Q3 2024 Alexander's Inc Earnings Call

Dom Swinson, Kelsea Ballantyne, Charles Hamilton, Stan Lee WINNER Robert Hempstead, Jeff Tuber, Dan Burnham, Gina Rhodes, Wayron Hill, 판big Carlos Carlitis, Peter Robbins, Dolly Parton,

Operator: Good day, welcome to the Vornado Realty Trust Q3 2024 Earnings Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your touch-tone phone. To withdraw your question, please press star and then 2. Please note this event is being recorded. I would now like to turn the conference over to Steven Borenstein, Senior Vice President and Corporate Counsel. Please go ahead.

Speaker Change: Good day and welcome to the Vornado Realty Trust third quarter 2024 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

After today's presentation, there will be an opportunity to ask questions.

To ask a question, you may press star, then 1 on a touch-tone phone.

To withdraw your question, please press star and then 2.

Speaker Change: Please note, this event is being recorded.

Speaker Change: I would now like to turn the conference over to Steven Borenstein, Senior Vice President and Corporate Counsel. Please go ahead. Welcome to Barnato Realty Trust's third quarter earnings call. Yesterday afternoon we issued our third quarter earnings release and filed our quarterly report on Form 10-Q with the Securities and Exchange Commission.

Steven Borenstein: Welcome to Vornado Realty Trust Third Quarter Earnings Call. Yesterday afternoon, we issued our Q3 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.vno.com, under the investor relations section. In these documents and during today's call, we will discuss certain non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP measures are included in our earnings release, Form 10-Q, and financial supplements. 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: These documents, as well as our supplemental financial information packages, are available on our website, www.bno.com, under the Investor Relations section.

In these documents and during today's call, we will discuss certain non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP measures are included in our earnings release, Form 10-Q, and financial supplement.

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.

Steven Borenstein: Please refer to our filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended 31 December 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. On the call today from management for our opening comments are Steven Roth, Chairman and Chief Executive Officer, and Michael Franco, President and Chief Financial Officer. Our senior team is also present and available for questions. I will now turn the call over to Steven Roth.

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 statement.

Speaker Change: On the call today from management for our opening comments are Steven Roth, Chairman and Chief Executive Officer, and Michael Franco, President and Chief Financial Officer.

Speaker Change: Our senior team is also present and available for questions. I will now turn the call over to Steven Roth Thank you, Steven. Good morning, everyone

Steven Roth: Thank you, Steven. Good morning, everyone. Today is Election Day in America, an extra importance since this is a once in 4-year presidential election. Election Day is arguably the single most important day in the calendar of our democracy. Early voting participation seems to indicate that this year's turnout will be a record, and that's great. Enough said. Now to business. I've been saying for the past few quarters that the office leasing market in Manhattan is at the foothills of recovery, and I think that's becoming more and more apparent. While Manhattan has over 400 million square feet of office space, we compete in a much smaller, say, 180 million square foot market of the Class A better buildings, where demand is strong and vacancies are rapidly evaporating.

Steven Roth: Today is election day in America and extra important since this is a once in four year presidential election. Election Day is arguably the single most important day in the calendar of our democracy.

Steven Roth: early voting participation seems to indicate that this year's turnout will be a record and that's great

Steven Roth: And I said, now to business.

Speaker Change: I've been saying for the past few quarters that the office leasing market in Manhattan is at the foothills of recovery, and I think that's becoming more and more apparent.

Speaker Change: While Manhattan has over 400 million square feet of office space, we compete in a much smaller, say 180 million square foot market of the class A better buildings, where demand is strong and vacancies are rapidly evaporating.

Steven Roth: Look at Park Avenue and Sixth Avenue, now with 7% and 9% Class A vacancy, which is the very definition of a landlord's market. The icing on the cake is that there is no sign of additional office supply on the horizon. There hasn't been a major new office start in 5 years. The cost of building and the cost of capital make it totally uneconomic to build. If history is a guide, no new supply always begets a landlord's market. As Michael and Glenn will comment in a moment, our rents are going up. I am extremely optimistic, and the stock market seems to agree. Year to date, we have leased 2.5 million square feet company-wide, including 2.1 million square feet in Manhattan.

Speaker Change: We'll get Park Avenue and 6th Avenue now with 7% and 9% Class A vacancy.

Steven Roth: which is the very definition of a landlord's market.

Steven Roth: And the item on the cake is that there is no sign of additional oil to supply on the horizon. There hasn't been a major new office start in five years. The cost of the building and the cost of capital make it totally uneconomic to build.

Speaker Change: Mystery is a guide, no news supply, always forget the landlord's pocket.

Steven Roth: As Michael and Glenn will comment in a moment, our rents are going up.

I am extremely optimistic and the stock market seems to agree.

Steven Roth: Years to date, we have leased 2.5 million square feet company-wide, including 2.1 million square feet in Manhattan.

Steven Roth: As Michael and Glenn will cover, activity is robust, I am confident that we will sign between 3.5 and 3.8 million square feet of Manhattan leases this year, which would rank at number 2 in our history. On the last call, we made mention of a deal under lease at 770 Broadway. I'm pleased to report we have agreed to a transaction with NYU for 770 Broadway. NYU will master lease the entire 1.1 million square foot office component, which excludes the likeness, with an option to purchase in the 30th year and the 70th year. The master lease will provide for an upfront payment of prepaid rent sufficient to pay off our $700 million loan on the property, as well as an annual net rent over the lease term.

Steven Roth: As Michael and Glenn will cover, activity is robust and I am confident that we will sign between 3.5 and 3.8 million square feet of Manhattan leases this year, which would rank number two in our history.

Steven Roth: On the last call, we made mention of a deal on the exit of 770 Broadway. I'm pleased to report we have agreed to a transaction with NYU for 770 Broadway. NYU will master lease the entire 1.1 million square foot office component, which excludes the license.

Steven Roth: with an option to purchase in the 30th year and the 70th year.

Steven Roth: Mass Belize will provide for an upfront payment of prepaid rent sufficient to pay off our $700 million loan on the property, as well as an annual net rent over the lease term.

Steven Roth: Both parties have signed a detailed letter of intent and expect to execute final binding papers shortly. I expect the closing and rent commencement would occur in January. We are delighted to expand our relationship with NYU. Our liquidity is a strong $2.6 billion, with 1 billion of cash on balance sheet. Our cash will shortly be augmented by over $1 billion from the Uniqlo sale, NYU prepaid rent, and the redemption for cash of over $500 million of our street retail preferred for proceeds of an in-process 1535 Broadway financing. Note that between Uniqlo and 1535, we will have redeemed about half of the preferreds. We will pay off our $450 million January 2025 bonds in January. We have well more than enough cash on the balance sheet to complete our leasing program for Penn One and Penn Two.

Steven Roth: Both parties have signed the detailed letter of intent and expect to execute final binding papers shortly.

Steven Roth: I expect the closing and then commencement would occur in January. We are delighted to expand our relationship with NYU.

Steven Roth: Our liquidity is a strong $2.6 billion, with $1 billion of cash on balance sheet.

Steven Roth: Our cash will shortly be augmented by over a billion dollars from the UNIQLO sale, NYU prepaid rent, and the redemption for cash of over 500 million dollars of our street retail preferred for proceeds of an in-process 1535 Broadway financing.

Steven Roth: Note that between UNIQLO and 1535 we will have redeemed about half of the preferreds.

Steven Roth: We will pay off our $450 million January 25 bonds in January.

Steven Roth: We have well more than enough cash on balance sheet to complete our leasing program for PEN1 and PEN2. And remember we have no debt on Farley, PEN1 and PEN2.

Steven Roth: Remember, we have no debt on Farley, PENN1, and PENN2. Regarding our 350 Park Avenue site, arguably the very best site on Park Avenue. We are well along with the Norman Foster architectural firm in completing the design of the 1.8 million square foot tower that we will build with Citadel, who will be our major tenant, and with Ken Griffin as our 60% partner. At PENN15, the former Hotel Penn site at 33rd Street and Seventh Avenue, directly across from PENN2, is now down to grade and ready for development. I believe this site in the heart of our PENN District and directly connected to Penn Station is the single best site available in booming West Side of Manhattan. We own one asset in San Francisco, the trophy 1.5 million square foot 555 California Street.

Steven Roth: regarding our 350 Park Avenue site, arguably the very best site on Park Avenue.

Steven Roth: We are well along with the Norman Foster architectural firm in completing the design of the 1.8 million square foot tower That we will build with Citadel who will be our major tenant and with Ken Griffin as our 60% partner

Steven Roth: At Bed 15, the former Hotel Penn site, at 33rd Street and 7th Avenue, directly across from Bed 2.

Steven Roth: is now down to grade and ready for development.

Steven Roth: I believe this site, in the heart of our Penn District, and directly connected to Penn Station, is the single best site available in booming west side of Manhattan.

Steven Roth: We own one asset in San Francisco, the trophy of 1.5 million square foot, 555 California Street.

Steven Roth: In a city of tech buildings, which are struggling with citywide vacancy of 36% and declining rents, this dominant financial services building, its performance is quite remarkable. This year, we will lease 443,000 square feet at average starting rent of $110. Occupancy in the tower is 98.7%, and we haven't lost a single large tenant in all of the years of our ownership. We have a history of owning the very best retail sites, read Fifth Avenue and Times Square, and bringing exciting retailers to town, read H&M. We announced this quarter an important deal to bring Primark to the PENN District on 34th Street. This will be their flagship store in America. Hats off to the Federal Reserve, who seem to have beaten down inflation and engineered a soft landing. Having said that, for now, borrowing rates remain stubbornly high and not accretive to real estate values.

Steven Roth: in a city of tech buildings which are struggling with city-wide vacancy at 36% and declining rents. This dominant financial services building.

Steven Roth: Its performance is quite remarkable. This year we will lease 443,000 square feet at average starting rent of $110.

Steven Roth: Occupancy in the tower is 98.7% and we haven't lost a single large tenant in all of the years of our ownership.

Steven Roth: We have a history of owning the very best retail sites. Read Fifth Avenue and Times Square, and bringing exciting retailers to town. Read H&M.

Steven Roth: We announce this quarter an important deal to bring Primark to the Penn District on 34th Street. This will be their flagship store in America.

Speaker Change: That's all for the Federal Reserve, who seem to have beaten down inflation and engineered a soft landing.

Speaker Change: Having said that, the now-borrowing rates remain stubbornly high and not accretive to real estate values.

Steven Roth: Capital to refinance maturing loans on over-leveraged assets is simply not available, other than from the incumbent lender. Through it all, the economy's growing, and our occupiers are expanding, and that's a very good thing. 731 Lexington Avenue, the Bloomberg headquarters tower, is owned by Alexander's, Inc., of which Vornado is external manager and one-third owner. In Q1, we extended the Bloomberg lease to 2040. In Q3, we refinanced the maturing loan on the Bloomberg HQ building. Alexander's, Inc. paid the loan down by $100 million to $400 million from cash on its balance sheet. The low LTV $400 million loan was rated all Triples A's, enabling us to achieve a 5% interest rate, by far the lowest we have heard of in this cycle.

Speaker Change: And capital to refinance maturing loans on overleveraged assets that are simply not available other than from the incumbent lender.

Speaker Change: But through it all, the economy is growing and our occupiers are expanding, and that's a very good thing.

Speaker Change: Thank you.

Speaker Change: 731 Lexington Avenue, the Bloomberg headquarters tower, is owned by Alexander's Inc., of which Renato is external manager and one-third owner.

Speaker Change: In the first quarter, we extended the Bloomberg lease to 2040.

Steven Roth: In the third quarter, we financed a maturing loan on the Bloomberg H2 building.

Steven Roth: Alexander's paid the loan down by $100 million to $400 million from cash on his balance sheet.

Steven Roth: The low LTV $200 million loan was great at all AAA's, enabling us to achieve a 5% interest rate, by far the lowest we have heard of in this cycle.

Steven Roth: The Triple A rating, together with the quality of the credit and the quality of the building, led to the offering being eight times oversubscribed. This refinancing will save Alexander's $17 million a year. We are open to buying the acquisitions market, but very selective on the hunt for good assets at distressed prices. No business as usual here. In this cycle, lenders seem to be working out their troubled over-leveraged problems with their existing borrowers, with few high-quality distressed assets coming to market. Having said that, this quarter, we did acquire a $50 million loan in default on a very interesting Midtown site. We will keep hunting. While our business is substantially better and improving, we continue to be rigorous with cash management. We will likely pay approximately the same dividend as last year, $0.68, in a single dividend paid in December.

Steven Roth: The AAA rating, together with the quality of the credit and the quality of the building, led to the offering being eight times over-subscribed. This refinancing will save Alexander $70 million a year.

Steven Roth: with few high-quality distressed assets coming to market. Having said that, this quarter we did acquire a $50 million loan in default on a very interesting midtown site.

Steven Roth: We will keep on thinking.

Steven Roth: While our business is substantially better and improving, we continue to be rigorous with cash management. We will likely pay approximately the same dividend as last year, 68 cents.

Steven Roth: We expect to carry over to next year the same dividend policy of a single dividend payable at year-end. This strategy has been understood and endorsed by our major shareholders. I expect as conditions normalize, so will our dividend. Lastly, if you are a Vornado investor, you must tour our PENN District, and I do mean must, and I do mean tour, not just drive by. If you last visited 6 months ago, you must visit again. It's changed that much, that quickly. The building architecture of PENN One and PENN Two, the size, extent, and quality of the amenities, and the plazas and public spaces have all received universal acclaim from commentators, brokers, and occupiers alike. This was a team effort led by our senior leaders, Glen Weiss and Barry Langer, who deserve the Gold Star Award.

Steven Roth: in a single dividend paid in December. We expect to carry over to next year the same dividend policy with a single dividend payable at year end.

Steven Roth: This strategy has been understood and endorsed by our major shareholders.

Steven Roth: I expect, as conditions normalize, so will our dividends.

Steven Roth: Lastly, if you are a Veneto investor, you must tour our Penn District, and I do mean must.

Steven Roth: And I do mean tour, not just drive-by.

Steven Roth: If you last visited six months ago, you must visit again. It's changed that much, that quickly.

Steven Roth: The building architecture of Pen 1 and Pen 2, the size, extent, and quality of the amenities, and the plazas and public spaces have all received universal acclaim from commentators, brokers, and occupiers alike.

Steven Roth: This was a team effort led by our senior leaders, Glenn Weiss and Barry Lager, who deserve the Gold Star Award.

Steven Roth: We are on budget here and achieving higher rents than projected, and so we will expect the returns shown on our financial statement to improve. Now over to Michael to cover our financials and the market.

Steven Roth: We are on budget here and achieving higher rates than projected, and so we will expect the returns shown on our financial statement to improve.

Speaker Change: Now we'll go to Michael to cover our financials and the market.

Michael Franco: Thank you, Steve. Good morning, everyone. As expected, the financial results for Q3 were down from last year due to items that we previously forecasted. Q3 comparable FFO as adjusted was $0.52 per share compared to $0.66 per share for last year's Q3. This decrease was primarily attributable to lower NOI from known move-outs, largely at 770 Broadway, 1290 Avenue of the Americas, and 280 Park Avenue, and higher net interest expense, both of which we have previously discussed. We have provided a quarter-over-quarter bridge in our earnings release and in our financial supplement. Our outlook for comparable FFO for 2024 hasn't changed in the past couple of quarters. That being said, with the pending lease at 770 Broadway, we already have approximately 75% of the aforementioned vacant space from the move-out spoken for. Turning to leasing markets.

Michael Franco: Thank you, Steve, and good morning, everyone. As expected, the financial results for the quarter were down from last year due to items that we previously forecast.

Michael Franco: Third quarter comparable FFO as adjusted was 52 cents per share compared to 66 cents per share for last year's third quarter.

Michael Franco: This decrease was primarily attributable to lower MOI from known move-outs, largely at 770 Broadway, 1290 Avenue of the Americas, and 280 Park Avenue, and higher net interest expense, both of which we have previously discussed. We have provided a quarter-over-quarter bridge in our earnings release and in our financial supplement.

Michael Franco: Our outlook for comparable FFO for 2024 hasn't changed in the past couple of quarters.

Michael Franco: That being said, with the pending lease at 770 Broadway, we already have approximately 75% of the aforementioned vacant space from the move-out spoken for.

Michael Franco: The tide has clearly shifted in the New York Class A office market. Leasing activity is strong and gaining momentum, and availabilities are declining, particularly for large blocks of space. Manhattan's leasing volume during the first three quarters of 2024 totaled 23.1 million sq ft, and it looks like full-year activity will surpass 30 million sq ft for the first time in five years. Strong demand for Class A space near transit, coupled with limited quality blocks of space, is resulting in rents rising and concessions beginning to tick down. Core Midtown vacancy for the better buildings, as defined by CBRE, is down to around 10%, with Park Avenue around 7% and Sixth Avenue at 9%. New headquarter deals are also back, with more mega transactions greater than 700,000 sq ft signed this year than any year since 2019.

Lisa Marquez: Now turning to Lisa Marquez.

Lisa Marquez: The tide has clearly shifted in the New York Class A office market.

Michael Franco: Leasing activity is strong and gaining momentum and availabilities are declining, particularly for large blocks of space.

Lisa Marquez: Manhattan's leasing volume during the first three quarters of 2024 totaled 23.1 million square feet and it looks like full year activity will surpass 30 million square feet for the first time in five years.

Lisa Marquez: Strong demand for Class A space near transit, coupled with limited quality blocks of space, is resulting in rents rising and concessions beginning to tick down.

Michael Franco: For Midtown vacancy for the better buildings as defined by CBRE is down to around 10% with Park Avenue around 7% and 6th Avenue at 9%.

Michael Franco: The headquarter deals are also back with more mega transactions greater than 700,000 square feet signed this year than any year since 2019.

Michael Franco: During Q3, 10 leases of 100,000 sq ft or greater were signed. With little availability in the new trophy product, tenants have been keenly focused on what remains available in recently redeveloped buildings, which have undergone extensive transformations. Penn Two is perfectly positioned to capture this large tenant demand. Turning now to our portfolio. In Q3, we leased approximately 740,000 sq ft of office space across our three markets. In our New York business, we have now leased more than 2 million sq ft in 68 transactions during the first 9 months of 2024 at an average starting rent of $112 per sq ft.

Michael Franco: During the third quarter, 10 leases of 100,000 square feet or greater were signed.

Michael Franco: With little availability in the new Trophy product, tenants have been keenly focused on what remains available in recently redeveloped buildings which have undergone extensive transformations.

Michael Franco: PEN2 is perfectly positioned to capture this large pen demand.

Michael Franco: Turning now to our portfolio.

Michael Franco: In the third quarter, we leased approximately 740,000 square feet of office space across our three markets.

Michael Franco: In our New York business, we have now leased more than 2 million square feet in 68 transactions during the first nine months of 2024 and an average starting rent of $112 per square foot.

Michael Franco: During the Q3 in our New York office portfolio, we completed 454,000 sq ft of leasing across 18 transactions at starting rents of $92 per sq ft. We closed on a 297,000 sq ft renewal with Google at 85 10th Avenue, solidifying this property as one of Midtown South's best and an important piece of Google's Meatpacking District campus, and reaffirming their long-term commitment to New York. We have a unique window into tech sector activity, given our leading position as landlord to the big 4 technology companies in New York, as well as many others. As we indicated on our last call, tech sector demand is coming back strong in New York, and we have more in the works in our portfolio, particularly in PENN.

Michael Franco: We closed on a 297,000 square foot renewal with Google at 85 Tenth Avenue, solidifying its property as one of Midtown South's best and an important piece of Google's meat-packing district campus, and reaffirming their long-term commitment to New York.

Michael Franco: We have a unique window into tech sector activity, given our leading position as landlord to the big four technology companies in New York, as well as many others. And as we indicated on our last call, tech sector demand is coming back strong in New York, and we have more in the works in our portfolio, particularly in Penn.

Michael Franco: At PENN One, we leased 70,000 square feet at an average starting rent of $119 per square foot, led by our 55,000 square foot new headquarters lease with Roivant Sciences. These are historic rents for this building and the PENN District and validate our original redevelopment thesis. Since we commenced the transformation of PENN One, we have now completed more than 1 million feet of leasing at $92 per square foot, with a significant mark-to-market increase. We are well on our way to achieving our original aspirations as the PENN District campus continues to attract new tenants from across the city at ever-increasing rents. Our market leading amenity rich offerings, coupled with our complete transformation of the entire neighborhood, has put our properties in the leasing bullseye for tenants seeking high quality space.

Michael Franco: At Penn One, we lease 70,000 square feet and an average starting rent of $119 per square foot, led by our 55,000 square foot new headquarters lease with Voivint Sciences.

Michael Franco: These are historic rents for this building and the Penn District and validate our original redevelopment thesis.

Michael Franco: Since we commenced the transformation of Penn One, we have now completed more than 1 million feet of leasing at $92 per square foot, with a significant mark-to-market increase.

Michael Franco: We are well on our way to achieving our original aspirations as the Penn District Campus continues to attract new tenants from across the city at ever-increasing rents.

Michael Franco: Our market-leading, amenity-rich offerings, coupled with our complete transformation of the entire neighborhood, has put our properties in the leasing bullseye for tenants seeking high-quality space.

Michael Franco: Our reported New York office cash mark-to-market for the quarter was a -7%, that's not the real story. This is because several of the leases signed at Penn One during the quarter are for space that has been vacant for more than nine months and therefore is not considered "second generation relet space" used to calculate our reported mark-to-market statistics. Additionally, the quarter included a 297,000 square foot lease, 148,000 feet of share, where we exchanged a tenant improvement allowance for a reduction in rent. As indicated on page 17 of our financial supplement, if you were to include these leasing transactions in our cash mark-to-market statistics, the -7% would be a +17.9%. Including the lease at 770 Broadway, which Steve mentioned, our New York pipeline is robust and consists of 2.8 million square feet of leases in various stages of negotiation.

Michael Franco: A reported New York office cash mark to market for the quarter was a negative 7%.

Michael Franco: But that's not the real story. This is because several of the leases signed at PEN1 during the quarter for space that has been vacant for more than nine months and therefore is not considered quote, second-generation relapsed space, quote.

Michael Franco: used to calculate our reported mark-to-market statistics.

Michael Franco: Additionally, the quarter included a 297,000-square-foot lease, 148,000 feet of share, where we exchanged a tenant improvement allowance for a reduction in rent.

Michael Franco: As indicated on page 17 of our financial supplement, if you were to include these leasing transactions in our cash mark-to-market statistics, the negative 7% would be a positive 17.9%.

Michael Franco: including the lease at 770 Broadway, which Steve mentioned.

Michael Franco: A New York pipeline is robust and consists of 2.8 million square feet of leases in various stages of negotiation.

Michael Franco: This includes multiple tenant headquarter deals at our transformed Penn Two. We currently project to finish 2024 with almost 3.8 million square feet leased across our portfolio, which would be our highest volume since 2014 and at our highest average starting rents ever. Our current office occupancy is 87.5%, down from 89.3% last quarter, primarily due to the previously announced Meta expiration at 770 Broadway. The easiest money we can make is filling up our empties. As occupancy rises, our earnings will go up. With the pending full building master lease at 770, our office occupancy increases by 330 basis points to 90.8%. Depending on the timing of future lease transactions, our office occupancy will likely decrease in Q1 2025 as the vacant space at Penn Two is placed into service.

Michael Franco: This includes multiple tenant headquarter deals at our transformed Penn-2. We currently project to finish 2024 with almost 3.8 million square feet leased across our portfolio, which would be our highest volume since 2014 and at our highest average starting rent ever.

Michael Franco: Our current office occupancy is 87.5%, down from 89.3% last quarter, primarily due to the previously announced meta-expiration at 770 Broadway.

Michael Franco: The easiest money we can make is filling up our empties.

Michael Franco: As occupancy rises, our earnings will go up. With a pending full building master lease at $770, our office occupancy increases by 330 basis points to 90.8%.

Michael Franco: Depending on the timing of future lease transactions, our office occupancy will likely decrease in first quarter 2025 as the vacant space at PEN2 is placed into service. We anticipate that this decrease will be temporary, and as PEN2 stabilizes, we get to the 93s.

Michael Franco: We anticipate that this decrease will be temporary, and as Penn Two stabilizes, we get to the 93s. Turning to San Francisco at Five Five Five California, we closed a 46,000 square foot renewal and expansion deal with Wells Fargo during the quarter, and currently have renewals out for another 283,000 square feet. Our leasing program at Five Five Five is by far outpacing the entire market as leading financial services companies continue to be attracted to the property's premier quality and to our new Five Five Five work life amenity program, similar to what we have done in New York. While tenant concessions are up here too, every one of our renewal rentals has been positive mark-to-market or flat in an otherwise weak San Francisco office market, demonstrating the unique cachet of this trophy property.

Michael Franco: Turning to San Francisco at 555 California, we closed a 46,000 square foot renewal and expansion deal with Wells Fargo down the corridor and currently have renewals out for another 283,000 square feet.

Michael Franco: A leasing program at 555 is by far outpacing the entire market as leading financial services companies continue to be attracted to the property's premier quality and to our new 555 Work Life Amenity program, similar to what we have done in New York.

Michael Franco: Well, tenant concessions are up here, too. Every one of our renewal rentals has been positive mark-to-market or flat in an otherwise weak San Francisco office market.

Michael Franco: demonstrating the unique cachet of this trophy property.

Michael Franco: At The Mart in Chicago, we closed on 15 leases during the quarter, totaling 239,000 sq ft, headlined by an important expansion and renewal with Medline, a worldwide leader in the healthcare industry for 161,000 sq ft. Medline's enormous growth in Chicago is particularly noteworthy, and the transaction is a major bright spot for both us and the overall market. The Mart continues to outperform the market and attract top-tier tenants, driven by our strong debt-free sponsorship and recent amenity additions, which have reaffirmed its leading position in the marketplace. Turning to the capital markets now. While the financing markets remain challenging for office, we are beginning to see some encouraging signs.

Michael Franco: At the Mart in Chicago, we closed on 15 leases during the quarter, totaling 239,000 square feet, headlined by an important expansion and renewal of Medline, a worldwide leader in the healthcare industry for 161,000 square feet.

Michael Franco: Medline's enormous growth in Chicago is particularly noteworthy and the transaction is a major bright spot for both us and the overall market.

Michael Franco: The Mark continues to outperform the market and attract top-tier tenants, driven by our strong debt-free sponsorship and recent amenity additions, which have reaffirmed its leading position in the marketplace.

Michael Franco: Turning to the capital markets now.

Michael Franco: While the financing markets remain challenging for office, we are beginning to see some encouraging signs. While banks remain out of the market, the CMBS market has reopened for Class A New York City office buildings.

Michael Franco: While banks remain out of the market, the CMBS market has reopened for Class A New York City office buildings, as evidenced by our recent $400 million financing on 731 Lex office at 5.04%, the lowest rate achieved for a CMBS office financing post-COVID, and a $3.5 billion financing for Rock Center and $750 million financing for 277 Park Avenue. There are several billion dollars more in the pipeline. These financings show investors are once again constructive on office and assets can get financed in size, albeit on conservative metrics and loan structures. With short-term rates finally coming down and the SOFR forward curve projected to come down significantly over the next year, both the financing markets and borrowing rates should continue to improve and value should follow. The investment sales market is also beginning to perk up.

Michael Franco: as evidenced by our recent 400 million dollar financing on 731 Lex office at 5.04 percent.

Michael Franco: the lowest rated chief for CBS office finance in post-COVID.

Michael Franco: and the $3.5 billion financing for Roth Center and $750 million financing for 277 Park Avenue.

Michael Franco: and there are several billion dollars more in the pipeline. These financings show investors are once again constructive on office and assets can get financed in sizes, albeit on conservative metrics and loan structures.

Michael Franco: With short-term rates finally coming down, and the SOFR forward curve projected to come down significantly over the next year, both the financing markets and borrowing rates should continue to improve, and values should follow.

Michael Franco: There have been a number of older obsolete buildings sold to residential converters, which will take supply out of the market. The first Class A building sold this cycle, 799 Broadway, was recently put under contract at a 5% cap rate for $255 million, or $1,400 per square foot, which is strong pricing. Our balance sheet is in excellent condition with strong liquidity of $2.6 billion, including $1 billion of cash and restricted cash and $1.6 billion undrawn under our $2.17 billion revolving credit facilities. We have taken care of all of our significant 2024 maturities and are making good progress on the 2025 maturities. Despite the success we've had recently in extending our loans with existing lenders or refinancing our loans in the midst of this more challenging environment, we do still have a handful of assets that are over-levered.

Michael Franco: The investment sales market is also beginning to perk up. There have been a number of older obsolete buildings sold to residential converters, which will take supply out of the market.

Michael Franco: And the first class A building sold this cycle, 799 Broadway, was recently put under contract at a 5% cap rate for $255 million, or $1,400 per square foot, which is strong pricing.

Michael Franco: Our balance sheet is in excellent condition, with strong liquidity of $2.6 billion, including $1 billion of cash and restricted cash, and $1.6 billion undrawn under our $2.17 billion revolving credit facility.

Michael Franco: We have taken care of all of our significant 2024 maturities and are making good progress on our 2025 maturities.

Michael Franco: Despite the success we've had recently in extending our loans with existing lenders or refinancing our loans in the midst of this more challenging environment, we do still have a handful of assets that are overleveraged. Most of these assets do not contribute to our FFO right now and have little to no equity value.

Michael Franco: Most of these assets do not contribute to our FFO right now and have little to no equity value. We will maintain our discipline, and unless these loans are restructured on terms that allow us to put the assets on sound footing, similar to what we previously negotiated at 280 Park and St. Regis Retail, we will not invest any more capital in these assets. The non-recourse nature of these loans provides us with this option. With that, I will turn it over to the operator for Q&A.

Michael Franco: We will maintain our discipline, and unless these loans are restructured on terms that allow us to put the assets on sound footing, similar to what we previously negotiated at 280 Park and St. Regis Retail, we will not invest any more capital in these statuses.

Michael Franco: Thank you.

Operator: We will now begin the question and answer session. Our first question comes from John Kim with BMO Capital Markets. Please go ahead.

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

Speaker Change: We will now begin the question and answer session.

Speaker Change: To ask a question, you may press star, then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. At the same time, your question has been addressed and you would like to withdraw your question, please press star and then two.

Speaker Change: Our first question comes from John Kim with BMO Capital Markets. Please go ahead.

John Kim: Good morning. Steve, you mentioned the leasing activity that you've done year to date, two and a half nine square feet. What you anticipate for the remainder of the year, which sort of implies another 1 to 1.3 million. Does that include NYU lease or is that separate?

John Kim: Good morning. Steve, you mentioned the leasing activity that you've done year-to-date, two and a half million square feet, and what you anticipate for the remainder of the year, which sort of implies another

John Kim: one to 1.3 million. Does that include the NYU lease or is that separate?

Michael Franco: Yes, it does.

John Kim: Okay. Can you provide any more details on that, when the lease or occupancy starts at 770 Broadway? I know it's a structured deal with the upfront payment and the purchase option, but how does the overall rent compare to the $150 that's in place today?

Speaker Change: Yes it does.

Michael Franco: Can you provide any more details on that when the lease or occupancy starts at 770 Broadway? And I know it's a structured deal with the upfront payments and the purchase option, but how does the overall rent compare to the $115 that's in place today?

Michael Franco: Well, the upfront prepaid rent is significant, and therefore there's a small tail of value that rent will cover. It's substantially lower. It's not $100 a foot. When you take into account the prepaid rent and capitalize that as a value, the rent is approximately the number you have in your mind.

Michael Franco: Thank you. Bye-bye.

Speaker Change: Well, the upfront prepaid rent is significant.

Speaker Change: and therefore there's a small tale of value.

Speaker Change: that the rent will cover. So it's substantially lower, not $100 a foot.

Speaker Change: But when you take into account the prepaid rent and capitalize that as a value, the rent is approximately the number you have in your mind.

John Kim: When does occupancy start?

Speaker Change: and many others. Thank you. Thank you.

Michael Franco: Say that again.

Speaker Change: And when does Occupancy start?

John Kim: The occupancy of the building. When does that contribute to FFO?

Speaker Change: Say that again?

Speaker Change: The occupancy of the building, when does that contribute to FSO? The closing is expected to be in January. The rent will commence in January. The funds will transfer in January. So the action will be completed. The papers will be signed immediately.

Michael Franco: The closing is expected to be in January. The rent will commence in January. The funds will transfer in January. The action will be completed. The papers will be signed imminently. The closing will be in January.

Speaker Change: The closing will be in January.

John Kim: Great. Thanks. My second question, I know I asked multiple questions the first time, but second question is on the Mart. You had increased leasing and occupancy went up. The rents have come down compared to where it was last quarter. Is that your strategy going forward is to kind of build up occupancy with reduced rents?

Speaker Change: Great, thanks. And my second question, I know I asked multiple questions in the first time, but second question is on the MART.

Speaker Change: You had increased leasing and occupancy went up. The rents have come down compared to where it was last quarter. Is that your strategy going forward is to kind of build up occupancy with reduced rents?

Michael Franco: The key to the Mart is, first of all, it's an extraordinary building. Second of all, the Chicago market is soft to very soft. The most important strategic point in the Mart is the Mart is now unencumbered and free and clear. It's one of the very few buildings in Chicago that is well-capitalized. It's the strongest financial building in the Chicago area, and that gives us an enormous amount of strategic flexibility. We will rent the building opportunistically as deals that we think are attractive come along. We're performing better than any other building in the market. As the Chicago market improves, as it will, we will ramp up the leasing.

Speaker Change: The key to the bar is, first of all, it's an extraordinary building. Second of all, the Chicago market is soft, very soft.

Speaker Change: The most important strategic point in the Mart is that the Mart is now unencumbered and free and clear.

Speaker Change: So it's one of the very very few buildings in Chicago that is well capitalized It's the strongest financial building in the Chicago area and that gives us an enormous amount of strategic flexibility

Speaker Change: So, we will rent the building opportunistically as deals that we think are attractive come along.

Michael Franco: You know, we're performing better than any other building in the market. As the Chicago market improves, as it will, we will ramp up the leasing.

Operator: The next question comes from Steve Sakwa with Evercore ISI. Please go ahead.

Speaker Change: And the next question comes from Steve Sackwa with Evercore ISI. Please go ahead.

Steve Sakwa: Yeah. Thanks. Good morning. Maybe just following up on John's question on just leasing. If we strip out the NYU lease, that sounds like there's a couple of 100,000 to maybe 400,000 feet of other leasing. Can you maybe just speak to the pipeline and the activity that you're seeing at Ten Two today? Has that pipeline changed at all? What's your confidence level of getting some leases signed at Ten Two before the end of the year? Thanks.

Steve Sackwa: Can you maybe just speak to the pipeline and the activity that you're seeing at PEN2 today? Has that pipeline changed at all? And what's your confidence level of getting some leases signed at PEN2 before the end of the year? Thanks.

Glen Weiss: Hi, Steve. It's Glenn. There's actually a lot more leases out over and above the NYU deal. Six, 700,000 feet of paper, we have leases in negotiation. All of which I expect to close during Q4, number one. Number two is relates to the Ten Two pipeline. It is robust with many important transactions. We expect to go to lease two or three of those during Q4 two. We are in full swing

Speaker Change: Hi Steve, it's Glenn. So there's actually a lot more leases out over and above the NYU deal.

Michael Franco: six, 700,000 feet of paper. We have leases in negotiation.

Michael Franco: all of which I expect to close during the fourth quarter number one.

Michael Franco: Number two, it's released to the PENTU pipeline. It is robust with very, you know, many, many important transactions. We expect to go to at least two or three of those during 4Q. We are in full swing.

Glen Weiss: As less and less blocks are available in the market, particularly of this type of quality at this location, with the amenity program we put together, we're now in fifth gear and more to come.

Michael Franco: You know, as you know, less and less blocks are available in the market, particularly of this type of quality at this location with the amenity program we've put together. We're now in fifth year and more to come.

Michael Franco: I just want to add both John's comments and your comments in play. There's not that much more to leasing when you add in what we've done year to date adding NYU. I think the math you guys are doing is inaccurate. I think both Steve and I commented, we expect to do as much as $3.8 million. That's in New York. We've signed about 2 to 1 year to date through Q3. If you take out NYU, as Glenn said, there's another $600,000 plus in papers, and the pipeline's deeper beyond that. I think you're hearing a level of enthusiasm and confidence from us that is sort of as high as it's been in a long time, given the activity we have.

Speaker Change: I just want to add a couple of both John's comments and your comments implied you know there's not that much more policing when you add in what we've done year-to-date adding NYU I think I think the math you guys are doing is

Michael Franco: is inaccurate, right? I think both Steve and I commented, we...

Michael Franco: expect to do as much as $3.8 million, and that's in New York, right? We've signed about two to one year to date through three quarters. So if you take out NYU, as Glenn said, there's another $600,000 plus in papers, and the pipeline's deeper beyond that.

Michael Franco: I think you're hearing a level of enthusiasm and confidence from us that you know is sort of as high as it's been a long time given the activity we have.

Steve Sakwa: Great. Thanks for that clarification, Michael. Maybe second question, Steve. I think last quarter after the Uniqlo sale, you mentioned you may explore some other street retail sales. Just where are you on that front, and has your thinking changed at all, and has the appetite from some of the luxury retailers changed at all?

Speaker Change: Great, thanks for that clarification, Michael. Maybe second question, Steve, I think last quarter after the Uniqlo sale you mentioned you may explore...

Michael Franco: and some other street retail sales, just kind of where are you on that front and has your thinking changed at all and has the appetite from some of the luxury retailers changed at all?

Steven Roth: The appetite continues to be strong. We have no news to report in that regard. I think the interesting thing is that, and I said it in the script, that by the end of this year or into January, we will have monetized half of the $1.8 billion retail preferred at par. If you remember back a year or so ago, analysts were predicting that the preferred was worth substantially less than par. The big story this quarter is the balance sheet. We're monetizing the balance sheet. We will increase our cash balances by more than $1 billion very shortly. We will pay off $450 million of our bonds. For example, the NYU deal reduces our debt by $700 million. When you put it all together, Michael, what's the math?

Michael Franco: By the end of this year, or into January, we will have monetized half of the $1.8 billion retail preferred at par.

Speaker Change: So if you remember back a year or so ago, analysts were predicting that the preferred was worth substantially less than par. So the big story this quarter is the balance sheet. So we're monetizing the balance sheet.

Speaker Change: We will increase our cash balances by more than a billion dollars very shortly. We will pay off $450 million of our bonds.

Speaker Change: and we will end up, for example, the NYU deal reduces our debt by $700 million. So when you put it all together, Michael, what's the math?

Michael Franco: I think we'll end up paying off a little over $1.1 billion of debt and increased cash on our balance sheet north of $600 million.

Michael Franco: You know, I think we'll end up paying off a little over a billion won of debt and increased cash on our balance sheet north of $600 million.

Glen Weiss: That's very substantial. We're definitely in fighting mode. With respect to selling more of the retail, which was I think your main question, there is activity. The retail values have been validated multiple times, and we will react opportunistically to opportunities as they come along.

Michael Franco: So that's very substantial, so we're definitely in fighting mode.

Michael Franco: with respect to selling more of the retail, which was I think your main question.

Michael Franco: There is activity. The retail values have been validated, validated multiple times, and we will react opportunistically to opportunities as they come along.

Operator: The next question comes from Floris van Dijkum with Compass Point. Please go ahead.

Speaker Change: And the next question comes from Floris Van Dyck with Compass Point. Please go ahead.

Floris van Dijkum: Hey, morning guys. Following up on Steve's question on retail. I don't think there was a lease that was executed in Q3 on your retail portion. Can you talk a little bit about the demand for retail? I know you talked about Primark coming to the Penn District. What are the plans on your big Macy's store? Is that a long-term project or is there anything more near term coming for that space?

Speaker Change: Hey, morning guys

Speaker Change: Following up on Steve's question on retail, I don't think there was a lease that was executed in the third quarter on your retail portion. Can you talk a little bit about the demand for retail? I know you talked about Primark coming to the Penn District. Also, what are the plans on your big Macy's store? Is that a long-term project or is there anything more near-term coming for that space?

Michael Franco: Floris, good morning. I would tell you, and I think you've heard this from us the last few quarters. The demand from retailers is up pretty significantly from the lows. We continue to see good demand across the portfolio. We're hard at work, obviously leasing PENN. I think bringing Primark to the district is a big win. They're excited. We're excited. We're in discussions on other retailers to bring into the district, which will continue to enhance the district. We're very pleased about that. Times Square has seen a big pickup in activity. We have a lot of discussions going there with respect to our 1540 asset. As we look at the pipeline, there's pretty good activity across the board.

Speaker Change: Lars, good morning. You know, I would tell you, I think you've heard this from us the last few quarters, right? The demand from retailers, you know, is up pretty significantly from the lows.

Speaker Change: We continue to see good demand across the portfolio. We're hard at work, obviously, leasing Penn. I think bringing Primark to the district is a big win. They're excited. We're excited. We're in discussions on other retailers to bring into the district, which will continue to enhance the district.

Michael Franco: We have some vacancies, the rollover, I should say, coming up on Fifth Avenue in the next couple of years, and there's dialogue there too, but that's not as imminent. I would say, again interest is up, activity up, and importantly, rents have firmed, and retailers are doing the sales that give them confidence to transact. These deals take a while. These are big commitments, particularly on the two main blocks, or submarkets, I should say, at Fifth and Times Square, the interest level continues to be there.

Speaker Change: But I would say, again, interest is up, activity up, and importantly, you know, rents affirmed, and retailers are doing the sales that give them confidence to...

Speaker Change: to transact. So, you know, these deals take a while. These are big commitments, particularly on the two main blocks or sub-markets I should say, a fifth and Times Square, but the interest level continues to be there.

Glen Weiss: I would add that the Primark deal, it's a big deal. Coming into the Penn District, it's a fabled store. It will do great business. It's a flagship. It's a big deal. The occupancy numbers that we publish for retail are actually, the story behind that is, I think we published that our occupancy is what, Tom?

Speaker Change: I would add that the Primark deal is it's a big deal coming into the Penn District. It's a it's a fabled store. It will do great business. It's a flagship. It's a big deal.

Speaker Change: The occupancy numbers that we publish for retail are actually

Speaker Change: The story behind that is, I think we published that, our activity is what, Tom?

[Company Representative] (Vornado Realty Trust): It's 77%, 78%.

Steven Roth: Okay. That includes the Manhattan Mall vacancies. If you take those out, you get to very close to 90%. Actually, we're pretty well leased in comparison, above the market occupancies. The way I look at it, we're really 90% leased in the retail, not 78%.

Tom: it's 77, 78%. Okay, but that includes the, but not more vacancies. And if you take those out.

Tom: then you get to very close to 90 percent. So, actually, we're pretty well leased in comparison, above the market occupancies. And the way I look at it, we're really 90 percent leased in the retail, not 78 percent.

Steven Roth: That's the way I look at the retail. As Michael said, there is strong demand in retail. Retail is certainly in much better shape than it was a couple of years ago.

Michael Franco: Let me clarify. You mentioned Macy's. We don't have a Macy's in that.

Speaker Change: With all due respect to the year, I believe...

Floris van Dijkum: Yeah, I meant the Manhattan Mall, of course. I apologize.

Speaker Change: Let me clarify, you mentioned Macy's, we don't have a Macy's in Albuquerque. Yeah, I meant the Manhattan Mall, of course. I apologize. Yeah, we figured that out. Thanks, Warren.

Michael Franco: That's all right.

Steven Roth: Yeah. We figured that out. Thanks for it.

Michael Franco: I think Steve alluded to that in terms of the occupancy. We have continued to put temp tenants in that space. Right now, we actually have Netflix doing a "Squid Game" pop-up, which I hear is quite popular, and we'll continue to do that. On that space, which is big, a bit more complex, the math doesn't work to do anything permanent today. I think that's probably going to be the case for some time. I wouldn't lay up asleep with night assuming that's going to get done in the next few months. We're thinking through some broader plans there and that's a little bit more atypical space.

Speaker Change: So, you know, I think Steve alluded to that in terms of the occupancy. You know, we have continued to put temp tenants in that space. Right now, we actually have Netflix doing a squid.

Speaker Change: the

Speaker Change: Big, a bit more complex.

Speaker Change: We're thinking through some broader plans there, and that's a little bit more atypical space.

Floris van Dijkum: Great. Maybe a follow-up question. Your stock is trading an implied cap rate of around 6%. How do you think about raising equity and what needs to happen for you to be willing to do that at this point, particularly as you think about your potential investment opportunities out there as well?

Speaker Change: Great. Maybe a follow-up question.

Speaker Change: Your stock is trading an implied cap rate of around 6%. How do you think about raising equity and what needs to happen for you to be willing to do that at this point?

Speaker Change: particularly as you think about your potential investment opportunities out there as well.

Steven Roth: That's a fascinating question. First of all, we are very well capitalized. I think I said 3 or 4 minutes ago that we're bringing $1 billion of new cash in for paying down our debt. Our balance sheet is extremely strong. We have all of the firepower that we think we need for the foreseeable future. Our capital requirements to complete our lease up in PENN 1 and PENN 2 and across the board are already in cash on our balance sheet without doing any more financing. We have the lion's share of our assets in PENN 1, PENN 2, and Farley, where we have Meta, are all unfinanced. We're extremely liquid and well capitalized.

Speaker Change: That's a fascinating question. First of all, we are very well capitalized. I think I said

Speaker Change: three or four minutes ago, that we're bringing a billion dollars of new cash in, we're paying down our debt. Our balance sheet is extremely strong and we have all of the firepower that we think we need for the foreseeable future.

Speaker Change: Our capital requirements to complete our lease up in PED 1 and PED 2 and across the board are already in cash on our balance sheet without doing any more financing.

Speaker Change: We have the lion's share of our assets in PEN, PEN1, PEN2, and Farley, where we have Meta, are all unfinanced, so we're extremely liquid and no capitalized.

Steven Roth: The cap rate that you mentioned is interesting, but when I do the math, I look at what the business looks like when we complete leasing and we get back to the 96%, 97% occupancy that we have traditionally had. We will get there for sure. May take a year, may take 2 years. I look at the business with all of that income coming in, and if you look at that, we really don't need any equity. For the moment, we have no plans of issuing equity, although we are being pounded by bankers who want to write a ticket and sell stock to us, but it's really not something that we think is strategically important for the moment. If opportunities present themselves, which are super accretive and not dilutive to our current shareholders, we'll consider that. We're not in the business of diluting our shareholders.

Speaker Change: The cap rate that you mentioned is interesting, but

Speaker Change: occupancy that we have traditionally had. We will get there for sure. It may take a year, it may take two years. So I look at the business with all of that income coming in and if you look at that we really don't need any

Speaker Change: We really don't need any equity. So for the moment.

Speaker Change: We have no plans of issuing equity.

Speaker Change: All four of us are being pounded by bankers who want it.

Speaker Change: ought to write a ticket and sell stock to us, but it's really not.

Speaker Change: something that we think is strategically important for the moment.

Speaker Change: if opportunities present themselves which are super creative.

Speaker Change: and not dilutive to our current shareholders, we will consider that. But we're not in the business of diluting our shareholders.

Operator: The next question comes from Dylan Burzinski with Green Street. Please go ahead.

Speaker Change: And the next question comes from Dylan Brzezinski with Green Street Capital. Please go ahead.

Dylan Burzinski: Hi, guys. Thanks for taking the question and appreciate your comments on after the 1535 transaction closes on monetizing half of the preferred equity in Street Retail JV. I guess, are there any other transactions or should we expect for you guys to monetize the remaining half of that preferred equity position over the near term? Do you guys feel like most of the low-hanging fruit there is come to pass after this most recent announcement?

Dylan Brzezinski: Thank you. Thank you.

Dylan Brzezinski: Hi, guys. Thanks for taking the question.

Dylan Brzezinski: and appreciate your your comments on on after the 1535 transaction closes on monetizing half of half of the preferred equity industry retail JD but I guess

Dylan Brzezinski: Are there any other transactions or should we expect for you guys to monetize the remaining half of that preferred equity position over the near term or do you guys feel like most of the sort of the low-hanging fruit there is it's come to pass after this most recent announcement?

Steven Roth: Well, we're actually very pleased with the H1 of monetizing that preferred at par. We have no current plans to attack the H2. That's opportunistically, and we'll see how things go. As I said pretty extensively a moment ago, we are in a very strong capital position. We feel that we have sufficient equity, although we have the opportunity to raise more equity if we wanted it or need it. We don't think at the moment we want it, nor do we think we need it. The other half of the preferred is something that we're very happy holding. As the markets turn, the income coming in on that preferred now exceeds the rate of interest that we could earn on short-term debt. We're pretty okay with it.

Speaker Change: Well, we're actually very pleased with the first half of monetizing that's referred at PAR. We have no current plans to attack the second half.

Speaker Change: That's opportunistically and we'll see how things go.

Dylan Brzezinski: As I said pretty extensively a moment ago, we are in a very strong capital position and we feel that we have significant equity, although we have the opportunity to raise more equity if we wanted it or need it, but we don't think at the moment we want it, nor do we think we need it.

Dylan Brzezinski: So the preferred is, the other half of the preferred is something that we're very happy holding.

Dylan Brzezinski: As the markets turn, the income coming in on that deferred now exceeds the rate of interest that we could earn on short-term debt, so we're pretty okay with it.

Michael Franco: Thanks for the details, Steve. Just maybe one more, if I can. On the B-note acquisition, the $50 million, I mean, curious, can you kind of talk about your guys' plans there? I know the note is currently in default along with the A-note at the property. I mean, is there plans to sort of go after this, if so, can you kind of just talk about it a little bit more?

Speaker Change: Thanks for watching!

Speaker Change: Thanks for the detail Steve and then just maybe one more if I can on the B note acquisition the 15 million dollars I mean curious can you kind of talk about your guys's plans there and I know the note is currently in default as well along with the a note at the property I mean is there plans to sort of go after this and if so can kind of just talk about a little bit more

Steven Roth: I wish I could, but it's really not appropriate. First of all, it's a very small investment. Second of all, it is interesting, and you'll learn more about that over the next quarters. It has multiple different alternative ways that this thing could go. It will possibly result, maybe even likely result in litigation. It's a very interesting thing, a very interesting site, and it's really not appropriate to talk about it at this call.

Speaker Change: You know, I wish I could, but it's really not appropriate. So, first of all, it's a very small investment. Second of all, it is interesting, and you'll all learn more about that over the next quarters.

Speaker Change: It has multiple different alternative ways that this thing could go.

Speaker Change: possibly result maybe even likely result in litigation and it's just it's a very interesting thing very interesting site and it's really not appropriate to talk about it at this call.

Dylan Burzinski: Okay. Makes sense. Thanks again.

Speaker Change: Thanks for watching!

Operator: The next question comes from Alexander Goldfarb with Piper Sandler. Please go ahead.

Speaker Change: Okay, makes sense. Thanks again.

Speaker Change: And the next question comes from Alexander Goldfarb with Piper Sandler. Please go ahead.

Alexander Goldfarb: Morning. Steve, as one of those analysts who was questioning on the preferred, good to hear that you've made progress paying it off at par. Kudos to you and the team. Two questions. First, just following up on the preferred, I'm sorry, on the B-note purchase. Given its potentially litigation, it was in default. Can you provide any perspective on buying it at par versus discount? It would seem based on what you've described, that it should be a position that would trade at a discount, but clearly there's a rationale. Maybe you could just help us understand to what you can discuss.

Alexander Goldfarb: Morning and Steve, as one of those analysts who was questioning on the preferred, good to hear that you've made progress paying it off at par. So kudos to you and the team. Two questions. First, just following up on the preferred, I sorry, on the the B note purchase.

Speaker Change: You know, given it's potentially litigation, it was in default.

Speaker Change: Can you provide any perspective on buying it at par versus discount? It would seem based on what you've described that it should be a position that would trade at a discount, but clearly there's a rationale. So maybe you could just, you know, help us understand to what you can discuss.

Steven Roth: Well, thank you for the compliment, Alex. That's very nice. Thank you. We appreciate it. With respect to the B-note, I'm really not going to say any more than we have. Obviously, I'm a famously difficult buyer, and we paid par because we thought we were getting value and we were getting a position in the asset. Other than that, I don't have anything to add.

Speaker Change: I'm a famously difficult buyer, and we paid PAR because we thought we were getting value and we were getting a position in the asset. So other than that, I don't have anything to add.

Alexander Goldfarb: Okay. The second question is, Steve, based on how you described 555 California, and you and others have described Park Avenue, it seems like the traditional office submarkets have been the leaders coming out of the pandemic and remain very strong. Just curious, years ago you talked about Manhattan tilting to the south and to the west, and yet right now everyone's flocking back to assets like 555 or Park Avenue. Can you just discuss if you think that perhaps going forward, future VNO investment is going to focus more on the traditional submarkets and less on the new frontiers? You think that this is just a moment in time and as the cycle recovers, those new frontier markets will once again have their place?

Alexander Goldfarb: Okay. The second question is, Steve, based on how you described 555 California and you and others have described Park Avenue, it seems like the traditional office sub-markets

Speaker Change: have been the leaders coming out of the pandemic and remain very strong. Just curious, years ago you talked about Manhattan tilting to the South and to the West.

Speaker Change: and yet right now everyone's blocking back to assets like 555 or Park Avenue.

Speaker Change: Can you just discuss if you think that perhaps going forward, you know, future vino investment is going to focus more on the traditional sub-markets?

Speaker Change: and Les on the new frontiers, or do you think that this is just a moment in time and as the cycle recovers, those new frontier markets will once again have their place?

Steven Roth: Alex, I wouldn't call the West Side of Manhattan when you take Hudson Yards and Manhattan West and the Penn District as a new frontier. That's now become a very established neighborhood. The demand from blue chip, double blue chip, triple blue chip tenants is established and validated. I think that the way I look at Manhattan, there's the traditional Midtown market, and then there's the newer, dare I say, better West Side market, which is actually booming. I think we don't really own a lot of stuff in the middle, but I think I have no problem with the West Side. I think the West Side is great if you're calling that new frontier. I don't think it's new frontier. I think it's very established by now.

Speaker Change: Hello.

Speaker Change: Alex, I wouldn't call for the west side of Manhattan when you take Hudson Yards and Manhattan West and the Penn District as a new frontier.

Speaker Change: And so I think that the way I look at Manhattan, there's the traditional midtown market, and then there's the newer, dare I say, better.

Speaker Change: West Side Market, which is actually booming.

Alexander Goldfarb: So, I think we don't really own a lot of stuff in the middle, but I think I have no problem with the West Side. I think the West Side is great if you're calling that new frontier. I don't think it's new frontier. I think it's very established by now.

Alexander Goldfarb: I was thinking more like Meatpacking, Chelsea, that area.

Speaker Change: I was thinking more like meatpacking Chelsea, that area.

Michael Franco: Alex, I think one of the dynamics that has happened in the last three, four months actually, is that the market's broadened back out again. Like Park Avenue is Park Avenue achieving historically high rents, which is fantastic. We benefit from that. We're excited about what's to come there with 350 Park. If you look at our pipeline it's broadened out. I think it's broadened out actually quite meaningfully. There's been a real uptick there, and I think that's what you're seeing broad-based strength in the market. I think that's an encouraging sign for the marketplace. We have activity across all of our assets. Meatpacking, Chelsea, all those assets, not just our top grade assets are seeing activity. Google just renewed at 85 Tenth. I don't think I would call those submarkets dead by any stretch of the imagination.

Speaker Change: Alex, I think one of the dynamics that has happened in the last three or four months actually is that the markets broadened back out again.

Speaker Change: So like Park Avenue is Park Avenue achieving historically higher rents, which is fantastic. We benefit from that.

Speaker Change: and we're excited about what's to come there with 350 Park.

Speaker Change: But if you look at our pipeline You know that it's broadened out. I think it's broadened out actually quite meaningfully There's been a real uptick there, and I think that's what you're seeing broad-based strength in the market So I think that's an encouraging sign for the marketplace. We have activity across all of our assets

Speaker Change: And so, you know, Meatpacking, Chelsea, all those assets, you know, not just ours.

Speaker Change: top-grade assets are seeing activity. So, you know, Google just renewed 85.10. So I don't think I would call those sub-markets dead by any stretch of the imagination. I think they're stronger than they've been in a while.

Michael Franco: I think they're stronger than they've been in a while.

Steven Roth: Those markets really are smaller buildings, smaller tenant markets. For example, we own a couple of buildings in the Chelsea Market. The rents are $150 a foot. The rents are higher there than they are at Park Avenue. New York is as Michael says, broadening out. Tenants want to go into various submarkets, and they're all pretty good.

Speaker Change: Those markets really are smaller building, smaller tenant markets, but for example, you know

Speaker Change: We own a couple of buildings in the Chelsea market. The rents are $150 a foot. The rents are higher there than they are at Park Avenue.

Speaker Change: So, New York is, uh, New York is, uh,

Speaker Change: as Michael said, broadening out, tenants want to go into various sub-markets and they're all pretty good.

Alexander Goldfarb: Good color. Thank you.

Speaker Change: Good color, thank you.

Operator: The next question comes from Jeffrey Spector with Bank of America. Please go ahead.

Speaker Change: Bye!

Speaker Change: And the next question comes from Jeff Spector with Bank of America. Please go ahead.

Jeffrey Spector: Great. Thank you, and congratulations on the quarter.

Jeff Spector: Great, thank you and congratulations on the quarter. Now just listening to the call, you know, you've discussed...

Steven Roth: Thanks, Jeff.

Jeffrey Spector: No problem. Yep. You've laid out a lot of drivers of growth. I'm just thinking about 2025. I know you have a deep team. Where are the priorities for 2025? Where do you see best time spent for opportunities?

Speaker Change: Thanks Jeff. Yep, you've laid out a lot of you know drivers of growth and I'm just thinking about you know 2025. I know you have a deep team. I mean where are the priorities for 2025 and where do you see best time spent for opportunities?

Jeffrey Spector: Michael, you want to take a shot at that?

Michael Franco: Sure. Good morning, Jeff, good to have you back on the front lines with us. In terms of priorities I think the number one priority continues to be like we've invested significant capital in Penn. I don't know if you've been there recently, it is transformed. It looks phenomenal, now it's a leasing game. Yeah. You heard the opening remarks, you heard Glenn talk about the activity being significant there. We just have to execute, right? We have to lease up Penn two, we have to continue to turn over Penn one. If we do that, and I'm confident we will, you're going to see significant growth coming out of Penn. I think you're going to see us continue to push rents up there. That is the easiest earnings growth we can generate.

Speaker Change: Michael, you want to take a shot at that? Sure.

Speaker Change: Good morning, Jeff, and good to have you back on the front lines with us.

Michael Franco: So, in terms of priorities,

Michael Franco: I think that the number one priority continues to be, like we've invested significant capital in Penn

Michael Franco: I don't know if you've been there recently, but it has transformed. It looks phenomenal, and now it's a leasing game.

Speaker Change: You heard in the opening remarks, you heard Glenn talk about the activity being significant there.

Michael Franco: you know, we just have to execute, right? We have to lease up Penn 2, we have to continue to turn over Penn 1, and if we do that, and I'm confident we will, you're going to see significant growth coming out of Penn, and I think you're going to see us continue to push rents up there. So, you know, that is the easiest

Michael Franco: Second is filling our vacancies elsewhere, which we're in the process of doing. Piece by piece, we have good activity across Manhattan. The markets Glenn talked about is a little more challenging market-wise, but the team is working hard there. I think what we've done in 555 with ones in process on is really, I think, breathtaking, honestly, if you focus on the stats. It's Penn, it's filling the balance, the vacancies. It's continuing to manage our balance sheet effectively. I think we've done a very good job of working through our maturities over the last two, three years, including some are challenging situations. We need to continue doing that. We've got a whole host of opportunities that are internal that we've got the seeds planted, we have to take the next step on, whether that's 350 Park, whether that's other opportunities in Penn.

Michael Franco: you know earnings growth we can we can generate we're going to you know second is filling our vacancies elsewhere.

Michael Franco: which we're in the process of doing.

Speaker Change: you know, piece by piece. We have good activity across Manhattan. You know, the Marty's Glen talked about, it's a little more challenging market-wise.

Speaker Change: But you know the team is working hard there, and I think what we've done in five five five what comes in process on

Speaker Change: is really, I think, breathtaking, honestly, if you focus on the stats. So, it's Penn, he's filling the balance of the vacancies.

Speaker Change: It's continued to manage our balance sheet effectively. I think we've done a very good job of working through our maturity over the last, you know, two, three years, including some of our challenging situations. We need to continue doing that.

Speaker Change: And then, you know, we've got a whole host of opportunities that are internal, that we've got the seeds planted and we have to, you know, take the next step on, whether that's 350 Park, whether that's other opportunities in Penn.

Michael Franco: We have a few assets internally beyond that are potentially repurposed or redevelopment assets that we are working on right now in terms of economics and when may be the right time there. Then lastly is, we're trolling the market for external opportunities. I think one of the disappointing things has been that there have been low quality office opportunities, and most of those are getting repurposed to other uses. There really have been very little in the way of high quality distressed office assets. We continue to troll. There will be some, but I don't think it's going to be a floodgate. We would like to be active at doing things on that front. We have a lot internally that we can execute on that will grow the value of this company significantly over the next several years.

Speaker Change: We have a few assets internally, but beyond that, that are potentially repurposed or redevelopment assets that we are working on right now in terms of

Speaker Change: economics and when may be the right time there. And then lastly is, you know, we're trolling the market for external opportunities and I think one of the disappointing things has been

Speaker Change: that there have been low quality office opportunities and most of those are getting repurposed to other uses, but there really have been.

Speaker Change: you know, very little in the way of high quality distressed office assets. So we continue to trawl. We think there will be some, but I don't think it's going to be floodgates.

Speaker Change: And so, you know, we would like to be active at doing things on that front. But, you know, we have a lot internally that we can execute on that will grow the value of this company significantly over the next several years.

Michael Franco: Some are going to take longer to realize given their development opportunities, but we think they're pretty unique. I think you can say, and I'm happy to say that our single focus is in creating value, being financially disciplined, and getting our stock price up to where we think the value is and where it should be. In order to do that, we need to keep leasing, we need to keep improving our balance sheet, and we need to focus on culling out assets that we don't want and turning them into cash. Continue to work on the assets, the very significant and great asset pool that we have, and creating more value out of that existing asset pool. Hopefully, we'll find external opportunities, but we have enough internal so that we can be very busy and create very significant increased values.

Speaker Change: Some are going to take longer to realize given their development opportunities, but we think they're pretty unique.

Speaker Change: I think you can say

Speaker Change: And I'm happy to say that our single focus is in

Speaker Change: creating value, being financially disciplined, and getting our stock price up to where we think the value is and where it should be.

Speaker Change: In order to do that, we need to keep leasing.

Speaker Change: We need to keep improving our balance sheet and we need to focus on on

Speaker Change: calling out assets that we don't want and turning them into cash and continue to work on the assets the very significant and great asset pool that we have and creating more value out of that existing asset pool.

Speaker Change: hopefully we'll find external opportunities but we have enough internal so that we can be very busy and create very significant increased values. But actually I'm all about the stock price.

Michael Franco: Actually, I'm all about the stock price.

Jeffrey Spector: Thanks. Very helpful. My second question, can you expand on your initial comments, Steven Roth, you mentioned it's a landlord's market. I understand that technically you're right between demand supply in your market. It's a fair comment. I guess, from a New York City office market standpoint, when we talk to brokers or others, right? We think about tenant allowances and free rent and more equilibrium there. More equilibrium in the market where, let's say, for the landlord, you'd be contributing less tenant allowances, free rent. How do you think about that? Can maybe just expand on that comment a little bit? Thank you.

Speaker Change: Thank you.

Speaker Change: Thanks, very helpful. And my second question, can you expand on your initial comments, Dave? You've mentioned it's a landlord's market.

Speaker Change: I understand

Speaker Change: you know, talk to brokers or others, right? We think about tenant allowances and free rent and...

Speaker Change: More equilibrium there or more equilibrium in the market where let's say for the landlord you'd be contributing less

Speaker Change: Tenant Lounge is free rent. I mean, it's how do you think about that and can you maybe just expand on that comment a little bit? Thank you

Michael Franco: Thank you. A good model is the retail industry over the last five or six or seven years. If you go back five or six years ago, retail was toxic. All retail was toxic. Whether it was malls or Fifth Avenue or the streets of any city. The feeling in the marketplace was that the internet shopping was going to demolish all physical brick and mortar shopping. The stocks got crushed, the values got crushed, and the attitude about retail was just toxic. The office industry has gone through very much the same thing over the last two or three or four years. COVID, work from home. Nobody's going to ever get off their kitchen table to come to the office. Well, all of that turns out to have It's all passing and passing very aggressively. There's two things or three things going on.

Speaker Change: Thank you. You know, a good model is the retail industry over the last five or six or seven years. So if you go back five or six years ago.

Speaker Change: Liddell was toxic.

Speaker Change: All retail was toxic, whether it was malls or 5th Avenue or the streets of any city.

Speaker Change: The feeling in the marketplace was that

Speaker Change: The Internet shopping was going to demolish all physical brick-and-mortar shopping and the stocks got crushed, the values got crushed, and the attitude about retail was, I mean, just toxic.

Speaker Change: The office industry has gone through very much the same thing over the last two or three or four years. COVID, work from home, nobody's going to ever get out of their kitchen, get off their kitchen table to come to the office. Well, all of that turns out to have, it's all passing and passing very aggressively.

Speaker Change: So, um...

Michael Franco: Number one, it's been established now people are coming back to work, and people want to come back to work, and people want to be in the big cities. The second thing is that the environment has basically shut down new supply. It's totally uneconomic. The cost of building has risen significantly, and the cost of capital has risen significantly, and it's sort of like money is not free anymore. Money is expensive. Building a new construction and new supply has shut down. Those are two very constructive things for our market. You can see if you look at Park Avenue, you look at Sixth Avenue, and you look even at the West Side of Manhattan.

Speaker Change: There's two things or three things going on. Number one, it's been established now people are coming back to work and people want to come back to work and people want to be in the big cities. The second thing is is that the

Speaker Change: The environment has basically shut down new supply. It's totally uneconomic. The cost of building has risen significantly, and the cost of capital has risen significantly.

Speaker Change: Money is not free anymore, money is expensive.

Speaker Change: So building a new construction and new supply has shut down. Those are two very very constructive things for our market

Speaker Change: You can see if you look at Park Avenue, you look at 6th Avenue, and you look even at the west side of Manhattan

Steven Roth: That the supply is good. The other thing is the market is bifurcated. There's 200 million square feet of B and C and D space in New York, and there's 200 million or 180 million square feet of better space and A space in New York. The customers that we deal with only want to be in the better space. That space is limited, the supply of that space, the vacancy in that space, is evaporating very quickly. For example, Park Avenue rents went from $80 a foot to $130 a foot almost overnight as the supply shrinks. That's the definition of a landlord's market. No supply, vacancies evaporating, and significant demand. The other thing is, I made mention of this in my paragraph about the Fed. There was speculation we were going to have a recession. There has been no recession.

Speaker Change: B and C and D space in New York and there's 200 million or 180 million square feet of better space at A space in New York.

Speaker Change: The customers that we deal with only want to be in the better space. That space is limited and the supply of that space, the vacancy in that space, is evaporating very quickly.

Speaker Change: So, for example, Park Avenue rents went from $80 a foot to $130 a foot almost overnight as the supply shrinks. So that's the definition of a landlord's market. No supply,

Speaker Change: There was speculation we were going to have a recession, there has been no recession, there has been a soft landing.

Steven Roth: There has been a soft landing, and our customers are enthusiastic and expanding, and that's a good thing. Most of our customers are enthusiastic about their space, and they want more space, and they want better space. That's a landlord's market.

Speaker Change: and our customers are...

Speaker Change: enthusiastic and expanding and that's a good thing. So most of our customers are enthusiastic about their space and they want more space and they want better space. That's a landlord's market.

Operator: The next question comes from Michael Griffin with Citi. Please go ahead.

Speaker Change: Thank you. Thank you.

Speaker Change: And the next question comes from Michael Griffin with Citi. Please go ahead.

Michael Griffin: Great. Thanks. Maybe going back to the PENN 2 leasing pipeline. I know historically that sub-market's been more focused on tech and media tenants. Just given maybe the limited availability that we've seen in more traditional financial services markets like Park and Sixth, is it fair to say that there's an increasing share of that leasing pipeline that's driven by financial services or some of those more traditional office space takers?

Michael Griffin: Maybe going back to the Pen-II leasing pipeline,

Speaker Change: Submarkets been more focused on

Michael Griffin: tech and media tenants. But just given maybe the limited availability that we've seen in more traditional financial services markets like park and six. Is it fair to say that there's an increasing share of that leasing pipeline that's driven by financial services or some of those more traditional office space takers?

Glen Weiss: Yeah, absolutely correct. All types of industry sector tenants are coming to PENN, both PENN 1 and PENN 2. They're flooding in. Law firms, financial, entertainment, tech, consulting, private equity, hedge funds. We're seeing a plethora activity from everybody. It's a game changer. I think partly that's due to the lack of quality space available in the market generally, but more importantly to what we've done with these buildings and what this neighborhood now feels like. It's powerful. They're all coming in and astounded by what we've done. They feel like PENN is part of this West Side, part of Manhattan West, part of Hudson Yards. We're now part of the New West Side. Not only that, we're at the doorstep right on top of transportation, which gives us a leg up on everybody else.

Speaker Change: Yeah, absolutely correct.

Speaker Change: So all types of industry sector tenants are coming to Penn, both Penn 1 and Penn 2, they're flooding in.

Speaker Change: Law firms, financial, entertainment, tech

Speaker Change: consulting, you know, private equity, hedge funds.

Speaker Change: We're seeing a plethora of activity from everybody, and it's a game-changer. I think partly that's due to the lack of quality space available in the market generally, but more importantly to what we've done with these buildings and what this neighborhood now feels like. It's powerful. They're all coming in astounded by what we've done, and they feel like Penn is...

Speaker Change: part of this West Side.

Speaker Change: part of Manhattan West, part of Hudson Yards. We're now part of the New West Side. And not only that, we're at the doorstep right on top of transportation, which gives us a leg up on everybody else. So it's all in full gear, and you're on point with what you said about Kennanside, for sure.

Glen Weiss: It's all in full gear, and you're on point with what you said about Penn insight for sure.

Michael Griffin: Thanks, Glenn. Appreciate the color there. Steve, I just want to go back to your comments on trying to pivot to acquisitions and external growth and going on offense in 2025. It seems like you have the balance sheet primed to do that. As you look at your opportunity set, is it more kind of on the distressed debt side? Would you prefer to purchase assets outright? Can you give us a sense of what you might be underwriting to in terms of return hurdles or from an IRR perspective? That would be great.

Speaker Change: Thank you.

Speaker Change: Thanks, Glenn. Appreciate the color there. And then, Steve, I just want to go back to your comments on trying to pivot to acquisitions and external growth and going on offense in 2025.

John Kim: It seems like you have the balance sheet primed to do that. But as you look at your opportunity set, is it more kind of on the distressed debt side? Would you prefer to purchase assets outright? And then can you give us a sense of what you might be underwriting to in terms of return hurdles or from an IRR perspective? That would be great.

Michael Franco: Griffin, it's Michael. We're an equal opportunist, whether it comes through the debt or outright asset purchase. We're open to both. It's obviously easier to buy the assets outright than having to work through the debt. In some cases, the opportunity is through the debt. I think a lot will be debt driven, whether it's lenders that collectively get together and want to short sell an asset or they want to sell a position. We're looking at a number of opportunities like that. Look, I think that as we think about deploying capital, this is not a growth for growth's sake, right? Where Steve said we're trying to do things that are going to increase the value of the enterprise over time. Our capital is precious, and we want to deploy that capital in a very attractive way.

Michael Franco: Griff, it's Michael. You know, we are, we're an equal opportunist, whether it comes through the debt or outright asset purchase, you know, we're open to both. It's obviously easier to buy the assets outright than having to work through the debt.

Michael Franco: Thank you. Thank you.

Michael Franco: But, you know, in some cases that the opportunity is to the debt. I think a lot, you know, will be debt driven, whether it's lends that collectively get together and want to short sell an asset or they, you know, want to sell a position. So, we're looking at a number of opportunities like that.

Michael Franco: Look, I think that if we think about deploying capital, you know, this is not a growth for growth's sake, right, where as Steve said, we're trying to do things that are going to increase the value of the enterprise.

Michael Franco: over time. And so, our capital is precious and we want to deploy that capital in a very attractive way. So, I'm not going to give you a specific return target, but, you know, these are not core buys that we're trying to focus on. We're trying to generate, you know,

Michael Franco: I'm not going to give you a specific return target, but these are not core buys that we're trying to focus on. We're trying to generate very attractive returns that can generate very attractive multiples over time. I would think that sort of value-added opportunistic sort of dynamic is at play here. That's probably as specific as I can get. Each deal has its own dynamics. We're not looking to put out money just to put out money. We want to make some serious profit as we deploy the capital.

Speaker Change: very attractive returns that can generate very attractive multiples over time and so

Speaker Change: You know, I would think that sort of value-added opportunistic sort of dynamic is at play here And that's probably as specific as I can get and each deal has its own dynamics But we're not we're not we're not looking to put out money just to put out money We want to we want to make some serious profit if we deploy the capital

Operator: The next question comes from Ronald Kamdem with Morgan Stanley. Please go ahead.

Speaker Change: And the next question comes from Ronald Camden with Morgan Stanley. Please go ahead.

Ronald Kamdem: Hey, just two quick ones. Just one on the, I think you made some comments about occupancy dipping in Q1 2025, but potentially ending at sort of 93% at the end of 2025, if I heard that correctly. Just curious what we should think about in terms of just the impact of same store and why. Any sort of comments on that would be helpful.

Ronald Camden: at sort of 93 percent at the end of next year, if I heard that correctly. Just curious what we should think about in terms of just the impact of Same Storm and why. Any sort of comments on that would be helpful.

Michael Franco: Ronald, good morning. I think difficult to give you that prediction right now. We're going through our budgets now. A lot of this stuff is timing driven, and I don't know that I can give you sort of this quarter versus that quarter, et cetera. I think you know sort of the end goal based on what we talked about in terms of at least the near term, and just hard to give you that visibility today.

Speaker Change: Oh, good morning.

Speaker Change: I think difficult to give you that prediction right now, you know, we're going through our budgets now, a lot of this stuff is timing driven. And, you know, I don't know that I can give you sort of this quarter versus that quarter, etc. I think, you know, sort of the end goal based on we talked about in terms of at least the near term, and, you know, just hard to give you that visibility today.

Ronald Kamdem: Okay, great. I guess my second question, just going back to the cash flow statement, looks like a good cash from operating quarter and so forth. How are you guys thinking about cash conversion as sort of the business recover? Is there anything that we should be mindful of, whether it's CapEx spending or anything else like that, as you're thinking about maximizing free cash flow as the business recovers? Thanks.

Speaker Change: Thank you. Bye-bye.

Speaker Change: Okay, great. I guess my second question, just going back to the cash flow statement, looks like a good cash from operating quarter and so forth, just how are you guys thinking about cash conversion as sort of the business recover? Is there anything that we should be mindful of, whether it's

Speaker Change: You know cap back spending or anything else like that as you're thinking about maximizing free cash flow as the business recovers. Thanks

Michael Franco: Look, our objective, our general approach is to be fairly rigorous with how we invest our capital. That includes on our existing asset base. We are deploying the capital where we see an appropriate return. If we don't see that opportunity, and I referenced that in my remarks, if we don't see an opportunity on an asset that has too much debt or until that debt is reworked, we're not going to do that, and I think we've demonstrated that in the past. We're going to continue to be rigorous. Capital's precious, notwithstanding the strength of the balance sheet. We hope that as we transition into the landlord's market, we will start to see concessions trend down some. I don't think it's going to drop to where it was years ago because inflation, the cost to build out space is higher.

Speaker Change: I mean like our objective, you know, our general approach is to be fairly rigorous with how we invest our capital, right, and that includes on our existing asset base. So, you know, we are deploying the capital where, you know, we see

Speaker Change: appropriate return if we don't see that opportunity you know and I referenced that in my remarks you know if we don't see an opportunity on an asset

Speaker Change: that has too much debt or until that debt is reworked.

Speaker Change: You know, we're not going to do that, and I think we've demonstrated that in the past. So we're going to continue to be rigorous.

Speaker Change: Capital's precious notwithstanding the strength of the balance sheet.

Speaker Change: and you know we hope that as we transition into the landlord's market you know we will start to see concessions trend down some. I don't think it's going to drop to where it was years ago because you know with inflation the cost to build up space is higher but we do think in the best sub markets that there will be an opportunity to start tightening that a bit.

Michael Franco: We do think in the best sub-markets that there will be an opportunity to start tightening that a bit.

Operator: The next question comes from Caitlin Burrows with Goldman Sachs. Please go ahead.

Speaker Change: Thank you. Bye bye.

Speaker Change: And the next question comes from Caitlin Burrows with Goldman Sachs. Please go ahead.

Caitlin Burrows: Hi. Good morning, everyone. Thanks for the comments earlier on the expected 2024 dividend and the policy for 2025. I guess I know the dividend's a board decision, but could you give some discussion maybe on what it would take to bring back the quarterly dividend?

Caitlin Burrows: Hi, good morning everyone. Thanks for the comments earlier on the expected 24 dividend and the policy for 25. I guess I know the dividends a board decision but could you give some discussion maybe on what it would take to bring back the quarterly dividend?

Michael Franco: What we did was totally based upon conserving cash and protecting our balance sheet. That was the genesis of the dividend policy that we adopted. Lower dividend, conserve the cash, pay it once at the end of the year. We canvassed a very significant number of our shareholders about that strategy, and universally, they endorsed it, protecting the balance sheet being the principal thing to do. As the business cycle changes and the availability of capital, as we get back into more normal times, we will then likely convert to a normal dividend policy a la what we had in the past. This is not necessarily a permanent strategy. It's an interim strategy to protect the balance sheet, which was very well received by our constituents.

Speaker Change: Now, what we did was totally based upon conservative cash.

Speaker Change: and protecting our balance sheet. That was the genesis of the dividend policy that we adopted.

Caitlin Burrows: Lower dividend, conserve the cash, pay it once at the end of the year.

Caitlin Burrows: We canvassed a very significant number of our shareholders,

Speaker Change: about that strategy and universally they endorsed it, protecting the balance sheet being the principal thing to do. As the business cycle changes

Speaker Change: and the availability of capital and we get back into more normal times we will then likely convert to a normal dividend policy a la what we had in the past.

Speaker Change: So this is not necessarily a permanent strategy, it's an interim strategy to protect the balance sheet, which was very well received by our constituents.

Caitlin Burrows: Got it. Okay. Maybe just on PENN2, given the leasing you've already done and knowing it takes time for users to move in and contribute to rent and FFO, could you give any detail on your expectation for PENN2 build up in 2025, like maybe the path to recognizing that 9.5% yield?

Speaker Change: Got it. Okay, and then maybe just on PEN2, given the leasing you've already done and knowing it takes time for users to move in and contribute to rent and FFO, could you give any detail on your expectation for PEN2 build up in 2025, like maybe the path to recognizing that nine and a half percent yield?

Michael Franco: I don't think you're going to see much in 2025 just because the leases Glen's working on now, those really won't start by the time the build-out occurs. That income really won't start kicking in until 2026. I think you'll see a lot of activity over the course of the remainder of this year, next year. I think in terms of it actually hitting earnings, I think it's going to be really as we start getting into 2026.

Speaker Change: I don't think you're going to see much in 25 just because, you know, the leases Glenn's working on now.

Speaker Change: Those really won't start by the time the build-out occurs, that income really won't start kicking in until 26.

Speaker Change: I think you'll see a lot of activity over the course of the remainder of this year and next year.

Speaker Change: But I don't think in terms of it actually, you know, hitting earnings, I think it's going to be really as we start getting into 26.

Operator: The next question comes from Nick Yulico with Scotiabank. Please go ahead.

Speaker Change: And the next question comes from Nick Ulico with Scotiabank. Please go ahead.

Nick Yulico: Thanks. Just wanted to go back to PENN15. I guess two questions there is on the leasing that was done, the 70,000 sq ft, which was at higher rent than prior leases. I think some of that was benefit from higher floor space. Can you just talk about the rent there versus how we should think about the additional rents still to come?

Nick Ulico: Thanks, just wanted to go back to you know, Penn, Penn One and

Nick Ulico: I guess two questions there is on the leasing that was done the 70,000 square feet which was at you know higher rent than prior leases I think some of that was benefit from you know higher floor space but you know can you just talk about like the the rent there versus how we should think about you know the additional rents still to come

Glen Weiss: Hi, it's Glen Weiss, Nick. How are you? We continue to increase the rents at PENN1. If you think about our starting rents quarter-to-quarter since we unleashed on the redevelopment, they continue to rise in a pretty strong way. Yes, one of the deals we made this past quarter was in the upper stack of the building at a huge rent. That's now allowed us to drag along the rest of the building where we've increased rents throughout. Similarly at PENN2, we've been very focused on our rental quotes. We've been increasing our quotes there as well. As we had predicted when we set forth on this whole PENN District transformation a few years ago, we had said rents will rise as the district gets better, and better, as the new tenants move in, as the action strengthens.

Nick Ulico: Hi, it's Glenn Weiss. Nick, how are you? So we continue to increase rent at 10.1.

Speaker Change: If you think about our starting rents quarter to quarter since we unleashed on the redevelopment they continue to rise

Speaker Change: I mean a pretty

Speaker Change: Strong way. So yes, one of the deals we made this past quarter was in the upper stack of the building at a huge rent And that's now allowed us to drag along the rest of the building where we've increased rents throughout

Speaker Change: similar to Penn too, we've been very focused on our rental quotes. We've been increasing our quotes there as well.

Speaker Change: So, as we had predicted when we set forth on this whole Penn District transformation a few years ago, we had said rents will rise as the district gets better, better, and better, as the new tenants move in, as the action strengthens, and it's exactly what's happening.

Glen Weiss: It's exactly what's happening. We expect that trend to continue as we go into 2025. Much of our activity we talked about in the pipeline is at Penn One and Penn Two and other Penn District holdings additionally. We think the best is yet to come, and we're really excited about it.

Speaker Change: So we expect that trend to continue as we go into 2025.

Speaker Change: Much of our activity we talked about in the pipelines at Penn 1 and Penn 2 and other Penn District holdings additionally. So we think the best is yet to come and we're really excited about it.

Nick Yulico: Okay. Thanks, Glen.

Michael Franco: You know we said we have leased 1 million feet post redevelopment. Therefore, we still have another 1.3 million, 1.4 million to go, right? I think that gives you a sense of the magnitude of the opportunity there. Now that's unlike PENN2, which is a lease-up execution. This is going to occur over the next several years, not all at once. We think there's a continued meaningful mark-to-market opportunity there. That's without rent continuing to rise, which if we start factoring in the rent that Glenn just did on PENN1 this past quarter, that's even more significant. This is an asset that we think is going to continue to deliver for us over time, given what we've done in the district.

Speaker Change: Okay, thanks Glenn. You know we said we have leased a million feet post redevelopment.

Speaker Change: And therefore, you know, we still have another, you know, million three, million four to go, right? So I think that gives you a sense of the magnitude of the opportunity there. Now that's unlike PEN2, which is a lease up

Speaker Change: execution right this is going to occur over the next several years not all at once

Speaker Change: And so we think there's a continued meaningful mark-to-market opportunity there, and that's without rents continuing to rise, which, if we start factoring in the rents that Glenn just did on Penn One...

Speaker Change: This past quarter, you know, that's even more significant. So, you know, this is an asset that we think is going to continue to deliver for us over time, given what we've done in the district.

Nick Yulico: Okay, thanks Michael. Second question is, I know there's been a lot of talk on the call about occupancy improving, and then Michael, you were also talking about some of the impacts for the Penn 2 leasing is more of 2026 impact. As we're thinking about 2025, I know you've said in the past the capitalized interest burn-off issue you have to deal with. How should we think about earnings growth next year? At some point, if there's a feel for when you're getting to sort of the bottom in terms of FFO, and you start to see some FFO growth based on the occupancy growth? Thanks.

Speaker Change: Okay, thanks. Thanks, Michael. Second question is just in terms of

Speaker Change: You know, I know there's been a lot of...

Speaker Change: talk on the call about, you know, occupancy improving and then, you know, Michael, you're also talking about some of the impact for the Penn II leasing is more of, you know, 2026 impact. But as we're thinking about 2025, I know you've said in the past the capitalized interest burn-off issue you have to deal with.

Speaker Change: How should we think about earnings growth next year, and at some point, if there's a feel for when you're getting to the bottom in terms of FFO, and you start to see some FFO growth based on the occupancy growth. Thanks.

Michael Franco: Yeah, I think we said in the last quarter or so that a lot of the activity that we're executing on now, we're really going to get the benefit of starting in 2026. I think that continues to be the case, right? This pipeline that we're working on, there's some things that will hit a little bit more immediately, and we're sort of running that through the system right now to see the impact. A lot of this activity will really kick in 2026, and you'll start seeing material growth in that year and thereafter. 2025, look, we'll try to give you a little bit more color as we get closer next year as we refine the budget to what we're doing. I think we sort of said next year was going to continue to be somewhat flat to this year.

Speaker Change: Yeah, like I think, you know, we've said in the last quarter or so that

Speaker Change: did a lot of the activity that we're executing on now. You know, we're really going to get the benefit of starting in 26. I think that continues to be the case, right? So this pipeline that we're working on.

Speaker Change: There's some things that will hit.

Speaker Change: you know, a little bit more immediately and we're sort of running that through the

Speaker Change: the system right now to see the impact, but

Speaker Change: You know a lot of this activity will really kick in 26 and you'll start seeing material growth you know in that year and thereafter so you know 25 I like we'll try to give you a little bit more color. You know as we get

Michael Franco: The move-outs and the backfilling, the timing doesn't sync up in terms of when that comes online. There's things that are moving around on the positive side. Look, we're effectively hedged. Rates are starting to come down certainly in the short term, but I don't think we'll start to see material impact on that as well until 2026 because we are fairly hedged still. Can't give you precision because we're still working through it, and as you know, we don't give guidance, but I think just as a general matter, I think the comments we've said in the last three, four months about being not too dissimilar from this year, I think still hold with respect to 2025.

Speaker Change: you know, the move-outs and the back-filling, you know, the timing doesn't sync up, you know, in terms of when that comes online, so...

Speaker Change: You know, there's things that are moving around, you know, on the positive side. Like, we're effectively hedged, rates are starting to come down certainly on the short term, but...

Speaker Change: you know I don't think we'll start to see

Speaker Change: material impact on that as well until 26, because, you know, we are fairly hedged though. So...

Speaker Change: You know can't give you a precision because we're still working through it and as you know, we don't give guidance But I think this is a general matter in the comments. We've said in the last, you know, three four months about being You know, not not too dissimilar from this year. I think still hold with respect to 25

Operator: This concludes our question and answer session. I would like to turn the conference back over to Mr. Steven Roth for any closing remarks.

Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Mr. Steven Roth for any closing remarks.

Steven Roth: Thanks, everybody. It's election day, and so tonight's going to be very exciting, I think. Those of you who have not seen the PENN District recently, and I mean very recently, please call. We're very proud of what we've accomplished there, and we're dying to take you through and expose you to these assets, which we think are performing very well and will perform better. If you want a tour, give us a call, and we'll see you at the next quarter. Thanks very much.

Steven Roth: Thanks everybody, it's election day and so tonight's going to be very exciting I think.

Speaker Change: Those of you who have not seen the Penn District.

Speaker Change: recently, and I mean very recently, please call. We're very proud of what we've accomplished there and we're dying to take you through and expose you to these assets which we think are performing very well and will perform better.

Speaker Change: So if you want a tour give us a call and we'll see you at the next quarter. Thanks very much

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.