Vornado(US:VNO)2024-05-07 23:00Financial Data and Key Metrics Changes - First quarter comparable FFO, as adjusted, was $0.55 per share compared to $0.60 per share for the same quarter last year, a decrease of $0.05 primarily driven by lower NOI from higher net interest expense and no move-outs, partially offset by lower G&A expense [15][16] - Overall New York business same-store cash NOI was down 5.1% due to expirations [15][16] - The company expects 2024 comparable FFO to be down from 2023's $2.61 per share, primarily due to higher projected net interest expense of about $0.30 per share and the impact of known vacancies at certain properties [16] Business Line Data and Key Metrics Changes - The New York office market shows signs of strengthening, with a healthy backlog of activity and tenant space requirements trending upward [17][18] - In the first quarter, the company leased 291,000 square feet at a healthy $89 per square foot, with a highlight being a 125,000 square foot lease with Major League Soccer at PENN 2 [19][20] - Retail leasing activity has picked up significantly, with vacancy rates now below pre-pandemic levels in most Manhattan submarkets [21] Market Data and Key Metrics Changes - The luxury brands' rush to dominate prime locations is accelerating, positively impacting prime New York City retail space [12] - Asking rents are stable or rising in top-tier properties, although concessions remain high across all submarkets [18] - The CMBS market has begun to selectively reopen for office lending at conservative metrics on quality assets [22] Company Strategy and Development Direction - The company is focused on protecting its balance sheet with interest rate caps and swaps while seeking good real estate in distress [11] - The management is optimistic about the future, citing frozen supply and shrinking vacancies as key factors for potential growth [13] - The company is actively looking for opportunities to work with lenders and potentially acquire distressed assets [39] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about future earnings potential, especially with the re-renting of vacancies and the upcoming PENN 2 project [29] - The company anticipates that the impact of known vacancies will be temporary, with earnings expected to increase as leases are finalized [16][20] - The management highlighted the importance of the tech sector's resurgence and its potential impact on leasing activity [31] Other Important Information - The company finalized the recast of its revolver, solidifying a key portion of liquidity through 2029, with current liquidity at $2.7 billion [24] - The company has a significant pipeline of leases in negotiation and proposals, addressing both current vacancies and future expirations [20] Q&A Session Summary Question: Follow-up on the leasing pipeline and its allocation - Management indicated a balanced mix of proposals for PENN and addressing expirations, with a surge in interest following the Major League Soccer lease [25][26] Question: Clarification on earnings drag from lost occupancy - Management confirmed a potential $0.60 drag this year due to interest expense and known vacancies, but emphasized ongoing efforts to backfill spaces [27][28][29] Question: Outlook on the tech sector and retail opportunities - Management expressed confidence in capturing a significant share of the tech sector's resurgence and highlighted the company's prime retail locations as attractive for potential purchases [31] Question: Update on leasing concessions in better-performing submarkets - Management noted that while concessions remain high, there is an uptick in rents in tightening supply areas [35] Question: Insights on the impact of upcoming lease expirations - Management confirmed that the Meta space lease expiration is expected to be backfilled, with positive demand anticipated [36][37] Question: Discussion on the $200 billion office loans maturing - Management acknowledged the challenges in refinancing and expressed readiness to engage with lenders for potential acquisition opportunities [39][40]