Vornado Realty Trust (VNO) Q2 2026 Earnings Report, Transcript and Summary

Good morning, and welcome to the Vornado Realty Trust Second Quarter 2026 Earnings Call. My name is Betsy, 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, Executive 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, 2025, 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. We had another strong quarter with comparable FFO of $0.67, beating analyst consensus by $0.10 or 17.5%. Michael will review it all shortly. But first, let me cover what we are seeing on the ground. New York is clearly the best, strongest and most important real estate market in the country and the most resilient. We are a Manhattan-centric office and street retail company with best-in-class assets, which are benefiting from these dynamics. The stock market seems to appreciate this, given our stock price performance year-to-date and over the past 2 years and the past 3 years has been the best in our peer group. And there is more to come. I believe our stock is still stupid cheap. For example, Green Street shows us at a 23% NAV discount, much deeper than our peers. The landlord's market that we have been predicting for the past many quarters is here. It is broad-based and it is strengthening. Office leasing volume in Manhattan is at its highest level in 25 years. Tenants are expanding all over the city. Available space and sublease space continues to evaporate and office-to-residential conversions continue to remove square footage from the office inventory. There is a serious shortage of large block availability. Vacancies in the 180 million square foot Class A better building market in which we compete is now down to 6.2%, clearly a landlords market. There is limited new supply on the horizon. And remember, new supply takes as long as 5 years to deliver and requires upwards of $300 rents to pencil. And to add to all that, interest rates are rising. As a result of all this good stuff, rents are going up, I couldn't be more constructive. In New York, tenant demand spans across all industries. Law firms alone leased 2.3 million square feet this quarter. Legal, tech and media accounted for 8 of the top 10 leases signed. This isn't one industry having a moment. All of our clients are growing. Interestingly, a real estate platform that tracks these kinds of things recently reported that AI companies are now leasing more space in New York than in San Francisco. So all good. At Vornado, our singular focus is on executing our plan to deliver the highest growth in our sector based on our lineup of high-quality assets and in-process projects. Here is our 2026 scorecard. During the first half of 2026, we leased 978,000 square feet overall. For Manhattan office, we leased 659,000 square feet at $105 per square foot average starting rents with mark-to-markets of positive 9.5% GAAP and positive 7.1% cash. I would note that these mark-to-market stats do not include our leasing activity at PENN 2. We are following our transformation. We are achieving rents that are just about double the old rents. This is as good a place as any to take a victory lap on what we have accomplished at PENN 1 and PENN 2 financially, physically and aesthetically. Think about it. At PENN 1, broadly speaking, we invested $200 per square foot to achieve a $50 a foot uptick in rents, which when all gets said and done, is a 25% return. Rents at PENN are now well above our underwriting and are now the best value in town. So plenty of room to grow here. Our physical transformation is stunning and game-changing and award-winning. Please go take a look. During the second quarter in Manhattan, we executed 29 office deals totaling 348,000 square feet at industry-leading $107 per square foot average starting rent with mark-to-markets of positive 7.7% GAAP and positive 5.0% cash. This quarter's leasing volume included 181,000 square feet in the PENN District and 167,000 square feet in our other Manhattan assets. We are now consistently achieving triple-digit average starting rents. I suggest that mark-to-market is a squishy metric, which depends entirely upon which leases are included in the calculation and their rent. And so it's pretty random. Rather, I submit it is better to look at starting rents for new leases as a much more fine-tuned metric, which would allow for better comparisons of buildings to buildings and companies to companies. I confess to talking my book here since our starting rents have led the New York office public peers for years now. In the PENN District, at PENN 2, we have 67,000 square feet of leases out for signature, and we expect to be fully leased here down to dribs and drabs by year-end. At PENN 1, we have 246,000 square feet of leases out for signature at an average mark-to-market of a whopping 44%. Company-wide, we are projecting third quarter mark-to-markets of over 20%. I guess you could call this all soft guidance. With all of this activity, we continue to review our pricing here on a bi-weekly basis. Importantly, given that roughly 10% of the space in PENN 1 rolls each year, we expect continued strong growth from PENN 1 as we keep marching old rents up to market. We continue to be delighted with our 2 most recent acquisitions, 623 Fifth Avenue and Park Avenue Plaza. Thanks to Harrison for giving us a shout out for these 2 deals on his call. 623 Fifth Avenue is our spectacularly well located. And by that, I mean in the center of everything, 383,000 square foot asset, which sits on top of Saks Fifth Avenue that we are redeveloping to be the 220 Central Park South version of boutique office space. We are off to a great start here, receiving outstanding reaction from brokers and tenants. We are about to execute our first lease of the 2 floors with a financial services firm at rents consistent with our underwriting. Of note, even at this early stage, market demand is telling us to increase our asking rents above original underwriting. As you know, we recently acquired a half interest partnering with Fisher Brothers at Park Avenue Plaza, a 1.2 million square foot tower on 53rd Street. The deal was at a valuation of $950 a foot, which for Prime Park Avenue is a 1/3 of replacement cost. This asset taking advantage of the in-place 2.9% mortgage loan with 6 years of term remaining is a coupon clipper at 8% cash on cash. So the way I look at this, we are earning double the risk-free bond rate from risk-free Park Avenue AAA real estate. The in-place leases at Park Avenue Plaza are at, give or take, half current market. So we expect very substantial capital appreciation here to go hand-in-hand with above-market current earnings. Our market-leading signage business in the 2 most important and highest traffic locations in Manhattan, Times Square and the PENN District continues to grow at a healthy rate. We love this business. It's capital light and has been growing at 5% per year. We intend to add more signage in the PENN District, where we control almost all of the real estate around Penn Station and Madison Square Garden. If you drive or walk past Park Avenue at 52nd Street, you will see that our 350 Park Avenue site is now under construction, actually under demolition. We intend to shortly exercise our investment option to participate in this deal at our maximum ownership percentage of 36% alongside Ken Griffin as our 60% partner and with Citadel as our 1-million-square-foot anchor tenant. Several commentators and analysts have suggested that we take the money and run. No, no, no, that would be incredibly shortsighted. In our business, there is no better place to invest in Prime Park Avenue with 1 million square foot tenant and a 60% partner already committed. We are contributing our existing land and 65-year-old building at a $900 million valuation. We have the balance sheet resources to support this deal and all of our other financial requirements as well. We have a $3.3 billion construction loan ready to go. I think $3.3 billion may be a record. The partnership, and by that, I mean all partners is contemplating selling down a 25% interest at a price which will give us an appropriate profit and also give the buyers an appropriate profit. We expect the joint venture closing will take place in September. We are extremely excited and bullish about the potential returns from this project. The brokerage and tenant community is buzzing, and we are already getting incoming for available space, all of which is new space from 600 feet to 1,000 feet from clients seeking the very best and for whom our delivery date fits their needs. At Vornado, management of our balance sheet is the highest priority. Michael and his team have worked very hard to get our debt ratio down into the 7s. We keep dry powder for offense and liquidity for defense in all cycles. We are in conversations to sell 2 nonessential assets, which would very substantially increase our liquidity profile. Here is the status of our stock buyback program. This quarter, we repurchased 1.8 million shares at $29.92 per share. Since we have started buying back shares in 2023, we have repurchased 8 million shares at $26.61 per share. We will continue to take advantage of the stock as the opportunity presents itself. Just for kicks, on a final and interesting note, I recently heard an interview with Taylor Sheridan, the screenwriter, director, producer, and actor best known for creating the massively successful Yellowstone universe. I confess that I'm addicted to his stuff. Here's what he said about New York. I effing love New York. It's the first place I lived after Chicago. It's a phenomenal city, and it's a city that I feel is much tougher. It endures a bad politician or 2, and you can't tank it. New York just shakes off this stuff like a case of bad fleas, it keeps going. It doesn't matter the industry if you're in, in New York. If you're successful here, if you're a bricklayer, you're one of the best frigging bricklayers on the planet because there are 8 million people competing for your job. New York just mandates excellence from everybody in every way and in every field. By the way, when somebody asks who doesn't know me what I do for a living, I say I'm a bricklayer. Now off to Michael.

Thank you, Steve, and good morning, everyone. Second quarter comparable FFO was $0.67 per share compared to $0.56 per share for last year's second quarter, an increase of $0.11. This significant increase was primarily due to higher FFO resulting from rent commencements at PENN 1 and PENN 2, the impact from the NYU master lease at 770 Broadway being in the prior year and higher NOI from signage revenue, partially offset by higher net interest expense. We have provided a quarter-over-quarter bridge on Page 2 of our earnings release and on Page 6 of our financial supplement. Our core office and retail businesses are performing increasingly well and are now beginning to reflect the growth from leasing up PENN as well as our other vacancies. Our New York office same-store NOI was up 13.7% for GAAP and 11.9% for cash. Our New York retail same-store NOI was up 7.3% for GAAP and 5.7% for cash, and our New York business overall was up 11.9% for GAAP and 6.2% for cash. We now clearly expect full year 2026 comparable FFO to be higher than 2025 with second quarter comparable FFO being a decent average run rate for the rest of the year. As previously indicated, we expect there to be significant earnings growth in 2027 as the positive impact from the lease-up of PENN 1, PENN 2 and our other vacancies continues to take effect as well as the positive impact of the recent acquisition of Park Avenue Plaza. Turning to occupancy. New York office occupancy increased 60 basis points this quarter to 92.2% from last quarter and up significantly from the trough of 84.4% in the first quarter of 2025. This significant pickup is reflective of the successful execution of our plans and the Manhattan Class A office market dynamics that we've been talking about over the past couple of years. Our New York office pipeline is robust and has over 2.2 million square feet of leases in negotiation and various stages of proposal, including the 1 million square foot Citadel lease at 350 Park Avenue and over 500,000 square feet in the PENN District. Based on our strong leasing pipeline, we anticipate that our occupancy will grow to north of 93% by year-end with further gains thereafter. Demand for our retail assets also continues to pick up. We are seeing new retailers, including many international ones, enter the market as well as retailers in prime locations looking to renew their spaces early so as not to lose them upon expiry. Finally, turning to our balance sheet. Our liquidity remains strong at $2 billion, which is comprised of cash of $789 million and our undrawn credit lines of $1.2 billion. We hope to bolster this further with the asset sales Steve referenced earlier. With that, I'll turn it over to the operator for Q&A.

[Operator Instructions] The first question today comes from Floris Van Dijkum with Ladenburg.

Obviously, we're starting to see some growth, which is very encouraging. Maybe could you talk a little bit about your -- the gap between leased and economic occupancy today and where your peak physical or economic occupancy was in the past? And how much more of a runway there is?

Michael?

Floris, so historically, we ran at 95%, 96% occupancy on a physical basis. I think maybe touched a little bit higher occasionally, but I would say that was a pretty consistent run rate. Today, we're at a little over 92%. We expect that we'll get back to our historical run rate in the next couple of years. Given the pace of the market, it could happen sooner than that. So we're pretty confident about that. From an economic perspective, just given the signed-not-commenced leases, obviously, that number is lower. I think on a, let's call it, on a GAAP basis, which probably relates most directly to earnings, we're probably 83%, 84% relative to the 92.2%. So physically, we should get back into the mid-90s. And obviously, on a GAAP basis, that will close up as those leases come online.

Floris, I'll put a little more meat on that. Our signed but not in occupancy and not in our earnings number the revenue side of that rents are $180 million, which is probably somewhere $150 million, a little bit more than that of FFO. So that will give you the number as to where we stand now. And that number, obviously, haven't commenced yet, so that's in the bag.

My follow-up question, and this is more of a broad question because if you do the math, the rents required to make 350 Park Avenue pencil out suggests that you're going to rent that building at around $350 a square foot. What kind of impacts will having these really, really high-end properties do to adjacent or nearby buildings? I'm thinking also potentially about the potential upside of your recent acquisition at Park Avenue Plaza.

The rents on the new buildings -- your number is approximately correct. Will create an umbrella at all of the older buildings, which have in-place rents of less than that at Park Avenue Plaza has rents of about 1/3 of what you just mentioned. It will all suck them all up. So that what's going to happen is the combination of scarcity, the combination of everybody in New York expanding and looking for space and the fact that there's a scarcity of new supply and the combination of the construction cost, interest rates, et cetera, require a very high rent for a new building. That will cause the great, the well-located older buildings to go up in value enormously. And obviously, that's the reason we bought Park Avenue Plaza.

The next question comes from Alexander Goldfarb with Piper Sandler.

Thank you for the update on 350. I guess a question there around rents. While a few quarters ago, we were talking about sort of $250 gross to make new deals pencil, I think when we talked about PENN 15, now you're talking about $300, $350 to make new deals pencil and clearly, at $350, you have legacy basis. So the increase in rents to make deals pencil, is that sort of on a new market basis, meaning if you were to buy land today and given where interest rates are? Or what's caused sort of the target construction rents to go from sort of the $250 we talked a few quarters ago to now sort of the $300 to $350?

Oh boy, complicated. I'm not sure I understand the question, but none of these numbers are written in stone, Alex. I mean they're sort of like ranges. The market doesn't really need $350 a foot to start a new building. The market and our competitors would start a building somewhere in the probably mid- to high 3s, mid- to high 2s. And what the market is doing is giving a bargain rent to the anchor tenant with the hopes and aspirations that the follow-on smaller tenants at higher rents will make the whole thing pencil. But in the whole, you think about it, if a new building on Park Avenue costs $3,000 a foot, you can do the math.

Okay. And then the second question for Glen. Year-to-date, you've done about 660,000 square feet gross in New York. There are a lot of tenants that are talking about early renewals. Can you talk about the level of conversation and the -- presumably, there's some acceleration in the back half or just what we should expect as far as leasing goes compared to the 660,000 so far?

So as Michael said in our script remarks, putting aside Citadel, we have about 1.2 million square feet in our pipeline, which is a really strong mix of new expansion renewal and we're strategic about renewals. We're not going to do a renewal unless we like the terms. So while we're talking to a lot of tenants expiring next year, the year after, et cetera, as the market continues to quicken in strength and pace and as we feel better and better every week with what's happening, we're being very careful in terms of locking in too quickly. But our tenants generally want to stay, and we're in a lot of discussions in that regard, but we're being careful and smart about it.

The next question comes from Dylan Burzinski with Green Street.

Steve, maybe going back to your comments at the outset of your prepared remarks talking about how the stock remains cheap, how it remains well below sort of our NAV estimate. Can you kind of just talk about -- I think you alluded to in the past, just being interested in taking assets to market and testing where private market bids are at. Can you just talk about that? Is that still something you guys are interested in and maybe obviously using those funds to continue to take advantage of the disconnect between where shares are at today and where you guys perceive value to be?

I think what you're saying is that we should sell buildings at the private market value and buy stock, which is Green Street's formula for success. We sort of believe in that. We sort of also believe that our buildings are going to appreciate value. We are actually in conversations with selling 2 buildings the proceeds of which would be a very significant cash amount and which accomplishes our financial objectives in the short term. The history in New York has been that almost every time you sell a building in almost any cycle, you've been wrong. And that goes for our street retail assets and our office assets. So we do have a handful of assets that we are happy to sell and want to sell. We have a couple of assets that we are actively in conversations to sell. And we're very happy owning the rest of them until at some point, they become more valuable and then maybe we would sell them. With respect to our stock, we still think our stock is extremely cheap. As you know, the NAV calculations are basically based upon what is in place now and what assets we own now. It doesn't give any credit for what will happen in the future with any of our -- I mean, for example, there's no credit for the 350 Park Avenue deal and the profit that will undoubtedly come from that or the Park Avenue Plaza uptick in rents or the 623 development that we're doing. So the NAV number is a static number, which is backwards-looking. When we sit in our council room, we look at that number very hard, but we also look at the future value. And so that's my answer, sir.

No, that's very helpful. I appreciate that commentary, Steve. And then maybe just one on -- I think it was announced yesterday that Snap was subleasing some of Verizon's space. Is that -- are you guys involved in that at all? I know when Verizon struck that lease, rents are probably higher today than where Verizon's lease is at. So any upside that you guys are able to get? Or is that sort of solely Verizon's economics?

We didn't participate in that deal. That was a deal between Verizon and the subtenant. We did, however, decline our recapture option, choosing instead to keep the Verizon credit for the 20-year term.

The next question comes from Steve Sakwa with Evercore ISI.

I think on the last couple of calls, you guys have talked about this kind of $0.40 FFO uplift in '27. I know you don't give formal guidance, but there was a bridge there just given the strong signed-but-not-occupied pipeline. Obviously, you've had good growth in Q2 and talking about a good second half. I guess, does that $0.40 number still apply? Or has some of that FFO maybe shifted into '26 and it dampens the growth a little bit into '27?

Steve, we're not going to get too much into guidance given we don't give it. If you remember, when we made that comment, I think we started off talking about the year being flattish relative to last year. Obviously, we're significantly outperforming that. But the $0.40 was relative to that flattish comment. So I think we were at $2.35 last year, $0.40 on top of that, $2.75. So some of the growth is occurring earlier this year than we expected. At the same time, we still think we have meaningful growth next year. So our comment on sort of significant growth still to come in '27 remains intact. Some of that $0.40 got started flowing through this year. But certainly relative to where we started beginning of the year is still intact. And given the dynamics, hopefully, it will be in excess of that.

Great. And as my follow-up, Steve, I guess your comments around doing a JV at 350 is interesting given the Citadel lease. I guess how did you sort of weigh doing that JV now versus leasing that building up further and doing something down the road given that it's not being delivered for 4 to 5 years?

We made a decision to do the deal with Ken Griffin and Citadel years ago. And our deal with Ken was signed probably, I don't know, 3 years ago, something like that. So this is just the continuation of that path, which was decided 3 years ago. During that time, between now and then, Barry and his team and the Citadel team have designed the building with the Foster and the Foster + Partners architectural firm and done the drawings and we're now under construction. So these decisions were made 3 years ago, maybe even 4 years ago.

The next question comes from Jana Galan with Bank of America.

By the way, before I get into that, let me finish the last question a little bit more. If you do the math and we do the math, I mean, we really groove on math around here. If you do the math, notwithstanding the fact that there is a time delay from the time that you demolish the old building and give up the income on the old building from the time you get the new building, the new building, which will have rents in the stratosphere, so to speak, which is the market, which is required, are substantially enormously more profitable than keeping the old 65-year-old building, dumping money into that building because in 10 years, that's going to be a 75-year-old building, and you know what that means. So anyway, decision really was not that difficult to make to demolish and build a new building. I'm sorry, now we can go to the next question.

The next question comes from Jana Galan with Bank of America.

Congrats on the quarter. The retail leasing had a nice pickup, but the lease term I noticed was pretty short. Curious if that's just a strategy to do more short-term activation as you plan some of the larger retail redevelopment or if something else drove that?

Jana, I would say generally, it was just -- in general, a number of short-term deals, some in-place tenants that we extended, some short-term deals that we don't want to lock up the space. We continue to view the market as getting stronger. And so we don't want to commit the space long term until we get to an appropriate level. And in some cases, tenants need more time to make decisions on how long they want to commit for, et cetera. So a mix of those. But I think most of those, as we said, short-term in nature.

And then maybe just I noticed the Pier 94 occupancy dropped quarter-over-quarter. Anything you can share that or prospects for new leasing there?

It's Glen. I'll take this one. So the occupancy is already up into the high 80s by the end of July. So we had a couple of vacates at the end of June, which is why you see the number you're seeing, and we're already back up to where we were with a lot more activity in the pipeline.

I mean, Glen, why don't you just comment on the users' experience and reaction to the pier.

Yes. I mean the activity has been excellent. The users are all top-of-class, head-of-class, Google, Netflix, Paramount, Apple, all the names we want. And as they go on and on, the experience has been A+. The reports back from them have been excellent. So we're feeling very good as we head into the second half of this year into '27 that really great things are going to happen there. The project is really the best in town. And certainly, the users coming in are recognizing that as they use it.

You have to remember, this asset, which we are partners with Blackstone and Hudson Pacific is kind of analogous to a long-stay hotel. So this is not an office building, which has 10- and 20- and 30-year leases. The tenants that come into this building and use it as a production facility for shows that are in process, so that can be 3 months or a year or what have you. So the occupancy will fluctuate. But we do feel we have a unique asset. It's the only asset in Manhattan. It's very well-located, and it's being extremely well received even at these early stages by all of the -- I say, all of the big boys.

The next question comes from Anthony Paolone with JPMorgan.

On 350 Park, you mentioned going to the maximum 36% stake in the project. Can you talk about what that means in terms of any incremental outlays for Vornado or just how that works?

Michael?

Anthony, so look, we'll lay out all the details when we close the venture in terms of cost, financing, et cetera. Steve referenced the construction financing that we've lined up. We're contributing our land in at the $900 million value. And so incremental capital requirements from us over time are in the $300 million, $350 million neighborhood. That doesn't really start for probably 2.5, maybe even 3 years in any significant scale given that Ken has to true up his equity with ours and then the bank wants to get money out. We like that environment. The banks want to start putting money out. So our equity is back ended and really won't come, I would say, meaningfully until 2029 and then thereafter.

Okay. Got it. And then just on -- in terms of -- just you mentioned, I think, Steve, just that kind of a project putting on umbrella over the rest of the assets around there over time. And it seems like your base is going to probably be over $3,000 a foot. And the presumption is you lease it up and it's worth, I guess, something north of $4,000 plus a square foot. How do you think about just that gap between a number like that and buying something around the corner effectively at $950 a foot. Like is that dispersion? Does it make sense? I get the difference in age and asset, but is carried land just as interesting an investment at this point than the bet at $4,000-plus a foot on a pro forma stabilized basis.

We would buy 100% of Park Avenue at $1,000 a foot if we could.

Anthony, you're making the case for exactly what Steve said earlier, right, that, that dispersion is very wide, that buildings like Park Avenue Plaza, if the market continues to hold its strength, and we know there's not going to be a lot of supply, those buildings have to appreciate significantly. And we own many of those buildings, which is why we're bullish on our stock and the value that we have and where it's going. So 100%. Rents have to rise there, values have to appreciate meaningfully because they're basically trading at land value in a lot of cases.

But don't get the impression that the people who are paying $250 or $75 or $300 a foot are stupid. They are not stupid. They are the most important and largest and major companies in the country. There is a difference in the value of a brand-new building in its design and its function. So -- but the answer is it's not the difference between $100 a foot and $300 a foot. So the $100-a-foot buildings are going to go up in value substantially, but not to the same rental rate as a new building would command.

The next question comes from Vikram Malhotra with Mizuho.

Congrats on a strong quarter. I guess just first question, given the strength in the future direction in terms of FFO and the pickup, you mentioned some of it is coming in '26. I'm wondering if you can just maybe give us a little bit more color on how that translates into cash earnings, like relative to this year's TI bill, what could the TI maintenance CapEx bill look like for next year, just high level? And related to that, any sense of where we are in terms of TIs coming in after the market has strengthened?

I'll hit the first one and Glen can hit the second. I think in terms of TIs this year versus next year, I mean, again, given we're in that lease-up mode, given frankly, when the tenants call for the money, I don't have the numbers right in front of me, Vikram, but I think it's pretty comparable year-over-year. So not meaningfully different enough that, that would change. I think in '28 is when that starts to tail down as we're through that big leasing. But again, it depends on when tenants call for the money, it tends to be a little bit later than when we normally expect. So that's my commentary on the capital side. Glen, do you want to just talk about TI trends?

Vikram, so we're seeing concessions come down. Rents are going up. We're tightening concessions. I've said on a couple of calls in a row now, free rents coming down, and we're now seeing tightening on the TIs. Certainly, anything we're turnkey now has a cap on the tenant fund. So overall, I would tell you, all the metrics are trending absolutely in the landlord's direction, which is very good for us and we continue that -- we expect that to continue as we go as the market continues to get better and better.

And then maybe just a bigger, broader question. Clearly, New York is at a place where we're all talking upside to rents and mark-to-market positive. San Fran is still sort of in maybe perhaps occupancy recovery mode. I'm just wondering future capital allocation for Vornado, if you were putting in new capital today, like how do you differentiate and assess sort of opportunities in New York versus San Fran? Like where should we expect kind of a better risk-reward at this point?

We love San Francisco. It's a recovering market. The interesting thing about it is we own the best building in San Francisco, differentiated. It's not a tech building per se, although we do have a few tech tenants. It's a financial services building. All of the major financial services players are in that building. And notwithstanding the fact that vacancies grew to very high numbers in San Francisco and rents plummeted, that building, 555 California, the rents went up and occupancy stayed by and large, pretty high. Now with respect to New York and capital allocation, I mean, look at what we've done in the past as a prelude to what we'll do in the future. We have invested in 2 or 3 new acquisitions. We invest in our existing buildings by leasing them up in the TI and in keeping them modern and pristine and ahead of the market. We invest in our buildings in terms of amenities. We invest in our stock. So we're investing in new acquisitions, our existing assets, our common stock and, of course, the PENN District. So we have a very full plate.

But at the same time, bringing down leverage while doing that.

Yes. How did you do that?

A little sleight of hand now, asset sales, et cetera, and we're growing income.

By the way, our budgets show that after the bubble, the good bubble of this very large leasing period is over and the free rent burns off and the TIs are paid, our financials become extraordinary. Our positive cash flow becomes -- well, our cash flow becomes positive and grows fairly significantly. So there's a 1- or 2-year period, and then there's a very, very, very -- we're very, very constructive about our company in the future years. That's why when I say we look at the future NAV harder even than we look at the current NAV.

The next question comes from Seth Bergey with Citi.

Just wanted to circle back on 350 Park Avenue. You mentioned the partial sale. Can you just broadly talk about given kind of the improvement in New York fundamentals, what the buyer pool looks like for that? What type of money is interested in investing in New York office today?

Michael is going to -- I think you asked about the mention that I made that we were contemplating selling down 25% of the ownership of the building and inviting a new group of investors to come into the asset now -- and so what's your question about that?

Yes. Just are you seeing -- is it core money that's interested in office opportunistic, sovereign? Just talk about kind of the interest from the different buyer pools in New York office real estate.

We're basically targeting high net worth family offices. And it would be a club deal, not a -- so it would be a club deal, people investing $100 million or maybe $200 million, not $1 billion. That's our current target.

Great. And then maybe just a follow-up. With kind of the new pied-a-terre tax in New York, are you seeing any impact on that for high-street retail leasing?

Not at all. We don't expect that, that's going to affect shopping or tourism or domestic spending or whatever. So the answer to that is not at all. What we -- and by the way, we're not really in that business. I mean we don't have a current condo job under construction, although we have developed the most successful one in history, that's in the past. And that's sold out, by the way. We do hear from the marketplace that the tax has affected the interest of buyers in the over $10 million category. But that's not first half, that's second and third hand from just gossip that I'm hearing from the marketplace.

The next question comes from Ronald Kamdem with Morgan Stanley.

Great. Just 2 quick ones. One, and this came up earlier, just on a high level, I think you touched on just maintaining leverage. You touched on sort of CapEx. I was just wondering if you could just put a point on it in terms of like what the model says leverage looks like as sort of EBITDA comes on as well as what the CapEx trajectory looks like.

Ronald, the quick reading your report, it sounds like we have a fairly wide disparity on NAV viewpoints. CapEx, I think I said earlier, I think it's going to be fairly consistent this year to next year just as the large amount of leases, particularly at PENN 2 and the remainder of PENN 1 get funded. Even a lot of the leases that get signed this year, that won't get funded until next year and maybe even [ slobers ] over a little bit to '28. But I think fairly consistent year-over-year. And on the leverage side, I think we'll continue to trend down into the 7s over the course of this year. And as the income comes online in the out years, obviously, there's a lot that's going to happen between now and then, but that number could go sub-7. We think it probably will go sub-7 absent other investing, et cetera.

Great. Helpful. And then I think you mentioned sort of 2 nonessential sales. I was just wondering, I think in the past, whether it was Hotel PENN or some of the retail assets. Just any thoughts on transacting on those?

No, it's not Hotel Penn. Hotel Penn doesn't exist anymore. By the way, it's a piece of land, which we consider to be the best development site in the West Side of Manhattan. That's not for sale.

The next question comes from Caitlin Burrows with Goldman Sachs.

Maybe a follow-up to that last one, just on the planned asset sales, whatever they may be as we try to figure out the impact of them, those 2 properties, would you say they're more in the noncore bucket, i.e., potentially higher cap rate or in the bucket of crystallizing private market valuations, i.e., lower cap rate or some combination?

One and one.

Got it. Okay. And you mentioned earlier that part of the intent has been you can keep that dry powder for offense. I guess, could you talk about your outlook for those opportunities to come up? I realize you don't have a crystal ball, but is there a reason to think that more acquisition opportunities could continue to come up? Or is it too hard to tell at this point?

The answer is we react to everything that's available in the marketplace, and we move quickly to acquire an asset that we like. Our assets -- the assets that we like have to be basically in our core. They have to be on the best locations. They have to be part of the 180 million square feet that we feel is our target market, the market in which our clients want the rent space, and they have to be moneymakers. So when we see it, we act. And we can't predict. We don't have a crystal ball, but we do know that there are cycles. There are cycles and when to invest heavily and there are cycles and when to pull back. And so we've been doing this for a long time, and that's our outlook on acquisitions.

The next question comes...

By the way, the other side of that is that trees don't grow the sky. We do have business cycles. I don't know whether we're going to have another recession or downturn. I guess we will. It's been a long time since we've had a downturn, but there will be a downturn in the future, and we have to be prepared for it. Now you can't prepare for -- when the downturn starts, it's too late. You have to be prepared for it ahead. And so that's what we try to do, and we've had -- as we always try to do. And keeping a very strong balance sheet with a ton of cash is part of our long-time business strategy.

The next question comes from Brendan Lynch with Barclays.

Steve, in the past, you mentioned that you're open to selling 555 California and the MART. Can you give us an update on where your considerations currently stand? And are those the 2 assets that you referenced earlier about being for sale?

Those 2 assets are not the 2 assets, might be one of them. But I can tell you that right now, 555 California is a strong recovery market, and Glen has done a spectacular job of leasing this market at the topic prices in San Francisco in the high $100s of dollars a foot in the tower. So that asset has plenty of room to go and is extremely strong. So that asset is only for sale at the right time and at the right price.

Any commentary on the MART?

No.

Okay. Maybe just another topic on signage. Is there a limit to how much signage you can add to the PENN District? And I see that signage is up 5% year-over-year. Is that mostly volume? Or are you pushing price more aggressively?

I'll start and then Michael can finish. Basically, the thing that differentiates our signage business is that our signs go with the buildings that we own. So we are -- almost all of the people in this sector, the signage companies they rent space to put their signs. We don't. We own the space. So our margins obviously are much higher. And since we own the prime space in Times Square, and we own everything in the PENN District, where there's enormous traffic both from Madison Square Garden and the retail at Macy's and Penn Station. So we own those assets. And so as we continue to develop in the PENN District, we will build more buildings. We're now totally changing the entrance of the Penn District on Seventh Avenue and 34th Street. So we're building -- we're going to tear down the older buildings. We're going to build new buildings. Those are signage opportunities. We're going to build the tower on PENN 15. That's another signage opportunity, et cetera. So the answer is that we love the business. It's asset-light. It goes along with our new signs go along with our new developments.

Just to tack on, Brendan, as volume or price, both. The pricing has continued to go up year-over-year for the last several years. And part of what we do by having digital signs is we slice and dice those, and we -- it's like revenue management, right? We're optimizing how many slots we can sell and how much we can sell those for. So we have both dynamics working, which is helping to propel the business, and you saw that come through this quarter.

The next question comes from Steve Sakwa with Evercore ISI.

Just one quick follow-up. On that SNO pipeline number that you gave of $180 million, is there a way to bifurcate that between what's PENN 2 and what's the rest of the portfolio?

I know you weren't going to let us off so easy, Steve, about a numbers question. I would say I'm going to guess here because I don't have the exact numbers in front of me. Obviously, look, PENN 2 is a huge development that we're completing and that income is coming online. So if I had to guess, I would say probably 60% of it is PENN 2, rough cut.

That guess better to be right.

Yes, I think it's pretty close.

There are no further questions at this time.

Okay. Well, thank you, everybody. We're very -- we're happy with this quarter. We hope you all appreciate it. And we're even more happy with our future prospects. So having said that, thank you all for attending, and we'll see you next quarter.

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