Vornado at Bank of America Conference Notes

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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. ”