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Edited Transcript of VNO earnings conference call or presentation 2-May-17 2:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Vornado Realty Trust and Alexander's Inc Earnings Call

NEW YORK May 4, 2017 (Thomson StreetEvents) -- Edited Transcript of Vornado Realty Trust earnings conference call or presentation Tuesday, May 2, 2017 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Catherine Creswell

* David R. Greenbaum

Vornado Realty Trust - President of New York Division

* Joseph Macnow

Vornado Realty Trust - CFO, Chief Administrative Officer and EVP

* Michael J. Franco

Vornado Realty Trust - CIO and EVP

* Mitchell N. Schear

Vornado Realty L.P. - President of Charles E Smith Commercial Realty

* Steven Roth

Vornado Realty Trust - Chairman and CEO

* Thomas Sanelli

Vornado Realty Trust - CFO of New York Division

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Conference Call Participants

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* Daniel Santos

* Emmanuel Korchman

Citigroup Inc, Research Division - VP and Senior Analyst

* James Colin Feldman

BofA Merrill Lynch, Research Division - Director and Senior US Office and Industrial REIT Analyst

* John W. Guinee

Stifel, Nicolaus & Company, Incorporated, Research Division - MD

* Joseph Edward Reagan

Green Street Advisors, LLC, Research Division - Senior Analyst

* Michael Bilerman

Citigroup Inc, Research Division - MD and Head of the US Real Estate and Lodging Research

* Michael Robert Lewis

SunTrust Robinson Humphrey, Inc., Research Division - Director and Co-Lead REIT Analyst

* Nicholas D. Stelzner

Morgan Stanley, Research Division - Research Associate

* Nicholas Yulico

UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst- REIT's

* Stephen Thomas Sakwa

Evercore ISI, Research Division - Senior MD and Senior Equity Research Analyst

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Presentation

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Operator [1]

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Good morning, and welcome to the Vornado Realty Trust First Quarter 2017 Earnings Call. My name is Brandon, and I'll be your operator for today. This call is being recorded for replay purposes. (Operator Instructions) I will now turn the call over to Ms. Cathy Creswell, Director of Investor Relations. Please go ahead.

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Catherine Creswell, [2]

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Thank you. Welcome to Vornado Realty Trust first quarter earnings call. Yesterday afternoon, we issued our first quarter earnings release and filed our quarterly report on Form 10-Q with the Securities and Exchange Commission. These documents as well as our supplemental financial information package are available on our website, www.vno.com, under the Investor Relations section. In these documents, and during today's call, we will discuss certain non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP measures are included in our earnings release, Form 10-Q, financial supplement and are on our website. 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 Form 10-K 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 of the Board and Chief Executive Officer; David Greenbaum, President of the New York division; and Joseph Macnow, Executive Vice President, Chief Financial Officer and Chief Administrative Officer. Also in the room are Michael Franco, Executive Vice President and Chief Investment Officer; and Mitchell Schear, President of the Washington, D.C. division.

I will now turn the call over to Steven Roth.

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Steven Roth, Vornado Realty Trust - Chairman and CEO [3]

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Thanks, Cathy. Good morning, everyone. Welcome to Vornado's first quarter 2017 call. We are still targeting the end of the second quarter for the launch of our Washington JBG spinoff. Our current schedule is that in June, we will file an investor deck describing JBG Smith's assets, balance sheet, business plan and prospects. Afterwards, Matt Kelly and the management team will be arranging group and one-on-one investor meetings. We are very enthusiastic about JBG Smith's prospects. It will be the largest and best-in-class publicly traded pure-play real estate company focused on the Washington, D.C. market.

Now to our first quarter industry-leading financial results. It seems to me, every CEO on every call says their results are industry-leading. Most of ours are. Take a look at the numbers. Once again, we had an outstanding quarter. And this quarter, I myself will run through our financial metrics with you. Our strong first quarter performance was driven by our New York segment's industry-leading same-store EBITDA growth, which was a strong 3.7% GAAP and a stunning 15.5% cash. Although we don't publish this, isolating just the New York Office results, same-store was 4.9% GAAP and 15.9% cash. New York Office leased 552,700 square feet, 380,000 square feet at share, with average starting rents of $75.20 per foot and positive mark-to-markets of 9.2% GAAP and 6.2% cash. Occupancy was 96.7%, up 40 basis points from the fourth quarter. Demand for office space in New York is robust, coming from all manner of users, and we remain full.

New York retail leased 12,400 square feet in 5 deals, 11,200 square feet at share with positive mark-to-markets of 34.7% GAAP and 17.2% cash. While 12,000 square feet of retail leasing for us is quite modest in this period, where retail seems to have a target on its back, the healthy mark-to-markets are an interesting indicator. Occupancy was 95.3%, down 180 basis points from the fourth quarter due to the expiration of Prada at 595 Madison Avenue and a couple of expiring temp leases.

Subsequent to quarter-end, in April, we leased 10,000 square feet to Amazon for a bookstore at our 3040 M Street in Georgetown. This deal was done by our New York retail leasing team. And even though this prime asset is located in Georgetown, it is staying in RemainCo. Amazon replaces Barney's here at a positive mark-to-market of 43.2% cash and 61.1% GAAP.

At our St. Regis retail at 54th Street and Fifth Avenue, the new Harry Winston store is now open, and it looks great. The adjacent stores here will be occupied by luxury watch brands, Breguet and Blancpain, and are now under construction.

Our Upper Fifth Avenue and Times Square retail assets, where the majority of our retail value is, are buttoned up for term, with great tenants and great credits. These are great assets. They are unique, extremely scarce, irreplaceable and of the highest quality in the world. Please see pages 15 through 17 of my annual letter to shareholders for a summary of lease expirations and my views on retail in general and on our retail business in particular.

Here's an interesting fact for you. In all of our Fifth Avenue and Times Square properties, the only lease expiry in the next 5 years is the Massimo Dutti store, a Zara division, at our 689 Fifth Avenue, which expires in mid-2019 and is today at least 50% under market.

Elsewhere in the portfolio, now we are talking about other than Fifth Avenue and other than Times Square. And remember, our retail portfolio measures 2.7 million square feet. We have 380,000 square feet expiring through the end of 2019. We are highly confident that about 295,000 square feet of these expiries, 78% will renew at a positive mark-to-market of at least 20%. The 85,000 square feet of space we expect to get back is of the highest-quality, such as the H&M store at 34th Street and Seventh Avenue and the Westbury on Madison Avenue.

At theMART, we leased 100,300 square feet, with average starting rents of $47.62 per foot and positive mark-to-markets of 50.1% GAAP and 43.2% cash. These are stunning numbers. Let me read them to you again. The mark-to-markets at theMART were a positive 50.1% GAAP and 43.2% cash. Occupancy is 98.9%. We are full here, too. First quarter same-store EBITDA at theMART increased 4.6% GAAP and 4.9% cash. theMART building, all by itself, is the size of a small REIT, and it surely is one of the best-performing and fastest-growing assets in all of REIT land.

At 555 California Street San Francisco, we leased 66,300 square feet, 46,400 square feet at share, with average starting rents of $86.88 per foot and a very solid positive mark-to-markets of 18.4% GAAP and 9.9% cash. Occupancy was 93.1%, up 70 basis points from the fourth quarter. The tower is full, and the 2 adjacent low-rise buildings at 315 and 345 Montgomery Street are under redevelopment.

First quarter same-store EBITDA increased 90 bps GAAP and 83.2% cash. I double-checked the 83.2% cash myself. It's the result of free rent burn-off. This building, also known as the Bank of America Center, dominates the San Francisco skyline. It is the premier building in San Francisco with such tenants as Goldman Sachs, Morgan Stanley, Bank of America, UBS, Dodge & Cox, Microsoft, McKinsey, KKR, Fenwick & West, Kirkland & Ellis and so on.

Our soon-to-be-spun-off Washington, D.C. business had a positive quarter for these last few months of our ownership. First quarter EBITDA, as adjusted, was $70.6 million, $1.4 million ahead of the first quarter of 2016. Same-store EBITDA was positive 70 bps GAAP and 30 bps cash, and this is the third consecutive quarter of positive same-store results. We have revised our EBITDA guidance for the first half of this year to be approximately even to the first half of 2016, comprised of an increase in the core business of approximately $6 million to $8 million, offset by a similar $6 million to $8 million reduction in EBITDA from properties taken out of service for redevelopment. Note that the increase in core EBITDA is positive 5%.

In Washington, we leased 545,000 square feet in the first quarter. And that's a lot of leasing with a positive mark-to-market of 5.7% GAAP and negative 6.6% cash. Importantly, starting rents were a strong $42.67 per square foot in Washington. Occupancy was 90.2%.

Focusing on RemainCo, which, excluding Washington, is our go-forward company. First quarter FFO, as adjusted, was $0.85 per share compared to $0.78 per share in the prior year's first quarter, a very substantial 9% increase.

In our industry, we focus on many leasing and financial metrics such as EBITDA, NOI and FFO on both a GAAP and a cash basis. While all these metrics are important, in my judgment, the most important are cash NOI, because it is the basis on which we buy, sell and value real estate; and starting rents, because they are the best measure of the here-and-now market. Our cash NOI, as adjusted, for RemainCo, which, remember, excludes Washington, is up a mighty 18%. And cash basis FFO, as adjusted, for RemainCo is up an even mightier 34%.

In our first quarter supplement on Page 6, we have provided a trailing 12-month reconciliation of EBITDA as adjusted to pro forma cash NOI, and we will continue to provide this information quarterly. We will update our NAV at year-end.

Now to the financing markets. In terms of New York City investment sales market, activity is down. I would guess 20% to maybe even 30% for lots of different reasons. But the market continues to have a healthy bid for high quality, stabilized office assets with continued robust demand from institutional and foreign capital sources. The sale of 245 Park Avenue was the most recent example. It is a good 50-odd-year-old asset in a great location, which sold for approximately $1,250 per foot at a 4.7% cap rate on above-market rents.

For retail assets, while several assets are now in the bidding tent, nothing of significance has transacted this year-to-date. We think pricing remains strong for prime, well-leased assets, like the ones we own at Upper Fifth Avenue and Times Square. For assets with vacancy, near-term rule, where -- that are in softer corridors like Madison Avenue or SoHo, prices have indeed corrected itself.

The debt markets are as strong as we've seen them since the financial crisis ended. The CB&S Bank, life insurance, debt fund and unsecured markets are robust, and there is a deep pool of domestic and foreign capital seeking to buy the junior pieces of financings at low rates. The $1.75 billion (inaudible) financing on 245 Park Avenue is notable, and that it is being run at approximately 80% loan-to-value at a 4.3% interest rate. Below the $1.2 billion mortgage, this deal has a $550 million mez portion priced at 5.5% for 10 years fixed. There are several other similar financings in New York City office buildings in the works. It is likely that the aggressive debt markets will drive asset sale activities and pricing near-term.

While we continue to look for money-making opportunities, we intentionally made no acquisitions or dispositions this quarter.

Our 220 Central Park South luxury condo project continues to blow the market away. We are planning an invited site tour of our sales salon and the 1,000-foot tower on the afternoon of Monday, June 5, the start of REITWeek.

I'll leave you with one final thought. As I do the math at Vornado's current stock price, our retail business is valued at virtually nothing.

I'll now turn it over to David.

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David R. Greenbaum, Vornado Realty Trust - President of New York Division [4]

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Good morning, everyone. With Steve having covered the basic statistics of our leasing business this morning, I'm going to be relatively brief and give you some color on current market conditions and our own activity in the first quarter. During our year-end call, I spoke at length about the key driver of demand for space, office-using employment. I was then, and remain today, very optimistic about the prospects for the New York economy based on both underlying fundamentals and potential federal policy changes.

I did sound one note of caution, however, noting that in 2016, office-using employment grew by about 5,000 jobs, positive, but well below the blistering pace of the 35,000 office sector jobs this city added on an annual basis since 2010. It turns out that recently revised numbers from the Bureau of Labor Statistics now paint a picture of much more robust job creation last year in New York. The revised BLS numbers now show that office-using employment actually grew by 33,000 jobs in 2016, led by the professional and business services sector, which alone added 27,000 positions. Office-using employment reached a record high of 1.4 million jobs in 2016 or about 1/3 of all jobs in the city. And in January of this year, citywide unemployment dropped to 4.5%, the lowest rate since 1970 when the state Department of Labor started measuring it.

Preliminary BLS numbers for the first quarter of 2017 again show a moderation of this trend, with office-using employment being relatively flat in the first quarter. We will continue to follow these job numbers closely, as we always do, recognizing that the city will need to add only 10,000 to 15,000 office sector jobs annually, less than 50% of the pace of the last 7 years, to absorb the new supply coming online over the next 5 years. Meanwhile, the city and state continue to announce new initiatives aimed at growing employment, including a significant focus on life sciences with Columbia, Cornell and NYU all completing major new expansions. In short, both the near and long-term outlooks remain very positive.

The leasing market bears out this view. In the first quarter, in Manhattan, 7.6 million square feet of new leases were signed, up 16% year-over-year. And 3.4 million square feet of renewals were completed, with total leasing activity reaching 11 million square feet, in fact, the best first quarter in 17 years. Net absorption was a positive 876,000 square feet. As CBRE noted, the market remains highly segmented, with demand increasingly focused on product rather than location. Tenants want new construction. Tenants want renovated, higher-quality buildings. And all that bodes well for our fleet, which is in great shape after our recent redevelopment efforts as well as the newbuilds we are bringing into the market, including our untapped potential of our Penn Plaza holdings.

Let me now turn to our own office portfolio, where business has been and remains very good. Reflecting the city's continuing healthy job growth, I would note, and this is really significant, that of the 553,000 square feet re-leased in the first quarter, 44% of that activity was comprised of tenants new -- for the first time, new to New York City or expanding their footprint in the city. A few examples. In the financial services sector, the huge global commodities firm, Glencore, is relocating its headquarters from Stamford, Connecticut to our 330 Madison Avenue, where it will take 63,000 square feet. I'm certain that many of you on this call can remember years back when Connecticut was taking financial services jobs from New York, and that's a trend that was expected to accelerate. Well, now, that trend has reversed itself. Wells Fargo expanded its footprint at 280 Park Avenue, growing to over 40,000 square feet. And in the TAMI sector, we completed a 43,000-square-foot headquarters leased with HomeAdvisor, an IAC company, which you probably read about in the paper this morning since it's on an acquisition trail at 330 West 34th Street. We also brought automotiveMastermind to One Park Avenue with a 30,000-square-foot lease. And Google continued its growth at 85 Tenth Avenue, with the addition of nearly 60,000 square feet, bringing its total footprint in the building to 240,000 square feet.

High-end financial services activity in the first quarter was also active. We executed 6 leases at triple-digit rents, a total of 50,000 square feet, some 10% of our total leasing activity at average starting rents of $111 per square foot in 3 of our trophy buildings: 280 Park, 650 Madison and 888 Seventh Avenue. Our remaining 2017 lease expirations are now down to 239,000 square feet spread across the portfolio in small spaces, and our 2018 expirations total 1,180,000 square feet. Our leasing machine remains busy with 515,000 square feet of leases in active negotiation and an additional 600,000-plus square feet in the pipeline.

At 96.7% occupancy, our portfolio with over 1,300 tenants is full. The single largest block of space we currently have available is 84,000 square feet at One Penn Plaza, where we now have a lease out for 45,000 square feet of the space. As Steve said in his Chairman's letter, our sweet spot is capturing the 50,000 to 200,000-square-foot tenants, which reflects the bulk of our activity.

Our work to grow our office portfolio continues, especially in the red-hot West Chelsea submarket, where our 2 newbuilds are rising rapidly. At 61 Ninth, in the heart of the meatpacking district, next door to the Chelsea Market and across the street from Google's massive headquarters, we've poured concrete through the sixth floor. In the third quarter, we will turn over the ground floor and lower level to Starbucks for the buildout of their 20,000-square-foot Reserve Roastery & Tasting Room concept, and we're targeting substantial completion of the building by the end of the first quarter of 2018.

At 512 West 22nd Street, which is directly on the high line, we've completed structure through the ninth floor and begun work on the façade, with substantial completion expected by the end of this year. These buildings, as I have said before, are 2 of our trophy assets of the future, architecturally distinctive new product with unique features, including outdoor green space on every floor in the hottest location in the city. And the repositioned Farley Building, including the dramatic new Moynihan Train Hall, will join them in a few years. We, and our partners at Related and Skanska, anticipate closing on this transaction with the state this quarter, and look forward to creating a new gateway for New York, along with 750,000 square feet of the best-in-class office space being delivered in New York.

Regarding our best-in-class street retail business, I think Steve covered it all in his opening remarks and in his Chairman's letter. Let me now turn to theMART in Chicago, where we signed a significant office lease in the first quarter, as Allstate continued its expansion in the building, taking an additional 57,000 square feet, expanding its footprint to 102,000 square feet. This completes our previously announced reduction of the trade show space from 2 floors to one floor, downsizing the trade show footprint from 400,000 to 200,000 square feet, while maintaining substantially all of the trade show income. Think about it. Effectively, we were able to create 200,000 square feet of office space for free, all of which has now been taken by Allstate and PayPal.

Similar to secular trends we have seen in New York, last month, the Wall Street Journal reported that nearly 90% of the more than 330,000 jobs created in Illinois over the last 5 years were created in the Chicago metro area, many of which, in fact, have moved to theMART: Motorola Mobility, ConAgra Foods, Beam Suntory, Allstate, Yelp, PayPal, Bosch, Caterpillar and Pitchfork and Condé Nast, both part of the Advance Publications group of companies. The scale of theMART allows us to continue investing in best-in-class amenities. And in June, we will launch Marshall's Landing, a multipurpose space on the second floor, at the top of the 50-foot wide grand stair that ties together the first and second floors of theMART, this new 12,000-square-foot concept to include a full-service restaurant with seating for up to 250 guests, a bar, café, lounge and event spaces, all to serve both our office tenants and visitors.

Finally, let me turn briefly to 555 California Street in San Francisco, the premier building in that city with a blue-chip tenant roster, where we completed a 12-year lease renewal with UBS for 55,000 square feet and a relocation expansion with Centerview Partners. Our complete building-wide modernization of the adjacent historic 315 Montgomery building is expected to be completed by June. And later this year, we will commence the total redevelopment of the former Bank of America banking hall that we call The Cube into a great creative office space.

to conclude, we remain very constructive on the New York marketplace. Demand for office space is robust, and we remain full.

And with that, I'll turn the call over to Joe.

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Joseph Macnow, Vornado Realty Trust - CFO, Chief Administrative Officer and EVP [5]

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Thank you, David. Good morning, everyone. FFO, as adjusted for the first quarter, was $1.13 per share compared to $1.05 per share for the first quarter of 2016, a 7.6% increase. Total FFO, including 9 comparable items for the quarter, was $205.7 million or $1.08 per share compared to $203.1 million or $1.07 per share for the first quarter of 2016. As we disclosed on last quarter's earnings call, the fund is in wind-down mode. And beginning with this year's first quarter, we are not including the fund's performance in our FFO as adjusted. Of course, the fund's results, together with other items that are not reflective of the ongoing business, are included in total FFO. Reconciliations of total FFO to FFO as adjusted can be found in both our earnings release and in our Form 10-Q.

The growth in first quarter FFO as adjusted was industry-leading, and yet Street consensus was $0.14 per share higher. We believe analysts must have used fourth quarter FFO as a starting point for the first quarter's projections. And while adjusting for certain items like the $0.20 of expense for the Crowne Plaza Times Square Hotel fair value adjustment in Q4 of 2016, not adjusting for certain seasonality, like the Hotel Pennsylvania, which is $0.05 lower comparatively between Q1 of '17 and Q4 of '16; the impact of noncash stock-based compensation expense, which is $0.04 in the first quarter, every year's first quarter, but virtually nothing in the fourth quarter; as well as the effect of 85 Tenth Avenue in the first quarter, which was $0.03 per share.

Last year, our investment in 85 Tenth Avenue was in the form of mezzanine loan. In December of 2016, a $625 million refinancing of the property was completed, and we received $191.8 million in repayment of our loans, plus a 49.9% equity interest in the property, which resulted in a fourth quarter net gain of $160.8 million.

Beginning in 2017, we are recognizing our 49.9% interest in the property's results as opposed to the income on the mez loans. In 2017, this West Chelsea property occupied by Google is included in the result of New York offices, but of course not in same-store. In 2016, the earnings from the mez loans were included in the results in the other segment. The full year reduction in FFO for the change in our 85 Tenth Avenue investment is expected to be about $13.5 million or $0.07 a share, of which $2 million was in the first quarter. But remember, we did get $191.8 million as cash.

Now the debt metrics and liquidity. Our remaining 2017 consolidated debt maturities are $118.3 million related to 2 Washington, D.C. properties, which will part of the spinoff. RemainCo has no 2017 maturities. RemainCo's 2018 consolidated debt maturities are $140.6 million related to 2 properties and excludes $68 million of debt related to a Washington, D.C. property that will also be part of the spinoff. Our share of partially owned entities' debt maturities for the remainder of 2017 is $75 million, and is $465 million in 2018, principally from our apartment building at Independence Plaza in SoHo.

Excluding the financing of our 220 Central Park South project, which will self-liquidate as signed contracts closed, our consolidated debt metrics are fixed debt accounted for 74% of debt, with a weighted average rate of 3.82% and a weighted average term of 4.7 years. And floating rate debt accounted for 26% of debt, with a weighted average rate of 2.52% and a weighted average term of 4.4 years. Debt-to-enterprise value is 28.5% based on last night's closing stock price. Debt, net of cash to EBITDA, is 5.5x. Including our share of partially owned entities, other than Toys"R"Us, debt net of cash to EBITDA net is 6.6x.

In closing, Vornado has a fortress balance sheet with modest leverage and well-staggered debt maturities. We have $4.2 billion in liquidity, comprised of $1.8 billion of cash, restricted cash and marketable securities and $2.4 billion undrawn under our $2.5 billion revolving credit facility.

I will now turn the call back to Steve.

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Steven Roth, Vornado Realty Trust - Chairman and CEO [6]

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We're prepared to take questions, please.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And from Citi, we have Manny Korchman.

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Michael Bilerman, Citigroup Inc, Research Division - MD and Head of the US Real Estate and Lodging Research [2]

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It's Michael Bilerman here with Manny. Steve, you spent a bunch of time in the Chairman's letter and on this call talking about the retail sector, some of the secular, but also cyclical challenges. You ended your comments saying that at the current stock price shareholders are effectively getting retail for free. Stock's at $94, $95. Your NAV is $135. So call it almost $9 billion of disconnect between what you perceive private market values to be and where the stock's trading, which is effectively what retail is valued at. So that clearly is a focus. I guess, what do you believe you can do to sort of narrow that discount if you believe that most of the discounts there, because of retail -- I guess, would you seek to sell that portfolio? Would you bring in joint venture partners? Would you go so far as to spin that entity, like you've done with Urban Edge, like you've done with JBG Smith? Just sort of walk through how you anticipate narrowing that gap.

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Steven Roth, Vornado Realty Trust - Chairman and CEO [3]

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Michael, that's a mouthful. So your basic thesis is that the discount relates to retail. I don't know that I accept that. So we have had, together with many of our peers, in fact, most of our peers, a chronic discount to NAV for years and years now. So when retail was riding high 3 or 4 or 5 years ago, we had several to discount. I think I said in my letter that when we started our crusade, I called it a crusade, to simplify the business, we had a 10% discount to NAV. Now when we're -- now that we've done all that we've done over the last 3 years, we have a 20% discount. So that's certainly not declaring victory in any event. So my first observation is that we, together with our peers, have a chronic discount. The reason for that, I mean, there's lots of reasons for that. We can get together over drinks and discuss the philosophy of it. But the fact is it exists. What we have done over the last number of years, I think it's clear to everybody, and I'll just trace through it for a moment, we have gone on a crusade to simplify the business. We have sold or spun or are about to spin 15 -- I think it's $15.5 billion. About $5 billion of that was in asset sales of assets that were either pruning or not to the -- not a core, on which we recognize the $2-odd-billion profit. And the balance of it, the better part of $10 billion is returned to shareholders in the form of the spin of UE, which has performed superbly over the last 2 years, by the way, and the upcoming spin of JBG Smith. So we've done an awful lot to simplify the business and to make it basically what will -- it will end up being New York-centric together with a building in -- a great building in Chicago and a great building in San Francisco. And I sort of tongue-in-cheek have described those 2 locales as being western suburbs of New York. In any event, so we've done a lot. We will continue to leave no stone unturned to accomplish our objective, which is to get a stock price that we believe reflects the true value of our business. There's been -- I'm aware of a couple of CEOs on a couple of calls over the last 2 or 3 days have gotten into their frustration, et cetera, with their stock prices. But I think I just want to leave it at the fact that we are unbelievably frustrated by the discount. We are totally aware of it. We think we've done an awful lot more than anybody else to try to cure that issue. What we have done to date has not accomplished our objective. I acknowledge that. And we will redouble our efforts and, once again, leave no stone unturned. I can't -- it's not appropriate for me to speculate as to what we might or might not do in the future. I know you'd like that, but I just -- it's not appropriate for us to do that.

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Michael Bilerman, Citigroup Inc, Research Division - MD and Head of the US Real Estate and Lodging Research [4]

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Right. Well, I took your lead when you said retail getting it for free in your stock price as your view that, that is causing -- and look, your stock is trading at a larger-than-average discount to your peers. So I recognize the fact that a lot of the New York City-centric REITs are trading at discounts, but yours is wider than them. You could've said it in your call. You're getting the office business half off, right, rather than saying retail for free. So I sort of took your lead on what you're saying of highlighting retail as a bigger issue, but that is something that maybe you're more acutely focused on trying to narrow versus selling at half interest in one of your large-scale New York City office properties.

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Steven Roth, Vornado Realty Trust - Chairman and CEO [5]

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Okay. Either way, I'm happy to say you get the office buildings for half price. That's okay, too. Whatever it is, the stock price is not acceptable. We're aware of that. And we -- once again, we've worked our butts off over the last years and done a lot, and we're going to continue to do that. That's -- I mean, I think that's the -- I think that's all that I can say about that.

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Michael Bilerman, Citigroup Inc, Research Division - MD and Head of the US Real Estate and Lodging Research [6]

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Your stock buyback, as a follow-up, does that enter the equation now more? I know in the past, you've commented that it has to be at a deeper discount to where you want to buy it. Does that start entering into it? Or would you rather pursue other forms of transactions to help narrow this discount down versus just buying your stock?

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Steven Roth, Vornado Realty Trust - Chairman and CEO [7]

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A stock buyback is obviously a technique, which we are fully well aware of. If you go back into the -- long-term memory, in the 1980s, this management team did the largest stock buyback on a percentage basis in the history of the stock exchange, went over a 6- or 7-year period. We bought back 65% of Vornado stock when Vornado was a little pup. So we know how to do it, and it's certainly one of the tools in the toolbox.

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Operator [8]

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From Bank of America Merrill Lynch, we have Jamie Feldman.

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James Colin Feldman, BofA Merrill Lynch, Research Division - Director and Senior US Office and Industrial REIT Analyst [9]

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Sticking with Street retail, Steve, I appreciate your comments in the call and also in the Chairman's letter, but can you guys talk about the demand you are seeing from tenants for some of the vacancy? I know you have Prada move out in the quarter. Just what does the leasing pipeline look like today for the better-quality assets that you guys do own?

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Steven Roth, Vornado Realty Trust - Chairman and CEO [10]

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Jamie, for the last couple of years, I have said on these calls and elsewhere that pricing for retail assets had gotten too high, and that rents had clearly gotten too high and that the business was slowing. That's true today, for sure. So basically, the number -- and I said it in my letter. When retailers' basic business model and format is under siege, they're not aggressively interested in stepping up to high-profile assets, and we're finding that. So across the board, retailers are introspectively worrying about their business model as opposed to taking that next incremental big store in a major shopping district in Manhattan. So the number of retailers that are cruising, looking for stores is lower than it has been historically. Now we think that's a cyclical thing. But nonetheless, that's the fact. Now -- and also, these deals are -- I don't want to say they're difficult, but they're time-consuming. So for example, it took us 2 years or maybe longer to make the Victoria's Secret deal on Fifth Avenue. It took our neighbors at 655th, which is Jeff Sutton and SL Green, 3 or 4 years to make the Nike deal, which is coming in as our neighbor at 655th. We own 645th. And the stories of that are on and on. So these deals, they are time-consuming and whatever. But there is clearly -- there are fewer tenants cruising looking for stores now, and the deals are taking more time.

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James Colin Feldman, BofA Merrill Lynch, Research Division - Director and Senior US Office and Industrial REIT Analyst [11]

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Okay. And then what's your appetite to acquire in this market? Or have we started to see even more of a pullback in values?

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Steven Roth, Vornado Realty Trust - Chairman and CEO [12]

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Our appetite is always high for acquisitions at the right price, okay? We have not yet seen the right price. By the way, one last tag on to your question, Jamie. On Page 17 in my letter, in my Chairman's letter, the last paragraph, I went -- I think we went, as a team, very far in projecting our retail incomes over the next 3 or 4 years. And in those 3 or 4 pages, we attempted to lay out lots of information that was not available prior and set forth really the financial -- some of the financial characteristics of this retail business. So we worked hard on that. We think it accomplishes the objective, and if you -- you might want to just reread that.

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Operator [13]

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From Evercore ISI, we have Steve Sakwa.

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Stephen Thomas Sakwa, Evercore ISI, Research Division - Senior MD and Senior Equity Research Analyst [14]

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Steve, I was wondering if you or David could spend a little bit more time on sort of the Farley transaction, and also sort of your plans for the redevelopment at Penn Plaza, kind of one and two, and just sort of your thoughts on embarking on that project given sort of the economic backdrop today.

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Steven Roth, Vornado Realty Trust - Chairman and CEO [15]

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All right. So I think -- Steve, taking your question by -- in the parts, the Farley Post Office Moynihan acquisition is proceeding at pace. And we expect it to close in the next couple of months shortly.

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David R. Greenbaum, Vornado Realty Trust - President of New York Division [16]

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I would tell you, Steve, we have just begun to introduce the Farley Building, which is a -- as you know it, is a post office with great ceiling heights of 19 and 20 feet and great column spacing. We've just really begun to introduce the building to the marketplace. And I will tell you, as we talk to the creative tenants, who are in need of large blocks of space, the excitement that we're seeing around this building has been great. As Steve said, we expect to close on the building within the next month, before the end of this quarter, and we look forward to bringing the space to the market. It is a really unique building, both in terms of its architecture, in terms of its scale. And it's really exactly what the large, growing creative tenants are looking for today in New York, right on a transportation hub, which as you think about it, gives tenants great access to Cambridge and Boston, gives tenants great access into D.C., gives tenants great access into Princeton, where you've got pharma, bioscience. So we're very excited about this transaction.

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Steven Roth, Vornado Realty Trust - Chairman and CEO [17]

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Two more things. The building actually is in the bullseye of the booming West Side, as David said. And learning the lessons from theMART, I mean, this building will be -- we expect this building will perform every bit as well as theMART has performed, which is just top of the market. So we're aggressively and enthusiastically proceeding on that. There's stuff going on with the Hotel Pennsylvania. There's stuff going on with Two Penn Plaza. So there's a lot of stuff going on and lots of hard work. But as I said in my letter that we will make announcements at the time that those announcements are appropriate.

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Stephen Thomas Sakwa, Evercore ISI, Research Division - Senior MD and Senior Equity Research Analyst [18]

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I guess, just when do you think you'll be able to give us any sort of financial characteristics of this Farley transaction? Will that be later this year? Or will that be in 2018?

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Steven Roth, Vornado Realty Trust - Chairman and CEO [19]

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It may very well be later this year.

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Stephen Thomas Sakwa, Evercore ISI, Research Division - Senior MD and Senior Equity Research Analyst [20]

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Okay. And I guess, just a follow-up, I know Mitchell's there. I don't know how much you want to sort of talk about D.C. I know there will still be some greater presentations with Matt and company down the road, but any comments you could just make on kind of the D.C. activity. I know during our recent tour, activity was a bit sluggish down in Washington. And I'm just wondering kind of the overall thoughts going into the back half of the year on the leasing activity down in Washington.

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Steven Roth, Vornado Realty Trust - Chairman and CEO [21]

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I'll front in Mitchell for a minute, and then he can speak. I've read somewhere, one of your colleagues made a comment that Washington had a negative cash mark-to-market of a single digit number. He was kind of picky at that, which is fair. In Washington, we leased 550,000-odd square feet, which is lots of leasing. So that's step one. Step two is we leased at $42-plus per square foot initial rents, which is firm and fairly aggressive. It's something that we are very satisfied with. The -- we're guiding to the core business of being up 5% this first 6 months than last 6 months, which I think is in a market which is bottoming and just coming off the bottom, good performance. We're happy with that. And lastly, to keep the same stores level and keep the mark-to-markets pretty level, we think is good performance. So having said all that, Mitchell, what do you think?

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Mitchell N. Schear, Vornado Realty L.P. - President of Charles E Smith Commercial Realty [22]

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So Steve, good morning. What I would say is that if you just look at the performance of our business in the quarter, as Steve said, we leased a lot of space, we leased at some strong rents. We had one particular outlier transaction that sort of without the transaction, we would have been in the positive mark-to-market territory and our TIs and leasing commissions would've been in the normal 10% range. So if you really get into it, you would take a look at that, understand it better. And in terms of just the general overall market, the market continues to be steady. The market's not going backward, nor do we have a giant exponential growth, but we continue to be steady. Lots of folks in the market believe that with a political party alignment we may see, as has happened in previous times where there has been party alignment, a net absorption over the coming years. We really just have to wait and see. We also see potential expansion in defense, and that's certainly in the sweet spot of our portfolio. So we continue to chug along at a steady pace, and we'll just have to wait and see what these external factors may do to the marketplace.

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Steven Roth, Vornado Realty Trust - Chairman and CEO [23]

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I think you're going to see when we launch JBG Smith that our objective here is to create a great company. Our objective here is to take 20 million square feet of density and development rights that we have and to develop them over as short a period of time as possible, focusing on great new residential product, which has totally different financial characteristics than office product. And to take Crystal City, which everybody agrees is a bunch of older buildings in the most spectacular location possible and transform it. So that the company that we are intending to build together with the JBG Smith assets and team is, I guess, I would say almost radically different than the day-to-day plotting of leasing 25,000 square feet in Crystal City. So we're excited about it, and we're getting ready to go to launch.

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Operator [24]

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From Green Street Advisors, we have Jed Reagan.

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Joseph Edward Reagan, Green Street Advisors, LLC, Research Division - Senior Analyst [25]

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In terms of street retail valuation, Steve, you mentioned that you've seen some correction for assets of lower quality or in weaker corridors. Order of magnitude, how much change do you think we've seen versus the high watermark? And then I think -- where do you think well-located buildings on, say, upper Fifth or Times Square would trade at this point if they're stabilized?

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Steven Roth, Vornado Realty Trust - Chairman and CEO [26]

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Michael, what do you think?

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Michael J. Franco, Vornado Realty Trust - CIO and EVP [27]

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Again, not a lot of data points. I think, on the softer corridors, I think, prices have corrected. It could be 10%, 15%. For prime, upper Fifth, again, those are scarce assets that rarely come up and I don't know if there's been much change there. So I think if we took out one of our assets, again, scarce assets and scarce supply, so I don't know there's been a lot of change there.

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Steven Roth, Vornado Realty Trust - Chairman and CEO [28]

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So, Jed, I think that on the primest of the prime like our upper Fifth product, if it has a 10- and 12-, 15-year lease from an unquestioned credit, like a Victoria's Secret or what have you, I think it would go for the same price as it would've gone last year or the year before and recognizing that this kind of quality is -- almost never comes up, number one; and number two, the income is guaranteed for 12, 15 years. So I don't think there's been any diminution in that kind of pricing. If you have vacancy, I think it's difficult to predict what the pricing is. Now you get out of the investment market and into the distressed market. And in this environment where it takes longer to lease and unpredictable what the rents are going to be, now you're into real distress. So I think that there's a total bifurcation, as you would expect, in the market. The speculators who -- and the momentum buyers that we discussed in past quarters have all but disappeared, which I think is appropriate because they are not doing well and empty assets can't be -- have to be financed with equity. So I think, the great assets are pretty much right around the high watermark and the other unrented assets are distressed.

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Joseph Edward Reagan, Green Street Advisors, LLC, Research Division - Senior Analyst [29]

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And high watermark, in your mind, does that start with a 3 or a 4?

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Steven Roth, Vornado Realty Trust - Chairman and CEO [30]

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Starts with the 3. If it's under market rents, absolutely it starts with a 3, maybe even a low 3 and maybe even lower than that. And if it's at market, which has escalators, then I think it starts with a -- just below a 4.

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Joseph Edward Reagan, Green Street Advisors, LLC, Research Division - Senior Analyst [31]

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Okay, that's helpful. And then Steve, you mentioned, you guys intentionally opted not to acquire or dispose of assets last quarter. Can you talk a little bit about the thought process there? And then you expect to kind of keep that stance for the rest of the year?

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Steven Roth, Vornado Realty Trust - Chairman and CEO [32]

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Yes. First of all, we've said for a while now that we think liquidity is important because -- for lots of different reasons, so we value our liquidity, and when we have the opportunity to invest, the first question is would you rather have cash or would you rather have the asset. Now cash doesn't go up. Only assets go up, but you understand what I'm saying. So that's the first thing. The second thing is with our stock price selling where it is, it would be an aggressive, arrogant move to buy lots of stuff and not pay attention to our stock. So our stock price influences us, as I think it must. Liquidity influences us, as I think it must. And as I said this in my letter, I just don't see the point of buying a flat 4 cap asset and invest money at 4% and think that you're a hero because maybe you can get 50 bps of positive leverage or some debt that, by the way, you have to repay at some point so you got to make sure that you'll get -- so what I'm saying is that the assets that are available in the marketplace of the quality that we seek are really for investors. We are not investors. We are operators, it's a totally -- and we have a mindset to make money, it's a totally different thing. So we are very cautious on investments. We have been for a while now, and we think that's going to continue. Now if we can find assets that we love at distressed prices, we will transact for sure.

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Joseph Edward Reagan, Green Street Advisors, LLC, Research Division - Senior Analyst [33]

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On the dispositions side, I mean -- talking about the stock discount, I mean, do you think it's a good time to be selling into this market?

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Steven Roth, Vornado Realty Trust - Chairman and CEO [34]

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The answer to that is that while our stock trades at a number which we think is well below its value, we think that we can, and we have demonstrated this over the last recent years, sell individual assets for value and for what the private market values are. So for sure, we will be selling some more assets. But basically, we're pretty clean. We did a very good job of pruning and focusing. So it's -- there are not a bunch of obvious assets that we need to sell. So if we don't need to sell anything now, do we want to sell anything for either offensive or defensive reasons? And sure, we always sell. We had no -- so what I'm saying is I would -- we are not aggressive acquirers except at distress with quality assets, and we will be selling from time to time although we have no really -- no budget or bogey.

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Operator [35]

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From Stifel, we have John Guinee.

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John W. Guinee, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [36]

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So you still, despite all of the simplification efforts, still have the most complex office company we cover in terms of understanding it. Have you guys thought about helping to simplify the company by maybe giving a forward quarterly and annual guidance with a little bit of explanation so you don't have to do it after the fact on the earnings call?

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Steven Roth, Vornado Realty Trust - Chairman and CEO [37]

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Joe is looking at me like he wants me to answer that question, John. What do you want, do you want me to answer it or Joe? By the way, John, Joe never -- you said welcome back to Joe. He never went anywhere.

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John W. Guinee, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [38]

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He moved up to a -- he's back into his old saddle.

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Steven Roth, Vornado Realty Trust - Chairman and CEO [39]

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Joe is doing fine -- doing great, by the way. Look, with respect to guidance, we have chosen not to give guidance as a policy for lots of different reasons. And there are not a lot of people who don't give guidance, but the people who don't give guidance are pretty spectacular big people. I really don't agree with you that we have a complicated office business. I think we have office business which performs greatly, has wonderful assets, and I take umbrage to your saying that it's complicated. It is a business. There's lots out -- for example, you take 85 Tenth Avenue, which was a stupendous deal. So we financed the building. At the end of the financing term of 10 years, we ended up getting a couple hundred million dollars in cash back plus half the building, which is worth hundreds of millions of dollars. So while that may be complicated, it's a deal. And it was explained very carefully in all of our documents. So the answer to that is -- and by the way, this business about missing The Street's, what do you call it?

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Unidentified Company Representative, [40]

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Consensus?

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Steven Roth, Vornado Realty Trust - Chairman and CEO [41]

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The Street's consensus, I mean, we have no idea where the first called number came from that we are now being penalized for. We have no idea, okay? It cannot be right in any way. Now I guess, what you're saying is -- what you're saying to me is, well why didn't you go out and correct that 6 weeks ago as opposed to having to go through a torturous period where the stock gets beaten up and then comes back? I think, that's not a bad suggestion that we will discuss internally.

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John W. Guinee, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [42]

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Would you also discuss internally maybe...

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Steven Roth, Vornado Realty Trust - Chairman and CEO [43]

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Let me repeat. We have no idea where The Street's consensus number came from.

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John W. Guinee, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [44]

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That makes 2 of us, so it's okay. Would you think about maybe also providing income yield on cost on your Chelsea developments, 2 Penn Plaza reskinning, Hotel Pennsylvania redevelopment, Farley deal, Old Navy lease expiration? Anything you could help people with on those various value creation potential?

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Steven Roth, Vornado Realty Trust - Chairman and CEO [45]

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The answer is when we're sure of what the numbers are going to be and everything hardens up, we will take that under advisement, too.

By the way, just from what you said, John, okay, we have a lot of stuff going on inside this company which is moneymaking and value creation, which is of superb quality. If you just think about this but you'll just rattled off, okay? So while my stock is getting -- not getting the respect that we think it should, we are very happy with the performance of the business. And maybe, it's my fault. Maybe we're not doing a good enough job of communicating that.

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John W. Guinee, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [46]

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Trust, but verify, I think is the mentality investors have these days.

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Operator [47]

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From Sandler O'Neill, we have Daniel Santos.

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Daniel Santos, [48]

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I appreciate the earlier comments on the disconnect between The Street and results, but wondering if you might be able to provide a little more clarity on some of the seasonality in the first quarter? And maybe walk through some NOI that might be coming on the GAAP P&L through the balance of the year?

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Joseph Macnow, Vornado Realty Trust - CFO, Chief Administrative Officer and EVP [49]

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It's Joe again. We tried to do that in my remarks. So last year's fourth quarter was $1.13 as adjusted. We know that The Street certainly increased that by the $0.20 charge we had in that fourth quarter for the mark-to-market fair value adjustment on the Crowne Plaza Hotel in Times Square. So the starting point would've been $1.33. And we also know that first quarter consensus for the -- was $1.27. So the consensus took down that $1.33 by $0.06. I am convinced that the adjustment coming from the Hotel Pennsylvania, which is a plus $6 million EBITDA in Q4 and a minus $4 million EBITDA in Q1 or a $10 million swing, was not contemplated correctly in those numbers. Again, in the fourth quarter, the equity compensation, which is granted in the first quarter, is front-ended because of a number of people who have immediate vesting because of their age. So in the first quarter when it's granted, it's vested, we charge it. That was $0.04. So fourth quarter to first quarter and 85 Tenth Avenue is complicated, the accounting. Last year's accounting was on a hypothetical liquidation at book value model. This year's accounting is a straight real estate venture and much, much easier. But this transition year from last year, the EBITDA and the FFO being in the other division, this year, it's in New York, the change in the amount of income recognition is dramatic. So seasonality, in addition to Hotel Pennsylvania, the signage business has seasonality. The signage business was the better part of $0.02 higher in Q4 than in Q1. We know that Prada moved out of the -- of our retail segment. There are other seasonality effects because of temp tenants and percentage rent in Q4 and not in Q1. That's another $2 million or -- I'm sorry, $0.02 a share, almost $4 million. So Q4 to Q1, which I think is the way most people are modeling, has a lot of complications, but we try to explain them now. John's point is we're explaining them after the fact, it would've been a lot better if we explained them before the fact, so be it. When you get the Q1 versus Q1 of the prior year, some of that disappears. So for sure, since we didn't raise compensation of our named executive officers, there is no higher equity charge in Q1 of '17 than there was in Q1 of '16. On the other hand, the stock market was higher, so our deferred comp plan, which is marked to market quarterly, was over 4 -- $0.4 million higher Q1 this year than Q1 last year. Now we disclosed that. So if you take that out of the numbers, G&A went up about $3.5 million. Of that, on a nonrecurring basis is an adjustment for franchise taxes based upon -- of $1.4 million, $1.444 million to be exact. And that comes because New York City and State have increased minimum taxes on incorporated businesses, and we recognized that in the first quarter. There was also a onetime adjustment based upon a workers' comp insurance audit in our BMS division of $977,000. We had lower capitalized payroll in the New York office division, internal payroll for leasing and development of $700,000. So a lot of comparisons and a lot of things to understand. We're sorry that The Street didn't get them correct. We hope going forward, they would be correct even without our guidance. And in terms of NOI, we did give on Page 6 of the supplemental where the NOI is by division, with the signed -- the remaining $138 million of cash for signed leases that are either in free rent or having commenced, in the case of the Dyson's lease on Fifth -- upper Fifth avenue. We gave you that by division. We gave it to you in total. So we give you a pro forma NOI number of $1.183 billion, which we're very comfortable for you to evaluate any way you see fit. It's not substantially different from what we gave at year-end when we did NAV based upon it. At which time, it was $1.179 billion. Now that's not a forward projection other than these signed leases. There's a lot of other things which could increase that or decrease that, but we're comfortable at the $1.183 billion number. And by division, it's been refined as Steve said in his Chairman's letter for real estate taxes, that's between retail and office, and other adjustments. So we're very comfortable with you using that number going forward.

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Daniel Santos, [50]

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Got it, that's pretty helpful. On development sites, are you guys actively pursuing any new sites? Or the shifting environment over the past year has sort of changed your appetite on that end?

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Steven Roth, Vornado Realty Trust - Chairman and CEO [51]

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We are always looking for value in our core market, absolutely. Land, you're talking about development sites, meaning raw land. Raw land has probably been hit the hardest in terms of market correction, but it's still not at a price where we would buy or transact. In our portfolio, we are continuously looking at our assets with respect to the appropriateness of tearing down an older building to make way for a newer building, which is a technique that we use much more and will use much more in Washington than we have done in New York. So we are constantly on the lookout, but nothing in our sights.

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Daniel Santos, [52]

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Great. Any color on underwriting retail on the development sites or?

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Steven Roth, Vornado Realty Trust - Chairman and CEO [53]

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I don't get the question, I'm sorry.

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Daniel Santos, [54]

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Any detail you can provide on how you're thinking about underwriting retail sites and new development, in land?

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Steven Roth, Vornado Realty Trust - Chairman and CEO [55]

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It's the age-old process, we try to project the rent and we try to project what it will cost, then we put the 2 numbers together and hope they spell mama. So where that will come into play principally is in the Penn Plaza District, where there is lots of future development, which will involve retail quite extensively.

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Operator [56]

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And from UBS, we have Nick Yulico.

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Nicholas Yulico, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst- REIT's [57]

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I just had a question on G&A. You talked about it a little bit, but your G&A was up 16% year-over-year. Can you just talk about it some more, what was driving? It looked that from the proxy as well, there was some extra stock awards given to Michael Franco for the spin of JBG. Can you just explain what's going on?

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Joseph Macnow, Vornado Realty Trust - CFO, Chief Administrative Officer and EVP [58]

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Well, there was. I'm not going to comment on the proxy. That speaks for itself. This is Joe again. The statement I made was we didn't give raises to your named executive officers. We did not. Michael Franco got a onetime award for the JBG transaction and something pursuant to an employment agreement. That is the only increase in compensation. When you look at the proxy table, the cash compensation will be fractionally higher because ironically, like a retailer has a 53rd week every 5 years, we have 27 pay periods in 2016 as opposed 26 pay periods. But for all intents and purposes, and you can read the proxy, there was 0 increases in any element of compensation for any named executive officer. And I wasn't in that table, but the same is true for me, with the exception of what you pointed out on Michael Franco.

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Nicholas Yulico, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst- REIT's [59]

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Okay. So for the rest of the year, should we be assuming that if we're looking at second quarter versus the prior year, third quarter versus the prior year that you're actually going to have your G&A going down a bit for the rest of the year?

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Joseph Macnow, Vornado Realty Trust - CFO, Chief Administrative Officer and EVP [60]

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I don't know about down, but it's certainly not going to be increasing -- did you include the $4 million mark-to-market on the deferred comp plan in your numbers when you gave that 16%, Nick?

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Nicholas Yulico, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst- REIT's [61]

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I'm just using the overall income statement number, yes.

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Joseph Macnow, Vornado Realty Trust - CFO, Chief Administrative Officer and EVP [62]

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That's offset by an increase in interest income and other income because they were offsetting. That's the deferred comp that the senior -- primarily the senior executives have left in the company invested, the mark-to-market. We can't predict the stock market. In a rising market there will be a cost in G&A for that rise between first quarter and second quarter or second quarter '17 versus the second quarter '16 or third quarter '17 versus third quarter '16. And conversely, if the stock market goes down, there'll be a reduction in G&A. That will be offset dollar for dollar by the opposite effect in interest and other income. Ignoring that, there was still a $3.5 million increase in G&A in the first quarter of '17 versus '16. I gave you the highlights. Virtually all of that is nonrecurring. So long-winded answer, yes, I would expect G&A -- don't forget, most -- all of our employees other than the senior executives did get raises, so I would expect G&A to be much closer to flat, but not go down until the spin occurs, in which case, everything else changes.

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Operator [63]

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From SunTrust, we have Michael Lewis.

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Michael Robert Lewis, SunTrust Robinson Humphrey, Inc., Research Division - Director and Co-Lead REIT Analyst [64]

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On Hotel Pennsylvania, I think everybody knows in 2007, it was going to be an office building, then it was going to be a redevelopment, then an office building. And now may be on pause a little bit. So for 10 years, it was never really the right time to do anything there. And meanwhile, the EBITDA for the property's deteriorated. So after 10 years of it not being the right time, do you think -- do you have a plan for now to go ahead with that? And if not, what do you think are the right conditions that could cause you to get started on something there?

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Steven Roth, Vornado Realty Trust - Chairman and CEO [65]

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We're working on something with no guarantee. As you said, nothing happened over the last 10 years. So no guarantee, but we are working on something and we will see how that turns out.

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Michael Robert Lewis, SunTrust Robinson Humphrey, Inc., Research Division - Director and Co-Lead REIT Analyst [66]

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Okay. No more detail, not a large office tower or?

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Steven Roth, Vornado Realty Trust - Chairman and CEO [67]

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No more detail.

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Operator [68]

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And from Morgan Stanley, we have Vikram Malhotra.

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Nicholas D. Stelzner, Morgan Stanley, Research Division - Research Associate [69]

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This is Nick Stelzner filling in for Vikram. Some of your peers have said that they're starting to see a pickup in leasing activity among financial tenants in New York City. Are you seeing a similar trend? And then can you give us some incremental color on the composition of your leasing pipeline in terms of tenants types and price points?

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David R. Greenbaum, Vornado Realty Trust - President of New York Division [70]

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Sure. It's David. I will tell you generally that what impresses me is the diversification of the tenants that we're seeing in New York. So as I said in the first quarter, we had Glencore, obviously a financial services conglomerate, that decided they had to be in New York City, they wanted to be in Grand Central and they loved our building, 330 Madison, which is also the headquarters for Guggenheim Partners. Generally, I will say to you, we're seeing growth in all the sectors. To me, the most staggering number that I think I mentioned earlier in my remarks is that of the 550,000 square feet of activity. 225,000 square feet of it, 44%, was real growth of tenants in New York City. And that growth again was in what I'll call the creatives, the Google types, the HomeAdvisor types as well at the financials like the Wells Fargos as well as Glencore. We are continuing to see very good activity in what I'll call the high, high-end financial services. 280 Park Avenue at this point in time is basically a fully, fully leased building. We have leased all of that remaining space really over the last 6, 9 months. And generally, as I said in my remarks on the last call, as we saw this year begin, we did see some excitement in the financial services sector. I think, obviously, some of that relates to the discussions in D.C. But we are continuing to see that continue in really all sectors.

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Nicholas D. Stelzner, Morgan Stanley, Research Division - Research Associate [71]

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That's helpful. I guess, just as a follow-up, what kind of trends are you seeing regarding concessions?

And then you talked about the high, high-end of the market seeing strong demand. Are you seeing any changes in the level of concessions there?

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David R. Greenbaum, Vornado Realty Trust - President of New York Division [72]

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Let me spend a minute on concessions because, I guess, a number of you wrote about that in your kind of flash reports last evening. Concessions over the last, really, 2 or 3 years increased to some extent, and most of that realistically was attributable to the increasing cost of buildouts. As you look at our math for this particular quarter -- and the first thing I will say is unlike some of our peers, our concession numbers that are published include TI allowances as well as brokerage commissions that we're paying to third-party brokers. Many of our brethren only published the TI allowances. The brokerage commissions obviously are really a cost of doing business and are not a concession to the tenant. It's only the tenant improvement allowance that is. While, as I said over the last 2 or 3 years, we saw some increase in those TI allowances, which may have been in the kind of what I'll call $60-ish range and ranging from realistically maybe the mid-$50s to call it $70, in the low $70s a foot for TIs. The reason our number in this particular quarter was elevated was because of the mix of our tenancies. So as you think about TI allowances, a new tenant will effectively receive the full concession. A renewal tenant will receive a concession that is maybe 30% of what a new tenant would receive. So call it a renewal tenant receiving somewhere about $20 a foot. In this quarter, this first quarter, 73% of our activity was with new tenants, which is obviously one of the reasons our occupancy ticked up by 40 basis points in this quarter. Historically, as you look at our activity over the last 2 years, the mix that we saw was basically 50-50. 50% new tenants to space and 50% renewals. So I guess, a long response to your question. I will say that we have seen the concession packages basically stabilize and have topped out. Some of that increase has taken place, as I said, over the last couple of years as construction costs dramatically have escalated. On the high, high-end space, so when we're now talking about space where the tenants are paying $110 a foot, $130 a foot, and $150 a foot, for some of those spaces landlords have, in fact, delivered TI packages that are somewhat significantly higher than the numbers I gave you earlier. And obviously, that's just reflective again of the boutique nature of this space in the high, high-end finishes that those tenants are completing for their fit-outs.

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Operator [73]

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From Citi, we have a follow-up from Manny Korchman's line.

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Emmanuel Korchman, Citigroup Inc, Research Division - VP and Senior Analyst [74]

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Just wondering where you stand on the CFO search process. Can you give us an update on that?

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Steven Roth, Vornado Realty Trust - Chairman and CEO [75]

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We are in process. We're in a slightly different position than most other companies might be. We have the great Joe Macnow incumbent in the CFO seat. Actually, he covers CFO, Chief Administrative Officer, et cetera. So we are well covered. He is one of the consensus leading CFOs in the industry. He's a pinch long of tooth, but that's okay. And so we are just beginning the search process. So we expect it's going to take -- and we're going to do it deliberately, we're going to do it carefully. And we are very, very reassured and very happy to have Joe Macnow as the incumbent.

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Joseph Macnow, Vornado Realty Trust - CFO, Chief Administrative Officer and EVP [76]

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I would add Joe Macnow is well supported by EVP Matt Iocco, who's our Chief Accounting Officer, and EVP Tom Sanelli, who's the Chief Financial Officer of the New York division. Some of you who were at the Citi conference had exposure to these gentleman. They are top-notch.

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Emmanuel Korchman, Citigroup Inc, Research Division - VP and Senior Analyst [77]

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Great. And Steve, back to you with another Street retail question. You mentioned your successes on leasing one of your bigger stores quickly, and then you mentioned your neighbor taking some more time. With maybe a more pressured retail environment, how do you foresee sort of filling your upcoming expirations, especially with large mark-to-markets when some deals take a long time and some are quicker? At the same time, there's probably less retailers looking for space.

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Steven Roth, Vornado Realty Trust - Chairman and CEO [78]

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Michael, I don't understand the question.

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Emmanuel Korchman, Citigroup Inc, Research Division - VP and Senior Analyst [79]

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I'm just saying, you've got a reasonable amount of lease expirations coming up in The Street retail portfolio. You've been pretty...

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Steven Roth, Vornado Realty Trust - Chairman and CEO [80]

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But -- say that again, we have a what?

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Emmanuel Korchman, Citigroup Inc, Research Division - VP and Senior Analyst [81]

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You have expirations coming up in your Street retail portfolio over the next coming of years.

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Steven Roth, Vornado Realty Trust - Chairman and CEO [82]

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Of course, we always have...

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Emmanuel Korchman, Citigroup Inc, Research Division - VP and Senior Analyst [83]

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Given a more stressed retail environment and maybe less retail tenants looking for space, what gives you the confidence that you can refill those spaces?

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Steven Roth, Vornado Realty Trust - Chairman and CEO [84]

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I mean, look. We are in the real estate business where we are continuously turning over space. That's our job. Our business is we turn over space. So I think what I said in my remarks was that on Upper Fifth and in Times Square, we have 1 expiry in the next 5 years. One out of all of those tenants, and we pretty carefully outlined all of the names of the tenants and the expiration dates in my letter. That one is the Massimo Dutti store at 54th and Fifth Avenue (inaudible) beautiful perfect store and it is currently at 50% of market, so we're not terribly -- we don't think we have any risk there. It's just a question of how long it will take us to get a tenant in. Obviously, we are starting to think about leasing that '19 -- 2019 expiry now. In the balance of the portfolio, I said that there's a better part of -- a little bit less than 400,000 square feet coming due between now and 2019. And I also said that 3/4 of that, we are highly confident will renew at about at least 20% mark-to-market positive, okay? So that's fine. Now we have the -- and by the way, one of those that we are confident will renew is the Old Navy store, which is 78,000 square feet on 34th street, probably the premier piece of real estate across the street from Macy's on 30 -- in the 34th Street corridor, and the current rent is at least 50% below market. So we think we're in pretty good shape there. We expect that Old Navy -- we expect to do a deal with Old Navy. The balance of the space is very high quality merchandise like the H&M store on the corner of Seventh Avenue and 34th Street. So what it is, is the market is soft. We said it's soft. We admit it's soft. We are not ducking that, and leasing is hard and we will be hard at work in leasing it. By the way, the -- for an NAV-based investor, the assets have value and they continue to have value. So we will lease the space. And by the way, the other thing is that at our basis, we own the -- I can't say this, Joe, can I? We own the H&M store on 34th Street and Seventh Avenue for, I think there number is $34 million or $36 million. It produces almost that in income, well not quite that in income, but well into the 20s of income, so the asset is probably worth the better part of $400 million, $500 million, we own it for $30 million. So at our basis, we can be realistic in pricing. By the way, the signs on that building are very valuable. So at our basis, we have a history of being realistic in pricing. We take what the market will give us and we move on. So we'll be -- we are -- we will be fine.

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Joseph Macnow, Vornado Realty Trust - CFO, Chief Administrative Officer and EVP [85]

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Let me just add one thing, and that is on that H&M building the signs, which as Steve said are very, very valuable, are not tied to the existing H&M lease. Those signs are leased by third parties, and we expect they will continue to be leased by third parties.

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Operator [86]

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From Green Street advisers, we have Jed Reagan with a follow-up.

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Joseph Edward Reagan, Green Street Advisors, LLC, Research Division - Senior Analyst [87]

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Not to beat a dead horse on The Street retail, but Steve, you mentioned the market's soft. Do you think it's still softening? Or are we kind of bottoming at this point? And then are there any risky credits you guys are tracking and concerned about in your Street retail portfolio?

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Steven Roth, Vornado Realty Trust - Chairman and CEO [88]

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The market, I think, is still softening. I don't know what inning we are in that softening. I mean, that's a little bit more clairvoyance than I probably have, but the market is still softening.

In terms of credits, you've got the usual suspects, Sears and what have you. The smaller stores on Madison Avenue all are a little bit more suspect in credit. And David -- and the big stuff, Fifth Avenue and Times Square, do we have any credit issues?

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David R. Greenbaum, Vornado Realty Trust - President of New York Division [89]

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No. Nothing that is material in any way.

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Steven Roth, Vornado Realty Trust - Chairman and CEO [90]

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I mean, Forever 21 is a big private company that is doing fine. But we have those leases at substantially below market, and what have you. So I think we're fine. I think we're fine.

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Joseph Edward Reagan, Green Street Advisors, LLC, Research Division - Senior Analyst [91]

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Okay, that's helpful. And just last one for me. Just looking -- you guys, obviously put up another strong same-store cash EBITDA number in New York. I know there's kind of more free rent still to come and lease commencements. Just kind of order of magnitude as we look out over the rest of the year, is that mid-teens number a reasonable sort of back line? Or how much kind of deceleration do you think we'd see on that as we go through the year?

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Steven Roth, Vornado Realty Trust - Chairman and CEO [92]

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Jed, you've got my financial guys scurrying for books here. Just hang on a second. In fact, they're blushing. The question is for New York office?

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Joseph Edward Reagan, Green Street Advisors, LLC, Research Division - Senior Analyst [93]

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Yes.

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David R. Greenbaum, Vornado Realty Trust - President of New York Division [94]

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New York Office for the balance of the year, we are looking at numbers that are basically in line -- low double digit, very high single digit.

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Thomas Sanelli, Vornado Realty Trust - CFO of New York Division [95]

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So Jed, on Page 6, we disclosed $137.9 million more to come. That ends by the first quarter of '18, maybe the second quarter a little bit. So there's a lot of juice left in the NOI growth on a same-store basis.

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Joseph Macnow, Vornado Realty Trust - CFO, Chief Administrative Officer and EVP [96]

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But David and Tom Sanelli just said that for the next -- for the balance of the year, there will be low double digits and maybe high single-digit same-store cash increase in our New York office business.

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Operator [97]

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And from SunTrust, we have a follow-up from Michael Lewis.

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Michael Robert Lewis, SunTrust Robinson Humphrey, Inc., Research Division - Director and Co-Lead REIT Analyst [98]

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Over the weekend, the New York Times has an article ripping Governor Cuomo about Penn Station. I was just curious if you could share -- you put on your Vornado hat, also your infrastructure hat, what do you think should be the futures of not just the post office, but Penn Station and Madison Square Garden? And do you think those futures will ever get realized?

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Steven Roth, Vornado Realty Trust - Chairman and CEO [99]

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Obviously, I read that article as well. I think everybody did. I mean, Penn Station is the eye of the storm right now because it had -- it's got very old, obsolete infrastructure, and it's breaking down and it's causing commuter issues and what have you and so it's an issue. With respect to the bigger issue of redevelopment of the station itself and Madison Square Garden and comments about the governor, et cetera, I really don't have any comment. But the article does -- the article did imply something, which is that Vornado and I and our team has worked very hard for very long on lots of different redevelopment ideas, which the Times writer considered to be actually meritorious. That is true. We have worked very hard for very long on lots of stuff that we think is -- I'll use the word again, meritorious. Beyond that, I don't have any other comment.

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Operator [100]

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Thank you. We'll now turn it back to Stephen Roth for our final remarks.

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Steven Roth, Vornado Realty Trust - Chairman and CEO [101]

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Thanks, everybody. This was a wild and willy quarter and we appreciate your support, and we're delighted to talk to you next quarter. As I did say in my remarks, we will be running an invited tour of our 220 Central Park South sales salon at tower on June 5th, which is right before NAREIT, when we think most people will be in town. Now, when you go to see the tower, you're going to be going up in a construction hoist, so just be aware, it will be a lot of fun. So thanks, everybody. We'll see you on June 5, and then we'll see you next quarter.

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Operator [102]

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