Alexander's Inc (ALX) 2013 Q3 法說會逐字稿

Good morning, and well to the Vornado Reality third trust -- third quarter 2013 earnings conference call. My name is Janeane, and I'll be your operator for today's call. This call is being recorded for replay purposes. All lines are in a listen only mode. Our speakers will address your questions at the end of the presentation of the during the question and answer session. (Operator Instructions).

I will now turn the call over to Ms. Cathy Creswell, Director of Investor Relations.

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

In these documents and during today's call we will discuss certain non-GAAP financial measures. Reconciliation of these measures to the most directly comparable GAAP measures are included in our earnings release, Form 10-Q and financial supplements.

Please be aware that statements made during this call may be 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 Exchange Commission, including our annual report on Form 10-K for more information regarding these risks and uncertainties. This call may include time sensitive information that may be accurate only as of today's date. The Company does not undertake the duty to update any forward-looking statements.

On the call today from management for our [overall] comments are Stephen Roth, Chairman of the Board and Chief Executive Officer; David Greenbaum, President of the New York Division;Mitchell Schear, President of the Washington DCDivision; Joseph Macnow, Chief Administrative Officer; and Stephen Theriot, Chief Financial Officer. Also in the room are Wendy Silverstein and Michael Franco, Executive Vice Presidents and Co-Heads of Acquisitions and Capital Markets.

I will now turn the call over to Stephen Roth.

Thanks to you, Kathy. Good morning, everyone. Welcome to Vornado's third quarter earnings call.

I would like to begin by reaffirming our commitment to our strategy of simple flying, pruning and focusing the business. We are making very good steady progress in that regard, and we will continue to do so.

As I've said before, in this market we will buy carefully and, this year, sell more than we buy. We will focus internally, where we have much to do and a lot to harvest. We'll build cash reserves to further fortify our fortress balance sheet to take advantage of opportunities that will undoubtedly present themselves in the future.

We had a very strong, very strong third quarter, and I'm very pleased with our financial results. Our third quarter comparable FFO was 23.3% higher than last year's third quarter. Our briefly preview of what David and Mitchell are going to share with you in a few minutes.

Our New York business continues to put up very strong industry-leading metrics. Same-store EBITDA increased 7%, and mark to markets for New York's officer leasing were positive 8.9% cash and 8.0% GAAP.

In Washington the loss of income from the BRAC related vacancies is the eye of the storm for our Company. Truth be known, leasing is going slower than I would like, but it's pretty clear to us that the market has now bottomed. I believe the vacant square footage in Washington is not valued at all in our stock and therefore represents tremendous upside that we will realize as we lease up.

In Washington we have completed the restructuring of the Skyline debt, which Joe will elaborate on in a few minutes. The restructuring bifurcated the existing $678 million loan into the senior $350 million, $132 per square foot position, and a junior $328 million position, which is subordinate to capital we will invest to re-lease the property. The loan has been extended so that we now have nine years of term, giving us plenty of time to realize value here. This is a very satisfactory result.

At our very core, leasing is our business. Company-wide we released 1.9 million square feet in the third quarter in 131 transactions, with positive mark to markets of 5.2% cash and 12.5% GAAP. The leasing performance of our best in class 2.4 million square foot Manhattan Street retail portfolio deserves a special mention. Here we achieve mark to markets of 126% cash and 235% GAAP.

Year to date we leased 5.2 million square feet company-wide in 436 transactions, with positive mark to markets of 6.2% cash and 13.5% GAAP.

In 2012 and 2013 so far we have sold $3.5 billion of non-core assets, of which $800 million was used in like-kind exchanges to partially fund $2.2 billion of acquisitions during the same period. All of these $2.2 billion of acquisitions were in Manhattan and all of highest quality.

Here are some specifics on recent acquisitions. On September 30 we announced that a joint venture, in which we have a co-controlling 20.1%, acquired 650 Madison Avenue, 594,000 Class A office and retail tower located on full western block front of Madison Avenue, from 59th Street to 60th Street. The property contains 523,000 square feet office space and 71,000 square feet of retail space.

Half of the office space is Polo Ralph Loren's world headquarters. The retail space is primary leased to Crate and Barrel for its 61,000 square feet Manhattan flagship. The purchase price for this property was $1.29 billion, which was financed with a new $800 million seven year 4.39% interest only. We are co-managing and co-leasing this property.

On October 4 we announced the acquisition of a 92.5% interest in 655 Fifth Avenue, located at the northeast corner of Fifth Avenue and 52nd Street. The price of this acquisition for our share was $277.5 million. The property contains [575,500] square feet, which is entirely [net] leased to Ferragamo, and of course this asset includes their flagship Fifth Avenue store.

And on October 15 we announced that we acquired for $194 million land and air rights for 137,000 zoning square feet, thereby completing the assemblage of our 220 Central Park South site in Manhattan. This transaction will allow development to begin on a 950-foot luxury residential condominium tower containing 472,000 zoning square feet. The to-be-constructed tower will have 140 feet of direct unobstructed Central Park views and will be designed by Robert AM Stern Architects.

While it took almost eight years to complete this assemblage, this site is the best in town and it was certainly well worth the time. Values have risen tremendously during that time, and the land worth well more than double our $500 million-odd economic course.

On dispositions in the third quarter, we completed the sale of three non-core assets with proceeds of $75.8 million. We also completed our exit from JCPenney, which resulted in a $38.1 million net loss in the quarter, which was largely offset by the net gain of $31.7 million on the sale of a marketable security.

So far in the fourth quarter we've closed on the sale of the Harlem Park land for $56 million, resulting in a net gain of $23 million. With the above dispositions, in 2013 we have sold $1.8 billion of non-core assets. This is on top of $1.7 billion sold in 2012, and we currently have in the market for sale $500 million of assets, and we have more than doubled that amount in the on-deck circle.

We continue to focus on the value creating opportunities that we have internally, such as redevelopment of two 34th Street buildings, the 725,000 square foot 330 West 34th street and the 420,000 square foot 7 West 34th Street. Both of these buildings will be repositioned for today's creative class and technology tests.

The Marriott Marquis retail and signage project at the bull's-eye of the bow tie in Times Square, where construction barricades are going up as we speak. The 1.4 million square foot Springfield Mall renovation, which is under construction for our holiday 2014 opening. The transformation of 280 Park Avenue at 48th Street in partnership with SL Green, which is in full construction and will transform this asset into an A-plus-plus location on Park Avenue.

The 699 unit residential project in Pentagon City, with Whole Foods Market as its base, which will go into construction this quarter. The Hotel Penn in the Pennsylvania Station district. And of course, as I just mentioned, 220 Central Park South.

Let me end my remarks with the following observations. The markets that we operate in all seem to be improving in our favor, and that's a very, very good thing. In New York retail sales and rental rates are white hot. Office leasing, as I said in last quarter's call, is surely heading in the direction of a landlord's market.

Washington is bottoming with signs of green shoots. The debt markets continue to be very robust, with rates just above historic lows. The assets we have chosen to sell are receiving a lot interest from many potential buyers.

The only market that is giving us heartburn is the acquisitions market for properties we want to buy, which is extremely high, and so we're proceeding with great caution. Now we'll turn it over to CFO Steve Theriot to cover our financial results.

Thank you, Steve. Yesterday we reported comparable funds from operations of $1.27 per share versus $1.03 for the prior year's third quarter, a23.3% increase. Comparable EBITDA was $416.5 million, ahead of last year's third quarter by $55.4 million or 15.3%.

Our New York Division produced $251 million of comparable EBITDA for the quarter. That's a running rate for our New York business of $1 billion a year, quite a milestone. New York Division EBITDA, about 60% of our total, was $47.4 million or 23.3% ahead of last year's third quarter, primarily driven by a 7% same store increase, property acquisitions, and our$12.1 million share of lease termination fee. Please remember that, consistent with our past practice, lease termination fees are excluded from same store results.

Our Washington business produced $86.9 million comparable EBITDA, which is $1.9 million behind last year's third quarter, primarily due to the effects of BRAC move outs and the sluggish leasing environment in Washington. Washington's year to date EBITDA is $17.7 million behind last. We continue to expect that Washington's full year 2013 comparable EBITDA will be approximately $10 million to $15 million lower than 2012.

Our strips and malls business produced $56 million of comparable EBITDA this quarter, which is $3.7 million or strong 7.1% ahead of last year's third quarter. Our New York and Washington businesses, together with our strips and malls, account for approximately 90% of our Company's comparable EBITDA. This is our focus and our core business.

Total FFO was $1.12 a share, down from $1.34 in the prior year's third quarter, resulting from non-comparable items being a loss of $27.6 million this quarter as compared to income of $58.8 million in the same quarter last year. This year's third quarter included $22.3 million of negative non-cash FFO from Toys, representing our share of the loss of the seasonal toys business, compared to $2.4 million of FFO in the prior year's third quarter.

As we noted in our 2012 annual report and on last quarter's call, based on current conditions, our accounting is asymmetrical, as we've recognized our share of Toys' non-cash losses, but as of now not recognizing our share of non-cash income. This has had the affect of reducing our GAAP carrying value.

As Steve mentioned, we disposed of our remaining interest in JCPenney, recognizing a $38.1 million loss. This non-comparable loss was offset by a $31.7 million non-comparable net gain from the sale of a marketable security. With the exit from JCPenney and the sale of other marketable securities, simplification is moving along, and we're now down to marketable securities with a market value of $210.6 million at September 30, of whichall but $3.1 million represents our investment in Lincoln Realty Trust -- I'm sorry, Lexington Realty Trust. Thank you, Steve.

FFO in last year's third quarter included one timers, totaling income of $63.8 million; comprised of $19.7 million from the after-tax net gain on the sale of the [Mart] Canadian trade shows; $16.8 million ofFFO from L&R, which was sold in April 2013; $11.7 million from the gain on the redemption of perpetual preferred securities; and $15.6 million of FFO from discontinued operations. Please see our press release or overview on MD&A on page 43 of our 10-Q for a complete summary of non-comparable items.

And with that I'll turn it over to David Greenbaum to cover our New York business.

Steve, thank you. Good morning, everyone. I'm going to begin with a brief overview of what we're seeing here in the New York City marketplace.

New York City feels good. Traffic on the streets bustling and the sidewalks are overcrowded. We like traffic. When it's hard to get around, that means people are at work, shopping in the stores, and filling the hotels, all great for Vornado's New York business.

This buzz of activity we are feeling is in fact reflected in the market statistics. Private sector jobs are up some 90,000 year-to-date. 52 million tourists will visit the city this year, a record number. And sales volumes in our flagship stores are at or approaching new highs.

Manhattan office leasing activity was strong in the third quarter at over 6 million square feet, producing some 1.6 million square feet of positive absorption, reducing the availability rate by 40 basis points to 12.3%. The preliminary reports I read last evening for the month of October show continuing strong activity, with the availability rate coming down in October by an additional 20 basis points.

At the beginning of the year there were 83 blocks of space larger than 100,000 square feet available. That number is now down to 68. While value space is still a key demand driver, we are also seeing real activity in the high value triple digit markets. In the city there have been 50 leases this year signed at over $100 per-square-foot. Six of those are ours.

In the third quarter we signed 37 leases for a total of 396,000 square feet, taking our leasing year to date to 1,851,000 square feet. Again this quarter we had strong activity from tenants new to or expanding in New York, about 25% of our activity, or 93,000 of the 396,000 square feet. That's real, real growth in this market.

Our average starting rent this quarter was a healthy $62.04, with very strong positive mark to markets of 8.9% cash and 8% GAAP. The average lease term was 6.7 years, with TIs at $41.54.

Our office occupancy rate held steady at 95.5%, but there is an important asterisk to this number. At the very end of the quarter we signed a lease termination agreement for Gleacher & Company's 84,000 square feet at 1290 Avenue of the Americas. I'll give you a bit more on that later in my remarks. If not for that lease termination, our occupancy for the quarter actually would have been 30 basis points higher at 96.2%.

Third quarter leasing activity was highlighted by 124,000 of leasing at 666 Fifth Avenue. When we came into this asset some two years ago, it had been off the radar for years because of its broken capital structure. We came in and recapitalized this building and have since successfully leased 200,000 square feet and are in current negotiations for an additional 50,000 feet. Taking account of the Citibank space, which will be coming back to us in August of next year, we have about 330,000 square feet to go.

This quarter we completed three leases in the building, highlighted by a 57,000 square foot lease with the commercial brokerage firm Colliers International. I've mentioned in the past how important it is to our relationship with the brokerage community to have the major brokerage houses as tenants in our portfolio, and we now have three of the majors in New York; Jones Lang LaSalle's headquarters at 330 Madison Avenue,Cushman & Wakefield at 1290 Avenue of the Americas, and we now welcome Colliers at 666 Fifth Avenue.

We also signed at 666 a 56,000 square foot lease with Limited Companies for it Victoria's Secret Division. We have a strong relationship with the Limited Companies. They in fact are head quartered in our 1740 Broadway property occupying 467,000 square feet.

Activity at 1290 Avenue of the Americas has continued to really heat up now that our transformative lobby renovation program is complete. We have many brokers telling us that 1290 is now the best building on Avenue of the Americas. In the base of the building we were facing some 325,000 square feet coming back to us by way of the Microsoft lease expiration and Gleacher & Company's financial issues.

This quarter we signed a lease termination agreement with Gleacher in which they paid us four years of rent -- $19.5 million -- to surrender their 84,000-square-foot lease. We currently are in late stage negotiations with two tenants for approximately 150,000 square feet. Adding to the 106, 000 square foot State Street deal we talked about on the last conference call, in advance of the Microsoft lease expiration early next year, we expect to lease some 250,000-plus square feet of the 325,000 expiring.

Looking ahead, we have Morrison & Foerster's 166,000 square foot lease expiring in May 2014. These are great floors at the top of the building with views of Central Park.

Warner Music also recently announced that they will be relocating out of 1290 to cheaper space at 1633 Broadway. This is a real opportunity for us, because Warner's lease has over three and a half years remaining, so we have plenty of time to re-let the space and realize value. Having just completed our leasing marketing center at 1290, we have a lot of activity here and are very excited about our prospects.

At 280 Park Avenue the transformation program we are undertaking with SL Green is now really visible to everyone driving by on Park Avenue. The barricades are now down, revealing the full block long lobby, which will be opening prior to year end. Our strategy at 280 Park has been to target the smaller financial firm in the 25,000 to 55,000 square foot range to maximize the rents.

This year we have completed 150,000 square feet of leasing activity and currently are working on two additional deals for another 80,000 feet. 280 Park Avenue is as good as it gets. Prime Park Ave with JPMorgan Chase world headquarters as it's direct next-door neighbor.

Let me now turn to Manhattan Street retail portfolio, where we was active on the acquisition front, as Steve mentioned, having acquired 655 Fifth Avenue at the northeast corner of 56th Street, with 50 feet of frontage on Fifth Avenue, a 57,500 square foot retail office property net leased to Ferragamo. We also acquired 966 Third Avenue, a small retail building, which is leased to McDonald's. Importantly this assets sits between two of our existing properties, which all combined gives us 100 feet of retail frontage on Third Avenue at 58th street, opposite 731 Lexington Avenue, the Bloomberg Tower.

As Steve has also already mentioned, we completed nine street retail lease this is quarter, totaling 35,000 square feet, with very strong mark to markets, 126% cash and 235.7% GAAP. This street retail business is a jewel in our New York portfolio. We took our occupancy rate up 80 basis points here to 97.1%.

At Madison Avenue at 40 East 66th Street we signed a lease with John Varvatos, replacing Dennis Basso, and at 1133 Third Avenue at 66th Street, for the space formerly occupied by The Gap, we signed leases this quarter with [Nike running door] and Carlo Pazolini. We are now working on one more lease there, which will complete the releasing of this full block property.

Highlights of this quarter's activity include a lease with US Polo at 1540 Broadway. This completes the releasing and repositioning of our 1540 Broadway Time Square property. Directly across the street in the bow tie at the Marriott Marquis Time Square construction is now under way to create 45,000 square feet of prime Time Square retail space and the largest LED sign in Times Square. To give a feel the sign will be the length of a football field, eight stories high.

The Hotel Pennsylvania continues to capitalize on New York's record tourism, with third quarter occupancy of 96.9% and 12% increase of rev par compared to the third quarter last year, which takes it to the highest levels it has ever been.

Turning now to the 3.5 million square foot Chicago Merchandise Mart building, this quarter we leased 48,000 square feet. Motorola Google's fit out of their 600,000 square feet is substantially complete. Their 2,500 employees will be moving in by the early part of the new year, which is beginning to bring a real buzz to the building. There are significant opportunities in this building to continue the conversion of several hundred thousand square feet of underperforming show room and trade show space to office space for traditional users and creative tech tenants.

To conclude my remarks, let me summarize the entire New York Division. We had a very strong quarter. Our key performance metrics are industry leading, with same story EBITDA increases for the overall Division of 8.6% cash and 7% GAAP. Isolated just the New York office business, our same story EBITDAincreased 9.3% cash and 7.7% GAAP. And let me emphasize, as Steve Theriot mentioned, that our same store numbers exclude the one-time lease termination fee paid by Gleacher.

I will now turn the call over to Mitchell Schear to cover Washington.

Thank you, David. Good morning, everyone. I will start with an overview of the third quarter and then talk more broadly about the market and how we're thinking about our business.

Our Washington business had an exceptionally large volume of leasing in the third quarter. In the slow leasing market we are particularly excited about what we accomplished. In the quarter we leased a total of 1.076 million square feet in 57 office and retail transactions. Year to date we have leased 1.691 million square feet in 132 office and 40 retail transactions.

We completed the two largest transactions in the Washington market this quarter. One was the largest lease in Northern Virginia, and the other was the largest in DC. In Northern Virginia at Skyline we signed a 182,700 square foot lease with the United States government to house the US Fish & Wildlife Service. This was one of the most hotly contested awards of the year and was the largest lease in Northern Virginia in existing building this year.

We expect the agency to occupy their new space by June. That's really fast for an user of this size. This 418,000 square foot building was our single biggest concentration of BRAC vacancy, and it's now 65% leased. This lease also reduced our overall BRAC exposure by 12% and brings us to the halfway mark in resolving BRAC.

Other pieces of our Skyline repositioning strategy are also falling into place, including having now finalized our Skyline debt restructuring. Joe will talk more about this in a moment.

In addition to new leasing, we're very focused on retaining our tenants. Since January we have renewed 717,400 square feet in our portfolio. The largest of these renewals was completed in early August with the global law firm Sibley for 289,000 square feet at the Investment Building, a property that we manage, lease, and own a 5% interest in partnership with institutional investors advised by JPMorgan. Although this lease does not expire until 2016, we renewed Sibley early at a slightly expanded footprint and anchored the building through 2031.

Our apartment business in Arlington and Georgetown continues to perform very well. Our 24 unit portfolio is 97.2% occupied, and third quarter EBITDA is 2.4% ahead of last year's third quarter.

Overall, office leases signed in the third quarter generated a GAAP mark to market of positive 3.8% and cash mark to market negative 1.1%, a very satisfactory result given the difficult market we are in. Our occupancy was unchanged from Q2 at 83.6%. I would like to note that with the heavy volume of leasing this quarter, occupancy would have been 120 basis points higher but for the fact that we brought the 26.5% occupied 298,000 square-foot 251 18th Street building in Crystal City back into service this quarter after it's renovation.

Tenant improvements and leasing commissions for leases signed in the third quarter were 9.8% of starting rents, which is significantly lower than the 12% for 2012 and the 16.7% for the first half of 2013. In addition to our focus on office leasing, we continued to add to the vibrancy of the Crystal City neighborhood.

Over the last decade we have transformed Crystal City with the addition of a dynamic retail experience at the street level of many of our buildings. We attract true destination makers and celebrity chefs and unique amenities, and Crystal City draws thousands of people to its many cycling and running events, wine festivals, and theater and art events.

Continuing our momentum, we completed two new brand builder leases. One was Top Chef Spike Mendelsohn, and the other was Tech Shop, a hub for investors and entrepreneurs.

Now let me turn to what we're seeing on the ground in terms of office leasing and how it fits into our business here. The Washington market has been on pause. We have been through BRAC,sequestration, the most recent shut down showdown. And if I sound like a frustrated taxpayer, I am.

Despite the confusion that has come to define our nation's government, the Washington economy remains resilient; with rising housing prices, which were up 5.6% in the 12 months ending June 2013; low unemployment, currently at 5.7%; and a growing regional economy. And we're starting to see green shoots.

The brokerage reports showed only slight positive net absorption at 610,000 square feet so far this year, but compared to the negative 2.6 million square feet in 2012, a good sign. And more importantly our leasing team has seen a palpable uptick in tours and activity in the past weeks and months. This is a very good sign.

Consistent with recent trends, we are in a value-driven tenant market, which plays well to our portfolio, where we can offer good value solution inside the Beltway and, in fact, on the shores of the Potomac River. Further we're seeing large, important requirements starting troll the market.

Economists project a 20% surge in professional services job growth over the next five years in Washington, which is expected to result in an aggregate of 143,800 new jobs by the end of 2017. This could translate into over 25 million square feet of new office absorption. So with this demand potential combined with low levels of new supply typically signals the beginning of a sustained recovery.

The theme of our Washington business is value creation opportunities. Over 2 million square feet of office -- over 2 million square feet of vacant office space is both the bad news and the good news. The bad news is that our earnings are currently being penalized by over $70 million a year. That's a big number.

The good news is that as we lease the space our earnings growth will be enormous. Someone famous once said, "Trouble equals opportunity."Over the years we have been experts at solving this particular equation.

Please remember that in 2006 to 2009 we re-leased over 2.2 million square feet of space in Crystal City after the PTO, US Air and the EPA relocated. It's also interesting to note that in since 2004 Crystal City rents are up by over 30%.

We're actively teeing up our significant development pipeline. We have more than 7 million square feet of developable inventory in Roslyn, Crystal City, Pentagon City, and in the District on land that we own free and clear.

In September we received government approvals for the last track of undeveloped land in Pentagon city, ten acres that sits directly across the Pentagon which we named Pen Place. It is now approved for five buildings totaling over 2 million square feet.

The location is unparalleled, between the Pentagon and Simon's Fashion Center, which by the way we own a 7.5% interest in. Andit's adjacent to our soon to go under construction 699 unit residential tower, which will have a Whole Foods Market at its base.

The Pen Place approval is an important piece of our overall development vision. Together with our new apartments, Pen Place is a natural extension of our existing 8 million square foot portfolio in Crystal City located just two blocks away. With Crystal City and Pentagon City we are creating one blended district, with deep complimenting concentration with office, residential and retail.

Arlington County new light-rail is proceeding to further the physical connection. We are the dominant owner of this newly combined Crystal City-Pentagon City district, and we expect demand for all of our holdings in this area to rise as a result of the cross benefits. And remember, we are on the stores of the Potomac, just a stone's throw from DC.

Thank you very much. I'll turn it over to Joe Macnow.

Thanks, Mitchell. Let me first touch on our strip shopping centers and malls, both of which had a good quarter.

Strip shopping center occupancy was 94.3% at quarter end, up 20 basis points from the second quarter and up 70 basis points from last year's third quarter. Occupancy of the remaining malls was 94%, up 50 basis points from the second quarter and 140 basis points from last year's third quarter.

We leased 288,000 square feet at the strip shopping centers, with a positive mark to market of 13.7% GAAP and 7.4% cash. We leased 243,000 square feet at the malls, with a positive mark to market 11.4% GAAP at 3.6% cash. A strong, strong quarter for our strip shopping centers and malls.

Now turn to go capital markets. As of today we have $3 billion in liquidity, comprised of $800 million of cash and $2.2 million of undrawn revolving credit facilities. Overall $400 million better than at start of the year, and that'safter using $500 million for recent acquisitions and debt repayments. Our objective is to build liquidity, which will happen as we continue to sell non-core assets and finance core assets. Our consolidated debt to enterprise value is 36.6%, and consolidated debt to EBITDA is 7.0 times.

As Steve mentioned, in October we completed the restructuring of the $678 million 5.7% Skyline mortgageloan. The loan has been separated into two tranches, asenior $350 million position, which as Steve said is $132 a square foot, and a junior $328 million position. The maturity date has been extended from February 2017 to February 2022, and we have an one-year extension option.

The effective interest rates is 2.965%for the term of the loan. The capital we will invest to release the property will be senior to the $328 million junior position. In other words it will come in at right over $132 a foot.

Our debt mix is balanced, with 86.5% fixed rate, with a weighted average of 5.30%, and 13.5% floating, with a current weighted average interest rate of 2.32%. Remaining 2013 and 2014 maturities are just $145 million. As we refinance our fixed rate portfolio at lower rates, even after [the season], significant increases in earnings will result.

At this time I will turn the call over to the operator for Q and A.

Thank you. (Operator Instructions). John Guinne from Stifel is on the line with a question. Please go ahead.

Great, okay, thank you. Wonderfully active quarter. Three quick questions in one. One, Steve, if you could talk about the upcoming mayoral change and how you feel how you feel about that? Two, can someone give more color on Hotel Pennsylvania? And then three, what sort of value do you think the Street should assign to the current vacancy in the DC portfolio on a per-square-foot basis?

Hi, John, how are you.

Good.

The election is today, so we will know I guess tonight what the polls are predicting. The polls are predicting very strongly that Mr. De Blasio will be the next mayor, so let me make a few comments about this gentlemen.

Number one, he's tall. Really tall. I think he's the tallest politician in the land. He is a strong leader. He is very intelligent.

He is obviously a caring man. He cares for people, which is very important, especially in this city. He is a very professional politician, and that's obvious to people who don't know him in how he rose to the top in the very, very long and contested primary.

So this is a man who is a professional politician, knows the game, has been there before although not as visible as some of his predecessors, is intelligent and caring. He is a Clinton Democrat, and I think we all know what that means. So we are quite optimistic that he will be a good steward of the city.

The city is in phenomenal shape. It has been improving. It is certainly the most important city in the US, and obviously one of the most important cities in world, and we are optimistic that soon to be elected Mayor De Blasio will be a good steward for the legacy of New York.

Your second -- and by the way, there may an little bit of tax increase here and there around the edges. I mean, that is happening in every major city in the world is basically under fiscal pressure as is the federal government. So in return for what we get here we're happy to pay a little bit more. But just a little bit.

Your second question was the Hotel Pennsylvania. I think we've talk at length over -- in the past. That's a site that is a great site in the heart of our massive Penn Plaza holdings. It's an important asset. It is currently a 1,700 room hotel. We went through a [euler] procedure and the property is now fully approved for an approximate 3 million square foot office building, which is in the configuration of the financial services headquarters.

We had a handshake on a deal with such an animal some short years ago, which fell through in the financial crisis. So we do have a fully approved site for a building which is not possible to build right now because there is not a tenant for it, and the economics are not there.

So although it's very valuable and very nice to have that approval, and every once in a while we have people who come by and cruise and tease us about the prospect of a new build on that site. The high likelihood with respect to the Hotel Pennsylvania is that we will spend, oh, I would dimension it somewhere over $250 million and maybe even into the 300s in repositioning the hotel, renovating it, upgrading the rooms, and most importantly of all transforming the public spaces of that hotel into something with restaurants and life, which will benefit not only the hotel and the hotel patrons but the entire district where we own 7 million-odd square feet of office space.

That is probably -- we're tardy on that decision, but it's probably a pretty imminent position to start moving forward. We may very well doing it with colleague with a professional hotel operator, and that's probably the most likely outcome.

Your third question, John, was about the value of -- what we think the value of the vacant space, which is over -- dimensioning over 2 million square feet in Washington, is valued at in our stock, and I said in my prepared remarks I think it is valued in our stock at zero. What do I think it should be valued at? I'm not - -that's not a question that I think I'm going to handle, okay?

But obviously all space, even if it's empty, has future prospects and is worth something. But the way I do the math, the vacancy in our Washington business is valued at zero, and clearly over time -- and hopefully not that long of time -- we will lease that space up, and that's a huge value creator for us.

Great, thank you.

Thanks, John.

Next call comes from Alexander Goldfarb with Sandler O'Neill. Alexander, please go ahead.

Thank you, and good morning. Two questions here. The first question, Steve, you guys obviously have chopped a lot of wood recently. Skyline, 220; I mean, the list goes on, but there is a lot that happened recently. As we look -- you talk about possibly another $1 billion of disposition, $500 million in the works and another $500 million on deck.

As we look out over the next six to 12 months, what do you think we're going to see? Is it going to be some of the big ticket items to clean up, or is it going to be more individual assets? What should we be looking for?

Well, I agree with you. We have chopped a lot of wood, and I appreciate very much your recognition of that. And the team that is assembled in the room here and in the Company is working very hard at the chopping of wood.

I think your estimate of a year or year and a half from now is we expect to accomplish an awful lot in that year and a half. We have I think I said $0.5 billion of assets in the market now. We have double that amount, at $1.5 billion in the on-deck circle, and maybe even more than that.

We expect and we're hopeful that in an 18 months time frame we'll complete all of that. Now, we can run into speed bumps along the way. We can get an asset -- some of these assets are clinkers, obviously. And not in our core.

So we may get into a situation where we can't get the pricing we want or something else happens. But by and large our mission is to prune the business down to the core, and we're working very hard to do that, and I would be very hopeful that all of those assets that we have teed up will be transacted between now and a year and a half from now.

I think you alluded to in your question -- is there going to be something bigger than that? I don't have any idea what you mean, Alexander.

Well, I mean, there are some big items, but maybe that's better for off line --

Well, no, I mean, there are some big things. Obviously we've got an isolated building out in San Francisco called 555 California Street, which is argue -- certainly the best building in the financial district of San Francisco. Undoubtedly the best building in the entire city and arguably one of the top couple of buildings in the entire state.

But that's an isolated building. It's complicated. We have a complex structure.

But that's a building that is great. It's improving. Rents are going up. The team -- David and the team are handling the renting well. But it's not a building that we intend to own forever. We've said that publicly.

We've got another big asset out in California called the Beverly Connection. That's not an asset also that we intend to own for [next year]. Those are very large numbers, and they are certainly in our sights.

Okay, the next question may be a Joe question. TRIA is expected to expire in 2014. And just speaking to some commercial insurance brokers, theywere noting that policies can't be written with the option of if congress fixes it after the fact, you get retro coverage. You guys self-insure for part of the Vornado portfolio, part of Alexander's. How does this factor in? Do you think there's going to be much pricing impact if it looks like you're going to have to buy it in the open market? Or how are you handling this?

Well, Alex, first let me just correct one thing. We do not self-insure. We re-insure everything that our [captive] takes on in liability, otherthan in the NBCA -- the nuclear, biological, et cetera.

If TRIA does not get extended, wenow have $4 billion of terrorism coverage. That will equate to our pecking order in -- being able to buy the equivalent insurance if TRIA is not there at 15% of that, or some $600 million. But if TRIA is not there, for sure that insurance is going to be much more expensive than it is today.

Okay. Thank you.

Thanks, Alexander.

Next question comes from the Michael Bilerman from Citi. Please go ahead, Michael.

Thank you. Good morning, all. Steve and Mitchell, I just want to come back to the DC comments. Steve, I think in your opening remarks you talked about market has bottomed, but then later on you talked about bottoming with green shoots. I'm just trying to get a perspective of, as which look as we look forward to 2014, in terms of what the pipeline looks like to get our arms around both the vacancy within Crystal City and the BRAC re-leasing, and how we should think about EBITDA heading into 2014? But then just more broadly about when we see -- when we can start to see that turn, and really, is it bottomed in the fourth quarter, or is it bottoming where we could still see some slippage, and what gives you the confidence heading into next year?

I think in our remarks, Michael, both Mitchell and I said that the market is bottoming. I won't quibble with the terminology, the difference between bottoming and bottomed. I'm not that exacting. Markets make bottoms by basically they jiggle around a little bit.

The real issue is we're pretty sure that it's bottomed or bottoming, we're pretty sure it's going to jiggle. How quickly we will jump off that bottom, and how quickly we fill the hole of the $70 million-odd, maybe even $80 million of -- which is the EBITDA cost of the vacancy in Washington is something that is unknowable, because the demand is not yet robust.

So -- and I also said in my opening remarks that I'm disappointed with the pace of leasing down there. One of the things that's our job is to be totally transparent, and if we -- so I'm not the least bit bashful to tell you that I'm disappointed. I would love that it would be different. I can't predict -- and maybe I'm going to throw it over to Mitchell and let him stick his neck out -- I can't predict whether it will be two years from now or three years from now or, God forbid, longer. I don't think it will be longer.

Mitchell also said, subtly in his remarks, that we are now starting to see for the first time in the couple of years -- or three years or whatever it is -- some fairly large elephants trolling the market looking for space. We feel that we can compete aggressively for those elephants. We have the space, and we have the ability to compete price-wise.

So the long and the short of it is that we feel we have bottomed. It might jiggle down a million or two, million here or there in the EBITDA area. We're not able, or we're not so adventurous to predict what the ramping up will be off the bottom.

I have also said that I believe, as I do the math, that vacancy in Washington is valued at zero in our stock. So basically that's a way of saying when you buy our stock, you get that couple million feet, 2.5 million feet of vacancy for free. It is not worth zero, and clearly enormous values will be created as we rent up that space over the next number of hopefully short years.

Mitchell, do you have anything else to add?

Steve, the only thing I would add is I totally agree with you that we're -- we just can't possibly predict, and I'm obviously on the ground and in the trenches every day. So I think I completely agree with the notion that we are bottoming. We, too, would like to know what the trajectory will be, so we're fighting it out in the trenches deal by deal,space by space, and as I mentioned in my remarks earlier, we are starting to see really a palpable increase of activity.

I think the -- when sequestration came upon us in earlier in the year, I think there really was a moment in time that you might liken to what was going to happen when we hit Y2K, people weren't quite sure so they just sort of held on. And now that we've gotten through it, and we can consider it -- we keep seeing job growth on the private sector side, and we see some loosening up, we are pleased with what we're seeing, but we're obviously going to monitor it on a daily, weekly, and monthly basis.

Let me tack on one or two more thoughts, Michael. The first is, is that we have a large and than important business in Washington. We are the largest owner down there by a factor of two, maybe even more than two.

The bull's-eye of our business is Crystal City. Crystal City is one of the brilliantly located pieces of real estate. It's big. It's important. It's got scale. It's on -- it's contiguous to Reagan Airport on the shores of the Potomac. It's seven minutes from the District.

I mean, it has the -- it will be -- when we figure out these and re-rent and transform and continue, it's going to be one of the great investments ever made. We're already $2 billion ahead on the investment, not withstanding the vacancies. It may be even $3 billion ahead. So that's number one. We are very, very confident of the -- I guess the slang would be the dirt that we own.

The second thing is that Mitchell has an infinite amount of resources, both human and financial, to work down there and to accomplish his goals, which are leasing the space. We have a great team down there on the leasing side. We have a great team on the development side, and Mitchell, quite frankly, is under -- Mitchell's policy down there is we take no prisoners. We will compete aggressively in the trenches for every single deal.

Yes. And just as a second question, just to clarify some of the stuff that you have on the market, I think you talk about the $500 million plus another $1 billion or more on deck. Does that include security stakes or the private company stakes, or in the case of Lexington the $200 million, or in the case of Toys, which is carrying 350 [of the 200] is that in there at all, or is it all sort of assets? And then just clarify if that is your share when you're talking about these dollars or a gross?

Hang on, I'm looking at a piece of paper; The answer -- the very specific answer to the question is we mentioned we have $500 million of assets in the market now. That includes neither Toys nor any securities. In the -- we have double that amount in the on-deck circle. That would -- that number, which would indicate $1 billion, would not include either Toys nor Lexington.

But both of those are part of a plan to eventually liquidate and could come in?

I'm sorry, say again, Michael?

Both of those would be part of a plan to simplify and could occur? It's just not necessarily that they're on deck, per se?

The answer is that the numbers that we read in this call are intended to be assets which are likely to be able to be transacted. As we've said, Toys is proving to be quite difficult to exit, and so -- and also we can't predict what the price will be right now. So it would be disingenuous for us to say that it's in that number. So it's not.

So let me just say once again for clarity our position on those two assets that you mentioned. Toys is, from our point of view, definitely a seller, and we have said that it's proving very difficult to accomplish that objective. Lexington -- I think it's best said for Lexington is that we are not a forever holder of Lexington.

Michael, the second part of your question was is it our share of the numbers Steve talked about, and the answer absolutely yes.

Okay, thank you.

Thanks, Michael.

We have Steve Sakwa from ISI Group on the line with a question. Steve, please go ahead.

Thanks, good morning. Steve, I guess I wanted to ask about kind of the acquisition market. Obviously it's difficult for you to put money out. And I'm just wondering, have you guys rethought or going back and looked at your underwriting, and kind of rethought the rent growth that you might be using in the market? And wondering, the rent growth that you're using kind of versus the winning buyers, how far off do you think you are? Or is it just they're willing to accept much lower returns than you guys are today?

That's a very complicated question. First of all, we're not quite at formulaic as your question indicates. We basically -- I think I mentioned that in the last two years every single asset we have bought has been in Manhattan. And every single asset that we have bought has been of the highest quality. So there is lots -- our basic outlook on investing is what is an assets going to be worth three, five, seven years from now, not what it's going to be worth in the next quarter. So that's step one.

Step two is, as I've said -- and I think as I read the transcript of other folks' calls, everybody seems to agree that the price of assets is high. Now that doesn't mean that they're not going to go higher. But clearly the price of assets is high. So the buy decision now is much more complicated than at other times.

So one of the philosophies that I live by, Steve, is that if you take a ten-year cycle, there are two or three years which are definitely the times to be buying. And by the way those are the times when you make up in the morning and your stomach is in a knot because of fear. That's the buy season.

Then there are two or three years at the other end of that dumb bell which are clearly the sell times. And then there's everything in the middle where it's in between. And so we're clearly not in the years which are easy buys. We're pretty close to the years that probably a sell, but I can't -- I'm not making the call.

So the answer to your question is we don't do it formulaically. We've said clearly that we will buy selectively, and we've said clearly that we'll be a net seller and probably even a very substantial net seller or the next short period of time. Michael Franco, who runs our acquisitions, and Wendy, do you have anything else to say?

No, I think to your question, certainly in New York the capital from core funds and foreign sources has been a significant and probably an overwhelming factor, and I think those sources are -- probably have a lower cost of capital than players like us on the margin. So that's a determining factor, and I think that trend is going to continue. So I think it will be tough to buy high quality assets at prices that we deem as attractive.

And that's okay. We have patience, and as I said also, one of our business strategies is to build cash for the inevitable opportunities that will be coming. We just don't know exactly when they'll be coming.

Okay. And then I guess just to clarify -- and there were a lot of numbers on the DC market, but on page 32 of the supplemental you kind of show that the overall occupancy rate in DC was flat sequentially, but it would have gone down if you took out Skyline. And I think, Mitchell, brought on 1818. Does that account for I guess the lion share that have decline, or are we seeing moves out in other parts of the DC portfolio that were timing issues?

Yes, Steve, [but for] the -- bring that building back on, that was 26% leased, the occupancy would have been 120 basis points higher or flat.

And it was 251 18th Street, Steve, that you're referring to.

Okay, sorry, thank you.

[That's for sale.] Does that answer your question.

Yes, it does, thank you.

We have Michael Knott from Green Street Advisors on the line with a question. Michael, please go ahead.

Hey, everybody. A few questions on DC. I'm curious on the EBITDA range. It seems still kind of wide for being this deep in the year. Just curious on that. And then do you expect to give 2014 guidance at some point on DC, or was that an one-time event with what has happened in DC the last couple of years?

And then my, I guess, important question on DC is I'm just curious, Mitchell, you've talked about all the things that have stalled your market's progress. I'm curious if the next hit from -- the next round of sequestration, the debt showdown, will any of those continue to stunt your market, or do you think those kinds of shocks are already factored to some extent?

Let me take the first, Michael, and then Mitchell can take the second. I agree with you that $10 million and $15 million is a little bit wide right now. And we looked at each other over the last two to three days and said should we widen it, but we didn't think it was necessary. Our best guess is that the number will be probably over $12 million and a little bit under $15 million, so we're probably -- if I had to give a bullet number now, what would be, $13 million-some-odd?

$13.4 million.

Oh, very precise. $13.4 million. So Joe says $13.4 million. Steve, do you have a number too? So if we had to guess at the number now, it would be $13.4 million. It has been our policy, as a result of the magnitude of the BRAC ding to our numbers, to guide with respect to what our -- with respect to our expectations of that, and my guess is that we will continue to guide until we get very close to the resolution this. We think of something that -- we think it's transparent way to handle it. We think it is something that benefit our shareholders, so I -- what I'm saying we will continue to guide on that -- on the BRAC affect of our EBITDA.

Now the second part of your question is will the next sequestration and deadline -- how will that effect the market, do you think?

I think my view is we've really taken the punches at this point, and I don't think there aren't any more surprises, and I think people -- they have now come to expect this kind of situation to exists and will operate and will work through sequestration. There is a tremendously powerful marketplace. The service sector is fully functioning. The technology sector is growing.

So I think we may not see the same kind of traditional tendency of government and some specific government contractors. You may see a little more diversity in that, but at the end of the day I think the government will in fact still be a player, I think the contractors will be a player. They always figure out how to help the government. They're expert at doing that. So I think that we'll continue to push through whatever really comes upon us at this point.

Michael, I've give you my take on that if I might. First of all, another round of sequestration, another round of debt limit confrontation can't be good. So if you had to make a directional bet, is it going to help us and the world and the economy or not, I mean you have to take the not side of it. So that's I think pretty simple.

Is the market conditioned to all of this theater in Washington? I think pretty clearly yes. I think it's an amazing thing that they took the last debt crisis down to the evening before and the markets and stock market just didn't have a single -- not a reaction at all. The markets were 100% certain that it would be resolved. So I leave that as a factor for what it is.

I think Mitchell made a very strong point, and these are absolutely facts, that Washington is -- ex the government, is an extremely strong economy, with very low unemployment, very educated labor force, et cetera. So we have a great deal of confidence as a company, and we think the economists in the region share that view that the private sector in Washington is thriving.

The sub -- the other side of that is, as we note in our numbers, that the private sector portion of our leasing is increasing. [So] the point that it is well over 50%. So our business initiative is to -- obviously we want every company we can get, but obviously we are trolling for private sector tenants and hopeful.

I would just say that of the 1 million-plus square feet in the third quarter, half of it was -- right.

Half of it was what, Mitchell?

Half of it was private sector.

Okay, got it. Thanks for the detail.

Anything else, Michael. Okay.

Jamie Feldman from Bank of America is online with a question. Jamie, please go ahead.

Great, good morning. I'm hoping you can talk a little bit about your largest expirations of 2014 and what you're thinking in terms of renewals or potentially vacancy, and also mark to market.

That's above my pay grade, Jamie, So I'll give that over to the finance team or David and Mitchell or all of the above.

Jamie, how are you? In New York some of the major expirations that we're looking at in 2014 we have actually already talked about. So it's Morrison & Foerster, which we've talked about, at 1290. It's Citibank at 666. We have plans for those expirations. We've repositioned these buildings. And as I said earlier, we've got very good action as it relates to the spaces that are coming up. So as I look out over the next 12 months, I kind of feel very good about where we are and where I think our occupancy is going to be as we look at the next 15, 18 months.

In terms of mark to markets, I think realistically as we look at what we've been achieving, which is year to date, Joe, the numbers are in the [7%, 8%] range, plus/minus. Realistically, it's all depend on the particular piece of space that we lease, but as I look out kind of across our portfolio in terms of where the market rents are and where our escalated rents are, again, I think what we've been achieving is generally reflective of where I see mark to markets.

So I would --

[Okay, and then] -- I'm sorry.

Let me jump in on DC, I wouldn't really make any prediction with respect to the mark to market at this point. As David said, it's always dependent on a particular piece of space that's coming back and what the new deal is juxtapose with that. In terms of overall expiration, we don't have a particularly heavy year for us. We do have a few remaining BRAC leases coming back that we know in fact will be vacant, but as far as the non-BRAC related space for 2014, I think we view it as a reasonably manageable year.

I would add just one thing to what Mitchell said. The first is that -- well, actually, two things. The first is that the Washington leasing this quarter was basically flat mark to market. I think the cash was up a pinch, and the GAAP was down a pinch, but basically flat. I think that is a very, very, very satisfactory result in Washington in a very soft market. So I can tell you that I am very pleased with a flat -- basically flat mark to market in Washington.

The second thing is -- and this relates to our New York business and our Washington business -- one of our strategies has been in acquisitions and in the management of our business to avoid buildings that have 700,000, 800,000, 1 million foot huge mega-tenants. And so if you look at the profile of our tenancy, it is -- now a 300,000 foot tenant is not small by any measure, but a 300,000 foot move out you can handle. A 1 million foot move out you can't.

So one of the things that we have done as a company as a strategy is to be very careful to have diversification in the size of our tenants and the industries to which we cater. And I think we have a history of being -- having the highest occupancy rate of anybody in New York, and I think that -- partly that's the result of that strategy.

I'd add just one other comment, which is what we talked about earlier on the call, and that is as it relates to the retail portfolio, we do have some expiries coming up at 608 Fifth Avenue and 640 Fifth Avenue. We've talked about some of these in the past, and I think we are going to see some extraordinary mark to markets as it relates to the turnover of some of these great, great retail spaces.

Good point.

And the--

Yes, I was actually going to ask was about retail also. When you look across the entire portfolio -- I assume you're talking about 2014, but as you look across the portfolio, what do you think the mark to market is? For that New York street retail?

I don't want to speculate on that. We'll get back to you. We don't have that number -- Jamie, we don't have that number handy, and I don't want to guess.

Okay. And then just finally, what are your thoughts on just New York City rent growth? I guess net effect of rent growth? Kind of what it's been, and what do you think is going to happen here.

We've been constructive on the market, Jamie. We've seen some good absorption. We've seen, as I said earlier, availability rates come down. The reality is that we are still in a tenant market. I think it will take us a couple hundred basis points of absorption for us really to get to a landlord market.

So I don't think we'll see any rents dramatically spiking, but as it relates to rent growth we have continued to see the ability on a net effective basis as it relates to [face] rents, free rent and work allowances to see some good growth, which I think as kind of you look around the marketplace, has been in the 5%-ish, 6%, 7% range in Midtown, and certainly higher in Midtown South.

The point that David makes about Midtown South is extremely interesting. The New York market is broken down into multiple sub markets. The interesting thing that has happened is there used to be a very, very delineated hierarchy of the sub markets, where the Plaza District was the highest, and then the Park Avenue District, and then going down to the -- it was the hierarchical change. That has basically -- what's the word? -- leveled.

And so the city, in terms of [alders] leasing, the rents have leveled, and the city basically has a slight tilt to the south. Maybe not all the way South, but clearly the Midtown South, the Chelsey Market, the Penn Plaza District, et cetera, are benefiting enormously and are very tight. So we may see increases in rents which are not historically -- which we've never seen historically in some of those sub markets at the expense of the traditional financial service industry locations. It's all very interesting what's happened, and actually kind of exciting.

Okay, thanks for the color. I appreciate it.

We have Vance Edelson from Morgan Stanley on the line with a question. Vance, please go ahead.

Hi, thanks. Kind of a rhetorical question, but on the joint purchase 615 Mad, could you comment on the relative appeal of the retail versus the office component, just given that you're not buying much in the office? In your mind, is retail what primarily what got you excited, or could the deal have happened on the merits on the office space alone?

I think from our perspective, a couple of things. We love the site. It's on an outstanding location on Madison, a full block front. You have 200 feet of retail there, frontage. And so I think that was the most competitive dynamic. The site overall, and then the retail rolls over in five to seven years entirely, and so we saw an opportunity to capture that uplift, and particularly as retail -- Madison has lagged rent-wise, and so we saw an opportunity for a huge uptick there.

The office, there's vacancy there that can be leased up, and again, as David commented, that high value boutique space is starting to move at a faster rate, and so that was attractive. But I think absent the retail, it would have been attractive -- and it's a theoretical question, it would have been much less attractive.

We obviously -- if you look at everything we've done, retail has been the predominant focus, and the retail made up a meaningful chunk of the value. I'm not going to break it out specifically, but it was a good chunk of the value. And ultimately it sits on a great site which theoretically could be redeveloped one day.

Okay, that's helpful. And then on the acquisition front, granted you'll be disciplined, but could you give us some feel for the size of the active pipeline that you might more forward with, and how this compares to levels over the past year? Is this really the smallest it's been because of the valuations, or are you still pretty busy on that front?

I'll handle that. As we say every year in the letter that I write to our shareholders, we have no budget for acquisitions, and acquisitions have a tendency to be chunky based upon what is available in the marketplace, what the pricing is, et cetera. So we really don't keep a list -- a comparative list of a pipeline so to speak.

We are always in the market. We are always looking at everything that's in the market. We see every deal in the market, either first, second or third. And so even though we are not -- we may not be buying at a particularly time or we may not like the pricing of a particular asset, we go through every single important asset that comes on the market. So we're always busy, although we're part of the rigor and the discipline is when to say yes and when to say no.

Okay, makes sense. Thank you.

We have John Guinne from Stifel on the line with a question. John, please go ahead.

I decided not to listen to Lexington. One follow-up question, Steve, basically everything you said -- acquisition market tough, net sellers, not getting any credit for your square foot of vacancy, $3 billion of liquidity. You're probably trading by a lot of people's numbers at a six implied cap. All that would head to a share buy back. Do you have a share buy back out there?

No, we don't.

Okay. Any thoughts on it.

Well, I long for the old days. We just did some history, and in the 1980s we bought back 50% of the stock of Vornado, and -- but we were buying it back at 40% and 50% of what we thought it's value was. So I think buy backs are very tricky.

We talk about them at -- not at every Board meeting, but we talk about them once a year, maybe even more frequently. And it's not something that I -- that we have -- we don't have a buy back authorization outstanding, and it's not something that we think is an extraordinary -- well, it's not something that we have in the forefront of our minds right now.

Thank you.

Operator, we --

We have Steve Sakwa on the line from ISI Group. Please go ahead, Steve.

Sorry, I just wanted to clarify, on that $70 million that you're talking about of lost earnings, are you assuming that DC portfolio kind of gets up to 93% and, assuming the basic $40 rent, is that your math?

The math would getting up to historic occupancies in the low 90s, maybe even -- yes, 93% is a decent guess, and about we think the market rents are, yes. By the way, it could be more than that, too.

Thank you.

But it's a big hole that we intend to fill.

That was short enough question that we will take one last.

One more question, operator. The last question.

Our last question comes from Michael Bilerman from Citi. Please go ahead, Michael.

Thanks, I actually had two follow-ups, if I can ask them. 220 Central Park South, clearly resolving the conflict with Barnett and being able to get the air rights and move forward, and, Steve, you talked about having $500 million in today, thinking it's worth $1 billion just as is. How do you think about putting incremental capital into residential to be able to get at that gain versus selling off today? And maybe it's not as big of a gain at the end of the day, but it goes along the path of simplification, pruning, and focus. Then just how do you think about Vornado's exposure to a project of that size, which obviously has a little bit longer of a tail to its ultimate resolution if you were to move forward alone?

First of all, we couldn't be more delighted to be the proud parents of that site. It is, by consensus, the best side in town. It took eight years to get it to this condition. The eight years were clearly worth it. The -- I would like to take credit for it, but I can't. The market has risen to the point where the delay [in the order] enormously to our benefit, and we think that the size is worth more than $1 billion as a raw site.

We own the site free and clear, so we have got an enormous amount of financial flexibility, and we have lots of options, all the from selling the site -- and we get called on it weekly -- all the way to building it ourselves, all the way to doing a hybrid, which is inviting a financial partner in to share the bounty. All of those are on the table as we -- and this is the important thing -- as we move forward in the development process, without any hesitation to build the job.

And so the interesting thing about it is -- because we have to do that. We may -- while we may take in a financial partner or do any other kind of extraordinary kind of financial transaction, we will move forward as if -- in the process of building the job. The equity that we have in this proper is so significant that we can build the job with non-recourse debt without putting any capitol whatsoever in it.

Okay --

I think we I said was we're delighted with the site. We have an extraordinary profit in it. I would like to take credit for it, but I shan't. And we have lots of financial options, all of which we will investigate as you would expect.

And then can you just comment on Mart and the strips? I assume neither of those were included in the, call it, $1.5 billion to $2 billion in assets on the market and on deck. Just how those play into your simplified prune focus?

The answer to that is the Mart building, which we have said over the last period of time, is a keeper. We think we have extraordinary value creation in front of us there. We think the Google -- the Motorola-Google deal is transformative. And we think that building is now the bull's-eye in the today tech-kind of tenancies. So we have a lot to do out there, and we're quite excited about it actually.

With respect to the other shopping centers, clearly the list of dispositions includes some assets that are retail. Certainly nothing in Manhattan, but we do have some outlying non-core geographically and even non-core from a quality point of view retail assets that are on the disposition list.

Thank you.

Operator, thank you. You can close the call now.

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