Good morning, and welcome to the Vornado Realty Trust Fourth Quarter 2022 Earnings Call. My name is Dave, and I will be your operator for today's call. This call is being recorded for replay purposes. [Operator Instructions] I will now turn the call over to Mr. Steve Borenstein, Senior Vice President of Corporation Counsel. Please go ahead.

Welcome to Vornado Realty Trust Fourth Quarter Earnings Call. Yesterday afternoon, we issued our fourth quarter earnings release and filed our annual report on Form 10-K with the Securities and Exchange Commission. These documents as well as our supplemental financial information packages are available on our website, www.vno.com, under the Investor Relations section. In these documents and during today's call, we will discuss certain non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP measures are included in our earnings release, Form 10-K and financial supplement. . Please be aware that statements made during this call may be deemed forward-looking statements, and actual results may differ materially from these statements due to a variety of risks, uncertainties and other factors. Please refer to our filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31, 2022 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, Steven, and good morning, everyone. It's Valentine's Day. As Michael will cover in a moment, 2022 was a strong year with comparable FFO up 10%. Fourth quarter FFO was down 11% due to higher interest rates. Ex rising interest rates, our core business is performing quite well. Not surprisingly, we expect 2023 will be a down year, negatively impacted by a full year of higher rates. I'd like to share with you a few other thoughts. Notwithstanding all the noise, New York continues to be the most important city in America. We continuously survey dozens and dozens of our tenants, all of whom reaffirm their commitment to stay and grow in New York. And that goes for our clients who are headquartered in other cities who are making New York their, so to speak, second home. And it's not by chance that the New York area is the tightest residential market in the country. People want to live here. Steel, concrete and curtain wall are important, but in our business, capital is the essential raw material. We are now in the middle of a Federal Reserve tightening cycle, the result of which is interest rates are up and capital is scarce, and that's an understatement. Notwithstanding Fed funds at 5%, most run-of-the-mill real estate operators can't borrow with 10% or can't borrow at all. So here's what we have done. 7 years ago, when we began the Farley Facebook PENN 1 and PENN 2 projects in our all-important Penn District, we loaded in over $2 billion in cash to prefund 100% of our development and construction costs. We didn't know then how prescient this would be. So Farley Facebook is now finished and paid for, PENN 1 almost so, and PENN 2 will finish around year-end. All 3…

Thank you, Steve, and good morning, everyone. As Steve mentioned, we had a strong year despite experiencing headwinds from rising interest rates. For the year, comparable FFO as adjusted was $3.15 per share, up $0.29 or 10.1% from 2021. Fourth quarter comparable FFO as adjusted was $0.72 per share compared to $0.81 for last year's fourth quarter, a decrease of $0.09 or 11.1%. While earnings for the quarter were down, driven primarily by higher net interest expense from increased rates and the noncash straight-line impact of the estimated 2023 PENN 1 ground line expense, our core business had strong performance from the rent commencement on new office and retail leases. We have provided a quarter-over-quarter bridge in our earnings release and our financial supplement. We have several noncomparable items in the quarter, primarily gains from 220 Central Park South sales and other noncore asset dispositions, which in total increased FFO by $0.19 per share. As previously announced, we recorded $595 million of noncash impairment charges during the fourth quarter, of which approximately $483 million related to our equity investment in the Fifth Avenue and Times Square Retail joint venture. It should be noted as impairment charge is not included in FFO. Company-wide same-store cash NOI for the fourth quarter increased by 7.9% over the prior year's fourth quarter. Our overall same-store office business was up 8% compared to the prior year's fourth quarter, while our New York same-store office business was up 5.4%, primarily due to cash rents at Farley coming online. Our retail same-store cash NOI was up a very strong 7.9%, primarily due to the rent commencement on several important leases. Now turning to 2023. While the current economic environment makes forecasting more difficult than usual, we expect our 2023 comparable FFO to be down from 2022 given…

[Operator Instructions] Our first question comes from Steve Sakwa with Evercore ISI.

I guess I wanted to start with the developments and the yields, Steve, that you talked about. I guess I can understand maybe the PENN 1 return going up a bit since you've got kind of active leasing and maybe good mark-to-market and a little more visibility there. But I guess I was a little curious about PENN 2. You did take the yield up there, but I don't think you've done any incremental leasing, but maybe that's part of the pipeline that Michael talked about. So could you maybe just sort of address those two?

We took the yield up on PENN 1 and PENN 2. We took the yield down very marginally on Farley. We did that based upon now we have 1 year, 1.5 years, even 2 years of experience with these assets. We know what the market's reaction is. We have signed 220,000 square feet of leases in PENN 1. We know what the bid and ask is for PENN 1, we know what the bid and ask is with PENN 2. And it exceeds our initial underwriting, and that's why we made -- we adjusted the returns.

Okay. And then maybe as a follow-up. Michael, I just -- when you talked about some of the headwinds to growth in '23, I kind of get the interest expense hit, the $0.05 of sales. It sounds like the ground lease may be a little bit better. I didn't quite understand the $0.10 from the property taxes. I was just hoping you could maybe clarify that because I thought in the first half of the year, that might have been a bit of a tailwind, but just wanted to make sure I understood that point properly.

Yes. We had a prior period accrual. It obviously benefited us at the end of '22. We didn't have it in the first half of '22, and so that gets reversed at the beginning of this year, and that's a ding. So it's a timing difference. We benefited last year, we got hurt at the beginning of this year. Net-net, there was a reduction, but we -- it affects us in the beginning half of 2023.

The next question is from John Kim with BMO Capital Markets.

I wanted to ask about the write-down you took, particularly at 650 Madison. That's an asset where it was pretty well occupied. There's no loan upcoming. I was wondering why you decided to impair it now and what are your plans with the asset?

John, the accounting for joint venture assets is different from wholly owned assets. And as a result of that process, and if you look at what's happened since we bought the asset, it resulted in an impairment this quarter. So retail rents are obviously not what they were at the time we bought the asset and what we underwrote. We had a large tenant move out unexpectedly in the hospital last year. And so you run it through the accounting model, and that's the conclusion. Now again, keep in mind, it's a noncash item. We still own the asset. The value could recover. We have debt of term on that asset, a very favorable rate. And we'll continue to work the asset and hopefully create value. But on a -- as we sit here today, based on the accounting methodology, that's the byproduct.

John, you used the words in your question, why we decided to take an impairment. The impairment process is rigorous and is, to a large degree, formulaic and is, to a large degree, overseen by our independent accountants. So we try to keep as a much subjective judgment as possible out of it and make it more of an academic, formulaic kind of an exercise. And they may have showed that the write-down was appropriate there.

Okay. My second question is on theMART with the occupancy following this quarter, really driven by the showroom and trade show. What's going on with such a big drop in occupancy this quarter? And if you could also comment on variable businesses, which in the past few quarters have been a driver of earnings growth. And it's not really disclosed so much this quarter. I wanted to know what's been going on with signage and trade show.

It's Glen Weiss. So on theMART, the increase in vacancy was due to the casual business leaving Chicago for Atlanta. We are converting that churn business into office space, and that's the increase in the vacancy at theMART. There are headwinds in Chicago, not like New York in terms of leasing volume, pipeline, et cetera. Our 2.0 program is coming along great, that we expect to be complete in June. Our tour volume has been very good of late. We have a couple of leases in negotiation right now. But the increase in the vacancy is the casual business, which moved out of town to Atlanta in the fall.

Yes. John, on the variable businesses, I think the punch line, if you will, is that all the variable businesses except for the trade shows are back to pre-COVID levels. We had a very strong 2022. I think signage had our most successful year ever, and that was with a little bit off-line fourth quarter, so a little bit more of that. We've got a couple of signs located at PENN 2 and Hotel Penn that are impacted by the development, and so fourth quarter was a little bit off than fourth quarter 2021. But really, everything, whether it's signage, garages, BMS had a strong year, generally up as I said, except for signage quarter-over-quarter or year-over-year, I should say. And then the trade shows, a little bit of timing difference from the prior year fourth quarter when we were cranking it back up. Some of the shows got moved to fourth quarter and this year back on their normal pace. So trade shows are not back to peak yet. We think they'll get there in the next couple of years, but the rest of the businesses are performing quite well. And I think our -- in particular, the signage where we've got the dominant signs in Times Square, we're actually redoing the sign on 1540 right now, which will book in both sides of [indiscernible] and hopefully allow us to drive additional revenue given the fact we control 2 mega signs at the heart of the [indiscernible]. We think that's a positive. And then obviously, what we're doing in PENN, over time, we think will perform -- continue to perform well once the construction is completed. But that's in a nutshell where we're at with our businesses.

So net is variable going up or down this year?

In 2023, we're going to have -- I mean, like the answer is it's hard to predict. I would say because we took a couple of signs off-line in PENN. A lot of this is based on what comes in third-party roadblocks. So net-net, we think it's probably comparable to 2022. It could be down a little bit just because of what's off-line on the signage side and the fact that we're, as I said, rebuilding 1540, right? So we're taking some revenue offline. So I think overall, probably down a little bit just given the fact we've taken some stuff offline.

The next question is from Camille Bonnel with Bank of America.

I know the opportunity with Citadel is still a bit down the road, but are you able to speak to the financing strategy there in context with your existing development pipeline around Penn District? Just generally, like how are you thinking about the capital allocation and sourcing for these future projects.

Camille, I think the good news is we don't have to do it today because it would be very, very difficult to line up construction financing and very expensive. So with respect to 350, that project is not right yet, right? It's -- it'll be right in 2, 3 years, but it's not right today. And so hopefully, the markets are more hospitable than we expect they will be. And I think the same goes with respect to PENN. Again, we're not -- as I think Steve commented on the last call, the market really is not conducive for new development today. Construction financing is very expensive, if available, which generally is not as banks have pulled back. So I think it's challenging. And again, today it's not the day we have to line that up. But in the future, the markets should settle down. And with respect to 350, we'll put on a traditional construction loan at 50% to 60%, and the partners will fund the balance of equity. Most of our equity will come from our land contribution.

So, we're pretty excited about 350 Park Avenue, and maybe even more importantly, tenants even more excited about it. Our strategy there is actually very simple. The land value, our land value will constitute our equity contribution. So our land value will represent the equity. We will not have to put in maybe another -- a very tiny $10 million, $20 million, $30 million of cash to represent our share in the equity. The balance of it should be easily in a normalized market [indiscernible] under -- in the construction financing or permanent financing. The deal comes along with a very substantially sized anchor to anchor lease. And so everything is in place. Our land will be our equity. The -- and we have an anchor tenant. And so that all is very, very, I think, very well conceived. What's more, our development teams and construction teams that are hard at work down in PENN will have completed PENN 1, PENN 2 at Farley and will swing right into 350 Park. Part of our arrangement is that we are immediately starting the design of the building -- actually, we're probably halfway through it. And we are immediately starting the approval process so that in a relatively short period of time, maybe not more than 2 years from now, we would be ready to do the [indiscernible] construction. But the cash requirements, in any kind of a normal financing market, are basically almost 0 on our part. And by the way, it's going to be a great one.

Yes. Really appreciate all the details on 350 Park. Just for my follow-up, you've done a great job in terming out your maturities, but your leverage on a net debt basis is above 10x. So can you talk to how you're thinking about leverage today and where are your near- to medium-term targets?

Michael.

Our leverage is -- I think you characterized -- probably a little bit lower than we characterized. Our goal over time is to have less leverage. I think importantly, we don't have any maturities this year. If anything now, we have a couple of small maturing process of being pushed out. But our preference is to have less leverage. And over time, we think that will be accomplished through growing earnings and likely some asset sales. So is that going to change in the next 24 months? Just given the environment, probably not. But over time, we foresee that happening.

The next question is from Michael Griffin with Citi.

Hang on, I want to go back for a second. I want to emphasize what Michael said. In terms of the leverage ratio that you referenced Camille, we sort of have our hands tied behind our back. So number one, we've had a decrease in earnings, which is going to recover, variable businesses and what have you. Number two is we have 0 income coming in basically from 2 PENN, which will be over $100 million of income when it gets online. And we have less than underwritten optimal earnings from 1 PENN. So if you pro forma forward, when we get all these different parts of our business stabilized, our leverage ratio will come down very significantly. I'm sorry, go ahead.

Michael Griffin here with Citi. Just maybe getting back to leasing. Michael, you mentioned in your prepared remarks, you're leasing has slowed, transactions are lumpier. You pointed to about 1.2 million square feet in the pipeline. Just looking over the cadence of this year with some bigger upcoming maturities. I mean, how confident are you in executing on that? And is there any update on maybe some of those more larger notable upcoming expirations? I think there's one at 770 Broadway coming up here maybe at the end of this quarter. So any update there would be great.

Yes, Glen.

Michael, it's Glen Weiss. So we really had 4 bulky expirations that constitute our expirations in '23. One was 350 Park, which is now taken care of by Citadel, the other 3 is continuous expirations coming off low rents from PENN 1 and then 2 blocks, one of which comes back this quarter, [indiscernible] from Verizon at 770. And then at the end of the year, we get the [indiscernible] back at 1290. As you can imagine, we're all over it. We're attacking the market, presenting the buildings, marketing the product towards weekly. We think both assets are very high-quality assets. 770 is probably the most unique block of space in Midtown South. Excellent building, great bones, in the market now with those 3 floors in 1290. By the end of the year, we'll be ready for action already showing the product, showcasing some amenity program we're going to undertake in '24. So that's the real outline of what's coming this year in terms of expiries.

I guess to that point, you have this pitch around the building around the high-quality transportation hubs. An asset like 770 Broadway maybe doesn't really fit into that strategy. So I guess how do you measure demand relative to that versus opportunities you might have within the Penn District?

770 is a great spot. It's right at the subways, that will let you to Grand Central and Penn very easily. It's right at NYU, right in the village. It's in the sweet spot of Midtown South. So geographically, we think it's excellent.

Okay. And then maybe one for Steve. I'm just curious, you've focused on in your prepared remarks about the importance of getting employees back to the office. In your conversations that you're having with business leaders and how much more do you think they can really push their employees to get back in. And I think you talked about that 60% kind of occupancy number maybe on Tuesdays and Thursdays. Do you see that potentially getting back to that pre-COVID call it, the 70% to 80% range?

I think normal is more like 70% because there's always people who are traveling, not in the offices and what have you. So to try to get to 90% is fictitious. So I mean, I think we're getting close to 50% now on Tuesdays, Wednesdays and Thursdays. I think you can assume the Friday is dead forever. Friday is going to be a holiday forever. Monday is touch and go. So I think that the world is coming back to normal slowly but surely. So multiple things are happening. Number one, every boss wants his people back. Number two is now many of the people want to come back. They find this being alone, they find that they want to come back with their colleagues, they want to get back into the activity, excitement and what have you, collaboration and being in the city. So slowly over time, I think that, that will all revert to normal. Your question was what power does the voices have? Well, some of the bosses have total power and some of the bosses have no powers. And I can't comment on that either way. But the most important trend is people are wanting to come back themselves. Employees actually do want to come back.

The next question is from Alexander Goldfarb with Piper Sandler.

First, [indiscernible] on 350 Park. Awesome, awesome deal. So well done to you and Michael and everyone. So that's awesome. Two questions. First, on the Retail JV, the impairment that you guys took, what prompted that? And big picture, as we think about the rents that are in place versus the market, and it seems like the market has settled and hopefully is recovering. Where would you peg the mark-to-market? And then do you think that there will be future impairments? Like is this an annual exercise? Just trying to get some more color on this.

Well, I can't predict the future nor do I want to. We went through a rigorous process. The math showed that there was an impairment, and we do what the math shows. So there's that. What the market rents are is something that -- it's a very thin market. There are not -- there are very few transactions about Fifth Avenue and at Times Square. So -- and you can make the assumption that this is still a sluggish impaired market. It hasn't recovered entirely. There is not the same lust for space that there was 5 years ago. But that will come back too for sure.

Okay. And then the second question is, you guys appeared in the press recently that you're still in the hunt for casino. It's been a while since you talked about movie studios. The Manhattan Mall seems to be a great spot for potential studios. So just sort of an update on what you can provide us. Do you have an operating partner for studios? Do you have an operating partner for casino? Or are both of those 2 items -- things that more are back burner and less front of house, if you will.

The answer is yes and yes in terms of operating partners, and no, they're not really back burner.

Anything more to elaborate? Or...

Not really. I mean, we have a wonderful Manhattan property that is going to be converted to studios. We have a great operating plot. We are in conversations with multiple users, and the demand is actually very -- actually extraordinary. With respect to the casinos, I don't have a lot to say. We're still mulling and studying and thinking, what have you, about that. We have a great site. And whether we throw it into the game is to be decided.

The next question is from Vikram Malhotra with Mizuho.

So just first one going back to sort of your view of the dividend or the Board's view. If you can just give us some more color, what are you baking in, in terms of occupancy for the core portfolio, just the business as it stands in terms of street retail. I asked that because it sounded like the 4 key expirations you outlined, am I correct in that they're all move-outs? I just wanted to understand like what is baked into the core portfolio relative to where the dividend is? Just some big picture metrics or guidepost would be helpful.

Well, the dividend is based upon a minimum of taxable income. Our taxable income allowed us to reduce or, I'd like to use the word rightsize, our dividend. I mean our dividend was 9.5% on our stock price, which everybody knows is kind of like mispriced and mistake. And we felt that it was inappropriate to overpay the dividend substantially over our taxable income. And we felt -- the Board felt also that it was appropriate to retain the extra $130-odd million of cash. So that's what happened with the dividend.

Okay. And then if I just follow up, if I can dig into street retail. Two parts to it. First, I think you have a couple of key expirations in Times Square in '23. And I'm wondering the latest on renewal there? And then second part of that is just I think there are 2 big leases if I'm not wrong, Swatch and Levi's that have early termination rights in '23 and '24. They don't expire until '31, but I believe they had the option to terminate. Any updates or color you can give on those 2 as well would be great.

We are -- as you would expect, we are in active negotiations with those clients, those tenants as well as all the other tenants. We are hopeful to retain all of the tenants. But the rents will be lower than the in-place rents. The market is lower than it was years ago when we made those. So you can assume that we will retain the tenants but at lower rents.

Okay. I just thought because Swatch and Levi's, I thought they would have had to give you notice if they were going to terminate. But is it just sort of like a rolling -- like they can elect any time in the year to give you that notice?

So Vikram, just to be able to put a finer point on it. So Swatch had to exercise their notice in fall of '21, and they did. And we have, as Steve alluded to, we finalized an agreement for them to stay at a lower rent. So at the time they exercised the termination, we didn't know what they're going to do, but that agreement has recently been finalized. So they will stay, and as Steve said, a lower rent. And with respect to Levi's, they as well have a termination option. I believe it comes up in '24, not this year. And so we'll see what they do. But again, as Steve alluded, the likelihood is that just as Swatch did, they may exercise that. And our hope, expectation is we'll keep them, albeit at a lower rent. The other leases that expire in 2023, some of those are -- those have been sort of, I'll call it, shorter-term leases which we've continued to keep those tenants in place. I think we'll continue to do that. And beyond that, I think there's probably only one substantive expiration in 2023 at Times Square. And that happens middle of the year, and that's an active discussion right now.

The next question is from Dylan Burzinski with Green Street.

Just curious on the overall strategy of the company. I think in the past, you guys have mentioned about possibly doing a tracking stock. So just curious, is that still on the table? And if so, could we see that happen in 2023?

Yes, it's still very much on the table. We are not ready to talk about the timing, which will not be set until we actually make the decision and announce it. .

Okay. And then just going back to the ground lease reset. I think you had mentioned that, that $26 million might be less today. But I'm just curious, can you kind of give us an update on how that process works? I think our initial thought was when we saw that the yields increased at the Penn District redevelopments that we thought that the ground rent might reset higher. So just curious to see kind of an update on sort of the arbitration process and how that works.

Boy, well, the -- each ground lease is a little bit unique and a little bit different. This one basically involves brokers negotiating. If they can't agree, then a third party is appointed as a neutral. The interpretation is that it's a determination by brokers with plenty years of experience and active brokers of what the value of the land vacant and unimproved would be. So I interpret that to me, what should you sell that piece of land for now, which is somewhat different than what an appraisal process might be, which is a willing buyer and a willing seller, et cetera. So we think it's a brokerage process. So that's the way it sits. We think that the value of the land is lower today than it was 1.5 year ago when we set the $26 million, actually, maybe even quite a bit lower. And so that's the determining factor. The fact that -- and most of these analyses are done by what is the return to a new building and what the residual value would be for the land. So if we think we can get $5 or $10 a foot more on a $90 or $100 lease in 1 PENN, that has no bearing on what the value of the land might be.

The next question is from Anthony Paolone with JPMorgan.

Michael, you went through a whole number, the parts of the business in terms of the impact on FFO in '23 versus '22. But can you maybe help bottom line just the core office and retail NOI and whether that's higher or lower this year?

Tony, you're trying to box me on the guidance here. Like we're in a fluid environment, right? It's hard to predict. Overall, we think the performance will be comparable to this year, I would say. And that's not trying to give you a guidance. It's just we have some ins, some outs. We can't print exactly what will come along. It depends on which tenants we renew, which may roll out. But in general, like we have some known positives, we have some known move-outs as we've just talked about. Overall, as we sit here today, it's probably neutral.

Okay. And then the second question is on 350 Park. I mean, you crystallized value there at a level that seems to be pretty well north of what I think most people probably had in their numbers and where you're getting credit for it in the stock, most likely. So just wondering how you thought about the ability to just completely exit. I think next year versus staying in what could be another, I guess, 7-plus years or so, like how you think about that being worth it versus just saying you did well with the deal you cut, use that capital otherwise?

Well, first of all, I would quibble with well north of value. The pricing in that deal, we think was fair to both parties. In terms of what our financial strategy will be a year or 2 from now when we have to make the decision as to whether to invest in the long-term building project and own 40% of 1.7 million square foot brand new, super duper Times Square Tower or to take the money and run, that's a decision we'll make at the time. But it is an interesting fact that we have the option to do either.

The next question is from Nick Yulico with Scotiabank.

I just wanted to touch on the St. Regis retail, where you had the default in the JV. Can you just tell us why the lender not refinance the loan? And can you explain the earnings impact from this, I guess, right now, how it's working since it looks like there's some sort of cash flow sweep. And then if for some reason, you can't get this resolved, does the joint venture just walks away from the property? How does that ultimately will get resolved? And what could the earnings impact be?

Look, the loan maturity at year-end, and the asset is not refinanceable today, right, quite frankly, like many assets in this market. We signed 2 leases at the peak of the market. One of those we just discussed terminated and we relet at a lower rent. And so the asset was nonrefinanceable. Loan lands default. We were talking with the lenders before that happened. We continue to talk to them today. And we're in active discussions to restructure the loan and extend the maturity. If we can't, we can't. And the asset will go back to lenders. Just like everything we do, we're going to be disciplined and thoughtful about whether it's worth staying with the asset, investing capital, et cetera, and we're sort of groping towards the deal that we think makes sense for the partnership. But that's the benefit of nonrecourse debt. If you can't reach an agreement, we have the option to walk away. Do I think that will happen? Probably not. I think we'll end up with a deal because it's in the lender's best interest, too. But that's the state of play. To date, I know there was some commentary in a couple of reports about 8.5% interest at default rate. The answer is that's the case, but -- the answer is that rate is never going to get paid. We're either going to toss the keys back or we're going to restructure the deal and the rate will get reset to what it's supposed to be and that interest is not going to get paid. So that's the state of play. I don't think the earnings impact is really -- if it went away today, I think based on, frankly, where it was in the fourth quarter. I don't know if there's that much FFO that's flowing through given the fact that it's a floating rate loan where, relative to income, there's some cash flow but it's not significant.

Okay. Understood. Appreciate that. And then going back to 650 Madison, I know you talked about this a little bit. I mean, it looks like that asset got refinanced in 2019, and I think there was a $1.2 billion appraisal on it. There's $800 million of debt on the asset right now. And so if you're saying the equity is 0, basically, I guess, the building is worth $800 million. So that would be about a 35% asset value decline since 2019 when it was refinanced. . So please correct me if I'm wrong on those numbers. But I guess what I'm wondering is, from that standpoint, you did talk about occupancy being down, and I know rates are higher as well. But how would you kind of frame out that level of an asset value decline for office and retail now versus 2019? Is that indicative of a lot of the portfolio or only the pieces where you do have some more structural vacancy right now?

Yes. Look, I think, first of all, you referenced 2 or 3 things. We did refinance in 2019. It was a pretty outstanding execution by our team, frankly, in pushing that loan out until 2029 at about 3.5%. So we have free time, right? As we talk about this impairment, I think the most important thing to recognize is that the noncash charge, we can sit on the asset, we continue the work that we have done. Secondly, the appraisal that was done was a lender appraisal sort of as Steve's comments before, is -- was that -- where the asset would have traded when the loan was made, I can't comment. I can't think back to 2019 in the exact circumstances of that time. So it was an appraisal done at the time. There's some specific facts that have changed since then, probably most notably, we had a major tenant move out. And the reality is rents. So I think, generally, office and retail, have declined since then to varying degree. So I think all of that's reflected in there. And as Steve talked about, the impairment analysis, particularly for joint ventures is a very much accounting-driven methodology, and that's what the accounting produce today. And nothing that says that over time, that value can't go back up. But as we sit here at the end of 2022, that's the net result.

The next question is from Ronald Kamdem with Morgan Stanley.

This is [ Timmy ] on for Ronald Kamdem. Just you guys laid out the -- some of the headwinds next year pretty clearly in the prepared remarks. Just as we think about PENN 1 and maybe some of the upside there in '23 versus '22, rents are $76 a foot today, embedded. Where do you think that is year-end '23?

So we're coming off rents in the high 60s, low 70s. We have leases out right now that are piercing 100 in the tower of this building. So that gives you a feel of where we believe rents will go as we sign up leases for our in-place vacancy and for the expirations going forward.

The next question is from -- a follow-up from Steve Sakwa with Evercore ISI.

Just one follow-up, Michael. On some of the swaps and caps that are maybe burning off or coming to maturity here in '23 and '24. Should we assume that you're just going to let those kind of float? Are you going to put new caps and swaps in? Or just how should we be thinking about that as the Fed kind of nears the end of the tightening cycle?

Yes. Some, we wrestle with every day, Steve. I mean, some of those are probably about '23 because '24 -- again, we have a loan maturity. We have to determine what type of loan we're going to refinance that with, which is more of a '24 issue than the '23 issue, right? So on those mature in '24, if we roll it into a fixed rate loan, obviously, no need to swap there. So we'll see. I would -- I think the expectation for most of the loans that expire somewhere around caps is we'll roll those, and I'm looking down our list right now. So we got 2 or 3 that expire middle, the latter part of the year, I would expect that we would roll those over the next few months. Those tend to be an annual basis, although you can't go out a couple of years. And then on the swaps, we'll continue to look for opportunities to turn some of those out, too. You are getting to the point where the Fed is looking like they're close to being done and the curve is coming down. And so I think we benefited waiting a little bit and locking some of those in more recently. But we'll look at that as well and terming some of those out. But again, we got a couple of expiries this year with maturities next year. And we have to make a decision on what type of financing we're going to do on the asset before we finalize that decision.

And the next question is a follow-up from Vikram Malhotra with Mizuho.

Michael, just on the $0.55 you outlined in terms of the headwinds, does that incorporate these -- the known office move-outs and the lower street retail rent that you referenced?

I mean, Vikram, the only data points I gave you were on interest, the margin on asset sales. The rest is we'll see how the business performs. And as I said, I think there's some pros, cons. By and large, we think probably neutral, but we can't predict. It depends on what happens in terms of pace of leasing.

Okay. And then just the other follow-up. I know there are those moving pieces. So do we take that as -- based on your current view of taxable income for '23, you kind of rightsized the dividend. But if some of these moving pieces don't go your way, you might have to revisit the dividend? Or have you incorporated some of the slack basically that you just outlined?

The dividend is a Board decision. And we're certainly not going to speculate on what might happen to the dividend and certainly not from a negative point of view. So that's a question that we can't answer and won't answer now.

There are no further questions at this time. I would like to turn the conference back over to Steven Roth for any closing remarks.

Thank you, everybody. This is an interesting time. We're in the middle of a Federal Reserve tightening cycle. I think Owen Thomas said in his opening remarks of his call a couple of days ago that commercial real estate is in a recession. I don't want to -- I wouldn't quibble with that either way. But markets are soft, which we think makes it a fairly exciting time. We will get through this easily. We will see what opportunities come up, and we think the world will be a lot better on the other side. Happy Valentine today, and we'll see you at the next quarter.

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