Alexander's Inc (ALX) 2017 Q2 法說會逐字稿

Good morning, and welcome to the Vornado Realty Trust Second Quarter 2017 Earnings Call. My name is Christine, and I will be the operator for today's call. 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.

Thank you. Welcome to Vornado Realty Trust Second Quarter Earnings Call.

Yesterday afternoon, we issued our second quarter earnings release and filed our quarterly report on Form 10-Q with the Securities and Exchange Commission. These documents as well as our supplemental financial information package are available on our website, www.vno.com, under the Investor Relations section. In these documents and during today's call, we will discuss certain non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP measures are included in our earnings release, Form 10-Q and financial supplement.

Please be aware that statements made during this call may be deemed forward-looking statements and actual results may differ materially from these statements due to a variety of risks, uncertainties and other factors. Please refer to our filings with the Securities and Exchange Commission, including our 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 is Michael Franco, Executive Vice President and Chief Investment Officer.

I will now turn the call over to Steven Roth.

Thanks, Cathy. Good morning, everyone. Welcome to Vornado's Second Quarter 2017 Call.

I'm going to start with the numbers. Our total FFO for the quarter was $1.35 per share compared to $1.21 per share in last year's comparable quarter, an 11.6% increase. FFO as adjusted for comparability for the quarter was $1.25 per share compared to $1.19 per share last year, a 5% increase.

Focusing on Vornado RemainCo, our go-forward company, which excludes Washington, second quarter FFO as adjusted was $0.97 per share compared to $0.92 per share last year, a 5.4% increase. This information is shown in our financial supplement on Page 11.

We run the business focusing on cash metrics. Real estate is bought and sold on cash numbers. Vornado RemainCo cash basis FFO as adjusted was $0.85 per share for the second quarter of 2017 compared to $0.67 per share in the prior year, a superstrong 26.9% increase. Reconciliations of total FFO to FFO as adjusted can be found in our earnings release and in our Form 10-Q.

One of our primary objectives of simplifying and focusing our business over the past several years was to daylight Vornado RemainCo's outstanding financial performance. We have gone back and isolated what would have been Vornado RemainCo's financial performance as a standalone company from 2009 through 2016. That map shows our FFO as adjusted per share grew by an industry leading and very strong 15% CAGR.

A short comment on our same-store results. Both the New York segment and theMART same-store EBITDA were negative quarter-over-quarter. Both would have been positive but for a couple of one-timers. Excluding those one-timers, New York segment's same-store EBITDA was positive 40 basis points and same-store NOI was a very strong positive 11.7%. theMART same-store EBITDA would've been positive 4% and same-store NOI would have been positive 6.5%.

Two weeks ago on July 7, we completed the separation -- I'm sorry, July 17, we completed the separation of our Washington, D.C. business and simultaneous merger with JBG Smith to form JBG SMITH Properties, which now trades on the New York Stock Exchange as an independent public company under the ticker symbol, JBGS. We have now created 3 highly focused best-in-class pure-play publicly traded REITs: Vornado RemainCo, JBG SMITH Properties and Urban Edge Properties, each with its own best-in-class focused managements and separate stock price. And each is the leader in its market.

Urban Edge, under the leadership of Jeff Olson and Bob Minutoli, continues to perform at the top of its competitive set. A shout-out and Vornado's thanks to Mitchell and all of our Washington alumni for the work that they have done for us over these many years.

I can't resist a plug for JBG Smith, our newborn. As you get to know the team, I am certain you will agree with me that they are the best in the business and they are playing to win. As I have said before, I expect JBG Smith to be the fastest grower in all of REIT land. As it builds out its 18 million square feet of development rights, it will more than double in size. All of this land is already owned, it is free and clear, it is entitled and it is the best sites and the best submarkets in the Washington region. Think about it, development yields are much higher than acquisition yields. And the vast majority of this development will be state-of-the-art, brand-spanking-new apartments, highly amenitized and the most competitive project in each submarket. And that's exactly the product we want to own.

A real-time example is The Bartlett, our 700-unit highly amenitized residential project in Pentagon City, which opened a year ago. This project rented up in a year versus our budget of 30 months and at better than pro forma financial results. The Bartlett is now the gold standard in the region. JBG Smith has 2 adjacent sites for another 1,400 units. The point of this being that modern design and new product wins the race.

Over the last few years, we have done a good job cleaning house, and we continue to advance the ball on that front. Since last quarter, we exited 2 noncore investments. In May, a joint venture in which we have a 21.1% equity interest sold the Suffolk Downs' racetrack in Boston. From the property sale and from loan repayment, we realized cash proceeds of $50.8 million and recognized a book gain of $26.7 million.

Next, we are totally exiting our investments in India which were acquired between 2005 and 2008. The exit will be completed in 3 separate transactions, 2 of which have already closed and the third is under contract, with 2 buyers, one of whom was our partner. We will realize cash proceeds of $43.7 million here at no book gain. You should know that both of these investments were the subject of impairments in prior years.

David will handle operations, and I will give you a brief overview here. New York Office leased 543,000 square feet, 402,000 square feet at share in the quarter with average starting rents of $79.50 and positive mark-to-markets of 17.8% GAAP and 13.7% cash. Occupancy was a full 96.7%, same as first quarter. Demand for office space in New York is robust coming from all manner of users. Our New York buildings are well positioned after having completed over the last 4 years a string of major building redevelopments covering 6 buildings and 6.5 million square feet, ensuring our assets remain up-to-date and -- to attract tenants from all market sectors.

I coined the phrase, "The island of Manhattan is tilting to the West and to the South." Today, the hottest submarkets in town run from Hudson Yards to Penn Plaza and extend south through Chelsea and Meatpacking. It is important to note that anticipating these trends, we have structured our portfolio so that almost half of our square footage is in this hottest district.

In an important and highly publicized deal, on June 28, Aetna announced that it is relocating its headquarters from Hartford, Connecticut to New York at our 61 Ninth Avenue, in the heart of the meatpacking submarket. Aetna is leasing the entire 142,000-square foot component of this newbuild at a triple-digit rent, which interestingly is higher than prime Midtown would command. Aetna is an insurance giant that is on the go and they are locating in the heart of New York's creative district. The stabilized GAAP yield on this project will be 9% and the first stabilized year cash yield will be 8.1%.

Starbucks 23,000-square foot Roastery will begin tenant work in October and Aetna will begin tenant work in April 2018. We believe this deal reinforces New York as the headquarters' town and as the talent hub and validates real estate as a recruiting tool. David will have more to say about this deal in a minute.

In this hottest district, in addition to our 9 million square feet in Penn Plaza, we have 85 Tenth Avenue; and under construction in addition to 61 Ninth, we have 512 West 22nd Street, 260 Eleventh Avenue, 606 Broadway; and, of course, the Farley Post Office Building.

In our New York street retail business, we leased 24,000 square feet in 5 deals, 19,000 square feet a share with positive mark-to-markets of 34.9% GAAP and 24.8% cash. Occupancy was 95.3%, the same as the first quarter.

In my annual letter to shareholders on Page 15 through 17, I lay out my views on retail in general and our retail business in particular, including cash NOI guidance. I reaffirm that guidance today.

After quarter end in July, we signed a 16,000-square foot lease with Sephora at our 1535 Broadway in Times Square where we own the 2 best block fronts on both sides of the bow tie. This store will be Sephora's largest in the U.S. and will replace their existing store across the street, which we understand is their highest grossing in the U.S.

In the quarter, we signed a 10,000-square foot lease for an Amazon bookstore at our 3040 M Street in Georgetown. Amazon replaces Barney's here at a positive mark-to-market of 43.2% cash and 61.1% GAAP. We own 2 of Amazon's 8 bookstores, the second being at our 7 West 34th Street.

I will repeat what I said on last quarter's call. Our Upper Fifth Avenue and Time 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 the highest quality in the world.

Here is an interesting fact for you. In all of our Fifth Avenue and Time Square properties, the only lease expiry in the next 5 years is the Massimo DD store -- Massimo Dutti store, a Zara division, at our 689 Fifth Avenue which expires in mid-2019 and is substantially below market.

We hosted an invited tour of our 220 Central Park South luxury condominium project site back in June, which many of you attended. 220 Central Park South is head and shoulders the market leader. Construction and sales continue above plan.

Now turning to the investment and financing markets. Investment sales activity in the first half has slowed appreciably, a victim of caution and uncertainty and the fact that not a lot of good product has been put up for sale. Without a lot of data points, I would say that the highest-quality trophy assets are still commanding top pricing and lower-cost quality assets are down a tick or 2 or maybe 3.

The most interesting recent data point is in London, where the iconic Walkie-Talkie building, designed by Rafael Viñoly, who also designed 61 Ninth Avenue for us, sold at a 3.4% cap rate, $2,500 per square foot to a Hong Kong industrial company. This was a $1.5 billion deal. Another data point. A store on Madison Avenue with 7 years left to run on its lease to a top luxury tenant is in the bidding tent, and we are told is attracting sub 4% bids on above-market rents.

Debt markets for New York assets are as liquid and strong as we have ever seen. In the past few months, there have been over $7 billion of New York City financings completed in just 10 deals at very attractive rates on high-quality commercial assets, 3 of which were ours. Given the relative strength in the debt markets, many owners are choosing to refinance rather than to sell.

In conclusion, we will continue our value-creation efforts. Our top priority is, of course, Penn Plaza.

Now to David.

Good morning, everyone. With Steve having covered our basic leasing metrics for the quarter, this morning, I'm going to spend a few minutes on the market and then add a bit more color on our second quarter activity.

In our first quarter call, I pointed you to the revised BLS, Bureau of Labor Statistics' job numbers, showing that office-using employment in 2016 grew by 33,000 jobs. That was well in excess of the annual rate of job growth of some 10,000 to 15,000 jobs needed to absorb the new supply coming online over the next 5 years.

Halfway through 2017, the city already has added over 15,000 office-using jobs. While TAMI employment is down slightly year-to-date, the financial industries -- financial services industry has been the key driver of office sector jobs, adding 7,000 jobs during the first of the year, with financial services employment back now at its highest level since September 2001.

(inaudible) in this sector has already translated into an increase in leasing activity for financial-related firms, accounting for 1/3, fully 1/3 of all new leasing activity citywide. This is just the latest indicator of the resilience of our New York City economy. The City Comptroller recently issued a report highlighting the fact that New York City's recovery from the Great Recession a decade ago was both significantly faster and significantly stronger than the national recovery. From 2007 to 2016, New York City total employment grew 13.9%, well above the 4.6% national growth rate. Unemployment in New York is now hovering at record lows of 4.3%.

The health of our job market is reflected in overall market leasing statistics. With 9.8 million square feet leased in the second quarter and 20.8 million square feet leased year-to-date in the city, the market is on track to approach the record leasing year of 2014, when citywide, 42 million square feet of leases were completed. While a number of significant large leases above 250,000 square feet have helped drive the market, leasing activity in the 25,000- to 100,000-square foot range also has remained very strong. It's that midmarket, which represents the sweet spot of our diverse multi-tenant portfolio. And continuing recent trends, dealmaking in the city also was concentrated in newbuilds and renovated properties, right in the sweet spot of our portfolio, which is in great shape.

Overall for the quarter, the vacancy rate in Manhattan improved by 20 basis points to 9.2%, while net absorption was positive at about 700,000 square feet. The recent CBRE report provides a helpful way of looking at the health of the market. On a year-to-date basis, they looked at real growth in the city, new leases and expansions, net of contractions. Across 12 industries, CBRE saw a net growth totaling 3.3 million square feet. This is the same metric that we have been tracking in our own portfolio on a quarterly basis.

For our own portfolio in the last 10 quarters dating back to the start of 2015, we have leased a total of more than 5.6 million square feet, of which 1.5 million square feet fully 27% has been net new or expansion space real, real growth to the city.

Let me now turn to our portfolio for the quarter where business remains very good. First, we are full. With occupancy at 96.7%, average starting rents for the quarter were $79.50 on 543,000 square feet of leasing activity, representing strong mark-to-markets of 17.8% GAAP and 13.7% cash.

Almost a quarter of activity, or 133,000 square feet was in Penn Plaza, where average starting rents exceeded $65 a foot. Renewals dominated our leasing in the second quarter, and as a result, average TIs at $34.11 per square foot fell dramatically from the first quarter when new and expansion space was a much more significant share of our activity. And we have continued to outperform at the high end of the market with more than 1/3 of our leasing activity at over $100 per square foot across 4 different buildings including: 90 Park Avenue; 280 Park Avenue; 888 Seventh Avenue; and our newest trophy building, 61 Ninth Avenue.

Last quarter, I spoke to you about Glencore's relocation of its headquarters from Stamford to our 330 Madison Avenue, a reversal of the outward migration of financial services jobs to Connecticut, which took place in the late 1980s and early 1990s. This quarter, that trend continues with Aetna's relocation to the Meatpacking District.

As Steve told you, the story of 61 Ninth Avenue is one of perfect execution, and I am enormously proud of our acquisition, development, marketing, leasing and construction teams. We previously told you that this building in the heart of the Meatpacking West Chelsea District at 15th Street and Ninth Avenue, what is Main & Main in the new world economy would be a trophy asset of the future, and the 142,000 square foot Aetna headquarters lease and the 23,000 square foot Starbucks Roastery confirm that characterization.

Next up is 512 West 22nd Street, another architecturally distinctive building with outdoor green space on every floor right on the High Line. Behind that will be 606 Broadway, another newbuild at the entrance to SoHo; and then 260 Eleventh Avenue, where we will transform the Otis Elevator building into a best-in-class marriage of historic space with distinctive modern features. And of course, as Steve mentioned, during the second quarter, we and Related closed our acquisition of a 99-year lease on the Farley Building, a totally unique horizontal campus which will offer 730,000 square feet of best-in-class creative office space, an unmatched floor place in Penn Plaza with its unrivaled transit access plus an additional 120,000 square feet of ancillary train hull retail.

You can see early progress at the Farley Building, where a state effort has produced 2 grand Eighth Avenue entrances at 31st and 33rd Streets, both of which take you down to an expanded and renovated West End Concourse of Penn Station.

All of these buildings are perfectly positioned to meet the needs of the millennial talent that employers today seek as well as what is now going to be called Generation Z, the name demographers have established for the post-millennial generation, which is now entering the labor pool.

At one time, the competition for young talent was synonymous with TAMI tenants, software companies, advertising firms, et cetera. But now, when it comes to pursuing talent, the so-called new and old industries are converging on the same group of people with important implications for the office market.

Aetna, the prototypical insurance company, was founded in the mid-19th century and headquartered throughout its storied history in Hartford. Aetna is now coming to the Meatpacking District because it is competing for programmers, designers and other talent, what I call, intellectual capital, with the Googles and the Facebooks of the world. We have seen the same phenomenon in Chicago, where companies such as Allstate, Caterpillar and ConAgra have moved to the mart in part to rebrand themselves to recruit the best potential employees. As these old and new companies fight for the same talent pool, so too are they increasingly pursuing the same real estate, and we are perfectly positioned within our own portfolio to capitalize on this trend.

Overall, our remaining 2017 office lease expirations are now down to just 115,000 square feet while our 2018 expirations are modest at just over 1 million square feet. Glen and his leasing team are active as always with a pipeline of 925,000 square feet, of which, 475,000 square feet is in lease negotiation.

Turning briefly to our irreplaceable street retail business. Steve already told you about the leases we entered into with Amazon Books in Georgetown and our flagship lease with Sephora in 1535 Broadway at the heart of the bow tie in Times Square just completed last week after the end of the quarter. I would also add that Amazon is well advanced in the buildout of its new bookstore at our 7 West 34th Street.

Turning now to theMART in Chicago. It was a quiet quarter with no new office leases. Not especially surprising when you consider that the building is almost 99% leased. We did enter into over 90,000 square feet of showroom leases, representing mark-to-markets of 10.8% GAAP and 3.3% cash. As always, we invite you to let us know if you have plans to be in Chicago and would like to tour this flagship asset. And be sure to grab a meal or a drink at the new Marshall's Landing Restaurant and Bar now open at the top of our Grand Stair.

At our trophy San Francisco asset, 555 California Street, we signed one lease with Yahoo RemainCo that holds shares in Alibaba. Having recently completed our modernization of the adjacent historic 315 Montgomery Street, we now have 2 leases out for 5 full floors at that building totaling 60,000 square feet. We also are moving forward with the total redevelopment of a former Bank of America banking hall, we call The Cube and expect to have our approvals in place by the end of this year to commence the redevelopment in 2018. We are very excited about our design for this unique space and are confident it will attract yet another brand-name tenant to our already blue-chip roster.

Let me conclude by saying that we continue to see the New York City economy firing on all cylinders and the fundamentals point to continued growth. Our portfolio is in great shape and we remain full. With the completion of the D.C. spin, all of us look forward to turning our full attention to continued value creation in our New York portfolio.

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

Thank you, David. Good morning, everyone. Steve covered our FFO performance in his opening remarks. I will pick up with our EBITDA and NOI results for the quarter.

Our New York segment's EBITDA increased by $5 million comprised of a non-same-store increase of $7 million, partially offset by a same-store EBITDA decrease of $1.5 million or 50 basis points. The non-same-store increase was driven by $7.6 million of straight line writeoffs in the prior year's second quarter; and $4.3 million of EBITDA from 85 Tenth Avenue this year, which was included in the other segment in the prior year, partially offset by lower income from properties previously taken out of service and lower lease termination fee income.

New York segment's same-store EBITDA decrease of $1.5 million was due to $2.6 million of one-time prior period tenant adjustments and scheduled vacancies of U.S. Customs at One Penn and Prada at 595 Madison Avenue. Excluding the tenant adjustments, same-store EBITDA (inaudible) by 40 basis points. As expected, our New York segment's second quarter same-store NOI increased by a very strong 10.6% or 11.7%, excluding the tenant adjustments over the prior year second quarter as the leasing activity we have accomplished over the past few years continues to turn into (inaudible) long-term cash paying tenants.

theMART same-store EBITDA decreased by 4.5% and same-store NOI decreased by 2.8%, both due to the reversal of a $2.3 million accrual for an expense in the prior year's second quarter. Excluding this reversal, theMART same-store EBITDA continued its strong growth and increased by 4% and same-store NOI increased by 6.5%.

555 California Street same-store EBITDA decreased by 2.9% and same-store NOI increased by 33.7% as free rent from new leases burns off.

Our recently spun-off Washington business had another good quarter with $57 million of comparable FFO as compared to $54.3 million in the prior year second quarter. Washington business EBITDA as adjusted was 149 -- $140.9 million for the first 6 months of this year, ahead of the guidance we set and ahead of last year. On Pages 11 and 12 of our financial supplement, we have broken out Washington's net income, EBITDA and FFO from total company to assist you in understanding RemainCo going forward. Beginning in the third quarter, Washington will be reclassified as discontinued operations and its financial results will be treated as noncomparable in the calculation of FFO as adjusted.

Now to financing activity. In June, we completed a $220 million financing of The Bartlett, a 699-unit residential building with a 39,000-square foot Whole Foods at its base located in Arlington, Virginia. The 5-year interest-only loan is at LIBOR plus 170 basis points and matures in June 2022. On July 17, the property, the loan and the $217 million of net proceeds were transferred to JBG Smith in connection with the spin-off.

In June, Alexander's in which we own a 32.4% interest, completed a $500 million refinancing of the office portion of 731 Lexington Avenue. The interest-only loan is at LIBOR plus 90 basis points, which was 2.06% at June 30 and matures in June 2024, fully extended. The property was previously encumbered by a $300 million interest-only mortgage at LIBOR plus 95 basis points.

In July, our 25% owned joint venture that owns 330 Madison Avenue, an 845,000-square foot Manhattan office building, completed a $500 million refinancing. The 7-year interest-only loan matures in August 2024 and has a fixed rate of 3.425%. That property was previously encumbered by $115 million mortgage at a LIBOR plus 130 -- 1.30%. We realized net proceeds of approximately $85 million after repayment of the existing loan and closing costs.

Vornado RemainCo has no remaining 2017 consolidated debt or partially owned entity debt maturities. 2018 consolidated debt maturities are $140.2 million and our share of partially owned entities 2018 maturities is $443.9 million, which includes $275.6 million at share for Independence Plaza, a 3-tower 1,327-unit residential complex in Tribeca in which we own a 50.1% interest.

Excluding the financing on our 220 Central Park South project which will self-liquidate as signed contracts close, RemainCo's consolidated debt metrics are: fixed-rate debt accounted for 78% of debt with a weighted average of 3.65% and a weighted average term of 4.4 years and floating rate debt accounted for 22% of debt with a weighted average interest rate of 2.9% and a weighted average term of 3.8 years. Debt-to-enterprise value is 25.2% based on last night's closing stock price. Debt, net of cash to EBITDA is 6.1x. Including our share of partially owned entities debt, other than 666 Fifth Avenue office and Toys"R"Us, debt, net of cash to EBITDA is 6.9x.

In closing, Vornado has a fortress balance sheet with modest leverage and well-staggered debt maturities. Post the JBGS spin-off, we had $3.8 billion in liquidity comprised of $1.3 billion of cash, restricted cash and marketable securities and our undrawn $2.5 billion revolving credit facilities.

I will now turn the call back to Steve.

We're ready for Q&A at this point, Christine.

(Operator Instructions) Our first question comes from Jamie Feldman from Bank of America.

David, we appreciate all the commentary on the leasing market. Can you talk more specifically about conversations you are having for the Farley Building and then even maybe Hotel Penn given we -- it has been in the press lately?

We're not going to make a comment about the hotel, but as it relates to the Farley Building, while it is very, very early days, and we have just begun to introduce this building to the marketplace, the receptivity for this type of, what I called, horizontal campus, we have found as unique, unique space. I will say to you, there are already are at least 2 tenants who have indicated an interest to take down the entire asset and there are additional tenants that we're talking to who have very real interest in this redevelopment.

Okay. And then what's realistic in terms of how soon a tenant can be in there and generating earnings?

What we said to you on our last call is that we would be in a position to deliver space to a tenant in the late 2019, early 2020 period of time for the tenants' buildout with the tenant to be in possession sometime in the mid to late 2020 kind of period of time.

Our next question comes from Manny Korchman from Citi.

Steve, maybe thinking longer-term strategy post the JBG spin and the Urban Edge spins, how do you now feel about the business at RemainCo sort of both growth and maybe shrinking the business through either additional spins or sales of certain assets or certain businesses or somewhere in between?

We maybe -- I don't know whether we're winning or losing the ratings war here. I mean, look, we are on a path where we have said that no stone will be left unturned to create value. We've turned over a lot of stones in the last couple of years with asset sales, spins, multiple spins, et cetera. We continue to have shareholder value creation as our -- we worship to the God of shareholder value creation. But sort of live with what we've done to date. We just -- the JBG spin, the spin was just completed a couple of weeks ago. And that's sort of led -- that's seasoned just a little bit. And we'll see how the -- how everything reacts and then we will continue. We are interested in growing and acquiring assets at the right price in our market area. And we continue to think that -- I mean, I'm not ready to predict what we may or may not do in the future in terms of value creation, I can only tell you that it continues to be topic #1 on our mind.

Steve, it's Michael Bilerman here with Manny. Question on street retail. There's a lot of commentary and a lot of press around the retail environment and certainly, you can drive up Madison and Fifth and see some increasing vacancies. So I guess, how do you -- you've buttoned up your portfolio, but I'm curious how you feel about the overall environment with street retail in your New York right now.

I mean, my feelings are the same. And I've been singing this tune for years now. America, the country is vastly over-stored. And I think I've said it in my letter that growth will not solve this problem, there has to be an evaporation of a great -- of a lot of space to get back into some kind of equilibrium or some kind of balance. And it's -- the tenants, the operators, the retailers are struggling, which of course, puts pressure on their vendors. And real estate is but a vendor to the retail community. The street retail business in New York continues to be soft. I've said that for many, many quarters now. My belief is that the softness in New York is cyclical, whereas the softness generally in retail is secular. Having said that, we anticipated these trends. We buttoned up our portfolio. We are largely under leased a very good high-quality tenants with great credits. So in terms of our income stream, we are -- we feel very, very good about it and very secure. When our tenants, however, don't do the kind of business that they think they -- that they should be doing, we are not happy about that either. But in terms of our portfolio, we are largely buttoned up, we've been very transparent about that, and we feel very secure about our portfolio.

Our next question comes from Rob Simone from Evercore ISI.

Just a follow-up on the retail portfolio. I know in the prepared remarks, it sounds like the Upper Fifth portfolio, there aren't any major expirations until '19. But you do have about 11% of your rent expiring next year. So I was just wondering if maybe you guys can provide any sense of what the mark-to-market would be on that. And then I have a follow-up.

I don't have that list right in front of me, but my guess is -- does anybody have it here? Hang on, we're looking that up. Hang on, it's walking over here slowly. So point number one is, we think that a lot of that space is going to renew and stay. And if that happens, we would anticipate that it would stay at the same rent or at a gradual uptick in rent. We have a couple of tenants that are vacating, which we expect will have a roll down in rent. Nonetheless, the total portfolio with step-ups, et cetera, we think will continue to add with new leases coming on board, we think will continue to have increased total retail rent. So let me say that again. Most of the tenants that expire next year will -- we think will extend and stay and renew. Some will leave and we will spring up a few vacancies there, which is natural, that's our business, people come and people go. On the whole, we think that the momentum, the increasing rent momentum in the total portfolio will mean that we will continue to have what we projected in my letter in terms of NOI coming out of the portfolio.

Great. That's really helpful. And then my follow-up, I know you guys provide on a -- basically, a quarterly update on the incremental cash NOI that you expect to roll in. And on last count, it looks like it's about $117 million over, let's call it, the next 1.5 years. I guess, my question is how much of that is currently free rent but included in GAAP?

That one's over my head. Joe?

If you recall back in May of 2016, on our First Quarter Conference Call, when we first brought out this concept, we said that there was $200 million, or Steve said in his prepared remarks, that there was $200 million plus of incremental additive cash NOI on deck not yet in our numbers, which will be recognized between now and 2018. He said $41 million was in '16, $120 million was in '17 and $39 million was in '18. In that same prepared remarks and in Q&A, we said that the GAAP equivalent was $83 million, of which $52 million was in 2016 and $31 million was in 2017. I don't have the update on what the $117 million is, but that will give you magnitude of the delta. And we can get that to you with how much of the $117 million is not in EBITDA.

Sure, sure. That's helpful. I can follow up with you guys offline and -- if there are any updates there.

Our next question comes from Vikram Malhotra from Morgan Stanley.

Just sort of following up on street retail. Have you seen any evidence or any -- and can you share any color on asset pricing, whether it's cap rates or dollar per foot across the submarkets?

What was the question again, Vikram?

Just like pricing for assets for transactions on either cap rate basis or a dollar per foot basis. Just given all the weakness we've heard about, I'm just wondering have you actually seen cap rates move the other way in for street retail?

I mean, what we've seen and there are very few data points on this, what we've seen is that great assets which are under lease for 7, 8, 9 years or longer, but not 2 or 3 years, are still commanding sub-4% cap rates if they are great assets in great locations. And they are -- all manner of buyers bidding for those kinds of assets with a great deal of offshore money looking to invest on the great streets of New York, and I'm not talking about the Fifth Avenues and the Madison Avenues, the famous great streets, secondary assets or assets which have vacancy or are not leased for term are struggling to get bids.

Okay. That makes sense. And just from a -- turning to the office side against the (inaudible) transactions. I know you've said for a while now that obviously, pricing has been elevated. I'm wondering what would -- what level of change in asset pricing would sort of make you come back to the market?

Well, let me -- Vikram, let me talk about pricing. What I've said is, is that pricing is high for us to buy because we are an operator. We are, so to speak, a dealer or we're professional, we are not in the (inaudible) . So there's 2 different markets. There are markets for people who are in the real estate business to create value and develop and redevelop and rent and rerent, et cetera, which is what we do. And so we love to buy assets which are complicated, sort of have some hair on them where we can buy them at a good price and create value, that's our business. With respect to -- but there's another business, which is for investors to buy assets and, generally speaking, they like to buy assets which are fully stabilized, in perfect condition with long-term leases, where all of the work has been done. So there's 2 different markets. So we need to buy assets where we can increase values and make money for our shareholders as opposed to investors. So just because I am complaining that there is a dearth of opportunity, that doesn't mean that I think that asset prices for trophy, perfectly rented assets, which are what investors really seek are going to decline.

Our next question comes from John Guinee from Stifel.

Seems in D.C. that JBG Smith will be primarily an apartment developer, about 20,000 units at 18 million square feet. And I'm not sure if that's because of the strength of the apartment market or the weakness of the D.C. office market. But we noticed that you have not really made an effort to be big in the Manhattan apartment market. Any thoughts on that?

I love the Manhattan apartment market. And maybe we should have loved it and gotten into it 15 years ago. The -- and there has not really been a decent entry point in recent memory. Apartments are scarce, they're expensive, I mean, they sell for sub-4% cap rates. Having said that, we have chosen to put our big toe or maybe our little toe into the market by buying -- control departments where we can get the assets, the principal one being IP down in Tribeca, which is a 1,400-unit project, et cetera, that we own 50% of, where we were able to buy the assets at probably 50% or maybe even 40% of replacement cost. So that's been our -- we have 2 or 3 of those deals that we own. So the answer is, I love the apartment market, and we would like to get into it, it's difficult to get into because it's very, very, very -- it's very dear right now. So the answer is, we can't predict the future, but the apartment market is a very, very robust market in Manhattan.

And then second question, I think for Joe. You had a prior CFO there who talk a lot about reskinning one of the Penn Plaza buildings. What's the status on that and the Marilyn Monroe skirt? And then should we expect with the spin a 20% corresponding reduction in RemainCo G&A soon?

The first part of that is for David.

I'll go answer the G&A. We are going to strive to achieve that. It's a difficult objective because somehow G&A goes up and ratchets. It doesn't come down quite the same way. But it's high on our priority list now that the spin is over to cut as much G&A after transition services have been completed, both for JBG Smith, and still we are doing some transition services primarily in IT for Urban Edge.

As it relates to Penn Plaza, John, if you look at our portfolio, as we've said, the portfolio is in great shape and the reality for us is Penn Plaza is the next extraordinary opportunity for us where the embedded rents in One and Two Penn while we are achieving rents today, as I said of, say $65 a foot, we still think there is extraordinary embedded value in those assets. So we continue to work on redevelopment plans for One Penn Plaza. We continue to work on redevelopment plans for Two Penn Plaza, which do include potentially a skinning of the building as well as an expansion of the building. We are, in addition, looking at more aggressive alternatives in terms of adding additional tonnage in Penn Plaza. So all of that is on the table and it remains our highest priority. We will get back to you as soon as we have a real finalized plan and some budgetary numbers.

Our next question comes from Jed Reagan from Green Street Advisors.

I guess following up on an earlier question. You sold the positions in the racetrack and you mentioned India as well. Are there other specific noncore legacy investments you could see exiting in the coming quarters? And then you also talked about the plans for the few D.C. area assets that are staying with the company?

I'm sorry. I heard your question, Jed, about noncore assets. I didn't hear the last phrase.

Sorry. The few D.C. metro assets that are staying with RemainCo, if you could just talk about the plans for those?

All of the noncore assets that Vornado continues to own, and we're down to dribs and drabs now, as well as assets which are D.C. assets, which had not -- did not go into SpinCo are in the -- will be sold.

What kind of time line should we think about for those?

Oh, some of them are tax-protected. There's 3 or 4 large shareholdings, most of which is tax-protected. I mean, I'm not able right now to give you a time line.

Okay. Fair enough.

There's a couple of loans that have maturity dates. Let me look, let me look. And then the big one, of course, is Rosslyn, which was not included in the spin.

Okay. And then congratulations on the lease with Aetna. It sounds like there's still good momentum in that West Chelsea area. I think it's an area that has kind of fragmented ownership and mostly smaller assets. So how do you think about building scale in that submarket over time? And then do you hope to grow elsewhere in Midtown South or perhaps even downtown going forward?

Well, I would call the Farley Building real scale, Jed. So it's difficult to get scale, but that's our job. So one of the things that makes the market attractive is its physical nature. And there are a great number of these creative tenants who really shy away from big glass (inaudible) office buildings. So the answer is, is that we are putting together a very exciting, very fine portfolio in this most important and hot district, and you do it piece-by-piece.

I guess the only thing I would add to that, Jed, is just a comment on the Aetna transaction following up what Steve said is, Aetna, as you would have expected, looked at both New York and Boston, and within the city, looked at a number of the newbuilds around the city. What attracted Aetna to a 61 Ninth, in addition to its location, was the unique nature that Aetna could have the entire building. So as Steve said, a 2.5 million square foot building effectively was not attractive to the CEO and Chairman of Aetna. What he was really looking to do is in a sense brand his company with his own asset. As you do look at the portfolio that we've effectively put together and you add up the 61 Ninth, if you add up the 5 12s, if you add up the 260 Elevens and the 85 Tenth and the Farleys, you end up with a portfolio that's a better part of 2 to 3 million square feet, which realistically is some real scale. And that will follow with everything that we do in Penn Plaza.

And so -- and as I said and tailing on to what David just said is that the Farley Building is real scale, and our holdings in Penn Plaza are enormous scale. And we think that Penn Plaza is adjacent to Hudson Yards, is just north of Chelsea, and it is going to be full measure part of the creative district than the hot district.

Our next question comes from Alexander Goldfarb from Sandler O'Neill.

Steve, maybe just following that path on Farley. Does all the recent infrastructure needs of Amtrak metro north, MTA, et cetera. Does that help you guys? Does that provide more opportunity at Penn Station -- at Penn Plaza as far as public-private or everything that you guys already contemplating already has some elements so there's not necessarily any incremental that you may be able to get out of some additional public-private?

That's a complicated involved question, Alex. So basically, our position is that we own the above -- we own the upland and the government owns the below grade and the railroad and the tracks and what of that. We're obviously -- we're not in the railroad business, we're not in the railroad maintenance business. Penn Station is as the governor has said repeatedly in speeches over the last year or 2, everything, every transportation, every line of transportation in the New York region comes through Penn Station. And that's what makes it unique and that's what makes it actually wonderful. The struggles that it's having now because the infrastructure is long of tooth, and perhaps, it hasn't been maintained as well as it should have and as well as it will have be in the future is unfortunate. But on the other hand, the fact that everybody is focused on it now is, and it will be put into a state of good repair is very fortunate. So we are unbelievably happy and honored to own all the real estate that we own above and around Penn Station. And we think that that just continues now -- continues to -- will continue to (inaudible) to our benefit. The -- whether there's any opportunities that will come out of the improvements that will be made to the infrastructure, the answer to that is, I really don't think so, or if there are opportunities, they will be available to any buyer or any bidder, that would be us, in addition to anybody else. So the long and the short of it is, is that we think that this is a district whose time has come.

Okay. And then the second question is -- switching gears to Alexander's. Can you give any sort of update on replacing Sears? I mean, I realize they're still paying the rent, but what's going to happen with that space if there's any timing, any thoughts?

We are in the market to replace Sears in Rego Park, that's an Alexander's asset. Just as you remember, we own -- Vornado owns about 1/3 of Alexander's. So we're in the market to replace Sears. Sears has a 2021 lease -- Sears lease expires in 2021. And while something may happen between now and 2021 for them to stop paying rent, right now they are paying rent, and we're looking for replacement tenants. By the way, one last thing, Alex, one -- Alexander's has a very large and very important and very valuable complex at that intersection, which is the intersection of the Long Island Expressway and Queens Boulevard, which is probably the most traffic intersection in all of Queens. So we've got 3 separate assets there, Rego, what we call Rego 1, Rego 1, 2 and Rego 3. They sort of interplay with each other, and we have the opportunity to sort of to move tenants around in there. But as of right now, Sears is closed, they're paying rent and we are in the market to redevelop that asset.

There is time for one additional question, Michael Lewis from SunTrust is on the line with a question for the call.

Going last, a lot of mine have been answered, but I wanted to ask, maybe a question for Joe, you present the same-store a lot of different ways. I was curious if you could share the New York same-store revenue growth versus the expense growth? And then you got a question about G&A savings, is there any operating margin differences between having just New York now?

Michael, I'm really not prepared to answer that question on the phone. We'll do a little research and get back to you without giving you guidance which we don't do.

Fair enough. And then my second question, I'm not sure how much you could say on this either, you've commented a little bit on the past on 666 Fifth. I just wanted to ask if there was any update or plan on that asset?

666 is an asset which is -- it's actually a wonderful asset in the heart of Upper Fifth Avenue. We own all the retail in the base of the building. We share the ownership or the office building with the Kushner family 50-50. We have been internally debating what the business plan is for the asset and that debate continues, and so we don't have an update on that right now.

Thank you. I will now turn the call back over to Steven Roth for closing comments.

Thank you -- thanks, everybody, for participating. I think this was a record time. And we look forward to being with you again at the next quarter. So thank you all very much and have a very good summer.

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