Vornado Realty Trust

He trusts second quarter 2025 earnings call. My name is Michael 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 Borenstein, Executive Vice President and Corporation Council. Please go ahead.

Welcome to tornado Realty Trust second quarter earnings call. Yesterday afternoon, we issued our second quarter earnings release and filed our quarterly report on form 10Q with the Securities and Exchange Commission. These documents, as well as our supplemental financial information package are available on our website, .vno.com under the investor relation section. In these documents and during today's call, we will discuss certain non-GAP financial measures. Reconciliation of these measures to the most directly comparable GAP measures are included in our earnings release form 10Q and financial sublimation. Please be aware that statements made during this call may be being 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 10K for the year ended December 31, 2024 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 for management for our opening comments are Stephen 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 Stephen Ross.

Thank you, Steve, and good morning, everyone. Let me start by expressing our sorrow about the tragic and senseless shootings at 345 Park Avenue last week. Our deep condolences go out to the victims, families and friends. We have many friends in that building, in ownership and occupiers, and we stand with them as they deal with this terrible tragedy. To continue, here at Grenado, our business continues to be strong, is getting stronger, and I remain incredibly enthusiastic about our future prospects. Our stock performance leads the office sector to have increased 42% over the trailing 12 months, almost double the S&P 500. I was quite surprised that, broadly speaking, every other office week, whether East Coast or West Coast, including all the other New York office specialists, were negative during that period. We had an excellent quarter, and Michael will cover the results shortly. By excellent, I mean leasing, balance sheet, and pen, all excellent. Let me once again discuss what we see on the ground and our business strategy. We are a 90% New York-centric company. Actually, we are a 90% prime-pitch Manhattan-centric company. We do own a single large building in Chicago, the Mart, and a single complex in 555 California Street, the number one building in San Francisco. These two assets may be on the for sale list for the right deal at the right time. Manhattan is universally claimed to be the strongest real estate market in the country, and I mean the strongest by far. While Manhattan may have nearly 420 million square feet of office space, we actually compete in a much smaller 180 million square foot Class A better building market. Our clients are expanding, demand is strong and broad-based, and here's the punchline, available space continues to evaporate quickly. Replacement costs for a Class A tower in Manhattan has risen to call it $2,500 per square foot. With interest rates at six or six plus percent, rents in the 200s are now commonplace. Think about it, $100 rents were rare only a few years ago. I believe this math is telling us there will only be a trickle of new supply for the foreseeable future, at least through the end of the decade. Remember, it takes five years from start to deliver a new-build tower in New York. And that trickle of supply, however unlikely, will undoubtedly be spoken for and not create speculative space available to the market. Taken together, all this is the very definition of a land-worth market. With tight availability and Class A better buildings in the Manhattan and West Side corridor, and no new supply coming for the rest of the decade, I believe the next few years have the potential to be one of the strongest periods of rental growth we've seen in decades, and it's already started. That said, logically and for certain, values will increase as well. Here is our industry-leading leasing scorecard. During the first half of 2025, we leased 2.7 million square feet overall, of which 2.2 million square feet was Manhattan office. That includes the 1.1 million square foot master lease within 770 Broadway, largest New York office lease in 2019, which by the way absorbed 500,000 square feet of vacancy at that property. The reigning 1.1 million square feet of leasing during the first half was at $97 per square foot average starting rents, with -to-market of plus .7% gap and plus .7% cash. During the second quarter in Manhattan, we executed 27 deals totaling 1.5 million square feet, including NYU. Excluding NYU, the remaining 400,000 square feet of Manhattan office leasing for the quarter was at $101 per square foot starting rents, with -to-market of plus .8% gap and plus .7% cash. We continue to achieve the highest average rents in the city. This quarter leasing was 190,000 square feet in Penn and 210,000 square feet in our other Manhattan assets. Importantly, our leasing this quarter included 12 transactions for 183,000 square feet at Penn one, and an average starting rent of $101 per square foot, bringing occupancy here to 91%. Here's an interesting factoid. Since the start of physical development, we have leased 1.6 million square feet at Penn one, at average rents of $94. At Penn, we are handily exceeding both our initial underwriting and our increased underwriting. Here's another way to look at it, looking towards the future. Everyone is modeling large increases in tornadoes earnings as leases at Penn one and Penn two come online, as they should. This is all based on rents of, say, $100 per square foot, but our neighbors to the west are achieving $150 per square foot, and over time, so will we. Think about it, Penn one, Penn two, and Farley, together comprise five million square feet. So the math says every $10 a foot uptick in rents yields $50 million to the bottom line. And what's more, when the uptick, i.e. market rents, get to $150 per square foot on five million square feet, that's an increment of $250 million per year. Same store asset appreciation over time is the ticket to success in the property business. Tenants are expanding in the Penn District. As an example, in the last quarter, Samsung doubled its base at Penn one, and since its first 220,000 square foot lease signed in 2020, a major tech tenant at Penn 11 has expanded three more times, now occupying 460,000 square feet in that building. Last week, after the quarter ended, and not included in the leasing statistics, we announced the 203,000 square foot headquarters lease at Penn two with Verizon Communications, one of the world's leading telecommunications companies. Verizon now joins other top ten tenants, Madison Square Garden, Major League Soccer, and Universal Music Group at Penn two. We are, of course, delighted to welcome Verizon. Verizon's choice of Penn and their enthusiasm for their new home can best be described by lifting a quote from their press release by one of their senior executives. Quote, New York City isn't just where we work, it's who we are. Our employees deserve a workplace that is just as vibrant as our culture. Penn two is more than an office, it's a space designed to bring us together, to collaborate, to celebrate, to think boldly, to build the future side by side, close quote. The Verizon folks get it. This is a very important deal and continues to validate the product. This is a very important deal. Occupancy at Penn two is now 62% and we have multiple deals in the on deck circle which will keep our occupancy marching upward. The Penn district, our three block long city within the city continues to amaze and impress tenants and stakeholders. We sit atop the nexus of Pennsylvania Station and the New York City subway system adjacent to our good neighbors to the west, Manhattan West, and Hudson Yards. The three of us combined represent the new booming west side of Manhattan. At Penn we are creating a campus of multiple interconnected buildings under one ownership. We deliver exactly as we said we would and there is much more to come. As a starter, we are well along in the development process for a 475 unit rental residential project on our 30th West Beach site, caddy corner to the Moynihan Train Hall. Next we are going to transform as much as 700 front feet of tired old retail on both sides of 7th Avenue along 34th Street into attractive, modern, and exciting retail offerings. The gateway to Penn is 7th Avenue at 34th Street. This stretch across the street from Macy's used to be a top three location and returning to top three is our goal. As I said before, the Penn district will be a growth and just for a couple years to come with rising rents and future development projects including the Penn 15 site and potential residential opportunities. We also continue to add to our already impressive food offerings in the district with our newest restaurant, the Dynamo Room, which opens last month to great reviews. Avril will open at Farley in the fall. And our rooftop park at Penn to call the Perch, name the Perch, is the best spot in the city for view, food, gathering, or just chilling. Come see Penn for yourself. I invite you to come to Penn District anytime, but especially at happy hour, where you will see every seat in every restaurant and amenity, whether it's indoors or outdoors, filled with happy employees of our tenants. Our unmatched amenity package of 180,000 square feet is surely doing its job in spades to attract and delight our tenants. Our New York office leasing popular pipeline is robust with a total of 560,000 square feet of leases signed or in negotiations. Setting up the third quarter, plus more than one million square feet in various stages of proposal. As we announced on our last call, after two years of intense deliberation, the arbitration panel issued its ruling on the Penn One ground lease rent reset. The Penn One ground lease, as fully extended, goes to 2098. Days ago, Fodran Lessora filed at 11th hour Hail Mary motion in New York County Supreme Court to vacate the rent reset panel ground rent determination. We believe the motion is entirely without merit and intends to vigorously oppose it. We also completed the following financing transactions as we continue to bolster our liquidity and handle our debt maturities. In April, we completed a $450 million financing to 1535 Broadway using 407 million of net proceeds and partially redeem our retail JV equity on the asset. The preferred equity outstanding balance is now 1.079 billion down from 1.828 billion. In June, we completed a five year, 675 million refinancing of Independence Plaza, a joint venture in which we own a .1% ownership interest. In July, we completed a five year, $450 million refinancing of Penn 11, paying down this previous loan by 50 billion. We have meaningfully delivered our balance sheet over the past couple of quarters. Since the beginning of the year, we have generated 1.5 billion of net proceeds from sale, financing, and the NYU deal. Paid down 965 million of debt and increased our cash by 540 billion. Our cash balances are now 1.36 billion and together with our undrawn credit lines of 1.56 billion, we have immediate liquidity of 2.9 billion. Our net debt to EBITDA metric has improved by 1.4 turns to 7.2 times from 8.6 times. And our fixed charge coverage ratio, as expected, is steadily rising. Please see page 23 of our financial supplement for details. Finally, we remain very excited about the redevelopment of 350 Park Avenue as Citadel as our anchor tenant and Ken Griffin as our 60-biz partner. The process to create this grand foster and partner's design 1.8 million square foot tower on the best side of Park Avenue has begun and this new building will stand out as being truly best in class. DDs are complete, i.e. the building is basically designed and CDs are progressing. Last month, the City Planning Commission voted to approve the project and we expect the final new look approval from the City Council this fall. Citadel is currently building out their interim swing space which will allow us to commence demolition of the existing 350 Park Avenue building in spring. Thank you all for listening and now over to Michael to cover our finances.