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VORNADO REALTY TRUST - Quarter Report: 2011 September (Form 10-Q)

vrt3q2011.htm - Generated by SEC Publisher for SEC Filing  

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)   

OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the quarterly period ended:   

September 30, 2011

 

 

Or

 

o

TRANSITION REPORT PURSUANT TO SECTION  13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from:

 

to

 

 

Commission File Number:

001-11954

 

 

VORNADO REALTY TRUST

(Exact name of registrant as specified in its charter)

 

Maryland

 

22-1657560

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification Number)

 

 

 

888 Seventh Avenue, New York, New York

 

10019

(Address of principal executive offices)

 

(Zip Code)

 

 

(212) 894-7000

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

x Large Accelerated Filer

 

o Accelerated Filer

o Non-Accelerated Filer (Do not check if smaller reporting company)

 

o Smaller Reporting Company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes No

 

As of September 30, 2011, 184,496,038 of the registrant’s common shares of beneficial interest are outstanding.

 

 

  

 


 
 

 

PART I.

Financial Information:

Page Number

Item 1.

Financial Statements:

Consolidated Balance Sheets (Unaudited) as of

September 30, 2011 and December 31, 2010

3

Consolidated Statements of Income (Unaudited) for the

Three and Nine Months Ended September 30, 2011 and 2010

4

Consolidated Statements of Comprehensive Income (Unaudited) for the

Three and Nine Months Ended September 30, 2011 and 2010

5

Consolidated Statements of Changes in Equity (Unaudited) for the

Nine Months Ended September 30, 2011 and 2010

6

Consolidated Statements of Cash Flows (Unaudited) for the

Nine Months Ended September 30, 2011 and 2010

7

Notes to the Consolidated Financial Statements (Unaudited)

9

Report of Independent Registered Public Accounting Firm

36

Item 2.

Management's Discussion and Analysis of Financial

Condition and Results of Operations

37

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

73

Item 4.

Controls and Procedures

74

PART II.

Other Information:

Item 1.

Legal Proceedings

75

Item 1A.

Risk Factors

76

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

76

Item 3.

Defaults Upon Senior Securities

76

Item 5.

Other Information

76

Item 6.

Exhibits

76

Signatures

77

Exhibit Index

78

2

 


 
 

 

PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements

 

VORNADO REALTY TRUST

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(Amounts in thousands, except share and per share amounts)

September 30,

December 31,

ASSETS

2011 

2010 

Real estate, at cost:

Land

$

4,524,930 

$

4,535,042 

Buildings and improvements

12,573,880 

12,510,244 

Development costs and construction in progress

225,098 

217,505 

Leasehold improvements and equipment

127,294 

124,910 

Total

17,451,202 

17,387,701 

Less accumulated depreciation and amortization

(2,975,075)

(2,715,046)

Real estate, net

14,476,127 

14,672,655 

Cash and cash equivalents

585,183 

690,789 

Restricted cash

124,984 

200,822 

Marketable securities

631,361 

766,116 

Accounts receivable, net of allowance for doubtful accounts of $76,935 and $62,979

145,854 

157,146 

Investments in partially owned entities

1,157,326 

927,672 

Investment in Toys "R" Us

546,258 

447,334 

Real Estate Fund investments

261,417 

144,423 

Mezzanine loans receivable, net

156,365 

202,412 

Receivable arising from the straight-lining of rents, net of allowance of $8,973 and $7,316

724,483 

695,486 

Deferred leasing and financing costs, net of accumulated amortization of $236,859 and $219,965

360,056 

354,864 

Identified intangible assets, net of accumulated amortization of $356,118 and $335,113

334,878 

346,157 

Assets related to discontinued operations

253,352 

519,285 

Due from officers

13,185 

13,187 

Other assets

417,399 

379,123 

$

20,188,228 

$

20,517,471 

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY

Notes and mortgages payable

$

8,462,191 

$

8,255,101 

Senior unsecured notes

959,421 

1,082,928 

Exchangeable senior debentures

496,139 

491,000 

Convertible senior debentures

188,799 

186,413 

Revolving credit facility debt

300,000 

874,000 

Accounts payable and accrued expenses

469,024 

438,479 

Deferred credit

532,221 

575,836 

Deferred compensation plan

94,623 

91,549 

Deferred tax liabilities

13,814 

13,278 

Liabilities related to discontinued operations

8,954 

267,652 

Other liabilities

139,353 

82,856 

Total liabilities

11,664,539 

12,359,092 

Commitments and contingencies

Redeemable noncontrolling interests:

Class A units - 12,526,395 and 12,804,202 units outstanding

934,720 

1,066,974 

Series D cumulative redeemable preferred units - 9,000,001 and 10,400,001 units outstanding

226,000 

261,000 

Total redeemable noncontrolling interests

1,160,720 

1,327,974 

Vornado shareholders' equity:

Preferred shares of beneficial interest: no par value per share; authorized 110,000,000

shares; issued and outstanding 42,186,709 and 32,340,009 shares

1,021,855 

783,088 

Common shares of beneficial interest: $.04 par value per share; authorized

250,000,000 shares; issued and outstanding 184,496,038 and 183,661,875 shares

7,350 

7,317 

Additional capital

7,112,004 

6,932,728 

Earnings less than distributions

(1,330,405)

(1,480,876)

Accumulated other comprehensive (loss) income

(59,019)

73,453 

Total Vornado shareholders' equity

6,751,785 

6,315,710 

Noncontrolling interests in consolidated subsidiaries

611,184 

514,695 

Total equity

7,362,969 

6,830,405 

$

20,188,228 

$

20,517,471 

See notes to consolidated financial statements (unaudited).

3

 


 
 

 

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

For the Three

For the Nine

Months Ended September 30,

Months Ended September 30,

(Amounts in thousands, except per share amounts)

2011 

2010 

2011 

2010 

REVENUES:

Property rentals

$

561,149 

$

559,518 

$

1,688,551 

$

1,661,967 

Tenant expense reimbursements

94,053 

95,341 

264,857 

271,040 

Cleveland Medical Mart development project

35,135 

108,203 

Fee and other income

37,006 

32,266 

112,239 

104,838 

Total revenues

727,343 

687,125 

2,173,850 

2,037,845 

EXPENSES:

Operating

285,659 

275,077 

841,266 

802,927 

Depreciation and amortization

134,074 

130,599 

393,846 

393,259 

General and administrative

46,452 

55,200 

155,566 

153,231 

Cleveland Medical Mart development project

33,419 

101,637 

Tenant buy-outs and other acquisition related costs

2,288 

921 

22,455 

2,851 

Total expenses

501,892 

461,797 

1,514,770 

1,352,268 

Operating income

225,451 

225,328 

659,080 

685,577 

(Loss) income applicable to Toys "R" Us

(9,304)

(2,557)

80,794 

102,309 

Income (loss) from partially owned entities

13,552 

(1,996)

56,239 

13,800 

Income (loss) from Real Estate Fund (of which $3,675 and ($1,091) is

attributable to noncontrolling interests, in each three-month

period, respectively, and $15,703 and ($1,091) in each

nine-month period, respectively)

5,353 

(1,410)

25,491 

(1,410)

Interest and other investment (loss) income, net

(29,994)

47,096 

95,121 

65,676 

Interest and debt expense (including amortization of deferred

financing costs of $4,828 and $5,170 in each three-month

period, respectively, and $14,696 and $14,085 in each

nine-month period, respectively)

(136,672)

(145,561)

(408,532)

(423,354)

Net (loss) on extinguishment of debt

(724)

(1,796)

Net gain on disposition of wholly owned and partially owned assets

1,298 

5,072 

7,975 

12,759 

Income before income taxes

69,684 

125,248 

516,168 

453,561 

Income tax expense

(7,144)

(5,449)

(19,448)

(15,993)

Income from continuing operations

62,540 

119,799 

496,720 

437,568 

Income (loss) from discontinued operations

3,683 

(3,667)

146,293 

(11,681)

Net income

66,223 

116,132 

643,013 

425,887 

Less:

Net income attributable to noncontrolling interests in

consolidated subsidiaries

(5,636)

(296)

(20,643)

(1,490)

Net income attributable to noncontrolling interests in the

Operating Partnership, including unit distributions

(6,825)

(11,584)

(47,364)

(33,487)

Net income attributable to Vornado

53,762 

104,252 

575,006 

390,910 

Preferred share dividends

(17,627)

(13,442)

(47,743)

(41,975)

Discount on preferred share and unit redemptions

5,000 

4,382 

5,000 

4,382 

NET INCOME attributable to common shareholders

$

41,135 

$

95,192 

$

532,263 

$

353,317 

INCOME PER COMMON SHARE - BASIC:

Income from continuing operations, net

$

0.20 

$

0.54 

$

2.14 

$

2.00 

Income (loss) from discontinued operations, net

0.02 

(0.02)

0.75 

(0.06)

Net income per common share

$

0.22 

$

0.52 

$

2.89 

$

1.94 

Weighted average shares

184,398 

182,462 

184,220 

182,014 

INCOME PER COMMON SHARE - DILUTED:

Income from continuing operations, net

$

0.20 

$

0.54 

$

2.12 

$

1.98 

Income (loss) from discontinued operations, net

0.02 

(0.02)

0.74 

(0.06)

Net income per common share

$

0.22 

$

0.52 

$

2.86 

$

1.92 

Weighted average shares

186,065 

184,168 

186,039 

183,826 

DIVIDENDS PER COMMON SHARE

$

0.69 

$

0.65 

$

2.07 

$

1.95 

See notes to consolidated financial statements (unaudited).

4

 


 
 

 

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

For the Three

For the Nine

Months Ended September 30,

Months Ended September 30,

(Amounts in thousands)

2011 

2010 

2011 

2010 

Net income

$

66,223 

$

116,132 

$

643,013 

$

425,887 

Other comprehensive (loss) income:

Change in unrealized net (loss) gain on securities available-for-sale

(161,178)

8,966 

(120,334)

34,497 

Pro rata share of other comprehensive income (loss) of

nonconsolidated subsidiaries

112 

3,885 

26,477 

(12,080)

Change in value of interest rate swap

(24,424)

(42,458)

Other

(69)

(5,176)

(5,114)

(5,594)

Comprehensive (loss) income

(119,336)

123,807 

501,584 

442,710 

Less:

Comprehensive income attributable to noncontrolling interests

(400)

(12,414)

(59,050)

(36,148)

Comprehensive (loss) income attributable to Vornado

$

(119,736)

$

111,393 

$

442,534 

$

406,562 

See notes to consolidated financial statements (unaudited).

5

 


 
 

 

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(UNAUDITED)

Accumulated

(Amounts in thousands)

Earnings

Other

Non-

Preferred Shares

Common Shares

Additional

Less Than

Comprehensive

controlling

Total

Shares

Amount

Shares

Amount

Capital

Distributions

Income (Loss)

Interests

Equity

Balance, December 31, 2009

33,952 

$

823,686 

181,214 

$

7,218 

$

6,961,007 

$

(1,577,591)

$

28,449 

$

406,637 

$

6,649,406 

Net income

390,910 

1,490 

392,400 

Dividends on common shares

(354,937)

(354,937)

Dividends on preferred shares

(42,100)

(42,100)

Redemption of preferred shares

(1,600)

(39,982)

4,382 

(35,600)

Common shares issued:

Upon redemption of Class A

units, at redemption value

822 

33 

62,573 

62,606 

Under employees' share

option plan

596 

24 

10,922 

(25,583)

(14,637)

Under dividend reinvestment plan

17 

1,231 

1,232 

Contributions:

Real Estate Fund

37,698 

37,698 

Other

188 

188 

Conversion of Series A preferred

shares to common shares

(3)

(177)

177 

Deferred compensation shares

and options

17 

6,155 

6,156 

Change in unrealized net gain

on securities available-for-sale

34,497 

34,497 

Pro rata share of other

comprehensive (loss) of

nonconsolidated subsidiaries

(12,080)

(12,080)

Adjustments to carry redeemable

Class A units at redemption value

(232,099)

(232,099)

Other

(61)

30 

(5,594)

670 

(4,955)

Balance, September 30, 2010

32,349 

$

783,527 

182,671 

$

7,277 

$

6,809,905 

$

(1,604,889)

$

45,272 

$

446,683 

$

6,487,775 

 

Accumulated

(Amounts in thousands)

Earnings

Other

Non-

Preferred Shares

Common Shares

Additional

Less Than

Comprehensive

controlling

Total

Shares

Amount

Shares

Amount

Capital

Distributions

Income (Loss)

Interests

Equity

Balance, December 31, 2010

32,340 

$

783,088 

183,662 

$

7,317 

$

6,932,728 

$

(1,480,876)

$

73,453 

$

514,695 

$

6,830,405 

Net income

575,006 

20,643 

595,649 

Dividends on common shares

(381,382)

(381,382)

Dividends on preferred shares

(47,905)

(47,905)

Issuance of Series J preferred shares

9,850 

239,037 

239,037 

Common shares issued:

Upon redemption of Class A

units, at redemption value

435 

17 

38,203 

38,220 

Under employees' share

option plan

369 

15 

21,603 

(397)

21,221 

Under dividend reinvestment plan

15 

1,329 

1,330 

Contributions:

Real Estate Fund

109,241 

109,241 

Other

364 

364 

Distributions:

Real Estate Fund

(22,713)

(22,713)

Other

(15,604)

(15,604)

Conversion of Series A preferred

shares to common shares

(3)

(165)

165 

Deferred compensation shares

and options

10 

7,866 

7,866 

Change in unrealized net loss

on securities available-for-sale

(120,334)

(120,334)

Pro rata share of other

comprehensive income of

nonconsolidated subsidiaries

26,477 

26,477 

Change in value of interest rate swap

(42,458)

(42,458)

Adjustments to carry redeemable

Class A units at redemption value

114,628 

114,628 

Redeemable noncontrolling interests'

share of above adjustments

8,957 

8,957 

Other

(105)

(4,518)

5,149 

(5,114)

4,558 

(30)

Balance, September 30, 2011

42,187 

$

1,021,855 

184,496 

$

7,350 

$

7,112,004 

$

(1,330,405)

$

(59,019)

$

611,184 

$

7,362,969 

See notes to consolidated financial statements (unaudited).

6

 


 
 

 

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

For the Nine Months Ended

September 30,

2011 

2010 

(Amounts in thousands)

Cash Flows from Operating Activities:

Net income

$

643,013 

$

425,887 

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization (including amortization of deferred financing costs)

414,992 

419,638 

Equity in net income of partially owned entities, including Toys “R” Us

(137,033)

(116,109)

Net (gain) loss on extinguishment of debt

(83,907)

1,796 

Mezzanine loans loss (reversal) accrual and net gain on disposition

(82,744)

6,900 

Distributions of income from partially owned entities

75,612 

36,829 

Net gain on sales of real estate

(51,623)

Amortization of below-market leases, net

(49,988)

(49,144)

Straight-lining of rental income

(38,262)

(55,581)

Loss (income) from the mark-to-market of J.C. Penney derivative position

27,136 

(32,249)

Other non-cash adjustments

20,261 

36,058 

Unrealized gain on Real Estate Fund assets

(19,209)

Net gain on disposition of wholly owned and partially owned assets

(7,975)

(12,759)

Litigation loss accrual and impairment losses

15,197 

Changes in operating assets and liabilities:

Real Estate Fund investments

(97,785)

(62,500)

Accounts receivable, net

11,292 

(6,468)

Prepaid assets

(68,558)

(45,104)

Other assets

(43,413)

(59,614)

Accounts payable and accrued expenses

32,227 

78,153 

Other liabilities

22,635 

13,791 

Net cash provided by operating activities

566,671 

594,721 

Cash Flows from Investing Activities:

Investments in partially owned entities

(440,865)

(159,053)

Distributions of capital from partially owned entities

274,283 

45,613 

Proceeds from sales of real estate and related investments

135,762 

48,998 

Restricted cash

121,463 

125,204 

Additions to real estate

(109,963)

(98,789)

Proceeds from sales and repayments of mezzanine loans

100,525 

109,594 

Development costs and construction in progress

(52,816)

(86,871)

Investments in mezzanine loans receivable and other

(44,215)

(75,697)

Funding of collateral for J.C. Penney derivative

(33,850)

Return of derivative collateral

28,700 

Proceeds from sales of marketable securities

19,301 

126,015 

Proceeds from maturing short-term investments

40,000 

Purchases of marketable securities

(13,917)

Acquisitions of real estate and other

(10,000)

Net cash (used in) provided by investing activities

(1,675)

51,097 

See notes to consolidated financial statements (unaudited).

 

7

 


 
 

 

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(UNAUDITED)

For the Nine Months Ended

September 30,

2011 

2010 

(Amounts in thousands)

Cash Flows from Financing Activities:

Repayments of borrowings

$

(2,666,610)

$

(1,462,652)

Proceeds from borrowings

2,184,167 

1,603,359 

Dividends paid on common shares

(381,382)

(354,937)

Proceeds from the issuance of Series J preferred shares

239,037 

Contributions from noncontrolling interests

109,605 

39,351 

Distributions to noncontrolling interests

(77,330)

(41,055)

Dividends paid on preferred shares

(43,675)

(42,100)

Debt issuance and other costs

(28,614)

(14,942)

Purchases of outstanding preferred units and shares

(28,000)

(48,600)

Proceeds received from exercise of employee share options

22,947 

12,192 

Repurchase of shares related to stock compensation agreements and related

tax withholdings

(747)

(25,659)

Net cash used in financing activities

(670,602)

(335,043)

Net (decrease) increase in cash and cash equivalents

(105,606)

310,775 

Cash and cash equivalents at beginning of period

690,789 

535,479 

Cash and cash equivalents at end of period

$

585,183 

$

846,254 

Supplemental Disclosure of Cash Flow Information:

Cash payments for interest (including capitalized interest of $0 and $875)

$

388,938 

$

409,953 

Cash payments for income taxes

$

10,299 

$

5,348 

Non-Cash Investing and Financing Activities:

Change in unrealized net (loss) gain on securities available-for-sale

$

(120,334)

$

34,497 

Adjustments to carry redeemable Class A units at redemption value

114,628 

(232,099)

Common shares issued upon redemption of Class A units, at redemption value

38,220 

62,606 

Contribution of mezzanine loan receivable to a joint venture

73,750 

Like-kind exchange of real estate

(45,625)

Extinguishment of a liability in connection with the acquisition of real estate

20,500 

Investment in J.C. Penney, Inc.

271,372 

Decrease in assets and liabilities resulting from deconsolidation

of discontinued operations:

Assets related to discontinued operations

(145,333)

Liabilities related to discontinued operations

(232,502)

Write-off of fully depreciated assets

(58,279)

(50,785)

See notes to consolidated financial statements (unaudited).

8

 


 
 

 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

1.     Organization

 

Vornado Realty Trust (“Vornado”) is a fully‑integrated real estate investment trust (“REIT”) and conducts its business through, and substantially all of its interests in properties are held by, Vornado Realty L.P., a Delaware limited partnership (the “Operating Partnership”).  Accordingly, Vornado’s cash flow and ability to pay dividends to its shareholders is dependent upon the cash flow of the Operating Partnership and the ability of its direct and indirect subsidiaries to first satisfy their obligations to creditors.  Vornado is the sole general partner of, and owned approximately 93.3% of the common limited partnership interest in the Operating Partnership at September 30, 2011.  All references to “we,” “us,” “our,” the “Company” and “Vornado” refer to Vornado Realty Trust and its consolidated subsidiaries, including the Operating Partnership.

 

 

2.    Basis of Presentation

 

The accompanying consolidated financial statements are unaudited and include the accounts of Vornado, and the Operating Partnership and its consolidated partially owned entities.  All intercompany amounts have been eliminated. In our opinion, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and changes in cash flows have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted.  These condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of the Securities and Exchange Commission (the “SEC”) and should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2010, as filed with the SEC.

 

We have made estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.  The results of operations for the three and nine months ended September 30, 2011 are not necessarily indicative of the operating results for the full year.

 

 

3.    Recently Issued Accounting Literature

 

In June 2011, the Financial Accounting Standards Board (“FASB”) issued an update to Accounting Standards Codification (“ASC”) 220, Comprehensive Income, which requires, among other things, presentation of the components of net income and other comprehensive income in one continuous statement or in two separate but consecutive statements. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011.  We believe that the adoption of this guidance on January 1, 2012 will not have a material effect on our consolidated financial statements.

 

9

 


 
 

 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

4.     Vornado Capital Partners, L.P. and Vornado Capital Partners Parallel, L.P. (the “Fund”)

 

We are the general partner and investment manager of an $800,000,000 real estate investment Fund, to which we have committed $200,000,000.  The Fund has a term of eight years and is our exclusive investment vehicle during its three-year investment period, which concludes in July 2013, for all investments that fit within the Fund’s investment parameters, as defined.  The Fund is accounted for under the AICPA Audit and Accounting Guide for Investment Companies and its investments are reported on its balance sheet at fair value, with changes in value each period recognized in earnings.  We consolidate the accounts of the Fund into our consolidated financial statements.

 

From inception through September 30, 2011, the Fund received aggregate  capital contributions from partners of $256,100,000, including $64,031,000 from us and as of September 30, 2011, has five investments with an aggregate fair value of approximately $261,417,000.   Below is a summary of income (loss) from the Fund for the three and nine  months ended September  30, 2011 and 2010.

 

For the Three Months

For the Nine Months

(Amounts in thousands)

Ended September 30,

Ended September 30,

2011 

2010 

2011 

2010 

Operating (loss) income

$

(286)

$

(1,410)

$

3,197 

$

(1,410)

Net realized gains

3,085 

Net unrealized gains

5,639 

19,209 

Income (loss) from Real Estate Fund

5,353 

(1,410)

25,491 

(1,410)

Less:

(Income) loss attributable to noncontrolling interests

(3,675)

1,091 

(15,703)

1,091 

Income (loss) from Real Estate Fund attributable to Vornado (1)

$

1,678 

$

(319)

$

9,788 

$

(319)

___________________________________

(1)

Excludes $378 and $1,803 of management, leasing and development fees in the three and nine months ended September 30, 2011, respectively, which are included as a component of "fee and other income" on our consolidated statements of income.

 

 

One Park Avenue

 

On March 1, 2011, we as a co-investor, together with the Fund, acquired a 95% interest in One Park Avenue, a 932,000 square foot office building located between 32nd and 33rd Streets in New York, for $374,000,000.  The purchase price consisted of $137,000,000 in cash and 95% of a new $250,000,000 five-year mortgage that bears interest at 5.0%.  The Fund accounts for its 64.7% interest in the property at fair value in accordance with the AICPA Audit and Accounting Guide for Investment Companies.  We account for our directly owned 30.3% equity interest under the equity method of accounting.

 

 

5.    Marketable Securities and Derivative Instruments

Marketable Securities  

 

Our portfolio of marketable securities is comprised of debt and equity securities that are classified as available for sale.  Available for sale securities are presented on our consolidated balance sheets at fair value.  Gains and losses resulting from the mark-to-market of these securities are included in “other comprehensive (loss) income.”  Gains and losses are recognized in earnings only upon the sale of the securities and are recorded based on the weighted average cost of such securities.

 

In the nine months ended September 30, 2011 and 2010, we sold certain marketable securities for aggregate proceeds of $19,301,000 and $155,118,000, resulting in net gains of $2,139,000 and $8,960,000, respectively, of which $0 and $5,052,000 was recognized in the three months ended September 30, 2011 and 2010, respectively.

 

10

 


 
 

 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

5.    Marketable Securities and Derivative Instruments- continued

 

Marketable Securities-continued  

 

Below is a summary of our marketable securities portfolio as of September 30, 2011 and December 31, 2010.

 

As of September 30, 2011

As of December 31, 2010

GAAP

Unrealized

GAAP

Unrealized

Maturity

Fair Value

Cost

(Loss) Gain

Maturity

Fair Value

Cost

Gain

Equity securities:

J.C. Penney

n/a

$

497,680 

$

590,366 

$

(92,686)

n/a

$

600,600 

$

590,366 

$

10,234 

Other

n/a

26,769 

13,561 

13,208 

n/a

47,248 

26,481 

20,767 

Debt securities

04/13 - 10/18

106,912 

102,679 

4,233 

08/11 - 10/18

118,268 

104,180 

14,088 

$

631,361 

$

706,606 

$

(75,245)

$

766,116 

$

721,027 

$

45,089 

 

 

Investment in J.C. Penney Company, Inc. (“J.C. Penney”) (NYSE: JCP)

 

We own an economic interest in 23,400,000 J.C. Penney common shares, or 10.9% of J.C. Penney’s outstanding common shares.  Below are the details of our investment.

 

We own 18,584,010 common shares at an average economic cost of $25.71 per share or $477,829,000 in the aggregate.  As of September 30, 2011, these shares have an aggregate fair value of $497,680,000, based on J.C. Penney’s closing share price of $26.78 per share at September 30, 2011.  Of these shares, 15,500,000 were acquired through the exercise of a call option that was acquired on September 28, 2010 and settled on November 9, 2010.  During the period in which the call option was outstanding and classified as a derivative instrument, we recognized $112,537,000 of income.  Upon exercise of the call option, the GAAP basis of the 18,584,010 common shares we own increased to $31.77 per share, or $590,366,000 in the aggregate.  These shares are included in marketable equity securities on our consolidated balance sheet and are classified as “available for sale.”  During the nine months ended September 30, 2011, we recognized a $102,920,000 loss from the mark-to-market of these shares, which is included in “other comprehensive (loss) income,” based on the difference between the carrying amount of these shares of $600,600,000 at December 31, 2010 and the fair value of $497,680,000 at September 30, 2011.

 

We also own an economic interest in 4,815,990 common shares through a forward contract executed on October 7, 2010, at a weighted average strike price of $28.76 per share, or $138,492,000 in the aggregate.  The contract may be settled, at our election, in cash or common shares, in whole or in part, at any time prior to October 9, 2012.  The counterparty may accelerate settlement, in whole or in part, upon one year’s notice to us.  The strike price per share increases at an annual rate of LIBOR plus 80 basis points.  The contract is a derivative instrument that does not qualify for hedge accounting treatment.  Mark-to-market adjustments on the underlying common shares are recognized in “interest and other investment (loss) income, net” on our consolidated statements of income.  During the three and nine months ended September 30, 2011, we recognized losses of $37,537,000 and $27,136,000, respectively, from the mark-to-market of the underlying common shares, based on J.C. Penney’s closing share price of $26.78 per share at September 30, 2011.

 

On September 16, 2011, we entered into an agreement with J.C. Penney which enables us to increase our beneficial and/or economic ownership to up to 15.4% of J.C. Penney’s outstanding common shares.  We have agreed to vote any common shares we hold in excess of 9.9% of J.C. Penney’s outstanding common shares in accordance with either the recommendation of the board of directors of J.C. Penney or in direct proportion to the vote of all other public shareholders of J.C. Penney (excluding shares affiliated with Pershing Square Capital Management L.P.).

 

We review our investment in J.C. Penney on a continuing basis.  Depending on various factors, including, without limitation, J.C. Penney’s financial position and strategic direction, actions taken by its board, price levels of its common stock, other investment opportunities available to us, market conditions and general economic and industry conditions, we may take such actions with respect to J.C. Penney as we deem appropriate, including (i) purchasing additional common stock or other financial instruments related to J.C. Penney, subject to our agreement with J.C. Penney as described in the preceding paragraph, or (ii) selling some or all of our beneficial or economic holdings, or (iii) engaging in hedging or similar transactions.

 

11

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

6.    Investments in Partially Owned Entities

 

Toys “R” Us (“Toys”)

As of September 30, 2011, we own 32.7% of Toys.  The business of Toys is highly seasonal.  Historically, Toys’ fourth quarter net income accounts for more than 80% of its fiscal year net income.  We account for our investment in Toys under the equity method and record our 32.7% share of Toys net income or loss on a one-quarter lag basis because Toys’ fiscal year ends on the Saturday nearest January 31, and our fiscal year ends on December 31.  As of September 30, 2011, the carrying amount of our investment in Toys does not differ materially from our share of the equity in the net assets of Toys on a purchase accounting basis.

 

On May 28, 2010, Toys filed a registration statement, as amended, with the SEC for the offering and sale of its common stock.  The offering, if completed, would result in a reduction of our percentage ownership of Toys’ equity.  The size of the offering and its completion are subject to market and other conditions.

 

Below is a summary of Toys’ latest available financial information on a purchase accounting basis:

 

(Amounts in thousands)

Balance as of

Balance Sheet:

July 30, 2011

October 30, 2010

Assets

$

11,778,000 

$

12,810,000 

Liabilities

9,969,000 

11,317,000 

Toys “R” Us, Inc. equity

1,809,000 

1,493,000 

For the Three Months Ended

For the Nine Months Ended

Income Statement:

July 30, 2011

July 31, 2010

July 30, 2011

July 31, 2010

Total revenues

$

2,648,000 

$

2,565,000 

$

11,256,000 

$

11,030,000 

Net (loss) income attributable to Toys

(36,000)

(16,000)

227,000 

292,000 

 

 

Alexander’s, Inc. (“Alexander’s”) (NYSE: ALX)

 

As of September 30, 2011, we own 1,654,068 Alexander’s common shares, or approximately 32.4% of Alexander’s common equity.  We manage, lease and develop Alexander’s properties pursuant to the agreements described below which expire in March of each year and are automatically renewable.  As of September 30, 2011, Alexander’s owed us $43,308,000 in fees under these agreements.

 

As of September 30, 2011, the fair value of our investment in Alexander’s, based on Alexander’s September 30, 2011 closing share price of $361.02, was $597,152,000, or $406,875,000 in excess of the carrying amount on our consolidated balance sheet.  As of September 30, 2011, the carrying amount of our investment in Alexander’s, excluding amounts owed to us, exceeds our share of the equity in the net assets of Alexander’s by approximately $59,188,000.  The majority of this basis difference resulted from the excess of our purchase price for the Alexander’s common stock acquired over the book value of Alexander’s net assets.  Substantially all of this basis difference was allocated, based on our estimates of the fair values of Alexander’s assets and liabilities, to real estate (land and buildings).  We are amortizing the basis difference related to the buildings into earnings as additional depreciation expense over their estimated useful lives.  This depreciation is not material to our share of equity in Alexander’s net income.  The basis difference related to the land will be recognized upon disposition of our investment.

 

Below is a summary of Alexander’s latest available financial information:

 

(Amounts in thousands)

Balance as of

Balance Sheet:

September 30, 2011

December 31, 2010

Assets

$

1,785,000 

$

1,679,000 

Liabilities

1,427,000 

1,335,000 

Noncontrolling interests

4,000 

3,000 

Stockholders' equity

354,000 

341,000 

For the Three Months Ended

For the Nine Months Ended

Income Statement:

September 30, 2011

September 30, 2010

September 30, 2011

September 30, 2010

Total revenues

$

65,000 

$

61,000 

$

190,000 

$

179,000 

Net income attributable to Alexander’s

20,000 

18,000 

59,000 

49,000 

                                 

 

12

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

6.    Investments in Partially Owned Entities – continued

 

 

Lexington Realty Trust (“Lexington”) (NYSE: LXP)

 

As of September 30, 2011, we own 18,468,969 Lexington common shares, or approximately 11.7% of Lexington’s common equity.  We account for our investment in Lexington under the equity method because we believe we have the ability to exercise significant influence over Lexington’s operating and financial policies, based on, among other factors, our representation on Lexington’s Board of Trustees and the level of our ownership in Lexington as compared to other shareholders.  We record our pro rata share of Lexington’s net income or loss on a one-quarter lag basis because we file our consolidated financial statements on Form 10-K and 10-Q prior to the time that Lexington files its consolidated financial statements. 

 

Based on Lexington’s September 30, 2011 closing share price of $6.54, the fair value of our investment in Lexington was $120,787,000, or $59,472,000 in excess of the September 30, 2011 carrying amount on our consolidated balance sheet.  As of September 30, 2011, the carrying amount of our investment in Lexington was less than our share of the equity in the net assets of Lexington by approximately $48,861,000.  This basis difference resulted primarily from $107,882,000 of non-cash impairment charges recognized during 2008, partially offset by purchase accounting for our acquisition of an additional 8,000,000 common shares of Lexington in October 2008, of which the majority relates to our estimate of the fair values of Lexington’s real estate (land and buildings) as compared to the carrying amounts in Lexington’s consolidated financial statements.  The basis difference related to the buildings is being amortized over their estimated useful lives as an adjustment to our equity in net income or loss of Lexington.  This amortization is not material to our share of equity in Lexington’s net income or loss.  The basis difference attributable to the land will be recognized upon disposition of our investment.

 

Below is a summary of Lexington’s latest available financial information:

 

(Amounts in thousands)

Balance as of

Balance Sheet:

June 30, 2011

September 30, 2010

Assets

$

3,240,000 

$

3,385,000 

Liabilities

1,910,000 

2,115,000 

Noncontrolling interests

60,000 

71,000 

Shareholders’ equity

1,270,000 

1,199,000 

For the Three Months Ended

For the Nine Months Ended

Income Statement:

June 30, 2011

June 30, 2010

June 30, 2011

June 30, 2010

Total revenues

$

83,000 

$

81,000 

$

252,000 

$

249,000 

Net (loss) attributable to Lexington

(44,000)

(24,000)

(49,000)

(97,000)

 

 

LNR Property LLC (“LNR”)

As of September 30, 2011, we own a 26.2% equity interest in LNR, which we acquired in July 2010.  We account for our investment in LNR under the equity method and record our 26.2% share of LNR’s net income or loss on a one-quarter lag basis because we file our consolidated financial statements on Form 10-K and 10-Q prior to receiving LNR’s consolidated financial statements.

LNR consolidates certain commercial mortgage-backed securities (“CMBS”) and Collateralized Debt Obligation (“CDO”) trusts for which it is the primary beneficiary.  The assets of these trusts (primarily commercial mortgage loans), which aggregate approximately $138.5 billion as of June 30, 2011, are the sole source of repayment of the related liabilities, which are non-recourse to LNR and its equity holders, including us.  Changes in the fair value of these assets each period are offset by changes in the fair value of the related liabilities through LNR’s consolidated income statement.  As of September 30, 2011, the carrying amount of our investment in LNR does not materially differ from our share of LNR’s equity.

 

13

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

6.    Investments in Partially Owned Entities – continued

 

LNR Property LLC (“LNR”) – continued

Below is a summary of LNR’s latest available financial information:

 

(Amounts in thousands)

Balance as of

Balance Sheet:

June 30, 2011

September 30, 2010

Assets

$

139,731,000 

$

143,266,000 

Liabilities

139,025,000 

142,720,000 

Noncontrolling interests

43,000 

37,000 

LNR equity

663,000 

509,000 

For the Three Months Ended

For the Nine Months Ended

Income Statement:

June 30, 2011

June 30, 2011

Total revenues

$

73,000 

$

156,000 

Net income attributable to LNR

52,000 

152,000 

 

 

280 Park Avenue Joint Venture

 

On March 16, 2011, we formed a 50/50 joint venture with SL Green Realty Corp (“SL Green”) to own the mezzanine debt of 280 Park Avenue, a 1.2 million square foot office building located between 48th and 49th Streets in Manhattan (the “Property”).  We contributed our mezzanine loan with a face amount of $73,750,000, and they contributed their mezzanine loans with a face amount of $326,250,000 to the joint venture.  We equalized our interest in the joint venture with SL Green by paying them $111,250,000 in cash and assuming $15,000,000 of their debt.  On May 17, 2011, as part of the recapitalization of the Property, the joint venture contributed its debt position for 99% of the common equity of a new joint venture which owns the Property.  The new joint venture expects to spend $150,000,000 for re-tenanting and repositioning the Property.  We account for our 49.5% equity interest in the Property under the equity method of accounting from the date of recapitalization. 

 

 

Independence Plaza

 

On June 17, 2011, a joint venture in which we are a 51% partner invested $55,000,000 in cash (of which we contributed $35,000,000) to acquire a face amount of $150,000,000 of mezzanine loans and a $35,000,000 participation in a senior loan on Independence Plaza, a residential complex comprised of three 39-story buildings in the Tribeca submarket of Manhattan.  We share control over major decisions with our joint venture partner.  Accordingly, we account for our 51% interest in the joint venture under the equity method of accounting from the date of acquisition.

 

14

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

6.    Investments in Partially Owned Entities - continued

 

Investments in partially owned entities as of September 30, 2011 and December 31, 2010 and income (loss) recognized from these investments for the three and nine months ended September 30, 2011 and 2010 are as follows:

Percentage

Balance as of

(Amounts in thousands)

Ownership as of

September 30,

December 31,

Investments:

September 30, 2011

2011 

2010 

Toys

32.7 %

$

546,258 

$

447,334 

Alexander’s

32.4 %

$

190,277 

$

186,811 

Lexington

11.7 %

61,315 

57,270 

LNR

26.2 %

156,090 

132,973 

India real estate ventures

4%-36.5%

101,155 

127,193 

Partially owned office buildings (1)

Various

452,284 

181,838 

Other equity method investments (2)

Various

196,205 

241,587 

$

1,157,326 

$

927,672 

For the Three Months Ended

For the Nine Months Ended

September 30,

September 30,

Our Share of Net Income (Loss):

2011 

2010 

2011 

2010 

Toys – 32.7% share of:

 

Equity in net (loss) income before income taxes

$

(26,773)

$

(32,574)

$

104,049 

$

93,662 

Income tax benefit (expense)

15,135 

27,501 

(29,914)

1,914 

Equity in net (loss) income

(11,638)

(5,073)

74,135 

95,576 

Interest and other income

2,334 

2,516 

6,659 

6,733 

$

(9,304)

$

(2,557)

$

80,794 

$

102,309 

Alexander’s – 32.4% share of:

Equity in net income

$

6,437 

$

5,612 

$

18,507 

$

14,309 

Management, leasing and development fees

2,170 

1,945 

6,749 

6,774 

8,607 

7,557 

25,256 

21,083 

Lexington – 11.7% share in 2011 and 13.8% share

in 2010 of equity in net (loss) income (3)

(617)

(2,301)

10,209 

3,316 

LNR – 26.2% share of equity in net income (acquired in

July 2010) (4)

13,656 

39,913 

India real estate ventures – 4% to 36.5% range in our

share of equity in net (loss) income

(690)

(195)

(692)

2,062 

Partially owned office buildings (5)

(6,839)

86 

(13,829)

1,864 

Other equity method investments

(565)

(7,143)

(4,618)

(14,525)

$

13,552 

$

(1,996)

$

56,239 

$

13,800 

___________________________________

(1)

Includes interests in 330 Madison Avenue (25%), One Park Avenue (30.3%), 280 Park Avenue (49.5%), 825 Seventh Avenue (50%), Warner Building and 1101 17th Street (55%), Fairfax Square (20%), Rosslyn Plaza (46%) and West 57th Street properties (50%).

(2)

Includes interests in Monmouth Mall, Verde Realty Operating Partnership, 85 10th Avenue Associates and others.

(3)

Includes net gains of $9,760 and $5,998 in the nine months ended September 30, 2011 and 2010, respectively, resulting from Lexington's stock issuances.

(4)

The nine months ended September 30, 2011 includes $6,020 for our share of net gains from asset sales and $8,977 for our share of a tax settlement gain.

(5)

The nine months ended September 30, 2011 includes $9,022 for our share of expense, primarily for straight-line rent reserves and the write-off of tenant improvements in connection with a tenant's bankruptcy at the Warner Building.

 

15

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

6.    Investments in Partially Owned Entities – continued

Below is a summary of the debt of our partially owned entities as of September 30, 2011 and December 31, 2010, none of which is recourse to us.

Interest  

100% of

Rate at  

Partially Owned Entities’ Debt at

(Amounts in thousands)

September 30,  

September 30,

December 31,

Maturity

2011   

2011 

2010 

Toys (32.7% interest) (as of July 30, 2011 and October 30, 2010,

respectively):

Senior unsecured notes (Face value – $950,000)

07/17

10.75 %

$

929,773 

$

928,045 

Senior unsecured notes (Face value – $725,000)

12/17

8.50 %

716,325 

715,577 

$700 million secured term loan facility

09/16

6.00 %

685,595 

689,757 

Senior U.K. real estate facility

04/13

5.02 %

573,207 

561,559 

$400 million secured term loan facility

05/18

5.25 %

396,082 

7.875% senior notes (Face value – $400,000)

04/13

9.50 %

390,135 

386,167 

7.375% senior secured notes (Face value – $350,000)

09/16

7.38 %

358,147 

350,000 

7.375% senior notes (Face value – $400,000)

10/18

9.99 %

347,238 

343,528 

Japan bank loans

03/12-02/16

1.85%-2.85%

194,376 

180,500 

Spanish real estate facility

02/13

4.51 %

183,857 

179,511 

$1.85 billion credit facility

08/15

2.91 %

173,000 

519,810 

Japan borrowings

06/12-06/13

0.98 %

108,149 

141,360 

Junior U.K. real estate facility

04/13

6.81%-7.84%

99,850 

98,266 

French real estate facility

02/13

4.51 %

88,696 

86,599 

European and Australian asset-based revolving credit facility

03/16

2.89 %

32,852 

25,767 

8.750% debentures (Face value – $21,600)

09/21

9.17 %

21,080 

21,054 

7.625% bonds (Face value – $500,000)

n/a

n/a

495,943 

Other

Various

Various

170,806 

156,853 

$

5,469,168 

$

5,880,296 

Alexander’s (32.4% interest):

731 Lexington Avenue mortgage note payable, collateralized by

the office space

02/14

5.33 %

$

342,928 

$

351,751 

731 Lexington Avenue mortgage note payable, collateralized by

the retail space

07/15

4.93 %

320,000 

320,000 

Rego Park construction loan payable

12/11

1.42 %

277,200 

277,200 

Kings Plaza Regional Shopping Center mortgage note payable (1)

06/16

2.04 %

250,000 

151,214 

Rego Park mortgage note payable

03/12

0.75 %

78,246 

78,246 

Paramus mortgage note payable(2)

10/11

5.92 %

68,000 

68,000 

$

1,336,374 

$

1,246,411 

Lexington (11.7% interest) (as of June 30, 2011 and

September 30, 2010, respectively):

Mortgage loans collateralized by Lexington’s real estate

2011-2037

5.80 %

$

1,728,515 

$

1,927,729 

LNR (26.2% interest) (as of June 30, 2011 and

September 30, 2010):

Mortgage notes payable

2011-2043

4.75 %

$

331,411 

$

508,547 

Liabilities of consolidated CMBS and CDO trusts

n/a

5.30 %

138,541,030 

142,001,333 

$

138,872,441 

$

142,509,880 

(1)

On June 10, 2011, Alexander's completed a $250,000 refinancing of this loan. The five-year interest only loan is at LIBOR plus 1.70%.

(2)

On October 5, 2011, this loan, which was scheduled to mature in October 2011, was refinanced for the same amount. The new seven-year interest only loan has a fixed rate of 2.90%.

 

16

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

6.    Investments in Partially Owned Entities - continued

Interest  

100% of

Rate at

Partially Owned Entities’ Debt at

(Amounts in thousands)

September 30,

September 30,

December 31,

Maturity

2011 

2011 

2010 

Partially owned office buildings:

280 Park Avenue (49.5% interest) mortgage notes payable

(Face value - $740,000 at 6.37%)

06/16

3.93 %

$

818,564 

$

n/a

One Park Avenue (30.3% interest) mortgage note payable

03/16

5.00 %

250,000 

n/a

Warner Building (55% interest) mortgage note payable

05/16

6.26 %

292,700 

292,700 

330 Madison Avenue (25% interest) mortgage note payable

06/15

1.77 %

150,000 

150,000 

Kaempfer Properties (2.5% and 5.0% interests in two partnerships)

mortgage notes payable, collateralized by the partnerships’ real estate

11/11-12/11

5.86 %

137,460 

139,337 

Fairfax Square (20% interest) mortgage note payable

12/14

7.00 %

71,176 

71,764 

Rosslyn Plaza (46% interest) mortgage note payable

12/11

1.22 %

56,680 

56,680 

330 West 34th Street (34.8% interest) mortgage note payable,

collateralized by land

07/22

5.71 %

50,150 

50,150 

West 57th Street (50% interest) mortgage note payable

02/14

4.94 %

22,060 

22,922 

825 Seventh Avenue (50% interest) mortgage note payable

10/14

8.07 %

20,205 

20,565 

India Real Estate Ventures:

TCG Urban Infrastructure Holdings (25% interest) mortgage notes

payable, collateralized by the entity’s real estate

2011-2022

11.81 %

238,957 

196,319 

Other:

Verde Realty Operating Partnership (8.3% interest) mortgage notes

payable, collateralized by the partnerships’ real estate

2013-2025

6.18 %

353,346 

581,086 

Green Courte Real Estate Partners, LLC (8.3% interest) (as of

June 30, 2011 and September 30, 2010), mortgage notes

payable, collateralized by the partnerships’ real estate

2011-2018

5.57 %

294,292 

296,991 

Monmouth Mall (50% interest) mortgage note payable

02/14-09/15

5.35 %

171,755 

164,474 

Wells/Kinzie Garage (50% interest) mortgage note payable

12/17

5.00 %

14,856 

15,022 

Orleans Hubbard Garage (50% interest) mortgage note payable

12/17

5.00 %

9,403 

9,508 

Waterfront Station (2.5% interest)

n/a

n/a

217,106 

Other

Various

4.61 %

663,162 

418,339 

 

Based on our ownership interest in the partially owned entities above, our pro rata share of the debt of these partially owned entities was $39,802,179,000 and $40,443,346,000 as of September 30, 2011 and December 31, 2010, respectively.  Excluding our pro rata share of LNR’s liabilities related to consolidated CMBS and CDO trusts which are non-recourse to LNR and its equity holders, including us, our pro rata share of partially owned entities debt is $3,540,451,000 and $3,275,917,000 at September 30, 2011 and December 31, 2010, respectively.

 

 

7.    Mezzanine Loans Receivable

On March 2, 2011, we sold our mezzanine loan in the Tharaldson Lodging Companies for $70,848,000 in cash, which had a carrying amount of $60,416,000 and recognized a net gain of $10,474,000.  The gain is included as a component of “interest and other investment income, net” on our consolidated statement of income.

 

In the first quarter of 2011, we recognized $72,270,000 of income, representing the difference between the fair value of our 280 Park Avenue Mezzanine Loan of $73,750,000, and its carrying amount of $1,480,000.  The $72,270,000 of income, which is included in “interest and other investment income, net” on our consolidated statement of income, is comprised of $63,145,000 from the reversal of the loan loss reserve and $9,125,000 of previously unrecognized interest income.  Our decision to reverse the loan loss reserve was based on the increase in value of the underlying collateral.  On March 16, 2011, we contributed this mezzanine loan to a 50/50 joint venture with SL Green (see Note 6 – Investments in Partially Owned Entities).

 

17

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

7.    Mezzanine Loans Receivable - continued

 

As of September 30, 2011 and December 31, 2010, the carrying amount of mezzanine loans receivable was $156,365,000 and $202,412,000, respectively, net of allowances of $0 and $73,216,000, respectively.  These loans have a weighted average interest rate of 5.57% and maturities ranging from November 2011 to August 2015.

 

 

8.    Discontinued Operations

 

On March 31, 2011, the receiver completed the disposition of the High Point Complex in North Carolina.  In connection therewith, the property and related debt were removed from our consolidated balance sheet and we recognized a net gain of $83,907,000 on the extinguishment of debt.

 

During 2011, we sold 1140 Connecticut Avenue and 1227 25th Street for $127,000,000 in cash, which resulted in a $45,862,000 net gain, and three retail properties in separate transactions for an aggregate of $40,990,000 in cash, which resulted in net gains aggregating $5,761,000.

 

In the third quarter of 2011, we reclassified the assets and liabilities and the combined results of operations of 350 West Mart Center, a 1.2 million square feet office building in Chicago, Illinois which is a part of our Merchandise Mart Properties segment and four retail properties, as “discontinued operations.”

 

The tables below set forth the assets and liabilities related to discontinued operations at September 30, 2011 and December 31, 2010, and their combined results of operations for the three and nine months ended September 30, 2011 and 2010.

 

Assets Related to

Liabilities Related to

(Amounts in thousands)

Discontinued Operations as of

Discontinued Operations as of

September 30,

December 31,

September 30,

December 31,

2011 

2010 

2011 

2010 

350 West Mart Center

$

170,333 

$

162,984 

$

1,128 

$

Retail properties

83,019 

121,837 

7,826 

11,730 

High Point

154,563 

236,974 

1227 25th Street

43,630 

1140 Connecticut Avenue

36,271 

18,948 

Total

$

253,352 

$

519,285 

$

8,954 

$

267,652 

For the Three Months

For the Nine Months

(Amounts in thousands)

Ended September 30,

Ended September 30,

2011 

2010 

2011 

2010 

Total revenues

$

9,744 

$

20,163 

$

36,486 

$

61,883 

Total expenses

6,061 

18,830 

25,723 

58,508 

3,683 

1,333 

10,763 

3,375 

Net gain on extinguishment of High Point debt

83,907 

Net gain on sale of 1140 Connecticut Avenue

and 1227 25th Street

45,862 

Net gain on sales of other real estate

5,761 

Litigation loss accrual and impairment loss

(5,000)

(15,056)

Income (loss) from discontinued operations

$

3,683 

$

(3,667)

$

146,293 

$

(11,681)

 

18

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

9.    Identified Intangible Assets and Liabilities

The following summarizes our identified intangible assets (primarily acquired above-market leases) and liabilities (primarily acquired below-market leases) as of September 30, 2011 and December 31, 2010.

 

Balance as of

September 30,

December 31,

(Amounts in thousands)

2011 

2010 

Identified intangible assets:

Gross amount

$

690,996 

$

681,270 

Accumulated amortization

(356,118)

(335,113)

Net

$

334,878 

$

346,157 

Identified intangible liabilities (included in deferred credit):

Gross amount

$

861,696 

$

856,689 

Accumulated amortization

(380,198)

(335,317)

Net

$

481,498 

$

521,372 

 

Amortization of acquired below-market leases, net of acquired above-market leases, resulted in an increase to rental income of $16,100,000 and $16,756,000 for the three months ended September 30, 2011 and 2010, respectively, and $49,387,000 and $48,476,000 for the nine months ended September 30, 2011 and 2010, respectively.  Estimated annual amortization of acquired below-market leases, net of acquired above-market leases, for each of the five succeeding years commencing January 1, 2012 is as follows:

 

(Amounts in thousands)

2012 

$

51,092 

2013 

43,174 

2014 

37,419 

2015 

34,673 

2016 

31,281 

 

Amortization of all other identified intangible assets (a component of depreciation and amortization expense) was $16,059,000 and $15,032,000 for the three months ended September 30, 2011 and 2010, respectively, and $43,782,000 and $45,317,000 for the nine months ended September 30, 2011 and 2010, respectively.  Estimated annual amortization of all other identified intangible assets including acquired in-place leases, customer relationships, and third party contracts for each of the five succeeding years commencing January 1, 2012 is as follows:

 

(Amounts in thousands)

2012 

$

47,168 

2013 

39,703 

2014 

21,398 

2015 

16,471 

2016 

13,924 

 

We are a tenant under ground leases for certain properties.  Amortization of these acquired below-market leases, net of above-market leases resulted in an increase to rent expense of $344,000 and $539,000 for the three months ended September 30, 2011 and 2010, respectively, and $1,033,000 and $1,618,000 for the nine months ended September 30, 2011 and 2010, respectively.  Estimated annual amortization of these below-market leases, net of above-market leases, for each of the five succeeding years commencing January 1, 2012 is as follows:

 

(Amounts in thousands)

2012 

$

1,377 

2013 

1,377 

2014 

1,377 

2015 

1,377 

2016 

1,377 

19

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

10.    Debt

 

The following is a summary of our debt:

Interest

(Amounts in thousands)

Rate at

Balance at

September 30,

September 30,

December 31,

Notes and mortgages payable:

Maturity (1)

2011 

2011 

2010 

Fixed rate:

New York Office:

350 Park Avenue

01/12

5.48 %

$

430,000 

$

430,000 

Two Penn Plaza (2)

03/18

5.13 %

425,000 

277,347 

1290 Avenue of the Americas

01/13

5.97 %

415,934 

424,136 

770 Broadway

03/16

5.65 %

353,000 

353,000 

888 Seventh Avenue

01/16

5.71 %

318,554 

318,554 

909 Third Avenue

04/15

5.64 %

204,203 

207,045 

Eleven Penn Plaza

12/11

5.20 %

196,253 

199,320 

 

Washington, DC Office:

 

Skyline Place

02/17

5.74 %

678,000 

678,000 

River House Apartments

04/15

5.43 %

195,546 

195,546 

2121 Crystal Drive (3)

03/23

5.51 %

150,000 

Bowen Building

06/16

6.14 %

115,022 

115,022 

1215 Clark Street, 200 12th Street and 251 18th Street

01/25

7.09 %

109,067 

110,931 

West End 25 (4)

06/21

4.88 %

101,671 

Universal Buildings

04/14

6.42 %

99,456 

103,049 

Reston Executive I, II, and III

01/13

5.57 %

93,000 

93,000 

2011 Crystal Drive

08/17

7.30 %

80,711 

81,362 

1550 and 1750 Crystal Drive

11/14

7.08 %

77,292 

79,411 

220 20th Street (5)

02/18

4.61 %

75,323 

1235 Clark Street

07/12

6.75 %

51,569 

52,314 

2231 Crystal Drive

08/13

7.08 %

44,422 

46,358 

1750 Pennsylvania Avenue

06/12

7.26 %

44,538 

45,132 

1225 Clark Street

08/13

7.08 %

26,571 

27,616 

1800, 1851 and 1901 South Bell Street

12/11

6.91 %

2,610 

10,099 

 

Retail:

 

Cross-collateralized mortgages on 40 strip shopping centers

09/20

4.20 %

588,377 

597,138 

Montehiedra Town Center

07/16

6.04 %

120,000 

120,000 

Broadway Mall

07/13

5.30 %

88,383 

90,227 

828-850 Madison Avenue Condominium

06/18

5.29 %

80,000 

80,000 

North Bergen (Tonnelle Avenue) (6)

01/18

4.59 %

75,000 

Las Catalinas Mall

11/13

6.97 %

56,488 

57,737 

510 5th Avenue

01/16

5.60 %

31,850 

32,189 

Other

03/12-05/36

5.12%-7.30%

95,962 

97,054 

 

Merchandise Mart:

 

Merchandise Mart

12/16

5.57 %

550,000 

550,000 

Boston Design Center

09/15

5.02 %

67,655 

68,538 

Washington Design Center

n/a

n/a

43,447 

 

Other:

 

555 California Street (7)

09/21

5.10 %

600,000 

640,911 

Borgata Land (8)

02/21

5.14 %

60,000 

Industrial Warehouses

n/a

n/a

24,358 

Total fixed rate notes and mortgages payable

5.52 %

$

6,701,457 

$

6,248,841 

___________________

See notes on page 22.

 

20

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

10.    Debt - continued

Interest

(Amounts in thousands)

Rate at

Balance at

Spread over

September 30,

September 30,

December 31,

Notes and mortgages payable:

Maturity (1)

LIBOR

2011 

2011 

2010 

Variable rate:

New York Office:

Manhattan Mall

02/12

L+55 

0.78 %

$

232,000 

$

232,000 

866 UN Plaza (9)

05/16

L+125  (9)

1.52 %

44,978 

44,978 

Washington, DC Office:

2101 L Street

02/13

L+120 

1.45 %

150,000 

150,000 

River House Apartments

04/18

n/a (10)

1.53 %

64,000 

64,000 

2200/2300 Clarendon Boulevard

01/15

L+75 

0.98 %

54,833 

59,278 

1730 M and 1150 17th Street

06/14

L+140 

1.72 %

43,581 

43,581 

West End 25 (4)

n/a

n/a

n/a

95,220 

220 20th Street (5)

n/a

n/a

n/a

83,573 

Retail:

Green Acres Mall

02/13

L+140 

1.73 %

325,045 

335,000 

Bergen Town Center

03/13

L+150 

1.76 %

279,044 

279,044 

San Jose Strip Center

03/13

L+400 

4.25 %

113,641 

120,863 

Beverly Connection (11)

10/11

L+350  (11)

5.00 %

100,000 

100,000 

4 Union Square South

04/14

L+325 

3.52 %

75,000 

75,000 

Cross-collateralized mortgages on 40 strip

shopping centers (12)

09/20

L+136  (12)

2.36 %

60,000 

60,000 

435 Seventh Avenue (13)

08/14

L+300  (13)

5.00 %

51,479 

51,844 

Other

11/12

L+375 

3.97 %

20,983 

21,862 

Other:

220 Central Park South(14)

10/11

L+235–L+245 (14)

2.61 %

123,750 

123,750 

Other

11/11

L+250 

2.75 %

22,400 

66,267 

Total variable rate notes and mortgages payable

2.19 %

1,760,734 

2,006,260 

Total notes and mortgages payable

4.83 %

$

8,462,191 

$

8,255,101 

Senior unsecured notes:

Senior unsecured notes due 2015

04/15

4.25 %

$

499,421 

$

499,296 

Senior unsecured notes due 2039 (15)

10/39

7.88 %

460,000 

460,000 

Floating rate senior unsecured notes due 2011

n/a

n/a

23,250 

Senior unsecured notes due 2011

n/a

n/a

100,382 

Total senior unsecured notes

5.99 %

$

959,421 

$

1,082,928 

3.88% exchangeable senior debentures due 2025

(see page 23)

04/12

5.32 %

$

496,139 

$

491,000 

Convertible senior debentures: (see page 23)

3.63% due 2026

11/11

5.32 %

$

178,696 

$

176,499 

2.85% due 2027

04/12

5.45 %

10,103 

9,914 

Total convertible senior debentures (16)

5.33 %

$

188,799 

$

186,413 

Unsecured revolving credit facilities:

$1.595 billion unsecured revolving credit facility (17)

09/12

L+55 

0.75 %

$

300,000 

$

669,000 

$1.25 billion unsecured revolving credit facility

($22,085 reserved for outstanding letters of credit) (18)

06/16

L+135 

-

205,000 

Total unsecured revolving credit facilities

0.75 %

$

300,000 

$

874,000 

___________________________

See notes on the following page.

 

21

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

10.    Debt - continued

Notes to preceding tabular information (Amounts in thousands):

(1)

Represents the extended maturity for certain loans in which we have the unilateral right, ability and intent to extend. In the case of our convertible and exchangeable debt, represents the earliest date holders may require us to repurchase the debentures.

(2)

On February 11, 2011, we completed a $425,000 refinancing of this property. The seven-year loan bears interest at LIBOR plus 2.00%, which was swapped for the term of the loan to a fixed rate of 5.13%. The loan amortizes based on a 30-year schedule beginning in the fourth year. We retained net proceeds of approximately $139,000, after repaying the existing loan and closing costs.

(3)

On February 10, 2011, we completed a $150,000 financing of this property. The 12-year fixed rate loan bears interest at 5.51% and amortizes based on a 30-year schedule beginning in the third year. This property was previously unencumbered.

(4)

In May 2011, we repaid the outstanding balance of the variable-rate construction loan on this property and closed on a $101,671 mortgage at a fixed rate of 4.88%. The loan has a 10-year term and amortizes based on a 30-year schedule beginning in the sixth year.

(5)

On January 18, 2011, we repaid the outstanding balance of the variable-rate construction loan on this property and closed on a $76,100 mortgage at a fixed rate of 4.61%. The loan has a seven-year term and amortizes based on a 30-year schedule.

(6)

On January 10, 2011, we completed a $75,000 financing of this property. The seven-year fixed rate loan bears interest at 4.59% and amortizes based on a 25-year schedule beginning in the sixth year. This property was previously unencumbered.

(7)

On September 1, 2011, we completed a $600,000 refinancing of this property. The 10-year fixed rate loan bears interest at 5.10% and amortizes based on a 30-year schedule beginning in the fourth year.

(8)

In January 2011, we completed a $60,000 financing of this property. The 10-year fixed rate loan bears interest at 5.14% and amortizes based on a 30-year schedule beginning in the third year.

(9)

On May 10, 2011, we refinanced this loan for the same amount. The five-year interest only loan is at LIBOR plus 1.25%.

(10)

This loan bears interest at the Freddie Mac Reference Note Rate plus 1.53%.

(11)

In October 2011, this loan was refinanced in the same amount for one year, with two one-year extension options. The interest rate on the new loan is at LIBOR plus 4.25% with a LIBOR floor of 0.50%.

(12)

This loan has a LIBOR floor of 1.00%.

(13)

This loan has a LIBOR floor of 2.00%.

(14)

In October 2011, we extended the maturity date of this loan to October 2012, with a provision for a one-year extension option.

(15)

These notes may be redeemed at our option in whole or in part beginning on October 1, 2014, at a price equal to the principal amount plus accrued interest.

(16)

The net proceeds from the offering of these debentures were contributed to the Operating Partnership in the form of an inter-company loan and the Operating Partnership fully and unconditionally guaranteed payment of these debentures. There are no restrictions which limit the Operating Partnership from making distributions to Vornado and Vornado has virtually no independent assets or operations outside of the Operating Partnership.

(17)

We are in the process of renewing this facility and expect to enter into a new $1,250,000 facility that has a four-year term, with a one-year extension option and bears interest on drawn amounts at LIBOR plus 1.25% and has a .25% facility fee (drawn or undrawn), based on our credit ratings.

(18)

On June 8, 2011, we renewed this facility and increased it to $1,250,000 from $1,000,000. The renewed facility matures in four years, has a one-year extension option and bears interest on drawn amounts at LIBOR plus 1.35%  and has a .30% facility fee (drawn or undrawn), based on our credit ratings.

 

22

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

10.    Debt – continued

 

       Pursuant to the provisions of Accounting Standards Codification (“ASC”) 470-20, Debt with Conversion and Other Options, below is a summary of required disclosures related to our convertible and exchangeable senior debentures.

 

2.85% Convertible

3.63% Convertible

3.88% Exchangeable

(Amounts in thousands, except per share amounts)

Senior Debentures due 2027

Senior Debentures due 2026

Senior Debentures due 2025

September 30,

December 31,

September 30,

December 31,

September 30,

December 31,

Balance Sheet:

2011 

2010 

2011 

2010 

2011 

2010 

Principal amount of debt component

$

10,233 

$

10,233 

$

179,052 

$

179,052 

$

499,982 

$

499,982 

Unamortized discount

(130)

(319)

(356)

(2,553)

(3,843)

(8,982)

Carrying amount of debt component

$

10,103 

$

9,914 

$

178,696 

$

176,499 

$

496,139 

$

491,000 

Carrying amount of equity component

$

956 

$

956 

$

9,604 

$

9,604 

$

32,301 

$

32,301 

Effective interest rate

5.45 %

5.45 %

5.32 %

5.32 %

5.32 %

5.32 %

Maturity date (period through which

discount is being amortized)

4/1/12

11/15/11

4/15/12

Conversion price per share, as adjusted

$

157.18 

$

148.46 

$

87.17 

Number of shares on which the

aggregate consideration to be

delivered upon conversion is

determined

(1)

(1)

5,736 

__________________

(1)

Our convertible senior debentures require that upon conversion, the entire principal amount is to be settled in cash, and at our option, any excess value above the principal amount may be settled in cash or common shares. Based on the September 30, 2011 closing share price of our common shares and the conversion prices in the table above, there was no excess value; accordingly, no common shares would be issued if these securities were settled on this date. The number of common shares on which the aggregate consideration that would be delivered upon conversion is 65 and 1,206 common shares, respectively.

 

Three Months Ended

Nine Months Ended

(Amounts in thousands)

September 30,

September 30,

Income Statement:

2011 

2010 

2011 

2010 

2.85% Convertible Senior Debentures due 2027:

Coupon interest

$

74 

$

160 

$

219 

$

480 

Discount amortization – original issue

11 

23 

33 

69 

Discount amortization – ASC 470-20 implementation

52 

110 

156 

325 

$

137 

$

293 

$

408 

$

874 

3.63% Convertible Senior Debentures due 2026:

Coupon interest

$

1,623 

$

3,523 

$

4,868 

$

11,328 

Discount amortization – original issue

202 

417 

598 

1,320 

Discount amortization – ASC 470-20 implementation

540 

1,117 

1,599 

3,533 

$

2,365 

$

5,057 

$

7,065 

$

16,181 

3.88% Exchangeable Senior Debentures due 2025:

Coupon interest

$

4,843 

$

4,844 

$

14,531 

$

14,532 

Discount amortization – original issue

410 

389 

1,213 

1,151 

Discount amortization – ASC 470-20 implementation

1,326 

1,258 

3,926 

3,724 

$

6,579 

$

6,491 

$

19,670 

$

19,407 

23

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

11.    Redeemable Noncontrolling Interests

 

Redeemable noncontrolling interests on our consolidated balance sheets represent Operating Partnership units held by third parties and are comprised of Class A units and Series D-10, D-14, D-15 and D-16 (collectively, “Series D”) cumulative redeemable preferred units.  Redeemable noncontrolling interests on our consolidated balance sheets are recorded at the greater of their carrying amount or redemption value at the end of each reporting period.  Changes in the value from period to period are charged to “additional capital” in our consolidated statements of changes in equity.  Below is a table summarizing the activity of redeemable noncontrolling interests.

 

(Amounts in thousands)

Balance at December 31, 2009

$

1,251,628 

Net income

33,487 

Distributions

(40,702)

Conversion of Class A units into common shares, at redemption value

(62,606)

Adjustments to carry redeemable Class A units at redemption value

232,099 

Redemption of Series D-12 redeemable units

(13,000)

Other, net

16,316 

Balance at September 30, 2010

$

1,417,222 

Balance at December 31, 2010

$

1,327,974 

Net income

47,364 

Distributions

(38,393)

Conversion of Class A units into common shares, at redemption value

(38,220)

Adjustments to carry redeemable Class A units at redemption value

(114,628)

Redemption of Series D-11 redeemable units

(28,000)

Other, net

4,623 

Balance at September 30, 2011

$

1,160,720 

 

As of September 30, 2011 and December 31, 2010, the aggregate redemption value of redeemable Class A units was $934,720,000 and $1,066,974,000, respectively. 

 

Redeemable noncontrolling interests exclude our Series G-1 through G-4 convertible preferred units and Series D-13 cumulative redeemable preferred units, as they are accounted for as liabilities in accordance with ASC 480, Distinguishing Liabilities and Equity, because of their possible settlement by issuing a variable number of Vornado common shares.  Accordingly the fair value of these units is included as a component of “other liabilities” on our consolidated balance sheets and aggregated $55,052,000 and $55,097,000 as of September 30, 2011 and December 31, 2010, respectively.

 

In 2011, we redeemed 1,400,000 Series D-11 cumulative redeemable preferred units with a par value of $25.00 per unit, for an aggregate of $28,000,000 in cash.  In 2010, we redeemed 800,000 Series D-12 cumulative redeemable preferred units with a par value of $25.00 per unit, for an aggregate of $13,000,000 in cash.

24

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

12.  Shareholders’ Equity

 

On April 20, 2011, we sold 7,000,000 6.875% Series J Cumulative Redeemable Preferred Shares at a price of $25.00 per share, in an underwritten public offering pursuant to an effective registration statement.  On April 21, 2011, the underwriters exercised their option to purchase an additional 1,050,000 shares to cover over-allotments.  On May 5, 2011 and August 5, 2011, we sold an additional 800,000 and 1,000,000 shares, respectively, at a price of $25.00 per share.  We retained aggregate net proceeds of $239,037,000, after underwriters’ discounts and issuance costs and contributed the net proceeds to the Operating Partnership in exchange for 9,850,000 Series J Preferred Units (with economic terms that mirror those of the Series J Preferred Shares).  Dividends on the Series J Preferred Shares are cumulative and payable quarterly in arrears.  The Series J Preferred Shares are not convertible into, or exchangeable for, any of our properties or securities.  On or after five years from the date of issuance (or sooner under limited circumstances), we, at our option, may redeem the Series J Preferred Shares at a redemption price of $25.00 per share, plus accrued and unpaid dividends through the date of redemption.  The Series J Preferred Shares have no maturity date and will remain outstanding indefinitely unless redeemed by us.  

 

13.  Fair Value Measurements

ASC 820, Fair Value Measurement and Disclosures defines fair value and establishes a framework for measuring fair value.  The objective of fair value is to determine the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price).  ASC 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels: Level 1 – quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities; Level 2 – observable prices that are based on inputs not quoted in active markets, but corroborated by market data; and Level 3 – unobservable inputs that are used when little or no market data is available. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as consider counterparty credit risk in our assessment of fair value.  Considerable judgment is necessary to interpret Level 2 and 3 inputs in determining the fair value of our financial and non-financial assets and liabilities.  Accordingly, our fair value estimates, which are made at the end of each reporting period, may be different than the amounts that may ultimately be realized upon sale or disposition of these assets.   

 

Financial Assets and Liabilities Measured at Fair Value

 

Financial assets and liabilities that are measured at fair value in our consolidated financial statements consist of (i) marketable securities, (ii) derivative positions in marketable equity securities, (iii) the assets of our deferred compensation plan, which are primarily marketable equity securities and equity investments in limited partnerships, (iv) Real Estate Fund investments, and (v)  mandatorily redeemable instruments (Series G-1 through G-4 convertible preferred units and Series D-13 cumulative redeemable preferred units).  The tables below aggregate the fair values of financial assets and liabilities by the levels in the fair value hierarchy at September 30, 2011 and December 31, 2010, respectively.

As of September 30, 2011

(Amounts in thousands)

Total

Level 1

Level 2

Level 3

Marketable securities

$

631,361 

$

631,361 

$

$

Real Estate Fund investments (75% of which is attributable to

noncontrolling interests)

261,417 

261,417 

Deferred compensation plan assets (included in other assets)

94,623 

40,736 

53,887 

Total assets

$

987,401 

$

672,097 

$

$

315,304 

Mandatorily redeemable instruments (included in other liabilities)

$

55,052 

$

55,052 

$

$

As of December 31, 2010

(Amounts in thousands)

Total

Level 1

Level 2

Level 3

Marketable securities

$

766,116 

$

766,116 

$

$

Real Estate Fund investments (75% of which is attributable to

noncontrolling interests)

144,423 

144,423 

Deferred compensation plan assets (included in other assets)

91,549 

43,699 

47,850 

Derivative positions in marketable equity securities

(included in other assets)

17,616 

17,616 

Total assets

$

1,019,704 

$

809,815 

$

17,616 

$

192,273 

Mandatorily redeemable instruments (included in other liabilities)

$

55,097 

$

55,097 

$

$

 

25

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

13.  Fair Value Measurements - continued

Financial Assets and Liabilities Measured at Fair Value - continued

 

The tables below summarize the changes in the fair value of the Level 3 assets above, by category, for the three and nine months ended September 30, 2011 and 2010.

 

Real Estate Fund Investments:

For the Three Months

For the Nine Months

Ended September 30,

Ended September 30,

(Amounts in thousands)

2011 

2010 

2011 

2010 

Beginning balance

$

255,795 

$

$

144,423 

$

Purchases

42,500 

123,047 

42,500 

Sales

(12,831)

Realized and unrealized gains

5,639 

22,294 

Other, net

(17)

(15,516)

Ending balance

$

261,417 

$

42,500 

$

261,417 

$

42,500 

Deferred Compensation Plan Assets:

For the Three Months

For the Nine Months

Ended September 30,

Ended September 30,

(Amounts in thousands)

2011 

2010 

2011 

2010 

Beginning balance

$

53,724 

$

43,598 

$

47,850 

$

39,589 

Purchases

3,155 

9,802 

22,259 

16,144 

Sales

(1,044)

(7,850)

(18,538)

(11,430)

Realized and unrealized (losses) gains

(2,051)

487 

2,166 

1,637 

Other, net

103 

150 

97 

Ending balance

$

53,887 

$

46,037 

$

53,887 

$

46,037 

 

 

Financial Assets and Liabilities not Measured at Fair Value

 

 Financial assets and liabilities that are not measured at fair value in our consolidated financial statements include mezzanine loans receivable and debt.  Estimates of the fair values of these instruments are based on our assessments of available market information and valuation methodologies, including discounted cash flow analyses.  The table below summarizes the carrying amounts and fair values of these financial instruments as of September 30, 2011 and December 31, 2010.

 

As of September 30, 2011

As of December 31, 2010

Carrying

Fair

Carrying

Fair

(Amounts in thousands)

Amount

Value

Amount

Value

Mezzanine loans receivable

$

156,365 

$

150,226 

$

202,412 

$

197,581 

Debt:

Notes and mortgages payable

$

8,462,191 

$

8,576,512 

$

8,255,101 

$

8,446,791 

Senior unsecured notes

959,421 

1,011,602 

1,082,928 

1,119,512 

Exchangeable senior debentures

496,139 

514,981 

491,000 

554,355 

Convertible senior debentures

188,799 

189,816 

186,413 

191,510 

Revolving credit facility debt

300,000 

300,000 

874,000 

874,000 

$

10,406,550 

$

10,592,911 

$

10,889,442 

$

11,186,168 

26

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

14.    Stock-based Compensation

           

Our Share Option Plan (the “Plan”) provides for grants of incentive and non-qualified stock options, restricted stock, restricted Operating Partnership units and out-performance plan rewards to certain of our employees and officers.  We account for all stock-based compensation in accordance ASC 718, Compensation – Stock Compensation.  Stock-based compensation expense for the three months ended September 30, 2011 and 2010 consists of stock option awards, restricted stock awards, Operating Partnership unit awards and out-performance plan awards.  Stock-based compensation expense was $7,320,000 and $11,210,000 in the three months ended September 30, 2011 and 2010, respectively, and $21,384,000 and $26,167,000 in the nine months ended September 30, 2011 and 2010, respectively.

 

 

15.    Fee and Other Income

         The following table sets forth the details of our fee and other income:

 

For the Three Months

For the Nine Months

(Amounts in thousands)

Ended September 30,

Ended September 30,

2011 

2010 

2011 

2010 

Tenant cleaning fees

$

15,647 

$

13,613 

$

46,479 

$

40,733 

Management and leasing fees

4,361 

3,555 

15,456 

16,075 

Lease termination fees

4,803 

2,301 

12,478 

10,112 

Other income

12,195 

12,797 

37,826 

37,918 

$

37,006 

$

32,266 

$

112,239 

$

104,838 

                                 

 

          Fee and other income above includes management fee income from Interstate Properties, a related party, of $195,000 and $192,000 for the three months ended September 30, 2011 and 2010, respectively, and $586,000 and $584,000 for the nine months ended September 30, 2011 and 2010, respectively.  The above table excludes management fee income from partially owned entities which is included in income from partially owned entities (see Note 6 – Investments in Partially Owned Entities).

 

 

16.     Interest and Other Investment (Loss) Income, Net

          The following table sets forth the details of our interest and other investment income:

 

For the Three Months

For the Nine Months

(Amounts in thousands)

Ended September 30,

Ended September 30,

2011 

2010 

2011 

2010 

Mezzanine loans loss reversal (accrual) and net gain on disposition

$

$

$

82,744 

$

(6,900)

Dividends and interest on marketable securities

7,605 

6,445 

22,941 

21,068 

Interest on mezzanine loans

3,442 

2,620 

9,169 

7,660 

Mark-to-market of investments in our deferred compensation plan (1)

(5,243)

3,907 

1,502 

5,684 

(Loss) income from the mark-to-market of J.C. Penney derivative position

(37,537)

32,249 

(27,136)

32,249 

Other, net

1,739 

1,875 

5,901 

5,915 

$

(29,994)

$

47,096 

$

95,121 

$

65,676 

__________________________

(1)

This (loss) income is entirely offset by the revenue/expense resulting from the mark-to-market of the deferred compensation plan liability, which is included in "general and administrative" expense.

27

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

17.    Income Per Share

The following table provides a reconciliation of both net income and the number of common shares used in the computation of (i) basic income per common share - which utilizes the weighted average number of common shares outstanding without regard to dilutive potential common shares, and (ii) diluted income per common share - which includes the weighted average common shares and dilutive share equivalents. Dilutive share equivalents may include our Series A convertible preferred shares, employee stock options, restricted stock and exchangeable senior debentures.

 

For the Three Months

For the Nine Months

(Amounts in thousands, except per share amounts)

Ended September 30,

Ended September 30,

2011 

2010 

2011 

2010 

Numerator:  

Income from continuing operations, net of income

attributable to noncontrolling interests

$

50,314 

$

107,919 

$

437,576 

$

402,591 

Income (loss) from discontinued operations, net of income

attributable to noncontrolling interests

3,448 

(3,667)

137,430 

(11,681)

Net income attributable to Vornado

53,762 

104,252 

575,006 

390,910 

Preferred share dividends

(17,627)

(13,442)

(47,743)

(41,975)

Discount on preferred share and unit redemptions

5,000 

4,382 

5,000 

4,382 

Net income attributable to common shareholders

41,135 

95,192 

532,263 

353,317 

Earnings allocated to unvested participating securities

(48)

(29)

(199)

(79)

Numerator for basic income per share

41,087 

95,163 

532,064 

353,238 

Impact of assumed conversions:

Convertible preferred share dividends

94 

121 

Numerator for diluted income per share

$

41,087 

$

95,163 

$

532,158 

$

353,359

Denominator:

Denominator for basic income per share –

weighted average shares

184,398 

182,462 

184,220 

182,014 

Effect of dilutive securities (1):

Employee stock options and restricted share awards

1,667 

1,706 

1,764 

1,741 

Convertible preferred shares

55 

71 

Denominator for diluted income per share –

weighted average shares and assumed conversions

186,065 

184,168 

186,039 

183,826 

INCOME PER COMMON SHARE – BASIC:

Income from continuing operations, net

$

0.20 

$

0.54 

$

2.14 

$

2.00 

Income (loss) from discontinued operations, net

0.02 

(0.02)

0.75 

(0.06)

Net income per common share

$

0.22 

$

0.52 

$

2.89 

$

1.94 

INCOME PER COMMON SHARE – DILUTED:

Income from continuing operations, net

$

0.20 

$

0.54 

$

2.12 

$

1.98 

Income (loss) from discontinued operations, net

0.02 

(0.02)

0.74 

(0.06)

Net income per common share

$

0.22 

$

0.52 

$

2.86 

$

1.92 

(1)

The effect of dilutive securities above excludes anti-dilutive weighted average common share equivalents of 18,857 and 19,837 in the three months ended September 30, 2011 and 2010, respectively, and 18,687 and 19,843 in the nine months ended September 30, 2011 and 2010, respectively.

28

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

18.          Cleveland Medical Mart Development Project

 

During 2010, two of our wholly owned subsidiaries entered into agreements with Cuyahoga County, Ohio (the “County”) to develop and operate the Cleveland Medical Mart and Convention Center (the “Facility”), a 1,000,000 square foot showroom, trade show and conference center in Cleveland’s central business district.  The County will fund the development of the Facility, using the proceeds it received from the issuance of general obligation bonds and other sources, up to the development budget of $465,000,000 and maintain effective control of the property.  During the 17-year development and operating period, our subsidiaries will receive net settled payments of approximately $10,000,000 per year, which are net of its $36,000,000 annual obligation to the County.  Our subsidiaries’ obligation has been pledged by the County to the bondholders, but is payable by our subsidiaries only to the extent that they first receive at least an equal payment from the County.  Our subsidiaries engaged a contractor to construct the Facility pursuant to a guaranteed maximum price contract; although our subsidiaries are ultimately responsible for cost overruns, the contractor is responsible for all costs incurred in excess of its contract and has provided a completion guaranty.  Construction of the Facility is expected to be completed in 2013.  Upon completion, our subsidiaries are required to fund $11,500,000, primarily for tenant improvements, and they are responsible for operating expenses and are entitled to the net operating income, if any, of the Facility.  The County may terminate the operating agreement five years from the completion of development and periodically thereafter, if our subsidiaries fail to achieve certain performance thresholds. 

 

We account for these agreements using criteria set forth in ASC 605-25, Multiple-Element Arrangements, as our subsidiaries are providing development, marketing, leasing, and other property management related services over the 17-year term.  We recognize development fees using the percentage of completion method of accounting.  In the three and nine months ended September 30, 2011, we recognized $35,135,000 and $108,203,000 of revenue, respectively, which is offset by development costs expensed of $33,419,000 and $101,637,000, respectively.

 

 

19.    Commitments and Contingencies

 

Insurance 

 

We maintain general liability insurance with limits of $300,000,000 per occurrence and all risk property and rental value insurance with limits of $2.0 billion per occurrence, including coverage for terrorist acts, with sub-limits for certain perils such as floods.  Our California properties have earthquake insurance with coverage of $180,000,000 per occurrence, subject to a deductible in the amount of 5% of the value of the affected property, up to a $180,000,000 annual aggregate.

 

Penn Plaza Insurance Company, LLC (“PPIC”), our wholly owned consolidated subsidiary, acts as a re-insurer with respect to all risk property and rental value insurance and a portion of our earthquake insurance coverage, and as a direct insurer for coverage for acts of terrorism, including nuclear, biological, chemical and radiological (“NBCR”) acts, as defined by the Terrorism Risk Insurance Program Reauthorization Act.  Coverage for acts of terrorism (excluding NBCR acts) is fully reinsured by third party insurance companies and the Federal government with no exposure to PPIC.  Coverage for NBCR losses is up to $2 billion per occurrence, for which PPIC is responsible for a deductible of $3,200,000 and 15% of the balance of a covered loss and the Federal government is responsible for the remaining 85% of a covered loss.  We are ultimately responsible for any loss borne by PPIC.

 

We continue to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism.  However, we cannot anticipate what coverage will be available on commercially reasonable terms in future policy years.

 

Our debt instruments, consisting of mortgage loans secured by our properties which are non-recourse to us, senior unsecured notes, exchangeable senior debentures, convertible senior debentures and revolving credit agreements contain customary covenants requiring us to maintain insurance. Although we believe that we have adequate insurance coverage for purposes of these agreements, we may not be able to obtain an equivalent amount of coverage at reasonable costs in the future. Further, if lenders insist on greater coverage than we are able to obtain it could adversely affect our ability to finance our properties and expand our portfolio.

29

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

19.    Commitments and Contingencies – continued

 

 

          Other Commitments and Contingencies

 

Our mortgage loans are non-recourse to us.  However, in certain cases we have provided guarantees or master leased tenant space.  These guarantees and master leases terminate either upon the satisfaction of specified circumstances or repayment of the underlying loans.  As of September 30, 2011, the aggregate dollar amount of these guarantees and master leases is approximately $151,959,000.

 

At September 30, 2011, $22,085,000 of letters of credit were outstanding under one of our revolving credit facilities.  Our credit facilities contain financial covenants that require us to maintain minimum interest coverage and maximum debt to market capitalization ratios, and provide for higher interest rates in the event of a decline in our ratings below Baa3/BBB. Our credit facilities also contain customary conditions precedent to borrowing, including representations and warranties, and also contain customary events of default that could give rise to accelerated repayment, including such items as failure to pay interest or principal.

 

Each of our properties has been subjected to varying degrees of environmental assessment at various times. The environmental assessments did not reveal any material environmental contamination. However, there can be no assurance that the identification of new areas of contamination, changes in the extent or known scope of contamination, the discovery of additional sites, or changes in cleanup requirements would not result in significant costs to us.

 

As part of the process of obtaining the required approvals to demolish and develop our 220 Central Park South property into a new residential tower, we have committed to fund the estimated project cost of approximately $400,000,000 to $425,000,000.  In addition, we expect to fund additional capital to certain of our partially owned entities aggregating approximately $264,000,000.

 

 

Litigation  

 

We are from time to time involved in legal actions arising in the ordinary course of business. In our opinion, after consultation with legal counsel, the outcome of such matters, including the matter referred to below, is not expected to have a material adverse effect on our financial position, results of operations or cash flows.

 

On January 8, 2003, Stop & Shop filed a complaint with the United States District Court for the District of New Jersey (“USDC-NJ”) claiming that we had no right to reallocate and therefore continue to collect the $5,000,000 of annual rent from Stop & Shop pursuant to the Master Agreement and Guaranty, because of the expiration of the East Brunswick, Jersey City, Middletown, Union and Woodbridge leases to which the $5,000,000 of additional rent was previously allocated. Stop & Shop asserted that a prior order of the Bankruptcy Court for the Southern District of New York dated February 6, 2001, as modified on appeal to the District Court for the Southern District of New York on February 13, 2001, froze our right to reallocate which effectively terminated our right to collect the additional rent from Stop & Shop. On March 3, 2003, after we moved to dismiss for lack of jurisdiction, Stop & Shop voluntarily withdrew its complaint. On March 26, 2003, Stop & Shop filed a new complaint in New York State Supreme Court, asserting substantially the same claims as in its USDC-NJ complaint. We removed the action to the United States District Court for the Southern District of New York. In January 2005, that court remanded the action to the New York State Supreme Court. On February 14, 2005, we served an answer in which we asserted a counterclaim seeking a judgment for all the unpaid additional rent accruing through the date of the judgment and a declaration that Stop & Shop will continue to be liable for the additional rent as long as any of the leases subject to the Master Agreement and Guaranty remain in effect. On May 17, 2005, we filed a motion for summary judgment. On July 15, 2005, Stop & Shop opposed our motion and filed a cross-motion for summary judgment. On December 13, 2005, the Court issued its decision denying the motions for summary judgment. Both parties appealed the Court’s decision and on December 14, 2006, the Appellate Court division issued a decision affirming the Court’s decision.  On January 16, 2007, we filed a motion for the reconsideration of one aspect of the Appellate Court’s decision which was denied on March 13, 2007.  A trial was held in November 2010 and closing arguments were held in March 2011.  As of September 30, 2011, we have a $40,733,000 receivable from Stop & Shop, of which $23,105,000 has been reserved.  We believe, after consultation with counsel, that the maximum reasonably possible loss is up to the total amount of the receivable of $40,733,000.

30

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

20.    Segment Information

        Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the three and nine months ended September 30, 2011 and 2010.

 

(Amounts in thousands)

For the Three Months Ended September 30, 2011

New York

Washington, DC

Merchandise

Total

Office

Office

Retail

Mart

Toys

Other(3)

Property rentals

$

530,086 

$

196,123 

$

133,156 

$

105,788 

$

46,278 

$

$

48,741 

Straight-line rent adjustments

14,963 

3,998 

6,673 

4,696 

(1,006)

602 

Amortization of acquired below-

market leases, net

16,100 

8,153 

547 

6,268 

21 

1,111 

Total rentals

561,149 

208,274 

140,376 

116,752 

45,293 

50,454 

Tenant expense reimbursements

94,053 

43,025 

9,328 

36,297 

2,972 

2,431 

Cleveland Medical Mart development

project

35,135 

35,135 

Fee and other income:

Tenant cleaning fees

15,647 

24,047 

(8,400)

Management and leasing fees

4,361 

1,653 

2,670 

541 

45 

(548)

Lease termination fees

4,803 

3,540 

1,002 

261 

Other

12,195 

5,212 

5,232 

1,155 

988 

(392)

Total revenues

727,343 

285,751 

158,608 

155,006 

84,433 

43,545 

Operating expenses

285,659 

129,472 

51,791 

57,412 

30,803 

16,181 

Depreciation and amortization

134,074 

47,038 

33,885 

30,080 

10,372 

12,699 

General and administrative

46,452 

4,461 

6,505 

6,721 

9,534 

19,231 

Cleveland Medical Mart development

project

33,419 

33,419 

Tenant buy-outs and other acquisition

related costs

2,288 

1,593 

695 

Total expenses

501,892 

180,971 

92,181 

95,806 

84,128 

48,806 

Operating income (loss)

225,451 

104,780 

66,427 

59,200 

305 

(5,261)

(Loss) applicable to Toys

(9,304)

(9,304)

Income (loss) from partially owned

entities

13,552 

(5,136)

(1,356)

889 

38 

19,117 

Income from Real Estate Fund

5,353 

5,353 

Interest and other investment

(loss) income, net

(29,994)

146 

39 

17 

(30,199)

Interest and debt expense

(136,672)

(35,395)

(30,256)

(23,176)

(9,365)

(38,480)

Net gain on disposition of wholly

owned and partially owned assets

1,298 

1,298 

Income (loss) before income taxes

69,684 

64,395 

34,854 

36,916 

(9,005)

(9,304)

(48,172)

Income tax expense

(7,144)

(678)

(960)

(890)

(4,616)

Income (loss) from continuing

operations

62,540 

63,717 

33,894 

36,916 

(9,895)

(9,304)

(52,788)

Income from discontinued

operations

3,683 

165 

818 

2,700 

Net income (loss)

66,223 

63,882 

33,894 

37,734 

(7,195)

(9,304)

(52,788)

Less:

Net (income) loss attributable to

noncontrolling interests in

consolidated subsidiaries

(5,636)

(2,219)

110 

(3,527)

Net (income) attributable to

noncontrolling interests in the

Operating Partnership, including

unit distributions

(6,825)

(6,825)

Net income (loss) attributable to

Vornado

53,762 

61,663 

33,894 

37,844 

(7,195)

(9,304)

(63,140)

Interest and debt expense(2)

197,864 

39,526 

33,703 

24,368 

9,523 

38,018 

52,726 

Depreciation and amortization(2)

193,394 

53,936 

38,085 

30,946 

12,230 

34,293 

23,904 

Income tax (benefit) expense(2)

(7,350)

736 

925 

890 

(15,135)

5,234 

EBITDA(1)

$

437,670 

$

155,861 

$

106,607 

$

93,158 

$

15,448 

$

47,872 

$

18,724 

See notes on page 35.

 

31

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

20.    Segment Information – continued

(Amounts in thousands)

For the Three Months Ended September 30, 2010

New York

Washington, DC

Merchandise

Total

Office

Office

Retail

Mart

Toys

Other(3)

Property rentals

$

526,776 

$

194,815 

$

146,439 

$

97,625 

$

42,774 

$

$

45,123 

Straight-line rent adjustments

15,986 

7,573 

347 

7,441 

(457)

1,082 

Amortization of acquired below-

market leases, net

16,756 

8,936 

594 

5,820 

15 

1,391 

Total rentals

559,518 

211,324 

147,380 

110,886 

42,332 

47,596 

Tenant expense reimbursements

95,341 

40,387 

15,129 

35,688 

2,784 

1,353 

Fee and other income:

Tenant cleaning fees

13,613 

21,721 

(8,108)

Management and leasing fees

3,555 

1,428 

2,772 

214 

(2)

(857)

Lease termination fees

2,301 

1,220 

728 

346 

Other

12,797 

5,505 

5,554 

1,016 

800 

(78)

Total revenues

687,125 

281,585 

171,563 

148,150 

45,921 

39,906 

Operating expenses

275,077 

124,152 

58,327 

52,309 

26,391 

13,898 

Depreciation and amortization

130,599 

44,131 

36,764 

26,329 

9,853 

13,522 

General and administrative

55,200 

4,504 

5,984 

8,843 

6,010 

29,859 

Tenant buy-outs and other acquisition

related costs

921 

921 

Total expenses

461,797 

172,787 

101,075 

87,481 

42,254 

58,200 

Operating income (loss)

225,328 

108,798 

70,488 

60,669 

3,667 

(18,294)

(Loss) applicable to Toys

(2,557)

(2,557)

(Loss) income from partially owned

entities

(1,996)

1,705 

(1,095)

833 

(3,447)

(Loss) from Real Estate Fund

(1,410)

(1,410)

Interest and other investment

income (loss), net

47,096 

139 

81 

(46)

11 

46,911 

Interest and debt expense

(145,561)

(33,293)

(33,367)

(24,199)

(9,556)

(45,146)

Net (loss) on extinguishment

of debt

(724)

(724)

Net gain on disposition of wholly

owned and partially owned assets

5,072 

5,072 

Income (loss) before income taxes

125,248 

77,349 

36,107 

37,257 

(5,870)

(2,557)

(17,038)

Income tax (expense) benefit

(5,449)

(861)

(1,001)

(2)

714 

(4,299)

Income (loss) from continuing

operations

119,799 

76,488 

35,106 

37,255 

(5,156)

(2,557)

(21,337)

(Loss) income from discontinued

operations

(3,667)

30 

1,410 

(3,642)

(1,465)

Net income (loss)

116,132 

76,518 

36,516 

33,613 

(6,621)

(2,557)

(21,337)

Less:

Net (income) loss attributable to

noncontrolling interests in

consolidated subsidiaries

(296)

(2,442)

397 

1,749 

Net (income) attributable to

noncontrolling interests in the

Operating Partnership, including

unit distributions

(11,584)

(11,584)

Net income (loss) attributable to

Vornado

104,252 

74,076 

36,516 

34,010 

(6,621)

(2,557)

(31,172)

Interest and debt expense(2)

208,294 

31,817 

34,241 

26,395 

15,883 

40,558 

59,400 

Depreciation and amortization(2)

179,148 

42,531 

41,394 

28,024 

12,782 

30,079 

24,338 

Income tax (benefit) expense(2)

(23,013)

861 

1,054 

(714)

(27,501)

3,285 

EBITDA(1)

$

468,681 

$

149,285 

$

113,205 

$

88,431 

$

21,330 

$

40,579 

$

55,851 

See notes on page 35.

 

32

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

20.    Segment Information – continued

(Amounts in thousands)

For the Nine Months Ended September 30, 2011

New York

Washington, DC

Merchandise

Total

Office

Office

Retail

Mart

Toys

Other(3)

Property rentals

$

1,604,451 

$

586,797 

$

413,810 

$

316,729 

$

154,485 

$

$

132,630 

Straight-line rent adjustments

34,713 

15,777 

5,962 

12,556 

(2,059)

2,477 

Amortization of acquired below-

market leases, net

49,387 

24,549 

1,525 

19,899 

55 

3,359 

Total rentals

1,688,551 

627,123 

421,297 

349,184 

152,481 

138,466 

Tenant expense reimbursements

264,857 

108,267 

27,561 

111,519 

9,121 

8,389 

Cleveland Medical Mart development

project

108,203 

108,203 

Fee and other income:

Tenant cleaning fees

46,479 

71,156 

(24,677)

Management and leasing fees

15,456 

5,260 

9,629 

2,439 

348 

(2,220)

Lease termination fees

12,478 

9,176 

3,013 

289 

Other

37,826 

15,078 

15,894 

4,241 

2,832 

(219)

Total revenues

2,173,850 

836,060 

477,394 

467,672 

272,985 

119,739 

Operating expenses

841,266 

367,291 

150,375 

173,623 

99,266 

50,711 

Depreciation and amortization

393,846 

138,837 

101,634 

85,653 

29,113 

38,609 

General and administrative

155,566 

14,389 

19,504 

22,034 

23,855 

75,784 

Cleveland Medical Mart development

project

101,637 

101,637 

Tenant buy-outs and other acquisition

related costs

22,455 

16,593 

3,040 

2,822 

Total expenses

1,514,770 

520,517 

271,513 

297,903 

256,911 

167,926 

Operating income (loss)

659,080 

315,543 

205,881 

169,769 

16,074 

(48,187)

Income applicable to Toys

80,794 

80,794 

Income (loss) from partially owned

entities

56,239 

(4,893)

(6,038)

2,131 

292 

64,747 

Income from Real Estate Fund

25,491 

25,491 

Interest and other investment

income, net

95,121 

466 

119 

35 

94,496 

Interest and debt expense

(408,532)

(103,514)

(89,911)

(69,482)

(28,140)

(117,485)

Net gain on disposition of wholly

owned and partially owned assets

7,975 

7,975 

Income (loss) before income taxes

516,168 

207,602 

110,051 

102,423 

(11,739)

80,794 

27,037 

Income tax expense

(19,448)

(1,637)

(2,267)

(5)

(2,211)

(13,328)

Income (loss) from continuing

operations

496,720 

205,965 

107,784 

102,418 

(13,950)

80,794 

13,709 

Income from discontinued operations

146,293 

398 

46,466 

9,217 

90,212 

Net income

643,013 

206,363 

154,250 

111,635 

76,262 

80,794 

13,709 

Less:

Net (income) loss attributable to

noncontrolling interests in

consolidated subsidiaries

(20,643)

(6,815)

196 

(14,024)

Net (income) attributable to

noncontrolling interests in the

Operating Partnership, including

unit distributions

(47,364)

(47,364)

Net income (loss) attributable to

Vornado

575,006 

199,548 

154,250 

111,831 

76,262 

80,794 

(47,679)

Interest and debt expense(2)

599,668 

108,473 

100,017 

73,000 

32,025 

121,546 

164,607 

Depreciation and amortization(2)

561,738 

146,650 

118,290 

88,322 

34,632 

101,862 

71,982 

Income tax expense(2)

42,135 

1,695 

2,380 

2,211 

29,914 

5,930 

EBITDA(1)

$

1,778,547 

$

456,366 

$

374,937 

$

273,158 

$

145,130 

$

334,116 

$

194,840 

See notes on page 35.

 

33

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

20.    Segment Information – continued

(Amounts in thousands)

For the Nine Months Ended September 30, 2010

New York

Washington, DC

Merchandise

Total

Office

Office

Retail

Mart

Toys

Other(3)

Property rentals

$

1,560,473 

$

582,090 

$

426,217 

$

284,808 

$

145,206 

$

$

122,152 

Straight-line rent adjustments

53,018 

22,642 

5,519 

21,699 

628 

2,530 

Amortization of acquired below-

market leases, net

48,476 

27,312 

1,836 

14,897 

(91)

4,522 

Total rentals

1,661,967 

632,044 

433,572 

321,404 

145,743 

129,204 

Tenant expense reimbursements

271,040 

105,968 

42,592 

107,799 

8,876 

5,805 

Fee and other income:

Tenant cleaning fees

40,733 

62,778 

(22,045)

Management and leasing fees

16,075 

4,278 

13,252 

759 

31 

(2,245)

Lease termination fees

10,112 

4,245 

1,256 

4,182 

429 

Other

37,918 

14,428 

16,452 

2,284 

3,471 

1,283 

Total revenues

2,037,845 

823,741 

507,124 

436,428 

158,550 

112,002 

Operating expenses

802,927 

349,934 

163,097 

159,131 

85,915 

44,850 

Depreciation and amortization

393,259 

131,911 

108,994 

80,550 

30,111 

41,693 

General and administrative

153,231 

13,824 

18,079 

22,591 

20,252 

78,485 

Tenant buy-outs and other acquisition

related costs

2,851 

2,851 

Total expenses

1,352,268 

495,669 

290,170 

262,272 

136,278 

167,879 

Operating income (loss)

685,577 

328,072 

216,954 

174,156 

22,272 

(55,877)

Income applicable to Toys

102,309 

102,309 

Income (loss) from partially owned

entities

13,800 

4,345 

(1,099)

3,353 

239 

6,962 

(Loss) from Real Estate Fund

(1,410)

(1,410)

Interest and other investment

income, net

65,676 

466 

130 

143 

35 

64,902 

Interest and debt expense

(423,354)

(99,026)

(101,592)

(62,047)

(28,383)

(132,306)

Net (loss) on extinguishment

of debt

(1,796)

(1,796)

Net gain on disposition of wholly

owned and partially owned assets

12,759 

765 

11,994 

Income (loss) before income taxes

453,561 

233,857 

114,393 

115,605 

(5,072)

102,309 

(107,531)

Income tax (expense) benefit

(15,993)

(1,670)

(1,092)

(37)

118 

(13,312)

Income (loss) from continuing

operations

437,568 

232,187 

113,301 

115,568 

(4,954)

102,309 

(120,843)

(Loss) income from discontinued operations

(11,681)

106 

(5,776)

(1,539)

(4,472)

Net income (loss)

425,887 

232,293 

107,525 

114,029 

(9,426)

102,309 

(120,843)

Less:

Net (income) loss attributable to

noncontrolling interests in

consolidated subsidiaries

(1,490)

(7,290)

895 

4,905 

Net (income) attributable to

noncontrolling interests in the

Operating Partnership, including

unit distributions

(33,487)

(33,487)

Net income (loss) attributable to

Vornado

390,910 

225,003 

107,525 

114,924 

(9,426)

102,309 

(149,425)

Interest and debt expense(2)

611,993 

94,404 

104,355 

68,275 

45,370 

123,791 

175,798 

Depreciation and amortization(2)

549,400 

127,341 

120,929 

85,335 

39,049 

99,850 

76,896 

Income tax expense (benefit)(2)

13,553 

1,670 

1,161 

37 

(59)

(1,914)

12,658 

EBITDA(1)

$

1,565,856 

$

448,418 

$

333,970 

$

268,571 

$

74,934 

$

324,036 

$

115,927 

See notes on the following page.

 

34

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

20. Segment Information - continued

Notes to preceding tabular information:

(1)

EBITDA represents "Earnings Before Interest, Taxes, Depreciation and Amortization." We consider EBITDA a supplemental measure for making decisions and assessing the unlevered performance of our segments as it relates to the total return on assets as opposed to the levered return on equity. As properties are bought and sold based on a multiple of EBITDA, we utilize this measure to make investment decisions as well as to compare the performance of our assets to that of our peers. EBITDA should not be considered a substitute for net income. EBITDA may not be comparable to similarly titled measures employed by other companies.

(2)

Interest and debt expense, depreciation and amortization and income tax (benefit) expense in the reconciliation of net income (loss) to EBITDA includes our share of these items from partially owned entities.

(3)

The components of other EBITDA are summarized below. The totals for each of the columns below agree to the total EBITDA for the "other" column in the preceding EBITDA by segment reconciliations.

 

For the Three Months

For the Nine Months

(Amounts in thousands)

Ended September 30,

Ended September 30,

2011 

2010 

2011 

2010 

Our share of Real Estate Fund:

Operations

$

743 

$

(319)

$

2,550 

$

(319)

Net unrealized gains

1,410 

4,802 

Net realized gains

771 

Carried interest (reversal) accrual

(475)

1,665 

Total

1,678 

(319)

9,788 

(319)

Alexander's

14,588 

13,288 

45,577 

41,947 

LNR (acquired in July 2010) (1)

15,769 

38,569 

Lexington (2)

8,424 

8,092 

37,730 

37,375 

555 California Street

11,220 

11,797 

32,608 

34,421 

Hotel Pennsylvania

9,773 

8,080 

18,382 

14,249 

Other investments

10,075 

4,004 

30,011 

22,619 

71,527 

44,942 

212,665 

150,292 

Corporate general and administrative expenses (3)

(21,585)

(20,712)

(62,964)

(60,668)

Investment income and other, net (3)

12,530 

15,808 

38,860 

41,876 

Mezzanine loans loss reversal (accrual) and net gain on disposition

82,744 

(6,900)

(Loss) income from the mark-to-market of J.C. Penney derivative

position

(37,537)

32,249 

(27,136)

32,249 

Net gain on sale of condominiums

1,298 

5,884 

3,149 

Acquisition related costs

(684)

(921)

(4,398)

(2,851)

Real Estate Fund placement fees

(3,207)

(3,451)

(5,937)

Net loss on extinguishment of debt

(724)

(1,796)

Net income attributable to noncontrolling interests in the Operating

Partnership, including unit distributions

(6,825)

(11,584)

(47,364)

(33,487)

$

18,724 

$

55,851 

$

194,840 

$

115,927 

(1)

The nine months ended September 30, 2011 includes $6,020 for our share of net gains from asset sales and $8,977 for our share of a tax settlement gain.

(2)

Includes net gains of $9,760 and $5,998 in the nine months ended September 30, 2011 and 2010, respectively, resulting from Lexington's stock issuances.

(3)

The amounts in these captions (for this table only) exclude the mark-to-market of our deferred compensation plan assets and offsetting liability.

 

35

 


 
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

Shareholders and Board of Trustees

Vornado Realty Trust

New York, New York

 

We have reviewed the accompanying consolidated balance sheet of Vornado Realty Trust (the “Company”) as of September 30, 2011, and the related consolidated statements of income and comprehensive income for the three-month and nine-month periods ended September 30, 2011 and 2010, and of changes in equity and cash flows for the nine-month periods ended September 30, 2011 and 2010.  These interim financial statements are the responsibility of the Company’s management.

 

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States).  A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters.  It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole.  Accordingly, we do not express such an opinion.

 

Based on our reviews, we are not aware of any material modifications that should be made to such consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

 

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Vornado Realty Trust as of December 31, 2010, and the related consolidated statements of income, changes in equity, and cash flows for the year then ended (not presented herein); and in our report dated February 23, 2011, we expressed an unqualified opinion on those consolidated financial statements.  In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2010 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

 

/s/ DELOITTE & TOUCHE LLP

 

Parsippany, New Jersey

November 3, 2011

36

 


 
 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Certain statements contained in this Quarterly Report constitute forward‑looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not guarantees of performance. They represent our intentions, plans, expectations and beliefs and are subject to numerous assumptions, risks and uncertainties. Our future results, financial condition and business may differ materially from those expressed in these forward-looking statements. You can find many of these statements by looking for words such as “approximates,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “would,” “may” or other similar expressions in this Quarterly Report on Form 10‑Q.  Many of the factors that will determine the outcome of these and our other forward-looking statements are beyond our ability to control or predict. For further discussion of factors that could materially affect the outcome of our forward-looking statements, see “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010.  For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q or the date of any document incorporated by reference. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to our forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations includes a discussion of our consolidated financial statements for the three and nine months ended September 30, 2011.  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

 

Critical Accounting Policies

 

A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the year ended December 31, 2010 in Management’s Discussion and Analysis of Financial Condition. There have been no significant changes to our policies during 2011.

37

 


 
 

 

 

Overview

Business Objective and Operating Strategy

Our business objective is to maximize shareholder value, which we measure by the total return provided to our shareholders. Below is a table comparing our performance to the Morgan Stanley REIT Index (“RMS”) and the SNL REIT Index (“SNL”) for the following periods ended September 30, 2011:

 

Total Return(1)

Vornado

RMS

SNL

One-year

(9.9%)

1.3%

1.2%

Three-year

(9.2%)

(5.0%)

(4.0%)

Five-year

(18.7%)

(12.2%)

(8.9%)

Ten-year

196.5%

139.6%

149.5%

(1) Past performance is not necessarily indicative of future performance.

 

We intend to achieve our business objective by continuing to pursue our investment philosophy and executing our operating strategies through:

 

·      Maintaining a superior team of operating and investment professionals and an entrepreneurial spirit;

·      Investing in properties in select markets, such as New York City and Washington, DC, where we believe there is a high likelihood of capital appreciation;

·      Acquiring quality properties at a discount to replacement cost and where there is a significant potential for higher rents;

·      Investing in retail properties in select under-stored locations such as the New York City metropolitan area;

·      Developing and redeveloping existing properties to increase returns and maximize value; and

·      Investing in operating companies that have a significant real estate component.

 

We expect to finance our growth, acquisitions and investments using internally generated funds, proceeds from possible asset sales and by accessing the public and private capital markets.  We may also offer Vornado common or preferred shares or Operating Partnership units in exchange for property and may repurchase or otherwise reacquire our shares or any other securities in the future.

 

We compete with a large number of real estate property owners and developers, some of which may be willing to accept lower returns on their investments. Principal factors of competition are rents charged, attractiveness of location, the quality of the property and the breadth and the quality of services provided. Our success depends upon, among other factors, trends of the national, regional and local economies, the financial condition and operating results of current and prospective tenants and customers, availability and cost of capital, construction and renovation costs, taxes, governmental regulations, legislation and population trends.  See “Item 1A. Risk Factors” in our Annual Report on Form 10-K, as amended, for additional information regarding these factors.

 

38

 


 
 

  

Overview - continued

 

 

Recently Issued Accounting Literature

 

In June 2011, the Financial Accounting Standards Board (“FASB”) issued an update to Accounting Standards Codification (“ASC”) 220, Comprehensive Income, which requires, among other things, presentation of the components of net income and other comprehensive income in one continuous statement or in two separate but consecutive statements. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011.  We believe that the adoption of this guidance on January 1, 2012 will not have a material effect on our consolidated financial statements.

 

 

2011 Acquisitions and Investments

 

One Park Avenue

 

On March 1, 2011, we as a co-investor, together with the Fund, acquired a 95% interest in One Park Avenue, a 932,000 square foot office building located between 32nd and 33rd Streets in New York, for $374,000,000. The purchase price consisted of $137,000,000 in cash and 95% of a new $250,000,000 five-year mortgage that bears interest at 5.0%.

 

280 Park Avenue Joint Venture

 

On March 16, 2011, we formed a 50/50 joint venture with SL Green Realty Corp (“SL Green”) to own the mezzanine debt of 280 Park Avenue, a 1.2 million square foot office building located between 48th and 49th Streets in Manhattan (the “Property”).  We contributed our mezzanine loan with a face amount of $73,750,000 and they contributed their mezzanine loans with a face amount of $326,250,000 to the joint venture.  We equalized our interest in the joint venture with SL Green by paying them $111,250,000 in cash and assuming $15,000,000 of their debt.  On May 17, 2011, as part of the recapitalization of the Property, the joint venture contributed its debt position for 99% of the common equity of a new joint venture which owns the Property.  The new joint venture expects to spend $150,000,000 for re-tenanting and repositioning the Property.

 

Independence Plaza

 

On June 17, 2011, a joint venture in which we are a 51% partner invested $55,000,000 in cash (of which we contributed $35,000,000) to acquire a face amount of $150,000,000 of mezzanine loans and a $35,000,000 participation in a senior loan on Independence Plaza, a residential complex comprised of three 39-story buildings in the Tribeca submarket of Manhattan.

 

 

2011 Dispositions

 

On March 31, 2011, the receiver completed the disposition of the High Point Complex in North Carolina.  In connection therewith, the property and related debt were removed from our consolidated balance sheet and we recognized a net gain of $83,907,000 on the extinguishment of debt.

 

During 2011, we sold 1140 Connecticut Avenue and 1227 25th Street for $127,000,000 in cash, which resulted in a $45,862,000 net gain, and three retail properties in separate transactions for an aggregate of $40,990,000 in cash, which resulted in net gains aggregating $5,761,000.

 

39

 


 
 

  

Overview - continued

 

 

2011 Financing Activities

 

In January 2011, we completed a $60,000,000 financing of land under a portion of the Borgata Hotel and Casino complex. The 10-year fixed rate loan bears interest at 5.14% and amortizes based on a 30-year schedule beginning in the third year.

 

On January 10, 2011, we completed a $75,000,000 financing of North Bergen (Tonnelle Avenue), a 410,000 square foot strip shopping center.  The seven-year fixed rate loan bears interest rate at 4.59% and amortizes based on a 25-year schedule beginning in the sixth year. This property was previously unencumbered.

 

On January 18, 2011, we repaid the outstanding balance of the construction loan on 220 20th Street and closed on a $76,100,000 mortgage at a fixed rate of 4.61%.  The loan has a seven-year term and amortizes based on a 30-year schedule.

 

On February 10, 2011, we completed a $150,000,000 financing of 2121 Crystal Drive, a 506,000 square foot office building located in Crystal City, Arlington, Virginia.  The 12-year fixed rate loan bears interest at 5.51% and amortizes based on a 30-year schedule beginning in the third year.  This property was previously unencumbered.

 

On February 11, 2011, we completed a $425,000,000 refinancing of Two Penn Plaza, a 1.6 million square foot Manhattan office building.  The seven-year loan bears interest at LIBOR plus 2.00%, which was swapped for the term of the loan to a fixed rate of 5.13%.  The loan amortizes based on a 30-year schedule beginning in the fourth year.  We retained net proceeds of approximately $139,000,000 after repaying the existing loan and closing costs.

 

On April 20, 2011, we sold 7,000,000 6.875% Series J Cumulative Redeemable Preferred Shares at a price of $25.00 per share, in an underwritten public offering pursuant to an effective registration statement.  On April 21, 2011, the underwriters exercised their option to purchase an additional 1,050,000 shares to cover over-allotments.  On May 5, 2011 and August 5, 2011 we sold an additional 800,000 and 1,000,000 shares, respectively, at a price of $25.00 per share.  We retained aggregate net proceeds of $239,037,000, after underwriters’ discounts and issuance costs and contributed the net proceeds to the Operating Partnership in exchange for 9,850,000 Series J Preferred Units (with economic terms that mirror those of the Series J Preferred Shares).  Dividends on the Series J Preferred Shares are cumulative and payable quarterly in arrears.  The Series J Preferred Shares are not convertible into, or exchangeable for, any of our properties or securities.  On or after five years from the date of issuance (or sooner under limited circumstances), we, at our option, may redeem the Series J Preferred Shares at a redemption price of $25.00 per share, plus accrued and unpaid dividends through the date of redemption.  The Series J Preferred Shares have no maturity date and will remain outstanding indefinitely unless redeemed by us.

 

In May 2011, we repaid the outstanding balance of the construction loan on West End 25, and closed on a $101,671,000 mortgage at a fixed rate of 4.88%.  The loan has a 10-year term and amortizes based on a 30-year schedule beginning in the sixth year.

 

On June 8, 2011, we renewed one of our two unsecured revolving credit facilities, and increased it to $1,250,000,000 from $1,000,000,000.  The renewed facility matures in four years, has a one-year extension option and bears interest on drawn amounts at LIBOR plus 1.35% and has a .30% facility fee (drawn or undrawn), based on our credit ratings.  We plan to renew our second revolving credit facility of $1,595,000,000, which matures in September 2012, with a new $1,250,000,000 facility that has a four-year term, with a one-year extension option and bears interest on drawn amounts at LIBOR plus 1.25% and has a .25% facility fee (drawn or undrawn), based on our credit ratings.

 

On September 1, 2011, we completed a $600,000,000 refinancing of 555 California Street, a three-building office complex aggregating 1.8 million square feet in San Francisco’s financial district, known as the Bank of America center, in which we own a 70% controlling interest.  The 10-year loan bears interest at 5.10% and amortizes based on a 30-year schedule beginning in the fourth year.  The proceeds of the new loan and $45,000,000 of existing cash were used to repay the existing loan and closing costs.

 

40

 


 
 

  

 

Overview - continued

Quarter Ended September 30, 2011 Financial Results Summary

 

Net income attributable to common shareholders for the quarter ended September 30, 2011 was $41,135,000, or $0.22 per diluted share, compared to $95,192,000, or $0.52 per diluted share, for the quarter ended September 30, 2010.  Net income for the quarter ended September 30, 2011 includes $3,591,000 of net gains on sale of real estate.  In addition, the quarters ended September 30, 2011 and 2010 include certain other items that affect comparability, which are listed in the table below.  The aggregate of net gains on sale of real estate and the items in the table below, net of amounts attributable to noncontrolling interests, decreased net income attributable to common shareholders by $26,352,000, or $0.14 per diluted share for the quarter ended September 30, 2011 and increased net income attributable to common shareholders for the quarter ended September 30, 2010 by 22,274,000, or $0.12 per diluted share.

 

Funds From Operations attributable to common shareholders plus assumed conversions (“FFO”) for the quarter ended September 30, 2011 was $195,125,000, or $1.05 per diluted share, compared to $248,964,000, or $1.31 per diluted share, for the prior year’s quarter.  FFO for the quarters ended September 30, 2011 and 2010 include certain items that affect comparability which are listed in the table below.  The aggregate of these items, net of amounts attributable to noncontrolling interests, decreased FFO by $27,759,000, or $0.15 per diluted share for the quarter ended September 30, 2011 and increased FFO for the quarter ended September 30, 2010 by $27,464,000, or $0.14 per diluted share.

 

For the Three Months Ended

September 30,

(Amounts in thousands)

2011 

2010 

Items that affect comparability income (expense):

(Loss) income from the mark-to-market of J.C. Penney derivative position

$

(37,537)

$

32,249 

Merchandise Mart restructuring costs

(3,722)

Buy-out of a below market lease

(1,593)

Acquisitions costs and impairment losses

(684)

(5,921)

Discount on preferred share and unit redemptions

5,000 

4,382 

Net gain on sale of condominiums

1,298 

Real Estate Fund placement fees

(3,752)

Default interest and fees accrued on loans in special servicing

(5,887)

FFO attributable to discontinued operations

5,777 

10,117 

Other, net

1,780 

(1,647)

(29,681)

29,541 

Noncontrolling interests' share of above adjustments

1,922 

(2,077)

Items that affect comparability, net

$

(27,759)

$

27,464 

 

The percentage increase (decrease) in GAAP basis and cash basis same store Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) of our operating segments for the quarter ended September 30, 2011 over the quarter ended September 30, 2010 and the trailing quarter ended June 30, 2011 are summarized below.

 

New York

Washington, DC

Merchandise

Same Store EBITDA:

Office

Office

Retail

Mart

September 30, 2011 vs. September 30, 2010

GAAP basis

(1.1%)

0.4%

0.9%

(2.2%)

Cash Basis

1.6%

1.3%

1.1%

0.5%

September 30, 2011 vs. June 30, 2011

GAAP basis

(0.3%)

(0.9%)

0.9%

(21.8%)

(1)

Cash Basis

0.7%

(0.6%)

(1.9%)

(20.2%)

(1)

 

 

(1)

Primarily due to the timing of Trade Shows.

 

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Overview - continued

Nine Months Ended September 30, 2011 Financial Results Summary

Net income attributable to common shareholders for the nine months ended September 30, 2011 was $532,263,000, or $2.86 per diluted share, compared to $353,317,000, or $1.92 per diluted share, for the nine months ended September 30, 2010. Net income for the nine months ended September 30, 2011 and 2010 include $59,474,000 and $307,000, respectively, of net gains on sale of real estate.  In addition, nine months ended September 30, 2011 and 2010 include certain items that affect comparability which are listed in the table below.  The aggregate of net gains on sale of real estate and the items in the table below, net of amounts attributable to noncontrolling interests, increased net income attributable to common shareholders by $208,608,000 or $1.12 per diluted share for the nine months ended September 30, 2011 and $16,206,000, or $0.09 per diluted share for the nine months ended September 30, 2010.

 

FFO for the nine months ended September 30, 2011 was $951,054,000, or $4.96 per diluted share, compared to $814,030,000, or $4.29 per diluted share, for the nine months ended September 30, 2010.  FFO for nine months ended September 30, 2011 and 2010 includes certain items that affect comparability which are listed in the table below. The aggregate of these items, net of amounts attributable to noncontrolling interests, increased FFO by $159,303,000 or $0.83 per diluted share for the nine months ended September 30, 2011 and $31,685,000, or $0.17 per diluted share for the nine months ended September 30, 2010.

 

For the Nine Months Ended

September 30,

(Amounts in thousands)

2011 

2010 

Items that affect comparability income (expense):

Net gain (loss) on extinguishment of debt

$

83,907 

$

(1,796)

Mezzanine loans loss reversal (accrual) and net gain on disposition

82,744 

(6,900)

Our share of LNR's asset sales and tax settlement gains

14,997 

Net gain resulting from Lexington's stock issuances

9,760 

5,998 

Discount on preferred share and unit redemptions

7,000 

11,354 

Net gain on sale of condominiums

5,884 

3,149 

(Loss) income from the mark-to-market of J.C. Penney derivative position

(27,136)

32,249 

Buy-out of below-market leases

(16,593)

Acquisition costs, litigation loss accrual and impairment losses

(4,398)

(17,907)

Merchandise Mart restructuring costs

(3,722)

Real Estate Fund placement fees

(3,451)

(6,482)

Default interest and fees accrued on loans in special servicing

(12,445)

FFO attributable to discontinued operations

17,188 

26,308 

Other, net

3,828 

524 

170,008 

34,052 

Noncontrolling interests' share of above adjustments

(10,705)

(2,367)

Items that affect comparability, net

$

159,303 

$

31,685 

 

The percentage increase (decrease) in GAAP basis and cash basis same store EBITDA of our operating segments for the nine months ended September 30, 2011 over the nine months ended September 30, 2010 is summarized below.

 

New York

Washington, DC

Merchandise

Same Store EBITDA:

Office

Office

Retail

Mart

September 30, 2011 vs. September 30, 2010

GAAP basis

(1.3%)

2.1%

3.3%

(1.5%)

Cash Basis

0.5%

2.5%

6.5%

2.0%

 

Calculations of same store EBITDA, reconciliations of our net income to EBITDA and FFO and the reasons we consider these non-GAAP financial measures useful are provided in the following pages of Management’s Discussion and Analysis of the Financial Condition and Results of Operations.

42

 


 
 

  

Overview - continued

 

The leasing activity presented below is based on leases signed during the period and is not intended to coincide with the commencement of rental revenue in accordance with accounting principles generally accepted in the United States of America (“GAAP”).  Tenant improvements and leasing commissions presented below are based on our share of square feet leased during the period.

 

(Square feet in thousands)

New York

Washington, DC

Merchandise Mart

As of September 30, 2011:

Office

Office

Retail (4)

Office

Showroom

Total square feet (in service)

19,206 

20,596 

25,379 

1,524 

4,046 

Our share of square feet (in service)

16,795 

17,860 

23,154 

1,524 

4,046 

Number of properties

29 

82 

155 

Occupancy rate

95.4%

90.4%(3)

92.3%

91.3%

91.9%

Leasing Activity:

Quarter Ended September 30, 2011:

Total square feet leased

839 

392 

427 

149 

144 

Our share of square feet leased:

723 

359 

425 

149 

144 

Initial rent (1)

$

55.05 

$

42.51 

$

26.65 

$

27.34 

$

38.28 

Weighted average lease term (years)

9.7 

4.5 

10.1 

7.2 

6.5 

Relet space (included above):

Square feet

708 

331 

167 

149 

144 

Cash basis:

Initial rent (1)

$

54.98 

$

42.91 

$

31.66 

$

27.34 

$

38.28 

Prior escalated rent

$

41.58 

$

39.82 

$

28.73 

$

28.63 

$

39.31 

Percentage increase (decrease)

32.2%

7.8%

10.2%

(4.5%)

(2.6%)

GAAP basis:

Straight-line rent (2)

$

55.38 

$

42.18 

$

32.82 

$

27.69 

$

38.13 

Prior straight-line rent

$

42.78 

$

38.14 

$

28.36 

$

25.53 

$

34.99 

Percentage increase

29.4%

10.6%

15.7%

8.5%

9.0%

Tenant improvements and leasing

commissions:

Per square foot

$

51.45 

$

23.29 

$

7.54 

$

56.01 

$

12.68 

Per square foot per annum:

$

5.30 

$

5.18 

$

0.75 

$

7.79 

$

1.96 

Percentage of initial rent

9.6%

12.2%

2.8%

28.5%

5.1%

Nine Months Ended September 30, 2011:

Total square feet leased

2,073 

1,179 

1,172 

189 

358 

Our share of square feet leased:

1,507 

1,031 

1,140 

189 

358 

Initial rent (1)

$

58.06 

$

40.27 

$

25.48 

$

27.96 

$

36.06 

Weighted average lease term (years)

9.7 

4.5 

8.7 

7.0 

6.1 

Relet space (included above):

Square feet

1,257 

929 

439 

189 

358 

Cash basis:

Initial rent (1)

$

60.30 

$

40.14 

$

21.73 

$

27.96 

$

36.06 

Prior escalated rent

$

48.94 

$

38.47 

$

19.70 

$

28.55 

$

37.35 

Percentage increase (decrease)

23.2%

4.3%

10.3%

(2.1%)

(3.5%)

GAAP basis:

Straight-line rent (2)

$

60.26 

$

39.74 

$

22.49 

$

28.26 

$

35.09 

Prior straight-line rent

$

49.24 

$

36.77 

$

19.22 

$

25.19 

$

33.92 

Percentage increase

22.4%

8.1%

17.0%

12.2%

3.4%

Tenant improvements and leasing

commissions:

Per square foot

$

50.76 

$

19.72 

$

7.03 

$

52.09 

$

7.10 

Per square foot per annum:

$

5.23 

$

4.38 

$

0.81 

$

7.41 

$

1.16 

Percentage of initial rent

9.0%

10.9%

3.2%

26.5%

3.2%

See notes on the following table.

 

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Overview - continued

 

 

(Square feet in thousands)

New York

Washington, DC

Merchandise Mart

 

As of June 30, 2011:

Office

Office

Retail (4)

Office

Showroom

 

Total square feet (in service)

19,386 

20,550 

25,443 

1,462 

4,107 

 

Our share of square feet (in service)

16,966 

17,821 

23,472 

1,462 

4,107 

 

Number of properties

30 

82 

158 

 

Occupancy rate

95.6%

93.1% (3)

92.3%

91.3%

93.5%

 

 

As of December 31, 2010:

 

Total square feet (in service)

17,454 

21,149 

25,557 

1,448 

4,122 

 

Our share of square feet (in service)

16,194 

17,823 

23,453 

1,448 

4,122 

 

Number of properties

28 

82 

161 

 

Occupancy rate

95.6%

94.3% (3)

92.3%

91.8%

93.8%

 

 

As of September 30, 2010:

 

Total square feet (in service)

17,432 

21,205 

25,298 

1,446 

4,123 

 

Our share of square feet (in service)

16,180 

18,247 

22,907 

1,446 

4,123 

 

Number of properties

28 

82 

163 

 

Occupancy rate

96.0%

94.7% (3)

92.5%

91.5%

93.2%

 

(1)

Represents the cash basis weighted average starting rent per square foot, which is generally indicative of market rents. Most leases include free rent and periodic step-ups in rent which are not included in the initial cash basis rent per square foot but are included in the GAAP basis straight-line rent per square foot.

(2)

Represents the GAAP basis weighted average rent per square foot that is recognized over the term of the respective leases, and includes the effect of free rent and periodic step-ups in rent.

(3)

Excluding residential and other properties, occupancy rates for the office properties were as follows.

September 30, 2011

89.0%

     (See Base Realignment and Closure ("BRAC") discussion below)

June 30, 2011

92.2%

December 31, 2010

94.0%

September 30, 2010

94.3%

(4)

Mall sales per square foot, including partially owned malls, for the trailing twelve months ended September 30, 2011 and 2010 were $464 and

$470, respectively.

                                                                             

 

 

BRAC

 

          The tables below summarize the effect of BRAC on our Washington, DC Office Properties segment for square feet leased by the Department of Defense (“DOD”).

 

Square Feet

DOD leases subject to BRAC

2,395,000 

Less square feet already vacated

(396,000)

Less square feet to be taken out of service for redevelopment

(348,000)

Less square feet to be relet by the General Services Administration (leases pending)

(313,000)

DOD leases subject to BRAC expiring in the future per table below (see details below for expiration)

1,338,000 

Annual Escalated

Rent of

Expiring Leases

Square Feet of Expiring Leases

Year

Per Square Foot

Total

Crystal City

Skyline

Rosslyn

Fourth Quarter 2011

$

30.43 

7,000 

7,000 

First Quarter 2012

38.13 

241,000 

203,000 

38,000 

Second Quarter 2012

39.60 

171,000 

171,000 

Third Quarter 2012

41.47 

380,000 

251,000 

119,000 

10,000 

Fourth Quarter 2012

n/a

Total 2012

40.05 

792,000 

625,000 

157,000 

10,000 

2013 

36.85 

183,000 

43,000 

140,000 

2014 

32.76 

330,000 

128,000 

202,000 

2015 

40.09 

26,000 

20,000 

6,000 

1,338,000 

773,000 

415,000 

150,000 

 

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Net Income and EBITDA by Segment for the Three Months Ended September 30, 2011 and 2010

Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the three months ended September 30, 2011 and 2010.

(Amounts in thousands)

For the Three Months Ended September 30, 2011

New York

Washington, DC

Merchandise

Total

Office

Office

Retail

Mart

Toys

Other(3)

Property rentals

$

530,086 

$

196,123 

$

133,156 

$

105,788 

$

46,278 

$

$

48,741 

Straight-line rent adjustments

14,963 

3,998 

6,673 

4,696 

(1,006)

602 

Amortization of acquired below-

market leases, net

16,100 

8,153 

547 

6,268 

21 

1,111 

Total rentals

561,149 

208,274 

140,376 

116,752 

45,293 

50,454 

Tenant expense reimbursements

94,053 

43,025 

9,328 

36,297 

2,972 

2,431 

Cleveland Medical Mart development

project

35,135 

35,135 

Fee and other income:

Tenant cleaning fees

15,647 

24,047 

(8,400)

Management and leasing fees

4,361 

1,653 

2,670 

541 

45 

(548)

Lease termination fees

4,803 

3,540 

1,002 

261 

Other

12,195 

5,212 

5,232 

1,155 

988 

(392)

Total revenues

727,343 

285,751 

158,608 

155,006 

84,433 

43,545 

Operating expenses

285,659 

129,472 

51,791 

57,412 

30,803 

16,181 

Depreciation and amortization

134,074 

47,038 

33,885 

30,080 

10,372 

12,699 

General and administrative

46,452 

4,461 

6,505 

6,721 

9,534 

19,231 

Cleveland Medical Mart development

project

33,419 

33,419 

Tenant buy-outs and other acquisition

related costs

2,288 

1,593 

695 

Total expenses

501,892 

180,971 

92,181 

95,806 

84,128 

48,806 

Operating income (loss)

225,451 

104,780 

66,427 

59,200 

305 

(5,261)

(Loss) applicable to Toys

(9,304)

(9,304)

Income (loss) from partially owned

entities

13,552 

(5,136)

(1,356)

889 

38 

19,117 

Income from Real Estate Fund

5,353 

5,353 

Interest and other investment

(loss) income, net

(29,994)

146 

39 

17 

(30,199)

Interest and debt expense

(136,672)

(35,395)

(30,256)

(23,176)

(9,365)

(38,480)

Net gain on disposition of wholly

owned and partially owned assets

1,298 

1,298 

Income (loss) before income taxes

69,684 

64,395 

34,854 

36,916 

(9,005)

(9,304)

(48,172)

Income tax expense

(7,144)

(678)

(960)

(890)

(4,616)

Income (loss) from continuing

operations

62,540 

63,717 

33,894 

36,916 

(9,895)

(9,304)

(52,788)

Income from discontinued

operations

3,683 

165 

818 

2,700 

Net income (loss)

66,223 

63,882 

33,894 

37,734 

(7,195)

(9,304)

(52,788)

Less:

Net (income) loss attributable to

noncontrolling interests in

consolidated subsidiaries

(5,636)

(2,219)

110 

(3,527)

Net (income) attributable to

noncontrolling interests in the

Operating Partnership, including

unit distributions

(6,825)

(6,825)

Net income (loss) attributable to

Vornado

53,762 

61,663 

33,894 

37,844 

(7,195)

(9,304)

(63,140)

Interest and debt expense(2)

197,864 

39,526 

33,703 

24,368 

9,523 

38,018 

52,726 

Depreciation and amortization(2)

193,394 

53,936 

38,085 

30,946 

12,230 

34,293 

23,904 

Income tax (benefit) expense(2)

(7,350)

736 

925 

890 

(15,135)

5,234 

EBITDA(1)

$

437,670 

$

155,861 

$

106,607 

$

93,158 

$

15,448 

$

47,872 

$

18,724 

____________________

See notes on page 47.

 

45

 


 
 

  

Net Income and EBITDA by Segment for the Three Months Ended September 30, 2011 and 2010 - continued

(Amounts in thousands)

For the Three Months Ended September 30, 2010

New York

Washington, DC

Merchandise

Total

Office

Office

Retail

Mart

Toys

Other(3)

Property rentals

$

526,776 

$

194,815 

$

146,439 

$

97,625 

$

42,774 

$

$

45,123 

Straight-line rent adjustments

15,986 

7,573 

347 

7,441 

(457)

1,082 

Amortization of acquired below-

market leases, net

16,756 

8,936 

594 

5,820 

15 

1,391 

Total rentals

559,518 

211,324 

147,380 

110,886 

42,332 

47,596 

Tenant expense reimbursements

95,341 

40,387 

15,129 

35,688 

2,784 

1,353 

Fee and other income:

Tenant cleaning fees

13,613 

21,721 

(8,108)

Management and leasing fees

3,555 

1,428 

2,772 

214 

(2)

(857)

Lease termination fees

2,301 

1,220 

728 

346 

Other

12,797 

5,505 

5,554 

1,016 

800 

(78)

Total revenues

687,125 

281,585 

171,563 

148,150 

45,921 

39,906 

Operating expenses

275,077 

124,152 

58,327 

52,309 

26,391 

13,898 

Depreciation and amortization

130,599 

44,131 

36,764 

26,329 

9,853 

13,522 

General and administrative

55,200 

4,504 

5,984 

8,843 

6,010 

29,859 

Tenant buy-outs and other acquisition

related costs

921 

921 

Total expenses

461,797 

172,787 

101,075 

87,481 

42,254 

58,200 

Operating income (loss)

225,328 

108,798 

70,488 

60,669 

3,667 

(18,294)

(Loss) applicable to Toys

(2,557)

(2,557)

(Loss) income from partially owned

entities

(1,996)

1,705 

(1,095)

833 

(3,447)

(Loss) from Real Estate Fund

(1,410)

(1,410)

Interest and other investment

income (loss), net

47,096 

139 

81 

(46)

11 

46,911 

Interest and debt expense

(145,561)

(33,293)

(33,367)

(24,199)

(9,556)

(45,146)

Net (loss) on extinguishment

of debt

(724)

(724)

Net gain on disposition of wholly

owned and partially owned assets

5,072 

5,072 

Income (loss) before income taxes

125,248 

77,349 

36,107 

37,257 

(5,870)

(2,557)

(17,038)

Income tax (expense) benefit

(5,449)

(861)

(1,001)

(2)

714 

(4,299)

Income (loss) from continuing

operations

119,799 

76,488 

35,106 

37,255 

(5,156)

(2,557)

(21,337)

(Loss) income from discontinued

operations

(3,667)

30 

1,410 

(3,642)

(1,465)

Net income (loss)

116,132 

76,518 

36,516 

33,613 

(6,621)

(2,557)

(21,337)

Less:

Net (income) loss attributable to

noncontrolling interests in

consolidated subsidiaries

(296)

(2,442)

397 

1,749 

Net (income) attributable to

noncontrolling interests in the

Operating Partnership, including

unit distributions

(11,584)

(11,584)

Net income (loss) attributable to

Vornado

104,252 

74,076 

36,516 

34,010 

(6,621)

(2,557)

(31,172)

Interest and debt expense(2)

208,294 

31,817 

34,241 

26,395 

15,883 

40,558 

59,400 

Depreciation and amortization(2)

179,148 

42,531 

41,394 

28,024 

12,782 

30,079 

24,338 

Income tax (benefit) expense(2)

(23,013)

861 

1,054 

(714)

(27,501)

3,285 

EBITDA(1)

$

468,681 

$

149,285 

$

113,205 

$

88,431 

$

21,330 

$

40,579 

$

55,851 

__________________________

See notes on the following page.

 

46

 


 
 

  

Net Income and EBITDA by Segment for the Three Months Ended September 30, 2011 and 2010 - continued

 

Notes to preceding tabular information:

(1)   EBITDA represents “Earnings Before Interest, Taxes, Depreciation and Amortization.”  We consider EBITDA a supplemental measure for making decisions and assessing the unlevered performance of our segments as it relates to the total return on assets as opposed to the levered return on equity. As properties are bought and sold based on a multiple of EBITDA, we utilize these measures to make investment decisions as well as to compare the performance of our assets to that of our peers. EBITDA should not be considered a substitute for net income. EBITDA may not be comparable to similarly titled measures employed by other companies.

 

(2)   Interest and debt expense, depreciation and amortization and income tax (benefit) expense in the reconciliation of our net income (loss) to EBITDA includes our share of these items from partially owned entities.

 

(3)   The components of other EBITDA are summarized below.  The totals for each of the columns below agree to the total EBITDA for the “other” column in the preceding EBITDA by segment reconciliations.

For the Three Months

(Amounts in thousands)

Ended September 30,

2011 

2010 

Our share of Real Estate Fund:

Operations

$

743 

$

(319)

Net unrealized gains

1,410 

Net realized gains

Carried interest reversal

(475)

Total

1,678 

(319)

LNR (acquired in July 2010)

15,769 

Alexander's

14,588 

13,288 

555 California Street

11,220 

11,797 

Hotel Pennsylvania

9,773 

8,080 

Lexington

8,424 

8,092 

Other investments

10,075 

4,004 

71,527 

44,942 

Corporate general and administrative expenses (1)

(21,585)

(20,712)

Investment income and other, net (1)

12,530 

15,808 

(Loss) income from the mark-to-market of J.C. Penney derivative position

(37,537)

32,249 

Net gain on sale of condominiums

1,298 

Acquisition related costs

(684)

(921)

Real Estate Fund placement fees

(3,207)

Net loss on extinguishment of debt

(724)

Net income attributable to noncontrolling interests in the Operating Partnership,

including unit distributions

(6,825)

(11,584)

$

18,724 

$

55,851 

(1)

The amounts in these captions (for this table only) exclude the mark-to-market of our deferred compensation plan assets

and offsetting liability.

 

47

 


 
 

  

Net Income and EBITDA by Segment for the Three Months Ended September 30, 2011 and 2010 - continued

 

Below is a summary of the percentages of EBITDA by geographic region (excluding discontinued operations and other gains and losses that affect comparability), from our New York Office, Washington DC Office, Retail and Merchandise Mart segments. 

 

For the Three Months

Ended September 30,

2011 

2010 

Region:

New York City metropolitan area

62%

62%

Washington, DC / Northern Virginia metropolitan area

30%

31%

California

2%

1%

Chicago

3%

3%

Puerto Rico

2%

2%

Other geographies

1%

1%

100%

100%

48

 


 
 

  

Results of Operations – Three Months Ended September 30, 2011 Compared to September 30, 2010

 

Revenues

Our revenues, which consist of property rentals, tenant expense reimbursements, hotel revenues, trade shows revenues, amortization of acquired below-market leases, net of above-market leases and fee income, were $727,343,000 for the three months ended September 30, 2011, compared to $687,125,000 in the prior year’s quarter, an increase of $40,218,000, of which $35,135,000 relates to the Cleveland Medical Mart development project.  Below are the details of the increase (decrease) by segment:

 

(Amounts in thousands)

New York

Washington, DC

Merchandise

Increase (decrease) due to:

Total

Office

Office

Retail

Mart

Other

Property rentals:

Acquisitions, sale of partial interests

and other

$

(3,076)

$

(800)

$

(8,406)

$

4,787 

$

$

1,343 

Development

411 

1,055 

(644)

Hotel Pennsylvania

2,637 

2,637 

Trade Shows

2,566 

2,566 

Amortization of acquired below-market

leases, net

(656)

(783)

(47)

448 

(280)

Leasing activity (see page 43)

(251)

(1,467)

394 

1,275 

389 

(842)

1,631 

(3,050)

(7,004)

5,866 

2,961 

2,858 

Tenant expense reimbursements:

Acquisitions/development, sale of partial

interests and other

867 

3,831 

(3,690)

726 

Operations

(2,155)

(1,193)

(2,111)

(117)

188 

1,078 

(1,288)

2,638 

(5,801)

609 

188 

1,078 

Cleveland Medical Mart development

project

35,135 

(1)

35,135 

(1)

Fee and other income:

BMS cleaning fees

2,034 

2,326 

(292)

Management and leasing fees

806 

225 

(102)

327 

47 

309 

Lease cancellation fee income

2,502 

2,320 

274 

(85)

(7)

Other

(602)

(293)

(322)

139 

188 

(314)

4,740 

4,578 

(150)

381 

228 

(297)

Total increase (decrease) in revenues

$

40,218 

$

4,166 

$

(12,955)

$

6,856 

$

38,512 

$

3,639 

(1)

This income is offset by $33,419 of development costs expensed in the quarter. See note (4) on page 50.

 

49

 


 
 

  

Results of Operations – Three Months Ended September 30, 2011 Compared to September 30, 2010 - continued

 

Expenses

Our expenses, which consist primarily of operating, depreciation and amortization and general and administrative expenses, were $501,892,000 for the three months ended September 30, 2011, compared to $461,797,000 in the prior year’s quarter, an increase of $40,095,000, of which $33,419,000 relates to the Cleveland Medical Mart development project.  Below are the details of the increase (decrease) by segment:

 

(Amounts in thousands)

New York

Washington, DC

Merchandise

Increase (decrease) due to:

Total

Office

Office

Retail

Mart

Other

Operating:

Acquisitions, sale of partial interests

and other

$

2,784 

$

$

(3,432)

$

6,216 

$

$

Development/redevelopment

131 

(142)

273 

Non-reimbursable expenses, including

bad debt reserves

5,993 

3,351 

(1,597)

355 

3,884 

Hotel Pennsylvania

853 

853 

Trade Shows

1,218 

1,218 

BMS expenses

2,302 

2,302 

Operations

(2,699)

(333)

(1,365)

(1,741)

(690)

1,430 

10,582 

5,320 

(6,536)

5,103 

4,412 

2,283 

Depreciation and amortization:

Acquisitions/development, sale of partial

interests and other

469 

(2,684)

3,153 

Operations

3,006 

2,907 

(195)

598 

519 

(823)

3,475 

2,907 

(2,879)

3,751 

519 

(823)

General and administrative:

Mark-to-market of deferred compensation

plan liability (1)

(9,150)

(9,150)

Real Estate Fund placement fees

(3,752)

(3,752)

Operations

4,154 

(43)

521 

(2,122)

3,524 

(2)

2,274 

(3)

(8,748)

(43)

521 

(2,122)

3,524 

(10,628)

Cleveland Medical Mart development

project

33,419 

(4)

33,419 

(4)

Tenant buy-outs and other acquisition

related costs

1,367 

1,593 

(5)

(226)

Total increase (decrease) in expenses

$

40,095 

$

8,184 

$

(8,894)

$

8,325 

$

41,874 

$

(9,394)

(1)

This decrease in expense is entirely offset by a corresponding decrease in income from the mark-to-market of the deferred compensation plan assets, a component of “interest and other investment (loss) income, net” on our consolidated statements of income.

(2)

Includes $3,722 of restructuring costs.

(3)

Primarily from higher payroll costs and stock-based compensation.

(4)

This expense is entirely offset by development revenue in the quarter. See note (1) on page 49.

(5)

Represents the buy-out of a below-market lease.

 

50

 


 
 

  

Results of Operations – Three Months Ended September 30, 2011 Compared to September 30, 2010 - continued

 

 

Loss Applicable to Toys

 

In the three months ended September 30, 2011, we recognized net loss of $9,304,000 from our investment in Toys, comprised of $11,638,000 for our 32.7% share of Toys’ net loss ($26,773,000 before our share of Toys’ income tax benefit) and $2,334,000 of interest and other income.

 

In the three months ended September 30, 2010, we recognized net loss of $2,557,000 from our investment in Toys, comprised of $5,073,000 for our 32.7% share of Toys’ net loss ($32,574,000 before our share of Toys’ income tax benefit) and $2,516,000 of interest and other income.

 

 

Income (loss) from Partially Owned Entities

Summarized below are the components of income (loss) from partially owned entities for the three months ended September 30, 2011 and 2010.

 

For the Three Months Ended

September 30,

(Amounts in thousands)

2011 

2010 

Equity in Net Income (Loss):

Alexander's - 32.4% share of equity in net income

$

8,607 

$

7,557 

Lexington - 11.7% share in 2011 and 13.8% share in 2010 of equity in net loss

(617)

(2,301)

LNR - 26.2% share of equity in net income (acquired in July 2010)

13,656 

India real estate ventures - 4% to 36.5% range in our share of equity in net loss

(690)

(195)

Partially owned office buildings

(6,839)

86 

Other equity method investments (1)

(565)

(7,143)

$

13,552 

$

(1,996)

(1)

Represents our equity in net income or loss in Verde Realty Operating Partnership, 85 10th Avenue Associates and others.

 

 

Income from Real Estate Fund

In the three months ended September 30, 2011, we recognized $5,353,000 of income from the Fund, including $5,639,000 of net unrealized gains from the mark-to-market of investments in the Fund.  Of the $5,353,000, $3,675,000 was attributable to noncontrolling interests.  Accordingly, our share of the Fund’s income was $1,678,000.  In addition, we recognized $378,000 of management, leasing and development fees which are included as a component of “fee and other income.”

 

In the three months ended September 30, 2010, we recognized a $1,410,000 loss from the Fund, primarily due to $1,500,000 of organization costs.  Of this loss, $1,091,000 was attributable to noncontrolling interests.

 

51

 


 
 

  

Results of Operations – Three Months Ended September 30, 2011 Compared to September 30, 2010 - continued

 

Interest and Other Investment (Loss) Income, net

Interest and other investment (loss) income, net (comprised of the mark-to-market of derivative positions in marketable equity securities, interest income on mezzanine loans receivable, other interest income and dividend income) was a loss of $29,994,000 in the three months ended September 30, 2011, compared to income of $47,096,000 in the prior year’s quarter, a decrease of $77,090,000. This decrease resulted from:

 

(Amounts in thousands)

J.C. Penney derivative position ($37,537 mark-to-market loss in 2011, compared to a $32,249

mark-to-market gain in 2010)

$

(69,786)

Decrease in the value of investments in our deferred compensation plan (offset by a corresponding

decrease in the liability for plan assets in general and administrative expenses)

(9,150)

Other, net (primarily dividends and interest on marketable securities and mezzanine loans)

1,846 

$

(77,090)

 

 

Interest and Debt Expense

Interest and debt expense was $136,672,000 in the three months ended September 30, 2011, compared to $145,561,000 in the prior year’s quarter, a decrease of $8,889,000.  This decrease was primarily due to savings of (i) $7,206,000 from the repayment of the Springfield Mall mortgage at a discount in December 2010, (ii) $6,079,000 applicable to the repurchase and retirement of convertible senior debentures and repayment of senior unsecured notes, and (iii), 4,680,000 from the deconsolidation of the Warner Building resulting from the sale of a 45% interest in October 2010, partially offset by (iv) $4,745,000 from the financing of 2121 Crystal Drive and Two Penn Plaza in the first quarter of 2011, (v) $3,374,000 from the issuance of $660,000,000 of cross-collateralized debt secured by 40 of our strip shopping centers in August 2010 and (vi) $1,251,000 from the consolidation of the San Jose Shopping Center resulting from the October 2010 acquisition of the 55% interest we did not previously own.

 

 

Net Loss on Extinguishment of Debt

In the three months ended September 30, 2010, we recognized a $724,000 net loss on early extinguishment of debt resulting from the acquisition and retirement of convertible senior debentures and senior unsecured notes.

 

 

Net Gain on Disposition of Wholly Owned and Partially Owned Assets

Net gain on disposition of wholly owned and partially owned assets was $1,298,000 in the three months ended September 30, 2011, compared to $5,072,000 in the prior year’s quarter and resulted primarily from the sale of residential condominiums and marketable securities.

 

 

Income Tax Expense

Income tax expense was $7,144,000 in the three months ended September 30, 2011, compared to $5,449,000 in the prior year’s quarter, an increase of $1,695,000.  This increase resulted primarily from higher taxable income of our taxable REIT subsidiaries.

 

52

 


 
 

  

Results of Operations – Three Months Ended September 30, 2011 Compared to September 30, 2010 - continued

 

Income (Loss) from Discontinued Operations

The table below sets forth the combined results of assets related to discontinued operations for the three months ended September 30, 2011 and 2010. 

 

For the Three Months Ended

September 30,

(Amounts in thousands)

2011 

2010 

Total revenues

$

9,744 

$

20,163 

Total expenses

6,061 

18,830 

3,683 

1,333 

Impairment loss

(5,000)

Income (loss) from discontinued operations

$

3,683 

$

(3,667)

 

 

Net Income Attributable to Noncontrolling Interests in Consolidated Subsidiaries

 

Net income attributable to noncontrolling interests in consolidated subsidiaries was $5,636,000 in the three months ended September 30, 2011, compared to $296,000 in the prior year’s quarter, an increase of $5,340,000.  This resulted primarily from a $4,766,000 increase in income allocated to the noncontrolling interests of our Real Estate Fund.

 

 

Net Income Attributable to Noncontrolling Interests in the Operating Partnership, including Unit Distributions

 

Net income attributable to noncontrolling interests in the Operating Partnership, including unit distributions for the three months ended September 30, 2011 and 2010 is primarily comprised of allocations of income to redeemable noncontrolling interests of $2,797,000 and $7,119,000, respectively, and preferred unit distributions of the Operating Partnership of $4,028,000 and $4,465,000, respectively.  The decrease of $4,322,000 in allocations of income to redeemable noncontrolling interests resulted primarily from lower net income subject to allocation to unitholders.

 

 

Preferred Share Dividends

Preferred share dividends were $17,627,000 for the three months ended September 30, 2011, compared to $13,442,000 for the prior year’s quarter, an increase of $4,185,000.  This increase resulted from the issuance of Series J preferred shares during 2011, partially offset by the redemption of the Series D-10 preferred shares in 2010.

 

 

Discount of Preferred Share and Unit Redemptions

In the three months ended September 30, 2011, we recognized a $5,000,000 discount from the redemption of 1,000,000 Series    D-11 preferred units, compared to a $4,382,000 discount in the prior year’s quarter from the redemption of 1,600,000 Series D-10 preferred shares.

 

53

 


 
 

  

Results of Operations – Three Months Ended September 30, 2011 Compared to September 30, 2010 - continued

 

Same Store EBITDA

Same store EBITDA represents EBITDA from property level operations which are owned by us in both the current and prior year reporting periods.  Same store EBITDA excludes segment-level overhead expenses, which are expenses that we do not consider to be property-level expenses, as well as other non-operating items.  We present same store EBITDA on both a GAAP basis and a cash basis, which excludes income from the straight-lining of rents, amortization of below-market leases, net of above-market leases and other non-cash adjustments. We present these non-GAAP measures to (i) facilitate meaningful comparisons of the operational performance of our properties and segments, (ii) make decisions on whether to buy, sell or refinance properties, and (iii) compare the performance of our properties and segments to those of our peers.  Same store EBITDA should not be considered as an alternative to net income or cash flow from operations and may not be comparable to similarly titled measures employed by other companies. 

 

Below are the same store EBITDA results on a GAAP and cash basis for each of our segments for the three months ended September 30, 2011, compared to the three months ended September 30, 2010.

 

New York

Washington, DC

Merchandise

(Amounts in thousands)

Office

Office

Retail

Mart

EBITDA for the three months ended September 30, 2011

$

155,861 

$

106,607 

$

93,158 

$

15,448 

Add-back: non-property level overhead

expenses included above

4,461 

6,505 

6,721 

9,534 

Less: EBITDA from acquisitions, dispositions

and other non-operating income or expenses

(7,408)

1,500 

(3,961)

(5,530)

GAAP basis same store EBITDA for the three months

ended September 30, 2011

152,914 

114,612 

95,918 

19,452 

Less: Adjustments for straight-line rents,

amortization of below-market leases, net, and other

non-cash adjustments

(10,863)

998 

(9,485)

985 

Cash basis same store EBITDA for the three months

ended September 30, 2011

$

142,051 

$

115,610 

$

86,433 

$

20,437 

EBITDA for the three months ended September 30, 2010

$

149,285 

$

113,205 

$

88,431 

$

21,330 

Add-back: non-property level overhead

expenses included above

4,504 

5,984 

8,843 

6,010 

Less: EBITDA from acquisitions, dispositions

and other non-operating income or expenses

819 

(5,067)

(2,200)

(7,453)

GAAP basis same store EBITDA for the three months

ended September 30, 2010

154,608 

114,122 

95,074 

19,887 

Less: Adjustments for straight-line rents,

amortization of below-market leases, net, and other

non-cash adjustments

(14,845)

42 

(9,611)

440 

Cash basis same store EBITDA for the three months

ended September 30, 2010

$

139,763 

$

114,164 

$

85,463 

$

20,327 

(Decrease) increase in GAAP basis same store EBITDA for

the three months ended September 30, 2011 over the

three months ended September 30, 2010

$

(1,694)

$

490 

$

844 

$

(435)

Increase in Cash basis same store EBITDA for

the three months ended September 30, 2011 over the

three months ended September 30, 2010

$

2,288 

$

1,446 

$

970 

$

110 

% (decrease) increase in GAAP basis same store EBITDA

(1.1%)

0.4%

0.9%

(2.2%)

% increase in Cash basis same store EBITDA

1.6%

1.3%

1.1%

0.5%

54

 


 
 

  

Net Income and EBITDA by Segment for the Nine Months Ended September 30, 2011 and 2010

Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the nine months ended September 30, 2011 and 2010.

(Amounts in thousands)

For the Nine Months Ended September 30, 2011

New York

Washington, DC

Merchandise

Total

Office

Office

Retail

Mart

Toys

Other(3)

Property rentals

$

1,604,451 

$

586,797 

$

413,810 

$

316,729 

$

154,485 

$

$

132,630 

Straight-line rent adjustments

34,713 

15,777 

5,962 

12,556 

(2,059)

2,477 

Amortization of acquired below-

market leases, net

49,387 

24,549 

1,525 

19,899 

55 

3,359 

Total rentals

1,688,551 

627,123 

421,297 

349,184 

152,481 

138,466 

Tenant expense reimbursements

264,857 

108,267 

27,561 

111,519 

9,121 

8,389 

Cleveland Medical Mart development

project

108,203 

108,203 

Fee and other income:

Tenant cleaning fees

46,479 

71,156 

(24,677)

Management and leasing fees

15,456 

5,260 

9,629 

2,439 

348 

(2,220)

Lease termination fees

12,478 

9,176 

3,013 

289 

Other

37,826 

15,078 

15,894 

4,241 

2,832 

(219)

Total revenues

2,173,850 

836,060 

477,394 

467,672 

272,985 

119,739 

Operating expenses

841,266 

367,291 

150,375 

173,623 

99,266 

50,711 

Depreciation and amortization

393,846 

138,837 

101,634 

85,653 

29,113 

38,609 

General and administrative

155,566 

14,389 

19,504 

22,034 

23,855 

75,784 

Cleveland Medical Mart development

project

101,637 

101,637 

Tenant buy-outs and other acquisition

related costs

22,455 

16,593 

3,040 

2,822 

Total expenses

1,514,770 

520,517 

271,513 

297,903 

256,911 

167,926 

Operating income (loss)

659,080 

315,543 

205,881 

169,769 

16,074 

(48,187)

Income applicable to Toys

80,794 

80,794 

Income (loss) from partially owned

entities

56,239 

(4,893)

(6,038)

2,131 

292 

64,747 

Income from Real Estate Fund

25,491 

25,491 

Interest and other investment

income, net

95,121 

466 

119 

35 

94,496 

Interest and debt expense

(408,532)

(103,514)

(89,911)

(69,482)

(28,140)

(117,485)

Net gain on disposition of wholly

owned and partially owned assets

7,975 

7,975 

Income (loss) before income taxes

516,168 

207,602 

110,051 

102,423 

(11,739)

80,794 

27,037 

Income tax expense

(19,448)

(1,637)

(2,267)

(5)

(2,211)

(13,328)

Income (loss) from continuing

operations

496,720 

205,965 

107,784 

102,418 

(13,950)

80,794 

13,709 

Income from discontinued operations

146,293 

398 

46,466 

9,217 

90,212 

Net income

643,013 

206,363 

154,250 

111,635 

76,262 

80,794 

13,709 

Less:

Net (income) loss attributable to

noncontrolling interests in

consolidated subsidiaries

(20,643)

(6,815)

196 

(14,024)

Net (income) attributable to

noncontrolling interests in the

Operating Partnership, including

unit distributions

(47,364)

(47,364)

Net income (loss) attributable to

Vornado

575,006 

199,548 

154,250 

111,831 

76,262 

80,794 

(47,679)

Interest and debt expense(2)

599,668 

108,473 

100,017 

73,000 

32,025 

121,546 

164,607 

Depreciation and amortization(2)

561,738 

146,650 

118,290 

88,322 

34,632 

101,862 

71,982 

Income tax expense(2)

42,135 

1,695 

2,380 

2,211 

29,914 

5,930 

EBITDA(1)

$

1,778,547 

$

456,366 

$

374,937 

$

273,158 

$

145,130 

$

334,116 

$

194,840 

____________________

See notes on page 57.

 

55

 


 
 

  

Net Income and EBITDA by Segment for the Nine Months Ended September 30, 2011 and 2010 - continued

(Amounts in thousands)

For the Nine Months Ended September 30, 2010

New York

Washington, DC

Merchandise

Total

Office

Office

Retail

Mart

Toys

Other(3)

Property rentals

$

1,560,473 

$

582,090 

$

426,217 

$

284,808 

$

145,206 

$

$

122,152 

Straight-line rent adjustments

53,018 

22,642 

5,519 

21,699 

628 

2,530 

Amortization of acquired below-

market leases, net

48,476 

27,312 

1,836 

14,897 

(91)

4,522 

Total rentals

1,661,967 

632,044 

433,572 

321,404 

145,743 

129,204 

Tenant expense reimbursements

271,040 

105,968 

42,592 

107,799 

8,876 

5,805 

Fee and other income:

Tenant cleaning fees

40,733 

62,778 

(22,045)

Management and leasing fees

16,075 

4,278 

13,252 

759 

31 

(2,245)

Lease termination fees

10,112 

4,245 

1,256 

4,182 

429 

Other

37,918 

14,428 

16,452 

2,284 

3,471 

1,283 

Total revenues

2,037,845 

823,741 

507,124 

436,428 

158,550 

112,002 

Operating expenses

802,927 

349,934 

163,097 

159,131 

85,915 

44,850 

Depreciation and amortization

393,259 

131,911 

108,994 

80,550 

30,111 

41,693 

General and administrative

153,231 

13,824 

18,079 

22,591 

20,252 

78,485 

Tenant buy-outs and other acquisition

related costs

2,851 

2,851 

Total expenses

1,352,268 

495,669 

290,170 

262,272 

136,278 

167,879 

Operating income (loss)

685,577 

328,072 

216,954 

174,156 

22,272 

(55,877)

Income applicable to Toys

102,309 

102,309 

Income (loss) from partially owned

entities

13,800 

4,345 

(1,099)

3,353 

239 

6,962 

(Loss) from Real Estate Fund

(1,410)

(1,410)

Interest and other investment

income, net

65,676 

466 

130 

143 

35 

64,902 

Interest and debt expense

(423,354)

(99,026)

(101,592)

(62,047)

(28,383)

(132,306)

Net (loss) on extinguishment

of debt

(1,796)

(1,796)

Net gain on disposition of wholly

owned and partially owned assets

12,759 

765 

11,994 

Income (loss) before income taxes

453,561 

233,857 

114,393 

115,605 

(5,072)

102,309 

(107,531)

Income tax (expense) benefit

(15,993)

(1,670)

(1,092)

(37)

118 

(13,312)

Income (loss) from continuing

operations

437,568 

232,187 

113,301 

115,568 

(4,954)

102,309 

(120,843)

(Loss) income from discontinued operations

(11,681)

106 

(5,776)

(1,539)

(4,472)

Net income (loss)

425,887 

232,293 

107,525 

114,029 

(9,426)

102,309 

(120,843)

Less:

Net (income) loss attributable to

noncontrolling interests in

consolidated subsidiaries

(1,490)

(7,290)

895 

4,905 

Net (income) attributable to

noncontrolling interests in the

Operating Partnership, including

unit distributions

(33,487)

(33,487)

Net income (loss) attributable to

Vornado

390,910 

225,003 

107,525 

114,924 

(9,426)

102,309 

(149,425)

Interest and debt expense(2)

611,993 

94,404 

104,355 

68,275 

45,370 

123,791 

175,798 

Depreciation and amortization(2)

549,400 

127,341 

120,929 

85,335 

39,049 

99,850 

76,896 

Income tax expense (benefit)(2)

13,553 

1,670 

1,161 

37 

(59)

(1,914)

12,658 

EBITDA(1)

$

1,565,856 

$

448,418 

$

333,970 

$

268,571 

$

74,934 

$

324,036 

$

115,927 

___________________________

See notes on the following page.

 

56

 


 
 

  

Net Income and EBITDA by Segment for the Nine Months Ended September 30, 2011 and 2010 - continued

 

Notes to preceding tabular information:

(1)   EBITDA represents “Earnings Before Interest, Taxes, Depreciation and Amortization.”  We consider EBITDA a supplemental measure for making decisions and assessing the unlevered performance of our segments as it relates to the total return on assets as opposed to the levered return on equity. As properties are bought and sold based on a multiple of EBITDA, we utilize these measures to make investment decisions as well as to compare the performance of our assets to that of our peers. EBITDA should not be considered a substitute for net income. EBITDA may not be comparable to similarly titled measures employed by other companies.

 

(2)   Interest and debt expense, depreciation and amortization and income tax (benefit) expense in the reconciliation of our net income (loss) to EBITDA includes our share of these items from partially owned entities.

 

(3)   The components of other EBITDA are summarized below.  The totals for each of the columns below agree to the total EBITDA for the “other” column in the preceding EBITDA by segment reconciliations.

 

For the Nine Months

(Amounts in thousands)

Ended September 30,

2011 

2010 

Our share of Real Estate Fund:

Operations

$

2,550 

$

(319)

Net unrealized gains

4,802 

Net realized gains

771 

Carried interest accrual

1,665 

Total

9,788 

(319)

Alexander's

45,577 

41,947 

LNR (acquired in July 2010) (1)

38,569 

Lexington (2)

37,730 

37,375 

555 California Street

32,608 

34,421 

Hotel Pennsylvania

18,382 

14,249 

Other investments

30,011 

22,619 

212,665 

150,292 

Corporate general and administrative expenses (3)

(62,964)

(60,668)

Investment income and other, net (3)

38,860 

41,876 

Mezzanine loans loss reversal (accrual) and net gain on disposition

82,744 

(6,900)

(Loss) income from the mark-to-market of J.C. Penney derivative position

(27,136)

32,249 

Net gain on sale of condominiums

5,884 

3,149 

Acquisition related costs

(4,398)

(2,851)

Real Estate Fund placement fees

(3,451)

(5,937)

Net loss on extinguishment of debt

(1,796)

Net income attributable to noncontrolling interests in the Operating Partnership,

including unit distributions

(47,364)

(33,487)

$

194,840 

$

115,927 

(1)

Includes $6,020 for our share of net gains from asset sales and $8,977 for our share of a tax settlement gain.

(2)

Includes net gains of $9,760 and $5,998 in the nine months ended September 30, 2011 and 2010, respectively, resulting from

Lexington's stock issuances.

(3)

The amounts in these captions (for this table only) exclude the mark-to-market of our deferred compensation plan assets

and offsetting liability.

 

57

 


 
 

  

Net Income and EBITDA by Segment for the Nine Months Ended September 30, 2011 and 2010 - continued

 

Below is a summary of the percentages of EBITDA by geographic region (excluding discontinued operations and other gains and losses that affect comparability), from our New York Office, Washington DC Office, Retail and Merchandise Mart segments.

 

For the Nine Months

Ended September 30,

2011 

2010 

Region:

New York City metropolitan area

61%

61%

Washington, DC / Northern Virginia metropolitan area

30%

31%

California

2%

1%

Chicago

3%

4%

Puerto Rico

2%

2%

Other geographies

2%

1%

100%

100%

58

 


 
 

  

Results of Operations – Nine Months Ended September 30, 2011 Compared to September 30, 2010

 

Revenues

Our revenues, which consist of property rentals, tenant expense reimbursements, hotel revenues, trade shows revenues, amortization of acquired below-market leases, net of above-market leases and fee income, were $2,173,850,000 for the nine months ended September 30, 2011, compared to $2,037,845,000 in the prior year’s nine months, an increase of $136,005,000, of which $108,203,000 relates to the Cleveland Medical Mart development project.  Below are the details of the increase (decrease) by segment:

 

(Amounts in thousands)

New York

Washington, DC

Merchandise

Increase (decrease) due to:

Total

Office

Office

Retail

Mart

Other

Property rentals:

Acquisitions, sale of partial interests

and other

$

(8,822)

$

(2,719)

$

(25,200)

$

14,768 

$

$

4,329 

Development

5,191 

5,556 

(365)

Hotel Pennsylvania

7,709 

7,709 

Trade Shows

5,541 

5,541 

Amortization of acquired below-market

leases, net

911 

(2,763)

(311)

5,002 

146 

(1,163)

Leasing activity (see page 43)

16,054 

561 

7,680 

8,375 

1,051 

(1,613)

26,584 

(4,921)

(12,275)

27,780 

6,738 

9,262 

Tenant expense reimbursements:

Acquisitions/development, sale of partial

interests and other

(2,446)

3,831 

(11,099)

2,135 

2,687 

Operations

(3,737)

(1,532)

(3,932)

1,585 

245 

(103)

(6,183)

2,299 

(15,031)

3,720 

245 

2,584 

Cleveland Medical Mart development

project

108,203 

(1)

108,203 

(1)

Fee and other income:

BMS cleaning fees

5,746 

8,378 

(2,632)

(2)

Management and leasing fees

(619)

982 

(3,623)

(3)

1,680 

317 

25 

Lease cancellation fee income

2,366 

4,931 

1,757 

(3,893)

(429)

Other

(92)

650 

(558)

1,957 

(639)

(1,502)

7,401 

14,941 

(2,424)

(256)

(751)

(4,109)

Total increase (decrease) in revenues

$

136,005 

$

12,319 

$

(29,730)

$

31,244 

$

114,435 

$

7,737 

(1)

This income is offset by $101,637 of development costs expensed in the period. See note (4) on page 60.

(2)

Primarily from the elimination of intercompany fees from operating segments upon consolidation.

(3)

Primarily from leasing fees in the prior year in connection with our management of a development project.

 

59

 


 
 

  

Results of Operations – Nine Months Ended September 30, 2011 Compared to September 30, 2010 - continued

 

Expenses

Our expenses, which consist primarily of operating, depreciation and amortization and general and administrative expenses, were $1,514,770,000 for the nine months ended September 30, 2011, compared to $1,352,268,000 in the prior year’s nine months, an increase of $162,502,000, of which $101,637,000 relates to the Cleveland Medical Mart development project.  Below are the details of the increase (decrease) by segment:

 

(Amounts in thousands)

New York

Washington, DC

Merchandise

Increase (decrease) due to:

Total

Office

Office

Retail

Mart

Other

Operating:

Acquisitions, sale of partial interests

and other

$

3,347 

$

$

(12,997)

$

13,657 

$

$

2,687 

Development/redevelopment

674 

(317)

991 

Non-reimbursable expenses, including

bad debt reserves

10,301 

4,205 

(321)

(2,374)

8,791 

Hotel Pennsylvania

3,332 

3,332 

Trade Shows

3,220 

3,220 

BMS expenses

7,739 

7,739 

Operations

9,726 

5,413 

913 

2,218 

1,340 

(158)

38,339 

17,357 

(12,722)

14,492 

13,351 

5,861 

Depreciation and amortization:

Acquisitions/development, sale of partial

interests and other

(4,083)

(9,732)

5,649 

Operations

4,670 

6,926 

2,372 

(546)

(998)

(3,084)

587 

6,926 

(7,360)

5,103 

(998)

(3,084)

General and administrative:

Mark-to-market of deferred compensation

plan liability (1)

(4,182)

(4,182)

Real Estate Fund placement fees

(3,031)

(3,031)

Operations

9,548 

565 

1,425 

(557)

3,603 

(2)

4,512 

(3)

2,335 

565 

1,425 

(557)

3,603 

(2,701)

Cleveland Medical Mart development

project

101,637 

(4)

101,637 

(4)

Tenant buy-outs and other acquisition

related costs

19,604 

16,593 

(5)

3,040 

(29)

Total increase (decrease) in expenses

$

162,502 

$

24,848 

$

(18,657)

$

35,631 

$

120,633 

$

47 

(1)

This decrease in expense is entirely offset by a corresponding decrease in income from the mark-to-market of the deferred compensation plan assets, a component of “interest and other investment income (loss), net” on our consolidated statements of income.

(2)

Includes $3,722 of restructuring costs.

(3)

Primarily from higher payroll costs and stock-based compensation expense.

(4)

This expense is entirely offset by development revenue in the period. See note (1) on page 59.

(5)

Represents the buy-out of below-market leases.

 

60

 


 
 

  

Results of Operations – Nine Months Ended September 30, 2011 Compared to September 30, 2010 - continued

 

Income Applicable to Toys

 

In the nine months ended September 30, 2011, we recognized net income of $80,794,000 from our investment in Toys, comprised of $74,135,000 for our 32.7% share of Toys’ net income ($104,049,000 before our share of Toys’ income tax expense) and $6,659,000 of interest and other income.

 

In the nine months ended September 30, 2010, we recognized net income of $102,309,000 from our investment in Toys, comprised of $95,576,000 for our 32.7% share of Toys’ net income ($93,662,000 before our share of Toys’ income tax benefit) and $6,733,000 of interest and other income.

 

 

Income from Partially Owned Entities

Summarized below are the components of income (loss) from partially owned entities for the nine months ended September 30, 2011 and 2010.

 

For the Nine Months Ended

September 30,

(Amounts in thousands)

2011 

2010 

Equity in Net Income (Loss):

Alexander's - 32.4% share of equity in net income

$

25,256 

$

21,083 

Lexington - 11.7% share in 2011 and 13.8% share in 2010 of equity in net income (1)

10,209 

3,316 

LNR - 26.2% share of equity in net income (acquired in July 2010) (2)

39,913 

India real estate ventures - 4% to 36.5% range in our share of equity in net (loss) income

(692)

2,062 

Partially owned office buildings (3)

(13,829)

1,864 

Other equity method investments (4)

(4,618)

(14,525)

$

56,239 

$

13,800 

(1)

Includes net gains of $9,760 and $5,998 in the nine months ended September 30, 2011 and 2010, respectively, resulting from Lexington's stock issuances.

(2)

Includes $6,020 for our share of net gains from asset sales and $8,977 for our share of a tax settlement gain.

(3)

The nine months ended September 30, 2011 includes $9,022 for our share of expense, primarily for straight-line rent reserves and the write-off of tenant improvements in connection with a tenant's bankruptcy at the Warner Building.

(4)

Represents our equity in net income or loss in Verde Realty Operating Partnership, 85 10th Avenue Associates and others.

 

 

Income from Real Estate Fund

In the nine months ended September 30, 2011, we recognized $25,491,000 of income from the Fund, including $19,209,000 of net unrealized gains from the mark-to-market of investments in the Fund, and $3,085,000 of net realized gains from the disposition of an investment.  Of the $25,491,000, $15,703,000 was attributable to noncontrolling interests.  Accordingly, our share of the Fund’s income was $9,788,000 and includes $1,665,000 of accrued carried interest.  In addition, we recognized $1,803,000 of management, leasing and development fees which are included as a component of “fee and other income,” and incurred $3,451,000 of placement fees in connection with the February 2011 closing of the Fund, which is included in “general and administrative” expenses.

In the nine months ended September 30, 2010, we recognized a $1,410,000 loss from the Fund, primarily due to $1,500,000 of organization costs.  Of this loss, $1,091,000 was attributable to noncontrolling interests.

 

61

 


 
 

  

 

Results of Operations – Nine Months Ended September 30, 2011 Compared to September 30, 2010 - continued

 

Interest and Other Investment (Loss) Income, net

Interest and other investment income, net (comprised of the mark-to-market of derivative positions in marketable equity securities, interest income on mezzanine loans receivable, other interest income and dividend income) was $95,121,000 in the nine months ended September 30, 2011, compared to $65,676,000 in the prior year’s nine months, an increase of $29,445,000. This increase resulted from:

 

(Amounts in thousands)

Mezzanine loans ($82,744 loss reversal and net gain on disposition in 2011, compared to a $6,900

loss accrual in 2010)

$

89,644 

J.C. Penney derivative position ($27,136 mark-to-market loss in 2011, compared to a $32,249

mark-to-market gain in 2010)

(59,385)

Decrease in the value of investments in our deferred compensation plan (offset by a corresponding

decrease in the liability for plan assets in general and administrative expenses)

(4,182)

Other, net (primarily dividends and interest on marketable securities and mezzanine loans)

3,368 

$

29,445 

 

 

Interest and Debt Expense

Interest and debt expense was $408,532,000 in the nine months ended September 30, 2011, compared to $423,354,000 in the prior year’s nine months, a decrease of $14,822,000.  This decrease was primarily due to savings of (i) $18,157,000 from the repayment of the Springfield Mall mortgage at a discount in December 2010, (ii) $13,946,000 applicable to the repurchase and retirement of convertible senior debentures and repayment of senior unsecured notes, and (iii) $13,899,000 from the deconsolidation of the Warner Building resulting from the sale of a 45% interest in October 2010, partially offset by (iv) $16,568,000 from the issuance of $660,000,000 of cross-collateralized debt secured by 40 of our strip shopping centers in August 2010, (v) $10,375,000 from the financing of 2121 Crystal Drive and Two Penn Plaza in the first quarter of 2011, and (vi) $3,783,000 from the consolidation of the San Jose Shopping Center resulting from the October 2010 acquisition of the 55% interest we did not previously own.

 

 

Net Loss on Extinguishment of Debt

In the nine months ended September 30, 2010, we recognized a $1,796,000 net loss on extinguishment of debt resulting from the acquisition and retirement of convertible senior debentures and senior unsecured notes.

 

 

Net Gain on Disposition of Wholly Owned and Partially Owned Assets

Net gain on disposition of wholly owned and partially owned assets was $7,975,000 in the nine months ended September 30, 2011, compared to $12,759,000 in the prior year’s nine months and resulted primarily from the sale of residential condominiums and marketable securities.

 

 

Income Tax Expense

Income tax expense was $19,448,000 in the nine months ended September 30, 2011, compared to $15,993,000 in the prior year’s nine months, an increase of $3,455,000.  This increase resulted primarily from higher taxable income of our taxable REIT subsidiaries.

 

62

 


 
 

  

Results of Operations – Nine Months Ended September 30, 2011 Compared to September 30, 2010 - continued

 

Income (Loss) from Discontinued Operations

The table below sets forth the combined results of assets related to discontinued operations for the nine months ended September 30, 2011 and 2010.

 

For the Nine Months Ended

September 30,

(Amounts in thousands)

2011 

2010 

Total revenues

$

36,486 

$

61,883 

Total expenses

25,723 

58,508 

10,763 

3,375 

Net gain on extinguishment of High Point debt

83,907 

Net gain on sale of 1140 Connecticut Avenue and 1227 25th Street

45,862 

Net gain on sales of other real estate

5,761 

Litigation loss accrual and impairment loss

(15,056)

Income (loss) from discontinued operations

$

146,293 

$

(11,681)

 

 

Net Income Attributable to Noncontrolling Interests in Consolidated Subsidiaries

 

Net income attributable to noncontrolling interests in consolidated subsidiaries was $20,643,000 in the nine months ended September 30, 2011, compared to $1,490,000 in the prior year’s nine months, an increase of $19,153,000.  This resulted primarily from a $16,794,000 increase in income allocated to the noncontrolling interests of our Real Estate Fund.

 

 

Net Income Attributable to Noncontrolling Interests in the Operating Partnership, including Unit Distributions

 

 Net income attributable to noncontrolling interests in the Operating Partnership, including unit distributions for the nine months ended September 30, 2011 and 2010 is primarily comprised of allocations of income to redeemable noncontrolling interests of $36,385,000 and $26,785,000, respectively, and preferred unit distributions of the Operating Partnership of $10,979,000 and $6,702,000, respectively.  The increase of $9,600,000 in allocations of income to redeemable noncontrolling interests resulted primarily from higher net income subject to allocation to unitholders.   

 

 

Preferred Share Dividends

Preferred share dividends were $47,743,000 for the nine months ended September 30, 2011, compared to $41,975,000 for the prior year’s nine months, an increase of $5,768,000.  This increase resulted from the issuance of Series J preferred shares during 2011, partially offset by the redemption of Series D-10 preferred shares in 2010.

 

 

Discount of Preferred Share and Unit Redemptions

In the nine months ended September 30, 2011, we recognized a $5,000,000 discount from the redemption of 1,000,000 Series   D-11 preferred units with a par value of $25.00 per unit, for an aggregate of $20,000,000 in cash, compared to a $4,382,000 discount in the prior year from the redemption of 1,600,000 Series D-10 preferred shares with a par value of $25.00 per unit for an aggregate of $35,618,000.

 

63

 


 
 

  

Results of Operations – Nine Months Ended September 30, 2011 Compared to September 30, 2010 - continued

 

Same Store EBITDA

Same store EBITDA represents EBITDA from property level operations which are owned by us in both the current and prior year reporting periods.  Same store EBITDA excludes segment-level overhead expenses, which are expenses that we do not consider to be property-level expenses, as well as other non-operating items.  We present same store EBITDA on both a GAAP basis and a cash basis, which excludes income from the straight-lining of rents, amortization of below-market leases, net of above-market leases and other non-cash adjustments. We present these non-GAAP measures to (i) facilitate meaningful comparisons of the operational performance of our properties and segments, (ii) make decisions on whether to buy, sell or refinance properties, and (iii) compare the performance of our properties and segments to those of our peers.  Same store EBITDA should not be considered as an alternative to net income or cash flow from operations and may not be comparable to similarly titled measures employed by other companies. 

 

Below are the same store EBITDA results on a GAAP and cash basis for each of our segments for the nine months ended September 30, 2011, compared to the nine months ended September 30, 2010.

 

New York

Washington, DC

Merchandise

(Amounts in thousands)

Office

Office

Retail

Mart

EBITDA for the nine months ended September 30, 2011

$

456,366 

$

374,937 

$

273,158 

$

145,130 

Add-back: non-property level overhead

expenses included above

14,389 

19,504 

22,034 

23,855 

Less: EBITDA from acquisitions, dispositions

and other non-operating income or expenses

(16,953)

(48,045)

(8,702)

(96,528)

GAAP basis same store EBITDA for the nine months

ended September 30, 2011

453,802 

346,396 

286,490 

72,457 

Less: Adjustments for straight-line rents,

amortization of below-market leases, net, and other

non-cash adjustments

(37,187)

(3,358)

(21,507)

2,004 

Cash basis same store EBITDA for the nine months

ended September 30, 2011

$

416,615 

$

343,038 

$

264,983 

$

74,461 

EBITDA for the nine months ended September 30, 2010

$

448,418 

$

333,970 

$

268,571 

$

74,934 

Add-back: non-property level overhead

expenses included above

13,824 

18,079 

22,591 

20,252 

Less: EBITDA from acquisitions, dispositions

and other non-operating income or expenses

(2,544)

(12,870)

(13,908)

(21,627)

GAAP basis same store EBITDA for the nine months

ended September 30, 2010

459,698 

339,179 

277,254 

73,559 

Less: Adjustments for straight-line rents,

amortization of below-market leases, net, and other

non-cash adjustments

(45,031)

(4,624)

(28,434)

(537)

Cash basis same store EBITDA for the nine months

ended September 30, 2010

$

414,667 

$

334,555 

$

248,820 

$

73,022 

(Decrease) increase in GAAP basis same store EBITDA for

the nine months ended September 30, 2011 over the

nine months ended September 30, 2010

$

(5,896)

$

7,217 

$

9,236 

$

(1,102)

Increase in Cash basis same store EBITDA for

the nine months ended September 30, 2011 over the

nine months ended September 30, 2010

$

1,948 

$

8,483 

$

16,163 

$

1,439 

% (decrease) increase in GAAP basis same store EBITDA

(1.3%)

2.1%

3.3%

(1.5%)

% increase in Cash basis same store EBITDA

0.5%

2.5%

6.5%

2.0%

64

 


 
 

  

SUPPLEMENTAL INFORMATION

 

Three Months Ended September 30, 2011 vs. Three Months Ended June 30, 2011

 

Our revenues and expenses are subject to seasonality during the year which impacts quarterly net earnings, cash flows and funds from operations, and therefore impacts comparisons of the current quarter to the previous quarter. The business of Toys is highly seasonal. Historically, Toys’ fourth quarter net income, which we record on a one-quarter lag basis in our first quarter, accounts for more than 80% of Toys’ fiscal year net income. The Office and Merchandise Mart segments have historically experienced higher utility costs in the first and third quarters of the year. The Merchandise Mart segment also has experienced higher earnings in the second and fourth quarters of the year due to major trade shows occurring in those quarters. The Retail segment revenue in the fourth quarter is typically higher due to the recognition of percentage rental income.

 

Below are the same store EBITDA results on a GAAP and cash basis for each of our segments for the three months ended September 30, 2011, compared to the three months ended June 30, 2011.

 

New York

Washington, DC

Merchandise

(Amounts in thousands)

Office

Office

Retail

Mart

EBITDA for the three months ended September 30, 2011

$

155,861 

$

106,607 

$

93,158 

$

15,448 

Add-back: non-property level overhead expenses

included above

4,461 

6,505 

6,721 

9,534 

Less: EBITDA from acquisitions, dispositions

and other non-operating income or expenses

(5,447)

1,500 

(2,378)

(4,445)

GAAP basis same store EBITDA for the three months

ended September 30, 2011

154,875 

114,612 

97,501 

20,537 

Less: Adjustments for straight-line rents, amortization of

below-market leases, net, and other non-cash adjustments

(10,862)

1,468 

(8,898)

985 

Cash basis same store EBITDA for the three months

ended September 30, 2011

$

144,013 

$

116,080 

$

88,603 

$

21,522 

EBITDA for the three months ended June 30, 2011(1)

$

157,016 

$

111,517 

$

96,507 

$

23,998 

Add-back: non-property level overhead expenses

included above

4,568 

6,462 

7,291 

6,776 

Less: EBITDA from acquisitions, dispositions

and other non-operating income or expenses

(6,302)

(2,348)

(7,149)

(4,515)

GAAP basis same store EBITDA for the three months

ended June 30, 2011

155,282 

115,631 

96,649 

26,259 

Less: Adjustments for straight-line rents, amortization of

below-market leases, net, and other non-cash adjustments

(12,286)

1,095 

(6,355)

722 

Cash basis same store EBITDA for the three months

ended June 30, 2011

$

142,996 

$

116,726 

$

90,294 

$

26,981 

(Decrease) increase in GAAP basis same store EBITDA for

the three months ended September 30, 2011 over the

three months ended June 30, 2011

$

(407)

$

(1,019)

$

852 

$

(5,722)

Increase (decrease) in Cash basis same store EBITDA for

the three months ended September 30, 2011 over the

three months ended June 30, 2011

$

1,017 

$

(646)

$

(1,691)

$

(5,459)

% (decrease) increase in GAAP basis same store EBITDA

(0.3%)

(0.9%)

0.9%

(21.8%)

% increase (decrease) in Cash basis same store EBITDA

0.7%

(0.6%)

(1.9%)

(20.2%)

(1)

Below is the reconciliation of net income to EBITDA for the three months ended June 30, 2011.

New York

Washington, DC

Merchandise

(Amounts in thousands)

Office

Office

Retail

Mart

Net income attributable to Vornado for the three months

ended June 30, 2011

$

72,002 

$

38,511 

$

43,639 

$

2,265 

Interest and debt expense

36,953 

34,093 

24,468 

9,595 

Depreciation and amortization

47,621 

38,306 

28,400 

11,227 

Income tax expense

440 

607 

911 

EBITDA for the three months ended June 30, 2011

$

157,016 

$

111,517 

$

96,507 

$

23,998 

 

65

 


 
 

  

LIQUIDITY AND CAPITAL RESOURCES

We anticipate that cash flow from continuing operations over the next twelve months will be adequate to fund our business operations, cash distributions to unitholders of the Operating Partnership, cash dividends to shareholders, debt amortization and recurring capital expenditures.  Capital requirements for development expenditures and acquisitions (excluding Fund acquisitions) may require funding from borrowings and/or equity offerings.  In addition, the Fund has aggregate unfunded equity commitments of $543,900,000 for acquisitions, including $135,969,000 from us.  We may from time to time purchase or retire outstanding debt securities.  Such purchases, if any, will depend on prevailing market conditions, liquidity requirements and other factors.  The amounts involved in connection with these transactions could be material to our consolidated financial statements.

 

Property rental income is our primary source of cash flow and is dependent upon the occupancy and rental rates of our properties.   Other sources of liquidity to fund cash requirements include proceeds from debt financings, including mortgage loans, senior unsecured borrowings, and our revolving credit facilities; proceeds from the issuance of common and preferred equity; and asset sales.  Our cash requirements include property operating expenses, capital improvements, tenant improvements, leasing commissions, dividends to shareholders, distributions to unitholders of the Operating Partnership, as well as acquisition and development costs. 

 

 

Cash Flows for the Nine Months Ended September 30, 2011

Our cash and cash equivalents were $585,183,000 at September 30, 2011, a $105,606,000 decrease over the balance at December 31, 2010.  This decrease was primarily due to cash flows from financing activities, partially offset by cash flows from operating activities, as discussed below.  

 

Our consolidated outstanding debt was $10,406,550,000 at September 30, 2011, a $482,892,000 decrease over the balance at December 31, 2010.  As of September 30, 2011 and December 31, 2010, $300,000,000 and $874,000,000, respectively, was outstanding under our revolving credit facilities.  During the remainder of 2011 and 2012 $624,000,000 and $1,593,000,000, respectively, of our outstanding debt matures; we may refinance this maturing debt as it comes due or choose to repay it using a portion of our $3,130,183,000 of available capacity (comprised of $585,183,000 of cash and cash equivalents and $2,545,000,000 of availability under our revolving credit facilities).

 

Cash flows provided by operating activities of $566,671,000 was comprised of (i) net income of $643,013,000 and (ii) distributions of income from partially owned entities of $75,612,000, partially offset by (iii) $8,352,000 of non-cash adjustments, which include depreciation and amortization expense, the effect of straight-lining of rental income and equity in net income of partially owned entities, and (iv) the net change in operating assets and liabilities of $143,602,000, including $97,785,000 related to Real Estate Fund investments.

 

Net cash used in investing activities of $1,675,000 was comprised of (i) $440,865,000 of investments in partially owned entities, (ii) $109,963,000 of additions to real estate, (iii) $52,816,000 of development costs and construction in progress, (iv) $44,215,000 of investments in mezzanine loans receivable and other, and (v) $33,850,000 for the funding of collateral for the J.C. Penney derivative, partially offset by (vi) $274,283,000 of capital distributions from partially owned entities, (vii) $135,762,000 of proceeds from sales of real estate and related investments, (viii) changes in restricted cash of $121,463,000, (ix) $100,525,000 of proceeds from sales and repayments of mezzanine loans, (x) $28,700,000 from the return of derivative collateral, and (xi) $19,301,000 of proceeds from sales of marketable securities

 

Net cash used in financing activities of $670,602,000 was comprised of (i) $2,666,610,000 for the repayments of borrowings, (ii) $381,382,000 of dividends paid on common shares, (iii) $77,330,000 of distributions to noncontrolling interests, (iv) $43,675,000 of dividends paid on preferred shares, (v) $28,614,000 of debt issuance and other costs, (vi) $28,000,000 for the purchase of outstanding preferred units and shares, and (vii) $747,000 for the repurchase of shares related to stock compensation agreements and related tax holdings, partially offset by (viii) $2,184,167,000 of proceeds from borrowings, (ix) $239,037,000 of proceeds from the issuance of Series J preferred shares, (x) $109,605,000 of contributions from noncontrolling interests, and (xi) $22,947,000 of proceeds received from exercise of employee share options

 

66

 


 
 

  

LIQUIDITY AND CAPITAL RESOURCES – continued

 

Cash Flows for the Nine Months Ended September 30, 2010

 

Our cash and cash equivalents were $846,254,000 at September 30, 2010, a $310,775,000 increase over the balance at December 31, 2009.  This increase resulted from $594,721,000 of net cash provided by operating activities and $51,097,000 of net cash provided by investing activities, partially offset by $335,043,000 of net cash used in financing activities.

 

Cash flows provided by operating activities of $594,721,000 was comprised of (i) net income of $425,887,000, (ii) $213,747,000 of non-cash adjustments, including depreciation and amortization expense, the effect of straight-lining of rental income and equity in net income of partially owned entities and (iii) distributions of income from partially owned entities of $36,829,000, partially offset by (iv) the net change in operating assets and liabilities of $81,742,000, of which $62,500,000 related to Real Estate Fund investments.

  

Net cash provided by investing activities of $51,097,000 was comprised of (i) proceeds from sales of marketable securities of $126,015,000, (ii) restricted cash of $125,204,000, (iii) proceeds from sales and repayments of mezzanine loans receivable of $109,594,000, (iv) proceeds from the sale of real estate and related investments of $48,998,000, (v) distributions of capital from partially owned entities of $45,613,000 and (vi) proceeds from maturing short-term investments of $40,000,000, partially offset by (vii) investments in partially owned entities of $159,053,000, (viii) additions to real estate of $98,789,000, (ix) development and redevelopment expenditures of $86,871,000, (x) investments in mezzanine loans receivable and other of $75,697,000, (xi) purchases of marketable securities of $13,917,000 and (xii) acquisitions of real estate and other of $10,000,000.

 

Net cash used in financing activities of $335,043,000 was comprised of (i) repayments of borrowings, including the purchase of our senior unsecured notes, of $1,462,652,000, (ii) dividends paid on common shares of $354,937,000, (iii) purchases of outstanding preferred units and shares of $48,600,000, (iv) dividends paid on preferred shares of $42,100,000, (v) distributions to noncontrolling interests of $41,055,000, (vi) repurchase of shares related to stock compensation arrangements and related tax withholdings of $25,659,000 and (vii) debt issuance costs of $14,942,000, partially offset by (viii) proceeds from borrowings of $1,603,359,000, (ix) contributions from noncontrolling interests of $39,351,000 and (x) $12,192,000 of proceeds received from the exercise of employee share options.

 

67

 


 
 

  

LIQUIDITY AND CAPITAL RESOURCES - continued

 

Capital Expenditures

Capital expenditures consist of expenditures to maintain assets, tenant improvement allowances and leasing commissions.  Recurring capital improvements include expenditures to maintain a property’s competitive position within the market and tenant improvements and leasing commissions necessary to re-lease expiring leases or renew or extend existing leases.  Non-recurring capital improvements include expenditures to lease space that has been vacant for more than nine months and expenditures completed in the year of acquisition and the following two years that were planned at the time of acquisition, as well as tenant improvements and leasing commissions for space that was vacant at the time of acquisition of a property.  Below is a summary of capital expenditures, leasing commissions and a reconciliation of total expenditures on an accrual basis to the cash expended in the nine months ended September 30, 2011.

 

New York

Washington, DC

Merchandise

(Amounts in thousands)

Total

Office

Office

Retail

Mart

Other

Expenditures to maintain assets

$

31,347   

$

11,361   

$

8,760   

$

5,162   

$

3,495   

$

2,569 

Tenant improvements

82,537   

48,105   

18,671   

4,734   

10,705   

322 

Leasing commissions

23,762   

16,567   

4,182   

1,315   

1,575   

123 

Non-recurring capital expenditures

17,044   

12,220   

 

1,967   

 

2,857 

Total capital expenditures and leasing

 

 

 

 

 

commissions (accrual basis)

154,690   

88,253   

31,613   

13,178   

15,775   

5,871 

Adjustments to reconcile to cash basis:

 

 

 

 

 

Expenditures in the current year

 

 

 

 

 

applicable to prior periods

69,717   

26,814   

11,363   

14,018   

11,993   

5,529 

Expenditures to be made in future

 

 

 

 

 

periods for the current period

(97,374)  

(57,532)  

(17,794)  

(7,693)  

(9,711)  

(4,644)

Total capital expenditures and leasing

 

 

 

 

 

commissions (cash basis)

$

127,033   

$

57,535   

$

25,182   

$

19,503   

$

18,057   

$

6,756 

 

Tenant improvements and leasing commissions:

Per square foot per annum

$

3.59 

$

5.23 

$

4.38 

$

0.81 

$

3.53 

$

Percentage of initial rent

8.6%

9.0%

10.9%

3.2%

10.6%

 

Development and Redevelopment Expenditures

Development and redevelopment expenditures consist of all hard and soft costs associated with the development or redevelopment of a property, including tenant improvements, leasing commissions, capitalized interest and operating costs until the property is substantially completed and ready for its intended use.  Below is a summary of development and redevelopment expenditures incurred in the nine months ended September 30, 2011.

 

New York

Washington, DC

Merchandise

(Amounts in thousands)

Total

Office

Office

Retail

Mart

Other

Bergen Town Center

$

17,145 

$

$

$

17,145 

$

$

Green Acres Mall

3,443 

3,443 

510 Fifth Avenue

2,367 

2,367 

West End 25

1,897 

1,897 

North Bergen, New Jersey

1,746 

1,746 

Crystal City Hotel

1,556 

1,556 

Crystal Square

1,502 

1,502 

Crystal Plaza 5

1,346 

1,346 

Poughkeepsie, New York

936 

936 

Other

20,878 

3,011 

7,249 

5,102 

412 

5,104 

$

52,816 

$

3,011 

$

13,550 

$

30,739 

$

412 

$

5,104 

 

As of September 30, 2011, the estimated costs to complete the above projects are approximately $23,927,000.  We have also committed to fund the estimated project cost of approximately $400,000,000 to $425,000,000 to develop our 220 Central Park South property into a new residential tower.  In addition, during 2012, we plan to redevelop 1851 South Bell Street, a 348,000 square foot office building in Crystal City, into a new 700,000 square foot office building (readdressed as 1900 Crystal Drive).  The estimated cost of this project is approximately $300,000,000, or $425 per square foot.  There can be no assurance that these projects will commence, or, if commenced, be completed on schedule or within budget. 

 

68

 


 
 

  

LIQUIDITY AND CAPITAL RESOURCES - continued

 

Below is a summary of capital expenditures and leasing commissions and a reconciliation of total expenditures on an accrual basis to the cash expended in the nine months ended September 30, 2010.

 

New York

Washington, DC

Merchandise

(Amounts in thousands)

Total

Office

Office

Retail

Mart

Other

Expenditures to maintain assets

$

32,861 

$

14,233 

$

7,263 

$

3,032 

$

4,360 

$

3,973 

Tenant improvements

98,465 

41,678 

11,146 

11,701 

28,905 

5,035 

Leasing commissions

23,884 

12,560 

4,352 

1,702 

3,982 

1,288 

Non-recurring capital expenditures

5,514 

915 

4,599 

Total capital expenditures and leasing

commissions (accrual basis)

160,724 

68,471 

22,761 

17,350 

37,247 

14,895 

Adjustments to reconcile to cash basis:

Expenditures in the current year

applicable to prior periods

55,822 

29,758 

12,781 

5,793 

4,085 

3,405 

Expenditures to be made in future

periods for the current period

(97,385)

(38,665)

(13,045)

(13,027)

(27,159)

(5,489)

Total capital expenditures and leasing

commissions (cash basis)

$

119,161 

$

59,564 

$

22,497 

$

10,116 

$

14,173 

$

12,811 

Tenant improvements and leasing commissions:

Per square foot per annum

$

3.69 

$

6.78 

$

2.58 

$

1.40 

$

4.43 

$

Percentage of initial rent

10.9%

14.0%

6.7%

5.8%

12.9%

 

 

Development and Redevelopment Expenditures

 

Below is a summary of development and redevelopment expenditures incurred in the nine months ended September 30, 2010.

 

New York

Washington, DC

Merchandise

(Amounts in thousands)

Total

Office

Office

Retail

Mart

Other

Bergen Town Center

$

12,588 

$

$

$

12,588 

$

$

Residential condominiums

11,806 

11,806 

West End 25

9,011 

9,011 

1540 Broadway

7,493 

7,493 

Green Acres Mall

6,991 

6,991 

220 20th Street

3,946 

3,946 

Beverly Connection

3,452 

3,452 

Poughkeepsie, New York

2,396 

2,396 

Other

29,188 

4,702 

8,115 

10,515 

1,180 

4,676 

$

86,871 

$

4,702 

$

21,072 

$

43,435 

$

1,180 

$

16,482 

69

 


 
 

  

LIQUIDITY AND CAPITAL RESOURCES – continued

 

Insurance

 

We maintain general liability insurance with limits of $300,000,000 per occurrence and all risk property and rental value insurance with limits of $2.0 billion per occurrence, including coverage for terrorist acts, with sub-limits for certain perils such as floods.  Our California properties have earthquake insurance with coverage of $180,000,000 per occurrence, subject to a deductible in the amount of 5% of the value of the affected property, up to a $180,000,000 annual aggregate.

 

Penn Plaza Insurance Company, LLC (“PPIC”), our wholly owned consolidated subsidiary, acts as a re-insurer with respect to all risk property and rental value insurance and a portion of our earthquake insurance coverage, and as a direct insurer for coverage for acts of terrorism, including nuclear, biological, chemical and radiological (“NBCR”) acts, as defined by the Terrorism Risk Insurance Program Reauthorization Act. Coverage for acts of terrorism (excluding NBCR acts) is fully reinsured by third party insurance companies and the Federal government with no exposure to PPIC.  Coverage for NBCR losses is up to $2 billion per occurrence, for which PPIC is responsible for a deductible of $3,200,000 and 15% of the balance of a covered loss and the Federal government is responsible for the remaining 85% of a covered loss.  We are ultimately responsible for any loss borne by PPIC.

 

We continue to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism.  However, we cannot anticipate what coverage will be available on commercially reasonable terms in future policy years.

 

Our debt instruments, consisting of mortgage loans secured by our properties which are non-recourse to us, senior unsecured notes, exchangeable senior debentures, convertible senior debentures and revolving credit agreements contain customary covenants requiring us to maintain insurance. Although we believe that we have adequate insurance coverage for purposes of these agreements, we may not be able to obtain an equivalent amount of coverage at reasonable costs in the future. Further, if lenders insist on greater coverage than we are able to obtain it could adversely affect our ability to finance our properties and expand our portfolio.

 

Other Commitments and Contingencies

 

Our mortgage loans are non-recourse to us.  However, in certain cases we have provided guarantees or master leased tenant space.  These guarantees and master leases terminate either upon the satisfaction of specified circumstances or repayment of the underlying loans.  As of September 30, 2011, the aggregate dollar amount of these guarantees and master leases is approximately $151,959,000.

 

At September 30, 2011, $22,085,000 of letters of credit were outstanding under one of our revolving credit facilities.  Our credit facilities contain financial covenants that require us to maintain minimum interest coverage and maximum debt to market capitalization ratios, and provide for higher interest rates in the event of a decline in our ratings below Baa3/BBB. Our credit facilities also contain customary conditions precedent to borrowing, including representations and warranties, and also contain customary events of default that could give rise to accelerated repayment, including such items as failure to pay interest or principal.

 

Each of our properties has been subjected to varying degrees of environmental assessment at various times. The environmental assessments did not reveal any material environmental contamination. However, there can be no assurance that the identification of new areas of contamination, changes in the extent or known scope of contamination, the discovery of additional sites, or changes in cleanup requirements would not result in significant costs to us.

 

As part of the process of obtaining the required approvals to demolish and develop our 220 Central Park South property into a new residential tower, we have committed to fund the estimated project cost of approximately $400,000,000 to $425,000,000.  In addition, we expect to fund additional capital to certain of our partially owned entities aggregating approximately $264,000,000.

 

70

 


 
 

  

LIQUIDITY AND CAPITAL RESOURCES - continued

 

Other Commitments and Contingencies - continued

 

During 2010, two of our wholly owned subsidiaries entered into agreements with Cuyahoga County, Ohio (the “County”) to develop and operate the Cleveland Medical Mart and Convention Center (the “Facility”), a 1,000,000 square foot showroom, trade show and conference center in Cleveland’s central business district.  The County will fund the development of the Facility, using the proceeds it received from the issuance of general obligation bonds and other sources, up to the development budget of $465,000,000 and maintain effective control of the property.  During the 17-year development and operating period, our subsidiaries will receive net settled payments of approximately $10,000,000 per year, which are net of its $36,000,000 annual obligation to the County.  Our subsidiaries’ obligation has been pledged by the County to the bondholders, but is payable by our subsidiaries only to the extent that they first receive at least an equal payment from the County.  Our subsidiaries engaged a contractor to construct the Facility pursuant to a guaranteed maximum price contract; although our subsidiaries are ultimately responsible for cost overruns, the contractor is responsible for all costs incurred in excess of its contract and has provided a completion guaranty.  Construction of the Facility is expected to be completed in 2013.  Upon completion, our subsidiaries are required to fund $11,500,000, primarily for tenant improvements, and they are responsible for operating expenses and are entitled to the net operating income, if any, of the Facility.  The County may terminate the operating agreement five years from the completion of development and periodically thereafter, if our subsidiaries fail to achieve certain performance thresholds.

 

 

Litigation

 

We are from time to time involved in legal actions arising in the ordinary course of business. In our opinion, after consultation with legal counsel, the outcome of such matters, including the matter referred to below, is not expected to have a material adverse effect on our financial position, results of operations or cash flows.

 

On January 8, 2003, Stop & Shop filed a complaint with the United States District Court for the District of New Jersey (“USDC-NJ”) claiming that we had no right to reallocate and therefore continue to collect the $5,000,000 of annual rent from Stop & Shop pursuant to the Master Agreement and Guaranty, because of the expiration of the East Brunswick, Jersey City, Middletown, Union and Woodbridge leases to which the $5,000,000 of additional rent was previously allocated. Stop & Shop asserted that a prior order of the Bankruptcy Court for the Southern District of New York dated February 6, 2001, as modified on appeal to the District Court for the Southern District of New York on February 13, 2001, froze our right to reallocate which effectively terminated our right to collect the additional rent from Stop & Shop. On March 3, 2003, after we moved to dismiss for lack of jurisdiction, Stop & Shop voluntarily withdrew its complaint. On March 26, 2003, Stop & Shop filed a new complaint in New York State Supreme Court, asserting substantially the same claims as in its USDC-NJ complaint. We removed the action to the United States District Court for the Southern District of New York. In January 2005, that court remanded the action to the New York State Supreme Court. On February 14, 2005, we served an answer in which we asserted a counterclaim seeking a judgment for all the unpaid additional rent accruing through the date of the judgment and a declaration that Stop & Shop will continue to be liable for the additional rent as long as any of the leases subject to the Master Agreement and Guaranty remain in effect. On May 17, 2005, we filed a motion for summary judgment. On July 15, 2005, Stop & Shop opposed our motion and filed a cross-motion for summary judgment. On December 13, 2005, the Court issued its decision denying the motions for summary judgment. Both parties appealed the Court’s decision and on December 14, 2006, the Appellate Court division issued a decision affirming the Court’s decision.  On January 16, 2007, we filed a motion for the reconsideration of one aspect of the Appellate Court’s decision which was denied on March 13, 2007.  A trial was held in November 2010 and closing arguments were held in March 2011.  As of September 30, 2011, we have a $40,733,000 receivable from Stop and Shop, of which $23,105,000 has been reserved.  We believe, after consultation with counsel, that the maximum reasonably possible loss is up to the total amount of the receivable of $40,733,000.

71

 


 
 

  

FUNDS FROM OPERATIONS (“FFO”)

FFO is computed in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines FFO as GAAP net income or loss adjusted to exclude net gain from sales of depreciated real estate assets, depreciation and amortization expense from real estate assets, extraordinary items and other specified non-cash items, including the pro-rata share of such adjustments of unconsolidated subsidiaries.  FFO and FFO per diluted share are used by management, investors and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers because it excludes the effect of real estate depreciation and amortization and net gains on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions.  FFO does not represent cash generated from operating activities and is not necessarily indicative of cash available to fund cash requirements and should not be considered as an alternative to net income as a performance measure or cash flows as a liquidity measure.  FFO may not be comparable to similarly titled measures employed by other companies.  The calculations of both the numerator and denominator used in the computation of income per share are disclosed in footnote 17 – Income per Share, in the notes to our consolidated financial statements on page 28 of this Quarterly Report on Form 10-Q.

 

FFO for the Three and Nine Months Ended September 30, 2011 and 2010

 

FFO attributable to common shareholders plus assumed conversions was $195,125,000, or $1.05 per diluted share for the three months ended September 30, 2011, compared to $248,964,000, or $1.31 per diluted share, for the prior year’s quarter. FFO attributable to common shareholders plus assumed conversions was $951,054,000, or $4.96 per diluted share, for the nine months ended September 30, 2011, compared to $814,030,000, or $4.29 per diluted share for the prior year’s nine months.  Details of certain items that affect comparability are discussed in the financial results summary of our “Overview.”

 

For The Three Months

For The Nine Months

(Amounts in thousands, except per share amounts)

Ended September 30,

Ended September 30,

Reconciliation of our net income to FFO:

2011 

2010 

2011 

2010 

Net income attributable to Vornado

$

53,762 

$

104,252 

$

575,006 

$

390,910 

Depreciation and amortization of real property

128,811 

126,987 

377,458 

381,782 

Net gain on sales of real estate

(51,623)

Proportionate share of adjustments to equity in net income of Toys,

to arrive at FFO:

Depreciation and amortization of real property

17,947 

18,132 

52,844 

53,296 

Net gain on sales of real estate

(491)

Income tax effect of above adjustments

(6,280)

(6,347)

(18,320)

(18,654)

Proportionate share of adjustments to equity in net income of partially

owned entities, excluding Toys, to arrive at FFO:

Depreciation and amortization of real property

27,541 

19,481 

73,743 

58,555 

Net gain on sales of real estate

(3,591)

(7,360)

(307)

Noncontrolling interests' share of above adjustments

(10,468)

(11,011)

(27,224)

(33,485)

FFO

207,722 

251,494 

974,033 

832,097 

Preferred share dividends

(17,627)

(13,442)

(47,743)

(41,975)

Discount on preferred share and unit redemptions

5,000 

4,382 

5,000 

4,382 

FFO attributable to common shareholders

195,095 

242,434 

931,290 

794,504 

Interest on 3.88% exchangeable senior debentures

6,490 

19,670 

19,405 

Convertible preferred share dividends

30 

40 

94 

121 

FFO attributable to common shareholders plus assumed conversions

$

195,125 

$

248,964 

$

951,054 

$

814,030 

Reconciliation of Weighted Average Shares

Weighted average common shares outstanding

184,398 

182,462 

184,220 

182,014 

Effect of dilutive securities:

3.88% exchangeable senior debentures

5,736 

5,736 

5,736 

Employee stock options and restricted share awards

1,667 

1,706 

1,764 

1,741 

Convertible preferred shares

54 

70 

55 

71 

Denominator for FFO per diluted share

186,119 

189,974 

191,775 

189,562 

FFO attributable to common shareholders plus assumed conversions

per diluted share

$

1.05 

$

1.31 

$

4.96 

$

4.29 

72

 


 

  

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

We have exposure to fluctuations in market interest rates. Market interest rates are sensitive to many factors that are beyond our control. Our exposure to a change in interest rates on our consolidated and non-consolidated debt (all of which arises out of non-trading activity) is as follows:

 

(Amounts in thousands, except per share amounts)

2011 

2010 

Weighted

Effect of 1%

Weighted

September 30,

Average

Change In

December 31,

Average

Consolidated debt:

Balance

Interest Rate

Base Rates

Balance

Interest Rate

Variable rate

$

2,060,734 

1.98%

$

20,607 

$

2,903,510 

1.76%

Fixed rate

8,345,816 

5.56%

7,985,932 

5.66%

$

10,406,550 

4.85%

20,607 

$

10,889,442 

4.62%

Pro-rata share of debt of non-consolidated

entities (non-recourse):

Variable rate – excluding Toys

$

284,305 

2.68%

2,843 

$

345,308 

1.39%

Variable rate – Toys

512,084 

5.48%

5,121 

501,623 

4.95%

Fixed rate (including $1,275,787,000 and

$1,421,820 of Toys debt in 2011 and 2010)

2,744,062 

(1)

6.50%

2,428,986 

6.86%

$

3,540,451 

6.04%

7,964 

$

3,275,917 

5.99%

Noncontrolling interests’ share of above

(1,857)

Total change in annual net income

$

26,714 

Per share-diluted

$

0.14 

(1)

Excludes $36.3 billion for our 26.2% pro rata shares of liabilities related to consolidated CMBS and CDO trusts which are non-recourse to LNR and its equity holders, including us.

 

We may utilize various financial instruments to mitigate the impact of interest rate fluctuations on our cash flows and earnings, including hedging strategies, depending on our analysis of the interest rate environment and the costs and risks of such strategies. As of September 30, 2011, variable rate debt with an aggregate principal amount of $557,120,000 and a weighted average interest rate of 2.81% was subject to LIBOR caps.  These caps are based on a notional amount of $558,479,000 and cap LIBOR at a weighted average rate of 5.68%.  In addition, we have one interest rate swap on a $425,000,000 loan that swapped the rate from LIBOR plus 2.00% (2.24% at September 30, 2011) to a fixed rate of 5.13% for the remaining seven-year term of the loan. 

 

As of September 30, 2011, we have investments in mezzanine loans with an aggregate carrying amount of $76,362,000 that are based on variable interest rates which partially mitigate our exposure to a change in interest rates on our variable rate debt.

 

Fair Value of Debt

 

The estimated fair value of our consolidated debt is calculated based on current market prices and discounted cash flows at the rate at which similar loans could be made currently to borrowers with similar credit ratings, for the remaining term of such debt.  As of September 30, 2011, the estimated fair value of our consolidated debt was $10,592,911,000.

 

Derivative Instruments

 

We have, and may in the future enter into, derivative positions that do not qualify for hedge accounting treatment, including our economic interest in J.C. Penney common shares.  Because these derivatives do not qualify for hedge accounting treatment, the gains or losses resulting from their mark-to-market at the end of each reporting period are recognized as an increase or decrease in “interest and other investment income, net” on our consolidated statements of income. In addition, we are, and may in the future be, subject to additional expense based on the notional amount of the derivative positions and a specified spread over LIBOR. Because the market value of these instruments can vary significantly between periods, we may experience significant fluctuations in the amount of our investment income or expense in any given period. During the nine months ended September 30, 2011 we recognized a $27,136,000 loss from derivative instruments.

73

 


 

  

Item 4.   Controls and Procedures

Disclosure Controls and Procedures:  The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a‑15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2011, such disclosure controls and procedures were effective.

 

Internal Control Over Financial Reporting:  There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Securities and Exchange Act of 1934, as amended) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

74

 


 

  

PART II.   OTHER INFORMATION

 

Item 1.  Legal Proceedings

 

 

We are from time to time involved in legal actions arising in the ordinary course of business. In our opinion, after consultation with legal counsel, the outcome of such matters, including the matter referred to below, is not expected to have a material adverse effect on our financial position, results of operations or cash flows.

 

On January 8, 2003, Stop & Shop filed a complaint with the United States District Court for the District of New Jersey (“USDC-NJ”) claiming that we had no right to reallocate and therefore continue to collect the $5,000,000 of annual rent from Stop & Shop pursuant to the Master Agreement and Guaranty, because of the expiration of the East Brunswick, Jersey City, Middletown, Union and Woodbridge leases to which the $5,000,000 of additional rent was previously allocated. Stop & Shop asserted that a prior order of the Bankruptcy Court for the Southern District of New York dated February 6, 2001, as modified on appeal to the District Court for the Southern District of New York on February 13, 2001, froze our right to reallocate which effectively terminated our right to collect the additional rent from Stop & Shop. On March 3, 2003, after we moved to dismiss for lack of jurisdiction, Stop & Shop voluntarily withdrew its complaint. On March 26, 2003, Stop & Shop filed a new complaint in New York State Supreme Court, asserting substantially the same claims as in its USDC-NJ complaint. We removed the action to the United States District Court for the Southern District of New York. In January 2005, that court remanded the action to the New York State Supreme Court. On February 14, 2005, we served an answer in which we asserted a counterclaim seeking a judgment for all the unpaid additional rent accruing through the date of the judgment and a declaration that Stop & Shop will continue to be liable for the additional rent as long as any of the leases subject to the Master Agreement and Guaranty remain in effect. On May 17, 2005, we filed a motion for summary judgment. On July 15, 2005, Stop & Shop opposed our motion and filed a cross-motion for summary judgment. On December 13, 2005, the Court issued its decision denying the motions for summary judgment. Both parties appealed the Court’s decision and on December 14, 2006, the Appellate Court division issued a decision affirming the Court’s decision.  On January 16, 2007, we filed a motion for the reconsideration of one aspect of the Appellate Court’s decision which was denied on March 13, 2007.  A trial was held in November 2010 and closing arguments were held in March 2011.  As of September 30, 2011, we have a $40,733,000 receivable from Stop and Shop, of which $23,105,000 has been reserved.  We believe, after consultation with counsel, that the maximum reasonably possible loss is up to the total amount of the receivable of $40,733,000.

75

 


 

  

Item 1A. Risk Factors

There were no material changes to the Risk Factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2010.

 

 

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds

In the third quarter of 2011, we issued 12,085 common shares upon the redemption of Class A units of the Operating Partnership held by persons who received units, in private placements in earlier periods, in exchange for their interests in limited partnerships that owned real estate. The common shares were issued without registration under the Securities Act of 1933 in reliance on Section 4 (2) of that Act.

 

Information relating to compensation plans under which our equity securities are authorized for issuance is set forth under Part III, Item 12 of the Annual Report on Form 10-K for the year ended December 31, 2010, and such information is incorporated by reference herein.

 

 

Item 3.   Defaults Upon Senior Securities

        None.

 

 

Item 5.   Other Information

        None.

 

 

Item 6.   Exhibits

Exhibits required by Item 601 of Regulation S-K are filed herewith or incorporated herein by reference and are listed in the attached Exhibit Index.

 

76

 


 

  

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

VORNADO REALTY TRUST

 

 

(Registrant)

 

 

 

 

 

 

Date: November 3, 2011

By:

/s/ Joseph Macnow

 

 

Joseph Macnow, Executive Vice President -
Finance and Administration and
Chief Financial Officer (duly authorized officer
and principal financial and accounting officer)

77

 


 

  

EXHIBIT INDEX

Exhibit No.

3.1 

-

Articles of Restatement of Vornado Realty Trust, as filed with the State

*

Department of Assessments and Taxation of Maryland on July 30, 2007 - Incorporated

by reference to Exhibit 3.75 to Vornado Realty Trust’s Quarterly Report on Form 10-Q

for the quarter ended June 30, 2007 (File No. 001-11954), filed on July 31, 2007

3.2 

-

Amended and Restated Bylaws of Vornado Realty Trust, as amended on March 2, 2000 -

*

Incorporated by reference to Exhibit 3.12 to Vornado Realty Trust’s Annual Report on

Form 10-K for the year ended December 31, 1999 (File No. 001-11954), filed on

March 9, 2000

3.3 

-

Articles Supplementary, 6.875% Series J Cumulative Redeemable Preferred Shares of

*

Beneficial Interest, liquidation preference $25.00 per share, no par value - Incorporated by

reference to Exhibit 3.2 of Vornado Realty Trust's Registration Statement on Form 8-A

(File No. 001-11954), filed on April 20, 2011

3.4 

-

Second Amended and Restated Agreement of Limited Partnership of Vornado Realty L.P.,

*

dated as of October 20, 1997 (the “Partnership Agreement”) – Incorporated by reference

to Exhibit 3.26 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter

ended March 31, 2003 (File No. 001-11954), filed on May 8, 2003

3.5 

-

Amendment to the Partnership Agreement, dated as of December 16, 1997 – Incorporated by

*

reference to Exhibit 3.27 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for

the quarter ended March 31, 2003 (File No. 001-11954), filed on May 8, 2003

3.6 

-

Second Amendment to the Partnership Agreement, dated as of April 1, 1998 – Incorporated

*

by reference to Exhibit 3.5 to Vornado Realty Trust’s Registration Statement on Form S-3

(File No. 333-50095), filed on April 14, 1998

3.7 

-

Third Amendment to the Partnership Agreement, dated as of November 12, 1998 -

*

Incorporated by reference to Exhibit 3.2 to Vornado Realty Trust’s Current Report on

Form 8-K (File No. 001-11954), filed on November 30, 1998

3.8 

-

Fourth Amendment to the Partnership Agreement, dated as of November 30, 1998 -

*

Incorporated by reference to Exhibit 3.1 to Vornado Realty Trust’s Current Report on

Form 8-K (File No. 001-11954), filed on February 9, 1999

3.9 

-

Fifth Amendment to the Partnership Agreement, dated as of March 3, 1999 - Incorporated by

*

reference to Exhibit 3.1 to Vornado Realty Trust’s Current Report on Form 8-K

(File No. 001-11954), filed on March 17, 1999

3.10

-

Sixth Amendment to the Partnership Agreement, dated as of March 17, 1999 - Incorporated

*

by reference to Exhibit 3.2 to Vornado Realty Trust’s Current Report on Form 8-K

(File No. 001-11954), filed on July 7, 1999

3.11 

-

Seventh Amendment to the Partnership Agreement, dated as of May 20, 1999 - Incorporated

*

by reference to Exhibit 3.3 to Vornado Realty Trust’s Current Report on Form 8-K

(File No. 001-11954), filed on July 7, 1999

3.12 

-

Eighth Amendment to the Partnership Agreement, dated as of May 27, 1999 - Incorporated

*

by reference to Exhibit 3.4 to Vornado Realty Trust’s Current Report on Form 8-K

(File No. 001-11954), filed on July 7, 1999

3.13 

-

Ninth Amendment to the Partnership Agreement, dated as of September 3, 1999 -

*

Incorporated by reference to Exhibit 3.3 to Vornado Realty Trust’s Current Report on

Form 8-K (File No. 001-11954), filed on October 25, 1999

_______________________

*

Incorporated by reference.

 

78

 


 

  

3.14

-

Tenth Amendment to the Partnership Agreement, dated as of September 3, 1999 -

*

Incorporated by reference to exhibit 3,4 to Vornado Realty Trust's Current Report on

Form 8-K (File No. 001-11954), filed on October 25, 1999

3.15

-

Eleventh Amendment to the Partnership Agreement, dated as of November 24, 1999 -

*

Incorporated by reference to Exhibit 3.2 to Vornado Realty Trust’s Current Report on

Form 8-K (File No. 001-11954), filed on December 23, 1999

3.16

-

Twelfth Amendment to the Partnership Agreement, dated as of May 1, 2000 - Incorporated

*

by reference to Exhibit 3.2 to Vornado Realty Trust’s Current Report on Form 8-K

(File No. 001-11954), filed on May 19, 2000

3.17

-

Thirteenth Amendment to the Partnership Agreement, dated as of May 25, 2000 -

*

Incorporated by reference to Exhibit 3.2 to Vornado Realty Trust’s Current Report on

Form 8-K (File No. 001-11954), filed on June 16, 2000

3.18

-

Fourteenth Amendment to the Partnership Agreement, dated as of December 8, 2000 -

*

Incorporated by reference to Exhibit 3.2 to Vornado Realty Trust’s Current Report on

Form 8-K (File No. 001-11954), filed on December 28, 2000

3.19

-

Fifteenth Amendment to the Partnership Agreement, dated as of December 15, 2000 -

*

Incorporated by reference to Exhibit 4.35 to Vornado Realty Trust’s Registration

Statement on Form S-8 (File No. 333-68462), filed on August 27, 2001

3.20

-

Sixteenth Amendment to the Partnership Agreement, dated as of July 25, 2001 - Incorporated

*

by reference to Exhibit 3.3 to Vornado Realty Trust’s Current Report on Form 8-K

(File No. 001 11954), filed on October 12, 2001

3.21

-

Seventeenth Amendment to the Partnership Agreement, dated as of September 21, 2001 -

*

Incorporated by reference to Exhibit 3.4 to Vornado Realty Trust’s Current Report on

Form 8 K (File No. 001-11954), filed on October 12, 2001

3.22

-

Eighteenth Amendment to the Partnership Agreement, dated as of January 1, 2002 -

*

Incorporated by reference to Exhibit 3.1 to Vornado Realty Trust’s Current Report on

Form 8-K/A (File No. 001-11954), filed on March 18, 2002

3.23

-

Nineteenth Amendment to the Partnership Agreement, dated as of July 1, 2002 - Incorporated

*

by reference to Exhibit 3.47 to Vornado Realty Trust’s Quarterly Report on Form 10-Q

for the quarter ended June 30, 2002 (File No. 001-11954), filed on August 7, 2002

3.24

-

Twentieth Amendment to the Partnership Agreement, dated April 9, 2003 - Incorporated by

*

reference to Exhibit 3.46 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for

the quarter ended March 31, 2003 (File No. 001-11954), filed on May 8, 2003

3.25

-

Twenty-First Amendment to the Partnership Agreement, dated as of July 31, 2003 -

*

Incorporated by reference to Exhibit 3.47 to Vornado Realty Trust’s Quarterly Report

on Form 10-Q for the quarter ended September 30, 2003 (File No. 001-11954), filed on

November 7, 2003

3.26

-

Twenty-Second Amendment to the Partnership Agreement, dated as of November 17, 2003 –

*

Incorporated by reference to Exhibit 3.49 to Vornado Realty Trust’s Annual Report on

Form 10-K for the year ended December 31, 2003 (File No. 001-11954), filed on

March 3, 2004

3.27

-

Twenty-Third Amendment to the Partnership Agreement, dated May 27, 2004 – Incorporated

*

by reference to Exhibit 99.2 to Vornado Realty Trust’s Current Report on Form 8-K

(File No. 001-11954), filed on June 14, 2004

_______________________

*

Incorporated by reference.

 

79

 


 

  

3.28

-

Twenty-Fourth Amendment to the Partnership Agreement, dated August 17, 2004 –

*

Incorporated by reference to Exhibit 3.57 to Vornado Realty Trust and Vornado Realty

L.P.’s Registration Statement on Form S-3 (File No. 333-122306), filed on

January 26, 2005

3.29

-

Twenty-Fifth Amendment to the Partnership Agreement, dated November 17, 2004 –

*

Incorporated by reference to Exhibit 3.58 to Vornado Realty Trust and Vornado Realty

L.P.’s Registration Statement on Form S-3 (File No. 333-122306), filed on

January 26, 2005

3.30

-

Twenty-Sixth Amendment to the Partnership Agreement, dated December 17, 2004 –

*

Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.’s Current Report on

Form 8-K (File No. 000-22685), filed on December 21, 2004

3.31

-

Twenty-Seventh Amendment to the Partnership Agreement, dated December 20, 2004 –

*

Incorporated by reference to Exhibit 3.2 to Vornado Realty L.P.’s Current Report on

Form 8-K (File No. 000-22685), filed on December 21, 2004

3.32

-

Twenty-Eighth Amendment to the Partnership Agreement, dated December 30, 2004 -

*

Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.’s Current Report on

Form 8-K (File No. 000-22685), filed on January 4, 2005

3.33

-

Twenty-Ninth Amendment to the Partnership Agreement, dated June 17, 2005 - Incorporated

*

by reference to Exhibit 3.1 to Vornado Realty L.P.’s Current Report on Form 8-K

(File No. 000-22685), filed on June 21, 2005

3.34

-

Thirtieth Amendment to the Partnership Agreement, dated August 31, 2005 - Incorporated by

*

reference to Exhibit 3.1 to Vornado Realty L.P.’s Current Report on Form 8-K

(File No. 000-22685), filed on September 1, 2005

3.35

-

Thirty-First Amendment to the Partnership Agreement, dated September 9, 2005 -

*

Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.’s Current Report on

Form 8-K (File No. 000-22685), filed on September 14, 2005

3.36

-

Thirty-Second Amendment and Restated Agreement of Limited Partnership, dated as of

*

December 19, 2005 – Incorporated by reference to Exhibit 3.59 to Vornado Realty L.P.’s

Quarterly Report on Form 10-Q for the quarter ended March 31, 2006

(File No. 000-22685), filed on May 8, 2006

3.37

-

Thirty-Third Amendment to Second Amended and Restated Agreement of Limited

*

Partnership, dated as of April 25, 2006 – Incorporated by reference to Exhibit 10.2 to

Vornado Realty Trust’s Form 8-K (File No. 001-11954), filed on May 1, 2006

3.38

-

Thirty-Fourth Amendment to Second Amended and Restated Agreement of Limited

*

Partnership, dated as of May 2, 2006 – Incorporated by reference to Exhibit 3.1 to

Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on

May 3, 2006

3.39

-

Thirty-Fifth Amendment to Second Amended and Restated Agreement of Limited

*

Partnership, dated as of August 17, 2006 – Incorporated by reference to Exhibit 3.1 to

Vornado Realty L.P.’s Form 8-K (File No. 000-22685), filed on August 23, 2006

3.40

-

Thirty-Sixth Amendment to Second Amended and Restated Agreement of Limited

*

Partnership, dated as of October 2, 2006 – Incorporated by reference to Exhibit 3.1 to

Vornado Realty L.P.’s Form 8-K (File No. 000-22685), filed on January 22, 2007

_______________________

*

Incorporated by reference.

 

80

 


 

  

3.41

-

Thirty-Seventh Amendment to Second Amended and Restated Agreement of Limited

*

Partnership, dated as of June 28, 2007 – Incorporated by reference to Exhibit 3.1 to

Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on

June 27, 2007

3.42

-

Thirty-Eighth Amendment to Second Amended and Restated Agreement of Limited

*

Partnership, dated as of June 28, 2007 – Incorporated by reference to Exhibit 3.2 to

Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on

June 27, 2007

3.43

-

Thirty-Ninth Amendment to Second Amended and Restated Agreement of Limited

*

Partnership, dated as of June 28, 2007 – Incorporated by reference to Exhibit 3.3 to

Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on

June 27, 2007

3.44

-

Fortieth Amendment to Second Amended and Restated Agreement of Limited

*

Partnership, dated as of June 28, 2007 – Incorporated by reference to Exhibit 3.4 to

Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on

June 27, 2007

3.45

-

Forty-First Amendment to Second Amended and Restated Agreement of Limited

*

Partnership, dated as of March 31, 2008 – Incorporated by reference to Exhibit 3.44 to

Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended March 31,

2008 (file No. 001-11954), filed on May 6, 2008

3.46

-

Forty-Second Amendment to Second Amended and Restated Agreement of Limited Partnership,

*

dated as of December 17, 2010 – Incorporated by reference to Exhibit 99.1 to Vornado

Realty L.P.'s Current Report on Form 8-K (File No. 000-22685), filed on December 21, 2010

3.47

-

Forty-Third Amendment to Second Amended and Restated Agreement of Limited Partnership,

*

dated as of April 20, 2011 – Incorporated by reference to Exhibit 3.1 to Vornado

Realty L.P.'s Current Report on Form 8-K (File No. 000-22685), filed on April 21, 2011

4.1

-

Indenture, dated as of November 25, 2003, between Vornado Realty L.P. and The Bank of

*

New York, as Trustee - Incorporated by reference to Exhibit 4.10 to Vornado Realty

Trust’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005

(File No. 001-11954), filed on April 28, 2005

4.2

-

Indenture, dated as of November 20, 2006, among Vornado Realty Trust, as Issuer, Vornado

*

Realty L.P., as Guarantor and The Bank of New York, as Trustee – Incorporated by

reference to Exhibit 4.1 to Vornado Realty Trust’s Current Report on Form 8-K

(File No. 001-11954), filed on November 27, 2006

Certain instruments defining the rights of holders of long-term debt securities of Vornado

Realty Trust and its subsidiaries are omitted pursuant to Item 601(b)(4)(iii) of Regulation

S-K. Vornado Realty Trust hereby undertakes to furnish to the Securities and Exchange

Commission, upon request, copies of any such instruments.

10.1

-

Master Agreement and Guaranty, between Vornado, Inc. and Bradlees New Jersey, Inc. dated

*

as of May 1, 1992 - Incorporated by reference to Vornado, Inc.’s Quarterly Report on

Form 10-Q for the quarter ended March 31, 1992 (File No. 001-11954), filed May 8, 1992

10.2

-

Registration Rights Agreement between Vornado, Inc. and Steven Roth, dated December 29,

*

1992 - Incorporated by reference to Vornado Realty Trust’s Annual Report on Form 10-K

for the year ended December 31, 1992 (File No. 001-11954), filed February 16, 1993

______________________

*

Incorporated by reference.

 

81

 


 

  

10.3 

**

-

Stock Pledge Agreement between Vornado, Inc. and Steven Roth dated December 29, 1992

*

- Incorporated by reference to Vornado, Inc.’s Annual Report on Form 10-K for the year

ended December 31, 1992 (File No. 001-11954), filed February 16, 1993

10.4 

**

-

Management Agreement between Interstate Properties and Vornado, Inc. dated July 13, 1992

*

- Incorporated by reference to Vornado, Inc.’s Annual Report on Form 10-K for the year

ended December 31, 1992 (File No. 001-11954), filed February 16, 1993

10.5 

**

-

Employment Agreement, dated as of April 15, 1997, by and among Vornado Realty Trust,

*

The Mendik Company, L.P. and David R. Greenbaum - Incorporated by reference to

Exhibit 10.4 to Vornado Realty Trust’s Current Report on Form 8-K

(File No. 001-11954), filed on April 30, 1997

10.6 

**

-

Promissory Note from Steven Roth to Vornado Realty Trust, dated December 23, 2005 –

*

Incorporated by reference to Exhibit 10.15 to Vornado Realty Trust Annual Report on

Form 10-K for the year ended December 31, 2005 (File No. 001-11954), filed on

February 28, 2006

10.7 

**

-

Letter agreement, dated November 16, 1999, between Steven Roth and Vornado Realty Trust

*

- Incorporated by reference to Exhibit 10.51 to Vornado Realty Trust’s Annual Report on

Form 10-K for the year ended December 31, 1999 (File No. 001-11954), filed on

March 9, 2000

10.8 

-

Agreement and Plan of Merger, dated as of October 18, 2001, by and among Vornado Realty

*

Trust, Vornado Merger Sub L.P., Charles E. Smith Commercial Realty L.P., Charles E.

Smith Commercial Realty L.L.C., Robert H. Smith, individually, Robert P. Kogod,

individually, and Charles E. Smith Management, Inc. - Incorporated by reference to

Exhibit 2.1 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954),

filed on January 16, 2002

10.9 

-

Tax Reporting and Protection Agreement, dated December 31, 2001, by and among Vornado,

*

Vornado Realty L.P., Charles E. Smith Commercial Realty L.P. and Charles E. Smith

Commercial Realty L.L.C. - Incorporated by reference to Exhibit 10.3 to Vornado Realty

Trust’s Current Report on Form 8-K/A (File No. 1-11954), filed on March 18, 2002

10.10

-

Employment Agreement between Vornado Realty Trust and Michael D. Fascitelli, dated

*

March 8, 2002 - Incorporated by reference to Exhibit 10.7 to Vornado Realty Trust’s

Quarterly Report on Form 10-Q for the quarter ended March 31, 2002

(File No. 001-11954), filed on May 1, 2002

10.11 

**

-

First Amendment, dated October 31, 2002, to the Employment Agreement between Vornado

*

Realty Trust and Michael D. Fascitelli, dated March 8, 2002 - Incorporated by reference

to Exhibit 99.6 to the Schedule 13D filed by Michael D. Fascitelli on November 8, 2002

10.12 

**

-

Amendment to Real Estate Retention Agreement, dated as of July 3, 2002, by and between

*

Alexander’s, Inc. and Vornado Realty L.P. - Incorporated by reference to Exhibit

10(i)(E)(3) to Alexander’s Inc.’s Quarterly Report for the quarter ended June 30, 2002

(File No. 001-06064), filed on August 7, 2002

10.13 

-

59th Street Real Estate Retention Agreement, dated as of July 3, 2002, by and between

*

Vornado Realty L.P., 731 Residential LLC and 731 Commercial LLC - Incorporated by

reference to Exhibit 10(i)(E)(4) to Alexander’s Inc.’s Quarterly Report for the quarter

ended June 30, 2002 (File No. 001-06064), filed on August 7, 2002

_______________________

*

Incorporated by reference.

**

Management contract or compensatory agreement.

 

82

 


 

  

10.14

-

Amended and Restated Management and Development Agreement, dated as of July 3, 2002,

*

by and between Alexander's, Inc., the subsidiaries party thereto and Vornado

Management Corp. - Incorporated by reference to Exhibit 10(i)(F)(1) to Alexander's

Inc.'s Quarterly Report for the quarter ended June 30, 2002 (File No. 001-06064),

filed on August 7, 2002

10.15

-

Amendment dated May 29, 2002, to the Stock Pledge Agreement between Vornado Realty

*

Trust and Steven Roth dated December 29, 1992 - Incorporated by reference to Exhibit 5

of Interstate Properties’ Schedule 13D/A dated May 29, 2002 (File No. 005-44144), filed

on May 30, 2002

10.16

**

-

Vornado Realty Trust’s 2002 Omnibus Share Plan - Incorporated by reference to Exhibit 4.2

*

to Vornado Realty Trust’s Registration Statement on Form S-8 (File No. 333-102216)

filed December 26, 2002

10.17

**

-

Form of Stock Option Agreement between the Company and certain employees –

*

Incorporated by reference to Exhibit 10.77 to Vornado Realty Trust’s

Annual Report on Form 10-K for the year ended December 31, 2004

(File No. 001-11954), filed on February 25, 2005

10.18

**

-

Form of Restricted Stock Agreement between the Company and certain employees –

*

Incorporated by reference to Exhibit 10.78 to Vornado Realty Trust’s Annual Report on

Form 10-K for the year ended December 31, 2004 (File No. 001-11954), filed on

February 25, 2005

10.19

**

-

Amendment, dated March 17, 2006, to the Vornado Realty Trust Omnibus Share Plan –

*

Incorporated by reference to Exhibit 10.50 to Vornado Realty Trust’s Quarterly Report on

Form 10-Q for the quarter ended March 31, 2006 (File No. 001-11954), filed on

May 2, 2006

10.20

**

-

Form of Vornado Realty Trust 2006 Out-Performance Plan Award Agreement, dated as of

*

April 25, 2006 – Incorporated by reference to Exhibit 10.1 to Vornado Realty Trust’s

Form 8-K (File No. 001-11954), filed on May 1, 2006

10.21

**

-

Form of Vornado Realty Trust 2002 Restricted LTIP Unit Agreement – Incorporated by

*

reference to Vornado Realty Trust’s Form 8-K (Filed No. 001-11954), filed on

May 1, 2006

10.22

**

-

Amendment No.2, dated May 18, 2006, to the Vornado Realty Trust Omnibus Share Plan

*

– Incorporated by reference to Exhibit 10.53 to Vornado Realty Trust’s Quarterly

Report on Form 10-Q for the quarter ended June 30, 2006 (File No. 001-11954), filed

on August 1, 2006

10.23

**

-

Amended and Restated Employment Agreement between Vornado Realty Trust and Joseph

*

Macnow dated July 27, 2006 – Incorporated by reference to Exhibit 10.54 to Vornado

Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006

(File No. 001-11954), filed on August 1, 2006

10.24

-

Guaranty, made as of June 28, 2006, by Vornado Realty Trust, for the benefit of JP Morgan

*

Chase Bank - Incorporated by reference to Exhibit 10.53 to Vornado Realty Trust's

Quarterly Report on Form 10-Q for the quarter ended September 30, 2006

(File No. 001-11954), filed on October 31, 2006

_______________________

*

Incorporated by reference.

**

Management contract or compensatory agreement.

 

83

 


 

  

10.25

**

-

Amendment, dated October 26, 2006, to the Vornado Realty Trust Omnibus Share Plan –

*

Incorporated by reference to Exhibit 10.54 to Vornado Realty Trust’s Quarterly Report

on Form 10-Q for the quarter ended September 30, 2006 (File No. 001-11954), filed on

October 31, 2006

10.26

**

-

Amendment to Real Estate Retention Agreement, dated January 1, 2007, by and between

*

Vornado Realty L.P. and Alexander’s Inc. – Incorporated by reference to Exhibit 10.55

to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended

December 31, 2006 (File No. 001-11954), filed on February 27, 2007

10.27

**

-

Amendment to 59th Street Real Estate Retention Agreement, dated January 1, 2007, by and

*

among Vornado Realty L.P., 731 Retail One LLC, 731 Restaurant LLC, 731 Office One

LLC and 731 Office Two LLC. – Incorporated by reference to Exhibit 10.56 to

Vornado Realty Trust’s Annual Report on Form 10-K for the year ended

December 31, 2006 (File No. 001-11954), filed on February 27, 2007

10.28

**

-

Employment Agreement between Vornado Realty Trust and Mitchell Schear, as of April 19,

*

2007 – Incorporated by reference to Exhibit 10.46 to Vornado Realty Trust’s Quarterly

Report on Form 10-Q for the quarter ended March 31, 2007 (File No. 001-11954),

filed on May 1, 2007

10.29

-

Revolving Credit Agreement, dated as of September 28, 2007, among Vornado Realty L.P. as

*

borrower, Vornado Realty Trust as General Partner, the Banks signatory thereto, each as a

Bank, JPMorgan Chase Bank, N.A. as Administrative Agent, Bank of America, N.A. as

Syndication Agent, Citicorp North America, Inc., Deutsche Bank Trust Company

Americas, and UBS Loan Finance LLC as Documentation Agents, and J.P. Morgan

Securities Inc. and Bank of America Securities LLC as Lead Arrangers and Bookrunners.

- Incorporated by reference to Exhibit 10.1 to Vornado Realty Trust’s Current Report

on Form 8-K (File No. 001-11954), filed on October 4, 2007

10.30

-

Second Amendment to Revolving Credit Agreement, dated as of September 28, 2007, by and

*

among Vornado Realty L.P. as borrower, Vornado Realty Trust as General Partner, the

Banks listed on the signature pages thereof, and J.P. Morgan Chase Bank N.A., as

Administrative Agent for the Banks - Incorporated by reference to Exhibit 10.2 to

Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954),

filed on October 4, 2007

10.31

**

-

Form of Vornado Realty Trust 2002 Omnibus Share Plan Non-Employee Trustee Restricted

*

LTIP Unit Agreement – Incorporated by reference to Exhibit 10.45 to Vornado Realty

Trust’s Annual Report on Form 10-K for the year ended December 31, 2007 (File No.

001-11954) filed on February 26, 2008

10.32

**

-

Form of Vornado Realty Trust 2008 Out-Performance Plan Award Agreement – Incorporated

*

by reference to Exhibit 10.46 to Vornado Realty Trust’s Quarterly Report on Form 10-Q

for the quarter ended March 31, 2008 (File No. 001-11954) filed on May 6, 2008

10.33

**

-

Amendment to Employment Agreement between Vornado Realty Trust and Michael D.

*

Fascitelli, dated December 29, 2008. Incorporated by reference to Exhibit 10.47 to

Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31,

2008 (File No. 001-11954) filed on February 24, 2009

_______________________

*

Incorporated by reference.

**

Management contract or compensatory agreement.

 

84

 


 

  

10.34

**

-

Amendment to Employment Agreement between Vornado Realty Trust and Joseph Macnow,

*

dated December 29, 2008. Incorporated by reference to Exhibit 10.48 to Vornado Realty

Trust’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No.

001-11954) filed on February 24, 2009

10.35

**

-

Amendment to Employment Agreement between Vornado Realty Trust and David R.

*

Greenbaum, dated December 29, 2008. Incorporated by reference to Exhibit 10.49 to

Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31,

2008 (File No. 001-11954) filed on February 24, 2009

10.36

**

-

Amendment to Indemnification Agreement between Vornado Realty Trust and David R.

*

Greenbaum, dated December 29, 2008. Incorporated by reference to Exhibit 10.50 to

Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31,

2008 (File No. 001-11954) filed on February 24, 2009

10.37

**

-

Amendment to Employment Agreement between Vornado Realty Trust and Mitchell N.

*

Schear, dated December 29, 2008. Incorporated by reference to Exhibit 10.51 to Vornado

Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2008 (File

No. 001-11954) filed on February 24, 2009

10.38

**

-

Amendment to Employment Agreement between Vornado Realty Trust and Christopher G.

*

Kennedy, dated December 29, 2008. Incorporated by reference to Exhibit 10.53 to

Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31,

2008 (File No. 001-11954) filed on February 24, 2009

10.39

**

-

Vornado Realty Trust's 2010 Omnibus Share Plan. Incorporated by reference to Exhibit 10.41 to

*

Vornado Realty Trust's Quarterly Report on Form 10-Q for the quarter ended June 30, 2010

(File No. 001-11954) filed on August 3, 2010

10.40

**

-

Employment Agreement between Vornado Realty Trust and Michael J. Franco, dated

*

September 24, 2010. Incorporated by reference to Exhibit 10.42 to Vornado Realty Trust's

Quarterly Report on Form 10-Q for the quarter ended September 30, 2010 (File No. 001-11954)

filed on November 2, 2010

10.41

**

-

Form of Vornado Realty Trust 2010 Omnibus Share Plan Stock Agreement. Incorporated by

*

reference to Exhibit 10.42 to Vornado Realty Trust's Annual Report on Form 10-K for the year

ended December 31, 2010 (File No. 001-11954) filed on February 23, 2011

10.42

**

-

Form of Vornado Realty Trust 2010 Omnibus Share Plan Restricted LTIP Unit Agreement

*

Incorporated by reference to Exhibit 10.43 to Vornado Realty Trust's Annual Report on Form

10-K for the year ended December 31, 2010 (File No. 001-11954) filed on February 23, 2011

10.43

**

-

Form of Vornado Realty Trust 2010 Omnibus Share Plan Restricted Stock Agreement

*

Incorporated by reference to Exhibit 10.44 to Vornado Realty Trust's Annual Report on Form

10-K for the year ended December 31, 2010 (File No. 001-11954) filed on February 23, 2011

10.44

**

-

Letter Agreement between Vornado Realty Trust and Michelle Felman, dated December 21, 2010.

*

Incorporated by reference to Exhibit 10.45 to Vornado Realty Trust's Annual Report on Form

10-K for the year ended December 31, 2010 (File No. 001-11954) filed on February 23, 2011

_______________________

*

Incorporated by reference.

**

Management contract or compensatory agreement.

 

85

 


 

  

10.45

**

-

Waiver and Release between Vornado Realty Trust and Michelle Felman, dated December 21,

*

2010. Incorporated by reference to Exhibit 10.46 to Vornado Realty Trust's Annual Report

on Form 10-K for the year ended December 31, 2010 (File No. 001-11954) filed on

February 23, 2011

10.46 

-

Revolving Credit Agreement dated as of June 8, 2011, by and among Vornado Realty L.P. as

*

borrower, Vornado Realty Trust as General Partner, the Banks listed on the signature pages

thereof, and J.P. Morgan Chase Bank N.A., as Administrative Agent for the Banks.

Incorporated by reference to Exhibit 10.46 to Vornado Realty Trust's Quarterly Report on

Form 10-Q for the quarter ended June 30, 2011 (File No. 001-11954) filed on August 1, 2011

10.47 

**

-

Letter Agreement between Vornado Realty Trust and Christopher G. Kennedy, dated

August 5, 2011

10.48

**

-

Waiver and Release between Vornado Realty Trust and Christopher G. Kennedy, dated

August 5, 2011

15.1

-

Letter regarding Unaudited Interim Financial Information

31.1

-

Rule 13a-14 (a) Certification of the Chief Executive Officer

31.2

-

Rule 13a-14 (a) Certification of the Chief Financial Officer

32.1

-

Section 1350 Certification of the Chief Executive Officer

32.2

-

Section 1350 Certification of the Chief Financial Officer

101.INS

-

XBRL Instance Document

101.SCH

-

XBRL Taxonomy Extension Schema

101.CAL

-

XBRL Taxonomy Extension Calculation Linkbase

101.DEF

-

XBRL Taxonomy Extension Definition Linkbase

101.LAB

-

XBRL Taxonomy Extension Label Linkbase

101.PRE

-

XBRL Taxonomy Extension Presentation Linkbase

______________________

*

Incorporated by reference.

**

Management contract or compensatory agreement.

86