Vornado Realty Trust Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
August 5, 2025

Key Takeaways

  • Positive Sentiment: Vornado reported 2.7 million sq.ft. of leasing in 1H25, including 1.5 million sq.ft. in Q2 Manhattan at an average starting rent of $101/sq.ft. with GAAP mark‐to‐market gains of 11.8%.
  • Positive Sentiment: Penn District occupancy is rising, with PENN1 at 90% and PENN2 at 62%, highlighted by a 203K sq.ft. Verizon HQ lease and 560K sq.ft. of additional leases in negotiation.
  • Positive Sentiment: Liquidity is robust with $2.9 billion of immediate availability (cash of $1.36B plus $1.56B undrawn lines), and net debt/EBITDA improved to 7.2x from 8.6x.
  • Neutral Sentiment: Management reiterated that The Mart in Chicago and 555 California in San Francisco may be sold at the right price, as part of ongoing capital allocation strategy.
  • Negative Sentiment: An eleventh‐hour motion was filed by the PENN1 ground lessor to vacate the arbitration panel’s rent reset determination, creating legal uncertainty.
AI Generated. May Contain Errors.
Earnings Conference Call
Vornado Realty Trust Q2 2025
00:00 / 00:00

There are 13 speakers on the call.

Operator

Good morning, and welcome to the Vornado Realty Trust Second Quarter twenty twenty five Earnings Call. My name is Michael, 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

I will now turn the call over to Mr. Steve Borenstein, Executive Vice President and Corporation Counsel. Please go ahead.

Speaker 1

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

Speaker 1

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 Securities the 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.

Speaker 1

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

Speaker 2

and good morning, everyone. Let me start by expressing our sorrow about the tragic and senseless shootings at 03:45 Park Avenue last last week. Our deep condolences go out to the victims families and friends. We have many friends in that building and ownership and occupiers and we stand with them as they deal with this terrible tragedy. To continue, here at Grenada our business continues to be strong, is getting stronger and I remain incredibly enthusiastic about our future prospects.

Speaker 2

Our stock performance leads the office sector have increased 42% over the trailing twelve months, almost double the S and P 500. I was quite surprised that broadly speaking every other office REIT whether East Coast or West Coast including all the other New York office specialists were negative during that period. We had an excellent quarter and Michael will cover the results shortly. By excellent I mean leasing, balance sheet and Penn all excellent. Let me once again discuss what we see on the ground and our business strategy.

Speaker 2

We are 90% New York centric company. Actually we are a 90% prime pitch Manhattan centric company. We do own a single large building in Chicago, The Mart and a single complex at 555 California Street the number one building in San Francisco. These two assets may be on the for sale list for the right deal at the right time. Manhattan is universally claimed to be the strongest real estate market in the country and I mean the strongest by far.

Speaker 2

While Manhattan may have nearly four twenty million square feet of office space, we actually competed in a much smaller 180,000,000 square foot Class A better building market. Our clients are expanding, demand is strong and broad based and here's the punch line available space continues to evaporate quickly. Replacement costs for a Class A tower in Manhattan has risen to call it $2,500 per square foot. With interest rates at six or six plus percent rents in the 200s are now commonplace. Think about it $100 rents were rare only a few years ago.

Speaker 2

I believe this math is telling us there will only be a trickle of new supply for the foreseeable future at least through the end of the decade. Remember it takes five years from start to deliver a new build tower in New York. And that trickle of supply however unlikely will undoubtedly be spoken for and not create speculative space available to the market. Taken together all this is the very definition of a landlord's market. With tight availability in Class A better buildings in the Manhattan and Westside Corridor and no new supply coming for the rest of the decade I believe the next few years have the potential to be one of the strongest periods of rental growth we've seen in decades and it's already started.

Speaker 2

That said logically and for certain values will increase as well. Here is our industry leading leasing scorecard. During the 2025 we leased 2,700,000 square feet overall of which 2,200,000 square feet was Manhattan office. That includes the 1,100,000 square foot master lease with NOI with 770 Broadway the largest New York office lease since 2019 which by the way absorbed 500,000 square feet of vacancy at that property. The remaining 1,100,000 square feet of leasing during the first half was at $97 per square foot average starting rents with mark to markets of plus 10.7% GAAP and plus 7.7% cash.

Speaker 2

During the second quarter in Manhattan we executed 27 deals totaling 1,500,000 square feet including NYU. Excluding NYU the remaining 400,000 square feet of Manhattan office leasing for the quarter was at $101 per square foot starting rents with mark to markets of plus 11.8% GAAP and plus 8.7% cash. We continue to achieve the highest average rents in the city. This quarter leasing was 190,000 square feet in Penn and 210000 square feet in our other Manhattan assets. Importantly, our leasing this quarter included 12 transactions for 183,000 square feet at PENN1 at an average starting rent of $101 per square foot bringing occupancy here to 90 Here's an interesting factoid.

Speaker 2

Since the start of physical development we have leased 1,600,000 square feet at PENN1 at average rents of $94 At PENN, we are handily exceeding both our initial underwriting and our increased underwriting. Here's another way to look at it. Looking towards the future, everyone is modeling large increases in Vornado's earnings as leases at PENN1 and PENN2 come online as they should. This is all based on rents of say $100 per square foot. But our neighbors to the West are achieving $150 per square foot and over time so will we.

Speaker 2

Think about it PENN1, PENN2 and Farley together comprise 5,000,000 square feet. So the math says every $10 a foot uptick in red shields $50,000,000 to the bottom line. And what's more when the uptick I. E. Market rents get to $150 a square foot about 5,000,000 square feet that's an increment of $250,000,000 per year.

Speaker 2

Same store asset appreciation over time is the ticket to success in the property business. Tenants are expanding in the Penn District. As an example on the last quarter Samsung doubled its space at PEN11 and since its first 220,000 square foot lease signed in 2020 a major tech tenant at PEN11 has expanded three more times now occupying 460,000 square feet in that building. Last week after the quarter ended and not included in the leasing statistics we announced a 203,000 square foot headquarters lease at with Verizon Communications one of the world's leading telecommunications companies. Verizon now joins other top tier tenants Madison Square Garden, Major League Soccer and Universal Music Group at PENN2.

Speaker 2

We are of course delighted to welcome Verizon. Verizon's choice of PENN and their enthusiasm for their new home can best be described by lifting a quote from their press release by one of their senior executives. New York City isn't just where we work, it's who we are. Our employees deserve a workplace that is just as vibrant as our culture. PENN2 is more than an office it's a space designed to bring us together to collaborate, to celebrate, to think boldly, to build the future side by side.

Speaker 2

The Verizon folks get it. This is a very important deal and continues to validate the product. This is a very important deal. Occupancy at PENN2 is now 62% and we have multiple deals in the on deck circle which will keep our occupancy marching upward. The PENN District our three block long city within the city continues

Operator

to amaze and impress tenants and stakeholders. We sit atop the nexus of Pennsylvania Station and the New York City subway system adjacent to our good neighbors to

Speaker 2

the West Manhattan West and Hudson Yards. The three of us combined represent the new booming West Side Of Manhattan. At Penn Penn we are creating a campus of multiple interconnected buildings under one ownership. We're delivering exactly as we said we would and there is much more to come. As a starter we are well along in the development process for a four seventy five year rental residential project on our 30 Fourth Street site Catty Corner to the Moynihan Train Hall.

Speaker 2

Next we are going to transform as much as 700 front feet of tired old retail on both sides of Seventh Avenue along 30 Fourth Street into attractive modern and exciting retail offerings. The gateway to Penn is Seventh Avenue at 30 Fourth Street. This stretch across the street from Macy's used to be a top three location and returning to that top three is our goal. As I said before, the Penn District will be a growth engine for the company for years to come with rising rents and future development projects including PEN15 the PEN15 site and potential residential opportunities. We also continue to add to our already impressive food offerings in the district with our newest restaurant the Dynamo Room which opened last month to great reviews.

Speaker 2

Avril will open at Farley in the fall. And our rooftop park at PENN2 called The Perch named The Perch is the best spot in the city for view, food, gathering or just chilling. Come see PENN for yourself. I invite you to come to Penn District anytime but especially at happy hour where you will see every scene in every restaurant and amenity whether it's indoors or outdoors filled with happy employees of our tenants. Our unmatched amenity package of 180,000 square feet is surely doing its job in spades to attract and tenants.

Speaker 2

Our New York office leasing pipeline is robust with a total of 560,000 square feet of leases signed or in negotiations setting up the third quarter plus more than 1,000,000 square feet in various stages As we announced on our last call after two years of intense deliberations the arbitration panel issued its ruling on the PENN1 ground lease reset. The PENN1 ground lease has fully extended goes to 02/1998. Days ago ground lessor filed an eleventh hour Hail Mary motion in New York County Supreme Court to vacate the rent reset panel ground rent determination. We believe the motion is entirely without merit and intend to vigorously oppose it.

Speaker 2

We also completed the following financing transactions as we continue to bolster our liquidity and handle our debt maturities. In April, we completed a $450,000,000 financing with 1535 Broadway using 407000000 Dollars of net proceeds to partially redeem our retail JV equity on the asset. The preferred equity outstanding balance is now $1,079,000,000 down from $1,828,000,000 In June, we completed a five year $675,000,000 refinancing of Independence Plaza a joint venture in which we own a 50.1% ownership interest. In July we completed a five year $450,000,000 refinancing of PEN11 paying down this previous loan by 50,000,000 We have meaningfully delevered our balance sheet over the past couple of quarters. Since the beginning of the year we have generated $1,500,000,000 of net proceeds from sale, financings and the NYU deal.

Speaker 2

Paid down $965,000,000 of debt and increased our cash by $540,000,000. Our cash balances are now 1,360,000,000.00 and together with our undrawn credit lines of 1,560,000,000.00 we have immediate liquidity of $2,900,000,000 Our net debt to EBITDA metric has improved by 1.4 turns to 7.2 times from 8.6 times. And our fixed charge coverage ratio as expected is steadily rising. Please see page 23 of our financial supplement for details. Finally, we remain very excited about the redevelopment of 350 Park Avenue as Citadel with Citadel as our anchor tenant and Ken Griffin as our 60 partner.

Speaker 2

The process to create this grand Foster and Partners designed 1,800,000 square foot tower on the best side of Park Avenue has begun and this new building will stand out as being truly best in class. CDs are complete I. E. The building is basically designed and CDs are progressing. Last month the City Planning Commission voted to approve the project and we expect the final deal of approval from the City Council this fall.

Speaker 2

Citadel is currently building out their interim swing space which will allow us to commence demolition of the existing three fifty Park Avenue building in spring. Thank you all for listening and now over to Michael to cover our financials.

Speaker 1

Thank you, Steve and good morning everyone. Second quarter comparable FFO was $0.56 per share which beat analyst consensus of $0.53 per share and essentially flat compared to last year's second quarter. We had lower net interest income from retail preferred repayments and lower NOI from asset sales offset by lower real estate taxes at the mark net of tax tenant reimbursements. We have provided a quarter over quarter bridge on page two of our earnings release and on page six of our financial supplement. In addition, our cash NOI is lower this quarter primarily due to the previously discussed one time PENN1 ground rent true up payment made in April and free rent associated with recently commenced leases from backfilling the announced known move outs.

Speaker 1

On our last earnings call, we said that we expected 2025 comparable FFO to be essentially flat compared to 2024 comparable FFO of $2.26 per share. This is still a good assumption as we sit here today. As previously discussed, we still expect the full positive impact of the lease up of PENN1 and PENN2 in 2027 resulting in significant earnings growth by 2027. New York office occupancy increased this quarter to 86.7% from 84.4% last quarter, primarily due to the full building master lease at 770 Broadway. As we continue to execute on our leasing pipeline, we anticipate that our occupancy will increase into the low 90s over the next year or so.

Speaker 1

Lastly, the financing markets are liquid and we have been active in refinancing our twenty twenty five maturities. On top of the recent Independence Plaza and PEN11 refinancings, we have several others in the works. The investment sales market is also picking up as the financing markets recover and as confidence in New York City's recovery grows. 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. Session. Steve Sakwa from Evercore ISI is on the line with a question. Please go ahead.

Speaker 3

Yes, thanks. Good morning. Steve, I guess I wanted to tie two comments together. You said PENN2 was 62% occupied with multiple deals in the on deck circle. Then you talked about the LOIs of 560,000 feet plus $1,000,000 of proposals.

Speaker 3

So can you just maybe help us understand how much of that sort of pending activity is geared towards PENN2 and how much is for the rest of the New York City portfolio?

Speaker 2

Glenn, you want to take that?

Speaker 4

Sure. Good morning, Steve. It's Glenn. So of the 560,000 feet, those are leases out in negotiation. The Verizon lease is included in the five sixty.

Speaker 4

In our pipeline, have about 1,400,000 feet in the pipeline in various lease proposal stages and about 50% of that is at PENN2. That's the breakdown.

Speaker 3

Great. And then for my follow-up, Steve, you made some comments early on about the MART and five fifty five California sort of being for sale at the right price. And I feel like that's maybe a little bit of a shift or change in your thinking. So maybe could you just expound upon that? And is your goal to really sort of get back to being just kind of a pure New York City company in the shorter versus longer term?

Speaker 2

Steve, hi, how are you? We've worked very hard to focus focus the company stick to our knitting and focus on the financials and our stock price. So our mission is to increase our stock price that's our sole mission. We think that those two assets are valuable. We think one of them is free and clear the other one has some financing on it.

Speaker 2

We think that 555 California is the single best asset in San Francisco. San Francisco is in a recovery phase now which we think is going to be very dramatic. So as I said those two assets we will sell for the right price at the right timing they're not sacred by the way nothing is sacred so we look upon them as a financial asset and we will do what we think is the best financial outcome for the company.

Speaker 3

Great. Thank you.

Operator

And your next question comes from Floris Van Dijkum with Ladenburg Thalmann. Please go ahead.

Speaker 5

Hey, thanks

Speaker 6

guys. Maybe if you can talk a little bit about your signed not open pipeline. You talked about your occupancy, your leased occupancy being around, I think, 85.2% in New York. What's the physical occupancy? And I.

Speaker 6

E, what

Speaker 2

is how much

Speaker 6

rent is coming online over the next presumably twelve months by the time that becomes activated?

Speaker 1

Floris, good morning it's Michael. Welcome back and congrats on your new position. You know in terms of the sign but not commence we're gonna have to come back to you on that number. I don't want to give you a guesstimate and swag and we'll have to come back on that but obviously you know with Verizon signed the occupancy number we'll continue to migrate up close to 88% obviously there's ins and outs, we continue to believe that we'll you know be north of 90 as we get into next year and that income generally, I think we've been consistent on this point, will from an FFO standpoint kick in heavily in 2027 right so '26 continues to be a year where you know we have the lease that's signed but they don't kick in '27 I think you're going to see a significant increase and that you know I think is consistently for the last couple quarters but in terms of specific dollars have to come back to you on that.

Speaker 6

Thanks Michael and maybe if I can ask one follow-up I was sort of Steve, you piqued my interest about the upside potential in your Penn District. I think in the past, you've talked about sort of stabilized NOI at around $3.25. How do you see that changing? Or how much has that changed over the past six months based on market rents going higher and obviously your lease activity at PENN2 in particular?

Speaker 2

Floris, hi. I couldn't be more enthusiastic about what we're doing at PENN and what PENN's value accretion to the company will be over time. So right now we are leasing PEN one and PEN two and we predicted that the market rents would be that we would achieve 100 of rent. We were achieving that and we're achieving more so we we're doing better than our underwriting but the interesting thing is is that our neighbors are getting a $150 a foot and more so we believe that over time we will also in 10/01/2012 and whatever whatever other buildings we build will be able to achieve rents that will be approximately maybe just a pinch below those buildings. So if you think about it if you look at real estate as a not as a quarter to quarter business but as a on a five year planning cycle or something like that If the market rents in Penn go up on the 5,000,000 square feet that we already have by $10 a foot that increment is $50,000,000 to the bottom line that's $0.20 a share that's a fairly big number.

Speaker 2

If they should go up by $50 a foot from $100 to $150 over time the company will realize a $250,000,000 increase in its income. Now there's going to be some expenses some minor expenses about that real estate taxes will go up marginally but the numbers are very big so what I'm saying is the best part of the real estate business is great assets over time and we believe that the buildings that we now have are under market so that as the market appreciates it, as the market comes to our buildings, these buildings will get more and more valuable each year.

Speaker 6

So Steve, as you think about that, is there a possibility that the Penn District could generate maybe up to 400,000,000 of NOI in five years time?

Speaker 2

Easily. By the way and that's that would be that's with no new construction no new buildings the existing inventory that we have now what you're saying is could go up by a $100,000,000 over over three or four years Sure.

Operator

Thanks. And your next question comes from John Kim with BMO Capital Markets. Please go ahead.

Speaker 5

Good morning. I know there's a few different occupancy numbers out there, but just focusing on your occupancy stats on page 32. New York occupancy went up 85.2%, which is a sequential improvement, which is great. But it is lower than the 86.2% that you noted post the NYU lease last quarter. So I was wondering what the headwinds were this quarter that brought that down 100 basis points or so.

Speaker 1

Know I think John good morning. You know I think a couple things one is I think that's an area of New York number office and retail. I think the office numbers are generally consistent with what we said. There's a little bit timing and a Verizon got signed a few days after the quarter so obviously that happened before we would have been above even what we said last time so a little bit of timing. I think the biggest impact there was retail you know we had two Forever twenty one leases at 1540 and 435 Seventh where they were paying low rent company went bankrupt again and they vacated those stores and then knocked off I think about seven percentage points off the retail occupancy which in total you know took us to the to the area number you see there.

Speaker 1

So wasn't a lot of rent coming out of either one of those stores that are frankly placeholders particularly at Penn and so we had a really sort of redevelop that whole stretch as Steve alluded to in his remarks but from a occupancy standpoint I think that was the biggest driver.

Speaker 5

And then on May on the March Steve you talked about potentially selling this I wanted to see if you had any more commentary on timing if this is something that could be listed in the next twelve months. And how should we think about use of proceeds between developments, acquisitions and reduction of debt? We did notice that you provided new disclosure on net debt to EBITDA. So I'm wondering if that's a KPI going forward as far as maintaining or lowering net debt to EBITDA.

Speaker 2

On the first question we are not listing those buildings in the next year or whatever if we sell those buildings it will probably it will probably be an opportunist to an incoming where somebody wants them but what I'm saying is we're not actively marketing the buildings and we have no prediction on timing but they are available if the deal is correct and right and the timing is correct the other half of your question was what sir?

Speaker 1

Use of proceeds. Use of leverage. Yeah so again to Steve's point you know nothing is imminent but for the right price you know we'll transact and at the time you know we'll assess the you know the best way to utilize that capital whether it's to pay down debt whether it's to you know deploy those into development you know etc. I appreciate you recognizing the good work we've done on the leverage front, we're proud of that, we've worked hard to get our leverage stats down, we think we're now quickly moving to the head of the class there and so we want to continue that so but you know when something is more right then we'll assess exactly how we'll utilize those proceeds.

Speaker 2

I wanted to want to tack on to what Michael said one of the very important things that happened over the last short period of time is the improvement in our balance sheet. Taking our leverage ratio down by 1.4 turns is a really big thing. Rebuilding our cash balances having lots of availability and having a very strong balance sheet is one of the important things that we do. And I'm very proud of what has what the team has accomplished over the last period of time. I think it's a really big effect.

Speaker 2

And

Operator

your next question comes from Dylan Burzynski with Green Street. Please go ahead.

Speaker 5

Hi, guys. Thanks for taking the question. Just can you sort of talk about just I know you guys talked about how strong the leasing pipeline is. Obviously, you mentioned occupancy will continue to increase in the low 90s sometime next year. But can you guys talk about just the ability to push net effective rents in that environment and strong backdrop?

Speaker 1

Yeah, why don't I start Glenn, Glenn jump in here. You know if you if you look at the current environment in the marketplace whether it's Park Avenue, Sixth Avenue, etc. You know vacancy rates are generally under 10% for Class A buildings by Park Avenue under five. In general you know citywide in Midtown on the West Side very tight and I think in terms of large blocks of space I think there's less than a handful of a couple 100,000 feet or larger Pen two being one of those and I think widely viewed as the best of those. So know Steve talked about you know we're in a landlord's market and we certainly feel that I think tenants feel that the strong demand in the marketplace you know a number of tenants that are focused on expiries in three years out they're worried about whether they're going to be able to you know either consolidate in a single location have enough expansion space etc.

Speaker 1

So you know the dynamics have shifted and you know we are I would say on a weekly basis evaluating our space and trying to determine how much we can push rents and we're going to continue to push rents I think across the board. We've done it aggressively on Park, we're doing in other buildings in Midtown and we're doing in Penn. I think that what you're hearing and what you're seeing in terms of the stats is a continued movement to push up rents there where I think we started at PENN1 in the mid 80s maybe $90 and now we're achieving rents north of $100 we're going to continue to push those same on PENN2. So we're pretty optimistic in terms of what's going to happen to rental rate growth just given the lack of quality space available and the demand side we're seeing. So I think we have the potential to see growth rates we haven't seen in quite some time and we're going to push we're going to find the resistance level as we move out here.

Speaker 5

That's helpful and then I guess one last one for me. Are you able to talk about the A node and B node investments you guys have did?

Speaker 1

It's on a site in Midtown. It's a note that we've liked into in two phases. It's a high quality site and it can go either way. On one hand we might just collect the coupon and learn a reasonable return relative to what we could earn in cash and alternatively you know it could be an opportunity to own the asset and capitalize on the opportunity there. So it could go either way but we just viewed it as it's a high quality asset we're happy if we earn the return and may leverage into a broader opportunity and that's as much as we can say right now.

Speaker 5

Appreciate it

Operator

okay and your next question comes from Seth Berge with Citi please go ahead

Speaker 5

Hi, thanks for taking my question. I think on the last call you spoke to kind of hitting the 80% target for PENN2 by year end. I guess just given the recent leasing activity and it sounds like after $1,400,000,000 development pipeline is kind of on leases out on PENN2, do you think you could kind of exceed that target?

Speaker 2

Doubt it. Hi, it's Glenn. Glenn, I said I doubt it. The question is can we exceed any percent that I'm saying I doubt it. Go ahead, Glenn.

Speaker 4

I mean, look, we're feeling very good about where we are at PENN2. We'll feel we'll get there. I will say we're being patient, we're being smart. I might even say we're being a little choosy in terms of our credit profile, our tenant mix and we do keep looking at our price increasing it. So we're not rushing just to lease space.

Speaker 4

That's not what we do. So while we think we'll get there, we're being careful and smart about our strategy. We're in it for the long term, not for the short term statistics.

Speaker 2

Well said, John.

Operator

And your next question comes from Alexander Goldfarb with Piper Sandler. Please go ahead.

Speaker 7

Hey, good morning and congrats to you guys on the Verizon deal. So that was nice to see. Glenn, you partially answered my question on the leasing ex NYU. It sounds like you guys are choosier on the types of deals that you're doing, especially in this market. But what stood out in the quarter is ex NYU, the average lease term was just six point eight years, which given CBD leasing would expect that longer.

Speaker 7

So can you just give us a little bit more color? Clearly, you're on for big whale of deals. But on the smaller deals, can you just give a context of the types of tenants and space and tenure? Because again, would expect deals to be longer than averaging 6.8.

Speaker 4

Yes, of course. Hi, Alex. So I look at it for the full year, the half year thus far, our average is twelve years on 1,100,000 feet of leasing outside of NYU, of course. For the quarter, it's an outlier this quarter. It was a mix of large renewals that were less than ten years with a lot of pre build deals at PENN1 and other buildings that are multi tenant like the Fuller Building and others.

Speaker 4

So it was an odd mix of leasing this quarter. Certainly would not say there will be a trend of this type of average particularly you know us and you know our averages are normally at least ten years. It's an outlier and I'm not concerned at all.

Speaker 7

Okay. The second question is, Steve, I appreciate your comments on the cash balance for Vornado, But when we look at Alexander's, it seems to be the inverse in the sense of the dividend overpayment, the cash needs for the Bloomberg in 2029 replacing Home Depot. So can you just help us understand the dividend overpayment relative to the cash balance relative to how we should think about Alexander's on a go forward basis?

Speaker 2

This is a Vornado call. I think it's inappropriate to get into Alexander's. We had this conversation at last quarter as I remember. There are things going on at Alexander's that you don't know about. And as a result of that, you know I quibble with your analysis.

Speaker 2

Alexander's is going to be just fine.

Speaker 7

Okay I appreciate that Steve thank you.

Speaker 2

And just to clarify just a little bit more I mean there are some assets that are going to be sold at Alexander's which will how do I say it probably surprise you greatly and that and I think it's not the big

Speaker 7

I like surprises. So I appreciate your time, Steve. Thank you.

Speaker 2

Thank you.

Operator

And your next question comes from Gina Galan with Bank of America. Please go ahead.

Speaker 8

Thank you. Good morning. Maybe just following up on the retail leasing environment. Can you talk a little bit more about the timing around the vision for the 30 Fourth Street corridor and then the potential timing of backfilling the Forever 21 space?

Speaker 2

Hi, thanks. This is a long term activity. We have held that space off the bar. Well, first of all, let's talk about the quality of the real estate. 30 Fourth Street over the years has been one of the top two or three shopping streets in Manhattan.

Speaker 2

Subway stations are the second busiest and the third busiest in the entire system. The footfall is amazing. The traffic is getting accelerating now with all of the office buildings that have been built in the district. And when you look at the transportation system the transportation system really is at Seventh Avenue and 30 And 30 Third Street and Sixth Avenue and 30 Third Street. So all of the buildings to the west, the people in order to get into the transportation system basically come east into our neighborhood.

Speaker 2

So we're very enthusiastic about the quality of the retail. The street has gotten needed, dare I say shabby. We have held lots of space, maybe even all the space off the market waiting for the right timing. The timing is now. So what I said was that we're gonna take it looks like it's 700 front feet.

Speaker 2

700 front feet is basically 3 and a half bucks. Nobody has that kind of concentration under one ownership. So we're very excited about the opportunity. With respect to when the Forever twenty one space gets released, it may be reconfigured and I really can't predict what it's what the timing is going to be. It will undoubtedly be a different building and it will take some time and be patient with us.

Speaker 2

But what's gonna happen is gonna be a great result.

Speaker 8

Great. Thank you, Steve. And question for Michael. Thank you for the comments on the comparable FFO for this year versus last. But can you help us think about kind of the revenue ramp at the end of the year?

Speaker 8

Just trying to help us kind of think about the full impact of PENN1 and PENN2 being in 2027 but kind of how will that trend quarter to quarter?

Speaker 1

Sounds like you're asking for guidance Jana which we don't give. I think it will build over those quarters but it's going to be you know as we think about both Pan and Pan two it's going to be more back ended there but I don't think I know this started going a little more towards fourth quarter this year and then into next year but I think most of it's going to happen in 2027 from a run rate standpoint so I don't want to give you a '26 prediction here today you know we haven't done our budgets yet. Obviously the market's moving positively we'll see where we end up but I think most of that'll hit you know it can be a pretty steep growth from '26 to '27.

Speaker 8

Great, thank you.

Operator

And your next question comes from Vikram Malhotra with Mizuho. Please go ahead.

Speaker 9

Thanks so much for taking the question. Michael, I guess I wanted to just get some more color on that last few comments. So, you obviously talked about the 27% growth. We're not looking for a number for 26%, but just are there any big moving pieces we should be aware of as we model this out? Like anything that really, I guess depress 26 or is it just a step function change as we go into it from 26 to 27?

Speaker 1

I think it's largely just step function. You know I don't think it's anything unusual. Mean like we have space releasing up really across the board both New York, some space in California, Chicago, you know we've got activity on the retail area that'll kick in as well so I think generally across the board nothing unusual but largely as I said you know just given timing of when we sign those leases stepping heavily in 2020.

Speaker 9

Okay, so no big move outs or like interest expense I guess any swaps or anything expiring that like pressure '26 relative to '25 before we get a step up in '27?

Speaker 1

No, I mean look it's you know in terms of move outs I mean you know we're in the leasing business right and there's going to be a certain amount of tenants that move out certain amount you keep certain amount that grow, certain contract, I think we're more in the grow than contract right now but you know apparently there's always some level of move out so you know in the York office you know you're gonna have we'll just have to see what sort of you know comes about over the course of the next year. I will say on the interest expense side and I think we talked about this on the last quarter you know I think we're generally on the downhill trajectory on that you know we had you know been fairly well hedged you know we're now a between delevering the balance sheet I think we're generally rolling over assets you know I would say flat in terms of you know interest you know maybe a little bit down a little bit up but generally flat but with less debt you know the interest expense is coming down so you know and if short term rates come down that'll help a little bit more so I think I think we're I think we're on the back side on the interest front.

Speaker 5

About it

Speaker 2

from the big picture point of view we operate our business 90% of our business in the single best market in the country by far. We are in the best building category which is a smaller market than the entirety. It's 180,000,000 square foot market. The vacancies in that market our customers are expanding. Our customers are doing well.

Speaker 2

The demand for space is robust and aggressive in the market that we serve. Vacancies are evaporating. The markets are getting tighter so that all orders to better business and shareholder value creation. So that's where we are.

Speaker 9

Okay. I just wanted to clarify. So I guess Steve you mentioned San Francisco likely to come back very, very, I guess, I don't if it was the word ferocious and then obviously New York doing very well. I'm just wondering like does this create an opportunity for Bornado to use some capital to buy assets, invest in debt? I know you're paying down debt, but just like what are the investment opportunities today for Vornado?

Speaker 2

The answer is capital allocation is probably the single most important thing that we have to do. And we are going to be very vigorous and very disciplined in what we do. We look at everything that comes up and we invest cautiously and we invest aggressively when we think there's something that creates real shareholder value. So I don't have any anything in the way of predictions for you other than the fact that we are very responsible in our capital allocation.

Operator

And your next question comes from Caitlin Burrows with Goldman Sachs. Please go ahead.

Speaker 10

Hi, good morning. Earlier somebody asked about net effective rents and you talked about pushing rents across New York City. I guess on the tenant improvement and leasing commission side, you show it as a percent of initial rent and it's up in New York City for the second sorry, for 2Q and the first half to like 12% to 13% of initial rent. So I was wondering, would you say that 25 outcome is a result of something in particular or is that just the reality of leasing today and what will it take for that to change?

Speaker 2

Don't know if they Go ahead, Glenn.

Speaker 9

Just going to

Speaker 4

say, look, the TIs have stabilized, haven't come down yet, but we are seeing free rent come down, which is not in that percentage. But we expect as things tighten that the TIs will eventually come down. But free rent certainly is starting to come down in our deal making with rents rising. So, think that's a great start to the net effective story strengthening for owners like us for sure.

Speaker 10

Got it. Okay. And then I was wondering if you could just give any update on your dividend thoughts as it relates either to 2025 or just broadly in having a quarterly dividend reinstated.

Speaker 1

Good morning, Caitlin. So on the dividend front, obviously, that's a board decision and we'll meet with the board, discuss it with the board as we get at year end. I would say a couple things though, given the positive trends in the business and where taxable income is expected to be and there's still things that could move it around you know in a number of different ways including you know some you see to sell a couple small assets etc but I would say as we get towards year end you know our expectation given the trends are at a minimum we think we'll pay as much as we paid last year which was 74¢ a share so that's for 25 and again you know we'll get with the board at year end. You know I think as we look out and I think Steve made this comment maybe a couple quarters ago, know, as the environment heals we'll look towards more of a regular dividend. Yeah, I think that's something we'll also look hard at a year end and you know get back to a more normalized quarterly dividend whether that results in any different outcomes there's a total you know I can't comment on that but I think certainly as we we enter this year you know no less than last year the expectation and you know again given the positive trends you know we think that the dividend you know will start growing over time particularly as we get into that you know 2027 you know significant increase in earnings.

Speaker 4

Thanks.

Operator

And your next question comes from Ronald Kamden with Morgan Stanley. Please go ahead.

Speaker 11

Hey, I just got two quick ones. Just on the going back to the same store NOI and some of the callouts, just wondering if any high level thoughts as you sort of anniversary this period in 2026 or 2027. Just any sort of color on where that same store could look like or how we

Speaker 6

should think about it without asking for guidance?

Speaker 1

You know I think that in NOI we get a lot going on because obviously seven seventy comes out in there now we obviously paid off the debt too but like I think as we get to particularly next year you know we'll start seeing positive same store NOI and beyond I can't give you the percentages yet but you know again just given the leasing pipeline we expect that that'll be the case.

Speaker 11

Makes sense and then my second question just some updated thoughts I mean I think the Hotel Penn land site some of the activity on sort of the Fifth Avenue and retail monetization Just curious if you can give us a pulse on those assets and how you're thinking through about potential monetization there or what you're hearing? Thanks.

Speaker 2

The 10 The 1016 site is I believe the single best site in the West New York market. Obviously it will require a new build. A new build now is as I've said in my prepared remarks the escalation in cost of the new builds is fairly dramatic. So we will we're trolling for tenants. Talk we see every large requirement that comes along and when the right tenant comes along we will make a deal and develop the develop the land.

Speaker 2

The timing on that is uncertain, but it certainly will not be imminent or quick.

Operator

And your next question comes from Brandon Lynch with Barclays. Please go ahead.

Speaker 12

Great. Thanks for taking my question. As you guys mentioned, San Francisco is showing broad improvement in demand. Can you give us an update on progress for renewing or releasing some of the upcoming expirations at May?

Speaker 1

Glenn, do want to take that?

Speaker 4

I'm sorry, just in San Francisco a few days ago, things are markedly improved. The streets feel good, safer, cleaner, buildings are busier and the good news is leasing is starting to tick up and improve. It feels a lot like New York, I'd say, probably eighteen months ago or so, where things are starting to happen in a positive way. The beat is better, the brokers are smiling a little bit all of a sudden, so it all feels good. We've just completed a huge run of leasing there about six hundred thousand feet.

Speaker 4

We have some vacancy to contend with right now, 100,000 feet in bits and parts and we have a couple tenants moving on next year. We have action on everything. Our tour volume is great, almost daily in the building. Everyone is coming through and the building continues to outperform everybody by a long shot. The best tenants with the highest rents are all coming to $5.55.

Speaker 4

We feel great about our prospects, but overall the market seems to be coming on now. The mayor has done an excellent job improving the environment, working well with landlords like us and with our tenant base. So we feel like things are signaling to improvement in strength.

Speaker 12

Great. Thanks. That's helpful. And maybe more broadly on the demand picture. Our checks and brokers have suggested that a lot of the demand that they've seen in recent quarters has reflected real time needs and urgency among tenants versus some more traditional longer term capacity planning needs that would have been more of a characteristic of the past cycles.

Speaker 12

Have you seen any shift in recent quarters in how the tenant base is approaching their need for space in terms of real time needs versus longer term planning?

Speaker 2

Glenn, that's Sure, it's Glenn.

Speaker 4

So Verizon's a perfect example. It's a deal that started percolating to us in mid June and closed at the July. That's fast. We love that. Tenant decided to move their headquarters, acted quickly, concisely, perfectly and smoothly.

Speaker 4

So that's something we see. We have other activity at PENN1 and elsewhere in the portfolio similar, where tenants are now coming quickly. It's not as much of our lease expires in two years or three years or four years. The action that we like, a landlord's market type of action. And a lot of it is both relocation and expansion.

Speaker 4

There's a lot of expansion particularly in New York right now where we're seeing signs of growth and people are acting very quickly. And even in some cases, we have tenants now battling for space throughout the portfolio. So I think your comment is on queue in terms of what we're seeing.

Speaker 12

Great. Thanks, Glenn.

Operator

And your next question is a follow-up from Alexander Goldfarb with Piper Sandler. Please go ahead.

Speaker 7

Hey, and thank you. Glenn and Steve, I just want to go back. Steve, you mentioned $100 in place. I think it was in place in Penn that could go to $150 if you guys get the same rents as your neighbors to the West. But I thought the new deals that you were signing were in sort of the $120 $130 range.

Speaker 7

I thought that's where the new deals are commanding. So maybe I'm wrong, but maybe you can just provide a little perspective versus what are in place rents at the PENN1, PENN2 versus where you guys are signing rent? As I said, I thought your signed rents had been moving up steadily.

Speaker 2

Glenn, do want to handle that for a minute?

Speaker 4

Certainly, we're moving steadily up. As Michael said, we were in the 80s and the 90s, now in the 100s. That's on average. We of course have seen deals well into the 100s, the 110s, the 120s, the 130s. So we are certainly seeing month to month improvement, rising rates.

Speaker 4

We expect that to continue. So our average rents have risen quarter to quarter, and then we're seeing deals well into the hundreds now. You're correct, Alex.

Speaker 7

Okay, cool. Thank you. Thank you.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Mr. Steve Roth for any closing remarks.

Speaker 2

Thank you for joining us today everybody. And we'll we continue to be very excited about a lot of things. We're very excited about Penn obviously. We're very, very proud of what we've done with our balance sheet over the last couple of quarters and business is actually pretty terrific. We'll see you next quarter.

Speaker 2

Thank you.

Operator

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

Powered by Quartr