Vornado Realty Trust (VNO) Q4 2014 Earnings Report, Transcript and Summary

Welcome to the Vornado Realty Trust fourth quarter 2014 Earnings Conference Call. My name is Yolanda, and I’ll be your operator for today’s call. [Operator Instructions] Please note that this conference is being recorded. I would now like to turn the call over to Cathy Creswell. You may begin.

Thank you. Welcome to Vornado Realty Trust's fourth quarter earnings call. Yesterday afternoon, we issued our fourth quarter earnings release and filed our annual report on form 10-K 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-K, 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; David Greenbaum, President of the New York division; Mitchell Schear, President of the Washington DC division; and Stephen Theriot, Chief Financial Officer. Also in the room are Wendy Silverstein and Michael Franco, Executive Vice Presidents, Co-Heads of Acquisitions and Capital Markets, and Joseph Macnow, Executive Vice President Finance and Chief Administrative Officer. I will now turn the call over to Steven Roth.

Thank you, Cathy, and good morning, everyone. It's a bright, sunny, crisp day here in New York. Welcome to Vornado's fourth quarter call. Vornado had a great quarter, and I'm very pleased with our financial results, both for the quarter and for the year. Fourth quarter comparable FFO was $1.36 per share, 8.8% higher than last year's fourth quarter. Full-year comparable FFO was $5.20 per share, 9% higher than 2013. In January, we completed on schedule the spin-off of our retail strips and malls business into Urban Edge Properties, which is now traded on the New York Stock Exchange under the ticker symbol UE. Our strategy here was that both Vornado and UE would benefit from being separate and focused. I'm certain that UE's dedicated management team, led by Jeff Olson, focusing solely on these fine assets, will create enormous value. During 2014 we acquired, with a partner, for $700 million, the St. Regis retail on Fifth Avenue. Retail adjacency's here are the Valentino flagship on one side and the Polo flagship on the other. We increased our ownership interest in One Park Avenue, a 942,000 square foot office building, to 55%. We also acquired the land under our 715 Lexington Avenue retail property, and acquired several other small retail properties. Further, we are in contract to acquire the fully leased 437,000 square-foot Center Building on Northern Boulevard in Long Island City, for $142 million, $325 per square foot. And we invested $426 million to advance important internal development projects, which will total as much as $2 billion when completed. In December, we sold 1740 Broadway for $605 million, $1,000 per square foot. The financial statement gain on the sale was $440 million, the tax gain of $484 million was deferred, in a like-kind exchange for the acquisition of the St. Regis Fifth Avenue retail. Just last week, we increased our ownership interest in the Times Square Crowne Plaza property, to 33% from 11%. This property, located at 48th Street and Broadway, is comprised of a 795 key hotel, 7,700 square feet of prime retail space, signage, 197,000 square feet of office space, and a 150 space parking garage. 2014 was a great year for us, in New York City in particular. You may have seen the lead article in Monday's New York Times, which cited that New York City has created more jobs over the past five years, than during any five-year period in the last 50 years. And this was accomplished with less than 1% of job creation coming from the big banks and brokerages, who have historically been the big drivers. The article have cited that tech, hotels, health services, etcetera, etcetera all took up the slack. New York does indeed have a vibrant growing, and most importantly, a diversified economy. Over these five years, Vornado has responded to changes in the marketplace. In fact, about half of our record-breaking 4.2 million square feet of New York office leasing activity this year was the tech, TAMI, and creative tenants, in properties that we have tailored to those tenants' needs and likes. Some of our creative class tenants include Google , Facebook , Bloomberg, Cisco , EMC , Information Builders, AMC Networks, AOL , Motorola Mobility, Yelp, PayPal, 1871, Razorfish, WeWork, IPG, Recordfuel, T-Mobile, L3 Communications, Yodle, Dice, Publicis, you get the idea, and Amazon, who recently leased 470,000 square feet, at our Seven West 34th Street. Now let me take a moment to share some thoughts with you. We believe that operating in New York, the most important city in the world, and in Washington, DC, our nation's capital, is the right strategy for us. The fact that we own a world-class asset in Chicago and another in San Francisco is the exception that proves the rule. Parenthetically, we get frequent incomings about these assets in Chicago and San Francisco. Asset prices today are high, and acquisitions are getting dicey. We are now at the point in the cycle where the easy money has been made, and it seems to me that this is a better time to harvest than to invest. I am very constructive on New York City, where demand, activity, and absorption are accelerating. And where office rents are now rising smartly, and will I believe, rise to the point where they justify today's asset prices, as they have in past cycles. As Steve Theriot will tell you shortly, our internal budgets are that our cash balances will approach $2 billion by the end of this year. Our sense is that this is the time in the cycle when the smart guys build cash. We will continue to build cash reserves for opportunities that will undoubtedly present themselves in the future. Our business is valued today at over $35 billion. I believe that the private market value of our assets is higher. In my mind, we get no value for our empty space in Washington, and no value at all for our business platform. The fact is, we are one of only a handful of firms who have the heft, talent, relationships and trust in the marketplace to lease, acquire, develop, finance, and manage million foot towers and Fifth Avenue retail. It's a complicated business, rookies need not apply. Kudos to our 4,500 team members. To sum up, I'm very pleased with both our operating performance and our progress on focusing the business. Investor demand worldwide for our kind of New York Real Estate is indeed robust. In fact, demand and pricing is the strongest we have ever seen in our careers. A final note about our website. Next month, we will launch a brand-new state-of-the-art website. It will be full of high-quality information. Please log on and take a look for yourself. Now I'll turn it over to CFO, Steve Theriot, to cover more details of our financial results, after which David and Mitchell will exhaustively cover New York and Washington.

Thank you, Steve. Yesterday we reported fourth quarter comparable FFO of $1.36 per share, up from $1.25 in the prior year's fourth quarter, an 8.8% increase. Comparable FFO was $5.20 for the full year, up 9% from 2013. Total FFO for the fourth quarter was $1.22 per share, as compared to negative $0.04 per share in the prior year's fourth quarter. Total FFO for the year was $4.83 per share, as compared to $3.41 in 2013. Our comparable EBITDA was $423 million for the quarter, and $1.7 billion for the year. Our New York business produced $257.4 million of comparable EBITDA for the quarter, ahead of last year's fourth quarter by 7.6%. For the year, our New York business produced $975 million of comparable EBITDA, ahead of 2013 by 6.6%. Our Washington business produced $81.1 million of comparable EBITDA for the quarter, lower than last year's fourth quarter by $2.2 million or 2.6%. For the year, our Washington business produced $333.8 million of comparable EBITDA, lower than 2013 by $7.4 million or 2.2%. More than offsetting, the decline in comparable EBITDA, we realized an incremental reduction in interest expense of $16 million in 2014, from the restructuring of the Skyline mortgage loan, and so net-net, our Washington segment's contribution to 2014 comparable FFO is $8.6 million ahead of last year. We expect Washington's 2015 comparable EBITDA will be flat with 2014. As Steve mentioned, we completed the spin-off of Urban Edge Properties on schedule on January 15. We will classify the historical financial results of the UE portfolio as discontinued operations, beginning in the first quarter of 2015. Our redevelopment of Springfield Town Center was completed during the fourth quarter, and the transfer of the property to Pennsylvania REIT is scheduled to be completed next month. Please see our press release, or the Overview in MD&A on pages 39 and 40 of our form 10-K for a detailed summary of non-comparable items. Now turning to capital markets. In October, we redeemed $445 million of 7 7/8% senior unsecured notes. We have $2.5 billion of unsecured revolving credit facilities, in two $1.25 billion facilities, with zero outstanding at year-end. In October, we renewed and extended one of our two $1.25 billion facilities. The renewed facility matures in November 2018, a three-year extension, with two six-month extension options. The interest rate on this facility was lower to LIBOR plus 105 basis points, from LIBOR plus 125 basis points, and the facility fee was reduced to 20 basis points from 25 basis points. The other facility matures in June 2017, with two six-month extension options. Also in October, we completed a $140 million financing of 655 Fifth Avenue, the Ferragamo flagship store. The loan is interest only at LIBOR plus 1.4%, currently 1.56%, and matures in October 2019, with two one-year extension options. In December, we completed a $575 million refinancing of Two Penn Plaza. The loan is interest only, at LIBOR plus 1.65%, and matures in 2019, with two one-year extension options. The previous $422 million loan on the property, was swapped to a fixed rate of 4.78% through March 2018. Therefore, $425 million of the new loan will be fixed through March 2018 at a rate of 4.78%, and the balance of $153 million floats through March 2018. The entire $575 million will float thereafter for the duration of the new loan. In January 2015, we repaid $500 million of 4.25% unsecured notes due April 2015, when they first became freely pre-payable. Adjusting our year-end liquidity for the $500 million repayment in January, and the$225 million of cash spun off to UE, we have $3.365 billion in liquidity, comprised of $865 million of cash, restricted cash, and marketable securities, and $2.5 billion undrawn under our revolving credit facilities. As Steve Roth mentioned, we expect our cash balance to approach $2 billion by the end of the year, resulting from the completion of the transfer of the Springfield Town Center to pre-financing the St. Regis retail condo, and refinancing another asset. Our consolidated debt to enterprise value was 29.8% based on a post-UE spin stock price of $112.88, and our consolidated debt to EBITDA is 6.8 times. Our debt mix is balanced with fixed rate debt accounting for 83% of the total, with the weighted average rate of 4.37% and a weighted average term of 5.3 years, and floating rate debt accounting for 17% of the total, with a current weighted average interest rate of 2.2%, and a weighted average term of 4.4 years. Our remaining 2015 maturities totaled just $243 million. And with that, I'll turn it over to David Greenbaum to cover our New York business.

Steve, thank you. And good morning everyone, my remarks this morning are going to be a bit longer than usual, but there is a lot to talk about. In addition to our results for the fourth quarter, I want to focus on our activities for the entire year, as well as trends in the marketplace, which is where I'm going to begin. 2014 was a milestone year. The recovery gained significant momentum over the course of the past year. Overall leasing volume in Manhattan in 2014 came in at 39.9 million square feet, an all-time record high. Importantly, new leases as opposed to renewals, accounted for 70% of this activity, with new leases being the highest percentage of total activity since 1998. Tenant demand is now being driven less by churn in the marketplace, and more by tenant expansions. Businesses are coming off the sidelines and are executing plans for growth, seeking opportunities to densify and redefine the workplace to recruit talent. We are continuing to see a secular change toward a preference for the live, work, play environment of urban centers. The workforce is now dictating corporate location decisions. We made way more than our fair share of deals in 2014, having completed 4.2 million square feet of leasing activity in Manhattan, 10.5% of all activity in the marketplace. Importantly, 28% of our 4.2 million square feet of leasing, some 1.2 million square feet, represented tenants new to, or expanding in New York, real expansion, real growth in the marketplace. Leasing activity for larger spaces is also on the rise. 29 new leases exceeding 100,000 square feet were signed in 2014, the highest level in 10 years. We completed six of these 100,000-plus square foot new headquarters leases. Let me tick them off: Amazon, 470,000 square feet, Google, 178,000 feet. Facebook, 100,000 feet, Neuberger Berman, 402,000 feet. New York & Company, 178,000 square feet and Publicis, 114,000 square feet. Including renewals, we completed 12 deals over 100,000 square feet in 2014. For the year, overall absorption in Manhattan, according to Cushman & Wakefield, reached 10.8 million square feet, the highest level of absorption ever recorded. The only other time that absorption in this city surpassed 10 million square feet was in 2000. Manhattan's overall vacancy rate continued to decline, down 1.6% to 9.3%. Absorption and employment, of course, are directly linked, and New York City's office-using employment continued to expand, gaining 29,000 jobs in 2014. Since office-using employment bottomed in October of 2009, New York City has added 148,000 office using jobs, having recovered nearly twice, twice the office using jobs lost in the recession. The Creative industries, as Steve mentioned, are leading the charge and are fueling the growth. The total TAMI, technology, advertising, media, and information, employment in New York City, is currently over 300,000, second only to the Bay Area in California. TAMI tenants committed to more than 13.4 million square feet in 2014, close to 34% of total leasing activity. This trend continued to accelerate in the fourth quarter, with six of the top 10 deals signed involving tech and creative firms, including the two largest, both of which are Vornado deals. Amazon's 470,000 square foot lease at Seven West 34th Street, and AMC Networks renewal expansion for 324,000 square feet at 11 Penn Plaza. We have been working hard to reposition our portfolio to attract the creative type tenants, and we have been enormously successful. TAMI tenants represented 46% of our total leasing activity in 2014, some 1.9 million square feet. The high-end financial service firms have also been very active, accounting for 19% of total leasing citywide last year. And they continue to be the driving force behind the leasing velocity for high-end trophy assets. New York City had 97 leases signed last year at rents $100 a foot and higher, compared with $91 at the market peak in 2008. In our own portfolio, at 280 Park, 350 Park, 640 Fifth Avenue, 650 Madison, and 888 Seventh Avenue, we closed 13 of the 97 deals, and then we averaged starting rents for those deals over $115 per square foot. While rent increases over the last several years have been moderate, with a 6.8% increase recorded in 2014, the market is now at equilibrium between tenants and landlords. Looking at 2015, consensus in the brokerage community is that continued job growth will drive New York's office demand, and will accelerate the shift to a landlord's market. We absolutely agree. Turning now to Vornado's performance. In 2014, we leased an unprecedented 4.2 million square feet in New York in 158 transactions, including the Mart in Chicago and 555 California in San Francisco, my leasing team completed more than 5 million square feet of deals in 226 transactions. We had a very diverse mix of high-quality tenants across many business sectors. TAMI, the creatives, we did 35 deals totaling 2.2 million square feet, including Amazon, Microsoft, Google, Braintree, Yelp, Facebook, Cisco, AMC Networks, Madison Square Garden, Wenner Media, 1871, the Chicago Entrepreneurial Hub, and Matter, a bioscience incubator. In Financial Services, we did 59 deals totaling some 1.1 million square feet, including Neuberger Berman, Dodge & Cox, Bloomberg, AXA Equitable, Guggenheim, Wells Fargo, Bank of America, Taconic Capital Advisors, Blue Mountain Capital, and Napier Park Global Capital. And in the legal sector we did 11 deals, some 400,000 square feet, including national firms Kirkland & Ellis, Jones Day, Fenwick & West, Foley & Lardner, and Akerman Senterfitt. Focusing now, specifically on the fourth quarter, our New York leasing totaled 1.248 million square feet in 37 transactions. Activity was well-balanced throughout the portfolio and not concentrated within any one sub market. Year-end occupancy was 96.9%, up 40 basis points from the third quarter. Basically we are full. Our average starting rent this quarter was a healthy $66.79, with very strong positive mark-to-markets of 21.4% GAAP and 12.6% cash. For the year, our mark-to-markets in New York were 18.8% GAAP, and 12.7% cash. In the fourth quarter, we completed the two largest leases in the market: Amazon.com, the Seattle-based retailing giant, committed to a 470,000 square foot New York City headquarters lease in Seven West 34th Street, substantially the entire building. This was Midtown Manhattan's largest new lease of the year and it encompasses office, retail, and fulfillment center components throughout the 12-story building. Similar to our 1.1 million square foot 770 Broadway, Seven West 34th Street was originally constructed as a department store, and has great - with expansive floor plates and generous ceiling heights. Over the past year we redeveloped and repositioned this asset to attract TAMI tenants, and after an extensive market-wide search, Amazon selected our asset to be its New York headquarters. We converted this formerly underperforming showroom building for the giftware industry, into a fully modernized cool office building, and have created enormous value. At 11 Penn Plaza, we completed a 324,000 square foot renewal expansion with AMC Networks. This was an important tenant for us to keep in Penn Plaza. AMC looked around the market and ultimately decided to remain committed to 11 Penn. The key to making this deal with AMC, was finding growth space for them in a fully occupied building. We were able to unlock floors 17, 22, and 23, enabling AMC to expand by 61,000 square feet. AMC will be completely rebuilding their existing space. 11 Penn, a 1.1 million square foot office building is now fully-leased long-term to AMC, Macys, and Maddison Square Gardens. At 1290 Sixth Avenue, Neuberger Berman expanded by an additional 47,000 square feet in the fourth quarter, furthering their commitment as our anchor tenant in this completely repositioned asset. Neuberger will begin construction later this year on their 402,000 square foot headquarters space in 1290. There are few deals we also completed over the last several weeks in the first quarter that I want to highlight. At 770 Broadway, we just signed an 80,000 square foot expansion with Facebook. In May of 2013, Facebook signed their initial lease at 770 Broadway for about 100,000 square feet. Over the past 20 months, Facebook has expanded to 275,000 square feet, incredible growth. In addition to Facebook, 770 Broadway is home to AOL with 228,000 square feet, and J. Crew, with 375,000 square feet. 770 is now the best office building in Midtown South commanding triple digit rents. At 280 Park, again, over the last several weeks, we signed a major financial services lease for 127,000 square feet with Fiduciary Trust in the base of the building, and are in final lease drafts with an important investment bank for another 99,000 square feet. Our renovation program is now substantially complete, and has been a resounding success. Since we acquired the building in 2011 with these two new leases, we will have leased over 700,000 square feet at blended starting rents averaging just under $95 per square foot. Let me now turn to Manhattan Street retail. For the quarter, we executed 13 retail leases, aggregating 51,000 square feet, with positive mark-to-markets of 77.2% GAAP and 48.3% cash. In the bow-tie in Times Square at 1535 Broadway, the Marriott Marquis full block front, 45th to 46th Streets, and directly across from our 1540 Broadway, we launched the world's largest 10K LED sign in November, with Google as the first advertiser. After a six-week run on the signs, we now have Beats, which is owned by Apple, advertising in the upper portion of the sign for this entire year, 2015. The sign has received unbelievable attention in the worldwide media. In the fourth quarter, we completed a lease with T-Mobile for 4,000 square feet on the grade at the 46th Street corner of the property. In addition, T-Mobile long-term leased the lower portion of the LED sign above their storefront. We're now in active discussions with multiple tenants for retail stores and signage. At 640 Fifth Avenue, we completed a temp deal in the first quarter with Forever 21, for the former H&M space. While maintaining the cash flow at this property, this deal allows us to find the perfect mix of tenants for the space. We also negotiated an agreement with Citibank to relocate its retail branch at 640, across the Street to 666 Fifth Avenue, enabling us to take back the existing bank branch at 640 later this summer. This now enables us to offer the full 100 linear feet of Fifth Avenue frontage. On the Long Island Rail Road Concourse at One Penn, we've been working to upgrade some of the tenants, and have added a new Duane Reade and a Pret a Manger, both of which are opening in the next several months. Let me now turn to San Francisco. In San Francisco, we had a really strong year at our 1.8 million square foot 555 California Street, completing 502,000 square feet of leases in 11 transactions at very strong rents, with mark-to-markets of 23%, and average starting rents just under $70 per square foot. In the fourth quarter we signed a 122,000 square foot renewal lease with the law firm Kirkland & Ellis. It was the largest lease of the quarter in San Francisco. In Chicago at The Mart, our 3.6 million square foot building at the epicenter of Chicago's hot River North market, we continued the evolution of this building into a home for creative and technology-based tenants. We completed 372,000 square feet of leasing in 2014, including 52,000 square feet in the fourth quarter. Our showroom to office conversion, continues to progress, similar to the conversion of Seven West 34th Street in New York, from underperforming showrooms for the giftware industry into creative office space at The Mart. We're in the process of converting the entire 200,000 square foot 13th floor, again, from giftware showrooms, to creative office space. Our year-end occupancy dipped as we vacated this floor, but we are now working on several office deals for the floor. Also, in the last couple of weeks, we completed an expansion with Yelp. Yelp now leases 60,000 square feet in The Mart. Think about it, Yelp which did not have an office in Chicago a year ago, expects its employee headcount to approach 375 over the next couple of months. Amazing growth. In addition to our historic leasing year, we had an incredibly busy year with our development and redevelopment activities, which will continue into 2015. At Seven West and 330 West 34th Street, we transformed these buildings into 1.1 million square feet of tech and creative space. At 280 Park Avenue, our full block lobby, mid-block jewel box atrium, and new curtain wall, have made 280 one of the best buildings on Park Avenue, with JPMorgan Chase's world headquarters as our direct next-door neighbor. We've now commenced our building redevelopment program at 90 Park Avenue. We're in the design phase for 150,000 square foot ground-up, new build, a cutting-edge office and retail building at 61 Ninth Avenue, next to the Apple Store and Chelsea Market, and directly across from Google's New York headquarters. At 20 Broad Street, where the New York Stock Exchange has been headquartered for over 50 years, you may recently have read that ICE, the Intercontinental Exchange, which acquired NYSE Euronext in 2013, recently announced that it will be vacating 20 Broad, in June 2016 upon the lease expiration, relocating many of the employees to Atlanta. Obviously, this was not a surprise to us. We currently are evaluating re-tenanting the building as an office building, or redeveloping the asset into a residential building. I'll also say, reflecting on the increasing level of activity in the downtown marketplace, we already have responded to a tenant that requested a lease proposal for the entire 540,000 square foot building. In Times Square, we completed the world's largest LED sign at 1535 Broadway, and have begun delivering the 45,000 square feet of retail space. Also in 2014 at 608 Fifth Avenue, we created a 44,000 square foot, four-level flagship for Topshop, Topman. And at 689 Fifth Avenue, we restored the base of a landmark building to its original limestone grandeur. At 220 Central Park south, we recently completed excavation and foundations for our 950-foot tall, luxury residential condominium tower. Starting in April, you'll begin to see the building coming out of the ground. For our Alexander's affiliate, we built a 312-unit rental apartment tower on top of the Rego Park II shopping center. We expect to begin leasing apartments in May. We also have vacated and commenced demolition, of a spectacular development site we own with a 50% partner at 29 to 33 West 57th Street. It's just west of Nine West 57th Street, and steps off of Fifth Avenue. To conclude my remarks, let me summarize the entire New York division. We had a very strong quarter, with same-store EBITDA increases for the overall division of 3.3% GAAP and 8.2% cash. For the year, our same-store EBITDA increases for the overall division were 4.7% GAAP and 7.6% cash. Isolating just the New York office business, our same-store EBITDA increases for the quarter were 3.5% GAAP and 9.1% cash, and for the year, our same-store increases were 5% GAAP and 7.8% cash. The last two years our EBITDA growth has come from pushing rents, evidenced by our strong same-store growth, which has averaged 5% GAAP and 7.6% cash, over 2013 and 2014. In 2015, our EBITDA growth will be coming both from same-store growth, and just as importantly, placing assets back into service, which is not part of the same-store calculation, with 280 Park Avenue, Seven West 34th Street, 330 West 34th Street and 1535 Broadway, all coming back online. Thank you. I'll now turn the call over to Mitchell to cover Washington.

Thank you, David, and good morning, everyone. In Washington, while we have not yet fully rebounded from the impacts of sequestration and BRAC, it's clear that we’re now recovering. Unemployment has dropped to 5.6% from 6.7% a year ago. And job growth ticked up by the end of 2014, adding nearly 19,000 jobs in the year ending November 30, 2014. In the same period, office-using, professional and business services added 4,700 jobs. That's a positive shift from the trend earlier in the year and in 2013, when this sector, largely driven by contractors, was shedding jobs at a rapid pace in response to sequestration. Negative absorption in Northern Virginia is now getting close to zero, and we're seeing positive absorption in downtown DC. And on the ground, tenant tour activity in all sectors has increased noticeably, and all signs point to continued improvement this year and next. Specifically in our portfolio, as Steve Theriot said a few minutes ago, and in keeping with the current market conditions, we expect our EBITDA for 2015 to be about even with 2014. We had an active fourth quarter of 2014, leading into a strong pipeline of tenant activity heading into the first quarter of 2015. In the fourth quarter alone, we leased 669,000 square feet of office and retail space. Overall, office leases signed in the fourth quarter generated a GAAP mark-to-market of negative 6.7%, and a cash mark-to-market of negative 7.7%, a result we expected given the competitive market. The deals in the DC market continue to acquire significant TIs. TIs and leasing commissions for the leases we signed during the fourth quarter were 17.7% of initial rents, or $6.54 per square foot per annum, and this is compared to 12.9% or $5.09 for the first nine months of the year. For Q4 2014 versus Q4 2013, we reported negative same-store EBITDA of minus 2.3% GAAP and minus 3.8% cash. Notwithstanding difficult market conditions, we continue to lease a lot of space each year. We leased 2.1 million square feet in 2012, 1.8 million square feet in 2013, and over 1.9 million square feet of office and retail space in 2014. This was in 235 deals, and our average office rents were $38.57, down from $39.91 in 2013. About 50% of this activity was from new leasing, and the remaining 50% were renewals. Overall occupancy, including residential and Skyline was up 40 basis points, from 2013 to 83.8%. Office occupancy including Skyline was up 20 basis points to 80.9%. Let's focus on Skyline for a minute. Our office occupancy, excluding Skyline, was up 210 basis points to 87.5%. Skyline's occupancy fell during 2014 by 730 basis points to 53.5%, an obvious drag on our overall office performance. In contrast, Crystal City's office occupancy rose by 330 basis points to 85.2%, and we expect that trend to continue. Our aggressive leasing efforts in Crystal City have begun to bear fruit, in fact, Crystal City was one of the only submarkets in Northern Virginia to experience positive net absorption. Our residential business is comprised of 2,400 apartments in Crystal City, Pentagon City, Rosslyn, and Georgetown, and it continues to be full, with occupancy increasing 110 basis points over 2013 to 97.4%, and with 2014 average monthly rents per unit of $2,078, and that's compared to $2,101 for 2013. In 2015, we have 1.68 million square feet expiring. Of that number, we expect less than 300,000 square feet, or about 17%, to vacate without a replacement tenant in hand. Of the remaining 1.4 million square feet, we have already signed, or have pending signatures, for over 500,000 square feet or 38%. We are pleased with this progress and consider the balance to be completely manageable. There were several highlights this past year, and some trends that will continue into 2015. First, and importantly, is government leasing. At a time of reduced government activity, we leased 473,000 square feet to the federal government in 15 deals during 2014. As previously announced, the Department of Labor leased 75,000 square feet at Crystal Gateway North. We renewed, for 15 years, the Department of Justice at One Skyline Tower, for 169,000 square feet. And in 2015, we've renewed the Army Surgeon General for five years at Six Skyline. This is a 97,301 square foot renewal, and it’s part of our BRAC space in Skyline. And this month, we executed a 15-year lease with United States Marshal Service for its 371,000 square foot headquarters in Crystal City. The US Marshals have been our tenant in Crystal City for 15 years, and we are delighted to retain them in Crystal City for another 15 years. We will relocate the Marshals from 1750 Crystal Drive, just down the street to 1215 South Clark Street. By moving the Marshals from their existing location, we freed up more valuable space to lease at an excellent property that is on top of the Metro with excellent views. At 1215 South Clark, the building we're moving the Marshals, is being vacated this quarter by Boeing upon the completion of Boeing's new owned headquarters in Crystal City. I should say that this is a really good game of musical chairs for us, and we accomplished several goals with the Marshals lease. It resolves Boeing's pending expiration in its entirety before they even vacate. We retain a large important agency in Crystal City. And we re-leased another 60,000 square feet that was vacated by BRAC. And speaking of BRAC, in Crystal City we have now resolved over 1 million of the 1.4 million square feet of BRAC space, and overall we have now resolved nearly 64% of the original 2.4 million square feet of BRAC vacancy. Secondly, in 2014 we enjoyed the continuing influx of associations and nonprofits into Crystal City. DC has long been a hub for associations and nonprofits seeking proximity to Capitol Hill. We have successfully positioned Crystal City as a great alternative for these groups. The combination of Metro, proximity to Capitol Hill, adjacency to Reagan National Airport, an abundance of hotels, and our wide cadre of amenities, have made Crystal City the location of choice for over 40 associations and nonprofits. And as tenants, in general, continue to focus on efficiency and productivity, Crystal City is proving to be a great value for tenants who want to trade up in space. We see this especially with the association and nonprofit sector. So in 2014, we completed 190,000 square feet in new and renewal deals with associations and nonprofits. Included in this number is the new 78,000 square foot headquarters lease with the American Diabetes Association at 2451 Crystal Drive, who will move in later this year. And finally, as we talked about all year, 2014 was an important time for attracting innovation to our portfolio. We completed a total of 248,000 square feet of leasing with WeWork. As they have done in New York and other markets, WeWork has quickly established themselves as a brand leader in DC. Their new 83,000 square foot office presence at our 1875 Connecticut Avenue building is their largest location in Washington. The first 44,000 square feet opened at the end of 2014, the space looks terrific, and they're already 90% full, and work has begun on the additional 39,000 square feet. And in Crystal City, we’re busy renovating a 165,000 square foot building for WeWork's residential concept, which is scheduled to open later this year. Over the past year, we brought a new creative community to Crystal City that is really starting to gain traction. The Crystal Tech Fund is now a central gathering spot for Washington's tech community. TechShop has over 1,000 members, and you'll see inventors and artists there at all hours of the day and night. Eastern Foundry, our incubator for government contracting tech, opened their doors in December and is already planning for expansion. Highline, a new community-inspired bar and restaurant, opened last week in the heart of Crystal City. Highline is the latest brainchild and 25th restaurant concept of Bedrock, leading restaurateurs, who have proven successful in attracting crowds to their other well-known DC locations. With its hip industrial design, Highline has opened to great press and enthusiastic customers. Today, in Crystal City you'll find young creatives and millennials clustering in our parks and dining street side at our cafes. Crowds of entrepreneurs gather regularly for pitch events and networking. The kind of vibrancy we described last year at this time, is really now palpable, and we've only scratched the surface. We are exploring ideas big and small that involve creative partners, different kind of users, and new ways to invigorate our Crystal City. We are changing the fabric of Crystal City, and it's pretty exciting stuff. In adjacent Pentagon City, our 699-unit apartment project The Bartlett and Whole Foods, is now vertical, we just poured the fourth floor, with delivery on track for mid-2016. As we have said, this project will be a game changer for both Crystal City and Pentagon City. We continue to create value in our portfolio of downtown, as well. We will be demolishing two older contiguous buildings, where we will develop our new 335,000 square foot, corner trophy office building, 1700 M Street. The building will be located right off Connecticut Avenue, in the heart of the central business district. We expect to begin construction in early 2016. So in summary, 2015 will be another year of hard work and opportunity. We're excited and ready to go. I will now turn the call over to the operator for Q & A.

[Operator Instructions] Our first question is from Michael Bilerman. Your line is open.

Manny Korchman is on with me as well. Steve, in your opening comments, you've mentioned the easy money has been made, it's time to basically continue to harvest, rather than invest. You also talked a little about getting a lot of enquiries on Chicago and San Francisco. And I'm just curious, as you think about dispositions and harvesting, where does the pipeline stand today? And how should - maybe I'm making more making more and tying those two comments about Chicago and San Francisco harvesting. Maybe I'm making too much about that but curious where that stands today.

In Chicago, we believe we have very robust value creating opportunity as we transform the building to the, actually the most important tech center between the two coasts. And so that building is, we've got work to do. We have great visibility into the value creation. We think it will be significant. I'm talking about significant even in the scale of the $35 billion, $40 billion Company. So that building is as I just said, in San Francisco, San Francisco is arguably the hottest market in the country right now. We own the best building in town. The rents are going up. It's extraordinarily successful. And it is obviously extremely sought after, by the world's aggressive investors. So other than that remark, I don't think I'll go any further in talking about that. We are delighted to own it. It's a very valuable asset.

And then as you think about the pipeline of assets to harvest, I don't know if there's a current bucket of dollars that we should be thinking about, just tying back to your comment about time to harvest more.

Michael, we've sold in the recent past, over the last couple of years, $5 billion or more of assets that we really - we thought were better to be sold and the cash redeployed. We are - we own very few assets now that we have scrubbed the portfolio, that we are not happy owning. So there will not be any wholesale sales or activities. The heavy lifting of scrubbing the portfolio and focusing the portfolio is done. Now having said that, we have enormous profits in almost all of our buildings and so the punch line to that is, we may from time-to-time respond to an opportunity. We may from time-to-time decide we want to swap out of an existing asset, realize profit and buy a new asset, but there's no - I'm not going to give you any number and there's no wholesale activity that is ongoing at the present time.

Okay. And then it’s my last question, in terms of --.

The point of my comment is this. this is a time to be very careful with the euphoria of the marketplace and making acquisitions at very, very high pricing. It's time to be very rigorous from the acquisition side.

Understood. My last question was just, and I recognize it's very early and the success will be deemed in terms of the Urban Edge spin off by what Jeff and his team will eventually do, and the increased focus between the two companies. But I'm just curious as, can you evaluate success at all in terms of the values that were put on both companies? And how does that change your thinking at all about potential others to more strategic separations, either street retail New York, D.C. versus New York, has that accelerated or not, any of your thinking based on how the spin-off has been completed?

You are full of interesting questions today. A couple of comments on that. The first thing is a couple years ago, in my Chairman's letter, I included a section that was followed by the industry and analysts closely, which basically was entitled, “We Will”. And the key thing in that section was that everything is on the table to create value, and to be rigorously financial. That discipline if you will, or that objective or goal is still extant. So we look at our portfolio of assets all the time. We have a grand portfolio of assets. I made the bold statement in my opening remarks that we think the private market value of our assets is greater than the stock market is valuing it at, which is fine. So we've got enormous values in our street retail businesses, an enormous future, if you have the patience, in our Washington business. We've got - when David was making remarks about the Amazon building and saying that we created enormous value, I wanted him to put in there that we created a five bagger. And conservative David wouldn't say that, so we created a five bagger there. And we've got multiple 10 baggers in our portfolio, so we've got a lot that we can harvest. There's a lot that we can do, and we're not going to -- So we look at all of that, all the time with no commitments. We have a fine business. We've scrubbed it down. We focused it well so that we are very happy with it. And so that anything that we might do in the future would be offensive as opposed to some of the things that we did over the last 2.5 years, which were clearly defensive.

Our next question is from John Bejjani. Your line is open.

Steve or David, can you give us an update on where Vornado stands in the approval process, or whatever the process is right now for selling 220 Central Park South units?

The answer to that is the approval process is a hair away from completed. It’s basically complete.

And related to that, given the U.S. dollar's strength lately, are you seeing, or do you anticipate seeing any slowdown in foreign demand for condos there?

I don't know. We have begun to expose the property very gingerly to presales, and to friends and family kind of activity, which has been robust. Although not wholesome, because until we get into the actual process, the public will not be invited in and that has been robust, including all manner of friends and family from all over the world. But I'm talking about small numbers, so not a sampling that one would extrapolate. We intend to open the sales office for the property in late summer, and that's our timing. The observation that I have is that the capital sources from around the world, notwithstanding the strong dollar, are anxious to move their capital into the United States for lots of different economic reasons, and also because most people seem to think if you look at the interest rate cycle, that the strong dollar is going to get even stronger. So the answer is, I'm really - I don't want to play the role of an economist. I'm a pragmatist and a player, and we'll let the marketplace tell us what to expect. I will tell you, with respect to this asset that we intend to, and are creating, I believe, I am certain, the best apartment house that has ever been created. I'm talking about post-war, something in the last 50 or 60 years, building that has ever been created in New York. It has some unbelievably interesting features, including a motor court, and all kinds of different things, which people are very excited about, and so I suspect it's going to be very successful. Having said that, as I've said before. We don't do condos, which are ordinary income for sale. That's not our business. We do one every dozen years. The last one we did was the Bloomberg Tower, which was enormously successful. But as I've said before, the apartments that we sold a dozen years ago are now selling at 4X, which drives David and me just bloody crazy as you can imagine. So that's not a business that we are in, and so this is an interesting thing. We will do very well with it. It will create enormous franchise value for our firm, but so to speak, it's sort of a sideline. It's an important sideline but it's a sideline.

Thanks for that. I guess on a related note on the currency exchange issue, industry retail portfolio, do you expect any deceleration in tenant sales growth, given the fewer dollars tourists will have to spend?

The answer to that is I am always looking over my shoulder for the next problem, and the next problem after that. I read the same reports that you do, which says basically that tourism and the dollar's strength will slow down tourism, even in New York. There's a slight sign of that in hotel bookings, so that's an early warning sign. Just slight, a tiny little bit. And we'll see. Our strategy with respect to our stores is, is to charge fair rents. We are able to charge fair rents because we own our properties at very attractive basis. And so we're not in the gouging business, and we will be very happy to get the rents that our retail customers can afford to pay us. We will do very well with that. And as I said before, we are getting very cautious on high-priced acquisitions, whether it be retail or office or whatever.

All right, thanks. One last question for Steve Theriot, the guidance for 2015 D.C EBITDA growth being flat, I assume that's on a GAAP basis? Can you share a ballpark estimate on a cash basis?

No, John. We don't have a cash estimate that we're going to publish.

Our next question comes from Alex Goldfarb. Your line is open.

Steve, because you brought up 555 California, I just want to go back to that. As you look at the market, there’s obviously a trade-off between maximization of the NOI versus today's cap rates that people are willing to pay. So you were pretty clear in your comments that Merch Mart has a lot more - there's a lot more activity to go there, before you would contemplate something. It sounded a little open-ended on 555, as though maybe you would be willing to part with it sooner, if someone threw out just an unreal number. So can you clarify how we should think about 555?

Think about it as if it's an grand asset in Vornado's permanent portfolio until that fact changes. Hang on. Let me say it again. A grand asset embedded in Vornado's portfolio that we're delighted to own, until something happens where we change that.

Okay. So before, whereas you guys had been vocal about the need to do some leasing before you would contemplate something, it sounds like if the opportunity arose head of that, you would seize that opportunity?

I'm not going to respond to that. You are putting words in my mouth.

Okay. Let me ask this question for David. Obviously, you have had a huge amount of success with TAMI. It's impressive, the amount of TAMI leasing that you guys have done. As you think about buildings, especially where you have some meaningful vacancy, is it changing the way you think about which tenants to respond to, from proposals, as like do you want to go more tech and TAMI, or as long as it's a good, healthy credit, you are willing to put them in space? Just trying to understand it, because it sounds like there's a benefit, obviously, of having a WeWork or Facebook , etcetera, maybe that drives higher rents, in which case you may turn down some tenants that in a regular market you wouldn't? So just, sort of curious how you're thinking about leasing space.

I guess the first thing I would say is we don't have any real vacant space. So as we look at our portfolio, we're looking at the renewals that are coming up each year. Obviously, the simplest thing to do is to renew a tenant in place, if we can. To the extent we have vacant space in the building, I think to some extent, it's the building that does dictate the nature of the tenancy. So if you think about what I said, as it relates to 280 Park Avenue, 280 Park Avenue is a financial services building. And of the 700,000 square feet that we leased in that building, I don't have the perfect statistic in front of me, but I would tell you 100% of that was related to basically financial services tenants. So listen, from our point of view, we are looking for the right tenant for the right building, and most importantly, the tenant that's got credit, and that's prepared to pay the highest price. We are seeing, in some instances we are having multiple offers on properties, which again reflects what I said earlier, as we are trending toward a landlord's marketplace. We do focus on credit. And we are focusing on maximizing value in any particular asset.

Okay. And then just finally --

Alex I would, I would let me add a couple things to that. Number one, I am unbelievably proud of our team. We identified that in this cycle, the financial services side was going to come out of this thing slowly, which they have. And that the tech TAMI creative class was going to come out roaring, which they have. So David and his gang, first of all, we own, unlike some other owners in town, we own a handful of buildings that are actually perfect for financial services, but we also own more than a handful of buildings which David has tailored for these new creative tenants. So 770 Broadway being a perfect one, the building that Amazon, just took and over and over and over again. So we were ready for this. That's the first thing. The second thing is so let me tell you what happens. Okay? A financial services tenant, they go out and they take a year, and an RFP and all kinds of stuff to make a decision and whatever. David did a deal with Facebook . They came into town, they were looking for a New York headquarters. They surveyed the marketplace in one week. They made a decision in one day, and they signed the lease seven days later. And then, they quadrupled the size of the space they have in the building. So they're quick, they're decisive, they're young, they're happy. And they are growing enormously. So we benefit enormously from having a portfolio that has the ability to service both these kinds of tenants. We love them both. In terms of whatever, we're an equal opportunity landlord. We want the space filled with thriving tenants.

Okay. And then just finally for Mitch, you mentioned that the Marshals space is a relocation, and you said they're giving back more valuable space. Can you just provide some framework around what the difference is between building the space what they're leaving and what the potential mark of that space could be?

Sure. So they've been in a building that's literally sitting at 18th and Crystal Drive for 15 years. So when they move out of that building, we'll do some freshening up of the building. But what you've got is a building that's literally located right on top of the Metro. So it's at ground zero in Crystal City. And then the building fronts on Crystal Drive, so it's looking right out over National Airport into the District, so you've got a building right there with a great location, great views. So we think that, that will be an attractive space for a single user, multiple users, to backfill that space as soon as we get it back.

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

Steve, if I didn't know better, I would think you actually enjoyed these calls. Question, these are curiosity questions, first, Amazon building, 470,000 square feet, mid-block building 40,000 square foot floor plates, old department store. What fulfillment center what works for them? Is this a through building, with a frontage on 35th Street also? Or does this only have the frontage on the south side?

It's a through block building, with an enormous loading facility which serviced the department store when it was built on 35th Street. With respect to their operating philosophy, etcetera, we would refer you to them. We're just delighted to have a landlord-tenant relationship with them. They're operating businesses - we are awed by their business, and let me leave it at that. I would tell you that David and Glen and our teams did an amazing job in servicing this customer. This was a very big thing for them, because they hadn't done it before. And this deal came together quickly, efficiently on both, on the part of Amazon teams and the part of the Vornado, David and Glen and their team, so we couldn't be more happy with the deal, and proud to be their landlord.

I'll just add one thing to that, and that is they were so anxious to get up and running before the end of the year, that we actually through our construction and development team ended up helping them build out the fulfillment centers, so even though these guys were quote, rookies to New York, they got it done quickly, we got it done overnight, and could get them into operation.

And that comment, John is typical of what our leasing operations does with all tenants, whatever assistance we can give a tenant to make the process because that's not their business, moving and building out spaces, whatever we can do to assist a tenant, whether they be a large tenant or a small tenant, we will do.

Great. Okay. Question for Mitchell. Department of Labor, Department of Justice, US Marshal, I think, correct me if I'm wrong, those are all GSA driven leases. Did those tenants expand, keep the same amount of space, or did they downsize?

So we want to take - let's just take them in order. So the Department of Labor is a similar size relocation, and it's new business in Crystal City moving from Roselyn in Arlington as well. The Department of Justice in Skyline is a pretty much close to same square footage renewal. And then the Marshals service is ultimately going to reduce their footprint, which is their long-term plan by about 10%, although they have overhanging leases with us. For example there’s one 40,000-foot block that goes out until 2019. So whether the GSA occupies that space or the Marshals, that space will continue to be under lease for us in addition to the 371,000 square foot headquarters, and they'll ultimately reduce that footprint by about 10%.

Okay. And then also for Mitchell, if you look at the two buildings you're demolishing in order to build a new building, 1700 M Street. When you do the math, what are you valuing the land or the demolished building? What are you thinking as you're in total development cost when you run your numerous pro forma’s on the deal?

So I think that what you're looking at is a land basis in the $250 to $300 per FAR range. You're looking at an all-in cost to deliver the building in the $700 and $750 range, including all the carry that we include, our own Vornado carry as well as TIs and whatnot, so you end up with a trophy asset at a pretty solid basis, when all is said and done.

And is the $250 to $300, the existing buildings should be worth more than those kind of numbers, shouldn't they?

If they were filled in income producing, you would probably be slightly higher than that, yes.

And then the last question, Skyline, 20/20 hindsight, why did you guys even stay in the building? I thought you - that project, I thought you had the ability to just give it back to the lender. Is there some long-term opportunities that doesn't seem to be apparent right now?

It is a non-recourse loan, so obviously implied in that statement is that we could give it back. There are significant tax costs of giving it back. So that's step one. Step two is what we did in light of that, was we restructured the - Wendy Silverstein who runs Capital Markets for us, did that, led the team that data that. We restructured the loan creating an A note and a B note kind of structure, where we were able to reduce the interest rate, extend the term of the loan. And basically create a long-term option to the recovery of that asset. So that's what our strategy has been. It's a valid strategy. The cost of carrying that asset is actually small in relation to the size of the assets. And that's what our strategy has been. Now, in today's market it is an underappreciated asset, but when the water rises, all boats will rise.

Our next question is from Jamie Feldman. Your line is open.

Steve, I want to go back to your comment where you said this is the time in the cycle when smart guys build cash. I know you said we are at historic high prices, but what do you think actually could break here in terms of underwriting? Are cap rates too low, and as rates rise they move? Is leverage too high? Are underwriting assumptions to aggressive? Where do you see the cracks here?

I have my own ideas as what might happen, but they're not for publication. What I know is, when you've seen lots of cycles as I have, something's going to happen. It might be something that's predictable. It might be something that's not predictable. Who knows? The important thing is that - by the way, I'm not calling a market tough. What I'm saying is, this is the time to be cautious, to be rigorous, acquisition prices are getting very high, and it looks like it's dicey to me. So what I'm saying is that we have a responsibility for a great amount of shareholder wealth, so we have a responsibility to be cautious at this point in the cycle. And that's all that I'm saying. I'm not going to predict or I'm not going to call us up. I'm not going to predict what's going to happen, but I am saying that somewhere, and by the way I don't think it's imminent. It's not imminent. This thing has more time to go for sure. But it's rather than buy an overpriced building or keep another $600 million in our jeans, I'd rather do that. Okay? So the incremental money that we might make by stretching to do an overpriced acquisition pales in with respect to the risk and the safety and we're preparing ourselves to be an aggressive buyer when the markets are more to our liking. So I'm not calling a top, not by any means. This market has more to go for sure. And I'm not predicting what's going to happen. All I'm saying is that experience and caution dictates we should start to prepare for the next part of the cycle.

Okay. That's very helpful. Would you put street retail in that category as well?

We have pushed away from what we thought were overpriced or too high-priced acquisitions. One very, very prominent one recently. And the answer to that is sure.

Okay. And then I recognize from your last answer.

By the way, we get feedback on the street retail almost instantaneously, because our tenants say we can't pay the rent. So what I'm saying basically is there has to be - the answer to your question is yes.

Okay. And I recognize you're not calling a top or any kind of downturn here, but just bigger picture, you guys have certainly moved into tech in a big way with great success. When you guys are underwriting these tenants, how do you think about the risk in an eventual downturn? And how it differs from your traditional office space?

I think Facebook is going to be just fine. I think Amazon is just going to be just fine. I think Bloomberg is going to be just fine. I mean, these tenants are huge now. We think Google is going to be better than just fine. So we are attracting tenants who are the who's who. And they are the who's who from a financial position point of view. So the answer to that is, these guys are inheriting the earth. And so, we're just very happy with it. By the way, we are not religious about this. When the financial services guys start to expand, we are going to be all over those.

Okay. Do you have a maximum NOI percentage for tech, or you'll just see where the opportunities are?

Google and Facebook and the like could rent the whole portfolio. I'll be fine. These guys are hundreds of - I'm not understanding the question, Jamie because these guys are really, really big and secure, and they have infinite credit from my point of view and David's even more rigorous than I am. They have infinite credit from his point of view.

Okay. That's helpful. Finally for David, I appreciate your comments on potential for rent growth if we get more job growth in New York. Do you care to make a guess here on what kind of market rent growth we could actually see in New York this year?

I know you want me to give you a specific percentage. I think I'm going to shy away from that, but I will reemphasize what I said earlier. Which is that with the vacancy rate now, hovering in the low 9% range, where we in fact brought the vacancy rate down by about 160, 150 BPs over the last year, we really have reached, I think, the beginnings of what we're seeing a landlord's market. If you reflect back a couple of years ago, we've seen pretty enormous rent growth in certain sectors of the market. So as you look at a 770 Broadway, a number of years ago, if somebody said to me were we going to be doing triple digit deals in 770 Broadway? Obviously the answer would've been no. So I do think market-wide, while we've seen pockets in the city of some explosive rent growth, I think we're going to see market-wide, that rent growth begin to accelerate one area where we've also seen some significant rent growth, which obviously we love is Penn Plaza.

So let me hop on top of the Penn Plaza comment with a little bit of a plug for our Company because it's near and dear to our heart. So in terms of rising rents, there are two sources. One is the market rises, and because of supply-demand characteristics etcetera, and we benefit from that, but the second thing is, we influence those markets by changing buildings, by changing tenant experiences, by changing tenant perceptions, by changing even neighborhoods. And so what we are about and up to our eyeballs in the Penn Plaza district, which had in the past been the low-price provider in the office market, is to make - and now by the way, it's a funnel where everything is coming together, and meaning that Chelsea's coming north, the Hudson Yards is coming from West, Park Avenue South and Midtown South is coming from the east, etcetera. And so we're about, as a Company, making those buildings, so that - and we've got lots of tech in those buildings, so that the rents that people are happy to pay for those properties is rising even more aggressively, or more rapidly than the market.

Okay. And just to follow-up on that you had commented about internal development projects. Does that mean you're getting ready to start financing a larger scale redevelopment at Penn Plaza?

No. What I said in my remarks well the answer is yes to that, but what I said in my remarks was that we spent the better part of $0.5 billion this year on internal developments, which are more than 10 or 12 of them, couple of them larger, couple of them smaller. All of which will cost when they're done, maybe $2 billion, and that's just the natural evolution - and that's higher earning capital, because we earn more on those controlled internal developments than we do going out and buying an office building at a sub-4 cap rate. So that's everything that we've been doing, including the 220 job, including the Marriott 1535 job. And a dozen like it. Including why isn't that a 700-unit apartment house, why is it 699? So I mean that's our whole development program for this year and we do $500 million or $1 billion worth of development every year.

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

Just a couple quick ones for me and sticking with Penn Plaza, I was hoping you could give us an update on how you're thinking about the development opportunity at the hotel Penn site, whether you're thinking about proceeding with that at any time in the near future?

The answer is, and I've said this over the years. The markets are ebbing and flowing over there, our aspirations, if you would have talked to David and I and our team some years ago, for the Penn Plaza district business, we would renovate or raise whichever the Hotel Pennsylvania, and that would be enough. Our aspirations have now grown enormously so that the way we look at it, we have a one, two, three, four block square little sub neighborhood, or actually large sub neighborhood, and what we're about is to improve the whole district. The Hotel Penn is important, but not the main event. The main event is to get the office buildings so that they command higher market ranch than they do currently. And by the way, they are rising with the marketplace, quite smartly, currently. So we're not prepared to commit to what our plan for the Hotel Pennsylvania is. We are considering options which go from A to Z, including demolishing it to renovating it to turning it into - to combining it with the Manhattan Mall behind. I know it's been a long time in the making, but we're really committed to, we are not able to comment today as to what our eventual development plan will be. We are working very hard, really hard, up to our eyeballs in the plans to transform the entire district.

Okay. I appreciate that. And then I'll ask the third question today, on 555 California. I don't know if you would entertain a hypothetical, but if you were to divest that asset, does it make sense for you to also look at selling the other big asset in that partnership, 1290 Avenue the Americas, or should we not think about these things as being related at all?

I'm actually going to - I half-ducked the question twice. I'm going to duck it a third time. Basically, they're two different assets. One is in the heart of our homeland, and we did an amazing job of redeveloping that asset and re-letting, as David said in his remarks. And that asset has - both these assets have appreciation. And beyond that, I'm not going to comment.

Okay. That's fair. Thank you.

Your next question comes from Vance Edelson. Your line is open.

It sounds like the frothiness for street retail market pricing has likely turned you off to acquiring anything with a significant retail component. And feel free to correct me if I'm wrong on that. But then turning to the office side, market prices where they are, can you give us a feel for whether acquisitions are still a possibility, and whether you'd branch out? Would you look for more opportunities like Long Island City, that are a little bit more off the beaten path?

Okay, Vance. A couple of things. Number one, we have a $35 billion corpus here. And so we rise and fall by the increase in value of our $35 billion of corpus. So when we get up in the morning, the first thing that we say is okay, how are we going to make our existing assets that we own better, more valuable and harvest the values out of them? So if we do $1 billion of acquisitions in a year, which gets a lot of attention because it's glamorous and it's interesting. That really is - it pales into what we can do, and the value we can create on the existing portfolio. So that’s step number one. Step number two is we are trolling our markets every single day with multiple very talented people, and with deal flow, which we believe is second to nobody in the marketplace. Looking at every asset that becomes available or leaving no stone unturned. So even though we think that prices are high, we continue to look at everything, searching for the one gem that will be - because we don't have an open to buy for 25 assets a year. We are open to buy for a handful of assets a year. So we look at everything, especially street retail, because it's complicated, it's dense and somebody could be selling us something that they believe is described as ABC, and we may be buying something that we see as XYZ. So the answer is we are trolling these markets, and prospecting every day in all of the markets that we deal in. And the answer is, everyone is an individual case. So we are doing some development now with even smallish assets, 61 Ninth, which is an unbelievably sexy asset in the meatpacking, adjacent to the Apple Store and across the Street from Google's headquarters, and it's smallish, and we're doing it because it's an asset that will be in great demand by our tech customers and our TAMI customers. So we leave no stone unturned. We have no blanket rule about acquisitions.

Okay. That's very helpful. And then David, you’d mentioned being in conversations with multiple potential customers for the signage at 1535 Broadway, if I heard you correctly. Is that viewed as being in addition to the two top and bottom anchor tenants? Or would that be more of a replacement down the road? In other words, how much can you take advantage of the multiple configurations, and how you see the divvying up of the sign eventually settling out?

We think it's likely that the sign will be - the lower portion of the sign effectively will be directed with the tenant leases. So similar to what T-Mobile did, where they took effectively the portion of the sign directly over their storefront, on Broadway, wrapping on 46th Street. The upper portion of the sign likely is going to remain effectively third-party advertising. As I said there, Beats has committed to that sign for the entire 12 months of this year.

The strategy with respect to that enormous, actually very popular, and now famous sign is pretty simple, as David described. The bottom half will go on long-term lease, presumably to the tenants that rent the space. So it's like the tanker market. Okay? So that's long-term lease. The upper half will be in the spot market for rent, to the entire advertising community. On a week-to-week, month-to-month year-to-year basis, whatever the market tells us to do.

Okay. And then just related to that, can you take that expertise you developed at 1535 to the Crowne Plaza, and help to ramp the signage income there? Do you think there's any upside potential?

[Technical Difficulty] Participants, please stand by. Your speakers will be back shortly.

I guess we're back. We don't know why we were dropped. We had some technical difficulties, which we apologize for. And so we'll continue the call for another five minutes, if people want to continue to ask questions. Thank you.

Vance, were you done with your questions?

Our next question is from Vincent Chao. Your line is open.

Hey guys my questions been answered. Thanks.

And our next question is from Michael Bilerman. Your line is open.

It's actually Manny here with Michael. Steve, just going back to your previous comment on the re-financings that are going to get you to the $2.0 billion cash balance you mentioned the St Regis retail refi. If you just give us some details there, I didn't think there was any debt that had come with the deal, but maybe I was wrong on that. And then you had mentioned additional refi, if you could give us some details on what that might be?

The big picture is that we will build cash from the normal ebb and flow of our business this year, from three sources as Steve Theriot described. The first source is, we will be closing the Springfield Town Center transfer to REIT at the end of March. And that will be $350 million or $360 million of cash coming in from the sale of that asset. That doesn't include the stock portion that we will get for the sale of that asset. By the way, the stock portion has a 25% appreciation from the time we struck the deal. So that's $360 million. We will finance the St Regis retail. Right now it is un-financed. And that was - so we will finance that for $350 million or $400 million or whatever the detail is, we are in the process of scoping that out now. And then we are doing in the normal course a refi of one of our other Manhattan assets, and the sum total of it will be more than $1 billion. So that's - I think that's from 30,000 feet, the details of what's happening there. Three separate sources, each one significant, multi-hundreds of millions of dollars in the normal ebb and flow of our business, no extraordinary transaction.

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

It’s actually Erin Aslakson. I think our questions have been answered.

That's it.

No more?

We have no further questions at this time.

For those of you who are still left, we apologize for the technical glitch. And so thanks for joining the call. And we'll see you at the next quarter.