Good morning. And welcome to the Vornado Realty Trust Fourth Quarter 2024 Earnings Conference Call. My name is Betsy, and I will be your operator for today's call. This call is being recorded for replay purposes. All lines are in a listen-only mode. Our speakers will address your questions at the end of the presentation during the question and answer session. I will now turn the call over to Mr. Steve Borenstein, Executive Vice President and Corporate 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-Ks, 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, 2024, for more information regarding these risks and uncertainties. The call may include time-sensitive information that may be accurate only as of today's date. The company does not undertake a duty to update any forward-looking statement. 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. At Vornado, business is good, really good, and getting better. New York is our home, and everyone agrees that the New York real estate markets are head and shoulders, strongest in the nation. As I have said before, while New York has over 400 million square feet of office, we really only compete in a narrower market of about 188 million square feet of the better space. Availability in the better space market is 10.7% versus 20.1% in the not better space market. And that 10.7% availability is evaporating very quickly. Park Avenue is already under 7%. Add to that the cost of a new build tower in New York has just about doubled over the last six to seven years, and with the cost of debt, it's at 6%, new supply is frozen. There hasn't been a major new building start in five years. And once started, delivery takes five to seven years. Taken together, this all creates a landlord's market. We expect rents to rise aggressively. One might even say, register a spike. And in fact, rents have already begun to rise. So all good. Very good. Why New York? New York is America's world city. New York's human and physical capital is irreplaceable. We have the largest, most educated workforce, the best transit system for commuting from our vast suburbs. You may read this as a plug for the Penn District, and I guess it is. The largest number of corporate headquarters, the best restaurants and museums, and eight professional sports teams, even though the damn Yankees can't seem to beat the Brooklyn Dodgers. I would like to focus on a few points and a handful of our recent accomplishments. Work from home was a scare. But as we predicted,…

We will shortly refinance 1535 Broadway, which will allow us to redeem forecast over $400 million of our retail JV preferreds. And we have several asset sales in the works. Taken together, these transactions will shortly generate an incremental addition. At Penn Two, we are only weeks away from signing a 300,000 square foot lease. Penn Two is being very well received by tenants and brokers with commentary that it is the best redevelopment anyone has ever seen, and together with Penn One has by far the biggest and best amenity package anywhere. We are also engaged in multiple tenant proposals at Penn Two, including negotiating an LOI for a major headquarters lease. I'm predicting that Penn Two will likely be 80% leased by year-end. We are achieving rents here above our underwriting and accordingly, we have increased the incremental yield on page 16 of our supplement to 10.2%. We will deliver Pier 94 on Manhattan's West Side by year-end 2025. The first-ever purpose-built film and television sound stage is in that. Now for those interested in Alexander's, Inc., our 32.4% owned affiliate. For the second quarter of 2024, we early renewed the 947,000 square foot Bloomberg office lease at 731 Lexington Avenue, whose expiry is now pushed out to 2034. At Rego Park in Queens, we are moving Burlington and Marshall, the last remaining tenants in Rego One, to our adjacent Rego Two shopping center. They're filling up Rego Two and creating a fully vacant blank canvas at Rego One for either sale or development. Obviously, we believe this unique five-acre parcel of land wonderfully located at the intersection of Queens Boulevard and Junction Boulevard, and bordering the Long Island Expressway is worth more as land than the 66-year-old building. I believe Alexander's stock is substantially undervalued relative to its assets. And we will have to do something about that. 350 Park Avenue development is on schedule. The new building is now fully designed, and it will stand out as being truly, truly best in class. We are in the formal approval process under the Midtown East zoning and Citadel, our major tenant, and Ken Griffin, our partner, will shortly begin moving out of 350 Park into swing space so the demolition can begin early next year. I end by noting how proud our Vornado teams all are of our accomplishments to date in the Penn District. Take a look at Meta at Farley, Penn One, and Two, the Moynihan Train Hall, the Long Island Railroad Concourse, the 33rd Street Plaza, and even Penn Eleven, and how excited we all are about the future of our city within a city. Next up is the Hotel Penn site, now down to the ground and ready to go. Our Penn District is clearly a sight to be seen. If you haven't already seen it, please call me to arrange a tour. Now to Michael.

Thank you, Steve, and good morning, everyone. Comparable FFO was $2.26 per share for the year. As previously forecasted, this was down from 2023, due to lower NOI from the known move-outs that we discussed throughout the year, and higher net interest expense.

But overall, our results were better than we had anticipated earlier in the year.

This is primarily due to the acceleration of our leasing activity at 330 West 34th Street where we recognized lease termination income in connection with a 304,000 square foot lease with WeWork on behalf of Amazon.

Also, net interest expense ended up being lower

versus our original projection due to short-term rates coming down. By the way, we already have almost 80% of the vacant space from the known move-out spoken for. Fourth quarter comparable FFO was $0.61 per share compared to $0.63 per share for the fourth quarter of 2023.

This decrease was primarily attributable to higher net interest expense and lower NOI

on the non-move-outs. Partially offset by the lease termination income at 330 West 34th Street. And lower G&A expense. We have provided a quarter-over-quarter bridge on page three of our earnings release and on page six of our financial supplement.

Now turning to 2025.

Though our practice is not to give earnings guidance, we can tell you that similar to current consensus,

we expect 2025 to be slightly lower than 2024.

This is partly due to the previously mentioned lease termination income at 330 West 34th Street that positively impacted 2024 comparable FFO. And as indicated during last quarter's call, the GAAP earnings impact and the backfilling of vacancies and the lease-up of Penn One and Penn Two won't occur until towards the end of 2026. With full positive impact in 2027.

Resulting in significant earnings growth by 2027. A few words on occupancy. Year-end office occupancy was 88.8%, up from 87.5% last quarter. With the pending full building master lease at 770 Broadway, our office occupancy increases by 330 basis points to 92.1%. We previously mentioned, our first quarter 2025 occupancy will decrease due to Penn Two being placed in service. We anticipate that this decrease will be temporary as Penn Two occupancy stabilizes over the next year we get to the low 90s. And New York leasing pipeline remains robust as we enter 2025. We have significant activity across our portfolio with 770,000 square feet in negotiation on top of the 1 million square foot master lease being finalized with NYU at 770 Broadway. Additionally, we have another 1.3 million square feet in various stages of proposals and negotiation. Turning to the capital markets. Both the financing and investment sales markets are showing encouraging signs over the past few months. The CMBS market is wide open for large high-quality assets such as ours. With appropriate metrics and loan structures. AAA and overall spreads for recent financings on the spiral of 299 Park Avenue, have shown significant tightening over the past six months. The level is consistent with pre-COVID. While we expect banks will largely remain on the sidelines this year, some banks are beginning to look at financing smaller office deals. A hopeful first sign and a trend we expect to continue. One negative is that short-term rates after coming down 100 basis points last year look likely to remain around current levels for the foreseeable future keeping borrowing costs high. The investment sales market continues to pick up also. With some high-quality office assets trading recently including interest in 320 Park Avenue, and you agree and 1345 Avenue of the Americas by Blackstone. With that, I'll turn it over to the operator for Q&A.

Thank you. We will now begin the question and answer session. If you have a question, please press star then one on your touch-tone phone. If you wish to be removed from the queue, please press star then two. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star then one on your touch-tone phone. Each caller will be allowed to ask a question and a follow-up question before we move on to the next caller. Steve Sakwa from Evercore ISI is on the line with a question. Please proceed.

Yeah. Thanks. Good morning. Steve, thanks for those great comments about the leasing activity. It sounds like you're close to punching a few things into the end zone here. But maybe you or Glen could just provide a little bit more commentary around, you know, some of the timing for Penn Two, I guess, in particular and, you know, just maybe the competitive dynamic that you're seeing for that space and the confidence level you had to raise the yield on Penn Two. Hi, Steve. It's Glen. How are you doing?

So Penn Two is more than off and running. Every large tenant in the market has it in their top three list of what to see. There are only five buildings in Manhattan with blocks available of 500,000 feet or more. We have the best block. So as you heard in the remarks, we have a lease out with one tenant that's gonna get done in short order for 330,000 feet. We have an LOI in very serious stages for another very large headquarter tenant. And behind all that, we have tenants battling for space from anywhere between 60,000 and 200,000 feet. So Penn Two is now the bull's eye for many people's searches, and we're complete fifth year on our lease.

Okay. And just any comments on just kind of the rents I guess, that you're sort of seeing? I guess that speaks to kind of the yield being pushed up at that by 70 basis points?

We've raised our rents across the entire building. From bottom to the top.

John Kim from BMO is on the line with a question. Please proceed.

I wanted to follow-up on Steve's commentary on a billion dollars of new cash proceeds you expect. You have $700 million debt paid out at 770 Broadway. $400 million freed up at 1535 Broadway as well. And then on top of that, new dispositions. I was wondering how much, in new dispositions that you anticipate?

Well, the math of what you just said, the $700 million is going to pay off debt. There's a little more a couple hundred million dollars more than that. Coming in on that building. It's $200 odd million coming in from refinancing 1535. And there'll be enough in short-term disposition to round it up to a billion dollars.

And will those be focused on retail or non-core office or any color you can provide? On what you're looking to sell.

Not gonna get specific about that, John.

Jeff Spector with Bank of America is on the line with a question. Please proceed.

Great. Thank you, and congratulations on a great 2024. Can you tie Steve's comments on the spike I can't let that go by without saying thank you. Okay. Absolutely. If you could please tie, Steve, your opening comments on the expectation for a rent spike to Michael's comment on growth in 2027. Think we all understand 2025. Can you tie in 2026 at all to any of those comments, please? Thank you.

Oh, god. I don't know. You know, we went through these kinds of cycles, you know, four or five times. What I said, which I thought I was pretty clear was that there's lots of space in New York. But we compete in a much smaller subset of the better space, which is somewhat below 200 million square feet. So that's the first point. The second point is that the current availability in that subset of spaces is 10% and going down very quickly. Because there's a shortage of space. We haven't had a recession. And all of our clients are expanding aggressively in New York. Their businesses are good. The stock market is good. So business is healthy and robust and demand for space in New York is actually pretty terrific. So with availability limited and shrinking, and no new supply. That's critical. No new supply coming on the market. For lots of different reasons. Construction costs are hysterically high. Interest rates have not fallen. Long-term rates have not fallen at all. And so the availability to create new supply is very, very limited, and I use the word frozen. Take all that together, that's a landlord's market. We expect rents to go up significantly next year. And, dare I use the word spike, with respect to Michael's comments about 2026, you wanna if you wanna Yes. Try again, please.

Jeff, what I would say is that, you know, as we look at our portfolio, right, we've got a number of drivers. We have filling up the empties, and so we know that a significant part of that is gonna come from Penn Two and to some extent, Penn One. We have the leases roll over. We're now on the other side of that as we move into a landlord's market. Where? You know, we have positive mark to market. So, you know, it takes some time for that to flow through, you know, 2026 will be an improvement, but we think very significant improvement comes in 2027.

Okay. Thank you. Oh, please. I'll give you something else to think about. Okay. Now in Penn One and Penn Two, we are leasing now in the $100 range, maybe just a pinch higher. There's nothing that said. But if you go to our neighbors, if you go to Manhattan West and you go to Hudson Yards, the market rents for those buildings, albeit they are newer buildings, actually, they're new buildings, it's substantially, monumentally higher than $100 a foot. As this market tightens and as the Penn District matures, and gets to be accepted as the single best location on the west side. There's nothing that says that market rents in Penn One and Penn Two can't go from $100 a foot to $125 a foot and then maybe even substantially higher. That kind of appreciation in income will cause bad news to increase monumentally. So for example, help me on this, Tom. $25 a foot times five million feet is $125 million a year. Okay? $125 million a year is worth a billion and a half to two billion dollars of value creation without any capital expense. So we're unbelievably enthusiastic about the market, about the tightening of the market, and about the inventory that we own.

Thank you. Very helpful. And my follow-up question is on the comment that you're working with a large anchor not looking for specifics, of course, on who, but can you just talk about the demand for anchor space? Is it a particular industry, technology, financials? Is it more broad-based? And I don't know if you could tie that to the Hotel Penn site. Thank you.

Hi, Jeff. It's Glen. Generally speaking, the big demand drivers are financial, legal, and tech. That's what we're seeing, not just in tech, but across the entire portfolio.

Dylan Burzinski is on the line from Green Street with a question. Please proceed.

Hey, guys. Thanks for taking the question. Steve, just wanted to go back to your comments on you guys not or are you in your guys' opinion, the public market not seeing the value in Alexander's, Inc. in your comments about doing something about it? Can you kinda talk about what you mean by that? Anything we can expect?

Well, thanks. If you take the assets, Alexander's, Inc., and you do a sum of the parts analysis, that number, by any construct, has to be very substantially higher than the trading price of the stock. So it's a very simple concept, and it's based upon NAV. And if you just calculate the value of the asset piece by piece, it greatly exceeds the stock price. Now think about it for a second. So Rego One, which I guess you might say is a failed shopping center. We had IKEA move out, so it's shrinking down. So we end up with a 66-year-old building. The capital cost of retenanting that building is huge. And obviously not economic. So what we did very simply is we took the two remaining actually, Burlington and Marshall's two great tenants, Marshall's been there for 30 years. Four years or so. Very long period of time. Anyway, so we moved them into we're in the process of we have signed documents, by the way, we now the process of moving them into Rego Two. Which will fill up Rego Two, which is a relatively new shopping center that we built the better part of ten years ago. So that makes Rego Two a success. And it empties out Rego One, which is a grand five-acre piece of slab. Which will be either sold or developed. So that creates value. Now it doesn't have income today. So somebody who's looking at Alexander's from the income-only approach is going to be substantially incorrect as to what the values are. But the piece of land is in the middle of Queens at the intersection of Main Main Main Main. And we think is extraordinarily valuable. So we'll see.

Appreciate those comments. And then I guess just one more broader strategic question. I said several years ago, you guys floated the idea of doing a tracking stock and ultimately shelved it until things started to recover in the near about this market. Now that things are seemingly recovering quite significantly, I mean, is that something that's back on the table? Can you kinda talk us through, you know, that sort of sits in the grand strategic set of things?

You know, the easy answer to that is no. But I think about a tracking stock at least every day. I think it continues to be a very, very, very good idea. I can honestly tell you, I can't get any support from the IVR from any of you guys and even from my guys inside. But I continue to think about it every day. You never know. It may come up as being a useful tool sometime in the future. But the short-term answer is no. Although, I do love the idea.

Great. Thanks.

Floriss VanDekum is on the line with a question. Please proceed.

Hey. Thanks. Just curious, your commentary on rent obviously at the Penn Plaza District being, you know, significantly higher than what you probably originally underwrote. I recall you talking about, you know, $150 million or, you know, we've, I guess, we've estimated about $150 million of NOI growth at your three Penn Plaza District assets, Penn One, Penn Two, and Farley. As you think now on the progression of market rents, has your NOI growth expectation increased? And, I mean, fully stabilized, this thing could generate, you know, more than $300 million of NOI?

The answer to that is that obviously, with the rents going up, that prediction will go up, but it will go up only marginally. And I'm told by my finance people, who are smarter than I am, that it has to take into account that there will be capitalized interest. Roll it up. That will roll off. So, I mean, it's a complicated calculation, which my guys can help you with offline. But, basically, what I'm looking for is as Penn Two leases up. And as Penn One completes its fill-up, and then there is some retail space in the Farley building. As all that happens, the income from that cluster will go up a bit a part of $150 million. And that's incrementally going up. That doesn't count. So it'll be more than that and pick it all together. So I read your piece that you put out, I think, last week. And I think it is absolutely directionally correct. So, Steve, maybe a floor is by the by. As we keep developing the neighborhood. And for example, as I said in the prepared remarks, the 1015 site, the old Hotel Pennsylvania site is next up. It's already raised and down to the ground. As we build a world-class office building, which I've said the building is frozen. But we're going to attack that as just the land cost in at PennFed is. So if we look at it as having zero land cost for the moment, we simply can get the new building off the ground. So, anyway, as you look at this as a neighborhood, as we build on 1015, a world-class office building. That will inure to the increase in the market value of the across the street Penn One and Penn Two. By at least $25 or $50 a foot. So what we think as we continue to work on our neighborhood, the value creation will be substantial. And I might even say enormous.

Yeah. Yeah. If you start adding those pieces. The follow-up question, I guess, is on the acquisitions front, I know that it's hard to acquire assets. Maybe if you could talk a little bit about the environment and the types of transactions you're looking at and where you think you're gonna source or where you're more likely to source transactions. And would you consider allocating capital to, you know, outside of Manhattan to maybe, you know, markets like, you know, San Francisco or Chicago that are, you know, further behind in the recovery.

Good morning, Floriss. So I think in terms of acquisitions, you're accurate in the sense of, you know, it's been more challenging in New York and as the cycle's turning here, sellers are getting a little more optimistic. That being said, there's still a lot of maturities to work through and I think that's gonna present opportunities in the next year or two. So but, you know, our target is, you know, it has to be the right asset to fit into our portfolio, right, from a quality perspective. So I think there will be some, but it's gonna be, you know, fewer rather than more. San Francisco, we are constructive on. We believe in the market. I think we've been consistent on that. I think the signs are positive there. New leadership. The city is certainly turning a corner. So the answer is yes. We are open-minded regarding San Francisco. Chicago, I think we're content with what we have. Don't think you'll see us add anything there. That market has many more challenges, and it's gonna take some time for that to recover. So we're not focused on that.

I don't think we'll look beyond that.

Thanks, Michael.

Michael Griffin with Citi is on the line with a question. Please proceed.

Great. Thanks. Appreciate all the color around the leasing pipeline and demand. I'm curious maybe Steve or Glen, could you give us some insights into whether or not tenants are coming to you earlier to try to renew space just given that limited availability. And you've talked about landlord pricing power. Have you started to see concessions drop off at all as a result of this demand you've seen?

Alright. It's Glen. So in terms of the demand, we're seeing it from every angle. Multiple expansions, multiple renewal discussions for, you know, deals that are years out from expiring. And the immediate demand for space from tenants who are either new to the market or wanna move immediately is more robust than I've seen in many years. As it relates to concessions, I think they're neutralized. They have not come down generally yet, but rents have gone up. And that effectively things are better. And as this market more and more becomes a landlord's market, the concessions will come down.

I would add on to Glen, so I think there's a couple dynamics there. Right? But first, Glen talked about these expansions. We're going through our pipeline the last few days. And there's a handful of tenants that we did leases with very recently that already come back for more space. And I guess, reflect a couple dynamics that occurred. You know, one is I think there was a level of conservatism on behalf of tenants that they leased space coming out of COVID. Because they didn't know exactly how they'd use or how much they would need. Right? And they're now all fully back and, you know, they recognize that they need more help. That too, as both Steve and Glen said, you know, business is booming. Right? Law firms are booming. Financial services booming. Tech is booming, etcetera. So all these businesses are growing. So when you take both those dynamics, you have a very robust market overlaid onto a very tightening level. So supply of where these tenants wanna be. So I think that's why Steve said what he said in terms of the expectation for rental growth over the next several years.

Thanks, Michael. Appreciate the additional commentary there. And then just maybe following back up on your comments and prepared remarks around the financing markets and capital availability. Obviously, we've seen more transactions come to market as of recent. The CMBS market seems more open. You know, for the mortgages that you guys have coming due this year, whether it's Penn Eleven, 888, you know, those properties are very well leased. Do you have a sense or, you know, maybe give us some insight on where you'd expect the, you know, refinancing rate to be relative to the current interest rate and any other commentary on sort of the debt capital markets would be helpful.

So, like, I think if you think about where we are today versus, you know, where we were with say, a year ago, I think it's, you know, night and day. And we really opened up the market on the office side with the Bloomberg financing. And, you know, since then, certainly with respect to New York City, there's been a floodgate of high-quality offices in finance. So you think about the transactions that have gotten done, you know, many of them in excess of a billion and in a couple cases, you know, multi-billion. So I think that is evidence of the just the demand from fixed income investors for high-quality New York City office. I think it's very encouraging. And so obviously, our portfolio, you know, plays in that. So as we look out, you know, in terms of the financings that are going to roll this year, but we're coming off some low rates in a couple cases. Particularly on a fixed on a couple fixed-rate deals. I think we'll see upticks in rates there. At the same time, you know, something like a Union Square, you know, the demand for high-quality retail is very strong and that may well, you know, be lower. So net, I think it's probably a little higher but, you know, we're also delevering with some pay downs of the 770, etcetera. So I think from Vornado's perspective, I think that, you know, we obviously took some hits the last couple of years with interest expense going up pretty significantly. I think by and large, we're done with that. Could it be a little bit higher this year? Maybe. Could be a little bit lower? Maybe. I think we're that. You know, par year over year. And I think, Johnny, the worst is sort of over for us.

Great. That's it for me. Thanks for the time.

Vikram Malhotra with Mizuho is on the line with a question. Please proceed.

Good morning. Thanks for the questions. Steve, I guess you've done a great job on, you know, the Penn District on various assets. You talked about sort of the next evolution or the next jump in your stabilizing the wire. I'm wondering from an actual development or an asset standpoint, what's next in Penn? How would you sequence sort of the various parcels or redevelopment opportunities you have?

Thanks for the question, Vik. You know, we're studying that now. We believe that we should, independent of have one or two buildings under construction and rolling forward, you know, for the next ten years. But we're not ready to announce anything yet. Obviously, the 1015 site is sitting there. Probably, I believe, the best site in Manhattan x Park Avenue. So that obviously is the next site. We are considering all options for that site. There will clearly be an office building on the front of that site. But we're also considering apartments as well.

Got it. And then just maybe to follow-up, you know, you talked about the office pipeline. I'm wondering if you can give a little bit more color on sort of how free retail is evolving on Fifth and Madison, any color on, you know, tenants in the market there and what pricing may be doing and how that translates into your leasing cost.

Yep. Morning, Vikram. So on the retail pipeline, I'd say, just on the market in general. The market, you know, continues to strengthen, you know, vacancy rates continue to decline and rents are, you know, certainly for the best spaces. Think returning to close to peak level. So, you know, we signed a significant lease in Times Square last year. You know, there's activity in that submarket. Again, we own the two best blocks and, you know, we have some dialogue going at some very strong rents. Not too far off the peak there. You know, Fifth Avenue, same dynamic in terms of, you know, in terms of tenants. Looking for space. I think we've seen certainly since COVID, the most activity of retailers cruising around looking for space. And so I think that, you know, pick up. And again, for the right spaces, I think tenants recognize they're going to have to pay rents that aren't too far off the peak there, if not the peak. So, you know, the bottom line is and what's driving all this is that, you know, the sales figures that the retailers are doing. And the recognition that New York remains, you know, the global city in the US, maybe, you know, number one in the world. And they have to have, you know, locations here. So, you know, we're close to lease with some sort of new-to-market tenants as well as some tenants that are already here. You know, we can see enough good activity throughout the Penn District, and we're working on some leases, you know, there as well. So we're pretty constructive on the retail market as well. We own great assets. And, you know, those tend to be where the retailers are most focused.

I'll give you an anecdotal story. So we have an important asset on Fifth Avenue. Actually, we have a lot of them. But out of one particular important asset on Fifth Avenue, we had a major retailer come in knowing that the incumbents head in that space had an expiry in three years and no renewal option. Trying to actually say, I would like to sign for that space now I'll wait for that tenant's lease to expire. So, you know, that's things that happen only for extraordinary profit in tight markets. So that was kind of fun. The other thing that I'll say is on Fifth Avenue, tenants would prefer to buy rather than rent. And so the buy prices are higher than would be reflected by the market refresh. So the arbitrage there is that it's more economic to sell some of these assets than to rent some of these assets. And we're open for business.

Thank you.

Michael Lewis with Truist Securities is on the line with a question. Please proceed.

Thank you. So, Steve, you often emphasize you run this as a cash business, so, you know, a focus on cash, which we agree with. The FAD of $1.75 per share in 2024 was the lowest in at least the last 25 years, probably longer. And I realized, you know, leasing up a lot of space costs money, but maybe help us understand the health of the New York office business in the context of REITs like yourself making less cash money than ever before, and this, you know, this 25-year trend of that kinda consists of you going down. And, you know, are we at an inflection? You expect that to kind of rapidly increase until we get back to kind of pre-COVID cash flow level?

Complicated question. I'm familiar with the trends. I'm familiar with the capital intensity of our business. I'm familiar with the fact that we're in the multi-tenant business. We and all of our colleagues in the industry are in the multi-tenant business. Where the spaces turn over. I'm familiar with the cost of turning over those spaces. All of which creates the trend that you mentioned. So clearly and Glen alluded to this. The TI and the tenant inducements. So turn over a floor of a building. It's very sticky and they're struggling to try to get them to go down. They will only go down in a very tight market. So that's in our future, not in our past. On the other hand, if you look at the rent, rents have gone up already to sort of alleviate that problem. So I'm expecting that the cash, the actual cash flow or AFFO or whatever you wanna term it. We are at the bottom of that cycle, and that's going to go up. In a market which I think is going to get much tighter. Now that is something that I'm predicting for New York. I believe New York is unique in the nation. Other cities as great as they might be around the country, I don't believe we're gonna benefit from that trend.

Okay. Great. And then my second question, I just wanted to ask about the New York office in-place rent versus market rent. So the in-place rent looks like it's right around $90 a square foot. Where do you think market rents for the operating portfolio are compared to that?

Hi. It's Glen. You know, we say this often quarter to quarter. It's gonna ebb and flow, you know, flat, positive, etcetera. We feel confident that our mark-to-markets will be positive. I'm not gonna predict, you know, how much that means, but, you know, we like our spot in terms of our rolling expiration for the next few years. We like where we're now pegging rents. As we mentioned, we've increased rents generally across the whole portfolio. You know, so we feel good about that metric over the next two, three years.

I'm not bashful at all for this. So let's just go to Penn for a minute because that's easy. So I believe that we signed a wonderful lease for 730,000 square feet in the building. In the middle and the depths of COVID. I believe when that lease comes for renewal, albeit better than 30 years from now, the markets for that renewal will be very substantially higher than they get placed with. I've already said that I believe Penn One and Penn Two. Which we are very happy to get $100 or a pinch more today that in the short-term future, three, four, five years from now, the market rents for those buildings will be very, very substantially higher. So that's what I think. And, Cadaver, we're betting on that.

Alexander Goldfarb from Piper Sandler is on the line with a question. Please proceed.

Good morning. Good morning, Steve. And first, congrats, Michael, on the improved yields at Penn and the positive reception you guys have had from the market. So that's quite a compliment from the market for you guys there. Two questions. Okay. First,

Alex, thank you, my friend.

No. It's true. I mean, you spend time walking us through and it's evident at your ability to rethink in the campus environment. So it's good to see that the rents are moving the way you had hoped. My two questions are first on Alexander's, Inc. and appreciate your comments. You know, what would be what would I mean, right now, given how much of the original assets have been sold off, and I would think if you get a good price for the apartment tower in Rego Two, why not just blend in Alexander's, Inc. into Vornado? You'd eliminate the G&A. You'd instead of paying a dividend, that cash flow would accrue to Vornado. You'd have 731 Lexington Avenue, which certainly fits in your portfolio. Why not just incorporate Alexander's, Inc. into Vornado? What would prevent that?

Well, and I think it's about is not tenacious. That idea has been floated for, you know, 20 odd years, and I have said we're not going to do that for 20 odd years. And, actually, I probably will continue to say it now. The Alexander's, Inc. the pricing of it, the melding of the it's just not something that's on the front of my mind today.

Okay. I mean, it just it has cash needs and it certainly as you've wound it down, would seem to fit more and more, but I guess that's a cover.

So hang on, Alex. Let me give you a fantasy. Okay? I love fantasy. Okay. I'm trying to please. If we merged Alexander's, Inc. into Vornado, I have no idea how we would price it and how we could get both sides to be happy. Very difficult to do. Alternatively, if we left Alexander's, Inc. as we are going to do, that's what I'm saying. As a freestanding independent public entity, and we narrowed it down to nothing but the Bloomberg office building. Which shortly will have approximately $100 million of net income. And that was the only asset in that property. And it had very low debt or maybe no debt. What would that sell for as an end as what would that sell for in the stock market? And I submit to you that that would sell for much, much higher than the current trading price of the stock. That's just the fantasy, though.

Okay.

What I'm really saying is from a value point of view, we think that we can make Alexander's, Inc. value to be above what Vornado might be willing to pay for it. And that Alexander's, Inc. shareholders will that's why we're pursuing.

Okay. Michael, you'd appreciate the comments on 2025, you know, some. But you guys have outlined some asset sales. The, you know, vacating at 350 Park and, you know, just the remnants of refinancing. In addition, you have the capitalized interest, I think, $51 million at Penn Two. That would burn off when that when as those leases take effect. So if we think about the next two years, how much FFO net is coming off of Vornado relative to FFO coming on from Penn?

Yeah. I think that, like, as what we said, a couple of things. One is, in terms of capitalized interest. Right? We've talked about that being lower this year versus last year given Penn Two is gonna roll off this year. And I think that's why consensus is down, you know, appropriately and that's reflected there. So, you know, 350 when that comes off, you know, we don't think that has much of an impact. You know, relative to the master lease we're getting today. There'll be no debt on the asset at that point. We get capitalized interest on that. So that's not gonna really have an impact on the numbers. So, you know, like, we've talked the last year about the success we've had backfilling. You know, 770, 1290, 280, now leasing at Penn that's gonna start flowing through a little bit this year, more materially next year and dramatically in 2027. And so, you know, sort of model that out as you want based on that comment. But I think that's your trajectory.

Okay. Thank you.

Ronald Kamdem from Morgan Stanley is on the line with a question. Please proceed.

Hey. Just two quick ones for me. So one is on just on the same-store NOI for New York office, ended it down 3.3. Just as you're thinking about the next two to three years, just any high-level thoughts on what that same-store number could look like in this sort of strong environment.

You know, Ronald, I don't have those numbers at my fingertips, and I don't wanna give you numbers that are too much of a guesstimate and so on. So, you know, let us look at that and we'll try to get a little more visibility there.

Sure thing. Going back to the I always had the same sort of question on CapEx. Maybe asking in a different way. When I think about sort of the $250 million of CapEx spent this year, which includes $72 million on sort of first-generation space, any sort of thoughts about what, you know, 2025, 2026 could look like? Are we coming down from those numbers? Are we staying in place? Just any sort of thinking on CapEx as we're thinking about the model.

I mean, I think the CapEx, you know, we raised it a little bit because and it's the best guess every year, right, in terms of timing of when you make those payments, and it doesn't necessarily line up to when you actually, you know, finalize the lease. But, you know, we know the leases that are in process. We have an expectation of what we're gonna get done beyond that, and so I think it's reflective of, you know, the pretty strong leasing environment in addition to some base building capital. So, you know, last year, you know, I think we're dead on our prediction. Most years were frankly not. Because you've taken a high-level guess. So I think directionally, you know, we're still in the same bucket. $250, $275 is frankly not that different. Right? It's just a matter of what space you end up leasing in a particular year. You know, and how much capital you have to spend on the portfolio beyond that. So I think that's a pretty good number. You know, directionally for this year. Just given, you know, some of these big leases that are in the works on Penn, and beyond. And as we get into, you know, next year, you know, we'll see what's left. But I think that number will start coming down as, you know, the portfolio fills back up.

Helpful. Thanks so much.

Anthony Paolone with JPMorgan is on the line with a question. Please proceed.

Yeah. Thanks. Steve, you mentioned just viewing the cost basis around the Hotel Penn site as sunk at this point. Can you tell us just, like, what it costs to build something and go vertical right now then? And what kind of yield on that you would want? What are you thinking?

The cost? My young development guy says $1,900 a foot. X land for a class A building. I won't have to test that. In the yield? Well, if you put land in, so we get to a number which is, you know, like, the $2,000 and I don't know. Pick a number $2,500 to put some number like that. I don't know. And you put a yield on it of what would you build for now and that with a debt market of 6%? Let's say you need to get 7% or 8% or something like that because equity is more valuable than the debt. So what? 7% times $2,500?

$175.

Now that's a number that's net of taxes and operating costs so that the answer is that to build a new building today, the rent that you would need to get are, you know, in the high $100s. You're shaking your head while you're shaking your head.

I agree, which is, you know, why it's you talking about being frozen, then that doesn't work, you know. In in in

So think about that for a second. So one of the reasons that I'm so enthusiastic about the rents at Penn One and Penn Two and the rest of our portfolio rising from $100 a foot is because you have to yeah, you have to to get that a new build is $200 or four or something like that. Maybe you could six, maybe a pinch more. So the in-place buildings, in the better inventory, in the great locations will become much more valuable. That's the whole punchline to today.

Okay. That I guess that's what I wanted to understand. Because, I mean, you mentioned your vantage point being that sort of cost thus far sunk. And so I guess you're just looking at the incremental what it could do for the whole area, not so much. You know, thinking about that $2,500 basis and a yield on that.

Yeah. But what the fact of the matter is is that I own the land. I haven't spent I bought the land a long time ago. I had no debt on the land. And so given a choice between leaving the land empty or building on it, you know, we'll make those choices. That's what we get paid to do.

Okay. Understand then. And then just quick follow-up. I think you bought a non-performing B note on a Midtown deal last year. Can you give us any update on that or plans or what's happening there?

No, sir.

Okay. It's okay. Thank you.

Nick Yulico with Scotiabank is on the line with a question. Please proceed.

Great. Thanks. In terms of, you know, Penn project, can you just talk a little bit about whether any of the sublease space that's available in Hudson Yards is if you're actually finding that to be competitive when tenants are looking at your project.

Hi, Nick. It's Glen. So the answer is yes. Which, you know, if you think about it, Penn Two and Penn One are competing with new space. That's a great fit. And as Steve said, our pricing is not near their pricing, even the sublet pricing. So, you know, we feel good about the fact that any tenant touring the west side whether it's the sublet availability in Hudson Yards or Manhattan West, or Penn One or Penn Two, we are squarely in that mix every day. So we like that. We feel very competitive with it.

Okay. Thanks. And thanks, Glen. And then second question is just, you know, going back to the yield on Penn Two. Can you just remind us, I think that the yield, when you quote the yield, does not include TIs and leasing commissions being built into the cost there. So, you know, if we assume that I think at one point in the notes, I saw that was around $140 was, you know, around, like, a TI leasing commission cost there per foot. I just wanna see if that's still right. And if we build that in, is the yield on the project inclusive of that, you know, closer to, like, 7.5%? 8%? Is that ballpark correct?

Yeah. Yeah. I mean, the answer is they will calculate. I mean, the thesis is that we would have had to spend the TI dollars leasing commissions anyway. Right? And typically, given what's happened, we'd be spending those to generate rents that were not economic now. Given the quality of the old buildings. So, you know, we thought incremental cost, there was cost that we would have that we spent that we wouldn't have had to spend. Right? That's how we got to the number in the supplemental and what's the yield on that. So Andrew's you know, we can factor in the TIs etcetera to see, but has spent that money anyway?

Okay. So and then is the TI leasing commission per foot there, which is assume around it around $140? Is that the number?

It's about right. Maybe a touch higher depending on the deal.

Alright. Thanks. Appreciate it.

Brendan Lynch with Barclays is on the line with a question. Please proceed.

Great. Thanks for taking my question. It looks like you've got about 14% of ABR expiring at 555 California in the third quarter. And 18% for the year. Any details that you can give on renewal discussions? It sounds like you're optimistic on feel in general. Just get to more clarity.

Hi. It's Glen. We remain extremely bullish on our building in San Francisco 555. It's the best building in the city, probably the states, and certainly one of the best in the country. So when you look back from 2021 forward, we had a boatload, hundreds of thousands of feet expiring from 2021 to 2026. We have leased almost 700,000 feet thus far during that period. We have some more expirations coming in 2025 and then some more in 2026. We're attacking those now. Some of those tenants will stay, some may not stay. But we feel great about what we've done. Our rents are clearly leading that market. It's not even close. And our tenant roster continues to be five-star. So we feel great about 555 as we sit here.

Wait. Maybe just one follow-up on that. Is the 14% in the third quarter, is that one tenant or is that split between multiple different tenants?

The third quarter Oh, so in 2025 there's multiple tenants expiring call it, five or six tenants throughout the year in different quarters. None of them is huge, but as you add it up, you get to that wall.

Okay. Very good. Thank you.

Steve Sakwa with Evercore is on the line with a question. Please proceed.

Yeah. Thanks. Just one quick follow-up. On 770, I realized that lease isn't quite finished, but sounds like it's gonna get over the finish line soon. Are there any sort of unique accounting I guess, adjustments that we need to be taking into consideration given the unique nature of this? Or is this just a typical normal long-term lease that, you know, would have straight-line rent, and we'll have to figure out, you know, what kind of the GAAP rent is and straight-line adjustments. I realize you get a lot of cash upfront, but just trying to think if there are any nuances of this deal because it is a little bit different.

You know, I'm not gonna comment on that transaction, it will be finalized, actually. But it will be announced, I would hope, by the end of this month. And so the announcements that we make will know, press release and they'll have all the detail that we need to give you guys so that you could understand it. But, I mean, you get it. So I don't wanna get into the details now prematurely.

Okay. Thank you.

John Kim from BMO is on the line with a question. Please proceed.

Thank you for taking the follow-up. Steve, you mentioned the lack of new office development in New York for several years. And how tough it is as far as getting the map to work on some of these sites. But how many projects do you think will get off the ground right around the same time as 350 Park? There have been a few out there in various stages.

None.

There's not enough demand?

No. There's plenty of demand. There's just not the cost of building I don't know what's gonna happen with the cost of steel now, but who knows? The cost of building and the fact that interest rates remain stubbornly high and the backup availability of aggressive capital will make the market frozen. Now 350 Park is an isolated point of view because, you know, we already have a lease for a major tenant. And we already have a 60% capital partner. So, you know, 350 Park will get off the ground. My prediction is that almost no other building will get off the ground. By the way, that could very well include for the short term 1015.

Where would rents have to go to justify new development outside of question?

I've already answered that question. Yep. $200 a foot is an interesting boat.

Got it. Great. Thank you.

There are no further questions at this time.

Thank you all for participating. I think you can tell from the remarks of our management team we are extremely enthusiastic about our business. And extremely enthusiastic about New York. And wildly enthusiastic about the Penn District. So thank you all very much for participating. And we'll see you next quarter.

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