Michael J. Franco: you know, in our cash forecast. You know, we've got some asset sales in the works that, like we obviously have a lot going on between these investments that we've made recently, you know, 623, Park Avenue Plaza, the buybacks, some of the future developments. You know, what I would say about the future developments, something like a 350, you know, the bulk of our equity is coming from our land contribution, right? So any incremental capital is really not require from Vornado for probably close to three years. So we've got ample time to plan for that and so forth. So when you look at our capital needs, if you will, over the next few years, it's fairly well laddered. But at the same time, as we execute, hopefully on some of these asset sales, that's going to give us some additional firepower, frankly, beyond just what we're talking about in terms of these developments.
Stephen A. Roth: If you look at our history, with respect to capital planning, we have three or four things that we have historically done. Number one, we generally hold billion-dollar-plus cash balances. The second is that we almost always pre-fund well in advance of our capital needs. So, for example, we loaded in I don't know, two, two and a half billion dollars of capital two years before we started the PEN1 and PEN2 development. So that, notwithstanding the fact that the capital markets got a little bit rough and volatile when we were actually building, we had the capital on our balance sheet. So that's what you can look at for what we do. The other thing is that we like to operate with lower rather than higher debt levels for the obvious reason. The last is that our philosophy is that we like non-recourse project level debt as opposed to unsecured credit, which basically makes the entire corpus, I guess you could say personally liable, So we like non-recourse project-level debt, which is the majority of the way we finance our business.
Unknown Analyst: Okay, got it. And then just a follow-up question on the leasing side. I think there's about 600,000 square feet in the fourth quarter 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.
Glenn [Last Name]: It's going high. There is two larger tenants expiring in the second half of this year, and we believe both will renew their leases. We feel good about our expiration for the remainder of 26. And as you would expect, we're all over the 27, 28 expirations as well. But 26, we're pretty well taken care of. We feel good about what's going to happen.
Operator: Thank you. Our next question today comes from Victor Malhotra with Mizuho. Please go ahead.
Victor Malhotra: Good morning. Thanks for taking the question. I guess first one, given all the kind of activity you've had with all the Penn assets, any update on Hotel Penn and Manhattan Mall in terms of users, monetization, et cetera?
Stephen A. Roth: No update.
Victor Malhotra: Okay. And then just on the earnings side, you mentioned 2027 SFO. nice pickup. I'm wondering, you know, two things. One, are there any offsets we should be thinking about for 27? And then in particularly FAD, given the, you know, ramp in FFO, I'm assuming there's still going to be elevated TI into 27. So should we think about FAD really, you know, perhaps picking up only in 28? Thanks.
Michael J. Franco: Yeah. Good morning, Vikram.
Stephen A. Roth: You know, on the... Hey, Vikram, I would make one comment, okay? 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. Now go ahead, Michael. By the way, Glenn, take note of what I say.
Michael J. Franco: So on the fad side, Vikram, your comment is right. There will be continued elevated TIs this year, next year, you know, even on deals we've committed this year, you know, tenants and I don't call those for a while. So that'll go on to next year. And then 28, you know, we expect to see that drop, you know, materially and cash flow, you know, be much higher. So I think your general direction is accurate. On the earnings side, you know, there's always ins and outs. So there's always offsets. I can't tell you specifically what those are, but in the history of Borneo, I think we've given you as much guidance as we can give you with respect to next year in terms of what the bottom line is going to be.
Operator: Thank you. Our next question today comes from Nick Ulico at Scotiabank. Please go ahead.
Nick Ulico: Thanks. I just wanted to go back to 350 Park and just be clear on a couple of things. One, in terms of the new $16 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?
Michael J. Franco: Good morning, Nick. So on your first question, New rent started, I mean, there are a few days in March where it started, but by and large, it'll be second quarter. So I don't know, maybe there are 15 days in the first quarter where the new rent was reflected.
Stephen A. Roth: The new rent is coterminous with the execution of the new mortgage. So I don't know what that date is, but it's a couple of weeks or three weeks ago, whatever.
Michael J. Franco: Yeah. So that new lease runs until early 27. And, you know, your question is, you know, why is that? Because, you know, there will be a resolution one way or the other. The venture will be formed. We'll put the asset. You know, something will happen prior to that maturity.
Nick Ulico: Okay. So the rent, that new rent, is only in place until – the point at which the mortgage matures. There's no rent being paid beyond that date on the new agreement.
Michael J. Franco: Correct. But there'll be a resolution, door A or door B, before that, which, you know, the rent would have gone away anyway.
Stephen A. Roth: There's no building for the tenant to pay rent for.
Nick Ulico: Got it. Okay. I just wanted to be clear on that. And then I guess the second question is, you know... Obviously, I mean, you've talked a lot about you giving some of the breadcrumbs on 2027 and how to think about that. You know, it is also 2027 FFO is a piece of the executive comp, you know, per the proxy plan. So I guess I'm just wondering, like, any new thoughts on this, Steve, about, you know, finally giving earnings guidance? You know, you're at the point now where... The tide is turning. You're being measured by that from a comp standpoint. Why not give formal SFO guidance at some point?
Stephen A. Roth: Oh, Lord, how do I answer that question? You know, the two sides of it is that, you know, we have a simple business which has complexity, and the numbers are moving. It's very, I mean, we find it that is sort of difficult to guide and counterproductive. So Warren Buffett, who's not a friend of mine but an acquaintance of mine, he didn't guide for his whole career. So that's one thing. And the big bank guy, he doesn't guide either. But all of our competitors seem to be able to guide. So what's wrong with us? But right now, we have no plan to guide. other than the snippets that we put in these calls here and there, which I think I hope you all find helpful. Now, what I think you're saying is that if our earnings are going to explode upwards, why don't we just take a pat on the back for that and guide to that? So that's something that I'm going to put under my pillow and think about because that sounds like maybe it's a good idea. But as of right now, our policy is, We selectively and in a limited way guide, but we don't give full guidance. And I think you can probably guess that that's going to continue for the future. Tom, what do you think? I agree. Tom's saying he's happy he doesn't have to guide.
Operator: Thank you. And our next question today comes from Seth Berge at Citi. Please go ahead.
Seth Berge: Hi. Thanks for taking my question. In the annual shareholder letter, you kind of referenced, you know, the no sacred cows policy again. It sounds like the New York office transit market is improving. You mentioned possible kind of inflows, you know, given it's a liquid market and the U.S. is just safety. How do you kind of think about, you know, you know, potential asset sales, should we think about those being more non-core dispositions or any core asset sales that you're kind of thinking about?
Michael J. Franco: Summarize the question for me. As Kyle mentioned, you'll add no sacred cows. Is that just New York or is that some other assets we should think about non-core dispositions?
Stephen A. Roth: I mean, I don't want to shock you. But basically, I'm in it for the money. And so, therefore, there are no sacred cows. There are assets that are critical to the business. There are assets that are important to the business. There are assets that we love more than other assets. But based upon price, economics, and business strategy, there are no sacred cows. Now, what does that mean? There's a handful... of assets that we actually have already determined that we don't want in the business mix, and those assets are for sale. Our intensivity, if that's a word, to liquidate those assets rises and falls with the market, but over a short period of time, there's a handful of assets that will not be part of our portfolios. Now getting to the rest of it, there are assets that we hold near and dear that we think are very valuable that we underwrite as being much more valuable than apparently the stock market underwrites it. Even those assets, if I think Sam Zell said the phrase a godfather bid, if some very aggressive bid came in for one of those important assets, we would execute on that because that would be the right thing to do. That's the right thing for the management to do, and more importantly, it's the right thing for the shareholders to do. So there are no sacred assets. There are prices that are critical, but in terms of whether we would execute on selling something, it's all a function of what the price
Seth Berge: Great, thank you. And then for my second question, I guess, how do you think about kind of incremental, you know, potential acquisitions versus accelerating the share buyback and balancing that versus your current leverage levels?
Stephen A. Roth: So there's three things inherent in that question. There's acquisitions versus stock acquisition and leverage levels. So the answer to that is that we think that No, let me rephrase that. We are certain that we can basically do all three. We are certain that we can buy selectively important assets that come up in the bullseye location of our heartland. We are certain that we have the capital to buy back our stock in a measured way. And we are also certain that we are able to keep our leverage to a measure that's under control level. So we think we can do all of that. And we have some things that are in process that will augment all of that. So our two most recent acquisitions of 623 Fifth Avenue, which we think, I mean, I've written about that, and we think is a terrific deal. And the Park Avenue plaza acquisition that we just announced a couple of weeks ago we think is an equally terrific deal. And then we think buying back our stock at $30 a share is a terrific deal as well. So we're doing all of that. And I hope that answers your question.
Operator: Thank you. Our next question today comes from Caitlin Burrows at Goldman Sachs. Please go ahead.
Caitlin Burrows: Hi, good morning, everyone. Maybe just on the pricing side, I realized the reported leasing spreads are only on a subset of second-generation space. So first, I was just wondering if you can go through your expectation today of portfolio mark-to-market across New York, San Francisco, and the Mart, and then also whether you expect that portion that gets included in the spreads to increase, as in, like, could downtime become smaller?
Glenn [Last Name]: Good morning. It's Glenn. So, on the question of mark-to-markets, we expect, you know, to continue the performance we've had over the past, you know, a couple years, which are positive, positive, and positive. You know, during the last two years, we've only had one quarter negative, which we like, and we expect to continue. You know, many have been in the double-digit positives. We expect free rent to continue to reduce, and even TIs are starting to come down, so We're working hard on that piece, of course. And San Francisco is the same. You know, with the rents we're achieving, the markets will continue to improve. Chicago, as I said, is still most challenging, although demand is picking up. You know, rents are staying firm. Concessions are high in Chicago. Those have yet to break, you know, downwards. But demand is certainly improving.
Stephen A. Roth: Think about just economics 101 or macroeconomics. Focusing on New York for the moment, we've said, and I've written about, that we compete in a subset of better building Class A space, which is under 200 million feet. So the fact that there may be 400 million feet in New York is irrelevant because we really compete in a market which is about half that size. The availability of space in that market is evaporating very quickly. I mean, somebody used the analogy of an ice cube in a microwave. We are getting, I mean, we know that because we are a key factor in the market. We know that because the incoming calls from brokers looking for space for their clients are starting to get more anxious and even more desperate. So as the availability of space shrinks, obviously the price goes up. Now, there's something else going on which is equally important, and that is the cost of a new building has gone from whatever to somewhere around, pick a number, $2,500 a foot. Interest rates and the cost of capital has gone from 0% or 2% to 5%, 6%, and 7%. So the rents that have to be achieved to make a new building economic are well into the $200 a foot and even touching $300 a foot. That's never happened before. So obviously, rents on older buildings, which are still great buildings in great locations, are going up because of scarcity. and because of the cost of new supply coming on the market. So this is just basic economics 101. The next part of it is that I believe, and my team can speak for themselves, I believe that we are in a long, long, long-term landlord's market where these dynamics will continue. Why is that? Because there's nothing in the short term that can change that other than if interest rates dip down to 2% or something like that, which you can make your own judgment whether that might or might not happen. So if that happens, basically, I'm not in a big rush to rent space at today's prices because I think tomorrow's prices are going to be higher and maybe even a lot higher. Thanks.
Caitlin Burrows: I guess maybe just to follow up on that last point, I know leasing volume in the first quarter was relatively low, so would you just say that that's lumpy? Is it more about that you're not in a rush because rents could be rising or something else?
Stephen A. Roth: Glenn is in the business of renting space as quickly and aggressively and as hungry as he can be. So if there is any fall off in volume, it's not because... I directed Glenn to get out of the market. Glenn's in the market every day working his ass off. Thank you, Glenn.
Operator: Thank you. Our next question today comes from Ronald Camden at Morgan Stanley. Please go ahead. I can't respond to that.
Ronald Camden: Hey, too quick. If you want to respond, I could wait.
Stephen A. Roth: Go ahead, Ronald. Go ahead.
Ronald Camden: Okay, great. Just two quick ones, and thanks for taking the questions. Just number one, I think the last call you talked about some guideposts for occupancy over the next 12 to 18 months and, you know, thinking sort of mid-90s on a lease basis. Just wondering if you could provide any update both on the lease and on a physical occupied basis, what that occupancy target will look like over the next 12 to 18 months again.
Michael J. Franco: Thanks. We've historically, you know, run our portfolio in the mid to high 90s. And, you know, we expect to get back there. So, you know, that probably is over a couple-year period. But, you know, that's, again, given all the dynamics that Steve alluded to and we've talked about in the market and the lack of space availability, you know, that's going to happen. So, obviously, leasing up Penn is a key part of that. But, you know, and I think one of the analysts picked up this quarter, you know, that our occupancy actually went up 70 basis points, not the 40, because we took 350 parks out of service. So, you know, that's what we expect to get. I can't tell you exactly what quarter it's going to be, but, you know, over the next, you know, couple years or so, that's where we expect to get back to.
Stephen A. Roth: But there's a couple of things to focus on. There is a... a couple of buildings that we are not renting. Why is that? Because they are over-leveraged and underwater, and it's uneconomic for us to rent bases in those buildings, which really, they're almost owned by the banks. And if we put TI into those buildings, it's basically burning money. So if you take those few, and we have chosen, I don't know whether this is a good decision or not, we've chosen to leave those in the aggregate statistics where some of the folks in our industry have taken those buildings out of the numbers, which makes their occupancy higher. So if you take those numbers out, those buildings out of our numbers, our occupancy goes to what? 94, something like that, 95? 94%. 94. So we know that number, although we don't publish that number, and maybe we should, although right now I'm publishing that number. So that's the first thing. The second thing is that I look upon, in a landlord's market like this, I look upon vacancy and available space as an asset, because that will... that as we rent that space, and we will with 100% certainty, that will grow our earnings. So when you think about investing, maybe the best company to invest in is the company that does have available space in this market as opposed to a company that has all the space already rented. You can make out of that whatever you will.
Ronald Camden: Thanks. Really helpful, Collar. And then my second one, if I may, was just a lot of the footnotes and the supplement. Just on, I guess on PEN1, any idea when that litigation will be, just in terms of timing, obviously can't comment either way, but just in terms of timing, is that something that could be done this year? And also the change in retail from the base of the office buildings being put in the office segment, just the thinking there. Thanks.
Stephen A. Roth: I'll take the litigation. I have absolutely no comment on anything having to do with that litigation other than I'm optimistic. Tom, what about the retail?
Thomas [Last Name]: Yeah, so we didn't change our segment reporting. Obviously, we have two segments, New York and other. This is a sub-segment. Ronald, what we did here is we tried to align the sub-segment more on how we view the assets. So we grouped all the retail assets together. and the office assets. So the base of 1290 retail is now included in office as opposed to being in retail. And any ancillary office space that's in a retail building is obviously in the retail sub-segment. And it's all disclosed, obviously, in the supplement, and we give you the exact buildings that are in each sub-segment so you can follow along. I think this is the better way of looking at it as opposed to the way we were doing it previously.
Operator: Thank you. Our next question today comes from Brendan Lynch at Barclays. Please go ahead.
Brendan Lynch: Great. Good morning. Thanks for taking my questions. First one on Sunset Pure Studio. Is there any interest in the current short-term tenants in converting to longer-term leases? And just an update on that.
Glenn [Last Name]: Hi, it's Glenn. There's great interest in Sunset and the studios. You know, we're a lease right now. place is great, unbelievably great. You know, I would say best in the country, great, in a great location. We have very good activity, long-term folks looking, short-term folks looking. So we expect to continue to develop the project once this year's leases expire. But it's off the charts. The reception's been A-plus, and we expect to do really good things during the leasing.
Stephen A. Roth: But a direct answer to your question, I would definitely prefer to be in the long-term leasing business with that asset rather than in, you know, month-by-month leasing in that asset. So the answer is the ownership of that asset prefers to be in the long-term leasing if the market gives us that opportunity.
Brendan Lynch: Okay, thank you. That's helpful. And then a follow-up on the Verizon space at Penn, too. Can you just walk us through if they find a subtenant versus you finding a tenant and how we should think about potential termination fees and any accounting around the TIs that you might still be responsible for if it's just a sublease instead of a cancellation and new lease?
Stephen A. Roth: Glenn prefers that I don't talk about it.
Glenn [Last Name]: Go ahead. As I said earlier, we're in great spot no matter how it comes up. and we will only be opportunistic to make money on the space. We have a very good lease position, and we'll see how it plays out, but that's as much as I think I want to talk about it for now.
Stephen A. Roth: What do we have? It's basically a 19- or a 20-year lease. So we have a long-term lease with a super credit. That lease, we will never terminate that lease under any conditions. So the only thing that might happen is is around the dynamics of a subtenant coming in because Verizon wants to reduce their liability. But we don't have anything to say other than that long-term credit lease is not something that we are going to terminate or monkey with.
Operator: Thank you. There are no further questions at this time, so I'd like to hand it back to Stephen Roth for any closing remarks.
Stephen A. Roth: Thank you all very much. I think the team and I are delighted with our activity over the last three, four, six months. We are excited. I did make the statement in my remarks this morning that I am certain that over the next year or two, we will have the highest growth performance of any company in our sector. And we're excited about that. We've got a lot of great stuff going on. And thank you for participating. We'll see you next quarter.
Operator: 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.
