SL Green Realty Corp. (SLG)

Investor Day 2018

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Dec 3, 2018

All right. Good morning, everyone, and welcome to SL Green's 2018 Investor Conference. We have been working hard all year long with an emphasis on the past few weeks to make sure that we had a presentation that is worthy of your time today and we look forward to keeping you informed and entertained over the next few hours. We've gathered today to end an extraordinary year for New York City and especially for East Midtown where so much of our portfolio is concentrated. The New York City market is our exclusive home and therefore a key part of our success. Signs of New York's underlying strength were everywhere this year. JPMorgan made headlines with its commitment to demolish its Park Avenue headquarters and in its place develop a 2,500,000 square foot skyscraper following in the footsteps of 1 Vanderbilt. Grand Central led all midtown sub districts and leasing volume increases reaffirming our belief that Greater East Midtown remains the most sought after address in New York, and the city's tech sector is having its moment. With Google dramatically expanding its footprint and Amazon's huge decision to locate its 2nd headquarters in New York City, right in Long Island City, Amazon, Google and so many other companies want to be here. They need to be here because New York continues to attract the best talent from around the country and around the world. And that's great news for our business. In this period of intense activity, no one was busier than SL Green. You can see behind me the virtual avalanche of new stories from this year. We signed over 220 office leases representing 2,200,000 square feet of space in just 11 months vastly exceeding our targets for the year and setting the stage for next year. We disposed of non core and mature assets like 3 Columbus Circle, 635 Madison Avenue, 1745 Broadway and Development Property in Brooklyn. We moved on great opportunities like 2 Herald Square and 245 Park where we could add value and drive earnings for you, our investors. We succeeded in closing some key retail leases in our high street portfolio and our DPE business dominated the scene once again this year and the incredible advancement in leasing and construction at 1 Vanderbilt were followed in the press and in the city on social media. Most of all, we focus on implementing an aggressive share buyback program that takes advantage of the unprecedented discount in our stock, which continues today and will be a big topic of discussion later on. Look at all this news. This isn't a decade of achievement. It's less than a year. What a testament to the platform we've built. And we made sure to end 2018 with a bang. Since Thursday evening, we dropped 9 additional announcements on the market, as summarized on the screen behind me, a new record for us and an indication that we continue to work as hard as ever on your behalf. Today, we'll talk about each of these announcements Herald Square to our expanded role at 245 Park. From the acquisition of a real deal in Hudson Yards to construction in Lower Manhattan and of course, the continued expansion of our share buyback program. It would have been a great year without any of these latest announcements. It was a monumental year with them. This level of activity shouldn't surprise anyone who has followed Esso Green over the past 2 decades. There is hardly a block of prime commercial office space in Midtown Manhattan that we haven't played a meaningful role in. Everything we currently own combined with what we previously owned equals an astonishing 50,000,000 square feet evidenced by all of the buildings on this map. And our DPE and servicing platforms have participated in deals representing another 65,000,000 square feet of collateral interest. You're not looking at a map of every building in Manhattan, believe it or not, this is just the buildings that SLG has invested in over the years. All told, over the course of our history, SL Green's footprint covers a remarkable 115,000,000 square feet. Just let that number sink in, it's roughly 30% of the Manhattan office inventory has passed through our shop in a meaningful way through investment. And whether you have been with us from the very beginning or joined us along the way, you have benefited from our commitment to excellence and our experienced leadership team that has delivered growth, stability and solid fundamentals that have always characterized this company. But this year, like every other year, the story of our success begins with the fundamentals of the New York City job market, and they were very strong in 2018. Even before Amazon's big announcement last month, we were feeling quite good about the forecast for continued strength of New York City employment in 2019. All the stats are pointing in the right direction, albeit at a slightly slower rate than we had seen in previous years, but still among the highest rates of growth in the company. On the slide, you see 68,000 private sector jobs expected to be generated in 2018. We're very close to that number as we sit now through November. And more importantly, the Office of Management and Budget has increased its forecast for next year's job creation from 54,000 feet to 61,000 square feet. So upward momentum in the job forecast. Office using jobs, same trend. 20,000 office using jobs is what's currently forecasted by OMB for 2018 and next year they're actually forecasting a higher level of jobs. They've upped the amount from 21,000 to 25,000 new office jobs in New York City in 'nineteen. That represents somewhere between 4000000 to 5000000 square feet of new absorption. So where are all these new jobs going? The answer is increasingly East Midtown. The good news is that the city and our industry are moving quickly to accommodate all of this growth. For the past few years, the new supply conversation has been driven by the Westside, but now East Midtown is joining the party in a very big way. Businesses continue to be attracted to the transit rich nature of what East Midtown has to offer. There's more Fortune 500 companies in East Midtown than any sub district in the country and quite possibly the world. Investment in East Midtown continues apace and Andrew is going to talk about that momentarily. And most importantly, there's significant investment being made in the transit system and in the public realm system to kind of reinvigorate East Midtown with new office stock and new infrastructure to set the stage for decades to come. This map, what I referred to earlier as our footprint, we're going to rotate it and look at just East Midtown, which is about a 70 five or 80 square block area that houses some of the most important businesses and buildings in New York City. The average age of the stock in this section of Manhattan is about 60 5 years of age or older. So in the past, in order to be competitive with new construction and to keep up with the demands of new tenants, developers or owners like us would have to go through extensive renovations, redevelopments and remassings in order to deliver space to the market that was continually being renewed and continually competitive. Here you see some select ones, recent examples of ambitious redevelopment projects that were undertaken usually at a time where the East Mid Town rezoning was unavailable for new construction. Our project at 280 Park, Boston Properties retrofits of 399 Park and 601 Lex. David Levinson's remassings of 390 Madison Avenue and 425 Park, both done as of right. And Olean is now considering a major reimagination of 550 Madison once they work through their landmark issues. So this was how we did it in the past, but then along comes East Midtown rezoning, Vanderbilt Corridor rezoning and all of a sudden we have the economic ability, the feasibility to capture space, scrape and build and that's what we did with 1 Vanderbilt. It was a it will be a 20 year project from inception to the cutting of the ribbon. These are not easy projects. These are not tax subsidized projects, okay. These are full market projects. You got to do this in a way that is exactly right in terms of the product you're building, the construction, the delivery schedule, not a lot of margin for it, but when you do it right, it's very, very profitable. And following in the heels of 1 Vanderbilt is JPMorgan, who is going to demolish their headquarter buildings at 270 Park and replace it with a 2,500,000 square foot iconic new headquarter building, really flattering 1 Vanderbilt and further establishing a trend in this area, where tenants and businesses are showing their desire to be in East Midtown. So the future, what does it look like for East Midtown? Well, there's a handful of sites that we sort of monitor, if you will, or that we believe are probably the next generation development sites in these midtown. Could be others, but these are the ones we focus on. Everything from Pfizer, which is probably most immediately deliverable and MTA headquarters on Madison, to longer term projects along Park Avenue, 250 Park, 300 Park and an assemblage of buildings that could produce a large building at 40 East 52nd and 350 Park. Now these sites if taken in total would use about 2,000,000 square feet of air rights out of the 3,500,000 square feet of air rights that our landmark transferable development rights under East Midtown. 600,000 of those have already been used by JPMorgan. So 29 remains, 2,000,000 is here. That would leave just 900,000 for the future. So out of this rezoning, I think we'll get a handful of new buildings, but importantly, they will come over time. They will not be put on the market. There will be no glut. I think this will take decades to build out at best. So it will be measured. It will be an evolving trend for Midtown, for East Midtown in particular and it will be done in the right fashion. So we're very optimistic. And all of this planned growth will accommodate continued strength in the New York City leasing market. Tenant demand right now is very strong with real migration to higher quality buildings. We see it and you read about it all the time. Concessions in 2018 leveled off as leasing activity in Manhattan and Midtown in particular is up 6% with Midtown South up a whopping 34%, that's leasing volumes. And the leases we announced today along with Deutsche Bank's 1,400,000 Square Foot lease in the complex we are currently sitting in will only further serve to increase these midtown statistics for 2018 when the story is finally told. Along with the migration to higher quality building in a tightening market comes an increase in the number of tenants that have the ability and willingness to sign triple digit rental rates and this year should eclipse 2017 when all is said and done. We have about $5,100 and up rents through 2018 Q3. I think we'll be somewhere in the low to mid-60s when all is said and done. A lot of that's coming out of 1 Vanderbilt today. And you also see another important trend, the size of the tenants that are signing these leases. The average has grown to about 40,000 square foot of tenant for $100 rent and up. So there's I think much more acceptance and much more convention now that good space and state of the art space in this market is routinely $100,000 $150 a foot and up for the best located properties in the best part of town. An important dynamic we see in the current market is also the relatively limited supply of big block space. Big blocks we've defined as roughly 300,000 feet and over. There's 9 such blocks in Midtown that total 4,700,000 square feet that are immediately available. I view that as a fairly limited number of options given the number of tenants that are in the market looking for big block space. You see that there, 44 tenants looking for 12,000,000 square feet in total. By contrast, in SL Green's portfolio, we don't have a single block today of 300,000 feet or up that we could deliver in 2019. So I think that's a fairly big statement about the tightness in this market and our portfolio. You have to look to the under construction projects of which there are 7,000,000 square feet, but that's not delivered until 2022, maybe end of 2022. So you're talking about 4 years to absorb that 7,000,000 feet and given the current demand in the market and the job growth we expect to occur over those 4 years, we think it's more than enough to keep that vacancy rate where it is and start to make real gains in net effective rents going forward. Drilling in on that 7,000,000 feet, this is where the future big blocks of space will arise for the most part. You know this You know these buildings. You've seen this map. It's the Hudson Yards. There's about 15,000,000 square feet of space when this phase is completed in 2022. That dates back from 2016 to 2022, 15,000,000 feet. The good news is all but 4,500,000 square feet of that space has been leased or pre sold. So there's really a diminishing amount of new supply. I'm not sure people appreciate the fact really 2 things. 1, there's not a lot of space left in that part of town. And 2, the rents that are being asked for in what remains in those buildings is about $110 a foot to start on up to $140 a foot and even $170 foot in the top of the building, I believe at Spiral at 66 Hudson or maybe 50 Hudson, I'm not sure which, but one of them is at $170 a foot. So no longer are these buildings being absorbed at the $80 to $90 a foot range. They're now looking for rents that would have to push up against Midtown. And as a result, we think that impact only puts a real spotlight, if you will, back on Midtown, which has always remained, in our opinion, the market of choice for businesses. Looking out beyond 'twenty two, there's 2 other buildings that will contribute in total 3,800,000 square feet of space. That may sound like a lot, but on a 400 1,000,000 square foot inventory, it's a very small amount of space that will be delivered in 'twenty 3 and beyond, in our opinion. It really is just enough to accommodate a city that's growing the way New York is. We're seeing what we've been saying for years that Midtown remains the location of preference for businesses who desire Class A Real Estate in transit friendly locations. If you look at this graph, you'll see that Midtown generated leasing volume gains year over year of 38 percent and leading the way was Grand Central Submarket, which we happen to have the majority of our portfolio located within. I think it's a 67% increase in the Grand Central market, 38% for the year to date. I think those numbers are going to be higher once the year is over because this is only I think there was an acceleration in the Q4. If you contrast that with the Westside, because of what I said, the diminishing amount of supply and the higher rents attached to that supply, you saw a drop in the West markets of 20% year over year through the end of the quarter. So a very interesting trend that confirms Midtown is the center of gravity. But the question still remains, with all of that leasing and job growth out pacing new supply, why are we not seeing bigger gains in vacancy? The answer is densification. Since 2010 job growth has advanced at a record pace in New York City, while densification much more so than new supply has held the vacancy rate relatively in check. So it's not bad. I mean it hasn't backed up on us, but it hasn't advanced the way we wanted it to. But don't take it from me, hear what Dwight and Jim have to say about it. Sure. Mr. Davis, let me call you right back. Yes, something just came up. 2 minutes. Thank you very much. Dwight, what are you doing? What? What are you doing? Densification. You can't do that or not. Safety violation, I could fall and pierce an organ. We'll see. This is what I call densification. It doesn't bother me. Densification? Densification? I have no problem with that. I have been recommending densification since I first got here. I even brought it up in my interview. I say, bring it on. So last year, we identified this trend nearing a plateau as we began to see office users reaching the limits of how much space efficiency is truly feasible and tolerable. I still believe the end is in sight. I see that in our portfolio where the trend is reduced. I hear it anecdotally from people who have moved into these more dense layouts and they're not happy with them. And we see it with the architects and designers who are telling us the pendulum is starting to swing back in the other direction. And over the past year, we've seen these new stories, but now we are beginning to see some of the hard data that backs up what we've been feeling and thinking and saying anecdotally. Study after study shows that we've reached a point where we have become less productive and less happy for that matter due to the over densification of office space. These are 4 or 5 studies all done recently sort of bringing home that point. But we're already beginning to see that shift, small, but it's little seeds of shift in density in a study that Gensler did where sanity appears to be prevailing as workspace becomes less dense and companies attempt to restore a level of privacy and actually force their better communication by being less condensed with one another. Interestingly, the firms that you think about as being the most efficient large finance, media and tech, they are rentable square feet occupied per employee is about 200 to 250 a foot, the numbers we've been telling you. I hear from the market, analysts, shareholders, well, I hear 150 a foot, 175 a foot rentable. It doesn't exist. What may be talked about is usable versus rentable or it's the workspace without amortizing in fully all the amenity space and the social space and the lounge space and the latte bars and whatever it is. That has to be factored in when you're talking about the totality of rentable square feet and that at its most efficient is about 200 a foot to 250 a foot. And that's probably a pretty healthy level for the market, although we may have reached the limits based on this the information from Gensler, who is probably one of the leading interior design and layout firms in the city. So as we anticipate a slowing in densification, near term job growth will have much more of an immediate and strong impact on occupancy gains. So much of the job growth that we've seen as well as the dominant market trends like densification are being driven by the tech sector and New York's emergence as a true tech hub. When the city of New York first announced plans in 2010 to bring an applied sciences graduate school to New York, no one could have argued that New York was in the same league as Silicon Valley or even Boston as a tech center. But by the time Cornell Tech opened last year, the landscape had changed dramatically. This heat map shows that many of the biggest names in tech have chosen to establish sizable presences in Manhattan clustered mainly around Midtown South and Downtown. This has helped to transform these submarkets that were previously looked upon as secondary location and have established these markets now as being amongst the hottest in the country. New York now boasts the most tech workers of any market in the country, pretty amazing, 330,000 tech workers in New York enjoying proximity to the Global Financial Center and leveraging off of New York's diverse base of employees and businesses. New York City has also joined the elite ranks of San Francisco and Seattle in terms of being recognized for a deep and talented pool of employees in the technical field. So it's no coincidence that these businesses want to establish an East Coast presence in New York, in the space we have, which is fully amenitized, 24 hour cities and access to this sort of almost limitless pool of talent coming out of the schools and coming out of these other jobs that provide a depth that doesn't exist in many other markets. And when there is talent and innovation, there's also venture capital. And you can see here in 2014, New York City lagged quite a bit behind Silicon Valley and New England, Cambridge in terms of venture capital investment. But in the years that ensued for the past 3 years, New York City has either led the way or been right on top of Silicon Valley in attracting those dollars to fund startup companies, which is contributing to the vibrancy of the city and the job growth. This deep talent pool and significant investment capital has appealed to some of technology's biggest names and position New York as ripe for expansion. And at the forefront of this growth is Google. You can see here they started in 2,002 with just 60,000 feet and in a relatively short period of time have now grown to 5,000,000 square feet owned or leased on the lower west side of Manhattan, Downtown West, where they put a campus together for 7,000 staff, 50% of which are in the technical field. It's pretty amazing stat. And they're not done. Rumors are they're going to be signing a lease and they're acquiring a portion of St. John's Terminal 1,300,000 feet. So anything they do, they do bank. There's no small expansions you can see up on the table, up on the graph. And now comes Amazon. And we're just as happy about it as the Governor and the Mayor. Every single major city in the U. S. Was desperate to attract Amazon. Over 200 cities put their hat in the ring. It was narrowed down to these 19, mostly clustered along the East Coast. And Amazon ultimately ended up splitting the fight between New York City and the D. C. Area. Major, major boom to this market. It will bolster our position as the East Coast number one location for tech firms, rapidly expanding technology companies, not only Google, Amazon, but all of those who follow these companies, they co locate and they kind of thrive off of these companies will proliferate in our opinion as and I think in everyone's opinion in the city as they become bigger and more established. With the good news being that the 4,000,000 square feet that has been committed to will ultimately grow to 6000000 feet or 8000000 feet, over 25,000 employees, possibly up to 40,000 employees, with enormous incremental tax revenues for the city and some benefits that are more derivative like an increased investment in housing and infrastructure that will follow. Here's a map. You can sort of see the location of the campus, which is comprised of both governmental and private sites that will be built out over a decade or longer. In the interim, they will use space at 1 court and other locations to accommodate their needs until these facilities are built. You can see why this site was attractive. It's one stop away on the E Train from 53rd and Third East Midtown, one stop. So for our dense portfolio on Third and Lex and Park, it's we think an enormous benefit because we can deliver affordable space, one subway stop 10 minutes away from Amazon's new campus. So a big win for East Midtown, also great proximity to the area airports. And it will take years for Amazon to develop this headquarters and to fill it. So in the interim, they will take space, as I mentioned, at one court, other facilities, and I expect they'll rely on flexible office space like they already do with 2 Herald which we own where they are an enterprise tenant of WeWork in a building we own. And many other tech companies have this insatiable need for co working. So co working looks like it's here to stay. It's become an undeniable force in our market and has helped incubate startups and newer firms which didn't have a fit in the traditional leasing market. The new age of co working space is dynamic, purpose built and designed, highly amenitized in ways that really appeal to today's worker. And it caters more to the entrepreneurial firms and the creative firms than the established companies, although that's changing as these established companies want to leverage off of that vibe and that level of flexibility. These are the names that have existed for many years in this space, Regis, New York City office suites and HQ tenants within our portfolio. But now you've got motel Spaces, Convene, Hana, other names that have become household names. But WeWork is sort of the gorilla in the room with 5,000,000 square feet of space leased and sort of no end in sight to that sort of insatiable appetite. We think that's a good thing. It's grown to just 3% of the market portfolio for all co working. So it's a relatively small amount of the inventory, but that's a little misleading because when you look at the piece of the pie, they have 18% market share of all new leases over 10,000 feet done in 2018, almost 2.5 times what it did last year and right on par with Financial Services and TAMI sector. Now this may come as a surprise to some of you, but we believe not only that co working is here to stay, but that's actually a good thing for our industry. When you look, I feel there's many benefits to landlords like us, a boosting of rents, significant space absorption, and believe it or not, tenants that want to do direct deals with us and locate in buildings that have some element of flexible working space to accommodate their growth needs in buildings that otherwise are pretty much full up in our portfolio. Brokers could get bypassed in the process by going directly to these providers. So that'll have to sort itself out as to the relationship between these providers and the brokers. But at the moment, it looks like there's a little bit of risk in jeopardy there. Tenants on the other hand, it's a mixed bag. They get shorter term lease obligations, flexibility, capital savings and very well serviced space, but it comes at a cost. It is a high cost of occupancy to deliver those benefits And there is a loss of that privity with the landlord, which could come back to be a negative when it comes time to expand or contract or do anything with a lease that you have to otherwise go through your co working provider. So that's sort of a look at the major trends in this market. Let's bring it all together now and see how these various factors are impacting the underlying value of SL Green. NAV, we talk about it a lot. It sort of is the foundation of how we look at this portfolio. What is the spot value of this company at any given point of time? And is what we're doing accretive to that value, which is really predominantly one of our major focuses. A key factor in this NAV analysis is the expectation that values are very strong in Manhattan and Andrew is going to talk about that. We have enterprise value right now at a $96 closing price on Friday of about $18,000,000,000 okay, down from last year mostly because of shrinkage of the company as a result of the share buyback program. When we go through the components that are non stabilized Manhattan, these other components, we have leased fees and leased interest. We value those property by property, taking into account the lease terms and the lease provisions and fair market revaluations and we get to about a $2,000,000,000 value. Then high street retail portfolio works out to around a 4.25% cap higher than what we've shown in previous years because a lot of that mark to market that kept that cap rate in the 3s we've realized on through our extraordinary leasing efforts. Residential, we have about 2,000 units, very high performing real estate that we value at around a 4 cap. It would be that's actually a relatively high cap rate given the fact that 20% of the portfolio is encumbered either with affordable housing requirements, rent control or rent stabilization. Suburban asset value, we have estimated at net liquidation value. So sort of spot market values, I think we have a very good handle on that $384,000,000 Development properties are typically at cost with a modest landmark up that is reflective of the marks where we either have or believe we can get ventures done to the extent we wanted to venture those assets. Basically cost that's $2,000,000,000 plus $2,500,000,000 of NAV. Debt and preferred equity we value at book one time and the portfolio has performed extraordinarily well. And then there's other assets mostly balance sheet items, receivables, cash, other items that Matt can sort of explain. We also put promotes and some air rights in there, but not the one Madison air rights, leaving a total implied Manhattan value of $8,000,000,000 which is $6.10 a foot and 6.5% cap rate. Now there's no debate in my mind, 0 debate that those are metrics that are anywhere close to the reality of the market we participate in and have participated in 21 years. It's extraordinary how undervalued the Manhattan portfolio is with it. And for that reason is why we believe so strongly in the share repurchases. When we put a 4.5% normalized cap rate in this market on a portfolio that keeps getting better and better every year as we reengineer the portfolio, you see an $8.76 per square foot implied value and $140 a foot and a 31% discount. Now that sounds like numbers that any private market participant would absolutely wrap their heads around. And we look not to the public markets as arbiters of value, but of the enormous wave of capital that exists in the private markets, Looking here only at private closed end funds, which are typically core, core plus value add and opportunistic, they carry financing levels of anywhere between 50% 75%. They're looking for rates of return as low as 6% unlevered to 10% or levered returns of call it 7.5% to 20%. That's where the market is for value. That's where these funds operate and that's how they capitalize themselves. REITs on the other hand are geared at around 30% to 35% weighted average debt rates for the office sector. And we have all forms of those assets within the portfolio. We're not a fund that just has one category of asset. We have everything. We've got core. We've got value add. We've got development. We've got transitional. It's what we do. We're expert at all of it and we're trying to operate that business and grow and grow profitably with the constraints that have been applied to this sector, very low stock price, big discount to value, so inability to raise external equity publicly and debt levels that are below our competitors is not a commentary or right or wrong, it's just fact. And therefore, we have to be that much better in order to compete, which we are. So we do it. But there are companies out there that have raising 100 of 1,000,000,000 of dollars of capital. In this market today, Blackstone and Brookfield alone are raising $15,000,000,000 to $20,000,000,000 a year for investment in the kind of product we invest in. So investors vote with their wallets. It's not a debate, in my opinion. It's not opinion. It's where's the investment dollars going. And decidedly the investment dollars are pouring into the private market. Good for us because it forms a stability of value for our portfolio. So why do these repurchases make sense? Why are we so dialed into doing it? Why did we announce another $500,000,000 on Friday? Well, it's because the pillars of our strategy is value creation, earnings accretion and quality enhancing, reengineering the portfolio. And when we buy, we're buying more of a better portfolio every time we sell an asset or recap. We're reducing complexity and hedging ourselves naturally because through aggressive selling to buy, we take advantage of today's market rates and that forms a hedge, buy low, sell high. And we have a strong conviction about it. I believe you got to have an opinion. I don't believe in neutrality. Somebody on this Board once said to me, you got to have an opinion. And we do and our opinion right now is that this makes sense for our company. So the way we fund that program, I'll go through this quickly. Joint venture assets back in 2016 provided 550,000,000 dollars of net proceeds. We ramped up in 2017 with JVs and sales, another $600,000,000 of proceeds. Look at 2018, wow, that's a lot of deals. So I guess we really ramped up $1,450,000,000 of net proceeds generated through all those activities and we still got a month left. So that gives you total sources of $2,600,000,000 How did we use it? Well $1,800,000,000 went to share repurchases since we started this program, Another $770,000,000 went to corporate and other debt repayment and unencumbering. And that's in addition to eliminating $1,400,000,000 of underlying debt as part of those sales. So it's the pay downs and the elimination of the property level debt. So we've executed in a very balanced debt neutral way, dollars 2,600,000,000 raised, dollars 2,600,000,000 deployed and a lot of debt eliminated so that we've come down at a leverage point to something that is well below our private market peers. In 2019, you're going to see more of the same, dispositions, additional asset sales, joint ventures, additional sales of 1 Vanderbilt and a JV of 1 Madison is our goal in 2019. Suburban dispositions in Stamford and Westchester at the levels that we showed on the NAV slide. Debt and preferred equity is kind of self funding. We get money, we put the money back out, doesn't require any new equity funding. Financings, if we close the JV, we'll get a construction loan for One Madison. And how about common equity issuances? I don't think so, probably not in 2019, but I hope so. Hope there's a big rally in the stock. Uses, 460 West 31st, exciting new development, redevelopment candidate that we just went hard on the contract. Andrew is going to talk about that. Development projects like 1 Madison, 185 Broadway, seeds for the future. We're growing our FFO as we sit. We're growing our same store NOI, but this is for the future. Redevelopment of 6095th way ahead of schedule. Debt reduction, line of credit cleaned up to 0 and share repurchases overriding it all. So where does it sort of come home year to date? We are at total return levels as of Friday that we're not happy with by any regard. You know our single-minded focus in trying to gain absolute level of returns. But on a relative basis, we've outperformed most of our peers and the index for the year. And yet that outperformance comes even while our multiple is so cheap, 13.6 times FFO multiple relative to a peer set that averages 15 and reaches highs of 18 to 19. So as long as that continues to exist, I guess we'll probably continue to buy stock. But our goal is not that. Our goal is to create a portfolio that we believe warrants the highest multiple, premium multiple in this market for the talent base we have, the sort of insane focus we put into executing year after year and the value we create in New York's most extraordinary portfolio of assets. So I hope you can see from the presentation so far that our portfolio is in excellent shape and that we are tremendously optimistic about moving forward. Over the next couple of hours, we will be presenting a number of exciting new projects that will produce incremental cash flow and allow us to continue delivering the growth that you come to trust and expect from SL Green. And of course, Matt Deliberto will be batting cleanup, talking about our investment grade balance sheet and our preview for guidance in the coming year. For 20 years, we have delivered enormous value in this market. With this world class team. I think you will find that we've delivered in 2018 and we're on track to do it again in 2019. Now it is my pleasure to turn the presentation over to my partner and colleague of 25 years, the Iceman himself, Andrew Mathias. Thank you, Mark, and that's it for me. Good morning, everybody. Thank you for coming. I'd like to start today by giving my traditional overview of the investment market and then get into some deal specific case studies based on our announcements this morning, which I think everybody will find very informative. We sit today in a balanced, competitive and efficient market with some very positive trends. That balance means strong demand across all three property categories that Mark described core, core plus value add and opportunistic. And the market volumes we're going to look at show no sign of abating as worldwide capital keeps focusing on the New York City market, debt markets continue to be extremely efficient even in the face of rising indexes and sellers keep an ample supply of properties on the market. You can see institutional capital popping up in deals anywhere in the 5 boroughs today as investors scour the landscape in search of compelling returns. In a telling measure of the market strength, volume is up this year and by the end of the third quarter, we've eclipsed all of last year's volume total. The side screens show that in each of each quarter of this year's totals, sales volume has exceeded that of 2017. The $9,200,000,000 remaining you see here, we view as highly likely, particularly given the deals SL Green has already closed in Q4 and some of which we announced this morning account for almost 15% of that total. While volume is up this year, cap rates have trended up a bit in reaction to increasing treasury rates and modest rent growth. We believe this is partially a function of traditional core investors shifting their risk tolerance in search of higher returns. Class A pricing at north of $1,000 per foot is still a very healthy market and the composition of buildings that are sold in any given year can influence this per foot average. The changing yield trends have ushered in some new players in the constantly changing buyer landscape. You can see this core market demonstrated here as U. S. Capital steps in to replace Chinese capital as the dominant players. SLG's own 3 Columbus and 1745 Broadway show up among the larger trades of the year. The value add segment saw a notable pickup this year and this volume is not reflected in the market cap rate statistics I showed you earlier as each of these deals is slated for heavy capital investment and complete repositioning, so oftentimes these deals are bought at 1 and 2 caps. The value add sector was highlighted this year by Brookfield's very aggressive purchase of 666 5th Avenue where they're going to completely reskin that building and try to reset rental levels in that segment of 5th Avenue. But terminal stores, which is the 2nd deal here, earned an SLG First United Nations flag as the equity source as a large syndicate of U. S. Pensions, a Korean pension fund and German insurance capital teamed up to fund this bold purchase of a landmark asset on the Far West Side. Historically, you would find these players in core deals or in ground up development in the core very core areas of Manhattan. But in these players' quest for yields, they broadened their risk and asset tolerance, funding an aggressive business plan in a developing area of the city. Ground up development also saw an active year as Disney sold its Upper West Side Campus for residential development and promptly redeployed that capital into land in Hudson Square for a new office and studio building they'll be constructing there. Pfizer's campus traded as well as they announced their relocation to the spiral at Hudson Yards and they sold their site to a group that they've become one of the sites Mark highlighted in the Grand Central redevelopments as Midtown's next wave of development may take place. And anchoring some of that $9,000,000,000 I showed you to common core in Q4, you see transactions that are on the market. Even though some of these deals will slip into 2019, you can see the market is robust with investment opportunities in every corner of the city from core downtown on the left to SoHo up the Westside into the Hudson Yards and on into core midtown. There are several other large deals we're tracking that are likely to hit the market in January as 2019 is shaping up to be a very active year in the capital markets. Fueling all this transition activity and Mark spoke to this as well is $143,000,000,000 of dry powder available for North American real estate investment. And as if that's not enough, there's another $134,000,000,000 of funds in the market folks. While the public real estate markets pause and struggle to find their bearings, private capital is racing ahead in all geographies. You can see on the side screens digging a little deeper into the geographic focus of the funds, the shift to European and Asian opportunities that we often hear about doesn't really bear out in the numbers when you look at North America's dominance versus the rest of the world in fundraising. Real estate as an asset class has benefited greatly from an almost 20% increase in allocation of global AUM over the last 6 years implying more than $170,000,000,000 of increased real estate investment by worldwide investors. Switching to debt and preferred equity, all this transactional activity translates into a very healthy DPE business for SL Green. This morning, we ran our traditional tombstone ad in the Wall Street Journal memorializing some of our notable transactions this year, led by our announcement Friday of the completion of Phase 2 of our 245 Park Avenue preferred equity investment, an extraordinary and highly complex deal that features double digit returns to SL Green and our assumption of operational control of this flagship asset. You can see other household names on the screen as our borrowers as our shift to mortgages, which I'll get into in the slide presentation, broadens our borrower universe. So you can see folks like Normandy and Invesco, CPP and Oxford and others broadening our borrower base and moving it a little bit more institutional. The team has had to work harder than ever to keep the pipeline robust this year and continue to maintain a rigorous credit and underwriting process. Most deals continue to be pretty heavily equitized on the purchase versus prior cycles, so that leads borrowers to lower leverage levels on acquisitions. And the market is extremely competitive as new entrants continue to emerge in the sector. All this is against the backdrop of increased fixed and floating rate indexes and spreads that continue to tighten as lenders compete for assets. The reemergence of the CRE CLO market has helped some of these players hit their target returns in this market context. So as they lower spreads, their cost of financing lowers due to cheap CRE CLO money, it allows people to compress their spreads. We definitely see some risk getting mispriced out there in deals which we've studiously tried to avoid. CMBS volume should finish the year around last year's levels. As this slide you see here is through November 30, 2018, But the real story this year is in the explosive growth of the CRE CLO issuances. Recall these are loan pools that allow non bank lenders to aggregate both bridge and mezzanine loan collateral that doesn't fit the traditional metrics of CMBS. Some have revolving features and allow these lenders to better match financing term with their underlying assets. And similar to the dynamics I showed you in equity funds and Mark spoke about earlier, record levels of capital are being raised for debt investment funds as well. So much so that 2018 is looking like it will be a record year for debt investment. Really, we have 20 years up here, but probably ever. It seems like everyone, including a lot of our borrowers, which you see on the side screens, are jumping into the debt game these days. Turning to our own portfolio of debt, you can see that some of the metrics that prove out our risk mitigation strategy show up in these pie charts. We were predominantly a mortgage lender this year, preferring superior collateral and control over the whole capital structure as we saw mezzanine paper overbid in many situations and avoided those deals. We stuck mostly to floating rate deals, giving Matt a nice balance sheet hedge to our floating rate liabilities and sticking more to transitional business plans, borrowers who are buying, fixing and either selling or permanently financing assets because assets that were stabilized that went out for fixed rate financing typically drew that very aggressive capital and those yields compressed quite a bit. And the deals were primarily refinancings that we And the deals were primarily refinancings that we participated in as those high equity levels in acquisitions I discussed often made that paper too cheap and we refinanced many of our existing customers. You can see these trends further illuminated in our retained originations for the year where we have our highest level ever of mortgages as a composition of the paper that we retained, very healthy levels of over $1,200,000,000 of retained originations this year and yields that you see trending down a bit as we move shift up the risk higher in the risk spectrum, higher in the capital structure, lower in the risk spectrum and trade off a little bit less yield for more secure positions, keeping our studious eye on credit at all times. It's worth taking a step back and recapping the program and sort of going through quickly our track record. We are the lender of choice in the Manhattan market. We are the 1st call for subordinate financing and increasingly bridge financing. The more complex a deal, the quicker a deal has to execute, the better and more competitive we are. We've originated more than $10,000,000,000 of retained originations in the last 21 years. So our track record and sort of the breadth of our experience is unmatched. And we maximize risk adjusted returns. We generated returns in excess of 10% with realized losses of less than 1% over the life of the program, so less than $100,000,000 That comes as a result of both on origination being very rigorous in terms of the deals we select. And then also we have a very active risk management process where we use our market intelligence and sort of what we're seeing going on with different borrowers in different areas of the city and have quarterly asset management meetings, establish watch lists and aggressively shed risk where we don't feel comfortable, we don't think the position is performing to underwriting. But another critical feature of the program is really the equity opportunities it leads to as we are the first call when we're in a capital structure as borrowers look to either sell or in some cases joint venture assets. And with some of the announcements this morning, I'd like to take you through 3 case studies of assets where they're long lead time type deals. It takes a long time to put these deals together, but you start to see in some of our announcements this morning the extraordinary returns we can generate from some of those deals. So let me start with 460 West 34th Street. This building sits kind of an unbelievable location between the new Hudson Yards developments and Manhattan West. It's a very large building. It's a big scale deal and it was completely off market the way in which we acquired the deal. So very unique opportunity for us on a big asset 634,000 feet. Going through kind of the time line of our acquisition, in October of 2014, 4 plus years ago, through 3 separate transactions, we financed a 34% interest in the deal through a convertible loan that we originated out of our DPE program. After closing that deal, we had a little tussle over who operationally controlled the asset. And 2 years later, we prevailed in an arbitration, which determined who was in control of the asset and what our rights were visavis the other 66% of the deal. In July of 2017, we executed a letter of intent to acquire a controlling interest in the building and we turned that letter of intent into a contract in December of 2017. In May of 2019, so as we cleared sort of the hurdles of that contract and put together our plan for the asset, we had an extraordinary amount of time, almost 18 months before we had to close on the building. We'll close on the controlling interest in May of 2019. And the plan here, we have a great upgrade plan for the property, new lobby, new double height retail space at street level, modernizing the office space upstairs, which I'll show you some renderings of shortly and completely new environment inside the building with upgraded mechanical systems, new building amenities making the building competitive with some of the new construction in the surrounding areas. That program we expect will take about 2 years. So in March of 2021, we'll deliver new upgraded and tenanted space to the building and the asset should stabilize. This takes a long time to put together. There's a lot of complexity. It brings in a lot of disciplines of the firm. But as you look into sort of what it takes to get a deal below blistering market price these days, you can see that our blended basis in this building is going to be around $5.28 a foot in May when we close. Our base building capital program, we've outlined around $200 a foot additional. So we'll develop what will bring a fully redeveloped building to the market for tenancy at $7.30 a foot. If you look around that map that I flashed up before with all the new construction in the area, they're delivering those buildings at $1500,000 to $2,000 a foot. So you can easily see how competitive we can be on rents still very profitably versus those buildings will be a cheaper alternative, will be a back office alternative or will be a tech sort of new media alternative where those tenants target buildings that look much more like this than new construction. They like sort of the masonry building feel, the aesthetic on the outside and then you can see in the rendering on the inside we'll be creating sort of very cool efficient space. Another $100 a foot or so in leasing cost because we'll have roughly 80% of the building to lease. On a stabilized basis, we expect to be around $8.40 a foot. So well north of kind of all the comps in the area and a great long term asset for the company. Now turning to 609 Fifth Avenue, where we got to go way back to 2,003 to go our first mezzanine loan on the asset to Jeff Sutton through the DPE program. And we converted that mezzanine loan into equity ownership of the asset. We own this building for quite some time with American Girl in flagship retail at the base of the building. And when it became clear that American Girl was going to vacate and move to Rock Center, we set about on looking at various development schemes for the assets. So we looked at everything from a full residential ground up development utilizing air rights from Rock Center, which would have required a ULIERP approval, an 18 month process similar to what we did for 1 Vanderbilt. We talked to people about ground up hotel schemes and an office overbuild where we utilized some existing air rights at the building and some FAR that existed on the block and add on top of the building. All these schemes proved to be very expensive. And when we evaluated the rents and sort of the alternative which was just a retail repositioning and a re tenanting of the office upstairs, it didn't seem like the best use of our capital. So we went forward with kind of the modest version, if you will, but I think the result was terrific and gave us a higher return on our capital. We took 21 feet of lobby space on Fifth Avenue and converted it to retail and moved the building's main lobby to the service entrance on the side street. This gave us 53 feet of frontage on Fifth Avenue for a prime retail box, which had not previously existed. At this building, the biggest challenge was there was not enough Fifth Avenue frontage. The retail team did an amazing job this year of signing a flagship 15 year lease with Puma for the retail space on Fifth Avenue. And then I'm happy to announce today, we've leased the balance of the retail space of the building to Vince, who's a clothing company moving out of the floor of Saks Fifth Avenue to street level for the first time and they'll be operating a clothing store out of 2,900 feet behind the Puma store. And then also this year, we announced WeWork leased did a net lease for the entire office portion of the building. They'll be investing significant capital upstairs in floors 3 through 13. They'll use the lobby that I described. Looking at kind of the value creation here for a relatively modest $91,000,000 capital investment versus some of the schemes I showed you earlier, we'll wind up with a fully redeveloped building with Puma, Vince and WeWork and we'll stabilize this NOI at right around $15,000,000 which is a 61% increase from NOI before redevelopment of the building. So a very attractive incremental yield on our capital. Successful repositioning here, the lease up done way ahead of schedule and Matt's happy because it will be an earning asset a lot faster than we had projected with some of the other alternatives. And then moving on to the 3rd sort of DPE case study, if you will, to Herald Square, which brought in our special servicing group and used a lot of our experience there. The history of this deal again starts in April 2007. When this asset traded, we structured a very innovative fee and leasehold financing. We wound up retaining the fee interest in this property. The leasehold traded to an entrepreneurial ownership group. We sold that fee interest in the asset in November of 2014 for a very healthy gain, great return on a fee position in Manhattan. And we continue to monitor the asset in May of 2017 when the 10 year leasehold acquisition financing that the ownership group had put on was maturing, it became clear to us they didn't have the means to refinance the debt and the debt was likely to default. So we jumped into action. Over the course of a week, we were able to use our proprietary knowledge of the asset. We bought the 1st mortgage loan on the building and maturity came. They didn't make the payment. So we were back in court running a foreclosure in Manhattan. This was a first for Mark and I. We foreclosed on a lot of buildings all over the area. We've never actually completed a mortgage foreclosure in Manhattan. Usually it's always a negotiated deed in lieu. This one we actually closed on the courthouse steps. So in 12 months time, which was a remarkably short period of time, May 2018, the gavel dropped. And we got control of the asset. The SLG SWAT team moved in. Ed and his team took over an asset that had been heavily neglected, sorely in need of capital. You had a lot of very angry tenants. There was a lot of problems at this property that had to be taken control of. But the amazing thing was the foreclosure was quick. And in today's kind of short news cycle, we wanted to keep up with that and make it a short investment cycle here. So in the words of the great Marvin Gaye. This morning, we announced a complete sort of transformation of the asset, not even just recapitalization, but a complete shift in the tenancy and a recapitalization of the capital structure. So it started with bringing in a JV partner at a big markup to our basis for 49% of the asset. We announced the closing of a very attractively priced acquisition loan on the building at the same time contemporaneously with that partner coming in. Mercy College, we expanded and extended and leased them some lot former retail space for a new lobby for their school campus. We extend their lease out to 30 years, taking advantage of their tax exempt status, selling them a leasehold condominium interest in the building. WeWork, we announced an expansion of their lease at the building. They've had a lot of success with Amazon through their enterprise business, so much so that they were looking for more space in the building. And then on the retail side, we signed a modification and extension with Victoria's Secret, which settled a rent arbitration that had been ongoing and sort of festering with prior ownership. We changed their signage profile at the building. And most importantly, we recaptured some elevators, which we needed to make the Mercy deal. And then we converted some lobby space that had gone fallow on Sixth Avenue into retail space, income generating space. We signed the lease with HappySox for that space. And what's left today is a retail opportunity, which you see kind of a monopoly space on the side screens. A prime sort of retail flagship store is all we have left to lease at the asset and we had a lot of exciting conversations ongoing about that space. So if you look at foreclosure kind of the numbers of this deal are pretty remarkable Almost less than $4,000,000 of NOI of foreclosure in May, 80% occupancy, weighted average lease term in 9.2 years. With all the leasing action I just took you through, we're up to $9,600,000 of as leased NOI, 93% occupancy, so 14 points of occupancy increase and we stretched out that lease term by 8 years. And then with the lease up of that retail flagship, we expect to stabilize this asset in a very short period of time at $18,000,000 to $20,000,000 of stabilized NOI at 100 percent occupancy. So hopefully, we'll take out the crystal ball. The short news cycle continues. Brett and the retail team can work some magic this year. In 2019, we could see some crazy headlines, a flagship lease signed and who knows what else. So transitioning to the development redevelopment segment of the presentation, We have some very interesting case studies presented in an interesting innovative way. I think you'll see we're going to start with 185 Broadway, which is our affordable New York project downtown, go right into an update from on 1 Vanderbilt and then break for an intermission, come back, look at 1 Madison and some of the unbelievable redevelopment and development that's going on there and then Matt will do his thing. So first, 185 Broadway, this is an assemblage we've been telling you guys about for quite some time, another long timeline here. But in August 2015, we bought the first properties directly across from our 180 Broadway development where we had enormous success leasing that building up to Pace University and Urban Outfitters and TD Bank on the retail. So we immediately started scouring the area for other investment opportunities. We managed to assemble another building on the site, 183 Broadway, almost a year later. And it takes a long time through the last 18 months or so, We've vacated almost 53 tenants at the site, significantly under the budget we'd laid out in order to vacate the buildings. That allowed us to demolish the site over the course of this year. So today, we sit with a site that's fully demolished. And we announced this morning, I think, that either Friday or this morning that we did a deal with the MTA. We bought some air rights and a light in air easement from the Fulton Street Transit entrance that's at the corner. Our site L is around it, which you'll see in the presentation. We did a deal with the MTA, which was kind of critical to building the footprint building we were looking to build here and bringing very competitive residential apartments to market. We also closed construction financing for this asset. So this deal is fully capitalized, very compelling terms on the construction financing. It will require a very modest equity investment to get it to stabilization. And that's how long it took in sort of the process of getting a fully assembled as of right and capitalized deal. So now you're going to hear from Dan Kaplan from FX Collaborative and then Brett Hirschfeld, Managing Director in our retail group who really spearheaded the development of this site in an unbelievable way. So this is 185 Broadway folks. Lower Manhattan was the first European settlement of New York. It was New Amsterdam. The layout of the streets grew from where the topography was, where the edge of the water was, and it always had this quirky sense. It wasn't a rational grid that we think of Manhattan. As lower Manhattan became the business center of New York, more and more people came, the densities grew up and you have this interesting combination of a European quirky street grid with very tall buildings. And what that does is it creates all these very wonderful opportunities for crafting part of lower Manhattan. It's where City Hall Park and classic center of Broadway Lower Manhattan meet, where the World Trade Center meets the Fulton Street Transit Hub and it all comes together at that corner. It's sort of like the 100% corner of Lower Manhattan. So this building is right for that site and has been crafted for that site. The design really unlocks the value of the site. There's a commercial podium that has retail and offices and then on top of that, is really the majority of the building is the residential. By creating this podium of commercial, it did 2 things for us. 1 is, we were able to utilize the full zoning allowable floor area of the site and 2, it lifted the residential up in the air and really gave great light and air to the residences. What we did at 185 is craft the building to take full advantage of the light and air and really wide open views that we do have up and down Broadway to the Northeast and of course a very special view down to the West into the World Trade Center looking on to Santiago Calatrava's beautiful transit center. So the 6th floor, there's this wonderful suite of amenities. We created an arrival experience. So when you come off the elevator, there's windows, you see out, it's wonderful, you have light. And then there's a whole suite of fitness center, party rooms, screening rooms. We've taken the rest of the amenities and put them at the very tippy top and there are 2 outdoor spaces. 1 is a 2 storey high that faces Broadway. And from that you'd be able to see City Hall Park and even all the way up into Midtown and looking south, you'd be able to see them to the Battery and all the way out to the water. So it's going to be magical. And then the roof of the Logia is another outdoor space, it's more sun oriented, sun deck and from there of course you'd have wonderful three 60 degree views. So there's this whole sense of you have wonderfully efficient, well laid out, well thought out residences and then that is complemented by this really wonderful suite of amenities that really amplify the whole experience of living at 185. And I really think it's going to be a great long term asset for SL Green. Hi, I'm Brett Hirschfeld, Managing Director at SL Green. I've been working on 185 Broadway for the past 6 or 7 years and I'm proud to share with you today the next steps. Our original attraction to this assemblage was its retail potential. The Fulton Transit Center is the epicenter of all Lower Manhattan access. 185 Broadway is catty corner and it's the first street. Its visibility goes 3 for 3 on retail consumer segments: tourists, office users and residents. Additionally, our project delivery time frame marries up with 1st generation lease expirations at the Oculus and Brookfield Place, providing a natural tenant demand pool of retailers that might now want to go back to a traditional high street presence in Lower Manhattan. Our retail design capitalizes on our signage and leasing expertise derived from our many Times Square projects. We had success leasing the corner at 180 Broadway and feel that the design of 185 on the opposite corner at street level positions us well against competition from other less visible lower Manhattan retail locations. Shifting to the residential component, we are excited to add another 209 units to the SLG residential portfolio. Upon completion of 185, our total portfolio will contain 3,267 units in a residential market that continues to have solid core fundamentals, including a 1.5% vacancy rate in all of Manhattan. In Lower Manhattan specifically, the vacancy rate has declined year over year from 3% to 1.6%, demonstrating the population growth impact from infrastructure to World Trade Center projects continuing to come online. With SL Green leading the charge, the development and marketing team at 185 Broadway is the best in class and consists among others, Dan Kaplan of SX Collaborative, Douglas Elliman on the residential lease up, Newmark will be sourcing an office tenant for our commercial space and SLG Retail on the base. Now I'd like to take you through the timeline for the project development. Demolition of the site is fully complete. We are eager to break ground in March of 2019. We anticipate completing foundations by next year's investor conference. With the design and schedule locked in, we look forward to cutting the ribbon and welcoming the first tenants to the building in April 2021. The total sources and uses for the project comes in at $311,000,000 SL Green currently has $25,000,000 of equity invested in the deal. And the construction loan, which we announced earlier this morning, allows us to fully fund the project with only $60,000,000 of additional equity on a Perry basis with future loan advances. Here's the NOI breakdown. Douglas Elliman provided the comp set of rental properties which you see here on the slide. Every unit at 185 Broadway is priced on a per month rental rate relative to this competition. The 30% affordable component is priced according to the city guidelines and the combination of those 2 brings you to aggregate revenues in 1st year of stabilization from the residential envelope of $11,100,000 Newmark projects $65 a square foot for the commercial component of the building. At the midpoint of our retail rental range, we expect to generate $5,600,000 for the entire retail flagship and another $500,000 from the sign of Jean Philippe. On the expense side of the equation, in exchange for us setting aside 30% of the residential units as affordable, we received a 35 year tax abatement, which makes the affordable New York program feasible for both the city and the developers. Our unlevered and levered cash on cash yields come in at 6.1% and 14.2%, respectively, both incredibly strong in a very tight residential rental market. I want to close by saying how proud I am of what we created here. First, because it represents the true SL Green mantra of off market acquisitions, agnostically navigating to the highest and best use for a deal, whatever that might be, and delivering market leading returns. Secondly, I've lived in Lower Manhattan for the last 10 years. I witnessed every day its vibrant growth and 185 Broadway will mark a new milestone in its extraordinary future. We are proud to deliver the 1st affordable New York project in Lower Manhattan. October 31, 2018, happy Halloween. This is typical once a week. I come down, I mean, with Kevin and Richie. We do a quick walk through. It's easy to talk about all this, at meetings and look at drawings and look at schedules, but everything from predevelopment to what we do at meetings to these walk throughs. This is where we see how things are getting done, whether they're properly coordinated, so on and so forth. The beast gets fed through here. We have to get all the material through here. We have to be able to pour a couple of 100 yards of concrete to make sure you get all this material in before the city wakes up. The city's asleep. Most people are still asleep. We're not. We're here. So let's take you inside. I've said it before and I'm saying it again, we're ahead of schedule and under budget. But how do we get here? What makes us different from other developers? It's the efficiency of our execution and the talent of our development team and skilled workers led by my 4 pillars of construction, Bob DeWitt, Anthony Schembri, Harry Olson and Tom O'Connor. We established aggressive performance and schedule milestone incentives that align the interest of all the key stakeholders, including Hines, Tishman and a multitude of subcontractors. The project is managed with vigilance, so we're all synchronized. We'll be approaching some major construction milestones over the next 12 months, bringing permanent power to the building in preparation for our tenant turnover, erecting steel to the roof and wrapping up curtain wall installation in early 2020 as we move closer to TCO and our unprecedented project delivery. But it's really the team on-site that gets it done through the rain or shine. Early this fall, we hosted a worker appreciation lunch at the site for our trades people to share our appreciation for their hard work day in and day out. The New York City labor market is highly skilled and trained through apprenticeship programs that produce some of the best trades people in the world. At the lunch, we distributed buttons inspiring workers to keep their eye on the prize. So what's the prize? It's our new target for construction completion on August 4, 2020. The site never sleeps. That means it's on all hours of the day, every day of the week and unfazed by weather. Once Vanderbilt is alive, you can feel the energy of the entire team. A few days a week, I take a detour on my early morning run-in Central Park and look forward to arriving at 1 Vanderbilt right before dawn. While most of the city is hitting the snooze button, workers are already at the top of the deck climbing to new heights. One of the greatest features of this building that I encourage you all to observe on your tour later this afternoon is the exterior wall. It was designed to allow for maximum daylight penetration while maintaining a good amount of solid facade material. The spandrels in particular consist of a unitized curtain wall module, clad terracotta. The terracotta is shaped into concave ribs, positioned diagonally to echo all the prominent diagonal features of the larger building design. From the beginning of the project, we were committed to strengthening the architectural character of the neighborhood. We avoided the typical boring shapeless all glass building design. The curtain wall engineered in New York and Venice and manufactured in Connecticut and Canada with materials sourced from Spain. The double coatings on the typical curtain wall glass maximize usable daylight while minimizing solar heat gain. At the top of the building, in the areas dedicated to the observation deck function, the glass has super low reflective properties in order to maximize the views of the city beyond. We focus so heavily on the outward facing skin of the property because we knew the iconic value of this building. But it's not just the curtain wall, it's every element that was treated with a level of care and detail. We traveled across the Atlantic to make sure the stone we source is perfect in every way. We handpicked each slab in Italy and had it inspected for the attributes we were trying to achieve on-site. It's of paramount importance that we manage the selection process with our consultants to ensure the consistency and quality for the massive inventory we need before it even makes it to American soil. By the end of the month, we'll be up to the 62nd floor and we're striving to complete the snorkel ahead of schedule. We used to show off digital simulations while presenting about the project, but now we see it in action. I personally can't wait to see the American flag waving from above 1 Vanderbilt as the spire is hoisted into place. It will forever define the skyline of Midtown Manhattan and it the will be forever engraved in the New York City skyline and is a remarkable achievement for everyone involved. Hi, I'm Steve Durell, Executive Vice President and Director of Leasing. Well, the numbers are in and they speak for themselves. 3 new leases and 1 lease expansion signed within the past 2 weeks covering 228,778 Square Feet on top of 3 other leases signed earlier this year covering 335,000 451 square feet, raising 1 Vanderbilt's pre construction completion lease up to 52%. We are way ahead on business plan and excited by all the tenant enthusiasm for the building. Additionally, we're actively trading proposals with 5 tenants covering over 164,000 square feet. And before the end of this month, we're expecting to receive 3 more proposals covering 167,000 square feet. Although it's unlikely we'll convert all of these proposals into leases, since several of the tenants are buying from the same floors, this flood of activity confirms the strength of tenant demand for best in class well located new construction. New tenant leases signed this year include the law firms Greenberg Troward for 134,000 square feet and McDermott, Will and Emery for 116,000 square feet. Each of these two firms were seeking a building where they can make a big statement in order to enhance their employee recruitment and retention. TD Securities Inc. At least last week for 119,000 Square Feet for 2.5 podium floors where they operate their trading business. One Vanderbilt's 18 foot column 3 floors with state of the art infrastructure provides TD Securities a platform that could not be replicated anywhere else in Midtown. We signed the Carlyle Group to 95,000 Square Feet on 3 Floors. As one of the financial industry's premier private equity firms, it was a tremendous endorsement of 1 Vanderbilt and has led to a slew of other high end financial firms to consider the building. MFA Financial just leased 30,000 square feet on the 48th floor. This residential REIT is relocating off Park Avenue onto a floor with jaw dropping views. Additionally, Esso Green assigned a lease to relocate our corporate headquarters into 70,000 square feet on the 27th 28th floors. Now this one was a personal lease to me given that with all the leasing activity we had twice been boxed out by other tenants. The last thing I needed was to tell Mark and Andrew that after 15 years of work on the building, they wouldn't be able to move our headquarters into the company's signature property. We literally grabbed the last two remaining floors in the bottom half of the tower. Lastly, we signed a lease to partner with Daniel Boulud to build and operate a 15,000 square foot This will be Daniel's 2nd signature restaurant in New York City, and we're wildly enthusiastic about the restaurant design, which will provide an unexpected dining experience in a soaring room, while also maintaining a warm and intimate feel. It's important to note that TV, Greenberg and McDermott are all expected to lease significant amounts of additional space within the surrounding SL Green portfolio for support personnel. In the case of TD, that amount will likely be 100,000 square feet or more. Pending leases and active proposals are all with tenants within the financial industry. With each passing day, as the building rises higher into the sky, we see more and more tenant demand for what is a one of a kind building at the most commuter convenient location in Manhattan. Good morning. I'm Rob Schiffer, Managing Director in the Investments Group and Project Executive for One Vanderbilt. Steve walked you through the leasing progress we've made at OVA, and Ed summarized the heroic efforts of his team to bring the project ahead of schedule and under budget. Let me bring it all together by rolling forward our underwriting from 2016, and let me say the numbers look good. The anticipated cost to complete the project is lower, stabilized NOI is on target and the upside and modification we announced this morning have increased our and our partners' returns. Let's start with the modification and upsize. This unanticipated opportunity arose out of our structured finance platform, where we saw senior loan spreads compress and senior lenders stretch loan to cost and loan to value metrics. We approached the co leads and found broad support for the modification. In fact, we're oversold on the upsize, and not one of our existing lenders has chosen to exit. The 75 basis point spread reduction results in savings of approximately $22,000,000 over the projected term of the construction loan. The upsize reduces SL Green's equity commitment to the project by $178,000,000 and therefore, we only have $98,000,000 left to fund and no further equity commitment to the project beyond March 2019. These achievements have increased our underwritten levered returns by 30 basis points from 11.8% to 12.1%, which enable us, as Mark mentioned earlier, to seek additional third party equity partners and further reduce our equity stake to approximately $800,000,000 while generating additional fees and promote dollars and all while retaining a majority's 51% interest. Rolling the pro form a full list, I'll bring up this slide we presented at Citi's 2017 CEO Conference. On the left is our 2016 base case underwriting. On the right is the same underwriting, but with a conservative view of office rents. The resulting net operating income range was from $198,000,000 in the base case to $175,000,000 in the conservative case, with cash on cost yields of 7.1% and 6.3% respectively. Now, Norwood trying to As we roll forward to today, we're happy to report that unlike Scott Norwood's wide right Super Bowl kick against my New York Football Giants, we've split the uprights. Sorry, Andrew. Executed leases blend to an average of $123 per square foot, and we're underwriting $170 per square foot for the remaining vacancy in the tower, our best space, resulting in a weighted average rental rate of $147 per square foot, 5% off of 20 sixteen's estimated 155 While we can't yet unveil what we have in store for the observation experience, we have increased underwritten net rent from $42,000,000 to $46,000,000 as a result of restructuring the base and percentage rent to optimize for tax efficiency. Operating expenses and real estate taxes are basically flat, resulting in reunderwritten stabilized NOI of $191,000,000 Deducting our projected project cost savings of $50,000,000 our development budget, net of JV fees and discretionary owner contingencies, is now $3,122,000,000 and our new target stabilized cash on cost is 7%. A project of this scale is hard to estimate and underwrite. Hitting the left goalpost would have been heroic, but we're aiming for Norweig left. Ladies and gentlemen, please make your way back to your seats. The program is going to continue. Ladies and gentlemen, please welcome back Mark Holliday. So I wish it were that easy. I'm going to have to go find that time traveler with that magic crank and see if we can get done in about 90 seconds, which otherwise might take us about 4 years to accomplish. But in the end, the result will be the same. That project is going to be magnificent. So our next presentation is one of the most exciting parts of today's show, an extraordinary new development at 1 Madison Avenue, what will become the premier office building in Midtown South. We've been waiting for this moment for nearly 15 years ever since we acquired this perfectly located asset. Over the years, we have developed many plans for the site. And now with Credit Suisse's lease coming due in about 24 months, we have the ability to execute on extraordinary vision for the property that will be truly amazing and perfect for today's markets and today's tenancy. Timing couldn't be better for us as we prepare to put One Vanderbilt into service in 2020 and we will be able to roll into One Madison and focus that team's efforts on this new project as the future seeds of growth that will come on the heels of One Vanderbilt. The timing couldn't be more perfect. And we brought that team back together. KPF has prepared a design that is really truly spectacular. You got a little glimpse of it. There's some harmony between the sort of historic podium that's gone through many transitions over time as you can see on the screen. The building was at one point in time the tallest building in Manhattan, I think for a day or a week. But now we'll have the opportunity to reimagine that portfolio with a 500,000 square foot new tower of kind of perfect space that will sit on top and be one of a kind in Midtown South area. So with that, let me introduce New York's number one leasing talent, Steve Durels. All right. Well, as the Cranker showed us, we've got a big plan for 1 Madison Avenue. And what I'm going to share with you today is the presentation that we have shown 7 or 8 tenants to date. We've only early days of beginning to market the project, and already we've got several expressions of interest. One Madison sits at the single best block in the single best submarket in Manhattan, Bound by 23rd and 24th Streets, Park Avenue South and Madison Avenue directly across the street from Madison Square Park, It is the single best location. We sit on top of a subway. We're directly across the street from Esso Green's 11 Madison Avenue. We're 1,200,000 square feet today in a 12 story building. And as Mark mentioned, we bought the building almost 15 years ago, knowing at that point in time it's a true diamond in a rough, and we couldn't wait to get to the point where we'd be redeveloping it. Since the original acquisitions, we've put together a campus of almost 4,000,000 square feet, combining 11 Madison Avenue and 304 Park Avenue South, all within one block radius of one another. And as good as these buildings are, they still have an opportunity for further improvement. One of our big advantages though, when you really think about One Madison relative to other buildings in the Midtown South submarket is its size. Midtown South suffers from a lack of large buildings. Most of the buildings have poor infrastructure. Most of them haven't been heavily renovated. One, Madison, on the other hand, has true great attributes of transportation, large floor plates, good slab heights. The neighborhood that immediately surround us, we're across the street from Madison Square Park. Eataly, the world famous Eataly is directly on the other side of the park. Shake Shack is in the middle of the park. 11 Madison Park is the number 1 number 3 restaurant in the world right across the street from us. And we share the block with the addition hotel, Ian Schrager's high design hotel. And our corporate neighbors are some of the best in the world. Sony and Credit Suisse are in 11 Madison Avenue. Luxury good retailer Tiffany's across the block and international advertising firm Gray Advertising, also one block away. And you see some of the other great names on this map that surround the site. There are 5 key goals as part of the redevelopment. 1, starting with the engagement of Madison Square Park, generating value through adaptive reuse, building efficient column free floors and delivering 21st century infrastructure together with some great indooroutdoor spaces that I'm going to show you momentarily. And as Mark mentioned, we're going to keep the band together. We've got the same development team from 1 Vanderbilt that will be assigned to One Madison Avenue. So as the construction at One Vanderbilt is wrapping up at the end of 2020, the new construction at One Madison will begin in 2021. The same players inside SL Green are leading a design team of KPF, Gensler and our design our development consultant, Heinz, and a best in class team of professionals beneath them, and Cranker, of course, being the newest member of the team. Design features of the reimagine 1 Madison Avenue include multiple rooftop terraces, 16 new tower floors comprised of 2 garden floors with massive outdoor areas, new glazed infill curtain wall replacing the existing punch windows, new storefronts, demoing the upper four floors of about 170,000 square feet and then constructing a new glass tower of 470,000 square feet. The result is an extraordinary blend of new and old. We're design sensitive to the landmark of the clock tower, yet we fit within the context of the neighborhood, and we bring 21st century excitement to the workplace. When you look at this rendering on the Park Avenue side of the building, you see 23rd Street to the bottom of the image, Park Avenue South on the right hand side, Grand Central Terminal at the northern portion of the roadway, and then the park, Madison Square Park off to the left hand side. But you really start to see how the two sides of the two portions of the building come together, the limestone base of the building and the new glass tower above. And in between, 2 very special floors. At the corner of the building of 23rd and Park Avenue South is number 6 Subway. We're one stop away from Grand Central Terminal. And when you look at the redeveloped building up close in the podium, you start to understand when I talked about the glass infill, no longer do you see any punch windows. It's floor to ceiling glass. So it's a vertical infill of new glazing top to bottom in the limestone base. Part of that is also a new glass facade above the Madison Avenue entrance. So you see that glass area right above the building's new front door. That glass facade creates the architectural thread connecting the limestone part of the building to the new glass tower. And then on the lobby side of the building, you see 23rd Street Retail of almost 26,000 square feet, the area on this plant in pink, the building's new lobby, which stretches from Madison Avenue to Park Avenue South. We're double widening the Madison Avenue side to really emphasize that being the front door of 1 Madison Avenue. You see the new core that's been designed, including 22 new elevators. Important to understand that in order to redevelop this building, we're literally demolishing the entire core of the building. All of the elevators, all of the infrastructure, all of the shafts come out. There will be a 20,000 foot hole in the middle of the building when we're done. And what goes back in that is this brand new core with 22 elevators and all new infrastructure. Retaining a couple of key components though, one is the VIP entrance off to the 24th Street side of the building, which is the perfect place for black car drop off for our tenants. And in the area in Orange is an 800 person auditorium. We learned from 1 Vanderbilt that tenants are starving for large format office meeting space. If you recall on our amenity floor at 1 Vanderbilt, we have some very large meeting rooms. That's been an important part of our leasing efforts to draw the tenants into the building. So in this case, we have an 800 person auditorium, double height space, column free that we think tenants will use it for their holiday parties, for the town hall meetings, for the large format presentations, and maybe even TED Talks as you see off on the side screen. Probably the most unique feature of the building though are the multiple roof terraces. In fact, we have over an acre of outdoor space, creating a virtual park in the sky overlooking Madison Square Park. The 10th floor is our 1st garden floor. This is a double height space with 28,000 square feet of indoor area complemented by 31,000 square feet of outdoor space. The 11th floor equally special, 24,000 square foot floor with almost 3,000 square feet of wraparound terrace. And at the top of the building, we have an 8,000 square foot roof deck served by 4 new elevators accessing all of the floors in the building. The architectural drama really starts at the connectivity between the limestone podium of the building and the 10th and 11th floors, which are essentially tremendous specialty floors with massive amounts of outdoor area. In this image, you see the new glazing in the base of the building. You see the new facade above the Madison Avenue entrance, as I mentioned earlier, how it connects that thread to the upper and lower portions. And then the 10th and 11th floors, which are essentially a sculpted connection between the old building and the new building. And when you get a little bit closer to those specialty floors, there is nothing like this anywhere in New York City. These are each 22 foot slab height floors, column free with the big outdoor spaces that you see in the imagery. And when you're standing on one of those floors, in this case the 10th floor, you can imagine what it's like to be this lushly landscaped outdoor area, big high ceiling space on the interior, great gathering space for employees during the day or in the evening used by clients for entertaining. And when you step inside, equally special. Soaring ceilings, column free, perimeter trusses, which create architectural interest. These floors no doubt will be the amenity spaces for a large anchor tenant, conference centers, cafeterias, town hall spaces, the true heartbeat for a large footprint tenant. On StackPlan, we're 92,000 square feet on average for the bottom 8 floors, the 2 specialty floors that are 24,000 to 27,000 square feet and the new construction above that are approximately 35,000 square feet with 14 foot slabs and 10 foot finished ceilings. The base floors of the building, the original building that will be retained, this is the product that does not exist in Midtown South. Large floors, 12 foot slabs, an opportunity for high density occupancy. In this case, you see it laid out for a TAMI type of a tenant. And it's the creative vibe that all these tenants are looking for, whether they're media firms or technology firms or even financial firms, everybody in this part of town is looking for that cool, creative space, open plan, likely no finished ceilings, everything will be exposed and taking advantage of the new large windows that are being installed. You take out a couple floors of slab and you create a real statement space on these big floors as you see in this imagery. The tower floors, equally one of a kind. These are the single best sidecore design floors I've seen in the market, 35,000 square feet each, 60 foot dimension from the core to the perimeter, 5 foot millions around the side with an occupancy capability of 1 person to 175 square feet. Ideal for open plan, but also works well for an office intensive layout as well. I think these tenants go to financial firms, large scale technology firms, international headquarters businesses. Again, this is a product that you cannot find south of 34th Street, new construction married with interesting architecture at the base in a neighborhood that has all of the elements of the work, live, play that tenants are looking for. When you stand on these floors, you start to appreciate what that, like 1 Vanderbilt, brings to the modern workplace. High ceilings, continuous revenue glass around the perimeter, great amount of natural daylight flooding the space. And on these floors, maybe the most unique view in the whole building is looking directly across to the clock tower where you feel you can almost touch the clock. So Cranker's work is done, ours is just beginning. And when 1 Madison Avenue is complete, it will change Midtown South truly the way One Vanderbilt has already changed Grand Central Terminal in the Midtown market. And with that, I'd like to turn it over to Matt De Liberto, here to give you his annual entertainment. Thank you, Steve. Thanks everybody for attending. Get me live. I was asked to break with I'm going to be taped, but no, face made for radio, voice made for newsprint and I have to present live. Before we get into the financial portion, we actually wanted to spend a little bit of time on our ESG initiatives. It's an area that's gotten a lot of focus. You have materials on our actual sustainability reports on your table in front of you. We're hearing about it in the investor community a lot almost in all of our meetings. It's an area where we've been focused for a very, very long time, actually before it was in vogue to do this. So we thought it was the perfect opportunity to show off a little bit. We have one of the most impressive records in the sector when it comes to ESG. So who should present this? Well, saw him earlier, he was on a mere 40 block detour on his morning jog to 1 Vanderbilt. 40 blocks is 2 miles by the way. He is our tireless COO, needs no introduction. If he wanted one, he would have somebody script it, then he would review it, then he would edit it, then review it again, then he'd give it to me. But I didn't allow him to do that. I came up with my own. He defies all medical research that says sleep is required, tireless, part human, part cyborg. Ed Pekinich. I'm Ed Pekinich, I'm the Chief Operating Officer at Esselgren. I also oversee our ESG program and treat it with the same level of rigor and innovation that I put into every area I'm responsible for. Over the past 20 years, we've developed a management strategy that addresses ESG indicators that measure our non financial performance and environmental sustainability and social responsibility. Environmental sustainability has been at the forefront of our building operations for years. In an area of brimming with new technology, we've capitalized on energy saving opportunities by investing over $60,000,000 in efficiency projects over the past decade. We're applying these years of experience to our premier Picture a building that can independently produce its own electricity, picture a building that can independently produce its own electricity rather than further straining the New York City grid. But we're taking it a step further. We're trapping waste heat to power up a 250 ton absorption chiller to generate cold water in the summer and to preheat domestic water in the winter. The best industry measurement of sustainability performance is LEED. Back in 2,009, we were among the first owners in New York City to adopt the U. S. Green Building Council's LEED standard at 100 Park. Our current portfolio includes 20 LEED certified buildings. We consider this to be a huge accomplishment because LEED is becoming increasingly respond with operational resourcefulness to offset the growing demand. We strongly encourage a partnership with our tenants on environmental initiatives to help them achieve their sustainability goals. At 420 Lexington, we provided Kone Resnick with a comprehensive energy analysis and help them to identify savings opportunities. At 220 East 42nd Street, we helped UN Women achieve lead commercial interior certification in their office space during their renovation. This type of collaboration with our tenants is the cornerstone of SL Green's sustainability program and it's essential in helping us achieve the Mayor's citywide carbon reduction goal known as 80 by 50. We're the biggest commercial office owner in the city, so we've got a lot of skin in the game. When 80x50 was introduced, we partnered with the Mayor's Office of Sustainability and continue to sit on the technical working group as the legislation is being crafted. I personally sat on the Board of Urban Green Council, the organization that was responsible for aiding city council in developing new legislation. I was there to represent the interest of owners and reinforce our position on balancing environmental goals with financial performance. Our focus on environmental sustainability is only part of the picture. We have an equally important social responsibility. At SL Green, our employees are our greatest asset. Our ESG team led by Laura Ullai and Evan Epstein and Lynn Courtney Hodges is representative of the entire firm with diverse cultures, backgrounds and areas of expertise to ensure we're capturing the priorities of all of our employees. We value the feedback of our employees and our goal is to introduce meaningful improvements to their work experience. We may not offer beer kegs at breakfast and we may never, but we recognize that this innovative approach to the workplace is the way of the future. And we're adapting, give us a chance. The real estate world may never be akin to Silicon Valley. And I don't know when napping pods will ever reach our offices. But Mark, Andrew and I, we're changing. We're changing with the times. We're bringing a focus on total wellness to our employees and to our tenants. This year we proudly introduced Living Green. It's a fully amenitized tenant space within our building. We coordinate premier experiences including yoga, meditation, massages, professional development seminars and even ping pong tournaments. We developed a custom app which lets users book rooms, sign up for classes and even control the music and lighting in the living green space. We're confident that this will be a great retention tool for our portfolio. Living Green is creating a workplace culture that promotes community, productivity and health, but bigger than our employees and bigger than our tenants is our community. Is at the heart of SL Green's ESG efforts. So we coordinate volunteer opportunities for our employees and our tenants. Together, we've participated in over 150 community events that touched and inspired over 150,000 New Yorkers. In addition to our community engagement, SL Green made charitable contributions to over 100 different organizations in 2018. We are focused on Esso Green's commitment to corporate citizenship now more than ever. Our reputation for integrity is the backbone of the public space and trust in our company. As a thought leader in ESG, we continue to devote more time, effort, focus and resources because we understand its importance. We want all stakeholders to feel not only is Esso Green the highest performing real estate company in New York City, but it's also keeping ESG at the forefront of its business strategy. Thank you, Ed. Certainly an impressive group, impressive record, second to none really. And look, I mess with Ed pretty much every year. He's a fellow firefighter, so we have a little bit of a bond. I don't know if people are aware of that among his thousands of other responsibilities, but we have a little bit of a bond there. So if we were in the firehouse, it would be probably not as clean. But in any case, kicking off the financial portion of the day, looking backward and then a little bit forward on our credit profile, starting with some highlights from 2018, we maintained a fortress balance sheet again this past year while executing on a business plan that if not done responsibly could impair a balance sheet, even one of our size, focus every day on leverage. We again met our leverage target, keeping consolidated debt to EBITDA at or below 7 times on Fitch's math for the entirety of the year. We increased our encumbered asset base by over $1,000,000,000 in just two assets including the recently announced repayment of the mortgage on One Madison, while keeping a substantial amount of liquidity on hand well north of our $1,000,000,000 target. On the financing side, we returned to the bond market with a rather unique offering and executed a very attractive refinancing of the construction facility at 1 Vanderbilt. And as Mark highlighted, we've sold an enormous amount of assets generating $1,500,000,000 of proceeds, not only used for share repurchases, but also for debt reduction investment in our real estate assets. Looking ahead to some of the things we're working on in the coming year, for those of you that read the REX and Operating SEC filings at Christmas time last year to do that, we're going to de register this entity. We've had it in place since 2007. We're going to simplify the overall organizational structure. Sorry to disappoint you. We're going to sell $1,000,000,000 of assets minimally, generating 100 of 1,000,000 of dollars of proceeds and allowing us to increase our liquidity this coming year by at least $500,000,000 Separate from those sales, we're going to look to bring in additional joint venture partners in properties like 1 Vanderbilt and 1 Madison that will help build liquidity for redeployment and enhance the returns on our retained positions. And in line with the last several years, we'll look to unencumber additional assets to replenish the pool and ideally we'll grow that. And I certainly do see the potential for us to get back into the bond markets again. It's a market we like and we've certainly set ourselves up to return. So diving a bit deeper in some of these areas and bringing back one of the most impactful analyses of leverage that I think we ever put out, Professor Holliday came up with this a few years ago. It's the great debate as to whether debt to EBITDA is the best measure of leverage. Certainly, the easy math for everybody in the room, but is it the most appropriate measure of leverage for companies operating in a low cap rate environment? These are 2 companies here, 1 with debt to EBITDA of 7 times, one with debt to EBITDA of 5 times. Very different markets, very different asset values as indicated by the cap rates. In a New York City market that has a 4.5 cap, the same $1,000,000,000 of EBITDA is worth substantially more than a lesser quality market that has a 7 cap. As such, a company with seemingly higher leverage on the simple math debt to EBITDA in reality is more highly levered on an LTV basis and therefore at greater risk if asset values go lower. And this is only looking at assets that generate EBITDA. There are plenty of assets that don't generate EBITDA like development properties. Do those assets have no value? Well, that's what debt to EBITDA would tell you. So we look at LTV, a far more appropriate measure for real estate in addition to debt to EBITDA. This is how we stack up on both measures over the last 5 years. While the reduction in debt to EBITDA is dramatic since 2015, I want to focus on the fact that our consolidated debt to EBITDA is actually lower since our stock buyback program was announced in the middle of 2016. Maintaining debt to EBITDA at or below 7x is very challenging when you're selling EBITDA and shrinking the equity base because that calculation doesn't capture the NAV accretion you get from selling your assets at market and buying the equity cheap. While debt to EBITDA is trending up slightly in 2019, that's not driven by the share repurchase program at all. It's exclusively the result of funding projects that don't generate EBITDA like 1 Vanderbilt and the redevelopment project at 460 West 34th Street, which for accounting purposes will be a consolidated joint venture. Focusing on LTV and using the NAV of a certain West Coast research firm probably here, that has a sell rating on the stock, so conservative, we continue to be virtually dead flat to where we were 5 years ago at 43% to 44%. That's on an LTV basis, while the rest of the New York City REIT peer set, particularly the 2 largest, have actually been materially increasing their leverage, their LTV over that same period of time. Confidence in saying obviously if you used our NAV, our LTV would be even lower. And LTV in the low 40s provides an extraordinary amount of equity cushion, particularly for a company that is operating in a market that has some of the most resilient asset values in the world. Now given the negative impact of debt to EBITDA on debt to EBITDA of projects like 1 Vanderbilt or 460 that don't generate EBITDA, we think it's relevant to look at what that metric would be excluding just those two projects. Not surprisingly, it drops dramatically lower and indicates that leverage on the rest of the portfolio is actually coming down on a consolidated basis. It is up only slightly on a combined basis. Does this mean we shouldn't do 1 Vanderbilt or 4 60? I don't think anybody here would say that. It just means that the view of SL Green being highly levered based on a leverage metric that clearly has flaws is completely inappropriate. We continue to believe that we are prudently levered both on a standalone basis and relative to our peers and we're going to remain vigilant in managing our leverage at these levels as we move ahead with our business plan. With regard to our unencumbered asset base, because we hold most of our wholly owned assets unlevered, looking for efficient debt to repay in order to replenish or increase our unencumbered asset base can be challenging. This past year, we elected to repay $727,000,000 of debt and unencumbered 2 assets with value of about $1,250,000,000 and now that's just book value. Obviously, real asset value is much higher than that. The mortgage at 220 East 42nd Street was freely prepayable and we targeted repaying that in our original guidance. In the case of One Madison, we had excess liquidity from asset sales and felt strongly that incurring a $14,000,000 charge to relieve the company and the property of this debt was extremely beneficial. That charge is going to run through the Q4 FFO and is the cause of our FFO guidance revision this morning to 2018. Moving into 2019, we'll continue to look for more debt to repay to manage the unencumbered asset base. We've stated in the past that we believe a company of our size should have at least $1,000,000,000 of liquidity on hand at all times, both for the safety and security it provides and to allow us to be opportunistic. Over the last 4 years, that trend has actually been closer to $2,000,000,000 even while investing very accretively into our stock and our real estate portfolio. Having excess liquidity also allows us to execute on things like the strategic debt repayment at One Madison, which drove our near term liquidity lower, but you actually see it building back up in 2019 by almost $700,000,000 How are we building it back up? And Mark touched on some of these earlier. On the sources side, operating cash flow and potential asset dispositions combined to generate over $1,400,000,000 alone. Supplementing those sources is the use of targeted secured debt and construction facilities to fund the major projects like One Vanderbilt and One Madison. And finally, we expect an overall reduction in the size of our debt book by just over $100,000,000 On the usage side, our operating cash flow will fund our new dividend of $3.40 a share as well as second cycle capital and debt amortization. Then we used the proceeds from our construction facilities to fund development and redevelopment, leaving all of the proceeds from asset dispositions for new investments, including share repurchases as well as to replenish our stockpile of liquidity. With regard to the bond market, we continue to see bonds public bonds as an attractive source of capital and the support that we're getting in the fixed income community is continuing to grow. We see a return to the bond market with a rather unique offering, particularly for a REIT, driven by our desire to maintain maximum flexibility in the capital structure as well as a significant reverse inquiry resulting from a real lack of short duration paper in the markets. The deal was very well received and gives us another opportunity to return to the bond markets again in 2019 as we ultimately look forward to achieving our serial issuer status. And concluding the discussion of our credit profile with our debt maturities, heading into 2019, we have virtually nothing to attend to, obviously very proud of that. As always, we'll strive to extend this maturity profile out where we can. We need to do it efficiently of course. Another bond deal in 2019 could do that or we can start knocking off some 2020 2021 maturities attending to those maturities early like we do with our lease expirations. Looking more specifically at some of the most significant maturities over the next 3 years, the first one on the list could very easily be attended to if we elect to sell 521 5th. If not, we'll simply refinance it. Looking further out, all you really see are the 7.75th bonds in 2020 and the full duration of our recently issued notes in 2021. I wouldn't be surprised that we took care of the 1 or both of those early. And after that, we have a handful of things that we can address, likely refinance. Now moving into guidance, and I have to the one thing we should have videoed ahead of time, I have to make a statement from the attorneys. As I go through this, I may be using some non GAAP financial measures. So you should look to our SEC filings including the 8 ks filed this morning for any comparable GAAP measures and required reconciliations. Okay. First, we're going to take a quick look back at 2018. Recall, we started the year at a guidance midpoint of 670, then increased that to a midpoint of 675 in January and notwithstanding an incredible amount of activity that we executed during the year, we expect to be right on top of that 675 before we take that elective non cash charge that I'm going to layer on in a second. And NOI shortfall primarily driven by asset sales is more than offset by accretive share repurchases as well as outperformance in the debt book and incremental other income. On the expense side, it's certainly worth noting that we expect to outperform on the G and A side by almost $7,000,000 Now we layer in the $0.15 prepayment penalty for 1 Madison and you get to the new midpoint of our guidance range of $6.60 for 20 18. Now let's move ahead to 2019 and set the stage for our weighted average diluted share count. As you've heard, if current market conditions persist, you should expect to see us complete what's left of our $2,000,000,000 previous share repurchase authorization and utilize a portion of the additional $500,000,000 of authorization this coming year. How much, when, at what price, dependent on the timing of our asset sales as well as the share price, of course. But based on our current assumptions, I would expect to see our diluted share count decrease by about 6,000,000 shares next year, contributing to a reduction in our equity base of over 17% in just 2 years. In the real estate portfolio, GAAP NOI is projected to be just short of $860,000,000 In the retained portfolio, there are meaningful pickups in NOI of properties that have been in lease up or are coming out of redevelopment, partially offset by a couple of properties where we have known lease expirations. Extraordinary amount of credit to Ed, his Head of Operations, Megan Gill and the entire team on the expense side, operating expenses projected to increase by only 1 around 1% again in 2019. Truly remarkable cost containment and that small increase is primarily due to labor laws that increase the minimum wage as well as other adjustments related to collective bargaining agreements, which are outside of our team's control. In real estate taxes, unfortunately, it's another here we go again year going up 5.1%, unfortunately consistent with growth rates in recent years. Turning to the components of that real estate NOI, dollars 753,000,000 of GAAP NOI in Manhattan reflects the impact of selling all or a portion of 5 assets, while obtaining just one to Harold's at the recently unencumbered 220 East 42nd Street, VNS is in the old Omnicom space for the full year and the property ends the year at 99.2 percent occupancy, driving an increase of about $12,000,000 in NOI. At 45 Lex, re leasing of the vacated city space has taken a bit longer than we expected, but we plan to be done in 2019. So NOI is up over $8,000,000 this coming year with more runway in 2020. And finally, the redevelopment of Tenney's 53rd was a spectacular success and 2019 sees that asset fully stabilized. On the other side of the coin is that every year we have ordinary course expirations, some of which have already been intended to. At 1185 Avenue, the Americas, 83,000 of the 165,000 square feet that RSM McGladrey vacated this past July has already been pre leased, while at 100 Park JW settlement expires in January at about 100,000 feet as we move them to another property in the portfolio. In the suburbs, after selling more suburban assets this year, only a handful remain for some portion of 2019 as they're either the remainders are either all out to market or will be in short order. All told, we enjoyed a great deal of success with this portfolio since we acquired it in 2007. It always, while they outperformed the markets, they operated, generated a lot of free cash flow and recently served the repurchase program very well by generating cash proceeds and tax protection. A portfolio that currently runs that team is truly second to none. In the high street retail portfolio, GAAP NOI of $55,000,000 is up by $13,000,000 or a whopping 32% and that portfolio is now 99% occupied, credit to Brett and his retail team. This is driven in part by the recent leasing of 1552 Broadway. That was really the only vacancy we had left as we held that space off of the market. Of particular note, both Nike at 655th and Cody at 719 7th, both of which just opened, will be in occupancy for all of 2019. And for those of you who hadn't had the opportunity to go yet to 650 5th to see a Nike store, I highly encourage you to do it. It's a standout global flagship among flagships on Fifth Avenue. And in the residential portfolio, we expect GAAP NOI to increase by over $2,000,000 This is inclusive of the fantastic success we've seen Sky at 605 West 42nd Street. In 2019, that's a fully stabilized project and joins Olivia as our Trophy Residential Holdings. Just a little housekeeping, these are the properties that are being added to the same store pool in 2019, that happens on January 1. Notable, 1515 Broadway back in the same store pool as it's been an unconsolidated JV property for the entire year. That doesn't seem significant, but I'm going to show you in a second how significant it is, along with 1515 Worldwide Plaza and Tower 46 come on board. So what does all this mean for same store NOI growth? And I'm going to do this in 2 ways. What you see here is how we expect to report same store GAAP and cash NOI during 2019. I know jumping off the page is the big red down arrow on the cash side. This is specifically driven by $65,000,000 of free rent that Viacom is entitled to receive in 2019, dollars 37,000,000 of which is our share. That was part of their long term lease done back in 2012. Obviously, that's a matter of timing, not an indication of the performance of the rest of the portfolio. So, I'm going to adjust for that and excluding 1515's free rent, we expect 2% to 3% same store cash NOI growth, roughly the same on the GAAP side. That's consistent with, if not slightly ahead of our expectations and consistent with historical trends coming off a year where we saw 5% same store NOI growth and sold several same store properties like 3 Columbus. On the positive side, as I highlighted earlier, the lease up of 220 East 42nd Street and 45 LEX are big contributors, while the burn off of free rent at 10 inches 53rd increases cash NOI there by about $3,000,000 Offsetting these pickups are lease expirations at 1185 in 100 Park that I touched on. In our debt and preferred equity portfolio, I said earlier, I expect the balance to decrease in 2019 by over $100,000,000 and that's after giving consideration to $145,000,000 of future funding on our existing investments. Repayments we expect or sales for that matter will offset our expected new originations. Recognize this reduction is not a statement on the market or the attractiveness of the business. We're simply acknowledging that we have to think about the size of this portfolio relative to the overall size of the company and we are a smaller company. Consistent with past years, we have projected an 8.3eight yield on a speculative originations that has proven to be a pretty conservative assumption. All right. Moving to other income and I'm going to apologize in advance to those, I think there's one analyst in particular who don't like to see us generate these incremental fees. We do expect other income to go up in 2019 driven in large part by increased fees from new and existing joint ventures, including the additional joint venture interest in One Vanderbilt and a JV partner in One Madison. JV fees totaling $34,000,000 net of costs across all of our ventures reward us for our best in class operating and leasing platforms and provides us a much higher yield on our smaller equity investment in these projects. In addition to the fees, we have layered in an expectation of promote income of $5,000,000 to $10,000,000 It's certainly nice to see that income stream come back in. And lease termination income is $12,000,000 a little higher than our average of 8 over time, but that's reflective of ongoing discussions with 1 tenant for a significant portion of that amount. In interest expense, while rates are rising, our overall debt load is lower we have either repaid or refinanced some pretty expensive debt over the last several years, thus mitigating the increase to just $12,000,000 The cause of this increase is really LIBOR, inclusive of the 50 basis point cushion that we use on top of the forward curve for forecasting purposes. Average LIBOR at 3.39 percent is 125 basis points higher than it was this past year. That said, we have a very measured approach to our use of floating rate debt. We manage the fixed floating composition to a very specific level based on our business and have a proven track record of targeted use of swaps and caps. Those are outlined in our SEC filings as well as the natural hedge that Andrew highlighted provided by our debt and preferred equity portfolio. Just one recent example of our use of derivatives, we've executed a cap on LIBOR for the entire new OVA facility. Exclusive using fixed rate debt in our business, we believe is not only inefficient, but can also impair our ability to recap or sell some of these assets. Netted against interest expense is at $67,000,000 of capitalized interest across these development and redevelopment properties. On the right hand side, you see 460 West 34th Street. The redevelopment kicks off after we close on the acquisition in the 2nd quarter. That's going to be capitalized for a partial year. What you don't see here is One Madison. That will clearly be a large redevelopment, but the redevelopment does not commence until CS vacates, which will not be in 2019. And finally on to G and A, and I've done this very specifically to exclude the new lease accounting for internal leasing costs because it's otherwise going to mask a very important trend in our G and A. The plans we're executing to drive shareholder value are very time consuming and complicated involving all disciplines of the firm, but we continue to do more with less. So after reductions in G and A, both 2017 2018, we're going to reduce G and A again in 2019 by about $1,200,000 or 1.3%. And part of this reduction comes via restructured executive employment agreements that decrease the guaranteed amounts and increase components that require specific performance to receive awards. This provides greater alignment with the shareholder base as well as reduced overall expense to the company. Now, I'm going to bring these side screens to center, showing a summary of our 2019 FFO guidance, dollars 13 a share of income offset by just under $6 a share of expenses. And any other year would be more than $7 of FFO, but of course the accounting for internal leasing costs are changing for no real good reason and China Hinge has precisely zero impact on the business, but it knocks $0.11 off our FFO, bringing us to our midpoint of $6.90 a share. Do you want to hold while you guys finish your pictures? So, formally announcing our 2019 FFO guidance range $6.85 to $6.95 a share, published in the SEC filing this morning, an increase over this past year, even while executing on a super tax efficient business plan that incorporates a credible amount of activity to create shareholder value and drive our earnings per share. Moving on to FAD, some highlights. Our reduced G and A expense continues to be primarily non cash at risk stock based comp. I have to call out again the Viacom free rent, dollars 37,000,000 roughly at our share, which actually rivals the impact of the non cash adjustment to rest of the company and second cycle capital of $160,000,000 is down by $40,000,000 over this past year because the portfolio was well leased. Now you can take into your binoculars or your phone or whatever, just to take a quick picture of this, it's a summary of some of the more significant assumptions in our 2019 guidance. I'm not going to go through this. I put this here for reference after the conference is over, and I'll just move on to our dividend. As we always conclude with, increased last week to $3.40 a share, the highest per share dividend in our history, bringing the CAGR of our dividend over the last 22 years since IPO to 4.1%. On today's share price, actually Friday's share price, dollars 3.40 dividend is a 3.5% dividend yield on a low leverage investment grade New York City real estate company, almost doesn't seem possible. Again, credit to our tax team, the rocket scientists that are back there. This increase takes into consideration all of the activity, investment and dispositions that we have planned for 2019. This keeps up our extraordinary record of executing on 1,000,000,000 of dollars of asset dispositions without the need for a special dividend instead retaining that cash flow for reinvestment. With that, I conclude the financial portion. I'd like to ask Andrew to put his dress shoes back on and join Mark back up at the podiums here as we can go through our scorecard for 2018. Okay. So we're going to try and make up just a little bit of time. We're almost on time, but I'd like to finish up with the scorecard and goals and objectives for next year. I guess we'll start first with how we did in Remember, we set these goals a year ago. Lots taken place during the year, starting with leasing, Signed leases turned out to be well in excess of the $1,600,000 we had projected in part due to 1 Vanderbilt excess leasing, in part due to some of that advanced leasing we talked about for 2019 2020. So let's see if we can disclose that. So that's a thumbs up with 2,200,000 square feet leased as of today, more expected in December because that's only through November. Same store occupancy, nosed out right at 96%. So we met or we have met now and expect to meet by month's end, that goal. And office mark to market, little shy at the low end of the guidance range, but still a 6% number. We were happy to end there just given all the dynamics in the market and hoping for some more growth next year. And Andrew, you want to take the next couple? Sure. On the investment side, we had a goal to participate half of the 2 Herald Square Equity. As we announced this morning, we closed 49% JV of that asset. Share repurchases of greater than $500,000,000 This given all the asset sales we were able to achieve, that's a big thumbs up with over $900,000,000 of share repurchases. And then acquisitions and disposition goals specifically, acquisitions greater than 250 with 460 West 34th Street and some of the other development assemblage deals we made. We met that goal. Dispositions of $500,000,000 Mark showed you, we shattered that goal at $1,300,000,000 of dispositions and suburban dispositions of greater than $100,000,000 We met that goal and must double it in fact with $193,000,000 of dispositions. All right. Debt and preferred equity is kind of a funny one in terms of how we grade it. The goal was to keep it flat. We reduced it, I think, by $50,000,000 or so, whereabouts. I don't know if that's a positive or negative because half people want to see it go up, half want to go down. But the reality is it's down about $50,000,000 so we gave it sideways. Income, we just hurdled the $200,000,000 of income at around $203,000,000 for the year on 1 Vanderbilt. Steel to the 39th floor, that is tracking well ahead of goal. As you saw, we accelerated the building's projected opening to August 4, 2020. That's partially a function of progress on construction. We're at the 46th construction floor today, which you'll see on the tour today. Raised $200,000,000 of EB-five financing. EB-five market crapped out. So this looked like a downward thumb, but then we closed the debt restructuring that we announced this morning with the bank group and raised proceeds incrementally and got this money a lot cheaper and in a lot better terms than EB-five would have provided it from our existing bank groups. So we'll give ourselves an upward thumb on that one with a $250,000,000 loan upsize. Leasing, 37% leased by year end. This turned out to be a conservative goal with the announcement of TD Securities, MFA, NSO Green's lease and an expansion by McDermott, Will and Emery, we were able to hit 52%, which we announced this morning. And then we also laid out there to obtain construction financing for 185 Broadway. We closed that loan and we can give ourselves thumbs up there with the $225,000,000 loan that will fund the building that you saw in the presentation. On financial performance, same store cash NOI, you may recall on prior calls, Matt talked about the fact that there may be some risk to the downside here, mostly because we were selling mature assets that were contributing to same store cash NOI, I think 3 Columbus probably being the biggest contributor. So we missed it and it's 4.7%. But on a same store, same store basis, I think we would have been closer or in excess. But we missed it. Unencumbered $300,000,000 of assets. We unencumbered more than that, dollars 1,250,000,000 as I said, we hurtled that by just a little bit. I guess that's the News building, Matt, and One Madison. And One Madison, which we did at the end of the year. That was a big boost to the unencumbered asset pool. 7, owed debt to EBITDA or better on a consolidated basis and that's exactly where we will end the year is at 7.0x. So it's a little bit of a symphony to try and make all this and you saw that list of transactions we did in the press releases and the news items, get it all there and still nail that debt to EBITDA, kudos to the finance group and Matt for making that happen. S and P rating upgrade to BBB didn't quite get there. I guess their time period has been extended beyond this year for consideration. I think they want to see mostly how One Vanderbilt turns out and I think it's turning out well, but I can understand from a rating agency perspective, a little more leasing and whatever else they're going to look at as part of a potential ratings upgrade in the future. Index eligible bonds, Matt already spoke about the fact that we got a $300,000,000 deal off, dollars 350,000,000 deal off, thumbs down, but we're going to turn that up as well because while it wasn't index eligible, it was a $350,000,000 issuance at grade terms. And we felt that that was the sweet spot of the market in which to issue. And lastly, total return. I guess this is a mixed bag this year. So we made some progress. On an absolute basis, I showed you the absolute returns earlier and we were down 2% or something as of Friday. So we clearly didn't meet the first hurdle. But as it relates to the MSCI Index, we were a fair bit ahead of that for the office index by 3 70 basis points. So mixed bag on a relative basis we did relatively good. Okay. All right. And then turning to 2019 goals and objectives. Going through, we'll populate the categories. So leasing, Manhattan signed office leases. We have about $1,200,000 budgeted for 2019, but for good measure we put another 200,000 square feet on for 1,500,000 square feet of leasing, which would be all of what we expect to do for the 2019 rolls and then a $250,000 more into 2020 and beyond. Manhattan same store occupancy, we're going to try and raise that 20 basis points to 96.2%, very hard to move this needle between 96,000,000 and 97,000,000 on 30,000,000 feet, but we think we have a path to getting there. And Manhattan office mark to market, we're going to put that at 2% to 4%. There are a couple of big deals out there that on a relatively small mark to market pool, if we make 1 or 2 of them, we could be in excess of that, maybe well in excess of that. But based on our budget, right now, it's 2% to 4%. On the investment side, 1 Madison, we decided to put in a 1 Madison specific goal. We want to close a joint venture for the redevelopment of One Madison, help us fund that project, take some of the funding burden off the REIT's balance sheet. On share repurchases, dollars 400,000,000 of additional repurchases. That will, as Matt said, finish out the existing $2,000,000,000 authorization and start moving into the new $500,000,000 that we announced Thursday night or Friday morning. And then acquisitions of greater than 2 $50,000,000 again, we still want to remain active in this market. And as I showed you earlier, it takes 5 to 10 years in some cases to pull these deals together. So when they ripen, when they come in off market, they're good. We want to take advantage of them. Dispositions greater than $750,000,000 We're going to continue funding the share buyback program through dispositions in a very receptive capital market. And the suburbs, we hope to sell the remainder of that portfolio complete the wind down of the suburban portfolio. DPE balance for the year, we're projecting that to decrease about another $75,000,000 based on our current budgets. So a sequential year over year slightly downward trend in the balance, which is consistent with the overall balance sheet of the company. And therefore, investment income, on that smaller amount will be about 190,000,000 dollars as compared to a little over $200,000,000 this year. On a relative basis, the income not quite down as much as the portfolio balance, reflecting hopefully the ability to generate some excess yield in 2019. All right. On 1 Vanderbilt, bring in an additional JV partner. So we sit today at we have 27% partner and then a 2% partner, so 29% total JV to the outside world. We're going to take that up to between 44% 49% this year as we've sort of proven out the leasing, we've proven out the construction and we did this amazing refinancing recapitalization. So we want to try and bring in an additional partner to try to recognize some of the value we've created there. Topping out steel in December, we're trending ahead. We want to keep the team focused on meeting the August 4, 2020 date. So we're looking to top out the steel superstructure by December. And 65% leased by year end. We expect Steve to capitalize on some of the great momentum we've had at the end of this year, continue that into next year and start chipping away at those higher floors, those higher rent floors, smaller one floor deals, you likely won't see the 100,000 plus foot deals we've announced to date as we get higher up in the building. And then development, 185 Broadway also here, we're going to pour the foundation this year. The site is clear as Brett and I showed you earlier. The financing is done. It's sort of capitalized. It's ready to go. We got to put a shovel on the ground starting January, complete that foundation next year. So financial performance, same store cash NOI, we have 2% or greater than 2%, I should say. So 2% plus, that's excluding the Viacom, I guess, free rent that was deferred from when we cut that lease several years ago, 4 or 5 years ago. Unsecured bonds, greater than $300,000,000 So as Matt said, to be a goal of being a serial issuer in the market would have us returning to the market this year for kind of a similarly sized bond offering. Debt to EBITDA may be up just a touch, 7.3 times or better. That's really just the impact of more fundings under 1 Vanderbilt and 460 I think primarily 460, I guess even to a larger extent, but also the equity that we're putting into 1 Vanderbilt without a commensurate return until those projects are put in service. That makes it drift up a touch. And TRS and MSCI, same goal as last year. Hopefully, this time, we can hit both. All right. On the ESG side, we asked the team to come up with some goals for the year, kind of include this for the first time as part of the company's broader goals. GRESB, which is a green index basically. We're going to try to get the GRESB Green Star Award. And then MSCI ESG Index, which is really an overall measure of companies ESG policies, we hope to this year get a BBB rating on that index. So 2 interesting lofty goals on the ESG side as well. All right. So there's 2019 in a nutshell. There's a lot of stuff not up there that goes into making all that happen. But clearly, on the heels of all the announcements from Thursday, Friday and today, We'll take maybe a day to catch our breath and get right to work on 2019 and start chipping away meaningfully at these goals. So with that, I think we're going to move to Q and A section where, like I said, maybe 15 minutes behind. So we'll take questions this year from the audience which either has been pre sent, but we'll also have live mics for whoever just wants to ask on the spot. We're going to bring up chairs for our executive team to come on up. So you guys ready to do that. So we'll sort of sort it out as applicable. I've got the questions in front of me. So we'll start with the ones that were sent in and then we'll go to live mic as soon as everybody gets up. All right. First question that came in through the web, based on the market trends described regarding the disconnect between private and public markets, why aren't we seeing more privatization of REITs? Mark, do you want to tackle that? I mean, there are, I think, a number of privatization of REITs. So I think it's a question of in what area. I think in that $2,000,000,000 to $4,000,000,000 of market cap, those deals are sort of more readily capitalizable, if you will. And there have been a number of deals done. And I think if the dislocation continues and the debt markets remain solid and private investors have an abundance of equity capital, I think you'll see more of the same in 'nineteen. But I think when you get to the larger companies with equity market caps of, I guess, dollars 8,000,000,000 and above, those deals become very challenging because typically for single deals, those are large equity checks. I mean, when we go out to capitalize deals like 1 Vanderbilt, Soonby, 1 Madison, those equity checks are $500,000,000 to $1,000,000,000 Those are big deals. If you're trying to single source it and even if you want to club it, raising more than $2,000,000,000 to $4,000,000,000 is quite a feat. So I think part of it is there's just a limited universe of people out there who have the wherewithal to do M and A on some of the larger cap REITs. And second, you have these frictional costs, which depending on how much they are and what markets you operate in that make it sometimes more challenging to get done on a basis where shareholders still feel like they're being rewarded as part of a prioritization process with a significant enough premium on top of whatever the frictional costs are. So where that happens, you see deals get done. Where that doesn't happen, I can think of one case in particular where a process was started and kind of pulled back from for those two reasons. All right. Next question. We got a bunch of questions about co working and WeWork. I'll start and then we can try to have follow on. But please further discuss your thoughts on the sustainability and rapid growth of WeWorkthe co working sector. So I think we're we've obviously become a little more active this year in leasing to WeWork at 609 5th Avenue and 2 Herald Square. Notell is in our portfolio in SoHo. And I think we're watching the sector closely both the company's capacities to raise capital, but also really a shift in their business plans. As you see, we see really these companies becoming more sales oriented in terms of relationships with big tenants or their customers and a little bit less catering to sort of the entrepreneurial guy who wants to buy a seat on a desk and try to start a business and sort of see what happens. So as they become more sales oriented organizations, WeWork employs thousands of people who are calling on big corporate customers trying to drum up their enterprise business, it becomes more of an interesting model for us even maybe a little bit more competitive with our prebuilt program. But also these are companies that will invest their own capital into our space and they have a customer base that's more of a credit customer base more akin to what we are seeing in our own portfolios. And they're drifting a little bit to be more competitive really with kind of the traditional brokerage industry in Manhattan who we're normally paying to source tenants into our portfolio. It's starting to feel a little bit more like that business model on the enterprise side. So where they have enterprise customers, where they have good relationships and they can bring in good credit quality tenants like Amazon and 2 Herald and invest their own capital into the space, we see it as a positive overall and we've done a couple of those deals. It's still a very small portion of our portfolio. And we're on the corporate side, we have our own Emerge business line, which is more of a traditional fractional office provider. That business continues to do well within our portfolio as well. So Steve, I don't know if you have? Well, I'll add a little bit to that. It's interesting if you wind the tape back a little bit on co working, which most of us remember co working in its infancy, as Jandin was talking about, which started off with these individual members, customers, where a couple of people rented a desk or seat at the table and where it's morphed over to now more in the enterprise model, which is really defined as companies with 1,000 employees or more. That's where a lot of the emphasis is currently being placed or larger businesses to handle their entire headquarters operation. The next iteration that we're getting to see is an attempt by the co working tenants out there to joint venture with landlords to partner up to manage the space. So you've really got to ask yourself, at the end of the day, given the meteoric growth of these businesses and the capital intensive nature of them, at the end of the day, aren't they really just going to become a service provider? And I think that'll be very interesting to see as the years go forward. Are they competitors of ours? Are they tenants of ours? Are they service providers to the tenant community at large and their ever changing role in the real estate business? So it's an industry to watch. It's not going away. And as Mark spoke to earlier, we're starting to see, with a little bit of frequency, tenants actually inquiring whether or not there's a co working facility in some of our buildings as an opportunity to provide a little bit of that amenity, that release valve for short term growth space. So we're looking at it closely and where the opportunity is right, we'll take advantage of it. All right. NAV was $141 a share at a 4.5 cap last year, now showing $139 a share. Given share repurchases, why did NAV not grow? Well, I think some of the suburban sales that we've been accelerating were done at prices below the valuation we had last year. I think that probably accounts for the entire spread, if not more than that. So offhand, I would say the combination of a more rapid disposition of the suburban portfolio at numbers that are not material off, but somewhat off of what we had posted last year combined with some markdowns in the retail portfolio. So I mean every year where a lot of the office portfolio was up, the share count is down, the retail sector has definitely gone through a period of repricing not only of rents but of values. And so there's a period of time until it kind of feels like we reached that stabilization point now. But certainly since 2015, sequentially 2016, 2017 2018, we saw a down, down, down. And while we were adjusting our NAVs down, I think we or anybody in the sector were adjusting fast enough to keep up with rental declines that were probably 35% plus. And if you get rental declines at 35% plus, well, your values are tracking that, maybe more than that if they're levered. So, I would say it's sort of amazing that we're right at about the same NAV we were a year ago notwithstanding the declines in the retail portfolio and some of the value adjustments we took on sale in the suburban portfolio is offset against, in many cases, the office portfolio that's risen. All right. Current cost of capital spread between JV equity versus issuing $96 common stock? Well, Matt. Is he here? Yes, there's a lot in that. I mean, look, the illustration that we do, our NAV illustration, because that's an illustration, right, shows you right there the simplest way to look at 200 basis points, 200 basis points. If you look at simply what we're selling our assets for, that's JV, and what is implied in our New York City assets and our share price, 6.5 caps. So 4.5, 6.5 is 200. But you're also missing in that the intangibles of some tangible and intangible in bringing in JV partners, right. On the tangible side, we've said how much incremental return we get off of bringing in a JV partner. It's not just selling an asset at market or part of an asset at market. We are getting incremental fees like at 1 Vanderbilt, 1 Madison for our leasing and management acumen of Stephen Ed's Group. That is enhancing the returns, which are in those projects were already very good to be even better through the JV partner. You're not getting any of that enhancement by issuing the equity. So the baseline 200 basis points, better and then you get even more better, even more better terrible ground. You get better with more fees. All right. Have you considered building additional floors on 11, Madison? The building was built for 100 floors. Rob? It's a great question. And if you've seen the illustration of the building as it was originally designed in the 11 Madison Park restaurant. It's really a beautiful building. We would love to, but unfortunately, there are restrictions on doing so. The city imposes through a cap on floor area ratio on the site. So the building is actually overbuilt. How do you think about the opportunities to grow your presence in Long Island City or the Lower West Side where larger tech and media tenants have planted their flags for the long term growth? Isaac? Isaac? Well, I think you saw earlier, obviously, we've already planted a flag at 460 West 34th Street. So we're very excited about that. We look throughout the entire city. There's no area of the city that we don't try to target. And if there are opportunities to buy at the right basis and the appropriate risk adjusted returns, then we're clearly going to look for opportunities on the Westside, Long Island City, Downtown, wherever it may be. I think you'll see now though, you see a little bit of pricing growth in Long Island City for short given what's happened recently with Amazon. How should we think about total expected cost and ultimate return on the company's existing and future investment in OneMad? Are there any regulatory hurdles to build what you want? Rob? Sure. Well, to answer the second question first, there are no specific regulatory hurdles that we need to clear. We need to go through the regular Department of Buildings program for a building alteration of this size and scale. But that is a very custom process. No Euler, right? No Euler. As of right. As of right, right. In terms of the total expected cost basis, it's a little early to say. I think we're probably looking at it approximately $2,300,000,000 total project budget and we are targeting returns in the low 6% cash on cost basis. Okay. Just a little further clarity on that $2,300,000,000 budget that includes land obviously our cost in the deal which is approaching $1,000,000,000 of that $2,300,000,000 So incrementally $1,300,000,000 thereabouts? Correct. But that's again total. A lot of people just quote construction costs, hard costs or hard as well. That's everything, deficit ops, financing, TI, leasing, all of that. Just like we set it forth on 1 Vanderbilt, I think the returns will be probably similar to what we've modeled a lot of that One Vanderbilt. I mean, maybe a touch inside only because I think the location is even more of a 100% location and the podium exists. You don't have there's no governmental process. There's no excavation that needs to be done. It's we're renovating substantially a building in place and doing the overbuild. So that's one, Matt. All right. What is the plan for 6 25, Madison? I'll take a shot at this. I think there was an article in Cranes last week, which was wrong and which inaccurately characterized the situation there. The reporter knew it was wrong, but still ran the article. But Polo has announced they're going to consolidate that stair at Lehigh. So we'll go about re tenanting that space the way we would re tenant any other space in the portfolio. The building, if you've been Polo has been in the building since 20 almost 20 years. And the building hasn't had serious capital investment other than the retail where we redid a lot of the retail space and successfully leased that up. So the vacancy will give us an opportunity to make some cosmetic improvements to the building and re tenant it. We do not think we'll have an issue with leasing the building to 3rd party tenants given the rental situation there where we have a rent revaluation like we've had in many, many other leasehold situations in the past. And the fee owner can kind of speculate, I guess, whatever they want in terms of the amount of the rent. But I would we'll be re tenanting that building and are not overly concerned about the rent revaluation. So the next question deals with our investment in 245 Park as it relates to H and E's purchase price and stabilized basis. Isaac, you can just sort of give a brief synopsis of the highlights of the investment because it's not exactly a pari passu purchase. So the two measures aren't exactly comparable. We've made a preferred equity investment. Right. So as Mark mentioned, we made a preferred equity investment. I think Andrew touched on this earlier. We're targeting total returns in the low double digits. H and A's purchase price, as I'm sure you all know, is in the $2,200,000,000 plus range. And Mark alluded to this earlier, right? East Midtown is back and better than ever. And this building sits in the heart of that. So you have 270 Park across the street. You have 425 Park to the north, 1 Vanderbilt to the south, and we're excited about working with H and A going forward. And I'm sure Steve and Ed are both excited about us operating and leasing another Park Avenue asset. Yes. It's a true hybrid investment, which is kind of unique where it is a preferred position, but we do manage, we do lease and we have joint decision rates on major decisions. So we are truly equity, but we're also in a preferred position. So from our standpoint, that was kind of like the best place for us to be in that investment at a relatively high rate of return with fees on top. But most importantly, is us working together with HNA to untap a lot of opportunity in that building. I think it's 1,800,000 square feet. It's going to be located right across the street from JPMorgan's headquarters. We have a major seat at that table with limited downside and potentially big upside. So we're very happy to have gotten that second phase of the investment done with HNA and we'll spend the next probably 6 to 12 months coming up with some interesting plans for the building, probably not as aggressive as other those other buildings I showed you in the East Midtown areas that went through what I called ambitious redevelopments, but nonetheless, something that will really position that building well to benefit from the demand. Okay. Can you talk about the competition you're seeing in the DPE business, types of financing and loan terms? How are peers underwriting and do they have similar ability to take back the assets or more of financial players looking for spread? David? Sure. I think we have 2 general business lines in the lending. 1 is the transitional mortgage and the other is the subordinate. On the transitional mortgage, the competition is really from the funds, the Blackstones, the Apollos, the Starwoods. And as Andrew said, you can see that they're raising a lot of capital to finance. So a lot of the reason the spreads are compressing is not their overall yields are going down that much. They're using very cheap leverage and kind of solving for retained yield. So we really don't lever the debt business. We run it with maybe 10% to 15% leverage. A lot of times on mortgages, you're going to see these guys running with 3 to 4 and maybe even higher times leverage, which allows them to lend it low 200s over and kind of get retained yields that are high single digits. We won't do that. So we're really looking to compete in spaces where we understand the real estate better or we have a relationship we can get in early and get a deal done before these guys can compete because we can tie deals up quicker. We do on a couple of deals use repo, but it's very sparingly because at the end of the day it just goes into overall corporate leverage. On the subordinate side, there's a lot of competition from Japanese investors, but they can't compete on a timing basis with us. And then also a lot of pensions like Oxford and CPP. I would say a lot of the guys in the debt space though are more traditional yield lenders and I'm not sure they're fully set up to take back properties and there's a lot of stuff we've seen in the last year that we've actually passed on because we're being much more conservative on underwriting than they are kind of keeping the mantra of risk adjusted return that we've always focused on. All right. What could new rents potentially be for One Madison versus Credit Suisse's rent in the low 60s? Steve? Well, let's put it into gross rent basis. The because I'm sure that question was framed on a net rent, which is what we're currently getting from Credit Suisse. I think rents in One Madison are north of $100 a square foot in the on those large podium floors. And I think for the new construction above that, we're in the 1 $35,000,000 to $175,000,000 range. And I think those are maybe conservative. Their rents, those are 2020, late 2023, early 'twenty four rents. And as we sit here in 2018, they're in line with rents that we're easily obtaining at 1 Vanderbilt. And this is a product that is a one of a kind product in the best submarket in the country. Yes. The point I wanted to make earlier and I just escaped me on One Madison, there was a question previous on One Madison cost I think. The cost per foot of One Madison fully stabilized and loaded is a couple of $100 a foot below that of One Vanderbilt, which is reflective of our pretty decent basis in that project along with the fact that we're unlocking air rights and that was kind of mentioned. We actually have 400 and some odd 1,000 of air rights, some as of rights, some that would have to go through a Euler process. We elected to utilize about 200 and some odd 1,000, 240,000, 250,000 of those as of right air rights, which are for us free, helps average down that basis and sort of leave void for right now the balance of those air rights which we never put in the NAV to begin with because that was really part of the Euler process we never envisioned undertaking. So our cost basis in the asset is very good. The rents we think are completely achievable. Maybe we'll exceed them. We'll put up more specific numbers next year like we did with 1 Vanderbilt about cost and returns and capitalization and all that once we have a final design plan and we go out and get some numbers back on pricing. All right. What is your outlook for rent growth? Does the 2% to 4% mark to market in 2019 imply 0 or negative growth? Steve, do you want to talk about the Well, let's start by the premise of trying to compare mark to market against market rent growth is a little bit of apples and oranges. It's always been a frustration for me. I think that when people look at our mark to market, which is influenced by the new rents that we're leasing the space up compared to the escalated rent that may be burning off. And that escalated rent could be a component of base rent, real estate taxes, operating expenses and frequently annual base rent increases. So if you think about that, we signed a lease today and it's we have an escalator that contractually grows at 3% a year plus a pass through in taxes, that escalated rent gets to a very high number. Then you come back and say, well, if market growth is growing at 2% or 3%, why isn't your new mark to market rent on the relays in line with that? Well, because obviously the leases that we're signing are growing faster than market, even though market rents have been growing at a 3% to 4% rate. I think that we expect to see more of that next year, that it will be modest growth in the overall market rents of 3% to 4%. And I think you'll see other pockets where we do better than that, where we do better than that, particularly on the lower price point buildings where I think there's an opportunity to push up rents higher. Just for the sake of time, Matt, let's try and knock these questions out. It's getting a higher volume than usual, which I think is good. But OVA, the question is how does incremental leasing at OVA next year factor into your leasing goal of 1,500,000 square feet? Part of it. Yes. Well, it's just quantitatively. How much is it? Yes. It's 13% up. So it's 52% leased now. It's going to 65% leased. That's 13% on $1,700,000 Which is like 186,000 square feet or something like that? That sounds very close. Yes. So in the $1,500,000 for the year is probably close to $175,000 to 185000 square feet of leasing at 1 Vanderbilt. And that puts us ahead of our timeline still and is incorporated in the 1.5. What percentage of 1 Madison would you JV? I think this would likely follow form with 1 Vanderbilt, which would be 49%, I think likely, kind of depends on the offers, the amount of structure we're able to impose on bidders for that equity interest. But I think initially our plan is 49 Yes. I think the preliminary conversations Andrew and I have had with capital sources lead us to believe this is a very achievable goal for next year. This is the reaction to this. I mean, did you guys like the images you saw? I mean, pretty cool development. That is years of work to figure out the massing and how to fit within the envelope as of right and come up with that design, which like is knits together quite well with the podium and also has some special features that celebrate the park. And I think we've done it. And obviously, that will still continue to evolve over time, but it will just get sharper and sharper. And we are really proud of that design and looking forward to that development. And the tenants and capital sources we've shown this project to on a preliminary basis, I would say the reception has been excellent. So this is something that's very exciting up to half the equity, I guess, is something we would consider joint venture. So that's all of the submitted questions. Does anybody have We have live mics if anybody has Another question. Live questions. Michael? I want to get to 1 Vanderbilt property. So as you think about the conviction and having an opinion, Mark, you talked about buying back the stock given this vast difference between where you think it's worth and where the stock is trading. You've been very aggressive at selling assets, repositioning the portfolio and buying back stock. If the stock doesn't reflect that value, what are the next steps that you can take? What's up your sleeve, to try to narrow that disconnect? Well, I just everything we're doing is with a goal of making it the best company possible and creating most value. And to that end, we're doing it. I'm very happy with where we are on that program. Stock price may not reflect it, and that's something that we hope will correct itself in 2019. We think there's every reason that it should, but so far it hasn't. But everything we're looking to achieve, we're doing and then some. I think we're kind of ahead of plan. So we'll keep doing that. But to your point, at the end of the day, we the shareholders have to realize that benefit and the storehouse of value we're creating. And I guess one step further, which I think would be on the table, would be to consider sales and special dividends. I mean, at the end of the day, we own the value, right? That's the beauty of owning real estate. The stock may go up, stock may go down and it may be mispriced, But the value we own, like those assets are ours and we can illuminate value via sales and JVs and either reinvest in real estate stock that pay down or just distribute back to shareholders, which I think would be very much on the table if we can't otherwise figure out a way to return value to shareholders because the value is there. We touch it every time we sell an asset. We're meeting or exceeding. I mentioned earlier a little bit down on retail and suburbs, but the office product, which more and more is the largest percentage of its portfolio, we're spot on or conservative. So and the market is deep with demand. Andrew went through that. So we'll just keep at it. And like I said, that value doesn't go away. We can come up with ways to monetize it and put it to work or return it. We take one last one only because we got a lot of questions and we do have a great tour set up at 1 Vanderbilt for it. I hope everyone's going. A lot of pressure on the last question. But on the DPE portfolios, could you talk about the shift into doing more mortgages? It seems like it's lower risk, but also you could be less opportunistic going forward. So why not shrink the DP book more than $50,000,000 or something $1,000,000 David? I think we're really just looking at kind of where we're seeing the most value. And obviously, everything's just return on capital. So it's immensely scalable. So if we saw a better opportunity, all this stuff is completely liquid. We could sell it kind of in a day, a week, 2 weeks. So we're not really restricting our flexibility to do things with the capital. By putting the money out, we have the optionality. As you can see, the 1,000,000,000 and 1,000,000,000 of money being raised in this space. We could sell down the portfolio whenever we wanted. So let's say we're keeping the balances where they are. It's almost more giving us optionality than kind of letting them run off. In terms of doing mortgages, just it seems to be a better business that we think from a risk adjusted basis where people are really stretching for yield and we don't think on the lower end of the spectrum getting paid the right returns on all these mezzanine loans. And we want to kind of price things right and put out money where we think the best return is. Okay. Well, I think we're going to do a very quick wrap up. I want to do a very sentimental wrap up other than to thank you all for being here today. It's an understatement they say it takes a village. I think this took a city to put together. We put a lot of pride and effort, thanks to the team that's here, the team that's up there, not just in preparing this, but in doing everything necessary throughout the year to enable us to come up here and present to you what we presented today and the people in the background, Image Media, Atlantic Productions, Gillette Consulting Industries and folks at Berlin Rosen, thank you for a lot of late hours, long days and hope everyone found it entertaining and informative. That's what I set forth at the outset. It was our promise to you and enjoy the tour of 1 Vanderbilt.

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