Q1 2025 Vornado Realty Trust Earnings Call
Nick: Good morning and welcome to the Vornado Realty Trust First Quarter 2025 earnings call. My name is Nick and I will be your operator for today's call.
This call is being recorded for replay purposes. All lines are in a listen only mode. Our speakers will address your questions at the end of the presentation during the question and answer session
Nick: At that time, please press star, then one on your touchtone phone.
Speaker Change: I will now turn the call over to Mr. Steve Borenstein, Executive Vice President and Corporation Counsel. Please go ahead. Welcome to Vornado Realty Trust's first quarter-earning call. Yesterday afternoon we issued our first quarter-earnings release and filed our quarterly report on form 10Q with the Security and Exchange Commission.
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.
Speaker Change: In these documents and during today's call, we will discuss certain non-GAAP financial measures.
Speaker Change: Reconciliation of these measures to the most directly comparable GAT measures are included in our Orange release, Farron, thank you, and financial supplement.
Speaker Change: Please be aware that statements made during this call may be deemed forward-looking statements and actual results may defer materially from these statements due to a variety of risks, uncertainties and upactors
Speaker Change: Please refer to our Philanthropic Security and Exchange Commission, including our annual report on Form 10K for the year-ended December 31, 2024, for more information regarding these risks and uncertainties.
Speaker Change: The call may include time-sensitive information that may be accurate only as of today's date. The company does not undertake a duty to update any forward-looking statement.
Speaker Change: On the call today for management for our opening comments are Stephen Roth, Chairman and Chief Executive Officer, and Michael Franco, President and Chief Financial Officer. Our senior team is also present and available for questions. I will now turn the call over to Stephen Roth.
Thank you, Steven. Good morning, everyone.
Speaker Change: Well, the macro environment in which we operate is certainly different today when we last spoke three months ago.
Speaker Change: On their calls, a couple of office CEOs didn't think all this would affect their businesses too much, but it will affect our customers, clients and tenants, so of course, this will affect all of us somewhat.
Speaker Change: I know nothing more than you all do, but the way I see it, the objectives of the tariffs are to introduce symmetry and fairness, but even more so to generate a new revenue stream for the federal government.
Speaker Change: which at say a 10% tariff is large enough to make a big dent in getting our federal budget deficit under control.
Speaker Change: and notwithstanding the tactics, reducing government load has to be a good thing.
Speaker Change: and will also reduce the deficit. I am agnostic. Whenever the outcome, I believe the best bet is that this global kerfuffle will be resolved, settled, over much more quickly than you think.
Speaker Change: The basic dynamics that I outlined in my recent annual shareholder's letter that make us so enthusiastic about the future of our business still hold.
Speaker Change: Our stock performance is at the head of the office class having increased 49% in 2024 if they're having increased 36% in 2023.
Speaker Change: And while year end is down 12%, we are down less than the other CBD office companies.
Speaker Change: Benadden continues to be the best real estate market in the country, especially so for office but also for apartments and retail.
Speaker Change: and the 180 million square foot class A Better Building Market in which we compete. The man continues to be a robust.
Speaker Change: The available space is evaporating quickly and with the cost of a new build, i.e., replacement cost at $2,500 per square foot and interest rate at 6 to 7%, no new supply is on the horizon.
All this is the very definition of the landlord's market. [inaudible]
Speaker Change: We send this all play out in the past cycles and the story has always been the same. The supply and demand dynamics will push reds higher and existing better buildings will increase in value quite substantially. All good, very good.
Renato: Here at Renato, our teams have been very busy building liquidity and doing leases and deals [inaudible]
Renato: In January , we completed the Yulico Los Ailes at 6663 Avenue and a record-breaking $20,000 per square foot.
Renato: We used the $342 million in net proceeds from the sale to partially redeem our retail JV preferred equity on the asset. So $342 million cash to Vornado. We used this cash to pay at maturing out 3.5% 450 million unsecured bonds.
Renato: Next, last month we completed a 450 million dollar financing of 1535 Broadway and used the 407 million of net proceeds to partially redeem our retail JV equity on the asset.
Renato: Sogue, 407 million cash to Vornado, which increased our cash balances
Renato: This financing was done at a very choppy market with skill and relationship by our capital market team so all thanks to them.
Renato: Next, on April 22, we received the same rule ruling on the PEN-1 ground lease rent lease and operation.
Renato: The panel determines that the annual ground rent payable for the 25 year 30 is beginning June 17, 2023, will be $15 million.
Renato: There is pending litigation and the Paol's decision provides that if the Fiona prevails in a final judgment, the annual read for the 25 year term will be 20.2 million
Renato: For Gap, we had been accruing 26.2 million per atom of ground rent, and therefore as a result of the panel determination, we reversed 17.2 million.
Renato: of previously over approved rent expense in the first quarter. Of no, commencing in the first quarter of 2025, we are now paying 15 million annual rents, and so our gap earnings will increase by 11 million annually.
Renato: By the way, this pen won't ground these as fully extended goes to 2098.
Next.
Renato: In March, we finalized the major 337,000 square foot leash and pen suit with universal music group.
Renato: The world's leading music company Think Taylor Swift and her friends. This important deal brings an exciting tendency to the pen district and takes the building to approximately 50% least.
more leasing at pen-two will follow.
Renato: Next, yesterday we finally announced the completion of an important deal with NYU at 770 Broadway, completing a master lease for 1.1 million square feet on an as-is triple-med basis for a 70-year lease term.
Renato: Under the Terms of the Lease, a red deal agreement on the Section 467 of the Eternal Revenue Code and why you made a prepaid red payment of $935 million and will also make annual lease payments of $1.3 million during the lease term.
Renato: We used the portion of the pre-paid rent to repaid the $700 million mortgage loan which previously encumbered the property and $200 million to increase our cash balances.
Renato: Those are the transactions as they lease on the gap, which can be a little wacky. It is treated as a sale. As such, we will recognize the GAAP financial statement gains of approximately 800 million in this second quarter.
Renato: We will retain the Wegmans retail condo which will produce $4.7 million in income this year.
Renato: The NYU lease absorbs 500,000 square feet, currently vacant at the asset.
Renato: Overall, the transaction is accrued by $25 million annually. If we pro-form it, leasing the vacancy at market rents with related capital spend, downtime, and free rent, it would have been a pro-form of push as you might expect.
Renato: We have delighted to expand our relationship with NYU and congratulate NYU, Board Chair, Evan Chessler, and President Linda Bills, and their team.
Renato: We are excited about their ambitions for this project. As I have said before, this is all very good and it's very good for New York.
NYU's press release issued yesterday is available at www.nyu.educate.edu [inaudible] thank you, thank you,
Renato: All told so far this year as a result of the above activity, we reduced our debt by $950 million, increased our cash by $5 million.
Renato: And our retail JV preferred equity, which is an asset on our balance sheet, which began the year at 1,828 million is now down to 1,075 million.
Renato: Our cash balances are now 1.4 billion, and together with our undrawn credit lines with 1.6 billion, we have a median liquidity of $3 billion.
Renato: The evoke transactions will increase gap learning by approximately 36 million
Renato: 25 million from the NYU Transaction and 11 from the 10-1 ground reset results [inaudible]
Speaker Change: Tom, that would be Tom Sanelli, all of you know, in a more complete analysis including debt repayments and the loss of preferred income calculates 30 million of accretion of happy to defer to his heart.
Speaker Change: In a moment, Michael will review the quarter and the financials, but here are a few headlines of a very good first quarter
Michael Franco: Cooperable FFO is 63 cents increased by 8 cents versus last year's first quarter, and is not that entire than analyst consensus, our overall gap, same store NOIs is of 3.5 percent.
Michael Franco: released one million thirty nine thousand square feet overall of which seven hundred nine thousand square feet was New York office at ninety five dollars starting rents with market markets of six point five is a cash and nine point nine point five is a gap
and an average lease term of 14.7 years.
Michael Franco: We completed Meces, totaling 222,000 square feet at our 5-by-5 California total office tower in San Francisco, at 120-spotting, non-spotting rents.
Michael Franco: 555 continues to be the preferred financial service that headquarters in San Francisco, and even in this historically
Speaker Change: It is proving that it is the best building in San Francisco. We are big fans of the new San Francisco Mayor, Mayor Dan Glory.
Speaker Change: Anthony Reckless and Paolone is a robust two-million-squat-feet.
Thank you very much.
Speaker Change: As I said in my annual shareholder's letter, release on April 8th, release of Repent too and the release of of our retail vacancies alone will generate incremental NOI of 125 million and 15 million respectively over the next several years
Speaker Change: Tom, here is Tom again, specialised that, well, Edelweipa Pantue is budgeted to increase by 125 million FFO, is budgeted to increase by 95 million, the difference being capitalized interest. This is a budgeted interest, a budgeted interest, a budgeted interest, a budgeted interest.
Speaker Change: Either way, these are big numbers and we've had to build and ready.
Speaker Change: This 125 million dollars per year as is close to a fore, as is as close to a short thing as there is.
Speaker Change: The Penn District, the three block long city women and city continues to amaze and receive outstanding reviews.
Speaker Change: We sell a top of Penn station adjacent to our good neighbors to the west that had for 100 years. The three of us combined are what I call the new booming west side of it had.
Speaker Change: Whatever our analyst calls the pen district, one of the largest mixed-use projects in the country.
Speaker Change: Be that as it may, the pen district will be a growth engine for our company for years to come. As I said in my annual letter, we raised more than rents in the pen district from $50 to $100.
Speaker Change: Our neighbors to the west are achieving ransom over $150, and I predict that we will do the same in the past years as in Dubai in Dubai.
Speaker Change: You can all do the math as to what an incremental $50 on $4.3 million square feet will do to our earnings and values.
Speaker Change: 350 Park Avenue are with Citadel as our anchor tenant and Kim Griffin as our 60th employees has begun the development process to create and grant 1.8 million square foot headquarters tower.
Speaker Change: on the best site on Park Avenue. The new building will stand out as being truly the best in class.
Speaker Change: And we have several other assets for sale in the market.
Speaker Change: We recently filed a very comprehensive sustainability report which can be found in the sustainability page of our website. But it was the first in the nation to achieve 100% the certification [inaudible]
Speaker Change: The many awards we have achieved can also be found on the sustainably painted white white website, Kudos to Lauren Moss and her team.
Speaker Change: Finally, one other observation I would make is the majority of our secure loans reflect current market rates. Well, others are still living off their low rate loans. As I have said before, there is really no protection against loans that mature into a rising rate market.
down to Michael.
Thank you, Stephen. Good morning, everyone.
Speaker Change: First quarter comparable FFO was $0.63 per share compared to $0.55 per share for last year's first quarter in increase of eight cents.
Speaker Change: The increase was primarily due to the impact the positive ground rent reset determination at Penn 1, higher signage NLI and higher NLI from rent commencing, partially offset by the impact from known move outs and lower interest and investment income.
Speaker Change: We have provided a quarter over quarter bridge on page two of our earnings release on page five of our financial supplement.
Speaker Change: On our last earnings call, we said that we expected 2025 Conqueror's FFO to be slightly lower than 2024 Conqueror's FFO to 26 per share. As a result, the lower than originally estimated PEN1 ground run, we now expect 2025 Conqueror's FFO to be essentially flat compared to last year's. [inaudible]
Speaker Change: Looking beyond that, we expect the lease-up of PEN-1 and PEN-2 to occur with full positive impact in 2027, resulting in significant earnings growth by 2026.
Jeff
Speaker Change: Turning to occupancy. As expected, our New York office occupancy decreased this quarter to 84.4% from 88.8% less quarter, which as previously mentioned is primarily the result of Penn 2 being placed fully in the service. [inaudible]
Speaker Change: However, with the full building master lease at 770 Broadway now completed, our current office
Speaker Change: and we anticipate it will take up over the next year or so in the low 90s.
Speaker Change: The New York Office leasing market maintains strong momentum during the first quarter, with the strongest quarterly volumes in fourth quarter 2019.
Speaker Change: Availability in the best of the PSA market continues to shrink, and with only 500,000 square feet of new construction set to deliver during the next several years.
Speaker Change: and 13 million square feet of office to residential conversions in process or announce. We expect the market to continue to tighten, which sets the tail of a strong rental rate growth.
Speaker Change: While we are, of course, mindful of companies, potentially becoming more cautious in their decision-making, given the current market volatility, we do not believe it will impact most tenants' ultimate decisions to leave space, and we remain very constructive on the market and the deal pipeline across our portfolio.
Speaker Change: The recent major commitments by NYU at 770 Broadway, Deloitte at Hudson Yards in Amazon at 522 Fifth Avenue are perfect examples.
Speaker Change: During the first quarter, our leasing activity once again led the marketplace.
Speaker Change: We completed 31 transactions totaling 709,000 square feet at average starting once of $95 per square foot and 6.5% positive mark to market.
Speaker Change: Our activity was highlighted by the largest new lease done in the market.
Speaker Change: in the quarter. Universal Music Group's 337,000 square foot lease at our new Penn 2, anchoring the base of the building on Floris 4 through 7. We are delighted with this transaction and look forward to Universal creating a world-class office and studio production headquarters of Penn 2.
Speaker Change: The transaction strongly reflects the overall quality of the project's new modern high-quality workspace and the more continued attraction to our robust work-life amenity program across the Penn District campus.
Leasing it, Paolone can change it a healthy phase.
as we released 163,000 square feet here during the quarter. [inaudible]
including a 61,000 square foot lease renewal sysco.
Speaker Change: along with a 36,000 square foot relocation with United Health Care and a new lease with Dish Networks for 27,000 square feet.
Speaker Change: Our deal pipeline at Penn-Won and Penn-2 is very strong with a variety of new transactions already in least documentation or deep in letter of intent stages.
Speaker Change: Excluding the just completed master lease with NYU at 770 Broadway, a New York pipeline consists of 2 million square feet of leases in the negotiation in various stages of propulsion.
Speaker Change: In San Francisco at 555 California Street, we completed two large headquarter renewal expansion deals with Dodging Cox and Goldman Sachs, both of the positive cash market markets.
Speaker Change: 5.5 continues to strongly outperform the market as we have leased 657,000 square feet since 2022.
Speaker Change: 5-5 is the city's flagship office tower with low-class tenants and is brilliantly leased in a market which has been one of the more challenging in the country coming out of the pandemic.
The market though is finally showing signs of improvement. [inaudible]
Speaker Change: The new mayor is off to a great start. We are confident that he will help restore the city's health and vibrancy [inaudible]
Lastly, Turning the Cabal Markets
Speaker Change: During the first quarter, the CNBS market was wide open for large high quality assets such as ours, with spreads continuing to tight.
Speaker Change: As the President announces new terrorist policy on April 2nd, there's been significant volatility in the financing markets with spreads widening out and new issuances being delayed. Despite this volatility, we're able to complete our 1535 Broadway financing.
Speaker Change: We expect the market to settle near charm of high quality issuers and assets continuing to have access to it.
Speaker Change: We are hard at work on refinancing or extending our upcoming majorities with many in process. With that, I'll turn it over to the operator for Q&A.
Thank you [inaudible]
Speaker Change: We will now begin the question and answer session. If you have a question, please press star, then one on your touchtone phone.
Speaker Change: If you wish to be removed from the queue, please press star then two [inaudible]
Speaker Change: If you are using a speaker phone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star then one on your touchtone phone.
Speaker Change: Each caller will be asked, be allowed to ask a question and a follow-up question before we move on to the next caller. Please hold as we pull for questions.
Thank you for watching!
Speaker Change: And your first question today will come from Steve Sakwa with Evercore ISI. Please go ahead.
Speaker Change: and then the balance of the portfolio. I guess I wanted to just maybe circle back to Steve's comment last quarter about PEN2 being 80% least and just trying to understand the volume of activity that you've got particularly at PEN2.
Good morning, so you want to start off now.
Speaker Change: Hi, Steve, it's Glad Weiss. So the Chilean pipeline about 50% is pen 1, pen 2 to start off.
There's a lot of great activity you pen to. Thank you.
Speaker Change: We've finished obviously Universal, we got more to come and Penn One continues the flood when you can [inaudible]
Speaker Change: And at the same time as all this is going on, we continue to press rent upwards by the week.
Speaker Change: So Penn is, you know, really in fifth year, the big part of the pipeline, not all of the pipeline, the portfolio overall is performing very well right now, so we're feeling very, very good about where we are all of our portfolio.
Speaker Change: And just I guess confidence level around kind of getting to that 80% mark by the end of the year at Pentu.
Speaker Change: I mean, still like what I would say is as we sit here today, we still feel good about it, right? Whether it happens by the end of the year, first quarter or whatnot.
Speaker Change: I think a Steve said in his opening, we're going to lease the building. We're generally going to hit the numbers that we laid out.
Speaker Change: Blin started a pre-build program at Penn 2. The rents were achieving there are spectacular. It may do a little bit more of it. And so I wouldn't get focused on whether it happens exactly by year. But yeah, as we sit here today, our conference level is the same as the ones last quarter.
Speaker Change: We love our spot here, if you think about us, there's a dwindling supply of quality blocks in the market.
Speaker Change: And surely nothing like what we did at Penn, too. So we think even with more patience, the rents will keep rising, the quality of tenants will keep getting better. So we're feeling better and better as we go here overall.
Speaker Change: I just can't remember what your decision to fully go or no go on that project is and just can you remind us kind of of the milestones and maybe achievements that you need to see or want to see in the market to ultimately make that decision in the future.
Speaker Change: You know, I see a good morning. I would disclose you on the details that you've just asked about is very robust. Go back and read the 10K and the press releases. I think that'll be the best way to do it.
Speaker Change: And your next question today will come from Dylan Burzinski with Green Street. Please go ahead.
Dylan Brzezinski: Thanks for taking the question and congrats on closing the NYU transaction. I guess Steve, I think you mentioned now, you know, after all the transactions close, the secret to quarter end that, you know, about $1.4 billion of cash on the balance sheet. I guess can you just talk about, you know, what some of those proceeds might be in Mark IV? [inaudible]
Steve: Sure, good morning, Dylan. First of all, I want to commend you on your report you published. I think you nailed 770.
better than anybody, so I could host you on the team.
in turn and overall quite thoughtful. Thank you.
Steve: in terms of the cash, like we're... What that means is that he likes your report, you go ahead. So in terms of the cash, like we're obviously pleased with what we've done, it was done quite a bit. These are our large substantial transactions, and we think about it.
Steve: We've been able to deal over the balance sheet, meaningfully, and yet still have that significant cash balance, right? So we're in a very good spot, what are our plans, right? In an environment like this, where there's clearly a little bit more volatility, having more cash and some good things.
Steve: We hope and expect that's going to lead to some opportunity to play some of that cash in your investments. We're looking at you.
Steve: At the same time, we have some higher cost debt that...
Steve: with Knight either pay down or pay off. So I think you'll see a combination of A, leaving in cash, as is our history, to make sure we have an appropriate buffer for anything too.
Steve: You know, tackle some of the debt and then three is hopefully deploy that into new opportunities we see.
Steve: Taking it a little bit further, we are loading in cash to pay off an unsecured bond that comes to it a year in a fraction.
Steve: We are loading in cash, of course, we are going to have a robust development program, both at 350 Park and at the Penn District.
Steve: and perhaps one other site that we control. And so the cash is a good thing and we're going to be using it and we're going to be using it to grow the company.
Speaker Change: That's helpful and appreciate the comments on our report from last night. I guess it's just-
Speaker Change: Maybe one of their follow-up obviously you guys have done a successful job monetizing some of the press and showing some of the assets within the straight retail adventure.
Speaker Change: or looking to go out and execute additional positions. I guess you kind of talked about just the appetite of some of these loads of retailers and the desire to want to continue to own the real estate versus the real estate.
Speaker Change: Thank you for joining us. We appreciate it. We appreciate you being here.
Speaker Change: So I think I said this in my letter. I advertised in a very subtle way that's some of the buildings.
Speaker Change: that are outside of New York, might be for sale at the right price, that continues to be true, and these are a couple of very long assets, so we'll see how that works.
Speaker Change: In Manhattan, we have a couple of non-core buildings in the 4-Sale Market now and I think as I said in my letter, there are no sacred cows.
Speaker Change: Important retail assets when we get a buyer that is willing to pay an appropriate price. That continues to be the case.
Speaker Change: The interesting thing is, it's not just the retailers that are buying these assets, like for example Amazon is coming in and buying significant assets in Midtown Manhattan
Speaker Change: for, I guess, their HQ-3 or whatever it might be. So there's lots of example of some of these larger [inaudible]
Speaker Change: Switching this strategy from leasing to buying and that's a good thing. We know that that's aggressively happening in New York. I'm not aware of whether that's true in the rest of the country [inaudible]
Thank you.
Speaker Change: And your next question today will come from John Kim with BMO Capital Markets. Please go ahead.
Speaker Change: on the assets that you're looking to potentially sell, whether in New York or outside and including 555 Cal. Are we going to go back to 2019 valuations or exceed them?
Sure.
Speaker Change: targeted opportunistic about the right counterparty. I think that continues to be the case. The capital markets continue to improve on the sales side, but...
Speaker Change: You know, you got to be, you got to figure out who the right buyer investor is [inaudible]
Speaker Change: and I think what's the cycle is once again validated is that...
Speaker Change: Great Assets, Command Great Prices, the best is always the best. [inaudible]
Speaker Change: and maybe add a favor for a little bit of time, but if you're patient.
Speaker Change: You weather the storm, then that's going to recover, right? And that clearly was the case in street retail. I think that's going to be the case, you know, with, if you look at some of the financing, it's going to apply values for New York office.
Speaker Change: and certainly the Trophy Assets and San Francisco. So the best is generally always the best.
Mike Mayer, 68th, one word answer, sure. [inaudible]
You really do interpret that was that? [inaudible]
Speaker Change: We are not going to sell great assets at the stress prices that came from COVID or whatever, so the benchmark is free COVID, which is 2019 [inaudible]
Speaker Change: and these assets have recovered, they are recovering, and they will command increasing prices over time.
Speaker Change: That's great color. Thank you. On the leasing pipeline, which increased, pretty significantly from last quarter,
Speaker Change: Can you describe how much of that is on your in-service portfolio or leases that could drive the occupancy with the next couple of years versus maybe 350 park or...
and Early Renewal, that won't try, that's a so.
Speaker Change: Very significant portion of the pipeline will increase occupancy.
Speaker Change: without a doubt. So a lot of its absorption, a lot of new deals, a lot of expansion. There's a lot of expansion in New York and our properties right now. So a lot of our significant activity will absorb vacant space over the next nine, twelve months without a doubt.
portrayal of what our expected occupancy is in this call [inaudible]
Speaker Change: So John , on the fallacies comment, I think we telegraphed this the last couple quarters that our occupancy was going to go down and we brought pen to in service, which we did fully.
this quarter, right? Yeah, it's so...
Speaker Change: We published 84.4. We talked about pro-former what it is when you add in 770 which goes to 87.4 We published 84.4. We published 84.4. We published 84.4. We published 84.4.
in the next 12 months or so.
Speaker Change: And obviously, wow, that's driven my pen, too. I think as we look more broadly in New York.
Speaker Change: You know, if we lease up Penn 1 and Penn 2 or when we lease up Penn 1 and Penn 2
Foley
Speaker Change: And let's say that happens in the next 24 months and...
Speaker Change: We have our best assets that have some holes in them today. There's fewer options in the market. We've just deployed significant amount of capital these assets. Glen talked about how the rents are rising. Not just in the market, but specifically at these assets.
Speaker Change: And so that's all going to translate the growth and I think if we've said in the last couple calls.
Yeah, that really kicks in in 2027, so... [inaudible]
Speaker Change: We feel good about the position and that I think from an occupancy standpoint, we always ran the business at around 95, 96%, and I think we get a couple of years out, our expectation is really effective.
Speaker Change: The most significant thing to keep in your mind is that as occupancy rises, earnings rise.
Speaker Change: and they write significantly, and so that's a very interesting factor.
Yeah, good stuff. Thank you.
Yep.
Speaker Change: And your next question today will come from Floris Van Dijkum with Compass Point. Please go ahead.
Hey, good morning guys, thanks for taking my question [inaudible]
Who said that?
I don't know, somebody mentioned that, hopefully that caught your attention.
Speaker Change: One of the, obviously, 300 million of NOI, PEN1, PEN2 are stabilized, it's pretty impressive, but can you talk about one of the things we noticed this quarter, and I suspect it's going to be the case for the next couple quarters is the
Speaker Change: The gap, there's roughly a 20 million gap between Gap N-O-I and cash N-O-I, presumably as free rents in Penn 2 as that comes online before you actually get the actual cash. How long is that going to last? [inaudible]
Speaker Change: And at some point are you going to see, when do you think you're going to intellect and see cash NOI actually be stronger than your gap NOI going forward?
Speaker Change: Yeah, I think Floris, that's a great question. I think we should probably take it offline. Most of that is going to happen in the later years as Michael indicated. We start seeing 2027.
Speaker Change: earnings really pop so that's probably the years you're going to see but that's something that we probably take off while I am working so.
Speaker Change: Great. And then the other thing, and again, I think you guys sometimes do yourself with disservice by being as transparent as, well, you know.
Speaker Change: Transparen in some ways as you are with the occupancy in particular. Have you ever thought about showing what your core occupancy is or in line or in service properties because obviously you've got a couple of assets that you're keeping vacant right now, particularly in your retail portfolio, you know, which impact your your your stated occupancy levels significantly.
Speaker Change: We have a thought about that for us, but your comment now will make us think a little bit harder about what we should do, because we have kept certain assets offline and continue to do that, pending either redevelopment or maybe in a case or two of workouts, so it's a fair comment.
Thanks, Chris. That's it for me.
Thank you.
Speaker Change: And your next question today will come from Alexander Goldfarb with Piper Sandler. Please go ahead.
Hey, morning, morning down there.
Speaker Change: How does the math behind that project, you know, compared to what you guys would need for Penn 15?
Speaker Change: and just trying to understand if we're getting closer where a two million plus project can pencil or if the market is still limited to call it million, million two type developments.
Speaker Change: Good morning Alex. Before we get into that, you wrote a piece on Alexander's came out, I think yesterday. Yes, yesterday.
Speaker Change: And so, I think you're the only person that I know covers it, but in any case, let me help you by saying, correcting you and do this. Number one, we will not.
Let me emphasize the word not.
Speaker Change: Use our cash to pay down the 731 retail loan. We're not doing that [inaudible] We're not doing that. We're not doing that.
Speaker Change: Okay, we'll note that. We will note that. And the second thing is we are not merging Alexander's into Vornado.
Hello.
Speaker Change: We were shown the demo ideal as was all of the developers in town. We think we have the best vacant piece of land on the west side of Manhattan.
Speaker Change: Now I've said frequently that I think it's the second best piece of land in town, the first best being Godfather Park Avenue site.
Speaker Change: and so the deal that was made was a very, it was a very aggressive deal for the tenant. The pricing was very tight.
Speaker Change: We're not bashful to say no to a deal that doesn't give us the financial results that we think our shareholders are entitled to
Speaker Change: So, we're getting there and I think we're on the foothills of a landlord's bull market and we think that the values, prices and transactions are going to go up.
Speaker Change: We think that the number of new builds will be very scarce.
Speaker Change: And so we think we're in a pretty good spot. We are patients. If you just look at what happens with the Alexander's deal, which is a long time ago, but none of us, we let DLF and DL pass by until we did the deal with Bloomberg which turned out to be extraordinary.
Speaker Change: So we're getting there and we're very happy with our position.
By the way, the interesting thing is that
A lot of this comes from the Antel Strait. [inaudible]
Speaker Change: So we can be relatively patient because of our financial state. [inaudible]
So the pen-15 lot has no debt on it [inaudible]
Speaker Change: The Penn One Building has no debt on it. The Penn Two Building has no debt on it. The Folly Minute Building has no debt on it.
Speaker Change: So that's a pretty good spot to be in and it's not, you know, we're basically a secure mentor, it's the way we structure our business, those assets have no debt and that's a great place to be.
, , , , , ,
Speaker Change: fitting in as you expand your thoughts on development and harvesting your different sites. Are these existing sites, new sites, your thoughts?
Speaker Change: Oh Lord, you know, when you have the kind of city down at Penn that we have, you have the considerable office development and apartment development, which we are doing. So, we're principally at office company, we like the dynamics of the office business, we like them as they are improving today.
Speaker Change: But you cannot disregard the fact that if you look back over the past decades...
Apartment have created more value than offices [inaudible]
Speaker Change: The office market is volatile. Over more areas of science, the apartment markets are less volatile, nonetheless the political overtones of the apartment.
Business is much more complicated than the office business [inaudible]
Speaker Change: So there's a little bit of this, a little bit that we will be building some apartments in the Penn District. It will not be a total apartment development project.
Thank you, Steve.
Speaker Change: Thank you, Alex. And remember, we're not paying off that phone with cash. I will tell my colleague Connor that.
Speaker Change: And your next question today will come from Yana Galen with Bank of America. Please go ahead.
Yana Gelend: Thank you, good morning and a congrats on a strong start to the year.
Speaker Change: It seems like a recent big trend in New York City is of a kind of owner occupiers, both in office and retail, and was just curious if you could kind of comment on what you're seeing in particular with some of the dispositions you may be looking to do.
Thank you.
Michael Franco: I think we're coming a lot of that Michael, give it another shot [inaudible]
Michael Franco: Thanks, you know, appreciate the comment. Like I think you're seeing the honor occupiers and retail I think we've talked about going back to the last year, where you saw that activity first.
Michael Franco: You saw it with Prada, you saw with Caring, you saw Uniclow, and it continues to be interested there. And I think that's a function and all that was on Fifth Avenue, although you saw a couple of situations down and...
Michael Franco: Soho recently, you know, if you look at what Ralph Lauren just did in Soho, paid a significant number for that sort of dice and down in Soho and so what these retailers are basically saying is that in these great forever spots, Fifth Avenue
Michael Franco: Soho, Madison Avenue, Times Square, you know, that they're sort of the four
Michael Franco: They want to be here forever. These sales volumes that they do in Manhattan are multiples of what they do anywhere in the US and in many cases around the world.
So they want to be here forever.
Michael Franco: and rather than wrangling with the Vornados of the world every 10 or 15 years, they just want to own it, right? And they've prepared the...
Michael Franco: Pay a significant number to control that forever. So, that's a good thing. You know, we have some additional income issues on that. And if we get the right numbers on situations, then we'll transact. But that continues to be an area where retailers are active.
on the office side.
as well, you've seen some other user activity again.
Michael Franco: You know, let's go back to what that is a function of, right? And I think Steve made the distinction that we really haven't seen that elsewhere. Maybe it's a curve, I don't think it's a curve in the volume here.
Michael Franco: So Alex, do your point, how can you make the math work? The math works on these digger sites, all right? Now we're standing here calm down in the 99th, the math works Why is the work? Because rents are continuing, they go up, we have a massive half a shortage in New York City It's not again to get eradicated in the next decade So anybody that builds apartments is probably going to do fine, all right? But back to office, so Tyler wants to be here...
where they have stepped up in a big way here. [inaudible]
Recently
Michael Franco: You know, they want to be here, they want to grow here and they're going to use their balance sheet aggressively given again the fact that they want to be here long term and the amount of capital they're going to deploy in their assets above.
Michael Franco: Why the landlord of a normative place should get against it, so they want to own that forever and so
Speaker Change: You know, you think about NYU, NYU didn't buy the building from us, but they committed
Speaker Change: and so they have, you know, one's on control of that asset. So...
Speaker Change: Is it going to be something we're going to see every week? Probably not, but I don't think this will be the last of those given.
Speaker Change: You know, companies that have significant capital and can deploy that cost effectively, you know, it's a good solution [inaudible]
Thank you.
Thank you. Thank you.
Speaker Change: Your next question today will come from Seth Burjee with City. Please go ahead
Speaker Change: What types of behavior are you seeing change from tenants? Like are you seeing any improvement on concessions or early renewal activity in addition to the rent growth that you're seeing?
Speaker Change: Excellent, certainly we're seeing rent growth, that's the first, you know, discussion. Rents are going up and tenants realize rents are going up. Number two, we are starting to see your reduction in the free rent packages.
Speaker Change: on the TIs, the TIs have, you know, stubbornly stayed basically at the same levels, so I would say rents are improving and free rents are starting to come down.
as part of Early Renewals. [inaudible]
Speaker Change: We're definitely seeing people come to us earlier now because they're concerned about where the market's going to go, more and more towards the landlord's market, so we have some larger deals in this pipeline as it relates to early renewals for sure.
Speaker Change: But I'll tell you the one take away I would tell you is the expansion of the world.
Speaker Change: The expansions in New York, there's expansions going all over the market and every sub-market.
and Deplinar Portfolio. Hello.
Speaker Change: So a lot of growth in New York and not just financial, you're seeing tech now grow, the law firms grow.
Speaker Change: Consulting firms grow media, entertainment, like the Universal Deal. So, I mean, that's basic, around what you're asking.
Speaker Change: Yeah, thanks, that's helpful. And then I guess for, you know, a follow up, you know, I just wanted to go back to your comments about
Um...
Speaker Change: The capital intensiveness of office building for apartments. You know, I guess, does that, it sounds like there's kind of puts and takes takes to both asset classes, but does that change how you think about, you know, investing in the portfolio over a longer term? [inaudible]
Speaker Change: I think it's an oriented tool is you want to own high quality buildings, the highest quality buildings, because those are the buildings that are...
and David Morgan.
Yeah, in the last couple of years.
He is reshaped by Portfolio
Speaker Change: You know, so assets that we viewed is not the best position for the future . . .
Speaker Change: and have a portfolio that we think is well positioned for that. [inaudible]
Speaker Change: You know, we 100% there, no, but you know, we're pretty close and we feel we feel good about it and so I think that's where you have to be investing in those modernized our assets and the right locations. You know, I think I think your portfolio has to be oriented that way to succeed given the capital requirements. [inaudible]
A couple of things. We expect Glen's to rise.
which we expect free-weds to start to come in.
as the market timers. [inaudible]
Speaker Change: We don't believe that cash TIs are going to come in because the tenants really are spending a lot more than that to develop the space.
Speaker Change: So rent and free rent, face rent and free rent, we'll go, we'll improve
Speaker Change: We don't believe that cash T.I.s will improve. So there's that. With respect to the mix of between apartment and office, we're an office company. In our major development activities, we will be developing office.
In the pen district, we will be sprinkling in.
Speaker Change: I want to say I'm not in significant amount of apartments as well [inaudible]
Speaker Change: I don't believe that we will be a fire of existing apartment buildings. We've looked at some, but basically I think we'll be a developer of apartments, but a reluctant fire of apartments.
Great, thank you [inaudible]
Thank you [inaudible]
Speaker Change: And your next question today will come from Anthony Paolone with JP Morgan. Please go ahead.
Anthony Pallone: How should we think about that and also in the same vein your thoughts on federal government getting involved with the planning of Penn Station and how that might impact you?
Anthony Pallone: We're not going to pre-game what we're doing by announcing today what the mix of the topic is.
Anthony Pallone: We'll do that when we actually start to do something, that's a real project, we will, you know, we'll, we'll notify the market. We've already said that we are focused on doing a small apartment project on 8th Avenue and 34th Street.
Anthony Pallone: on a piece of the man, a small piece of the man we own there, so that's in the works.
Otherwise, we will announce development spots when they start.
Speaker Change: Penn, we think that's great. I'm going to turn that over to Barry because he likes to talk about that one. Go ahead, Barry.
Speaker Change: Good morning. As you're aware, we've spent a lot of time with the last several years working on several public private partnerships.
Barry: making pensions better whether or not that's the point of entry in Hall, the long matter rare with 33 compilers for the couple of new actions as we work with the government, building on 7th Avenue. Anyone that wants to keep investing in pensions continue the good work we've done, continue making pensions that we support.
So there's that, by the way, it's, um,
Speaker Change: And when was the last time that you walked through the pen district?
Last Weekend [inaudible]
what's a good word? [inaudible]
The pen is a sloppy design, that's passed. [inaudible]
Speaker Change: So when you walk down there now, what we've done on 7th Avenue, what we've done with the buildings, all the rannets that we put into sidewalks, the Moynihan train station is spectacular, the train hall is spectacular, the Long Island Railway Conqueror Street. So the Penn District looks a lot different today than it did five years ago, we're pretty proud of that.
Speaker Change: Anybody that wants to come in and help us finish the job for low ground, basically we own all of the above ground.
Speaker Change: So about the governments and the railroads on the below ground, anybody that wants to help us fix that, we're in favor of it.
Speaker Change: Okay, thanks and then just quick follow up, I may have missed this, it might be in the queue, but just what is the remaining part value for the preps that you have in the Fifth Avenue JV now and the yield on that?
Speaker Change: It's about $1050 billion in round numbers, and the yield on that is 505 and a half. It probably blends to about 5% Tony, it's you know
It's about 5% [inaudible]
So Steve's accurate on the amount.
OK, thank you.
Yep, yep.
Speaker Change: And your next question today will come from Caitlin Burrows with Goldman Sachs. Please go ahead.
Caitlin Burrows: Hi, good morning. Maybe first, I feel like it's been talked about a couple different ways but you mentioned in the prepared remarks at the very beginning, how you didn't think the uncertainty in the macro would impact.
Caitlin Burrows: Lee Singh, so I was just wondering if you could talk about that a little bit more kind of what gives you that confidence and any more specific detail you can give on like trends through 1Q and April and now into May.
Sirs,
Caitlin Burrows: We have not seen an impact on our leasing as of yet, but of course we're mindful of it. We're getting our deals done and we'd be irresponsible not to be thinking about it and paying attention to it, but those far we've had no impact yet on leasing.
Speaker Change: Michaela, what I would say is just to add on to what Glenn said.
Mikayla: that, you know, if you look at the Amazon announcement, the Deloitte announcement, the NYU announcement, I mean, these are all done in the last couple of weeks. So, of course,
Companies, Tenants,
Mikayla: All the way where it's going on and making decisions and still proceed. That's not say every deal is going to proceed, but I think there's a bias towards
Mikayla: We're in Zimbabwe till the end, and I think a Steve said in the outset, you know, this is going to get settled.
Mikayla: in the near term. You know, on the retailers side, you know, those that source product overseas.
Mikayla: We've seen a little impact from some of those players, so I think Glen characterizes right to date, not much, but you have to be mindful of it.
Speaker Change: Got it, okay. And then you guys did talk about how of this kind of NOI and earnings will come on over the next couple years and you have great visibility, but that there will also be some refi-headwinds. So I was just wondering as it relates to maybe even the remaining 2025 and early 26 maturities, if there's any guideposts or how do you think about the amount of refi-headwinds that it could be like would you assume similar spreads that are in place or those go up as well? Anything on that topic? Thank you.
Speaker Change: Yeah, I mean, look, the team is hard at work on everything that's maturing.
Speaker Change: We're feeling great about the pricing, about 45 days ago, obviously that's gapped out a little bit, but the market's definitely open and you can execute, and so we have a number of things in process.
Speaker Change: that we hope to get done over the course of the next quarter. So, you know, we feel pretty good about executing everything. I think in terms of just looking through the list right now, in terms of pricing and amounts.
Speaker Change: I think generally, I think reflective of the market, you know, all these can be refinanced at part. Now whether we choose to do that or not based on pricing, we'll make that decision as we get closer but the market is a support of the proceeds level.
because again, it's that high leverage to start with. [inaudible]
Speaker Change: And I think you have to go ask the best. In some cases, you know, we'll roll those over pretty close to where they are today.
Speaker Change: And, you know, other cases, for example, like an independence plaza, you know, we're coming off a four and a quarter fixed rate lump. You know, that's not going to hold given that, you know, treasuries and cells are at four percent.
Speaker Change: You know, we'll have some coupon expansion there. In other cases, I think I'll roll over pretty close to the flat. So, you know, but all that sort of baked in, you know, the guidance that, you know, we sort of talked about. There's a where we thought we'd be this year. [inaudible]
Speaker Change: and we'll really be next couple of years, so. Let's go.
Speaker Change: We'll have to see where the markets are when we actually price the assets but the markets open, we expect to tackle these over there's a couple quarters and in total I think there'll be a little bit of increase in terms of interest but not dramatic [inaudible]
Thank you [inaudible]
Speaker Change: In your next question today, we'll come from Ronald Kamdem, with Morgan Stanley . Please go ahead.
Speaker Change: Hey, just two quick ones. The first is just the occupancy trajectory was really helpful. Just wondering if we could sort of take that a step further, should we be expecting sort of the same store, NOI and so forth, also be sort of accelerating?
Speaker Change: You know, through to 2027 or there are sort of other considerations. Thanks
Speaker Change: Yeah, I think, I think in terms of 27 episodes, you know, this year.
Speaker Change: You know, what we'll say, I think again, it's platters as we talk about so. I don't think you'll see it this year, but I think as we get, you know, the assets get at least up, we'll follow that Sandra Dragher, yes.
Speaker Change: Just on capital allocation, if you could just remind us what's sort of the waterfall is now between development, redevelopment, buying back stock, and so forth, and...
Uh-uh.
Speaker Change: You know, development's a long process, right? So, you know, some things we're talking about today, you know, you may proceed, but that capital doesn't get spent for really several years as you ramp that up.
Speaker Change: You know, I think in terms of stock buybacks, you know, not front of mind today, we still see good value there, but you know, it was obviously when I was back in the teens.
Speaker Change: When we started the program, that was more dramatic. So, you know, that's, I'd say today the focus is on investing in our existing business, whether that's...
Speaker Change: New development or paying down some debt. And then as I said, we are looking at some external opportunities and just hard to put the odds on whether any of those move forward or not yet.
Great, thanks so much.
Speaker Change: And your next question today will come from Nick Yulico with Scotia Bank. Please go ahead.
Nick Ulico: Hi, thanks. I'll just go back to the NYU transaction. I think you said it's a creative by 25 million.
Nick Ulico: annually. So paying off the mortgage it looks like is a $35 million benefit. So can you just walk us through what's the, you know, the offset from that and then also on the, on the NOI side, how we should think about if there's any difference on the cash versus a gap treatment going forward there?
Speaker Change: That sounds like a tom. Sure, so I think you're 35, you're including the swap that we have. That's at the corporate level, so we're moving that swap. So if you exclude the swap, it's the interest expense on that assets 47.
Speaker Change: When you look forward and you include the payment that we're going to get from NYU plus the Wegman deal plus the interest on the 200 plus that we're retaining, that gets you to about close $29.00 and that's the $25.26 million fee reference and the prepared remarks.
Speaker Change: Okay, thanks, that's very helpful. Just second question is on, I think you gave the least number for Penn 2, around 50%. Is it possible to get the least number for Penn 1? I know it's 88% and occupies the least number higher than that.
It's the same number.
Great, thank you.
I don't know. I don't know. I don't know. I don't know.
Speaker Change: And your final question today will come from Alexander Goldfarb of Piper Sandler with a follow-up. Please go ahead.
Alexander Goldfarb: Hey, thank you for taking the follow up. Steve, I realize you're probably not going to give the intimate details of the ground rent litigation, but from a big picture perspective, the arbitration panel agreed to 15 million, but now there's litigation pursuing 20 million, from a big picture perspective, can you help us understand?
Speaker Change: How this works, I would have thought the arbitration panel was the final determinant.
Speaker Change: Alex, it is, the arbitration, the litigation pending, that litigation will extend through appeals for, you know, who knows how much longer.
Speaker Change: By the way, we think we have a very good position there, but see that as it may [inaudible]
Speaker Change: Panel, the eventuality as to whether the landlord or the tenant wins that arbitration. So the $15 million is set for the base case.
Speaker Change: If we win the mitigation, the $15 million continues for the 25 years, if we lose the litigation the $15 million becomes $20 million [inaudible]
Speaker Change: So, we're in a pretty good spot. We have a, we have established, the values have been established in whichever way the litigation goes. So it's as simple as that Alex.
Okay, that's helpful. Thank you
Yep.
Speaker Change: Fludes our question and answer session. I would like to turn the conference back over to Stephen Roth for any closing remarks.
Steven Roth: Thank you really well. We've had a very robust conversation this morning.
Steven Roth: The first court was very active, very constructive, with lots of good stuff and we look forward to seeing you at the next call, which will be on August 5th, so we look forward to that. Have a good summer so far.
Speaker Change: Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect.
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