Vornado Realty Trust Aktie

Thank you, everyone, for joining our first roundtable presentation. Welcome to Bank of America's 2026 Global Real Estate Conference. I'm Jana Galan, BofA's office REIT analyst, and we're thrilled to have with us today Vornado presenting. We have President and CFO, Michael Franco; Co-Head of Real Estate, Glen Weiss; EVP, Finance, Thomas Sanelli; and SVP, Investor Relations, Gary Hansen. Michael will start with a few opening remarks, and then we'll jump into Q&A.

With that, I'll turn it over to Michael.

Can anybody hear me? There are people on the...

On the webcast.

If you webcast, I don't know if you did or not. You did. Okay. Sorry, yes. I'm just going to give a brief comment or two, and then let's jump right in the Q&A. I think everybody generally knows Vornado. What I would just say is I think if you look at where we as a company are now after the last 2 years, we're as optimistic and well positioned as we've ever been. We own about 28 million square feet. We have reshaped the portfolio to continue to add -- upgrade the portfolio from a quality standpoint, adding assets like Park Avenue Plaza, 623 Fifth. We're about to do at 350 Park.

So we think we have the premier portfolio in New York City, both office and street retail. We'll talk about market fundamentals. They're arguably as good as they've ever been in my 37-year career. Certainly, there's -- they're better than they've been in 20-plus years and why it's going to stay that way. We have delevered our balance sheet over the last several years, continue to make progress there. We bought stock back. We'll talk about that as well, if you want.

So I think we've done a number of positive steps. The stock has performed a little bit, retrenched here recently. And I think that it's sort of shocking given the fundamental backdrop where certainly New York City office stocks are trading. So why don't we jump into Q&A. The only other thing I'd say is, hopefully, all of you have been over the PENN District seen what we've done there over the last 6, 7 years, transforming that area of the city. I think it's remarkable. The results, I think, speak to the transformation, and we're still in the early innings there.

So there's a lot more to come in terms of what those assets are going to produce and future opportunities coming out of PENN, and we couldn't be any more excited about owning that entire campus, which gives us the ability to unique things that you don't get by owning 1 or 2 buildings in a submarket.

So Jana, with that, I'll turn it over to you.

That's great. And we'd love to kind of dive into the best operating environment in 37 years. If you could help us kind of understand that a little bit more, characterize the state of the New York City economy, the job market and then office market.

Let me start and then Glen should jump in here. I think it all starts with where does talent want to be, right? And talent, particularly young talent wants to be in New York City at a disproportionate level relative to every other city. And that gap has widened post-COVID. So I don't know how many you have college-age kids or know people have college-age kids. I happen to have two that have graduated. I've had 80% of their friends that weren't from New York now work in New York City. And that's generally the case with almost everybody.

Now that doesn't mean they stay their entire lives, but they build their careers here and many times do stay. So talent wants to be here, companies recognize that. And you're seeing as a result of that strong broad-based demand. And I would say, as we sit here today, financial services, legal, accounting, tech, media, every sector is active and is growing, right? So driven by talent here, and therefore, the companies need to be here. You overlay that with for that -- for those companies to attract talent, they have to be in higher quality space in the right locations. That's generally around the two main transit hubs in New York, Grand Central and Penn Station.

And they want to be in amenitized buildings. And so out of that, I think we've said a couple of times, 180 million square feet, you're looking at a vacancy right now that's tightened the point, particularly in the Plaza district, mid-single digits. So you have tight vacancy. You have strong demand, rents are rising. There's limited new supply, and it's extremely hard to build in this city, both from a cost standpoint, from a time standpoint. So this is not Atlanta. This is not Charlotte where you can slab up a building in 2 years, right?

We know with certainty what's coming over the next 7 years, and it's not much, right? And so if the demand stays reasonably strong, by definition, you have to see meaningful rental rate growth, right? So that's why we're so bullish.

Why don't you tack on in terms of what else you're seeing?

Look, I think Michael hit it all. I mean I've also never experienced this market in my career, and I've been at this for 3 decades also. Just on the street, tenants are growing exponentially and there's no space. So we're seeing huge growth within our buildings. We're seeing tenants in our buildings growing into other buildings we own because they can't grow where they are. CEOs want to be in New York period. As Michael said, the talent's here. And we track the better building segment, which is about 180 million feet, which is Class A, trophy Class A and new trophy and that vacancy rate is only 6%. And if you think about that vacancy rate in the upper half of the buildings, the towers, it's even less. I don't know the exact number, but it's probably 3% or 4%.

So there's really no space. So we're all of a sudden seeing tenants battling for space in all of our buildings. And one thing we love about our portfolio specifically is our mix, where we have really done a great job expanding the Park Avenue subdistrict with a real stranglehold now with 623, Park Avenue Plaza, and 350 coming, the dominant PENN District portfolio where rents are rising daily. The rents are just out of control, up there now in a great way for us.

1290 has been an excellent performer, best building on Sixth Avenue. So we feel great about where we're sitting. We are working nonstop. It was the busiest August of my life. So we'll go to the next one, but it's bad news. Yes, exactly. Exactly.

Great. I guess about a year ago at this time, people were very concerned about the change in administration in the city. With the new mayor, just curious if there's been any notable changes on kind of the day-to-day operations or business? And any kind of new policies that you're watching that could potentially be positive or a little bit more challenging for the office market?

We've seen no change in behavior at all. We haven't lost any leases based on what John is saying. So nothing so far. I mean it's out there in the ether, so to speak. Everyone thinks about it. But so far, nothing at all that we're seeing on the ground.

I mean I love Ken Griffin's quote, right, that when all this was happening, my business is going to be here a lot longer than the administration, right? And I think that's how companies think, right? They're here long term. Again, the talent wants to be here regardless of who the mayor is, good, bad, whatever. And so companies are growing here. Big tech is growing more here than on the West Coast. Obviously, financial services is the center of the world. Legal is the center of the world, health care.

If you want the best of the best, you come in New York City, right? And so we're not seeing any change in tenant behavior. I mean, if anything, as Glen talked about, we've seen companies growth accelerate over the last year. And that's happening whether person X is mayor, person Y is the mayor, right? Their businesses are driven by what's going on in the marketplace. So -- nothing that has impacted tenant demand.

And I don't know that we're going to see it. Like the Pietà terror attacks got a lot of noise. I don't think that's changed any tenant's behavior and okay, you complain and then you move on.

Great.

And Citadel move forward with their commitment.

Well, I think the interesting thing about Citadel was if you look back to when we first announced the arrangement, which was in January of 2023. And at the time, the way we structured it, remember, this deal was negotiated in '22, world is in a different place, right? They thought that they wanted to proceed on a new building, but they weren't sure about 100% sure and growth plans, et cetera. We haven't designed the building yet, right? So we said, look, let's not force. Let's come up with a structure where both sides have effectively 8 years to decide to move forward. And if we want to get out at any time, we can put. If you want to never build, you can call and pay a premium, et cetera, et cetera, right?

So anyway, it was pretty clear in the ensuing few months that they wanted to proceed. They were refining their plans. And so when we first signed up the deal in January 2023 was if the development went forward, they were committing to 850,000 square feet, right? Now we just -- the official exercise by Ken occurred last year, and then we had until August to make our decision, right? And so we exercised to participate in the venture. So at the time that we committed, Citadel had increased their lease square footage to 1.05 million, right? So they've grown 200,000 square feet additionally in that 3-year period, right?

And we'll see. I'm not saying it's going to grow any more or not, but it's a juggernaut of a business, right? And these businesses, they don't sit around static every day. They're trying to conquer the world. And so there's a chance it may grow larger. But I just think in that time frame, not only just they commit, but they upsize their commitment over that time frame, notwithstanding all the noise, right?

And maybe since we started with 350 Park, just kind of any updates on demolition progress and possible 25% sale of the JV?

On the demolition, it has commenced and will complete in April. So we're coming down floor by floor on, I think, the 30th floor now. So by April, the building will be down, and then we'll start construction of the new tower. So all on schedule.

And what are you hearing from tenants, brokers in the marketplace.

I mean everyone wants to see what we're doing now. We're presenting actually tomorrow again. So we're definitely exposing the project, but we feel great about it. So he's taking the 1050 all in the bottom half other than 2 floors at the top for the executive center. So we have -- our speculative office block is perfect. It's floors 28 to 56, which includes some early option space where they could grow more so over the next couple of years.

But we're in the tower with views of heaven in the world and the park, perfect floor place to 26,000 feet with 16-foot ceilings, no columns, perfection. But we're absolutely in no rush to lease that. It's only going to get better and better. But certainly, we're exposing it, we're presenting it, and we're talking to everyone who's out there. But really, that space, my guess is we'll wind up leasing to 1, 2, 3, 4 tenants. It won't be a big block user, but we'll see. So we're out there and the response has been 5-star unbelievable response to what we're doing.

And tenants are looking that far out already because they're out of space, right? So it's a balance of rent and committing. I would say in terms of the 25%, I'm not going to comment much on that. We'll get into when we close the transaction, we'll publish the economics. I'm confident you guys will be impressed. And I think as I think Steve talked about on the call, we're going to try to lay off a little bit, take a little bit of profit risk off the table and but still on a meaningful piece of the investment. That's the game plan.

I think on the call, Steve said $350 per square foot rent.

350 at $350. That's our marketing slogan.

Maybe if you can kind of talk about the -- your various submarkets, what are you seeing with rent growth, which are stronger than others?

Just on Citadel, what rights have they got in terms of what to detail, design issues? What do you control? What are they...

The heads-up partnership between us and Ken Griffin. They agree on everything. Ken Griffin personally is our partner. Citadel is the tenant. That's how the arrangement works.

And how that?

Mutual, right? It's heads up deal. There's things that relate just to Citadel, we control and if it's things just relate to Vornado, they control, as you would expect, right?

Finishes. I mean is this a...

Building is designed. There's nothing to argue at this point.

Okay. So it's not a vanity project where he's going to overspend.

No, no. Now Ken owns 60% of the building. He wants to make money, trust me.

He cares a lot about the spec space and the rents and yes.

I think actually one of the more -- not just interesting, but positive things is he has thought like a landlord the entire time, right? He constantly says, Glen, what should we do here? How do we maximize the value of the space, right? It's not thinking about -- obviously, he wants the building to be great for Citadel, but he's thinking about how do I maximize my 60% ownership stake. And Glen, if you tell me we need to put in this amenity, let's do it. If you tell me that this is not good, let's not do it. So he listened to the real estate professionals, and he's very focused on that 60% being very valuable.

[indiscernible] money?

Yes.

Great. Maybe chatting about submarkets.

I mean rents are rising everywhere, particularly for us in PENN. Rents are going up, up, up. At PENN 1, particularly right now, we've leased more than 200,000 most recently with rents running into the $120s. Similarly, at PENN 2, we have another 60,000, 70,000 feet of leases out in that same ZIP code of rents. So we're really churning very -- we're in fifth gear in PENN. Park Avenue, any space we could get back right now with 280 Park, we're getting back and those rents keep rolling up, up and up. As you know, Park Avenue is just tight as a drum.

1290 similarly, I mean we're seeing rents there in the bottom of the building now in the $90s which is unheard of based on historical rents that we and others have gotten, but you're going to be $97 a foot on the 6th floor at 1290, which is a huge rent. So it speaks, I think, to the market, but it also speaks to what we've done with these properties. The redevelopment at 1290 has been off the charts for us. Some of you have seen it recently on the town hall, the rooftop park. It's really -- we've leased over 600,000 feet off that project now.

And of course, you've all been at PENN now. And it's really -- at this point in PENN, it's very natural state of affairs. People are coming, we're walking, we're touring and they just feel and experience the environment we created and everyone is loving it. So those submarkets are humming, Sixt, Park, PENN, but really the market overall is hitting on all cylinders. So rents are rising, free rents coming down and even TIs are starting to tighten. So it's certainly a landlord's market period. I mean, just clear at this point.

Just pause on that for a second. Glen, you were there early days, you came. I mean we used to get rents at PENN of $60, $65 a foot. We're basically double that now. And when we first published our yields, we thought we'd get, give or take, $90 a foot, right? So I think you're seeing a combination of obviously strong market and market acceptance of the submarket and product of what we've done.

And notwithstanding that success, we're still at a discount to Hudson Yards, Manhattan West, so forth. Now we're not new, right? But our amenities are better and we're better located. And so that gap should narrow, we think, pretty dramatically over time. And so this is round one of sort of the redevelopment benefit, but we think there's a lot of room to run on the PENN assets as we roll those leases over time.

And you touched on gaining a little bit more leverage in negotiations with lower TIs. Can you maybe just comment on kind of where those are, how free rent? What are tenants looking for? What's going on with term?

I mean term is no issue. We're still in the 10- to 15-year range, no change at all on that. If anything, people want flexibility for expansion, more than I've ever seen because people are growing a lot. Net effective rents are up certainly in the high single digits, if not at 10% at this point, but net effective rents are up and keep going up every month. So everything is looking up.

The arrows are up on everything, especially as supply keeps coming down and then the quality of that supply is really, really coming down quickly. The market is running very fast right now. So we're trying to look ahead every day. I mean we've been increasing rents over the past 3 months basically once every week or 2 in our -- always. We keep sitting down looking at our rent charts and increasing rents as we see things and just trying to stay ahead of the market as we're supposed to do.

How much interest and how much of your activity is on the early renewal side as the rental markets continue to...

More and more now. More and more, we're in a couple of those discussions with large tenants right now, which is -- gives us very good leverage on those negotiations. So that's a good point. Yes. Very much so.

Historically, has there been a spread to where if New York got pricing so far above some other market that people would start to shift to that other -- almost like a substitution effect? Has there been a spread? Does it get wide enough?

No.

There's never been that point historically where they've moved for price?

Never for price. I mean you see some companies taking space in Florida, Texas. That's different and those aren't big spaces as you see from the reports, but it's never been about price. It used to be, we're going to move to Long Island City or Brooklyn, that never happened either. That was more the price talk and that theory, but that never took off at all.

Maybe downtown, does downtown sometimes compete on price?

We never -- the tenants we talk to are never looking at downtown as a totally separate market in every respect. And by the way, downtown is performing better also now. But we don't see ourselves interacting with downtown activity at all. If anything, the downtown tenants, we've landed a bunch of them in PENN, they have come up to PENN, many of them, some of the health care companies, insurance companies, that's been good for us in PENN. But generally, we don't interact with them.

Most big downtown companies were already downtown, right? They've maybe moved to higher quality buildings. Some move uptown. I can't think of a major tenant that's moved from Midtown to downtown. That's not where they want to be.

Can you take us through what you think the profile of Park Avenue Plaza acquisition, I think it's 11 years time or 11 year term. So is it a future land bank? What -- how do you unlock value with that term? Or is it something you're just happy to sit on base?

Look, we love the acquisition. If there are 5 more then we buy 5 more, right? You can't -- when you have an opportunity to buy a high-quality asset in that kind of location at that kind of price, in our view, no-brainer, right? And we basically bought it for -- if you think about the value we're contributing the land at 350, we basically bought Park Avenue Plaza for land, okay?

Now there's a building on top of it with good income. So we didn't buy it as a teardown play. Is that a play? Sure. We looked at it and we evaluated it. That's like in for 15 years from now. But not -- that's likely not the path it's going on. You have an attractive yield with rents that are 40%, 50% below market at least, maybe more than that, right, certainly when the leases roll. And it's kind of a one-way option, right?

We have 11-year WALT with built-in bumps, good income, very strong cash-on-cash yield given the debt. And if any tenants want to do anything before that, they're going to have to come to us and say, we want to do something, right? And that's already happening. So that creates opportunity. So we have a baseline of, okay, we know we're getting this for the next number of years. And assets are not static, right? Companies grow, they get bought, they shrink, whatever the case may be, results in opportunities to restack that space.

And I mean, I don't even think we closed and we already had a phone call on this one, right? We didn't underwrite that. Just literally we're involved and we have an interest in doing something. So stuff is going to happen there, right? If it doesn't, we're fine with that, too, but stuff is going to happen there, and that's going to be positive in our view. but...

Would you joint venture? I mean, given the market is getting better, would you sell down an interest?

No. We bought a 49% interest, right? And I think that's part of what created the opportunity is, it was not a wholly owned opportunity. It was an opportunity to buy a joint venture interest. We happen to know the other 51% owner well or 50% owner well. And maybe some institutions didn't and said, it's not for us, right? So we're happy at our 50% and very bullish on it.

And the credit roster is excellent, top-tier financial service building, and we're already working on recapture opportunities in the tower, which we sort of knew about before we went after this building. So as Michael said, there's huge opportunity in this thing with the rents being so below market. And don't forget it's right next door to 350 Park, which we love.

One follow-up on the early renewals. Like what, I guess, year are some of these leases expiring that you're working on these?

29, 30, 31, mainly. Yes. So 3 to 5 years ahead of time already and big tenants.

And -- like yesterday, we did a New York City tour. We had a lot of folks who were there, we did a double decker open air bus. For a lot of people, it was the first time doing something like that. But one of the big takeaways was some of that -- some of the development, how does it all work? I guess, is there an easy way to explain to folks like over the coming years?

How -- the confusion is the dynamics, right? Like you're starting to see these early renewals. There's not much space. You were saying supply for the next couple of years limited. I guess how does it all -- like high level, how does it all work over the coming years? Because I think there was some confusion on -- does the new supply take away from some of this demand or not. And that -- it sounds like it kick-starting some renewals.

Here's the beauty of it. The new supply needs rents of, call it, $250 a foot or more, all of it, right, whether it's 625 Madison, 343 Madison, 175 Park, whatever it is. So that's great for us on the renewal theme because our rents aren't $250 a foot. So you have tenants who are in a tweener situation where their leases are coming up 3, 4, 5, 6 years from now. They don't want to move to new supply because it's too expensive. They generally like our building otherwise, and they want to renew because they want to redo their space or expand or something is happening.

So they come to us early in a market that's robust for us, and we're trying to take advantage of that. At the same time, we want to service our customers and keep our tenants, right? But at the end of the day, that's the umbrella of what's going on. They don't want to move to these new buildings because the rents are too high. And also these projects take a long time to deliver. So that's the general overview of what's happening.

I mean, Jeff, if you look at the supply and there's probably, including 350, maybe 5 buildings that are, let's call it, started or about to start, right? You'll probably have one of those deliver a year starting in '29. -- right? Maybe it jumps one here and you miss one, right? But that's not a lot of supply, right? And by the way, every single one of those buildings is at least 50% pre-leased. And most of that constitutes expansion space for those tenants that are pre-leasing that.

So I think it's -- so A, that's not much supply to add over the next -- that's probably from 29 to 32, 33, right? So you're talking about 7 years. And as Glen said, in terms of the rent dynamic, that's a big umbrella for all the other Class A buildings to operate under. I think for -- I think we've gotten to the point now as good as all this is, the city needs some new supply, right? If you can't service these tenants, they will look at other places, right? Maybe they'll move a little back office. But eventually, to attract that talent, you have to be in high-quality space.

So we need some new supply, right? We don't want oversupply, but we need some amount of new supply. And so that's what you're seeing. And that generally is catered toward the financial service tenants because when you're talking about $250, $350 a foot rents, those are financial service tenants, right? I mean shocking, I guess there's actually a couple of law firms that are now leasing space, which tells you how much money lawyers are making these days, right? They're making more than you guys now Sterling, right? They're making more than bankers. I know it's shocking.

So I'm sure Horwitz is bothered by that, right? So you have to service those companies. And those companies -- if you think about the investment managers and their businesses continue to grow, right? So they're going to grow in terms of space needs. You have to service that with some amount of new supply. So for New York to be successful, we have to have some new supply. We don't want a massive bulge, and you're not going to see that. It's just too -- the quantum of capital that you're having to move on these deals now, and we've got all the data going back to when the Hudson Yards deals, it's like 2x what it used to be, right?

So damn expensive, the amount of not just debt, but equity, there's just not many people that can pull it off.

And then I think the other takeaway was the sticker shock on what we were hearing rents. You mentioned $250 for new. I think we heard over $400 and maybe some top floors, at least over $350, I guess, for -- again, I think I see some faces in the room that were on the tour. I think there was some surprise there. What are your thoughts around that?

People are paying it who could afford it. And it's the financial companies. They want the best of the best. So they've increased their budget on rent, right? It used to be rent was x percent of our overall operating expense, and that's no longer because people realize just how important it is to be in the best buildings, more than ever, recruiting the brand, the company, the culture.

So I will spend more on my real estate to get the talent. And then part of that is a lot of -- all the industries are competing for the same people. So the financial companies are competing with the technology and the AI companies, and it's all very mixed, and that's part of it also. But it's changed. The game has changed. And that's why the rents have been able to increase and become much more elastic upwards in these new properties.

And I think, Jeff, the key thing is that's happening already, right? Like we have a chart we put together that we sort of look at. Glen talks about where our spec space is on 350. And so there's a number of comps we sort of where in the buildings that comp, what are they paying, et cetera, right? There are several deals that have been done in the $300, in some cases, upper $300s for space, right?

So that's today, right? Now when these buildings get finished and the market is further ahead, we think that number is going to be higher. But we're not prognosticating something that's not happening. It's happening today, right? It's going to keep happening. So when 9 West says we're going to tell you $400 a foot, God bless. We're rooting for you. We hope you do it because if we tell you $350 and $350, it may look like a bargain, right? That's today's number. It may go up, right? So we're not guessing, so it may get there. There are actual comps that they are there today.

Maybe just in the interest of time, I want to quickly jump into capital allocation and balance sheet. Curious...

Maybe retail? Doesn't get much of a mention what's going on in the retail.

Look, retail has come back strong. New York is the premier market for retailers, right? If you want to have -- this is where the tourism is. This is where you maximize sales when you have a location. So I would say that leasing velocity has picked up significantly in the last 2, 3 years. We've seen a number of, I would say, particular international retailers that want to come to New York first-time locations, right? We're in active discussion with today. Rents in retail, it's not office. It's a little more bespoke. You can be two blocks different on Fifth Avenue, one versus another, and the rents are totally different given the quality of the space and who you're next to and so -- but I would say for the best assets, you're pretty close back to peak rents, both Times Square and Fifth Avenue.

If you look at what we've done in Times Square, we've executed several leases and have a couple of those in the works that are basically back at peak levels. I think we'll announce a deal in the third quarter that's quite strong.

Market rents would be?

What's that?

Market rents in retail, what would that be?

I'd say Times Square -- and again, this is -- Times Square, the bull's eye is the bow tie. We own both sides of that. When you get one block on either side, it falls off a little bit. But I would say rents in the bull's eye are $1,500 to maybe $2,000 a quarter, right?

What sort of growth rate is that?

On an annual basis or 3% a year. On Fifth Avenue, let's call it, rents generally back to -- depending on what it could be anywhere from $2,500 to $3,500 is a sweet spot and some spaces command a lot higher, right? And we've achieved that recently in the space.

So a lot of it is the quality of the asset, right? There's a stretch of Fifth that's probably four blocks. It really is with the luxury, it's a lot higher. So the beauty of both of those is that's beachfront real estate. They're not making any more of it. Exactly what -- how much there is and with users buying some of that space over the last few years, right, there's just less and less of that available.

So I mean, we got, in fact, two calls in the last week on Fifth Avenue out of the blue. So it's not an office where there's a rhythm because those are big commitments. There's another deal that will get announced shortly, not ours. But these things take a little time, but market is healthy.

Can you touch on the investment sales market, just given the upward pressure on rates? I know you're looking to sell a couple of sizable assets. You've got the 350 Park interest you're looking to sell as well. Just kind of what you're seeing, any tenants, what's going on there?

Yes. I think if you trace the -- what's happened in the market, at first, I'll call it, some B assets traded, right? And that tended to be private capital. Then some higher-quality assets came to the market and you start to see more institutional capital. The REITs like us and SL Green got more active. We clearly see this as the most interesting investment environment probably in 15 years.

We're pretty -- if you look at our track record, I don't think we made a -- other than Farley and St. Regis, I don't think we made a single investment on a new buy for a decade, right? So if it's not the right thing, we're happy just to keep sitting out. In our view, the last 18 months has been prime time. And you've seen what we've announced, we missed out on a couple of other things we're pretty close on.

So we've been pretty bullish and remain so. But it's a tight window when we're willing to buy. But I would say in terms of what the capital is out there today, it's private capital is active, high net worth capital is very active. And I'd say that's globally, South America, Asia, Europe.

Michael, I'm so sorry, I don't want to cut you off, but unfortunately, we're out of time. I have three rapid-fire questions, if I could sneak in. Number one, if long-term rates stay higher for longer, which has the biggest impact on earnings for your sector? -- higher refinancing costs, lower transaction activity or less new supply?

Probably higher refinancing activity.

And over the next 3 years, will third-party capital become a more important source of growth for public REITs than balance sheet capital? Yes or no.

I only care about us, probably not.

And then for your sector, will 2027 same-store NOI growth be higher, the same or lower than 2026?

Higher, Tom. Right there?

Yes.

Thank you very much.

After second, I only care about option.

Thank you very much. I appreciate the time.

Good morning, and welcome to the Vornado Realty Trust Second Quarter 2026 Earnings Call. My name is Betsy, and I will be your operator for today's call. This call is being recorded for replay purposes. [Operator Instructions]

I will now turn the call over to Mr. Steve Borenstein, Executive Vice President and Corporation Counsel. Please go ahead.

Welcome to Vornado Realty Trust Second Quarter Earnings Call. Yesterday afternoon, we issued our second quarter earnings release and filed our quarterly report on Form 10-Q with the Securities and Exchange Commission. These documents as well as our supplemental financial information package are available on our website, www.vno.com, under the Investor Relations section.

In these documents and during today's call, we will discuss certain non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP measures are included in our earnings release, Form 10-Q and financial supplement.

Please be aware that statements made during this call may be deemed forward-looking statements, and actual results may differ materially from these statements due to a variety of risks, uncertainties and other factors. Please refer to our filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31, 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 comments are Steven Roth, Chairman and Chief Executive Officer; and Michael Franco, President and Chief Financial Officer. Our senior team is also present and available for questions.

I will now turn the call over to Steven Roth.

Thank you, Steve, and good morning, everyone. We had another strong quarter with comparable FFO of $0.67, beating analyst consensus by $0.10 or 17.5%. Michael will review it all shortly. But first, let me cover what we are seeing on the ground. New York is clearly the best, strongest and most important real estate market in the country and the most resilient. We are a Manhattan-centric office and street retail company with best-in-class assets, which are benefiting from these dynamics.

The stock market seems to appreciate this, given our stock price performance year-to-date and over the past 2 years and the past 3 years has been the best in our peer group. And there is more to come. I believe our stock is still stupid cheap. For example, Green Street shows us at a 23% NAV discount, much deeper than our peers. The landlord's market that we have been predicting for the past many quarters is here. It is broad-based and it is strengthening.

Office leasing volume in Manhattan is at its highest level in 25 years. Tenants are expanding all over the city. Available space and sublease space continues to evaporate and office-to-residential conversions continue to remove square footage from the office inventory. There is a serious shortage of large block availability.

Vacancies in the 180 million square foot Class A better building market in which we compete is now down to 6.2%, clearly a landlords market. There is limited new supply on the horizon. And remember, new supply takes as long as 5 years to deliver and requires upwards of $300 rents to pencil. And to add to all that, interest rates are rising. As a result of all this good stuff, rents are going up, I couldn't be more constructive.

In New York, tenant demand spans across all industries. Law firms alone leased 2.3 million square feet this quarter. Legal, tech and media accounted for 8 of the top 10 leases signed. This isn't one industry having a moment. All of our clients are growing. Interestingly, a real estate platform that tracks these kinds of things recently reported that AI companies are now leasing more space in New York than in San Francisco. So all good.

At Vornado, our singular focus is on executing our plan to deliver the highest growth in our sector based on our lineup of high-quality assets and in-process projects. Here is our 2026 scorecard. During the first half of 2026, we leased 978,000 square feet overall. For Manhattan office, we leased 659,000 square feet at $105 per square foot average starting rents with mark-to-markets of positive 9.5% GAAP and positive 7.1% cash.

I would note that these mark-to-market stats do not include our leasing activity at PENN 2. We are following our transformation. We are achieving rents that are just about double the old rents.

This is as good a place as any to take a victory lap on what we have accomplished at PENN 1 and PENN 2 financially, physically and aesthetically. Think about it. At PENN 1, broadly speaking, we invested $200 per square foot to achieve a $50 a foot uptick in rents, which when all gets said and done, is a 25% return. Rents at PENN are now well above our underwriting and are now the best value in town. So plenty of room to grow here. Our physical transformation is stunning and game-changing and award-winning. Please go take a look.

During the second quarter in Manhattan, we executed 29 office deals totaling 348,000 square feet at industry-leading $107 per square foot average starting rent with mark-to-markets of positive 7.7% GAAP and positive 5.0% cash. This quarter's leasing volume included 181,000 square feet in the PENN District and 167,000 square feet in our other Manhattan assets. We are now consistently achieving triple-digit average starting rents.

I suggest that mark-to-market is a squishy metric, which depends entirely upon which leases are included in the calculation and their rent. And so it's pretty random. Rather, I submit it is better to look at starting rents for new leases as a much more fine-tuned metric, which would allow for better comparisons of buildings to buildings and companies to companies. I confess to talking my book here since our starting rents have led the New York office public peers for years now.

In the PENN District, at PENN 2, we have 67,000 square feet of leases out for signature, and we expect to be fully leased here down to dribs and drabs by year-end. At PENN 1, we have 246,000 square feet of leases out for signature at an average mark-to-market of a whopping 44%. Company-wide, we are projecting third quarter mark-to-markets of over 20%. I guess you could call this all soft guidance.

With all of this activity, we continue to review our pricing here on a bi-weekly basis. Importantly, given that roughly 10% of the space in PENN 1 rolls each year, we expect continued strong growth from PENN 1 as we keep marching old rents up to market.

We continue to be delighted with our 2 most recent acquisitions, 623 Fifth Avenue and Park Avenue Plaza. Thanks to Harrison for giving us a shout out for these 2 deals on his call. 623 Fifth Avenue is our spectacularly well located. And by that, I mean in the center of everything, 383,000 square foot asset, which sits on top of Saks Fifth Avenue that we are redeveloping to be the 220 Central Park South version of boutique office space. We are off to a great start here, receiving outstanding reaction from brokers and tenants. We are about to execute our first lease of the 2 floors with a financial services firm at rents consistent with our underwriting.

Of note, even at this early stage, market demand is telling us to increase our asking rents above original underwriting. As you know, we recently acquired a half interest partnering with Fisher Brothers at Park Avenue Plaza, a 1.2 million square foot tower on 53rd Street. The deal was at a valuation of $950 a foot, which for Prime Park Avenue is a 1/3 of replacement cost. This asset taking advantage of the in-place 2.9% mortgage loan with 6 years of term remaining is a coupon clipper at 8% cash on cash. So the way I look at this, we are earning double the risk-free bond rate from risk-free Park Avenue AAA real estate. The in-place leases at Park Avenue Plaza are at, give or take, half current market.

So we expect very substantial capital appreciation here to go hand-in-hand with above-market current earnings. Our market-leading signage business in the 2 most important and highest traffic locations in Manhattan, Times Square and the PENN District continues to grow at a healthy rate. We love this business. It's capital light and has been growing at 5% per year. We intend to add more signage in the PENN District, where we control almost all of the real estate around Penn Station and Madison Square Garden.

If you drive or walk past Park Avenue at 52nd Street, you will see that our 350 Park Avenue site is now under construction, actually under demolition. We intend to shortly exercise our investment option to participate in this deal at our maximum ownership percentage of 36% alongside Ken Griffin as our 60% partner and with Citadel as our 1-million-square-foot anchor tenant. Several commentators and analysts have suggested that we take the money and run. No, no, no, that would be incredibly shortsighted.

In our business, there is no better place to invest in Prime Park Avenue with 1 million square foot tenant and a 60% partner already committed. We are contributing our existing land and 65-year-old building at a $900 million valuation. We have the balance sheet resources to support this deal and all of our other financial requirements as well. We have a $3.3 billion construction loan ready to go. I think $3.3 billion may be a record.

The partnership, and by that, I mean all partners is contemplating selling down a 25% interest at a price which will give us an appropriate profit and also give the buyers an appropriate profit. We expect the joint venture closing will take place in September. We are extremely excited and bullish about the potential returns from this project. The brokerage and tenant community is buzzing, and we are already getting incoming for available space, all of which is new space from 600 feet to 1,000 feet from clients seeking the very best and for whom our delivery date fits their needs.

At Vornado, management of our balance sheet is the highest priority. Michael and his team have worked very hard to get our debt ratio down into the 7s. We keep dry powder for offense and liquidity for defense in all cycles. We are in conversations to sell 2 nonessential assets, which would very substantially increase our liquidity profile. Here is the status of our stock buyback program. This quarter, we repurchased 1.8 million shares at $29.92 per share. Since we have started buying back shares in 2023, we have repurchased 8 million shares at $26.61 per share. We will continue to take advantage of the stock as the opportunity presents itself.

Just for kicks, on a final and interesting note, I recently heard an interview with Taylor Sheridan, the screenwriter, director, producer, and actor best known for creating the massively successful Yellowstone universe. I confess that I'm addicted to his stuff. Here's what he said about New York. I effing love New York. It's the first place I lived after Chicago. It's a phenomenal city, and it's a city that I feel is much tougher. It endures a bad politician or 2, and you can't tank it. New York just shakes off this stuff like a case of bad fleas, it keeps going. It doesn't matter the industry if you're in, in New York. If you're successful here, if you're a bricklayer, you're one of the best frigging bricklayers on the planet because there are 8 million people competing for your job. New York just mandates excellence from everybody in every way and in every field. By the way, when somebody asks who doesn't know me what I do for a living, I say I'm a bricklayer.

Now off to Michael.

Thank you, Steve, and good morning, everyone. Second quarter comparable FFO was $0.67 per share compared to $0.56 per share for last year's second quarter, an increase of $0.11. This significant increase was primarily due to higher FFO resulting from rent commencements at PENN 1 and PENN 2, the impact from the NYU master lease at 770 Broadway being in the prior year and higher NOI from signage revenue, partially offset by higher net interest expense. We have provided a quarter-over-quarter bridge on Page 2 of our earnings release and on Page 6 of our financial supplement. Our core office and retail businesses are performing increasingly well and are now beginning to reflect the growth from leasing up PENN as well as our other vacancies.

Our New York office same-store NOI was up 13.7% for GAAP and 11.9% for cash. Our New York retail same-store NOI was up 7.3% for GAAP and 5.7% for cash, and our New York business overall was up 11.9% for GAAP and 6.2% for cash. We now clearly expect full year 2026 comparable FFO to be higher than 2025 with second quarter comparable FFO being a decent average run rate for the rest of the year.

As previously indicated, we expect there to be significant earnings growth in 2027 as the positive impact from the lease-up of PENN 1, PENN 2 and our other vacancies continues to take effect as well as the positive impact of the recent acquisition of Park Avenue Plaza.

Turning to occupancy. New York office occupancy increased 60 basis points this quarter to 92.2% from last quarter and up significantly from the trough of 84.4% in the first quarter of 2025. This significant pickup is reflective of the successful execution of our plans and the Manhattan Class A office market dynamics that we've been talking about over the past couple of years.

Our New York office pipeline is robust and has over 2.2 million square feet of leases in negotiation and various stages of proposal, including the 1 million square foot Citadel lease at 350 Park Avenue and over 500,000 square feet in the PENN District. Based on our strong leasing pipeline, we anticipate that our occupancy will grow to north of 93% by year-end with further gains thereafter.

Demand for our retail assets also continues to pick up. We are seeing new retailers, including many international ones, enter the market as well as retailers in prime locations looking to renew their spaces early so as not to lose them upon expiry.

Finally, turning to our balance sheet. Our liquidity remains strong at $2 billion, which is comprised of cash of $789 million and our undrawn credit lines of $1.2 billion. We hope to bolster this further with the asset sales Steve referenced earlier.

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

[Operator Instructions]

The first question today comes from Floris Van Dijkum with Ladenburg.

Obviously, we're starting to see some growth, which is very encouraging. Maybe could you talk a little bit about your -- the gap between leased and economic occupancy today and where your peak physical or economic occupancy was in the past? And how much more of a runway there is?

Michael?

Floris, so historically, we ran at 95%, 96% occupancy on a physical basis. I think maybe touched a little bit higher occasionally, but I would say that was a pretty consistent run rate. Today, we're at a little over 92%. We expect that we'll get back to our historical run rate in the next couple of years. Given the pace of the market, it could happen sooner than that. So we're pretty confident about that.

From an economic perspective, just given the signed-not-commenced leases, obviously, that number is lower. I think on a, let's call it, on a GAAP basis, which probably relates most directly to earnings, we're probably 83%, 84% relative to the 92.2%. So physically, we should get back into the mid-90s. And obviously, on a GAAP basis, that will close up as those leases come online.

Floris, I'll put a little more meat on that. Our signed but not in occupancy and not in our earnings number the revenue side of that rents are $180 million, which is probably somewhere $150 million, a little bit more than that of FFO. So that will give you the number as to where we stand now. And that number, obviously, haven't commenced yet, so that's in the bag.

My follow-up question, and this is more of a broad question because if you do the math, the rents required to make 350 Park Avenue pencil out suggests that you're going to rent that building at around $350 a square foot. What kind of impacts will having these really, really high-end properties do to adjacent or nearby buildings? I'm thinking also potentially about the potential upside of your recent acquisition at Park Avenue Plaza.

The rents on the new buildings -- your number is approximately correct. Will create an umbrella at all of the older buildings, which have in-place rents of less than that at Park Avenue Plaza has rents of about 1/3 of what you just mentioned. It will all suck them all up. So that what's going to happen is the combination of scarcity, the combination of everybody in New York expanding and looking for space and the fact that there's a scarcity of new supply and the combination of the construction cost, interest rates, et cetera, require a very high rent for a new building. That will cause the great, the well-located older buildings to go up in value enormously. And obviously, that's the reason we bought Park Avenue Plaza.

The next question comes from Alexander Goldfarb with Piper Sandler.

Thank you for the update on 350. I guess a question there around rents. While a few quarters ago, we were talking about sort of $250 gross to make new deals pencil, I think when we talked about PENN 15, now you're talking about $300, $350 to make new deals pencil and clearly, at $350, you have legacy basis. So the increase in rents to make deals pencil, is that sort of on a new market basis, meaning if you were to buy land today and given where interest rates are? Or what's caused sort of the target construction rents to go from sort of the $250 we talked a few quarters ago to now sort of the $300 to $350?

Oh boy, complicated. I'm not sure I understand the question, but none of these numbers are written in stone, Alex. I mean they're sort of like ranges. The market doesn't really need $350 a foot to start a new building. The market and our competitors would start a building somewhere in the probably mid- to high 3s, mid- to high 2s. And what the market is doing is giving a bargain rent to the anchor tenant with the hopes and aspirations that the follow-on smaller tenants at higher rents will make the whole thing pencil. But in the whole, you think about it, if a new building on Park Avenue costs $3,000 a foot, you can do the math.

Okay. And then the second question for Glen. Year-to-date, you've done about 660,000 square feet gross in New York. There are a lot of tenants that are talking about early renewals. Can you talk about the level of conversation and the -- presumably, there's some acceleration in the back half or just what we should expect as far as leasing goes compared to the 660,000 so far?

So as Michael said in our script remarks, putting aside Citadel, we have about 1.2 million square feet in our pipeline, which is a really strong mix of new expansion renewal and we're strategic about renewals. We're not going to do a renewal unless we like the terms. So while we're talking to a lot of tenants expiring next year, the year after, et cetera, as the market continues to quicken in strength and pace and as we feel better and better every week with what's happening, we're being very careful in terms of locking in too quickly. But our tenants generally want to stay, and we're in a lot of discussions in that regard, but we're being careful and smart about it.

The next question comes from Dylan Burzinski with Green Street.

Steve, maybe going back to your comments at the outset of your prepared remarks talking about how the stock remains cheap, how it remains well below sort of our NAV estimate. Can you kind of just talk about -- I think you alluded to in the past, just being interested in taking assets to market and testing where private market bids are at. Can you just talk about that? Is that still something you guys are interested in and maybe obviously using those funds to continue to take advantage of the disconnect between where shares are at today and where you guys perceive value to be?

I think what you're saying is that we should sell buildings at the private market value and buy stock, which is Green Street's formula for success. We sort of believe in that. We sort of also believe that our buildings are going to appreciate value. We are actually in conversations with selling 2 buildings the proceeds of which would be a very significant cash amount and which accomplishes our financial objectives in the short term.

The history in New York has been that almost every time you sell a building in almost any cycle, you've been wrong. And that goes for our street retail assets and our office assets. So we do have a handful of assets that we are happy to sell and want to sell. We have a couple of assets that we are actively in conversations to sell. And we're very happy owning the rest of them until at some point, they become more valuable and then maybe we would sell them.

With respect to our stock, we still think our stock is extremely cheap. As you know, the NAV calculations are basically based upon what is in place now and what assets we own now. It doesn't give any credit for what will happen in the future with any of our -- I mean, for example, there's no credit for the 350 Park Avenue deal and the profit that will undoubtedly come from that or the Park Avenue Plaza uptick in rents or the 623 development that we're doing. So the NAV number is a static number, which is backwards-looking. When we sit in our council room, we look at that number very hard, but we also look at the future value. And so that's my answer, sir.

No, that's very helpful. I appreciate that commentary, Steve. And then maybe just one on -- I think it was announced yesterday that Snap was subleasing some of Verizon's space. Is that -- are you guys involved in that at all? I know when Verizon struck that lease, rents are probably higher today than where Verizon's lease is at. So any upside that you guys are able to get? Or is that sort of solely Verizon's economics?

We didn't participate in that deal. That was a deal between Verizon and the subtenant. We did, however, decline our recapture option, choosing instead to keep the Verizon credit for the 20-year term.

The next question comes from Steve Sakwa with Evercore ISI.

I think on the last couple of calls, you guys have talked about this kind of $0.40 FFO uplift in '27. I know you don't give formal guidance, but there was a bridge there just given the strong signed-but-not-occupied pipeline. Obviously, you've had good growth in Q2 and talking about a good second half. I guess, does that $0.40 number still apply? Or has some of that FFO maybe shifted into '26 and it dampens the growth a little bit into '27?

Steve, we're not going to get too much into guidance given we don't give it. If you remember, when we made that comment, I think we started off talking about the year being flattish relative to last year. Obviously, we're significantly outperforming that. But the $0.40 was relative to that flattish comment. So I think we were at $2.35 last year, $0.40 on top of that, $2.75. So some of the growth is occurring earlier this year than we expected. At the same time, we still think we have meaningful growth next year.

So our comment on sort of significant growth still to come in '27 remains intact. Some of that $0.40 got started flowing through this year. But certainly relative to where we started beginning of the year is still intact. And given the dynamics, hopefully, it will be in excess of that.

Great. And as my follow-up, Steve, I guess your comments around doing a JV at 350 is interesting given the Citadel lease. I guess how did you sort of weigh doing that JV now versus leasing that building up further and doing something down the road given that it's not being delivered for 4 to 5 years?

We made a decision to do the deal with Ken Griffin and Citadel years ago. And our deal with Ken was signed probably, I don't know, 3 years ago, something like that. So this is just the continuation of that path, which was decided 3 years ago. During that time, between now and then, Barry and his team and the Citadel team have designed the building with the Foster and the Foster + Partners architectural firm and done the drawings and we're now under construction. So these decisions were made 3 years ago, maybe even 4 years ago.

The next question comes from Jana Galan with Bank of America.

By the way, before I get into that, let me finish the last question a little bit more. If you do the math and we do the math, I mean, we really groove on math around here. If you do the math, notwithstanding the fact that there is a time delay from the time that you demolish the old building and give up the income on the old building from the time you get the new building, the new building, which will have rents in the stratosphere, so to speak, which is the market, which is required, are substantially enormously more profitable than keeping the old 65-year-old building, dumping money into that building because in 10 years, that's going to be a 75-year-old building, and you know what that means. So anyway, decision really was not that difficult to make to demolish and build a new building. I'm sorry, now we can go to the next question.

The next question comes from Jana Galan with Bank of America.

Congrats on the quarter. The retail leasing had a nice pickup, but the lease term I noticed was pretty short. Curious if that's just a strategy to do more short-term activation as you plan some of the larger retail redevelopment or if something else drove that?

Jana, I would say generally, it was just -- in general, a number of short-term deals, some in-place tenants that we extended, some short-term deals that we don't want to lock up the space. We continue to view the market as getting stronger. And so we don't want to commit the space long term until we get to an appropriate level. And in some cases, tenants need more time to make decisions on how long they want to commit for, et cetera. So a mix of those. But I think most of those, as we said, short-term in nature.

And then maybe just I noticed the Pier 94 occupancy dropped quarter-over-quarter. Anything you can share that or prospects for new leasing there?

It's Glen. I'll take this one. So the occupancy is already up into the high 80s by the end of July. So we had a couple of vacates at the end of June, which is why you see the number you're seeing, and we're already back up to where we were with a lot more activity in the pipeline.

I mean, Glen, why don't you just comment on the users' experience and reaction to the pier.

Yes. I mean the activity has been excellent. The users are all top-of-class, head-of-class, Google, Netflix, Paramount, Apple, all the names we want. And as they go on and on, the experience has been A+. The reports back from them have been excellent. So we're feeling very good as we head into the second half of this year into '27 that really great things are going to happen there. The project is really the best in town. And certainly, the users coming in are recognizing that as they use it.

You have to remember, this asset, which we are partners with Blackstone and Hudson Pacific is kind of analogous to a long-stay hotel. So this is not an office building, which has 10- and 20- and 30-year leases. The tenants that come into this building and use it as a production facility for shows that are in process, so that can be 3 months or a year or what have you. So the occupancy will fluctuate.

But we do feel we have a unique asset. It's the only asset in Manhattan. It's very well-located, and it's being extremely well received even at these early stages by all of the -- I say, all of the big boys.

The next question comes from Anthony Paolone with JPMorgan.

On 350 Park, you mentioned going to the maximum 36% stake in the project. Can you talk about what that means in terms of any incremental outlays for Vornado or just how that works?

Michael?

Anthony, so look, we'll lay out all the details when we close the venture in terms of cost, financing, et cetera. Steve referenced the construction financing that we've lined up. We're contributing our land in at the $900 million value. And so incremental capital requirements from us over time are in the $300 million, $350 million neighborhood. That doesn't really start for probably 2.5, maybe even 3 years in any significant scale given that Ken has to true up his equity with ours and then the bank wants to get money out. We like that environment. The banks want to start putting money out. So our equity is back ended and really won't come, I would say, meaningfully until 2029 and then thereafter.

Okay. Got it. And then just on -- in terms of -- just you mentioned, I think, Steve, just that kind of a project putting on umbrella over the rest of the assets around there over time. And it seems like your base is going to probably be over $3,000 a foot. And the presumption is you lease it up and it's worth, I guess, something north of $4,000 plus a square foot. How do you think about just that gap between a number like that and buying something around the corner effectively at $950 a foot. Like is that dispersion? Does it make sense? I get the difference in age and asset, but is carried land just as interesting an investment at this point than the bet at $4,000-plus a foot on a pro forma stabilized basis.

We would buy 100% of Park Avenue at $1,000 a foot if we could.

Anthony, you're making the case for exactly what Steve said earlier, right, that, that dispersion is very wide, that buildings like Park Avenue Plaza, if the market continues to hold its strength, and we know there's not going to be a lot of supply, those buildings have to appreciate significantly. And we own many of those buildings, which is why we're bullish on our stock and the value that we have and where it's going. So 100%.

Rents have to rise there, values have to appreciate meaningfully because they're basically trading at land value in a lot of cases.

But don't get the impression that the people who are paying $250 or $75 or $300 a foot are stupid. They are not stupid. They are the most important and largest and major companies in the country. There is a difference in the value of a brand-new building in its design and its function. So -- but the answer is it's not the difference between $100 a foot and $300 a foot. So the $100-a-foot buildings are going to go up in value substantially, but not to the same rental rate as a new building would command.

The next question comes from Vikram Malhotra with Mizuho.

Congrats on a strong quarter. I guess just first question, given the strength in the future direction in terms of FFO and the pickup, you mentioned some of it is coming in '26. I'm wondering if you can just maybe give us a little bit more color on how that translates into cash earnings, like relative to this year's TI bill, what could the TI maintenance CapEx bill look like for next year, just high level? And related to that, any sense of where we are in terms of TIs coming in after the market has strengthened?

I'll hit the first one and Glen can hit the second. I think in terms of TIs this year versus next year, I mean, again, given we're in that lease-up mode, given frankly, when the tenants call for the money, I don't have the numbers right in front of me, Vikram, but I think it's pretty comparable year-over-year.

So not meaningfully different enough that, that would change. I think in '28 is when that starts to tail down as we're through that big leasing. But again, it depends on when tenants call for the money, it tends to be a little bit later than when we normally expect. So that's my commentary on the capital side. Glen, do you want to just talk about TI trends?

Vikram, so we're seeing concessions come down. Rents are going up. We're tightening concessions. I've said on a couple of calls in a row now, free rents coming down, and we're now seeing tightening on the TIs. Certainly, anything we're turnkey now has a cap on the tenant fund. So overall, I would tell you, all the metrics are trending absolutely in the landlord's direction, which is very good for us and we continue that -- we expect that to continue as we go as the market continues to get better and better.

And then maybe just a bigger, broader question. Clearly, New York is at a place where we're all talking upside to rents and mark-to-market positive. San Fran is still sort of in maybe perhaps occupancy recovery mode. I'm just wondering future capital allocation for Vornado, if you were putting in new capital today, like how do you differentiate and assess sort of opportunities in New York versus San Fran? Like where should we expect kind of a better risk-reward at this point?

We love San Francisco. It's a recovering market. The interesting thing about it is we own the best building in San Francisco, differentiated. It's not a tech building per se, although we do have a few tech tenants. It's a financial services building. All of the major financial services players are in that building. And notwithstanding the fact that vacancies grew to very high numbers in San Francisco and rents plummeted, that building, 555 California, the rents went up and occupancy stayed by and large, pretty high.

Now with respect to New York and capital allocation, I mean, look at what we've done in the past as a prelude to what we'll do in the future. We have invested in 2 or 3 new acquisitions. We invest in our existing buildings by leasing them up in the TI and in keeping them modern and pristine and ahead of the market. We invest in our buildings in terms of amenities. We invest in our stock. So we're investing in new acquisitions, our existing assets, our common stock and, of course, the PENN District. So we have a very full plate.

But at the same time, bringing down leverage while doing that.

Yes. How did you do that?

A little sleight of hand now, asset sales, et cetera, and we're growing income.

By the way, our budgets show that after the bubble, the good bubble of this very large leasing period is over and the free rent burns off and the TIs are paid, our financials become extraordinary. Our positive cash flow becomes -- well, our cash flow becomes positive and grows fairly significantly.

So there's a 1- or 2-year period, and then there's a very, very, very -- we're very, very constructive about our company in the future years. That's why when I say we look at the future NAV harder even than we look at the current NAV.

The next question comes from Seth Bergey with Citi.

Just wanted to circle back on 350 Park Avenue. You mentioned the partial sale. Can you just broadly talk about given kind of the improvement in New York fundamentals, what the buyer pool looks like for that? What type of money is interested in investing in New York office today?

Michael is going to -- I think you asked about the mention that I made that we were contemplating selling down 25% of the ownership of the building and inviting a new group of investors to come into the asset now -- and so what's your question about that?

Yes. Just are you seeing -- is it core money that's interested in office opportunistic, sovereign? Just talk about kind of the interest from the different buyer pools in New York office real estate.

We're basically targeting high net worth family offices. And it would be a club deal, not a -- so it would be a club deal, people investing $100 million or maybe $200 million, not $1 billion. That's our current target.

Great. And then maybe just a follow-up. With kind of the new pied-a-terre tax in New York, are you seeing any impact on that for high-street retail leasing?

Not at all. We don't expect that, that's going to affect shopping or tourism or domestic spending or whatever. So the answer to that is not at all. What we -- and by the way, we're not really in that business. I mean we don't have a current condo job under construction, although we have developed the most successful one in history, that's in the past. And that's sold out, by the way. We do hear from the marketplace that the tax has affected the interest of buyers in the over $10 million category. But that's not first half, that's second and third hand from just gossip that I'm hearing from the marketplace.

The next question comes from Ronald Kamdem with Morgan Stanley.

Great. Just 2 quick ones. One, and this came up earlier, just on a high level, I think you touched on just maintaining leverage. You touched on sort of CapEx. I was just wondering if you could just put a point on it in terms of like what the model says leverage looks like as sort of EBITDA comes on as well as what the CapEx trajectory looks like.

Ronald, the quick reading your report, it sounds like we have a fairly wide disparity on NAV viewpoints. CapEx, I think I said earlier, I think it's going to be fairly consistent this year to next year just as the large amount of leases, particularly at PENN 2 and the remainder of PENN 1 get funded. Even a lot of the leases that get signed this year, that won't get funded until next year and maybe even [ slobers ] over a little bit to '28. But I think fairly consistent year-over-year.

And on the leverage side, I think we'll continue to trend down into the 7s over the course of this year. And as the income comes online in the out years, obviously, there's a lot that's going to happen between now and then, but that number could go sub-7. We think it probably will go sub-7 absent other investing, et cetera.

Great. Helpful. And then I think you mentioned sort of 2 nonessential sales. I was just wondering, I think in the past, whether it was Hotel PENN or some of the retail assets. Just any thoughts on transacting on those?

No, it's not Hotel Penn. Hotel Penn doesn't exist anymore. By the way, it's a piece of land, which we consider to be the best development site in the West Side of Manhattan. That's not for sale.

The next question comes from Caitlin Burrows with Goldman Sachs.

Maybe a follow-up to that last one, just on the planned asset sales, whatever they may be as we try to figure out the impact of them, those 2 properties, would you say they're more in the noncore bucket, i.e., potentially higher cap rate or in the bucket of crystallizing private market valuations, i.e., lower cap rate or some combination?

One and one.

Got it. Okay. And you mentioned earlier that part of the intent has been you can keep that dry powder for offense. I guess, could you talk about your outlook for those opportunities to come up? I realize you don't have a crystal ball, but is there a reason to think that more acquisition opportunities could continue to come up? Or is it too hard to tell at this point?

The answer is we react to everything that's available in the marketplace, and we move quickly to acquire an asset that we like. Our assets -- the assets that we like have to be basically in our core. They have to be on the best locations. They have to be part of the 180 million square feet that we feel is our target market, the market in which our clients want the rent space, and they have to be moneymakers.

So when we see it, we act. And we can't predict. We don't have a crystal ball, but we do know that there are cycles. There are cycles and when to invest heavily and there are cycles and when to pull back. And so we've been doing this for a long time, and that's our outlook on acquisitions.

The next question comes...

By the way, the other side of that is that trees don't grow the sky. We do have business cycles. I don't know whether we're going to have another recession or downturn. I guess we will. It's been a long time since we've had a downturn, but there will be a downturn in the future, and we have to be prepared for it. Now you can't prepare for -- when the downturn starts, it's too late. You have to be prepared for it ahead. And so that's what we try to do, and we've had -- as we always try to do. And keeping a very strong balance sheet with a ton of cash is part of our long-time business strategy.

The next question comes from Brendan Lynch with Barclays.

Steve, in the past, you mentioned that you're open to selling 555 California and the MART. Can you give us an update on where your considerations currently stand? And are those the 2 assets that you referenced earlier about being for sale?

Those 2 assets are not the 2 assets, might be one of them. But I can tell you that right now, 555 California is a strong recovery market, and Glen has done a spectacular job of leasing this market at the topic prices in San Francisco in the high $100s of dollars a foot in the tower. So that asset has plenty of room to go and is extremely strong. So that asset is only for sale at the right time and at the right price.

Any commentary on the MART?

No.

Okay. Maybe just another topic on signage. Is there a limit to how much signage you can add to the PENN District? And I see that signage is up 5% year-over-year. Is that mostly volume? Or are you pushing price more aggressively?

I'll start and then Michael can finish. Basically, the thing that differentiates our signage business is that our signs go with the buildings that we own. So we are -- almost all of the people in this sector, the signage companies they rent space to put their signs. We don't. We own the space. So our margins obviously are much higher. And since we own the prime space in Times Square, and we own everything in the PENN District, where there's enormous traffic both from Madison Square Garden and the retail at Macy's and Penn Station. So we own those assets.

And so as we continue to develop in the PENN District, we will build more buildings. We're now totally changing the entrance of the Penn District on Seventh Avenue and 34th Street. So we're building -- we're going to tear down the older buildings. We're going to build new buildings. Those are signage opportunities. We're going to build the tower on PENN 15. That's another signage opportunity, et cetera. So the answer is that we love the business. It's asset-light. It goes along with our new signs go along with our new developments.

Just to tack on, Brendan, as volume or price, both. The pricing has continued to go up year-over-year for the last several years. And part of what we do by having digital signs is we slice and dice those, and we -- it's like revenue management, right? We're optimizing how many slots we can sell and how much we can sell those for. So we have both dynamics working, which is helping to propel the business, and you saw that come through this quarter.

The next question comes from Steve Sakwa with Evercore ISI.

Just one quick follow-up. On that SNO pipeline number that you gave of $180 million, is there a way to bifurcate that between what's PENN 2 and what's the rest of the portfolio?

I know you weren't going to let us off so easy, Steve, about a numbers question. I would say I'm going to guess here because I don't have the exact numbers in front of me. Obviously, look, PENN 2 is a huge development that we're completing and that income is coming online. So if I had to guess, I would say probably 60% of it is PENN 2, rough cut.

That guess better to be right.

Yes, I think it's pretty close.

There are no further questions at this time.

Okay. Well, thank you, everybody. We're very -- we're happy with this quarter. We hope you all appreciate it. And we're even more happy with our future prospects. So having said that, thank you all for attending, and we'll see you next quarter.

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

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. [Operator Instructions] 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 First Quarter Earnings Call. Yesterday afternoon, we issued our first quarter earnings release and filed our quarterly report on Form 10-Q with the Securities and Exchange Commission. These documents as well as our supplemental financial information package are available on our website, www.vno.com, under the Investor Relations section.

In these documents and during today's call, we will discuss certain non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP measures are included in our earnings release, Form 10-Q and financial supplement.

Please be aware that statements made during this call may be 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 Steven Roth, Chairman and Chief Executive Officer; and Michael Franco, President and Chief Financial Officer. Our senior team is also present and available for questions. I will now turn the call over to Steven Roth.

Thank you, Steve, and good morning, everyone. Business at Vornado continues to be excellent, and it's getting better and better. We are riding the wave of strengthening more and lasting landlords 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 fry, and I will ask the first question. question. What do you make of the spat between Mayor Mamdani 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 Mamdani to succeed.

Let me establish my credentials. Vornado was a New York company and I am in New Yorker, born in Brooklyn and attended [indiscernible] public high school in the Bronx. Both Vornado and I are lucky to be New Yorkers. My daughter and three granddaughters live in the Bronx. And my son and his family have in Brooklyn. My wife of 56 years, and I lived and worked in Manhattan. We follow the rules, and we pay our fair share. Vornado will pay $560 million in real estate taxes this year, and I'm pretty sure that's in the top 3. And that doesn't begin to count the personal income taxes that I and our Vornado population paid to the city and state of the York.

We work our asses off, and we are not [indiscernible]. 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 hard-working 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 Vornado and I as the developers of both 220 Central Park South Residential building and the 350 Park Avenue Citadel Tower. We are all shocked that are young Mayor would pull this stunt in front of Ken's home and single him out for ridicule.

This was both irresponsible and dangerous. As I said, Vornado was the owner of the 65-year-old building on the Park Avenue [indiscernible] front that will be raised to make way for the Citadel New York [indiscernible] tower, which will employ thousands further cement in New York at the financial capital of the world, that pay significant taxes and on and on. This building is being designed by the same enforcer and partner 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 as evidenced by the rare unanimous [ ULIP ] approval for this project. Demolition began literally days ago, and we at Vornado are ready to go.

I must say that I consider the phrase "tax the rich" was spit out with anger and intent by politicians, both here and across the country to be just as hateful at some discussing racial slurs and even the phrase "from the river to the sea". What these [indiscernible] calls seem to be saying is that the rich are evil or the enemy or the targets or maybe even just suckers. But the rich home the politicians are targeting, started [indiscernible] on the epitome of the American dream. They are our largest employers and largest philanthropist, and it is the 1% that made 50% of New York income taxes. They are at the top of the great American economic pyramid for a reason. They should be praised and thank. Ken, our partner and friend, is the best of the best.

So where are we now? As we discussed last quarter, Ken exercise this 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 there. It's a good bet that we will go all in.

This fund cannot be amended by a short-term 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 way that will accomplish these programs, some of which I must say are interesting and balance, both with 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 boating. 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 billion or $10 billion budget shortfall shortly, that can be found -- 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 that low tax or no tax Florida or Texas.

There is a lesson here. Maybe something good can come out of this blunder. Maybe we can draft tend 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 is an interesting fact for us. The members of the partners in to New York City alone deploy 1 million voters. Hundreds of our business leaders with Lion up to support Ken, I would be first in that line.

I was taught and I believe that -- I believe in America, where after an election, all slides get behind us and support the winning candidate for the greater good. Our Mayor is young, smart and energetic. With a little tweak and a little tweak there, his leadership could make this great city even greater.

He will learn over time that growing the 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's a hard-working 1% are allies, not enemies, but learn from them this mistake and move upward.

Turning to Vornado. 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 PENN 1 and PENN 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 [ and ] 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 rented a 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 cost. And we are inheriting a fixed rate -- a sub-3% loan through 2031 to leverage off an enhanced return. We expect the transaction to be approximately $0.10 accretive in on a full year basis in the first year.

We are happy to be partnering with the Fisher family who owned other 51% of the assets. We have a long relationship with the Fisher family. They are 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 [indiscernible] 2 million square feet at share of the very highest quality prime asset [indiscernible] portfolio. at very accretive economics.

Speaking of 623 Fifth Avenue, our 383,000 square foot assets, which we are redeveloping to be the premier boutique office building in [ Baha ]. 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 underuse.

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 ever. 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 is primarily due to the reversal of previously accrued PENN 1 ground rent expense in the prior year's first quarter to higher net interest expense, partially offset by higher FFO resulting from the execution of the NYU master lease at 770 in the prior year. and strong income growth at PENN 1 and PENN 2. We have provided a quarter-over-quarter bridge on Page 2 of our earnings release and on Page 6 of our financials. .

We now expect full year 2026 comparable FFO to be slightly higher than 2025, ramping up each quarter due to GAAP rents coming online, lower interest expense after June 2026 bonds are repaid and some seasonality relating to our sites.

As previously indicated, we expect there to be significant earnings growth in 2027 as the positive impact from PENN 1 and PENN 2 lease-up takes effect as well as the positive impact of the recent acquisition of Park Avenue Plaza.

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 is 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 submarkets in Midtown and the West side has tightened significantly, and there's a little new supply coming for the foreseeable future given the significant cost and duration to build. This is all resulting in tenants competing for space and rents rising aggressively. The landlords market we have been long predicting is very much here.

While the macro environment we offer today operate in today, has gotten even more complicated in 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 it does in New York. While there is a risk of the Middle East conflict last much longer and has a greater economic impact, to date, we have not seen any change in [indiscernible].

Moreover, while there has been a lot of AI fear monitoring out there, and while we are respectful to risk, we believe it is overblown. Over the past 50 years, office-using jobs have continually evolve based on new technologies. From the computer revolution of the 1980s and personal computers and water processes were introduced to the 2000s and the Internet transform workflows and the way we communicate and 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 rules. 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, a 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% GAAP and positive 9.7% cash and an average lease term of 9 years. Our New York office pipeline is robust and has over 1 million square feet of leases in negotiation in 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 are 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 purities, 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 order through at lenders over the next 2 to 3 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.

[Operator Instructions] First question comes from Stephen Sakwa at Evercore ISI.

Steve, thanks for your opening comments on the city and the administration. I guess maybe going to Michael's commentary on just the pipeline of the 1 million feet. I didn't know if Michael or Glen could maybe expound a little bit on how much of that is for upcoming lease expirations, how much of that is for kind of vacancy within the portfolio? And I guess most of that's probably in New York, but maybe discuss kind of the New York versus Chicago versus San Francisco demand trends.

Stephen, it's Glen. So our pipeline is extremely well balanced of the 1 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 state 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 market.

As it relates to 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 doing 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 are certainly tenants coming new to the market, and we're seeing a lot more foreign proposals coming at the mark as we go into the second quarter and into the summer.

Great. And then maybe just as a follow-up. We did notice that 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 did that lease kind of start earlier? And is that a benefit to the '26 earnings growth?

Stephen, it's Tom Sanelli. I'll take the first part of it, and I guess, Glen, you could talk about the status. So [indiscernible] Verizon told us they're not going to build out their space and they put them a 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 rise in public parent guarantee for the entire week to begin with great credit. We continue to show this pace as does Horizon. There's very good action. And whatever the outcome, Vornado in a great spot as it relates to that position.

And our next question today comes from John Kim at BMO Capital Markets.

Steve, really appreciate your opening remarks and 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 would 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 -- how should we think about the put options as you said, John?

Yes, that's right. Is that something that you'll let pass? Or is that something that could be -- the day could be extended?

The answer is that can exercise 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 hired now. But my remarks that I say 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?

Just -- Citadel has to be committed. They will be committed. So I mean, this whole deal is based upon the fact that [indiscernible] 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 [ Rudi ] 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. And then I wanted to ask about the $200 million of signed leases not commenced figures that you provided last quarter. If there's an update to that figure in terms of dollar value timing? And if there's any offsets through known move-outs during that time frame?

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. And 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 sort of said from a modeling standpoint, assume $0.40 a share flow through 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.

Our next question today comes from Floris Van Dijkum with Ladenburg.

I appreciate some more color on that large [ SNO ] pipeline. Could you maybe just expand on that a little bit, what percentage of that [ SNO ] 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 you could give us a little bit more color of the PENN District versus other areas in your portfolio?

Floris. 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 million in terms of PENN versus others, I would say it's probably 2/3 in it should not be imposing 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, sell out? It looks like it's like a 6%, 7% yield on cost, if I'm not mistaken, to get to the $0.10 accretion, that seems pretty attractive. Is that a cash yield or is that a GAAP yield? And how much of a mark-to-market -- how much more growth in terms of earnings do you expect to get from that property going forward?

I can remember everything you asked here, Floris. Look, we're thrilled about the acquisitions. These types of assets don't trade very often on Park Avenue. It's certainly one of the best assets on Park Avenue.

And in terms of the yields on a cash basis, given the in-place debt, it's roughly 8% on a GAAP basis, it's well in the double digits.

And as Steve said in his remarks, rents are well below market here, probably at least $50 a foot below market. So over time, things are not static. There's action with tenants, we'll capture that and that's without rents growing. So if rents go further, that gap should widen. So we're excited. 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, at least long term. They're quite effective at signing long-term leases with high-quality tenants and that's reflected in this asset.

So -- and the tenants, some of which we spoke to about their experience, couldn't have raved anymore about the quality of the asset, and they have grown 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.

Our next question today comes from Alexander Goldfarb at Piper Sandler.

Steve, yes, echoing I appreciate your comments upfront, just crazy. But thank you for your statements. Michael, just following up on Floris' question. The two items in the '26 guidance. One, the $0.10 accretion for Park Avenue, was that the GAAP 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 is a full year run rate. So obviously, we're not going to have that for '26. That's a GAAP number. And on the 350, the change there was done given Citadel wanted to kick off the development. They want to vacate. We couldn't start demolition without defusing the old CMBS loan. And so that along with the fees as you saw in our Q, the master lease was modified, there were a number of changes made in the documents. And so that was a negative to '26 earnings, which 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 sting by that reduction, much of it will be made up by capitalizing interest, et cetera. So while the earnings what exactly is going to happen.

So in 2026, 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 350. Once we make that decision, assuming we go into the JV, we're going to start capitalizing interest in cost. We start seeing...

Will that equal or exceed or be less than the [indiscernible] at?

Initially be a little less and then eventually over '27, '28, '29, basically equates to what we were getting.

Like for 5 or 6 months, there's a negative thing given the master lease. But again, that's previously communicated out. Does that satisfy you, Alex?

That's awesome. Second question, Steve, is big picture. With regard to Citadel and the whole attention with the Mayor, back in 2019, Amazon wanted to open in Queens, they were a bust. But I don't recall this amount of instant negativity in political nervousness today, it's clearly 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?

Yes, 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 thinks that the civil 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 this is something that should be repaired. And we'll see where it goes.

Our next question today comes from Dylan Burzinski at Green Street. .

Michael, I think you mentioned that pricing has widened given some capital markets volatility associated with the Warner on. 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 that -- those processes are going?

On the financing markets, financing markets were incredibly strong in the last year, beginning of this year as tight as spreads as we have seen in some time. Given the volatility, it's back off a little bit, like there's still depth in the market. 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 out a little bit. So that makes the borrowing costs a little wider, but not wildly different. Just -- this is still a very functioning marketplace for high-quality assets, but off maybe 40, 50 basis points. 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, where -- I think Steve referenced, we're working on some asset sales. And that is true. And when we have some rate of 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, continues to expand in terms of the type of buyer. I think there is consensus on New York being head and shoulders best market. Assets are -- rents are rising assets at a discount or placement cost, it's 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. And I think you're going to continue to see capital M&A 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 several quarters ago, I asked 20%, 25% rent growth if you saw that over the next 5 years, what were your thoughts to be 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 guys just talk about how far rent growth could go in your mind? And has your thoughts around that cumulative rent growth that you changed at all?

I think we'd still be disappointed in that, Dylan. Look, as I think we've said in the last couple of calls, right, the backdrop for of is as favorable as it's been in a long, long time. And it's very difficult to add supply here, which at some point, we're going to meet. So there's going to be a building a year maybe as we get into the next decade. But that's very little. At the same time, we have supply coming out of the bottom end of the market.

So the fundamentals are great companies, as we've said, continue to want to grow here. We're seeing still significant activity from the financial service sector, law firms, accounting firms, frankly, AI has picked up more recently. So I think all that results in rents continue to rise. So I don't know that it makes sense to give you a prediction, but we'd be disappointed at 25% over a I don't know if you want to add any comments on what you're seeing from...

I mean, look, a tenant, rent sensitivity is not even high on the list right now, tenants want to be in the best buildings with the best landlords. And if you think about our leasing performance, $100 a foot become a norm for us, because of the quality of our product. When over the PENN [indiscernible], our average starting rent is $100 a foot, that's a great trend. So as we go on here and the way we're shaping the portfolio, with the addition of 623 Park Avenue plus of the New 350 Park. And we think rents are going to continue to spike. And the way we're balanced on the west side and on Park Avenue, and we're really excited about that. We think we're in a perfect position for what's to come on rents and tenant demand.

Our next question today comes from Jana Galan with Bank of America.

Congrats on the strong start to the year. Michael, I appreciate your comments on the 2026 FFO now expected to exceed [ $25 million ] 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 are AI tenants becoming a bigger part of the pipeline there and in the New York pipeline as well.

So rents in San Francisco are rising a lot. As I said earlier, our rent in the tower have now gone north of $160 a foot, for substantial leases, 50,000 feet and great are not small deals. 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 projects that are complex as well.

But 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 is in 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 streets, meeting with people. It's really feeling good out there, and people are already positive again in San Francisco.

Our next question today comes from Anthony Paolone with JPMorgan.

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 on 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?

Tony, we've got the capital earmarked for all these opportunities in our cash forecast. We've got some asset sales in the works that -- like 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. And I would say about the future development, something like the 350.

The bulk of our equity is coming from our land contribution, right? So any incremental capital is really not required from Vornado for probably close to 3 years. So we've got ample time to plan for that and so forth. So when you look at our sort of capital needs, if you will, over the next few years, 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 we're talking about in term 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 $1 billion-plus cash balance. The second is that we almost always prefund well in advance of our capital needs. So for example, we loaded in, I don't know, $2 billion, $2.5 billion of capital 2 years before we started the PENN 1 and PENN 2 developments. So that notwithstanding the fact that the capital markets got a little bit rough and volatile when we were actually building, we have 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 nonrecourse project level debt as opposed to unsecured credit, which basically makes the entire corpus. I guess you could say personally liable, so we like nonrecourse project level debt, which is the majority of the way we finance our business.

Okay. Got it. And then just 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?

There is two larger tenants ties in the second half of this year, and we believe both will renew their leases. So we feel good about our exploration, 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.

Our next question today comes from Vikram Malhotra with Mizuho.

I guess first one, given all the kind of activity you've had with all the PENN assets. Any update on Hotel PENN and PENN [indiscernible] Mall in terms of users, monetization, et cetera.

No update.

Okay. And then just on the earnings side, you mentioned 2027 FFO, 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 there's still going to be elevated TI into' '27. So should we think about FAD really perhaps picking up on 2028?

Vikram. On the...

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 2. I can't wait for that. Now go ahead, Michael. So Glen, take note of what I say.

So on the Fed side, Vikram, your comment is right, right? There will be continued elevated TIs this year, next year, even on deals we've committed this year, tenants on don't call those for a while. So that will go into next year. And then we expect to see that drop materially and cash flow be much higher. So I think your general direction is accurate. On the earnings side, there's always ins and outs. So there's always offsets. I can't tell you specifically what those are, but in the history of Vornado, 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.

Our next question today comes from Nick Yulico at Scotiabank.

I just wanted to go back to 350 Park and just be clear on a couple of 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. Does that -- 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?

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

Because the new rent is coterminous with the execution of the new mortgage. So I don't know what that data is, but it's a couple of weeks or 3 weeks ago or whatever.

Yes. So that's a new lease runs until early your question why is that? Because there be a resolution on the other. The venture will be formed, we'll put the asset, something will happen prior to that maturity.

Okay. So the rents and new rents is only in place until the point at which the mortgage matures. There's no rent being paid beyond that date under the new agreement?

Correct. But there'll be a resolution or A or Board B before that, which the rent 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 second question is, obviously, I mean, you've talked a lot about giving some of the bread crumbs on 2027, how to think about that. It is also 2027 FFO is a piece of the executive comp per the proxy plan. So I guess I'm just wondering like if you -- any new thoughts on this, Steve, about finally giving earnings guidance. 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 FFO guidance at some point?

Oh Lord, how do I answer that question? The two sides of it is that we have a simple business which has complexity, and the numbers are moving. It's very -- I mean, we find that it's 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. So -- but all of our competitors seem to be able to guide to 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 find helpful.

Now what I think you're saying is that if our earnings are slow up with, why don't we just take a pad on the bed 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 in a limited way guide, but we don't give full guidance. And I think you could probably guess that, that's going to continue for the future Tom, what do you think?

I agree.

Tom saying he's happy doesn't that the guide.

Our next question today comes from Seth Bergey at Citi.

In the annual shareholder letter, you kind of referenced the no sacred cows policy again. It sounds like the New York office trends market is improving. You mentioned possible kind of inflows given it's a liquid market in the U.S. is just safety. How do you kind of think about potential asset sales. Should we think about those being more noncore dispositions or any core asset sales that you're kind of thinking about?

Some asked the questions for me. It's come -- mentioned you add it in no sacred cows. Is that just New York or is that some other assets we should think about noncore 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 cow. 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 cow.

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 India that we think are very valuable that we underwrite as being much more valuable than apparently the stock market underwrite it.

Even those assets, if I think [ San ] say that Garth [indiscernible] phrase the Godfather bid, it's 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 us for the management to do, and more importantly, it's providing to the shareholders. 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 over a function of what the price is.

Great. And then for my second question, I guess, how do you think about kind of incremental 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, is that we think -- no, let me rephrase that, we are certain that we can basically do over it. We are certain that we can buy selectively important assets that come up in the bulls-eye location of our heartland. We are certain that we can -- 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 in -- through a measure of the 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, we think is a terrific deal. And the Park Avenue Plaza acquisition that we just announced a couple of weeks ago, we think is equally terrific deal. And we think buying back our stock is $30 a year is a terrific deal as well. So we're doing all of that. And I hope that answers your question.

Our next question today comes from Caitlin Burrows at Goldman Sachs.

Maybe just on the pricing side. I realize the reported leasing spread drilling on a second-generation space. So first, I was just wondering if you can go through your expectations today of portfolio mark-to-market across New York, San Francisco and the mark? And then also whether you expect that portion that gets included in the spreads to increase as in like could downtime become smaller?

It's Glen. So on the question of mark to markets, we expect to continue the performance we've had over the past couple of years, which are positive, positive and positive. During the last 2 years, we've only had 1 quarter negative, which we like, and we expect to continue. 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. With the rents we're achieving, the mark-to-markets will continue to improve. Chicago, as I said, is still most challenging, although demand is picking up. renter same firm, concessions are high in Chicago, those have yet to break downwards, but demand is certainly improving.

I mean think about just economics at or macroeconomics, focusing on New York for the moment. I mean 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 relevant because we really compete in a market which is about half that size.

The availabilities of space in that market is evaporating very quickly. I mean somebody used the analogy of an ice cube at 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 to place for their clients deciding to get more access 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 thickener $2,500 a foot. Interest rates and the cost of capital has gone from 0% to 2% to 5%, 6% and 7%. So the rent that has to be achieved to make a new building economic are well into the $200 a foot and even touching $300 of it. That's never happened before. So obviously, rents on older buildings, which are still great buildings and 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 bottom is that I believe and my team can speak for themselves. I believe that we are in a long, long, long-term landlord 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 judge 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 are a lot higher.

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?

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

Our next question today comes from Ronald Kamdem at Morgan Stanley.

Okay. Great. Just two quick ones. Just number one, I think last call, you talked about some guidepost for occupancy over the next 12 to 18 months and thinking sort of mid-90s on a lease basis. Just wondering if you could provide an update both on the lease and on a physical occupied basis. What that occupancy target to look like over the next 12 to 18 months again?

Look, we've historically run our portfolio in the mid- to high 90s, and we expect to get back there. So that probably is over a couple of year period. But that's -- and again, I think given all the dynamics that Steve alluded to and we've talked about in the market and the lack of space availability, that's going to happen.

So obviously, leasing up 10% is a key part of that. But -- and I think one of the analysts picked up this quarter that our occupancy actually went up 70 basis points, not the 40 because we took 350 Park out of service. So that's what we expect in it. I can't tell you exactly what quarter it's going to be, but over the next couple of 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 couple of buildings that we are not winning. Why is that? Because they are overleveraged and underwater, and we -- 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 -- as 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 with 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 -- those buildings out of our numbers, our occupancy goes to what something like that, 95% -- 94%. So we know that number, although we don't publish that number, and maybe we should. Although right now, I'm publishing. So that's the first thing.

The second thing is that I look upon in a landlords market like this, I look upon vacant and available space as it has been because that will -- as we ramp 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 a company that does have available space in this market as opposed to a company that has a space already rented. You can make out of that whatever you will.

Really helpful color. And then my second one, if I may, was just a lot of the footnotes in the supplement. Just on -- I guess on PENN 1, any idea when that litigation will be -- just in terms of timing, obviously, 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.

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

Yes. So we didn't change our segment reporting. Obviously, we have two segments in New York and other. This is a subsegment. Ron, what we did here is we tried to align the subsegment more on how we view the assets. So we grouped over retail assets together and the office assets. So the base of 1,290 retail is now included an office as opposed to being in retail. And any ancillary office space that's in a retail building is obviously in the retail subsegment.

And it's all disclosed, obviously, in the supplement, and we give you the exact buildings that are in each subsegment, so you could follow along. I think this is the better way of looking at it. as opposed to the way we would do in previously.

Our next question today comes from Brendan Lynch at Barclays.

First one on Sunset Pure Studio. Is there any interest in the current term tenants and converting to longer-term leases? And just some update on that?

It's Glen. There's great interest in Sunset and the studios. We're at least right now place is great. unbelievably great, I would say, best in a great location. We have very good activity, long-term folks looking short-term folks looking. So we expect to of the project once this year's leases expire. But it's off the chart. The reception has been plus what we expect to do really good things are on 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 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. That's helpful. And then a follow-up on the Verizon space at PENN 2. 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 in new lease.

Glen, for first ad, I don't talk about it. Go ahead.

As I said earlier, we're in a great spot to matter how it comes up out. And we will only be opportunistic to make money on this 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 will -- we will never terminate that lease under any conditions.

So the only thing that might happen 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.

There are no further questions at this time. So I'd like to hand it back to Steven Roth for any closing remarks.

Thank you all very much. I mean, the -- I think the team and I are delighted with our activity over the last 3, 4, 6 months, we are excited. We think we -- and I didn't make the statement in my remarks this morning. that I am certain that over the next year or 2, 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.

Good morning, and welcome to the Vornado Realty Trust Fourth 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. [Operator Instructions]

I will now turn the call over to Mr. Steven Borenstein, Executive Vice President and Corporation Counsel. Please go ahead, sir.

Welcome to Vornado Realty Trust fourth quarter earnings call. Yesterday afternoon, we issued our fourth quarter earnings release and filed our annual report on Form 10-K with the Securities and Exchange Commission. These documents as well as our supplemental financial information package are available on our website, www.vno.com, under the Investor Relations section.

In these documents and during today's call, we will discuss certain non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP measures are included in our earnings release, Form 10-K 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, 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 any duty to update any forward-looking statements.

On the call today from management for our opening comments are Steven Roth, Chairman and Chief Executive Officer; and Michael Franco, President and Chief Financial Officer. Our senior team is also present and available for questions.

I will now turn the call over to Steven Roth.

Thank you, Steve, and good morning, everyone. [indiscernible] Vornado business is good and getting better. As you all know, Vornado was a premier Manhattan-centric office company. And I'm sure we can all agree that Manhattan is clearly far and away the best office and residential too, by the way, real estate market in the country. As predicted on our recent calls, New York is now on the foothills of the best landlords market in 20 years. We believe this landlord market in Manhattan will continue to tighten and lasts for a long time. Fundamentals are truly outstanding, the best ever. The long and short of it is, that tenant demand from finance, tech and most other industries is extremely robust in the face of declining availabilities and the better building subset.

Take a look at our assets. We have the PENN District, our city with other city, a roster of our other assets in the better building category where in-place rents are well under market and market rents are rising. We have an irreplaceable portfolio of very scarce [indiscernible], high street retail assets on Fifth Avenue and in Times Square. We have the largest and most successful and growing large format side business. We have in-house our wholly owned vertically integrated cleaning and security company. We have the best development program in town highlighted by 350 Park Avenue, PENN 15 and now 623 Fifth Avenue. And most importantly, we have the best management team, leasing, development, finance and operations in the business.

In short, we are a very focused Manhattan-based office power specialist. And we were not in Manhattan, let's not forget 555 California Street, we were still being rapidly recovering San Francisco, where occupancy is 95% and rents are north of $160 per square foot in the tower.

At Vornado, we had an industry-leading quarter and an industry-leading year in almost every performance metric. And when I say industry-leading, I mean better than the other guys. Here's the scorecard. During 2025, Glenn and his team leased 4.6 million square feet of office space overall, consisting of 3.7 million square feet in Manhattan, 446,000 square feet in San Francisco and 394,000 square feet in Chicago. This was our highest Manhattan leasing volume in over a decade, our second highest year on record.

Excluding the 1.1 million square foot master lease with NYU, our average starting rents in Manhattan were $98 per square foot with mark-to-markets of plus 10.4% gap and plus 7.8% cash and with an average lease term of over 11 years. For the second year in a row, Vornado was the clear leader in $100 per square foot leasing with 46 leases totaling 2.5 million square feet or 2/3 of our activity. PENN 1 and PENN 2 led here with a total of 23 deals comprising more than 1 million square feet between both properties.

In the fourth quarter, we executed 25 New York office deals totaling 560,000 square feet at average starting rents of $95 per square foot, mark-to-markets for the quarter were plus 8.1% gap, and plus 7.2% cash at an average lease term of 10 years. [indiscernible] this activity was for leases with over $100 per square foot starting rents.

2025 results reflected the market's growing appreciation for our transformation of the pen district. Tenants and brokers get it, high-quality office space, the best transportation literally on top of PENN Station, the region's transportation hub and the [indiscernible] of amenities and hangout spaces are unmatched. In 2025 at PENN 2, we leased 908,000 square feet at average [indiscernible] $109 per square foot with an average term over 17 years. This includes 231,000 square feet leased during the fourth quarter at average starting rents of $114 per foot with an average term of over 13 years, all well above our original underwriting.

We have now leased over 1.4 million square feet of PENN 2 since project inception, putting us at 80% occupancy, getting the target which we guided to. We expect to finish the lease-up this year. Based on the leases we have executed and the activity in the remaining space, we have increased our projected incremental cash yield from 10.2% to 11.6%, as you will see on Page 22 of our supplement.

At PENN 1, we leased 420,000 square feet during the year at average setting rent of $97 per foot, also well above our original underwriting. Since the start of physical redevelopment at PENN 1, we have leased over 1.7 million square feet at average selling rents of $94 per foot. At PENN 2, we have just 348,000 square feet of vacancy left to lease. At PENN 1, we have 177,000 square meter vacancy left to lease, plus 0.5 million square feet of first-generation leases still to roll over. The good news is that this will all generate income very shortly.

At PENN 11, we finalized 2 important leases during the fourth quarter as our major tenant there expanded by another 95,000 square feet, bringing their total footprint to 550,000 square feet and AMC Networks renewed for 178,000 square feet. In 2025, our office occupancy rose from 88.8% to 91.2%.

Let's pause here for a minute [indiscernible]. There are some -- there has been some recent chatter about physical occupancy call it lease occupancy versus economic occupancy, call it, gap occupancy. Most look at the difference on a square foot basis, I prefer to look at it on a dollars and cents basis. The former lease occupancy is based on signed leases, including those not yet recognized by GAAP. The latter, GAAP occupancy represents leases that are recognized as paying GAAP rate. At Vornado, the difference is over $200 million, which is revenue signed and committed that will be GAAP recognized over the next several years. That number represents gross rents but the buildings are already paying full taxes at almost full operating expenses, that gross revenue number is very close to debt. This income is pretty much of a shortage.

The word of caution to those who are modeling, there are lots of ins and outs that go into our financials, and I suggest that you not use more than a $0.40 uptick in the 2027 year.

Our New York office leasing pipeline remains robust with nearly 1 million square feet of leases in negotiation and at various stages of proposal. Michael and Glenn will talk about this in a minute. Recognizing the shortage of large blocks in the better buildings, we can make available at our bringing to market prime space of up to 380,000 square feet at PENN 1, up to 350,000 square feet at PENN 2 and up to 400,000 square feet at 1290 Avenue of the Americas. We are making available to the marketplace with our clients need and want. Demand for our retail assets is robust and accelerated.

Now turning to our development program. Construction will commence in April 2 months from now on our 1.85 million square foot 350 Park Avenue newbuild with [indiscernible] as our anchor tenant and [ Ken Griffin ] as our 60% other. At our PENN 15 site, we have been busy responding to anchor tenant requests for proposals for substantial blocks of space. We recently acquired 2 very high potential development assets in unique locations which I call in the middle of everything. 623 Fifth Avenue was a 383,000 square foot asset that was originally built on the highest standards by Swiss Bank Corporation as the U.S. headquarters. Our asset sits on the top of [indiscernible] and starts at floor 11, up to floor 36. We acquired the property in September for $218 million or $569 per foot.

Here is why I think this is the best deal ever. The location is in the middle of everything with unique light and air and city use. You can reach out and touch [indiscernible], St. Patrick's Cathedral, JPMorgan Chase's new headquarters and even our 350 Park Avenue. Just for the fun of it, take a look at this location on Google Maps.

The building is substantially vacant, which is a huge advantage to us as a redeveloper. Built in 1990, the building is modern. Our business plan is to create here the 220 Central Park [indiscernible] office, i.e., the best of the best. We acquired this asset for $569 a foot, the finished product all-in soup to nuts, including tenant concessions is budgeted at $1,175 per foot. We will be creating here a new [indiscernible] building every bit equal to a ground-up [indiscernible] for half the price in a premium platinum location. We will deliver to tenants by the end of 2027, half the time of a new build.

Recognizing that [indiscernible] now in bankruptcy has an uncertain future. I believe that any outcome to the [indiscernible] bankruptcy will be good for us. And the [indiscernible] is at a 10% return on cost with, say, a 5% exit or measure of value, we will achieve a double or leverage [indiscernible] or an $0.11 incremental increase to earnings. In January, we closed for $141 million on the acquisition of 3 years 54th Street, a development site that is between Fifth Avenue and Madison Avenue on 54th Street, adjacent to the St. Regis Hotel and our [indiscernible] Fifth Avenue retail properties. We previously acquired the $85 million mortgage on this property which accretive to $107 million, and that was accredited towards the purchase price. The business development side currently has [indiscernible] for 232,500 square feet as of right. And the location is excellent for a hotel office and residential uses. We are considering several options for the site and have already received interesting [indiscernible]. Our 34th Street [indiscernible] were developing 475-unit rental residential building and expect to break ground in fall of this year.

My use of the word junky at last quarter's earnings call got a lot of attention. I don't know why. In any event, we will replace the [indiscernible] retail on both sides of 7th Avenue or on 34th Street. We get way to [indiscernible] with more modern, appealing and exciting retail offerings. This will be another step forward and enhance what we have already accomplished [indiscernible].

Our 50% owned Sunset Pier 94 with Partners HPT and Blackstone, Manhattan's first purpose-built film studio facility, has just opened. And all 6 [indiscernible] stages were immediately leased by Paramount and Netflix. These are short-term leases, but a great start.

The Purch, a large glass pavilion on the rooftop of [indiscernible] with indoor and outdoor food and drink, meeting and hanging space, has been so well received that we did it again on the [indiscernible] setback at 1290 Avenue of the Americas. This pavilion has just opened and together with a PENN [indiscernible] operation and new restaurants to come, makes 1290 the single best building on 6theMART Avenue. And that's, in my opinion, and that's a mouthful. We invite all of you to come take a look at -- just call Glenn.

Our tenants love these spaces, and they represent our continuing leadership and innovation in the hospitality side of our business, all to the delights of our tenants, credit to Glen and Barry to design and execution [indiscernible].

Not so long ago $100 rents were rare. Now they are ubiquitous in the better buildings. To some rents reaching $200 and even an occasional $300. Why? It might be [indiscernible] said that there is a profound shortage of "better close [indiscernible] space" or it might be that the cost of the new build has doubled and now, of course, say, $2,500 per foot to build a new tower in Manhattan. You can all do the math, even at these higher rates, it's touch and go to make a new tower pencil. And by the way, these new builds are multibillion-dollar monsters, which are very difficult for most of the finance.

[indiscernible], we have always believed in maintaining a highly liquid cash heavy balance sheet. While liquidity is $2.39 billion comprised of cash balances of $978 million and our undrawn credit lines of $1.41 billion. Over the last several months, we extended maturities through 2031 on nearly $3.5 billion of debt, and we sold $500 million or 5.75% 7-year bonds to prefund the maturity of our $400 million 2.15% June '26 bond. When we go to market 6 months early, we follow the golden rule that it's wise to take the money when the markets are wide open and welcoming and that certainly allows us to sleep at night. We are pretty good at math, and it's clear to us that there is a huge disconnect between our stock price and the value of our assets.

Accordingly, we have gently put our toe in the stock buyback order. Over the last few months, we bought back 2,352,000 shares for $80 million at an average price of approximately $34. Since our board authorization in 2023, we bought back a total of 4,376,000 shares for $109 million at an average price of approximately $25 per share. Think about this. Vornado stock is a better buy today than it was at $15 3 years ago. But as a believer in the predictive power of the stock market, I am certainly aware of the recent decline in our stock and in fact, the decline in all real estate sites.

In our case, the decline was in the face of best fundamentals in [indiscernible] in the last 20 years. While this most likely represents a great buying opportunity, we will proceed with care looking over our shoulder. There are a few investments we can find that are more attractive right now than our stocks. This disconnect continues, we will become more aggressive. As you can see from my opening remarks, we have a lot going on. I can tell you that the activity level in the market and in our office is [indiscernible] what it was, all good stuff [indiscernible].

Now Michael, your turn.

Thank you, Steve, and good morning, everyone. Comparable FFO was $2.32 per share for the year. As previously forecasted, this was slightly higher compared to 2024 comparable FFO and better than we had anticipated at the beginning of the year. Fourth quarter comparable FFO was $0.55 per share compared to $0.61 per share for fourth quarter 2024. This decrease was primarily due to higher net interest expense and the lease termination income at 330 West 34th Street in the prior year's quarter partially offset by rent commencements net of lease expirations, higher FFO resulting from the NYU master lease at 770 Broadway and higher NOI from [indiscernible] business. We have provided a quarter-over-quarter bridge on Page 2 of our earnings release and on Page 8 of our financial supplement.

Overall company same-store GAAP NOI was up 5% for the quarter while same-store cash NOI was down 8.3%. As explained last quarter, GAAP is more relevant to earnings given the cash numbers impacted by free rent from the significant amount of leasing in recent quarters as well as the adjustment in cash rent related to the PENN 1 ground lease [indiscernible].

Now turning to 2026. As we previously mentioned, we still expect 2026 comparable FFO to be in line with 2025 and due to the anticipation of some noncore asset sales being taking income offline in connection with our plans to redevelop 350 Park Avenue and the 34th and 7th Retail at PENN. First quarter will be more impacted due to GAAP rents ramping up throughout the year, higher interest expense from our recent bond issuance and some seasonality relating to our signage business. As we previously indicated, we expect there to be a significant earnings growth in 2027 as the positive impact from PENN 1 and PENN 2 lease-up takes effect.

We had indicated on prior calls that we expected to achieve New York office occupancy in the low 90s in 2026. We got there early. New York office occupancy increased this quarter to 91.2% from 88.4% last quarter due to the significant volume of leasing we accomplished principally in the PENN District. As we execute on our strong leasing pipeline, we anticipate that our occupancy will continue to increase over the next year or so.

Turning to the capital markets. The financing markets also recognize that the New York office market is back and performing at a level of superior to any other market. The financing markets for these assets are very strong and liquid, with CMBS spreads reaching their tightest levels in 2021, and banks continue to expand lending for Class A assets with solid rentals. The unsecured bond market also remains strong and continues to be constructive for office credits in the right markets with new issue spreads remaining tight. We took advantage of both these markets recently.

As Steve mentioned, this last quarter, we've been very active in refinancing our near-term maturities and bolstering liquidity with nearly $3.5 billion of financing. In addition to completing several mortgage refinancings, we also refinanced our unsecured term loan, upsizing the loan amount by $50 million to $850 million and extending the loan's maturity date from December of 2027 to February 2031.

We also refinanced one of our 2 revolving credit facilities and upsized the second facility. So now we have one $1.13 billion revolving credit facility that matures in February 2031 and another $1 billion revolving credit facility that matures in April 2029. We very much appreciate the strong show of commitment from our banks, including a few new entrants to our facilities.

We also took advantage of the strong conditions in the unsecured market and completed a $500 million 7-year unsecured bond offering at 5.75%, which was significantly oversubscribed, a portion of net proceeds from these notes will be used to repay our $400 million senior unsecured notes that mature in June. In total, since mid-2025, we have refinanced or repaid almost half of our balance sheet, including almost all of our unsecured debt, terming out our maturities and putting our balance sheet on even stronger footing.

Our net debt-to-EBITDA metric has improved to 7.7x from 8.6x at the start of the year and our fixed charge coverage ratio, as expected, continues to steadily rise. We expect these ratios will continue to improve over time as income from PENN 1 and PENN 2 comes online. In recognition of the significant improvement we've made in our balance sheet metrics over the past 18 months, S&P recently changed our credit outlook on our company from negative to stable and affirmed our BBB- unsecured rating. We are hopeful Fitch and Moody's will follow suit as our balance sheet continues to improve.

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

[Operator Instructions] And the first question will come from Dylan Burzinski with Green Street.

Maybe just touching on the 350 Park announcement in the release. Is there anything that's changed in the structure at all versus what was originally disclosed back in, I think, December 2022?

Bill, thanks for joining. So in terms of the agreement, Ken Griffin wanted to accelerate the option exercise, which we were fine with. And in the course of that, there were some amendments related to the overall deal, nothing, I would say, tremendously stuffed in terms of the economics. But gave Vornado and [indiscernible] the flexibility to effectively rather than just a fixed equity percentage, investing anywhere from -- we put our percentage of 20% to 36%. So that's the main change.

A couple of other minor things, but I think that was the most material thing, but it's a project we're very excited about. He's very excited about. Obviously, in the filing, the clock started, but we're excited about it. And I know there were questions about the put or so on. We intend to be part of this project.

Okay. That's helpful. And can you guys kind of just talk about sort of yield expectations, what that implies on sort of a required rent level just anything as it relates to sort of the economics. And I guess, is it still [ Citadel's ] plan to sort of take down, I think it was like 50% initially?

So we'll publish that as we get a little bit closer to that date. There's a few things still moving around. But as we indicated originally there is a formula that determined Citadel's rent. It's effectively -- it's based on a premium to what permanent financing costs are with a cap and collar. So that was unchanged. Citadel still finalizing their space planning. But I would tell you, in general, their appetite for space has grown from the original deal. So when we finish all that over the next few months, we will publish that, but I don't want to jump the gun just yet. Needless to say, we think it's going to be an extremely attractive project. Economically, we think it's going to be best building in the city. And we think the space we're going to have [indiscernible] going to command the highest rents in the city.

The next question will come from Steve Sakwa with Evercore ISI.

Glen, could you maybe just provide a little color on just kind of your overall leasing pipeline? And the conversations that you're having with tenants about space in the market today?

Our pipeline continues to be really strong and that's even after losing 3.7 million feet last year. As Steve said in his remarks, we're creating opportunities of big box space within the building, mainly of PENN 1 and 1290 to meet the market, have the inventory as we see tenants expanding and coming into New York rapidly with immediate needs. So those are all great signs. In the pipeline, more than half of the activity are tenants that will be new to our buildings and the other 50% of renewals and expansion, we're seeing financial services and the all firms expand a lot within the portfolio right now. Our first quarter lease activity will reflect that. The tech tenants are also growing a lot. As you saw PENN 11 last quarter, we're seeing action everywhere. New York is hitting on all cylinders. Our team is hitting on all cylinders and coming off a huge [indiscernible] like we had last year, we don't see any letup in that at all.

Okay. And then maybe as a follow-up, Steve, you mentioned the share buybacks and the disconnect with NAV and other property types, we are seeing some of the public REITs lean more heavily into dispositions and both paying down debt but using those excess proceeds to buy back stock. Is that something that you would entertain more aggressively given where the stock is today?

Yes.

Any other comments beyond yes?

Double yes. So we have a few assets for sale which will generate capital. We think our stock is stupid cheap. I think in past years, I said, super, super, double stupid. So that's double yes. And the stock is probably the single best investment we can make now other than [indiscernible], which is obviously I'm in love with. .

The next question will come from Floris Van Dijkum with Ladenburg.

My question is regarding your -- the difference between your cash and GAAP same-store NOI. And I think Michael, you indicated that throughout the year, this is going to inflect. Can you give us a sense of when that inflection point will happen and when your cash NOI will turn positive?

I think I said on the last call, it remains the case that we would start to see that flip over in the second half of '26, and that remains the case. So I think you'll see it improve quarter-by-quarter, but it won't flip until the back half of the year when those tenants start -- many of those tenants start paying rent.

I mean the answer is when the very ugly and painful free rent burns off, that's when the cash gets to become positive and thought that reflect similarity to [indiscernible]. So that's [indiscernible].

That's encouraging. My follow-up question is regarding your retail, particularly your Upper Fifth Avenue retail. Maybe could you talk about what's happening to rents there relative to in place? And maybe remind everyone what your in-place rents are for your Upper Fifth Avenue JV? And then potential monetizations for that. And I believe what's happening with the 657 Fifth Avenue, I think that's a new meta, is that a permanent lease? Or is that still a pop-up lease?

Oh boy, the -- there's activity on the Middle East, which will be -- which really -- it's inappropriate to talk about it now. So that's step one, which involves the [indiscernible]. With respect to the leases, generally, the retail market on Upper Fifth and Times Square is improving dramatically and rapidly whether it is still struggling to meet the top tick rents up 4 or 5 years ago. It's getting there, but it's struggling.

The next question will come from John Kim with BMO Capital Markets.

Steve, you gave some very interesting information on the difference between the GAAP occupancy and leased occupancy. I'm assuming that $200 million difference is annualized. But I was wondering how much of that you expect to get by the end of this year and by the end of '27?

It's actually not annualized. It's an absolute number. And to be honest with you, and my finance guys are sitting here right course from shooting daggers at me, the number is higher than [indiscernible] million. But an abundance, of course, they wanted to keep it at $200 million. So $200 million is a slightly low number. It's a onetime number and it feeds in as tenants go from -- go into gap it feeds into gap. As tenants either take occupancy or they meet the standards for GAAP recognition of income. So that's what that number is. It happens over the next -- as the leases mature -- not -- mature is not the right word, that the leases -- right now, the tenants go back to their spaces, right, [indiscernible].

The GAAP recognition is the tenants have to either build out the spaces or take occupancy. And that happens quickly over the next year or 2. I don't have a plot as exactly how much per month. But a lot of it comes in the first year, a lot of it come through the second year. And I mean -- but the interesting thing about it is that is income which is in the bag. The leases are signed, and it's just a matter of a small amount of time as to when they go in the GAAP recognition.

Now the $0.40 that I put at the end of that paragraph is a kind of strange guidance for something that's 2 years out, which is something we never do. And so it's kind of like strange. I wouldn't rely [indiscernible] it too much. It's not a guaranteed certified -- my lifeline number, but it's sort of a number. But the $200 million, which is a little bit more than that, with 100% certainty comes in income over the next number of years. Now the interesting thing about it is what I tried to say is that the company -- it's a simple company, but the financials are sort of a little bit complicated. There are ins and outs. So there are some tenants that will move out, there are other things which will affect earnings positively and negatively. But that's -- I think the story. Anything to add there, Tom?

Yes. No, I think you said it.

Thank you.

For those of us who like to look at percentage terms, the 91.2% leased occupancy, what is that in terms of physical or economic any?

Well, it's 92 -- whatever is 91. .

In New York City -- in New York, it is 9112.

Manhattan office is 91 [indiscernible] versus 88 and change. And by the way, we expect that occupancy number to go up.

The next question will come from Jana Galan with Bank of America.

Maybe also following up on some of the strange guidance. If we could get some more details on 623 Fifth. And did I catch in your comments that it could add $0.11 to FFO?

I'm sorry, I didn't get [indiscernible].

What about comments on $0.11 to FFO?

Well, it's just math. So my guys are laughing at me, but I mean I'm in love with this asset. I think it's probably the best acquisition ever. So the building is basically at the [indiscernible] was emptying the building out the converted to residential. We think that, that's not the right program. We're going to make it. [indiscernible] is make this thing the $220 million boutique office meeting the best of the best of the best, which will generate the best income. So we believe that the finished product will cost 1,100 and change -- say, $1,200 a foot rounding. And we believe that the net income on the project will generate a scan over 10% -- just I think we have on the supplement, 10.1%. So if you're saying that deposit cost $1,200 to [indiscernible], it's going to have a 10% return. That's an interesting number.

Now we think if we can -- if we sell that building, which I'm not saying we will or we won't, it probably would command -- if any building will command the 5% cap rate in the marketplace, it would be that building which starts on the 11th floor on top of [indiscernible] in a spectacular location. And by the way, I was being quite sincere when I said, take a look at the location on Google map, it's a [indiscernible]. So if you build into a 10 and you sell it at a 5, that is basically a doubling of your money or if you put 50% leverage on it, that's a quadrupling of your money. If, however, lease the value is in the income stream in the company. We think that, that will generate a little bit more than 11% -- $0.11 incremental return. How do I get that number? $50 million of income, less the cost of capital on the $1,200 a foot cost, yields 11% or slightly more than 11%. I hope that answers your question. [indiscernible]

That's very helpful. And then just in terms of the development costs? And I think there's debt on it now that you probably need to term out? What are kind of your expectations on that?

We're going to finance the building as we always do. It's not a great deal of money, a couple of hundred million dollars. We're going to complete the project. We're going to [indiscernible] that out. One of the keys to it is, is that we will deliver for tenants probably the end of 2007, which is less than half the time that it takes to build a new build at less than half the cost. So those are part of the financial metrics [indiscernible] why I'm so excited about the project. When we get done with the project, we will keep it in our portfolio because we will expect that the rents will go up and up as time goes on. and we will finance it as we finance all of our projects.

The next question will come from Alexander Goldfarb with Piper Sandler.

Steve, can you guys walk through on 350 Park, just -- I know, Steve, you mentioned that it's part of the guidance for this year and that on a recurring FFO, it's flat. But can you just walk through sort of the mechanics of the income and how that is -- there's a master lease, but then you'll capitalize it. So I just want to understand the net effect, especially as we think about our '27 and what the carryover is from 350 going because you said you're going to stay in the project. So I just want to understand the full effect.

You're talking about the transition from the existing 350 Park Avenue building, which will be taken out of service and demolished starting next month into a capitalized interest model. Is that right?

Yes. Yes, because I think there's a master lease right now, right?

There is. So that's going to terminate -- well, it will be adjusted, I should say, when demolition starts, which will be April 1. So the answer is there's going to be a little bit of a negative impact in '26 as we transition from demo to full capitalization. And next year, it will be capitalized and it will be basically on par with what it was last year, but a little bit down this year.

Okay. And then the second question is, Steve, on the dividend, you're one of the few companies that still is paying a reduced stub dividend, if you will. You talked about your liquidity. You talked about improving on the balance sheet, the rent that's coming online over the next few years and yet there's still a lot of capital projects that you have in terms of various development projects. So how do you see the dividend versus taxable income? And when do you see a full normal quarterly restoration of it?

Well, first of all, we may be one of the few companies, I'm not sure of that, but there is a [indiscernible] in the marketplace, but people are overpaying their dividend to reduce their dividend and conserve the cash. So we're sort of aware of that. But nonetheless, as a large shareholder, our management team and our Board has a high incentive to pay a normalized dividend.

A normalized dividend is in relation to 2 things. The internal revenue code requires that we pay out our taxable income but also common sense says that we should pay to our shareholders, something which approximates the income stream of a normalized business. So it's not impossible that our regular income would be higher than our taxable income. So we have an incentive to get back to a normal dividend as soon as we can which will not be this year, by the way. And as soon as we get back to normalcy, in terms of our income stream, getting all of the renting that we have done paid for with a free rent at the DI and get that all behind us, we will then revert to a normal dividend.

The next question will come from Anthony Paolone with JPMorgan.

Okay. I guess my first question, I was wondering if you could help a bit with sources and uses of funds over the next couple of years because as most of this, you've got a couple of redevelopments that you now have teed up. You talked about, I think, last quarter, maybe building an apartment project, buybacks are a priority. It sounds like you're going to be spending real money on 350 Park in the next couple of years if that gets underway. Just trying to add all this up and get a sense as to like sources and uses basically.

Tony, I can't give you a dollar figure by dollar figure. What I would say is, as you would expect, we're not [indiscernible], right? We have a capital plan. We know what's in front of us, and we have a business plan, right? And that business plan is a combination of financings generally at the asset level. some asset sales, et cetera. So -- and I would say in terms of the development projects, other than 623, which will be executed this year and next the other projects are more back ended, particularly 350, where our capital to the extent we invest above the land contribution which we don't have to, although I think given the attractiveness of it, will assume we will, we will, right, that capital, given that our partner has to true up with us first and the bank is going to fund some of that. There's [indiscernible] meaningful capital in 350 for several years. So the answer is we have a plan. We can do all the things that we've laid out. And we've sold assets in the past. We had some things in the works and we're confident that we can execute those. And we're going to be -- as Steve said in his opening remarks, we're going to be mindful on the buybacks once we have the appropriate capital and to deal with everything else.

So look, we have a lot of things that we want to do, which we think will create significant shareholder value. So one of them is buying back our stock, which is a separate thing, which is -- has to be done with care so that we don't screw up our balance sheet, which we will not do ever. So one of the uses is buying back stock. So that's sort of like a subtraction. We do that with capital assets available.

The next thing is 350 Park is a very important, we hope, extremely successful project the principal amount that we be contributing to that is our land, which is easy. And then there's $300 million to $400 million above that in cash that will represent our 40% interest or $0.30 within interest. And so that's not a great deal of money in relation to a $6 billion project [indiscernible] only a 40% partner. So we have a 850,000 and growing anchor tenant that's signed, and we have a 60% partner. So the 350 project is a great project which from a financial point of view is not as challenging as you would think. The 623 Fifth Avenue project is seasonally financeable what else the TIs, the most important thing we have from a capital point of view is the TIs to put into occupancy and convert it to GAAP rent the tenants that we've already signed, that money is already allocated.

And then the residential project is -- that's multifamily finance is very well. We already have the land unencumbered. That comprises a chunk of the equity and not much cash above that.

So now the next part of it is -- so that's a little bit about the uses. Now the sources are, I would remind you that we have basically income-producing part of the PENN District is free and clear with no debt on it. So -- and those buildings have now become more valuable as Glen and his team have leased them up. So we have the meta building in [indiscernible] free and clear. We have 2 PENN free and clear. We have PENN 1 free and clear. We have the PENN 15 site free and clear and on and on. So we have significant financing available to us should we need it or to that's -- without giving you a piece of paper, that's a verbal description of our capital plan.

Okay. And then just my follow-up is [indiscernible] . I was wondering what's the cost to build a smaller building like that? I guess we're getting used to well over $2,000 a foot for the larger avenue type developments, it seems. Just wondering if there's any appreciable difference in a smaller mid-block asset like that.

A little bit less. A little bit less but not appreciably less.

The next question will come from Vikram Malhotra with Mizuho.

So 2 ones. One, just a follow-up. I wanted to just be crystal clear on the $0.40 going to next year. Is that an NOI comment, incremental contribution? Is that sort of an FFO comment? Just how should we think about that? And maybe just other big picture moving pieces as we think about this massive earnings ramp?

It's FFO, Vikram.

Okay. It's FFO. Okay. Helpful. Just on street retail, I think the team hired Newmark and the sort of a reenvisioning of PENN Station -- PENN District street retail. I'm just wondering as you've thought about like the street retail portfolio there, is there like a broad range or like after doing all of this, what's the NOI uplift over the long term?

We haven't split that out, and we're not really publishing projections on that. We will, sometime in the short-term future, but we haven't done that yet. But basically, the PENN District is a -- it's a district. It's office buildings, it's retail, it's events, it's a gathering place, it's the perch, it's the town halls. It's a system of interaction and hospitality and workplaces, which is important, each plays off the other and increment the other and helps the other. So the retail is very important as a separate business, but it's extremely important as it affects our demand for the office space.

The next question will come from Nick Yulico with Scotiabank.

First, on PENN 2, I was hoping you could just remind us about for the leases that were done so far, when they're set to commence, I think MLS was assumed early this year. And then I guess the bulk is sort of 2027 and beyond. But I guess, in relation to like 80% lease number that you give for that asset, just how to think about when that will actually turn into GAAP NOI. I guess, how much of that 80% actually is fully in 2027 as you're talking about that ramp next year?

That's actually a question about detailed guidance, which as you know, we don't do.

The only thing I'd say, Nick, is that PENN 2 more of it will be online in '27 and '26.

Okay. And then I mean just in terms of the commencements this year then, what is it is, I think, MLS was assumed what early this year? Is there anything else that's listed there from the tenants in the sub where their leases haven't commenced that you expect commencement this year?

I would make a suggestion, call [indiscernible] and see if you can [indiscernible] doubt you will. I mean you can use your own judgment. I mean these are big leases, and they will come on in the next 6 months. If they don't come on in the next 6 months, they come out of the next 12 months. But from my point of view, as an investment really doesn't matter that much. So they're coming, whether they come 3 months sooner or 3 months later, that's interesting, but not dispositive. But call Tom, see what you can get out of time. We saw him laughing, by the way, [indiscernible] your call. .

The next question will come from Ronald Kamdem with Morgan Stanley.

We're going back a minute -- going back a minute. I was really not trying to be anything other than responsive to your question for a company that really doesn't do detail month-by-month guidance. So with respect call Tom. Next question.

This is Matt on for Ron. Just going to the New York office TIs and LCs as a percentage of initial rent, I noticed that ticked up in the quarter. I was kind of wondering what the drivers were and how we could think about the trend for the rest of 2026?

It's Glen. It's certainly not a trend. It was an outlier quarter. We made a couple of deals where we stretched TI with not as much term on the leases as we would have liked, but we wanted the tenants in these buildings for reasons. We love the tenants. We love their credit profile, and they were great users for the assets, but not a trend at all. I expect we'll go back to -- we've been around 12%, 13% over the last few quarters. And I think concessions will tighten going forward here this year. Free rent already started to come down and the TIs are really starting to squeeze. So short answer, not a trend at all.

Got it. And then just as a follow-up, I noticed the projected cash yield on Sunset Pier 94 declined despite what looked like solid leasing activity on the property. Could you talk about like what the drivers of that were?

Reality, which is our business, by the way. The streaming business is -- has some challenges, as you all know and read about in the papers. And I mean the fact that we leased 100% of the space at the opening, they're short-term leases, there not even a year long. So that's an interesting thing, but not indicative of the future. And it's just a matter of seeing realistic in our projection as to what the yield on the project will be. So the 10% [indiscernible] 9% as a result of reality.

The next question will come from Brendan Lynch with Barclays.

This is Annabel [indiscernible] on for Brendan Lynch. How should we think about the expected retention rate on the remaining 2026 expirations, especially the 600,000 square feet in the fourth quarter? And are there any larger blocks of space that you would call out?

Great question. Glen?

It's Glen. We feel really good about the expirations this year. We're on top of all that as you would expect on the larger block expirations, we expect 2 of them to renew. So we feel good about our exploration schedule. We've taken care of huge exploration over the past 3 years. So if you look forward '26, '27, and we're in great shape. So I think we'll be more than fine as it relates to attacking the future experts.

As you can tell from all of our remarks today, we're extremely constructive about the office market in Manhattan. We believe that it is tightening. We believe that rents are going up. And by the way, rents are going up more rapidly than TIs or tenant inducements are going down. So our projection is -- and I don't -- Glen can give you his opinion -- is that free rent can go down because that's a discretionary item. TIs will probably not go down because the cost of construction of the tenant space is not going down and it's, in fact, going up. So we believe the easiest is for the rents to go up. The second is free rent to go down and TIs are going to be very, very sticky. Do you agree with that?

I agree with that. I will tell you on the TIs...

Careful now because you have to produce the results. On the TIs, we're definitely squeezing them in terms of not being as flexible as we were. So I think the first signal is they're not going up for sure. We're squeezing them at these ranges that we've been seeing and hopeful they'll come down, although I agree with Steve generally free rents are coming down, and that's been more easy to manage with the deal making for sure.

The next question will come from Seth Bergey with Citi.

I kind of want to go back to 350 Park. I think in your opening comments, you mentioned that Citadel kind of had an appetite to take additional square footage. I think they are kind of set to occupy around $850,000. Just could you kind of quantify how much more they would be looking to take? Or are you in any other kind of conversations about pre-leasing space in that building?

Look, the Citadel relationship between [indiscernible] and Vornado is important. These are conversations that are still taking place. The Citadel team is still making up their mind as to what exactly their requirements are. And so as soon as we know and they become firm and agreed to, you will know, but not now.

On the second part of your question, the energy and excitement around the spec office stays is excellent. So we're presenting the project to many tenants as small as even 50,000 feet. So you think about as tenants who are expiring 31, 32, 33 are already asking us to present the project. That's how much excitement there is in the market. There will be nothing like this available in New York. And people realize that they recognize that between us and Citadel and [indiscernible], this will be the best building built in the city by far.

And by the way, you can tell we're pretty damn proud of it. I'd like to try and end up today, it's close to 11 clock as we can. So it's 11:00 now. So how many more questions do we have? .

This is it.

No more questions? Really. Well, anyway, thank you all very much for joining us. We're very excited about the business. We're very active. The activity level, as I said, is palpably doubled then what it was even as recently as a year ago, and thank you all very much for your support. We'll see you in the next quarter.

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

Good morning, and welcome to the Vornado Realty Trust Third Quarter of 2025 Earnings Call. My name is Joe, and I will be your operator on today's call. This call is being recorded for replay purposes [Operator Instructions]. 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 Third Quarter Earnings Call. Yesterday afternoon, we issued our third quarter earnings release and filed our quarterly report on Form 10-Q with the Securities and Exchange Commission. These documents as well as our supplemental financial information package are available on our website, www.vno.com, under the Investor Relations section. In these documents and during today's call, we will discuss certain non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP measures are included in our earnings release, Form 10-Q and financial [indiscernible].

Please be aware that statements made during this call may beamed 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 Steven Roth, Chairman and Chief Executive Officer; and Mike Franco, President and Chief Financial Officer. Our senior team is also present and available for questions. I will now turn the call over to Steven Roth.

Thank you, Steve, and good morning, everyone. Today is Election Day in America. The spectacle of our entire population all voting on a single day, the first Tuesday in November, has been somewhat diluted by early voting and voting by mail. Nonetheless, today is election day, a critical symbol of our Great American democracy. And we all know elections matter. The election in New York City with the prospect of a Democrat socialist Mayor has attracted enormous attention. We almost admit that affordability as we become a critical issue and even a lightning rod as is the cost and availability of housing.

I'm an optimist and believe that everything will work out for the best. Importantly, with respect to the prospect of [indiscernible] we have not seen any pullback or hesitancy and space demand from our customers. In fact, the opposite, nor have we seen any canary in the coal mine indication from the stock market. As I said, [indiscernible] business. Here at Vornado, our business is good, really good and growing stronger. Our performance continues to lead both the national office pack and our New York peers. The market seems to have recognized this as our stock has doubled in the past 2 years. Why? One, we are in New York; two, our leasing steps and our mark-to-market stats led the industry; three, as does our balance sheet stats. Our net debt-to-EBITDA ratio was down to 7.3x, and our immediate liquidity is $2.6 billion; four, we are focused. We are stick to our mining company; five, we have our PENN District our city within a city; six, we have the 350 Park Avenue development and it is in full swing; seven, we have a couple of hundred million dollars in the bag annual growth coming over the next few years; and finally, eight, we have a great portfolio of artisan retail assets.

We had another excellent quarter. Michael will cover our earnings shortly, and Glenn is here to answer questions on our leasing activity. Now let me cover what we're seeing on the ground, along with some of our recent activity and accomplishments. As we noted, [indiscernible] recently wrote New York City's office market is enjoying its biggest boom in nearly 2 decades, leaving the rest of the U.S. in the dust. The rotation from a tenants market to a landlords market in the 180 million square foot Class A better building submarket in which we compete, that we've been predicting is now happening and has even become accepted by our doubting Thomas analysts and the critical press [indiscernible] the press. CIB reports at Midtown core, better building vacancy is now down to 6.2%.

As I said in the past, we are a 90% Prime-badge Manhattan-centric company, tenant demand is robust. Companies are expanding demand is broad-based across all industries and available space in the better buildings continues to evaporate quickly. Manhattan office leasing activity is on pace to exceed 40 million square feet for the year for the first time since 2019. [indiscernible] demand is filling out to all submarkets, sublet availability are shrinking rapidly and we are in the fates of strong, maybe even surging rent growth. By Foothills, I'm saying all the good stuff is just in the third inning, and the best stuff is yet to come. Obviously, deal activity and values will follow. Here is our industry-leading leasing scorecard. We expect our 2025 leasing volume for Manhattan office to be our highest in over a decade and our second highest year on record.

Please take a look at our leasing and mark-to-market statistics. Our performance continues to be industry leading. During the first 9 months of 2025, Vornado leased 3.7 million square feet overall, of which 2.8 million feet was Manhattan office, leading the marketplace in not only leasing volume, during that period. We're also with the highest average starting rents in the city and with impressive mark-to-markets. Excluding the 1.1 million square foot master lease with NYU at 770 Broadway, the remaining 1.7 million square feet of leasing during the full 9 months was at $99 per square foot average starting rents with mark-to-markets of plus 11.9% GAAP and plus 8.3% cash. This includes over 1 million square feet of leasing in PENN 1 and in PENN 2. During the third quarter, we executed 21 New York office deals totaling 594,000 square feet and robust bedding at $103 per square foot. Market-to-market for the quarter were plus 15.7% GAAP and 10.4% cash and the average lease term was more than 12 years.

Michael and Glenn will cover specific tenants and deals in a few moments. In the PENN District, at PENN 2, our leasing this quarter included 325,000 square feet at average slotting rent of $112 per foot. In October, after quarter ended not included in those leasing statistics, we completed two more large leases totaling 188,000 square feet. We have now leased over 1.3 million square feet at since project inception, putting us now at 78% occupancy and easily on track to hit and exceed our year-end guidance of 80%. Based on signed leases and activity that we are seeing for the remaining space, we plan to increase our published projected incremental cash yield of 10.2% at year-end. At PENN 1, we leased 37,000 square feet during the quarter at an average starting rent of $100 a foot. Since the start of physical redevelopment of PENN 1, we have leased 1.6 million square feet there, at average falling rents of $94.

At PENN, we are handily exceeding both of our initial underwriting and our increased writing. It's clear that the tipping point for the PENN District, our 3 block [indiscernible] city within the city is now behind us. Tenants and brokers are well by our transformation, which is reflected in our leasing activity. We sit on top of the nexus of Pennsylvania station and the New York City subway system adjacent to our good neighbors to the West, and West and Hudson Yards. The 3 of us combined represent the new booming west side of that. As I said before, the PENN District will be a growth engine for our company for years to come with rising rents and future development projects. At our PENN 15 site, we are now responding to requests for proposals for a substantial block to space.

We are now well along in the planning process for a 475 year rental residential building on our own 34 Street site, categories [indiscernible]. We plan to begin construction next year. It is time, and we will now transform the tire old, may I even say junky retail on both sides of [indiscernible] 34th Street that we inherited into attractive, modern and exciting retail offerings. This is the gateway to open district and a transformation here will have a big impact. We also continue to add to our already impressive fruit offerings in the district with our newest restaurant Abra, at the 33rd Street and ninth Avenue corner of the quality building, which recently opened to crowds and great reviews. The space is spectacular sits right in the heart of the new west side and really ties us all together.

[indiscernible] city office leasing pipeline remains strong with more than 1.1 million square feet of leases in negotiation at various stages of proposal. We are growing in and growing smartly. In September, we added to our Prime Fish portfolio with the acquisition of 623 Fifth Aviate. This building originally built to the highest standards by Swiss Bank Corporation sits on top of [indiscernible] Avenue flagship store, so like a trophy on top of the podium. So our lowest floor is the 11th, 175 feet off the ground with 25 column, 315,000 square foot flows above. The location is pretty amazing being merely a block west of both JPMorgan Chase's new heroic headquarters and our 280 Park Avenue.

Our 63 Fifth Avenue has unique light and air and views being set back from Fifth Avenue on the east side of the fax landmark with the cortisol to the north and the Channel Gardens of the skating rink of Rockefeller Center to the west. The best and unique part of this deal is that the building is 75% vacant with the few remaining tenants on relatively short leases. Ironically, the vacant building is a big plus, but be explained. We will not be penalized by a gaggle of low longer-term obsolete leases, and we'll not have to wait 5 to 7 to 10 years for them to roll off. We will redevelop this building into the very best Elite boutique office building sort of the 220 Central Park South of August. We will begin to deliver space by year-end 2027.

So in 2 years, well less than half the time it would take for a new build -- and importantly, as the course. Here's the math. We acquired the building for $218 million, so $50 per foot. We will invest in the $600 a foot in development. so call it $1,200 a foot for the finished project, which will be every bit as good as the new build at the cost. The team is budgeting a 9% yield on cost for this project. I am pushing the crack double digits. There was high demand for and a shortage of this product, we couldn't be more excited. Our 1.8 million square foot 350 Park Avenue newbuild was Citadel as our anchor tenant that came driven as our 60% partner continues right on schedule. The City Council unanimously approved the final year, and I did say unanimously.

We will commence evolution in March 2026. We remain very excited about the prospects for this new force and partners designed best-in-class 1.8 million square foot tower as is the brokerage and tenant communities. We are already getting incoming for spec space from clients seeking the very best and for whom our delivery date fits their needs. The Manhattan retail market also continues to show growing strength and the best spaces are in high demand again. tenants are recognizing that rents are moving up and availability is declining on the best streets and are beginning to approach landlords for early renewals to lock up their spaces. Importantly, we are achieving rents consistent with historical highs at our Times Square properties. We are the largest owner of signage in New York City with our unique cluster of premier science in Time Square and independent District and that business continues to grow. Signage revenue for 2025 is predicted to be our highest year ever.

You should note that all of our sites are taxabilities which we own, which gives us perpetual control a unique competitive advantage and the highest margins in the business. There were some news a couple of weeks ago regarding the loan on 650 Madison Avenue going into the fall, which I should comment on. We were 20% of a group of institutional investors who purchased a 600,000 square foot building in 2013 with an $800 million nonrecourse market. The primary play was to capitalize on the below-market retail rents and upgrade the retail Dennise. One was the retail apocalypse, the fear that e-commerce would literate all physical retail, and the pandemic this didn't work out. 3 years ago, in 2022, we recognized this asset impairment and wrote the asset off entirely to 0. Bad stuff happens every once in a while even to us.

Three days ago, the core came down with a ruling vacating the arbitration panel's 101 ground lease rent reset. We were surprised and disappointed. We are optimistic that this will be reversed on appeal. Lastly, turning to San Francisco. At our 555 California complex arguably the best building in town. We continue to lead the market. During the quarter, we signed 224,000 square feet of leases at triple-digit average rents and 15% mark-to-market. This includes a lease with new PENN's Morton School for the Q. We said 2 or 3 years ago that San Francisco would recover, given that it is the capital city of the world's greatest tech and innovation centers, and that is what's happening.

Thank you all. Now over to Michael.

Thank you, Steve, and good morning, everyone. We had a very strong quarter as office demand in New York City remains robust. Third quarter comparable FFO was $0.57 per share. compared to $0.52 per share for last year's third quarter, meeting analyst consensus by $0.02. This increase was primarily due to higher FFO resulting from the NYU master lease at 770 Broadway, and higher NOI from our signage business, partially offset by lower NOI due to asset sales and capitalized interest beginning to burn off the PENN 2. We have provided a quarter-over-quarter bridge on Page 2 of our earnings release, and on Page 6 of our financial supplement. Same-store GAAP NOI for our New York business overall was up 9.1% for the quarter while same for cash NOI was down 7.4%.

Let me explain. GAAP, which smooths everything is more relevant to earnings given the cash number is hit by a free rent from a significant amount of leasing in recent quarters as well as the adjustment in cash rent related to the PENN 1 ground lease. Given all our activities to date this year, we now expect 2025 comparable FFO to be slightly higher compared to 2024 accountable FFO. While we are still in the process of finalizing our 2026 budget, as we've previously said, we expect 2026 comparable FFO to be flattish compared to 2025 as we are anticipating some noncore asset sales and taking income offline to effectuate the 3.7 retail redevelopment. As we indicated on our previous calls, we expect 2027 to be the inflection year, and there will be significant earnings growth in 2027 and as the full positive impact of PENN 1 and 102 lease-up takes effect.

New York office occupancy increased this quarter to 88.4% from 86.7% last quarter. primarily due to leasing activity at PENN 2 comprised of a 200,000 square foot headquarters leased with Horizon and new leases signed with FGS Global in [indiscernible]. If you factor in the additional 188,000 square feet recently signed a 102 occupancy increases further. We continue to execute on our leasing pipeline and still anticipate that our occupancy will increase into the low 90s over the next year or so. While our retail occupancy also improved this quarter based on leases we signed, you will note a further jump in occupancy resulting from taking the retail in Manhattan Mall out of service this quarter.

Turning to the capital markets. The financing markets for New York City assets are liquid with CMBS spreads hovering at year-to-date loans and even the banks are beginning to selectively return to lending on higher quality assets. The unsecured bond market remains robust and has become much more constructive for office credits. With new issue spreads over 200 basis points tighter and all-in yields over 300 basis points lower than 2023. In the past quarter, we have been active in refinancing our near-term maturities, and we have several other deals in the works. The investment sales market has also heated up significantly in the past few months, as indicated by the many recent deal executions.

The market is active for quality product, irrespective of size, and there is ample liquidity in the debt capital markets facilitate deals getting done. Capital sources of all types are beginning to return to investing in New York City office given the strong leasing fundamentals. As we have previously discussed, focusing on delevering the balance sheet has been a priority for us. Since the beginning of the year, we have generated $1.5 billion in net proceeds from sales, financings and the NYU deal, paid down $900 million in debt and increased our cash by $500 million. Our cash balances are now $1.15 billion, and together with our undrawn credit lines of $1.44 billion, we have immediate liquidity of $2.6 billion. Our net debt-to-EBITDA metric has improved to 7.3x from 8.6x at the start of the year, and our fixed charge coverage ratio as expected, is steadily rising. We expect these ratios will continue to improve as income from PEN 1 and PM2 comes online. Please see Page 23 of our financial supplement for detail.

With that, I'll turn it over to the operator for Q&A. Thank you.

[Operator Instructions]. And up first, Steve Sakwa from Evercore ISI is on the line with the question. Please proceed.

I don't know, Glen, maybe you could just start. It obviously sounds very promising given the activity levels at PENN 2. I guess I'm curious, how are you sort of changing kind of the leasing strategy with, I guess, only 20% of the building left? How are you thinking about tenants kind of in the pipeline? And maybe talk about how rents are maybe changing for the remaining space?

Hi, Steve. So rents have changed. You heard the script average rent is quarter over $112 a foot of PENN 2. So the rents keep moving up, up and up. We keep repricing the space almost on a daily basis. In terms of the remaining space, it's a lot of single floors, mainly in the tower. So we feel really good about that, confident in our approach. We have a lot of deals in the works right now. As we've said in the script, we expect to be at or above our 80% goal by the end of the year. And if you look at the tenant roster the credit profile is excellent, the mix of industry sectors is really good. So we're pleased, and we expect to continue that strategically.

Okay. And then maybe as a follow-up, Steve, on your comments around 623, how do you sort of approach the leasing of that building? Is that something that you'd sort of start to pre-lease? Or do you kind of wait until early 27 until there's more of a product to show people? I mean, how do you sort of think about the timing of that and the rents for that building?

Steve, are you -- we're going to do that pretty much on the same as we did 220 Central Park South. At 220 Central Park [indiscernible], what we did was we had complete designs and they were in [indiscernible] knockout designs, even as we started construction, and we did an awful amount of selling of 220 from those designs. We're going to do very much the same at 635 Avenue. So we're going to get it designed. Our objectives are to make it the most interesting high-end boutique office in their city. And once we get that done when we'll go into the market with very high aspirations.

And next is Floris Van Dijkum with Ladenburg.

Michael, maybe this is for you. I was trying to get a sense of what is your current signed not open pipeline in terms of basis points and then also in terms of dollar value, if you can give us a sense of the scope of rents that are going to come online over the next 2 years.

Game on, Floris. I don't know if I follow you on the basis points. I think Steve in his opening remarks, sort of alluded to a couple of hundred million dollars sort of in the bag over the next couple of years or so. And I think we looked at our sign, not commenced number, that's what that is, right? So -- and we've talked about what the ramp is when the bulk of that comes in, in 2027. There will be a little bit next year. But the bulk is really 2027, and it'll slip over into 2028. But Steve's comment on a couple of hundred million dollars, I think, is a pretty good proxy.

Just to make sure a couple of hundred million, is that $200 million? Or is that $300 million?

Let's -- Floris, we're still finalizing. Let's use more than 200 right now, okay, in terms of the over the next 2 years or so.

Okay. Fair enough. But in terms of percentage, do you have the percent -- the difference between what's occupied and what's actually leased right now?

You're talking from a physical versus what's on the line. I mean, I think the occupancy numbers, we are what's reflective of actually what's been signed. So that's -- those are signed leases not all those tenants are in place yet. I can't tell you what the physical is relative to that. We have to come back on that. Obviously, the GAAP rent has not started yet on many of those leases.

Right, right, right. And that's the more than $200 million that's coming online. My follow-up, if you don't mind. I was just curious on -- you talked a little bit about -- or Steve talked a little bit about the billboards business being at record high. Can you talk a little bit about the opportunity that you have in the PENN District. Because I don't -- I believe you own 100% of that as opposed to the Times Square where you're in a how much room do you see to expand that?

You're right, we do own 100% of all the signs in the PENN District. And I think what's unique about the PENN district relative Time Square, which Time Square is still probably the most important signage marketplace in the country, maybe the world is we own the dominant signs there too in that retail joint venture. But at PENN, because we basically control the district other than I think one sign, we have all the signs, right? And so that allows us to market them in a variety of ways. We can -- we do -- and I think when you were over there recently, we can market one by one. We can market entire takeover where you can take over the district for a period of time, different slice of of an hour or something more extended. So it allows us to optimize the income we can drive out of that.

Historically, I think if you look over an extended period, the signage business kind of goes up 4% to 5% a year. in terms of revenue. Some years are greater, some years are lesser, but I think it's a decent annual run rate. And when you put a new sign in, the payback period is pretty quick. 12, maybe 18 months max. So we continue to see organic growth just coming from revenue naturally going up every year as it's historically done. And there's probably a little bit of signage we can add as we -- there definitely some signs we can add as we build additional buildings and their tick over time, but that will take some time. So there'll be some signage that comes back online next year. And at the same time, we're going to rebuild the different signs, so that sort of cancel each other out. But as you said, very healthy business. that tends to have pretty steady growth, if you look at it over a period of time.

What I tried to do in my remarks was to talk about the strategic benefit that we have in that business. So the first thing is that we own clustering in exactly the right place for Time Square and the PENN Station area. The fact that we own the buildings and the signs are attached to us, we don't have leases. We don't have the expensive leases. We don't have the renewal risk of leases. So basically, we have perpetual control over this inventory. So that's the first thing. The second thing is that because of that, we have the highest margins. So we have the best signs and the best districts in quantity, and that creates a very important strategic business.

At Times Square, we have our -- we have -- obviously, we have the best the 2 best blocks that boat, we have the best sites. And so that's fine. In PENN Station, I don't think that we scratched the service to the amount and quantity of signs that we can develop there.

John Kim from BMO Capital Markets with the next question.

I wanted to go on the commentary of flattish earnings in '26, which I think you force out a little bit last quarter, but it seems like it will be impacted by noncore asset sales. So I was wondering if you could talk about the timing and the dollar amount of the dispositions. And also what you think the trajectory of occupancy will be next year? I know, Steve, you mentioned in the past that it could go to the mid-90% range, and I was wondering how next year shapes up.

John, hope you're well. Flattish '26 is like, I think even consistent last couple of quarters in terms of '26 and '27. In terms of magnitude of noncore sales, I can't be specific on that because there's a number of things that could drive that. But I would say it's at least in the $250 million, $300 million on [indiscernible] could be more than that. And timing, just depending on when we execute on those. So I can't give you much more specificity just because you're dealing with counterparties and things take a little time and some things are still on the drawing board. But I think by middle of the year, my guess is much of that is probably done. But again, we've got a track record of certain things we had it planned, we end up executing on, and that may well happen again.

On the trajectory of occupancy, like I think as we look at Glen's pipeline, I think there's a reasonably good probability we're going to get to 90% in the next quarter to -- and then beyond that, we'll continue to build occupancy. And we think over the next couple of years, we'll get that into the back to sort of the historical levels, whether that's 94% give or take, if not higher. So I think as we sit here today, that's probably as much specificity as I can give you.

Okay. And then my follow-up is, any insight you can provide on the PENN Station transformation project, how involved Vornado will be as part of it, if there's any impact to commercial development opportunities going forward? And any views on whether or not MSG will relocate.

So I think that it's highly unlikely to impossible that MSD is going to relocate. So that's that one. So with respect to the PENN Station project, we are absolutely in favor of anything that makes PENN Station and the PENN District better, more user-friendly, more transformational. And that's the -- the best thing for us is constant improvements. And the fact that the government is involved now with a large budget, that's a very good thing. We will be involved in the process with one of the bidding groups primarily with respect to the retail that we dominate in the station and in the around. Barry, do you have anything to add to that?

No.

Thank you. But we're on this process of improving PENN Station, we are the biggest routers for that, that there are.

Dylan Bazinsky with Green Street is our next question.

I guess just sort of -- given the significant demand backdrop that you guys are seeing, obviously, continuing to push rents across the PENN District. I know one of your peers when they report earnings, talked about, call it, a 20% to 25% cumulative net effective rent growth expectations over the next 4 to 5 years. So just wondering if you can sort of put any of your thoughts around that? I mean are you guys expecting sort of significant rent spikes as space continues to get tight, especially for the quality of you guys in the portfolio?

I think 20% to 25% over 4 to 5 years, I think we'd be disappointed if it's not quite a bit more than that. You look at all the dynamics. Okay. I mean you look at all the dynamics in the marketplace. And I think this is a favorable backdrop as we've had in decades, right? There is scan supply. The demand is broad-based and very strong. Companies are expanding here and there's just -- and the vacancy factor, I mean, it's -- I think Steve referenced in his opening remarks, the better buildings in Midtown we're now talking about 6% vacancy. That's almost frictional. I think particularly on large spaces. So I think it's going to result in 2 things. I think one, you're going to see renewal probabilities start to go up in the next 2, 3 years because there's just no place for a lot of those companies to move to.

And then secondly, to rent space, it's become a landlord's market, as Steve said. So when these cycles happen, if you look at history, it can go up 15%, 20% in a year. And I'm not telling you that's going to happen. It could happen. It's not a 0%. But we think that the probability of the numbers you talked about is much higher on the upside than the alternative.

There's another way to look at this also, and that is the elasticity of demand on the part of the marketplace and our customers. So not that long ago, $100 was a top, top, top tick risk. Because of the increase in costs because of the shrinkage of supply because of the increase in interest rates, rents like overnight when into the mid hundreds of dollars a foot or something like that. Interestingly, we found that there was no pushback from the marketplace. If a growing, expanding important client need in the space, they paid what it took to get the space. So what I'm saying is that the marketplace is able to pay for the space. And the dynamics in the marketplace will determine what the rents are. But clearly, the rents are going to go up, and we think they're going to go up. Obviously, we think they're going to go up more than you do.

That's helpful commentary. I really appreciate that. Maybe just one more, if I could. You guys mentioned noncore asset sales. And I know you guys don't necessarily give a number, but as you guys sort of think about redeployment of that proceeds, I mean, is it likely to go into asset acquisitions? Are you going to hold the delever -- just sort of curious plans with that capital that you guys expect to come in next year?

Got it. I think it could go into a number of places, Dylan. Like if you look at what we've done to date, whether it's noncore, general asset sale, which has been quite significant, we've delevered the balance sheet meaningfully. At the same time, we made a, we think, a very attractive acquisition, and that's not something that we program, right? We don't sit around here in our counsel room saying we're going to buy x amount for a year. If we find the right opportunity, we'll act on it. If not, we're perfectly content to buy at our time until the right thing comes along. So I would tell you that, as we look at capital, we're going to continue to strengthen the balance sheet and we find something compelling externally.

Obviously, we'll look at that. We have some internal capabilities or requirements in terms of we've talked about developing the residential. We've got 350 Park in the year. So we have a number of users. And by the way, and I'll let Steve jump in here as well. I mean our stock still, we think, trades at a huge discount. So I think everything is on the table.

And our next question will come from Alexander Goldfarb with Piper Sandler.

Steve. So 2 questions. You definitely piqued my interest in PENN 15 that their conversations ongoing. Would you say that the tenants that you're speaking to are willing to pay the rents necessary for you guys to go forward on an economic basis? Or are they not quite there at where rents would need to be?

God, I don't know how to answer that. Clearly, there are a significant number of anchor-type tenants who are in the marketplace that are looking for new builds. We're not the only opportunity. There are other opportunities, all of us need approximately similar risks to have an economic new build. And the tenants that we're talking to, they understand the math, their advisers and brokers understand the math -- so the rents are available. It's just a matter of making a deal, having the tenant select the site, et cetera.

Okay. And then the second question is...

What I'm saying is this is not just kicking the tires. This is a serious business.

No, no. That I understand, it's just the size of the building, like these are big rent checks it's not like at the Saks tower or some of the boutique buildings that are being undertaken. I mean 2 million-plus square feet. Those are big rent checks. So that's why it's just impressive that tenants are willing to actually engage because that's is that's a serious rent, as I say. The second question is on the litigation on the PENN the courts can drag things out forever, people appeal, appeal and lawyers love to run up the meter. So the 2-part question on this is, one, are you guys booking the economic impact based on sort of the most punitive? And second, is that when you say that the yields on the PENN District have improved is that at what you think the ground rent should be or at the sort of the worst-case scenario in the ground rent?

Well, the first thing is the PENN 2 yields have clearly increased dramatically. The PENN 1 yield, we're pretty happy with what we projected. With respect to the litigation. What had been a known number is now subject to some uncertainty. In our minds, we have parameters around that. We are booking -- we are booking a number which we think is a realistic number. And we will see. But with respect to this litigation, I don't really have a lot to say about it.

And our next question will come from Jana Galan with Bank of America.

Maybe another one on dispositions. Following up on your prior comments on the willingness to maybe part with 555 California or the mark. Anything you can share on the amount of incoming interest and/or valuation? Or given the improvements in San Francisco, are you thinking differently strategically about those assets?

Not really. I thought we were pretty clear in sort of how would I say it, suddenly advertising those 2 assets last quarter. We don't have very much to talk about in terms of specific pricing or bad news or whatever. I can tell you that we think that the 555 California complex in California is the eighth wonder of the world. As you can see from our remarks and our documents the leasing there is extraordinary. Even going back a year or 2 in a chaotic declining market, the rents that we were able to get for that unique best in the marketplace building were rising. So we think that, that's a great asset with delighted to own it. And for the right price, we're delighted to sell it. And I think I'm pretty well known as not being an easy seller. With respect to Chicago, that's a different story. The market there is not as strong. And opportunistically, we'll see what happens. And then just in terms of developing future residential. Just curious your thoughts around for sale versus for rent components given kind of different changes going on in New York City.

We have multiple land pieces of land that we could build either office or residential. We do the math and the analytics as to which is more favorable constantly. We are putting our big toe. Actually, we're putting our whole foot up to our angles. Into doing a 475-unit rental project -- rental product, not for sale project at the corner of 34th Street and eighth Avenue. We think it's a very good site. It's connected to anyone to the one hand train hall and it also benefits for all of the renewal that we're doing in the neighborhood. So we're excited about that. And we'll see how that goes, and we'll make decisions going forward.

And our next question will come from Seth Bergey with Citi.

You mentioned in the opening script, easily exceed the 80% and the 1.1 million square foot leasing pipeline, I believe. How has that leasing pipeline kind of split between and 2 and other leasing? And kind of where do you think that 80% could kind of land by year-end?

It's Glen. So the 80% is specific to PENN 2. Just want to make sure you're clear on that. As it relates to the pipeline, it's generally 50-50 in PENN District versus others in our pipeline right now, which is generally the balance we've and able to achieve quarter-to-quarter as we've been on this big leasing run over the past bunch of quarters, so basically 50-50.

Okay. And then as a follow-up, you mentioned that's highly unlikely or impossible for MSG to relocate. How do you kind of see the permitting process playing out just with your knowledge of kind of how that process works in New York? And then do you see that kind of creating any additional opportunities for Vornado kind of outside of the PENN 2 station transformation.

Like I think Steve talked about this a bit, right, that the government is, they've issued a and they're going to run a process to select the group to redevelop and complete the remainder of PENN Station improvements. We expect there'll be a retail component in that, which is our interest. But our main interest is, as Steve said, being a cheerleader for something getting done because that's the nurse or the benefit of our holdings there. So look, they've issued the RFP. We're being told that they'd like to start the project by the end of '27. And from there, I assume it will take a couple of years to get done. But we'll see whether the time line sticks, but that's generally what we've been told.

And our next question will come from Michael Lewis with Truist.

So I apologize, I'm going to ask a question that was asked earlier, but ask it a little differently. The New York portfolio is 87.5% occupied. So I take that to mean there's a tenant in there paying rent. How much of the New York portfolio is leased? Is it close to 90% of the space that's leased? Is it less than that? Is it more than that?

No, the occupancy figure we gave you is what is leased.

Okay. I understand that. So I guess that speaks to -- has there been any change in free rent period. So at least that's already signed but not paying rent until 2027 feels a little long to me, but you have -- you sometimes have very long leases, so maybe that's not long at all. Has there been any movement in free rent or other concessions?

It's Glen. So there's a movement in two ways in that regard. One is downtime is less. So companies are making decisions much more quickly than they were previously, which is important. And then once that happens, the free rent periods are declining. So I would say downtime is lower and free rent is lower. As it relates to your comment, you're right, a lot of our leasing has been 15 to 20-year deals, which is why you're seeing free rents longer than you might have otherwise on 5 to 10-year leasing. But certainly, on balance downtime free rents coming down as the market improves.

Okay. So good to see that moving in the right direction as you might expect. And then lastly for me, this is a small one. But in going from NAREIT FFO to FFO as adjusted, I saw there was $6.7 million of other looks like gains that were backed out. I was just curious, it's a few pennies, but I was wondering if there was any anything interesting or notable in that $6.7 million of other that was deducted and get into your core FFO?

Yes. It's made up of several items. I can get you to lift offline if that's something you want me to follow up on.

No, that's okay. If there was nothing material that stood out. I was just curious.

And our next question will come from Vikram Malhotra with Mizuho.

I guess just maybe, Michael, if you can just remind us, you've talked a lot about the flattish FFO, but do you mind just going over some of the big sort of building blocks you've shared in the latest on those just as we think about kind of the big puts and takes that get you to flat for next year?

Yes, yes. It's -- I think I referenced a couple of things, right? We've got some income we're taking offline. Steve referenced the retail redevelopment on 34th and 7th. We're going to take a little bit of signage off-line to rebuild one of the signs, which we think will produce greater returns once that's back online, but it will probably affect us for months next year. We've got -- we talked about some asset sales that are producing FFO, but assuming those will get sold in the first half of the year, most likely or certainly for the end of the year. So all that has an impact on FFO. At the same time, we've got other items that are positive, which gets us sort of flattish. And the big growth is in '27 where we've got significant income. I mean like it's signed, right? We know everything that's talked about on PENN 2, that probably everything outside of MSG will it really started to a large extent until back -- or end of '26 and really in 27, right? So you're going to see significant growth in '27, but we don't really get the benefit from that on a GAAP basis in '26. And I think the same goes for a number of the other vacancies. We've had a lot of success back building the 1290 and 280s and so forth. And some of that's hit, but a lot of that won't hit until the end of the year of '26 or '27.

Okay. And then I just wanted to understand sort of the comment you made about rents and you've been happy about a lot more rent growth than was referenced. But we used to talk a decade ago about how many leases signed were $100 rents or more now in multiple pockets we're talking $200 rents? And I want to take like that fifth revenue acquisition maybe as an example, but just your perspective on what are the pockets where you can -- and types of buildings where you can see those $200 rents? And then similar to the Fifth Avenue acquisition, like, is there a pipeline of assets you're exploring with similar unique opportunities like that for Vornado?

It's Glen. I think what Steve was referring to think about what's happening quarter-to-quarter, we have been printing on average $100 average rents across or activity, very strong. In the market, there are deals being printed in the newer stock at 150, 175 200. So there's a lot of runway for us from here forward in our existing portfolio. So we think those $100 numbers are going to go up, up and up as the market continues to strengthen, which we're very confident going to strengthen. And we're already seeing that, as you can see from some of the things we've said this morning about our average rents. 623 is a great example of what we really believe is going to happen. That's a 5-star building. We're going to make it great. There will be nothing like it in the market. It is perfectly located to achieve rents higher into those ranges for sure. We're already getting great tours, great responses from the marketplace. So that is that an example of where you'll see higher rent in our portfolio.

So the tightening of the market creates multiple benefits, as you can imagine. Rents will rise. And we're about going to greatly push rates. We just follow the market. We don't make the market, we're important in the market, but we don't make the market. So rent-wise, and then inducements will come in. So I don't know and I don't think Glen agrees or is projecting that tenant improvement allowances, which is money they use to build their space is going to come in because the cost of building the space is not coming in. But for sure pre-rent is going to come in. free rent is very important, and it could come in a lot. So those are all very cost.

I want to spend a minute on 6 to 3 Fifth Avenue for a second. Think about the math. So I've already said that we're budgeting at least a 9% return on cost, unleveraged on that asset and that we're going to deliver that as in the next 2 years to a waiting and prime marketplace, it's going to be the best asset in the best building and there's a shortage of supply in that. We're already getting indications from the marketplace that is in short supply. So if you take $100 a foot times a almost 400,000-foot building, that gives you the better part of $500 million of cost on that building. If we can achieve what I think, which is 10% returns, you can calculate what the income will be.

Now what's the exit, what's the value? I believe an asset of that quality in this market will be -- will have an exit value, let's say, in a 5% cap rate. So if that math turns out to be, we will double our money on that asset in a very short period of time, and this is not that hard. The key to it is, is we have to turn that asset into something that's unique in the marketplace, which is exactly what we did with 220 Central Fox.

And our next question will come from Nicholas Yulico with Scotiabank.

Just I guess going back to the FFO flat commentary for next year. Michael, can you just maybe touch on interest expense and how to think about that trending next year and capitalized interest burn off, I don't that's also something we should be thinking about for next year?

I think a lot of the capitalized interest has -- will have burned off by next year. There might be a little bit late, but not a lot of -- and Glen, do you want to give specifics on that?

Yes. So on the capitalized interest, as it relates to PENN 2, that's obviously going to burn off. So keep in mind, 23,500 Avenue and 350 Park when that comes offline, both of those will have capitalized interest. So you won't really see '26 as we compare it to 25%, but pent will obviously do earning on.

I don't think it's that meaningful in 2016. So it affected $350 million, there's a difference relative to this year. 63% is obviously a new one. Nick, there was another part of your question?

No. I mean just on a high level, if there's a way to think about capitalized interest as -- is it flat next year? Is it net, it comes down a bit and that weighs on interest expense next year?

Yes. I would say it's probably going to be higher principally because of 623 and that's shifting in the bond it's going to be higher because of the items that Tom mentioned. But net-net, I would say the principal difference will be from 623. The interest expense overall, I think we've generally hit assuming the forward curve is accurate. I think it's peak or close to peak of where we're at. We absorbed some pain over the last couple of years ago, we're now rolling over a lot of debt. Generally, when you sort of blend it all together at same or lower rates, SOFR is coming down. We delevered.

So even when there's higher coupons, we've got -- given the fact we've got less aggregate debt, the overall interest expense line item is certainly no worse than flat. So we'll see. It depends on how we deal with some of our upcoming maturities in '26, whether we pay those off, whether we pay them down, whether we just roll them over, all that will factor into what the interest expense is for '26. But I think just in terms of the impact from rates, I think it feels like the worst is behind us on that front.

Okay. That's helpful. And then I just....

While we're on the topic of balance sheet, I think you have to -- we all have to focus on the effect. First, I am unbelievably proud of what our organization has done over the recent past in terms of getting our debt ratio down from much higher into the 8s and now into the 7s heading into even lower. So that's number one. Number 2 is the -- I'm also extremely proud that we prefunded all of the massive development that we're doing at PED and loaded in our balance sheet a couple of years ago, getting all the cash so that we had the capital already on balance sheet to complete our massive development program. Number 3 is that we did all that, keeping the major PENN assets unencumbered, so that we have a huge store of value there in the future.

So I think that we -- I think Michael and his team and maybe be a little bit plea little bit even vary a little bit. We get a gold star for how we've managed our balance sheet and we're not done with that yet.

Okay. And then just the second question is maybe any latest thoughts you can share on Farley. As you're thinking about as a source of capital, whether it's putting a loan on the asset or selling an interest in the building for -- to create some funds for some of the future development capital you're talking about?

Well, Farming is a unique unbelievable interesting asset. It's a double block-wide space. It's one of the very few blocks in Manhattan that is double wise. It's -- we leased it in the middle of COVID to all of it, 730,000 feet. I think to Meta. The feedback that we get from Meta is they think it's like the single best of their real estate installations in the country, probably just second to the [indiscernible] headquarters. The lease has probably another 11, 12 years to go as 12 years to go, there's an option to renew at the market. So if we were to compare what the incumbent rent is to what we think market is now versus what we think market will be at the expiration of that lease -- it's very, very, very significant.

So that's a fact. Based upon that fact, we would not consider selling that asset or selling a piece of that asset. Now chronically, it's interesting. We did an analysis of this recently. We basically don't do lots of partner deals based upon capital. We do some partner deals based upon if somebody controls a site or do something together in real owe do real estate partnerships. We don't really do capital partnerships. Although we think about it. So the one hand that you -- the falling which you're referencing, we think it's nastily under market. We think the future of it is great. We think it's a unique piece of space, we would never -- we were not considered selling it or would we consider taking it apart. Financing, it is a whole different story because you're basically just borrowing money on the credit and the tenant.

Our next question will come from Ronald Kamdem with Morgan Stanley.

Just two quick ones. Sticking on the -- if I can ask about same-store NOI. I mean, I think on the cash basis, it sounds like there was a reset this year. There's some free rent. Presumably, some of that burns off in '26, maybe a lot in '27. So just mechanically same-store NOI, is it somewhat positive next year and then really positive in '27? Or how do we think about that?

So you're talking about the cash front?

On a cash basis, yes.

I think like GAAP, we still think of continuing positive cash, just given the timing of the free rent, whatnot, I think it towards the end of '26 that, that will turn positive and then obviously, significantly so in '27.

Great. And then the -- my second one is just adding to the dispositions questions. Maybe can you talk about sort of the Hotel PENN land site at maybe even sort of more retail monetization? Just what's the interest and how are you guys thinking about those?

Hotel PENN site, we don't have any plans to dispose of that at the development that Steve mentioned in the script and talked about in terms of some of the incoming tenant interest. But that's a long-term hold and well unbelievably well located across from PENN 1 and PENN 2 core holding. On the retail side, we obviously sold UNIQLO there their store. And I would say the interest from retailers to purchase assets remains actually pretty strong. I would say, generally, we're seeing very good activity across the portfolio retail-wise.

And Times Square feels like it's picked up quite a bit here recently. So good demand there, good demand time square Obviously, we've been active in Penn and tenants are really responding to everything we've done at PENN 1, PENN 2, which is going to lead into our redevelopment on 34th and event. But retailers understand the dynamics, the market heartening as well, which is why they're approaching to renew early in many cases. And I would say, in some cases, we're looking to potentially buy is a space they're in or look to buy another space. So I think you'll -- like it's been episodic. You can point to a few things a couple of years ago. You can point to a couple of major transactions recently on the retail side, I think we'll continue to see those. And we're open to being a participant in that to the extent that we get rewarded with the right value. So stay tuned and maybe something will occur there in the future.

While we're on the topic of retail on 34th Street, let me just say a little more color around it. So on 34th Street, both sides of 7th Avenue and then down seventh Avenue to 33rd Street is basically now populated with retail that we inherited, which is really -- I used the word in my script lovingly junk. We are in the process of canceling all those leases we will basically redevelop all of that space and to modern exciting sought half the retail offer obviously trained at our office occupiers and the market.

Now the 34th Street and 7th Avenue quarter and has been historically the second or third most active subway station in the city -- in the whole city. 34th Street, not that many years ago was the second best shopping street in the city. It has deteriorated over time. We intend to bring it back, and we think bringing it back is not a difficult thing to do. Macy's, which is across the street, fluctuated volume close to $1 billion and it comes down, it goes up but it is clearly the highest volume of department store in the United States. So we like the real estate. The real estate has deteriorated were going to rejuvenate the real estate. In addition, that's the gateway to our entire PENN district. So we think it's very important, and we think it will have an enormous effect on the PENN District overall values. Pardon me for advertising just a little bit.

Our next question will come from Brendan Lynch with Barclays.

Just one question for me. A follow-up on the PENN axis project and bringing Metro North and to PENN. It's been delayed. It seems there is a coordination issue between Amtrak and [indiscernible] to what extent are you involved with the various government agencies? And is there any prospect of getting that project time line back on track for completion prior to the current 2030 target or even preventing it from slipping further?

Barry and I will take that question. And then Michael and I will add it.

So as you can imagine, we're intimately involved with the MTA through all of the work around Penn Station, a great partnership there. If you speak directly to the MTA, what you'll hear is that they plan on running service on Metro North starting in 2027 utilizing the existing 2 tracks that already connect PENN Station straight up to Westchester to Boston. The part that was delayed is the construction of the 4 new stations in the Bronx and adding 2 new tracks, which allows them to run Express service. So we expect that service will begin in 2027 on the New Haven line in the PENN Station.

At this time, there are no further questions remaining in queue.

Thank you, everybody. We actually are very proud of the results that we delivered this quarter in terms of the scale of our leasing and the price. The rental rates and the value creation. The occupancy is easily going to be over 80% this year in Pet, and we think we had a great quarter. We are very proud of our balance sheet activity. and we love both the 6 to 3 Fifth Avenue acquisition. So with that advertisement, [indiscernible] of we are excited to start you again episodically and also in the fourth quarter. Thank you.

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

Good afternoon. Welcome to Bank of America's 2025 Global Real Estate Conference. I'm Jana Galan, and I cover the office REITs at BofA. We're very pleased to have with us Vornado's President and Chief Financial Officer, Michael Franco; EVP and Office Leasing and co-Head of Real Estate, Glenn Weiss; EVP and CAO, Thomas Sanelli; and SVP, Gary Hansen. I'll turn it over to Vornado to provide some opening remarks, and then we can jump into Q&A.

As we're sitting around here, Jana, I'm realizing that the post-lunch slot is a tough one. So next year, we're going to have to go pre or later. Everybody is probably still eating or waking up. Anyway, nice to be with everybody today. Thanks for joining us. I was reflecting on where we were a year ago. I read what we said a year ago in terms of where I thought New York was and where it was going to be. And I don't know whether you guys thought we were talking in our book or whatnot, but we were pretty bullish about what we were seeing, and we thought the momentum would pick up, and it absolutely has, and we'll talk about that. And frankly, it's accelerating.

So we're quite happy about what we've done over the last couple of years, and we can talk about the different items we've executed on. But I think everybody knows our company. We are a New York-centric company, New York City-centric company. We own about 23 million square feet of office in New York City. The centerpiece of that is the Penn District campus, which if you've not been over there, I strongly encourage you to go over there. It really is a wow, even for those of us that work on it every day, it's a wow to go over there every day, just teaming with people, unique infrastructure in terms of amenities and entire ecosystem. And I think that's really hit the tipping point with tenants and brokers and what you're seeing come through in results.

We own franchise assets in Chicago and San Francisco. We own the best retail in the city, Fifth Avenue and Times Square, we own the premier signage. Frankly, it's a portfolio, but it'd be bigger than any other signage company out there in terms of spectacular signs, which I think is underappreciated. And we've got great running room ahead, both in terms of the existing portfolio as well as some of the development opportunities. So we are -- I think I speak for the entire team as excited as we have been in years. As I was talking with a couple of folks over here, we had 3 years in the wilderness, and it's gotten better and better over the last 18 months. And I think we're embarking on one of the strongest periods for New York City office we will have seen certainly in my career. So with that, Jana, I'll turn it over to you for Q&A, unless you guys want to add anything.

No.

Great. Maybe seeing this kind of strength and momentum and demand in New York City, I think yesterday, we heard from Ken Kaplan that office utilization and traffic is above 2019 levels. And so it definitely sounds like New York has come back stronger than ever. Maybe from Glenn's perspective, can you kind of talk about leasing volume, what you're tracking, what expectations are, kind of what the pipeline looks like today?

Sure. Hi, everybody. So we're feeling great. Stuart was joking around me that I'm smiling for once. Ted mentioned my tone on the last earnings call was very positive. So yes, we are positive. New York is in fifth gear. We're in fifth gear. Leasing is crazy. I should honestly not be here right now, no offense to any of you. So I'm going to run out of here as soon as we're done. But what happened here is everyone was home in 2020. We had no idea what was going to happen. We had been predicting that everyone is going to get off their seats out of their kitchen eventually, and that certainly has happened in a big way.

So you have a combination of everyone is back in the office in New York. Everyone is -- the talent is in New York. The kids all want to be in New York, not Nashville, not Denver, not Atlanta, New York. You now have growth in industries, hiring, expansions, tech, law, financial, et cetera. On top of that, you have the flight to quality, which continues to strengthen. But with that, because demand is becoming so robust into this landlords market, some of the non-trophy space, I'll even say the Class B space is filling up now because not everybody could spend $100, $150 or $200 a foot on the real estate. So you're seeing those Class B buildings starting to fill at $70, $80 a foot, which is great.

We're seeing competition between companies for the same space all over the portfolio right now, particularly in Penn. Our pipeline is robust. Year-to-date through June 30, we had leased 2.3 million feet. We have another 1.5 million feet right now in the pipeline. A bulk of that is in lease negotiation documents, lease documents and the remainder in some stage of LOI across the entire portfolio, very balanced between Penn and our core Midtown portfolio.

So we're feeling very, very good. We continue to raise rents. And we're finding that we're able to start whacking down the free rent packages which we're doing daily. TI, not yet, but that's soon to come as vacancy continues to drop in Manhattan. So we continue -- we expect this to continue in a very big way through the rest of this year and certainly through '26. We feel great. We have a very modest role. The rest of this year, we have nothing left 100,000 feet. Next year, we have about 1 million feet rolling, of which most of it is already in discussion. So we have a modest role. We feel great about our role. Our vacancies are filling. So overall, yes, we're smiling.

Maybe if you could kind of talk to a little bit of the different types of tenant demand, whether it's AI, TAMI, fire, broad-based, anything that you'd want to call out that's different this time?

Well, AI certainly is coming to New York and of course, San Francisco. I think moreover, look out for the big tech. They're coming back. They're here. They kind of went in a hole for a while, but they're back. So pay attention to big tech again. Financial is just off the charts. Entertainment is big, which people haven't been talking a lot about. But in New York, entertainment is a big driver of this demand right now.

So -- but you think about these companies, the culture and the recruitment and the brand, look at what Verizon did, for example, at PENN 2. I mean they came out of nowhere. They weren't even in the market. And they call us on like June 10, literally June 10 with an idea, and we signed the lease, what was it June -- July 24. With leases all over the city, they said, we have to move. So those are great signs because that was not happening. Prior to this uptick that I've been describing, oh my lease comes up in 2028, what do you think? It's 3 years away. Will you take care of my free rent, so I don't have 2 leases. And now it's -- I need the space. What have you got? So we're seeing that a lot more now, which is great. So it feels like the old days, so to speak. But I would say it's a very good balance of industries in the market. I'd say the only industry who's been slow still is the advertising companies. But otherwise, everyone else is in lease mode.

Which is, I think, pretty unique, right? Sometimes it's finance, it's legal, whatnot. I would say we're at a time where, by and large, pretty much every major industry group is in growth mode. And serious growth mode to the point where I would say, particularly in the finance sector, they are concerned about -- as they look at their growth objectives and growth needs, they're concerned as they look 5 to 7 years out, right? We need to lock up space for what we think we're going to need, what we need today, what we may need in the future. And so that's a pretty encouraging sign.

But I think the broad-based nature of the demand, I think, is a big positive. And then the second big positive is not that many years ago, we talked about triple digit -- I mean, triple-digit leases there were and getting above $100 was a big deal. And it just feels like in the last, I don't know, 24 months, Glen, just a step function where it doesn't matter anymore. I'm not saying tenants don't care what they pay. Of course, they do. But they are much more willing to pay an extra $50 a foot for the right space, right? Culture, retention, recruitment is so critical that they have to pay $230 versus a building $140, but don't even think about it, right?

So -- and the JPMorgan headquarters opened up, I guess, officially yesterday. We toured it a month ago. And that just raised the bar on every bank out there, right? So I don't care if you've renovated your headquarters, you built one 10 years ago, you're now a laggard relative to JPMorgan, right? And when you're going to compete for that talent, right, you're going to have to improve your own bit offense to BofA, right? You're going to have to do things that you hadn't thought about before. And so extrapolate that across the entire finance sector in particular. You're seeing that across legal. And again, I think our comments are heavily focused on New York, which far and away is the best-performing office market, right? We're in other markets, Chicago, San Francisco, San Francisco better than Chicago in its performance, but neither one of those. And I think we've spent some time in other markets like nothing is close to Manhattan in terms of what we're describing right now.

And I think it's important to note the quality of our portfolio. I mean, this -- I don't think anyone focuses really on our quarterly metrics pound for pound every quarter consistently for a long term now, $100 rents on average almost every quarter. Look at the stats. Mark-to-market is positive every quarter. And that's because of the quality of the spaces that we have, PENN or not PENN. It's quarter to quarter to quarter, and that speaks to the quality of the portfolio we put together.

And maybe following up on PENN 2 and Verizon. You guys had put out kind of a target occupancy in the future. But also, I completely understand why you'd want to curate the space and make sure with a long-term lease that you have the right tenant there. Just kind of how are you thinking about that?

So I think that comment was taken a little out of context on the earnings call. I -- by no means was saying we're going to delay this thing. Obviously, we want to lease the building, but we want to be smart about it. So what's happened here as we've unfurled the project in the district, as the construction barricades went away, as everything is now perfect, the rents have risen, the quality of tenants has strengthened. The credit of those tenants have strengthened. So when I say curate, that was -- that's what it's about. So we have Verizon. We have Universal Music. We have leases out otherwise now that everyone is going to be very happy with soon. What's that?

I was going to say Major League Soccer.

Major League Soccer. So when I say curate, we feel like the balance of rent, credit, tenant profile is really important here. And if you look at the roster so far, it's exactly what we've done. So we're really pleased with it.

So just to put a fine point on, yes, we did put a number out there. We said give or take. We weren't trying to be -- we weren't trying to say we're delaying. At the same time, we're trying to just lease for the sake of leasing. I think that's a Vornado hallmark, right? We don't put a number out there and boy, if we don't hit it, we're going to fall on our. If we're at 77% and we get to 80% in February 1, -- we're going to wait for the right deal. That's all we were saying, right? All that being said, the demand for PENN 2 is outstanding. We have a deep roster of interest. Glenn is in the process of finalizing leases with a number of tenants. We feel very good about hitting the 80%, right? It could do better. Don't take that to the bank. But we feel good about the 80%. We feel good about leasing overall. And I think as we sit here today, knock on wood, relative to what we published in our last supplement, hopefully, we're going to exceed those targeted yields.

And can you help us a little bit in terms of when the kind of -- when you start getting rent for the different chunks?

We're just talking about that. The answer is we can't give that to you yet. We're still working with tenants on when they're finalizing the build. I don't know if you want to comment at all. Some tenants have been there like we want -- they're actually using the amenities before they're in their space, right, because that's the uniqueness of it. And they're telling their teams get this thing built out quicker. We want to be in this space. So we're trying to assess exactly...

Yes, it's going to depend on when the space is ready for its intended use, obviously, when the TI dollars are spent for GAAP purposes. So we're going to reevaluate that given all the activity we have. So we had initially said it's probably sometime in 2027, early '27, but it may actually be in later '26, but we have to kind of go through all that as we go through this next year's budget and with the new leases that we signed. But in terms of a full year, it's going to be in 2027.

And then maybe just like on the other end, just any kind of large expirations or move-outs to kind of call out?

I said in the beginning, we have a modest rollover. We've already attacked substantially the role '25, '26. We're already talking to people in '27, as you would expect. So I would expect nothing that you don't know about already, but we feel great about the role now. We've gotten through -- we had a bulk from '23 to '25 of huge role, huge. We've now come up very well out of the other side. So now the next couple of years, very modest, very manageable. And as I said, we've attacked it and we're in deep negotiation with many of the big ones that are expiring.

Question on JPMorgan getting up there [indiscernible] not an issue at all.

Not an issue at all.

Yes. If you think about their -- I think when they first announced that they started...

7 years ago.

They took space in what, 6 other buildings, right? With the expectation when it was completed, they would take that space out and not use it anymore, right? Their business has grown substantially since then. And on a number of those, they've committed to longer-term tenancies in those locations, right? So I don't think any of that space is really going to hit the market again. And they just bought 250 Park. They're kicking tenants out of that, right, so they can utilize that. We and others are the beneficiary of some of those tenants, which is a good thing.

So I mean, I think that's -- that's the biggest bank, but that's a strong statement that their new headquarters is not big enough for their footprint now, right? So they've now built a campus between that, 383 Madison, 250 Park and some of the adjacent space that they're keeping.

[indiscernible] AI seems to be a big threat for law firms in the future, but still they are high demand [indiscernible].

Yes. I think -- look, we'd be naive to think there's not a risk, frankly, on everything related to AI, right? And it could impact certain businesses. And I think they are utilizing to some extent, right, in terms of they're not having a 2 second year associates produce a contract, right? They can get done like this, right, here are the key 1 key terms and so on. At the same time, we've had some of this discussion with our main law firm. If you don't continue to hire and restock your junior people, then there are no partners one day. So there's a balance, right? And so I think you'll see a level of efficiency adopted by them, by others. But net-net, I think the -- I'll call it, the intellectual capital that's necessary, right, whether it's finance, legal, et cetera, is still going to be people oriented. And their view is they're going to still be there and they're going to be active. And they've been pretty active recently at taking space and including expansion space in that. So yes, I think there'll be efficiencies, but it's not going to eradicate the legal industry.

Maybe turning to the balance sheet. You guys have significantly delevered this year. Just maybe if you could kind of remind us what are your target metrics? And you've also mentioned some potential dispositions.

Yes. Look, we feel very good about where the balance sheet is. I mean I think that one, we've always sort of carried more cash than most companies, right? And that's allowed us to weather any storm. It certainly allowed us to do it in this recent storm. We sleep well at night. But if you look at all the transactions we've executed, it's UNIQLO, 770, some of the smaller sales, we brought our leverage down about 1.5x, right? I think we were about 8.8 at the peak net debt to EBITDA. We're at 7.2 today, which in New York probably makes us the second lowest levered office company and I think in the sector, also one of the lower levered companies.

I don't know that we have a specific target, Jana, but I think we've stated a number of times, our objective is we want to be an investment-grade company again, right? So that naturally lends itself to even lower levels than that. And I think we're going to get there principally through when we finish leasing up PENN and that comes online, that's going to be a pretty meaningful impact to income. And therefore, our leverage level is going to come down, we think, again, probably at least 1x by '27. So hopefully, that positions us pretty well by then. We don't sit around and say we have to be at this exact number, but we do want to be investment grade. And I think the agencies are recognizing the trend line. I think one agency came out with a release, was it this morning or yesterday, they reaffirmed our rating and they put us on positive outlook, right? So that's the first step towards that.

I think we have a track record with the agencies of being transparent, putting out a set of objectives, not overpromising, delivering. And I think that they looked at us with some skepticism 2, 3 years ago, we said we're going to get things like 770, UNIQLO and all that done. I said, are you going to do these things with? Market is still coming back and we got those done and leased up PENN. So I think we've got a lot of credibility with the agencies, and I think that's reflected in what they put out, as I said in the last day.

And so I think a lot of it will just come through natural income growth. But at the same time, we're always looking to optimize the portfolio, and we're working on a couple of smaller dispositions right now and there might be something more medium sized. But our approach on dispositions has been very much of an opportunistic approach. I think the market is shifting now. We can talk about that. But up until now, you sort of had to figure out who's the right buyer or a handful of buyers that are likely because there weren't that many that can actually perform and go to them and you figure out something. I think that's widening now, and there's a lot more competition for assets on the buyer side. But we're going to continue to be opportunistic there, continue to try to use as an opportunity to upgrade the portfolio, recycling the higher-quality assets, which is basically the trend line we've been on for the last few years.

Great. And maybe just following up on the 555 California and THE MART comments on the earnings call, I guess, level of reverse inquiries or anything to add?

I guess Steve got his wish. They put a little bait in the water. So it's not really -- it got a lot of press, particularly in Chicago. What he said, frankly, is not any different than I think he put in the last 2 Chairman's letters or he said a number of times, right, which is our focus is New York. We own great assets. But if there's an opportunity to monetize those assets outside of New York at prices that we think are attractive, then we're open to doing so, right?

And that's the case, right? If we -- 555 is probably a top 10 building in the country, right? We want to get paid like it. If we get paid like it's a top 10 building in the country and somebody wants to own a franchise asset, then that's something we're open to doing, right? Chicago, it's a franchise asset, but the market is not as strong. It's not a top 10 building in the country, but it's a great asset. Again, if we get paid appropriately, we're open to selling it. We're not actively in the market. We're not hiring a broker. We're not doing anything, but we're open for business. They're big assets, right? There's not that many players that can stroke that check, but there are quite a few.

And for the right execution, we'll transact, right? And Steve was reemphasizing that, and that remains the case. And I wouldn't model it in your models anywhere, but could it happen? 100%. So we'll listen to calls. And if there's somebody that's serious and willing to get aggressive, then we're open to doing something.

And then maybe on kind of the acquisition side, things that you guys have been looking at, and it seems like financing has really come back and so transaction activity is likely to follow.

Yes. The transaction market has certainly picked up this year. I think if you look at just the last few months at some of the deals that have been announced, first of all, the size of those deals is quite a bit larger, right? We've seen the first $1 billion transaction, 100% sale. We've seen investments from private capital, I'll call it the fund type. We've seen private capital from the pension fund type. We've seen the high-net-worth, family office type. I would say it's broadened quite a bit in terms of level of interest. And we get inquiries on assets, whether we're selling, whether we're looking at assets in the marketplace in terms of partnering. And that market in terms of investor level of interest in New York has deepened quite a bit.

So I think that's reflective of -- I think it's the consensus view that New York has clearly bottomed and in recovery mode. And now it's just a question of how aggressive are you going to get in underwriting that recovery, right? So whereas that's not necessarily the case in every other market. And so I think that's why you're seeing investment capital that's interested in office. And frankly, all return levels focus heavily on New York City. So I think the level of capital has -- on the equity side has increased dramatically. The dead markets have come back significantly for New York City assets. Certainly for stabilized assets, I think the spreads are as tight as we've seen in a number of years. I think the depth of the market is good. For the more transitional assets, there's capital available for that, too, from all the nonbank lenders.

So I think the capital markets are strong and getting quite a bit stronger in New York City. And so -- and I think that's resulting in more transaction activity, right? So for a while, owners were either holding out because they could, maybe they can't now because they have loans maturing, maybe lenders didn't want to force the action because the market was uncertain. Now they know there's capital out there. So you're seeing lenders put a little bit more pressure on their borrowers of like, let's get on with the game, right? Let's see a recap, let's see a sale, whatnot. I think that's precipitated a lot of this. I think that's going to precipitate lot more.

Obviously, you guys saw us make an announcement a couple of weeks ago, and then we closed an announcement yesterday, we closed on 623 Fifth. That was a situation clearly that was driven by an owner who was under some pressure, right? And it's exactly the type of asset we want to buy, right? We're not -- Vornado is never -- we're not in the pie eating business, right? We're not trying to buy everything solid. We're very targeted. We want to buy assets where we think when it comes to reimagining, repositioning, leasing up assets and making an asset that is a ugly duckling into a diamond, nobody does it better than us, right? And you can look at all the track record that Glenn, Barry, lead the Chuck, Steve, nobody is better at that than us. Penn is, I think, the case study, right? So 623 is a perfect example off the radar screen of brokers, tenants, been vacated proactively by the owner. And it's just sort of sitting there, right?

Hard in Midtown, but you get up in there, the views are spectacular, column-free space, boutique floors. But the heritage was it was high-end financial tenants. We're going to take all the skills, right? We're going to make it a club-like environment, and it's going to be stock full of top-tier financial tenants at I think very -- at very high rents. So we're excited about it. It's right down the fairway of what we do best. And we're looking for other opportunities like that. And I think you'll see -- I think there's going to be a tremendous number, no, because capital is competitive here. A lot of assets are in strong hands and the weaker assets that are poor performing are not assets in a lot of cases. But we've seen more in the last 4 months that we saw in the last 3 years. So I think there'll be some more activity.

What sort of return [indiscernible].

It is somewhat of an asset. We -- give us a little time to refine it, Ted. I think some analysts published what they say 7%, 7.5%. I think we'll do better. But let's leave that out there for now and we finalize the budget, sure, we'll give you the numbers.

We're drawing up our plans.

We feel very good about what we can achieve there.

I will tell you, this building has been so off the radar. I mean it's -- we announced this thing 3 Fridays ago.

End of August.

We have more than 30 tours set up for the next 2 weeks. It's one of those buildings that everyone was so excited to see it come to us. I was shocked by it. We love the real estate, as Michael said, but I didn't have a feel for how much the market was salivating for this thing to come back. It was interesting. Merrill Lynch used to have a big block in this building, by the way, to his point of financial. This was the original Swiss Bank Tower. So the building has great bones, the views -- I mean, so we love it. But -- so the reception has been monumental, much even better than I thought it would be out of the gate.

And can I ask how are you thinking about those types of unique opportunities versus starting development at kind of the Penn site?

The answer is we're going to do both, right? Now we certainly compare opportunity, okay, how does this compare to -- we look at everything, right? Should we buy back stock? Should we pay down debt? Should we develop? Should we just keep it in cash and all those things. And it's why you haven't seen us buy a tremendous amount because we don't want to buy just to buy, right? It's got to be the right opportunity.

But on the development side, we have a number of things in the works. I think clearly, as we think about our company and where there's going to be growth, how are we going to create value, PENN is the centerpiece. And I think one of the great things about what we do there is because it is a 10 million-square-foot campus, everything is interconnected. Every time we do something in that district, it enhances the district, right? So we do something that's got a knock-on effect the next time we roll a lease at PENN 1 or PENN 2 or something.

So we think there's a lot more rent to capture in PENN 1, PENN 2, notwithstanding the success we've had leasing those up because for the bulk of it until probably the beginning of this year, we were in productivity mode, right? This district really changing, right? I don't think that is questioned anymore. But the reality is we had to lease up which hit our targets and exceeded our targets, but we had to prove it, people, right? I think those rents as we roll will be much higher and a lot of growth to come over the number of years from that.

But at the same time, we're intent on adding residential. We've talked -- Steve talked about -- I talked about building on our 34th and 8th side of residential project, which we're finalizing our plans and budget and probably get going on that at the end of '26. Hotel Penn, which is down, I would say, for the first time, seriously, I think it's the best remaining site, certainly on the West side. And tenants, given, frankly, their expansion mode and their view on New York City, they are looking out in the future. And we're, I'd say, getting a regular amount of interest on PENN 15. We're not ready to kick off tomorrow. But I'd say for the first time, there's a level of seriousness in terms of activity.

It's now formal activity. not, hey, Glenn, maybe what do you think? It's formal. So it makes a difference because people believe now, companies believe. So we're showing it a lot. We have a presentation today, actually later today with a big company. We're involved with some RFP processes right now. So we're front and center in this thing. It's not just kind of make believe.

I can't tell you if any of those will make, right? But as Glenn said, there's a level of seriousness since it has been there.

It's a different tone. It's a different tone on it now.

So at some point, we will make the right deal, we'll get going, and we think that endures to the district. So very much everything we do in PENN endures the entire district. We want to keep building that out. 350 Park is front and center. I mean, interesting there. Notwithstanding, we're not going to deliver until '31, '32, right? Glenn is getting incomings to take the vacancy there. We're going to have final ULIP approval by the end of this year and demolition to start on existing building by March. So that will start that process.

Great. I think we may have time for 1 or 2 questions. Maybe if I could just ask on the Pier 94 Studio development that's kind of very unique. Anything to kind of add there?

Take that one? It's going to finalize open by the end of the year. It's spectacular. There's nothing like it in the country. I mean the sound stages that we put together with our partners of HPP and Blackstone, it's great. We're in the market. That market is soft nationally, but this thing is so special. If anyone is looking at anything, it's this right now. So we would expect for maybe 1 or 2 years to take down the entire complex. If we have to pivot to kind of the normal sound stage weekly, monthly, annual business, we do that, too. We're going to be patient because it's just that good. The location is [indiscernible] right off the West Side Highway, on the river, exterior signage, parking. I mean, the thing has everything you would want. So we're excited about it. But at the same time, we realize that, that sector is soft in terms of demand, but this is so special. We're still feeling very good about what we did here.

And then maybe just finally, any comments on kind of the upcoming mayoral election?

Yes. It's -- every day brings a new story, right? So I don't want to make predictions. There's enough out there. I think our view in terms of our business is the infrastructure of New York City is so deep and differentiated from any other city that the city is going to be fine no matter who wins. It always has been, it will be. This is not going to become the next Chicago in terms of what's happened there with some of the crime and safety issues. That's a 40-year issue. So regardless of who wins, I think every -- we've met with all the candidates, they all recognize that you need to have a strong business environment, right? Obviously, Mamdani has got a big focus on affordability, which probably is not inappropriate, right? We need to have affordable housing and so on. But I think he also recognizes the importance of the strong business environment, keeping the city safe and clean.

So I think New York will be fine. I think sort of the proof is in the pudding in the sense of did we see any reaction from tenants? Have we lost any deals post primary? 0, right? Have any tenants slowed down? Nothing. Glenn and his team probably had the busiest summer they've had in a decade, right? Are we seeing any slowdown? No, 0 slowdown, right? Everybody understands who might win the mayoral election, not affecting -- people committing to shorter terms. No. So forget what we say, let's just look at how are the tenants voting, what are they doing.

Thank you. We're going to conclude with 3 rapid-fire questions we're asking all the REITs at the conference. When the Fed starts to cut, do you expect rates for long-term debt to decline, stay flat or rise?

I'd say generally stay flat.

Last year, the majority of companies stated they're ramping up spending on AI initiatives. How would you characterize your plans over the next year? Spend more, flat or less?

Well, definitely more because we're coming off a very low base.

So spend nothing. You're a very low...

[indiscernible] But in all seriousness, Tom and SWAT team we have are spending a lot of time focused on how we incorporate that into our business.

And then do you believe same-store NOI for your sector will be higher, lower or the same next year?

Sector NOI.

For the sector.

I mean, in general, I think New York is positive. I can't tell you from the sector, but trend line is positive.

That's great. Thank you guys.

Thank you.