Q2 2024 Vornado Realty Trust Earnings Call
Speaker Change: Good morning and welcome to the Vornado Realty Trust second quarter 2024 earnings call.
Rocco: My name is Rocco, and I will be your operator for today's call. This call is being recorded for replay purposes. All lines are in a listen-only mode. Our speakers will address your questions at the end of the presentation during the question and answer session. At that time, please press stars and 1 on your touch-down phone. I will now turn the call over to Mr. Steve Borenstein, Executive Vice President and Corporate Counsel. Please go ahead.
Operator: My name is Rocco, and I will be your operator for today's call.
Operator: This call is being recorded for replay purposes. All lines are in aidless and only mode. Our speakers will address your questions at the end of the presentation during the question-and-answer session.
Rocco: My name is Rocco and I will be your operator for today's call.
Rocco: This call is being recorded for replay purposes.
Rocco: All lines are in a listen-only mode.
Speaker Change: Our speakers will address your questions at the end of the presentation during the question and answer session.
Operator: At that time, please press star them one on your touch on phone.
Rocco: I will now turn the call over to Mr. Steve Warner, Executive Vice President and Corporate Counsel. Please go ahead.
Speaker Change: At that time, please press stars and 1 on your touch-tone phone.
Steven Borenstein: I will now turn the call over to Mr. Steve Borenstein, Executive Vice President and Corporate Counsel.
Steve Warner: Welcome to Vornado Realty Trust Second Quarter earnings call. Yesterday afternoon, we issued our second quarter earnings release and filed our quarterly report on Form 10-Q with the Securities and Exchange Commission. These documents, as well as our supplemental financial information packages, are available on our website, www.vono.com, under the Investor Relations section. In these documents and during today's call, we will discuss certain non-GAAP financial measures. Reconciliation of these measures to the most directly comparable gap measures is included in our earnings release, Form 10-Q, and financial supplements.
Steven Borenstein: Welcome to Vornado Realty Trust's second quarter earnings call. Yesterday afternoon, we issued our second quarter earnings release and filed our quarterly report on Form 10-Q with the Securities and Exchange Commission.
Steven Borenstein: Please go ahead. Welcome to Vornado Realty Trust's second quarter earnings call. Yesterday afternoon, we issued our second quarter earnings release and filed our quarterly report on Form 10-Q with the Securities and Exchange Commission.
Speaker Change: These documents, as well as our supplemental financial information packages, are available on our website, www.vno.com, under the Investor Relations section.
Speaker Change: In these documents and during today's call, we will discuss certain non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP measures are included in our earnings release, Form 10-Q , and financial supplement.
Steve Warner: Please be aware that statements made during the call may be deemed forward-looking statements, and actual results may differ materially from these statements due to a variety of risks, uncertainties, and other factors. Please refer to our filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31, 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.
Speaker Change: Please be aware that statements made during this call may be deemed forward-looking statements and actual results may differ materially from these statements due to a variety of risks, uncertainties, and other factors.
Speaker Change: 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.
Speaker Change: 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 Warner: On the call today from management for our opening comments are Stephen Roth, Chairman and Chief Executive Officer, and Michael Franco, President and Chief Financial Officer. Our senior team is also present and available for questions.
Speaker Change: On the call today from management for our opening comments are Stephen Roth, Chairman and Chief Executive Officer, and Michael Franco, President and Chief Financial Officer. Our senior team is also present and available for questions. I will now turn the call over to Stephen Roth. Thank you, Steve, and good morning, everyone.
Stephen Roth: I will now turn the call over to Stephen Roth.
Stephen Roth: Thank you, Steve, and good morning, everyone. Our business is on plan and continuing to improve month by month. Our primary focus is always on leasing, and I can report that PEN2 is extremely active. Further, in the overall portfolio, more than two-thirds of the recent vacancies have already been spoken for. Our focus continues to be on enhancing our liquidity, reducing leverage, and, of course, taking advantage of opportunities created by the current market dislocation. New York City is as crowded as ever, and that's a good thing. As I predicted over the past couple of years, working at the kitchen table wasn't an existential threat.
Steven Roth: Our business is on plan and continuing to improve month by month.
Steven Roth: Our primary focus is always on leasing, and I can report that PEN2 is extremely active.
Steven Roth: and further that in the overall portfolio more than two-thirds of the recent vacancies have already been spoken for.
Speaker Change: New York City is as crowded as ever, and that's a good thing. As I predicted over the past couple of years, working at the kitchen table wasn't an existential threat.
Stephen Roth: We now see building utilization percentages in the 70s, and that's just about normal. Tenets are expanding and growing and actively searching for space. We actually competed in a market of over 200 million square feet, and in many of the prime submarkets, good spaces being eaten up and rents are rising. It may be that the most important dynamic in our market is that it is almost economically impossible to build new, thereby cutting off new supplies. There hasn't been a new office building of size started in New York in the last five years. If history is a guy, when supply shuts down, it quickly leads to a landlord's market.
Speaker Change: We now see building utilization percentages in the 70s, and that's just about normal. Tenants are expanding and growing and actively searching for space.
Speaker Change: We actually compete in a market of over 200 million square feet and in many of the prime submarkets good space is being eaten up and rents are rising.
Speaker Change: It may be that the most important dynamic in our market is that it is almost economically impossible to build new, thereby cutting off new supplies.
Speaker Change: There hasn't been a new office building of size started in New York in the last five years. If history is a guide, when supply shuts down, it quickly leads to a landlord's market.
Stephen Roth: As Michael will cover in a moment, we are off to a very strong start in our leasing this year. The Bloomberg renewal and extension of the 947,000 square feet at 731 Lexington Avenue, creating 16 years of term, is the highlight. and we have good activity at all of our assets. As I said, at Penn 2 with the lobby's common spaces, the amenities and closures now complete. We're seeing a significant uptake in tour activity, and our pipeline at Penn is raw. Perspective tenants are really appreciating our transformation and that Penn is really an extension of the new West Side from Hudson Yards to Penn.
Speaker Change: As Michael will cover in a moment, we are off to a very strong start in our leasing this year. The Bloomberg renewal and extension of their 947,000 square feet at 731 Lexington Avenue, creating 16 years of term, is the highlight.
Michael Franco: And we have good activity at all of our assets. As I said, at PENTU, with the lobbies, common spaces, amenities, and plazas now complete, we're seeing a significant uptick in tour activity and our pipeline at PENTU is strong. Prospective tenants are really appreciating our transformation.
Speaker Change: And the Penn is really an extension of the New West side from Hudson Yards to Manhattan West to Penn.
Stephen Roth: The public space surrounding Penn 1 and Penn 2 is transformational, and I encourage all of you to go out and check it out. The district is really bustling with our new food and beverage offerings.
Speaker Change: The public space surrounding PEN1 and PEN2 is transformational, and I encourage all of you to go out and check it out. The district is really bustling with our new food and beverage offerings.
Stephen Roth: We could not be more optimistic. I mentioned on the last call that we've been working on several large monetization transactions. We announced the first one yesterday, the sale of our portion of unit clothes, Fifth Avenue flagship to Uniqlo for $350 million. This asset is in our retail joint venture, 52% of which is owned by us. Uniclo is also acquiring the upper two floors of their store from the office owner. This transaction continues the theme of Fifth Avenue users purchasing their space. Uniclo's lease was set to expire in April 2026, and perpetuating their control of this high volume prominent Fifth Avenue store was paramount to the tenant.
Speaker Change: We are, we could not be more optimistic.
Speaker Change: I mentioned on the last call that we've been working on several large monetization transactions.
Speaker Change: We announced the first one yesterday, the sale of our portion of Uniqlo's 5th Avenue flagship to Uniqlo for $350 million.
Speaker Change: This asset is in our retail joint venture, 52% of which is owned by us.
Speaker Change: Uniqlo is also acquiring the upper two floors of their store from the office owner.
Speaker Change: This transaction continues the theme of Fifth Avenue users purchasing their space. Unicor's lease was set to expire in April 2026, and perpetuating their control of this high-volume, prominent Fifth Avenue store was paramount to the tenant.
Stephen Roth: My bet is this won't be the last user purchase on Fifth Avenue. As you will recall, we recovered this asset at a 4.5% cap rate as part of our street retail joint venture in 2019. The sale to Uniclo is at a 4.2% cap rate on in place at a Y, and the cap rate on the market rent is in the mid to high 3% range. The sale is expected to close in the first quarter 2025. Importantly, all net proceeds will go towards repaying our preferred equity on this asset. There are a few other transactions in our pipeline to repatriate portions of the remaining $1.5 billion of preferred equity, all of which will substantially increase our liquidity.
Stephen Roth: The second transaction I'll quickly comment on, which has been ruined in the market, the late 770 Broadway. We have reached a handshake deal with a user for a long-term masterpiece of the entire 1.1 million square foot office component. We will retain the 92,000 square foot Wegman's Market. After a difficult four or so years, market dynamics are now reversing and growing constructive. There's no new supply on our horizon. Tenets are growing and expanding and searching for space. And New York continues to be the single best market in the nation. And importantly, a fund district is finally showing brilliantly.
Speaker Change: The second transaction I'll quickly comment on, which has been rumored in the market, relates to 770 Broadway. We have reached a handshake deal with a user for a long-term master lease of the entire 1.1 million square foot office component.
Speaker Change: After a difficult four or so years, market dynamics are now reversing and growing constructive.
Stephen Roth: We worry about the elephant in the room. The activity in the government bond that stock markets over the last three days is confirmation that the Federal Reserve fight against inflation has succeeded. And likely foretells a significant reversal of interest rates. All this will have a significant positive impact on our numbers and our values.
Unknown Executive: Worried about the elephant in the room? The activity in the government bond and stock markets over the last three days is confirmation that the Federal Reserve's fight against inflation has succeeded.
Michael Franco: Now over to Michael to cover our financials and the bar.
Michael Franco: Thank you, Steve, and good morning, everyone. Our overall second quarter FFO was 76 cents per share. This includes 19 cents of non-comfortable items, mostly our share of the gain from the discounted debt extinguishment related to the refinancing at 280 Park Avenue, and gains from additional 220 Central Park South unit sales. Second quarter comparable FFO as adjusted was 57 cents per share, compared to 72 cents per share for last year's second quarter. This decrease was attributable to the known items we previously discussed and consisted of 7 cents of lower NOI from known move-outs, net of rent commencements.
Michael Franco: 7 cents of termination income in 2023 from a former tenant at 345 Montgomery Street in San Francisco, and 3 cents of higher net interest expense partially offset by 2 cents of higher NOI from signage and the net impact of other items. We have provided a quarter-over-quarter bridge in our earnings release in our financial settlement. On our last earnings call, we stated that we expect our 2024 comparable FFO to be downed in 2023 comparable FFO of $2.61 per share, primarily due to higher projected net interest expense of about 30 cents per share, and the temporary impact of known vacancies at certain of our properties.
Speaker Change: On our last earnings call, we stated that we expect our 2024 comparable FFO to be down from 2023 comparable FFO.
Speaker Change: of $2.61 per share, primarily due to higher projected net interest expense of about $0.30 per share and the temporary impact of known vacancies.
Michael Franco: Primarily at 1290 Avenue of America's 770 Broadway in 280 Park Avenue of roughly 25 to 30 cents per share. This is still a good assumption as these items are expected to have a larger impact during the second half of the year. We already have commitments for about two thirds of the aforementioned vacant space, assuming the 770 Broadway transaction is finalized, but the gap earnings from these releases won't begin until the latter part of 2025. Thereafter, we expect earnings to increase as income release up of pen and other vacancies comes online and as rates trend down, partially offset by the reduction of capitalized interest.
Speaker Change: We already have commitments for about two-thirds of the aforementioned vacant space, assuming the 770 Broadway transaction is finalized.
Speaker Change: But the gap earnings from these leases won't begin until the latter part of 2025.
Michael Franco: Not only the leasing markets, the overall tone of the New York office leasing market continues to be upbeat as we enter the second half of the year, particularly in Midtown. Private sector employment has reached a historic high, reinforcing that New York remains the leading magnet for town in the US. Tenet demand for classy properties is strong, outpacing 2023, and the mix of leasing is well balanced between financial services, legal, and technology companies. Given the lack of available quality blocks of space in midtown Manhattan, a dearth of new supply for the foreseeable future, slowing subtly sedition in office conversions, gaining momentum, many industry analysts are predicting a tightening of vacancy rates across the city, and well-capitalized class A properties as we head into the second half of 2024 and into 2025.
Speaker Change: The overall tone of the New York office leasing market continues to be upbeat as we enter the second half of the year, particularly in Midtown.
Speaker Change: Private sector employment has reached a historic high, reinforcing that New York remains the leading magnet for talent in the U.S.
Speaker Change: Tenant demand for Class A properties is strong. Outpacing 2023 and the mix of leasing is well balanced between financial services, legal and technology companies.
Speaker Change: Given the lack of available quality blocks of space in Midtown Manhattan.
Speaker Change: A dearth of new supply for the foreseeable future.
Speaker Change: Slowing sublease additions and office conversions gaining momentum.
Speaker Change: Many industry analysts are predicting a tightening of vacancy rates across the city and well-capitalized Class A properties as we head into the second half of 2024 and into 2025.
Michael Franco: A spike in rental rates, much like what we have seen on Park Avenue, and the new website should naturally follow. All this bodes well for one of those best in class collections of high quality, repositioned assets within New York's most coveted submarkets on the new west side, Park Avenue and Six. Avenue. Our 2024 leasing activity reinforces a 10-a-demand for top-of-market properties near transit, and which provide the type of space and amenities come this desire for employer retention, recruitment, and flexibility remain strong. During the first two quarters, we released a total of 1.6 million square feet and market-leading average rents of $132.3 per square foot.
Speaker Change: During the first two quarters, we leased a total of 1.6 million square feet, a market-leading average rent of $130 per square foot.
Michael Franco: This includes our second quarter lease renewal of Bloomberg for the global headquarters at 731 Lexington Avenue, where they will continue to occupy all 947,000 square feet of office space and bill. Excluding the Bloomberg renewal, our transaction volume for the first half of 2024 is $666,000 square feet at starting rents of $95 per square foot, with a cash mark to market of 9.1%. During the second quarter, we completed many important leases throughout the portfolio in addition to Bloomberg, including 11 leases at Penn 1, totaling 123,000 square feet, and an average starting rent of $95 per square foot.
Speaker Change: This includes our second quarter lease renewal of Bloomberg for the global headquarters at 731 Lexington Avenue where they will continue to occupy all 947,000 square feet of office space in the building.
Speaker Change: Excluding the Bloomberg renewal, our transaction volume for the first half of 2024 is 666,000 square feet at starting rent of $95 per square foot with a cash mark-to-market of 9.1%.
Speaker Change: During the second quarter, we completed many important leases throughout the portfolio in addition to Bloomberg.
Michael Franco: The transformation of Penn 1 with its unmatched amenity program continues to attract tenants from all industry sectors, who will previously occupying space in other city submarkets and at rents above our regional underwriting. We continue to attract leading financial services companies to 280 Park, where this quarter we completed a long-term transaction of the Elliott Management for 149,000 square feet in the base of the building. The addition of Elliott to our Tenoroster, where they joined PJT Partners, GIC and Terry's and Invest Corp, cement to be parked as one of Manhattan's premier financial services properties. Importantly, we have now leased 225,000 square feet of space at 280 during 2024 at an average starting rent of $124 per square foot.
Speaker Change: The transformation of Penn Lawn with its unmatched amenity program continues to attract tenants from all industry sectors who were previously occupying space in other city submarkets and at rents above our original underwriting.
Speaker Change: The addition of Elliott to our tenant roster, where they joined PJT Partners, GIC, and Terry's and Investcorp, cemented Tooey Park as one of Manhattan's premier financial services properties.
Speaker Change: Importantly, we have now leased 225,000 square feet of space at 280 during 2024 at an average starting rent of $124 per square foot.
Michael Franco: Looking forward, our pipeline is roughly 2.6 million square feet, which consists of 1.6 million feet of leases and negotiation, and well more than 1 million square feet in some stage of proposal negotiation. The pipeline consists of substantial activity of Penn 2, where we have seen a significant pickup in tenant tour activity and proposals during the second quarter, following the recent completion of the project, the opening of our new pedestrian park at Plaza 33 in completion of our expansive district-wide new sidewalk program. Our total pipeline of deals is a 50-50 mix of new tenant deals, vying for our current vacancies, and important renewals as we continue to work hand in hand with our tenants' expiring during the next few years.
Speaker Change: Looking forward, our pipeline is roughly 2.6 million square feet, which consists of 1.6 million feet of leases and negotiations, and well more than 1 million square feet in some stage of proposal negotiations.
Speaker Change: The pipeline consists of substantial activity at Pen-2.
Speaker Change: where we have seen a significant pickup in tenant tour activity and proposals during the second quarter.
Speaker Change: following the recent completion of the project, the opening of our new pedestrian park at Plaza 33, and completion of our expansive district-wide new sidewalk program.
Michael Franco: In San Francisco, if 5 by 5 California Street, we completed a 10-year lease renewal with Jones Bay for 62,000 square feet, and are currently finalizing a 46,000 square foot renewal expansion with one of our leading financial services tenants in the building. Additionally, we are on late stage letters of intent, where several of our major tenants comprising a total of 250,000 square feet with upcoming lease expirations in 2025 and 2025. 36. All these deals have positive mark-to-markets on the rents, reflecting 555's trophy nature. Finally, in Chicago at the mark, we completed a long-term expansion in renewal, East and July, with one of our major tenants, which tripled inside to 160,000 square feet.
Speaker Change: In San Francisco at 555 California Street we completed a 10-year lease renewal with Jones Bay for 62,000 square feet and are currently finalizing a 46,000 square foot renewal expansion with one of our leading financial services tenants in the building.
Speaker Change: Additionally, we are in late stage letters of intent where several of our major tenants comprising a total of 250,000 square feet with upcoming lease expirations in 2025 and 2026.
Speaker Change: All these deals have positive mark-to-markets on the ramps, reflecting 555's trophy nature.
Speaker Change: Finally, in Chicago at the MART, we completed a long-term expansion and renewal lease in July with one of our major tenants, which tripled in size to 160,000 square feet.
Michael Franco: While the Chicago market is challenging, we are benefiting significantly from the quality of our asset with our market-leading work-life amenity program and rock-solid sponsorship and up a strong pipeline.
Speaker Change: Well, the Chicago market is challenging. We are benefiting significantly from the quality of our asset with our market-leading work-life amenity program and rock-solid sponsorship. We have a strong pipeline.
Michael Franco: Turning to the capital markets now. While the financing markets remain challenging for office and thanks remain out for the market, we are beginning to see some early signs of improvement with the CNPS market open again for selective high quality assets and even ones that are less straightforward. Rates are beginning to moderate, and the so-for-forward curve is projected to come down meaningfully over the next year, which should help barring rates. We continue to be very active on the capital markets front. In June, we refinanced the loan at 645th Avenue in our street retail, JV, eliminating the $509 recourse obligations to come.
Speaker Change: Turning to the capital markets now.
Speaker Change: While the financing markets remain challenging for office and banks remain out for the market, we are beginning to see some early signs of improvement with the CMBS market open again for selective high-quality assets, and even ones that are less straightforward.
Speaker Change: Rates are beginning to moderate and the SOFR forward curve is projected to come down meaningfully over the next year, which should help borrowing rates.
Speaker Change: We continue to be very active on the capital markets front.
Speaker Change: In June , we refinanced the loan at 645th Avenue in our street retail JV, eliminating the $500 million recourse obligation to the company. While the rate is higher than we'd like, this financing demonstrates that the markets are open again for high-quality retail and office assets.
Michael Franco: While the rate is higher than we'd like, this financing demonstrates that the markets open again for high-quality retail and office assets. At 731 Lexington Avenue, with the Bloomberg renewal now complete, we're in the process of refinancing this loan as well. We will then take in care of all of our significant 2024 maturities and are in the process of addressing our 2025 maturities. Our balance sheet remains in very good shape with strong liquidity of $2.7 billion, including $1.1 billion of cash and restricted cash, and $1.6 billion withdrawn under our $2.17 billion for evolving credit facilities.
Speaker Change: It's 731 Lexington Avenue with the Bloomberg renewal now complete. We're in the process of refinancing this loan as well.
Speaker Change: We will have then taken care of all of our significant 2024 maturities and are in the process of addressing our 2025 maturities.
Speaker Change: Our balance sheet remains in very good shape with strong liquidity of $2.7 billion including $1.1 billion of cash and restricted cash and $1.6 billion undrawn under our $2.17 billion
Operator: With that, I'll turn it over to the operator for Q&A. Thank you.
Speaker Change: revolving credit facilities. With that I'll turn it over the operator for Q&A.
Operator: We will now begin the question and answer session. If you have a question, please press star number one on your custom phone. If you wish to be removed from the queue, please press star number two. If you're using a speaker phone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star number one on your custom phone.
Speaker Change: Thank you. We will now begin the question and answer session.
Speaker Change: If you have a question, please press star then 1 on your touchtone phone.
Speaker Change: If you wish to be removed from the queue, please press star then 2.
Speaker Change: If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers.
Speaker Change: Once again, if you have a question, please press star then 1 on your touch-down file.
Operator: Each caller will be allowed to ask one question and a follow-up question before we move on to the next caller.
Speaker Change: Each caller will be allowed to ask one question and a follow-up question before we move on to the next caller.
Steve Sakwa: Today's first question comes from Steve Sakwa with Ever4ISI. Please go ahead. Yes, thanks. Good morning. Steve, you certainly peaked my interest with your 770 Broadway comments. I'm just not sure I fully understand, I guess, kind of the transaction and discussions. I know that building is about 80 percent occupied today, with a couple of different tenants.
Speaker Change: Today's first question comes from Steve Sakwa with Evercore ISI. Please go ahead.
Steve Sackwell: Yes, thanks, good morning. Steve, you certainly piqued my interest with your 770 Broadway comments. I'm just not sure I fully understand.
Steve Sackwell: I guess, kind of the transaction and discussion center, that building is about 80% occupied today with a couple of different tenants.
Stephen Roth: I'm just not exactly sure if this new tenant subleases the space from the old tenant or just kind of how that, I guess I didn't really quite understand the whole transaction that's pending.
Speaker Change: I'm just not exactly sure.
Speaker Change: If this new tenant subleases the space from the old tenant or just kind of how that, I guess I didn't really quite understand the whole transaction that's pending.
Stephen Roth: Steve, I wish I could help you, but I've said all that I'm going to say on that topic. It's an important transaction where, under confidentiality agreements, and so that's all I'm going to say is that there's a voice protection in process. Sorry.
Speaker Change: Steve, I wish I could help you, but I've said all that I'm going to say on that topic.
Unknown Executive: It's an important transaction. We're under confidentiality agreements,
Speaker Change: It's an important transaction. We're under a confidentiality agreement, and so that's all I'm going to say, is that there's an important transaction in process.
Steve Sakwa: Okay, maybe switching gears to the two pan, and I guess Michael, the pipeline you talked about sounds quite strong.
Speaker Change: Okay, maybe switching gears to the two-pen and I guess, Michael, the pipeline you talked about sounds quite strong.
Michael Franco: Can you maybe just provide a little bit more color on the types of tenants that you're speaking to, and are these tenants that are, I guess, currently already in the marketplace and more at least expiration driven, or these kind of new requirements in the market looking at looking at two pan.
Speaker Change: Can you maybe just provide a little bit more color on the types of tenants that you're speaking to and are these tenants that are, I guess, currently already in the marketplace and more at least expiration driven or are these kind of new requirements in the market looking at 2PEN?
Michael Franco: That's David Glenn. Who are you? So it's a mix of both tenants expiring soon and some extent expiring in the outer years, but I'll tell you pen to we have tenant design for the same space right now both in the podium and in the tower. We have technology interest, fashion interest, financial interest, legal interest, academia interest, media. We have interest from all types of sectors on all the space when different sorts of paper negotiation with all these tenants who are seeing very, very strong activity as we sit here. Similarly, at pen one, you know, we've released about a hundred and fifty-five thousand feet of 10 one this year.
Speaker Change: Hi Steve, it's Glen. How are you?
Speaker Change: So it's a mix of both tenants expiring soon and some tenants expiring in the outer years.
Speaker Change: But I'll tell you at Penn too, we have tenants applying for the same space right now, both in the podium and in the tower.
Speaker Change: We have technology interests, fashion interests, financial interests, legal interests, academia interests.
Speaker Change: Media. We have interests from all types of sectors on all the space.
Speaker Change: We're in different sorts of paper negotiation with all these tenants, so we're seeing very, very strong activity as we sit here. Similarly, at Penn One, we've leased about 155,000 feet at Penn One this year.
Michael Franco: And went to the well above where we thought we'd wind up there, and you know the types of tenants keep coming in. We've released outright now with a major pharmaceutical company for two floors and we have other activity coming in at pen one. And with that, we're also seeing great activity around the district at panel 11 and some of the other properties. So I would tell you we're really all cylinders now in pen. When you walk the streets, it's really spectacular. Everything is looking great. The reception is better, better, and better as each paid passes.
Glen Weiss: at rents that are well above where we thought we'd wind up there, and you know the types of tenants keep coming in. We have a lease out right now with a major pharmaceutical company for two floors, and we have other activity coming in at Penn One, and with that, we're also seeing great activity around the district at Penn Eleven and some of the other properties. So I would tell you we're really on all cylinders now in Penn. When you walk the streets, it's really spectacular. Everything is looking great. The reception is better and better as each day passes.
Speaker Change: at rents that are well above where we thought we'd wind up there and the types of tenants keep coming in. We have a lease out right now with a major pharmaceutical company for two floors and we have other activity coming in at Penn One.
Speaker Change: and with that we're also seeing great activity around the district.
Speaker Change: at Penn 11 and some of the other properties. So I would tell you we're really on all cylinders now in Penn. When you walk the streets, it's really spectacular. Everything is looking great. The reception is better, better, and better as each day passes.
Michael Franco: So we're super excited about what's the comment.
Speaker Change: So we're super excited about what's to come.
Michael Franco: Okay, thanks. Thank you.
John Kim: I have a nice question today comes from John Kim, being a local market. Please go ahead. Thank you. On the in a close sale, can you just talk about the earnings impacts? I think you sold you sold at the great price per square foot. But I think your preferred gets redeemed, so might be slightly diluted in the near term. And also you still own five assets on 5th Avenue in that prime quarter between 51st and 55th Street is $20,000 per square foot.
Speaker Change: Okay, thanks.
Speaker Change: Thank you. And our next question today comes from John Kim at BMO Capital Markets. Please go ahead.
John Kim: Thank you. On the Uniqlo sale, can you just talk about the earnings impact? I think you sold out a great…
Speaker Change: Price per Square Foot
Speaker Change: But I think your preferred gets redeemed, so it might be slightly diluted in the near term. And also, you still own five assets on 5th Avenue in that prime corridor between 51st and 55th Street.
Stephen Roth: The right way to value the remaining retail and you plan to monetize any further assets there. Well, there's a lot in that, John, but I try to remember that. If I forget to remind me, but thank you. And I think you've been you've been a step fast believer in retail the whole time, which we appreciate. Look, it's obviously a transaction we're quite pleased about. We think it's an outstanding execution. I think if you look at the valuation and Steve talked about the cap rates and the value income is actually up a little bit from 2019 transaction.
Speaker Change: Is $20,000 per square foot the right way to value the remaining retail and do you plan to monetize any further assets there?
Unknown Executive: you know that would effectively you know tell you that the retail value that we sold in 2019 is sort of back to those levels so you take the preferred and the you know just the where the value of the equity was marked at the time that's about $16 a share which I don't think our stock price continues to reflect at all so you know eventually people will appreciate the valuation of Fifth Avenue but
Stephen Roth: You know, that would effectively tell you that the retail value that we sold in 2019 is sort of back to those levels. So he take the preferred and the, you know, just where the value of the equity was marked at the time. That's about $16 a share, which I don't think our stock price continues to reflect at all. So, you know, eventually people will appreciate the valuation of 5th Avenue. On the per square foot, you know, 40,000 is, you know, that's the entire space. Now I think the most important thing to focus on when you're looking at Fifth Avenue retail is what's the amount of frontage, what's the amount of ground floor square footage.
Speaker Change: On the per square foot, you know, 20,000 is, you know, that's the entire space. You know, I think the most important thing to focus on when you're looking at Fifth Avenue retail is what's the amount of frontage, what's the amount of ground floor square footage.
Stephen Roth: And when you take out, you know, a small allocation for the second floor, given the rents are obviously quite a bit less. It's about $50,000 a square foot per grade square. So, I think that's a more representative metric for Fifth Avenue retail in terms of, you know, the grade screen. So, you have to sort of look at asset by asset. But, you know, with every user's sale, and we've now seen three major sales, and I think we alluded to the last couple call to expect that there would be some. Obviously, we knew this was going to work, but I don't think you've seen the last, as you said.
Speaker Change: So I think that's a more representative metric for Fifth Avenue retail in terms of, you know, the grade screen. So you have to sort of look asset by asset.
Stephen Roth: You know, each sale creates more scarcity in terms of what's remaining on Fifth, you know, which, you know, should drive both rental rates as well as valuations for those that want to keep buying. So, you know, we're pleased that we own a significant portion of the frontage sale. You know, we still own north to 20% of the prime upper Fifth Avenue frontage. And so, that puts us in a good place.
Speaker Change: rental rates as well as valuations for those that want to keep buying. So, you know, we're pleased that we own a significant portion of the frontage still. You know, we still own north of 20% of the prime Upper Fifth Avenue frontage.
Michael Franco: Let's talk about the earnings impact, which I think was one of your first questions. So, all the proceeds will go to repay our preferred. We're going to have four and three quarters in that the day. The entire amount, if you remember, the originally structure of the transaction, you know, the preferred was a proxy for first mortgage financing, and it allowed us to defer any game there. When we refinance the preferred, you know, that game continues to get defer when it gets actually, you know, paid off; that triggers the game. So, the entire 340 will begin; it likely will close next year.
Speaker Change: So all the proceeds will go to repay our preferred. We're only about four and three quarters on that today. The entire amount, if you remember, we originally structured the transaction.
Speaker Change: [inaudible]
Speaker Change: The preferred, you know, that gain continues to get deferred when it gets actually, you know, paid off.
Michael Franco: And, you know, depending on what other transactions we have in terms of losses, and we already have some that have been monetized, you know, we will be able to keep some or all that cash. We think we'll be able to keep a significant portion of that cash, if not all of it. And so, you know, I would say at a minimum, it'll be a push in terms of earnings, and hopefully it will be accretive to the tune of a few million dollars. If you assume we redeploy that, if nothing else, just to pay off debt, it's what's called 6.5% in terms of where it is today.
Speaker Change: You know, we'll be able to keep some or all that cash.
Speaker Change: We think we'll be able to keep a significant portion of that cash, if not all of it.
Speaker Change: and hopefully it will be accretive to the tune of a few million dollars if you assume we redeploy that. If nothing else, just the payoff debt, let's call it six and a half percent in terms of where it is today. So I think I covered everything you asked, but if not, you know, tell me.
John Kim: So, I think I covered everything I asked, but if not, you know, telling. You covered it all. Thank you.
John Kim: And then my second question is on 10 to and the timing of MSG moving into that space, as well as the capitalized interest. If you could just remind us of your capitalized interest policy, when you start expensing the interest on that project. Sure, John, it's time. MSG, we actually delivered some of that space portion, that space six months early. So, in our second quarter results, you're seeing the impact of that. It gets fully delivered by the fourth quarter. So, our fourth quarter will be a full quarter of MSG rent at the new rent. And then obviously 25 will be a full year of MSG on again.
Speaker Change: You covered it all, thank you. And then, my second question is on...
Speaker Change: 10.2 and the timing of MSG moving into that space, as well as the capitalized interest. If you could just remind us of your capitalized interest policy when you start expensing the interest on that project.
Speaker Change: Sure, John , it's Tom. MSG, we actually delivered some of their space, a portion of their space, six months early. So in our second quarter results, you're seeing the impact of that.
Speaker Change: It gets fully delivered by the fourth quarter. So our fourth quarter will be a full quarter of MSG rent at the new rent. And then obviously 25 will be a full year of MSG on a gap basis.
John Kim: As it relates to capitalized interest, you know, as we indicated, and Michael prepared remarks on previous calls, capitalized interest will roll down in 2025, but most of that will be offset by additional gap revenue as it relates to some of the large leasing we did this past year with Swansea and Gay things folding and others. And you do that floor by floor as it's delivered, or the entire building at once. It's going to be a portion of the building because, as we have some open development going on, some of that interest will continue to capitalize in 2025.
Speaker Change: as it relates to capitalized interest.
Speaker Change: You know, as we indicated in Michael's prepared remarks and on previous calls, capitalized interest will roll down in 2025 But most of that will be offset by additional gap revenue as it relates to Some of the large leasing we did this past year with Columbia and Gay, things falling and others
Speaker Change: And you do that floor-by-floor as it's delivered, or the entire building at once.
John Kim: Thank you.
Floris Dijkum: And our next question today comes from Floris and Dijkum, with Thomas Point.
Speaker Change: Thank you.
Speaker Change: Thank you. And our next question today comes from Floris Van Dijkum with CompassPoint. Please go ahead.
Floris Dijkum: Please go ahead.
Floris Dijkum: Good morning, guys. Thanks for taking my question. Obviously, very interesting and bullish news on Fifth Avenue. I also noticed that your red spreads on your retail portfolio were positive by the tune of around 13%. Maybe if you could talk a little bit more about some of the upside potential, is that what you're seeing in terms of leasing activity? And also, obviously, now that Uniqlo owns its space, there's less space to lease in it. That's pretty good in the upper Fifth Avenue quarter.
Speaker Change: Hey, good morning guys. Thanks for taking my question.
Speaker Change: Uniqlo owns its space. There's less space to lease in it, particularly in the Upper Fifth Avenue corridor. What are your expectations for market rental growth and lease spreads that in your portfolio over the next year or so?
Floris Dijkum: What are your expectations for market rental growth and lease spreads that in your portfolio over the next year or so?
Michael Franco: Good morning, Floris.
Michael Franco: On your first question, in terms of retail activity, I think we've talked about this in the last couple of calls in terms of just the general market dynamics where the retailers are more active, and we're seeing continued recovery there, both in terms of the rents improving and vacancy rates declining, and that certainly continues. I think if you look at our activities quarter, it wasn't very meaningful, but it tends to be a little lumpy. But as I look forward at our pipeline, it's quite active. We probably have close to 160,000 feet in lease negotiations right now and probably another 150,000 feet of deals in various stages of letters of intent.
Speaker Change: Good morning, Floris. You know, on your first question, you know, in terms of retail activity, I think we've...
Speaker Change: You know talked about this on the last call couple calls in terms of just the general market dynamics where the You know retailers are more active and we're seeing you know continued recovery there both in terms of the rents Improving and vacancy rates declining and that and that certainly continues
Speaker Change: Yeah, I think if you look at our activities quarter, you know, it wasn't very meaningful but it tends to be a little lumpy.
Speaker Change: and probably another 150,000 feet of...
Michael Franco: A lot of activity, I would say, that's principally focused in Penn, as well as in Times Square, where we have space that, obviously, we've redeveloped in Penn that we've delivered or delivering and then backfilling some of the space ticket, 1540, Broadway. That's where the activity is. I would say the rents are pretty healthy levels relative to historical, particularly in Times Square. Fifth Avenue, we have one vacancy that comes up later this year. There is activity there. It's hard to extrapolate exactly because there's not a tremendous amount of vacancy in every space; it is so particular in terms of where users want to be.
Speaker Change: deals in various stages of letters of intent. So a lot of activity, I would say, that's principally focused in pen.
Speaker Change: That's where the activity is, and I would say the rents are at pretty healthy levels relative to historical, particularly in Times Square.
Speaker Change: you know Fifth Avenue you know we have we have one vacancy that comes up
Speaker Change: later this year, there is activity there. It's hard to extrapolate exactly, just because there's not a tremendous amount of vacancy and every space is so particular in terms of where users wanna be and how much space they want and whatnot. But, you know, rents are, you know, I think.
Michael Franco: And how much space they want, and whatnot. But, you know, rents are, you know... I think it recovered pretty significantly there. So, again, we see, we see continued momentum. You know, I think, you know, in terms of near term, we don't have a lot of role coming up on fifth near term. So, I don't know that really, you know, the near term is to mark that either way is really relevant. You know, there's duration on most of those leases other than that one small lease that's coming up at the end of the year.
Speaker Change: It recovered pretty significantly there.
Speaker Change: so again we see we see continued momentum
Speaker Change: You know, I think, you know, in terms of near-term, we don't have a lot of roll coming up on fifth near-term, so I don't know that really, you know, the near-term opportunities to mark that either way is really irrelevant, you know, there's duration on most of those leases other than that one small lease that's coming up at the end of the year.
Michael Franco: Thanks, Michael.
Michael Franco: And maybe my, my follow-up is if you could talk a little bit about your plans for the 450 million of unsecured debt that matures, I think, in January of 25. You said you're in the market looking at some of those things. Is the idea to refinance that, or will you pay that off with cash? Or, if you can, talk a little bit about, you know, your thinking about that. Yeah, like as we sit here today, you know, the plan is to pay it off. You know, we've got significant cash on hand, obviously, given the announcements in the last 24 hours. We've got more cash coming in.
Speaker Change: Thanks, Michael. And maybe my follow-up is, if you could talk a little bit about your plans for the $450 million of unsecured debt that matures, I think, in January of 2025. You said you're in the market looking at some of those things. Is the idea to refinance that, or will you pay that off with cash? Or if you can talk a little bit about your thinking about that.
Speaker Change: Yeah
Speaker Change: Like as we sit here today, you know plan is to pay it off, you know, we've got significant cash on hand obviously
Michael Franco: So, that's the plan. Like, as you would expect, we are, you know, tuned to the markets and what's going on. You know, with rates trending down with spread tightening, you know, we obviously look at the fair financing markets to see where those are, and that presents an alternative compelling, and we're pleased with the direction of that. But, you know, as we sit here today, the plan is to pay it off.
Speaker Change: Given the announcements
Speaker Change: in the last 24 hours, we've got more cash coming in. So that's the plan. Like, as you would expect, we are, you know, tuned to the markets and what's going on.
Speaker Change: You know, with rates trending down, with spreads tightening, you know, we obviously look at the various financing markets to see where those are. That presents an alternative that's compelling and we're pleased with the direction of that. But, you know, as we sit here today, plan is to pay it off.
Michael Franco: Thanks, Michael.
Councilor Camille: Yes. Thank you, and I've questions today, Council, Camille, but no, with think of America, please go ahead.
Michael Franco: Thanks, Michael.
Michael Franco: Yes.
Speaker Change: Thank you. And our next question today comes from Camille Bonnell with Bank of America. Please go ahead.
Councilor Camille: Good morning. Glenn, I wanted to follow up on the leasing side, giving your comments around the improving outlook. Was the handshake deal on 770 Broadway included in the pipeline from last quarter, or did it more recently emerge? And just outside of the 770 Broadway discussions, curious to get your thoughts on what activity are you seeing specifically around the large office users?
Camille Bonnell: Good morning. Glen, I wanted to follow up on the leasing side, given your comments around the improving outlook.
Camille Bonnell: Was the Handshake deal on 770 Broadway included in the pipeline from last quarter or did it more recently emerge? And just outside of the 770 Broadway discussions, I'm curious to get your thoughts on what activity are you seeing specifically around the large office users?
Michael Griffin: Hi. The 770 transaction was included within Michael's remarks in terms of the pipeline. In terms of overall activity, you know, we're really seeing activity throughout the portfolio, really everywhere right now. If I look at the list of the action, the leases out in the proposal then, we're really seeing it very well spread out for all the buildings. And the one thing I would note is the bread and butter tenants, the 10, 20, 30,000 foot types are really coming into the market more so now than they have in a while. And we're seeing that a lot of the properties, particularly in Pan and in Midtown.
Speaker Change: Hi, the 770 transaction was included within Michael's remarks.
Speaker Change: in terms of the pipeline.
Speaker Change: In terms of overall activity, we're really seeing activity throughout the portfolio.
Speaker Change: really everywhere right now. If I look at the list of the action, the leases out and the proposals in
Speaker Change: We're really seeing it very well spread out through all the buildings.
Speaker Change: And the one thing I would note is the bread-and-butter tenants, the 10-, 20-, 30,000-foot types are really coming into the market more so now than they have in a while. And we're seeing that on a lot of the properties, particularly in Penn and in Midtown.
Michael Griffin: So I'll tell you that the market is as well mixed as it's been in a long time, different size tenants, different genre of tenants. So we're really seeing a very good consistent mix, which is helping the market, helping the volume.
Speaker Change: So I tell you that the market is as well-mixed as it's been in a long time. Different size tenants, different genre of tenants, you know, so we're really seeing a very good, consistent mix.
Michael Griffin: And as you can see, a lot of the reports on New York is clearly leading that charge by space throughout the country.
Speaker Change: which is, you know, helping the market, helping the volume, and as you can see in a lot of the reports, New York is clearly leading that charge by spades throughout the country.
Michael Griffin: And for my follow-up, I was wondering if we can get your latest thoughts on how taxable income is trending. and just following the pickup in dispositions this year. Are we likely to see more distributions paid out, or is it still uncertain given that no one move out?
Speaker Change: And for my follow-up, I was wondering if we can get your latest thoughts on how taxable income is trending just following the pickup in dispositions this year. Are we likely to see more distributions paid out or is it still uncertain given the known move-outs? Thank you.
Michael Griffin: Thank you. Still uncertain, Camille. You know, as we get further on the year, depending on what all plans are closing, not closing, excited, then we'll have a better sense.
Speaker Change: Still uncertain, Camille. As we get further on the year, depending on what ultimately ends up closing, not closing, etc., then we'll have a better sense. We have a decent sense and it can go a number of different directions still.
Michael Griffin: You know, thank you. And our questions are from Michael Griffin with City. Please go ahead. Great, thanks. I'm wondering if you can give us a sense of how concessions have been trending. Notice it was I think notably lower this quarter, probably driven by the Bloomberg extension, but you know, have you seen the concession environment improve at all, or is it pretty steady relative to recent quarters?
Speaker Change: Thank you. And our next question today comes from Michael Griffin with Citi. Please go ahead.
Michael Griffin: Great, thanks. I'm wondering if you can give us a sense of how concessions have been trending. I noticed it was notably lower this quarter, probably driven by the Bloomberg extension, but you know have you seen the concession environment improve at all or is it pretty steady relative to recent quarters?
Michael Griffin: Michael, let's go ahead. So concessions have stabilized. You know, they're stubbornly high, but they've stabilized. They've not gone up in some time. That's now being somewhat offset by higher rents in certain properties and certain substrates in our portfolio. So, you know that we're seeing positive signs in terms of net effective rents in some of our properties. So look, the hope is that the market tightens. We could bring the TIs and pre-wrench down, but certainly they've stabilized now for a bunch of quarters as we've been saving on these calls. Thanks, Vic. I want to appreciate that.
Michael Griffin: Hi Michael, it's Glen. So concessions have stabilized, you know, they're stubbornly high but they've stabilized, they have not gone up in some time.
Michael Griffin: That's now being somewhat offset by higher rents in certain properties and certain sub-districts in our portfolio.
Michael Griffin: So, you know, that we're seeing positive signs in terms of net effective rents in some of our properties. So look, the hope is as the market tightens we could bring the TIs and pre-rents down, but certainly they've stabilized now for a bunch of quarters as we've been stating on these calls.
Stephen Roth: I mean, Steve, just on your kind of macro comments about the interest rate environment and the Fed's kind of fighting its inflation, you know, obviously, I think lower interest rates are better for office overall, but just given the chatter that we've heard recently around recessionary fears, I guess how do you balance the more favorable outlook for interest rates mixed with what could be a recessionary scenario that would probably negatively impact the office sector? The biggest driver and the biggest, our biggest cost is the cost of capital. So, the real estate industry, however, has always tried and increased in value as in the interest rate cycle as interest rates are trending down.
Glenn: Thanks, Glenn, appreciate that. And then Steve, just on your kind of macro comments about the interest rate environment and the Fed's kind of fight against inflation, you know, obviously, I think lower interest rates are better for office overall. But just given the chatter that we've heard recently around recessionary fears, I guess, how do you balance the more favorable outlook for interest rates, mixed with what could be a recessionary scenario that would probably negatively impact the office sector?
Steve Sackwell: The biggest driver and our biggest cost is the cost of capital.
Steve Sackwell: So the real estate industry has always thrived and increased in value in the interest rate cycle as interest rates are trending down.
Stephen Roth: The expectation of most market players is that we're in. We're on the other side of the interest rate cycle, and interest rates will become in doubt. We are certainly not planning the business for interest rates to go down to the zero levels that they were, but hopefully they will stabilize at the normalized levels and we'll see how it works out.
Steve Sackwell: The expectation of most market players is that we're on the other side of the interest rate cycle, and interest rates will be coming down. We are certainly not planning the business for interest rates to go down.
Steve Sackwell: The Zero Levels that they were, but hopefully they will stabilize at a normalized level, and we'll see how it works out.
Stephen Roth: Great.
Stephen Roth: That's different.
Dylan Brzezinski: Thanks for the time.
Dylan Brzezinski: I have my question today. How's from Dylan Brzezinski with Green Street? Please go ahead. Hi guys, thanks for taking the question. Excuse me. I'd appreciate that the comment on street retail activity taking up, but as we look at the portfolio today, I think you ended the quarter call it high 70s percent occupancy, which is still well below where it was pre-COVID.
Speaker Change: Great, that's it for me. Thanks for the time.
Speaker Change: Thank you.
Speaker Change: And our next question today comes from Dylan Burzinski with Green Street. Please go ahead.
Dylan Brzezinski: Hi guys, thanks for taking the question.
Dylan Brzezinski: I appreciate the comments on street retail activity picking up, but I guess as we look at the portfolio today,
Dylan Brzezinski: I think you ended the quarter call it high 70s percent occupancy, which is still well below where it was.
Stephen Roth: I guess as you guys think about that business moving forward, I mean, is there you guys envision that eventually getting back to where it was pre-COVID, or do you sort of envision an environment where things are improving, but you still don't necessarily see or cover back to this pre-COVID level? Hello, good morning. Look, I think the number you reference on the occupancy, you know, we got to put a big asterisk next to that, which is it's really, you know, that lower numbers driven by Manhattan, right? So, J.C. Penney, when bankrupt, vacated that store, and that caused about 10 points of occupancy decline there.
Stephen Roth: Now, we've been, you know, given everything else we're doing in pen, evaluating what to do with that space, not necessarily wanting to lock it up long term, certainly with a tenant that's not paying a rent that we think is appropriate, and recognizing that, you know, everything we're doing in the district is going to accrue to that asset over time. So, you know, we've done a number of temp deals. In fact, we have one with Netflix that's opening right now. And that's probably the plan. We don't, we don't actually, when we do that, we don't take that into occupancy.
Speaker Change: Now we've been, you know, given everything else we're doing in Penn, evaluating what to do with that space.
Speaker Change: and not necessarily wanting to lock it up long-term, certainly with a tenant.
Speaker Change: It's not paying a rent that we think is appropriate and recognizing that everything we're doing in the district is going to accrue.
Speaker Change: Over time so You know, we've done a number of temp deals. In fact, we have one with Netflix that's opening right now And that's probably the plan. We don't we don't actually when we do that. We don't take that in the occupancy in fact, maybe we should have taken that service because
Stephen Roth: In fact, maybe we should have taken that service because, by and large, it's really not a focus of art to Lisa Launchern unless we get a robust rent. So, if you take Manhattan Mallout, that's 77, you will go to like 87. And, you know, we've got the other vacancy that we're working on. So, the answer is, you know, bottom line is, yes, we've got number is going to get back up to levels we were at historically, but keep in mind there's 10 points that sort of frictional vacancy right in our structural vacancy that is due to Manhattan Mallout.
Councilor Mitchell: Thank you. Internet questions today, Councilor Mitchell, by percent.
Councilor Mitchell: Hey, good morning. Thanks for taking my question. So, there's been a lot of talk about the high street retail and how the whole environment is re-bounding in terms of that area. We've seen it from, you know, rents coming back, retail is required to spaces or leasing. But just thinking about one rent in particular, there's been articles in, I think it was June or July, about Sephora. Recently negotiating, they were rents down by two therats on Madison.
Stephen Roth: So, I guess I'm just wondering if you guys can help us think about the juxtaposition between some of the metrics we've seen recently, your comments, and then some specific transactions, such as the Sephora, what? You know, on this Sephora deal, you mentioned a 520 Madison. I wouldn't call that a market transaction. It was a very short-term deal. I believe it was only for one or two years at the most. So, I wouldn't take into account as it relates to the market and what's going on in that corridor. I might add on to that, but I think when you define high street, I don't know that I would characterize 520 Madison as high street.
Speaker Change: So, I guess I'm just wondering if you guys could help us think about the juxtaposition between...
Speaker Change: Some of the metrics we've seen recently, your comments, and then some specific transactions such as the Sephora one.
Speaker Change: Glen, hi. You know, on the support deal you mentioned of 520 Madison, I wouldn't call that a market transaction. It was a very short-term deal. I believe it was only for one or two years at the most, so I wouldn't take into account as it relates to the market on what's going on in that corridor.
Speaker Change: I might add on to that but...
Stephen Roth: You know, yes, it's Madison Avenue, but that's not the prime stretch of Madison Avenue. It's 57, the probably 64. which is where you see, you know, rents that are, you know, generally north of $1,000 a square foot. So, you know, retail, that is non-prime prime, is, you know, it's coming out older rents, you know, that has not seen the same level of recovery as recovering, but it's not seen the same level of recovery as prime fifth, prime time square, and, you know, that prime stretch of Madison.
Speaker Change: you know, retail that is not prime prime.
Stephen Roth: So, both the short-term nature as well as, and we've always talked about this, you know, the prime high street is really scarce, and you have to focus on what that means different than any other set of blocks in the city. And, you know, the beauty of our retail is, it is all prime high street.
Speaker Change: You know, the prime high street is really scarce, and you have to focus on what's different than any other set of blocks in the city. And I think the beauty of our retail is, it is all prime high street.
Stephen Roth: Very helpful, appreciate the color, and then maybe just one more quick one.
Michael Franco: You get a lot of financing activity, activity in the quarter, obviously. And then 645 was refinanced at a fixed rate of 750.
Speaker Change: The 645th was refinanced at a fixed rate of $7.50. I'm just curious if that's a good rate that we should think about for some upcoming maturities such as $7.31 LEX or any others moving forward.
Michael Franco: Just curious if that's a good rate that we should think about for some upcoming maturity, such as 731 Lex or any others moving forward. You know, that's probably, you know, as we see here today, that's probably 50 point basis point higher than it would be if we did it today. Just give them what's happened in 10 years or in the future on the 5 years. So, obviously the base rate matters, spreads matter, etc. But, you know, 731 I think you'll see gets done much tighter than that, you know, reflected the long-term lease that we executed last quarter.
Speaker Change: You know, that's probably, you know, as we sit here today, that's probably 50 basis points higher than it would be if we did it today, just given what's happened in the 10-year or in the future.
Speaker Change: The five years. So, obviously the base rate matters. Spreads matter, etc. But, you know, 731, I think you'll see gets done much tighter than that. You know, reflected the long term lease that we executed last...
Michael Franco: And, you know, I think it's asked to depend, but I think in general, you know, the markets continue to heal. I think you'll see those rates, you know, trend down, you know, to some extent, just by the fact that base rates are down.
Speaker Change: quarter. And you know, I think it's asset dependent, but I think in general, you know, the markets continue to heal. I think you'll see those rates, you know, trend down, you know, to some extent just by the fact that base rates are down.
Speaker Change: Thank you.
Unknown Attendee: Hello, Mr. Campbell; your line is open. Perhaps you're muted. Yep, can you hear me now? Yes.
Speaker Change: Hello Mr. Campbell, your line is open, perhaps you're muted.
Unknown Attendee: Okay, great. Just two quick ones from me. Going back to the 2.6 million square feet pipeline. Can you break out how much of that relates to pen two? And, you know, the two floors that you mentioned on pen one that's out for lease is out on vacant space? The pen one deal making is I'm making space.
Mr. Campbell: Yep, can you hear me now?
Mr. Campbell: Yes.
Mr. Campbell: Okay.
Speaker Change: Alright, just two quick ones from me.
Speaker Change: Going back to the 2.6 million square feet pipeline, can you break out how much of that relates to Penn 2 and the two floors that you mentioned on Penn 1 that's out for lease, is that on vacant space?
Michael Franco: I really don't want to get into much more detail than I have already on pen two. But, you know, a good amount of the pipeline is pen two with a plethora of deals brewing as we speak in different, you know, part negotiations.
Speaker Change: The PAN 1 deal making is I'm making space.
Speaker Change: I really don't want to get into much more detail than I have already on PEN2, but a good amount of the pipeline is PEN2.
Michael Franco: But, rather than I'll get into this very much detail of when we feed is what at this point? Sure thing.
Speaker Change: with a plethora of deals brewing as we speak in different, you know, parts of the negotiations. But, rather than I'll get into the very much detail of how many feet is what at this point.
Michael Franco: And if I could just sneak in a quick one, you know, can you sort of comment on any updated plans for the former Hotel Pen site, given all the leasing activity you're seeing on Pen One and Pen Two?
Ed: Sure thing. And if I could just sneak in a quick one, you know, can you sort of comment on any updated plans for the former Hotel Penn site given all the leasing activity you're seeing on Penn 1 and Penn 2?
Michael Franco: You know, it's like, I think as we've talked about in the past, you know, the cost of construction financing, lack of availability makes it difficult.
Speaker Change: You know it's like I think as we've talked about in the past
Speaker Change: you know the cost of construction, financing, lack of availability that makes it difficult to build right now so.
Michael Franco: of the bill right now. So like it's a prime site, you know, arguably the best site left in the city, but you know, it's day of not coming up.
Speaker Change: like it's a prime site you know arguably the best site left in the city but you know it's if they have not come yet
Unknown Attendee: Thanks so much; that's it for me.
Caitlin Burz: Thank you.
Caitlin Burz: The next question today, Council Caitlin Burz at Goldman Sachs, please go ahead. Hi, good morning. Earlier you mentioned how the leases you were doing at 555 California, all-head positive market market. So I guess could you talk about that a little bit more? How long do you think those positive spreads at 555 can last for? And I guess, given the occupancy there, how would you characterize market rents there? Like do you have the ability to push more, or to what extent does vacancy in the market or submarket limit the pricing side? I think what we're seeing at 555 is that it is the best building in San Francisco.
Speaker Change: Thanks so much, that's it for me.
Speaker Change: Thank you. And our next question today comes from Caitlin Burrows at Goldman Sachs. Please go ahead.
Caitlin Burrows: Hi, good morning. Earlier, you mentioned how the leases you were doing at 555 California all had positive mark-to-market. So I guess, could you talk about that a little bit more? How long do you think those positive spreads at 555 can last for? And I guess, given the occupancy there, how would you characterize market rents there? Like, do you have the ability to push more, or to what extent does vacancy in the market or sub-market limit the pricing side?
Speaker Change: Look, I think what we're seeing in 5.5 is that it is the best building in San Francisco.
Michael Franco: Our tenants have all remained. Our rent has held very strong. So, you know, this building is really insulated from the overall market and what you're seeing statistically in the city. You know, without getting into much detail on the negotiations, we are going on with our tenants. You know, we're seeing a lot of strength. We're even seeing growth in the deals expansion with these tenants. So, you know, what's going to happen in the future in terms of these rents? I mean, look, the rents at all buildings have historically kept going up. We feel very good about the rent already.
Speaker Change: Our tenants have all remained. Our rents have held very strong. So, you know, this building is really insulated from the overall market and what you're seeing statistically in the city.
Speaker Change: You know, without getting into much detail on the negotiations we have going on with our tenants, you know, we're seeing a lot of strength. We're even seeing growth in the deals, expansion with these tenants.
Speaker Change: So, you know, what's going to happen in the future in terms of these rents? I mean, look, the rents at our building have historically, you know, kept going up.
Michael Franco: We're achieving right now. You know, we are ahead of the market; we expect to continue to be ahead of the market as we mark on.
Speaker Change: We feel very good about the rental rates we're achieving right now. You know, we're ahead of the market. We expect to continue to be ahead of the market as we move forward on.
Michael Franco: Okay, got it. And then back in the prepared remarks, you gave some color on the outlook to 25. I think suggesting that with the leasing that's been completed and pen to coming online that late 25 could see maybe an improvement in earnings. I guess first is at the right takeaway, but then be when you think about all of the moving parts. Are there additional 2025 largely. Explorations we should be aware of, and do you have any insight into those tenants' thoughts at this point? We have a modest exploration schedule on 25. We're obviously speaking to all the tenants expiring during that period.
Speaker Change: Okay, got it. And then back in the prepared remarks, you gave some color on the outlook to 25, I think, suggesting that with the leasing that's been completed and PEN2 coming online, that late 25 could see maybe an improvement in earnings. I guess, first, is that the right takeaway? But then, B, when you think about all of the moving parts, are there additional 2025 large lease expirations we should be aware of? And do you have any insight into those tenants' thoughts at this point?
Speaker Change: We have a modest expiration schedule in 2025. We're obviously speaking to all the tenants expiring during that period.
Michael Franco: But I think, you know, generally speaking, between 28770 and 1290, we've seen the real height of exploration now. And as we go to 25, you know, and forward, you know, we're seeing a common of those big exploration. Okay, thanks.
Speaker Change: but I think you know generally speaking between 280, 770, and 1290 we've seen the real tide of expirations now and as we go to 25 you know and forward you know we're seeing a calming of those big expirations.
Michael Franco: Thank you.
Tony Palo: And our next question today comes from Tony Palo, with JP Morgan. Yeah, thanks. Pardon me, interruptions here.
Speaker Change: Okay, thanks.
Speaker Change: Thank you. And our next question today comes from Tony Paolone with J.P. Morgan. Please go ahead. Yeah, thanks. Um, well, first, I mean, I think Steve mentioned the 666, uh, series 1 and 7 that, uh, you alluded to.
Operator: I'm Mr. Palo, and your line is coming in very poorly. I'm going to disconnect your line, or I'm going to move on to you. If you can bow back in, we can get you right back in the queue.
Speaker Change: Pardon the interruption here, Mr. Paolone, your line is coming in very poorly. I'm going to disconnect your line, or I'm going to move on from you. If you can dial back in, we can get you right back into the queue.
Nick Eulica: Our next question today comes from Nick Eulica, with coach of bank. Please go ahead. Thanks. Yeah. Now you talked about, you know, some of the leasing underway already for this year. I guess can you give us a feel for, you know, how occupancy might trend for the back half of the year in the any office portfolio? We know that's going to trend down a bit next quarter, so just given that Meta is vacating 275,000 square feet at 770 Broadway, obviously if we complete the 770 deal, it's the alluded to that's going to have a significant positive impact, but in terms of near term, certainly going to go on next quarter, we have a bunch of things in the queue, I think we end up the year basically where we're at now going to be 20, 30 basis points lower, higher, sure, it all depends on timing, but I think in terms of where we end this year, I think that's a decent, number of things in the work that could take that number up, a couple hundred basis points, but again, it's all time, but I think just in terms of near term, next quarter to hopefully I give you what you want.
Nick Yulico: Our next question today comes from Nick Yulico with Scotiabank. Please go ahead.
Speaker Change: Our next question today comes from Nick Yulico with Scotiabank. Please go ahead.
Nick Ulico: Thanks. I know you talked about some of the leasing underway already for this year. I guess, can you give us a feel for how occupancy might trend for the back half of the year in the office portfolio?
Nick Ulico: Yeah
Speaker Change: We're at about 89.3 today. We know that's going to trend down a bit next quarter or so, just given that META is vacating 275,000 square feet at 770 Broadway.
Speaker Change: Obviously, if we complete the 770 deal, as Steve alluded to, that's going to have a significant positive impact. But in terms of near term, you know, certainly going to go to the next quarter, we have a bunch of things in the queue. You know, I think we end up the year basically where we're at, you know, now, you know, could it be 20, 30 basis points lower, higher? Sure. I mean, you know,
Speaker Change: It all depends on timing, right? But I think it's just in terms of where we end this year.
Speaker Change: You know number and you know, there's some things in the work that could could take that number up, you know A couple hundred basis points, but again, it's all it's all time But I think just in terms of near-term next, you know quarter to hopefully that gives you What you what you wanted
Nick Eulica: Yeah, that's helpful, thanks, and then just going back to pen two, can you give us a feel for maybe types of tenants looking at the space and from the standpoint of, is it tenants that would be new to that submarket, anything else you could just talk about, whether these are lease exploration driven, you were trying to capture some market share there. Hi, it's Glenn. So, as I said earlier, you know, it's a very, very good mix of all different industries, sector type tenants, technology, fashion, legal, media, academia. It's a very good mix and yes, there are new entrants to the district, and really that's all due, you know, to the really great product that went out delivering and even more so, you know, the new streetscapes, all the new streets that we've embedded on the streets.
Unknown Executive: Yeah, that's helpful. Thanks. And then, just going back to Penn, too, can you give us a feel for maybe types of tenants, you know, looking at the space and from the standpoint of, you know, are they tenants that would be new to that submarket? Anything else you could just talk about, about whether these are, you know, lease expiration-driven, where you're trying to sort of capture some market share there?
Speaker Change: Yeah, that's helpful. Thanks. And then just going back to Penn too, can you give us a feel for...
Speaker Change: and maybe types of tenants, you know, looking at the space and from the standpoint of...
Speaker Change #100: you know, or is it tenants that would be new to that sub-market, anything else you could just talk about about whether these are, you know, lease expiration driven, you know, where you're trying to sort of capture some of the market share there?
Speaker Change #100: Hi, it's Glen. So as I said earlier, you know, it's a very, very good mix of all different industry sector type tenants, technology, fashion.
Speaker Change #100: Wegold
Speaker Change #100: Media, academia, it's a very good mix, and yet...
Speaker Change #100: There are new entrants to the district.
Speaker Change #100: And really that's all due to the really great product that we're now delivering and even more so the new streetscapes, all the new retail that we've embedded on the streets, so it's all positive.
Glenn Weiss: So it's all positive in terms of new entrance, new types of sectors, et cetera. That's really the mix of the action.
Speaker Change #100: in terms of new entrants, new types of sectors, etc. That's really the mix of the action.
Glenn Weiss: All right, thank you. I think one thing I would just add, Nick, I think we talk about this, it's important, right? The access to transit, which we said on top of, is just critical, right? And we are the most connected submarket, and when you look at some of the tenants and where they are attracting their employees. That access from, you know, that access is just critically important, so, you know, it's obviously it's what pens have been full historically, but now, I don't know whether you've been over to the district seems done. I really encourage everybody to do so, but it's, it's a while, and when you combine that with the transit, I think it's now. I think it's why you're here, the excitement, Glenn's voice, and it's why the pipeline still so significantly.
Unknown Executive: All right. Thank you.
Speaker Change #100: All right, thank you. I think one thing I would just add, Nick, I think we talk about this, I think it's important, right? The access to transit, which we sit on top of, is just critical, right? And we are the most connected sub-market.
Glen Weiss: I think one thing I would just add, Nick. I think when we talk about this, I think it's important, right? The access to transit, which we sit on top of, is just critical, right? I mean, we are the most connected sub-market. And when you look at some of the tenants and where they are attracting their employees from, you know, that access is just critically important. So, you know, it's, you know, it's obviously why Penn's been full historically.
Speaker Change #101: and when you look at some of the tenants and where they are attracting their employees from.
Speaker Change #102: you know that access is just critically important so you know it's it's you know it's obviously it's what Penn's been full historically but now I don't know whether you've been over to the district and seen it done
Glen Weiss: But now, I don't know whether you've been over to the district and seen it done. I really encourage everybody to do so. But it's a big, big wow. And when you combine that with the transit, I think it's now, I think it's why you hear the excitement in Glen's voice, and it's why the pipeline's built so significantly.
Speaker Change #102: I really encourage everybody to do so but it's it's a wow and and when you combine that with the transit I think it's now I think it's why you hear the excitement in Glen's voice and it's why the pipeline's built so significantly.
John Kim: Thanks. Thank you, and our next question today is a follow up from John Kim of BMO couple markets, please go ahead. Thank you. I just wanted to get back to somebody Broadway, understand your under confidentiality agreement, but just to help us understand the market dynamics and demand a little bit better.
Speaker Change #102: Thanks.
Speaker Change #103: Thank you. And our next question today is a follow-up from John Kim of BMO Capital Markets. Please go ahead.
John Kim: Thank you. I just wanted to get back to 770 Broadway. I understand you're under a confidentiality agreement.
John Kim: Can you share what industry the tenant or users in, whether or not it's a tech user, and if this includes expansionary space in Manhattan? I'm very sorry, but we can't say anything more than we've already said. Okay, but it is a lease, right? No, no, no sale. I'll say that again. Thank you. Sorry.
John Kim: But just to help us understand the market dynamics and demand a little bit better, can you share what industry the tenant or user is in, whether or not it's a tech user, and if this includes expansionary space in Manhattan?
Speaker Change #104: I'm very sorry but we can't we can't say anything more than we've already said.
Speaker Change #105: Okay, but it is a lease, right? Not a sale?
Steve Sackwell: I'd reiterate what Steve just said. I said that's all we're going to say and I'll say that again. Thank you. Sorry. That gives you a reason to tune in for the next couple of calls, John .
Unknown Attendee: Sorry
John Kim: I'll give you a reason to tune in for the next couple of calls, John. Thank you.
Dylan Burzinski: And our next question today comes from Dylan Burzinski with Green Street. Please go ahead.
Steve Sackwell: Thank you. And our next question today comes from Dylan Burzinski with Green Street. Please go ahead.
Dylan Burzinski: Steve, I think in your prepare marks, you mentioned potential or potential transactions to repatriate more portions of the preferred equity in the Times Square joint venture. Are you able to share any details that, you know, what this is? Is it potential sales or the recapitalizations? Both of those are in play. So the answer is, is, first of all, that will end up with about a billion and a half of preferred. After the unit was sale completes, if a, first of all, the instrument is dollar good. It's supported by very valuable collateral. Secondly, that it is a source of liquidity for us.
Steven Borenstein: Steve, I think in your prepared remarks, you mentioned potential or potential transactions to repatriate more portions of the preferred equity in the Times Square joint venture. Are you able to share any details as to what this is? Is this potential sales? Are there recapitalizations?
Dylan Brzezinski: Steve, I think in your prepared remarks, you mentioned potential or potential transactions to repatriate more portions of the preferred equity in the Times Square joint venture. Are you able to share any details as to, you know, what this is? Is this potential sales, other recapitalizations?
Steven Borenstein: Both of those are in play. So the answer is, first of all, we'll end up with about a billion and a half of preferred. First of all, the instrument is dollar good, supported by very valuable collateral. Secondly, we are in the process of working on portions of that billion and a half.
Speaker Change #106: Both of those are in play. So the answer is, first of all, we'll end up with about a billion and a half of preferred.
Speaker Change #106: After the UNIQLO sale completes.
Speaker Change #106: are
Speaker Change #106: If any...
Speaker Change #107: First of all, the instrument is dollar good. It's supported by very valuable collateral.
Stephen Roth: So we've been asked to both of which we are in process of working on for portions of that billion and a half.
Speaker Change #107: that it is a source of liquidity for us either through sales or refinancing, both of which we are in process of working on for portions of that billion and a half.
Stephen Roth: And then I don't think you guys touched on this yet, but we're curious appetite for share repurchases given what the shares are today. So what was the question? Share repurchase appetite.
Unknown Attendee: And then, I don't think you guys have touched on this yet, but...
Speaker Change #108: And then, I don't think you guys touched on this yet, but the curious appetite for share repurchases, given where the shares are today.
Stephen Roth: So, you know, I was very excited in the teens. There is, there is, there is an incredible value still. But in the source, with a particular capital allocation at the price of the shares today, that's not our primary objective. We have set the hand when we have other capital allocation priorities.
Speaker Change #109: What was the question? Share repurchase.
Speaker Change #110: Well, you know, I was very excited in the teens.
Speaker Change #110: There is incredible value still.
Speaker Change #110: But in the source, with respect to our capital allocation, at the price of the shares today, that's not our primary objective.
Stephen Roth: So right as of right now, the program is stormed. Thank you.
Speaker Change #110: We have debt to handle, we have other capital allocation priorities, so as of right now, the program is dormant.
Brendan Lynch: Thank you. And our next question today comes from Brendan Lynch with Barclays. Please go ahead.
Brendan Lawrence: And the next question today comes from Brendan Lawrence with Barclays.
Brendan Lawrence: Please go ahead. Great. Thank you for taking my question. If I recall correctly, a few quarters ago, you engaged in the expanded group of brokers to pull and demand to the bend district from other markets around the country. Can you discuss how that initiative is contributing to at least saying you're today and how it's impacting the pipeline now?
Speaker Change #110: Thank you. And our next question today comes from Brendan Lynch with Barclays. Please go ahead.
Brendan Lynch: Great. Thank you for taking my question. If I recall correctly, a few quarters ago, you engaged an expanded group of brokers to pull in demand to the Penn District from other markets around the country. Can you discuss how that initiative is contributing to leasing year-to-date and how it's impacting the pipeline now?
Michael Franco: We brought in cushion and Wake field. You know, at the beginning of this year, they've been a very good add to our team. It's certainly a strengthen, you know, our outreach across the country as you suggest and in the city. So we've been very pleased with them and their additive performance; our crew.
Unknown Executive: We brought in Cushman and Wakefield, you know, at the beginning of this year. They've been a very good addition to our team, certainly to strengthen, you know, our outreach.
Speaker Change #112: We brought in Cushman & Wakefield at the beginning of this year. They've been a very good add to our team. It certainly has strengthened our outreach.
Brendan Lynch: across the country, as you suggest, and in the city. So we've been very pleased with them and their additive performance to our crew.
Michael Franco: Great. Thank you.
Michael Franco: That was my only question.
Michael Franco: Thank you.
Steve Sakwa: And the next question comes from Steve Sackwell with a before I saw it.
Speaker Change #113: Great, thank you. That was my only question.
Steve Sakwa: Please go ahead. Yeah, thanks. Just want to follow up.
Speaker Change #113: Thank you. And our next question comes from Steve Sakwa with Epicore ISI. Please go ahead.
Michael Franco: I think last quarter you guys had talked about earnings probably bottoming in 24 and then moving higher in 25. I know there's a lot of moving pieces, and interest rates will play a big factor.
Steve Sackwell: Yeah, thanks just one follow-up. I think last quarter you guys had talked about earnings probably bottoming in 24 And then you know moving higher in 25. I know there's a lot of moving pieces and
Michael Franco: Is that still the case, or is it possible that maybe with timing of leases at Two Pen and capitalization burning offset that earnings could still be down next year with more of an inflection point late in 25 into 26? Steve, it's honestly early to give you much visibility there. I think our comments still hold, but as you can tell from Uniqlo 7, tell you the other thing, there's a lot of moving pieces going on right now. And those are the only things we've talked about. So I just think it's too preliminary to give you that view because, based on some of those things that may impact whatever I tell you now.
Steve Sackwell: [inaudible]
Speaker Change #115: You know, Steve, it's honestly early to give you much visibility there. I mean, I think our comments, you know, still hold, but as you can tell from UNIQLO, 770, other things, there's a lot of moving pieces going on right now.
Speaker Change #115: and those are the only things we've talked about so I just think it's too preliminary to give you that view because based on some of those things it may it may impact you know whatever I tell you now so I think it's I think that's a good working assumption and you know we just have to wait as we get closer towards the end of the year.
Michael Franco: So I think I think it's a good work and assumption, and, you know, we just have the ways we get closer towards the end of the year.
Stephen Roth: Thank you. And this includes our question and the intercession.
Stephen Roth: I'd like to turn the call back over to Steven Roth for closing remarks. Thank you all for participating. I think you could tell from the call, the questions, and the numbers that we published. The large emphasis on leasing leasing is very, very, very healthy in New York. And we feel that we're on the foothills of a very, very good market, and we're very excited. The pen project, especially, is number one on our hit parade. And if you all haven't been down there recently, you should go down, take a look around, see what's going on, what we've done.
Speaker Change #115: Thank you. And this concludes our question and answer session. I'd like to turn the call back over to Stephen Roth for closing remarks.
Unknown Executive: Thank you all for participating. I think you could tell from the call, the question. And the numbers that we published, there's a large emphasis on leasing. Leasing is very, very, very healthy in New York. The Penn Project, especially, is number one on our hit parade, and if you all haven't been down there recently, you should go down, take a walk around, see what's going on, what we've done, and that'll give you a reason why Glenn's tenant activity is increasing geometrically.
Speaker Change #115: The call, the questions...
Speaker Change #116: and the numbers that we published, there's a large emphasis on leasing. Leasing is very, very, very healthy in New York.
Steven Roth: And we feel that we're on the foothills of a very, very good market, and we're very excited.
Speaker Change #117: The Penn project especially is number one on our hit parade and if you all haven't been down there recently you should go down take a walk around see what see what's going on what we've done and that'll give you a reason for why Glen's tenant activity is increasing geometrically.
Stephen Roth: And that'll give you a reasonably wide lens. In fact, pen and activity is exceeding geometrically. Thanks very much. Thank you.
Operator: Ladies and gentlemen, this includes today's conference. Thank you for your participation.
Operator: Thank you. Ladies and gentlemen, this concludes today's conference.
Steven Roth: Thanks very much.
Speaker Change #118: Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect your lines and have a wonderful day.
Operator: You may now know how to select your audience and have a wonderful day.