NYSE:VNO Vornado Realty Trust Q1 2023 Earnings Report $35.49 +0.57 (+1.63%) As of 03:59 PM Eastern Earnings HistoryForecast Vornado Realty Trust EPS ResultsActual EPS$0.01Consensus EPS $0.62Beat/MissMissed by -$0.61One Year Ago EPS$0.79Vornado Realty Trust Revenue ResultsActual Revenue$445.92 millionExpected Revenue$452.70 millionBeat/MissMissed by -$6.78 millionYoY Revenue Growth+0.90%Vornado Realty Trust Announcement DetailsQuarterQ1 2023Date5/1/2023TimeAfter Market ClosesConference Call DateTuesday, May 2, 2023Conference Call Time10:00AM ETUpcoming EarningsVornado Realty Trust's Q1 2025 earnings is scheduled for Monday, May 5, 2025, with a conference call scheduled on Tuesday, May 6, 2025 at 10:00 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Quarterly Report (10-Q)SEC FilingEarnings HistoryCompany ProfilePowered by Vornado Realty Trust Q1 2023 Earnings Call TranscriptProvided by QuartrMay 2, 2023 ShareLink copied to clipboard.There are 16 speakers on the call. Operator00:00:00Morning, and welcome to the Varnado Realty Trust First Quarter 2023 Earnings Call. My name is Sarah, 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. Operator00:00:28I will now turn the call over to Mr. Steve Borenstein, Senior Vice President and Corporate Counsel. Please go ahead. Speaker 100:00:37Welcome to Vornado Realty Trust's 1st quarter earnings call. Yesterday afternoon, we issued our Q1 earnings release and filed our quarterly report on Form 10 Q with 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 supplement. Speaker 100:01:14Please 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. Please refer to our filings with the Securities and Exchange Commission, including our annual report on Form 10 ks for the year ended December 31, 2020 2 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 Stephen Roth, and Michael Franco, President and Chief Financial Officer. Speaker 100:01:55Our senior team is also present and available for questions. I will now turn the call over to Steven Roth. Speaker 200:02:02Thank you, Steve, and good morning to everyone. Let me get a few things out of the way first. Our business Well in this environment, our outlook hasn't changed since last quarter. We are full speed ahead on our current projects Over 5,000,000 square feet in the Penn District. Any comment in the newspapers or industry tabloids that we have stopped is incorrect and just plain silly. Speaker 200:02:27Just take a look at our 3 block long construction site when you next go through Penn Station or next go through a Knicks playoff game. Now some commentary on last week's dividend press release and reaction thereto. Simply stated, we are going on offense. Let me say that again, We are going on offense. A few facts for context. Speaker 200:02:49We know about dividends. In 2022, our dividend was $2.12 or $435,000,000 in cash. Over the past 10 years, we have paid and happily paid $5,100,000,000 in regular dividends and another $400,000,000 in special dividends. Last week, an analyst characterized REIT dividend Sacred and I agree well, I guess I sort of agree. For this year, we have already paid a $0.375 or $75,000,000 cash first quarter dividend. Speaker 200:03:22We will pause paying dividends in the second and third quarters And in the Q4 based upon known facts, actual taxable income, including asset sales, etcetera, we will pay out as we must Taxable income, but we'll reassess whether it is wise and appropriate to pay it in cash or in a combination of cash and script. Shareholders should be indifferent as to whether they receive cash or script, but that cash, if retained by the corporation, might be more wisely employed for As most of you know, I have resisted buybacks for years years, Resisting copycatting in sister industry companies and resisting the pounding from analysts to Closing at AB GAAP. I believe my resistance was logical and fact based. Since last quarter's dividend announcement to this quarter's dividend announcement, our stock price has declined 35% from a low level to an even lower level. Seeing value in the stock and an opportunity to create shareholder value, last Wednesday included in our dividend press release, Our Board authorized a $200,000,000 share buyback program. Speaker 200:04:37We will proceed carefully and in a measured way, funding the buyback from asset sales Even cash retained from paying the dividend in scrip. Since our dividend is sized based on taxable income, not FFO earnings, Here is the math. 2021 taxable income was $2.03 versus a $2.12 dividend. 2022 taxable income was $2.08 versus the $2.12 dividend. 2023 taxable income Currently projected at $1.05 without any asset sales and surely there will be asset sales. Speaker 200:05:17The difference between 2022 and 2023 taxable income is primarily increased interest rates. A couple of other comments. We think we have seen the peak in work from home. More and more CEOs are now requiring their employees back to the office. With each passing week, the office buildings feel more like 2019. Speaker 200:05:39And we believe it's just a matter of time before everyone is back for good. New York City seems to be leading the country in this regard. Lastly, with all CBD office stocks having been crushed I'm great concerned about the future viability of office, it is important to review our financial position and our liquidity. $2,200,000,000 of liquidity, including $1,300,000,000 of cash and treasury bills. We have over 8,000,000,000 At today's marked out values of debt free unencumbered assets. Speaker 200:06:15PENN1, PENN2 and Charlie are all unencumbered. The remaining capital program to complete PENN2 has been pre funded and will be paid for out of cash balances. These buildings have significant future embedded earnings growth and as PENN2 rents up that incremental income will do wonders for our debt metrics. We rely primarily on project level non recourse debt, old fashioned mortgages. Only 2 $5,000,000 of our debt is re cost and that with well laddered maturities. Speaker 200:06:47We are clear eyed and realistic about the near term financial market challenges. It is not pretty when 3% debt rolls over into 6%, 7% or even an 8% market. We will certainly have a few Workouts to deal with over the next couple of we have accrued work out to deal with over the next couple of years, but that is the point of having non recourse debt. We have no maturities this year, limited property level maturities next year and no corporate maturities of 2025 With sufficient capacity on our line that matures in December 27, so that we don't have to refinance at current in the current hospital market. Thank you. Speaker 200:07:30And now over to Michael to cover the financials and the market. Speaker 300:07:35Thank you, Steve, and good morning, everyone. During our last earnings call, we said that we expect 2023 comparable FFO to be down from 2022 and provided the known impact of certain items totaling a $0.55 reduction, primarily from the effect of rising interest rates. The current economic environment makes forecasting more difficult than usual. This remains a decent assumption, absent the impact of any asset sales. As expected, 1st quarter comparable FFO as adjusted was $0.60 per share compared to $0.79 for last year's Q1, a decrease of $0.19 or 24.1 percent. Speaker 300:08:13This decrease was driven primarily by higher net interest expense from increased rates. Our company wide same store cash NOI for the Q1 increased by 1.5% over the prior year's Q1. We have provided a quarter over quarter bridge in our earnings release and in our financial supplement. Our core office and retail businesses remain resilient with long term credit leases. Now turning to leasing markets. Speaker 300:08:37Amidst the backdrop of interest rate volatility and recessionary concerns, we remain encouraged by the level of activity year to date. Leasing activity has been led by strong demand from traditional industries, financial services and law firms in particular, With many financial firms growing their footprint and accounting for 40% of the 7,400,000 square feet leased in the Q1. The availability rate in newly constructed properties has substantially declined with much of the new trophy space now largely absorbed at record level rents. Tenants in the market are increasingly focused on the highest quality redeveloped Class A buildings that are well amenitized, have strong sponsorship In our near transportation in Midtown and on the west side, which is resulting in rents moving up in these buildings. Our office portfolio is filled with these types of buildings. Speaker 300:09:30Companies are clearly willing to pay more for the right work environment that they believe will help them retain and attract talent as well as motivate their employees back to the office. While there is solid activity in the market, large requirement deal flow is lagging and concessions remain stubbornly high. Focusing on our portfolio. During the Q1, we completed 22 leases totaling 777,000 square feet with healthy metrics, including starting rents at $101 per square foot and a positive mark to market of 1.7% cash and 8.5% GAAP. This included our full building, 585,000 Square Foot deal with Citadel at 350 Park Avenue and 82,000 square feet at Penn 1 at $92 starting rents. Speaker 300:10:18If we exclude the Citadel deal from our statistics, Our team completed 21 leases totaling 192,000 square feet at $83 starting rents with a very strong Cash mark to market of 13.1%. We are continuing to experience good momentum in the Penn District with a steady stream of new leases at Penn 1 at ever increasing rents, now in the high 90s and breaching $100 per square foot in the building's tower floors, reflecting tenants' attraction to the unique amenity offering we have in the most successful location in the city. Tour activity is picking up at PENN2 as well now. The project is nearing completion and tenants can better appreciate the redeveloped product. Overall, we have very good activity in many of our assets, generally at higher rents than a year ago. Speaker 300:11:08Our leasing pipeline in New York remains healthy. We have more than 400,000 square feet of leases in negotiation, plus an additional 1,400,000 square feet in our leasing pipeline. Much of this activity is at buildings where we have significant move outs this year and The financial sector in particular continues to be active. With that, I'll turn it over to the operator for Q and A. Operator00:11:32Thank you. We will now begin the question and answer session. Our first question comes from Steve Sakwa with Evercore. Please proceed. Speaker 400:12:17Yes, thanks. Good morning. Steve, I appreciate the comments on the dividend and the additional Color there. I just want to make sure when you talk about going on offense, does that really just mean buybacks or could that include Potentially buying buildings as well or is buybacks really the only thing on the table at this point? Speaker 200:12:37Buybacks are much The best value is in buying back our stock. So we will focus on our stock at the expense of buying a building here and there. If we buy a building that used to be $1,000 a foot for $700 a foot, That potential, tails in relation to the value that we see in our stock. Speaker 400:13:05Great. And then as a follow-up, Michael, I'm just wondering if you could maybe talk about the leasing dynamics sort of between PENN2 and PENN1. It sounds like With the renovation at Penn 1, you're getting really good traction at the triple digit rents you sort of talked about when you did the redevelopment. And I'm just curious, are you getting closer to getting some tenants in and secured at PENN2? Is that project kind of near completion by the end of this year. Speaker 400:13:33I guess what's the hold up on getting leases signed at PENN2? Speaker 500:13:39Hi, Steve. It's Glenn. So yes, PENN1 is on fire. Leasing activity is strengthening really week to week, great Tenants, financial, technology, accounting, consulting and rents are now piercing 100. So we're really pleased how PEN-one is coming along. Speaker 500:13:57And really as PEN-two unfurls month to month, The project is looking better, better and better, just amazing product we're delivering. And as the PENN1 activity continues to strengthen, That seamlessly flows in the PENN2 action. So we now have PENN2. We're getting boxed out of PENN1 looking at PENN2. Our tour activity It's higher than ever right now with PENN2, some large activity, some single double 2 floor activity. Speaker 500:14:29The building will lease. It is the best product available in the market. It is in a perfect location. It is at transportation With amenities like no one else has. So we're supremely confident in the product and we look forward to great success certainly to us. Speaker 200:14:51Steve, hang on for one moment. You should know That earlier, we had the opportunity to lease the bustle floors, but half of the bustle floors To 2 different prospects, important companies and we turned them down. So we have a great deal of confidence in the product And the building as Glenn says, the building will lease. Operator00:15:27Our next question comes from Alexander Goldfarb with Piper Sandler. Please go ahead. Speaker 600:15:33Good morning and thanks So two questions. First, Steve, you guys recently on your Q3 call, you outlined the potential to Resized the dividend, which you guys did, and then a few months later decided to suspend it. Obviously, the rate environment has remained up and to the right. The office leasing, the capital needs of the company, everything else sort of stayed the same. So what changed in your view, the Board's view between deciding To resize the dividend from $0.53 quarterly to the $0.37 to then suspending it, I'm just trying to figure out what changed because the macro and the leasing Fundamentals and the balance sheet all seem to be the same. Speaker 200:16:22Alex, hi. Actually, you're correct, nothing changed. The only thing that really changed was Yes, our stock went down 35% from as I said in my remarks from a low level to an even lower level. We put our heads together and we decided that after years years of avoiding buying back stock For lots of very good logical financial reasons, we decided that the time was now. We consider buying back stock to be Offensive move and we decided that we were going to buy back stock. Speaker 200:17:06So that's the first point. We think the value is there. We think it's by the way, I'm not calling a bottom. What I am saying is that our So that's the first thing and we announced it. By the way, it was a little awkward for us to announce A stock buyback in a dividend press release, but nonetheless, we thought that they match Together they were a pair. Speaker 200:17:36So that's the stock. We're going to buy back stock. We consider that to be an offensive move and we're very excited about Now the next question is with dividend and where do we get the resources to buy back stock? Well, the first question is that the taxable income is moving around. Things are changing. Speaker 200:18:01We will be selling assets presumably. We have we cannot yet predict How much the asset sales will be? What will be the taxable income from them? We just don't know yet. So that's the first thing. Speaker 200:18:18The second is, is that we announced in the dividend release that We will pay the dividend at the end of the year as we must, but we don't consider suspending the dividend or Exporting the dividend for 2 quarters to be a big deal. Maybe you do, but actually I don't. We will pay the dividend as we must in the Q4 and we will pay the dividend in whatever the appropriate size is. So that's one unknown. The second unknown is we announced that we would pay it either in cash or in a combination of cash and script. Speaker 200:19:00I think that it's not impossible that we will pay the dividend in script. I'm not making prediction, but I'm saying we are retaining that option. Why? We believe that a shareholder received stock In lieu of cash and a dividend, it should be indifferent. It's exactly the same. Speaker 200:19:23You can sell the stock and provision to cash, etcetera. So we believe that it is, by the way, as sort of humorous, We did spend a significant amount of time in our council room and in our boardroom going round and round on, let's just think about this. We're going to be perhaps issuing stock in lieu of cash for a dividend, But we're going to be buying back stock. Isn't that circular? And the answer to that is no, it's not because The issuing stock for a dividend is pro rata. Speaker 200:20:02Everybody has exactly the same percentage ownership in the company, The minute before they get the stock and the minute after they get that stock. When a buyback, however, is Discriminate because people will make a decision to sell and reduce their percentage ownership of the company Was to not sell and increase their percentage ownership in the company. So anyway, that's the fact of the matter is that we We'll size the dividend at the end of the year. We will make a determination as to whether to pay it in all cash or part cash and stock. And if we pay it in part stock, that will go a long way to Funding, buybacks or whatever. Speaker 200:20:52So that's our thinking. Okay. Our thinking is it's offensive And we think actually the right thing to do. Speaker 600:21:04Go ahead, Alex. Yes, that segues into the next question. So I mean, obviously, You've seen your cross count peer do a few 1,000,000,000 Hudson did a buyback. I mean, there's not a lot of evidence that buybacks help, When we look at your balance sheet, it looks like you have $2,400,000,000 of debt where the swaps expire later this year. So my question is, wouldn't the $200,000,000 be better spent And Michael, in the $0.55 that you said this year would be down versus last year, that includes these swaps burning off or these swaps burning Speaker 300:21:45Our expectation of swaps, caps, etcetera, that roll off this year. So that's in that number. Speaker 200:21:58Alex, we have a great deal of confidence in the strength of our balance sheet. We think that our maturities are well laddered. We think that most of our debt, The vast majority of it, our debt is non recourse and that's a crucial and very important element in the strength of our balance sheet. We obviously will consider management of our debt In contrast to buying back our stock, each time we get into the situation of making that choice, We have confidence that we will make the right decision by the way. Speaker 600:22:43Okay. Thank you, Steve. Speaker 200:22:46Yes, sir. By the way, one last point, okay. There's no other company that I'm aware of that is spending multiple 1,000,000,000 of dollars on Operator00:23:16Our next question comes from Michael Griffin with Citi. Please go ahead. Speaker 700:23:22Great. Thanks. Maybe just piggybacking on Goldfarb's question there about the stock buybacks. I mean, Steve, you just used I'm not calling the bottom. I guess what gives you the confidence that the stock is trading so cheaply relative to your We've known that office NAVs relative to the stock price have been pretty materially depressed recently, but your share price relative GFC times is down 30 plus percent from the beginning of 2009. Speaker 700:23:52So have you drawn some analysis? Is there really some kind of thought behind it? Or Is there a worry that this could be akin to catching a falling knife, so to speak? Speaker 300:24:05It's Michael Griff. Good morning. The answer is, when I think what Steve said, he's not going to the bottom. I think that commentary relates to the macro environment is likely going to remain choppy near term. The Fed appears to be coming to the end of their tightening cycle, but it's not definitive. Speaker 300:24:27We don't know whether rates Stay higher for more extended period of time. But I think as we evaluate The company, when you look at the price throughout the intrinsic asset value, even on a stress case, We think it is heavily discounted, right? So we think the pricing has become irrational. Every day there's negativity about Office and the media, and some of that's warranted, but we think that's the whipping boy for today. And so that's That obviously has an effect on sentiment. Speaker 300:25:05And so it's gotten a bit extreme, right? And I think our action is a reflection of that. And As we stress the valuation and we have, we think there is a significant margin still. Speaker 700:25:22That's helpful. And then maybe just one on leasing for Glen. I guess, ex Citadel this quarter is about 200,000 square feet of leasing. Was there anything really driving that? And then do you have any big updates on, I guess, the move out at 770 Broadway and then think there's potential expiration at 1290 AOA. Speaker 700:25:41I think it's with AXA Advisors, but if you could just update us on that, that would be great. Speaker 500:25:46Yes, sure. So the color on the 200,000 feet that we leased outside of Citadel was substantially PENN1 And then some strong financial service deals at our Plaza District buildings with rents that started $83 a foot, cash mark to market Speaker 700:26:22Hello? Operator00:26:22Pardon me. This is your conference operator. Please Proceed. It seems we had a bit of interference. The main speaker line is connected. Operator00:26:31Please proceed with your response. Speaker 500:26:37So that was the 1st quarter non Citadel activity. As it relates to 1290, 770 and other expirations this year in 24, we're obviously In the market and we're seeing very strong demand for those properties. If you think about the portfolio, We think it's the strongest in the city and those buildings particularly have underwent great redevelopments in the past. We're adding some of our work life amenity programs to those assets currently on the board being drawn up. So a lot of our pipeline is at the 1290s, the 770s, the 280 parts, the PENN1s, etcetera. Speaker 500:27:22So we're out there. We're already in paper on a lot of space at some of those assets. And I feel good about those properties And those spaces coming back in terms of making matches with the tenants who are in demand in the market right now. Speaker 300:27:36And, Graf, I may just add to that. And I think I mentioned this in my opening remarks. If you look at what's happened in the market, right, the new trophy space that was delivered, which has Seeing record rents, significant demand. That's largely spoken for. And I think we talked last quarter about broadening out of And activity not everybody wants to pay high 100 dollars to $200 square foot rents. Speaker 300:28:00Well located, redeveloped assets Near the transit hubs are what is seeing that demand. The buildings where we have holes in them, the 280s, the 1290s, etcetera, We're seeing very good tenant activity there and rents are starting to move up in those assets. So I think that's important, right? Concessions are high, but rents are starting to move up from these other assets because there's such a delta Between the new buildings and these redeveloped assets that are well located and proximity to transit is critical. Obviously, the state of the building is important, but that's a continuing trend we're seeing. Speaker 300:28:50And we're pleased with the activity at A number of our assets that are consistent with that theme. Speaker 200:29:00All right. That's it for me. Thanks for the time. Speaker 500:29:04Thank you. Operator00:29:05Our next question comes from John Kim with BMO Capital. Please go ahead. Speaker 800:29:12Thank you. Good morning. I wanted to follow-up on the dividends and the secular aspect of suspending it at this time. Two questions on that. 1, do you anticipate your share count will be reduced by year end? Speaker 800:29:27And 2, when you decide Speaker 300:29:39John, I think that we anticipate the share count being I think it all depends on the execution of the buyback, Right. We're going to monitor the marketplace and decide when to execute, how to execute. I think it's difficult to answer your first question today. Obviously, the dividend wouldn't get paid out until year end. So the likelihood is the share count to go down And then back up, Steve alluded to in terms of similar we increased the stock dividend. Speaker 300:30:11And then issuance, again, when it comes to year end and we evaluate how to pay it, Everything will be taken into consideration. We'll evaluate the cash versus script component and Decided that time based on what we thought back and how much we generated from asset sales, etcetera, etcetera, what's the right mix. Too early to answer all those things. Speaker 200:30:39Okay. Speaker 800:30:41It just seems like if you're buying it back at a 10 Sorry, go ahead. Speaker 200:30:48So I'm remote and my equipment stinks. So Sorry, I cut out on the back. The reason for the pause in the dividend is Speaker 800:31:09I was going to say, it makes sense to buy back at these levels, I suppose, at a 10% implied cap rate or so. But then If you issue it back at 10%, then it doesn't really make an impact. But my second question is But Speaker 300:31:25my second question is It does for an individual holder, right? In other words, if you all that's pro rata, as Steve said, if you hold throughout, You own more of the company going forward. Speaker 800:31:37Got it. Okay. My second question is on the leasing pipeline. Speaker 200:31:42John, as I said, that's the circular argument, which we spend a great deal of time on in our counsel room and even in our boardroom. But the issuance is pro rata. You own exactly to the penny, the same Percentage ownership of the company that you used to own, you have a few more shares, but it's the same percentage ownership, whereas the buyback is the opposite of pro rata. Speaker 800:32:11Right. Okay. My second question is on your leasing pipeline. I think, Michael, you mentioned 400,000 square feet in negotiations currently. I wanted to see how that compared versus the last quarter. Speaker 800:32:23I think you mentioned last time it was 1,200,000 square feet, 2 $175,000 being finalized. I know those terms are a little bit different. But apples to apples, where does your pipeline compare today versus a few months Speaker 500:32:37ago. Hi, it's Glenn Weiss, John. I would say it's very consistent. So when we talk about 400,000 feet out, that's leases, documents in negotiation, where the term sheets are final and the lease documents are being negotiated. The additional 1,400,000 feet are deals that we're speaking with brokers and tenants. Speaker 500:32:57We have proposals In the house, we've responded to those proposals and we have a rhythmic back and forth on the deal making. So it's consistent, I think quarter to quarter what we're seeing, mainly the activity is financial service and law firms in that pipeline. But across the board, I'd say that the rhythm of the deal making, the tenant demand, the tours have been consistent The last call it 2 to 3 quarters. Speaker 800:33:30And can you break that out geographically? Speaker 500:33:37I would say between Penn and Midtown, For us, pretty well averaged out between the 2 submarkets. And in Midtown, mainly the Plaza District Buildings, Which attract the financial Speaker 200:33:53service tenants. Speaker 800:33:56Very helpful. Thank you. Operator00:34:00Our next question comes from Camille Bonnell with Bank of America. Please go ahead. Speaker 900:34:06Good morning. Could we touch on the financing market? We've been hearing over recent weeks that the credit spreads have moved higher since the issues around regional banks, But notice you completed a refi on Rosalind Plaza this month and the spread came in slightly lower. Was this a surprise or more of a reflection of other characteristics to the loan. Speaker 300:34:29Michael? Yes. Camille, look, I think every asset is So in that particular situation, it's not a large loan. We delevered it a bit and our job is to find the best lenders for each situation. It was a good execution. Speaker 300:34:54As a general matter, I agree with your first comment. The markets are challenging, spreads have widened out. But again, Asset dependent, sponsor dependent. There is capital out there. It's not robust by any measure, but there is capital out there for Right sponsors, right assets and with good term or the right loan to value levels, The spreads, albeit wider than a couple of years ago, are still okay. Speaker 300:35:25I think it's where you have assets that are higher levered or there's much more volatility in the income stream near term where It's more challenging. Speaker 600:35:35So I Speaker 300:35:35think Roslyn was a small asset, good execution and reflective of Speaker 200:35:47My take on this Camille is markets are extremely hostile. This is the time in the cycle where your best did not have to refinance or finance. If you have to finance, you're at a huge disadvantage. And one of the things that I like about our strategy is We have very little that we have to finance. So especially with our cash hoard, which is Financing our Penn Construction. Speaker 200:36:18So the markets are really hostile and the best bet is just stay out of them. Speaker 900:36:26You were cutting out a bit, Steve, but I think I got parts of your message. So thank you. And then just switching, in the last quarter, Glenn talked about The opportunity of converting showroom space to the mart at the mart to office, I was wondering how That specific business plan is progressing and how interest has been tracking so far into April? Speaker 500:36:53So the casual business departed for Atlanta in the 4th quarter. We're now preparing that space For office leasing, I mean in general, we have a pretty good pipeline in Chicago. Our amenity program will be complete By June, we're going to be out there for NeoCon and another broker event this summer, which we're looking forward to, So really bring the program out to the market. So the pipeline is good in Chicago. The market is tough. Speaker 500:37:22There is not a huge lot of tenant demand and particularly not a large tenant demand except the present. Our showroom business continues to perform. We've leased about 60,000 feet this quarter at $60 starting rent on the showroom business. The office business, We've leased over 500,000 feet of office the last 3 years. We have modest expirations the next 3 years. Speaker 500:37:47We're grinding out the office. We're getting looks from all the majors. We're in very solid discussions now with a couple of tenants looking to move their headquarters to the mark. So starting to feel better, but certainly tough conditions in Chicago as we sit here. Operator00:38:08Our next question comes from Julien Bluhlen with Goldman Sachs. Please go ahead. Speaker 1000:38:15Hi, good morning. Thank you for taking the question. I wanted to go back maybe to the potential for asset sales. I know on the last call, I think the comment was that you didn't foresee being able to delever via asset sales for the next 24 months. But now it sounds like you see a real potential for asset sales this year. Speaker 1000:38:37Has your thinking changed at all? Is it really down to maybe the share price Now thinking that even at sort of distressed pricing, you can get some accretion from repurchasing shares. Just curious to Sort of get your thoughts on that. Speaker 200:38:54Michael? Speaker 300:38:56Yes. Julien, I had seen your, I guess, Caitlin's note, and I was a little surprised by the comment about no assets next 24 months, I don't think we said that on the last call. I think we've said it's a more difficult market to sell assets in, but I don't think we said we weren't going to try I think we said we're going to be targeted and recognize that you have to be So I don't know that our outlook has changed that significantly. It continues to be a difficult market to sell assets We think we have some that as we think about which assets we want to sell, it's a mix of We do think they're saleable. And I think your comment sort of at the end While the market may not be strong or as strong as it was And pricing has been impacted. Speaker 300:40:02Our share price has been impacted more. So I think that's exactly right, right? We may not love the price Some assets today relative to where they were a few years ago, but relative to our stock price, we do like that pricing. The answer is, we're not a forced seller. We don't have to sell anything. Speaker 300:40:19We're going to be targeted. We can execute some sales. We have some dialogues Going on certain assets, we're going to pursue sales on a couple of other things that probably were not in our thing a little bit Earlier in the year and our expectation is we're going to be able to execute on some of that, but given the uncertainty in the market, Not going to guarantee it and nor are we going to be forced to sell anything. So we'll see how the rest of the year plays out, but it is our intent to Operator00:40:59The next question comes from Daniel Ismail with Green Street. Please go ahead. Speaker 1100:41:06Hi, guys. Dylan on here. Just touching on the asset sales, I guess, do you guys have anything in the market today? And if you could provide sort of further detail or color on sort of what sort of the profile of these assets are? Should we expect these to be some of the higher quality properties with Longwall? Speaker 300:41:25Daniel, we're not going to get into specifics. The answer is we have discussions going on a few assets. No, this is not generally a market that you blast things out. You got to focus on who has capital, willing to deploy. I will say there are a number of investors that view this as an interesting time to enter New York. Speaker 300:41:44And in some cases, there's decent duration on the leases, other cases, It's more traditional rollover in terms of buildings, certain percentage every year. And as I mentioned, it's a mix of both retail and So not going to get any more specific to that until we have something to announce. But as I said, we do think that they're If you find the right investor and you're realistic on price. Speaker 1100:42:16Okay, that's helpful. And then just we're 3 years through the pandemic, office utilization still remains Fairly low relative to the 2019 levels. So just curious if you guys have seen any changes with regards to how tenants are building out their space? Speaker 500:42:36This is Glenn. Generally, I would say more Collaborative collegial spaces, open workplaces like I always call it hangout spaces. But if you look across Generally, you're still seeing some private office mix with the traditional cube open areas. In terms of densification, some industry types are more dense, some are saying density they were. It's really a mixed I wouldn't say consistent layout of any industry type as it relates one to the next. Speaker 500:43:13Generally, I don't think there's much of a New theme than what we've seen previously other than the hangout collaborative collegial environment. I mean the one thing that we are focused on in terms of the workplace is what we've done in the buildings, particularly 1, what we're doing at Penn 2, what we've done at the Marq, what we're going to do shortly at 1290, where we believe tenants want to be in these buildings The way we have really improved the experience when you first enter the asset. So the first experience that impact we Most important, our success. When people come in, they're comfortable, they could eat, they could drink, they could hang out, they could Go to the gym, whatever they're going to do, we look at it like they're coming into a concierge hotel environment. And that's how we've created these new workplaces in our portfolio, which has been working extremely well as it relates to our program. Speaker 600:44:18Great. Appreciate the color. Thank you. Operator00:44:23Our next question comes from Derek Johnston with Deutsche Bank. Please go ahead. Speaker 1200:44:31Years ago in 2018, which seems like another world, you hosted at 555 California Street for investors. So stay with me. So Jerry's bet was about, You know me, I could be anywhere. Why am I at a tent in San Francisco? So Steve, look, we all know you. Speaker 1200:44:55You could be anywhere, but you're right here. You're sticking this out, which means to us that you see a way out of this negative office REIT narrative. So I guess the question, how do you envision what's it going to take for Vornado to get past this environment and emerge stronger? Speaker 200:45:19Well, I need to get Jerry Seinfeld to help me answer this question. I think it's happening now. I think time is our friend here. I think that it's very clear that employers want their employees back in the office. They want to be able to have people working together. Speaker 200:45:43They want the managers to be able to manage their people. And so they have been struggling because there is a Cadre of employees that don't that are sort of fighting coming back to the office. I think that over time, if you go back If you go forward, Valerie, you look out 5 or 7 years, I think we will go back to what was considered normal 5 years ago. I think time is our friend here. It's pretty by the way, just to add to that, it's pretty clear people want to be in the cities. Speaker 200:46:26So the apartments are full, The restaurants are full, the cities are full, the streets are full. There is a reluctance on the part of certain Demographic of coming actually going to work in the office, okay? That is Starting to evaporate, okay. Time is our friend. Speaker 1200:46:53Thanks, Steve. That's it for me guys. Operator00:46:59Our next question comes from Vikram Malhotra with Mizuho. Please go ahead. Speaker 1300:47:06Thanks for taking the questions. So just first, I wanted to clarify, you said nothing changed between when you adjusted the dividend down Couple of months ago and then now, but I'm just sort of looking at the dividend run rate you had then and now the taxable income you're projecting. Can you just help bridge What appeared to be sort of your projected taxable income with run rate of, let's call it, dollars 0.37 dollars 0.38 dollars And today it's more like $0.25 I'm just wondering your debt is fixed now. I'm Assuming you had outlined, I think, a $0.50 impact and that was to FFO and O, but you had outlined various impacts that you baked in. So I'm just trying to bridge the two numbers. Speaker 1300:47:48What has changed in driving that projection lower from here? And can you just comment if that projection now Includes a change in the way exploration may be renewed? Speaker 200:48:02As I said, nothing's changed. We have left room for some asset sales. By the way, if you read the Wharton Properties CFO's comment in their earnings call, You'll see basically exactly the same statement that I've just made. So what I'm saying is that We right sized the dividend and we left room for asset sales. Speaker 800:48:35Okay. That makes sense. Yes. Speaker 200:48:39Go ahead. I'm sorry. Go ahead. Speaker 1300:48:41I was just going to say you talked about asset sales, not knowing where pricing is or what could be achieved. But I'm just from your vantage We've seen a variety of different rates, some in New York, some in California, with handles that are We probably didn't think we would see this maybe a few years ago, dollars 300, dollars 400 a foot. Some other buildings are maybe higher. But I'm just trying to understand, a, how are you identifying what assets to sell? And then is there a point in which You say the sale doesn't make sense given pricing. Speaker 1300:49:17I guess I'm just trying to get a sense of where do you see values shaking Across a variety of office types. Speaker 200:49:28We're familiar with What you're referring to, we are not a distressed seller. We are not a weak seller. In fact, We are selecting a focusing on a very select pool of assets, a few assets where we consider ourselves to be offensive sellers because the proceeds will be If we can execute, the proceeds will be invested extremely accretively. So, you can count on a couple of things. We will be very selective. Speaker 200:50:05We are not in the wholesale selling business. And if we do, we by the way, we know how to walk away, we know how to say no. If we do execute, We will it will be extremely accretive. Speaker 1300:50:23Okay. Thank you. Operator00:50:27Our next question comes from Anthony Paolone with JPMorgan. Please go ahead. Speaker 1400:50:34Yes, thank you. Just on the Penn District, apologies if I've lost the thread on just the back and forth with the press and your comments. But If you look out the next couple of years, is there a way to crystallize what you intend to do or spend Beyond what's underway right now with the buildings and stuff that you're doing that's in the sup, but What's committed to or what do you intend to do outside of that if anything? Speaker 200:51:05We haven't Gotten into that. We haven't announced that. We haven't quite gotten that far. We have Already in the Penn District done heroic accomplishments. We did the Moynihan Train Hall in a private public partnership. Speaker 200:51:25We did the widening The Long Island Redwood Concourse, we have the resale on both sides of that concourse. We completed the 730 odd 1000 Square Foot Facebook deal in Farley. We have done a massive and very successful renovation of PENN1, where we have driven the rents from $55.60 to the stunning side of $100 a foot and delivered value to our tenants and we are in the middle of a $1,000,000,000 renovation of PENN2. Together with that, we are doing Area wide improvements, infrastructure to the public realm, and we're going to take a breath. The prospect of doing ground up development, we will likely start with an apartment project, But we have not yet announced what we're doing. Speaker 200:52:36We're in the middle of planning that and we're actually very excited about it. Speaker 1400:52:42Okay, thanks. And then just one just maybe clarification question for me or just a reminder, If I was on your balance sheet, the $14,000,000 or so Class A units seem to have a redemption Price of I think about $23.5 a share. I mean given where the stock is, is there any thought that Those holders could exercise and am I looking at that right? Speaker 200:53:11Michael or Tom, you're going to have to help me with that one. Speaker 300:53:16Yes. Let us come back to you on that one. Speaker 1400:53:20Okay. Thank you. Operator00:53:25Our next question comes from Nick Yulico with Scotiabank. Please go ahead. Speaker 1500:53:31Thanks. I wanted to see if there's any update you could provide on the retail JV and I know the loans that matured We're still talking to the lenders. Just how we should think about that? Is it a situation where you are prepared to walk away from the assets? And Specifically as well that 1 mortgage, 645, which matures next year, which is one of your loans that is recourse to the company. Speaker 1500:53:57What should we think about the plan on that specifically? Speaker 200:54:01Michael? Speaker 300:54:03Yes. Good morning, Nick. On the First Asset, San Regis, which we talked a little bit last quarter, that continues to be in discussion with the lenders. And we're, I think, heading towards a Usually acceptable resolution there. So hopefully that will be done in the next 90 days. Speaker 300:54:29And with respect to $640,000,000 which matures next May, That's something that we started to work on now, start to gauge the financing markets, I've talked with an existing bank loan, so obviously the existing lender is somebody that We'll continue discussions with as well. So, too early to tell on exactly what's going to happen there, but obviously the intent Yes, it's to refinance that asset and whether we do it at par or pay it down a little bit, but the expectation is that asset will get refinanced. I will say, Nick, I think one interesting dynamic, sort of 2, 3, 4 years ago, right, retail was a Category for most people, but for retail, it's flat. Retail is, I think, people view the worst is behind us. The capital markets are more constructive, both investors as well as lenders. Speaker 300:55:40And Yes, they have to sort of understand and think about how to deal with above market rents in some cases. But I think in general, The capital markets are more constructive on retail today than they have been in a few years. Speaker 1500:55:57Okay. Yes, thanks, Michael, just one other question is going back to the commentary on a potential buyback. I mean, the debt capital markets right now Seem as bad as they've been for office since the great financial crisis and there's a bearish argument that maybe the lending markets don't come back in a way that they existed in the past decade. So it seems to me that if you're talking about asset sales to fund a potential Stock buyback, there's implicitly a view that you think the lending markets improve. And I guess I'm wondering why make That call now instead of paying down debt, I mean, you have a balance on your line of credit, you have maturities you're dealing with over the next year or so. Speaker 1500:56:46Why isn't that the better use of capital to sell assets, pay back debt And perhaps that would even reward your stock price more so than a buyback. Speaker 200:56:57Michael, why don't you try that? Speaker 300:56:59Yes, Nick, I don't think I mean, to be clear, I don't think we said buybacks and not I mean, when we said asset sales, I don't think we said just buyback, right? I think depending on I think we said that, first of all, the buyback amount we put out, I would characterize as fairly modest. Dan, as Steve said earlier, it could be funded largely from retained cash from the dividend. But in terms of asset sales, Yes. I don't think we've said anything about it. Speaker 300:57:28It's just oriented towards buyback. If we execute on asset sales, of course, we're going to look at The proceeds and what the best use for that is. And we're very mindful. Like our number one priority is making Our balance sheet remains strong. We can tackle anything and delevering certain situations or pushing out maturities by paying Of course, that's going to be in the toolbox. Speaker 300:57:51So we agree. We're going to focus on making sure the balance sheet is strong and Asset sales are going to be used for a variety of different things. Speaker 1500:58:05Appreciate it. Thank you. Operator00:58:10Our next question comes from Ronald Kamden with Morgan Stanley. Please go ahead. Speaker 200:58:17Hey, just Speaker 1000:58:17a couple of quick ones. So I was looking at the cash flow statement and looking at the $92,000,000 of operating cash flow this quarter. Obviously, there's some working capital seasonality, but just one, can you talk about what happened to OpEx in the Quarter looked elevated and I suspect sort of flowed through. And then 2, I know you said nothing changed, but Was this sort of cash flow in 1Q part of the connecting the dots about postponing the dividend and Thinking about doing a script dividend just to preserve cash flow. Speaker 300:58:52On your second question, I'll definitely not. I mean, again, Nothing has changed. So, no. On the OpEx Maybe there's some seasonality. Ron, we could work offline and take a look at your model. Speaker 300:59:09I don't think it's material. Speaker 800:59:10I don't think it's material, though. Speaker 1000:59:15Great. And then just the last one, just on the refinancing. You already hit on the Avenue property, which I was going to ask about. But any comments on 280 Park, as well, which is coming next year? And just any general color when we're thinking about the model, what sort of rates, potential pay down, how are you guys thinking about that? Speaker 1000:59:38Thanks. Speaker 300:59:40Yes. What I would say as a general comment, Ronald, is your existing lender is your best new lender. I think most lenders appreciate that, that it's going to be difficult to refinance certainly large assets for the foreseeable future. So they're going to have to work with their borrowers, sponsors they feel are the right stewards of the asset, which I think clearly we are. And so I think on a number of these situations, you're going to see extensions for So in some cases, there might be a paydown, in other cases, there might not be. Speaker 301:00:17So the answer is discussions have started there And we'll see how they ensue. But I think on these larger near term situations, I think the lenders and the borrowers are fairly tied together for the near term. Speaker 101:00:37Thank Operator01:00:41you. Our next question is a follow-up from Alexander Goldfarb Piper Sandler. Please go ahead. Speaker 601:00:47Hey, thank you for taking the follow-up. Maybe I missed it, but did you guys talk about 555 1, the debt restructuring with the servicer, what you guys are thinking about that? And 2, just given all the stories that we hear about Just the state of San Francisco's office market, what's going on with leasing in the building, the Montgomery Street box, etcetera? Speaker 301:01:13Yes, I'll touch on the first and then I'll have Glenn touch on the second, Alex. It can be a bit frustrating when things are written, which are just not fact based. There's this notion that 555 was The answer is building is performing extraordinarily well. There's no issue with the loan. We took out an outstanding loan 2 years ago and it was structured as a 2 year initial loan with a series A 5 year, 1 year as of right extensions, right? Speaker 301:01:48And by as of right, if you want the additional term, all you have to do is send in a letter and you get So once a year, we're going to send a letter to the servicer. We're going to extend the loan and that'll be that, right. So there's no Threat of default, there's never been a threat of default. There's never been an issue with this loan. It was a 7 year loan structured that way. Speaker 301:02:08So all the articles written on this thing, Nobody did their homework. And by the way, there may be other situations like that. So it bears understanding How the loans were structured and what the real story is, which everybody wrote on that just got it dead wrong. In terms of the building, I'll let Glen talk about it. But again, it continues to be, I think, the best performing asset in San Francisco with Just a premier line of a financial service then. Speaker 501:02:38Hi Alex, it's Glenn. Hi Michael, Speaker 201:02:41Michael, Michael, Michael, Michael, the rate is swapped. Speaker 301:02:46Yes. Yes. That's right, Steve. Speaker 201:02:53Alex, first of all, it's really a 7 year loan, which as a combination to the lender was structured as a 2 +5 ones. Okay. It was a 7 year loan. And so anything so the newspapers got it all wrong. The second thing Is that it was a floater that we swapped at a very favorable rate and we swapped it for, I don't know, 6.5 years or something like that. Speaker 201:03:19So and the second thing is, it's the best financial services building in the marketplace, it's full. Glenn, you want to comment about the quality of the building? Speaker 501:03:31Look, the building has been perfectly insulated Against everything you're reading about in that marketplace. We've lost 0 tenants to anything, Goldman Sachs, KKR, Microsoft, BofA all renewed their leases during the last 3 year period, which speaks to the asset. I think that's all I really need to know and none of them reduced in size. We're obviously in the market with the Q3 45, that's our only It's 77,000 feet. We finished the redevelopment obviously a couple of years ago. Speaker 501:04:04We continue to show it, But the campus, the 3 buildings has performed perfectly during this period, and it's clearly shown that The best asset in the city. Speaker 601:04:16Okay. I appreciate both comments. So thank you. Speaker 201:04:24You'll pardon us if we get a little bit annoyed at the misinformation. Speaker 601:04:29That's the beauty of these earnings calls. Operator01:04:36This concludes the question and answer session. I would like to turn the call back over to Steven Robb for any closing remarks. Speaker 201:04:45Well, thank you all very much for joining us. We are actually very excited about beginning a buyback program. We're also We think what we're doing with the dividend is extremely logical and we understand and appreciate your support. Thanks for joining And we'll see you all in 3 months. Operator01:05:12Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallVornado Realty Trust Q1 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release(8-K)Quarterly report(10-Q) Vornado Realty Trust Earnings HeadlinesVornado Announces First Quarter Earnings Release Date and Conference Call InformationApril 24 at 11:40 AM | globenewswire.comVornado Announces PENN 1 Ground Rent Reset DeterminationApril 22 at 6:07 PM | globenewswire.comM.A.G.A. is Finished – This Could be even BetterYou’ve no doubt heard Trump’s rally cry: Make America Great Again. But recently the President made a big change. Make America Wealthy Again (M.A.W.A).April 24, 2025 | Paradigm Press (Ad)Morgan Stanley Sticks to Its Hold Rating for Vornado Realty (VNO)April 16, 2025 | markets.businessinsider.comVornado’s Retail JV Completes $450 Million Financing of 1535 BroadwayApril 15, 2025 | markets.businessinsider.comVornado's Retail JV Completes $450 Million Financing of 1535 BroadwayApril 14, 2025 | globenewswire.comSee More Vornado Realty Trust Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Vornado Realty Trust? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Vornado Realty Trust and other key companies, straight to your email. 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There are 16 speakers on the call. Operator00:00:00Morning, and welcome to the Varnado Realty Trust First Quarter 2023 Earnings Call. My name is Sarah, 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. Operator00:00:28I will now turn the call over to Mr. Steve Borenstein, Senior Vice President and Corporate Counsel. Please go ahead. Speaker 100:00:37Welcome to Vornado Realty Trust's 1st quarter earnings call. Yesterday afternoon, we issued our Q1 earnings release and filed our quarterly report on Form 10 Q with 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 supplement. Speaker 100:01:14Please 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. Please refer to our filings with the Securities and Exchange Commission, including our annual report on Form 10 ks for the year ended December 31, 2020 2 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 Stephen Roth, and Michael Franco, President and Chief Financial Officer. Speaker 100:01:55Our senior team is also present and available for questions. I will now turn the call over to Steven Roth. Speaker 200:02:02Thank you, Steve, and good morning to everyone. Let me get a few things out of the way first. Our business Well in this environment, our outlook hasn't changed since last quarter. We are full speed ahead on our current projects Over 5,000,000 square feet in the Penn District. Any comment in the newspapers or industry tabloids that we have stopped is incorrect and just plain silly. Speaker 200:02:27Just take a look at our 3 block long construction site when you next go through Penn Station or next go through a Knicks playoff game. Now some commentary on last week's dividend press release and reaction thereto. Simply stated, we are going on offense. Let me say that again, We are going on offense. A few facts for context. Speaker 200:02:49We know about dividends. In 2022, our dividend was $2.12 or $435,000,000 in cash. Over the past 10 years, we have paid and happily paid $5,100,000,000 in regular dividends and another $400,000,000 in special dividends. Last week, an analyst characterized REIT dividend Sacred and I agree well, I guess I sort of agree. For this year, we have already paid a $0.375 or $75,000,000 cash first quarter dividend. Speaker 200:03:22We will pause paying dividends in the second and third quarters And in the Q4 based upon known facts, actual taxable income, including asset sales, etcetera, we will pay out as we must Taxable income, but we'll reassess whether it is wise and appropriate to pay it in cash or in a combination of cash and script. Shareholders should be indifferent as to whether they receive cash or script, but that cash, if retained by the corporation, might be more wisely employed for As most of you know, I have resisted buybacks for years years, Resisting copycatting in sister industry companies and resisting the pounding from analysts to Closing at AB GAAP. I believe my resistance was logical and fact based. Since last quarter's dividend announcement to this quarter's dividend announcement, our stock price has declined 35% from a low level to an even lower level. Seeing value in the stock and an opportunity to create shareholder value, last Wednesday included in our dividend press release, Our Board authorized a $200,000,000 share buyback program. Speaker 200:04:37We will proceed carefully and in a measured way, funding the buyback from asset sales Even cash retained from paying the dividend in scrip. Since our dividend is sized based on taxable income, not FFO earnings, Here is the math. 2021 taxable income was $2.03 versus a $2.12 dividend. 2022 taxable income was $2.08 versus the $2.12 dividend. 2023 taxable income Currently projected at $1.05 without any asset sales and surely there will be asset sales. Speaker 200:05:17The difference between 2022 and 2023 taxable income is primarily increased interest rates. A couple of other comments. We think we have seen the peak in work from home. More and more CEOs are now requiring their employees back to the office. With each passing week, the office buildings feel more like 2019. Speaker 200:05:39And we believe it's just a matter of time before everyone is back for good. New York City seems to be leading the country in this regard. Lastly, with all CBD office stocks having been crushed I'm great concerned about the future viability of office, it is important to review our financial position and our liquidity. $2,200,000,000 of liquidity, including $1,300,000,000 of cash and treasury bills. We have over 8,000,000,000 At today's marked out values of debt free unencumbered assets. Speaker 200:06:15PENN1, PENN2 and Charlie are all unencumbered. The remaining capital program to complete PENN2 has been pre funded and will be paid for out of cash balances. These buildings have significant future embedded earnings growth and as PENN2 rents up that incremental income will do wonders for our debt metrics. We rely primarily on project level non recourse debt, old fashioned mortgages. Only 2 $5,000,000 of our debt is re cost and that with well laddered maturities. Speaker 200:06:47We are clear eyed and realistic about the near term financial market challenges. It is not pretty when 3% debt rolls over into 6%, 7% or even an 8% market. We will certainly have a few Workouts to deal with over the next couple of we have accrued work out to deal with over the next couple of years, but that is the point of having non recourse debt. We have no maturities this year, limited property level maturities next year and no corporate maturities of 2025 With sufficient capacity on our line that matures in December 27, so that we don't have to refinance at current in the current hospital market. Thank you. Speaker 200:07:30And now over to Michael to cover the financials and the market. Speaker 300:07:35Thank you, Steve, and good morning, everyone. During our last earnings call, we said that we expect 2023 comparable FFO to be down from 2022 and provided the known impact of certain items totaling a $0.55 reduction, primarily from the effect of rising interest rates. The current economic environment makes forecasting more difficult than usual. This remains a decent assumption, absent the impact of any asset sales. As expected, 1st quarter comparable FFO as adjusted was $0.60 per share compared to $0.79 for last year's Q1, a decrease of $0.19 or 24.1 percent. Speaker 300:08:13This decrease was driven primarily by higher net interest expense from increased rates. Our company wide same store cash NOI for the Q1 increased by 1.5% over the prior year's Q1. We have provided a quarter over quarter bridge in our earnings release and in our financial supplement. Our core office and retail businesses remain resilient with long term credit leases. Now turning to leasing markets. Speaker 300:08:37Amidst the backdrop of interest rate volatility and recessionary concerns, we remain encouraged by the level of activity year to date. Leasing activity has been led by strong demand from traditional industries, financial services and law firms in particular, With many financial firms growing their footprint and accounting for 40% of the 7,400,000 square feet leased in the Q1. The availability rate in newly constructed properties has substantially declined with much of the new trophy space now largely absorbed at record level rents. Tenants in the market are increasingly focused on the highest quality redeveloped Class A buildings that are well amenitized, have strong sponsorship In our near transportation in Midtown and on the west side, which is resulting in rents moving up in these buildings. Our office portfolio is filled with these types of buildings. Speaker 300:09:30Companies are clearly willing to pay more for the right work environment that they believe will help them retain and attract talent as well as motivate their employees back to the office. While there is solid activity in the market, large requirement deal flow is lagging and concessions remain stubbornly high. Focusing on our portfolio. During the Q1, we completed 22 leases totaling 777,000 square feet with healthy metrics, including starting rents at $101 per square foot and a positive mark to market of 1.7% cash and 8.5% GAAP. This included our full building, 585,000 Square Foot deal with Citadel at 350 Park Avenue and 82,000 square feet at Penn 1 at $92 starting rents. Speaker 300:10:18If we exclude the Citadel deal from our statistics, Our team completed 21 leases totaling 192,000 square feet at $83 starting rents with a very strong Cash mark to market of 13.1%. We are continuing to experience good momentum in the Penn District with a steady stream of new leases at Penn 1 at ever increasing rents, now in the high 90s and breaching $100 per square foot in the building's tower floors, reflecting tenants' attraction to the unique amenity offering we have in the most successful location in the city. Tour activity is picking up at PENN2 as well now. The project is nearing completion and tenants can better appreciate the redeveloped product. Overall, we have very good activity in many of our assets, generally at higher rents than a year ago. Speaker 300:11:08Our leasing pipeline in New York remains healthy. We have more than 400,000 square feet of leases in negotiation, plus an additional 1,400,000 square feet in our leasing pipeline. Much of this activity is at buildings where we have significant move outs this year and The financial sector in particular continues to be active. With that, I'll turn it over to the operator for Q and A. Operator00:11:32Thank you. We will now begin the question and answer session. Our first question comes from Steve Sakwa with Evercore. Please proceed. Speaker 400:12:17Yes, thanks. Good morning. Steve, I appreciate the comments on the dividend and the additional Color there. I just want to make sure when you talk about going on offense, does that really just mean buybacks or could that include Potentially buying buildings as well or is buybacks really the only thing on the table at this point? Speaker 200:12:37Buybacks are much The best value is in buying back our stock. So we will focus on our stock at the expense of buying a building here and there. If we buy a building that used to be $1,000 a foot for $700 a foot, That potential, tails in relation to the value that we see in our stock. Speaker 400:13:05Great. And then as a follow-up, Michael, I'm just wondering if you could maybe talk about the leasing dynamics sort of between PENN2 and PENN1. It sounds like With the renovation at Penn 1, you're getting really good traction at the triple digit rents you sort of talked about when you did the redevelopment. And I'm just curious, are you getting closer to getting some tenants in and secured at PENN2? Is that project kind of near completion by the end of this year. Speaker 400:13:33I guess what's the hold up on getting leases signed at PENN2? Speaker 500:13:39Hi, Steve. It's Glenn. So yes, PENN1 is on fire. Leasing activity is strengthening really week to week, great Tenants, financial, technology, accounting, consulting and rents are now piercing 100. So we're really pleased how PEN-one is coming along. Speaker 500:13:57And really as PEN-two unfurls month to month, The project is looking better, better and better, just amazing product we're delivering. And as the PENN1 activity continues to strengthen, That seamlessly flows in the PENN2 action. So we now have PENN2. We're getting boxed out of PENN1 looking at PENN2. Our tour activity It's higher than ever right now with PENN2, some large activity, some single double 2 floor activity. Speaker 500:14:29The building will lease. It is the best product available in the market. It is in a perfect location. It is at transportation With amenities like no one else has. So we're supremely confident in the product and we look forward to great success certainly to us. Speaker 200:14:51Steve, hang on for one moment. You should know That earlier, we had the opportunity to lease the bustle floors, but half of the bustle floors To 2 different prospects, important companies and we turned them down. So we have a great deal of confidence in the product And the building as Glenn says, the building will lease. Operator00:15:27Our next question comes from Alexander Goldfarb with Piper Sandler. Please go ahead. Speaker 600:15:33Good morning and thanks So two questions. First, Steve, you guys recently on your Q3 call, you outlined the potential to Resized the dividend, which you guys did, and then a few months later decided to suspend it. Obviously, the rate environment has remained up and to the right. The office leasing, the capital needs of the company, everything else sort of stayed the same. So what changed in your view, the Board's view between deciding To resize the dividend from $0.53 quarterly to the $0.37 to then suspending it, I'm just trying to figure out what changed because the macro and the leasing Fundamentals and the balance sheet all seem to be the same. Speaker 200:16:22Alex, hi. Actually, you're correct, nothing changed. The only thing that really changed was Yes, our stock went down 35% from as I said in my remarks from a low level to an even lower level. We put our heads together and we decided that after years years of avoiding buying back stock For lots of very good logical financial reasons, we decided that the time was now. We consider buying back stock to be Offensive move and we decided that we were going to buy back stock. Speaker 200:17:06So that's the first point. We think the value is there. We think it's by the way, I'm not calling a bottom. What I am saying is that our So that's the first thing and we announced it. By the way, it was a little awkward for us to announce A stock buyback in a dividend press release, but nonetheless, we thought that they match Together they were a pair. Speaker 200:17:36So that's the stock. We're going to buy back stock. We consider that to be an offensive move and we're very excited about Now the next question is with dividend and where do we get the resources to buy back stock? Well, the first question is that the taxable income is moving around. Things are changing. Speaker 200:18:01We will be selling assets presumably. We have we cannot yet predict How much the asset sales will be? What will be the taxable income from them? We just don't know yet. So that's the first thing. Speaker 200:18:18The second is, is that we announced in the dividend release that We will pay the dividend at the end of the year as we must, but we don't consider suspending the dividend or Exporting the dividend for 2 quarters to be a big deal. Maybe you do, but actually I don't. We will pay the dividend as we must in the Q4 and we will pay the dividend in whatever the appropriate size is. So that's one unknown. The second unknown is we announced that we would pay it either in cash or in a combination of cash and script. Speaker 200:19:00I think that it's not impossible that we will pay the dividend in script. I'm not making prediction, but I'm saying we are retaining that option. Why? We believe that a shareholder received stock In lieu of cash and a dividend, it should be indifferent. It's exactly the same. Speaker 200:19:23You can sell the stock and provision to cash, etcetera. So we believe that it is, by the way, as sort of humorous, We did spend a significant amount of time in our council room and in our boardroom going round and round on, let's just think about this. We're going to be perhaps issuing stock in lieu of cash for a dividend, But we're going to be buying back stock. Isn't that circular? And the answer to that is no, it's not because The issuing stock for a dividend is pro rata. Speaker 200:20:02Everybody has exactly the same percentage ownership in the company, The minute before they get the stock and the minute after they get that stock. When a buyback, however, is Discriminate because people will make a decision to sell and reduce their percentage ownership of the company Was to not sell and increase their percentage ownership in the company. So anyway, that's the fact of the matter is that we We'll size the dividend at the end of the year. We will make a determination as to whether to pay it in all cash or part cash and stock. And if we pay it in part stock, that will go a long way to Funding, buybacks or whatever. Speaker 200:20:52So that's our thinking. Okay. Our thinking is it's offensive And we think actually the right thing to do. Speaker 600:21:04Go ahead, Alex. Yes, that segues into the next question. So I mean, obviously, You've seen your cross count peer do a few 1,000,000,000 Hudson did a buyback. I mean, there's not a lot of evidence that buybacks help, When we look at your balance sheet, it looks like you have $2,400,000,000 of debt where the swaps expire later this year. So my question is, wouldn't the $200,000,000 be better spent And Michael, in the $0.55 that you said this year would be down versus last year, that includes these swaps burning off or these swaps burning Speaker 300:21:45Our expectation of swaps, caps, etcetera, that roll off this year. So that's in that number. Speaker 200:21:58Alex, we have a great deal of confidence in the strength of our balance sheet. We think that our maturities are well laddered. We think that most of our debt, The vast majority of it, our debt is non recourse and that's a crucial and very important element in the strength of our balance sheet. We obviously will consider management of our debt In contrast to buying back our stock, each time we get into the situation of making that choice, We have confidence that we will make the right decision by the way. Speaker 600:22:43Okay. Thank you, Steve. Speaker 200:22:46Yes, sir. By the way, one last point, okay. There's no other company that I'm aware of that is spending multiple 1,000,000,000 of dollars on Operator00:23:16Our next question comes from Michael Griffin with Citi. Please go ahead. Speaker 700:23:22Great. Thanks. Maybe just piggybacking on Goldfarb's question there about the stock buybacks. I mean, Steve, you just used I'm not calling the bottom. I guess what gives you the confidence that the stock is trading so cheaply relative to your We've known that office NAVs relative to the stock price have been pretty materially depressed recently, but your share price relative GFC times is down 30 plus percent from the beginning of 2009. Speaker 700:23:52So have you drawn some analysis? Is there really some kind of thought behind it? Or Is there a worry that this could be akin to catching a falling knife, so to speak? Speaker 300:24:05It's Michael Griff. Good morning. The answer is, when I think what Steve said, he's not going to the bottom. I think that commentary relates to the macro environment is likely going to remain choppy near term. The Fed appears to be coming to the end of their tightening cycle, but it's not definitive. Speaker 300:24:27We don't know whether rates Stay higher for more extended period of time. But I think as we evaluate The company, when you look at the price throughout the intrinsic asset value, even on a stress case, We think it is heavily discounted, right? So we think the pricing has become irrational. Every day there's negativity about Office and the media, and some of that's warranted, but we think that's the whipping boy for today. And so that's That obviously has an effect on sentiment. Speaker 300:25:05And so it's gotten a bit extreme, right? And I think our action is a reflection of that. And As we stress the valuation and we have, we think there is a significant margin still. Speaker 700:25:22That's helpful. And then maybe just one on leasing for Glen. I guess, ex Citadel this quarter is about 200,000 square feet of leasing. Was there anything really driving that? And then do you have any big updates on, I guess, the move out at 770 Broadway and then think there's potential expiration at 1290 AOA. Speaker 700:25:41I think it's with AXA Advisors, but if you could just update us on that, that would be great. Speaker 500:25:46Yes, sure. So the color on the 200,000 feet that we leased outside of Citadel was substantially PENN1 And then some strong financial service deals at our Plaza District buildings with rents that started $83 a foot, cash mark to market Speaker 700:26:22Hello? Operator00:26:22Pardon me. This is your conference operator. Please Proceed. It seems we had a bit of interference. The main speaker line is connected. Operator00:26:31Please proceed with your response. Speaker 500:26:37So that was the 1st quarter non Citadel activity. As it relates to 1290, 770 and other expirations this year in 24, we're obviously In the market and we're seeing very strong demand for those properties. If you think about the portfolio, We think it's the strongest in the city and those buildings particularly have underwent great redevelopments in the past. We're adding some of our work life amenity programs to those assets currently on the board being drawn up. So a lot of our pipeline is at the 1290s, the 770s, the 280 parts, the PENN1s, etcetera. Speaker 500:27:22So we're out there. We're already in paper on a lot of space at some of those assets. And I feel good about those properties And those spaces coming back in terms of making matches with the tenants who are in demand in the market right now. Speaker 300:27:36And, Graf, I may just add to that. And I think I mentioned this in my opening remarks. If you look at what's happened in the market, right, the new trophy space that was delivered, which has Seeing record rents, significant demand. That's largely spoken for. And I think we talked last quarter about broadening out of And activity not everybody wants to pay high 100 dollars to $200 square foot rents. Speaker 300:28:00Well located, redeveloped assets Near the transit hubs are what is seeing that demand. The buildings where we have holes in them, the 280s, the 1290s, etcetera, We're seeing very good tenant activity there and rents are starting to move up in those assets. So I think that's important, right? Concessions are high, but rents are starting to move up from these other assets because there's such a delta Between the new buildings and these redeveloped assets that are well located and proximity to transit is critical. Obviously, the state of the building is important, but that's a continuing trend we're seeing. Speaker 300:28:50And we're pleased with the activity at A number of our assets that are consistent with that theme. Speaker 200:29:00All right. That's it for me. Thanks for the time. Speaker 500:29:04Thank you. Operator00:29:05Our next question comes from John Kim with BMO Capital. Please go ahead. Speaker 800:29:12Thank you. Good morning. I wanted to follow-up on the dividends and the secular aspect of suspending it at this time. Two questions on that. 1, do you anticipate your share count will be reduced by year end? Speaker 800:29:27And 2, when you decide Speaker 300:29:39John, I think that we anticipate the share count being I think it all depends on the execution of the buyback, Right. We're going to monitor the marketplace and decide when to execute, how to execute. I think it's difficult to answer your first question today. Obviously, the dividend wouldn't get paid out until year end. So the likelihood is the share count to go down And then back up, Steve alluded to in terms of similar we increased the stock dividend. Speaker 300:30:11And then issuance, again, when it comes to year end and we evaluate how to pay it, Everything will be taken into consideration. We'll evaluate the cash versus script component and Decided that time based on what we thought back and how much we generated from asset sales, etcetera, etcetera, what's the right mix. Too early to answer all those things. Speaker 200:30:39Okay. Speaker 800:30:41It just seems like if you're buying it back at a 10 Sorry, go ahead. Speaker 200:30:48So I'm remote and my equipment stinks. So Sorry, I cut out on the back. The reason for the pause in the dividend is Speaker 800:31:09I was going to say, it makes sense to buy back at these levels, I suppose, at a 10% implied cap rate or so. But then If you issue it back at 10%, then it doesn't really make an impact. But my second question is But Speaker 300:31:25my second question is It does for an individual holder, right? In other words, if you all that's pro rata, as Steve said, if you hold throughout, You own more of the company going forward. Speaker 800:31:37Got it. Okay. My second question is on the leasing pipeline. Speaker 200:31:42John, as I said, that's the circular argument, which we spend a great deal of time on in our counsel room and even in our boardroom. But the issuance is pro rata. You own exactly to the penny, the same Percentage ownership of the company that you used to own, you have a few more shares, but it's the same percentage ownership, whereas the buyback is the opposite of pro rata. Speaker 800:32:11Right. Okay. My second question is on your leasing pipeline. I think, Michael, you mentioned 400,000 square feet in negotiations currently. I wanted to see how that compared versus the last quarter. Speaker 800:32:23I think you mentioned last time it was 1,200,000 square feet, 2 $175,000 being finalized. I know those terms are a little bit different. But apples to apples, where does your pipeline compare today versus a few months Speaker 500:32:37ago. Hi, it's Glenn Weiss, John. I would say it's very consistent. So when we talk about 400,000 feet out, that's leases, documents in negotiation, where the term sheets are final and the lease documents are being negotiated. The additional 1,400,000 feet are deals that we're speaking with brokers and tenants. Speaker 500:32:57We have proposals In the house, we've responded to those proposals and we have a rhythmic back and forth on the deal making. So it's consistent, I think quarter to quarter what we're seeing, mainly the activity is financial service and law firms in that pipeline. But across the board, I'd say that the rhythm of the deal making, the tenant demand, the tours have been consistent The last call it 2 to 3 quarters. Speaker 800:33:30And can you break that out geographically? Speaker 500:33:37I would say between Penn and Midtown, For us, pretty well averaged out between the 2 submarkets. And in Midtown, mainly the Plaza District Buildings, Which attract the financial Speaker 200:33:53service tenants. Speaker 800:33:56Very helpful. Thank you. Operator00:34:00Our next question comes from Camille Bonnell with Bank of America. Please go ahead. Speaker 900:34:06Good morning. Could we touch on the financing market? We've been hearing over recent weeks that the credit spreads have moved higher since the issues around regional banks, But notice you completed a refi on Rosalind Plaza this month and the spread came in slightly lower. Was this a surprise or more of a reflection of other characteristics to the loan. Speaker 300:34:29Michael? Yes. Camille, look, I think every asset is So in that particular situation, it's not a large loan. We delevered it a bit and our job is to find the best lenders for each situation. It was a good execution. Speaker 300:34:54As a general matter, I agree with your first comment. The markets are challenging, spreads have widened out. But again, Asset dependent, sponsor dependent. There is capital out there. It's not robust by any measure, but there is capital out there for Right sponsors, right assets and with good term or the right loan to value levels, The spreads, albeit wider than a couple of years ago, are still okay. Speaker 300:35:25I think it's where you have assets that are higher levered or there's much more volatility in the income stream near term where It's more challenging. Speaker 600:35:35So I Speaker 300:35:35think Roslyn was a small asset, good execution and reflective of Speaker 200:35:47My take on this Camille is markets are extremely hostile. This is the time in the cycle where your best did not have to refinance or finance. If you have to finance, you're at a huge disadvantage. And one of the things that I like about our strategy is We have very little that we have to finance. So especially with our cash hoard, which is Financing our Penn Construction. Speaker 200:36:18So the markets are really hostile and the best bet is just stay out of them. Speaker 900:36:26You were cutting out a bit, Steve, but I think I got parts of your message. So thank you. And then just switching, in the last quarter, Glenn talked about The opportunity of converting showroom space to the mart at the mart to office, I was wondering how That specific business plan is progressing and how interest has been tracking so far into April? Speaker 500:36:53So the casual business departed for Atlanta in the 4th quarter. We're now preparing that space For office leasing, I mean in general, we have a pretty good pipeline in Chicago. Our amenity program will be complete By June, we're going to be out there for NeoCon and another broker event this summer, which we're looking forward to, So really bring the program out to the market. So the pipeline is good in Chicago. The market is tough. Speaker 500:37:22There is not a huge lot of tenant demand and particularly not a large tenant demand except the present. Our showroom business continues to perform. We've leased about 60,000 feet this quarter at $60 starting rent on the showroom business. The office business, We've leased over 500,000 feet of office the last 3 years. We have modest expirations the next 3 years. Speaker 500:37:47We're grinding out the office. We're getting looks from all the majors. We're in very solid discussions now with a couple of tenants looking to move their headquarters to the mark. So starting to feel better, but certainly tough conditions in Chicago as we sit here. Operator00:38:08Our next question comes from Julien Bluhlen with Goldman Sachs. Please go ahead. Speaker 1000:38:15Hi, good morning. Thank you for taking the question. I wanted to go back maybe to the potential for asset sales. I know on the last call, I think the comment was that you didn't foresee being able to delever via asset sales for the next 24 months. But now it sounds like you see a real potential for asset sales this year. Speaker 1000:38:37Has your thinking changed at all? Is it really down to maybe the share price Now thinking that even at sort of distressed pricing, you can get some accretion from repurchasing shares. Just curious to Sort of get your thoughts on that. Speaker 200:38:54Michael? Speaker 300:38:56Yes. Julien, I had seen your, I guess, Caitlin's note, and I was a little surprised by the comment about no assets next 24 months, I don't think we said that on the last call. I think we've said it's a more difficult market to sell assets in, but I don't think we said we weren't going to try I think we said we're going to be targeted and recognize that you have to be So I don't know that our outlook has changed that significantly. It continues to be a difficult market to sell assets We think we have some that as we think about which assets we want to sell, it's a mix of We do think they're saleable. And I think your comment sort of at the end While the market may not be strong or as strong as it was And pricing has been impacted. Speaker 300:40:02Our share price has been impacted more. So I think that's exactly right, right? We may not love the price Some assets today relative to where they were a few years ago, but relative to our stock price, we do like that pricing. The answer is, we're not a forced seller. We don't have to sell anything. Speaker 300:40:19We're going to be targeted. We can execute some sales. We have some dialogues Going on certain assets, we're going to pursue sales on a couple of other things that probably were not in our thing a little bit Earlier in the year and our expectation is we're going to be able to execute on some of that, but given the uncertainty in the market, Not going to guarantee it and nor are we going to be forced to sell anything. So we'll see how the rest of the year plays out, but it is our intent to Operator00:40:59The next question comes from Daniel Ismail with Green Street. Please go ahead. Speaker 1100:41:06Hi, guys. Dylan on here. Just touching on the asset sales, I guess, do you guys have anything in the market today? And if you could provide sort of further detail or color on sort of what sort of the profile of these assets are? Should we expect these to be some of the higher quality properties with Longwall? Speaker 300:41:25Daniel, we're not going to get into specifics. The answer is we have discussions going on a few assets. No, this is not generally a market that you blast things out. You got to focus on who has capital, willing to deploy. I will say there are a number of investors that view this as an interesting time to enter New York. Speaker 300:41:44And in some cases, there's decent duration on the leases, other cases, It's more traditional rollover in terms of buildings, certain percentage every year. And as I mentioned, it's a mix of both retail and So not going to get any more specific to that until we have something to announce. But as I said, we do think that they're If you find the right investor and you're realistic on price. Speaker 1100:42:16Okay, that's helpful. And then just we're 3 years through the pandemic, office utilization still remains Fairly low relative to the 2019 levels. So just curious if you guys have seen any changes with regards to how tenants are building out their space? Speaker 500:42:36This is Glenn. Generally, I would say more Collaborative collegial spaces, open workplaces like I always call it hangout spaces. But if you look across Generally, you're still seeing some private office mix with the traditional cube open areas. In terms of densification, some industry types are more dense, some are saying density they were. It's really a mixed I wouldn't say consistent layout of any industry type as it relates one to the next. Speaker 500:43:13Generally, I don't think there's much of a New theme than what we've seen previously other than the hangout collaborative collegial environment. I mean the one thing that we are focused on in terms of the workplace is what we've done in the buildings, particularly 1, what we're doing at Penn 2, what we've done at the Marq, what we're going to do shortly at 1290, where we believe tenants want to be in these buildings The way we have really improved the experience when you first enter the asset. So the first experience that impact we Most important, our success. When people come in, they're comfortable, they could eat, they could drink, they could hang out, they could Go to the gym, whatever they're going to do, we look at it like they're coming into a concierge hotel environment. And that's how we've created these new workplaces in our portfolio, which has been working extremely well as it relates to our program. Speaker 600:44:18Great. Appreciate the color. Thank you. Operator00:44:23Our next question comes from Derek Johnston with Deutsche Bank. Please go ahead. Speaker 1200:44:31Years ago in 2018, which seems like another world, you hosted at 555 California Street for investors. So stay with me. So Jerry's bet was about, You know me, I could be anywhere. Why am I at a tent in San Francisco? So Steve, look, we all know you. Speaker 1200:44:55You could be anywhere, but you're right here. You're sticking this out, which means to us that you see a way out of this negative office REIT narrative. So I guess the question, how do you envision what's it going to take for Vornado to get past this environment and emerge stronger? Speaker 200:45:19Well, I need to get Jerry Seinfeld to help me answer this question. I think it's happening now. I think time is our friend here. I think that it's very clear that employers want their employees back in the office. They want to be able to have people working together. Speaker 200:45:43They want the managers to be able to manage their people. And so they have been struggling because there is a Cadre of employees that don't that are sort of fighting coming back to the office. I think that over time, if you go back If you go forward, Valerie, you look out 5 or 7 years, I think we will go back to what was considered normal 5 years ago. I think time is our friend here. It's pretty by the way, just to add to that, it's pretty clear people want to be in the cities. Speaker 200:46:26So the apartments are full, The restaurants are full, the cities are full, the streets are full. There is a reluctance on the part of certain Demographic of coming actually going to work in the office, okay? That is Starting to evaporate, okay. Time is our friend. Speaker 1200:46:53Thanks, Steve. That's it for me guys. Operator00:46:59Our next question comes from Vikram Malhotra with Mizuho. Please go ahead. Speaker 1300:47:06Thanks for taking the questions. So just first, I wanted to clarify, you said nothing changed between when you adjusted the dividend down Couple of months ago and then now, but I'm just sort of looking at the dividend run rate you had then and now the taxable income you're projecting. Can you just help bridge What appeared to be sort of your projected taxable income with run rate of, let's call it, dollars 0.37 dollars 0.38 dollars And today it's more like $0.25 I'm just wondering your debt is fixed now. I'm Assuming you had outlined, I think, a $0.50 impact and that was to FFO and O, but you had outlined various impacts that you baked in. So I'm just trying to bridge the two numbers. Speaker 1300:47:48What has changed in driving that projection lower from here? And can you just comment if that projection now Includes a change in the way exploration may be renewed? Speaker 200:48:02As I said, nothing's changed. We have left room for some asset sales. By the way, if you read the Wharton Properties CFO's comment in their earnings call, You'll see basically exactly the same statement that I've just made. So what I'm saying is that We right sized the dividend and we left room for asset sales. Speaker 800:48:35Okay. That makes sense. Yes. Speaker 200:48:39Go ahead. I'm sorry. Go ahead. Speaker 1300:48:41I was just going to say you talked about asset sales, not knowing where pricing is or what could be achieved. But I'm just from your vantage We've seen a variety of different rates, some in New York, some in California, with handles that are We probably didn't think we would see this maybe a few years ago, dollars 300, dollars 400 a foot. Some other buildings are maybe higher. But I'm just trying to understand, a, how are you identifying what assets to sell? And then is there a point in which You say the sale doesn't make sense given pricing. Speaker 1300:49:17I guess I'm just trying to get a sense of where do you see values shaking Across a variety of office types. Speaker 200:49:28We're familiar with What you're referring to, we are not a distressed seller. We are not a weak seller. In fact, We are selecting a focusing on a very select pool of assets, a few assets where we consider ourselves to be offensive sellers because the proceeds will be If we can execute, the proceeds will be invested extremely accretively. So, you can count on a couple of things. We will be very selective. Speaker 200:50:05We are not in the wholesale selling business. And if we do, we by the way, we know how to walk away, we know how to say no. If we do execute, We will it will be extremely accretive. Speaker 1300:50:23Okay. Thank you. Operator00:50:27Our next question comes from Anthony Paolone with JPMorgan. Please go ahead. Speaker 1400:50:34Yes, thank you. Just on the Penn District, apologies if I've lost the thread on just the back and forth with the press and your comments. But If you look out the next couple of years, is there a way to crystallize what you intend to do or spend Beyond what's underway right now with the buildings and stuff that you're doing that's in the sup, but What's committed to or what do you intend to do outside of that if anything? Speaker 200:51:05We haven't Gotten into that. We haven't announced that. We haven't quite gotten that far. We have Already in the Penn District done heroic accomplishments. We did the Moynihan Train Hall in a private public partnership. Speaker 200:51:25We did the widening The Long Island Redwood Concourse, we have the resale on both sides of that concourse. We completed the 730 odd 1000 Square Foot Facebook deal in Farley. We have done a massive and very successful renovation of PENN1, where we have driven the rents from $55.60 to the stunning side of $100 a foot and delivered value to our tenants and we are in the middle of a $1,000,000,000 renovation of PENN2. Together with that, we are doing Area wide improvements, infrastructure to the public realm, and we're going to take a breath. The prospect of doing ground up development, we will likely start with an apartment project, But we have not yet announced what we're doing. Speaker 200:52:36We're in the middle of planning that and we're actually very excited about it. Speaker 1400:52:42Okay, thanks. And then just one just maybe clarification question for me or just a reminder, If I was on your balance sheet, the $14,000,000 or so Class A units seem to have a redemption Price of I think about $23.5 a share. I mean given where the stock is, is there any thought that Those holders could exercise and am I looking at that right? Speaker 200:53:11Michael or Tom, you're going to have to help me with that one. Speaker 300:53:16Yes. Let us come back to you on that one. Speaker 1400:53:20Okay. Thank you. Operator00:53:25Our next question comes from Nick Yulico with Scotiabank. Please go ahead. Speaker 1500:53:31Thanks. I wanted to see if there's any update you could provide on the retail JV and I know the loans that matured We're still talking to the lenders. Just how we should think about that? Is it a situation where you are prepared to walk away from the assets? And Specifically as well that 1 mortgage, 645, which matures next year, which is one of your loans that is recourse to the company. Speaker 1500:53:57What should we think about the plan on that specifically? Speaker 200:54:01Michael? Speaker 300:54:03Yes. Good morning, Nick. On the First Asset, San Regis, which we talked a little bit last quarter, that continues to be in discussion with the lenders. And we're, I think, heading towards a Usually acceptable resolution there. So hopefully that will be done in the next 90 days. Speaker 300:54:29And with respect to $640,000,000 which matures next May, That's something that we started to work on now, start to gauge the financing markets, I've talked with an existing bank loan, so obviously the existing lender is somebody that We'll continue discussions with as well. So, too early to tell on exactly what's going to happen there, but obviously the intent Yes, it's to refinance that asset and whether we do it at par or pay it down a little bit, but the expectation is that asset will get refinanced. I will say, Nick, I think one interesting dynamic, sort of 2, 3, 4 years ago, right, retail was a Category for most people, but for retail, it's flat. Retail is, I think, people view the worst is behind us. The capital markets are more constructive, both investors as well as lenders. Speaker 300:55:40And Yes, they have to sort of understand and think about how to deal with above market rents in some cases. But I think in general, The capital markets are more constructive on retail today than they have been in a few years. Speaker 1500:55:57Okay. Yes, thanks, Michael, just one other question is going back to the commentary on a potential buyback. I mean, the debt capital markets right now Seem as bad as they've been for office since the great financial crisis and there's a bearish argument that maybe the lending markets don't come back in a way that they existed in the past decade. So it seems to me that if you're talking about asset sales to fund a potential Stock buyback, there's implicitly a view that you think the lending markets improve. And I guess I'm wondering why make That call now instead of paying down debt, I mean, you have a balance on your line of credit, you have maturities you're dealing with over the next year or so. Speaker 1500:56:46Why isn't that the better use of capital to sell assets, pay back debt And perhaps that would even reward your stock price more so than a buyback. Speaker 200:56:57Michael, why don't you try that? Speaker 300:56:59Yes, Nick, I don't think I mean, to be clear, I don't think we said buybacks and not I mean, when we said asset sales, I don't think we said just buyback, right? I think depending on I think we said that, first of all, the buyback amount we put out, I would characterize as fairly modest. Dan, as Steve said earlier, it could be funded largely from retained cash from the dividend. But in terms of asset sales, Yes. I don't think we've said anything about it. Speaker 300:57:28It's just oriented towards buyback. If we execute on asset sales, of course, we're going to look at The proceeds and what the best use for that is. And we're very mindful. Like our number one priority is making Our balance sheet remains strong. We can tackle anything and delevering certain situations or pushing out maturities by paying Of course, that's going to be in the toolbox. Speaker 300:57:51So we agree. We're going to focus on making sure the balance sheet is strong and Asset sales are going to be used for a variety of different things. Speaker 1500:58:05Appreciate it. Thank you. Operator00:58:10Our next question comes from Ronald Kamden with Morgan Stanley. Please go ahead. Speaker 200:58:17Hey, just Speaker 1000:58:17a couple of quick ones. So I was looking at the cash flow statement and looking at the $92,000,000 of operating cash flow this quarter. Obviously, there's some working capital seasonality, but just one, can you talk about what happened to OpEx in the Quarter looked elevated and I suspect sort of flowed through. And then 2, I know you said nothing changed, but Was this sort of cash flow in 1Q part of the connecting the dots about postponing the dividend and Thinking about doing a script dividend just to preserve cash flow. Speaker 300:58:52On your second question, I'll definitely not. I mean, again, Nothing has changed. So, no. On the OpEx Maybe there's some seasonality. Ron, we could work offline and take a look at your model. Speaker 300:59:09I don't think it's material. Speaker 800:59:10I don't think it's material, though. Speaker 1000:59:15Great. And then just the last one, just on the refinancing. You already hit on the Avenue property, which I was going to ask about. But any comments on 280 Park, as well, which is coming next year? And just any general color when we're thinking about the model, what sort of rates, potential pay down, how are you guys thinking about that? Speaker 1000:59:38Thanks. Speaker 300:59:40Yes. What I would say as a general comment, Ronald, is your existing lender is your best new lender. I think most lenders appreciate that, that it's going to be difficult to refinance certainly large assets for the foreseeable future. So they're going to have to work with their borrowers, sponsors they feel are the right stewards of the asset, which I think clearly we are. And so I think on a number of these situations, you're going to see extensions for So in some cases, there might be a paydown, in other cases, there might not be. Speaker 301:00:17So the answer is discussions have started there And we'll see how they ensue. But I think on these larger near term situations, I think the lenders and the borrowers are fairly tied together for the near term. Speaker 101:00:37Thank Operator01:00:41you. Our next question is a follow-up from Alexander Goldfarb Piper Sandler. Please go ahead. Speaker 601:00:47Hey, thank you for taking the follow-up. Maybe I missed it, but did you guys talk about 555 1, the debt restructuring with the servicer, what you guys are thinking about that? And 2, just given all the stories that we hear about Just the state of San Francisco's office market, what's going on with leasing in the building, the Montgomery Street box, etcetera? Speaker 301:01:13Yes, I'll touch on the first and then I'll have Glenn touch on the second, Alex. It can be a bit frustrating when things are written, which are just not fact based. There's this notion that 555 was The answer is building is performing extraordinarily well. There's no issue with the loan. We took out an outstanding loan 2 years ago and it was structured as a 2 year initial loan with a series A 5 year, 1 year as of right extensions, right? Speaker 301:01:48And by as of right, if you want the additional term, all you have to do is send in a letter and you get So once a year, we're going to send a letter to the servicer. We're going to extend the loan and that'll be that, right. So there's no Threat of default, there's never been a threat of default. There's never been an issue with this loan. It was a 7 year loan structured that way. Speaker 301:02:08So all the articles written on this thing, Nobody did their homework. And by the way, there may be other situations like that. So it bears understanding How the loans were structured and what the real story is, which everybody wrote on that just got it dead wrong. In terms of the building, I'll let Glen talk about it. But again, it continues to be, I think, the best performing asset in San Francisco with Just a premier line of a financial service then. Speaker 501:02:38Hi Alex, it's Glenn. Hi Michael, Speaker 201:02:41Michael, Michael, Michael, Michael, the rate is swapped. Speaker 301:02:46Yes. Yes. That's right, Steve. Speaker 201:02:53Alex, first of all, it's really a 7 year loan, which as a combination to the lender was structured as a 2 +5 ones. Okay. It was a 7 year loan. And so anything so the newspapers got it all wrong. The second thing Is that it was a floater that we swapped at a very favorable rate and we swapped it for, I don't know, 6.5 years or something like that. Speaker 201:03:19So and the second thing is, it's the best financial services building in the marketplace, it's full. Glenn, you want to comment about the quality of the building? Speaker 501:03:31Look, the building has been perfectly insulated Against everything you're reading about in that marketplace. We've lost 0 tenants to anything, Goldman Sachs, KKR, Microsoft, BofA all renewed their leases during the last 3 year period, which speaks to the asset. I think that's all I really need to know and none of them reduced in size. We're obviously in the market with the Q3 45, that's our only It's 77,000 feet. We finished the redevelopment obviously a couple of years ago. Speaker 501:04:04We continue to show it, But the campus, the 3 buildings has performed perfectly during this period, and it's clearly shown that The best asset in the city. Speaker 601:04:16Okay. I appreciate both comments. So thank you. Speaker 201:04:24You'll pardon us if we get a little bit annoyed at the misinformation. Speaker 601:04:29That's the beauty of these earnings calls. Operator01:04:36This concludes the question and answer session. I would like to turn the call back over to Steven Robb for any closing remarks. Speaker 201:04:45Well, thank you all very much for joining us. We are actually very excited about beginning a buyback program. We're also We think what we're doing with the dividend is extremely logical and we understand and appreciate your support. Thanks for joining And we'll see you all in 3 months. Operator01:05:12Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect.Read morePowered by