Vornado Realty Trust (NYSE:VNO) Q4 2022 Earnings Call Transcript

Michael Franco: Well, first of all, I would quibble with, well north of value, is the pricing of that deal, we think was fair to both parties. In terms of what our financial strategy will be a year or two from now, when we have to make the decision as to whether to invest in the long term, building project and own 40% of a 1.7 million square foot brand new super duper Time square Tower what is take the money and run that’s a decision we’ll make at the time. But it is an interesting fact that we have the option to do either.

Operator: Excuse me, the next question is from Nicholas Yulico with Scotiabank. Please go ahead.

Nicholas Yulico: Thanks. I just want to touch on this St. Regis retail, where you had to default and the JV. Can you just tell us why the lender not refinance the loan and can you explain the earnings impact from this? I guess, right now how it’s working, since it looks like there’s some sort of cash flow sweep. And then if for some reason you can’t get this resolved as a joint venture just walks away from the property, how does that ultimately get resolved? And what could be earnings impacting?

Michael Franco: The loan maturity year end and the asset is not refinancing today. Quite frankly, like, like many assets in this market. We’ve signed two leases at the peak of the market. One of those we just discussed, terminated and we relented a lower rent. And so the asset was not refinancable. Loan went default. We were talking to lenders before that happened, we continue to talk to them today. And we’re in active discussions to restructure the loan and extend the mature. If we can’t we can’t, and we ask them to go back to the lenders just like everything we do, we’re going to be disciplined and thoughtful about whether it’s worth staying with the asset, investing capital, etc. And we’re sort of groping towards a deal that we think makes sense for the partnership.

But that’s the benefit of non recourse debt. If you can reach an agreement, we have the option to walk away, and I think that’ll happen probably not. I think we’ll end up with a deal because it’s in the lenders best interest too but that’s the state of play. To-date I know there was some commentary and a couple of reports about you know, 8.5% interest at the fault rate. Answers that’s the case. But if we do get the answers that rates never going to get paid, they’re going to toss to key is back, or we’re going to restructure the deal and the rate will get reset to what it’s supposed to be, and that interest is not going to get paid. So that’s the state of play. I don’t think the earnings impact is really, it went away today I think, based on, frankly, where it was in the fourth quarter, I don’t know if there’s that much FFO that’s flowing through, given the fact that it’s a floating rate loan where relative income there is some cash flow, but it’s not significant.