Good morning and welcome to the Vornado Realty Trust Third Quarter 2015 Earnings Call. My name is Yolanda and I'll be your operator for today' call. This call is being recorded for replay purposes. All lines are in listen-only mode. Our speakers will address your question at the end of the presentation during the question-and-answer session. [Operator Instructions]. I will now turn the call over to Ms. Cathy Creswell, Director of Investor Relations. Please go ahead.

Thank you. Welcome to Vornado Realty Trust's third quarter earnings call. Yesterday afternoon, we issued our third quarter earnings release and filed our quarterly report on Form 10-Q with the Securities and Exchange Commission. These documents as well as our supplemental financial information package are available on our website, www.vno.com under the Investor Relations section. In these documents and during today's call we will discuss certain non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP measures are included in our earnings release Form 10-Q and financial supplements. Please be aware the statements made during this call may be deemed forward-looking statements and actual results may differ materially from these statements due to a variety of risks and uncertainties and other factors. Please refer to our filings with the Securities and Exchange Commissions including our Form 10-K for more information regarding these risks and uncertainties. This call may include time sensitive information that maybe accurate only as of today's date. The company does not undertake the duty to update any forward-looking statements. On the call today from management for our opening comments are Steven Roth, Chairman of the Board and Chief Executive Officer; David Greenbaum, President of the New York Division; Mitchell Schear, President of the Washington, D.C. Division; and Stephen Theriot, Chief Financial Officer. Also in the room are Michael Franco, Executive Vice President and Chief Investment Officer; and Joseph Macnow, Executive Vice President and Chief Administrative Officer. I will now turn the call over to Steven Roth.

Thank you, Cathy. Good morning, everyone. Welcome to Vornado's third quarter call. Business in New York continues to be terrific, really terrific. We are enjoying robust demand from all matter of tenants, led by financial services and creatives in all of our submarkets and at record rents which are now 25% higher than expiring rents. Ditto for our largest and best-in-class Manhattan Street retail business, where we recently signed the blockbuster 64,000 square foot and 60 meter lease with Victoria’s Secret at 640 Fifth Avenue. Our Fifth Avenue portfolio now includes Victoria’s Secret, the Swatch Group for its luxury brands including Harry Winston, Uniclov, Polyester, Feragamo, MAC Cosmetics, Massimo Dutti and Cop [ph] Shop. We are brilliantly positioned on Fifth Avenue and our Madison Avenue, Time Square, Soho, Penn Plaza and in Union Square as well. Our Street retail strategy is the focus on the very highest traffic locations. We will lead the commodity product even in Manhattan to others. Our efforts in Penn Plaza continue to gain momentum, the temporary closure of 33rd Street earned rave reviews with luxurious [ph] paper calling the Plaza an oasis in Midtown. Penn Plaza is our Big Kahuna. 220 Central Park South continues to perform at record breaking levels. As we have said Washington has bottomed and is starting to come back in fact that is now the consensus view. As Steve Theriot will tell you shortly we are revising our EBITDA guidance for Washington for the full 2015 year to be behind last year by $3.5 million. We have previously projected Washington’s EBITDA to be flat. In Chicago, we completed an important 15 year lease with ConAgra for 168,000 square feet at the Mart. This space will become ConAgra’s new Corporate Headquarters. This execution continues to validate our value creation strategy for…

Thank you, Steve. Yesterday we reported third quarter comparable FFO of $1.24 per share, up from $8 per share in the prior year third quarter, a very strong 14.8% increase. Our core performance is clouded by the inclusion of gains from asset sales and mark-to-market fair value adjustments of our real estate fund without which our comparable FFO would have increased 23%. Not surprising, most of the 23% of growth comes from our very strong New York business. Total FFO for the third quarter was $1.25 per share compared to $1.15 per share in the prior year third quarter. Non-comparable FFO items in the quarter are income of a scan $949,000 or a penny per share compared to income of 13.2 million or $0.07 per share for the third quarter of last year. Please see our press release or the overview of MD&A on page 38 of Form 10-Q for a detailed summary of non-comparable items. Third quarter comparable EBITDA was 392.2 million ahead of last year’s third quarter by 7.8%. Excluding the effects of the fund our comparable EBITDA increased by 12.2%. Our New York business produced 282.4 million of comparable EBITDA for the quarter ahead of last year's third quarter about 13.7 million or 15.4% driven by the redeveloped properties coming back into services primarily 7 West 34th Street, 330 West 34th and Marriott Marquis retail space at 1535 Broadway and acquisitions primarily the Regis retail 150 West 34th Street and the Center Building. Our Washington business produced 78.7 million of comparable EBITDA for the quarter, behind last year's third quarter about 3.4 million. As Steve said earlier, we have revised our Washington EBITDA guidance and expected Washington's comparable EBITDA for the full year 2015 will be approximately 3.5 million or 1.1% less than 2014. The decline from…

Steve, thank you and good morning to all. We continue to be very constructive on the New York marketplace. Manhattan closed the third quarter once again with positive absorption, higher asking rents and declining availability rates. At 9.7% Manhattan availability is now at the lowest level since the third quarter of 2008 more than 300 basis points below the great recession high of 12.8%. Importantly in New York we continue to experience strong employment growth for office using tenants with the U.S.-Euro of labor statistics projecting 33,400 new office using jobs for 2015 and a similar number of jobs for 2016. As I said on last quarter's call, in addition to the continuing employment growth in the TAMI, Technology, Advertising, Media and Information sector, which has been driving economic growth for several use now. The FIRE tenant’s financial services, Insurance and Real Estate recently have become very active in the leasing market. We now have dual engines driving the strong job growth in the city. Turning now to our own portfolio. In the third quarter we completed 43 office leasing transactions totaling 509,000 square feet at an average starting rent of $79.80. This continues our strong leasing trends year-to-date. 1,666,000 square feet of total leasing activity year-to-date at very robust average starting rents of $80.09. Our mark-to-markets for the third quarter with 25.4% GAAP and 24.7% cash. As expected, and as I have discussed on our last two calls, our third quarter occupancy dipped slightly by 40 basis points to 96.2% reflecting space that we got back at Eighth Seventh Avenue as well as the exploration of the STWB space at 90 Park Avenue. At 90 Park Avenue, our redevelopment program is near in completion and in the third quarter we've completed two leases in the mid-rise of the building…

Thank you David and good morning everyone. In Washington, the economic recovery is on solid footing and most indicators are trending positive. The unemployment rate is 4.3% which is down from 5.3% a year ago and below the national average of 5.1%. According to the Bureau of Labor Statistics 53,300 jobs were added between September 2014 and September 2015 with the vast majority driven by the private sector and over 20,000 of these jobs were in office using professional services. A positive indicator for office space demand and absorption. The brokerage report headlines are also expressing confidence about the D.C. office market. The headline of JLL's third quarter report on DC REITs, broad based recovery taking hold across the region. The report goes onto say that as of the end of the third quarter, Crystal City lead all D.C. submarkets in terms of overall gains. Most of the absorption sighted in JLL's report is Vornado space. Notwithstanding an improved order of absorption we continue to see higher than normal vacancies in the Washington office market that will take time to absorb before we gain real traction but the consensus is that Washington is bottomed out and is indeed now in recovery mode. Within our Washington portfolio in the quarter, we leased 449,000 square feet of office and retail space in 61 transactions bringing our year-to-date total leasing to 1,642,000 square feet in 172 transactions. In Q3, we completed several notable transactions in downtown Washington. We completed the sale of 1750 Pennsylvania Avenue to 278,000 square foot mid-block office building for $182 million recognizing the gain of approximately $102 million. Over the past few years through effective repositioning and releasing we had maximized the value of this asset. This was the right time to sell and recycle our capital. We continue…

Thank you. [Operator Instructions]. Our first question comes from Manny Korchman from Citi. Your line is open.

Yes good morning it's Michael Billerman [ph] here with Manny. Steve I'm just curious on the $2 billion cash target I think of the first time I actually heard it refers to the target. I assume that takes the $1 billion today adds the 750 loan the 20 broad sales. And I just curious as I you think about the $2 billion target, 6% of your gross asset value $10 a share about 10% of your stock price. How should we think about that, is that something that you want to just keep as a standing balance is that something do you want to use whether you're going to use it. How should we think about getting to a $2 billion cash target?

Hi Michael. So I mean our history of managing this business has always been to be highly liquid to take advantage of opportunities and value in the marketplace. We have said before multiple times over the course of recent history that we think that the easy money has been made we think that pricing assets in the marketplace are high. We're not calling it top we're not saying that they're not going to go high, but clearly and the interesting inflection point in terms of value. We also said that we believe that for a company of our size it's prudent to have a large cash reserves and a large liquidity reserves to take advantage of opportunities. and so what we're doing is we're I think I said at last quarters, two quarters ago, this is the time when the smart guys go to cash, start building cash rather. And I think the couple of by Brethren [ph] in the industry jumped on top of that and said while GI agree with that. so our strategy so our financial strategy is to be highly liquid and to increase our liquidity as the market and that just give higher so that we're prepared for the other size of that amount. And that's basically what we're doing.

Is there anything...

Michael its Joe I think you said that that $2 billion include the $750 million it does not and it includes a $187 million we borrowed but it does not include the balance.

So what makes up the differential than between two and adding 20 - for 200 and the 187 what makes up the differential?

Financings and other things that are in process now. That hopefully will be completed year end.

Any sales or that just financings.

Yes and yes.

Okay. Thank you.

Thanks Michael.

Our next question comes from Steve Sakwa from Evercore ISI. Your line is open.

Thanks Steve I was hoping if you could just comment on the progress that 220 Central Park South. I know the disclosure changed a little bit in the 10-Q and I was just hoping you could update on the sales activity there.

Sure, let me talk a little bit about 220 Central Park South. Last quarter we disclosed fair amount of competitive information about sales progress et cetera. We did that not to establish a disclosure policy but in recognition of the fact that our accountants determined that we have to recognize the deferred tax asset and recognize that the income last quarter and it was a fairly sizable number and the reason for that mores our spectacular progress in sales. So 220 and therefore that will be highly likely that the deferred tax asset would be --. So the disclosure last quarter was interesting and important but not necessarily a policy. So having said that let me give you a little news just away we are now. The 220 Central Park South project continues to be premier market leading development in the super luxury class we're up to the 9 floor in construction. We've sold more than 50% I think the number is accurately in the 53% or 54% of our projected sell out. Our margins are superb and are holding with each sale. And so that’s that we had sold 14 units about $50 million as price points, several of which are much higher price points, record breaking price points. Interesting enough and this is new information this is not a home to offshore slight capital 45% of the buyers are New Yorkers for their principle residents and other 30 odd percent totaling 70% are Americans living in other cities other than New York. Now let’s talk about the product itself, by design the product is intended to be the best project that has ever been delivered, the course of the project are on a sellable square foot basis, $5000 a foot, so it’s costing us $5000 a foot to manufacture this asset. This has been sellable foot basis, $1500 a foot is land and $3500 a foot is in hard and soft and financial course that other than land course. The quality of the product is shown by a couple of statistics for example the building has the largest loss factor of any building of its type intentionally so that the amenity packages and what have you are extraordinary and are too cadent in this marketplace. The size of the amenity package and what have you in the lobbies and multiple lobbies and multiple buildings in the motor and the garage and all the rest of it in the pools and the rest of the amenity package, so there’s a double whammy. Number one, the square footage has to be build and number two is the cost of those items is obviously multiples of what basically in empty apartment close. So that’s the update we continue to be beyond thrilled with the performance of this asset, it continues to be the market leader and those are the facts.

Okay. Thank you for that the detail. I guess maybe one for David Greenbaum. I can appreciate your comments about the strength of the market and maybe the small financial service - you've obviously seen some large I guess restructure is going on at places like Deutsche Bank and Barclays, new CEO is coming in you also had some lay off at some other larger investment banks I'm just curious as those companies continue to shrink and deal with Dodd Frank and other regulatory issues can the market continue to work and do you expect that those companies to perhaps get back space to the market over the next couple of years?

Yeah since the great recession obviously we’ve seen Steve no growth by what you're referring is the big bold banks. And certainly it’s not my expectation that we’re going to see any significant growth there. I do believe that a lot of these banks already have gone through significant downsizing/rightsizings so do I expect that the banks are going to be giving back significant space going forward? I think the space they’re giving back to the extent they are going to relocate and move to a new corporate headquarters that space may well be in the context of new efficiencies in the marketplace in the way people are utilizing the space differently. But for the banks that are in place we’re certainly not seeing any significant space impacts by those institutions.

Steve think about it this way, the New York, the Manhattan office market is thriving okay if I was more promotional which I'm not I would say it was on fire or whatever. The New York market place is thriving, it’s extremely constructive. And it is doing that and growing based upon tech, media, all different financial services, excluding the bracket banks. It's the bulge were doing great even though that segment of the market place which has traditionally been the market leader has now become the market follower, okay. If you can imagine three, four, five years from now if that what happened to turn, what might happen to Manhattan so all that I'm saying is we’re doing fine without the big bolds bracket financials growing. Now from our point of view we have intentionally structured the mix of our portfolio if you go through our asset with asset-by-asset around that. So we do not have the input banks in our portfolio intentionally [ph]. And so if you look at our portfolio, we are - our prime targets and customers are the smaller boutique financials, the tech guys, the media guys, the retailing guys other kinds of things. So, we’re actually very constructive had notwithstanding your appropriate comments about the big banks staying in place we’ve been shrinking. And we’re also very pleased with where we are to asset-by-asset in our portfolio.

Okay. Thanks very much.

Our next question comes from Jamie Feldman from Bank of America. Your line is open.

Thank you. I was hoping we could stick with Mitchell and talk a little bit about the depths of the recovery we’re seeing in D.C. or coming off the bottom? So, you've quoted JLL saying we are recovered but maybe talk more about what submarkets are seeing the most demand and what the leasing pipeline looks like and we’re hearing that GSA is starting to get a little bit more active and as it the law firms?

Could you provide more color?

Sure. So, I think what we’re seeing as I said as JLL said the issues that we struggled with over the prior couple of years have worked themselves through the systems and we’re pointing in the right direction. How steep the slope is or will be I think it's impossible to predict this point. We’re still seeing the kind of vacancies and competition for spaces but we’re starting to see green chutes and as you said, you see some activity from the government, we’ve got a two year budget deal in place that kind of budget deal ends up giving us a certainty in the marketplace for people to move and I think that we’re cycling through some of the contractions that we’ve seen both from the government and the contractor side as a matter of fact we're starting to see some contractor growth in different segments not just in defense but in other areas as well. So, in terms of specific submarkets I think what you’re going to continue to see is downtown will probably outperform the close in metro centric submarkets like Crystal City in [indiscernible] quarter, we’ll start to pick up and we’ll probably outperform some of the other markets as well.

Okay. Can you quantify that depth of the leasing demand and tenants out there?

I don’t think you can really specifically put any quantities of numbers I think that at the end of the day if you’re going to see positive absorption it simply means that we’re obviously filling more seats than that are been vacated and exactly how fast and how quickly that’s going to go I think it’s really impossible to predict.

Okay. Alright, thank you.

Our next question comes from Antony Paolone from J.P. Morgan. Your line is open.

Alright, thanks. Just on the D.C. market you gave us the high single-digits same store results for New York next year. Can you maybe give us some color on that for DC given and everything you just said in that kind of bringing down this year little bit?

As has been our policy for the last three years I guess, we have given guidance on what we expect Washington performance to be, we will not release that guidance until our fourth quarter call in February.

Okay. And then on the balance sheet if you look at to the rest of this year you’ve got some perhaps that to be called the next year you got 1 billion worth of debt then you talked about this $2 billion of cash you want to run with. Can you maybe tie together what’s your plan to do with perhaps and that next year given our high cash balance and how that ties the other?

Say the question again please.

I am just trying to get, I think if you’re going to have $2 billion of cash and you’ve got debt next year coming due, it seems like above market rates and some perhaps that become callable later this year. Can you give a sense as to what’s your, how your plan on either taking those out or refinancing them or what you want to do there on the balance sheet?

Next year's maturities our $318 million on Eighth Seventh Avenue which is in the market to refinance now. 770 Broadway by the way this Eighth Seventh Avenue finance mode is 5.7% rate that's in the market to be refinance now but obviously a substantially lower rate. 770 Broadway we have $353 million that comes due next year at 5.65% that's in the market to be refinance now again at a very substantially lower rate. There is a 6.14% financing on both on the Bowen Building in Washington for $150 million that will be refinanced again at a substantially lower rate. And the granddaddy of all is a $550 million loan at 5.57% on the merchandise mark. That will be refinanced at a much lower rate and with a much higher proceeds. So all of those, probably three quarters of loans that I've just read off the spreadsheet are in the market to be finance now. Each of them represents earnings improvement opportunities because the rates are legacy rates that will be substantially improve the park.

And is the excess cash is that's what getting you to the $2 billion.

We expect that there will be a fair amount of excess cash. In addition okay, we have not financed the St. Regis which was a very large $700 million purchase and were in the market finance that now and to try the very attractive rates as well as Seventh West 34 Street, the Amazon building which is - which will be financed. So our balance sheet is beyond liquid has extraordinarily high levels of unfinanced assets. And so we are and then that's the keeping of our balance sheet in this condition liquid and it was important to understand. So we think we are in grand shape.

Okay. Thank you.

Our next question comes from John Guinee from Stifel. Your line is open.

Great, okay. Couple of questions. So just had a curiosity it like your total incremental budget on 220 Central Park South went up $300 million which is $630 on the sale per square footage and $630 on a zone square footage and about $730 on a saleable square footage. Any idea what cause it to go up of that magnitude? Is that build out allowances or something.

No the answer is three things. A, most of it is catch up and that catching up the budget which we probably should have done three months ago or whatever longer which we didn't. So a lot of it is just catch this is the first thing. The second thing a lot of it is misbudgeting a lot of it is expansion of the program adding cost which is we're delivering more product than a product higher finishes et cetera. And the last is that the construction market in New York is inflating aggressively and cost are rising. And even more important than that is there is there are enormous number of cranes in the sky. There is which are exceeding the capacity of the construction industry to deliver services. So there are handful of contractors who are expert in each traits and they those guys are running out of capacity. So there is a bidding premium to get timely delivery of products and services.

Got it. Okay. And then Mitchell for you...

Hopefully at reason.

Okay. Mitchell, it looks to us if the GSA is going to be freeing up or in the mark with a lot of RFPs. The bad news is it's all about price and the bad news as its most usually a space contraction but the good news is there will be a lot of velocity which should serve Crystal City well do you have any sense for the magnitude of the RRPs that are going to come out in the next two or three years beyond obviously TSA, department of justice, marshals, national park service et cetera. Is it a million square feet year or is it 3 million square feet year of RRPs that come out from the GSA?

The amount of GSA expires plus the amount of GSA leases that are either in short term basis or in holdover is a pretty significant number and you'll see over the next two to three to four years a tremendous amount of the GSA activity. How much of it translate as you say into relocation, we really do not have very many explorations of GSA in our own portfolio over that five year period. So it really leaved us in a favorable position to absorb some of those requirements will take a look at them I think you are going to see many of them in 50,000 square feet range and as you said it's as compared to wholesale agency relocation. But I do think that goes well in terms of our strategic location or GSA in crystal city in particular.

It's significant over a three to five year period in total, a million square feet or 20 million square feet?

No, you are seeing multiple, multiple millions of rollovers, how many of those translate into relocation is another story. But you are looking in no single million but in multiple millions, 5 million and 10 million.

Great. Thank you.

Our next question comes from John Bejjani from Green Street Advisors. Your line is open.

Good morning guys. Thanks for taking the question. Steve, I'm sure you saw the large portfolio sale on special dividend equity res announced recently and the markets positive response the news. I know you said you are happy owning all the assets in your portfolio right now. But given the discount asset value of Vornado stock. Any thoughts regarding larger scale dispositions today?

John, I don't think that something we can get into this.

Okay.

I think the following as a philosophy. I think we have shown over the last number of years that we are really not work to anything that we really are simplifying and restructuring the business along product lines, exiting certain businesses, we've sold or spun or disposed that $8.5 billion of assets over the last very short period of time and really I think simplify to our business and clarify our core business and strengthen it. As we go through our assets I think what Sam did was basically he had old pot of assets that he didn't want and so he was taking a strategic decision that he was going to focus in urban highlight in the coastal markets. So we've sort of done that already. So we don't have a large strategic imperative in front of us. Having said that from time-to-time we do sell assets and in fact we have in the market place right now a New York asset that happens to be 7 West 34th Street that we think we've done our job, we bought the only assets for somewhere in the low hundreds of millions single-digit hundreds of millions of dollars. I think that $500 million is more than that or 500 million in the 500 certainly. So anyway so we do have that asset in the market place to harvest value. So those are examples. I think we're strategically we are in pretty good shape maybe even very good shape. We think about what you mentioned all the time and we just don't have any announcements to make now.

Okay. Thanks for that. David, quick just clarifying question on the 640 Fifth Avenue lease. I think you said in the cash releasing spread of a bit over 100%. I think Steve previously mentioned the possibility of quadrupling rent there, obviously retail rents moved relatively previously thought you'd achieve or is this delta just the comparability issue?

I think David in his remark. I'll hand it out and David can counter punch. David in his remark said that the mark-to-markets for the Victoria lease and Victoria’s Secret lease was X that we retain 25 footer adjacent to it, which is a part of the asset. When you lease that and we’re in the market place to lease that now obviously the two of them combined will result in a 3.5 X multiple of the previous tenants rent. So while that’s not four multiple I apologize to that but 3.5 is pretty dam good and so that’s do you have anything David.

No that’s exactly right as you look at the combined leasing of the entire space and we can retain extraordinarily prime store right next to Victoria’s Secret.

Okay great that’s helpful and David just one last question you site us that on the leasing contribution of TAMI tenants in the New York market can you give us a sense of your office portfolio and leasing demand is coming from TAMI versus FIRE today?

So if you across the city, TAMI is actually generating city-wide today in the probably low 30, 34 or 35% of total leasing velocity as compared to what I call the traditional fire sector which was and has been kind of the mid-20% range. We’ve seen the fire sector become more active this year city-wide again what I call the boutique financial services firms a number of deals which obviously we have done in our own portfolio fiduciary truck, harvest partners, medley capital, a number of other deals. I think as we look at demand in our portfolio today we’re seeing in all sectors I will tell you we’re seeing some extraordinary situations where we have two TAMI tenants, two tech tenants both of which effectively are looking to grow in one of our buildings where somehow I wish I could take the building and add another million square feet to it. So we really are seeing very strong growth as Steve said, very constructive in the kind of tenants that are attracted to our portfolio generally around the market place.

Alright, great. Thanks guys.

Our next question comes from Ross Nussbaum from UBS. Your line is open.

Hey, good morning everyone. Steve I'm curious back in the doldrums late August early September when the stock was around 85 why did Vornado like not to repurchase shares at that level I'm assuming it was well below what you saw the companies were at?

The answer to that is we prefer to keep the liquidity and not lever up our balance sheet or the marginal increase in per share value that could be created by a stock buyback so the stock is 85 and so you have to pay a premium if you want to buy anything in size and if you split that over in the remaining shares the numbers doesn’t move the needle. And I think of most probably team was asked the similar question yesterday the day before and gave a similar answer.

Okay.

That doesn’t make - right by the way.

No, it helps to understand your thinking.

If you go back to my letter to shareholders this year, I think it was this year, there was an extensive section not only on street retail and not only comparing the increases in market rents for office by submarket and retail by submarket in Manhattan, there was an extensive section on share issuance and share buybacks and what have you. And I think in there I said that if you go back to the early days we did the largest capturing buyback in the history of the New York Stock Exchange we bought back 65% of the company when the stock was selling at huge 50%, 40% of what it was worth. So if you use a billion dollars of liquidity to buy back stock in one of these big companies and you pick up $0.40 or $0.50 a share it was, it's my judgment and the judgment of our board that the use of that liquidity and return to that marginal uptick in NAV or per share value is not sufficient when you may very well be at the wrong time of the cycle to sync your liquidity.

Got it appreciate that. If I can go back to 220 Central Park sale for a minute in the 10-Q because one of this quarter three from a billion in 2Q can you just comment on what drove that 300 million sequential increase and then separately just comment a little about what we should be expecting or may be assuming for a kind of all in tax rate on your gains given what happened with the deferred tax asset last quarter?

I think I answered that exact question about what happened with the $300 million for John Guinee two seconds ago. Basically it’s I think I answered.

I thought you were talking about another asset. Okay.

No, no I was talking about that. Okay what the tax rate is going to be?

It’s complicated, very complicated. The TRS that the condo is in has tax NOLs federal tax NOLs that’s what generated a deferred tax assets we talked about. So FTU met those and you have intercompany charges supplementing the actual course of construction, the tax rate is going to be 15%.

15, 15?

15.

So you think 15% on a 100%.

50% on gain.

100% on gain. So let me supplemental slide to that, if you take the gain which is X and we’re not going to predict what the gain is okay but if you pick the gain of X it will be divided into three or four different buckets. One bucket is there are most carry forwards which will protect the certain portion of the gain so that has a tax rate of zero although from an opportunity pause point of view you’re using up an NOL. Then there are other parts of the gain which basically are affected by inter-company transactions and charges so that will also reduce the gain by X in that. The remaining gain will be fully taxed at corporate tax rates of what are you 35% and so what Joe is doing on the fly is he’s saying if you take 35% that’s sort of like a 100%, a 15% or something basically like that and that’s why we’re trying to also give a complicated answer to a complicated question.

Okay. I’ll try to ask a kind of simple one, do you have any - this is actually not a simple question 660, at what point do you think you’re going to be able to talk definitely to the market about some of the plans of the press reporting in terms of the retail mall with hotel and condo?

We don’t know, basically 660 Avenue go take a drive and take a look, I mean it’s a magnificent asset brilliantly located on Fifth Avenue right in the heart of Fifth Avenue it’s a full block probably it’s a massive asset. It’s - we own Vornado owns a 100% of the retail from each except for this [indiscernible] which that owns and 50% of the office building together with a joint venture partner. It’s truly obvious that the dirt to the ground unencumbered would be worth more than the building is worth. And so and that the highest and best use for this property if it was not an office it was not encumbered by a building would be a series of mix uses which are different than what exist there now. And so the profit shift is trying to figure all that out understand what our options are and understand what the optimum business plan for that is.

Our next question is from Ryan Peterson from Sandler O’Neil. Your line is open.

Sorry, I meant to remove myself from the queue I'm all set, thank you.

Thank you.

Our next question is from Brad Burke from Goldman Sachs. Your line is open.

Hey good morning guys. Just another one on 220 Central Park South in terms of the timing. Looks like you have over $1 billion left to spend. And I think you're still targeting completion by the end of next year and just seems like a lot of capital to get out the door particularly when you look at how much you've been deploying over the last couple quarters. So wanted to get an update on what we should be thinking about in terms of timing and whether there is a risk that we might see the timing slipped.

Well the timing is not going to slip, your timing is a little bit too early. This is - there is a two and a quarter years left to go.

Two and a quarter until completion.

Two and quarter from now to completion.

Got it, okay. And then just on --.

Brad just go back for a minute. So just let me restate again our financing plans for that asset. We had a $600 million project specific loan from Bank of China around the asset. We upsized that and reduce the interest rate by the way to 200 basis points over LIBOR we upsized that by $350 million to $950 million. We then had we have a range some time ago a $500 million mez loan which was at an interest rate of hovering just close to double-digits. So it's expensive. And which is the appropriate rate in the marketplace. We've replaced that paid a contractual $15 million termination fee because it wasn't a standby mez loan and then we've replaced that with an almost special purpose term bank loan facility. Now that term bank loan is in addition to what get a two whole $5 billion of revolvers which are currently undrawn. And that we described that term bank loan as a delayed drawn term bank loan and we've never seen that those to anywhere. So we saw them we invented them. And the reason we invented them was so that you also understand that we will take that money down overtime as we needed to build the 220. And so the way we look upon this that $750 million piece of finance is in addition to our regular balance sheet and is basically directed at the financing of 220 Central Park South and the Broadway down in the Northern Virginia. So that's our capital plan and we've obviously brought our cost of capital down very significantly by doing all that.

Okay, that's helpful and actually is a segue to my next question just thinking about total floating rate debt exposure. You're up about over $1 billion from last year and to your point that will probably increases you will continue to fund your construction at 220. But then you also have a lot of refinancing activity coming up. So I was just hoping for an update on how you're thinking about your total level of floating rate debt of what you think is at a total appropriate level.

The answer is I don't know that we have any guideline we understand that people like the certainty of fixed rate debt. I can tell you that fixed rate debt is as risky as floating rate debt maybe even more risky. Because it's a much more expensive and B it has lockout so that it has large penalties if you want to pay it off. And so we believe my personal feeling is that interest rates will be lower from longer. I've been making that call for a year’s ad years although I'm not an economist it is not my job to make that call. My job is to protect our balance sheet and our company and you all and so we think we do that. So we have a very low level of debt. We have a huge massive amount of liquidity. And so we feel that we can handle easily 20% floating rate debt in our capital structure and what have you. And so we don't do that. Basically the most important part of our balance sheet statistics is the debt level. The second most important part of our balance sheet metrics is the liquidity level the third most important is the mix of floating to by the way third most important is our line of maturities and then the lost is the floating rate statistics mix.

And Brad one of the things you want to think about as it relates to the fix in floating is, we look at the financing related to the 220 project as we match to that project because it’s going to liquidated from the sale of the condos and so what I gave our liquidity statistics, we back out the 220 financing and doing those statistics and we think that’s the best way to look at our capital structure.

Sure. I mean you would still have the exposure to higher floating rates over the next two in the quarter’s years I suppose?

Correct.

And our next question comes from Derek Van Dijkum from Credit Suisse. Your line is open.

Good morning. It’s actually Ian Wiseman [ph] with Derek. Just a quick question on the Penn Station submarket you picked up another asset on 34 street I think you have the corner now on the Eighth Avenue maybe you could just talk about plans for that site overtime and maybe just give us an idea on broader or master plan for Penn Station overall. Thank you.

As we've said many times the Penn Station market, the Penn Plaza marketplaces the Big Kahuna we have a very large investment there, we invested early, we have a huge profit already on our investment in the very, very large numbers and so we’re very pleased with where we are. The timing of this submarket is perfect now, the perfect storm whereas the Penn Plaza was always the cheapest submarket in Manhattan and [indiscernible] still is. The confluence of the events surrounding Penn Plaza is nothing sure of extraordinary and validate our investment strategy and so I have said before the islands of Manhattan is changing to the west and changing to the south and I think that’s now become to consensus view. I’ve also said that the submarkets the pricing of office space in the various submarkets is flattening meaning its conversing, meaning that the higher ARPU from the Plaza district being the highest rent down and working lower as you go south is starting to evaporate and [indiscernible] rents are in Chelsea and as well as on Park Avenue. So, we think that the opportunity both for retail and even more for office in the Penn Plaza district is extraordinary and so by the way we’re full now, we’ve been full there every months for the last 15 years what’s so highest rents we’re getting now in Penn Plaza David?

Mid 60s.

So, rents are creeping up from low 50s to mid-50s to at the top bracket in the mid-60s. And so our job there is to improve our building, improve the streetscape, improve the food offerings, improve the retail offerings and most of all improve the physical plans of our office buildings so that the market rents in those in this market can climb to similar to where it is in the surrounding submarkets which could easily be in $20 or even $30 a foot higher so that’s our objective and we’re busy working on that we have nothing specific to announce now but we hope to before too long.

Okay.

Recently. There is one more thing upside keep going on this. Recently, we just completed a three month’s trial where we closed together with the prominent transportation and the city of New York officials, we close pretty extraordinary when you think about it thinking the easterly half of 33rd Street and turn to get into a public plaza and taking the western half of 33rd Street and putting it into service for both our 2.5 main building on one side of Madison square garden and the other. So that was the very successful closure. We look forward to become permanent next year and so we’re offer running.

That’s helpful. And this is my follow-up question. Just thought on a potential or possible spend of the D.C. portfolio all our urban edge?

We have nothing to report on that. Although we have not and I said this in my letter, we have not eliminated any possibility everything continues to be on the table.

Thank you very much.

Thank you.

Our next question comes from Vincent Chao from Deutsche Bank. Your line is open.

Good afternoon everyone or good morning, sorry. Just curious we talked a lot about the TAMI tenants and in New York City and I was just curious you had a lease in San Francisco that you did in the quarter. Just any notable change in discussions there tech tender in San Francisco?

Listen there has been a lot of chatter in the marketplace that with some BC capital potentially drawing up and the IPO marketplace not being as open as it was that we're seeing some pull back in terms of the tech tenancy and the San Francisco market. Our own experience has been that while there has been a lot of chatter and discussion about this we're still seeing very good vibrancy in the marketplace. We are doing some work right now at the adjacent building to 555 California complex, the 315 Montgomery and 345 Montgomery building's which we think are very attractive to the tech types of tenancy and again we are seeing very good growth in the marketplace their rents in San Francisco have been going up at a clip of around 10% or even higher on an annual basis over the less number of years, seeing good growth and good demand.

Okay, thanks for that. And just a question on investment and your buildup of liquidity. I know we've been talking about that for quite a long time. Just being the right time to build some cash here. But just curious if there has been any notable early warning signs now something that's changed in the markets from your perspective or if it's just still consistent with the what you've been talking about for the last several quarters.

Trees don't grow it in the sky and pricing has - the easy money clearly been made, pricing is very aggressive, I don't know which way interest rates are going but people think that they are going up. I don't know which way cap rates are going but 50% they can't go much lower. So it seems that this is the time to begin to think about prepared for the next cycle. If you are in a position like we are running company like ours and you don't stop thinking like that you are not being responsible.

Okay, thank you.

Our next question comes from Sumit Sharma [ph] form Morgan Stanley. Your line is open.

Hi, thank you so much for taking my question. Vance send his apology as he is not able to attend. So a quick question about the Mart I guess we are 60% almost or slightly above for the office mix up from 50% last year and I was wondering and I think you once mentioned that soft goal of about over 60% of office mix. I was wondering if there is any room for greater office mix beyond this point or the stage or I guess what are the said differently what are the other avenues for harvesting value in that property.

Our target as we said in the past has been to transform these assets so that the mix of the building today is about 60% office, as I said earlier in my remarks the remaining showroom tenancies in the building are high performing businesses that today are healthy vibrant and pay rents in showroom building where tenants generally to be congregated within a building within a class of showrooms is going to be paying premium rents. So today I will tell you we think that mix that we are trying to get to of about 60% feels right to the extent the businesses are dislocated in the future similar to what we saw in giftware business with that business basically was changed by reason obviously internet electronics will obviously be able to capitalize on that. The other piece of the building I will say is there is a number of what I referred to his old office tenants in the building still with very low rents where we see the ability to significantly to capitalize on those tenancies as they come up and bring in what we will refer to as higher tenancies whether it's Corporate America coming from the outside or TAMI types of tenancies go attracted to the unique fore place to the unique building.

So when you think about the Mart building, its enormous I mean its 3.6 million square feet net ratable that those numbers is over 4 million square feet. So it's an enormous asset it has these unbelievably unique and in high demand 200,000 square foot - place. It's in a spectacular spot that the Bull's Eye of River Dorf [ph] and it's basically almost it's try to say it's according to say is it's almost the no replaceable asset it's got high sealing, it's got everything that you could want. It's got heavy loading, it's got everything that you could want in terms of a massive asset like this. So it was suffering under the - it was basically for a bunch of [indiscernible] that when in business had a business have been that all kinds of things. So what David and his teams have done is more did so that we are changing the mix it's a very stable industry showroom tenants who pay who need to be in this [indiscernible] monopolistic building that they want to be in that industry. And to a cagy [ph] of very important fortune 100 tenants who are both principally and tech but also in other industries insurance and what have you. So that does two things so as David said it is remarks the income goes from $50 million to $80 million next year and it's going in the triple digits. And most important at all in terms of value creating the cap rate goes from I don't know what's the showroom tenants go for. So we're building a - floor. And 8 cap rate down to 5 cap rate and maybe even a sub 5 cap rate so as the income goes up and the cap rate goes down the value creation is enormous. So we're very pleased with that asset.

Great. Thank you so much for the color. I know that its 90 minutes and we're drawing close to the end of the hour so want to be sensitive if to be permitted to ask another question or I could queue up again later.

Shoot.

Okay. So I know if that the San Francisco question has been asked. But wondering specifically about your sort of partnerships or alliances or whatever you want to call them with incubator such as rework matter or fraction of leases like REIT especially in the San Francisco market. Given the news about the tech IPO and so on and all that stuff. How do you is there a change in your view or sort of conservative them or concern around it at all?

555 California Street the so called Bank of America building is the dominant building in San Francisco with all due respect to the traffic what's in end of the new - building? With all due respect to the salesforce tower it's the dominant building it has the best roster of our financial services tenants of any building anywhere in the United States including in Manhattan. It is an iconic building it has long-term values and we're drilled on it for the long-term. Now we sale it but then again we might not. It is not on for sale or lease today and we believe that we believe the building a great building we believe it's a best state are certainly in front of it.

Okay.

And our last question comes from Manny Korchman from Citi. Your line is open.

Thanks for taking the follow up. Just wanted to just on a Central Park South, could you share what your gross sales goal is and also the total saleable square footage in that project.

The saleable square footage is 396,000 square feet and I will decline to give those proprietary numbers for the competitive reasons.

Thanks.

And we have no further questions.

John that I just make one comment as an end comment. My guys are a little bit we note a negative comments that at the beginning this quarter and last quarter, which specifically relates to same-store a lower than our normal industry leading same-store number. There are lot of reasons for that. But it's leading to us also, but the numbers are what the numbers are and it relates principally to small picks of occupancy changes which are really pretty insignificant and the buildings coming in to service are coming out of service. So I would just give you one statistic and that is that if you take four buildings that have been, that have gone out of service and that have come into service 7 West 34th Street, 330 West 33rd Street, 280 Park Avenue and 15 35 Broadway. Those three buildings which have come into service during different parts of the calendar this year will have $44 million of income this year throughout the year obviously loaded more towards the beginning of the year because they came into service over the course of the year. As next year and those buildings are not in same store that other than same store pool, obviously are directly because of the accounting policies. Next year those four buildings are budgeted to have a $114 million of income of which $70 million will be same store next year. So we’d expect that next year same store in addition to these buildings which are off the charge and so we apologize for the weaker than normal same store this year. We’re very sensitive, we consider all of this to be out of the port cause we love being at the head of the class, we are sorry that the numbers are low number and it’s going to get a lot better, I mean a lot better enormously better next year. So that’s all I have to say and so thank you all for participating. This was a long call, our policy on this call is to take every question in the queue, I feel the queue was exhausted and I think that’s probably the most transparent the best policy we can have. So thank you for participating. Next year, fourth quarter call will be on Wednesday February 17th which is a Wednesday and our queue will be published on the 16th which is the Tuesday of February. So thank you all very much we’ll talk to you then, have a great day.