Vornado Realty Trust Q1 FY2026 Earnings Call

Good morning, and welcome to the Vornado Realty Trust First Quarter 2026 Earnings Call. My name is Rocco, and I will be your operator for today's call. This call is being recorded for replay purposes. 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. These documents as well as our supplemental financial information package are available on our website, www.vno.com, under the Investor Relations section. In these documents and during today's call, we will discuss certain non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP measures are included in our earnings release, Form 10-Q and financial supplement. Please be aware that statements made during this call may be 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, 2025, 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 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 Vornado continues to be excellent, and it's getting better and better. We are riding the wave of a strengthening and 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 fry, and I will ask the first question. What do you make of the spat between Mayor Mamdani and Ken Griffin and how will it affect your 350 Park Avenue development? Answer, 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 Mamdani to succeed. Let me establish my credentials. Vornado was a New York company and I am a New Yorker, born in Brooklyn and attended public high school in the Bronx. Both Vornado 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 56 years and I lived and worked in Manhattan. We follow the rules, and we pay our fair share. Vornado will pay $560 million 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 Vornado population paid to the city and state of New York. We work our asses off, and we are not takers. 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 hard-working 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 Vornado and I as the developers of both 220 Central Park South residential building and the 350 Park Avenue Citadel Tower. We are all shocked that our young Mayor would pull this stunt in front of Ken's home and single him out for ridicule. This was both irresponsible and dangerous. As I said, Vornado was the owner of the 65-year-old building on the Park Avenue frontage that will be razed to make way for the Citadel New York flagship tower, which will employ thousands, further cement New York as the financial capital of the world, pay significant taxes and on and on. This building is being designed by the same renowned architectural team and partner 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 approval for this project. Demolition began literally days ago, and we at Vornado are ready to go. I must say that I consider the phrase "tax the rich"—which was spit out with anger and intent by politicians, both here and across the country—to be just as hateful as some discussing racial slurs and even the phrase "from the river to the sea." What these rhetoric calls seem to be saying is that the rich are evil or the enemy or the targets or maybe even just suckers. But the rich whom the politicians are targeting started as the epitome of the American dream. They are our largest employers and largest philanthropists, and it is the 1% that make 50% of New York income taxes. 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 1.9 million 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 there. It's a good bet that we will go all in. This fund cannot be amended by a short-term insincere private apology. What I beg my Mayor to do is to begin every day being business-welcoming and business-friendly as his first priority. That's the only way to get the growth and financial way that will accomplish these programs, some of which I must say are interesting and balanced, both with safety, schools, child care, clean streets, housing affordability, homeless programs, et cetera. The election is over and now is the time for hard work and management, not show boating. New York is an enormous enterprise with a city budget of $120 billion and a state budget of $250 billion. If there is a $5 billion or $10 billion budget shortfall shortly, that money can be found by managing rather than by taxing. It is interesting to note that high-tax New York spends more than double per capita that low-tax or no-tax Florida or Texas spend. There is a lesson here. Maybe something good can come out of this blunder. Maybe we can draft tenders to become active and lead an effort to educate New York voters and to elect right-minded candidates. Ken can do it. He's the one who could galvanize the entire business community. Here is an interesting fact for us. The members of the partners in New York City alone deploy 1 million voters. Hundreds of our business leaders will line up to support Ken; I would be first in that line. I was taught and I believe in 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 and there, his leadership could make this great city even greater. 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. The hard-working 1% are allies, not enemies; learn from this mistake and move upward. Turning to Vornado. 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 2026, we will complete the heavy lifting of leasing at PENN 1 and PENN 2, as Michael and Tom have already been saying quarter after quarter; our published numbers will reflect all this by the end of 2026 and going into 2027. As part of our focus on enhancing our portfolio and making great deals, we announced last week the acquisition of a 49% interest in Park Avenue Plaza, a 1.2 million 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 11-year weighted average lease term and rented 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 a 65% to 70% discount to replacement cost. And we are inheriting a fixed-rate sub-3% loan through 2031 to leverage off an enhanced return. 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 asset. We have a long relationship with the Fisher family. They are first-class operators who think much like we do. With Park Avenue Plaza, our recent acquisition of 623 Fifth Avenue and the pending development of 350 Park Avenue, we will be adding approximately 2 million square feet of the very highest quality prime assets to our portfolio at very accretive economics. Speaking of 623 Fifth Avenue, our 383,000 square foot asset, which we are redeveloping to be the premier boutique office building in Manhattan. We are far along in our design and planning. We are receiving outstanding reaction from the market and already have active tenant interest at or above our underwrite. 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 million share buyback program, we have repurchased 7 million common shares at an average of $25.80 per share totaling $180 million. Last week, our board authorized an additional $300 million buyback program. Now to Michael.

Thank you, Steve, and good morning, everyone. First quarter comparable FFO was $0.52 per share compared to $0.63 per share for last year's first quarter. This decrease is consistent with our comments from the prior quarters and is primarily due to the reversal of previously accrued PENN 1 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 master lease at 770 in the prior year and strong income growth at PENN 1 and PENN 2. We have provided a quarter-over-quarter bridge on Page 2 of our earnings release and on Page 6 of our financials. 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 June 2026 bonds are repaid and some seasonality relating to our sites. As previously indicated, we expect there to be significant earnings growth in 2027 as the positive impact from PENN 1 and PENN 2 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 million square feet, the highest first quarter level since 2014. There is a significant supply-demand imbalance in the 180 million square foot Class A better-building market in which we compete, as the availability rate in the prime submarkets in Midtown and the West Side has tightened significantly, and there's little new supply coming for the foreseeable future given the significant cost and duration to build. This is all resulting in tenants competing for space and rents rising aggressively. The landlords' market we have been long predicting is very much here. The macro environment we operate in today has gotten even more complicated since our last call. The geopolitical volatility is as high as we've seen in some time. The U.S. economy just continues to chug along as New York does. While there is a risk of the Middle East conflict lasting much longer and having a greater economic impact, to date, we have not seen any change in demand. Moreover, while there has been a lot of AI fear-mongering out there, and while we are mindful of risk, we believe it is overblown. Over the past 50 years, office-using jobs have continually evolved based on new technologies. From the computer revolution of the 1980s when personal computers and word processors were introduced, to the 2000s when the Internet transformed workflows and the way we communicate, and 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. And 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. At Vornado, we are coming off our second best leasing year in our company's history, where we leased 3.7 million 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 2026. 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 $103 per square foot with mark-to-markets of positive 11.7% GAAP and positive 9.7% cash and an average lease term of 9 years. Our New York office pipeline is robust and has over 1 million square feet of leases in negotiation in various stages of proposal. 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 were 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 2026 and 2027 maturities, we don't have any significant financings we need to complete for the next 18 months. We do still have a few loans that we need to refinance with lenders over the next two to three years. Finally, our liquidity remains strong at $2.6 billion, which is comprised of cash of $1.2 billion and our undrawn credit lines of $1.4 billion. With that, I'll turn it over to the operator for Q&A.

First question comes from Stephen Sakwa at Evercore ISI.

Steve, thanks for your opening comments on the city and the administration. I guess maybe going to Michael's commentary on just the pipeline of the 1 million feet. I didn't know if Michael or Glen 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.

Stephen, it's Glen. So our pipeline is extremely well balanced. Of the 1 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 in 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 market. As it relates to 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 555 are now north of $160 a foot. Volume in San Francisco overall is strengthening week-to-week. Certainly, everyone out there is doing a lot better and deals are happening at a very rhythmic pace. Chicago is starting to come on; demand is improving. The deals are tough, but there are certainly tenants coming new to the market, and we're seeing a lot more foreign proposals coming at the market as we go into the second quarter and into the summer.

Great. And then maybe just as a follow-up. We did notice that in terms of lease commencements, the Verizon lease kind of had a little bit of a change in status. And I'm just wondering if you could maybe talk about kind of what their, I guess, ultimate status is with the building? And did that lease kind of start earlier? And is that a benefit to the '26 earnings growth?

Stephen, it's Tom Sanelli. I'll take the first part of it, and I guess Glen can talk about the status. So Verizon told us they're not going to build out their space and they put it on 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, the block of space is excellent. It's 200,000 square feet and includes 30,000 square feet of outdoor space. We're in a great position. We have a strong parent guarantee for the entire block to begin with great credit. We continue to show this pace as does Horizon. There's very good action. And whatever the outcome, Vornado is in a great spot as it relates to that position.

And our next question today comes from John Kim at BMO Capital Markets.

Steve, really appreciate your opening remarks and 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 would not commit to the building? And how should we think about the put option you have in July?

I didn't hear the last part.

How should we think about the put option as you said, John?

Yes, that's right. Is that something you'll let pass? Or could the date be extended?

The answer is that Ken can 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 now. But my remarks where I say 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.

And that's all in with or without Citadel's commitment?

No, the answer is — the question is, is it all in regardless of whether Citadel is committed or not from a lease standpoint?

Just — Citadel has to be committed. They will be committed. So I mean, this whole deal is based upon the fact that Citadel will be the anchor tenant taking no less than 850,000 square feet, although we expect more. Ken Griffin is the 60% partner, we are a 36% partner and the Rudin family is a 4% partner. That's the state of play. This whole thing Ken has committed to start; this whole thing will come together and become very clear in mid-summer.

Okay. And then I wanted to ask about the $200 million of signed leases not commenced figures that you provided last quarter. If there's an update to that figure in terms of dollar value timing? And if there's any offsets through known move-outs during that time frame?

I would say the number is still in that general neighborhood. It's probably a touch larger today, but it's generally in the same ballpark. And I think in terms of thinking about it, probably 10% to 12% comes in per quarter over the next couple of years from a pacing standpoint; there are some offsets whether it's expiries, vacancies, et cetera. I think, Steve, on the last call you 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 will give you a sense in terms of the pacing of that $200-ish million, and that started this first quarter.

Our next question today comes from Floris Van Dijkum with Ladenburg.

I appreciate some more color on that large pipeline. Could you maybe expand on that a little bit, what percentage of that pipeline is in the PENN District? And does it include retail leases? You've done some leasing on Upper Fifth Avenue in particular. Maybe you could give us a little bit more color of the PENN District versus other areas in your portfolio?

Floris, that number is pretty much all office. So I can't give you the retail number as we sit here right now. Obviously, the lease with Meta is a big positive. And in terms of the $200 million in terms of PENN versus others, I would say it's probably two-thirds in PENN given the lease-up of PENN 2 and the balance in PENN 1.

And maybe my follow-up question, as it relates to your Park Avenue Plaza acquisition, what caused that deal to happen? Why did the Fisher Brothers sell the 49%? It looks like it's like a 6%, 7% yield on cost, if I'm not mistaken, to get to the $0.10 accretion, that seems pretty attractive. Is that a cash yield or is that a GAAP yield? And how much mark-to-market — how much more growth in terms of earnings do you expect to get from that property going forward?

I won't remember every piece you asked here, Floris. Look, we're thrilled about the acquisition. These types of assets don't trade very often on Park Avenue. It's certainly one of the best assets on Park Avenue. In terms of the yields on a cash basis, given the in-place debt, it's roughly 8% on a cash basis; on a GAAP basis, it's well into the double digits. As Steve said in his remarks, rents are well below market here, 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. The Fishers did not sell out. They still hold their 51%. I think their track record of performance on the asset is stellar. It's a blue-chip set of tenants, largely long-term. They're quite effective at signing long-term leases with high-quality tenants and that's reflected in this asset. We spoke to some tenants about their experience; they couldn't have raved more about the quality of the asset, and they have grown over time there. We're excited about the asset. We think there's tremendous value to be created over time.

Our next question today comes from Alexander Goldfarb at Piper Sandler.

Steve, yes, echoing I appreciate your comments upfront. Michael, just following up on Floris' question. The two items in the '26 guidance: one, the $0.10 accretion for Park Avenue, was that the GAAP impact or is that the cash impact 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 — just want to know how that impacts the earnings for this year. That's my first question.

Park Avenue Plaza's $0.10 is a full year run rate. So obviously, we're not going to have that for all of '26. That's a GAAP number. On 350, the change there was done because Citadel wanted to kick off the development; they want to vacate. We couldn't start demolition without defeasing the old CMBS loan. And so that, along with the fees as you saw in our 10-Q, the master lease was modified; there were a number of changes made in the documents. And so that was a negative to '26 earnings, which we've previously communicated.

Alex, the deal always contemplated that when Citadel vacated the building so that the building would be demolished that the rent would be reduced.

Or even go away.

The earnings sting by that reduction, much of it will be made up by capitalizing interest, et cetera. So while the earnings — what exactly is going to happen.

So in 2026, for the next few months until we decide whether we're going into the JV, there's a wash. There's no earnings coming out of 350. Once we make that decision, assuming we go into the JV, we're going to start capitalizing interest in costs. We start seeing...

Will that equal or exceed or be less than the previous rent?

Initially be a little less and then eventually over '27, '28, '29, basically equates to what we were getting.

Like for five or six months, there's a negative impact given the master lease. But again, that's been previously communicated out.

That's awesome. Second question, Steve, big picture. With regard to Citadel and the whole attention with the Mayor, back in 2019, Amazon wanted to open in Queens and were a bust. But I don't recall this amount of instant negativity and political nervousness today; it's clearly escalated a lot quicker. Why do you think this time the politicians seem to be much more eager to make everyone be happy versus Amazon? The city and the state seemed happy; it wasn't even a ripple when Amazon walked from Queens. It doesn't seem that way now. What's the difference now versus then?

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

Our next question today comes from Dylan Burzinski at Green Street.

Michael, I think you mentioned that pricing has widened given some capital markets volatility associated with the war on. 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 color you can provide on how those processes are going?

On the financing markets, financing markets were incredibly strong last year and at the beginning of this year, with spreads as tight as we've seen in some time. Given the volatility, it's backed off a little bit; 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 the reality is treasuries are probably up 30 basis points or so, and spreads have widened out a little bit. That makes borrowing costs a little wider, but not wildly different. This is still a very functioning marketplace for high-quality assets, but off maybe 40 to 50 basis points. I'm glad we did what we did when we did it. So we're not really dealing in today's markets, but again, you can get deals done. On the asset sales side, we are working on some asset sales; that is true. When we have an item to announce, we'll announce. We have a few things that are meaningful in the pipeline and we're in active discussions with potential buyers. Interest in New York City continues to expand in terms of the type of buyer. There is consensus on New York being the head and shoulders best market. Assets trade at a discount to replacement cost; it's a recognition that there's not a lot of supply coming. Global capital feels comfortable in the U.S. market, and New York City will get a disproportionately large share of that capital. When we have specifics to announce, we'll announce them, but we're encouraged by what we're working on.

And then just on the rent growth piece, I think several quarters ago I asked if you saw 20% to 25% rent growth over the next five years, what were your thoughts. Steve, I think you mentioned that while that's good, that would be disappointing given everything you're seeing on the supply and demand imbalance, especially for high-quality office. Can you guys just talk about how far rent growth could go in your mind? And has your thought around that cumulative rent growth changed at all?

I think we'd still be disappointed at 25% cumulative over a multi-year period. The backdrop for office is as favorable as it's been in a long, long time. It's very difficult to add supply here, which at some point we'll meet; there may be a building a year as we get into the next decade, but that's very little. At the same time, we have supply coming out of the bottom end of the market. Companies continue to want to grow here. We're seeing significant activity from the financial services sector, law firms, accounting firms; frankly AI has picked up more recently. I think all that results in rents continuing to rise. I don't want to give a firm multi-year prediction, but we'd be disappointed at only 25% over many years.

A tenant rent sensitivity is not even high on the list right now; tenants want to be in the best buildings with the best landlords. If you think about our leasing performance, $100 a foot has become a norm for us because of the quality of our product. When we go over the PENN assets, our average starting rent is $100 a foot, and that's a great trend. As we go on and shape the portfolio with additions like 623 Fifth and the new 350 Park, we think rents are going to continue to spike. We're balanced on the west side and on Park Avenue, and we're in a perfect position for what's to come on rents and tenant demand.

Our next question today comes from Jana Galan with Bank of America.

Congrats on the strong start to the year. Michael, I appreciate your comments on the 2026 FFO now expected to exceed 2025. Is that primarily from the Park Avenue Plaza closing in 2Q or also from 1Q being slightly ahead and carrying throughout the year?

I'd say it's the latter.

Great. And then maybe on 555 California, if you could give some update on demand, leasing and rents there? Are AI tenants becoming a bigger part of the pipeline there and in the New York pipeline as well?

Rents in San Francisco are rising a lot. As I said earlier, rents in the tower have now gone north of $160 a foot for substantial leases, 50,000 square feet and up. We're leading the market by far at 555 California. We're also seeing a lot of really good activity at 315 Montgomery in the campus, with more technology and AI-type tenants. But other than tech and AI, financial services is growing in San Francisco, as are law firms. So it's not just AI, although it's helping a lot as the city improves; the other industry sectors are coming on strong as well. The city overall feels great. I was out there a few months ago, walking the streets and meeting with people. It's really feeling good out there, and people are positive again in San Francisco.

Our next question today comes from Anthony Paolone with JPMorgan.

You talked about having some assets out in the market for sale. But if we think about just whether it's 350, 54th Street and then Fifth Avenue, some of these projects that are going to be on the pipeline, how are you thinking about your pro rata leverage level over the next couple of years and whether there's going to likely be a bigger disposition program or whether you think you'll just use project financing and take on a bit more leverage?

Tony, we've got the capital earmarked for all these opportunities in our cash forecast. We've got some asset sales in the works. We have a lot going on between the investments we've made recently — 623, Park Avenue Plaza, the buybacks, some future developments. About the future development, something like 350, the bulk of our equity is coming from our land contribution, so any incremental capital is really not required from Vornado for probably close to three years. So we've got ample time to plan for that. When you look at our capital needs over the next few years, it's fairly well laddered. As we execute on some of the asset sales, that's going to give us additional firepower beyond what we're talking about in terms of these developments.

If you look at our history with respect to capital planning, we generally hold over $1 billion of cash. We almost always prefund well in advance of our capital needs. For example, we loaded in $2 billion to $2.5 billion of capital two years before we started the PENN 1 and PENN 2 developments. So that notwithstanding the fact that the capital markets got a little bit rough and volatile when we were building, we had the capital on our balance sheet. We like to operate with lower rather than higher debt levels for obvious reasons. Our philosophy is that we like nonrecourse project-level debt as opposed to unsecured credit, which basically makes the entire corpus personally liable. 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 on the leasing side. I think there's about 600,000 square feet in Q4 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 watch out for?

There are two larger tenants tied to lease expirations in the second half of this year, and we believe both will renew their leases. So we feel good about our expirations, and as you would expect, we're all over the '27 and '28 expirations as well. For 2026, we're pretty well taken care of. We feel good about what's going to happen.

Our next question today comes from Vikram Malhotra with Mizuho.

First, any update on Hotel PENN and the PENN Mall in terms of users, monetization, et cetera?

No update.

Okay. And then just on the earnings side, you mentioned 2027 FFO nice pickup. I'm wondering two things. One, are there any offsets we should be thinking about for '27? And then in particular FAD, given the ramp in FFO, I'm assuming there's still going to be elevated TI into '27. So should we think about FAD really perhaps picking up in 2028?

Vikram, on the FAD side, your comment is accurate. There will be continued elevated tenant improvement and leasing costs this year and next year; tenants on deals we've committed this year often don't call those for a while, so that will go into next year. We expect to see that drop materially and cash flow be much higher thereafter. Regarding earnings, there's always ins and outs, offsets. I can't tell you specifically what those are, but historically we've given as much guidance as we can with respect to next year in terms of what the bottom line will be.

I would make one comment: I can't wait for the free rent to burn off. 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.

Our next question today comes from Nick Yulico at Scotiabank.

I just wanted to go back to 350 Park and be clear on a couple of things. One, in terms of the new $16 million 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. What is the maturity on that lease? Is that concurrent with the debt, the new mortgage that matures next year? Or does it extend beyond that?

Nick, on your first question, the new rent started — there are a few days in March where it started, but by and large it will be second quarter. Maybe 15 days in the first quarter where the new rent was reflected.

Because the new rent is coterminous with the execution of the new mortgage. So that occurred a couple of weeks or three weeks ago.

So that new lease runs until the maturity of the mortgage. There will be a resolution before that maturity — the venture will be formed, we'll put the asset into it, and something will happen prior to that maturity.

Okay. So the new rents are only in place until the point at which the mortgage matures. There's no rent being paid beyond that date under the new agreement?

Correct. But there'll be a resolution A or B before that, at which point the rent will go away anyway.

There's no building for the tenant to pay rent for after demolition.

Got it. And then second question: you've talked a lot about giving some of the breadcrumbs on 2027 and how to think about that. It is also that 2027 FFO is a piece of the executive comp per the proxy plan. Any new thoughts, Steve, about finally giving earnings guidance? You're at the point where the tide is turning and you're being measured by that from a comp standpoint. Why not give formal FFO guidance at some point?

Oh Lord, how do I answer that question? The two sides of it are that we have a simple business with complexity, and the numbers are moving. We find guiding to be sometimes difficult and counterproductive. Warren Buffett didn't guide for his whole career. The big bank guys don't guide either. Many of our competitors guide, so why don't we? Right now, we have no plan to give full formal guidance other than the snippets we put in these calls, which I hope you find helpful. What you're saying is if our earnings ramp up, why don't we just guide to that and incorporate it into comp. That's something I'll think about. As of right now, our policy is to selectively, in a limited way, guide, but we don't give full guidance. I think that'll continue for the foreseeable future. Tom, what do you think?

I agree.

Our next question today comes from Seth Bergey at Citi.

In the annual shareholder letter, you referenced the 'no sacred cows' policy again. It sounds like the New York office market is improving. How do you think about potential asset sales? Should we think of those being more non-core dispositions or any core asset sales you're considering?

Some asked if 'no sacred cows' is just New York or includes other assets we should think about as non-core dispositions.

I don't want to shock you, but basically I'm in it for the money. Therefore, there are no sacred cows. There are assets critical to the business, assets important to the business, and assets we love more than others. But based on price, economics and strategy, there are no sacred cows. There are a handful of assets that we have already determined we don't want in the business mix, and those assets are for sale. Our intensity 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. For the rest, if a very aggressive 'Godfather' bid came in for an important asset, we would execute because it would be the right thing to do for shareholders. So there are no sacred cows; price matters.

Great. And then how do you think about incremental potential acquisitions versus accelerating share buybacks and balancing that versus your current leverage levels?

There are three things inherent in that question: acquisitions, buybacks and leverage. We can selectively buy important assets that come up in our core markets. We have capital to buy back stock in a measured way. We can keep leverage under control. We think we can do all of that. Our two most recent acquisitions, 623 Fifth Avenue and Park Avenue Plaza, we think are terrific deals. Buying back our stock at current levels is also attractive. So we're doing all of that.

Our next question today comes from Caitlin Burrows at Goldman Sachs.

Maybe just on the pricing side. I realize the reported leasing spread is driven by second-generation space. First, can you go through your expectations today of portfolio mark-to-market across New York, San Francisco and the mark? And also whether you expect the portion that gets included in the spreads to increase, i.e., could downtime become smaller?

It's Glen. On mark-to-markets, we expect to continue the performance we've had over the past couple of years, which has been positive. During the last two years, we've only had one quarter negative. Many of our mark-to-markets have been in the double-digit positives. We expect free rent to continue to reduce and tenant improvement costs are starting to come down. We're working hard on that piece. San Francisco is the same: with the rents we're achieving, mark-to-markets will continue to improve. Chicago is still the most challenging, although demand is picking up; concessions there remain high and have yet to break down materially, but demand is improving.

Think about the market: we compete in a subset of better building Class A space, which is under 200 million square feet. The availabilities of space in that market are evaporating quickly. As the availability of space shrinks, prices go up. Also, the cost of a new building has risen substantially—construction costs and interest rates have increased—so the rent required to make a new building economic is well into the $200 per square foot range or higher. That hasn't happened before. So rents on older prime buildings are going up because of scarcity and the cost of new supply. I believe we are in a long-term landlord market where these dynamics will continue unless interest rates drop materially.

I guess to follow up on that last point: leasing volume in the first quarter was relatively low. Is that lumpy? Or is it more about you not being in a rush because rents could be rising?

Glen is in the business of leasing space as quickly and aggressively as he can be. If there is any falloff in volume, it's not because I directed the leasing team to get out of the market. Glen's in the market every day working hard.

Our next question today comes from Ronald Kamdem at Morgan Stanley.

Just two quick ones. Last call you talked about a guidepost for occupancy over the next 12 to 18 months, thinking mid-90s on a leased basis. Could you provide an update both on the leased and on a physical occupied basis? What should that occupancy target look like over the next 12 to 18 months?

We've historically run our portfolio in the mid- to high-90s and we expect to get back there over a couple of years. Given the dynamics Steve mentioned and the lack of available quality space, that should happen, and leasing up 10% is a key part of that. I should also note that this quarter our occupancy actually went up 70 basis points once we took 350 Park out of service. I can't tell you exactly which quarter it will be, but over the next couple of years we expect to be back in the mid- to high-90s.

A couple of things to focus on: we have a few buildings that are underwater and overleveraged, where it's uneconomic for us to put TI into those buildings—they're effectively controlled by lenders. If you take those buildings out of the aggregate statistics, our occupancy moves higher—into the mid-90s. We don't publish that adjusted number, but it's real. In a landlords' market like this, vacant and available space is an opportunity; as we rent that space, our earnings will grow.

Really helpful color. Second, on some footnotes in the supplement: any idea when that PENN 1 litigation will be resolved in terms of timing? And also the change in retail being classified from the base of office buildings being put into the office segment—thoughts on that change?

I'll take the litigation comment: I have no comment on anything having to do with that litigation other than I'm optimistic.

On segment reporting, we didn't change our segment reporting between New York and other. What we did is try to align subsegments more on how we view the assets, so we grouped retail assets together and office assets. The base of retail that was included in office is now included in office as opposed to being in retail. Any ancillary office space in a retail building is included in the retail subsegment. It's all disclosed in the supplement with the exact buildings in each subsegment so you can follow along. We think this is a better way of looking at it compared to previous presentations.

Our next question today comes from Brendan Lynch at Barclays.

First one on Sunset Park Studio. Is there any interest from current tenants in converting to longer-term leases? And any update on that asset?

There's great interest in Sunset Park and the studio product. Reception has been unbelievably strong; we're seeing long-term folks and some short-term folks. We expect to stabilize the project once this year's leases expire. It's off the charts and we expect to do really good things in leasing.

Direct answer: I would definitely prefer to be in the long-term leasing business with that asset rather than month-by-month leasing. We prefer to lock in longer-term leases if the market gives us that opportunity.

Follow-up on the Verizon space at PENN 2. Can you walk us through if they find a subtenant versus you finding a tenant and how to think about potential termination fees? 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?

As I said earlier, we're in a great spot no matter how it plays out. We're in a very strong lease position and will be opportunistic to make money on this space. We have a very good block of space and we'll see how it plays out, but that's as much as I want to talk about right now.

We have a long-term lease with super credit; that lease will not be terminated. The only thing that might happen is dynamics around a subtenant coming in because Verizon wants to reduce their liability. But we will not terminate or otherwise monkey with a long-term credit lease.

There are no further questions at this time. I'd like to hand it back to Steven Roth for any closing remarks.

Thank you all very much. The team and I are delighted with our activity over the last three to six months; we are excited. I didn't 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. 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.

Thank you. That concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.