Good morning, and welcome to the Vornado Realty Trust Second Quarter 2022 Earnings Call. My name is Daryl, and I will be the operator for today's call. This call is being recorded for replay purposes. [Operator Instructions] Our speakers will address your questions at the end of the presentation during the question-and-answer session. At that time, I will now turn the call over to Steven Borenstein, Senior 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, 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. As Michael will cover in a moment, we had another very good quarter with comparable FFO up 20% from last year's second quarter. While the first half of the year was right on our expectations and our business continued to perform well, we are now projecting the second half to be below what we had forecasted, given interest rates and the incremental noncash accounting charge from the PENN1 ground lease. Overall, this year is still expected to be up year-over-year. By the way, we reaffirm retail guidance of cash NOI of not less than $175 million for the year. Well, headline inflation numbers remain very high. It seems like the Fed's efforts are beginning to have their desired effect. There are signs of a slowdown all around a rapidly slowing housing market, falling consumer confidence, and companies announcing hiring pauses or even layoffs. The inverted yield curve signals market participants expect a recession and the forward yield curve predicts that rates will come back down within a couple of years. While we are protected by long-term leases with about 1,500 tenants, we do expect that are prepared for choppy conditions. Pennsylvania Station is by far the most important piece of transportation infrastructure in our region. In a manner of speaking, I might say that early transportation project in the last 100 years either started at PENN, ended at PENN or has gone through PENN. All of this, of course, makes the surrounding PENN District critically important, and we have a large and unique holdings here. Last week, as many of you may have seen, the Empire State Development Corporation approved the general project plan for the PENN District. This is an important piece in Governor Hocol and Mayor Adams plan to finally fix…

Thank you, Steve, and good morning, everyone. As Steve mentioned, we had another strong quarter. Second quarter comparable FFO as adjusted was $0.83 per share compared to $0.69 for last year's second quarter. an increase of $0.14 or 20%. This increase was driven primarily by rent commencement on new office and retail leases and the continued recovery of our variable businesses, partially offset by the straight-line impact of the estimated 2023 PENN1 ground rent expense. We have provided a quarter-over-quarter bridge in our earnings release on Page 3 and our financial supplement on Page 6. On our last earnings call, we said that we expected our comparable FFO per share growth for 2022 to be in the mid- to high single digits. It bears repeating that this expected growth, which is driven by strength in our core operating business, primarily from previously signed leases in both office and retail, including meta platforms at Farley and the continued recovery of our variable businesses factored in the impact of rising rates on favorable rate debt. However, the pace of magnitude of Fed hikes have been greater than we anticipated. The faster-than-expected rise in rates will affect 2022 earnings and result in lower FFO growth than we were anticipating. Further, the additional interest expense from rising rates will have a greater impact next year as the higher rates impact our variable rate debt costs for a full year. With respect to our variable businesses, we continue to see a strong recovery in the second quarter and the EBITDA in total is currently around 90% of Pre-COVID levels now, excluding the closed 4 development Hotel PENN sites. Our signage business, which is the largest in the city with dominant signs in the best location in Times Square and the PENN District, had another very…

[Operator Instructions] And our first question comes from Jamie Feldman.

Maybe just starting with the -- your change in your outlook for earnings for this year and next year. Can you just talk more about the magnitude of the drag from higher rates, both on '22 and '23? And just as we're thinking about how to model it, what -- where -- maybe where your assumption was and where it is now?

Jamie, it's Michael. Look, it's if you look at where we said last time we were mid to high single digits early in the year, double digits and now still projecting to be up. And so if you just take what we've done in the first 2 quarters and you model out the rest of the year, you're looking at roughly 100 basis points impact on LIBOR from where we thought it would be. And with floating rate debt of around $4.25 billion, you're looking at about $0.20 a share impact from where we thought it could be. And obviously, rates change every day. We've already seen the forward curve come down. But I've told you in 2023, would have been higher 2 weeks ago than I would tell you today. So we can't predict. Obviously, that reflects really 2 quarters of impact on our very rate debt versus where we expected. Next year, we'll have a full year impact on that. And so going to be another 100 basis points overall potentially. Again, I don't want to sit here today and give you a number. It's driven by what the curve will be, the relative divisional expectations, it's probably in the ballpark.

Jamie, a little bit more on the floating rate debt. First of all, we did very well fix a little bit more of it to reduce the $4.2 billion. We may pay some of it down. Second, over the last 10 or 12 years, we have benefited enormously from the low interest rates and floating rate debt. Every time we fix or took a fixed rate loan during that 12-year period, we were wrong, wrong and wrong. So that's all very interesting, but it doesn't matter going forward. The next thing is that many of our assets are in transition. Some of our assets are on the for sale list. And as floating rate data, of course, facilitates that because getting out of fixed rate debt when you have a transitional -- digital asset involves the seasons, which in many cases, could be extremely expensive. Some of the floating rate debt and fixing activities we got perfectly right, for example, 555 California, we executed -- what was it about 1.5 years ago, Michael?

Yes.

About 1.5 years ago, a very attractive loan at a very attractive spread on a floating rate basis, and we fixed our share of it. So that was very good. a very good outcome and a real asset. When we did the 1,290 refinancing, which was a similar team I guess I'll take the blame for it. We didn't fix it, and that was in retrospect a mistake. The next thing about floating rate debt to think about is that there is really no protection against interest rate increases. And by that, I mean when rates go up, you get the fairly small benefit of the protection of a fixed rate piece of debt for as long as it lasts. On expiry, which is 3, 4, 5 years or whatever it is, you have to go to whatever the market rate is. And cap rates, of course, reflect the current interest rate environment. So there you have it. We will give some of it back in this year and next year. We expect rates to come down perhaps quite substantially depending upon what the depth of the business slowdown is. And -- but there you have it.

Our next question comes from Michael Bilerman.

Steve, in your opening comments. So Steve, you talked a little bit about sort of choppy conditions, given everything that's going on in the marketplace. And how does that sort of forward outlook change your sort of strategic direction? Obviously, you still have the tracker that you've been thinking about, asset sales, there's so many things going on. Is it affecting sort of the path forward for Vornado. And I recognize you're not happy with where the stock price is today. And if it was stupid, stupid cheap, it's now stupid, stupid, I don't know how many stipends you want to put. But how are you going to go about getting to the other side of this?

First of all, we've been through this, I don't know, 5x or 6x at 5 or 6 business cycles over the last 40 years or so. So there is always an end. And our job is to rigorously focus on the important things, for example, protecting our balance sheet through serving our liquidity and preserving the safety and sanctity of our balance sheet. Number two, we have certain missions that we have to do, which is, for example, keep the buildings leased to the extent that the market permits us to do that, specifically with respect to our fairly grand plans in the PENN District, PENN1 and PENN2. And so all we will have a spectacular outcome based upon the increased value of those buildings and the surrounding PENN District. And those basically are -- we're New York-centric. We continue to have an open to buy in terms of acquisitions, if something comes around, that we think is our skill set and hits off price aspirations. So basically, it's business as usual with a more rigorous focus on the important things and the balance sheet. We have -- in the beginning of COVID, we cut our G&A and began to get very, very tough on expenditures. We reduced nonessential capital expenditures, et cetera. So those are the kinds of things that one has to do going into a business slowdown. And I've said a couple of things. I think it looks to me like we're on the foothills of a recession. We are in a don't bet against the Fed mode, which I think probably everybody is. As I said, we're in the foothills of a business correction. And we are hopeful that the Fed will be disciplined. We'll keep their foot to the peddle and we'll accomplish their objectives as quickly as possible.

So does that alter at all sort of the progression of whether it's asset sales or thinking differently about doing a tracking stock at -- for the PENN District? Like where is your mindset today knowing of where we're headed? And trying to -- you have this Alexander's activist and obviously, there's bats out there. But I don't get the sense that you're happy sort of with where the stock market is valuing Vornado. And so I'm just trying to better understand, you've spent the last decade simplifying and doing so many value-creating activities and even continued this year. I'm just trying to understand what potentially could change into the future, given the environment that we're in?

Let me unpack that in a couple of places. First of all, I still continue to believe that separating the PENN District to a separately tradable security, whether it be a tracker or some other technique is absolutely the right strategy for our shareholders. We expect the PENN District is to be a grower, and we think that our shareholders should have the ability to in that as an isolated pure-play investment. So that's one. The timing of that is still up in the air. That's a totally -- I mean we're on both sides of that deal, so to speak, we have no counter party, we can time it whenever we want to. And we will, subject to lots of different things that could occur in between. I continue to believe in that strategy. Secondly, we have a whole group of non-core assets that we are in the process of selling, where we think we could get pricing, which is not as good as it would have been a year or 2 ago, but good enough to execute. And that's somewhere between, I don't know, $500 billion to $750 billion, something like that. We already executed on 1 on the Long Island City asset. There are other buildings in our portfolio that we would be very happy to sell although we're more price sensitive to those buildings because once you get out of the non-core basket, the buildings are more important and better quality. Nonetheless, if we can -- we get incomings all the time. And if we can execute at a price that we think is reasonable, which will create value for our shareholders and improve our balance sheet, we will do so. I think the last part of your statement was with respect to the activist investor at Alexander's, which I was going to -- I was going to hold my answer to that, Alex. And I think I'll continue to hold for Alex.

And our next question comes from Steve Sakwa.

Steve, I was wondering if you could just spend a little more time on the new PENN Station proposal, the 10 sites, the 4 that are owned by you? And maybe just give us a little flavor for sort of how you see those evolving over time? And how much of that would be office versus residential?

I said multiple times over the -- over recent years that since the PENN District was our, what do I say...

Big kahuna.

Our big kahuna was ground -- was the bull's eye, et cetera. We have been a accumulating property in the PENN District for 20 years now. We believe that PENN Station is the most important piece of transportation infrastructure in the region. We believe that the entire district has been benefited by the adjacencies of Hudson Yards and Manhattan West, where they were very successful, a very large -- projects, which really actually sort of put us on the map. So we're very appreciative of the efforts of our neighbors. There is an enormous amount of demand for the district. I mean, we get incomings all the time. And so basically, the GPP is a zoning matter. It's an overlay of the existing city zoning where the state has basically become the dominant party. And there are multiple things involved in it. One is that we will have the option to increase the square footage that is allocable for each site by buying at FARs at market value. So we can build -- you might say we can build larger buildings, okay? So I think in round numbers, there's 5 million -- is that right, Barry, 5 million square feet of additional FARs that can be allocated in the district, which we obviously intend to avail ourselves over. But remember, we're paying fair market value for those FARs. The second thing is that the state and the EDC of the state becomes the -- basically our overseer and our regulator with respect to zoning, et cetera. The third is that the revenues that come off the new builds is allocated first to the city to what the taxes that were payable to this city had been historically. And then basically into a [ pup ] that is basically subject to an agreement between the city and the state, where most of that will be allocated towards the reconstruction of the actual PENN Station, okay. Some of it, a relatively small amount on the scale of what Hudson Yards access vetting was will be allocated to the developer to incentivize and allow the construction to go forward on an economic basis. And what have I forgot, Barry, anything?

About 600 units of the park so...

Yes. The zoning requires about 600 units of a park, The intention has been for a long time that this will be principally office development, okay? How the mix of -- might or might not change, we will determine over time. Now remember, this is a long-term project involving a huge and irreplaceable piece of location. But the first part of it is the existing buildings, whether they are PENN1, PENN2 at Farley, which we are -- ankle deep in -- or up to our eyeballs in redeveloping. And as I have said before, we are right on our underwriting. We expect this to be relatively short term, meaning between now and 3, 4, 5 years from now to stabilization. And we expect those buildings to generate an incremental $300 million of new additional NOI.

Great. Well, that leads into my follow-up because on that $300 million, Steve, I know you've laid out return hurdles and the dollars spent in the supplemental. I guess, where we and I think others are maybe struggling or trying to understand is how much of that income, say, in a PENN1 is already flowing into the income statement as you're marking to market some of these leases. And so we want to give you credit, but we want to make sure we're not double counting or overstating. So is there a way you can sort of help us think about what's contributing from Farley from 1 PENN today? And then when would 2 PENN start to actually contribute?

I'm going to let my finance team take care of that off-line because whatever I say they're going to quibble with it slap me. Nonetheless, the numbers are approximately like this, maybe $70 million from Farley, which has just begun to come online and will come online over the next year or so. PENN1, is 90% occupied, something like that. I don't know the exact number, but at an average rent in the 50s. high 50s. We expect the market rent for that building to be $100 a foot. We have -- and as Michael said, we signed 71...

75,000.

75,000 feet. See they're slapping me already. 75,000 square feet of leases, 4 or 5 a handful of leases in PENN1, this quarter at $97 a foot average, which we think justifies and validates our underwriting. We expect the same for PENN2. So what I'm saying is, over time, as leases turn over, PENN1 will go from, say, pick a number, $60 a foot to $100 a foot, that's $40 a foot times 2.5 million feet, that's $100 million, okay? That's new, fresh coming in as the leases turn over or you pick the period of time, and PENN2, the building basically has 1 tenant for 400,000-odd square feet, which means it has a 1.4 million feet, which is not income producing today. And that will be -- will come over time and the building will be completed less than 2 years. So with lease-up and stabilization and what have you. So the 2 years will turn out to be 4, maybe even 5 years, that's okay with me -- so that 1.4 million feet of now vacant space will produce we think $100 a foot. So there's your math, you can -- I hope that will help you to model it, but that's the way I do the math. And as I said, my finance team, which is very, very, very expert and conversion with this, will give you more detail, if you like.

And our next question comes from Alexander...

I want to go back to Steve Sakwa for a minute. I don't know any other company that has a -- public company that has a development of this magnitude and this unique prospects out there, okay? And so obviously, I think the stock doesn't reflect. I think the stock is selling for way less than what we have now and doesn't begin to reflect the opportunities we have here. I'm sorry, go ahead.

Okay. Our next question comes from Alexander Goldfarb.

I think we get 2 questions. Is that correct?

Yes.

Okay. So Steve...

I'm here to serve you.

And I'm just -- I'm here to serve my wife and kids, so we all serve someone don't we. So.

Get back to business.

Okay. So the 2 questions are first, going off from Steve's question on PENN District. So one, it sounds like you guys will only have a few of the buildings like 4 or 5, not all 10 that are outlined. But second, and I guess more importantly, you guys entered New York with Mendik. You've been talking about PENN for 25 years. Hard to believe that in the next 5 or even 10 years that you'll get 4 or 5 buildings up online, not because of you, but just how long it takes to build office to stabilize and lease. So as far as the question of earnings because you guys are earnings, you're paying dividends, yet you spoke of more asset sales, there's rising rates. We're still waiting for the existing stuff that you've already put under construction to deliver. How is this -- I understand in a private vehicle where time lines are much longer, but in a public vehicle where investors expect earnings growth, and that's something that a lot of us have been waiting for from you guys. How are we to think about this investment versus other things that are more near-term tangible because all this stuff seems to be out multiple years, nothing in the near term.

I do real estate. I don't do stock market. You do stock market. I can only tell you that as I model the business, and the prospects of the business and the future bad news that we are creating. And by the way, I too work for my kids. I believe that the inherent values and the IRRs even out over a period of time are extraordinary and unique, okay? So if investors want to be short-minded that -- each investor can make their own decision. I would remind you and you know full well that the stock market is an all knowing being -- and the stock market chooses to give companies with no sales and no earnings, multiple billions and billions and billions of value because the stock market is saying that the values to be created in the future will be -- will justify the investment. I can only tell you that if you're focused on time and you're impatient. I'm focused on time, and I'm focused on what the IRRs will be over time as we deliver these buildings. It takes almost no imagination to begin to model what 1 PENN, 2 PENN, Farley can be worth and put a risk adjustment on that, which is very high certainty. And once you do that, I think that speaks for itself.

Okay. And then the second question just goes to Alexander's. On Alexander's, one, your thoughts around the dividend given it's uncovered and doesn't look to be covered for the next -- as far as we forecast the next few years. And two, as Michael said, you do have an activist, although it seems pretty tough given that 2/3 of the company is basically either interstate or Vornado. So maybe just some thoughts around is [ Avino ] Alexander's tie up something in the offing and your thoughts around the Alexander's dividend.

Let's spend a minute on the Activist. So the Activist is a small company that has a -- I think they said in their letter, they have large, very significant shareholders. The way we see it, they have about 10,000 shares, which I wouldn't call very significant. There are some other names on the shareholder list that could be affiliated with them or what have you. But your point is, is that it's pretty either courageous or whatever to target a company that has 2 entities that are closely aligned that control -- that own 2/3 of the business. So take that for what you will. We got an incoming and very simply and very quickly, we treated it with the highest of respect notwithstanding the shareholdings or what. If the letter came from shareholders that have 1 share, we would still act in the same way. We invited the folks [indiscernible] I think they notified us and we got a letter from them in April. I think we invited them in to present to the full Board of Alexander's at the next meeting, which was in May, they presented, we exchanged views. We then -- the Alexander's Board then very carefully and very seriously deliberated about the pros and cons of their suggestions. We sent them a response later. We did not stiff on them. We listened to them very carefully, and we treated them with the highest of respect. We sent them a letter basically saying that the Alexander's Board preferred the status quo. What they had suggested was that we internalize management as a proposal externally managed by Vornado, which would cause -- which would raise the expenses of Alexander's by a huge amount, very significant amount, which we had -- which we debated over the years.…

And our next question comes from John Kim.

Michael, you talked about the impact of interest rates on your outlook of FFO for the rest of the year. But I was wondering if your second quarter NOI of $289 million GAAP, $285 million cash is a good run rate for the remainder of 2022.

Of the NOI, John? Yes, the answer is, generally, yes. I don't want to give you specificity. Like the first half was very strong with some things that plays in the second half that you see a strong growth in the second half. But I think the answer is generally yes.

Okay. Yes. I just wanted to clarify, there was nothing onetime in nature on your variable income. You do have a fair amount of expirations at the marks, but the rest of your portfolio is pretty minimal, but in...

Yes. So some of the negatives that are known. So I said generally, yes. I think as we said in the prepared remarks, the core business is performing well. NOI growth was very good. We expect that there continue to be growth. But when you flow it down the FFO with the impact of rising rates, that's where you see that growth being moderated.

Okay. And my second question is on your 2023 expirations. You have a fair amount in office, 11%, retail is 9%. Can you provide any commentary or color on what percentage you now today are known to vacate versus leases that you have a high confidence in renewing or backfill immediately?

You want to take that?

Sure. As it relates to office, John, this is Glenn. In '23, we have about 1.3 million feet expiring. Of that is 300,000 feet of PENN1, which as Steve alluded to, was that rolls, we look forward to that lease-up program to get to the new rents. As it relates to the remaining 1 million feet, we're all over it. We're in paper on a lot of it. We probably expect the 50-50 split of people staying versus leaving, but we're in paper for much of it now in terms of people who are going to stay or lease the space, which is expiring.

Retail?

Our 2024 expirations, we are laser focused on, and we believe that the rising tourism to New York City, which is growing rapidly and could reach pre-pandemic levels by next year will be timed very well for our expirations. And we know that our tenants have a desire to stay, it will be a matter of what the rents are.

And John, in 2023, and I'm looking down the retail list, I think we feel pretty good about most of those. But obviously, we now think, I don't know, maybe 3 calls ago that Swatch exercised their termination option at St. Regis, we own about half of that building. So that's a known move-out in '23. We got a meaningful termination payment along the way when they exercised that. But that -- from a 2023 expiry, that's a notable one. The others, we're in active discussion, and we'll see what happens.

And what would be the mark-to-market on that flat, please?

Too early to tell you.

And our next question comes from Ronald Camden.

Just following up on some of the bread crumbs for 2023. I think we touched on the interest expense already. maybe going back to the PENN District asking the question in a different way, given that's such a big part of the modeling into next year, any sense how we should think about the year-over-year change in contribution potentially in 2023 versus '22? Clearly, the $300 million makes sense long term, but just trying to think about the '23 versus '22 difference. Does that make sense?

Last piece again, Ronald.

So for the PENN District, the contribution and the delta between 2023 versus 2022 contribution to NY, if that makes sense.

Yes. I don't have the numbers at my fingertips. We can get that to you off-line. In 2023, when you think about it, PENN2 is not going to be contributing yet. PENN1, as we roll over those leases, you'll see contribution there, although, again, that's going to take time to phase in. So PENN1, we're -- every year, right, we're going to roll that space over. We spend an average of 5 years. and Glen and his team are just going to knock it out quarter by quarter. And so you'll see that flow in. PENN2, you're not going to see flow in for a period of time. And then Farley, you're going to start to see that flow in more substantially as the retail comes online. So we'll give you some quantification offline and along the lines that Steve asked as well. But yes, there's going to be an improvement in 2023, again, not significant because of PENN2 really is not going to start contributing until 2024, probably. But realistically, even a year or 2 beyond that. And the others year-by-year as leases roll.

Remember, in PENN, we had the PENN1 ground lease repricing appraisal process. And so we predicted an accounting number in accordance with the accounting convention, I think it was last quarter of $26 million for the new rent I get asked about that all the time. The process has not begun, although it will begin probably in the fall of -- I think we are in the process of preparing. We think the other side is doing the same there's going to be multiple experts involved that it's a fairly significant kind of process. Interestingly, a little bit about it. Interestingly, the -- these are old-fashioned ground leases with old-fashioned kinds of terms. Most of the old ground leases call for an appraisal process which is based upon the highest and best use for the land as it's baked in and unapproved with a willing buyer and a willing seller, in a normalized market, no distress, no economic issues. This particular lease, we believe, is oriented towards a real estate broker kind of a situation, which would require that the renewal price be based upon what the land could actually be sold at, at a particular point in time, which we believe is significantly different than the smoothed out appraisal -- a traditional appraisal process. What's more -- this is a date certain -- and the -- we are now in a situation in the macro economy where rates are rising significantly, debt markets are in turmoil. And one of the interesting things is most capital markets, real estate capital markets players admit that the debt markets are not conducive to buying and selling assets because they're just not there. And if they are there, they're at much lower amounts at a much higher interest rates. In addition, construction costs are going up aggressively. In addition, tenant demand is slowing. And in addition, this is an extremely large asset where very few buyers could have the financial wherewithal to do it. So we think that all sort of plays to a constructive kind of a process where the outcome will be something that we can certainly live with. This is a very large, very important asset. Everybody knows we have spent $400-odd million in capital improvements to improve this asset. We're very happy with it. And whenever the outcome might be of this ground lease reappraisal, we will still have enormous equity value in our lease going forward.

Can I ask my -- if I could ask the second question just on the retail. Last quarter, you took the guidance up, reiterated this quarter. close has been coming in better than expected. Any other sort of large leases or anything we should think about as we're rolling into next year just on that retail contribution at $175 million.

No, I don't think so. I mean there's a number of leases we talked about that are now contributing. There's other signed leases that will contribute next year, but nothing of a magnitude that's worth mentioning. It's just serial leases.

And our next question comes from Nick Yulico.

I was hoping you were just a little bit more about the first quarter of this year to second quarter, you did have an increase in property revenue on a GAAP basis. I think you said signage, lease commencements or some of the benefits. I just wanted to see if lease termination fees were also any impact? And I guess just how we should think about the incremental benefit still from the rest of the year from signage upside, commencements, anything from a GAAP, revenue standpoint, as you think about the back half of the year versus what you've done in the first half of the year.

Look, on the -- like I'd say, overall, first half was quite good with the contribution broad-based. We've got contribution coming from leases coming online both office and retail. We've got lower expenses that we've been managing, our variable businesses doing quite well. And then there is a small piece of -- maybe a little piece of lease termination, but also this quarter, we got about $3.5 million from bankruptcy recovery as related to New York & Company from 330 West 34. So -- but I wouldn't characterize that as very significant. So overall, the bulk of the contribution is from traditional recurring items. And our expectation is that will continue. The trajectory of that growth we've seen in the first couple of quarters going to level off in the second half just as some of the things that started to flow in last year's second half will be in again this year. So you won't get that as much of an uplift year-over-year. But on a quarter-to-quarter basis, we'll continue, again, probably not as significant a growth rate as we've been in the last couple of quarters. So.

Okay. I guess the second question is just in terms of guidance. I know you are now giving some pieces on a cash basis for retail NOI, et cetera. But I guess, I'm wondering if your philosophy, if you're willing to revisit your philosophy of not providing FFO guidance. And the reason why I ask is that if you look at estimates for your company for this year on FFO for next year on FFO, there's some of the widest that we see, which really doesn't make that much sense for an office company. But there's a lot of -- I think there's a lot of impact that we're all trying to figure out, right, projects coming online, off-line, commencements, difficult to really understand from a GAAP NOI standpoint as well, you have some of the highest floating rate debt exposure which is going to be an issue over the next year. So just trying to understand if you guys are all going to revisit this approach on guidance, particularly as it feels like over the next year, the estimates are really all over the place for FFO.

Nick, at this time, we don't have any plans to revisit. I think we've given you more guidance than we've historically given over the last 18 months. But as you're seeing this quarter, last quarter, particularly in an environment like this, it's hard to do it, right? It's hard to do it given the significant redevelopments we have underway and the impact of when things come online. Obviously, the impact from LIBOR going up is causing impact in the back half of this year versus the original expectations. So there's a lot of ins and outs. We don't manage the business quarter-to-quarter. We do manage it to drive growth. But we feel like it makes sense to wait to lease space a little bit longer because we can extract better terms, we'll do that. So it's sort of an artificial view in our mind quarter-to-quarter. And as I said, I think we gave a reasonable guidance at the outset of this year. Obviously, I've proved too optimistic, given the environment is changing. And given the lack of clarity in the current environment across the board, whether it's rates, leasing, et cetera, I don't think it's something we're going to start right now.

Yes, I would say, I mean, look -- sorry, go ahead.

I guess I'm the heavy in this. And the Board as well. So we have, on our board, a group of very seasoned people very [indiscernible] public companies. And so my feeling, my personal feeling is that we are not in a quarter-to-quarter business. We are not in a day-to-day business. We are in a business which cycles over 5 and 10 years. So our objective is to create value over 5- and 10-year cycles. And we think we've done an awfully good job of that over long periods of time. The emphasis on short-term modeling and getting down to $0.01 a share and beat a $0.01, raise a $0.01, that kind of stuff is not for me. So to the extent that -- to the extent that guidance focuses in my mind and in some members of our Board's mind on short-termism, that's not what we're about. However, over time, we have had several different occasions where we had things happen, which were issues. For example, this could be, I don't know, 15 years ago, we had the PTO, the patent trade office move out of multiple millions of feet in our Crystal City complex at the time when we continue to own what is now the JBG Smith business. We chose at that time in a fairly detailed way with multiple pages of documentation to model out exactly how much space was emptied and how -- and our process of re-leasing that space. Similarly, recently, when the retail business fell off a cliff, we thought it was prudent to give our investors and the analysts, our opinions as to what the retail income would be at least from a downside point of view. And I think there was 1 or 2 others that I can't recollect right now. So that's my thinking about guidance. And basically, it's a very strong disagreement account to short-termism in our business.

I understand all those points. I would just say that, look, interest rates are volatile, we can all model that we can decide what we think the interest rate curve is. But GAAP NOI is something that would just be really useful to understand for this year, what is the GAAP NOI number? How should we think about GAAP NOI next year? It would just help -- and it's not a quarter-to-quarter number. It's an annual number we're talking about, something to -- because your stock doesn't just trade on NAV, which is cash NOI and other factors, right? It does trade on an earnings multiple. And I think your earnings estimates are very wide in range versus where it could be if you actually just gave some level of guidance. So.

And our next question comes from Vikram Malhotra.

I just have to -- one, just maybe given the news around meta, any thoughts or updates on 770 Broadway kind of ins and outs? And how we should think about that?

So the lease with Verizon expires in the first quarter of '23. They've renewed for 1 of the 4 floors. So there's 3 floors remaining, which is about 240,000 feet. The space is unique, terrific and a great location. We're in the market to lease it now. We feel good about the prospects. I mean that's the status of that block.

Okay. Great. And then just maybe a bigger picture question. I guess, you many years ago called out the shift in office in Manhattan office to kind of the west side and South. I'm just wondering, given sort of all the changes we're seeing both cyclically and potentially some structural changes in your mind, sort of, as you said, you want to create value over the next 5 years, what is the biggest opportunity in terms of value creation? Is it hard assets? Is it in debt investments, perhaps your own stock in terms of buybacks. I'm just taking a longer-term view, what would you do if you were to start looking at external growth?

Well, that's a metaphysical question of the highest order, Nick. So look, we have done debt investments over a 25-year period. We have not recently -- and so I don't think that we're going to get into the debt business for lots of different reasons. And with debt, there's a couple of things. Number one, the best that you've been hoped for is that a publicly traded debt business trades for 110% of its book value. So basically, it's not a capitalization of earnings. It's basically a book value kind of a thing. So we don't believe that, debt gives equity returns. So that's step one, although we have done it in the past and we may do it in the future, but not likely. With respect to our stock, we agree that our stock is uniquely and I think I'll acquiesce Mr. Billman's stupidly stupid cheap. And without saying anything, we have stayed away from investing in our stock or buying back our stock for many, many quarters now, but we are starting to get kind of tempted about it, is we think it's actually a little crazy. But we have to balance the returns that we could get by buying back our stock with the returns that we can get in the PENN District and other investments. We don't have a hankering for small potatoes. If we were going to buy back our stock, we would want to do it in a fairly significant way. The rest of it is we are kind of baked in our business, our assets are our assets. We may sell some. We certainly would buy assets in our skill set to the extent that they had -- we had the opportunity to make the entrepreneurial returns that we think we have traditionally made. And I'm not sure I handled all of the alternatives that you mentioned, but at least I tried to handle some of them.

Our next question is a follow-up from Michael Bilerman.

So Steve, just a few follow-ups. Just on 770, I know you have 18 months to achieve perhaps greater loan proceeds, what are some of the conditions? And how much additional capital can you draw out of that asset per the terms of your agreement?

The agreement provides for an additional $300 million draw. It's conditioned upon leasing the Verizon space and one other condition. We are planning as if we will not make that draw.

Okay. And then just going back to Alexander's and I appreciate all the comments you gave to Alexander. I go back, I don't know, maybe 16, 17 years ago when Alexander's was trading at a discount and you proactively put in the annual letter that you're going to take a deep look at a variety of options. And a year later, the stock market corrected itself and the stock had gone up and there was nothing to do. How does the current situation compared to back then in relation to Alexander's but also stepping back as it relates to Vornado, where you have been very active. Can you just sort of compare and contrast the environment back then versus the environment now and trying to do something with Alexander's?

Michael, stocks fluctuate. And Alexander's is no different. Alexander's has traded as high as $400-some-odd a share and as low as 100 -- high $100s of dollars per share. Alexander's now sells for 8 -- I guess, going at 8% dividend or at least it was a couple of days ago. So a business with the credit of Alexander's, the assets, the quality of the assets of Alexander's, the balance sheet, which basically has $500-some-odd million of cash on it. should not trade for an 8% dividend. So that's totally mispriced. It would not be stupid for Alexander to trade at a 4% dividend based upon the money market comparables, et cetera, which would mean that Alexander's, based upon the dividend valuation alone would be fairly priced that the stock would double. So the stock bucket is going to do what the stock market does. From our point of view, we are going to preserve the $500 billion of cash for lots of different reasons. That may change, but it's not going to change in the short term. We're going to continue to pay out whatever dividend before determines to be appropriate. And we are -- as I've said multiple times, it's almost impossible for Vornado and Alexander's to combine -- it's impossible to figure out what price would be that would make the Vornado shareholders happy and/or the Alexander's shareholders happy at the same time. So for the moment, Alexander sort of sits where it sits and its shareholders should enjoy the dividend and the future prospects.

Okay. And then just the last one, Steve, in response to my question at the opening. On the track, you talked about being committed to the tracker or other techniques. And I don't want to pick up too much on that word. But in your mind, is there other avenues in the separation of the PENN District that you're evaluating other than just a tracking stock, which. And I know you and I disagree, but that's fine. We can. But is there other ways that you're thinking about structurally of separating the company that way?

Sure. but we're not going to talk about them today.

Our next question comes from Jamie Feldman.

Just a quick follow-up. Glenn, I think you had said you're in discussions for 50% of the '23 expirations, and you think 50% may move out. A, I want to make sure that's correct. And b, how does that compare to this time in prior years? And can you talk about some of the larger known move-outs?

The 50-50 production is today's target that moves down, as you know, weekly, quarterly, et cetera. So we'll keep you up to speed. But as always, we're way ahead of it, have been ahead of it over the past quarters tackling all those expirations. I don't want to get into specific tenants or specific buildings, Jamie, but you could be assured we're on top of every one of them, particularly the larger variety expirations.

And is that about where you are typically this time of year? Or do you think next year is going to be a tougher year?

Every year is different, year-to-year, 50-50, 60-40. I mean, it's always in that range, I'd say it's not far off the standard fare. But it's -- we usually -- predicting all this is, as you know, difficult. Things change every day with our tenants in our buildings, always putting the puzzles together the best we can to create value. So it's hard to say, yes, exactly that or exactly this. So that's where we are today.

And we have no more questions at this time.

So let me say we appreciate everybody joining us this morning. We look forward to seeing you all again soon. Our third quarter earnings call will be on Tuesday, November 1, at 10:00 in the morning, and we look forward to your participation again. Take good care.

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