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spk12: Good morning and welcome to the Vornado Realty Trust third quarter 2023 earnings call. My name is Rocco 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. Now I will turn the call over to Mr. Steve Borenstein, Senior Vice President and Corporation Counsel. Please go ahead.
spk08: Welcome to Vernado 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 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 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.
spk05: Thank you, Stephen. Good morning, everyone. I begin by joining with the citizens of the free world by saying that we are shocked and saddened by the now two wars in Ukraine and Gaza. The loss of life and destruction is heartbreaking, but the importance of the outcome of these hostilities to our way of life cannot be overestimated. The President of the United States issued an elegant, simple one-word warning to potential combatants, don't. Domestically, we support Mark Rowan in his fight to right the wrongs at the University of Pennsylvania. A great many American college campuses have similar issues. The economy has held up better than expected in the face of the Federal Reserve's historic interest rate increases. But make no mistake, in the end, the Fed will slow the economy and will win its battle against inflation. Real estate capital markets remain challenged, read frozen, making it extremely difficult to finance or sell assets. Capital is scarce and back-breakingly expensive. While these circumstances will cause pain in the short term, They lay the foundation for a recovery in fundamentals and values in the future. The direct byproduct of the lack of availability and out-of-sight high cost of financing is that it will shut down almost all new building. If history is our guide, as demand recovers, the market will tighten and Class A rents and values will benefit enormously. We have seen this movie before. Despite the difficult markets, our business continues to perform well and on plan for the year. Michael will cover the math and give color in a moment. As we enter the fourth quarter, we are excited that the construction phase of Penn II is nearing completion. As expected, tenant interest is picking up in this unique redevelopment as we get closer to delivery. Over the next several quarters, we will launch many new food and beverage offerings in the Penn District, and will open a new three-line public plaza on 33rd Street, all of which will significantly enhance the tenant experience. Demolition of Hotel Pennsylvania is now complete. Our focus now is on leasing, especially Pen 1, Pen 2, and the remainder of the Farley retail, all of which will drive our near-term growth. And we remain focused on protecting our balance sheet and pushing out maturities. In the current events category, three weeks ago Wegmans opened their 90,000 square foot supermarket in the West Village at our 770 Broadway property. This is their first store in Manhattan and New Yorkers are appreciating their unique offering, crowding the store with lines around the block. It's a terrific success. In August, we contributed our Pier 94 leasehold to a joint venture with our partners Hudson Pacific and Blackstone. and in return will own 50% of the venture. This will be the best studio facility in New York City and the only purpose-built one in Manhattan. We appreciate the mayor's and New York City EDC's support in completing this important private-public partnership. We broke ground last week and expect to deliver the project by the fourth quarter of 2025. We believe in the project's potential and expect it to generate at least a very attractive 10% incremental cash yield on our investment. To conclude, as I've said before, we believe in the great American cities and especially New York. We believe that the future of work will principally be in the office. I can't imagine millions of American office workers working at home alone at their kitchen tables. We observe that New York City is back. Usage in our office buildings is now 65%. You can feel the energy if you walk the streets and stand in our lobbies. The restaurants and stores are packed, and our buildings are pretty much back to normal Monday through Thursday. The key is that talent wants to be here. It remains the number one city for college graduates from practically every region of the country. Now to Michael to cover our financials and the markets.
spk06: Thank you, Steve, and good morning, everyone. The financial results for the quarter were down from last year. due to items that we previously forecasted, our core office and retail businesses continued to remain resilient with long-term credit leases. Third quarter comparable FFO as adjusted was 66 cents per share, compared to 81 cents for last year's third quarter, a decrease of 15 cents. This decrease was driven primarily by the following items. Six cents from the one-time real estate tax accrual adjustment recorded at the MART in Q3 2022, four cents from higher net interest experience from increased rates, three cents from additional stock compensation expense related to the compensation plan implemented in June 2023, and two cents of other items, primarily lower FFO from sold properties. We have provided a quarter-over-quarter bridge in our earnings release and in our financial supplement. Despite the challenging environment, our outlook for comparable FFO for 2023 hasn't changed since the beginning of the year, other than the additional G&A expense that we discussed on last quarter's earnings call related to the share-based awards granted in June. Our New York office same-store cash NOI for the quarter was up a healthy 3%, and our New York business overall was up 2.1%. Now turning to the leasing markets. Manhattan continues to lead the charge nationally in the office sector. New York City private sector job growth outpaced the national average and Manhattan leasing volume was a healthy 6.5 million square feet this quarter, driven by large headquarters leases in midtown and downtown, a sign of tenants committing long-term to the city. The fire sector continues to lead the leasing volume, accounting for 31% of third quarter activity, with the government and professional services sectors close behind at 22% each. Leasing velocity continues to remain steady, concentrated in small to medium-sized leases. Focusing on our portfolio, during the third quarter, we completed 17 leases totaling 236,000 square feet at average starting rents of over $93 per square foot, highlighted by a new 101,000 square foot lease with law firm Selendi Gay at 1290 Avenue of the Americas, where we are seeing very strong activity. Overall, through the first three quarters of the year, we have signed 1.3 million square feet of leases at an industry-leading $98 per square foot starting rent. Notably, 65% of these leases have starting rents over $100 per square foot, representing more than a third of all triple-digit leases done in the market this year. We consistently perform well above our market share here, reflecting the best-in-class nature of our portfolio. As we have said for the past several quarters, and as the stats continue to bear out, There's a clear trend with tenants demanding space in better buildings around the two main transit hubs in the city, which is where our portfolio is situated. Despite market-wide Class A vacancy being in the high teens, the best sub-markets are at equilibrium, which is why you're seeing rents trend up here. And as the delivery of new supply is slowing, existing high-quality assets become the focus of demand, allowing these assets to push pricing. Our recently signed leases and pipeline of future leases at 1290 Avenue of the Americas and 280 Park Avenue and in Penn reflect these dynamics. Heading into the fourth quarter, our current pipeline remains strong at 1.8 million square feet. This includes 750,000 square feet and four deals expected to close in the fourth quarter, which would put us over 2 million square feet for the year, consistent with our historical activity. The pipeline consists of a healthy mix of tenants across a wide variety of buildings in our portfolio. In Chicago at the Mart, while the market remains challenging, we completed 68,000 square feet of leases during the quarter at $55 per square foot average starting rents and have a solid pipeline of 400,000 square feet, including two leases in negotiation totaling 100,000 square feet. Our new amenity package has generated very positive interest in the marketplace and increased leasing activity. We are also benefiting from the fact that we are a strong sponsor and have no debt on the asset, and many of our competitor buildings are dealing with financial stress. Turning to retail, we said a few quarters ago that retail had bottomed, and the recent stats published support this, with vacancies dropping and asking rents increasing year over year in most submarkets. This recovery is being driven by tourism in the city and retailer sales rebounding back to pre-pandemic levels. In our portfolio, we have seen a noticeable pickup in our leasing activity over the past three to four months, with almost all our assets seeing tenant interest, especially on Fifth Avenue and in Times Square and in the Penn District. We have a healthy pipeline with many leases currently in negotiation. During the third quarter, we signed eight leases totaling 29,000 square feet, at a positive 33.5% cash mark to market. Turning to capital markets now, the financing markets remain quite difficult, particularly for office, driven by the volatility from the Fed's sharp rate increases and pressure on the banks to reduce their office exposure. Even in this difficult time, we remain in good shape. We have no significant maturities until mid-2024 and are actively working with our lenders to push out the maturities on our loans which mature in 2024 and beyond. In this regard, we are pleased to welcome Jason Kirchner as our new head of capital markets. Jason is a well-known, trusted industry colleague with all of our banks, and he's off to a great start. As always, we continue to remain focused on maintaining balance sheet strength. Our current liquidity is a strong $3.2 billion, including $1.3 billion of cash and restricted cash, and $1.9 billion undrawn under our $2.5 billion revolving credit facilities. Lastly, kudos to our sustainability team, which continues to position us at the head of the class in the industry. We just received Gresby's Green Star Distinction for the 11th time in Gresby's five-star rating. With that, I'll turn it over to the operator for Q&A.
spk12: Thank you. We'll now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you'd like to remove yourself from queue, please press star then 2. Today's first question comes from Steve Sacwa with Evercore ISI. Please go ahead.
spk13: Thanks. Good morning. Michael or maybe Glenn, could you just expand a little bit on the New York City leasing pipeline as it relates to both the existing portfolio? I know you've got a fair amount of square footage coming due in Q4. But also, you know, as Steve talked about, you know, PEN2 is nearing completion. And just how does the pipeline break out between the existing assets and the developments?
spk15: Hi, Steve. It's Glenn. Good morning. So pipeline overall, we're, you know, squarely attacking the current vacancies, you know, focused on PEN1, focused on the upcoming PEN2, focused on operations 24, 25 coming up. As Michael mentioned in the script, the remarks, many of our leases are pinpointed on that expiring space coming up in the next two years. A good majority of it is in Penn. If you think about the Penn story, we said two and a half years ago, it's going to be a chapter by chapter lease up program, which is exactly what's happening. Over that period of time, we've leased 2.5 million feet in the Penn District at starting rents of $94 a foot, which comprises mainly of Farley, Penn 11, Penn 1, and Penn 2's next. Activity has strengthened markedly since our last call. Project's opening up in about 30 days or so. We have proposals, which we're working on as we sit here on this call. The reception's excellent. And I think the best part of the news for us is every tenant who's now touring is also touring all the new buildings to the west of us. So our plan all along was to compete with those guys, and we certainly are at this point. And as these new F&B programs open, as the public plaza opens and the neighborhood begins to more and more flourish for us, the action's only going to get better.
spk13: Uh, great. Thanks. Uh, maybe Steve or Michael, could you just maybe touch on the dividend and the share repurchase program? It didn't seem like you were that active in the quarter. I'm not sure if the economic uncertainty and fed tightening is keeping you on a pause there, but just any thoughts as we're getting to the end of the year, her on the taxable income, the dividend and share buybacks. Thanks.
spk05: Uh, Steve, get a pencil. So, um, Here's what our projections are for the income and the dividend. We're expecting our FFO this year to come in about 255. We're expecting our recurring taxable income to come in at 68 cents. Now, that's reduced by accounting treatment of how we depreciate our assets from $1.13. So recurring taxable income is going to be about $1.13, and after the accounting treatment of how we depreciate our assets, it'll be 68 cents. We paid 37.5 cents in the first quarter in cash, so that would leave about 30 cents for the fourth quarter to true up the entire year. So we expect to pay out somewhere between $0.20 and $0.30, probably in cash, in the fourth quarter. That's the dividend. With respect to stock buybacks, everybody knows I'm fairly opportunistic. So we have a $200 million authorization. We've bought how much, Tom? We bought $30 million. We have $170 million to go. We will, depending upon the price of the stock, et cetera, accomplish that sometime in the short future. Now, remember one thing. In the buyback program, we are trying to benefit not the selling shareholder but the remaining shareholder. So I trust that answers your question, Steve.
spk13: Great. And just one more. Michael, you sort of touched on the challenging debt markets. And just as you think about your exploration on the mortgage side for next year, I guess how far in front of those refinancings can you get with the banks? And is there any sense on where pricing is today for refinancing existing mortgages?
spk06: You know, Steve, as I said, I think on last quarter's call, you know, the existing lender is the best lender, right? Oh, not the only lender. Maybe the only lender, right? There's a lack of capital for real estate generally and even more so for office right now, given the fact that the U.S. banks particularly are under. So, you know, it's difficult, if not impossible, to refinance most assets. The lenders recognize that. The servicers recognize that. And so in every situation, depending on the maturity, we start discussions with our counterparties there. And I think the banks, the servicers start with, do I have the right sponsor? Do I have somebody who I think is going to either maintain or add value during this difficult time and get me to the other side? And obviously, given our track record, That answer is an affirmative one always. We've done a number of extensions over the last couple quarters. We're working on the 24 maturities now, even some of the ones beyond the 25, 26. Each one is bespoke. I think in general, we don't really want to have Band-Aid solutions. We want to have term. We'd like to get at least three to five years on each extension. You know, we're prepared if the economic arrangement is fair and balanced, you know, we're prepared to support the asset, whether that's through a pay down or, you know, investing capital to lease up the building or maintain a leasing. But it's really bespoke, you know, situation by situation. You can rest assured that literally every loan that's maturing in the next couple of years, we have an active discussion with our with our lending counterparties. They appreciate that, and we'll generally work through those. But again, most of those are, the lion's share are non-recourse, and they recognize that as well. So we collectively have to work to an appropriate solution, and as we've done to date, I think we will in the vast majority.
spk12: Thank you. And our next question today comes from Camille Bonnell with BOA. Please go ahead.
spk01: Good morning. Just following up on the lines of questioning around the balance sheet, can you update on us on your latest thoughts around this interest rate environment? How do you think about your revolver now that its spreads are tighter than some of the longer term debt you can raise?
spk06: Good morning, Camille. You're talking in terms of using our revolver?
spk01: Yes.
spk06: Yeah. I mean, look, You know, we're not interest rate seers. If we were, we wouldn't be doing the jobs we're currently doing. I'm not sure anybody's an interest rate seer, by the way. But, you know, all we can do is, frankly, you know, be respectful of the forward curve and budget our business based on that with some conservatism built in. So, you know, that's how our cash plan is modeled. And, you know, I think you know our company. We've always managed our business with a healthier cash balance than, you know, almost every other company, certainly in our sector. And I think that serves us well right now. It gives us flexibility to deal with our bonds or anything else that comes up. We're building pen out of cash, as you know. So, you know, it appears like the Fed is done or close to done. It doesn't mean that rates are going to come down in the next year. Eventually, we think they will. But, you know, we have to continue to operate our business with rates, you know, staying at these levels. So We're fortunate we have the cash balance. You're right, we do have two revolvers, which gives us flexibility in how we attack things. And so, you know, that's clearly one of the tools that we can use, we will use to the extent we need to, whether it's dealing with the 2025 bonds, although we've got, you know, two or three other options other than using the revolver there, and, you know, in dealing with any other maturities that come up. our plan is not to use a lot of our revolver capacity to deal with our secured financing. Those are dealt with one by one. We're going to deploy capital very judiciously on secured assets. And the revolver there, I would say, is more as a backstop for dealing with the unsecured bonds to the extent that there's not a better alternative that we see.
spk01: That's helpful, Collar. And specifically around the swaps and caps you have expiring next year, Will you be letting those roll, and how should we think about the potential headwinds related to that?
spk06: Yeah, yeah. Look, I think we've done a pretty good job of hedging over the last couple of years. We weren't perfect, but I think we've done a good job. If you look at the fair value of our hedges right now, I think it's roughly $300 million, so that tells you we're quite a bit in the money, I guess unfortunately. That means we've done a good job of hedging. That being said, you can't hedge away maturity risk. If loans roll until we figure out what the plan for those assets are, it's difficult to hedge. If something's floating and we convert it to fixed, then therefore we don't need to have rolled that hedge, but you're exposed on what the interest rate is when you actually do hold it. You know, the answer is we have some exposure on some expiring or maturing loans where, you know, the caps or swaps are at lower rates than the in-place SOFR rate. And then we've got a couple loans where the swaps, you know, 555, for example, you know, we put in place another swap on that asset that, you know, is at a higher level than the existing one. So, you know, we'll have some leakage, we think, in 2024 from that. you know, those loans that are rolling over and a couple of those swaps that are also expiring. But we will replace those. We will continue to hedge our portfolio. But, you know, given rates have moved up, when you move from one hedge to the next, there'll be some leakage on three or four assets.
spk01: Okay. Thank you, Michael. And for my last question, switching gears a bit, can you talk to the sublease activity you're seeing across the portfolio? How has it changed since a year ago, and how does it compare by region? Thank you.
spk15: Hi, Camille. It's Glenn. You know, in the New York portfolio, I'd say the color hasn't changed much since last year in terms of the spaces that are on the market in our portfolio from the sublease basis. As a matter of fact, some of it has been fully leased or taken off the market. For example, PWC at 90 Park, all that space is now called for. I would say nothing really new to highlight over the 12-month period. In Chicago, I think there's more sublease space in the market, in the market generally and at the mart specifically. And in San Francisco, the only tenant to note is Microsoft has announced the sublease of their space in our 555. That lease has a very long-term nature left to it. So that's general color, but I think if you look at the statistics in New York specifically, I think the numbers are generally on par with a year ago.
spk12: Thank you. And our next question today comes from Michael Griffin with Citi. Please go ahead.
spk16: Great, thanks. Maybe just another question on leasing for Glenn. Are you noticing office users taking longer in making decisions about whether or not to lease space and then If you could update us on kind of where TIs and free rents have been trending in the market, that would be great.
spk15: I think the concession TIs, free rent, that's all stabilized. And as Michael said in the remarks, we're even seeing rents go up in certain buildings, like a 280 Park, 1290, a 10-1. So I think it stabilizes the answer on the concessions. So what was the other part of it? Longer? I think generally, yes. The processes are longer in terms of deal-making, you know, from first tour to signing a lease. Definitely longer than historic, for sure. Yes.
spk16: That's helpful. And then just on the dividend policy going forward in 2022, just given how it was handled in 2023, I'm curious if you can kind of update us on kind of any expectations for the go-forward year as it relates to the dividend. Sure.
spk06: Your question, Griff, is about 2024. I think you said 2022, but I think you meant 2024. Yeah. You know, at this point, we don't really have any comment. I think Steve gave you a pretty good outline of where we are in 2023. You know, the environment's fluid. You know, as we said earlier this year, you know, we don't know how asset sales could impact what we have to do. I think the same goes for next year. So, you know, we'll deal with the 2024 dividend and try to give a little bit more color as we get into 2024.
spk16: Right. I think it was more, sorry about this, but I think it was more just the expectation to pay it quarterly or wait until the end of the year, if you can comment at all.
spk05: It's not impossible that we will wait until the end of the year next year as we did this year.
spk12: Thank you. And our next question today comes from Alexander Goldfarb with Piper Sandler.
spk14: Please go ahead. Hey, good morning. Morning, Steve. And thanks for your comments at the start of the call. Appreciate it. So two questions here. The first is, you know, politics obviously has gotten, you know, it's pretty animated these days, especially around real estate. One of your peers just made a government hire But when you think back to like the Robert Moses era and like, you know, Jackie Kennedy saving Grand Central, it seems like politics has always been pretty big in New York. So, Steve, given some of the headlines recently, especially around the Penn District, would you say in your career, the current era of political involvement with regards to development, commercial development, you know, change of zoning? Would you say it's different now or this is really what New York has always been and it's just that we happen to be living in today versus had we been around in the 70s, 60s and before?
spk05: Alex, that's a very esoteric question. I think the times today are not very different at all from what the times have been over the last decades. The politics in the United States have always been interesting. The growth of the cities in the United States has always been fairly aggressive, and most cities want to grow. New York is in that category, by the way.
spk14: Okay. And then the second question is, A few years ago, well, quite a few years ago, you guys denounced an effort to trim GNA, given the reduction in the size of the company with the different platform spinoffs, et cetera. As we look at FFO, it's about half the level that it was eight or so years ago, but GNA is only down maybe 15%. So as you think about, to the prior question on the dividend for next year, as you think about increasing shareholder returns, What's your perspective on corporate overhead reduction as part of boosting earnings and growing the dividend?
spk06: Alex, good morning. It's Michael.
spk16: Morning, Michael.
spk06: You know, I think we were maybe the only company in our sector and certainly in the industry, you know, I guess it's almost three years ago now that did a major reduction in in the height of the pandemic, and it was a difficult reduction, but we did it. I think it was a responsible decision, and I think the company has performed fine, and frankly, we elevated some young leaders that I think have done extraordinarily well, hungrier and quite capable. So I think we're pleased with what we did in retrospect. Look, we are constantly evaluating business. both from a personnel standpoint, from a system standpoint, how do we do things more efficiently, et cetera. And, you know, we'll do that as we, you know, enter year-end here. But I don't see, you know, we made some major cuts personnel-wise, you know, and I think people have worked smarter, more efficiently, et cetera. So I wouldn't wait by your printer looking for significant cuts there. You know, from an overall corporate G&A standpoint, you know, Tom and I in particular, we look at that all the time, and, you know, we're doing some things around the edges to help, and we'll continue to do it. But, you know, I don't think it's going to be dramatic. I think we're actually quite efficient. And, you know, yes, the earnings are down some for a variety of reasons, but I think the business is not a lot of fat here, Alex.
spk14: Okay. Listen, thank you.
spk06: I'll just add one other thing. The senior team has kept their comp flat for generally the last four or five years. Joe and Dave are retired. I think we've taken a lot of steps. We're all major shareholders. It's a big part of our network, if not the largest. We act like owners. We run the business that way. Thank you.
spk05: Alex, you know that overhead does not go down in proportion with a business which is reducing. So it's much more efficient to grow than it is to reduce. So we acknowledge that our G&A has not gone down in proportion to the top line of our business. We keep looking at it, banging it. We believe we have a fairly efficient operation, but you're correct about the ratios.
spk12: Thank you. And our next question today comes from Dylan Brzezinski with Green Street. Please go ahead.
spk02: Hi, guys. Thanks for taking the question. I guess I appreciate your comments on sort of the challenging capital markets environment, especially for office. But I guess just as you think about the portfolio and the capital allocation game plan moving forward, Is it your sense that you'll continue to try and take advantage of potential disposition opportunities in the near future?
spk06: Morning, Dylan. The answer is yes. You know, we are, we've obviously sold some things over the course of the year. We're working on some other things right now. They're not, you know, I would say they're more bilateral than broadly marketed opportunities because that's a, smarter way to try to execute in this environment. So we have a handful of things that we're working on. I'm not going to sit here and promise that any of them will get done, but there's a likelihood that a portion of those could get done. So the answer is we're going to be opportunistic in terms of either selling or recapitalizing some assets. We're going to do it if we think the pricing is accretive. And, you know, I sort of come back to what I said a few moments ago, which is, you know, we're in a good position from a cash standpoint. You know, we're sitting on over a billion dollars. We don't have to do anything, but we'd like to do some things. And so our goal is to generate, you know, some meaningful proceeds, both to de-lever and to attack the stock. And so we're working on some things. And we'll just have to see how it plays out.
spk02: And just to your point on sort of there being a lack of overall debt financing for the sector today, is there any appetite to offer seller financing for a small portion of any future dispositions? Or I guess just how do you guys think about that?
spk06: Sure. I think, you know, if you've followed our company, you know, we don't like creativity. So if, you know, seller financing can help facilitate a transaction and we think that the overall transaction makes sense, we'd absolutely consider that.
spk02: Appreciate the detail. Thanks.
spk12: Thank you. And our next question today comes from John Kim at BMO Capital Markets.
spk03: Thank you. Can I ask about leasing activity? It was a little bit light compared to your 580,000 square feet in negotiations last quarter. I was wondering how much of that is timing related versus deals that fall apart.
spk15: Hi, John. It's Glenn. It's all timing related. So as we said earlier, Based on the timing of some leases that led into 4Q versus 3Q, we expect to be at 2 million feet by the end of the year based on the activity we have and based on where those leases are currently in documentation. So it was all timing related. You're correct.
spk03: Okay. Any more color you could provide in that 750,000 square feet of leases that you expect to close in the fourth quarter? I think you mentioned 280 Park and 1290 Abbot's Americas, but Is the MART included in this as well? And any color on the types of tenants that you're signing?
spk15: The deals we spoke about are New York-related, 280, 1290, 650, PEN1, financial law fashion. At the MART separately is another 100,000 feet in lease documentation, which we expect to get done this quarter as well. the more additive to the New York number we had given you.
spk03: Got it. Okay. At 280 Park, you do have mortgage debt due in about a year. Based on your recent debt extension at 150 West 34th, which was extended but downsized, do you think that's a likelihood that that mortgage debt gets reduced?
spk06: John, it's an active discussion right now, so I don't really want to comment on it. But my general comments I made, I think, to Camille's question, stand for 280. And our expectation is, as I said, we're in discussion with every lender or servicer. That one happens to be a servicer for our 24 maturities. That's included there. It's an active discussion. you know, hopefully we'll figure it out.
spk12: Thank you. And our next question today comes from Anthony Pallone with JP Morgan. Please go ahead.
spk04: Great, thanks. So Hotel Penn has been taken down. It looks like you put up some big signage there. It's a big site. I'm just curious if you have any opportunities to drive any meaningful cash flow from the location just while it sits in waiting for a longer-term plan.
spk06: You know, the answer is we are studying that right now, Anthony, and the answer is we think so. You know, we're pursuing a few ideas. Too early to tell you which one or ones we're going to settle on, but you're exactly right. It's a great site located in the center of the city, and, you know, whether it's fashion shows or other temporary uses, we think there will be opportunities to generate some cash flow until the site is ready for development.
spk04: Okay. And then I think last I recall there was still some back and forth on ground lease at Penn. Any update or final resolution to that?
spk05: That's in process.
spk04: Okay. And then if I could ask one final one. Just on the MART, I always find it a little tricky to adjust for taxes and some ins and outs there. Any way to give us a sense as to where sort of like run rate EBITDA for a year is at that asset right now?
spk06: Yeah, I think it's probably in the low 60s or $60 million neighborhood right now, you know, given the decline in occupancy. You know, and over time as we build that back up, you know, we think that number will get back to, you know, $90 to $100 million.
spk12: Thank you. And our next question today comes from Julian Blowen with Goldman Sachs. Please go ahead.
spk10: Yeah, good morning. Thank you for taking my question. Glenn, you mentioned the Microsoft sublease space at 555 California. Can you talk about your upcoming expirations at 555 Cal? It looks like there's over 50% ABR rolling through 26, including 274,000 square feet in 25. I guess just any sense you have on what those tenants are thinking, whether these tenants might downsize or give back space?
spk15: So as it relates to the rollover, the B of A lease, we've extended by 10 years, so that now goes to 35. So I'm not sure if you're counting that or not by what you're looking at. But otherwise, as you would expect, we are in formal negotiation with every tenant expiring between now and 26 in paper. And I would expect success in our renewal program as we've had historically in this habit.
spk10: Got it. That's helpful. And then I guess given the comments around the bilateral deals you're looking at, I guess, is your current plan to execute on your 350 park put option given the accretiveness of redeploying that into debt repayments in this higher interest rate environment?
spk05: It's premature to take that question.
spk12: Thank you.
spk05: And our next one.
spk12: Oops, I apologize. Please continue, sir.
spk05: The transaction that we have on 350 bar gives us various options and optionality as it gives the counterparty various options and optionality. So those decisions are in the future.
spk12: Thank you. And our next question today comes from Vikram Malhotra with Mizufo. Please go ahead.
spk09: Thanks for taking the question. Just I wanted to clarify, maybe I misheard. Did you give us sort of an update on the FFO kind of run rate or the full year FFO expectation? And just given all the moving pieces we've just talked about, do you mind just sort of giving us any larger moving buckets we should think about, whether it's big expirations or other pieces as we model into 24?
spk05: You know, you As you know, we don't give guidance and I think your question goes to guidance. So basically that's not a question that we're going to be able to handle. Sorry.
spk09: Okay. And then I guess just, you know, you talked a lot about New York being back and I just wanted to see if we can square that with, you know, you're sort of in prior cycles, you've always made money kind of at the bottom of the cycle. finding those interesting assets. And I'm just wondering, given New York is back, debt market's a challenge, but where are we in sort of that timeline or what milestones are you looking for in terms of finally putting capital to work?
spk05: My comment about New York is back was basically about the traffic, the tourism, the activity level in the buildings and in the streets. With respect to opportunities to buy assets, that's totally influenced by the fact that interest rates have gone from, say, pick a number 4 to pick a number 8%. So if interest rates have doubled, then it's pretty easy to predict that most assets which have financing on them have probably halved in value. So the action will be in the debt as it almost always is, which we're looking at very carefully.
spk11: Thank you.
spk12: And our next question today comes from Nick Yolico with Scotiabank.
spk11: Please go ahead.
spk17: Thanks. I was just hoping to get a feel for, you know, how capitalized interest burn-off is going to work, you know, the timing of that for PEN1 and PEN2 over the next two years.
spk06: Nick, I gave you a general commentary, but I think if we want to deal with specifics, it's probably better to do it offline. I think the number will stay fairly constant this year. This year, I think it's about a little over $40 million. It probably goes down a little bit next year, and then I think it's 25 as PEM2 is done. That number will decline significantly in 2025.
spk17: Okay. Thanks. And then secondly, I just wanted to ask about, you know, the dividend and, you know, it kind of sounds like your strategy right now at the board or the board strategy is to, you know, match the dividend to taxable income. And I guess I'm just wondering, you know, when you, when you, when you suspended the dividend earlier this year, it kind of felt like you had some potential asset sales in the work and maybe there could be a special dividend that was affecting the the decision making, but I guess I'm just trying to understand going forward how we should think about this. Why only pay a dividend that is matching taxable income?
spk05: The policy of the company in this environment is to retain as much cash as we can. We think that the preservation of our balance sheet is the number one priority. So basically what we're after is to pay a reasonable, but may I use the word low, dividend to preserve cash.
spk12: Thank you. And our next question today comes from Ron Camden with Morgan Stanley. Please go ahead.
spk07: Hey, just starting with the cash flow statement, just saw $62 million of cash from operation this quarter, which sort of surprised us. Maybe can you comment, is there sort of any one-timers with working capital or just trying to figure out why sort of that cash conversion maybe dipped this quarter a little bit?
spk06: Ron, we'll have to come back to you on that. I don't have the statement in front of me offhand, but... There's nothing in particular that jumps out from there. But we'll come back to you on that.
spk07: Great. Helpful. And then switching gears back to 1290 Avenue of the Americas, I think last quarter you sort of mentioned that there was some activity. I think there was even a tenant interest and it was closed. Just wondering what was the update there? How is that progressing? Conversations going forward? Pausing? Just on 1290 specifically. Thanks.
spk15: So we've signed the lease with Tlandinge, which we have mentioned, for 100,000 feet. We have another very sizable lease out in documentation right now, which is in our fourth quarter projection of leasing activity. Otherwise, tour volume is very, very strong. The building is, if not the best, certainly one of the best assets in Midtown, and it's showing just how good it is right now. You know, and this comes off the renovation we did some 10 years ago, and now with the new amenity program, we'll bring it in there. So action's been very good at 1290. We expect more to come next year as we get the spaces back from Equitable and others.
spk06: Ron, I would just add to what Glenn said. You know, we talked about this demand trend, tenants wanting to be in the better buildings, the best submarkets. you know, basically being at equilibrium, and I think 1290 reflects that. And so if you look at where we're signing deals versus where we thought we'd be earlier in the year, you know, rents are definitely up. I think tenants recognize the quality of the building, and our leasing track record there has historically always been good. So, you know, I think our activity level of where we're at is, you know, we're quite encouraged by both what we sign and what's in the queue. I want to come back to your first question. We just looked quickly on the side. You were correct in terms of the 62 being lower. The big driver of why that was down was we did a significant in-the-money cap premium for 1290 actually last quarter of about $60 million. And so that's what the delta was for the main driver.
spk12: Thank you. And our final question today is a follow-up from Steve Sakwa at Evercore ISI. Please go ahead.
spk13: Thanks. Steve, I was just wondering if you could sort of provide any updates on the casino license maybe that Vornado was potentially pursuing and any thoughts just kind of on where the state is in that whole process.
spk11: It's highly likely that we will not pursue a casino license. Thank you.
spk12: And ladies and gentlemen, this concludes our question and answer session.
spk06: I'd like to turn the conference back over to the management team for any questions. Thank you all for joining us. We will look forward to talking to you on the next call, Tuesday, February 13th. Hope everybody has a happy Halloween and gets lots of good candy. Take care.
spk12: Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
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