Vornado Realty Trust

Good morning and welcome to the Vornado Realty Trust third quarter 2021 earnings call. My name is Vanessa and I will be your operator for today's call. This call is being recorded for replay purposes. All lines are in a listen-only mode. Our speakers will address your questions at the end of the presentation during the question and answer session. At that time, please press star then 1 on your touchtone phone. I will now turn the call over to Ms. Kathy Cresswell, Director of Investor Relations. Please go ahead.

Thank you. Welcome to Bernardo Realty Trust's third quarter earnings call. Yesterday afternoon, we issued our third quarter earnings release and filed our quarterly report on Form 10-Q with the Securities and Exchange Commission. These documents, as well as our supplemental financial information package, are available on our website, www.bno.com. under the investor relations section. In these documents and during today's call, we will discuss certain non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP measures are included in our earnings relief, form 10-Q, and financial supplement. Please be aware that statements made during this call may be deemed forward-looking statements and actual results may differ materially from these statements due to a variety of risks, uncertainties, and other factors. 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 Stephen Roth, Chairman and Chief Executive Officer, and Michael Franco, President and Chief Financial Officer. Our senior team is also present and available for questions. I will now turn the call over to Stephen Roth.

Thanks, Kathy, and good morning, everyone. I begin by saying that I am feeling quite optimistic about the economy, about New York City, and about our business. New York City is recovering rapidly. The apartment market is a case in point. It suffered a vicious decline to 70% occupancy Nothing even close to that has ever happened before, as renters gave up their apartments in the work-from-anywhere period to now having recoveries of pre-COVID occupancies and even higher than pre-COVID rents. This will go down as the most rapid V-shaped rebound in history. Public transit utilization rates are picking up, and public transportation is, of course, the lifeblood of the city. Restaurants and sporting venues are literally jam-packed, and Broadway and other cultural venues have reopened. With travel restrictions coming off this month, international tourists will be returning. We can see increased automobile and pedestrian traffic everywhere. Vaccination rates among office workers are at high levels. I'm guessing around 90%. We're hearing unanimously that our tenants want their employees back in the office. Office occupancy has been climbing, and this week we are now at 43%. I must admit that our tenants and we are a little frustrated at how long the return to work process is taking, but there is no doubt that work in office will win over work alone at the kitchen table. Key things we are hearing every day are health, wellness, culture, collaboration, purpose, productivity, socialization, all under the mantra of it's time to get back to work. While the timing of complete return to the office and each company's hybrid plan are still unknowable, It is clear to me that the office is still and will be the center of work and of success. Importantly, our business is rebounding on a trajectory of recovery and return to growth. Michael will cover our operating results in a few moments. We had a very good quarter and feel good about the trend line for the future. Many companies throughout the economy are experiencing significant post-COVID pickup and activity, and we are as well. Glenn and his team are as busy as they have ever been with deals on all of our assets. Citywide, third quarter leasing volume reached its highest level since 2019. Our tenant tour activity and the volume of leasing proposals we are working on, particularly large proposals, is robust as companies are thriving and clearly looking to grow. And this heightened activity demonstrates the importance of the office to their businesses. The dominance of New York, its infrastructure and scale, and its deep, talented, and diverse workforce continue to give New York a dramatic competitive advantage. In particular, the tech sector continues to be voracious in their appetite for space in our sub-markets, and New York has clearly emerged as the second largest and second most important tech hub in the country. Activities in the Penn District are full steam ahead. Here's the latest. At Farley, we are targeting opening the food hall and the 9th Avenue entrance by year end. Facebook's tenant work is proceeding with first employee occupancy scheduled for second quarter 2022. At the Moynihan train hall, we have completed 22 retail leases. We are gratified and validated that Starbucks reports that its new Moynihan store is trending number one out of its 190 Manhattan locations. In Penn Station, our Long Island Railroad Concourse construction is about one-third complete. We will now own both sides of this heavily trafficked concourse. It will be a big win for us. The 34th Street half of the Penn One Lobby is open, and it is spectacular. Come take a look. Our unique three-level world-class amenity offering will open shortly, and the other half of the Penn One Lobby, which fronts on 33rd Street, will be completed end of first quarter 2022. At Penn II, our full building transformation is well underway. On schedule and on budget, the job is largely bought out. The demolition of Hotel Penn will begin this month, creating the best development site in the city. Both office and retail tenant interest is high in the Penn District, with multiple large office users now focused on Penn II. Let me review again our Penn District financing plan. Capital required to complete Farley, PEN1, and PEN2 is about a billion dollars before TIs, and that will be paid for entirely from our cash on balance sheet. Further, Farley, PEN1, and PEN2 are free and clear, unencumbered by any mortgage debt whatsoever. And most importantly, as these great assets come online, they will produce, say, $200 million of incremental additional annual earnings. The Manhattan retail market has bottomed. It will take some time for rents to start rising again, but leasing activity and tenant inquiries are certainly picking up as residents, office workers, and tourists return to the city. New York is still a most favored location for retailers who are on top of their game. Of particular note is our recently announced deal with Wegmans, the premier grocer in our region, at 770 Broadway, the Facebook building, replacing Kmart, and that's some big uptick. We also completed retail deals in this quarter with luxury, banks, and food tenants. We have now completed the retail re-tenanting of 595 Madison Avenue, the Fuller Building, with luxury tenants Fendi and Berluti, both LVMH brands, and Christoph and Stefano Ricci. As you know, we sold three Madison Avenue street retail assets this quarter. and are contracted to sell two Soho Street retail assets in the first quarter of 2022. We still believe in high street retail and believe demand, rent, and activity have bothered. I'm happy to go into detail and the whys and the wherefores of these sales in Q&A. We reaffirm the updated guidance of our retail business discussed in our last earnings call. For 2021, we still expect to do a little better than cash NOI of $135 million. For 2022, the guidance is cash NOI of $160 million. And for 2023, we guided cash NOI of not less than $175 million. Pardon me. Last year, the topic du jour was rent collections. You should know that rent collections are now and have been for a while at essentially 100%. Collections on the limited number of rent deferrals that we granted during the crisis are also running at essentially 100%. The topic du jour today is tenant employee occupancy rates. Company-wide, this week, we are now at 43%, and that rate has been growing nicely since the summer. We are able to harvest lots of information about usage as employees badge in, and many other operating statistics from our building-level technology. Our buildings populated by financial types, market makers, and traders enjoy occupancy in the 70s. Another factoid, the busiest day of each week is Wednesday. And another factoid, the number of unique individual employees who came to work in the month of October was 61%. Finally, let me spend a minute on sustainability, where we continue to be the leader. was recently selected as a global sector leader for all office retail diversified respondents in the 2020 Global Real Estate Sustainability Benchmark, or GRESB, or the GRESB survey. Our GRESB score of 94 was our highest total score to date. We also placed second out of 94 publicly listed real estate companies in the Americas who responded to GRESB, including most of our office peers. Kudos to Dan Egan and his team for their leadership. Thank you. Now to Michael.