美國沃那多房產 (VNO) 2014 Q3 法說會逐字稿

Good morning and welcome to the Vornado Realty Trust third-quarter 2014 earnings call. My name is Larissa 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.

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

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

Please be aware that statements made during this call may be deemed forward-looking statements and actual results may differ materially from these statements due to a variety of risks, uncertainties, and other factors. Please refer to our filings with the Securities and Exchange Commission, including our Form 10-K, for more information regarding these risks and uncertainties. The call may include time-sensitive information that may be accurate only as of today's date. The Company does not undertake a duty to update any forward-looking statements.

On the call today from management for our opening comments are Steven Roth, Chairman of the Board and Chief Executive Officer; David Greenbaum, President of the New York Division; Mitchell Schear, President of the Washington, DC Division, and Steven Theriot, Chief Financial Officer. Also in the room are Wendy Silverstein and Michael Franco, Executive Vice Presidents, Co-Heads of Acquisitions & Capital Markets; and Joseph Macnow, Executive Vice President Finance and Chief Administrative Officer. I will now turn the call over to Steven Roth.

Thank you, Cathy. Good morning, everyone. Welcome to Vornado's third-quarter call. It is Election Day across America. As I hope everyone knows by now, we are committed to running a focused business, and we have made remarkable progress toward that end.

We had a strong third quarter, and I am very pleased with our financial results. Our third quarter comparable FFO was $1.31 per share, 6.5% higher than last year's third quarter. The increase is actually a much higher 12% after adjusting for a $12.1 million one-time unusually large lease termination fee in last year's third quarter from a single tenant at 1290 Avenue of the Americas. We have lease terminations every quarter, but this one is unusually distortive because of the size and, therefore, we call it out to you.

Our spinoff of the retail strips and malls is on schedule and is expected to be completed as of the end of the year, subject to SEC approval. In September, we filed Amendment 1 to the Form 10. SpinCo will be named Urban Edge Properties and traded on the New York Stock Exchange under the ticker symbol UE. Jeff Olson, Chairman and CEO of Urban Edge Properties started on September 1. Trustees will include Jeff Olson; myself; Steve Guttman, former longtime CEO of Federal Realty, who put together most of Federal's portfolio; Michael Gould, former longtime CEO of Bloomingdale's, and Kevin O'Shea, CFO of AvalonBay. Several more trustees will be named shortly. We are truly excited about UE's prospects.

Now to recent acquisitions. We made three investments during the quarter. A joint venture in which we are a 50% partner entered into a 99-year ground lease for 61 Ninth Avenue on the southwest corner of Ninth Avenue and 15th Street, in the heart of the meatpacking district, adjacent to the Apple Store and Chelsea Market and across from 111 Eighth Avenue, Google's 3-million-square-foot New York headquarters building. This will be a ground-up new build, 130,000 square office building with retail at the base, tailored towards creative class tenants.

We also acquired the land under our 715 Lexington Avenue retail building for $63 million, and we acquired a small retail property on Canal Street.

A few days ago -- and this will show as fourth quarter activity -- we closed on our previously announced purchase of the St. Regis retail for $700 million. We own approximately 75% of the joint venture, which owns this property. The property has 100 feet of frontage on Fifth Avenue on the southeast quarter of 55th Street in the heart of the area of Fifth Avenue favored by the world's luxury retailers. We also own 689 Fifth Avenue on the same block.

The St. Regis property is book-ended to the south by the high fashion Valentino flagship and to the north by the 40,000 square foot Polo flagship, both are new stores which opened within the last two months. The property has a 17,100 square foot lease with Gucci, a division of Kering, for its Bottega Veneta brand through January 2016, and a 7,600 square feet lease with LVMH for its DeBeers brand through January 2019.

Yesterday, we announced the sale of 1740 Broadway for $605 million, which will be used in a like kind exchange for this property. I will talk more about 1740 Broadway in a minute.

Now on to dispositions. In July, we completed the sale of Beverly Connection for $260 million. In addition, our fund and its 50% partners sold the 313,000-square-foot Shops at Georgetown Park for $272 million. Our developing leasing team has totally transformed what was a distressed multilevel mall in the heart of Georgetown. The IRR on Vornado's investment -- Vornado's share of this investment was 45%. Further, we sold two of the 20 small non-Manhattan retail assets that do not fit in UE's strategy for $15 million, and we have commitments to sell four more.

We have just entered into an agreement to sell 1740 Broadway, a 601,000-square-foot office building in Manhattan. The sales price is $605 million or $1,000 per square foot. The financial statement gain here on the sale will be approximately [$43 million]. The tax gain will be approximately $483 million, which will be deferred in a like-kind exchange for the acquisition of the St. Regis Fifth Avenue retail, which I previously mentioned.

We currently have over $300 million on the for-sale list. This list excludes the transfer of Springfield Town Center to PREIT, which will be completed in the first quarter of 2015 for $465 million. Springfield celebrated its grand opening just two weeks ago. Initial reviews are outstanding, and tenants are reporting sales well over their projections. Our work at Springfield is largely done now.

Our pipeline of internal value-creating opportunities is robust, including our super tall, 220 Central Park South residential condominium tower is now under construction. Next, our dominant retail and signage transformation at the Marriott Marquis at the bull's-eye of the Times Square bowtie across the street from our 1540 Broadway full block of retail and signage. This enormous sign, which we believe at 330 lineal feet by eight stories tall, is the largest anywhere, is being tested now and will go live on November 18. The first advertiser will be a giant tech firm.

By the way, we have a very significant portfolio of signs concentrated in Times Square and in Penn Plaza. We don't know anybody who has a bigger or better portfolio of size.

Next, our pipeline includes our 1.1 million square foot redevelopments at 330 West 34th Street and at 7 West 34th Street, which are nearing completion and targeted to the creative class market, a recurring theme. Next, the substantially completed transformation of the 1.2 million square foot 280 Park Avenue in partnership with our friends at SL Green. This two-building complex has a full block lobby on Park Avenue which is now open and the second quite imposing west lobby, which will open in a few weeks. Leasing is going well here. Our direct next-door neighbor here is JPMorgan's world headquarters at 270 Park Avenue. They have just announced that, after much analysis, they will be staying on Park Avenue right next to us.

Next, the spectacular 44,000-square-foot TopShop four-level flagship at our 608 Fifth Avenue, which will open at noon tomorrow. Next, our 699-unit rental residential project in Pentagon City named the Bartlett, with Whole Foods at the base, is now going vertical. We own two adjacent approved land parcels here for another 1,400 residential units. Note that we already have -- own and operate [2,414] rental apartment units in Washington, so this new project will be added to that portfolio.

Next, Wayne Towne Center, Wayne, New Jersey, at the intersection of Route 46 and Route 80, is about 60% complete. Costco just opened. Dick's Sporting Goods will open in two weeks. Next, at our Alexander's affiliate, we are constructing a 300-unit apartment tower on top of the 6,000- square-foot Rego II shopping center located at the Long Island Expressway and Queens Boulevard. This 20-story building is now topped out and has really, really cool views of the Manhattan skyline.

And all this is in addition to our grand plans in the Penn Plaza district. As David will mention shortly, our large and important New York office portfolio is full with rents for new leases clicking along at high teens mark to markets. Demand from investors worldwide for our kind of New York real estate is robust. In fact, demand and pricing is the strongest we have ever seen.

At quarter end, we have $4.3 billion of liquidity, comprised of $1.9 billion of cash, restricted cash, and marketable securities, and $2.4 billion undrawn under our $2.5 million revolving credit facility. On the first day of the fourth quarter, we used $450 million of cash to pay off the 7 7/8 unsecured notes due in 2039.

Now over to leasing. Companywide, in the quarter, we least 1,684,000 square feet and 132 transactions with positive mark-to-markets of 8.0% cash and 7.9% GAAP. In New York, we leased 589,000 square feet for the quarter and 2.8 million square feet for the first three quarters of the year. We continue to be very constructive on the New York office market, submarket by submarket. As I have said before, the island of Manhattan is tilting slowly to the south and to the west, greatly inuring to the benefit of the Penn Plaza district where we are the dominant owner with over 9 million square feet of office and retail space and the Hotel Pennsylvania. Our New York business continues to put up very strong industry leading metrics.

In Washington, our effort to be competitive and aggressive to retain tenants and fill vacant space is beginning to pay off. During the quarter, we leased 450,000 square feet of office space in 44 transactions. We leased 1.2 million square feet of -- for the year to date. Washington office occupancy, excluding Skyline, is at 87.1%, up 170 basis points from year-end. As I have said before, we believe there is no value in our stock price for the vacancy in Washington.

To sum it up, I am very pleased with both our operating performance and our progress on focusing the business. As my final comment, I would observe that pricing in the private markets is substantially higher than pricing in the public markets. Now, I will turn it over to CFO, Steve Theriot, to cover more details of our financial results.

Thank you, Steve. Yesterday, we reported third-quarter comparable FFO of $1.31 per share, up from $1.23 in the prior year's third quarter, a 6.5% increase. But, as Steve just mentioned, the increase is much actually higher, 12%, after adjusting for the 12.1 million lease termination fee in last year's third quarter. We normally don't call lease termination fee income one-timers, but this one was unusually large and, therefore, distortive and like we did on last year's third quarter call, when this fee was originally initially recognized, we are highlighting this item.

Including on non-comparable items, total third-quarter FFO was $1.15 per share as compared to $1.12 per share in the prior year's third quarter. I will discuss this quarter's non-comparable FFO items in a minute.

Third-quarter comparable EBITDA was $426.4 million. Our New York business produced $250.6 million of comparable EBITDA for the quarter, ahead of last year's third quarter by 1%, but after adjusting for the $12.1 million lease termination fee I just mentioned, the increase is 5.7%. Our Washington business produced $83.7 million of comparable EBITDA for the quarter, lower than last year's third quarter by $3.2 million or 3.7%. Washington's year-to-date comparable EBITDA is $252.7 million, lower than last year's nine months by $5.3 million or 2%. We expect Washington's 2014 full-year comparable EBITDA will be approximately $5 million to $10 million lower than 2013, an improvement from our prior guidance of between $10 million and $15 million.

More than offsetting the expected decline in comparable EBITDA, we will realize a reduction in interest expense of $16 million in 2014 from the restructuring of the Skyline mortgage loan. Net net, we expect our Washington segment's contribution to comparable FFO to be between $6 million and $11 million, ahead of last year.

Our retail strips and malls business produced $54.7 million of comparable EBITDA for the quarter and generated a same-store EBITDA increase of 1.1% or 1.8% on a cash basis over last year's third quarter.

Focusing just on the Urban Edge portfolio to be spun off at year-end, the same-store EBITDA increased 1.3% or 2.9% on a cash basis. We leased 243,000 square feet at the strip center -- strip shopping centers with a positive mark to market of 12.7% GAAP and 7.8% cash. We leased 25,000 square feet at four malls, substantially all of which was first generation space. Occupancy for the strip centers was 94.5% at quarter end, up 60 basis points from the second quarter. Occupancy for the malls was 95.5%, up 10 basis points from the second quarter.

Now to non-comparable FFO items. These items aggregated a negative $32.8 million or $0.16 per share of loss in the quarter compared to a negative $22.9 million or $0.11 per share of loss for the third quarter last year. This year's third quarter non-comparable items include $7.1 million of acquisition and transaction costs, primarily related to this spin off of Urban Edge Properties, a $10.3 million non-cash impairment loss and loan loss reserve on our investment in Suffolk Downs, negative FFO from Toys of $18 million. By the way, the carrying amount of our investment in Toys is zero at quarter end.

These items are partially offset by $2.7 million of gains on sales of residential condominiums. Please see our press release or the overview and MD&A on page 37 of our Form 10-Q for a complete summary of non-comparable items.

Now turning to capital markets. As Steve mentioned, we have $4.3 billion of liquidity, comprised of $1.9 billion of cash, restricted cash, and marketable securities, and $2.4 billion undrawn under our $2.5 billion revolving credit facilities. In the fourth quarter, we used $445 million of cash to repay the 7 7/8 unsecured notes due in 2039, and we will use some cash to seed Urban Edge when it is spun off at year-end. We also intend to repay the $500 million of 4.25% senior unsecured notes due in April 2015 when they first become freely pre-payable in January 2015.

In July, we completed a $130 million financing of the Las Catalinas Mall in Puerto Rico. The 10-year fixed rate loan bears interest at 4.43% and amortizes based on a 30-year schedule beginning in year six.

In August, we have completed a $185 million financing of the previously unencumbered Universal buildings, a 690,000-square-foot two-building office complex located in the Dupont Circle submarket of Washington, DC. As Mitchell will tell you shortly, WeWork just opened here. The loan bears interest at LIBOR plus 190 basis points and matures in 2019 with two one-year extension options. The loan amortizes based on a 30-year schedule beginning in the fourth year.

In September, we obtained a standby commitment for up to $500 million of five-year mezzanine loan financing to fund a portion of the development expenditures of our 220 Central Park South luxury residential condominium tower.

in October, we renewed and extended one of our two $1.25 billion unsecured revolving credit facilities. The renewed credit facility matures in November 2018 with two six-month extension options. The interest rate on the extended facility was lowered from LIBOR plus 125 basis points to LIBOR plus 105 basis points. In addition, the facilities fee was reduced from 25 to 20 points.

Our other $1.25 billion revolving credit facility matures in June 2017, with two six-month extension options. Our two revolving credit facilities total $2.5 billion.

In October, we completed a $140 million financing of 655 Fifth Avenue a 57,500-square-foot property whose tenant is fair, Ferragamo. The loan is interest only at LIBOR plus 140 basis points and matures in October 2019 with two one-year extension options.

Our consolidated debt to enterprise value is 33.6%, based on a quarter-end stock price of 99.96, and our consolidated debt to EBITDA is 6.8 times. Our debt mix is balanced with fixed rate debt accounting for 85% of the total with a weighted average rate of 4.56% and a weighted average term of 6.3 years. And floating debt accounted for 15% of the total with a current weighted average interest rate of 2.23% and a weighted average term of 4.1 years. We have no remaining 2014 maturities and after giving effect to the repayment of our 4.25% senior unsecured notes in January, our 2015 maturities total just $244.3 million.

Steve, I want to jump back in. I misspoke in describing the financial numbers of the important 1740 Broadway sale. So let me correct my mistake. We are selling 1740 Broadway which is a 601,000-square-foot office building and the sales price is $605 million, $1,000 a foot. The financial statement gain on the sale will be $443 million, not $43 million that I said -- $443 million financial statement gain. The tax gain will be approximately $483 million. So the sales price is $605 million; it is $1,000 a foot; the financial statement gain will be approximately $443 million, the tax gain of approximately $483 million. I apologize. David?

Steve, thank you. Good morning, everyone. Before I turn to our results for the quarter, I will spend a few minutes on the market. New York City office-using employment has now approached is all-time peak reached in 2001. And with that, Manhattan office vacancy rates have now fallen below 10% to 9.7%, the lowest level since 2008. Not quite a landlord's market, but we are getting there.

This job growth has continued to be achieved without the benefit of the traditional drivers of growth, large financial services and law firms. The creative industries have fueled much of the growth with the TAMI sector -- technology, advertising, media, information -- continuing to increase its share of leasing activity in Manhattan with TAMI tenants committing to more than 6.6 million square feet through the third quarter, some 33% of the total leasing activity, up from 25% last year.

As tenants have been shifting their focus from the cost-cutting mindset of the past few years to a focus on top-line growth, tenant relocations, spurred by the quest for efficiency, has also been an important trend in the market in 2014, with 14 of the top 20 leases being for new space as compared to only five of 20 last year. And we have seen the same trend in our own portfolio. We have completed major new headquarters leases with Neuberger Berman at 1290 Sixth Avenue, and New York & Company, Yodle, and Deutsch Advertising, all at 330 West 34th Street.

Leasing velocity continues to be brisk, some 25 million-plus square feet year to date, over 30% higher than the same time last year with net absorption in the 4 million to 6 million square foot range depending upon the brokerage report through the first three quarters of this year, equal to the absorption achieved for all of last year. The high-end financial services firms have also been very active in the marketplace this year, continuing to lease great space in trophy assets.

In our own portfolio, in the third quarter, in 280 Park, 640 Fifth Avenue, and 888 Seventh Avenue, we closed six deals, a total of [67,000] square feet with average starting rents over $110 per square foot. I think one of the brokerage firms captured the view of the marketplace perfectly describing it as, quote, on a roll. Highlighting a recent report by the Brookings [Institute], naming New York as the top destination for foreign college students and newly minted foreign professionals. New York has been and continues to be the magnet for talent. The business climate of New York feels very robust.

Let me now focus on Vornado's performance. In the third quarter, in the office sector, we signed 29 leases for a total of 556,000 square feet of activity, taking our leasings through the third quarter to over 2.7 million square feet. For the quarter, we completed 30%, three of the top 10 largest leasing transactions in Manhattan. Our average starting rent was a healthy $68.44, with very strong positive mark-to-markets of 17.9% cash and 12.6% GAAP. The average lease term was 9.7 years.

Our tenant improvement allowances and leasing commissions per square foot per annum was somewhat elevated this quarter at 12.5% of starting rents. This was attributable to the mix of leases we executed this quarter with over 70% of our leasing with new tenants, and only 30% being renewals.

As expected, our third quarter occupancy ticked down by about 70 basis points to 96.6%, reflecting the Citibank move-out at our 50% owned 666 Fifth Avenue. Our office expirations for 2015 are quite modest with only 1 million square feet coming up. Importantly, our pipeline of deals -- and for that purpose, we consider our pipeline to be actual leases in documentation -- is extraordinarily active. We have leases out for over 1.2 million square feet.

Let me now talk about a couple of highlights in our third-quarter leasing activity. At 330 West 34th Street, at our redevelopment, we signed to leases for a total of 158,000 square feet, one with Yodle, an online marketing company, and the other with Deutsch Advertising, coming out of 111 Eighth Avenue, the Google building.

Deutsch is part of the Interpublic Group of advertising companies. We have established an enormous relationship with IPG over the past two years, bringing CMGRP to 909 Third Avenue, and also expanding the DRAFTFCB space at 100 West 33rd Street. We now have over 800,000 square feet with IPG.

At 1290 Sixth Avenue, we renewed our lease with Wenner Media, the publisher of Rolling Stone magazine, for 99,000 square feet, and saw State Street Bank expand by over 22,000 square feet to a total of 128,000 square feet. At One Penn Plaza, we renewed United Healthcare's lease of 61,000 square feet.

At 90 Park Avenue, where we are now commencing and working on our building redevelopment program, similar to the activities we have undertaken time and time again improving assets, we are putting in state-of-the-art mechanical systems, elevators, with a total lobby transformation. At 90 Park, we leased 14,000 Square feet to the Guggenheim Foundation and year to date we have now leased 200,000 square feet of the 450,000 square feet, which is scheduled to expire over the next two years at substantially higher rents.

And finally, at 280 Park Avenue, during the quarter, we signed three leases for a total of over 75,000 square feet, and currently are in negotiations with a major financial services firm for 125,000 square feet in the base of the building. With the dramatic mid-block atrium space about to open, I encourage you to walk into the new 280 Park Avenue. Our renovation program will be complete prior to year-end.

Not reflected, importantly, in this quarter's leasing activity, was a major lease we signed with Google for 180,000 square feet in the 630,000-square-foot building at 85 10th Avenue. This building is the premier asset in West Chelsea between the Chelsea Market and the High Line, right on the Hudson River waterfront between 15th and 16th Streets. We have a mezz loan on this asset and effectively own 50% of the equity. The building, by the way, is a block away from 61 Ninth, where we announced our joint venture in which we are a 50% partner just having entered into a 99-year ground lease with plans to construct, as Steve mentioned, an office building with retail at the base of approximately 130,000 square feet.

Let me now turn to Manhattan street retail. For the quarter, we executed eight retail leases aggregating 33,000 square feet with positive mark-to-markets of 41.8% cash and 53.4% GAAP. In the bowtie in Times Square, at 1535 Broadway, the Marriott Marquis full block front, 45th to 46th Streets, directly across from our 1540 Broadway, the world's largest 10K LED sign will be going live the evening of November 18. We will be celebrating with a launch event and would be delighted to have you join us. Please let me know.

We are in active discussions with many tenants for retail stores and one of the world's premier digital advertisers has made the first commitment to the sign, all 330 linear feet, eight stories high.

At 608 Fifth Avenue, TopShop will be opening their new 44,000-square-foot Fifth Avenue should flagship at noon on November 5.

Let me now turn to San Francisco, the best office market in the country, where we continued our strong leasing activity at the iconic 1.8 million square foot 555 California Street. This building's tenant roster includes financial giants, KKR, Goldman Sachs, Morgan Stanley, Dodge & Cox, UBS, and Bank of America; national law firms, Kirkland & Ellis, Jones Day, [Sidley and Austin], and Fenwick & West, consultant McKinsey & Company, and technology companies, which we brought into the building over the past year, Microsoft and Supercell. This building could well be the best tenant roster in America.

In the third quarter, we signed three leases totaling 178,000 square feet, and we are now poised to sign an additional lease for 122,000 square feet within days. With this activity, year to date we have completed over 500,000 square feet of leases at 555 California, at very strong rents with cash mark-to-markets of positive 21.7% and GAAP mark-to-markets of 28.4%.

Let me now turn to theMart. At theMart, our 3.5 million-square-foot building, which was highlighted for the cover story by Crain's of Chicago, as being the epicenter of the white-hot River North market, we continued to the transformation of this building into a home for technology-based tenants and have rebranded the asset, theMart. Dropping merchandise from the name.

We completed 123,000 square feet of office leasing activity this quarter including 50,000 square feet with Yelp, a 20,000-square-foot expansion with the Chicago Entrepreneurial Center known as 1871, taking their occupancy to 76,000 square feet of incubator space and a 25,000-square-foot lease with a bioscience incubator known as Matter.

Last Thursday, Lenovo completed its purchase of Motorola Mobility from Google with Mayor Rahm Emanuel hosting an event at theMart to welcome Lenovo to Chicago. Notwithstanding this sale, Google, of course, remains the guarantor of the entire lease obligation.

To conclude my remarks, let me summarize the entire New York division. We had a very strong quarter with same-store EBITDA increases for the overall division of 5.2% cash and 4.6% GAAP. For the nine months year to date our same-store EBITDA increases for the overall division have been 7.4% cash and 5.3% GAAP. Isolating just the New York office business, our same-store increases for the quarter were 4.1% cash and 3.1% GAAP, and for the nine months year to date, our same-store increases have been 7.3% cash and 5.3% GAAP.

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

Thank you, David, and good morning, everybody. In Washington, we are pleased with leasing velocity, which is showing some signs of life, and we are capturing more than our share of that activity. We are doggedly determined to be competitive and aggressive to keep our existing tenants and bring new ones to fill vacant space.

In the quarter, we completed 472,000 square feet of office and retail leases in 52 transactions. Altogether, thus far in 2014, we have signed leases 41.2 million square feet of office and retail space in 167 transactions. Important to note, of this 1.2 million square feet, more than half, or 678,000 square feet is new leasing.

With about 60 leases currently being negotiated, for more than 1.1 million square feet of new leases and renewals, we expect a very active end of 2014 and beginning of 2015. And we are out ahead of our 2015 contractual expirations, which total about 1.95 million square feet. We are in lease with 607,000 square feet, expect to renew another 486,000 square feet, plan to take 153,000 square feet out of service for redevelopment, and will extend 350,000 square feet into 2016 on a short-term basis. Altogether, these numbers total about [1.6 million] square feet or about 82% of our 1.95 million square feet of 2015 expirations.

Overall, office leases signed in the third quarter generated a GAAP mark-to-market of negative 2.7% and a cash mark-to-market of negative 7.3%. Not great metrics, but producing the leasing velocity we need. We expect this trend to continue, given the ongoing competitive leasing market in Washington.

Our total occupancy, including residential, was 83.4%, down slightly by 10 basis points from Q2, which is weighed down by Skyline's declining occupancy. Skyline was 53.2% at Q3, down 520 basis points from 58.5% at Q2. Excluding Skyline, our overall occupancy increased by 85 basis points to 89.2%, and office-only occupancy increased by 130 basis points to 87.1% with strong upticks in our downtown DC portfolio, which was up 2.2% and in Crystal City, where we were up 1.8%.

Our residential business continues to maintain a 97% occupancy for Q3. We own more than 2,400 apartments in highly sought after urban locations, including Crystal City, Pentagon City, Rosslyn, and Georgetown. In addition, 699 apartments and a new Whole Foods are currently under construction at the Bartlett in Pentagon City. We are almost at grade and are on schedule to deliver in mid-2016. In addition, we own the two sites adjacent to the Bartlett, where we can build another 1,400 residential units.

Quarter over quarter, we reported same-store EBITDA of negative 4.1% cash and negative 2.7% GAAP. These numbers are influenced by a one-time leasing fee that we earned in Q3 2013, and this was for the large early renewal of Sidley Austin at the investment building. Without this one-timer, both GAAP and cash same-store EBITDA numbers would have been flattish.

This quarter we enjoyed healthy government activity. Signed during the quarter were 190,000 square feet of government leases, about half the total leasing completed in the quarter. Of the government leasing, 116,000 square feet of that was new leasing and 75,000 square feet were renewals.

At the beginning of the year, we said we expected the DC division EBITDA to be down $10 million to $15 million in 2014 compared to 2013. Three quarters of the year through, we are down $5.3 million, and so we now know we will be better than guidance.

We continue to work to create attract creative and tech tenants to Crystal City, and we are gaining momentum. In the past seven months, we have had over 8,000 people come to Crystal City for creative-tech events and to experience the creative hub taking shape. And more than 40 recent press stories have been generated about innovation in Crystal City. We continue to entice more accelerator/incubator types and to draw a new demographic to the area.

Just last week, we finalized a deal with Eastern Foundry, an incubator and co-working space specifically for small technology businesses focused on government contracting. Their new headquarters will create natural synergies with large Crystal City contractors like Lockheed, SAIC, Booz Allen, while adding to our innovation hub.

In partnership with WeWork, we will deliver a new residential concept in the latter part of 2015 that will add another layer of edgy creativity to Crystal City. With community style apartments featuring imaginative design and connected to dynamic shared social spaces, WeWork will bring the same sense of community and opportunities for collaboration to residential as their office concept.

And speaking of WeWork, just yesterday they opened their doors in our 1875 Connecticut Avenue building in Dupont Circle unveiling 44,000 square feet of their latest co-working offices. In addition, we just signed a deal with them to take another full floor in the building which will about double their office leasing with us.

On October 17, I was delighted to help cut the ribbon at our new 1.4-million-square-foot Springfield Town Center. The energy and enthusiasm was palpable as thousands of shoppers lined up to experience the new center. Our Vornado team did a terrific job transforming the property into an A regional shopping center with many of the very best brands, including TopShop, who made their debut in the Washington market here at Springfield.

In these first few opening weeks, retailers are reporting impressive sales. The parking lots are full, and there is a great deal of buzz in the market. All in all, we are very proud of the results, and I certainly encourage you to come by and check it out.

In summary, we think the tide is slowly turning in the Washington metropolitan region. We remain optimistic and excited about our many opportunities to create value by leasing up our vacancy and harvesting our best development pipeline on the shores of the Potomac. Thank you very much, and I now turn the call back over to the operator for Q&A.

(Operator Instructions) Manny Korchman, Citi.

It's Michael Bilerman here with Manny. Steven, in your opening comments you talked about a sale list, but unfortunately I didn't hear the amount. I didn't know if I heard millions or billions. And I was wondering if you could review a little bit about what is on target and how you envision recycling proceeds, whether it will be more along the lines of [131] or taking cash and distributing it to shareholders if there is another large gain like you had with 1740.

The for-sale list currently is over $300 million. I note that we have sold approximately $4 billion over the last couple of years, trimming our portfolio, getting out of non-core assets, and the like. We review our portfolio continuously for both acquisitions and, in this case, dispositions, and while we currently have in the marketplace over $300 million, that does not mean that we will not sell more over time.

We have the luxury of that almost all of our assets have gains in them. Most of them very, very large gains, and so that is a good thing. And how we handle those gains varies from case to case. So, we have over $300 million in assets now. Although that is not a dispositive number and we are certainly not finished, we -- the concept of pruning and selling assets is a continuous event.

And then, as a follow-up, in your opening comments, you reiterated the DC comment that [embedded in the stock] today you don't think that there is much -- any value for the vacancy in the upside over time. The stock is at $110. It is up $20 over the year. I guess, as you think back at the stock performance, how much of that was a move in the market in terms of the value of the assets in the marketplace in terms of cap rates compressing? Or was there other things that you think were undervalued and this still remains another piece? Just talk a little bit about reiterating that comment with the movement in the stock.

The stock market is all knowing and all right, and I cannot deem to predict or comment on the stock market's activity. It is very clear that several years ago we were grossly undervalued for lots of different reasons, which we set about to fix. And I think we have done a remarkable job in doing that, and we are pleased with the recognition the stock market has given us, but we ain't done yet by a long shot. And so, we think the stock continues to be undervalued, and we will continue to put up the numbers and show results and expect that the stock will follow.

Thanks, Steve.

Ryan Peterson, Sandler O'Neill.

I just wanted to ask if you guys would consider selling a stake in 555 California, given that the current pricing for CBD office has been strong and the fact that people have shown a willingness of San Francisco to pay ahead for upside. It seems like it might be an opportunity to recognize a portion of that upside now.

The answer to that is, we consider what the right financial strategy is with all of our assets every day. And obviously, every day is not literal -- every quarter we are continuously evaluating. We have thought about that asset. We continue to cherish that asset. It is probably the best asset in California, and its performance now is spiking. So we think about it, although it is not currently for sale.

Okay. And one other question, just if you guys could provide any details on the rate or terms on the mezz financing for 222 Central Park South.

The interest rate is in the high, high single digits. That is a standby commitment, which we -- which is available to us. It is up to $500 million. It will permit that project to self finance and self finance with no recourse to the parent. And the interest rate is very close to a double-digit interest rate.

Okay. Great, thank you.

Brad Burke, Goldman Sachs.

On Washington, DC, as I look at the expirations for 2015, they seem to be getting bigger, not smaller. So I am wondering how much of the leasing you have done in Washington -- how much of that is related to shorter-term extensions. And I am not sure if this is related, but, as I look at your EBITDA to date for Washington, DC, you continue to track above that $10 million to $15 million decline that you had originally guided us towards. So I'm wondering whether some of this expected decline has been pushed forward into 2015.

Mitchell, do you want to comment on the -- please comment on the vacancies and I will take the guidance question.

Sure. Brad, with respect to the 2015 expirations, I went through that in some detail on my comments. But we have 1.95 million square feet and the business is lumpy, so different properties have different lease expirations, different years. So the 1.95 million just happens to be how those leases come up. And I think I accounted for 82% of them in terms of being renewed, being extended, and whatnot. Would you like any further color on that?

No. And I appreciate the detail on the 2015 expirations. I was asking more about the 1.2 million square feet that you have leased thus far in Washington, DC for 2014. How much of that is shorter-term extension in nature that would be causing the 2015 expirations to increase.

Oh, I see. So there would be very little of the 2014 activity that would have any impact on adding square footage to 2015.

Brad, on the guidance question with respect to Washington, that you asked, we had guided to EBITDA being down $10 million to $15 million. This quarter, yesterday, I guess it is, we adjusted that guidance -- we approved that guidance to down $5 million to $10 million. We are hopeful that we will come in at the low-end of that number, so that is an improvement. The reason for the change in guidance is improved operating results in the business. So that is a good thing. I would remind you that we have pointed out in our filings that, if you just take the interest savings alone from the Skyline loan, so while our EBITDA will be down, our FFO will be improved by virtue of the fact that the interest savings exceeds the decline in EBITDA. So I hope that answers your question.

No. That is helpful. And then, the second one, just on the real estate fund, now that you have sold a couple of the larger assets, can you give us an update on how you are thinking about the remaining assets within this fund, whether you might be looking to sell those in the near to intermediate term?

We are actually very pleased with the financial results of the fund. Actually, quite, quite pleased. I don't really want to comment on the timing of those sales. There is not a lot of assets in there. Some of the assets are better held for a little bit longer term. So obviously, everything that is in the fund will be sold over the intermediate term. And, with respect to the specific timing of those sales, it is not something that I think that we are really to get into right now.

Okay. Thank you very much.

John Guinee, Stifel Nicolas.

Real quick question, both for Mitchell and, I guess, Steve. You continue to talk about the Street not giving you credit for the vacancy, Crystal City, Skyline. So two questions. One is, if you are buying vacancy in Crystal City, what would you pay for that on a per square foot basis, if you were a buyer? And then, second, is there any economics for you at all in Skyline or is that all been essentially taken by the lenders?

I am not criticizing the stock market's valuation machine, with respect to it. I'm just making the observation that the way I do the math, when you buy a share of Vornado stock, you get X numbers of square feet of empty space in Washington for free. And I think that may be appropriate. So, I guess I would answer your question, what would we pay for the empty space -- the vacant space in Washington, something more than zero. Actually, probably, something substantially more than zero.

But that is not the main event. The main event is to not look at it as being distressed. The main event is for us to hunker down and lease that space, which may take us X number of years and require a Y amount of capital, all of which is predictable to get that space income producing and then the values will be quite substantial.

So that is the way we look at it. Basically, the space is worth more than zero, but nowhere near what it will be worth when it is -- when it becomes tenanted.

Okay. No. We value it at $150 a square, and I am just trying to figure out if that's a good number in your mind.

We probably think it is a little more than that, but I am not going to quibble with that number. So -- and, once again, it is not a big number in our entire enterprise. So there is -- let's say there is arguably 2 million square feet. That is not a correct number, but it is directionally correct -- the vacancies there. So whether we would quibble with your number by $50 a foot one way or the other, it is actually a pretty small number. So we are talking about dollars per share one way or the other at value. (multiple speakers) not fives of dollars or tens of dollars.

Now, with respect to Skyline, which, for those of us who understand the market down there, is obviously Metro deprived and, therefore, a more difficult submarket which we admit -- what we have created there is, by restructuring the loan, we have created the ability to hold that asset for a very long period of time, waiting for the market to turn and then we will be able to -- as the market gets tighter, over time, which could take years, we believe that we will have better luck in leasing that space. So what we have done there is we have basically stretched the loan out and also bifurcated the loan to allow us to put capital in for leasing -- leasing capital, as we expect Skyline to be at the very end of the lease-up program in Washington.

Perfect. So there is some value to essentially your preferred position, but it is a long time in being monetized.

Well, we think that the capital that we are adding, in between the capital A piece and that B piece, we think that is dollar good. We don't think that is risk capital.

Okay. It's nice weather down here. Get down here soon.

(laughter) Our hearts and minds are with you.

Thanks. Bye.

Ross Nussbaum.

Can you talk a little bit about 220 Central Park South, just with respect to the activity you have been seeing over that Extell project at One57? And just some commentary on the direction you think that ultra high-end market is going. Obviously the press has been fascinated this year with the slowdown in sales activity over on 57th.

I am not sure I heard all your question, Ross, but let me try and take a shot at it. So the first thing is that we are not yet in the market to sell product, although -- and we will probably enter the market in the first quarter of 2015. We have a very large and very robust list of incomings, which we sort of called the friends and family list, of people who -- and they are largely domestic and they are largely New Yorkers, interestingly enough. Some non, some offshore people, whatever, who have basically heard about the building, seen some material on the building, and are excited about the building, and have inquired. And that does not include the real estate -- the residential real estate brokerage community who I am told anecdotally every major broker has a small handful of people who are very anxious to get in and look at the building. So that is what we think is the state of the market.

With respect to One57, which I guess was the building that started the market movement, they are down to cats and dogs there. They have sold all the good product, and they have some odds and ends left and so it is not at all surprised that after having multiple price rises so that the product is extremely expensive, having sold all the good product and being down to odds and ends, that sales are slowing. That is predictable.

Appreciate that. On a separate topic, is NYRT something that you guys are pursuing? Or is that not up your alley?

The answer to that is, we are not going to comment on that.

Manny Korchman, Citi.

It's Michael Bilermen, back with Manny. So just a question, David, just in terms of the Marriott Marquis and the signage, I was wondering if you could just talk a little bit about looking at the existing signage income at Vornado. It is up 10% year over year, but was down 11% in the quarter. I didn't know if there was something funky last year or something this quarter.

As you think about the $450 million of total cost, how should we think about the income recognition heading into next year with the sign kicking off this November in terms of a return for that capital for the Marriott? Because I know -- I think you still have the lease out to host, and I didn't know if that was something that you would trigger the buyout for next year or will you wait a little bit?

A couple of things. Number one, we're really excited about this asset. It is a dominating asset. We now own both sides of the bowtie in Times Square, which is one of the top retail submarkets in town. When you go into Times Square, you can barely walk on the streets because it is so crowded. It is a tourist Mecca, et cetera. It is also the entry to the theater district. So, we are very happy with our position in Times Square. By the way, rents have appreciated in Times Square enormously, probably second only to upper Fifth Avenue.

So -- and that is a result of a couple of things. Number one, the advent of conventional retail in Times Square is relatively new so, obviously, that is causing business to improve. The second thing is, our stores in Times Square are open until 1:00 in the morning. So this is sort of a different kind of -- it is an all day, all night kind of retailing. But volumes are extraordinary and so we are delighted with our position in Times Square.

We partnered with Marriott, who own the property. There is a buy -- we have an option to buy. They have an option to sell to us. Those options don't start to open up for some years now, so this is not an imminent thing. Our ability to buy is delayed. They have the first right to sell to us in a shorter time frame. What is it? The first fund is about five years from now?

The first time is upon stabilization and then there is certain times that [they use] after that.

Yes. So there is various sequences when they can sell to us, but we can't exercise our first buy for more than 10 years. So that is that. We expect to have very high single digit returns on our capital invested in this asset, which means we expect to make a fair amount of money. we expect to do well with this asset. We are very pleased.

It is Manny here. Steve, can you provide us an update on leasing at 640 Fifth? And maybe also comment on whether there has been an increase in competition from 685 Fifth that GGP and Thor recently bought?

I couldn't hear the back half of your question, Manny.

Has there been any increased competition from 685 Fifth Avenue, which Thor and GGP partnered up to buy?

Well, first of all, we have done some leasing -- office leasing in 640 Fifth. David, could you describe that, have we done some recent leasing their over $100 a foot?

Yes. Two of the leases that we talked about -- the north of $100 leases, in fact, we are at 640. That market, as it relates to the office in that building, it is great space overlooking the Channel Gardens, overlooking St. Pat's. We are very optimistic about that space. A lot of the building was leased about 10 to 12 years ago so a number of those leases, in fact, are coming up, and we think we have some very nice mark-to-markets in the office space.

So the location vis-a-vis opposite space office is -- I'm going to bifurcate your question into office and retail. So the location vis-a-vis office space is terrific. The quality of the glass box that we put on top of that base street building 10 years ago or 12 years ago is first class, best in the city, and so we are getting triple digit wins there so we are very pleased with that.

With respect to the retail, obviously, location is superb, and we are talking to multiple tenants about leasing the retail space in the retail segment of 640. With respect to competition, we compete with everybody. And so there is almost always -- tenants almost always have multiple choices. Not just one choice. That is a very rare event. And so, generally, there is two or three spots on the street that are available, and so we enjoy competition all the time, but there is enough for everybody.

I believe that with respect to the more northern part of Fifth Avenue -- I am talking about in the high 50s rather than the low 50s, where this 640 is, the pricing is even higher. So, I am not sure that we are going to be competing for the same tenants that we would want to go on 55th Street versus on 51st Street.

Thanks for that.

Thank you. There are no further questions at this time. I will now turn the call back over to Steven Roth for closing remarks.

Thank you all very much for listening and participating. Remember, it is Election Day, and we look forward to your participation on our fourth quarter earnings call, which is scheduled for Wednesday, February 18 in 2015.

So have a good day, everybody, and we will see you and talk to you at the next call.

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