Good morning, and welcome to the Vornado Realty Trust Fourth Quarter 2018 Earnings Call. My name is Michelle, and I will be your operator for today's conference. This call is being recorded for replay purposes. All lines are in a listen-only mode, and our speakers will address your questions at the end of the presentation, during the question-and-answer session. [Operator Instructions] I will now turn the call over to Ms. Cathy Creswell, Director of Investor Relations. Please go ahead, ma'am.

Thank you. Welcome to Vornado Realty Trust 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 maybe accurate only as of today's date. The Company does not undertake a duty to update any forward-looking statements. On the call today from management for our opening comments are Steven Roth, Chairman of the Board and Chief Executive Officer; and David Greenbaum, President of the New York Division. Also in the room are Michael Franco, Executive Vice President and Chief Investment Officer; Joseph Macnow, Executive Vice President, Chief Financial Officer, and Chief Administrative Officer; Mark Hudspeth, Executive Vice President and Head of Capital Markets; Matt Iocco, Executive Vice President and Chief Accounting Officer; and Tom Sanelli, Executive Vice President and Chief Financial Officer, New York Division. I will now turn the call over to Steven Roth.

Thank you, Cathy. Good morning, everyone. 2018 was a good year. Here are some highlights. Our leasing activity for the year across the entire business including New York, theMART, 555 California Street and Retail, totaled over 2.6 million square feet and 230 leases with industry-leading mark-to-markets of 25.6% GAAP and 18.4% cash. At year-end, office occupancy across the board was 97%; and retail occupancy was 97.3%. These numbers in the very high 90s are typical of our performance year-in and year-out over the past 20 years. Thanks to Glen, and our best in the business leasing team. We have begun closings that are 220 Central Park South super-tall condominium project. In the fourth quarter, we closed 11 units aggregating $222 million with a $67.3 million after-tax gain. And we have already closed in just the first five weeks of this year, another $290 million. Closings will continue throughout 2019, as we climb up the building. And the last of the 27 large full floor apartments in the tower is now committed and under contract. I'm guessing that this is the most successful project ever, anywhere. We increased our ownership in the Moynihan Train Hall Farley project from 50% to 95%. We are in full blown construction here. And in 2020, we will deliver the best creative space in Manhattan. We love this asset. It is the link between our Penn Plaza neighborhood and Hudson Yards. It is a doublewide block with 150,000 square foot floor plates and high ceilings. It is a horizontal campus in an iconic landmark building much like the horizontal campuses favored by our fan tenants in the West. It is a truly unique asset. In the Penn District, we are under way to transform PENN1 and PENN2 to create a two building 4.4 million square foot…

Steve, thank you. Good morning, everyone. 2018 was a historic year in Manhattan. We leased a total of 42.2 million square feet, the most active year in two decades, including 61 leases of 100,000 square feet or greater with 20 of those deals greater than 250,000 square feet. This enormous rising activity is due to the continued strong job growth in New York, both private-sector employment at 3.98 million jobs and office using employment at 1.4 million jobs are at all-time high. Manhattan's overall average asking rent ended the year at a record $76 per square foot with Class-A midtown rents north of $80 per square foot. The overall availability rate remained steady and actually went down in Midtown, even in the face of the delivery of some 2 million square feet of new construction. Financial service tenants continued to be a strong player in the Midtown market accounting for 41% of all leasing activity. Large tenants continue to be attracted to new and redeveloped product, which captured significantly almost two-thirds of the year's leasing activity. The Landmark announcements made by JP Morgan Chase to develop a new corporate headquarters on Park Avenue, Google's commitment to a campus on Hudson Square, Disney's announcement to build a new headquarters also in Hudson Square, Deutsche Bank's commitments in Midtown, Pfizer's commitment to Hudson Yards, and finally, Amazon's selection of Long Island City for half of its second headquarters location, all reflect upon the great strength of this city. Just last week, Sable's the international brokerage house issued its Annual Global Tech cities report. Sable's concluded that New York ranked first, as the world's foremost center for tech, due to its deep talent pool providing the business environment, lifestyle and quality of urban infrastructure to position New York as the attractive location for…

We're ready for Q&A.

Thank you. We'll now begin the question-and-answer session. [Operator Instructions] The first question in the queue comes from Steve Sakwa from Evercore. Your line is open.

Thanks, good morning. Steve, you and David both kind of mentioned the Amazon situation. I know there's been a number of different press reports out there about maybe the city, having some issues coming to terms with Amazon on the Long Island City project. And I'm just wondering, what that sort of signals as it relates to kind of new business coming here and kind of any thoughts you have around that deal maybe getting consummated?

That's a hot potato. First of all, folks like Google and Facebook and on and on and on have no trouble expanding growing relocating, locating in New York through the conventional way of dealing with basically as of right real property. Amazon chose to take a different tact. And that's fine. I would say, it's my personal opinion that if - it's my personal opinion that the deal that the Governor of New York and the Mayor of New York made with Amazon was a terrific deal for the city and a terrific deal for us. I mean a huge company with an enormous number of important high paying jobs et cetera. If the political climate in New York blows this deal, it would be the stupidest damn thing I've ever seen. And that's what I think. Now we have, as I said before, obviously, we are heavily involved and I'm the Chairman of the company, the Crystal City company, which is welcoming. So I think maybe some of the folks in the auction to take a much more welcoming savvy point of view on this deal.

Okay. My second question, as it relates to kind of the buyout at Farley, I think your overall cost in that deal might be sort of around $1,100 a square foot. I'm just wondering if you could sort of talk about your expectations sort of for leasing at Farley timing and remind us what your expectations are for a return on that project?

Steve, good morning. Listen, we think the Farley Building as a horizontal campus in New York. It is totally unique in terms of the space that we will be delivering. We have told you in the past, that we think rents at this building are triple-digit numbers and by the way, as you think about rents in the city, generally, when I mentioned earlier, some 44 million square feet or 42 million square feet of activity for the year, some 4.2 million square feet across the city last year was leased at over at over $100 rents. So these triple-digit rents as it relates to redeveloped and new construction clearly have become the norm. We think again our building is differentiated in a significant way from substantially all of the new well called vertical product. We remain in discussion with a number of tenants for this space. As I said, the space will be delivered for tenants to begin build out sometime by the middle of next year, very excited about the fact we now own 95% of this asset.

Yes. Our financial plan here Steve, is that we are basically going to build this deal with cash. Cash coming out of 2020, so that our cost of capital here is the lowest in the - the lowest that it's possible to be. And we have enthusiastic - very enthusiastic reactions from the brokerage community and the tenant community. And as I said and David also said, we love this one.

Okay. And then I guess my last question just around the uplift, you talked about it, I guess, 2PENN and maybe the uplift at 1PENN. I think you quoted a $30 per square foot figure. Just kind of help us think through how you're sort of framing that out, or thinking about the uplift in sort of the rent differential that you would expect there to be between some of the new product that Manhattan West and Hudson Yards and maybe ultimately your finished project at 1PENN and 2PENN?

Well, I mean, I think it's pretty simple. The in-place rents are high '50s, low '60s, on average with current leasing being a little bit higher than that, but the average in the buildings are those numbers. We think the finished product will be worth in the marketplace. Let's say, pick a number, $90 a foot. So that's a $30 uplift. Now out of that uplift has become a marginal increase in expenses, the cleaning doesn't get to be any higher or the operating doesn't have to, the taxes may go up a little bit. So basically, that's a fairly pure number, and we're pretty excited about it. We determine what we believe, the future market - we got to remember this is trended now for a couple of years. We determine what we believe the future market will be, based upon what we see all around us, what new building, new builds are going forward, other spaces going forward and the fact that we have the best location on top of Penn Station. And we have experience in transforming these buildings both at theMART and in New York at many different occasions. And we have history and what the transformation yields in terms of tenant demand and pricing. So that's our best judgment and we're pretty certain we're right.

Okay. That's it from me. Thanks guys.

Thanks, Steve.

Thank you. The next question in the queue comes from Manny Korchman with Citi. Your line is open sir. Please proceed.

Hey, good morning, everyone. Maybe if we can just sector Farley for one more second. In the past, you've discussed a potential life science component there and build out to support that. And now it sounds like you are squarely focused on a more traditional, if you will, tech tenant. Am I reading that correctly?

You know, maybe, where an equal opportunity landlords, I mean, when an important tenant at the proper pricing comes in, a strong tenant, we're very happy to welcome everybody with open heart. So we have some interest from science tenants, we have more interest from creative class tenants, we even have interest from some fairly significant financial firms. So once again, this is not a special purpose building. It's a building designed to service the entire market.

Thanks for that. And then in terms of street retail transaction activity has been a little bit lighter. What gives you confidence that cap rates haven't moved up more than the 25 basis points, Steve applied to the cap rates in your NAV analysis. And maybe with that, can you talk about the potential new legislation related to a vacancy pack?

The cap rate we put in this year's NAV is our best estimate of what the marketplace is. So it's a very thin marketplace, but these great scarce unique assets trend pricing that - we believe we've hit it right on the button, okay. The second question was what about legislation, Manny?

On the retail vacancy tax, it's getting proposed, I guess for the umpteenth time?

Well, I think the key thing there is the umpteenth time. Everybody is concerned about the fact that there are lots of vacancies on the streets of New York, it's not good for anybody. It's especially not good for the landlords. Okay. So I don't understand why the politicians - and we talked to these folks all the time. I don't understand why the politicians don't recognize the fact that it's landlords want to fill this space up more than they want the space filled up. And so obviously, the landlords that are professional will go to the clearing price for the space. So I think it's extremely what's the word, it's a bad piece, it's a bad idea both in concept then in execution. And I don't make predictions, but I'm fairly confident that it will go, it will pass by. By the way, just as I'm saying, we're confident - just as I'm going back to what Steve said, that just as I'm fairly confident that the Amazon deal will get completed.

Okay. Thank you.

Thank you. The next question in the queue comes from Jamie Feldman with Bank of America Merrill Lynch. Your line is open. Please proceed.

Great. Thank you and good morning. It sounds like you'll have a lot of move-ins and move-outs in the portfolio for the rest of the year and even as you're kind of getting ready for the 2PENN redevelopment emptying out that building? Are you able to give us more color on what same-store NOI could look like, what earnings could look like? Just some, a bit of a guide as we kind of - as you get the portfolio ready for those big changes?

Yes, you're talking about guidance. And as you know, we don't give guidance. We do guide for what we think are extraordinary things. For example, when the patent office moved out and what was it, the BRAC when we had all of that dislocation in Washington, better part of 10 years ago, we did guide for that because we thought it was something that was very difficult to predict that everybody was focused on. Last year, we did guide to what the minimum the retail cash NOI would be and I'm happy to say we missed it by $20 million to the positive side. So having said that, so we will think about your question because it's a valid question. I will tell you one thing. I for one as an operator don't understand how folks think about this. When we empty out a slug of space that's paying us $55 a foot to transform the building and two years later or 18 months later, we let that space for $90 a foot, we think that that's a huge asset and that's a very important part of our business and our colleagues as well. So whereas - what I'm really saying is that I wish you folks would look upon the fact that we are going to kick out $50 tenants and move in $90 tenants as a huge uptick in shareholder value. We hear what you're saying about guiding and everything, we'll think about it, but that's not the normal way we run our business.

Okay. That's a fair point. I mean, I think it's more just about setting expectations and I mean, I don't think anyone disagrees that it's the right thing to do to kick out tenants and redevelop the buildings, it's more just - so the market has a sense of what to expect as we are heading into quarterly earnings each quarter. And then moving on, I know Manny had touched on cap rates. Can you just talk generally about your thoughts on the 2019 transaction market? You said you thought office will probably pick up in terms of volumes. Maybe what's on the market and what do you think cap rates will look like?

Michael Franco is here, who is our Chief Investment Officer. I'm going to let him answer that question.

So Jamie, good morning. I think after a pause coming in the year, there's a number of things that are hitting the market. Some new product like the condo, interested 30, Hudson Yards, you've got some other, call it, Midtown buildings, maybe lesser quality coming out on Lex, but I think the sweet-spot is going to continue to be that under $300 million to $400 million size, where a lot of the deals were last year. But we also have some bigger deals coming out, whether it's a couple of things that SL Green is putting out or some of the other assets in the Garment District. So it looks like near-term, there's probably $5 billion to $6 billion of office product that is recently hit or will hit in the next 30 days. I think it's probably higher quality than what we saw for the bulk of last year and we'll see how it plays out, but I think the investor interest, at least from what we're seeing, hearing, is active and I think you're starting to see investors perceive value in Midtown as well, just sort of on a price per square foot standpoint, where most of the assets are trading for $1,000 a foot or less, which is, as we're seeing now, is some of the new builds that are going out at $2,000 a foot or north. That's a pretty attractive basis. So the market feels like it's picking up in terms of quality and I think we'll see investor interest reflect that.

I would put my $0.02 and I agree with what Michael said. I think the first thing is that buildings have been pricing now at $1,000 a foot in that neighborhood a pinch more or a pinch less for years now. The investing marketplace has gotten used to that number and considers it to be fair value as I do. So there is no sticker shock and people are getting used to the pricing of what first-class Manhattan office buildings trade for. So I think that there is a very deep market of investors who want to invest in New York. I think it's basically the strongest market in the world. We know what's going on in London, we know what's going on in Europe. I mean, Tokyo is doing great, that's a whole different kettle of fish. So what I'm saying is we think New York gets way more than its fair share. We think pricing - investors are used to the pricing and we're anticipating a strong investment sales market next year.

Okay, thank you. And then finally, Steve, you had mentioned as source of capital non-core asset sales. Are you thinking more operating buildings or maybe you've seen a decent move in some of the REIT stocks, some of the equities you guys are holding?

All of that is on the for sale list. I'm not going to predict timing and I'm not going to predict, which specific assets. But I mean, we were pretty transparent in what we intend to do to realize over $1 billion of sales. It's pretty obvious what we're doing in terms of timing those sales with our CapEx needs, et cetera. So that will all roll-out over time.

Okay, thank you.

Thank you, sir.

Thank you. The next question in the queue comes from Adam Gabalski with Morgan Stanley. Your line is open. Please proceed.

Hey, guys. Thanks for taking the question. Just on street retail, given what we saw happen with rents in 2018, do you guys have any thoughts on where you could see street retail rents bottom and start to inflect positively? And also, whether or not Vornado is considering taking advantage of any distress you're seeing in the market?

We love the stress, Adam. We can't wait for some distress. We have the capital base, the appetite and most importantly the expertise to be interested in growing in this asset class at fair prices or maybe even a little bit below fair prices, so there's that. We're not seeing a lot of that. We're beginning to see the first inkling of assets going back to lenders now and so that's the beginning of that cycle. With respect to rents, the biggest problem on rents are that there are fewer tenants trolling the marketplace looking for space. So we don't yet know what the bottom price is. If you follow this market as most other markets, it will take a while, maybe a year, maybe two years for some of these vacancies to be cleaned up by bottom fishers and then the market will level and start to grow again. So we have the enviable position of not really having - I mean, we have a vacancy here, we have a vacancy there, but in terms of the mass of our portfolio, it's under lease for long-term with good tenants and so we're fine.

All right. That's very helpful. Thank you. And then just one more on street retail, I know the Massimo Dutti and Westbury expirations got pushed out a little bit. Can you just talk about the latest update on those leases and then what the impact will be to street retail NOI in 2019?

Once again, that's a guidance question. I don't think the Massimo Dutti lease was pushed out. So I don't think that and the neighboring MAC lease has - goes into the 20s, 24 I think. We have people cruising the Massimo Dutti space. We have nothing to report yet.

All right. Thanks. Appreciate it.

Thank you. The next question in the queue comes from Alexander Goldfarb with Sandler O'Neill. Your line is open. Please proceed.

Good morning. Steve, I appreciate your comments on guidance. So I guess, let me try to ask it this way. If we look over this year - well, Steve, you got to try, right, every New Yorker has got to try. If you look over earnings this year and next, obviously theMART had - you guys created values, the taxes went up, you'll recoup part of that, but still that's a net headwind. PENN2 is going to come offline, I think, next year. So that's some NOI that will come off in the near term, obviously you guys will boost rents and grow it eventually. But you then have the Cube at 555 that will get filled and produce NOI. So just with all the different pieces that are coming and going, including some of the street retail vacancy that - I mean, street retail that you talked about before. Directionally, do you see over this year to next that net NOI will be growing, stay flat or reduce just with all the different moving parts? I think to Jamie's question, earnings have been flat the past few years. So just trying to get a sense for how, directionally, people are thinking about it because I think we all agree you're creating value at the NAV and property level, but just from an FFO, that part stays flat?

I don't want you to hold me to this, but I would just say, directionally, if you think flat, that would be a good thought. Okay? So there is - I mean, the business is, some people refer to it as noise. I refer to it as the normal ebb and flow of our business. Tenants move in, tenants move out, rents go up, rents go down, whatever, okay. So if you take it all together, the office business in three different jurisdictions, arguably the best building in San Francisco, arguably the best financial asset in Chicago and our New York business and our retail business, overall, I think it will all known together as flat, but that's not a guide and don't hold me to it. Okay.

Okay. And then the second question is just bigger picture, I guess, this morning or yesterday Silverstein said, he may go spec Downtown, obviously Brookfield has talked about going spec on the Far West Side. Do you view this as marketing bluster, like trying to drum up business or are you concerned that we could suddenly have another supply wave, where we're just sort of working through the previous few years of supply delivery, which has pressured rents in New York?

Hey, these are major, major people. They don't bluster, okay. They may bullshit a little bit, but they don't bluster. So you got to remember that both of these firms are firms that deal with promoted third-party capital, okay. So what their - my guess is and I haven't talked to either of them about this, if they can get the - an investor who has the appetite, they'll build the building, why not, okay. So I think that's totally possible and whatever. There is a large appetite of invested capital for buildings for - even for development and brilliantly located spots, like Park Avenue for example. So I have no idea what Larry and Rick are going to do and they're both seasoned guys. Rick has got fund money that he has discretion over, so he can build it if he wants to. Larry will raise third-party capital if he can and we'll see what happens.

But you're not concerned about another supply sort of glut pressure in rents though, it doesn't sound like?

A building here, a building there, a building in the next place, these buildings, they won't take five, seven years to create. They are like pulling teeth. They will not have a dramatic influence on the 400 million square foot New York City office business. The last time that this happened was in the early - in the 80s, where there was a zoning change and then the entrepreneurial developers, there was a rush to beat the zoning change and 20 million or 30 million square feet was created in one slug. That is not happening now and will not happen now.

Thank you, Steve.

By the way, as an aside, okay, we love to build new buildings. I mean, we're pretty good at it. We have - we built the Bloomberg building, we built 220, so we know how to do it. It's part of our skill-set. But our main business is in the core of properties that we own now. And if somebody is going to build a new building and get $120 a foot rents for it, that creates the absolutely wonderful price umbrella that we function under in the $80-$85, $90-$95, $100 range. Okay? So that's all fine.

Thank you.

Thanks, Alex.

Thank you. The next question in the queue comes from John Kim with BMO Capital Markets. Your line is open. Please proceed.

Thank you. Thanks. Just want to follow-up on Alex's last question. Given Manhattan West directly competes with Penn Plaza, does that potentially change the timeline of the redevelopment of PENN2?

Absolutely not. Absolutely not. PENN2, we are going as fast as we can on PENN2. We're going to deliver the product as quickly as we can. We think it's unique product and we think that's all fine. The more people that are in our neighborhood in first-class property with first-class tenants, the better it is for the entire neighborhood, us included. So we don't look upon them as a competitor, we look upon them as a colleague and as a good neighbor.

Okay. With your NAV at $97, can I just ask what your updated views are on a share buyback? Given you now trade at a 28% discount? And I don't know if you saw this morning, but Simon just announced a $2 billion buyback program during the call?

No, I didn't see that. Our views on the buyback are the same as we have communicated over the last year or so.

Which is you look at it, but it's lower on the priority list?

The answer is that our views would change if somebody were to do a buyback that was successful. So that hasn't happened yet and so we'll watch and learn, keep our money in our jeans and we'll see. So the answer is, it's right - as of right now, our thinking about buybacks is pretty much the same as it's been over the last year or so.

Okay. And then a final question, this might be for Joe. But at 220 Central Park South. You had on your balance sheet condo units ready for sale at $99 million and that's lower than what you've already closed in January. So I'm wondering, if this is a good indicator of what you plan to close on over the next quarter going forward?

I think in Steve's remarks, he commented that through the first five weeks in January, it was another $290 million. We anticipate substantial additional closings in the remainder of 2019 and quarter-by-quarter they will be more reclassified for accounting rigors into that category, that's your question. But yes, we expect substantially more closings. Remember, all of the full floor apartments have been sold for the remainder of 2019.

Check me on this Joe. My understanding of the accounting convention is that when an apartment gets a TCO, a temporary certificate of occupancy, it gets reclassified into - on the balance sheet as apartments available for sale.

That's correct.

So that the number that you're looking at is - got nothing to do with sales, nothing to do with future financial activity, it has entirely to do with how many apartments in what order we have gotten because on.

And this is number as of the end of the year, not a number into 2019. It will grow in 2019.

And so our plan is that we get TCOs on the apartment serially as we go through right before we sell them. I hope that helps.

Yes, it does. Is there a good run rate that we should be modeling? Is it $200 million to $300 million per quarter?

No. We haven't given the information by quarter. And to take that noise out of earnings, we've shown it as non-comparable because, again, it is one-time, albeit over $3 billion in total. But no, we have not given that by quarter and I don't think we intend to.

It's going to roll out over the next year, okay. I mean, pretty simply, whether it's another $100 million or $200 million, more one quarter or less one quarter, doesn't matter, it's going to all rolled out and be sold over the next year.

Great, thank you.

Thank you.

Okay. The next question comes from Nick Yulico with Scotiabank. Your line is open. Please proceed.

Okay, thanks. Couple of questions, first on, how we should think about - you talked about the $25 million of capitalized interest from 220 Central Park South. I think the plan is to paydown debt from the sales of the condos, which would lower your interest expense, but then you are also losing that capitalized interest benefit over time. So can you just give us a feel for how we should think about that impact to your interest expense over the next year?

Well. Hi, it's Joe. Good morning. We've said publicly that we're going to paydown the construction for its mortgage, which was originally in the amount of $950 million. At year-end was a little over $700 million. Today is a little over $400 million. And that - the balance of the proceeds are going to be used, as Steve said earlier, to fund the needs of PENN1, PENN2, Farley, the entire pipeline of what we have in development. We've shown you in the NAV $1 billion, that's not - and somebody wrote in one of the reports, that's an increase from the prior year quarter. It's really the same number and that comes from the $3.2 billion of sales proceeds $200 million of taxes is $3 billion, the cost of the job was $2 billion, that's $1 billion. So I think that's where we are.

Okay. I'm just trying to think about capitalized interest, which is at its highest level for your Company. Last year is kind of a benefit for interest expense and how does that change going forward as 220 Central Park goes away versus you spending on your new redevelopments?

Centrally put, our financial plan is this. The first sales that come out of 220 go to paydown a secured loan of $950 million, which is now in the fours and will quickly go to zero. So that eliminates the interest expense for that loan. And by the way, that loan is the lowest cost of capital in the industry. Then all of the capital that comes out after that, which is going to be the better part of a couple of billion dollars, okay, will go into CapEx or other purposes. So when you think about it, I mean, we are going to be building these buildings with no interest cost and therefore the profit in those buildings will be higher, the accretion to our P&L will be very substantial.

Okay, thanks. And then just going back to the Retail segment, can you - I know, you have the benefit this year from Levi's, Sephora, Forever 21 lease commencements. As the offsets you do have some of the move out, Massimo Dutti and then the expiration this year, I think there was also some temporary occupancy renewal item at Westbury. So do you mind just giving us a feel for the expirations and the move-outs, the temporary occupancy issue? I mean, how much of offset that is to your - the benefits you are getting from lease commencements and lease escalations in the portfolio?

I mean, that's a detailed guidance question, again. Basically, in the beginning of last year, we said that our retail cash NOI would not go below $304 million, okay. That number was adjusted to $309 million because we bought back some of the Retail - it was the other way around, $309 million, we bought back some of the Kmart space in favor of Facebook, so that number went from $309 million to $304 million. In mid-year last year, we said that that minimum number, this is a minimum guidance that we gave last year for Retail would be no less than $315 million cash NOI, okay. We came in the year at $324 million, okay. So we're happy about that. It's too sensitive a number for me to give you something off the top of my head. But once again, we are guesstimating that the retail business cash will be flattish this year.

Okay, thanks. Appreciate it.

Yes, sir.

Okay. The next question queue comes from Jamie Feldman with Bank of America Merrill Lynch. Your line is open. Please proceed.

Jamie, welcome back.

Thank you. Good to be back. I just had a quick follow-up, I don't want to prolong your call. But in the foot - on the 10-K on Page 31, you have a footnote talking about where you think you can get rents leased or kind of renewals done in 2019. And it looks like on office, you're looking at about an 11% leasing spread, it looks like on, should retail, you're looking at positive depending on where it is in that range, but generally positive. I just want to get your thoughts on, are you seeing rent growth? Is this kind of a flat - a look at market rents being flat? I just want to get your thoughts on where market rents are going and if there's any way to tie this into kind of leasing spreads for the year that would be helpful?

Jamie, first of all, my congratulations for ferreting that information out. I think that's genius. Joe, what are you guys saying?

I was just going over with David that what Jamie is referring to is the office expiries in 2019 have an average embedded rent of $65.58 and Jamie took the midpoint of our guidance for what that will we let at and that was $73, so he did the math and said it's 11% mark-to-market. That's close.

So Jamie, I think the important point there is this - the number that's published. Effectively it is only relevant with respect to the 600,000 to 700,000 square feet, that's actually expiring next year. So it's not reflective of mark-to-markets across the portfolio, it's not reflective of where we think rents are across the portfolio, we're specifically looking at the space that's coming up over the course of the next year and in fact some of that space that's coming up comes in at 2 Penn Plaza, which in fact is going to go out of service.

Okay. And then just...

Jamie, your observation that next year's numbers will benefit from expiries at a low number in the mid 60s as opposed to $10 or $20 higher than that is a valid observation. So we do expect to have a low double-digit mark-to-market in 2019.

Okay, thank you. And then just general sense of rent growth in the market...

…little higher. Go ahead, Jamie.

Just general sense of rent growth. I mean, would you say rents are rising or would you say they're still generally flat?

I'll come back to what I said a little bit earlier, Jamie, and that is while if you look at a single spot number and say Manhattan rents generally over the last year went up 3%, 4%, 5%, whatever the number is, again I think the key is and we've emphasized this in any number of our calls is looking at the sub districts in the city, where we've seen the highest rent growth. So I mentioned Midtown South, which obviously includes our West Chelsea assets, asking rents in Midtown South have increased dramatically over the last couple of years. The same thing is true obviously in Hudson Yards and in Manhattan West, where rents started out several years back in the mid 70s and those numbers today are in the triple-digits. The most telling thing as I said earlier is what we're seeing today is triple-digit rents are no longer a sticker shock to tenants as it relates to new product and redeveloped product. So generally, I'd say we are seeing a bifurcation in the marketplace between buildings that are older buildings, not redeveloped, where rents are flat and maybe even trending down a bit to the redeveloped product and newbuildings, where we are seeing rents increasing. And then the other thing I would add to all this is from a concession point of view, we see concessions that basically have leveled off at this point in time. All encouraging from a net effective rent point of view.

Okay. All right, thank you. And I have to be on a driver client is even smarter than I am that pointed that out to me, just full disclosure, but thank you for your help.

That's all very interesting. I'm happy to give you the credit. Thanks.

All right. Thank you.

The next question in the queue comes from Daniel Ismail with Green Street Advisor. Your line is open.

Thanks. Good morning, guys. Just a quick one from me. On the NAV page, looks like you raised the cap rate for residential by about 50 bps. Can you provide any more color on that? And is that speaking to just weakness in the rising market in New York?

We are not that smart to know whether it's exactly this or that or the other, we just thought 3.5 was a very aggressive number. It's a small number in our portfolio. It doesn't affect the NAV substantially and we thought the better part of conservatism and the better part of valor was to take it up a notch. I am sure that the residential gang would fight me and say the number is really 3.5 or 3 or 2.5 or whatever it is, but we are comfortable with 4. And from our point of view, it doesn't make any difference, whether it's 3.5 or 4 in terms of the shareholder value of our Company.

Fair enough. Thank you.

But we have limited market knowledge. To support that, we have some. But I mean, we're not going to die on our sword over that number.

Okay. The next question in the queue comes from Manny Korchman with Citi. Your line is open. Please proceed.

Hey. It's Michael Bilerman here with Manny. Good morning, Steve. Steve, last July, late July...

Hi, Michael. I was wondering, where you were hanging?

I'm hanging. You made a comment last July, when talking about the NAV discount that you have fluctuate between being frustrated and being test. And you said, we can quote you on it, so I'm quoting you on it. The NAV went up over the course of the year, right? You've been executing and getting additional office NOI as the lease has started and a number of other value creating activities. And so, I'm just wondering, at what point should the market expect any sort of future ways of narrowing this gap, and I know you've talked about the share buyback being not something that you'd want entertained because others haven't been successful at it in your mind. But when should we expect something else that that may occur, if anything?

Once again, as I said before, we think we've done more in terms of restructuring our business, focusing our business, spinning off this, spinning off that, selling non-core assets, et cetera. Anybody in the entire industry and once again, we still think the stock is significantly undervalued. And we continue to work hard on it. We can't really tell you and we are not going to speculate and we're not even going to hint anymore as to what we might do. When we decide to do something, that's when we will announce it.

Do you feel like the time to do something is getting shorter, given what's going on in the marketplace that you'd want to make a decision about what route to go to narrow this gap that arguably you've been frustrated with? It's not something that's a new and I totally agree with you of all the value creating things that the Company has done over the last number of years to highlight that value and increase that value. I just don't know whether you feel like time is getting short to want to take advantage in the marketplace that may be changing?

What do you mean by take advantage and what do you mean by may be changing?

Well, I don't know, I think there's a lot of uncertainty out in the global marketplace and you don't want to be in a situation, where you can't get to that NAV in the event that we have a softer economic environment or there's some other external event that occurs.

Well, I think that would be the opposite of what you just said. If you're hinting that we may have a recession and the stock market may go down, that would be the time that we would want to avoid buying stock at this price, you think it's going to go lower, I don't know. I mean, I'm not...

Well, I don't think stock - I'm not saying stock buyback, I can see that your view on that, that may not be the route to go, I'm thinking more broadly strategic in terms of liquefying additional assets, may be doing additional spin or split offs, doing some other may be type of sales transactions to narrow the gap between what you believe is $97 and the stock that's in the $70s?

My answer to that is yes. I mean, we appreciate your advice, believe me, that's something that we focus on every minute of every day. And I've been cautioned by some of my friends out there not to speculate, not even to hint that what we might do, just shut up and do it and that's what we're going to do.

Okay. And I look forward to seeing what comes out. I appreciate it. Thank you.

Thanks, Michael.

Okay. And the last question in the queue comes from Steve Sakwa with Evercore. Your line is open. Please proceed.

Thanks. Just a follow-up. David, you had kind of touched on this, just in terms of like the TI leasing commissions, they're running a little over 12% in New York. I'm just curious, how you sort of see that number trending over the next year or so? I mean, if rents are up, you see CapEx and TI leasing commissions kind of being flat so that number can go down or do you see that 12% holding steady?

Leasing commissions realistically are a function of a percentage of the rent. So leasing commissions realistically are going to track directly as it relates to rent. So unless I'm missing something, I want my leasing commissions to be generally as high as they can be because it's going to reflect a significant rent growth. So I think the only variable relates to TI allowance and as I said, I think those numbers have plateaued.

Okay, thanks.

We have no further questions in the queue at this time, so I will now turn the call back over to Mr. Steven Roth for any closing remarks.

Thanks, everybody. I just want to emphasize one thing, which is, in my remarks, I said that our financial plan is to take the very significant billions coming out of 220 Central Park South, which has a zero cost of capital and putting it into our developments, which will be enormously accretive. We're very excited about our future prospects and growth and all of our conversation about 220 has focused only on One Penn and Two Penn and Farley and not all the other assets. So anyway, we're very enthusiastic. We look forward to talking with you again next quarter.

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