go through and figure out, you know, what are they doing maybe with Warner, maybe not with Warner rumored to be in dialogue with them, you know, how big a New York City footprint will they maintain and how big will it be on the west coast, you know, but, you know, on the one hand, I don't think anything set in stone there, certainly that I'm aware of at this moment. I think having just acquired the company less than two months ago, I can't imagine there's anything definitive on their end yet. With that said, you know, this is a big, valuable block of space. And whether we keep it long term as office use or we now know it converts, I mean seamlessly into, you know, solid hotel use. We've got the plans to revamp those signs into state of the art signage where we can, you know, increase substantially the revenues we're getting from those older signs that serve their purpose but are past useful life. And Viacom doesn't pay a big rent. Viacom, as I called them from the old days, now Skydance, Paramount, doesn't pay a big rent. I don't have it in front of me, I don't know. But the escalated rent in place I think is in the 70s, you know, at most, like, you know, low 70s. So you've got a big block of space, they're not paying a big rent. Like I said, they like the building, it's well located, but it also has flexibility of use and we have low debt on the property. So I think it's a perfect storm for us to keep forging forward with our plans and try and do something really transformational with the building, which could include doing an early renewal deal with Skydance if they choose to.

Michael Lewis - (00:49:49)

Okay, great. And then my last question. You know, you obviously have continue to. Have very strong leasing volume. There's been a lot of talk on this call about very high rents and optimism for rents, where rents are going. I wanted to ask about, you know, OPEX overhead, Capex, because you know, I look at the three key results. Your NOI margin, I see 54%, your GNA, 10% of total revenue, give or take. And then obviously Capex, you know, if we backed out the debt extinguishment gain, it looks like your fad would be well below your dividend. And I understand quarter to quarter and count this and don't count that. I guess the question is, is there any concern not with leasing volume and rents, but with office real estate profitability? Does that make sense?

Mark Holliday - Chairman and Chief Executive Officer - (00:50:34)

Well, I mean what you're saying, I understand the question. The way we position ourselves is how we combat that issue by focusing in on the buildings that have the highest net effective rents. I've said this before, I'll say again, you know, the TI's, the physical cost of construction are relatively fixed. So if you're doing business at the high end of the market with $150 rents, you know, or 125 to on upwards to 250 or higher, that's where there is a lot of margin in the business first generation and even more so on second generation. And you know, we just need to let all of that bleed through into the numbers. I think what you're focusing in on is Due in part to the way we do the business, which is as soon as something gets to stabilization, we tend to sell or jv. And as a result, you know, you put all the work in on the front end and we realize and monetize what you would be looking at, as you know, call it fad. We monetize it in profit and we have significant profits that we bring in when we JV an asset. I mean, look at what we just did with our sale of 5% to Mori at a $4.7 billion valuation on a project where our basis was under 3 billion. So we lose that coverage, but we get that in that case 80 something million dollars. And we have that for reinvestment and into new projects and capital. So it's a little bit of a different game plan. But I think the business we're doing is very profitable. We do cover our dividend, but we cover it in a holistic way through Fed and through our harvesting, which we do year in, year out for 28 years.

Michael Lewis - (00:52:31)

Okay, got it. Thank you.

OPERATOR - (00:52:34)

Thank you. And one moment for our next question. Our next question will come from the line of Sikram Malhotra with Mizuho. Your line is open. Please go ahead.

Sikram Malhotra - (00:52:46)

Good afternoon. Thanks for taking the question. Just I guess two clarifications. One, on the recent transaction, Park Tower, you mentioned sort of the cap rate. I just want to clarify, does that include lease you mentioned that took the occupancy up and could you just sort of clarify the value creation you kind of highlighted what's the capital you need to put in and the timeline to sort of get a decent chunk of this building to that 200 rent level?

Mark Holliday - Chairman and Chief Executive Officer - (00:53:15)

Well, I think with both leases the cap rate is actually like 6.2%. I rounded to 6%. I think if you're looking for a precise number, the number I saw with both the lease just done, the lease pending was a 6.2%. So I don't know if that. Does that answer the question or is that. What was the second part of that question?

Sikram Malhotra - (00:53:32)

Yeah, just the, you know, you mentioned the value creation, the 125 rents. You know, you hope to get it up to 200.

Mark Holliday - Chairman and Chief Executive Officer - (00:53:39)

I got you.

Sikram Malhotra - (00:53:40)

I'm just trying to get the sense of the value creation from where you bought it today, I guess, or cap rate wise.

Mark Holliday - Chairman and Chief Executive Officer - (00:53:46)

So what I said in the first part of this call was this is really a marketplace more than this is not a redevelopment project like a 245 park or like a 753rd. You know, we have capital Allocated for, you know, what I'll call refreshening or updating the amenities. Probably expanding the amenities as well, bringing in some newer and I would say better, higher, elevated food and beverage, which I think we've, you know, gotten quite good at. And also, you know, doing something with the entry experience at the plaza, which, you know, right now I think is okay, but I think we can improve it. So these are not big capital. In the context of a $730 million loan investment. I think the capital devoted to those uses in total, including infrastructure, is like less than 50 million, you know, and might even be less than like in the high 20s or something. I don't have it in front, but in that range of, let's call it, you know, 25 to 40 million. And that's over time. That's over. You know, that plan would be a five, six year plan. So it's not a big capital intensive. All the capital will be leasing oriented capital tis and commissions. We'll try and minimize that because there's not a lot of lease up. So we're going to, you know, try to, you make your money how we say on second generation deals, retaining tenants, renewals, et cetera, play the Park Avenue scarcity market where I think rents could be up 20 to 25% over the next four to five years. I think that's completely within reach given the dynamics between sort of ever expanding space needs right now by New York's larger growing tenants and just no real space delivery in and around Park Avenue, at least not for the foreseeable future. So it's really a market positioning and rental play. It's a cash flowing deal right out of the blocks. So it's different than a lot of what we do. We're going to get good financial leverage because there's going to be good competition for this debt. And we'll hit our underwriting on our spreads and you know, maybe down the road we'll consider a JV and then you throw in an extra 300 basis points of yield for, you know, fee and promote income. But you know, that's. I think we have some work to do on the front end over the next 12, 18 months and then revisit that situation down the road, which is how we typically do it.

Sikram Malhotra - (00:56:31)

Okay. I mean, just maybe building upon that. You mentioned Park Avenue rents could be up 20% over the next few years.

Mark Holliday - Chairman and Chief Executive Officer - (00:56:39)

I say 20, 25% over 45 years. I just want to be clear because I know 20 to 25% over the next four to five years. I think that for this slice of the market, I think that's completely within reason.

Sikram Malhotra - (00:56:56)

Okay. I guess just like in the past, like you mentioned, you've done a lot of other deals those more specific basis play or you bought the debt and you've eventually converted so it's been much more value or I guess basis oriented. This one is different, I get it. But the opportunity said going forward, given what you just said about rent growth, is your acquisition pipeline, is it more this tower type deal, do you think? Or is it more kind of your historical, you buy it at a much, much lower basis and it's more of an nav play than just a rental play or a market play.

Mark Holliday - Chairman and Chief Executive Officer - (00:57:29)

I would say our pipeline is opportunistic and doesn't have any one. It could be a deal like this which is rental rate driven. It could be 346 which is development driven. It could be opportunistic debt like 522 fifth. It could be a complete wholesale redevelopment play like 245 Park. I mean it's, you know, the only thing symmetrical about the business we do is that it's all in midtown Manhattan. So that's a good bet. But beyond that, if you're trying to characterize the, you know, nature of the opportunity set, I think it's all over the place where we're looking for risk adjusted returns, you know, generally on a debt neutral leverage basis in the mid teens for midtown Manhattan, high quality assets. That's a very good return historically and today.

Sikram Malhotra - (00:58:36)

Okay. And sorry, just last clarification you mentioned again the rent growth, the strengthening of the broader market spilling over into a lot of sub markets. So I'm just wondering as you look into 26, you said you don't have a mark to market but I guess historically you have had some sense whether it's 5%, 10%. But given the strength you're seeing into next year spilling across markets, would you venture a high level guess like where do you see rents going, market rents going next year and where's your portfolio today?

Mark Holliday - Chairman and Chief Executive Officer - (00:59:09)

Here's what I would suggest. I'm going to save you a front row seat at December investor conference. We will have front row. We will have all the information. What you're asking for is completely reasonable but it requires a substantial amount of work which we do in preparation for our three hour full portfolio granular asset by asset review. It's just, it's not like an earnings call thing for us. And I'm not, you know, I'm very, I'm very optimistic about what those numbers will show because the rents are generally for most of the buildings in the portfolio on a rapidly rising trend. And we're starting to see the concessions come in. So it's, you know, there's a story to tell there. We will tell the story. I think what Steve said earlier, and I'll have to read it, is we just can't do that right now. And I don't want to ballpark it or back of the envelope it, you know, we're going to have like, you know, you, you've, you've been to these before. You know, you know the drill. We're going to have complete illumination in December of what we think 26 looks like, where the opportunities are, how we're going to drive our earnings, etc. But, you know, at this exact moment in time, we just don't have that number, you know, in front of us.

Sikram Malhotra - (01:00:29)

Fair enough. Thank you. Okay.

OPERATOR - (01:00:32)

Thank you. And one moment for our next question.

Mark Holliday - Chairman and Chief Executive Officer - (01:00:36)

I'll take one or two more operative just given it's we're on three o' clock now, so I think we'll take time for one or two more.

OPERATOR - (01:00:44)

All right. Our next question is going to come from the line of Caitlin Burrows with Goldman Sachs. Your line is open. Please go ahead.

Caitlin Burrows - (01:00:51)

Hi. Just two follow ups on recent questions. Maybe just I hear you on the investor day one, I was wondering if you could confirm it's going to be on December 1st because I have gotten some questions. But just on the when you look at the 2026 lease expirations, it does look like those rents are relatively low versus the rest of the portfolio. So I guess I was just wondering if at this point you guys have a sense of what those spaces are and like, does that create an easier comp or does it reflect the quality of those 26 expirations?

Mark Holliday - Chairman and Chief Executive Officer - (01:01:21)

Do you have those? Boy, it's tough. You know, again, on the heels of I don't, we don't have all of those 26, you know, expirations in front. Of us, lease by lease and evaluate them. I mean, the one thing I'll say, you know, as you look into next year, it's not a particularly large lease rollover year. Next year, our largest lease that's a known vacate next year is only 120,000 square feet. And after that there's a handful of leases that are kind of in the 50,000 square foot range. So we have leasing to do and renewals to take care of. But our mark to market I don't think will be as Driven by, you know, one particular lease expiring next year. Upsize. You know, another way to look at it, we've only got one large block of space, I think that exists in the portfolio. We've got like 30 million square feet. I think the largest block of Contiguous Vacant is 250,000 at BMW. Right, that's it. That's really forward looking. That's forward. It's not even existing vacant. So, you know, we really, I mean, just putting, we're approaching 93% lease on 30 million square feet. And what you have are little pockets of vacancy across many different buildings. And that's the dynamic our shareholders want because that's where we can really start in the coming years with nearly fully leased buildings and no big blocks in the near term to worry about to try and right size the concessions and push the rents to the natural level of where they should be to meet the demand. And you know, hopefully that will result in, you know, good mark to market and everything that comes from that next year. And I think, you know, we're going through our 26 budgets right now as we speak. You know, we do it lease by lease, asset by asset. We roll it up. We generally have that done a couple of weeks ahead of the conference and then we'll come with, you know, full, full transparency on everything. But, you know, we're optimistic that, you know, there'll be, you know, earnings momentum and you know, as characterized by, you know, leasing momentum going into the year. Just because as we get closer to fully leased, you know, that's, that's where we want to be.

Caitlin Burrows - (01:04:05)

Okay. And then the other one just on the back of the question related to kind of like costs of the business. It looked like the operating expenses line was relatively high this quarter. I was just wondering if you could confirm is that the line where the expense related to the gaming bid was included?

Matt - (01:04:22)

No, that's not the line where the expense related the gaming bid was. That's its own line called transaction costs. Operating expense is affected by two things. One, moving a DPE position over from the DPE book into real estate. As we executed a control shift which changes the accounting for that. That's called a million dollars of the expense. The rest is actually utilities. Third quarter tends to be the highest utility cost of the year and utility costs. We fixed price on the supply portion, but the variable portion of our utility costs are higher and that's what drove the operating expense increase in the quarter.

Caitlin Burrows - (01:05:03)

Got it. Thanks. Thank you. And one moment for our next question.

Mark Holliday - Chairman and Chief Executive Officer - (01:05:10)

Operator, this is going to be unfortunately, the last question, because we're over time right now.

Brendan Lynch - (01:05:15)

All right, our last question is going to come from the line to Brendan lynch with Barclays. Your line is open. Please go ahead. Great. Thanks for squeezing me in. I'll keep it quick. Just a couple quick ones. On one Vanderbilt, Did Maury have an. Option to purchase the additional 5% stake? What drove the transaction now? And why was the valuation the same as late 2024?

Mark Holliday - Chairman and Chief Executive Officer - (01:05:36)

Yeah, they did not have an option. This is a deal Mark and I made with Maury in January of this year. You know, we always tell you guys that transactions with some of our partners take some time, but you know, we cut this deal early January, probably 45 days after we closed the first transaction. We always intended to sell down an additional 5% stake. I think we were public about that in our investor conference right after that, we went out to Japan, made this deal and closed last quarter.

Brendan Lynch - (01:06:13)

And are you looking to maintain the current 55% stake?

Mark Holliday - Chairman and Chief Executive Officer - (01:06:16)

Yes, that's it. That's the final piece of our dispositions in our one Vanderbilt stake.

Brendan Lynch - (01:06:23)

Great. Thank you.

OPERATOR - (01:06:25)

All right, thank you. So in wrapping up, Matt's got some info that he'll conclude with.

Matt - (01:06:30)

Yeah, I just want to remind everybody. Who'S still on the call. Apologies are running a little long. Our investor conference this year will change in schedule. It would have typically been on Monday, December 8th. But due to the changing of the date of the NAREIT conference starting that same day, we're moving our investor conference to the Friday before Friday, December 5th, 10am here at One Vanderbilt. That is invite only, but it is webcast. So for those being invited, keep an eye on your inbox. And then there will be an announcement, a webcast link for those who want to listen in. And with that, thanks everybody for joining the call today. And we will see you December 5th.

OPERATOR - (01:07:13)

This concludes today's conference call. Thank you for participating. You may now disconnect.