Vornado Realty Trust Q1 2025 Earnings Report

Vornado Realty Trust EPS Results

• Actual EPS: $0.63
• Consensus EPS: $0.52
• Beat/Miss: Beat by +$0.11
• One Year Ago EPS: $0.55

Vornado Realty Trust Revenue Results

• Actual Revenue: $461.58 million
• Expected Revenue: $452.68 million
• Beat/Miss: Beat by +$8.89 million
• YoY Revenue Growth: +5.80%

Vornado Realty Trust Announcement Details

• Quarter: Q1 2025
• Date: 5/5/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, May 6, 2025
• Conference Call Time: 10:00AM ET

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

Vornado Realty Trust Q1 2025 Earnings Call Transcript

Key Takeaways

• Vornado reported comparable FFO of $0.63 per share in Q1, up $0.08 year-over-year and $0.09 above analyst consensus, while same-store NOI increased 3.5%.
• The company closed the record $20,000/sf Uniqlo sale at 666 Fifth Avenue and a $450 million 1535 Broadway financing, generating roughly $750 million in net proceeds to pay down debt by $915 million and lift cash to $1.4 billion (total liquidity $3 billion).
• A favorable arbitration at PENN1 reset annual ground rent to $15 million (with a potential $20.2 million if tenant challenges fail), prompting a $17.2 million reversal of over-accrued rent and adding about $11 million to annual GAAP earnings.
• Vornado executed a $935 million 70-year master lease with NYU at 770 Broadway, treated as a sale that will recognize an ~$800 million GAAP gain in Q2, retire $700 million of debt and add $200 million in cash, while remaining accretive by $25 million per year.
• Leasing momentum remains strong with 1.04 million sq ft signed in Q1 (including a 337k sf Universal Music Group deal at PENN2), a 2 million sq ft NYC pipeline, and occupancy expected to rise into the low-90s, driving future NOI growth.

Presentation

[Operator]

morning, and welcome to the Vornado Realty Trust First Quarter twenty twenty five Earnings Call. My name is Nick, and I will be your operator for today's call.

[Operator]

This call is being recorded for replay purposes. All lines are in a listen only mode. Our speakers will address your questions at the end of the presentation during the question and answer session. I will now turn the call over to Mr. Steve Borenstein, Executive Vice President and Corporation Counsel.

[Operator]

Please go ahead.

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

Welcome to Vornado Realty Trust's first quarter earnings call. Yesterday afternoon, we issued our first 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 packages, are available on our website, www.bno.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.

[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 ks 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 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.

[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 and Chief Executive Officer at Vornado Realty Trust]

Thank you, Steve, and

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

good morning, everyone. Well, the macro environment in which we operate is certainly different today than when we last spoke three months ago. On their calls, couple of office CEOs didn't think all this would affect their businesses too much, but it will affect our customers, clients, and tenants. So, of course, this will affect all of us somewhat. I know nothing more than you all do but the way I see it the objectives of the tariffs are to introduce symmetry and fairness but even more so to generate a new revenue stream for the federal government which at say a 10 tariff is large enough to make a big dent in getting our federal budget deficit under control.

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

And notwithstanding the tactics, reducing government blow, it has to be a good thing and will also reduce the deficit. I am agnostic. Whatever the outcome, I believe the best bet is that this global kerfuffle will be resolved, settled, over much more quickly than you think. The basic dynamics that I outlined in my recent annual shareholders letter that make us so enthusiastic about the future of our business still hold. Our stock performance is at the head of the office class having increased 49% in 2024 after having increased 36% in 2023.

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

And while year end is down 12% we are down less than the other CBD office companies. Manhattan continues to be the best real estate market in the country especially so for office but also for apartments and retail. In the 180,000,000 square foot Class A better building market in which we compete demand continues to be robust. Available space is evaporating quickly and with the cost of a new build I. E.

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

Replacement cost I'd say $2,500 per square foot and interest rates at 6% to 7% no new supply is on the horizon. All this is the very definition of a landlord's market. We've seen this all play out in past cycles and the story has always been the same. The supply and demand dynamics will push rents higher and existing better buildings will increase in value quite substantially. All good, very good.

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

Here at Grenada our teams have been very busy building liquidity and doing leases and deals. In January we completed the Uniqlo sale at 666 Fifth Avenue at a record breaking $20,000 per square foot. We used the $342,000,000 in net proceeds from the sale to partially redeem our retail JV preferred equity on the asset. So $342,000,000 cash to Grenada. We used this cash to pay at maturity our three point five percent $450,000,000 unsecured bonds.

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

Next, last month we completed a $450,000,000 financing of 1535 Broadway and used the $4.00 $7,000,000 of net proceeds to partially redeem our retail JV equity on the asset. So $4.00 $7,000,000 cash to Veredo which increased our cash balances. This financing was done at a very choppy market with skill and relationships by our capital markets team so all thanks to them. Next on April 22 we received a favorable ruling on the PENN1 ground lease rent reset arbitration. The panel determined that the annual ground rent payables for the twenty five year period beginning 06/17/2023 will be $15,000,000 There is pending litigation and the panel's decision provides that if the fee owner prevails in a final judgment, the annual rent for the twenty five year term will be 20,200,000.0 retroactive to 06/17/2023.

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

For GAAP, we have been accruing 26,200,000.0 per annum of ground rent and therefore as a result of the panel's determination, we reversed $17,200,000 of previously over accrued rent expense in the first quarter. Of note, commencing in the first quarter of twenty twenty five we are now paying 15,000,000 annual rents and so our GAAP earnings will increase by 11,000,000 annually. By the way this PENN1 ground lease as fully extended goes to 02/1998. Next, in March we finalized a major 337,000 square foot lease at Penn too with Universal Music Group, the world's leading music company Think Taylor Swift and her friends. This important deal brings an exciting tenant to the Penn District and takes the building to approximately 50% leased.

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

More leasing at Penn too will follow. Next, yesterday we finally announced the completion of an important deal with NYU with 770 Broadway completing a master lease for 1,100,000 square feet on an as is triple net basis for a seventy year lease term. Under the terms of the lease a rental agreement under section four sixty seven of the Internal Revenue Code, NYU made a prepaid rent payment of $935,000,000 and will also make annual lease payments of $1,300,000 during the lease term. NYU has an option to purchase the lease premises in 02/1955 and at the end of the lease term in 02/1995. NYU will assume the existing office leases and related tenant income at the property.

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

We used a portion of the prepaid rent to pre rent payment to repay the $700,000,000 mortgage loan which previously encumbered the property and $200,000,000 to increase our cash balances. Though this transaction is a lease under GAAP which can be a little wacky it is treated as a sale. As such we will recognize the GAAP financial statement gain of approximately $800,000,000 in the second quarter. We will retain the Wegmans retail condo which will produce 4,700,000 in income this year. The NYU lease absorbs 500,000 square feet currently vacant at the asset.

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

Overall, the transaction is accretive by $25,000,000 annually. If we pro form a leasing the vacancy at market rents with related capital spend downtime and free rent it would have been a pro form a push as you might expect. We are delighted to expand our relationship with NYU and congratulate NYU board chair Evan Chesler and president Linda Mills and their teams. We are excited about their ambitions for for this project. As I have said before, this is all very good for NYU and is very good for New York.

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

NYU's press release issued yesterday is available at www.nyu.educate .ededu. All told so far this year as a result of the above activity, we reduced our debt by $915,000,000, increased our cash by 500,000,000, and our retail JV preferred equity which is an asset on our balance sheet which began the year at 1,828,000,000 is now down to 1,079,000,000. Our cash balances are now 1,400,000,000.0 and together with our undrawn credit lines of 1,600,000,000.0 we have immediate liquidity of $3,000,000,000 The above transactions will increase GAAP earnings by approximately 36,000,000. 20 5 million dollars from the NYU transaction and 11,000,000 from the PENN1 ground rent reset results. Tom, that would be Tom Sinelli, who all of you know, In a more complete analysis including debt repayments and the loss of preferred income calculates $30,000,000 of accretion, I'm happy to defer this half.

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

In a moment Michael will review the quarter and the financials but here are a few headlines of a very good first quarter. Comparable FFO of $0.63 increased by $0.08 versus last year's first quarter and is $09 higher than analyst consensus. Our overall GAAP same store NOI was up 3.5%. We leased 1,039,000 square feet overall of which 709,000 square feet was New York office at $95 starting rents with mark to markets of 6.5 cash and 9.5% GAAP at an average lease term of fourteen point seven years. In addition to the 337,000 square foot lease with Universal Music at PENN2 we leased 163,000 square feet at PENN1.

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

We completed leases totaling 222,000 square feet at our 555 California Road Office Tower in San Francisco at $120 starting rents. 555 continues to be the preferred financial services headquarters in San Francisco and even in this historically soft Market 555 continues to outperform. It is proving that it is the best building in San Francisco. We are big fans of the new San Francisco Mayor Dan Lohrey. Our New York leasing pipeline is a robust 2,000,000 square feet.

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

As I said in my annual shareholders letter released on April 8 the lease up of PENN2 and the lease up of our retail vacancies alone will generate incremental NOI of $125,000,000 and 15,000,000 respectively over the next several years. Tom here is Tom again specifies that while NOI for PENN2 is budgeted to increase by 125,000,000 FFO is budgeted to increase by 95,000,000 the difference being capitalized interest. Either way these are big numbers and with PENN2 built and ready this $125,000,000 per year is as close to a sure thing as there is. The Penn District, a block long city within a city continues to amaze and receive outstanding reviews. We sit on top of Penn Station adjacent to our good neighbors to the West that had to live in Hudson Yards.

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

The three of us combined are what I call the new booming West Side Of Manhattan. 1 of our analysts calls the Penn District 1 of the largest mixed use projects in the country. Be that as it may, the Penn District will be a growth engine for our company for years to come. As I said in my annual letter, we raised market rents in the Penn District from $50 to a hundred dollars. Our neighbors to the West are achieving rents of over $150, and I predict predict that we will do the same in the benefits in due time.

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

You can all do the math as to what the an incremental $50 on 4,300,000 square feet will do to our earnings and values. 350 Park Avenue are with Citadel as our anchor tenant and Ken Griffin as our significant partner has begun the development process to create a grand 1,800,000 square foot headquarters tower on the best site on Park Avenue. The new building will stand out as being truly the best in class. And we have several other assets for sale in the market. We recently filed our very comprehensive sustainability report which can be found in the sustainability page of our website.

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

Verdana was the first in the nation to achieve 100% certification across our entire portfolio of in service buildings. The many awards we have achieved can also be found on the sustainability page on our website. Kudos to Lauren Moss and her team. Finally, one other observation I would make is that the majority of our secured loans reflect current market rates while others are still living off their low rate loans. As I have said before there is really no protection against loans that mature into a rising rate market.

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

Now to Michael.

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

Thank you Steve and good morning everyone. First quarter comparable FFO was $0.63 per share compared to $0.55 per share for last year's first quarter, an increase of 8¢. The increase was primarily due to the impact of the positive ground rent reset determination at PENN1, higher signage NOI and higher NOI from rent commencements, partially offset by the impact from known move outs and lower interest and investment income. We have provided a quarter over quarter bridge on page two of our earnings release and on page five of our financial supplement. On our last earnings call we said that we expected 2025 comparable FFO to be slightly lower than 2024 comparable FFO of $2.26 per share.

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

As a result of the lower than originally estimated PENN1 ground rent, we now expect 2025 comparable FFO to be essentially flat compared to last year. Looking beyond that we expect the lease up of PENN1 and PENN2 to occur with full positive impact in 2027 resulting in significant earnings growth by 2027. Turning to occupancy, as expected our New York occupancy decreased this quarter to 84.4% from 88.8% last quarter which as previously mentioned is primarily the result of PENN2 being placed fully into service. However with the full building master lease at 770 Broadway now completed, our current office occupancy has increased to 87.4% and we anticipate it will tick up over the next year or so into the low 90s. The New York office leasing market maintained strong momentum during the first quarter with the strongest quarterly volume since fourth quarter twenty nineteen.

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

Availability in the best of the ISA market continues to shrink and with only 500,000 square feet of new construction set to deliver during the next several years and 13,000,000 square feet of office to residential conversions in process or announced we expect the market to continue to tighten which sets the tail for strong rental rate growth. While we are of course mindful of companies potentially becoming more cautious in their decision making given the current market volatility, we do not believe it will impact most tenants ultimate decisions to lease space. We remain very constructive on the market and the deal pipeline across our portfolio. The recent major commitments by NYU at 770 Broadway, Deloitte at Hudson Yards and Amazon at 522 Fifth Avenue are perfect examples. During the first quarter our leasing activity once again led the marketplace we completed 31 transactions totaling 709,000 square feet at average starting rents of $95 per square foot and 6.5% positive mark to market.

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

Our activity was highlighted by the largest new lease done in the quarter Universal Music Group's three hundred and thirty seven thousand square foot lease at our new PENN2 anchoring the base of the building on Floors 4 Through 7. We are delighted with this transaction and look forward to Universal creating a world class office and studio production headquarters at PENN2. The transaction strongly reflects the overall quality of the project's new modern high quality workspace and continued attraction to our robust work life amenity program across the Penn District campus. Leasing at Penn one continues at a healthy pace as we leased 163,000 square feet here during the quarter including a 61,000 square foot lease renewal with Cisco along with a 36,000 square foot relocation with United Healthcare and a new lease with Dish Networks for 27,000 square feet. Our deal pipeline at PENN1 and PENN2 is very strong with a variety of new transactions already in lease documentation or deep in letter of intent stages.

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

Excluding the just completed master lease with NYU at 770 Broadway, a New York pipeline consists of 2,000,000 square feet of leases in negotiation at various stages of proposal. In San Francisco at 555 California Street we completed two large headquarter renewal and expansion deals with Dodging Cox and Goldman Sachs both at positive cash mark to markets. Five fifty five continues to strongly outperform the market as we have leased 657,000 square feet since 2022. '5 '50 '5 is the city's flagship office tower with world class tenants and is brilliantly leased in a market which has been one of the more challenging in the country coming out of the pandemic. The market though is finally showing signs of improvement.

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

The new mayor is off to a great start we are confident that he will help restore the city's health and vibrancy. Lastly turning to capital markets, during the first quarter the CMBS market was wide open for large high quality assets such as ours with spreads continuing to tighten. Since the President announced his new tariffs policy on April 2 there's been significant volatility in the financing markets with spreads widening out and new issuances being delayed. Despite this volatility we're able to complete our $15.35 Broadway financing. We expect the market to settle near term if high quality issuers and assets continue to have access to it.

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

We are hard at work on refinancing or extending our upcoming maturities with many in process. 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. If have a question, please press star then 1 on your touchtone phone. If you wish to be removed from the queue, please press star then 2. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers.

[Operator]

Each caller will be asked will be allowed to ask a question and a follow-up question before we move on to the next caller. Please hold as we poll for questions. And your first question today will come from Steve Sakwa with Evercore ISI. Please go ahead.

[Steve Sakwa, Senior Managing Director at Evercore ISI]

Thanks. Good morning. Michael, I was wondering if you could just maybe break down that 2,000,000 square foot, I guess, negotiation between PENN1, PENN2 and then the balance of the portfolio. I guess I wanted to just maybe circle back to Steve's comment last quarter about Pen-two being 80% leased and just trying to understand the volume of activity that you've got particularly at Pen-two.

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

Good morning Steve, why don't you start off and then I'll ship in.

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

Hi Steve, it's Glenn Weiss. So the 2,000,000 pipeline, about 50% is PENN1, PENN2 to start off. There's a lot of great activity at PENN2. We finished obviously Universal, we got more to come and PENN1 continues to flood with new tenants. And at the same time as all this is going on, we continue to press rents upwards by the week.

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

So Penn is really in fifth year, the big part of the pipeline, not all the pipeline, the portfolio overall is performing very well right now. So we're feeling very, very good about where we are along all of our portfolio.

[Steve Sakwa, Senior Managing Director at Evercore ISI]

And just I guess confidence level around kind of getting to that 80% mark by the end of the year at PENN2?

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

Mean, Steve, look what I would say is as we sit

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

here today, we still feel good about it,

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

right whether it happens by the end of the year first quarter or whatnot I think as Steve said in his opening we're going to lease the building right we're generally going to hit the numbers that we laid out there's a significant uptick and whether it happens a quarter earlier quarter later from our perspective it's not going to have a meaningful impact. We're going to get there, the rents that we're going to achieve as we published last quarter are higher. Glenn started pre build program at PENN2, the rents we're achieving there are spectacular, we may do a little bit more of it and so I wouldn't get focused on whether it happens exactly by year but yeah as we sit here today you know our confidence level is the same as it was last quarter.

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

We love our spot here If you think about it, Steve, there's a dwindling supply of quality blocks in the market and certainly nothing like what we did at PENN2. So we think even with more patients the rents will keep rising, the quality of tenants will keep getting better. So we're feeling better and better as we go here overall.

[Steve Sakwa, Senior Managing Director at Evercore ISI]

Okay. And maybe just a follow-up to I think Steve made a comment. I don't know if I caught all of it about 03:50 Park. I just can't remember what your decision to fully go or no go on that project is. And just can you remind us kind of the milestones and maybe achievements that you need to see or want to see in the market to ultimately make that decision?

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

Steve, good morning. Our disclosure on the details that you've just asked about is very robust. Go back and read the 10 ks and the press release. I think that'll be the best way to do it.

[Operator]

And your next question today will come from Dylan Burzynski with Green Street. Please go ahead.

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

Hi, guys. Thanks for taking the question and congrats on closing the NYU transaction. I guess, Steve, I think you mentioned now, after all the transactions closed subsequent to quarter end that you have about $1,400,000,000 of cash on the balance sheet. I guess can you guys just talk about what some of those proceeds might be earmarked for?

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

Sure. Good morning, Dylan. Want to commend you on your report you published I think you nailed $7.70 better than anybody so kudos to you and the team in turn and overall Terms of the cash look we're

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

What that means is that he likes your report.

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

So

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

in terms of the cash look we're obviously pleased with what we've done. I think we've done quite a bit these are our large substantial transactions and if you think about it we've been able to delever the balance sheet meaningfully and yet still have that significant cash balance right so we're in a very good spot What are our plans right in an environment like this where there's clearly a little bit more volatility having more cash is the things we hope and expect that's going to lead to some opportunity to deploy some of that cash and new investments we're looking at the same time you know we have some higher cost debt that we might either pay down or pay off. So I think you'll see a combination of A) leaving in cash as is our history to make sure we have an appropriate buffer for anything, two) tackle some of the debt and then three is hopefully deploy that into new opportunities we see.

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

Taking it a little bit further, we are loading in cash to pay off an unsecured bond that comes due in a year and a fraction. We are loading in cash because we are going to have a robust development program both at 350 Park and at the Penn District and perhaps one other site that we control. And so the cash is a good thing and we're to be using it to grow the company.

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

That's helpful and appreciate the comments on our report from last night. I guess just maybe one other follow-up. Obviously, you guys have done a successful job monetizing some of the prefs and selling some of the assets within the shared retail joint venture. I guess I think last quarter you guys alluded to having additional dispositions or looking to go out and execute additional dispositions. Guess, can you kind of talk about just the appetite of some of these luxury retailers and the desire to want them to continue to own the real estate versus lease the real estate?

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

So I think I said this in my letter. I advertised in a very subtle way that some of the buildings that are outside of New York might be for sale at the right price. That continues to be true. And these are a couple of very large assets so that we'll see how that works. In Manhattan we have a couple of non core buildings that are in the for sale market now.

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

And I think as I said in my letter there are no sacred cows. So the other thing is we have shown a willingness to sell some of these important retail assets when we get a buyer that is willing to pay an appropriate price. That continues to be the case. The interesting thing is it's not just the retailers that are buying these assets. Like, for example, Amazon is coming in and buying significant assets in Midtown Manhattan for, I guess, their HQ3 or whatever it might be.

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

So there's lots of examples of some of these larger companies which are switching their strategy from leasing to buying and that's a good thing. We know that that's aggressively happening in New York. I'm not aware of whether that's true in the rest of the country. But for New York and for the New York real estate market that's a very good thing.

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

Great. Appreciate the color and congrats, Gonzalez. Thanks.

[Operator]

And your next question today will come from John Kim with BMO Capital Markets. Please go ahead.

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

Can I just follow-up on real estate valuations? We've seen High Street retail kind of go back to 2019 levels. On the assets that you're looking to potentially sell, whether in New York or outside, and including five fifty five Cal. Are we going to go back to twenty nineteen valuations or exceed them?

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

Sure.

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

I think John I would just add on to what Steve said and I think if you look at what we've done to date, I don't know that any of these assets were quote on the market. We're being targeted opportunistic about the right counterparty I think that continues to generally the case the capital markets continue to improve on the sales side but you know you got to be you got to figure out who the right buyer investor is and I think what's this cycle is once again validated is that great assets command great prices, right? The best is always the best and you know maybe out of favor for a little bit of time but if you're patient, you weather the storm then that's going to recover, right? And that clearly was the case in street retail. I think that's going to be the case with if you look at some of the financings and the implied values from New York office and certainly the trophy assets in San Francisco.

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

So the best is generally always the best.

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

My succinct one word answer sure really to interpret that was that we are not going to sell great assets at distressed prices that came from COVID or whatever. So the benchmark is pre COVID which is 2019. And these assets have recovered, they are recovering, and they will command increasing prices over time.

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

That's great color. Thank you. On the leasing pipeline, which increased pretty significantly from last quarter, can you describe how much of that is on your in service portfolio or leases that could drive occupancy over the next couple of years versus maybe three fifty Park or an early renewal that won't drive SSL?

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

A very significant portion of the pipeline will increase occupancy without a doubt. A lot of its absorption, a lot of new deals, a lot of expansion. There's a lot of expansion in New York in our properties right now. So a lot of our significant activity will absorb vacant space over the next nine, twelve months without a doubt.

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

This is the first time on this call that the word occupancy came up. So will somebody cover occupancy because the occupancy number that we reported is aberrantly low and let's see if we can get an accurate portrayal of what our expected occupancy is into this call.

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

So John, on the policy's comment, think we had telegraphed this the last couple of quarters that our occupancy was going to go down and we brought PEN2 in service which we did fully this quarter, right. So we published eighty four point four, we talked about pro form a what it is when you add in July which goes to eighty seven point four. And then I said in my prepared remarks that we'd like it to be 90% plus in the next twelve months or so. Obviously a lot of that's driven by PENN2. I think as we look more broadly in New York, if we lease up PENN1 and PENN2 or when we lease up PENN1 and PENN2 fully and let's say that happens in the next twenty four months and a a couple of things here and there.

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

We're going to be at about 94% occupancy so I can't say exactly when that's going to happen but if you just think about if we execute on PENN1, PENN2, a little bit of space December, '2 '80, we're going to be at that 94% level and we love that position, right. So from our standpoint in terms of driving growth, we have our best assets that have some holes in them today. There's fewer options in the market, we've just deployed a significant amount of capital in these assets, Glenn talked about how the rents are rising not just in the market but specifically at these assets and so that's all going to translate into growth and I think as we've said in the last couple calls you know that really kicks in in 2027 so we feel good about the position and that I think from an occupancy standpoint you know we always ran the business at around 9596% and I think when we get a couple years out our expectation is we're gonna get back there.

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

The most significant thing to keep in your mind is that as occupancy rises earnings rise and they rise significantly and so that's a very interesting factor.

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

Yep, good stuff. Thank you.

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

Yep.

[Operator]

And your next question today will come from Floris Van Dijkum with Compass Point. Please go ahead.

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

Hey, good morning guys. Thanks for taking my question. Getting back to your comment on the one of the most valuable mixed use projects in the country, which the Penn District is.

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

Who said that?

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

I

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

don't know, somebody mentioned that. Hopefully that caught your attention. Of the obviously, you know, 300,000,000 of NOI once PENN1, PENN2 are stabilized is pretty impressive. But can you talk about one of the things we noticed this quarter, and I suspect it's going to be the case for the next couple of quarters, the gap, there's roughly a 20,000,000 gap between GAAP NOI and cash NOI, presumably as free rents in PENN2 as that comes online before you actually get the actual cash. How long is that going to last?

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

And at some point, are you going to see or when do you think you're going to inflect and see cash NOI actually be stronger than your GAAP NOI going forward?

[Thomas Sanelli, Executive VP of Finance & Chief Administrative Officer at Vornado Realty Trust]

Yeah, I think Flora, a great question. I think we should probably take it offline. Most of that is going to happen in the later years. As Michael indicated, we start seeing 2027 earnings really pop. So that's probably the years you're going see it, but that's something that we probably take offline in more detail.

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

Great. And then the other thing, and again, I think you guys sometimes do yourself a disservice by being as transparent as well, transparent in some ways as you are with the occupancy in particular. Have you ever thought about showing what your core occupancy is or in line or in service properties? Because obviously you've got a couple of assets that you're keeping vacant right now, particularly in your retail portfolio, which impact your stated occupancy levels significantly?

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

We have thought about that for us, but your comment now make us think a little bit harder about whether we should do that because we are we have kept certain assets offline and continue to do that pending either redevelopment or maybe in a case or two a workout. So it's a fair comment.

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

Thanks guys that's it for me

[Operator]

thank you and your next question today will come from Alexander Goldfarb with Piper Sandler please go ahead

[Alexander Goldfarb, Managing Director & Senior Analyst at Piper Sandler Companies]

Hey, good morning. Morning down there. Steve, question for you, looking at the Deloitte deal, pretty impressive 800,000 square feet to anchor a new development. How does the math behind that project compare to what you guys would need for PENN 15? And just trying to understand if we're getting closer where a $2,000,000 plus project can pencil or if the market is still limited to call it million, million 2 type developments?

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

Good morning, Alex. Before we get into that, you wrote a piece on Alexander's that came out, I think yesterday?

[Alexander Goldfarb, Managing Director & Senior Analyst at Piper Sandler Companies]

Yes. Yesterday.

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

And

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

so I think you're the only person that I know covers it. But in any event, let me help you by saying correcting you in two things. Number one, we will not, let me emphasize the word not, use our cash to pay down the $7.31 retail loan. We're not doing that.

[Alexander Goldfarb, Managing Director & Senior Analyst at Piper Sandler Companies]

Okay. We'll note that. We will note that.

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

And the second thing is we are not merging Alexander's into Veredo. Okay, so once we get the Oscar, we get beyond that. Look, we were shown the Deloitte ideal as was all of the developers in town. We think we have the best vacant piece of land on the West Side Of Manhattan. Now I've said frequently that I think it's the second best piece of land in town.

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

The first best being our Park Avenue site. And so the deal that was made was a very aggressive deal for the tenant. The pricing was very tight. We're not bashful to say no to a deal that doesn't give us the financial results that we think our shareholders are entitled to. So we're getting there and I think we're on the foothills of landlord's bull market and we think that values prices and transactions are going to go up.

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

We think that the number of new builds will be very scarce and so we think we're in a pretty good spot. We are patient if you just look at what happened with the Alexander's deal which was a long time ago but nonetheless we let deal after deal pass by until we did the deal with Bloomberg which turned out to be extraordinary. So we're getting there and we're very happy with our position.

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

The way, the

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

interesting thing is that a lot of this comes from our financial strength. So we can be relatively patient because of our financial strength. So the PEN15 lot has no debt on it. PEN1 Building has no debt on it. The PEN2 Building has no debt on it.

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

The Farley MedEd Building has no debt on it. So that's a pretty good spot to be in. And it's not we're basically a secured lender is the way we structure our business. Those assets have no debt and that's a great place to be.

[Alexander Goldfarb, Managing Director & Senior Analyst at Piper Sandler Companies]

Okay. So let me ask you, you wrote a Chairman's letter as you always do. You talked about the attractiveness of apartment developments in part because of the smaller size. However, if you look at some of the legislation that Albany has passed, it makes the math tougher if you do tax incentive deals, the bigger the project. So as you think about your apartment potential, are you thinking about it on as of right sites?

[Alexander Goldfarb, Managing Director & Senior Analyst at Piper Sandler Companies]

Or are you thinking about smaller scale projects? Or how are you thinking about apartments fitting in as you expand your thoughts on development and harvesting your different sites? Are these existing sites, new sites? Your thoughts.

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

Oh Lord, when you have the kind of city down at Pennant rehab, you have to consider both office We're principally an office company. We like the dynamics of the office business. We like them as they are improving today. But you cannot disregard the fact that if you look back over the past decades apartments have created more value than office has. The office market is volatile over long periods of time.

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

The apartment markets are very less volatile. Nonetheless, the political overtone of the apartment business is much more complicated than the office business. So there's a little bit of this, a little bit that we will be building some apartments in the Penn District. It will not be a total apartment development project.

[Alexander Goldfarb, Managing Director & Senior Analyst at Piper Sandler Companies]

Thank you, Steve.

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

Thank you, Alex. And remember, we're not paying off that loan with cash.

[Alexander Goldfarb, Managing Director & Senior Analyst at Piper Sandler Companies]

I will tell my colleague Connor that.

[Operator]

And your next question today will come from Yana Gellen with Bank of America. Please go ahead.

[Jana Galan, Director at Bank of America]

Thank you. Good morning and congrats on a strong start to the year. It seems like a recent big trend in New York City is of kind of owner occupiers both in office and retail. And I was just curious if you could kind of comment on what you're seeing in particular with some of the dispositions you may be looking to do.

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

I think we covered a lot of that. Michael, give it another shot.

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

Thanks, Yana. I appreciate the comment. Look, I

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

think you're

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

seeing the owner occupiers, mean retail I think we've talked about going back over the last year where you saw that activity first, you saw with Prada, you saw with Kering, you saw Uniqlo and there continues to be interest there and I think that's a function and all that was on Fifth Avenue although you saw a couple of situations down in Soho recently you know if you look at what Ralph Lauren just did in Soho, paid a significant number for that store, Dyson down in Soho and so what these retailers are basically saying is that in these great forever spots Fifth Avenue, Soho, Madison Avenue, Times Square, that are sort of the four key areas of Manhattan. They want to be here forever, right? These sales volumes that they do in Manhattan are multiples of what they do anywhere in The US and in many cases around the world so they want to be here forever and rather than wrangling with the tornadoes of the world every ten or fifteen years they just want to own it right? And they're prepared to pay a significant number to control that forever. So that's a good thing.

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

We've had some additional income issues on that and if we get the right numbers on situations then we'll transact but that continues to be an area where retailers are active. On the office side as well you've seen some owner user activity and again let's go back to what that is a function of right and I think Steve made the distinction that we really haven't seen that elsewhere maybe it's occurred but I think it's occurred in the volume here and I think it's fundamentally driven by talent wants to be in New York right and it really is driving every asset class and so Alex to your point how can you make the math work the math works on these sites alright notwithstanding your comment on the 99 the math works why does it work because rents are continuing to go up we have a massive shortage in New York City it's not going to get eradicated in the next decade so anybody in adult departments are probably going do fine all right but back to office so talent wants to be here, employers have no issue getting their employees in the office, this is where all the young people want to come to and so they're basically staking out their ground and you know in many of these companies cases they borrow cheaper than real estate companies, they borrow cheaper than any companies for that matter and they're using that capital.

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

So in Amazon's case where they have stepped up in a big way here recently, They want to be here, they want to grow here and they're going to use their balance sheet aggressively given again the fact that they want to be here long term and the amount of capital they're going to deploy in their assets above what a landlord would normally deploy is significant. So they want to own that forever and so when you think about NYU, NYU didn't buy the building from us but they committed to lease it for a long term so they can amortize the capital they're going to deploy in that asset and so they have long term control of that asset. So is it going to be something we're going to see every week? Probably not but I don't think this will be the last of those given companies that have significant capital and can deploy that cost effectively. It's a good solution.

[Jana Galan, Director at Bank of America]

Thank you.

[Operator]

Your next question today will come from Seth Berge with Citi. Please go ahead.

[Seth Bergey, Senior Analyst at Citi]

Hi. Thanks for taking my question. I guess, you know, it sounds like demand has improved. Your leasing pipeline has grown. What types of behavior are you seeing change from tenants?

[Seth Bergey, Senior Analyst at Citi]

Like are you seeing any improvement on concessions or early renewal activity in addition to the rent growth that you're seeing?

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

It's Glenn. Certainly, we're seeing rent growth. That's the first discussion. Rents are going up and tenants realize rents are going up. Number two, we are starting to see a reduction in the free rent packages.

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

On the TIs, the TIs have stubbornly stayed basically at the same levels. So I would say rents are improving and free rents are starting to come down. As part of early renewals, we're definitely seeing people come to us earlier now because they're concerned about where the market is going to go more and more towards the landlord's market. So we have some larger deals in this pipeline as it relates to early renewals for sure. But I'll tell you the one takeaway I would tell you is expansions.

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

The expansions in New York, there's expansions going on all over the market in every submarket and definitely in our portfolio. So a lot of growth in New York and not just financial, you're seeing tech now grow, the law firms grow, consulting firms grow, media, entertainment, like the Universal deal. So I mean that's basically around what you're asking.

[Seth Bergey, Senior Analyst at Citi]

Yeah, thanks. That's helpful. And then I guess for a follow-up, I just wanted to go back to your comments about the capital intensiveness of office buildings versus apartments. I guess, does that it sounds like there's kind of puts and takes to both asset classes, but does that change how you think about investing in the portfolio over the longer term?

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

Look, I think it oriented to is, you want to own high quality buildings, the highest quality buildings, right? Because that those are the buildings that are experiencing the demand where you can push rents the most, where you can start to tighten some of the concessions. You're seeing that play out now and we think that's going to continue to play out. So the capital is not going to be avoided, Even if PIs go down a little bit, time you turn these spaces over every ten, fifteen years of a tenant leaves, there's going be meaningful capital requirements there. So, in order for that to be an appropriate investment, rents have to rise and that oriented towards the higher quality buildings.

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

So I think what we've tried to do in the last several years is reshape our portfolio, you know sell assets that we viewed as is not best positioned for the future and you know have a portfolio that we think is well positioned for that and you know we 100% there? No, but you know we're pretty close and we feel good about it and so I think that's where you have to be investing in is those and you know we've modernized our assets, they're in the right locations, I think your portfolio has to be oriented that way to succeed given the capital requirements.

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

Couple of things, we expect rents to rise, we expect free rent to start to come in as the market tightens. We don't believe that cash TIs are going to come in because the tenants really are spending a lot more than that to develop the space. So rents and free rent, face rents and free rents will improve. We don't believe that cash TIs will improve. So there's that.

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

With respect to the mix of between apartments and office, we're an office company. In our major development activities, we will be developing office. In the Penn District, we will be sprinkling in, I wanna say, a not insignificant amount of apartments as well. I don't believe that we will be a buyer of existing apartment buildings. We've looked at some but basically I think we'll be a developer of apartments but a reluctant buyer of apartments.

[Seth Bergey, Senior Analyst at Citi]

Great. Thank you.

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

Thank you.

[Operator]

And your next question today will come from Anthony Paolone with JPMorgan. Please go ahead.

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

Yes, thanks. So I guess just following up to some of these questions around Penn District and apartments versus office. I mean, what do you think is the next project that Vornado pursues in the Penn District? Like is it apartments because it's smaller versus Penn 15? Or how should we think about that?

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

And also in the same vein, your thoughts federal government getting involved with the planning of Penn Station and how that might impact you?

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

We're not going to pregame what we're doing by announcing today what the mix of apartment. We'll do that when we actually start to do something that's a real project we will notify the market. We've already said that we are focused on doing a small apartment project on Eighth Avenue and 30 Fourth Street on a piece of land, a smallish piece of land we own there. So that's in the works. Otherwise we will announce development starts when they start.

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

With respect to the question about the federal government getting involved in Penn, we think that's great. I'm gonna turn that over to Barry because he likes to talk about that one. Go ahead Barry.

[Barry Langer, Executive VP of Development & Co-Head of Real Estate at Vornado Realty Trust]

Good morning. As you're aware we've spent a lot of time over the last several years working on several public private partnerships making Penn Station better whether or that's the Moynihan Train Hall, the Walnut River 30 Third Street Concourse with a

[Barry Langer, Executive VP of Development & Co-Head of Real Estate at Vornado Realty Trust]

couple new entrances we worked with

[Barry Langer, Executive VP of Development & Co-Head of Real Estate at Vornado Realty Trust]

the government's building on Seventh Avenue. Anyone that wants to keep investing in Penn Station and continue the good work we've done to continue making Penn Station that we support.

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

So there's that. By the way, when was the last time that you walked through the Penn District?

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

Last weekend.

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

Oh, good. So I think that you'll agree that the Penn District, the legacy idea that Penn is, is, what's a good word? That Penney is a sloppy a sloppy district that passed. So when you walk down there now, what we've done on Seventh Avenue, what we've done with the buildings, all the granite that we put in the sidewalk, the Moynihan Train Station is spectacular. The train hall is spectacular.

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

The Long Island Railroad Congress too. So the Penn District looks a lot different today than it did five years ago and we're pretty proud of that. Anybody that wants to come in and help us finish the job below ground, basically we own all of the above ground. But the governments and the railroads own the below ground. Anybody that wants to help us fix that, we're in favor of.

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

Okay, thanks. And then just a quick follow-up. I may have missed this, it might be in the queue. But just what is the remaining par value for the preps that you have in the Fifth Avenue JV now and the yield on that?

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

It's about $1,050,000,000,000 dollars in round numbers and the yield on that is 5.5.

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

It probably blends to about 5% Tony,

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

it's probably about 5%. So Steve's accurate on the amount.

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

Okay thank you

[Operator]

yep and your next question today will come from Caitlin Burrows with Goldman Sachs please go ahead

[Caitlin Burrows, Vice President at Goldman Sachs]

hi good morning maybe first I feel like it's been talked about a couple different ways but you mentioned in the prepared remarks at the very beginning how you didn't think the uncertainty in the macro would impact leasing. So I was just wondering if you could talk about that a little bit more, kind of what gives you that confidence? And any more specific detail you can give on like trends through 1Q and April and now into May?

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

We have not seen an impact on our leasing as of yet, but of course, we're mindful of it. We're getting our deals done and we'd be irresponsible enough to be thinking about it and paying attention to it but thus far we've had no impact yet on the leasing.

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

Mean Kaylee what I would say is just to add on to what Glenn said that you know if you look at the Amazon announcement, Deloitte announcement, the NYU announcement, mean these are all done in the last couple weeks. So of course companies, tenants fully aware of what's going on and you know making decisions and still proceed. Now let's not say every deal is going to proceed but you know I think there's a bias towards we're in some volatility and I think as Steve said in the outset you know this is going to get settled in the near term. On the retailer side, those that source product overseas, obviously it's got a more dramatic impact on their business, right? They're going to certainly pause until they see what what exact translates into and so we've seen a little impact from some of those players.

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

So I think Glenn characterized right, to date not much but you have to be mindful of it.

[Caitlin Burrows, Vice President at Goldman Sachs]

Got it, okay. And then you guys did talk about how all of this kind of NOI and earnings will come on over the next couple of years and you have great visibility but that there will also be some refi headwinds. I was just wondering as it relates to maybe even the remaining 2025 and early twenty twenty six maturities, if there's any guideposts? Or how do you think about the amount of refi headwinds that it could be? Like would you assume similar spreads that are in place?

[Caitlin Burrows, Vice President at Goldman Sachs]

Or those go up as well? Anything on that topic?

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

Yeah, I mean, look, the team is hard at work on everything that's maturing. We're feeling great about the pricing about forty five days ago, obviously that's gapped out a little bit, but the market's definitely open and you can execute. And so we have a number of things in process that we hope to get done over the course of the next this quarter. So, we feel pretty good about executing everything. I think in terms of just looking through the list right now in terms of pricing and amounts, I think generally and I think reflective of the market, all these can be refinanced at par.

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

Now whether we choose to do that or not based on pricing, we'll make that decision as we get closer, but the market supportive of the proceeds level because again, it's not that high leverage to start with and I think you have to go asset by asset. In some cases, we'll roll those over pretty close to where they are today and other cases, for example, like an Independence Plaza, we're coming off a four and a quarter fixed rate loan you know that's not going to hold given that you know treasuries themselves are at 4% today so you know we'll have some coupon expansion there. In other cases I think it'll roll over pretty close to flat so you know but all that sort of baked in you know the guidance that you know we sort of talked about in terms of where we thought we'd be this year and where we think we'll be in next couple years so like we'll have to see where the markets are when we actually price the assets but the markets open, we expect to tackle these over the next couple quarters and you know in total I think there'll be a little bit of increase in terms interest but not dramatic.

[Caitlin Burrows, Vice President at Goldman Sachs]

Thank you.

[Operator]

And our next question today will come from Ronald Camden with Morgan Stanley. Please go ahead.

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

Hey just two quick ones. The first is just I said occupancy trajectory was really helpful. Just wondering if we could sort of take that a step further. Should we be expecting sort of the same store NOI and so forth to also be sort of accelerating through to 2027 or are there sort of other considerations?

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

Yeah

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

I think in terms of '27 absolute you know this year you know we'll see I think again it's flattish as we talked about so I don't think you'll see it this year but I think as we get you know the assets get leased up will it follow that same trajectory? Yes.

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

Great and then my second one is just on just on capital allocation if you could just remind us what's what sort of the waterfall is now between development, redevelopment, buying back stock and so forth, and any update on sort of the Hotel Penn site and that potential sale? Thanks.

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

The answer is we look at all opportunities and decide where we can best deploy that capital. And obviously we don't want to sort of spend down oil as dollar, but developments are long process, so some things we're talking about today, you may proceed but that capital doesn't get spent for really several years as you ramp that up. I think in terms of stock buybacks, not front of mind today, we still see good value there but it was obviously when I was back in the teens when we started the program that was more dramatic. So that's I'd say today the focus is on investing in our existing business whether that's new development or paying down some debt and then as I said, we are looking at some external opportunities and just hard put the odds on whether any of those move forward or

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

not yet.

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

Great, thanks so much.

[Operator]

And your next question today will come from Nick Yulico with Scotiabank. Please go ahead.

[Nicholas Yulico, Managing Director at Scotiabank]

Hi, thanks. Just going back to the NYU transaction, I think you said it's accretive by $25,000,000 annually. So paying off the mortgage, it looks like is a $35,000,000 benefit. So can you just walk us through what's the offset from that? And then also on the NOI side, how we should think about if there's any difference on the cash versus GAAP treatment going forward there?

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

That sounds like a Tom. Sure.

[Thomas Sanelli, Executive VP of Finance & Chief Administrative Officer at Vornado Realty Trust]

So I think you're 35, you're including the swap that we have. That's at the corporate level, so we're moving that swap. So if you exclude the swap, it's the interest expense on that asset is 47. The current NOI is around 49.5, so that gets you the current NOI at about flat. When you look forward and you include the payment that we're going to get from NYU plus the Wegmans deal, plus the interest on the 200 plus that we're retaining, that gets you to about, call it, dollars 29,000,000.

[Thomas Sanelli, Executive VP of Finance & Chief Administrative Officer at Vornado Realty Trust]

That's the $51,000,000 Steve referenced in the prepared remarks.

[Nicholas Yulico, Managing Director at Scotiabank]

Okay, thanks. That's very helpful. Just second question is on, I think you gave the least number for PENN2 at around 50%. Is it possible to get the least number for PENN1? I know it's 88% occupied.

[Nicholas Yulico, Managing Director at Scotiabank]

Is the least number higher than that?

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

It's the same number.

[Nicholas Yulico, Managing Director at Scotiabank]

Great. Thank you.

[Operator]

And your final question today will come from Alexander Goldfarb of Piper Sandler with a follow-up. Please go ahead.

[Alexander Goldfarb, Managing Director & Senior Analyst at Piper Sandler Companies]

Hey, thank you for taking the follow-up. Steve, I realize you're probably not going to give the intimate details of the ground rent litigation. But from a big picture perspective, the arbitration panel agreed to $15,000,000 but now there's litigation pursuing 20,000,000 From a big picture perspective, can you help us understand how this works? I would have thought the arbitration panel was the final determinant.

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

Alex, it is. Arbitration there's litigation pending. That litigation will extend through appeals for who knows how much longer. By the way, we think we have a very good position there, but leave that as it may. The arbitration panel handled the eventuality as to whether the landlord or the tenant, where the tenant wins that arbitration.

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

So the $15,000,000 is set for the base case. If we win the litigation, the $15,000,000 continues for the twenty five years. If we lose the litigation, the $15,000,000 becomes $20,000,000 So we're in a pretty good spot. Have established the values have been established in whichever way the litigation goes. So it's as simple as that Alex.

[Alexander Goldfarb, Managing Director & Senior Analyst at Piper Sandler Companies]

Okay, that's helpful. Thank you.

[Operator]

Yep. Includes our question and answer session. I would like to turn the conference back over to Stephen Roth for any closing remarks.

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

Thank you, everyone. We've had a very robust conversation this morning. The first quarter was very active, very constructive with lots of good stuff. And we look forward to seeing you at the next call which will be when is it?

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

August 5. The next

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

call is August 5. So we look forward to that. Have a good summer so far.

[Operator]

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

Participants

Executives

• Steven Borenstein, EVP & Corporation Counsel
• Steven Roth, Chairman and Chief Executive Officer
• Michael Franco, President & CFO
• Glen Weiss, Executive VP of Office Leasing & Co-Head of Real Estate
• Thomas Sanelli, Executive VP of Finance & Chief Administrative Officer
• Barry Langer, Executive VP of Development & Co-Head of Real Estate

Analysts

• Steve Sakwa, Senior Managing Director at Evercore ISI
• Dylan Burzinski, Senior Analyst, Office at Green Street Advisors, LLC
• John Kim, Managing Director - US Real Estate at BMO Capital Markets
• Floris van Dijkum, Managing Director at Compass Point Research & Trading
• Alexander Goldfarb, Managing Director & Senior Analyst at Piper Sandler Companies
• Jana Galan, Director at Bank of America
• Seth Bergey, Senior Analyst at Citi
• Anthony Paolone, Executive Director at J.P. Morgan
• Caitlin Burrows, Vice President at Goldman Sachs
• Ronald Kamdem, Managing Director & Head of US REITs and CRE Research at Morgan Stanley
• Nicholas Yulico, Managing Director at Scotiabank