Good morning, and welcome to the Vornado Realty Trust Fourth Quarter 2019 Earnings Call. My name is Brandon, and I'll be your operator for today. This call is being recorded for replay purposes. [Operator Instructions] I will now turn the call over to Ms. Cathy Creswell, Director of Investor Relations. Please go ahead.

Thank you. 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 Form 10-K 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 is Michael Franco, President. In addition, Steven Roth, and our senior team are present and available for your questions. I will now turn the call over to Michael Franco.

Thank you, Cathy, and good morning, everyone. Overall, we look back at 2019 as an important and successful year, setting the stage for the next phase in the company's growth. In addition to keeping our buildings full at very healthy rents, we're at 96.5% occupancy. We recapitalized our Fifth Avenue and Times Square retail assets on a very attractive basis in a $5.5 billion transaction. We paid $1.95 per share special dividend last month related to this transaction. Most importantly, we advanced the redevelopment of the Penn District, positioning the company to capitalize on the enormous opportunity we have on the west side of Manhattan. More on this in a moment. Before giving some thoughts on the markets and our portfolio, in particular, the Penn district, let me review our fourth quarter and full year financial results. Fourth quarter FFO as adjusted was $0.89 per share, flat to last year's fourth quarter. Full year 2019 FFO, as adjusted, was $3.49 per share compared to $3.73 per share for 2018. These results are $0.09 ahead of the guidance we've given in the third quarter. As we have previously indicated, our financial results for 2019 were lower than 2018, explained as follows: of the $0.24 reduction, $0.25 is due to our $3.2 billion of asset sales. $0.09 is due to a onetime noncash stock-based compensating expense and $0.04 is due to lost income from retail bankruptcies. All of which aggregate to a $0.38 reduction, which was partially offset by growth in our core business and interest savings. Overall, our core business continues to be strong. For the year, across New York, Chicago and San Francisco, our office and retail leasing teams completed 215 leases, comprising 1.7 million square feet at a starting rent of $90.45 per square foot at positive mark-to-markets of…

[Operator Instructions] And from Citi, we have Manny Korchman.

It's Michael Bilerman here with Manny. Michael, I want to just go through some of the numbers you threw out in terms of the headwinds that are affecting 2020. And maybe if we can just take each of them, you talked about the space coming out of service being $0.09, the $19 million that's in the supplemental on Page 31. Can you give us some color in terms of when you expect income to start flowing back because the chart, at least in the supplemental, doesn't have the positive effect of re-leasing that space? And then on the retail side, that 16-or-so million at $0.08, what is the prospects of that income flowing in at some point in 2020 versus later on? Just as we think about the ramp as we get back.

Michael Bilerman, it's Joe Macnow. I want to take the second part of that question. On the $0.16 from asset sales. Half of that, a little -- almost half of that comes from the retail JV. The balance comes from sales of 330 Madison, 3040 M Street, [ Creek ], UE, LXP. That stuff is not coming back. Other than being reinvested, the cash being reinvested in the Penn District, it's not a one for one. We sold this, we're putting this here, and we're going to get back NOI.

Michael, in terms of the retail bankruptcies, right, which is Topshop and Forever 21 at 608 is permanently gone. The asset in SoHo, the probable plan there is to convert that upper floor -- the upper floors to office, and so that will undergo a redevelopment. And so best case is that won't come online. It certainly won't come online in 2020. Best case will be some point next year. But again, nothing certain there. And then Forever 21, we have a deal in place today with them. The numbers we cited reflect the reduced leases. We'll see what happens as they come out of bankruptcy now. And to the extent that those leases are not accepted or to the extent that we proactively take that space back after the year, again, that income is not going to come on in 2020. Best case that's going to come on sometime in 2021. Usual free rent period, et cetera, I think it's the best case that would be towards the latter part of '21. But again, there's nothing that is imminent on those. We're aware that both those leases either could come back or we'll proactively take those back, and we're out marketing the space.

Michael, it's Joe Macnow again. That explanation of the possible Forever 21 two leases coming back is what gave rise to the range of $0.23 and the midpoint is $0.28. That $0.05 represents the exposure of those 2 leases come back.

Okay. And then you talked about -- I mean you were running basically $0.89 of adjusted FFO in the third and fourth quarter, right? So annualizing out to $3.56 for the year relative to the $3.49 for the full year. Arguably, the last 2 quarters should have the dilution from the asset sales. Certainly, on the retail side, some of the stock investments already baked into that number, and arguably has some of the retail loss as well. So I'm trying to reconcile those 2 things where you had been reporting a quarterly number of $0.89, $3.56 annualized, which should already take into account some of this $0.28 of added dilution that we're talking about for 2020?

Michael, it's Joe Macnow again. I'm not prepared to address that question fully. But some of the items are really onetime. There was lease cancellation income in the fourth quarter that was $0.02. There was the straight-line write-off that we anticipated on Penn Plaza that got deferred to 2020. That was another $0.02. So $0.89 is up $0.02, and 2020 is going to be down $0.02. Those 2 items are a $0.06 swing from annualizing the fourth quarter, and there had to be many, many more items like that, that Manny and our team or you and our team can do off-line.

Michael, the other thing is the out of service that we sold, that's all incremental, right? So that is Kmart, it's just -- it's the number of buildings, frankly, between Penn 1, Penn 2, that with further evolution of development plans, right, is incremental out of service. Obviously, there was the sale of free shares. So there's a number of items that are not run rate from the fourth quarter.

Right. No. And I think that was part of my first question, and I'll get off after this, that 19 million of reduction for the stuff coming out of service. Trying to understand when some of the income will flow back into the company, I guess, trying to understand that aspect of why don't you spend money and lease the space. What type of disclosure are you going to provide? You've provided on Slide 31 the stuff that comes out. I guess at what point are we going to get some stuff about it coming back in?

Well, I think, also on Page 31, Michael, it's not [ a holdco ]. If you look at the top part of that page, we do provide the incremental cash yields and the stabilization here. We expect to begin to achieve those cash yields.

Right. But some of that will come in, in '21, '22, '22 -- like it will be phased. And so I was just looking at that incrementally each year.

From Evercore ISI, we have Steve Sakwa.

I guess, Michael or Steve, I know you're not going to provide a lot of details around some of the big pending leases at Farley and Penn 2, but can you just kind of help frame some of the discussions and the timing? And I know you talked about a pretty big pipeline of LOIs, and just kind of help us sort of think through some of the timing at Farley and 2 Penn on some of the leasing. And then some of the commentary you made in the 10-K about kind of the mark-to-markets that you're seeing on the office component. I realize it's not a lot of square footage, but it sounds like there's about a 20% mark-to-market. So can you just maybe flush out some of the bigger leasing?

Sure. I'll start and Glen can jump in as well. Look, in general, Steve, obviously, there's been press speculation about a couple of major leases that are in the works. And we're not going to comment on specific names. I think in my intro remarks, I said those remain on track. And on the normal course, our expectation would be that we would start finalizing some important leases probably in the next quarter. In terms of Penn 2, we're just showcasing that product now. That's a major redevelopment. Obviously, we referenced the 1 lease last quarter, again, which remains on track. And these are major headquarter leases and going through the normal process right now. I think, again, making very good progress. I think next quarter, you'll start to see some real announcements. Glen, you want to talk more broadly on the pipeline? The only thing I'd say, Steve, on the mark-to-market is that, again, on a big basis is, we are taking -- it's a function, too, right? What are the in-place rents in terms of what's expiring and where we're taking this to. And given what we're doing in Penn District, we've talked about taking the rents from the 60s into the 90s and 100-plus range. And that's starting to be reflected in what we're doing in those -- in that number.

Steve, it's Glen. We mentioned in the remarks, we have 1.6 million square feet of leasing, those are in documentation. So leases are out, and that includes the deals you're referring to in Penn. We're certainly on track. We feel very good about where we are, and there's more activity to come. And as it relates to the overall business, if you think about it, we're 97% full in the core portfolio. We keep filling up space with our existing tenants, and our buildings are in fantastic shape. I mean the core portfolio, we've redeveloped those buildings over the last 5, 6, 7 years. During that period of time, at least on average, 2.5 million a year in those buildings, and the major tenants continue to expand. So the [ 87s, the 94s and 1,290s ], we're seeing great activity from within the buildings and from outside. So overall, we have a lot of leases out. We have a lot of other actions. So we feel great about where we're sitting right now.

Okay. And then I guess second question is just, look, I realize that the company is not really driven by short-term earnings and really is doing the right thing for the real estate. But clearly, coming up with effectively guidance that's well below The Street is a little bit shocking to people, the magnitude. I'm just curious, as you sort of laid out some of the issues and I realize you can't contemplate everything. Are there any other potential wildcards that we should be thinking about that could potentially hurt earnings this year or even into next year? Or at this point, have most of the big things been flushed out? And from here, earnings bottom in '20 and start to rebound in '21 and beyond?

I mean Joe referenced the Forever 21 situation, Steve, right? So to the extent that, that is not -- the leases are not affirmed, then there could be a $0.05 ding on a temporary basis, right? That's the most near-term insight. Other things, obviously, there's always risk of tenant bankruptcies, et cetera. But we don't -- the numbers we gave is what is in our purview today. Obviously, there are some positives as well. But we clearly think that 2020 is the bottom, and we'll start to see strong growth thereafter. And as we said, from a real estate standpoint, you said it yourselves, the steps we're taking in terms of taking the asset out of service or additional assets out of service, the right thing for our redevelopment plans, right? And so that's going to create significant value, getting the Kmart, making some modifications on some other things we're doing in the district, which impacts the out of service. Those are the right business decisions, right? It's going to create value notwithstanding has a short-term impact on earnings.

From Bank of America, we have Jamie Feldman.

I guess, Michael, just to go back to your last comment, you said 2020 is the bottom, and we'll start to see strong growth thereafter. Can you just talk through the drivers of the growth in '21, the strong growth in '21?

Jamie, look, you're trying to pressure us into guidance there. I mean the reality is, we'll -- we can take that off-line.

Certainly Farley coming into [indiscernible]

But reality, Jamie, is that really every part of the business, particularly the office business has grown, 555, New York business, et cetera. I'm not going to mention point by point. But that is clear. 770, Facebook is fully rent paying at that point.

And Jamie, it's Joe. While 2019 had many depressions of earnings from asset sales, [ dot, dot, dot], we've grown through that. We don't anticipate that reoccurring, which, of course, lets the growth in the core business not be matched by other dispositions, et cetera, et cetera.

Okay. That's helpful. Yes. I was just trying to figure out the largest moving pieces. It sounds like you listed them for '21. I guess thinking about the core, can you talk about a same-store growth rate that kind of looks through all the noise for '20?

I don't know if we're prepared to do that on this call, Jamie.

Okay. Then I guess my last question. You, in the past, had talked about a $200 million run rate for retail NOI. It sounds like that's come down on Forever 21, maybe the Kmart space. How does that -- just for an apples-to-apples comparison, how does that look today and based on what you've outlined?

I don't know that what we -- and I know you asked me last quarter, I don't know that, that really has changed, right? I think last quarter, we said it was going to be low $200 million. And we said that, that was before taking anything out of the LIRR Concourse, right? That also was before the Kmart buyout. So obviously, with those 2, they get below that number. But those are proactive things we're doing as opposed to impact from the tenancy. So Forever 21, as we talked about, was -- could be on -- both leases are -- go away temporarily. Could be a $10 million ding, but I think it was generally in the number that we cited to you last quarter.

So, Jamie, a little more color. Last year's reported number -- '19's reported number was $267.7 million. The retail sale will adversely affect that by $25.6 million in '20 that wasn't in '19. Other sales will affect that negatively by almost $3 million. Out of service at Penn Station will affect that negatively by $6 million. Then there are other tenant items, Forever 21, Topshop, et cetera, et cetera. But our math still is in the low 200s.

Before the concourse and Kmart adjustment.

Yes, before the concourse.

Okay. And then just to confirm the "guidance" you gave is that assumes the Forever 21 leases are cut in half, but not go to 0. And there's an additional $0.05 if they go to 0. Is that correct?

That's correct, Jamie.

From BMO, we have John Kim.

Not to belabor the point, but a couple of quarters ago, you mentioned that this would be -- 2019 will be the trough year for earnings, and now you're coming out with negative 99% for '20. But looking back 2 quarters ago, you already knew about the retail joint venture, the Topshop store closings, the Penn 2 redevelopment. So I'm trying to understand what was new over last 6 months besides Forever 21 and the Kmart early termination.

Well, John, it's Joe Macnow. A number of moving parts affected that. We took signage out of service in the Penn District. We didn't anticipate doing when we gave that first set of guidance. We moved leasing assumptions from '19 to '20. There are numerous, numerous things that affected that, but it's over. We're confident from what Michael told you that '20 will be the trough year, that the growth in '21 will be substantial. And again, if you'd like to go into greater, greater detail, let's do that off-line, but not monopolize this call with that type of detail.

Sure. Okay. And then you updated your NAV. Now your stock is trading at 32% discount to it. Wouldn't a buyback -- I know you've talked about in the past, but wouldn't a buyback help offset some of this dilution and it would have been a lever or it could be a lever for -- to offset earnings dilution going forward?

John, look, we recognize we're at a meaningful discount, though the market seems to ignore NAV we put out and maybe even the analyst NAVs. And look, it's something that we have evaluated. We continue to evaluate. It's not the course of action that we're prepared to embark on today. We are -- just as we've done in the past, we consistently look at ways to try to narrow that gap. First of all, to grow NAV, which is what we're trying to do through our Penn District redevelopments. But secondly, to close that gap. And we've shown an ability to execute within accretive transactions, and we are continuing to look at that. Obviously, a buyback is one way. I don't know if it's significant in terms of -- obviously, we've done in the past, but not something that we have felt is the appropriate use of capital yet.

I guess what would be the appropriate time to use it? I mean you have free cash flow that is significant, you're trading at a big discount, you have some earnings dilution, which is near term. I mean if this is not the right time, then when would it be?

It's -- John, it's a matter of using that capital for that or other things. And we continue to have significant opportunities to invest in our business. We've outlined the 3 initial redevelopments from the Penn District that are substantially accretive. And the opportunities behind that, where our capital we want to have available to continue to execute on our redevelopment in the whole district, right? We've tacked in the first 5 million square feet today, but there is significant amounts to do beyond that. And right now, we want to have that capital available for that or other purposes.

One last one from me...

I think that's more accretive. I think that's more accretive in terms of NAV creation, John, than you buy back that same amount of capital based on our analysis.

Your earnings decline is more than offset by sale -- kind of sales at 220 Central Park South, which you don't include in your normalized FFO, but did you have a $200 million increase in your estimated proceeds? Because looking at the 10-K, it still looks like you have $1 billion in after-tax profits maintained.

John, it's Joe again. I saw some confusion from some people on that point. We published in this NAV $1.2 billion, but we didn't say that's the profit on the job. What we described it as is the incremental value for estimated future proceeds net. And that is, net, of course, to complete the job, which are winding down and net of taxes to be paid. Our estimate of profit, which is what you are talking about hasn't changed from the $1 billion, the $1.2 billion plus $200 million of taxes for $1 billion. But this is the timing of cash coming into Vornado. If you look at the 10-K, you'll see we've already gotten $1.8 billion from the project. That $1.8 billion plus this $1.2 billion represents $3 billion, which is the after-tax cash coming from both the profits of $1 billion and recouping the original investment of $2 billion and the cost to do the job. So no, we have not increased the sales estimate by $200 million.

From Stifel, we have John Guinee.

A lot of moving pieces. Just curious, if you look at paying $34 million for the Kmart space, about 141,000 square feet, what do you put in 141,000 square feet of ginormous floor plates and that's about $240 a foot? Does that imply that the retail there is worth $240 a foot?

John, your $240 a foot, I think, is taking aggregate amount, which is a value, right, as opposed to annual rent. I think Kmart was paying us around $60 a foot, maybe a touch less. So they've got the more relevant comparison. But we think in terms of that space, the demand that they used to have, absolutely. And that is a bull's-eye location right in the heart of the district that now having Kmart back, which was effectively shut off to the Plaza on 33rd Street, we can integrate that, have it facing both 34th and 33rd Street. And based on our preliminary discussions with a couple of large-format users, that wouldn't necessarily take it all because we don't want 1 tenant to take it all given how we're going to incorporate redevelopment. There's absolutely going to be strong demand for that space [ in numbers ].

Okay. And then just a few quick questions. When do you think you're going to get the hit for the Penn 1 ground lease and is $0.20 a share a good number? Second, does the train capacity that the governor is thinking 40%, is that with or without a new tunnel, which I'm not sure what the status is of the tunnel? And then third, what are you guys thinking about Manhattan Mall and Hotel Pennsylvania because we're always under the assumption that, that is pretty soon thereafter?

Okay. Let me see if I can take those in order, John. Penn 1 ground lease, I think you asked about the impact there, that's something we've talked about on the last call or 2, we're not prepared to give an estimate as to what that can be, right? That's almost 3 years away in terms of that reset. And there's a lot of factors that go into that reset, and whether it's negotiated or arbitrated. There's still a fair amount of time. Obviously, it's going to be up from today's number, but not something we want to prognosticate, particularly as we don't want to negotiate in public with our ground assortment. In terms of the track capacity, the 40%, that's not dependent on the new tunnel. That's effectively adding a new tunnel to the south and allowing additional trains to basically dead end coming from the New Jersey side, but not dependent on gateway per se.

And then Manhattan Mall and Hotel Pennsylvania?

Look, right now, Manhattan Mall is -- the office building is full. And we've got a great tenant who continues to love the building. So that's performing well. The retail, we're effectively keeping on shorter-term arrangements. But that asset is cash flowing quite significantly, and that's the plan in the near future. That's all -- and we've talked about in the past that, as we finish the redevelopments of Farley, Penn 1 and Penn 2 and the district transformation becomes evident, Hotel Penn we think is going to be the best development site in the city. And so obviously, see where market conditions are at the time. But that's the next logical place to build a new building. And at some point, Manhattan Mall could be expansion for that, but that's years and years away. Not anywhere -- anytime soon in terms of altering what that asset is.

From Piper Sandler, we have Alexander Goldfarb.

Just a few quick questions here. Just on -- first, on the guidance -- yes, we'll put guidance in quotes. You guys talked about the impact to 2020, that includes the benefit of stopping the -- we're presumably stopping the ground rent payment on the Topshop Fifth Avenue store?

Correct.

Okay. Okay. And then as you guys have laid out the road map for the Penn Station...

Alex, just a -- net-net, right, there's diminution from that.

But Alex, that's not incomparable FFO. 608 Fifth Avenue is not incomparable FFO. And when that lease is rejected at some months from today, there will be a $70 million income item, noncash income item. But that's not incomparable FFO. So that cannot -- is what Michael referred to in his discussion.

Okay, Joe. That's helpful. And as far as the road map that you guys provided on the Penn Station and Penn 2 impact, is that consistent with what you guys had originally penciled or have -- has that impact grown as you guys have gotten more involved and have seen what you could do there?

That -- the numbers are a bit accelerated, Alex, as we've seen as we -- as we begin to execute on the plan. So it's a little more front-ended.

Okay. And then finally...

Alex, it's David. I just want to add -- I'd add to that is our objective is to turn this building into a mid- to high 90s building on average, if not higher. So to the extent we can get tenants out of this building, our objective effectively is to do so. So that's something that Glen and team have been working on to accelerate over the last number of months.

David, that's helpful. And then the final question is, you guys clearly are not an earnings story, you're an NAV story. On the last call, Michael, you talked about Hotel Penn that it's not time yet. You guys are sitting on 350 Park. And I hear comments in the broker community, I was just talking to a guy over the weekend who's saying that they can't find space under $120 a foot in Plaza district. At what point do rents on Park Avenue make sense where you can redevelop on Park Avenue? Or is the construction cost delta just that far that for those of us thinking about value creation for you guys at 350, it's going to be years out because the math simply doesn't work now or in the foreseeable future. When does the math work?

Alex, look, as I said in my opening comments, we are beginning to take the steps in order to align that site up for a new development. Now we'll make that decision as we get closer to that time based on market conditions and so forth. But the feedback from the brokerage community is that, that is the best site in town and would be -- would command highest rents. And so I think -- maybe have referenced in the past, we have been approached by significant users for either all or a meaningful portion of a new building on site. So that is -- in terms of the economics, I think it's not a matter of it working today. It's a matter of can you actually begin to develop. And so if you just think about the timing, we have leases that run through really beginning in 2024, Glen?

End of '23.

'23. And so that's the earliest that we could begin to take the building down. So new delivery wouldn't be until '27 or '28. And so it's a significant opportunity, but it's going to take some time in order to bring it to fruition, both in terms of lining up the tenancies and then executing on it. So I think if we had the building today, could we command the rents to achieve yield necessary to develop? The answer is, we think quite possibly to build a brand-new building that's perfect in that location, we think today, would command rents that would make that work.

And that would be the JV with Rudin?

The answer is it could go either way, Alex. We can build on our own. We don't need Rudin to build there. We can build a -- probably the best boutique building -- a 1 million square foot boutique building on that site on our own, or we can combine with Rudin behind us and build close to a 2 million square foot building. So the answer is, as we continue to move down the tracks here in terms of timing our leases and whatnot, in this building, BlackRock is moving around -- out in 2023 as well. So they line up for that. So we can put them together, but we'll evaluate based on tenant discussions, and obviously, a tenant for the whole combined building would require a significant prelease, which they're interested. So the answer is, it's too early to tell which direction it can go, but either is possible.

From Morgan Stanley, we have Vikram Malhotra.

On the -- just on expirations in -- on the office and retail side, we obviously have the big move out in Penn this year, but you've also kind of alluded to a 20% mark-to-market in your 10-K. Can you kind of outline what's driving that view? And any other major leases that are expiring in 2020 that should be aware about on the office side? And on the retail side, I think it's more flattish mark-to-market, but there's a big expiration in 4Q of '20. Can you remind us what that is?

In 2020, our expirations totaled approximately 525,000 feet. That was after we take [ McGraw-Hill out of ] service, which is a 560,000-foot lease, which expires at the end of March. On the mark-to-market, we're coming off $70 rents. We think that goes 20% to, let's call it, mid-80s number. Remember, quarter-to-quarter, these numbers fluctuate. There's no rule of thumb, obviously. But as we look out on our leasing projections, the spaces that are coming up for expiration plus all the activity that we've been talking about this morning, we feel the mid-80s number come up and $70 rent is in the ballpark of what we're going to hit.

And again, that's an estimate, to speak necessarily at a time, right -- or the timing on those new leases may not necessarily occur in 2020, but that's our expectation in terms of where on average, they will get marked to, right? As retail...

Got it. So that includes the 500 that you highlighted, but potentially other leases and you're just -- that's sort of a broad statement saying, in general coming off of $70 rents, and we think, overall, we can get a 20% mark-to-market, including kind of new leases?

Correct.

And then on retail?

Yes. On retail, which, as you said, is more flattish, that's, again, no big leases. Probably half of that is in the Penn District, which given everything we're doing there, we feel good about. And that may -- some of that maybe take -- we may, frankly, intentionally take a little longer there to get the right mix of tenants. But again, that's a fairly -- no big leases, fairly diversified set of expiries.

Okay. So not even in 4Q. It just seemed like there was a large chunk in 4Q 2020, but maybe just building off of that. And Fifth Avenue over the last, call it, 12 or 18 months, there have been a number of vacancies over there. I'm just sort of wondering, what does this mean for -- in your view, what does this mean for sort of upper Fifth rent per foot sustainability, and specifically, the ability to lease up your vacancy there?

This is Haim. On Fifth Avenue, we have 1 vacancy on upper Fifth Avenue. We love our corner. We have a great property. It sits on the 50-yard line on the luxury side of Fifth Avenue. And while it's too early to call a rebound in luxury leasing, we do have a lot of confidence in the quality of our asset and the positive momentum that we feel is going on today in luxury retail among the strong brands with a strong balance sheet, who have profitable business lines. So early to call a rebound, but still confident in the quality of what we have. We happen to dominate the best-in-class retail assets, and we have confidence in that.

And Haim, if I can just ask you, just on the -- if I remember correctly, in your vacancy, rents there were well below market, but just given the broader vacancies on Fifth Avenue, it seems like asking is still kind of above $2,500 or $2,800 a foot, but what is the true sustainable per foot trade, if you would just take sort of a longer-term view? I'm not looking for your specific mark-to-market, but just that upper Fifth area, what's a more sustainable level?

I believe the sustainable rents are not where peak rents have hit on Fifth Avenue. There were leases signed in the $4,000 to $5,000 a square foot range at peak. I do believe it's down significantly from there in terms of affordability. But there are brands with significant margins and huge balance sheets that can do a lot of business in the market. There are still well over half a dozen brands that have more than $100 million in sales on Fifth Avenue. And those are the customers that will look for sustainable rents in the range of what you're talking about.

Okay. And then just last clarification. The stabilization that you've outlined for Farley, '22, I know you said that you're pretty confident of lease-up. We'll hear more news. But just from a modeling perspective to kind of get to that '22 stabilization, like what sort of -- when do you have to get the leases down? Or what's sort of in the model that we have to get leasing done to achieve that stabilization before maybe it gets pushed out into '23?

It's going to be [indiscernible]. Yes. I was going to say in the next 3 months or so.

Okay. So you would need to get a lease done in the next 3 months before you lease...

Vikram, as we talked about, the office, we said -- the office lease is on track and the retail leasing, which I described in the opening remarks. And we are in active negotiation on the leases on the bulk of the concourse and much of the main floor. So we feel good about the numbers that we have out there.

From Green Street Advisors, we have Dan Ismail.

Great. Just given all the moving pieces, can you speak to how leverage will trend in '20 on a debt-to-EBITDA basis?

Daniel, we couldn't hear your question. Could you repeat it, please?

Sure. Just given all the moving pieces, can you speak to how leverage will trend in '20 on a debt-to-EBITDA basis?

This is Joe, Dan. We don't anticipate leverage rising in '20, if that was your question, there's no reason. I mean we're sitting on an awful lot of cash, there's no reason really to increase leverage.

And then maybe just for the New York office portfolio outside of Penn Plaza. Can you frame how you guys are seeing the effective rent growth in '20? Should we -- are you guys expecting something more in line with inflation or something above that?

We're seeing rents still strong. Rents in Midtown are at all-time highs. We're now hovering at $80 a foot. We feel good about the portfolio, the strength of the buildings, which we're leasing right now. So we feel that rents are still going up in most submarkets, including many of our buildings. But again, case-by-case, as we lease up, I mean, again, we don't have a lot of space to come in that core portfolio that I talked about earlier.

And if you had to ballpark where in-place rent sits outside of your Penn District office portfolio in Manhattan, can you frame how far below market those rents would be?

And Dan, I don't want to give you a number on the phone here. That would be [ just close ] to precision. But I'm comfortable saying that the in-place rents are below the market rents. But again, I don't want to quantify how much that would be. That would be a little off the cuff. I think -- I think going back to your first question. We're seeing -- as I did talk in the opening remarks is that you have redeveloped the buildings, you have new buildings. We are seeing real rental growth there, right? In the Penn District, we are seeing significant rental growth given the transformation of the area and the access. And then in the sort of normal course, traditional Midtown assets, I think that's probably a little more, 3%, 4% type growth. Again, just I would say, all the way on the west side, Chelsea meat pack, you're continuing to see above that. So I think the trends have remained fairly consistent, although I think Midtown has been a little stronger in the last 4 to 5 months than it was in the middle part of last year.

And we'll now turn it back to Michael Franco for closing comments.

Thank you, everybody, for joining our call today. And we look forward to seeing many of our investors at the Citi conference in Florida next month. Our first quarter earnings call will be Tuesday, May 5, and I look forward to your participation again. Take care and good day.

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