Vornado Realty Trust

Good morning, and welcome to the Vornado Realty Trust first quarter 2025 earnings call. My name is Nick, 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. At that time, please press star, then one on your touch-tone phone. I will now turn the call over to Mr. Steve Borenstein, Executive Vice President and Corporation Counsel. Please go ahead.

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 packages, are available on our website, www.bno.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, firm thank you, 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, 2024, 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 Stephen 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.

Thank you, Steve, and good morning, everyone. Well, the macro environment in which we operate is certainly different today than when we last spoke three months ago. On their calls, a couple of office CEOs didn't think all this would affect their businesses too much, but it will affect our customers, clients, and tenants. So, of course, this will affect all of us somewhat. I know nothing more than you all do, but the way I see it, the objectives of the tariffs are to introduce symmetry and fairness, but even more so to generate a new revenue stream for the federal government. which at, say, a 10% tariff is large enough to make a big dent in getting our federal budget deficit under control. And notwithstanding the tactics, reducing government bloat has to be a good thing and will also reduce the deficit. I am agnostic. Whatever the outcome, I believe the best bet is that this global kerfuffle will be resolved, settled, and over much more quickly than you think. The basic dynamics that I outlined in my recent annual shareholders letter that make us so enthusiastic about the future of our business still hold. Our stock performance is at the head of the office class, having increased 49% in 2024, after having increased 36% in 2023. And while year-end is down 12%, we are down less than the other CBD office companies. Manhattan continues to be the best real estate market in the country, especially so for office, but also for apartments and retail. In the 180 million square foot Class A better building market in which we compete, demand continues to be robust. Available space is evaporating quickly, and with the cost of a new build, i.e. replacement cost at, say, $2,500 per square foot, and interest rates at 6% to 7%, no new supply is on the horizon. All this is the very definition of a landlord's market. We've seen this all play out in past cycles and the story has always been the same. The supply and demand dynamics will push rents higher and existing better buildings will increase in value quite substantially. All good, very good. Here at Renato, our teams have been very busy building liquidity and doing leases and deals. In January, we completed the Uniqlo sale at 666 Fifth Avenue, at a record-breaking $20,000 per square foot. We used the $342 million in net proceeds from the sale to partially redeem our retail JV preferred equity on the asset. So $342 million cash to Renato. We used this cash to pay at maturity our 3.5% $450 million unsecured bonds. Next, last month we completed a $450 million financing of 1535 Broadway. and used the $407 million of net proceeds to partially redeem our retail JV equity on the asset. So, $407 million cashed to Renato, which increased our cash balances. This financing was done at a very choppy market with skill and relationships by our capital markets team, so all thanks to them. Next, on April 22, we received a favorable ruling on the PEN1 ground lease rent reset arbitration. The panel determined that the annual ground rent payables for the 25-year period beginning June 17, 2023 will be $15 million. There is pending litigation and the panel's decision provides that if the fee owner prevails in a final judgment, the annual rent for the 25-year term will be $20.2 million, retroactive to June 17, 2023. For GAAP, we have been accruing $26.2 million per annum of ground rent And therefore, as a result of the panel's determination, we reversed $17.2 million of previously over-accrued rent expense in the first quarter. Of note, commencing in the first quarter of 2025, we are now paying $15 million annual rent, and so our gap earnings will increase by $11 million annually. By the way, this PEN1 ground lease, as fully extended, goes to 2098. Next. In March, we finalized a major 337,000 square foot lease in Penn II with Universal Music Group, the world's leading music company, think Taylor Swift and her friends. This important deal brings an exciting tenant to the Penn District and takes the building to approximately 50% lease. More leasing at Penn II will follow. Next, yesterday we finally announced the completion of an important deal with NYU at 770 Broadway. completing a master lease for 1.1 million square feet on an as-is triple net basis for a 70-year lease term. Under the terms of the lease, a rental agreement under Section 467 of the Internal Revenue Code. NYU made a prepaid rent payment of $935 million and will also make annual lease payments of 1.3 million during the lease term. NYU has an option to purchase the lease premises in 2055 and at the end of the lease term in 2095. NYU will assume the existing office leases and related tenant income at the property. We use the portion of the prepaid rent to prepay rent payment to repay the $700 million mortgage loan which previously encumbered the property, and $200 million to increase our cash balances. Though this transaction is a lease, the gap, which can be a little wacky, it is treated as a sale. As such, we will recognize the GAAP financial statement gain of approximately 800 million in the second quarter. We will retain the Wegmans retail condo, which will produce 4.7 million in income this year. The NYU lease absorbs 500,000 square feet currently vacated at the asset. Overall, the transaction is accreted by $25 million annually. If we pro forma leasing the vacancy at market rents with related capital spends, downtime, and free rent, it would have been a pro forma push, as you might expect. We are delighted to expand our relationship with NYU and congratulate NYU Board Chair Evan Chesler and President Linda Mills and their team. We are excited about their ambitions for this project. As I have said before, this is all very good for NYU and is very good for New York. NYU's press release issued yesterday is available at www.nyu.edu. All told so far this year, as a result of the above activity, we reduced our debt by $915 million, increased our cash by $500 million, and our retail JV preferred equity, which is an asset on our balance sheet. began the year at $1,828,000,000, is now down to $1,079,000,000. Our cash balances are now $1.4 billion, and together with our undrawn credit lines of $1.6 billion, we have immediate liquidity of $3 billion. The above transactions will increase GAAP earnings by approximately $36 million, $25 million from the NYU transaction, and $11 million from the PEN1 ground rent reset results. Tom, that would be Tom Cinelli, who all of you know. In a more complete analysis, including debt repayments and the loss of preferred income, calculates 30 million of accretion. I'm happy to defer to Tom. In a moment, Michael will review the quarter and the financials, but here are a few headlines of a very good first quarter. Comparable FFO is 63 cents increased by eight cents versus last year's first quarter. and is 9 cents higher than analyst consensus. Our overall GAAP same-store NOI is up 3.5%. We leased 1,039,000 square feet overall, of which 709,000 square feet was New York office. At $95 starting rents, we've marked the markets of 6.5% cash and 9.5% GAAP, and an average lease term of 14.7 years. In addition to the 337,000 square foot lease with Universal Music at Pen 2, we leased 163,000 square feet at Pen 1. We completed leases totaling 222,000 square feet at our 555 California Trove office tower in San Francisco at $120 starting rent. 555 continues to be the preferred financial services headquarters in San Francisco. And even in this historically soft market, 555 continues to outperform. It is proving that it is the best building in San Francisco. We are big fans of the new San Francisco mayor, Mayor Dan Lurie. Our New York leasing pipeline is a robust 2 million square feet. As I said in my annual shareholders letter released on April 8th, The lease-up of Penn II and the lease-up of our retail vacancies alone will generate incremental NOI of $125 million and $50 million respectively over the next several years. Tom, here is Tom again, specifies that while NOI for Penn II is budgeted to increase by $125 million, FFO is budgeted to increase by $95 million, the difference being capitalized interest. Either way, These are big numbers, and with Penn II built and ready, this $125 million a year is as close to a sure thing as there is. The Penn District, a three-block long city within a city, continues to amaze and receive outstanding reviews. We sit on top of Penn Station adjacent to our good neighbors to the west, Manhattan, and Hudson Yards. The three of us combined are what I call the new, booming west side of Manhattan. One of our analysts calls the Penn District one of the largest mixed-use projects in the country. Be that as it may, the Penn District will be a growth engine for our company for years to come. As I said in my annual letter, we raise market rents in the Penn District from $50 to $100. Our neighbors to the west are achieving rents of over $150, and I predict that we will do the same in the Penn District in due time. You can all do the math as to what an incremental $50 on 4.3 million square feet will do to our earnings and values. 350 Park Avenue, with Citadel as our anchor tenant and Ken Griffin as our 60% partner, has begun the development process to create a grand 1.8 million square foot headquarters tower on the best site on Park Avenue. The new building will stand out as being truly the best in class. and we have several other assets for sale in the market. We recently filed our very comprehensive sustainability report, which can be found in the sustainability page of our website. Grenada was the first in the nation to achieve 100% LEED certification across our entire portfolio of in-service buildings. The many awards we have achieved can also be found on the sustainability page of our website. Kudos to Lauren Moss and her team. Finally, one other observation I would make is that the majority of our secured loans reflect current market rates, while others are still living off their low rate loans. As I have said before, there is really no protection against loans that mature into a rising rate market. Now to Michael.

Thank you, Steve, and good morning, everyone. First quarter comparable FFO was 63 cents per share. compared to $0.55 per share for last year's first quarter, an increase of $0.08. The increase was primarily due to the impact of the positive ground rent reset determination at PEN1, higher signage NOI, and higher NOI from rent commencements, partially offset by the impact from known move-outs and lower interest and investment income. We have provided a quarter-over-quarter bridge on page two of our earnings release and on page five of our financial supplement. On our last earnings call, we said that we expected 2025 comparable FFO to be slightly lower than 2024 comparable FFO of 226 per share. As a result of the lower than originally estimated PEN1 ground rent, we now expect 2025 comparable to FFO to be essentially flat compared to last year. Looking beyond that, we expect the lease up of PEN1 and PEN2 to occur with full positive impact in 2027, resulting in significant earnings growth by 2027. Turning to occupancy, as expected, our New York office occupancy decreased this quarter to 84.4% from 88.8% last quarter, which, as previously mentioned, is primarily the result of PenTube being placed fully in the service. However, with the full building master lease at 770 Broadway now completed, our current office occupancy has increased to 87.4%, and we anticipate it will tick up over the next year or so into the low 90. The New York office leasing market maintained strong momentum during the first quarter, with the strongest quarterly volume since fourth quarter 2019. Availability in the best of the Class A market continues to shrink, and with only 500,000 square feet of new construction set to deliver during the next several years, and 13 million square feet of office to residential conversions in process or announced, we expect the market to continue to tighten, which sets the table for strong rental growth. While we are, of course, mindful of companies potentially becoming more cautious in their decision-making, given the current market volatility, we do not believe it will impact most tenants' ultimate decisions to lease space. And we remain very constructive on the market and the deal pipeline across our portfolio. The recent major commitments by NYU at 770 Broadway, Deloitte at Hudson Yards, and Amazon at 522 Fifth Avenue are perfect examples. During the first quarter, our leasing activity once again led the marketplace. We completed 31 transactions, totaling 709,000 square feet, an average starting rent of $95 per square foot, and 6.5% positive mark to market. Our activity was highlighted by the largest new lease done in the market in the quarter. Universal Music Group's 337,000 square foot lease at our new PIN 2, anchoring the base of the building on floors four through seven. We are delighted with this transaction and look forward to Universal creating a world-class office and studio production headquarters at Penn II. The transaction strongly reflects the overall quality of the project's new, modern, high-quality workspace, and the market's continued attraction to our robust work-life amenity program across the Penn District campus. Leasing at Penn I continues at a healthy pace, as we leased 163,000 square feet here during the quarter, including a 61,000 square foot lease renewal with Cisco, along with a 36,000 square foot relocation with United Healthcare and a new lease with Dish Networks for 27,000 square feet. Our deal pipeline at PEN1 and PEN2 is very strong with a variety of new transactions already in lease documentation or deep in letter of intent stages. Excluding the just completed master lease with NYU at 770 Broadway, A New York pipeline consists of 2 million square feet of leases in negotiation at various stages of proposal. In San Francisco at 555 California Street, we completed two large headquarter renewal and expansion deals with Dodge & Cox and Goldman Sachs, both at positive cash mark to markets. 555 continues to strongly outperform the market, as we have leased 657,000 square feet since 2022. 555 is the city's flagship office tower with world-class tenants and is brilliantly leased in a market which has been one of the more challenging in the country coming out of the pandemic. The market, though, is finally showing signs of improvement. The new mayor is off to a great start. We are confident that he will help restore the city's health and vibrancy. Lastly, turning to the capital markets. During the first quarter, the CMBS market was wide open for large, high-quality assets such as ours, with spreads continuing to tighten. As the President announced his new terrorist policy on April 2nd, there's been significant volatility in the financing markets with spreads widening out and new issuances being delayed. Despite this volatility, we're able to complete our 1535 Broadway financing. We expect the market to settle near term with high quality issuers and assets continuing to have access to it. We are hard at work on refinancing or extending our upcoming maturities with many in process. With that, I'll turn it over to the operator for Q&A.

Thank you. We will now begin the question and answer session. If you have a question, please press star, then 1 on your touchtone phone. If you wish to be removed from the queue, please press star, then 2. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star, then 1 on your touchtone phone. Each caller will be asked We'll be allowed to ask a question and a follow-up question before we move on to the next caller. Please hold as we pull for questions. And your first question today will come from Steve Sacqua with Evercore ISI. Please go ahead. Thanks. Good morning.

Michael, I was wondering if you could just maybe break down that 2 million square foot, I guess, lease negotiation between PEN1, PEN2... and then the balance of the portfolio. I guess I wanted to just maybe circle back to Steve's comment last quarter about PEN2 being 80% least, and just trying to understand the volume of activity that you've got, particularly at PEN2.

Good morning, Steve. Why don't you start off, and then I'll shift in.

Hi, Steve. It's Glenn Weiss. So the 2 million pipeline, about 50% is PEN1, PEN2 to start off. There's a lot of great activity at PEN2, We finished, obviously, Universal. We've got more to come. And PennOne continues to flood with new tenants. And at the same time as all this is going on, we continue to press rent upwards by the week. So Penn is really in fifth year. It's a big part of the pipeline, not all the pipeline. The portfolio overall is performing very well right now. So we're feeling very, very good about where we are along all of our portfolio.

And just, I guess, confidence level around kind of getting to that 80% mark by the end of the year at Penn too?

I mean, Steve, look, what I would say is as we sit here today, we still feel good about it, right? Whether it happens by the end of the year, first quarter or whatnot, I think as Steve said in his opening remark, we're going to lease the building, right? We're generally going to hit the numbers that we laid out. There's a significant uptick, and whether it happens a quarter earlier, a quarter later, From our perspective, you know, it's not going to have a meaningful impact. So we're going to get there. You know, the rents that we're going to achieve as we publish last quarter are higher. You know, Glenn started a pre-built program at Penn II. The rents we're achieving there are spectacular. We may do a little bit more of it. And so I wouldn't get focused on whether it happens exactly by year. But, yeah, as we sit here today, you know, our confidence level is the same as it was last quarter. We love our spot here.

If you think about it, Steve, there's a dwindling supply of quality blocks in the market, and certainly nothing like what we did at Penn, too. So we think even with more patience, the rents will keep rising, the quality of tenants will keep getting better, so we're feeling better and better as we go here overall.

Okay. And maybe just to follow up, uh, to, I think, uh, Steve made a comment. I don't know if I caught all of it about three 50 park. Um, I just can't remember what your decision to fully go or no go on that project is. And just, can you remind us kind of of the milestones and maybe achievements that you need to see or want to see in the market to, to ultimately make that decision?

You know, uh, Steve, good morning. Um, Our disclosure on the details that you just asked about is very robust. Go back and read the 10-K and the press releases. I think that will be the best way to do it.

And your next question today will come from Dylan Brzezinski with Green Street.

Please go ahead.

Hi, guys. Thanks for taking the question and congrats on closing the NYU transaction. I guess, Steve, I think you mentioned now, after all the transactions closed subsequent to quarter end, that you have about $1.4 billion of cash on the balance sheet. I guess, can you just talk about what some of those proceeds might be earmarked for?

Good morning, Sher. Good morning, Dylan. First of all, I want to commend you on your report you published. I think you nailed 770 better than anybody, so kudos to you and the team. In turn, and overall, quite thoughtful.

In terms of the cash, look, we're... Dylan, what that means is that he liked your report.

Go ahead. So in terms of the cash, look, we're obviously pleased with what we've done. I think we've done quite a bit. These are large, substantial transactions. And if you think about it, we've been able to de-lever the balance sheet meaningfully and yet still have that significant cash balance, right? So we're in a very good spot. What are our plans, right? In an environment like this where there's clearly a little bit more volatility, having more cash is a good thing. We hope and expect that's going to lead to some opportunity to deploy some of that cash and new investments. We're looking. At the same time, you know, we have some higher cost debt that we might either pay down or pay off. So I think you'll see a combination of, A, leaving in cash, as is our history, to make sure we have an appropriate buffer for anything. Two, you know, tackle some of the debt. And then three is hopefully deploy that into new opportunities we see.

Taking it a little bit further, we are loading in cash to pay off an unsecured bond that comes due in a year and a fraction. We are loading in cash because we are going to have a robust development program both at 350 Park and at the Penn District and perhaps one other site that we control. And so the cash is a good thing, and we're going to be using it to grow the company.

That's helpful, and I appreciate the comments on our report from last night. I guess just maybe one other follow-up. Obviously, you guys have done a successful job monetizing some of the press and selling some of the assets within the street retail joint venture. I guess I think last quarter you guys alluded to having additional dispositions or looking to go out and execute additional dispositions. I guess can you kind of talk about just the appetite of some of these luxury retailers and the desire to wanting to continue to own the real estate versus lease the real estate?

So I think I said this in my letter. I advertised in a very subtle way that some of the buildings that are outside of New York might be for sale at the right price. That continues to be true. And these are a couple of very large assets, so we'll see how that works. In Manhattan, we have a couple of non... non-core buildings that are in the for sale market now. And I think as I said in my letter, there are no sacred cows. So the other thing is we have shown a willingness to sell some of these important retail assets when we get a buyer that is willing to pay an appropriate price. That continues to be the case. The interesting thing is it's not just the retailers that are buying these assets. Like, for example, Amazon is coming in and buying significant assets in Midtown Manhattan for, I guess, their HQ3 or whatever it might be. So there's lots of examples of some of these larger companies which are... switching their strategy from leasing to buying. And that's a good thing. We know that that's aggressively happening in New York. I'm not aware of whether that's true in the rest of the country. But for New York and for the New York real estate market, that's a very good thing.

Great. Appreciate the color and congrats. Thanks.

And your next question today will come from John Kim with BMO Capital Markets. Please go ahead.

Can I just follow up on real estate valuations? We've seen high street retail kind of go back to 2019 levels. On the assets that you're looking to potentially sell, whether in New York or outside, and including 555 Cal, are we going to go back to 2019 valuations or exceed them?

Sure.

I think, John, I would just add on to what Steve said.

I think if you look at what we've done to date, I don't know that any of these assets were, quote, on the market. We're being targeted, opportunistic about the right counterparty. I think that continues to germinate. The capital markets continue to improve on the sales side, but you've got to figure out who the right buyer-investor is. And I think what this cycle is once again validated is that great assets command great prices, right? The best is always the best. And, you know, it may be out of favor for a little bit of time, but if you're patient, you weather the storm, then that's going to recover, right? And that clearly was the case in street retail. I think that's going to be the case, you know, if you look at some of the financing with the implied values for New York office. and certainly the trophy assets in San Francisco. So the best is generally always the best.

My succinct one-word answer, sure, really to interpret that was that we are not going to sell great assets at distressed prices that came from COVID or whatever. So the benchmark is pre-COVID, which is 2019. And these assets have recovered, they are recovering, and they will command increasing prices over time.

That's great, Collin. Thank you. On the leasing pipeline, which increased pretty significantly from last quarter, can you describe how much of that is on your in-service portfolio or leases that could drive occupancy within the next couple years versus... you know, maybe 350 Park or an early renewal that won't drive SSO.

A very significant portion of the pipeline will increase occupancy, without a doubt. So a lot of it's absorption, a lot of new deals, a lot of expansion. There's a lot of expansion in New York and our properties right now. So a lot of our significant activity will absorb vacant space over the next nine, 12 months, without a doubt.

This is the first time on this call that the word occupancy came up, so will somebody cover occupancy, because the occupancy number that we reported is aberrantly low, and let's see if we can get an accurate portrayal of what our expected occupancy is into this call.

So John, to follow Steve's comment, I think we had telegraphed this the last couple quarters that our occupancy was going to go down and we brought PEN2 in service, which we did fully this quarter, right? So we published 84.4. We talked about pro forma what it is when you add in 770, which goes to 87.4. And then I said in my prepared remarks that We expect it to be 90% plus in the next 12 months or so. And obviously a lot of that's driven by PEN2. I think as we look more broadly in New York, you know, if we lease up PEN1 and PEN2 or when we lease up PEN1 and PEN2 fully, and let's say that happens in the next 24 months and a couple of things here and there, you know, we're going to be at about 94% occupancy. So I can't tell you exactly when that's going to happen, but if you just think about, you know, if we execute on PIN 1, PIN 2, a little bit of space, 1290, 280, you know, we're going to be at that 94% level, and we love that position, right? So from our standpoint in terms of driving growth, we have our best assets that have some holes in them today. There's fewer options in the market. We've just deployed a significant amount of capital in these assets. Glenn talked about how the rents are rising, not just in the market, but specifically at these assets. And so that's all going to translate to growth. And I think as we've said in the last couple of calls, that really kicks in in 2027. So we feel good about the position. And that, I think, from an occupancy standpoint, we always ran the business at around 95%, 96%. And I think when we get a couple of years out, our expectation is we're going to get back there.

The most significant thing to keep in your mind is that as occupancy rises, earnings rise. And they rise significantly, and so that's a very interesting factor.

Yep, good stuff.

Thank you. Yep. And your next question today will come from Floris Van Dekem with Compass Point. Please go ahead.

Hey, good morning, guys. Thanks for taking my question. Getting back to your comment on one of the most valuable mixed use projects in the country, which the Penn District is.

Who said that?

I don't know. Somebody mentioned that. Hopefully that caught your attention. One of the – obviously, you know, 300 million of NOI once PEN1, PEN2 are stabilized is pretty impressive. But can you talk about – one of the things we noticed this quarter, and I suspect it's going to be the case for the next couple quarters, is the gap – there's roughly a 20 million gap between gapped NOI and cash NOI, presumably as free rents in PEN2. as that comes online before you actually get the actual cash? How long is that going to last? And at some point, are you going to see, when do you think you're going to inflect and see cash NOI actually be stronger than your gap NOI going forward?

Yeah, I think, Floris, that's a great question. I think we should probably take it offline. Most of that is going to happen in the later years. As Michael indicated, we start seeing 2027 earnings really pop. So that's probably the years you're going to see, but that's something that we probably should take offline in more detail.

Great. And then the other thing, and again, I think you guys sometimes do yourself a disservice by being as transparent as, well, transparent in some ways as you are with the occupancy in particular. Have you ever thought about showing what your core occupancy is or in-line or in-service properties, because obviously you've got a couple of assets that you're keeping vacant right now, particularly in your retail portfolio, which impacts your stated occupancy levels significantly.

We have thought about that, Flores, but your comment now will make us think a little bit harder about whether we should do that because we have kept certain assets offline and continue to do that pending either redevelopment or maybe in a case or two a workout. So that's a fair comment.

Thanks, Chris. That's it for me.

Thank you. And your next question today will come from Alexander Goldfarb with Piper Sandler.

Please go ahead. Hey, morning. Morning down there. Steve, question for you. Looking at the Deloitte deal, pretty impressive, 800,000 square feet to anchor a new development. How does the math behind that project compare to what you guys would need for PEN15? And just trying to understand if we're getting closer to where, you know, a $2 million-plus project can pencil, or if the market is still limited, you know, to call it million-two type developments.

Good morning, Alex. Before we get into that, you wrote a piece on Alexander's that came out, I think, yesterday.

Yes, yesterday.

And so I think you're the only person that I know covers it, but in any event, Let me help you by saying, correcting you on two things. Number one, we will not, let me emphasize the word not, use our cash to pay down the 731 retail loan. We're not doing that. Okay.

We'll note that. We will note that.

And the second thing is we are not merging Alexanders into Renato. Okay. So once we get beyond that, look, We were shown the Des Moines deal as was all of the developers in town. We think we have the best vacant piece of land on the west side of Manhattan. I've said frequently that I think it's the second best piece of land in town, the first best being our Park Avenue site. And so the deal that was made was a very aggressive deal for the tenant. The pricing was very tight. We're not bashful to say no to a deal that doesn't give us the financial results that we think our shareholders are entitled to. So we're getting there, and I think we're on the foothills of a landlord's bull market, and we think that the values, prices, and transactions are going to go up. We think that the number of new bills will be very scarce, and so we think we're in a pretty good spot. We are patient. If you just look at what happened with the Alexander's deal, which was a long time ago, but nonetheless, we let deal after deal pass by until we did the deal with Bloomberg, which turned out to be extraordinary. So we're getting there and we're very happy with our position. By the way, the interesting thing is that a lot of this comes from our financial strength. So we can be relatively patient because of our financial strength. So the PEN15 lot has no debt on it. The The Pen 1 building has no debt on it. The Pen 2 building has no debt on it. The Farley Meta building has no debt on it. So that's a pretty good spot to be in. And it's not, you know, we're basically a secured lender is the way we structure our business. Those assets have no debt, and that's a great place to be.

Okay, so let me ask you. You wrote a chairman's letter, as you always do, you talked about the attractiveness of apartment developments in part because of the smaller size. However, you know, if you look at some of the legislation that Albany has passed, it makes the math tougher. You know, if you do tax incentive deals, the bigger the project. So as you think about your apartment potential, are you thinking about it on as of right sites or are you thinking about smaller scale projects or how are you thinking about apartments fitting in as you expand your thoughts on development and harvesting your different sites. Are these existing sites, new sites? Your thoughts.

Oh, Lord. You know, when you have the kind of city down at Penn that we have, you have to consider both office... We're principally an office company. We like the dynamics of the office business. We like them as they are improving today. But you cannot disregard the fact that if you look back over the past decades, apartments have created more value than office has. The office market is volatile over long periods of time. The apartment markets are less volatile. Nonetheless, the political overtone of the apartment business is much more complicated than the office business. So there's a little bit of this, a little bit of that. We will be building some apartments in the Penn District. It will not be a total apartment development project.

Thank you, Steve.

Thank you, Alex. And remember, we're not paying off that loan with cash.

I will tell my colleague Connor that.

And your next question today will come from Yana Galen with Bank of America. Please go ahead.

Thank you. Good morning, and congrats on a strong start to the year. It seems like a recent big trend in New York City is of kind of owner-occupiers, both in office and retail, and was just curious if you could kind of comment on what you're seeing, in particular with some of the dispositions you may be looking to do.

I think we covered a lot of that. Michael, give it another shot.

Thanks, Ian. I appreciate the comment. I think you're seeing the owner-occupiers. Retail, I think we've talked about going back over the last year where you saw that activity first. You saw it with Prada. You saw it with Caring. You saw it with Uniqlo. And there continues to be interest there. And I think that's a function. And all that was on Fifth Avenue, although you saw a couple of situations down in SoHo recently. You know, if you look at what Ralph Lauren just did in SoHo, paid a significant number for that store, Dyson down in SoHo. And so what these retailers are basically saying is that in these great forever spots, Fifth Avenue, Soho, Madison Avenue, Times Square, you know, that are sort of the four key areas of Manhattan, they want to be here forever, right? These sales volumes that they do in Manhattan are multiples of what they do anywhere in the U.S. and in many cases around the world. So they want to be here forever. And rather than wrangling with the tornadoes of the world every 10 or 15 years, they just want to own it, right? And they're prepared to pay a significant number to control that So that's a good thing. You know, we have some additional income on that. And if we get the right numbers on situations, then we'll transact. But that continues to be an area where retailers are active. On the office side as well, you've seen some owner user activity. And again, you know, let's go back to what that is a function of, right? And I think Steve made the distinction that we really haven't seen that elsewhere. Maybe it's a curve. I don't think it's a curve in the volume here. And I think it's fundamentally driven by talent wants to be in New York, right? And it really is driving every asset class. And so, Alex, to your point, how can you make the math work? The math works on these bigger sites, all right? Notwithstanding your comment on the 99, the math works. Why does it work? Because rents are continuing to go up. We have a massive asset shortage in New York City that's not going to get eradicated in the next decade. So anybody that builds apartments is probably going to do fine in the city. But back to office. So talent wants to be here. Employers have no issue getting their employees in the office. This is where all the young people want to come to. And so they're basically staking out their ground. And in many of these companies' cases, they borrow cheaper than real estate companies. They borrow cheaper than any companies, for that matter. And they're using that capital. So in Amazon's case, where they have stepped up in a big way here recently. You know, they want to be here, they want to grow here, and they're going to use their balance sheet aggressively, given, again, the fact that they want to be here long-term and the amount of capital they're going to deploy in their assets above what a landlord would normally deploy as significant. So they want to own that forever. And so, you know, when you think about NYU, NYU didn't buy the building from us, but they committed to lease it for a long-term So they can amortize the capital they're going to deploy in that asset. And so they have, you know, long-term control of that asset. So, you know, is that going to be something we're going to see, you know, every week? Probably not. But I don't think this will be the last of those given, you know, companies that have significant capital and can deploy that cost effectively. You know, it's a good solution.

Thank you.

Your next question today will come from Seth Berge with Citi. Please go ahead.

Hi, thanks for taking my question. I guess, you know, it sounds like demand has improved. Your leasing pipeline has grown. What types of behavior are you seeing change from tenants? Like, are you seeing any improvement on concessions or early renewal activity in addition to the rent growth that you're seeing?

All right, go ahead. Certainly, we're seeing rent growth. That's the first, you know, discussion. Rents are going up, and tenants realize rents are going up. Number two, we are starting to see a reduction in the free rent packages. On the TI, the TIs have, you know, stubbornly stayed basically at the same levels. So I would say rents are improving and free rents are starting to come down. As part of early renewals, We're definitely seeing people come to us earlier now because they're concerned about where the market's going to go, more and more towards the landlord's market. So we have some larger deals in this pipeline as it relates to early renewals for sure. But I'll tell you one takeaway I would tell you is expansions. The expansions in New York, there's expansions going on all over the market in every sub-market and definitely in our portfolio. So a lot of growth in New York, and not just financially. You're seeing tech now grow. The law firms grow. Consulting firms grow. Media, entertainment, like the Universal deal. So, I mean, that's basic around what you're asking.

Yeah, thanks. That's helpful. And then I guess for, you know, a follow-up, you know, I just wanted to go back to your comments about – the capital intensiveness of the office buildings versus apartments. You know, I guess, does that, it sounds like there's kind of puts and takes to both asset classes, but does that change how you think about, you know, investing in the portfolio over the longer term?

Look, I think it, you know, it orients you to is, you know, you want to own high quality buildings, the highest quality buildings, right? Because those are the buildings that are experiencing the demand where you can push rents the most, where you can start to tighten some of the concessions. You know, you're seeing that play out now and we think that's going to continue to play out. So, you know, the capital is not going to be avoided, right? Even if TIs go down a little bit, every time you turn these spaces over every 10, 15 years if a tenant leaves, you know, there's going to be meaningful capital requirements there. So in order for that to be an appropriate investment, rents have to rise. And, you know, that orients you towards a higher quality building. So I think what we've tried to do, you know, in the last several years is reshape our portfolio. You know, sell assets that we viewed as not best positioned for the future and, you know, have a portfolio that we think is well positioned for that and, you know, Are we 100% there? No, but we're pretty close, and we feel good about it. I think that's where you have to be investing. We've modernized our assets. They're in the right locations. I think your portfolio has to be oriented that way to succeed, given the capital requirements.

A couple of things. We expect rents to rise. We expect free rent to start to come in as the market tightens. We don't believe that cash TIs are going to come in because the tenants really are spending a lot more than that to develop the space. So rent and free rent, face rent and free rent will go, will improve. We don't believe that cash TIs will improve. So there's that. With respect to the mix between apartment and office, we're an office company. In our major development activities, we will be developing office. In the Penn District, we will be sprinkling in, I want to say, a not insignificant amount of apartments as well. I don't believe that we will be a buyer of existing apartment buildings. We've looked at some, but basically I think we'd be a developer of apartments, but a reluctant buyer of apartments.

Great, thank you.

Thank you.

And your next question today will come from Anthony Pallone with JP Morgan. Please go ahead.

Yeah, thanks. So I guess just following up some of these questions around Penn District and apartments versus office, I mean, what do you think is the next project that Vornado pursues in the Penn District? Like, is it apartments because it's smaller versus Penn 15? Or how should we think about that? And also in the same vein, your thoughts on federal government getting involved with the planning of Penn Station and how that might impact you.

We're not going to pregame what we're doing by announcing today the mix of apartments. We'll do that when we actually start to do something that's a real project. We will notify the markets. We've already said that we are focused on doing a small apartment project on 8th Avenue and 34th Street on a piece of land, a piece of land, a smallish piece of land we own there. So that's in the works. Otherwise, we will announce development starts when they start. With respect to the question about the federal government getting involved in Penn, We think that's great. I'm going to turn that over to Barry because he likes to talk about that one. Go ahead, Barry.

Good morning. As you're aware, we've spent a lot of time over the last several years working on several public-private partnerships, making Penn Station better, whether or not that's the Moynihan Train Hall, the Long Island Railroad 33rd Street Concourse, a couple of new entrances we worked with the government building on 7th Avenue. Anyone that wants to keep investing in Penn Station and continuing the good work we've done, continue making Penn Station that we support.

So there's that. By the way, when was the last time that you walked through the Penn District?

Last weekend.

Oh, good. So I think that you'll agree that the Penn District The legacy idea that Penn is, what's a good word? That Penn is a sloppy district, that's past. So when you walk down there now, what we've done on Seventh Avenue, what we've done with the buildings, all the granite that we put in the sidewalks, the Moynihan transition is spectacular. The train haul is spectacular. The Long Island Railroad Concourse, too. So the Penn District looks a lot different today than it did five years ago, and we're pretty proud of that. Anybody that wants to come in and help us finish the job below ground, basically we own all of the above ground, but the governments and the railroads own the below ground. Anybody that wants to help us fix that, we're in favor of.

Okay. Thanks. And then just a quick follow-up. I may have missed this. It might be in the queue. But just what is the remaining par value for the preps that you have in the Fifth Avenue JV now and the yield on that?

It's about $1050 billion in round numbers. And the yield on that is, what is it, five and a half?

It probably blends to about 5%, Tony. It's... You know, it's about 5%. So, Steve's accurate on the amount.

Okay, thank you. Yep. And your next question today will come from Caitlin Burrows with Goldman Sachs. Please go ahead.

Hi, good morning. Maybe first, I feel like it's been talked about a couple different ways, but you mentioned in the prepared remarks at the very beginning how you didn't think the uncertainty in the macro would impact So I was just wondering if you could talk about that a little bit more, kind of what gives you that confidence, and any more specific detail you can give on, like, trends through 1Q and April and now into May.

We have not seen an impact on our leasing as of yet, but, of course, we're mindful of it. We're getting our deals done, and we'd be irresponsible enough to be thinking about it and paying attention to it. But thus far, we've had no impact yet on the leasing.

I mean, Kayla, what I would say is, just to add on to what Glenn said, that, you know, if you look at the Amazon announcement, the Deloitte announcement, the NYU announcement, I mean, these are all done in the last couple weeks. So, of course, companies, tenants, are fully aware of what's going on and, you know, making decisions and still proceeding. Now, that's not to say every deal is going to proceed, but, you know, I think there's a bias towards We're in some volatility, and I think as Steve said in the outset, this is going to get settled in the near term. On the retailer's side, those that source product overseas, obviously it's got a more dramatic impact on their business. They're going to certainly pause until they see what exact impact translates into. And so, you know, we've seen a little impact from some of those players. So I think Glenn characterized right. To date, not much, but you have to be mindful of it.

Got it. Okay. And then you guys did talk about how all of this kind of NOI and earnings will come on over the next couple of years and you have great visibility, but that there will also be some refi headwinds. So I was just wondering, as it relates to maybe even the remaining 2025 and early 26 maturities, if there's any um, guideposts or how do you think about the amount of refi headwinds that it could be? Like, would you assume similar spreads that are in place or those go up as well? Anything on that topic?

Yeah. I mean, look, we, we, uh, the team is hard at work on, on everything that's maturing. Um, um, you know, we're feeling, you know, great about the pricing about 45 days ago. Obviously that's, that's gapped out a little bit, but you know, the market's definitely open. and you can execute. And so we have a number of things in process that we hope to get done over the course of this quarter. So we feel pretty good about executing everything. I think in terms of just looking through the list right now in terms of pricing and amounts, I think generally, and I think reflective of the market, all these can be refinanced at par. Now, whether we choose to do that or not based on pricing, we'll make that decision as we get closer. But, you know, the market is supportive of the proceeds level because, again, it's that high leverage to start with. And I think you have to go asset by asset. In some cases, you know, we'll roll those over pretty close to where they are today. And, you know, other cases, for example, like in Independence Plaza, you know, we're coming off a four and a quarter fixed rate loan. You know, that's not going to hold given that, you know, treasuries themselves are at 4% today. So, you know, we'll have some, you know, we'll have some coupon expansion there. In other cases, I think it'll roll over pretty close to flat. So, you know, but all that sort of baked in, you know, the guidance that, you know, we sort of talked about where we thought we'd be this year and where we think we'll be the next couple of years. So, look, we'll have to see where the markets are when we actually price the assets, but, you know, the market's open. We expect to tackle these over the next couple quarters. And, you know, in total, I think there will be a little bit of increase in terms of interest, but not dramatic.

Thank you.

And our next question today will come from Ronald Camden with Morgan Stanley. Please go ahead.

Hey, just two quick ones. The first is just the occupancy trajectory was really helpful. Just wondering if we could sort of take that a step further. Should we be expecting sort of the same store, NOI, and so forth, to also be sort of accelerating, you know, through to 2027, or are there sort of other considerations? Thanks.

Yeah, I think in terms of 2027, absolutely. You know, this year, you know, we'll see. I think, again, it's flattish as we talked about, so I don't think you'll see it this year. But I think as we get, you know, as the assets get leased up, Will it follow that standard of driver?

Yes. Great. And then my second one is just on capital allocation, if you could just remind us what sort of the waterfall is now between development, redevelopment, buying back stock, and so forth, and any update on sort of the Hotel Penn site and that potential sale.

Thanks.

You know, we look at, the answer is we look at all opportunities and, you know, decide where we can best deploy that capital. And obviously we don't want to sort of spend down to our last dollar. But, you know, development's a long process, right? So, you know, some things we're talking about today, you know, you may perceive, but that capital doesn't get spent for really several years as you ramp that up. you know, I think in terms of stock buybacks, you know, not front of mind today. We still see good value there, but, you know, it was obviously when I was back in the teens when we started the program, that was more dramatic. So, you know, I'd say today the focus is on investing in our existing business, whether that's new development or, you know, paying down some debt And then, as I said, you know, we are looking at some external opportunities and, you know, just hard to, you know, put the odds on whether any of those move forward or not yet.

Great. Thanks so much.

And your next question today will come from Nick Uliko with Scotiabank. Please go ahead.

Hi, thanks. Just going back to the NYU transaction, I think you said it's accretive by $25 million annually. So paying off the mortgage, it looks like, is a $35 million benefit. So can you just walk us through what's the offset from that? And then also on the NOI side, how we should think about if there's any difference on the cash versus gap treatment going forward there?

That sounds like a talk.

Sure, so I think you're 35, you're including the swap that we have. That's at the corporate level, so we're moving that swap. So if you exclude the swap, it's the interest expense on that asset's 47. The current NOI is around 49.50, so that gets you the current NOI at about flat. When you look forward and you include the payment that we're gonna get from NYU, plus the Wegmans deal, plus the interest on the 200 plus that we're retaining, That gets you to about, quote, 29 million. That's the 25, 26 million Steve referenced in the prepared remarks.

Okay, thanks. That's very helpful. Just second question is on, I think you gave the least number for PEN2 at around 50%. Is it possible to get the least number for PEN1? I know it's 88% occupied. Is the least number higher than that?

It's the same number.

Great, thank you.

And your final question today will come from Alexander Goldfarb of Piper Sandler with a follow-up. Please go ahead.

Hey, thank you for taking the follow-up. Steve, I realize you're probably not going to give the intimate details of the ground rent litigation, but from a big picture perspective, the arbitration panel agreed to $15 million, but now there's litigation pursuing $20 million. From a big picture perspective, can you help us understand how this works? I would have thought the arbitration panel was the final determinant.

Alex, it is. The arbitration, there's litigation pending. That litigation will extend through appeals for, you know, who knows how much longer. By the way, we think we have a very good position there, but see that as it may. The arbitration panel handled the eventuality as to whether the landlord or the tenant wins that arbitration. So the $15 million is set for the base case. If we win the litigation, the $15 million continues for the 25 years. If we lose the litigation, the $15 million becomes $20 million. We're in a pretty good spot. The values have been established in whichever way the litigation goes. So it's as simple as that, Alex.

Okay. That's helpful. Thank you.

Yep.

That concludes our question and answer session. I would like to turn the conference back over to Stephen Roth for any closing remarks.

Thank you, everyone. We've had a very robust conversation this morning. The first quarter was very active, very constructive, with lots of good stuff. And we look forward to seeing you at the next call, which will be what?

August 5th.

The next call is August 5th, so we look forward to that.

Have a good summer so far.

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