Q1 2021 Vornado Realty Trust and Alexander's Inc Earnings Call
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Thank you for joining deep on NATO Realty Trust first quarter 2021 earnings call. We will begin shortly and we appreciate your patience. Please continue to standby.
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Good morning, and welcome to the Vornado Realty Trust first quarter 2021 and earnings call. My name is Vanessa and I will be your operator for today's call. This call is being recorded for replay purposes. All lines are in a listen only mode. Our speakers will address your questions at the end of the presentation.
During the question and answer session at that time. Please press Star then one on your Touchtone phone.
I will now turn the call over to MS. Cathy Creswell director of Investor Relations. Please go ahead.
Thank you welcome to Vornado Realty Trust first quarter earnings call yesterday afternoon, we issued our first quarter earnings release and filed our quarterly report on form 10-Q, with the Securities and Exchange Commission. These documents as well as our supplemental financial information package are available on our website.
Www Dot V and no dot com under the Investor Relations section in these documents and during today's call. We will discuss certain non-GAAP financial measures reconciliations of these measures to the most directly comparable GAAP measures are included in our earnings release form 10-Q and financials.
Supplement.
Please be aware of that statements made during this call maybe deemed forward looking statements and actual results may differ materially from these statements due to a variety of risks uncertainties and the other factors. Please refer to our filings with the Securities and Exchange Commission, including our annual report on form 10-K for the year ended December.
31, 'twenty 'twenty four and more information regarding these risks and uncertainties. The call may include time sensitive information that may be accurate only as of today's date. The company does not undertake a duty to update any forward looking statements.
On the call today from management for our opening comments are Steven Roth, Chairman and Chief Executive Officer, and Michael Franco President and Chief Financial Officer. Our senior team is also present and available for questions I will now turn the call over to Steven Roth.
Thank you Kathy and good morning to everyone I hope all of you continue to be safe and healthy and that journey.
All of that.
On your way of being back on.
And with it.
We are full speed ahead on the Penn District and our.
Competent of the success.
Falling is where the law, we delivered half of Facebook at 730000 square feet and judge on January 1st and.
And we will deliver the second half on June 1st just one month from that.
And Ted one we will deliver the 34th Street lobby and July the buildings of enormous amenity package in October and the 30.
The 33rd Street and lobby at year end.
And two of the long Island Railroad conquest of developments are now on the full scale construction. This transformation will take over a couple of years of complete.
The decision to permanently close the hotel, Pennsylvania will allow us to get the site ready for development and less than two years from now which is perfect timing for the next phase of what part of the district Megaproject.
I believe the about the hotel and site will be the best development site and power.
Notwithstanding that we will be delivering for tenants and the most robust and unique of minutes I used the offering and the city with the end of the convenience of being directly on top of New York's Bay and transportation hub of our strategy here is the price and one and print to the low our neighbors to the west under their price umbrella.
So we are coming off 60, and all the words this will be.
And outstanding outcomes.
Overtime as we continue to remake the Penn District, I fully expect the rents will aggressively rise due to the premium that they deserve.
Okay.
Over the summer and into the early fall the.
Reopening and returning to normal all of us.
The tenants are telling us that they are anxious to bring their employees back to the office and we are anxious to welcome them back.
We remained strong and our belief that working from the office will be the preferred mode of work for companies and their employees post and debit.
The kitchen table and maybe a place for some but I continue to believe the urban office is the work of place of the future.
As I have said.
And I believe we will come out of this difficult year and it economic boom fueled by a tsunami of government stimulus of which the New York is a very major beneficiary the.
Financial sector is now boom and seconds now of woman health care is now booming retailers like Walmart target and home depot are booming and there is enormous pent up demand from consumers get the travel.
Tourist returning to the York.
And then on all matter of goods and services. This is beginning to happen all across the country.
And importantly.
The major tech companies are telling us that they intend to continue growing their office footprint, and New York and the New York's deep and diverse talent pool is unrivaled anywhere.
As you can tell we are very bullish on New York.
Finally of worried about ESG, we filed our 2020 ESG report on form 8-K and April on April 12.
We continue to demonstrate our leadership here and we're proud of the many awards and recognitions we have received.
This is an important topic that we believe it please do take a look at this important report.
Now over to Michel for comment on our numbers and our businesses.
Thank you Steve good morning, everyone.
Hope, you're all safe and healthy and look forward to seeing you again in person and soon.
Let me start with the first quarter financial results and I'll hand over the few comments on the leasing and capital markets.
First quarter comparable <unk> as adjusted of 65 per share compared to 77, the last year's first quarter. The decrease of 12 price.
Merely due to the effects of the COVID-19 shutdown of.
One change you'll note as of the hotel, Pennsylvania results remove the non comparable given our decision to permanently close the hotel.
The decrease this quarter is reconciled for you and our earnings release on page four and and our financial supplement on page six and was driven by the following items.
<unk> from our variable businesses trade show signage garages, and BMS still being off line seven through tenant vacancies and bad debt, primarily the Jcpenney and New York and company lease rejections of last year the.
The <unk> from Penn District space taken out of store.
<unk> from Macy's the lease cancellation income and last year's first quarter.
Partially offset by <unk> from G&A and interest savings.
These items are not new news and are right in line with our statements over the past few quarters. Most of these are temporary and the income will return over time.
Furthermore, the first quarter results are consistent with the sequential fourth quarter run rate, we discussed last quarter adjusted for the accelerated vesting of equity awards for retirement age of executives and the first quarter.
With respect to rent collections and the first quarter overall rent collections were 96% of continued improvement from the prior quarters, we collected 97% of office rents and 90% of retail tenants April collections ramp the same level.
While the aggregate of headlines same store cash NOI numbers for the first quarter of negative on their face excluding the variable businesses, our core and New York Office business actually was positive three 9%.
Blending and Chicago and San Francisco, Our office business overall was a positive one 9%.
The big takeaway here is that our core office business, representing over 80% of the company is continuing to hold its own and this challenging environment protected by long term leases with credit debt and while the retail same store numbers are down overall retail NOI is flat quarter over quarter again, consistent with our reach and guidance.
Finally, we plan to seeds for significant growth as the pandemic recede and the city of returns to a normal level of activity.
In addition to the savings we will realize from the previously announced overhead reduction drug and then we expect significant growth.
And of our variable businesses from the Farley building fully coming on line in 2022, followed by the delivery of 10, one and 10 two and.
And reduced interest costs as we rollover our debt.
One of the analysts and predicted the vornado will have the highest growth rate and our sector over the next several years.
Now turning to the leasing markets, we are seeing improved conditions in the office leasing market with the pace of activity of nicely in the past 60 days. The phones of rain tour volume is up proposals are coming in and leases are being signed with the flight to quality trend accelerating.
According to the brokerage houses leasing volume of certainly up versus 2020 numbers. The first quarter had the most activity of any since the fourth quarter 2019 with most of the action of the recurring in Midtown.
At the same time, we are realistic and recognize that availability across all sub markets remains high.
But and encouraging sign sublease space has recently come down and so on.
600000 square feet of sublease space has been removed from the market by occupiers, who plan to re occupy the space.
Moreover, a substantial portion of the sublease inventories challenge space, either physically by way of the over tenant having poor credit quality or term constraint roughly a quarter of the sublease space and the market. So they had less than three years of term.
Okay.
During the first quarter, we completed 12 office leases totaling 208000 square feet.
The two largest leases of the quarter on both new to our portfolio.
Young Adult Institute for 74000 square feet at day 25 seventh Avenue for the New state of the Art School and facility and <unk> television and a new world content streaming platforms coming off of their successful IPO launch for 55000 square feet and the base of 12 90 Avenue the Americas.
Both of these leases represented of expansion from their prior locations.
We are currently negotiating paper on 300000 square feet of which 200000 square feet is with new tenants and in addition, we of a growing pipeline of $1 4 million square feet, which is up meaningfully from recent quarters.
Last year, we completed the two largest leases of the year Facebook and NYU the.
<unk> suites by for Dealmaking, and the market is with small to midsize firms looking to relocate and into new or Redeveloped assets remember all of our spaces redevelop or and the Penn District, which is under redevelopment. This dynamic matches up well with our current vacancy where our largest available blocks are only 180.
Square feet at 330, West 34th Street, and 117000 square feet at share and 85 to 10 debt.
As a reminder of our office explorations in 2021, and 2022 are very modest with less than 5% of our space rolling each year and a portion of this and San Juan.
Our leasing team is now in full stride and depend district with multiple presentations tours and meetings each day with brokers and tenants across all of the industry types using.
Using our new Penn District experience center to showcase and one and two and our Grand plans for the Penn District really brings everything the life.
The reception to our vision for the district, and our best and market differentiated product offerings and nothing short of phenomenal.
Turning now to Chicago and San Francisco.
And Chicago were also seeing more activity of the Mark during the first quarter, we completed 85000 square feet of leases, including a 45000 square foot office renewal.
And with 18 showroom transactions totaling 40000 square feet of which 15 were renewals.
We currently have of 90000 square foot renewal lease and negotiation and a pipeline of 500000 square feet, showing real interest and the property and.
Importantly, we will be restarting the tradeshow of business.
In October this year with EMEA kind of Neocon show beginning to bring back that income stream.
And San Francisco, and 505, California continues to be and our league of it zone.
Coming off the heels of our recent large renewals of both bank of America, and Goldman Sachs and April we executed a lease renewal of KKR and the triple digits for 50000 square feet and the tower.
And our occupancy here is 98% with minimal explorations until 2023.
Turning to retail now.
Retail leasing and New York City at the beginning to come out of a period of inactivity two of phase where retailers, who are succeeding and even thriving are now looking for opportunity.
All of the current leasing activity is very price driven.
The tourist driven higher rent markets of fifth Avenue and times square has seen the least activity as retailers remain on pause until there is greater visibility on when.
And the 60 plus million tourists will return.
During the quarter, we completed 11 retail leases for 46000 square feet.
These included two long term renewals at 12, 90 Avenue, the Americas, including of leased with JP Morgan Chase for a flagship branch and a seven year extension with the luxury retail of Todd and $6 50 Madison Avenue.
Our leasing also included another six leases signed at the Farley concourse, where demand remains strong and we are in negotiations with tenants to fill the balance of the concourse space.
Overall, we are upbeat about the future of our markets, our leading position on them and our prospects for creating value.
Turning to the capital markets now.
First let me congratulate Jan La Chapelle on her promotion to executive Vice President and head of capital markets.
The real estate financing markets continue to improve with both the CBS market wide open and banks beginning of the land again on high quality office.
Spreads on all in coupons are very attractive levels as evidenced by our recent strong refinancings of one park and 909 third Avenue, both of which were at significantly reduced rates.
The unsecured market the real estate companies also continues to be very strong and it is likely that we may shift over time, and a more balanced approach between unsecured and secured debt.
Finally, our current liquidity as of strong 394 billion.
And quoting 176 billion of cash and restricted cash and to one 8 billion undrawn under our $2 75 billion revolving credit facilities with that I'll turn it over the operator for Q&A.
And thank you we will now begin the question and answer session. If you have a question. Please press Star then one on your Touchtone phone.
Wish to be removed from the queue. Please press the pound sign or the hash key if youre using a speakerphone. Please pick up the handset first before pressing the numbers. Once again if you have a question. Please press Star then one on your Touchtone phone each caller will be allowed to ask one question and one follow up question before we move.
To the next caller and we have our first question from Steve Scala with Evercore ISI.
Thanks, Good morning, Michael I was wondering if you could just spend a little more time on recently gave a lot of.
The detail there maybe talk about.
Maybe talk about the terms that youre seeing in terms of Ti free rent and then length of length of lease the tenants are sort of looking forward today and the market.
And let's say day, one Steve can you just repeat of you cut out for both 10 seconds.
Sorry, I guess the question was really around the lease term ti leasing commissions and free rent how are you seeing some of the.
Impacts not just and face rent, but some of the concessionary items and then what are tenants looking for from a length of lease term.
And then the first thing I'll tell you is the lease term and we're seeing a lot of long term lease commitment 10 years 15 years, we actually just completed of leased this quarter for 30 years with the score at day 25 to seven and so we're seeing lease terms long, we're seeing commitments for sure and see no change on that as we go quarter to.
Quarter on <unk>.
<unk> are elevated and free rents or elevated net effective we're off but I think they've stabilized at this point.
Right now if you want to lease space to meet the market you have to give the ti the fill the space and that's what we're doing on.
And but they have stabilized over the past the two to three months for sure.
Okay, and maybe as a follow up I don't know if this is for Michael or somebody else I know theres been some discussion around the refinancing of 550, <unk>, California, and there was an article recently about a north of $1 billion, new mortgage there to the extent that you did refinance the debt level, how do you think about the excess proceeds.
And what would that be used for.
I don't think were going on that Steve.
Obviously, I don't think we're going to comment on that other than just to tell you. The generally speaking where the smoke this fire.
We won't comment on anything about that transaction.
At the card side.
Okay. Thanks, that's it for me.
And thank you we have our next question from Manny Korchman with Citi.
Please proceed.
And good morning.
Just wondering what your sort of how progressed the conversations are with tenants that are at Penn and both for the large blocks available at the <unk>.
Current on buildings as well as the <unk> and if that drove your decision to.
Take the hotel off on it and move forward with the larger redevelopment there.
Hi, it's Glenn.
So I would tell you where and this experience centers out of Penn One multiple times of day, showing all of the project I.
And I will tell you the action of pen one from a leasing standpoint is absolutely on fire, we do not of any real large block there both in the tower, we have some single and two of four deals happening.
And at rents that are at our underwriting so we're performing very well there of the reception has been excellent.
We are also beginning to showcase tend to enter the market also daily.
A lot of great presentation, the incoming but we're going to go slow with parents, who we've just started up on the physical construction and as of this thing keeps going on of construction standpoint, and the tenant can see it physically it will just get better and better in terms of the incoming and People's reception and yes on Penn.
The 15, we are beginning to show people our plan.
And the announcement of knocking on the hotel Penn has brought a lot of incoming calls and e-mails where store.
And to talk to folks about 10 to 15 as well as we get into it.
Thanks, Glenn and I don't know if this one is for you or for Michael.
But if we think about the occupancy trajectory for the rest of the year here.
Do you anticipate that this is sort of the bottom for New York City office occupancy or vacancy.
Or do you think there is a little bit more to come from a net absorption perspective.
And I don't have the exact numbers in front of me Manny and can't play and they move around a little bit here, there and I.
And I think we're pretty close to the bottom.
And again I'm not going to play on the tick a little bit, but I think I think we're basically there.
Manny Anecdotally I would tell you the Glen told me that several of the brokerage houses.
Total there.
And their folks and their clients to get into the market now that this is the bottom.
The day.
And they expect a turn from a.
The tenant market and the landlords market to happen over the next six months.
Anecdotal information, but its important information.
Thanks, everyone.
And thank you. Our next question comes from John Kim with BMO capital markets. Please proceed thank.
The.
Announcements and the news flow of New York City reopening is very fluid and even this morning Goldman Sachs announced plans to come back next month.
Are there any more details that you could share as far as what's happening in your portfolio today.
Today as far as more details on later proposal and.
And what do you expect to be signed as far as leases and the second and third quarter.
And potentially also traffic and your street retail portfolio.
I'll take the office is the Glen.
Michael remarked in the script and his opening remarks, our pipeline is robust.
And over 300000 feet of leases in negotiation.
We have another $1 4 million EBIT deals that are in discussion.
And I'll tell you things are picking up a lot not a little.
And so tenants are coming out of the woodwork. Many are looking for new space the better quality product.
So we're seeing a huge uptick in the office leasing activity as we sit here right now.
In terms of the utilization and the building Thats also uptick and week to week.
On a percentage basis, we're now and mid teens at all of the building.
Most of our tenants are telling us returning starting in June through Labor day.
But certainly the narrative is unwinding quickly we're feeling it we're seeing it and we're hearing it.
Okay and come out on retail and.
And the retail.
And being a major uptick and conversation that's primarily due to the fact that the survivors of the pandemic and retail and have actually been driving.
New York City.
<unk> the <unk>.
Last on the list to be opportunistic because the rest of the country has been booming the knee.
Cork city suffering from the lack of our 60 million tourists being in the street, but the smart retailers are now in the market being opportunistic and I don't think New York retail has ever offered a better value than its offering today in terms of the private spaces at better rents.
Okay.
And that's very helpful. Thank you My second question is on the tracking stock.
Steve You mentioned and the Chairman's letter are there any more details you could share at this time as far as the timing whether or not you plan to raise capital through it and.
And will you be.
Stripping out the financials of the Penn redevelopment from Vornado going forward.
I really don't think it's appropriate to comment on this.
And we're working very hard on.
Very very exciting project.
We're very excited about.
Targeted and hopefully year and.
Other than that I don't think.
It would be premature the two.
Get into any details, but I'll give you a little bit of what our thinking is.
And by the way of tracking stock is something that has been used very successfully.
Bye.
Folks like John Malone and it literally.
And sidekick.
Greg Let's say.
Dealer and for example, and generally what it's used is where you have a business inside of your core.
Which is different.
And as the different range of growth and it has different characteristics.
And so we feel that the pen.
Mega project that we have is different than our core that are core assets and.
And so we feel that investors would benefit enormously by being able to invest in.
The Penn District, and its characteristics by the way, we do remember its a development company.
For better of rewards and our core assets. So the differentiating aspects of the Penn District.
And is at what we consider to be the epicenter of the New York, It's directly on top of the major transportation hub, which means all of the subways and all of the railroads all of them come into that hope and.
And that's an extraordinary statement because you can get in and out of the Penn station, but line.
And where you are and the and the New York City region.
On one of them.
On one ride.
On the.
The.
Most important part of it is and by the way it's enormous when you look at the number of assets and the scale of the assets and the number of blocks that we've accomplished the spring, but just the thought was the.
And the most interesting part of it I think from my point of view of Glenn's point of view is it's a cluster of buildings that are interconnected generally underground. So what that means is that a tenant who has a 300000 square foot required and elaborate about this who comes into a 500000 square foot building is locked in.
There is no place to go but the 300000 square foot tenant.
Sure.
<unk> growth of 10 million and Brilinta, the 15 million square foot complex has enormous opportunities to grow should they want to in the same building or in the adjacent buildings. So I believe that a strategy which involves.
Cluster of buildings and the campus, which also will allow for an enormous series of amenities debt.
The U S and even a giant moving and fulfill the can't afford to do makes US total unique we're seeing very much the same things out of northern Virginia, where our spin co JBT Smith.
This enormous concentration.
Our buildings.
And land et cetera, and the Crystal City complex Fernando contributed to that company. When we did the spin in 2017, we've now attract the Amazon HQ2 of their mainly because of the concentration of assets that we have and obviously because it's a great labor market. The same is true of our New York.
I agree.
Penn District, so what we're trying to do the adjusted is is to take businesses, which are different meaning the Penn district is different.
Core office building on Steven Park Avenue.
And allowing investors to have the choice.
So we're very excited about it.
It's a very important work and process.
And more details will be coming.
The.
As we advance it and when we announced.
I think somebody said and their reports last night.
That it was not well received by investors.
Is troublesome to me because thats totally contrary to my feelings about it our company feelings about it and so if thats the case and we have some work to do and to talk to our investors and make everybody understands exactly what we're thinking about but we couldnt be more excited.
And the.
I think thats it for now.
And.
And when you list the key attributes of the investment Vornado arguably Penn District would come up with the number one.
So have you gotten feedback debt, that's really isn't that different to the reason the invest and the company.
I don't understand the question John.
And I guess your point that.
You're stripping out something that's different when reality, it's just of redevelopment of existing assets net.
Is the key reason the investment window today I'm just wondering why you think it's different.
Well.
And say, what I said for the last five minutes over again, but the.
The answer is and it's totally different and many many different ways and it's real estate, but it's totally different and the other thing is when you think about stock performance.
We don't think that our stock could go with or without the.
We're getting no credit and.
The Fernando stock and.
Trading price for the <unk> of.
Basically.
So what will happen is that we think that the.
The Corp.
Corpus of Fernando will the price of related and will be unaffected.
Or maybe even rise hopefully, whereas the Penn district stock will get the what's true value.
But we think we don't agree with you we think it's totally different.
Got it thank you.
Yes.
And we have our next question from Alexander Goldfarb with Piper Sandler. Please go ahead.
Hey, good morning, Steve Good morning, Michael.
So I'm going to take a different tack with my quest during this quarter.
So im going to focus on to what I perceive to be positive and your portfolio, Steve and your news.
And your chairman of letter you outlined your your Netflix the engine and the fact the studios are now on your radar it would seem with the Jcpenney space debt at.
The Manhattan Mall, and the Penn station and district redevelopment both of those assets have huge loading dock huge amounts of potential space. The big car can be carved out and obviously being in the city is incredibly convenient for the studios versus people, having to the truck out to Queens or.
Some of the outer boroughs what of your thoughts on converting.
Either of those two assets of some of your other existing that have those sorts of attributes to <unk>.
Yes.
This all began with the cutback two things number one.
All of us of become network network, Netflix, Alex and number two we have got and Cummings from.
Entities that are in the.
The soundstage business or the.
That means stages and.
So what's happened is as debt.
The streaming business and.
On the entertainment business has become an unbelievably powerful dynamically growing business and is consolidating and so the companies that are in that business are huge financial entities.
And they all have a handful of ink.
And then.
Moving on.
The strong desire to be in New York.
Currently there is a significant maybe.
Mainly the dominant.
Our concentration of talent and New York.
And so it's really basically they say and three places New York, Southern California and.
And I guess and one of the kind of the European cities.
But so the point being is that there is a tremendous amount of unserved demand and.
So we're responding to the income and so we have assets that could.
Service that the demand.
The way.
And two aggressive statement that says the Penn district could be couple of Hollywood East.
Don't take that to the bank by the way, but there's a great deal of interest and some of our assets that we are working on.
Okay, nothing and then the FERC.
And nothing eminent.
And again, we're just responding to where we see pockets of unique demand and the marketplace.
Look that's good and then obviously, it's something new and it would seem to be something thats, good to repurpose, especially large blocks of space.
Yeah.
And.
And we feel we have assets that could be adopted.
And those kinds of news.
Okay. The second question Steven.
Going back calculation and you guys broke the two decades I've been talking about temptation, we all know the issues about the streetscape and the neighborhood and the desire to see that improve when you look at Grand Central.
The areas already there east side access is clearly kind of sites and a way of huge chunk of long Island computer and you guys have 350 Park.
It would seem that $3 50 of them.
Better sites and hotel and just given that the neighborhood is already.
Already there and there are a lot more people being excited by the commuter hub and you have east side access.
Humming and the next few years. So what are your thoughts on on accelerating $3 50, and where does that fit in your pipeline as you guys the glass market.
Anchoring our hotel and versus getting kind of anchor of 350.
We're an equal opportunity employer.
Wherever the tenants want to go and Thats, why we want to put them.
We have obviously, we have an enormous amount of respect for our 350.
Part of it's a great asset.
Yes.
And it's kind of the bite sizes of 500000 square for the asset.
It's obviously a candidate for a teardown of the rebuild.
And tear down and rebuild is.
The combination and we can grow the size too by the way as the speculated in the price. So we can grow and something thats more than the 2 million square foot building. If we wanted to just focus on our on site without growing and which would be EMEA and square foot building. The that is an immense financial undertaking which would require.
Record breads.
And which we have towards the several tenants about and we may do that but the likelihood of these we will not do that the more likely outcome is that we ramped up the existing 350 Park.
Very.
At very favorable rent and.
Sort of like postpone of interest cycle.
And at.
And retain the option of doing a new build on it or continuing to rent of the existing building over time. So it's more likely day, we will not do a tear down on that site and rented out for one more cycle and focus our efforts on the presentation district, that's the more likely outcome.
Although we all couldn't be more delighted by the way if we decided that we wanted to sell that asset with all of its optionality in terms of the new sales or whatever we think we could get and extraordinary price for it but that's not something that's high on our agenda right now.
Okay. Thank you Steve.
Thank you and thank you.
Thank you we have our next question from Jamie Feldman with Bank of America. Please proceed.
Thank you and good morning.
Steve I wanted to go back to the comment you made at the outset of the call where you said major tech companies plan to continue growing the office footprint and New York City.
Can you talk more about exactly what you're seeing thank you.
Understanding is that a lot of the big leases have been signed but I'm curious if there was a lot more behind it.
The answer is I'm really not going to comment on our sort.
Sort of set of sort of confidential conversations with our customers, whom we cherish and we respect the competencies.
The deal with all of these folks.
We obviously have them all and our portfolio all the way from Facebook, Apple Amazon et cetera.
We can only tell you that day.
This is firsthand the information they love New York and.
And for most of these folks New York is the second largest outpost.
The.
And and.
The center, what they love about New York is first of all of their employees Love New York.
There is a very very large and very importantly of diverse workforce.
And that's very important to these to these clients.
So they have their fingers on the pulse of the are they followed the real estate and New York.
As closely as we do they all have very professional real estate of organizations that we are in contact with.
Frequently almost daily.
And.
The.
So the answer is that I stand by my statement. They are very aggressively interested and the off their interest in New York continues unabated and we think Thats a very exciting thing by the way there. They are interest in New York is basically almost exclusively to the west side of New York, that's where their employees and want to be.
And that's where the culture of says they want to be so.
So we think we're very well positioned for that.
And we think that bodes very well for the future of New York and for the future of Vornado.
If you think about the tech business right.
So you'd start with the big four of five I mean stunning and the earnings that they recently posted the growth rates that continue to have.
And the aspirations that can do that and then you had a entire segment of companies that have now either gone public and graduate of the point, where they're mid cap companies doing all of the best companies and New York.
Companies, they've got significant ambition they need people to execute on those ambitions and I need to be and first right huge amount of engineering talent.
Collaborations required et cetera, and so both from our own tenants and others that are and the market that are can you expand honestly. We just brought the for example of through both to your view of just went public and of our portfolio.
Companies have significant aspirations on growing their business and as Steve said, New York is a central aspect of that and I think thats very positive and this marketplace.
And Michael brings up a very important point and that is.
The the movies and the.
The aspirin.
Our high growth people, they want to be and the same cluster and in the same neighborhood as the established huge.
And it's on.
And what Glenn and likes the best about new tenant.
And our enormous growers and they look to locate and.
And buildings, which have the potential of where they can and 50000 feet at 100000 feet and reward and followed with Facebook when we felt the placement of seven eight years ago 2000, and they started with a couple of hundred valve disease and then they grew to 700000 fees over three to 40 day period, that's the kind of client and loves and Thats what.
And that's what we're trying to.
That's the kind of.
The occupancy.
Okay.
Thank you that's very helpful.
The one 4 million square feet, a pipeline like how would you divide that up by those types of growing tech tenants versus kind of upgrade relocations or if theres any other meaningful category you'd split that into.
And.
Yeah, I'll tell you, Jamie and very diverse industry sector mix and a very mix of good mix of renewal important renewal transactions as we look towards our exploration. The next three to four years, along with very good new tenant activity.
A lot of and the Penn District, but also broader of other assets.
So it's a very healthy mix of new renewals and some expansions and really every type of industry sector.
The one industry, that's really leading the charge right now of the financial tenants, they're busy as I've ever seen it.
So our financial oriented buildings are really busy.
We have backup the yields on deals of the 87 280 Park.
On there.
And we're leading the charge but.
In terms of the mix, we feel really good about really covering everyone out there right now and that pipeline we talked about.
Okay can you quantify how much of that is renewals of the one four.
I'd, rather not get into the exact mix of the numbers.
Okay, that's fair.
And then I guess another question for you Steve You had commented on the boom and Im just curious what your thoughts are on the.
The benefit to New York City from the bite and plan and.
The outcome I know, it's still early but the mayoral race kind of what should we be thinking about either of the risks are the rewards.
Just on who's on the game.
And so let's say your question is how will the New York benefit from the pool.
And then what's going on with the mayor mayor of the races that correct.
And just what are your thoughts on the bite and plan and how you think that really good.
Trickle through to New York, and then how should we be thinking about either the risks or the.
Benefits from the Mayo race.
Okay.
So first of all I mean.
I think it's pretty clear of the countries and the bull.
The only thing and I'm uncomfortable about talking about it is that.
And the consensus.
Feeling amongst almost everybody so consensus is something to be.
And about.
Normally I would like to be I would like to be on the other side of that but it is the consensus and that is also what I believe it I think it's happening and you go to other places around the country.
And which have not been as.
Shutdown as New York, It's happening now and you go to.
Texas et cetera, where they have different but where they have been more lenient in the restrictions.
You can't.
You go into the target store and the shelves are empty and go into some of the luxury retailers.
Across the country and the shelves.
Actually the demand is amazing.
And they can't build that of houses et cetera, So I think that's pretty clear.
The the.
The buyer and as policies together with the fact that.
The <unk>.
Majority of the leader of the Senate is from New York.
And there is a significant and fair by the way in terms of and you look at distribution of the distribution of of.
Of these programs across the across the nation.
There is a significant amount of benefit financial benefit that's coming to New York in terms of the stimulus package.
First in terms of closing the budget deficit for the city and state.
Which is a universal program across the country, but it's good that we're getting it and other benefits to our population. So we think that the stimulus will be an enormous benefit to New York I think thats proving out with.
With respect of the marrow race of.
That's a different kettle of fish.
The other day about politics, and New York is that more than two more than 75% of the Mitch the voters are Democrat.
And the city and so therefore, the mayoral race is not the election, it's the primary so almost invariably whoever wins the democratic primaries elected mayor.
And the general election.
There are.
Yes.
Yes.
Double digit number of candidates.
And interestingly, there's really no.
Candidate, which has a defining lead.
We also have ranked choice voting for the first time, so nobody really quite knows how that works. So the first the.
The two or three of four leading candidates are certainly all of the rates.
I'm hopeful that the candidates will all believe and a couple of principal debt I think we believe it.
First that.
The quality of life is.
And if not the single biggest issue of the biggest issue and that is safe streets.
Queen Street.
For example, the homeless situation has to be handled.
And so quality of life issues are very important debt.
The number one on my list.
And on my list. The second is that we need to be a growing city with growing.
Employment growing which I think everybody subscribes to which means we have to be a business friendly.
And so.
Every once in a while we have slumped on that the Amazon.
Disaster.
Couple of years ago, and long Island City is the probably the number one.
Example of that so.
The quality of life.
Same cities, the homeless situation being business friendly.
Our bi.
And.
Number one and two we then have income inequality ratio with the quality, we have to be a fair city.
And so those of the major issues I think and the campaign and I believe that the.
The three of four candidates who are look like they have the best chance of being elected are all well qualified with respect to that.
And I think one of its very interesting things about elections is is that this is a time when the political.
Leadership for the current political aspirates accurately and listened to the population.
And I think thats the message that I, just said I think as the of the.
And universal message, that's going from the <unk>.
<unk> two of the politicians it may be.
Some groups of voters and they say.
The income inequality and ratio and the quality and more important others may say business friendly.
And the quality of life.
Those four major points are the issues I think in our city every of the great probably in the world right now.
And I am very hopeful that we will get a mayor of one of the two or three or four leading candidates that will be will qualify that in that regard.
Alright, Thats really helpful color. Thank you.
And thank you. Our next question is from Vikram Malhotra with Morgan Stanley.
Thanks, so much for taking the question good morning, everyone.
Maybe just first one Steve you talked obviously theres a lot of activity on the development front and future development I am just wondering on the past you made comments about the right time to buy and I know distress has not been plentiful, but given the bullish view on office over the over a multiyear period can you maybe walk us through.
And how youre thinking about value added opportunities and the New York area.
As you as I think you have heard the today and over the years, we are extremely bullish on New York.
We are as they say loaded up on the New York and we think we like our position.
I am disappointed that there has not been and this peer.
Period.
The unique.
The opportunities to add value by buying distressed which is something that we have been able to do in past cycles, but that's not the way. This has worked out.
So.
This is kind of a bit of weird period.
Gone through the recession.
COVID-19 caused the recession.
It's really.
Didn't hurt on main businesses in terms of our Occupancies.
But it did miss our income by $200 million because certain of our businesses were shut down like spine and garages et cetera.
On the other hand.
Interest and the other benefit of that as interest rates are historically low chronically low and it looks like they're going to be low forever, which is something I think we after the allude thoughts.
All of that before we subscribe to that but there really hasnt been very much in terms of the of.
The strength that we've been able to buy below we've been looking very hard so.
Im disappointed and that but what it is.
I do believe that the best opportunity that we have store capital and our business is by far and away is investing independent district, which I think if one has a five and EBIT. The 10 year view, there's going to be one of the great. The.
One of the great investments and one of the great development and.
The out there so that's my view.
Okay. Thank you two more real quick ones.
And just on street retail and particularly the vacancies on fifth Avenue can you maybe talk could talk to us about.
Where are we specifically on fifth and just the more premium.
Corridor, where are we in terms of.
Rent levels that are low enough to attract the.
And that has really come back and start signing needs of just wondering how and how do you start to fill up some of the the vape.
Concerns that you have and the portfolio.
And as highly as high and said a couple of minutes ago.
This is a market cycle that we've been through many times I think we can almost predict how these cycles ago.
Yeah.
And there is a by the way this is a very difficult cycle. Because in addition to everything else we have the <unk>.
Secular change from brick and mortar retailer.
Two.
The Internet shopping which is a.
Secular change, which sort of makes the cycle much deeper.
Nonetheless, as the cycles, so theres lots of vacancies. The first thing that happens is that the vacancies are scooped up.
And a group of tenant to realize the value and who have business models that can operate and thrive with reasonable rents.
When the vacancy start to get the be absorbed the rents rise and during the whole process.
The highest quality space.
<unk>.
And.
The man commands the highest rent and the highest demand.
So that's beginning to happen now and is high and said a few minutes ago. The retailers that have thrived are beginning to recognize that this is the bottom and have.
Beginning to recognize that they want to add and EBIT and New York aggressively and.
At this price like the.
And the unique and important.
<unk>.
The sites. So an example of that is is that we did a deal with fed the on.
Allison and 57th Street recently, we extended the lease with Pas on Madison Avenue, and 60 of state recently and there is multiple other examples of that so what's going to happen is I wouldnt.
I wouldn't focus on the spot rent to day.
And that's meaningless that's the rent.
Rental will disappear in the year.
And so what's happening is the the smart players the players will have a business model that works.
The beginning to absorb the good space and that will cause the market the ship and in a year or 18 months or so you'll see a totally different market and and three years from now you will see a monumentally different market, which will be driving with much higher rents.
Yeah.
Great and then just one quick clarification on Facebook can you.
Can you maybe remind us the.
Contribution and the GAAP contribution debt there the series of some of that already recognized and the numbers and just how does that ramp over the next six to 12 months.
And.
We're not going to comment on the details of of the Facebook lease other than to say we are so pleased with our relationship and they are pleased with us the.
The most recently and that we did with Facebook with 730000 square feet is a very height of the.
Ed Derek.
Give you a feel for the.
And the courage and it takes four even somebody of Facebook scale the size of a lease.
The multi multi multi $100 million commit financial commitment and the.
And the.
Last summer if you remember.
The space books based on.
The lease which cover several of the 30000 square feet and more.
And.
And Farley is totally unique space that we believe and I think.
And they believe is unique across the country for where it is and the city of New York.
And the scale of it being a low rise with 150000 square foot floor place. So we anecdotally talk to their some of their occupiers of their engineers and they are very excited they can't wait to get into the space and other than that we're not going to comment on the financial details.
Thank you.
Thank you and thanks.
We have our next question from Daniel Ismail with Green Street.
Great. Thank you.
Glenn I believe you mentioned the stabilization and office concessions I was just curious was that of reference to concessions and maintaining the current level of or a return to pre COVID-19 and outs.
And I'm, referring to is stabilizing as of.
During the pandemic not free we're not back to the pre for sure. The goal is to get back the pretty we're not there yet, but they have stopped rising for sure on talking about it and the current environment. During the pandemic staying the same comment about markets. The market has the tightened up a little bit on the market tightens up the concessions will tighten up as of.
Well.
Got it and then.
And just a quick question from me on and any update on the ground lease at 10 one.
No.
Got it and then a bigger picture question on a few of the non office assets, you mentioned and the annual letter.
How do you view.
Non office opportunities like the studios gaming et cetera.
As a percentage of the overall company.
How big can some of the non office opportunity space.
That's an unanswerable question the reason I put that in there with I think for our shareholders.
A.
We'd like to know.
Some of the things that are perking below the surface, even though they may not be.
The imminent and so for example gaming is an interesting thing.
There are everybody that follows New York knows.
There are three gaming licenses that are yet to be issued and the New York and.
On the New York, enabling legislation and that.
They are targeted for the downstate.
And Theres been a fair amount of news about that recently.
So people who are.
Following on our company, but following the basic ebb and flow of.
And New York knows about this now.
Now those three licenses are scheduled to be released in 2020 three.
But there has been a great deal of speculation and impressed that maybe accelerated earlier.
Because of.
The.
The budget deficits et cetera.
And the urgency maybe off of that a little bit because the federal government's close those deficit, but who knows.
So.
We have as we have we have probably the largest portfolio and we have been receiving multiple income inks.
The gaming industry.
Operators, who we will be applying for those licenses and competing for those licenses.
And so.
The inquiries that we have gotten have been formed but patent properties and.
And it turns out debt.
Consensus.
On our potential assets are probably the best we have multiple assets and they are probably the best suited for this kind of activity.
So now.
I mean, we have.
And we realize that there is in the enabling legislation, which was passed four of five or six years ago.
There's a prohibition against gaming and Manhattan.
And that's sort of the disconnect why are the operators coming in and.
And multiple inquiries about our assets when there is a prohibition.
So the market is sort of saying well maybe that prohibition doesn't make a lot of sense of et cetera. So when you think about it and if theres going to be three licenses issue.
It does make sense that one would be to the east of.
The long Island region, one would be to the West Coast region, and then there's a third well and as.
As I wrote about this fairly short.
It doesn't make a lot of sense for the third license to the issue and direct competition. The one on long island, but one of the west and that leaves and Manhattan, which may be the Golden Goose and terms of getting revenue for our school systems and what have you. So it's impossible to predict how this comes out we have multiple of assets that are of high interest in the east.
These folks this is a complicated political process and all I can say is we're just we're.
We're just with the satisfying incoming.
The interest.
And we'll see where that goes but you can discount that the zero and.
The spreadsheet.
Although if it did happen it would be it would be.
The financial the interesting we have no no no interest and being in the gaming industry or being and operate or anything like that we are a real estate vendor that's what we do.
With respect of the.
The soundstage business, it's exactly the same story.
We are a real estate lender, we are not going Hollywood.
Although.
And I think some of us like the have a bid parts of where.
Whatever.
And we are responding to the incoming from an industry, which and the streaming industry, which is unbelievably hard.
Have a great deal of interest is being and Manhattan, because thats, where the talent is so.
The these are these are based on ideas, which I put into the momentum because I think our shareholders are entitled to know some of the things that are going on in the background fees.
And these will undoubtedly not become large parts of our business, but who knows.
Just to remember I said, you can look at the <unk>.
And this could become Hollywood Hollywood East It will for sure, but it's an interesting things the sort of fantasize about and then you all of these things that Steve referenced are and I think the.
To me the key point.
For you guys shareholders et cetera, as our job is to maximize the value of our assets and we look under every rock how to do that.
And.
You got the you got the stream business, which is booming and Steve just talked about the gaming dynamics.
And so.
Our objective of every day, we come to work how do we maximize the day of our asset and look every different direction and so anything we may do here would be accretive to what we have today and.
And that's what we do on every asset write a lot can't be the purpose, but some of these can be.
Great I appreciate the color and then just a very quick follow up if I may and you mentioned the budget deficit. Steve is there any potential given the fiscal concerns to potentially getting further density at or around and just kind of district.
There is a GBP of general project plan, which was.
Interesting by the state Economic Development Commission.
Which would.
Take the assets the circle.
Penn station.
And supply more density and that is a pending initiative, which has been promulgated by the state.
And there are two things.
Sort of involved and that the first is that everybody everybody.
And is in favor of improving Penn station from a logistics point of view from a traffic point of view from of usability point of view and from an aesthetic point of view and.
So the state government.
And the railroads are actively involved and multiple attempts to do that which involves.
The public money.
In addition, it's a.
It's a.
Totally accepted.
Land planning principle that the most density and any savings should be at and surrounding the transit hub and.
And Thats us so that's in process now the.
Going through community comment periods et cetera, and.
So.
The answer is.
A lot going on in that regard.
Great. Thanks, everyone.
Okay.
And thank you we have our last question in queue is from Alexander Goldfarb with Piper Sandler.
Hey, Thank you. Thank you Steven I just wanted to go back.
You mentioned about Penn station and the <unk>.
I think Jamie you asked about the macro situation.
But when you look to Albany, and they just pass $4 billion and taxes on.
On the on the wealthy which are really the business leaders and the people who are leaving it the same type of salt repeal doesn't look likely so Steve how do you do you think about Penn station and you mentioned that there's some pushback on the tracking stock how do you think about your putting billions of dollars of investment into the Penn station area.
And when Albany seems to be and coupled with the Amazon and fiasco of few years ago seems to almost be encouraging people to relocate and how do you how do you sort of reconcile their true.
My children and want me to go to Puerto Rico.
Look New York, There will always be New York, New York will always be great.
It will always be a high tax place to live.
And we'll be we'll continue to be the center of Commerce.
And we will continue to meet the the business capital of.
The.
It states.
Now.
I.
I agree with you that the.
The.
The folks and various government by the way the the.
And the price may come out of Washington in terms of taxation.
But it may be of second runner here.
But the point the point of it is that.
The.
The loss of.
Some very high earners, who are at retirement age by the way.
And it is something that is happening it's happening all around the country. It's more.
Happening more aggressively and California by the way.
And California, California folks.
Fleet to the.
Texas, and New York flow folks.
And Florida, while I'm, saying basically is the backbone of New York is not the 20th of Dirty hedge fund.
The trillion, Eric been and answer.
And we're going through.
The Florida and wherever the backbone of New York is the <unk> 500000, EBIT of 1 million $1 million, earning.
Management people in their prime and therefore fees.
Who are raising families, etc, whose jobs.
And while not the heads of the businesses and can live anywhere.
And future depends upon being in the New York, where they can do three times better than they can do anywhere else.
As long as that pardon me as long as that holds the New York will be fine and as we see it.
People like JP Morgan Chase building, the new headquarter buildings et cetera, the businesses that debt.
Net or I'm not talking about the entrepreneurs.
Anywhere and.
And there are very small number of people logo, the various financial and fourth the mass of the talent that New York has pretty much is staying in New York has to stay in the <unk>.
Once the stay and New York loves to say and most of the most of the live and New York and has delivered the also because thats, where these unique jobs on.
But Steve when you look at New York share of GDP of was 11% two decades ago now its down to seven so.
It's clear that the economic growth elsewhere is outpacing and that just seems to be something where new York depends on it on it.
Morals that seems to be the biggest grip on here.
Well the answer to that is that New York.
Is not growing as fast as some of these other smaller places of growing but it's certainly not contracted and.
We still think there will be and demand for our product.
I'm going to set you up and get you a day the Gulf the orebody and.
And talk to all my friends at all of it because I think you have a lot to say.
Yeah.
That's why we we like right and get and Craig listen Steve. Thank you.
Thanks, Alex.
And thank you we have no further questions in queue I will now turn the call over to Mr. Steven Roth for closing remarks.
Thanks, everybody. We appreciate your participation. We appreciate your interest and provocative questions and we certainly appreciate your interest and our company.
What is the next critical.
As of the August or so we will see you. If we don't see you before and with dying the skew and person we're dying to see you in person and break bread with you and talk about all of the all of the interesting thing sort of going on and our next quarterly call is.
Tuesday August the Tuesday August 3rd of 10 o'clock with the event. Thank you.
And thank you ladies and gentlemen. This concludes today's conference. Thank you for your participation you may now disconnect.
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