Alexander's Inc (ALX) 2017 Q3 法說會逐字稿

Good morning, and welcome to the Vornado Realty Trust Third Quarter 2017 Earnings Call. My name is Adriane, and I'll be your 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 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 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.

Thank you, Cathy. Good morning, everyone, welcome to Vornado's Third Quarter 2017 call. I will start with our third quarter financial results, which were truly outstanding and industry-leading. Please note that this is the first quarter that we are reporting the New York-centric Vornado RemainCo without Washington.

GAAP FFO was adjusted for comparability for the quarter was $0.99 per share compared to $0.93 per share last year, a very strong 6.5% increase. Cash FFO was adjusted for the quarter was $0.87 per share compared to $0.70 per share last year, a truly outstanding 24.3% increase.

Our same-store metrics are also outstanding and industry leading. Our New York segment EBITDA was positive 5% GAAP and positive 13.8% cash, theMART in Chicago was positive 11.3% GAAP and positive 17.0% cash. 555 California was positive 1.7% cash and positive -- I'm sorry, positive 1.7% GAAP and positive 13.2% cash.

This quarter outperformance validates our strategy of de-conglomerating and focusing on RemainCo's New York-centric business. And if past performance matters and I think it does, Vornado RemainCo has been the leader among all of the blue-chip peers in same-store NOI growth since 2006. Please see Page 13 of our September 2017 deck on our website, this is one of my favorite charts.

David will dive in shortly here with some of the highlights.

New York Office leased 452,000 square feet, 405,000 square feet at share, with record-breaking average rent starting at $83 per foot, and that's outstanding.

Mark-to-markets were 11.9% GAAP and 11.2% cash. We are full at 97% occupancy, up 30 basis points from last year. Demand for office space in New York is robust, coming from all manner of users. We invest in our buildings. They are redeveloped and modernized, well positioned to attract tenants across all market sectors.

A few years ago, 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. Anticipating these trends, we have structured our office portfolio so that half of our square footage is in this district.

In our New York street retail business, we leased 38,000 square feet, including a 16,000-square foot lease to Sephora at our 1535 Broadway in Times Square. 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.

As David will get into in a moment, we are in final drafts of a 12,000-square foot lease with a major national retailer, also at 1535 Broadway. With these 2 deals, we will be 100% leased at our 2 Time Square properties, which are the 2 best block fronts on both sides of the bow tie.

New York retail occupancy was 95.7%, up 40 basis points from last quarter.

Retail mark-to-market for the quarter were negative 20.5% GAAP and positive 2.5% cash. The negative GAAP mark is the victim of a single midblock 20,800-square foot at share, short-term renewal at 1290 Avenue of the Americas. The rent on the expiring lease was marked up as a FAS 141 adjustment when we acquired the building in 2007. Excluding the FAS 141 adjustment, the GAAP basis increase would have been positive 8.0%. We chose to extend this bank branch tenant for 3 years, with us having an early termination right at the same rent pending our redevelopment of the space.

Notwithstanding our recent success in Time Square, which by the way, demonstrates that the best real estate wins the race, as I have said before, the general retail market, even on the streets of New York, continues to be quite soft. In my annual letter to shareholders last year, on Pages 15 through 17, I laid out my views on retail, in general, and on our retail business, in particular, including 2017 cash NOI guidance. I reaffirm that guidance today. In fact, our budget show that 2017 may even come in a couple of percent higher.

I will repeat what I said on last year's call, our Upper Fifth Avenue on 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 of the highest quality in the world.

Here is an interesting fact. In all of our Upper Fifth Avenue and Time Square properties, we have only 1 lease expiry in the next 5 years, that being the Massimo Dutti store, a Zara division at our 689 Fifth Avenue, which expires in mid-2019 at a below-market REIT.

Now turning to the investment and financing markets. Investment sales activity is down appreciably from last year, largely a function of buyer caution, lesser quality product being brought to market and owners electing to refinance rather than sell. Demand in pricing for office assets located South and West in Manhattan is very strong, as evidenced by the recent Twitter, Red Bull and St. John's building sales.

We also believe that if a true trophy asset were brought to market, pricing would be as strong as ever. Moreover, while it has been the much-discussed slowdown in Chinese capital flows recently, there continues to be robust interest in New York assets from all manner of capital sources, both domestic and foreign. Retail investment sales are suffering from buyers' skittishness.

Debt markets for New York assets are on fire and remain as liquid and strong as we have ever seen with all markets, CMBS, bank, life companies and even the MIS and BPs markets, all wide open at very competitive pricing. And as I just said, given this relative strength in the debt markets, many owners are opting to refinance rather than to sell.

We will continue to prune and focus the business. We have identified another $1 billion of assets that we will be selling over the next several years. And that does not include the expected proceeds from 220 Central Park South.

Let me conclude by saying, as many of you know, I had bypass surgery in mid-August. I am now better than new, and I've been back to work for a while now. I want to thank everyone for your good wishes, very much appreciated. Thank you. Now over to David.

Steve, thank you, and good morning to everyone. As in our last few calls, I'll start by offering some thoughts on the market and then dive deeper into our third quarter activity.

Let me first start with a critical employment measure we track, office-using employment, which at 14,000 new jobs through the third quarter, is well within the range we like to see at 10,000 to 15,000 annually that we estimate is needed to absorb the new supply coming online over the next 5 years.

The story for this year continues to be one of strong growth in professional and business services as well as a resurgence in financial services employment, which in the third quarter, finally reached its prefinancial crisis level. Some of these jobs were offset by a very modest decline in TAMI jobs. That is not to say, however, that tech employment in the city is dropping. All signs point to continued growth in technology positions within nontech companies

As I discussed last quarter, when it comes to pursuing talent, both new and old industries are converging on the same group of people driving century-old companies such as Aetna, Allstate and ConAgra, to creative class buildings that can better attract talented, young professionals.

A recent report by the state comptroller estimates that out of 240,000 technology jobs in New York City, over 46%, 112,000 jobs, are tech jobs in traditional companies, from retail to health care, to insurance and to banking. And there's reason to anticipate continued strong growth in the years ahead, including with the recent opening of the Cornell Tech Campus on Roosevelt Island, that's just one of an array of city state and university efforts that are underway.

On the market leasing front, performance has been robust through the third quarter. You can see this in the tone of all of the brokerage reports. JLL's most recent report is entitled "Strength on Manhattan's West Side drives leasing higher and vacancy lower." And Cushman and Wakefield, they state "The market office performed well in the third quarter of 2017, highlighted by an uptick in leasing and positive absorption."

Total leasing in Manhattan reached 9.4 million square feet in the third quarter, with year-to-date total leasing now at 30.6 million square feet, continuing on track to approach the record leasing year of 2014, when citywide, 42 million square feet of leases were completed. Overall vacancy improved 20 basis points to 9%. Average asking rents in Manhattan approached $73 per square foot. Absorption was a positive 2.3 million square feet. And sublease space declined by 6.2%.

With major new lease commitments by Blackrock, Amazon and Accenture in Hudson Yards and Manhattan West, we believe our assets in Penn Plaza, with its unrivaled transit access, both our existing buildings and our development opportunities, continue to become more and more valuable.

Let me now turn to our portfolio, where we had a very strong third quarter. We remain full, with our office occupancy up 30 basis points to 97%. We leased over 450,000 square feet of office space in the quarter in 33 transactions. With average starting rents of $83 a foot, the quarter reflects both the quality of our assets and the breadth of our multi-tenant portfolio. 100,000 square feet of our leasing activity, or 22%, was at triple-digit numbers. And at One Penn Plaza, we achieved $70 average starting rents, a new record.

While our TIs and leasing commissions were on the high side, that is in large part a reflection of the average lease term which approached 10 years.

Our mark-to-markets remain strong at 11.9% GAAP and 11.2% cash. These mark-to-markets are a result of the success of our redevelopment efforts. Over the past 5 years, since the start of 2013, mark-to-markets in our office portfolio have averaged 18% GAAP and 13% cash.

Our same-store numbers in the office portfolio also remained industry-leading during the third quarter at 7.1% GAAP and 13.5% cash.

As with our mark-to-markets, our same-store performance has remained at an industry-leading level over an extended period of time. Since 2013, again, for 5 years, we have averaged same-store growth of 4.6% GAAP and 7.7% cash.

In Penn Plaza, work is now well underway to transform the Farley Building into the dramatic Moynihan Train Hall with 730,000 square feet of best-in-class creative office space on unique floorplates and 120,000 square feet of ancillary retail space.

In mid-August, Governor Cuomo celebrated the start of major construction in the cavernous space that will become the train hall, where our construction partners, Skanska, has been busy cutting openings down to Penn Station's platforms for the new escalators and elevators. From the street, you can see the 2 cranes building the soaring skylights that enclose the newly 100-foot-high main train hall. We have begun to introduce the office space to tenants and brokers and the early response has been a wow, as you would expect, for an asset as unique as this one.

Imagine the reaction we get when we take people up onto the roof and show them the potential for a 50,000-square foot outdoor roof deck amenity space in the heart of Manhattan. It's truly spectacular.

As you would expect, the Farley Building was front and center in our submission to the city for inclusion in the city's proposal to host Amazon's HQ2 headquarters.

We pointed out that Farley could accommodate Amazon's near-term needs with significant room to grow in the existing buildings and development sites we own in the Penn Plaza District.

We were pleased to see in the public materials that the city released, Midtown West, anchored by Penn Plaza, was front and center in the proposal to Amazon. The city noted that the area is accessible by 15 subway lines, 4 commuter rail lines and Amtrak, with direct connectivity in place or planned through all 3 regional airports.

With Amazon already having committed to 800,000 square feet in 2 sites that bookend our Penn Plaza holdings, 450,000 square feet at our own 7 West 34th Street and an additional 360,000 square feet in Manhattan West, across the street from Farley. Whether New York wins the HQ2 race or not, Amazon will have a long-term significant presence in the district for years to come.

With the end of the year approaching, we have a negligible amount of 2017 office lease expirations remaining. At 97% occupancy, we are full. Our single-largest block of space currently available is 70,000 square feet in One Penn Plaza. We see a relatively quiet fourth quarter as Glenn and his team continue to address our lease expirations of 950,000 square feet in 2018 and 775,000 square feet in 2019.

Over 1/3 of our lease expirations over the next 2 years are concentrated in One Penn Plaza, where we are now finalizing our plans for the total redevelopment and modernization of this asset, including a new lobby, storefronts, plazas, amenity spaces and state-of-the-art infrastructure. We have a proven formula for repositioning our assets. Just look at our track record at 90 Park Avenue, 280 Park Avenue, 1290 Sixth Avenue, 330 West 34th Street and theMART, to just name a few. We expect to commence this redevelopment of One Penn Plaza next summer.

Turning to our irreplaceable high street retail business, as Steve mentioned, the highlight of our activity has been the completion of a 16,000-square foot flagship lease with Sephora at 1535 Broadway, at the heart of the bow tie in Times Square. We also are in final drafts for another flagship lease with a major national retailer for the remaining 12,000 square feet at 1535.

The balance of our retail leasing activity for the third quarter related to the renewal of 2 leases in the base of our office buildings, not what we would call "high street retail", at cash mark-to-market of a positive 2.5%, but as Steve mentioned, with a negative 20.5% GAAP mark-to-market, is only attributable to a FAS 141 purchase price adjustment that was made back in 2007. Our same-store numbers for our street retail business for the quarter were a strong positive 13.8% cash and a flattish negative 0.6% GAAP.

Let me now turn to theMART in Chicago, where our leasing continues to benefit from our development efforts over the last several years. During the third quarter, we entered into 36,000 square feet of office and showroom leases at average starting rents exceeding $54 a foot. These leases represented mark-to-markets of 36.4% GAAP and 23.1% cash.

Occupancy stands at 98% for the showroom and retail space and over 99% for office, demonstrating the extraordinary depth for space by existing tenants seeking to expand and new talents looking to join our blue-chip roster. As a result, we are in the process of taking back an additional 40,000 square feet of showroom space from the apparel tenants on the ninth floor in order to create more best-in-class office space. Our same-store numbers at theMART for the third quarter were positive 11.3% GAAP and 17% cash.

Similar to our industry-leading numbers for our New York performance, looking back over the last 5 years, since 2013, our average mark-to-markets at theMART have been 22.7% GAAP and 14.8% cash.

That's an average for the last 5 years. Our average same-store growth at theMART over the past 5 years has been even more extraordinary, at 8.9% on a GAAP basis and 8.8% cash. Let me repeat that one more time. At theMART, our same-store increases, both on a GAAP and a cash basis, have averaged around 9% per annum through each of the last 5 years.

While it was a quiet quarter at 555 California Street, we were active at the adjacent 315 Montgomery Street building. Last quarter, I told you that we had 2 leases out for 5 floors, representing 60,000 square feet. We completed those deals during the third quarter at $72 starting rents.

315 Montgomery, a historic block building with good bones and a great location, just a few years back, was a Class B building with rents only $35 to $40 per square foot. Having completed our modernization of the 315 building earlier this year, we have now leased a total of 7 floors this year, we have just 3 floors left to complete our lease up of this asset, and we are in term sheets for negotiation for all of this space.

Let me just conclude by saying our strong leasing performance in the third quarter is a reflection of both the continued health of our markets as well as a portfolio that is largely renovated and concentrated in the growth area of the city.

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

Thank you, David, good morning, everyone. I'll remind you that on July 17 of this year, we completed the spinoff of our Washington business and, accordingly, our third quarter comparable results are for Vornado RemainCo without Washington. Washington results have been reclassified as discontinued operations and are included in noncomparable items for all periods presented, along with the $53.6 million of transaction costs in the quarter. Another noncomparable item in the third quarter was a $44.5 million noncash impairment on our shares in Pennsylvania REIT. We received Pennsylvania REIT's operating partnership units as part of the proceeds when we sold them the Springfield Mall in March 2015.

I reemphasize what Steve and David said. FFO was adjusted for comparability, up 6.5%, is very strong. Cash FFO was adjusted for comparability, up 24.3%. The industry-leading same-store EBITDA and NOI metrics, the very positive leasing mark-to-markets and occupancy in the high 90s of percent, all translate into truly outstanding results for this quarter for Vornado RemainCo.

In our continuous effort to improve our reporting to shareholders, this quarter's supplement includes additional information regarding our disclosure of trailing 12 months pro forma cash NOI on Page 9.

Specifically, we are providing a summary by quarter of $183.7 million of incremental revenue from signed leases commences as well as the $37.8 million GAAP equivalent. We also disclose the $89.2 million of capital remaining to be spent related to this incremental revenue.

Now turning to financing activities. On July 19, 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%. The property was previously encumbered by $150 million mortgage at LIBOR plus 1.30%. We realized net proceeds of approximately $85 million after repayment of the existing loan and closing costs.

On August 23, our 50% owned joint venture that owns 280 Park Avenue, a 1.25 million-square foot Manhattan office building, completed a $1.2 billion refinancing. This interest-only loan matures in September 2024 as extended and bears interest at LIBOR plus 1.73%. We realized net proceeds of approximately $140 million after closing costs and repayment of the existing loan which bore interest at LIBOR plus 2%.

On October 17, we extended 1 of our 2 $1.25 billion unsecured revolving credit facilities from November 2019 to January 2022 with two 6-month extension options. This was oversubscribed and very well-executed. The interest rate on the extended facility was lowered from LIBOR plus 1.05% to LIBOR plus 1.0%. The facility fee remains unchanged at 20 basis points. The interest rate and facilities fees are the same as our other $1.25 billion revolving credit facility, which matures in February 2021 with two 6-month extension options. Vornado RemainCo has no remaining 2017 consolidated or partially owned entity debt maturities.

2018 consolidated debt maturities are $140 million, and our share partially owned entities 2018 maturities is $444.6 million, the largest of which is $275.6 million at our share for Independence Plaza, a 3-tower, 1,327-unit residential rental complex in Tribeca, in which we own a 15 point -- 50.1% interest.

Excluding the financing of our 220 Central Park South project, which will self liquidate as signed contracts close, our consolidated debt metrics are: fixed-rate debt accounted for 78% of debt with a weighted average rate of 3.65% and a weighted average term of 4.2 years; and floating rate debt accounted for 22% of debt, with a weighted average interest rate of 3.06% and a weighted average term of 3.6 years.

Debt-to-enterprise value is 27.1% based on last night's closing stock price. Consolidated debt, net of cash to EBITDA, is 5.9x. 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 7.0x.

In closing, Vornado has a fortress balance sheet with modest leverage and well-staggered debt maturities. Post the JBGS spin-off, we have $4.1 billion in liquidity comprised of $1.6 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.

Thank you. We're happy to take your questions.

(Operator Instructions) And the first question comes from Manny from Citi.

It's Michael Bilerman here with Manny from Citi. Steve, in your opening comments, you talked about, I think, you said $1 billion of proceeds from potential sales over the next several years. And I just wanted to get a little bit more clarity in terms of gross versus net to the company? And what are some of the big pieces that would comprise that billion dollars of proceeds?

I think your question is what's in the billion dollars. Okay, is that your question, Michael?

That is the billion dollar question.

Well, so we've got some stocks which are going to be for sale. I mean, they are Lexington, Penn REIT, Urban Edge, et cetera. So we've got -- it could be the better part of the $0.5 billion of common stocks. We have several assets which were not contributed to the JBG Smith spin-off, which are in the Washington market and basically are not in our core. So those amount to whatever. We have some debt positions that are coming due. We have some -- we have a shopping center that we still retain that will be sold, et cetera. So when you add it all up, it comes to significantly more than a billion, but not significantly, more than $1 billion, #1. #2, the sales will come over, some of them have some tax protection, some of them have some other reasons, lockouts because of spin-off regulations, et cetera. But over the next several years, we will realize over $1 billion from that. And what's more, that doesn't include the expected proceeds from the completion of 2020 Central Park South, which will be as well a very significant number.

Great. And then just secondly, David talked about starting One Penn, the redevelopment next summer with a lot other things that you're going to do. Can you talk a little bit more about sort of the total budget for that plan? And whether there's anything you're waiting for from city or state to go forward and do that next summer? Or are other parts of the Penn Plaza redevelopment that you would want to rope in before you get the some of that funding from different government agencies?

The One Penn redevelopment does require some actions by city planning. We expect to have those actions in place in the second half of next year, although we do expect, in fact, to commence the redevelopment program even in advance of those final approvals. Steve, do you want to comment about the budgets at this point in time?

Yes, well let me just tack on to what David said. The city planning approvals that we need are ministerial. They really involve...

It's the conversion of what we call pops.

It's the conversion of plaza space into -- we are jiggering that around a little bit to the benefit of we think the public and the building. If we, for some untoward reason, which won't happen, but if it did happen that we don't get that approval, we still have a major redevelopment and improvement of that asset that will proceed, okay? So we look at it as basically unconditional. With respect to the budget, we have not published it yet. And we will likely publish it maybe in the -- when we report fourth quarter.

And Steve, it's great that you are back better than ever.

By the way, thank you very much, Michael. By the way, with respect to One Penn, One Penn is a massive asset, its 2.6 million square feet of rentable space. It dominates the district. We are now achieving $70 starting rents. So the asset is -- it's an important asset, it sits right on top of the train station. And we have very, very, very high aspirations for the future growth of this asset.

And our next question comes from Jamie Feldman from Bank of America.

I know you gave some stats on leasing spreads for same -- for street retail. But I guess, as you think through the leases you've signed and the potential lease you have in the work at Times Square, can you talk through kind of what the same-store outlook looks like over the next few years given that it sounds like things are pretty much buttoned up?

You are talking about retail or office or both?

Street retail.

Okay. Retail -- street retail is soft. We said that this is the second year now. One might say it's a challenging environment for street retail. We believe -- if we can hold street retail level until this cycle ends, that would be doing very well. And we think we will. Now we have -- so we go into this period with the following weapons, okay? Number one, we have an extremely low basis in this great street retail portfolio. So we have flexibility to do -- to be competitive that other competitors don't. Number two, we have very, very low debt on this portfolio. If you take our flagship assets which are our Fifth Avenue assets and our Times Square assets and you put them together, we don't have $1 billion of debt, we have somewhere around $800-some-odd million of debt on that, which is against the portfolio that is 5x or 6x more valuable than that. So maybe we have below 20% debt on these assets. So those 2 things, low basis, low debt, puts us in a very competitive position. Next, these assets are the very best assets in the marketplace and these are the assets that retailers need to have. So that also makes us very competitive. Next, we have long-term leases on all of the Fifth Avenue and Times Square assets. We are leased up for term, I mean, we don't -- we have 1 expiry in the next 5 years, as I think we said. And this is all with very, very great retailers at very good debt -- credits. Almost all of those leases have upticks in them. And I think we published recently that we have, if you look at our portfolio, there are $8 million of, is that GAAP or NOI?

NOI.

We have $8 million of cash bunks in our retail portfolio which will protect the portfolio to some degree. Now, they are going to be lease rolled outs. They will be insubstantial and in the relation to the multi-hundred million dollars, I mean, over $300 million of income coming in, they will be insubstantial. We will compete, we will keep our portfolio full. We think we are in a very, very strong position.

Okay, that's helpful. And then I guess as you're thinking about the future, I mean, where would you say rents are versus the peak in the key submarkets?

I mean, that is a very difficult, this is very thin market, Jamie, where there are very few tenants trolling and there are very few deals that are being made, okay? I can tell you that the 2 leases that we talked about in Times Square, the Sephora lease and the unnamed lease, which we expect to be signed very, very shortly, they are within spitting distance of the top tick, okay? And they are fair rents, they are rents at which the retailers can make a lot of money. And so what I'm saying is, is that they're within spitting distance of the top tick. We believe that -- well that may not be atypical, in other words, if you are -- if you have to look for the clearing price when there are no tenants out there, that can be very bloody, that does not have any characterization of our portfolio.

Okay. And then just last. Any thoughts on the WeWork Lord and Taylor deal and what it means for either your 34th Street assets or retail or office in the city?

I think I wrote about WeWork in my last year's letter. We know these folks, we know them well. We think what they're doing is unbelievably impressive. I won't comment on valuations. But I think that they -- we welcome them to the neighborhood. We're happy to have them. And we think that they'll approve them. I think that obviously this was a financially driven transaction that recapitalizes Lord and Taylor, and so I think that's good. The fact that Lord and Taylor will be closing or either shrinking down to 25% of their previous store or maybe even closing it entirely is of no moment whatsoever to us.

And our next question comes from John Guinee from Stifel.

Okay, Steve, assets are better than new and the CEO is better than new. Congratulations. Question.

Is that a well wish? Thank you.

That is a well wish. Hey, Joe, looks to me like your run rate on your G&A is about $140 million, BXP is around $111 million, SL Green is about $100 million, and that includes a fairly vibrant DPE business, which probably costs them about $20 million-a-year. What do you think about your G&A in '18 given that NAV discounts matter less and cash flow matters more?

We have to reconcentrate our efforts on reducing G&A. I will tell you that we plan to publish in the supplemental a analysis of G&A which gives you a better shot of understanding. We still supply services to Urban Edge. That shows as fee income in G&A. We supply a lot of services to JBG Smith, that shows as fee income in G&A. We service Alexanders, that's fee income in G&A. So we wanted to do a better job of portraying to you the real, real net rate of G&A. But that is high and we have to work on it, we are committed to work on it.

Great. And then the second question, tax issues on your LXP stock, your Urban Edge stock, your Penn REIT stock. Are you able to sell these without incurring a tax hit? Or are these all going to be taxable transactions?

LXP is -- we have basis that is about 80% of the market price, so there will be a small -- there will be a small, I think, 20% of the sales proceeds will be taxable, so that's step one. On Urban Edge, what's our basis on Urban Edge?

No tax.

What?

On tax on Urban Edge. I am sorry, there is.

I'm just looking at the -- Urban Edge -- it looks like, Urban Edge, we have basis for 50% of the market value and 50% will be taxable. And the last one, Penn REIT. Penn REIT, I think, is tax protected for an unknown. What?

No tax.

It is tax protect, we can't sell it. We have a lockout on sale until an individual passes. What's the tax basis on Penn REIT?

We don't have taxable income allocated to us from the sale of Penn REIT. So when Steve gave you the $1 billion number before, that was cash retained by Vornado. There are some taxable gains, mostly which you just heard Steve talk about that the absence of other capital loss carryovers would be distributions to shareholders. But the $1 billion he talked about was cash we retain.

John, let me say this slightly in another way and Joe is absolutely correct. These assets are slightly different than most of our buildings in our portfolio. And that is, is that they -- we are able to sell most of these assets, maybe even all of these assets, and retain almost all of the proceeds.

And the next question comes from Vikram Malhotra from Morgan Stanley.

Congrats, Steve, as well for being back and well and healthy. Just a follow-up on the retail -- street retail business. In your opinion, I mean, you've laid out well kind of the bigger, broader challenges with retail and how the Vornado portfolio is different. In your view, where are we in the correction? Said in another way, we've seen rents come down at least asking rents as reported by the Real Estate Board of New York. Where are we in that correction? What are you monitoring? And is there any signs in certain submarkets that things are turning?

Yes, there are bottom fishers that are coming into the market. I'm sorry about tenants. There are -- there is a pickup in activity, I am not willing to call a bottom.

Okay. And then just as a follow-up, sort of your comments on the redevelopment of Penn Plaza. Can you give us some color on, and maybe that includes Farley as well, can you give us some color on the types of conversations you're having with prospective tenants? Let's say the Amazon headquarter deal does not come through, are you having conversations or at least initial discussions with large -- with users that may need a large amount of space? And is there demand for that type of space in the Penn Plaza area?

The answer to that is there is demand. We are in conversations. But really -- we are not in a position to talk about any -- speculate on any of that.

And our next question comes from Steve Sakwa from Evercore.

I guess, David, just on the office side, can you just maybe talk about the discussions you're having with tenants kind of on the 2018, 2019? And kind of where is the sort of sense of urgency to kind of do deals or tenants coming in early trying to get renewals done? And just sort of what does that dynamic look like today?

Steve, listen, our portfolio is a real multi-tenant portfolio. What I said earlier is the single-largest piece of vacant space we have is 70,000 square feet in the entire portfolio. So as you look at the expirations that we have coming up over the next couple of years, much of it is tenants that have 5,000 feet, 10,000 feet, 30,000 feet. These are regular discussions that we have with tenants all the time. We are in active dialogue right now with tenants in the portfolio as well as some new tenants of somewhere in the 440,000, 450,000 square feet. And we have proposals out going back and forth in addition to that, of the better part of 800,000, 900,000 square feet. So realistically, it's what I'll call the normal blocking and tackling. The question that Vikram had asked about some of the big fish hunting, that realistically relates today to what we have in the Farley Building. And as I have said on this call and on the prior call, as you begin to witness and understand the grandeur of this extraordinarily full block building, the truly unique nature of these footprints where we can deliver 250,000 feet of floor, it is extraordinarily attractive to the creative types of tenants. I'll give you just kind of one data point. And that is in early August, the entire senior team here went to the West Coast. And we spent the better part of 2, 3 days visiting some of our tenants and customers as well as other companies just to understand the nature of what these campuses are in Silicon Valley. And you go to Facebook and you see a new Frank Gehry building, which is a one-story building, parking at the base, a 450,000 square foot footprint as you think about that, that's 10 acres, with a park on top. You go to Apple's headquarters, it's 820,000 square feet per floor with a park effectively in the middle of the ring. And you see this over and over again when you go to Samsung, Nvidia and other tenants. So what we think is truly unique about the Farley Building is the ability to deliver truly a horizontal campus in New York with what I said earlier is some great roof deck space in the heart of the city with views all around. So but most of that -- our business, what we do every day, what Glen does every day, it's really going after the tenants that are less than 100,000 square feet in terms of what our normal tenancy is.

Steve, it's actually, as you would expect, as it always is, demand is different submarket to submarket. And there are the submarkets that we are focused on are tight of supply as opposed to some of the other submarkets.

Okay. And then I guess, Steve, I know that the $1 billion you talked about is over a multi-year period. So maybe a little bit premature to sort of think about uses of capital. But how do you sort of think about those uses of capital today? Is it geared for share buybacks? Is it geared for redevelopment, acquisitions? I mean, how would you sort of prioritize the use of capital?

I agree with you it is premature.

Okay. And then I guess just last question, and I realize it's early on the whole Amazon H2Q. Just as you sort of think about the requirements that they laid out, New York meets many of them that you talked about, but maybe housing and affordability of housing is kind of the issue. I mean, do you sort have of any sense as to kind of how those priorities stack up? And how do you think New York stacks up relative to some of those other cities?

Oh, Lord. I think that the process that Amazon is -- has embarked on is truly unique, I don't think we have ever seen anything like this before. We've got brother fighting against brother out there with all these different cities. There's 200-some-odd different applicants. So, we can't begin to predict the results, but we can't even begin to predict who the final 5 or 10 is going to be. Having said that, New York is obviously everybody knows is a high-cost area. I won't comment about how business friendly it is, we think it is very business friendly. We think transportation is amazing. We think the quality of the workforce is unparalleled. We think that there are not only our option, but there are other options that could satisfy even -- and even delight Amazon. But in terms of where that comes out, Steve, I don't know.

And the next question comes from Alexander Goldfarb with Sandler O'Neill.

Certainly, Steve, good to have you back on the call in full vigor.

Thank you.

Two questions. First, how much does resolution of Toys play into your $1 billion, I guess, of cash retention as far as when you guys look at the different stock positions and other assets that you may sell? How much of it is tied to whatever happens with Toys both here and whatever happens with their Asia division versus both the $1 billion of sales in Toys are 2 separate discussions?

I think your question is how much does the potential of a $400 million tax write-off coming from Toys shield the $1 billion? Okay, and the answer is, Joe?

The $1 billion is the portion we retain without any utilization of the Toys write-off. And none of it comes from Toys. It's all from assets other than Toys.

But in terms of Toys being used as a shield to retain that $1 billion, the answer is that's icing on the cake, we haven't used that at all in our internal budgets.

Okay. So then as a follow-up to that, so if you -- when hopefully Toys is resolved, does that mean we should think about an additional amount of dispositions or you would use that shield for something else?

Once again, once again, I can't predict that. I just can't predict that.

Okay we will stick with that.

Hang on, hang on, hang on -- we sell assets from time-to-time for lots of different reasons, either they're -- we think we've gotten to the level of maturity where we have created the value that we can, that we -- they are not in our core. For other miscellaneous reasons, why we don't want either to take a large profit or because we no longer, I think, they're useful or they're no longer growing or we don't -- no longer want them. And in a rare instance where even once in a while, where we made a mistake. We don't really do get into sales based upon tax reasons. We try to do it based upon real estate and business reasons. But Toys -- potential of a Toys shield, tax shield going forward is just icing on the cake. And you got to remember, we have a very big business. We've done $15 million or $17 million of transactions in the last recent years. So this $400 million tax shield, which will, really on a capital gain basis, be in the hundreds of millions of dollars of tax savings, it's really -- it doesn't -- this will be the tail wagging the dog, okay?

Okay, that's helpful. And then Joe, second question. You guys have obviously good reaction to stock today. You guys have put a lot of releases on all the impacts over the past quarter that affect this quarter. When we think about that $38 million of GAAP equivalent NOI that is going to come online over the next presumably 1 year, 1.5 years, how should we think about that heading into next year? Does all of it come in next year? Does some leak into 2019?

It's the timing of the NOI increases. Hang on just...

The GAAP NOI.

Joe is looking through some papers.

The NOI comes in $29 million fourth quarter of this year, $45 million next year, $8 million the year after. We gave it by quarter on Page 9 of the supplement. The EBITDA equivalent is $10 million in Q4 of this year, $19 million in 2018, $8.5 million in 2019. Again, given by quarter on Page 9 of the supplement.

And Joe, that's GAAP or cash because I'm thinking about...

The second set of numbers I gave you was GAAP, the first set of numbers I gave you was NOI cash. The first set of numbers totaled $84 million, the second set of numbers totaled $38 million. 38 is the GAAP, 84 is the cash.

And our next question comes from Joe Reagan from Green Street Advisors.

Steve, first of all, very glad to hear you're feeling a lot better.

Thank you.

I guess along those lines, has your thinking changed at all in terms of your day-to-day involvement with the company going forward? And maybe if you can talk it all about the approach or time line in terms of succession planning, if that's evolving at all in your mind or at the board level?

Well, obviously, it's top of mind in my mind and at the board level. I mean, obviously, I'm on the back line. I may be even on the back half of the back line. Having said that, the board is very involved in the future -- in the management team and the future management team of this company as am I. Having said that, over the last number of years, we have totally transformed this business. We have done and restructured it, which we think has benefited enormously to the corpus. That's something that I think the board thought that I was the best candidate, that I was the best person to do. And we still have more to do. So I'm not quite done yet and we still have more to do. Having said that, you can be assured that, that we have a robust succession plan, and I don't think I have anything more to say on that than that.

Okay. Separately, you guys provided some helpful cost details on the Farley project in the supplemental. Just wondering if you are in a position to provide a stabilized yield expectation for that project?

You know, not really. Our aspirations are high. We think it's the best piece of real estate in that genre in town. So our aspirations are very high. We think that the downside also yields a very acceptable return. We're not really ready to make predictions which the real estate market will use. And so just let us do our thing. We think we do it better than anybody. Let us do our thing.

Sure. Maybe just last one. Appreciate the color on the One Penn time line. Can you offer any kind of time line expectation for the Two Penn redevelopment at this point?

The answer to that is the Two Penn development -- redevelopment will be either simple or complex. And so right now we can't -- it's not appropriate for us to give any input, any information on Two Penn right now.

And our next question comes from Nick Yulico from UBS.

Just a question about 666 Fifth, what are your latest thoughts there on how that plan may evolve?

That's an evolving plan, that's the first step. The second is, it's a very, very, very attractive piece of real estate. I've said this many times before, it's overleveraged which is an issue. Our position -- we look upon our position in that. We own 100% of the retail at the bottom of the building on Fifth Avenue, we own 50% of the office building. We think the asset is brilliantly well-located.

Steve, the retail is unencumbered, right.

The retail is not unencumbered. The office building is overleveraged, okay. The retail has leverage on it too, but proportionate leverage, okay. So our position in that building, and we look upon it as if it's a mez loan marked where we have a relatively modest amount of capital in there for a 50% position in any event. There have been rumors in the marketplace, more than rumors that have been published in the marketplace about tearing the building down and doing all manner of fairly grand development schemes. It's likely that those are not feasible. And so it's likely that the building will revert to an office building. And so we are working on that, we're working on capital plans, we are working on venture arrangements, et cetera. So it's a working process.

Okay. And so is that a situation where you would like to increase your ownership in the building rather than look to sell off your existing stake?

I said last year or so, maybe even longer than that, that we were likely a seller into the grand scheme. The grand scheme has gone away, and I don't want to speculate on whether we are a buyer or a seller or increasing our position in that -- in the deal. This building and our venture are the subject of current discussions and let's leave it at that.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for your participation, and you may now disconnect.

Thanks, everybody, and I appreciate very much your well wishes with respect to my health, which is, I am fine. Thanks.

Thank you, ladies and gentlemen.