Welcome to the Vornado Realty Trust Earnings and Webcast for the First Quarter of 2022. My name is Vanessa and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later we'll conduct a question-and-answer session. [Operator Instructions]. I will now turn the call over to Mr. Steven Borenstein, Senior Vice President and Corporation Counsel. Steven you may begin.

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 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, 2021 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. Let me begin by saying, I thought we had a very good quarter with FFO up 22% from last year, reflecting the continued recovery in our business, and we continue to see many positive trends across the business. To my eye, the streets of New York are back to pre-COVID in terms of pedestrian counts and our beloved traffic congestion. Partners [ph] are full and by full, I mean, literally full with long waiting lists, restaurants are booming and office utilization is climbing. We are now over 46% utilization as we speak. There are a couple of things I'd like to highlight. First, we have more floating rate debt than most and that strategy is correct nine out of every 10 years, but this is the 10 year. The economy is now in the hands of the federal reserve in their role as inflation fighter and appropriately so. If past is prolong, we expect rates to climb quickly up a mountain, slow the economy and inflation, and then quickly fall down the other side. Second, for the first time this quarter, our GAAP financial statements reflect the balance sheet and income statement effect of the pending June, 2023 Penn 1 ground lease renewal. We have estimated $26 million as the new ground rent pending the act arbitration proceeding. While these two numbers are substantial and will slow our growth short term, we believe that as Farley, Penn 1 and Penn 2 come online those will be very, very substantial. Now over to Michael.

Thank you, Steve and good morning, everyone. As Steve mentioned, we had another strong quarter. First quarter comparable FFO as adjusted was $0.79 per share compared to $0.65 for last year's first quarter, an increase of $0.14 to 22%. This increase was primarily from rent commencement on new office and retail leases, and they continued recovery of our variable businesses. We have provided a quarter-over-quarter bridge in our earnings release on Page 2 in our financial supplement on Page 5. As Steve mentioned, this quarter for the first time we are recognizing in our financials, the impact and the pending Penn 1 draft ground lease renewal. Under GAAP, we are required to record the present value of the estimated additional lease liability on our balance sheet and start recognizing the straight impact in our earnings. This reduced our earnings this quarter by approximately $4 million and we'll reduce it by $21 million overall in 2022 and $23 million on a full-year basis. The reduction in earnings will not impact cash FFO however, until we actually start paying an increased rent June of 2023. Looking ahead, we had initially expected to deliver double-digit percentage FFO for share growth in 2022, driven primarily by previously signed leases in both office and retail, particularly platforms at Farley and the contained recovery of our variable businesses. But we now expect the impact of projected interest rate hikes by the fed on our variable rate debt to be a greater headwind to this year's growth than we originally anticipated. We had assumed the LIBOR would move up this year when we gave a preview of 2022 last quarter, but it now looks like it will move up more than we expected this year. Keep in mind; we're also earning more on our cash balances as…

[Operator instructions] We have our first question from Manny Korchman with Citigroup.

Hey, it's Michael Bilerman speaking. Michael, leasing has definitely kept pace. To start the year, you talked a little bit about pipeline. I was wondering if you can sort of unpack some of those numbers in terms of where you're seeing the activity, how much of it's on vacant space versus existing stuff that's going to roll. Just to give a little bit more detail about the momentum in leasing that you're seeing.

Yeah. Let me -- Glen why don’t you take that one?

Hi Michael, it's Glenn, how are you? So, the 1.2 million feed Michael mentioned in his remarks it's a very healthy mix. I'll call 50-50 of new expansion versus renewals. A lot of the activity is in Penn and a lot more of the activities in the financial service building. So in terms of looking forward, as we said, we expect occupancy to continue improve throughout the year, continue to fill spaces. But we're seeing a real good mix across all types of tenant types in the portfolio as we sit here.

Great. And then maybe just on Penn 1, Michael, you talked a little bit about the ground lease in terms of recognizing the value that you've put in, which is obviously now it sounds like subject to arbitration. Can you just sort of walk through sort of the math a little bit? It would seem as though that 12.2% targeted return would probably come down, call it about 500 basis points for the extra ground lease, but maybe just help us understand what the process is given the fact that you've gone through 330, with 34th that's in arbitration and just trying to understand the timing of how all this will work through and ultimately it's impact on financials.

So look, as we stated in the opening remarks, right, we put it on the balance sheet straight line in earnings. I think it's, Steve's comments, he stated that the number we've put down is $26 million. There's a lot of data out there in terms of what the FAR is, etcetera. I'm not going to get into that or the process is going to commence near-term and so, we're going to continue to not get into details here publicly. But, it's our best guess based on where the site on Penn 1 is probably one of the largest sites to be valued. It's three times the size of 330. Larger sites to tend to be valued at lower prices than smaller sites, just given the nature, the size and what can be built and the risk and so forth, construction costs, etcetera. The process is different on Penn 1 versus 330 and it'll start, as I said later this year and be finalized by the middle of next year. And so the new rent will take effect in June of 2023. As you've stated, we have from the outset on Penn 1, put the return gross of any renewal rent because, we don't know exactly what that'll be yet and so it could be material. We've now day-lighted our best guess as to what that may be and it'll be, finalized over the course of the next year.

Is that the right math though Michael, just thinking about that 20…

We chose to disclose our returns on the investment we're making in Penn 1 on an incremental basis. Why? Had we not done -- if we -- the program is going to yield, let's say it's a 2.5 million square foot rentable building, and the rents are going to go up somewhere $35, $20 or something like that. So let's say they go up $30 on 250,000 square feet as the leases roll out over the next four or five years. That's $75 million that approximately drops down to the bottom line. Okay. So the ground rent would be we think it'll be $25 million, $26 million and so we could easily handle that and easily get a return on the $400 million we're investing. Furthermore, the building together with its partner in the campus 2 Penn creates the nexus of what we're doing in the Penn district. So it's very important. We have a totally unique largest in town amenity package, which is now complete and oPenn to rate reviews from our tenants and the brokerage community and prospects. So we think it was absolutely the right thing to do. Now, the arbitration that is going to proceed. There are two different kinds of -- 330 arbitration was a baseball arbitration and what that is, is very simply one side puts in a number. The other side puts in a number and the arbitrator and the neutral arbitrator decides which number is more correct. In other words, the middle, if you're $1 above the middle in the arbitrator's mind, then you win, etcetera. Then 1 Penn arbitration is different. It's two arbitrated then the third is more of a negotiation and so it's a totally different kind of process. We believe that the number that we have selected and chosen is correct for lots of different reasons including comps in the marketplace and that will all prove out over the next months and years. I expect the arbitration to start sometime before the -- just before the end of the year. So that's the way we look at it.

Michael, just to come back to your comment specifically on the math, right? If you take the 12-2, and you take the incremental rent that the $26 million implies, which we're paying $2.5 million today. So your 12-2 would go down to seven, your math is correct.

Right. And then Steve's point is that, the reality is this is one massive complex where background lease supports a lot of other rent that's being generated. And so it has to be looked at in totality rather on an individual basis.

Absolutely and one other thing, okay, we're in the process now of doing budgeting, which we do all the time. It's my belief and Glen's belief that if we -- that the building as offered to the marketplace now is worth in the $90, I believe a $100 a foot. If you go out and look at what's going on in the market to the west of us at Manhattan West at Hudson Yards, rents are higher and substantially higher. And we believe our nexus with transportation creates a site, which is the best in the neighborhood. So we believe that we will start in the $90, or $100 a foot and three, four, five years from now, those -- this asset will grow in value with rents that will go into the hundreds. So the 7.5% or 5% or 8%, whatever the return is at the opening is just the beginning of a long, healthy investment period to this happen.

Okay. Thanks, Steve.

Our next question comes from Jamie Feldman with Bank of America.

Great. Thank you and good morning Steve, I want to go back to some of the comments you made in your Chairman's letter. First you said the less domino will be when employees and employers resolve hybrid work schedules in the office districts or teaming with activity, which will come sooner than you think. You also said, tenants tell us they want less formal creative office, west side model, only half of new York's 400 million square feet of office space fits that description. So as you sit back and think about these comments and think about the future of office in New York City, what else can you tell us about, how Vornado plans to invest, or maybe how your current portfolio does or doesn’t fit this description? And then also just what do you think office usage looks like a year from now in terms of days of the week and how people are going to use the space.

I'm going to shift back that off to Michael and Glen to start. So it's a very extensive question. I'm glad that you let read my letter. Thank you.

Morning, Jamie. So in terms of predictions of what utilization will be from now, it's anybody guess higher. We continue to see a trend higher and there's a fairly consistent pattern of Monday through Thursday higher, Tuesday through Thursday, the highest and Friday, no one feels like commuting in the city. So, absent there their boss is come to get in the city Friday will probably continue to be the low mark, but that number continues to trend up. And I think it will continue to do. So, I don't, I'm not going to certain make a prediction of Glen will in terms of what the number is. I think Steve's comments on the type of space people want -- companies want, that trend started pre pandemic. It's accelerated post-pandemic. I think what we're doing in Penn is exactly what companies want. I think that's why we're seeing the reception we're seeing at Penn 1 and now Penn 2, and even Penn 15 as they seen the plant, although that's still a bit off, but it doesn't just go for West side, right? We're seeing demand at the seven seventies and 85 tens in the 350 parks and so on. But that being said, and we talked about, at least in my comments, selling assets, Long Island City, that was an asset clearly hasn't fall in that category. 40 Fulton, which we're going to brand new market shortly. It's a fine building, but that's not an asset that we think is consistent where we want to own in five, 10 years. So, we're going to prune the portfolio. We're going to continue to upgrade, make sure we own assets that we do believe are going to reflect what tenants want, or we can push rents most importantly, right? We want to have assets where we're going to see rental growth over time. And if assets we believe are not going to fall into that category, then I think you'll see us actively prune those over time. What would you add to those?

I think Michael covered it, Jamie, and it's not all one size fits all answer. It's very 10 specific. It's very industry sector specific in terms of the tenant and what their business is, but I will tell you, we see positive momentum. So number one, people are coming back more and more week to week. Leasing velocity is much higher this year than this time last year. There's a lot of large deals out there, a lot of large deals which have been signed and other global banks on the new deal yesterday on the west side that are continues be momentum. And I think more and more people are coming back into the office market, wanting new space. That's definitely a theme, recreating their culture in terms of talent, recruiting people, improving their brand, etcetera. But I think you're seeing now what we have the last year, it will be an unwinding back to the office. People are now starting to come back, getting more comfortable. And I think, month-to-month, it's continuing to improve out there in terms of the environment.

Jamie, I think in your question, there was implied the culture of work and what the design of space that the employers and the employees want. This is something that our -- that our company and our teams have been focused on for a long while. So, we believe that the tie and suspenders and strip suit are a thing of the past in the business community today. Whether you're in the finance industry on Park Avenue or whether you're are in the tech industry on the west side. So what we have done, we think very successfully and tried very hard at is to focus on the hospitality aspect of our buildings and our space. So if you go through the amenity package in 1 Penn, which is 160,000 square feet. So it's enormous. And one of the strategies that we have is that if you have a cluster of buildings in a campus, you can afford to put to have much larger amenity offering than if you have a single building. And so if you go through there, we have food offerings, we have places to hang, we have places to chat, we have -- we have gyms, we have health facilities, we have all matters of things. We also have a conference center so that a tenant can take 60,000 square feet and not have to devote 4,000 of those square feet to the conference rooms we have it. We also have co-working space in the building. So we think that that's the future. The other part of it is that we want the staff in the building to treat our tenants as if they were guests at a hotel. Know their names, welcome them, greet them and treat them as they want to be greeted. So there's an entire culture of thing, the way work will be done in the future. And this is pretty universal by the way, not only in New York, but the better owners are sort of doing what we're do. We think we're in the front of it, but we're not -- we're not unique.

All right. Thank you for everyone's thoughts on that. So I guess just, following up on 2 Penn, can you talk more about just the leasing demand? I know you signed the big MSG lease, but how do you think that stack works out based on the discussions you're having, or do you feel like it's still just kind of early to have a view on that and then similarly, just, there's just so much buzz around crime and safety and around the Penn district. How would you gauge it today versus maybe where it was a year ago and maybe some of the initiatives that could improve it further?

In terms of leasing at Penn 2, the building is at the very top of the list for any user coming into the market, looking for either new construction or the very best of the redevelopment in the market. So we're in continuous meetings with tenant, brokers presenting the asset, but we are in no rush. The bustled structure has just gone up as each month goes on this year, Jamie, it's going to just get better, better and better physically. We'll then start bringing people into the project to get a feel of just how unique and spectacular this space will be. So we're seeing everybody we're showing it to everybody, the reception's been A Plus. We're on every tour of every important client who's walking around New York for space. As it relates to the district, I think we're -- the streets are no noticeably improved from this time last year. We're of course, working daily with all the jurisdictions between NYPD the Mayor's Office, the business improvement districts, our colleagues in the district, other owners, our major tenants, etcetera and really focused of course, on safety in the neighborhood and I do think it has improved year-over-year. We still got work to do, and we're of course, on it every day in terms of that mission, but the reception at Penn 2 has been excellent. And at Penn 1, as we've said in the remarks, the action is enormous. The rents continue to rise, and we're seeing tenants coming into the building for tours. They're coming from every submarket in the city from park avenue, sixth avenue, downtown, I mean all over the place, honing in on the district and into this campus amenity program them that we're offering.

Jamie. I would just and Glen talked to that year over year, I think this quarter over quarter, the streets are better, right? Is the streets -- the activity level in the streets has increased more traffic through the station, that is I think made the streets feel safer and it's made it feel better, right. Pushed some of the elements to this side, maybe out to other areas. So, I think when you're -- I don't know when the last time you've been through the district, I know you're going to be walking in the area soon, but I think you'll see a noticeable improvement. Still work to be done though.

Thank you. We have our next question from Steve Sakwa with Evercore ISI.

Thanks. Good morning. Steve, I was wondering if you could just comment a little bit more about your appetite and desire to still be part of a casino project or licensing agreement. If New York city were able to get one, I'm just curious if you're looking to be part of the operations or you're looking to more be of a landlord, and if it's on the landlord side, how big of an integrated resort do you ultimately think the winning bid needs to be? Does it need to be hotel rooms and convention space, or do you think it can just be a standalone casino kind of in the heart of Manhattan?

Well, some of the -- some of the answers to your questions are at the current time unknowable. This is going to be a political process and there are going to be government officials who are going to make these decisions. With respect to the idea of a casino, we are aggressively pursuing it as we should and as we must and I've said in the last two letters I've written that we believe that there are going to be tree downstate licenses. We believe that the best place for the third license, one goes to Yonkers, one goes to Aqua [ph] probably although that might be contested as well, but we believe that the third license would be best served to go into Manhattan. When you think about it, Manhattan is the center of everything. It's the center of the of the hotel -- the hotel industry, the entertainment industry, the restaurant industry, the business industry the theater industry, etcetera. And one of the anomalies is while it's the economic engine of New York by far, the voting population who is of interest to the political leadership of course, is not necessarily in Manhattan. So that's an interesting thing. We are in the process of talking to multiple people as our and the casino industry operators are talking to multiple landowners. We are in the process of debating whether we would be just a landlord and that we're just as an understatement being a landlord or being part of the operation or being a hybrid, which is a landlord with a kicker or whatever. So we're in the throws of thinking about and talking about and debating the financial arrangements. With respect to whether the winning bid, so to speak would be a small isolated casino or an entire…

Great. Thank you for that. I guess second question, Michael, could you maybe just speak a little bit more to the financing market? It sounds like, 770 Broadway is in for refinancing. Can you just maybe give us a sense of kind of where the market is today for kind of mortgage debt and just give us an update on kind of size and pricing and how that market's changed?

Yeah. Look, it's any time you get into periods of volatility, which we're clearly in right now, you get hesitancy on the part of, I would say in particular bond buyers and to some extent the banks, although I think it's really much more so in the CMBS market. So, I think you started the year with a heavy supply of CMBS volume, and then you had rates gap out, war, economic uncertainty that caused the spread of the gap out. So you had a bit of a double whammy both on spreads and rates. CMBS markets open, but if you don't have to issue in that market in size, it's probably a market you'd prefer not to go into right now and we don't need to go into that. So, 770 we'll end up getting done in the bank market. It's an asset that's -- it's a high quality asset with a great tenant and so well receiving the bank market and we'll roll that over at a spread. I think pretty comparable to where we're at today on that building. So spreads, aren't where they were you six, 12 months ago, but still attractive for high quality assets. And as I said, I think the bank market, much more liquid than the CMBS market, but that can only handle so much. So again, our assets on a one-off basis, there's good demand in both markets, but for 770, you'll go in the bank market which I think has more stability right now

Fixed or floating?

So, given the bank market is…

Hey, Steve, I'm going to ask a few questions now, fix or floating.

Well, given us the bank market, it'll be a floater, but we'll likely as we've done a number of other situations, swap that out for a portion all the terms. Anything else on the financing market? Hopefully that answers your question. But beyond 770, we don't really have any other material finance. We got a couple small things we get done, but no other material financings for 2022 and 2023. So that's, we did a lot of that opportunity last year. We obviously had a number of maturities last year. So, even now withstanding those markets, we really didn't anticipate being very active in 2022.

And thank you. Our next question is from John Kim with BMO Capital Markets.

I think you just answered my question, but Steve, in your opening remarks, you did mention that having a high floating rate strategy works nine and 10 years and rates will come back down again. So I just wanted to confirm that you are comfortable maintaining a high floating rate strategy in the near term.

Yeah, we think we spend a great deal of time on our balance sheet, is very important. Liquidity and safety and the ability to be defensive, but even more, the ability to be offensive is extremely important to us and in running this business. So every time that you look at a financing opportunity, if you compare a floating rate debt to a 10-year fixed rate debt, the spread is enormous. It goes to what was the 2.5 points, 250 basis points most of the time. So what happens if you elect to go 10-year fixed, you are for certain costing yourself 250 basis points more. And during the life of over the last 30 years, I think one of the firms that we use as an advisor on financing said every single month for the last 30 years the right decision was to go flow load rather than fixed. So the answer is, is that you pay 250 basis points, more do you go flowing? Now there's other parts of it, too. If you are in a fixed rate load, you are locked in. And if you decide you want to sell the building or refinance the building or whatever, before the end of the term, you have to defuse that, which is normally a very, very expensive proposition. So it takes away all of your flexibility if you are going to sell or improve or whatever the asset and that's an extremely important thing. Now, while we have floating rate on our books now, and our interest rate, our interest expense is increasing. If we would have had all of that debt at fixed, it would have been substantially more in interest expense than we are currently paying, or we expect to be paying. So we think that the fixed -- that the fixed rate strategy while it seems safer, it's for certain much more expensive, and for certain much less flexibility, which is why in the industry most folks seem to like the unsecured debt route where you are not accompanying [ph] the asset with a mortgage or what have you. And you can -- and you can get that flexibility, but we still believe, I still believe in the floating rate -- floating rate strategy as being a superior strategy.

I'm just wondering with inflation at 40-year highs if there's a risk that rates could remain higher for longer and with 770 Broadway in particular, is it contemplated at all to have that as a fixed week mortgage or fixed rate think tax? Yeah,

I couldn't understand your question, John, would, you said 770?

With the 770, have you decided to definitively have that floating and hedge it near term or is…

Yeah, The baseline will be a floater because it's going to be in the bank market, but our intent is to swap that at the corporate level for a period of time.

Okay. and then one on a question with the ground lease reset addressed and the retail guidance already provided, why not provide FFL guidance going forward, just given the amount of uncertainty there is in the market and with your Company in particular?

You know, the answer is look real estate, the long-term business; there are a lot of ins and outs. We're in a heavy development phase generally, and it's difficult to do. We gave you, we gave you some a preview at the beginning of the year and now we’re; now we're walking that back a little bit given rates. So it's a difficult thing to do. We've given you I think reasonable sense for 2022 mid to high single digits. So that's I think that's pretty good guidance for this year and that's our best guess things change. It's a fluid business, but that's our best guess for this year.

And thank you. Our next question is from Alexander Goldfarb with Piper Sandler.

Hey good morning. Good morning, Steve, so, a few questions here. The first is, you guys had the billion, some amount of cash. You bought some T-bills, but why not use a portion of that cash to pay down some of the floating rate debt as opposed to just buying the T-bills?

Alex, the good morning

Morning Michael

The answer is we did deploy some of that cash in T-bills in order to, to get some of the benefit of earning more than what's in the banks. And a lot of that capital that's, that's still left. We intend to deploy into our development activities in Penn, since the quarter end, by the way, we put a little bit more in T-bills and by the way, those are stack maturity 3, 6, 9, 12 months. But a lot of that, capitals going to go into Penn 2 and the finish up, what's left at, at Farley and Penn 1. So that's, that's the rationale in terms of why wasn't all the deploy; isn't all paid on debt in New York, you had the additional issue of on the mortgage debt. You do have mortgage recording tax, which costs you 3% of our intent is to have financing on those assets, over the longer term, right? That would be a, that would be wasted money that we've paid once before that we would never have to pay again. So, we don't want to do that lightly.

Alex, Alex in this market, where the financing markets are extremely choppy and hustle; if we pay down if we pay down short-term debt replacing it; if we leave the capital later on, it's going to be more difficult. The other strategy is you can hedge it and if we take the cash, which we need and we have places for, and it's all allocated in our, in our capital plan and our budgets. And so if we take cash and hedge it by buying treasuries, so let's say we can arbitrage it. So the, the interest expense on that particular slug of capital is a hundred basis points, less than we would earn on the, on the treasuries. So a hundred basis points let's say on a billion dollars is $10 million. That's a lot of money, but it doesn't move the needle. So I'd rather have the liquidity rather than pay the on the debt pay down the debt and not be able to replace it easily and quickly when we need it.

So, Steve, that's helpful.

I think we're on.

Yeah, that's, that's helpful. And as we look, Michael, as we look at the, I know that you're not giving distinct guidance, but from the $0.81 run rate that you gave in fourth quarter, you're now having an extra a $750 million of dispose higher interest rates. There's the ground lease reset. So just sort of ballpark, are we talking an extra $0.05 lower from that number, an extra $0.10 lower than that number? It sounds like the number is lower given all these moving pieces, but you guys did bake in a fair amount into your, your guidance when you did say $0.81, despite Facebook coming online. So just trying to get a gauge for collectively, how much off of that $0.81 run rate we're looking at?

Yeah. I, I don't want to put that precise as just because again we're in a fluid environment. I mean, we did assume originally the being of the year, the [indiscernible] was going to go up, the curve is steeper today. So, it's, it's up; look, we don't know where it'll end up, but it's certainly steeper than what we originally projected. The $750 of sales, there's not tremendous earnings that are coming off a lot of that. So I don't think that's going to have a huge impact, there a lot of the smaller assets that are not producing a lot of capital, so there's a lot, a lot of earnings, so I don't think that's material. But in terms of look, I think we gave you a range mid to high single digits. And you can sort of deduce the run rate depending on what you plug in for that coming the 286, the last year.

Alex,

Okay.

Alex, I'm going to go out on the limb and my financial guys are going to whip me. So

They would never whip you, Steve, the whipping; the whipping goes the other way. The whipping goes the other way, Steve.

No, no, no, let's get serious. Our internal budgets, which are highly deep, detailed and devised frequently show that with interest rates rising, even rising at a faster rate than we had had expected as recently as three or four or five months ago, by the way, I believe that. And I said in my remarks that the economy is now in the hands of the Federal Reserve, as it should be. The Federal Reserve means business. They always win and they will they will handle the inflation and this will, and this too will pass. But anyway, so our internal budgets, which are expensive, show that even with the one Penn ground lease reset, and even with a reasonable, reasonably predicted rise, interest rates taken off the yield curve. And by the way, 95% of the time, the yield curve exaggerates the actual facts. So that's another statistic. We believe that we, our, our earnings will grow through and we will have maybe one ding a couple of years out as but otherwise our earnings are going to grow right through it. Now I'm going to give you some something that I know they got to whip me for our budgets show. Well, in excess of $300 million, a year of NOI coming in from Farley, 1 Penn and 2 Penn above what they above, above our current numbers over the next period of time, your job is to predict what the period of time is. My job is, is to get those earnings. It will not come in in a quarter or even a year, but during the, as we complete this program, without touching another piece of land in the Penn district our earnings will increase by well over $300 million, just from those three projects.

That's annually or aggregate?

Annually, by the way.

$300 million?

I said that, now that I said that I've got a lot of people throwing knives at me in here.

I, I thought it's

Anyway.

Okay.

That's That's, that's the math. Okay?

Okay. Steven, if I, oh, no, that works. Steve, if I can end on a high note, the studio business that you're contemplating with an operator, would you be just a landlord or would you be active in the participation of those studios?

Well, the answer is, is that it's going to be a development deal in New York. That's what we do we do better than anybody. So we will be, we're a full partner. We're a full decision maker. The there's the skill to designing these things so that the customers and the tenants they work for the customers and tenants. So we, we hooked up with a very talented experience operator and the he's going to do his part. We're going to do our part. And we think it'll have a very, a very fine result. We believe that studios in Manhattan are a unique asset, as opposed to studios in in the boroughs or across the river or down or somewhere else.

And we have our next question from Daniel Ismail with Green Street.

Great. Thank you. I'm, I'm just curious, given the discussion of, of interest rates and the plan to dispose of $750 million through the course of the year. How do you think that's impacting cap rates? Both overall and on the assets you're looking to dispose off?

Daniel it's in terms of what the impact, I think it's too early to tell like if financing rates or hires are going to impact cap rates certainly but, it depends on where rates settle out and, and so forth. So I think it's too early to tell, but it will have at some impact sure. Will affect the 750, the answer is a lot of those are small assets some are value add nature. I don't think it's dependent on the last basis point is where somebody borrows. So I think we have a pretty good sense as to where we can execute that. But we didn't necessarily say it was going to happen all this year. So let me just clarify that, as you said, it certainly he planned to, to, to go into the market this year, but when it'll close T B D so I think Daniel, we got to, we got to wait and see this is if you're financing literally in this market right now I think you're paying more than you probably will. I mean, if you look at the financing markets, historically is rates rise, spread do tend to compress somewhat. So that the all in rate doesn't go up basis, point for basis, point we're in an environment right now given the uncertainty that existing with what exactly is the fed going to do? What's going to happen with the economy, et cetera, where spreads the gap down, rates, rate expectations of risen. So it's not a great market to be borrowing in. I think that'll change as get it settles down here. And so what the impact on cap rates will be TBD [ph] but like if borrowing rates are up it'll have some impact,

Daniel, I would much rather have put these assets on the market to it two years ago when interest rates were lower, but it is what it is. It's the right strategy for our Company to sell these assets. If we get 3% more higher price or 4% lower prices at the margin, it just doesn't matter. These assets are for sale and we will and we will execute.

Got it. That makes sense. And thanks for the clarification of the timing. Michael, and just, just the last question for me on, on Penn district and rezoning, there's been a variety of news articles going back and forth about the potential additional density there and the state versus the city's plans. I, I'm just curious, can you give us a, an overall update as to what's going on with any potential rezoning and any potential timeline on that as well?

You're, you're talking about the GPP and Penn district.

I am, yes.

Yeah. I think we'll stand pat on that. I mean, the -- this is a basically the city of New York and the state of New York are partners in government. The [indiscernible] the, the MTA and the transit the transit is basically a state asset. The capital plan that will be expended in Penn station is basically state capital. So it makes lots of sense. And there's, there's multiple, multiple historic precedents for this, for the state to be in I'm going to use the word in charge. That's really not an accurate word of the zoning and the development process. The city and the state are cooperating on that. There's been extensive public hearings on the plan and the proposal the political leadership in terms of the governor and the, and the mayor have both endorsed the plan. And I think that's about all that I have to say about it. Obviously we support it.

Got it, appreciate the cover.

Thank you. Our next question is from Ron Camden with Morgan Stanley

A couple quick ones for me. One is just on sort of the, the CapEx, I think you'd mentioned in the, in, in the K that you were looking for about $235 million this year. One Q was sort of in $36 million range, just I know you talked about the leasing pipeline and that potentially accelerating, but just how are you thinking about CapEx for, for the rest of the year?

I, that, or, no, I mean, I would say on the 235, I, I like gun kind on the CapEx the rest of the year. , it depends on , whether it's a new lease, new lease, the 235 is that's a, our best estimate at the beginning of the year, based on both what's in process and what we expect to come down the pike, right. It's obviously dependent on actual transaction volume. And so while this quarter was lower, obviously our leasing volumes lower as well. And we talked about being significant. So that number will normalize. I wouldn't vary from the 235 today. I think we've commented on the, the, the tenant improvements generally having stabilized they stabilize higher than we like, but they've stabilized and not going up any further. What else would you add to that?

Okay. The, the leasing quarter, quarter, it's always very fluid. We're always looking ahead blocking and tackling way ahead of our explorations. Creating opportunities in the buildings time, core value with all real leases is coming up, whether it's this year, next year, two years, or even further away. So it's really not a completely predictable quarter to quarter number. But certainly the TIS, we definitely believe have stabilized. And that's always due to the mix quarter to quarter of the new deals and expansion deals weighted against renewals.

Got it. Okay. all my questions about where you be now. Thank you.

Thanks Ron.

We have our next question from Caitlin Burrows with Goldman Sachs.

Heather earlier you mentioned Elise at Penn 1. I was just wondering, was that included in the reported one Q leasing spreads. And if so, could you share what New York office spreads would've been excluding it?

The answer was I'm sorry, Kevin, you're saying on the, on the, you're talking about the stats for first quarter.

Yeah.

Yeah. If you exclude the Penn 1 deal, cause not all the leasing activity in Penn 1 had a mark to market to it. The high single digits would be low single digits, so it's still positive. It was in that three to 4% lease.

Okay, got it.

Then all the Penn, one deal

And then just regarding the ground lease at 330, west 34th and the increase there, I was wondering if you could go through how much of a catch up of retroactive payments does this represent versus the amount you had been accruing while it was in arbitration and whether this will impact financials going forward?

That's all, that's all been recognized and screwed up already.

Okay. Thank you. That was,

That happened last quarter, I think.

And thank you. We have our next question from DRA ATRA[ph] with Misso.

Thanks so much for taking the question. Just maybe first to by C can you confirm was, was the Farley and Facebook specifically was that recognized gap revenue, was that recognized in one queue and if not, when will gap and cash be recognized?

Yeah, that Bickham, that was recognized first quarter gap cash will be some point second quarter.

Okay, great. And then just more broadly on street retail, can you us just understand where you think we are in this rent collect correction cycle now specifically on fifth avenue and Madison in terms of occupancy costs and what your hearing in terms of specific demand for some of your vacancies?

Background, we're just coming off of the bottom. And so what, and I think I alluded to this in my, in my recent letter, the if you go back 18 months ago, there was no demand, no tours, no interest whatsoever in prime prime, even in prime prime, prime retail on drift avenue, that's changed. There is now a fair amount of demand, but it is still at what I call characterize the bottom fishing pricing. What we expect is, and this is the way markets generally work. The vacancies will be will be absorbed at low rents. The markets will get tighter business. And this happens over some period of years, business will improve. The demand will accelerate and the, and the rents will go up. And we are right now at the point in the beginning of that market cycle where we are just coming off the model.

Okay, great. Thanks so much. And then just last question your, a bit thoughts on a, on co-working and WeWork specifically in your, in your tenant roster, how are you thinking in this? I would say not new, but maybe evolving environment. What's the room for co-working in in, in your portfolio either, either your own or, or, or partners

High school and so we, we certainly think there's a, a long-term role for co-working flex space in our portfolio. We're seeing great success early, already at Penn 1 with the 80,000 foot co-working operation we've opened up there earlier this year. We expect to roll more of that in the portfolio as we go building to building. So I think certainly there's a role there's certainly a need out there for more short term, flexible space opportunities. , one thing we're seeing at Penn 1 specifically is that our existing tenants in the district are utilizing the facility to their benefit as it relates to folks coming in for short term projects from out to town, or if they're reconstructing their space in one of the buildings are coming into our co-working facility to, to park themselves there, to operate their business while they're rebuilding, we're even seeing cases where new leases were designing, where tenants want a home. Now, while they're waiting for their space to build, to be built, they're coming into Penn 1, operating there with us as they wait for their space to be built. So I certainly think there's a role. And I certainly think what we create at Penn 1 is by far the best operation in Manhattan. And we expect to roll that out more and more into in the portfolio, as we see those opportunities arise kudos to Barry and Glen for creating our amenity package in one Penn and the, and the co-working space. We believe that co-working is here as an asset class here to stay. The interesting thing is the strategy of how you use co-working. So we put what is it, 80,000 feet of co-working space into one pen, and you got to remember that's in a four and a half million square foot complex. We believe that for our clients, whether they be an existing tenant in Penn 1, or Penn 2 or a entrepreneur that is looking for space or in the neighbourhood, that the advantage of having that co-working facility inside our are complex, where they have a huge amenity package that they could use. They have gyms, they have food, they have other offerings, they have conference centers, they have everything that they could possibly want is an enormous advantage. So our strategy is in a 404 and a half million square foot complex to put the better part of round numbers, a hundred thousand square feet of co-working, which is available to our tenants and to the, and to the neighbourhood as well. And they can, they can use all of the facilities that are in this massive complex. So we think that that's a competitive advantage then going into a co-working space, that's seven blocks and has 80,000 square feet of couches and nothing else. That's our thinking.

And this concludes our question and answer session. I will now turn the call over to Steven Roth for closing remarks.

Thank you all very much for participating. We look forward to the next call and we will see you then. Thank you and have a great day.

And thank you, ladies and gentlemen, this concludes our conference. We thank you for participating. You may now disconnect.