Marc Holliday – Chief Executive Officer Matthew DiLiberto – Chief Financial Officer Andrew Mathias – President, Director Steven Durels – Executive Vice President and Director of Leasing and Real Property

Manny Korchman – Citi John Kim – BMO Capital Markets David Toti – BB&T Anthony Paolone – JPMorgan Alexander Goldfarb – Sandler O'Neill Steve Sakwa – Evercore ISI John Guinee – Stifel Jamey Feldman – Bank of America Merrill Lynch Ross Nussbaum – UBS Nick Yulico – UBS Securities Jon Petersen – Jefferies Vincent Chao – Deutsche Bank Blaine Heck – Wells Fargo Craig Mailman – KeyBanc Capital Markets Brad Burke – Goldman Sachs Joe Reagan – Green Street Advisors

Thank you, everybody, for joining us, and welcome to the SL Green Realty Corp.'s First Quarter 2016 Earnings Results Conference Call. This conference call is being recorded. At this time, the company would like to remind our listeners that during the call, management may make forward-looking statements. Actual results may differ from the forward-looking statements that management may make today. Additional information regarding the factors that could cause such differences appear in the MD&A session of the company's Form 10-K and other reports filed by the company with the Securities and Exchange Commission. Also during today's conference call, the company may discuss non-GAAP financial measures as defined by SEC Regulation G. The GAAP financial measures most directly comparable to each non-GAAP financial measure discussed and the reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found on the company's website at www.slgreen.com, by selecting the press release regarding the company's first quarter 2016 earnings. Before turning the call over to Marc Holliday, Chief Executive Officer of SL Green Realty Corp., I ask that those of you participating in the Q&A portion of the call please limit your questions to two per person. Thank you. I will now turn the call over to Marc Holliday. Please go ahead, Marc.

Thank you. And, it's an absolutely glorious day here in New York City. The sun is shining and the stock is up, and we're glad you joined us for our first quarter earnings call. Andrew Mathias is back in the saddle and with us today after this surgery. And, we look forward to answering all of your questions. But, first a few comments on the quarter and the outlook for New York City market. Our Q1 results by any measure were outstanding and indicative of our company there is firing on all cylinders. But, in my count, we've done over 70 of these earnings calls since IPO and they were none that I can remember with the earnings results, we're so complete and so satisfying. On this past December 7, we set out for ourselves a host of intentionally challenging and specific goals and objectives with the hope and expectation of meeting all of them in 2016. On January 27 of this year, against global market headwinds, we reaffirmed our guidance evidencing the confidence we have in our company, ourselves, our market to continuously deliver superior results on both in absolute and relative basis. This is because our discerning approach to investing in assets with significant growth opportunity and the constant recycling of our portfolio enables us to generate market leading earnings growth while also assembling the highest quality property portfolio in New York City. These activities have resulted in a steadily increasing funds from operations from just a $1.70 per share in our first year of being listed on the stock exchange to a normalized amount of approximately $7 per share estimated for the 2016, a rate of growth that is unsurpassed in our industry sector. Overall, New York City remains extremely solid, notwithstanding the dislocations we saw in the financial sector in December, January and the first half of February, volatility that has since leveled off. New York is often perceived to be heavily dependent upon the financial services sector for jobs and office space demand. The reality however is that New York is by far the most compelling, diversified and resilient commercial property market in the country, possibly the world's and continues to attract businesses, and investment capital notwithstanding where we are at any one point in time in the market cycle. Further New York City dependence on the financial services industry has been reduced as other industry segments have proliferated such as media, technology, education, and healthcare. In fact, the financial services industry's contribution to incremental leasing absorption, has fallen in recent years from 34% of square footage leased to 24% of square footage leased over the last five years, thereby, reducing the occupancy risk if that sector were shed jobs, though we have not witnessed any material shutting. Population, tourism, and job growth continue in New York City, with industry profiles more diversified and less reliant on any one sector than ever before. The first quarter numbers coming out of the Bureau of Labor Statistics was surprisingly strong for the first quarter as New York City added net new 38,000 private sector jobs, 11,000 of which were in the office using sectors of business services, fire, the fire sector, and information, and that's just in the first three months. Obviously, if that pace continues into the second quarter, the city would have to revisit its 2016 forecast, for a private sector job creation, which was reduced by then to a still healthy total of 50,000 net new jobs earlier in the year, when they – when they revised that number. But as I said earlier, almost all of that job creation has been experienced just in the three months. While the city estimate is lower than the record-setting growth rate for the last five years, millions of square feet of positive office space absorption are still expected, and we have come out of the gate strong in 2016, with 850,000 square feet of Manhattan office leases signed in the first quarter alone, at a remarkable 39% cash rent mark-to-market. Furthermore in the first 21 days of April, just three weeks, we have leased an additional 72,000 square feet of Manhattan office space and the near-term leasing pipeline is similarly growing with 1.3 million square feet of Manhattan leases in active leasing negotiations out for signature or advanced stages of term sheets. We are also very pleased to see that asset values in New York continue to hold up from their record levels in 2015 and demand from both domestic and international equity investors and commercial lenders remained strong, as evidenced by recent activity which exceeds $6 billion so far, notwithstanding the market pause that we saw in January and February. Investors will be more discerning this year and certain asset classes like residential condominium projects, hotel and land will see values fall as investors concentrate on well-located income producing assets with embedded growth opportunity, the kind of assets that dominate SL Green's portfolio. Non-core or transitional office assets may see some downward pricing pressure but as money continues to flow, the quality, Manhattan commercial assets, it is likely that their values will remain relatively steadfast. From an overall investment capital perspective, we are seeing a continued flow of money from foreign investors, sectors that we'd highlighted over the past few months and on the last call, Japan, China, Korea, Germany, Canadian money and still money coming from Middle East. These are investors and nations that regard New York as the safest and most attractive place to invest and diversify their holdings. A number of overnight reports made reference to our Q1 results being evidenced of a solid New York City market, and certainly that is a major contributing factor, but the much bigger story in my opinion is the way, in which we have positioned SL Green to be dominant force with this market and sector and to drive earnings and increases in shareholder equity, while running an aggressive – investment grade portfolio and investment grade balance sheet that represents less than 40% loan to value on a consolidated basis. We've strategically fortified our company by upgrading and diversify our portfolio through selective acquisitions and dispositions, expanding business lines, but within our market and by operating a portfolio with a focus on long-term leases, high occupancy levels, lower annual lease roll and high credit quality tenants. Despite our many successes, one significant frustration that we share with all of our investors is a stock price that does not merely reflect those accomplishments, does not correspond to the current value of our underlying assets, and undervalues the substantial additional growth embedded in our portfolio. For our shareholders, we will work relentlessly to illuminate value, continue our earnings progression, invest opportunistically, manager our liabilities and build substantial liquidity. I want to thank you, and we'll open it up it for questions.

Thank you. [Operator Instructions] Our first question is from Manny Korchman with Citi. You may begin.

Hey, good afternoon, everyone. Marc, if we just look at the – the forecast and the actual job creation, do you think they were just sort of light on the forecast and maybe do you have any idea of why they would have been in light of the forecast early in the year, was it just scare because of volatility or were there other deeper trends going on and now you think that those have abated a little bit?

Well, I think that there's – the environment as it's played out was probably different than when the forecasts were being made and they might have been a little too conservative going into it. So, we'll see how it plays out, the year is only three months over. But I think, they were looking at downward estimates of GDP, they were looking at what the effect of the minimum, $15 minimum wage was going to have on jobs in the city. And I think that they – you have to – remember at 50,000 jobs it's still by most accounts an extraordinary – extraordinarily high number. So, I don't think they were looking at it as being conservative or fearful or concerned. I think that was maybe misinterpreted on this call three months ago, that a 50,000 job creation number in the private sector, is somehow a number that is – has a negative connotation to it, the contrary it's a strong number. Now, will the city exceed that, clearly if it stays on the path it's on, it will not just exceed it, it will blow it away. But these things have a seasonality profit to it, and you have to let more than three months past, to see exactly where things level off. But clearly sitting here, through what hopefully was – will be the worst part of the market for us, having seen that kind of robustness not only evidenced in the jobs numbers, but in the leasing statistics, gives us much better confidence as we sit here today.

And then maybe switching to One Vanderbilt, I was hoping if you could give us an update on where you are in discussions for both the JV on that project and construction financing and maybe a leasing update as well if you have anything?

Okay. Let's cover One Vanderbilt. So, we will bring in Steve and Andrew and others as part of the conversation, but I just want to lead it off by saying, in general I want everyone on the phone to understand this is a spectacular project that has been extraordinarily well received by lenders, brokers, perspective tenants and perspective JV partners. There is an intense amount of scrutiny for this one investment and understandably, because it's a large development but, I would say to you that, this is going to be the premier project, probably in the city, maybe the world, when this is completed. That's how we feel about this project, and that's the kind of feedback we've got in from every single player we have presented this to. Now in terms of the financing, the financing is going exceedingly well, we still are on track for what we hope will be a closing in completion by the end of this summer, which is what we said on the last call. And then following that we will focus in on equity capitalizations from JV partners, understanding that we get called daily on this, we have a queue of potential interested investors that's not measured in the – that doesn't and its measured in the 50 to 100. And it's a matter of us being very deliberate about -- going about this very long-term project and make sure we get it exactly right and the first order of business is the financing and completion of the demolition and the beginning of excavation, which starts this summer, the finalization of our marketing materials which are spectacular and which many of our investors will get to see in December and then getting out on the road and finding the right equity investor for us, we're committed to finding a partner for this project, I'm confident, we will have more than one party to choose from at the end of the day and we'll be basically just bidding terms for who we think brings the most of the table, beyond just capital at the end of the day. So, with that, let me turn over to Steve on the leasing side, what do you – what's your update there?

We are presenting the building on a very regular basis to tenants. It gets rave reviews at the end of every presentation. I don't think, we've ever been involved with the project, where the presentation to perspective tenants is so well received. Our single greatest challenges quite frankly is that, we're five years out as far as being able to deliver. So, that's very early in the timeline for tenants to be able to make decisions, notwithstanding that, we've presented this building to significant size tenants, if not once a week, sometimes as many as two times to three times a week. The majority of those tenants are either financial service related type businesses or very high-end international headquarters type companies. And I think that as – as time will tell but we have three tenants or four tenants that are doing active diligence on the building and I feel personally very, very confident about where we stand in the lease of process.

Thanks guys.

Thank you. Our next question is from John Kim of BMO Capital Markets. You may begin.

Thank you. You accomplished 43% of your full year Manhattan leasing target in the first quarter alone. I'm just wondering, if there was any particular tipping point in the market or change in your strategy that basically open the flood gate?

Well, any change in strategy, I don't think there was a change in strategy, I think that there were a number of things that came together for us in some cases early, in some cases accelerated in future years. Credit Suisse, exercising renewal options for 170,000 somewhat square feet at 11 Madison was unexpected and not modeled than a huge boost, I think a positive sentiment on the market, huge boost for the asset, and I think it really cements exactly the reason why we think 11 Madison is as great as it is. And we had a very significant pipeline going into the first quarter. You heard me say that on the last call and a lot of it converted. And see if I don't know at least – no change in strategy per say just pre-leasing.

No. Not at all. I think that's the point. We had a very full pipeline of not just perspective tenants. But since the fourth quarter of last year, we've had a significant number of leases that have either been ready for execution or have been in advanced stage of negation. And the stars aligned and we ended up converting a bunch of those transactions over and the good news behind that is that even with those conversions we've been able to refill that pipeline.

There were some local reports that asking rents had declined in certain buildings, does that help you cause at all?

I don't think that had anything to do with Q1. There are two buildings or three buildings where we had pushed rents extremely hard, Tower 46, 10 East 53rd, and in those projects, we probably brought those back to $10 or so. So, well ahead of underwriting, but you don't really know where the market settles unless you push and then if you find you pushed a little too far than you recalibrate. That is excellent activity on those two projects, but I don't think that had anything to do with Q1.

Yeah. And just to clarify some of that, the – where we adjusted some rents on those spaces that we had pushed rates ahead of – arguably ahead of the market, those adjustments were done on a select handful of spaces on only a few buildings. So, it was not all buildings and not all spaces by any special imaginations, in fact at the same times we had that we moderated some, we'd actually increased the rents on some of our other space. So, it's certainly got – that back out lost in the mix.

Got it. And my second question is on One Vanderbilt and if you've seen evidence of increase in construction cost, that seems like it's permeating throughout the city and if there is a risk that cost will elevate above a $1,000 per square foot that we put the....?

Where are you hearing increase in construction costs permeating throughout city?

Various sources across all of asset types?

I would say to the contrary, our experience had been increased in construction costs leading up to let's say, middle or end of 2015. My expectation is, you're going to see a leveling off or in certain of the trades possibly a slight decrease in construction costs relative to what we had projected because anything for One Vanderbilt, we took kind of a trend line of increases, which was substantial and then like added 5% a year compounders on top of that and then significant contingency on top of that. So I mean, no, we're kind of set for whatever the market may bring, but I think that the reality maybe that we may catch or break here along with others building during this time period and over the next few years of possibly pricing that we hope we'll be right on target and maybe we can bring it inside. So, no, we don't see that. John, you have to remember, most of our vertical construction here is in 2018 and 2019, and I think if you sort of survey the trades now, there's a little bit of concern about how much of a backlog they're going to have for 2018 and 2019, whereas, they're very busy, very engaged now building out a lot of residential projects. There is some concern that on the backend to that, there may some excess capacity which we intent to take advantage of on pricing.

Thanks.

Great. Thank you.

Thank you. [Operator Instructions] Our next question comes from David Toti with BB&T. You may begin.

Good morning, guys. Thanks for taking my questions. Just broadly, can you walk us through the acceleration of the 388 Greenwich deal and why that was moved up early, was that really sort of the buyer driving that or was it more of a call on the forward market conditions?

Well, I would say that it was – the buyer probably had more of a desire than we did. From our perspective, the deal was inked, and whether it closed next year or this year and we collect the earnings now or over time. I think, we were somewhat indifferent. I think we had heard a message from certain shareholders that now better than later, the economics make sense. But I would say that we were equally happy or really to go along with the mid-year, end of year closer as scheduled. So I would say more or less there were certain advantages probably for the buyer in this case, which drove the transaction for us. It worked out [Technical Difficulty]

Ladies and gentlemen, please remain on your line, your conference call will resume momentarily. Once again, please remain on your line, your conference call will resume momentarily. Thank you.

Does this mean I get to ask an extra question?

Once again, ladies and gentlemen, please remain on your line, you conference call will resume momentarily. Once again, ladies and gentlemen, please remain on your line, you conference call will resume momentarily. You may begin.

Okay. David, did we cover your question there or we've got dropped – the line dropped.

You did. I was sort of hoping again an extra question though.

No. So, follow-up the question.

Just one more actually, which is more of a strategic question for you Marc, and obviously you're still pretty bullish on Metro New York City and confident about the market fundamentals. If we were to go into a weaker market conditions and we can sort of leave that open ended. How would your capital recycling strategy changed in the context of maybe lower rent growth or less sort of investor demand, would we seek significant shifts in activity?

It's hard to say, Dave. I mean, we are the most active capital recyclers, right, by far. We sell, certainly, by number of properties more in a year than any of our re-peers. So, I guess the question is, if the market outlook worsens, how would that affect sale? I guess, to the extent, the market for sale is still there, but our outlook is worse than other investors, then you would continue to sell. I mean, that would be the natural inclination. If everyone is on the same issue, then it becomes harder to sell, so your sales volume may take a pause until the margin gets better. So, we typically look at things when a property is ready for sale. We feel it's matured to a level that it's right to be harvested. It doesn't have any further strategic value for us or the ability to drive NOI over a five-year to 10-year period is below the average trend line for the portfolio. We will be much more readily desirous of either selling or JV-ing that asset, and we do that constantly. I mean, we do it annually and we do it inside. So, I think if – we'll continue to do that. I guess the answer to your question would be, we'll continue to do it provided the market is there to do it, sometimes, the market isn't there. But right now, it's excellent. There's a lot of demand for New York assets. I'd say, as much demand is there was last year, the demand has just shifted as I said in my remarks. I think it's a little more discerning. I think it's really focused in highly on quality and income producing assets. It's in our sweet spot. So, we are actively pursuing sale and JV opportunities.

Okay. Thanks for the detail today.

Thanks.

Thank you. Our next question is from Anthony Paolone with JPMorgan. You may begin.

All right. Thanks. Good afternoon and nice quarter. First question is, with regards to the proceeds from the city sale, should we think about that as a permanent reduction in debt, as we start to think about 2017 estimates, now that this will have a full impact on next year or will these proceeds be used to make other investments. How do you think about it?

Hey, Tony. It's Matt. So, we are going to use the proceeds from the sale for debt reduction unequivocally. In the interim, we are going to pay down our revolving credit facility and then in November, we are going to repay the $450 million mortgage on Lexington, which opens up for a repayment in November, that's a 5.6% debt position. So, it is going to use it for debt reduction.

Okay. Thanks. And then I guess, second question for you. If I just look at your first quarter, the buck 85 times or 740 high and apples-to-apples, you've guided $7, I know relative to arm or you kind of beat us on almost every line item, like what roles are off in the next few quarters here?

Yeah. In the first quarter Tony, we had $0.12 from write-off of that that was in the first quarter, that's not replicable in the second quarter, third quarter or fourth quarter, $0.07 from the repayment of the debt position. We would recognize that $0.07 over the course of the year, it was accelerated in the first quarter. We also had $0.05 of – one of our favorite topic says $1.41 income, of a 11 Madison that's attributable to 2015 that was in our guidance number, but again, it comes during the first quarter not for the remainder. And as I look through other line items, lease termination income of $3.6 million is a couple of million dollars higher than you otherwise project for each coming quarter. So based on that, we said $0.05 given only three months of activity so far is a pretty healthy race and that's where we ended up.

Okay. Great. Thank you.

Thank you. Our next question is from Alexander Goldfarb with Sandler O'Neill. You may begin.

Hey, good afternoon. Two questions, first Mark, in your opening comments, I think talked about you guys focused on relentlessly growing earnings at the same time closing the NAV gap. Given the demand in the market that you spoke about, what's your appetite for maybe sacrificing earnings growth in favor of selling or crystallizing some of that NAV discount?

Well, I think that's what you're seeing in this first quarter and probably for most of the second half of last year, was the continued illumination of value typically at prices that we see are well ahead of analysts and shareholder models, that bear out I think the NAVs that, I think are intuitive to people, we show it in December investor what the implied NAV looks like at market cap rates. You folks on the sell side have your own NAVs which average about a $135 per share. Through your models and many of our investors are at that level and higher. So I think that we continue to illuminate that value through sales and we'll do that often. I think we've shown an extraordinary ability to one, recycle that capital into a very profitable undertakings and two, at this point in time, the recycling is less necessary because we have so much extraordinary embedded growth in the remainder of the growth portfolio in our retail portfolio and just through mark-to-market of our stabilized office portfolio. You don't need to do a lot of investing, if you are marking to market on a cash rent basis, well into the double-digit and you're leasing up retail assets like we did with Armani, like we did with McDonalds, like we did with Nordstrom at rents that are in X percent higher, their multiples higher 2 times, 3 times , 4 times what the expiring rent was. So, we have that kind of embedded earnings velocity that will carry us through 2016 and 2017 and beyond without incremental investment, but obviously, we are – we do look for an incremental investments from time to time.

Then Marc, if I understand you though. So, you are saying that if you guys accelerate disposition, the embedded growth in the mark-to-market in the growth portfolio is enough that you guys could still have positive FFO growth even if you sell more assets than you plan?

Yeah. I think the answer is generally yes because we've done it almost every year. But I don't want to make any statements now about 2017 because we don't have 2017 guidance out on the street. But I think you can sort of look back to the history of the company over last 19 years and draw your own conclusion from that. But we are not making now statements about 2017 or beyond, we'll do that later in the year.

Okay. Second question is for Durels.

Okay. Go on.

Okay. So, you guys leased about 850,000 square feet in the first quarter versus 2.5 all last year. The beginning of this year, the market sentiment was that everyone was on the sidelines pause given the volatility in the capital markets and yet obviously, leasing was very strong. So can you just help us understand the disconnect that sometimes we hear capital markets are upset and therefore tenants are on the sidelines not leasing space and yet clearly they were out leasing space in the midst of some pretty rough capital market activity?

Well, I'm not certain there is a correlation between the capital markets and the fundamentals of the leasing market per se, but the – just to start with couple of data points. One is we've said for the last couple of quarters that we've had a very full pipeline of transactions. Two that pipeline had a great deal of diversity in the types of tenants that we were talking about. Three the feedback that we get from our tenants and perspective tenants as to how they view the health of their business and the hiring prospects and therefore, the rents – the space demands have really not moderated at all over the past year, even as we sit here today, which would explain why even in the face of doing 800,000 square feet we've been able to then replenish the pipeline. So I sort of think that there is a – there was a lot of uncertainty in the market that people hadn't thought we're in the future health, but the reality is our tenants are still feeling very strong about where their business is, how it's performing, where their hiring is and therefore how much space they need.

Okay. Thank you.

Thank you. Our next question is from Steve Sakwa with Evercore ISI. You may begin.

Thanks. I guess first question to follow up on the leasing. Maybe Steve, could you talk a little bit about price points, and just where you're seeing the activity, my understanding is that the really, really high end of the market has really kind of taken a pause, maybe north of a $125 a foot. I'm just wondering if you could comment on kind of where your pipeline sits today in terms of price point, and have you experienced that – that same thing. And then I just I wanted to follow up on the mezz book, when you're finished?

No, I really haven't seen any – any moderation on the deal volume on – on the high price point part of the market or any other part of the market quite frankly. And maybe the best example of that. Although I don't have a lot of products that have currently have a vacancy at a $125 or above, but I do have a plenty of product that's $80, $90, $100 kind of space, and maybe the two best examples of that, and where we're seeing transactional volumes, 10 East 53rd Street and Tower 46. 10 East 53rd Street, I'm – I'm enthusiastic as I said to Marc and Andrew yesterday. Yesterday alone, we converted five tenants over to leases out. So all of a sudden that building, which is a $80 to $90 to a $100 kind of product is like on fire. And Tower 46, which is the Side Street, great quality product with side street location. Although, we haven't a signed a lot of deals there yet, we have a tremendous amount of perspective tenants coming through and are trading term sheets, with a number of very significant tenants at big rents in the mid $90 to a $100 price point. So we're feeling very bullish about the prospects for that building. And I think those are two very good parameters about the strength of the overall market, even at the very high price point.

Okay. And I guess, I noticed that the mezz book did come down by several hundred million dollars. And I'm just wondering, is there a strategy at all to try and take that book down? I know there's been some investors that have been a big concerned about that. And well, I think it can be a lumpy quarter-to-quarter, but just kind of what your thoughts on making new investments there and how you think about payoffs and maybe shrinking that book?

It's definitely, it's more quarter-to-quarter movements than any kind of strategy to reduce the book. To the contrary, we have a very active pipeline right now of investments. We did sell and syndicate a bunch of investments in the first quarter, so that brought it down and – but, not representative to any sort of a broader corporate strategy. We're still very dedicated to that business.

Okay. Thanks.

Thank you. Our next question is from John Guinee with Stifel. You may begin.

Great. Thank you. In 11 Madison Avenue, I think you bought that about a year ago, you had a while until it got to be stabilized. I think you've partitioned it into some candid and common positions, so that you may or may not be able to monetize a sellout a JV position? Where you are on 11 Madison?

Well, 11 is – we've owned it now, I think for about nine months. The Sony work is done and the tenant has moved in. I mentioned earlier, Credit Suisse exercised its renewals for the two floors that we could have got back, won't be getting back, that represented a very substantial mark-to-market. There is I think one space remaining about half a floor, if I'm correct, that we have significant activity on, and I would hoping in the next – in the near term, we'll go to lease on that vacant space, at which point the building will be basically fully leased at rents that average like $70 a foot in a market that is north $90 foot. So it's worked out excellent, it's got long-term debt in place. We will talk to investors that was something we had talked about setting up a JV for future years, stabilization of that meaning full rent paying is still about, I would say plus or minus 18 months to 24 months off. So I think the maximum execution for something like that could be end of this year, maybe next year. In that regard, it's not part of our guidance, but it's there as a store house of cash and liquidities we can monetize, in the future to use for either for debt repayment or new acquisitions in the future. And by doing so, there is a little to no tax gain, the way we structured by selling that JV interest so that is one of those sort of well-structured deals and a deal that will be a little bit more opportunistic in our timing for generating those funds and redeploying those funds or for paying down debt.

Great. And then a follow-up question for Steve Durels, the headline is 39% rental rate increase $71 number. I guess, that means is coming off to $50 base. Can you give a little more color as to how, how sausage is made, what sort of a OpEx reset you'd have or base year reset you have? And what $71 would look like on a net basis? And then what sort of leasing commissions you should factor into that equation?

So to just make sure we got the question, John. The question is on a $71 gross rent and just so I'm clear, where does the $71 come from? That's what...

Average starting rent.

Average starting rent.

Average starting rate in place for the portfolio or no?

No.

No.

No. For the quarter.

For the quarter?

Yeah.

Okay. And then of that $71, how much is – what kind of expenses and taxes go against that?

Well, what's happening here is you're going from $51 full service to $71, your operating expenses are moving around in that equation. And I'm curious as to what the – is that rent is going from where to where and then also...

Just – hey, John. Yeah, Andrew makes the point, the $51, we don't – other people quote like the nominal rent.

Yeah.

We don't do that.

Okay.

The $51 is as escalated.

Okay.

So the $51 is base rent plus OpEx plus real estate tax. And when we say the rent is going from, I'm just using your numbers, can I have those in front of me, $51 to $71, that $20 increase is bottom-line. There is no expenses against the $20 because whatever Ops and taxes against it are in the $51, the $71 is the new rent, the cash mark-to-market is $20, that's all bottom-line stuff Matt, yes?

Yes.

So that to be clear, we don't mark new rents to old base rents in which case you have to ask the question you just asked, this is better and more transparent, we're using fully escalated rents and then marking against that.

And then the $71 generally comes with base year operating and taxes, starting roughly this year. So you pick up right where you left off in terms of escalate.

Right. So we're completely inflation protected on the $71 going forward.

Is it too much of a stretch to say going from 51 to 71 is a $20 increase in net rents or a $15 increase in net rents?

I think, it's $20.

Fair enough. Thanks. Okay.

Thank you. Our next question is from Jamey Feldman with Bank of America Merrill Lynch. You may begin.

Thank you. I'm hoping to just get more color on the transaction market. Mark, you had commented that pricings are holding firm. Can you just provide some more anecdotal evidence of what's going on out there in terms of deals we may see in the market in pricing or buyers that are lining up?

Sure. And I think, you saw 1285 sixth then the 787 Seventh close, so those were the two large transactions sort of from the end of fourth quarter. And then, there are a number of assets, an asset went to contract earlier this week on Wall Street that was market rate residential, that cap rate has a free handle on it, that's to the U.S opportunity fund. We've had a number of retail assets that are in the market that are drawing very strong bids, one of which on Fifth Avenue was reportedly under contract. So, that's not and I don't think, it's been publically announced yet.

Yeah. There is probably in total about $6 billion to $8 billion worth of assets on the market now, some of those are going to be straight trades of office building, some large recaps both in midtown and downtown.

And then you saw in Brooklyn the watch tower portfolio go under contract, that's a large tract of land and an off commercial building, which is a complete redevelopment from sort of industrial space to office space as a plan, that drew very wide competition in pricing that pushed up to a level that I think exceeded the initial expectations in the market.

Right.

Okay. And then in terms of the buyers and their financing, is it still a more equity buyers, are you seeing leverage, what are the capital sources?

Well, I mean CMBS has come back and AAA spreads are in the $130s now from a wide of I'll call it $170s. So, I think CMBS is viable again. And there are a bunch of a CMBS deals are getting done currently in the city, but the bank market continues to be very active both syndicated loans, and bridge and bridge transitional loans. So it's a – it's a mix, I would say.

Okay. And then my second question for Steve Durels, a couple of years ago you made the comment that there would be a premium for large blocks of the market, can you talk about what you're seeing today? And as we are seeing more blocks come in the market, just sensing your perspective on whether do you think that's a risk to the market or do you think that there is a still a premium for those kinds of space?

I think there is a still a premium in all reality because if you're a tenant who goes out, looking for a couple of hundred thousand square feet and you need that space, relatively a reasonable timeline is the next 12 months to 18 months, 24 months. Your availabilities, your selections are pretty thin because not all of the blocks are created equal either because of geographic or space quality or price point or delivery timeline, whatever it maybe. So if you – if a tenant try to lease lot of these type of blocks as opposed to the landlord turnaround, saying I'm going to lease it floor by floor. I think – I think I would still expect to see a premium on the – on the bigger block.

Okay. And then do you see heightened risk of sub-lease base going on the market here?

No, I don't. And if you look statically, we're at the low end historically of sub-lease availability, even the most recent stats that have come out from various brokerage houses, I think it's like a 1.7% or something like that. It's – it's not very, very modest and quite frankly with the phenomenon of densification in the market, even if we were to hit a rocky point, where tenants laid off employees, it becomes very difficult for a tenant, they then put space on the sub-lease market because they've had so many people into their spaces. So I don't see it near term, and I'm – don't see any indictors to suggest that is an issue to worry about for the balance of this year.

Okay. Great. Thank you.

Thank you. [Operator Instructions] Our next question is from Ross Nussbaum with UBS. You may begin.

Hey, good afternoon. [Indiscernible]. Marc, can you talk about one of your goals, or actually I think it was two of your goals from the Investor Day last December, were relating to acquisitions of both office and retail, and I think in total you had over a billion combined of office and retail acquisitions in the goal category for this year, now that we're almost four months through the year, how do you feel about that goal, I guess in relation to the current state affairs in New York and the volatility that we're seeing in the capital markets?

I didn't listen that last piece you said, given the volatility of the capital markets?

Yeah, I'm just curious of the state of affairs in the world over the last four months, have they shifted the goalposts for those original goals that you put out?

Got you. Okay. So, we just clarify one thing upfront on the acquisition targets, which we said on the last call and said in December Investor Day, I want to say it again now. Those goals that were originally set forth as we – as they always are when we put those goals forth, our growth targets. So, it doesn't account for deals we do in joint venture. So I can give you an example, there is a residential asset that we're looking at in pipeline, very good off market kind of situation, where we might be anywhere between call it roughly a third to half the asset, if that thing turns out and not – I remember – well, won't. That would be a gross value even though, A, our share, it would be for less and B, joint ventures tend to have secured debts, so the equity component of the JV of an asset tends to be quite small. So when people hear a $1 billion, $1.5 billion of investment activity in equity and that's the wrong way to think. The equity component that a $1 billion, $1.5 billion is far, far less, that's A. B, I would say four months into the year, the office goal is probably something we'll reassess the year possibly downward because we certainly don't have a pipeline now that comes anywhere close to that number but the way these things go, the assets in New York are big, a deal could pop up second half of the year or towards the end of the year, that might be of a size to make some kind of dent nickel, but it's not – right now our focus has really been on the things we've talked about, which is consummation of the city deal that's done, certain sales in JV s that we are out there in the market, which then have made good progress with today and we'll continue to work on that through the balance of the year. There is a pipeline of some retail resi and office asset that could or could not come together between now and the end of the year. If we do, they will be deals that we think are going to be highly accretive to value in earnings in the future or else in a market like this, we would – we would be more discerning as our other investors. So we're only looking for deals that we think have high value-add for somebody like us in this market. But I would say the office component is probably something that could come in less than originally budgeted. The retail, too early to say, it's only April, I won't even make any assessments there. Because the number for resi REIT I think was $500 million in total. So $500 million in total, if the $50 million JV, it's $250 million if delivered, that's a hundred and some odd million dollars of investment. You could do that like – you could do that in December. I couldn't sit here in April and predict it, but I can say there is nothing near-term in pipeline that would have us reaching those goals anytime in the next quarter.

Hi, hey, it's Nick. I just had a question on the Omnicom renewal. So I guess, there is still over 300,000 square feet that Omnicom did not renew. Could you remind us where in the building those floors are and what are your plans there, there was some talk I guess there was an article the other day about, how you're exploring selling a condo interest in that – in that space, could you just give us an update on what's going on there?

Sure, the article was a little premature, but the reality is that we're in very advanced discussions in negotiation of a transaction with a tenant for a leasehold condominium. So it's not a sale of a condominium perpetuity, it's a leasehold condominium which has a finite life toward of 30 years. And that transaction is expected to close in the next several months, it's really just subject to a couple of outstanding approvals. But that will take care of the lion share of the Omnicom space which is over 300,000 square feet. I think the second thing to note about that is that – and it's a good segue into the following fact which is of that 300,000 square feet that will knock off a big chunk of our 2017 lease expirations of which we've already signed almost 460,000 square feet of leases for 2017 and have another 500,000 square feet including in this deal we just talked about in active negotiation. So we're way-way ahead as far as being able to knock down our 2017 expirations.

That's helpful. And just quickly I mean and understanding you may now want to give sort of full economics. But how do you – how do we sort of think about the sort of economic impact here?

Nick, we're going to have to move on from that question, we're not in a position to discuss more than what Steve just said on the phone. Unfortunately. But...

Okay. Thanks.

...hopefully by next quarter...

Soon enough.

...soon up. Yeah. Hopefully. Sorry.

Thank you. Our next question is from Jon Petersen with Jefferies. You may begin.

Great. Thank you. I'm just curious if you can talk about the – obviously the leasing in the quarter was very strong, 850,000 square feet. I believe at the – in our Investor Day guidance was for 2.2 million square feet for the rest of the year. So, I was just hoping to get a little more context on, I know you didn't update your full year leasing guidance, but how should we think about this quarter and kind of what it implies for the remaining three quarters of the year?

Well, it was a very – is an excellent start to the year. Obviously, we're trending ahead. We'll reevaluate probably at the next call and if there is any cause for guidance shift. I think we'll evaluate then. We certainly don't do it quarter-to-quarter and we'll see how thing bare out, but obviously I did mention there is a $1.3 million of pipeline. So, if we have a great second quarter and convert very high ratio of that $1.3 million, then we may have to look at that stat for upward revision.

All right.

The goal would be the – $2.0 million to be declared.

Oh, $2.0 million. Okay. Then you are even closer. So, and just one other question, I mean we touched a little bit on retail. I'm curious what your thoughts are on rent industry retail in Manhattan, especially in the major corridors, Fifth Avenue, Times Square. Just kind of what your thoughts are on the durability in the growth of those over the next couple of years?

What we're seeing and experiencing is durability for sure. I think growth in retail rent has moderated in certain submarket Fifth Avenue and I would say Time Square as well. That's after multiple, multiple years of very significant compounded growth in those rents. So, they are sort of leveled off, I would say, in those submarket, but then there are other submarkets in the city, Soho and Downtown particularly where we continue to see increases in rents.

Great. Thank you.

Thank you. Our next question is from Vincent Chao with Deutsche Bank. You may begin.

Hey, good afternoon, everyone. I think last quarter when you're talking about the pipeline of leasing, you noted that the mark-to-markets were pretty strong. I was just curious so that you can comment on a little bit on the pipeline, in terms of what kind of rental rates you're seeing in that pipeline, as well as the composition by industry and between new and renewal?

All I would say is, it's very healthy mark-to-market for the pipeline rents, in excess of our guidance, which I think was around 15% thereabouts. I would say that, incrementally that pipeline exceeds that mark-to-market. I would also say, it's not 39%. So, something in between.

Got it. And in terms of the – and sort of between new and renewal?

I'm sorry.

The sort out between new and renewal?

I don't know.

On the mark-to-market.

I've had it in the past, I don't have that today. I think we got to get back to you on that, no, not on mark-to-market, just on pipeline.

All right.

How much is renewed, how much new? Give us a minute, we'll get it, we do have it and we'll come back to you. Okay?

Okay. And just maybe one other one if I could. I mean, it's a little bit maybe an odds with the contrary earlier about the type of the investor demand that you're seeing this year versus last. But you've sold a couple of suburban assets recently and it seems like the fundamentals there, have done pretty well, or looked pretty good for the last couple of quarters? I'm just curious, if there's an opportunity to do something larger?

Well, I mean, there's opportunities to do something large. I don't know that it's a strategic goal of ours to do something larger. The market is good for the better suburban assets. We – the guys in white planes have done extraordinary job of bringing that portfolio to a level that's far in excess of the market. Those suburban markets are highly impaired generally in the Tristate area with 20% vacancy rates and our occupancy levels far better than that and our average rent levels far better than that. So, I think it's better for us as a company to take those assets sort of one-by-one and optimize and sell, there's no pressure, there's no, I don't see any pressure to something, I think, we should hold up a large size unless, unless we made extraordinary sense, but we like having that portfolio there to create longer term value with and continue to monetize and harvest as time goes on. I think, we've done an excellent job of stewardship on that portfolio as have the guys up in planes, and I think, we're reaping the awards for that now on some of these sales which had been occurring in 2015 and 2016.

I'll just – just answer the first question of leases that we already have out for either signature or that are in active negotiation. The 650,000 square feet of new leases in negotiation and a 160,000 square feet of renewals. And then, I don't have the breakdown on the term sheets.

Okay. Thanks.

Thank you. Our next question is from Blaine Heck with Wells Fargo. You may begin.

Great. Thanks. So just following up on 388-390, I think, around the time, the city lease renewal was announced in early 2014, you guys estimated a 9.7% levered IRR for your holding period assuming that purchase option was executed in the period establish, so, I was wondering if you guys have run the math again, whether this early purchase agreement had any significant effect on that IRR?

Yeah. The answer is yes. The 9%, 7%, or whatever the number you recorded, that was actually what I'll call yield towards which was an exercise at the end of 2020, I guess [indiscernible].

Sometime in 2020. So by – so the way the deal is going down with an early exercise and the other components of that deal, the total IRR over, I think it's a nine-year period. So it's a nine-year annual compounded IRR of 10.9%.

Okay. Great. And then can you just give any update with regards to 1745 Broadway, last quarter it seemed as if though you might have something to announce by now?

No, I mean, I think the – we continue to entertain offers on the asset, but nothing to announce – nothing to announce at this time and it's one of a number of assets we're exploring selling, but we're trying to optimize in terms of what we want to transacting or not.

Okay. Great. Thanks.

Thank you. Our next question...

We're going to have to – operator, I think we'll go to 03:15 because usually, we try to keep these to an hour. It's a courtesy to our shareholders and analysts. So we'll take another maybe seven or eight minutes of questions.

Okay. Our next question is from Craig Mailman with KeyBanc Capital Markets. You may begin.

Hi, guys. Just curious Marc with the updated kind of first quarter numbers here, if your view of market rent growth in Manhattan has changed at all relative to kind of where you're trending on the 4Q call?

No. I think the call that I had last time, we had said the rent spike that people were putting 5%, 7%, 10%, we thought that the second half of the year you might see something more in the single digits. And I think I said something along the lines of 2%, 3%. And I think at least from a underwriting perspective that's what we're going to continue to use and broadcast just for the second half of this year. We have given no guidance for 2017 and beyond. I could see a scenario where is the market settles and this job growth continues a pace that you could get into growth rates higher than that beyond this year, sort of, I could see that definitely occurring, but we're not making that call now, I would say pretty much no change in guidance for a back half of the year in the kind of 2% and 3% up in rents. So, good with the emphasis being on up. I think there was again a misinterpretation by some on the last call that we had said down, there is no down, there is only up in our guidance and the question is up by how much?

Okay. That's helpful. Then, just secondly, I noticed the lease term is obviously went up from the leases in the first quarter, but anything else driving the rise in TIs this quarter?

I think the lease term probably went up as a result of the Credit Suisse.

Yeah. 20-year...

The Credit Suisse is a 20-year lease.

Yeah.

It's a function of – the ratio of how many leases that we do that are for new. First generation tenant is coming in to the portfolio as opposed to renewal deals. And frequently whether those – the length of the lease as opposed to whether it's a 15-year deal, 10-year deal, 5-year deal, that can drive the concession. So, there is no shift as far as the market goes. It's more function of – its variables of those specific transactions.

But I guess we're just looking TIs, look like they spiked the renewals kind of where the lion's share here. So, I'm just trying to reconcile those...

So, when you say spike, let's just use exact number. So...

Well, you guys were – you guys were in the 50s on TIs this quarter, I think you were $17 last quarter.

Yeah.

So Matt, can we look at that 10 points in deals, which is the bulk of the 50?

Yeah, both. And we were 50 a couple quarters ago and 50 before that, I mean, it varies quarter-to-quarter and it's dependent on what buildings, at what rents or what term we're leasing space, so I think that's a pretty consistent trend across. If I look at one large – one large renewal that had a full package because it's a 20 year renewal is the CSP Eleven Madison. So, while it is considered a renewal because [indiscernible]

Okay.

... 20 year, actually 21 year because that goes up to 2037, so they get a full package with that and that's 180,000 square feet.

Yeah. Just to be clear, that was pursuant to contractual option, not that – it was negotiated by us that way. Their renewal provides no downtime and a significant mark-to-market, but their option also provided for a TI package because it is a 20 year lease to somebody like Credit Suisse making a 20 year commitment to 180,000 feet is going to want to refresh this space, so I don't see that as a – it's not a shift in market trend because it was embedded within the lease document.

Great. Thanks.

Thank you. Our next question is from Brad Burke with Goldman Sachs. You may begin.

Hi. Thanks for taking the question. And I wanted to ask on the big run, mark-to-market for the quarter. At your Investor Day, you brought up the embedded rent for the Credit Suisse space at $42 and you thought to normalized market rate for that space would be $87, so as we look at your lease spreads for the quarter, is it fair to say that, that was the big driver of the outsized result that you had?

No, no. This was really broad based. Matt can probably give you few other besides that one.

Yeah. So, in addition to the Eleven Madison, mark-to-market. The Omnicom renewal at 220 East 42nd Street, about 167,000 square feet, had a mark-to-market even higher than that, north of 70%. And we also did a renewal at 100 Park, with a material mark-to-market, north of 30% there as well. So, it was very broad based. And even without those deals, that was a – we would be at approaching 20% mark-to-market, even excluding those three big ones [indiscernible].

Yeah. I don't think we – I don't think we did more than 20,000 square feet or 30,000 square feet of deals out of that 800,000 square feet that had a negative mark-to-market. Every other of the 800,000 square feet, every other transaction was positive mark-to-market in many – in most cases, obviously very, very substantial.

Okay. So...

So, I think – do you have anything else, Brad?

Yeah. And I guess, just the second one on the guidance, you're increasing it $0.05 per portfolio NOI and interest expense savings and I would assume that the interest expense savings is going to be more than $0.05, just by virtue of what you're going to be paying down over the course of the year. So, I was just hoping for better clarity on your expectations for property NOI, specifically versus the original guidance you gave in December?

That is much more property NOI than interest expense, if you look at what we're paying down in the short-term that is probably our lowest cost of debt capital because we're going to take the proceeds from 388 and repay our revolving our credit facility. We won't be repaying the – more expensive debt, the mortgage at 45 Lex until November or December. So, that benefit will really reap it's rewards in 2017.

Okay. Thank you.

Thanks. We'll take one more – one last question, operator.

Our last question is from Joe Reagan with Green Street Advisors. You may begin.

Thanks guys. And I think you've talked about getting debt to EBITDA down to about 7.5 times, 7.6 times, I believe perform of the city sale. I'm just wondering if that's still the right betting line for at the end of this year. And then, can you talk about your longer term debt to EBITDA target as we look out to 2017 and 2018?

Yeah. So, we are still on track for 7.6 times by year end as your first question. And that I think, on the math we've run is about a 30% – somewhere between the 35% to 37% debt to value on a consolidated basis, low 40s on a combined basis. And right within the strike zone of all the rating agencies. So, I think we will probably wind up taking it down further just based on – just based on – just based on how we're modeling not just the year, but some of our long-term plans going into next year and beyond and application of funds and while still keeping our early momentum. And I think it will allow us to reduce that further. Although I would say, when you get into that 7%, 7.5% range, we view the portfolio as a pretty much completely de-risked and de-levered, especially given the cap rate environment we operate at, which is typically between 3.5% and 4.5% cap rate environment. Debt to EBITDA, I think, is not the best model to use. I know you guys use it and that's the one you like. But there is also a notion of equity or embedded equity, which is more of a loan to value concept. And I think because New York is a very liquid market with anywhere between $40 billion to $70 billion year of transactions, you can't get a pretty good handle on the NAV, I know you guys carry a pretty high NAV for the company relative to where the stock price is. And if you look at the debt on a – debt to, I'll call it your NAV as opposed to debt to EBITDA, I think we would be sort of right in the middle or possibly even below peer average.

Okay, thanks. And Steve it sounds like you're seeing pretty good broad-based leasing demand out there today, but just wondering if there is any submarkets or industries or tenant sizes that really stand out and seeing particularly good amount of activity?

Well, the TAMI sector whether it's in our portfolio or in the overall market continues to be a big driver. But Marc in his opening comments I think spoke a little bit about the diversity of tenants and if you break it down of the deals that we have in pipeline, it's composed of TAMI being the leader, healthcare being a big chunk of it, financial services being a significant player, legal services and then general business services and even government to a certain extent are the five or six major industries. But the top four being TAMI, healthcare, financial services and legal. And I don't think that's really different today than what we were seeing through most of last year, quite frankly. And I think we take a lot of comfort from seeing that kind of diversity.

And any submarkets stand out as particularly strong or soft?

No. I think there is a lot of questions that we get about the West side meaning Midtown West, meaning Sixth Avenue in particular. And like a couple of years ago when Sixth Avenue had a bunch of vacancy. Sixth Avenue right now has probably got some of the biggest deals that are in negotiation. One of the big headline deals that's over there is the $0.5 million square feet going to Major League Baseball. So Midtown proper is a very active part of the marketplace and I think it's active on both East and west in all parts of Midtown. So I think Midtown is more active than Downtown right now, quite frankly. So I mean – and we're certainly feeling it in our portfolio.

Great. I appreciate the color guys.

Thank you.

Okay. Thank you, everyone for whoever is left on the call and we're happy to have shared this great quarter with everybody and look forward to speaking again in three months’ time.

Ladies and gentlemen, this concludes today's conference. Thanks for your participation and have a wonderful day.