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Vornado's prospective DC spinoff looking more likely

Commentsfrom Vornado Realty Trust'smanagement on the company's first-quarter earningscall suggested a spinoff of the REIT's Washington, D.C., business is a very seriouspossibility.

In preparedremarks, executives confirmed that the company is still exploring a separation of its Washington, D.C., business.

"Wecontinue to explore separating the Washington business, and we have begun a processto dispose of the Skylineproperties," Chairman and CEO Steven Roth said, referring to a collection ofNorthern Virginia offices.

At theoutset of the Q&A segment, an analyst sought more details about the company'splans, pointing to a discrepancy in its NOI roadmap.

"Iappreciate the color on the $1.1 billion of additional NOI in 2017, but you seemedto have overlooked D.C. when you were giving those numbers," the analyst said."Are we reading too much into it, that D.C. will be out of Vornado by then?Or were you just waiting to talk about it later in your script?"

Roth paused for several seconds before answering: "We werefocusing on our New York segment, which is clearly the dominant segment in our business.Notwithstanding that, we have said repeatedly, and hinted, that we are studying,analyzing separating Washington. So while we aren't announcing that, and it mayor may not happen, you can read into that whatever you care to."

The intrigueabout the potential spinoff reached such a degree that another analyst inquiredabout the timing of the prospective spinoff and its hypothetical leverage levels.

"Itsounds like you're not willing to give timing yet, but if you could just give acomment as far as, if it were to occur, what you would see … as far as leverage,and then what the cash position of that entity would be," the analyst said.

Withrespect to time, Roth highlighted the company's spinoff of UrbanEdge Properties as a guidepost, but said only that the company wouldundertake the spin "at measured speed."

"Aswe did with Urban Edge, it was properly capitalized, it had fine assets, it hadenough money — it had enough capital and credit … to complete its mission,"Roth said. "It had a well-defined mission. It had basically inherited our managementteam, plus the addition of one very, very talented CEO that we recruited on theoutside. And then he added a CFO, etc. So the business will be, if … and when wemake that decision and launch, it will be set up for success — from a balance-sheetpoint of view, from a capital plan point of view, from a team point of view."

Anotheranalyst immediately followed with another spinoff-related question. He pointed outthat the Washington, D.C., portfolio is comparatively large, and wondered what opportunitiesin the market are presently being missed, and what the management of a stand-aloneentity would do differently.

"Ifwe do separate Washington, it will be for the reasons that we've already investigated,OK?" Roth said. "And that is to have a focused management team with avery specific mission in Washington, which may or may not involve capital partners,etc. And it will have its own report card, namely its own stock price. And willhave its own board and be able to make its own decisions. … We also believe theNew York business will benefit by being a focused New York business, so that globalinvestors can invest in the New York platform, the New York assets and our New Yorkactivities separately from Washington or shopping centers or whatever. So that'swhat our objectives would be."