美國沃那多房產 (VNO) 2013 Q4 法說會逐字稿

Welcome to the Q4 2013 Vornado Realty Trust earnings release conference call. My name is Vanessa and I will be your operator for today's call. (Operator Instructions). Please note that this conference is being recorded. And I will now turn the call over to Cathy Creswell. You may begin.

Thank you, Vanessa. Welcome to more Vornado Realty Trust fourth-quarter earnings call. Yesterday afternoon we issued our fourth-quarter earnings release and filed our annual report on Form 10-K 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-K, and financial supplements.

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; 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 President, co-Heads of Acquisitions and Capital Markets.

I will now turn the call over to Steven Roth.

Thank you, Cathy. Good morning, everyone. Welcome to Vornado's fourth-quarter call.

I would like to begin by again affirming our commitment to our strategy of simplifying, pruning and focusing the business. We have made significant progress in that regard and there is more that we will do. Here are some of the specifics.

We have sold down the Mart business retaining only the 3.6 million square foot Chicago mark building. We will continue to create value here by converting underperforming showroom and tradeshow space to conventional office tech space anchored by Motorola Mobility, Google 600,000 square feet.

We have made great progress exiting the mall business. Green Acres and Kings Plaza were sold in prior periods for an aggregate proceeds of $1.25 billion. We closed the sale of Broadway Mall yesterday for proceeds of $94 million. We have trimmed nonstrategic strip shopping centers, single tenant retail assets, and other non-keepers by selling 28 properties for $415 million.

We have exited JCPenney. We have exited LNR. We have strategically combined all of our Manhattan assets including our office and street retail and the hotel Pennsylvania and Alexander's properties into one focused best-in-class operating segment.

We have completed in the fourth quarter the sale of 866 UN Plaza for $200 million; Harlem Park land for $66 million and exited the Cleveland Medical Mart. We have in total so far sold 44 assets for $3.6 billion. We have about $1.1 billion in the market for sale much of which is now under negotiation and we have more on deck.

As I said before in this market, we will buy carefully and again this year likely sell more than we buy. We will continue to build cash reserves for opportunities that will undoubtedly present themselves in the future. We have used $1 billion of sales proceeds in like kind exchanges to partially fund $2.3 billion of acquisitions all of which were in Manhattan building our core office, retail and residential assets and enhancing the quality of our portfolio.

Now to leasing. Companywide in the quarter we leased 1.27 million square feet and 140 transactions with positive mark to markets of 11.2% cash and 12.5% GAAP. For the year, we least 6.45 million square feet and 576 transactions with positive mark to markets of 6.1% cash and 11.8% GAAP. The leasing performance of our best-in-class 2.4 million square foot Manhattan Street retail portfolio deserves special mention. Here we achieved full-year mark to markets of 123.7% cash and 92.6% GAAP. That means that rents for these new retail leases were more than double the old rates.

We are focusing hard on our large developing pipeline including the redevelopment of 1.1 million square feet in two buildings on 34th Street, both of which will be repositioned for creative technology tenants.

The New York Marriott Marquis retail and signage project at the bull's-eye of the Bow Tie in Times Square which is now under construction. The 1.4 million square foot Springfield Mall renovation which is under construction for a holiday 2014 open; the transformation of 280 Park Avenue at 48th Street; the 699 unit residential project in Pentagon City with Whole Foods is now under construction; 220 Central Park South where we are developing a tall residential tower; and of course, the Penn Plaza District.

The Manhattan office market continues to improve. The Island of Manhattan is now tilting slightly to the South and slightly to the west greatly inuring to the benefit of the Penn Plaza district where the dominant owner with over 7 million square feet of office and retail space and the hotel Pennsylvania. Creating more value from our Penn Plaza holdings will be a major focus of our Company over the coming years.

Turning to operations, we had a very strong fourth quarter and I am very pleased with our financial results. Our fourth-quarter comparable FFO was $1.33 per share, 19.8% higher than last year's fourth quarter. Our full-year comparable FFO was 19.9% better.

Our New York business continues to put up very strong industry-leading metrics. Everybody knows my roots are in retail and I am particularly pleased with our recently signed 44,000 square foot four-level Top Shop flagship at 608 5th Avenue across the street from Saks Fifth Avenue. This highly important high-volume high fashion emporium will open on Halloween.

Our Washington business is now bumping along the bottom. As CFO, Steve Theriot, will tell you, we are estimating that Washington's comparable EBITDA for 2014 will be $10 million to $15 million lower than 2013. As Steve will also tell you, we are estimating that FFO will be slightly higher in 2014, the result of interest reduction we negotiated on the Skyline loan.

As I said before, 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 this space up.

A word about capital markets. Capital markets continue to be robust with debt plentiful at historic low interest rates and equity investors aggressively bidding for high quality assets.

To sum up, I am very pleased with both our operating performance and our progress on simplification and focusing the business.

Now I will turn it over to Steve Theriot who will cover financials.

Thank you, Steve. Yesterday we reported fourth-quarter comparable FFO of $1.33 per share up from $1.11 in the prior year's fourth quarter, a 19.8% increase. Full-year 2013 comparable FFO was $5.01 per share up from $4.18 in the prior year, a 19.9% increase.

Fourth-quarter comparable EBITDA was $424.9 million ahead of last year's fourth quarter by $38.4 million or 9.9%. Full-year 2013 comparable EBITDA was $1.66 billion ahead of last year by $159 million or 10.6%.

Our New York business produced $246.1 million of comparable EBITDA for the fourth quarter and $942.8 million for the year. These amounts are ahead of last year's fourth quarter by $30.3 million or 14.1% and ahead of the full-year 2012 by $132.6 million or 16.4% primarily driven by strong same-store increases of 6.7% for the quarter and 5.5% for the year and property acquisitions.

Our Washington business produced $83.3 million of comparable EBITDA for the quarter ahead of last year's fourth quarter by $2.6 million. For the full year, our Washington business produced $341.2 million of comparable EBITDA behind last year by $14.3 million primarily due to the effects of BRAC moveouts and the sluggish leasing environment in Washington. These results were in line with our revised guidance of down $10 million to $15 million. We expect that Washington's 2014 comparable EBITDA will be approximately $10 million to $15 million behind 2013.

To give a little color on the expected Washington results during 2014, while we are expecting a slight increase in occupancy in Washington during 2014, the lag between the signing of leases that we expect and the contribution of these leases to our earnings will push the full effect of the expected benefit to 2015.

In addition, more than offsetting the reduction in comparable EBITDA during 2014, we will realize an incremental interest expense reduction of $16 million from the restructuring of the Skyline mortgage loan. Net net we expect the Washington segment will contribute slightly higher FFO in 2014 as compared to 2013.

Our strips and malls business produced $58.1 million of comparable EBITDA for the quarter and $223 million for the year. These amounts were ahead of last year's fourth quarter and full year by $0.5 million and $6.5 million, respectively.

Total fourth-quarter FFO was negative $0.04 per share, down from positive $0.30 per share in the prior year's fourth quarter. Non-comparable items in this year's fourth quarter were a loss of $270.9 million or $1.37 per share as compared to a loss of $161 million or $0.81 per share in the fourth quarter last year. This year's fourth quarter non-comparable items included $282 million of negative FFO from our investment in Toys "R" Us reducing the carrying amount to our $80 million estimate of fair value.

This year's fourth quarter non-comparable items also included $18.1 million of transaction costs primarily related to our acquisition of 655 5th Avenue offset by a $24 million in net gains from the sale of land parcels primarily Harlem Park.

Please see our press release or overview and MD&A on page 39 of our Form 10-K for a complete summary of non-comparable items.

With that I will turn it over to David Greenbaum to cover our New York business.

Steve, thank you. Good morning, everyone. Before I turn to our results for the quarter, I want to spend a couple of minutes recapping the overall market's performance in 2013 and what we are expecting for 2014.

I'm sure many of you on this call read the various market reports produced by the brokerage community. Let me pick out some of the highlights.

The most recent headline was "Market stays warm amidst the January chill." Our year-end market report described 2013 as a year with a "surge in leasing" where tech and media continue to be the primary driver of the market. Other reports highlighted the improving sentiment on the continuing momentum in the market. These headlines sum up our view of where we are in the marketplace.

The New York City economy added 93,000 private sector jobs in 2013. Since the recession, the city has gained 330,000 private sector jobs which puts total employment at 200,000 more jobs than prior to the financial downturn. Office using jobs are up 102,000 since the recession having fully recovered but the rate of growth slowed in 2013 with 8700 office jobs added.

The tech sector in general was the strongest accounting for nearly half of all net new jobs in 2013. Anecdotally, we hear that Google alone is planning on adding 1000 new jobs in New York in 2014.

I read an interesting article the other day that I thought captured the technology sector perfectly. Tech effectively has stopped being an industry and has turned into a way of life for all of us permeating all aspects of urban culture. Within our portfolio, technology, advertising, media and information companies accounted for some 25% of our 2.4 million square feet of leasing activity in 2013 with names such as Facebook, Rocket Fuel, Symantec, IPG, Sapient, Mitel, Ericsson, NetSmart and Presidio Networking.

Some of the pundits talk about weakness in financial services. Let me state emphatically there is life in the financial services sector. Looking at our own portfolio, midsized financial services firms made up another 25% of our 2013 leasing activity some 600,000 square feet and 36 transactions of which some 300,000 square feet, fully half of the activity, represented real growth in the marketplace.

The Manhattan office market ended 2013 with positive absorption in the 4 million square foot to 6 million square foot range depending upon the brokerage report and the highest volume of leasing activity since the financial crisis, over 37 million square feet. The top end of the market was also strong with 60 deals over $100 per square foot, seven of those deals were ours.

Looking at 2014 economic and employment forecast for the New York region remained modestly positive. Consensus in the brokerage community is that the positive momentum will continue with job growth driving New York's office using media, advertising, fashion retail and technology companies.

Let me now turn to Vornado's performance. Office leasing in the fourth quarter totaled 559,000 square feet and 47 transactions taking our total leasing for the year to 2.4 million square feet and 159 transactions. Activity was well balanced throughout the portfolio not concentrated in any one submarket. Consistent with the market-wide positive absorption over the past 12 months, 26% of our activity represented tenants new to or expanding in New York, real growth, real expansion.

Year-end occupancy was 96.6%, up 70 basis points from the third quarter. Basically we are full. Our average starting rent this quarter was a healthy $59.45 with very strong positive mark to markets of 13.3% GAAP and 10.2% cash. For the year, our mark to markets were 14% GAAP and 5.6% cash.

Our fourth-quarter leasing activity was highlighted by a 130,000 square foot lease we executed with Hachette at 1290 Avenue of the Americas. This deal along with the State Street Bank lease that we previously announced completed our releasing of the 181,000 square feet of Microsoft space. We leased this space in advance of Microsoft's move out which took place just this past weekend and really speaks volume to the success of the building transformation program we have completed here.

Since our acquisition of 1290 in 2007, we have leased 1.4 million square feet in this 2.1 million square foot building taking rents from an average of $52 per square foot at acquisition to $72 today.

At 330 Madison, another one of our recent successful transformations, we leased 74,000 square feet to HSBC joining other marquis tenants in the building including Guggenheim Partners and Jones Lang LaSalle.

At 280 Park Avenue, our joint venture with SL Green, the full block lobby is now open revealing the quality of our transformation program. We have very good leasing momentum here where we recently completed two new leases. Mount Kellett Capital Management took 30,000 square feet on the fourth floor in the fourth quarter and already this quarter we have signed Napier Park Global Capital, a spinoff from Citigroup, for 25,000 square feet on the third floor.

At 650 Madison Avenue, the 600,000 square foot trophy and retail asset we acquired in the fall, we kicked off our leasing with a triple digit deal with Lakewood Capital Management. In Midtown South at 770 Broadway, we expect to sign in days a long-term lease expansion with J.Crew for 80,000 square feet which takes J.Crew's total space to 380,000 feet. Along with Facebook, which moved into its new Manhattan headquarters space yesterday, Monday, and AOL, this building is a cutting-edge creative hub in Midtown South.

In Penn Plaza, our occupancy is 97.3%. Most importantly, over the last 15 years our Penn Plaza portfolio consistently has been fully leased averaging 96.5% occupancy. In the fourth quarter, a diverse group of tenants continued to expand with our Penn Plaza portfolio.

Rocket Fuel, a technology tenant I mentioned on the second quarter call expanded by 40,000 square feet at 100 W. 33rd Street now occupying 90,000 feet. Rainbow Media expanded by 21,000 feet at 11 Penn and Valley National Bank expanded at One Penn.

Construction is also well underway for a building redevelopment at 7 W. 34th Street and 330 W. 34th Street whereas Steve mentioned we will be delivering over 1.1 million square feet of space. These buildings are being repositioned to attract technology, fashion and media tenants in the Midtown South market. Taking lessons we learned from the build out by Facebook at 770 Broadway and Motorola at the Mart, we are creating communal spaces for all of the tenants to use.

Just yesterday we kicked off our leasing at 330 W. 34th Street signing our first lease for 180,000 square feet.

Let me now turn to our Manhattan Street retail where in the fourth quarter we completed a deal for a 44,000 square foot, four-level flagship lease with Top Shop top man at 608 Fifth Avenue. As you may recall in the fall of 2012, we purchased a note leading to the acquisition of the leasehold interest in this landmark property on the corner of Fifth Avenue and 49th Street at Rockefeller Center and across the street from Saks Fifth Avenue. We then made a deal to buy out the existing retail tenant and relocated all of the office tenants on the second and third floors to allow us to create Top Shops Fifth Avenue flagship store. Of course, we also own the Top Shop flagship in Soho.

For the quarter, we completed six retail leases totaling 63,000 square feet with very strong mark to markets, 109.7% cash and 43.3% GAAP, capping the year where we leased 138,000 square feet at mark to markets of 123.7% cash and 92.6% GAAP.

In Times Square, our 1540 Broadway property and 1535 Broadway, the Marriott site, bookends of the Times Square Bow Tie were prominently featured during Super Bowl week as the backdrop in much of the national TV coverage. I'm sure that all of you saw our construction barricade in the front of the Marriott. Concentrated in the best submarkets, Times Square, Fifth Avenue, Madison Avenue, Soho and Penn Plaza, the street retail business is a jewel in our New York portfolio. While the retail portfolio accounts for 10% of our total Manhattan square footage, it generates some 26% of the New York division EBITDA.

The Hotel Pennsylvania continues to capitalize on New York's record tourism. Over 54 million visitors to New York in 2013. Occupancy for the year averaged 93.4%, quite a feat for the 1700 room hotel with RevPar up 8.4% to $148, the highest levels we have ever achieved.

Let me now turn to the 3.5 million square foot Chicago Merchandise Mart building located at the center of the hot River North market. There has been a lot of attention resulting from Google's announced sale of Motorola to Lenovo. Motorola started moving its 2300 employees into the space two weeks ago with all groups expected to be in the building by the third week in March. The space is really cool. If any of you are going to be in Chicago let us know and we would be happy to arrange a tour for you.

I'm sure someone on this call is going to ask, Google remains the full guarantor under the lease for its entire term. There are significant money-making opportunities at the Mart to create value by continuing the conversion of several hundred thousand square feet of underperforming showroom and trade show space to office space for both traditional users and creative tech tenants.

The Governor of Illinois recently announced a state investment in a medical technology incubator called MATTER that will be taking 25,000 square feet of space in the building. Modeled after 1871, the incubator to digital startups that is also in the building, MATTER will offer office space for biotech and pharmaceutical startups combined with events for entrepreneurs and industry professionals. With all of this activity, the Mart is quickly becoming the home to Chicago's most creative and technologically innovative companies.

I haven't said much on past calls regarding our 1.8 million square foot 555 California, the best office building in San Francisco. In 2013 we had a very, very active year. We signed 418,000 square feet of leases and 14 transactions with average starting rents of $63 a foot and a cash mark to market of 22%.

The highlight of our leasing activity was a 261,000 square foot renewal with BofA, Bank of America. BofA is actually expanding its occupancy in the building while it will be giving back in 2015 the spaces previously subleased. We currently are in negotiation with many of these BofA subtenants.

We also signed a renewal expansion lease with Morgan Stanley which now leases 130,000 square feet in the building and a renewal with UBS which leases 93,000 feet. Our tenant roster also includes Goldman Sachs, KKR, Dodge & Cox and McKinsey.

Importantly, the tech guys have now also come our way. We leased the 52nd floor, the top of the building with what is arguably the most spectacular view space in San Francisco to Supercell, a mobile gaming company for just shy of a triple digit rent. Our pipeline also includes a 50,000 square foot lease in final lease negotiations with a tech giant.

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, the overall division of 6.7% GAAP and 4.4% cash. Isolating just the New York office business, our same-store EBITDA increased 6.9% GAAP and 5.8% cash.

With that let me now turn the call over to Mitchell to cover Washington.

Thank you, David, and good morning, everyone. All in all in the Washington market, 2013 as we expected it to be, the already weakened real estate market was further stymied as the Federal Government struggled to put its house in order. We survived sequestration, a 16-day government shutdown and a debt ceiling deal finalized in the 23rd hour. Now with the newly approved two-year federal budget deal and with the debt ceiling raised, we are hopeful for a smoother road ahead.

Despite the tumble of 2013, the Washington economy remained resilient. We grew by 25,800 jobs last year and the unemployment rate remains the lowest in the nation at 4.6%. Towards the end of 2013, we began to see a thawing of the office market and activity has picked up. We are optimistic that it will carry on throughout 2014.

For 2013, the brokerage reports show positive net absorption at 1.8 million square feet. While this is lower than the 10-year average of 4.4 million, it is substantially better than the negative 2.6 million square feet in 2012. All in all, we will take it.

Now turning to the performance of our Washington division. In 2013, we leased over 2 million square of office and retail space in 232 deals at average office rents of $39.91, marginally down from the $40.55 in 2012. Government activity accounted for 26% and private sector leases accounted for the remaining 74%. Renewals accounted for 60% and new tenants accounted for 40%.

Our 2013 leasing performance included some of the largest transactions in the market. The 183,000 square foot fish and wildlife lease at Skyline, the 384,000 square foot Sidley renewal at 1501 K Street where we own 5% and 247,000 square feet renewal of Family Health International at 1825 Connecticut Ave.

In addition to our big deals in 2013, we also completed several brand builder deals. These are leases that do more than add to our occupancy metrics. They are brands that elevate and reposition our buildings and our neighborhoods. They include our deals with Facebook, Uber, Tech Shop and Whole Foods. We own 2400 apartments clustered in Crystal City, Pentagon City, Rosslyn and Georgetown. This business continued to deliver strong results with 96.3% occupancy.

Now for our quarterly results. In the fourth quarter we completed 380,000 square feet of office and retail leases. Overall office leases signed in the fourth quarter generated a GAAP mark to market of 3.4% and a cash mark to market of negative 2.5%, a very satisfactory performance in the market. Our total occupancy including residential at 83.4% was down 20 basis points from Q3. Office occupancy was even with Q3 at 80.7%.

I would like to reiterate what Steve said earlier. Our vacancy is a huge opportunity for us. As we lease this space, it will unlock tremendous value for us.

Quarter-over-quarter we reported positive same-store EBITDA growth equal to 4.1% GAAP and 2.8% cash. We are predicting another active year of leasing and an uptick in occupancy during the second half of 2014. Our job is to see every deal, execute aggressively and think strategically. With the highest concentration of engineers and advanced degrees in the country in a Metro area that is among the top five for venture capital, DC is a top market for tech growth but to us technology is more than a sector, it is a growing demographic of smart, mobile young workers. This is an important target audience that we are focusing on.

In Crystal City, where we own a city of over 7 million square feet, we are making several transformative moves to attempt -- several transformative moves to attract young creatives to shape a dynamic community. Our first move involved a partnership with WeWork in Crystal City and in DuPont Circle. In 2013, CNN Money named WeWork's founders as the next Mark Zuckerberg. WeWork provides space for start-up small companies to co-locate in furnished fully wired environments that inspire collaboration and community.

WeWork's spaces are becoming change agents for their neighborhoods infusing fresh energy and attracting talented people and growing companies. We believe they are the leaders in creative co-locating space.

In DC, we just signed a 44,000 square foot lease with WeWork that could expand to 160,000 square feet at our 1875 Connecticut Avenue building in DuPont Circle. The space will open later this year.

In Crystal City, we will venture with WeWork to repurpose an existing 164,000 square foot office building at 2221 South Clark Street into approximately 300 rental residential units. These apartments are designed for today's mobile and collaborative workers. They will combine small furnished units, a full technology package and dynamic social spaces like shared dining and lounge areas. We believe that WeWork will add an important new layer to our Crystal City neighborhood and their residents will be a magnet for others like them.

Currently in final design, the units will be open in the middle of 2015. In addition, we expect a new WeWork office location to also be open in Crystal City by 2016.

Our second strategic transaction is Crystal Tech. Crystal Tech will combine 27,000 square feet of Crystal City office space with a $50 million technology fund. The fund will be managed by Paul Singh, a former partner of 500 startups and a global leader in tech investment and growth.

The fund seeded by Vornado will invest in promising early-stage technology companies. These companies will co-locate in Crystal City in the high energy environment now under construction. Crystal Tech will also feature workshops and events produced by Tech Cocktail, a widely followed media company focused on the tech community. Crystal Tech opens its doors at 2231 Crystal Drive in April and we invite all of you to come check it out.

Next in late March, Tech Shop will open their new 22,000 square foot Washington area location in Crystal City. Tech Shop is a leader in Maker Studios, the birthplace for many startups and inventions, Tech Shop is a world-class prototyping studio that provides tools, equipment, technology and classes for inventors, engineers and entrepreneurs. We see Tech Shop as a great new amenity and another key piece of our innovation fabric.

Further, next month we will debut our Design Lab. Design Lab will transform a single floor at 251 18th Street into six prebuilt office suites, each designed by a different architect specifically for creative companies. These suites will be furnished and ready to lease. We see Design Lab as a showcase for innovative new ideas for office space complementing all of our other initiatives to attract this specialized user group. Together these strategic initiatives will lay the foundation for a new kind of Crystal City.

As we are doing at the Mart in Chicago and in Penn Plaza in New York, we are transforming not only our real estate but entire neighborhoods by attracting creative companies and people.

In Pentagon City, we have now begun construction on our 699 unit residential tower and Whole Foods market to be delivered in 2016. In total, we have more than 7 million square feet of developable inventory for both office and residential in Rosslyn, Crystal City, Pentagon City and the district on land that we already own. This is again huge value creation potential for our Washington business.

I thank you very much and I will now turn the call 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 centers occupancy was 94.3% at quarter end, equal to the third quarter and up 30 basis points from last year's fourth quarter. Occupancy at the remaining malls was 94.3% also up 30 basis points from the third quarter and up 160 basis points from last year's fourth quarter. We leased 200,000 square feet at the strip shopping centers with a positive mark to market of 17.4% GAAP and 10.7% cash. We leased 137,000 square feet at the malls with a positive mark to market of 9% GAAP and 1.7% cash.

Now turning to capital markets, earlier this month we completed a $600 million financing of our 220 Central Park South site. The loan bears interest at LIBOR plus 2.75% floating, matures in January 2016 with three one-year extensions. In November, we refinanced the mortgage on 11 Penn Plaza. The new $450 million loan bears interest at 3.95% fixed for seven years and replaces a [$343] million which bore interest at LIBOR plus 2.35% floating.

During the quarter, we also repaid the $87.9 million loan on the Universal buildings in Washington and the $52.8 million loan on the Las Catalinas mall in Puerto Rico unencumbering both of these assets.

As of today, we have $3.8 billion in liquidity comprised of $1.5 billion of cash and liquid securities and $2.3 billion of undrawn revolving credit facilities, overall $1.3 billion better than at the start of the year. Our objective has been to build liquidity as we continue to sell non-core assets and finance core assets.

Our consolidated debt to enterprise value is 30.3% and our consolidated debt to EBITDA is 6.2 times. Our debt mix is balanced with fixed-rate debt accounting for 89% of the total with a weighted average interest rate of 4.73% and the floating-rate debt accounting for 11% of the total with the current weighted average interest rate of 2.01%. 2014 maturities are just $142.3 million.

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

(Operator Instructions). Michael Knott, Green Street Advisors.

Just curious if you can give us just a little more color on the EBITDA decline for DC. It sounds like -- I know you still had some BRAC expiries this year. What part of the year were those and then it sounded like, Mitchell, you thought occupancy would actually end the year higher. Can you just kind of walk through the components a little more?

Michael, Joe will start with that and then Mitchell can chime in.

Good morning, Michael. You'll remember that last year we had the Sidley fee of $2.4 million. That is not reoccurring in 2014. Real estate taxes, the portion that is unreimbursed by tenants is increasing in 2014 versus 2013 by $1.3 million. As Mitchell mentioned, we are preparing a building at 2221 South Clark Street where we work. That building is coming out of service. That is costing us $2.2 million in comparable EBITDA.

And then Michael, as you talked about, while Mitchell said that he expects occupancy to tick up by the end of the year, during the year it is actually going to be down by about 100 basis points, plus/minus. That lower occupancy during the year will reduce EBITDA versus last year by $5.5 million which will tick up again by the end of the year if our projections are accurate and reasonable. So 2015 should be much, much stronger.

Okay, thanks. So it sounds like 2014 is the bottom for your EBITDA there?

That is what we think.

Okay. Second question, can you guys just talk generally about your planned sources and uses of capital? And maybe it sounds like you are going to be funding development still and maybe not buying a whole lot. Can you just maybe touch on where you think we should all think about development and redevelopment yields for the projects you are working on?

There is multiple questions there, Michael. In terms of our sources and uses, we are highly liquid. We are getting more liquid as we continue to simplify and sell assets. We are using that liquidity to -- we have unencumbered some assets and paid off hundreds of millions of dollars of debt which is not a long-term strategic imperative. It is principally paying them off as early as we can and assets -- before we sell them, what have you.

So we are lowering our debt levels, paying off debt. We are also funding a lot of our development out of our balance sheet as opposed to with loans. So that is sources and uses.

With respect to development returns, do we publish that? We haven't published development returns so I will just comment about one just for interest. We are building 699 -- let me call it 700 units of apartments on top of a Whole Foods in Pentagon City. We have had some people comment about gee, the residential market is a little soft, why are you doing that? The answer is the cost of the land has sunk. We own that, we own it free and clear and if you take the incremental dollars that we are going to spend on that project and by the way the delivery of that project will deliver in mid-2016 and the market will be we think, different and better then. We are getting a mid-7% and even higher return on the incremental dollars.

So in that kind of product, we think that that is a first-class return so we think that is a good investment. We think that that building will finance at much lower rates than that and would sell if we decided to sell it at a very favorable spread.

Okay, thanks.

George Auerbach, ISI Group.

Great, thanks. Steve and Mitchell, you both mentioned the lease opportunity in DC. I am interested in how you see the economics of the lease up, where do you think that rents are today in PI packages and how do you see the timing for a lease up today versus how you would have underwritten it may be 12 months ago?

I will take a little bit of that and then Mitchell will chime in. So our internal budgets show that we will get to stabilize meaning that we will get back to where we were probably hopefully in the beginning of 2017. That is a very specific statement which is not to be relied on. It is a budget.

So the decline in EBITDA that we suffered, if it goes back to where it was that is about an $80 million increase in our EBITDA from where we are today. So if you put a cap rate on that and you deduct the capital that we will expend to get there, that can give you some idea of value.

And so I will let you do the calculation because I am not in the business of doing those kinds of projections but it is an extremely -- it is a large number and so if you look at it you can look at it -- the glass is half empty, the glass is half full. You can say that our Washington business is struggling, it is under stress. We believe that our Washington business has bottomed.

And if you look at it, it has now vacant space that we will lease over a period of time, hopefully predictable period of time. Our Washington business now becomes a high growth segment. So that is an interesting way to look at it, which is actually the way I think the optimist looks at it because we don't believe that we have any credit for that empty space in our stock. You would never sell those buildings getting zero credit for that space. So we believe that Washington is a growth business from here out.

Mitchell, do you have anything to add, my friend?

What I would just add specifically to George's question and if you remember from my opening comments, our rents were down about $0.50 in terms of the total volume of leasing year-over-year from 2012, 2013. I think that generally speaking, the market is at a point where we don't expect concessions to deepen dramatically further. We don't expect rents to drop dramatically further. So I think we are seeing a pickup of both activity, and the activity is at reasonable leasing levels in terms of what we are accustomed to doing.

Let me tack onto that just a little bit. I have said that I am very pleased that the rents in Washington are holding, notwithstanding the soft market. Notwithstanding that, our mission in Washington is to fill up that space. Mitchell is aggressive, his team is aggressive. We are fighting in the trenches for every deal, and we are prepared to compete aggressively economically for every deal.

Remember that every square foot that we fill down there is incremental increase to our EBITDA. So our objective is to make deals, be aggressive and fill up the space. A dollar or two one way or the other is, while it may look in the statistics, our objective is to be aggressive, and we have been and we will be.

That is helpful. I guess second question for me, Steve, the team has done a nice job over the last two years pruning the portfolio. As you look into 2014, what do you see as the next two or three steps you would like to see take place?

George, we are getting there. We have more to do. As I said in my opening remarks, we have $1.1 billion out in the marketplace. Much of that, well more than half of it, is actually in documentation now. So our first objective is to complete that. We have more sales coming.

And then let me give you a feel for the way we see it. We will have completed a housecleaning. Toys "R" Us is winding down, JCPenney is gone, some of the other assets that we don't want are gone. The Merchandise Mart is gone, LNR is gone and then so we will have by and large cleaned house. What we will be left with is a New York business, a Washington business and a strip shopping center business.

Let me tell you a little bit about each of those. In New York the hot part of the market now, the active part of the market is retail and for-sale residential. Those are the businesses that are really white hot. We think we are in very interesting shape. We have by far and away the strongest most important street retail business. The performance of that business is terrific and will continue to be terrific as we roll over spaces. And as David said and I said for the last three quarters, we have had triple digit mark to markets meaning the rents have doubled.

So the hottest business in town is retail. Retail rents have grown at very strong compound rates over the last five or 10 years and so we are very, very well position there, better than anybody.

In terms of for-sale housing, we have the single best site by far, our 220 Central Park South site. Now we remind you that residential housing, for-sale housing is not our business. We are not nuts about this business but on the other hand, we have this unbelievable site which we have spent eight years assembling and now over those eight years, something very interesting happened and that is the value of that land has doubled or maybe even tripled.

So we will develop a tall residential building there. It will be we believe extraordinarily profitable and successful and so while that is not a business that we -- we only do one for-sale housing project every 10 years, but it is a whopper. The last one that we did was the Beacon Court on top of the Bloomberg Tower.

The third part of the marketplace which is extremely, extremely active and probably the most active part of the office sector is the tech creative sector. There we think we are also extremely well positioned. We own 770 Broadway which David talked about where Facebook is and where AOL is and J.Crew. We think that is maybe arguably the single best building for that type of tenant in town. Interestingly we own that building for about $100 million, maybe $120 million, some number in that regard. That building is worth -- that building is worth 10 times what our cost is just to give you a feel for the dynamics.

In addition, as I have said before, the Penn Plaza district is where everything seems to be tilting towards the Penn Plaza district. That is a combination of what is going on in Midtown South, it is a combination of what is going on at the Hudson yards and what have you and so the Penn Plaza district with respect to its orientation, etc. will be likely the single most important focus of our business.

In Washington, we have two things going for us. Number one is the vacancies, we look upon as an opportunity and as we fill up those vacancies our earnings will rise and rise aggressively. We also have a huge developing pipeline all of which is close in in Arlington County.

So we think -- and the interesting thing about everything that I just mentioned, all of this is on balance sheet now. We don't have to go out and make an acquisition, we don't have to go and pay a three cap for some office building and hope the rents go up. These are growth opportunities which are on balance sheet now. Our job is to realize these, focus on these, focusing the business is really important and sprinkle some CapEx, some development capital into it.

Our strip shopping center business which is the third leg of our three-legged stool, is -- will be shrunk down to basically the Northeast. We are exiting California I guess and if you look at the statistics of that business in terms of household incomes and populations and what have you, density of population, it is right up there at the very tippy top of the strip shopping center competitive set.

So there you have it and that is what our program and our strategy is. I will not comment anymore on what we might do beyond that.

That is really helpful. Thank you.

Alex Goldfarb, Sandler O'Neill.

Good morning. Steve, maybe just continuing on on the strip center theme, if we look in your K on the planned CapEx spend for this year, you have in excess of $200 million allocated for New York City and DC yet only $12 million for CapEx for the strip centers. Just listening to the shopping center peers, there is a lot of focus on repositioning, redevelopment, maximizing tenants right now as landlords have the leverage given a lack of supply.

Is the $12 million really all that there is to spend or this is just releasing money and there is additional monies that are being potentially allocated towards the strip center to take advantage of the current environment?

First, happy birthday. Second, the beauty of the strip shopping center business is that it is a cash cow of the highest order. It requires very little or no maintenance CapEx.

I think your observation is correct. In fact we made a tour recently where we visited in one day 12 assets and we noted that one of the assets really needs a facelift and a repositioning. So I think you are right. We need to spend more money on the strip centers and we will.

But we don't have enormous embedded repositioning and redevelopments in that portfolio. So we will spend more money and you are correct to point that out but it is not as if we can -- I don't expect we are going to have total knock downs and tear downs and rebuilds. The portfolio is fairly well positioned now. It is very stable. It requires very little maintenance CapEx but we will spend more on that portfolio. And happy birthday.

I appreciate the well wishes. Thanks, Steve.

The second question is on the Crystal Tech fund if I heard you right, it is a $50 million fund that is seeded by Vornado. If you could just talk a little bit more as far as if you look at this fund as sort of like TI marketing type spend to try and spur tenants to as you reposition Crystal City and if there are any limits like VNO agrees to give up to $5 million or $10 million to this fund. Or because I don't think you guys are planning to do like another JCPenney type Toys side investment. So want to get better color how we should think about this and that it won't become another side investment like those two?

You are correct. Our seed investment in that fund is $10 million out of a $50 million fund. The way we look at this is our job is to transform Crystal City and Mitchell is doing a terrific job. The first most important thing is the location of Crystal City. I mean it is contiguous to national airport, it is on the shores of the Potomac. You can see the national buildings and the monuments from our building. So the location is superb.

It had been historically basically a government location. That is changing. That is changing because of the dynamics of the marketplace. Our job is to attract private sector tenants to Crystal City and to our other holdings and the best way to do that -- and this is all Mitchell's hard work and innovation -- is to seed Crystal City with the type of tenant that we seek.

So we are doing that with WeWork, we are doing it by putting in micro apartments, we are doing it by this tech fund and we are doing it by numerous other initiatives. And so if we can attract these tenants by hook or by crook and we look upon seeding this fund as part of the base if you will to improve the surround, improve the neighborhood and to transform Crystal City which we are very, very excited about by the way.

Okay, thank you.

Jamie Feldman, Bank of America.

Great, thank you. Good morning. So you commented that Crystal City or that Penn Plaza will be the single most important focus of your business going forward. Can you talk a little bit more about plans there and what we should expect over the next several years?

The answer to that is, no, I don't really think it is appropriate to get specific until we are really able to get specific. But generally speaking as David said in his remarks, Penn Plaza is full all the time. Penn Plaza is 97% occupied today. Over a 15-year period through ups and downs, valleys and what have you, we have averaged over 96% occupancy and when you think about it that is an extraordinary statistic and I might even if we did some homework, maybe even that is the best of any submarket in town. That is just a guess, I have no idea.

The next thing is I think that we said two quarters ago or whatever that it is the lowest vacancy submarket in town. I don't really know whether that is still true but it was a couple of quarters ago. So the demand is there. It is now at the crossroads of where the action is of the Island as I said before is tilting towards us.

So if you use the analogy, I think what is going on around us is you can almost use the London analogy what is going on around us is to the West we have Canary Wharf, an enormous development which will be successful and whatever but it creates an environment for us. So we are in board of that. We are on the other side of Manhattan South and we think that we can change the dynamics of that marketplace by spending a fair amount of capital on Hotel Pennsylvania and on our office buildings and on the street scape and on the retail and on the restaurants.

So we are about to get up to our eyeballs in that and we are extremely excited about it. We think it is the highest return opportunity that we have in terms of investing capital.

Just to give you an idea of what could happen, I mean we have average rents in that district of $55 a foot. The competitive set marketplace is $25 or $30 or even more higher than that. So if you want to get space at Brookfield, if you want to get space at Related, if you want in get -- the renter in the 70s and 80s so we are the low cost producer which is good but if we can get the marketplace and the market rents to go up by $10 a foot on 7 million feet of office space, that is $70 million a year. That is something to work very, very focused and hard for.

So there is a big payday and very excited about our position.

Okay. Does this -- how should we think about Hotel Penn? Do you think you keep it hotel or is it too early to tell?

The answer is while we are zoned for a 3 million tower, a financial services headquarters tower, and you know as I tell my children you have to look at the deals that almost happened so that was a deal that almost happened when we had two huge investment banks on that at one time. In any event, it looks to me like the math does not support a tower today. We are nothing if not realistic and our plan is -- I wanted to say our current plan, I am going to take out the word current -- our plan is to redevelop the Hotel Pennsylvania.

Our objective there is multiples. Number one, run that building in the low hundreds of millions of dollars. It is worth six times that or more. So our first objective is to get the hotel to be an asset to the neighborhood, not so much to make money in the hotel but to improve the neighborhood so that the value of our 7 million square feet of surrounding office space goes up. So that means we have to focus very hard on the lobby experience, on the restaurant experience, the nightlife experience, what have you in that.

The second is to make money on the hotel and we believe every dollar that we put into that hotel in terms of renovation will be rewarded with very, very significant double-digit financial returns.

Our third objective is to harvest some of the capital that we have in that building because the building is worth a lot of money, will become worth a lot more and we had no debt on it and what have you. So that is our financial objective and our environmental objective if you will with respect to the hotel.

Okay, thanks. And then just finally, I guess as you are thinking through this simplification plan, as you think about long-term holds for the business, are you saying strip shopping centers you think will be a long-term hold or you are considering selling those off?

Now you are getting into a slightly fancier question, Jamie. So the issue of splits, blends, splits, dividing the Company, all of those kinds of issues which I think you are alluding to, let me attack that head on and that is we are aware of all of the strategic and financial options that we have. We feel that we are well blessed by having a business that is performing wonderfully, obviously subject to cleaning up but performing wonderfully, has a great future.

We are considering every one of the potential financial and strategic options that you can think of at the Board level, at the management level, and including some third-party advisers. So we have nothing to say now. I am not alluding to anything, I'm not hinting at anything. I just think it is important that you know because you asked the question that this is something that is very high on our thought pad and we are thinking about and focusing on these kinds of issues very hard.

We are unable to predict and it would be inappropriate to predict what is going to happen but we are certainly thinking about it hard.

Okay, thank you.

John Guinee, Stifel.

Great. Just a thank you. Very insightful comments, guys. Just kind of a cleanup item. It looks like Toys "R" Us is unfortunately being valued by everybody at zero. What is the nature of the debt? It's about $1.86 billion. Is any of that recourse or is all of that fully nonrecourse to Vornado?

Toys "R" Us, there is no recourse debt to Vornado. Vornado has no intention of investing any more money in Toys and Vornado has no liabilities or surprises that will come out of Toys back to the mother ship.

Excellent. And then second, I guess Steve or Joe, seven -- or maybe Mitchell, 7 million square feet of FAR, extremely well located in the DC area. Is there a way that we can find that FAR easily on your balance sheet or your 10-K and get a better sense for your basis so we know what the incremental value is say at $50 or $60 per FAR?

There is a new page, brand-new on the supplemental which is page number 37, the bottom half of page number 37 I think directly answers that question. Those are GAAP book numbers which in terms of what the fair market value of those assets are is -- I hate to say this with all of my accountants in the room -- meaningless. So what you will have to do is to take those item by item and apply your own concept of what each is worth.

John, as you remember though, 4 million square feet is the incremental density permitted in Crystal city so there is no vacant land to find anyplace. It is taking the buildings and making them taller.

No, no, no. Hang on. Let's go into that for a minute. Mitchell did a spectacular job in getting a rezoning? What did you call it, Mitchell, a rezoning?

Are you are talking about in (inaudible) in Pentagon city?

The Crystal City plan?

City sector plan.

So the sector plan allows us to build building by building 4 million feet more than the existing buildings are but in order to realize that 4 million feet you have to tear down the old building. So if you will, I mean we've already talked about 1900 Crystal Drive which is a building which is approved which involves a tear down of a 300,000 foot building and the reconstruction of a 700,000 square foot building.

So from a cost point of view and a value point of view, you are basically the cost of the land will be the market value of the 300,000 foot building. That would be the land cost if you look at it so it is not for free.

Is that different from 1851 Bell?

No, that is the same project.

Okay, that is what we thought. Okay. Thank you.

Mitchell has a tendency of confusing me by readdressing his buildings every two or three years.

Got you. Thanks.

Josh Attie, Citigroup.

Good morning. It is Michael Bilerman here with Josh. Steve, I was wondering if you can just provide a little bit of granularity to the $1.1 billion of sales which I think you said most of them are or a good portion of them are actually in documentation or about half were. I assume that total includes Beverly Connection. But maybe you can just give a little bit of granularity in terms of what is sort of in there? How much is non-income producing versus income producing? Is there a lot of debt on that $1.1 billion at all?

And then maybe just talk about the size of the future pipeline. You sort of said in your opening remarks we got more on deck just so we get a sense of sizing?

Yes, it includes Beverly Connection which is free and clear. Beyond that, a lot of this is in hopefully final stages of negotiation. I'm really not -- I don't think it is appropriate to go through the list of what is in that packet while we are negotiating these. The lion's share of it has no debt on it. It does include One Park, our proportionate share of One Park Avenue in Manhattan which we have announced is for sale by the fund. So it includes our proportionate share which does have debt on it. The balance of it I think is debt free.

Now with respect to returns, just let me look through this. One Park is income producing now. There is another large asset in there which is non-income producing. Beverly Connection is being sold at a very, very low current cap rate because it is in ramp up and stabilization. So that if you look at it from what our earnings will be penalized by the sale proceeds of that, it is probably in the low fours although that is not a relevant number because the earnings will grow just from executed leases. I hope that satisfies you, Michael.

That is helpful. Then in terms of the on deck circle in terms of potential sizing as you think about the next stuff that you start to bring into the marketplace and the execution of that, I'm just trying to get a sense of what else is out there after this 1.1?

We are starting to huff and puff a little bit. We are running out of toys to sell so we do have more, they are obviously in the hundreds and hundreds of millions of dollars but not in the billions of dollars.

Okay, that is helpful.

Hopefully we are getting to the end of the housecleaning and then we are really going to focus on the main event which is the assets that we own.

And then just a question, you said Wendy was in the room. I just wanted a question on the financing market and you are in the process now of refinancing the office piece at 731 Lex, downsizing the loan modestly but just talk about sort of how you are thinking about the total proceeds that were available in the overall market and as you think about the retail piece on that asset that comes due next year as we just think about the overall financing environment especially in New York?

Certainly overall the financing environment in New York is very robust and for our assets and one that we have in the marketplace right now that we are working on a loan for was very, very competitively bid. And so I have to say overall it is as robust as I have seen it certainly in the last several years.

With respect to the Alexander's asset in particular, 731 Lex not surprisingly given the quality of that asset we were able to achieve what will shortly be announced as a very, very competitive financing. It was the owners of that asset's decision to keep it very modestly leveraged so essentially what is being executed against that is a AAA financing which as you would imagine is as I said a very (inaudible) price deal.

With respect to going forward on the retail financing again, it is a little bit further out but the quality of the assets, the nature of the tenancy, the productivity of these stores I would again expect that to be extremely competitively financed.

In terms of rate and term on the 300 million on the office piece and sort of how you think about leverage on that?

The office piece as I said, is going to be a AAA financing so it is very modestly leveraged. It will be done in such a way that there will be enough built-in flexibility because the proceeds on that could probably be easily tripled from we are going to execute the financing at still relatively attractive rates but at this point Alexander's which has a very liquid balance sheet with cash on the balance sheet and not a lot of activity which they are using to deploy that cash, it is really not looking to sit on expensive cash balances.

So at this point it is going to be modest leverage but flexible enough so that if the ownership wants to change the strategy they will be in a position where they will be able to do so easily.

In terms of upside new loans and (multiple speakers) money?

So Michael, is this call, (inaudible) for Alexander's? Yes, okay. So Michael, Wendy said it all. Let me just say it in a slightly different way.

Number one is I quiver at the word downsizing there. We are going to do $300 million for a $314 million loan so I will let you decide what that is. As Wendy said, we are doing the $300 million is fully all AAA at a very -- I think it is a 25% of the appraised value of the stock that it is for collateral, the office [factor] for collateral. It will bear interest at the lowest rate that is in the marketplace which is very low. The savings between the loan that's being paid off to the loan that is being taken is extremely large plus this is an interest only loan as opposed to an amortizing loan so the change in the cash flow is Alexander's is a very significant number.

It is a floater so that the main purpose of it being a floater is that we can pay it off basically when we want to. So that if we decide we want to get higher leverage or a less leverage, we have total flexibility in that balance sheet. I look upon Alexander's as an income producing security and I believe Alexander's common stock should trade based upon the dividend yield and so if we are able to save a dollar of interest and you cap that at -- pick a number -- 4% or whatever the dividend is, that creates value for our shareholders, one of the largest one of which I guess is Vornado.

So our strategy there is to refinance. We don't want to keep huge balances of cash on our balance sheet with huge negative arbitrage. We want to reflect the interest savings through to our shareholders and create shareholder value. We want to retain flexibility on that balance sheet so that if we do decide we want to invest, we can refinance quick.

Right. I was just thinking about it from the perspective of being able to tap a significant mortgage and then maybe even effectively distributing the proceeds to its owners of which Vornado is a large piece. But I understand sort of the rationale that you are talking about. I just wanted to get an understanding of the market but thank you for the comments.

Ross Nussbaum, UBS.

Good morning, everyone. Michael just asked my Alexander's question. So Steve, I think the only big topic that hasn't been discussed is you in terms of just at update on timing, CEO succession, your thoughts around that topic?

Thanks, Ross. I think no change. This is something that I and the Board think about all the time. Our plan is to clean up the Company, simplify the Company, focus the Company, make the decisions that need to be made and when we get through that then to basically take care of me.

Makes sense. You had an earlier comment before when you are talking about thinking through alternatives where you said you had been working with advisors. Is that something new or has that been the case for quite some time now?

Quite some time now.

Thank you.

Vance Edelson, Morgan Stanley.

First a follow-up on the development returns. Even though you don't publish the numbers, could you comment directionally as you make progress, any notable movement based on construction costs or pre-leasing activity? Are there any projects that might stand out as likely to be better or worse than originally contemplated without sharing the absolute levels with us?

Yes, I can talk around that a little bit. For example, the deal that we are doing in Times Square on the Marriott motel site which is across the street from our Forever 21 site or Virgin site, whichever you want to call it, will yield extraordinary returns on capital and create enormous value. But this is not a ground-up development. We are not talking about building in suburbia. This is right in the heart of Times Square in Manhattan.

Our 220 Central Park South for-sale condominium project will yield extraordinary returns on the capital that is being invested in it if in the end there is any capital invested in it.

What am I missing? In Hotel Pennsylvania, we will have double-digit returns on capital, whatever capital we put into -- whatever capital we put into the Penn Plaza district we expect will yield high returns. We can't quantify them now because basically there is two elements to the return in every dollar we invest there. There is the actual return on what we are doing and then there is the knock-on effect of returns in improving the neighborhood, transforming the neighborhood, carrying on to the office buildings.

Our investment in Springfield Mall is principally an investment to regain the [sum] cost of our land. So our incremental dollars that we are spending there will have double-digit returns but when you calculate the return based upon 100% of the sum cost of the land and the incremental cost, we get to a market rate of return.

The money that we are spending on 280 Park Avenue as any building on Park Avenue, it is a single-digit return and it basically creates what we believe together with our pals at SL Green will be a transformative and best-in-class Park Avenue building.

I have already talked about the 700 unit residential project in Pentagon City and the incremental returns on that and I think that just gives you some color.

That is very helpful. Thanks. And then secondly on the retail side, there's a fairly significant portion of leases coming up for renewal in 2015. Just wanted to give you a chance to comment on the mark to market outlook on that portion. Is it too soon to tell or are you willing to say that there are strong signs that this is going to be a very favorable situation next year?

With respect to the street retail expiries, we continue to be extremely pleased and extremely optimistic about the results we will achieve.

Great. Thank you.

Vincent Chao, Deutsche Bank.

Just a couple of cleanup questions here. Just on the $2.3 million of EBITDA that is coming off line that was mentioned earlier in the call in DC, when does that actually come out and is that an annualized number or is that the amount for 2014?

Vincent, I am sorry. Can you repeat the question. I didn't get it.

Sure. Just a question on the $2.3 million of EBITDA that is coming off line out of DC sometime in 2014 when earlier in the conversation you were talking about what were the components of the $10 million to $15 million reduction. Just curious when that is coming out in the year and if that was an annualized number if that was the 2014 number?

That is a great question. It is too technical for me. Joe or Steve?

It is not an annualized number, the comparative diminution in EBITDA between 2013 and 2014 and the building is going to come off-line pretty soon.

March 31.

Okay. Then just going back to the CapEx side of things, I know you give a lot of color on a by project basis in terms of what you expect to spend in 2014 and beyond on a by project basis. Just curious if there is much more on top of that you expect to spend in 2014 for projects that maybe are in earlier stages so maybe said another way, what do you think the total development budget is for 2014?

To the extent that the information is in our supplemental and in our 10-K, that is fine. Other than that, I don't think I am prepared to go further than that on this call.

Okay, thanks.

David Harris, Imperial Capital.

Good morning all. Steve, it has been over a year since you raised the dividend. Could you talk about potential for further increases and particularly with regard to (inaudible) cover seems to be fairly tight.

David, I think as you know, our policy with respect to the dividend -- and by the way this seems to be the policy at most of the blue-chip REITs that I follow is that our dividend will track our taxable income and so as our taxable income rises, our dividend will rise and so I mean I think that is the answer.

Okay. These calls have been such fun over the last 18 months or so. I am just wondering whether you might take the next step and provide us with earnings guidance particularly as the focus now is so much on core ex Toys "R" Us?

I think we will take that under advisement. But I think we will take it under advisement but right now we are pretty happy with our policies and I will give you just an indication of the way our management team thinks.

The volatility in Washington and the noise around Washington was something that we thought we needed to have to provide to you all and our friends' guidance for that because we thought it was volatile, it was something that everybody was -- the eye of storm everybody is focused on. So we voluntarily provided guidance on that and we will continue to provide updates and guidance on that until we get to our objective.

With respect to the balance of our business as we simplify our business, we understand your point of view, we understand your point of view and we will certainly we will talk about it and think about it and thank you for raising it.

I just wonder how much simplification achieving the simplification goal is compatible with the exceptionalism. I will leave that thought with you.

David, I didn't catch that. Can you give me that again please?

I was saying that the achievement of the goal of simplification, is it truly compatible with exceptionalism?

The answer to that is that that is a metaphysical question of the highest order but the answer to that is that if we simplify and you just take our New York City business, that is an extremely complex business. So while simplifying what that might mean is we are going to be in just a few geographies but our New York City business which has a best-in-class office portfolio, a best-in-class street retail portfolio, a hotel or two, the Alexander's assets and what have you is an extremely complex business.

Our Washington business is similarly complex with all the development and all of the moving parts there. So by simplification I think that just means focusing -- I prefer that better than simplifying. I can tell you that the word exceptionalism is not a word in my vocabulary but I love it and we will adopt it from here on in.

The complexity of your business I think actually makes a powerful argument that management should be giving a steer to the investment in the market generally about what future guidance particularly now that you have removed some very big elements of exceptional volatility. Anyway that is a whole debate we can perhaps have another time.

We got you. Thank you.

We have no further questions at this time. I will now turn the call over to Steven Roth for final remarks.

Thank you everybody. We spent an hour and a half on this call. Our policy as you know is to answer questions until they are finished and so we appreciate your attention. We appreciate your interest in our Company, we appreciate your coverage and we will see you on the next call. When is the next call by the way?

We are stumbling over that answer. I shouldn't have asked it. May 5. So we will see you then. Thank you all very much. Have a good day.

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