Good morning and welcome to the Vornado Realty Trust First Quarter 2021 Earnings Call. My name is Vanessa 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. I will now turn the call over to Ms. Cathy Creswell, Director of Investor Relations. Please go ahead.

Thank you. Welcome to Vornado Realty Trust's first quarter earnings call. Yesterday afternoon, we issued our first 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.vno.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 supplement. 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, 2020, 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 from management for our 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, Cathy, and good morning to everyone. I hope all of you continue to be safe and healthy, and that you're all vaccinated or on your way to being vaccinated. We are full speed ahead on the Penn District and are confident of its success. Farley is well along; we delivered half of Facebook's 730,000 square feet on January 1st, and we will deliver the second half on June 1st, just one month from now. At PENN1, we will deliver the 34th Street lobby in July, the building's enormous amenity package in October, and the 33rd Street lobby at year-end. PENN2 and the Long Island Railroad Concourse developments are now on full-scale construction. This transformation will take over a couple of years to complete. The decision to permanently close the Hotel Pennsylvania will allow us to get this site ready for development in less than two years, which is perfect timing for the next phase of our Penn District mega project. I believe the Hotel Penn site will be the best development site in town. Notwithstanding that, we will be delivering for tenants the most robust and unique amenitized offering in the city, with the added convenience of being directly on top of New York's main transportation hub. Our strategy here is to price PENN1 and PENN2 below our neighbors to the west, under their price umbrella. Since we are coming off $60 rents, this will be an outstanding outcome. Over time, as we continue to remix the Penn District, I fully expect rents will aggressively rise to the premium they deserve. Over the summer and into early fall, New York will be reopening and returning to normal. All of our tenants are telling us that they are anxious to bring their employees back to the office and we are eager to welcome them back. We remain strong in our belief that working from the office will be the preferred mode of work for companies and their employees post-pandemic. The kitchen table may be a place for some, but I continue to believe the urban office is the workplace of the future. As I have said, I believe we will come out of this difficult year in an economic boom, fueled by a tsunami of government stimulus of which New York is a significant beneficiary. The financial sector is now booming, tech is now booming, healthcare is now booming, retailers like Walmart, Target, and Home Depot are booming, and there is enormous pent-up demand from consumers. If we're going to travel, we need tourists returning to New York and spending on all sorts of goods and services. This is beginning to happen all across the country. Importantly, the major tech companies are telling us that they intend to continue growing their office footprints in New York and that New York's deep and diverse talent pool is unrivaled anywhere. As you can tell, we are very bullish on New York. Finally, a word about ESG. We filed our 2020 ESG report on Form-8K on April 12th. We continue to demonstrate our leadership here, and we are proud of the many awards and recognitions we have received. This is an important topic that we believe in. Please do take a look at this important report. Now, over to Michael for comments on our numbers and our businesses.

Thank you, Steve. Good morning, everyone. I do hope you're all safe and healthy and look forward to seeing you again in person soon. Let me start with our first quarter financial results and I'll end with a few comments on the leasing and capital markets. First quarter comparable FFO as adjusted was $0.65 per share, compared to $0.77 for last year's first quarter, a decrease of $0.12 primarily due to the effects of the COVID shutdown. One change you will note is that the Hotel Pennsylvania results were moved to non-comparable given our decision to permanently close the hotel. The decrease this quarter is reconciled for you in our earnings release on Page 4 and in our financial supplement on Page 6. It was driven by the following items: $0.04 from our variable businesses, trade shows, signage, garages, and BMS still being offline; $0.07 from tenant vacancies and bad debts, primarily from JCPenney in New York and company lease rejections last year; $0.03 from Penn District space taken out of service; $0.03 from Macy's lease cancellation income in last year's first quarter, partially offset by $0.05 from G&A and interest savings. These items are not new news and are right in line with our statements over the past few quarters. Most of these are temporary and the income will return over time. Furthermore, the first quarter results are consistent with the sequential fourth quarter run rate we discussed last quarter, adjusted for the accelerated vesting of equity awards for retirement-aged executives in the first quarter. With respect to rent collections in the first quarter, overall rent collections were 96%, a continued improvement from the prior quarters. We collected 97% of office rents and 90% of retail rents. April collections ran at the same level. While the aggregate headline same-store cash NOI numbers for the first quarter are negative on their face, excluding the variable businesses, our core New York office business was actually positive 3.9%. Lending in Chicago and San Francisco, our office business overall was positive 1.9%. The big takeaway here is that our core office business, representing over 80% of the company, is continuing to hold its own in this challenging environment, protected by long-term leases with credit tenants. And while the retail same-store numbers are down, overall retail NOI is flat quarter-over-quarter, again consistent with our recent guidance. Finally, we have plans for significant growth as the pandemic recedes and the city returns to normal levels of activity. In addition to the savings we will realize from the previously announced overhead reduction program, we expect significant growth with the return of our variable businesses from the Farley Building fully coming online in 2022, followed by the delivery of PENN1 and PENN2, and reduced interest costs as we roll over our debt. One of the analysts even predicted that Vornado would have the highest growth rate in our sector over the next several years. Now turning to the leasing markets, we are seeing improved conditions in the office leasing market with the pace of activity up nicely in the past 60 days. The phones are ringing, tour volume is up, proposals are coming in, and leases are being signed, with the flight to quality trend accelerating. According to the brokerage houses, leasing volume is certainly up versus 2020 numbers. The first quarter had the most activity of any since the fourth quarter of 2019, with most of the action occurring in Midtown. At the same time, we are realistic and recognize that availability across all sub-markets remains high. But an encouraging sign is that sublease space has recently come down; almost 600,000 square feet of sublease space has been removed from the market by occupiers who plan to re-occupy the space. Moreover, a substantial portion of the sublease inventory is challenged space, either physically, by way of the over-tenant having poor credit quality or term constraint. Roughly a quarter of the sublease space in the market today has less than three years of term remaining. During the first quarter, we completed 12 office leases totaling 208,000 square feet. The two largest leases of the quarter were both new to our portfolio: Young Adult Institute for 74,000 square feet at 825 7th Ave, a new state-of-the-art schooling facility, and FuboTV Inc., a new world content streaming platform coming off their successful IPO launch, for 55,000 square feet at 1290 Avenue of the Americas. Both of these leases represent an expansion from their prior locations. We are currently negotiating paper on 300,000 square feet, of which 200,000 square feet is with new tenants. In addition, we have a growing pipeline of 1.4 million square feet, which is up meaningfully from recent quarters. Last year, we completed the two largest leases in the year, Facebook and NYU. The current sweet spot for deal-making in the market is with small to midsize firms looking to relocate into new or redeveloped assets. Remember, all of our spaces are redeveloped or in the Penn District, which is under redevelopment. This dynamic matches up well with our current vacancy, where our largest available blocks are only 180,000 square feet at 330 West 34th Street and 117,000 square feet at 85 10th Avenue. As a reminder, our office expirations in 2021 and 2022 are very modest, with less than 5% of our space rolling each year and a portion of this in PENN1. Our leasing team is now in full stride in the Penn District, with multiple presentations, tours, and meetings each day with brokers and tenants across all industry types. Using our new Penn District experience center to showcase PENN1, PENN2, and our grand plans for the Penn District really brings everything to life. The reception to our vision for the district and our best-in-market differentiated project offerings have been nothing short of phenomenal. Turning now to Chicago and San Francisco. In Chicago, we are also seeing more activity in the market. During the first quarter, we completed 85,000 square feet of leases, including a 45,000 square feet office renewal, along with 18 showroom transactions totaling 40,000 square feet, of which 15 were renewals. We currently have a 90,000 square feet renewal leasing negotiation and a pipeline of 500,000 square feet showing real interest in the property. Importantly, we will be restarting the trade show business in October of this year with the NeoCon Show beginning, bringing back that income stream. In San Francisco, 555 California continues to be in a league of its own. Coming off the heels of our recent large renewals with both Bank of America and Goldman Sachs, in April, we executed a lease renewal with KKR in the triple digits for its 50,000 square feet in the tower. Our occupancy here is 98% with minimal expirations until 2023. Turning to retail now. Retail leasing in New York City is beginning to come out of a period of inactivity to a phase where retailers who are succeeding and even thriving are now looking for opportunities. All current leasing activity is very price-driven. The tourist-driven higher rent markets of 5th Avenue and Times Square have seen the least activity as retailers remain on pause until there is greater visibility or when the 60-plus million tourists will return. During the quarter, we completed 11 retail leases for 46,000 square feet. These included two long-term renewals at 129 Avenue of the Americas, including a lease with JPMorgan Chase for a flagship branch and a 7-year extension with luxury retailer Tod's at 650 Madison Avenue. Our leasing also included another six leases signed at the Farley Concourse where demand remains strong, and we are in negotiations with tenants to fill the balance of the Concourse space. Overall, we are upbeat about the future of our markets, our leading position in them, and our prospects for creating value. Turning to the capital markets now. First, let me congratulate Jan LaChapelle on her promotion to Executive Vice President, Head of Capital Markets. The real estate financing markets continue to improve, with both the CMBS market wide open and banks beginning to lend again on high-quality office properties. Spreads and all-in coupons are at very attractive levels, as evidenced by our recent strong refinancings at One Park and 909 3rd Avenue, both of which were at significantly reduced rates. The unsecured market for real estate companies also continues to be very strong and it is likely that we may shift over time to a more balanced approach between unsecured and secured debt. Finally, our current liquidity is a strong $3.94 billion, including $7.76 billion of cash and restricted cash, and $2.18 billion undrawn under our $2.75 billion revolving credit facilities. With that, I'll turn it over to the operator for Q&A.

And we have our first question from Steve Sakwa with Evercore ISI.

Yes, thanks. Good morning. Michael. I was wondering if you could just spend a little more time on leasing. You gave a lot of detail there; maybe talk about the terms that you're seeing in terms of TI, free rent, and then length of lease that tenants are sort of looking for today in the market.

Steve, can you just repeat? You cut out for about 10 seconds.

Sorry, the question was really around lease term, TI, leasing commissions, and free rent. How are you seeing some of the impacts, not just in face rent, but some of the concessionary items, and then, what are tenants looking for from a length of lease term?

First thing I'd tell you is that lease term; we're seeing a lot of long-term lease commitments. 10 years, 15 years; we actually completed a lease this quarter for 30 years. So we're seeing lease terms long, we're seeing commitments for sure, and we've seen no change in that as we go quarter to quarter. TIs are elevated, and free rents are elevated, net effective rents are up, but I think they stabilized at this point. But right now, if you want to lease space to meet the market, you have to give the TIs to fill this space, and that's what we're doing, but they have stabilized over the past, I'd say, two to three months, for sure.

Okay. And maybe as a follow-up, I don't know if this is for Michael or somebody else, I know there has been some discussion around the refinancing of 555 California and there was an article recently about a north of a $1 billion new mortgage there. To the extent that you did refinance at that level, how do you think about the excess proceeds, and what would that be used for?

I don't think we're going to comment on that, other than just to tell you that, generally speaking, where there's smoke, there's fire. We won't comment on anything about that transaction at this moment.

Okay, thanks, that's it from me.

Thank you. We have our next question from Manny Korchman with Citi. Please proceed.

Hey, everyone. Good morning. Just wondering how progressed the conversations are with tenants at Penn, both for the large blocks available at the current Penn buildings, as well as the PENN15, and if that drove your decision to take the hotel offline and move forward with the larger redevelopment there?

Hi, it's Glen. I'll tell you we're in this experience at PENN1 multiple times a day showing all the projects. I will tell you the action at PENN1 from a leasing standpoint is absolutely on fire; we do not have any real large blocks there, but in the tower, we have some single and two-floor deals happening at rents that are at our underwriting. So we're performing very well there. The reception has been excellent. We are also beginning to showcase PENN2 into the market, also daily with a lot of great presentations incoming, but we're going to go slow with PENN2. We've just started up on the physical construction, and as this continues to progress from a construction standpoint, and tenants can see it physically, it will just get better and better in terms of the incoming interest and people's reception. Yes, on PENN15, we are beginning to show people our plans; the announcement of knocking down Hotel Penn has brought a lot of incoming calls and emails. We're starting to talk to folks about PENN15 as well as we get into it.

Thanks, Glen. And I don't know if this one's for you or for Michael, but if we think about the occupancy trajectory through the rest of the year here, do you anticipate that this is sort of the bottom for New York City office occupancy or vacancy, or do you think there is a little bit more to come from a net absorption perspective?

I don't have the exact numbers in front of me, Manny; I can play and move around a bit here or there. I think we're pretty close to the bottom. Again, I'm not going to say take a little bit, but I think we're basically there.

Manny, anecdotally, I would tell you that Glen told me that several of the brokerage houses have told their folks and their clients to get into the market now, that this is the bottom and that they expect a turn from a tenant market to a landlord market over the next six months. So that's anecdotal information, but it's important information.

And thank you. Our next question comes from John Kim with BMO Capital Markets. Please proceed.

Thank you. The announcements in the news flow of New York City reopening is very fluid and even this morning Goldman Sachs announced plans to come back next month. Are there any more details that you could share as far as what's happening in your portfolio today, as far as more details on the proposals? What do you expect to be signed as far as leases in the second and third quarters, and potentially also traffic in your street retail portfolio?

I'll take the office; it's Glen. Michael remarked in the script, in his opening remarks, our pipeline is robust; we have over 300,000 square feet of leases in negotiation. We have another 1.4 million square feet of deals that are in discussion. I'll tell you things are picking up a lot, not a little, so tenants are coming out of the woodwork; many are looking for new space in better quality products. So we're seeing a huge uptick in office leasing activity as we sit here right now. In terms of the utilization in the building, that's also upticking week to week. On a percentage basis, we're now in the mid-teens at all of the buildings. Most of our tenants are telling us returning starting in June through Labor Day, but certainly, the narrative is unwinding quickly. We're feeling it, we're seeing it, and we're hearing it.

In retail, we are seeing a major uptick in conversation. That's primarily due to the fact that the survivors of the pandemic in retail have actually been thriving; New York City is probably the last on the list to be opportunistic if the rest of the country has been booming. The New York City is suffering from the lack of our 60 million tourists being on the streets, but the smart retailers are now in the market being opportunistic. I don't think New York retail has ever offered a better value than it does today in terms of the prime spaces at better rents.

That's very helpful. Thank you. My second question is on the tracking stock that Steve mentioned in the Chairman's letter. Are there any more details you could share at this time as far as the timing, whether or not you plan to raise capital through it, and will you be stripping out the financials of the Penn redevelopments from Vornado going forward?

I really don't think it's appropriate to comment on this. We are working very hard on it; it's a very exciting project that we are very enthusiastic about. We're targeting hopefully year-end. Other than that, I don't think it would be premature to get into any details, but I'll give you a little bit of what our thinking is. A tracking stock is something that has been used very successfully by folks like John Malone at Liberty and Barry Diller, for example. Generally, when it's used is where you have a business inside of your core which is different and has a different rate of growth and different characteristics. We feel that the Penn District mega project that we have is different than our core assets and we feel that investors would benefit enormously by being able to invest in the Penn District and its characteristics. Remember it's a development company, for better or for worse, and our core assets are real estate. So the differentiating aspects of the Penn District are that we consider it to be the epicenter of New York; it is directly on top of the major transportation hub, which means all the subways and all the railroads come into that hub, and that's an extraordinary statement because you can get in and out of that station no matter where you are in the New York City region on one ride. The most important part from my point of view and Glen's point of view is that it's a cluster of buildings that are interconnected generally underground. This means a tenant who has a 300,000 square feet requirement, who comes into a 500,000 square foot building, is locked in. A tenant in our 5 million growing to 10 million, growing to 50 million square foot complex has enormous opportunities to grow should they want to in the same building or in adjacent buildings. We are excited about it; it's a very important work in process and more details will be coming as we advance it and when we announce it. I think I read in reports that it was not well-received by investors, which troubles me because it is contrary to my feelings about it and our company's feelings about it. So if that's the case, then we have some work to do to talk to our investors and make everybody understand exactly what we're thinking about, but we couldn't be more excited.

When you list some of the key attributes of investing in Vornado, arguably Penn District will come up as number one. Have you gotten feedback that this really isn't that different from the reason to invest in the company?

I don't understand the question, John.

Your point that you're stripping out something that's different, where in reality, it's just a redevelopment of the existing assets that is the key reason investors are interested today. I'm just wondering why you think it's different?

Well, I can repeat what I said for the last five minutes over again. But the answer is, and it's totally different in many ways. It's real estate, but it's totally different. Also, when you think about stock performance, we don't think our stock could go with or without - we're getting no credit in the Vornado stock and trading price for the Penn District, or basically anything else. What will happen is that we think the corpus of Vornado, the price of Vornado will be unaffected, or maybe even rise hopefully, whereas the Penn District stock will reach its true value. We don't agree with you; we think it's totally different.

And we have our next question from Alexander Goldfarb with Piper Sandler. Please go ahead.

Hey, good morning, Steve, morning, Michael. So I'm going to take a different tack with my question this quarter. So I'm going to focus on what I perceive to be positive in your portfolio. Steve, in your Chairman's letter, you outlined your Netflix spending and the fact that studios are now on your radar. It would seem that the JCPenney space at Manhattan Mall and the Penn district redevelopment, both of those assets have huge loading docks and significant potential space that can be carved out. Obviously, being in the city is incredibly convenient for studios versus people having to truck out to Queens or some of the outer boroughs. What are your thoughts on converting either of those two assets or some of your other existing assets to studios?

This all began with two things; number one, all of us should become Netflix addicts. And number two, we have incoming interest from entities that are in the sound stage business or that need sound stages, and what's happened is, that the streaming business and the entertainment business has become an unbelievably powerful, dynamically growing business and is consolidating. The companies in this business are huge financial entities, and they all have a strong desire to be in New York. There is a significant and dominant concentration of talent in New York. They say that there are three primary markets: New York, Southern California, and major European cities. The point is that there is a tremendous amount of unserved demand, and we are responding to inquiries. We have assets that could service that demand. Now, I could make an overly aggressive statement that the Penn District could become Hollywood East, so I don't take that to the bank, but there is great interest in some of our assets that we are working on. Nothing is imminent; we are responding to the pockets of unique demand in the marketplace.

Look, that's good. Obviously, it's something new and it would seem to be a good repurpose, especially large blocks of space that have come back to you. The second question, Steve, going back to Penn Station. You guys have been talking about Penn Station for over two decades. We all know the issues about the streetscape and the neighborhood and the desire to see that improve. When you look at Grand Central, that area is already there. East Side Access is clearly going to sites in a way that will connect a huge chunk of Long Island commuters, and you guys have 350 Park. It would seem that 350 is almost the better site than Hotel Penn, just given that the neighborhood is already there, and there are a lot more people being excited about the commuter hub coming to fruition. What are your thoughts on accelerating 350 and where does that fit in your pipeline as you guys are flat market anchoring a Hotel Penn versus getting tenants to anchor at 350?

We are an equal opportunity employer; wherever the tenants want to go, that's where we want to put them. Obviously, we have a great deal of respect for our 350 Park Avenue asset. It's a great asset and it's somewhat like bite-sized. It's a 500,000 square foot asset. It is a candidate for teardown and rebuild, but a teardown and rebuild could be a combination, and we can grow the site as speculated in the press. We could grow it so that it's more than a 2 million square foot building if we wanted to just focus on our site without growing it, which would be a million square foot building. That is an immense financial undertaking which would require records of effort. We've talked to several tenants about this, and we may do that, but the likelihood is we will not do that. The more likely outcome is that we will rent up the existing 350 Park Avenue at very favorable rents, which would postpone it for a cycle, while retaining the option of doing a new build on it or continuing to rent the existing building over time. So, it is more likely that we will not do a tear down on that site and rent it out for one more cycle, while focusing our efforts on the Penn Station district.

We have our next question from James Feldman with Bank of America. Please proceed.

Thank you and good morning. Steve, I want to go back to a comment you made at the onset of the call where you said major tech companies plan to continue growing their office footprint in New York City. Can you talk more about exactly what you're seeing? I think our understanding is that a lot of the big leases have been signed, but I'm curious if there is a lot more behind it.

The answer is, I'm really not going to comment on our confidential conversations with our customers whom we cherish and respect. We deal with all of these folks; we obviously have them all in our portfolio, from Facebook to Apple to Amazon. We can tell you that this is first-hand information; they love New York. For most of these folks, New York is their second largest outpost and center. What they love about New York is, first of all, their employees love New York. There is a large, diverse workforce, and that's very important to these clients. They follow the real estate in New York as closely as we do, and they have very professional real estate organizations that we are in contact with frequently. I stand by my statement; they are very aggressively interested in New York. Their interest in New York continues unabated, and we think that's very exciting. By the way, their interest in New York is basically almost exclusively to the west side of Manhattan, which is where their employees want to be and where their culture says they want to be. So we think we're very well-positioned for that and we believe that bodes very well for the future of New York and for the future of Vornado.

If you think about the tech business, you start with the big four or five; the earnings they posted are stunning, and the growth rates they continue to have and the aspirations they have are significant. You also have a segment of companies that have either gone public or gradually moved to the point where they're mid-cap companies looking to establish themselves in New York. These companies have ambition; they need people to execute those ambitions; they need to be in person, a huge amount of engineering talent, collaboration required, etcetera. Both from our own tenants and others that are in the market are actively expanding. Others that we just brought in, for example, FuboTV just went public, are part of our portfolio. These companies have significant aspirations to grow their business, and as Steve said, New York is a central aspect of that, which is very positive for this marketplace.

Michael brings up a very important point; the newbies and aspirants who are high growth people want to be in the same cluster and neighborhood as the established huge tech tenants are. What Glen likes the best about the new tenants is they are enormous growers, and they look to locate in buildings with the potential where they can add 50,000 feet and 100,000 feet. When we started with Facebook seven or eight years ago, they started with a couple of hundred thousand feet and then grew to 700,000 feet over a three to four-year period. That's the kind of client that Glen loves and that's the kind of occupancy that we see.

Thank you. That's very helpful. The 1.4 million square feet of pipeline, how would you divide that up by those types of growing tech tenants versus kind of upgrade relocations, or if there are any other meaningful categories to split that into?

I'll tell you, Jamie, we have a very diverse industry sector mix, and a very good mix of renewal transactions as we look towards our expirations in the next three to four years, along with very good new tenant activity, a lot in the Penn District, but also throughout our other assets. It's a very healthy mix of new renewals, some expansions, and really every type of industry sector. The one industry that's really leading the charge right now is financial tenants; they're busier than I've ever seen it, so our financial-oriented buildings are really busy. We have backup yields on deals as well; they're leading the charge, but in terms of the mix, we're covering everyone out there right now in that pipeline we talked about.

Can you quantify how much of that is renewals in the 1.4 million?

I'd rather not get into the exact mix of the numbers.

Okay, that's fair. And then, another question for you, Steve. You had commented on the boom. I'm just curious what your thoughts are on the benefit to New York City from the Biden plan and the outcome. I know it's still early, but given the mayoral race, what should we be thinking about either the risk or the rewards based on who is in the game?

Let's see. Your question is how will New York benefit from the boom, and then, what's going on with the mayoral races? Is that correct?

Well, just what are your thoughts on the Biden plan and how you think that might trickle down to New York? And then, how should we be thinking about either the risks or the benefits from the mayoral race?

Alright. First of all, it’s pretty clear that the country is in a boom. The only thing that I am uncomfortable talking about is the consensus feeling amongst almost everybody; normally, I'd like to be on the other side of that, but it is the consensus that is also what I believe and I think it's happening. You can see markets around the country that have not been shut down as much as New York; it's happening now. In Texas, for example, retail shelves are empty because the demand is amazing. I think the Biden policies, together with the fact that the majority leader of the Senate is from New York, will bring significant financial benefits to New York in terms of the stimulus package – first, to close the budget deficits for the city and state, which is a universal program across the country. But it's good that we are getting it along with other benefits for our population. We think that the stimulus will be an enormous benefit to New York, and I think that's proving out. With respect to the mayoral race, that's a different kettle of fish. The oddity about politics in New York is that more than 2/3, more than 75% of the registered voters are Democrats in the city, so the mayoral race is not the election; it's the primary. Whoever wins the Democratic primary is invariably elected mayor. There are a number of candidates, but interestingly there is really no candidate with a defining lead. We also have ranked-choice voting for the first time, so nobody really quite knows how that works. I'm hopeful that the candidates will believe in a couple of principles that I think we believe in. First, quality of life is the biggest issue; that encompasses safe streets and clean streets, for example, the homeless situation must be handled. So quality of life issues are very important. The second is that we need to be a growing city with employment growing, which I think everybody subscribes to, which means we have to be a business-friendly city. So every once in a while, we've faltered on that, like the Amazon incident a couple of years ago. Quality of life, safe cities, the homeless situation, being business-friendly are my top priorities. Of course, we also face income inequality and racial inequality. We need to be a fair city. Those are the major issues in the campaign, and I believe that the leading candidates are all well qualified in that respect. One interesting thing about elections is that this is a time when political leadership needs to listen to the population. I think the message I just delivered will resonate with the voters and the politicians.

Thank you. Our next question is from Vikram Malhotra with Morgan Stanley.

Thanks so much for taking the question. Good morning, everyone. Maybe just first one, Steve, you talked. Obviously, there is a lot of activity on the development front and future development. I'm just wondering, in the past, you’ve made comments about the right time to buy, and I know the stress has not been plentiful. But given the bullish view on office over a multi-year period, can you maybe walk us through how you're thinking about value-added opportunities in the New York area?

As I think you’ve heard today and over the years, we are extremely bullish on New York; we are, as they say, loaded up on New York, and we like our position. I am disappointed that there have not been unique opportunities to add value by buying distressed assets these past cycles, which is something we've been able to do previously. So this has been a unique period. We've gone through a recession, a COVID-induced recession; it really didn't hurt our main businesses in terms of occupancies, but it did impact our income by around $200 million because a number of our business lines were shut down, like signage and garages, etc. However, the benefit of that is interest rates are historically low, extremely low, and seem likely to remain so, which brings caution to our perspective. There really hasn't been much in terms of distress we can acquire. However, we believe the best opportunity ahead is to invest in the Penn District, which I think will be one of the great investments and developments in the future.

Okay, thank you. Two more real quick ones. Just on street retail and particularly the vacancies on 5th Avenue. Can you talk about where we stand specifically on 5th Avenue and just a more premium corridor? Where are we in terms of rent levels that are low enough to attract retailers to come back and start signing leases? Just wondering how you start to fill up some of the vacancy that you have in the portfolio?

As Haim mentioned a few minutes ago, this market cycle is one we’ve seen before; I think we can almost predict the sequence. This is a tough cycle because in addition to everything else, we have the secular change from brick-and-mortar retail to internet shopping, which makes the downturn much steeper. Nonetheless, many vacancies are emerging. The first thing that happens is that vacancies are filled by tenants who recognize the value and have business models capable of success with reasonable risk. When we absorb vacancies, rents rise. Throughout the process, the highest quality space commands the most rents and highest demand. That trend is beginning to manifest now; as Haim noted a few months ago, successful retailers are beginning to add in New York, even aggressively at competitive price points on significant sites. An example would be our recent deal with Fendi on Madison Avenue and 57th Street, along with extending Tod's lease on Madison Avenue and 60th Street. Smart players recognize this is the bottom and are increasing their presence in New York. A year from now, we’ll see a different market and in three years, it'll be significantly thriving with higher rents.

And then, just one quick clarification on Facebook. Can you remind us of the GAAP contribution that's there this year? Is some of that already recognized in the numbers? And just how does that ramp over the next 6 to 12 months?

We're not going to comment on the details of the Facebook lease, other than to say we are pleased with our relationship and they are pleased with us. The most recent deal we completed with Facebook, covering 730,000 square feet, was at the height of the pandemic to provide insight into the courage necessary for even someone of Facebook's scale to secure a multi-hundred million dollar financial commitment. In the summer, if you recall, the Facebook lease covering 730,000 square feet in Farley is notably unique, both for its location in the City of New York and for its design, characterized by low-rise floors with 150,000 square feet each. We have been in contact with their occupiers and engineers who are excited and eager to enter this space. Other than that, we are not commenting on the financial details.

Thank you.

We have our next question from Daniel Ismail with Green Street.

Great, thank you. Glen, I believe you mentioned the stabilization of office concessions. I was just curious if that was a reference to concessions maintaining their current level or a return to pre-COVID levels.

For now, I'm referencing stabilization during the pandemic, not pre-COVID; we're not back to pre-COVID levels for sure. The goal is to get back to pre, but we're not there yet. They have stopped rising, for sure. I'm talking about in the current environment during the pandemic, the same comment echoes for markets; as the market tightens up a bit, the concessions will tighten up as well.

Got it. And then just a quick question from me on PENN, any update on the ground lease at PENN 1?

No.

Got it. And then a bigger picture question on a few of the non-office assets. You mentioned in the annual letter how you view non-office opportunities like studios, gaming, etc., as a percentage of the overall company. How big can some of these non-office opportunities be?

That's an unanswerable question. The reason I put that in there was that I think our shareholders would like to know some of the things that are working below the surface, even if they may not be imminent. For example, gaming is an interesting issue. Anyone following New York knows there are three gaming licenses yet to be issued under New York's enabling legislation, aimed at downstate. There’s significant recent speculation around these licenses, as there's urgency to fill budget deficits. These inquiries have been coming from gaming industry operators who aim to apply for those licenses. Interestingly, our properties have assets that are very well-suited for those types of activities. Now, I realize that in the enabling legislation from several years ago, there is a prohibition against gaming in Manhattan. That presents some confusion as why operators inquire about our assets when there is a prohibition in place. The market suggests that this prohibition may not make a lot of sense. So considering that three licenses are to be issued, it's reasonable to conclude that one could, one could be in the Westchester region and a third probably should not be in Long Island, which leads to potentially beneficial gaming opportunities in Manhattan, which may generate significant revenue for our school systems. It's impossible to predict how this will turn out, but we have many assets that have high interest from these entities. It is a complicated political process, and we are noting significant interest we've received, albeit it may be wise to keep us as a zero in the spreadsheet. If it did materialize, it could be financially promising for us. We have no interest in the gaming industry as operators; we are real estate vendors.

Daniel, everything that Steve referenced is key for our shareholders to know. Our mission is to maximize the value of our assets. We look under every rock to see how to do that. With the streaming business booming and the gaming dynamics, we aim to enhance the value of every asset. Some can be repurposed while others might be adapted as part of our strategy.

Great. I appreciate the color. And then a very quick follow-up, if I may. You mentioned the budget deficit, Steve. Is there any potential, given the fiscal concerns, for further density at or around the station?

There is a general positive plan, which was introduced by the state Economic Development Commission, which would increase density around PENN Station. The state government and the railroads are actively involved in attempts to improve the station from logistics, traffic, usability, and aesthetic perspectives. It's a universally accepted planning principle that the most density in any city should be at or close to transit hubs, which encompasses us. This initiative is in process, going through community comment periods, etc. Indeed, there is a lot happening in that regard.

Great. Thanks, everyone.

And thank you. We have our last question in queue. It is from Alexander Goldfarb with Piper Sandler.

Hey, thank you. Thank you, Steve. I just want to go back; you mentioned about the potential to go back to Manhattan. I think it was Jamie, who asked about the Merril situation; but when you look at all the taxes on the wealthy that you mentioned of $4 billion, these are the business leaders and those are the people who are leaving. At the same time, the repeal of the SALT deduction doesn't look likely. So Steve, how do you think about the temptation to leave the state? You mentioned that there is pushback on the tracking stock. How do you think about putting billions of dollars of investment into the PENN Station area when Albany seems to be lagging behind, almost encouraging people to relocate?

My children want me to go to Puerto Rico. Look, New York will always be great, New York will always be a high-tax place to live and will continue to be the center of commerce and the business capital of the United States. I agree with you that the folks in various governments may have questions to answer, but the mainstay of New York is not comprised of hedge fund billionaires going to Florida. In fact, they are individuals earning from $300,000 to $1 million annually, and who are raising families. Their jobs and future depend on being in New York where they can earn three times better than anywhere else. As long as this remains true, New York will retain its value. We're seeing companies like JPMorgan Chase building new headquarters, etc.

Yeah, but. Steve, when you look at New York’s share of GDP, it was 11% two decades ago; now it's down to 7%. It's clear that economic growth elsewhere is outpacing, and it seems like New York is resting on its historic laurels – that seems to be the biggest risk here.

The answer to that is that while New York is not growing as fast as some smaller places, it certainly is not contracting. We still believe there will be demand for our product. I'll set up a meeting for you to explain your perspective to my friends, as I think you have a lot to say.

That's why we like putting it in print. Thank you, Steve.

Thank you. We have no further questions in queue. I will now turn the call over to Mr. Steven Roth for closing remarks.

Thanks, everybody. We appreciate your participation. We appreciate your interesting and provocative questions and we certainly appreciate your interest in our company. Our next quarterly call is Tuesday, August 3 at 10 o'clock. We’ll see you then. Thank you.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for your participation. You may now disconnect.