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

November 2, 2021

Good morning, and welcome today 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 end of the presentation. During the question and answer session at that time I believe press Star then one on your Touchtone phone.

I'll now turn the call over to Kathy Creswell director of Investor Relations. Please go ahead.

Thank you welcome to Vornado Realty Trust's 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.

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.

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.

On the call today from management for our opening comments, even 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, 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 recover rapidly.

Every market is a case in point.

The vicious declined to 70% occupancy.

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

Now having recovered to pre COVID-19 occupancy even higher.

Higher than pre Covid risks.

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

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

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

<unk> seen increased automobile and pedestrian traffic everywhere.

Vaccination rates among office workers are at high levels of guest to go out and 90%.

Hearing unanimously that our tenants want their employees back in the office.

Occupancy has been climbing and this week, we are now at 43%.

I must admit that our tenants.

We are a little frustrated by 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 piece.

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.

Clear to me that the offices.

It will be the center of work kind of success.

Importantly, our business is rebounding on the trajectory of recovery have returned 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.

Glen 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.

Turning to our activity in the volume of leasing proposals. We are working on particularly large proposal is as robust as companies are thriving and clearly looking for growth.

This heightened activity demonstrates the importance of the office to their businesses.

The stomach the Xerox its infrastructure and scale and its talented and diverse workforce continues to give me also had dramatic competitive advantage in particular the tech sector.

They used to be voracious appetite for space in our sub markets in New York has clearly emerged as the second largest second most important pick up in the country.

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

At Farley, we are targeting openings approval and a nice avenue entrance by year end.

Facebook is tenant work is proceeding with first employee occupancy scheduled for second quarter 2022.

One in training, where we have completed 22 retail leases, we are gratified and validated that Starbucks reports that one there is no more of that story is trending 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 traffic concourse it will be a big win for us.

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

Spectacular.

Take a look our unique three level world class amenity offering will open shortly and the other half of the pen one lobby, which fund saw 30 surgery, we will complete will be completed and 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 phase two.

Let me review again, our Penn District financing plan.

Requires a complete Farley Penn one and Penn two is about $1 billion.

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

Further Farley Penn one and Penn two our frankly, our unencumbered by any mortgage debt whatsoever.

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

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

New York is still a most favored location for retail is off.

On top of their game.

A particular note is our recently announced deal with <unk> the Premier grocer in our region.

At 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 and a 595 Madison Avenue, the Fuller building with luxury tenant spending at <unk>.

Both <unk> spreads and Chris I'll, just I'll add Stefano Ritchie.

As you know we sold three status enable U S Street retail assets. This quarter that are contracted to sell to Soho Street retail assets in the first quarter of 2000 and places we still believe in high Street retail I believe 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.

Reaffirm the updated guidance of our retail business discussed in our last earnings call for 2021, we still expect to do a little better the cash NOI of $135 million for 2022, the guidance as cash NOI of 160 million and fifth.

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

Yes.

Pardon me Leslie.

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 topic Du jour today as tenants employee occupancy rates companywide. This we are now at 43% and.

And that rate has been growing nicely since the summer.

We are we are able to harvest lots of information about usage as employees badge it.

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

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

Another factor was 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 retail diversified risk Plaza and the <unk>.

Slide the global real estate sustainability benchmark.

Lindsay.

Oh, the grid as we survey our grasp 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 peer group there Ian 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 <unk>.

<unk> issue if you will.

We've 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.

<unk> from tenant related activities, including six 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 too.

<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 SaaS 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're 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, our garages should be fully back in 2022, and finally, a number of Tradeshows are successfully taking 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 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%.

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.

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

Employment 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.

You already have 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 resolve is what was our largest 2023 exploration.

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

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 887th Avenue, and 19000 square feet at 650 Madison Avenue we.

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 at 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 market 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>.

Attractive rate for forever money.

Finally, our current liquidity is strong for $4 $43 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.

Yes.

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.

Types of 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 that's transacted.

For probably the first 12 months of the pandemic.

And frankly.

Short term rates at basically zero in long term rates quite low as well and there's been very little pressure on sellers. So <unk> seen very little transaction activity you saw.

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

And to date.

The buyer universe I would say, it's 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 Hi, Michael Hang on yes, Steven.

Let me just let.

Let me just add a little bit to what.

Michael Franco said.

I mean look.

There has to be accretion.

Anything that we would buy.

Right now the math is topsy turvy.

So our stock sales in the marketplace.

It is probably closer to an 8% cap rate.

Assets.

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 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%.

Our stock is selling for.

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 could 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 to transact on global right now and so.

We do have.

The other side of that is.

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 in the pet business. So thats our focus right now.

I'm, just sort of steadily 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.

We remain committed to the tracker.

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

We remain committed to allowing our investors.

Between our stable core business on the one hand.

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

Mitch.

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

The votes.

We are.

Very very very strong believers that we will create enormous values in the past 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.

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.

We have pending matters with them.

So.

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

As we.

All plays out.

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

We'll be.

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

<unk>.

Business trends.

Ed.

I recognize that dependent.

Is something that requires us to manage their attention and we believe we will get that.

Positive attention.

The next thing is red.

Amongst the analyst sub skepticism about 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 in my judgment about the potential of the Penn District.

So but from the point of view of the analyst community I am 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 the values.

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

Yes.

The tracker.

We have no timetable it's got us.

Slide a little bit not too much.

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 watched that area transform.

And it's always been that opportunity.

We will go through the list.

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.

I 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.

Okay.

<unk>.

The answer is that I understand the skepticism I said.

I'll, let you add as a showroom project.

Believe me, we will show you.

Great Alright, thanks for the time.

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

Hi, 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 renewals I guess, it's kind of a split on new versus renewals would be helpful. Thanks.

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

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

Hi, Steve.

It's at 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 realized 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 densities 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 the last couple of calls we've seen no change at all in density.

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 there.

<unk> is 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 and.

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.

Is stronger now than it was pre COVID-19 and.

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, but you're always going to be one of the winners companies want.

Okay. It here and I think you're going to see those stats continue to get posted over the next several quarters. Obviously this quarter was a good start but there's 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.

Sister companies in the industry.

Theyre all extremely extremely depressed.

They are doubling the press.

Where they were pre COVID-19.

There is in the stocks.

<unk> sentiment that nobody everybody is.

Uncertain.

Worry about work from home and how it will affect the CBD office business Okay.

What's that.

We believe two things number one.

Actually I think number one we believe in New York, we are seeing in the field that people are committed Disney.

And then to stay in the off Theyre committed to grow in New York.

For the financial services industry et cetera media industry, the entertainment industry and doubled and tripled the tech industry.

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

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

Plus the talent pool.

So thats speculating number one number.

Number two is.

Business leaders that we deal with every day they understand what.

They are grappling with what their policies are going to be what the hybrid solutions are going to be three.

Days in the office foods at four things in whatever it is they know that rapidly.

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

And retain that talent. So we're finding in the marketplace that 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 scope.

Of work from all in the marketplace.

So we're betting that our tenants know what they're doing and we think so.

We said 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 we talk to everybody. They want the people back in the office, that's 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 in <unk>.

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.

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 lot of 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.

Okay, great. Thanks.

Hey, Steve the overriding overwriting facts.

These tradeshows are desperately important to our clients.

As 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.

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.

Thanks, Good morning, everyone, just going back to the leasing activity, you're talking about the pipeline being pretty strong not that much and expirations 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.

I guess in particular in New York City office portfolio.

Glen.

So Michael Michael mentioned it in his remarks, we believe our office occupancy is bottomed, we're now at 91, 6%.

And 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 one way back we feel 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 then 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 I'm wondering if that's still the thought on the value of that there and then as well how we should think about Penn one where you have the ground lease reset coming in 2023, if you have any update there and how we should think about hotel Penn that $250 a foot number a good way to think about.

The potential land value reset at 10 one.

We continue to be happy with the number that.

Alright.

We see no reason to raise it.

And with respect to the <unk>.

Rent 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.

<unk>, one which is right across the street.

Yes.

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 it's appropriate.

And Im sorry.

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.

Potential 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.

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.

In a shell for a year.

Obviously, there were a few people on the streets.

Vacancy 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 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 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 last because thats, so dependent on tourism and with that now opening up.

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

Inducing demand and so.

Sure.

There's discussions that are underway in an action that's occurring so that's what gives us I think the confidence to make that statement I think Steve was pretty clear.

<unk> he has to happen before you start getting rental movement and it's going to take I think a decent amount of activity before that happened 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 peaks.

We're five or seven years ago.

Okay. Thank you.

Go ahead.

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 monumental so the first reaction from.

The retailers was to go into with shell stop everything.

<unk>.

Shed liability.

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

People are now.

I think that there is life. After it people are succeeding the better retailers are actually thriving foot from the pent 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.

Where we are.

Bottomed, where we're in a recovery, we are budgeting and underwriting that the recovery will be slow pace.

Okay. Thank you and then I guess as you think about the I'm sorry, it's just a continual effort.

And we did reaffirm our guidance on retail it in my prepared remarks.

Right.

Do you see I know in your prepared remarks, you'd 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.

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

I said.

Let me give you a feeling for that.

Five assets that we have either sold or contracted to be sold.

Taking place Okay number one.

Those assets.

Year of losing.

I actually have a negative.

<unk>.

More than $3 billion.

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

And the vacancy 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.

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.

The sleep at 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.

Thank you.

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.

We have to lease up 90% of them.

It's almost a total lease up job you take the time and 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 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 the Madison Avenue assets so.

Fred.

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 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 an 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 clusters.

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 stay and upper east side.

<unk>.

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

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

With.

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

Five stores one of the big parking one O one chunk in one area. So.

So Madison Avenue has been deleted.

Normal spring it was thats socio demographics.

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

And by the way that thinking is totally different.

Fifth Avenue or times square, which continue to be.

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.

We are at now.

Doug agnostic to that.

We are retail investors, we love our.

So obviously, our assets, which are which are not really luxury we love our fifth Avenue assets.

Caustic as the price points of our customers.

It's not in the retail business.

Okay.

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 have a financing plan for the growth.

The Penn District.

We.

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 what we.

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 and.

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

Covered we're even more comfortable with having I don't know.

Those assets are worth.

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

Good.

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 had 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.

Adding 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 over last year and a half almost two years.

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

I'm just wondering.

You were surprised by the amount of increase on taxes.

The other 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 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 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>.

First of all these are.

<unk> clients.

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

Our next question 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 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'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 that's the area where people are grappling, which is how does this help and existing <unk>.

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 the tractor is that going to benefit from it.

That goes without saying.

Right, but not a refund ken on 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.

At the margin.

Difficult transfer.

And.

So.

It does.

Fortunate that some investors have to sell it but.

But what we're.

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

Enhanced by the by the transaction.

Said another way, we think that the.

Penn District future.

Future.

In the larger company.

Where it's diluted.

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 stock because 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 it I mean, it's just laying.

Sort of paper.

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 did about.

The debt tracker should.

Perform as the asset.

But the underlying assets.

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.

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 and it's underway right now with Farley <unk> <unk>, two 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 they're going to be forced to sell this or some of the index funds.

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 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, we'd like to just own the Penn district, like the higher risk higher reward believe and what what's going on in that part of the city and in what we're doing and prefer to own that directly in that 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 that 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.

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

The 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.

<unk>.

Net the governor.

She is a seasoned politician with a 25 year career.

She has a tie.

Hi career of being supportive of business.

Understands what's going on in it.

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 want 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 fifth urban edge, we would have to have a totally separate management team totally separate board totally separate everything.

So thats an untenable that's not a 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.

Barry.

The additional overhead would be enormous.

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

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 them 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. 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 a enormous levels of enthusiasm.

For the West side of New York.

Or 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.

Yeah.

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.

What are they focused on is it occupancy cost is it gross margin.

But 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 and advertising for the brand that has kind of gone by the wayside.

Retailers today wanted 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 sort of their lease structure versus the typical structure any any color would be helpful.

I don't think I have ever been.

Just to add there I mean.

We're replacing first of all 770 Broadway is the Facebook building.

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

Rent is significantly higher and 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 <unk> and the rest of our portfolio.

Great. That's it for me thank you.

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.

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.

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Sure.

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Yes.

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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 end of the pre.

Take them 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.

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.

<unk> 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.

Call May include time sensitive information that maybe accurate only as of today's date. The company does not undertake a duty to update any forward looking statements on.

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.

Our city is recovering 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 residents gave up their apartments and the work from anywhere period.

Haven't recovered to pre Covid occupancies at either higher than pre Covid right.

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

Public traffic utilization rates are picking up and public transportation is of course, the lifeblood of the city restaurants in sporting venues are literally jam packed at Broadway and other cultural venues have reopened with travel restrictions coming off this month's international tourists will be with service, we can see increased automobile and pedestrian.

Everywhere.

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

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%.

Just admit that our tenants.

We are a little frustrated as a longer return to work process is 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 pick up 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 2090.

Our tenants who are actively in the volume of leasing proposals. We are working on particularly large proposal is as robust.

Those companies are thriving.

Really 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 second most important.

The pickup in the country.

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

At Farley, we are targeting opening the food Hall, and the last 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 at validated that Starbucks reports that it's more of a hands. There's no more ancillary is trending number one out of the 190 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 <unk> lobby is open.

Calculate <unk>.

Take a look our unique three level world class amenity offering will open shortly and the other half of the pen one lobby, which fund saw 30, virtually we will complete will be completed and the first quarter 2022.

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

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 phase two.

Let me review again, our Penn District financing plan.

Capital required to complete Farley and one.

<unk> is about $1 billion.

Before <unk>.

And that will be paid for entirely from our cash on balance sheet.

Other Farley Penn one and Penn two our frankly, our unencumbered by any mortgage debt whatsoever.

And most importantly, as these great assets come online they will produce a $200 million of 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 tourists, let's turn to the business.

Theres still a most favored location for retail is over.

On top of their game.

Of particular note is our recently announced deal with <unk> the Premier grocer in our region at 770 Broadway the Facebook building, replacing Kmart and that's some of the 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 Fendi and reloading.

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

As you know we sold three status enable U S Street retail assets this quarter at our contracted to sell to Soho Street retail assets in the first quarter of 2008 play too we still believe in high Street retail and believes demand rents in activity at father I'm happy to go into detail at the wise and the <unk>.

Therefore as of these sales and Q&A.

We reaffirm.

Reaffirm 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 with 22002, the guidance as cash NOI of $160 million and fifth.

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

Pardon me lastly.

Last year the topic Du jour 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 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, our buildings 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 Plaza and.

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. The date. We also placed second out of 94 publicly listed real estate companies in the Americas, who responded aggressively including most of our office peer group there 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 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 assessed 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.

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%.

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.

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.

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 in 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 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.

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 to 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.

Very 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.

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.

Types of 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.

For 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 little transaction activity.

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

Yeah.

And to date.

The buyer universe I would say, it's generally been driven by players that use higher leverage although we're 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 Pan 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.

Just add a little bit to what.

Michael said.

Michael Franco said.

Sure.

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 what it is probably closer to an 8% cap rate.

Assets in our.

Pat.

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

So you can't.

Matt This 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 at the services that the year over year, maybe the cash on cash is 4%.

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.

That we could buy where we thought we could create.

This deal is that we might do that so generally speaking it's very difficult to.

For us the transact on global right now.

And so what we do.

They will have on 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.

That's our main focus right that was it.

I'm, just sort of steadily 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.

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.

<unk>.

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

We are.

Very very very strong believers that we will create enormous values.

We will create a district that will command premium pricing.

We couldnt be more excited about it.

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 make the slides a little bit.

As we.

Oil plays out.

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

We'll be.

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

We'll be business trends.

Yes.

I recognize that the Penn District.

Something that requires as demand 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 am very surprised at that.

There is sort of.

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 of the Penn District.

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

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

To be able to surface the values.

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

In the tracker.

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

We think it's going to be smashing the 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.

And it's always been that opportunity.

We will go through the list of things you've called out 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.

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.

Comment.

So I think the comment was solid legacy I think really follow all of it.

Yes.

Sure.

The answer is and I understand the skepticism I said.

I'm looking at it as a.

Shelby project.

And believe me we will show you.

Great Alright, thanks for the time.

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

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

Could just maybe provide a little more color on.

How much of that activity is for.

<unk> two or some of the other developments.

How much is for current vacancy or how much of that is is forward renewals I guess, it's 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 that.

Hi, Steve.

So it's at a very.

<unk> 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 you were sort of talking to the tenants about space needs and space planning.

What is the densities 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 the last couple of calls we've seen no change at all the density.

Youre seeing maybe a different mix of <unk>.

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

<unk>.

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 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.

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 attack.

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 and you'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.

Quarters, obviously this quarter was a good start but there's much more in the queue.

Across our portfolio.

Yeah.

Great and then I guess.

Hey, Steve Good morning look.

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

Sister companies at the end of this.

They are all.

Extremely extremely depressed and they are doubling the press.

Where they were pre COVID-19.

There is in the stocks.

And by by the sentiment that nobody everybody as insurers uncertain and worried about work from home.

It will affect CBD office business Okay.

What's 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 doing that.

Stay in New York that committed to grow in New York, That's for the financial services history, et cetera media and the entertainment industry and double and triple for the tech industry, because the bond yield with the scale that can't be replicated anywhere I mean, just again, just take two or three of the leading true.

Tech firms the leases signed in the last.

<unk> 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.

The talent pool.

So that's factor number one excellent number two is is.

Business leaders that we deal with every day, they understand where they are.

Happily with what.

Their policies are going to be what the hybrid solutions are going to be three days in the office food that four days whatever it is they know that rapidly.

Yes, they continue to believe that the office space lots of it.

That higher quality office space too.

Crude that al and retain that talent. So we're finding in the marketplace of the economy.

Actually a very aggressive and robust demand for space from the Big Boys.

In Egypt, our major industries and the.

Uncertainty.

Skepticism of work from all in the marketplace. So we're betting that our tenants know what they're doing.

Think that so.

We said that worked from the office will win it'll be nipped around the edges by sub hybrid thing people work for some number of days a week, but the people who talked 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.

Notwithstanding the uncertainty.

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.

In 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 in <unk>.

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 tradeshows, 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 trade.

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.

In 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 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.

As the major sales activity for each of these individual.

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

An important business to our clients.

Great. Thanks, that's it.

And thank you so much and 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 particular in New York City office portfolio.

Glenn.

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

I 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 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.

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

Per zoning I guess.

And 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 hotel Penn that $250 a foot number a good way to think about.

Potential land value reset at Penn one.

We continue to be happy with the number that.

We see no reason to raise it.

And with respect to the.

With 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 required for hotel Penn being a reasonable number to think about Penn.

<unk>, one which is right across the street.

Yes.

Sure.

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.

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

In this format.

Potential land value reset there.

Thanks, I think I think I think that the.

Disclosure in the footnote is appropriate.

And obviously the final answer is unknowable.

Yes.

We'll go through the process.

We'll hope for the best.

Thanks.

Thank you.

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

Yes.

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

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

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 770, 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 last because it's 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 happened. 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 multi year.

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.

Yes.

As Bob.

And it will recover.

And think about it this way the <unk>.

Shutdown.

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.

The hotels airlines et cetera.

The suffering was budgeted at all so the first reaction from.

The retailers was to go into a shell stop every day.

<unk>.

Shed liability.

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

People are now.

I think that there is life. After it people are succeeding the better retailers are actually thriving but from the pent 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.

Where we are.

Bottomed, we're in a recovery, we are budgeting and underwriting that the recovery will be slow pace.

Okay. Thank you and then I guess as you talked about that I'm sorry, It's just a good thing 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'd 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.

At very attractive prices and there hasnt been that kind of.

<unk> ability or offered yet.

I said.

Let me give you a feeling for that.

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

Those assets.

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%.

And the vacancy therefore was 70% that is.

That is accurate of course, but theres, one factoid that you have to consider.

There is one tenant.

And those five properties that is basically a.

A swing tenant 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 slate.

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

So if you take that into account and by the way if you take the.

So basically 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.

And we have to lease up 90%.

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

Our underwriting is how long will it take to climb up to a decent return.

Our judgment was that for our business.

It's a proper strategy to sell those assets at some of the proceeds where the assets are unencumbered debt on the assets. So that will bring in $184 million to $85 million of good cash that we think we can put to better use now.

Our selling Madison Avenue assets so.

A friend.

And they are at.

Extremely substantial.

Offshore buyer, who have a history.

Very intelligent distressed buys we know that we respect it.

We're friends, we laugh about each other.

We expect that.

Higher 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 that's us.

We'll 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 end Cup et cetera that was the upper east side.

Over the 25.

So obviously the luxury brands all clusters.

And that's really it.

And that was something you had effectively it oligopoly or a monopoly on luxury shopping.

Because all the customers live within walking distance of that at all tourists basically stay and upper east side.

Logic.

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

No.

The upper West side every sub market now is widening.

With.

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

Five stores what is it.

Big parking one of one a chunk in one area. So Madison Avenue has been delayed.

Diluted enormously it was thats socio demographics.

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

And by the way I am thinking is totally different than fifth.

<unk> Avenue and times square, which continue to be.

Airbus attractions.

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.

We are at now.

Agnostic to that.

We are retail investors, we love our.

So obviously, our assets, which are 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.

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 have a financing plan for the growth of.

The Penn District.

We.

We're very comfortable now having those asset coverage for the moment.

It's premature to start getting into.

What are what we will what.

How we will permanently financials as 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.

Covered we're even more comfortable with having I don't know.

Hello.

Those assets are worth.

There's a lot of money.

Many billions of dollars, we're very comfortable having those assets available.

Sure.

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 had 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.

Having low debt on the tracker.

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 last year and a half almost two years.

He has been a lot of disruption to the trade shown up in office occupancy of the asset.

I was just wondering.

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 it'll be it'll be in that neighborhood.

Okay.

Second question is on Facebook.

Now I.

I suppose.

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.

Thanks.

Yeah.

First of all these are.

<unk> clients. These.

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, Ed tenant moves out.

The net result will be.

Pretty much to say.

How are you looking elsewhere in your portfolio.

Thank you 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 to queue. Our next question 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.

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's spun out for whatever fund mandates you have and if the hole.

Thing that we've been looking at the past 10 15 years has been this holy Grail of confluence between Midtown South.

And 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 is.

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 and existing <unk>.

But to actually own the tracker versus right now they can pencil in model. All this upside that you guys have been laying out.

Well, obviously, if you sell the attractive is that going to benefit from it.

It goes without saying.

Alright, but not every fund Ken on 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.

The calculation.

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 can keep it or buy it we think will be enormous.

The enhanced by the by the transaction.

Said another way, we think that the.

Penn District.

Sure.

In the larger company.

Sure it's dilutive.

Is not as good an outcome.

Separated.

It's a pure pure play for the pet.

We understand what you're saying.

About the fact that some funds will have to sell.

Not large numbers, we think there we think it's handled level.

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

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

Okay.

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 did it Alex.

The debt tracker should.

Perform as the asset.

The underlying assets.

Then he tracks.

As Beth before.

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

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

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 news underway right now with Farley <unk> <unk>, two 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.

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.

Tremendous belief in the Penn district, we'd like to just own the Penn district like the higher risk higher reward believe in 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 will settle out when we distribute it 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 will 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 of race, we can only do better.

On 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> <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 an entire career of being supportive of business. She understands what's going on in <unk>.

Archie I understand.

And we believe that she will be a perfectly fine leader.

And.

Other than that.

I can't get into it.

Yeah.

I want 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.

We have done twice before with Jbt's urban edge.

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

Untenable.

Not a doable.

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

With our leasing and development teams for example, okay.

It also it would be it would be very.

The additional overhead would be enormous.

The trade off 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 them 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. If we did nothing in terms of separate 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 West side of New York or.

Or 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 investment.

Okay. Thank you Steve Thank you Michael.

Yeah.

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.

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

What are they focused on is it occupancy cost is 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 Ken 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 and advertising for the brand that has kind of 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 heard doesn't have anything to add there I mean.

We're replacing first of all 770 Broadway is the Facebook building.

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

Rent is significantly higher and 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 <unk> and the rest of our portfolio.

Okay.

Great. That's it for me thank you.

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 end 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.

Service and friendship, we wish her well and I'm sure everybody on the call, which is a well.

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

And 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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