Vornado Realty Trust

Good morning and welcome to the Vornado Realty Trust second quarter 2026 earnings call. My name is Betsy 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 Mr. Steve Borenstein, Executive Vice President and Corporation Counsel. Please go ahead.

Welcome to Bernado Realty Trust's second quarter earnings call. Yesterday afternoon, we issued our second 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 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, 2025, for more information regarding these risks and uncertainties. The call means those time-sensitive information that may be accurate only as of today's date. on the call today from management for 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 Steven Roth.

Thank you, Steve, and good morning, everyone. We had another strong quarter with comparable FFO of 67 cents meeting analysts' consensus. by 10 cents or 17.5%. Michael will review it all shortly. But first, let me cover what we are seeing on the ground. New York is clearly the best, strongest, and most important real estate market in the country and the most resilient. We are a Manhattan-centric office and street retail company with best-of-class assets which are benefiting from these dynamics. The stock market seems to appreciate this given our stock price performance year-to-date and over the past two years and the past three years has been the best in our peer group. And there is more to come. I believe our stock is still stupid cheap. For example, Greenfield shows up at a 23% NAB discount, much cheaper than our peers. The landlord's market that we've been predicting for the past many quarters this year is broad-based and it is strengthening. Office leasing volume in Manhattan is at its highest level in 25 years. Tenants are expanding all over the city, Available space and suddenly space continues to evaporate and office to residential conversions continue to remove square footage from the office inventory. There is a serious shortage of large block availability. Vacancies in the 180 million square foot class A better building market in which we compete is now down to 6.2%. Clearly a landless market. There is limited new supply on the horizon. And remember, new supply takes as long as five years to deliver. and requires upwards of $300 rent to pencil. At the ankle of that, interest rates are rising. As a result of all this good stuff, rents are going up, I couldn't be more constructive. In New York, tenant demand spans across all industries. Law firms alone lease 2.3 million square feet this quarter. Legal tech and media account for eight of the top ten leases signed. This isn't one industry having a moment. All of our clients are growing. Interestingly, A real estate platform that tracks these kinds of things recently reported that AI companies are now leasing more space in New York than in San Francisco. So, all good. At Renato, our singular focus is on executing our plans to deliver the highest growth in our sector based on our lineup of high-quality assets and in-process projects. Here is our 2026 scorecard. During the first half of 2026, we leased $978,000 square feet overall. For Manhattan office, we leased 659,000 square feet at $105 per square foot average starting rents, with mark-to-markets of positive 9.5% cap and positive 7.1% cash. I would note that these mark-to-market stats do not include our leasing activity at MEN2. We are following our transformation. We are achieving rents that are just about double the old rents. This is as good a place as any to take a victory lap for what we have accomplished at Penn 1 and Penn 2, financially, physically, and aesthetically. Think about it. At Penn 1, broadly speaking, we invested $200 per square foot to achieve a $50 a foot uptick in rents, which, when all gets said and done, is a 25% return. Rents at Penn are now well above our underwriting and are now the best value in town. So, plenty of room to grow here. Our physical transformation is stunning. and game-changing and award-winning. Please go take a look. During the second quarter in Manhattan, we executed 29 office deals totaling 348,000 square feet at industry-leading $107 per square foot average starting rent. We've marked the markets a positive 7.7% gap and positive 5.0% cash. This quarter's leasing volume included 181,000 square feet in the Penn District, and 167,000 that meet in our other half-passes. We are now consistently achieving triple-digit average starting rents. I suggest that Mark the Markets is a squishy metric which depends entirely upon which leases are included in the calculation and their rent. And so it's pretty random. Rather, I submitted it's better to look at starting rents for new leases as a much more fine-tuned metric which would allow for better comparisons with buildings to buildings and companies to companies. I can best do talking my book here since our starting ranks have led the New York office public peers for years now. In the Penn District, at Penn 2, we have 67,000 square feet of leases out for signature and we expect to be fully leased here down to dribs and drabs by year end. At Penn 1, we have 246,000 square feet of leases out for signature and an average mark-to-market of a whopping 44%. Company-wide, we are projecting third quarter mark-to-markets of over 20%. I guess you could call this oral salt guidance. With all of this activity, we continue to review our pricing here on a bi-weekly basis. Importantly, given that roughly 10% of the space of PEN1 rolls each year, we expect continuous strong growth from PEN1 as we keep marching old rents up the market. We continue to be delighted with our two most recent acquisitions, 623 Fifth Avenue and Park Avenue Plaza. Thanks to Harrison for giving us a shout-out for these two deals on his call. 623 Fifth Avenue is our spectacularly well-located, and by that I mean in the center of everything, 383,000 square foot asset which sits on top of Saks Fifth Avenue that we are redeveloping to be the 220 Central Park South version of boutique office space. We are off to a great start here, receiving outstanding reaction from brokers and tenants. We are about to execute our first lease of the two floors with a financial services firm that rents consistent with our operating. Of note, even at this early stage, market demand is telling us to increase our asking rents above original underwriting. As you know, we recently acquired a half-interest partnering with Fissure Boats at Park Avenue Plaza, a 1.2 million square foot tower on 5030. The deal was at a valuation of $950 a foot, which for Prime Park Avenue is a third of replacement costs. This asset, taking advantage of the in-place 2.9% mortgage loan with six years of term remaining, is a coupon clipper at 8% cash on cash. So the way I look at this, we are earning double the risk-free bond rate from risk-free Park Avenue AAA real estate. The end-place leases at Park Avenue Plaza are at, give or take, half current market, so we expect very substantial capital appreciation here to go hand-in-hand with above-market current earnings. Our market-leading signage business of the two most important and highest traffic locations in Manhattan, Times Square, and the Penn District continues to grow at a healthy rate. We love this business. It's capitalized and has been growing at 5% per year. We intend to add more signage in the Penn District where we control almost all of the real estate around Penn Station and Madison Square Garden. If you drive or walk past Park Avenue at 52nd Street, you will see that our 350 Park Avenue site is now under construction, actually under demolition. We intend to shortly exercise our investment option to participate in this deal at our maximum ownership percentage of 35%. alongside Ken Griffin as our 60% partner and the Citadel as our 1 million square foot anchor tenant. Several commentators and analysts have suggested that we take the money and run. No, no, no. That would be incredibly short-sighted. In our business, there is no better place to invest than Prime Park Avenue with a million square foot tenant and a 60% partner already committed. We are contributing our existing land and 65-year-old building at a $900 million valuation. We have the balance sheet resources to support this deal and all of our other financial requirements as well. We have a $3.3 billion construction loan ready to go. I think $3.3 billion may be a record. The partnership, and by that I mean all partners, is contemplating selling down at 25% interest at a price which will give us an appropriate profit and also give the buyers an appropriate profit. The expected joint venture closing will take place in September. We are extremely excited and bullish about the potential returns from this project. The brokers and tenant community is buzzing, and we are already getting incoming to available space, all of which is new space from 600 feet to 1,000 feet, from clients seeking the very best and for whom our delivery date fits their needs. At Trenado, management of our balance sheet is the highest priority. Michael and his team have worked very hard to get our debt ratio down into the sevens. We are in conversation to sell two non-essential assets which would very substantially increase our liquidity profile. Here is the status of our stock buyback program. This quarter we repurchased 1.8 million shares at $29.92 per share. Since we have started buying back shares in 2023, we have repurchased 8 million shares at $26.61 per share. We will continue to take advantage of the stock as the opportunity presents itself. Just for kicks, on a final and interesting note, I recently heard an interview with Taylor Sheridan, the screenwriter, director, producer, and actor best known for creating the passionately successful Yellowstone Universe. I confess that I'm addicted to his stuff. Here's what he said about New York. Quote, I leaping love New York. It's the first place I've lived after Chicago. It's a phenomenal city and it's a city that I feel is much tougher. It endures a bad politician or two and you can't tank it. New York shakes off this stuff like a case of bad dreams and keeps going. It doesn't matter the industry if you're in New York. If you're successful here, if you're a bricklayer, You're one of the best friggin' bricklayers on the planet because there are 8 million people convening for your job. You have just mandate excellence of everybody in every way and in every field. End quote. By the way, when somebody asks who doesn't know me what I do for a living, I say I'm a bricklayer. Now, Austin Michael.