Vornado Realty Trust

Good morning 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. At that time, please press star then one on your touch tone phone. I will now turn the call over to Mr. Steve Bornstein, Senior Vice President and Corporate Counsel. Please go ahead.

Welcome to Vernado Realty Trust's first quarter earnings call. Yesterday afternoon, we issued our first quarter earnings release and filed our quarterly report on Form 10Q 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 supplements. Please be aware that statements made during this call may be deemed forward-looking statements and actual results may differ materially from these statements due to a variety of risks, uncertainties, and other factors. Please refer to our filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31, 2022, 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 Ross, Chairman and Chief Executive Officer, and Michael Franco, President and Chief Financial Officer. Our senior team is also present and available for questions. I will now turn the call over to Steven Ross.

Thank you, Steve, and good morning to everyone. Let me get a few things out of the way first. Our business is performing well in this environment. Our outlook hasn't changed since last quarter. We are full speed ahead on our current projects, totaling over 5 million square feet in the Penn District. Any comment in the newspapers or industry tabloids that we have stopped is incorrect and just plain silly. Just take a look at our three block long construction site when you next go through Penn Station or next go to a Knicks playoff game. Now some commentary on last week's dividend press release and reactions there too. Simply stated, we are going on offense. Let me say that again. We are going on offense. A few facts for context. We know about dividends. In 2022, our dividend was $2.12 or $435 million in cash. Over the past 10 years, we have paid and happily paid $5.1 billion in regular dividends and another $400 million in special dividends. Last week, an analyst characterized REIT dividends as sacred, and I agree. Well, I guess I sort of agree. So this year, we have already paid a 37.5 cent or 75 million cash first quarter dividend. We will pause paying dividends in the second and third quarters, and in the fourth quarter, based upon known facts, actual taxable income, including asset sales, et cetera, we will pay out, as we must, taxable income, but we'll reassess whether it is wise and appropriate to pay 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 debt management, stock buybacks, or whatever. As most of you know, I have resisted buybacks for years and years, resisting copycatting in sister industry companies, and resisting the pounding from analysts to, quote, close the NAV gap, close quote. I believe my resistance was logical and fact-based. But 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 million share buyback program. We will proceed carefully and in a measured way, funding the buyback from asset sales or even cash retained from paying the dividend in script. 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 a $2.12 dividend. 2023 taxable income is currently projected at $1.05 without any asset sales, and surely there will be asset sales. The 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, and 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, and great concern about the future viability of office, it is important to review our financial position and our liquidity. We have 3.2 billion of liquidity, including 1.3 billion of cash and treasury bills. We have over 8 billion at today's marked-out values of debt-free unencumbered assets. PEN1, PEN2, and Farley are all uncovered. The remaining capital program to complete PEN2 has been pre-funded and will be paid for out of cash balances. These buildings have significant future embedded earnings growth, and as PEN2 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 of our debt is recourse, and that with well-laddered maturities. We are clear-eyed and realistic about the near-term financial market challenge, 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 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 until 2025. with sufficient capacity on our line that matures in December 27 so that we don't have to refinance in the current hospital market. Thank you, and now over to Michael to cover the financials and the market.