Toys "R" Us

When we analyze an acquisition, we try to think of every everything, every scenario, every danger. This acquisition was made with private equity giants Bain Capital and Kohlberg Kravis Roberts as our partners. None of us could ever have conceived of the lead toy recalls on the front pages for months. In one of the most effective crisis management performances any of us have ever seen, the Toys "R" Us team developed protocols, handling each recall affecting 1,350 stores worldwide with a 24-hour product removal and replenishment standard. Toys "R" Us, with CEO Jerry Storch as spokesperson, became the poster child for product safety, testifying before Congress and imposing industry-wide standards. Product safety is the core principle for Toys "R" Us. Financial performance was not impacted by the recalls.

Vornado reports Toys "R" Us results on a one-quarter lag basis. Toys "R" Us' holiday fourth quarter is already in the books, but not published until the second week of April 2008. Our share of Toys "R" Us' holiday fourth quarter will be reported with our first quarter results. Toys' EBITDA running rate is now $1 billion, a full 36% higher than when we acquired it two and a half years ago.

Toys "R" Us is a private equity deal and thus a highly-leveraged transaction. A schedule of Toys "R" Us debt maturities is on page 162 of Vornado's Form 10K. Other than $243 million of Yen-denominated debt, which is being refinanced as we speak, the next debt maturities of this business are in December 2010, two and three-quarters years away. Substantially all of Toys "R" Us debt is floating rate – the current favorable interest rate environment will give Toys substantial savings in 2008, 2009 and 2010 over 2007. Vornado's equity investment in Toys "R" Us is $400 million, and our proportionate share of Toys debt is $2.1 billion.

Mike, together with a representative of each of our partners and senior Toys "R" Us management, are on the Toys "R" Us Executive Committee, which meets monthly. Mike, Wendy and I are on the Board, which meets quarterly. Sandeep and Ben Schall are intensively involved in the real estate side, as is Joe, Ross and Paramus Chris Kennedy on the accounting side. Clay, Wendy, and her counterparts at our partners handle the finance side brilliantly.

Vornado has great respect for Jerry Storch and Ron Boire, Deb Derby, Clay Creasey and Claire Babrowski, Dan Casperson, and Rick Ruppert.

India

We are invested with local partner The Chatterjee Group to develop 10.8 million square feet on land already owned in India's leading cities. To date, 1.7 million square feet have been completed. Also, we are a founder of the India Property Fund, which invests in office and mixed-use development throughout India. This $600 million fund is over half committed, and is sponsored by The Chatterjee Group and a Vornado affiliate, 75/25. Our commitment for these investments is $185 million, of which $90 million has been funded. Further, we have just entered into a conditional agreement with Reliance Industries Limited, an $87 billion market cap India conglomerate, to form a 50/50 joint venture to develop large retail shopping centers throughout the country. Our commitment here may be up to $250 million. Our house limit for investment in India is currently $500 million.

GMH

In July 2004, we made a convertible loan with warrants to bridge GMH Communities Trust to an IPO. Our initial investment here was $120 million, which was paid down to under $40 million after four months from IPO proceeds. On February 21, 2008, GMH announced two definitive agreements to sell its military and student housing divisions for an aggregate sales price of approximately $9.61 per share/unit. On closing (scheduled for the second quarter of 2008), we expect to receive approximately $102 million, winding up this investment, which will have had an approximate 35% return.

(7) Of course, Toys debt is non-recourse to us.