Vornado Realty Trust isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning and welcome to the Vornado Realty Trust Fourth Quarter 2023 Earnings Call. My name is Andrea and I will be your operator for today's call. This call is being recorded for replay purposes. [Operator Instructions] I will now turn the call over to Mr. Steve Borenstein, Senior President and Corporate Counsel. Please go ahead.
Steve Borenstein: Welcome to Vornado Realty Trust fourth quarter earnings call. Yesterday afternoon, we issued our fourth quarter earnings release and filed our annual report on Form 10-K with the Securities and Exchange Commission. These documents as well as our supplemental financial information packages 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-K and financial supplement. Please be aware that statements made during this call may be deemed forward-looking statements and actual results can 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, 2023, 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 Stephen Roth.
Steven Roth: Thank you, Steve and good morning, everyone. We ended the year on a high note with a good fourth quarter. The quarter and the year were right on target. Although as expected, our results were negatively affected by the dramatic increase in interest rates. This will carry through next year but I expect will reverse as interest rates receive. It's important to note that our business has continued to perform well. Michael will review the quarter and the year with you in a moment. This year, our New York City office leasing team won the gold medal. In the fourth quarter, we leased 840,000 square feet. For the full year, we leased 2.1 million square feet. Average bidding rents for the quarter and the year were record-breaking at $100 and $99 per square foot, respectively.
In more gold medal stuff for the year, we leased 1.2 million square feet at over $100 a square foot rents. The office leasing market is on the foothills of recovery but the capital markets still remain challenged and are even tightening -- and even tightening slightly as we speak. Foreclosures and givebacks are still in front of us and therefore, so is the opportunity. As Michael and I have said on the last few calls, retail in New York City has bottomed and is recovering rapidly. While rents have a way to go to reach peak pricing of 5 years ago, we feel very good about the activity level and strength of the retail recovery. And there's more big retail news. In 2 blockbuster deals announced in December, major global luxury retailer's product at time block front Upper Fifth Avenue properties for their own use as stores.
One deal was $835 million and the other was $963 million. So in round numbers, call it about $900 million for a half block front on Upper Fifth Avenue. So we now have the most important retailers in the world investing aggressively in real estate for their own use on the most important retail street in our country. This is only happening in the most important world cities, New York, London, Paris. Now we take this mark very personally because we own in our retail joint venture, so 52% on our share, a 26% market share of available Upper Fifth Avenue in 4 blocks -- half block -- 4 half blocks of similar AAA quality. I'm sure you can all do the math here. We also own in that same joint venture, the 2 best full blocks. So that would be 4 half blocks in Times Square and we have the largest signed business in town.
It's been a long ride and we announced just about completed construction of our renovation of the double block-wide PENN 2 and we are about 90% complete with the surrounding clauses. The huge positive in front of PENN 2, combined with the 33rd Street Promenade and the 33rd Street setback at ton [ph] have created an enormous open public space which I might say will be quite logistic. Directly core 7th Avenue [ph], the hotel PENN is now down to the ground, creating our PENN15 site. All this taken together is for sure a game trader. If you are a shareholder of Vornado or are interested in Vornado, this is an immediate must go see. The world turns in funny ways that creates opportunity. The Apocalypse is now passing, having handily survived the e-commerce attack.
But now we have a CBD office Apocalypse involving the work from home threat and the total black listing of office in the capital markets. In the end, the major cities of America will continue to grow and thrive with New York, our hometown leading that. All these workers will gather in offices with their colleagues rather than be alone at home at a kitchen table. And in the end, the supply-demand equation will come into balance and bring on a landlords market by a total cut-off of new supply. You can't build anything in these frozen capital markets. and in New York, the evaporation or relevance of, say, 100 million square feet of old, obsolete, unrentable space. This cycle was not over yet. There remain challenges but for forward-looking investors, the time is now.
The skyline of New York City, USA with a LEED certified office building of the company in focus at sunset.
My colleagues and I at Vornado are optimistic and excited. Now over to Michael.
Michael Franco: Thank you, Steve and good morning, everyone. Though 2023 was a challenging year, our core of retail businesses proved to be resilient. Our overall New York business same-store cash NOI and was up a healthy 2.8% for the year and was up 2% in the fourth quarter compared to last year. Comparable FFO as adjusted was $2.61 per share for the year, down $0.54 from 2022 and largely due to increased interest expense which is in line with the expectations that we previously communicated. Fourth quarter comparable FFO as adjusted was $0.63 per share compared to $0.72 per share for last year's fourth quarter, a decrease of $0.09. Overall, the core business was flat and the entire decrease in the quarter was driven by increased G&A and lower FFO from sold properties.
We have provided a quarter-over-quarter bridge in our earnings release and in our financial supplement. We recorded $73 million of noncash impairment charges during the fourth quarter, primarily related to joint venture assets that we intend to exit in the next few years. It should be noted that in accordance with NAREIT's FFO definition, this impairment charge is not included in FFO. Now turning to 2024. While forecasting remains challenging in the current economic environment, we expect our 2024 comparable FFO to continue to be impacted by higher interest rates and be down from 2023 which already seems to be in the market. We project a roughly $0.30 impact from higher net interest expense due to extending hedges at higher rates on our variable debt.
Additionally, there will be a ding to earnings as we turn over certain spaces. Primarily at 1290 Avenue of the Americas, 770 Broadway and 280 Park Avenue. This is temporary as we have already leased up a good chunk of this space but the GAAP earnings in these leases won't begin in 2024. We expect 2024 will represent the trough in our earnings and for earnings to increase meaningly with mayor [ph] as rates trend down and as income from the lease up of PENN and other vacancies clients. Now turning to the leasing markets. New York is clearly leading the leasing charge nationally as the city continues to experience strong employment growth. 2023 leasing in Manhattan ended on a strong note. And as we enter 2024, market conditions are more favorable in any year since the pandemic ensued in March 2020, providing support for the continued recovery in Class A office market.
The economy is healthy, most employers are back in the office at least 3 to 4 days per week. Competitive sublease space is tending and the market for higher-end space is tightening, fueled by a decline in the new development pipeline. Now that companies have greater clarity on their space needs, tenant demand is growing which is translating into more leasing transactions. With new supply of operating, tenants are increasingly focused on the highest quality redeveloped Class A buildings their PENN Station and Grand Central Station as they seek to attract and retain talent. Activity in the best buildings has been strong with vacancy at less than 10% and rents rising. Our best-in-class portfolio has been a major beneficiary of this trend and the stats bear out this that we consistently outperform the marketplace, as Steve mentioned earlier.
In 2023, we leased 2.1 million square feet and average starting rents of the industry-leading $99 per square foot with 1.2 million feet at triple-digit starting rents. Importantly, we made significant strides in addressing our upcoming vacancy and tenant roll at some of our most important assets with leases with the following important customers. Citadel at 350 Park Avenue, PJT Partners and GIC at 280 Park Avenue, King & Spalding, so in game and Cushman & Wakefield at 1290 Avenue Americas and Shopify at 85 Tenth Avenue. Additionally, at PENN 1, we maintained strong momentum with another 300,000 square feet of deals, highlighted by new leases with Samsung and Cannacord Genuity. Just as a reminder, since we started our redevelopment efforts in the Penn District, we have leased over 2.5 million square feet of office at average starting rents of $94 per square foot, a significant increase on what these buildings achieved previously.
Our fourth quarter activity led the overall market's leasing volume upturn as we completed 17 leases comprising 840,000 feet at starting rents of $100 per square foot. Even with our very strong close to 2023, our leasing pipeline heading into 2024 is robust. We currently have almost 300,000 feet of leases in negotiation with another 2 million feet in our pipeline at different stages of negotiation, including a balanced mix of new and renewal deals. Turning to the capital markets now. While the financing markets for office remain very challenging as banks continue to deal with problem loans, we are starting to see some stability with the Fed potentially cutting rates in 2024. Fixed income investors are constructive again on high-quality office and unsecured bond spreads for office have tightened significantly over the past couple of quarters.
That being said, we are still a way away from a healthy mortgage financing market in office. And most office loans will have to be restructured or extended as they aren't refinanceable at their current levels. More broadly, lenders have no appetite for construction financing across most property types which should keep a lid on new supply. Conversely, the financing market for retail is now wide open now that the sector has bottomed. As always, we continue to remain focused on maintaining balance sheet strength. Even in this challenging financing environment, our balance sheet remains in very good shape with strong liquidity. We are actively working with our lenders and making good progress pushing out the maturities on our loans which mature this year.
Our current liquidity is a strong $3.2 billion and $1.3 billion of cash and restricted cash and $1.9 billion undrawn under a $2.5 billion revolving credit facilities. With that, I'll turn it over to the operator for Q&A.
