Vornado 2Q17 Earnings Call Notes

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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.”