SL Green Realty Corp (SLG) 2014 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q2 2014 SL Green Realty Corp. earnings conference call. My name is Whitley and I will be your operator for today. (Operator Instructions). As a reminder, this call is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Ms. Heidi Gillette of SL Green Corp. Please proceed.

Thank you, Whitley. Thank you all for joining us today. 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 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 likely comparable to each non-GAAP financial measure discussed and the reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found on the Company's website at www.SLGreen.com by selecting the press release regarding the Company's second-quarter 2014 earnings.

Two items before turning the call over to Marc Holiday, Chief Executive Officer of SL Green Realty Corp. First off, the Company yesterday in its earnings release announced it will host its annual institutional investor conference on Monday, December 8, 2014 in New York City. To be added to the conference's email distribution list or to preregister please email SLG2014@SLGreen.com.

Secondly, I ask that those of you participating in the Q&A portion of the call please limit your questions to two per person. Thank you. I would like to turn the call over to Marc Holiday. Please go ahead, Marc.

Okay, thank you, Heidi. And good afternoon, everyone, and thank you for dialing in today. Continuing on the heels of our strong first-quarter showing we have now completed an excellent second quarter which is reflective of the vibrant New York City economy, strengthening commercial office market and successful execution of our strategic plan. The foundation of our success begins with a strong New York City economy and expanding jobs market.

New York City seems like it may be on track to add approximately 100,000 private sector jobs for the year with 50,000 jobs already created through the second quarter. Office using employment, one of the key statistics for our industry, also showed significant gains with almost 10,000 jobs added primarily in finance and professional business services. So clearly a bit of a turnaround and departure from the last couple of years.

If this trend continues we would be on track for an approximate 100 basis point reduction in the vacancy rate for calendar year 2014 and I estimate that based on approximately 20,000 jobs at 200 square feet per job of net absorption.

Further evidence of this employment activity can be seen in our pipeline of lease transactions. Our current leasing pipeline has grown to 1.6 million square feet with approximately half of those deals out for signature or pending and another 800,000 square feet in the term sheet stage.

This 1.6 million square feet being negotiated represented about a 200,000 square foot increase to the statistic I gave you on the last quarterly call and that is also net of the approximately 275,000 square feet we leased during the quarter and another 50,000 some odd square feet that was leased in the first three weeks of this current quarter.

To date we have signed up approximately 900,000 square feet of Manhattan office leases with an expectation that we will convert out of the 1.6 million square feet another 1.1 million square feet of that pipeline into signed deals over the remaining two quarters to hit our ambitious target for the year of 2 million square feet of leasing over the next I would say five months.

We've experienced an uptick in our Suburban portfolio as well. Those leasing stats show occupancy climbing to almost 83% portfolio wide and positive leasing spread of about 3.2% mark to market on replacement leases. So this continues a trend that we have highlighted over the past four or five quarters and we hope that that is a trend that will continue and our projections at the moment for the remainder of the year are showing such.

One of the hallmarks of this Company, and something that was very evident in the press release you read last night or this morning, is our willingness to sell mature properties and non-core assets in order to take advantage of favorable market conditions like we have at this moment and we demonstrate the success of our value add approach to investing.

So far this year we have executed on five separate sales transactions involving a total of $1 billion of gross consideration with even more pruning under consideration for the balance of the year. Excluding 673 First Avenue, which was an original IPO asset, these transactions had holding periods ranging from two years to seven years with a weighted average of approximately 4.7 years.

So you can see that the game plan that we execute on these value add assets generally buy, improve, reposition and lease and then try and convert within a three- to five-year window, those sales into capital gains clearly held true with four of those five assets. And the returns exceeded about 25% on those four assets on $1 billion of gross sales and total profits approaching $300 million.

So this is very much in line with our previous results on prior asset sales with the bulk of those asset sales occurring at the better part of the last cycle 2005, 2006, 2007. I think at this point we probably sold more assets than most of our nearest competitors own.

So it is a demonstration of our -- even at 28 million to 29 million square feet owned we have shown no reluctance to grow for market share's sake, but rather continue to reward our shareholders with the kind of profits that can be achieved when cap rates go to a 4% to 5% level where they are now and there is an incredible demand for vacancy. So you should expect that to continue.

Many analysts that we have spoken to in the past 24 or maybe 18 hours have expressed to us that these sale prices have far exceeded what was being carried in their respective NAV models. So hopefully these sales have the added benefit of illuminating the substantial embedded value in our portfolio and the voracious demand for well located and well-positioned commercial Manhattan assets.

We have sort of put an exclamation mark behind the fact that we have these two businesses, buy, improve and hold and buy, improve and sell. And in the non-core sale portfolio we do generate these capital gains; they are fairly recurring to greater or lesser degrees over time. And in the reports we see that there is this distinction made between underlying recurring earnings and capital gains which has taken on the nomenclature of noise.

The reality is capital gains is nothing more than the monetization of those future earnings and it is pretty easy to get your hands around whenever we sell an asset what the earnings diminution is from the sale of the asset relative to the price we achieved. And whenever cap rate is below the earnings contribution rate that is an accretive sale and that is something that is usually beneficial to our shareholders.

So I think if you look at most if not all of the sales we have achieved they have generally been what I will call sales there are accretive to NAV, it is not just monetization for monetization's sake but it is where we feel that we are getting a price that exceeds the earnings contribution of that asset going forward.

And I think that rather than trying to dial out cap gains to get to core earnings, we would encourage people to look at both of those as highly rewarding and almost -- the capital gains in some sense as or more important because it is -- it takes the mystery out of what something is worth when you have a market trade. And these sales were all done at levels that I think are very supportive of asset pricing for our portfolio and assets in the city market wide at levels that probably exceed where many people have those levels picked.

So we are happy to have gotten those done, there is certainly more to come. Andrew is going to expand a little bit further on those sales with some details, but also talk about our active acquisitions campaign that has been going on as well. Because as we've been selling we have also been buying and not only identifying very good 1031 receivers, but identifying basically the new product that we'll be looking in some cases to monetize in three to five years from now and hopefully generate these similar kinds of gains.

So with that said let me turn it over to Andrew.

Thanks, Marc. As evidenced by the sales we announced yesterday that Marc mentioned, the investment sales market continues to take material steps forward. The Third Avenue site was purchased in December of 2012 and following a frantic 18 months of deal making via air rights purchases, lot mergers and proceed sharing agreements, lo and behold the Company was able to turn a $32 million profits in those 18 months.

Major credit to Managing Director Brett Herschenfeld who led the charge on this investment.

The 2 Herald sale brings to conclusion a highly successful investment originated in 2007. One can't use highly successful when describing too many 2007 investments in the real estate industry. But this structure withstood the test of time in the real estate cycle and returned a cash IRR with SL Green of over 17% on what is a senior fixed income position which would normally earn 6% to 7% as levered. Our returns on this investment almost tripled those normalized returns.

And 180 Broadway, another deal purchased in 2007, where we created enormous value vacating several buildings and constructing a state-of-the-art dormitory for Pace University, an investment-grade retail box at the base. We sold the building for a 4.3% cap rate and it is easy to see in these kind of numbers how the demand for high-quality fixed income real estate is accelerating in the Manhattan market.

Across this backdrop of our individual transactions I would expect to see significant market transactional volume continue into the second half. In the face of all of this activity we continue to pick our spots on the acquisition front.

We announced three new retail deals at NAREIT -- before NAREIT in June and as demand for retail properties continues to hit new heights we continue to scour the market for off-market deals where we can get better than market returns and take advantage of growing retail rents.

And with an interesting pipeline on the office front and the residential front for the balance of the year, we would expect acquisitions to top $1 billion this year making it one of our most active years in terms of acquisitions in the last couple of years. We are actively evaluating the next potential asset sale candidates as well as we continue to view this market is an excellent time to monetize as well as to make new investments.

The structured finance program was on track with our guidance and expectations with several scheduled payoffs occurring in the quarter and new originations slightly more than offsetting those payoffs. Yields in that portfolio are holding steady and we have a very high quality pipeline in that portfolio as well and would expect to announce some exciting new deals in August.

Structured finance continues to be an important part of our overall strategy. We look forward to a very active second half of the year and with that I guess we'd like to open it up for questions.

(Operator Instructions). Jamie Feldman, Bank of America.

I was hoping you guys could talk a little bit more about your outlook for Midtown. We know of leases that are going to be moving out to either go downtown or the west side. I think if you talk to brokers they will say they are not really expecting much in terms of rent growth and even minimal net absorption. I'm curious what you guys are seeing from your perspective in thinking about your business over the next 12, 18 months.

Well, we are not seeing that, Jamie, so I don't know exactly which brokers that is coming from. I think the activity and statistics prove otherwise. We have got -- we are projecting still as we sit here over the next five months occupancy gain, mark-to-market gain, we have tremendous activity, Steve Durels can walk you through on properties in Midtown where we have vacancies like, I don't know, 280 Park, 600 Lex, Tower 45, 810 Seventh, 3 Columbus, all of which have a lot of activity.

So I would say anyone that is describing the market as stagnant is wrong or off. I don't think that is opinion, I think that is factually incorrect. If you are talking about what they are projecting for the future I can't speak to that. But if you are talking about what is taking place now, I would say we have 900,000 square feet leased to date, 1.6 million in pipe and we are projecting a 100 basis point pickup in occupancy between now and end of year and our rents I think are up 13% or 14% mark-to-market over the first six months.

So I would put that in one of the better markets we have operated in since our IPO in 1997. There has been better markets but there has been many that have been worse. So I would put this in the top third of those markets. And we think it is getting stronger for the reasons I tried to set forth at the outset with respect to the job growth we are seeing and increased demand in Midtown. So Steve can -- why don't you add to that your thoughts about that?

Sure. Just to add a little more color to it. Of the 800,000 square feet of leases that we have out, 740,000 square feet of that are Midtown deals, which certainly speaks to velocity that we are seeing within our portfolio. And I would point you to the end of last year where we got a lot of questions and there was a lot of reporting about Midtown Grand Central Terminal, 6th Avenue in particular about how everybody was leaving and there was trouble on the horizon.

And in reality what we have seen since the fourth quarter of last year through all of this year is that there have been a number of very large deals done in Midtown, particularly on 6th Avenue -- White & Case, Neuberger Berman being very good examples of that -- where it is a cyclical market and each of these submarkets are going through changes right now.

And as much as downtown is the beneficiary of those tenants who are price sensitive, whose businesses are low-margin businesses, then that brings health to the downtown market. But they are only going downtown because rents are stable to rising in Midtown. And while there is a big rent difference between Midtown and downtown, that creates market relief. And we are seeing good velocity throughout the portfolio. So, I think we all remain very bullish on the Midtown market.

And I guess, Steve, while we have you on, I mean what are your thoughts as we do start to see some of these larger vacancies hit the market? How do you think that plays out?

Well, I mean, give me a specific concern.

Like Conde Nast.

Time Warner -- yes, so Conde Nast has got obviously time left while they are out shopping that space. They have got a very heady rent that they are looking for on the space, a rent that is substantially above where Conde Nast is vacating. For the simple reason that the big blocks in Manhattan and in Midtown in particular are in fairly short supply.

But I think if you ask the Durst's who own that building, they are seeing a lot of velocity in their portfolio, they have time on their side and they are -- quite frankly, they're kind of marketing off the backs of the port who is paying the rent on the Conde space after Conde moves downtown.

So they are confident that there's going to be strong demand and it is going to likely come from probably one of two industries. It will either be law firms or it will be financial services because those have been the big drivers for the Midtown leasing. The other one that people throw around is Time Warner. And again, that is so far off in the future, it is years off in the future as to not be competitive against anything that -- certainly for our portfolio that we are competing against.

Okay. And then secondly, can you talk a little bit more about 719 Seventh, what you guys envision there and cost?

Yes, the intention is to vacate the building, take it down and build a retail box similar to what we have done on several other corners in Times Square. So it is a very small site, it will be a single tenant occupant that we are looking for. And I would expect cost there to be in the neighborhood of $30 million or so of construction.

Okay. All right, thank you.

John Guinee, Stifel.

Marc or Andrew, how should we look at the valuation on the Citi building, 388 and 390 Greenwich, how are you guys thinking that plays out?

Well, I mean in terms of -- we don't do valuations per se, let me start with that. We don't put valuations on the properties and hang them out there. With that said, we would look at this as I think the rental contribution as it currently sits, Isaac, is about $150 million net rent.

Yes, yes, (multiple speakers), correct.

So and we have got probably remaining maybe $250 million or so of capital between now and 2017 or 2018 that we are going to put into the building. And then there is either an option that Citi may or may not exercise after that, I think sometime between 2017 and 2020 or 2021. Which if exercised the value would be capped at $2 billion, which I don't have the number -- we did this all on the prior call, John.

But it produced double-digit kind of returns from inception back in 2007, which again Andrew sort of highlighted as making big profits and double-digit returns on 2007 deals are few and far between. We obviously did it on 2 Herald and --.

180 Broadway.

180 Broadway and we would do it on 388 if they hit the option. If they don't hit the option then you can apply whatever cap you want to apply to that rent and get to whatever value that would bring to you which would likely be at least $2 billion, possibly more.

But that sort of depends on, A, what is the rent then because it is subject to a CPI adjustment annually. So we can't sit here today and tell you what that rent would be in 2017 or 2018, it depends on CPI. And two, it depends what cap rate is at that point in time. But certainly in today's world I think that is every bit of a 5 cap today if not less.

Okay. And then second, Herald Square is to me just sort of a fascinating deal. It looks to me like you sold your fee or your land position for a shade over $1,000 -- or right about $1,000 per net rentable square foot for the building. A couple questions.

What is the buyer's plan for that building or what is their plan for the fee position or the land position? And then two, what kind of gain would you -- what kind of tax gain would you have on that? And how would you -- are you able to roll that sort of gain into another asset on a 1031 basis?

I will answer the first part and I'll leave Matt to answer the second part, John. The buyer is a life insurance company and the tenant under the lease does have an option to buy that fee position in 2027, which we sort of highly expect that they will exercise that option as does the buyer. So the buyer is basically looking at it for the fixed income stream that it will produce between now and 2027. And you are right on the square footage there; the building is around 365,000 rentable square feet. So, Matt.

And, John, to the tax side of things, yes, we do -- the gain will be significant but we certainly have the ability to roll that into a 1031.

Great, thank you very much.

And that is our intention.

And that --.

Yes, expect to fully have that gain sheltered is our current play.

All right, thank you.

Vincent Chao, Deutsche Bank.

Just curious if you could maybe elaborate a little bit more on the additional asset sales that you're contemplating, maybe just the order of magnitude what kind of size are we talking about? And given your comments about the suburban markets picking up here over the last couple quarters if there is any potential that that would be included?

Well, the sales we were referring to at the outset are sales of additional Manhattan assets. They would likely be assets that we consider non-core, which I think if you look at the five we sold this year and I think last year we did one fourth and a couple of others there is a consistent theme there.

Which if you look at what remains in the portfolio you can the kind of pick through things where we have stabilized non-core assets, we made good trading candidates versus other kinds of core fortress type buildings that we think there is a whole other round of profit opportunity as we roll leases there and hopefully double-digit mark to market environment, that is highly compelling.

So order of magnitude don't really have a number on it. I'd say over the next 12 months maybe another few hundred million dollars worth of sales gross at least. So whether any or all of that concludes in the balance of this year, who knows because there is nothing that we are actively underway on and these sales typically take four to six months.

So more likely than not they are deals that would be very end of this year or first quarter of next year. But that is a rough description of the kinds of things we would be looking at and the kind of -- I don't think we are looking at another $1 billion per se, but $300 million plus is certainly on the table.

Okay. And on the Suburban side is -- are the conditions improving to the point where that might be more part of the disposition story?

I don't -- I mean, I think -- the answer is yes, it is in that direction but I think those assets are most right when you get to occupancy levels that are probably closer to 88%, 90%. I think that is where we could probably get our best execution and right now we are around 83% and I think we're going to end the year at hopefully 84%.

So it is trending in the right direction, there may be individual assets that fall into that category, ones we would consider no different than a Manhattan asset for sale. But I think as I said on the less call, getting closer to a market where we could look to certain of those assets as contributors to equity and liquidity for new deals but maybe not just yet.

Okay, thank you.

Ross Nussbaum, UBS.

Marc, are you surprised positively to the strength of what has been going on in the New York Street retail scene particularly in the Fifth Avenue Midtown corridor?

I mean the rents, no, the rents have been consistent. I think the number of participants who are willing to pay kind of extraordinary prices and price per square foot for grade level retail has surprised me. It was over the years the domain of a few and now there is a number of other new entrants in the market that is creating more pricing pressure, which is flattering our existing portfolio, it makes it harder to add to that.

With that said I think we have done about five or six deals since December. So we are still very active. But there is -- the relationship between net rent to price is really no different than we see in the office market. These deals are traditionally deals that are bought at whatever cap rate, it could be 1%, 2%, 3%, 4% cap rates going in, but with a plan to stabilize in the call it 6% to 7% or 6% to 7.5% range which is not too dissimilar than where we are at office.

I just find that people are making greater leaps of faith in the ability to make that mark to market happen, happen quickly, significant buyout monies involved. And there is a little more risk in executing that plan, but the rewards, as you have seen, are pound for pound far greater than we are experiencing with office right now.

Office rents we are talking about 10% mark-to-market, these retail assets you are talking about 200% to 300% mark-to-market. So it is night and day in terms of opportunity profile and people are paying extraordinary prices for that.

We are picking our spots hopefully wisely and so far it has proven to be a major contributor for the firm, we are going to stay active there and we do have a pipeline of retail properties for the balance of this year already identified. So right now it is one of the great pieces of our overall program is that retail real estate platform.

Okay, appreciate that. Second question is on your structured finance book. There was a footnote there that I was trying to figure out which is that you reclassified just under $100 million of a debt and preferred equity investment you guys did in the first quarter into unconsolidated joint ventures. And I'm just curious for some color around what prompted that, what was that?

So, it is Matt. That is accounting and only accounting. There is an equity kicker feature in that deal which we do often get in preferred equity positions that is structured in such a way that it falls into a virtual no man's land of accounting rules. And for that simple reason gets put into a JV category versus the consolidated debt and preferred equity book.

It doesn't affect the income stream, it doesn't affect of the income that we will get on a go-forward basis or the terms or anything else. It is simply an accounting treatment.

But it is what we would otherwise characterize as a piece of structured preferred equity.

Preferred equity, that is right.

It is structured finance with all of the (multiple speakers).

No different than any (multiple speakers).

Mezz light preferred equity with term and remedies and all the rest, it just happens to be in the equity book because we took a kicker.

Got it, thank you.

Brendan Maiorana, Wells Fargo.

Matt, another really strong quarter in terms of bottom line, FFO. Did you guys contemplate revisiting the guidance given how strong it has been in the first half of the year? And I know you raised after last quarter. And if not, what should we sort of think about as some of the things that would bring the run rate down pretty significantly in the back half of the year to kind of get you to where your current guidance midpoint stands?

So we certainly look at where we think we are going to close out the year all the time. So we did it after the close of the quarter as well. But I think we are comfortable where we sit now, we are trending within the guidance range and certainly could see ways to get above that.

But that said, we are always evaluating things, we never sit still. There could be asset sales which we -- Marc just touched on a little while ago. There may be other opportunities to source capital. The refinancing market is strong, we always evaluate opportunities to accretively refinance in-place mortgages or other corporate financing, sometimes those involved taking charges. So that's potentially on the table for the rest of the year.

And the sales that we have consummated, which weren't necessarily a factor and are updating our guidance at the end of the first quarter now play in. So deals like 2 Herald Square will have an effect on earnings as well. So I think as we sit today, while there could be ins and outs through the rest of the year, we feel comfortable leaving our guidance as is at $5.90 to $5.96.

Yes, with that said I think we have a feeling where we sit now that the guidance will be at the higher end of the range, possibly even a little in excess but for some -- somebody else just before you was asking about like volumetric sales. So sales fight one way, earnings momentum fights the other and we are finding the right balance of the two. But for the moment we are just going to leave it right where it is.

All right, understood, leave your selves some wiggle room. It makes sense. Really -- as you guys highlighted, really great execution on three sales that you announced last night. Just when I was kind of doing the back of the envelope math the net proceeds of $240 million that seemed -- I was getting a number that seemed like it would be a little bit higher than that based on the gross sale proceeds and debt and your interest.

Was there any promote fees that were due to any of your partners or anything like that that would cause the net proceeds to be down relative to maybe what I would have thought?

It is Matt. There is one component that may be throwing numbers. We don't have any promotes due to anybody else, we don't have those in any JV, so I will make that point. There is in place debt that we will need to be defeased and that will be our cost. And so that comes off the top, that is at 2 Herald.

What's that -- defeasance cost?

Defeasance cost.

Okay, so what was your order of magnitude of differential so we can --?

I think it was around $25 million, something like that. I think I estimated that (multiple speakers).

That is exactly -- that is exactly the amount.

Okay, great, that makes sense, thanks.

Alexander Goldfarb, Sandler O'Neill.

Just some quick questions here. As you guys look at the investment market for doing more stuff, can you just talk a little if you are seeing anything on the residential side that may be of interest or maybe that market has just gotten too pricey?

And second, whether Brooklyn is looking more attractive or if there is some structural things, developmental things that need to go on downtown before you get a lot more active in that market?

Well, on residential I would say we are looking at a lot of opportunities now. We see a lot of good opportunities and we I would say almost certainly will convert on some between now and year end. So, yes, it is a competitive part of the market but it has been a very profitable one for us so far.

And we expect to kind of proceed at the pace that we have been proceeding and we have been guiding people to. And I think towards -- from now to year end that we will have maybe one or two deals to announce there. As to Brooklyn, I'll leave that to Andrew.

We have had a lot of success with the Williamsburg property where we just signed up a term sheet to make a loan on another property in Brooklyn. And we are evaluating other opportunities there as we learn the different markets. There is explosive growth and a lot of rental growth and value growth going on out there. So we are certainly actively looking and trying to identify other opportunities out there.

Okay. And then the second question for Steve. Down at 180 Maiden, can you just give a sense for where you thought rents would be when you guys originally underwrote the building when you are acquired it? And where rents are today, where you think you will actually signed deals? Just given the strength and rebound of downtown, just curious how much it has moved on your underwriting.

Well, we underwrote the building in the $44 range depending on where you are in the property top to bottom. And a lot of the activity -- there has been two sides to the market down there. There has been a lot of big deals done on the west side, there has been a lot of good sized deals in smaller traffic on the east side, but the east side has generally been at the lower price point.

The best news of all is that is the low price product has largely been taken off the market at this point. And I think the market is on our side so that we are going to -- we will see the lift in our pricing compared to underwrite, but I think it has got -- we have got to get some momentum going first.

We have got one deal out right now that is right on our underwrite numbers. We are getting a lot of tour activity in the building. I would say two thirds maybe more of the tenants are Midtown/Midtown South tenants.

And the profile of the type of tenants, which are that creative marketing, information technology type of tenant, which is exactly who we anticipated coming to the building as a result of our redevelopment plan. And is exactly what we were shooting for when we underwrote the acquisition, that is who we are seeing come. So we are confident that as we get further along with the construction then we are going to start to see some good velocity down there.

Okay, thank you.

Jordan Sadler, KeyBanc Markets.

I'm curious to come back to the retail question a little bit that Ross was asking about. It seems to some extent the number of players who have come into the space and the valuations, it has got to have changed your thinking somewhat on the underwriting of this space. And I am just curious as you think about it, does it change the potential hold period of these assets or are they still -- is there still tremendous value or there is really no change? Just curious.

We just announced the sale of a lot of retail assets. So we sold assets on 34th St., we sold 747 Madison, we sold Third Avenue which was a retail, and we sold 747 Madison. So that should give a pretty clear indication of the fact that we're going to take advantage of what we see as a very aggressive bid for retail out there for sure.

Otherwise said, we have sold more retail than probably anybody this year. So we like this market to sell into, but there are -- we are looking to buy value-add in retail and in office, particularly with retail which is less core than office, sell for capital gain which at these kind of cap rates, we think is great.

So I mean, I guess if your question is, does competition change our underwriting? The answer is no. It doesn't change the -- all of the changes, the underwriting, really is cost of capital, and that may indirectly be linked to what you are talking about, and/or demand for space which is reflected in rents.

So whether there is three people -- like we were just as ambitious on this three or four years ago with less participants as we are today. The only thing with more market participants just makes it harder to find those assets. If they go outside of our underwriting, we pass the deal. So it doesn't change our underwriting. I mean we don't stretch to make the deal.

A good example of that I think was 625 Madison, which was largely a fee-driven -- I'm sorry, a retail-driven exercise, if you will, which went beyond or well beyond our perimeters this year, so we passed. I mean that is the way it is.

There were other deals -- probably five or six deals that we bought this year where they fell right within the parameters and we bought them. But I would say those -- that underwriting, if you will, or the way we're modeling those deals is sort of without regard to what other people will pay, other than if that drives the cap rate down low enough we are going to sell, which we have.

Yes, I mean I was thinking are you maybe a little bit better for sale today than you would have thought at the beginning of the year -- your investor day outlook where you thought maybe you were a little bit better for buy as a result of just valuations going up (multiple speakers)?

No. I wouldn't come off the call thinking there aren't great opportunities in the retail set. I think there are and those five deals we bought, I look at each of them as great opportunities. So my guess is, I don't have the numbers in front of me, probably exceeded our December goal already. And here we are in July, right. I mean what was our, Matt or Heidi, do you have that handy? Yes, we set out some retail acquisition target I believe and my guess is we have exceeded that.

$500 million (multiple speakers) between resi and retail.

$500 million between resi and retail. So, yes, I think we have exceeded that, Andrew, yes?

Likely yes.

Likely yes. And there is more pipeline. So it is -- when you have an abundance of low priced capital and in certain submarkets extremely strong rents, that is a great market, that is a great opportunity. That is -- we're heavy participants. But if it falls outside the bounds of our targeted returns then we pass. But we've still found ways to make our spot.

A lot of those deals had OP unit components. And again that is a differentiating factor which I am not sure everybody -- I hope everybody on the call gives credit to, which is the SL Green OP unit currency has been utilized to a very high degree as something that's very attractive and unique for sellers of retail and office product and residential product.

And then lastly, any color you can offer on the 5th Avenue retail assemblage?

No change in status there yet.

Okay, do we know when that's -- how long that redevelopment will take place over or is it just open ended at this point?

It is open ended, I mean it is in process.

Okay. Thank you.

Michael Bilerman, Citi.

Just thinking about now the development and redevelopment pool, page 35, the 3.8 million square feet. Now that you have rolled 180 and 10 E. 53rd and they're almost $3 billion gross of real estate, how should we think about I guess additional funding that will come as you we develop those projects, number one?

Number two, the NOI effectively like perhaps dipping before it gets any better, it is obviously a much bigger part of the Company, these assets at this point. So maybe you can talk about the goals that you have or the benchmarks that we have to think about for it.

Well, let me answer the first part with respect to capital. Some of these projects that have been moved in may have significant value comprising the three point whatever billion of assets that you identified or are identified on that page. But with respect to the capital going into those deals there, they are not that significant by our standards.

The redevelopment at 280 Park is largely finished, although that probably is still in redevelopment, but I assume we will come out at some point in the not-too-distant future. But --

180 Maiden.

-- 180 Maiden is underway but the redevelopment there is order of magnitude maybe $60 million plus or minus of which we are 50%. So we don't -- we have enough liquidity and flow that for that kind of project, that is not a significant kind of capital planning project. And the same is sort of true of 10 East 53rd.

So I think when you are talking about development properties where you have to have significant and well-thought-out funding plans, it is One Vanderbilt. That is really it. The rest are -- I would almost manage that of cash flow, you know what I'm saying, for the bulk of the other projects.

But One Vanderbilt is the kind of project that we think long and hard about and as we get closer to construction date, and that would be after we get full approvals, because we are currently embarking on the (inaudible) process. So you have got to -- first things first, we have got to get our approvals in 2015 and then embark.

By then we have a capital plan, we will be able to kind of walk you through that. But at this point there is no capital -- there is no significant capital need for 2014 on that project. So that is not a current day issue. But it is something where we are putting a lot of thought behind and next year we will be putting a lot of effort behind.

All right, and then just thinking (multiple speakers).

Michael, (multiple speakers).

Go ahead.

Just to clarify, the $3 billion you are looking at, I think that is a gross value, we own 50% of the major development there. So for our balance sheet it is not $3 billion, it is significantly less than that.

Yes. And just thinking about the 3.5% cash combined same-store NOI in the quarter, what is the associated occupancy, same-store occupancy that ties to that 3.5% And what would it be without sort of 3 Columbus, 100 Church and 180 Broadway, which obviously boosted the overall pool? I am just trying to distinguish between the two.

The occupancy that ties to that pool, Michael, it's Matt, is [94.9], which is the same-store occupancy we report inclusive of the signed as yet to be commenced leases. The pool is consistent with what we guided to in December at the investor conference and the projection of a 3% to 4% cash NOI growth is based on that pool.

Clearly 3 Columbus as it's getting further leased up is contributing significantly to that. It started last year, it is building this year. What it is without those three properties I just don't have the numbers that precisely. So the other properties -- it's not just those three properties, they're obviously contributing.

We got occupancy pickups in the Manhattan portfolio last year, we are growing that occupancy again by an expectation of 150 basis points. So that alone will drive organic growth. I just don't have it at my fingertips what they would be without those three specific properties that you mentioned there.

94 is just consolidated not the total -- the total -- so well, we can follow up off-line.

94.9 is inclusive of JVs.

So 94.9 is combined not (multiple speakers).

Is our -- is combined, right.

So I want to make that clear before we hop off. If that is not consolidated that is combined.

That is absolutely right.

Combined same-store.

Correct.

Not consolidated.

Correct.

So I think that is the most accurate number that we have. But we can certainly --.

Yes. And that is what we guide towards.

Certainly we can take it up off-line. Next question, please.

Steve Sakwa, ISI Group.

Just as it relates to Street retail, are you guys looking outside of Manhattan at all, I mean to the Bronx, Brooklyn, Queens make any sense? And just love your thoughts on that.

Yes, I mean we did -- our Williamsburg residential project started out -- we just bought the retail condo there and had a lot of success. Leased up to HSBC and Walgreens. So we do own a couple of other sites in the boroughs and are looking at additional sites in high traffic areas for sure.

Just curious how kind of the returns and pricing maybe compare on competition?

Competition is certainly less. Returns are higher, although as you get to the very high traffic areas there is increase in competition as people get sort of chased out of Manhattan.

Okay, thanks.

Michael Knott, Greene Street Advisors.

Hey, guys, agree with your optimistic take on Midtown, but just curious if you can comment on the signed leasing volume? It seemed a little bit low. I'm just curious, did that surprise you in any way or was there something that maybe fell out or just curious your thoughts on that and if there is any impact to any of your full-year goals?

No. I mentioned earlier that we are still on 3 million feet, it didn't surprise us but for maybe one or two deals that will get done early Q3 instead of late Q2.

Okay and then congrats on selling 2 Herald. I would presume that possibly the Lipstick landsite is also possibly in the to sell bucket?

Certainly under consideration based on the execution on 2 Herald.

Okay, thanks.

Tayo Okusanya, Jeffries.

Just two quick ones. First of all, I may have missed this earlier on but apart from Street retail just curious about the appetite for more multi-family assets going forward.

Yes, I mean we are actively looking at a couple of different multi-family situations. Our existing portfolio is doing great. We opened leasing at 1080 Amsterdam which is a big redevelopment we did up in Harlem and it has been highly, highly successful. So we are looking -- combing the market for more off-market assets there.

Okay, great. That is helpful. And then second thing just the swap rate on the $504 million of mortgages.

What is the question, Tayo?

The swap rate.

On 388.

On the 388, yes, correct.

3.8%.

3.8%. Great, thank you.

That is the swap we had on the previous financing that carries over to the new financing.

Okay, perfect. Thank you.

There are no further questions at this time.

Okay. Thank you for whoever is remaining and look forward to speaking with you in three months time. Thank you.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect. Have a great day.