Vornado Realty Trust Q4 2024 Earnings Report

Vornado Realty Trust EPS Results

• Actual EPS: $0.61
• Consensus EPS: -$0.05
• Beat/Miss: Beat by +$0.66
• One Year Ago EPS: N/A

Vornado Realty Trust Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $447.45 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Vornado Realty Trust Announcement Details

• Quarter: Q4 2024
• Date: 2/10/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, February 11, 2025
• Conference Call Time: 10:00AM ET

Vornado Realty Trust (NYSE:VNO) is a fully - integrated equity real estate investment trust.

Vornado Realty Trust Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Good morning, and welcome to the Vornado Realty Trust Fourth Quarter twenty twenty four 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.

[Operator]

At that time, please press star then one on your touch tone phone. I will now turn the call over to Mr. Steve Borenstein, Executive Vice President and Corporate Counsel. Please go ahead.

[Steven Borenstein, EVP & Corporation Counsel at Vornado Realty Trust]

Welcome to Verneta Realty Trust's fourth quarter earnings call. Yesterday afternoon, we issued our fourth quarter earnings release and filed our annual report on Form 10 ks with the Securities and Exchange Commission. These documents, as well as our supplemental financial information packages are available on our Web site, www.vno.com under the Investor Relations section. In these documents and during today's call, we will discuss certain non GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP measures are included in our earnings release, Form 10 K and financial supplement.

[Steven Borenstein, EVP & Corporation Counsel at Vornado Realty Trust]

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 12/31/2024, 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 your duty to update any forward looking statements. On the call today from management for our opening comments are Stephen Roth, Chairman and Chief Executive Officer and Michael Franco, President and Chief Financial Officer.

[Steven Borenstein, EVP & Corporation Counsel at Vornado Realty Trust]

Our senior team is also present and available for questions. I will now turn the call over to Steven Roth.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

Thank you, Steve, and good morning, everyone. At Tornado, 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 400,000,000 square feet of office, we really only compete in a narrower market of about 188,000,000 square feet of the better space. Availability in the better space market is 10.7% versus 20.1% in the not better space market.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

And that 10.7 availability is evaporating very quickly. Park Avenue is already under 7%. Add to that, 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 at, say, 6%, new supply is frozen. There hasn't been a major new building start in five years.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

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 rents to spike. And in fact, rents have already begun to rise. So all good, very good.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

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.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

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, it will not last and is not last. Most have left their kitchen tables and are back at the office. Our stock price increased 49% in 2024 after increasing 35% in 2023.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

In 2024, we leased 3,400,000 square feet overall, of which 2,650,000 square feet was New York office, at market leading $104 starting rents with mark to markets of 2.5% cash and 10.9% GAAP. For the second year in a row, we completed the most premium $100 plus deals in New York in 18 transactions for 1,360,000 square feet. And we completed three of the top 10 largest office deals in New York. We completed 285,000 square feet of deals at tenone at $98 starting rents, exceeding our underwriting. We completed 25 retail leases totaling up 187,000 square feet, highlighted by Manhattan's First Primark in the Penn District.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

We completed the Uniqlo sale at 6660 Fifth Avenue at a record price of $20,000 per square foot. Last month, we repaid at maturity our three point five percent $450,000,000 unsecured bonds out of cash on balance sheet and $108,000,000 off our credit line. Our entire portfolio was 100% LEED certified, and we are the first simulation to achieve this milestone. We are on a two yard line with a handful of important deals. We finally complete we will finally complete the master lease to NYU at our 1,100,000 square foot 770 Broadway by the end of the month.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

This deal will relieve our balance sheet of $700,000,000 of debt on this asset and eliminate 500,000 square feet of vacancy. By the way, this large and impressive building on the edge of the NYU campus will be their science center. I have seen the plans. It will be a world class education facility, which will make NYU an even greater elite higher education institution. That's great for NYU and that's great for New York.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

We will shortly refinance 1535 Broadway, which will allow us to redeem for cash over $400,000,000 of our retail JV preferreds. And we have several asset sales in the works. Taken together, these transactions will shortly generate an incremental additional $1,000,000,000 of new cash. At PEN2, we are only weeks away from signing a 300,000 square foot lease. PEN2 is being very well received by tenants and brokers with commentary that it is the best redevelopment anyone has ever seen and together with PENN1 has by far the biggest and best amenity package anywhere.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

We are also engaged in multiple tenant proposals at PENN2, including negotiating an LOI for a major headquarters lease. I'm predicting that Pentill 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 twenty twenty five, the first ever purpose built film and television south pages in Manhattan. Now for those interested in Alexander, our 32.4% owned affiliate.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

In the second quarter of twenty twenty four, we early renewed the 947,000 square foot Blumberg office lease at 731 Lexington Avenue, whose expiry is now pushed out to 02/1940. At Regal Park in Queens, we are moving Burlington and Marshall, the last remaining tenants at Regal One, to our adjacent Rigo two shopping center, thereby filling up Rigo two and creating a fully vacant blank canvas at Rigo 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 sixty six year old building. I believe Alexander's stock substantially undervalues its assets, and we will have to do something about that. 350 Park Avenue development is on schedule.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

The new building is now fully designed and it will stand out as being truly, truly best in class. We are in a 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 bock into swing space so that 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, Penn two, the Moynihan Train Hall, the Long Island Railroad Concourse, the 30 Third Street Plaza and even Penn 11 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.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

Our Penn District is clearly a site to be seen. If you haven't already seen it, please call me to arrange a tour. Now to Michael.

[Michael Franco, President & CFO at Vornado Realty Trust]

Thank you, Steve, and good morning, everyone. Comparable FFO was $2.26 per share for the year. As previously forecasted, this was down from $20.23 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 30 Fourth Street, where we recognized lease termination income in connection with executing a 304,000 square foot lease with WeWork on behalf of Amazon.

[Michael Franco, President & CFO at Vornado Realty Trust]

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 outspoken for. Fourth quarter comparable FFO was $0.61 per share compared to $0.63 per share for fourth quarter twenty twenty three. This decrease was primarily attributable to higher net interest expense and lower NOI from the known move outs, partially offset by the lease termination income at 330 West 30 Fourth Street and lower G and 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.

[Michael Franco, President & CFO at Vornado Realty Trust]

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 30 Fourth Street that positively impacted 2024 comparable FFO. And as indicated during last quarter's call, the GAAP earnings impact from the backfilling of vacancies and the lease up of PEN1 and PEN2 won't occur until towards the end of twenty twenty six with full positive impact in 2027, resulting in significant earnings growth by 2027. A few words on occupancy.

[Michael Franco, President & CFO at Vornado Realty Trust]

Our year ended office occupancy was 88.8%, up from 87.5% last quarter. With the pending full building master lease at $7.70 Broadway, our office occupancy increases by three thirty basis points to 92.1%. As we previously mentioned, our first quarter twenty twenty five occupancy will decrease to the PEM tube being placed in the service. We anticipate that this decrease will be temporary as PEN2 occupancy stabilizes over the next year and we get to the low 90s. Our New York leasing pipeline remains robust as we enter 2025.

[Michael Franco, President & CFO at Vornado Realty Trust]

We have significant activity across our portfolio with 750,000 square feet in negotiation on top of the 1,000,000 square foot master lease being finalized with NYU at 770 Broadway. Additionally, we have another 1,300,000 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 in 299 Park Avenue have shown significant tightening over the past six months to levels consistent with pre COVID.

[Michael Franco, President & CFO at Vornado Realty Trust]

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. The one negative is that short term rates after coming down 100 basis points last year look likely to remain at 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 by Munich Re and 1345 Avenue in The Americas by Blackstone. With that, I'll turn it over to the operator for Q and A.

[Operator]

Thank you. We will now begin the question and answer session. Steve Sakwa from Evercore ISI is on the line with a question. Please proceed.

[Steve Sakwa, Senior Managing Director & Senior Equity Research Analyst at Evercore ISI]

Yes, 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 Glenn could just provide a little bit more commentary around some of the timing for PEN2, I guess in particular and just maybe the competitive dynamic that you're seeing for that space and the confidence level you had to raise the yield on PEN2?

[Glen Weiss, Executive VP of Office Leasing & Co-Head of Real Estate at Vornado Realty Trust]

Hi, Steve, it's Glenn. How are you doing? So PEN2 is more than up and running. Every large tenant in the market has it in their top three list of what to see. There were only five buildings in Manhattan with blocks available of 500,000 feet or more.

[Glen Weiss, Executive VP of Office Leasing & Co-Head of Real Estate at Vornado Realty Trust]

We have the best block. So as you heard in the remarks, we have a lease out with one tenant that's going to get done in short order for 330,000 feet. We have an LOI in very serious ages for another very large headquarter tenant. And behind all that, we have tenants battling for space from anywhere between 60,002 feet. So PEN2 is now the bull's eye for many people searches, and we're in complete fifth year on our leasing.

[Steve Sakwa, Senior Managing Director & Senior Equity Research Analyst at Evercore ISI]

Okay. And just any comments on this 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?

[Glen Weiss, Executive VP of Office Leasing & Co-Head of Real Estate at Vornado Realty Trust]

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

[Operator]

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

[John Kim, Managing Director - US Real Estate at BMO Capital Markets]

I wanted to follow-up on Steve's commentary on $1,000,000,000 of new cash proceeds you expect. You have $700,000,000 debt paid out at 770 Broadway, Dollars 4 Hundred Million freed up at 1535 Broadway as well. And then on top of that new dispositions, so I was wondering how much in new dispositions that you anticipate?

[John Kim, Managing Director - US Real Estate at BMO Capital Markets]

How much in new dispositions

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

Well, the math of what you just said, the $700,000,000 is going to pay off debt. There's a little more, a couple of hundred million dollars more than that coming in on that building. It's $4.00 $5,000,000 coming in from refinancing $1,535,000,000 dollars and there'll be enough in short term disposition to round it up to $1,000,000,000

[John Kim, Managing Director - US Real Estate at BMO Capital Markets]

And will those be focused on retail or non core office or any color you can provide

[John Kim, Managing Director - US Real Estate at BMO Capital Markets]

on what you're looking to tell?

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

Not going to get specific about that, John.

[Operator]

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

[Jeffrey Spector, Managing Director at Bank of America]

Great. Thank you and congratulations on a great 2024. Can you tie Steve's comments on the spike?

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

I can't let that go by without saying thank you.

[Jeffrey Spector, Managing Director at Bank of America]

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. I think we all understand 2025. Can you tie in '26 at all to any of those comments, please?

[Jeffrey Spector, Managing Director at Bank of America]

Thank you.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

No, I don't know. We've been through these kinds of cycles 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 200,000,000 square feet. So that's the first point. The second point is that the current availability in that subset of space is 10% and going down very quickly because there's a shortage of space.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

We haven't had a recession and all of our clients are expanding and aggressively expanding 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 availabilities limited and shrinking and no new supply, that's critical, no new supply coming on the market for lots of different reasons.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

Construction costs are hysterically high, interest rates have not fallen have not fallen actually long term rates have not fallen at all. And so the ability 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. Now with respect to Michael's comments about 2026, you want to chime in, please?

[Michael Franco, President & CFO at Vornado Realty Trust]

Yes, Jeff. What I would say is that as we look at our portfolio, right, we've got a number of drivers. We have filling up the empties. We have a and so we know that significant part of that is going to come from PEN2 and to some extent PEN1. We have the as leases rollover, we're now on the other side of that as we move into a landlord's market where we have positive mark to market.

[Michael Franco, President & CFO at Vornado Realty Trust]

So it takes some time for that to flow through. '26 will be an improvement, but we think very significant improvement comes in 2027.

[Jeffrey Spector, Managing Director at Bank of America]

Okay. Thank you.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

Please. I'll give you something else to think about, okay? Now in PEN1 and PEN2, we are leasing now in the $100 range, maybe just a pinch higher. There's nothing that said that 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, is 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 in the West Side, there's nothing that says that market rents in PEN I and PEN II can't go from $100 a foot to $125 a foot and then maybe even substantially higher.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

That kind of appreciation in income will cause values to increase monumentally. So for example, help me on this, Tom, dollars twenty five a foot times 5,000,000 fee is $125,000,000 a year, okay? $125,000,000 a year is worth $1,500,000,000 to $2,000,000,000 of bad yield 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.

[Jeffrey Spector, Managing Director at Bank of America]

Thank you. Very helpful. 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?

[Jeffrey Spector, Managing Director at Bank of America]

And I don't know if you could tie that to the Hotel Penn site? Thank you.

[Glen Weiss, Executive VP of Office Leasing & Co-Head of Real Estate at Vornado Realty Trust]

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

[Operator]

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

[Dylan Burzinski, Senior Analyst, Office at Green Street Advisors, LLC]

Hi guys. Thanks for taking the question. Steve, just want to go back to your comments on you guys not or in your guys' opinion, the public market not seeing the value in Alexander's and your comments about doing something about it. Can you kind of talk about sort of what you mean by that? Anything we can expect?

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

Well, thanks. If you take the assets, Alexander's, 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 if you calculate the value of the asset piece by piece, it greatly exceeds the stock price. Now think about it for a second.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

So, Regal 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 re tenanting that building is huge and obviously not economic. So what we did very simply is we took the two remaining, actually Burlington and Marshall, two great tenants. Marshall has been there for thirty years, forty years, very long period of time.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

Anyway, so we moved them into or we're in the process of we have signed documents, by the way. We are in the process of moving them into Regal 2, which will fill up Regal 2, which is a relatively new shopping center we built at the better part of ten years ago. So that makes RIGO2 a success. And it empties out RIGO1, which is a grand five acre piece of land, which will be either sold or developed. So that creates value.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

Now it doesn't have income today. So somebody who is 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 Maine, Maine, Maine and Maine, and we think is extraordinarily valuable. So we'll see.

[Dylan Burzinski, Senior Analyst, Office at Green Street Advisors, LLC]

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

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

The easy answer to that is no. But I think about attracting 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 idea from any of you guys and even from my guys inside. But I continue to think about it every day.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

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 think it's I do love the idea.

[Dylan Burzinski, Senior Analyst, Office at Green Street Advisors, LLC]

Great. Thanks.

[Operator]

Boris VanDecken is on the line with a question. Please proceed.

[Floris van Dijkum, Managing Director at Compass Point Research & Trading]

Hey, thanks. Just curious, your commentary on rents obviously at the Penn Plaza District being significantly higher than what you probably originally underwrote. I recall you talking about $150,000,000 or I guess we've estimated about $150,000,000 of NOI growth at your three Penn Plaza District assets, Penn I, Penn II 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 more than $300,000,000 of NOI?

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

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 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 Pen 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 of buildings will go up the better part of $150,000,000 And that's incrementally going up. That doesn't count.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

So it will be more than that and pick it all together. So I mean, I read your piece that you put out, I think, last week and I think it is absolutely directionally correct.

[Floris van Dijkum, Managing Director at Compass Point Research & Trading]

So Steve,

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

maybe For us by the by. As we keep developing the neighborhood, and for example, as I said in the prepared remarks, the PEN15 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 if the land cost in at Pen15 is sunk. So if we look at it as having zero land cost for the moment, we can get the new building off the ground.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

So anyway, if we as you look at this as a neighborhood, as we build on 1015, a world class office building, that will inured to increase the market value of the across the street Penn 1 and Penn 2 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 quite substantial and I might even say enormous.

[Floris van Dijkum, Managing Director at Compass Point Research & Trading]

Yes, 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 going to source or where you're more likely to source transactions? And would you consider allocating capital to outside of Manhattan to maybe markets like San Francisco or Chicago that are further behind in the recovery phase?

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

That question is right up Michael Zali.

[Michael Franco, President & CFO at Vornado Realty Trust]

Good morning, Floris. So I think in terms of acquisitions, you're accurate in the sense of it's been more challenging in New York and as the cycle is 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 going to present opportunities in the next year or two. So but our target is it has to be the right asset for to fit into our portfolio, right, from a quality perspective. So I think there will be some, but it's going to be fewer rather than more.

[Michael Franco, President & CFO at Vornado Realty Trust]

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, city is certainly turning a corner.

[Michael Franco, President & CFO at Vornado Realty Trust]

So the answer is yes, we are open minded regarding San Francisco. Chicago, I think we're content with what we have. I don't think you'll see us add anything there. The market has many more challenges and it's going to take some time for that to recover. So we're not focused on that.

[Michael Franco, President & CFO at Vornado Realty Trust]

And I'll

[Michael Franco, President & CFO at Vornado Realty Trust]

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

[Floris van Dijkum, Managing Director at Compass Point Research & Trading]

Thanks, Michael.

[Operator]

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

[Michael Griffin, Senior Equity Research Analyst at Citigroup]

Great. Thanks. Appreciate all the color around the leasing pipeline and demand. I'm curious maybe Steve or Glenn, 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.

[Michael Griffin, Senior Equity Research Analyst at Citigroup]

Have you started to see concessions drop off at all as a result of this demand you've seen?

[Glen Weiss, Executive VP of Office Leasing & Co-Head of Real Estate at Vornado Realty Trust]

Hi, it's Glenn. So in terms of the demand, we're seeing it from every angle.

[Glen Weiss, Executive VP of Office Leasing & Co-Head of Real Estate at Vornado Realty Trust]

Multiple

[Glen Weiss, Executive VP of Office Leasing & Co-Head of Real Estate at Vornado Realty Trust]

expansions, multiple renewal discussions for deals that are years out from expiring. And the demand the immediate demand for space from tenants who are either new to the market or want to 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.

[Glen Weiss, Executive VP of Office Leasing & Co-Head of Real Estate at Vornado Realty Trust]

And as this market more and more becomes a landlord's market, the concessions will come down.

[Michael Franco, President & CFO at Vornado Realty Trust]

Griff, I would add

[Michael Franco, President & CFO at Vornado Realty Trust]

on to it, Glenn. So I think there's a couple dynamics there, right? But first, Glenn talked about these expansions. We're going through our pipeline in the last few days and there's a handful of tenants that we did leases with very recently that have already come back for more space. And I think that's reflective of a couple dynamics that occurred.

[Michael Franco, President & CFO at Vornado Realty Trust]

One is, I think there was a level of conservatism on behalf of tenants as they lease 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 backed and they recognize that they need more to develop that. Two, as both Steve and Glenn said, business is booming, right? Law firms are booming, financial services booming, tech is booming, etcetera. So all these businesses are growing.

[Michael Franco, President & CFO at Vornado Realty Trust]

So when you think both those dynamics, you have a very robust market overlaid onto a very tightening level of supply of where these tenants want to 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.

[Michael Griffin, Senior Equity Research Analyst at Citigroup]

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.

[Michael Griffin, Senior Equity Research Analyst at Citigroup]

For the mortgages that you guys have coming due this year, whether it's 10.11, eight point eight point eight, those properties are very well leased. Do you have a sense or maybe give us some insight on where you'd expect the refinancing rate to be relative to the current interest rate? And any other commentary on sort of

[Michael Griffin, Senior Equity Research Analyst at Citigroup]

the debt capital markets would be helpful?

[Michael Franco, President & CFO at Vornado Realty Trust]

Look, I think if you think about where we are today versus where we were, let's say, a year ago, I think it's night and day. And we really opened up the market on the office side with the Bloomberg financing. And since then, certainly with respect to New York City, there's been a floodgate of high quality office that's been financed. So you think about the transactions have gotten done, many of them in excess of $1,000,000,000 and a couple of cases, multi billion dollars 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.

[Michael Franco, President & CFO at Vornado Realty Trust]

And so obviously our portfolio plays in that. So as we look out in terms of the financings that are going to that roll this year, look, we're coming off some low rates in a couple of cases, particularly on a fixed on a couple of fixed rate deals. I think we'll see upticks in rates there. At the same time, something like a Union Square, the demand for high quality retail is very strong and that may well be lower. So net net, I think it's probably a little higher, but we're also delevering with some pay downs of the $7.70, etcetera.

[Michael Franco, President & CFO at Vornado Realty Trust]

So I think from Vornado's perspective,

[Michael Franco, President & CFO at Vornado Realty Trust]

I think

[Michael Franco, President & CFO at Vornado Realty Trust]

that 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 in total. Could it be a little bit higher this year, maybe, could it be a little bit lower, maybe. I think we're sort of par year over year. And I think generally the worst is sort of over for us.

[Michael Griffin, Senior Equity Research Analyst at Citigroup]

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

[Operator]

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

[Vikram Malhotra, Managing Director at Mizuho Financial Group, Inc.]

Good morning. Thanks for taking the questions. Steve, I guess you've done a great job on the Penn District on various assets. You talked about sort of the, I guess, the next evolution or the next jump in stabilized NOI. I'm wondering from an actual development or an asset standpoint, what's next in Penn?

[Vikram Malhotra, Managing Director at Mizuho Financial Group, Inc.]

How would you sequence sort of the various other parcels or redevelopment opportunities you have?

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

Thanks for the question, Vic. We're studying that now. We believe that we should, in the Penn to have one or two buildings under construction and rolling forward for the next ten years. But we're not ready to announce anything yet. Obviously, the Penn 15 site is sitting there probably, I believe, the best site in Manhattan, ex Park Avenue.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

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.

[Vikram Malhotra, Managing Director at Mizuho Financial Group, Inc.]

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

[Michael Franco, President & CFO at Vornado Realty Trust]

Yes. Good morning, Vikram. So on the retail pipeline, I'd say just on the market in general, market continues to strengthen, vacancy rates continue to decline and rents are certainly for the best spaces. I think we're turning to close to peak levels. So we signed a significant lease in Times Square last year.

[Michael Franco, President & CFO at Vornado Realty Trust]

There's activity in that submarket. Again, we own the two best blocks and we have some active dialogue going at some very strong rents, not too far off the peak there. Fifth Avenue, same dynamic 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 pick up.

[Michael Franco, President & CFO at Vornado Realty Trust]

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 the bottom line is and what's driving all this is that the sales figures that the retailers are doing and the recognition that New York remains the global city in The U. S, maybe number one in the world, and they have to have locations here. So we're close to lease with some sort of new to market tenants as well as some tenants that are already here. We continue to have good activity throughout the Penn District and we're working on some leases there as well.

[Michael Franco, President & CFO at Vornado Realty Trust]

So we're pretty constructive on the retail market as well. We own great assets and those tend to be where the retailers are most focused.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

I'll give you an anecdotal story. So we have an important asset on Fifth Avenue. Actually, we have a lot of them. But one particular important asset on Fifth Avenue, we had a major retailer come in knowing that the incumbent tenant 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 and I'll wait for that tenant's lease to expire. So that's things that happen only for extraordinary property in tight markets.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

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 risk. 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.

[Vikram Malhotra, Managing Director at Mizuho Financial Group, Inc.]

Thank you.

[Operator]

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

[Michael Lewis, Cyber Security Group Manager at Truist Securities]

Thank you. So Steve, you often emphasize you run this as a cash business, 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 twenty five years, probably longer. And I realize 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 twenty five year trend of that kind of consistently going down. And are we at an inflection, you expect that to kind of rapidly increase and do we get back to kind of pre COVID cash flow levels?

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

Complicated question. I'm familiar with the trend. I'm familiar with the capital intensity of our business. I'm familiar with the fact that we're in a multi tenant. We and all of our colleagues in the industry are in a multi tenant business where the stations turn over.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

I'm familiar with the cost of turning over those spaces, all of which creates the trend that you mentioned. So clearly, and Glenn alluded to this, the PI and the tenant inducements to turn over a floor in a building is very sticky and we'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 some rents, rents have gone up already to sort of alleviate that problem.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

So I'm expecting that the cash, the actual cash flow or AFFO or whatever you want to 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 are going to benefit from that trend.

[Michael Lewis, Cyber Security Group Manager at Truist Securities]

Okay, great. And then my second question, I just wanted to ask about the New York office 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?

[Glen Weiss, Executive VP of Office Leasing & Co-Head of Real Estate at Vornado Realty Trust]

Hi, it's Glenn. We say this often quarter to quarter, it's going to ebb and flow, flat, positive, etcetera. We feel confident that our mark to markets will be positive. I'm not going to predict how much that means, but we like our spot in terms of our rolling expirations for the next few years. We like where we're now pegging rents.

[Glen Weiss, Executive VP of Office Leasing & Co-Head of Real Estate at Vornado Realty Trust]

As we mentioned, we've increased rents generally across the whole portfolio. So we feel good about that metric over the next two or three years.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

I'm not bashful and I'll predict. So let's just go to Penn for a minute because that's easy. So I believe that the we signed a wonderful lease for 730,000 square feet in the Farley Building in the middle and the depth of COVID. I believe when that lease comes for renewal, albeit about eleven years from now, the market for that renewal will be very substantially higher than the in place where. I've already said that I believe PEN one and PEN 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.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

So that's what I think. And, Heather, we're betting on that.

[Operator]

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

[Alexander Goldfarb, Managing Director at Piper Sandler Companies]

Good morning, Steve. And first, congrats, Mazelkov, 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.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

First Alex, thank you, my friend.

[Alexander Goldfarb, Managing Director at Piper Sandler Companies]

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 and appreciate your comments. What would be what would I mean, right now given how much of the original assets have been sold off and I would think you could get a good price for the apartment tower in Rigo II, why not just blend in Alexander's into Vornado?

[Alexander Goldfarb, Managing Director at Piper Sandler Companies]

You'd eliminate the G and A. Instead of paying a dividend, that cash flow would accrue to Vornado. You'd have $7.31, which certainly fits in your portfolio. Why not just incorporate Alexander's into Vornado? What would prevent that?

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

Well, nothing is not tenacious. That idea has been floated for twenty odd years and I have said we're not going to do that for twenty odd years. And actually, I probably will continue to say it now. The Alexander's, the pricing of it, the melding of it's just not something that's on the front of my mind today.

[Alexander Goldfarb, Managing Director at Piper Sandler Companies]

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

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

So hang on, Alex. Let me give you a fantasy, okay?

[Alexander Goldfarb, Managing Director at Piper Sandler Companies]

I love fantasy.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

Okay. I'm trying to please you. If we merged Alexanders 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, okay? Alternatively, if we left Alexander's as we are going to do, that's what I'm saying, as a freestanding independent public entity,

[Steven Borenstein, EVP & Corporation Counsel at Vornado Realty Trust]

and

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

we narrowed it down to nothing but the Bloomberg Office building, which shortly will have approximately $100,000,000 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 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 in the stock. That's just a fantasy though. Next.

[Alexander Goldfarb, Managing Director at Piper Sandler Companies]

Okay. Second question is, Michael, you walked

[Alexander Goldfarb, Managing Director at Piper Sandler Companies]

through and created I

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

actually echo what I'm really saying is from a value point of view, we think that we can make get Alexander's value to be above what we're negative might be willing to pay for it and that Alexander's shareholders will be on the head rally. That's what we're pursuing.

[Alexander Goldfarb, Managing Director at Piper Sandler Companies]

Okay. Michael, you appreciate the comments on '25, some perspective, but you guys have outlined some asset sales vacating at 350 Park and just the remnants of refinancing. In addition, you have the capitalized interest, I think $51,000,000 at PEN2 that would burn off when that when as those leases take effect. So as we think about the next two years, how much FFO net is coming off of Vornado relative to FFO coming on from PENN?

[Michael Franco, President & CFO at Vornado Realty Trust]

Yes. I think that look, as we said, a couple of things. One is in terms of capitalized interest, right, we talked about that being lower this year versus last year given PEN2 is going to roll off this year. And I think that's why consensus is down appropriately and that's

[Michael Franco, President & CFO at Vornado Realty Trust]

reflected

[Michael Franco, President & CFO at Vornado Realty Trust]

there. So $350,000,000 when that comes off, we don't think that has much of an impact relative to the master lease we're getting today. There'll be no debt on the asset at that point. We'll get capitalized interest on that. So that's not going to really have an impact on the numbers.

[Michael Franco, President & CFO at Vornado Realty Trust]

So like we talked the last year about the success we've had backfilling $770,000,000 12 90 million dollars 2 80 million dollars now leasing a Penn that's going to start flowing through a little bit this year, more materially next year and dramatically in 2027. And so sort of model that out as you want based on that comment, but I think that's your trajectory.

[Alexander Goldfarb, Managing Director at Piper Sandler Companies]

Okay. Thank you.

[Michael Franco, President & CFO at Vornado Realty Trust]

Yes.

[Operator]

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

[Ronald Kamdem, Managing Director & Head of US REITs and CRE Research at Morgan Stanley]

Hey, just two quick ones for me. So one is on just on the same store NOI for New York office and it is 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?

[Michael Franco, President & CFO at Vornado Realty Trust]

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

[Ronald Kamdem, Managing Director & Head of US REITs and CRE Research at Morgan Stanley]

Sure thing. Going back to the I had the same sort of question on CapEx, maybe asking in a different way. When I think about sort of the $250,000,000 of CapEx spent this year, which includes $72,000,000 on sort of first generation space. Any sort of thoughts about what $25,000,000, 20 6 million dollars could look like? Are we coming down from those numbers?

[Ronald Kamdem, Managing Director & Head of US REITs and CRE Research at Morgan Stanley]

Are we staying in place? Just any sort of thinking on CapEx as we're thinking about the model? Thanks.

[Michael Franco, President & CFO at Vornado Realty Trust]

I mean, I think the CapEx, we raised it a little bit because and it's a 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 finalize the lease. But we know the leases that are in process. We have an expectation of what we're going to get done beyond that. And so I think that's reflective of the pretty strong leasing environment in addition to some base building capital. So last year, I think we're dead on our prediction.

[Michael Franco, President & CFO at Vornado Realty Trust]

Most years we're frankly not because we've taken a high level of guess. So I think directionally, we're still in the same bucket, $2.5 2 point 7 5 dollars is frankly not that different, right? It's just a matter of what space you end up leasing in a particular year and how much capital you have to spend on the portfolio beyond that. So I think that's a pretty good number directionally for this year, just given some of these big leases that are in the works on Penn and beyond. And as we get into next year, we'll see what's left.

[Michael Franco, President & CFO at Vornado Realty Trust]

But I think that number will start coming down as the portfolio fills back up.

[Ronald Kamdem, Managing Director & Head of US REITs and CRE Research at Morgan Stanley]

Helpful. Thanks so much.

[Operator]

Anthony

[Operator]

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

[Anthony Paolone, Executive Director at J.P. Morgan]

Yes, thanks. Steve, you mentioned just viewing the cost basis around the Hotel Penn site has 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?

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

What do you think of the building costs? My development my young development starts at $1,900 a foot ex land for a Class A building. I won't contest that.

[Anthony Paolone, Executive Director at J.P. Morgan]

And in the yield?

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

Well, if you put land in, so we get to a number which is $2,000 and I don't know, pick a number, dollars 4,500 a foot, some number like that, I don't know. And you put a yield on it, what would you build for now 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 debt. So what's 7% times February

[Michael Franco, President & CFO at Vornado Realty Trust]

'1 hundred and '70 '5 dollars

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

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

[Michael Franco, President & CFO at Vornado Realty Trust]

I agree, which is why it's you talk about being frozen and that doesn't work in the market.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

So but think about that for a second. So one of the reasons that I'm so enthusiastic about the rents at PEN1 and PEN2 and the rest of the portfolio rising from $100 a foot is because you have to figure that a new build is $200 a foot or something like that, maybe a pinch less, 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.

[Anthony Paolone, Executive Director at J.P. Morgan]

Okay. I guess that's what I wanted to understand. So 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 and what it could do for the whole area, not so much thinking about that $2,500 basis in a yield on that.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

Yes. But the fact of the matter is, is that I own the land. I have I bought the land a long time ago. I have no debt on the land. And so given a choice between leaving the land empty or building on it, we'll make those choices.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

That's what we get paid to do.

[Anthony Paolone, Executive Director at J.P. Morgan]

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?

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

No, sir.

[Anthony Paolone, Executive Director at J.P. Morgan]

Okay. It's okay. Thank you.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

Yes. Thank you.

[Operator]

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

[Nicholas Yulico, Managing Director at Scotiabank]

Great. Thanks. In terms of the 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?

[Glen Weiss, Executive VP of Office Leasing & Co-Head of Real Estate at Vornado Realty Trust]

Hi, Nick, it's Glenn. So the answer is yes, which if you think about it, PENN2 and PENN1 are competing with new space. That's a great thing. And as Steve said, our pricing is not near their pricing, even the sublet pricing. So we feel good about the fact that any tenant touring the Westside, whether it's the sublet availability in Hudson Yards or Manhattan West or Penn 1 or Penn 2, we are squarely in that mix every day.

[Glen Weiss, Executive VP of Office Leasing & Co-Head of Real Estate at Vornado Realty Trust]

So we like that. We feel very competitive with it and very comfortable with it.

[Nicholas Yulico, Managing Director at Scotiabank]

Okay. Thanks. Thanks, Glenn. And then second question is just going back to the yield on PEN2. 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 costs there.

[Nicholas Yulico, Managing Director at Scotiabank]

So if we assume that I think at one point in the notes, I saw that it was around $140 was around like a TI leasing commission cost there per foot. I just want to see if that's still right. And if we build that in, is the yield on the project inclusive of that closer to like 7.5%, eight %, is that ballpark correct? Yes.

[Michael Franco, President & CFO at Vornado Realty Trust]

I mean, the answer is that we'll calculate. I mean, I think the thesis is that we would have had to spend the TI dollars leasing commissions anyway, right? And typically, given what's happened, we'll be spending those to generate rents that were not economic now given the quality of the old building. So we thought the incremental cost, it was cost that we spent that we wouldn't have had to spend, right? That's how we got to the number that's in the supplemental and what's the yield on that.

[Michael Franco, President & CFO at Vornado Realty Trust]

So we can factor in the TIs, etcetera, to see, but we would have spent that money anyway.

[Nicholas Yulico, Managing Director at Scotiabank]

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

[Glen Weiss, Executive VP of Office Leasing & Co-Head of Real Estate at Vornado Realty Trust]

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

[Nicholas Yulico, Managing Director at Scotiabank]

All right. Thanks. Appreciate it.

[Operator]

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

[Brendan Lynch, Director at Barclays Capital]

Great. Thanks for taking my question. It looks like you've got about 14% of ABR expiring at five fifty five 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 San Francisco in general.

[Brendan Lynch, Director at Barclays Capital]

Just get some more comment, please.

[Glen Weiss, Executive VP of Office Leasing & Co-Head of Real Estate at Vornado Realty Trust]

Hi, it's Glenn. We remain extremely bullish on our building in San Francisco 555.

[Glen Weiss, Executive VP of Office Leasing & Co-Head of Real Estate at Vornado Realty Trust]

It's the best building in

[Glen Weiss, Executive VP of Office Leasing & Co-Head of Real Estate at Vornado Realty Trust]

the city, probably the state and certainly one of the best in the country. So when you look back from 2021 forward, we had a boatload of 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.

[Glen Weiss, Executive VP of Office Leasing & Co-Head of Real Estate at Vornado Realty Trust]

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 May as we sit here.

[Brendan Lynch, Director at Barclays Capital]

Great. 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?

[Glen Weiss, Executive VP of Office Leasing & Co-Head of Real Estate at Vornado Realty Trust]

The third quarter of so in 2025, there is 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 role.

[Brendan Lynch, Director at Barclays Capital]

Okay, very good. Thank you.

[Operator]

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

[Steve Sakwa, Senior Managing Director & Senior Equity Research Analyst at Evercore ISI]

Yes, thanks. Just one quick follow-up on seven seventy, I realized that Lee, Steve, isn't quite finished, but sounds like it's going to 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 would have straight line rent and we'll have to figure out 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.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

I'm not going to comment on that transaction. It will be final it is finalized actually, but it will be announced, I would hope, by the end of this month. And so the announcements that we make will press release and they will have all the detail that we need to give you guys so that you can understand it. But I mean, you get it. So I don't want to get into the detail now prematurely.

[Steve Sakwa, Senior Managing Director & Senior Equity Research Analyst at Evercore ISI]

Okay. Thank you.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

Yes, sir.

[Operator]

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

[John Kim, Managing Director - US Real Estate at BMO Capital Markets]

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 math 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's been a few out there in various stages.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

None.

[John Kim, Managing Director - US Real Estate at BMO Capital Markets]

So there's not enough demand?

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

No, there's plenty of demand. There's just not the cost of building, I don't know what's going to 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 lack of availability of aggressive capital will make the market frozen. Now 350 Park is a isolated different point of view because we already have a lease for a major tenant and we already have a 60% capital partner. So it's three fifty Park will get off the ground.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

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 PEN15.

[John Kim, Managing Director - US Real Estate at BMO Capital Markets]

Where would rents have to go to justify new development

[John Kim, Managing Director - US Real Estate at BMO Capital Markets]

outside its

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

I've already answered

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

that question. You know, dollars 200 a foot is an interesting boat.

[John Kim, Managing Director - US Real Estate at BMO Capital Markets]

Got it. Great. Thank you.

[Operator]

There are no further questions at this time.

[Steven Roth, Chairman & Chief Executive Officer at Vornado Realty Trust]

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.

Participants

Executives

• Steven Borenstein, EVP & Corporation Counsel
• Steven Roth, Chairman & Chief Executive Officer
• Michael Franco, President & CFO
• Glen Weiss, Executive VP of Office Leasing & Co-Head of Real Estate

Analysts

• Steve Sakwa, Senior Managing Director & Senior Equity Research Analyst at Evercore ISI
• John Kim, Managing Director - US Real Estate at BMO Capital Markets
• Jeffrey Spector, Managing Director at Bank of America
• Dylan Burzinski, Senior Analyst, Office at Green Street Advisors, LLC
• Floris van Dijkum, Managing Director at Compass Point Research & Trading
• Michael Griffin, Senior Equity Research Analyst at Citigroup
• Vikram Malhotra, Managing Director at Mizuho Financial Group, Inc.
• Michael Lewis, Cyber Security Group Manager at Truist Securities
• Alexander Goldfarb, Managing Director at Piper Sandler Companies
• Ronald Kamdem, Managing Director & Head of US REITs and CRE Research at Morgan Stanley
• Anthony Paolone, Executive Director at J.P. Morgan
• Nicholas Yulico, Managing Director at Scotiabank
• Brendan Lynch, Director at Barclays Capital