Q4 2023 Vornado Realty Trust Earnings Call
Operator: Good morning, and welcome to the Vornado Realty Trust fourth quarter 2023 earnings call. My name is Andrea, and I will be your operator for today's call. This call is being recorded for replay purposes. All lines are in a listen-only mode.
Good morning, and welcome to the Vornado Realty Trust fourth quarter 2023 earnings.
Andrea: My name is Andrea and I will be your operator for today's call.
Andrea: This call is being recorded for replay purposes.
All lines are in a listen only mode.
Operator: Our speakers will address your questions at the end of the presentation during the question and answer session. At that time, please press star then 1 on your touchtone phone. I will now turn the call over to Mr. Steve Borenstein, Senior Vice President and Corporate Counsel. Please go ahead. Yesterday afternoon, we issued our fourth quarter earnings release and filed our annual report on Form 10-K with the Securities and Exchange Commission. These documents, as well as our supplemental financial information packages, are available on our website, www.bno.com, under the Investor Relations section. In these documents, and during today's call, we will discuss certain non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP measures are included in our earnings release, Form 10-K, and financial supplementation.
Andrea: Our speakers will address your questions at the end of the presentation during the question and answer session.
Andrea: At that time. Please press Star then one on your Touchtone phone.
Andrea: I will now turn the call over to Mr. Steve Bernstein, Senior Vice President and corporate Counsel. Please go ahead.
Steve Bernstein: Well first off our Nida Realty Trust's fourth quarter earnings call yesterday afternoon, we issued our fourth quarter earnings release and filed our annual report on Form 10-K, with the Securities and Exchange Commission. These documents as well as our supplemental financial information packages are available on our website www dot dot com.
Steve Bernstein: Under the Investor Relations section in these documents and during today's call. We will discuss certain non-GAAP financial measures reconciliations of these patterson about directly comparable GAAP measures are included in our earnings release Form 10-K and financial supplement.
Operator: Please be aware that statements made during this call may be deemed forward-looking statements, and actual results may differ materially from those projected 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, 2023, for more information regarding these risks and uncertainties. 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 statements.
Steve Bernstein: Please be aware that statements made during this call maybe deemed forward looking statements and actual results may differ materially from these statements.
Steve Bernstein: Due to a variety of risks uncertainties and other factors.
Steve Bernstein: These refer to our filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31, 2023 for more information regarding these risks and uncertainties. The call may include time sensitive information that maybe accurate only as of today's date. The company does not undertake a duty to update any forward looking.
Steve Bernstein: These statements on the call today from management for our 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.
Steven Roth: On the call today from management for our 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. Thank you, Steve, and good morning, everyone.
Steven Roth: Thank you, Steve and good morning, everyone.
Steven Roth: We ended the year on a high note with a good fourth quarter the quarter in the year, we're right on target, although as expected our results were negatively affected by the dramatic increase in interest rates.
Steven Roth: We ended the year on a high note, with a good fourth quarter. The quarter and the year were right on target, although, as expected, our results were negatively affected by the dramatic increase in interest rates. This will carry through next year, but I expect it will reverse as interest rates recede. It's important to note that our business has continued to perform well. Michael will review the quarter and the year with you in a moment. This year, our New York City office leasing team won the gold medal.
Steven Roth: This will carry through next year, but I expect will reverse as interest rates received.
Steven Roth: It is important to note that our businesses continued to perform well Michael.
Steven Roth: Michael will review the quarter and the year with you in a moment.
Steven Roth: This year, our New York City Office leasing team won the gold medal.
Steven Roth: In the fourth quarter, we leased 840,000 square feet. For the full year, we leased 2.1 million square feet. Average starting rents for the quarter and the year were record-breaking at $100 and $99 per square foot, respectively, and more gold medal stuff for the year. The office leasing market is on the foothills of recovery, but the capital markets still remain challenged and are even tightening, even tightening slightly as we go. The foreclosures and give-backs are still in front of us, and therefore, so is the opportunity. As Michael and I have said on the last few calls, retail in New York City has bottomed and is recovering rapidly. While rents have a way to go to reach peak pricing of five years ago, we feel very good about the activity, level, and strength of the retail recovery. And there's more big retail news, and two blockbuster deals announced in December. Major global luxury retail brands, Prada and Kering, bought Prime's Upper 5th Avenue properties for their own use as stores.
Steven Roth: In the fourth quarter, we leased 840000 square feet for the full year, we leased two 1 million square feet average starting rents for the quarter and the year were record breaking at $100 and $99 per square foot respectively.
Steven Roth: And more gold medals stuff for the year, we leased one 2 million square feet at over $100 a square foot rights.
Speaker Change: You're obviously using market is on the foothills of recovery, but the capital market still remain challenged.
Speaker Change: Our evening tightening.
Speaker Change: Even tightened slightly as we speak.
Speaker Change: The foreclosure foreclosures and give backs are still in front of us and therefore, so is the opportunity.
Speaker Change: Yeah.
Speaker Change: As Michael and I have said on our last few calls retail in New York City has bottomed out as recovering rapidly while rents have a way to go to reach peak pricing of five years ago, we feel very good about the activity level and strength of the retail recovery.
Speaker Change: And there's more big retail news two blockbuster deals announced in December major major global luxury retail product at Kerry.
Speaker Change: But what prime upper fifth Avenue properties for their own use as stores.
Steven Roth: One deal was $835 million, and the other was $963 million. So, in round numbers, call it about $900 million for a half-block front on Upper 5th Avenue. So we now have the most important retailers in the world investing aggressively in real estate for their own use on the most important retail street in our country. This is only happening in the most important world cities, New York, London, and Paris.
Speaker Change: One deal was $835 million and the other was 963 million. So it ran about round numbers call. It about 900 million per half block front on upper fifth Avenue.
Speaker Change: So we now have the most important retailers in the world is investing aggressively in real estate for their own use are the most important retail street in our country.
Speaker Change: This is only happening in the most important world cities, New York, London Paris.
Steven Roth: Now, we take this mark very personally because we own, in our retail joint ventures, so 52% of our share, a 26% market share of available upper Fifth Avenue and four blocks, half blocks, four half blocks of similar AAA quality. I'm sure you can all do the math here. We also own, in that same joint venture, the two best full blocks, so that would be four half blocks, in Times Square. And we have the largest signed business in town...
Speaker Change: Now we take this mark very personally because we own a retail joint venture so 52% our share.
Speaker Change: A 26% market share of available ships Upper fifth Avenue and four block at blocks, it's what have blocks of similar AAA quality.
Speaker Change: I'm sure you can all do the math here.
Speaker Change: We also own and that same joint venture the two best full blocks, so that would be for half blocks in times square and we have the largest sign business in town.
Speaker Change: Okay.
Speaker Change: It's been a long ride and we have now just about completed construction of a renovation of the double block wide pad two.
Steven Roth: It's been a long ride, and we have now just about completed the construction of our renovation of the double-block wide Pantou, and we are about 90% complete with the surrounding plazas. The huge plaza in front of Pen 2, combined with the 33rd Street Promenade and the 33rd Street setback at Pen 1, have created an enormous open public space, which I might say will be quite majestic. Directly across 7th Avenue, the Hotel Pen is now down to the ground, creating our Pen-15 site.
Speaker Change: And we are about 90% complete with the surrounding classes.
Speaker Change: Huge plaza in front of pen two combined with the 33rd Street Promenade and the 33rd Street setback at Penn One have created enormous open public space, which I might say it will be quite majestic.
Speaker Change: [noise] directly a cluster of course seventh Avenue the hotel Penn is now down to the ground grading.
Speaker Change: And 15 site all of this taken together is for sure a game changer.
Steven Roth: All this, taken together, is for sure a game-changer. If you are a shareholder of Vornado or are interested in Vornado, this is an immediate must-see. The world turns in funny ways and creates opportunities. The retail apocalypse is now past, having handily survived the e-commerce attack. But now we have a CBD office apocalypse involving the work from home threat and the total blacklisting of offices in the capital market. In the end, the major cities of America will continue to grow and thrive, with New York, our hometown, leading the pack. Office workers will gather in offices with their colleagues rather than be alone at home at their kitchen table.
Speaker Change: If you are a shareholder of at Ada or are interested in Grenada.
Speaker Change: Is an immediate must go see.
The alternative funny ways and creates opportunity the retail Apocalypse is now passing having handily survived the e-commerce attack.
Speaker Change: But now we have a CBD office apocalypse involving our work from all threat and the total blacklisting of office in the capital markets.
In the end the major cities of America will continue to grow and thrive with New York, our hometown, leading the pack office workers will gathering offices with our colleagues rather than be alone at home at their kitchen table.
Steven Roth: And in the end, the supply-demand equation will come into balance and bring about a landlord's market ruled by a total cutoff of new supply. You can't build anything in these frozen capital markets. And in New York, the evaporation or irrelevance of, say, 100 million square feet of old, obsolete, unrentable space. But this cycle is not over yet. There remain challenges, but for forward-looking investors, the time is now. My colleagues and I at Vornado are optimistic and excited. Now, over to Michael.
Speaker Change: In the end the supply demand equation will come into balance and bringing on a landlord's market caused by a total cutoff of new supply you can't build anything in these frozen capital markets and in New York, the evaporation or irrelevance of say 100 million square feet of old absolutely utter rentable space.
Speaker Change: This cycle is not over yet there remain challenges, but for forward looking to investors. The time is now.
Speaker Change: My colleagues and I and my colleagues and I ask Renee to are optimistic and excited that over to Michael.
Michael J. Franco: Thank you, Steve, and good morning, everyone. Though 2023 was a challenging year, our core office and retail businesses proved to be resilient. Our overall New York business, same store cash NOI, was up a healthy 2.8% year over year and was up 2% in the fourth quarter compared to last year. Comparable FFO as adjusted was $2.61 per share for the year, down $0.54 from 2022, largely due to increased interest, which is in line with the expectations that we previously communicated. Fourth quarter comparable FFO as adjusted was $0.63 per share compared to $0.72 per share for last year's fourth quarter, a decrease of $0.09.
Michael J. Franco: Thank you, Steve and good morning, everyone.
Michael J. Franco: The 2023 was a challenging year, our core office and retail businesses proved to be resilient.
Michael J. Franco: Our overall, New York business same store cash NOI was up a healthy two 8% per year and was up 2% in the fourth quarter compared to last year.
Michael J. Franco: Comparable <unk> as adjusted was $2 61 per share for the year down 54 cents in 2022, largely due to increased interest expense, which is in line with the expectations that we've previously communicated.
Michael J. Franco: Fourth quarter comparable <unk> as adjusted was <unk> 63 per share compared to 72 per share for last year's fourth quarter, a decrease of nine overall.
Michael J. Franco: Overall, the core business was flat, and the entire decrease in the quarter was driven by increased GNA and lower FFO from sold property. We have provided a quarter-over-a-quarter bridge in our earnings relief and in our financial support. We recorded $73 million of non-cash impairment charges during the fourth quarter, primarily related to joint venture assets that we intend to exit in the next few years. It should be noted that, in accordance with NEAREATS' FFO definition, this impairment charge is not included in FFO.
Michael J. Franco: Overall, the core business was flat and the entire decrease in the quarter was driven by increased G&A and lower F. F O from sold properties.
We have provided a quarter over quarter bridge in our earnings release and in our financial supplement.
Michael J. Franco: We recorded $73 million of noncash impairment charges during the fourth quarter, primarily related to joint venture assets that we intend to exit in the next few years. It should be noted that in accordance with NAREIT <unk> definition. This impairment charge is not included in <unk>.
Michael J. Franco: Now turning to 2024.
Michael J. Franco: Now turning to 2024. While forecasting remains challenging in the current economic environment, we expect our 2024 comparable FFO to continue to be impacted by higher interest rates and be down from 2023, which already seems to be in the market. We project a roughly $0.30 impact from higher net interest expense due to extending hedges at higher rates on our variable debt. Additionally, there will be a ding to earnings as we turn over certain spaces, primarily at 1290 Avenue of the Americas, 770 Broadway, and 280 Park Avenue. However, this is temporary, as we have already leased up a good chunk of it. But the gap earnings from these leases won't begin in 2024. We expect 2024 to represent the trough in our earnings and earnings to increase meaningfully from there as rates trend down and as income from the lease-up of Penn and other vacancies comes online. Ahem. Now turning to the leasing. New York is clearly leading the leasing charge nationally as the city continues to experience strong employment.
While forecasting remains challenging in the current economic environment, we expect our 2024 comparable <unk> to continue to be impacted by higher interest rates and be down from 2023, which already seems to be in the market. We project a roughly 30 cent impact from higher net interest expense due to extending hedges at higher.
Michael J. Franco: Our rates on our variable debt.
Additionally, there will be a deemed to earnings as we turn it over certain spaces, primarily at 12 90 Avenue. The Americas 770 Broadway and 280 Park Avenue. This is temporary as we have already leased up a good chunk of this space, but the GAAP earnings from these leases won't begin in 2024.
Michael J. Franco: We expect 2024 will represent the trough in our earnings and for earnings to increase meaningfully from there as rates trend down and as income from the lease up with Penn and other vacancies comes online.
Michael J. Franco: Yes.
Michael J. Franco: Now turning to the leasing markets.
Michael J. Franco: New York is clearly leading the leasing charge nationally as the city continues to experience strong employment growth.
Michael J. Franco: 2023 leasing in Manhattan ended on a strong note, and as we enter 2024, market conditions are more favorable than any year since the pandemic ensued in March 2020, providing support for the continued recovery in Class A office. The economy is healthy, and most employers are back in the office at least three to four days per week.
Michael J. Franco: 23 leasing in Manhattan ended on a strong note and as we entered 2024 market conditions are more favorable than any year since the pandemic ensued in March 2020, providing support for the continued recovery in the class a office market.
Michael J. Franco: The economy is healthy most employers are back in the office at least three to four days per week.
Michael J. Franco: <unk> sublease space is standing in the market for higher end space is tightening fueled by a decline in our new development pipeline now.
Michael J. Franco: Competitive sublease space is thinning, and the market for higher-end space is tightening, fueled by a decline in the new development pipeline. Now that companies have greater clarity on their space needs, Tenant demand is growing, which is translating into more leasing transactions. With new supply evaporating, tenants are increasingly focused on the highest quality redeveloped Class A buildings near Penn Station and Grand Central Station as they seek to attract and retain tenants. Activity in the best buildings has been strong, with vacancy at less than 10% and rents rising.
Michael J. Franco: Now that companies have greater clarity on their space needs tenant demand is growing which is translating into more leasing transactions.
With new supply evaporating tenants are increasingly focused on the highest quality of Redeveloped class a buildings there Penn station in Grand Central station as they seek to attract and retain talent.
Michael J. Franco: Activity in the best buildings has been strong with vacancy at less than 10% and rents rising.
Michael J. Franco: Our best in class portfolio has been a major beneficiary of this trend and the stats bear out this that we consistently outperformed the marketplace as Steve mentioned earlier in 2023 released $2 1 million square feet at average starting rents of an industry, leading $99 per square foot with $1 2 million feet at triple digit.
Michael J. Franco: Our best-in-class portfolio has been a major beneficiary, and the stats bear out that we consistently outperform the marketplace, as Steve mentioned earlier. In 2023, we leased 2.1 million square feet at an average starting rent of $99 per square foot, with 1.2 million feet at triple-digit starting. Importantly, we made significant strides in addressing our upcoming vacancy and tenant role at some of our most important assets with leases with the following important customers: Citadel at 350 Park Avenue, PJT Partners and GIC at 280 Park Avenue, King & Spaulding, Solemnity & Gay, and Cushman & Wakefield at 1290 Avenue Americas, and Shopify at 85 Tenth Avenue.
Michael J. Franco: Starting rents.
Michael J. Franco: Importantly, we made significant strides in addressing our upcoming vacancy and tenant role at some of our most important assets with leases with the following important customers Citadel at 350 Park Avenue P. J T partners and GIC at 280 Park Avenue, King and Spalding, So I'm being gay and Cushman and Wakefield at 12 90.
Michael J. Franco: Avenue, the Americas and Shopify at 80, 510th Avenue.
Michael J. Franco: Additionally, at Penn One we maintained strong momentum with another 300000 square feet of deals highlighted by new leases with Samsung and Canaccord Genuity.
Michael J. Franco: Just as a reminder, since we started our redevelopment efforts in the Penn District, we have leased over two and a half million square feet of office at average starting rents of $94 per square foot a significant increase in what these buildings achieved previously.
Michael J. Franco: Additionally, at Penn One, we maintain strong momentum with another 300,000 square feet of deals, highlighted by new leases with Samsung and Canaccord Genuit. Just as a reminder, since we started our redevelopment efforts in the Penn District, we have leased over two and a half million square feet of office at average starting rents of $94 per square foot, a significant increase from what these buildings achieved previously. Our fourth-quarter activity led the overall market's leasing volume upturn as we completed 17 leases comprising 840,000 feet at a starting rent of $100 per square foot.
Michael J. Franco: Our fourth quarter activity led the overall market's leasing volume upturn as we completed 17 leases comprising 840000 feet at starting rents of $100 per square foot.
Michael J. Franco: Even with our very strong close to 2023, our leasing pipeline heading into 2024 is robust. We currently have almost 300000 feet of leases in negotiation with another 2 million feet and our pipeline at different stages of negotiation, including a balanced mix of new and renewal deals.
Michael J. Franco: Turning to the capital markets now.
Michael J. Franco: While the financing markets for office remains very challenging as banks continue to deal with problem loans, we are starting to see some stability with the fed potentially cutting rates in 2020 for fixed income investors are constructive again on high quality office and unsecured bond spreads for office have tightened significantly over the past couple of quarters.
Michael J. Franco: Even with our very strong close to 2023, our leasing pipeline heading into 2024 is robust. We currently have almost 300,000 feet of leases in negotiation, with another 2 million feet in our pipeline at different stages of negotiation, including a balanced mix of new and renewable. Turning to the capital market. While the financing markets for office remain very challenging as banks continue to deal with problem loans, we are starting to see some stability with the Fed potentially cutting rates in 2024. Fixed income investors are constructive again on high quality office, and unsecured bond spreads for office have tightened significantly over the past couple of quarters.
Michael J. Franco: That being said, we're still a ways away from the healthy mortgage financing market in office and most office loans will have to be restructured or extended as they arent refinance them at their current levels.
Michael J. Franco: More broadly lenders have no appetite for construction financing across most property types, which should keep a lid on new supply.
Michael J. Franco: Conversely, the financing market for retail is now wide open now that the sector has bottomed.
Michael J. Franco: As always we continue to remain focused on maintaining balance sheet strength, even in this challenging financing environment, our balance sheet remains in very good shape with strong liquidity we.
Michael J. Franco: We are actively working with our lenders and making good progress pushing out the maturities on our loans, which mature this year.
Michael J. Franco: That being said, we are still a ways away from a healthy mortgage finance market, and most office loans will have to be restructured or extended as they aren't refinanceable at their current level. More broadly, lenders have no appetite for construction financing across most property types, which should keep a lid on new supply.
Michael J. Franco: Our current liquidity is a strong $3 2 billion, including $1 $3 billion of cash and restricted cash and $1 9 billion Undrawn under our $2 5 billion revolving credit facilities with that I'll turn it over to the operator for Q&A.
Michael J. Franco: Conversely, the financing market for retail is now wide open now that the sector has bottomed. As always, we continue to remain focused on maintaining balance sheet strength. Even in this challenging financing environment, our balance sheet remains in very good shape, with strong liquidity. We are actively working with our lenders and making good progress on pushing out the maturities on our loans, which mature this year. Our current liquidity is a strong $3.2 billion, including $1.3 billion of cash and restricted cash and $1.9 billion undrawn under a $2.5 billion revolving credit.
Michael J. Franco: We will now begin the question and answer session.
If you have a question. Please press Star then one on your Touchtone phone.
Michael J. Franco: If you wish to be removed from the queue. Please press Star then two.
Michael J. Franco: If you are using a speakerphone you may need to pick up the handset first before pressing the numbers.
Michael J. Franco: Once again, if you have a question. Please press Star then one on your Touchtone phone. Please.
Michael J. Franco: Please hold momentarily, while we assemble the roster.
Michael J. Franco: Okay.
Michael J. Franco: Okay.
Michael J. Franco: Okay.
Michael J. Franco: And our first question comes from Steve Sochua of Evercore ISI. Please go ahead.
Michael J. Franco: Thanks.
First question for Michael or maybe Glenn just kind of on that I guess pipeline. The 2 million square feet that you talked about could you maybe tell us a little bit how much of that is for kind of the existing portfolio. How much of that is for the development such as tend to.
Operator: With that, I'll turn it over to the operator for Q&A. We will now begin the question and answer session. If you have a question, please press star, then 1 on your touchtone phone. If you wish to be removed from the queue, please press star, then 0. If you are using a speakerphone, you may need to pick up the handset first before pressing the number.
Michael J. Franco: And.
Michael J. Franco: In that discussion can you just talk about the upcoming explorations and 24 are there any large known move outs.
Steve Sakwa: Once again, if you have a question, please press star, then 1 on your touchtone phone. Please hold momentarily while we assemble the roster. And our first question comes from Steve Sakwa of Evercore ISI. Please go ahead.
Michael J. Franco: This year that you might know about that you could share with us.
Glenn: Hey, Steve it's Glenn.
Glenn: So of the pipeline that we mentioned in the opening remarks, there is a good spread in there, including Penn one and Penn two.
Glenn: So activity continues to strengthen at both properties.
Glen Weiss: Thanks. I guess the first question for Michael or maybe Glen, just kind of on that pipeline, the 2 million square feet that you talked about. Could you maybe tell us a little bit how much of that is for the kind of existing portfolio, how much of that is for the developments such as PEN2? And, you know, in that discussion, can you just talk about the upcoming expirations in 24? Are there any large known move-outs this year that you might know about that you could share with us? Hey Dave, it's Glen.
The reception at Penn two has been better than excellent tour volume is off the charts ever.
Glenn: Everyone thinks this thing has allowed nothing they've ever seen so the pipeline does include activity at both <unk>, two and pen one.
Glenn: As it relates to the ball June 24, the exploration that we were facing we've attacked it I think very well thus far.
Glenn: At 12, 90, we've already leased more than 50% of the space that was expiring in 'twenty four between variable and equitable at.
Glen Weiss: So of the pipelines that we mentioned in the opener remarks, there is a good spread in there, including PEN1 and PEN2. So activity continues to strengthen at both properties. The reception at Pen 2 has been better than excellent. Tour volume is off the charts. Everyone thinks this thing is a wow, like nothing they've ever seen.
Glenn: At 280 Park, where we leased over 200000 feet of the 275000 feet expiring between 2425 and put away P. J P, which was expiring in 2006.
Glenn: 770 Broadway, we continue to be the market with that building of course is more of a big Tech Big media building, but we expect that building to perform as we move along here given its great location and great boats.
Glen Weiss: So the pipeline does include activity at both Pen 2 and Pen 1. As it relates to the bulge in 2024, the expirations that we were facing, we've attacked it, I think, very well thus far. You know, at 1290, we've already leased more than 50% of the space that was expiring in 2024 between venerable and equitable. At 280 Park, we released over 200,000 feet of the 275,000 feet expiring between 24 and 25, and put away PJP, which was expiring in 26. 770 Broadway, we continue to be the marker with, and that building, of course, is more of a big tech, big media building, but we expect that building to perform as we move along here, given its great location and great folks. Sorry, just a quick follow-up. Are you saying 770 is...does that have a meta-expiration that... It does indeed.
Speaker Change: So just a quick follow up are you, saying 770 is does that have a meta exploration.
Speaker Change: Okay.
Speaker Change: Exploration of 275000 feet in June of this year.
Speaker Change: What's left.
Speaker Change: The rest of it.
Speaker Change: So meta after that exploration, Steve we will have another 500000 feet long term in the building.
Speaker Change: Okay.
Steve: Okay, great. Thanks, and then just on the second question I noticed that you pushed out the stabilization of pen two by year, which certainly makes sense just given the challenging market today, but you guys also kept the.
Speaker Change: I guess you kept the yield unchanged. So just can you kind of help us think through that and I guess from an accounting perspective. This leasing doesn't occur. This year somewhat soon does that begin to create a potential earnings drag in 25, just from the lack of ability to continue to capitalize costs on that project.
Glen Weiss: It has a meta-exploration of 275,000 feet in June of this year. So META, after that expiration, Steve, we'll have another 500,000 feet long term in the building. Okay, great, thanks. And then on the second question, I noticed that you pushed out the stabilization of 10-2 by a year, which certainly makes sense, just given the challenging market today. But you guys also kept the, I guess you kept the yield on change. So just can you kind of help us think through that? And I guess from an accounting perspective, if leasing doesn't occur this year, somewhat soon, does that begin to create a potential earnings drag in 25, just from the lack of ability to continue to capitalize costs on that project? Thanks. Good morning, Steve. It's Michael.
Speaker Change: Thanks.
Speaker Change: Hi, Good morning, it's David Michael.
David Michael: The answer with respect to stabilization as we did push it out to 'twenty six.
Speaker Change: It's taken a little longer to get going on on.
David Michael: On take up there, but as Glenn.
David Michael: Just reference the reaction as it's gotten.
David Michael: To deliberate here has been outstanding so we expect that to pick up but yes that being said, we're trying to be realistic as well and so we pushed it out.
David Michael: Yield is.
David Michael: <unk> is based on the $750 million cost does not include Gary So thats based NOI over the original cost so that's a.
David Michael: Simple math for you.
David Michael: Right drag beyond 'twenty five.
David Michael: It's not done I guess potentially but.
David Michael: We feel good about the pipeline and what we have baked in right now.
Speaker Change: Great. Thanks, that's it.
Speaker Change: The next question comes from Michael Griffin of Citi. Please go ahead.
Michael J. Franco: The answer with respect to stabilization is that we did push it out to 26, you know, it's taken a little longer to get going on take-up there, but as Glen just referenced, the reaction as it's gotten to delivery here has been outstanding. So we expect that to pick up. But, you know, that being said, you know, we're trying to be realistic as well. And so we pushed it out.
Michael Griffin: Great. Thanks, Steve I know in your opening remarks, you talked about the stressed opportunities youre seeing out there in the market can you maybe quantify kind of what those opportunities could be in and when you look at kind of capital allocation priorities. When it makes sense to take advantage of those maybe relative to buying back your stock or starting new.
Michael J. Franco: You know, the yield is, you know, is based on the $750 million cost, and it does not include carry. So that's, you know, based on NOI over the original cost. So, you know, that's simple math for you. Trade drag beyond 25.
Michael Griffin: Developments.
Okay.
Michael Griffin: There are three opportunities buying back our stock.
Michael Griffin: As the first one where he uses of our capital allocation and the second is.
Michael Griffin: Paying off debt deleveraging, a little bit and this area is offensively acquiring new assets.
Michael Griffin: It's not done, I guess, potentially, but, you know, we feel good about the pipeline and what we have. Great, thanks. That's it. The next question comes from Michael Griffin of Citi. Please go ahead.
Michael Griffin: We are only interested in acquiring new assets at distressed prices and I think as I've said, the foreclosures and the give backs and not really excel.
Michael Griffin: Accelerating accelerated weight. So the opportunities are still in front of us.
Michael Griffin: Great, thanks. Steve, in your opening remarks, you talked about the stressed opportunities you're seeing out there in the market. Can you maybe quantify kind of what those opportunities could be? And when you look at kind of capital allocation priorities, would it make sense to take advantage of those, maybe relative to buying back your stock or starting new development? There are three opportunities: buying back our stock is the first one, or using a capital allocation. The second is paying off debt and deleveraging a little bit. And the third is aggressively acquiring new assets.
Speaker Change: I don't have any comments as to what we might do.
Speaker Change: <unk>.
Speaker Change: First our number one priority is.
Speaker Change: With that but we need.
Speaker Change: That expertise and then after that we go on the outfit.
Speaker Change: The stock, we will react opportunistically to the stock price over time.
Speaker Change: Yeah.
Speaker Change: Great. Thanks.
Speaker Change: And then I was wondering if you could comment on the recent news about rent reduction from a tentative fixed at the Madison I know you only own 20% of this building, but you know is there a worry that we should extrapolate. This in terms of kind of future rent roll in maybe a sign of things to come from from our leasing and rent perspective.
Steven Roth: We are only interested in acquiring new assets at distressed prices, and I think, as I've said, the foreclosures and the givebacks have not really happened at an accelerated rate, so the opportunities are still in front of us. I don't have any comments as to what we might do, but I think our number one priority is the debt that we need to pay off, the debt expires, and then after that, we go on the up. The stock; we will react opportunistically to the stock price over time. Great, thanks.
Speaker Change: You know the interesting thing is some of the industry.
Speaker Change: Papers.
Speaker Change: They always get it right, but this case, they've got a dead rock.
Speaker Change: Thanks, a lot.
Speaker Change: $60 number was a net number so if you gross it up it's about $100 a foot.
Speaker Change: What it is telling me, it's a little less than $100, a flip, but it's in the low nineties I guess.
Speaker Change: Great. That's it for me thanks for the time.
Speaker Change: Yes, Sir thank you.
Speaker Change: The next question comes from QTL Bonnell, All Bank of America. Please go ahead.
Camille Bonnel: Good morning can you talk a bit more to the retention levels at the overall portfolio in 2023, how did it track versus your expectations and with the lack of new supply on the horizon do you think this will pick up in 'twenty four.
Steven Roth: And then I was wondering if you could comment on the recent news about a rent reduction from a tenant at 650 Madison. I know you only own 20% of this building, but you know, is there a worry that we should extrapolate this in terms of kind of future rent rolls and maybe a sign of things to come from a leasing and rental perspective? You know, the interesting thing is some of the industry papers. They always get it right. But in this case, they got it dead wrong. The facts are that the $60 number was a net number. So if you gross it up, it's about $100.
Glenn: Alright, it's Glenn.
Glenn: Our retention rate was strong as I mentioned, the leasing that we've gotten done the renewals I think went better than we originally had thought with beginning of 'twenty three.
Glenn: And in our pipeline that we referenced.
Glenn: We have very good activity on forward lease expirations, we are definitely finding that Ceos and decision makers of these tenants were expiring forward are now coming to us earlier than they had been over the past few years.
Steven Roth: Glen is telling me it's a little less than $100 a foot, but it's in the low 90s. Great. That's it for me.
Glenn: Because there is less and less quality blocks and space available to them. So I would say definitively the renewal.
Michael Griffin: Thanks for your time. Yes, sir. Thank you. The next question comes from Camille Bonnel of Bank of America. Please go ahead. Good morning.
Glenn: Program is stronger than it had been we're in very good talks with many of our tenants going forward and I think it's showing in our leasing activity numbers, especially.
Camille Bonnel: Can you talk a bit more about the retention levels of the overall portfolio in 2023? How did it track versus your expectations and with the lack of new supply on the horizon? Do you think this will pick up in 2024? Okay, go ahead.
Glenn: Especially with the volume we had during 2003 and what we're now seeing in 'twenty four already.
Speaker Change: You make a good point.
Speaker Change: Thank you said with the lack of supply so the dynamics, which are going to cause the office market to get very very healthy.
Glen Weiss: You know, our retention rate, you know, was strong. As I mentioned, the leasing that we've gotten done, the renewals, I think, went better than we originally had thought at the beginning of 23. And in our pipeline that we referenced, we have very good activity on forward lease expirations. We're definitely finding that CEOs, the decision makers of these tenants who are expiring forward, are now coming to us earlier than they had been over the past few years because there are less and less quality blocks and space available to them. So I would definitively say that the renewal, you know, program is stronger than it had been.
Speaker Change: Pretty soon.
Speaker Change: You can't do anything in this capital market. So there will be no notable supply coming on stream.
Speaker Change: The supply of buildings that were built in the last cycle over the last number of years.
Speaker Change: That space is all <unk>.
Speaker Change: And the next.
Speaker Change: Ryan is that tenants seem to what high quality buildings.
Speaker Change: Or either brand, new or buildings, which have been completely retrofitted which is.
Speaker Change: And so the older buildings that I think I said this back a dose.
Speaker Change: We're around.
Speaker Change: 150 million square feet Bose.
Steven Roth: We're in very good talks with many of our tenants going forward, and I think it's showing in our leasing activity numbers, especially with the volume we had during 23 and what we're now seeing in 24 already. You make a good point.
Speaker Change: Those are just obsolete and irrelevant.
Speaker Change: Will evaporate so.
Speaker Change: What we're dealing with is not a 400 million of forming a 400 million square foot marketplace with dealing with something which is somewhere in the high <unk>, which is a totally different supply demand.
Speaker Change: Equation.
Steven Roth: I think you said with the lack of supply. So the dynamics which are going to cause the office market to get very, very healthy pretty soon are, you can't build anything in this capital market, so there will be no new supply coming on. The supply of buildings that were built in the last cycle over the last number of years, That space is all being eaten up.
Speaker Change: I appreciate the color there and given retail seems to be a bit of a bright spot in your portfolio can you also talk about how the your leasing pipeline is looking for that side of the business.
Speaker Change: Sure.
Speaker Change: Yes.
Speaker Change: I appreciate you recognizing the retails at bright spot I think.
Speaker Change: Feels like investors wrote it off and with everything that's happened in the marketplace forgotten that we still own.
Steven Roth: And the next trend is that tenants seem to want high-quality buildings, which are either brand new or buildings which have been completely retrofitted. And so the older buildings, and I think I said the stock of those is somewhere around 100 to 150 million square feet. Those are just obsolete and irrelevant, and we'll look back on them. So what we're dealing with is not a 400 million square foot marketplace; we're dealing with something which is somewhere in the high 200s, which is a totally different supply and demand equation. I appreciate the color there.
Speaker Change: The most in the highest quality retail in New York City as Steve alluded to in his opening remarks so.
Speaker Change: Scarce Trophy assets I think the value is being recognized.
Speaker Change: You talked about the last couple of quarters and that continues in our leasing pipeline.
Speaker Change: Activity across the board really really on all of our spaces, where there's where there is vacancy our rollover occurring we have tenant activity in some cases multiple tenants for.
Glen Weiss: And given retail seems to be a bit of a bright spot in your portfolio, can you also talk about how your leasing pipeline is looking for that side of the business? Sure. You know, I appreciate you recognizing retail as a bright spot. I think, you know, it feels like investors wrote it off and, with everything that's happened in the marketplace, forgotten that we still own the most and the highest quality retail in New York City, as Steve alluded to in his opening remarks. So, these are, you know, scarce trophy assets.
Speaker Change: Those spaces.
Speaker Change: And our rents are clearly rebounding, so I would just sort of say stay tuned.
Speaker Change: We're optimistic in terms of what's coming down the pipe based on the whole we're working on right now.
Speaker Change: But only a finite supply.
The highest quality retail space, which is what the marketplace wants.
Speaker Change: And then I hope Youll notice I have a new financial metric for.
Speaker Change: Retail, which is called <unk> block.
Speaker Change: Price.
Speaker Change: We got a lot of half blocks in the best place.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: I appreciate that and just finally on the G&A side, you've managed to control those costs quite well since the pandemic, but it did pick up last year due to some additional stock expense is this a reoccurring event going forward and are there any key considerations for 24 that will keep your G&A.
Glen Weiss: I think the value is being recognized. You know, we've talked about the last couple of quarters, and it continues, you know, our leasing pipeline. You know, we've got activity across the board, really, really on all those spaces where there's vacancy or rollover occurring. You know, we have tenant activity, in some cases, multiple tenants or those spaces, and rents are clearly rebounding. So I would just sort of say stay tuned.
Speaker Change: The current or higher levels, just for instance, less capitalized interest in their development program now that kind of runs out of the pool.
Speaker Change: Capitalized interest will be comparable.
Speaker Change: G&A.
Speaker Change: Some of that will roll off given given that was a onetime event.
Glen Weiss: You know, we're optimistic in terms of what's coming down the pike based on the whole work. There is definitely a finite supply of the highest quality retail space, which is what the marketplace wants. And then, I hope you notice I have a new financial metric for retail, which is called the half-block price, and we got a lot of hair blocks in the best. Appreciate that.
Speaker Change: I think what you're referencing generally is the compensation plans put in place, which we felt important to.
Speaker Change: <unk> our talent.
Speaker Change: A difficult environment.
Speaker Change: And so we implemented those.
Speaker Change: In June heavily tied to entirely tied to stock performance over the next three or four years.
Michael J. Franco: And just finally, on the G&A side, you've managed to control those costs quite well since the pandemic, but it did pick up last year due to some additional stock expenses. Is this a reoccurring event going forward? And are there any key considerations for 24 that will keep your G&A at the current or higher levels?
And as the shareholders do quite well when the employees will do quite well.
So.
Speaker Change: That expense was elevated in 'twenty three.
Speaker Change: And.
Speaker Change: That will start to normalize as we get into this year, Tom how many how many years of rewriting all expense.
Michael J. Franco: Just, for instance, less capitalized interest from your development program now that Penn One's out of the pool? Now, the capitalized interest will be comparable. You know, G&A, you know, some of that will roll off given that it was a one-time event. But, you know, I think what you're referencing, generally, is the compensation plans put in place, which we felt were important to, you know, retain our talent in a difficult environment. And so, you know, we implemented those, one in June, heavily tied to, entirely tied to, stock performance over the next three, four years. And the shareholders will do quite well, and the employees will do quite well, too. So, you know, that expense was elevated in 23. And you know, that'll start to, I think, normalize. Tom, how many years are we writing off the expense for the... So it's four years, and you are excelling. So, say that again? You are excelling at it.
Tom: Conflict. So it's four years <unk>. So again you are accelerating so.
Tom: So the expense or writing off the equity comp plan that we issued in June it's over a four year period. So the G&A will benefit enormously shortly as that rolls off.
Tom: I said in my remarks.
Tom: Climbed the mountain and when you go to the other side of the mountain.
Tom: <unk>.
Tom: Rising interest rates.
Tom: Penalize the earnings at least pretty substantially that is going to reverse somewhere as the government begins to <unk>.
Tom: Reduced rates, which they will.
Tom: And then similarly.
Speaker Change: Uh huh.
Speaker Change: Well I guess, that's the big.
Speaker Change: That's the big thing now similarly.
Speaker Change: Michael said that our earnings we're going to be it was deemed I think was his word by turnover independent from the bulge in exploration lease expiries that once again that those spaces will fill up income will come onboard. So these are temporary reductions are in our earnings which will.
Steven Roth: So the expense for writing off the equity comp plan that we issued in June is over a four-year period, so the GNA will benefit enormously shortly as that rolls off. And I think I said in my remarks, you know, you climb the mountain, and then you go to the other side of the mountain.
Speaker Change: Absolutely reverse.
Speaker Change: The next question comes from John Kim of BMO. Please go ahead.
Thank you.
John P. Kim: Given all your commentary on street retail.
Steven Roth: So the rise in interest rates has penalized our earnings. Actually, you know, pretty substantial. That is going to reverse somewhere as the government begins to..., reduce rates, which they will. And then similarly..., uh, Well, I guess that's the big thing. Now, similarly, Michael said that our earnings were going to be hit, or dinged, I think was his word, by turnover in the tenants from the bulge in lease expiry debt. But once again, those spaces will fill up.
John P. Kim: Oh, it's recovered the pricing has been very strong.
John P. Kim: Are you going to be looking to sell into this spring or do you think market rents are going to improve or is it really just.
John P. Kim: Telling us to update our NAV estimate.
Speaker Change: Hi, John how are you well the first thing is we're enjoying it.
John P. Kim: A bounce back from.
John P. Kim: The retail lending.
John P. Kim: Sure.
John P. Kim: Retail had a target on its back threatened by e-commerce et cetera.
John P. Kim: Okay.
John P. Kim: That is all evaporated at now.
Steven Roth: Income will come on board. So these are temporary reductions in our earnings, which will absolutely reverse. The next question comes from John Kim of BMO. Please go ahead.
John P. Kim: Retail has become.
John P. Kim: No.
John P. Kim: We believe that the asset prices.
John P. Kim: Thank you. Given all your commentary on street retail and how it's recovered, the pricing's been very strong. Are you going to be looking to sell into this strength? Or do you think market rents are going to improve? Or is this really just, you know, telling us to update our NNV estimate? Hi John, how are you?
John P. Kim: The assets that we own.
John P. Kim: <unk> dramatically from the bottom.
John P. Kim: We may take advantage of those prices by selling assets from year to year.
John P. Kim: For the year.
John P. Kim: Every once in a while we have already sold a chunk of assets that we really thought were not part of our core.
John P. Kim: So we sold some.
John P. Kim: May well sell some more.
John P. Kim: But we're absolutely we're absolutely convinced that rents are going to arise will they rise to the peak pricing.
Steven Roth: Well, the first thing is we're enjoying the bounce back from retail. I mean... retail had a target on its back, threatened by e-commerce, et cetera, and that has all evaporated, and now retail has become the bode. We believe that the asset prices of the assets that we own have increased dramatically from the bottom. And we may take advantage of those prices by selling assets for years, every once in a while. We've already sold a chunk of assets that we really thought were not part of our core. So, we've sold some, we may well sell some more, and we're absolutely convinced that rents are going to rise. But will they rise to the peak prices that they were five years ago? Probably not, but they're certainly going to rise from here.
John P. Kim: Five years ago, probably not but there's certainly going to rise from here.
Speaker Change: Okay. Do you think we will get you'll get the same pricing that you got originally when you.
Established a joint venture in other words had.
Speaker Change: Pricing and assets reached peak levels from <unk>.
Speaker Change: We're delighted with the pricing that we were able to achieve.
Speaker Change: And a large.
Speaker Change: The joint venture, we are not going to speculate on what the pricing will be John.
John P. Kim: That's speculation I think.
John P. Kim: If you look at the pricing that Prada and caring paid.
John P. Kim: Steve talked about the half blocks.
John P. Kim: And you analyze what our portfolio could be worse than.
Steven Roth: Okay, do you think we'll get the same pricing you got originally when you established a joint venture? In other words, pricing and assets will reach peak levels from... We're delighted with the pricing that we were able to achieve in a large joint venture. We're not going to speculate on what the pricing will be. John, that's speculation.
John P. Kim: It's not a stretch to say that we're back at those levels or get back to those levels right now.
John P. Kim: And who knows over time, but I think what Youre seeing is I think the most important thing is you have two of the most important retailers in the world who are saying fifth Avenue is critically important to us we want to be there forever, we are prepared to pay.
Michael J. Franco: I think, you know, if you look at the prices that Prada and Kering paid, and Steve talked about the half block, you know, and you analyze what our portfolio could be worth, then it's not a stretch to say that, you know, we're back at those levels or will get back to those levels, right? Now, and who knows in time, but I think what you're seeing is, I think the most important thing is that you have two of the most important retailers in the world who are saying Fifth Avenue is critically important to them. We want to be there forever. We are prepared to pay a meaningful price to be there. And, you know, I think that the history of these things is, you know, the animal spirits get going.
John P. Kim: A meaningful price to be there.
John P. Kim: I think that the history of these things as you know the animal spirits get going.
John P. Kim: You don't think that other retailers are behind them, saying you know, maybe we need to make sure we have a place on safe and secure our position. So I don't think it's a stretch to think that these arent the last two transactions that occur on fast.
John P. Kim: And Michael you mentioned impairments that you've taken this quarter related to joint venture assets. You are looking to exit is it retail joint venture that you're discussing or are there other.
John P. Kim: Assets.
John P. Kim: And if so which ones are they.
John P. Kim: Yes.
John P. Kim: The retail retail the worst has passed us as we've said now.
Michael J. Franco: You know, I don't think that other retailers are behind them saying, you know, maybe we need to make sure we have a place on Fifth and secure our position. So I don't think it's a stretch to think that these aren't the last two transactions that are happening. And Michael, you mentioned an impairment that you took this quarter related to joint venture assets that you're looking to exit. Is it this retail joint venture that you're discussing? Are there other assets? And if so, which ones are they?
John P. Kim: Yes.
John P. Kim: A handful of smaller.
They really all office assets that are in joint venture the accounting treatment as you.
John P. Kim: You guys should know well by now given the street retail that the accounting treatment of the impairment methodologies much different from joint ventures.
John P. Kim: Then four wholly owned assets and this is a handful of assets that we intend to exit over the next three years and that that results in a different accounting approach and thus the best the impairment.
Michael J. Franco: And not retail. Retail, the worst has passed us, as we've said. Now, these were just a handful of smaller, they're really all office assets that are in joint ventures. You know, the accounting treatment is, you guys should know well by now, given these three retail ventures, the accounting treatment, the impairment methodology is much different from joint ventures, then four wholly owned assets, and this is a handful of assets that we intend to exit over the next three years, and that results in a different accounting approach, and You know, it's an accounting convention. You know, what the ultimate proceeds will be realized, you know, TBD, but again, it relates to a handful of smaller assets. But there is no doubt that in this cycle, values have force. So when interest rates go from 3.5% to 8%, that has an enormous effect on values. And so, therefore, I'm very pleased that the impairments were as small as they were.
John P. Kim: In accounting.
John P. Kim: Convention.
John P. Kim: The ultimate proceeds will be realized TBD, but.
John P. Kim: But again it relates to a handful of smaller assets, but there is no doubt that in this cycle values have fallen so when interest rates go from.
John P. Kim: Three 5% to 8% that has an enormous effect on value and so therefore I'm very pleased that the impairments were as small as they were actually.
John P. Kim: And just to confirm this does not include 12 90 or five five cap.
That's correct.
Great. Thank you.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: The next question comes from Dillon Brzezinski of Green Street. Please go ahead.
Dillon Brzezinski: Hi, guys. Thanks for taking the question just two quick ones on occupancy for both the office and retail side of things. So it sounds like for New York Office.
Dillon Brzezinski: That occupancy should bottom throughout 2024.
Dillon Brzezinski: And as you guys have said already leased up some of the move outs that it should.
Steven Roth: And just to confirm, this does not include 1290 or 555-TEL? That's correct. Great, thank you. Thank you. The next question comes from Dylan Brzezinski of Green Street. Please go ahead. Okay, thanks for taking the question. Just two quick ones on occupancy for both the office and retail side of things.
Dillon Brzezinski: Is it pretty Swift recovery as we look at the China 25, and beyond is that sort of a fair characterization.
Dillon Brzezinski: Hi, It's Glenn I think that's fair I think youll see a dip over the coming quarters based on what we talked about earlier and based on the pipeline will come right back up I think it's fair Roger would you characterize yes, probably flattish for 2000 and for the overall.
Glen Weiss: So it sounds like for New York office space, that occupancy should bottom throughout 2024, and as you guys have already leased up some of the move out, that it should be a pretty swift recovery as we look out to 2025 and beyond. Is that sort of a fair characterization?
Speaker Change: Just a word.
Speaker Change: Hang on hang on.
Speaker Change: A word about occupancy.
Speaker Change: The market occupancy is at the high teens.
Speaker Change: So our occupancy is give or take around.
Speaker Change: Yes.
Speaker Change: Our enhanced outlook.
Speaker Change: If you look back over our history, our normal occupancy is over 90, 590 690 call. It 96.
Steven Roth: Hi, it's Glen. I think that's fair. I think you'll see a dip over the coming quarters, based on what we talked about earlier, and based on the pipeline, we'll come right back up. I think it's fair with your characterizing. Yes. Probably flattish for 24.
Speaker Change: The difference between 96% a 100 is kind of like structural.
Speaker Change: It never get to 100.
Speaker Change: Launched over 20 million square foot portfolio. So our occupancy is really the difference between our vacancy is really the difference between 96% 90 lets say, 6%, which we think is we can do better we will do better, but we think that's pretty good performance in a soft market.
Steven Roth: Just a word on the... Hang on, hang on, just a word about our... So the market occupancy is at a high. So our occupancy is, give or take, around 90, a head north or a head south. If you look back over our history, our normal occupancy is a hair over 95, is it 96? 96. They call it 96.
Speaker Change: Next thing is that when we ramped up the space, whereas the markets revert to normal from Nike.
Speaker Change: That's a very significant increase in our rates.
Steven Roth: The difference between 96% and 100% is kind of like structural vacancy. You never get to 100% on a large, you know, over 20 million square foot portfolio. So our occupancy is really the difference between, our vacancy is really the difference between 96 and 90, let's say 6%. Which we think is, we can do better, we will do better, but we think that's pretty good performance in a soft market. Now, the next thing is that when we rent out the space, as the markets revert to normal, from 1990 to 1996, that's a very significant increase in our earnings. So we have that in front of us for sure. And I think that kind of sort of leads into my next question, which is on the retail side of things, as we look at the portfolio today, I think, in your disclosure, you guys say occupancy is in the high 70s, pre COVID, you were in the mid 90s. I guess, just how do we think about the recovery there, given some of the comments you guys laid out regarding the leasing pipeline? Well, the retail optimist is really sort of a... an anomaly.
Speaker Change: So we have that in front of us for sure.
Speaker Change: Great and I think that kind of sort of leads into my next question is on the retail side of things as we look at the portfolio today I think in your disclosure you guys say Occupancies high seventies pre Covid you were mid nineties I guess, just how do we think about the recovery there given some of the comments you guys laid out regarding the leasing.
Speaker Change: <unk>.
Speaker Change: Well.
Speaker Change: Retail occupancy is really sort of it.
Speaker Change: Nominally it includes.
Speaker Change: The Manhattan Mall JC Penney bake.
Speaker Change: We will maintain it at a couple of years ago, and that's 11 points of occupancy at that rate and what's the next let the second one zone if barley the retail there and then finally we have.
Speaker Change: We have slow growing on the ninth Avenue side, so between those two with somewhere in the mid eighties.
Speaker Change: That's helpful. Thanks, guys.
Speaker Change: The next question comes from Vikram Malhotra of Mizuho. Please go ahead.
Vikram Malhotra: Hi, Good morning, Thanks for taking the question just I wanted to just go back to your comment.
Vikram Malhotra: About SFO dropping in 2004, so just two clarification as to what you said for.
Glen Weiss: It includes the Manhattan Wall, J.C. Penney, who vacated it a couple of years ago, and that's 11 points of occupancy, is that right? And what's the next one? What's the second one, Tom? Yeah, Farley, the retail there.
Vikram Malhotra: One is the Facebook leaves and 70.
Vikram Malhotra: It's.
Vikram Malhotra: Clear that the 200000 square feet expiring there will move out but then the rest is there long term number one and number two could you just roughly call. It quantify the move outs you mentioned what is the full impact this year to that.
Glen Weiss: And then Farley, we have slow going on the 9th Avenue side. So between those two, we're probably somewhere in the mid-80s. That's helpful. Thanks, guys. The next question comes from Vikram Malhotra of Mizzouho. Please go ahead. Good morning.
Vikram Malhotra: Okay.
Speaker Change: On the first question.
Speaker Change: Remaining matter of 500000 feet is long term thats correct.
Vikram Malhotra: Thanks for taking the question. I want to just go back to your comment about SFO dropping in 2024. So just two clarifications to what you said first. One is the Facebook leave 770. Is it clear that the 200 or so thousand square feet of expiring leases are a move out, but then the rest is there long term? Number one. And number two, could you just roughly quantify the move outs you mentioned? What is the SFO impact on that this year? On the first question, the remaining meadow of 500,000 feet is for the long term, that's correct.
Speaker Change: Alright, So does yes. So the remaining 270000 pay is just one component this year and the remainder vikram.
Speaker Change: We don't give guidance right. There is a number of ins and outs, yes, you can just quantify that.
Speaker Change: The specific three situations, we mentioned, but there's other things that are going on as well. So I don't want to isolate and say. These three this is the impact because that doesn't give the full picture net net we expect it to be negative.
Speaker Change: We have to see what transpires across the whole portfolio.
Speaker Change: And so I guess just second question just to clarify you're basically saying with the move outs with the interest rate impact et cetera, the ins and outs you think occupancy will dip youre, assuming the lease Street will eventually come back is what I'm, assuming you're referring to and then the impact of all that leasing will head twenty-five recover at that full life.
Glen Weiss: So yeah, so the 270,000 feet is just one component this year. The remainder, Vikram, we don't give guidance, right? There are a number of ins and outs. Yes, you can just quantify the specific three situations we mentioned, but there are other things that are going on as well. So I don't want to isolate and say on these three, this is the impact, because that doesn't give the full picture. Net-net, we expect it to be negative. How big?
Speaker Change: That fair than any other big moving piece to that equation.
Michael J. Franco: We have to see what transpires across the whole portfolio. And so I guess just a second question is to clarify, you're basically saying, with the move outs, with the interest rate impact, etc., the ins and outs, you think FFO will go, occupancy will dip, you're assuming the lease rate will eventually come back, which is what I'm assuming you're referring to, and then the impact of all that leasing will help 25 recover FFO wise. Is that fair?
Speaker Change: No I think I think that's fair, obviously like as we lease up pen, which is which in some of the other vacancy that Steve mentioned that if not just natural turnover in apparel as well, but I think your general comment is accurate.
Speaker Change: No.
Speaker Change: Yes.
Speaker Change: I agree it's accurate so to summarize it.
Speaker Change: Interest rates.
Speaker Change: I have gone up.
Speaker Change: Yes.
Speaker Change: And painful.
Speaker Change: They will go down and they're not going to go down all the way to zero, but they will go down and so that's going to increase our earnings from here.
Michael J. Franco: Is there any other big moving piece to that equation? No, I think that's fair. Obviously, like as we leased up Penn, you know, which is the other vacancy that Steve mentioned, it's not just natural turnover; it's going to affect that as well. But I think your general comment is that, So to summarize, Vikram, I agree it's accurate. So to summarize, interest rates have gone up and have been painful. They will go down. They're not gonna go down all the way to zero, but they will go down.
Speaker Change: <unk>.
Speaker Change: Our our occupancy is going to decline from say 92 whatever.
And so that kind of increase our earnings and then the big thing is.
Speaker Change: Over the next two years to read.
Speaker Change: The income from that will come online.
Speaker Change: Probably over $100 million. So these are these are fairly substantial numbers.
Speaker Change: Overall, youre, 100% correct. Thank you.
Speaker Change: Okay, Great and then Steve just last one.
Steve: You mentioned external growth opportunity that some point, obviously paying delevering.
Steven Roth: And so that's going to increase our earnings from here. Our occupancy is going to climb from, say, 90 to whatever. And so that's going to increase our earnings. And then the big thing is that over the next two years, 2PEN will rent. The income from that will come online. Now that's probably over $100 million.
Steve: I'm, assuming that's therefore growth is important but when you look to maybe at the board and you said if you look the look to avoid executive L. Pips going forward, what are maybe one or two of the top metrics that could be different. The next five years versus the last five years in terms of gauging those does that taper awards.
Steven Roth: So these are fairly substantial numbers. But so overall, you're 100% correct. Thank you. Okay, great. And then Steve, just the last one.
Steve: Yes.
Speaker Change: I don't know how to answer that question.
Speaker Change: We don't give guidance for next quarter, and it's very difficult to predict what's going to happen over the next five years.
Steven Roth: You know, you mentioned external growth opportunities at some point, obviously paying for de-levering. I'm assuming FFO growth is important. But so if you look to, maybe as the board and yourself, you look to award executives LTIPS going forward, you know, what are maybe one or two of the top metrics that could be different the next five years versus the last five years in terms of gauging those LTIPS awards? I don't know how to answer that question. We don't give guidance for the next quarter, and it's very difficult to predict what's going to happen over the next five years. But to talk around that very sophisticated question.
Speaker Change: But.
Speaker Change: A couple of talk around that very sophisticated question vikram.
Speaker Change: New York centric company.
Speaker Change: Imagine that we will open up a new beachhead.
Speaker Change: Where we don't have the same kind of depth of experience knowledge and.
Speaker Change: Franchise that we haven't so basically Berkeley, our company my guess is that.
Speaker Change: <unk>.
Speaker Change: I'm not contemplating comes up we will stay in New York Company.
Speaker Change: We opened up a beachhead in Washington.
Speaker Change: Years ago, we spun that off into a separate company.
Speaker Change: I think is a terrific opportunity and then we had a large.
Speaker Change: North eastern.
Steven Roth: We are a New York-centric company. I don't imagine that we will open up a new beachhead where we don't have the same kind of depth of experience, knowledge, and franchise that we have. So basically, we're a New York company. My guess is that something that I'm not contemplating comes up. We will stay a New York company. Now, we opened up a beachhead in Washington some years ago, spun that off into a separate company, which I think is a terrific opportunity, and then we had a large Northeastern shopping center company, which we also spun off.
Speaker Change: Shopping Center company, which we also spun off so we have experience with different geographies, but my guess is the main company will continue to feed New York centric.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: The.
Speaker Change: The likelihood is we will continue to be a large aggressive office company.
Speaker Change: But I think I've said this before what we will not make acquisitions.
Speaker Change: Conventional office.
At.
Speaker Change: At at full pricing, we will only be a.
Speaker Change: Buyer.
Speaker Change: I don't want to call it distressed what's the right word Michael.
Speaker Change: Okay at distressed prices.
Speaker Change: Several office buildings, and we will only buy the finest office buildings.
Speaker Change: Yeah.
We actually got residential.
Michael: Might do a little more of that and then what we will develop in the patent.
Steven Roth: So we have experience with different geographies, but my guess is that the main company will continue to be New York City. Thank you. Bye.
Michael: Extraordinarily important part of our company.
Steven Roth: The likelihood is we will continue to be a large, aggressive office company. But I think I've said this before, we will not make acquisitions of conventional office space at full price. We will only be a buyer at, I don't want to call it distress, what's the right word, Michael? OK, at distressed prices for office buildings. And we will only buy the finest authors; we have some residential, and we might do a little more of that, and then what we will develop in the Penn District is an extraordinarily important part of our company and, maybe, arguably, the most important development in the country as we go forward. You can't build anything in the Penn District today because of the frozen capital markets. You cannot do it!
Michael: And may be arguably the most important development in the country as we go forward.
You can't build anything in the Penn District today, because of the frozen capital market you cannot do with the math doesn't work, but as much as that.
Michael: Begins to slow up.
Michael: We will consider residential building and developing residential in that marketplace, and we might even sell a piece of land.
Michael: <unk> developer, so we can't predict what's going to happen, but its five years, we will be in New York centric, we will be.
Michael: Majority of that office company and dependent district will be really important five years from now.
Michael: The next question comes from Alexander Goldfarb of Piper Sandler. Please go ahead.
Steven Roth: The math doesn't work, but as that begins to thaw, we will consider residential, building, and developing residential properties in that marketplace. And you know, we might even sell a piece of land to a residential developer. So we can't predict what's going to happen.
Hey, good morning, good morning, Steve and Michael.
Alexander Goldfarb: Steve just.
Alexander Goldfarb: Talking about the comp plan that you guys put in place around 350 Park at.
Alexander Goldfarb: The year and obviously in the middle of last year. The stocks were on their back and you guys you know.
Alexander Goldfarb: But in five years, we will be New York-centric. We will be a majority of an office company, and the Penn District will be really important in five years. The next question comes from Alexander Goldfarb of Piper Sandler. Please go ahead. Hey, good morning.
Alexander Goldfarb: Our revised your comp plan understandably, just given how the stock was depressed and I think we all understood that at the end of the year than the $3 50 comp plan definitely surprised and especially that shareholders have to wait until the end of this year to figure out their dividend for 2024.
Steven Roth: Good morning, Steve and Michael. Steve, just, you know... Talking about the comp plan that you guys put in place around 350 Park at the year end, obviously, in the middle of last year, the stocks were on their backs, and you guys, you know, revised your comp plan, understandably, just given, you know, how the stock was depressed, and I think we all understood that. At the end of the year, though, the 350 comp plan definitely surprised, and especially that, you know, shareholders have to wait till the end of this year to figure out their dividend for 2024, the stub, the 30 cent stub aside. So can you just walk through, you know, how we should think about that comp plan for a development project that doesn't deliver for another decade, while, you know, you're talking about earnings still going down this year, and shareholders, you know, having to wait another year for the dividend. I just want to understand that, especially in light of, you know, the mid-year update that you guys did for the senior executives and upper generation last summer. Sure. How are you, Alex?
Alexander Goldfarb: The <unk> stub aside so can you just walk through how we should think about that comp plan for development project that doesn't deliver for another decade, while you're talking about earnings still going down this year and shareholders.
Alexander Goldfarb: Having to wait another year for the dividend just want to understand that especially in light of.
Alexander Goldfarb: The mid year update that you guys did for the senior executives and upper generation last summer.
Alexander Goldfarb: Sure.
Speaker Change: How are you Alex.
Speaker Change: The.
Alex: Let me go backwards first your comment about the dividend.
Alex: We have had.
Alex: Okay.
Alex: An enormous number of incoming from shareholders analysts et cetera.
Alex: The Street, Peter saying, what we did with the dividend was correct.
Alex: Yes.
Alex: To continue to pay.
Alex: The way, we will right size the dividend, but to continue to pay an overhang of dividend et cetera.
Capital markets is just not the most efficient.
Alex: Use of capital so you seem to be on the other side of that I can tell you that most of your friends and peers.
Alex: What we did was the correct.
Speaker Change: Pardon me.
Speaker Change: I need to Omaha Woodbury.
Steven Roth: Let me go backwards first. Your comment about the dividend. We have had, um... an enormous number of voices from shareholders, analysts, etc., and industry peers saying what we did with the dividend was correct, and of Columbia, to continue to pay... by the way, we will right-size the dividend, but to continue to pay and overpay a dividend, etc., in this capital market is just not the most efficient use of capital. So you seem to be on the other side of that. I can tell you that most of your friends and peers are thinking what we did was the correct thing. Pardon me. Now, I need some more hot water, Barry. So now, we'll go to the... I'd bring you a cup if I were there.
Speaker Change: So that's going well.
Speaker Change: If I was there.
Speaker Change: Well.
Speaker Change: Uh huh.
Speaker Change: I'm not going to get into that.
Speaker Change: Now, let's talk about that.
Speaker Change: Balance sheet comp plan.
Speaker Change: So this is something that we've been thinking about a long time. So the first thing is it's objective is retention.
Speaker Change: We will reward.
Speaker Change: Two increased motivation and to an extent.
Our.
Speaker Change: Sure.
Speaker Change: Most important employees' retention.
Reward motivations and insert so the first thing is that anything that is paid out on that comp land.
Speaker Change: From joint venture development projects now, we don't do a lot of those three.
Steven Roth: Um, well... I'm not going to get into that. Now, let's talk about the development sheet complex. So this is something that we've been thinking about for a long time. So the first thing is, its objective is retention, reward to increase motivation, and to incentivize our most important employees. Reward, Motivation, and Incentive.
Speaker Change: 350 Park.
Speaker Change: There's probably in my memory. The first one we did.
Speaker Change: We did 200, 2100%.
Speaker Change: We don't do well and we own the Penn District is 100%.
Speaker Change: So this doesn't come into being until there is a joint venture partner that pays a development fee.
Now I talked about incentives and motivation.
Steven Roth: So the first thing is that anything that is paid out on that comp list comes from joint venture development projects. Now, we don't do a lot of those. 350 Park is probably, in my memory, the first one.
Speaker Change: We think it's.
Shoulder to shoulder with our shareholders, but we do this time.
Speaker Change: Of investing and we think it's also shoulder to shoulder with our shareholders that we bring an outside third party capital.
Steven Roth: We did... We did 220, 100%. We don't do a lot, and we own the Penn District 100%. So this doesn't come into being until there is a joint-venture partner that pays a developer. Now, I talked about incentives and motivation. We think that if.., shoulder-to-shoulder with our shareholders that we do this kind of investing and we think it's also shoulder-to-shoulder with our shareholders that we bring in outside third-party capital the funds which has become most of our most of our peers in the industry are using outside capital we haven't done that in the past so we want to do that in the future so that's that's the beginning of it by the way it's a very small plan we don't expect it to be substantial in any way and as we look at it and as we review our senior management compensation and even down the line we find that our compensation is lower than almost all of our peers, So, this is a way to have performance-based.., um, A small amount, by the way. And this is other than stock-based comp, because we can't control the stock price, but we can control our performance in joint ventures. It's only payable out of third-party development fees, not development fees that Vernado would be paying.
Which has become most of our most of our peers in the industry are using outside capital, we havent done that in the past so we want to do that in the future.
Speaker Change: No.
Speaker Change: That's the beginning of it by the way it's a very small plan. We now expect this to be.
Speaker Change: Substantial in any way.
Speaker Change: As we look at it and as we review.
Speaker Change: Our senior management compensation and even down the line, we find that our compensation is lower at almost all of our peers.
Speaker Change: So this is a way to have performance based.
Speaker Change: Comp.
Speaker Change: A small amount a small amount by the way.
Speaker Change: Other initiatives other than stock based comp because we can't control the stock price, but we can control our performance in joint ventures, It's only payable out of third party development teams not not not development fees that were Nader would be paid.
Speaker Change: And we think it's highly appropriate.
Speaker Change: We'd be probably made a mistake.
Speaker Change: We did a good job of socializing.
Speaker Change: June comp plan.
Speaker Change: We didn't.
Speaker Change: We didn't do it with this development plan because we thought it was very small.
Steven Roth: And we think it's highly appropriate. We've probably made a mistake. We did a good job of socializing with the June comp plan.
Speaker Change: Rob.
Speaker Change: We thought the shareholders would get it and so.
Frankly, I made a mistake we should have.
Steven Roth: We sort of didn't do it with this development plan because we thought it was very small. We thought shareholders would get it, and quite frankly, I made a mistake. We should have told our shareholder base what we were going to do. I myself, hang on. I myself am extremely unhappy to get any negative comments about that, but there it is. We think it's right. We think it's a good way of punishing our people. We don't think our people are underpaid, certainly at the highest level and, by the way, doing a two-man, square-foot building. In New York City, it's back-breaking work.
Speaker Change: Our shareholder base, what we what we were going to do.
Speaker Change: Myself.
Speaker Change: I myself I'm extremely unhappy to get any negative comments about that.
Speaker Change: But there. It is we think it's right. We think it's a good way of helping our people. We don't think our people are underpaid certainly at.
Speaker Change: Level.
Speaker Change: At the highest level and by the way.
Speaker Change: Doing a 2 million square foot building.
Speaker Change: In New York City is backbreaking work, it's nights weekends, it's backbreaking work and we think that the team deserves it.
Steven Roth: It's nights, it's weekends, it's back-breaking work, but we think that the team deserves it. So Steve, but to that point, if it's a small amount, you know, it would seem like something that's just part of, you know, the annual compensation committee, like, hey, you guys did a great job as part of your bonus for 2023 or 2024. We're rewarding. So if it's a small number, it doesn't seem like that much of an incremental incentive. And two, it just seems like the ordinary course that management is expected to do to drive value for shareholders and would be part of their usual course compensation. It's not clear why it would be a standalone.
Speaker Change: Steve but to that point, if it's a small amount.
Speaker Change: Would seem like something Thats, just part of the annual comp Committee like Hey, you guys did a great job as part of your bonus for your 2023 or 2024, we're rewarding. So if it's a small number it doesn't seem like that much of an incremental incentive and two it just seems like ordinary course that management is expected to do to drive value for shareholders and would be part of their regular course.
Speaker Change: Compensation, it's not clear why it would be a standalone.
Speaker Change: Obviously, I don't want agreeing with you.
Speaker Change: Okay.
Speaker Change: This is.
Speaker Change: I would like to agree with you I would like you to agree with me, but I'd like you to agree with me rather than be agree with you but anyway.
Speaker Change: Hi.
Speaker Change: Yes.
Speaker Change: <unk>.
Alexander Goldfarb: Obviously, I don't agree with you. I would like to agree with you. I'd like you to agree with me rather than me agreeing with you.
Speaker Change: No.
Speaker Change: No problem.
Speaker Change: This plan is paid.
Speaker Change: Unless.
Speaker Change: It goes through the comp committee of the board.
Steven Roth: The milk cup under this plant is big unless it goes through the compensation committee of the board, and they take all circumstances into account. So there you have it. Okay, let me switch.
Speaker Change: Thanks all.
Speaker Change: Circumstances into account so.
Speaker Change: There you have it.
Speaker Change: Okay, Let me switch Glen and tend to I believe you guys switched brokers from your original one to it to a new one just curious the progress that you guys had had on Penn one seemed pretty good you toward us last year. The project. It certainly seemed impressive what you guys have done with Penn one it seemed like leasing was going well what.
Glen Weiss: Glen, on PEN2, I believe you guys switched brokers from your original one to a new one. Just curious; the progress that you guys had on PEN1 seemed pretty good. You toured us last year on the project. It certainly seemed impressive what you guys had done with PEN1. It seemed like leasing was going well. What happened with PEN2 that you found it necessary to switch brokers, and was that sort of a repositioning of the asset, different tenants, or was there something else that you learned through the process that caused you to switch brokers on PEN2?
With 10 to that you found it necessary to switch brokers.
Speaker Change: And is that sort of a repositioning of the asset different tenants or was there something else that you learned through the process that caused you to switch brokers on Penn too.
Speaker Change: So we did not switch brokers.
Speaker Change: Couldnt Wakefield team has added to my team something we do not do often as you know, but here, we decided to do it to cover the entire market both regionally locally and nationally we brought in a great team.
Glen Weiss: So we did not switch brokers. The Korschman & Wakefield team is additive to my team, something we do not do often, as you know, but here we decided to do it to cover the entire market, both regionally, locally, and nationally. We brought in a great team.
Speaker Change: The team had just done all leasing over in Manhattan, West. So we've additive not a switch at Penn one and remains the <unk> team.
Glen Weiss: The team had just, you know, done all the leasing over in Manhattan West. So it's additive, not a switch, at Penn Water remains the Renato team, and that was the reasoning for doing the Penn 2 ad of Kushner & Wakefield. But no switch, no change, the normal course of business, have the strength, the ability, the franchise to do the job. But we're in the no stone unturned business.
Speaker Change: That was the reasoning for doing depend too.
Speaker Change: Cushman and Wakefield, but no switch no change normal course of business confidence.
Speaker Change: Confidence.
Speaker Change: Gold medal team of Glenn and the rest of his team in house.
Speaker Change: Has the strike the ability the franchise to do the job.
Speaker Change: But we're in no stone unturned business and so we thought that adding cushman.
Glen Weiss: And so we thought that adding Korshman, to have that extra look into the marketplace, was a good piece of insurance, and it's working out. The next question comes from Caitlin Burroughs of Goldman Sachs. Please go ahead. Hi, thank you. This is Julian Bluen on behalf of Caitlin.
Speaker Change: Ill add that extra.
Speaker Change: Looking to the marketplace.
Speaker Change: It was a good piece of insurance and.
Speaker Change: It's working out.
Speaker Change: The next question comes from Caitlin Burrows of Goldman Sachs. Please go ahead.
Speaker Change: Alright. Thank you. This is Julian bloomer on for Caitlin. Thank you for taking the question, Steve regarding the dividend and adding to Alex's question last quarter. You provided a really helpful. Breakdown of your 2023 expected taxable income I was wondering if you could provide the same for 2020.
Operator: Thank you for taking the question. Steve, regarding the dividend, and adding to Alex's question, last quarter you provided a really helpful breakdown of your 2023 expected taxable income. I was wondering if you could provide the same for 2024, and should we assume that the fourth quarter dividend will be, again, set at sort of the minimum required taxable income level?
Steve: Four and should we assume that the fourth quarter dividend will be again set at sort of.
Steve: The minimum required taxable income level.
Steven Roth: The answer to that is that we have a broad... to give you an idea about what the 2024 taxable income will be, as you would expect. But it is not a number that we are comfortable enough with disclosing publicly. So that's the first point. The second point is that, at this time, it's the financial policy of our board to pay out the minimum dividend because, from a capital allocation point of view, that's the right decision. We have had, as I said before, numerous investors, shareholders, analysts, and peers tell us that's the right decision. The dividend, the most interesting part of the dividend, however, will likely be, for America. A-a-an asset or two or three or four in 24, that will determine more than anything what the dividend will be.
Speaker Change: The answer to that is that we have a.
Speaker Change: Abroad.
Speaker Change: Idea of what the 2020 with taxable income will be as you would expect.
Speaker Change: It is not a number that we are comfortable enough with disclosing publicly.
Speaker Change: So that's the first point the second point.
Speaker Change: Time is the financial policy of our boards to payout.
Speaker Change: Minimum dividend equal us.
Speaker Change: From a capital allocation point of view, that's the right decision.
Speaker Change: As I said before numerous.
Speaker Change: Investors shareholders analysts.
Speaker Change: <unk> tell us that's the right decision.
Speaker Change: The dividend the most interesting part of the dividend, however will likely be.
Speaker Change: Gains on asset sales because all of our assets have very low basis. So if we chose to sell.
Speaker Change: And actually I have two or three or four and 24 that will determine more than anything what the dividend would be.
Steven Roth: That's really helpful. Thank you. And then maybe switching gears to 10.1, the ground lease renewal, I think you mentioned at the beginning of last year that you thought the final number could come in lower than the original $26 million estimate, just based on evolving market conditions. Is that still your expectation?
Speaker Change: That's really helpful. Thank you.
Speaker Change: And then maybe switching gears.
Speaker Change: Tibet 10, one the ground lease renewal I think you mentioned at the beginning of last year that you thought the final number could come in lower than the original 26 million dollar estimate just based on evolving sort of market conditions is that still your expectation and I guess what is what is the latest update on that process.
Steven Roth: And I guess what the latest update on that process is? Well, that's absolutely my expectation, but there's somebody on the other side that disagrees with that, so we're in the middle of the process, the arbitration process, to determine what the number will be. And that's something we can't speculate on.
Speaker Change: That's absolutely my expectation, but then somebody on the other side that disagrees with that.
Speaker Change: So we're in the middle of.
Speaker Change: The process the arbitration process to determine what the number will be.
Speaker Change: And that's something we can't speculate on.
Steven Roth: Okay, great. Thank you. Yes, sir. The next question comes from Nick Yulico of Scotiabank. Please go ahead. Thanks. First, a question on 10.1.
Speaker Change: Okay, great. Thank you.
Speaker Change: Yes, Sir.
Speaker Change: The next question comes from Nick <unk> of Scotiabank. Please go ahead.
Speaker Change:
Nick: Hi, Thanks, just first a question on on Penn one.
Nick Yulico: Based on the incremental yield you gave last quarter in the stop, I know it's now in the, I guess, more stabilized pool, but it looks like there was eventually 59 million of future NOI assumed there on a cash basis. Can you just let us know how any of that's already been captured yet and just how to think about the impact of any of that if there's any of that benefit assumed for this year? Nick, it's Michael. I can't give you the exact numbers offhand,
Nick: You know based on the you know the incremental yield you gave last quarter in the Sop I know, it's now in the I guess, a more stabilized pool, but.
Nick: You know it looks like there was eventually 59 million of future NOI assume now on a cash basis can you just let us know like how you know if any of that has already been captured yet and just how to think about.
Nick: You know the impact of any any of that if there was any of that benefit assumed for this year.
Nick: Yes, Nick as Michael I can't give you the exact numbers off hand. The answer is some of that is back in 2004, but this is this is a rolling program in.
Michael J. Franco: The answer is some of that is fact in 24. But you know, this is a rolling program. And, and, and so it'll, you know, continue to come in next year as well. Obviously, there's vacancy there, that gets leased up, that'll come online as well. So the answer is, you know, some of that there is, and I can tell you it is, and it's not in the development yields anymore just because the project is done. But, you know, our last one we had published, we're confident in terms of, you know, hitting that and hopefully exceeding it. But, you know, we can sort of circle up, you know, and get a little more specific. But some of that's in 24.
Nick: And so it'll continue to come in next year as well.
Nick: Vacancy there does that get lease up that will come online as well. So the answer is some of that there I can tell you is and it's not in the <unk>.
Nick: Development yields anymore, just because the project is done but.
Nick: Are the last one we had published.
Nick: Confident in terms of hitting that and hopefully exceeding it but.
Nick: We can we can circle up and get the lowest.
Specifics, but some of that in 'twenty, four but it'll it'll roll in over the next year or two as well.
Steven Roth: But it'll roll in, you know, over the next year or two as well. All right, I'd like to make a couple of comments. The first is that all of us focus on what the initial yield is. OLAF, I think it's a very interesting exercise to say what that asset can produce in terms of revenue three, five, seven years out? So we believe, for example, in the Penn District. We believe in the west side of Manhattan.
Speaker Change: Okay. Thanks.
Speaker Change: I would like to make a couple of comments.
Speaker Change: The first is is that.
Speaker Change: All of us.
Speaker Change: Focus on what the additional yield is on that.
Speaker Change: Asset.
Speaker Change: I think it is.
Speaker Change: Very interesting exercise to say what can that asset produce in terms of revenue 357 years out. So we believe for example, independent district, we believe in the west side that hat.
Steven Roth: We believe that when you combine Penn District with Manhattan West and Hudson Yards, I mean, that's a hell of a neighborhood, highly sought-after and so on. So we believe that these assets will return a very satisfactory return at the get-go and will grow from there as we continue to own them over the next period of time. So there's that. We also believe... that I mean there's some question about. Which is more important, Penn or Grand Central? Well, the answer is obviously that Grand Central is at the foot of Park Avenue, so that's very important. I think everybody considers Park Avenue to be the principal business boulevard in the country, maybe even in the world.
Speaker Change: We believe that when you combine Penn district, with Manhattan, West and Hudson yards.
Speaker Change: Hello, Hello enabled it.
Speaker Change: Highly sought after and whatever.
Speaker Change: So we believe that.
Speaker Change: These assets will return a very satisfactory return at the get go and we will grow from there as we continued O&M over the next period of time.
Speaker Change: So is that we also believe.
That I mean, there's no question about.
Which is more important.
We had central well.
Speaker Change: Well the answer is obviously grand Central is at the foot of Park Avenue. So that's very important.
Speaker Change: I think everybody.
<unk> block caving seems to be the principal business Boulevard in in the country, maybe or maybe even.
Speaker Change: In the World, we have a representation of multiple assets on Park Avenue too, but it's interesting to note.
Steven Roth: We have a representation of, you know, multiple assets on Park Avenue too, but it's interesting to note that New Jersey Transit comes into only PED stations, and New Jersey is the fastest growing suburb of New York. So we are very, very happy with our position. Okay, thanks for that. Just the second question is on 10-1 and 10-2. You know, you guys give only the occupancy numbers in the SUP, and I'm just wondering if there's any way that you can give us a feel for the lease rates for those assets or even think about, you know, how much of the leasing you've achieved so far and what your ultimate plan is on getting to these, you know, stabilized cash yields you talk about for the project. I don't know how much time I have left. I mean, as Michael said, 10.1 is a multi-year program.
Speaker Change: That New Jersey transit comes into only Penn station.
Speaker Change: And New Jersey is the fastest growing.
Speaker Change: Suburb of New York, So we are very very happy with our position.
Speaker Change: Okay. Thanks. Thanks for that just second question is on 10, one and 10 two.
Speaker Change: You guys give only the occupancy numbers in the soft and I'm just wondering if there's any way that you can give us a feel for the like our leased rate for those assets or even think about how much of the leasing you've achieved so far.
Speaker Change: What your ultimate plan is on getting to these state.
Speaker Change: Stabilized cash yields you talk about for the projects.
Speaker Change: Thanks, so much.
Speaker Change: Similar to Lee's comments again.
Speaker Change: As Michael said 10, one is a multi year program when we set out on the project there were over 200 tenants in the property, which we're rolling over the next call. It 567 years.
Glen Weiss: When we set out on the project, there were over 200 tenants in the property, who were rolling over the next call it five, six, seven years. We've leased a considerable amount of space in Penn once to date, and we continue to cycle through as these tenants expire year to year. It's been very successful. We've leased over 300,000 feet this year. It rents north of $90,000.
Speaker Change: We leased a considerable amount of space in pen once the data and we continue to cycle through with the tenants expire a year to year.
Speaker Change: So it's been very successful we've leased over 9000 feet. This year.
Speaker Change: Right its north of 90, when we have a lot of action in the pipeline now similarly, append to we've talked about the pipeline we have deals coming to afford <unk> two as we speak when you can stay tuned on that activity as we roll into <unk>.
Glen Weiss: We have a lot of action in the pipeline now. Similarly, at Pen-2, we talked about the pipeline. We have deals coming to four at Pen-2 as we speak. You can stay tuned on that activity as we roll into the first and second quarter of 2024. Okay, yeah, and I appreciate all the commentary on the releasing. It's just honestly a little bit hard to understand where you guys are at in terms of the releasing of those projects and you know, at what point you're getting the NOI benefit because, you know, there's no bridge provided anymore about the rolling out and the rolling in of NOI. So it's honestly very difficult to quantify what the benefit to the company is going to be over the next couple years. I mean, I would say, Nick, let's go do it, right?
Speaker Change: First second quarter of 2004.
Speaker Change: Okay, Yeah, no I appreciate all the commentary on the re leasing it's just honestly a little bit hard to understand where you guys are at in terms of the re leasing of those projects and at what point, you're getting the NOI benefit because there is no like bridge provided any more about the rolling out and they're rolling in.
Speaker Change: NOI, so it's honestly very difficult to quantify what the benefit to the company is going to be over the next couple of years.
Speaker Change: I mean.
Speaker Change: Joe I would say Nick.
Speaker Change: Right.
Nick Yulico: Penn 2, we've got $1.4 million to lease out, okay? Penn 1, we've probably taken care of, I'm going to make a rough guess, half the square footage to date, right? So, there's probably another $1.2 million to go in terms of rolling that up, marking that to the market, right? Between those two assets, in a short period of time, let's call it, let's just, let's use the outside, three years, right?
Speaker Change: We've got $1 four to lease up okay pen one we've probably taken care of.
Im going to rough guess grant path to square footage today right. So there's probably another $1 million two to go in terms of rolling that up mark that to market between those two assets.
Speaker Change: In a short period of time and let's call. It let's just let's use the asset three years right there's going to be.
Michael J. Franco: There's going to be an incremental $200 million that comes from an NOI that comes from those assets, maybe a little less from Charlie 2, in terms of remaining retail. But the bulk of that is Penn 1, Penn 2, that's probably in our capitalized interest, another $150 million, right? So, that's as crisp as I can give it to you, whether I'm a little bit early or a little bit late on the timing, that's the magnitude, and it's going to happen. Great, thanks. I know I appreciate that extra comment. Michael.
An incremental $200 million that comes from an NOI that comes from those assets.
Speaker Change: Maybe a little less from Charlie too in terms of our main retail, but the bulk of that <unk> 10 to <unk>, that's probably and that our capitalized interest another $150 million right. So.
Speaker Change: That's as crisp as I can give it to you whether I am a little bit early a little bit late on the timing, that's the magnitude and that's going to happen.
Speaker Change: Great. Thanks, I know I appreciate that extra commentary.
Michael: Michael Okay.
Anthony Paolone: Okay. Yep. The next question comes from Anthony Paolone of J.P. Morgan. Please go ahead. Thanks. I just have one.
Michael: The next question comes from Anthony <unk> of Jpmorgan. Please go ahead.
Anthony: Hi, Thanks, I just have one Michael if I got your comment right earlier I think you mentioned.
Michael J. Franco: Michael, if I got your comment right earlier, I think you mentioned debt markets are pretty open right now for retail, and so I was wondering if that creates any opportunities for you all to get paid back on your prep interest in the JV in the near term at all. You know, Tony, good morning. You know, we're pleased that the markets are opening, and the answer is, you know, we're starting to look at it. But, you know, we've got some leasing to do on a couple of those assets as well. If you think about 689 or 5th or, you know, the old space at 1540. So there's a little bit of leasing that has to get accomplished on two or three of the assets. But, you know, as opposed to something that was sort of not on the table as a possibility, I think it's emerging as a possibility.
Anthony: Debt markets are pretty open right now for retail and so I was wondering if that creates any opportunities for you all to get paid back on.
Anthony: On your prep interest in the JV in the near term at all.
Anthony: You know.
Anthony: Johnny Good morning.
Speaker Change: We're pleased that the markets are opening.
Johnny: And the answer is we are starting to look at it but.
Johnny: We've got we've got some leasing to do on a couple of those assets as well if you think about a $6 89.
Johnny: Or shift or.
Johnny: The old space at $50 40, so there's a little bit of leasing has to get accomplished stabilize two or three of the assets but.
Johnny: As opposed to something that was sort of not on the table as a possibility I think it is emerging as a possibility.
Michael J. Franco: And, you know, as markets continue to improve, the answer is that we are absolutely focused on it. And, you know, we're sort of gathering data and looking at it. But, you know, it's one of those things where we have to do leasing. There's also a size limitation in terms of, you know, how much you can put through the system.
Johnny: And those markets continue to improve the answer is we are we are absolutely focused on it.
Johnny: And we're gathering data and looking at it but.
Johnny: It's one of those things, where we've got the leasing there is also a size limitation in terms of how much you can put through the system, but.
Steven Roth: But our goal is to repatriate that capital over time. And that's an opportunity. I look at it differently. The markets are open, which really means that lenders are prepared to give you money at 8%. That's not open to me because the cost of that capital is just too high. And it will. This is not the time to be aggressively borrowing unless you absolutely need it.
Johnny: Our goal is to repatriate that capital over time as opportunities emerge.
Speaker Change: I looked at it differently.
Speaker Change: The markets are open.
Speaker Change: It means that lenders are prepared to give you.
Speaker Change: Money at 8%.
Speaker Change: That's not open to me because the cluster of that capital is just too high.
Speaker Change: Well.
Speaker Change: This is not the time to be aggressively borrowing.
Speaker Change: Unless you absolutely need it so the answer is as we look at it.
Steven Roth: So the answer is, we look at it from an academic point of view, but it would be very surprising to see our company aggressively refinance the preferred or anything else in this market. Now, just a minute about our liquidity. We have billions of dollars in cash.
Speaker Change: From an academic point of view.
Speaker Change: It would be very surprising to see our company aggressively refinance the preferred or anything else in this market.
Speaker Change: These interest rates.
Speaker Change: Now just a minute about our liquidity.
Speaker Change: We have a big in some more cash.
Speaker Change: We consider at some point in time that the preferred as a source of liquidity.
Steven Roth: We consider, at some point in time, that the preferred is a source of liquidity. Not at 8%, but lower. But if we had to, if the source of liquidity, and that's $1.8 billion, And the next thing is, remember that Penn Plaza has no debt on it. So we've got Penn One, debt-free. Penn Two, debt-free. Farley, debt-free.
Speaker Change: Sure.
Speaker Change: Not at 8%, but lower but if we add to it as a source of liquidity, that's $1 $8 billion.
Speaker Change: And the next is remember that Ted Plaza has no debt on it. So we've got one that free cash to debt free.
Speaker Change: Finally debt free and the hotel Penn site, that's right. So we have an enormous liquor.
Steven Roth: And the Hotel Penn site, debt-free. So we have an enormous source of liquidity, which we think is pretty interesting. Okay, thank you. Thank you. The next question comes from Ronald Camden of Morgan Stanley. Please go ahead. Great. Just one for me as well.
Speaker Change: Liquidity.
Speaker Change: Which.
Speaker Change: We think is.
Speaker Change: Pretty interesting.
Speaker Change: Okay. Thank you.
Thank you.
Speaker Change: The next question comes from Ronald Camden of Morgan Stanley. Please go ahead.
Ronald Camden: Great just one from me as well I was just looking at the 10-K in a footnote.
Ronald Camden: I was just looking at the 10K in a footnote. You put some really helpful details about where you expect to release some of the maturities on the office portfolio. I think it looks like flat and some of the retail at sort of over 30%, which I thought was helpful. But trying to connect the dots between those release spreads, I think we talked earlier on the call about occupancy potentially dipping in the first part of the year before picking up. Can you put that all together for us into a same-store-and-why number? I know you don't give guidance, but are there some broad strokes that we should be thinking about?
Ronald Camden: You put some really helpful details about where you expect to release some of the maturities on the office portfolio I think it looks like flat.
Ronald Camden: And some of the retail it at sort of over 30%, which I thought was helpful. But it trying to connect the dots between those releasing spreads I think we talked earlier on the call about occupancy potentially dipping in the first part of the year before picking up.
Ronald Camden: You put that altogether for us in <unk>.
Ronald Camden: And to our same store NOI number I know you don't give guidance, but is there some broad strokes that we should be thinking about same store and why is it is it flat is it slightly down.
Michael J. Franco: Is it flat? Is it slightly down? How should we think about those pieces? Um, you know, it's probably a little bit down, uh, in the aggregate. But, um, again, depends a little bit on what space it is and when it happens. So hard to give you any more guidance. But I think your overall characterization in the office, on an average basis, flat is probably accurate.
Ronald Camden: How should we think about those pieces.
Speaker Change: It's probably a little bit down in the aggregate.
Speaker Change: But.
Speaker Change: Yes.
Speaker Change: It depends a little bit on what spaces and when happens so.
Speaker Change: Hard to give you any more guidance than that.
Speaker Change: But I think your overall characterization in the office on average basis flat is probably accurate.
Michael J. Franco: But, you know, as Glen and his team have a history of doing, we pull forward a number of leases that are going to roll and deal with those. So, you know, it's sort of hard to give you that number. Got it. Thanks so much. The next question is a follow-up from Steve Sakwa of Evercore ISI; please go ahead. Yeah, thanks. Just two quick follow-ups. Michael, you and Steve had provided some color on the GNA, but I just wanted to see if you were saying that in 24, you think the GNA will be flattish with 23, or it actually goes down in 24 versus 23? Well, it's going to come down, you know; the development funds are not going to be there, right?
Speaker Change: But.
Speaker Change: As Glenn has a history of doing.
Speaker Change: We pull forward a number of leases that are going to roll in <unk>. So.
Speaker Change: It's sort of hard to give you that number.
Speaker Change: Yeah.
Speaker Change: Got it thanks, so much.
Speaker Change: Okay.
Speaker Change: The next question is a follow up from Keith Bachman of Evercore ISI. Please go ahead.
Keith Bachman: Yeah. Thanks, just two quick follow ups, Michael I think on the G&A, you and Steve have provided some color, but I just wanted to.
Keith Bachman: C are you, saying that in 'twenty four or do you think the G&A will be flattish with 23 or it actually comes down in in 24 versus 23.
C: Well it is going to come down.
C: <unk> <unk> bonobos, so we're not going to be there right.
Michael J. Franco: I mean, that was a last draw item. That's not going to reacquire this item, so that's going down. So, the answer is yes, we think it will be down. Okay, but just basically stripping that out, that's really the only kind of one-timer that would sort of come off the 23 number. Yeah, there's a little bit more in terms of things that were accelerated that aren't going to reoccur.
C: That that was a that was a last year item is not going to reoccur. This item, so thats going down.
unknown: Answer is yes, we think it will be down.
unknown: Okay, but just basically stripping that out that's really the only kind of one timer that would sort of come off the 23 number.
unknown: Yes.
unknown: There's a little bit more in terms of things that were accelerated that arent going to reoccur.
Steve Sakwa: Just based on, you know, historical vesting for, you know, certain people, but, you know, So the answer is net-net between the development fee that, you know, I don't know, Tom, we're talking $10 million or so at neighborhood level, probably somewhere in. It comes off the books in 20... Okay, great. Thanks. And then just a second follow-up, just on, I think you've got a big refinancing that you're working on with your partner at 280 Park Avenue. Any kind of color, I think that might have gone into special servicing.
unknown: Just based on historical vesting for certain people, but.
unknown: Yes.
unknown: So the answer is net net.
All in fee that I don't know if Tom we're talking $10 million so at neighborhood, probably somewhere in the neighborhood.
unknown: That comes off the books from 2004.
Speaker Change #101: Okay, Great. Thanks, and then just second follow up just on I think you've got a big refinancing that you were working on with your partner at 280 Park Avenue, just any kind of color I think that might've gone into special servicing I assume that that was maybe.
Michael J. Franco: I assume that that was maybe... Part of the mechanics of getting that loan refinanced, but just any color or commentary you can provide on that refinancing would be great, thanks. I'm not going to say too much, given we're still in the middle of the process, but it is a CMBS loan, so going into special servicing is part of the process of working that out.
Speaker Change #101: Part of the mechanics of getting that loan refinance, but just any color or commentary you can provide on that refinancing would be great. Thanks.
Speaker Change #102: Sure, Yes, im not going to say too much given we're still in the middle of the process. By then it is a C MBS alone.
Speaker Change #102: Going into special servicing is part of the process of working that out.
Michael J. Franco: We and our partner are making good progress on that, and we expect to get to a successful resolution with terms that we think are attractive. So, more to come shortly on that, but we've been hard at work for the last 6-9 months. These CMBS loans are painfully complicated given the way they're set up, but you know you have the right sponsorship, and you know I think they recognize that, so you know we're we're we're getting closer. Great, that's it for me, thanks.
Speaker Change #102: And.
Speaker Change #103: And we and our partner, making good progress on that and we expect to get to a successful.
Speaker Change #103: So resolution with.
The terms that we think are.
Speaker Change #103: Tractive so.
Speaker Change #103: More to come shortly there.
Speaker Change #103: But.
Speaker Change #103: <unk> been hard at work for the last <unk>.
Speaker Change #103: Six nine months the CBS loans are.
Speaker Change #103: Painful complicated.
Speaker Change #103: Given the way, they're set up but.
Speaker Change #103: You have the right sponsorship and.
Speaker Change #103: I think they recognize that so we're getting closer to the finish line.
Speaker Change #104: Great that's it for me thanks.
Steven Roth: Thank you. That concludes today's question and answer session. I would like to turn the conference back over to Steven Roth for any closing remarks. Thank you, everybody. We appreciate your interest in our company. We learn from you every call. This was an interesting call, and we... It's snowing in New York, and we'll see you at the next call on May 7th. When is the next call? May 7th.
Speaker Change #105: Thank you.
Speaker Change #105: Okay.
Speaker Change #105: That concludes today's question and answer session I would like to turn the conference back over to Steven Roth for any closing remarks.
Steven Roth: Thank you everybody.
Steven Roth: We appreciate your interest in our company, we learned from you recall.
Speaker Change #106: This was an interesting call.
Yes.
Steven Roth: It's snowing in New York.
Steven Roth: We'll see you at the next call when is the next call.
Steven Roth: On May seven.
Operator: Have a good day. Ladies and gentlemen, this concludes today's conference call. Thank you for participating, and you may now disconnect. BF-WATCH TV 2021.
Speaker Change #107: Have a good day.
Speaker Change #107: Okay.
Speaker Change #108: Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.
Speaker Change #108: [music].