Vornado 4Q15 Earnings Call Notes

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Steven Roth

Volatility in credit and equity markets will have some effect on real estate markets

“Almost a year ago in my letter to shareholders and in each of our last three quarterly calls I stated that, the easy money has been made for the cycle, asset prices are high, well past the 2007 peak. It’s a better time to sell than to invest and most importantly now is the time in the cycle when the smart guys build cash for opportunities that will undoubtedly present themselves in the future. To be honest I didn’t expect to be so right so quickly. With many sectors of the economy decelerating we have experienced a period of high volatility in both the credit markets and the equity markets, this will of course have some effect on the real-estate markets. So, and we have been preparing for all this for whatever is to come. Vornado is buttoned up and ready.”

Unsecured CMBS markets are getting a little jumpy

“The unsecured and CMBS debt markets are getting a little jumpy.”

Class A NY real estate continues to perform well

” a few words about the New York real estate markets. We see no real hiccups so far in the class A of this market. Vornado’s office business continues to perform at very high levels. We do anticipate that decision makers will take note of the financial volatility and pause slowdown and rethink a little. ”

Retail asset prices and rents are too high

“In Manhattan as I’ve said before momentum and investors have driven retail asset prices too high, landlord asking rents are also too high exceeding retailer’s willingness and ability to pay. ”

Hotels are soft

“Hotels are soft just look at the hotel stocks which are off one third to one half in my mind the New York hotel industry is the victim of gross cyclical over supply even more than the impact of the strong U.S. dollar. New York has added 25,000 rooms in 2010 to a base of 82,000 rooms and with 18,000 more rooms under construction too much supply. And then of course there is Airbnb sort of like what e-shopping is to brick and mortar retailer. Interestingly while people say that the strong dollar is causing a decline in tourism the numbers show that both domestic and international tourism are holding up just fine.”

Don’t expect volatility in financial markets to have much affect on valuation or leasing

“It’s too early to tell what affect the recent volatility in the financial markets will have on leasing or on asset valuation. My guess is not all that much. We have been long overdue for a correction and after all a swoon in economic activity and volatility in the debt and equity markets seems a sure recipe for a continued easy money and low interest rates.”

Mitchell Schear

We believe that business continues to be good

“John we are very constructive we believe that business continues to be good we as I said in my remarks we’re looking over our shoulders because we are seasoned warriors and we know that this kind of volatility makes decision makers and counter parties just pause for a second and say what’s going on here which is only natural and only expected okay. So, the first thing is we see no deterioration in the New York Offices that’s step one what’s going to happen nine months or a year from now that’s another question and we see no basis upon which to believe that nine months or a year from now the New York office business will be any different than it is today.”

The volatility will cause an extension of easy money

“I believe and most commentators believe will cause an extension of the low interest rate, easy money environment that we have found ourselves in for years and years now. And it’s very hard to understand how with the treasury of 1.8 today that cap rates could go above — go into the — go above 4.5 let’s say into the fives and sixes. So, the interest rate environment and the wall of liquidity which still exists, is an anchor on keeping pricing firm.”