Q4 2022 Vornado Realty Trust and Alexander's Inc Earnings Call

Speaker 1: Oh.

Speaker 1: O.

Speaker 2: 4th quarter, 2022, Ardyn's call.

Speaker 2: My name is Vina and I will be your operator for today's call. This call is being recorded for replay purposes.

Speaker 2: All lines are in a listen only mode.

Speaker 2: 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 one on your touchtone phone.

Speaker 2: I will now turn the call over to Mr. Steve Borenstein, Senior Vice President, Incorporation Council. Please go ahead. Please return to your seats.

Speaker 3: Welcome to Vernado Realty Trust's fourth quarter earnings call. Yesterday afternoon, we issued our fourth quarter earnings release and filed our annual report on form 10K with the Securities and Exchange Commission. These documents, as well as our supplemental financial information packages, are available on our website www.dono.com under the investor.

Speaker 3: for looking statements and actual results in the firm material from these statements due to a variety of risks, uncertainties, and other factors. Please refer to our filing, which is the Security and Exchange Commission, including our annual report on 1-10K for the year ended, December 31, 2022, for more information regarding these risks and uncertainties.

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 opening comments are Stephen Roth, Chairman and Chief Executive Officer and Michael Franco, President and Chief Financial Officer. Our senior team is also present and available for questions.

Speaker 3: I will now turn the call over to Steven Ross.

Speaker 4: Thank you, Stephen. Good morning, everyone. It's Valentine's Day. It's Valentine's Day.

Speaker 4: As Michael will cover in a moment, 2022 is a strong year with comparable FFO up 10%.

Speaker 4: Fourth quarter FFO was down 11% due to higher interest rates.

Speaker 4: X rising interest rates are core businesses performing quite well.

Speaker 4: Not surprisingly, we expect 2023 will be a down year negatively impacted by a full year of higher rates.

Speaker 4: I'd like to share with you a few other thoughts.

Speaker 4: Notwithstanding all the noise, New York continues to be the most important city in America.

Speaker 4: We continuously survey dozens and dozens of our tenants, all of whom reaffirm their commitment to stay and grow in New York.

Speaker 4: And that goes for our clients who are headquartered in other cities who are making New York there so to speak second home.

Speaker 4: And it's not by chance that the New York area is the tightest residential market in the country. People want to live here.

Speaker 4: To feel concrete and current war law important, but in our business capital is the essential war the ??

Speaker 4: We are now in the middle of a Federal Reserve tightening cycle. The result of which is, interest rates are up and capital is scarce, and that's an understatement.

Speaker 4: Notwithstanding Fed funds at 5%, most run-of-the-mill real estate operators can't borrow at 10% or can't borrow at all.

Speaker 4: So here's what we have done.

Speaker 4: Several years ago when we began the Farley Facebook, Penn One, and Penn Two projects in our all-important Penn district.

Speaker 4: We loaded in over $2 billion in cash to pre-fund 100% of our development and construction

Speaker 4: We didn't know that now prescient this would be

Speaker 4: So, Folly Facebook is now finished in page 4. Pen 1 almost sold and pen 2 will finish around year end.

Speaker 4: Well, three of these assets will be free and clear and unencumbered, and that's quite a thing to know please."

Speaker 4: We handled all of our 2023 and 2024 maturities.

Speaker 4: We put on a series of swaps and caps.

Speaker 4: But while very helpful, they provide only partial protection.

Speaker 4: And I would observe that there really is no protection against loans that mature in a rising interest rate market.

Speaker 4: And a further observation is that the stock market prices at the current interest rates giving no credit to a company which might have lower rate loans even if they're locked in for term.

Speaker 4: Beginning first quarter of this year we declared a right size citizens allowing us to attain a 128 million cash annually.

Speaker 4: And by the way, our stocked still trades in a two-high six and a half percent yield.

Speaker 4: In January , we completed an important deal with Citadel at our 350-part fairview building, which involved their mass-policing the entire 585,000-square-foot building, essentially relieving us of 225,000 square feet of vacancy.

Speaker 4: This deal will almost certainly result in a teardown and a new build of a grand 1.7 square foot power on a larger assembled site.

Speaker 4: Please see our press release of December 9, 2022, explaining the transaction.

Speaker 4: We have lots of friends on Wall Street and I might mention that by any measure return on equity or return for employee or whatever, Citadel is at the head of the class and tentally focused and aggressively growing.

Speaker 4: This deal validates the quality of our site, our development team, and New York.

Speaker 4: Interestingly, Ken tells me that a significant differentiator for his firm is the simple fact that everybody comes to work every day, five days a week. I think they started 730.

Speaker 4: There is a learning here. Call me crazy, but I think companies that embrace work from home will be left behind.

Speaker 4: And I think it's absurd to think that years from now tens of millions of Americans will be working from home alone at their kitchen table.

Speaker 4: And by the way, Zoom may be a disruptor, but its stock is down from 588 to a still high 75 today.

Speaker 4: You will notice in our supplement that we updated our development projections for Farley Penal and Stepah ? .

Speaker 4: raising our aggregate projected returns.

Speaker 4: This, based on the fact that in 2022 we leased 200 to 25,000 square feet at Penn 1 at average starting rates in the 90s.

Speaker 4: And based as well on the outstanding marty reaction we are getting to pen 1 and pen 2.

Speaker 4: Our strategy here is to achieve very strong returns at rents well below those required for new construction.

Speaker 4: The PED-1 ground lease process is now kicking off, as required by Gapet Counting Convention. In the first quarter of 2023, we estimated a ground lease of 26 million and reflected that in our statements.

Speaker 4: Based on current market conditions, we now think that numbers should be quite a bit lower.

Speaker 4: We expect 2023 will be challenging as business and consumers continue to feel the effect of the feds aggressive rate increases and generally tight nibbelts and active caution.

Speaker 4: This will likely be reflected in lower leasing volumes and frozen capital markets.

Speaker 4: We believe quality product wins today. Just look at our new bills, new lobbies, amenities at Penn 1, new skin at Penn 2, etc.

Speaker 4: Not long ago, new construction commanded a $20 premium. Now, it commands a $100 premium or more. Does anybody think that's too high? And that the market will adjust. One more point, and this is an important one.

Speaker 4: In the history of the real estate, all great upward landlord markets follow the period of constrained supply. Here we are. Capital markets are now making it almost impossible to build new.

Speaker 4: which will be the foretellers to the next bull market and landlords market. Now over to Michael.

Speaker 5: Thank you, Steve, and good morning, everyone. As Steve mentioned, we had a strong wear despite experiencing headwinds and rising interest rates.

Speaker 5: For the year, comparable FFO as adjusted.

Speaker 5: with $3.15 per share, up 29 cents or 10.1% from 2021.

Speaker 5: Fourth quarter comparable FFO as adjusted was 72 cents per share compared to 81 cents for last year's fourth quarter a decrease of 9 cents or 11.1%.

Speaker 5: Well, earnings for the quarter were down, driven primarily by higher net interest expense from increased rates and the non-cash straight line impact of the estimated 2023 Penn 1 ground line expense.

Speaker 5: Our core business has strong performance from the rent commencement on new office and retail

Speaker 5: We have provided a quarter over quarter bridge in our earnings release and our financial supplement.

Speaker 5: We have several non-comparable items in the quarter, primarily engaged in 220 Central Park South sales and other non-core asset disposition.

Speaker 5: which in total increased FFO by 19 cents per share.

Speaker 5: As previously announced, we recorded $595 million of non-cash impairment charges during the fourth quarter, of which approximately 483 million released for equity investment in the fifth avenue and the Times Square retail joint venture.

Speaker 5: It should be noted that the impairment charge is not included in FFL.

Speaker 5: Company-wide same-store cash in a lie for the fourth quarter increased by 7.9% over the prior years fourth quarter.

Speaker 5: Our overall same-store office business was of 8% compared to the prior years for a quarter, while our New York same-store office business was of 5.4%. Primarily knew the cash rents of Farley coming online.

Speaker 5: Our retail same-store cash NLI was at the very strong 7.9%

Speaker 5: primarily due to the rent commencement on several important leases.

Speaker 5: Now turning to 2023, while the current economic environment makes forecasting more difficult than usual, we expect our 2023 comparable FFO to be down from 2022 given the known impact of certain items.

Speaker 5: These include roughly 40 cents from additional interest expense as a result of a full year of higher rates on a variability of debt, met of higher interest income and capitalized interest.

Speaker 5: assuming the current SOBER curve. Ten cents from the prior period of property tax accrual at the mark was recognized during the second half of 2022, and five cents of lower FFO from the sale of assets in 2022.

Speaker 5: These reductions could potentially be offset by a lower result on the PEN-1 ground run reset that is currently running through earnings, which Steve mentioned earlier.

Speaker 5: Now turning to the leasy markets.

Speaker 5: We see 2023 is a year of both challenges and opportunities.

Speaker 5: The pace of leasing has slowed in the past few months and the activity is lumpier, as businesses generally are feeling cost pressures and are exercising more caution.

Speaker 5: Companies are still grappling with hybrid work policies in the right level of flexibility.

Speaker 5: But overall sentiment is shifting more closely at pre-pandemic norms.

Speaker 5: We are seeing a real pickup in the return to office throughout our portfolio, particularly Tuesday to Thursday.

Speaker 5: Utilization rates are approaching 60 percent and the momentum is improving month by month.

Speaker 5: Both employers and employees clearly recognize the productivity, collaboration, creativity, and cultural benefits of working in the office together.

Speaker 5: Flight to quality continues to be the prevalent theme for tenants. However, releasing activity is broadening out. We are seeing a pickup and activity in the traditional multi-tenant class-a-buildings as tenants are dealing with the aforementioned cost pressures and are not all willing to pay new construction rents.

Speaker 5: One thing we do think will begin to emerge this year is a heightened focus on the quality of the landlord. Many landlords, particularly private ones, are beginning to struggle with high leverage levels, which may limit their ability to invest capital in their buildings, or in some cases, even retain their assets.

Speaker 5: Tenants and their brokers are smart enough to figure out which buildings these issues are at and avoid them.

Speaker 5: Strong or capitalized landlords like Bernada will benefit.

Speaker 5: A perfect example of flight quality, the strong sponsorship is the previously announced 350 park avenue of transaction with Citadel.

Speaker 5: We began our relationship with Citadel 350 Park in the beginning of 2020 with an initial 120,000 square foot lease. In our proud relationship, we have built with our team which is culminated in this master lease in the future of potential partnership for a new 1.7 million square foot world-class building at the site.

Speaker 5: Our overall leasing pipeline in New York remains healthy at almost 1.2 million square feet of leases.

Speaker 5: with 275,000 square feet of leases being finalized in another 900,000 square feet of activity in various stages in the negotiation.

Speaker 5: The financial sector in particular continues to be active.

Speaker 5: Turning the retail with the rebound and tourism of daily workers where I contain to see more retail or search for your hand for new store locations.

Speaker 5: Retailer sails are generally back in every pandemic levels, which is spurring retailers to become more confident and active and taking new spaces.

Speaker 5: They are still concerned about inflation in the overall economy, but are starting to lock in deals given a answer of much more attracted levels.

Speaker 5: Starting to the capital markets now, the financing markets remain highly constrained, driven driven by the ballot till it from the fed's sharp rate increases.

Speaker 5: Thanks for dealing with increase in problem loans and remain cautious in lending and the CNBS market is still largely closed.

Speaker 5: Financing is available for the highest quality sponsors and properties.

Speaker 5: The markets will take some time to thaw, which likely won't happen until the Fed ends its Titan cycle.

Speaker 5: On the asset sale front, it continues to be active interest investors in the York office and retail asset.

Speaker 5: But without a stable financing market, it remains difficult to transact large assets without that in place to have right now.

Speaker 5: And these volatile times remain focused on maintaining balance sheet strength.

Speaker 5: Our current liquidity is a strong $3.4 billion, including $1.5 billion of cash, restricting cash and investments in UST bills, and $1.9 billion on draw on under our $2.5 billion of revolving credit facilities.

Speaker 5: In addition, as a result of our refinancing activities early last year.

Speaker 5: We have no significant majorities.

Speaker 5: We have no significant majorities through mid-2024.

Speaker 5: With that, I'll turn it over to the operator for Q&A.

Speaker 2: Thank you. We will now begin the question and answer session.

Speaker 2: If you have a question, please press star then one on your touchtone phone.

Speaker 2: If you wish to be removed from the queue, please press star then too. If you are using a speaker phone, you may need to pick up the handset first before pressing the numbers.

Speaker 2: Once again, if you have a question, please press star then one on your touchtone phone.

Speaker 2: Each caller will be allowed to ask one question and a follow-up question before we move on to the next caller.

Speaker 2: Our first question comes from Steve Sakewa with Erecore ISI. Please go ahead.

Speaker 6: Thanks, good morning. I guess I wanted to start with the developments and the yield Steve that you talked about. I guess I can understand maybe the PEN-1 return going up a bit since you've got kind of active leasing and maybe good mark to market. And a little more visibility there.

Speaker 6: But I guess I was a little curious about Penn 2. You did take the yield up there, but I don't think you've done any incremental leasing. But maybe that's part of the pipeline that Michael talked about. So could you maybe just sort of address those two?

Speaker 4: We took the yield up on 10. We took the yield up on 10.1 and 10.2. We took the yield down very marginally on, on, on, on, and on, on, on, on.

Speaker 4: We did that based upon now we have, you know, a year, year and a half, even two years of experience with these assets. We know what the market's reaction is. We have side 220,000 equity releases of PEN1. We know what the BID and AFK is for PEN1. We know what the BID and AFK is for PEN2.

Speaker 4: and it exceeds our initial underwriting and that's why we adjusted the returns.

Speaker 6: Okay, and then maybe as a follow-up, Michael, I just, when you talked about some of the headwinds to growth in 23, I kind of get the interest expense hit, the $5 cents to sales, sounds like the ground lease may be a little bit better. I didn't quite understand the 10 cents from the property taxes.

Speaker 6: I was just hoping you could maybe clarify that because I thought in the first half of the year that might have been a bit of a tailwind but just wanted to make sure I understood that point properly.

Speaker 5: You know, we had a prior period of cruel and obviously benefited us at the end of 22. We didn't have it in the first half of it.

Speaker 5: in the first half of 22 and so that gets reversed at the beginning of this year and that's a thing. So at the timing difference with benefits that last year get hurt at the beginning of this year, net net, you know, there was reduction, but you know, it affects us in the beginning half of 2023.

Speaker 2: Great, thank you. The next question is from John Kim with BMO Capital Markets. Please go ahead.

Speaker 2: Hi, thank you. I wanted to ask about the write down you took, particularly at 650 medicine. That's an asset where it was pretty well occupied. There's no loan upcoming. I was wondering why you decided to impair it now and what are your plans with the asset. But...

Speaker 5: Morning, John . The accounting for joint venture assets is different from wholly owned assets. It was a result of the back process.

Speaker 5: And if you look at what's happened since we bought the asset, you know, resulted in impairment this quarter.

Speaker 5: And if you look at what's happened since we bought the asset, you know, resulted in impairment this quarter. So, you know...

Speaker 5: Retail renters are obviously not what they were at the time. We bought the asset and what we underrode. We had a large ten and moved out unexpectedly in the hospital last year. And so you run it through the accounting model, a metric conclusion. Again, keep in mind.

Speaker 5: to non-cash item. We still only asset, you know, the value could recover. We have debt with term on that asset at a very fable rate and we'll continue to work the asset and hopefully create value. But on a, you know, as we sit here today based on the accounting methodology, you know, that's the bike product.

Speaker 4: John , you used the words in your question. Why we decided to take a department?

Speaker 4: The impairment process is rigorous and is to a long-term degree formulaic.

Speaker 4: and is to a large degree overseen by our independent accountants.

Speaker 4: So we try to keep and some much subjective judgment as possible out of it and make it more of an academic formulae kind of an exercise.

Speaker 4: And the mayor shows that the right that was appropriate there.

Speaker 2: Okay, my second question is on the mark.

Speaker 2: with the occupancy falling in this quarter, really driven by the showroom and trade show. What's going on with such a big drop in occupancy in this quarter? And if you could also comment on variable businesses, which...

Speaker 2: in the past few quarters have been a driver of earnings growth, and it's not really disclosed so much this quarter. We wanted to know what's been going on with signage and trade show.

Speaker 7: I'll start. Hi, it's Glen White. So on the more the increase in vacancy was due to the casual business, leaving Chicago for Atlanta. We are converting that showroom business into all this space and that's the increase in the vacancy at the mark. There are headwinds in Chicago, not only in New York in terms of leasing value.

Speaker 7: pipeline, etc. Our 2.0 program coming along great, that we expect to be complete in June . Our tour volume has been very good of late. We have a couple of leases in the negotiation right now, but the increase in the vacancy is the casual business which moved out of town to Atlanta in the fall. John , on the variable businesses, I think

Speaker 5: We've got a couple signs located at Penn 2 and Hotel Penn that are impacted by the development. And so fourth quarter was a little bit off from fourth quarter 2021. But really everything, whether it's signage, garages, BMS, had a strong year generally up. We're down to number six.

Speaker 5: As I said, except for signage quarter over quarter, or year over year I should say. And then the trade shows, a little bit of timing difference from the prior year fourth quarter when we were cranking it back up. You know, some of the shows got moved to fourth quarter and this year back on their normal pace. So trade shows are not back to peak yet. We think they'll get there in the next couple of years.

Speaker 5: But the rest of the businesses are performing quite well. And I think are, you know, in particular, the signage where, you know, we got the dominant signs in Times Square, where we're actually redoing the sign on 1540 right now, which will book end both sides of the potai.

Speaker 5: and hopefully allow us to drive additional revenue, given the fact we control two megaths at the heart of the vote tie. That's a positive, and then obviously what we're doing is pen over time, we think will perform, the data performed well once the construction is completed. But that's in a nutshell, we're at the aerial businesses.

Speaker 5: So, Ned is variable going up or down this year. You know, in 2023, we're going to have, I mean, like, an answer is it's hard to predict. I would say, you know, because we took a couple signs off line in Penn. You know, a lot of this is based on, you know, what comes in third party.

Speaker 5: I'll put it down a little bit just given the fact we're taking some stuff off line.

Speaker 2: Great. Thanks and happy Valentine's Day. Thank you.

Speaker 2: The next question is from Camille Bonnell with Bank of America. Please go ahead.

Speaker 8: Hello, I know the opportunity with Citadel is still a bit down the road, but are you able to speak to the financing strategy that are in context?

Speaker 8: with your existing development pipeline around Penn District. Just generally like how are you thinking about the capital allocation and sourcing for these future projects?

Speaker 5: You know, Camille, I think the good is we don't have to do it today because it would be very, very difficult to line up construction financing and very expensive. So.

Speaker 5: With respect to 350, you know that project is not ripe yet, right? It's

Speaker 5: It will be right in two or three years, but it is not right today and so hopefully the markets are more hospitable than we expect it will be. And I think the same goes with respect to pen. Again, we are not, I think Steve commented on last call, the market.

Speaker 5: really is not conducive for new developed today construction financing is very expensive if available which it genuinely is not as banks have pulled back so I think that I think of challenging and again today you know it's not the day we have to line that up but in the future you know the markets.

Speaker 5: should settle down and with respect to $3.50, we'll put on a traditional construction loan at 50-60% and the partners will fund the balance with equity. Most of our equity will come from our land contribution.

Speaker 4: So we were pretty excited about 350 Park Avenue and maybe even more importantly, Ken is even more excited about it.

Speaker 4: Our strategy there is actually very simple. The land value, our land value will constitute our equity contribution.

Speaker 4: So, our land value will represent the equity. We will not have to put in maybe another very tiny 10, 20, 30 million dollars of cash to represent our share of the equity.

Speaker 4: The balance of it should be easily in a normalized market, borrowable under construction financing or permanent financing.

Speaker 4: The deal comes along with a very substantially sized anchor to anchor lease.

Speaker 4: And so everything is in place. Our land will be our equity, and we have an anchor tenant. And so that all is very, very, I think, very well conceived.

Speaker 4: What's more, our development teams and construction teams that are hard at work.

Speaker 4: Down at 10, we'll have completed pen 1, pen 2 at Farley, and we'll swing right into 350 Park.

Speaker 4: Part of our arrangement is that we are immediately starting the design of the building actually will come the halfway through it. And we are immediately starting the approval process so that in...

Speaker 4: It relatively short period of time, maybe not more than two years or now we would be ready to do the monitoring and spot construction.

Speaker 4: a relatively short period of time, maybe not more than two years from now, we would be ready to do the motion-slaught construction. But the cash requirement...

Speaker 4: In any kind of a normal, the financing market are basically almost zero at our part. Really? By the way.

Speaker 4: And any kind of a normal financing market are basically almost zero at our part. Really, by the way, it's going to be a great one.

Speaker 8: Yeah, I really appreciate all the details on 350 parts. Just for my follow up, you've done a great job in terming out your maturities, but your leverage on a net debt basis is...

Speaker 8: above 10 times. So can you talk to how you're thinking about leverage today and where are your near to medium-term targets?

Speaker 8: Can you talk to how you're thinking about leverage today and where are your near-to-medium terms targets?

Speaker 5: Michael, you know, our leverage is, you know, I think I need to get characterized by a little bit lower than we've characterized.

Speaker 5: You know, our goal over time is to have less leverage. You know, I think importantly we don't have any maturities this year. We have a couple small maturities in process.

Speaker 5: pushed out. But our preferences to have less leverage and over time we think that will be accomplished through growing earnings and unlikely some asset sales. So is that going to change in the next 24 months just given the environment? Probably not.

Speaker 5: But, you know, over time, we foresee that happen.

Speaker 5: But, you know, over time, we foresee that happen. Thank you.

Speaker 2: The next question is from Michael Griffin with City. Please go ahead.

Speaker 4: Hang on, I want to go back for a second.

Speaker 4: I want to emphasize what Michael said. In terms of the leverage ratio that you leverage can be, we sort of have our hands tied behind our back.

Speaker 4: So, number one, we've had a decrease in earnings, which is going to recover. A variable business is in what have you. Number two is we have zero income coming in, basically from two pen, which will be over $100 million of income when it gets online. And we have less than...

Speaker 4: less than underwritten optimal earnings from one pet. So if you perform a forward when we get all these different parts of our business stabilized, our leverage ratio will come down very significantly.

Speaker 4: an optimal earnings from one pet. So if you perform a forward when we get all these different parts of our business stabilized, our leverage ratio will come down very significantly. I'm sorry, go ahead.

Speaker 9: Mr. President, please go ahead. Yep, thanks. Michael Griffin here with City. Just maybe getting back to Leasing, Michael, you mentioned your prepare remarks. You're leasing us load, transactions and lumpier. You pointed to about 1.2 million square feet in the pipeline. Just looking over the cadence of this year, you know, some

Speaker 7: Yep, go ahead, go ahead. How Michael's clean voice. So we really had four bulky explorations that constant to our exploration since 23. One was 350 Park, which is now taken care of by Citadel. The other three is continuous explorations coming off low rents from Penn 1. And then two blocks. One of which comes back this quarter. Three words from Verizon at 770.

Speaker 7: the block of space in Midtown South. Excellent building, great bones in the market now with those three floors. And 1290 by the end of the year will be ready for action. Already showing the product, showcasing some of the Mendedee Program. I mean, now we're going to undertake in 24.

Speaker 9: So that's the real outline of what's coming this year in terms of expertise. I guess to that point, you have this pitch around the building around the high quality transportation hubs. An asset like 770 Broadway maybe doesn't really fit into that strategy. So I guess, how do you measure demand relative to that versus...

Speaker 7: opportunities you might have within the Penn District. Now, 770 is a great spot. It's right at the subways that will make it a grand central and pen very easily. It's right at NYU, right in the village. It's in the sweet spot of Midtown South. So, geographically, we think it's excellent. Okay, thanks. And then maybe one for Steve. I'm just curious. You focus on your pair of marks about the importance of

Speaker 4: I think normal is more like 70% because there's always people who are traveling not in the orchards than what have you.

Speaker 4: So to try to get the 90% is fictitious. So I mean, I think we're getting close to 60% now on Tuesdays, Wednesdays, and Thursdays. I think you can assume the Friday is dead forever. Friday is going to be a holiday forever. Monday is touch and go.

Speaker 4: So I think that the world is coming back to normal, slowly but surely. So multiple things are happening. Number one, every boss wants his people back. Number two is now many of the people want to come back. They find that being alone, they find that they're...

Speaker 4: powers that the bosses have? Well, some of the bosses have total power and some of the bosses have no power. And I can't comment on that either way. But the bosses for entrant is people are wanting to come back themselves and please actually do want to come back. Great. Well, that's it for me. Thanks for the time.

Speaker 2: The next question is from Alexander Goldfarb with Piper Sandler. Please go ahead. Hey, good morning, Steve. And first, a model tub on 350 Park. Awesome, awesome deal. So well done to you and Michael and everyone. So that's awesome.

Speaker 2: Two questions. First, on the retail JV, the impairment that you guys took, what prompted that and big picture, you know, as we think about the rents that are in place versus the market and it seems like the market has settled and, you know, hopefully is recovering.

Speaker 2: Where would you peg the mark to market and then do you think that there will be future? Impairments like is this an annual exercise just trying to get some more color on this

Speaker 2: to market and then do you think that there will be future impairments like is this an annual exercise? Just trying to get some more color on this. Well...

Speaker 4: I can't predict the future of, uh, uh, uh, no, what I want to.

Speaker 4: I can't predict the future of the order I want to. When will a rigorous process?

Speaker 4: the math shows that there was an impairment and we do what the math shows.

Speaker 4: So there's that. What the market rents are is something that, you know, it's a very thin market. There are not a very few transactions on tips they have in your end and time square. So, and you can make the assumption that this is still a sluggish impaired market.

Speaker 4: It hasn't recovered entirely. There is not the same lust for space that there was five years ago. But that will come back to for sure.

Speaker 2: Okay, and then the second question is, you know, you guys appeared in the press recently that you're still in the hunt for Casino. It's been a while since you talked about movie studios, the Manhattan Mall, you know, seems to be a great spot for potential studios. So just sort of an update of what you can provide us, you know, do you have an operating partner for studios, do you have an operating partner for Casino, or are both of those, you know, two...

Speaker 2: items, things that more a back burner and less front of house if you will. The answer is yes and yes in terms of operating partners. No, they're not really back burner.

Speaker 2: Anything more to elaborate or?

Speaker 4: Not really. I mean, we have a wonderful Manhattan property that is going to be converted to

Speaker 4: to studios. We have a great operating board that we are in conversations with

Speaker 4: with multiple users and the demand is actually very, actually extraordinary.

Speaker 4: with respect to the casinos, I don't have a lot to say. We're still mulling and studying and thinking and what have you about that. We have a great site, and whether we throw it into the game is, it'll be decided.

Speaker 10: Okay, thank you Steve. The next question is from Vikram Malhotra with Mizzouho. Please go ahead. Good morning, thanks for being the question. So just first one going back to sort of your view of the dividend or the board's view. If you can just give us some more color, you know, what are you baking in in terms ofchange in order to match that list?

Speaker 10: one to understand like what is baked into the core port portfolio relative to where the dividend is. Some big picture metrics or guide posts would be helpful. So the dividend is based upon a minimum of taxable income. Our taxable income allows us to allow us to

Speaker 11: Don't read.

Speaker 4: which felt there.

Speaker 4: that it was inappropriate to overpay the dividend, substantially over our taxable income.

Speaker 4: And the board felt also that it was appropriate to be retained the extra 130 odd million dollars of cash. So that's what happened with the dividend.

Speaker 10: Okay, and then if I just follow up if I can dig into street retail, you know, two parts to it first, I think you have a couple of key explorations in Times Square in 23 and I'm wondering, you know, the latest on, you know, renewal there. And then second part of that is just, I think they were, they're two big leaves with the whole found?wrong swatch...

Speaker 10: and Levi that have early termination rights in 23 and 24. They don't expire till 31, but I believe they have the option to terminate. Any updates or color you can give on those two as well would be great. Thank you.

Speaker 4: We are friends. We are, as you would expect, we are inactive negotiations with those clients, those tenants as well as all the other tenants. We are hopeful to retain all of the tenants, but the rents will be lower than the in-place rents. The market is lower than it was years ago when we made those late. So you can assume...

Speaker 10: that we will retain the tenants but at lower rent. Okay, I just thought because Swatch and Levi thought they would have had to give you notice if they were going to terminate but if it's just sort of like a rolling, like they can elect any time in the year to give you that notice.

Speaker 5: So I think just to feel to put a finer point on it. So swatch had to exercise their notice in fall of 21.

Speaker 5: And they did. And we have, as Steve alluded to, we finalized a agreement for them to stay at a lower rent. So at the time, the exercise determination, we didn't know what they're going to do, but that agreement has recently been finalized. So they will stay.

Speaker 5: And Steve said lower rent. And with respect to Levi's, they as well have a termination option. I believe that comes up in 24, not this year. And so we'll see what they do. But again, Steve alluded to likelihood is that is that-

Speaker 5: just as Swatch did, they may exercise that and our hope expectation is we'll keep them, albeit at a lower rent. The other leases that expire in 2023, some of those have been sort of, I'll call it short-term leases which we've...

Speaker 5: continue to keep those tenants in place. I think we'll continue to do that. And beyond that, I think there's probably only one substantive expiration in 2023 and times square. And that happens middle of the year and that's an active discussion right now.

Speaker 6: Okay, thank you so much. The next question is from Dylan Burwinski with Green Street. Please go ahead.

Speaker 12: Hey guys, thanks for taking the question. Just curious, you know, on the overall strategy of the company, I think in the past, you guys have mentioned about possibly doing a tracking stock. So just curious, you know, that's still on the table. And if so, could we see that happen in 2023?

Speaker 4: Yes, it's still very much on the table. We are not ready to talk about the timing, which will not be set until we actually make the decision and announce it.

Speaker 12: Okay, and then just going back to the ground news recent, I think it mentioned that 26 million might be less today. Well, just curious, can you kind of give us an update on how that process works? I think our initial thought was when we saw that the yield increased at the Penn Disagreed Development that we thought that the procurement might reset higher, so just curious.

Speaker 12: to see kind of an update on sort of the arbitration process and how that works. Oh boy, well, each ground lease is a little bit unique and a little bit different. This one.

Speaker 4: basically involves brokers negotiating if they can't agree, then a third party is appointed as a neutral. The interpretation is that it's a determination by...

Speaker 4: brokers, but plenty is an experience, an active broker, of what the value of the land vacant and unimproved would be. So I interpret that to me. What could you sell that piece of land for now? Which is somewhat different than what an appraisal process might be, which is a willing buyer and a willing seller, etc. So...

Speaker 4: We think it's a broker's process, so that's the way it's set. We think that the value of the land...

Speaker 4: is lower today than it was a year and a half ago when we set the $26 billion.

Speaker 4: actually maybe even quite a bit lower. And so that's the determining factor. The fact that, and most of these analysis are done by what is the return to a new building and what the residual value would be for the land. So if we think we can get five or 10 dollars of foot more,

Speaker 4: on a $90 or $100 lease in one pen that has no bearing on what the value of the land might be. Okay, that's helpful. Appreciate that.

Speaker 13: The next question is from Anthony Payalone with JP Morgan. Please go ahead. Please welcome everyone.

Speaker 7: Great. Thank you. Michael, you went through a whole number of the parts of the business in terms of the impact on FFO in 23 versus 22, but can you maybe help bottom line just the core office and retail NOI and whether that's higher or lower this year? I'm telling you, you're trying to box me the guide.

Speaker 5: to give you guidance is just, you know, we have some, we have some in and some out. We can't print exactly what will come along. It depends on which tennis we renew, which may roll out. But, you know, in general, like we have some known pauses, we have some known moveouts, as we just talked about, you know, overall.

Speaker 5: You know, as we sit here today, it's probably neutral. Okay.

Speaker 14: Thanks for that. And then the second question is on 350 park. I mean, you crystallized value there at a level that seems to be pretty well north of what, I think most people probably had in their numbers and where you're getting credit for it and the stock most likely. So just wondering how you thought about the ability to just completely exit, I think, next year versus staying in what could be another, I guess, seven plus years or so. So, like...

Speaker 14: How you think about that being worth it versus just saying you did well with the deal you cut You know use that capital otherwise First of all I was crippled with well-north of value

Speaker 4: the pricing of that deal we think was fair to both parties.

Speaker 4: In terms of what our financial strategy will be, an year or two from now when we have to make the decision as to whether to invest in the long-term building project and own 40% of a 1.7 million square foot brand new super duper time-square-tower would take the money and run. That's a decision we'll make at the time.

Speaker 4: But it is an interesting fact that we have the option to do either.

Speaker 4: But it is an interesting fact that we have the option to do either. Okay, thank you.

Speaker 13: Yeah, next, what, excuse me, the next question is from Nick Yuliko with Scotiabank. Please go ahead.

Speaker 9: Thanks. I just wanted to touch on the St. Regis retail where you had to default in the JV. Can you just tell us why the lend or not refinance the loan and can explain the earnings impact from this? I guess right now how it's working since it looks like there's some sort of cash flow sweep. And then, you know, if for some reason you can't get this resolved.

Speaker 9: You know, is it joint venture just walks away from the property? How did that ultimately, you know, get resolved and, you know, look at the earnings impact? The loan maturity you're in and, you know, the asset is not refinanceable.

Speaker 5: today. Quite frankly, like many assets in this market, we signed two leases at the peak of the market. One of those we just discussed terminated and we re-let at a lower rent. And so the asset was not refinanceable, loan land default. We were talking with the lenders. Before that happened, we continue to talk to them today.

Speaker 5: And we're an active discussion to, you know, restructure the loan and extend the mature if we can't, you know, we can't and the <expletive> will go back to the lenders, you know, just like everything we do, we're gonna be disciplined and thoughtful about, you know, whether it's, it's worth, you know, staying with the <expletive> and investing capital, etc. And, you know, we're sort of drooping towards the deal that we think.

Speaker 5: makes sense for the partnership, but that's the benefit of non-require state. You know, if you can't reach an agreement, we have the option to walk away. So I think that'll happen probably not. I think we'll end up with a deal because it's a millenander's best interest to, but that's the state of play. You know, to date, you know, I know there was some commentary in a couple of reports about, you know, 8.5% interest, you know, at the fall rate.

Speaker 5: answers that the case to the deal. The answer is that that rate's never going to get paid. We're either going to toss the keys back or we're going to restructure the DL and the rate will get reset to what it's supposed to be and that interest is not going to get paid.

Speaker 5: So, you know, that's the state of play. I don't think the earnings impact is really, if it went away, you know, today, you know, I think based on frankly, where it wasn't a fourth quarter. And I don't know if there's that much effort that's flowing through given the fact that, you know, it's a floating rate alone where, you know, relative income, you know, there's some cash flow, but it's not significant.

Speaker 9: Okay, I understand. Thanks, Michael. Appreciate that. And then going back to 650 Madison, I know you talked about this a little bit. You know, it looks like that asset got refinanced in 2019. I think there was a $1.2 billion appraisal on it. There's 800 million of debt on the asset right now. And so if you're...

Speaker 9: saying the equity zero basically I guess the building's worth 800 million so that would be about 35% acid value decline since 2019 when it was refinanced.

Speaker 9: So please correct me if I'm wrong on those numbers, but you know, I guess what I'm wondering is from that standpoint You did talk about occupancy being down. I know rates are higher as well But how would you kind of frame out that level of an asset value decline for office and retail? You know now versus 2019 is that addictive of?

Speaker 5: a lot of the portfolio or only the pieces where you do have some more structural vacancy right now. First of all, you referenced two or three things. We did refinance in 2019.

Speaker 5: pretty outstanding execution by our team frankly, and pushing that loan out till 2029 at about 3.5%. So we have time, right? As we talk about this impairment today, I think the most important thing to recognize is that the non-cash charge, we continue to own the asset, we continue to work here, we have time.

Speaker 5: Secondly, the appraisal that was done was a lender, appraisal, sort of a speech comments before. Were the assets that would have traded when the loan was made? I can't comment. I can't think back to 2019 these act circumstances at that time. So it was an appraisal done at the time.

Speaker 5: There are some specific facts that have changed since then, probably most notably, we had a major tenant move out. And the reality is rents, I think, generally, office and retail have declined since then to varying degrees. So I think all that's reflected in there and this deep, you talked about. The end-camera analysis, particularly for joint ventures, is a very much accounting driven methodology. And that's what the accounting produced today. And nothing that says it over time, that value can't.

Speaker 5: go back up. But as we sit here at the end of 2022, that's the net result. Thank you.

Speaker 12: The next question is from Ronald Camden with Morgan Stanley . Please go ahead. Hey, good morning, guys. This is Timmy Egon for Ronald Camden. You guys laid out the FSO headwind next year pretty clearly in the prepared remarks, just as we think about 10-1, and maybe some of the outside there, and 23 versus 22. Now, the furniture is $76 a foot today.

Speaker 7: And that is where do you think that is year end 23. So you know, we're coming off rents in the high 60s, low 70s. You know, we have leases out right now that are piercing 100 in the tower of this building.

Speaker 7: So that gives you a feel where we believe rents will go as we sign up leases for our inflate vacancy and for the expiration going forward.

Speaker 13: Thank you. The next question is from Steve Sockler with Evercore ISI. Please go ahead.

Speaker 6: Yeah, thanks. Just one follow up, Michael, on some of the swaps and caps that are maybe burning off or coming to maturity here in 23 and 24. Should we assume that you're just going to let those kind of float? Are you going to put new caps in and you know, swaps in or just

Speaker 5: How should we be thinking about that as the said kind of mirrors the end of the typing cycle? Yeah, you know, somebody rests with every day Steve. I mean some of those are, you know, let's talk about 23 because 24, you know, again, we have a loan maturity. We have to determine what type of loan we're going to refinance that with, which is more of a 24 issue.

Speaker 5: roll those and I'm looking at down our list right now. So, you know, we got two or three that expire middle the latter part of the year. I would expect that we would roll those, you know, the next few months, you know, those tend to be an annual basis, so that you can go out a couple of years. And then on the, you know, on the swaps, you know, we'll continue with our opportunities to, you know.

Speaker 5: expire this year with you know maturities next year and we have to make a decision on what type of finance we're going to do on the asset before we finalize that decision.

Speaker 13: Great, thanks, it's it. And the next question is a follow-up from Vittor Maholcra with Mizzouho. Please go ahead.

Speaker 10: And thanks to the follow-up, Michael, just on the 55 cents you outlined in terms of the headwind. Does that incorporate these the known office moveouts and the lowest three-three-tailed rent-cut year absence.?

Speaker 5: I mean, Vikram, the only data points I gave you were on interest, the margin and asset sales. The rest is, we'll see how the business performs. You know, there's some pros, cons.

Speaker 5: You know, by and large, we're probably neutral, but you know, we can't predict, you know, it depends on what happens. You know, in terms of, you know, the pace of leasing.

Speaker 10: Okay, and then just the other follow up just I know there are those moving pieces so do we take that as the based on your current view of taxable income for 23 you kind of right size dividend but if somebody is moving pieces don't go your way.

Speaker 10: you might have to revisit the dividend or have you incorporated some of the slack basically that you just outlined. The dividend is a whole decision of...

Speaker 4: And we're certainly not going to speculate on what might happen to the dividend and certainly not from a negative point of view. So that's a question that we can answer and won't answer now.

Speaker 4: We're certainly not going to speculate on what might happen to the dividend and certainly not in it from a negative point of view. So that's a question that we can't answer and won't answer now. Thank you.

Speaker 13: There are no further questions at this time. I would like to turn the conference back over to Stephen Roth for any closing remarks. Thank you everybody. This is a...

Speaker 4: At the next time, we're in the middle of a Federal Reserve tightening cycle.

Speaker 4: I think Oat Thomas said in his opening remarks that his call a couple of days ago that commercial real estate is in a recession.

Speaker 4: I don't want to, I wouldn't quibble with that either way. But markets are soft, which we think makes it a fairly exciting time. We will get through this easily. We will see what opportunities come up. And we think the world will be a lot better on the other side.

Speaker 13: That happy Valentine's Day and we'll see you at the next corner. Ladies and gentlemen, this concludes today's conference.

Speaker 13: Happy Valentine's Day and we'll see you at the next quarter. Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect.

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Speaker 13: Good morning and welcome to the Vornado Realty Trust 4th quarter 2022 earnings call.

Speaker 13: My name is Gera and I will be your operator for today's call. This call is being recorded for replay purposes.

Speaker 13: 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 13: At that time, please press star then one on your touchtone phone.

Speaker 3: I will now turn the call over to Mr. Steve Borenstein, Senior Vice President and Corporation Council. Please go ahead. Welcome to Vernado Realty Trust's 4th quarter earnings call. Yesterday afternoon, we issued our 4th quarter earnings release and filed our annual report on form 10K with the Security and Exchange Commission. These documents, as well as our supplemental financial information packages, are available on our website.

Speaker 3: deemed forward-looking statements and actual results 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.

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 opening comments are Steven Roth, Chairman and Chief Executive Officer, and Michael Franco, President and Chief Financial Officer. Our senior team is also present and available for questions. I will now turn the call over to Steven Roth.

Speaker 4: Thank you, Stephen. Good morning, everyone. It's Valentine's Day. As Michael will cover in a moment, 2022 was the following year with comparable FLO of 10%. Fourth quarter and FLO was down 11% due to higher interest rates.

Speaker 4: X rising interest rates are core businesses performing quite well.

Speaker 4: Not surprisingly, we expect 2023 will be a down year negatively impacted by a full year of higher rates.

Speaker 4: I'd like to share with you a few other thoughts. Now with standing all the noise, New York continues to be the most important city in America. We continuously survey dozens and dozens of our tenants, all of whom reaffirm their commitment to stay and grow in New York.

Speaker 4: And that goes for our clients who are headquartered in other cities who are making New York there so to speak second home. And it's not by chance that the New York area is the tightest residential market in the country. People want to live here. Still concrete and current war law important, but in our business capital is the essential material.

Speaker 4: We are now in the middle of a Federal Reserve tightening cycle. The result of which is, interest rates are up and capital is scarce, and that's an understatement.

Speaker 4: Notwithstanding Fed funds at 5%, most run of the middle real-state operators can't borrow with 10% or can't borrow a fiddle.

Speaker 4: So here's what we have done. Seven years ago, when we began the Farley Facebook, Penn 1 and Penn 2 projects in our all important Penn district, we loaded in over $2 billion in cash to pre-fund 100% of our development and construction costs. We didn't know then how precious this would be.

Speaker 4: So, Folly Facebook is now finished and paid for. Pen 1, almost sold, and Pen 2 will finish around year end.

Speaker 4: Well, three of these assets will be free and clear and unencumbered, and that's quite a scene. We handled all of our 2023 and 2024 maturities. We put on a series of swaps and caps, but very helpful. They provide only partial protection.

Speaker 4: and I would observe that there really is no protection against loans that mature in a rising interest rate market.

Speaker 4: And a further observation is that the stock market prices at the current interest rates, giving no credit to a company which might have lower rate loans, even if they're locked in for term.

Speaker 4: Beginning first quarter of this year we declared a right size citizens allowing us to attain a 128 million of cash annually.

Speaker 4: And by the way, our stocked-chilled trades still trades at a 2.5, 6.5% yield. In January , we completed an important deal with Citadel at our 350-part schedule building, which involved their mass-deleting the entire 585,000 square foot building, essentially relieving us of 225,000 square feet of vacant.

Speaker 4: This deal will almost certainly result in a tear down and a new build of a grand 1.7 million square foot tower on a larger assembly site.

Speaker 4: Please see our press release of December 9, 2022, explaining the transaction.

Speaker 4: We have lots of friends on Wall Street and I might mention that by any measure, return on equity or return for employee or whatever, Citadel is at the head of the class and tentatively focused and aggressively growing. This deal validates the quality of our site, our development team, as new. Interestingly, Kent tells me that it's a significant difference.

Speaker 4: from now tens of millions of Americans will be working from home alone at their kitchen table. By the way, Zoom may be a disruptor, but its stock is down from 588 to a still high 75 today.

Speaker 4: You will notice in our supplement that we updated our development projections for Farley atrolyourpega1stopinchu.

Speaker 4: raising our aggregate projected returns. This based on the fact that in 2022, we released sort of 25,000 square feet at Penn 1, an average starting rate in the 90s. And based as well on the outstanding market reaction, we are getting to Penn 1 and Penn 2.

Speaker 4: Our strategy here is to achieve very strong returns that rents well below those required for new construction. The PED-1 ground lease process is now kicking off, as required by Gapatowning Convention. In the first quarter of 2023, we estimated a ground lease of 26 million and reflected that in our statements. The PED-1 ground lease process is now kicking off, as required by Gapatowning Convention.

Speaker 4: Based on current market conditions, we now think that numbers should be quite a bit lower. Respect 2023 will be challenging as business and consumers continue to feel the effect of the federal aggressive rate increases and generally tight-mid belts and active caution. This will likely be reflected in lower leasing volumes and frozen capital markets.

Speaker 4: We believe quality product wins today. Just look at our new bills, new lobbies, amenities at Penn 1, new skin at Penn 2, etc.

Speaker 4: Not long ago, new construction commanded a $20 premium. Now, it commands a $100 premium or more. Does anybody think that's too high and that the market will adjust? One more point, and this is an important one.

Speaker 4: In the history of the real estate, all great upward landlord markets follow the period of constrained supply. And here we are. Capital markets are now making it almost impossible to build new.

Speaker 4: in the history of the real estate, all great upward landlord markets follow the period of constrained supply. And here we are. Capital markets are now making it almost impossible to build new, which will...

Speaker 5: which will be the Fortellas in the next bull market at Landless Market. Now over to Michael. Thank you, Steve, and good morning, everyone. As Steve mentioned, we had a strong year despite experiencing headwinds and rising interest rates. For the year, comparable FFO has adjusted.

Speaker 5: With $3.15 per share, up 29 cents or 10.1% from 2021. Fourth quarter comparable FFO as adjusted was 72 cents per share compared to 81 cents for last year's fourth quarter, a decrease of 9 cents or 11.1%.

Speaker 5: While learnings for the quarter were down, driven primarily by higher net interest expense from increased rate, and the non-cash straight line impact of the estimated 2023 Penn-1 ground unemployment expense.

Speaker 5: Our core business had strong performance from the rent commencement on new office and retail leases. We have provided a quarter over quarter bridge in our earnings release in our financial supplement.

Speaker 5: We have several non-comparable items in the quarter, primarily engaged in 220 Central Park South sales and other non-core asset disposition.

Speaker 5: which in total increased FFO by 19 cents per share.

Speaker 5: As previously announced, we recorded $595 million of non-cash impairment charges during the fourth quarter, of which approximately 483 million delays for our equity investment in the fifth avenue and Times Square retail joint venture.

Speaker 5: It should be noted that some paramet charge is not included in that FF. Company-wide same-store cash in a lie for the fourth quarter increased by 7.9% over the prior years fourth quarter.

Speaker 5: Our overall same-store office business was of 8% compared to the prior years for a quarter. While our New York same-store office business was of 5.4%. Primarily knew the cash ran so farly coming online.

Speaker 5: Our retail same-store cash NLI was up a very strong 7.9 percent, primarily due to the rent commencement on several important leases. Now turning into 2023, while the current economic environment makes forecasting more difficult than usual, we expect our 2020-23 comparable FFO to be down from 2022, given the known impact of certain items. These include roughly 40 cents from additional interest expense.

Speaker 5: As a result of a full year of higher rates on a variability debt, met of higher interest income and capitalized interest, assuming the current sober curve.

Speaker 5: 10 cents from the prior period, properties acts accrual at the mark that was recognized during the second half of 2022, and 5 cents of lower FFO from the sale of assets in 2022. These reductions could potentially be offset by a lower result on the Penn-Wong Ground-Ran reset that is currently running through earnings, which Steve mentioned earlier.

Speaker 5: Now it's turning to the leasing markets. We see 2023 is a year of both challenges and opportunities. The pace of leasing has slowed in the past few months and the activity is lumpier, as businesses generally are feeling cost pressures and are exercising more caution.

Speaker 5: Companies are still grappling with hybrid work policies in the right level of flexibility. But overall sentiment is shifting more closely at pre-pandemic norms.

Speaker 5: We are seeing a real pickup in the return to office throughout our portfolio, particularly Tuesday through Thursday. The utilization rates are approaching 60 percent and momentum is improving month by month.

Speaker 5: both employers and employees clearly recognize the productivity, collaboration, creativity, and cultural benefits of working in the office together.

Speaker 5: Flight the quality continues to be the prevalent theme for tenants. However, releasing activity is broadening out. We are seeing a pickup and activity in the traditional multi-tenant class-a-buildings. As tenants are dealing with the aforementioned cost pressures and are not all willing to pay new construction rents.

Speaker 5: One thing we do think will begin to emerge this year is a heightened focus on the quality of the landlord. Many landlords, particularly private ones, are beginning to struggle with high leverage levels, which may limit their ability to invest capital in their buildings or in some cases even retain their assets. Tenants and their brokers are smart enough to figure out which buildings these issues are at and avoid them. Strong, well-capitalized landlords like Borneo will benefit.

Speaker 5: A perfect example of flight to quality, the strong sponsorship is the previously announced 350 Park Avenue Transaction with Citadel. We began our relationship with Citadel 350 Park in the beginning of 2020 with an initial 120,000 square foot lease and are proud of the relationship we have built with our team which is culminated in this master lease in the future of potential partnership.

Speaker 5: for a new 1.7 million square foot world-class building at the site. Our overall leasing pipeline in New York remains healthy at almost 1.2 million square feet of leases.

Speaker 5: with 275,000 square feet of leases being finalized in another 900,000 square feet of activity in various stages of negotiation. The financial section, in particular, continues to be active.

Speaker 5: Turning the retail with the rebound and tourism and daily workers where I contain to see more retailers searching ahead for new store locations.

Speaker 5: Retailer sails are generally back in every pandemic levels, which is spurring retailers to become more confident and active in taking new spaces.

Speaker 5: They are still concerned about inflation in the overall economy, but are starting to lock in deals given a answer of much more attractive levels.

Speaker 5: Starting to the capital markets now, the financing markets remain highly constrained, driven driven by the ballot till it can the fed's sharp rate increases.

Speaker 5: Thanks for dealing with an increase in problem loans and remain cautious in lending and the CMBS market is still largely closed. While financing is available for the highest quality sponsors and properties, the CMBSA company by M

Speaker 5: The markets will take some time to thaw, which likely won't happen until the Fed ends its tight cycle. On the assets sale front, it continues to be active interest in investors in the York Office and retail assets, but without a stable financing market, it remains difficult to transact large assets without in-place debt right now. In these volatile times, we remain focused on maintaining balance sheet strength.

Speaker 5: Our current liquidity is a strong $3.4 billion, including $1.5 billion of cash, restricting cash and investments in UST bills, and $1.9 billion on draw on under our $2.5 billion of revolving credit facilities. In addition, as a result of our refinancing activities early last year.

Speaker 3: We have no significant majorities through mid-2024, but that's alternatively operated for Q&A. Thank you. We will now begin the question and answer session.

Speaker 13: 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 star then two. If you are using a speaker phone, you may need to pick up the handset first before pressing the numbers.

Speaker 13: Once again, if you have a question, please press star then 1 on your touch tone phone. Each caller will be allowed to ask one question and a follow-up question before we move on to the next caller. Our first question comes from Steve Sockwa with Evercore ISI. Please go ahead. Thanks. Good morning.

Speaker 6: I guess I wanted to start with the developments and the yield steves that you talked about. I guess I can understand maybe the PEN-1 return going up a bit since you've got kind of active leasing and maybe good market market and a little more visibility there. But I guess I was a little curious about PEN-2. You did take the yield up there but I don't think you've done any incremental leasing.

Speaker 4: Now we have a year, year and a half, even two years of experience with these assets. We know what the market's reaction is. We have signed 220,000 square feet of leases at Penn 1. We know what the bid and ask is for Penn 1. We know what the bid and ask is for Penn 2. And it exceeds our initial underwriting and that's why we adjusted the return.

Speaker 6: Okay, and then maybe as a follow-up, Michael, I just, when you talked about some of the headwinds to growth in 23, I kind of get the interest expense hit, the $5 cents to sales, sounds like the ground lease may be a little bit better. I didn't quite understand the 10 cents from the property taxes.

Speaker 6: I was just hoping you could maybe clarify that because I thought in the first half of the year that might have been a a bit of a tailwind, but just wanted to make sure I understood that point properly.

Speaker 5: You know, we had a prior period of cruel. Obviously it benefited us at the end of 22. We didn't have it in the first half of...

Speaker 5: in the first half of 22 and so that gets reversed at the beginning of this year and that's a thing. So at the timing difference with benefits the last year get hurt at the beginning of this year. Net net, you know, the res reduction but, you know, we, it affects us in the beginning half of 2023.

Speaker 13: Great, thank you. The next question is from John Kim with BMO Capital Markets. Please go ahead. Hi, thank you. I wanted to ask about the write down detail, particularly 650 medicine. That's an asset where it was pretty well occupied. There's no loan upcoming. Coming.

Speaker 5: I was wondering why you decided to impair it now and what are your plans with the asset? Morning, John . The accounting for joint venture assets is different from wholly owned assets. It was a result of that process. If you look at what's happened since we bought the asset, it resulted in impairment this quarter.

Speaker 5: decided to impair it now and what are your plans with the asset? Morning, John . The accounting for joint venture assets is different from wholly owned assets. And as a result of that process, if you look at what's happened since we bought the asset, you know, resulted in impairment this quarter. So, you know,

Speaker 5: Retail rents are obviously not what they were at the time we bought the asset and what we underwrote. We had a large tenant move out unexpectedly in the hospital last year. And so you run it through the accounting model and that's the conclusion. Again, keep in mind it's an on-cash item. We still own the asset. The value could recover.

Speaker 5: We have debt with term on that asset at very fable rate and we'll continue to work the asset and hopefully create value. But on a, you know, as we sit here today based on the accounting methodology, you know, that's the bike product.

Speaker 4: John , you use the words in your question. Why we decided to take a department?

Speaker 4: The impairment process is rigorous and is to a long-term degree formulaic.

Speaker 4: and is to a large degree overseen by our independent accountants.

Speaker 4: So we tried to keep as much objective judgment as possible out of it and make it more of an academic formulae kind of an exercise.

Speaker 13: And the mayor shows that the right that was appropriate there. Okay. My second question is on the mark with the occupancy following this quarter, really driven by the showroom and trade show. What's going on with such a big drop in occupancy this quarter? kit. I sure think we can get the measures from it.

Speaker 13: And if you could also comment on variable businesses which in the past few quarters have been a driver of earnings growth and it's not really disclosed so much this quarter wanted to know what's been going on with signage and trade show.

Speaker 7: I'll start. Hi, it's Glen White. So on the more the increase in vacancy was due to the casual business leaving Chicago for Atlanta, we are converting that showroom business into all this space and that's the increase in the vacancy at the more.

Speaker 7: In other words, there are headwinds in Chicago, normally in New York in terms of leasing volume, pipeline, et cetera. Our 2.0 program is coming along great. Now we expect to be complete in June . Our tour volume has been very good of late. We have a couple leases in the negotiation right now. But the increase in the vacancy is the casual business which moved out of town to Atlanta in the fall. Today we look at policies, a kind of façon of those IhnenACs.com. If you don't know that and approach traffic conditions. We want toiam to buy them for you, to get all of that in stock market.

Speaker 5: John , on the variable businesses, I think the punch line, if you will, is that...

Speaker 5: You know, all the variable businesses except for the trade shows are back to pre-COVID levels. You know, at a very strong 2022. I think signage had our most successful year ever, and that was with a little bit offline at fourth quarter, so a little bit more of that.

We got a couple of signs located at Penn 2 and Hotel Penn that are impacted by the development. And so, fourth quarter was a little bit off from fourth quarter 2021. But, you know, really everything with it. Signage, Garages, BMS has a strong year generally up.

As I said, if you have a signed quarter over quarter or year over year, I should say. And then the trade shows, you know, a little bit of tying difference from the prior year fourth quarter when we were cranking it back up. You know, some of the shows got moved to fourth quarter and this year back on their normal pace. So trade shows are not back to peak yet. We think they'll get there, you know, the next couple of years.

But the rest of the businesses are performing quite well. And I think our particular, the signage where we got the dominant signs in Times Square, we're actually redoing the sign on 1540 right now, which will book end both sides of the potai and hopefully allow us to drive additional revenue given the fact we control.

two megabytes of the vote tie. That's a positive and then obviously what we're doing is pen over time. We think we'll perform, potato perform well, you know, once the construction is completed. But that's in a nutshell, we're at the arrow businesses. So Nat is variable going up or down this year.

You know, in 2023, we're going to have, I mean, look, the answer is it's hard to predict, I would say, you know, because we took a couple signs off line in Penn. You know, a lot of this is based on, you know, what comes in third party roadblocks.

You know, net net, we think it's probably comfortable to 2022. Could be down a little bit just because of what's offline on the signage side and the fact that we're, as I said, rebuilding 1540, right, so we're taking some revenue offline. So I think, you know, overall, probably down a little bit just given the fact we're taking some stuff offline.

Net net, we think it's probably comparable to 2022. It could be down a little bit just because of what's offline on the signage side and the fact that we're, as I said, rebuilding 1540, right? So we're taking some revenue offline. So I think overall, it's probably down a little bit just given the fact we're taking some stuff offline. Great. Thanks and happy Valentine's Day.

You too. The next question is from Camille Bondle with Bank of America. Please go ahead. Hello. I know the opportunity with Citadel is still a bit down the road, but are you able to speak to the financing strategy that are in context with your existing development pipeline around Penn District? Just generally like how are you thinking about the capital allocation and sourcing?

for these future projects? You know, Camille, I think the good is, is we don't have to do it today, because it would be very, very difficult to line up construction financing and very expensive. So with respect to 350, you know, that project is not ripe yet, right? It's, um...

last call, you know, the market really is not conducive for new development today. Construction financing is...

very expensive if available, which generally is not as bank-safed pullback. So I think that's challenging. And again, today is not the day we have to line that up, but in the future, the markets should settle down. And with respect to 350.

We'll put on a traditional construction loan at 50 to 60% and the pardon was all funded balance with equity. Most of our actual income from our land contribution. So we were pretty excited about 350-pork Avenue. Maybe even more importantly.

Ken is even more excited about it. Our strategy there is actually very simple. The land value, our land value will constitute our equity contribution. So our land value will represent the equity. We will not have to put in maybe another.

You know, very tight in 10, 20, 30 million dollars of cash to represent our share of the equity. The balance of it should be easily in a normalized market, borrowable under construction financing or permanent financing.

The deal comes along with a very substantially sized anchor lease. And so everything is in place. Our land will be our equity and we have an anchor tenant and so that all is very, very I think very well conceived. That's more our plan for our

development teams and construction teams that are hard at work down in Penn will have completed Penn 1, Penn 2 and Farley and will swing right into 350 Park. Part of our arrangement is that we are immediately starting the design of the building actually will probably halfway through it. And we are immediately starting the approval process so that in a relatively short period of time, maybe not more than two years from now we...

details on 350 parts. Just for my follow up, you've done a great job in turning out your maturities, but your leverage on a net debt basis is...

above 10 times. So can you talk to how you're thinking about leverage today and where are your near to medium-term targets?

Michael, you know, our leverage is, you know, I think I think I need to get characterised to play a little bit lower than we've characterised.

Michael, you know, our leverage is, you know, I think I think you characterize it by a little bit lower than we characterize it.

You know, our goal over time is to have less leverage. You know, I think importantly, we don't have any maturities this year. If any, we have a couple of small, which are in process, if it being pushed out. But our, you know, our preference is to have less leverage. And, you know, over time, you know, we think that'll be accomplished through growing earnings. And,

you know, unlikely to smash those sales. So, you know, is that going to change in the next 24 months, just given the environment, you know, probably not. But, you know, over time, we foresee that happen.

massive sales. So, you know, is that going to change in the next 24 months just given the environment, you know, probably not, but, you know, over time we foresee that happen. Thank you.

The next question is from Michael Griffin with City. Please go ahead. Hang on, I want to go back for a second.

I want to emphasize what Michael said. In terms of the leverage ratio that you leverage can be. We sort of have our hands tied behind our back. So number one, we've had a decrease in earnings, which is going to.

recover, variable businesses and what have you. Number two is we have zero income coming in basically from 2-Pen which will be over $100 million of income when it gets online. And we have less than underwritten optimal earnings from 1-Pen.

So if you pro forma forward when we get all these different parts of our business stabilized, our leverage ratio will come down very significantly. I'm sorry, go ahead.

Mr. President, please go ahead. Yep, hey, thanks. Michael Griffin here with City. Just maybe getting back to Leasing, Michael, you mentioned your parader marks. You're leasing a slowed transaction to the love of your E-point to about 1.2 million square feet in the pipeline. Just looking over the cadence of this year, with some...

bigger upcoming maturities. I mean how confident are you in executing on that and is there any update on maybe some of those more larger notable upcoming expirations? I think there's one at 770 Broadway coming up here maybe at the end of this quarter, so any update there would be great. Yeah, go ahead Glenn. I'm Michael Glenn Royce.

So we really had four bulky explorations that constitute our exploration since 23. One was 350 Park, which is now taken care of by Citadel. The other three is continuous explorations coming off low rents from Penn 1. And then two blocks, one of which comes back this quarter, freewares from Verizon 770.

quality assets, 770s, probably the most unique block of space in Midtown South.

You know excellent building great bones in the market now with those three floors in 12 90 by the end of the year We'll be you know ready for action. You know already showing the product Show casing some amenity program. I mean now we're gonna undertake in 24 So that's the you know real outline of what's coming this year in terms of expertise I Guess to that point you know you you have this picture around you know the the building

and very easily, it's right at NYU, right in the village, it's in the sweet spot of Midtown South. So geographically, we think it's excellent. Okay, Tex. And then maybe one for Steve, I'm just curious, you focus on your pair of marks about the importance of getting employees back to the office. And your conversations that you're having with business leaders, and how much more do you think they can really push?

employees to get back in and I think you talked about that 60% kind of occupancy number maybe on two days and third day. Do you see that potentially getting back to that pre-COVID call at the 70% to 80% range? I think normally there's more like 70%

Because there's always people who are traveling, not mealtres, and what have you. So to try to get to 90% is fictitious.

So, I mean, I think we're getting close to 60% now on Tuesdays, Wednesdays, and Thursdays. I think you can assume that Friday is dead forever. Friday is going to be a holiday forever. Monday is touch and go. So, I think that the world is coming back to normal.

slowly but surely. So multiple things are happening. Number one, every boss wants his people back. Number two is now many of the people want to come back. They find that being alone, they find that they want to come back with their colleagues, they want to get back into the activity excitement and what have you of.

collaboration and being in the city.

So slowly over time, I think that will all revert to normal. Your question was, what powers does the bosses have? Well, some of the bosses have total power, and some of the bosses have no power. And I can't comment on that either way. But the most important trends is people are...

Wanting to come back and then shelves and please actually do want to come back Great that's it for me thanks for the time You

Hey, good morning, Steve. And first, a model tub on 350 Park. Awesome, awesome deal. So well done to you and Michael and everyone. So that's awesome.

Two questions. First, on the retail JV, the impairment that you guys took, what prompted that? And big picture, as we think about the rents that are in place versus the market, and it seems like the market has settled and hopefully is recovering. Where would you peg the market to market? And then do you think that there will be future?

Impairments like is this an annual exercise just trying to get some more color on this Well, I can't predict the future nor do I want to We went through a rigorous process

like is this an annual exercise? Just trying to get some more color on this. Well, I can't predict the future of the Noto I want to. When we're a rigorous process, the...

The math shows that there was an impairment and we do what the math shows. So there's that. What the market rents are is something that, you know, it's a very thin market. There are not a very few transactions.

there was five years ago.

five years ago, but that will come back to for sure.

Okay, and then the second question is, you guys appeared in the press recently that you're still in the hunt for Casino. It's been a while since you talked about movie studios, the Manhattan Mall, seems to be a great spot for potential studios. So just sort of an update of what you can provide us. Do you have an operating partner?

for for studios you have an operating partner for casino or are both of those you know two Items, you know things that more a back burner and less, you know front of house if you will

The answer is yes and yes in terms of operating partners and no they're not really backburning.

Not really. I mean, we have a wonderful Manhattan property that is going to be converted to studios. We have a great operating board that we are in conversations with...

with respect to the casino. I don't have a lot to say. We're still mulling and studying and thinking and what have you about that. We have a great site. And whether we throw it into the game is, it'll be decided. Okay. Thank you, Steve. The next question is from Vicka Melhotra with Mizzouho. Please go ahead.

Good morning, thanks for being the question. So just first one going back to sort of your view of the dividend or the board's view. If you can just give us some more color, what are you baking in in terms of occupancy for the corporate portfolio, just the business as it stands in terms of street retail. I asked that because it sounded like the 4K expiration view outlined.

am I correct in that they're all move outs? I just want to understand like what is baked into the core port portfolio relative to where the dividend is? Just some big picture metrics or guide posts would be helpful. So the dividend is based upon a minimum of taxable income. Our taxable income allows us to allow us to...

It was inappropriate to overpay the dividend substantially over our taxable income. And the board felt also that it was appropriate to be retained the extra $130 million of cash. So that's what happened with the dividend.

Okay, and then if I just follow up, if I can dig into street retail, two parts to it. First, I think you have a couple of key expirations in Times Square in 23, and I'm wondering what the latest on renewal there. And then second part of that is just, I think there were two big leads, if I'm not wrong, in slots.

and Levi's that have early termination rights in 23 and 24. They don't expire till 31, but I believe they have the option to terminate. Any updates or color you can give on those two as well would be great. Thank you.

We are friends. We are, as you would expect, we are inactive negotiations with those clients, those tenants as well as all the other tenants. We are hopeful to retain all of the tenants, but the rents will be lower than the in place rents. The market is lower than it was years ago when we made those late. So you can assume...

that we will retain the tenants but at lower rent. Okay, I just thought because SWATCH and Levi thought they would have had to give you notice if they were going to terminate but is it just sort of like a rolling, like they can elect any time in the year to give you that notice? So they pick them just to be able to put a fire point on to SWATCH.

had to exercise their notice in fall of 21. And they did. And, you know, we have as Steve alluded to, you know, we finalized a agreement for them to stay at a lower rent. So they, you know, at the time the exercise determination

this year. And so, you know, we'll see what they do. But, you know, again, Steve, you know, alluded to likelihood is that just to swatch did, you know, that they may exercise that and our hope expectation is we'll keep them. I'll be at it a lower rent. The other releases that expire in 2023. You know, some of those are

You know, those have been sort of, I'll call it short term leases which we've continued to keep those tenants in place. I think we'll continue to do that. And you know, beyond that, I think there's probably only one substantive expiration in 2023 and Times Square and you know, that that happens middle of the year and that's an active discussion right now. Thank you so much.

The next question is from Dylan Burvinsky with Green Street. Please go ahead. Hey guys, thanks for taking the question. I'm just curious, you know, on the overall strategy of the company, I think in the past you guys have mentioned about possibly doing a tracking stock. So just curious.

You know, that's still on the table. And if so, could we see that happen in 2023? Yes, it's still very much on the table. We are not ready to talk about the timing, which will not be set until we actually make the decision and announce it.

Okay, and then just going back to the ground news recent, I think you mentioned that, you know, that 26 million might be less today. But I just curious, can you kind of give us an update on how that process works? I think our initial thought was when we saw that the yield increased at the pen desigurated elements that we thought that...

the ground rent might reset higher so just curious to see kind of an update on sort of the arbitration process and how that works. Oh boy, well the each ground lease is a little bit unique and a little bit different. This one

basically involves brokers negotiating if they can't agree, then a third party is appointed.

brokers negotiating if they can't agree, then a third party is appointed.

As a neutral, the interpretation is that it's a determination by brokers with 20 years of experience and active brokers of what the value of the land vacant and unapproved would be.

So I have interpreted that to me. What could you sell that piece of land for now? Which is somewhat different than what an appraisal process might be which is a willing buyer and a willing seller Etc

We think it's a broker's process, so that's the way it's set. We think that the value of the land...

is lower today than it was a year and a half ago when we set the $26 billion. Actually, maybe even quite a bit lower. And so that's the determining factor. The fact that, and most of these analysis are done by a

what is the return to a new building and what the residual value would be for the land. So if we think we can get $5 or $10 a foot more on a $90 or $100 lease in one pen that has no bearing on what the value of the land might be.

Okay, that's helpful. Appreciate that.

Great. Thank you. Michael, you went through a whole number of the parts of the business in terms of the impact on FFO and 23 versus 22, but can you maybe help bottom line just the core office and retail NOI and whether that's higher or lower this year?

Tony, you're trying to box me on the guidance here. We're in a fluid environment. It's hard to predict. Overall, we think the performance will be comparable to this year, I would say. That's not trying to...

give you guidance is just, you know, we have some, we have some in and some out. We can't print exactly what will come along. It depends on which tennis we renew, which may roll out, but, you know, in general, like we have some known pauses, we have some known moveouts as we just talked about, you know, overall.

You know, as we sit here today, it's probably neutral. Okay.

Thanks for that. And then the second question is on 350 park. I mean, you crystallized value there at a level that seems to be pretty well north of what, I think most people probably had in their numbers and where you're getting credit for it and the stock most likely. So just wondering how you thought about the ability to just completely exit, I think, next year versus

of the value of...

The pricing of that deal we think was fair to both parties.

In terms of what our financial strategy will be a year or two from now when we have to make the decision as to whether to invest in the long-term building project and own 40 percent of a 1.7 million square foot brand new super duper Times Square tower or to take the money and run that's a decision we'll make at the time.

But it is an interesting fact that we have the option to do either. Okay. Thank you.

Next question is from Nick Yuliko with Scotia Bank. Please go ahead. Thanks. I just wanted to touch on the St. Regis retail where you had the default and the JV. Can you just tell us why the lender not refinanced the loan and?

Can you explain the earnings impact from this? I guess right now how it's working since it looks like there's some sort of cash flow sweep. And then, you know, if for some reason you can't get this resolved, you know, is it joint fetch that just walks away from the property? How does that ultimately, you know, will get resolved and, you know, look at the earnings impact be?

Look, the loan matured at year end and the asset is not refinancable today. Quite frankly, like many assets in this market, we signed two leases at the peak of the market.

One of those, you know, we just discussed terminated and we related a lower rent. And so, you know, the asset was not re-financeable. Long-winded default. You know, we were talking with the lenders before that happened. We continue to talk to them today. And we're an active discussion to, you know, restructure the loan and then extend them a chart. We can't, you know, we can't. And the asset will go back to the lenders. You know, just like everything we do, we're going to be disciplined and thoughtful about

interest to, but that's the state of play. To date, I know there was some commentary in a couple of reports about 8.5% interest. At the fall rate, the answer is that's the case. The answer is that rate's never going to get paid. We're either going to toss the keys back, or we're going to restructure the deal, and the rate will get reset to what it's supposed to be. And that...

you know that interest uh... is not going to get paid uh... so you know that that's the state of play i don't think the earnings impact is really uh... to win away you know today you know i think based on frankly where was the fourth quarter and i don't know if there's

That much FFO that's flowing through given the fact that it's a floating rate alone where You know, well the income you know, there's some cash flow, but it's not it's not significant

Okay, I understand. Thanks, Michael. Appreciate that. And then going back to 650 Madison, I know you talked about this a little bit. You know, it looks like that asset got refinanced in 2019. I think there was a $1.2 billion appraisal on it.

There's 800 million of debt on the asset right now. If you're saying the equity zero, basically, I guess the building's worth 800 million. That would be about 35 percent asset value decline since 2019 when it was refinanced.

So please correct me from rolling those numbers, but I guess I'm wondering is from that standpoint, you did talk about occupancy being down, rates are higher as well, but how would you kind of frame out that level of an asset value decline for office and retail now versus 2019? Is that a big, a big of a lot of the portfolio or only the pieces where you do have some more structural vacancy right now? Okay.

Yeah, like I think, you know, first of all, you reference, you're up to two or three things. We did refinance in 2019. It was, you know, pretty outstanding execution by our team, frankly, in pushing that loan out till 2029 at about 3.5%. So we have time, right? If we talk about this.

Was that where the asset would have traded when the loan was made? You know, I can't comment. I can't think back to 2019 these X circumstances at that time. So it was an appraisal done at the time. There's some specific facts that have changed since then, probably most notably.

We had a major tenant move out and the reality is rents, so I think generally, office and retail have declined since then to varying degrees. So I think all that's reflected in there and it's deep to talk about. The end panel analysis particularly for joint ventures is a very much accounting driven methodology and that's what the accounting produced.

Let's go ahead. Hey, good morning, guys. This is Tim Egon for Ronald Candon. Just laid out the FSO headwind next year pretty clearly in the prepared remarks. Just as we think about 10-1 and maybe some of the outside there in 23 versus 22, enough furniture, $76 a foot today.

And that is, what do you think that is year end 23? Thank you. Hi, it's Glen Weiss. So you know we're coming off rents in the high 60s, low 70s. We have leases out right now that are piercing 100 in the tower of this building. So that gives you a feel of where we believe rents will go as we...

core ISI. Please go ahead. Yeah thanks just one follow-up Michael on some of the swaps and caps that are maybe burning off or coming to maturity here in 23 and 24 should we assume that you're just going to let those kind of float? Are you going to put new caps and and you know swaps in or just how should we be thinking about that as the Fed kind of nears the end of the tightening cycle?

Yeah, you know, somebody rests with every day Steve. I mean, some of those are, you know, it's probably about 23 because 24, you know, again, we have a loan maturity. We have to determine what type of loan we're going to refinance that with, which is more of a 24 issue than the 23 issue, right? So on the other mature in 24, we roll into a fixed rate loan.

Obviously, no need to swap there. So, you know, we'll see. I think the expectation for most of the loans that expire somewhere on caps is we'll roll those. And I'm looking at the downer list right now. So, you know, we got two or three that expire, middle, the latter part of the year.

I would expect that we would roll those over the next few months. Those tend to be an annual basis, although you can go out a couple of years. And then on the swaps, we'll continue to look for opportunities to turn some of those out too. You are getting to the point where the Fed is looking like they're close to being done.

type of financing we're going to do on the asset before we finalize that decision.

Great, thanks. It's it. And the next question is a follow-up from Vikram Maholchra with Mizzuho. Please go ahead.

And thanks to the follow-up, Michael just on the 55 cents you outline in terms of the headwind Does that incorporate these the known office moveouts and the lowest three-trick-tailed rent that you reference? I mean, the only Data points I gave you were on interest the more than I asked that sales, you know, the rest is you know, we'll see other business performance

And they said, there's some pros, cons, you know, by and large, we think probably neutral, but we can't predict. It depends on what happens, in terms of the pace of leasing.

Okay, and then just the other follow up just I know there are those moving pieces so do we take that as the based on your current view of taxable income for 23 you kind of right size dividend but if some of these moving pieces don't go your way you might have to revisit the dividend or have you incorporated some of the slack basically that you just outlined.

The dividend is a board decision and you know we're certainly not going to speculate on what might happen to the dividend and certainly not from a negative point of view. So that's a question that we can't answer and won't answer now.

But dividend is a board decision and we're certainly not going to speculate on what might happen to the dividend and certainly not from a negative point of view. So that's a question that we can't answer and won't answer now. Thank you.

There are no further questions at this time. I would like to turn the conference back over to Stephen Roth for any closing remarks.

There are no further questions at this time. I would like to turn the conference back over to Steven Roth for any closing remarks.

Thank you everybody. You know, this is a next thing time we're in the middle of a federal reserve tightening cycle.

I think Oatommas said in his opening remarks that his call a couple of days ago that commercial real estate is in a recession.

I don't want to, I wouldn't quibble with that either way. But markets are soft, which we think makes it a fairly exciting time. We will get through this easily. We will see what opportunities come up. And we think the world will be a lot better on the other side. Happy Valentine's Day and we'll see you at the next corner. Happy Valentine's Day and we'll see you at the next corner.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect.