Vornado Realty Q3 2026 Earnings Call Transcript

Vornado Realty (NYSE:VNO) reported third-quarter financial results on Tuesday. The transcript from the company’s third-quarter earnings call has been provided below.

This transcript is brought to you by Benzinga APIs. For real-time access to our entire catalog, please visit https://www.benzinga.com/apis/ for a consultation.

View the webcast at https://edge.media-server.com/mmc/p/ktnrmwxs/

Summary

Vornado Realty Trust reported a strong third quarter with comparable FFO of $0.65 per share, up 14% from the previous year, driven by rent commencements at Penn 1 and Penn 2 and higher signage revenue.

The company highlighted exceptional performance in the New York market, with leasing activity in Manhattan rising significantly and same store NOI up 11.9% GAAP for New York offices.

Strategic developments include the completion of Phase one of the Penn District transformation and ongoing leasing success at Penn 1 and Penn 2, with future plans to develop additional retail and residential projects.

Vornado announced a new joint venture at 350 Park Avenue with Citadel, featuring a $3.3 billion construction loan and a 9.2% return on cost, bolstering future growth prospects.

Management expects continued strong performance through 2028, with significant income contributions from signed leases not yet in GAAP results and a robust leasing pipeline.

Full Transcript

Nick (Operator)

Good morning and welcome to the Vornado Realty Trust third quarter 2026 earnings call. My name is Nick and I will be your operator for today’s call. This call is being recorded for replay purposes. All lines are in a listen-only mode. Our speakers will address your questions at the end of the presentation during the question and answer session. At that time, please press star then one on your touchtone phone. I will now turn the call over to Mr. Steve Borenstein, Executive Vice President and Corporation Counsel.

Please go ahead.

Steven Borenstein (Executive Vice President and Corporation Counsel)

Welcome to Vornado Realty Trust’s third quarter earnings call. Yesterday afternoon we issued our third 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 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, 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 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.

Steven Roth (Chairman and Chief Executive Officer)

Thank you, Steve, and good morning, everyone. On behalf of my hard working colleagues at Vornado, it is my pleasure to welcome you to our third quarter call. Today is Election Day. Elections matter. Our democracy matters and your vote matters. New Yorkers are choosing a Governor and across the country voters are choosing a Congress. We have a system of early voting, mail-in voting and in-person voting. Please make sure that you vote. If you work at Vornado, you are entitled to half a day off to facilitate your voting.

We have a lot to talk about this morning, but first I want to mention something that is important to me and should be important to all of us. Two Wednesdays ago, Darrell and I attended the inaugural Blue Square Alliance Against Hate Benefit gala. Blue Square is an organization created by Robert Kraft in 2019 in reaction to the very disturbing increase in anti-Semitism across America and that now combats hate of all kinds. Robert Kraft is a 5 foot 7 inch giant.

He is self-funding this organization and Darrell and I believe we should all follow his lead. Now to business. We had another excellent quarter with eye-catching mark-to-market results and same store growth. Comparable FFO was 65 cents, up 8 cents or 14% from last year’s third quarter and 2 cents ahead of analysts’ consensus. In a few minutes Michael will review all the numbers in detail, but first let me cover some highlights. We are the last New York office company to report so we can see the competitive playing field clearly in front of us.

Everyone’s metrics were pretty good but our metrics were outstanding, in first place, and second place was not even close. As we have been predicting on these calls for the past nine quarters, everyone, and I mean everyone—analysts, investors, the press, and even out-of-town office companies—now agree that the New York market is by far the strongest in the country and maybe even the strongest that it’s ever been. As I have said over and over, we compete in a market of about 180 million square foot Class A-better buildings where demand for space is accelerating and the availability of good space is quickly evaporating.

We are most definitely in the landlord’s market and, most importantly, tenants and brokers know it and are acting accordingly. Economics 101 says that with demand surging and supply not keeping pace, rents will rise. And they are, and there is no end in sight. $200, $220, and $300 rents are now common in the conversation. Overall, Manhattan office leasing volume is up more than 9% from last year and total leasing in 2026 is on pace to reach the highest total since 2000.

During the third quarter overall, Manhattan office leasing was a strong 10 million square feet, exceeding both the 5-year and 10-year quarterly averages. TAMI tenants took the lead this quarter with 27% of deal volume. And by the way, there are more postings for AI jobs in New York than any other market in the country by a wide margin. Vacancy in the 180 million square foot Class A-better building market in which we compete continues to tighten and is now down to the mid-single digits.

There is a serious shortage of large blocks in the better buildings and new supply is minimal, takes as long as five years to deliver, and requires rents upwards of $300 per square foot to pencil. Given these dynamics, we expect Class A rents to continue to grow well into the next decade. That tells you everything about the strength of the demand in our market. I couldn’t be more bullish. And by the way, the 10-year Treasury run-up to 5% may be impeding the supply of new builds, but it seems to be having absolutely no effect on tenant demand.

Vornado’s best-in-class assets and ability to attract and retain an outstanding roster of tenants, including many of the world’s leading companies, continues to set the standard for the New York office market. With the investments that we’ve made throughout the years and over the past year in such assets as Park Avenue Plaza, 623 Fifth Avenue and 350 Park, we now have a concentration of premier assets around the two most important transportation hubs in the city, in the Penn District and in the Plaza Park Avenue District.

No other investable company has both. Our portfolio of assets with best-in-class amenities is exactly what tenants are seeking and we continue to achieve market-leading rents and very significant mark-to-market results. Here is our scorecard. In the first nine months of 2026 we leased 1.6 million square feet company-wide. For Manhattan office we leased 1.15 million square feet at $113 per square foot average starting rents with mark-to-markets of 23.5% GAAP and 16.8% cash. As you will hear in the next paragraph, these metrics are accelerating as rents continue to rise even quarter by quarter. As I mentioned during our last call, these mark-to-market stats do not include our leasing activity at Penn 2.

Following our transformation, we are achieving rents that are about double the old rents. That would translate to 100% mark-to-markets. But our numbers do include all of our assets, even our few clunkers. Everyone has clunkers, even us. No cherry-picking for us. In the fourth quarter we will recognize the 1.05 million square foot Citadel lease and so we can now forecast that Manhattan office leasing for the full year 2026 should be about 2.4 million square feet.

In the third quarter in Manhattan we executed 30 office deals totaling 489,000 square feet at an industry-leading average starting rent of $123 per square foot with an average term of 9.5 years, mark-to-markets for a whopping 37.2% GAAP and 25.9% cash. Our budgets show that this strong performance will continue through 2028. This quarter our New York office same store NOI was up 11.9% GAAP and 8.7% cash. Our New York street retail same store NOI was up 8.4% GAAP and 9.3% cash.

Our New York business overall which includes Alexander’s was up 10.2% GAAP and 4.9% cash, or 8.4% cash if excluding Bloomberg’s rent abatement at 731 Lexington that we advanced forward five years for tax reasons. Our signed leases that are not yet included in our GAAP results are $204 million of revenue which, since the taxes and operating expenses are already included at the building level, will almost entirely drop to the bottom line. This will feed into our income over the next five or so quarters.

Phase one of our award-winning transformation and redevelopment of the Penn District is now complete with the new Moynihan Train Hall, Meta’s 730,000 square foot Moynihan Office Complex, the new and expanded and fully re-tenanted Long Island Railroad Concourse, the adjacent food hall and 70 new or reconstructed food and beverage offerings, the 33rd Street pedestrian plaza, and the fully transformed and super-amenitized 2.5 million square foot Penn 1 and 1.8 million square foot Penn 2.

So this is a good time to render a report card. Capital spent to create all this was $2.5 billion, on budget and very well worth it. As you remember we pre-funded the capital required here which turned out to be prescient. We continue to have no debt on the major Penn District assets. Since the start of physical redevelopment at Penn 1 we have leased 1.8 million square feet at average starting rates of $98. During the third quarter at Penn 1 we executed 10 deals totaling 248,000 square feet at average starting rents of $123 and an average mark-to-market of 40%.

The office space here is now 96% leased. Note that roughly 10% of Penn 1 rolls each year so we will keep marching old rents up to market. This includes 400,000 square feet currently paying only $68 per square foot which rolls over the next three years plus another 83,000 square feet of vacancy to lease. So there is much growth still to come here. At the 1.8 million square foot Penn 2 we have leased over 1.6 million square feet since project inception—92% occupied with availability now of only 150,000 square feet.

Rents at Penn 2 continue to exceed even our own optimistic expectations, with dealmaking now squarely in the $125 to $135 per square foot range. Tour activity and proposals across the remaining space remain at robust levels. We continue to escalate our rents here to match market demand. We have created something truly unique at Penn. Together with our neighbors Manhattan West and Hudson Yards, we are part of the new West Side of Manhattan as well as being our own city within a city.

Most importantly, tenants and the public love what we have done. Now the financial benefits of all this are enormous. Old rents will rise to market and, importantly, Penn’s current market rents will rise to the levels at Manhattan West and Hudson Yards and we are seeing that happen. Phase one may be complete, but we continue to invest in the transformation of the Penn District. We will develop the tired, old and junky retail on both sides of 7th Avenue and along 34th Street into attractive, modern and exciting retail offerings. This is the gateway to our Penn District and a transformation here will have big impact. We will also develop a 480-unit rental residential building on our 34th Street and 8th Avenue site, catty-corner to Moynihan Train Hall.

Both of these projects will begin physical construction early next year. Phase two at Penn District will be every bit as exciting and productive and will include Penn 15 and various other potential sites. There’s a lot of chatter in the industry about fee income and a lot of Blackstone and Brookfield envy in REIT-land. We have our fair share of fee income, but even better than that, I want to call attention to two of our high growth businesses that get little attention. First, we have the largest and best sign business in Manhattan which has grown at 5% CAGR over the last 10 years and 16% CAGR for the last five years. Our sign concentrations are on the two best blocks in Times Square Bowtie where we own 50% with our retail JV partners and in the Penn District where we own it all.

By the way, Penn is the principal contributor to the 5-year CAGR and now at share produces nearly double the income of Times Square for us. What differentiates our sign business from others is, of course, our unique high-traffic real estate and that we own all the signs which are attached to the real estate that we own. There are no leases, no expiration dates, no renewals, which equates to high margins and high values. Further, we are one of the few landlords that own our cleaning and security business which services all of our buildings, giving us better control and better profits.

Together, these two capital-light businesses currently produce $120 million of income and they are growers. We have recently added to our holdings in the Plaza Park Avenue District with the acquisitions of 623 Fifth Avenue, Park Avenue Plaza, 3 East 54th Street and 350 Park Avenue, which adds to 1290 Avenue of the Americas, 280 Park Avenue, 640 Fifth Avenue, 689 Fifth Avenue, 655 Fifth Avenue, 697 Fifth Avenue and 595 Madison Avenue. Our 623 Fifth Avenue development project, spectacularly well located on top of Saks Fifth Avenue, is on schedule. We will deliver to tenants in the fourth quarter of 2027.

We signed our first lease here with a financial services firm for 31,000 square feet across two floors and an on-budget starting rent close to $200 a foot. The market reception to this high-end, hospitality-driven project designed by Foster + Partners has been terrific. Tour volume is very strong and we are currently negotiating multiple other deals. In May we acquired a 49% interest in Park Avenue Plaza for $950 per square foot which, taking advantage of a low interest rate loan through 2030, will yield an 8% cash-on-cash return.

This is a building with blue chip tenants. We love the low bases here and even more so we love the below-market rents. Good things are happening here as we speak. In a milestone event just after quarter-end in October, we formally closed the 350 Park Avenue joint venture with Ken Griffin as our 60% financial partner, Vornado owning 36% and the Rudin family owning the remaining 4%. Simultaneously we closed on a $3.3 billion construction loan—which is a record for an office deal—and a 1.05 million square foot lease with Ken Griffin/Citadel. We disclose on page 21 of our financial supplement the cost and returns of this project.

Our return on cost is over 9%. Note that this is an unlevered return. The levered return is over 13%. Our 350 Park Avenue tower is being designed by the same Foster + Partners team that designed the new JPMorgan headquarters down the block. 350 is huge at 1.9 million rentable square feet and topping out at 1,400 feet. Citadel has an early call option to grow by up to an additional 330,000 square feet, with the early betting that they will take it all.

That leaves 520,000 square feet, or 20 floors, of column-free, high-ceiling, floor-to-ceiling windowed space at the very top of the building, actually beginning 850 feet in the air, all with majestic 360-degree panoramic views up to the park and down to the harbor. Glen and his team will be leasing this space on behalf of the venture. I hope you all saw our full-page ad in the Wall Street Journal last Thursday announcing the project and clearly showing the available block.

This block is the best available space on offer and we are bringing it to market at exactly the right time. And I must say Ken has been a perfect partner and his team as well. Ken has been personally involved in all major design decisions to create the most efficient workspace and world-class aesthetics. At our 2 million square foot 1290 Avenue of the Americas, many of you have toured our new amenity spaces and recognized them as best-in-class, and tenants are reacting accordingly. Since inception of our hospitality-driven transformation focused on our new pavilion and outdoor terrace space on the 17th floor, we have leased 650,000 square feet to new tenants at rents that are leading the pack on 6th Avenue. The building is currently 97% occupied, with an upcoming opportunistic expiry of 240,000 square feet next year where we have lots of activity.

We acquired 1290 and 555 California Street in 2007 at the same time. 1290 is now the best building on Avenue of the Americas and 555 California Street is the best building in San Francisco. Michael will have the pleasure of reporting to you the extraordinary leasing success of 555 California, validating its leadership in the market. In the for-what-it’s-worth department, I think NAV is a meaningful metric. Green Street has our NAV at $56 a share, which means our stock price trades at a 36—I’m sorry, 38% discount, the deepest discount in our office group. Last quarter I told you we were in conversations to sell two assets which would substantially increase our liquidity. Both are well advanced and we expect to report more on our next call. We all thought that the monster Wall Street law firms were forever institutions and creditworthy to boot.

But as I read in the recent news, this is apparently not the case. But more relevant to us is that law firms’ hourly billing rates have now risen to unreasonable levels. We need to fix that and we are beginning to focus. I end with this. Halloween was a couple of days ago. I have a 10-year-old grandson who is a trick-or-treater. We just switched over to daylight savings time and all my friends are heading down to Florida for the winter. Thanksgiving is a few weeks away. Thanksgiving is a unique American holiday celebrated with a family feast. Since I have been boss, we have celebrated Thanksgiving by giving every single employee, no matter their rank, a Thanksgiving turkey.

In the beginning we were a small New Jersey suburban company. Everybody drove to work so we loaded frozen turkeys onto a truck and handed them out one by one. This is no longer possible today since we now have thousands of employees and everyone commutes to work using mass transit. So we now give out a money voucher sufficient to buy a turkey and all the fixins. I must say I find this many decades-old tradition very personally satisfying. Happy Thanksgiving to everybody.

Now over to Michael.

Michael J. Franco (President and Chief Financial Officer)

Thank you, Steve, and good morning, everyone. Third quarter comparable FFO was $0.65 per share compared to $0.57 per share for last year’s third quarter, an increase of 14% or $0.08. This increase was primarily due to higher FFO resulting from rent commencements primarily of PENN 1 and PENN 2, net of lease expirations; higher FFO from our acquisition of Park Avenue Plaza; and higher NOI from signage revenue, partially offset by higher net interest expense largely due to the increase in rate on our 2033 senior unsecured bonds versus the retired bonds.

We have provided a quarter-over-quarter bridge on page three of our earnings release and on page seven of our financial supplement. As Steve said, and it is worth repeating, this quarter our New York office same store NOI was up 11.9% GAAP and 8.7% cash. Our New York Street Retail same store NOI was up 8.4% GAAP and 9.3% cash. Overall, our New York business was up 10.2% GAAP and 4.9% cash, or more accurately 8.4% cash excluding Bloomberg’s rent abatement at 731 Lexington Avenue, which we accelerated for tax reasons. Based on our 2027 budget, we expect these strong same store growth numbers to continue through next year.

In terms of our earnings outlook, as we have previously mentioned, full year 2026 comparable FFO will be higher than 2025. While we are still in the process of finalizing our 2027 budget, we still expect the current quarter to be a reasonable run rate for 2027, notwithstanding the additional impact of taking income offline to effectuate the 34th and 7th retail redevelopment and from a higher interest rate environment. As indicated on our previous calls, we expect significant additional growth in 2028 and beyond.

Turning to occupancy, our New York office occupancy increased 80 basis points this quarter to 93%, up from 88.4% at this time last year. Last quarter we said we expected to be north of 93% by year end, so we are already ahead of plan. In addition to the just completed 1.05 million square foot Citadel lease at 350 Park, our New York office leasing pipeline remains strong with another 1.1 million square feet. As we look toward year end, we project that total office leasing in New York should be about 2.4 million square feet for 2026, which comes on the heels of our 3.7 million square feet of leasing in 2025.

To put it simply, we are firing on all cylinders at Vornado. We are now laser focused on leasing 623 Fifth and 350 Park. Speaking of 350 Park, we believe this is a big win, not just for Vornado, but also for New York. The project delivers on the promise of the greater East Midtown rezoning, an idea that Steve first proposed in his 2009 chairman’s letter after returning from London and seeing what that city had done, and then it was championed by others here. Our project contributed a combined $150 million towards the upkeep of St. Patrick’s Cathedral and St. Bartholomew’s Church through the purchase of their development rights, plus more than $35 million for the city’s East Midtown Public Realm Improvement Fund, which will help fund the Park Avenue malls.

And with the robust demand for, and scarcity of, trophy office space available, the new 350 Park will serve a growing need by the world’s leading companies who need premium space to attract and retain talent here. At the end of the day though, it’s all about the money, and the transaction is enormously attractive to Vornado as a developer and owner-operator. With our land marked up to the $900 million contribution value, the project pencils to a 9.2% return on cost to Vornado, as you can see on page 21 in our supplemental. Assuming we don’t bring in any capital partners, our incremental capital investment of $290 million will start in the middle of 2028, with the bulk in 2029 through 2031.

We could not be more excited about this project and the value it will create for our shareholders. The retail market continues to experience healthy activity as well, as there is strong demand for the best locations and rents have returned close to or at peak levels. We signed a 10-year renewal with Sephora in Times Square. This quarter we had significant activity at our other Times Square asset, 1540 Broadway. Our pipeline is strong for Fifth Avenue and the Penn District.

Also in San Francisco, our 555 California Street complex, the best building in town, continues to lead a market that is coming back fast. San Francisco tenant demand is at a record 8.4 million square feet, of which 60% is from AI and tech, and asking rents are up almost 10% year over year. This quarter we leased 55,000 square feet at an average starting rent of $163 per square foot, our highest ever, with mark-to-market a positive 59% GAAP and positive 38% cash.

Year to date we have leased 166,000 square feet and we have another 155,000 square feet of deals pending. Turning to the capital markets, the backdrop has gotten more volatile over the past couple of months, but the markets remain open for quality New York assets. CMBS spreads have widened modestly, but New York Class A office refinancings continue to be very well received. The unsecured bond market remains open for office REITs also. Our 2033 bonds now trade about 160 basis points over Treasuries, 30 to 40 basis points tighter than in April. So all-in new issue rates are higher given the higher base rates.

Given the recent volatility and move in rates, we’re pleased we completed over $4 billion in refinancings early in the year when the markets were more favorable. In the investment sales market, the pace of transactions has slowed and pricing has been impacted a bit with the sharp jump in rates, but capital remains very interested in New York and deals are getting done. Finally, turning to our balance sheet, our liquidity is $1.9 billion, comprised of $724 million of cash and restricted cash and $1.2 billion of undrawn credit lines. With that, I’ll turn it over to the operator for Q&A.

OPERATOR

Thank you. We will now begin the question-and-answer session. If you have a question, please press star then one on your touchtone phone. If you wish to be removed from the queue, please press star then two. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star then one on your touchtone phone. Each caller will be allowed to ask a question and a follow-up question before we move on to the next caller.

The first question will come from Floris Van Dekem with Ladenburg Thalmann. Please go ahead.

Floris Van Dekem (Analyst)

Morning, guys. Thanks for taking my question. A couple of things I wanted to ask you, Steve. I was actually very intrigued by your comments on the retail market. Obviously your New York retail same store was up over 9%. Maybe if you could touch on, there’s still a lot of vacancy in your New York retail. What was the peak occupancy and what kind of, I mean, ballpark, is there like a $90 million, almost $100 million NOI upside getting back to peak occupancy?

Could you maybe talk a little bit more about what you see happening in the retail portfolio?

Steven Roth (Chairman and Chief Executive Officer)

Good morning, Floris. Thanks. So, Tom or Michael, if we lease up all of the vacancies in the retail portfolio, how much income does that generate? That’s really Floris’s question.

Thomas Sanelli (Executive Vice President, Finance and Chief Administrative Officer)

I’d say it’s approximately

Michael J. Franco (President and Chief Financial Officer)

50 million. Yes, I was going to say about 50 million.

Steven Roth (Chairman and Chief Executive Officer)

About 50 million. I think it’s more than that, but my financial geniuses think that, that if we get to 100% occupancy or stabilized occupancy, retail, that would increase our income by $50 million.

Floris Van Dekem (Analyst)

Great, that’s helpful. That’s certainly incremental to where we stand today. The other question I had is, obviously you’ve got some pretty exciting development projects and you’ve got potential capital required for 15 Penn as well. You’ve got, I think, $360 million of unencumbered NOI. As you think about how you will potentially fund the capital that’s required to build out this massive project at 15 Penn, how do you think about sources and uses for that?

Steven Roth (Chairman and Chief Executive Officer)

Well, before we get to 15 Penn, we’ve got a lot of unbelievable stuff on our plate. So we’ve got 623 Fifth Avenue. We’ve got obviously 350 Park Avenue. What am I forgetting? 8th. 34th and 8th. We’ve got the 8th Avenue apartment house. So we have multiple new high-growth projects on our plate. All of that is already funded. We have capital allocated for everything that we’re doing that we have already started. So that’s behind us. 15 Penn is a project that when we, I mean, you know, it’s probably a fair amount of time away. As we get into it, we will capitalize it. Okay? We haven’t decided how we’re going to do it yet because it’s really not, it’s not pregnant yet.

OPERATOR

The next question will come from Steve Sakwa with Evercore ISI. Please go ahead.

Steve Sakwa (Analyst)

Yes, thanks. Good morning, Michael. I guess I wanted to just go back to some comments that you made. You talked about the kind of signed but not occupied, a little over $200 million, which is kind of roughly a buck or so in incremental FFO. But it sounds like there are some offsets. You know, I guess there’s this 1290 move-out. There’s some of the retail you’re taking offline. Are there other just kind of move-outs that might be known in the first half of the year that kind of might be weighing down the near-term earnings trajectory that, you know, as you backfill that space, kind of provides more upside in the ’28?

Michael J. Franco (President and Chief Financial Officer)

Yeah, I think, I think, good morning, Steve. You know, there are a few things. Look, I think the magnitude of the 200, I think, is pretty staggering and reflects in particular the success of Penn. You know, the offsets are like we’re in the normal leasing business. There’s going to be expiries and move-outs. You know, in particular, we got 1290, as you said, 330 West 34th, a few at 888 Seventh. You know, we’re taking the retail offline at 34th and 7th and also taking the signage offline, which we decided to do recently given we think that the greater potential, what we’re going to bring back.

So that’ll take a little more income offline next year than we originally anticipated. And then, you know, we’re going to have, with rates being higher, you know, that probably has a, let’s call it, a $0.10 impact next year. So, you know, those are the big picture items. But eventually, you know, that’ll all get leased back up and that’ll flow through over time.

Steven Roth (Chairman and Chief Executive Officer)

Okay, great. The fact is that the pipeline, the financial pipeline of having 200-odd million of signed, in-the-bag revenue that will flow through our income statement over the next five quarters or whatever, nobody has anything like that. And it’s a testament to the enormous success of our Penn District project and a testament also to be that we will have by far the highest growth in our segment, by far. And I guess that’s one of the reasons why we have a multiple that shows that.

So we’re pretty proud of all that.

Steve Sakwa (Analyst)

Great, thanks, Steve. For that follow-up, maybe just one for Glenn. Just kind of on the overall leasing pipeline and just sort of tenant activity and, you know, just sort of, you know, what is kind of the tenant mindset today given strong profitability out of the corporates, maybe offset a little bit by uncertainty over just kind of the AI workforce. Like, you know, what are tenants telling you and, you know, how far out are you starting to see tenants coming to you for renewals in places like New York and San Francisco?

Glen Weiss (Executive Vice President, Co-Head of Real Estate)

So we’ve never seen it as strong as it is right now, not even close. Every industry class, every property, tenants are rabid for space, lots of expansions, and AI has complemented that. There’s been a lot of AI leasing, a lot of AI job growth in Manhattan. So we’ve never seen a better. In addition, tenants are less rent sensitive than I’ve ever seen and are less sensitive about length of term as well. So it’s all boding great for our business.

OPERATOR

The next question will come from John Kim with BMO Capital Markets. Please go ahead.

John Kim (Analyst)

Thank you. Steve, I wanted to ask on your, I guess, a statement that lease spreads will continue through 2028. This quarter was at 26% on a cash basis. I’m wondering if there were leases in a couple buildings that drove that figure higher or is that widespread throughout your portfolio? And can these lease spreads extend beyond 2028?

Steven Roth (Chairman and Chief Executive Officer)

The number 2028 I focused on because that’s really the length of our planning process. Two years out or two and a half years out. So, you know, I can’t tell you what’s going to happen in 2029 and 2030 because our budgets don’t yet extend out to that period.

Michael J. Franco (President and Chief Financial Officer)

But I would say, John, a couple things to tack on. I think Steve in his remarks referenced the mark-to-markets either at Penn or at Penn 1. You know, Penn 1, we are consistently achieving mark-to-markets in excess of the 26%, again reflecting the transformation there. And if you think about what’s happening in the market generally where rents are going up, let’s just say 5% to 10%—I think they’re going up higher for the higher quality, but let’s just use 5% to 10%—if that continues, and given the minute amount of new supply, we certainly think that is going to continue, maybe even accelerate.

There’s going to be an increasing gap between what’s expiring and where the market is. So while we don’t put hard numbers beyond 2028, that sort of gap and potential mark-to-market should absolutely remain a strong possibility.

John Kim (Analyst)

Okay, and then my second question. I know you don’t like to discuss guidance, but Michael, you did mention that this quarter is a good run rate for next year. That would put you at about $2.60. But you also talked about higher interest rates and retail redevelopments of tight winds. But that’s still about $0.28 above 2025’s FFO. So it’s below the $0.40 uplift previously discussed for ’27. I’m wondering what’s happened besides interest rates that caused that perceived shortfall.

Michael J. Franco (President and Chief Financial Officer)

I’m sorry, Jed, you’re a little muffled. Say that again.

John Kim (Analyst)

It’s like it’s a shortfall from the $0.40 previously indicated for 2027 growth. I know some of that was pulled forward to ’26. But

Michael J. Franco (President and Chief Financial Officer)

Yeah, I don’t know that that’s really the case, John. You know, some of that got pulled forward to this year. I think relative from last year to ’27, I think it’s still sort of similar. Magnum, there’s been some positives, some negatives. Right. I mentioned taking a little bit more offline on 34th and 7th, higher rates. At the same time you have some positive leasing fundamentals. So net-net, I don’t know that we’ve changed that view at all.

OPERATOR

The next question will come from Nicholas Yulico with Scotiabank. Please go ahead.

Nicholas Yulico (Analyst at Scotiabank)

Thanks. I just wanted to turn to 350 Park and if you could just maybe tell us, from a modeling standpoint, if we could think about the accounting treatment that’s going to start in the fourth quarter, any nuances to think about there and how it could sort of incrementally impact FFO. Thanks.

Thomas Sanelli (Executive Vice President, Finance and Chief Administrative Officer)

Yes, this is Tom. In terms of the accounting, we’re basically going to capitalize all expenses and interest. And I think we said it previously on a couple of calls earlier this year that it’s basically going to be a similar run rate to where we were getting prior to. So there really isn’t going to be anything happening, other than we believe we’re going to capitalize interest and costs, and some development fee income is going to come in as well.

And that should be approximately what we were getting prior to the structure.

Nicholas Yulico (Analyst at Scotiabank)

Okay, thanks. And then second question is maybe you could just talk a little bit more about the leasing interest at 623 Fifth. Based on the deals you’ve done so far, the types of tenants, and how are you thinking about, are you pushing rents even further now for that building? Thanks.

Glen Weiss (Executive Vice President, Co-Head of Real Estate)

Hi, it’s Glenn. So, yes, we continue to push rent. Our weekly tour volumes are enormous. It’s a financial services building—think private equity, think hedge fund types, think family shops, et cetera. So we signed our first lease. We have another one coming very soon and others behind that. So, you know, with the paucity of good supply in the Plaza District, it’s the perfect time for 623. Construction is underway and our timing is really good there.

So we’re feeling better and better as we go. Yes.

OPERATOR

The next question will come from Yana Galen with Bank of America. Please go ahead.

Yana Galen (Analyst at Bank of America)

Thank you. Good morning and congrats on the strong results. Following up on the comments on the signage and the cleaning and security businesses, could there be opportunities to monetize these in the future?

Steven Roth (Chairman and Chief Executive Officer)

These businesses are very valuable. I would say that with respect to cleaning, we think cleaning is a strategic combination with owning the assets. We think that owning the cleaning business together with the real estate is a big, big plus. So I don’t see selling that or monetizing that in the future. The sign business, which is an unbelievably interesting asset-light business, is growing like a weed. So right now I’d rather hold the income for growth than monetize it, although it has enormous value. So if the sign business has the benefit of $100 million of income and growing, so you figure out what the multiple might be. And so it’s a very, very, very valuable asset that right now we’re in the growing business, not in the selling business.

Yana Galen (Analyst at Bank of America)

Thank you, Steve. And then maybe just on the apartment projects that are starting next year, if you could share expected yields and then when those could start delivering units.

Steven Roth (Chairman and Chief Executive Officer)

Have we published?

Michael J. Franco (President and Chief Financial Officer)

No, we’re going to publish at year-end, Yana. So wait a little bit longer.

Steven Roth (Chairman and Chief Executive Officer)

You don’t want to give the lady a break and shadow it.

Michael J. Franco (President and Chief Financial Officer)

I’d rather see what the numbers look like based on the final budget. So wait two or three months.

Steven Roth (Chairman and Chief Executive Officer)

Yeah, we already have the final budget, but that’s—and

Michael J. Franco (President and Chief Financial Officer)

We’re going to probably deliver units late ’28, early ’29.

OPERATOR

The next question will come from Dylan Brzezinski with Green Street. Please go ahead.

Dylan Brzezinski (Analyst)

Hi, guys. Thanks for taking the question. Steve, you mentioned having two assets in the event stages of the sale process. Are you able to share any light on what the potential total proceeds can be? Has pricing throughout those discussions changed at all now that rates are higher? Can you talk about the bid intentions, anything like that?

Steven Roth (Chairman and Chief Executive Officer)

You know, not really. The proceeds, if all goes well—and there’s no assurance of that—for both of them will be over a billion dollars of new free cash. Obviously, earnings will be nicked a little bit because we’re taking earnings out of the system. Pricing has wobbled a little bit, as you would expect, as interest rates have risen.

Dylan Brzezinski (Analyst)

Appreciate that color. And then maybe just as it relates to use of proceeds. I mean, I know in the past you’ve mentioned that you view the stock as very, very cheap. So is that a potential opportunity? Are you guys going to save cash for the balance sheet, given some of the development? Can you talk about the use of those proceeds?

Steven Roth (Chairman and Chief Executive Officer)

It’s premature to talk about what we would do from a capital allocation point of view with money that we don’t yet have in the house. But I can tell you, as I said a few minutes ago, that the capital program that’s in process now has already been handled. So I look upon this capital as being pretty much available for opportunistic investment—buy back stock, make investments, whatever. But we’re not at that point yet. When we get to that point then, you know, we’ll make you aware of it.

OPERATOR

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

Vikram Malhotra (Analyst)

Morning. Thanks for the questions. I guess first I wanted to go back to the run rate you alluded to into ’27 and maybe into ’28. Just to clarify, you mentioned sort of a good run rate, but then there are offsetting factors like interest expense. Did you mean that run rate and then we need to exit run rate for those offsetting factors, or that’s sort of a good net number to think about going into ’27? And it kind of felt like a little bit of a push-out of the growth you’ve been calling for into ’27 now into ’28.

So can you just clarify that?

Michael J. Franco (President and Chief Financial Officer)

Yeah. Morning, Vikram. That’s a net number. So that—

Vikram Malhotra (Analyst)

Would be for the higher interest expense, any asset sales you may do or anything else, any known move-outs that you have as of today—that would be sort of the true, like a good run rate in ’27? Okay. And then just on the street retail, bigger picture opportunity, would you have a sense or give us some comps—how should we value the business today? I know there are very few marks—how to think about cap rates for your asset type or your quality of assets? And then maybe any bigger picture numbers around the bigger redevelopment, because you’ve talked about a bigger opportunity at Penn Station, and I don’t know if there are others as well.

But just how should we think about a potential NOI uplift?

Glen Weiss (Executive Vice President, Co-Head of Real Estate)

Look, on the street retail, what we own is absolutely unique. The Fifth Avenue assets are—when you think about the number of assets that are not owned by users or landmarks or whatnot—there are very few blocks available on Fifth Avenue for lease or for sale, and we own a handful. So those are scarce, very valuable assets, and there’s a reason they don’t trade often, because they’re like that. So you saw the Uniqlo transaction we did, which was a very low cap rate.

And I think Fifth Avenue continues to command those type of cap rates, and it continues to attract user interest at, I would definitely tell you, a sub-5% cap rate. And it could be much more aggressive than that. Times Square—again, what we have there is the two blessed blocks, dead center bowtie with signage attached to it, probably the most world-famous signage in the world. And the numbers that come off that are significant. So, again, that has not really been tested, but those are going to come in perineum capture, raise too. So those are the absolute pinnacle in terms of what retail values are and will be. And I think the rental market has recovered significantly as well, back to where rents are basically back to either at peak or pretty close to peak there.

Your second one I didn’t quite understand—Penn Station in terms of, I think, the retail opportunity, redeveloping the 34th and 7th corridor. We have significant aspirations for that, both the retail and the signage. There’s still other retail income to come out in other pockets, whether it’s what we’re going to do at 34th and 8th, still in the concourse, et cetera. I can’t give you a precise number or hand up to aggregate that, so rather than guess, we’ll come back on that.

But we think the opportunity is meaningful. And that, in addition, I think just helps drive office rents as well. The more we placemake there and create that unique atmosphere—which I think we’ve done with all the restaurants, F&B we put in—that’s going to continue to accrue to the office rents which we’re achieving. And again, I think it’s worth pausing on—when you think about the numbers that we are achieving in Penn 1, Penn 2: $125, $135 a foot rents relative to where we originally published those budgets, we are well ahead.

That’s what we aspire to. Eventually we’ve gotten there quicker, and there’s a lot more room to run in terms of the office rents.

OPERATOR

The next question will come from Anthony Pallone with JP Morgan. Please go ahead.

Anthony Pallone (Analyst)

Great, thanks. So first question, Michael, just on this 27 and the trajectory that you’re talking about, it seemed like the prior expectation was maybe something in the $2.70s for next year and it now seems about 10, 15 cents inside of that. And so wondering as you think about this two-year planning that you all do, should some of that come back in 28 and sort of the trajectory I think a lot of folks have been anticipating is still intact or is that kind of 10 to 15 cents implicitly that it seems to be coming in here a little bit, going to persist because of interest costs or whatever the case may be.

Michael J. Franco (President and Chief Financial Officer)

Just to be clear, Tony, I think it was Vikram’s question. The net number sort of factored all that in. So I’m not sort of backing off what I said last quarter, 10 to 15 cents. I think that sort of run rate continues and the run rate beyond that, in terms of we look at it in growth, is quite significant. So I’m not going to give you precise numbers, but I’m looking at a latest budget that factors everything in, some higher interest rate, we roll over debt or hedges or whatnot, and that significant growth remains intact.

And I’m not backing off 27 at all.

Anthony Pallone (Analyst)

Okay, thank you for that. And then second one maybe for Glen, just as you talked about a lot of the leasing and how aggressive the tenants are being with taking down space, what’s your sense as to what the utilization of the space is today versus are tenants increasingly taking growth space, just trying to understand what they’re thinking of as they plan for their space needs?

Glen Weiss (Executive Vice President, Co-Head of Real Estate)

Look, I think utilization is now at least four days a week, if not five, particularly in New York and particularly in our buildings. Our buildings are humming just as they were in 2019. And in terms of growth, you’re seeing a lot of growth out of the law firms, out of the financial companies, out of the tech. I mean, everywhere you’re seeing growth. And then with the lack of available supply, that’s good space. You’re seeing renewal activity increase and tenants accelerating those discussions now, which allows us to get into deal mode, benefiting us much earlier than we had been a year or two, three years ago.

So utilization is very high, growth is very accelerated, and the renewal market is now, you know, robust because there’s just no space out there that, you know, worth looking at for a lot of these tenants.

Steven Roth (Chairman and Chief Executive Officer)

Tony, before we let you go, I’ve got to give you the gold star for today. Your 350 Park analysis, while it wasn’t 100% dead on, it was pretty close. So kudos for your analysis.

OPERATOR

The next question will come from Seth Berge with Citi. Please go ahead.

Seth Berge (Analyst at Citi)

Hi, good morning. Thanks for taking my question. I just wanted to touch on kind of the 2027 expiration schedule. What proportion of the space is kind of currently under active discussion for leasing? And I guess just more broadly with tightening availability of high-quality space in New York, are you starting to see tenants address expirations earlier just to secure their space, given the tightening of availability?

Glen Weiss (Executive Vice President, Co-Head of Real Estate)

Yes, on your second point, I just discussed that. Absolutely. There’s an acceleration on renewal discussions. Very much that we’re seeing that across the board. The major expirations for 27, we have action on all of it. We have a little over a million feet coming available. We have good action, good mark to market, really strong starting rents, a lot of activity, as you would expect in this type of market.

Seth Berge (Analyst at Citi)

And then just with, again, kind of some of the leasing momentum that you’re seeing within New York, are you seeing any changes to kind of lease economics, specifically just with respect to TIs or free rent that you’re offering?

Glen Weiss (Executive Vice President, Co-Head of Real Estate)

You know, we are, we’re seeing, you know, a bunch of things. Number one, rents are going up a lot. The tenants are rent sensitive. Number two, terms are lengthening, longer, much longer, which is also a very good thing. We are seeing TI tighten and free rent tighten. It depends a lot on the term of the lease and also the rent. So on the TIs, on new construction, where you’re seeing these rents at $300 plus, you’re seeing higher TIs. But on the bread and butter leasing, TIs are tightening, free rent as well, but much more. So what we’re seeing is rents are up and terms are longer, which is very important.

OPERATOR

The next question will come from Michael Lewis with Truist. Please go ahead.

Michael Lewis (Analyst at Truist)

Great, thank you. I was going to ask about 350 Park. You know, how should we think about the upside or downside risk left in that 9.2% projected cash yield? So obviously you have leasing and rent assumptions, but also, you know, construction costs that aren’t locked. Just thinking about upside or downside in the underwriting there and then I guess not in the unlevered number, but interest rate risk as well. Or do you expect to hedge that?

Michael J. Franco (President and Chief Financial Officer)

So look, I think the most important point is, you know, we have an anchor tenant lease for a little over a million square feet, which, you know, ensures a pretty, pretty attractive outcome. So the question is, you know, what the spec space is going to lease for. That’s of course a risk we know we’re taking. And you know, that spec space is at the top of the building, the best space in the marketplace. So we’re bullish about that opportunity. And you know, I think there’s, you know, there’s certainly upside in what we project.

And of course the market can change with downside, but with the anchor tenant lease, the variability on what the ultimate yield is is a little bit tighter. We obviously financed it in this market and that budget reflects what the curve is. Notwithstanding, we’re hedging that out some period of time. And then on the construction costs comment, 60% bought, but with another 20% soft-circled. So we’re in good shape. We’re in good shape. We have a very, very, very strong outlook as to what the building will cost.

Michael Lewis (Analyst at Truist)

Okay, great. Thank you. And then lastly, for me, I don’t know that there’s anything you could share regarding the dividend you expect to pay this year. And I was wondering if the 350 Park JV gain would impact your taxable minimum at all.

Michael J. Franco (President and Chief Financial Officer)

No. The latter question. No.

OPERATOR

The next question will come from Alexander Goldfarb with Piper Sandler. Please go ahead.

Alexander Goldfarb (Analyst)

Good morning and thank you. And Steve, I like the turkey tradition. That’s pretty cool. So I have two questions for you. The first question is, you guys have said for several quarters now that tenants really are not price sensitive when it comes to rent thinking. Historically, you always hear about companies that were trying to get the best deal and now they seem to, they can’t pay enough in rent. Are either, one, companies and tenants accepting higher rents as a percent of their operating cost structure, or is it that the tenant’s profitability has so vastly increased over the past number of years that paying 200 or 300, whatever the new market rents are, is really not an impact to them? Because as a percent of their operating costs, it’s no different than when rents were 90 or $100.

Steven Roth (Chairman and Chief Executive Officer)

Alex, I don’t remember anybody on my team ever saying that tenants don’t care about the rent they pay. Our customers are responsible. And each rent negotiation is relatively intense and done by responsible parties on both sides. So the tenants do care about every single term in a lease. Sorry to disavow of that. I wish it wasn’t so, but every lease is contested.

Alexander Goldfarb (Analyst)

No, I understand that, Steve, but it seems right now that tenants are accepting significantly higher rents than historically. I didn’t mean to be disparaging or dismissive.

Steven Roth (Chairman and Chief Executive Officer)

Of course, the marketplace is demanding that rents go up aggressively. Construction, cost, scarcity and interest rates all are factored into that. Tenants are realistic. They’re very well advised. They know what they have to pay. And in order to make a deal, they’re willing to pay the lowest price they have to pay. In order to make a deal, that lowest price turns out to be higher than it was yesterday and the day before. That’s the market.

Alexander Goldfarb (Analyst)

Okay, the second question is on 888 7th. Is there any update on the ground rent renegotiation? The loan has been in special servicing as you guys, you know, addressed the ground rent reset, and just curious if there’s any update on that process. Thank you, Steve. It’s actually three or four years away.

Steven Roth (Chairman and Chief Executive Officer)

It is two years away.

Alexander Goldfarb (Analyst)

Two years away. So it’ll start pretty soon. Thank you.

OPERATOR

The next question will come from Ronald Camden with Morgan Stanley. Please go ahead.

Ronald Camden (Analyst)

Hey, great. Just two quick ones, starting with the same-store NOI commentary. I think you said 8% to 9% this year that could continue in 27 and 2028, and just wondering if that was correct and if there’s the move-outs or all that other one-timers that you mentioned was sort of factored in and how we should think about that. Thanks.

Michael J. Franco (President and Chief Financial Officer)

Good morning, Ronald. So I don’t know that I said a specific number. What I said is that the strong same-store numbers would continue certainly through that period. Maybe a little higher, maybe a little lower, but it’s going to be quite strong. And I think certainly with respect to New York office, it’s going to be at or above those numbers as I look through 2027