Vornado Realty Trust

Good morning and welcome to the Vornado Realty Trust first quarter 2026 earnings call. My name is Rocco 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 touchtone phone. I will now turn the call over to Mr. Steve Bornstein, Executive Vice President and Corporation Counsel. Please go ahead.

Welcome to Bernardo Realty Trust's first quarter earnings call. Yesterday afternoon, we issued our first quarter earnings release and filed our quarterly report on Form 10-Q with the Securities and Exchange Commission. These documents, as well as our supplemental financial information package, are available on our website, www.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, Form 10-Q, and financial supplement. Please be aware that statements made during this call may be 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, 2025, 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 remarks 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, Stephen. Good morning, everyone. Business at Renato continues to be excellent, and it's getting better and better. We are riding the wave of a strengthening, long-lasting landlord's market. and New York is by far and away the strongest real estate market in the country. Michael will get into the details shortly, but today I have different fish to fly, and I will ask the first question. Question, what do you make of the spat between Mayor Mondami and Ken Griffin, and how will it affect your 350 Park Avenue development? Answer, let me begin by saying that I do not and cannot speak for Ken, but I do unambiguously stand with him. And notwithstanding the mistakes and bad form of the recent video that went viral, we are pulling for Mayor Mondami to succeed. Let me establish my credentials. Renato is a New York company and I am a New Yorker, born in Brooklyn and attended DeWitt Clinton Public High School in the Bronx. Both Renato and I are lucky to be New Yorkers. My daughter and three granddaughters live in the Bronx, and my son and his family live in Brooklyn. My wife of 56 years and I live and work in Manhattan. We follow the rules and we pay our fair share. Renato will pay $560 million in real estate taxes this year, and I'm pretty sure that's in the top three. And that doesn't begin to count the personal income taxes that I and our Renato population pay to the city and state of New York. We work our asses off. We are not boastful. We are very proud of our lifetime of achievements. We are the company that is investing billions to transform the Penn District. New York is a union town and we are a union shop employing thousands of hardworking New Yorkers in our buildings and on our construction sites. The ugly, unnecessary video stunt is personal to Ken and sort of personal to me too. You see, Renato and I are the developers of both 220 Central Park South Presidential Building and the 350 Park Avenue Citadel Tower. We are all that our young mayor would pull this stunt in front of Kent's home and single him out for ridicule. This was both irresponsible and dangerous. As I said, Renato is the owner of the 65-year-old building on the Park Avenue block front that will be raised to make way for the Citadel New York Recordist Tower, which will employ thousands, further cementing New York as the financial capital of the world, and pay significant taxes, and on and on. This building is being designed by the same Forster and Partners architectural team that designed JPMorgan Chase's new headquarters down the block. This is now the If We Move Forward project. Now, a project of this scale takes years, and we have already worked with two prior city administrations, both of whom have recognized the benefits and have been enthusiastically welcoming and supporting them. as evidenced by the rare, unanimous ULIP approval for this project. Demolition began literally days ago, and we at Renato are ready to go. I must say that I consider the phrase, quote, tax the rich, when spit out with anger and contempt by politicians both here and across the country, to be just as hateful as some disgusting racial slurs and even the phrase, from the river to the sea. What these polls seem to be saying is that the rich are evil or the enemy or the targets or maybe even just suckers. But the rich whom the politicians are targeting, starters of nothing, are the epitome of the American dream. They are our largest employers and largest philanthropists. And it is the 1% that pays 50% of New York's income taxes. They are at the top of the great American economic pyramid for a reason. They should be praised and thanked. Ken, our partner and friend, is the best of the best. So where are we now? As we discussed last quarter, Ken exercised his option to enter our development joint venture and build a new 1.9 million square foot tower with Citadel as the anchor tenant. We have until the middle of July to decide whether to participate with Ken in the venture or to sell to him. It's a good bet that we will go all in. This fence cannot be mended by a short, terse, insincere private apology. What I beg my mayor to do is to begin every day being business welcoming and business friendly as his first priority. That's the only way to get the growth and financial wherewithal to accomplish his programs, some of which I must say are interesting and balanced. Public safety, schools, child care, clean streets, housing, affordability, homeless programs, et cetera. The election is over and now is the time for hard work and management, not show voting. New York is an enormous enterprise with a city budget of $120 billion and a state budget of $250 billion. If there is a $5 or $10 billion budget shortfall, surely that money can be found by managing rather than by taxing. It is interesting to note that high-tax New York spends more than double per capita, double per capita, than low-tax or no-tax Florida or Texas. There is a lesson here. Maybe something good could come out of this blunder. Maybe we can draft Ken to become active and lead an effort to educate New York voters and to elect right-minded candidates. Ken can do it. He's the one who could galvanize the entire business community. Here's an interesting fact to it. Members of the Partnership for New York City alone employ one million voters. Hundreds of our business leaders would line up to support Ken. I would be first in that line. I was taught, and I believe in an America where after an election, all sides get behind us and support the winning candidate for the greater good. Our mayor is young, smart, and energetic. With a little tweak here and a little tweak there, his leadership could make this great city even greater. He will learn over time that growing a tax base is a winner and raising taxes is a loser. I will say it again. He will learn over time that a growing tax base is a winner and raising taxes is a loser. And that the hardworking 1% are allies, not enemies. Let's learn from this mistake and move upward. Turning to Renato. We now have a lineup of assets and in-process projects which I am confident will deliver the highest growth in our industry. Executing on all this is now our singular focus. In this year, 2026, we will complete the heavy lifting of leasing at Pen 1 and Pen 2. As Michael and Tom have already been saying, quarter after quarter, our published numbers will reflect all this by the end of 2026 and going into 2027. As part of our focus on enhancing our portfolio and making great deals, we announced last week the acquisition of a 49% interest in Park Avenue Plaza, a 1.2 million square foot Class A office building along the prime stretch of Park Avenue. This asset is directly across the street from our 350 Park Avenue project. The building is 99% occupied by blue-chip tenants with an 11-year weighted average lease term and rents that are 40% to 50% below market. Prime Park Avenue AAA assets rarely trade, and we believe we made an excellent purchase. We're buying the asset at $950 per square foot, which is 65% to 70% discount to replacement costs. And we are inheriting a fixed rate sub-3% loan through 2031 to leverage off an enhanced return. We expect the transaction to be approximately $0.10 accretive on a full year basis in the first year. We're happy to be partnering with the Fisher family who own the other 51% of the assets. We have a long relationship with the Fisher family. They are a first-class operator who think much like we do. With Park Avenue Plaza, our recent acquisition of 623 Fifth Avenue and the pending development of 350 Park Avenue, we will be adding, call it, 2 million square feet at share of the very highest quality prime asset store portfolio at very accretive economics. Speaking of 623 Fifth Avenue, our 383,000 square foot asset, which we are redeveloping to be the premier boutique office building in Manhattan. We are far along in our design and planning. We are receiving outstanding reaction from the market and already have active tenant interest at or above our underwriting. Demand for our retail assets is robust and accelerated. We have a handful of assets for sale in the market. I covered share buybacks in my recently posted shareholders letter to date. Under our $200 million share buyback program, we have repurchased 7 million common shares at an average of $25.80 per share, totaling $180 million. Last week, our board authorized an additional $300 million buyback program.

Now to Michael. Thank you, Steve, and good morning, everyone. First quarter comparable FFO was $0.52 per share, compared to $0.63 per share for last year's first quarter. This decrease is consistent with our comments from the prior quarters and is primarily due to the reversal of previously accrued PEN1 ground rent expense in the prior year's first quarter and higher net interest expense, partially offset by higher FFO resulting from the execution of the NYU MAS release at 770 in the prior year and strong income growth at PEN1 and PEN2. We have provided a quarter-over-quarter bridge on page two of our earnings release and on page six of our financial supplement. We now expect full-year 2026 comparable FFO to be slightly higher than 2025, ramping up each quarter due to gap rents coming online, lower interest expense after June 2026 bonds are repaid, and some seasonality relating to our signing. As previously indicated, we expect there to be significant earnings growth in 2027 as the positive impact from PEN1 and PEN2 lease-up takes effect, as well as the positive impact of the recent acquisition of Park Avenue Club. Turning to leasing, the Manhattan office market is head and shoulders the best in the country and is off to its strongest start to a year in over a decade. Manhattan leasing volume reached nearly 12 million square feet, the highest first quarter level since 2014. There's a significant supply demand imbalance in the 180 million class A better building market in which we compete, as the availability rate in the prime sub markets in Midtown and the West Side has tightened significantly and there's little new supply coming for the foreseeable future, given the significant cost and duration of the bill. This is all resulting in tenants competing for space and rents rising aggressively. The landlord's market, we have been long predicting, is very much here. While the macro environment we operate in today has gotten even more complicated since our last call, and the geopolitical volatility is as high as we've seen in some time, the U.S. economy just continues to chug along. as does New York's. While there is a risk that the Middle East conflict lasts much longer and has a greater economic impact, to date we have not seen any change in tenant behavior. Moreover, while there has been a lot of AI fear-mongering out there, and while we are respectful of the risk, we believe it is overblown. Over the past 50 years, office-using jobs have continually evolved based on new technology. From the computer revolution of the 1980s, when personal computers and word processors were introduced, to the 2000s when the Internet transformed workflows and the way we communicate, to now with AI improving efficiencies and increasing productivity. In every example, office-using jobs were not reduced, but they shifted from clerical-based functions to knowledge-based roles. And each new revolution spurred productivity and economic growth with new businesses and net positive jobs created. There will be winners and losers by industry, by job function, and by geography. But make no mistake, New York and San Francisco will be winners as the intellectual and innovation capitals of the country, where talent will continue to aggregate and in the best buildings. At Vornado, we are coming off our second best leasing year in our company's history, where we leased 3.7 million square feet, with 960,000 square feet of New York office in the fourth quarter. Business continues to be very good, and the momentum from last year has continued during the first quarter of 2026. In the first quarter, we released 426,000 square feet of office space overall, including 311,000 square feet in New York. Our metrics were very strong. Average starting rents in Manhattan were $103 per square foot, with mark-to-markets of positive 11.7% gap and positive 9.7% cash in an average lease term of nine years. Our New York office pipeline is robust. and has over 1 million square feet of leases in negotiation and various stages of proposal. Turning to the capital markets. The financing markets continue to be strong and liquid for Class A New York office assets, though pricing has widened a bit given the current geopolitical environment. The investment sales market continues to heat up as well, with a broadening set of buyers keenly focused on New York City. We were very active in the capital markets in the first quarter, most of which we covered on the last call. Given we've dealt with almost all of our 2026 and 2027 charities, we don't have any significant financings we need to complete for the next 18 months. We do still have a few loans that we need to work through at lenders over the next two to three years. Finally, our liquidity remains strong at $2.6 billion, which is comprised of cash of $1.2 billion and our undrawn credit lines of $1.4 billion. 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 one on your touch-tone phone. If you wish to be removed from the queue, please press star then two. If you are using a speaker phone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star then one on your touch-tone phone. Each caller will be allowed to ask a question and a follow-up question before we move on to the next caller. First question comes from Steve Sakwa at Evercore ISI. Please go ahead.

Yeah, thanks. Good morning. Steve, thanks for your opening comments on the city and the administration. I guess maybe going to Michael's commentary on just the pipeline and the million feet, I didn't know if Michael or Glenn could maybe expound a little bit on how much of that is for you know, upcoming lease expirations, how much of that is for kind of vacancy within the portfolio, and, you know, I guess most of that's probably in New York, but, you know, maybe discuss kind of the New York versus Chicago versus San Francisco demand trends.

Hi, Dave. It's Glenn. How are you doing? So, you know, our pipeline is extremely well-balanced. Of the million feet, it's right down the middle, 50% new expansion, 50% renewal. The other thing I'll note is on renewals, due to the lack of quality space available in the market, we're seeing many of our tenants coming to us early on renewals since they can't find quality alternatives, which is a key indicator of a rising landlord's market. As it relates city to city, San Francisco is coming on very strong. While we have some vacancy, as you see from the first quarter numbers, We have tremendous activity on all the vacancy. Our deals in the Tower 555 are now north of 160 a foot. Volume in San Francisco overall is strengthening week to week. And certainly, everyone out there is feeling a lot better. And deals are happening in a very rhythmic pace. Chicago is starting to come on. Demand is improving. The deals are tough, but there's certainly tenants coming new to the market. And we're seeing a lot more foreign proposals coming into March as we go into the second quarter and into the summer.

Great, thanks. And then maybe just as a follow-up, we did notice that, you know, in terms of lease commencements, the Verizon lease kind of had a little bit of a change in status. And I'm just wondering if you could maybe talk about kind of what their – I guess, ultimate status is with the building? And, you know, did that lease kind of start earlier? And is that a benefit to the 26 earnings growth?

Steve, it's Thompson. I'll take the first part of it. And I guess, Glenn, you could talk about the status. So because Verizon told us they're not going to build out their space and they put them in the sublet market, GAAP allows us to start revenue recognition early. So you'll see that flow through all of 2026. It started in the first quarter.

On the leasing front, the block of space is excellent. It's 200,000 feet and includes 30,000 feet of outdoor space. We're in a great position. We have a Verizon public parent guarantee for the entire lease to begin with, so great credit. We continue to show this space, as does Verizon. There's very good action, and whatever the outcome, Vernado's in a great spot as it relates to that position.

Thank you. And our next question today comes from John Kim at BMO Capital Markets. Please go ahead.

Thank you. Steve, really appreciate your opening remarks that really provide a lot of clarity on how you're thinking about moving forward. But I wanted to ask you about your statement that you're all in at 350 Park. Are you all in even if Citadel will not commit to the building? And how should we think about the put option you have in July?

I didn't hear the last part. How should we think about the put option, is that what you said, John?

Yeah, that's right. Is that something that you'll let pass, or is that something that the date could be extended?

The answer is that Ken exercised to go ahead. We have until the summer to decide whether we are a participant or a seller, and I expect that we will take all of that time, which is the smart and correct thing for us to do. There are still some documents and other details to be ironed out, but my remarks that I said where I expect we will be all in, I do expect we will be all in, but that's not a legal commitment at this time yet.

And that's all in with or without Citadel's commitment?

No. The answer is, the question is, is it all in regardless of whether Citadel is committed or not from a lease standpoint?

No. Citadel has to be committed. They will be committed. So, I mean, this whole deal is based upon the fact that that Citadel will be the anchor tenant, taking no less than 850,000 square feet, although we expect more. And Ken Griffin is the 60% partner. We are a 36% partner, and the Rudin family is a 4% partner. That's the state of play. This whole thing, Ken has committed to start. this whole thing will all come together and become very clear in the mid-summer.

Okay, thank you. And then I wanted to ask about the $200 million of signed leases not commenced figure that you provided last quarter. If there's an update to that figure in terms of dollar volume, timing, and if there's any offsets through known move-outs during that time frame.

Good morning, John. I would say the number is still in that general neighborhood. It's probably a touch larger today, but it's generally in the same ballpark. I think in terms of thinking about it, probably 10% to 12% comes in per quarter over the next couple of years from a pacing standpoint. There are some offsets, whether it's expiries, vacancies, et cetera. I think Steve on the last call you know, sort of said from a modeling standpoint, you know, assume $0.40 a share flows through, you know, to the bottom line. So we're going to stick with that for now, but that will give you a sense in terms of the pacing of that $200-ish million. And that started this first quarter.

Thank you. Our next question today comes from Floris Van Dykem with Lindenburg. Please go ahead.

Hey, thanks, guys. Appreciate some more color on that large S&O pipeline. Could you maybe just expand on that a little bit? What percentage of that S&O pipeline is in the Penn District, and how much of your, does it include retail leases? You've done some leasing on Upper Fifth Avenue in particular. Maybe if you give us a little bit more color, you know, the Penn District versus other areas in your portfolio.

Morning, Flores. You know, that number is pretty much all office, so I can't give you the retail number as we sit here right now. Obviously, the lease with Meta is a big positive. And in terms of the 200, in terms of Penn versus others, I would say it's probably two-thirds Penn. You know, it should not be surprising, given the lease up of Penn 2 and the balance in Penn 1.

And maybe my follow-up question, as it relates to your Park Avenue Plaza acquisition, I mean, what caused that deal to happen? Why did the Fisher Brothers, I guess, you know, sell out? It looks like it's like a 6-7 yield on cost, if I'm not mistaken, to get to the 10-cent secretion. That seems pretty attractive. Is that a cash yield or is that a gap yield? And how much of a mark-to-market situation How much more growth in terms of earnings do you expect to get from that property going forward?

I honestly like to remember everything you asked here, Lars. We're thrilled about the acquisition. These types of assets don't trade very often on Park Avenue. It's certainly one of the best assets on Park Avenue. In terms of the yields, on a cash basis, you know, given the in-place debt, it's, you know, roughly 8%. On a gap basis, it's, you know, well into the double digits. And as Steve said in his remarks, you know, rents are, you know, well below market here, you know, probably at least $50 a foot below market. So, you know, over time, you know, things are not static. There's action with tenants. We'll capture that. And that, you know, and that's without, you know, rents growing. So if rents go further, that gap should widen, you So we're excited about it. The fishers did not sell out. They remain. They still hold their 51%. And I think their track record of performance on the asset is stellar. It's a blue chip set of tenants. They're leased long term. They're quite effective at signing long term leases with high quality tenants. And that's reflected in this asset. And the tenants You know, some which we spoke to about their experience, you know, couldn't have raved any more about the quality of the asset, and they have grown, you know, over time there. So we're excited about the asset. We think there's tremendous value to be created over time. And so I think I addressed all your comments, questions.

Thank you. Our next question today comes from Alexander Goldfarb at Piper Sandler. Please go ahead.

Hey, good morning down there. And Steve, yeah, echoing, appreciate your comments up front. Just crazy. But thank you for your statements. Michael, just following up on Florence's question, the two items in the 26 guidance, one, the $0.10 accretion for Park Avenue, is that the gap impact or that's the cash, just as we think about FFO? And then the second part of that guidance question is, There was an item about the master lease changing at $350, and just want to know how that impacts the earnings for this year. That's my first question.

Park Avenue Plaza, the $0.10 value is a full-year run rate, so obviously we're not going to have that for $26. That's a gap number. And on the $350, the change there was done given that You know, Citadel wanted to kick off the development. They wanted to vacate. We couldn't start demolition without defeasing the old CMBS loan. And so that loan was defeased, as you saw in our queue. The master lease was modified. There were a number of changes made to the documents. And so that was a negative to 26 earnings, which, you know, when we talked about it, given our comments.

Alex, the deal always contemplated that when Citadel vacated the building so that the building would be demolished, that the rent would be reduced. Or even go away. The earnings ding by that reduction, much of it will be made up by capitalizing interest, etc., So while the earnings are good, Tom, what exactly is going to happen?

So in 2026, you know, for the next few months until we decide whether we're going into the JV, there's a wash. There's no earnings coming out of 354. Once we make that decision, assuming we go into the JV, we're going to start capitalizing interest and cost.

Will that equal or exceed or be less than the $36 billion?

It initially would be a little less, and then eventually over $27, $28, $29 basically equates to what we were getting.

But for five or six months, there's a negative ding given the mass release. But again, that's previously communicated out. Does that satisfy you, Alex?

That's awesome. Second question, Steve, is big picture. You know, with regard to Citadel and the whole, you know, tension with the mayor, you know, back in 2019, Amazon wanted to open in Queens. They were rebuffed. But I don't recall this amount of instant, you know, negativity and political nervousness. Today, it's clearly, you know, escalated a lot quicker. What do you think has changed? I mean, certainly politics have become more left, more progressive here. But why do you think can... This time, the politicians seem to be much more eager to make this everyone be happy versus Amazon, the city, and the state seemed happy. It wasn't even a ripple when Amazon walked from Queens. It doesn't seem that. What's the difference now versus then?

Gee, I don't know, but you're correct that the body politic doesn't seem to have any remorse about losing Amazon. On the other hand, the body politics think that the Citadel team is important and an enormous contributor, and there is a significant feeling amongst the political leadership and the business leadership that this was a mistake, which I described as a blunder, And, you know, this is something that should be repaired. And we'll see where it goes.

Thank you. Our next question today comes from Dylan Brzezinski at Green Street. Please go ahead.

Hi, guys. Thanks for taking the question. Michael, I think you mentioned that pricing has widened given some capital markets volatility associated with the war in Iran. Curious if you can just provide more color on that. And then maybe if you can sort of flavor in some commentary around, I think last quarter you guys mentioned, looking to put assets in the market, just sort of any sort of color you can provide on sort of how those processes are going.

You know, on the financing markets, you know, financing markets were incredibly strong in the last year, beginning of this year, as tight a spread as we had seen in some time. uh you know given the volatility it's backed off a little bit like there's still depth in the market uh deals still can get done particularly for high quality assets i wouldn't call it a huge impact but the reality is look treasuries are probably up 30 basis points or so and spreads have widened that a little bit so that makes the borrowing costs a little wider uh but you know not not wildly different you know just just you know this is still a very functioning marketplace for high quality assets um but off maybe 40, 50 basis points in total. I'm glad we did what we did when we did it, so we're not really dealing in today's markets, but again, you can get deals done. On the asset sales side, I think Steve referenced, we're working on some asset sales, and that is true. you know, and when we have some ready to announce, we'll announce, but the answer is we got a few things that are meaningful in the pipeline. We're in active discussions with potential buyers. I would say the interest in New York City, as I said in my remarks, you know, continues to expand in terms of the type of buyer. You know, I think there is consensus on, you know, New York being head and shoulders best market. You know, assets are, you know, rents are rising, assets are The discount replacement costs is a recognition there's not a lot of supply coming. And so I think global capital has a lot of comfort in it. I think one of the things we're hearing from capital sources around the world is the U.S. remains the safest, most liquid market, particularly given everything going on around the world. Now, you're going to continue to see capital emanate from other parts of the world to come into the U.S. I mean, New York City is going to get a heavily disproportionate share of that. So that's what we're seeing. And When we have specifics to announce, we'll announce it, but we're encouraged by what we're working on.

And then just on the rent growth piece, I think, you know, several quarters ago I asked, you know, 20%, 25% rent growth, if you saw that over the next five years, you know, what were your thoughts on that? Steve, I think you mentioned, like, while that's good, that would be disappointing given everything you're seeing on the supply and demand imbalance, especially for high-quality office. I mean, can you kind of just talk about how – far rent growth could go in your mind? And has your thoughts around that 25% cumulative rent growth figure changed at all?

I think we'd still be disappointed in that, Dylan. You know, look, I think we've said in the last couple of calls, right, the backdrop for office is as favorable as it's been in, you know, a long, long time. And it's very difficult to add supply here. which at some point, you know, we're going to meet. So, you know, there's going to be a building a year maybe as we get into the next decade. But, you know, that's very little. At the same time, we have supply coming out of the bottom end of the market. So, you know, the fundamentals are great. Companies, as we've said, you know, continue to want to grow here. You know, we're seeing, you know, still significant activity from the financial service sector, law firms, accounting firms, You know, frankly, AEI has picked up, you know, more recently. So I think all that, you know, results in, you know, rents continuing to rise. So, you know, I don't know that it makes sense to give you a prediction, but we'd be disappointed at 25% over five years. I don't know. Do you want to add any comments on what you're seeing?

I mean, look, rent sensitivity is not even high on the list right now. Tenants want to be in the best building with the best landlords. And if you think about our leasing performance, $100 a foot has become the norm for us because of the quality of our product. Over the past eight, nine quarters, our average starting rent is $100 a foot. That's a great trend. As we go on here and the way we're shaping the portfolio with the addition of 623 Park Avenue Plaza, the new 350 Park, we think rents are going to continue to spike. And the way we're balanced on the west side of Nile Park Avenue, we're really excited about that. We think we're in perfect position for what's to come on rent and tenant demand.

Thank you. Our next question today comes from Yana Gallen with Bank of America. Please go ahead.

Good morning. Thank you, and congrats on the strong start to the year. Michael, appreciate your comments on the 2026 FFO, now expected to exceed 25%. Just curious if that's primarily from the Park Avenue Plaza closing in 2Q or also from 1Q being slightly ahead and carrying throughout the year.

I'd say it's the latter.

Great. And then maybe on 555 California, if you could give some update on kind of demand, leasing and rents there and our AI tenants becoming a bigger part of the pipeline there and in the New York pipeline as well.

How are you? So rent in San Francisco, we're rising a lot. As I said earlier, our rent in the tower has now gone north of $106 a foot for substantial leases, 50,000 feet and greater, not a small deal. So we are leading the market by far at 555 Cal. We're also seeing a lot of really good activity at 315 Montgomery in the campus with more technology, AI-type tenants. So certainly that activity we're seeing at our project at Aura Complex as well. But, you know, other than tech and AI, financial services is growing in San Francisco, something we've kept a very keen eye on, as well as law firms. So it isn't just AI, although it's helping a lot as the city improves. But the other industry sectors are really coming on strong. And the city overall feels great. I was out there a few months ago walking the street, meeting with people. It's really feeling good out there, and people are very positive again in San Francisco.

Thank you. Our next question today comes from Anthony Pallone with J.P. Morgan. Please go ahead.

Great, thanks. You talked about having some assets out in the market for sale, but if we think about just whether it's 350, 54th Street, and then Fifth Avenue, some of these projects that are going to be in the pipeline, how are you thinking about just your pro rata leverage level over the next couple of years and whether there's going to likely be a bigger disposition program or whether you think you'll just use project financing and take on a bit more leverage?

Morning, Tony. We've got the capital earmarked for all these opportunities in our cash forecast. We've got some asset sales in the works. We obviously have a lot going on between these investments that we've made recently, 623, Park Avenue Plaza, the buybacks, some of the future developments. You know, what I would say about the future developments, something like a 350, you know, the bulk of our equity is coming from our land contribution, right? So any incremental capital is really not required from Bornado for probably close to three years. So we've got, you know, ample time to plan for that and so forth. So, you know, when you look at our sort of capital needs, if you will, over the next few years, you know, it's fairly well laddered. But at the same time, as we execute, hopefully on some of these asset sales, that's going to give us some additional firepower, frankly, beyond just what we're talking about in terms of these developments.

If you look at our history, with respect to capital planning, we have three or four things that we have historically done. Number one, we generally hold... billion-dollar-plus cash balances. The second is that we almost always pre-fund well in advance of our capital needs. So, for example, we loaded in, I don't know, two, two-and-a-half billion dollars of capital two years before we started the PEN1 and PEN2 development. So that, notwithstanding the fact that the capital markets got a little bit rough, And volatile, when we were actually building, we had the capital on our balance sheet. So that's what you can look at for what we do. The other thing is that we like to operate with lower rather than higher debt levels for the obvious reason. The last is that our philosophy is that we like non-recourse project-level debt as opposed to... Unsecured credit, which basically makes the entire corpus, I guess you could say, personally liable. So we like non-recourse project-level debt, which is the majority of the way we finance our business.

Okay, got it. And then just a follow-up question on the leasing side. I think there's about 600,000 square feet in the fourth quarter that comes up. Is there anything larger in there that's a known vacate? I just can't remember if there's any big deals in that mix to watch out for.

It's Glenn. Hi. There's two larger tenants expiring in the second half of this year, and we believe both will renew their leases. We feel good about our expiration for the remainder of 26th. And as you would expect, we're all over the 27, 28 expirations as well. But 26, we're pretty well taken care of. We feel good about what's going to happen.

Thank you. Our next question today comes from Victor Malhotra with Mizuho. Please go ahead.

Good morning. Thanks for taking the question. I guess first one, you know, given all the kind of activity you've had with all the Penn assets. Any update on Hotel Penn and Manhattan Mall in terms of users, monetization, etc.?

No update.

Okay. And then just on the earnings side, you mentioned 2027 SFO. Nice pickup. I'm wondering two things. One, are there any offsets we should be thinking about for 27 and then in particularly FAD, given the ramp in FFO, I'm assuming they're still going to be elevated TI into 27. So should we think about FAD really perhaps picking up only in 28? Thanks.

Yeah. Good morning, Vikram.

Hey, Vikram, I would make one comment, okay? I can't wait for the free rent to burn off. That's when this business will get to be real fun and will generate substantial positive cash. That happens over the next year or two. I can't wait for that. Now, go ahead, Michael. By the way, Glenn, take note of what I say.

So on the fad side, Vikram, your comment is right. There will be continued elevated TIs this year, next year. even on deals we've committed this year, tenants don't call those for a while. That'll go on the next year. Then 28, we expect to see that drop materially and cash flow be much higher. I think your general direction is accurate. On the earnings side, there's always ins and outs. There's always offsets. I can't tell you specifically what those are, but in the history of Borneo, I think we've given you as much guidance as we can give you with respect to next year in terms of what the bottom line is going to be.

Thank you. Our next question today comes from Nick Ulico at Scotiabank. Please go ahead.

Thanks. I just wanted to go back to 350 Park and just be clear on a couple things. One, in terms of the new $16 million annual rent versus the old rent, Did that already happen in the first quarter? Is that a second quarter accounting impact? And then I also want to be clear on that new rent that's being paid. What is the maturity on that lease? Is that concurrent with the debt, the new mortgage that matures next year, or does it extend beyond that?

Good morning, Nick. So on your first question, New rent started, I mean, there are a few days in March where it started, but by and large, it'll be second quarter. So I don't know, maybe there are 15 days in the first quarter where the new rent was reflected.

The new rent is coterminous with the execution of the new mortgage. So I don't know what that date is, but it's a couple of weeks or three weeks ago, whatever.

Yeah. So that new lease runs until early 27. And, you know, your question is, you know, why is that? Because, you know, there will be a resolution one way or the other. The venture will be formed. We'll put the asset. You know, something will happen prior to that maturity.

Okay. So the rent, that new rent, is only in place until – the point at which the mortgage matures. There's no rent being paid beyond that date on the new agreement.

Correct. But there'll be a resolution, door A or door B, before that, which, you know, the rent would have gone away anyway.

There's no building for the tenant to pay rent for.

Got it. Okay. I just wanted to be clear on that. And then I guess the second question is, you know... Obviously, I mean, you've talked a lot about you giving some of the breadcrumbs on 2027 and how to think about that. You know, it is also 2027 FFO is a piece of the executive comp, you know, per the proxy plan. So I guess I'm just wondering, like, any new thoughts on this, Steve, about, you know, finally giving earnings guidance? You know, you're at the point now where... The tide is turning. You're being measured by that from a comp standpoint. Why not give formal SFO guidance at some point?

Oh, Lord, how do I answer that question? You know, the two sides of it is that, you know, we have a simple business which has complexity, and the numbers are moving. It's very, I mean, we find it that is sort of difficult to guide and counterproductive. So Warren Buffett, who's not a friend of mine but an acquaintance of mine, he didn't guide for his whole career. So that's one thing. And the big bank guy, he doesn't guide either. But all of our competitors seem to be able to guide. So what's wrong with us? But right now, we have no plan to guide. other than the snippets that we put in these calls here and there, which I think I hope you all find helpful. Now, what I think you're saying is that if our earnings are going to explode upwards, why don't we just take a pat on the back for that and guide to that? So that's something that I'm going to put under my pillow and think about because that sounds like maybe it's a good idea. But as of right now, our policy is, We selectively and in a limited way guide, but we don't give full guidance. And I think you can probably guess that that's going to continue for the future. Tom, what do you think? I agree. Tom's saying he's happy he doesn't have to guide.

Thank you. And our next question today comes from Seth Berge at Citi. Please go ahead.

Hi. Thanks for taking my question. In the annual shareholder letter, you kind of referenced the no sacred cows policy again. It sounds like the New York office transit market is improving. You mentioned possible kind of inflows, given it's a liquid market and the U.S. is just safety. How do you kind of think about... you know, potential asset sales, should we think about those being more non-core dispositions or any core asset sales that you're kind of thinking about?

Summarize the question for me. As Kyle mentioned, you'll add no sacred cows. Is that just New York or is that some other assets we should think about non-core dispositions?

I mean, I don't want to shock you. But basically, I'm in it for the money. And so, therefore, there are no sacred cows. There are assets that are critical to the business. There are assets that are important to the business. There are assets that we love more than other assets. But based upon price, economics, and business strategy, there are no sacred cows. Now, what does that mean? There's a handful... of assets that we actually have already determined that we don't want in the business mix, and those assets are for sale. Our intensivity, if that's a word, to liquidate those assets rises and falls with the market, but over a short period of time, there's a handful of assets that will not be part of our portfolio. Now, getting to the rest of it, there are assets that we hold near and dear that we think are very valuable that we underwrite as being much more valuable than apparently the stock market underwrites it. Even those assets, if I think Sam Zell said the phrase, a godfather bid, if some very aggressive bid came in for one of those important assets, we would execute on that because that would be the right thing to do, that's the right thing for the management to do, and more importantly, it's the right thing for the shareholders to do. So there are no sacred assets. There are prices that are critical, but in terms of whether we would execute on selling something, it's all a function of what the price

Great, thank you. And then for my second question, I guess, how do you think about kind of incremental, you know, potential acquisitions versus accelerating the share buyback and balancing that versus your current leverage levels?

So there's three things inherent in that question. There's acquisitions versus stock acquisition and leverage levels. So the answer to that is that we think No, let me rephrase that. We are certain that we can basically do all three. We are certain that we can buy selectively important assets that come up in the bullseye location of our heartland. We are certain that we have the capital to buy back our stock in a measured way. And we are also certain that we are able to keep our leverage to a measure that's under control level. So we think we can do all of that. And we have some things that are in process that will augment all of that. So our two most recent acquisitions of 623 Fifth Avenue, which we think, I mean, I've written about that, and we think is a terrific deal. And the Park Avenue plaza acquisition that we just announced a couple of weeks ago we think is an equally terrific deal. And then we think buying back our stock at $30 a share is a terrific deal as well. So we're doing all of that. And I hope that answers your question.

Thank you. Our next question today comes from Caitlin Burrows at Goldman Sachs. Please go ahead.

Hi, good morning, everyone. Maybe just on the pricing side, I realized the reported leasing spreads are only on a subset of second-generation space. So first, I was just wondering if you can go through your expectation today of portfolio mark-to-market across New York, San Francisco, and the Mart, and then also whether you expect that portion that gets included in the spreads to increase, as in, like, could downtime become smaller?

Good morning, it's Glenn. So, on the question of mark-to-markets, we expect, you know, to continue the performance we've had over the past, you know, couple years, which are positive, positive, and positive. You know, during the last two years, we've only had one-quarter negative, which we like, and we expect to continue. You know, many have been in the double-digit positives. We expect free rent to continue to reduce, and even TIs are starting to come down, so We're working hard on that piece, of course. And San Francisco is the same. You know, with the rents we're achieving, the markets will continue to improve. Chicago, as I said, is still most challenging, although demand is picking up. You know, rents are staying firm. Concessions are high in Chicago. Those have yet to break, you know, downwards. But demand is certainly improving.

Think about just economics 101 or macroeconomics. Focusing on New York for the moment, we've said, and I've written about, that we compete in a subset of better building Class A space, which is under 200 million feet. So the fact that there may be 400 million feet in New York is irrelevant because we really compete in a market which is about half that size. The availability of space in that market is evaporating very quickly. I mean, somebody used the analogy of an ice cube in a microwave. We are getting, I mean, we know that because we are a key factor in the market. We know that because the incoming calls from brokers looking for space for their clients are starting to get more anxious and even more desperate. So as the availability of space shrinks, obviously the price goes up. Now, there's something else going on which is equally important, and that is the cost of a new building has gone from whatever to somewhere around, pick a number, $2,500 a foot. Interest rates and the cost of capital has gone from, you know, 0% or 2% to 5%, 6%, and 7%. So the rents that have to be achieved to make a new building economic are well into the $200 a foot and even touching $300 a foot. That's never happened before. So obviously, rents on older buildings, which are still great buildings in great locations, are going up because of scarcity. and because of the cost of new supply coming on the market. So this is just basic economics 101. The next part of it is that I believe, and my team can speak for themselves, I believe that we are in a long, long, long-term landlord's market where these dynamics will continue. Why is that? Because there's nothing in the short term that can change that other than if interest rates dip down to 2% or something like that, which you can make your own judgment whether that might or might not happen. So if that happens, basically, I'm not in a big rush to rent space at today's prices because I think tomorrow's prices are going to be higher and maybe even a lot higher. Thanks.

I guess maybe just to follow up on that last point, I know leasing volume in the first quarter was relatively low, so would you just say that that's lumpy? Is it more about that you're not in a rush because rents could be rising or something else?

Glenn is in the business of renting space as quickly and aggressively and as hungry as he can be. So if there is any fall off in volume, it's not because... I directed Glenn to get out of the market. Glenn's in the market every day working his ass off. Thank you, Glenn.

Thank you. Our next question today comes from Ronald Camden at Morgan Stanley. Please go ahead. I can't respond to that.

Hey, too quick. If you want to respond, I could wait.

Go ahead, Ronald.

Go ahead. Okay, great. Just two quick ones, and thanks for taking the questions. Just number one, I think the last call you talked about some guideposts for occupancy over the next 12 to 18 months and, you know, thinking sort of mid-90s on a lease basis. Just wondering if you could provide any update both on the lease and on a physical occupied basis, what that occupancy target will look like over the next 12 to 18 months again.

Thanks. We've historically, you know, run our portfolio in the mid to high 90s. And, you know, we expect to get back there. So, you know, that probably is over a couple-year period. But, you know, that's, again, given all the dynamics that Steve alluded to and we've talked about in the market and the lack of space availability, you know, that's going to happen. So, obviously, leasing up Penn is a key part of that. But, you know, and I think one of the analysts picked up this quarter, you know, that our occupancy actually went up 70 basis points, not the 40, because we took 350 park out of service. So, you know, that's what we expect to get. I can't tell you exactly what quarter it's going to be, but, you know, over the next, you know, couple years or so, that's where we expect to get back to.

But there's a couple of things to focus on. There is a... a couple of buildings that we are not renting. Why is that? Because they are over-leveraged and underwater, and it's uneconomic for us to rent bases in those buildings, which really, they're almost owned by the banks. And if we put TI into those buildings, it's basically burning money. So if you take those few, and we have chosen, I don't know whether this is a good decision or not, we've chosen to leave those in the aggregate statistics where some of the folks in our industry have taken those buildings out of the numbers, which makes their occupancy higher. So if you take those numbers out, those buildings out of our numbers, our occupancy goes to what? 94, something like that, 95? 94%. 94. So we know that number, although we don't publish that number, and maybe we should, although right now I'm publishing that number. So that's the first thing. The second thing is that I look upon, in a landlord's market like this, I look upon vacancy and available space as an asset, because that will that as we rent that space, and we will with 100% certainty, that will grow our earnings. So when you think about investing, maybe the best company to invest in is the company that does have available space in this market as opposed to a company that has all the space already rented. You can make out of that whatever you will.

Thanks. Really helpful, Collar. And then my second one, if I may, was just a lot of the footnotes and the supplement. Just on, I guess, on PEN1, any idea when that litigation will be, just in terms of timing, obviously you can't comment either way, but just in terms of timing, is that something that can be done this year? And also the change in retail from the base of the office buildings being put in the office segment, just the thinking there. Thanks.

I'll take the litigation. I have absolutely no comment on anything having to do with that litigation other than I'm optimistic. Tom, what about the retail?

Yeah, so we didn't change our segment reporting. Obviously, we have two segments, New York and other. This is a sub-segment. Ronald, what we did here is we tried to align the sub-segment more on how we view the assets. So we grouped all the retail assets together. and the office assets. So the base of 1290 retail is now included in office as opposed to being in retail. And any ancillary office space that's in a retail building is obviously in the retail sub-segment. And it's all disclosed, obviously, in the supplement, and we give you the exact buildings that are in each sub-segment so you can follow along. I think this is the better way of looking at it as opposed to the way we were doing it previously.

Thank you. Our next question today comes from Brendan Lynch at Barclays. Please go ahead.

Great. Good morning. Thanks for taking my questions. First one on Sunset Pure Studio. Is there any interest in the current short-term tenants in converting to longer-term leases? Just an update on that.

Hi, it's Glenn. There's great interest in Sunset and the studios. You know, we're a lease right now. Place is great, unbelievably great. You know, I would say best in the country, great, you know, great location. We have very good activity, long-term folks looking, short-term folks looking. So, we expect to continue to develop the project once this year's leases expire. But it's off the charts. The reception's been A-plus, and we expect to do really good things during the leasing.

But a direct answer to your question, I would definitely prefer to be in the long-term leasing business with that asset rather than in, you know, month-by-month leasing in that asset. So the answer is the ownership of that asset prefers to be in the long-term leasing if the market gives us that opportunity.

Okay, thank you. That's helpful. And then a follow-up on the Verizon space at Penn, too. can you just walk us through if they find a subtenant versus you finding a tenant and how we should think about potential termination fees and any accounting around the TIs that you might still be responsible for if it's just a sublease instead of a cancellation and new lease?

Glenn prefers that I don't talk about it.

Go ahead. As I said earlier, we're in great spot no matter how it comes up. and we will only be opportunistic to make money on the space. We have a very good lease position, and we'll see how it plays out, but that's as much as I think I want to talk about it for now.

What do we have? It's basically a 19- or a 20-year lease. So we have a long-term lease with a super credit. That lease, we will never terminate that lease under any conditions. So the only thing that might happen is is around the dynamics of a subtenant coming in because Verizon wants to reduce their liability. But we don't have anything to say other than that long-term credit lease is not something that we are going to terminate or monkey with.

Thank you. There are no further questions at this time, so I'd like to hand it back to Stephen Roth for any closing remarks.

Thank you all very much. I think the team and I are delighted with our activity over the last three, four, six months. We are excited. I did make the statement in my remarks this morning that I am certain that over the next year or two, we will have the highest growth performance of any company in our sector. And we're excited about that. We've got a lot of great stuff going on. And thank you for participating. We'll see you next quarter.

Thank you. That concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.