Vornado Realty Trust VNO
Q4 2012 Earnings Call Transcript
Transcript Call Date 02/27/2013

Operator: Good morning and welcome to the Vornado Realty Trust Fourth Quarter 2012 Earnings Call. My name is Lorraine 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.

I will now turn the call over to Ms. Cathy Creswell, Director of Investor Relations. Please go ahead.

Cathy Creswell - Director of Investor Relations: Thank you. Welcome to 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; Michael Fascitelli, President and Chief Executive Officer; David Greenbaum, President of the New York Division; Mitchell Schear, President of the Washington, D.C. Division; and Joseph Macnow, Chief Financial Officer.

I will now turn the call over to Steven Roth.

Steven Roth - Chairman of the Board: Thank you, Cathy. Good morning, everybody. Thank you all for joining the call. Earlier this morning, we announced that after 16 great years, our friend and colleague, Mike Fascitelli has decided that now is the time for him to give up his day-to-day responsibilities and that he is stepping down as President and CEO of Vornado effective April 15.

Mike is family. This was entirely his decision. The Board has asked that I come back for another tour as CEO. Mike and I have been partners in running Vornado for the last 16 years. As such, the transition will be seamless. Vornado will continue its business plan of measured growth in its core New York and Washington businesses, simplification and balance sheet fortification.

Mike will continue to be a member of our Vornado family. He will remain a member of the Board of Trustees, maintain an office at 888, our headquarters in New York, and be available for advice and counsel.

Mike has made an indelible impact on the history of Vornado. He joined Vornado 16 years ago as President, Chief Growth Officer and my Partner. He came from Goldman Sachs where he was partner in charge of the firm’s real estate practice. His past 16 years at Vornado have been a period of unprecedented growth and change.

During his tenure, Mike led our Vornado teams in 172 separate acquisitions, totaling over $17 billion, all of which were fueled by 125 capital market transactions totaling $27 billion. Outstanding performance, it’s certainly been a great run. Mike is a highly intelligent, capable and caring leader. The friendships and relationships that were forged between Mike and me, our trustees and all our colleagues are enduring. The Vornado Board and I could not be more appreciative of his efforts and accomplishments these last 16 years. Thank you, Mike. Go ahead, your turn.

Michael D. Fascitelli - President and CEO: Thank you, Steve. As Steve said, I have decided to step down as President and CEO of Vornado as of April 15. Vornado has been my consuming passion for 16 years. It is a great Company. One of the largest, the most respected businesses in the United States. We're extremely fortunate and proud to be part of its storied history and long-term growth. I'm a firm believer in not being afraid to try something new. That's why I left the great job at McKinsey to join Goldman back in 1985. It's why I left my friends at Goldman after 12 incredible years there, when Steve lured me to Vornado in 1997 to assist him in the challenge of helping him run a major REIT.

Steve has been a great partner over the last 16 years. I'm enormously grateful for the opportunities he has created and proud of what we've accomplished together. In recent years, we have successfully executed our strategy of growing smartly, focusing our holdings and fortifying our balance sheet, maybe not as fast as a lot of you guys like sometimes, but we've really made great progress there.

Simply put, I have concluded that now is the right time for me to take a break before doing something different. I am deeply confident and invested in Vornado's future. I intend to stay on the Board, maintain an office here and be available for advice and counsel after I step down. I've been lucky enough to work with an extraordinary group of people at all levels, no more exemplified by the people that you'll hear after on this call and many of our other colleagues at Vornado, that helped Steve and I build this great company. My thanks to all of them.

I know many of you, if not most of you, on this call, and over the years, we've got to know each other. We haven't always agreed, but we certainly have had an open and honest dialog. I take great pride in the relationships that we have and I have and Joe has and others here with many of the investors here on the calls. I look forward to you guys continuing to be great supporters of the Company.

I look forward to seeing you guys in Florida, too, at the conference for many of you. Steve and my countless other friends at Vornado know that I'll do everything I can to support them in the future.

I'd like to turn now to the quarterly earnings and our normally scheduled conference call that we're going to go through today. I'm going to make some opening remarks before David and Mitchell talk about our New York and Washington business and followed by Joe's financial review. Then we will answer your questions. We'll end at 11.00 a.m.

Let me begin by commenting on the macro environment. As you know, 2012 was marked by a significant amount of economic uncertainty, which limited the pace of growth of commercial real estate fundamentals. 2013 is starting like much the same way as real progress is yet to be made in developing a plan to reduce the federal deficit and resolve the nation's debt.

Sequestration and all of its unknowns loom large. As a result, many businesses are restraining from making significant long-term economic commitments, limiting job creation and business expansion until a clearer picture of economic policy emerges.

Nonetheless, demand for high-quality real estate assets remains intact, particularly in New York City and Washington, D.C., as invested bid assets up, while continue to seek stable and less volatile returns. Real estate debt markets have also improved greatly over the course of the last year, especially for high quality properties and high quality sponsors, including public REITs. These factors and low interest rates will enable the recovery to continue in 2013.

Now let me turn specifically to Vornado. I am very pleased with our fourth quarter comparable FFO, which was $0.19 per share or 18.4% better than last year's fourth quarter. Our all-in results include a variety of non-comparable items, which include gains from the sale of noncore assets and noncash impairment losses on other noncore assets as a result of reducing the estimated holding periods for these assets as we ready them for disposal.

We were very active in the fourth quarter as we were in the first three quarters of the year. On dispositions, most recently, we announced the sale of The Plant in San Jose and our 26.2% interest in LNR, both of which are expected to close in the second quarter.

The Plant, a power strip shopping center standing over 500,000 square feet, will be sold for $203 million, resulting in net proceeds of $93 million and a net gain of $33 million. The sale of LNR will result in net proceeds of $241 million. LNR provides a 40% plus annual yield of our 2.5-year holding period, even taking into account the write-down of loans to LNR prior to recapitalization in July 2010. The investment provides a 12% annual yield over the 8-year holding period.

We also completed the sale of Green Acres Mall in January for $500 million. In November, Alexander's completed the sale of Kings Plaza Mall for $751 million, and we completed the sale of Reston Executive for $126 million. We expect to complete the sale of the Market Street, Philadelphia retail property for $60 million in the second quarter.

On acquisitions, in the fourth quarter we completed a previously announced acquisition of the 666 Fifth Avenue retail condominium for $707 million, expanding our best-in-class Manhattan Street portfolio to 2.2 million square feet. We just closed a 3.6% 10-year interest only $390 million financing on this property.

We acquired a 58.75% interest in Independence Plaza, a three-building 1,328 unit residential complex in Tribeca, which spans two fold city blocks that contains 54,000 square feet of retail space and 550 parking spaces.

We laid the ground work for this transaction in June, 2011 and we acquired a $0.30 on the $1, a 51% interest in a subordinated debt of the property. At that time, the property was in the midst of tenant litigation had a value of approximately $440 million, it was encumbered by a $381 million first mortgage and $180 million of subordinated debt.

We also negotiated at the time for a warrant for 25% of the equity for nominal month. Since then the litigation has been substantially settled all in our favor and the asset has improved dramatically as rent-controlled apartments have rolled to market.

Our yearend acquisition of the equity, values the property at $845 million. This transaction resulted in a $105 million gain to us. Our total investment is $205 million, which will be reduced significantly after the existing $334 million mortgage is refinanced. We are in the market right now to do this.

We are managing the retail space and our partner, Stellar Management, is managing the residential space at the property.

Vornado Capital Partners acquired 800 Corporate Pointe in Culver City, L.A. for $95.7 million in November. This office property consists of 240,000 square feet, 243,000 square feet and accompanies 6 level parking garage and represents an opportunity for us to raise occupancy from its current 44% level, a great value-added deal.

Now let me comment on the full year of 2012. We did a lot and I am quite happy with our accomplishments in spite of a difficult leasing environment. Here are some key takeaways; comparable FFO per share was up 5.5% over 2011. This is despite a $54.9 million reduction in Washington resulting from BRAC.

We leased over 2.1 million square feet in New York and over 2.1 million square feet coincidentally in D.C. Over 6.6 million square feet of company-wide leasing was done with a positive mark-to-market of 4.5% cash and a 9.1% GAAP. That's a lot of leasing. Each of our businesses had a positive mark-to-market.

At our Chicago Merchandise Mart building, we added Motorola Mobility, Google for 570,000 square feet. To Steve's Chairman's letter last April, we had been in the simplification mode, achieving over $2.75 billion in asset sales and 26 transactions with an aggregate net gain to Vornado of $718 million, including the sale of Kings Plaza Mall for $751 million, the Green Acres Mall for $500 million and LNR proceeds for $241 million.

We closed the sale of Kings Plaza. We've generated $623 million taxable gain that was distributed to Alexander's shareholders as a special $122 per share long-term capital gain dividend. Vornado paid out its $202 million share of the dividend to its shareholders in December as a special $1 per share long-term capital gain dividend. We added $1.25 billion of high-quality core assets, including the 666 Fifth Avenue retail condominium I mentioned earlier, the 58.7% interest in Independence Plaza, which I discussed and the Marriott Marquis, Times Square hotel retail and signage redevelopment. In addition, Vornado Capital Partners acquired over 300 million of office and retail assets.

We completed over $2 billion of mortgage refinancing in 2012 at a weighted average rate of 3.23% for an average term of eight years, which generated enough net proceeds for us to redeem the $500 million in exchanges senior debentures, which had a GAAP cost of 5.32%.

We issued a 5.4% Series L and 5.7% Series K perpetual prepared shares totaling 600 million and redeemed 517 million of preferred shares in units had a weighted average rate of 6.82% and a $9 million discount resulting in annual savings of $6.6 million. These are the lowest rates we have ever achieved on our preferreds.

We and SL Green commenced the renovation of 280 Park Avenue and the rehab of the 1.4 million square foot Springfield regional mall, both of which are expected to be completed in 2014.

We have completed the demolition down to the second level at 220 Central Park South. We are also evaluating other development and redevelopment opportunities in New York, including Hotel Pennsylvania and in Washington including 1900 Crystal Drive, Rosslyn, and Pentagon City.

On sustainability, our Washington business received national recognition as we certified 30 buildings totaling over 9 million square feet, which doubles the number of green buildings in our entire portfolio. This made Vornado the largest commercial real estate owner of leased certified buildings nationally. But it was quite an active quarter and quite an active year.

Now I'll turn it over to David to discuss the New York City business.

David R. Greenbaum - President of the New York Office Division: Thank you, Michael. Good morning everyone. Before I turn to the results for the quarter, I want to spend a couple of minutes recapping the overall market's performance in 2012 and what we're expecting for 2013.

I'm sure everyone on this call reads the various market reports produced by the brokerage community. These reports generally describe the market is stable, stuck in neutral with flat absorption and modestly positive asking rents. Rather than rehashing these reports, let me give you my take on some of the larger trends in the marketplace.

One of the most important trends we are witnessing is the continuing resurgence of urban centers, whether its New York, San Francisco, Chicago. Tenants are relocating from the suburbs to the urban cores in order to recruit and retain the best and brightest to the younger generation which values a lifestyle and vibrant energy of the city.

The other day I was talking to one of the brokers that helped us last year move Motorola Mobility from suburban Liberty Hill to the Merchandise Mart in the hot river north section of Chicago. He tells me the vacancy rate in the Chicago suburbs is now over 25%.

Here in New York, the job numbers prove that the city is a magnet for talent. Total employment has recovered a 139% since the trough and more importantly, office using employment has reached levels we last saw during the peak 2000 period having added 41,000 positions last year.

Looking more closely at the office using jobs, the high-paying securities industry shed some 1,000 positions last year and is projected to lose up to 4,000 more this year. The new jobs last year largely were concentrated in the information and professional services sectors, an important subset of these two categories is now known as TAMI, technology, advertising, media and information, and is driving a strong demand in the Midtown South market. No surprise, since these types of tenants have more of the younger generation of employees who seek that urban lifestyle.

Many in the brokerage community now consider our Penn Plaza part of an expanding Midtown South market. In fact, Jones Lang LaSalle, just reported that Penn Plaza was the strongest submarket in Manhattan with year-over-year asking rents rising over 9% plus and with less than a 6% Class A vacancy rate. An analysis of our Penn Plaza portfolio shows that we have 45 TAMI tenants including some household names, Cisco, Information Builders, Level 3, EMC, Hewlett-Packard, Avaya just to name a few and the TAMI tenants are expanding within our buildings.

In the fourth quarter, we completed our 95,000 square-foot expansion at 100 West 33rd Street with the Interpublic Group, an advertising agency for their Draftfcb division. This took Draft's occupancy in the building to over 500,000 square feet, we also completed an important expansion deal with Level 3, which doubled it space at One Penn Plaza.

There has been a lot of talk within the industry about large financial institutions shrinking their footprint. While this is true for the big banks, we are seeing hiring and expansions by the boutique banks and brokerages. For example, you probably have read about the recent Jefferies and Company expansion. Within our own portfolio last year both Guggenheim at 330 Madison and Fidelity at 350 Park expanded. We're also seeing growth within the fashion retailing sector, including J. Crew expanding in the fourth quarter by 80,000 square feet to 375,000 square feet at our 770 Broadway.

While urbanization and the growth in the non-financial sectors in New York are positive trends, I do want to temper my remarks with some of the other major trends we are witnessing in the market. As I said on our last call, renewals made up the bulk of the large transactions in the market last year enabling tenants to avoid the capital expenditures involved in a move.

Tenants that did invest in relocating demonstrated further cost consciousness consolidating, one, multiple offices into a single location and seeking out less expensive space. Tenants are also becoming much more efficient in utilizing space with a continuing shift to a much higher density per person with open office layouts.

Finally, companies have been providing flexibility to employees to 'telecommute,' by working remotely from home, enabling tenants to reduce their space requirements, interesting, that we're now beginning to see some pushback to these trends. Just yesterday, Yahoo! announced it is reversing its work-at-home policy and requiring its employees to work at its offices to foster a more collaborative and innovative culture.

Now looking at 2013, the general thinking in the brokerage community is that the first half of this year is going to be flat due to the continued uncertainty of the debt limit and sequestration with a pickup in growth in the market for the latter half of the year, continuing on an accelerated basis into 2014. We agree with this view.

Let me now turn to Vornado's performance in the fourth quarter and for the year, where we continue to do what we do best, lease, lease, lease. In Q4, we signed 36 leases for a total of 457,000 square feet of office space and our occupancy rate ticked up to 95.9%. The largest deal for this quarter was a 95,000 square feet expansion with IPG at 100 West 33rd and the 80,000 square feet expansion by J. Crew at 770 Broadway that I mentioned earlier.

Our average starting rent for the quarter was $53.98 per square foot with a positive mark-to-market of 3.4% cash and 5.8% GAAP. For the year, we finished with 2 million square feet of total office leasing with a positive mark-to-market of 4.6% cash and 4.9% GAAP. Our office explorations for 2013 are quite modest with only 650,000 square feet expiring this year.

You likely have read some new reports about a couple of our tenants at 1290 Avenue of the Americas. Let me spend a minute updating you on this building, starting with AXA, which recently announced it is shrinking it's footprint in New York. In 2007, just after we acquired the building we completed a total restructuring of the AXA lease, reducing AXAs occupancy by half from over 800,000 square feet to 400,000 square feet.

At the same time we nearly doubled AXA's rent from $45 to $88 per square foot with the increase in cash rent becoming effective, July 1, 2012. While AXA has now put most of its space on the sublease market we have great credit with AXA on a lease through 2023.

The other news in the building is that Microsoft will be vacating its 175,000 square feet by February 2014. We have good activity on this space with a lease out for 100,000 square feet with an important financial institution and are also actively talking to another tenant for 50,000 square feet.

With the construction barricade now removed on Sixth Avenue, people are starting to really appreciate the great scale and quality of our lobby renovation. The image of this building is really transforming and I invite you to visit the building to see how impressive it really is.

On the last call, I also briefly discussed the strength of the Penn Plaza market. This is a very important part of our business with over $9 million square feet of office, retail and hotel space. For the year, we leased 830,000 square feet in Penn Plaza at average starting rents over $52 per square foot. At One Penn, average starting rents were approximately $60 a foot. As you are aware, the Penn Plaza district is anchored by Penn Station, the busiest transportation hub in North America with 600,000 daily commuters. This proximity to transportation is a critically important consideration for tenants and one of the reasons why our Penn Plaza portfolio is consistently full. Looking back at the last 10 years, our Penn Plaza occupancy has averaged above 96%.

Two days ago, on Monday, we completed an important 646,000 square foot lease extension with Macy's at 11 Penn Plaza. Macy's has grown dramatically in 11 Penn, first occupying 100,000 square feet in 2000, adding 250,000 square feet just three years later to now occupying 650,000 square feet.

With this renewal, Macy's has solidified its commitment to 11 Penn for another 20 years through 2035. The old Macy's lease had staggered lease expiration with about 45% of this space expiring 2015 and the balance expiring in 2020. The terms of the new Macy's lease were strong, with blended starting rents of approximately $55 per square foot, a positive GAAP mark-to-market of 17.8% and positive cash mark-to-market of 1.2%. The tenant improvement allowance was also quite modest at $42.50 per square foot, less than $2.50 per square foot per annum over the 17-year blended extension term.

The Penn Plaza district anchored by Macy’s store at Herald Square, it’s the largest department store in size and volume in the world, is also anchored as well by Madison Square Garden which this summer will be completing its $1 billion transformation.

MSG was spun out of Cablevision in 2009 and Rainbow Media, AMC Networks was spun out in 2011. Similar to Macy’s, these companies have grown substantially within our portfolio. Today, Cablevision, MSG and AMC Networks in the aggregate occupancy over 650,000 square feet in Two and 11 Penn Plaza.

Let me spend a moment now on 7 West 34th Street. As previously announced, this building is transitioning from the Merchandise Mart division into the New York division. We will be converting the first 300,000 square feet from showroom to office use in 2014 January. This building was originally a department store, so it has great ceiling heights and we will be repositioning this building to appeal to technology and media tenants in the Midtown South market.

We're also working on the design and engineering efforts to reposition 330 West 34th Street when the primary tenant, the City of New York vacates the majority of its base this year.

Let me turn now for a moment to Manhattan Street Retail; in the fourth quarter, in addition to 666 Fifth Avenue Retail, we also completed the acquisition of a leasehold interest in 608 Fifth Avenue. This landmark property on the corner of 49 Street right at Rockefeller Center has 70 feet of retail frontage on Fifth Avenue. This is a great spot right at the unofficial border between upper Fifth Avenue where asking rents have now exceeded $2,700 per square foot and lower Fifth Avenue retail where rents have increased some 50% in the last year to over a $1,000 per square foot.

We have completed a deal to recapture the retail space and then combining it with other spaces in the ground, lower level and the second floor to create a 30,000 plus square foot retail box which we are now marketing.

On our last call, I spoke about the Microsoft popup store at our 1540 Broadway property in Times Square. We just completed a new lease with Sunglass Hut for the majority of this space, a net rent of $2,025 per square foot, a record in this submarket. We also signed a separate lease with Sunglass Hut for the highly visible corner spectacular sign above this store.

In summary, for the entire New York division, a total of 27 million square feet, we had a good quarter with positive same-store 4% cash and 0.2% gap. For the year, we had positive same-store of 2% cash and 2% gap.

Let me now turn it back over to Mike.

Michael D. Fascitelli - President and CEO: Thanks, David. Let's turn to Mitchell now to discuss our Washington business.

Mitchell N. Schear - President of Vornado-Charles E. Smith Washington, DC Office Division: Thanks, Mike. Good morning, everyone. I will also start with an overview of the Washington market and then talk about our business more specifically. While the near-term story is sluggish, we believe in Washington for the long-term. The near-term sluggishness in Washington is a result of the uncertainty surrounding the budget crises, which has been cycling for many areas around the country.

Local economists, businesses and jurisdictions are spending a lot of time measuring the impact and potential impact of government cuts on the Washington market. While there is analyst speculation on the effects of a possible sequestration, the fact is that spending cuts have already happened and will likely continue to happen. Since 1980, government spending in Washington has increased every single year until 2011.

In the past two years, federal government spending in D.C. dropped by $7 billion, down a total 8% reflective of cuts that have already happened. Notwithstanding the decline in government spending, the Washington economy still grew and added 28,000 new private sector jobs in 2012. This is well above the 10 year average. While the federal government sorts out its issues, the private sector will help make up the gap resulting from the decline in federal spending.

We believe Washington will continue to grow and will continue to be one of the top markets in the country. In fact, Washington is projected by McKinsey Global Institute to be one of the top five growth markets in the U.S. between now and 2025. So where is the growth coming from. Much of it will be from the private sector.

Recently, Forbes ranked the Washington area as the second in the U.S. in technology, job growth ahead of Silicon Valley. Washington had the second highest growth rate in the nation in high tech and science technology, engineering and mathematics related jobs also known as STEM jobs. David may have TAMI in New York, but we have STEM in Washington. These types of jobs are driving growth and attracting bright and talented workers.

In addition, corporate relocations and expansions continue to ramp up. Northrop Grumman, Bechtel and Siemens have all recently relocated their headquarters to Washington. In our own portfolio, just last week, DRS relocated their national headquarters to 2345 Crystal Drive, taking 93,000 square feet. In fact, four out of six of our largest leases in 2012 reflected an expansion of private-sector tenants, including corporate executive boards, United Nations Foundation and the law firm Cooley in addition to DRS.

Over the next five years, 240,000 new jobs are expected to be added mostly in the private sector areas of professional and business services. This should create real demand for office space. With 82% of our portfolio in Washington D.C. and Arlington, we are well positioned for the trend David mentioned, where most of the pronounced growth is happening in closed-in urban areas where young talented workers want to be.

Not to say there won't be difficult times in Washington. 2012 was a tough year in particular as Washington reached the peak of BRAC related vacancy. The leasing activity was brisk, in fact on part with the 15 year average of 32 million square feet annually, Washington had a negative net absorption of 2.9 million square feet for the year. Throughout the year we found that rents held steady although concessions have increased.

We expect 2013 to be a year in transition. With the budget resolution, growing confidence, private sector employment growth and limited new supply over the next several years, we expect the Washington market to gain real traction beginning in 2014. Our view is that Washington's future is compelling. The work force is the most highly educated in the country, the housing market is strong, at 5.3%, Washington has the lowest unemployment among major metro areas. The federal government is here to stay, Washington is a forever market.

Now turning specifically to our Washington portfolio, leasing velocity has been strong. We signed a total of 201 deals aggregating over 2.1 million square feet for the year at an average rent of $40.55 per square foot generating a positive mark-to-market of 3.4% GAAP and 0.4% cash.

Government activity accounted for 31.5% of the leases and private sector leases accounted for the remaining 68.5%. Specifically in Crystal City, for the year we leased 982,000 square feet at an average rent of $40.47 per square foot with a positive mark-to-market of 3.7% GAAP and 1.6% cash.

Not bad in such a tough market where flat rents would be good. We continue to enjoy good activity and consistently execute more than our fair share of deals at good rents. During 2012 we signed six new over 50,000 square foot leases, in fact, four are over 75,000 square feet as compared to just one new lease over 25,000 square feet in all of 2011.

In the fourth quarter we leased 482,000 square feet in 50 transactions at an average initial rent of $41.46 per square foot with a mark-to-market decrease of 2.4% and 2.6% cash. Of those fourth quarter leases, government activity accounted for 20% and private sector leases accounted for the remaining 80%. Our occupancy was 84.1% at year-end, close to the bottom. Our 2013 lease expirations will be at a historic low of 839,000 square feet. As a point of reference, our scheduled expirations over the past four years have aggregated 2.2 million square feet per year.

For the entire Washington, D.C. segment same-store EBITDA for the quarter was down 14.3% on a GAAP basis and 14.9% on a cash basis, almost entirely due to BRAC. By way of an update on BRAC, almost all the Department of Defense relocations from our portfolio have taken place and we have resolved approximately 900,000 square feet of the 2.4 million square feet of DoD lease expirations. Re-leasing the remainder of the BRAC space is a function of time and we will emerge stronger when complete.

Our 2012 EBITDA decline of $54.9 million was less than the low end of our original projection of $55 million to $65 million. We estimate that 2013 EBITDA will be between $5 million and $15 million lower than 2012. We had expected 2012 to be the trough of the cycle, but now expect it will be 2013. Growth in EBITDA will resume in 2014 from our re-leasing.

Our residential portfolio, which consist of 2,414 units in Arlington and D.C. and representing about 12% of our EBITDA today had a same-store EBITDA increase of 6.6% for the quarter and is 97.9% occupied. We continue to attract great companies to our portfolio. We signed a lease with Facebook who will relocate their Washington headquarters to our Warner Building. Also, at the Warner, we welcomed the law firm Cooley as they opened their new 88,000 square foot office and we expanded our relationship with AOL when we signed a new lease at 1750 Pennsylvania Avenue for their Washington D.C. offices. As you may remember, AOL has their headquarters location in 225,000 square feet at 770 Broadway in New York. We invite you to visit our new offices the next time you're in D.C. More than a great place to work, we are touring prospective tenants through our offices as a model of how next generation space can be accommodated in existing Crystal City buildings.

Thank you very much. I turn it back over to Mike.

Michael D. Fascitelli - President and CEO: Thanks Mitchell. Let me now touch on our retail strips and mall business. The strip shopping centers which are concentrated in affluent markets within a densely populated, high-barrier to entry tri-state area have been resilient even in this difficult leasing environment.

Occupancy was 93.6% at year end, unchanged from the third quarter. It was 82% for spaces under 10,000 square feet and 95% of the spaces over 10,000 square feet. We leased (322,000) square feet in the quarter and the positive mark-to-markets were 6.2% cash and 8.7% GAAP. We leased 1.3 million square feet for the year and the positive mark-to-markets were 9.6% cash and 20.5% GAAP, including leases with quality tenants such as Costco, T.J. Maxx., HomeGoods and LA Fitness.

Occupancy in our five operating regional malls was 92.7%, up 10 basis points over the prior quarter. We leased 75,000 square feet in the quarter, including 428,000 square foot deal with Forever 21 at Monmouth Mall. Positive mark-to-markets were 2.3% cash and 10.4% gap. We leased 146,000 square feet for the year and the positive mark-to-markets were 6.7% cash and 13% gap.

We continue to be especially pleased with the performance of the Bergen Town Center, which posted another strong year of sales growth. We continue to see a strong demand for any space that becomes available at the Bergen Town Center.

I mentioned earlier in my opening remarks that Springfield Mall in Virginia is in the midst of a total transformation that will make it the dominant fashion offering for an affluent and underserved trade area in the south side of the D.C. Metro area. The new Springfield Town Center will include existing anchors, J.C. Penney, Macy and Target as well as a new cinema, health club and duly anchoring offices along 45,000 square feet of restaurants, a new food court and 450,000 square feet of mall shops.

The construction leasings are on schedule for summer 2014 opening and we will be announcing additional lease tenants later this year. As it relates to the Mart business, we have substantially completed the sell down, the 3.5 million square foot Merchandise Mart building in Chicago remains, which beginning in 2013 which will be included in the other segment, instead of being a separate segment. Year-over-year EBITDA growth for the continuing business was a positive 4.5% gap and 0.7% cash.

In summary, our management team has made great progress in approving Vornado portfolio of high-quality office in retail assets and is committed to continuing to make Vornado a simpler company while staying focused on generating the highest total return for our shareholders. We thank our shareholders and other stakeholders for their continued support.

Now I'll turn it over to Joe for the financial review.

Joseph Macnow - Executive Vice President - Finance & Administration and Chief Financial Officer: Thanks, Mike. Yesterday we reported comparable funds from operation of $1.22 per share versus $1.03 for the prior year's fourth quarter, a $0.19 or 18.4% increase. Total FFO was $0.30 per share versus $1.46 for the prior year's fourth quarter. First call was at $1.19 per share, as some of the analysts' factor in non-comparable items into their estimates and others do not.

Turning to results for the full year, we reported comparable FFO of $5.17 per share versus $4.90 per share in 2011, a $0.27 or 5.5% increase. Importantly, this increase is after the $54.9 million reduction in Washington's EBITDA that Mitchell talked about resulting from BRAC.

Total FFO was $4.39 per share versus $6.42 per share in 2011, the details of the difference between those two numbers can be found in the 10-K and the MD&A overview on Pages 70 and 71 or in our press release.

Definitionally, gains and losses on the sale of real-estate are not part of FFO that's NAREIT definition. Our fourth quarter included net income from such gains of $282 million primarily from the sale of Kings Plaza, Reston and a portion of the $105 million gains that Mike talked about in Independence Plaza, representing the mark-to-market on the value of the appreciation and the value of the asset.

These gains were partially offset by non-cash impairment losses aggregating $118 million, primarily on Broadway Mall, as we anticipate disposing off additional noncore assets.

In the fourth quarter, consistent with our conservative nature, we deemed a diminution in the market value the 18.6 million shares of J.C. Penney we own as 'other than temporary,' the GAAP term for when you take it through the income statement. Therefore we recorded a $224.9 million noncash, non-comparable charge, as well as the regular $22.5 million P&L item coming from the mark-to-market on the derivative, which is 4.8 million shares.

We also recorded a $40 million noncash write-down on our investment in Toys 'R' Us. Based on, among other factors, the continued compression of earnings multiples of comparable retailers. After this write-down, our December 31, 2012, GAAP-carrying amount with Toys is $478 million. That's compares to our economic cost basis of $396 million.

In the first quarter of 2013, we will entirely offset the income we record from Toys' holiday fourth quarter, remember we're on a one quarter lag with Toys' with a noncash write-down so that our GAAP-carrying amount does not increase as of March 31st. For the remainder of the year, Toys has historically had losses in the second, third and fourth quarter of their year – second, third and fourth quarter of our year; first, second and third quarter of their year. We'll recognize those losses and that will have the effect of reducing the GAAP-carrying amount much closer to our economic cost.

Beginning in 2013, we will present Toys as part of non-comparable FFO for both current and prior periods. Let me spend one second on LNR. Under the equity method of accounting, the undistributed income we record over the life of this investment has built up the carrying amount to the approximate $241 million of net proceeds Mike said we’ll receive from the sale of this asset when it closes in the second quarter.

Accordingly, there will probably be a very small gain recognition when the sale closes. We will seize income recognition on LNR as of January 1, 2013 and we’re going to treat LNR’s FFO as non-comparable for all periods presented, including 2012’s quarterly FFO, which amounted to $13.5 million, $9.7 million, $16.8 million and $27.2 million for the first, second and third and fourth quarters, respectively.

On capital market transactions in November, we completed the refinancing of 1290 Avenue of the Americas in a Single Asset CMBS for $950 million above $500 a foot 3.3% interest only for 10 years, which replaced the existing 6.82%, $409 million mortgage.

We also completed a refinancing of 4 Union Square South, for $120 million retaining net proceeds of $45 million. This Avenue alone bears interest of LIBOR plus 2.15%, a 110 basis points lower than the old loan and begins to amortize after three years using a 30-year schedule.

Due to tax considerations of certain significant transactions close to yearend, our revolving credit facilities had a higher than usual outstanding balance $1.17 billion at December 31, 2012. We expect the revolver’s outstanding balance at the end of the first quarter to be reduced close to zero and in fact, it's about $350 million today.

At December 31, 2012, we had over $2.4 billion in liquidity, our consolidated debt to enterprise value was 38.6% and our consolidated debt to EBITDA was 7.2 times, that's higher than normal reflecting the unusual balance in the revolver. As we pay down the revolver in the first quarter, the consolidated debt to EBITDA will return to a more normal 6 times.

In the fourth quarter, we raised our quarterly common dividend to $0.73 a share, a new annual run rate of $2.92 per share or 5.8% more than the previous $2.76 run rate. I reiterate that Mitchell mentioned earlier Washington segment 2013 EBITDA is expected to be between $5 million and $15 million lower than 2012's EBITDA. FFO might be less of a diminution than that.

Earlier this month, we received $124 million in full settlement of our rent claim against Stop & Shop which will result in $60 million of cash income in the first quarter of 2013. This ends 10 years of litigation and we are, of course, very satisfied with the outcome.

One last administrative note; we have recently posted on our website the tentative dates and times for each of our 2013 quarterly earnings press releases and conference calls.

At this time, I will turn the call over to Mike.

Michael D. Fascitelli - President and CEO: I just want to apologize for the lengthily comments, but this is obviously a very full report about the quarter and the year, and recognizing that's taking up now quite a bit of our allotted time and the other news disseminated on the call, we are happy to let this go as long as you'd like to go beyond that hour and answer any questions. So, I just want to make that comment given the time it’s taken to get through these materials that we’re happy to extend the call beyond the hour.

So with that, we’ll open up to questions.

Transcript Call Date 02/27/2013

Operator: Joshua Attie, Citigroup.

Michael Bilerman - Citi: It is Michael Bilerman. Mike, Steve, I certainly appreciate all the comments and Mike you will be extremely missed. There is nothing against Steve on our second tour duty in the CEO slot, but obviously we do have a lot of respect for Mike. I wanted to sort of get a better understanding of what exactly drove the decision and sort of why now you feel is the right time. The Company has, obviously, made a lot of progress on the simplification over the last year, and I think you would both agree that there is still more to go and we are still sort of early in that process. So I'm just curious in terms of A, sort of what exactly drove and why now, but also has there been any sort of disagreement at all on the path forward from here in terms of how to execute and what to execute on?

Steven Roth - Chairman of the Board: I’ll start it off by saying, I agree completely with your comments about Mike’s talent and that he will be missed. It was entirely Mike's decision and the balance of the question I’ll let Mike handle. We will interchange as we answer your question, Michael.

Michael D. Fascitelli - President and CEO: Thanks again. There is never a great time to do this, but we thought it was a good time. We have really embarked on a very rigorous program and it's not over yet, as you point out, but it's well on its way. This was the end of the year. It was a good time as we wrapped up the year and that to go forward with the team we have in place, everything should be pretty seamless. So my departure, I think, won't affect that at all. There was absolutely no disagreement between Steve and I or the other members of the Board on this strategy or timing of that. I think you investors tend to want things to happen on a quicker pace, but sometimes, we've done what the market would allow, but I think the pace is very measured and that pace – measured pace will continue.

Michael Bilerman - Citi: Just in terms of a follow-up, Steve, corporate governance obviously is – obviously a hot topic and has been a hot topic with the company over the years in terms of proposals, A, from the staggered Board, but, B, obviously you had split the Chairman and CEO roles a number of years ago, which did satisfy some of those issues. So I'm just curious from that level with you stepping into the CEO role, how do you sort of move forward from a corporate governance perspective and sort out how do you and the Board think about this tour of duty going forward?

Steven Roth - Chairman of the Board: Well, our governance record is to some people not the best in the world. I can tell you that we grapple. Our Board is extremely focused on governance, extremely focused on doing the right thing and extremely focused on creating shareholder value. There's an enormous amount of shareholdings in our Board room when we meet each time. But we recognized that our position on some of the governance issues had been less than what some of you all would like. To be honest with you, Michael, I don't anticipate the changing. With respect to – it's approximately seasoned and that's going to come out shortly. With respect to the Chairman and CEO role, four years ago when Mike succeeded me as CEO, we sort of got an uptick in that grade. We're about to go down to a downtick in that grade, but the answer is we debated this long and hard. By the way, – we've gotten some comments this morning that Mike's decision seems very abrupt and very unexpected. We apologize very much for that, it seeming like that, but you could be assured and that's the external take on it because we're a public company, this is an important piece of news. Obviously, we couldn't be gabbing about it in the marketplace while we were thinking through these arrangements. Internally, certainly, at the Board level, this is something that has been considered extensively for not a long time, but certainly not a short time. The Board decided that the right thing was for me to do another tour of duty and there you have it. With respect to me, I'm a Vornado lifer and so that's what it is. I've been the CEO before, but I would leave you with one thought. I'm not going to do this forever. I'm not saying that I'm going to do it shortly, but I'm saying I'm not going to do it forever. With respect to one other point, Mike and I, really when I -- I think one of the material says, I lured Mike or recruited Mike from Goldman Sachs 16 years ago, which is true. When he joined, he joined as a full partner in every regard in terms of how we treated each other and decision-making et cetera. We've been sort of full partners and interchangeable for these 16 years. The business plan that we have followed for these 16 years is something that we jointly agreed upon and the business plan that we will continue which is basically simplification, fortifying our balance sheet and acquiring selectively and carefully in our two wonderful markets, New York and Washington, is what we have been pursuing for some years now and we will pursue in the future. I hope that answers your question, Michael.

Operator: George Auerbach, ISI Group.

George Auerbach - ISI Group: Mike, I think we all echo Michael's comments. Steve, I guess the company was very focused in 2012 on asset sales and you sort of return to the CEO role, any change to the strategy on that sales going forward, either accelerating the pace of stabilized asset sales, as you think about Toys 'R' Us or J.C. Penney, I guess also what should we expect in terms of 2013 sales, what's sort of in the pipeline?

Steven Roth - Chairman of the Board: The asset sales program which was started, not in 2012, but a few years before, which accelerated in 2012, based on market conditions and our ability to get good prices will continue. It will continue in a measured way, we have a list of – we have a for-sale list, a to-do list and I can tell you that – let's talk about how we come up with the list. That list basically is – I mean, the first way – criteria is assets that we would rather have the cash, than own the asset. Meaning that we – either it doesn't feet, it's not strategic, it's not – and we don't like its growth prospects or every once when we have a few mistakes. I mean, when you have the $30 billion company and when you've made $20 billion of acquisition over the years, about every asset works out perfectly. So that's – and also our basis in the asset, tax gains and everything. There is a whole long criteria list, but it's mainly assets that we would rather have the cash than have the asset and the growth prospects. So we will execute on those as we are able to in the marketplace getting prices, which we think are the right price. This is a very good time to sell assets. We're aware of that we will continue aggressively to sell what we don't want to own. With respect to Toys and J.C. Penney, those are more complicate. I mean it's fairly – it's very well-known, we've been extremely transparent in this. We've written about it in my letter. Mike has said it frequently. Toys was a business that we bought to sell, it was a business that we bought with Bain and KKR, two of the great LBO firms and everybody knows what their business model is and so that is an asset that we or a business that we together with our partners aggressively would like to sell. We've been struggling to sell it, the IPO market has deteriorated. Notwithstanding that fact, the business has performed actually pretty, pretty damn well. So that the exit of Toys is something based up on market conditions and that may take some time. We have told you all that that's on the for-sale list, but it's a function of when we can execute. J.C. Penney is a newer investment, which is struggling right now. J.C. Penney has its earnings call this afternoon I think after the market closes, I'm a Director of J.C. Penney, so I really can't talk very much about it, but J.C. Penney is an investment which is in progress now and really it's inappropriate for me to talk about what our holding period might be or what our future plans in terms of sale or not sale and the timing. It's just not appropriate in that particular investment. I hope that answered your question, George.

Michael D. Fascitelli - President and CEO: The last thing I would add to the last part of your question, which is we have a robust pipeline of activity for future sales in 2013. That is ongoing and each asset's assessed and we have at least (expect) to continuing that program, as you said George for the rest of 2013 and you will get the specifics more closely from Joe once we go through that.

Operator: Ross Nussbaum, UBS Securities, LLC.

Ross Nussbaum - UBS Securities, LLC: Mike, I wanted to follow up on a comment you had made at the beginning of the script, which was you thought that now was the right time and, I guess, I think about major decisions I have made in my life, whether they are professional or personal and I think about okay is what I am doing going to make me happier as a human being? I guess I'm trying to relate that thought to your change here in so far as was there something occurring at Vornado that wasn't challenging you or making you as happy as you wanted to be?

Michael D. Fascitelli - President and CEO: That's a very philosophical question, but I'll attempt to answer, Ross. These are very personal decisions, as you point out and as I mentioned in Michael's question, there is no perfect time to do this. I have a great admiration for the Company. It's part of the fabric of my being. Steve and I and the colleagues in this room, David, Mitchell, Joe, and all the other colleagues that are not in the room that helped build a great company and it's just not -- it's like having a child. So as Steve said, it's been intense 16 years, too. Not all of it has been perfect and not all of it has been fun, but it has certainly been a great new working experience. At some point, I’m 56 years old, I have been doing this for 16 years, it just felt like the right time to change. My objective is I am not unhappy, but probably a lot of interest, if I would like to think of office so I got to take some time. This is not an easy job as you guys know, and part of the difficulty in the job stems from probably dealing with you guys sometimes, because it is not that easy. So we really have done our best. We can go down thinking and from my standpoint I just think that the Company is in great shape. It has got great assets. It has got great people and I'm going to stay involved in Vornado. I am going to be on the Board. I have got a significant stake in the Company I am available to help in any way I can have and (indiscernible) and from my standpoint as may continue to support. Just I want to explore doing something very different and figuring it out takes some time. I will take a break and I think now is the time to do it.

Steven Roth - Chairman of the Board: Let me add on to that a little bit if I can. As I have said, I think two or three times on this call so far, this was entirely Mike's decision, okay, entirely Mike's decision. Mike is family, this was entirely Mike's decision. The second is, he works like an animal and each year at this job and running a Company of this scale, size and complexity is like dog years. I will tell you that personally I think he got the better of the deal, I'm staying he is leaving, number one. Number two is he has and I'm proud of this, an unbelievably rich experience than I have had two being partners for these 16 years. He has created a great deal of wealth which is he hasn't been able to enjoy and I think the decision that he made while I am unhappy to lose somebody of his obvious talent, skills and abilities. I think it's unbelievably courageous decision. That there is life after Vornado, there is life after working like a dog for 30 some odd years and I think that that's unbelievable courageous decision. I think if you look at where we are in the business cycle, in terms of the real estate business cycle, I think that's also something. I mean it's hard to invest money. It's hard to make money. The stocks are in flat line, and so it's not as if this is easy. This is a very difficult business – very difficult industry and I must tell you that I think that I admire Mike's courage for making a decision – a personal decision like this. By the way his kids, they don't want him sitting home.

Ross Nussbaum - UBS Securities, LLC: Steve, just a quick follow-up. Was there any thought process at the Board to look internally or externally for the next CEO of Vornado? Or was it just sort of a de facto that you were the guy?

Steven Roth - Chairman of the Board: Well, the answer to that is, I don't think it's appropriate to get into confidential board deliberations like that. I can tell you that obviously this was not something that was sudden, that's a fact. Number one, this was not an emergency. Number two is we had candidates internally who are unbelievably talented and who are full well able to run businesses on their own. Number two, is there's lots of candidates on the outside, but the Board’s deliberations were to slightly in for a second tour and but I mean I think that’s all I’m going to say about it.

Operator: Michael Knott, Green Street Advisors.

Michael Knott - Green Street Advisors: Steve, I just want to kind of follow-on that question and how you think about succession planning now. You yourself said you won’t do this forever, obviously the sales program is important and continuing the job that’s a hand, but it is succession planning for after tour of duty 2.0 up on your lists?

Steven Roth - Chairman of the Board: Obviously, we’re going to focus hard on succession planning, it’s not imminent, it’s not something that the crisis, but it's something that obviously we have to focus on and we will. I am not able to and I’m not going to and it’s inappropriate to give anybody a timeline on when and how that will happen. We think we have the management team. We don’t think we are confident and certain. We have a management team in place they can run this company as well as it’s ever been one. Hopefully, we’re going to thrive. In terms of putting a timing on succession, it’s not something I can do now.

Michael Knott - Green Street Advisors: Then a couple of easier ones. . I'd be interested in sort of a self-assessment on the LNR experiment. Did it work out how you thought? Any thoughts on that? Then also, what are your thoughts on timing of exiting the Mart business or the remaining Mart asset?

Steven Roth - Chairman of the Board: Yeah, I’ll tell you, Michael, I was more comfortable in the first three conference calls where all the questions went to Mike. Okay, let me handle the question. Yeah, we’re actually delighted with the LNR investment. I think Joe said that if you look at the investment from the beginning of time which was an eight-year which has a write down and a restructuring it was 12% IRR, if I'm not mistaken, is that the right number? If you look at it from the infusion of the additional $100 million plus couple of years ago, it's a 40% odd IRR. Having said that, so in terms of the financial performance of the investment, we are fine. The theory as to why this was not a (dabble), okay. This was not a wayward investment. This was something that we thought was strategically an important investment to advance our business and that was the servicing – the largest servicing company – some special servicer in the country, which has eyes, ears, tentacle and what have you, into an enormous portfolio of hundreds of billions of dollars or a hundred-plus billions of dollars of finance, some of which gets into trouble which, of course, is right down our main street. So we were happy with the investment. The reason the investment was sold is that we had five partners. We were a minority partner. The fund investors wanted to sell and we decided, I think, rightly that we would prefer to either own it all or sell along with our other partners and we declined to own it all and so therefore we're selling. What I'm saying basically, the financial side of the investment, I think, worked out fine. The raise on (debt) for making the investment strategically, I think, also worked out fine and it was just the ownership structure where we just decided we didn't want to be – own this thing at $1 billion. So I think, there you have that. What was the second half of your question, by the way, Michael?

Michael Knott - Green Street Advisors: Just timing on the Mart?

Steven Roth - Chairman of the Board: The Mart is basically done. So Mike and the team did a great job over the last year and a half of selling the business in pieces. We try to sell it three or four or five years ago multiple times as an entity we were unable to get an execution of that. So we decided that our business plan was to exit the business and we did so by selling it off in pieces. That execution, the cornerstone of which was -- the largest part of which was a sell of the 350 West, what's the address, 350 West Mart building, the assurance team was the largest that was a multi-hundred million dollar transaction. The rest of the assets were basically sold off. What we remain now with is the big 3.5 million square foot merchandises Mart building in Chicago where we just made the 570,000 square foot lease with both Motorola mobility Google and I’ll talk about that in a minute, but trade shows which operate out of that business in a small circle of other tradeshows, a small investment in New York City, which is a very small (indiscernible) to get into. The 7 West 34th Street Building, which is an important asset that was originally -- that will go to be returned over to the New York office business next year. I think there is a development project in fleet. So basically, it’s down to one big large Mart Building. We are going to full the merchandised Mart building in Chicago. We think it is just on the foothills of creating value as it climbs up the value creation. We think it is in Ground Zero in terms of the tech and office demand for modern, younger office space in the Chicago market, right in the Ground Zero and with Google going in, it is now Ground Zero and we think as we transform that asset into more of a modern tech office building with this huge 200,000 square foot floors, the values will go up, the cap rate will go down. So for the moment, we're going to hold that business -- that building and improve it. We expect there is a lot of value creation there. The Mart division as a separate accounting segment will cease to exist in 2013. The Mart building will be in the other segment and the Mart division has gone away.

Operator: David Harris, Imperial Capital.

David Harris - Imperial Capital: I have a question for Joe. Joe, variable debt as a percentage of total rose to 27%. I did hear your remarks on the credit line being reduced to zero, but even if it goes down to 24%, 25% you're still -- it's a very high level rent (hit) the sector. Any view as to where you go with this?

Joseph Macnow - Executive Vice President - Finance & Administration and Chief Financial Officer: I don't think it's going higher, but our floating rate debt has always been proportional, always been used when an asset is in a state of redevelopment or re-tenanting. You are absolutely right, David. It's unusually high because of the $1.1 billion, which as I said today is $350 million outstanding on other revolving credit, but we're comfortable in the 20% plus-minus floating rate to total debt range.

David Harris - Imperial Capital: You're not unnerved at all by quantitative easing, turnaround quantitative easing and what's happening in some of the treasury market move?

Michael D. Fascitelli - President and CEO: We look at the financing we’ve done a couple of billion dollars and many of those were, as David talked about some of the assets won were 10 years 666 Fifth Avenue, 1290 Avenue, that alone is close to $1.4 billion of fixed rate 10-year deal. So believe these rates on a long-term basis are quite attractive and quite attractive relative to even when we bought (664) we got a better yield than we expected. So we like the long-term markets. Some assets aren't warranted, either because of the cash flow, the nature of their redevelopment. They just belong on the floating rate basis. So I think it’s proportional. We are really taking the advantage where we can of the long-term interest rate market and the debt markets.

Steven Roth - Chairman of the Board: David, the numbers that you're referring to are aberrant because there is a bubble in short-term line borrowing this year which hasn't happened before basically to bridge several transactions, which had to be done in late December before financing could be done on them. So basically that's an aberrant and as Joe said to you, that floating rate debt will be paid down to zero and maybe even lower than zero which means a more positive cash balance hopefully by the end of this quarter. So those numbers are average. Number two is the yield curve is fairly flat. It is not flat on a percentage basis, but it’s flat on an absolute basis. So if you can borrow in the low 3s, mid-3s 10-year and the evidence of that is we just did a 3.6% loan on the $390 million on 666 Retail. We did an enormously important and advantageous loan of $950 million on 1290 Avenue of the Americas, which by the way, is about $500 a foot. So it is nothing. In the low 3s for 10 years, so keep that in your mind and the short-term debt is if we were (about) variable is in the low 2s, so there's only 100 basis points that go out and lock in 10-year money. So we're aware of that.

David Harris - Imperial Capital: Okay, now the Mike's departure as CEO isn't the only change in CEO, that is kind of part of your universe here. Gerald Storch is leaving Toys. It kind of leads me to ask the question, is the property element of these stories, which we always sort of related to that part and we were both in Toys as well as J.C. Penney, we understood that the focus really on improving operations and much less on the property dimension. Would those investments playing out the way they are, is there a reconsideration perhaps becoming more active on the property side?

Michael D. Fascitelli - President and CEO: In those deals or in general, David.

David Harris - Imperial Capital: Those two specific deals

Michael D. Fascitelli - President and CEO: Well, we still think we have a tremendous amount of real estate value in Toys. Toys was more based on the real estate underpinnings of the U.S. real estate than Penney's was and we still think there's an opportunity to harvest the Toys real estate both on a financial basis and operating basis in the U.S. particularly and so that is something that we're very much actively looking at in Toys and we'll continue to look at. You see there's a pretty big spread in multiples continuing and you see there are a lot of people (indiscernible) between operating companies which are trading at 6 plus and property companies which are trading at 12, 15, 20, whatever. So there still quite an opportunity for financial value-add to the Toys situation.

David Harris - Imperial Capital: Can you add any comment as to the replacement of Gerald?

Michael D. Fascitelli - President and CEO: I think Gerry had been also (added) for close to eight years in a rather difficult business. As Steve said, he made quite an improvement to the EBITDA of that company and then it sort of flattened out. I think in the LBO world or private equity world, that’s a pretty long cycle and I wanted to move on and do something different. Toys again has quite a good bunch of people. In that case, we do have a search going on for a new CEO of Toys.

David Harris - Imperial Capital: Any timeframe?

Michael D. Fascitelli - President and CEO: As soon as we can. They take their time and you are going to get the right candidate as opposed to pick up a week or two.

David Harris - Imperial Capital: Good Luck.

Operator: Alexander Goldfarb, Sandler O’Neill.

Alexander Goldfarb - Sandler O'Neill: Steve, because I don’t normally get a chance to speak to you. So just want to get your take. You guys have worked hard on trying to simplify the Company. You obviously have created huge success in Alexander’s, which is a really focused pure play. At what point would you say if the market is not recognizing some of the parts value of Vornado, would you say, hey, it’s time to split up into office, retail and create a spin-off of the other bucket, where there is more of the noise, but it’s not really driving the EBITDA of the Company? How long would you think of pursuing this today all together strategy versus saying what if markets values as more as standalones let’s pursue that?

Steven Roth - Chairman of the Board: That is a strategy that we have considered, are considering and will consider and I want to be very careful here so as not to create any speculation, but we have no current plans to do that. Although I would tell you that these are strategies that we understand, we have done before and we have looked at extensively, but I don’t want that to cause any speculation, okay? The advent of Mike's decision should not also cause any speculation.

Alexander Goldfarb - Sandler O'Neill: Then the second question is, on 220 Central Park South, just given how condo cycles can come and go quickly. Obviously, the market for condos – high-end condos is quite incredible, and it takes time for you – for any condo project to come to fruition. What are your thoughts on just selling the project, selling the rights, crystalize the value in the market today and let someone else take the risk of building out, delivering, et cetera?

Steven Roth - Chairman of the Board: The answer is, I think that's a very good question and a timely question. We have – and my partner David Greenbaum is here, has worked tirelessly for five years to get the occupancy of that building. We've now taken the old rental apartment house down to the garage where we have an irritant, as I think everybody knows. Well, he maybe an irritant to us, but we're an irritant to him because we're in front of him, so I think everybody knows the dynamics of the situation. I think – I don't want to say anything more about that because that will get all over the newspapers. We are aware of the dynamics and the timing of the market. We're aware of all of the opportunities and potential in an asset. You should know that we believe it's the single best, and I think it's universally believed by the marketplace as the single best condo site in town and we are focused hard on trying to get resolution and create value.

Operator: Josh Attie, Citi.

Michael Bilerman - Citi: It's Michael Bilerman again, Steve just going back to sort of the cash side of things and I think you'll have once you pay down the line and execute on the stuff that you've already announced on almost $1 billion of cash on the balance sheet so and the balance sheet leverage is obviously in a great place on that perspective also and so I'm curious as now we’re sort of having almost a one-year anniversary on the shareholders letter in terms of everything being on the table. Stock has been volatile over that timeframe, but effectively we're at the same spot. So I'm curious as now your role of Chairman of the Board and CEO the Company, do you think about using that cash more aggressively to put a share buyback in place and use that if you feel there is still a disconnect between effectively the value that has been created and all the wonderful things that Vornado still has on the (indiscernible) and where the stock trades?

Steven Roth - Chairman of the Board: We are intent as a management team and that by the way, I would point out to you that right now since Mike sits on the Board, and I'm management. I now work now Mike which is something that we were also giggling about yesterday. He is relentless on creating value as is the rest of our board, we are very focused on closing the gap between what the shares might be worth and what they are selling for. There are various techniques to do that buyback is something that we have considered if there is and I don't want to speculate on it and we do that to do a buyback I would remind you 100 years ago in the beginning of time in the 1980s we did the largest buyback in the history of stock exchange, which basically created the modern Vornado. So we're aware of that technique and yet I don't want to speculate, but I'm not sure that that would be my number one and number two value creators right now.

Michael Bilerman - Citi: I guess, what are the number one and number two value creators?

Steven Roth - Chairman of the Board: We're not going to speculate on that either, but that's a very -- you're very sharp to pick that up, Michael.

Michael Bilerman - Citi: I guess in terms of roles and responsibilities, it obviously is a tough job being a CEO of a company and you guys said it's -- and clearly as evidenced by the number of things that Mike has to take care of as a public company CEO, I'm just curious having been partners for so long, how do you replicate within your deep bench, the roles and responsibilities that effectively you and Mike have done over the years amongst others or are you going to be working now double duty and working even more like an animal? So I'm just curious how do you sort of go forward?

Steven Roth - Chairman of the Board: I will tell you that this morning we had an (indiscernible) senior management meeting at dawn to talk about all these things and announce some of the things that were announced in the stock market and one of the things I said was I was going to put a closing time limit on the 45th floor and the 44th floor at 6.00. My target there was Greenbaum who never gets home before 9 or 10 o'clock. The answer is we have the management here to run the business. One of my management peeves is, is that if you can't run the business in -- if you can't do your job within the allotted daylight hours of normal work, then something is wrong. You're overworked or you're not delegating properly. I have every confidence that we will figure it out and we will figure it out. Now that's not to say when somebody as talented as Mike falls out of the organization and as I said, we're not going to replace him. The things aren't going to be different. Things will be a little bit different, but they will be marginally different and we're going to be -- we have the talent to run the business, be assured of that. Some of the things that Mike does, Joe's going to do. Some of the other things that Mike does, I'm going to do. Some of the other things that Mike does will be spread around other senior managers of the business and so we have a pretty decent idea of how that's going to happen.

Michael D. Fascitelli - President and CEO: One comment, I think the management team, this had been a (closely) one – well-attended management team. We've been together a lot so people pitch in, so after we had this conversation, David said to me, I got few more things to do (indiscernible) and everyone is going to step up and the people below them are going to step up, and sometimes change is very good for the company. It gets excited and people want to step up and fill those (indiscernible). I'm fully confident that will happen. Steve and I overlap a lot too. We do things that are (somewhat) overlapping? It will be done by Steve. I think it's going to be more seamless, Michael, than you might anticipate and there will be some transitions in that, but I feel it'll be a good opportunity for not only the people in this room, but the people below them to step up and do more things.

Steven Roth - Chairman of the Board: Michael, continuing on this point, the cornerstone of our businesses is that I think that we have in New York and Washington the two best operating platforms in the business. Certainly, the best-in-class and that involves running buildings, managing buildings, repositioning buildings, renovating buildings and most important, leasing buildings, okay. There is nobody better, there may be a few people that are almost as good as we are, but there is nobody better than we are. Those businesses run by very talented managers. You know them and that's not affected by what happens in the senior executive suite. In our business, it's generally a dozen major decisions a year that create the value and create the direction of the business, okay. Those decisions have to be done thoughtfully in a measured way, and we are aware of what those decisions are and we are (full well) confident that we're going to make the right decisions. The other activities which is in terms of financing and dealing and deal making, the finance – Mike was very heavily involved, as was I as partners almost did the changeable) in financing decisions. Those are half a dozen or nine or eight or seven a year and the big area is in the key of dealing where we have a very, very active deal organization in New York and Washington, and we're going to be fine. Mike is not going that far. If I need him to come back, he will -- to work in all night or to do something, he is going to do it.

Michael Bilerman - Citi: Is there any separation agreement? Obviously, it sounds like it's Mike's decision and he is resigning. There is no separate – there shouldn't be any separation agreement. Or is there some form of continuation in terms of payment for – I don't know if it's restricted stock or options or anything like that or consulting agreement? How should we think about any financial impact at all going forward?

Steven Roth - Chairman of the Board: There will be no financial – there will be no -- what's the word.

Michael Bilerman - Citi: Severance.

Michael D. Fascitelli - President and CEO: There will be no accounting charge...

Steven Roth - Chairman of the Board: There's no accounting charge for Mike's leaving. There will be an 8-K filed probably I think tomorrow, which will have all of the information that you seek.

Operator: Michael Knott, Green Street Advisors.

Michael Knott - Green Street Advisors: Mike, I did want to wish you well as you move on to the next phase of your professional life. I did want to ask, sort of related to Michael's question just now, is there going to be a non-compete? Then also sort of related to that, how would the Board seat dynamic change if Mike wound up being a competitor down the road, or is that even a potential outcome at all?

Joseph Macnow - Executive Vice President - Finance & Administration and Chief Financial Officer: I’ll answer and then Michael answer, there is a non-compete which is in his employment agreement which last for one year, obviously we want Mike to stay on the Board, he is valuable, he is – he has unbelievable institutional knowledge of our company and general knowledge of business. If he became a competitor of Vornado in future, which would be after a year from now and I’ll let he can comment about that, obviously he could no longer be a Director.

Michael D. Fascitelli - President and CEO: Thanks a lot. Thank you, Michael, I don’t plan to be competitor. My interest and my desire is right now completely not in that area and if I ever got to situation I certainly wouldn’t be able to be on the Board of Vornado and I think Steve and I and the Board recognize that so. Right now, it’s not something that’s in the – in the horizon. If it ever gets to be, we'll deal with that, but I look forward to being able to take a little perspective and then basically hop off from a board perspective as opposed to day-to-day running of the company.

Michael Knott - Green Street Advisors: Then last question would be for you Steve, I know you’re committed to the J.C. Penny investment, but just the question is just being on the Board there somewhat compromise your independent, so to speak, to potentially exit that investment if that was being to be the best thing to do?

Steven Roth - Chairman of the Board: Yes.

Michael Knott - Green Street Advisors: Yes, it does compromise?

Steven Roth - Chairman of the Board: Yes. The answer to your question, Michael is, yes.

Michael Knott - Green Street Advisors: So is that the best thing for Vornado, for you to be on the Board there?

Steven Roth - Chairman of the Board: I'm not – I can't comment on that.

Michael D. Fascitelli - President and CEO: If I might, I think that's the last question.

Cathy Creswell - Director of Investor Relations: There is one more – someone got cut off. We got one more question operator.

Operator: John Guinee, Stifel.

John Guinee - Stifel Nicolaus: David and Mitchell, you guys have done a remarkable job of holding rents in the mid-50s in New York and plus or minus $40 in D.C. and that price point appears to be one where there's not that much pushback from tenants. Is that sustainable over the long-term for the downside? Then what's the upside from those particular price points for product in which you specialize? Then another quick question is regarding Toys, Bain and KKR are both mid-term money funds that they've assembled. Lenders have a midterm mentality. What's the timing pressure from a Bain, the KKR and the lenders on Toys?

David R. Greenbaum - President of the New York Office Division: John, I can start it. It's David. I think as I said in my remarks, value has been a trend in the office market now for the last 24-plus months and I think your comment which is that generally tenants have been looking and the sweet spot effectively has been in the kind of sub $60 space. Actually has benefited us I think enormously as I said in the Penn Plaza area, in fact in that areas as I said, we've seen rents actually rise pretty significantly over the last 12 to 18 months. In terms of the long-term picture I remain pretty bullish on New York. I think the challenge that they have right now is the fact that there is a lot of space downtown, which realistically could attract some tenants, in fact, kind of what I'll call reverse migration from midtown to downtown, at relatively low rents. I still think that our portfolio in a locations that we have right at transportation hubs in Penn Plaza around Grand Central on a long-term basis kind of feel very good about rents and as you look at the general statistics, I don't see that there is new construction that's talked about, but I think most of that new construction realistically is in the ground today. Obviously, we've got a building going up in Hudson Yards, but these buildings are all potentially enormous. These are all 2 million plus square foot buildings. It's hard to put these things up and I'm not concerned about quite a lot of space being dumped on the market.

Michael D. Fascitelli - President and CEO: Mitchell, do you want to comment quickly on this thing?

Mitchell N. Schear - President of Vornado-Charles E. Smith Washington, DC Office Division: Yes, John, the way I would address it is – you’re asking if these rents are sustainable, I think if you sort of think about it in a couple of different segments. First off, the rents today have been holding what we've seen and what I think we'll see in 2013 is concessions will continue to be out there and be at a high level. Notwithstanding that the rents are relatively flat until we sort of clear all the space out of the market that we've got. There is not a lot of new space in the pipeline and as we continue to build up demand, I think that we'll see a pickup of rent over time. So, long-term I think that those rents absolutely should grow and if you just look at some of your new builds at downtown, you're seeing rents in the $55 triple net rent when you gross them up $83 to $85 and those are pretty, pretty strong numbers, notwithstanding the marketplace that we're in. So long term, I think we're in good shape.

Michael D. Fascitelli - President and CEO: Just briefly comment on Toys that are ramping up. Obviously, Steve made the comments (indiscernible) are on the same page about trying to seek liquidity in the investment. I wouldn't call it pressure and that you have to get out and do something that if (indiscernible). The company -- the Toys' balance sheet is actually quite good. There's quite a bit of cash inventory in the balance sheet. You'll see those there – our numbers shortly. There is actually, all the (debt of Toys), that's a maturity still to it of at least three four years and the only opportunistic things to do with the Toys from refinancing as opposed to defensively. So, I think we're going to seek an exit, seeking measures to exit. I think everyone feels kind of responsible to do that, but I wouldn't characterize it as pressure, John, to get out of any price to do something that's not in keeping with the really good execution. So we're working hard on it, so the point is -- so that's what I'd comment on Toys. I'd just like to end this, if I could, by saying thank you to all of you guys again for your support, you guys – you are challenging, you are probing, your questions, you’re constantly probing Steve, Joe, Cathy et cetera, we know you are doing that. You guys are shareholders and investors and we appreciate that faith and confidence. On a personal note, I will not miss these conference calls, I got to be honest but I will miss you guys and I will hope that I'll be able to keep in touch, but I want to thank (everyone) for all your good wishes and support. Thank you very much.

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