Good morning, and welcome to the Vornado Realty Trust First Quarter 2023 Earnings Call. My name is Sarah, 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, Senior Vice President and Corporate Counsel. Please go ahead.

Welcome to Vornado Realty Trust's first quarter earnings call. Yesterday afternoon, we issued our first quarter earnings release and filed our quarterly report on Form 10-Q with the Securities and Exchange Commission. These documents as well as our supplemental financial information packages are available on our website www.vno.com under the Investor Relations section. In these documents and during today's call, we will discuss certain non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP measures are included in our earnings release, Form 10-Q and financial supplement. Please be aware that statements made during this call may be deemed forward-looking statements, and actual results may differ materially from these statements due to a variety of risks, uncertainties and other factors. Please refer to our filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31, 2022, for more information regarding these risks and uncertainties. The call may include time-sensitive information that may be accurate only as of today's date. The company does not undertake a duty to update any forward-looking statements. On the call today from management for our opening comments are Steven Roth, Chairman and Chief Executive Officer; and Michael Franco, President and Chief Financial Officer. Our senior team is also present and available for questions. I will now turn the call over to Steven Roth.

Thank you, Steve, and good morning to everyone. Let me get a few things out of the way first. Our business is performing well in this environment. Our outlook hasn't changed since last quarter. We are full speed ahead on our current projects, totaling over 5 million square feet in the PENN District. Any comments in the newspapers or industry tabloids that we have stopped this are incorrect and just plain silly. Just take a look at our three-block long construction site when you next go through PENN Station or next go to a mix playoff game. Now some commentary on last week's dividend press release and reaction there too. Simply stated, we are going on offense. Let me say that again. We are going on offense. A few facts for context, we know about dividends. In 2022, our dividend was $2.12 or $435 million in cash. Over the past 10 years, we have paid and happily paid $5.1 million in regular dividends and another $400 million in special dividends. Last week an analyst characterized REIT dividends as sacred and I agree, well, I guess I sort of agree. For this year, we have already paid a $0.375 or $75 million cash first quarter dividend. We will pause paying dividends in the second and third quarters. And in the fourth quarter, based upon known facts and actual taxable income, including asset sales, et cetera, we will pay out as we must taxable income, but we'll reassess whether it is wise or appropriate to pay in cash or in a combination of cash and scrip. Shareholders should be indifferent as to whether they receive cash or scrip, but that cash, if retained by the corporation, might be more wisely employed for debt management, stock buybacks or whatever. As most of you know, I have resisted buybacks for years and years, resisting copying sister industry companies, and resisting the pounding from analysts to 'close the NAV gap.' I believe my resistance was logical and fact-based. But since last quarter's dividend announcement to this quarter's dividend announcement, our stock price has declined 35%, from a low level to an even lower level. Seeing value in the stock as an opportunity to create shareholder value, last Wednesday, included in our dividend press release, our Board authorized a $200 million share buyback program. We will proceed carefully and in a measured way, funding the buyback from asset sales or even cash retained from paying the dividend in scrip. Since our dividend is sized based on taxable income, not FFO earnings, here is the math. 2021 taxable income was $2.03 versus a $2.12 dividend. 2022 taxable income was $2.08 versus a $2.12 dividend. 2023 taxable income is currently projected at $1.05, without any asset sales and surely there will be asset sales. The difference between 2022 and 2023 taxable income is primarily increased interest rates. The couple of other comments. We think we have seen the peak in work-from-home. More and more CEOs are now requiring their employees back to the office. With each passing week, office buildings share more and more like 2019. And we believe it is just a matter of time before everyone is back for good. New York City seems to be leading the country in this regard. Lastly, with all CBD office stocks having been crushed, I am in great concern about the future viability of office. It is important to review our financial position and our liquidity. We had $2.2 billion of liquidity, including $1.3 billion of cash and treasury bills. We have over $8 billion at today's markdown values of debt-free unencumbered assets. Penn 1 and Penn 2 trolling are all unencumbered. The remaining capital program to complete Penn 2 has been pre-funded and will be paid for out of cash balances. These buildings have significant future embedded earnings growth. And as Penn 2 rents up, that incremental income will do wonders for our debt metrics. We rely primarily on project-level non-recourse debt, old-fashioned mortgages. Only 2.5% of our debt is recourse and that with well-laddered maturities. We are clear-eyed and realistic about the near-term financial market challenges. It is not pretty when 3% debt rolls over to 6%, 7% or even an 8% market. We will certainly have a few workouts to deal with, but that is the point of having non-recourse debt. We have no maturities this year, limited property level maturities next year and no corporate maturities in 2025 with sufficient capacity on our line that matures in December 27, so that we don't have to finance in the current hostile market. Thank you, and now over to Michael to cover the financials side in the market.

Thank you, Steve, and good morning, everyone. During our last earnings call, we said that we expect 2023 comparable FFO to be down from 2022 and provided the known impact of certain items totaling a $0.55 reduction, primarily from the effect of rising interest rates. Though the current economic environment makes forecasting more difficult than usual, this remains a decent assumption absent the impact of any asset sales. As expected, first quarter comparable FFO as adjusted was $0.60 per share compared to $0.79 for last year's first quarter, a decrease of $0.19 or 24.1%. This decrease was driven primarily by higher net interest expense from increased rates. Our company-wide same-store cash NOI for the first quarter increased by 1.5% over the prior year's first quarter. We have provided a quarter-over-quarter bridge in our earnings release and in our financial supplement. Our core office and retail businesses remain resilient with long-term credit leases. Now, turning to leasing markets. Amidst the backdrop of interest rate volatility and recessionary concerns, we remain encouraged by the level of activity year-to-date. Leasing activity has been led by strong demand from traditional industries, financial services, and law firms, in particular, with many financial firms growing their footprint and accounting for 40% of the 7.4 million square feet leased in the first quarter. The availability rate of newly constructed properties has substantially declined with much of the new trophy space now largely absorbed at record level rents. Tenants in the market are increasingly focused on the highest quality redeveloped Class A buildings that are well-amenitized, have strong sponsorship and are near transportation in Midtown and on the West side, which is resulting in rents moving up in these buildings. Our office portfolio is filled with these types of buildings. Companies are clearly willing to pay more for the right work environment that they believe will help them retain and attract talent, as well as motivate their employees back to the office. While there is solid activity in the market, large requirement deal flow is lagging, and concessions remain stubbornly high. Focusing on our portfolio. During the first quarter, we completed 22 leases totaling 777,000 square feet with healthy metrics, including starting rents at $101 per square foot and a positive mark-to-market of 1.7% cash and 8.5% cap. This included our full building 585,000 square foot deal with Citadel at 350 Park Avenue and 82,000 square feet at PENN 1 at $92 starting rents. If we exclude the Citadel deal from our statistics, our team completed 21 leases totaling 192,000 square feet at $83 starting rents with a very strong cash mark-to-market of 13.1%. We are continuing to experience good momentum in the PENN District with a steady stream of new leases at PENN 1 at ever-increasing rents, now in the high $90s and reaching $100 per square foot in the building's tower floors, reflecting tenants' attraction to the unique amenity offerings we have in the most successful location in the city. Tour activity is picking up with PENN 2 as well now. The project is nearing completion, and tenants can better appreciate the redeveloped product. Overall, we have very good activity at many of our assets, generally at higher rents than a year ago. Our leasing pipeline in New York remains healthy. We have more than 400,000 square feet of leases in negotiation, plus an additional 1.4 million square feet in our lease line. Much of this activity is at buildings where we have significant move-outs this year and next. The financial sector in particular continues to be active. With that, I'll turn it over to the operator for Q&A.

Thank you. We will now begin the question-and-answer session. Our first question comes from Steve Sakwa with Evercore. Please proceed.

Yes. Thanks. Good morning. Steve, I appreciate the comments on the dividend and the additional color there. I just want to make sure when you talk about going on offense, does that really just mean buybacks, or could that include potentially buying buildings as well, or are buybacks really the only thing on the table at this point?

Buybacks represent the best value for us, so we will concentrate on repurchasing our stock rather than purchasing properties. Even if we acquire a building that was previously valued at $1,000 per foot for $700 per foot, that opportunity does not compare to the value we see in our stock.

Great. And then as a follow-up, Michael, I was just wondering if you could maybe talk about the leasing dynamics sort of between Penn 2 and Penn 1. It sounds like with the renovation at Penn 1 you're getting really good traction at the triple-digit rents you'd sort of talked about when you did the redevelopment. And I'm just curious are you getting closer to getting some tenants in secured at Penn 2 as that project kind of nears completion by the end of this year, or I guess what's the holdup on getting leases signed to Penn 2?

You, Glenn?

Yes. Steve, so yes, Penn 1 is on fire. Leasing activity is strengthening really week-to-week, with great tenants in financial technology, accounting, and consulting, and rents are now piercing $100. So we're really pleased with how Penn 1 is coming along. And really, as Penn 2 rents up month-to-month, the project is looking better and better. Just amazing product we're delivering. And as the Penn 1 activity continues to strengthen, that seamlessly flows into the Penn 2 action. So we now have tenants who are being boxed out of Penn 1 looking at Penn 2. Our tour activity is higher than ever right now with Penn 2, including some large activities and some single double two-floor activity. The building will lease; it is the best product available in the market. It is in a perfect location with transportation and amenities like no one else has. So we're supremely confident in the product and we look forward to great success.

Thank you.

Steve, hang on for one moment. You should know that earlier, we had the opportunity to lease half of the Russell floors to two different prospects, important companies, and we turned them down. So we have a great deal of confidence in the product and the building, as Glenn says, the building will lease. Next question, please.

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

Good morning, and thank you for taking my questions. I have two questions. First, Steve, during your third quarter call, you discussed the possibility of adjusting the dividend, which you did, but then a few months later, you decided to suspend it. The interest rate environment has continued to improve, and the conditions around office leasing and the capital requirements of the company seem to have remained consistent. What shifted in your perspective and the Board's perspective that led from resizing the dividend from $0.53 quarterly to $0.375, and then to suspending it altogether? I’m trying to understand what specifically changed since the macroeconomic conditions, leasing fundamentals, and balance sheet appear to be the same.

Alex, you're right. Nothing has changed significantly. The only difference is that our stock has dropped 35%, as I mentioned earlier, going from a low point to an even lower point. After contemplating for years, we've decided the time has come to buy back stock, counter to our previous financial strategy. We view stock buybacks as a proactive approach, and we are committed to this initiative. We see the value in doing so. While I’m not suggesting we’ve hit the lowest point yet, we are allocating resources towards buying back stock, and we’ve announced this plan. It felt a bit unusual to mention a stock buyback alongside a dividend announcement, but we felt they were related since both involve payments to shareholders. Regarding the dividend, we know we have to fulfill our obligation at the end of the year, but I don’t see temporarily suspending or delaying the dividend as a major issue. We will comply with the dividend requirements in the fourth quarter, determining its size based on our situation at that time. Additionally, we announced that the dividend could be paid in cash or partly in stock. While I’m not making any promises, there’s a chance we may choose to offer stock instead of cash for the dividend. Our perspective is that shareholders should perceive stock received as equal to cash since they can convert it as they wish. We did have extensive discussions on the idea of issuing stock for dividends while simultaneously buying back stock, but we concluded that it’s not circular. Issuing stock for dividends maintains proportional ownership for all shareholders, whereas buybacks alter ownership percentages based on individual decisions to sell or hold shares. Ultimately, we will decide on the dividend size at year’s end and whether it will be completely cash or include stock as well. If we opt for stock, it could significantly support our buyback strategy, which we believe is the right course of action.

Yes, that segues into the next question. So I mean, obviously, you've seen your stock decline here a few billion. Hudson did a buyback. I mean, there's not a lot of evidence that buybacks help, but when we look at your balance sheet, it looks like you have $2.4 billion of debt where the swaps expire later this year. So my question is, wouldn't the $200 million be better spent paying down that debt? And Michael, in the $0.55 that you said, this year would be down versus last year that includes these swaps burning off, or are these swaps burning off or incremental to that?

No, Alex, what we discussed last quarter reflects our expectations regarding swap caps and similar factors that will roll off this year. So, that is included in that figure.

Alex, we have a lot of confidence in the strength of our balance sheet. We believe our maturities are well-structured. Most of our debt, nearly all of it, is non-recourse, which is a crucial aspect of our balance sheet's strength. We will consider managing our debt, as opposed to buying back our stock, whenever we find ourselves in that decision-making situation. We are confident that we will make the right choice.

Okay. Thank you, Steven.

Yes, Alex. By the way, one last point, okay? There's no other company that I'm aware of, that is spending multiple billions of dollars on asset sales and it's pretty negative sentiment right now.

Our next question comes from Michael Griffin with Citi. Please go ahead.

Great. Thanks. Maybe just piggybacking on Goldfarb’s question there about stock buybacks. I mean, Steve you just used the phrase I'm not calling to bottom. I guess what gives you the confidence that the stock is trading so cheaply relative to your expectation, right? We've known that office NAV is relative to the stock price have been pretty materially depressed recently, but your share price relative to GFC times is down 30-plus percent from the beginning of 2009. So have you run some analysis, is there really some kind of thought behind it, or is there a worry that this could be attended catching a falling knife, so to speak?

It's Michael. Good morning. The answer is what I think Steve said, he's not going in the bottom. I think that commentary relates to the macro environment is likely going to remain choppy near-term. The Fed appears to be coming to the end of their tightening cycle. But it's not definitive. We don't know whether rates will stay higher for a more extended period of time. But I think as we evaluate the company, and we look at the price throughout the intrinsic asset value, even on a stressed case, we think it is heavily discounted, right? So we think that the pricing has become irrational. Every day there's negativity about office in the media. And some of that's warranted, but we think that's the whipping boy for today. And so that's going to continue. And that obviously has an effect on sentiment. And so it's gotten a bit extreme, right? And I think our action is a reflection of that. And as we stress the valuation and we have – we think there is a significant margin still.

That's helpful. And then maybe just one on leasing for Glenn. I guess ex Citadel this quarter was about 200,000 square feet of leasing. Was there anything really driving that? And then do you have any big updates on I guess the move out at 770 Broadway and then I think there's potential expiration at 1290 AOA. I think it's with ex Advisors, but if you could just update us on that, that would be great.

Yes, sure. So the color on the 200,000 feet that we leased outside of Citadel was substantially Penn 1 with some strong financial service deals at our Plaza District buildings, with rents that started at $83 a foot and cash mark-to-market of 13%. So that was the first quarter non-Citadel activity. As it relates to 1290, 770 and other expirations this year in 2024, we're obviously in the market, and we're seeing very strong demand for those properties. If you think about the portfolio, we think it's the strongest in the city. And those buildings particularly have underwent great redevelopments in the past. We're adding some of our work life amenity programs to those assets currently on the board being drawn up. A lot of our pipeline is at the 1290, the 770s, the 280 parks, the Penn 1, et cetera. So we're out there. We're already in paper on a lot of space at some of those assets. And I feel good about those properties and those spaces coming back in terms of making matches with the tenants in demand in the market right now.

And Griff, I may just add to that and I think I mentioned this in my opening remarks. If you look at what's happened in the market, right the new trophy space that was delivered which has seen record rents significant demand, that's largely spoken for. And I think we talked last quarter about a broadening out of tenant activity. Not everybody wants to pay high $100, $200 a square foot rents. Well-located, redeveloped assets, near the transit hubs are what is seeing that demand. So the buildings where we have holes in them, the 280s, the 1290s, et cetera, we're seeing very good tenant activity there and rents are starting to move up in those assets. And I think that's important, right? Concessions are high but rents are starting to move up in these other assets, because there's such a delta between the new buildings and these redeveloped assets that are well located. Proximity to transit is critical. Obviously, the state of the building is important. But that's a continuing trend we're seeing. And we're pleased with the activity at a number of our assets that are consistent with that theme.

All right. That's it for me. Thanks for the time.

Thank you.

Our next question comes from John Kim with BMO Capital. Please go ahead.

Thank you. Good morning. I wanted to follow-up on the dividends and the circular aspect of suspending it at this time. Two questions on that. One, do you anticipate your share count will be reduced by the year-end? And two, when you decide, whether or not to pay the dividend in script are you committed to only issue it at a higher share price than where you're buying it back at.

Yes, John, we expect the share count to vary based on the execution of the buyback. We'll keep an eye on the market and determine the timing and method of execution. It's tough to give a definitive answer to your first question right now. Clearly, the dividend won't be disbursed until the end of the year, so the share count will likely decrease before potentially increasing again, especially considering we raised the stock dividend. When year-end arrives, we'll assess how to manage payments, weighing cash against stock options based on our buyback activities and income from asset sales. We need to find the optimal mix, but it's still too early to determine all these factors.

So …

Okay. It just seems like, if you're buying it back at a certain point.

So, I'm remote and my equipment stinks. So sorry, I cut out one back. The reason for the pause in the dividend is to give us time to evaluate all of those things that Michael just mentioned.

I was just going to say, it makes sense to buy back at these levels, I suppose at a 10% implied cap rate or so. But then, if you issue it back at 10%, then it doesn't really make an impact. But my second question is...

Hold on, John. It does apply for an individual holding, right? If you hold the route correctly, you own a larger portion of the company moving forward.

Got it. Okay. My second question is on the leasing pipeline. I think, Michael, you mentioned 400,000 square feet of negotiations currently. I wanted to see how that compared versus the last quarter. I think you mentioned last time it was 1.2 million square feet 275,000 being finalized. I know those terms are a little bit different. But apples-to-apples, where does your pipeline compare today versus a few months ago?

Hi. It's Glen Weiss, John. I would say very consistent. So when we talk about 400,000 feet out, that leases documents in negotiation where the term sheets are final and the lease documents to be negotiated. The additional 1.4 million feet are deals that we're speaking with brokers and tenants. We have proposals in the house. We've responded to those proposals and we have rhythmic back and forth on the deal making. So it's consistent, I think, quarter-to-quarter what we're seeing, mainly the activity is financial service and law firms in that pipeline. But across the board, I'd say, the rhythm of the deal-making, the tenant demand, the tours have been consistent the last, call it, two to three quarters.

And can you break that out geographically?

I would say between Penn and Midtown, for us, pretty well averaged out between the two submarkets. And in Midtown mainly the Plaza District buildings would attract the financial service tenants.

Very helpful. Thank you.

Our next question comes from Camille Bonnel with Bank of America. Please go ahead.

Good morning. Could we touch on the financing market? We've been hearing over recent weeks that the credit spreads have moved higher since the issues around regional banks, but notice you completed a refinancing on Rosalind Plaza this month and the spread came in slightly lower. Was this a surprise or more of a reflection of other characteristics of the loan?

Michael?

Yes, Camille, every asset has its unique situation. In this case, it’s a small loan that we have reduced a bit. Our role is to connect with the best lenders for each situation, and I believe this was a successful execution. Generally, I concur with your initial observation that the markets are tough and spreads have increased. However, this varies based on the asset and the sponsor. There is some capital available; it's not strong by any means, but it exists for the right sponsors and assets. With favorable terms or appropriate loan-to-value ratios, the spreads, although wider than they were a couple of years back, are still acceptable. The challenges arise primarily with assets that have higher leverage or where there’s significant volatility in the income stream in the short term. I think Rosalind was a small asset, well executed, and indicative of a high-quality location.

My take on this Camille is that the markets are extremely hostile. This is the time and the cycle where your best do not have to refinance or finance. If you have to finance, you're at a huge disadvantage. And one of the things that I like about our strategy is, we have very little that we have to finance. So, especially, with our cash hoard, which is financing our Penn construction. So the markets are really hostile and the best bet is, just stay out of them.

You were cutting out a bit, Steve, but I think I understood parts of your message. Thank you for that. Now, switching topics, Glen mentioned last quarter the opportunity to convert showroom space in the mart to office space. I would like to know how that business plan is progressing and what the interest level has been so far into April.

So, the casual business departed for Atlanta in the fourth quarter; we're now preparing that space for office leasing. And in general, we have a pretty good pipeline in Chicago. Our amenity program will be complete by June. We're going to be out there with NeoCon and another broker event this summer, which we're looking forward to really bring the program out to the market. So the pipeline is good in Chicago; the market is tough. There's not a huge amount of tenant demand and particularly not a large tenant demand on the showroom business at the present. Our showroom business continues to perform. We've leased about 60,000 feet this quarter at $60 starting rent on the showroom business. The office business, we've leased over half a million feet of office in the last three years. We have modest expirations in the next three years. We're grinding out the office. We're getting looks from all the majors. We're in very solid discussions now with a couple of tenants looking to move their headquarters to the market. So it's starting to feel better, but certainly tough conditions in Chicago as we sit here.

Our next question comes from Julian Blue with Goldman Sachs. Please go ahead.

Hi, good morning. Thank you for taking the question. I wanted to go back maybe to the potential for asset sales. I know on the last call, I think the comment was that you didn't foresee being able to delever via asset sales for the next 24 months, but now it sounds like you see a real potential for asset sales this year. Has your thinking changed at all? Is it really down to maybe the share price and now thinking that even at sort of distressed pricing, you can get some accretion from repurchasing shares? Just curious to sort of get your thoughts on that?

Michael?

Yes, Julian, I noticed your comment and was somewhat surprised by the mention of no asset sales over the next 24 months. I don't think we stated that in the last call. We did mention that it's a challenging market for selling assets, but we didn't indicate that we wouldn't attempt to sell any. We've made it clear that we will be selective and understand the need to be realistic and strategic about what we sell. I believe our outlook hasn't changed significantly; it remains a tough market for asset sales. We do have some assets in mind that we believe can be sold, particularly a combination of leased office properties. I agree with your point that although the market may not be as robust as before and pricing has suffered, our share price has been affected even more. While we might not be satisfied with the current prices of certain assets compared to a few years ago, these prices look more favorable when viewed alongside our stock price. We're not compelled to sell anything, and we don't need to rush. We aim to be strategic and believe we can carry out some sales. We’re currently engaging in discussions about certain assets and plan to pursue a few others that we hadn't considered earlier this year. While we expect to execute some of these sales, I can't make any guarantees given the market's uncertainty, nor are we under pressure to sell anything. We'll monitor how the remainder of the year unfolds, but we intend to work on executing some sales.

Okay. Great. Thank you.

The next question comes from Daniel Ismail with Green Street. Please go ahead.

Hi, guys. Dan on here. Just touching on the asset sales. I guess do you guys have anything in the market today? And if you could provide further detail or color on sort of what sort of the profile of these assets are. Should we expect these to be some of the higher quality properties with long wall?

Daniel not going to get into specifics. The answer is we have discussions going on with a few assets. This is not generally in the market that you blast things out. You got to focus on who has capital willing to deploy. I will say there are a number of investors who view this as an interesting time to enter New York. And in some cases, there's decent duration on the leases; in other cases, it's more traditional rollover in terms of building a certain percentage every year. And as I mentioned, it's a mix of both retail and office. So I'm not going to get any more specific to that until we have something to announce. But as I said, we do think that they're executable if you find the right investor and you're realistic on price.

Okay. That's helpful. We're three years into the pandemic, and office utilization still remains quite low compared to 2019 levels. Have you noticed any changes in how tenants are designing their spaces?

Hi. This is Glenn. Generally, I would say more collaborative and collegial spaces, open workplaces like I always call it hangout spaces, but if you look across the portfolio generally, you're still seeing some private office mix with the traditional cube and open areas. In terms of densification, some industry types are more than dense. Some are seeing density they were. It's really a mixed bag. I wouldn't say a consistent layout of any industry type as you relate one to the next. So generally, I don't think there's much of a new theme than what we've seen previously other than the hangout 'collaborative collegial environment'. I mean the one thing that we are focused on in terms of the workplace is what we've done in the buildings particularly at PENN1 what we're doing at PENN2, what we've done at the mark, what we're going to do shortly at 1290 where we believe tenants want to be in these buildings because of the way we have really improved the experience when you first enter the asset. So the first experience that impact we think is the most important for our success. When people come in, they're comfortable, they can eat, they can drink, they can hang out, they can go to the gym. Whatever they're going to do, we look at it like they're coming into a concierge hotel environment. And that's how we've created these new workplaces in our portfolio which has been working extremely well as it relates to our program.

Great. Appreciate the color. Thank you.

Our next question comes from Derek Johnston with Deutsche Bank. Please go ahead.

Years ago in 2018, you hosted Seinfeld at 555 California Street for investors. Jerry's presence made me think about how you could be anywhere, but you chose to be here. It shows that you believe there's a way to move beyond the current negative perceptions of office REITs. So, my question is, how do you see Vornado overcoming this environment and emerging stronger?

I think it's essential to consider the current dynamics regarding employees returning to the office. Employers clearly desire their teams back on-site for collaboration and effective management. However, there's a segment of employees resistant to this transition. Looking ahead five to seven years, I believe we will revert to what was once regarded as normal. Time will play a crucial role in this process. People are eager to be in urban areas; apartments, restaurants, and streets are bustling. While some demographics are hesitant about returning to the office, that reluctance is beginning to fade. Time will ultimately be an ally in this situation.

Thanks Steve. That’s it for me, guys.

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

Thanks for taking the questions. So just first I wanted to clarify, you said nothing's changed between when you adjusted the dividend down a couple of months ago and then now. But I'm just sort of looking at the dividend run rate you had then and now the taxable income you're projecting, can you just help bridge what appeared to be sort of your projected taxable income run rate of, let's call it, $0.37, $0. 38. And today, it's more like $0.25. I'm just wondering your debt is fixed now. I'm assuming you had outlined I think a $0.50 impact and that was due to FFO, but you had outlined various impacts that you baked in. So I'm just trying to bridge the two numbers. What has changed in driving that projection lower from here? And can you just comment if that projection now includes a change in the way expirations may be renewed?

As I said, nothing's changed. We have left room for some asset sales. By the way, if you read the Norton Properties' CFO's comment in their earnings call, you'll see basically exactly the same statement that I just made. So what I'm saying is that we right-sized the dividend, and we left room for asset sales.

Okay. That makes sense. Yeah. Go ahead.

I'm sorry, go ahead.

I wanted to mention that you've discussed asset sales without clarity on pricing or potential outcomes. From your perspective, we've observed various transactions in New York and California with prices that were unexpected a few years ago, around $300 to $400 per square foot. Some properties are listed even higher, and I'm trying to understand how you determine which assets to sell. Also, is there a threshold where a sale wouldn't be justified based on pricing? I am looking to get your views on how you see values changing across different office types.

We understand your question. We are not desperate sellers or weak in our position. In fact, we are deliberately focusing on a very limited number of assets where we believe we can sell them profitably, as the proceeds from these sales will be reinvested very effectively. You can expect us to be highly selective; we are not engaged in selling on a large scale. Additionally, we are capable of walking away from deals if they don't meet our expectations. If we do proceed with sales, they will be very beneficial for us.

Okay. Thank you.

Our next question comes from Anthony Paolone with JPMorgan. Please go ahead.

Yeah. Thank you. Just on the PENN District, apologies if I've lost the thread on just the back and forth with the press in your comments. But if we look out the next couple of years, is there a way to crystallize what you intend to do or spend beyond what's underway right now with the buildings and stuff that you're doing that's in the sub. But what's committed to, or what do you intend to do outside of that if anything?

We haven't provided details on that yet. We haven't reached that point. In the PENN District, we've achieved significant milestones, such as the winning train hall through a public-private partnership, the expansion of the Long Island concourse, and retail developments on both sides of the concourse. We've also successfully completed a 730-square-foot deal with Facebook in Farley and executed a major renovation of PENN1, significantly increasing rents from $55 to over $100 per square foot, adding value for our tenants. Additionally, we are in the process of a $1 billion renovation of PENN2, along with infrastructure improvements for the public area. We plan to take a moment to assess. While we are likely to begin with a residential project for new development, we haven't announced any specific plans yet, though we are currently in the planning stages and are very enthusiastic about the prospects.

Okay. Thanks. I have a clarification question. Just to remind you, the 14-million Class A units on your balance sheet have a redemption price of around $23.5 a share. Considering the current stock price, is there a possibility that those holders might exercise their options? Am I interpreting that correctly?

Michael or Tom, you're going to have to help me with that one.

Yes, let us come back to you on that one.

Okay. Thank you.

Our next question comes from Nick Yulico with Scotiabank. Please go ahead.

Thanks. I wanted to see if you could provide any update on the retail joint venture. I know the loans that matured are still being discussed with the lenders. How should we view that situation? Are you considering walking away from those assets? Additionally, regarding the mortgage on 645th which matures next year and is recourse to the company, what is the plan for that?

Michael?

Yes. Good morning, Nick. On the first asset, St. Regis, which we talked a little bit last quarter, that continues to be in discussion with the lenders. And we're I think heading towards a mutually acceptable resolution there. So hopefully that will be done in the next 90 days. And with respect to 640 which matures next May, that's something that we started to work on now, starting to gauge the financing markets talk at existing bank loans. So obviously the existing lender is somebody that we'll continue to have discussions with as well. So too early to tell exactly what's going to happen there. But obviously the intent is to refinance that asset and whether we do it at par or pay it down a little bit but the expectation is that asset will get refinanced. I will say, Nick, I think one interesting dynamic. Sort of two, three, four years ago in retail was a four-letter word nobody wanted to touch it. That's changing. It's changing. Unfortunately, office is now in that category for most people. But for retail, it's flipped. Retail, I think people view the worst is behind us. The capital markets are more constructive, both investors as well as lenders. And so, yes, they have to sort of understand and think about how to deal with above-market rents in some cases. But I think in general the capital markets are more constructive on retail today than they have been in a few years.

Okay. Just one other question is going back to the commentary on a potential buyback. I mean the debt capital markets right now seem as bad as they've been for office since the great financial crisis and there's a bearish argument that maybe the lending markets don't come back in a way that they existed in the past decade. So it seems to me that if you're talking about asset sales to fund the potential stock buyback there’s implicitly a view that you think the lending markets improve. And I guess I'm wondering why make that call now instead of paying down debt I mean you have a balance on your line of credit. You have maturities you're dealing with over the next year or so. Why isn't that the better use of capital, sell assets, pay back debt, and perhaps that would you reward your stock price more so than a buyback?

Michael, why don't you try that.

Yes, Nick, to clarify, I don't think we specifically mentioned that we would only focus on buybacks. Regarding asset sales, we haven't indicated that they are solely for buybacks. The amount we proposed for buybacks is modest, and as Steve mentioned earlier, it may primarily be financed through retained cash from the dividend. If we proceed with asset sales, we will evaluate the proceeds and determine how best to utilize them, while prioritizing the strength of our balance sheet. We will handle any situations requiring debt reduction or extending maturities by paying down debt, which will be part of our strategy. Our main objective is to ensure a strong balance sheet, and the proceeds from asset sales will be allocated for various purposes.

Appreciate it. Thank you.

Our next question comes from Ronald Kamdem with Morgan Stanley. Please go ahead.

Hey, just a couple of quick ones. So, I was looking at the cash flow statement and looking at the $92 million of operating cash flow this quarter. Obviously, there's some working capital seasonality. But just one, can you talk about what happened to OpEx in the quarter? It looked elevated and I suspect sort of flow through? And then two, I know you said nothing changed, but was this sort of cash flow in 1Q part of the connecting the dots about postponing the dividend and thinking about doing a scrip dividend just to preserve cash flow?

On your second question, Ron, definitely not. I mean again nothing has changed. So, no. On the OpEx, maybe there's some seasonality. Ron, we could work offline and take a look at your model.

I don't think it's material.

Great. And then just the last one just on the refinancing. You already hit on the Fifth Avenue property which I was going to ask about. But any comments on 280 Park as well which is coming next year. And just any general color when we're thinking about the model, what sort of rates potential pay down how are you guys thinking about that? Thanks.

What I would say is that your current lender is your best prospect for new lending. Most lenders understand that refinancing large assets will be challenging for the foreseeable future. They will need to collaborate with borrowers and sponsors they believe are responsible for managing the asset, and I believe we fit that description. I expect that for many of these cases, extensions will be granted for the loans. There may be some paydowns in certain instances, while in others, there may not be. Discussions have begun, and we will see how they develop. For these larger, imminent situations, I think lenders and borrowers will remain closely linked in the near term.

Thank you.

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

Okay. Thank you for taking the follow-up. Maybe I missed it, but did you guys talk about 555. One, the debt restructuring, with the servicer, what you guys are thinking about that? And two, just given all the stories that we hear about just the state of San Francisco's office market, what's going on with leasing in the building, the Montgomery Street box, et cetera.

Yes. I'll address the first point, and then Glenn will cover the second. It can be frustrating when inaccurate information is presented. There’s a misconception that 555 is in distress, but the reality is that the building is performing exceptionally well. There’s no concern regarding the loan. We secured a strong loan two years ago, which was initially structured for two years, along with options to extend for five and one-year terms. To extend the loan, all we need to do is send a letter to the servicer each year. This process will continuously extend the loan without any issues. There is no threat of default, and we've never faced any problems with this loan, which has a seven-year structure. The articles written about this situation lack proper research. It’s important to understand how the loans work and the actual situation, as much of the coverage has been incorrect. As for the building, I’ll let Glenn provide more details, but it remains, in my opinion, the top-performing asset in San Francisco, with an impressive array of financial service tenants.

Hi, Alex. It's Glen.

Michael, the rate is swapped.

Yes. Yes. That's right, Steve.

Alex, first of all, it's really a seven-year loan.

Right.

It was structured as a two plus five one.

Okay.

It's a seven-year loan, and the newspapers got it all wrong. It was a floater that we swapped at a very favorable rate for about 6.5 years. Additionally, the best financial services building in the marketplace is fully occupied. Glen, would you like to comment on the quality of the building?

Look, the building has been perfectly insulated against everything you're reading about in that marketplace. We've lost zero tenants to anything. Goldman Sachs, KKR, Microsoft, BofA all renewed their leases during the last three-year period which speaks to the asset. I think that's like really need to know and none of them reduced in size. We're obviously in the market with the Q345. That's the only vacancy at 77,000 feet. We finished the redevelopment obviously a couple of years ago. We continue to show it. But the campus, the three buildings, has performed perfectly during this period. And it's clearly shown that it's the best asset in the city.

Okay. I appreciate both comments. So thank you.

Okay. Pardon, if we get a little bit of noise in the way that this information.

That's the beauty of these earnings calls.

This concludes the question-and-answer session. I would like to turn the call back over to Steven Roth, for any closing remarks.

Well, thank you all very much for joining us. We are actually very excited about beginning a buyback program. But also, we think what we're doing with the dividend is extremely logical. And we understand and appreciate your support. Thanks for joining. And we'll see you all in three months.

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