Thank you everybody for joining us and welcome to SL Green Realty Corporation’s Third Quarter 2018 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. Actual results may differ from the forward-looking statements that management may make today. Additional information regarding the factors that could cause such differences to appear in the MDA 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 measures are 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 the press release regarding the company’s third quarter 2018 earnings. Before turning the call over to Marc Holliday, Chief Executive Officer of SL Green Realty Corp., I ask that those of you participating in the Q&A portion of the call please limit your questions to two per person. Thank you. I will now turn the call over to Marc Holliday. Please go ahead, Marc.

Thank you everyone for joining us on our third quarter earnings call. We will discuss some of the highlights and accomplishments of the quarter as well as take as many questions as we can afterwards. But first, I want to put the quarter’s results into the context of the big picture. The engine behind our current strategic plan is the extraordinary value creation we have been able to generate in this current cycle, which really began after the ‘08-09 recession. As many of you know, we have been hard at work since 2016, finding ways to optimize and harvest the extraordinary gains in our portfolio as evidenced by over $8 billion of total gross transaction values, dispositions and recapitalizations, which resulted in well over $2 billion of cash inflows to the company since 2016. We have been very thoughtful and deliberate in redeploying these proceeds in ways we believe best benefit the company and our shareholders. Notably, we brought our aggregate and relative debt levels down considerably in this current cycle and we are also projecting to have record net cash balances on hand by year end. In addition and as you know, we have been moving along the path of being among the most aggressive REITs in the country in terms of share buybacks having bought back over 8 million shares and OP units year-to-date with the expectation and intent that we will round out our $2 billion share buyback program in the coming months. This continues to be an area of investment that we identified by far as the most attractive opportunity in our investment horizon right now and that opportunity has only increased with the recent sector performance resulting in FFO multiples for the company that I can only describe now is shockingly low. As we have…

Very possible.

Okay. I think it’s in the bank. Something can happen. So of course, everything we do in the fourth quarter is a bonus and more good news is that we expect to have a fairly strong fourth quarter of leasing, which should bring us 2 million or above 2 million square feet of leasing for the year. We want to remind everyone that when looking at statistics like mark-to-market with same-store mark-to-market NOI and the like, they are highly dependent on the leases rolling in any given quarter, and right now, we are rolling off a lot of leases that were signed in or around the 2007 peak. They have escalated pretty substantially over that 10-year period, so the fact that we have positive growth off of that I think is quite extraordinary. Notwithstanding, we may feel a little shy, we may fall a little shy of our ambitious goal at the beginning of the year of 6% to 9%, same-store NOI growth – I am sorry, same-store mark-to-market on leasing and we will track that closely. It will be dependent on a few leases that we will either make hopefully by December or it may trip into January, but there is certainly a possibility that will be at the low end or just under the 6% to 9% range of the original guidance. You might recall that we had hoped to see stabilizing of concessions and affirming of rents in the second half of the year. And I think we got it pretty much right. There has been clearly stabilization in TIs and concessions that we see in the portfolio now. We think the rental market is very stable and demand is quite good. So all-in-all, I would call it a healthy leasing market, which is I think reflective…

Thank you. [Operator Instructions] Our first question comes from Craig Mailman with KeyBanc. Your line is now open.

Hey guys, good afternoon. Just curious, Marc, you kind of mentioned that you have a pipeline of opportunities here that you’re going to explore at the investor day, but just ahead of that, you guys have been active on the buyback, you sold a lot of assets. Just curious from here on out, how you're kind of weighing those buybacks, the potential kind of pipeline of assets to sell, and thinking about other financing options such as JVs on some of your larger assets to kind of unlock the sources for some of these as you’re going to be talking about at the investor day?

Well, okay, I mean, I guess, instinctual, I want to say, let’s wait for investor day, we’re going to go through in detail, but I’ll give you a sort of a framework within how we think about it. Assets we can sell, recap or otherwise monetize tax efficiently lends itself towards the buyback program because we got to retain old proceeds or most of the proceeds and that's a right for reinvesting in our stock, which we think is the best single investment opportunity. Then there were transactions we have slated that may be somewhat less tax efficient and in those instances, we’ll typically reinvest those proceeds in other new opportunities whether it be acquisitions or new development. And by doing that, we’re able to shelter the gain, we’ve been doing that for 20 years, so that's not a program or a strategy that should sound new to anybody on this call, because that really prior to the buybacks had been our stock-in-trade was buying, adding value, monetizing, reinvesting the gains into higher growth opportunities and moving on. So those two investment opportunities I think are somewhat parametered by whether we’re generating tax for your taxable gain on execution, that's one element of it. Then there are other elements that will guide ourselves towards looking at strategic investments that may have return attributes that are as strong on a risk-adjusted basis as the stock itself and where we do that you'll see us be active as we always have been. We try to maintain never an on or off approach. In every market we’re selling, we’re buying, we’re investing in our stock at this moment, and that – we’re not looking to call the market, what we’re looking to do is simply buy low and sell high and reap the benefits of our arbitrage of that in a tax efficient way be it in our stock or in new investments.

Hey, it’s Jordan Sadler with a follow-up. Just on tenant demand in the wake of the new tax regime for Marc or Steve. This year we saw pretty big headlines from AllianceBernstein’s plans to move to Nashville, seemingly a one-off. But maybe can you speak to trends you're seeing if any in terms of tenant migration plans either into or out of Manhattan as a result of sort of the tax burden on employees?

No, I think there’s been the rare occasion where you see that that’s maybe an influence, but it's hard to draw any kind of conclusion that, that taxes are having a negative impact on the leasing environment given the fact that mid-term leasing is 6% ahead of last year and is going to have its best leasing here in the last 12 years. So, in the face of that, velocity is extremely strong, we’re seeing it within our portfolio and where we have the majority of our portfolio surrounding Grand Central Terminal, it’s one of the best submarkets from a leasing velocity perspective. So, I think it’s all – all cylinders are firing straight-ahead.

Okay. Thank you.

Thanks.

Thank you. Our next question comes from Manny Korchman with Citi. Your line is now open.

Hey, guys. Can you give us your updated views on the co-working space especially following the recent announcement that largely based on with WeWork?

Sure, Manny. I think our view is still consistent, which is – it’s a thriving part of the market, we generally view it as a positive. WeWork is an enormous consumer of space in the market and that’s certainly helped keep things tight in the market and it’s going to be a portion of our portfolio we anticipate as it has been for the last 20 years, whether it’s with an HQ or Regis, New York office suites or other tenants, an Emerge212, which is our own co-working business or one of the more recent guys like a WeWork or a Knotel.

And Steve, any updates on the lease with Polo?

No nothing to report at this point in time.

Thanks, guys.

Thank you. Our next question comes from John Kim with BMO Capital Markets. Your line is now open.

Thank you. A question on your DPE, one of your objectives of the year was to keep the DPE balance flat, but I was wondering if there was an update on this just given your balance sheet has shrunk considerably over last year and looks like it may continue to do so?

John, it’s Matt. Our guidance was actually to have the balance be lower by about $100 million year-over-year and we are on a trajectory for that while meeting our target of $200 million of income from that portfolio. So from second quarter, the third quarter went down as we anticipated. I expect there to be modest amount of more diminishing over the course of the fourth quarter.

And can you just discuss your appetite to take that down further and potentially get some more earnings dilution because of that?

Well, I don’t know – I don’t think we look at it as appetite for earnings dilution. So I have to think about how to answer that question. If the question is in our 2019 plan where do we see us pegging that and might it be lower, I think you have to wait till December for that and we are going to leave that into the context of all the other planned activity we have for 2019, not really in isolation and we will have guidance for you then. But clearly, I don’t want to say our targets are constraint, but our self-imposed cap, if you will, with something to the effective 10% of total asset value of the company, we are certainly below that. So within the range of whether we are 6%, 7%, 8%, I don’t think there is a magic number that the answer is we have a portfolio stands today about $1.9 billion or so?

Little over $2 billion.

About $2 billion…

Completely scalable.

We have – we believe a net asset value that certainly which would put that at well under 10% even on the enterprise value. So, it’s really going to be something we will look at and look at the opportunity set and decide whether to size down further or maintain.

Thanks for the color.

Our next question comes from Alexander Goldfarb of Sandler O’Neill. Your line is now open.

Hey, good afternoon there. Just two questions. First, in one of your recent investor decks, you guys commented on doing another $300 million of capital for One Vanderbilt to reduce your equity. With this we bring in an additional joint venture partner, expanding the current JV partner, just what are your sort of thought as you are looking at that project, especially as it leases up presumably you are getting more inbound calls of interests?

Yes. Specifically, we talked about a refinancing which we are undertaking as we speak for the in-place construction financing. We have – obviously, the project has gone very well, exceeded lot of our expectations along the way. And so we are looking for up to $300 million that could come in the form of financing that could come in the form of additional equity, but the refinancing we are undertaking right now would result in additional proceeds, longer term, lower rate and less recourse as we anticipated.

Yes, I would add to that, that refinancing was unintended and is a good news aspect of just how well this project is going and evidence of the project success that we are in front of the group of banks for the refinancing – interim refinancing, unplanned and it will be highly accretive to the deal and the joint venture and really just is an affirmation, I would say if we can get that done.

Okay. And then the second question is just in some of the local press, Marc, there has been talk about city council bringing up commercial rent control and I know it’s come up in the past, just out of curious in today’s environment, what your view is, if you think this is real especially if you think about Midtown rezoning where the city is trying to encourage redevelopment, this would seem to be the opposite?

Well. Look this is something, there is many bills that come to Council and some get passed and many don’t. We will see where this shakes out. There has been some form of this hanging around out there for decades. And I honestly think that they are on the wrong issue. Retailers today as you know are having problems unless they are very well capitalized and very well situated, but a lot of these are smaller, less creditworthy what will be called a small business or mom-and-pop businesses are having a hard time, but it’s not the rent. And I think that will be the debate on the floor, it’s all the other things that don’t seem to be in that bill which a lot of these small businesses are coming out and talking about now such as the increasing minimum wage which is a great goal for the city, but it has with it the intended impacts of raising operating costs is real estate taxes. I mean the real estate rents are down almost in all submarkets of retail anywhere between 10% on the low and a 35% on the high end. But all the while real estate taxes keep increasing and keep increasing annually very, very high compounded annual rates. And the regulation, the things these retailers have to do to open up businesses maintain their businesses and stay compliant. When you put that altogether it doesn’t seem to be the rent to us, we have adjusted our rents in ways that have met the market and have been almost immediately reactive to the system. Now, in real estate nothing is immediate, it’s not a nanosecond, it’s not a day. But over the course of the past 12 months to 18 months, we as long as other leading landlords, retail landlords have re-priced their portfolios generally to meet the market and it’s been sizably down and quick as demand has dropped. And yet even with that, a lot of vacancy remains, projections between 20%, 25% in some submarkets. Now rent is only a piece of it and the rent is corrected quickly, it’s probably the only parameter I have mentioned that went down and went down significantly. Everything else more regulation, higher wages and high real estate taxes they are going to have to figure out a way to solve that issue I think in order to make meaningful progress on this point. And I think the rent for economically motivated people will take care of itself. I would like to see possibly inserted into the bill some kind of incentives for landlords to give breaks to tenants, we do it with affordable housing, why not do it with small business retailers.

Okay. Thank you, Marc.

Thank you. Our next question comes from Jamie Feldman with Bank of America/Merrill Lynch. Your line is now open.

Great. Thank you. I wanted to talk about rents for a minute, so it sounds like you think you are trending below your original target of 6% to 9% growth, can you just talk about what’s different than maybe at the beginning of the year that you are on this trajectory?

Well, it’s not that the rents have moved lower than our expectation, it’s just really that when we focus only on mark-to-market and compare the rents that we are signing against the rents that are burning off from those select leases where the space is being filled with 12 months sort of less of downtime, it gives a distorted view of the rent landscape. If you look at our mark-to-market which we posted 1%, if we spun out the two leases – of all the leases that we signed, there were only two leases that really had a negative mark-to-market that watered down the overall performance, if you pull those out we wouldn’t have posted the 6% positive mark to market. So I see rents that are still going up modestly. As we have said all along we projected at the beginning of year, but we are seeing rental appreciation, but when we focus on the mark to market, it’s just I think it gives a distorted view of rents.

Okay, that’s helpful. And then I guess for Andrew, just some thoughts on the investment sales market, cap rates and asset values, and then it looks like you took a $0.01 impairment on a debt investment that was repaid. Can you talk about what’s happened there?

Sure. Investment sales, there’s going to be a lot of price discovery because there are lot of assets on the market now. So, I think fourth quarter we should see quite a few assets clear and get a much better sense, but our – we still see a lot of demand from foreign and domestic investors. Obviously, we’re getting – we announced the sale of a development site on 72nd Street, and an asset that came back to us through the debt portfolio on Third Avenue, being able to quickly sell those assets and redeploy that capital is an indicator, that not just core income, income producing real estate, but also development-oriented real estate, there is still quite a liquid market for us. So – and I’ll let Matt comment on the impairment.

Yes, I mean, that’s more of an allocation than anything else that we have a multifaceted transaction, the Upper East Side Assemblage sale, 1231, that has multiple aspects to it. It’s a matter of basis allocation and we’ve taken an impairment on the partner loan inside of that deal.

Okay, thank you.

Just one other point, operator, I want to make to Jamie in answering the first question that he asked to Steve. Steve referenced couple of deals that were done in the quarter that brought our mark-to-market for the quarter down to 1%. I think Jamie was asking about our guidance of 6% to 9% for the year. Another factor is, we had in our initial expectations a rather large early renewal couple of 100,000 plus square feet that may or may not make and may not – may or may not be this year. We expected that to be this year in which case we would be squarely within our guidance range. If that does not make this year, I would expect us to be below our 6 – the low-end of the guidance range of 6% to 9%, and that deal could make next year.

Thank you. Our next question comes from John Guinee with Stifel. Your line is now open.

Great. As you know cost of capital is everything in this business and there's a lot of very inexpensive JV equity out there, which is obviously available to you guys. Big picture, what you think is the spread now between cost of JV equity on an asset by asset basis and issuing stock, or said another way, where would your share price need to be that you would find common equity of more attractive cost of capital than JV equity? And then the second question is, any update on 245 Park, and if you talked about it earlier in the call I apologize, I was late to the party?

Okay. We didn’t in any detail, so we’ll come back to 245. But John, let me just – let’s just hit that first question again. The question is that what stock price would – would issuing common be better than joint venture. Is that something, yes –

Yes.

Yes. Well, one, I’d say we’re so far away from that, you probably aren’t tracking that number very closely right now, because it would have to be – my view is generally at or near NAV, I mean, that’s sort of the – let’s call it – that’s the mathematical answer would be you generally don't want to issue discounted securities below value, it’s like selling $1 for $0.98 or $0.9765. Now, selling $1 for like $0.70, $0.75 is even more objectionable. But really when we have issued in the past, used the ATM quite aggressively as you might recall, leading up to mid-2015 or so, generally we like to think we're right at or around NAV, it could be off $1 or $2, 1% or 2%, but issuing at 10%, 15%, 20% discounts, not very attractive. On the flipside joint ventures, you’re typically doing those right at the market. People who come in and invest in a billion-dollar building expect to pay $1 billion, not $900 million, not $800 million, not $700 million. They expect to pay the market and you could almost say it's a premium offering because in addition to bringing a JV partner in at the value you then get fees and promotes, which we’ve talked about and broken down analyzed in the past that could increase the yield on our retained interest between 3% to 500% depending on that fee and promote package. So I think that’s how we analyze it, but again, since we are so far away from that, we haven’t been running those numbers recently. I am sorry 245 we made an initial, what we call Phase 1 investment. We are working towards a Phase 2 that contemplates more direct equity investment with control that is still uncompleted at this time and we will just have to wait and see what the further update is as of December investor, but for the moment, we have our investment, money is working, we are having – we are deeply embedded within the asset with our partner on that deal and I guess more to come in the next 30 to 45 days.

Great. Thank you.

Thank you. Our next question comes from Derek Johnston with Deutsche Bank. Your line is now open.

Good afternoon. Any further commentary regarding how leasing or the leasing pipeline is trending versus plan at One Vanderbilt? And secondly, are there any issues tied to the Carlyle lease in light of today’s news?

I will address the first one, which is that we have got a good pipeline of deal flow at One Vanderbilt. We are trading paper with four, five tenants. We are in advanced discussions with two in particular and we expect to have something positive to report before the end of the year.

So I guess you had asked a question about Carlyle and their efforts to assign the lease to SLG Funding, which is our $2 billion finance subsidiary. I think as the paper state, landlord in that case has rejected the assignment Carlyle believes in properly, so it’s brought a lawsuit. SL Green is not a party to that lawsuit and that lawsuit in no way affects the One Vanderbilt lease, which stands apart and alone. So I can’t really comment any further on that other than to say it’s unfortunate.

Got it. Thanks.

Thank you. Our next question comes from Steve Sakwa with Evercore ISI. Your line is now open.

Thanks. Good afternoon. Marc, I guess I wanted to come back to your comment about the tax efficient asset sales that allow you to do buybacks and the less efficient ones which sort of maybe force you to do kind of 1031 deals. Can you just give us a sense for what within the portfolio would be characterized as tax efficient asset sales in kind of just gross dollar terms? And I guess to complete the remaining buyback authorization, how much more do you need to sell to do that on a leverage neutral basis?

Well, Steve, we have gone through this in I think some fair amount of detail. We have assets where I will give you structured finance, I mean, it’s tax efficient. We have got $2 billion of assets that are marked at par and as we reduce balances there, there is no gain typically unless we have some kind of exit fee or something like that. And that’s a potential source. We have other asset sales that either don’t have as much tax gain or we are able to structure around through creative JVs or whatever it is. So, we have assets and I mean you have seen us do almost $2 billion of it. So, we clearly have been able to generate a significant amount of tax-free proceeds for using stock buybacks. We have more we can do going forward. So, the question will simply be when we meet again in December and then discuss it as a board whether and to what extent we want to keep going based on market conditions, price and capital availability versus the opportunity set, which is still meaningful out there. I mean, we do have a pipeline of deals that are very high yielding, you see the kinds of returns we print on these deals both levered and un-levered – they are very high, double-digit yields and we hope to be able to continue to balance our core investment strategy as we have done in more limited amounts of late with share buyback program. Steve, what was the second part of your question?

Well, it was just I guess in terms of as you talk about trying to be leverage neutral, you sold – you put out the press release recently on the asset sales, which was several $300 million to $400 million, you have about $350 million to $400 million left. I know you didn’t do a lot of buybacks in the third quarter, waiting for more sales to unfold, which you just announced. So I guess how much more do you sort of like feel like you need to do just to complete the current buyback program, I guess was sort of the question?

Yes. I mean, we are almost fully funded on the full $500 million. We have a couple more sales that are in the process primarily in the suburban portfolio which we have said we are slowly winnowing down that would round out the program and do it on the leverage-neutral basis that was executed the first $1.7 billion on, $1.650 billion.

Okay. And I guess just second question maybe for Steve, you have historically talked about kind of the size of the leasing pipeline, I am curious where it is today and did you get the 3,000 square foot lease signed in the last 25 minutes?

It’s funny you said that. I just got an e-mail that said we signed a 20,000 square foot deal that’s waiting for me to count, so I want to get upstairs. So it was 945,000 square feet of pipeline. So, now we are actually 925,000 square feet. And it’s down from last quarter, because we did a lot of leasing this quarter, but we have got very good deal flow and we have got a lot of leases that are in very advanced stages of negotiation out of that pipeline.

And can you characterize just kind of types of tenants, new tenants as if kind of pulling forward renewals or how would you characterize that?

Yes, sure. In the pipeline, it’s finance, real estate, legal non-profit education is the large part of it of the leases that we signed, it was dominated by finance and legal between the two of those industries that was 60% of it, but it’s good broad-based group of tenants.

Thanks, Steve. I think we have time for one more. Is it – one more question?

Yes, sir. We do have a question from Nick Yulico with Scotiabank. And as a reminder, please limit yourself to two questions. Thank you.

Okay, thanks. I just wanted to make sure that the 2 Herald JV sale, is that still set to close in the fourth quarter and do you have a number for just overall sales proceeds you expect in the fourth quarter?

The answer is yes, we expect it to close in the fourth quarter and that’s going to be coupled with a financing. I mean, I have a roundabout number from 3 Columbus and from 2 Herald, you are talking several hundred million dollars of proceeds.

Okay, thanks. And then just lastly going back to 245 Park, I mean, it sounds like there are some redevelopment plans that have started to float around the leasing market for that building. I mean, is that what is first need to be sorted out before you have – you consider making an additional investment?

I don’t really – I think, it’s not – until we have a conclusion to where we stand on the Phase 2, I wouldn’t want to start talking about redevelopment plans or strategies for the bill. I think it would be inappropriate. So I mean, I would just say at this point – and not even at this point, I mean, you have heard from the day H&A first bought the asset way back, we think it’s a spectacular asset, great location, great building now directly across the street from JPMorgan New World headquarters, catty-cornered 280 Park, which has been very successful redevelopment and only getting better through developments like One Vanderbilt, 425 Park and others to come as a result of East Midtown rezoning. So it’s a good piece of real estate, we like it very much. We have been, we are in the – we were part of the original acquisition financing. We made an additional substantial investment about a 3, 3.5 months ago and we are in dialog with H&A to recast that investment into something that will have longer term work permits. That’s really all I can say for now.

Okay, appreciate it. Thanks, Marc.

Thank you. That concludes our question-and-answer session. So I would like to turn it back for closing remarks.

Okay, thank you. See you. The investor conference is December 3.

Yes, just a reminder December 3, door is open at 8:30. It’s at Jazz at Lincoln Center, same venue we have been at for the last couple of years. Program will begin at 9:00. So please get there ahead of that. We expect it to be roughly a 3-hour presentation. Then there will be an optional property tour. For details on how to register, please look at our press release or go on to our website.

Thank you.

Thank you. Ladies and gentlemen that does conclude today’s conference. Thank you for your participation. You may all disconnect. Have a wonderful day.