SL Green Realty Corp (SLG) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen. My name is Kim and I'll be your coordinator for the day. At this time all participants are in a listen only mode. We will conduct a question-and-answer session at the end of today's conference. (Operator Instructions). As a reminder, this call is being recorded. I will now turn the call over to your host for today's conference, Miss Heidi Gillette.

Thank you, everybody for joining us and welcome to SL Green Realty Corp's first quarter 2012 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 appear in the MD&A section of the Company's Form 10-K and other reports filed by the Company with the Securities and Exchange Commission.

Also during today's conference call, the Company may discuss non-GAAP financial measures as defined by SEC regulation G. The GAAP financial measure most directly comparable to each non-GAAP financial measure discussed in the reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP measure can be found on the Company's website at www.slgreen.com by selecting the press release regarding the Company's first quarter earnings.

Before turning the call over to Marc Holliday, Chief Executive Officer of SL Green Realty Corp, for 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.

Thank you, Heidi and welcome everyone to our earnings call today. Thank you for joining us. Normally our Q1 is not quite as robust as what we have presented to you today. I'm sure we have a lot of ground we will cover, both in some prepared remarks and our Q&A, but I would just like to focus in first on 1515 Broadway transaction that we announced last night. This was certainly what I believe to be a milestone event for this Company. Lease extension was one of our top overall strategic priorities and having that behind us now affords us great flexibility and opportunity going forward that we will certainly utilize to our advantage.

I have heard a lot of street commentary about eliminating overhang and de-risking the rent roll, but this transaction, in my mind, has a much more profound effect than simply mitigating a future lease roll. We were completely focused on value creation and stabilization of one of our premiere asset holdings throughout this transaction. Ultimately our focus was on term, 15 years of term. Not another 5 or even 10-year extension, which doesn't carry the same weight in the capital markets, but now with a 15-year extension beyond the 3 years remaining on the original lease, this asset in our minds now moves into elite core status in Manhattan.

With an $80 million near-term NOI and applying a 5% cap rate, which I would believe to be conservative in this market, the result would be an asset value worth approximately $1.6 billion based on just those metrics. But that's only half the story, as this now extremely valuable office tower sits on top of an extraordinary retail pedestal which will provide for future rental growth and signage opportunities to further drive NOI. I want to thank Viacom's leadership and for having the confidence in us to make this additional 15-year commitment and I especially want to thank our team that worked literally and exactly 24/7 during a very compressed period of time to structure, negotiate and finalize the very large and complicated lease transaction. In fact, over 25 SL Green professionals covering every discipline of this firm, were dedicated to this project over the last few weeks 100% of their time. I say without hesitation that the completion of this transaction was the proudest moment during my 14-year tenure at this Company.

Not to be overshadowed by the Viacom deal, I would also like to highlight the Random House lease renewal which unto itself, tips the scales as one of the largest lease transactions in New York City in the past six months. The deal with Random House was truly one of those win-win situations where by Random House will be able to right size their space needs and achieve densification, while remaining in their world class headquarter building at 1745 Broadway. For us, the lease extension allowed us to put away for term the base of the building while maintaining the opportunity to lease the upper half of the building in 2018 and achieve the then market rents. I'll have some more commentary later on before Q&A, but right now let me just turn it over to Andrew.

Thanks, Marc. On the investment sales side, I would characterize the Midtown Manhattan market right now as a standoff between buyers and sellers where there's tons of capital interested in looking for deals and sellers whose expectations are high given their view of the higher rents and tightening cap rates are on the horizon. That dynamic is contributing to a slow quarter of activity for core Midtown property. However, consistent with the leasing market which is very hot in the Midtown south and Soho areas, we have seen a big pick up in sales activity in those areas including our own sales of 141 Fifth Avenue and 379 West Broadway which we announced yesterday at a sub 5% cap rate in each case. Also of note, 148 Lafayette, a building with no real retail traded for about $850 a foot. That's on Lafayette, just a block north of Canal, not an area known for premium per foot valuation. There's a lot of investor interest in Midtown south and these surrounding areas corresponding with tightening vacancy and a lot of lease activity.

In terms of our structured finance business, we continue to be very active with net originations of around $70.5 million in the quarter at an average rate of 8.7%, which is skewed somewhat because the largest origination of the quarter was a bridge first mortgage position, which obviously doesn't carry a mezzanine type rate. We anticipate selling an A note in that mortgage position as we have done in other mortgage positions, and being left with a retained yield in the low teens which is more consistent with our targets for the program. We continue to see good opportunities on the structure finance side. Although more capital is coming into that space and competing with us, we are relying on our superior origination teams to continue sourcing good product and I would say our pipeline for the second quarter is looking very strong right now in the structure finance business.

On the financing side, our big activity in the quarter was closing the 1515 financing, which actually predated the lease with Viacom, although we built in certain pre-approvals that gave us flexibility to do a lease like the one we did with Viacom. This was a major balance sheet deal by Bank of China who is our -- has been our strongest lending partner over the past 24 to 36 months, seven-year term deal on this asset, giving us great pre-payment flexibility, the ability to swap or keep it as a LIBOR floater and a lot of other unique features that a balance sheet lender brings to the table. We thank again, Bank of China, for their confidence in us and we appreciate the relationship and the amount of business we have been able to do with them. With that, I'd like to turn it over to Jim.

Thanks, Andrew. We've been reporting, over the last number of quarters, a large volume of investment activity as we have taken advantage of really a unique market circumstance, and we've also said in the past that we have access to liquidity that few other companies do and this quarter was no different as we, in the face of all that investment activity, we ended the quarter and today are sitting with more than $1 billion of immediately available funds. Again, demonstrating that access came in a number of ways. During the quarter we had over $1.1 billion of mortgage executions to partially finance our acquisition activity and that included the $775 million mortgage on 1515 Broadway that Andrew just mentioned. We also supplemented that with about $650 million of asset sales that included 292 Madison retail condos at 141 Fifth and the in contract sales of 379 West Broadway and 1 Court Square. We finally, and I'll say prudently, tapped the common equity markets through our ATM and DRIP programs for about $280 million.

Using those programs, we achieved an average selling price of $77 a share in comparison to our volume weighted average price during the quarter of about $75. We executed a sales price of about 3% above the volume weighted average price for the quarter, which is a good metric to use as an example of the success we have had and I'll say also with very little offering expenses. The way we have entered the equity market I think has been very intelligent and also very efficient for our shareholders. With that, I'll turn it over to Matt for some comments.

Thanks, Jim. While our earnings results would seem to pale in comparison to the other news we put out over the last 24 hours, there are a couple of meaningful things to take away from the very solid results we posted for many expected to be a ho hum first quarter. Overall our results were in line with or slightly ahead of our expectations, most notably our same-store portfolio, which grew by seven properties in the first quarter, posted strong cash NOI growth year over year of 6.2%. The substantial improvement in this metric, which excludes the accounting noise of straight line rents and FAS 141 adjustments, continues to be due in large part to our leasing efforts which has driven occupancy increases in the same store portfolio for six quarters in a row.

100 Church Street now stands at nearly 82% occupancy and we have increased occupancy at core holdings like Tower 45 and 1315 Avenue of the Americas. Along with leasing, containment of our variable operating costs continues to be a focus of our property management teams and only serves to enhance the portfolio's performance. Of note, these positive same-store results also come in spite of the inclusion of 125 Park and the same store pool during the first quarter. Recall that we acquired this property in 2010 with the expectation that the 143,000 square feet occupied by Meredith would be vacated at the end of 2011. Their leaving took the occupancy of the property down to 70% from 94%. While we were able to temporarily fill some of this vacant space with employees from YNR as they await their to 3 Columbus, this did not offset all the loss Meredith income in the first quarter.

We also saw continued income expansion in our debt and preferred equity portfolio. With opportunities for new investment continuing to present themselves, our portfolio is now grown to just under $1 billion on a book basis with a very healthy average yield of around 9.7%, up from just over 8.25% at December 31. Finally, significant one timers were virtually non-existent in the first quarter. Within other income, along with the recurring income generated from third party management fees, leasing commissions and lease cancellation income, we recognized approximately $2 million in other ancillary fees. With regard to our 2012 guidance, our activity in just the first four months of 2012 has been brisk, including new investment activity, the issuance of $280 million of common equity, the refinancing of 1515 Broadway and an incredible amount of leasing. Taken as a whole with the strong performance of our core portfolio, we are raising our FFO guidance range from $4.45 to $4.55 per share to $4.50 to $4.60 per share for 2012.

Turning to FAD among the other activity, we need to take into consideration some of the capital we have committed for the Viacom deal. All of which is considered second generation capital, was obviously not contemplated in our original guidance. As such we are advising our FAD guidance from $2.70 to 2.80 per share to $2.50 to $2.60 per share. Given the magnitude and importance of this lease, this is some of the best capital the Company will put to work in 2012. With that, I'll turn it back over to Marc.

A few final comments, then we will open it up for Q&A. First, as to the overall health of the New York City economy and leasing market, I would say that things from our perspective seem to be relatively on track and consistent with our expectations and our communications to the market back in December. Job growth continues to occur in areas like professional services, media, information and technology, and those jobs are offset in part, but not completely, by continuing but very modest job losses in the finance sector. This market back drop enabled us to achieve our goals for Q1 as it related to increases in occupancy and mark-to-market rental increases on rollover. Furthermore, as it relates to where our balance sheet stands, you heard Jim talk about our equity funding program that we have been executing throughout much or all of 2011 and 2012, combined with our asset sale program, which has allowed us to maintain a debt to total asset level of around 45%, which has been fairly consistent. While debt to EBITDA is hovering somewhere in the 8.5 times range, that is before factoring in approximately a $1 per share of FFO that we are projecting to realize from our transitional and recently acquired vacancy, which realization we expect to occur largely over the balance of this year, '13 and '14 and with all of it being realized by 2015.

Notably, very proud of the fact that our current outstanding on the line of credit is $200 million and we pro forma that to be zero as we progress into the year. I think that is another notable milestone, if you will, one that we always believed and felt was a completely manageable, outstanding and I think we did a very good job of, over the past several years, in chipping away strategically through asset sales, equity raises, term financings and strategically but prudently reducing that line of credit to pro forma zero by the end of this year. Likely before and I guess to top everything off, to be doing all this activity which is, in our mind, storing these chestnuts for future growth that will be realized largely in the future years and doing a significant amount of equitizing, both through asset sales and equity raising, to be able to sit here today and raise our FFO guidance in light of all that, I think is a testament to the great work of all the employees of this firm. We hope our shareholders are as excited about that as we are. With that, I'd like to wrap this up and open up the phone now for some questions and answers.

(Operator Instructions) Alex Goldfarb, Sandler O'Neill.

On the Viacom deal, was there something that prompted the whole -- the rush to get it done now, given that I think the lease was through 2015? Was it the fear of them being courted by a developer to build whether -- Hudson Yards or something like that where they might relocate, or what drove the rush to get it done right now?

I wouldn't use terms like fear and rush. I would say that it was just time, and with a firm like Viacom, this was a very deliberate decision on their part. I think they had been evaluating their options for well over a year, if not years. But I think they are the type of firm who has a little bit of cultural similarity to us -- when the evaluation is done and the decision is made, there's no reason to belabor extensive time-consuming negotiations and wasted resources.

They knew what they wanted, we knew what we needed, and we've had a 10-year relationship with this firm at the highest levels, and we were able to, I would say, quickly and efficiently knock out a deal which I think, I would hope you would agree is somewhat consistent with our pedigree. I think Viacom, being a leading company in the media sector as well as a terrific M&A shop and as well as with very deep financial capabilities, I just think you had two firms who don't believe in dragging out what's inevitable once the decision is made to move forward. Fear and rush, I think is a little bit of a misnomer. I would just say it was time to get it done, and now it's time for each firm to get on to other things because we each have big agendas.

Second question is -- on the leasing front, speaking to brokers, hearing about, let's say, Microsoft looking in Midtown. As you guys see the tech and social media boom, especially emanating from Midtown south, are you seeing those tenants seriously consider expanding or relocating into Midtown, or is your sense that most of those people are just using the Midtown look-around to try and re-trade to get a deal in Midtown south or Chelsea or one of those submarkets?

Well, you got to remember that the Midtown south, Chelsea market is actually a pretty small market. There's no choice but those industries are only going to be able to find good space alternatives in Midtown, as much as we'd all like to own more product in Midtown south -- cool neighborhood, but it's too small to handle a very large industry.

John Guinee, Stifel Nicolaus.

Some back-of-the-envelope numbers, which I'm sure are very rough and very incorrect on Viacom, 1.75 million square foot building, $80 million of NOI, I think you mentioned is about $45, $46 net, you come up with a value of $1.6 billion, $900 a foot. Can you just give a little more color in terms of what the rental rates are on the office side of the equation, what the rental rates are on the retail side of the equation, and how you come up with $80 million of NOI -- peel back the onion, more out of curiosity than anything else?

I don't know that we can componentize the entire $80 million on the phone, although we are going to be putting up a little bit of a -- what I think what is called a micro site after this call, which is going to show quite exactly the NOI growth of this project from -- I think at inception about $35 million to $40 million when acquired in 2002, which we have doubled to, I think, what is $78 million for 2012. We have some further bumps and escalation projected out into the future with that $80 million number that I quoted you earlier being at stabilization, as opposed to today because there's still some more bumps and other movement that will get that $78 million-point-something up to $80 million or more. With that said, I would encourage everyone -- at the end, Heidi will give some guidance as to how people can access that micro site and when it will be available, but certainly later today.

As it relates to what you call the mystery of the economics, we will try and demystify because it's very simple and basic terms, the rent -- the total annual rent that Viacom will be paying is roughly equivalent or very similar to what they are currently paying today with $5 bumps every five years during their extension term. That is roughly the economics of the office tower. The balance is from retail. Maybe Andrew can shed a little more detail on the retail than I can offhand.

In terms of componentizing the NOI, I'm not sure how much aggregate NOI comes from the retail, but the retail is the -- the AEG Best Buy Theater, the Minskoff Nederlander Theatre where the Lion King is running, the Aeropostale Flagship store, Viacom did renew their studio commitment for the 15 years through 2031 as part of the broader lease discussion. And then we have three stores -- Billabong, Element and Oakley. Oakley is long-term lease, Billabong and Element are nearer-term expirations. There is some additional retail upside in the asset, and retail is a significant contributor to that NOI.

Steve, can you drill down a little bit and talk about -- besides all the activity in Midtown south, talk a little bit about which submarkets might be lagging? And also talk about which price points are doing better than others. For example, the big deal done at 1 New York Plaza was the low $40s, full service price point. It sounds to me like Viacom was done in the mid-$50s. What price points are doing well, and drill down some of the other submarkets besides the obvious ones.

Well, what we are seeing across the portfolio is -- there's a lot of demand for the classic value-type price points, that $45 to $65 pricing seems to be where a lot of deals are being transacted. We are seeing it in some of our buildings, whether it is Third Avenue, or 485 Lexington, or 521 Fifth, where we have pockets of space. Downtown stats, quite frankly, have been surprisingly good, even though there have been some big deals done down there with -- and moderate rents, but as far as the overall availability rates, it's a lot healthier than anybody would have projected a couple years ago. Midtown south is as tight as a drum, and Midtown -- I think it's not so much the submarket. It's more the certain size ranges seem to be slower than other size ranges; that 25,000 to 45,000 square foot type tenant seems to be slow demand right now.

But counter that with the small spaces -- 5,000, 6,000 square foot spaces, if it's nicely built, that stuff seems to be in very high demand. We are seeing at 600 Lexington Avenue continued very strong demand, probably the most activity that we have seen since we have owned the building. We've got five deals pending there right now, and we've done a bunch of full-floor deals this year. I think it's very hard to say which of the submarkets is necessarily slow until you understand the size ranges that are slower, and that's not so much the area but more about specific sizes.

Sheila McGrath, KBW.

Now that you have the renewal metrics of Viacom and the capital required to get the tenant to renew, I was wondering if you could walk us through how you view your pricing of your purchase of the 45% interest a year ago?

Well, the pricing, I believe, was about $1.2 billion. I mentioned earlier in the call, where I thought NOI is or is soon to be landing. And while I can't give you an exact value on how somebody would value that, you can apply whatever cap rates you want to that very stable NOI stream. I think in most or all cases, you're going to -- would come to a conclusion that it was -- we are very pleased with the acquisition. Again, in fairness, it's a little bit of hindsight because when we purchased it, we uniquely took on the risk or opportunity, depending on your orientation in life, of having to make this critical lease deal, or make the critical decision not to lease and then have to lease up in 2015, '16, '17.

It's not a small risk by any means, or not a small opportunity, and I think the price a year ago, or a year or more ago in a different market at a different time with that question unanswered versus what we believe the value to be today is obviously a little apples and oranges. But the question is -- are we pleased with the overall performance of the building, and both our original acquisition and our subsequent acquisition, and for that matter our entire JV with SITQ has been a terrific partner of ours for probably a decade or so. This building I think is textbook case study, if you will, in value creation and good real estate execution.

My second question is -- the Journal reported a number of tenants, [Dewey], [Usocton] and UBS, looking at putting sublease space on the market. I'm just wondering what your views of the trends in the sublease market are.

The sublease availability is still pretty small right now. It's less than 3% of the availability rate overall. Those blocks that you're referring to, they were like 100,000 square feet a pop. So, in the context of the overall supply, it's not that meaningful. We haven't seen a whole lot of new supply coming on. And in conversing with the brokerage community, they are hard-pressed to really identify any big blocks that are coming on. It doesn't mean it won't happen, but none that we have been able to identify to-date.

Rob Stevenson, Macquarie.

Steve, can you talk a little bit about what the latest is on 280 Park, and what your leasing strategy is there, and what the timing looks like these days?

Well, we are deep into the development phase right now. We have completed the -- establishing our full scope of our development. I think we are going to do a little bit of a presentation at NAREIT to really unveil it to everybody, but it is going to be -- and you have heard us say in the past, it is going to transformative as far as what we are going to accomplish with the building. It's going to be unlike anything that's on Park Avenue right now.

We are lightly marketing it. It's a little premature until we get heavier into the construction phase, but shed and bridge went up this week. We are starting to work shortly on the facade restoration; the heavy construction will start shortly thereafter. It will be a 1.5 year project.

Notwithstanding that light marketing effort, I can tell you we've had a couple of very, very credible, significant expressions of interest from big tenants on the order of magnitude of 0.25 million square feet each, and we are conversing with those tenants. We are not suggesting that we are going to make a deal anytime soon, because we think it's a little early in the market relative to our pricing expectations and what we have to present so far. We are very excited about it, and everybody that we have presented our development plan to have very quickly endorsed our thoughts.

Can you guys also give us an update as to the newer retail assets that you guys have acquired, and some of the assemblage that you need to do in tenanting and repositioning, where you are in the process there, and how talks with potential tenants are going there?

On 1552, 1560 as part of the purchase, we did give the selling tenant a year's occupancy there, so they are still in occupancy. That's TGI Fridays in Times Square, but we are actively marketing the site to a wide universe of interested retail, signage, and retail and signage tenants. Not clear how we are going to divide up the space, whether it will be one user, whether it will be multiple users for each of the different components; and those talks are going very well. There's a lot of interest in Times Square, there's not a lot of availability, and our product is very unique in terms of what we offer, guys.

Likewise on 747 Madison, we've actually completed a series of transactions, so that we can modify and offer higher ceiling-height space. Within the box that we bought, one of the challenges was that a portion of the space was a bit ceiling-height challenged. We made a deal to buy out one of the apartments of the building above. We are going to be basically demolishing that apartment, and offering it as higher ceiling height on the retail. We think that will be a hugely accretive purchase, and one that we didn't underwrite when we bought the condo. So, we have ongoing discussions with several tenants on that space as well. Very strong in terms of the discussions and demand on the retail side.

James Feldman, Bank of America.

I know there was a lot of discussion among the brokerage community that if Viacom had moved, it would really change the landscape of Times Square -- that they were certainly looking downtown, and even some of the developments on the west side. I'm just curious if you have a sense of why they did decide to stay, beyond just the economic decision? What is it about that area, and do you think this is a sign that maybe the pendulum will shift and you'll see more interest in Times Square?

I think we would probably just be parroting some of the comments made by their CEO, Philippe Dauman, yesterday, but I think he views, certainly a very strong connection to Times Square where they have resided for over 20 years, and have experienced almost unprecedented success in becoming one of the world's leading media companies in that location. I think that created a certain bond, and a certain recognition about corporate branding opportunities and corporate visibility and connection to Times Square. And a connection to an area of town that is considered by many entertainment companies, not just Viacom, but Good Morning America across the street, ESPN Zone was filming there for many years.

And I think there's a recognition that it's an extraordinary opportunity now more than ever for them with signage, building naming rights, LED signage cantilevering over Times Square. Their studio, state-of-the-art digital studio, that was just rebuilt within the past few years, along with terraces overlooking Times Square. These are all major, major factors, in addition to the building itself, which is in excess of 54 stories, 35,000 square foot efficient floor plate center core, great light in there on four sides. There was a lot to like there.

I think the only thing I sensed they were considering was price in other areas. It was never an issue, I don't think, of location or building or anything like that, and transportation to this area of town -- subways, buses -- you can point to other areas that are developing those kinds of transportation hubs, but nothing matches what's available at the bow tie of Times Square. I think that's a lot of what went into it, but you'd have to get to them to get more specific on that point.

Back to the Midtown south spill-over question. What pockets of Midtown are you seeing benefit?

Pockets of Midtown?

Of the submarkets within Midtown, where are you seeing the most interest from the tech or media tenants that would otherwise be in Midtown south, but there's not enough space? Is it the garment district, is it around grand central?

I haven't seen them really coalesce around any one particular submarket.

Facebook is at 335 Madison; they certainly would have been a Midtown south tenant. Amazon is expanding aggressively in 13 56th avenue, our building.

Here's a perfect example is that 3 Columbus Circle -- oddly enough, we leased it to Y&R, but the other competing tenant for that was Havas, so both creative advertising firms. We have had a couple of name-brand tech firms come very close to choosing the building, and we've had a couple of more funkier type users, non-traditional type users consider the bidding as well. In each case, those tenants have looked at that building relative to the Hudson Square, Midtown south, Flatiron neighborhoods, the tenants weren't coming from the more traditional kind of east-west across 57th Street, financial service, law firm type stuff.

I think to Andrew's point, it becomes very building specific. If it's something that the building has amenities that are unique, or views that are unique, or space that offers something where they can really create an environment for themselves, then that's where we are still seeing that kind of demand. It will be great to see another neighborhood develop, but I don't know that's happening.

Michael Knott, Green Street Advisors.

Nice job on the Viacom lease. Marc or Andrew, just curious if, now that you've secured that and made it an elite core asset or whatever the terminology was used, do you have any interest in potentially re-JVing that asset again to harvest some of those gains?

You guys have a bid, Michael or --?

I'd take the under on Marc's 5% cap, though, I bet.

Are you going to have to make me prove you wrong again, Michael -- again?

Saying under 5% cap. We haven't decided yet. The ink is just drying on the lease, and it certainly sets up very well for a core JV, but it's also -- there's a lot of retail upside left in the building, and that was part of what attracted us to make the buyout we did with SITQ, and that upside has yet to be realized. That's in the coming years. We will look at it carefully. We put the financing away for seven years, but it is floating rate, so it gives us all the flexibility of a floating rate loan. The idea is to be able to unencumber it, encumber it as a JV partner ultimately sees fit. We wanted maximum flexibility with respect to the outside, and I think that's the position we are in today.

Thanks. And then on the Random House lease, I think they renewed for, call it, a little over 0.5 of their current space. Is that their permanent space going forward, and so the other 40%, 45% is going to be on the market in a few years? Is that right?

Yes, they leased floors 2 through 13, so they took the more challenged portion of the building. That leaves us the tower of the building, which it steps back a little bit, a few floors up to some smaller floor plates with really spectacular views. They have already started to restack their occupancy, and the balance of that space -- they are going to go ahead and sublease out. They have already subleased four floors; they have another sublease pending with a fourth floor. We view those tenants as very good candidates for us to renew them in '18. Then we will be, we think, significantly higher rents then in today's world, and particularly given the fact that it's for the best part of the building.

They took the low floors at $75 a foot, if I read the supplemental right?

Correct.

Any guess on the upper floors today?

$75 on essentially an as-is deal with no free rent, so that's a pretty strong net effective rate, and I think the tower is going to trade at a significant premium to that.

The tower has some pretty spectacular views in that building.

Blaine Heck, Wells Fargo.

Excluding the Random House lease, what was the re-leasing spread you guys saw this quarter in Manhattan?

1%.

If I take a look at your consolidated same-store schedule in the supplemental, when I compare this quarter to last quarter, seems to have been a significant move in the straight line revenue adjustment. I know you guys said there were seven properties that moved into that, but was there anything specific that drove that net shift?

It's Matt, Blaine. 2 Herald Square and 885 Third, those are our two [feed] deals, remember, that have large straight-line components; those were both added to the same-store pool this quarter. They were excluded after we had to buy out the 45% interest we didn't own in December 2010. Those are two of the seven, and the biggest driver of a straight line adjustment.

Joshua Attie, Citibank.

What are your thoughts on the potential rezoning of Park Avenue that the Bloomberg administration has been pushing for? Do you think it's likely to occur, and how do you think it impacts the portfolio and the Company in general?

I think it's a little early to talk about impact, unless and until we have a better sense of what might occur under this current administration there. They certainly seem to be going through the motions of looking at certain upzoning and/or bonusable activities to spur some additional development in Midtown. I don't think it's limited to Park Avenue, and I think they are looking at a broader area of Midtown, but what ultimately comes of that, if it comes, when it comes, we will have to see. I think the basic fundamental underlying the exercise is a good one, which is -- let's figure out ways to encourage and incentivize development in the areas of New York that have generally the highest rents, and can economically support new development as an alternative to some of the other areas designated for development around the city, which rely on some element of subsidy to permit, if you will, below-market rents for new construction. Because the one constant that doesn't change from site to site generally is construction costs. That's somewhat of a constant.

Midtown, and the primaries of Midtown, could support some new construction now, or clearly in the future with some more rental growth, and I think making sure that the city stays as competitive as possible, not just within the US, but around the world where other major world capitals are adding state-of-the-art new buildings to their commercial inventories, New York needs to keep pace with that. It's not a function necessarily of needing more space per se, because right now we seem to be at an equilibrium. We may in the future, but right now we seem to be at an equilibrium. But it's, I think, a natural objective to take, in some cases, older, antiquated office inventory and convert it to state-of-the-art, brand-new office inventory, and any kind of policies directed in that area, we think are sound.

Marc, it's Michael Bilerman. Just had one quick follow-up on the Viacom. You talked a little bit about the signage and plazas and LED lighting and naming at the top of the building. Is there any freed up opportunity for you to add and earn more income either by putting more signage, or is that all effectively on Viacom, and that's all embedded in their lease in terms of renewing at market or at their current rents?

This has been Andrew's baby from the outset with the enhancing and maximizing the signage opportunities, both in terms of what we have done and what we hope to do, so why don't you --?

On the two existing LED signs on the building, which we added and lit up last year, those signs we entered into a partnership with Viacom on. We will enjoy 50/50 ownership of those signs with Viacom. In terms of additional signage opportunities on the building, we retain the rights to those beyond the corporate branding that we committed to Viacom as part of the lease renewal. There may be additional future signage opportunities at the building, and we will continue to explore those.

Effectively they get the signage at the top of the building, but you retain everything else?

They get certain corporate signage that was committed to specifically in the lease, but not the top of the building.

The elements that they got would not have been practical to think that we could have developed them independent of Viacom because of their placement and proximity to their window line, so really everything else on the facade is open for our exploration.

Jordan Sadler, KeyBanc.

First and foremost, mea culpa -- I was one of the ones that characterized the renewals as de-risking, I guess.

Like I said, it's just a matter of perspective. It's not a wrong point of view, just a different one.

The question I had is -- so, on 1515, did you mention the TI on the deal?

I don't know if we did or didn't, but we certainly can. We had been modeling prior to this a 10-year renewal with TIs in the $35 to $40 range. When the deal went to 15 years, we grossed that up pro rata and wound up at a $55 TI, which is, our view, far below what a replacement tenant coming in without all the embedded infrastructure would naturally command in a market, as opposed to a tenant like Viacom that still can utilize much of its infrastructure.

On that lease, and I guess on Random House, I'm just curious on commencement, do those new leases -- I guess more so on Random House given the uptick -- does that new rate commence in 2020 from a cash flow perspective, or from a GAAP perspective rather? 2018.

Random House is '18. (multiple speakers)

They and Viacom will pay their contractual rents through their existing lease maturities, and then the new rates will kick in.

Okay, and then, the structured finance pipeline, Andrew, you characterized it going into the second quarter as strong. I'm just curious, given the success of the capital markets' continued competition from lenders, I guess not as many mezz lenders, what are you seeing -- and given the standoff you mentioned between buyers and sellers, what's causing it to be so strong?

I think that standoff is leading a lot of guys to refinance as opposed to sell. And there is still sales activity out there, and when it's properties that require real estate knowledge and expertise, and are not heavily leased and strongly cash flowing, we are oftentimes finding that gap in the capital structure between, call it, 50% and 70%, and filling it with mezz or preferred equity.

One more quick one on Random House. What was the impetus for the early renewal? 2018 was the expiration. Did they come to you?

It started off probably 1.5 years ago in early discussions, and we danced around a bit, but I think they came to the conclusion that they wanted to restack, and both sides viewed it as a perfect opportunity to extend the lease as a result of that.

They wanted to spend capital as part of restacking, and [we] really wanted some additional term in order to amortize that capital over a longer period.

Tayo Okusanya, Jefferies.

The mark-to-market for the quarter excluding Random House, you said it's 1%; is that correct?

Unsigned, yes.

What's the mark-to-market on the Random House piece, then?

It's just under 50%.

Okay, that makes sense. Second question is -- I know it's not a big part of your portfolio, but can you talk a little bit about the suburban portfolio, and opportunities within that either to sell assets or just improve overall rent growth out of that portfolio?

There's still a pretty much of an overhang in that market. There's a lot of space that's available. I would say the Stanford and Westchester markets are about 20% to 25% vacant. There's really no activity on the sales side. We continue to hold our own in a pretty challenging market, where our occupancy actually ticked up a bit to about 86.4%. In terms of the ability to sale, there doesn't seem to be a rather robust market there for both buyers and/or sellers.

Listen, people on the call who remain, unfortunately we have a truncated call today. We intended to finish right now at 3 o'clock. We have, as you can imagine, given things that are going on, we have a fairly substantial afternoon as it relates to some other things we continue to work on, in rolling out this Viacom announcement. But we appreciate your questions today; we appreciate your continued support. We look forward to speaking with you again in three months' time. One other thing I mentioned earlier, this micro site, it is live, I am told by Heidi. It is on our SL Green home page, which I trust all of you know how to get to, and it is --?

It's the 1515 logo towards the bottom of the page. You can click on there, and it will take you to the micro site.

It's some information and pictures and a little bit of chest thumping, more than anything else, on what we consider to be one of our profile achievements. Thank you, and we look forward to speaking with you soon.

Ladies and gentlemen, that does conclude today's conference. Thank you for your participation. You may now disconnect, and have a great day.