Defense/Offense

While we prefer offense and growth – and we are always hunting (especially now) – the storms in the economy and capital markets now require defense first. I give us an A-minus grade for defense, i.e., the ability to withstand these difficult times.

At this date, we have $1.482 billion of unrestricted cash plus $325 million of restricted cash and $296 million of marketable securities.

We have $2.6 billion undrawn, 4-5 year term, committed lines of credit. Our credit lines and cash give us over $4 billion of immediately available liquidity.

Vornado's consolidated debt is $11.7 billion (after eliminating the debt of AmeriCold, which was sold on March 31, 2008). Maturities for the next three years are quite manageable: 2008 - $71 million; 2009 - $711 million; 2010 - $1,084 million. Interest rate coverage is a trailing 2.89x.

Vornado's unencumbered EBITDA is $638.1 million.

Vornado's income stream is protected by long-term leases, well below-market rents and diversified tenant base. We have 4,000 tenants. That we have both office tenants and retail tenants is comforting. Except for the U.S. Government, no one tenant accounts for more than 1.6% of our revenue (Bank of America) and the 20th largest accounts for .4% (Boeing).

As early as spring 2007, at the first hint of crisis, we reacted. Realizing that capital spent could not now easily be replenished, we went into hunker down, preserve capital 101 mode. Acquisitions were curtailed unless they were killer. All development/growth capital expenditures were postponed until there was a source of funding, i.e., a construction loan. Selected assets were financed. We always run our balance sheet with plenty of dry powder to seize opportunities and to protect us from the lights going out. Our balance sheet is even stronger now.

Of course we are in recession, or not. In any event, our consumer-led, automobile-centric economy is struggling from a double whammy, a housing bubble/declining home prices and $4 a gallon gasoline. Further, our financial system is frozen, the result of hundreds and hundreds of billions of dollars of loan losses (staggering, shocking), vaporizing capital and the liquidity that drives our economy. Today's debt crisis is worse than that of the 90's. Then it was "only" real estate (you remember the savings and loan crisis, the RTC, etc.). This newer, bigger version of a debt crisis is affecting every corner of our economy and has even gone global. But so be it.

Our government is responding. The Federal Reserve is active, taking unprecedented action, as I believe they should.

Market participants are shunning risk, hoarding liquidity, so much so that there is a scarcity of short-dated treasury paper. The one-month Treasury bill had a yield of 26 bps on March 19, 2008, and that is an annual yield. Today it yields 157 bps. American-style capitalism is self correcting. We expect some time next year the shortage of safe paper will turn to be a shortage of yield. Remember the forces that caused the real estate boom of the second half of the 90's and the first half of the 00's – low interest rates and rising rents. The same pattern is forming again, for an encore. And there is no new supply on the horizon (the credit freeze will see to that). We expect the rental market to soften a bit near term, recovering as the economy does, and then look for real estate values to make new highs. Our economy will heal and be reborn over the next two years.

For us, trouble is opportunity. In each down cycle, we have been able to make a transformative, value creating acquisition(s). These were generally contrarian ideas, camouflaged ideas or capitulated ideas. In 1980, the original Two Guys/Vornado deal; in 1985, Alexander's; in 1997, Mendik; and in 2002, Charles E. Smith Commercial Realty. We are hunting. For sure, we have the capital, organization and talent.

(8) Had we had even more cash, I would have awarded us an even better grade.