Kilroy at Bank of America Conference

Rob Paratte

Everybody is guessing where Amazon will put its second HQ

“I personally think, and I don’t know – I don’t have any insider information, but I personally think the second headquarters would be either Denver, Austin, but I think there’s a strong possibility it could be here on the East Coast. ”

Tyler Rose

CRE pricing remains strong

“we’re seeing maintained high level of competition for the trophy assets, Class A properties like we own. San Francisco 222 Second traded at around the 4% cap. That’s $1,200 – low $1,200 a foot. L.A., there is a couple buildings on the West Side, they’re on the market now. I don’t know exactly whether price is going to come in on those. And then moving down to San Diego Diamond View Tower, which is in downtown San Diego, near the ballpark traded about a week ago, going in high 4s, like 4.7%, $675 a foot. And there’s a building in Del Mar, which is our largest submarket. It’s in Ashgrove 4.5% going in yield. So prices are strong. In San Diego, we’re seeing 50 to 100 basis points over San Francisco spreads.”

Kimco at Bank of America Conference Notes

Conor Flynn – CEO

Brick and mortar is crucial to e-commerce

“research reports show that brick-and-mortar stores are crucial to supporting retailers e-commerce growth. When a new store opens traffic to the retailer’s Web site from within the surrounding postal area increases by over 50% on average within six weeks of opening the physical store.”

Grocers have invested in omni channel, not sure any money in meal kits

“All the major traditional grocers have been really working on omni-channel, click-and-collect, Home Delivery, that’s been something that everyone’s been doing. Nobody’s really made any money on it, but it’s really an amenity that I think consumers are demanding. You are also going to see meal kits from Blue Apron and others continue to be interesting even though, I’m not sure any money is made there either.”

Almost all stores are back and operating in both hurricane zones

“Houston we are very, very lucky. We actually — all of our sites are opened and operating there and we will not be filing an insurance claim there, which is pretty amazing when you think about the flooding and devastation that went on there. And again, in Florida, we got lucky as well. We’ve seen almost our entire portfolio, except for one asset that’s in the Florida Keys, that was right sort of in the eye of the storm there in Marathon. So we should have a report today in terms of what kind of damage was done there. But again, most of those are now open and operating, if not all.”

Vornado 2Q17 Earnings Call Notes

Steven Roth – Chairman and CEO

Demand for office space is robust

“New York office leased 543,000 square feet, 402,000 square feet a share in the quarter with average starting rents of $79.50 and positive mark to markets of 17.8% GAAP and 13.7% cash. Occupancy was a full 96.7% same as first quarter. Demand for office space in New York is robust coming from all manner of users. Our New York buildings are well positioned after having completing over the last four years a string of major building redevelopments covering six buildings and 6.5 million square feet ensuring our assets remain up to date and to attract tenants from all market segments.”

Debt markets are as liquid as we have seen

“Debt market for New York assets are as liquid and strong as we have even seen. In the past few months there have been over $7 billion of New York City financings completed in just 10 deals at very attractive rates on high quality commercial assets three of which were ours. Given the relative strength in the debt markets, many owners are choosing to refinance rather than to sell.”

America is vastly over-stored

“My feeling is the same and I have been singing this tune for years now. America, the country is vastly over stored. I think I said in my letter that growth will not solve this problem, there has to be an evaporation of a great — of a great of a lot of space, to get back into some of kind of equilibrium or some of kind of balance. And if the test, the operators, the retailers are struggling which of course puts pressure on their vendors and real estate is, but a vendor to retail community. The street retail business in New York continues to be soft, I said that for many, many quarters now. My belief is that the softness in New York is cyclical whereas the softness generally in retail is secular.”

We’re buying rent controlled apartments at 40-50% of replacement cost

“I love the Manhattan apartment markets. And maybe we should have loved it and gotten into it 15 years ago. There has not really been a decent entry point in recent memory, apartments are scarce, they are expensive, I mean they sell for sub 4% cap rates. Having said that we have chosen to put a big toe or maybe our little toe into the market by buying controlled departments where we can get the assets the principal one being IP down in Tribeca, which is a 1,400-unit project et cetera that we own 50% of, where we were able to buy the assets at probably 50% or maybe even 40% of replacement cause. So that’s been our strategy — and we have two to three of those deals that we own. So, the answer is I love the apartment market and we would like to get into it. It’s difficult to get into because it’s very, very, very — its very dear right now. So, the answer is we can’t predict the future, but the apartment market is a very, very robust market in Manhattan.”

In the market to redevelop Sears in Rego Park

“Alexanders has a very large and very important and very valuable complex at that intersection which is the intersection of the Long Island Expressway and Queens Boulevard which is probably the most traffic intersection in all of Queens. So, we have got three separate assets there what we call Rego 1, Rego 2 and Rego 3, they sort of interplay with each other and we have opportunity to move tenants around in there. But as of right now Seers is closed, they are paying rent and we are in the market to redevelop that asset.”

Kilroy 1Q17 Earnings Call Notes

John Kilroy – Chief Executive Officer

Demand remains healthy in West Coast markets

“Our experience in the first four months of 2017 is at the West Coast markets where we operate, demand remains healthy, the rental rates for top quality properties continue to rise and that a broad range of industries including Technology, Life Science and Entertainment continues to expand in our markets.”

New life science building costs $746 per square foot

“Yes, okay, so let me give you this as simply as I can. The cost went from 485 to 560. That’s a 15.5% increase in cost. The new cost is 746,000 — $746 of square feet because the square footage is 750, so we have a 7.2% increase in square footage, a 15.5% increase in cost. The new cost per square foot is roughly $746 a square foot, that’s a $54 a square foot increase per square foot, but the rents have gone up substantially since our original underwriting, so we believe we still end up at 8% or better. So we ended up with — another comment about that is that if you think about the $746 of square foot for the competed product for a brand-new, state-of-the-art life science. Life Science generally is about $100 a square foot more than the office spaces, but we already embedded into the 485,000 quite a bit of the Life Science ready cost, so the added increment, you can see from what I’ve mentioned.”

Sales of new buildings have been over $1000 a square foot

“In terms of the cost structure, at 746, you can compare that to recent sales here in San Francisco of Class A, newer product. It’s been well north of $1,000 a square foot, $1,100, $1,200 or more. We think we have a pretty great cost structure and well below what other things are trading at. And the last comment I’d make, just for everybody here is that The Exchange has about 700 parking spaces, which is unique.”

You haven’t seen us out there buying stuff at 2, 3, 4%

“you haven’t seen us out there buying stuff at 2% and 3% and 4%, unless there was a real opportunity to move it up through value add and I think that’s probably going to be the way. Value adds can come in different things.”

David Simon

Difficult to build anything in west la

“Yes, sure, I’ll go first. Hi, John. L.A. in general, Westside, as you know, extremely difficult to build and develop and put new projects up. There is a few going on, as you’re aware of, the pen factories, stuff down in Playa. With regard to the transit oriented stuff, related to the Expo line coming up, very important from Santa Monica’s perspective and the other cities that it’s attached to kind of find the community plan areas where that development can happen. So there is a push by that community and the city to build those kind of projects and those transit-oriented markets, John, with the right balance of products, whether its residential, retail or office. But overall, continues to be difficult in L.A. and the general and specifically difficult on the Westside.

Vornado 4Q16 Earnings Call Notes

Steven Roth

Still feel like it’s the time in the cycle that smart guys build cash

“A word about acquisitions and dispositions. While we have invested $606 million in developments and in other internal growth initiatives, interestingly, we made virtually no external acquisitions in 2016. This fact is a testament to our belief in what I have said repeatedly on recent calls, that the easy money has been made for this cycle, that asset prices are high well past the 2007 peak, that it’s a better time to sell than to buy. And most importantly, that now is the time in the cycle when the smart guys build cash.”

I know President Trump a long time

“I mean, my role at Vornado is my day job. It’s my night job, It’s my passion. I know President Trump. I know him for a very long time. We have had dealings together. We know each other. I’m honored that he has asked me together with Richard LeFrak to be an advisor to him and the administration with respect to infrastructure matters. Infrastructure matters are not political. Everybody – every citizen of America wants interest – our infrastructure to be robust to be in a good state of repair to be good. So that we can be competitive and we can have the right quality of life, et cetera.”

Retail is soft

“First of all, I have said on the – on calls for the last year or maybe even longer that retail is soft. It continues to be soft. Rents are not rising asset. And in many instances, rents are falling. And as I’ve said before, we are in the – we are in the realism business and we will meet the market and rent our space.”

David Greenbaum

Trump good for NYC

“Let me now turn to the question on everyone’s mind. What will 2017 bring? What I will say is that our confidence in the continued economic vibrancy of New York has never been greater. One of the stated economic priorities of the new Trump administration is financial services deregulation. The administration’s efforts in this regard could have a significant and positive economic impact for the city.”

Financial services expanding again

“Since the election of course there has been a marked shift in the mood around major financial institutions. While that mindset may take some time to be captured in job numbers, there certainly is reason to believe that we may once again see increases in financial services employment here in New York with important implications for the real estate market. That is just one example of how federal policy could benefit New York. Whether it is the repatriation of overseas profits, lower tax rates or increased federal investment in major infrastructure projects such as the trans-Hudson gateway project, the prospects for the local economy are bright”

Michael Franco

Foreign capital continues to be a primary driver of investment sales

“Foreign capital continues to be a primary driver of investment sales, making up almost 40% of the activity last year and remains a strong underpinning going forward. Foreign investors continue to have a strong desire to invest in the U.S. with New York City as the number one target. Most are still in the early stages of doing so, and assets like Vornado’s are their favorite investment.”

Financing markets are wide open but construction markets are a little tighter

“Turning to the financing markets. After periods of volatility in 2016, we are now open and liquid, especially for blue chip sponsors like Vornado. While the 10-year Treasury is up 60 basis points since the election, CMBS spreads have tightened and risk retention has been the Y2K of real estate finance, a non-event on large loans. Overall, we are seeing active bidding from all types of financing sources. CMBS lenders, life companies, balance sheet lenders and foreign capital all of which is good for borrowers. On the other hand, the construction loan market has gotten quite a challenge for all, but the best sponsors, which we expect will help reduce supply going forward.”

Kilroy 4Q16 Earnings Call Notes

John Kilroy

Raw materials needed to succeed today are the minds on the west coast

“Let me finish by commenting on our West Coast market trends. We see a fundamental evolution, it will constitute to high tech company. Health care, transportation, auto, defense, entertainment, lodging, retail and even travel services are now being profoundly impacted by technology. This change is producing a meaningful result in all of our markets Fortune 500 companies informally stayed industries are acquiring technology startups in order to stay relevant. GM’s $1 billion acquisition of Cruise Automation is just one example, mature tech companies are using their massive cash flows to acquire new companies with potentially game changing ideas to move into faster growing spaces and to gain access to increasingly scarce talent. A whole range of new companies are being drawn to centers of high tech innovation including our west coast market. And the increase in M&A activity has enhanced the credit profile of our portfolio with transactions like Microsoft buying LinkedIn, AT&T buying DIRECTV, Adobe absorbing Livefyre and most recently Cisco acquiring AppDynamics. We believe this trend will continue and even accelerate in the years ahead. And this evolution will continue to drive demand for work space in dynamic urban centers to deliver the live/work/play convenience and amenities that attract young creative talent. This is the 21st century version of locating your production or the raw materials and transportation resources you need to succeed.”

“I hate politicians”

“Obviously the President has said that his top priority is to stimulate growth and get people working and expand the economic pie. No industry provides growth that tech does and no industry helps the US maintain its competitive edge greater than technology does. I can’t say what the President’s view is going to be in the future. I bet on the – it’s not just the tech industry, this affects everything, automobile, every industry relies upon technology. So I can’t – I can only – I could only speculate but I don’t have obviously the crystal ball that permits me to give an accurate answer to that question. Reinforces my view that I’ve long held that I hate politicians.”

Probably wont see Kilroy being a big buyer

“I’ve been surprised to see how the cap rates have compressed in some of what I would call tertiary markets or for product that you really wouldn’t own, not long term, but there’s so much money looking for stuff. That I just don’t think you’re going to see Kilroy being a big buyer. Having said that, if we find something that we think we really can turn into — we improve it through some value add component like we see in the deals that we just did, then we’ll act on it. With the balance sheet we have, we’re prepared to go with development when it makes sense. We’re prepared to acquire when it makes sense as we’ve said we’re going to dispose of things as it makes sense. We’re going to stay in a very conservative range.”

Simon Property Group 4Q16 Earnings Call Notes

David E. Simon

I could go on a 400 word diatribe, but I wont

“Moving on from our results, now could be the time on the call where I could go into a lengthy philosophical discussion on the popular misconceptions about the mall business, created by the never-ending current public narrative. And I could counter that by pointing that we have 434 department stores in our portfolio, and only one is vacant, and how in the recently announced department store closing, we have only one closure in our portfolio, or how we have added more than 275 sit-down or quick-service restaurants, more than 20 entertainment concepts, and more than 80 big box tenants across our portfolio over the last four, five years, or how we’ve added mixed use components to our centers in the last several years, we have built 10 hotels and residents representing nearly 3,000 units, or how according to a recent survey a Generation Z members, a group that outsizes Millennials, 70% of those surveyed visit the mall at least once a month and visit more than four stores during the visit, or how the consumers still like to shop in stores, because they want to touch and feel the products before they make a final decision, or how online retail sales have grown to less than 10% of total retail sales, and that the retailers who occupy our centers represent approximately two-thirds of those total online sales, or how leading e-commerce retailers, like Warby Parker, Blue Nile, UNTUCKit, Shinola, among others, are opening physical stores, because the inherent advantage a physical location provides as well as being a natural extension to the digital world, or how basket sizes are higher, return rates are lower in stores compared to online purchases, and margins are much higher in the store than they are in the Internet, or how emerging brands like GUIDEBOAT, NIC+ZOE, Peloton, to name a few, continue to see the mall as the launch pad to build their brand awareness, as a result of the significant traffic they experience being at the mall, much like Apple or Microsoft did several years ago, or how we are making all these changes and enhancements to our center, even though Congress has tilted the scale towards e-commerce by not implementing the Marketplace Fairness Act, which not requiring the sales and use tax to be paid by consumers who buy products online, even though they are required to do so under existing laws. But I could do that, but I won’t, because we’ve talked about that all before”

Aero management team was able to generate more cash flow because they weren’t worried about beating comps

“I’ll tell you a fascinating thing that I’ve learned at Aéro – with the Aéro investment. So and it’s just the dynamic of Wall Street, retailers, chasing Internet sales, there is a whole philosophical discussion that will take too long on this call to do. But one thing at Aéro that I learned is that that management team could produce higher level of profitability, higher gross margins if they didn’t have the Wall Street constraint on worrying about comp NOI or comp sales growth i.e. they could generate more cash flow because they’re not worried about posting a comp sales number that’s below market expectations.”

Retail is a dog eat dog world now

“We did experience less store closures last year than we did in 2015, the way we had suggested we would, that’s why our occupancy went up, but I’m not going to sugarcoat it, retail environment is not – it’s not robust, it’s doggy dog right now.”

We’d like to see retailers dedicate more funds to improving the store environment

“Well I think, it all depends upon what point are they in their financial equation. Look, I think – and again, this is more philosophical, but what we’d like to see from the retail community is a dedication back to improving the store environment. We think a lot of the capital that has been put forward has been to chase Internet sales, a lot of that has been done through promotional efforts. And between that and the promotions required to get them to buy online between the cost of shipping and the returns, it’s not a great model for them.”

Leveraged buyouts have been a bigger problem than the internet for our retailers

“Let’s talk about the casino business. You could say the gaming could all go online. But if you’re Steve Wynn, you build the best product, you have the best service, and lo and behold, people show up, they gain, they participate, they stay there, and he gets great returns on equity. He has got unbelievable conviction and he puts his money where his mouth is. We need that in our business. What’s hurt our business in retail, frankly, is that there has been too many leverage buyouts with too much debt, and we all know no matter how good a retailer you are, you’re going to run into ebbs and flows. And lo and behold, when you run into that scenario, you’ve got a balance sheet that can’t withstand it. I can’t tell you how much pressure is because of that as opposed to because of the Internet. We can go chapter and verse, and what that also does means they don’t invest in the stores.”

Kilroy Realty 3Q16 Earnings Call Notes

Kilroy Realty’s (KRC) CEO John Kilroy on Q3 2016 Results

Found it very difficult to make the math work, but now pursuing a few transactions

“Before wrapping up, let me comment on the acquisitions market. While over the last few years, we have found it very difficult to make the math work on high quality acquisition opportunities in our markets. We are now pursuing a few transactions that not may need our investment criteria. They have value creation elements and superior locations near transit and amenities, more to come on this.”

Will see some significant transactions in the coming quarters of tech and life science space

“I think you’ll see a lot of good news over the next could of quarters from Kilroy on some pretty significant transactions involve both life science and involve technology up and down the platform but there – just to put in connection with demand, you are also you of all have heard me at various conference calls or at the NAREITs or other conferences that are held talk about the kind of product that the users of the market want.”

We’re not buying coupons because cap rates aren’t attractive but we’ll buy things that we can fix up

“Well we’re not thinking of buying core product that’s leased and buttoned up because the cap rates are not compelling to us, the things that we’re looking at our products where they’re drastically under market in their rents and so we think there’s some big up side and or they’re screwed up. Think up 60 to 55 which we call Sunset media center in Hollywood. It was totally messed up, and now it’s become a terrific asset, because we had the imagination and then they capital and whatnot the straight it out. So it’s kind of a combination of those things. Manny you’re not going to see us by coupons.”

Have only seen cap rates compress further

“we haven’t seen cap rates back up in any of our markets, if anything we’ve seen added cap rate compression, because of what’s going on now there are good number of assets that are being bought by companies that are poor and there aren’t real estate companies, because they in their host countries they can borrow at 1% and then get a 3.5% coupon on the lease transaction or the sale transactions that they buy and that’s a massive spread. So if anything for great stuff, I think cap rates could compress further, but I don’t know about the tertiary stuff I just don’t follow it.”

Robert Paratte

Tech continues to lead SF market

Hi, Nick, sorry. We’re looking at demand in San Francisco currently – third quarter, it’s approximately 8.7 million and we see that continuing to track going forward. And I think it’s interesting, tech continues to lead the market but it’s significant also that there is about close to 650,000 feet of fire category tenants that are in various stages of documentation. So we are comfortable on what we are tracking that fourth quarter will show some significant executed transactions.

Simon Property Group 3Q16 Earnings Call Notes

Simon Property Group’s (SPG) CEO David Simon on Q3 2016 Results

Malls impacted by strong dollar

“Total retail sales per square-foot at our malls and premium outlets were $604 compared to $616 in the prior year period. Reported retailer centers continued to be impacted by the strong dollar at some of our tourist-oriented malls and premium outlets, reported retailer sales at our centers outside of our tourist oriented centers.”

It’s no surprise that retail has come under pressure

“Now, it’s no surprise that retail generally has come under pressure, lots of different reasons which we could go into but let’s – unless you want to let’s not. But the fact is, and we are impacted as I said to you before by our general GDP growth. And to date, our retail generally is there is no inflation and our nominal GDP growth is 1.5%, yet we’re growing our comps timing. And if nominal GDP, there is some inflation. So maybe real GDP growth is I don’t know 50 basis points. We’re still growing our business with no inflation in our particular business at 3.5% comp NOI that’s not that. It’s not 4% plus that we did last year or the year before, but it’s still in the scheme of being able to grow our business, that’s not bad.”

A lot of retailers have chased e-commerce and not invested in their physical locations

“I think what unfortunately what I think a number of retailers, they’ve not invested in their product, okay. Or they’ve chased the holy-grail of internet sales to the determent of what they should be doing with the physical product, as still people want to go physical shopping. And when they go physical shopping, you’ve got to have a nice physical environment. So we have spent a lot of years wanting to invest in our physical product. And I think that’s our number one focus continues to be we’re well through that”

Acquired Aeropostale

“And let me turn to Aeropostale, we’re pleased to have partnered with GGP, Authentic Brands Group, Hilco and Gordon Brothers to acquire Aeropostale in addition to the existing management team, the ABG Group will add significant operating experience to Aero.”

If Amazon gets to go vertical…

“And again I’m not comparing, I’ll just try to put these things in perspective, I’m not comparing our business to AT&T or anybody else. Amazon, what’s made Amazon great is they’ve had the latitude to go vertical. They’ve gone vertical, they’ve gone content, they’ve gone distribution, they’ve gone retail, and that may be the future of corporate America is that you’re not going to pigeon-hole these comps.”

Have worked through the bankruptcies that we got in ’15

“. Now what we did say when we started this year, our occupancy is up. Firstly it is up, so put that in perspective. We also said our bankruptcy store closings would be down in ‘16, it is down. We had much greater in ‘15, and we’ve basically more or less leased all of the bankruptcies that we got back in ‘15 in a flat-to-tough retail environment. And I think everybody needs to put that in perspective, okay.”

Rick Sokolov

International retailers accelerating focus on properties in the US

“The only other thing I would say to you is that we are seeing the international retailers like Zara, like H&M accelerating their focus on our properties in the United States because there is demand to grow in this market. And we are seeing that.”

Vornado at Bank of America Conference Notes

Steven Roth – Chairman and CEO

Quality of assets really matters in this industry

” The quality of one’s assets and where they are really matters in this industry, and we think we have by far away the best retail assets in the world and all concentrated on the best REITs and the best submarkets in Manhattan and a very, very, very high quality triple digit portfolio of offices.”

Employment growth in DC is actually second best in the country

“I have no idea what the asset by asset value that the stock market attributes to each individual asset inside the big Vornado. It’s my feeling that Washington as a separate entity has bottomed. The employment growth is actually second best in the country over the last 12 months or so, second only to New York, and we think that the business will do just fine.”

The market speaks for itself

“Look, the market for real estate is an unbelievably broad, dense, huge market with enormous amounts of capital. These markets aren’t rigged. There are hundreds and hundreds and hundreds and thousands of very savvy buyers and sellers making this market, and the market speaks for itself.”

I think rates are going to stay lower for longer but it doesn’t matter because we have a lot of cash anyways

“What are they going to do? They are going to go from nothing to 1%? So you answer the question, okay. I don’t mean to turn the tables on you, but I do. So my view is, and I think knowing I’m troubled by it, this is most people’s view is that interest rates will stay lower and longer than people think. I happen to share that view, okay.”

“By the way, it doesn’t matter. Why doesn’t it matter? If interest rates were to rise and asset prices were to come off and cap rates were to change, by the way these markets go very slow, cap rates change very slowly, building prices historically change very slowly, we are loaded, we have got $4.5 billion, $5 billion of liquidity on our balance sheet so that if the bargains are there, we’d rather have bargains to invest it.”

Commodity retail is in secular decline

“we think commodity – we’ve been very clear in thinking that commodity retail in the United States is in a secular decline. So there are too many stores all selling the same product and there is just too much competition, by not a little, by a lot. The published statistics of the International Council of Shopping Centers is that there is a 25 square feet of retail per capita in the United States. The next highest nation is about 8. But I think that the 25 square feet per capita number is incorrect. I think it’s more like 35 or 40 if you really actually do your own numbers. So in any event there’s just a ton of stores all selling the same stuff. Lots of things are happening. The shopping patterns are changing. It’s all over all of the trades that footfall and traffic in the malls and in the shopping centers are down quite aggressively, and you’ve got Macy’s in disarray, you’ve got companies like Nordstrom going on their conference calls and saying their same stores are down and they don’t know why. So there’s lots of things going on. It’s a very interesting saturated mature industry. So brand integrity has issues. ”

Interest rates are going to stay lower for longer

“My view on interest rates is, they are going to stay lower for longer. My view on asset prices is that they are going to go up, but much more slowly. Easy money has been made, but that doesn’t mean that we are having disruption in the marketplace. Great assets still command top [tier] [ph] prices. And that’s what I think, although I will say that, I’ve said this publicly over the last 18 months or so, that we are not an investor. We are a value-add wealth creator for our shareholders. And so it’s hard for us to pay – after an eight year appreciation in asset prices, it’s hard for us to pay $2,000 a foot for a fully tenanted office building that we can’t do anything with and we are smart enough to push away from the table. So I’m very constructive on the future, super constructive on New York.”

Michael J. Franco

If anything maybe prices should be a little higher

“I think the market is, prices are obviously quite a bit higher than they were several years ago. Yields have been a bit down. Relative to treasury, the spread is as wide as it’s ever been. And when you look at the best cities around the world…When you look at investors from around the world, they want to be in the best cities and New York is first, second, third on their list. And so, if anything, cap rates should have continued to go down and frankly levelled off in the last year. So I think the market is quite rational right now. ”