Vornado Realty Trust

Good morning, and welcome to the Vornado Realty Trust fourth quarter 2020 earnings call. My name is Karen. I will be your operator for today's call. This call is being recorded for replay purposes. All lines are in a listen-only mode. Our speakers will address your questions at the end of the presentation during the question-and-answer session. At that time, please press star, then 1 on your touch-tone phone. I will now turn the call over to Ms. Kathy Creswell, Director of Investor Relations. Please go ahead.

Thank you. Welcome to Vornado Realty Trust's fourth quarter earnings call. Yesterday afternoon, we issued our fourth quarter earnings release and filed our annual report on Form 10-K with the Securities and Exchange Commission. These documents, as well as our supplemental financial information package, are available on our website, www.vno.com, under the investor relations section. In these documents and during today's call, we will discuss the non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP measures are included in our earnings release, Form 10-K, and financial supplement. Please be aware that statements made during this call may be deemed forward-looking statements and actual results may differ materially from these statements due to a variety of risks, uncertainties, and other factors. Please refer to our filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31st, 2020, for more information regarding these risks and uncertainties. The call may include time-sensitive information that may be accurate only as of today's date. The company does not undertake a duty to update any forward-looking statements. On the call today from management for our opening comments are Steven Roth, Chairman and Chief Executive Officer, and Michael Franco, President and Chief Financial Officer. Our senior team is also present and available for questions. I will now turn the call over to Stephen Roth.

Thank you, Kathy, and good morning, everyone. I hope all of you continue to be safe and healthy. Before Michael gets into the business review and the numbers, let me make a few comments. Notwithstanding that this is a new year, 2021 still feels a lot like 2020. The COVID pandemic remains a significant health risk. Normal life continues to be disrupted. Gatherings and travel are still restricted, and office building occupancy remains quite low. But there is light at the end of this long tunnel. Scientists and farmers around the world have worked at warp speed, and with the rollout of various vaccines expected to accelerate in the coming months, we expect New York to begin to rebound with office workers and tourists returning in the second half. While New York's recovery will take time, the city remains a magnet for talent, as evidenced by leading companies renewing their leases and making large new space commitments even during the pandemic. For all the talk about working from home, I continue to believe that our natural human social inclinations and the pent-up demand to interact, gather, and experience all the city has to offer will carry the day. When life returns to normalcy, the many positives of having employees working in the same space together with their colleagues, will become self-evident. In the end, I believe that working at home in one's kitchen, alone, day after day, week after week, is not a long-term proposition. We have a new administration in Washington which is committed to push through significant additional stimulus, and New York will certainly get its fair share. These dollars and the potential to modify or partially reverse solve, if that actually were to happen, will greatly benefit New York and other large cities. Despite 2020 being one of the most challenging years in our lifetime, we have made significant progress to position Vernado for future growth. In 2020, we closed a billion dollars of apartments at 220 Central Park South. That's a big number, which was added to our cash balances and enhanced our financial strength. Remember, we are building Farley and Penn One off our balance sheet without debt. In December 2020, the grand new Moynihan train hall opened to the public to rave reviews, further cementing Penn as the transportation center of New York and our Penn district as the bullseye. Bernardo was honored to be a major participant in the Moynihan public-private partnership. In 2020, at the height of the pandemic, we completed our lease with Facebook for all 730,000 square feet of the office portion at Farley. This lease was the largest office lease in New York last year. The first phase of Facebook Space was delivered in January and the remainder will be delivered later this year. The new Long Island Railroad 33rd Street entrance situated between Pen 1 and Pen 2 also opened in December. Its design is futuristic and unique and exciting and that is intentional. We finalized our agreement with the MTA to develop the Long Island Railroad Concourse. The retail stores on the north side of the concourse are ours and sit in our N1 footprint. This project will double the width of the concourse, relieve overcrowding, raise the ceiling to a grand 18 feet, and create a vastly improved concourse for the hundreds of thousands of commuters who use it each day. Construction is now underway, and our retail has been taken out of service. As part of the deal here, we will gain long-term control of an additional 22,000 square feet of retail on the south side of the concourse. So we now have all the retail along both sides of the heavily trafficked Long Island Railroad concourse. By the way, in normal times, Penn Station is teeming with traffic, and our retail stores do really, really well here. In 2021, we will deliver in phases our redevelopment of the 2.6 million square foot Penn 1. This game changer will include 200,000 square feet of amenities, the likes of which are unparalleled in New York. We are targeting summertime opening of the 34th Street Lobby, with full completion shortly thereafter. Also in this year, our dramatic redevelopment of the 1.8 million square foot Pentoo will be in full swing. Sitting here today, we are more confident than ever in our design and programming of the 4.4 million square foot campus at the combined Penn 1 and Penn 2. With unique and outstanding architectural design and amenities, sitting on top of New York's main transportation hub, with Apple and Facebook tendencies in other of our adjacent buildings, and with the governor's plan for significant additional investment in the Penn Station area, we couldn't be more excited. To showcase our vision for the district, we have just opened our new Penn District Experience Center. Actually, that's a fancy word for sales center. Located on the seventh floor at Penn One, appropriately in the heart of the action. This 12,000 square foot marketing center is the best I've ever seen. It will be the venue for our leasing and development teams to present and showcase our projects to the brokerage community and prospective tenants. Early comments from brokers and tenants have been amazingly enthusiastic. When gatherings are again permitted, we look forward to hosting all of you. In the meantime, please visit our website for the latest images of our plans for the Penn District. We update our development yields once a year and have done so for the Penn District on page 31 of our supplement filed last evening. Overall, the projected yields on these projects has declined modestly from 8.3% to 8.0%. Let me explain. Farley declined 100 basis points, largely from additional TIs we granted to Facebook to close the deal during the pandemic. We also are budgeting additional TIs for retailers at Farley, given the environment. It was heroic to close the Facebook lease in the middle of the pandemic, and it is an outstanding deal that we are proud of. Facebook loves Farley, its scale, its location, its architecture, and its huge foreplay. At PEN1, we increased the budget to include the Long Island Railroad Concourse redevelopment, which I just mentioned, as well as two sustainability initiatives we have added to the scope at PEN1. We are replacing all single-pane glazing with new state-of-the-art triple-pane high-energy performance windows, which will dramatically improve energy loss, sound infiltration, and tenant comfort. We are also increasing the scope at PEN1 to include an electrification program to enable the building to access more clean, renewable energy. These initiatives should command higher rents, but to be conservative, we haven't adjusted for that in the budget. At PEN2, the returns actually increased as we scrubbed the numbers with respect to expense and tax assumptions. As Farley PEN1 and PEN2 come online, they will deliver very significant incremental earnings. As you will notice, we did not publish an NAV estimate this year, as we had for the past several years. I foreshadowed this in my shareholders' letter last April, as every analyst does their own estimate anyway, and the market didn't seem to be placing much value on ours. As previously announced, in the fourth quarter, we implemented a program to reduce our G&A by $35 million. While difficult, this was the right thing to do. In connection with this, two of our beloved long-tenured executives, David Greenbaum and Joe Macnow, stepped back at year end from day-to-day roles and became senior advisors. Renato is indebted to them and thanks them for their immense contributions. Glenn Weiss and Barry Langer, our long-standing heads of leasing and development, now have leadership roles as co-heads of real estate. Actually, they have been functioning as co-heads for over a year now and are successors to David. Michael Franco has taken on the additional role of CFO, succeeding Joe. And Tom Cinelli has been appointed Chief Administrative Officer, stepping up from CFO of the New York Office Division, taking on additional responsibilities on our financial division. This is all a continuation of our leadership transition that we began in April 2019. I am confident that our talented next generation of leaders are seasoned, proven, and up to the task. The word about ESG. We continue to be industry leader on sustainability. ESG remains our highest priority for all of us at Renato and is further supported with oversight from our board. The risks related to climate change are imminent. We are determined to reduce our carbon footprint. We lead by example through Vision 2030, our 10-year plan to make our buildings carbon neutral, which starts with our commitment to reducing our energy consumption 50% below a 2009 base year. I would note that since 2009, we have achieved a 24% energy reduction over the 10-year period through 2019. We have a seat at the table with climate policymakers at city, state, and federal levels to advise not only on what role buildings must play in climate change mitigation, and even more importantly, on how to execute. We've also led with robust disclosure of our ESG data, with early adoption of SASB standards, release of our EEO data, and climate scenario analysis according to the recommendations of the Task Force on Climate-Related Financial Disclosures, or TCFD. Our 2020 ESG report will be released in tandem with my shareholder's letter in April. I finish with a shout-out and a thank you to our amazing and talented Renato people. to our leasing teams who did the Facebook and NYU deals, which, by the way, were the two largest deals in 2020, to our development teams responsible for Farley Pen 1 and Pen 2 and more, and to our operations teams who follow all protocols and have our building sanitized and ready to welcome our tenants home, you are all A-plus at the head of the class, and we say thank you. Now to Michael.