Q1 2021 Vornado Realty Trust and Alexander's Inc Earnings Call
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Thank you for joining the of our NATO Realty Trust's first quarter of 2021 earnings call. We will begin shortly we appreciate your patience. Please continue to standby.
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Good morning, and welcome to the Vornado Realty Trust first quarter 2021 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's 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 the.
These documents as well as our supplemental financial information package are available on our website Www Dot V of 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 financial 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.
For 31st 2020 for more information regarding these risks and uncertainties the core.
Call May include time sensitive information that maybe accurate only as of today's date. The company does not undertake a duty to update any forward looking statements on.
On the call today from management for our opening comments are Steven Roth, Chairman and Chief Executive Officer.
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 drove exited as well on your way of the impacts of it.
We are full speed ahead on the Penn District of <unk>.
The confidence of the success.
Falling is where the law, we delivered half of Facebook at 730000 square feet of judge on January 1st.
And we will deliver the second half of June versus just one month from that.
At Penn One we will deliver the 34th Street lobby in July the buildings of enormous amenity package in October on the 30.
The 33rd Street lobby at year end.
And two of the long Island railroad conquest of elements are now on the full scale construction. This transformation will take over a couple of years of complete.
The decision to permanently close of 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 this.
The bigger projects.
I believe the about the hotel Penn the site will be the best development site in town.
Notwithstanding that we will be delivering for tenants for the most robust of unique commoditized the offering of the city with the added convenience of being directly on top of New York's band Transportation hub of our strategy here is the price of pen one of 10 to the low our neighbors to the west under their price umbrella.
We are coming off of $60 range this will be.
Outstanding outcomes.
Overtime as we continue to remake the Penn District.
We expect the rents will aggressively rise to the premium that they deserve.
Okay.
Over the summer and into the early for the.
Reopening of returning to normal one of our 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 pandemic.
The kitchen table, 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.
I believe we will come out of this difficult year of economic boom fueled by a tsunami of government stimulus of what.
The New York is a very major beneficiary of the Po.
The actual sector is the booming tech is now woman health care is now booming retailers like Walmart target of at home depot or the booming and there is enormous pent up demand from consumers each of the travel read the tourist returning to the York.
Spend on all manner of goods and services. This is beginning to happen all across the country.
Importantly.
The major tech companies are telling us that they intend to continue growing their office footprint in 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 in April on April 12, we continue to demonstrate our leadership here and we're proud of the many awards and recognitions we have received the.
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 at all businesses.
Thank you Steve Good morning, everyone I too hope, you're all safe and healthy and look forward to seeing you again the person soon.
Let me start with the first quarter financial results on a lender with a few comments on the leasing and capital markets.
First quarter comparable <unk> as adjusted for the 65 per share compared to 77 for last year's first quarter of decrease of 12, primarily due to the effects of the COVID-19 shutdown.
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 on our earnings release on page four and in our financial supplement on page six the ones.
Driven by the following items for.
<unk> from our variable businesses, tradeshow signage garages, and BMS still being offline.
<unk> from tenant vacancies in bad debt, primarily the Jcpenney in New York and the company lease rejections of last year the <unk>.
<unk> from Penn District space taken out of sort of <unk>.
<unk> from Macy's the lease cancellation income in last year's first quarter.
Partially offset by five 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 in the first quarter.
With respect to rent collections from 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 net 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 New York Office business actually was positive three 9%.
Lending in 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 in 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 original guidance.
Finally, we plan to see us 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 man, we expect significant growth.
<unk> of our variable businesses from.
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 predicted the vornado will have the highest growth rate in 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 for.
The 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 for the first quarter had the most activity of any since the fourth quarter of 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 on an encouraging sign sublease space has recently come down some.
Almost 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 10 on having poor credit quality or turn on constrained roughly a quarter of the sublease space in the market today is 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 for both new to our portfolio.
Young Adult Institute for 74000 square feet at day 25 seventh Avenue for the new.
New state of the art, scoring facility in <unk>.
<unk>, Inc. Our new world content streaming platforms coming off of their successful IPO launch for 55000 square feet from 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 two on 1000 square feet is with new tenants and in addition, we of a growing pipeline of one 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 current sweet spot for dealmaking in the market is with small to midsized firms looking to relocate into new of redevelop assets.
Remember all of our spaces redevelop or in the Penn District, which is under redevelopment of this dynamic matches up well with our current vacancy where our largest available blocks are only 180000 square feet at 330, West 34th Street, and 117000 square feet of share at 80, 510th Avenue.
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 in San Juan.
Our leasing team is now in full stride in the Penn District, with multiple presentations tours and meetings each day with brokers and tenants across all of the industry types.
Using our new Penn District experience center to showcase on one and two and our Grand plans for the Penn District really brings everything the life.
Reception to our vision for the district, and our best in market differentiated product offerings of the nothing short of for now.
Turning now to Chicago and San Francisco.
In Chicago, we are also seeing more activity of the margin.
During the first quarter, we completed 85000 square feet of leases, including a 45000 square foot office renewal, along with 18 showroom transactions totaling 40000 square feet of which 15 were renewals.
We currently have of 90000 square foot renewal lease in negotiation in our pipeline of 500000 square feet showing real interest in the property <unk>.
Importantly, we will be restarting the tradeshow of business.
In October of this year with EMEA current Neocon show beginning to bring back that income stream.
And San Francisco 505, California continues to be in a league of its own.
Coming off the heels of our recent large renewals of both bank of America and Goldman Sachs. In April we executed a lease renewal of KKR in the triple digits for 50000 square feet on the tower on.
Our occupancy here is 98% with minimal explorations until 2023.
Turning to retail now.
Retail leasing in 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 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 a lease with Jpmorgan Chase for a flagship branch and a seven year extension with the luxury retail of Todd 650 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 the land again on high quality office.
Fred's and all in coupons are very attractive levels as evidenced by our recent strong refinancings of one part of 909 third Avenue, both of which were at significantly reduced rates.
The unsecured market for real estate companies also continues to be very strong and it is likely that we may shift over time from a more balanced approach between unsecured and secured debt.
Finally, our current liquidity as of strong $3 94 billion Inc.
Clothing, 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 if you 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 for today in the market.
Let's say day, one Steve can you just repeat of you cut out for about 10 seconds.
Sorry, I guess the question was really around the lease term.
Leasing commissions and free rent how are you seeing some of the.
Impact not just in face rents, but some of the concessionary items and then what are tenants looking for from a length of lease term.
I mean, the first thing I'll tell you is the lease term, 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, 7%. So we're seeing lease terms long, we're seeing commitments for sure. We've seen no change on that as we go quarter to.
Quarter.
<unk> are elevated and free rents or elevated net effective.
But I think they stabilized at this point.
But 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.
But they have stabilized over the past I'd say two to three months for sure.
Okay, and maybe as a follow up I don't know if this is for Michael or for somebody else I know theres been some discussion around the refinancing of 555, 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 we're going on that Steve.
But Steve I don't think we're going to comment on that other than just to tell you that 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.
Good morning.
Just wondering what your sort of how progressed the conversations are with tenants are at Penn both for the large blocks available.
Current on buildings as well as the <unk> 15 of that drove your decision to.
Take the hotel off on it and move forward with the the larger redevelopment there.
Hi, it's Glenn.
So I would tell you were in this experience centers out of Penn One multiple times of day, showing all of the project I.
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 for deals happening.
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 Penn two into the market also daily.
A lot of great presentation that 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 on the tenants can see it physically it will just get better and better in terms of the incoming than People's reception and yes on Penn.
The 15, we are beginning to show people our plan.
The announcement of knocking on the hotel Penn has brought a lot of incoming calls and emails.
I would talk the 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 of 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 the net absorption perspective.
I don't have the exact numbers in front of me. Many many of you know I can't play and they move around a little bit here. There I think we're pretty close to the bottom.
Again, I'm not going to save on 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.
Have told there.
They're folks and their clients to get into the market now that this is the bottom.
They expect a turn from a.
Tenant of market for the landlords market.
But over the next six months so that's on.
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 you.
The announcements on the news flow of New York City reopening of 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.
As far as more details on lean proposal when.
What do you expect to be signed as far as leases in the second and third quarter.
And potentially also traffic in your street retail portfolio.
I'll take the office is the Glen.
Michael remarks in the script in his opening remarks, our pipeline is robust.
And over 300000 feet of leases in negotiation.
We have another $1 4 million feet of flow that are in discussion.
I'll tell you things are picking up a lot not a little.
So the 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 of the building Thats also uptick in week to week on.
On a percentage basis, we are now in 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 in reviewing it.
Okay I'll come on on Mako.
And the retail.
Seeing of major uptick in conversation, that's primarily due to the fact that the survivors of the pandemic and retail has actually been thriving.
<unk> City is probably the last on the list to be opportunistic because the rest of the country has been booming.
The New York City of suffering from the lack of our 60 million tourists being in the streets.
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 prime spaces at better rents.
Okay.
That's very helpful. Thank you my second question is on the tracking stock.
Steve You mentioned in 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 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.
We're working very hard on the very very exciting project.
We're very excited about.
We're targeting hopefully year end.
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.
Yeah.
And by the way of tracking stock is something that has been used very successfully.
Bye.
Folks like John Malone Liberty.
The sidekick.
Greg Buffet.
Barry Diller.
For example at generally what it's used is where you have a business inside of your core.
Which is different.
Which as the different range of growth.
The characteristics.
And so we feel that the pen.
Mega project that we have is different than our core that are core assets and so we feel that investors would benefit enormously by being able to invest in.
On the Penn District, and its characteristics by the way, we do remember its a development company.
For better for worse, and our core assets. So the differentiating aspects of the Penn District.
At what we consider the beat in the epicenter of the New York, It's directly on top of the major transportation hub, which means all of the subways at all of the railroads all of them come into that hope.
And that's an extraordinary statement because you can get in and out of the Penn station, but by the way you are in the in the New York City region.
On one on.
On one ride.
The.
The.
Most important part of it is by the way it's a notice when you look at the number of assets of the scale of the assets and the number of blocks that we've accomplished that pretty much at the north is 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 requirement of elaborate about this who comes into a 500000 square foot building is locked in there is no place to go but of 300000 square foot tenant in our <unk>.
5 million growing to 10 billion, Brian for the 15 million square foot complex has enormous opportunities to grow should they want to in the same building or an adjacent buildings. So I believe that a strategy which involves.
Cluster of buildings in the campus, which also will allow for an enormous series of amenities debt.
On the lesser even if the giant moving and fulfill the can 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 of.
Our buildings.
The land et cetera in the Crystal City complex Vornado 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 objective is is to take businesses, which are different meaning the Penn district is different than our core.
Core office building on Steven Park Avenue.
At allowing investors to have the choice.
We're very excited about it it's a <unk>.
Very important work in process.
And more details will be coming as we.
As we advance it and when we announced.
I think somebody said in their reports last night.
That it was not well received by investors.
Which is troublesome to day, because thats totally contrary to my feelings about it at our company feelings about it and so if that's the case then we have some work to do to talk to our investors and make everybody understands exactly what we're thinking about but we couldnt be more excited.
<unk>.
I think thats it for now.
Yes.
When you lift the key attributes of investment Fernando arguably Penn District would come up with the number one.
Have you gotten feedback.
Really isn't that different to the reason the investment in the company.
I don't understand the question John.
I guess your point that you.
You're stripping out something that's different when reality, it's just the redevelopment of existing assets debt.
Is the key reason the investment for any of them today I'm just wondering why you think it's different.
Well I can say, what I said for the last five minutes over again, but.
The answer is that it is totally different in many many different ways of its real estate, but it's totally different the other thing is when you think about stock performance.
Don't think that our stock could go with or without the.
Getting no credit.
The Fernando stock trading.
Trading price for the Penn District of.
Basically.
So what will happen is that we think that the.
The.
Corpus of the NATO will be the price of related 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 request during the quarter.
So im going to focus on to what I perceive to be positive in your portfolio Steven you're new.
In 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 that at.
The mall and the Penn station Penn District redevelopment both of those assets have huge loading dock huge amounts of the potential space of the car can be carved out and obviously being in the city is incredibly convenient for for studios versus people, having to the truck out to queens or from the <unk>.
Other Burroughs what of your thoughts on converting.
Either of those two assets for some of your other existing that have those sorts of attributes to <unk>.
Yes.
This all began with the top two things number one.
All of us of become network network, Netflix Asics and number two we have Dr. Cummings from.
Entities that are in the.
The soundstage business or that moving stages.
So what's happened is as debt.
The streaming business on.
Of the entertainment business has become an unbelievably powerful dynamically growing business as consolidated and so the companies that are in that business are huge financial entities.
And they all have a handful of Inc.
Even.
The strong desire to be in New York.
Currently there is a significant mainly.
Mainly on the dominant.
Our concentration of talent in New York.
And so it's really basically they say in three places New York, Southern California I.
I guess from one of the kind of the European cities.
But so the point being is that there is a tremendous amount of unserved demand.
So we're responding to the income so we have assets that could.
Service that the demand.
The way.
The two aggressive statement that says the Penn district could be couple of Hollywood East. So don't take that to the bank by the way, but there's a great deal of interest in some of our assets that we are working on.
Okay, nothing other than the fact.
Nothing eminent.
Again, we're just responding to where we see pockets of unique demand in the marketplace.
Look that's that's good and then obviously, it's something new and it would seem to be something thats, good for repurpose, especially large blocks of space.
Yeah.
Yes.
We feel we have assets that could be adopted to the adapter.
For those kinds of issues.
Okay. The second question Steven.
Going back from.
And you guys broke for two decades I've been talking about temptation, we all know the year for years 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 in 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 the hotel pattern, just given that the neighborhood is already.
Already there and there are a lot more people being excited by the commuter hub and <unk> east side access.
Coming for 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 kind of versus getting kind of anchor with receptive.
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 your asset it's a great asset.
Yes.
It's kind of the bite size of the 500000 square for assets.
It's obviously a candidate for a tear down and rebuild.
The tear down and rebuild is a.
The combination that we can grow the size too by the way as the speculated in the past. So we can grow in terms of its more than the 2 million square foot building. If we wanted to just focus on our on site without growing it which would be a million square foot building. The that is an immense financial undertaking which would require.
Record breads.
Of 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 interest cycle.
And.
The retained 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 couldnt 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 an extraordinary price for it but that's not something that's high on our agenda right now.
Okay. Thank you for you.
Thank you on 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 in 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 of set of sort of confidential conversations with our customers, whom we cherish and we respect the competences.
The deal with all of these folks we obviously have them all of our portfolio of all the way from Facebook, the Apple Amazon et cetera.
We can only tell you that day.
This is firsthand the information they love New York and for most of these folks New York is the second largest outpost.
The.
In the.
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 ore they followed the real estate in 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 in the off their interest in New York continues unabated and we think that's a very exciting thing by the way there their interest in New York is basically almost exclusively to the west side of New York, that's where their employees a lot of b.
And Thats, where the culture 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.
Maybe if you think about the tech business right.
Start with the big four of five stunting of the earnings that they recently posted the growth rates that continue to have.
And the aspirations that can do that then you have a entire segment of companies that have now gone public and graduate of the point, where they're mid cap companies doing the best.
Companies in New York is companies, they've got significant ambition they need people to execute on those ambitions I need to be on first right huge amount of engineering talent.
The collaborations required et cetera, and so both from our own tenants and others that are in the market that are can you expand honestly. We just brought the for example of <unk> just went public into our portfolio company.
Companies have significant aspirations on growing their business and as Steve said, New York is a central aspect of that and I think that's very positive for this marketplace.
Michael brings up a very important point and that is.
The the movies and the.
Aspirin.
Our high growth people they want to be in the same cluster and in the same neighborhood as the established huge tick.
<unk>.
And what Glenn likes the best about the new tenants as they are enormous growers and they look the locate in core.
The buildings, which have the potential of where they can add 50000 feet out of 100000 feet on the what we started with Facebook when we felt the placement of seven eight years ago 2000. They started with a couple of hundred valve disease and then they grew to 700000 feet over three of four year period, that's the kind of client debt and loves and Thats what.
And that's what we're trying to.
That's the kind of.
Occupancy debt.
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.
Yeah, I'll tell you, Jamie very diverse industry sector mix.
On a very mix of good mix of renewal important renewal transactions as we look towards our exploration for the next three to four years, along with very good new tenant activity.
A lot of independent strip, but also for other other assets.
So it's a very healthy mix of new renewables, some expansions and really every type of industry sector.
The one industry, that's really leading the charge right now is 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 80 day seven 280 Park.
They are 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've talked about.
Okay can you quantify how much of that is renewals of the one for.
I'd, rather not get into the exact sense of the numbers.
Okay, that's fair.
And then I guess another question for you Steve You had commented on the boom I'm just curious what your thoughts are on the.
For the benefit to New York City from the mine plan.
The outcome is.
Still early but the mayoral race kind of what should we be thinking about either the risks of the rewards.
Just on who's on the game.
So let's say your question is how will the New York benefit from the rule.
And then what's going on with the mayor of ARLP races that correct.
Just what are your thoughts on the mine 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.
So first of all I mean.
I think it's pretty clear of the countries in the bowl.
The only thing that I am uncomfortable about talking about it is that.
The consensus.
Feeling amongst almost everybody so consensus is something to be.
Earned about.
Normally I would like to be I would like to be on the other side of that but it is the consensus of that is also what I believe it I think it is happening if you go the other places around the country.
Which have not been edge.
Shutdown as New York It is happening now 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 of target store on the shelves are empty you can go into some of the luxury retailers.
Across the country on the shelves the renters.
Actually the demand is amazing.
They can't build that of houses et cetera, So I think that's pretty clear.
The the.
The buyers of these policies together with the fact that.
The.
Majority of the leader of the Senate is from New York.
There is a significant.
And fair by the way in terms of when you look at distribution of the distribution of of.
These programs across the across the nation.
There is a significant amount of benefit financial benefit that's coming through the off in terms of the stimulus package.
First in terms of closing the budget deficits for the city and state, which is a universal program across the country, but it's good that we're getting it on 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 respect of the marrow race of.
That's a different kettle of fish.
The other day about politics in New York is that more than two more than 75% of the voters are Democrat.
And the city and so therefore, the mayoral race is not the election is the primary so almost invariably whoever wins the Democratic primary is 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 in those out of that works. So the first the.
The two or three of four leading candidates are certainly all in the race.
I'm hopeful.
At the candidates will all believe in a couple of principles that I think we believe it.
First that.
The quality of life is.
If not the single biggest issue the biggest issue and that is safe streets.
Queen Street.
For example, the homeless situation as we handled.
And so quality of life issues are very important debt.
The number one on my list.
On my list. The second is that we need to be a growing city with growing.
With 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.
A couple of years ago on long Island City is the probably the number one.
Example of that so.
The quality of life.
The safe cities, the homeless situation being business friendly.
Our bi.
The.
Some of them wanted to 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 in 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 I think one of its very interesting things about elections is is that this is a time when the political lean.
Leadership for the current political aspirates actually listened to the population.
And I think that the message that I just said.
Think of the Universal message, that's going from the voters two of the politicians it may be.
Some groups of voters they say.
Income inequality in ratio for the quality is more important others may say business friendly.
On the.
Quality of life, but those for major points are the issues I think in our city and every other grade probably in the world right now.
I am very hopeful that we will get a may of one of the two or three of 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 in future development.
Just wondering on the past you've made comments about the right time to buy and I know the stress has not been plentiful, but given the bullish view on office over the over a multiyear period can you maybe walk us through how youre thinking about value added opportunities on the New York area.
As you as I think you have heard the.
Today on 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 in this.
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 a recession.
Our 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 on the other benefit of that as interest rates are historically low chronically low it looks like theyre going to be low forever, which is something I think the after being a little bit.
Thoughtful 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 I'm disappointed in that but what it is.
I do believe that the best opportunity that we have for capital in our business by far and away is investing in the Penn District, which I think if one has a five 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.
Out there so that's my view.
Okay. Thank you two more real quick ones.
Just on street retail and particularly the vacancies on fifth Avenue can you maybe talk could talk to us about where are we sticking on <unk> then just more premium of.
Corridors, where are we in terms of.
Rent levels that are low enough to attract the.
We did has really come back and start signing leases just wondering how do you. How do you start to set up some of the the vacancies that you have in the portfolio.
As highly as high on 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 go.
There is a.
On the way this is a very difficult cycle. Because in addition to everything else, we have the 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, it's the cycle. So there is lots of the vacancies. The first thing that happens is that the vacancies are scooped up.
By a group of tenants, who realize the value and who have business models that can operate and thrive with reasonable rents.
When the vacancy starts to get to be absorbed the rents rise.
During the whole process from.
The highest quality space.
<unk>.
<unk>.
The man commands the highest ranked in the highest demand.
So that's beginning to happen now as high of a set of few months ago. The retailers that have thrived are beginning to recognize that this is the bottom and have the.
Beginning to recognize that they want to add and EBIT and New York aggressively.
At this price point.
The unique important.
<unk>.
The sites. So an example of that is that we did the deal with <unk> on that.
It is an average of 57th Street recently, we extended the lease with Pas on Madison Avenue at 60 of Street 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.
Thats meaningless, that's the rent that rents will disappear in the year.
And so what's happening is the the.
The smart players the players will have the business model that works are beginning to absorb for good space.
That will cause the market the shift in a year or 18 months or so youll see a totally different market and in three years from now you will see a monumentally different market, which will be driving with much higher rents.
Great and then just one quick clarification on Facebook can you.
Can you maybe remind us the.
The contribution the.
The GAAP contribution debt there the series of some of that already recognized in the number then just how does that ramp over the next six to 12 months.
Yeah.
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 most recent deal that we did with Facebook with 730000 square feet is a very height of the.
Derrick to.
To give you a feel for the courage it takes for even somebody of Facebook scale of the slides a lease.
Multi multi multi $100 million commit financial commitment and the.
In the.
Some are if you remember.
The space books.
Lease, which cover several of the 30000 square feet.
Dan.
And Farley is totally unique space that we believe and I think they believe is unique across the country for where it is for 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. They are very excited that 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 in office concessions I was just curious was that of reference to concessions from maintaining the current level of or a return to pre COVID-19 announce.
For now I'm, referring to is stabilizing as the.
During the pandemic not free we're not back the pre for sure. The goal is to get back the pretty we're not there yet but they have stopped rising for sure. So I'm talking about in the current environment. During the pandemic staying the same comment about market. The market has the tightened up a little bit when the market tightens up the concessions will tighten up as of.
Well.
Got it and then.
Just a quick question for me on the and any update on the ground lease that at 10 one.
No.
Got it and then a bigger picture question on for.
Few of the non office assets you mentioned in the annual letter.
How do you view alright.
Non office opportunities like the studios gaming et cetera.
As a percentage of the overall company, how big some of the non office opportunity to speak.
That's an unanswerable question. The reason I put that in there with I think that our shareholders have.
A.
We'd like to know.
Some of the things that of parking below the surface, even though they may not be.
That imminent. So for example of gaming is an interesting thing.
There are everybody that follows New York knows.
Of that there are three gaming licenses that are yet to be issued in the New York.
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.
Of stuff in New York knows about this.
Now those three licenses are scheduled to be released in 2023, but there has been a great deal of speculation in the press that that may be accelerated earlier because of.
The.
The budget deficits et cetera.
The urgency maybe off of that a little bit because the federal government.
Those deficit, but who knows.
So.
We have as we have we have probably the largest portfolio and we have been receiving multiple income from the gaming industry.
Operators, who we will be applying for those licenses in competing for those licenses.
And so.
The inquiries that we have gotten had been for patent properties 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.
I mean, we have.
We realize that there is in the enabling legislation, which was passed for five or six years ago.
There's a prohibition against gaming in Manhattan.
All of that sort of the disconnect why are the operators coming in in multiple inquiries about our assets when there is a prohibition.
So the market is sort of saying well maybe that prohibition for could make a lot of sense of et cetera. So when you think about it there's going to be three licenses issue.
It does make sense that one would be to the east of.
Long Island region, one would be to the West Coast region, and then there's the third well.
And as I wrote about this preferably short was doesn't make a lot of sense for the third license for the issue and direct competition for one on long Island. The one question on that leaves of Manhattan, which may be the Golden Goose in terms of getting revenue for our school systems and what have you. So is it possible to predict how this comes out.
Multiple assets that are of high interest to 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.
We'll see where that goes but you can discount that the zero.
Your spreadsheet.
Although if it did happen it would be it would be.
The financial the interesting we have no no no interest in being in the gaming industry or being an operator or anything like that we are a real estate vendor that's what we do.
With respect of the.
Soundstage business, it's exactly the same story.
We are a real estate lender, we are not going Hollywood.
Although.
I think some of us like to have a bit parts of where.
Whatever.
And we are responding to the incoming from an industry, which of the streaming industry, which is unbelievably Hot day.
Have a great deal of interest in being in Manhattan, because that's 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. These.
These will undoubtedly not become large parts of our business, but who knows.
Just to remember I said you can look at.
On the Penn District could become Hollywood Hollywood East It will for sure, but it's an interesting thing for sort of front. The slides about the then you're all of these things as Steve referenced are 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. We look under every rock how to do that.
You got the you got the stream business, which is booming Steve just talked about the gaming dynamics.
And so on.
Our objective of every day, we come to the Orbis, how do we maximize the day of our asset look every different direction and so anything we may do here would be accretive to what we have today.
And that's what we do on every asset write a lot can't be repurposed, but some of these kansas.
Great I appreciate the color and then just a very quick follow up if I may you mentioned the budget deficit.
Is there any potential given the fiscal concerns to potentially getting further density at or around kind of the start.
There is a GBP of general project plan, which was <unk>.
Introduced by the state Economic Development Commission.
Wood.
<unk>.
Take the assets that circle.
Penn station.
Supplied more of this is that debt is a pending initiative, which has been promulgated by the state.
And there are two things.
Sort of involved in that the first is that everybody everybody.
Is in favor of improving Penn station from a logistics point of view from a traffic point of view from the usability point of view and from an aesthetic point of view.
So the state government.
And the railroads are actively involved in multiple attempts to do that which involves of.
The public money.
In addition, it's a.
Hey.
Totally accepted.
Land planning principle.
That's the most density in any city should these AD and surrounding the transit hub.
That's us so that's in process now the.
It's going through community comment periods et cetera.
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 temptation and the Merrell I think Jamie you asked about the macro situation.
But when you look to Albany, they just passed for billions and taxes on.
On the on the wealthy which are really the business leaders and there is of the people who are leaving at the same time salt repeal doesn't look likely so Steve how do you think about Penn station and you mentioned that there's some pushback on the tracking stock how do you think about youre, putting billions of dollars of investment into the Penn station area.
When Albany seems to be R&D, coupled with the Amazon fiasco of few years ago seems to almost be encouraging people to relocate how do you how do you sort of reconcile those two.
My children of want me to go to Puerto Rico.
Look New York, There will always be the New York, New York will always be great.
So we will always be a high tax place to live.
And we'll be we'll continue to be the center of Commerce.
We will continue to be the the business capital.
Of the United States.
Now.
I.
I agree with you that the.
The folks in various governments by the way the the.
The price of that May come out of Washington in terms of taxation.
But it may be of second Hunter 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.
It is something that is happening it's happening all around the country is more.
Happening more aggressively in California by the way.
And California, California folks.
We do.
Texas, and New York folks folks.
The Florida, what I'm, saying basically is the backbone of the New York is not the 20th of Dirty hedge funds.
The trillion are going.
Boeing.
The Florida or wherever the backbone of New York is the range 500000, even 1 million $1 million, earning.
Management people in their prime in their forties, who are raising families et cetera, whose jobs.
While not the heads of the of businesses and can live anywhere whose jobs and future dependent 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 north will be fine and as we see it.
People like JP Morgan Chase building, the new headquarter building et cetera, the businesses that debt.
Debt or I'm, not talking about the entrepreneurs, who can live anywhere.
And they are of very small number of people logo, the very exponentially for the mass of the talent that New York has pretty much is spending in New York has to stay in the once the stay in New York loves to say most of the most of the live in New York and has done differently.
Three of these unique jobs on.
Yes, but Steve when you look at New York share of GDP. It was 11% two decades ago now its down to seven so it's clear that the economic growth elsewhere is outpacing and that sort of seems to be something where new York depends on it on it.
The work morals that seems to be the biggest risks on here.
Well the answer of that is that New York is not.
Not growing as fast as some of these other smaller places of growing but it's certainly not contracted.
We still think there will be the demand for our product.
I'm going to set you up it gets you a date the Gulf the orbit.
And talk to all my friends at all of it because I think you have a lot to say.
That's why we are we like right of getting credit 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 for everybody. We appreciate your participation. We appreciate your interest and provocative questions and we certainly appreciate your interest in our company.
When's the next critical Tuesday August or so we will see you. If we don't see you before and we're dying to see you in person.
The 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 in our next quarterly call is.
Tuesday August the Tuesday August 3rd set of the clock for CV events. 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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