Alexander's, Inc. (NYSE:ALX) Q1 2023 Earnings Conference Call May 2, 2023 10:00 AM ET

Company Participants

Steve Borenstein - Senior Vice President & Corporate Counsellor

Steven Roth - Chairman & Chief Executive Officer

Michael Franco - President & Chief Financial Officer

Glen Weiss - Executive Vice President, Office Leasing & Co-Head of Real Estate

Conference Call Participants

Steve Sakwa - Evercore

Alexander Goldfarb - Piper Sandler

Michael Griffin - Citi

John Kim - BMO Capital

Camille Bonnel - Bank of America

Daniel Ismail - Green Street

Derek Johnston - Deutsche Bank

Vikram Malhotra - Mizuho

Anthony Paolone - JPMorgan

Nick Yulico - Scotiabank

Ronald Kamdem - Morgan Stanley

Operator

Good morning, and welcome to the Vornado Realty Trust First Quarter 2023 Earnings Call. My name is Sarah, and I will be your operator for today's call. This call is being recorded for replay purposes. All lines are in a listen-only mode. Our speaker's will address your questions at the end of the presentation during the question-and-answer session. [Operator Instructions]

I will now turn the call over to Mr. Steve Borenstein, Senior Vice President and Corporate Counsel. Please go ahead.

Steve Borenstein

Welcome to Vornado Realty Trust's first quarter earnings call. Yesterday afternoon, we issued our first quarter earnings release and filed our quarterly report on Form 10-Q with the Securities and Exchange Commission. These documents as well as our supplemental financial information packages are available on our website www.vno.com under the Investor Relations section.

In these documents and during today's call, we will discuss certain non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP measures are included in our earnings release, Form 10-Q and financial supplement. Please be aware that, statements made during this call may be deemed forward-looking statements, and actual results may differ materially from these statements due to a variety of risks, uncertainties and other factors.

Please refer to our filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31, 2022, for more information regarding these risks and uncertainties. The call may include time-sensitive information that may be accurate only as of today's date. The company does not undertake a duty to update any forward-looking statements.

On the call today from management for our opening comments are Steven Roth, Chairman and Chief Executive Officer; and Michael Franco, President and Chief Financial Officer. Our senior team is also present and available for questions.

I will now turn the call over to Steven Roth.

Steven Roth

Thank you, Steve, and good morning to everyone. Let me get a few things out of the way first. Our business is performing well in this environment. Our outlook hasn't changed since last quarter. We are full speed ahead on our current projects, total over 5 million square feet in the PENN District. Any comment in the newspapers or industry tabloids that we have stopped this incorrect and just plain silly. Just take a look at our three block long construction site when you next go through PENN Station or next go to a mix playoff game.

Now some commentary on last week's dividend press release and reaction there too. Simply stated, we are going on office. Let me say that again. We are going on office. A few facts for context, we know about dividends. In 2022, our dividend was $2.12 or $435 million in cash. Over the past 10 years, we have paid and happily paid $5.1 million in regular dividends and another $400 million in special dividends.

Last week an analyst characterize REIT dividends as sacred and I agree, well, I guess, I sort of agree. For this year, we have already paid a $0.375 or $75 million cash first quarter dividend. We will pause paying dividends in the second and third quarters. And in the fourth quarter, based upon known facts actual taxable income, including asset sales, et cetera, we will pay out as we must, taxable income, but we'll reassess whether it is wise or appropriate to pay in cash or in a combination of cash and scrip.

Shareholders should be indifferent as to whether they receive cash or scrip, but that cash, if retained by the corporation, might be more wisely employed for debt management, stock buybacks or whatever.

As most of you know, I have resisted buybacks for years and years, resisting copycatting sister industry companies, and resisting the pounding from analysts to ''close the NAV gap." I believe my resistance was logical and fact based.

But since last quarter's dividend announcement to this quarter's dividend announcement, our stock price has declined 35%, from a low level to an even lower level. Seeing value in the stock as an opportunity to create shareholder value, last Wednesday included in our dividend press release, our Board authorized a $200 million share buyback program. We will proceed carefully and in a measured way funding the buyback from asset sales or even cash retained from paying the dividend is script.

Since our dividend is sized based on taxable income, not FFO earnings, here is the math. 2021 taxable income was $2.03 versus a $2.12 dividend. 2022 taxable income was $2.08 versus a $2.12 dividend. 2023 taxable income is currently projected at $1.05, without any asset sales and surely there will be asset sales. The difference between 2022 and 2023 taxable income is primarily increased interest rates.

The couple of other comments. We think we have seen the peak in work-from-home. More and more CEOs are now requiring their employees back to the office. With each passing week, the office buildings sheer a more like 2019. And we believe, it's just a matter of time before everyone is back for good. New York City seems to be leading the country in this regard.

Lastly, with all CBD office stocks having been crushed, I'm great concern about the future viability of office. It is important to review our financial position and our liquidity. We had $2.2 billion of liquidity, including $1.3 billion of cash and treasury bills. We have over $8 billion at today's markdown values of debt-free unencumbered assets.

Penn 1 and Penn 2 trolling are all unencumbered. The remaining capital program to complete Penn 2 has been pre-funded and will be paid for out of cash balances. These buildings have significant future embedded earnings growth. And as Penn 2 rents up that incremental income will do wonders for our debt metrics.

We rely primarily on project level non-recourse debt old-fashioned mortgages. Only 2.5% of our debt is recourse and that with well-laddered maturities. We are clear eye and realistic about the near-term financial market challenges. It is not pretty when 3% debt rolls over to 6%, 7% or even an 8% market. We will certainly have a few workouts to deal with but over the next couple of output -- I mean few workouts to deal with over the next couple of years. But that is the point of having non-recourse debt.

We have no maturities this year, limited property level maturities next year and no corporate maturities in 2025 with sufficient capacity on our line that matures in December 27, so that we don't have to have to finance at current -- in the current hospital market.

Thank you and now over to Michael to cover the financials side in the market.

Michael Franco

Thank you, Steve, and good morning, everyone. During our last earnings call, we said that we expect 2023 comparable FFO to be down from 2022 and provided the known impact of certain items totaling a $0.55 reduction, primarily from the effect of rising interest rates. Though the current economic environment makes forecasting more difficult than usual, this remains a decent assumption absent the impact of any asset sales.

As expected, first quarter comparable FFO as adjusted was $0.60 per share compared to $0.79 for last year's first quarter, a decrease of $0.19 or 24.1%. This decrease was driven primarily by higher net interest expense from increased rates.

Our company-wide same-store cash NOI for the first quarter increased by 1.5% over the prior year's first quarter. We have provided a quarter-over-quarter bridge in our earnings release and in our financial supplement. Our core office and retail businesses remain resilient with long-term credit leases.

Now, turning to leasing markets. Amidst the backdrop of interest rate volatility and recessionary concerns, we remain encouraged by the level of activity year-to-date. Leasing activity has been led by strong demand from traditional industries, financial services, and law firms, in particular, with many financial firms growing their footprint and accounting for 40% of the 7.4 million square feet leased in the first quarter.

The availability rate of newly constructed properties has substantially declined with much of the new trophy space now largely absorbed at record level rents. Tenants in the market are increasingly focused on the highest quality redeveloped Class A buildings that are well amenitized, have strong sponsorship in our near transportation in Midtown and on the West side, which was resulting in rents moving up in these buildings. Our office portfolio is filled with these types of buildings.

Companies are clearly willing to pay more for the right work environment that they believe will help them retain in the track talent, as well as motivate their employees back to the office. While there is solid activity in the market, large requirement deal flow is lagging, and concessions remain stubbornly high.

Focusing on our portfolio. During the first quarter, we completed 22 leases totaling 777,000 square feet with healthy metrics, including starting rents at $101 per square foot and a positive mark-to-market of 1.7% cash and 8.5% cap. This included our full building 585,000 square foot deal with Citadel at 350 Park Avenue and 82,000 square feet at PENN1 at $92 starting rents.

If we exclude the Citadel DL from our statistics, our team completed 21 leases, totaling 192,000 square feet at $83 starting rents with a very strong cash mark-to-market of 13.1%.

We are continuing to experience good momentum in the PENN District with a steady stream of new leases at PENN1 at ever-increasing rents, now in the high $90s and reaching $100 per square foot in the buildings tower floors, reflecting tenant's attraction to the unique amenity offering we have in the most successful location in the city.

Tour activity is picking up with PENN2 as well now. The project is nearing completion and tenants can better appreciate the redeveloped product.

Overall, we have very good activity of many of our assets, generally at higher rents than a year ago. Our leasing pipeline in New York remains healthy. We have more than 400,000 square feet of leases in negotiation, plus an additional 1.4 million square feet in our lease line. Much of this activity is at buildings where we have significant move-outs this year and next. The financial sector in particular continues to be active.

With that, I'll turn it over to the operator for Q&A.

Question-and-Answer Session

Operator

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

Steve Sakwa

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

Steven Roth

Buybacks are much -- the best value is in buying back our stock. So we will focus on our stock at the expense of buying a building here and there. If we buy a building that used to be $1,000 a foot for $700 a foot that potential tails in relation to the value that we see in our stock.

Steve Sakwa

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

Steven Roth

You -- Glenn?

Glen Weiss

Yes. Steve, so yes, Penn 1 is on fire. Leasing activity is strengthening really week-to-week, great tenants, financial technology, accounting, consulting, and rents are now piercing 100. So we're really pleased how Penn 1 is coming along. And really, as Penn 2 on referrals month-to-month, the project is looking better, better and better. Just amazing product we're delivering. And as the Penn 1 activity continues to strengthen, that seamlessly flows in the Penn 2 action. So we now have tenants who are getting box out of Penn 1 looking at Penn 2.

Our tour activity is higher than ever right now with Penn 2 some large activities some single double two-floor activity. The building will lease. It is the best product available in the market. It is in a perfect location. It is a transportation with amenities like no one else has. So we're supremely confident in the product and we look forward to great success or less.

Steve Sakwa

Thank you.

Steven Roth

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

Operator

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

Alexander Goldfarb

Good morning and thanks for taking my questions. So two questions. First, Steve you guys recently -- in your third quarter call you outlined the potential to resize the dividend which you guys did. And then a few months later decided to suspend it. Obviously, the rate environment has remained up and to the right the office leasing the capital needs of the company everything else sort of stayed the same. So what changed in your view the Board's view between deciding to resize the dividend from $0.53 quarterly to the $0.375 to then suspending it? I'm just trying to figure out what changed because of the macro and the leasing fundamentals and the balance sheet all seem to be the same.

Steven Roth

Alex, hi, actually you're correct. Nothing changed. The only thing that really changed was that our stock went down 35% from, as I said in my remarks, from a low level to an even lower level. We put our heads together and we decided that after years and years of avoiding buying back stock for lots of very good logical financial reasons. We decided that the time was now.

We consider buying back stock to be an offensive move. And we decided that we were going to buy back stock. So that's the first point. We think the value is there. We think it's -- by the way I'm not calling a bottom. What I am saying is that our company is going to devote financial resources to buying back stock. So that's the first thing and we announced it.

By the way it was a little awkward for us to announce a stock buyback in a dividend press release, but nonetheless we thought that they matched together. They were a payer. So that's the stock. We're going to buy back stock. We consider that to be an offensive move and we're very excited about it.

Now the next question is the dividend and where do we get the resources to buy. Well, the first question is that the taxable income is moving around. Things are changing. We will be selling assets presumably we have -- we cannot yet predict how much the asset sales will be, what will be the tactile income from them. We just don't know yet. So that's the first thing.

The second is that we announced in the dividends of these that we will pay the dividend at the end of the year as we must, but we don't consider suspending the dividend or postponing the dividend for two quarters to be a big deal. Maybe you do, but actually I don't. We will pay the dividend as we must in the fourth quarter and we will pay the dividend in whatever the appropriate size is. So that's one unknown.

The second unknown is we announced that we would pay it either in cash or in a combination of cash and script. I think that it's not impossible that we will pay the dividend being script. I'm not making a prediction, but I'm saying we are retaining that option. We believe that a shareholder perceived stock in lieu of cash and the dividend should be indifferent. It's exactly the same. You can sell the stock and turn it into cash, et cetera.

So we believe that it is -- by the way, a sort of humorous, we did spend a significant amount of time in our council room and in our board room going round and round on, let's just think about this. We're going to be perhaps issuing stock in low of cash for the dividend, but we're going to be buying back stock isn't that circular. And the answer to that is, no, it's not, because the issuing stock for dividend is pro rata. Everybody has exactly the same percentage ownership in the company the minute before they get the stock and the minute after they get that stock. When a buyback however, is describing it, because people will make a decision to sell and reduce their percentage ownership in the company, or to not sell and increase their percentage of ownership in the company.

So anyway, that's -- the fact of the matter is that, we will size the dividend at the end of the year we will make a determination as to whether to pay it in all cash or part cash and stock. And if we pay it in, if we pay it in part stock, that will go a long way to funding buybacks or whatever. So that's our thinking. I mean our thinking, it's offensive and we think actually the right thing to do.

Alexander Goldfarb

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

Michael Franco

No, Alex, whatever is -- whatever we mentioned last quarter, reflected our expectation of swaps caps, et cetera, that roll off this year. So, that's in that number.

Steven Roth

Alex – Alex, we have a great deal of confidence in the strength of our balance sheet. We think that our maturities are well laddered. We think that most of our debt -- the vast majority of our debt is non-recourse, and that's a crucial and very important element in the strength of our balance sheet. We obviously, will consider management of our debt, in contrast to buying back our stock, each time we -- each time we get into the situation of making that choice. We have confidence that we will make the right decision by the way.

Alexander Goldfarb

Okay. Thank you, Steven.

Michael Franco

Yes, Alex

Michael Franco

By the way, one last point, okay? There's no other company that I'm aware of, that is spending multiple billions of dollars on [indiscernible].

Operator

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

Michael Griffin

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

Michael Franco

It's Michael. Good morning. The answer is what I think what Steve said, he's not going in the bottom. I think that commentary relates to the macro environment is likely going to remain choppy near-term. The Fed appears to be coming to the end of their tightening cycle. But it's not definitive. We don't know whether rates will stay higher for a more extended period of time.

But I think as we evaluate the company, and we look at the price throughout the intrinsic asset value, even on a stress case, we think it is heavily discounted, right? So we think that the pricing has become irrational. Every day there's negativity about office in the media. And some of that's warranted but we think that's the whipping boy for today. And so that's going to continue. And that obviously has an effect on sentiment. And so it's gotten a bit extreme, right? And I think our action is a reflection of that. And as we stress the valuation and we have – we think there is a significant margin still.

Michael Griffin

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

Glen Weiss

Yes sure. So the color on the 200,000 feet that we leased outside of Citadel was substantially Penn 1 and then some strong financial service deals at our Plaza District buildings with rents that started $83 a foot cash mark-to-market of 13%. So that was the first quarter non-Citadel activity

As it relates to 1290, 770 and other expirations this year in 2024, we're obviously in the market, and we're seeing very strong demand for those properties. If you think about the portfolio, we think it's the strongest in the city. And those buildings particularly have underwent great redevelopments in the past.

We're adding some of our work life amenity programs to those assets currently on the board being drawn up. So a lot of our pipeline is at the 1290, the 770s, the 280 parks, the Penn 1, et cetera. So we're out there. We're already in paper on a lot of space at some of those assets. And I feel good about those properties and those spaces coming back in terms of making matches with the tenants or in demand in the market right now.

Michael Franco

And Griff, I may just add to that and I think I mentioned this in my opening remarks. What – if you look at what's happened in the market, right the new trophy space that was delivered which has seen record rents significant demand, that's largely spoken for.

And I think we talked last quarter about a broadening out of tenant activity. Not everybody wants to pay high $100, $200 a square foot rents, well-located, redeveloped assets, near the transit hubs are what is seeing that demand. So the buildings where we have holes in them, the 280s, the 1290s, et cetera, we're seeing very good tenant activity there and rents are starting to move up in those assets. And I think that's important, right?

Concessions are high but rents are starting to move up in these other assets because there's such a delta between the new buildings and these redeveloped assets that are well located proximity to transit is critical.

Obviously, the state of the building is important. But that's a continuing trend we're seeing. And we're pleased with the activity at a number of our assets that are consistent with that theme.

Michael Griffin

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

Michael Franco

Thank you.

Operator

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

John Kim

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

Michael Franco

Yeah. John, I think that we anticipate the share count being -- I think it all depends on the execution of the buyback, right? We're going to monitor the marketplace and decide when to execute, how to execute.

So, I think it's difficult to answer your first question today. Obviously the dividend wouldn't get paid out until year-end. So likelihood is the share count will go down and then, back up you alluded to in terms of similar we increased the stock dividend.

And then, issuance, again, when it comes to year-end, we evaluate, how to pay everything will be taken into consideration. We'll evaluate the cash versus script component and decided that time based on what we bought back. And how much are you generated from asset sales et cetera, et cetera. What's the right mix? Too early to, answer all those things.

Steven Roth

So …

John Kim

Okay. It just seems like, if you're buying it back at a -- sorry go ahead.

Steven Roth

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

John Kim

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

Michael Franco

Hold it, John. John, it does for an individual holding, right? If you -- all that's pro rata as Steve said, if you hold the route right you own more of the company going forward.

John Kim

Got it. Okay. My second question is on the leasing pipeline. I think...

Michael Franco

John, as I said, that's a circular argument which we spend a great deal of time on in our council room and even in our boardroom. But the issuance is pro rata. You want exactly to the penny the same percentage ownership of the company that you used to. You have a few more shares, but it's the same percentage ownership whereas the buyback is the opposite of pro rata.

John Kim

Right. Okay. My second question is on your leasing pipeline. I think, Michael, you mentioned, 400,000 square feet of negotiations currently. I wanted to see how that compared versus the last quarter.

I think you mentioned last time it was 1.2 million square feet 275,000 being finalized. I know those terms are a little bit different. But apples-to-apples, where does your pipeline compare today versus a few months ago?

Glen Weiss

Hi. It's Glen Weiss, John. I would say, very consistent. So when we talk about 400,000 feet out, that leases documents in negotiation where the term sheets are final and the lease documents to be negotiated. The additional $1.4 million feet are deals that we're speaking with brokers and tenants. We have proposals in the house. We've responded to those proposals and we have arrhythmic back and forth on the deal making.

So it's consistent, I think, quarter-to-quarter what we're seeing, mainly the activity is financial service and law firms in that pipeline. But across the board, I'd say, the rhythm of the deal-making, the tenant demand, the tours have been consistent the last, call it, two to three quarters.

John Kim

And can you break that out geographically?

Glen Weiss

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

John Kim

Very helpful. Thank you.

Operator

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

Camille Bonnel

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

Steven Roth

Michael?

Michael Franco

Yes. Camille, look, I think every asset is an individual situation, right? It's -- so in that particular situation it's not a large loan, we delevered it a bit. And our job is to find the best lenders for each situation. So it was a good execution.

As a general matter, I agree with your first comment. The markets are challenging. Spreads have widened out. But again, it's asset-dependent and sponsor dependent. There is capital out there. It's not robust by any measure, but there is capital out there for the right sponsors, right assets.

And with good term or the right loan-to-value levels, the spreads albeit wider than a couple of years ago are still okay. I think it's where you have assets that are higher levered or where there's much more volatility in the income stream near term, where it's more challenging. So, I think, Rosalind was a small asset, good execution and reflective of a high quality location.

Steven Roth

My take on this Camille is, markets are extremely hostile. This is the time and the cycle where your best do not have to refinance or finance. If you have to finance you're at a huge disadvantage.

And one of the things that I like about our strategy is, we have very little that we have to finance. So, especially, with our cash hoard, which is financing our Penn construction. So the markets are really hostile and the best bet is, just stay out of them.

Camille Bonnel

You were cutting out a bit, Steve, but I think I got parts of your message. So thank you. And then, just switching, in the last quarter Glen talked about the opportunity of converting showroom space in a mart -- at the mart to office. I was wondering. how that specific business plan is progressing and how interest has been tracking so far into April.

Glen Weiss

So the casual business departed for Atlanta in the fourth quarter, we're now preparing that space for office leasing. And in general, we have a pretty good pipeline in Chicago. Our amenity program will be complete by June. We're going to be out there with NeoCon and another broker event this summer which we're looking forward to really bring the program out to the market. So the pipeline is good in Chicago if the market is tough. There's not a huge a lot of tenant demand and particularly not a large tenant demand [indiscernible] at the present.

Our showroom business continues to perform. We've leased about 60,000 feet this quarter at $60 starting rent on the showroom business. The office business, we've leased over 0.5 million feet of office the last three years. We have modest expirations in the next three years. We're grinding out the office. We're getting looks from all the majors. We're in very solid discussions now with a couple of tenants looking to move their headquarters to the market. So it's starting to feel better, but certainly tough conditions in Chicago as we sit here.

Operator

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

Unidentified Analyst

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

Steven Borenstein

Michael?

Michael Franco

Yes, Julian, I had seen you or I guess note. And I was a little surprised by the comment about no assets over the next 24 months. I don't think we said that on the last call. I think we've said it's a more difficult market to sell assets in. But I don't think, we said we weren't going to try to sell assets. I think we've said, we're going to be targeted and recognize that you have to be realistic and thoughtful about what itself.

So, I don't know that our outlook has changed that significantly. It continues to be a difficult market to sell assets in. we think we have some that as we think about which assets we want to sell, it's a mix of leased office assets. We do think they're salable. And I think your -- I think your comments sort of at the end that while the market may not be strong or as strong as it was and pricing has been impacted our share price has been impacted more. So I think that's exactly right, right? We may not love the price of some assets today relative to where they were a few years ago.

But relative to our stock price, we do like that pricing. So, the answer is, we're not a forced seller. We don't have to sell anything. We're going to be targeted. We think we can execute some sales. We have some dialogues going on certain assets. We're going to pursue sales on a couple of other things that probably were not in our thing a little bit earlier in the year. And our expectation is we're going to be able to execute on some of that. But given the uncertainty in the market, I'm not going to guarantee it and nor are we going to be forced to sell anything. So we'll see how the rest of the year plays out, but it is our intent to try to execute on some of those sales.

Unidentified Analyst

Okay. Great. Thank you.

Operator

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

Daniel Ismail

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

Michael Franco

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

Daniel Ismail

Okay. That's helpful. And then just -- we're three years through the pandemic, office utilization still remains fairly low relative to the 2019 levels. I was just curious have you guys have seen any changes with regards to how tenants are building out their space?

Glen Weiss

Hi. This is Glenn. Generally, I would say more collaborative collegial spaces, open workplaces like I always call it hangout spaces, but if you look across the portfolio generally, you're still seeing some private office mix with the traditional cube and open areas. In terms of densification, some industry types are more than dense some seeing density they were. It's really a mixed bag. I wouldn't say a consistent layout of any industry type as you relate one to the next. So generally, I don't think there's much of a new theme than what we've seen previously other than the hangout "collaborative collegial environment".

I mean the one thing that we are focused on in terms of the workplace is what we've done in the buildings particularly at PENN1 what we're doing at PENN2, what we've done at the mark, what we're going to do shortly at 1290 where we believe tenants want to be in these buildings because of the way we have really improved the experience when you first enter the asset. So the first experience that impact we think most important our success. When people come, in they're comfortable, they could eat, they could drink, they could hang out, they could go to the gym whatever they're going to do we look at it like they're coming into a concierge hotel environment. And that's how we've created these new workplaces in our portfolio which has been working extremely well as it relates to our program.

Daniel Ismail

Great. Appreciate the color. Thank you.

Operator

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

Derek Johnston

Years ago in 2018 which seems like another world you hosted Seinfeld at 555 California Street for investors. So stay with me, so Jerry's that was about, you know me, I could be anywhere. Why am I at 10, San Francisco? So Steve -- look, we all know you. You could be anywhere, but you're right here. You're sticking this out, which means to us that you see a way out of this negative office REIT narrative. So I guess the question, how do you envision, what's it going to take for Vornado to get past this environment and emerge stronger.

Steven Roth

Well, I need to get Jerry Seinfeld to help me answer this question. I think it's happening now. I think time is our friend here. I think that it's very clear that employers want their employees back in the office. They want to be able to have people working together. They want the managers to be able to manage their people. And so, they have been struggling, because there is a cadre of employees that don't -- that are sort of fighting coming back to the office.

I think that over time, if you go back -- if you go forward rather if you look out five or seven years, I think we will go back to what was considered normal five years ago. I think time is our friend here. It's pretty -- just to add to that, it's pretty quick. People want to be in the cities. So the apartments are full, the restaurants are full, the cities are full, the streets are full. There is reluctance on the part of certain demographic of coming actually going to work in the office, okay? That is starting to evaporate, okay? Time is our friend.

Derek Johnston

Thanks Steve. That’s it for me, guys.

Operator

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

Vikram Malhotra

Thanks for taking the questions. So just first I wanted to clarify, you said nothing's changed between when you adjusted the dividend down a couple of months ago and then now. But I'm just sort of looking at the dividend run rate you had then and now the taxable income you're projecting, can you just help bridge what appeared to be sort of your projected taxable income run rate of, let's call it, $0.37, $0. 38. And today, it's more like $0.25.

I'm just wondering your debt is fixed now. I'm assuming you had outlined I think, a $0.50 impact and that was due FFO, but you had outlined various impacts that you baked in. So I'm just trying to bridge the two numbers. What has changed in driving that projection lower from here? And can you just comment if that projection now includes a change in the way expirations may be renewed?

Steven Roth

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

Vikram Malhotra

Okay. That makes sense. Yeah. Go ahead.

Steve Roth

I'm sorry go ahead.

Vikram Malhotra

So, I was just going to say, you talked about asset sales not knowing, where pricing is or what could be achieved. But I'm just -- from your vantage point, we've seen a variety of different trades some in New York, some in California, with handles that are -- we probably didn't think we would see this maybe a few years ago $300, $400 a foot. Some other buildings are maybe higher, but I'm just trying to understand, a, how are you -- how are you identifying what assets to sell? And then, is there a point in which you say, the sale doesn't make sense given pricing. I guess, I'm just trying to get a sense of where do you see values shaking across a variety of office types?

Steve Roth

We're familiar with the -- what you're referring to. We are not a distressed seller. We are not a weak seller. In fact, we are selecting a focusing on a very select pool of assets a few assets, where we consider ourselves to be offensive sellers, because the proceeds will be if we can execute the proceeds will be invested extremely accretively. So you can count on a couple of things. We will be very selective. We are not in the wholesale selling business. And if we do -- by the way, we know how to walk away. We know how to say no. If we do execute, we will -- it will be extremely accretive.

Vikram Malhotra

Okay. Thank you.

Operator

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

Anthony Paolone

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

Steve Roth

We haven't gotten into that. We haven't announced that. We haven't -- we haven't quite gotten that far. We have already in the PENN District done heroic accomplishments. We did the – winning train hall in a private-public partnership. We did the widening of the Long Island concourse. We have the retail on both sides of that concourse. We completed the 730-odd square foot Facebook deal in Farley. We have done a massive and very successful renovation of PENN1 where we have driven the rents from 55, 60 to the stunning side of $100 a foot and delivered value to our tenants and we are in the middle of a $1 billion renovation of PENN2. We -- together with that we are doing area-wide improvements infrastructure to the public realm, and we're going to take a breath. The prospect of doing ground-up development, we will likely start with an apartment project. But we have not yet announced what we're doing. We're in the middle of planning that and we're actually very excited about it.

Anthony Paolone

Okay. Thanks. And then just one -- just may be clarification question for me. Just a reminder like follows on your balance sheet the 14-or-so million Class A units seem to have a redemption price of I think about $23.5 a share. I mean given where the stock is -- is there any thought that those holders could exercise? And am I looking at that right?

Steven Roth

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

Michael Franco

Yes let us come back to you on that one.

Anthony Paolone

Okay. Thank you.

Operator

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

Nick Yulico

Thanks. I wanted to see if you -- there's any update you could provide on the retail JV and I know the loans there that matured we're still talking to the lenders. Just how we should think about that? Is it a situation where you are prepared to walk away from the assets? And specifically as well that one mortgage 645th which matures next year which is one of your loans that is recoursed to the company. What should we think about the plan on that specifically?

Steven Roth

Michael?

Michael Franco

Yes. Good morning, Nick. On the first asset St. Regis which we talked a little bit last quarter that continues to be in discussion with the lenders. And we're I think heading towards a mutually acceptable resolution there. So hopefully that will be done in the next 90 days. And with respect to 640 which matures next May that's something that we started to work on now, start to gauge the financing markets talk at an existing bank loans. So obviously existing lender is somebody that we'll continue to have discussions with as well. So too early to tell exactly what's going to happen there. But obviously the intent is to refinance that asset and whether we do it at par or pay it down a little bit but the expectation is that asset will get refinanced.

I will say Nick I think one interesting dynamic. Sort of two, three, four years ago in retailer is a four-letter word nobody wanted to touch it. That's changing. It's changing. Unfortunately office is now in that category for most people. But for retail it's flipped. Retail I think people view the worst is behind us.

The capital markets are more constructive both investors as well as lenders. And so, yes, they have to sort of understand and think about how to deal with above-market rents in some cases. But I think in general the capital markets are more constructive on retail today than they have been in a few years.

Nick Yulico

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

Steven Roth

Michael why don't you try that.

Michael Franco

Yes. Nick, I don't think -- I mean to be clear, I don't think we said buybacks and not -- I mean we said on asset sales I don't think we said just buyback, right? I think depending on -- I think we said that first of all the buyback amount we put out I would characterize as fairly modest. And as Steve said earlier it could be funded largely from retained cash from the dividend.

But in terms of asset sales, yes, I don't think we've said anything about that's just our towards buyback. If we execute on asset sales, of course, we're going to look at the proceeds and what the best use for that is and we're very mindful like our number one priority is making sure our balance sheet remains strong. We can tackle anything and delevering situations or pushing out maturities by paying down, of course that's going to be in the toolbox. So, we agree. We're going to focus on making sure the balance sheet is strong and asset sales are going to be used for a variety of things.

Nick Yulico

Appreciate it. Thank you.

Operator

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

Ronald Kamdem

Hey, just a couple of quick ones. So, I was looking at the cash flow statement and looking at the $92 million of operating cash flow this quarter. Obviously, there's some working capital seasonality. But just one, can you talk about what happened to OpEx in the quarter looked elevated and I suspect sort of flow through?

And then two, I know you said nothing changed, but was this sort of cash flow in 1Q part of the connecting the dots about postponing the dividend and thinking about doing a script dividend just to preserve cash flow?

Michael Franco

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

Steven Roth

I don't think it's material.

Michael Franco

I don't think it's material though.

Ronald Kamdem

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

Michael Franco

Yes. What I would say is the general comment Ronald is your existing lender is your best new lender. So, I think most -- and I think most lenders appreciate that that it's going to be difficult to refinance certainly large assets for the foreseeable future. So, they're going to have to work with borrowers sponsors they feel the right stewards of the asset, which I think clearly we are. And so I think on a number of these situations you're going to see extensions for these loans.

So, in some cases there might be pay downs. In other cases there might not be. So, the answer is discussions have started there and we'll see how they ensue. But I think on these larger near-term situations, I think the lenders, borrowers are fairly tied together for the near term.

Ronald Kamdem

Thank you.

Operator

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

Alexander Goldfarb

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

Michael Franco

Yes. I'll touch on the first, and then I'll have Glenn touch on the second, Alex. It can be a bit frustrating when things are written, which are just not fact-based. This is a notion that 555 was in a workout or there was something -- the answer is, building is performing extraordinarily well. There's no issue with the loan. We took out an outstanding loan, two years ago and it was structured as a two-year initial loan with a series, a five-year, one-year as of right extensions, right? My as it right, if you want the additional term, all you have to do is send in a letter and you get it, right?

So once a year, we're going to send a letter to the servicer. We're going to extend the loan and that will be that, right? So, there's no threat of default. There's never been a threat of default. There's never been an issue with this loan. It was a seven-year loan, structured that way. So all the articles written on this thing, nobody did their homework.

And by the way, there may be other situations like that. So it bears understanding, how the loans are structured and what the real story is, which everybody he wrote on that just got it dead wrong.

In terms of the building, I'll let Glenn talk about it. But again, it continues to be I think the best performing asset in San Francisco, with just the premier lineup of financial service down.

Glen Weiss

Hi, Alex. It's, Glen.

Alexander Goldfarb

Michael the rate is swapped.

Michael Franco

Yes. Yes. That's right Steve.

Steven Roth

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

Alexander Goldfarb

Right

Steven Roth

Which has a combination to [indiscernible] was structured as a two plus five one

Alexander Goldfarb

Steven Roth

It's a seven-year loan. And so anything -- the newspapers got it all wrong. The second thing is that it was a floater that we swapped at a very favorable rate and we swapped it, for I don't know 6.5 years or something like that. So -- and the second thing is, the best financial services building in the marketplace is full. Glen, do you want to comment about the quality of the building?

Glen Weiss

Look the building has been perfectly insulated against everything you're reading about in that marketplace. We've lost zero tenants to anything Goldman Sachs, KKR, Microsoft, BofA all renewed their leases during the last three-year period which speaks to the asset.

I think that's like really need to know and none of them reduced in size. We're obviously in the market with the q345. That's the only vacancy at 77,000 feet. We finished the redevelopment obviously a couple of years ago. We continue to show it. But the campus, the three buildings, has performed perfectly during this period. And it's clearly shown that it's the best asset in the city.

Alexander Goldfarb

Okay. I appreciate both comments. So thank you.

Steven Roth

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

Glen Weiss

That's the beauty of these earnings calls.

Operator

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

Steven Roth

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

Operator

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