SL Green Realty - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 headline: Revenue and EBITDA materially beat Street, while GAAP EPS was roughly in line/slightly below SPGI “Primary EPS” consensus; company-reported diluted EPS was -$0.30 vs -$0.386 SPGI “actual” used in consensus tracking. Revenue beat was driven by higher rental revenue, other income, and investment income, plus contributions from consolidated securitization vehicles. Revenue/EBITDA beats vs SPGI: $241.0m vs $157.7m; $124.8m vs $67.4m, respectively (SPGI)*.
• Operating momentum: 45 Manhattan office leases (602k sf) with minimal concessions drift; same‑store cash NOI +2.4% YoY ex‑termination; Manhattan same‑store occupancy 91.8% and on track to 93.2% YE25.
• Balance sheet/credit platforms: DPE portfolio carrying value $537.6m (7.5% current yield; 8.7% ex non‑accrual) and special servicing active assignments $4.8b with $10.9b designated; management sees robust CMBS/balance sheet lending activity and expects upward bias to guidance if pipeline closes.
• Likely stock reaction catalysts: visible estimate revisions from revenue/EBITDA beats; execution on $1B dispositions, 2.0m sf leasing goal, and occupancy glide path to 93.2%; continued ramp of debt fund/special servicing; 500 Park yield rising to ~7.2% shortly after acquisition.

What Went Well and What Went Wrong

• What Went Well

  • “The company’s earnings for the quarter exceeded the Street’s expectations and our own internal projections by a significant margin,” with NOI and leasing ahead, and strong profits from debt-related businesses.
  • Revenue mix strength: Rental revenue, other income, and investment income all rose YoY; total revenue $239.8m vs $187.9m YoY (+27.7%).
  • Strategic momentum: 45 office leases (602k sf), +2.4% same-store cash NOI ex-LTI, Manhattan occupancy 91.8%, pipeline >1.1m sf; YE25 occupancy guide 93.2%. Management emphasized active CMBS/balance-sheet markets and expects upward bias to guidance if pipeline closes.

• What Went Wrong

  • Mark-to-market on replacement leases -3.1% this quarter, reflecting mix/price points; occupancy ticked down vs Q4 (91.8% vs 92.4%) as buildouts and timing lag economic occupancy.
  • GAAP EPS printed a loss (-$0.30); YoY compares include lapping large 2024 JV gain/debt extinguishment items that inflated prior-year FFO/share.
  • Macro headwinds (tariffs/market volatility) create uncertainty; management has not seen a slowdown yet, but cautioned timing is unknown.

Transcript

Operator (participant)

Thank you everyone for joining us and welcome to SL Green Realty Corp's first quarter 2025 earnings results conference call. This conference call is being recorded at this time. The company would like to remind listeners that during the call management may make forward looking statements. You should not rely on forward looking statements as predictors of future events as actual results and events may differ from any forward looking statements that management may make today. All forward looking statements made by management on this call are based on their assumptions and beliefs as of today. Additional information regarding the risks, uncertainties and other factors that could cause such differences to appear are set forth in the risk factors and MD&A section of the company's latest Form 10-K and other subsequent 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 Regulation G under the Securities Act. The GAAP financial measure 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 both the company's website at www.slgreen.com by selecting the press release regarding the company's first quarter 2025 earnings and in our supplemental information included in our current report on Form 8-K relating to our first quarter 2025 earnings. Before turning the call over to Marc Holliday, Chairman and Chief Executive Officer, I ask that those of you participating in the Q&A portion of the call to please limit your questions to two per person. Thank you. I will now turn the call over to Marc Holliday.

Please go ahead, Marc.

Marc Holliday (CEO)

Thank you. Good afternoon everyone and thank you very much for joining us today. Given all that's transpired in the global markets since our last call, I was especially happy with our first quarter's earnings that we announced yesterday. In particular, and as a result of the hard work of the entire SL Green team, the Company's earnings for the quarter exceeded the Street's expectations and our own internal projections by a significant margin. Our NOI was on top of our forecasts, our leasing results were well ahead and our profits generated by our debt related businesses were very strong. This should come as no surprise to anyone given my commentary in December at our Investor Conference which focused on an opportunity rich commercial debt market.

I highlighted that new originations, secondary market purchases, distressed opportunities, the new debt fund and our special servicing business was going to take center stage in 2025 and Q1. Performance in this area is certainly an affirmation of that belief with much, much more to come. We laid out our thesis in this point in the cycle for making equity-like returns in credit investments, something that has been our stock in trade for over a quarter of a century. No one has made more subordinate investments on Manhattan office buildings over that period of time than we have, particularly in the early years of a recovery. Our realized returns are typically far higher than the average returns we normally experience and we expect 2025 and 2026 to be no different.

The recent volatility in the credit markets benefits this business and our new debt fund and substantial liquidity gives us the ability to selectively identify investments with attractive returns and protect the downside. In just the past nine months we have closed on nearly $200 million worth of DPE investments with the more recent ones slated for the fund and we are actively negotiating on a pipeline of over $1.2 billion of new debt investments. To categorize our debt related earnings as either non recurring, one off, noisy or confusing is in my opinion to miss the point. Our debt platform is a meaningful component of who we are. Our expertise and track record in this area is well established. Given the opportunities set in front of us.

I do expect that our debt related businesses will account for increasing profits to our shareholders and I expect we are already at the higher end of our guidance range, a range we will reassess next quarter with an upward bias if we are successful in closing all of the business now in front of us. That is not to say we are not also concentrating on growing our equity portfolio. In the first quarter we closed on the acquisition of 500 Park and weeks later we signed a lease bringing the building to 100% occupancy. Now we are designing an improvement program with elevated finishes and amenities to materially move the rents up as tenants renew enrollment. Also in the first quarter we bought out our partner in 100 Park, acquiring a 50% position on attractive terms in a building that is now 97% leased.

We've owned 100 Park for approximately 25 years and it continues to be a solid performer for the company. Finally, Summit One Vanderbilt was the number one attended experience of its type in the first quarter, according to a recently published report. In just over three years the Summit has become one of the most sought after experiential attractions in New York City. I know there was a question raised regarding the impact that reduced international tourism might have on Summit's attendance and I would simply note that last week we set a ticket presale record with over $500,000 of advanced ticket revenues sold in one day. In closing, I'd just like to say, in uncertain times, SL Green shines. Thank you.

Operator (participant)

As a reminder to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. In the interest of time, we ask that you please limit your questions to two per person. Please stand by while we compile the Q&A roster. Our first question comes from Alexander Goldfarb of Piper Sandler.

Alexander Goldfarb (Analyst)

Hey, good afternoon down there. Two questions. First, Steve, can you just talk a little bit more about pre-builts? It's a topic that we're hearing further from you guys, from other landlords. Just curious how that has gone in winning tenants, what the economic rent potential is versus raw space and how that's been going versus the market in general.

Steve Durels (EVP)

Sure. I mean, pre-builts, or also known as build to suits, where we do a custom build for a new tenant coming into the portfolio, have been around for a considerable amount of time. I would say, broadly speaking, in order to be competitive in the market, if you're transacting with a tenant that's, call it, certainly 10,000 sq ft or less, it's almost mandatory that the space be built or that the landlord is willing to build the space for a variety of reasons. Tenants want to take out the mystery of cost. They want to accelerate the, you know, decision or the timeline from decision to move in and, you know, for us, having the expertise in house with design and construction, and we're very well practiced at doing these pre-builts.

I think it's a big competitive advantage to do the pre-builts in a way that we execute in a very high design manner and do it throughout the portfolio on all price points of product.

Alexander Goldfarb (Analyst)

The second question is, obviously everyone's focused on tariffs and the impact on leasing. Everyone's trying to figure out their crystal balls. As you look back in time, when the market has gone through sell offs like we are, is there some sort of lag? You're like after three months of a market sell off, you see the impact on leasing activity slowing down. After two months, how can we get comfort? Obviously you've done well year to date, but how do we get comfort of how long the market remains disrupted in the stock market before there's a potential to start seeing discussions in your pipeline slow?

Steve Durels (EVP)

That's an impossible answer as to how long it would take to have absolute clarity in prior disruptions. Really what is the cause of the disruption as to is a function of how fast we see the impact in the marketplace. I think what's most telling, and give me a second sort of tell this story. If you go back in our pipeline three weeks ago, so pre announcement of tariffs, we had 62 tenants in the pipeline versus today we have 64 tenants in the pipeline. Of those 64 tenants, 44% of them have an expansion requirement as part of the deal that they're negotiating. Of the tenants that we replaced over the past three weeks, 18 tenants were replaced by 20 new tenants. Of those 18 that were replaced, 14 were replaced because leases were signed. I only lost four tenants.

Those were done really because the tenant chose a different building or we elected a different tenant to replace that tenant for space. We are negotiating. The point being, we have not seen a slowdown yet, we have not seen any commentary from the marketplace and we have not seen any pullback from any decisions in our portfolio yet. I think over those three weeks, that gives a very good indicator of why we feel cautiously optimistic. Time will tell.

Alexander Goldfarb (Analyst)

Thank you.

Operator (participant)

Thank you. Our next question comes from Nick Yulico of Scotiabank. Your line is open.

Nicholas Yulico (Analyst)

Hi. Thanks. First question is I was hoping you. Could just talk a little bit more. About the trends you're seeing in the overall debt financing markets and if you have a sense for. I know the CMBS market was very strong heading into the tariff announcements and I think now it's mostly on hold. Any update on just sort of roadmap of how that could be functioning, sort of functioning better again, thanks.

Harrison Sitomer (EVP)

Yeah. I think with the credit markets in general, we certainly can expect to see some turbulence as a result of the macro environment across the country. I expect New York City to mostly be immune from that. There is a flight to quality in moments like this and New York City has demonstrated an ability to stand out from every other market. At the end of the day, capital needs to be put to work by investors. Our market is experiencing positive momentum as a result of a weaker U.S. dollar demand for tangible assets. The reopened CMBS market we've seen since the beginning of this year and prospect of rate relief and all that's paired with a fundamental and sentimental recovery that we've seen that's really at a five year high.

You know, looking at the CMBS data 2025 year to date, we've seen $6.9 billion of New York City office CMBS completed. That's versus zero in 2023 and $300 million in 2024 during the same exact period. In addition to that, we've also already eclipsed the full 2024 levels. On the balance sheet side, I'd say we saw recently the 5 Manhattan West deal get done at $1.25 billion. We're going to be watching closely the transactions at 300 Park, 590 Mad, and 1345 Sixth in the coming weeks and use that to gauge how the markets are reacting from some of the macro news.

Marc Holliday (CEO)

Yeah, I would just add that and distinguish what I think you're going to see in New York. The deals that Harry just mentioned are going to be more pricing related. I mean, you know, clearly pricing is gapped out, but that's not the same as what we experienced in 2022 and 2023 where there was just an absence of deals. There were no buyers. There's a lot of buyers, there's a lot of capital out there. There's a lot of capital that wants to put their money into CMBS. You know, the risk premium they may demand now is going to be higher and you'll see that, I think, you know, in higher rates. The deal just got done this week at, you know, rates that probably are higher than what would have been done, you know, a month ago.

You know, there's a dramatic difference in, you know, market stability when you talk about buyers who want more premium versus lack of buyers. I think, as Harry said in New York, you're going to see deals get done and there'll be some price discovery and hopefully that, you know, price discovery will compress. As, you know, per Steve's comments, the market evidences itself that there's still, you know, great demand out there for office product. You know, there's no, I wouldn't relate this to what we saw previously in prior years where there just, you know, was no activity.

Nicholas Yulico (Analyst)

All right, that's helpful, thanks. Second question is just, I think Marc, you said something about upward bias to guidance and I wasn't sure if that was just predicated on getting more sort of investments done on the debt side. I want to be clear on that. Maybe on the other side of that in terms of your FFO guidance range right now for the year, Matt, if there's any downside protection we should think about if we're heading into a weaker economy or anything else. Do you still feel good about the guidance range there?

Matt DiLiberto (CFO)

Yeah, going in reverse order. Certainly comfortable with where we are right now. As we highlighted in December, the balance sheet is very insulated. We termed out all of our debt last year. We're hedged on all but 3% or 4% of our floating rate debt. Rates can move around and the markets can fluctuate and we're insulated there. Certainly comfortable from the downside. The upside bias is Marc talked about investment opportunities. We have some other stuff we're working on that could result in upward revisions, but we typically don't revisit that in the first quarter. We get at least six months of activity behind us and reevaluate. The prospects are good as we sit here now.

Marc Holliday (CEO)

Yeah. Not just debt related. I think that was part of your first part of your question. Is that all related to debt? No, we have got a lot in front of us right now. Equity, debt, fee oriented leasing deals, working on this. There are a lot of contributors. My point was simply if we get it all done and, you know, that is our goal is to get it all done, then, you know, we will need to sit and revisit, but, you know, that will be a topic for three months from now.

Nicholas Yulico (Analyst)

All right, thanks everyone.

Operator (participant)

Thank you. Our next question comes from Steve Sakwa of Evercore ISI. Your line is open.

Steve Sakwa (Analyst)

Thanks. Good afternoon, Marc. I know at the Investor Day and on other calls you've talked about wanting to try and secure a new high quality development site in Midtown. I'm just curious, given kind of what's going on in the macro and the uncertainty over tariffs and costs, how challenging is that to try and pencil out today? Is that something you'd still be looking at, say this year or maybe that's something more for next year?

Marc Holliday (CEO)

I think it's completely delinked, Steve. You know, these development projects are five to seven year journeys and you know, when we take a pen and pencil or computer to underwriting, you know, we are. You know, this is not a question of two months ago we were excited about development and two months later we're not. Next month we are. Next month we're not. Based on the stock market or, you know, or tariffs.

There is an enormous scarcity of high quality office development sites that can be delivered over the next four or five years. Any city like New York that is the pivotal CBD in this country and is growing and is reaching all sorts of records on employment, on Wall Street profits, on bank earnings. There's a confidence we have in the long term viability of this market that we would absolutely welcome the prospect of developing a significant new site in core Midtown Manhattan in our market, you know, in SL Green territory, that's for sure.

That has not, that has not changed in my opinion or mine in the past three months. You know, might pricing, you know, it goes back to what I said earlier on the bond question. Might pricing change one way or the other? Maybe. Do I think rents have changed for that product? Absolutely not. In this building alone, at One Vanderbilt, we have a constant flow of inquiries for expansion because we have great tenants here and elsewhere through the portfolio. Notwithstanding what you are seeing in the market.

There's still companies that are growing and taking advantage of this market and need more space. This isn't anecdotal. These are tenants who are ringing, you know, ringing our doorbells and saying, you know, we need to grow. And this isn't like modest growth. Some of these requirements are significant. The issue I have right now is not tariffs. The issue I have right now is delivering 1.5 million sq ft-2 million sq ft of brand new class A One Vanderbilt-like style office space to the most sophisticated base of tenants in the country that want to grow. I'm as committed to that today as I was in December.

Steve Sakwa (Analyst)

Great, thanks. I guess secondly, and I don't know how much you can comment on this, but just where are we kind of in the whole casino downstate casino license plan and you know, is that something that you still expect, I guess the state to kind of get concluded by the end of this year or might that process get delayed?

Brett Herschenfeld (EVP)

This is Brett, how you doing? The process has been full speed ahead since, call it, December of last year when the state for the first time in four years reached out to all the bidders and said, we'd like you to start the environmental review process. That was new. We took it very seriously. Great sign. We commenced immediately.

We're an as of right project. There's two or three other as of right projects that are out there also starting their environmental process. We expect that given the amount of expenditure, the requests of the state to engage professionals for that review, that June 27th will be the on track day to submit the license for the state's review. We're looking at from there a end of September local approval process and hopefully a year end award of that license. The state has acted much differently this year than it has in all four prior years. And we're very ready for it. We're excited, we're eager. We've been ready for, you know, the past two or three years and can't wait to launch out there publicly and get going.

Operator (participant)

Thank you. Our next question comes from Jayna Galan of Bank of America Securities. Your line is open.

Jayna Galan (Analyst)

Hi, good afternoon. Thanks for taking my question. Going back to the active leasing pipeline, your press release noted 1.1 million sq ft. Would you say they're kind of following the typical leasing deal timeline, or is there evidence that corporate decision making is pausing, or is it just kind of the tightness in the market? There's more urgency and corporates are tuning out the macro uncertainties.

Steve Durels (EVP)

You know, it's really a function of the types of tenants that we're negotiating with at a point in time. I think there's certainly no sense of tenants feeling pressured to make an accelerated decision. Maybe they slow down a little bit because we're working on a bunch of big deals. I don't think this is a material change in people's sentiment or how they're conducting themselves or how their third party consultants are conducting themselves. I don't think there's really a lot of color commentary as to, you know, what we're seeing right now versus how it's been over the past several months.

Jayna Galan (Analyst)

Okay. On the free rents and TI's came down in one Q. Can you talk a little bit more about how you kind of see that through the course of the year and tenants are accepting?

Steve Durels (EVP)

Yeah, that's just really a function of, you know, the basket of individual track transactions for the quarter. I think, you know, broadly speaking, concessions have been stable for really all through last year. Coming into this year, we haven't seen a material change. If anything, I would say, you know, there's a good chance that in certain sub markets, like on Park Avenue and Sixth Avenue, where you see real pockets of strength in the midtown market, that you'll see some tightening of concessions. I don't know. It's enough to really move the needle.

As certainly the face rents are going up, and I think, you know, we've seen the rents go up on Park Avenue, and I think the entire community is expecting Sixth Avenue rents to go up because there's been a tremendous amount of leasing and there's a number of large deals pending on Sixth Avenue, and that's going to drive face rents as we look into the rest of the year. The natural extension after that is, you know, after rents go up, then they'll start to get pressure on trying. To push concessions down. I think it'll be, you know, submarket by submarket. Not broadly across all the Manhattan market.

Jayna Galan (Analyst)

Thank you.

Operator (participant)

Thank you. Our next question comes from John Kim of BMO Capital Markets. Your line is open.

John Kim (Analyst)

Thank you. I wanted to ask about a couple of your objectives for the year, which includes 2 million sq ft of leasing and 93.2% year end leased occupancy. In the first quarter you're ahead of the pace. Occupancy did go down. I'm wondering just given all the uncertainty in the markets today if you still feel comfortable with those targets.

Marc Holliday (CEO)

We're comfortable. You know, our budget, you know, our living budget at the moment is in excess of 2 million sq ft. And that's as of like an hour ago. You know, that'll go up and down. I feel pretty good about 2 million sq ft. We had a good start. First quarter, we're already, I think, over 100,000 sq ft leased year to date. April to date, quarter to date. You know, Steve's already talked about the pipeline. You know, look, we're going to monitor closely as we always do, you know, the pipeline to, you know, evaluate trends and sentiment and whatever. On the one hand you've got geopolitical, on the other hand you have tenants with real need for space, you know, and that's not abating that we see yet.

You know, we did so much in the first quarter, we would hope to be at around 1 million sq ft for the second quarter. We think by year end we could eclipse that 2 million sq ft. A lot of that's just driven by return to office. You had years of people on a hybrid work model and now this is a competitive environment. People are back, people are focused, people need space. It's like, you know, we're just seeing that all over the market. You know, if ever there's a moment we don't, you know, we'll be the first to tell, you know, you guys and our shareholders. At the moment we're, you know, we're feeling good about both the occupancy level and the volume.

John Kim (Analyst)

Okay, switching gears to 500 Park. I realized it wasn't a huge lease, but you got it to 100% occupancy. I'm wondering what that implies for the mark to market of that asset. If there's any update on this 6.8% cap rate that you acquired it at.

Marc Holliday (CEO)

On mark to market, I think we have to look at it in two ways. The lease we signed relative to both the in place and the current market. More interesting to me is where those rents will be after we finish a $20 million+ improvement program that we have commenced. We've selected our architect. We're going to be doing work in the plaza, in the amenity lobby, some other improvements bringing sort of elevated hospitality to the building. You know, in that regard, you know, we're projecting rents up off of today rents by at least $15 a foot on average, you know, for what I'll call the, you know, the repositioning program. If the question is specifically where was that lease relative to market?

Steve Durels (EVP)

That one, I do not think had a mark to market calculation, because it was filling vacant space at the time of acquisition. I can tell you that the rent that we signed on that lease was $10 a foot higher than the prior sponsor was asking for the space the day before we acquired the building.

John Kim (Analyst)

Where does the yield go to compared to the 6.8% that you bought it at?

Harrison Sitomer (EVP)

We sit today at about 7.2%. That 6.8% you referenced from our Investor Conference is now 7.2%.

John Kim (Analyst)

Got it. Thank you.

Operator (participant)

Thank you. Our next question comes from Ronald Kamdem of Morgan Stanley. Your line is open.

Ronald Kamdem (Analyst)

Yep, two quick ones for me. Just starting on the disposition targets of $1 billion. Just how are you thinking about sort of that? What are you seeing in the markets? Thanks.

Harrison Sitomer (EVP)

Yeah, look, the plan is on track and we feel confident based on the meetings and negotiations we're having. I think it's important for everyone here to realize that, you know, our team has navigated through the past five years of COVID negative office bias and high interest rates. Through that period, we completed approximately $9 billion of gross sales at share at a blended cap rate of 4.3% and $1,400 a foot. Just demonstrating that our portfolio is liquid and investable in even the toughest of markets that you can imagine. Yeah, sure, there are challenges in front of us as a result of some macro conditions, but it's far less than what we've experienced the past five years. We're on track for the plan this year.

Ronald Kamdem (Analyst)

Great. My second question, just going back to that 1 million sq ft of pipeline, just a little color on how much of that is non-financial. Right. The second piece of it, how much of that is outside of Park Avenue and Grand Central, which have been pretty strong.

Steve Durels (EVP)

The easy one is the first part of your question. There's a quarter million sq ft of TAMI tenants in that pipeline, which I think is pretty notable because that's probably as much square footage as we've seen from that industry over the past couple of years within our portfolio. And certainly TAMI, broadly speaking, in the market, has doubled the number of active tenant searches year-over-year. As far as Grand Central, you know, the majority of our portfolio sits within the Grand Central area. It's safe to say that the majority of the pipeline is within the Grand Central market, which has proven to be one of the one or two most active submarkets over the past year.

Ronald Kamdem (Analyst)

Thanks so much.

Operator (participant)

Thank you. Our next question comes from Blaine Heck of Wells Fargo. Your line is open.

Blaine Heck (Analyst)

Great, thanks. Just to follow up on the last question, can you give a little bit more color on the profile of the kind of most active TAMI tenants and whether that activity is driven by relocations from other markets or kind of organic growth from tech and media companies that already have a presence in the New York market?

Steve Durels (EVP)

All of them are relocations. And as best I recall, all of them are driven by growth in, you know, in that growth. Some of those tenants are AI related businesses. And I don't know what other color I can give you on it, but, you know, yeah, I mean, it's, it's, it's growth, it's relocation. Their household names, and we're seeing an AI name attached to a lot of these tenants.

Blaine Heck (Analyst)

Got it. That's helpful. Maybe a different angle on tariffs and uncertainty, I guess. Can you talk about the profile of potential capital partners that are showing interest in JV deals or even the debt fund at this point, and in particular, whether there's been any notable change in demand from foreign investors given the recent macro uncertainty and trade disagreements.

Harrison Sitomer (EVP)

We haven't seen it yet. You know, I would note, countering what you just mentioned is the weaker U.S. dollar. One thing that we experienced in 2023 and 2024 was the U.S. dollar moving against us for those two years. With the dollar getting weaker, it makes it much easier to have some of the conversations we're having on the fundraising side for the fund. You know, our group of investors are institutional, both domestic and international, representing almost every region, you know, across the world.

Marc Holliday (CEO)

I guess the main point to make there, I think, if I understand your question, is we have not seen drop off in foreign investor demand for the debt fund or for product. Now, you know, with respect to the dispositions, the proof will be when we close them. You know, we just started the year, so we're, you know, in the process of doing that. Hope to knock those off, you know, in the second half of the year. Contract first half. Close. Second half, which is our usual, you know, rhythm to that. You know, as we sit here, you know, we look at the short list for the, you know, many different sales and JVs we're working on.

I would still say a lot of the usual, I do not want to say suspects, you know, our usual relationships are still steadfastly on that list. You know, more to come on that on the next call, but we have not seen any drop off of interest there.

Blaine Heck (Analyst)

Very helpful.

Operator (participant)

Thank you. Our next question comes from Omotayo Okusanya of Deutsche Bank. Your line is open.

Omotayo Okusanya (Analyst)

Yes. Good afternoon, everyone. On the Investor Day there was a lot of emphasis around office to resi conversion and the opportunities and how regulation.

Matt DiLiberto (CFO)

We're not hearing you, Taya.

Marc Holliday (CEO)

You got to ask it again because you're breaking up.

Omotayo Okusanya (Analyst)

Can you hear me now?

Marc Holliday (CEO)

Yes, now we can.

Omotayo Okusanya (Analyst)

Okay. Sorry about that. We are seeing on the Investor Day there was quite a lot of emphasis on the office to resi opportunity in New York and how Indian regulation was changing. Could you just give us an update in regards to that and how you are thinking about opportunities in your portfolio to do some of potential more office to resi conversions?

Marc Holliday (CEO)

Yeah. I would say that as we sit here three and a half, four months from our Investor Conference, I would say the volume of announced or planned deals is anywhere between consistent or ahead of where we were and what we showed back in December. There's a lot of conversion candidates, particularly downtown where, you know, the prices of the, you know, bricks and mortar and land enable conversion on an economic basis. We're seeing it on Third Avenue, you know, our own project, 750 Third, as well as the old Pfizer headquarters, as well. As 675 Third and 767 Third, which are both recent trades for office to resident.

I mean, there's four deals in that Third Avenue market. You can imagine how quickly a market for office can tighten when you take four very viable office buildings and take it off the market, which all four of those are essentially off the market now for office tenancy. That has a very affirming effect, if you will. There's going to be a lot in Midtown South as well due to the zoning changes that were accomplished there as part of City. Yes, and I think it's a significant. One of those understated or not well understood trends that we'll look back on in two or three years when this market really firms up and you see occupancy levels drop to, well, vacancy levels dropped to single digits.

A big part of that, you know, half of that's going to be net absorption and growing demand. Half it's going to be resi conversion. I think it's taken root. You know, there's projects underway, you know, like ours. There's going to be thousands and thousands of units delivered and I think ultimately in excess of 25 million sq ft of office is going resi. You know, it'll take time to complete and deliver, but it's fairly instantaneous in terms of its exit out of the inventory of available space to lease.

Omotayo Okusanya (Analyst)

Thank you.

Operator (participant)

Thank you. Our next question comes from Seth Berge of Citi. Your line is open.

Seth Berge (Analyst)

Hi, guys. Thanks for taking my question. Are you guys seeing any larger requirements for the remainder of One Madison? You touched a little bit on the supply picture, but can you talk about the demand for Midtown South?

Steve Durels (EVP)

Yeah, we've seen a marked change in tour activity and some early proposals that are on the table right now. I was sharing with Marc a week or two ago that the number of qualified large prospects that have either toured or are in a diligence process focused on One Madison just over the past 30 days is probably more than we saw all of last year. You know, I don't want to get too far out over our skis, but it certainly feels very promising at this moment compared to any time over the past 18 months.

Seth Berge (Analyst)

Thanks. Just on the Summit, what percent of visits are international visitors? Can you talk a little bit about what the booking window looks like for that question is.

Marc Holliday (CEO)

What percent is international? You know, look, I don't want to mislead. I don't have those stats at my hand right now. I think traditionally it's about 2/3 tourism and 1/3 domestic. That's a very high domestic attendance level. When I say domestic, I'm talking tri-state area, like local. It's like 1/3 local. It's like 2/3 tourism. Within that tourism break, I mean, the preponderance is domestic, but when I go up there, it feels to me like almost 35%-40% is foreign tourists. So I don't have good stats on it. Does anyone else have here a lot of repeats? Yeah, a lot of repeats for sure. It's unusual in so much as people go back and back. It's only been open three and a half years. We've had people come back five, six, seven times because it's not a.

It's not an object, you know, it's a. It's an experience, it's an attraction, you know, it's. It's a destination and it's thrilling. For those that know it, you know what I'm talking about. For those that don't, you should get there right away. In 2024, it was about closer to 50% foreign visitor. I'm just getting that stat sent to me right now. A little higher than I said, but, you know, a good balance and we see no drop off in any demand or change in composition through the first quarter.

Seth Berge (Analyst)

Thanks.

Operator (participant)

Thank you. Our next question comes from Vikram Malhotra of Mizuho. Your line is open.

Vikram Malhotra (Analyst)

Thanks for taking the question. Maybe just building up on the Summit question in New York, I guess, you know, just. Can you talk a little bit about the opportunity in Paris where you are, you know, potential timeline for execution?

Marc Holliday (CEO)

You know, a lot more to come on Paris between now and end of year, hopefully with some imagery that we'll be able to share with you as well, which I think everyone will find extremely exciting. Rob Schiffer and I just came back from Paris about two weeks ago, where we spent a lot of time with developers there and the site and the construction and our team, we have a big team that's already been assembled in Paris of engineers, designers, expediters, etc. Working on taking things from conceptual to design development. We expect to have possession of the floors for Summit Paris sometime in Q1 of 2026, and we expect to be open to public sometime at the end of Q1 2027. To me, that's right around the corner because there's so much to do.

We're going to be putting a team and the staff together out there that'll be managed and run by this amazing team we put together here in New York with obviously local senior people on the ground. Summit, we've started some of that hiring already. I can only tease you with the fact that the early artistry coming out of Kenzo's shop is staggeringly beautiful. It's going to be in the spirit of what we have upstairs, but very different, very unique. I think a nod towards Parisian abstraction. You know, I am really excited to be able to cut that ribbon in 2027.

Vikram Malhotra (Analyst)

Great. Just on the FAD, FAD guidance at the Investor Day, kind of relative to 1Q, can you just remind us sort of as we go through the year. I'm assuming there's more leasing you did that's converting to cash later in the year. Is there like a ramp up as we go through the year or anything kind of one time that we should model in for the rest of the year?

Matt DiLiberto (CFO)

Yeah. Two components of FAD, you know, over the course of the year, as we highlighted in a recent presentation, you know, physical occupancy or commenced occupancy, whatever you want to call it, economic occupancy is increasing every quarter throughout the course of the year such that we end up going from around 88%-89% at the end of last year to over 92% at the end of this year. That will help the revenue side. On the cost side, obviously as the space is built, the build out costs go down. That said, typically our capital spend accelerates into the end of the year. It is lightest in the first quarter and heaviest in the fourth as the projects get completed towards the end of the year. You know, the FAD number for the first quarter was a solid one, better than our expectations.

For the full year we're still seeing roughly in line with what we guided to in December.

Operator (participant)

Thank you. Our next question comes from Peter Abramowitz of Jefferies. Your line is open. Peter, your line is open.

Peter Abramowitz (Analyst)

Thank you. Yes, just wanted to ask quickly about 11 Madison, you have the expiration in September. Just wondering if there are any kind of comparable deals you could point to to give us an idea maybe you would expect in the refi market. Any comments on if you're considering doing something in the CMBS market rather than a bank deal?

Harrison Sitomer (EVP)

Yeah, sure. I would sort of say this is an active negotiation and deal that we're working on now, so I'd prefer not to comment on it. With more to come later this year. Obviously we got our $5 billion plan done last year. We have a lot of reps now as to how to work with existing lenders and the market as to obtaining efficient financing for these assets. I would say just stand by and we'll update you into the next call.

Peter Abramowitz (Analyst)

All right, that's all for me, thanks.

Operator (participant)

Thank you. This concludes our question-and-answer session. I'd like to turn it back to Marc Holliday for closing remarks.

Marc Holliday (CEO)

Okay, great. I appreciate all the questions and, you know, like I said, want to just leave you with the notion that, you know, we're working very hard on all these different opportunities in front of us, but also very cognizant of the state of the markets right now. We are going to stay very nimble and be very reactive to both opportunities, you know, making sure we keep the buildings as leased as possible and get the occupancies up. You know, Matt will continue to steward the balance sheet. I think we're in great shape at this moment in time, as really as good as I could have asked. We look forward to speaking to you again in three months.

Operator (participant)

This concludes today's conference call. Thank you for participating. You may now disconnect.