Q1 2023 Vornado Realty Trust Earnings Call
Speaker 1: The.
Speaker 2: Good morning and welcome to the Varnado Reality Trust.
Speaker 2: First quarter 2023 earnings call. My name is Sarah 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.
Speaker 2: At that time, please press star then 1 on your touch tone phone. I will now turn the call over to Mr. Steve Bornstein, Senior Vice President and Corporate Counsel. Please go ahead.
Speaker 3: Welcome to Renato Realty Trust First Quarter Earnings Call. Yesterday afternoon, we issued our First Quarter Earnings release and filed our quarterly report on Form 10Q with Securities and Exchange Commission. These documents, as well as our supplemental financial information packages, are available on our website.
Speaker 3: www.vno.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 supplements.
Speaker 3: Please be aware that statements made during this call may be 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, 2022, for more information regarding these risks and uncertainties. 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, 2022, for more information about these risks and uncertainties. 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, 2022, for more information about these
Speaker 3: The call may include time-sensitive information that may be accurate only as of today's date. The company does not undertake a duty to update any forward-looking statement.
Speaker 3: On the call today from management for our opening comments are Steven Ross, Chairman and Chief Executive Officer, and Michael Franco, President and Chief Financial Officer. Our senior team is also present and available for questions. I will now turn the call over to Steven Ross.
Speaker 4: Thank you, Steve, and good morning to everyone.
Speaker 4: Let me get a few things out of the way first. Our business is performing well in this environment. Our outlook hasn't changed since last quarter.
Speaker 4: We are full speed ahead on our current projects, building over 5 million square feet in the Penn District.
Speaker 4: Any comment in the newspapers or industry tabloids that we have stopped is incorrect and just plain silly.
Speaker 4: Just take a look at our three block one construction site when you next go through Penn Station or next goes to a Knicks playoff game.
Speaker 4: Now some commentary on last week's dividend press release and reaction there too.
Speaker 4: Simply stated, we are going on offense. Let me say that again. We are going on offense. A few facts for context. We know about dividends. In 2022, our dividend was $2.12, or $435 billion in cash. Over the past 10 years, we have paid and happily paid 2 million dollars per annum.
Speaker 4: 5.1 billion in regular dividends and another 400 billion in special dividends.
Speaker 4: Last week an analyst characterized REIT dividends as sacred and I agree, well I guess I sort of agree. So this year we have already paid a 37 and a half cent or 75 million cash first quarter on a dividend.
Speaker 4: We will pause paying dividends in the second and third quarters, and in the fourth quarter based upon known facts, actual taxable income, including asset sales, etc., we will pay out as we must taxable income, but we'll reassess whether it is wise and appropriate to pay cash or in a combination of cash and script.
Speaker 4: for years and years, resisting copycat sister industry companies and resisting the pounding for battle is.
Speaker 4: years and years resisting copycat sister industry companies and resisting the pounding from analysts to quote.
Speaker 4: Close the NAB gap." I believe my resistance was logical and fact-based.
Speaker 4: But since last quarter's dividend announcement to this quarter's dividend announcement, our stock price has declined 35% from a low level to an even lower level.
Speaker 4: seeing value in the stock and an opportunity to create shareholder value last Wednesday included in our dividend press release.
Speaker 4: A board authorized a $200 million shared buyback program.
Speaker 4: We will proceed carefully and in a measured way funding the buyback from asset sales or even cash retained from paying the dividend in script.
Speaker 4: Since our dividend is sized based on taxable income, not FFO earnings.
Speaker 4: Here is the mask.
Speaker 4: 2021 taxable income was $2.03 versus a $2.12 dividend.
Speaker 4: 2022 taxable income was $2.08 versus a $2.12 dividend.
Speaker 4: 2023 taxable income is currently projected in a dollar five cents without any asset sales and surely there will be asset sales.
Speaker 4: The difference between 2022 and 2023 taxable income is primarily increased interest rates.
Speaker 4: A couple of other comments. We think we have seen the peak in work from home. More and more CEOs are now requiring their employees back to the office.
Speaker 4: With each passing week, the office buildings feel more like 2019, and we believe it's just a matter of time before everyone is back for good. New York City seems to be leading the country in this regard.
Speaker 4: Lastly, with all CBD office docs having been crushed,
Speaker 4: I am very concerned about the future viability of office. It is important to review our financial position and our liquidity.
Speaker 4: We have $3.2 billion of liquidity, including $1.3 billion of cash and Treasury bills.
Speaker 4: We have over 8 billion at today's marked out values of debt-free unencumbered assets.
Speaker 4: Pen1, Pen2, and Farley are all uncovered. The remaining capital program to complete Pen2 has been pre-funded and will be paid for out of cash balances.
Speaker 4: These buildings have significant future embedded earnings growth and as PEN2 rents up, that incremental income will do wonders for our debt metrics.
Speaker 4: We rely primarily on project level non-recourse debt, old-fashioned mortgages.
Speaker 4: Only 2.5% of our debt is re-cost and that with well-lattered maturities. We are clear-eyed and realistic about the near-term financial market challenges.
Speaker 4: It is not pretty when 3% debt rolls over into 6%, 7% or even an 8% market.
Speaker 4: We will certainly have a few workouts to deal with over the next couple of years. But that is the point of having non-recourse debt.
Speaker 4: We have no maturities this year, limited property level maturities next year, and no corporate maturities until 2025, with sufficient capacity on our line that matures in December 27, so that we don't have to finance in the current hospital market.
Speaker 3: Thank you and now over to Michael to cover the financial fund in the market. Thank you, Steve, and good morning, everyone. Starting our last earnings call, we said that we expect 2023, Comple FFO to be down from 2022, and provided the known impact of certain items, totaling a $0.55 reduction. Thank you.
Speaker 5: primarily from the effect of rising interest rates. Though the current economic environment makes forecasting more difficult than usual, this remains a decent assumption absent the impact of any asset sales.
Speaker 5: As expected, first quarter comparable FFO as adjusted was 60 cents per share, compared to 79 cents for last year's first quarter, a decrease of 19 cents or 24.1%.
Speaker 5: This decrease was driven primarily by higher net interest expense and increased rates.
Speaker 5: Our company-wide same-store cash NOI for the first quarter increased by 1.5% over the prior year's first quarter. We have provided a quarter-over-quarter bridge in our earnings release and in our financial supplements.
Speaker 5: Our core office and retail businesses remain resilient with long-term credit leases.
Speaker 5: Now turning to leasing markets.
Speaker 5: Amidst the backdrop of interest rate volatility and recessionary concerns, we remain encouraged by the level of activity year to date.
Speaker 5: Leasing activity has been led by strong demand from traditional industries.
Speaker 5: financial services and law firms in particular, with many financial firms growing their footprint and accounting for 40% of the 7.4 million square feet leased in the first quarter. The availability rate of newly constructed properties has substantially declined, with much of the new trophy space now largely absorbed at record level rise.
Speaker 5: Tenants in the market are increasingly focused on the highest quality redeveloped Class A buildings that are well-immanitized, have strong sponsorship, and are near transportation in midtown and on the west side.
Speaker 5: which is resulting in rants moving up in these buildings.
Speaker 5: Our office portfolio is filled with these types of buildings. Companies are clearly willing to pay more for the right work environment that they believe will help them retain and attract talent, as well as motivate their employees back to the office.
Speaker 5: While there is solid activity in the market, large requirement deal flow is lagging and concessions remain stubbornly high.
Speaker 5: Focusing on our portfolio, during the first quarter we completed 22 leases totaling 777,000 square feet with healthy metrics, including starting rents at $101 per square foot and a positive mark to market of 1.7% cash and 8.5% cash.
Speaker 5: This included our full building 585,000 square foot deal with Citadel at 350 Park Avenue and 82,000 square feet at PEM 1 at $92 starting rents.
Speaker 5: If we exclude the Citadel deal from our statistics, our team completed 21 leases totaling 192,000 square feet at $83 starting rents, with a very strong cash mark-to-market of 13.1%.
We are continuing to experience good momentum in the Penn District with a steady stream of new leases at Penn One at ever-increasing rents, now in the high 90s and breaching $100 per square foot in the building's power floors.
reflecting tenants attraction to the unique amenity offering we have the most accessible location in the city.
Tour activity is picking up at Pen2 as well now.
The project is nearing completion and tenants can better appreciate the redeveloped product. Overall, we have very good activity in many of our assets.
generally at higher rents than a year ago. Our leasing pipeline in New York remains healthy. We have more than 400,000 square feet of leases in negotiation, plus an additional 1.4 million square feet in our leasing pipeline.
Much of this activity is at buildings where we have significant move outs this year and next.
The financial sector in particular continues to be active. With that, I'll turn it over to the operator for Q&A.
in particular continues to be active. 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 1 on your touch tone phone. If you wish to be removed from the queue, please press star, then 2.
If you are using a speakerphone, you may need to pick up your handset first before pressing the numbers.
Once again, if you have a question, please press star, then 1 on your touch tone phone. Each caller will be allowed to ask a question and a follow up before we move on to the next caller.
Please press star then 1 on your touch tone phone. Each caller will be allowed to ask a question and a follow up before we move on to the next caller.
Our first question comes from Steve Sackwell with Evercore. Please proceed.
Uh, yeah, thanks. Good morning. Uh, Steve, I appreciate the comments on the dividend and the additional color there. Um, I just want to make sure when you talk about going on offense, does that really just mean buybacks or could that include potentially buying buildings as well? Or is buybacks really the only thing on the table at this point?
Buybacks are much more, the best value is in buying back our stock. So we will focus on our stock at the expense of buying a building here and there. If we buy a building that used to be $1000 a foot for $700 a foot...
that potential pales in relation to the value that we see in our stock.
Great. And then as a follow up, Michael, I'm just wondering if you could maybe talk about the leasing dynamics sort of between pen two and pen one. It sounds like with the renovation of pen one, you're getting really good traction at the triple digit rents you talked about when you did the redevelopment. And I'm just curious, are you getting closer to getting some.
you know, tenants in secured at Pen 2, is that project kind of nears completion by the end of this year? You know, well I guess what's the hold up on getting leases signed at Pen 2?
So yes, pen one is on fire. Leasing activity is strengthening really week to week. Great tenants, financial, technology, accounting, consulting, and rents are now piercing 100. So we're really pleased how pen one is coming along.
And really as Pen 2 unfurls month to month, the project is looking better, better, and better. Just amazing product we're delivering. And as the Pen 1 activity continues to strengthen, that seamlessly flows in the Pen 2 action.
So we now have pen and two are getting boxed out of pen one looking at pen two our tour activity is Higher than ever right now with pen two some large activities some single double two-floor activity The building will lease it is the best product available in the market
worth the great success or at least it was.
Thank you.
Steve, hang on for one more minute. You should know that earlier, we had the opportunity to lease the bustle floors, but half of the bustle floors, to two different prospects, important companies, and we turned them down. So we had a great deal of confidence in the product.
And the building, as Glenn says, the building will leave. Our next question comes from...
Our next question comes from Alexander Goldfarb with Piper Sandler. Please go ahead.
Good morning and thanks for taking my questions. So two questions. First, Steve, you guys recently, in your third quarter call, you outlined the potential to resize the dividend which you guys did, and then a few months later decided to suspend it.
Obviously, the rate environment has remained up and to the right. The office leasing, the capital needs of the company, everything else sort of stayed the same. So what changed in your view, the board's view, between deciding to resize the dividend from $0.53 quarterly to the $0.37.
to then suspending it. I'm just trying to figure out what changed because the macro and the leasing fundamentals and the balance sheet all seem to be the same.
We put our heads together and we decided that after years and years of avoiding buying back stock for lots of very good logical financial reasons, we decided that the time was now. We consider buying back stock to be an offensive move. And we decided that we were going to buy back stock.
So that's the first point. We think the value is there. We think it's, by the way, I'm not calling a bottom. What I am saying is that our company is going to devote financial resources to buying back stock. So that's the first thing and we announced it, by the way, it was a little awkward for us to announce a stock buyback.
Now the next question is the dividend and where do we get the resources to buy back back? Well the first question is that the taxable income is moving around. Things are changing. We will be selling assets presumably. We cannot yet predict how much the asset sales will be, what will be the taxable income from them. We will not know yet.
So that's the first thing. The second is that we announced in the dividends release that we will pay the dividends
at the end of the year as we must, but we don't consider suspending the dividend or postponing the dividend for two quarters to be a big deal. Maybe you do, but actually I don't. We will pay the dividend as we must in the fourth quarter, and we will pay the dividend in whatever the appropriate size is.
I'm not making a prediction, but I'm saying we are retaining that option.
Why? We believe that a shareholder receives stock in lieu of cash in a dividend should be indifferent.
It's exactly the same. You can sell the stock and turn it into cash, etc. So we believe that it is, by the way, a sort of humorous, we did spend a significant amount of time to r defend long-term profits.
We're going to be perhaps issuing stock in lieu of cash for a dividend, but we're going to be buying back stock. Isn't that circular? And the answer to that is no, it's not because the issuing stock for a dividend is pro rata. Everybody has exactly the same percentage ownership in the company the minute before they get the stock and the minute after they get that stock. And a buyback, however, is discriminant because people will make a decision to sell and reduce that percentage ownership in the company.
or to not sell and increase their percentage ownership in the company. So anyway, the fact of the matter is that we will size the dividend at the end of the year. We will make a determination as to whether to pay it in all cash or part cash and stock.
I think it's offensive and we think actually the right thing to do. So that segues into the next question. So I mean obviously you've seen your cross-town peer do a few billion, Hudson did a buyback. I mean there's not a lot of evidence that buybacks help but when we look at your balance sheet it looks like you have 2.4 billion of debt where the swaps expire later this year. So my question is wouldn't the 200 million be better spent paying down that debt and Michael in the $0.55 that you said this year would be down versus last year.
that includes these swaps burning off or these swaps burning off are incremental to that.
No, it's whatever we mentioned last quarter reflected our expectation of swaps, caps, etc. that roll off this year. So that's in that number.
Alex, we have a great deal of confidence in the strength of our balance sheet.
We think that our maturities are well-lattered. We think that most of our debt, the vast majority of it, our debt is non-recourse, and that's a crucial and very important element in the strength of our balance sheet.
Management of our debt in contrast to buying back our stock each time we get into the situation of making that choice. We have confidence that we will make the right decision by the way. Okay, thank you Steve. Yes sir. By the way, one last point, okay, there's no other company that I'm aware of that is spending multiple billions of dollars on a-
Our next question comes from Michael Griffin with Citi. Please go ahead. Great, thanks. Maybe just piggybacking on Goldfarb's question there about the stock buybacks. I mean, Steve, you just used the phrase, I'm not calling the bottom. I guess what gives you the confidence?
you know, that the stock is, you know, trading so cheaply relative to, you know, your expectation, right? We've known that office and ABs relative to the stock price have been pretty materially depressed recently, but your share price relative to GFC times is down 30 plus percent from the beginning of 09. So.
have you drawn some analysis? Is there really some kind of thought behind it? Or is there a worry that this could be akin to catching a falling knife, so to speak?
It's Michael Griff. Good morning. The answer is, what I think what Steve said, he's not calling the bottom.
I think that commentary relates to the macro environment is likely going to remain choppy near term. The Fed appears to be coming to the end of their tightening cycle, but it's not definitive. We don't know whether rates will stay higher or more extended period of time.
But I think as we evaluate the company and we look at the price of the intrinsic asset value, even on a stress case, we think it is heavily discounted, right? So we think that the pricing has become irrational. Every day there's negativity about office and the media.
And some of that's warranted, but we think that's the whipping void for today. And so that's going to continue. That obviously has an effect on sentiment. And so it's gotten a bit extreme, right? And I think our action is a reflection of that. And as we stress the valuation, and we have, some Thomson Sachs picks,scape it
Uh, you know, we think there is a significant margin still. That's helpful. Um, and then maybe just one on leasing for Glenn. Uh, I guess X Citadel this quarter is about 200,000 square feet of leasing. Was there anything really driving that? And then do you have any big updates on, I guess, the move out at 770 Broadwell?
some strong financial service deals at our Plaza District buildings, you know, with rents that started at $83 a foot, cashmarked the market at 13% on those deals.
So that is the first quarter non-citadel activity. As it relates to 1290, 770 and other expirations this year and in 24, we're obviously in the market and we're seeing very strong demand for those properties.
If you think about the portfolio, we think it's the strongest in the city and those buildings particularly have underwent great redevelopments in the past. We're adding some of our work life amenity programs to those assets currently on the board being drawn up. So a lot of our pipeline
That's at 1290s the 770s the 280 parts the pen ones etc So we're out there We're already in paper on a lot of space at some of those assets And I feel good about those properties and those spaces coming back in terms of making Matches with the tenants are in demand in the market right now
I may just add to that, I think I mentioned this in my opening remarks, if you look at what's happened in the market, the new trophy space that was delivered, which has seen record ranks significant demand, that's largely spoken for.
And I think we've talked last quarter about a broadening out of tenant activity. Not everybody wants to pay high 100, $200 square foot rents. Well located, redeveloped assets near the transit hubs are what is seeing that demand. So
you know the buildings where we have holes in them the 280s the 1290s etc. you know we're seeing very good tenant activity there and you know rents are starting to move up in those assets and so I think I think that's important right concessions are high but rents are starting to move up from these other assets because there's such a delta between you know the new buildings and these redeveloped assets that are well located.
evaluate the cash versus script component and decided that time based on what we've bought back and how much we generated from asset sales, etc., etc., what's the right mix?
It just seems like if you're buying it back and it's in... Sorry, go ahead. So I'm remote and my equipment stinks. So sorry, I cut out from the back. The reason for the pause of the dividend is to give us time to evaluate all of those things that Michael just mentioned. I was just going to say, it makes sense to buy back at these levels, I suppose, at a 10% implied cap rate or so, but then if you issue it back at 10%, then it doesn't really make an impact.
But my second question is... It does for an individual holder, John . John , it does for an individual holder, right? In other words, if you, right, all that's pariah, as Steve said, if you hold the route, right, you owe more of the company going forward. Got it. Okay. My second question is on the leasing pipeline. As I said, John , as I said, that's a circular argument, which we spend a great deal of time on in our council room and even in our board room. The issuance is pro rata. You own exactly to the penny the same percentage ownership of the company that you used to own. You have a few more shares.
Hi, it's Glen Weiss, John . I would say very consistent. So when we talk about 400,000 feet out, that's leases, documents in negotiation, where the term sheets are final and the lease documents are being negotiated. The additional 1.4 million feet are deals that were speaking with brokers and tenants. We have proposals in the house. We've responded to the process of that.
deal making, the tenant demand, the tours, you know, have been consistent the last, you know, call it two to three quarters.
And can you break that out geographically? I would say between Penn and Midtown, for us, pretty well averaged out between the two submarkets. And in Midtown, mainly the Plaza District buildings, which attract the financial service tenants.
Very helpful. Thank you. Our next question comes from Camille Bonnell with Bank of America. Please go ahead.
Good morning. Can we touch on the financing market? We've been hearing over recent weeks that the credit spreads have moved higher since the issues around regional banks but notice you completed a refi on Rosalind Plaza this month and the spread came in slightly lower. Was this a surprise or more of a reflection of other characteristics of the loan? Michael? Yeah, you know Camille, I think every asset is
Again, it's asset dependent, sponsor dependent. You know, there is capital out there. It's not robust by any measure, but there is capital out there for the right sponsors, right assets. And, you know, with good term or the right loan to value levels, you know, the spreads, will be a wider than a couple years ago.
are still okay. I think it's where you have assets that are higher levered or where there's much more volatility in the income stream near term where it's more challenging. So I think Roslyn was a small asset, good execution and reflective of a high quality location.
My take on this Camille is markets are extremely hostile. This is the time in the cycle where your best should not have to refinance or finance. If you have to finance, you're at a huge disadvantage.
And one of the things that I like about our strategy is we have very little that we have to finance.
So especially with our cash hoard, which is financing our pen construction. So the markets are really hostile and the best bet is just stay out of them. You were cutting out a bit Steve, but I think I got parts of your message. So thank you. And then just switching, in the last quarter Glen talked about –
the opportunity of converting showroom space at the Mart to office. I was wondering how that specific business plan is progressing and how interest has been tracking so far into April .
So the casual business departed for Atlanta in the fourth quarter. We're now preparing that space for office leasing. In general, we have a pretty good pipeline in Chicago. Our amenity program will be complete by June . We're going to be out there with Ocon and another broker event this summer, which we're looking forward to.
to really bring the program out to the market. So you know, the pipeline is good in Chicago, but the market is tough. There's not a huge allowed tenant demand, and particularly not a large tenant demand except the present. Our showroom business continues to perform. We've leased about 60,000 feet this quarter at $60 starting rates on the showroom business.
The office business, we've leased over a half a million feet of office the last three years. We have modest expirations the next three years. We're grinding out the office. We're getting looks from all the majors. We're in very solid discussions now with a couple tenants looking to move their headquarters to the mart. So starting to feel better, but certainly tough conditions in Chicago as we sit here.
Our next question comes from Julian Bloulin with Goldman Sachs. Please go ahead. Hi, good morning. Thank you for taking the question. I wanted to go back maybe to the potential for asset sales. I know on the last call I think the comment was that you didn't foresee being able to de-lever via asset sales for the next 24 months.
Just curious to sort of get your thoughts on that.
Michael? Yeah Julian, you know I had seen your, I guess Kaitlyn's note, and I was a little surprised by the comment about you know no assets those next 24 months. I don't think we said that on the last call you know I think I think we said it's a more difficult market to sell assets in but I don't think we said we weren't going to try to sell assets.
I think we've said we're going to be targeted and recognize that you have to be realistic and thoughtful about what you sell. I don't know that our outlook has changed that significantly. It continues to be a difficult market to sell assets in. We think we have some that as we think about which assets we want to sell.
and pricing has been impacted, our share price has been impacted more. So I think that's exactly right. We may not love the price of some assets today relative to where they were a few years ago, but relative to our stock price, we do like that pricing. So the answer is we're not a for-seller.
We don't have to sell anything. We're going to be targeted. We can't execute some sales. We have some dialogues going on certain assets We're going to we're going to pursue on a couple of other things that Probably you know we're not in our thing a little bit earlier in the year And you know our expectation is we're going to be able to execute on some of that, but you know given
Our next question comes from Daniel Isma with Green Street. Please go ahead. Q&A session
Hi, guys. Dylan on here. You know, just touching on the asset sales, I guess, you know, do you guys have anything in the market today? And if you could provide sort of further detail or color on sort of what sort of the profile of these assets are, should we expect these to be some of the higher quality properties with Long Walt?
Daniel, we're not going to get into specifics. The answer is we have discussions going on a few assets. This is not generally a market that you blast things out. You got to focus on who has capital, who's willing to deploy. I will say there are a number of investors that view this as an interesting time to enter in New York.
And in some cases, there's decent duration on the leases. Other cases, it's more traditional rollover in terms of buildings, certain percentage every year. And as I mentioned, it's a mix of both retail and office. So not gonna get any more specific to that until we have something to announce. But as I said, we do think that they're executable if you find the right investor and your realistic gun price.
hangout spaces.
But you know if you look across the portfolio generally you know you're still seeing some private office mixed with the traditional cube open areas. You know in terms of densification.
You know some industry types are more dense, some are saying density they were. It's really a mixed bag I wouldn't say a consistent, you know layout of any industry type as you relate one to the next So, you know generally I don't think there's much of a new theme than what we've seen previously other than you know the quote-unquote hangout collaborative collegial environment
I mean the one thing that we have focused on in terms of the workplace is what we've done in the buildings, particularly at Penn 1, what we're doing at Penn 2, what we've done at the mark, what we're going to do shortly at 1290, where we believe tenants want to be in these buildings because of the way we have really improved the experience when you first enter the asset.
So the first experience, that impact, we think most important is our success. When people come in, they're comfortable, they could eat, they could drink, they could hang out, they could go to the gym, whatever they're going to do. We look at it like they're coming into a concierge hotel environment. And that's how we've created these new workplaces in our portfolio.
which has been working extremely well as it relates to our program. Great. Appreciate the color. Thank you. Our next question comes from Derek Johnson with Deutsche Bank. Please go ahead.
Years ago in 2018 which seems like another world, you hosted Seinfeld at 555 California Street for investors, so stay with me. So Jerry's bit was about...
You know me. I could be anywhere. Why am I at a tent in San Francisco?
So Steve, look we all know you. You could be anywhere, but you are right here. You are sticking this out.
which means to us that you see a way out of this negative office read narrative. So I guess the question, how do you envision, what's it going to take for Vornado to get past this environment and emerge stronger?
Well, I need to get Jerry Seifelt to help me answer this question.
You know, I think it's happening now. I think time is our friend here.
I think that it's very clear that employers want their employees back in the office. They want to be able to have people working together. They want the managers to be able to manage their people. And so they have beenCont precedence Park integersurous resolved
struggling because there is a cadre of employees that are sort of fighting coming back to the office. I think that over time, if you go back, if you go forward, you look out five or seven years, I think we will go back to what was considered normal.
The restaurants are full, the cities are full, the streets are full. There is a reluctance on the part of certain demographic of coming, actually going to work in the office. Okay? And that is the everybody's graduating program, and I'm honored that that is the early part
That is starting to evaporate. Time is up, friend.
That is starting to evaporate. Okay, time is our friend. Thanks Steve, that's it for me guys.
The next question comes from Vikram Mahaltra with Mizzouho. Please go ahead. Thanks for taking the question. So just first I wanted to clarify, you said nothing changed between when you adjusted the dividend down a couple of months ago and then now. I am just sort of…
looking at the dividend run rate you had then and now the taxable income you're projecting, do you just help bridge what appeared to be sort of your projected taxable income run rate of let's call it 37, 38 cents and today it's more like 25 cents? I'm just wondering, your debt is fixed now, I'm assuming you had outlined I think 50 cents.
And that was to FFO, I know, but you had outlined various impacts that you baked in. So I'm just trying to bridge the two numbers. What has changed in driving that projection lower from here? And can you just comment if that projection now includes a change in the way exploration may be renewed?
As I said nothing's changed we have left room for some asset sales by the way if you read the Boston property CFO's comment in their earnings call you'll see basically exactly the same statement that I just made
So what I'm saying is that we right-sized the dividend and we left room for asset sales.
saying is is that we we right-sized the dividend and we left room for asset sales. Okay that makes sense.
I was just going to say you talked about asset sales not knowing where pricing is or what could be achieved but from your vantage point we have seen a variety of different trades, some in New York, some in California with handles that are
We probably didn't think we would see this maybe a few years ago, $300, $400 a foot. Some other buildings are maybe higher. But I'm just trying to understand, A, how are you identifying what assets to sell? And then is there a point in which you say the sale doesn't make sense given pricing? Yes, I'm just trying to get a sense of where do you see values?
shaking across a variety of office types. You know, we're familiar with the, what you're referring to. We are not a distressed seller. We are not a weak seller. In fact, we are, we are selecting a, focusing on a very select,
So you can count on a couple of things. We will be very selective. We are We are not in the wholesale selling business and if we do We better we we we know how to walk away We know how to say no if we do execute we will it will be extremely accretive
Okay, thank you. Our next question comes from Anthony Palone with JP Morgan. Please go ahead. Thank you. Just on the Penn district, apologies if I've lost the thread on the back and forth.
You know what?
what's committed to or what do you intend to do outside of that, if anything? We haven't gotten into that. We haven't announced that. We haven't...
We haven't quite gotten that far. We have already in the Penn District done heroic accomplishments. We did the Moynihan Train Hall in a private public partnership. We did the widening of the Long Island Redwood Concourse.
We have the resale on both sides of that concourse. We completed the 730 odd thousand square foot space with steel in Farley. We have done a massive and very successful renovation of pad one.
where we have driven the rents from $55.60 to the stunning side of $100 a foot and delivered value to our tenants and we are in the middle of a billion dollar renovation of pen to we
Together with that, we are doing area-wide improvements, infrastructure to the public realm, and we're going to take a breath. The public realm, Con contun pia in private
of doing ground up development, we will likely start with an apartment project.
But we have not yet announced what we're doing. We're in the middle of planning that and we're actually very excited about it. Okay, thanks. And then just one clarification question for me or just reminder. Like if I was on your balance sheet, the 14 or so million Class A units seem to have a redemption.
price of I think about $23.50 a share. I mean given where the stock is, is there any thought that those holders could exercise and am I looking at that right?
Michael or Tom, you're going to have to help me with that one. Yeah, let us come back to you on that one. Okay, thank you.
Our next question comes from Nick Ulica with Scotiabank. Please go ahead.
Thanks. I wanted to see if there's any other update you could provide on the retail JV and I know the loans that matured, we're still talking to the lenders, just how would you think about that? Is there a situation where you are prepared to walk away from the assets and specifically as well that one mortgage, 645th, that's a little bit of a
which matures next year, which is one of your loans that is recourse to the company. What should we think about the plan on that specifically?
Michael? Yeah, good morning, Nick. You know, on the first asset, St. Regis, which we talked a little bit last quarter, you know, that continues to be in discussion with the lenders.
Uh, and you know, we're I think heading towards a, uh, usually acceptable resolution there. Uh, so hopefully that will be done in the next, you know, 90 days. Um, and, uh, you know, with respect to 6 40, which matures next May.
You know, that's something that we started to work on now, start to gauge the financing markets, talk with an existing bank loan. So obviously the existing lender is somebody that we'll continue our discussions with as well. We're only telling exactly what's going to happen there, but obviously...
You know sort of two three four years ago right retail. Where's a four-letter word? Nobody wanted to touch it That's changing. You know it's changing Unfortunately you know office is now in that category for most people but for retail It's flipped you know retail is I think people view of the worst is behind us
The capital markets are more constructive, both investors as well as lenders. And so, yes, they have to sort of understand and think about how to deal with above market rents.
Some cases, but you know I think in general the capital markets are more constructive on retail today Than they have been in a few years Okay, yeah, thanks Michael just one of the question is going back to the you know the commentary on a potential buyback You know I mean the debt capital markets right now seem as bad as they've been For office since the great financial crisis, and you know there's a bearish argument that may be the lending market
paying down debt, I mean you have a balance on your line of credit, you have maturities you're dealing with over the next year or so. Why isn't that the better use of capital? Sell assets, pay back debt and perhaps that would even reward your stock price more so than a buy back. I hope you have a great day.
I mean you have a balance on your line of credit, you have maturities you're dealing with over the next year or so. Why isn't that the better use of capital? Sell assets, pay back debt and perhaps that would even reward your stock price more so than a buy back. Michael, why don't you try that?
You know nick. I don't think I mean to be clear I don't think we said you know buyback and not I mean we said asset sales I don't think we said just buyback right I think I think
Depending on, I think we said that first of all, the buyback amount we put out, I would characterize as fairly modest. And as Steve said earlier, you know, could be funded largely from retained cash from the dividend. But in terms of asset sales, yeah, I don't think we've said anything about, you know, that's just oriented towards buyback. You know, if we execute on asset sales, of course, we're going to look at...
the proceeds and what the best use for that is. And we're very mindful. Our number one priority is making sure our balance sheet remains strong, we can tackle anything, and de-levering certain situations or pushing out maturities by paying down. Of course that's gonna be in the toolbox. So we agree, we're gonna focus on making sure the balance sheet's strong and you know.
Asset sales are going to be used for a variety of different things. Appreciate it. Thank you. Our next question comes from Ronald Camden with Morgan Stanley . Please go ahead.
Hey just a couple quick ones so I was looking at the CASFLOW statement and looking at the 92 million dollars of operating CASFLOW this quarter you know obviously there's some working capital seasonality but but just one can you talk about what happened to OPEX in the quarter looked elevated
I suspect sort of flowed through and then two I know you said nothing changed but was this sort of cash flow in one cue part of the connecting the dots about postponing the dividend and thinking about doing a script dividend just to preserve cash flow.
And your second question, Ryle, definitely not. I mean, again, nothing has changed. So no. On the OPEX... Maybe there's some seasonality. Ryle, we could work offline and take a look at your model. So Ryle, how does your mojo
On your second question, Ryle, definitely not. You know, I mean, again, nothing has changed. So no. You know, on the OpEx... Maybe there's some seasonality. You know, Ryle, we could work offline and take a look at your model. I don't think it's material. I don't think it's material, though.
Great. And then just the last one just on the refinancing. You know, you already hit on the 5th Avenue property, which I was going to ask about. But any comments on 280 Park. As well, which is coming next year and just any general color when we're thinking about the model.
What sort of rates, potential pay down, how are you guys thinking about that? Thanks. Yeah, what I would say as a general comment, Ronald, is your existing lender is your best new lender. So, you know, I think most lenders appreciate that, that it's going to be difficult to refinance, certainly large assets.
for the foreseeable future. So they're gonna have to work with their borrowers, sponsors, they feel the right stewards of the asset, which clearly we are. And so I think on a number of these situations, you're gonna see extensions for these loans. So in some cases there might be paid out, in other cases there might not be. So the answer is discussions have started there.
and we'll see how they ensue. But I think on these larger neotrim situations, I think the lender, the lenders, the borrowers are fairly tied together for the near term.
they ensue. But I think on these larger near-term situations, I think the lenders and the borrowers are fairly tied together for the near term.
Thank you. Our next question is a follow up from Alexander Goldfarb with Piper Sandler. Please go ahead. Hey, thank you for taking the follow up. Maybe I missed it, but did you guys talk about 555, one the debt restructuring with the servicer, what you guys are thinking about that, and two, just given all the stories that we hear about, you know, just the state of San Francisco's office market.
what's going on with leasing in the building, the Montgomery Street box, etc. Yeah, I'll touch on the first and then I'll have Glenn touch on the second. Alex, you know, it's it can be a bit frustrating when things are written which are just not fact-based. You know, there's this notion that 555 was in a workout or there was something gone. The answer is that the building is performing extraordinarily well. There's no issue with the loan. We took at a outstanding loan.
two years ago and it was structured as a two-year initial loan with a series of five-year one-year as-of-right extensions right my as-of-right if you want the additional term all you have to do is send in a letter and you get it right so once a year we're going to send a letter to the servicer we're going to extend the loan and that'll be that right so there's no threat of default there's never been a threat of default there's never been an issue with this loan it was a seven-year loan structured that way so all the articles written on this thing
you know, nobody did their homework. And there may be other situations like that. So it bears understanding how the loans were structured and what the real story is, which, you know, everybody that wrote on that just got it dead wrong. In terms of the building, I'll let Glenn talk about it. But again, it continues to be, I think the best performing asset in San Francisco with just the premier line of a financial service. Hi Alex, it's Glenn. Michael, Michael, Michael, Michael, Michael, the rate is swapped. Yep, yep, that's right Steve. So the rate is also Alex, Alex, Alex, first of all, it's really a seven year loan.
Which has right combination to the lender was structured as a two plus five ones okay, seven year loan and So anything so the newspapers got it all wrong The second thing is is that it was a floater that we swapped at a very favorable rate And we swapped it for I don't know six and a half years or something like that So so and the second thing is is the best financial services building in the marketplace It's full when you want to come in about the quality of the building
Well, the building has been perfectly insulated against everything you're reading about in that marketplace. We've lost zero tenants to anything. Goldman Sachs, KKR, Microsoft, B of A all renewed their leases during the last three-year period, which speaks to the asset. I think that's all I really need to know, and none of them reduced in size. We're obviously in the market with the Q345. That's our only vacancy at 77,000 feet. We finished the redevelopment obviously a couple years ago. We continue to show it.
But the campus, you know, three buildings has performed perfectly during this period And it's clearly shown that it's the best asset in the city Okay, I appreciate both both comments. So thank you You'll pardon us if we get a little bit annoyed at the disinformations That's the beauty of these earnings calls
is three buildings has performed perfectly during this period and it's clearly shown that it's the best asset in the city. Okay. I appreciate both comments, so thank you. You'll pardon us if we get a little bit annoyed at the disinformations. That's the beauty of these earnings calls. But for me personally...
This concludes the question and answer session. I would like to turn the call back over to Stephen Roth for any closing remarks. Well, thank you all very much for joining us. We are actually very excited about beginning a buyback program. We're also, we think what we're doing with the dividend is extremely logical and we understand and appreciate your support. So, thank you all for joining and we'll see you all in three months.