Vornado Realty Trust Earnings Call INSIGHTS: Asset Sales, 220 Central Park South

On Tuesday, Vornado Realty Trust (NYSE:VNO) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Asset Sales

Steve Sakwa – ISI Group: Mike, I wanted to see if you could just clarify. You said in the second half of the year, you are looking to potentially sell up to $1 billion. I think you said malls and strips, and you mentioned Green Acres, Kings Plaza and (Pop) Center. You didn’t mention Monmouth and I thought that was kind of part of the three malls that you are looking to sell. So, I was just wondering if you could kind of clarify those comments. Are there any other types of investments that are included in there, such as Lexington’s stock or some of the other kind of smaller non-core investments you have or is that truly just kind of some of the core real estate?

Michael D. Fascitelli – President and CEO: Monmouth, we are going about the sale of the assets in a very measured way and an orderly way, and the first two that we talked about in the malls were Green Acres and Kings Plaza. Monmouth is on the list, and I think will be subsequently dealt with as well as the malls in Puerto Rico. So, it’s a process of obviously putting properties on the market in a very, very orderly way. As far as other – there’s only a few other things up for sale, we’re also looking at other strip centers and some more assets that we hope to dispose off. I’ve mentioned $1 billion, we’ve already achieved $821 million of the $1 billion and I said there is another $1 billion probably to come. So we expect, if all that is successful this year, that we’ll certainly exceed the $1 billion we talked about and whether we get to a full $1 billion after we add that $800 million, we’re not sure about it, it’ll make a big because of the $2 billion than $1 billion.

Steve Sakwa – ISI Group: Then I guess kind of follow-up, maybe bigger picture for you or for Steve, for a number of years, you were a little hesitant to kind of make a lot of acquisitions. I think the return hurdles just kind of weren’t there and you were a little certain about the environment. In the last maybe couple of months, you guys have gotten much more aggressive on the deal side. I’m just wondering if you can talk what changed in your philosophy, are the return hurdles underwriting capital markets, but what’s making it more aggressive sort of now versus say six or nine months ago?

Michael D. Fascitelli – President and CEO: I think I won’t characterize we were aggressive before or not, I mean the deals we’ve done, whether it’s 666 Office or 280 Park Avenue, or the Marriott deal we just talked about, were very largely value added deals which had to have most cases substantial re-leasing done or substantial development too or redevelopment. Those returns were manufacturing, better than buying stabilized assets, so we don’t have that characteristic. They are not that kind of returns. As I said we hope to expire a few, we’re gaining maybe 100 basis points, 150 basis points we think on a stabilized basis by encountering, by dealing with those kind of situations. 666 was an asset that I think was a terrific asset that wouldn’t fit high value added for the short-term because it was well-leased and yielded as I mentioned a 4.5% GAAP rate of $55.56 on a GAAP basis but we do think long-term there was – those leases on the market – initially on the market and we have a substantial opportunity upon that role sooner to do something with that property and as this is a great location. So we are right on our strategy of sticking to really focused geographies with really world class franchise assets and for that we think the returns we are getting are appropriate. We are not getting rich, certainly not an acquisition of my own you can see out things.

220 Central Park South

Michael Bilerman – Citigroup: It’s actually Michael Bilerman here with Josh. Mike towards the end of your comments you talked focusing internally and focusing on the non-income producing assets, re-development, development opportunities, Steve in his letter talked about this $1 billion trove of non-income producing assets. May be you can just dive a little deeper about what the timeframe is, what the components of that $1 billion are, and how are you going to harvest that? Then maybe talk about the capital needed for the redevelopment and development, I think, obviously some of the big projects being 1900 Crystal to 220 Central Park South and Springfield Mall. But just talk a little about what we could expect in terms of deployment from that combined with the non-income producing?

Steven Roth – Chairman: Joe will take a shot at that question.

Joseph Macnow – EVP, Finance and Administration and CFO: Well Michael you have enumerated the major items including the $1 billion, of course its Springfield Mall. We are well aware that that development is proceeding and we intend to break ground next year. 220 Central Park South, which David, you want to comment on.

David R. Greenbaum – President, New York Office Division: 220, Michael, we think is a great, great residential site, in fact probably the best in Manhattan with unobstructed views of the Park. It’s been a process that has taken us about five years to vacate that property in terms of the residential tenants but we have now started demolition of this property. We’ve got enormous financial aspirations on this development. The timing of this thing remains a little bit uncertain. We’re involved in a bit of a tussle with a neighboring property owner. But I will tell you, we will keep you advised of this from time to time, what’s interesting about that one is our site is directly, directly in front of his site and we feel very good about where we are in the process with demolition having commenced.

Joseph Macnow – EVP, Finance and Administration and CFO: Thank you, David. Of course, none of the assets that we’ve talked about so far or the others that I’m going to enumerate have any leverage on them and two more in Washington, that’s 1900 Crystal Drive which Mike commented on in his opening remarks and then the 20 acres of land in Pentagon City, Mitchell Schear is going to comment on both of those.

Mitchell N. Schear – President, Vornado/Charles E. Smith Washington, DC Office Division: Sure. Thank you, Joe. In Crystal City, 1900 Crystal Drive, as Mike mentioned in his opening remarks, we are finalizing our plans, finalizing our approvals, and are excited that this will be an opportunity for us to create an asset class that we haven’t had here before in Crystal City and 150 feet taller than any asset that we own in Crystal City, looking right at the nation’s capital. So, our plans will continue, will move ahead, and by the time we deliver that building in 2016, we’re very comfortable in terms of where that will be from a market positioning standpoint given the current condition of leasing activity in DC at the moment. Then with respect to the Pentagon City assets, if you think of them in two tranches, we have apartment assets totaling about 2,100 apartment opportunity units and we are proceeding full speed ahead to get approvals on about 700 units at this point in time, and once we have our final approvals in place, we are likely to move ahead and build that building as well. Then with respect to the other 10 acres, we are in the final stages of getting a master plan approved with the County of Arlington and we expect to have those approvals within the next 12 months or so, and then we’ll take stock and decide when the right time would be to proceed with that project.

Michael D. Fascitelli – President and CEO: Of course, Michael, 1900 Crystal is only the first of the planned reformation of Crystal City taking it from 8 million square feet to 12 million square feet onto that density – increased density plan at Arlington County gave us to deal with the economic effects of BRAC. Mitchell already has his second building plans underway. There are another 20 smaller assets, but it will take up the rest of Q&A with that if we go into it, and I hope that answers your question Michael.

Michael Bilerman – Citigroup: Just as a follow-up, so how much the predominance of that billion or a lot of these potential development projects. How should we think about the future capital in aggregate? There’s obviously a yield on the building, as you bring these, develop them and bring them into service but an additional capital to get them there?

Michael D. Fascitelli – President and CEO: I think, Michael, each asset is different. Springfield Mall is over $200 million of incremental capital. Central Park South would be over $400 million of incremental capital. But these are not financed and we will look to each asset and whether we finance in the construction market, whether we would – incremental, the returns on these assets are quite attractive with the total cost and they are really attractive on a incremental basis, so we’re going to look to them as we do in all capital markets and assess the best way to finance these, but the total financing, the total amount of money varies by us and it will be a decent number overall but we have lots of options to finance the existing assets and obviously the improvements.