Alexander's (NYSE:ALX) Q1 2026 Earnings Call

0:00 Good morning, and welcome to the Vornado Realty Trust First Quarter twenty twenty six Earnings Call. My name is Rocco, and I will be your operator for today's call. This call is being recorded for replay purposes. All lines are in a listen only mode. Our speakers will address your questions at the end of the presentation during the question and answer session. I will now turn the call over to Mr. Steve Borenstein, Executive Vice President and Corporation Counsel. Please go ahead. Welcome to Vornado Realty Trust 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.

0:45 These documents as well as our supplemental financial information package are available on our website, www.bando.com, under the Investor Relations section. In these documents and during today's call, we will discuss certain non GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP measures are included in our earnings release, Form 10 Q, and financial supplement. Please be aware that statements made during this call may contain forward looking statements, and actual results may differ materially from these statements due to a variety of risks, uncertainties, and other factors. Please refer to our filings with the Securities and Exchange Commission, including our annual report on Form 10 k for the year ended 12/31/2025 for more information regarding these risks and uncertainties.

1:30 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 remarks are Steven Roth, chairman and chief executive officer, and Michael Franco, president and chief financial officer. Our senior team is also present and available for questions. I will now turn the call over to Steven Roth. Thank you, Steve, and good morning, everyone. Business at Grenada continues to be excellent, and it's getting better and better. We are riding the wave of a strengthening long lasting landlords market and New York is by far and away the strongest real estate market in the country. Michael will get into the details shortly but today I have different fish to fly and I will ask the first question.

2:20 What do you make of the spat between Mayor Mundamy and Ken Griffin and how will it affect your 350 Park Avenue development? Let me begin by saying that I do not and cannot speak for Ken, but I do unambiguously stand with him. And notwithstanding the mistakes and bad form of the recent video that went viral, We are pulling for Mayor Mandami to succeed. Let me establish my credentials. Veredo is a New York company and I am a New Yorker, in Brooklyn and attended D. Wood Clinton Public High School in the Bronx. Both Veredo and I are lucky to be New Yorkers. My daughter and three granddaughters live in The Bronx and my son and his family live in Brooklyn. My wife of fifty six years and I live and work in Manhattan.

3:09 We follow the rules and we pay our fair share. Veredo will pay $560,000,000 in real estate taxes this year and I'm pretty sure that's in the top three. And that doesn't begin to count the personal income taxes that I and our Grenada population paid to the city and state of New York. We work our asses off and we are not boastful. We are very proud of our lifetime of achievements. We are the company that is investing billions to transform the Penn District. New York is a union town and we are a union shop employing thousands of hardworking New Yorkers in our buildings and on our construction sites. The ugly unnecessary video stunt is personal to Ken and sort of personal to me too. You see Renato and I are the developers of both 220 Central Park South residential building and the 350 Park Avenue Citadel Tower.

4:01 We are all shocked that our young mayor would pull this stunt in front of Kent's home and singled him out for ridicule. This was both irresponsible and dangerous. As I said, Renato is the owner of the 65 year old building on the Park Avenue block that will be raised to make way for the Citadel New York Headquarters Tower which will employ thousands further cementing New York as the financial capital of the world and pay significant taxes and on and on. This building is being designed by the same Foster and Partners architectural team that designed JPMorgan Chase's new headquarters down the block. This is now the if we move forward project. Now a project of this scale takes years and we have already worked with two prior city administrations both of whom have recognized the benefits and have been enthusiastically welcoming and supporting as evidenced by the rare unanimous EULIP approval for this project.

5:04 Demolition began literally days ago and we at Grenada are ready to go. I must say that I consider the phrase tax the rich, quote tax the rich, but spit out with anger and contempt by politicians both here and across the country to be just as hateful as some disgusting racial slurs and even the phrase from the river to the sea. What these poll polls seem to be saying is that the rich are evil or the enemy or the targets or maybe even just sufferers. But the rich whom the politicians are targeting started with nothing are the epitome of the American dream. They are our largest employers and largest philanthropists and it is the 1% that pay 50% of New York's income taxes.

5:52 They are at the top of the great American economic pyramid for a reason. They should be praised and thanked. Ken, our partner and friend is the best of the best. So where are we now? As we discussed last quarter Ken exercised his option to enter our development joint venture and build a new 1,900,000 square foot tower with Citadel as the anchor tenant. We have until the middle of July to decide whether to participate with Ken in the venture or to sell to him. It's a good bet that we will go all in. This fence cannot be mended by a short, terse and sincere private apology. What I beg my mayor to do is to begin every day being business welcoming and business friendly as his first priority.

6:39 That's the only way to get the growth and financial wherewithal to accomplish his programs, some of which I must say are interesting and valid. Public safety, schools, childcare, clean streets, housing affordability, homeless programs, etcetera. The election is over. Now is the time for hard work and management, not showboating. New York is an enormous enterprise with a city budget of $120,000,000,000 and a state budget of $250,000,000,000 If there is a 5 or $10,000,000,000 budget shortfall, surely that can be found that money can be found by managing rather than by taxes. It is interesting to note that high tax New York spends more than double per capita, double per capita than low tax or no tax Florida or Texas.

7:27 There is a lesson here. Maybe something good could come out of this blunder. Maybe we can draft Ken to become active and lead an effort to educate New York voters and elect right minded candidates. Ken can do it. He's the one who could galvanize the entire business community. Here's an interesting fact to us. Members of the partnership for New York City alone employ 1,000,000 voters. Hundreds of our business leaders would line up to support Ken. I would be first in that line. I was taught and I believe I believe in an America where after an election all sides get behind us and support the winning candidate for the greater good. Our mayor is young, smart and energetic. With a little tweak here, a little tweak there, his leadership could make this great city even greater.

8:16 He will learn over time that growing the tax base is a winner and raising taxes is a loser. I will say it again, he will learn over time that a growing tax base is a winner and raising taxes is a loser. And that's a hard working 1% are allies not enemies. Let's learn from this mistake and move upward. Turning to Rinneiro. We now have a lineup of assets and in process projects which I am confident will deliver the highest growth in our industry. Executing on all this is now our singular focus. In this year 2026, we will complete the heavy lifting of leasing at PENN1 and PENN2 as Michael and Tom have already been saying quarter after quarter our published numbers will reflect all this by the end of twenty twenty six and going into 2027.

9:10 As part of our focus on enhancing our portfolio and making great deals, we announced last week the acquisition of a 49% in Park Avenue Plaza, a 1,200,000 square foot Class A office building along the prime stretch of Park Avenue. This asset is directly across the street from our 350 Park Avenue project. The building is 99% occupied by blue chip tenants with an eleven year weighted average lease term and rents that are 40% to 50% below market. Prime Park Avenue AAA assets rarely trade and we believe we made an excellent purchase. We're buying the asset at $950 per square foot, which is 65% to 70% discount to replacement cost. And we are inheriting a fixed rate three a sub 3% loan through 2031 to leverage off an enhanced return.

10:03 We expect the transaction to be approximately $0.10 accretive on a full year basis in the first year. We are happy to be partnering with the Fisher family who own the other 51% of the assets. We have a long relationship with the Fisher family. They are a first class operator who think much like we do. With Park Avenue Plaza, our recent acquisition of 623 5th Avenue and the pending development of 350 Park Avenue, we will be adding call it 2,000,000 square feet at share of the very highest quality prime assets to our portfolio at very accretive economics. Speaking of six two three Fifth Avenue, our 383,000 square foot asset which we are redeveloping to be the premier boutique office building in Manhattan.

10:48 We are following in our design and planning. We are receiving outstanding reaction from the market and already have active tenant interest at or above our underwriting. Demand for our retail assets is robust and accelerated. We have a handful of assets for sale in the market. I covered share buybacks in my recently posted shareholders letter. To date, under our $200,000,000 share buyback program, we have repurchased 7,000,000 common shares at an average of $25.80 per share totaling $180,000,000 Last week, our board authorized an additional $300,000,000 buyback program. Now to Michael. Thank you, Steve, and good morning, everyone. First quarter comparable FFO was zero five two dollars per share compared to $0.63 per share for last year's first quarter.

11:40 This decrease is consistent with our comments from the prior quarters and is primarily due to the reversal of previously accrued PENN1 ground rent expense in the prior year's first quarter and higher net interest expense, partially offset by higher FFO resulting from the execution of the NYU mass release of $7.70 in the prior year and strong income growth at PENN1 and PENN2. We have provided a quarter over quarter bridge on page two of our earnings release and on page six of our financial supplement. We now expect full year 2026 comparable FFO to be slightly higher than 2025 ramping up each quarter due to GAAP rents coming online, lower interest expense after a June 2026 bonds repaid, and some seasonality relating to our signing business.

12:26 As previously indicated, we expect there to be significant earnings growth in 2027 as the positive impact from PENN1 and PENN2 lease up takes effect as well as the positive impact of the recent acquisition of Park Avenue Plaza. Turning to leasing. The Manhattan office market is head and shoulders the best in the country and is off to its strongest start to a year in over a decade. Manhattan leasing volume reached nearly 12,000,000 square feet, the highest first quarter level since 2014. There is a significant supply demand imbalance in the 180,000,000 Class A better building market in which we compete. As the availability rate in the prime submarkets in Midtown and the Westside has tightened significantly and there's little new supply coming for the foreseeable future given the significant cost and duration to build.

13:14 This is all resulting in tenants competing for space and rents rising aggressively. The landlord's market we have been long predicting is very much here. While the macro environment we operate in today has gotten even more complicated since our last call and the geopolitical volatility is as high as we've seen in some time, The US economy just continues to chug along as does New York's. While there is a risk that the Middle East conflict lasts much longer and has a greater economic impact, to date we have not seen any change in kind of behavior. Moreover, while there has been a lot of AI fear mongering out there, while we are respectful of the risk, we believe it is overblown. Over the past fifty years, office using jobs have continually evolved based on new technology.

14:01 From the computer revolution of the nineteen eighties when personal computers and word processors were introduced, to the two thousands when the Internet transformed workflows and the way we communicate, to now with AI improving efficiencies and increasing productivity. In every example, office using jobs were not reduced, but they shifted from clerical based functions to knowledge based roles. In each new revolution, spurred productivity and economic growth with new businesses and net positive jobs created. There will be winners and losers by industry, by job function, and by geography. But make no mistake, New York and San Francisco will be winners as the intellectual and innovation capitals of the country where talent will continue to aggregate in the best buildings.

14:47 At Vornado, we are coming off our second best leasing year in our company's history where we leased 3,700,000 square feet with 960,000 square feet of New York office in the fourth quarter. Business continues to be very good and the momentum from last year has continued during the first quarter of twenty twenty six. In the first quarter, we released 426,000 square feet of office space overall, including 311,000 square feet in New York. Our metrics were very strong. Average starting rents in Manhattan were a $103 per square foot with mark to market of positive 11.7% gap and positive 9.7% cash and an average lease term of nine years. Our New York office pipeline is robust and has over 1,000,000 square feet of leases in negotiation in various stages of proposal.

15:39 Turning to the capital markets. The financing markets continue to be strong and liquid for Class A New York office assets, though pricing has widened a bit given the current geopolitical environment. The investment sales market continues to heat up as well with a broadening set of buyers keenly focused on New York City. We are very active in the capital markets in the first quarter, most of which we covered on the last call. Given we've dealt with almost all of our twenty twenty six and 2027 maturities, we don't have any significant financings we need to complete for the next eighteen months. We do still have a few loans that we need to order through at lenders over the next two to three years. Finally, our liquidity remains strong at $2,600,000,000 which is comprised of cash of $1,200,000,000 and our undrawn credit lines of $1,400,000,000 With that, I'll turn it over to the operator for Q and A.

16:31 Thank you. We will now begin the question and answer session. If you're using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star then one on your touch tone phone. Each caller will be allowed to ask a question and a follow-up question before we move on to the next caller. First question comes from Steve Sakwa at Evercore ISI. Please go ahead. Yes, thanks. Good morning. Steve, thanks for your opening comments on the city and the administration. I guess maybe going to Michael's commentary on just the pipeline and the million feet.

17:22 I didn't know if Michael or Glenn could maybe expound a little bit on how much of that is for upcoming lease expirations? How much of that is for kind of vacancy within the portfolio? And I guess most of that's probably in New York, but maybe discuss kind of the New York versus Chicago versus San Francisco demand trends. Good question. Hi, Steve. It's Glenn. How are doing? So our pipeline is extremely well balanced. Of the million feet, it's right down the middle, 50% new expansion, 50% renewal. The other thing I'll note is on renewals, due to the lack of quality space available to the market, we're seeing many of our tenants coming to us early on renewals since they can't find quality alternatives, which is a key indicator of a rising landlord to market.

18:18 As it relates city to city, San Francisco is coming on very strong. While we have some vacancy, as you see from the first quarter numbers, we have tremendous activity on all the vacancy. Our deals in the tower at $5.55 are now north of 160 a foot. Volume in San Francisco overall is strengthening week to week. Certainly, everyone out there is feeling a lot better, and deals are happening in a very rhythmic pace. Chicago is starting to come on. Demand is improving. The deals are tough, but there's certainly tenants coming new to the market, and we're seeing a lot more torn proposals coming at the mark as we go into the second quarter and into the summer.

19:07 Great. Thanks. And then maybe just as a as a follow-up. We did notice that, you know, in terms of lease commencements is the Verizon lease kinda had a little bit of a change in status. And I'm just wondering if you could maybe talk about kinda what their, I guess, ultimate status is with the building. And and, you know, did that lease kinda start earlier? And and is that a benefit to the '26 earnings growth? Steve, it's Thompson. I'll take the first part of it. And I guess, Glenn, you could talk about the status. So because Verizon told us they're not gonna build out their space and they put in the sublet market, GAAP allows us to start revenue recognition early. So you'll see that flow through all of 2026. It started in the first quarter. On the leasing front, now the block of space is excellent. It's 200,000 feet and includes 30,000 feet of outdoor space.

20:03 We're in a great position. We have a Horizon public parent guarantee for the entire lease to begin with, so great credit. We continue to show this space as does Verizon. There's very good action, and whatever the outcome, Grenada's in a great spot as it relates to that position. Thank you. And our next question today comes from John Kim at BMO Capital Markets. Please go ahead. Thank you. Steve, really appreciate your opening remarks. It really provide a lot of clarity on how you're thinking about moving forward. But I wanted to ask you about your statement that you're all in at 350 Park. Are you all in even if Citadel will not commit to the building?

20:50 And how should we think about the the put option you have in July? I didn't hear the last part. What how should we think about it? Because how should we think about the put options, are you said, John? Yeah. That's right. Is that something that you'll let pass, or is that something that could be that the date could be extended? The answer is is that, Ken exercise to go ahead. We have until the summer to decide whether we are a participant or a seller, And I expect that we will take all of that time, which is the smart and correct thing for us to do. There are still some documents and other details to be ironed out. But my remarks was that I said where I expect we will be all in. I do expect we will be all in, but that's not a legal commitment at this time yet.

21:47 And that's all in with or without Citadel's commitment? No. The the answer is the question is, is it all in regardless whether Citadel's committed or not from a lease standpoint? No. No. Just since it'll have to be committed, they they will be committed. So, I mean, this whole deal is based upon the fact that since it'll will be the anchor tenant taking no less than 850,000 square feet, although we we expect more. And Ken Griffin is the 60% partner. We are a 36% partner, and the Rooden family is the 4% partner. That's the that's the state of play. This whole thing, Ken has committed to start.

22:39 This whole thing will all come together, and become very clear in the mid summer. Okay. Thank you. And then I wanted to ask about the $200,000,000 of, signed leases not commenced figure that you provided last quarter. If there's an update to that figure, in terms of, dollar volume, timing, and if there's any offsets through known move outs during that timeframe? Good morning, John. You know, I would say I would say the numbers still in that general neighborhood is probably a touch larger today, but it's still in the same ballpark. And, you know, I think in terms of thinking about it, you know, 10 to 12% comes in, you know, per quarter over the next couple of years, from a pacing standpoint, you know, there are some offsets, whether it's expiries, vacancies, etcetera. I think Steve on the last call sort of said from a modeling standpoint, assume $0.40 a share flow through to the bottom line. So we're going to stick with that for now, but that'll give you a sense in terms of the pacing of that 200 ish million dollars.

23:53 And that started this first quarter. Thank you. Our next question today comes from Floris Van Dykem with Ladenburg. Please go ahead. Hey. Thanks, guys. Appreciate some more color on that large S and O pipeline. Could you maybe just expand on that a little bit? What percentage of that S and O pipeline is in the Penn District and how much of your does it include retail leases? You've done some leasing on Upper 5th Avenue in particular. Maybe if you give us a little bit a little bit more color, know, the Penn District versus other other areas in your portfolio. Morning, floors. You know, that that number is pretty much all office.

24:43 So I can't give you the retail number as we sit here right now. Obviously, the the lease with Meta is a big positive. And in terms of the 200 in terms of Penn versus others, I would say it's probably two thirds Penn. You know, it should not be surprising given the lease up of Penn two and the balance in Penn one. And and and maybe my my follow-up question as it relates to your your Park Avenue Plaza acquisition. I mean, what caused that deal to to happen? Why did the Fisher Brothers, I guess, you know, sell out? It looks like it's like a six, seven yield on cost, if I'm not mistaken, to get to the 10¢ accretion.

25:30 That seems pretty attractive. Is that a cash yield or is that a gap yield? And how much of a mark to market how much more growth in terms of earnings do you expect to get from that from that property going forward? I honestly like to remember everything he asked here for us. Look, we're we're thrilled about the acquisitions. You know, these these types of assets don't trade very often on Park Avenue. It's certainly one of the best assets on Park Avenue. And in terms of the yields on a cash basis, given the in place debt, it's roughly 8% on a GAAP basis, it's, you know, well in the double digits. And as Steve said in his remarks, you know, are, you know, well below market here, know, probably at least $50 a foot below market. So over time, things are not static, there's action with tenants, we'll capture that and that's without rents growing. So if rents go further, that gap should widen.

26:33 So we're excited about it. The Fisher's did not sell out, they remain, they still hold their 51% and I think their track record of performance on the asset is stellar. It's a blue chip set of tenants, they're leased long term, they're quite effective at signing long term leases with high quality tenants and that's reflected in this asset. So and the tenants, some of which we spoke to about their experience, couldn't have raved anymore about the quality of the asset and they have grown, you know, over time there. So we're excited about the asset. We think there's tremendous value to be created over time. And so I think I addressed all your comments, questions.

27:23 Thank you. Our next question today comes from Alexander Goldfarb at Piper Sandler. Please go ahead. Hey, good morning down there. And Steve, yes, echoing, appreciate your comments upfront. Just crazy. But thank you for statements. Michael, just following up on Floris' question, the two items in the '26 guidance, one, the $0.10 accretion for Park Avenue, was that GAAP impact or that's the cash just as we think about FFO? And then the second part of that guidance question is, there was an item about the master lease changing at $350,000,000 and just want to know how that impacts the earnings for this year. That's my first question.

28:10 Park Avenue Plaza, the 10¢ by the full year run rate. So obviously, we're not gonna have that for '26. That's a GAAP number. And on the $3.50, the change there was done given Citadel wanted to kick off the development. They wanted to vacate, we couldn't start demolition without defeasing the old CMBS loan. And so that loan with the fees as you saw in our in our queue, the master lease was modified. There were a number of changes made in the documents. And so that was a negative to 26 earnings, you know, when we talked about it, which given our comments Alex, the deal always contemplated that when Citadel vacated the building so that the building would be demolished, that the rent would be reduced.

29:09 Or or even go away. The the the earnings ding by that reduction, much of it will be made out made up by capitalizing interest, etcetera. So while the earnings could get what exactly is gonna happen? So in 2026, you know, for the next few months until we decide whether we're going into the JV, there's there's a wash. There's no earnings coming out of $3.54. Once we make that decision, assuming we go into the JV, we're gonna start capitalizing interest and cost. And we'll start seeing Will that equal or see what what or or be less than the 36 figure? It initially be a little less, and then it eventually over 27, 28, 29 basically equates to what we were getting. But it's like for five or six months, there's a negative thing given the master lease. But, again, that's that's communicated out. Does that satisfy you, Alex?

30:04 That's that's awesome. Second question, Steve, is big picture. You know, the with with regard to Citadel and and the whole, you know, tension with the mayor. You know, back in 2019, Amazon wanted to open in Queens. They were rebuffed, but I don't recall this amount of instant, you know, negativity and nerve political nervousness. Today, it's clearly, you know, escalated a lot quicker. What do you think has changed? I mean, certainly, politics have become more left, more progressive here. But why do you think can this time the politicians seem to be much more eager to make this everyone be happy versus Amazon, the city, and the state seemed happy. Yeah. It it wasn't even a ripple when Amazon walked from Queens. It it doesn't seem that. What's the difference now versus then?

30:53 Yeah. I don't know. But, you know, you're correct that the the the body politic doesn't seem to have any remorse about losing Amazon. On the other hand, the body politics thinks that the the federal team is important and an enormous contributor. And there is a significant feeling amongst the the political leadership and the business leadership that this was a a mistake, which I described as a blunder. And, you know, this is something that should be repaired. And we'll see we'll see where it goes.

31:42 Thank you. Our next question today comes from Dylan Brzezinski at Green Street. Please go ahead. Hi, guys. Thanks for taking the question. Michael, I think you mentioned that pricing has has widened given some capital markets volatility associated with the war in Iran. Curious if you can just provide more color on that. And then maybe if you can sort of flavor in some commentary around, I think last quarter you guys mentioned looking to put assets in the market, just sort of any sort of color you can provide on sort of how that those processes are going. On the financing markets, financing markets were incredibly strong in the last year, beginning of this year, as tight as spreads as we had seen in some time.

32:31 Know, the volatility, it's back off a little bit. Looked at there's still depth in the market. Deals still can get done, particularly for high quality assets. I wouldn't call it a huge impact. But reality is look, treasuries are probably up 30 basis points or so and the spreads have widened out a little bit. So that makes the borrowing costs a little wider, but, you know, not wildly different. You know, just just, you know, this is still a very functioning marketplace for high quality assets. But, you know, off maybe forty, fifty basis points in total. I'm glad we did what we did, you know, when we did it. We're not really dealing in today's markets, but again, you can get deals done. On the asset sales side, we're I think Steve referenced, we're working on some asset sales and that is true.

33:24 And when we have some rate to announce, we'll announce, but the answer is we got a few things that are meaningful in the pipeline. We're in active discussions with potential buyers. I would say the interest in New York City, as I said in my remarks, continues to expand in terms of the type of buyer. I think there is consensus on New York being head and shoulders best market. Assets are rents are rising, assets are at a discount to replacement cost is a recognition there's not a lot of supply coming. And so I think global capital has a lot of comfort in it. I think one of the things we're hearing from capital sources around the world is The US remains safest, most liquid market, particularly given everything going on around the world. Now that you're going to continue to see capital emanate from other parts of the world to come into The US. Mean New York City is going to get a heavily disproportionate share of that. So that's what we're seeing. And we have specifics to announce, we'll announce it, but we're encouraged by what we're working on.

34:25 And then just on the rent growth piece, I think several quarters ago, I asked 20%, 25% rent growth, if you saw that over the next five years, what were your thoughts to be on that? Steve, I think you mentioned like, while that's good, that would be disappointing given everything you're seeing on the supply and demand imbalance, especially for high quality office. I mean, can you guys just talk about how far rent growth could go in your mind? And has your thoughts around that 25% cumulative rent growth figure changed at all? I think I think we'd still be disappointed in that, Dylan. Know, look, is is is I think we've said in the last couple calls, right? The backdrop for office is as favorable as it's been in, a long, long time.

35:14 And it's very difficult to add supply here, which at some point we're going to need. So there's going to be a building a year maybe as we get into the next decade. But, you know, that's very little at the same time we have supply coming out of the bottom end of the market. So, you know, the fundamentals are great companies, as we've said, you know, continue to want to grow here. We're seeing still significant activity from the financial service sector, law firms, accounting firms, frankly AI has picked up more recently. So I think all that you know results in you know rents continuing to rise so you know I don't know that it makes sense to give you a prediction but we'd be disappointed at 25% over five years. Don't know you want to add any comments on what you're seeing?

36:00 I mean look at tenants rent sensitivity is not even high on the list right now. Tenants wanna be in the best building with the best landlords. And if you think about our leasing performance, a $100 a foot become the norm for us because of the quality of our product. Over the past eight, nine quarters, our average starting went to a $100 a foot. That's a great trend. So, you know, as we go on here and and the way we're shaping the portfolio with the addition of six twenty three Park Avenue Plaza, the new 350 Park, and we think, you know, rents are gonna continue to spike. And the way we're balanced on the West Side and now Park Avenue, we're really excited about that. We think we're in perfect position for what's to come on rent and tenant demand.

36:51 Thank you. Our next question today comes from Yana Gowan with Bank of America. Please go ahead. Good morning. Thank you, and congrats on the strong start to the year. Michael, appreciate your comments on the 2026 FFO now expected to exceed 25. Just curious if that's primarily from the Park Avenue Plaza closing in 2Q or also from 1Q being slightly ahead and carrying throughout the year. I'd the say latter. Great. And then maybe on 555 California, if you could give some update on kind of demand, leasing and rents there, And are AI tenants becoming a bigger part of the pipeline there and in and in the New York pipeline as well? Hi. Yeah. I'll take it. Glenn, how are you?

37:39 So rents in San Francisco are rising a lot. As I said earlier, our rent in the tower have now gone north of a $160 a foot for substantial leases. 50,000 feet and greater, not small deals. So we are leading the market by far at 555 Cal. We're also seeing a lot of really good activity at 315 Montgomery in the campus with more technology AI type tenants. So certainly, that activity we're seeing at our project at our complex as well. But other than tech and AI, financial services is growing in San Francisco, something we've kept a very keen eye on, as well as law firms. So it it isn't just AI, although it's helping a lot as as the city improves.

38:30 But the other industry sectors are really coming on strong, and the city overall feels great. I was out there a few months ago walking the street, meeting with people. It's really it's really feeling good out there, and people are already positive again in San Francisco. Thank you. Our next question today comes from Anthony Paolone with JPMorgan. Please go ahead. Great. Thanks. You talked about having some assets out in the market for sale. But if we think about just, you know, whether it's 350, 54th Street, and then 5th Avenue, some of these projects that are gonna be in the pipeline, how are you thinking about just your pro rata leverage level over the next couple of years and whether there's gonna likely be a bigger disposition program or or whether you think, you know, you'll just use project financing and and take on a bit more leverage?

39:24 Morning, Tony. You know, we we've got we've got, you know, the capital earmarked for all these opportunities, you know, in our in our cash forecast. You know, we've got some asset sales in the works that like we obviously have a lot going on between these investments that we've made recently, you know, 623 Park Avenue Plaza, the buybacks, some of the future developments. What I would say about the future developments, something like the $3.50, the bulk of our equity is coming from our land contribution, right? So any incremental capital is really not required from Vornado for probably close to three years. So we've got, you know, time to plan for that and so forth. So, you know, when you look at our sort of capital needs, if you will, over the next few years, you know, it's fairly well laddered.

40:21 But, you know, at the same time, you know, as we execute, hopefully, on some of these asset sales, that's gonna give us some additional firepower, frankly, beyond just, you know, we're talking about in terms of these developments. If you look at our history if you look at our history with respect to capital planning, we have three or four things that we have historically done. Number one, we generally hold billion dollar plus cash balance. The second is is that we almost always prefund well in advance of our capital needs. So for example, we loaded in, I don't know, $22,500,000,000 of capital two years before we started the pen one and and two development.

41:12 So that notwithstanding the fact that the capital markets got a little bit rough rough and volatile when we were actually building, we had the we had the capital on our balance sheet. So that's what you can look at for what we do. The other thing is is that we like to operate with lower rather than higher debt levels for the obvious reasons. The last is is that our our philosophy is that we like nonrecourse project level debt as opposed to unsecured credit, which basically makes the entire corpus, I guess, could say personally liable.

41:57 So we like nonrecourse project level debt, which is the majority of the way we finance our business. Okay. Got it. And then just follow-up question on the leasing side. I think there's about 600,000 square feet in the fourth quarter that that comes up. Is there anything larger in there that's a known vacate? I just can't remember if there's any big deals in that mix to to watch out for. There's there's it's Glenn. Hi. Is two larger tenants expiring in the second half of this year, and we we believe both will renew their leases. So we feel good about our expiration of the remainder of '26. And as you would expect, we're we're all over the '27, '28 expirations as well. But '26, we're pretty well taken care of. We feel good about what's gonna happen.

42:51 Thank you. Our next question today comes from Victor Malhotra with Mizuho. Please go ahead. Good morning. Thanks for taking the question. I guess first one, you know, given all the kind of activity you've had with all the Penn assets, any update on Hotel Penn and Manhattan Mall in terms of, you know, users, monetization, etcetera? No update. Okay. And then just on the earnings side, you mentioned 2027 FFO. Nice pickup. I'm wondering, you know, two things. One, are there any offsets we should be thinking about for '27? And then in particularly, FAD, given the, you know, ramp in FFO, I'm assuming there's still gonna be elevated TI into '27. So should we think about FAD really, you know, perhaps picking up only in '28?

43:43 Thanks. Yeah. Good morning, Vikram. You know, on the Hey, I would make one comment. Okay? I can't wait for the free rent to burn off. That's when that's when this business will get to be real fun and will generate substantial positive cash. That happens over the next year or two. I can't wait for that. Now go ahead, Michael. So so By the way, Glenn, take note of what I say. So on the bad side Vikram you know your comment is right right there'll be continued elevated TIs this year next year you know even on deals we've committed this year you know tenants and I don't call those for a while so that'll that'll that'll go into next year and then '28 you know we expect to see that drop you know materially and cash flow you know be much higher so I think your general direction is accurate.

44:42 On the earnings side, you know there's always ins and outs so there's always offsets. I can't say specifically what those are but in the history of Vornado I think we've given you as much guidance as we can give you with respect to next year in terms of what the bottom line is going to be. Thank you. Our next question today comes from Nick Yulico at Scotiabank. Please go ahead. Thanks. I just wanted to go back to 350 Park and just be clear on a couple of things. One, in terms of the new $16,000,000 annual rent versus the old rent, did that already happen in the first quarter? Is that a second quarter accounting impact? And then I also want to be clear on that new rent that's being paid.

45:32 Does that what is the maturity on that lease? Is that concurrent with the debt, the new mortgage that matures next year or is it extend beyond that? Good morning, Nick. So on your first question, new rents started. I mean, are a few days in March where it started but you know by and large it'll be second quarter so I don't know maybe there are fifteen days in the first quarter where the new rent was reflected. The new rent is coterminous with the with the the execution of the new mortgage. So I don't know what that date is, but it's a couple of weeks or three weeks ago, whatever. Yeah. So that's that new lease runs until early twenty seven. And, you know, your question is, you know, why is that? Because, you know, there will be a resolution one way or the other. Either the venture will be formed, we'll put the asset, know, something will happen prior to that maturity.

46:33 Okay. So the rent, that new rent only is only in place until the point at which the mortgage matures. There's no there's no rent being paid beyond that date on the new agreement. Correct. But there'll be there'll be a, you know, there'll be a resolution door a or board b before that, which, you know, the rent would have gone away anyway. There's no there's no building. Okay. There's no building for the tenant to pay rent for. Got it. Okay. I just wanted to be clear on that. And then I guess second question is, you know, obviously, I mean, you you've talked a lot about you giving some of the breadcrumbs on 2027, how to think about that. Is also 2027 FFO is a piece of the executive comp per the proxy plan. So I guess I'm just wondering like if you any new thoughts on this, Steve, about finally giving earnings guidance? You know, you're at the point now where the tide is turning.

47:37 You're being, you know, measured by that from a comp standpoint. Why not give formal FFO guidance at some point? Oh, lord. How do I answer that question? You know, the two sides of it is is that, you know, we we have a simple business which has complexity, and the numbers are moving. It's very I mean, we find it that it's sort of difficult to guide and counterproductive. So Warren Buffett, who's not a friend of mine, but an acquaintance of mine, he didn't guide for his whole career. So that's one thing. And and the big bank guy, he doesn't guide either.

48:23 So but all of our competitors seem to be able to guide. So what's wrong with us? But right now, we have no plan to guide other than the snippets that we put in these calls here and there, which I think I hope you find all find helpful helpful. Now what I think you're saying is is that if our earnings are gonna gonna gonna explode upwards, why don't we just take pat on the back for that and guide to that? So that's something that I'm gonna put under my pillow and think about because that sounds like maybe it's a good idea. But as of right now, our policy is we selectively and and a limited way guide, but we don't we don't give full guide. And I think you can you you could probably guess that that's gonna continue for the, you know, for the, you know, for the for the future.

49:18 Tom, what do you think? I agree. Tom's saying he's happy he doesn't have the guy. Thank you. And our next question today comes from Seth Berge at Citi. Please go ahead. Hi. Thanks for taking my question. In the annual shareholder letter, you kind of referenced the no sacred cows policy again. It sounds like the New York office trends market is improving. You mentioned possible kind of inflows given it's a liquid market in The US is just safety. How do you kind of think about, you know, potential asset sales? Should we think about those being more noncore dispositions or any core asset sales that you're kind of thinking about?

50:10 Summarize the question for me. It's common with the you've mentioned you'll add in no sacred cows. Is that just New York or is that some other assets we should think about non core dispositions? I mean, I don't wanna shock you, but, basically, I'm in it for the money. And so, therefore, there are no sacred cows. There are assets that are critical to the business. There are assets that are important to the business. There are assets that we love more than other assets. But based upon price economics and business strategy, There are no sacred cows. Now what does that mean? There are a there's a handful of assets that we actually have already determined that we don't want in the in the business mix, and those assets are for sale.

51:08 Our intensive our intensity, if that's a word, to liquidate those assets rises and falls with the market. But over a short period of time, there's a handful of assets that will not be part of our portfolio. Now getting to the rest of it, there are assets that we hold near and dear that we think are very valuable that we underwrite as being much more valuable than apparently the stock market underwrites it. Even those assets, if I think Sam Zell said a god the phrase a godfather bid, If some very aggressive bid came in for one of those important assets, we would execute on that because that would be the right thing to do.

51:59 That's the right thing for us. It's for the management to do. And more importantly, it's the right thing for the shareholders. So there are no sacred assets. There are prices that are critical, but in terms of whether we would execute on selling something, it's all function of what the price is. Great. Thank you. And then for my second question, I guess, how do you think about kind of incremental, you know, potential acquisitions versus accelerating, the share buyback and balancing that versus versus your current leverage levels? So there's three things inherent in that question. There's acquisitions versus stock acquisition and leverage levels. So the answer to that is is that we think no. Let me rephrase that. We are certain that we could basically do all three.

52:56 We are certain that we can buy selectively important assets that come up in the in the bull's eye location of our heartland. We are certain that we can we have the capital to buy back our stock in a measured way, and we are also certain that we are able to keep our leverage in a to a measured and under control level. So what we think we can do all of that. And we have some things that are in process that that will augment all of that. So our two most recent acquisitions of 623 5th Avenue, which we think I mean, I've written about that, and we think it's a terrific deal.

53:43 And the Park Avenue Plaza acquisition that we just announced a couple of weeks ago, we think it's a equally terrific deal. And then we think buying back our stock is $30 a share is a terrific deal as well. So we're doing all of that, and I I hope that answers your question. Thank you. Our next question today comes from Caitlin Burrows at Goldman Sachs. Please go ahead. Hi. Good morning, everyone. Maybe just on the pricing side, I realized the reported leasing spreads are only on a subset of second generation space. So, first, I was just wondering if you can go through your expectation today of portfolio mark to market across New York, San Francisco, the Mart? And then also whether you expect that portion that gets included in the spreads to increase as in, like, could downtime become smaller?

54:37 Good morning. It's Glenn. So on the on the question of mark to markets, we expect, you know, to continue the performance we've had over the past, you know, couple of years, which are positive, positive, and positive. During the last two years, we've only had one quarter negative, which we like, and we expect to continue. Many have been in the double digit positive. We expect free rent to continue to reduce, and even TIs are starting to come down. So we're working hard on on that piece, of course. And and San Francisco is the same. You know, with the rents we're achieving, the mark to markets will will continue to improve. Chicago, as I said, is still most challenging, although demand is picking up.

55:23 You know, rents are rents are staying firm. Concessions are high in Chicago. Those have yet to break, you know, downwards, but demand is certainly improving. I mean, think about think about just economics one zero one or macroeconomic. Focusing on New York for the moment, I mean, you know, we've said, and I've written about that we compete in a subset of better building class a space, which is under 200,000,000 feet. So the fact that there may be 400,000,000 feet in New York is irrelevant because we really compete in a market which is about half that size. The availability of space in that market is evaporating very quickly.

56:11 I mean somebody used the analogy of an ice cube in a microwave. We are getting I mean we know that because we are a key factor in the market. We know that because the incoming calls from brokers looking for space for their clients are starting to get more anxious and even more desperate. So as the availability of space shrinks, obviously the price goes up. Now there's something else going on which is equally important, and that is the cost of a new building has gone from whatever to somewhere around, pick a number, $2,500 a foot. Interest rates and the cost of capital has gone from, you know, zero or 2% to five, six, and seven percent.

56:58 So the rents that has to be achieved to make a new building economic are well into the $200 a foot and even touching $300 a foot. That's never happened before. So obviously rents on older buildings, which are still great buildings and great locations, are going up because scarcity and because of the cost of of of new supply coming on the market. So this is just basic economics 101. The next part of it is that I believe and my team can speak for themselves. I believe that we are in a long, long, long term landlords market where these dynamics will continue.

57:49 Why is that? Because there's nothing in the short term that can change that other than if interest rates get down to 2% or something like that, which you can make your own judgment whether that might might or might not happen. So if that happens, basically, I'm not in a big rush to rent space at today's prices because I think tomorrow's prices are going to be higher and maybe even a fair of a lot higher. Thanks. I guess maybe just to follow-up on that last point. I know leasing volume in the first quarter was relatively low, so would you just say that that's, lumpy? Is it more about that you're not in a rush because rents could be rising or something else?

58:36 Glenn Glenn is in the business of renting space as quickly and aggressively and as and as hungry as he can be. So if there is any fall off in volume, it's not be it's because I directed Glenn to get out of the market. Glenn's in the market every day working his ass off. Thank you, Glenn. Thank you. Our next question today comes from Ronald Camden at Morgan Stanley. Please go ahead. Can't respond to that. No. Hey. Two quick if you wanna respond, I I could wait. Go ahead, Ronald. Go ahead. Okay. Great. Just just two quick ones, and and thanks for taking the questions. Just, number one, I think, you know, I think last call, you talked about some guideposts for occupancy over the next twelve to eighteen months and thinking sort of mid-90s on a lease basis. Just wondering if you can provide any update both on the leased and on a physical occupied basis, what what that occupancy target to look like over the next twelve to eighteen months again?

59:36 Thanks. Look, we we we've historically, know, run our portfolio in the mid to high nineties. And we expect to get back there. So that probably is over a couple of year period. But that's and again, think given all the dynamics that Steve alluded to and we've talked about in the market and the lack of space availability, that's going to happen. So obviously, up Penn is a key part of that. But and I think one of the analysts picked up this quarter that our occupancy actually went up 70 basis points not the 40 because we took three fifty parks out of service. So you know that's what we're expecting it. I can't tell you exactly what quarter it's going to be but you know over the next you know couple years or so that's that's where we expect to get back to. But there's a couple there's a couple of things to focus on.

1:00:34 There is a a couple of buildings that we are not not renting. Why is that? Because they are overleveraged and underwater, and we it's it's uneconomic for us to rent bases in those buildings, which really they're almost owned by the banks. And if we put TI into those buildings, it's basically burning money. So if you take those few and we have chosen I don't know whether this is a good decision or not we've chosen to leave those in the aggregate statistics where some of the folks in our industry have taken those buildings out of the numbers which makes their occupancy higher So if you take those numbers out those buildings out of our numbers our occupancy goes to what 94 something like that ninety five ninety four percent ninety four so we know that number although we don't publish that number and maybe we should. Although, right now, I'm publishing it. So that's the first thing. The second thing is that I look upon in a landlord's market like this. I look upon vacancy and available space as an asset because that will that as we rent that space and we will with a 100% certainty are that that will grow our earnings.

1:02:05 So when you think about investing, maybe the best company to invest in is the company that does have available space in this market as opposed to a company that has office space already rented. You can make out of that what you know, whatever you will. Thanks. Really helpful color. And then my my second one, if I may, was just a lot of the footnotes in the supplement. Just on, I guess, on PENN1, any idea when that litigation will be just in terms of timing? Obviously, can't comment either way, but just in terms of timing, is that something that could be done this year? And and also, the change in retail, from the base of the office buildings being put in the office segment, just just the thinking there. Thanks.

1:02:55 I'll take the litigation. I have absolutely no comments on anything having to do with that litigation other than I'm optimistic. What about the what about the retail? Yeah. So we didn't change our segment reporting. Obviously, we have two segments, New York and other. This is a subsegment. Ronald, what we did here is we tried to align the sub segment more on how we view the assets. So we grouped all the retail assets together and the office assets. So the base of twelve ninety retail is now included in office as opposed to being in retail, and any ancillary office space that's in a retail building is obviously in the retail subsegment. And it's all disclosed, obviously, in the supplement, and we give you the exact buildings that are in each subsegment, so you could follow along. I think this is the better way of looking at it, as opposed to the way we were doing it previously.

1:03:46 Thank you. Our next question today comes from brand Brendan Lynch at Barclays. Please go ahead. Great. Good morning. Thanks for taking my questions. First one on Sunset Pier Studio. Is there any interest in the current short term tenants in converting to longer term leases? And just an update on that. Hi. It's Glenn. There's great interest in in Sunset and the studio. We're we're leased right now. Place is great. Unbelievably great. You know, I would say best in the great you know, great location. We have very good activity, long term folks looking, short term folks looking. So we expect to continue roll up the project once this year's leases expire.

1:04:36 But it's off the charts. The reception's been A plus when we expect to do really good things around the leasing. But a direct answer to your question, I would definitely prefer to be in the long term leasing business with that asset rather than in, you know, month by month leasing in that asset. So the answer is the ownership of that asset prefers to be in the long term leasing if the market gives us that opportunity. Okay, thank you. That's helpful. And then a follow-up on the Verizon space at PENN2. Can you just walk us through if they find a subtenant versus you finding a tenant and how we should think about potential termination fees and any accounting around the TIs that you might still be responsible for if it's just a sublease instead of a cancellation and new lease?

1:05:37 Glenn prefers that I don't talk about it. Go ahead. As I said earlier, we're in great spot no matter how it comes out. And we will only be opportunistic to make money on this space. We have a very good lease position, and and we'll see how it plays out, but that's as much as I think I wanna talk about it for now. What what do we have? It's it's basically a nineteen or a twenty year lease. So we have a long term lease with a super credit. That lease will net we will never terminate that lease under any conditions. So the only thing that might happen is around the dynamics of a sub tenant coming in because Verizon wants to reduce their liability. But we don't have anything to say other than that long term credit lease really will will will is is not something that we are going to terminate or monkey with.

1:06:31 Thank you. There are no further questions at this time, so I'd like to hand it back to Steven Roth for any closing remarks. Thank you all very much. I mean, the the, I think the team and I are delighted with our activity over the last three, four, six months. We are excited. We think we and I did make the statement in my remarks this morning that I am certain that over the next year or two, we will have the highest growth performance of any company in our sector. And we're excited about that. We've got a lot of great stuff going on. And thank you for participating. We'll see you next quarter.

1:07:19 Thank you. That concludes today's conference call. We thank you all for attending today's presentation.