Q4 2019 Earnings Call
Good morning, and welcome to the Vornado Realty Trust's fourth quarter 2019 earnings call.
Spread there will be operator for today. This call is being recorded for replay purposes online turn to listen only mode. Our speakers will address your questions at the end of the presentation. During the question answer session.
Time, Please press Star 100, Touchtone phone I will now turn the call over to Ms., Cathy Creswell director of Investor Relations. Please go ahead.
[music] tornado Realty Trust's fourth quarter earnings call yesterday afternoon, we issued our fourth quarter earnings release filed our annual report on form 10-K, with the Securities and Exchange Commission.
Document as well as our supplemental financial information package are available on our website www dot dot com.
Investor Relations factor in these documents in during today's call, we will discuss certain non-GAAP financial measures reconciliation.
If you're just not directly comparable GAAP measures are included in our earnings release form 10-K and financial supplement.
Please be aware the statements made during this call may be deemed forward looking statements and actual results may differ materially from these statements you know a variety of rent.
Pete and other factors.
Please refer to our filings with the Securities and Exchange Commission, including our form 10-K for more information regarding the bread not characters.
The call May include time sensitive information that may be accurate only as of today's date. The company does not undertake no duty to update any forward looking statements.
On the call today from management for opening comments, it's Michael Franco precedent. In addition, even Robin I senior team, our president and available for your question I will now turn call over to Michael Franco.
Thank you Kathy and good morning, everyone.
Overall, we look back in 2019 as an important successful year setting the stage for the next phase of the company's growth.
Additionally, keeping our buildings, both very healthy rats here at 96, and a half person occupancy.
We recapitalized, our fifth Avenue in times square retail assets are very attractive basis at $5.5 billion transaction.
<unk> dollar 95 per share a special dividend last month relays transaction.
Most importantly, we advanced redevelopment and.
Positioning the company to capitalize on the enormous opportunity we had on the west side.
More understandable.
Before getting some thoughts in the markets in our portfolio in particular, the Pen District, Let me review, our fourth quarter and full year financial results.
Fourth quarter at that FFO as adjusted was 89 cents per share.
Back to last year's fourth quarter.
Full year 2019 have though as adjusted was $3.49 per share compared to $3.73 per share for 2018.
Results or nine cents ahead of the guidance, we've given the third quarter.
As we've previously indicated our financial results for 2019 were lower than 2018 explained as well.
The 24 cents reduction 25 cents due over 3.2 billion of asset sales.
Nine cents is due to a onetime noncash stock based compensation expense.
Four cents due to lost income for retail bankruptcies, all of which aggregate to a 30% reduction which was partially offset by growth in our core business and interest savings overall, our core business continues to be strong.
For the year across New York, Chicago, and San Francisco for office and retail leasing teams completed 215 leases comprising 1.7 million square feet, starting rents of $90.45 per square foot.
Positive mark to markets, a 14% gap and 8.8% cash.
Please see page 18 supplements are further detail.
Cash basis same store NOI company winds up 3.6%.
Companywide, our fourth quarter cash basis same store NOI decreased by 6.6% broken down as follows.
New York Office was up 3.4% three retail was down 2.2% Themart was up 100% benefiting from a onetime $12 million accrual of real estate tax expense last year due to the triangle reassessment of the property and 5.5, California Street was up 4.1%.
Our noncomparable items in the fourth quarter included a 173.7 billion dollar after tax net gains on unit close to 20 Central Park South.
Today, we have closed on 65 units for net proceeds of $1.82 billion, including 17 units for $565.9 million in the fourth quarter. We're now 91%. So in the base with a very soft luxury condo market a testament the building being the best ever built in New York City.
And our sales continued strong.
Beginning of 2019, we have executed contracts or $400 million.
We expect receive over $1 billion from closings in 2020 and as we've said previously all the net proceeds will be read it will depend hysterectomy developments underway. Turning this capital is a highly accretive earnings and driving strong future growth.
Now turning to 22 line, which will be an inflection point for us as we invest heavily in the 10 district to create enormous future value.
Given the full year affect our substantial asset sales and our development activity as we continue invest in the industry, we thought it appropriate right some greater visibility into our projection for 20 Twond.
We currently estimate the 2020 that FFO as adjusted will be lower than 29 team by between 23 cents in 33 cents per share.
Oh this 28% reduction the midpoint 16 cents is due to the full year and impact of asset sales.
Nine cents is due to taking additional assets out of service for redevelopment, primarily independence day appended to the retail at the IR concourse Kmart space and Penguin.
An eight cents is due to lost income in the full year 2019 retailer bankruptcies, all of which area to a 33 cents reduction, which is partially offset by growth in the core business.
Let me now turn to review our market.
The Manhattan office market continues to fire on all cylinders fueled by strong job growth and unabated tenant demand for office space, particularly for landlords with newer redevelop products.
The city at a 90000 office using jobs during the year brain office using employment to an all time high 1.470 million jobs and the recently announced large future ops commitments for major companies in the city point to continued strong job growth.
Leasing volume citywide in 2019 solar 43 million square feet, the highest activity 20 years.
Tami tenants continue their strong demand accounting for one third of all activity during the year with a tech sector alone leasing 7.5 square feet.
The sector has become a dominant powerhouse in New York at this tech companies are attracted by the city's dynamic economy deep and diverse talent base and leading universities.
While the big Tech companies like Facebook, Google and Amazon continue to expand their sizable presents the city of drove is also being driven by long established traditional industries hiring more and more technology workers to support their businesses importantly, 2000 <unk>.
Venture capital investment in New York companies surpass $17 billion decreasing the park city share total VC investment us all time high up 20% up from 11% 2008.
These investments paved the way for continued growth from the tech sector the future.
The flight to quality trends the tenants for new construction to redevelop space accelerated during 2019.
According to jail else annual trophy buildings for more than 20% or 8.8 million square feet at the time why leasing activity.
We signed a triple digits, starting rents a record number.
Interestingly, 60% of this triple digit activity was with Tami tenants, mainly concentrated on the west side.
According to our Cushman and Wakefield year end report asking rents are class a product and depend district, Submarket, which includes Hudson yards in Manhattan West reached a historic $109 per square foot very good sign for our 5.2 million square feet currently redevelop district.
As a company we are heavily focused on the transformation repositioning of our penned district holdings as the new epicenter of New York.
Our redevelopment so now in full construction.
Twentytwenty will mark an important step in the districts transformation as Majestic Moynihan train hauling Farley and our 850000 square feet of office and retail spaces Farley will be substantially completed a year.
As you walk around the district today, you see the incredible amount of activity underway.
Redevelopment of Farley, San Juan and to the Grand New entrants Penn station unpleasant 33 were work has begun and the scaffolding Emil IR concourse redevelopment shortly comments in total theres over $5 billion currently being best in the district and demonstration between one as 2.2 billion.
And the government's 3 billion.
During the fourth quarter, we bought out Kmarts 141000 square foot lease at Penn.
I had another 16 years to run for 34 billion dollar payments, which tenda is expected to be reimbursed.
Steven had been wrangling about this for years and years and we think we timed the buyout of exactly the right time Youve got a fair price.
Spiked a nominal short term EFO loss from the March right. This was a big win for US and allows us to amelie integrate the space into our overall redevelopment plans and one is Jason Plaza.
Well I, our concourse and I believe the space with high quality retailers much.
Overall, a big uptick for the neighborhood.
During January we executed a relocation transaction with information builders, which will move down from the tower femto into two separate spaces that kind of 11 10, one totaling 78000 square feet.
This deal with the last piece of space, we needed to get back to execute the redevelopment plan offensive.
Moreover, the starting ramp of information buildings and having one is in the mid ninetys per square foot, reflecting the market's confidence in the district transformation and of this extraordinary redevelopment and began to take shape.
In addition, as I'm sure. Most of you saw the Governor made a major announcement in January expressing Stacy mentioned, a further modernize and expand track capacity of Penn station through the creation of the Empire station complex with an expanded terminal on the block south of 10 to decreasing train capacity by approximately 40%.
This announcement represents another validation of Penn station Slush Empire station as the key transportation hub in the region and a further commitment from the government's invest in the area.
The government expects ridership at Penn station to sell the next 10 to 15 years.
The state intends to fund this expansion through the creation of a new district, which encompasses our 10 district bolt ins and by capturing future increases and tax revenues from new developments in this designated as Rick.
We look forward to working with the state city and other important stakeholders to help realize the governor is very important vision.
With the explosion of tech demand in New York City.
Particularly on the West side, our fan district assets are very well positioned to via center this activity.
It's in the hottest Submarket and say, we're going to be delivering Farley panel on intend to so in 5.2 million square feet near term with an ability for tends to grow with us overtime in our massive campus located right on top of transportation.
We are confident as our plans become reality that office tenants will truly appreciate the unique and differentiated product we're delivering.
In this regard we remain on track with a two large leases we mentioned on last quarter's call and there's good activity from a variety of important test behind us.
On the retail side the interest in Farley has been outstanding.
As retailers come to understand the significant foot traffic that will of course through Farley of the district every day.
We are at least negotiation that over 50% of the Farley concourse and our an active negotiations the majority of the space M&A level.
More broadly we're working on a variety of deals to curate the district with all sorts of offerings food and beverage coffee fitness co working conferencing retail and so forth to service our cafes.
Earnings our course negatively impact in the short term earnings will significantly increase as we turn the sixties per square foot office rents currently in place into mid Ninetys in higher as we deliver in lease the redevelop space.
Overall, our New York office portfolio is in great shape.
97% occupancy was a very manageable 520, 725000 square feet expiring during 2020 after taking the previously announced unbridled space, comprising 566000 square feet and two out of service our office leasing activities extremely strong with more than one point.
6 million square feet leases in final documentation and an additional 1.8 million square feet on the pipeline.
During 2019, we completed 102 office transactions for 987000 square feet and starting rents at $82.17 per square foot.
With positive Mark to markets, a 4.6 cash and 5.5% gap.
Absolutely, 20% of our total leasing activity in 2019 with the triple digits average starting rents of $120 per square foot.
In terms the fourth quarter, we leased 173000 square feet at an average starting ran $101 per square foot.
Well, we had negative 5.2 cash and 3.5% GAAP Mark to markets for the quarter is worth noting this was based on only 54000 square feet second generation space.
Driven by the rent reduction of one short term renewal at 350 Park Avenue.
This is a single best development site on Park Avenue, and likely Midtown and we will be keeping our newest short term here in order to lineup. This sites are possible new drill.
Leasing highlights during the fourth quarter included a headquarters lease at our New 512, West 22nd Street, Nexgen Media 41000 square feet.
At the margin Chicago during 2019, we completed 62 leases comprising 286000 square feet at average starting rents of $49.43 per square foot.
During the fourth quarter, we completed 50000 square feet of show reveals that starting rents a $51 per square foot.
Occupancy stood at 94.6% year end, we have very good activity on our available office space here in our numerous discussions with both new and existing tenants throughout the building.
In San Francisco the market remains on fire.
It's hard for scan to find quality available space at our 1.8 million square foot Fivefive, California Street campus. We remain fall are enjoying the benefits.
During the fourth quarter, we finalized the lease renewal with one of our full for law firm tests in the bottom third of the tower, starting rent $94 per square foot, 72.5% positive cash mark to market.
We're also in renewal negotiations with two of our major tenants in the tower built with each transaction that ramps will triple digits.
Turning now to our New York Street retail business.
Overall rents are down activity is up from a year ago and there continues to be a flight to quality for retailers a trend the benefits our portfolio.
Best High Street retail is not bad the rents do need to be economic for retailers to commit.
Very difficult retail environment, we completed 39 retail leases with 238000 square feet during the year.
GAAP and cash positive mark to markets of 12.9%, 9.8% respectively.
In the fourth quarter, we completed 16 leases comprising 94000 square feet highlighted by very important 10, new leases with two LVMH brands fiber deep dive Madison Avenue, better known as a Fuller building.
Fendi ability at least a total of 16850 square feet here, reflecting the building bolds I location at the corner 57th Street Madison Avenue.
A portion of this space was formerly occupied by coach portion for the sake.
Kudos behind for sourcing the LTV ratio.
Our retail occupancy remains high 94.5% as we continue to source tends for this best in class portfolio.
Brad this quarter rolled up on a cash mark to market basis by 11.3% and were flat on a GAAP basis.
In addition, we're pleased to report that last week, we signed at 8000 square foot lease with Afoura as for Union square sale, which felt most of the space vacated by Forever 21 last year.
Between the recent whole foods expansion and new support deal. We have now surpassed the total rent forever 20 ones pain tire space and we still have an additional 9700 square foot leasing opportunities.
Taken as a whole once fully released we project an approximate 40% mark to market increase much better credit profile.
As a testament to the uniqueness of our Union square asset we released the space 96 days after forever 21 lease expires.
We don't yet know what will happen with the other two forever 21 leases, we have but if we get them back. These assets are in premier locations, you all might take longer we're confident we'll release them successfully just as we did union square.
Finally, a comment on sustainability.
We have always prioritized reduction to our carbon footprint and mitigation of our contribution the climate change and we are in lockstep with our investors tenants employees and communities.
We have reduced by 25% our same store energy consumption in the last 10 years and are committed to furthering our progress through continued energy retrofits Smart building technology and meaningful engaged with attendance. We will also include renewable energy as an important step process towards carbon neutral.
We are well positioned to comply with recent climate laws as evidenced by our being energy star partner in the year from seven time inevitably there in the light award recipients of attempt here in a row.
On a top performer on all global real estate sustainability benchmark respondents.
In addition to many awards for sustainability, we when each year.
Typically proud of our teams are being cited as the industry model with our innovative approach the furnishing audited the last year for Securities Exchange Commission.
We continue to maintain a fortress balance sheet with measured leverage and an abundance of liquidity today at all.
After the 400 million dollar special dividends paid last month, our liquidity is $3.8 billion comprised of $1.2 billion in cash restricted cash and $2.175 billion undrawn revolving credit facility.
To conclude we feel very good better overall business, we own great assets in great locations in grade cities and know how to keep these properties both with best in class tense markedly.
Moreover, we have outstanding and unique development skills that allow us to create significant value. We will continue to take full advantage in New York stronger.
The climate for businesses to grow Unsexy pull that find the best talents in the country.
With that I'll turn it over the operator for Q.
Thank you Bill getting the question and answer session.
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And from city, we have many questions. Please go ahead.
Hey, good morning, it's Michael Bilerman here with.
Manny Michael I wanted to just go through some of the numbers you threw out in terms of side the headwinds that are affecting 2020.
And maybe if we can just take each of them you talk about the banks coming out of service being nine cents, the 19 million that in the supplemental page 31.
Hey can you give us some color in terms of when you expect your income to start flowing back.
The charts at least in the supplemental doesn't have a positive effect of re leasing that space.
And then on the retail site 16, or so million that eight cents.
[music].
What is the prospect of that income flowing in.
At some point in 2020.
Persons later on just think about the ramp.
As we get back.
Our my Michael Government, It's Joe Mac now I want to take the second part of that question.
On the 16 cents.
From asset sales.
Half of that little almost half that comes in the retail JV.
The balance comes from sales of 330, Madison 30, 40 M Street creep you, we Lx B.
That stuff is not coming back other than the reinvested the cash being reinvested in depend district, it's not a one for one we sold this we're putting this here and we're going to get back and our war.
Hi go in terms of their retail.
Bankruptcies, right, which is Topshop and forever 21, obviously six latest permanently gone.
The asset in Soho.
The.
Probably plan there is to convert that upper floor at the upper floors to office and so that will undergo.
A redevelopment.
So you know best case that won't come online general come online in 2020.
Best case at some point next year, but again, nothing nothing certain there and that forever 21.
We have a deal in place today with them.
The numbers we cited reflect.
The reduced fleeces, we'll see what happens as they come out of bankruptcy now and to the extent that.
That those leases are not accepted or to the extent of that we proactively take that space back after the year.
Again that income is not going to come on in 2020 Best case that you have on sometime in 2021 and as usual free rent period et cetera, I think at the best case that would be.
Towards the latter part, but again theres nothing.
That is imminent on those how we're aware that.
Both those leases either could come back or will proactively take those back and where we're out marketing space.
Michael ill jump back down again that exploration of the possible forever 21, two leases coming back is what gave rise to the range.
23 cents to the midpoint of 28.
That five cents represents the exposure for those two leases come back.
Okay, and then as you think about I mean, you are running basically 89 cents.
Adjusted.
Third and fourth quarter right. So Annualizing Q3, 56 for the year relative to the 349 for the full year.
Arguably the last two quarters.
Should have.
Dilution from the asset sales certainly on the retail side some of the stock investment.
Yes already baked in to that number and arguably has some of the retail loss as well. So I'm trying to reconcile those two things where you had been reporting quarterly number of 89 cents 356 annualized.
Which should already take into account some of this 20 cents of added dilutions that we're talking about for 2020.
So Michael it's John Mac, now again, I'm not prepared to address that question fully but.
Some of the items are really one time, it's there was lease cancellation income in the fourth quarter.
Two cents.
There was a straight line write off that we anticipated on Penn Plaza that got deferred to 2020 that was another two cents. So.
89 cents is up two cents in 2020 is going to be down two cents those two items or six cents swing from annualizing, the fourth quarter and there has to be many many more items like that that.
Manning and our team our new and our team can do offline Michael the other thing is the out of service that we side Thats all incremental right. So that is Kmart. It's just it's a number of buildings frankly, Penn one Penn too.
That.
With further evolution our development plans right is incremental service, obviously that was the sale pre shared so there's a number of items that are not run rate from the fourth quarter.
Right now and I think Thats most part of my first question and I'll get off after the $19 million reduction for the stuff coming out of service.
Trying to understand when somebody come will flow back into the company I guess trying to understand that aspect Thats you spend money space what type of disclosure or are you going to provide.
Yes, you provided on slide 31.
Now I guess, what point are we going to get some stuff about it coming back in.
Okay.
Well I think also on page 31, Michael It's now Hilco. If you look at the top part of that page, we do provide the.
Incremental cash yields and the stabilization year, we expect to begin to achieve those cash yields.
Yes.
Right, but some of that will come in and 20 120 to 22 like it will it will fees based on the Ltls just looking at that incremental each year.
Yes, I'll yield the floor. Thank you.
Okay.
From Evercore ISI, we have Steve cycle. Please go ahead.
Thanks, Good morning.
I guess my goal or or Steve I know, you're not going to provide a lot of details around some of the big pending leases at Farley and.
And tend to but can you just kind of help frame some of the discussion from the timing and I know you talked about a pretty big pipeline of Abella wise and just kind of help us sort of think through some of the timing it at Farley and to Pan on some of the leasing and then some of the commentary you made in the 10-K about.
Kind of the Mark to markets that you're seeing on the office component I realize it's not a lot of square footage, but it sounds like there's about a 20% mark to market. So can you just maybe flush out some of the bigger leasing.
Okay.
Sure I'll start Glenn can jump in as well.
But in general Steve.
Obviously this groups press speculation about a couple of major leases that are in the works.
And now and we're not going to comment on specific names.
I think in my initial remarks, I said those remain on track.
And.
The normal course in our expectation would be that will start finalizing some important basis probably.
The next quarter.
In terms of.
And so we're just showcase in that product now has a major redevelopment obviously you referenced the one lease.
Last quarter.
Again, which remains on track and out deserve user base your headquarters leases and go into a normal process right now.
I think again, making very good progress.
Yes, I think next quarter, you'll start to see.
Some some real announcements.
Talk more broadly on the pipeline.
Finally, I'd say, Steve on the Mark to market is that again on a big basis is we are taking.
As a function to try what are the in place rents.
In terms of what's expiring where are we taking those two and given what we're doing the pen district, we've talked about taking the rents from sixtys into the 90 to 100.
Plus range and.
Starting to be reflected in what we're doing in those.
And that number.
Hi statements, but.
I mentioned this in the remarks.
We have 1.6 million Peter Levy.
Those are in documentation so leases are out and that includes the deals you're referring to in pad. We're certainly on track we feel very good about where we are and there's more activity to come up.
As it relates to the overall business. If you think about it we're 97% folding the core portfolio.
Well, we keep route filling up space with our existing tenants I mean, our buildings around fantastic shape I mean, the core portfolio Weve redevelop those buildings over the last 567 years.
During that period of time will these dynamics to want to have Bloomfield year in those buildings and the major tenants continue to expand.
So the 87 that I'm parts. The 12 nine needs, we're seeing great activity from within the building been from outside.
So overall, we have a lot of leases out we have a lot of other action.
So we feel great about where we're sitting right now.
Okay, and then I guess second question is just look I realize it you know the company is not really driven by short term earnings and really is doing the right thing for the real estate, but clearly you know coming up with effectively guidance, it's well below the street. You know is is that a little bit shocking to people.
The magnitude I'm, just curious as you sort of laid out some of the issues.
And I realize you can't contemplate everything are there any other potential wild cards that we should be thinking about that could potentially.
Hurt earnings this year or even into next year or at this point have most of the big things been flushed out and from here or earnings bottom in 20 and start to rebound in 21 and beyond.
And Joe referenced the.
Over 21 situation, Steve rights of the extent that that is not that leases are not from than.
There could be a five cents.
In a big temporary basis.
Right. That's the most near term insight other things, obviously, there's always risk of tenant bankruptcies et cetera.
But.
We don't we don't.
The numbers. We gave you is what is in our view today, obviously, there's some positives as well.
But we clearly think thats why its why is the bottom.
And we'll start to see.
Strong growth thereafter.
And.
We said luck and real estate standpoint, you said it ourselves.
Now the steps, we're taking in terms of taking the assets service or additional assets serves the right thing for.
Our redevelopment plans right and so thats going to create significant value and again, the kmart makers and modifications on.
Things, we're doing district, which impacts the out of service.
It was the right business decisions right, it's going to create value notwithstanding that short term impact on earnings.
Okay. Thanks.
From Bank of America, we have Jamie Feldman. Please go ahead.
Great. Thank you I guess, Michael just to go back to your last comment you said 2020 is the bottom and will start to see strong growth. Thereafter can you just talk through the drivers of the growth in 21, the strong growth in 21.
Okay.
Jamie let your.
We started pressure since the guidance there.
I mean, the reality is.
Like will we can take that up starting with Farley coming in to enter it starts to mark I follow timeline, but.
The reality JV as it's a really every part of the business.
Particularly office business has grown by by five New York business et cetera, lack of the mentioned point by point, but.
Hi.
That.
770, Facebook is fully rent paying at that point.
Okay.
Jamie It's Joe.
While 29 team had many.
Depressions of earnings from asset sales that we've gone through that we don't anticipate that recurring.
Which of course lets the growth in the core business not be massed by other dispositions et cetera et cetera.
Okay. That's all the I was just trying to figure out the largest moving pieces sounds like you listed them for 21.
I guess thinking about the core can you can you talk about a same store growth rate that kind of looks through all the noise.
20.
Yes.
Yes, I don't know are prepared to do that on this call chair.
Okay.
Hi, Dan I guess my last question.
Yeah, you into passive talked about a 200 million dollar.
Run rate for retail and why it sounds like that's come down on forever 20 on maybe the Kmart space.
Just for an apples to apples comparison, how does that look today and based on what Youve outlined.
And I don't know that well, we and I are you asking last quarter.
I don't know that really has changed I think last quarter.
And we said it was going to be below 200.
And we said that that was before taking out the IR concourse I'd that also it before the Kmart bio.
So obviously with those two you know the ticket below that number.
But those are proactive things, we're doing supposed to impact from Tennessee. So.
So forever 21, as we've talked about was.
Could be on on.
Both leases are go away temporarily.
Could be $10 million Dane.
But I think it was generally in the number that we decided to you last quarter.
So generally a little although more color.
Last year's reported number 19 as reported number was to 67.73.
The retail sale will adversely affect that by 25.6 centstwenty that wasn't a 19.
Other sales will affect that negatively by almost $3 million.
Out of service at Penn station will affect that negatively by $6 million odd then there are other tenda items.
Forever, 21, topshop et cetera, et cetera, but our met still is in the low 200.
Before before the concourse and Kalergis, yes, before the count growth.
Okay, and then just to confirm that that quote unquote guidance. You gave is that assumes that forever 21.
Leases or cut in half would not go to zero and as an additional five cents. If they go to zero is that correct.
Yes, that's correct Jeremy.
Okay all right. Thank you.
We have John Kim Please go ahead.
Thanks, not to belabor the point, but.
Yes, a couple of quarter to quarter to go you mentioned that this would be could happen I can let me talk for your earnings and now you're coming out with negative nine and 10%.
For 20, but looking back two quarters ago, you already knew about the John you talked joint venture the Topshop store closings.
Tend to redevelopment.
So I'm trying to understand what was new over the last six months, Besides forever 21, and the Kmart early termination.
Okay.
Well.
John It's Jhirmack now.
A number of moving parts effect that.
We took signage out of.
Service and the Pen district, we didn't anticipate doing when we gave that first set of guidance.
We move leasing assumptions from 19 to 20.
Our numerous numerous.
Our things that affect than that but it's over we're confident for.
From what Michael told you that 20 will be the trough here at the growth in 21 will be substantial.
And again, if you'd like to going to greater greater detail, let's do that offline, but not monopolize this call.
With that type of detail.
Okay.
Sure. Okay, and then you updated your any the.
Now your stock is trading that 32% discount Joanna.
When the buyback I know you talked about in the past the Wyndham buyback help offset some of this dilution.
It would have been elaborate or could be a lever for.
Talk to their earnings dilution going forward.
Okay.
John look we.
We recognize where it needs will discount.
The market.
So nor any the put out.
And maybe even now almost disease.
And it's something that we have evaluated we continue to evaluate.
It's not.
Course of action that no prepared environment embark on today.
We are just as we've done in the past.
We consistently look at ways to narrow that gap.
First of all the growing Navy, which is what we're trying to do through our industry developments, but secondly that close that gap.
Yes, I mean, we've shown an ability to execute with an accretive transactions and we are continuing to look at that obviously buyback is one way.
Another significant in terms of obviously as we've done the past but.
Not something that we itself is the appropriate use of capital yet.
I guess, what would be the appropriate time to use that I mean, you have free cash flow that a significant.
Trading in a big discounts have some earnings dilution would just near term I mean, if this is not the right time and when one of these.
Yes, as John said, it's a matter of using that capital for that or other things that we continue to have significant opportunities to invest in our business.
We've outlined the three initially developments from depend district.
That are substantially accretive.
On the opportunities behind that where our capital we want to have available to continue to execute on our redevelopment hold district, we were taxed in the first 5 million square feet today, but there is significant amounts to new beyond that and right now we're going to have that capital available for that or for other purposes.
Well thats from from me.
I think thats within Thats more afraid if it got more accretive in terms of anyway.
The creation John than buybacks at same not capital based on our analysis.
Your earnings decline is.
More than offset by sales kind of tell the 220 Central Park, South, which you don't including your normalized FFO, but did you have a 200 million dollar increase in your estimated proceeds because looking at the 10-K still looks like you have a billion dollars an after tax profits maintained.
John It's Joe again.
I saw some confusion from some people on that point, we published in this our Navy 1.2 billion, but we didnt was saying thats the profit on the job what we described it as the incremental value.
Estimated future proceeds net net is net of course to complete the job, which are winding down and net of taxes to be paid.
Our estimate of profit, which is what you're talking about hasn't changed from the billion dollars that billion, two plus $200 million taxes for billions out but this is the timing of cash coming into Vornado. If you look at the 10-K, you'll soon we've already gotten 1.8 billion from project that 1.8 billion.
Plus this 1.2 billion.
Represents 3 billion, which is the after tax cash coming from both the profits of a billion and recouping the original investment of 2 billion.
And the cost to do the job.
So now we have not increase the sales estimate by 200 million.
Okay. Thank you.
Okay.
Stifel. We have John Please go ahead.
Wow.
Lot of moving pieces just curious.
Okay.
If you look at paying 34 million for the Kmart space about a 141000 square feet.
Do you put in a 141000 square feet ups ginormous floor plates, and that's about 240 up but does that imply that the retail there it's worth to 40 foot.
John you to 40, a flat I think is taking aggregate amount, which is a value right as opposed to annual rent I think came out was paying us around $60 a foot touched less yep.
So I think thats the more relevant.
A comparison.
But we think in terms of that space demand as they use that have absolutely no. They pulled I location right in the heart of the district.
And that now having kmart back which was effectively shut off to the plaza on 30, Threerd Street, we can integrate that havent facing both 34th Antares our history.
And based on our preliminary discussions with a couple of.
Large format users that wouldn't necessarily taken all because we don't want one pad to date at all given how we're going to incorporate in redevelopment.
Yes, absolutely going to be strong demand for that space.
Okay, and then just a few quick questions.
When do you think you're going to get that hit for the 10, one ground lease and this is 20 cents a share a good number.
Second it does the train capacity that the governor is thinking 40% is that with or without a new tunnel, which I'm not sure what the status as of the tunnel.
And then third what do you guys thinking about Manhattan Mall and hotel, Pennsylvania, because we're always under the assumption that.
That is pretty soon thereafter.
Okay.
Okay.
Okay, Let me see if I can.
Take those an order John.
Penn one ground lease.
I think you act asked about the impact there.
That's something we've thought on last call or too.
We're not prepared to.
Given estimate as to what that could be right. That's that's.
Almost three years away in terms of that reset.
And there's a lot of factors that go into that reach that.
And whether its negotiated arbitrated.
There are still there's still a fair amount of time, obviously is going to be up.
From today's numbers, but not something I want to prognosticate.
Particularly as we don't want to negotiate in public with our with our ground assort.
In terms of.
The track capacity to 40% Thats not dependent on new tunnel and Thats effectively.
Adding a new terminal to the south and the allowing additional trained to basically dividend coming from New Jersey side.
Our.
But not dependent on on gateway per se.
And then Manhattan Mall and hotel, Pennsylvania.
Okay.
Right now Manhattan Mall is.
The office buildings fall.
And we've got a great sentiment continues to love a building.
So thats performing well the retail we're effectively.
Keeping on shorter term arrangements.
But that asset as cash flowing.
Quite significantly and Thats the plans in there.
Near future.
And we've talked about in the past.
That is we finish.
The redevelopments of barley, Penguin intend to and the district transformation becomes evident.
Hotel Pan we think is going to be.
The best development sites that.
And so obviously, you don't see where market conditions aren't time, but.
Yes, that's the next logical place to build a new building and at some point Manhattan mall could be expansion for that but thats years and years away on anywhere anytime soon in terms of.
Altering what that asset is.
Great. Thank you.
Thank you.
From Piper Sandler we have Alexander Goldfarb. Please go ahead.
Oh, Hey, Hey, good morning there.
Just a few quick questions here.
Just on first on the guidance or yes, we'll put guidance and close the you guys talked about for the impact to 20 to 2020 that includes the benefit of of stopping the where presumably stopping the ground rent payment on the Topshop fifth Avenue store.
Correct.
Okay, and then as you guys have laid out the road baton for the pen.
Alex just I typically our net net net write those definition from that.
But Alex that's not in comparable extra from.
So attractiveness noncomparable fall and when that leases is rejected.
Some months from today, there will be a 70 million dollar.
Income item noncash income item.
But thats not in comparable folks so that's not what Michael referred to in his discussion.
Okay. Thanks, Joe that's helpful and as far as the roadmap that you guys provided on the on the Penn station and pen to impact is that consistent with what you guys had originally penciled or has had had that impact grown as you guys have gotten more involved and have seen what you could do there.
That the numbers are a bit accelerated Alex as we've seen.
As we actually as we begin to execute on plan.
As a little more front end.
Okay, and then finally Alex.
It's David Good morning, I guess morning, I'd add to that is.
Our objective is to turn this building into a mid to high Ninetys building on average.
If not higher so to the extent, we can get tenants added this building.
Our objective effectively.
It is to do so so thats something that Glenn and team have been working on to accelerate over.
Over the last number of months.
David That's helpful. And then the final question is.
You guys clearly are not an earnings story or an NPV story.
On the last call Mike Michael you talked about hotel Penn that it's not time, yet you guys are sitting on 350 Park and yeah I hear comments in the brokerage me that was just talking to guide me guys, who were hoping that began find space under 120, a button Plaza district at what point do rents.
On Park Avenue make sense, where you can redevelop on park Avenue or is the construction cost Delta just that far that for those of us thinking about value creation for you guys have threefifty. It it's going to be years out because the math simply doesn't work now or in the foreseeable future when does the math work.
Hi, Good luck as I said in my opening comments.
We are beginning to take the steps in order to align that site up for a new development.
Now, we'll make that decision as we get closer to that time based on market conditions, and so forth but.
Feedback from the brokers community is that that is.
The best site in town and would be would come and highest rents.
And so.
I think maybe even referenced in the past we have been approached by significant users or.
Either all or a meaningful portion of the Newbuilding onsite.
So that is.
Sure the economics, I think if not a matter of it working today, it's a matter of can you actually.
The developer.
And so if you just think about the timing we have leases that run through really began in 2020 borderlands and the 20 per into 23 at and so that's the earliest that we could begin to take the building down so new delivery wouldn't be until 2007 for 28 and so.
So I would say significant opportunity.
Got it takes some time in order to bring it to fruition both in terms of.
Lining up tendencies, and then and then execute so I think that we had the building today could we command the rents to achieve.
Yield that say develop the answer is you know we think we think quite possibly.
The build a brand new building.
Perfect in that location.
We think today.
Command rents that that would make Delaware.
And that would be the JV with redone.
Yes. The answer is it can go either way Alex.
We can build on around we don't need.
And to build there we can build a probably the best boutique building us million square foot booty building on that site.
On our own.
Before we can combine.
With Roadms behind us it on Bill.
Close to a 2 million square foot building.
So the answer is as we as we continue to.
Go down the track Sierra in terms of timing on our leases and whatnot is building.
Hi products moving around out in 2023 as well so they line up for that so we can put them together, but we'll evaluate based on.
10 discussions and obviously a tenant for the whole combined building.
You know with would require a.
In a significant pre lease which there's interest in so the answer is too early to tell which direction and can go.
But heaters boss.
Thank you Michael.
Do you feel.
From Morgan Stanley we have the crop Malhotra. Please go ahead.
Thanks for taking my questions on the just on exploration in.
On the office and retail side.
Obviously, the big move out and fan pier, but you've also kind of alluded to a 20% mark to marketing your 10-K.
Can you kind of outlined what's driving that view and any other major leaving.
That are expiring in 2020 that should be aware about on the office site on the retail side I think it's more flattish mark to market, but.
There's a big exploration in Fourq you have 20 can you remind us what that is.
On 2020, our exploration total approximately 525000 feet.
After we take Mcgraw Hill Hell, a lot of service, which is a 560000 foot weeks, which expired at the end of March on the Mark to market, we're coming up so you talked a little rents.
We think that goes 20% to a call it mid eightys number remember quarter to quarter. These numbers fluctuate there's no rule of thumb, obviously, but as we look out on our leasing projections that spaces that are coming up for exploration of plus all the activity now we've been talking about this morning.
We feel the maybe number coming up in sum it all rent is in the ballpark, what we're going to hit.
And again that.
No thats not to speak necessary at a time right or is the timing on those.
On those.
New leases man necessarily occur in 2020, but thats our expectation in terms of were on average they will get mark too.
Right as retailers because that is that in Wyoming b.
That includes the 500 that that you highlighted but potentially other leases and you're just that sort of broad statement, saying.
In general coming off of $70 rents and we think overall, we can you get a 20% mark to market, including kind of new leases.
Correct.
And then on.
On the retail, which as you said as more flattish.
That's again no big leaves us probably half of that is in the pen district, which.
Given everything we're doing there.
We feel good about that may some of that maybe.
Take a.
Frankly intentionally take a little longer there to get right mix of tenants, but.
Again, that's a fairly.
No no big leases fairly diversified sub expertise.
Okay. So not even in Fourq just seem like there was a large.
Junk and for Q2 thousand 20, but.
Maybe just building off of that and 15 revenue.
Over the last call it 12 or 18 months, there's been a number of vacancies over there I'm just sort of wondering what does this mean full in your view what is mean for sort of upper fifth.
Per foot.
Got sustainability, and specifically the ability to ease up youre vacancy there.
Hi, This is high end.
On fifth Avenue, we have one vacancy on upper fifth Avenue, we love our corner, we have great property. It sits on the 50 yard line on the luxury side of fifth Avenue.
And while it's too early to call a rebound in luxury leasing we do have a lot of confidence in the qualitative are at that and the positive momentum that we feel going on today and luxury retail among the strong brands with the strong balance sheet will have profitable business line. So early to call a rebound but still.
Competent in the quality of what we had we happened that dominate the best in class retail assets and we have confidence in that.
And I'm, if I can just ask you.
Just on the.
If I if I remember correctly in your vacancy rents there were well below market, but just given the broader vacancies on fifth Avenue. It seems like asking is still kind of above 2500, or 2800, a foot, but what is a true sustainable.
For full trade, if you're to just take sort of a longer term view I'm not looking for your specific mark to market, but just that upper fifth.
Area, what some more sustainable level.
I believe the sustainable rents are not where peak rents have hit on tip Avenue when leases signed in the four to $5000 per square foot range.
A range at peak I do believe it's down significantly from there in terms of affordability, but there are brands with significant margins and huge balance sheet that can do a lot of business in the market. There is still well over half a dozen brands that have more than 100 million in sales onto the revenue and those are the cut.
Them or is that we'll look for sustainable rent in the range of what you're talking about.
Okay.
And then just last clarification, the stabilization that youve outlined for Farley.
22, I know you said that you're pretty confident of lease up we hear more news, but just from a.
Modeling perspective to kind of get to that 22 stabilization like.
What sort of when do you have to get the leaves us down or what sort of in the model that we have to get leaving done to achieve that stabilization before maybe it gets pushed out into 2003.
Thanks.
That is going to say the next three or three months or so.
Okay. So you would need to get to leave done in the next three Monday spots before you bank vector midway talked about how they ought to reset the office leases on track and the retail leasing.
Which I described in the and the opening remarks.
We are in active negotiation on the leases on the bulk of the concourse and.
Much of the domain names for so we feel good about the numbers that we had out there.
Okay. Thanks, I'll follow up offline. Thank you.
And from Green Street Advisors, we have didn't Ismail. Please go ahead.
[music].
Great. Thank you just given all the moving people can you speak to how leverage will trends in 20 on debt to EBITDA basis.
Yes, and yes, we couldn't hear your question did repeatedly.
Sure just given all the moving pieces can you speak to how leverage will what trends in 20 on a debt to EBITDA basis.
Our this is Joe again, we don't anticipate leverage rising in 20, if that was your question.
There's no reason I mean, we're sitting on an awful lot of cash it no reason really to increase leverage.
And then maybe just for the New York Office portfolio outside of Penn Plaza can you frame. How you guys are seeing I just have to rent growth and 20.
We are you expecting something more in line with inflation or something about that.
I'm, we're seeing rents.
Still strong.
In mid town are all time highs right I'll cover our 8000 foot.
We feel good about the portfolio is straight to the buildings with which we're a recent right now.
So we feel that rents are still going up in most sub markets, including many of our building.
But again its case by case really so how many again, we don't have a lot of space. The column you know in that we're portfolio that talked about earlier.
Okay.
And if you have to ballpark where in place rents that's outside of your pen.
10 District office portfolio, and Manhattan can you frame, how far but below market those let's rents would be.
And then I'll.
I don't want to give you a number.
On the phone yet be a b b b I guess as opposed to a precision.
But.
Comfortable saying there the in place rents are below the market rents.
But again does not want to quantify how much that would be that the little off the cuff.
I think going back to.
Your first question, we're seeing how you are tied to the opening remarks is if you have.
Redevelop you're building you have new Bill you know, we are seeing real roundtrip, there right and depend district, we are seeing significant.
Reliv growth.
Given the transformation of.
The area with the assets and then Andy.
So a normal course traditional midtown assets.
That's probably a little more three or 4% type growth.
You know again, just I would say probably on the west Chelsea meat packing that youre continuing to see no.
So I think I think the trends have remained fairly consistent I'll I think midtown.
Then.
A little stronger and the last.
Four to five months and it was built over the last year.
That's helpful. Thanks.
Thank you, we'll now turn it back to Michael Franco for closing comments.
[music].
Thank you everybody for joining our call today.
We look forward to seeing many of our investors at the city conference in Florida next month.
First quarter earnings call will be Tuesday may fit and look forward to your participation again.
Take care thanks.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for joining you may now disconnect.
Okay.
Okay.
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