Vornado Realty Trust CEO Discusses Q2 Results - Earnings Transcript

Start Time: 01:00

End Time: 02:12

Vornado Realty Trust (VNO)

Q2 2012 Earnings Call

August 7, 2012 01:00 PM ET

Executives

Cathy Creswell – Director of Investor Relations

Michael Fascitelli – President and Chief Executive Officer

Joseph Macnow – Chief Financial Officer

Steven Roth – Chairman

David Greenbaum – President - New York City Office Division

Mitchell Schear – President of the Washington D.C. Division

Analysts

Steve Sakwa – ISI Group

Michael Bilerman – Citigroup

Jeff Spector – Bank of America/Merrill Lynch

James Feldman – Bank of America/Merrill Lynch

Anthony Paolone – JPMorgan

Michael Knott – Green Street Advisors, Inc.

Ross Nussbaum – UBS

Chris Caton – Morgan Stanley

Alexander Goldfarb – Sandler O’Neill & Partners

John Guinee – Stifel Nicolaus

David Harris – Imperial Capital

Tom Truxillo – Bank of America

Presentation

Operator

Good afternoon and welcome to the Vornado Realty Trust Second Quarter 2012 Earnings Call. My name is Ellen and I will be your operator for today’s call. This call is being recorded for replay purposes. All lines are in a listen-only mode. 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.

Cathy Creswell

Thank you. Welcome to Vornado Realty Trust inaugural quarterly earnings call. Yesterday afternoon we issued our second quarter earnings release and filed our Form 10-Q with the Securities and Exchange Commissions. These documents as well as our supplemental financial information package are available on our website, www.vno.com under the investor relations section. In these documents and during today’s call we will discuss our non-GAAP financial measures. Reconciliation of these measures to the most directly comparable GAAP measures are included our earnings release, Form 10-Q and financial supplements.

Please be aware of the statements made during this call maybe be in forward-looking statements and actual results may differ materially from these statements due to a variety of risks, uncertainties and other factors. Please refer to our filings with the Securities and Exchange Commission including our annual report on Form 10-Q for more information regarding these risks and uncertainties.

The call may include non-sensitive information that maybe accurate only as of today’s date, August 7, 2012. The Company does not undertake a duty to update any forward-looking statements.

On the call today for management for our opening comments are Michael Fascitelli, President and Chief Executive Officer and Joseph Macnow, Chief Financial Officer. In addition Steven Roth, Chairman of the Board, David Greenbaum, President of the New York Division and Mitchell Schear, President of the Washington D.C. Division are here to answer questions during the question-and-answer session.

I will now turn the call over to Michael Fascitelli.

Michael Fascitelli

Thanks, Cathy. Good afternoon and welcome to our first earnings call. There is quite a few on the phone, we are happy and delighted and that you all are joining us today. We’d appreciate your time and attention.

After my prepared remarks, Joe Macnow, our Chief Financial Officer will provide a financial overview and then we will answer your questions. We will end at approximately 2 PM. It has been a very productive quarter for us and we are making significant progress on the We Will statements made in these shareholders letter.

We have had substantial progress on simplifying the company and are committed to continue this. I would like to remind everyone that 80% of our earnings come from New York and Washington office and retails holdings where we have great platforms and great management teams.

Let’s start out by talking about asset sales. As we said in the past, we are exiting the mart business. In the second quarter we sold or contracted to sell four mart assets for $228 million, the L.A. Mart, the Boston Design Center, the Washington Design Center and the Canadian Trade Show Business.

And as a remainder, in the first quarter we completed the sale of 350 West Mart Center for coincidently $228 million. In the second quarter we also sold our Washington Office Center which is contiguous to the Washington Design Center and six non-core retail properties.

The total proceeds from second quarter sales of $500 million with a net gain of $177 million. Together with sales in the first quarter, total proceeds are $821 million with a net gain of $232 million.

In the second half of the year, we are contemplating the sale of over $1 billion of assets. Including the beginning of the mall disposition program and continuing the pruning of our strip center portfolio.

We are currently marketing Green Acres Regional Mall and Kings Plaza Regional Mall as well as our 650,000 square foot power ship center, known as the plant in San Jose California today in my field.

Let me now talk about acquisitions. In the second quarter we focused on street retail which I would like to review. First we contracted to buy 114,000 square foot retail condominium at 666 Fifth Avenue for $707 million and 4.5% going in cash cap rate and 5.6% GAAP cap rate. This deal is expected to close in the fourth quarter. As you probably know, we acquired quite a co-controlling 49% interest in the 666 office condominium in December 2011.

Second, we announced last week that we entered into a lease with Host Hotels & Resorts under which we will redevelop the retail and science departments of the New York Marriott Marquis Times Square Hotel. This leads gives us effective control of the retail site that contains options based upon – based on cash flow which effect size (ph) will lead to our ownership and reward us for our redevelopment efforts.

The property is located in the bow tie in the heart of Times Square and snaps the entire block from 45 th Street to 46 th Street on Broadway directly across our iconic 1540 Broadway retail property, formerly the home of the famous Virgin Record Store in sign.

Host Hotels & Resorts slowly transformed our property where we added Disney and Forever 21 flagship stores to create a full block front of state-of-the-art dynamic LED signage.

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