vornado earnings transcript

My name is Richard, and I'll be your operator for today's call. 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, 2019, and our quarterly report on Form 10-Q for the quarter ended June 30, 2020, for more information regarding these risks and uncertainties. Tom, do you have it handy? I couldn't resist getting the plug in. I too hope you are all safe and healthy. I guess for the second question, just to kind of follow-up on the JCPenney's. And more to the point, I realize that the cash flows are still good. The deal as was -- we have a policy of not talking about the specifics of the business terms of deals with our clients. They have -- they have dry cleaning operations so that their employees -- to take care of their employees. Even during the shutdown, the reactions in the brokerage community and multiple prospective tenants to our PENN2 bustle design has been outstanding. They're great cities, okay? The world is increasingly awash with liquidity, and there really are no great assets in the marketplace to compete. As you would imagine, it's really tough to be in the retail or restaurant business in these quiet streets. So -- and those conversations are continuing. So where people live is not that just positive with respect to office development. Image source: The Motley Fool. And we are confident this is exactly what tenants want as we emerge in the post-COVID world. But we had an unknown rent to be determined in the future by a process. We recognized a $305.9 million noncash impairment loss on our investment in Fifth Avenue and Times Square retail joint venture. -------------------------------------------------------------------------------- Steven Roth, Vornado Realty Trust - Chairman of the Board & CEO [43] -------------------------------------------------------------------------------- I don't think -- the answer is, I'm not going to comment on that. And I sort of see that sort of continuing. -------------------------------------------------------------------------------- Steven Roth, Vornado Realty Trust - Chairman of the Board & CEO [31] -------------------------------------------------------------------------------- Well first of all, I'll pass the congrats off to Glen and David. We expect all of our products to be perfect. Adding in the $496 million coming in from 220, we might say our liquidity is this year now $4.3 billion. Consistent with my comments in my shareholder letter in April that we would be more aggressive in selling assets given the persistent discount in our share price, and that many, and that in many instances, we would rather have the cash than the buildings. -------------------------------------------------------------------------------- Steven Roth, Vornado Realty Trust - Chairman of the Board & CEO [58] -------------------------------------------------------------------------------- Joe, did JCPenney represent the entirety of the declines? -------------------------------------------------------------------------------- David R. Greenbaum, Vornado Realty Trust - Vice Chairman [51] -------------------------------------------------------------------------------- Yes. With that, I'll turn it over to the operator for Q&A. Welcome to Vornado Realty Trust second quarter earnings call. The yield will come down. All the cash flow from those 7 assets is available to service the preferred. The light blue area represents the range of Wall Street analysts' earnings estimates for each quarter. This should make the yields on assets with long-duration leases look increasingly attractive to investors, particularly in relation to fixed income, spurring them off the sidelines, maybe even result in cap rate compression given the spread of treasury. As an example, we could simply refinance. Individual that wish to listen to the company’s earnings conference call can do so using this link. -------------------------------------------------------------------------------- Michael J. Franco, Vornado Realty Trust - President [13] -------------------------------------------------------------------------------- I would just add to what Steve said that at the end of the day, in addition to all the infrastructure that New York has, right? So -- and that's just one little instance. First of all, I pay zero attention to what you call the political risk. So hopefully, others wait for you guys to stay in it. So things change. Vornado Realty Trust (NYSE:VNO) will be posting its quarterly earnings results after the market closes on Monday, November 2nd. Looking for new stock ideas? This is Joe. So what I would say on the preferred is just go back and -- because I read all the reports just for -- so everybody is clear on what the preferred is. Again, when life returns to normal, we expect those to return to normal. Second, as we had specifically guided on our first quarter call, we recalled our variable businesses, which include Hotel Pennsylvania, BMS cleaning, signage and trade shows, came in as we had predicted. I submit to you that this is undoubtedly a great time to be looking through the fog and putting capital to work. You didn't make a final decision about which path to go down because you're evaluating what the best outcome is for Vornado shareholders, which is perfect. There's the Facebook deal, which is now fixed, and then there's the retail component of it, which is 120,000 square feet of very important retail. So the asset is within the tolerance of our underwriting. -------------------------------------------------------------------------------- Steven Roth, Vornado Realty Trust - Chairman of the Board & CEO [82] -------------------------------------------------------------------------------- Exactly. -------------------------------------------------------------------------------- Steven Roth, Vornado Realty Trust - Chairman of the Board & CEO [73] -------------------------------------------------------------------------------- I want to add one thing. Now there was some conversation that -- in past calls where we said that we had a 400,000 foot anchor tenant to whom we were talking. Number two, I look upon it as being not impaired on our balance sheet. Learn about financial terms, types of investments, trading strategies and more. And by the way, we look upon PENN2 and PENN1 as a campus because those 2 buildings will be interconnected. In these documents and during today's call, we will discuss certain non-GAAP financial measures. I hate the homeless situation. But the 2 questions are: first, going to 555 and 1290, as you guys do more development, your portfolio -- if you sell these 2 buildings, you would expose the overall VNO to more of a developed built risk, et cetera. -------------------------------------------------------------------------------- Michael Jason Bilerman, Citigroup Inc., Research Division - MD, Head of the US Real Estate & Lodging Research and Senior Real Estate Analyst [11] -------------------------------------------------------------------------------- The second question was just thinking about your commentary around New York and you just talked about being soft for a while. It's unencumbered. -------------------------------------------------------------------------------- James Colin Feldman, BofA Merrill Lynch, Research Division - Director and Senior US Office & Industrial REIT Analyst [19] -------------------------------------------------------------------------------- Okay, great. ... Transcript powered by AlphaStreet. While Vornado's (VNO) Q3 earnings will likely reflect gains from sale of real estate, softness in the retail real estate market might have affected its operations. -------------------------------------------------------------------------------- Steven Roth, Vornado Realty Trust - Chairman of the Board & CEO [7] -------------------------------------------------------------------------------- I can't be much more specific. I mean, remember, New York has 8 professional sports teams. 1 May 2019: Q1 2019 Earnings Call Transcript Q1 2019. And they are focused on New York, right, and in scale. So in our council rooms, there -- we have talked about are those the right buildings to begin to draw capital out of it? We understand that. With office building census about 8%, street traffic is very light. As it relates to some of the deals we finalized this quarter, I have seen no real change in terms of tenants' thinking as it relates to space utilization, as it relates to their density, their communal spaces, their hangout spaces for their employees, their food and beverage operations, et cetera. So it rightfully goes into the count of how much space we leased in the quarter. Now I would remind you that Long Island city is 1 to 2 train stops away from almost every office building in the city. The retail environment is very difficult, and this crisis is accelerating to shake out of the weak and poorly capitalized retailers. Yesterday, after the close, we announced a very important 730,000 square foot lease with Facebook at our Farley Building. And so we prepared for this. The company had revenue of $363.90 million for the quarter, compared to analysts' expectations of $368.44 million. -------------------------------------------------------------------------------- Steven Roth, Vornado Realty Trust - Chairman of the Board & CEO [89] -------------------------------------------------------------------------------- Glen, David? And it has always been -- it has been the world city for a century now. Principally, JCPenney, Vikram. This is a good, good time to be in our business. So the Farley transaction is not at all connected to the 770 lease, number one. We understand that this is a contrarian move as some believe the capital markets are frozen and now is not the right time. So I mean, there's many instances of that. That's the first thing you should say. We also abated $3 million, and we set up reserves for $9 million as uncollectible. The lenders are still in triage mode and highly selective in what they finance. The rent gets set next fall of '21, just the 5-year option of the space. In addition, certain large companies in our portfolio that had positive renewal discussions at the outset of the crisis have now picked them back up as they focus again on future and have the confidence that they need the same amount of space on a long-term basis. Can you give us a sense over -- I think over the next 12 or 18 months, you do have not a huge amount, but some expirations. So I know you lapped the yield unchanged in the supplemental, but anything that you could talk about on rental rates or concession packages or kind of how that might have evolved over the course of time would be helpful. On the call today from management for our opening comments are Steven Roth, Chairman and Chief Executive Officer; and Michael Franco, President. Abatements are anathema to us. We didn't say not making a decision. Whether you’re looking for analyst ratings, corporate buybacks, dividends, earnings, economic reports, financials, insider trades, IPOs, SEC filings or stock splits, MarketBeat has the objective information you need to analyze any stock. So we look upon it as being a good financial asset. We normally don't go for the drama of timing deals with earnings call, but this one just worked out that way. It occupies a double wide block. That building is adjacent to their business. So as you can imagine, we're going to be talking to everybody. NEW YORK Sep 21, 2020 (Thomson StreetEvents) -- Edited Transcript of Vornado Realty Trust earnings conference call or presentation Tuesday, August 4, 2020 at 2:00:00pm GMT. Analysts expect Vornado Realty Trust to post earnings of $0.69 per share for the quarter. See what's happening in the market right now with MarketBeat's real-time news feed. I do not believe that you should expect that we're going to be -- going to relet the space quickly. Farley is a unique property like none other in New York. It has 2 hockey, 2 football, 2 basketball, 2 baseball. And I think everyone is kind of in a holding pattern in terms of how space will be utilized as they go forward with life. -------------------------------------------------------------------------------- David R. Greenbaum, Vornado Realty Trust - Vice Chairman [53] -------------------------------------------------------------------------------- This is an old, old lease where the tenant exercised an extension option. So we can complete all that with no debt. We will pursue all the options. All rights reserved. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) And our first question on the line comes from Steve Sakwa from Evercore. So as we sit here today, and on many of those assets, we have meaningful term on those leases. We have indications of upsizing the 555 California Street mortgage from the existing $550 million to as much as $1.5 billion. -------------------------------------------------------------------------------- Michael Jason Bilerman, Citigroup Inc., Research Division - MD, Head of the US Real Estate & Lodging Research and Senior Real Estate Analyst [83] -------------------------------------------------------------------------------- Right. You're liquidating or selling assets today. -------------------------------------------------------------------------------- Glen J. Weiss, Vornado Realty Trust - Executive VP of Office Leasing & Co-Head of Real Estate [17] -------------------------------------------------------------------------------- Jamie, it's Glen. We appreciate everybody joining us this morning. If anything, I think the Farley transaction reflects the very strong relationship between the companies, which has grown from our initial deal down at 770 some 7 years ago. Having said that, do we have a list of the specific tenants in our disclosure that expire over the next 18 months? The big thing that I see is that every company, whether they -- even the companies that wear ties, especially the companies that wear ties, want to attract a younger, more creative workforce. What gives you the confidence that we can -- that the city can rebound? Just your higher-level thoughts, whether it's COVID related or new types of demand or new types of tenants coming into Manhattan. It's an important deal. But again, that is the first lien position on the assets. The development plan for 2 PENN is too long. The other thing, by the way, as in a slide, and I think Michael said this is, we've been through this multiple times. -------------------------------------------------------------------------------- Steven Roth, Vornado Realty Trust - Chairman of the Board & CEO [12] -------------------------------------------------------------------------------- That's a combination of a metaphysical question and a political question. As always, the spigot opens with a focus on high-quality assets and sponsors, which we benefit from. Good morning, and welcome to the Vornado Realty Trust Fourth Quarter 2018 Earnings Call. I can't remember if it you was you or Michael that sort of just talked about last-mile distribution as being potential option. And in some of those cases, the tenants are thinking about doing some major reworking of their spaces. Get short term trading ideas from the MarketBeat Idea Engine. Steve, you correctly predicted many years ago, Manhattan kind of moving south and west. We have an enormous amount of liquidity on our balance sheet. Thanks very much. So there's no debt in front of us on those assets. The space that they occupy is brilliantly located in the middle of the island. Michael, do you want to add anything to that? And I wanted to know how you think about that from a Vornado perspective and you think about the Facebook deal now being official the progress you've made on PENN1 and PENN2, would you be more aggressive in, let's say, take down Hotel Penn to position yourself for the eventual (inaudible) cycle? -------------------------------------------------------------------------------- Steven Roth, Vornado Realty Trust - Chairman of the Board & CEO [24] -------------------------------------------------------------------------------- No, they would only take one. This comes a little more than a year after we recognized a $2.56 billion net gain on the April 2019 transfer to the joint venture and related GAAP require a write-off of our retained interest in these assets to the deal price, which was fair value. So we have all the capital we need for our development project -- development program. The rent is the greater of market or the tenants then rent. -------------------------------------------------------------------------------- Steven Roth, Vornado Realty Trust - Chairman of the Board & CEO [84] -------------------------------------------------------------------------------- The answer is not as much and maybe not even -- maybe nowhere near as much. Are you -- and when you talk about cash NOI, are you excluding the impact of the deferrals when you're talking about cash NOI? And so there's -- and that, by the way, has been tested in the courts. Our current liquidity is $3.8 billion, including $2.1 billion of cash and restricted cash and almost $1.74 billion undrawn under our 2 billion 750 -- $2.75 billion revolving credit facilities. So in the process of being a miss, the other places, whether it be south or west or wherever were a lot cheaper. -------------------------------------------------------------------------------- Steven Roth, Vornado Realty Trust - Chairman of the Board & CEO [18] -------------------------------------------------------------------------------- Jamie, I would add that Facebook has talked to us about growing in that building and taking the entire building. All earnings call transcripts on Vornado Realty Trust (VNO) stock. Or should we draw capital out of other buildings and what have you? And so that's really -- 2 PENN has been the home of Madison Square Garden for a long while. We are early in the process. Number one, 555 California has a very low loan-to-value mortgage on it now, okay? It's not a good conclusion. As you know, we and the analyst community would never make bad conclusions. If we thought it was impaired, we would have impaired it. -------------------------------------------------------------------------------- Michael J. Franco, Vornado Realty Trust - President [38] -------------------------------------------------------------------------------- Alex, thanks for the model as well. All In One Insurance Quotes You Should Know About. Most office tenants do not plan on coming back at scale until Labor Day or even until year-end. -------------------------------------------------------------------------------- Steven Roth, Vornado Realty Trust - Chairman of the Board & CEO [3] -------------------------------------------------------------------------------- Steve, how are you? TEXT version of Transcript ===== They are some of the best buildings. And so I don't want to put it aside. But in the end, New York will win the day. Steve, you talked about 555 and 1290, but not making decision which path to go down, i.e., refinancing, sale, maybe additional -- bringing an additional investor. So we have basically a 4-plus million square foot campus in -- on top of Penn Station, which is I submit an unbelievably scarce asset and valuable. Residential neighborhoods have decent activity and street traffic. -------------------------------------------------------------------------------- Joseph Macnow, Vornado Realty Trust - Executive VP, CFO & Chief Administrative Officer [63] -------------------------------------------------------------------------------- No. With respect to the disclosure in our docs, we will re-underwrite -- we don't re-underwrite these numbers every week or every month. Everything else was a miss. Download the investor presentation - earnings call slides. You go -- run this out a year, 1.5 years, and that will all change. -------------------------------------------------------------------------------- Operator [94] -------------------------------------------------------------------------------- There are no further questions at this time. -------------------------------------------------------------------------------- Glen J. Weiss, Vornado Realty Trust - Executive VP of Office Leasing & Co-Head of Real Estate [90] -------------------------------------------------------------------------------- Yes, we're talking to our tenants often through this since March. Vornado Realty Trust (VNO) Earnings Report: Q2 2015 Conference Call Transcript The following Vornado Realty Trust conference call took place on August 4, 2015, 10:00 AM ET. So -- and then last thing I would say is, it's not all enough, right? Rent collections in the second quarter -- we collected 93% of office rents, 98% including agreed to rent deferrals, 72% of retail rents, 78% including the agreed to deferrals and 88% on a combined basis, 94% including deferrals. Q2 2019 Vornado Realty Trust and Alexander's Inc Earnings Call. -------------------------------------------------------------------------------- Steven Roth, Vornado Realty Trust - Chairman of the Board & CEO [60] -------------------------------------------------------------------------------- Vikram, it was primarily JCPenney and our finance team offline will give you the details and build it up for you. Read or listen to the conference call. While COVID-19 has given rise to a much higher level of rents not collected that were used to, it's still relatively small on a company our size with $1.7 billion of annual rents and additional revenues coming from hotels and BMS, et cetera, et cetera. And so when you think about not only Facebook's commitment, but -- and I referenced in my comments that I think there's been some rumor press on at least a couple of these things. Most retailers are focused on survival and a few are focused on opening new stores. Was that specific to one lease or multiple leases? But we had term, right? Can you just talk a little bit more about what drove that despite Manhattan Mall and other issues? Evidence that CEOs still view the office as integral to operating their businesses in New York City as a deep and unique reservoir of talent. It's unencumbered. We expect closings in the balance of the year will bring in an additional $496 million in net proceeds. In your prepared remarks, you talked about the ecosystem in New York returning to normal in a couple of years. A little color on a couple of events, though. Find the latest Earnings Report Date for Vornado Realty Trust Common Stock (VNO) at Nasdaq.com. So do you think you can get all your money out or when the leases roll, even if they roll where current rents are, is that preferred still money good? So I would say up to this point, we've seen no real change that I could pinpoint for you, too. So the first thing is the preferred was structured by our teams in a very important, very -- somewhat complicated transaction where we sold or transferred 50% of our major high street retail assets. We look forward to seeing you soon. Vornado Realty Trust last announced its earnings results on November 2nd, 2020. There's no optionality. -------------------------------------------------------------------------------- Steven Roth, Vornado Realty Trust - Chairman of the Board & CEO [75] -------------------------------------------------------------------------------- Glen, we did not, correct? Be lower few years ago, there was a little bit less than 50 % LTV on those.! 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