美國沃那多房產 (VNO) 2013 Q3 法說會逐字稿

Good morning, and welcome to the Vornado Realty Trust third-quarter 2013 earnings conference call. My name is Janine, and I will be your operator for today's call. This call is being recorded for replay purposes. All lines are in a listen-only mode. Our speakers will address your questions at the end of the presentation during the question-and-answer session. (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's third-quarter earnings call. Yesterday afternoon, we issued our third-quarter earnings release and filed our quarterly report on Form 10-Q with the Securities and Exchange Commission. These documents as well as our supplemental financial information packet 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 annual report on 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; Mitchell Schear, President of the Washington DC division; Joseph Macnow, Chief Administrative Officer; and Stephen Theriot, Chief Financial Officer. Also in the room are Wendy Silverstein and Michael Franco, Executive Vice Presidents and co-heads of acquisitions and capital markets. I will now turn the call over to Steven Roth.

Thanks to you, Cathy. Good morning, everyone. Welcome to Vornado's third-quarter earnings call. I'd like to begin by reaffirming our commitment to our strategy of simplifying, pruning, and focusing the business. We are making very good, steady progress in that regard and we will continue to do so.

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

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

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

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

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

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

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

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

Here are some specifics on recent acquisitions. On September 30, we announced a joint venture in which we have a co-controlling 20.1% interest and acquired 650 Madison Avenue, a 594,000 class-A office and retail tower located on the full Western block front of Madison Avenue from 59th Street to 60th Street. The property contains 523,000 square feet of office space and 71,000 square feet of retail space. Half of the office space is Polo Ralph Lauren's world headquarters. The retail space is primarily leased to Crate & Barrel for its 61,000 square foot Manhattan flagship.

The purchase price for this property was $1.295 billion, which was financed with a new $800 million, seven-year, 4.39% interest-only loan. We are co-managing and co-leasing this property.

On October 4, we announced the acquisition of a 92.5% interest in 655 Fifth Avenue, located at the northeast corner of Fifth Avenue and 52nd Street. The price for this acquisition for our share was $277.5 million. The property contains 57,500 feet square feet, which is entirely leased to Ferragamo, and of course this asset includes their flagship Fifth Avenue store.

On October 15, we announced that we acquired for $194 million land and air rights for 137,000 zoning square feet, thereby completing the assemblage of our 220 Central Park South site in Manhattan. This transaction will allow development to begin on a 950 foot luxury residential condominium tower containing 472,000 zoning square feet. The to-be-constructed tower will have 140 feet of direct unobstructed Central Park views, and will be designed by Robert A.M. Stern Architects. While it took almost eight years to complete this assemblage, this site is the best in town, and it was certainly well worth the time. Values have risen tremendously during that time, and the land alone here is worth well more than double our $500-odd million economic cost.

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

So far in the fourth quarter, we closed on the sale of the Harlem Park land for $66 million, resulting in a net gain of $23 million.

With the above dispositions in 2013, we have sold $1.8 billion of non-core assets. This is on top of $1.7 billion sold in 2012, and we currently have in the market for sale more than $500 million of assets, and we have more than doubled that amount in the on-deck circle.

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

The Marriott Marquis retail and signage project at the bull's eye of the bowtie in Times Square, where construction barricades are going up as we speak. The 1.4 million square foot Springfield mall renovation, which is under construction for a holiday 2014 opening. The transformation of 280 Park Avenue at 48th Street in partnership with SL Green, which is in full construction and will transform this asset into an A-plus-plus location on Park Avenue. The 699 new residential project in Pentagon City, with Whole Foods Market as its base, which will go into construction this quarter. The Hotel Penn in the Pennsylvania Station district. And, of course, as I just mentioned, 220 Central Park South.

Let me end my remarks with the following observation. The markets that we operate in all seem to be improving in our favor, and that's a very, very good thing. In New York, retail sales and rental rates are white-hot. Office leasing, as I said in last quarter's call, is surely heading in the direction of a landlord's market. Washington is bottoming with signs of green shoots. The debt markets continue to be very robust, with rates just above historic lows. The assets we have chosen to sell are receiving a lot of interest from many potential buyers.

The only market that is giving us heartburn is the acquisitions market for properties we want to buy, which is extremely high, and so we are proceeding here with great caution.

Now I will turn it over to CFO Steve Theriot to cover our financial results.

Thank you, Steve. Yesterday, we reported comparable funds from operations of $1.27 per share versus $1.03 for the prior year's third quarter, a 23.3% increase. Comparable EBITDA was $416.5 million, ahead of last year's third quarter by $55.4 million, or 15.3%. Our New York division produced $251 million of comparable EBITDA for the quarter. That's a running rate for our New York business of $1 billion a year, quite a milestone.

New York division EBITDA, about 60% of our total, was $47.4 million, or 23.3% ahead of last year's third quarter, primarily driven by a 7% same-store increase, property acquisitions, and our $12.1 million share of a lease termination fee. Please remember that, consistent with our past practice, lease termination fees are excluded from same-store results.

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

Our strips and malls business produced $56.8 million of comparable EBITDA this quarter, which is $3.7 million, or a strong 7.1% ahead of last year's third quarter. Our New York and Washington businesses, together with our strips and malls, account for approximately 90% of our Company's comparable EBITDA. This is our focus and our core business.

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

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

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

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

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

Steve, thank you. Good morning, everyone. I'm going to begin with a brief overview of what we're seeing here in the New York City marketplace. New York City feels good. Traffic on the streets is bustling, and the sidewalks are overcrowded. We like traffic. When it's hard to get around, that means people are at work, shopping in the stores, and filling the hotels, all great for Vornado's New York business. This buzz of activity we are feeling is, in fact, reflected in the market statistics.

Private-sector jobs are up some 90,000 year to date. 52 million tourists will visit the city this year, a record number; and sales volumes in our flagship stores are at or approaching new highs.

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

At the beginning of the year, there were 83 blocks of space larger than 100,000 square feet available. That number is now down to 68. While value space is still the key demand driver, we are also seeing real activity in the high-value, triple-digit market.

In the city, there have been 50 leases this year signed at over $100 per square foot. Six of those are ours.

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

Our average starting rent this quarter was a healthy $62.04, with very strong positive mark to markets of 8.9% cash and 8% GAAP. The average lease term was 6.7 years, with TI's at $41.54. Our office occupancy rate held steady at 95.9%, but there is an important asterisk to this number. At the very end of the quarter, we signed a lease termination agreement for Gleacher & Company's 84,000 square feet at 1290 Avenue of the Americas. I'll give you a bit more on that later in my remarks. If not for that lease termination, our occupancy for the quarter actually would have been 30 basis points higher at 96.2%.

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

This quarter, we completed three leases in the building, highlighted by a 57,000 square foot lease with the commercial brokerage firm Colliers International. I've mentioned in the past how important it is to our relationship with the brokerage community to have the major brokerage houses as tenants in our portfolio, and we now have three of the majors in New York -- Jones Lang LaSalle's headquarters at 330 Madison Avenue, Cushman & Wakefield at 1290 Avenue of the Americas, and we now welcome Collier's at 666 Fifth Avenue. We also signed at 666 a 56,000 square foot lease with the Limited companies for its Victoria's Secret division. We have a strong relationship with the Limited companies. They in fact are headquartered in our 1740 Broadway property, occupying 467,000 square feet.

Activity at 1290 Avenue the Americas has continued to really heat up now that our transformative lobby renovation program is complete. We have many brokers telling us that 1290 is now the best building on Avenue of the Americas.

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

Looking ahead, we have Morrison & Foerster's 166,000 square foot lease expiring in May 2014. These are great floors at the top of the building with views of Central Park. Warner Music also recently announced that they will be relocating out of 1290 to cheaper space at 1633 Broadway. This is a real opportunity for us because Warner's lease has over 3.5 years remaining, so we have plenty of time to re-let the space and realize value. Having just completed our leasing marketing center at 1290, we have a lot of activity here and are very excited about our prospects.

At 280 Park Avenue, the transformation program we are undertaking with SL Green is now really visible to everyone driving by on Park Avenue. The barricades are now down, revealing the full block-long lobby which will be opening prior to year end. Our strategy at 280 Park has been to target the smaller financial firms in the 25,000 to 50,000 square foot range to maximize the rents. This year, we have completed 150,000 square feet of leasing activity and currently are working on two additional deals for another 80,000 feet. 280 Park Avenue is as good as it gets. Prime Park Avenue with JPMorgan Chase's world headquarters as its direct next-door neighbor.

Let me now turn to our Manhattan Street retail portfolio, where we were active on the acquisition front, as Steve mentioned, having acquired 655 Fifth Avenue at the northeast corner of 52nd Street, with 50 feet of frontage on Fifth Avenue, a 57,500 square-foot retail and office property net leased to Ferragamo.

We also acquired 966 3rd Avenue, a small retail building which is leased to McDonald's. Importantly, this asset sits between two of our existing properties which all combined now gives us 100 feet of retail frontage on Third Avenue at 58th Street, opposite 731 Lexington Avenue, the Bloomberg Tower.

As Steve has also already mentioned, we completed nine street retail leases this quarter, totaling 35,000 square feet with very strong mark to markets -- 126% cash and 235.7% GAAP. This street retail business is a jewel in our New York portfolio. We took our occupancy rate up 80 basis points here to 97.1%. On Madison Avenue at our 40 East 66th Street property, we signed a lease with John Varvatos replacing Dennis Basso; and at 1133 3rd Avenue at 66th Street, for the space formerly occupied by the Gap, we signed leases this quarter with Nike Running Door and Carlo Pazolini. We are now working on one more lease there which will complete the releasing of this full-block property.

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

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

Turning now to the 3.5 million square foot Chicago merchandise Mart building. This quarter, we leased 48,000 square feet. Motorola, Google's fit-out of their 600,000 square feet is substantially complete. Their 2500 employees will be moving in by the early part of the New Year, which is beginning to bring a real buzz to the building. There are significant opportunities in this building to continue the conversion of several hundred thousand square feet of underperforming showroom and tradeshow space to office space for both traditional users and creative tech tenants.

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

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

Thank you, David. Good morning, everyone. I will start with an overview of the third quarter and then talk more broadly about the market and how we're thinking about our business. Our Washington business had an exceptionally large volume of leasing in the third quarter. In the slow leasing market, we were particularly excited about what we accomplished. In the quarter, we leased a total of 1,076,000 square feet in 57 office and retail transactions. Year to date, we have leased 1,691,000 square feet in 132 office and 40 retail transactions. We completed the two largest transactions in the Washington market this quarter. One was the largest lease in northern Virginia and the other was the largest in DC.

In northern Virginia at Skyline, we signed a 182,700 square foot lease with the United States government to house the US Fish and Wildlife Service. This was one of the most hotly contested awards of the year and was the largest lease in northern Virginia in an existing building this year. We expect the agency to occupy their new space by June. That's really fast for a user of this size.

This 418,000 square foot building was our single biggest concentration of BRAC vacancy and it's now 65% leased. This lease also reduced our overall BRAC exposure by 12% and brings us to the halfway mark in resolving BRAC. Other pieces of our Skyline repositioning strategy are also falling into place, including having now finalized our Skyline debt restructuring. Joe will talk more about this in a moment.

In addition to new leasing, we are very focused on retaining our tenants. Since January, we have renewed 717,400 square feet in our portfolio. The largest of these renewals was completed in early August to the global law firm Sibley for 289,000 square feet of the investment building, a property that we manage-lease and own a 5% interest, in partnership with institutional investors advised by JPMorgan.

Although this lease is not expiring until 2016, we renewed Sibley early at a slightly expanded footprint and anchored the building to 2031. Our apartment business in Arlington and Georgetown continue to perform very well. Our 2400-unit portfolio is 97.2% occupied, and third-quarter EBITDA is 2.4% ahead of last year's third quarter.

Overall, office leases signed in the third quarter generated a GAAP mark to market of positive 3.8% and a cash mark to market of negative 1.1%, a very satisfactory result given the difficult market we are in. Our occupancy was unchanged from Q2 at 83.6%.

I would like to note that with the heavy volume of leasing this quarter, occupancy would've been 120 basis points higher but for the fact that we brought the 26.5% occupied, 298,000 square foot, 251 18th Street building in Crystal City back into service this quarter after its renovation.

Tenant improvements and leasing commissions for leases signed in the third quarter were 9.8% of starting rents, which is significantly lower than the 12% for 2012 and the 16.7% for the first half of 2013.

In addition to our focus on office leasing, we continue to add to the vibrancy of the Crystal City neighborhood. Over the last decade, we have transformed Crystal City with the addition of a dynamic retail experience at the street level of many of our buildings. We attract true destination makers and celebrity chefs and unique amenities, and Crystal City draws thousands of people to its many cycling and running events, wine festivals, and theater and arts events. Continuing our momentum, we recently completed two new brand builder leases, one with Top Chef Spike Mendelsohn and the other with TechShop, a hub for investors and entrepreneurs.

Now let me turn to what we're seeing on the ground in terms of office leasing and how it fits into our business here.

The Washington market has been on pause. We've been through BRAC, sequestration, and the most recent shutdown showdown. And if I sound like a frustrated taxpayer, I am. Despite the confusion that has come to define our nation's government, the Washington's economy remains resilient, with rising housing prices which are up 5.6% in the 12 months ending June 2013, low unemployment currently at 5.7%, and a growing regional economy.

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

Consistent with recent trends, we are in a value-driven tenant market which plays well to our portfolio where we can offer good value solutions inside the Beltway and in fact on the shores of the Potomac River. Further, we are now seeing some large important requirements starting to troll the market. Economists project a 20% surge in professional services job growth over the next five years in Washington, which is expected to result in an aggregate of 143,800 new jobs by the end of 2017. This could translate into over 25 million square feet of new office absorption.

So with this demand potential, combined with low levels of new supply, typically signals the beginning of a sustained recovery.

The theme of our Washington business is value creation opportunity. Over 2 million square feet of vacant office space is both the bad news and the good news. The bad news is that our earnings are currently being penalized by over $70 million a year. It's a big number. The good news is that as we lease the space, our earnings growth will be enormous.

Someone famous once said trouble equals opportunity. Over the years, we've been experts at solving this particular equation. Please remember that in 2006 to 2009, we re-leased over 2.2 million square feet of space in Crystal City after the PTO, US Air, and the EPA relocated. It's also interesting to note that since 2004, Crystal City rents are up by over 30%.

We're actively teeing up our significant development pipeline. We have more than 7 million square feet of developable inventory in Rosslyn, Crystal City, Pentagon City, and in the District on land that we own free and clear. In September, we received government approvals for the last tract of undeveloped land in Pentagon City, 10 acres that sit directly across from the Pentagon which we named Penn Place. It is now approved for five buildings totaling over 2 million square feet. The location is unparalleled between the Pentagon and Simon fashion center, which by the way we own a 7.5% interest in. And it's adjacent to our soon-to-go-under-construction, 699-unit residential tower, which will have a Whole Foods Market at its base.

The Penn Place approval is an important piece of our overall development vision. Together with our new apartments, Penn Place is a natural extension of our existing 8 million square foot portfolio in Crystal City, located just two blocks away. With Crystal City and Pentagon City, we are creating one blended district with deep complementing concentrations of office, residential, and retail. Arlington County's new light rail system is proceeding to further the physical connection. We are the dominant owner of this newly combined Crystal City/Pentagon City district, and we expect demand for all of our holdings in this area to rise as a result of the cross benefits. And remember, we are on the shores of the Potomac, just a stone's throw from DC.

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

Thanks, Mitchell. Let me first touch on our strip shopping centers and malls, both of which had a strong quarter. Strip shopping center occupancy was 94.3% at quarter end, up 20 basis points in the second quarter and up 70 basis points from last year's third quarter. Occupancy of the remaining malls was 94%, up 50 basis points in the second quarter and 140 basis points from last year's third quarter. We leased 288,000 square feet at the strip shopping centers with a positive mark to market of 13.7% GAAP and 7.4% cash. We leased 243,000 square feet at the malls with a positive mark to market up 11.4% GAAP and 3.6% cash, a strong, strong quarter for our strip shopping centers and malls.

Now turning to capital markets. As of today, we have $3 billion in liquidity, comprised of $800 million of cash and $2.2 billion of undrawn revolving credit facilities, overall $400 million better than at the start of the year, and that's after using $500 million for recent acquisitions and debt repayments. Our objective is to build liquidity, which will happen as we continue to sell non-core assets and finance core assets.

Our consolidated debt to enterprise value is 36.6%, and our consolidated debt to EBITDA is 7.0 times.

As Steve mentioned, in October we completed the restructuring of the $678 million, 5.74% Skyline mortgage loan. The loan has been separated into two tranches -- a senior $350 million position, which as Steve said is $132 a square foot; and a junior $328 million position. The maturity date has been extended from February 2017 to February 2022, and we have a one-year extension option.

The effective interest rate is 2.965% for the term of the loan. The capital we will invest to re-lease the property will be senior to the $328 million junior position. In other words, it will come in right over $132 a foot. Our debt mix is balanced with 86.5% fixed rate with a weighted average of 5.03% and 13.5% floating with a current weighted average interest rate of 2.32%. Remaining 2013 and 2014 maturities are just $145 million. As we refinance our fixed-rate portfolio at lower rates, even after the season, significant increases in earnings will result.

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

(Operator Instructions) John Guinee, Stifel.

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

Hi John, how are you?

Good.

The election is today, so we will know I guess tonight what the polls are predicting. The polls are predicting very strongly that Mr. De Blasio will be the next mayor. So let me make a few comments about this gentleman. Number one, he's tall -- really tall. I think he may be the tallest politician in the land.

He is a strong leader. He is very intelligent. He is obviously a caring man; he cares for people, which is very important especially in the city. He is a very professional politician, and that's obvious to people who don't know him in how he rose to the top in the very, very long and contested primary. So, this is a man who is a professional politician, knows the game, has been there before, although not as visible as some of his predecessors. Is intelligent and caring. He is a Clinton Democrat, and I think we all know what that means.

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

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

Your second question was the Hotel Pennsylvania. I think we've talked about that at length in the past. That is a site which is a great site in the heart of our massive Penn Plaza holdings. It's an important asset. It's currently a 1700-room hotel. We went through a Euler procedure, and the property is now fully approved for an approximate 3 million square foot office building, which is in the configuration of a financial services headquarters.

We had a handshake on a deal with such an animal some short years ago which fell through in the financial crisis, and so we do have a fully approved site for a building which is not possible to build right now because there is not a tenant for it and the economics are not there. So although it's very valuable and very nice to have that approval -- and every once in a while, we get people who come by and cruise and sort of tease us about the prospect of a new build on that site.

The high likelihood, the high likelihood with respect to the Hotel Pennsylvania is that we will spend a -- oh, I would dimension it somewhere over $250 million and maybe even into the $300 million's in repositioning the hotel, renovating it, upgrading the rooms, and most importantly of all transforming the public spaces of that hotel into something with restaurants and life which will benefit not only the hotel and the hotel patrons but the entire district where we own 7-odd million square feet of office space. That is probably -- we're tardy on that decision, but it's probably a pretty imminent decision to start moving forward. Okay? We may very well do it in colleague with a professional hotel operator, and that's probably the most likely outcome.

Your third question, John, was about the value of what we think the value of the vacant space, which is over-dimensioning -- over 2 million square feet in Washington, is valued at our stock. And I said in my prepared remarks, I think it's valued in our stock at zero. What do I think it should be valued at? I'm not -- that's not a question that I think I'm going to handle. Okay? But obviously -- all space, even if it's empty, has future prospects and is worth something.

But the way I do the math, the vacancy in our Washington business is valued at zero. And clearly over time, and hopefully not that long a time, we will lease that space up, and that's a huge value creator for us.

Great, thank you.

Thanks, John.

Alexander Goldfarb, Sandler O'Neill.

Two questions here. The first question, Steve, you guys obviously have chopped a lot of wood recently. Skyline 220, the list goes on, but there's a lot that really happened recently. As we look -- you talk about possibly another billion of dispositions, $500 million in the works, and another $500 million on deck. As we look out over the next six to 12 months, what do you think we're going to see? Is it going to be some of the big ticket items to clean up or is it going to be more individual assets? What should we be looking for?

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

You know, I think your estimate of a year or a year and a half from now is we expect to accomplish an awful lot in that year and a half. We have -- I think I've said $50 million of assets in the market now. We have doubled that amount $1.5 billion in the on-deck circle and maybe even more than that. We expect and we are hopeful that in an 18-month time frame we will complete all of that.

Now, we can run into speed bumps along the way. We can get an asset -- some of these assets are clinkers obviously. And not in our core, so we may get into a situation where we can't get the pricing we want or something else happens so -- but by and large, our mission is to prune the business down to the core, and we're working very hard to do that and I would be very hopeful that all of those assets that we have teed up will be transacted between now and a year and a half from now.

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

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

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

So that's an isolated building. It's complicated; we have a complex structure. But that's a building that is great, it's improving, rents are going up. The team -- David and his team are handling the renting well. But it's not a building that we intend to own forever. We've said that publicly. We've got another big asset out in California called the Beverly Connection; that's not an asset also that we intend to own for (inaudible). So those are very large numbers, and they are certainly in our sights.

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

Well, Alex, first let me just correct one thing. We do not self-insure. We reinsure everything that our captive takes on in liability, other than NBCA, the nuclear biological, etcetera, etcetera. If TRIA does not get extended -- we now have $4 billion of terrorism coverage. That will equate to our pecking order in being able to buy the equivalent insurance if TRIA is not there at 15% of that or from $600 million. But if TRIA is not there, for sure that insurance is going to be much more expensive than it is today.

Okay. Thank you.

Thanks, Alexander.

Michael Bilerman, Citi.

Thank you. Good morning, all. Steve and Mitchell, I just wanted to come back to sort of the DC comments. Steve, I think in your opening remarks, you talked about the market has bottomed, but then later on you talked about bottoming with green shoots.

And I'm just trying to get a perspective of as we look forward to 2014 in terms of what the pipeline looks like to get our arms around both sort the vacancy within Crystal City and the BRAC re-leasing and how we should think about EBITDA heading into 2014. But then just more broadly about when we can start to see that turn and really -- is it bottom in the fourth quarter, or is it bottoming where we can still see some slippage? And what sort of gives you the confidence heading into next year?

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

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

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

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

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

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

Mitchell, do you have anything else to add?

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

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

Let me tack on one of two more thoughts, Michael. The first is that we have a large and important business in Washington. We are the largest owner down there by a factor of two, maybe even more than two. The bull's eye of our business is Crystal City. Crystal City is one of the brilliantly located pieces of real estate. It's big, it's important, it's got scale. It's on -- it's contiguous to Reagan Airport on the shores of the Potomac. It's seven minutes from the district.

I mean, it's -- it has the -- it will be, when we figure out these and re-rent and transform and continue -- it's going to be one of the great investments ever made. We were already $2 billion ahead on the investment, notwithstanding the vacancy, so maybe even $3 billion ahead. So that's number one. We are very, very confident of the -- I guess the slang would be the dirt that we own.

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

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

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

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

I'm sorry. Say it again, Michael?

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

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

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

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

Okay. Thank you.

Thanks, Michael.

Steve Sakwa, ISI Group.

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

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

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

So one of the philosophies that I live by, Steve, is that if you take a 10-year cycle, there's two or three years which are definitely the times to be buying. And by the way, those are the times when you wake up in the morning and your stomach is in a knot because of fear; that's the buy signal. Then there are two or three years at the other end of that dumbbell which are clearly the sell times, and then there's everything in the middle where it's sort of in between.

And so we're clearly not in the years which are the easy buys. We are probably pretty close to the years that are probably the sell, but I can't -- I'm not making a call. So the answer to your question is we don't do it formulaically. We have said clearly that we will buy selectively. And we said clearly that we'll be a net seller and probably even a very substantial net seller over the next short period of time.

Michael Franco, who runs our acquisitions, and Wendy, do you guys have anything else to say?

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

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

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

Joe?

Yes, Steve, but for the -- bring that building back on, that was 26% lease, the occupancy would've been 120 basis points higher or flat.

And it was 251 18th Street, Steve, I think you were referring to.

Okay, sorry thank you.

Does that answer your question?

Yes, it does. Thank you.

Michael Knott, Green Street Advisors.

A few questions on DC. Curious just on the EBITDA range, seems still kind of wide for being this deep in the area. Just curious on that. And then do you expect to give 2014 guidance at some point on DC, or was that just a one-time event with what's happened in DC the last couple of years? And then my, I guess more important question on DC is I'm just curious -- Mitchell, you've talked about all the things that have stalled your market's progress. Just curious if the next hit from -- the next round of sequestration and the next debt showdown -- will any of those continue to stunt your market, or do you think those kind of shocks are already factored in to some extent?

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

13.4 --

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

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

I think my view is we've really taken the punches at this point, and I don't think there are really any more surprises. And I think people -- as they've now come to expect this kind of situation to exist and will operate and will work through sequestration. There is a tremendously powerful marketplace; the service sector is fully functioning. The technology sector is growing. So I think we may not see the same kind of traditional tendency of government and some specific government contractors. You may see a little more diversity in that, but at the end of the day, I think the government will in fact still be a player. I think contractors will be a player. They always figure out how to help the government. They are expert at doing that. So I think that we'll continue to push through whatever really comes upon us at this point.

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

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

I think Mitchell made a very strong point, and these are absolutely facts that Washington is -- [ex] the government, is an extremely strong economy with very low unemployment; very, very educated labor force, etcetera. So we have a great deal of confidence as a Company, and we think the economists in the region share that view that the private sector in Washington is thriving. The other side of that is, as we note in our numbers, that the private sector portion of our leasing is increasing. So to the point that it is now over well over 50%. So our business initiative is to -- obviously we want every company we can get, but obviously we are trolling for private sector tenants and hopeful.

(technical difficulty) I would just say that of the million plus square feet in the third quarter, half of it was private.

Half of it was what, Mitchell?

Half of it was private sector.

Okay, got it. Thanks for the details.

Anything else Michael? Okay.

Jamie Feldman, Bank of America.

I'm hoping you could talk a little bit about your largest expirations in 2014 and what you're thinking in terms of renewals or potential vacancy and also mark to market.

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

In New York, some of the major expirations that we're looking at in 2014, we have actually already talked about. So it's Morrison Foerster, which we talked about at 1290; it's Citibank at 666. We have planned for those expirations. We're going to reposition those buildings. And, as I've said earlier, we've got very good action as it relates to the spaces that are coming up.

So as I look out over the next 12 months, I kind of feel very good about where we are and where I think our occupancy is going to be as we look out over the next 15 or 18 months.

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

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

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

The second thing is -- and this relates to our New York business and our Washington business, one of our strategies has been in acquisitions and in the management of our business to avoid buildings that have 700,000, 800,000, [million-foot] huge mega tenants. And so if you look at the profile of our tenantcies, it is -- a 300,000-foot tenant is not small by any measure, but a 300,000 foot move-out you can handle. A million-foot move out, you can't. So one of the things that we have done as a Company and as a strategy is to be very careful to have diversification and the size of our tenants and the industries to which we cave cater. And I think we have a history of being the -- having the highest vacant -- highest occupancy rate of anybody in New York, and I think partly that is a result of that strategy.

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

Good point.

I was actually going to ask about retail also. When you look across the entire portfolio, I assume you're talking about 2014. But just across the entire portfolio, what do you think the mark to market is for the New York street retail?

I don't want to speculate on that. We'll get back to you. We don't have that number --

And then my --

Jamie, we don't have that number handy, and I don't want to guess.

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

We've been constructive on the market, Jamie. We've seen some good absorption. We've seen, as I said earlier, availability rates come down. The reality is we are still in a tenant market. I think it's going to take us a couple of hundred basis points of absorption for us really to get to a landlord's market. So I don't think we're going to see any rents that are dramatically spiking. But as it relates to rent growth, we have continued to see the ability on a net-effective basis as it relates to both face rents, free rent, and work allowances to see some good growth, which I think as you kind of look around the marketplace has been in the kind of 5%-ish, 6%, 7% range in Midtown and certainly higher in Midtown South.

You know, the point that David makes about Midtown South is extremely interesting. The New York market is broken down into multiple sub-markets. The interesting thing that is happened is there used to be a very, very delineated hierarchy of the submarkets where the Plaza district was the highest and the Park Avenue district and then going down to the (inaudible). There was a hierarchical chain. That has basically --what's the word -- leveled. And so the city -- in terms of all this leasing, the rents have leveled, and the city is basically has a slight tilt to the south. Now, maybe not all the way south, but clearly the Midtown South, the Chelsea market, the Penn Plaza district, etcetera, are benefiting enormously and are very tight. So we may see increases in rents, which are not historically -- which we've never seen historically in some of the submarkets at the expense of the traditional financial service industry locations. So very interesting what's happened and actually kind of exciting.

Okay. Thanks for the color. I appreciate it.

Vance Edelson, Morgan Stanley.

Kind of a rhetorical question, but on the joint purchase of 650 Madison, could you comment on the relative appeal of the retail versus the office component, just given that you're not buying much in office? In your mind, is retail what primarily got you excited or could the deal have happened on the merits of the office space alone?

I think, from our perspective, a couple of things. We love the site. It's an outstanding location on Madison, a full block front. You have 200 feet of retail there frontage. And so I think that was the most compelling dynamic, the site overall then the retail. The retail rolls over in five to seven years entirely, and so we saw an opportunity to capture that uplift. And particularly as retail -- Madison has lagged rent-wise, and so we an opportunity for huge uptick there. The office -- there's vacancy there is vacancy there that can be leased up and, again, as David commented, that high-value boutique space is starting to move at a faster rate, and so that was attractive.

But I think, absent the retail, [wouldn't] have been attractive. It's a theoretical question. It would have certainly been much less attractive. We obviously -- if you look at everything we've done, retail has been the predominant focus and the retail made up meaningful chunk of the value. They're not going to break it out specifically, but it was a big chunk of the value. And ultimately it sits on a great site, which theoretically could be redeveloped one day.

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

I'll handle that. As we say every year in the letter that I write to our shareholders, we have no budget for acquisitions, and acquisitions have a tendency to be chunky based upon what's available in the marketplace, what the pricing is, etcetera. So we really don't keep a list -- a comparative list of a pipeline, so to speak. We are always in the market. We are always looking at everything that's in the market. We see every deal in the market, either first, second, or third. And so even though we are not -- we may not be buying at a particular time or we may not like the pricing of a particular asset, we go through every single important asset that comes on the market. So we're always busy, although part of the rigor and the discipline is when to say yes and when to say no.

Okay, makes sense. Thank you.

John Guinee, Stifel.

(technical difficulty) decide not to listen to Lexington. One follow-up question, Steve. Basically everything you've said acquisition market tough, net sellers, not getting any credit for your square foot of vacancy, $3 billion of liquidity. You're probably trading by a lot of people's numbers at a six and fly cap. All of that would sort of head toward some sort of share buyback. Is that -- do you have a share buyback out there?

No, we don't.

All right. Any thoughts on it?

Well, I long for the old days. We just did some history, and in the 1980s, we bought back 50% of the stock of Vornado, but we were buying that that stock back at 40% and 50% of what we thought its value was. So I think buybacks are very tricky. We talk about them at not every Board meeting, but we talk about them at least once a year, maybe even more frequently. And it's not something that we have -- we don't have a buyback authorization outstanding, and it's not something that we think is an extraordinary -- it's not something that we have in the forefront of our minds right now.

Thank you.

Operator, one last question.

Steve Sakwa, ISI Group.

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

The math would be getting up to historic occupancies in the low 90s -- maybe even [93%] is a decent guess at about what we think the market rents are, yes. By the way, it could be a little bit more than that, too. But it's a big hole that we intend to fill.

That was a short enough question that were going to take one last one.

One more question, operator, the last question.

Michael Bilerman, Citi.

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

Well, first of all, we couldn't be more delighted to be the proud parents of that site. It is, by consensus, the best site in town. It took eight years to get it to this condition. The eight years were clearly worth it.

I would like to take credit for it but I can't. Basically the market has risen to the point where the delay is (inaudible) enormously to our benefit. And we think the site is worth well more than $1 billion. As a Ross site. We own the site free and clear. So we've got an enormous amount of financial flexibility and we have lots of options all the way from selling the site and we get called on it weekly all the way to building it ourselves all the way to doing a high hybrid, which is inviting a financial partner in to share the bounty. All of those are on the table. As we in this is the important thing as we move forward in the development process without any hesitation to build the job. So the interesting thing about it is because we have to do that. While we may take enough in a financial partner or do any other extraordinary kind of financial transaction, we will move forward in the process of building the job. The equity that we have in this property is so significant that we can build the job with nonrecourse debt without putting any capital whatsoever in it.

Okay.

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

And can you just comment on (inaudible) in the strip site, I assume neither of those were included in the call it a $1.5 billion to $2 billion of assets on the market and on deck. And just how those sort of play into your simplify, prune, focus?

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

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

Thank you.

Operator, thank you. Please conclude this the call now.

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