Vornado Realty Trust (VNO) Q3 2020 Earnings Call Transcript

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Vornado Realty Trust (NYSE:VNO)
Q3 2020 Earnings Call
Nov 04, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Vornado Realty Trust third-quarter 2020 earnings call. My name is Richard, and I’ll 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 Ms.

Cathy Creswell, director of investor relations. Please go ahead.

Cathy CreswellDirector of Investor Relations

Thank you. Welcome to Vornado Realty Trust third-quarter earnings call. While Vornado typically holds its earnings call the morning after releasing earnings, today’s call was moved to accommodate voting in the presidential and national elections yesterday. On Monday afternoon, we issued our third-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, 2019, and our quarterly report on Form 10-Q for the quarter ended September 30, 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 our senior team is present and available for questions. I will now turn the call over to Steven Roth.

Steven RothChairman and Chief Executive Officer

Thank you, Cathy, and good morning, everyone. I hope all of you are safe and healthy. Yesterday was election day in America, arguably the most important single day in the calendar of our great democracy. Our nation is deeply divided, and this election appears to be a historical cliffhanger.

The TV analysts are now calling it a nail biter. Whatever the final outcome of this election, it is our hope that we will unite as a country in pursuit of American values and prosperity. Before Michael gets into the business review and the numbers, let me make a few comments. These are anything but normal times.

Actually, the COVID-19 pandemic is a once in 100-year event. The activity level in New York and all of other American cities is a fraction of normal. For example, office building occupancy in New Yok is currently in the teams. There is a tension between the very serious COVID health risk and related government protocols and lockdowns.

And everyone’s desire to get back to work, get back to school, get back to their favorite restaurants and get back to normalcy. And for sure, normalcy will return. It’s just a matter of just how long it will take. And I believe return to normalcy will be the order of the day in months, not in years.

The city generally feels normal in the residential areas, whether it be Tribeca or the village or the Upper East or Upper West side. In the commercial areas, however, feel quiet. And that obviously negatively affects restaurants and retail. Most importantly, we are hearing from all our tenants that Zoom fatigue is real, productivity is now, and CEOs want their employees to be back in the office.

But again, that will take some time. We are very proud of our corporate teams who are working really hard and doing a brilliant job of keeping the trains running on time. And we are especially proud of our building teams who have executed our industry-leading protocols and enhanced sanitation to really make our buildings ready and save for our tenants. Current liquidity is a strong $3.67 billion, including $1.49 billion of cash and restricted cash and $2.18 billion undrawn under our $2.75 billion revolving credit facilities.

During the quarter, we repaid $500 million on our revolver that we had drawn in the spring at the outset of the pandemic. With respect to the closely watched metric of rent collections. In the third quarter, rent collections, excluding deferrals, improved 500 basis points to 93% driven by a signal pickup in retail collections during the quarter. Details of third-quarter collections are: we collected 95% of office rents, 97%, including agreed to deferrals; we collected 82% of retail rents, 85%, including deferrals, which amounts to 93% on a combined basis, 95%, including deferrals; year-to-date, we have deferred $30.9 million in rent and abated $8.8 million, rents, which we have agreed to defer are generally scheduled to be repaid over the course of the next year.

We continue marketing 555 California Street and 1290 Avenue of the Americas. There is active interest from investors and the widespread appreciation for quality of these assets. But given investor caution, it does not look like we’re going to achieve our original top tick pricing objective. Nevertheless, we continue to actively pursue a transaction involving these assets, which may take the form of a sale, a partial sale, a joint venture or a refinancing.

In the Penn District, the Moynihan Train Hall and extension of Penn Station with its majestic 100 Foot Skylight will be opening to the public at the year-end only weeks away. At our adjacent falling building, we will be delivering Facebook 730,000 square feet in phases beginning in the first quarter of 2021. Our transformation and redevelopment of the 0.5 million square foot PENN1, with its unique and outstanding amenity package will be completed in phases, with the North Lobby opening to tenants in the third quarter of next year and the remainder of the project in early 2022. And PENN1’s 1.8 million square foot sister, PENN2 is next in line.

Remember, as these large important Penn District projects come online, they will deliver very, very significant earnings. 220 Central Park South is unquestionably most successful residential development ever and it continues to perform. This year through September and in the teeth of the COVID crisis, we closed 30 units and suites for net proceeds of $939 million, and that includes 19 closings in the third quarter for $591 million. From inception through September 30, we have closed 95 units and suites for net proceeds of $2.76 billion.

In October, after quarter end, we closed another four units for some net proceeds of $105 million. Now if I may, a word of caution and this should be obvious. We are in the midst of a once-in-a-century pandemic. Every medical scientists worldwide is working 24/7 on therapeutics and vaccines.

So it is our hope that we can win the battle with this disease in months, not years. Our financial results as well as our peers are suffering. But it’s important to appreciate that today’s quarterly results are a reaction to a short-term crisis and are certainly not very predictive of the future. As I have said several times, we expect normalcy to begin to return in months, not years.

And we are highly confident that each of our businesses will rebound to pre-COVID levels. Now to Michael.

Michael FrancoPresident

Thank you, Steve. Good morning, everyone. I too hope you all are safe and healthy. I first will cover our financial results and then went in with a few comments on lease capital markets.

Our earnings for this quarter that reflect a number of items, most of which were known or should have been just as expected. Third-quarter FFO as adjusted was $0.59 per share compared to $0.89 for last year’s third quarter, a decrease of $0.30. This decrease is reconciled for you in our earnings release on Page 5 and on our financial supplement on Page 7. The decrease was driven by a few items, most of which are either temporary or noncash onetime write-offs, $0.11 from the temporary decline in income of what we all call our variable businesses, which include the Hotel Pennsylvania, the Marks Trade Shows, Signage and BMS, which Steve had laid out for you in our first quarter earnings call.

$0.11 for retailer bankruptcies, namely JCPenney and Topshop and tenant account receivables write-off, $0.07 from noncash straight-line rent write-offs and $0.03 from Penn District space out of service. We ended the quarter with New York office occupancy at 95.8% and New York retail occupancy at 79.9%. The decline primarily due to pandemic. While the headline same-store NOI are negative on their face, it’s worth drilling down in New York.

New York segment’s third-quarter cash basis same-store NOI was down 9%. But when you exclude retail, the temporary loss of income resulting from the pandemic from our variable businesses. And excluding residential and our share this [Inaudible], our core New York office business actually was a positive 1.5%. The big takeaway here is that our core office business, including the New York, Chicago, and San Francisco, representing over 80% of the company is performing well, protected by long-term leases with credit dents.

And as Steve said on last quarter’s call, on the pandemic to subside and employees return to their offices and tourist return, we are confident that our variable businesses will return to prior operating levels. Now turning to the leasing markets. Not surprisingly, as you would expect in this COVID environment, the leasing market basically remains on pause. Tour volume has ticked up, and we do see more tenant activity in the market.

However, the companies are continuing to take a wait and see approach and are focused primarily on getting their employees safely back to the office. We expect modest new leasing activity through year-end with renewals dominating the activity. This dynamic likely won’t change until companies returning full to the city and really focused on growth and future space needs post pandemic. Some of the space is rising, and thus conditions will likely to get worse before they get better.

Fortunately, we have a wherewithal the media market intents. In New York, our office buildings remain full at 95.8% occupancy. And importantly, as the market recovers from the COVID pandemic, our New York office expiries for the end of 2022 average a very low 4% per year with a weighted average expiring rent of only $79.22 per square foot, which portends well for the stability of our cash flow. Notwithstanding the slow market due to COVID, we did complete two very large important leases this quarter.

The 730,000 square foot that Facebook lease at the Harley Building, which we discussed on our last call. And the 633,000 square foot renewal with NYU at One Park. These leases solidify both buildings for the long term, with almost no year-in and year-out future capital requirements. Both of these leases are also sterling credits and reflect the strength and diversity of the industry in New York, but with tech and healthcare being two of the fastest growing.

In total, we leased 1.453 million square feet in the quarter at an initial rent of $92.74 per square foot. The second-generation gap and the cash mark-to-market increases, which exclude the Facebook lease, were a very healthy 26.2% and 7.7%, respectively. We have 220,000 square feet of leases in negotiations and another 850,000 square feet in the newer pipeline, all a healthy mix of both new and renewal leases. In San Francisco, in the quarter, we executed a renewal with really one of our major financial services tenants for its 90,000 square feet and are finalizing another major renewal with the company that has been in the building forever.

Both of these renewals will produce strong mark-to-markets on the great finals. The retail environment remained difficult, exacerbated by the slow return of office workers and residents in the city and the lack of tourists. Tourism is not expected to return until at least the latter part of the 2021, and putting further strain on retail sales. Growing retail vacancies, combined with the life of tenants in the market, will continue to put downward pressure on retail rents.

Despite this difficult environment, we executed 25,000 square feet in the quarter, including a lease with Armani on [Inaudible] and have leases out both new and renewable, aggregating an additional 50,000 square feet, indicating that retailers recognize that New York City is still a key market where they want to be. We just need to own assets in the right locations, which we do and be realistic on rents to make deals, which we are. The New York’s ecosystem will come back, but it will take time. On the development side, as Steve said, the Moynihan Train Hall will deliver next month, and it is a dramatic public space.

There’s just going to be an iconic landmark for the city, serving commuters and residents for the next century. PENN1 is progressing on plan with completion of the entire project expected in 2022 and PENN2 will soon follow. The new 33rd Street Long Island Rail Road Entrants will also open on schedule in December, further enhancing this experience for the years. The district transformation is well under way and when all of our redevelopment and streetscape improvements are completed, it is going to be placed in the city where companies want to be.

And only are we located on top of the most important transit hub in the region. But we also will be delivering for tenants Class A space supported by an unmatched combination of next-generation health and wellness environments, amenities and services. Please go to our website to the latest construction images and join the progress we’re making on these projects. I know it can be hard for people to look beyond the current difficult and certain environment.

That in one year, there will be thousands of creative and talented employees of two of the tech giants, populating 1 million square feet in our business, and the knock-on effects will be significant, both for our office and retail assets. We’re already seeing high retail interest in the district following these lease announcements. At Harley, we have signed 11 retail leases and have many other letters of intended process as tenants recognize the uniqueness of the space and the volume of foot traffic that will course through their daily. As all these redevelopments are completed and new leases kick in, they will indeed generate large accretive earnings.

Turning to the capital markets now, our recent refinancing of PENN11 demonstrates that the financing markets for office are now wide open and constructive, with capital available at record low rates for high-quality, well leased buildings and strong spots as Lakewood. The recent refinancing of Alexander’s apartment complex and the recent quotes we’ve received for other properties further validate this. Within the market, we’ll only continue to become attractive over the next 12 to 18 months as lenders become more active and compete for business. We’ll continue to take advantage of the favorable market to term out our debt at low rates and remain focused on making sure our balance sheet — which we built to weather any environment.

With that, I’ll turn it over to operator for Q&A.

Questions & Answers:

Operator

[Operator instructions] Our first question online comes from Manny Korchman from Citi. Please go ahead.

Manny KorchmanCiti — Analyst

Hey. Good morning, everyone. Michael, just wondering on the Farley retail leases, have those discussions changed much in this COVID environment or are tenants just excited to go into an asset like that at that location? And maybe more specifically, if you could discuss rents and TIs, and the metrics that go into this?

Michael FrancoPresident

Manny, I’ll start and Steve behind can join in. The interest is really not wavered at all. I think as recognized, as I said, the uniqueness of the asset and the number of people that are going to be going through there, going west every day to Hudson Yards in Manhattan West, going to our assets and throughout the city. And so the interest really has been unabated throughout the pandemic.

And so all of the tenants are will then dialogue with those have progressed, the leases we’ve signed, the LOI is in process, the rents are unchanged. There may be a little bit more TI on a few deals, respectively. But overall, I would tell you, it’s pretty consistent.

Steven RothChairman and Chief Executive Officer

I have a slightly more constructive take on it. I’ve nicknamed that this project is the funnel. Because really, what happens is that all of the population of Hudson Yards and all of the population of Manhattan West, which are huge developments with huge office populations, immediately and contiguous to us to the West, have to funnel through this retail corridor to get to the trains and get to the commuting subways and trains. So we expect that there will be enormous activity.

The retailers understand that and see that, and it’s clear as a bell. And actually, it’s the single best retail opportunity in this city right now by a factor of two or three, and the retailers understand that. So we haven’t reduced our asking prices, if anything, as this thing gets closer to delivery. And as Michael said, we have these two tech giants and 1 million feet surrounding this and on top of it.

So we’re extremely constructive about this space. [Inaudible], do you want to add anything?

Glen WeissExecutive Vice President, Office Leasing-Co-Head of Real Estate

I agree. Farley is a first of Sunshine in the cloudy retail environment, and we have nothing but high hopes for the productivity when that opens, and we’re extremely optimistic about it.

Steven RothChairman and Chief Executive Officer

Now there’s a corollary project in the train operation, and that is the Long Island Rail Road Concourse, where we own the North side, which is in PENN 1. We are almost finished with a deal to basically expand the concourse, make it much wider, much higher, much more brand, which will be on the MDA side. And taking over control and ownership of the south side of that concourse, so we will own both sides. And that’s also another — it’s $100 million project.

So it’s not huge, but it’s another very exciting addition to our portfolio in the Penn District.

Manny KorchmanCiti — Analyst

Great. Thanks for all that. Realize that your lease expirations are light in the upcoming future here, but are there any other large spaces that you’re watching, maybe something similar to New York and company where the tenants having their own struggles, and we might just not be thinking about potential moveouts or give-backs?

Steven RothChairman and Chief Executive Officer

What do you think, Glen?

Glen WeissExecutive Vice President, Office Leasing-Co-Head of Real Estate

Good morning. It’s Glen. Now we feel really good about our role, really modest role over the next two years, about 1.6 million feet. Nothing of large block size other than New York and company. We’ve got some space at 887512 West 22nd Downtown 40 Fulton, but nothing of a large consequence.

And in all of those assets, we’re actually seeing much better activity right now than we had been, call it, two or three months ago. So we feel really good about the expirations the next two years.

Manny KorchmanCiti — Analyst

And, Glen, could you share any potential updates or prospects for the Home Depot space that’s going to be vacating on [Inaudible]?

Steven RothChairman and Chief Executive Officer

Well, the Home Depot lease goes through 2025. And we have approached them multiple times about recapturing the space. And we had an interesting conversation a few short years ago about how much would you pay us to give us back the space on how much will — and they want to know how much we would pay them. So the answer is that we don’t — that space is under lease through 2025, and it is not something that we are concerned about today.

However, we have incomings on that space from several important retail tenants whom you would who you would expect. So we can’t tell how that will play out. But we have — we’re financially protected for the next five years.

Glen WeissExecutive Vice President, Office Leasing-Co-Head of Real Estate

Thanks, Steve.

Operator

Thank you. Our next question on the line comes from Jamie Feldman from Bank of America. Please go ahead.

Jamie FeldmanBank of America Merrill Lynch — Analyst

Thank you. Good morning. So I guess turning to the election, certainly, it looks like the Democratic sweep is off the table here. And with that concerns that a big fiscal stimulus to help some of the — like New York City or San Francisco off the table as well. I just want to get your thoughts on that comment.

And then just for New York specifically, what risk do you think this proposes to the future of the city and its ability to recover?

Steven RothChairman and Chief Executive Officer

That’s a big question, which probably if I was smarter than I am, I would duck. But I’ll tell you what I think. I think I mean this election is historic. I mean we can’t predict what’s going to happen but I think pretty clearly, the sweep is off the table.

And I think that’s — from my point of view and probably for most folk’s point of view, a very, very good thing. Now I have been approached by all of the New York political leaders to talk to Washington to try to twist arms to get help for some of the huge budget problems that New York has as well as all of the big cities in the country. So that obviously has not happened. And obviously, the standoff between — in the government about this — I guess the third fiscal stimulus plan.

And the standoff is basically the fight is over what some would say is bailouts for the big cities and states versus not. So anyway clearly, the change in government — if we have a change in government, it’s going to change the dynamics of that. If there’s a different president, that will change the dynamics greatly. Although it won’t be easy because if the Senate continues to be in Republican hands.

The most important part of this thing is that by law, the city and state governments all around the country have to have balanced budgets, so they will have to close the budget deficits. There’s a certain group of folks in Washington that would like to see these states and cities reduce their budgets and get their budgets in line with their revenues. There’s another group of folks down there who would like to continue to spend at the level that they have been spending and close the deficits by assistance from Washington. How this plays out is probably going to be some kind of a combination of both, but it will play out.

The promise that the Democrat side made, which is that they will reverse the Trump tax plan and reverse the salt. I see that as being a very, very, very hard lift. So I don’t know where that will go. Nonetheless, there is a — there’s likely an imperative for these cities and states to have to get their budgets under tighter control, together with some kind of assistance.

So I don’t think that gives you much more information than you already had.

Jamie FeldmanBank of America Merrill Lynch — Analyst

No, that’s helpful. So let’s say New York does have to cut the budget. I mean, what do you worry about most as a real estate landlord and — to keep the city healthy?

Steven RothChairman and Chief Executive Officer

The answer is that the thing that I worry about much — about most is stupid legislation such as happened in Albany at the beginning of, I guess, it was last year about the — with the residential assets and unsustainable tax increases. Now the interesting thing about it is the real estate tax increases because that’s the most controllable and the most variable of the menu of taxation that they have. The bad news of real estate in certain sectors, for example, retail, asset value and hotel asset value have clearly gone down. So clearly, one would expect that the real estate taxes related to those assets will go down.

However, the budgets can’t afford it to go down. So that’s a — tension in all of this stuff are pretty enormous, and they will play out over the next six months or a year.

Jamie FeldmanBank of America Merrill Lynch — Analyst

OK. Thank you. And then as you guys made the comment earlier about the right real estate or the right positioned real estate will come out of this OK. Does that apply to retail as well? I mean, how do you think — you look at your portfolio, like what do you think the winners and losers are going to be coming out of the pandemic in terms of locations?

Steven RothChairman and Chief Executive Officer

I think we have the best quality locations that there are anywhere, and that may even be certainly in the country and maybe even in the world. So — but it will take the — the retail real estate that we own, which is brilliant in its quality, will suffer lower values at lower rents because that’s the market, and it will take time for this to shift through.

Operator

Thank you. Our next question on the line comes from Steve Sakwa from Evercore ISI. Please go ahead.

Steve SakwaEvercore ISI — Analyst

I guess, Glen or Michael, maybe if you could talk a little bit about the leasing numbers that you threw out. I think you said you had 220,000 with a pipeline of 850. I’m just wondering if you could talk a little bit about what the tenants are telling you, what sort of space requirements or space density they are are kind of planning. Of that 850, how much of that’s new versus renewal? And again, trying to just get a sense for how tenants are thinking about new space versus old space, and how they’re planning it.

Glen WeissExecutive Vice President, Office Leasing-Co-Head of Real Estate

Sure. Good morning, Steve. It’s Glen. So the pipeline is active.

It’s basically a 50-50 mix of new deals and renewals. I’ll give you a feel of the type of tenants. And we get a lease out of about 100,000 feet with a nonprofit tenant, which will be new space in Midtown. We just got a proposal over the weekend for 45,000 feet with an entertainment firm, new tenant.

We’re in proposal stages with a 300,000-foot tenant in Midtown, planting a new space and we also have an existing large tech company looking to grow again by another 60,000 to 120,000 feet. So we’re certainly seeing a great mix of activity. In terms of density program design, I think it’s way too early to see it. Most of these tenants are looking past the pandemic, saying to themselves, how do we want our space to fit out, assuming that pandemic can come and gone? So I have not seen a real change in strategy as it relates to space design but I think that’s a to-be-determined, to-be-continued dialogue.

But certainly, my sense right now is if you have the right space and quality buildings, people is a real flight to quality more than ever, and that’s why we’re seeing the activity we’re seeing right now.

Steven RothChairman and Chief Executive Officer

Hang on. Jamie, I’ll tell you honestly — Steve, I’m sorry. I don’t trust anything that anybody tells me right now. So for example, let’s go back at the history, go back to 9/11.

And so we’re not — when the tragedy of 9/11 happened, everybody said that we — nobody is going to rent new space up in the height of the buildings because of the 9/11 tragedy and experience. Well, that lasted about two or three years. And now that view space has reverted to the norm, which is by far, the most valuable space. So it will take time for all this to shift out.

There is a tension now between office work and work from home. Some — the surveys of some of the employees say one thing, the survey of all the CEOs, say, other things. In the end, it’s our firm’s feeling, our businesses feeling that there will be marginal work from home and the office will be the main place where work, creativity, growth, and business is conducted.

Steve SakwaEvercore ISI — Analyst

Thanks. Glen, maybe just to continue on the leasing. Is there any comments you can make about sort of net effect of rent changes that you’ve seen maybe over the last six months? I realize it’s not all in space rents, but I think you mentioned in some of the deals, TIs were going up. So maybe just talk about the change in net effective rents and how much more might that drift lower? It sounds like leasing will remain slow for the next couple of quarters, maybe into the back half of next year.

Glen WeissExecutive Vice President, Office Leasing-Co-Head of Real Estate

Yes. I mean Michael said in his remarks, I mean, it is definitely slower in terms of activity. I don’t think we yet know it all where rents are going, where concessions are going. So really, people come back to the office.

The uncertainty clears, we get into normalcy and we get back into real deal making. I mean, certainly there’s going to be an adjustment to rent, TIs, etc. I’m not smart enough to predict exactly where those are going to be. I think when everyone gets back in their seats, we see demand again.

We see deal making again all the much better feel a bit. I think right now, the deals you’re hearing about on the Street and TIs are certainly up. I think rents have generally held steady to date. It’s more the concession packages.

But I think it’s way too early still, Steve, to predict anything until well into next year when people start coming back and we get into a normal deal mode.

Michael FrancoPresident

Steve, we’re not really on a normal functioning market, right? We’re in this unique period where companies are not back in their offices. And so the deal-making is down, as you would expect, in some sense, it’s actually surprising. It’s as active as it is, most people are not in the cities. But — so you do have to come back to a normal functioning environment.

So in this period of time, there are going to be additional concessions share, right? That depends feel like they get either extracted or are the landlords want to make the deals. I think when there’s a return to work, you get a fully functioning market. I think you’ll start to get a better sense of what rents are going to do, and I wouldn’t extrapolate too much. Either way it’s fine.

Operator

Thank you. Our next question on line comes from Alexander Goldfarb from Piper Sandler. Please go ahead.

Alexander GoldfarbPiper Sandler — Analyst

Good morning. Good morning, Steve. And certainly an interesting day out today. So two questions here.

The first is just going back to Jamie’s question. When you look at the political landscape of New York, there’s definitely been a disconnect. I mean you’ve been in New York a long time. You remember the ’70s, have the business community rallied together with the city to rebuild New York.

This time around, that dynamic does not seem to be in the cards. The mayors definitely stayed out of view. The governor seems to oscillate. One time, he’s against it, the other time he’s trying to promote.

But do you get a sense that with what’s happening in New York and the need to create a better potential business district environment to help people feel good about coming back to the office, do you feel that the politicians are finally understanding what they need to do or is your sense that they think there’s still going to be some bailout, and therefore, they can play to whatever political spaces they have and not really realize the impact that people like you who are paying real estate taxes and trying to generate growth for the city, how it’s not helping?

Steven RothChairman and Chief Executive Officer

Let me turn the question around, OK? Politicians are politicians. I’m not going to — that — they hopefully work for the business community. They also work for the population and the voters, and they don’t necessarily always make decisions and have policies that we agree with. But what I look at is — with New York is absolutely the greatest city in New York, and it’s one of the three or four — the greatest city in the country, and one of the three or four great cities in the world.

There will always be a New York. It will ebb and flow a little bit. It will go through cycles but it is always the dominant place, the dominant city in New York — I keep saying in New York, in the country. And its infrastructure is just so massive, it can’t be replicated.

The infrastructure in terms of its talent, in terms of its culture, in terms of its business community in terms of what have you. The interesting thing is that as it cycles, if you have the opportunity to buy assets at very low prices per pound, and let me use the word [Inaudible] word steal assets at very low price, that’s the time to jump on in. So if you look at our stock price and those — and the stock price of our peers, and you interpolate how much per square foot the stock price represents in the building, the assets that are behind the stock price, the value is great. So it’s sort of oxymoronic.

As New York gets a little bit out of favor, which is the slant, I think, in your question, the — that seems to be the right time to buy assets and to buy stocks. OK? So New York is going to go zero. New York has a headwind. The political situation in New York is going to change.

There’s going to be an election. The reality of the budget, the reality of the importance of the business community, the reality of the importance of having a growing tax base will win the day and — but this is a unique time because the assets are really, really cheap.

Alexander GoldfarbPiper Sandler — Analyst

OK. Which leads to the second question, you know my favorite, the 555 and 1290. I think you said earlier on that the pricing discussions may not have been exactly what you guys had hoped for. Clearly, a great cash flow assets, actually even more important today.

So what are your latest thoughts on those assets? Are you still leaning toward — which way are you sort of leaning? Is it a recapitalization of the pair or you think you may outright sell or now it’s just keep as is with no change on the financing?

Steven RothChairman and Chief Executive Officer

The answer to that question is, yes.

Alexander GoldfarbPiper Sandler — Analyst

Thank you. Steve, is there anything more that you can add?

Steven RothChairman and Chief Executive Officer

The answer — look, the answer is that, obviously, these are important assets. Obviously, they will command acceptable values. It may not be the top, top tick value, but they will command acceptable values. And the liquid — the liquefying of the value of those assets is an important thing in our future plan.

We have said, we’re looking at multiple different options. And the answer to your question is, yes.

Alexander GoldfarbPiper Sandler — Analyst

OK. Thank you, Steve.

Steven RothChairman and Chief Executive Officer

But let me just — Alex, let me just add on to that. What I’m saying is that you’ve written that you would prefer us to take the buildings off the market and not sell them, and keep the cash flow. OK? That’s not our preferred strategy right now.

Alexander GoldfarbPiper Sandler — Analyst

OK. Yes, I understand that, and I appreciate your view. So thank you, Steve.

Steven RothChairman and Chief Executive Officer

Yes, sir.

Operator

Thank you. Our next question on the line comes from John Kim from BMO Capital Markets. Please go ahead.

John KimBMO Capital Markets — Analyst

Thanks. Good morning. Michael, you mentioned that you don’t expect tourism to come back into the city until the latter half of next year. I’m wondering what that means as far as not only retail occupancy, but rent collections and abatements next year?

Michael FrancoPresident

Look, I think that, John, if we just look at the trend line and when companies either may bring their workers back or when theaters may open, I think that’s a reasonable assessment. Now obviously, in a fluid environment, but I think the latter of ’21 is a reasonable assessment. So that obviously means foot traffic is down, therefore, retail sales are down but retailers are adapting. The ones that are very weak have already gone out.

I can’t say there can’t be some more casualties but I think that when you take out the restaurants, I think, by and large, we have pretty good credit in the balance of our portfolio. So as I said, we are notwithstanding that environment. We signed one lease on Madison Avenue. We’re in negotiations on another.

So retailers are there and stable over the 731 and then there’s some other assets as well. Retailers are taking the tires, right? The strong retailers, they have balance sheets. They take the other side, which is this is an opportunity, right? Rents are down. We can now get the best basis at attractive prices.

We can make money when the markets return. They have to believe the markets will return, everybody does, that New York will come back. As soon as people travel again, I don’t know if we’re going to write that 60 million tourists, but I think it’s going to come back pretty quickly, right? There’s pent-up demand in this country to experience culture, sports, etc. And so tourism is going to boom, in my opinion.

New York is going to be one of the prime beneficiaries and obviously, the retailers are going to benefit from that. So that’s my view. I don’t know if you want to add anything high end to that but I think we are well positioned in terms of our assets on a relative basis.

John KimBMO Capital Markets — Analyst

Can I ask a similar question as far as the timing of its trade shows reopening at the mark? Would it also be a second half ’21 time frame?

Michael FrancoPresident

Yes. Yes. So we — the big trade show is [Inaudible], which normally is June. We pushed out to September, and we did that a few months ago.

Just to a conservative view, give it time. Our tenants are anxious for that show to happen. They’re planning, they’re excited about it, and so we feel like it will happen. It’s an important show.

And so again, that as well as you already showed the third quarter of ’21.

John KimBMO Capital Markets — Analyst

If I could squeeze one more question in. Is the 850,000 square foot leasing pipeline, does that include the large anchor at PENN1 that you discussed in the last call?

Michael FrancoPresident

If you’re referring to PENN2 maybe, the answer is, no.

John KimBMO Capital Markets — Analyst

OK. Thank you.

Michael FrancoPresident

Yes, thank you.

Operator

Our next question on the line comes from Nick Yulico from Scotiabank. Please go ahead.

Josh BrownScotiabank — Analyst

Thanks. Good morning. This is Josh Brown with Nick. Do you have any insight into details behind what the build-out at Farley ultimately will look like for Facebook? Are they designing that space any differently because of COVID? I think could you just talk about the TIs that were given on that deal and how that compares with TIs historically?

Steven RothChairman and Chief Executive Officer

No, that’s something that we’re not going to get into.

Josh BrownScotiabank — Analyst

And then, I guess — OK, looking at retail, how are you guys thinking about the retail business today versus when you guys did the JV deal? When you brought HIMA and you said the disruption in retail would present some really good opportunities. So are you seeing any of those opportunities today and how can Vornado benefit from those?

Michael FrancoPresident

The answer, John, is that there are — as you would expect, the worst assets go bad the quickest, right? So if you look at what happened in the prior number of years, right, retail was fly added really throughout the city. And there was leasing done, rents pushed, and I would call it fringe locations, right? Well, as a result of not just this, but even happening before this, right? That started to contract over the last couple of years, our locations were impacted. And the owners that had debt on those assets, they have either lost or they’re going to lose those assets. In many cases, those are not going to be interesting.

I think our focus has always been on prime, prime, high street retail that there’s going to be demand even in more difficult environment as we’re talking about with our portfolio right now. So we do think that there will be opportunities. And that may come in the form of lenders that — we’ve had calls from lenders saying, look, you guys are the experts. Can you help us out in certain assets? For the right situations, we’re going to play off those.

But I would say to date, we’ve not seen anything of scale or of quality that fits our bill but they’re going to come.

Steven RothChairman and Chief Executive Officer

The law of the jungle is that the bigger they are, the harder they fall. So the categories of assets that are in distress are — the top three are condos in New York, retail anywhere, and hotels. So you think about it for a second, the condos are — the buyers have gone into hibernation, and the prices are in free fall. The hotel business — most of the hotels are shut down, so they get zero revenue, and we know what’s going on in retail.

So the opportunities will be at our coming, and they will come. As Michael said, they will start coming from loan foreclosures and those are the categories of assets that will be the most distressed. It will be, I think, difficult to find a greater office building that you could buy that used to be worth $1,000 a foot that you can buy for $500 a foot. So we are definitely in the financial condition to be acquirers.

Part of our business strategy is to be acquirers in distressed markets like this, and so we’re very alert. We see everything that comes by. We are — we have the financial capacity to act and we’re sort of like reasonably excited about what the opportunities might be, but they will take — could be well into next year before they really start to mature.

Nick YulicoScotiabank — Analyst

Hey, guys. It’s Nick. Sorry, I just had just a quick question on the sequential change in cash NOI for the New York office segment, which I know you list in the Q. I forget if it’s in that stuff or not.

But hey, you did have a write-off of a tenant receivable, but what else drove that sequential decline in office, cash NOI this quarter in New York?

Steven RothChairman and Chief Executive Officer

Going to turn that over to Joe and Tom. You don’t have — you don’t have any — if you don’t have your fingertips maybe we can handle this offline.

Joe MacnowExecutive Vice President, Chief Financial Officer, Chief Administrative Officer

Nick, I would — it’s Joe. Good morning. I would prefer to do this offline, Nick, so we can really get you a precise answer. Needless to say, the third quarter had accounts receivable reserves, more than two and a half times the first quarter — the second quarter.

So that’s an element that we need to disclose but we would prefer to get you a more precise buildup.

Nick YulicoScotiabank — Analyst

OK. Sure thing. Thank you.

Operator

Thank you. Our next question from the line comes from Rick Skidmore from Goldman Sachs. Please go ahead.

Rick SkidmoreGoldman Sachs — Analyst

Thank you. Good morning. Steve, you mentioned the CEOs seeing Zoom fatigue and loss productivity, etc., regarding working from home. What if anything can the office landlords do to help accelerate that return to office? And what are the CEOs saying about plans to bring their people back or is it just waiting for a vaccine and the virus to fade? Thank you.

Steven RothChairman and Chief Executive Officer

I’ll tell you what our experience is first, just to give it to give it some context. So most of our peer companies have basically returned to office work, 100% of the companies. And they have done it by edict. And their attitude is and my attitude as well is, we’re talking up our book.

We are in the office business. We want to be in the office, we want our people in the office and we want to get back to normal work. So we agree with that. The thing that we don’t agree with is what we’ve done is — and that most of these folks have gone back 100%.

What we’ve not that is gone back in teams, so we have an A team and a B team so that we have half the population in the office on week A and the other half in week B. So that we keep the densities down a little bit. But the most important thing is that we have — in respect for our employees, we have basically said that if you are uncomfortable with the health risk of returning to the normal office environment or etc. Then by all means, please continue to work from home.

Now we’re not going to let that go on forever. What we’re finding when we talk to the large CEOs is that they very, very much are shying away — they will not open their offices up by edict. And they very much respect what their employees perceive as being a health risk and that’s something that we have to live with right now. So there’s a sensitivity to the risk out there and the employee’s point of view.

There’s other nuances to it like child care and schools and other stuff. But the main thing is, I find it very difficult and all of the CEOs that I talk to, to say to an employee come on back to work, even though you’re a little bit afraid of that there’s a health risk in doing that. So really, the resolution of this will be when the medical industry — and the one thing about what has happened in this situation, and I know the people in Washington want to take credit for this, but actually it’s probably just the normal workings of capitalism. Every single medical professional and scientists in the world is working 24/7 on this project.

That’s never happened before. So what we’re hearing anecdotally is that there will be vaccines and therapeutics, which will come out in, as I said — I said before, in months, not in years. That will turn the tide. So it’s very difficult to change behavior and get people to come back to work until they are comfortable, and most CEOs are just not going to do that.

So the answer is that we think this is basically a medical situation. It’s a health crisis. And that has to be resolved before we can really get back to normalcy. Now what are we doing? What we’re doing is, we’re in close communication with our tenants, daily and weekly.

We are finding out what it is that they want. We are preparing our buildings in terms of air filtration and temperature checks and sanitation, et cetera, and all of the protocols. And actually, all the major landlords are basically adopting the same programs, which has become industry standard. And so our tenants know that in our buildings are top of the line, are ready to receive them when they come back, et cetera.

And basically, so that’s what we are able to do. Right now, we’re in a waiting game, waiting for the medical profession to solve this problem.

Rick SkidmoreGoldman Sachs — Analyst

Thank you.

Steven RothChairman and Chief Executive Officer

By the way, and I said this in my remarks. As you, and I, and all of our colleagues, as we talk to our friends, we talk to our associates, etc. everybody is chomping at the bit. Everybody wants to get back to work.

Everybody wants to get back to school. Everybody wants to get, to be able to go out to restaurants. Everybody just really wants to get back to normalcy. So there is — the population wants the return.

The hesitancy is that there continues to be a health risk. If you read the press, and you watch the TV, it’s very prevalent. It’s very difficult to say, while there is no health risk, and don’t worry about it. Because it’s so prevalent.

So the answer is, this is something that will take time. And my hope and belief is it will be dimensioned in months, not in years but also, you can be assure of one thing. OK? Our teams talk to our tenants very frequently, and at least weekly.

Operator

Thank you. Our next question on line comes from Daniel Ismail from Green Street. Please go ahead.

Daniel IsmailGreen Street Advisors — Analyst

Great. Thank you. Steve, going back to your earlier comments about looking for assets in distress. One area of growth in the office sector has been life science. Is it fair to say that life science values in New York City are likely not under distress, and thus, those would likely not be on your targeted acquisition was? And then as a follow-up, is there any opportunity for — in your current development pipeline to expand in that area?

Steven RothChairman and Chief Executive Officer

Daniel, the question was funny. I think you said what about life sciences. The answer is that I don’t know. We — obviously, we’re aware of the life sciences segment.

We have sort of experimented in it, put our big toe in to it a little bit. It’s an attractive segment. It’s actually a small segment in New York. There are other hotspots around the country that, obviously, Cambridge, obviously, California.

It’s a business that we’re interested in, and it’s a business and that we would look for an entry point and are looking for an entry point. To buy this — to buy into the life sciences industry at distress is something that’s just not available now. So basically, we have lots of assets. New York is a potential location for a large, large and important cluster of life science assets.

We have the universities. We have the talent, etc. So all I can say is it’s something that we’re aware of. It’s something that we’re looking at.

It’s not easy to enter. And so, there should — we don’t believe that there will be a distressed opportunity in that segment.

Daniel IsmailGreen Street Advisors — Analyst

Is there any current plans looking at PENN1 or PENN2 for a life science component?

Steven RothChairman and Chief Executive Officer

Probably not. There are building there are other buildings that are better suited to that. And actually, most of the success in this industry is done by ground-up development that are suited for that use. So it’s actually more efficient to do ground-up development rather than retrofit.

PENN1 and PENN2 would not be candidates for a retrofit. Other buildings in that — in the Penn District would be much better candidates but the ideal thing would be to do ground-up development.

Daniel IsmailGreen Street Advisors — Analyst

OK. And just a quick follow-up, the finance business is a relatively small portion of your overall business. Any thoughts in terms of how — the signage business. So I was just hoping if you can provide a few comments on potential recovery to pre-COVID levels in that sector?

Michael FrancoPresident

What was the question?

Steven RothChairman and Chief Executive Officer

Pre-COVID.

Michael FrancoPresident

Yes. The question was you were having a little to hear you as signage business, a small business, but some guidance on recovery pre-COVID levels. I mean, again, it’s a it’s a business. Certainly, in Times Square.

Obviously, we own less we did before the retail JV but it’s business driven in that area where you need high walls, right? And so with tourism down, the advertisers have pulled back. But as soon as they come back, it’s a variable business. I expect that to turn rate back on. The signage we have in the Penn District, we’ve got — and by UNN and in Times Square, we’ve got a number of long-term leases with that.

I’m referring more to the — we call the slice and dice for selling incremental signage. I think as soon as — like everything else, as soon as the tourisms back, workers are back, I think you’re going to see that return to pre-crisis lows.

Steven RothChairman and Chief Executive Officer

Daniel, we don’t look at the signage business as a dabble or an unimportant business, OK? It’s an important business. We have a — we believe we have the largest position of signs in town. We have a very, very, very competent organization to handle that business, which is namely the interaction between us and the any advertisers. We also think that our scale in the business is a very large advantage, and we think that our scale in the — in Times Square and the Penn District, is also a very large advantage.

So we’re enthusiastic about the business. It’s important to us. It’s up in mind and we have the best business in town and we are certain that it will rebound when things get back to normal.

Daniel IsmailGreen Street Advisors — Analyst

Great. Thanks, everyone.

Operator

Our next question on line comes from Vikram Malhotra from Morgan Stanley. Please go ahead.

Vikram MalhotraMorgan Stanley — Analyst

Thanks for taking the question. Just maybe first on Street retail, can you specifically talk about the prospects and potential for kind of your vacancies on Fifth Avenue, the Masimo space, specifically in light of one of your peers recently signing a deal there for, what I understand, it’s probably in the low 2,000s at grade in terms of rents. Maybe just give us the sense of the potential prospects, and where do you see rents shaking out at grade on Fifth Avenue?

Michael FrancoPresident

Retail rents on Fifth Avenue will certainly be in correction territory from top peak rents that we saw a few years ago. The Harry Winston comps in the Paramount space, we view as a positive. We currently have Harry Winston in our St. Regis asset.

They had a 15-year term with us. That was always intended to house one of their other brands and temporarily hold Harry Winston. So we see them moving across street to their original home as a positive for Fifth Avenue. I’m not sure of the comp that you’re quoting because I don’t think it was published, but that might indicate somewhere in the neighborhood of where the correction could be today.

Vikram MalhotraMorgan Stanley — Analyst

OK. Great. And then just — I apologize if you covered this, but any update on the ground lease at Penn, specifically? And can you talk about just prospects at PENN2 specifically for sort of large anchor tenants?

Steven RothChairman and Chief Executive Officer

The ground lease reappraisal at 1 Penn we’ve announced is in 2023. I think, obviously — well, I don’t want to comment on this and what it might be, although, I will say that, clearly, it’s going in a constructive direction for us. The prospects for 2 Penn, we’ve had said before. And in fact, I think the question came up earlier, there is a large lease that we have pending, that actually happens to be with Madison Square Garden for their headquarters space.

They have been tenants in that building forever. The building, obviously, is on top of Madison Square Garden. So that lease is appropriately at pause because Madison Square Garden is basically — the business is shutdown until this is over. So we are very constructive and very enthusiastic about the prospects of PENN2 and PENN1 for multiple reasons.

Number one, we think the location is absolutely bull’s eye. We think that the amenity packages and the — what we’re doing with our buildings and the transformation of the buildings will be unique, best-in-class by far, unbelievably eye opening. Glen and his team have exposed our plans for 1 Penn and the 2 Penn for the marketplace to unbelievably enthusiastic acceptance.

Vikram MalhotraMorgan Stanley — Analyst

OK. Great. And then just last one, if I may. Steve, you’ve obviously talked a lot about how New York has changed over the years.

And I’m just wondering, given co-working and WeWork, it was hot, and it wasn’t — and then you’ve had potential for more work from home on the margin, I’m just wondering, do you foresee any changes in office lease structures, whether it’s term or TIs or pumps or anything in the office lease structure as a result of some of these, call it, cyclical and potentially secular changes?

Steven RothChairman and Chief Executive Officer

In my — I’d tell you one thing that we’ve learned from this pandemic, leases are a wonderful thing. Long-term contracts between well-capitalized parties are a wonderful thing. They’re very protective. So right now, we have, I don’t know, better part of 1,000 tenants with a very significant $1 billion-plus cash flow.

And so that’s very predictive and very secure, and we’re very happy about it. If the business goes to month-to-month leases, that’s impossible. And so for WeWork, when you’re renting out a space by the desk as opposed to buying a floor or by the building or by the square foot. That’s OK.

But when you deal with a tenant, as Glen does every day of the week, who’s 200,000 feet or 500,000 feet or even more. Those tenants need stability. They need to be able to have space that they can occupy on a long-term basis where they can invest capital in and they can have stability. We need the same thing.

So in the large tenant business, I think the long-term lease commitment will be the rule of the day. Now in smaller tenants, and that whether they be 3,000 or 5,000 or 2,000 or whatever it might be. First of all, that’s not the segment of the market that we trade in, although we do have some of that, obviously. And those leases can go into anything that the tenant wants.

So there, when we do those leases, we have prebuilds, we build the space out and the tenant to take this space, move out whatever. So a competitive advantage to that is a landlord who has the capital strength to be able to be able to do a short-term lease, to be able to fit-out space for a tenant to invested capital. So that would be — but that would be the small insignificant segment of our office population. That’s not our business.

Operator

Thank you. Our next question on the line comes from Manny Kortman. Please go ahead.

Michael BilermanCiti — Analyst

Hey, it’s Michael Billerman here with Manny. I was wondering if you can just come back to — yes?

Steven RothChairman and Chief Executive Officer

Yes, just good morning, Michael.

Michael BilermanCiti — Analyst

Just good morning. OK. I wanted to come back to sort of the office discussion and frame it the following way and I agree with your sentiments on office or returning to the office. I myself have been back in the office and feel a lot better than living at work. But I want you to compare it to the mall business, which you accurately got out before things got really, really bad and save shareholders from a lot of losses.

Why wouldn’t the office space market go like what’s happened to the malls, right? And you go back and everyone said, oh, people want to experience the malls. They really want to feel the close before they buy them, but then there was an alternative driven by technology that allowed us not to do that anymore. And then so I guess, why are you in the belief that what happened to malls will happen to office?

Steven RothChairman and Chief Executive Officer

That’s a nasty question. There is a school of thought that says that work from home is to office values as Amazon is to retail values. Do you understand what I’m saying?

Michael BilermanCiti — Analyst

Yes — no, and that’s why I’m asking. The market is — I don’t — I agree with you on the future of office but the market is telling us a different thing.

Steven RothChairman and Chief Executive Officer

The answer is that that’s something that we talk about every day. It’s obviously — it was obviously unthinkable that hundreds of billions of dollars of mall values could be destroyed, but look — but low and behold, it has happened. It’s obviously unthinkable that all the automobile companies could go broke, but along comes Tesla. So we are very respectful of the question that you ask, and we think about it daily.

Michael BilermanCiti — Analyst

And the succinct answer as to why you believe that office won’t follow the trend of malls is?

Steven RothChairman and Chief Executive Officer

The answer is that I believe that if you work from your kitchen table, and your kids are crawling at your feet and you are not with your colleagues, that’s not a great outcome. If you are ambitious and want to get ahead, you can’t get ahead from your kitchen table. You have to be in the office with your colleagues. If you are a manager and you have 20 people in your department that work for you, I think if they’re each at their kitchen table, I mean I don’t know how you manage that.

I think if you’re a manager, you want your team in the office where you can interact with them, etc. So I think the human condition is different. The human condition speaks to collegial work in groups in — they would basically in offices. Now obviously, that’s going to get nipped around the edges that I can’t tell how much.

None of this would have happened, whether or not the technology like Zoom. OK? So technology enabled our business, your business, to be able to react to this shutdown by working from home and keeping the railroads running on time. So that’s an amazing thing, but there’s the human condition. So it’s not impossible that there will be a day here and day there in working from home.

It’s not impossible that certain groups will work from home. It’s not impossible that things will change. But the core, I still believe the core will be of value. Now let’s get back to what that means.

I think that means the better assets and the better locations will thrive. I think that it means that the commodity lower quality assets in off-locations will struggle, so that’s what I think. On the other hand, there is uncertainty in this situation that a management team has to have — has to be aware of and has to be — has to focus on daily.

Michael BilermanCiti — Analyst

Right. I appreciate those comments. And then my second question, Steve, just to come back to 555 and 1290. In one of the responses, you said that it’s very important or it’s important to liquefy those assets to your future plans.

And I was wondering if you can just sort of unpack that a little bit about why liquefying it either in the refi, joint venture or an outright sale is important to your plans? Is it a portfolio repositioning exercise? Is it to get the mark at sort of good pricing on those assets? Is it the cash that you want to take out? And so just — I just want to better understand why those two assets are so important to your future plans in terms of the liquefaction of them.

Steven RothChairman and Chief Executive Officer

I think the word important is yours. I don’t think I said important. Look, we have identified those assets as assets that we would like to swap for cash. OK? It’s as simple as that.

A lot of it depends upon the structure, a lot of it depends upon the details of — sell them all, sell a part. We continue to manage them. We do a joint venture or we just refinance. OK? But we have an enormous amount of equity in those assets, and we want to reclaim those assets.

We want to reclaim that equity. Now when we have the cash, it’s a different decision as to what we do with them. Our world view is that there will be better places to put that cash for growth and shareholder value creation than those assets over a five or a 10-year hold, OK? That’s all. By the way, I would remind you that my analysts over the last 10 years have been pounding me to sell 555 because it’s the only — to dump it.

While we resisted that dump, it went up in value by $1 billion. So maybe its time has come.

Michael BilermanCiti — Analyst

Perfect. All right. Thanks, guys.

Steven RothChairman and Chief Executive Officer

Yes, sir.

Operator

And our last question comes from Steve Sakwa from Evercore ISI. Please go ahead.

Steve SakwaEvercore ISI — Analyst

Just two quick follow-ups. I noticed that operating expenses, I kind of noticeably between Q2 and Q3, I assume that that’s part of the building is reopening. Would you say, Q3 is a reasonable run rate kind of looking forward until utilization rates go up materially?

Michael FrancoPresident

Yes.

Steven RothChairman and Chief Executive Officer

Wait, wait. [Inaudible]

Michael FrancoPresident

Operating expenses.

Steven RothChairman and Chief Executive Officer

Operating expense. Yes. OK. Good.

Michael FrancoPresident

Yes. Yes, I think that’s fair, Steve.

Steve SakwaEvercore ISI — Analyst

OK. And then I did notice a large kind of onetime gain. I think it was in management and leasing fees. It was something like $11 million.

I assume that’s a onetime gain on some leasing activity, but any thoughts around that would be great. Thank you.

Michael FrancoPresident

Sorry, Steve. Say it again, the end. I couldn’t hear you.

Joe MacnowExecutive Vice President, Chief Financial Officer, Chief Administrative Officer

Michael, it’s Joe. Let me handle that one. Yes, you started in the fee income section, Steve, but it gets eliminated in the minority interest section. So really, it didn’t benefit bottom line $0.01.

Steve SakwaEvercore ISI — Analyst

OK. All right. Thanks, Joe.

Operator

We have no further questions at this time.

Steven RothChairman and Chief Executive Officer

Well, thank you, everybody, for joining. This is a very, very interesting time. I’m going to go back and watch the television and see what’s going on in the election. We wish you all well, stay healthy.

And please get back to the office, get back to work. We really need everybody in the office. Thanks so much. Have a great day.

Operator

[Operator signoff]

Duration: 79 minutes

Call participants:

Cathy CreswellDirector of Investor Relations

Steven RothChairman and Chief Executive Officer

Michael FrancoPresident

Manny KorchmanCiti — Analyst

Glen WeissExecutive Vice President, Office Leasing-Co-Head of Real Estate

Jamie FeldmanBank of America Merrill Lynch — Analyst

Steve SakwaEvercore ISI — Analyst

Alexander GoldfarbPiper Sandler — Analyst

John KimBMO Capital Markets — Analyst

Josh BrownScotiabank — Analyst

Nick YulicoScotiabank — Analyst

Joe MacnowExecutive Vice President, Chief Financial Officer, Chief Administrative Officer

Rick SkidmoreGoldman Sachs — Analyst

Daniel IsmailGreen Street Advisors — Analyst

Vikram MalhotraMorgan Stanley — Analyst

Michael BilermanCiti — Analyst

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