Q3 2021 Vornado Realty Trust and Alexander's Inc Earnings Call

November 2, 2021

Good morning, and welcome to the Vornado Realty Trust third 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.

The end of the presentation. During the question and answer session at that time I base Press Star then one on your Touchtone phone I will now turn the call over to Cathy Creswell director of Investor Relations. Please go ahead.

Thank you welcome to Vornado Realty Trust third quarter earnings call yesterday afternoon, we issued our third 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.

W. W 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 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 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, 2020 for more information regarding these risks and uncertainties.

Call May include time sensitive information that maybe accurate only as of today's date.

Company does not undertake a duty to update any forward looking statements on.

On the call today from management for our opening comments, Steven Roth, Chairman and Chief Executive Officer, and Michael Franco President and Chief Financial Officer. Our senior team is also president and available for questions I will now turn the call over to Steven Roth.

Thanks, Jackie and good morning, everyone.

I begin by saying that I am feeling quite optimistic about the economy about New York City and about our business.

Sydney is recover rapidly.

Every market is a case in point.

And the vicious declined to seven 7% occupancy.

Nothing like that but nothing even close to that has ever happened before as renters gave up their apartments and the work from anywhere period.

Now having recovered to pre COVID-19 occupancy a little higher than pre COVID-19 risks.

This will go down as the most rapid V shape rebound with history.

Public trust as utilization rates are picking up and public transportation is of course, the lifeblood of the city restaurants in sporting venues are literally Jim Peck at Broadway and other cultural venues have reopened with travel restrictions.

<unk> coming off this month's international tourists will be with turbine.

You can see increased automobile and pedestrian traffic everywhere.

Vaccination rates among office workers are at high levels I'm guessing around 90%.

We're hearing unanimously that our tenants want their employees back in the office or has occupancy has been climbing. This week, we are now at 43%.

I must admit that our tenants.

We are a little frustrated as to how long the return to work processes taking.

But there is no doubt that worked in office will win over work alone at the kitchen table.

Key things, we are hearing everyday our health <unk> wellness culture collaborations purpose productivity socialization all under the mantra of its time to get back to work.

While the timing of complete return to the office of each company's hybrid Atlanta still unknowable. It is clear to me that the offices.

Will be the center of work ends up success.

Importantly, our business is rebounding on the trajectory of recovery or return to growth Michael will cover our operating results in a few moments we had a very good quarter and feel good about the trend lines of the future.

Many companies throughout the economy are experiencing significant post COVID-19 pickup in activity and we are as well Glenn and his team are as busy as they have ever been with deals in all of our assets.

Citywide third quarter leasing volume reached its highest level since 2019.

Our tenant store activity and the volume of leasing proposals. We are working on particularly large proposal is as robust as companies are thriving.

Clearly looking to grow.

Heightened activity demonstrates the importance of the office to their businesses.

Most of New York, its infrastructure and scale and its deep talented and diverse workforce continues to give me off the dramatic competitive advantage in particular, the tech sector that there continues to be voracious appetite for space in our sub markets in New York has clearly emerged as the second largest second boosted.

The pickup in the country.

Our activities in the Penn District of full steam ahead, here's the latest.

Finally, we are targeting opening the food Hall and advised Avenue entrance by year end base.

Facebooks tenant work has proceeded with first employee occupancy scheduled for second quarter 2022.

At the Moynihan train Hall, we have completed 22 retail leases.

We are gratified at validated that Starbucks reports that one there is no more edge storage dredging number one out of its 190 Manhattan locations.

Infestation, our long Island railroad concourse construction is about one third complete we will now on both sides of this heavily track the traffic concourse it will be a big win for us.

The 34th Street half of the pen one lobby is open.

Calculus come take a look our unique three level world class amenity offering will open shortly and the other half of the pen one lobby, which phuntsok 30 surgery, we will complete it will be completed in the first quarter sweat the details.

Let's turn to our full building transportation transformation is well underway on schedule and on budget. The job is largely bought out.

The demolition of the hotel Penn will begin this month, creating the best development site in the city.

Both office and retail tenant interest is high and the Penn District with multiple large office users now focused on two.

Let me review again, our Penn District financing plan.

Capital required to complete Farley and one two is about $1 billion.

Before <unk> and that will be paid for entirely from our cash on balance sheet.

Further Farley pattern, one and Penn two are free and clear unencumbered by any mortgage debt whatsoever at.

And most importantly, as these great assets come online they will produce a $200 million incremental additional annually.

The Manhattan retail market has bottomed and will take some time for it to start rising again, but leasing activity and tenant inquiries are certainly picking up as residents office workers at tours with certainty decision.

Europe is still a most favored location for retail is a top of their game.

A particular note is our recently announced deal with Wegmans the Premier grocer in our region.

770 Broadway the Facebook building replacement Kmarts and that's some big uptick.

We also completed retail deals in this quarter with luxury bags and foodservice.

We have now completed the retail tenants are 595 Madison Avenue, the Fuller building with luxury tenants funding at <unk>.

Both LVL makes brands and Chris I'll, just I'll add Stefano Ritchie.

As you know we sold three Madison enable U S Street retail assets this quarter and are contracted to sell to Soho Street retail assets in the first quarter of 2022, we still believe in high Street retail and believes demand rents and activity have bought it.

Happy to go into detail at the Whys and Wherefores of these sales and Q&A.

We reaffirm.

We reaffirmed the updated guidance of our retail business discussed in our last earnings call for 2021, we still expect to do a little better that cash NOI of $135 million.

<unk> 2002, the guidance of cash NOI of $160 million.

For 2023, we guided cash NOI of not less than $175 million.

Yeah.

Pardon me.

Lastly on the topic visual was rent collections you should know that rent collections are now and have been for a while at essentially 100%.

Collections on the limited number of rent deferrals that we've granted during the crisis are also running at essentially 100%.

The topic Du jour today as tenants employee occupancy rates companywide. This we are now at 43% and that rate has been growing nicely since the summer.

We are able to harvest lots of information about usage as employees bad yet.

At many other operating statistics robot building level of technology are building population by popular building populated by financial sides market makers and traders enjoy occupancies in the seventies.

Another factoid, the busiest day of each week as Wednesday, and another factoid the number of unique individual employees, who came to work in the month of October was 61%.

Finally, let me spend a minute on sustainability, where we can continue to be the leader radio was recently selected as a global sector leader for all office rebuild diversified risk losses.

In the 2020 global real estate sustainability benchmark.

Christy.

Oh, the grid as we survey our <unk> score of 94. It was our highest total score. The date. We also placed second out of 94 publicly listed real estate companies in the Americas, who responded the grizzly, including most of our office peers kudos to Dan Hogan and his team for their leadership.

Thank you Michael.

Thank you, Steve and good morning, everyone I will start with our third quarter financial results and then end with a few comments on the leasing and capital markets.

The recovery in New York City occurring as Steve described in his opening remarks, so as our business and financial results.

Third quarter comparable <unk> as adjusted was <unk> 71 per share compared to 61 for last year's third quarter, an increase of 10 or 16%.

The increase would have been 26%, but for the once every three year Mark real estate tax increase which is largely reimbursed by tenants next year sort of a timing issue if you will.

We have provided a quarter over quarter bridge in our earnings release on page five in our financial supplement on page seven the.

The increase was driven by the following items.

10 cents from tenant related activities, including six cents from the commencement of new leases and four cents from the non recurrence of straight line rent and tenant receivable write offs impacting the prior period.

<unk> from the continued improvement of our variable businesses.

<unk> from the acquisition of our partner's 45% interest in one Park Avenue in August and <unk> from lower G&A, resulting from our overhead reduction program last December.

The total of these increases is partially offset by the following decreases six cents from the already mentioned real estate tax expense accrual due to an increase in the triennial taxes thats value of the market, which as I said will be largely billed back to tenants beginning of January 2022.

<unk> from an increase in other miscellaneous expenses, primarily related to our new preferred issuance, partially offset by interest expense savings.

Our third quarter comparable results are ahead of the 2024th quarter run rate, we discussed at the beginning of the year and on our last earnings call as is our expectation for this year's fourth quarter.

We had several non comparable items in the quarter as well, which total about <unk> 11 per share of income.

With respect to our variable businesses, we are continuing to see a recovery as the city returns to normal sign.

Signage is picking up nicely with healthy bookings continuing in the fourth quarter.

BMS is now performing near pre pandemic levels, a garage is should be fully back in 2022, and finally, a number of tradeshows have successfully taken place, albeit with lower attendance, primarily due to travel restrictions.

Other than hotel hotel pens income, we still expect to recover most of the income from our variable businesses next year with the full return in 2023.

Companywide same store cash NOI for the third quarter increased by two 8% over the prior year's third quarter and would have been eight 1%, but for the aforementioned additional real estate tax expense at the mark during the quarter.

Our core New York Office business was up seven 6% or.

Our retail same store cash NOI was up 14, 2% primarily due to the rent commencement on new leases at $5 95, Madison Avenue, and four Union square, South and lower real estate taxes.

Our office occupancy ended the quarter at 91, 6% up 50 basis points from the second quarter, which we believe represented the bottom for our office occupancy. We expect this figure to keep moving up from here based on the leases we have out for signature and in negotiation.

Retail occupancy was consistent with the second quarter at 77, 2%.

Now turning to the leasing markets.

New York leasing volume reached its highest volume since the onset of the pandemic with more than 7 million square feet leased during the quarter.

<unk> growth continues its upward trajectory.

Asking rents and concessions have stabilized for high quality buildings, even improving in some submarkets and sublease space has begun to be absorbed or removed.

The theme of flight to quality as continued quality of the asset strength of the landlord and access to transportation all continue to be the main focus for tenants coming out of the pandemic and we are a major beneficiary given the quality of our portfolio and the capital we invested over the past 10 years to redevelop our assets.

Notably 65% of the deal volume in the city was new and expansion leases led by 15 deals in excess of 50000 square feet.

The majority of leasing action is being driven by the tech and financial service industries, which accounted for 60% of all activity.

We enjoyed a solid third quarter.

27 office leases totaling 757000 square feet with average starting rents of $77 per square foot and positive GAAP and cash mark to market of four 2% and one 4% respectively.

The highlight for the quarter, which also happened to be the largest lease done in the market was an early lease renewal with Interpublic group for 514000 square feet at 100, West 30 <unk> Street.

This important transaction reaffirms ipg's commitment to the Penn District, and resolves what was our largest 2023 exploration.

Importantly, we also executed on a full for expansion with Google at 80, 510th Avenue, increasing their total footprint of the building to just under 300000 square feet.

Our buildings, which cater to financial service users continue to thrive during the quarter deals. We completed include 52000 square feet at 280 Park Avenue 30, 37000 square feet at eight at 87th Avenue, and 19000 square feet at 650 Madison Avenue.

We are busy across our portfolio with more to come our leasing pipeline is very strong.

We have 1 million square feet of leases in negotiation with an additional one 5 million square feet trading paper were in advanced discussions.

Our office explorations are very modest for the remainder of 2021 and 2022 with only 936000 square feet expiring in total representing only 5% of the portfolio and 189000 of this square feet is in Penn one and Penn two.

2023 office expirations totaled one 5 million square feet of which 350000 is in Penn One and Penn two this total is down significantly since last quarter due to the Interpublic group lease renewal.

Retail leasing activity in the third quarter included 10 leases totaling 111000 square feet with average starting rents of $110 per square foot and positive GAAP and cash mark to market of 45, 3% and 19, 6% respectively.

Largest transaction for the quarter was the previously announced 82500 square foot lease signed with Wegmans at 770 Broadway in.

We also completed deals with Citibank at one park and capital one is 731 Lexington, reflecting the return of the banks to the marketplace.

Finally, a word on the capital markets. The investment sales market is picking up again with a couple of recent strong office sales. In addition to several other assets now in the market.

Investor interest in New York is clearly rebounding as they see the city has bottomed and find the relative value compelling.

On the debt side pricing in the financing markets is as tight as we've ever seen and we continue to be active in refinancing our debt to take advantage of the low rates. In September. We also took advantage of the tighter preferred market to refinance our $300 million five 7% perpetual preferred shares with a 445% issuance at the same site.

<unk> or <unk>.

Attractive rate for forever money.

Finally, our current liquidity is a strong four for $4 3 billion, including $2 268 billion of cash and restricted cash and to $1 75 billion Undrawn under our $2 75 billion revolving credit facilities with that I'll turn it over to the operator for Q&A.

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 ASCII, if youre using a speakerphone you may need to 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.

Caller will be allowed to ask a question and a follow up question before we move to the next caller. We have our first question from Emmanuel Korchman with Citi.

Hey, good morning, it's Michael Bilerman here with Manny.

Maybe if I can just start on putting capital to work.

Your current appetite to go out and.

Buy assets you, obviously did the park Avenue buyout of your joint venture partner.

And so.

Is that something Michael you talked about the market with increased.

Activity that you want to participate in or are you just holding your capital at this point to pursue all the development and redevelopment.

So there is activity and maybe just talk a little bit about.

If you are going to go external whether you look at other property types rather than just office.

Sure Good morning, Michael.

Look the in terms of the capital deployment.

We look at everything in the marketplace as you know theres been very little its transacted.

Probably the first 12 months of the pandemic.

And frankly.

With short term rates at basically zero in long term rates quite low as well and there's been very little pressure on sellers. So you've seen very low transaction activity.

Starting to see that pick up now with assets being brought out.

Yeah.

And to date.

The buyer universe, I would say generally been driven by players that use higher leverage although we are still in the early days so to the extent, we see compelling opportunities.

We would act on those so far the pricing is frankly, not been compelling and as we compare both to what we're doing in Penn and prospectively, what we can do in Penn.

Those continue to be more attractive than just buying another asset that we're going to stabilize at a 5% yield after spending a lot of money in capital to lease it up or just to buy it so.

We look we're going to continue to look if we find something interesting we would certainly act on it we have the capital to do that but.

To date capital continues to price assets.

Quite quite aggressively notwithstanding the volume of activity is still down.

And then can you just.

Michael Michael Hang on yes, Steven.

Let me just get bored and.

Let me just add a little bit to what.

Michael Franco said.

Sure.

<unk>.

There has to be accretion.

Anything that we would buy right down the math is topsy turvy, so our stock sales in the marketplace I don't know what it is probably close to an 8% cap rate.

Assets.

Our.

Pat.

Office buildings that we would even consider all sell at sub five.

<unk>.

That math is topsy turvy, it makes no sense to buying assets were 5% and by the way when you take the capital that's required for these asset servicing assets year over year, maybe the cash on cash is 4%.

When our stock is selling for.

So anything that we would do there would be dilutive to shareholder wealth and obviously, we're not going to do that.

If we saw an empty building by the way.

We can buy where we thought we could create a great deal of value we might do that.

Generally speaking, it's very difficult to for.

For us the transaction flow right now and so we.

We do have.

The other side of that is we do have liquidity, we do have a very very very.

Dry powder balance sheet.

You will have great opportunities.

Accretively spend that capital that's on our balance sheet independent so.

So that's our main focus right now.

I'm, just sort of doubling down with what Michael said.

Well that's helpful and maybe just as a follow up Steve just on the Penn District, where do things currently stand in terms of pursuing the tracker.

I know, it's probably a little bit longer than you would like to have everything prepared and ready to go. So maybe just give us a little bit of an update where you are internally in terms of preparing all the financials and getting all that done and also externally with a lot of new governmental partners coming in.

Two new seat.

How is that all playing into sort of the timing of getting this tracker out to the marketplace.

Michael Thanks for that question.

I remain committed to the tracker.

And let's understand what I remain committed to it.

We remain committed to allowing our investors.

<unk>.

Our stable core business on the one hand.

And then the Penn District, which is our high growth.

Development.

Segment of our business and to be able to invest in either of those individually or.

Both of those.

We are.

Very very very strong believers that we will create enormous values in the district, we will create a district that will command premium pricing.

And we couldnt be more excited about it.

So I remain committed to it number one number two is we are well along with the paperwork.

You bet would be required.

To launch.

We recognize what you said and that is we are seeing a complete turnover in government.

Senior government officials.

And we have pending matters with them and so.

Obviously, we're going to make the slides a little bit.

As we.

That all plays out.

Very very very optimistic that the new government leaders at the city and state.

Will be.

Let me see how do I say this will be.

Truckload.

We'll be business friendly.

Ed.

Recognize that dependent.

Is something that requires as demands their attention and we believe we will get that.

They are positive attention.

The next thing is red.

Most of the analyst sub skepticism about the the idea of separating the Penn District.

I'm very surprised at that.

There's sort of a.

As soon as yesterday about this as I've ever been about any project in my career, so I'm, having trouble understanding it.

Also we have had conversations with multiple multiple real estate investors as opposed to stock investors who share our our judgment is my judgment about the potential deferred district.

So but from the point of view of the analyst community.

I'm almost starting to believe that we are in a show mode.

So what that means is that we have.

Knock off some more leasing.

To be able to surface does that use so that's basically what's going on.

No counterparty.

<unk>.

In the tracker.

We have no timetable, it's going to slide a little bit not too much.

And we think it's going to be massively successful.

Yes, and I appreciate those comments and look Steve I think part of the skepticism out of the investment community.

I think everyone recognizes what the Penn District represents I've been following your company for.

25 years and we've.

We've watched that area transform.

And it's always been that opportunity.

We will go through the list of things you've called it the big Kahuna.

A lot of other things.

I think it is a similar it's in the same business that you are in.

Even though I would concur with your phrasing that you have core assets and the big development opportunity.

Think trackers thats typically been used where it's a business that.

Different than the parent company.

It has other comments or other things in there in terms too.

To highlight that value your comments about the private market.

Our much more akin to where I think investors sort of want to be able to highlight that value, but to your point you don't want to give up a part of that project to a private that's going to make all the money versus something that you believe should endure to vornado shareholders is that fair.

Comment.

I guess, so I mean, the economy was solid lengthy I didnt really follow all of it.

Yes.

The answer is that I understand the skepticism I said.

Looking at it as a showroom project.

Believe me, we will show you.

Great Alright, thanks for the time Steve.

And thank you. Our next question is from Steve <unk> with Evercore ISI.

Thanks, Good morning, I guess first Michael I wanted to just follow up on your comments about the robust leasing pipeline.

If you could just maybe provide a little more color on.

How much of that activity is for either <unk>, two or some of the other developments.

And how much is for current vacancy or how much of that is is forward renewables I guess kind of a split on new versus renewals would be helpful. Thanks.

I'll, let Glenn take it Steve but the answer is yes.

Glen why don't you give some color on all that.

Hi, Steve.

So it's a very strong mix of everything new deals both in 10, new deals in the core portfolio.

Strong renewal activity throughout all of it and expansions everywhere, we're seeing strength throughout the portfolio. Both in 10 in the core portfolio and all different shapes and sizes with all different industry type things have picked up really well since we last spoke.

And maybe just as a quick follow up when youre sort of talking to the tenants about space needs and space planning.

What is the density is look like particularly on the new deals and how do they compare from a space per employee perspective to maybe deals from two years ago.

So I've said this political couple of calls we've seen no change at all the density.

Youre seeing maybe a different mix of <unk>.

Collaborative space communal space versus cubical office, but generally no change people are planning for the future. They are back at it a lot of them are acting as if its pre pandemic times growth new fresh start all about talent recruitment and moving forward.

Steve in your question and then a lot of the questions or comments in the reports from different analysts.

Sure.

Remains a skepticism.

Two.

Whether new York is going to recover whether people want to be in the office et cetera, and a little bit pick up on Steve's comment I think we're sort of in a show me mode in terms of.

When we put the points up on the board people will see it but it is.

As we look at the pipeline.

I mean, there is activity literally at every building.

All types of users I mean, Steve comment on the voracious appetite of tech.

Stronger now than it was pre COVID-19.

And.

The financial types are booming, we're seeing heavy activity there.

The economy, where companies are doing very well they are in growth mode and thats reflective reflected in our pipeline. So I think the leasing market is sending a very strong signal that new York is going to be fine.

It's going to be one of the winners companies want to locate here and I think youre going to see those stats continue to get posted over the next several quarters. Obviously this quarter was a good start but there is much more in the queue.

Across our portfolio.

Great and then I guess.

Steve Good morning look.

The stock market as you look at the price of our stock.

Just as a company and the industry.

We're all extremely extremely depressed and theyre doubling depressed.

They were pre COVID-19.

There is in the stocks.

In my mind, the sentiment that nobody everybody as insurers uncertain and worry about work from home.

Will affect CBD office.

Okay.

Knowledge that.

We believe two things number one.

Well actually couple of things.

Number one we believe in New York, we are seeing.

And in the field that people are committed Disney off.

And then has to stay in New York that committed to grow in New York.

For the financial services.

Et cetera media industry, the entertainment industry and doubled and tripled for the industry.

Because the bond yield with a scale that can't be replicated anywhere I mean, just if you just take two or three of the leading treatment tech firms. The leases signed in the last 14 15 months and a 15000 engineers to fill that space you can't get that.

Austin or Nashville, or wherever okay. So the scale is new York is winning the day.

Plus the talent pool.

So that's speculating number one number two is.

The business leaders that we deal with every day they understand workflow.

They're grappling with what their policies are going to be what the hybrid solutions are going to be three days in the office food that Philippines and whatever it is they know that rapidly.

Yes, they continue to believe that they offer.

Office space lots of it in fact.

Higher quality office space to recruit and.

And retain that talent. So we're finding in the marketplace of dichotomy between actually a very aggressive and robust demand for space from the Big Boys.

Each of the major industries and the.

Uncertainty.

The scope.

Of work from all in the marketplace.

So we're betting that our tenants know what theyre doing as we think so.

We think that worked from the office when it'll be nipped around the edges by some hybrid thing people work from home some number of days.

But the people, who we thought everybody they want the people back in the office, so thats the way to grow their business.

Just curious about it so we think thats. The answer we are very very pleased with the demand.

Space notwithstanding the uncertainty.

And the securities market.

Great.

Just as a quick second question, Michael Your Tradeshows I know were back a little bit in the third quarter and I know I think last quarter, you had mentioned that.

Neocon was moving in the fourth quarter do you have any sense at this point as to how big trade shows.

Could be in the fourth quarter.

And I guess, what's on the books for next year already and how does the size or shape up to kind of pre pandemic.

We had.

Since July Steve we produced a trade shows including our two largest shows neocon in the Armory show in New York.

Obviously, there were travel restrictions, particularly internationally, which.

Impacted attendance.

So I would say levels are probably closer to half of what they were historically, but they were put on successfully we got the machine working again, and obviously performance year over year was positive. So our expectation is that we're going to put on a full set of.

Tradeshows next year.

We're going to see a substantial recovery.

I think just being realistic we don't think trade shows come back fully in 'twenty, two it's probably 23 before that.

Fully stabilizes, but.

In 2021 overall.

Tradeshows don't contribute a lot to our variable businesses as we currently project.

And in.

Next year, we think we think the number will be several million dollars incremental I don't want to give you a number today, just because we need to spend a little time with our team refine that and obviously, it's a guess, but but we do think the trend line. Now is the machinery is working people are getting used to it international travels open back up we will see a decent.

Recovery next year.

Hey, great. Thanks.

Hey, Steve the overriding the overriding factor is that these tradeshows.

Desperately important to our clients.

The major sales activities for each of these individual.

Each of these individual companies. So the trade shows are here to stay they are really important so we can't predict what's going to happen this quarter next quarter.

Just show that a couple of years out the Tradeshow business will get back to where it was pre COVID-19 and the main reason is because this is a really important business.

Clients.

Great. Thanks.

And thank you so much we have our next question from Nick <unk> with Scotiabank.

Thanks, Good morning, everyone, just going back to the leasing activity, you're talking about the pipeline being pretty strong not that much in exploration next year I mean, how should we is there any preview you can give us about how to think about occupancy and how it could trend in I guess in particularly in New York City office portfolio.

Glenn.

So Michael Michael mentioned it in his remarks, we believe our office occupancy has bottomed with 91, 6%.

And we think it is going to continue to improve quarter to quarter based on the action. We have historically, we were at 90, 697%. So where we are with all due to Covid one way back we feel is getting better and that we have hit the inflection point and going back up.

Okay. Thanks, and then second question is just about the Penn District, and you talked about.

Hotel Penn.

Being the Prime development site in the city.

And going back to your prior disclosures on that you had I think about it in your NAV.

The estimated $500 million for that project, which is about $250 a foot of zoning.

Per zoning I guess.

And I guess Im wondering if thats still the thought on the value of that there and then as well how we should think about 10, one where you have the ground lease reset coming in 2023, if you have any update there and how we should think about hotel.

Hotel Penn at $250, a foot number a good way to think about.

Potential land value reset at 10 one.

We continue to be happy with a number of that.

Alright.

We see no reason to raise it.

Sure.

And with respectively.

The web arbitration, we have no comment.

Okay, I guess just in terms of I mean.

Should we think about that $250 a foot value that was acquired for a hotel Penn being a reasonable number to think about.

Penn one which is right across the street.

No.

But.

It would be inappropriate for us to lead you either way in terms of your internal calculation.

I'm not going to do that I don't think its appropriate.

And im sorry about that.

I'm not going to talk about a very important financial arbitration.

In this format.

Okay, Yes, I mean, just the reason I ask is because you do have that footnote in the supplement talking about the ground value reset could be material impacting the yield on the project. So at some point it would be helpful to understand.

<unk> land value reset there.

Thanks, I think I think I think the disclosure in the footnote is appropriate.

And obviously the final answer is unknowable.

Yes.

We'll go through the process as well.

We'll hope for the best.

Thanks.

Thank you.

We have our next question from Jamie Feldman with Bank of America.

Alright, Thank you and good morning, I'd like to go back to your comments on retail it sounds like you think it could be bottoming here.

Just your thoughts on why and what we should expect going forward.

Yeah.

I mean, Jamie look I think the comments on retail are reflective of what we're seeing on the ground from tenants.

Tenants were.

In a shell for a year.

Obviously, there were a few people on the streets vacant.

They can see was was high and not much was going on right. Now is the transaction machine is working again people are back out on the streets Youre seeing tourism pick up, albeit it's all been domestic so far.

International Tourism will kick off actually in the next week, which should be another shot in the arm for the city.

And we don't expect to snap back to 60 million people immediately but thats.

The trend line from the city being opening and the attendance.

And at sporting events, and Broadway shows and other things is quite good and quite indicative of what we think is going to happen. So.

Retail was one another shoppers out there and they are clearly shoppers out there again.

And we've talked about the flight to quality in the best locations and Thats continuing to occur we'd been a beneficiary of that at a place like a full year for example.

At a place like a $7 70, which is a prime spot for wegmans to go to and fundamentally we're just seeing more interest from retailers by the way that's all Submarkets right.

The tourist oriented Submarkets of fifth Avenue and times Square, obviously, you would expect to be the ones to come back to the last because thats, so dependent on tourism and with that now opening up.

The retailers wanted to see it happen, but again, even there we're seeing inquiry from tenants in both those submarkets rents are obviously down.

Thats inducing demand and so.

There's discussions that are underway in <unk>.

That's occurring so.

That's what gives us I think the confidence to make that statement I think Steve was pretty clear.

Activity has to happen before you start getting rental movement and it's going to take I think a decent amount of activity before that happens so I wouldn't expect rents to rise.

Near term, but.

Once we start getting some pace of transactions.

I think that'll be a shot in the arm for the market.

But to be clear.

This is this is going to be a multiyear.

This is not going to be.

A rapid V shape rebound, it's going to take years for this market to recover.

It may never recovered to the peak.

We're five or seven years ago.

Okay. Thank you.

I guess.

And it has bottomed.

And it will recover.

And think about it this way.

Shut down.

Covid was probably the most dramatic event that any of us have ever lived through that total shutdown of the global economy, I mean, that's never happened before that.

Retail retailers.

Hotels Airlines et cetera.

The suffering was budgeted at all so the first reaction from the retailers was to go into a shell stop everything.

Ed.

Shed liability.

The market with stone cold for the better part of two.

Two years.

People are now understanding that there is life after that people are succeeding the better retailers are actually thriving.

Ends up demand and we are seeing a very very robust pick up in interest and demand we are not seeing an aggressive increase.

And pricing that people are willing to pay so.

We're in a recovery.

Our budgeting.

Providing that the recovery will be slow pace.

Okay. Thank you and then I guess, if you're talking about I'm sorry, it's just a good thing and we did reaffirm our guidance on retail it Mike in my prepared remarks.

Right.

Do you see I know in your prepared remarks, you had mentioned.

The sales I mean, do you see yourself selling more or do you see yourself actually buying going forward.

We.

We certainly are open to buy we are.

Certainly.

Probably the most expert in retail around.

And.

We will buy the highest quality.

Very attractive prices and there hasnt been that kind of availability are offered yet.

Yes.

Said.

Let me give you a feeling for the <unk>.

Five assets that we have either sold or contracted to be sold but thats. All what are taking place okay number one.

Those asset.

This year are losing action.

Actually have a negative.

<unk>.

More than $3 billion.

I think we said in the press release that the occupancy was 30%.

But they can see therefore was 70% that is accurate that it's accurate of course, but theres one factoid that you have to consider.

There is one tenant.

And those five properties that is basically.

A swing tenant who is.

Rebuilding our store.

And so if you take that out we know for sure that that tenant is going to leave in a couple of years, because it's a swing.

Got it.

And so if you take that out I think the occupancy is 11%.

If you take that.

And by the way if you take the.

So when that goes away the earnings are.

The negative earnings are greater than $3 billion.

The capital and the capital that would be required to lease up those five properties.

You have to lease up 90% of them.

It's almost a total lease up job.

Take the tie you take our underwriting as to how long it will take to clear.

I'm up to a decent return.

Our judgment was that for our business.

It's a proper strategy to sell those assets.

The proceeds were assets are unencumbered, there's no debt on the assets so that will bring in $184 million to $85 million of new cash that we think we can put to better use.

Now we are selling Madison Avenue assets so.

A friend.

And they are.

Extremely substantial.

Offshore buyer, who have a history.

Very intelligent distressed buys.

We know that we respect it.

We're friends, we laugh about it to each other.

We expect that.

Fear the Madison Avenue properties will they.

Pardon me and have a very satisfactory investment.

But it will be in our judgment over a 10 year whole.

That timeframe made us to be.

A seller rather than a holder of those assets. So we believe that the buyer will do well and we think the seller Thats us.

Will do well.

There is one last point.

25 years ago Madison Avenue was isolated oasis.

In New York, There was one sub market.

That.

Worked in terms of luxury high income et cetera that was the upper east side.

Over the 25.

So obviously the luxury brands all cluster.

Yes.

Sure.

Our medicine had effectively oligopoly or a monopoly on luxury shopping.

Because all the customers live within walking distance of that at all the tourists basically.

<unk> and upper East side.

Logic.

Over the years that has been diluted enormously so that every sub market whether it be in Tribeca.

No.

Or the upper Westside every sub market now is widening.

With.

Customers want these brands, so obviously over the years instead of having one store in Madison and five.

Five stores one of the meatpacking one chunk in one area. So Madison Avenue has been deleted dilutive enormously it was thats socio demographics.

It also led us to be.

A seller of those assets.

And by the way that thinking is totally different than fifth Avenue and times square, which continue to be.

As normal subtraction.

So as you think about putting capital to work I mean do you still think luxury is the way to go or no you're thinking actually more.

Middle of the road type brand.

Yes.

Rug agnostic to that.

We are retail investors, we love our.

Obviously, our assets which are.

Not really luxury we love our fifth Avenue assets. So we're agnostic as to the price points of our customers, where a landlord business not in the retail business.

Okay.

And if I could just ask.

You had talked about no debt on any of the assets in Penn station or at least the development redevelopment asset what's the plan there to put more permanent capital on those projects and how do you think about using those funds.

We will obviously.

Tablet financing plan for the growth.

The Penn District.

Yeah.

We're very comfortable now having those assets unencumbered at the moment.

I think it's premature to start getting into.

What are.

What we will.

How we will permanently finance those assets if we do.

Our balance sheet.

Our strength is based upon a mix of secured debt unsecured debt lines of credit.

Other current assets are an important part of that so right now we're very comfortable adding those assets.

Covered.

Even more comfortable with having I don't know.

Those assets are worth.

Because a lot of money and many billions of dollars, we're very comfortable having those assets available.

Available as a source of credit should opportunities come up.

Okay, and I assume that helps with the tracking stock if there.

Not encumbered, but does that have nothing to do with it.

The tracking stock will have its own financing plan.

Which we'll get to when we launched the tracker.

Okay Alright, thank you for your time.

The low debt on the tracker is an important part of that strategy.

Okay Alright.

Alright, thank you.

And we have our next question from John Kim with BMO capital markets.

Thank you and good morning.

I realize the tax at the Mart and backward looking but are you surprised by the level of increase.

Just given your renovated asset five years ago over the last year and a half almost two years.

There's been a lot of disruption to the trade show in Uptown office occupancy of the asset.

I was just wondering it's.

You were surprised by the amount of increase on taxes.

I didn't hear the question John.

John look I would say anytime you taxes go up.

47%, you're surprised at the magnitude of that so.

We knew there would be an increase I think the magnitude of surprise the entire market. We were not alone right I think there's been a number of articles written about.

Most of the large landlords have been impacted by similar increases so is high we're certainly going to appeal it.

We don't make any promises on that but.

It is what it is and as we said.

The meaningful portion of that will be reimbursed by tenants beginning in 2022 and.

We're I think we're no different than the balance of the market frankly.

A few years ago you gave.

Indication that you thought you could collect 80% of the tax increase at the tenant reimbursement do you feel like you can still.

Pain that level.

First one from me kind of.

Yes, I mean, I think look it's obviously dependent on the occupancy in the building, which is down a little bit now, but I think in a 75% to 80% is not a there's not a.

Incorrect assumption you know it'll be it'll be in that neighborhood.

Okay.

My second question is on Facebook.

Now I suppose.

Looking to expand in New York I'm wondering if if they do expand at 770 Broadway.

Can you accommodate them without losing Verizon as a tenant.

Okay.

No.

So the net impact would be.

Mike.

Thank you.

Sure.

First of all these are.

Clients.

A pending transaction. So we're really not going to speak about anything, but I'm really not going to get into the detail of it but obviously.

Tenant booths, Anthony said it moves out.

The net result will be.

Pretty much to say.

How are you looking elsewhere in your portfolio.

Say it again.

Facebook looking California portfolio to extend.

We're not going to comment on.

Pending transactions with important clients.

Okay.

Thank you.

And thank you as a reminder, if you have a question. Please press Star then one key luck our next.

Western is from Alexander Goldfarb with Piper Sandler.

Hey, good morning, good morning down there Steve.

So just wanted to go back to Michael's opening questions.

You can appreciate the skepticism I made the original Penn station was around for about 50 years and you guys have been talking about the redevelopment for 'twenty clearly enhanced by what's gone on the west side, but if youre avino shareholder you may or may not be able to hold the tracking stock when it's spun out for whatever fund mandates you have.

And if the whole thing that we've been looking at the past 10 15 years has been this holy Grail of confluence between Midtown South and in the far West side now Penn station is going to be there in Europe Vino shareholder who has held out for that.

How is the tracking stock helpful on that if not every shareholder Ken on the tracker and also.

That's what that's where a lot of that revenue growth or sorry earnings growth is going to come from from those lease up so I think thats the area, where people are grappling, which is how does this help and existing <unk>.

I'll be able to actually own the tracker versus right now they can pencil and model all of this upside that you guys have been laying out.

Well.

If you sell a attractive is that going to benefit from it.

That goes without saying.

Right, but im not a refund can own the tracker because of mandates.

We are we are unhappy with the fact that.

As you say some of our shareholders.

We'll have to sell the tracker we've done the calculation, we think at the margin. It is about a significant transfer.

And.

So.

The.

Fortunate that some investors have to sell it.

But.

Looking at it is the greater good as the investors that could keep it or buy it we think will be enormous.

Enhanced by these by the transaction.

Said another way, we think that the.

Districts future.

Future.

In the larger company.

Where it's dilutive.

Is not as good an outcome.

If it's separated where it's pure pure play for the pet.

We understand what you're saying.

Happy about the fact that some funds will have to sell.

Not large numbers, we think there we think its handle the ball.

But what we believe is the greater good will be enhanced by the by the Ibs.

But it's still a synthetic Steve isn't really that I mean, it's just laying.

Sort of paper.

Paper claim to the it is not like Alexanders, which physically owns those assets. It's just laying claim on paper, it's a synthetic it's not like it's a direct correct.

It is.

The answer is yes.

But that's sort of argumentative Alex.

The debt tracker should.

Perform as the asset.

The underlying assets.

Is that he tracks.

As they perform.

Okay. Thanks, if you think about I think youre alexanders analogy that actually is an interesting one.

Think about Alexanders alexanders as an externally advised entity right. The public owns one third stock.

Stock is done.

When you look at it from the time that development really convinced substantially and that company has done extraordinarily well.

And so I think the corollary here is actually quite similar right where.

We are in the <unk>, yes, we've been talking about it for a long time, but the reality is the development really just commenced in the last couple of years right is underway right now with Farley <unk> and obviously a lot more behind that so we've talked about the public owning.

A portion of it not all of it probably less than half of it.

And so.

If you think about it it's kind of like Alexanders in the sense of that public tracker is sort of an externally advised entity managed by vornado very similar Alexander's and in terms of the shareholders that there is no. The only shareholders that are going to be forced to sell this or some of the index funds.

The way not all of them most of them, but some of them any investor that has a active investor that makes.

Dedicated decisions about specific companies can continuing on both pieces that way they can stop up even more of the trackers. So.

We talk about this like those for sellers Theres no buyers on the other side, we know for a fact there are investors that have it.

Tremendous belief in the Penn District wed like to just own the Penn District like the higher risk higher reward believe in with what's going on in that part of the city and in what we're doing and prefer to own that directly and not with everything else. So.

There's going to be obviously, it'll settle out when we distribute it and there'll be some net selling from some of the funds as you alluded to that have to sell but we also think there is a group of investors that are not in vornado that sop up that demand and our goal is for that to trade very well and I think youre alexanders analogy.

Back that is a very good analogy in terms of the trajectory of that company once the development commenced.

Okay, and then Steve going back to the politics clearly the mayor race, we can only do better.

And either candidate is obviously much more pro business much more understanding of the city than the prior but when you look at the Governor's race.

<unk> is definitely tracking to the left as she tries to veer off.

Turning to state Attorney General James So if you look at what's going on in the good eviction, probably end up with statewide rent control why are you optimistic at the state level that it will be as productive and supportive of real estate and business in New York as the mayor of election win.

When you look at the politics, it seems to be taking the opposite angle.

I can't answer that question Alex.

We've met the governor.

She is a seasoned politician with a 25 year career.

She has.

I agree of being supportive of business.

Understands what's going on.

She understands the discipline and we believe that she will be a perfectly fine.

Sure.

And other than that.

I can't get into it.

I wanted to get back for a moment to Michael's verified answer to your question about the tracker.

There are tradeoffs here.

In order to create a separate legal entity.

A spinoff for example, which we have done twice before with Jbt's urban edge, we would have to have a totally separate management team totally separate board totally separate everything.

Untenable, that's not a doable.

Prospect edits untenable and we can't do it.

We need the same people.

With our leasing and development team for example, okay.

So it would be it would be very.

The additional overhead would be enormous.

So the tradeoff is that we can use the same team the.

The same board the same governance, but we can get investors to be able to.

Invest in whichever part of our company they wanted to or both okay.

It's interesting I expect that many investors will continue to hold both securities, which is actually which is actually the same thing as if we did nothing in terms of separating attractive but at the margin there will be a new group as Michael said of investors, so actually have enormous levels of enthusiasm.

For the Westside of New York.

Or check coming into NOLA and for what we're doing in the Penn District and at the margin. We think it will be a very successful very successful investment.

Yeah.

Okay. Thank you Steve Thank you Michael.

And we have our last question from Ronald Camden with Morgan Stanley.

Yes.

Two quick ones from me one is just going back to sort of the retail portfolio.

Curious in terms of just more commentary when retailers are looking at space today.

What are they focused on is it occupancy costs of that gross margin is that foot traffic levels, just sort of what's making the marginal decision for retailers. Maybe today that may have been different sort of pre pandemic and so forth.

It's the same as it's always been forever and that is what sales volume they do in a particular store versus the cost structure versus the rent.

Things are a little different today than they were some stores in Manhattan.

Flagships advertising for the brand.

Gone by the wayside.

Retailers today want to make money at each individual store. So the number one statistic is what their expected sales volumes will be versus what the.

What the health index would be the occupancy cost.

Great and then if I could just follow up on the wegmans.

Deal.

Just any any sort of color on what the opportunity could be in the portfolio is there anything different about where their lease structure versus the typical structure any any color would be helpful.

I don't think I have anything else.

Just to add there I mean.

We're replacing first of all 770 Broadway.

Book building.

We're replacing Kmart with Wegmans Thats a huge uptick.

The rent is significantly higher.

It's a traditional lease at the long term lease.

Very very excited about it.

And there may be other opportunities with wegmans and the rest of our portfolio.

Yes.

Great. That's it for me thank you.

And thank you.

We have no further questions in queue I will now turn the call over to Mr. Steven Roth, Vornado, Chairman and CEO for closing remarks.

Thank you.

One final and important note before we had this call and that is that Cathy Creswell. This is Cathy Creswell his final earnings call before she retires.

I want to thank her for her many years of <unk>.

Service and friendship, we wish her well and I'm sure everybody on the call wishes as well.

See you at the next call thanks very much.

Okay.

And thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.

Okay.

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Good morning, and welcome to day Tornado Realty Trust third 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.

A presentation during the question and answer session at that time I believe press Star then one on your Touchtone phone.

I will now turn the call over to the new happy Creswell Director of Investor Relations. Please go ahead.

Dot 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.

The 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.

Thanks, Kathy and good morning, everyone.

I'll begin by saying that I am feeling quite optimistic about the economy about New York City and about our business.

Sydney is recovering rapidly.

Every market is a case in point.

Suffered a vicious declined to seven 7% occupancy.

Nothing like that but nothing even close to that has ever happened before as residents gave up their apartments and the work from anywhere period.

No haven't recovered to pre Covid occupancies are either higher than pre COVID-19 risks.

This will go down as the most rapid V shape rebound that history.

Public trust at utilization rates are picking up and public transportation is of course, the lifeblood of the city.

Restaurants, and sporting venues are literally jam packed and Broadway and other cultural venues have reopened with travel restrictions coming off this month's international tourists will be determined.

Can see increased automobile and pedestrian traffic everywhere.

Vaccination rates among office workers are at high levels I am guessing around 90%.

We're hearing unanimously that our tenants want their employees back in the office or has occupancy has been climbing and this week, we are now at 43%.

I must admit that our tenants.

We are a little frustrated as a longer return to work processes taking.

But there is no doubt that worked in office will win over work alone at the kitchen table piece.

Key things, we are hearing everyday health wellness culture collaborations purpose productivity socialization all under the mantra of its time to get back to work.

While the timing of complete return to the office and each company is hybrid plan. That's still a knowable. It is clear to me that the office is still and will be the center of work ends up success.

Importantly, our business is rebounding on the trajectory of recovery and return to growth Michael will cover our operating results in a few moments we had a very good quarter and feel good about the trend line for the future.

Many companies throughout the economy are experiencing significant post COVID-19 pickup in activity and we are as well.

And his team are as busy as they have ever been with deals in all of our assets citywide third quarter leasing volume reached its highest level since 2019.

Our tenant tour activity and the volume of leasing proposals. We are working on particularly large proposal is as robust as companies are thriving are clearly looking to grow and the heightened activity demonstrates the importance of the office to their businesses.

Lots of New York, its infrastructure and scale and its deep talented and diverse workforce continues to give me off the dramatic competitive advantage in particular, the tech sector that there continues to be voracious and their appetite for space in our sub markets in New York has clearly emerged as the second largest or second most important.

Pick up in the country.

Our activities in the Penn District of full steam ahead, here's the latest at.

That probably we are targeting opening the food Hall and advised Avenue entrance by year end.

This looks tenant work has proceeded with first employee occupancy scheduled for second quarter 2022.

At the Moynihan train Hall, we have completed 22 retail leases, we are gratified and validated that Starbucks report said, it's more of a hands. There's no more NCR is trending number one out of its 190 locations.

Infestation, our long Island railroad concourse construction is about one third complete we will now on both sides of this heavily pretzels traffic concourse it will be a big win for us.

The 34th Street half of the Penguin lobby is open it is spectacular come take a look our unique three level world class amenity offering will open shortly and the other half of the pen one lobby, which funds 30, virtually we will complete will be completed and the first quarter sweat the details.

Let's turn to our full building transformation transformation is well underway.

<unk> and on budget the job is largely bought out.

The demolition of the hotel Penn will begin this month, creating the best development site in the city.

Both office and retail tenant interest is high and the Penn District with multiple large office users now focused on phase two.

Let me review again, our Penn District financing plan.

Capital required to complete Farley and one two is about $1 billion.

Before <unk> and that will be paid for entirely from our cash on balance sheet.

Further Farley <unk> and one in pads do our frankly, our unencumbered by any mortgage debt whatsoever at.

And most importantly, as these great assets come online they will produce a $200 million of incremental additional annual or.

The Manhattan retail market as Bob who will take some time for us to start rising again, but leasing activity and tenant inquiries are certainly picking up as residents office workers at tourists with certainty of the city.

Europe is still a most favored location for retailers who are top of their game.

A particular note is our recently announced deal with Wegmans the Premier grocer in our region.

770 Broadway the Facebook building, replacing Kmart and that's some big uptick.

We also completed retail deals in this quarter with luxury bags and foodservice.

We have now completed the retail re tenant a 595 Madison Avenue, the Fuller building with luxury tenants Fendi and reloading.

Both Lv MH brands and Chris I'll, just I'll add Stefano Ritchie.

And as you know we sold three Madison Avenue Street retail assets. This quarter that are contracted to sell to Soho Street retail assets in the first quarter of 2008 play too we still believe in high Street retail and believe demand rents in activity at bottom I'm happy to go into detail at the wise and the <unk>.

Therefore as of these sales and Q&A.

We reaffirm we.

Reaffirm the updated guidance of our retail business discussed in our last earnings call for 2021, we still expect to do a little better than cash NOI of $135 million with 22002, the guidance as cash NOI of $160 million.

2023, we guided cash NOI of not less than $175 million.

Yes.

Pardon me lastly.

Lastly on the topic visual was rent collections you should know that rent collections are now and have been for a while at essentially 100%.

Collections on the limited number of rent deferrals that we granted during the crisis are also running at essentially 100%.

The topics that you are today as tenants employee occupancy rates companywide. This we are now at 43% and that rate has been growing nicely since the summer.

We are able to harvest lots of information about usage as employees bad yet.

At many other operating statistics robot building level of technology are building population by popular albumin is populated by financial sides market makers and traders enjoy occupancies in the seventies.

Although the factoid, the busiest day of each week as Wednesday.

And another factoid the number of week individual employees, who came to work in the month of October was 61%.

Finally, let me spend a minute on sustainability, where we can continue to be the leader.

<unk> was recently selected as a global sector leader for all office rebuild diversified with slot them in.

In the 2020 global real estate sustainability benchmark.

Christy.

Or the grid as we survey our <unk> score of 94. It was our highest total score to date. We also placed second out of 94 publicly listed real estate companies in the Americas, who responded the glitzy, including most of our office peers, who is the Dan <unk> and his team for their leadership.

Thank you Michael.

Thank you, Steve and good morning, everyone I will start with our third quarter financial results and then end with a few comments on the leasing and capital markets.

With the recovery in New York City occurring as Steve described in his opening remarks, so as our business and financial results.

Third quarter comparable <unk> as adjusted was <unk> 71 per share compared to 61 for last year's third quarter, an increase of 10 or 16%.

The increase would have been 26%, but for the once every three year Mark real estate tax increase which is largely reimbursed by tenants next year sort of a timing issue if you will.

We have provided a quarter over quarter bridge in our earnings release on page five in our financial supplement on page seven.

The increase was driven by the following items 10 cents from tenant related activities, including six cents from the commencement of new leases and four cents from the non recurrence of straight line rent and tenant receivable write offs impacting the prior period.

<unk> from the continued improvement of our variable businesses.

<unk> from the acquisition of our partner's 45% interest in one Park Avenue in August and <unk> from lower G&A, resulting from our overhead reduction program last December.

The total of these increases is partially offset by the following decreases six cents from the already mentioned real estate tax expense accrual due to an increase in the triennial taxes has value of the market, which as I said will be largely billed back to tenants beginning in January 2022, and <unk> from an increase in other miscellaneous expenses prime.

Merrily related to our new preferred issuance, partially offset by interest expense savings.

We had several non comparable items in the quarter as well, which total about <unk> 11 per share of income.

With respect to our variable businesses, we are continuing to see a recovery as the city returns to normal signage is picking up nicely with healthy bookings continuing in the fourth quarter.

CMS is now performing near pre pandemic levels, our garages should be fully back in 2022, and finally, a number of tradeshows have successfully taken place, albeit with lower attendance, primarily due to travel restrictions.

Hotel Penn Hotel pens income, we still expect to recover most of the income from our variable businesses next year with the full return in 2023.

Our core New York Office business was up seven 6%.

Our retail same store cash NOI was up 14, 2% primarily due to the rent commencement on new leases at $5 95, Madison Avenue, and four Union square, South and lower real estate taxes.

Our office occupancy ended the quarter at 91, 6% up 50 basis points in the second quarter, which we believe represented the bottom for our office occupancy. We expect this figure to keep moving up from here based on the leases we have out for signature and in negotiation.

Retail occupancy was consistent with the second quarter at 77, 2%.

Now turning to the leasing markets.

New York leasing volume reached its highest volume since the onset of the pandemic with more than 7 million square feet leased during the quarter.

<unk> growth continues its upward trajectory.

Asking rents and concessions have stabilized for high quality buildings, even improving in some submarkets and sublease space has begun to be absorbed or removed.

Notably 65% of the deal volume in the city was new and expansion leases led by 15 deals in excess of 50000 square feet.

The majority of leasing action is being driven by the tech and financial service industries, which accounted for 60% of all activity.

We enjoyed a solid third quarter, signing 27 office leases totaling 757000 square feet with average starting rents of $77 per square foot and positive GAAP and cash mark to market of four 2% and one 4% respectively.

The highlight for the quarter, which also happened to be the largest lease done in the market was an early lease renewal with Interpublic group for 514000 square feet at 100, West 30 <unk> Street.

This important transaction reaffirms ipg's commitment to the Penn District, and resolves what was our largest 2023 exploration.

Importantly, we also executed on a full for expansion with Google at 80, 510th Avenue, increasing their total footprint of the building to just under 300000 square feet, our buildings, which cater to financial service users continue to thrive during the quarter deals. We completed include 52000 square feet at <unk>.

Dollars 80 Park Avenue 30, 37000 square feet at 88 seventh Avenue, and 19000 square feet at 650 Madison Avenue.

We are busy across our portfolio with more to come our leasing pipeline is very strong.

We have 1 million square feet of leases in negotiation with an additional one 5 million square feet trading paper were in advanced discussions.

2023 office expirations totaled one 5 million square feet of which 350000 is in Penn One and Penn two this total is down significantly since last quarter due to the Interpublic group lease renewal.

The largest transaction for the quarter was the previously announced 82500 square foot lease signed with Wegmans at 770 Broadway.

In addition, we completed the lease up with the retail at the Fuller building with a lease to Stefano Ricci, giving us for luxury retailers, there with new long term deals and reflecting the recovering market for the best locations. We also completed deals with Citibank at one park and capital one is 731 Lexington, reflecting the return of the banks to them.

Marketplace.

Finally, a word on the capital markets. The investment sales market is picking up again with a couple of recent strong office sales. In addition to several other assets now in the market.

Investor interest in New York is clearly rebounding as they see the city has bottomed and find the relative value compelling.

On the debt side pricing in the financing markets is as tight as we've ever seen and we continue to be active in refinancing our debt to take advantage of the low rates.

In September we also took advantage of the tighter preferred market to refinance our $300 million five 7% perpetual preferred shares with a 445% issuance at the same size.

<unk> attractive rate for forever money.

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 husky, if youre using a speakerphone you may need to 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.

Caller will be allowed to ask a question and a follow up question before we move to the next caller. We have our first question from Emmanuel Korchman with Citi.

Hey, good morning, it's Michael Bilerman here with Manny.

Maybe if I can just start on putting capital to work.

Your current appetite to go out and.

Buy assets you, obviously did the park Avenue buyout of your joint venture partner.

And so.

Is that something Michael you talked about the market with.

With increased activity that you want to participate in or are you just holding your capital at this point to pursue all the development and redevelopment.

So there is activity and maybe just talk a little bit about.

If you are going to go external whether you look at other property types rather than just office.

Sure Good morning, Michael.

Look the in terms of the capital deployment.

We look at everything in the marketplace as you know theres been very little its transacted.

Probably the first 12 months of the pandemic.

And frankly.

With short term rates at basically zero in long term rates quite low as well there's been very little pressure on sellers. So you've seen very low transaction activity.

Starting to see that pick up now with assets being brought out.

Yeah.

And to date.

The buyer universe, I would say generally been driven by players that use higher leverage although we are still in the early days so to the extent, we see compelling opportunities.

We would act on those so far the pricing is frankly, not been compelling and as we compare both to what we're doing in Penn and prospectively, what we can do in Penn.

Those continue to be more attractive than just buying another asset that we're going to stabilize at a 5% yield after spending a lot of money in capital to lease it up or just to buy it so.

We look we're going to continue to look if we find something interesting we would certainly act on it we have the capital to do that but.

To date capital continues to price assets.

Quite quite aggressively notwithstanding the volume of activity is still down.

And then can you just.

Michael Michael Hang on yes, Steven.

Let me just get bored and let me just add a little bit to what.

What Michael said.

Michael Franco said.

Sure.

<unk>.

There has to be accretion.

Anything that we would buy right now the math is topsy turvy, so our stock sales in the marketplace I don't know whether it is probably closer to an 8% cap rate.

Assets in our.

Sure.

Pat.

Office buildings that we would even consider all sell at sub five.

So.

That math is topsy turvy, it makes no sense to buy an asset for 5% and by the way when you take the capital that's required for these asset servicing versus year over year, maybe the cash on cash is 4%.

Our stock is selling for Seth.

Anything that we would do there would be dilutive to shareholder wealth and obviously, we're not going to do that.

If we saw an empty building by the way.

That we can buy where we thought we could create a great deal of value we might do that.

So generally speaking it's very difficult to.

For us the transact on global right now and so we.

We do have.

The other side of that is we do have liquidity, we do have a very very very.

Dry powder balance sheet.

We still have great opportunities.

Accretively spend that capital that's on our balance sheet independent business. So thats, our main focus right now.

I'm, just sort of doubling down with what Michael said.

Well that's helpful and maybe just as a follow up Steve just on the Penn District, where do things currently stand in terms of pursuing the tracker.

Two new seat.

How is that all playing into sort of the timing of getting this tracker out to the marketplace.

Michael Thanks for that question.

We remain committed to the tracker.

And let's understand what I remain committed to it.

We remain committed to allowing our investors.

We played our stable core business on the one hand.

And then the Penn District, which is our high growth.

Development.

Segment of our business and to be able to invest in either of those individually or.

Both of those.

We are.

Very very very strong believers that we will create enormous values in the industry. We will create a district that will command premium pricing.

We couldnt be more excited about it.

So I remain committed to it number one number two is we are well along with the paperwork.

That would be required to do it.

To launch.

We recognize what you said and that is we are seeing a complete turnover in government.

Senior government officials.

We have pending matters with them.

And so.

Obviously, we're going to.

Slide a little bit.

As we.

All plays out.

Very very very optimistic that the new government leaders at the city and state.

We will be.

Let me say, how do I say this will be constructive.

It will be business friendly.

Recognize that dependent.

Something that requires as demands their attention and we believe we will get that.

Positive attention.

<unk>.

The next thing is.

Ed.

Most of the analyst sub skepticism about the the idea of separating the Penn District.

I'm very surprised at that.

There's sort of a.

As soon as yesterday about this as I've ever been about any project in my career, so I'm, having trouble understanding.

Also we have had conversations with multiple multiple real estate investors as opposed to stock investors who share our our judgment is my judgment about the potential of the Penn District.

So from our point of view of the analyst community item almost starting to believe that we are in a show mode.

So what that means is is that we have to knock off some more leasing to.

Be able to surface the values.

So that's basically what's going on we have no counterparty.

In the tracker.

We have no timetable, it's going to smile, a little bit.

Much.

We think it's going to be smashing be successful.

Yes, and I appreciate those comments and look Steve I think part of the skepticism.

Out of the investment community.

I think everyone recognizes what the Penn District represents I've been following your company for almost 25 years.

We've watched that area transform.

It's always been that opportunity.

We will go through the list of things you've called it the big Kahuna.

A lot of other things.

I think it is a similar it's in the same business that you are in.

Even though I would concur with your phrasing that you have core assets and those big development opportunity I think trackers have typically been used where it's a business that.

Is it different than the parent company.

It has other comps or other things in there in terms too.

To highlight that value your comments about the private market.

We are much more akin to where I think investors sort of want to be able to highlight that value, but to your point you don't want to give up a part of that project to a private thats going to make all the money versus something that you believe should endure to vornado shareholders is that fair.

Comment.

Sure.

Yes, so I mean, the economy was solid lengthy I didnt really follow all of it.

Yes.

The answer is that I understand the skepticism I said.

I'm looking at it as a showroom project.

Believe me, we will show you.

Great Alright, thanks for the time Steve.

And thank you. Our next question is from Steve <unk> with Evercore ISI.

Thanks, Good morning, I guess first Michael I wanted to just follow up on your comments about the robust leasing pipeline.

If you could just maybe provide a little more color on.

How much of that activity is for either <unk>, two or some of the other developments.

And how much is for current vacancy or how much of that is is forward renewables I guess kind of a split on new versus renewals would be helpful. Thanks.

I'll, let Glenn take it Steve but the answer is yes.

Glen why don't you give some color on all that.

Hi, Steve.

It's a very strong mix of everything new deals both in 10, new deals in the core portfolio strong renewal activity throughout all of it and expansions everywhere, we're seeing strength throughout the portfolio. Both in 10 in the core portfolio.

All different shapes and sizes with all different industry type.

Things have picked up really well since we last spoke.

And maybe just as a quick follow up when youre sort of talking to the tenants about space needs and space planning.

What is the density is look like particularly on the new deals and how do they compare from a space per employee perspective to maybe deals from two years ago.

So I've said this political couple of calls we've seen no change at all in density.

Are you seeing maybe a different mix of.

Collaborative space communal space versus cubical office, but generally no change.

People are planning for the future. They are back at it a lot of them are acting as if its pre pandemic times.

Growth, new fresh start all about talent recruitment and moving forward.

Steve in your question and then a lot of the questions or comments in the reports from different analysts.

Sure.

It remains a skepticism.

As to.

Whether new York is going to recover whether people want to be in the office et cetera, and a little bit picking up on Steve's comment I think we're sort of in a show me mode in terms of.

When we put the points up on the board people will see it but it is as.

As we look at the pipeline.

I mean, there is activity literally at every building.

All types of users I mean, Steve comment on the voracious appetite of tech.

Is stronger now than it was pre COVID-19.

The financial types are booming, we're seeing heavy activity there.

You have an economy, where companies are doing very well they are in growth mode and thats reflective reflected in our pipeline. So I think the leasing market is sending a very strong signal that New York is going to be fine, they're just going to be one of the winners companies want to locate here and I think youre going to see those stats continue to get posted over the next several key.

<unk>, obviously this quarter was a good start but there is much more in the queue.

Across our portfolio.

Great and then I guess.

Hey, Steve Good morning look.

The stock market as you look at the price of our stock and.

Sister company at the end of this.

They're all.

Extremely extremely depressed and they are doubling the press.

Where they were pre COVID-19.

There is in the stocks.

In my mind, the sentiment that nobody everybody as insurers Sir.

And worry about work from home.

It will affect their CBD office business, Okay, we acknowledge that.

We believe certain things number one.

Well actually I think.

Number one we believe in New York, we are seeing in the field that people are committed to New York.

Stay in Europe, they are committed to grow in New York.

But the financial services industry et cetera media interest many of the entertainment industry and doubled and tripled the tech industry, because the bond yield with the scale that can't be replicated anywhere I mean, just if you just take two or three of the leading treatment tech firms the leases signed in the last.

14, 15 months, maybe 15000 engineers to fill that space, you can't get that in Austin or Nashville, or wherever okay. So the scale is new York is winning the day.

Plus the talent pool.

So that's factor number one number two is.

The business leaders that we deal with every day they understand workflow.

Lynn.

Their policies are going to be what the hybrid solutions are going to be three.

Days in the office food that four days of whatever it is they know that rapidly.

Yes, they continue to believe that the office space lots of it in fact higher quality office space to recruit.

And retain that talent. So we're finding in the marketplace and the economy between actually a very aggressive and robust demand for space from the Big Boys.

Each of the major industries and the.

Certainty.

The skepticism of work from all in the marketplace. So we're betting that our tenants know what they're doing as we think so.

We think that worked from the office will win it'll be nipped around the edges by some hybrid thing people award for some number of days.

But the people we talk to everybody they want the people back in the office, that's the way to grow there.

I'm just curious about it so we think thats. The answer we are very very pleased with demand.

The space notwithstanding the uncertainty thats in.

And the securities market.

Great and.

Just as a quick second question, Michael Your Tradeshows I know were back a little bit in the third quarter and I know I think last quarter, you had mentioned that.

Neocon was moving in the fourth quarter do you have any sense at this point as to how big Tradeshows could be in the fourth quarter and I guess, what's on the books for next year already and how does the size shape up to kind of pre pandemic.

We had.

Since July.

We produced a trade shows including our two largest shows neocon in the Armory show in New York.

Obviously, there were travel restrictions, particularly internationally, which.

Impacted attendance.

And so I would say levels are probably closer to half of what they were historically, but they were put on successfully we got the machine working again, and obviously performance year over year was positive. So our expectation is that we're going to put on a full set of <unk>.

Tradeshows next year.

We're going to see a substantial recovery.

Just being realistic we don't think trade shows come back fully in 'twenty, two it's probably 23 before that.

Fully stabilizes, but.

2021 overall.

Tradeshows don't contribute a lot to our variable businesses as we currently project.

And our.

Next year, we think we think the number will be several million dollars incremental I don't want to give you a number today, just because we need to spend a little time with our team refine that and obviously, it's a guess, but but we do think the trend line now that the machinery is working people are getting used to it international travels opened back up.

See a decent recovery next year.

Hey, great. Thanks.

Hey, Steve the overriding overwriting facts.

These tradeshows are desperately important to our clients.

As the major sales activity for each of these individual.

Each of these individual companies so.

The trade shows are here to stay they are really important okay. So we can't predict what's going to happen this quarter next quarter.

Budget show that a couple of years out the Tradeshow business will get back to where it was pre COVID-19 and the main reason is because this is a really important business to our clients.

Great. Thanks, that's it.

And thank you so much we have our next question from Nick <unk> with Scotiabank.

Hi, Thanks, Good morning, everyone, just going back to the leasing activity, you're talking about the pipeline being pretty strong not that much in exploration next year I mean, how should we is there any preview you can give us about how to think about occupancy and how it could trend in I guess in particularly in New York City office portfolio.

Glenn <unk>.

So Michael Michael mentioned it in his remarks, we believe our office occupancy bottomed when I was <unk> 91, 6%.

We think it's going to continue to improve quarter to quarter based on the action. We have historically, we were at 90, 697%. So where we are with all due to Covid. We're on our way back we feel is getting better and that we have hit the inflection point and going back up.

Okay. Thanks, and then second question is just about the Penn District, and you talked about hotel Penn.

Being a prime development site in the city.

And going back to your prior disclosures on that you had I think about it in your NAV.

Estimated $500 million for that project, which is about $250 a foot of zoning.

Per zoning I guess.

I guess I'm wondering if that's still the thought on the value of that there and then as well how we should think about 10, one where you have the ground lease reset coming in 2023, if you have any update there and how we should think about as.

Hotel Penn at $250, a foot number a good way to think about.

Potential land value reset at 10 one.

We continue to be happy with a number of that.

We see no reason to raise it.

Yes.

And with respect to the.

The web arbitration, we have no comment.

Okay, I guess just in terms of.

Should we think about that $250 a foot value that was acquired for a hotel Penn being a reasonable number to think about.

Penn one which is right across the street.

No.

It would be inappropriate for us to lead you either way in terms of your internal calculation.

Yeah.

I'm not going to do that I don't think it's appropriate.

And Im sorry about.

I'm not going to talk about a very important financial arbitration.

In this format.

<unk> land value reset there.

Thanks, I think I think I think the disclosure in the footnote is appropriate.

And obviously the final answer is unknowable.

Yes.

We'll go through the process.

We will hope for the best.

Thanks.

Thank you.

We have our next question from Jamie Feldman with Bank of America.

Alright, Thank you and good morning, I'd like to go back to your comments on retail it sounds like you think it could be bottoming here.

Just your thoughts on why and what we should expect going forward.

Yeah.

I mean, Jamie look I think the comments on retail are reflective of what we're seeing on the ground from tenants.

Tenants were.

In a shell for a year.

Obviously, there were a few people on the streets vacant.

International Tourism will kick off actually in the next week, which should be another shot in the arm for the city.

And we don't expect to snap back the 60 million people immediately but thats.

The trend line from the city being opening and the attendance.

And at sporting events, and Broadway shows and other things is quite good and quite indicative of what we think is going to happen. So.

Retail was one another shoppers out there and they are clearly shoppers out there again.

And we've talked about the flight to quality in the best locations and Thats continuing to occur we'd been a beneficiary of that at a place like a full air for example.

At a place like a $7 70, which is a prime spot for wegmans to go to and fundamentally we are just seeing more interest from retailers by the way that's all submarkets right.

The tourist oriented Submarkets of fifth Avenue and times Square, obviously, you would expect to be the ones to come back to last because thats, so dependent on tourism and with that now opening up.

The retailers wanted to see it happen, but again, even there we're seeing inquiry from tenants in both those submarkets rents are obviously down.

Thats inducing demand and so.

There's discussions that are underway in <unk>.

That's occurring so that's what gives us I think the confidence to make that statement I think Steve was pretty clear.

Activity has to happen before you start getting rental movement and it's going to take I think a decent amount of activity before that happens so I wouldn't expect rents to rise.

Near term, but.

Once we start getting some patient transactions.

That'll be a shot in the arm for the market.

But to be clear.

This is this is going to be a multiyear.

This is not going to be.

A rapid V shape rebound, it's going to take years for this market to recover.

And it may never recovered to the peak.

That were five or seven years ago.

Okay. Thank you.

And then I guess.

And it has volatility.

It will recover and think about it this way the shutdown.

It was probably the most dramatic event that any of us have ever lived through that total shutdown of the global economy, I mean, that's never happened before that.

Retail retailers.

Hotels Airlines et cetera.

The suffering was monumental so the first reaction from the retailers was that go into a shell stop everything.

Shed liabilities.

So the market with stone cold for the better part of.

Two years.

People are now understanding that there is life. After it people are succeeding the better retailers are actually thriving.

Ends up demand and we are seeing a very very robust pick up interest as demand we are not seeing an aggressive increase.

And pricing that people are willing to pay so.

We're in a recovery we are budgeting.

Your writing that the recovery will be slow pace.

Okay. Thank you and then I guess, if you're talking about I'm, sorry, it's just a continual investment and we did reaffirm our guidance on retail in my in my prepared remarks.

Right.

Do you see I know in your prepared remarks, you had mentioned.

Sales I mean, do you see yourself selling more or do you see yourself actually buying going forward.

We.

We certainly are open to buy we are certainly.

Probably the most expert in retail around.

And.

We will buy the highest quality.

At very attractive prices and there hasnt been that kind of availability are offered yet.

Yes.

Ed.

Let me give you a feeling for the five assets that we have either sold a contract. So that's all what our thinking was okay number one.

Those assets this.

This year are losing action.

I actually have a negative.

<unk>.

More than $3 billion.

I think we said in the press release that the occupancy was 30%.

The vacancy therefore was 70% that is accurate that it's accurate of course, but there is one track towards niche applicant center.

There is one tenant.

And those five properties that is basically a.

A swing tenant who is.

Rebuilding our store.

And so if you take that out and we know for sure that that tenant is going to leave in a couple of years, because it's a swing.

The sleep.

And so if you take that out I think the occupancy is 11%.

If you take that into account and by the way if you safely.

So when.

When that goes away the earnings are.

Negative earnings are greater than $3 billion.

The capital and the capital that would be required to lease up those five properties.

And we have to lease up 90%.

It's almost a total lease up job you take the tie.

Take our underwriting as to how long it will take to climb up to a decent return.

Our judgment was that for our business.

It's a proper strategy to sell those assets as those proceeds where the assets are unencumbered. There's no debt on the assets. So that will bring in $184 million to $85 million of new cash that we think we can put to better use now we are selling Madison Avenue assets. So.

A sled.

And they are extremely substantial.

Offshore buyer, who have a history, making very intelligent distress buys.

We know that we respect it.

We're friends, we laugh about it to each other.

We expect that.

Fear the Madison Avenue properties will they.

Money and have a very satisfactory investment.

But it will be in our judgment over a 10 year whole.

That timeframe made us to be.

A seller rather than a holder of those assets. So we believe that the buyer will do well and we think the seller that's us.

Will do well.

There is one last point.

25 years ago Madison Avenue was isolated oasis.

In New York, There was one sub market.

That.

Worked in terms of luxury high income et cetera that was the upper east side.

Over the 25.

So obviously the luxury brands all clustered in.

In Madison Avenue.

You had effectively an oligopoly or a monopoly on luxury shopping and the city of New York, because all our customers live within walking distance of that at all the tourists basically stay in the upper east side.

<unk>.

Over the years that has been diluted enormously so that every sub market whether it be chunkier tribeca.

Let's village or the upper Westside every sub market now is widening.

With.

Customers towards these brands, so obviously over the years instead of having one store about a <unk> <unk>.

Five stores one of the meatpacking one chunk in one area. So Madison Avenue has been deleted.

Diluted enormously it was thats socio demographics.

It also led us to be a seller of those assets.

And by the way that thinking is totally different than fifth Avenue times square, which continue to be.

As normal subtraction.

So as you think about putting capital to work I mean do you still think luxury is the way to go or no you're thinking actually more.

Middle of the road type brand.

Yes, that's correct agnostic to that.

We are retail investors, we love our.

Obviously, our assets, which are which.

Or not really luxury we love our fifth Avenue assets. So we're agnostic as to the price points of our customers.

Our landfill business.

The retail business.

Okay, and if I could just ask.

You had talked about no debt on any of the asset to Penn station or at least the development redevelopment asset what's the plan there to put more permanent capital on those projects and how do you think about using those funds.

We will obviously.

<unk> financing plan for the growth of.

The Penn District.

Sure.

We're very comfortable now having those assets unencumbered for the moment.

I think it's premature to start getting into.

What are what we will.

How we will permanently finance those assets if we do.

Our balance sheet.

Our strength is based upon a mix of secured debt unsecured debt lines of credit.

Unencumbered assets are an important part of that so right now we're very comfortable adding those assets.

Yup.

Hubbard, we're even more comfortable with.

No.

Those assets are worth.

There's a lot of money and many billions of dollars, we're very comfortable adding those assets available.

Available as a source of credit should opportunities come up.

Okay, and I assume that helps with the tracking stock if there.

Not encumbered, but has that had nothing to do with it.

The checking.

<unk> has its own financing plan.

Which we'll get to when we launched the tracker.

Okay, alright, thanks for your time.

Low debt on the tracker is an important part of that strategy.

Okay.

Thank you.

And we have our next question from John Kim with BMO capital markets.

Thank you and good morning.

I realize the tax at the Mart and backward looking but are you surprised by the level of increase.

Just given your renovated asset five years ago.

Last year and a half almost two years.

There's been a lot of disruption to the trade showing up in office occupancy of the asset.

I was just wondering.

We were surprised by the amount of increase on taxes there.

I didn't hear the question John.

John look I would say anytime you taxes go up.

47%, you're surprised at the magnitude of that so.

We knew there would be an increase I think the magnitude of surprise the entire market. We were not alone right I think there's been a number of articles written about.

Now most of the large landlords had been impacted by similar increases. So it's high we're certainly going to appeal it.

We don't make any promises on that but.

It is what it is and as we said.

The meaningful portion of that will be reimbursed by tenants beginning in 2022 and.

I think we're no different than the balance of the market frankly.

A few years ago you gave.

Indication that you thought you could collect 80%.

The tax increase at the tenant reimbursement do you feel like you can still obtain.

Attained that level of.

Reimbursement for me kind of.

Yes, I mean, I think look it's obviously dependent on the occupancy in the building, which is down a little bit now, but I think in a 75% to 80% is not there is not a.

Incorrect assumption and it'll be it'll be in that neighborhood.

Okay.

My second question is on Facebook.

Now I.

I suppose looking.

Looking to expand in New York I'm wondering if they do expand at 770 Broadway.

Can you accommodate them without losing Verizon as a tenant.

Okay.

No.

So the net impact would be.

Mike.

<unk>.

Yeah.

First of all these are.

<unk> clients.

These are pending transactions. So we're really not going to speak about anything, but I'm really not going to get into the detail of it but obviously if attendant booths and had a tenant moves out.

The.

Net result will be.

Pretty much to say.

Are you looking elsewhere in your portfolio.

Say it again.

And Facebook looking elsewhere in your portfolio to extend.

We're not going to comment on.

On Facebook or pending transactions with important clients.

Okay.

Thank you.

And thank you as a reminder, if you have a question. Please press Star then one on.

Our next question is from Alexander Goldfarb with Piper Sandler.

Hey, good morning, good morning down there Steve.

So just want to go back to Michael's opening questions.

And I think you can appreciate the skepticism mainly the original Penn station was around for about 50 years and you guys have been talking about the redevelopment for 'twenty clearly enhanced by what's gone on the west side, but if youre avino shareholder you may or may not be able to hold the tracking stock when it spun out for whatever fund mandates you have.

If the whole thing that we've been looking at the past 10 15 years has been this holy Grail of confluence between Midtown South and in the far West side now Penn station is going to be there in euro vino shareholder who has held out for that.

How is the tracking stock helpful on that if not every shareholder Ken on the tracker and also.

That's what that's where a lot of that revenue growth or sorry earnings growth is going to come from from those lease up. So I think that's the area where people are grappling, which is how does this help on existing <unk>.

I'll be able to actually owned a tracker versus right now they can pencil in model. All this upside that you guys have been laying out.

Well.

If you sell a attractive is that going to benefit from it.

That goes without saying.

But not every fund Ken on the tracker because a mandate.

We are happy with the fact that.

As you say some of our shareholders.

We'll have to sell the tracker we've done the calculation.

At the margin.

Difficult transfer.

And.

So.

It's unfortunate that some investors have to sell it.

But.

Looking at it is the greater good as the investors that could keep it or buy it we think will be enormous additionally, enhanced by the by the transaction.

Said another way, we think that the.

<unk> future.

Future.

In larger company.

Sure it's diluted.

Is not as good at outcome.

If it's separated where it's pure pure play for the pet.

We understand what you're saying.

Happy about the fact that some funds will have to sell.

Not large enough for us we think there we think it is handled at volt.

But what we believe is the greater good will be enhanced by the by the IBM.

But it's still a synthetic Steve isn't it I mean, it's just laying.

Sort of.

Paper claim to the it's not like Alexanders, which physically owns those assets. It's just laying claim on paper, it's a synthetic it's not like it's a direct correct.

It is.

The answer is yes.

But that's sort of argument it about.

The the tracker should.

Perform as the asset.

But the underlying assets.

Then he tracks.

As Beth before.

Okay. Thanks, if you think about I think Youre Alexanders analogy is actually is an interesting one.

Think about Alexanders alexanders as an externally advised entity right. The public owns one third stock.

Stock is done.

When you look at it from the time that development really convinced substantially and that company has done extraordinarily well.

And so I think the corollary here is actually quite similar right where.

Yes, we've been talking about it for a long time, but the reality is the development really just commenced in the last couple of years right is underway right now with Farley <unk> and obviously a lot more behind that so we've talked about the public owning.

A portion of it not all of it probably less than half of it.

And so.

If you think about it it's kind of like Alexanders in the sense of that public tracker is sort of an externally advised entity managed by vornado very similar to Alexander's and in terms of the shareholders that there is no. The only shareholders that are going to be forced to sell this or some of the index funds.

The way not all of them most of them, but some of them any investor that has a active investor that makes.

Dedicated decisions about specific companies can continuing on both pieces by the way they can stop up even more of the trackers. So.

We talked about this like those for sellers Theres no buyers on the other side, we know for a fact there are investors that have it.

Back that is a very good analogy in terms of the trajectory of that company. Once the development commenced okay, and then Steve going back to the politics clearly the mayor race, we can only do better.

And either candidate is obviously much more pro business much more understanding of the city than the prior but when you look at the Governor's race.

<unk> is definitely tracking to the left as she tries to veer off.

When you look at the politics, it seems to be taking the opposite angle.

I can't answer that question Alex.

<unk>.

Net the governor.

She is a seasoned politician with a 25 year career.

She has an entire career of being supportive of business.

This stands whats going on in <unk>.

She understands the discipline and we believe that she will be.

A perfectly fine leader.

And.

Other than that.

I can't get into it.

I wanted to get back for a moment to Michael's very slight answer to your question about the tracker.

There are tradeoffs here.

In order to create a separate legal entity.

A spinoff for example, which we have done twice before with Jbt's urban edge.

It has to have a totally separate management team totally separate board totally separate everything.

Untenable.

Doable.

Prospect and it's untenable and we can't do it we need the same people.

With our leasing and development team for example, okay.

So it would be it would be very.

The additional overhead would be enormous.

So the tradeoff is that we can use the same team.

At the same board the same governance, but we can get investors to be able to.

Invest in whichever part of our company they want to or both okay.

So it's interesting I expect that many investors will continue to hold both securities, which is actually which is actually the same thing.

Nothing in terms of separating attractive, but at the margin there will be a new group as Michael said of investors. So actually have enormous level of enthusiasm for the Westside of New York.

Check coming into New York and for what we're doing in the Penn District and at the margin. We think it will be a very successful very successful.

Okay.

Okay. Thank you Steve Thank you Michael.

And we have our last question from Ronald Camden with Morgan Stanley.

Two quick ones from me one is just going back to sort of the retail portfolio.

Curious in terms of just more commentary when retailers are looking at space today.

It's the same as it's always been forever and that is what sales volume they do.

Due in a particular store versus the cost structure versus the rent.

Things are a little different today than they were some stores in Manhattan.

Sort of flagships advertising for the brand that has kind of gone by the wayside retail.

Retailers today want to make money at each individual store. So the number one statistic is what their expected sales volumes will be versus what the.

What the health index would be the occupancy cost.

Okay.

Great and then if I could just follow up on the wegmans.

Deal.

Just any any sort of color on what the opportunity could be in the portfolio is there anything different about sort of their lease structure versus the typical structure any any color would be helpful.

I don't think I have anything add anything to add there I mean.

We're replacing first of all 770 Broadway.

Book building.

We're replacing Kmart with Wegmans Thats a huge uptick.

The rent is significantly higher.

It's a traditional lease at the long term lease and we're very very excited about it.

And there may be other opportunities with wegmans and the rest of our portfolio.

Yes.

Great. That's it for me thank you.

Hello, and thank you.

We have no further questions in queue I will now turn the call over to Mr. Steven Roth, Vornado, Chairman and CEO for closing remarks.

Thank you.

One final important note before we had this call and that is that Cathy Creswell. This is Cathy Creswell his final earnings call before she retires.

I want to thank her for her many years of.

Service and friendship, we wish her well and I'm sure everybody on the call wishes as well.

We will see you at the next call thanks very much.

Okay.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.

Q3 2021 Vornado Realty Trust and Alexander's Inc Earnings Call

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