Good afternoon and welcome to the Vornado Realty Trust Second Quarter 2012 Earnings Call. My name is Ellen and I will be your operator for today’s call. This call is being recorded for replay purposes. [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 inaugural quarterly earnings call. Yesterday afternoon we issued our second quarter earnings release and filed our 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 our non-GAAP financial measures. Reconciliation of these measures to the most directly comparable GAAP measures are included our earnings release, Form 10-Q and financial supplements. Please be aware of the statements made during this call maybe in 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 annual report on Form 10-K for more information regarding these risks and uncertainties. The call may include time-sensitive information that maybe accurate only as of today’s date, August 7, 2012. The Company does not undertake a duty to update any forward-looking statements. On the call today from management for our opening comments are Michael Fascitelli, President and Chief Executive Officer and Joseph Macnow, Chief Financial Officer. In addition Steven Roth, Chairman of the Board, David Greenbaum, President of the New York Division and Mitchell Schear, President of the Washington D.C. Division are here to answer questions during the question-and-answer session. I will now turn the call over to Michael Fascitelli.

Thanks, Cathy. Good afternoon and welcome to our first earnings call. There is quite a few on the phone, we are happy and delighted that you all are joining us today. We’d appreciate your time and attention. After my prepared remarks, Joe Macnow, our Chief Financial Officer will provide a financial overview and then we will answer your questions. We will end at approximately 2 p.m. It has been a very productive quarter for us and we are making significant progress on the We Will statements made in Steve’s shareholders letter. We have had substantial progress on simplifying the company and are committed to continue this. I would like to remind everyone that 80% of our earnings come from our New York and Washington office and retails holdings where we have great platforms and great management teams. Let’s start out by talking about asset sales. As we said in the past, we are exiting the mart business. In the second quarter we sold or contracted to sell 4 mart assets for $228 million, the L.A. Mart, the Boston Design Center, the Washington Design Center and the Canadian Trade Show Business. As a remainder, in the first quarter we completed the sale of 350 West Mart Center for coincidently $228 million. In the second quarter we also sold our Washington Office Center which is contiguous to the Washington Design Center and 6 non-core retail properties. The total proceeds from second quarter sales of $500 million with a net gain of $177 million. Together with sales in the first quarter, total proceeds are $821 million with a net gain of $232 million. In the second half of the year, we are contemplating the sale of over another $1 billion of assets. Including the beginning of the mall disposition program and continuing the…

Thank you, Michael. Yesterday we reported comparable funds from operations of a $1.13 per share versus $1.15 for the prior year second quarter. Total funds from operations was $0.89 per share versus $1.27 for the prior year second quarter. First call was at $0.95 per share and some analysts factor in non-comparable items into their estimates and others do not. We have over $2.6 billion in liquidity and as always our investment grade balance sheet is very strong. Two measures of its trend are a 39.2% consolidated debt to enterprise value and a consolidated debt to EBITDA ratio of 6.7x. In capital market transactions this year we’ve completed 5 real estate financings, aggregating $871 million and a weighted average interest rate of 3.31% with a weighted average term of 6.2 years. In April, we called and repaid $500 million of exchangeable senior debentures, in July we announced the redemption of $255 million of preferred securities with a weighted averaged dividend course to 6.9% funded by our recent issuance of $300 million of 5.7% redeemable preferred shares. These linked preferred issuances and redemptions will result in a $3.1 million lower annual dividend cost and in an $11.7 million gain in the third quarter of this year. In addition, we still have $732 million more preferred securities which we could currently redeem with similar economics. We have virtually no debt maturing during the remainder of 2012 and we are working on 2013 debt maturities. At today’s interest rates spreads and debt yields, the $700 million of fixed rate 2013 debt maturities with a weighted average interest rate of 6.02% represent a potential reduction of annual interest of over $14 million or $0.07 per share when they’re refinanced. Our New York segment same store EBITDA was up 2.9% over the prior year’s quarter.…

[Operator Instructions] Steve Sakwa from ISI Group is online with a question.

Mike, I wanted to see if you could just kind of clarify, you said in the second half of the year you’re looking to potentially sell up to $1 billion I think you said malls and strips, and you mentioned Green Acres, Kings Plaza and shopping center, you didn’t mention Monmouth and I thought that was kind of part of the 3 malls that you were looking to sell. So I was just wondering if you could kind of clarify those comments and are there any other types of investments that are included in there such as Lexington for 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?

Monmouth, we’re going about the sale of the assets in a very measured way and early way in the first 2 that we talked about in the malls were Green Acres and Kings Plaza. Monmouth is on the list and I think would be subsequently debt with as well as the malls in Puerto Rico and so it’s a process of obviously putting a profit on the market in a very, very orderly way. As far as other, there was only a few of the things up for sale, also looking at the other strip centers and some more assets that we look to dispose of. We already, I had 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 that if all that is successful this year, then we’ll certainly exceed the $1 billion we talked about, and when we get to a full billion after we add that $800 million we’re not sure but we’ll make a big dent we’ll be close to $2 billion and a $1 billion.

Okay, and then I guess the kind of follow-up maybe bigger picture for you or for Steve, for a number of years you were little penitent to kind of make a lot of acquisitions. I think the return hurdles just kind of weren’t there and you’re little uncertain about the environment, and 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 kind of what changed in your philosophy either return hurdles underwriting, capital markets but what’s making you get more aggressive sort of now versus say 6 or 9 months ago?

Well I don’t, I think I won’t characterize with aggressive before or not, I mean the deals we’ve done whether it’s 666 office or 380 Park Avenue or the Marriott deal we just talked about we’re very largely value added details which had to get in most cases substantial releasing done or a substantial development too or redevelopment. And those returns were manufacturing at Benetton buying stabilized assets don’t have that characteristic, they’re not that kind of, as I said we hope to aspire to and not replicating maybe a 100, 150 basis points we think on a stabilized basis by encountering, by dealing with those kinds of situations. 666 was an asset that I think we thought 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% cap rate of 556 on a GAAP basis, but we don’t think long-term that those leases were under market recently on the market and we have a substantial opportunity upon that role as soon as we need to do something with that property and it’s great location. So we’re right on our strategy, it’s sticking to and really focused geographies with really world-class franchise assets and for that we think the returns we’re getting are appropriate. We’re not getting rich, certainly not an acquisition or buying you can steal things.

Josh Attie from Citi is on the line with a question.

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

Joe will take a shot at that question.

Well, Michael, you’ve enumerated a major items included in the $1 billion, of course it’s Springfield Mall, we’re well aware that that development is proceeding; we intend to break ground next year. 220 Central Park south which David, you want to comment on?

220 Michael, we think it is a great, great residential site in fact probably the best in Manhattan with unobstructed views of the park. It’s in a process, it’s taken us about 5 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 where involved 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.

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 2 more in Washington, that’s 1900 Crystal Drive which Mike commented on in his opening remarks and then 20 acres of land in Pentagon City, so Mitchell Shear is going to comment on both of those.

Sure. 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 heretofore in Crystal City and 150 feet taller than any assets that we own in Crystal City looking right in 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 D.C. at the moment. And then with respect to the Pentagon City assets, if you think of them in 2 tranches, we have apartment assets totaling about 2,100 apartment opportunity units and we are proceeding full speed ahead to get approval 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. And 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.

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 that Arlington County gave us to deal with the economic effects of BRAC. Mitchell already has his second building plans underway and there are another 20 smaller assets but we’ll take up the rest of Q&A with that if we go into it. I hope that answered your question Michael.

And just as a follow-up, so how much so the predominance of that billing or a lot of these potential development projects. How should we think about the future capital in aggregate? So there is obviously a yield on the billing and as you bring these development and bring them to service with an additional capital to get them there.

I think Michael, each asset is different, Springfield Mall is over $200 million of incremental capital, Central Park South to be over $400 million of incremental capital but these are not financed and we will look at each asset and whether we finance it in construction market, whether we would, the incremental that returned on these assets are quite attractive with the total cost and they’re really attractive on an incremental basis. So we don’t look, as any as we do, at own capital markets and assess the best way to finance these, but the total amount of money varies by asset and it’ll be a decent number overall, but we have lots of options to finance the existing assets and obviously the improvement.

Jeff Spector from Bank of America Merrill Lynch is online with a question.

I’m here with Jamie Feldman. Our first question, I guess just Mike, thinking about your script, you very carefully selected the words, simpler, simplification, simpler company. I think that’s for us the first time we have kind of heard you say that obviously it was the outline in the Annual Report, but can you just talk about that versus let’s say using your word transformation of the company.

Well I think it’s a gradual process. I mean we have assets that we think that we can recycle and sell right now that better other people see that and we can take the cash and do better things with them. We have also assets that we think are less liquid that’ll take a longer time to get out of, and but we want to obviously maximize the value on them. So it’s a process and transformation sounds like we’re going to blow everything up and I think it’s an orderly process to transition where we can get the maximum value and we can now also be reinvesting in the areas where we said, street retail, New York City, Washington in high-quality assets and improving the asset quality of the company. So it’s a very deliberate strategy over a period of time.

And this is Jamie with a follow-up. So I guess focusing back on Washington, can you give us a sense of the current leasing pipeline and as we look forward to 2013 maybe an expectation of kind of how much lower, I know you’ve given guidance for kind of what ‘12 EBITDA would look like with an improved outlook this quarter, how should we thinking about 2013 and when kind of EBITDA hits bottom?

I’ll let Mitchell start on that and then Joe can chime in.

So, I think as we said in both Mike and Joe’s comments, we’ve been carefully focused on what our EBITDA production would be and we’ve modified our expectations for 2012 in a slightly positive direction as we monitor each of the leases that are expiring in each of the different sub-markets. And I think as we’re projecting forward into 2013, we’re looking at a sort of a relatively flattish year for 2013 because our expectation has been for years since the BRAC legislation was passed back in 2005 that it would take us a couple of years and given other market conditions, we’re really looking at a leasing market for the balance of ‘12 and ‘13 that will be fairly steady in the fairly low-end of the continuum and then we start seeing a pickup in the 2014 timeframe and given that they’re very limited starts and given that the kind of economy that Washington is, we anticipate that we’ll start seeing solid pickup in 2014.

Joe, do you want to mention the…

Well as Steve put in the Chairman’s letter, we expect that the re-tenanting and backfilling of the BRAC vacancy in Crystal City and Skyline could cost as much as $1.50 per share and 200 million shares that’s $300 million in rough numbers that’s approximately 1/2 coming from diminished cash flows and you know what our estimate is this year. Next year, flattish to maybe a little better, the year after certainly better and another $150 million coming from the TIs of $75 a foot on 2 million square feet exclusive of 1900 South Bell which is being redeveloped.

Anthony Paolone from JPMorgan is online with a question.

Mike, I appreciate the comment about the simplification of being a process, but I was wondering if you could just go through things like JCPenney, Eleanor, Toys even 555 California and even strip centers for that matter that aren’t part of New York, D.C. 4th Street retail that you mentioned as being core. And just, are those long-term holds as part of the simplification process and they’re just not coming up now or how do they fit in?

I think the, one of the definition long-term, I mean, obviously the strip center pruning is going on as we speak. We are in the market to sell a big one and sell the small ones and we have same thing going on with some of the malls. I mean that will obviously simplify the company geographically where we’re really looking at it outline geographically referring, looking at some of the single tenant assets, et cetera. There is a certain group of assets like, you mentioned Eleanor, that is, when we bought Eleanor, we had a 26% interest in it. It was adjunct to our real estate business. It quite heavy with a terrific investment exceeding well over our expectations, I think we’ve had $22 million of income in the first half of the year, which is over 30% return on our investment, I think 35% to be exact. So we are enjoying great results, but right now, the owners are drawing strategic alternatives. So that’s got its own timeframe. So each of these is a little different, but probably the most longer term assets to deal with are our JCPenney and Toys, which I think will be on a longer term schedule. But I think as I said before, we’re doing this in a very measured way and we think at the end of this year, we’ll be simpler more focused and have generated a lot of cash from an asset sales and at the end of next year we’ll be but further simplified, further focused and have generated a lot more cash at that point.

Then I guess as a follow-up as you go through this simplification and you go down this path, I guess, 2-part question, one, do you think you have the team in place and two, what is G&A look like pro forma all that’s, it’s kind of run towards the top of the pack, historically.

I think we have a great team in place. Most of our assets on the teams are in the operating business in Washington and New York, which we think are great. We also have a pretty good team in the retail business and obviously as you shrink the asset base, you’d be plan to shrink to G&A and certain pieces go. Now clearly and obviously on mall disposition program, we’ve already reduced G&A significantly in that and we will further upon the sales of these assets. So we - G&A does not shrink dollar for dollar as you sell assets, it doesn’t shrink quite at the same rate. But we think we’ll be able to shrink the G&A and we think we’ll be able to still maintain great operating teams to run the assets we have and quite frankly people who dispose the assets who want to dispose of and to buy the assets we want to buy. Joe, do you want to add to that?

Well, we announced in the prior Ks and Qs that the mall business has already gone through a reduction in force, a quite substantial reduction in force, 25%. In fact that’s one of the reconciling items between first quarter and second quarter G&A because the G&A is lower in the second quarter for a number of reasons, but one reason is certainly over $1 million is coming from that reduction of force and that process will continue as these assets continued to be disposed of.

Michael Knott from Green Street is on the line with a question.

Question about office, just curious I guess thought about one small office in West LA and then sort of related to Tony’s question. How do you also think about continuing to own 555 Cal in San Francisco and I guess related to both of those, should we consider or needed to be in the running to buy either of both northern and southern California EOP portfolios whenever Plaxon [ph] decides to sell those?

I’ll start off and then I’ll ask David to comment. We’ve considered 555 to be a core holding not a separate part it’s a very large asset and arguably one of the best assets in San Francisco or California. The asset in Santa Monica is a value-added place the fund owns that it has the leased add up get it to its naturally steady state income and then obviously the funds in the business is helping things at that point. So that would be candid for disposal once the value-added proposal of that is done. And we are trimming assets in California like the plan as I mentioned, but the office market in California whether you have in the Plaxon for that or for other assets at Plaxon and we think it’s one in many acquisitions we look at and I don’t really want to speculate on how that will be sold, if not be sold and why not be sold. Obviously the selling assets or to some interest in, we will look at that. David, you want to comment more about 555 or?

As it relates to 555, I guess, I would just say that 555 is one of the great buildings in the entire country. In fact, when I described it, I think of it as the General Motors building of the West Coast. It’s on an entire block, it’s got a plaza, it’s got enormous presence in the city and probably has the best tenant roster in the city and obviously recently we’ve re-upped with Goldman, with Morgan, with KKR, with some of the other great names. We think there is some real upside in this building going forward. The rents in the building today are somewhere in the mid-50s and as Mike says, it’s a building candidly that I’m proud to be a caretaker of.

If you look at - you guys if you look at our program for dispositions or that is not on the list of assets that we talk about in the near term or any of the numbers that we talk about in terms of the sales objectives.

Okay, thanks. And this is my last question to be. Can you just give us some rough ballpark guidelines in terms of what you’re thinking on expected returns on your development pipeline versus maybe the Time Square retail redevelopment of project at Marriott Marquis?

Joe is shaking his head at me. Joe is nodding now, Michael, but for you, do you want to know what the projected yields are on assets like Springfield Mall or what are you trying to get at?

Profile looks like on those types of projects versus maybe Time Square.

Times Square is a - the Times Square is a development deal where we look at making multiples of the money we invest. It’s not, hopefully we stabilize at a much high yield and of course which produces a big gain because of the applied cap rate at that point. Lots of things have to happen between now in that, so I think it’s premature to speculate on those exact numbers, but to give you an update as we head closer to the development plan and it gets finalized there, but we obviously think, we don’t - we obviously are going in and up for a smidgen edge but for really creating multiples on our invested capital there.

Certainly on Times Square our third quarter 10-Q will cover that transaction in much more granularly than the press release did. And you’ll be able to piece together a reasonable expectation from the third quarter 10-Q.

I would say any stand that we have whether it is an acquisition or development or what we do a lot of is redevelopment. We look at the where we will stabilize the return on course unlevered and obviously then we look at the leverage return to the extent that there is leverage. But we have to look at what can we create and how does that look relative to other opportunities and investments and then obviously how much money we could create if you then potentially value solely assets, 15.40 program would be a good example of that. It took a while, we got Vergano, we got to re-lease to Disney and for other 21 of the side. So it took 5 or 6 years, I don’t know the exact timeframe, but yes we created a huge amount of value because of the yield on asset is substantially higher than the value that we could sell of that. So each adds to as a separate case and I’d be happy to go with the more detailed yield on these assets as they closer to that point.

Ross Nussbaum from UBS is on the line with a question.

Mike, can you talk about the decision to sell Kings Plaza. Why not Rego Park now, why Kings Plaza put ahead of Rego? And to what extent does the potential sales Kings Plaza facilitate or accelerate a reorganization or a folding in of Alexander’s?

I don’t think the sale of Kings Plaza it won’t facilitate the folding in the value at the end as I don’t think you should factor that in and or assume it at all. I think that as far as the Rego Park, right now, we have some terrific assets that I think a kind are quasi more like because it’s so big, but they’re also strip centers in that. They don’t have like a lot of common area or even when they do like Bergen Mall, they’re functioning more towards in the middle of a mall versus strip. They’re gigantic, I mean Bergen Mall, Rego Park, these assets are not, even the planned asset that we talked about is a multi-hundred million dollar assets. They’re not your typical neighborhood grocery center as you think which is $40 million, $50 million and even $80 million, so we’re not focusing on those in our first wave of dispositions, we’re focusing on those malls we characterize in our strip center business, it will continue to be characterized and not the focus of dispositions.

Is the re-org of Alexander’s on the table at this point or should we assume that that entity will continue to exist for the foreseeable future?

If I were you, I would continue to assume the existence until it doesn’t exist anymore, okay. It’s stable and there is only one, it’s got a couple of one more redevelopment opportunity, but pretty much the other dealing assets had been developed. Obviously the Bloomberg building and now Rego Park II, the substantial part of that redevelopment activity has occurred there is still some opportunity there, but I think you should assume that it needs to be a separate company.

Chris Caton from Morgan Stanley is on the line with a question.

Could you spend a minute and speak to the tax implications of all the asset sales and how you see taxable income trending over the next 2 years?

I’ll start and I’ll ask Joe. Thank God there’ll be a lot of taxable gains. Many of these assets have low basis over a substantial gain even ones we acquired were not the original assets such as the plan. So on a, there are a couple of alternative for that, either there’ll be like kind of changes done or there will be those gains that we pay other special dividends. So I’m not going to speculate on which one because they vary, but Joe can give you his point of view on that.

Let me just, Chris, clarify a couple of things. If Alexander’s sells Kings Plaza and chooses not to do a lifetime exchange then Vornado will receive 1/3 of the taxable income from that transaction which is large and that will retain its nature as a long-term capital gain to Vornado and Vornado will in turn distribute that as a long-term capital gain dividend to its shareholders. On the other hand, Green Acres could be used as a lifetime exchange nor guarantee but we have made acquisitions and you’ve seen some of those are already which would fit with Green Acres in a lifetime exchange environment.

I’d like to comment that each sale as we’ve seen in this zone for what we think how that works and each acquisition has to stay on its own and terming up its worthiness to be added to the portfolio and then if lifetime exchange makes sense that’s a second order of analysis that we do. And to the extent that they do and they fit, great, except they don’t that’s also good.

And then the follow-up, we’ve talked about residential in a few different spots here on condos and for rent construction. How big a role could apartments, just for rent long-term play in your portfolio across either New York or D.C.?

So, Chris, the question is, Mitchell Schear already has a sizable for rent business in Washington. How much bigger can our - existing inventory let that business grow to and then similar question in New York. Is that where you’re going with that?

It is. Am I on the call?

Yes.

Yes.

Yes that’s what. Joe you’re right.

I didn’t hear, I mean, do you want to take that Mitchell on the D.C. portfolio?

Sure. I think that we were able to find some assets in D.C. that we thought were of exceptional value and were undermanaged and loss at residential property and have taken the EBITDA from $15 million to $25 million annually. We also repositioned 2 assets in D.C. So we have 2,400 unit business today. It represents in the neighborhood of 10% of our overall portfolio, and I think with our primarily D.C and Arlington focus and Arlington for development in particular, sort of by definition, the neighborhood of Crystal City and Pentagon City and Rosslyn are mixed use areas. So I think that we think that those are to do suitable office in concert with for rent apartment is a good thing. It works well and I think the math works. So I think you’ll see as add some units over time, but I don’t think you’ll ever expect to see this - the predominant business in that market at all.

I would say we like the rental business in New York and in D.C. We have selectively done some acquisitions there and we did a joint venture with Stellar Management on Independence Plaza in New York. We did what will be a terrific deal. Mitchell talked about that and DC malls that coming out of development opportunities. So we like the rental business. We do not look for the condo business and look at that as a growth part or any part of what we do. Occasionally, you got to spend like 220 Central Park South that David mentioned, which is a, if not, and maybe it’s the best site in New York for condos where they’re selling condos right around the corner at 5,000, 6,000 a foot which is not on maybe as good as a site and all of a sudden, you have a land basis of 1,000 or 1,500 a foot and not only that makes sense as condos as you can’t do rentals there. So but you have enormous financial gain and something like that. So with the exception of something like that I see just rentals and I see it being very gradual and very measured.

Alexander Goldfarb from Sandler O’Neill is on the line with a question.

Just 2 questions, the first is on Skyline. There was an order call out giving the appraisal of $300 million, the property has got debt of $680 million, you guys outlined, in total BRAC an impact of $300 million, maybe $80 million of that or so is Skyline. Just want to understand better why you guys would not hand the keys back on Skyline? Just curious is it tax protection, is it just trying to control that northern suburban Virginia market so that you’re doing, you’re not having Skyline compete against Crystal City?

Well yes I mean, I’m not - I can’t comment on the appraisal. I think that was done for the service. I think you are correct that we have $678 million face on the mortgage and the worst case scenario is we give the property back and that’s not out of the question, but if we can reach an agreement with the servicer that gets a better long-term solution for us and them that would take it to a fact of lot of things, first and foremost, can we make money from the basis that we’d invest new capital at, and we will look at that and if we can’t then that would be a different path. So we’re going to be very economic on that and obviously look at that as to whether the service in us do that, we have put in a relatively modest $4 million as agreement in forbearance with the service of the fund to capital that leased that Joe and I mentioned before and that comes out to interest through cash flow before interest is paid. So we feel that capital is very safe, we’ll get a return on that. So I think it’s going to look at, we’ll look at that as an economic opportunity and we know the property well and we’ll go from there but we don’t know what kind of solution will ultimately come out at this point.

And can you comment if there is any lingering tax protection?

There is a tax issue in that deal because obviously the base is much lower but I’m not going to comment beyond that.

John Guinee from Stifel, Nicolaus is on the line with a question.

John Guinee here, you’ll generate a lot of cash you’ve talked about acquisitions, you’ve talked about development, you’ve talked about special dividends. At this price are you a buyer of your own shares on a share buyback program?

I mean we don’t, we don’t speculate on share buybacks and obviously that’s something that the Board would have to vote on and we have announce. So and at least what we’re going to do is tell you guys to speculate on share buybacks on this call, so I mean we constantly look at the value of our shares, we’re not very happy with the value that is trading below the net asset value but we’re not going to comment on share buybacks.

David Harris from Imperial Capital is on line with a question.

Yes, we’re getting close to the end anyway. Now your dividend today is 27% below the level it was at the peak at the end of the fourth quarter. Could you talk about the prospects for getting back to where you were and maybe growth beyond that and I didn’t quite, I missed the reference Joe, I think it made to net taxable income perhaps being a component of that story.

Well Joe can comment on that, maybe clarify the net taxable income.

David, our second quarter payout ratio, fat payout ratio as was published in our supplemental was 81% for the first half is 87%. So we certainly have ample cash generation to take care of the existing dividend and even a higher dividend, but the Board as a policy has chosen to payout a 100% of taxable income and because of the diminishing in the Washington taxable income coming from BRAC we’re comfortable with where the dividend is right now. On a recurring basis of course that’s going to grow us Washington tenants up in ’13 and ’14 and grow handsomely as well as New York are growing and that has nothing to do with the special dividends we talked about on Kings Plaza or other assets.

Okay. Do I get a second bite?

Sure.

Okay. If I think New York office market I think of financial services sort of shrinking backwards, social media stepping up, you’ve obviously been successful with the social media tenant in Chicago, the mart. And does it require a sort of trade change in leasing strategy to attract that type of tenant compared to traditional office users in the market place?

I’m going to ask David to address that question but I just want to point out, it’s taken nearly an hour to get to a question on the New York office market which we find kind of interesting given that and maybe you guys get stilled up with all the other people reporting on New York but I’ll ask David to comment on New York market, it’s specifically your question, David.

I mean David, what I would tell you is that we have a significant presence in that market in New York already. As I think you know, we acquired a way back when 1998, 770 Broadway which in fact we think is probably one of the best buildings in the Midtown South marketplace. That building is a building that has given to us and we think this one that will keep giving AOL and J. Crew were 2 of the major tenants in that building today, we’ve got great relationships with them. Nielsen which has a lease coming up in ’15 we think that’s a real opportunity for us; they are in the process of contributing and putting the space on the sublease market. We’ve also in that market acquired about a year ago 1 Park Avenue and of course did a deal last year, a major lease with NYU the Langone Institute. As you look at Chicago’s Google deal obviously we’re thrilled with that lease, we have now taken the Mart building up from about 82% to a little over 95% occupancy with that deal. As Mike said, we basically have in a sense right sized the showroom business taking it down to about 50% with 50% of the building being office. And most importantly that building is really becoming a tech hub building as the Mayor of Chicago even indicated, Motorola Google is joining Razor Fish, All Scripts, 1871 which is another deal that we did with a Pittsburgh funded incubator for tech companies. So as we look at the market, what is interesting to me is while we’ve seen relatively sluggish leasing activity certainly from the financials we realistically have continued and always will try to get ahead of the curve in terms of our leasing activity. Last year we had an enormous year of over 3 million square feet of leasing year-to-date we’ve done about a million square feet. And again as we look at our expirations over the next year, 1.5 years really quite modest with all of our activity as we look at all the large deals we’ve done year-to-date they’ve really been David, in every industry. They’ve been, we had a couple of deals in technology, we had a couple of financial services, insurance law, accounting, fish and advertising. So we’ve seen realistically pretty good growth around the entire sector excluding financial services.

Ladies and gentlemen, it is after 2 p.m., so we will now limit the questions to one question per caller. We have Michael Bilerman and Josh Attie from Citi on the line.

So I just kind of wanted to ask quickly about JCPenney and I think Steve was on the line, Steve, I don’t know if you can just comment maybe just sort of on the turnaround progress to date and then it looks like I guess you will fund most of the derivative position in terms of that 4.8 million shares in taking your full ownership up but maybe just talk a little bit about that holding and so how you think that progress is going?

That’s a difficult question because I’m a director of the company as you know and JCPenney will have their - will report their second quarter and have their own earnings call I think on Friday morning. So having said that, we’ve done retail investments of this nature a dozen times before over the last large number of years quite successfully by the way. The JCPenney investment is an investment that we’re committed to; we have an enormous amount of a competence in Rahm, Johnson and his team. Rahm is not bashful in explaining to the public and the investing public as ideas, if you go on to the JCPenney website all of his presentations are on their website and all of his strategy is there, very quite graphically and very understandably. I think it’s just, it’s a little bit unfortunate that the launch of this very innovative and we think very, very exciting retail concept was a little shaky in the communication of Rahm’s pricing strategy to the customer and they are in the middle of making some very important and proper mid-course corrections right now. So we are in this investment. We have confidence in the management team. We think the idea is an exciting one. We think the investment opportunity is hugely symmetrically in the favor of reward versus the risk and we’re rooting, we’re currently the biggest rooters in the land on this one. So I think that the awareness things have a long haul.

Tom Truxillo from Bank of America is online with a question.

Just a follow up to that question given your comments on JCPenney, would you guys be interested in investing more capital instead given where the stock price is? Is it provided you with better opportunity to add more?

The answer to that is I’m not going to comment on it. I can just say that we - the company has a - we have a standstill with the company which limits the amount of total number of shares that we can acquire. We have or that was entered into, oh god, the better of a year ago, I’m not - I don’t really remember the exact numbers, maybe 3% more I’m sort of guessing, but I’m directionally correct. We have chosen not to make that an additional investment then. We have not made it heretofore and I’m not going to speculate about whether we would or we will do that, I don’t think that’s proper.

Jeff Spector from Bank of America Merrill Lynch is on the line with a question.

I just want to follow up I guess on New York City retail in the acquisitions and the pricing. The international tourist has been a big part of the story here in New York and obviously Lincoln Road the last 3 years we’ve seen a little bit of a pullback in New York City. I’m not that - we’re not that worried about the LatAm customer in Lincoln Road, but how are you thinking about pricing and going forward on some of these most recent acquisitions, any concern here?

Well I mean I think I mentioned that New York’s got 15 million plus or minus visits. I think the stats that I’ve seen David comment about 10 million or some of those are international and the rest are domestic. So a lot of that market is driven by the domestic tourist, obviously international tourism it’s going on, you have to be concerned what’s going on in Europe and, but we’re seeing more from Asia and more from Latin America, Brazil, et cetera, particularly in Florida you see that, a big influence in the Brazilian tourist. So it’s something to be watchful of, I think ultimately sales volumes mean a lot and the volumes of these stores now gets driven by a lots of different factors including the tourism, so suddenly keep an eye on. We obviously bought thinking that we booked the low market rents, of existing market rents and hopefully any diminishing of that of volume would only effect the future rents growth, not what we have in place. So I think it’s something that we’ll keep an eye. But we feel pretty strongly it’s got a very broad base and feel pretty good about the future there.

There is time for one additional question. Alexander Goldfarb from Sandler O’Neill is on the line with a question.

How did you get 2 questions in Alexander?

I did start, went into the speed around as Michael called it. Just a final question on Toys “R” Us, is - as we think about your investment there, is an IPO the only exit or only option or is the private market like for selling your stake to another entity, is that a potential?

The answer is yes. I mean we went into Toys with 2 of the best LBO forums in the business, Bain and KKR. And LBO firms is a private equity forum, I think more properly stated. They go and we improve the business and they exit the business and traditionally that’s done is through an IPO or sale of the company or a possible sale of the company. So we’ve done a pretty good job improving the business in terms of making EBITDA from $750 million to $1 billion plus or minus. I think all the fund is in the management. We would like to see some kind of liquidity event and so whether the liquidity event is public or private is depending on what the markets are. So we’re certainly being in the realm of possibility to do that. But I’m not going to predict which outcome it might be, but we’ll look at all outcomes as a possibility.

That is the end of the question-and-answer session for today. I will turn it back to Michael Fascitelli for closing comments.

Well thank you all for participating and for listening in our first earnings call. And I also - we also welcome your feedback on what we can do in future calls better for you and more specifically for you and we look forward to your participation in our next one which should be our third quarter conference call which I don’t know what the date is, but I can tell you Joe probably does. So anyway, thank you all. Good bye.

Ladies and gentlemen this concludes Vornado Realty Trust second quarter 2012 earnings call. Thank you for your participation. You may now disconnect.