SL Green Realty Corp. (SLG) Earnings Call Transcript & Summary

Welcome to Citi's 2026 Global Property CEO Conference. I'm Nick Joseph here with Seth Bergey with Citi Research. I'm pleased to have with us SL Green and CEO, Marc Holliday. This session is for Citi clients only and disclosures have been made available at the corporate access desk. To ask a question, you can raise your hand or go to liveqa.com and enter code GPC26 to submit questions. Marc, we'll turn it over to you to introduce your company and team, provide any opening remarks, and tell the audience the top reason an investor should buy your stock today, and then we'll get into Q&A.

[Technical Difficulty]

I think you have to press the button to make it red.

How is that?

There we go. We have to do that again.

I got here, Harry Sitomer and Matt DiLiberto, and we got a lot to talk about today. And I guess I'll begin by reiterating what I stated on the last earnings call that this continues to be absolutely one of the best office markets and leasing markets that I've ever seen in my career. There were over 27 million square feet of leasing in 2025 with over 1 million square feet of absorption and the financial and legal sector is accounting for about half of that demand. Availability has now shrunk for 6 consecutive quarters, and it's decidedly, what I would call a landlord market for the better, well-located assets. Sublease availability is the lowest it's been in the past 5 years. And as we roll into 2026, Midtown has accounted for 77% of leasing activity in January and February with now on the heels of our announcement this morning, 7 deals over 100,000 square feet in size. We're taking full advantage of these market conditions by coming out of the gate strong in 2026. In just the first 60 days of the year, we have signed nearly 500,000 square feet of leases and increased our lease portfolio occupancy. We now have expectations for over 600,000 square feet of leases to be signed in Q1 with 1.1 million square foot pipeline that we are currently working on, which obviously evidences the exceptional strong start to the year. We are now projecting that 2/3 of our portfolio or about 20 million square feet will have a weighted average occupancy of 98% by year-end, allowing us to drive net effective rental gains in those buildings. And even buildings like 1185 Avenue of the Americas, which was slow to lease in the past few years are now -- is now benefiting from increased demand and activity with some leases already signed this year and more in the pipeline. While people's focus turn to the impact of tech and AI on the office leasing market, New York City continues to be the location of choice when it comes to making long-term commitments. There were over 8 million square feet of tech and AI leasing in 2025, and there remains over 8 million square feet of current demand in that sector. New York has been a decided winner in attracting these new businesses given the unique advantages. New York holds in having a young, educated and diverse workforce with a focus on innovation and disruption and entrepreneurialism. And while there is a concern over the impact of AI that may have on our tenant base, I'm emboldened by the fact that our tenants to be -- our tenants tend to be HQ, front offices, functions like sales and marketing, high-touch services, legal, which I don't think will be readily replaced. You should take note that the leases we're currently signing overwhelmingly represent expansion leases in '25 and year-to-date '26. These are leases that we're doing with sophisticated credit tenants with terms of 10, 15 and 20 years. So I don't see these firms taking on those kind of increased obligations for that tenure unless they expect to be growing their headcount, not shrinking their headcount during the terms of those very extended leases. These favorable market conditions are compounded by the fact that there will be essentially no new deliveries of space in Midtown during the next 3 years. That's a market condition we haven't experienced since before Hudson Yards when conditions were very, very tight. Only the Rolex Building is expected to deliver this year with less than 80,000 square feet of spec space. All other deliveries will be at least 36 to 40 months from now, resulting in an extreme imbalance in Midtown between supply and demand for quality assets in a manner that is decidedly in favor of property owners of existing quality assets. Even looking out 4 years from now, the aggregate amount of addition to inventory is more than covered by almost 1 million square feet by the expected reduction in inventory from Midtown office buildings converting to residential usage with 3 projects already in construction and 9 more expected to pull permits in 2026 and '27. Strong demand and non-existent new supply are the reasons we are emboldened to continue with our measured offensive position to the market that you've heard us about since the end of 2024. I'm going to turn it over to Harry and Matt now to talk about kind of the state of the macro market and our specific plans.

Thanks, Marc. So shifting to capital markets. As a result of the fundamentals that Marc was just discussing, we saw in 2025, significant elevated levels of transaction activity such that 2025 was in line with the transaction activity that we saw in 2019. I can tell you after coming off a significant capital markets roadshow, that we're seeing the same type of activity and demand from investors rolling into 2026. And a lot of that we'll discuss when we get into our disposition and capital market strategy for the year. And I think with all the market volatility that we're seeing, New York City is continuing to prove to be a safe haven for capital, looking to deploy capital into New York City commercial real estate. And then shifting to investor composition, just looking at who the investors are and where they're deploying dollars. One trend that we've seen looking out into '25 and '26 is that international investors are proving to put more capital into funds and domestic vehicles as opposed to direct investments. This is going to prove to be advantageous to us in multiple ways. One is, as we look to grow our asset management strategies and our asset management dollars, this is a way in which we can deploy dollars on behalf of third-party international investors. And then the other reason is, as we look to do direct deals through our disposition strategies, usually, those investors are looking to transact with known entities, groups they've done business with groups that have track records. And for us, that's a big way for us to capitalize on the pipeline that we have. Looking at -- and if you have the available slides online, looking at the types of transactions that have gotten done in the market over the past 12 months, you'll see a wide array of transaction activity from different geographies, represented by the Middle East and where we saw residential conversions dollars raised from -- at 845 Third Avenue from Israel, 70 Hudson Yards that raised capital from Kuwait, looking at One Vanderbilt, where we were able to raise capital from a Japanese investor or 1177 AOA, where Norges deployed dollars. And then going further into our disposition plan for the year, if you followed our earnings call about a month ago, I said we had 4 transactions that we were in deep negotiations on. Pleased to report this morning that we completed one of those, which was the sale of 690 Madison Avenue. That was an ASP asset. We DPO-ed the debt out of ASP about 15 months ago. We realized a 40% IRR on a sale at $54.5 million. And then for those following, we have 5 transactions now in pipeline or in deep negotiations as part of that $2.5 billion plan. And that would bring us to a total of 6 versus where we were a month ago at 4 transactions. So we're seeing big progress with that disposition and capitalization strategy.

Let's shift it to Matt.

Yes. Just to talk about our -- the financing markets and our strategy a bit. Looking back at where we were back in 2019, the composition of Manhattan financing was predominantly through banks. They were roughly 50%. If you fast forward to 2025, during the pandemic, obviously, financing markets slowed a bit, and there was some uncertainty. The financing markets tend to be a little slow, so they didn't really come back in earnest until 2024. But in 2025, the CMBS market opened up and the CMBS market ended up being about 55% of the Manhattan office financings that took place in 2025, and that market continues to be open. If you compare the first 60 days of 2025 to the first 60 days of 2026, what you see today is not just the CMBS market functioning and not just the bank market functioning, but it's CMBS, bank and private capital that's driving deals that have tighter spreads than a year ago. And with the benchmark yield being in, all-in rates are significantly below where they were a year ago. A year ago, when Spiral got done in the CMBS market at just south of 6%, that was pretty eye-opening to people that didn't think deals could get done below 6%. We did a CMBS deal on Park Ave Tower in January at 5.25%. So that sets us up very nicely for a $7 billion financing plan that we have underway right now with the financing at Park Ave Tower and our $2.4 billion recast of our credit facility and a CMBS execution at One Madison, both of those are in process and tracking nicely for March. We could be $4.5 billion through the $7 billion plan just in the first quarter. Look out through the balance of the year, we have 2 assets that based on the work that Harrison and his team are doing, could be sold before we execute a financing at 7-day at Landmark Square, which sets us up really for 245 being the big financing attend to before the end of the year. We've assumed that $1.8 billion financing would be extended. -- and then we'd sell an additional JV interest to roughly 25%. Given the strength of the financing market and the attractiveness of Manhattan office to the CMBS market, I wouldn't be surprised to see us put completely new financing in place at an upsized amount because the value creation there has been extraordinary. I'll turn it back to Marc.

Okay. Thanks. Wrap up with a couple of additional thoughts. First, we're always focusing on laying the seeds of future growth. And we're proud to show you on that deck online some early images of SL Green's next new great development, 346 Madison Avenue directly across from One Vanderbilt on Manhattan 44th Street. We will once again, work to redefine the skyline and design a skyscraper, which at 900 feet tall is going to deliver innovative office space, best-of-class amenities, outdoor spaces that's going to build upon the successes we've had at One Vandy and One Madison. We just closed on the land, I think, in October, and we're already deep into concept development. You could see how great this building is going to be. It's going to be the building of choice for tenants looking for midsized floor place, which is the deepest part of the demand of the market. So I feel it's both right product, right time. It's also a bit risk mitigated from having to rely on big block tenancies. We will ensure the building is impactful from ground to top, and I hope you interpret that in the images that you see and the project is expected to be completed by the end of 2030 with tenants taking occupancy in 2031. I'm going to save some of the questions about New York City, New York State, which I had some slides on in the deck as well. And I'll just end, Nick, with your question about what's the #1 reason to own the stock. I think that was the question. Easy answer, leadership. Today, this morning, I'm proud to have announced to the market that we have re-upped the tour of duties for both Matt Di and Ed Piccinich for 3 years. And we've promoted one of our own homegrown talents, Harry Sitomer to the role of President and CIO. Harry is truly so it represents our culture, ethos, excellence, and it really helps to distinguish who and what we are. Harry is a rising star. He is a star. And thank you for that opportunity to take you through that.

All right. Great. That was a lot to get through. Maybe just starting out, you kind of laid out the refinancing plan at Investor Day, the disposition plan. You've touched on kind of some of the progress. How has kind of some of the pricing changed since you laid that plan out initially? Any changes to kind of the buyer pool, competitive landscape? And I guess, just what's kind of surprised you the most since you first announced that plan back in December?

Yes. I would say no real change to that plan. I mean we put a lot of thought into that strategy when we developed it in December and announced it to the public. Right now, everything is going consistent with our expectations. And if anything changes, we'll report back. But so far, no changes.

And then kind of beyond the debt reduction goal, how are you thinking about capital allocation between pursuing new asset acquisitions, debt opportunities. You mentioned the increased interest in kind of fund vehicles versus direct investment and versus opportunistic share buybacks.

Well, capital allocation, we've got a $2.5 billion plan. We're going to deploy a fair bit of that to the -- to paying down debt now that we've spent the past few years very opportunistically growing, laying the seeds of future growth. We want to rightsize the balance sheet with part of the money. And the rest we're investing into new development projects like 750 Third Avenue and 346 Madison. We are growing the asset management business, as you said, but that's not really an allocation of monetary capital, that's an allocation of human capital. And we are unlocking the untapped, and I think underappreciated value in our platform because as we've gone around the world, raised money for vehicles and joint ventures, we've recognized this kind of insatiable desire and need to have SL Green work on both asset management and asset repositioning plans for institutional partners. And we're going to evaluate heavily stock buyback at these levels. I mean we're very confident in our internal assessment at NAV. We're always in the market testing valuations. Sometimes we transact, sometimes we don't, but we always have a very good handle on the underlying value of our assets. I always like to say where we tend to be within 3% plus or minus of our own internal assessments as confirmed by market participants and market trades, whether it's inbound unsolicited or deals we go into contract on. And I do think that you'll see us have to give heavy consideration as we've done in the past to a buyback program.

And then just on that, you kind of laid out some frameworks about how you think about NAV at the Investor Day. You kind of mentioned in your opening comments that the transaction volume is picking up, the debt markets are available. What steps do you think you can take kind of beyond selling assets that can kind of close the disconnect between where the stock trades and kind of your views on NAV?

I mean, I think the plan we laid out in our eyes ought to do that, whether it does or doesn't. I think we're not selling assets to prove a point, although it does illuminate value. We're selling assets because we believe the price we're getting is accretive to what we can deploy elsewhere and/or we feel it's the right time in the market to either sell assets or bring in JV partners to go down our path of an asset-light program, optimize both returns and fee revenue and then reinvest those dollars. So I think the combination of being a dividend payer as opposed to a non-dividend payer, having been active in the buyback arena before and maybe soon again and also having a balance sheet that I think is both long-dated in terms of maturity, $1 billion plus of capacity and gives us the flexibility we have to execute this program. So I think those are the kinds of things that will hopefully awaken a market that fears of New York City or a mayoral change or AI, I mean, those are the themes we hear about. Right now, we're just executing and the market is decidedly in our favor right now, and we want to get as much done in '26 as we can.

You just hit on two of the biggest topics that we get asked about for you specifically and I guess, office more broadly. So maybe starting with just the mayoral and local politics in New York. How much does that impact the business? How much does that impact leasing either in the near, medium or longer term? How do you think about kind of headline noise versus actual impact?

Look, I think the political and fiscal landscape in New York City and New York State right now is quite good. We have a governor, who's now a seasoned governor running for reelection this year, big approval -- she's at an all-time high for her approval ratings. I think she's got a sizable lead over her other party competitor. And she, I think, does a very good job of getting sensible things through the state legislature. So the ratings of New York State are as high as it's been. I think it's AA+, she's proposed a $260 billion budget with no new tax increases and state revenue growth is projected at 10%. I mean, show me another major city or state that's got a 10% revenue projection. It's quite impressive. At the city level, you've got, obviously, Mayor Mamdani, who's been elected on a platform to effectuate trying to provide more affordability to his constituents, whether it's in rental housing or mass transportation, et cetera. And the mayor in New York has to work with the Governor and the City Council. Julie Menin is a terrific speaker of the council. She was just elected. She's someone -- we and I know quite well and is very pragmatic, I think which is why she was elected to that position. And I have every confidence that between the City Council, the legislature, the Governor or the mayor, they will find common ground to, in no way derail the sort of extraordinary momentum right now in New York State, New York City fiscal economy, while trying to solve some real problems in the city as it relates to high cost of living. I mean, make no bones about it. But I think we want to be a participant and a partner in that exercise. And that's how we presented ourselves always in the past to the city and the state, and we look forward to doing our part.

Are there any policies that have been either proposed or part of the platform that you think really would have a potential negative impact? Is there anything that you're really keeping an eye on or...

I think there's always -- the city always starts out their fiscal process with a deficit that's got to be closed, and they close it through what's called a PEG program, plugging the gap. To do that, they've got multiple tools such as revenue reestimates, debt service management, vacancy control. I think the deficits that are being discussed in the $4 billion to $5 billion range sound quite large, put in the context of a $120 billion budget, I have every confidence that, that budget will be balanced, notwithstanding by law, it has to be balanced. And I don't think it will take new taxes to do so, but that's going to be negotiated over the coming months. And I think that through revenue growth and some cost efficiency, we're going to march on the city and state have big reserves, $14 billion at the state level, over $6 billion at the city level. So pretty good fiscal health. And I think the city is rated A or A+ as well. So we're dancing on the head of a pin. We've got 2 very good fiscal credits that we benefit from in New York State right now.

Makes sense. And does any of this come up with conversations with tenants on leasing?

No. I would say -- I mean, when we say it comes up. Generally, the negotiations during leasing are not over budgetary items. So I wouldn't say -- I mean, Steve Durels would have a better answer to that, but we haven't seen anyone really back off as a result of any kind of concern over what you're referring to or AI or anything else. If anything, I'd say Q1 so far is outstripping our projection. Remember, the current state of affairs has been on the table for over 6 months now. So there's no surprises here. I think everyone knows what lies ahead of us and everyone feels, I think, fairly confident. And as a result, we've got not just good leasing, but great pipeline. And even things like look at condominium sales in New York City. I mean that to me would be an early indicator is some kind of slowdown in condo sales, February 2026 recorded the most $10 million contracts signed in the past 4.5 years. There were 49 condo contracts over $10 million and representing almost $1 billion of gross aggregate condo sales year-to-date. And that's substantially more than the same period in 2025. So that seems to be an accelerating trend.

And then maybe just turning to AI. We had a question come in on it, so I'll try to weave that in. But I guess the question is the efficiencies that some of your tenants are either seeing now or potentially see in the future, how do you think about the impact to office more broadly from that and space needs from tenants? And how -- how do you get ahead of that potentially? And how could it actually impact your business over the coming years?

Yes. I mean, look, the first thing to hit is we're just not seeing it from our tenants. I mean, I think that's important to realize is despite all the headlines and what everyone is seeing and the reactions to the stock, it's just not translating from our tenants. We have almost 1,000 tenants in the portfolio, and we speak to across the board, almost every single one of them across a variety of industries. And the most active data point is what are they doing within their own portfolios and their own footprints. And the data is in what we released this morning, 500,000 square feet of leasing in 60 days of the year. And so for us, when we're working with our tenants and speaking to them, it's their signature page on a 15-, 20-year lease that's the best indication of the impacts we're seeing or hearing from AI. And just so far, that has not come or have been realized in our portfolio.

I guess the question is on renewals or in 3 years or 5 years, like maybe we're not seeing it quite yet, but I think, New York City we've seen some efficiencies. I'm going to ask you specifically for your company. Do you not think that these companies will see efficiencies? And how does that impact their space needs going forward?

I can only -- talking about our own company, I hope to do a lot more with the same amount of people that we have. I think that the tools are extraordinary. We're just really diving into it in different ways that are exciting and heavily productive. But in my estimation, that means let's go do more business. I'm not looking necessarily to figure out a way to go backward, if you will, but a way to just get more out of our team. And there are some powerful tools out there that won't take the place of the ingenuity that we have or the negotiations that we undertake or the relationships that we make around the world, but they'll certainly help us do things smarter, better, quicker. And I would hope that's how the leading companies in New York will use that technology, but we have no crystal ball.

I think Marc made -- if I could add to that, Marc made a very important point earlier, too. What the impact will be on office space because you said generally office. I mean we're mono market. So we can only focus on what's going on in New York, and we're seeing no contractions and significant expansions for 15 years plus because this is -- these are the decision makers. These are the headquarters leases. What happens in the back offices? Don't know. Will there be efficiencies there? Don't know. But what's being determined here are those who are making strategic decisions and leading the largest companies in the world, which is a very different dynamic in New York than you may see in other markets.

Makes sense. And just specific to SL Green, are you in terms of your own AI deployment, are you building it yourself? Are you partnering? Are you buying? How are you thinking about the efficiencies that you can...

No, we're partnering. We're soliciting, buying. I don't think we're, at the moment, developing in-house products because it's very efficient what's out there. But there are -- it could be anything from auditing -- preparing and auditing cash flows, lease abstracting, incredibly useful for SUMMIT in terms of data management and targeting for our marketing of those ticket sales. It's just a whole area that I think we're just coming up to speed on that will -- that we're going to commit a lot of resources to. But I think a lot of it is we're going to look to build upon what some of the leading firms out there have done in pioneering in these areas.

And they happen to be our tenants. The beauty of having so many AI tenants, if you look at the -- this is in our deck, some of the largest AI leases done in New York are in our portfolio, names like Harvey AI. So we have the beauty of partnering with existing tenants to build out AI. I know my group, specifically in finance is using AI. And by the way, I'm not saying build this out, and then I'm going to get rid of all of you. I just repurpose them for higher functioning duties, but we're building that out with tenant partners.

I think the last piece to add there is how much proprietary data we have that nobody else in the market has. I mean we've invested in almost 1/3 of the commercial market. We have evaluated and underwritten probably another 20% to 30% of the market. Our ability to use that data in these types of technologies can make us smarter and better than our competitors just using that data. And we don't plan to share that data with others. So that's just going to make us a better investor and better thinker as we evaluate the market.

Hi, guys, have you [indiscernible].

Well, I mean, the companies were -- I wouldn't -- we were not -- we didn't lean into fractional office. That was a big point of ours way back when because we thought the credit exposure couldn't necessarily be secured with 6 to 12 months of security. These companies are -- appear to be very well capitalized and have real business plans that I feel differently about. And so I just want to -- they probably account for less than 1% of the portfolio. I'm -- top of my head, maybe 1 million square feet or less.

Maybe even a little less.

Maybe a little less. So I mean, it's not something I'm like losing sleep over, if you will, when we think about credit. Our credit losses are infinitesimally low, and that's been through many different cycles. I think we're really good at making sure we secure our TIs commission and free rent periods and have an ability to relet in a down -- if something happens. So I think the combination of keeping exposure to any new industry at a 1%, 2% level, something like that and taking good steps on securing those leases is what we traditionally do, and then we'll see. But 99% of our demand is coming from seasoned Fortune 500 type tenancies. And I don't -- credit loss, I couldn't even begin maybe less than 0.25 point a year it sounds like.

Maybe a couple [indiscernible].

Yes. We take the same approach. You got to -- you're looking to secure your TI, your commissions and your free rent. I mean you don't want to be caught out-of-pocket. You're not going to get 3 years of security in this market and secure not only your out-of-pockets, but also multiyears of rental stream. So as long as my view is you've covered your costs and your free rent period, then you go replace the tenant and life goes on. And as long as you're limiting your exposure to those types of industries for a couple of percentage points, then it's really not -- it's not pivotal for us, if you will.

We got a question coming in from the audience. What percent of your tenant base is software-focused?

Somebody recently looked at it. I think they found one tenant that was greater than 5,000 feet. And then maybe 1 or 2 that were less than that, software specific. We have fintech, we have AI, but software. That's -- typically in New York, you don't see a software company.

I just -- getting a couple of questions. Our portfolio is Midtown centric. We don't have downtown except for 100 Church. That's not really a tech building. And we've got some great buildings in Midtown South, which is where we probably have almost exclusively our technology software and our [ AR ] tenants in 11 Madison and One Madison. Those buildings are leased. So I mean -- and they're not leased to software tenants by and large. I think we have Palo Alto in One Madison, and we signed up a few AI tenants. But it's -- the portfolio is really comprised not so much of AI tech and software companies, and I don't expect it to be over the next 3 to 5 years.

Another one from the audience. What do you think your normalized FFO per share growth will be when the portfolio gets to full occupancy?

It's a good question. Matt?

That is a good question. Look, we're in a period where we are -- we've leased the portfolio from 88% to 93% at the end of last year, getting to close to 95% this year, burning through the build-outs and the free rent periods, and that puts NOI on a significant growth trajectory. What's -- that's -- we highlighted 10% same-store NOI growth in 2027, and we're clearly on the trajectory for that, actually came out of the gates better than we expected in early 2026, although that materializes further out. Typically, leases roll through earnings closer to 24 months than 12 months after the lease is signed. But if we can get a rate environment that's a little bit more constructive with the NOI growth, we are on a significant growth trajectory.

All right. Moving into our rapid fire. What will net effective rent growth would be for your property sector overall, not your company in 2027?

Net effective rent in the better properties you said or which properties?

Net effective rent for New York City next year.

Net effective rent for New York City.

New York City?

New York City.

If headline rents are in the 5% range, I think net effective rents will be compounded in the 10% range.

And then will your sector have more, fewer or the same number of companies next year?

More or fewer or the same number of companies next year in our sector?

Fewer.

Thank you.

Thank you.