SL Green Realty Corp (SLG) 2007 Q1 法說會逐字稿

Thank you, everybody, for joining us and welcome to SL Green Realty Corp.'s first-quarter 2007 earnings results conference call. This conference call is being recorded.

At this time, the Company would like to remind the listeners that during the call, management may make forward-looking statements. Actual results may differ from predictions that management may make today. Additional information regarding the factors that could cause such differences appear in the MG&A section of the Company's Form 10-Q and other reports filed with the Securities and Exchange Commission.

Also during today's conference call, the Company may discuss non-GAAP financial measures as defined by SEC Regulation G. The GAAP financial measures 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 selecting the press release regarding the Company's first-quarter earnings.

I would now like to turn the call over to Mr. Marc Holliday, Chief Executive Officer of SL Green Realty. Please proceed, sir.

Thank you and good afternoon, everyone. Welcome to SL Green's first-quarter earnings call. Today, along with Andrew Mathias and Greg Hughes, I will take you through SL Green's first-quarter achievements and put the impact of those achievements into perspective for the balance of the year, and provide you with our perspective and outlook on the Manhattan office markets.

I am also joined today by our Chairman Steve Green; Andrew Levine, and Steve Durels, who will be participating with us during the question and answers at the end of prepared text.

In almost every quarter we deal with the challenging task of trying to convey in as efficient a manner as possible the Company's activities. Given the enormous achievements of this first quarter, this task was nothing short of daunting. I believe that the results that we released yesterday afternoon and the efforts underscored in the press releases that you saw cross the wires this morning were nothing short of extraordinary and demonstrates once again that we are simply not content to rest on the laurels of past successes nor on the strengths of the Manhattan marketplace. But rather, we view ourselves as a Company, given our size and scale, that should be actively managing the portfolio, the business, the strategy, every single day in order to navigate our business to the highest possible achievements.

If it is not already abundantly clear, we as a firm, from executive management to the people stationed in our buildings, take enormous pride in outperforming market expectations and our peers. It is only through a common vision that our troops can be rallied quarter after quarter after quarter to pursue, acquire, transition, and manage the fastest-growing and most dynamic office portfolio in the sector.

While we are all familiar with the Law of Large Numbers that states growth rates are harder to sustain on an increasing capital base, this Company has developed and is executing upon strategies to not only maintain our growth, but to accelerate it on an asset base today that has a total market capitalization of $15 billion.

In part, our successes are due to a healthy and vibrant core market, part due to business strategies designed to yield the highest growth rates and not necessarily the largest portfolio, and mostly due to the 268 exceptional employees who are passionate about what they do and who are proud to work for this Company.

Therefore, in the time allotted to us today, we will try to demystify and uncomplicate a set of results that we believe are market leading and, taken together, will contribute to our long-standing goal of sector-leading earnings growth and total return to shareholders.

I was commenting earlier today that if we had done no more than close the Reckson exhibition acquisition, fully transition the $4 billion portfolio into SL Green, and meet Street earnings expectations, it would have been enough. Instead, we have executed dozens of additional transactions over the past three and a half months, continuing the complete transformation of SL Green's portfolio into a collection of some of the finest office buildings in New York City along with other diverse but targeted business interests that assist in continuing to drive earnings growth and capital generation for this Company, notwithstanding that its core midtown Manhattan office market is not conducive to a lot of near-term external growth at the moment.

Not including the Reckson transaction, we contracted for or closed on the acquisitions of properties or interest in properties comprising 10 office buildings with an aggregate valuation of $1.35 billion, $1 billion of which is located in prime midtown Manhattan locations. There is no single way to categorize this investment activity, because each deal was uniquely designed in a manner that in some cases will contribute to earnings out of the blocks, while in other instances will provide the seeds of growth in 2008, '09, and '10.

Four of these buildings were acquired in three separate joint ventures, with the balance purchased on a wholly-owned basis. Of the joint ventures, two positions SL Green to receive substantial fees and promote interest based on property performance. One of the investments, the acquisition of 331 Madison Avenue, results in SL Green now having one of the most attractive development sites in midtown Manhattan; while another of our deals announced this morning, the acquisition of 331 West 34th Street, provides SL Green with a full building availability of approximately 345,000 square feet of contiguous space that can be marketed immediately for future occupancy.

What may appear as a series of disconnected acquisitions is actually a part of a well-conceived strategy to buy wholly-owned assets where we perceive there is near-term upside, and enter into joint ventures for institutional-quality assets with longer-dated upsides, and nominal equity investments, but generating significant fees and promote interests that can raise overall IRRs by 500 basis points or more.

Most of this activity is transacted in midtown Manhattan, with the ability to invest opportunistically in the tri-state area now that we have a solid operational platform in Westchester and Connecticut. This strategy plays seamlessly into our view-neutral approach to arbing the markets in connection with the sale or expected sale of nine properties owned by Green, nine non-core properties, for a gross aggregate sales price of more than $1.5 billion, generating expected gains of over $850 million.

Those numbers are staggering and really, I think, set this platform apart not only in our ability and adeptness at growing through acquisitions and external strategies, but also the recognition that prudent balance sheet management requires that we shed some of these non-core positions for efficiencies of funding costs and for efficiencies of management operations, and for hedging in a downcycle.

These sales volumes are higher than previously anticipated for two reasons. First, through very creative and savvy deal structuring, we are able to shelter 100% of the gains from these nine sales into wholly-owned Manhattan Reckson assets, resulting in the most efficient and tax-free funding source for the Reckson transaction. To the extent that I believe 100% is fully shelterable, if obviously we exceed even our now-optimistic sales volumes, and then there might be the need to look to alternative strategies for that gain.

Second, as our opportunity set increased dramatically with the transactions I referred to earlier, we had greater license and ability to sell into this market more aggressively, shedding the entire balance of non-core properties at extraordinary cap rate executions. When the dust settles, we will be situated with a portfolio of 32 properties exclusively located in New York City, comprising almost 24 million square feet and containing more mark-to-market and same-store growth potential then at any other time in this Company's history.

The portfolio will be made up predominantly of institutional-quality Avenue assets, located in all of midtown's desirable submarkets, with strong credit tenancies. Mark-to-market in this portfolio was a staggering 37% in the first quarter; and that is on the heels of 29% in the last quarter.

With most delivery of new development scheduled for 2010 and beyond, we see no reason why SL Green will not be able to continue to achieve sector-leading mark-to-market for the balance of this year and 2008. Total vacancy rates are now being reported at under 6%; some have it as low as 5.1%, making tenant options very scarce in this market.

In our portfolio alone, we transacted over 400,000 square feet of leasing in the first three months, representing over 59 individual transactions. I believe that puts us on a run rate of somewhere between 1.5 million and 2 million square feet of leasing this year, notwithstanding our contractual roll was well under 1 million square feet projected at our December investor meeting and on the January call.

This is yet another example of SL Green executing its view-neutral strategy to leasing, whereby we lock in today's healthy rents without speculating or feeling the need to speculate on the direction or level of rents two, three, and four years out. We have more than enough roll in 2010 and future years to participate significantly if mark-to-market rents further increase and continue their ascent.

Even if there is a leveling off of the rental market, we would still have remarkable mark-to-market achievement over the next several years based on an average in-place rent that is, I believe, slightly higher than $61 a foot.

I mentioned briefly the successful closing of the Reckson transaction during the first quarter. We want to be efficient with our time today, given the volume of topics to cover. However, I don't want to minimize the importance of the Reckson acquisition to our Company. The five midtown Manhattan assets acquired for approximately $650 per square foot have been fully integrated into the portfolio and will house substantially all, if not all, of the gain from the non-core dispositions that I mentioned earlier.

Mark-to-market on these assets is substantial. Based on a continuing investment activity weighing in at $1,000 per square foot and higher, it certainly does appear that we made a very satisfactory deal for our shareholders and former Reckson shareholders who are now SL Green stockholders.

What we did not anticipate fully, however, is the magnitude of the potential growth in profits we acquired in the suburban Reckson assets. By paring the suburban portfolio down to what we thought would be the highest-performing portfolios in Stamford and the better assets in Westchester, we believe our strategy is vindicated as evidenced by the 11% mark-to-market that we achieved in those properties in a shortened first quarter, where we took over ownership; and as further demonstrated by the recent market sale in Stamford where the EOP portfolio was sold by Blackstone to a New York investor for over $500 per square foot. I would say this compares pretty favorably to SL Green's investment in the Reckson Stamford assets at a fully grossed-up basis of approximately $350 per square foot.

While the total investment in all of the suburban properties accounts for just 7% of our total market cap, we do believe that there will be isolated instances to invest opportunistically in these off-market suburban situations and take advantage of pricing arbitrage through fully marketing some of the non-core properties in Westchester to fund those activities. On a mark-to-market basis, we perceive that the suburban portfolio is already several hundred million dollars in the money. The harvesting and redeployment of those gains will be no less a priority or strategic goal than the strategy we have executed upon in Manhattan.

I know Greg has fielded several questions from investors and analysts regarding our, quote, suburban strategy. I was surprised at the degree of questions, given the fact that the total equity invested by SL Green in the various suburban activities since the announcement of the Reckson deal amounts to only $61 million, roughly equivalent to the size of a structured finance investment.

Without trying to minimize, however, the strategic relevance of opportunistic suburban investment to value creation, $61 million of equity investment clearly pales in comparison to a $9 billion equity cap Company. I can safely say that the Manhattan portfolio and investment activity still is the driving force behind the decisions we make.

With that said, however, recall that we have a substantial gains and eye-popping returns in our suburban track record in New Jersey, where we successfully concluded investment in the Berger portfolio recapitalization. That was several years ago for those of you that recall. The Gale portfolio repositioning, which I believe was 2005. And on a pound-for-pound basis, one of the greatest deals we have ever done, at Sanofi-Aventis headquarters in Bridgewater, New Jersey.

I would expect that our off-market opportunistic activities in other local suburban markets will yield results that are no less compelling.

Another source of diversified growth is SL Green's investment in Gramercy Capital Corp. Gramercy announced earnings last Wednesday and held its conference call on Thursday. Highlights included a record $818 million of total originations, with net production of $225 million, bringing Gramercy's total loan portfolio to approximately $2.5 billion and total assets to approximately $2.8 billion.

This platform has not only turned into an extraordinarily profitable for SL Green, but has actually produced one of the highest-performing mortgage finance platforms in the REIT sector, with a year-to-date total return of nearly 9%, which is the second highest in the sector year-to-date, and over 1,100 basis points higher than the sector average.

Continued focus and involvement with the Gramercy platform is paying off handsomely for SL Green and Gramercy shareholders. By benefiting from the synergistic relationship with SL Green, we believe Gramercy has a very bright and continuing future.

Obviously, for those of you that have read the earnings release, you know that we had a very sizable gain on the sale of One Park Avenue, along with a substantial amount of incentive fee income that we earned through the successful repositioning and disposition of that property. I know that has created some ambiguity over how to calibrate SL Green's earnings for the balance of the quarter. While the size of the incentive fees may have been a surprise to some, we had a fairly good handle on where the numbers were shaking out through the course of the quarter; and we adjusted our business plan to coincide with this great achievement.

There are essentially two philosophies relating to such an outsized reward that we could have taken with respect to the One Park achievement. We could either stick to business as usual and try to drive this year's earnings even further to record levels. Or we could use this event as the impetus to accomplish a number of corporate objectives that will set the table for SL Green's sector leadership and growth in 2008, '09, and '10. We fully subscribe to the latter approach.

Accordingly, a number of moves we have made and are making are designed with this in mind. This I'm referring to is making sure that we have a very cohesive business plan that we can execute to not only ensure what we expect to achieve over the next eight months, but to make sure that we can keep our velocity accelerating into future years.

So how do we do that? Easily said. First, with respect to external growth, we will take this opportunity to do transactions that are not accretive or even dilutive to near-term's earnings, but where we believe there will be substantial value creation and future contributions in the ensuing years.

Second, we are aggressively refinancing the liability side of our balance sheet to lock in lower cost of funds going forward, even at the expense of onetime charges this quarter in connection with such refinancings this quarter and possibly future quarters now through year-end.

Third, we are targeting our strategy or leasing strategy, not only to maximize mark-to-market in 2007, but with a particular eye for strategic tenant buyouts, blend and extend, and other moves that we think will pay handsome dividends in 2008 and beyond.

Fourth, we are taking other steps to better position our own owned portfolio, which will in all likelihood result in some further dilution that is not yet in everyone's numbers. However, fortunately, I'm not at liberty to elaborate on this at this moment.

The order of magnitude of what I am calling portfolio enhancements might be in the range of $0.10 to $0.15 per share on a full-year run rate basis. I apologize for being as cryptic as that; but I would hope to have more color for you on the next call on, again, certain strategies that we think may have some near-term earnings detriment, but long-term portfolio and platform enhancement.

Fifth and finally, the convergence of the closing of the Reckson transaction along with the resolution of One Park Avenue provided the perfect opportunity for me to reassess our organizational needs and make a series of organizational improvements and commitments that will insure the continued excellence in management over the next three to four years.

Of all of the highlights in the earnings release you saw yesterday, I am by far most proud of the one addressing the nine employment agreements that were entered into with SL Green's top executive management team, which along with the employees that report to them is SL Green's number-one asset.

The most notable of these changes has Andrew Mathias taking over my role as President of the Company, a position he is most deserving of after an eight-year tenure at the firm, and the one who has been primarily responsible for the investment activities at the Company over the past several years.

In addition, Greg Hughes has taken on the role of Chief Operating Officer of the Company, filling the void that existed since Gerry Nocera's departure. Greg has proven over his three years since he began with the Company that he is not only masterful at orchestrated the Company's balance sheet strategy and capital markets activities, but also has shown an ability to take control of the Company's very complicated budgeting and operational detail that goes into what I believe is best-of-class reporting, controls, SOX compliance, earnings visibility, and investor communications.

Through Andrew and Greg's enhanced leadership roles, and the added roles and responsibilities for Andrew Levine, Steve Durels, Ed Piccinich, Neil Kessner, David Schonbraun, and Isaac Zion and David Balaj, the firm's leadership can now be leveraged off of other senior and middle management employees in this rapidly-growing environment. These are names I'm sure many, if not most of you, are familiar with from the investor tours, from this conference call, and from many of our presentations. I am sure you will get to know each of these people even more closely, now that we have gone through a reorganization of responsibilities.

I am very proud of this achievement as we compete daily against the lure of private equity firms, hedge funds, and Wall Street shops that have a voracious appetite for proven real estate leaders. I would say one of my biggest challenges was ensuring that the team stayed together, or the band stays together, whatever analogy you like to use. But clearly, the chemistry is right among this management team. And I would viewed it as a failure if we were not able to achieve what we did in the first quarter in a managerial sense.

Fortunately, using the cover afforded by One Park Avenue to assure continuous stability in performance, it became a primary objective of mine at the beginning of the year to make sure this happened. Obviously, One Park facilitated our attaining that goal now, as opposed to possibly later in the year.

The value that can be created by this team, as demonstrated in the first quarter of 2007 alone, demonstrates the substantial value of keeping a proven, successful group together. In 2006, shareholders saw an increase in wealth of over $3 billion, dwarfing any costs associated with these contracts.

I received a question as to whether the LTIP program isn't in and of itself enough to retain top management. I can tell you from experience, the answer is no. LTIPs are part of an overall compensation package that includes base, bonus, and performance-based options and restricted stock. All of which when taken together, I believe, is the right mix of compensation for retaining the best talent in New York City. Again, which is -- as many of you operating in New York City know -- is an extraordinarily difficult hand-to-hand battle task that we have seen over the years.

Five or actually six people who were included in the LTIP programs, and all of which had substantial six-figure or seven-figure rewards, have actually left over the years and forfeited those awards. So I think that speaks volumes to the question as to whether are the LTIPs enough. I think it shows that for award programs that are five to seven years in duration, it taken alone they are too long and don't provide the balance of incentives needed for the kind of 24/7 high-pressure and very demanding work that I require of everybody at this Company.

But I think I have been successful in creating a balance of rewards which are predominantly performance-based and facilitate retention not only of top executives, but deep into the management stack.

Even in light of these corporate objectives, all five that I have just enumerated, many of which had the effect of diluting current year's earnings for the benefit of future years, we are still in a position to raise our guidance this year from $5.30 per share FFO to $5.40 per share of FFO. This is a substantial move on top of our previous $0.05 increase in January and measurably ahead of last year's results of $4.61 per share.

Please keep in mind, after nearly 10 years in the business, we view this as a marathon, not a sprint. We want to make sure we're making all the right moves to ensure market leadership in the upcoming years. With that, let me turn it over to Andrew Mathias to recap for you the market and, specifically, our investment activity for the quarter.

Thank you, Marc. The first quarter of 2007 continued to see furious activity on the investment sales front in the tri-state area. Headline acquisitions such as the Macklowe Organization's acquisition of some of the New York assets from the Equity Office Portfolio at a price reported to be in excess of $1,100 per square foot; Istithmar's sale of their recently-acquired assets at 230 Park and 280 Park; and the purchase of the EOP's Stamford assets at New York City-style pricing with a going-in cap rate of less than 4% and a price per square foot of more than $500 reflect voracious demand for assets in New York and investors' belief that Manhattan demand is going to tighten the Northern and Eastern suburbs around New York.

It is in this competitive environment that SL Green picked its spots this quarter while completing an exciting slate of investment initiatives. We announce this morning our acquisition of 333 West 34th Street from Citibank, our largest tenant. Citibank will net lease the entire property back for a short period, giving us time to market this prime headquarters location with unbelievable in-place infrastructure to the many large block users who are in the market for occupancy in 2009. Our going-in basis is $530 per square foot, a deep discount to the replacement cost of the building.

However, this metric fails to take into account the more than $30 million of infrastructure improvements Citigroup has invested in the property over the last nine years, which improvements are fully transferable to the next tenant at the property.

We employed this model successfully in our acquisition of the Teachers' headquarters properties, and transformed 485 Lexington and 7 53rd Avenue into Grand Central Square, one of our most successful investments. We hope to replicate our great results there with this property.

Additionally this quarter, we announce our purchase of 331 Madison Avenue, an acquisition that completed our assemblage of the Madison Avenue block front between 42nd and 43rd Street. These properties, when combined with our existing property at 317 Madison Avenue, now form the most exciting development site in midtown Manhattan, adjacent to Grand Central and with unlimited long-term potential, with more than 900,000 square feet of potential mass for new development.

Additionally this morning, we announce our strategic investment in 1745 Broadway, a brand-new office building in the burgeoning Columbus Circle submarket on the West side of Midtown. This property was completed in 2003 by Related Companies, one of the city's best builders. It is the world headquarters of Random House and is fully occupied on a net lease at well-below-market rents through 2018. We partnered on this acquisition with The Witkoff Group, a longtime partner of ours, and SITQ, in our fourth investment with them, with total transaction volume of over $2 billion.

SL Green's initial investment represents 32% of the equity, which we may look to further syndicate down to the 15% or so level. SL Green and Witkoff will jointly manage the asset and receive significant fees and incentive returns depending on the overall success of the venture. As a long-term value play, and a going-in return in excess of 4%, and a per square foot basis of $770 per square foot, a metric only slightly in excess of where we sold 292 Madison Avenue and an obviously substantial discount to replacement cost, we are very excited at the opportunity to create value here at 1745 Broadway in the coming years.

Additionally, this morning we announce our joint venture acquisition of 1 and 2 Jericho Plaza in Long Island with Onyx Equities, our partner from 1604 Broadway, and Credit Suisse, our partners on One Park Avenue. Here again, SL Green's 20% equity investment allows us to earn significant fee income and promotes, depending on the overall success of the venture.

This acquisition was completed off-market and the properties are considered by many to be among the finest on Long Island. Certainly, the 99% average occupancy and triple-A roster of credit tenants who occupy the properties agree with this market sentiment. Onyx Equity is an experienced suburban operator who will manage these properties on the behalf of our venture. At north of a 6% going-in cap rate, we feel very confident in the long-term prospects for this investment, as well.

Last week, on Gramercy's call we announced our joint acquisition of a fee interest in 2 Herald Square in connection with Sitt Asset Management's acquisition of the 70-year leasehold interest in the property. We were able to craft a financial structure that delivers SL Green and Gramercy very attractive equity returns in a net lease structure, while essentially sitting in a triple-A position within the capital structure. This investment was the first of its kind in New York and is a structure we believe we will be able to replicate elsewhere.

On the recapitalization front, this morning we announced our $27 million refinancing of our retail investment at 1604 Broadway. This refinancing allowed us to distribute through the final tiers of our promotes from our partner Jeff Sutton on that property, increasing our ownership to 63% going forward. The recapitalization returned to the partners all of their invested equity in the project, plus a significant profit, recognizing the value created with the Spotlight lease I talked about at the investor conference in December.

On the sale front, we continue to vigorously execute our previously-announced strategy of selling noncore assets and reinvesting the proceeds tax-efficiently into our Reckson acquisition. To this end, earlier in the quarter, we announce a sale of our office condominium interest in 125 Broad Street in the financial district to Mack-Cali. At north of $520 per square foot and a going-in cap rate of 3.75%, we felt there were other opportunities to more accretively redeploy this capital.

Additionally, we completed the sales of 70 West 36th Street; our office condominium interest in 110 East 42nd Street; and as of late last night, 292 Madison Avenue. The average going-in cap rates on these sales is well south of 4% to our buyers. These sales are headlined by our highest per-foot disposition to date at $725 per square foot at 292 Madison Avenue; followed closely by $611 per square foot at 110 East 42nd Street for that condominium interest.

During the quarter, we also added strategically to our Westchester and Connecticut holdings, closing on the acquisitions of properties in White Plains, New York; and Greenwich and Stamford, Connecticut. We continue to see good market dynamics in both the Westchester and Connecticut markets. Heavy investment velocity in those markets continues to generate new owners with much higher [basis-ees] than previous ownership. As in New York, we expect to see these landlords continue to push rents, particularly in Stamford, which should work to our direct benefit.

On the structured finance front, we saw a large increase in our outstandings due to the Reckson portfolio we assumed when we closed our acquisition in January, and also some strategic new originations. These increases were offset by our sale at a premium of a loan originated in connection with our sale of certain assets to RexCorp at the closing of the Reckson deal and additional scheduled redemptions.

It was a busy first quarter of tremendous activity, laying the groundwork to achieve the goals we laid out to you for 2007 at our December investor meeting. I am very confident we are well on the path of meeting or exceeding each of those objectives.

I would also like to acknowledge again the addition of Isaac Zion as Managing Director in the investments group, and the promotion of David Schonbraun to the position of Managing Director, and David Balaj to the position of Senior Vice President in the investments group, as critical parts of the reorganization which Marc outlined earlier. We look forward to these individuals stepping up to their increased roles as we continue to try to execute on all fronts.

With that, I would like to turn the call over to Greg to take you through the numbers.

Great. Thanks, Andrew. Good afternoon, everybody. With the closing of the Reckson acquisition on January 25, the March 31 financial statements provide the first formal view into the transforming nature of this transaction. While the picture is not complete until we finish our 1031 asset sales and fully deploy the proceeds from our recently-completed convertible note offering, the results are indeed very compelling.

We finished the quarter with a combined market capitalization of approximately $15 billion or roughly double where we were just a year ago. Even while doubling in size, our balance sheet remained as strong and liquid as ever. Our combined debt to market capitalization finished the quarter at just 41.8%; and we expect this number to decline further, to around 38%, after giving effect to the pending property sales and the investment of the $500-plus-million of cash on hand at March 31.

In addition to the $500 million of cash on hand, we have no outstandings on our newly-expanded $800 million credit facility, and three properties under hard contract for aggregate sales proceeds of approximately $450 million.

As Marc alluded to, the recycling of our capital into Reckson assets is proceeding with model efficiency. We fully expect to realize all of the receiver capacity available within the Reckson assets.

The benefits of selling assets at cap rates 200 basis points lower than where you have bought assets requires almost no explanation, so long as one remembers that when dealing in cap rates, selling low and buying high is a good thing.

Recycling capital through transactions which are immediately accretive tells only part of this story, since we have been able to substantially upgrade the quality of our portfolio by selling condominium interest in side street and downtown locations in favor of Avenue buildings in irreplaceable Midtown locations. This difference can easily be seen through a review of this year's annual report, which prominently displays the quality of our new acquisitions.

Our higher quality, larger collection of assets has translated into reduced borrowings cost for the Company. The unsecured term facility used to finance the Reckson acquisition carried a spread to LIBOR 30 basis points tighter than the last time we accessed the unsecured bank markets. The refinancing of 485 Lexington at 5.61% interest-only for 10 years further demonstrates lender demand for high-quality credit tenant buildings in the marketplace.

Our increased credit quality coupled with the volatility in restock prices led us to opportunistically tap the convertible note market during the quarter. We have followed this market closely for some time, initially electing to pass on this source of capital when it first became fashionable for REITs, nine to 12 months ago. With a 3% coupon and a 25% conversion premium, our stock needs to appreciate to over $203 per share before the converts become a more expensive source of capital than straight unsecured debt. While private market valuations point to the convert ultimately being more expensive, we could not pass up the opportunity to lock in a 3% coupon in the event that the public markets don't fully reflect the asset repricing that we continue to see in private market transactions.

Other items of note on the balance sheet include the following. The joint ventures at 919 3rd, 680 and 750 Washington, and 100 White Plains Road are consolidated in our Company financial statements as a result of the significant [control] we have over the operations of the properties as defined under EITF 0405. This treatment is consistent with Reckson's previous practice and the reason for the substantial increase in minority interest you see during the first quarter.

Assets held for sale on March 31 consist of 125 Broad Street. During the quarter, we capitalized $4.6 million of interest principally related to One Madison Avenue, 1551 Broadway, and certain Westchester and Connecticut assets acquired from Reckson.

During the quarter, we repurchased 16,000 shares of stock at an average price of $132.48, which will be accounted for under the treasury method. We had orders in to buy much larger blocks of our shares, but these did not get filled; and our focus turned to a number of the acquisitions you have seen announced here today. However, we continue to believe the stock offers an attractive investment opportunity at today's levels.

The increase in other assets you see on the balance sheet includes $40 million for [acquisition] deposits and the $32.5 million investment that we carry in the RSVP entity acquired from Reckson.

Lastly, the increase in investment in joint ventures is primarily related to our investment in One Court Square in Long Island City.

Before leaving the balance sheet I should take a moment to point out that we have made several additions to our supplemental package during this quarter. Most notably, the separate disclosure of the suburban activities on pages 13, 33, 38, and 39. These disclosures are not necessarily provided to highlight the suburban assets, but rather not to dilute the Manhattan story. As Marc mentioned, the suburban assets represent just 7% of our total portfolio.

As always, we welcome any suggestions people want to provide for more meaningful disclosures in our supplemental information.

Turning to the P&L, it was another strong quarter in which we received meaningful contributions from each of our growth engines. Same-store NOI, prior-year acquisitions, the retail program, Gramercy Capital, and strong internally-generated cash flow all made meaningful contributions to our record quarter. Predictably, same-store NOI was strong, reflecting the benefits of the 20-plus-% mark-to-market we achieved throughout 2006.

Wholly-owned assets increased by 7.9% and JVs by 2.4%. Note that the JV results are artificially low because 100 Park is under redevelopment. 1221 results include anticipated declines in occupancy to 94%, which should represent a future opportunity for growth. The JV same-store numbers of course include 1515 Broadway, which had 99% occupancy, and burdened by the effects of straight-line accounting contribute little to the same-store numbers. However, with fully-escalated rents of approximately $51, 1515 represents significant future upside.

While we exclude Reckson assets from our same-store analysis, since we did not own them during 2006, we can report to you that the same-store growth on the Manhattan assets we acquired was a robust 13%, benefiting from strong rental which in many cases exceeded our original underwriting.

We are confident that we will continue to see meaningful same-store NOI growth for the balance of 2007. This confidence is bolstered by the 37% mark-to-market we achieved on leases signed during the first quarter. This increase was broadbased, with meaningful gains at 673 First Avenue, Tower 45, and 1350 Avenue of the Americas.

In the ultimate synergistic move, we closed the Reckson corporate offices at 1350, which previously carried a rent of $53.50; and released it for $94 a square foot. We look forward to having the Reckson assets online for a full quarter and expect that these assets, as well as certain same-store assets, will benefit from the commencement of NOI recognition pending the completion of tenant improvements.

1350, 485, 673 First, and 1372 Broadway include leases where income recognition has been deferred as required under Generally Accepted Accounting Principles.

Similarly, it should be noted that the current period results do not include a FAS 141 adjustment to reflect the Reckson buildings at current market rents. While this adjustment could represent income of up to $15 million annually, we have deferred the adoption of this adjustment as allowed under GAAP, as we let leasing activity be considered as part of the pending estimates and adjustments.

Other income for the quarter included $77.2 million of incentive fee on One Park, as been mentioned a number of times today; and approximately $7.7 million of Gramercy-related fees. While difficult to forecast, incentive fees have and will continue to be meaningful contributors, with promote opportunities still remaining at 1250 Broadway, 1745 Broadway, 1 and 2 Jericho, 521 Fifth, 55 Corporate, One Square, Bellmeade, and of course Gramercy.

Gramercy's earnings for the quarter ended up being slightly down versus the fourth quarter of last year, which we fully anticipated. With the guidance increase that we provided there last week and the successful completion of a $115 million preferred equity raise at Gramercy, one should expect to see increased earnings and fees from Gramercy for the balance of the year.

Lastly, as it relates to other income, it should be noted that the first quarter includes just $950,000 of lease cancellation income. This compares to 2006 where on a much more smaller portfolio we averaged roughly $2.5 million per quarter.

Adding a little bit more detail to the structured finance that Andrew ran through very quickly, of the $448 million that was generated during the quarter, $136 million represented loans that were assumed in connection with the Reckson merger, which yielded approximately 13%. $215 million went towards funding RexCorp acquisition of its asset, $200 million of which was subsequently sold. And $96.4 million of incremental mezzanine investments, which yielded 10.4%.

Additionally, as we sit today, we expect another $100 million of payoffs to occur over the balance of the year.

With respect to G&A, Marc mentioned the $13 million onetime charge related to the nine new employment agreements. The G&A increase also includes roughly $5 million of incremental G&A related to the Reckson personnel that have joined SL Green.

Combined interest for the quarter totaled $79.2 million and includes the costs associated with the early extinguishment of debt that Marc alluded to. We expect interest expense to decline substantially going forward, as we delever with asset sales and substitute 3% fixed-rate convert money for 6.5% floating rate money.

We currently anticipate that by the end of July we will have repaid roughly another $1 billion of debt.

Our guidance of $5.40 represents a 17% increase over 2006, which should once again make us an industry leader in this category. As Marc alluded to, with good visibility into 2007 numbers, we continue to evaluate ways to create value and drive earnings in 2008 and 2009. With that, I would like to turn it back over to Marc for some closing thoughts.

Okay, thank you. That concludes this part of the call. Hopefully we were able to address in advance some of the questions that might surround the results. But there was a lot of things happening in the first quarter.

I assume things will settle down a little bit in the second quarter. But as I say that, I know we have got a lot in the pipeline for Q2 as well. So I guess it is just a question of how you define settle down. We would be happy to take calls at this time, operator. Questions.

(OPERATOR INSTRUCTIONS) John Guinee with Stifel Nicolaus.

Well, congratulations, gentlemen. Greg, how is your role going to change?

Well, I guess if I dial back three years ago, when I came in, I think if we played back the call I said that I hoped to take a finance and accounting group that was actually very, very good and make it maybe a little bit better and more efficient.

That is kind of what I hope to do in my new role and leverage off of what is a tremendous group that is already in place in the form of Steve Durels, Ed Piccinich, and Neil Kessner. Those are guys who a lot of you have not gotten to see, but have been at this Company for a number of years and kind of making it work.

So kind of helping all of us work together just modestly more efficiency would be kind of the ultimate goal. Which as you can guess, with the amount of transaction volume that we consummate here, is challenging at some levels.

Andrew, how about yourself?

You know, I think, just continued leadership of the investment area and overseeing really our investments in Gramercy Capital, obviously, and our growing alternative investment portfolio; and overseeing the suburban portfolio.

Great, thank you.

Ross Nussbaum with Banc of America Securities.

Good afternoon. I just want to touch on a comp question first. I don't know, Greg or Marc, which one of you want to take this. The 2006 LTIP, has that already reached the threshold whereby the $60 million is getting locked in?

You know, surprisingly, Ross, the answer is no. I think that shows you just how much performance it takes to actually achieve these plans. The last 2005 OPP hit its cap at a price of -- I'm going back in time here a little bit -- $97 or $99. It was in that range. $98? It was right in the middle.

Here we are sitting at $140-some-odd, which -- I guess, $40-some-odd on 60 million shares today, if I am doing my math right, is $2.4 billion of value creation since the last plan. With that said, it has not reached its peak. Its peak is still, actually, a fair ways off.

Okay, and the next question is I didn't hear you guys address the Clocktower. There's reports out there that you are looking to sell that. Can you address that one?

Yes. Clocktower is something that -- it is kind of an interesting situation, where as we have the building ready for either condo or hotel development, the investment market has moved ahead with such enthusiasm that the partners -- Ian Schrager, Aby Rosen, myself, and SL Green -- have decided to look to the market and see if we can get a better execution by just selling the building outright in what could be one of those two uses. Or even, frankly, it is possibly an office building, although it is only about 280,000 square feet or so is office.

Our feeling is given where our basis is, we may be able to execute nicely on an outright sale. Given that it is our investment, everyone's relative investments are relatively modest, sort of conserve the time and energy that would go into a full development and wind up with a good outcome nonetheless.

Thanks.

James Feldman with UBS.

Thank you very much. Good afternoon. Am I correct in thinking that the $5.40 revised guidance does not include the FAS 141 adjustment from Reckson?

No, that would include it, just the first quarter did not; but I think, Greg I will let you.

It includes that. If you dial back through the earnings history here, we came out and said in December $5.05 to $5.10. When Reckson closed we upped it by $0.20, which did contemplate the 141 adjustment. So $5.40 would in fact include it.

Okay, that is all baked in. All right. Then in terms of -- can you just address a little bit about long-term supply in Manhattan? It seems like there are more and more. We hear more and more about potential opportunities for developers kind of 2010, 2011.

Well, you know, there -- I wouldn't call it a lot of long-term supply. There is --.

Certainly for '10, '11. I think most of the projects on the drawing board are much longer-term, at least five years out. Certainly the Westside, the far Westside of Manhattan and some of the other sites that I've been talking about in Midtown are more five-year-plus type deliveries.

11 Times Square, which is on the corner of 42nd and 8th is, I think, what at least could conceptually be delivered as the next major million plus square foot office building. If they broke ground now, I presume, that would deliver in 2009-2010. But there are not a lot of sites that are in that in that kind of condition, clearly not in core Midtown.

On the far West side, easier to execute but maybe a little ahead of its time. We are not looking at that inventory as coming online prior to 2010.

So you have really got, in our estimation, three good years of visibility on limited supply. I think the only question is making sure that the economy and the tenant demand holds up; and finding the right balance on rents so Manhattan Midtown doesn't become too expensive, which it has the potential to do.

Okay, thanks. Then finally can you talk about a little bit about pricing in the structured finance business, and just on what you can get for your acquisitions given the subprime market?

You know, that unto itself is a pretty -- we went into a great deal of detail on our Gramercy call. I would say that is a pretty involved question. I would say to you, in summary, the spreads in the financing market where we and Gramercy finance our positions, the CDO market and to a lesser extent, the CMBS market, spreads have widened out. Not as catastrophically or as materially as you would think, given all the bad news you see on TV and subprime and other asset-backed areas, but clearly, as it relates to commercial real estate, CRE CDOs, you know, spreads on AAA's may be back 15 basis points on so -- that is wider on BBB's and below.

So we do expect to see a widening of credit spreads. Gramercy is -- reported that they will be adjusting their spreads in light of that. But I would say those adjustments at the current time I think will be modest. Unless there are actually credit losses in some of these funding sources, you are not going to see widening much beyond that.

If there are credit losses then that is a different story. But right now, the default rates on both CRE CDOs and CMBS is still negligible.

Thank you very much.

Kristin Brown with Deutsche Bank.

Good afternoon. I just wanted to ask about tenants renewing. How far in advance are tenants renewing?

There is really no limitation, to tell you the truth. There's always those tenants that wait till the last-minute and find themselves confronted with very difficult choices. We are actively out there discussing with tenants. Typically, 18 months out is sort of our sweet spot where we encourage tenants to get in a room and try and lock down a renewal.

But you know, I've got a number of deals in the pipeline with leases that are two and three years out, that we're doing what we refer to as blend and extends, where we average in their in-place rent together with the current market rent, and bring it to a new rent level today.

So it depends on where the market -- it depends on where the tenants' attitude is towards the management of their business and their perception of where the market goes. But right now, we are very active with tenants 12 to 18 months out.

Also, in terms of TIs for office renewals, this quarter they are up quite a bit. So I just wanted to get some color on that as well.

Yes, I think it is just a function of what leases you're signing kind of quarter-to-quarter. You did have a number of high-profile deals that were done on 6th Avenue buildings, with Hess and 1185, and Garrison Capital, and Highbridge at 1350. So 10-year deals with rents averaging in 1350 north of 90; and 1185 kind of north of 75. So you're going to expect as we talked about on deals like that, to be paying $40 or $50.

We also did a long-term deal over at 673 First Avenue to take up some space that had been one of our tougher spaces to lease historically. So that actually probably contributed to an uptick there during the quarter.

Okay, thank you.

Michael Bilerman with Citigroup.

Good afternoon. Just a question on the dispositions and the acquisitions. I think, Andrew, you mentioned the sales were done well south of a 4% cap on that $1.1 billion. What would be the in-place cash and GAAP yields on the $1.3 billion of acquisitions? Where do you see that sort of stabilizing two to three years out?

(inaudible) go through each one.

We don't have the average, Mike, we are just saying we almost have to look back at each one individually.

The ones -- 1745 I talked about as a 4% cap rate. 333 West 34th Street is a high 4s, 4.75% to 5% going-in on Citibank's leaseback. I mentioned Jericho was a 6% going-in cap rate.

The development site would have been very low I think on (multiple speakers).

The development site, given really it was bought for the air rights and the massing, is like a 3.5% going-in cap rate on that investment. So I think, we expect all those buildings to stabilize in the high 6s to low to mid 7% stabilized cash on cost range.

Then from a GAAP perspective, it is likely when you blend it all together you're probably somewhere north of a 5%, 5.5% on that capital. And from a cash it sounds like it probably blends out to 4% to 4.5%. Is that fair?

It sounds a little bit low. I think the comparison really is more because those -- the sold assets are really being redeployed into the Reckson assets. So you do -- you kind of got to go property by property. Because there are in a lot of instances small amounts of equity that are invested, where you're going to get big promote structures to drive the ROE.

So I wouldn't say that the billion dollars of sales that you heard about today are being deployed into the billion dollars of acquisitions. The billion dollars of sales that you heard about today are really being deployed into Reckson, because the equity component that went into the acquisitions today is kind of decidedly smaller than you have seen on some of our historical acquisitions.

Okay. Greg, maybe just sticking with you, can you go through some of the components that build up to the $5.40 guidance? Maybe in terms of G&A, other income, the investment income, and maybe some of these charges. I think, Marc had mentioned that maybe there would be more finance charges. Just so that we can grasp what the magnitude of some of the more volatile numbers are.

Well, I think, on the upside, you know, I kind of tried to go through that. In talking about some of the assets where you have uptick kind of on their way, where you haven't had income beginning to be recognized. I think you're going to see substantial amounts of accretion, obviously, from the floating-rate debt being paid down.

Then kind of short of what we discussed today, I'd reference back to kind of the building blocks from the December meeting that we went through. So we did talk about -- we did talk about possibly modifying some of the leasehold positions to create long-term value which might have some short-term dilutive effects.

We talked about possibly seeing downtime at 100 Park and at 521 5th, as we let the market move in our direction on those assets. I think that those are kind of the -- I think those are the significant moving parts that go into the $5.40.

John Stewart with Credit Suisse.

Thank you. Marc, can you speak to the development site at 331 Madison? Development has not traditionally been a hallmark of SL Green. Can you give us a sense for the plan? Would you bring in a partner? What sort of timing should we be thinking about?

You know, as it relates to 331, our primary goal was in creating the value. That value can be created whether you develop or not develop that. That was basically a function of assembling a site that can handle up to about a 900,000 square foot development in a part of the world we think is probably one of the most attractive places to do it right now, out of all the development sites that are out there.

The reality is, 317 is fully tenanted. So to make it a this-cycle development you would have to aggressively go in there and dramatically change the leasing and try to -- it would be, I think, more costly to accelerate the plan.

Our current strategy is going to be to try to line things up towards a successful development as part of kind of a next cycle. But given that the market is so tight today and values for this development site would be so much today, we may try and monetize some of that value today with an eyes towards a next-cycle development.

So whether we did that in whole, or in part, as a JV structure, that we will have to wait-and-see. I don't think we are going to sit and do nothing with it, because the value has been created to a large extent. I think we would be very good at executing it, certainly, being able to get this to a clear site in the foreseeable future.

Then, who undertakes the development and how -- we are open to and, frankly, since it is not something we view as kind of an urgent top-priority matter for this year, I think we are going to weigh our options and see where we can sort of squeeze the most value out of it in the near term. But do sort of a sensible development over the balance of this cycle and next cycle.

Okay. Greg, can you give us any granularity on the G&A charge? Was that all a onetime stock grant divvied out between the nine employees? Or how does that break out?

Then along those lines, are there any changes to the change of control clauses with the existing employees?

Yes, I would say, the preponderance of the $13 million charge relates to -- it is restricted stock related. There are some retroactive treatments of salaries and some deemed dividends with respect to the awards that kind of round out. But the lion's share of it is stock-related.

And the change in control?

On the COC, we have put into place on each one of these contracts conforming COC provisions, which I think as you read through them, you will see are fairly standard. [Mark-to-market] COC provisions with bearing multiples based on position, but in all other respects seem to be in line with what the market is today for these kinds of change in control terms.

Everyone has been put essentially under the exact same definition. So no one is -- there is no difference in treatment. It is fully detailed disclosure in the proxy, so you can read exactly how it works. But our conclusion was it was sort of down the middle of market.

Okay, thank you.

Tony Paolone with JPMorgan.

Thank you. Greg, can you give us as to what the pickup in 2Q is in NOI, as you get the full impact of Reckson?

What the full impact is? You know, it would be tough at this point to do it on a per-share basis. I will tell you a couple of the wild-cards are when the tenant improvement work is going to be finished over at 1350. So when can we start recognizing that income? I think, on two of the bigger leases, it is kind of scheduled to be done in May. So kind of mid quarter.

I think if you look back at the original guidance that we gave you, back in July -- in August, and again in December, if you use those yields, those cash yields as a proxy with probably a little uptick to them, because we are kind of ahead of schedule; and with an eye towards with probably no 141 again in the second quarter; that should give you kind of an indication of what the quarter would look like, with a correction in there for all three months.

Okay. I thought the 144 [on] 141 just to clarify from I think there was a question earlier. I thought it is in the numbers for '07, just not in --?

It is included in the $5.40 guidance, but there is nothing and our first-quarter numbers related to it.

Or second quarter, as you just mentioned?

Probably not the second quarter.

Okay.

I unfortunately don't have full discretion over when we end up having to book it. So. But your best guess now is nothing in the second quarter.

Okay. Then just my other question. Not to beat this to death, but just in your $5.40 guidance, what is the G&A for the year that you have in there, total?

You know, I think if you take this quarter and back out the $13 million onetime charge, that that is a -- [typically] a $21 million I think is a reasonable run rate to assume. Again, we have Gramercy as an entity that continues to grow rapidly; and that of course runs through our G&A. So we need to watch what happens there.

Although again, any increase there, you would see a corresponding or higher increase in fees. But to use $21 million, I think, is a good estimate.

Okay, thanks.

Jordan Sadler with KeyBanc Capital Markets.

Good afternoon. Thanks. In your commentary, you discussed the Northern and Eastern suburbs of Manhattan being poised for gains. it sounded like. We saw significant mark-to-market during the quarter, plus 11%, which was stronger than I had anticipated, at least.

First, what are your expectations for leasing and mark-to-market in the suburban portfolio?

Second, how do you view the growth potential in downtown Manhattan versus the suburbs?

Just to make sure I understand the question. What is our view of growth prospects in suburban rents?

Yes, what are your leasing expectations in the suburban portfolio? So volume, and rent, and mark-to-market?

Well, let's start with mark-to-market. I think that we are hoping to achieve between 7% to 10% mark-to-market for the balance of this year. But the volumes are not as heavy as they are in Manhattan, so you may get skewing one way or the other based on just whatever individually expires and renews in a particular quarter. The portfolio is not that large.

But Stamford, I think there is a prevailing view that Class A rents are going to be in sort of the mid 40s; and our rents in Stamford for a lot of Class A product and B-plus products are mid --

Mid to high 30s.

Mid to high 30s, so that would even be more than 10% growth. But I think that is yet to be seen. We're taking a little bit more cautious view. But I think a mid to high 30 numbers approaching $40 is completely achievable in Stamford.

In terms of Westchester, you know, that is going to be a little bit, I would say, probably not as strong as Stamford. But if we could have positives mark-to-market even in the 5% range given our basis, which we don't feel we have a very high basis in Westchester, we think we will do fine.

I think we're also going to look to selectively prune down Westchester, as I think I mentioned in my discussion. So that will become less relevant over time as we look to probably build up Southern Connecticut exposure.

Okay. Then is there an occupancy target on that portfolio for year-end?

Not that -- I would have to look.

We obviously have budgets for the portfolio. I don't think there's an occupancy target per se. But I think it is pretty much maintaining the existing occupancy, which is overall I think about 90%.

I would not look for significant occupancy gains. But I do think you're going to see rental gains.

I guess, my other question was just in terms of opportunity. How do you sort of weigh the opportunities? I know you sold 125 Broad downtown, which arguably there may or may not have had good growth opportunities in terms of in-place rents versus the mark-to-market, versus buying suburban assets?

Well, you can't. The answer is -- I don't even think it is a question. There is a lot more embedded growth in the 125 Broad asset because we sold it with like a $40 in-place; and I think the embedded rents might be $50 or higher. So there is no question that there may be doubled the embedded growth downtown.

But you have to weigh that against the cap rate. That was sold at a sub-4 cap, and we're buying suburban product, as Andrew said earlier, north of in some cases 5% caps. 5% to 6% in the case of Jericho.

So it is really a question of not where you go in but where you end up. We think targeted IRRs in the suburbs are 100 to 150 basis points higher than where we are seeing buildings trade in Manhattan. You know, Downtown may be 150 wide -- I'm sorry, Midtown maybe 150 wide and Downtown may be 100 wide.

But that is a lot. To take an unlevered return 150 basis points wide and then lever it 2-to-1, 3-to-1, and then you put fees and promotion on top of that, that is a big difference.

So there is less growth that we're projecting in the suburbs, but that does not mean there is going to be less IRR in the suburbs. I still think when you're looking at the metric of do you want to buy downtown or suburbs, I think it is just a question of opportunistically where you are presented with the better deal. Even though the markets are, I think, sufficiently different in terms of their supply and demand characteristics.

As Greg said as well, 125 Broad was really redeployed into the Reckson transaction, the Reckson Manhattan assets, so it was not a valuation of selling Downtown Manhattan and reinvesting it into the suburbs. It was selling 125 Broad and reinvesting it into the Reckson Manhattan assets.

So that is kind of our view on how we are evaluating the suburban markets and how Downtown plays into that. If we find good deals Downtown, we will be right back in. There is no question there. We think it is a reasonably good alternative to Midtown. But you have got to weight it against the price of Downtown, which is -- the market has corrected down there and you have to pick through the opportunities to find the right one, just the same as you would in midtown or in the suburbs.

David Toti with Lehman Brothers.

Hi, can you tell us, is your decision to market One Madison any kind of comment on the conditions of the residential market in Manhattan?

No. I mean, if anything it is more of a commentary on what we perceive as return on effort. I don't know; that is a new ROE definition. Which I think our investment in One Madison is on the order of magnitude of $10 million. And we are making just lots and lots of money right now doing what we do, buying, selling, redeveloping. Much shorter time frames. Much less effort involved.

That particular transaction was split amongst four entities, the three I mentioned earlier. Credit Suisse has an economic interest in there as well. I think from everyone's perspective it just became a question of -- if we can sell it in the current state, given the value-added we have all put into it at this point, and get an acceptable resolution, it was better to go down that path than go through the completion of a development and sellout process for incrementally more dollars.

We will have to see what the market response is, to see if that is the right decision or not. So we are not saying it is a complete about-face. But you clearly have to weigh, I think, all the alternatives before embarking on a development which right now could swing anywhere in the direction of office, hotel, or resi. And given the increasing construction costs took a reasonable bite out of potential profits -- that we view a sale as potentially superior to a buildout relative to the effort.

Great. Then lastly, have you seen any change in space demand, especially with regard to financial services-related firms, since the subprime issues came to light?

I don't think we have seen a -- if anything, I would say the demand in Q1 was as good or better than Q4. Steve, would you --?

Yes, there is no doubt. We have seen good demand not only from financial services continuing, but really across the board on all industries. There is a lot of rhetoric out there, people saying that deals have slowed down. But I can tell you, having just closed 150,000 square feet of deals in the past week, I am a little biased, because there is plenty of activity in our portfolio. Where we have space in good buildings, I have got a number of tenants competing for the same space.

So maybe the sense of competition isn't there the way it was the first quarter. But there is supply constraint today that the market didn't see three or four months ago. And there's still plenty of deals out there, and across all industries.

Great. Thank you.

Jay Habermann with Goldman Sachs.

Good afternoon. I guess a question for Marc. You mentioned at the outset your comment on the asset sales. I'm just wondering now what you're projecting on a full-year basis. What is embedded in your guidance?

Well, now that we have maxed out the Reckson shelter through the nine asset sales -- and by the way, those nine were designated by us in July of '06. So it feels pretty good nine or ten months later to have actually executed; executed above our pro forma; and being able to tuck away all that gain tax-free was no small feat.

We expect to conclude that with the marketing and eventual sale of 1372 Broadway in the next month or two. Then, I think we are going to take a little bit of a breather and see to what extent we want to do second-half sales. Again, I think we might look to Westchester for one or two opportunities to recycle some cap capital in that suburban portfolio.

So that is not a lot of volume but you may see $50 million to $100 million up there. Probably closer to $50 million given the asset sizes of what we would consider noncore, because a lot of what is up there is very good core property.

I think it is completely possible you'll see one or two more Manhattan sales in the second half of the year. But that would really be dependent on new external activity. I don't think you would see us be a net seller at this moment if we didn't have a place to recycle that gain. Because frankly, the portfolio we are left with at this time is a very high-quality portfolio with a lot of built-in rental growth and same-store growth. We are not going to want to part with that too easily unless we feel we are getting something back in return.

Right. In your comments, as well, you sort of said hedging for a downturn or downturn in the cycle. But you obviously aren't seeing that at this point.

No, we are certainly not seeing that on the leasing side. Steve Durels just spoke to that. We are not seeing it on the investment side; although a widening of spreads that we talked about earlier clearly ought to have some impact on cap rates. But it seems that anything that ought to have an impact just doesn't.

And cap rates, if not have gotten tighter, certainly at least stabilized in the 3% to 4% range, which is extremely low. So the answer is, preparing for the unknown, but not seeing any signs of deterioration at the moment.

Okay. I know this question was asked before in the context of the subprime, but the financial service companies, I know recently we had a major company announced it is moving employees out of New York City. Are you seeing any of that sort of cost-cutting going on with other tenants?

I don't know that it is related to subprime. I think as I stated this on the last call, as rents hurdle the $100 a foot range, I think there is the potential for pushback from certain tenants. Now whether that is $110, $120, $130, or $140, I guess the market hasn't tested that yet.

But we all know it is not limitless, firms' ability to absorb these increases. I would say but for one or two isolated instances, mostly downtown, haven't really seen too much leaving the market entirely. Citigroup announced --.

Yes I was going to say, the Citigroup building we just bought is the result of them consolidating those people out of Manhattan.

Yes, to some extent. That is probably the most notable. But I don't think that has -- hard to speak for Citigroup. I am not sure that has anything to do with subprime. I think that is part of the bigger corporate agenda that they have. But we are guessing on that.

We may likely be the beneficiary because they are very fond of the One Court asset that we own over at Long Island City. Some of the stuff that they may consider to be moving out would be headed over there.

Right, and $30 to $40 rents in Westchester and Stamford we think will look pretty good as an alternative. We did that somewhat speculatively as part of the Reckson transaction, but I would say more and more now that looks like something we could try to execute on.

Chris Haley with Wachovia.

Good afternoon and thanks for taking so much time. Tremendous performance. Two questions. First, just the suburban versus urban comment. I was glad to hear your referencing to the IRR return differences. I was interested in kind of the strategy.

Your predecessor in these assets Reckson had talked about the tenant retention, the knowledge of being able to move tenants between the suburbs and the Manhattan locales, and being more in tune with the overall metro area. Another position, the way that we viewed and maybe the way it was described by SL Green for the investment, was more optionality and more investment return.

When you look out over the next couple years, how do you look at this, these suburban investments from today? How do you look at them in terms of whether they are investments and/or they help your portfolio in terms of a tenant retention or leasing position?

Well, I would say first and foremost, we think that Reckson did a good job of keeping them leased. It's good fiscal product. I think, because we are buying them at a low basis and the right time in the cycle, we are going to squeeze a lot more performance out of these assets under our collective stewardship. I think we are going to streamline the operations. You saw that with significant overhead savings from combining the two platforms.

I think step one is to drive these NOIs up to a level that we think is more of reflective of today's market, before we think about doing anything strategic in terms of hold, recap, or sell.

Then secondarily, I think sort of strategically shifting more of that exposure into certain of the Fairfield County, Southern Connecticut markets, where we simply see more mark-to-market, makes sense. Especially if we can fund that business by selling certain noncore New York and Westchester assets at extraordinarily low cap rates, it can make that business very profitable.

The last piece of your question, Chris, about whether we think we're going to be successful in funneling tenants from New York to the suburbs and vice versa, I think we will have a better shot at that than Reckson did. Because we have 10 or 11 million square feet in Grand Central, and they didn't; and really the Grand Central submarket is the most obvious for that kind of synergy.

With that said, in the first two and a half months of ownership, we haven't done that. I can also tell you we haven't had the time to really market that concept sufficiently. We are planning -- and I was speaking to Steve about this yesterday, anticipating the question -- we are working on a whole series of reach out to our tenants, marketing campaigns. in the buildings where rents are going to be sufficiently large that we think maybe we can get some back office movement out into the suburbs.

So to me it is kind of third on the list of three. But I would put the first two at a much higher emphasis for us. Squeeze a lot more performance out of the existing portfolio, recycle from lesser to greater properties in the higher-growth area, and then try and get that tenant synergy.

Just as a case in point, tenants who we have in New York who have crossover representation in the suburbs, I am looking right now. There's a number -- it is more than I thought, actually about 10 of the big tenants like Pitney Bowes, Citigroup, Verizon, Morgan Stanley, and others, who have big presences up in Connecticut and Westchester, where we are going to leverage our relationships in New York. So you know -- but again, that is 10 good leads; but it's only 10. (inaudible)

And with Stamford benefiting dramatically from financial services, and financial services representing 35% of our existing revenue base, there ought to be some synergies there.

Last question is for Greg. Could you give us a sense for how you look at your leverage position, leverage pieces, at year-end 2007?

Leverage pieces? Do you mean the Company's overall book of leverage? Or do you mean the structured finance investments?

More so the SL Green corporate.

Yes, I think when the dust settles, we're going to end up at roughly a 38% debt to total market cap. I would view that as being very, very modestly levered and dramatically inside of where the rest of the industry operates.

I just view that as being a very good thing and giving us maximum flexibility and being ready for the next opportunity. I think that is where you want to be when you see cap rates 200 to 300 basis points inside of debt rates. I think that is a good place to be positioned and provides us with maximum flexibility.

Because as we have stated before, we would be comfortable operating at up to 50%. We obviously have a number of unlevered trophy buildings that we could finance very, very efficiently should we choose.

Yes, 38% as a denominator in that, is at a function of what share price?

Is one-thirty-seven. So at the end of the quarter, which I guess, at 675, 650 to 675 a food, some would say is on a mark-to-market is arguably even lower than that.

Operator, I would ask that we take the last question at this time. We are about an hour and a half into the call, so we have time for one more question. Then if there are others, obviously, we can try to take those in a separate venue.

Michael Knott with Green Street Advisors.

Thanks for taking the time. My two questions. Marc, just to clarify the nine buildings that you talked about, that reaches back into '06, the 286, 290 Madison, 1140?

That's right.

Then also maybe one more, 1372 Broadway?

Accurate.

Okay. Then the last question is, how do you guys think about when you're allocating capital the share repurchase program that you have in place now, versus other acquisition opportunities that can be equally compelling? Just curious how you think about that conceptually.

Well, I think that when you look at the initial purchases that we executed through the share repurchase program, they were done opportunistically. Because our feeling was -- and I guess that bore out -- that there would be some dislocation in the stock price as a result of the convert offering, which had no real bearing or relevance to where the stock is trading, or should have been trading on a current basis.

So whether we were right or wrong, clearly we bought some shares in at 132. The stock is back well north of that. So that worked out. Our only problem was we could not get enough at that level.

We now know what it feels like to be in our investors' position, who want to acquire a position. It is not so easy.

I mean on a longer-term goal for us, we have always said to people who have asked, would you buy your stock back? We have always had absolutely if we thought it was the best use of funds at the time.

As you can see from this quarter's activity, we think there is a lot of very good, very profitable business to be done externally. So that is where we are going to channel most of that convert business to.

But clearly, when we think there are disconnects in the market -- not really just looking to buy the stock cheap to NAV, because we don't really view that as fundamentally our lead business as it is to create value. (multiple speakers) making the returns we're making. But where we just to see pure dislocations that we think are aberrations of the market, we wanted to have a plan in place to act quickly and decisively. And now we do.

Okay, thanks a lot.

Thank you, everyone, for hanging in there, for those of you that are still on and listening to the questions. We appreciate the questions, and look forward to speaking to you again next quarter.

Ladies and gentlemen, this concludes your presentation. You may now disconnect. Have a great day.