9 VORNADO REALTY TRUST Our current financial model of the effect on Vornado’s FFO of PTO’s move-outs and our forecasted subsequent lease- up is based upon (i) an increase in average straight-lined escalated rent from the current $26.61 per square foot to replacement straight-lined rent of $33.50 per square foot, (ii) one year of downtime with a corresponding reduction  in variable expenses, and (iii) taking 901,000 square feet out of service for 9–18 months including capitalizing appli- cable costs. At the end of the day, we forecast an increase in FFO of $13.5 million from the PTO space—the result of replacing $26.61 per square foot rents with $33.50 per square foot rents. Looking at it another way, we expect about a 9% return on the incremental capital invested. To summarize: ■ PTO is moving out of 1,939,000 square feet over the next couple of years. (Recently, the PTO advised us they intend to retain approximately 200,000 square feet through at least 2007.) ■ We will take 901,000 square feet in the four oldest build- ings out of service for modernization that will take 9-18 months. Our capital budget for this is $122 million ($135 per square foot). Our capital budget for the remaining space is approximately $30 million.  (10) ■ We forecast FFO to decline as PTO vacates and then rebound as we lease-up as follows. We believe our business is certainly large enough and strong enough to absorb the PTO blip in 2004–2006 with- out missing a beat. * 2005 by quarter—Q1 ($3,100,000), Q2 ($3,900,000),  Q3 ($4,400,000), Q4 ($2,900,000). 2004 Q4 ($ 1,500,000) 2005 ($14,300,000)* 2006 ($ 5,200,000) 2007 $ 8,900,000 2008 $13,500,000 And please remember, all this is still a forecast. (10) Reconciling the $75 million capital budget we underwrote at the time of this acquisition to the current budget of $152 million is a result of changed assumptions. In the original underwriting we projected leasing over one third of the PTO space at about $26 per square foot with minimal capital expenditures. The current plan is to totally modernize 901,000 square feet to new building standards with a  corresponding $7.00 per square foot increase in rent. 