Good morning, and welcome to the Vornado Realty Trust's Second Quarter 2022 Earnings Call. My name is Daryl, and I will be the operator for today's call. This call is being recorded for replay purposes. I will now turn the call over to Steven Borenstein, Senior Vice President and Corporation Counsel.

Welcome to Vornado Realty Trust's second quarter earnings call. Yesterday afternoon, we issued our second quarter earnings release and filed our quarterly report on Form 10-Q with the Securities and Exchange Commission. These documents, as well as our supplemental financial information 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, 2021, 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, everyone. As Michael will cover in a moment, we had another very good quarter with comparable FFO up 20% from last year's second quarter. While the first half of the year was right on our expectations and our business continued to perform well, we are now projecting the second half to be below what we had forecasted, given interest rates and the incremental non-cash accounting charge from the PENN 1 ground lease. Overall, this year is still expected to be up year-over-year. By the way, we reaffirm retail guidance of cash NOI of not less than $175 million for the year. While headline inflation numbers remain very high, it seems like the Fed's efforts are beginning to have their desired effect. There are signs of a slowdown all around: a rapidly slowing housing market, falling consumer confidence, and companies announcing hiring pauses or even layoffs. The inverted yield curve signals market participants expect a recession, and the forward yield curve predicts that rates will come back down within a couple of years. While we are protected by long-term leases with about 1,500 tenants, we do expect that we are prepared for choppy conditions. Pennsylvania Station is by far the most important piece of transportation infrastructure in our region. In a manner of speaking, I might say that early transportation projects in the last 100 years either started at PENN, ended at PENN, or have gone through PENN. All of this, of course, makes the surrounding PENN District critically important, and we have large and unique holdings here. Last week, as many of you may have seen, the Empire State Development Corporation approved the general project plan for the PENN District. This is an important piece in Governor Hochul and Mayor Adams’ plan to finally fix PENN Station. The GPP is essentially a zoning overlay for transit-oriented development to create a modern mixed-use district that maximizes public benefits, including new station entrances, robust subway improvements, and addresses overcrowding and accessibility, public realm improvements, and affordable housing. Out of the 10 sites involved in the GPP, we own four and part of a fifth. We have long invested in our properties around PENN Station and in the District, including $2 billion in Farley, PENN 1, and PENN 2. We’ve also led multiple successful public-private partnerships that have delivered meaningful transit and public realm improvements for New Yorkers, including the Moynihan Train Hall, which was another ESD-led general project plan, two new station entrances at 33rd and 34th Street, and a new Long Island Railroad concourse, which will deliver in the beginning of 2023. The MTA is now advancing the design work for the reconstruction of the remainder of PENN Station. In addition to finalizing the GPP, this has been a year of significant accomplishments for us in the PENN District. At PENN 1, we substantially completed the renovation, including the largest and best-in-class amenity package to overwhelming enthusiasm. Our total renovation and reimagining of our two-block-wide PENN 2 is more than half complete. It’s exciting for us and the real estate market generally to see this deal structure for the transformative bustle taking shape. PENN 1 and PENN 2 will be the centerpiece of our current District development. As Michael will tell you, we are spot on our leasing underwriting. This 4.4 million square foot interconnected campus will be completed and income-producing in the short term. By that, I mean as much as an additional incremental $300 million of NOI through stabilization. Kudos to Michael and Jan and their team for completing $3.2 billion of refinancing, which Michael will tell you about shortly. I end with a plug for our new Fasano restaurant at 280 Park Avenue on 49th Street. We imported Fasano from Brazil, and they certainly are living up to their notices as being one of the best new restaurants in town. Call me if you can’t get a reservation. Now to Michael.

Thank you, Steve, and good morning, everyone. As Steve mentioned, we had another strong quarter. Second quarter comparable FFO as adjusted was $0.83 per share compared to $0.69 for last year's second quarter, an increase of $0.14 or 20%. This increase was driven primarily by rent commencement on new office and retail leases and the continued recovery of our variable businesses, partially offset by the straight-line impact of the estimated 2023 PENN 1 ground rent expense. We have provided a quarter-over-quarter bridge in our earnings release on Page 3 and our financial supplement on Page 6. On our last earnings call, we said that we expected our comparable FFO per share growth for 2022 to be in the mid-to-high single digits. It bears repeating that this expected growth, which is driven by strength in our core operating business, primarily from previously signed leases in both office and retail, including metal platforms at Farley and the continued recovery of our variable businesses, factored in the impact of rising rates on favorable-rate debt. However, the pace and magnitude of Fed hikes have been greater than we anticipated. The faster-than-expected rise in rates will affect 2022 earnings and result in lower FFO growth than we were anticipating. Further, the additional interest expense from rising rates will have a greater impact next year as the higher rates impact our variable rate debt costs for a full year. With respect to our variable businesses, we continue to see a strong recovery in the second quarter, and the EBITDA in total is currently around 90% of pre-COVID levels now, excluding the closed four development Hotel Pennsy. Our signage business, which is the largest in the city with dominant signs in the best location in Times Square and the PENN District, had another very strong quarter and forward bookings remain strong. Our trade show business at theMART is continuing to rebound nicely, including our hosting of the commercial furniture design industries, NeoCon, which is typically our largest trade show. No trade shows took place during last year's second quarter due to the pandemic. Our BMS business continues to perform near pre-pandemic levels. And finally, our garages are continuing to be on track to fully recover this year. We still expect to cover most of the income from our variable businesses this year with the full return in 2023. Company-wide same-store cash NOI for the second quarter increased by a healthy 8.4% over the prior year second quarter. Our overall office business was up 5.4% compared to the prior year second quarter, while our New York Office business was up 3.9%. Our retail same-store cash NOI was up a very strong 24.8%, primarily due to the rent commencement on important new leases, including Fendi and Christophe at 595 Madison Avenue, Sephora at 4 Union Square, Wegmans at 770 Broadway, and Canada Goose at 689 Fifth Avenue. Several analysts have reported that our New York occupancy is 90.8%, but that’s not really the story. That’s a blend of office and retail. Our New York office occupancy ended the quarter at 92.1%, which is flat against the first quarter of 2022, but still up 100 basis points from the trough in the second quarter of 2021 and the highest among our industry peers in New York. Our New York retail occupancy decreased to 76.3% since last quarter due entirely to the retail space at Farley that was previously under development being placed into service during the second quarter. Now turning to leasing markets. In New York, total employment has reached its highest level since March 2020, and office-using jobs are near 1.5 million, which is only 6,500 jobs below its February 2020 peak. Tech sector leasing has slowed, but the financial sector has picked up the slack, now accounting for almost half of market-wide activity with some large expansion transactions in Orix. Leasing velocity in higher-quality buildings continues to dominate the landscape with many large-scale tenants relocating to the most differentiated, well-located office buildings in both ground-up new builds and best-in-class redevelopments across the city. Overall, tenant demand and rental pricing in the top end of the market remains strong, while older commodity product is experiencing higher vacancy rates, and less tenant demand in sublease space availability continues to increase. Our office leasing results since the onset of the pandemic reflect the resiliency of our best-in-class portfolio and how it’s benefiting from these trends. Our team’s strong deal-making skills have resulted in more than five million square feet of office leases signed since the first quarter of 2020 at average rents of $84 per square foot and an average lease term of 12.4 years. During the second quarter, we completed 21 transactions comprising a total of 301,000 square feet leased. We continue to outperform the market. Our consistently healthy quarter-to-quarter leasing metrics reflect the high quality of our portfolio and the immediate impact of our redevelopment program at PENN 1. This foreshadows the success we’re going to have at PENN 2 also. Our portfolio-wide average starting rent this quarter was strong at $85 per square foot, including $97 per square foot for 75,000 square feet of deals at our highly amenitized PENN 1, which exceeds our underwriting and further validates our program to significantly increase rents in our redeveloped PENN assets. Other transaction highlights this quarter include a 45,000 square foot headquarters expansion relocation lease with a private equity firm at 650 Madison, a new 60,000 square foot transaction with a nonprofit at 825 Seventh Avenue, and 61,000 square feet of various deals at 150 East 58th Street. Importantly, the average lease term of this quarter’s activity was 11.5 years, while our mark-to-market on these deals was positive 5.1% GAAP and 1.7% cash. Overall, our pipeline remains active with more than 700,000 square feet of deals in lease negotiations and an additional 700,000 square feet in lease proposal stages. Now turning to Chicago, where the market is lagging behind New York's recovery. At theMART, while our office leasing pipeline is active with more than 800,000 square feet in discussion, conversions are taking longer and concessions remain elevated. We recently commenced our capital program to add world-class fitness conferencing and other amenities, which will be completed by summer 2023, and it is already having a positive impact on our leasing efforts. During the quarter, we leased 59,000 square feet, a majority of which were leasing renewals and expansions within our showroom industries at an average starting line of $56 per square foot. In San Francisco, while the market overall is experiencing record-level vacancy rates and low return-to-work numbers, our 555 California Street campus remains full other than our vacant 78,000 square foot building at 345 Montgomery Street. We are currently in renewal expansion dialogue with more than 200,000 square feet of existing tenants within the Trophy 555 Tower, and we continue to see market-leading triple-digit rents of 555 with very healthy mark-to-market. Retail leasing results were fairly modest for the quarter, with a highlight being a new long-term deal with Chase for 7,500 square feet at PENN 2 at a significant positive mark-to-market. This deal set a new high watermark for retail rents in the PENN District along Seventh Avenue. Retail leasing activity in the city continues to be concentrated in the highest footfall locations. This is proving true for our newly renovated retail spaces in the Long Island Railroad concourse, typically PENN Station’s busiest thoroughfare. We have leases out for signature for almost half of the 30 spaces fronting the concourse, and our rents are exceeding the previous high watermark for retail rents in PENN Station. These commitments demonstrate retailers’ belief in public transportation and specifically in PENN Station. More broadly, the city is bustling with New York City tourism projected to reach 56 million visitors in 2022 and to return to pre-pandemic levels in 2023. However, this positive momentum is being offset by retailer concerns about inflation and recession, and many retailers are becoming more conscious about making commitments. Turning to the capital markets now. Overall, the increased market volatility and spike in interest rates are impacting the capital markets, with the volume of both asset sales and debt financing down significantly from last year. The CMBS and balance sheet markets are being much more selective, which accrues to the benefit of stronger sponsors and high-quality properties. As previously announced in June, we completed $3.2 billion in refinancings, which consisted of extending one of our two $1.25 billion unsecured revolving credit facilities and our $800 million unsecured loan to December 2027, as well as refinancing 770 Broadway and 100 West 33rd Street. We’re quite pleased with these executions as they were completed at attractive spreads, a reflection of lenders’ heightened focus on sponsorship and quality properties. We had anticipated the financing markets becoming more challenging, and with all that, we refinanced these loans early. And while the forward curve is historically over-predicted rates, we fixed 770 Broadway, improving our fixed-to-floating ratio to 60-40, which is more in line with our historical operations. Importantly, with these refinancings, we have dealt with all of our significant maturities through mid-2024. We also announced the completion of the sale of our Long Island City office building for $173 million during the quarter, continuing our efforts to monetize our non-core assets. Despite the challenging market, we are hard at work on our other non-core asset sales to go. Finally, our current liquidity is a strong $3.5 billion, including $1.6 billion of cash, restricted cash, and investments in U.S. treasury bills, and $1.9 billion undrawn under our $2.5 billion revolving credit facilities. With that, I’ll turn it over to the operator for Q&A.

And our first question comes from Jamie Feldman. Go ahead, Jamie.

Thank you and good morning. Maybe just starting with your change in your outlook for earnings for this year and next year. Can you just talk more about the magnitude of the drag from higher rates, both on 2022 and 2023? And just as we’re thinking about how to model it, maybe where your assumption was and where it is now?

Good morning, Jamie, it’s Michael. Look, if you look at where we said last time we were mid-to-high single digits early in the year, double digits, and now still projecting to be up. So if you just take what we’ve done in the first two quarters and model out the rest of the year, you’re looking at roughly 100 basis points impact on LIBOR from where we thought it would be. With floating rate debt of around $4.25 billion, you’re looking at about $0.20 a share impact from where we thought it could be. Obviously, rates change every day. We’ve already seen the forward curve come down. But I told you in 2023 would have been higher two weeks ago than I would tell you today. So we can’t predict. Obviously, that reflects two quarters of impact on our variable rate debt versus where we expected. Next year, we’ll have a full year impact on that, and so it’s going to be another 100 basis points overall potentially. Again, I don’t want to sit here today and give you a number. It’s driven by what the curve will be, the relative divisional expectations; it’s probably in the ballpark.

Jamie, a little bit more on the floating rate debt. First of all, we did very well to fix a little bit more of it to reduce the $4.2 billion. We may pay some of it down. Second, over the last 10 or 12 years, we have benefited enormously from the low interest rates and floating rate debt. Every time we fixed or took a fixed rate loan during that 12-year period, we were wrong, wrong, and wrong. So that’s all very interesting, but it doesn’t matter going forward. The next thing is that many of our assets are in transition. Some of our assets are on the for-sale list. And floating rate debt, of course, facilitates that because getting out of fixed rate debt when you have a transitional asset involves a process, which could be extremely expensive. Some of the floating rate debt and fixing activities we got perfectly right. For example, 555 California, we executed a very attractive loan at a very attractive spread on a floating rate basis, and we fixed our share of it. So that was a very good outcome. When we did the 1,290 refinancing, which was a similar team I guess I’ll take the blame for it, we didn’t fix it, and that was in retrospect a mistake. The next thing about floating rate debt to think about is that there is really no protection against interest rate increases. When rates go up, you get the fairly small benefit of the protection of a fixed rate piece of debt for as long as it lasts. On expiry, you have to go to whatever the market rate is. And cap rates, of course, reflect the current interest rate environment. So there you have it. We will give some of it back in this year and next year. We expect rates to come down perhaps quite substantially depending upon what the depth of the business slowdown is. But that’s the situation.

And our next question comes from Michael Bilerman. Go ahead Michael.

Thank you. Steve, in your opening comments…

Mr. Bilerman, welcome.

Thank you. So Steve, you talked a little bit about sort of choppy conditions, given everything that’s going on in the marketplace. How does that sort of forward outlook change your strategic direction? Obviously, you still have the tracker that you’ve been thinking about, asset sales…

Good morning. First of all, we've been through this, I don’t know, five times or six times at five or six business cycles over the last 40 years or so. So there is always an end. Our job is to rigorously focus on the important things, for example, protecting our balance sheet through serving our liquidity and preserving the safety and sanctity of our balance sheet. Number two, we have certain missions that we have to do, which is, for example, keep the buildings leased to the extent that the market permits us to do that, specifically with respect to our fairly grand plans in the PENN District, PENN 1 and PENN 2. So we will have a spectacular outcome based upon the increased value of those buildings and the surrounding PENN District. And those basically are – we’re New York-centric. We continue to have an open-to-buy in terms of acquisitions if something comes around that we think is our skill set and hits off price aspirations. It’s business as usual with a more rigorous focus on the important things and on the balance sheet. We have, in the beginning of COVID, cut our G&A and began to get very tough on expenditures. We reduced nonessential capital expenditures, et cetera. Those are the kinds of things that one has to do going into a business slowdown. I think it looks to me like we’re on the foothills of a recession. We are in a don’t bet against the Fed mode, which I think probably everybody is. As I said, we’re in the foothills of a business correction. We are hopeful that the Fed will be disciplined and keep their foot on the pedal to accomplish their objectives as quickly as possible.

So does that alter at all sort of the progression of whether it’s asset sales or thinking differently about doing a tracking stock at – for the PENN District? Like where is your mindset today knowing of where we’re headed? I recognize you’re not happy with where the stock price is today. And if it was stupid, stupid cheap, it’s now stupid, stupid, I don’t know how many stupids you want to put. But how are you going to go about getting to the other side of this?

Let me unpack that in a couple of places. First of all, I still continue to believe that separating the PENN District into a separately tradable security, whether it be a tracker or some other technique, is absolutely the right strategy for our shareholders. We expect the PENN District to be a grower, and we think that our shareholders should have the ability to invest in that as an isolated pure-play investment. So that’s one. The timing of that is still up in the air; that’s a totally – we have no counterparty, we can time it whenever we want to. And we will, subject to lots of different things that could occur in between. I continue to believe in that strategy. Secondly, we have a whole group of non-core assets that we are in the process of selling, where we think we could get pricing, which is not as good as it would have been a year or two ago, but good enough to execute. That’s somewhere between, I don’t know, $500 million to $750 million, something like that. We already executed on one on the Long Island City asset. There are other buildings in our portfolio that we would be very happy to sell, although we’re more price-sensitive to those buildings because once you get out of the non-core basket, the buildings are more important and better quality. Nonetheless, if we can execute at a price that we think is reasonable, which will create value for our shareholders and improve our balance sheet, we will do so.

And our next question comes from Steve Sakwa. Go ahead, Steve.

Thanks, good morning. Steve, I was wondering if you could just spend a little more time on the new PENN Station proposal, the 10 sites, the four that are owned by you? And maybe just give us a little flavor for how you see those evolving over time? And how much of that would be office versus residential?

I’ve said multiple times over recent years that since the PENN District was our – what do I say... our big kahuna, our bull’s eye, et cetera. We have been accumulating property in the PENN District for 20 years now. We believe that PENN Station is the most important piece of transportation infrastructure in the region. We believe that the entire district has benefited from the adjacencies of Hudson Yards and Manhattan West, which are very large projects that really put us on the map. So we’re very appreciative of the efforts of our neighbors. There is enormous demand for the district. We get inquiries all the time. The GPP is a zoning matter. It’s an overlay of the existing city zoning where the state has basically become the dominant party. Multiple things are involved: we will have the option to increase square footage by buying FARs at market value. We think we can build larger buildings, okay? In round numbers, there’s approximately 5 million square feet of additional FARs that can be allocated in the district, which we obviously intend to avail ourselves of. Remember, we’re paying fair market value for those FARs. The state and EDC will become our overseer and regulator with respect to zoning, etc. The revenues that come from the new builds will be allocated. Some of it will be allocated towards the reconstruction of the actual PENN Station. The zoning requires about 600 units of a park. The intention has been for a long time that this will be principally office development. How the mix might or might not change, we will determine over time. This is a long-term project involving a huge and irreplaceable piece of location. But the first part of it is the existing buildings, whether they are PENN 1, PENN 2, or Farley, where we are ankle-deep in – or up to our eyeballs in redeveloping. We are right on our underwriting. We expect this to be relatively short term, meaning between now and three, four, or five years from now to stabilization. We expect those buildings to generate an incremental $300 million of new additional NOI.

Great. Well, that leads into my follow-up because on that $300 million, Steve, I know you’ve laid out return hurdles and the dollars spent in the supplemental. I guess, where we and I think others are maybe struggling or trying to understand is how much of that income, say, in a PENN 1 is already flowing into the income statement as you’re marking to market some of these leases. We want to give you credit, but we want to make sure we’re not double counting or overstating. So is there a way you can sort of help us think about what’s contributing from Farley from 1 PENN today? And then when would 2 PENN start to actually contribute?

I’m going to let my finance team take care of that offline, because whatever I say they're going to quibble with it. Nonetheless, the numbers are approximately like this: maybe $70 million from Farley, which has just begun to come online. PENN 1 is around 90% occupied at an average rent in the high $50s. We expect the market rent for that building to be $100 a foot. We have signed 75,000 square feet of leases in PENN 1 this quarter at an average of $97 a foot, which we think justifies and validates our underwriting. We expect the same for PENN 2. Over time, as leases turn over, PENN 1 will increase from about $60 a foot to $100 a foot, that’s $40 a foot times 2.5 million feet—that’s $100 million of new incoming revenue as leases turn over. Meanwhile, PENN 2 has one tenant for 400,000 square feet, which means it has 1.4 million feet not currently generating income. That building will be completed in less than two years. As we lease and stabilize, that space should produce around $100 a foot. So there’s your math; I hope that will help you model it, but that’s the way I do the math.

And our next question comes from Alexander Goldfarb. Go ahead, Alexander.

Morning, Steve, and thank you for holding up my question. I think we get two questions. Is that correct?

Yes.

Okay. So Steve, going off from the question on the PENN District. It sounds like you guys will only have a few of the buildings like four or five, not all 10 that are outlined. But second, and I guess more importantly, you guys entered New York with Mendik. You’ve been talking about PENN for 25 years. It’s hard to believe that in the next five or even 10 years you’ll get four or five buildings up online, not because of you, but just how long it takes to build office to stabilize and lease. So as far as the question of earnings because you guys are earnings, you’re paying dividends, yet you spoke of more asset sales, there are rising rates. We’re still waiting for the existing stuff that you’ve already put under construction to deliver. How is this—I understand in a private vehicle where timelines are much longer, but in a public vehicle where investors expect earnings growth, and that’s something that a lot of us have been waiting for from you guys. How are we to think about this investment versus other things that are more near-term tangible because all this stuff seems to be out multiple years, nothing in the near term?

I do real estate. I don’t do the stock market. You do the stock market. I can only tell you that as I model the business, and the prospects of the business and the future bad news that we are creating. And by the way, I too work for my kids. I believe that the inherent values and the IRRs even out over a period of time are extraordinary and unique, okay? So if investors want to be short-minded, each investor can make their own decision. I would remind you the stock market is an all-knowing being, and the stock market chooses to give companies with no sales and no earnings multiple billions and billions and billions of value because the stock market is saying that the values to be created in the future will justify the investment. I can only tell you that if you’re focused on time and you’re impatient—I’m focused on time, and I’m focused on what the IRRs will be over time as we deliver these buildings. It takes almost no imagination to model what 1 PENN, 2 PENN, and Farley can be worth and put a risk adjustment on that. Once you do that, I think that speaks for itself.

Okay. And then the second question just goes to Alexander’s. Your thoughts around the dividend given it’s uncovered and doesn’t look to be covered for the next few years. And two, as Michael said, you do have an activist; although it seems pretty tough given that two-thirds of the company is basically either interstate or Vornado. So maybe just some thoughts around is VNO's involvement with Alexander’s tie something in the offing and your thoughts around the Alexander’s dividend.

Let’s spend a minute on the Activist. The Activist is a small company that has, I think they said in their letter, they have large, very significant shareholders. The way we see it, they have about 10,000 shares, which I wouldn’t call very significant. There are some other names on the shareholder list that could be affiliated with them. Your point is, is that it’s pretty either courageous or whatever to target a company that has two entities closely aligned that own two-thirds of the business. We received an incoming letter and very simply, we treated it with the highest of respect notwithstanding the shareholdings. We invited them in to present to the full Board of Alexander’s at the next meeting in May; they presented, and we exchanged views. The Alexander’s Board deliberated about the pros and cons of their suggestions. We sent them a response later. We did not stiff them. We listened to them carefully, and we treated them with the highest of respect. We sent them a letter that the Alexander’s Board preferred the status quo. Their suggestions included internalizing management as a proposal externally managed by Vornado, which would raise Alexander’s expenses significantly, something which we watched carefully over the years. They suggested that we take the cash; Alexander's has about $540 million, a big number for a small company with 5 million shares. They suggested leveraging the company more, paying a special dividend. In uncertain economic times, because of projects that may have the potential to change and based on lease expirations, Alexander’s Board chose to be more conservative. The last two minutes or more are my formal response to their most recent letter. I double-checked this before coming into the call. I speak half and half because this is a Vornado call, and I speak on behalf of Vornado and Alexander’s. Vornado owns one-third of Alexander's and externally manages it, so the management teams are overlapping. Vornado's total investment in Alexander’s is $73 million, which was made about 20 years ago, which is $44 a share. Over time, Vornado has received $520 million of dividends from Alexander’s. Vornado receives $18 a share annually that constitutes a 41% return on the purchase price. This is the very definition of compounding. You talked about the dividend. Alexander's could do multiple things that could cover the dividend. The dividend may or may not be covered; tenants come and go in cycles. The Alexander’s Board is not interested in raising or lowering the dividend to try and get regularity and smoothness. Alexander’s has about $600 million or $700 million of floating rate debt, which is costing more. To the extent that we put that cash to work earning interest, the dividend is covered. That’s all I have to say about this.

And our next question comes from John Kim. Go ahead, John.

Good morning. Michael, you talked about the impact of interest rates on your outlook of FFO for the rest of the year. But I was wondering if your second quarter NOI of $289 million GAAP, $285 million cash is a good run rate for the remainder of 2022.

Yes, the answer is generally yes. I don’t want to give you specificity. The first half was very strong with some things that play into the second half that you see strong growth in but generally yes.

Okay. I just wanted to clarify; there was nothing one-time in nature on your variable income. You do have a fair amount of expirations at the marks, but the rest of your portfolio is pretty minimal…

Yes. So some of the negatives are known. Generally, yes; core business is performing well. NOI growth was very good. We expect that to continue. But when you flow it down to FFO with the impact of rising rates, that’s where you see that growth being moderated.

Okay. And my second question is on your 2023 expirations. You have a fair amount in office, 11%, retail is 9%. Can you provide any commentary or color on what percentage you now today are known to vacate versus leases that you have a high confidence in renewing or backfilling immediately?

Sure. As it relates to office, John, in 2023, we have about 1.3 million feet expiring. Of that is 300,000 feet of PENN 1, which as Steve alluded to, was that rolls; we look forward to that lease-up program to get to the new rents. As it relates to the remaining 1 million feet, we’re all over it. We’re in paper on a lot of it. We expect the 50-50 split of people staying versus leaving, but we’re in paper for much of it now in terms of people who are going to stay or lease the space that is expiring.

For retail, our 2024 expirations, we are laser-focused on. The rising tourism to New York City is growing rapidly and could return to pre-pandemic levels by next year, timed well for our expirations. We know that our tenants have a desire to stay; it will be a matter of what the rents are.

And what would be the mark-to-market on that flat, please?

Too early to tell you.

And our next question comes from Ronald Kamdem. Go ahead, Ronald.

Hey, just following up on some of the breadcrumbs for 2023. I think we touched on the interest expense already but maybe going back to the PENN District asking the question in a different way. Given that’s such a big part of the modeling into next year, any sense how we should think about the year-over-year change in contribution potentially in 2023 versus 2022? Clearly, the $300 million makes sense long term, but just trying to think about the 2023 versus 2022 difference. Does that make sense?

Yes, I don’t have the numbers at my fingertips. We can get that to you offline. In 2023, when you think about it, PENN 2 is not going to be contributing yet. PENN 1, as we roll over those leases, you’ll see contribution there, although that’s going to take time to phase in. So, PENN 1, we’re going to roll that space over. We spend an average of five years. Glen and his team are just going to knock it out quarter by quarter. You’ll see that flow in. PENN 2, you’re not going to see flow in for a period of time. Then Farley, you’re going to start to see that flow in more substantially. So we’ll give you some quantification offline.

Remember in PENN, we had the PENN 1 ground lease repricing appraisal process. We predicted an accounting number of $26 million for the new rent. Although the process has not begun, it will be starting soon. We think the other side is doing the same, and there are going to be multiple experts involved. This is a very large asset where very few buyers could have the financial wherewithal to do it. We think that plays to a constructive kind of process where the outcome will be something we can live with. This is a very large and important asset where we have spent around $400 million in capital improvements. Whenever the outcome of this ground lease reappraisal happens, we will still have enormous equity value in our lease going forward.

Can I ask my – if I could ask the second question just on the retail? Last quarter, you took the guidance up and reiterated this quarter. Close has been coming in better than expected; any other sort of large leases or anything we should think about as we’re rolling into next year just on that retail contribution at $175 million? Thanks.

No, I don’t think so. I mean, there’s a number of leases we talked about that are now contributing. There are other signed leases that will contribute next year, but nothing of a magnitude that’s worth mentioning. It’s just serial leases.

And our next question comes from Nick Yulico. Go ahead, Nick.

Thanks. I was hoping you were just a little bit more about the first quarter of this year to the second quarter. You did have an increase in property revenue on a GAAP basis. I think you said signage, lease commencements or some of the benefits. I just wanted to see if lease termination fees were also any impact? And I guess just how we should think about the incremental benefit from signage upside, commencements, anything from a GAAP, revenue standpoint, as you think about the back half of the year versus what you’ve done in the first half of the year.

Overall, the first half was quite good with the contribution being broad-based. We’ve got contribution from leases coming online both office and retail. We’ve got lower expenses that we’ve been managing, and our variable businesses are doing quite well. We did receive about $3.5 million from a bankruptcy recovery. Overall, the bulk of the contribution is from traditional recurring items. The trajectory of that growth we’ve seen in the first couple of quarters is going to level off in the second half. So you won’t get as significant a year-over-year uplift.

Okay, thanks. I guess the second question is just in terms of guidance. I know you are now giving some pieces on a cash basis for retail NOI, etc. But I guess, I’m wondering if your philosophy if you’re willing to revisit your philosophy of not providing FFO guidance. And the reason why I ask is that if you look at estimates for your company for this year on FFO for next year on FFO, there are some of the widest that we see, which really doesn’t make that much sense for an office company.

At this time, we don’t have any plans to revisit. I think we’ve given you more guidance than we’ve historically given over the last 18 months. In an environment like this, it’s hard to do it; there’s a lot of ins and outs. We don’t manage it quarter-to-quarter; we do manage it to drive growth. But we feel like it makes sense to wait to lease space a little longer because we can extract better terms. It’s an artificial view in our mind quarter-to-quarter. As I said, I think we gave reasonable guidance at the outset of this year. Obviously, I’ve proved too optimistic, given the environment is changing.

Thank you. And we have no more questions at this time.

We appreciate everybody joining us this morning. We look forward to seeing you all again soon. Our third quarter earnings call will be on Tuesday, November 1, at 10:00 in the morning. We look forward to your participation again. Take good care.

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