front on the wide avenues. We expanded the site by building two, twenty foot high below-grade floors (nine foot basements would not have worked), one of which Sandeep leased to The Home Depot and the other was leased to Bloomberg. 

■ The office component makes money, and also serves as a pedestal 475 feet in the air on which sits the 23 story apart- ment component, creating towering views and terrific value. 

In February 2004, Alexander’s completed a $400 million ten-year financing of the office portion of the 59th Street project, at a 5.33% interest rate. Thanks again Wendy. 

Last year’s annual letter had a section entitled “The Anti- Reality Show Called Accounting.” Here’s another interesting accounting quirk. Alexander’s has outstanding 100,000 stock options and 850,000 stock appreciation rights (SARs) at an average strike price of about $72. Accounting requires that these SARs be marked-to-market each quarter . Let’s look at the effect. Alexander’s trading price has been bouncing around, but let’s assume a price of $150 per share, a price that exceeds the strike price by about $78. 

Therefore, Alexander’s earnings has or will be charged about $66 million and Vornado’s share of this charge is about $22 million—all this at the same time Vornado is enjoying a $129 million mark-to-market increase in the value of its Alexander’s investment, which under today’s account- ing is not reflected in earnings—strange. 

## Corporate Governance 

It is our foremost priority to conduct our business with the highest level of ethics and corporate responsibility— and we do. Our trustees’ refined sense of right and wrong, knowledge of our business, questioning nature, devotion to and ownership stake in Vornado are the foundation of our gover nance. 

W e have now completed codification of our Corporate Gover nance Program, putting us in compliance with the applicable securities laws and stock exchange requirements. 

This program included the adoption/amendment of charters, guidelines and codes which are all available on our website. In addition, our Board has determined that five existing trustees, constituting a majority, are independent. 

Our Corporate Governance Committee and the Board have the following observations: 

■ Six of our nine Trustees have a nine-figure investment in Vornado and a seventh has an eight-figure investment— extraordinary. And, believe me, these Trustees really care about their investment. 

■ Six of our nine Trustees are life-long real estate profes- sionals, which is very helpful. But, it should be noted that the Board believes that it would benefit from the addition of one or more generalist members. 

■ Our Board believes it would benefit from a dose of youth. 

■ Our Board thinks that it would be better to increase the current five to four ratio of independent to non-inde- T rustees, and we will. pendent Trustees by adding one or two independent 

■ For the moment, our Board has determined to maintain its classified structure and that it is okay for me to serve as Chairman and CEO. (17) 

