Good morning, and welcome to the Vornado Realty Trust First Quarter 2018 Earnings Call. My name is Adrienne, and I'll be your operator for today's call. This call is being recorded for replay purposes. [Operator Instructions] I'll now turn the call over to Ms. Cathy Creswell, Director of Investor Relations. Please go ahead.

Welcome to Vornado Realty Trust First Quarter Earnings Call. Yesterday afternoon, we issued our first 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 supplement. Please be aware that 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, uncertainties and other factors. Please refer to our filings with the Securities and Exchange Commission, including our Form 10-K for more information regarding these risks and uncertainties. The call may include time-sensitive information that may be accurate only as of today's date. The company does not undertake a 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; and David Greenbaum, President of the New York division. Also in the room are Michael Franco, Executive Vice President and Chief Investment Officer; Joseph Macnow, Executive Vice President, Chief Financial Officer and Chief Administrative Officer; Mark Hudspeth, Executive Vice President and Head of Capital Markets; Matt Iocco, Executive Vice President and Chief Accounting Officer; and Thomas Sanelli, Executive Vice President and Chief Financial Officer, New York Division. I will now turn the call over to Steven Roth.

Thank you, Cathy. Good morning, everyone. Our industry-leading first quarter financial results were very strong. In fact, since all of our New York brethren have already reported, I can say definitively that Vornado's first quarter financial results were by far the best in town, with many of our business metrics outperforming by a wide margin. FFO as adjusted was $0.91 per share as compared to $0.84 per share for the prior year's first quarter, an 8.3% increase. On a cash basis, FFO as adjusted was $0.89 per share as compared to $0.81 per share for the prior year's first quarter, an even greater 9.9% increase. This quarter's cash basis NOI was $349 million, up 4.5% from the first quarter of 2017. Cash basis same-store NOI increases were as follows: New York segment, up 5.6%, with office up 8.1% and retail essentially flat, up 0.2%; the theMART up 10.0%; and 555 California Street up 13.3%. Our office business continues to perform very well while retail continues to be soft. I know that Wall Street is down on New York. We don't see in it, in fact we see just the opposite. We are experiencing robust demand from all manner of industries in all of our submarkets. Our tenants are optimistic, aggressive, growing and upbeat about New York. Notwithstanding our superior financial performance this quarter, we still expect the year to be flat GAAP, although nicely positive cash. We also reaffirm our previous guidance that retail cash NOI will not go below $304 million. We are pleased with the performance of our spinoffs, JBG SMITH Properties and Urban Edge Properties. These companies will perform better on a stand-alone basis. We are also pleased with our over $6 billion of recent asset sales, which would likely command a lower price if sold today. Now turning to the investment sales market. The office investment sales market has picked up smartly, although bidding pools are still not deep. Highest quality assets continue to trade at strong pricing levels. Investor interest in pricing for assets south and west in Manhattan is particularly strong, overall investor demand is fairly well balanced between domestic and foreign capital. There continues to be scant sales activity in the retail sector due to both a lack of quality product on offer and understandable investors' skittishness. Pricing is clearly off for everything except prime, well-leased assets. Debt markets for New York assets remain as liquid and strong as we have seen, with all markets wide open. Although rates are up, spreads remain tight keeping all-in coupons at attractive levels. We have a highly liquid fortress balance sheet with $4 billion of liquidity, reasonable leverage and well-staggered debt maturities. Now to David.

Steve, thank you. Good morning, everyone. Finally, a warm, sunny spring day in New York. Employment trends in New York continue to be very positive. The office sector employment number for 2017 has been revised upwards significantly by some 40% by the Bureau of Labor Statistics adding 8,000 jobs -- office sector jobs to a total of 28,000 jobs for the year. What appeared to be a very good year, now looks even better. Job growth in the first quarter of 2018 continues to be healthy, and the city continues to fire on all cylinders, with multiple sectors serving as engines of growth. The quarter's 2 stunning announcements by JPMorgan and Google reflect continued strengths of the 2 most important engines, financial services and technology. The overall leasing market in Manhattan turned in another solid quarter. Manhattan absorption was a positive 1.2 million square feet, bringing the vacancy rate down to 8.8%. Turning now to our own performance. In our New York office portfolio, we leased 424,000 square feet in 26 transactions at average starting rents of $82.07. Same-store growth for our New York office portfolio was stronger in the quarter positive 6.6% on a GAAP basis and 8.1% cash. The broad diversity of our larger leases for the quarter is a reflection of the overall health of the New York economy: the expansion of a tech tenant at 770 Broadway by 77,000 square feet; the renewal of a financial services tenants for 76,000 square feet at 280 Park; the expansion of a healthcare company by 53,000 square feet at One Park; and a renewal expansion within a parallel company for 84,000 square feet at 100 West 33rd Street. The balance of our activity was with midsized tenants that represent the sweet spot of our diverse portfolio. The mark-to-markets in…

Thank you, David. We're happy to take questions.

[Operator Instructions] And the first question is from Michael Bilerman from Citi.

Steve, I was wondering if you could talk about Penn Plaza, the promised land, as you noted in your Chairman's Letter. But talk about it from the perspective of the potential capital of -- over time to develop and redevelopment that developed against the backdrop of your comments that the public markets are more challenged. From a real estate perspective, it hasn't grown. A lot of people want to invest in private relative to public. How do you sort of see the public markets being able to fund that development and redevelopment within Vornado?

I will define that as a 7-part question. So let me see. Where to start? So first of all, Vornado has been rewarded for its contrarian early investment in Penn Plaza enormously. Our basis in most of the assets in Penn Plaza, and I'm talking about millions and millions of feet, about $200 a foot. And I don't know what the buildings would sell for today. Pick a number, say $900 a foot. You all can do the multiplication. $700 a foot times all that square footage is an enormous value -- is enormous value creation, that's the first thing. The second is, is that the Penn Plaza had always been, years ago, the cheapest submarket in town, okay? That's going to change and it's going to change monumentally. But the timing of Penn Plaza was not yesterday. It was not the day before. It's really now and the day after today. And by that, I mean Penn Plaza is ripe in lots of different ways, riper for rent growth, it's ripe for tenant demand -- it's ripe for tenant demand. Now, we have plans that we've already announced to spend $200 million on One Penn Plaza, which we have already announced we believe will drive market rents up $20 a foot. So $20 a foot, that's over time, but the leases turnover over a 5-year cycle in One Penn Plaza or, as David calls it, now Penn 1. So if you take a look at the math, $20 a foot times 2.5 million -- 2.6 million square-foot building is roughly $50 million. That $50 million you can value net $200 to accomplish the transformation of the building. That's a $4 a share increase in value, okay, on a $200 million investment, at the increment. Obviously, $200 million is an investment that Vornado can handle very, very easily with no capital raise, no selling shares, no dilution and no partners. On Two Penn, we have various different plans, but it looks like we're going to go to Plan B. Now let's talk about that for a second. I think you can characterize Penn Station, and I'm talking about the underground now. We own the over ground, but not the underground, obviously. So the underground of Penn Station is probably, Joe, what's a good word reviled. That's too tough.

Yes, too tough.

Okay, so the Penn Station is probably one of the most disrespected pieces of infrastructure for something that is the most important and busiest transportation hub in North America. So from an aesthetic point of view and operational point of view what have you? It's not something that we're proud of, okay? Not something that the community is proud of, okay? So 10 years ago, as you might remember, Vornado, the related companies and Madison Square Garden all got together, and actually, we signed agreement, so this was not a dream; this was reality or a potential reality. So move Madison Square Garden to The Farley Building, which would allow for a total transformation of the -- which would -- would daylight the station, remove the building that was on top of it and allow for a total transformation of Penn Station in every way. That would be -- that would have been the government's responsibility. Now we invested years in that plan. When it became pretty obvious that the public sector was not going to get -- was not going to be able to do it or get their act together, that plan dissolved. Now while we were working on that plan, we were the subject of a fair amount of community criticism. It was a landmark -- The Farley Building was a landmark building, lots of other things that is not necessary to go into, all of which were very small and I might even say petty, okay? When the proposal was withdrawn and it wouldn't happen, the amount of remorse on the part of the entire community, government officials, The New York Times, et cetera was astonishing, okay. Now fast-forward to today. Vornado has initiated a plan, which, granted, is a very ambitious to basically, I said…

Better part of 300,000 square feet.

Was adding the better part of 300,000 square feet in a bustle, which would sort of like a doughnut encompass the lower floors of that building. That is a much more modest proposal than we had -- that I just talked about. And it's -- we're going to go to it, and we're going to go to it quickly. That will involve a sum of money, we have not even announced yet the plans of - or, the capital spend or the returns for that -- on that. But they are certainly well within the ability of Vornado to finance totally off our balance sheet today with no dilution, no investors, et cetera. And so that would also be a plan that will start in a couple of years, I guess, and finish in a couple of more years. Hang on, I'm not done yet. I apologize, but I'm not done yet. Obviously, after a long pursuit, we and related have been designated the developers that actually we bought a long-term lease hold on the Moynihan building, and that's under heavy construction now. We will create in there 700,000 -- as David said 700-odd-thousand square feet of what I believe and we believe, will be the best creative office space in town plus 120,000 square feet of trade and retail. Going across the street, I think I wrote about what our thinking was on Penn Plaza, that we had numerous other sites, so we're very excited about it. Now it's not impossible that development -- and then I think, by the way Penn 1 and Penn 2, the development and the spend in there is extremely modest in relation to the returns and the results. But the rest of it is going to -- is pretty decent -- I mean,…

And the next question comes from Jamie Feldman with Bank of America.

Great, thank you and appreciate that thorough response that as well. I guess sticking with the Chairman's Letter, we get a lot of questions here on footnote 5, which talks about potentially excessing a core fund or funds Vornado's highly sought after assets, and then Joe's thoughts that maybe you should separate retail into a separate entity, I know you kind of touched on that in the last answer, but could provide more color on your thoughts regarding those 2 ideas?

So, I mean -- look, let's start with the obvious, the elephant in the room is that the office companies, and all of our brethren are selling at a very substantial discount to NAV. Everybody is complaining about it. Every CEO that I know that I talk to is complaining about it. Our shareholders are complaining about it. Everybody is complaining about it. Now in my letter, I tried to comment about my thoughts about that. So what I started out with is, is that -- let's just think about the REIT model for a second. So in the REIT model, we have a business -- an industry that has grown from Kimco's IPO to today, to a trillion dollars of equity and probably something like $2 trillion of assets. Well that's enormous growth and that's a very big industry. But it only has a 10% market share of the commercial properties that it could own. And that 10% market share has not grown for years and years and years and years. So the obvious is, is that 90% of investors that want to own commercial real estate -- office buildings, shopping centers, hotels, et cetera -- to own them in a non-REIT format, so that's a very interesting starting point, okay? The second starting point is that the public stocks fluctuate. And right now, we are at a discount NAV, which doesn't feel as good. But -- and -- and that's going to change over time, believe me. The cycle -- prices are going to cycle for sure but right now, there's a very large -- there's discount and it's clotting. So the observation is that public shareholders are willing to pay $0.75 or $0.80 on the value of a real estate asset. Investors, pension funds, LPs, et cetera,…

Thank you and just a quick follow-up, do you think there is economies of scale of having retail and office together in New York?

I think there's economies of scale of having the same management team run them.

And the next question comes from Steve Sakwa of Evercore ISI.

A couple of my other questions were asked and answered, but I guess just a couple of quick things, Steve. Just 220 Central Park South, I know that we're kind of getting closer to the completion on that asset. And it was just wondering if you could help us think through the kind of the rest of the capital spend, and maybe when should we start to think about closings and capital coming back to Vornado? And then secondly, if you could just touch a little bit more on the retail and kind of maybe what your expectations are for just kind of trends and leasing spreads over the balance of this year and into 2019?

We have only a few apartments left. Can I sell you one?

Sure, I'll come talk to you later.

So 220 Central Park South is proceeding apace. It is esthetically and financially the best project that's ever been done in New York and probably -- in New York and, therefore, in the whole country. The numbers are terrific, and what it looks like is terrific. If you have nothing to do one afternoon, give a call and I'll have somebody take you through. We will begin closings in the end of the fourth quarter this year. We are not releasing information for competitive reasons and the -- and I think that's absolutely the right thing to do. The only information that we have released is 2 pieces. The first is I have said repeatedly that our sales are well in excess of our costs, so we're into -- we're well into profit already. And the second is if you look at the NAV that we published in the fourth quarter materials, there's a number that projects what we expect the cash builds from 220 to be. What was your other question Steve about retails?

Yes, I just wanted to get -- I mean, obviously, you had some rolldowns this quarter, but you said if you backed out the one lease, they were marginally positive. Just without giving maybe specifics, what you sort of think that rollover would sort of look like on the balance of leasing coming due this year and maybe into 2019 to help people sort of think through sort of the downside or maybe we're getting close to the bottom here. How should we just be thinking about those rollovers over the next -- the 18 months?

The only thing that matters is 3 things, Steve. Number 1, the locations that we have and the quality of this retail is the best in the world. There will always be a Fifth Avenue, there will always be a Times Square, okay? The second thing is that our income is protected by long-term leases on our Fifth Avenue and our Times Square property from high-quality tenants. And the third is that we have said repeatedly that our projections show, and we are guiding that our income will not go below $304 million cash from retail. So there's going to be people going out, people coming in, and that's the bottom that I see, okay? With respect to the details of it, I'm not in a position to give you that.

And the next question comes from Vikram Malhotra, from Morgan Stanley.

Two quick questions, just first on retail, so I understand sort of the $304 million of floor. Am I correct in assuming if we look into next year, given the Sephora, Levi's lease, some of the leasing you did this quarter, we should expect a nice bump in that cash number next year?

Joe, help?

I think he's asking about '19. We expect it to be positive, but we're not guiding to that just yet.

Okay, and then just on the non-core sales, maybe 2 quarters ago you outlined a bunch of non-core assets that you would start to look to sell, would generate in excess of $1 billion. Can you maybe just give us an update sort of on plans there and timing?

Generally speaking, we are in the markets and active on about half of that, okay? The remainder of it is some public secure -- which doesn't include any of the public securities, by the way. The remainder of that -- those assets are either public securities that we have chosen not to execute on or that have time delays, such as assets -- such as loans, which have a maturity date at the end of this year, at the end of next year or whatever. Or something like Lexington -- not Lexington, Penn REIT which we have tax protection, as you probably all know. So we are in the market with half of those and it's going to be slower going, this is not just a single trade. So we expect that cash to come in over the next year or 2.

And next question comes from Daniel Santos with Sandler O'Neill.

It's actually Alex on for Dan. So, one, I appreciate your succession comments that you discussed earlier. My 2 questions are on the development side. Penn Station, certainly, there has been no shortage of political noise around the project from between the governor, the mayor. You outlined a pretty bold redevelopment plan in the Chairman's Letter with sort of options for doing more for that part of town. How much of your undertaking is -- needs the government and the mayor to play ball or everything that you outlined, you can undertake on your own without those 2 having to reconcile their differences there?

As you would expect, we must plan the business to be able to function on our own. So, we own the up-ground -- we own the overground -- we own the real estate above ground. Our plans are to execute our development plans with no assistance from the governments or what have you, okay? We don't need that, just like any other location. However, since Penn Plaza is a unique area and the Penn Station situation is very interesting and very important from a community point of view, a political point of view and a business point of view, there are potentially other things that we could do to improve the situation, okay? So we -- while we pursue those, we also pursue Plan B. If I had to handicap it, my guess is Plan B is going to be more actionable than Plan A.

Okay, and then the second is, in your letter you also mentioned what JPMorgan is doing, the redevelopment of their 270 Park. You for years, talking about Manhattan tilting west and tilting to the south. Does what Jamie is doing at 270 affect how you think about future reinvestment for the company?

No, we have multiple children. We have multiple assets on Park Avenue, et cetera, and we love all our children equally. I think what Jamie did was stunning and courageous. And I think it speaks volumes to, a, the fact that Park Avenue is still Park Avenue and, b, that 50-year-old buildings don't work for high-tech build -- companies like their bank, okay? So what we think is -- the most important thing is that there is -- this doesn't affect demand on the west side. There is still enormous demand on the west side at very substantial rents. The difference is, is that a teardown on Park Avenue and we think we have that -- at 350 Park we have the single best example or the best opportunity, requires rents which are very substantial and quite a bit higher than the west side. So each of those districts in some markets will function, and I think with what's going on in New York, both of those -- both the Midtown -- the traditional Midtown submarkets and the new emerging West Side markets will both thrive enormously.

And the next question comes from Nick Yulico from UBS.

Just want to go back to the Forever 21 lease. David, I think when you said that it was a 5-year term and you thought that was attractive, since the Penn Station area gets revitalized, you'll be able to roll that lease in 5 years. But what I'm wondering is whether you actually had retailer interest in a longer-term lease because I think there's a perception out there that retailers continue to go for shorter-term deals?

Forever 21, Nick, in fact, their preference would have been to do a longer-term lease. We were the ones who, when we started the conversation with them, told them that we want to limit it to 5 years, and that's for 2 reasons. As I mentioned in my prepared remarks, one, because as the district continues to improve, we see continued growth in that marketplace, and two, that building on that piece of land on 34th Street, which runs through to 33rd Street, we also own another piece on that block and several others, we see someday as a potential development site.

Okay, that's helpful. And just following up on that deal. It looks like that the rolldown there alone on that lease was -- it could have been 35%, 40% on a cash basis. I mean, how should we think about the risk of another roll down of that size in the next couple of years based on your lease expiration schedule or any retailers that you might be willing to get out of the space early in any of your buildings?

I mean, it's going to depend, realistically, space-by-space in the portfolio. Just as the balance of the spaces that came up for this quarter, all of which were in the Penn Plaza district had rollups. And we've told you in the past, we see a number of rollups in the portfolio, including space in the Penn Plaza district, including space on Fifth Avenue. We see some of the spaces that are coming up over the next couple of years where they may be some rolldowns, primarily, on Madison Avenue.

So, look, first of all, we said that the income is not going to go below $304 million, okay? That contemplates the rolldowns that we expect and the rollups that we, expect and the vacancies that we expect, and the move outs that we expect, okay? That's projected out for a period of time. That's the first thing, the second thing is that there are plenty of under-market rents in our portfolio, so for example, just take Kmart, so we have probably, I don't know, 300,000 feet of Kmart left at $33.50 a foot and I think we showed you at 770 Broadway what can happen with that space. So there will be rolldowns, there will be moveouts. We're prepared for them. This is a business, which has a $1.5 billion of NOI and $2 million, $3 million rolldown here and there is part of the business. We are confident on our $304 million number, and we're also confident in the quality of the real estate that we have. This is going to cycle out. Everything will be fine.

And the next question comes from Jed Reagan from Green Street Advisors.

You mentioned cash same-store NOI growth this year would be nicely positive, which seems more upbeat than the flattish comments you provided on the last call, so I guess has something changed? Was that a comment for New York City specifically? And then I think you put up 5% to 6% for the New York business, this past quarter, so just wondering if that -- we should expect that to decelerate over the rest of the year, kind of how to think about that?

So we strive to be respectable. Do you get it?

I'm not following you exactly.

That's the way you described our earnings in your 2-sentence remark overnight, okay? So, which -- we kind of chuckled over it, because we thought that our earnings were spectacular, and "spectacular" is a better word than "respectable."

Fair enough.

Anyway, I think that the way we have described -- but we took a whomping for the word "flattish" in the last call. Now we were trying to tell our investors what to expect, and I think that was -- a lot of people thought that was an inarticulate way to do it and we agree. So we tried to improve it a little bit by saying GAAP is -- we expect GAAP to be flat, although cash to be up, what did I say nicely, smartly? Okay, so that's -- we're not defining nicely and smartly because we don't give guidance, but we're trying to put parameters around, but we believe that notwithstanding the blowout quarter we had in the first quarter, the balance of the year will end up at the end of the year with flat GAAP.

Okay, and that applies to New York, specifically, business?

No, no, no, that's the entire business. That's the entire business. Some pluses, some minuses all of which zero out there. The New York office continues to roll along in very good shape.

And looking ahead to 2019, any retail move outs you're expecting at this point?

No, I don't think I have that information at my fingertips right now. The -- we have one move out in the Fifth Avenue complex and that's the Massimo Dutti, Zara store at 689 Fifth Avenue, which we believe is under market, but other than that, in Penn Plaza -- I'm sorry, not Penn Plaza. In Times Square and in Fifth Avenue, the answer is no, other than that one Zara store. In Penn Plaza and the rest of the place, there are small moveouts and small move-ins all over the place. It's a large portfolio.

Okay, that's helpful. And then maybe just one more for me. Steve, you mentioned earlier on the call about potentially splitting up into a development company and income company, can you just elaborate on that little bit and how you think about splitting up assets between those 2 entities? I mean, would there be a just a pure development company potentially?

Jed, I really can't. And I'll tell you though, but I do make the observation and you guys are the archetypes of this. But the public market doesn't like development, okay? For lots of different reasons, all of which are right, but they are not right. And so we believe that in Penn Plaza, we have to do development because that's the nature of the asset. JBG SMITH has to do development because that's the nature of the roll-in that they had. So what I'm saying basically is that development is not a business that can be measured quarter-to-quarter, but the objective of it is, is to end up with a series of brand-new, perfectly designed, perfectly located buildings, so it's basically, it's important. Now if the public markets don't like development and we're going to end up with a stock price that's going to be doing for dinged for, for a long period of time because we have to do development, that doesn't make intellectual sense. So we'll have to figure that out. So all I'm saying is that something we're aware of and it is something that in our council rooms we're hard at work on what the next steps are to close the gap for Vornado.

And our next question comes from John Guinee from Stifel.

Wow! this has been very intellectually very stimulating. By the way, there's one guy down in Baltimore who just loves development, okay? Question, if you woke up tomorrow and found out that you were a stock, not a collection of real estate assets, and NAV was not a valuation metric and was never going to be a valuation metric anymore, and it was all going to be about cash flow and cash flow growth, how would you run your business differently?

You've outsmarted me with the question, I don't know, I don't think we would run it any differently. In other words, we -- we're in the value-creation business through the media of real estate. And I don't think we would run it any differently.

And our next question comes from Michael Bilerman with Citi.

Steve, it's just a follow-up, as you think about the variety of options that you're sort of looking out at on the call, this development with income companies, splitting at retail, feeding it core fund or funds with your assets, when you step back, how does sort of a privatization, given all the private capital that is out there or strategic public-to-public merger, which has been increasing of late in the REIT sector, how do those options sit alongside these other opportunities that you are examining?

Michael, of course, they are on the blackboard. And of course they are as we do -- we consider all the options, but I have no comment beyond that.

Just on this core fund idea, I guess, how does that create value for Vornado shareholders, other than emulating the fact that the assets have an NAV value above and beyond? How does putting them into a fund and then that fund going out and acquiring assets at market prices. How does that ultimately drive value, in your view, for Vornado shareholders?

Michael, I'm not prepared to answer that. I'm not prepared to get into the complicated workings of an answer to that question here.

REITs, maybe I wanted to make sure how that idea sort of would be executed, whether it's in that private format or whether it's similar to the fund that you created coming out of the recession, where you went out and bought assets, but instead of putting cash in, you put your assets in for your equity stake. I just wasn't sure whether that was contemplated in the public vehicle or a private vehicle that was where I was going with it.

This is all premature. These are glimmers of value creation ideas, and I can't get into a debate or a dialogue with you about execution detail.

And next question comes from Jed Reagan from Green Street Advisors.

Just a quick follow-up as well. In the shareholder letter, and again earlier Steve you talked about the potential ground-up development at 2 Penn Plaza using transferred air rights, which sounds like maybe that's the less likely scenario at this point. But can you just talk a little about ownership of those air rights and maybe the mechanism by which Vornado could obtain them if you decide to go with that I guess Plan A?

The air rights are -- 2 Penn Plaza and Madison Square Garden are on a single tax lot. In fact, when you go into Madison Square Garden, we manufacture the chilled water -- the chilled water for the air conditioning system, so we're compadres. The -- when the original deal was created, and I say this sort of tearfully, the original grand limestone Penn Station was torn down, which by the way as we all know was the reason that the landmark laws were instituted in New York. At any event, so at that point, there was an agreement to split the air rights on that block. And that agreement has been modified a couple of times over the years and it's been -- and it still exists. So we own the air rights together with Madison Square Garden in a proportion that is something we're not going to get into today, but it's not totally -- it's not totally even, but it's not that far from even. But the -- in addition, there are -- those air rights are qualified for a transit bonus, which constitutes probably about 1.5 million, 2 million square feet of the 5 million?

A little over 2 million, I think. 2 million to 2.5 million maybe.

So basically of the 5 million square feet of air rights that I speak about, 3 million of them are owned by we and Madison Square Garden. And then 2 million of them would come by virtue of transit bonuses, which would have a modest cost, because you put -- the private party puts up the money to improve the transit in the neighborhood. So, that's the math.

How do you guys account for that in your internal NAV, if at all, the one you publish periodically?

Zero. Air rights have -- they may have a theoretical value to some people, but to me the only have value when their actionable.

Right, that makes sense. And just one other one, you talked about life science at Farley potentially going that direction. Could that add to the cost of the project, and how could it expect -- maybe impact the expected economics? Would that necessitate bringing in another partner?

Jed, it's David. No, there will be no reason to bring in another partners into this transaction. We obviously are exploring the life science industry and are walking a number of those tenants to the building, in fact, next month, actually later this month in May. We of course also talking to what I will call the traditional tech companies that fully appreciate and understand the unique nature of this piece of space. As we look at the building, you think about the asset, it is effectively a 67-story building that is lying on its side as a 5-story building. And to give you an idea of the extraordinary footprints that this building can provide a tenant. As well, most importantly, the indoor and outdoor space, the roof space on this building can provide the better part of 2 acres of roof space, again, similar to what we learned when we were out in Silicon Valley. In terms of the incremental costs for doing life science, we basically budgeted those costs. We're not going to get into that today on the call. There are some incremental costs in terms of venting and air systems, but, obviously, that's all only going to make sense to the extent the life science tenants are in fact to pay rents higher than some of the traditional tenants that we see for this space. Based of those and our market knowledge, seeing the Cambridge market and other areas, the life science tenants, in fact, seem to be paying significant, significant premiums for that space.

There are couple of REITs that specialize in that product type. There's 1 or 2 that have that product type buried into larger companies. The -- our observation is that the math on that product type is satisfactory to even better than satisfactory and is even better than conventional office. So the answer to that is that we've accounted for all that. We have not before -- heretofore had assets that we thought were attractive to that industry we now have and we're pretty excited about it actually. In terms of -- you said something about bringing in a partner, we have no need nor interest in bringing in a partner.

Would you build in the flexibility to go -- to convert it to lab even if you did go with a tech -- a pure tech tenant?

The answer to that is I don't know.

That concludes the question-and-answer session. I'll now turn the call back to Steven Roth for final remarks.

Thank you, everybody. We are pretty proud of this quarter, and we're happy to share all of our thoughts, however broad they may be, with you and look forward to the next call in 3 months. Thanks everybody.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating, and you may now disconnect.