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VORNADO REALTY TRUST - Annual Report: 2013 (Form 10-K)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-K

 

x

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

 

For the Fiscal Year Ended:

December 31, 2013

 

 

 

 

 

 

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)

 

Registrant’s telephone number including area code:

(212) 894‑7000

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Name of Each Exchange on Which Registered

Common Shares of beneficial interest,
$.04 par value per share

 

New York Stock Exchange

 

 

 

Cumulative Redeemable Preferred Shares of beneficial
interest, no par value:

 

 

 

 

 

6.625% Series G

 

New York Stock Exchange

 

 

 

6.625% Series I

 

New York Stock Exchange

 

 

 

6.875% Series J

 

New York Stock Exchange

 

 

 

5.70% Series K

 

New York Stock Exchange

 

 

 

5.40% Series L

 

New York Stock Exchange

 

 

 

Securities registered pursuant to Section 12(g) of the Act:      NONE

 


 
 

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

 

YES  x     NO o

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

YES o     NO x

 

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 x     NO o

 

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 x     NO o

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S‑K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10‑K or any amendment to this Form 10‑K. o

 

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 o  NO x

 

The aggregate market value of the voting and non-voting common shares held by non‑affiliates of the registrant, i.e. by persons other than officers and trustees of Vornado Realty Trust, was $14,071,641,000 at June 30, 2013.

 

As of December 31, 2013, there were 187,284,688 of the registrant’s common shares of beneficial interest outstanding.

 

Documents Incorporated by Reference

 

Part III:  Portions of Proxy Statement for Annual Meeting of Shareholders to be held on May 22, 2014.

 

This Annual Report on Form 10-K omits financial statements required under Rule 3-09 of Regulation S-X, for Toys “R” Us, Inc. An amendment to this Annual Report on Form 10-K will be filed as soon as practicable following the availability of such financial statements.

 

 

 


 
 

 

INDEX

Item

Financial Information:

Page Number

PART I.

1.

Business

4

1A.

Risk Factors

8

1B.

Unresolved Staff Comments

17

2.

Properties

18

3.

Legal Proceedings

31

4.

Mine Safety Disclosures

31

PART II.

5.

Market for Registrant’s Common Equity, Related Stockholder Matters and

Issuer Purchases of Equity Securities

32

6.

Selected Financial Data

34

7.

Management's Discussion and Analysis of Financial Condition and

Results of Operations

36

7A.

Quantitative and Qualitative Disclosures about Market Risk

92

8.

Financial Statements and Supplementary Data

93

9.

Changes in and Disagreements with Accountants on

Accounting and Financial Disclosure

144

9A.

Controls and Procedures

144

9B.

Other Information

146

PART III.

10.

Directors, Executive Officers and Corporate Governance(1)

146

11.

Executive Compensation(1)

147

12.

Security Ownership of Certain Beneficial Owners and Management

and Related Stockholder Matters(1)

147

13.

Certain Relationships and Related Transactions, and Director Independence(1)

147

14.

Principal Accounting Fees and Services(1)

147

PART IV.

15.

Exhibits, Financial Statement Schedules

148

Signatures

149

(1)

These items are omitted in whole or in part because the registrant will file a definitive Proxy Statement pursuant to Regulation 14A under the Securities Exchange Act of 1934 with the Securities and Exchange Commission no later than 120 days after December 31, 2013, portions of which are incorporated by reference herein.

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Forward-Looking Statements

 

 

Certain statements contained herein 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 future 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 Annual Report on Form 10‑K. We also note the following forward-looking statements: in the case of our development and redevelopment projects, the estimated completion date, estimated project cost and cost to complete; and estimates of future capital expenditures, dividends to common and preferred shareholders and operating partnership distributions. 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 this Annual Report on Form 10-K.

 

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 Annual Report on Form 10-K 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 Annual Report on Form 10-K.

 

 

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PART I

 

ITEM 1.        BUSINESS

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 94.0% of the common limited partnership interest in the Operating Partnership at December 31, 2013.  All references to “we,” “us,” “our,” the “Company” and “Vornado” refer to Vornado Realty Trust and its consolidated subsidiaries, including the Operating Partnership.

                 

As of December 31, 2013, we own all or portions of:

 

New York:

 

·         19.8 million square feet of Manhattan office space in 31 properties and four residential properties containing 1,653 units;

 

·         2.4 million square feet of Manhattan street retail space in 55 properties;

 

·         The 1,700 room Hotel Pennsylvania located on Seventh Avenue at 33rd Street in the heart of the Penn Plaza district;

 

·         A 32.4% interest in Alexander’s, Inc. (NYSE: ALX), which owns six properties in the greater New York metropolitan area, including 731 Lexington Avenue, the 1.3 million square foot Bloomberg, L.P. headquarters building;

 

Washington, DC:

 

·         16.2 million square feet of office space in 59 properties and seven residential properties containing 2,405 units;

 

Retail Properties:

 

·         14.9 million square feet of retail space in 106 strip shopping centers and single tenant retail assets, primarily in the northeast states and California;

 

·         5.3 million square feet of retail space in six regional malls, located in the northeast / mid-Atlantic states and Puerto Rico;

 

 

Other Real Estate and Related Investments:

 

·         The 3.6 million square foot Merchandise Mart in Chicago, whose largest tenant is Motorola Mobility, owned by Google, which leases 608,000 square feet;

 

·         A 70% controlling interest in 555 California Street, a three-building office complex in San Francisco’s financial district aggregating 1.8 million square feet, known as the Bank of America Center;

 

·         A 25.0% interest in Vornado Capital Partners, our real estate fund.  We are the general partner and investment manager of the fund;

 

·         A 32.6% interest in Toys “R” Us, Inc.; and

 

·         Other real estate and related investments and mortgage and mezzanine loans on real estate.

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Objectives and Strategy

Our business objective is to maximize shareholder value. We intend to achieve this objective by continuing to pursue our investment philosophy and execute 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 our 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 these securities in the future.

 

 

ACQUISITIONS

 

Since January 1, 2013, we have completed the following acquisitions:

 

·         A 20.1% interest in 650 Madison Avenue, a 27-story, 594,000 square foot Class A office and retail tower located on Madison Avenue between 59th and 60th Street, for $260 million ($1.295 billion at 100%). 

·         A 92.5% interest in 655 Fifth Avenue, a 57,500 square foot retail and office property located at the northeast corner of Fifth Avenue and 52nd Street in Manhattan, for $277.5 million ($300 million at 100%). 

·         Land and air rights for 137,000 zoning square feet thereby completing the assemblage for our 220 Central Park South development site in Manhattan, for $194 million.

·         Three other Manhattan street retail properties, in separate transactions, for an aggregate of $65.3 million.

 

Additional details about our Acquisitions are provided in the “Overview” of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

 

DISPOSITIONS

 

Since January 1, 2013, we have sold 20 assets and marketable securities, including J.C. Penney, for an aggregate of $1.8 billion, with net proceeds of approximately $1.3 billion.  Below is a summary of these sales.

 

·         Green Acres Mall in Valley Stream, New York, for $500 million.

·         The Plant, a power strip shopping center in San Jose, California, for $203 million.

·         866 United Nations Plaza, a 360,000 square foot office building in Manhattan, for $200 million.

·         A retail property in Philadelphia, which is a part of the Gallery at Market Street, for $60 million.

·         A parcel of land known as Harlem Park located at 1800 Park Avenue (at 125th Street) in New York City, for $66 million.

·         A retail property in Tampa, Florida for $45 million, of which our 75% share was $33.8 million.

·         12 other properties, in separate transactions, for an aggregate of $82.3 million.

·         Marketable securities, principally J.C. Penney, for an aggregate of $378.7 million.

·         Our 26.2% interest in LNR for net proceeds of $240.5 million.

·         Our 50% interest in the Downtown Crossing site in Boston for net proceeds of $45 million.

 

Additional details about our Dispositions are provided in the “Overview” of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

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FINANCINGS

 

Since January 1, 2013, we have executed the following capital market transactions:

 

·         A $600 million loan secured by our 220 Central Park South development site.

·         The restructuring of the $678 million (face amount) Skyline properties mortgage loan.

·         Extended one of our two $1.25 billion revolving credit facilities from June 2015 to June 2017, with two six-month extension options.

·         Five additional financings secured by real estate aggregating $1.707 billion at a weighted average interest rate of 3.63% and a weighted average term of 7.5 years.  One of these financings was to support a recently acquired asset and the other four yielded approximately $351 million of net proceeds. 

·         Issued $300 million of 5.4% Series L Preferred Shares and redeemed all of the outstanding Series F and H Preferred Shares and the Series D-15 Preferred Units, which had a weighted average rate of 6.77%, for $299.4 million.

 

Additional details about our Financings are provided in the “Overview” of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

 

SEGMENT DATA

 

We operate in the following business segments: New York, Washington, DC, Retail Properties, and Toys “R” Us (“Toys”).  As a result of certain organizational changes and asset sales in 2012, the Merchandise Mart segment no longer meets the criteria to be a separate reportable segment; accordingly, effective January 1, 2013, the remaining assets have been reclassified to “Other.”  We have also reclassified the prior period segment financial results to conform to the current year presentation. Financial information related to these business segments for the years ended December 31, 2013, 2012 and 2011 is set forth in Note 26 – Segment Information to our consolidated financial statements in this Annual Report on Form 10-K.

 

 

SEASONALITY

 

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 and substantially all of Toys’ net income is generated in its fourth quarter, which we record on a one-quarter lag basis in our first quarter. The New York and Washington, DC segments have historically experienced higher utility costs in the first and third quarters of the year.  The Retail Properties segment revenue in the fourth quarter is typically higher due to the recognition of percentage and specialty rental income.

 

 

tenants ACCOUNTING FOR over 10% of revenues

 

None of our tenants accounted for more than 10% of total revenues in any of the years ended December 31, 2013, 2012 and 2011

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Certain Activities

 

We do not base our acquisitions and investments on specific allocations by type of property. We have historically held our properties for long‑term investment; however, it is possible that properties in our portfolio may be sold when circumstances warrant. Further, we have not adopted a policy that limits the amount or percentage of assets which could be invested in a specific property or property type. While we may seek the vote of our shareholders in connection with any particular material transaction, generally our activities are reviewed and may be modified from time to time by our Board of Trustees without the vote of shareholders.

 

 

Employees

 

As of December 31, 2013, we have approximately 4,369 employees, of which 339 are corporate staff. The New York segment has 3,244 employees, including 2,564 employees of Building Maintenance Services LLC, a wholly owned subsidiary, which provides cleaning, security and engineering services primarily to our New York and Washington, DC properties and 516 employees at the Hotel Pennsylvania. The Washington, DC and Retail Properties segments have 448 and 107 employees, respectively and the Merchandise Mart properties have 231 employees.  The foregoing does not include employees of partially owned entities, including Toys or Alexander’s, of which we own 32.6% and 32.4%, respectively.

 

 

principal executive offices

 

Our principal executive offices are located at 888 Seventh Avenue, New York, New York 10019; telephone (212) 894‑7000. 

 

 

MATERIALS AVAILABLE ON OUR WEBSITE

 

Copies of our Annual Report on Form 10‑K, Quarterly Reports on Form 10‑Q, Current Reports on Form 8‑K, and amendments to those reports, as well as Reports on Forms 3, 4 and 5 regarding officers, trustees or 10% beneficial owners of us, filed or furnished pursuant to Section 13(a), 15(d) or 16(a) of the Securities Exchange Act of 1934 are available free of charge through our website (www.vno.com) as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission. Also available on our website are copies of our Audit Committee Charter, Compensation Committee Charter, Corporate Governance and Nominating Committee Charter, Code of Business Conduct and Ethics and Corporate Governance Guidelines. In the event of any changes to these charters or the code or guidelines, changed copies will also be made available on our website.  Copies of these documents are also available directly from us free of charge.  Our website also includes other financial information, including certain non-GAAP financial measures, none of which is a part of this Annual Report on Form 10-K.  Copies of our filings under the Securities Exchange Act of 1934 are also available free of charge from us, upon request.

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ITEM 1A.     RISK FACTORS

Material factors that may adversely affect our business, operations and financial condition are summarized below.  The risks and uncertainties described herein may not be the only ones we face.  Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business.  See “Forward-Looking Statements” contained herein on page 3.

 

Real Estate Investments’ Value and Income Fluctuate Due to Various Factors.

The value of real estate fluctuates depending on conditions in the general economy and the real estate business. These conditions may also adversely impact our revenues and cash flows.

 

The factors that affect the value of our real estate investments include, among other things:

·      national, regional and local economic conditions;

·      competition from other available space;

·      local conditions such as an oversupply of space or a reduction in demand for real estate in the area;

·      how well we manage our properties;

·         the development and/or redevelopment of our properties;

·      changes in market rental rates;

·      the timing and costs associated with property improvements and rentals;

·      whether we are able to pass all or portions of any increases in operating costs through to tenants;

·      changes in real estate taxes and other expenses;  

·      whether tenants and users such as customers and shoppers consider a property attractive;

·      the financial condition of our tenants, including the extent of tenant bankruptcies or defaults;

·      availability of financing on acceptable terms or at all;

·         inflation or deflation;

·      fluctuations in interest rates;

·      our ability to obtain adequate insurance;

·      changes in zoning laws and taxation;

·      government regulation;

·      consequences of any armed conflict involving, or terrorist attacks against, the United States;

·      potential liability under environmental or other laws or regulations;

·         natural disasters;

·      general competitive factors; and

·         climate changes.

 

The rents or sales proceeds we receive and the occupancy levels at our properties may decline as a result of adverse changes in any of these factors. If rental revenues, sales proceeds and/or occupancy levels decline, we generally would expect to have less cash available to pay indebtedness and for distribution to shareholders. In addition, some of our major expenses, including mortgage payments, real estate taxes and maintenance costs generally do not decline when the related rents decline.

 

Capital markets and economic conditions can materially affect our liquidity, financial condition and results of operations as well as the value of our debt and equity securities.

There are many factors that can affect the value of our debt and equity securities, including the state of the capital markets and the economy.  Demand for office and retail space may decline nationwide, as it did in 2008 and 2009 due to the economic downturn, bankruptcies, downsizing, layoffs and cost cutting.  Government action or inaction may adversely affect the state of the capital markets.  The cost and availability of credit may be adversely affected by illiquid credit markets and wider credit spreads, which may adversely affect our liquidity and financial condition, including our results of operations, and the liquidity and financial condition of our tenants.  Our inability or the inability of our tenants to timely refinance maturing liabilities and access the capital markets to meet liquidity needs may materially affect our financial condition and results of operations and the value of our debt and equity securities.

 

 

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Real estate is a competitive business.

We compete with a large number of property owners and developers, some of which may be willing to accept lower returns on their investments. Principal factors of competition include rents charged, sales prices, attractiveness of location, the quality of the property and the breadth and quality of services provided. Our success depends upon, among other factors, trends of the national, regional and local economies, financial condition and operating results of current and prospective tenants and customers, availability and cost of capital, construction and renovation costs, taxes, governmental regulation, legislation and population trends.

 

We depend on leasing space to tenants on economically favorable terms and collecting rent from tenants who may not be able to pay.

Our financial results depend significantly on leasing space in our properties to tenants on economically favorable terms. In addition, because a majority of our income comes from renting of real property, our income, funds available to pay indebtedness and funds available for distribution to shareholders will decrease if a significant number of our tenants cannot pay their rent or if we are not able to maintain occupancy levels on favorable terms. If a tenant does not pay its rent, we may not be able to enforce our rights as landlord without delays and may incur substantial legal costs.  During periods of economic adversity, there may be an increase in the number of tenants that cannot pay their rent and an increase in vacancy rates.

 

Bankruptcy or insolvency of tenants may decrease our revenue, net income and available cash.

From time to time, some of our tenants have declared bankruptcy, and other tenants may declare bankruptcy or become insolvent in the future. In the case of our malls and strip shopping centers, the bankruptcy or insolvency of a major tenant could cause us to suffer lower revenues and operational difficulties, including leasing the remainder of the property. As a result, the bankruptcy or insolvency of a major tenant could result in decreased revenue, net income and funds available to pay our indebtedness or make distributions to shareholders. 

 

We may incur significant costs to comply with environmental laws and environmental contamination may impair our ability to lease and/or sell real estate.

Our operations and properties are subject to various federal, state and local laws and regulations concerning the protection of the environment, including air and water quality, hazardous or toxic substances and health and safety. Under some environmental laws, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances released at a property. The owner or operator may also be held liable to a governmental entity or to third parties for property damage or personal injuries and for investigation and clean-up costs incurred by those parties because of the contamination. These laws often impose liability without regard to whether the owner or operator knew of the release of the substances or caused the release. The presence of contamination or the failure to remediate contamination may impair our ability to sell or lease real estate or to borrow using the real estate as collateral. Other laws and regulations govern indoor and outdoor air quality including those that can require the abatement or removal of asbestos-containing materials in the event of damage, demolition, renovation or remodeling and also govern emissions of and exposure to asbestos fibers in the air. The maintenance and removal of lead paint and certain electrical equipment containing polychlorinated biphenyls (PCBs) are also regulated by federal and state laws. We are also subject to risks associated with human exposure to chemical or biological contaminants such as molds, pollens, viruses and bacteria which, above certain levels, can be alleged to be connected to allergic or other health effects and symptoms in susceptible individuals. Our predecessor companies may be subject to similar liabilities for activities of those companies in the past.  We could incur fines for environmental compliance and be held liable for the costs of remedial action with respect to the foregoing regulated substances or related claims arising out of environmental contamination or human exposure to contamination at or from our properties.

 

Each of our properties has been subject to varying degrees of environmental assessment. To date, these environmental assessments have not revealed any environmental condition material to our business. However, identification of new compliance concerns or undiscovered areas of contamination, changes in the extent or known scope of contamination,  human exposure to contamination or changes in clean-up or compliance requirements could result in significant costs to us.

 

We face risks associated with our tenants being designated “Prohibited Persons” by the Office of Foreign Assets Control.   

 

Pursuant to Executive Order 13224 and other laws, the Office of Foreign Assets Control of the United States Department of the Treasury (“OFAC”) maintains a list of persons designated as terrorists or who are otherwise blocked or banned (“Prohibited Persons”) from conducting business or engaging in transactions in the United States.  Our leases, loans and other agreements may require us to comply with OFAC requirements.  If a tenant or other party with whom we conduct business is placed on the OFAC list we may be required to terminate the lease or other agreement.  Any such termination could result in a loss of revenue or otherwise negatively affect our financial results and cash flows.

 

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Our business and operations would suffer in the event of system failures.   

 

Despite system redundancy, the implementation of security measures and the existence of a disaster recovery plan for our internal information technology systems, our systems are vulnerable to damages from any number of sources, including computer viruses, unauthorized access, energy blackouts, natural disasters, terrorism, war and telecommunication failures.  Any system failure or accident that causes interruptions in our operations could result in a material disruption to our business.  We may also incur additional costs to remedy damages caused by such disruptions.

 

The occurrence of cyber incidents, or a deficiency in our cyber security, could negatively impact our business by causing a disruption to our operations, a compromise or corruption of our confidential information, and/or damage to our business relationships, all of which could negatively impact our financial results.

 

A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity, or availability of our information resources. More specifically, a cyber incident is an intentional attack or an unintentional event that can include gaining unauthorized access to systems to disrupt operations, corrupt data, or steal confidential information. As our reliance on technology has increased, so have the risks posed to our systems, both internal and those we have outsourced. Our three primary risks that could directly result from the occurrence of a cyber incident include operational interruption, damage to our relationship with our tenants, and private data exposure.  We have implemented processes, procedures and controls to help mitigate these risks, but these measures, as well as our increased awareness of a risk of a cyber incident, do not guarantee that our financial results will not be negatively impacted by such an incident.

 

Some of our potential losses may not be covered by 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, 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. We maintain coverage for terrorism acts with limits of $4.0 billion per occurrence and in the aggregate, and $2.0 billion per occurrence and in the aggregate for terrorism involving nuclear, biological, chemical and radiological (“NBCR”) terrorism events, as defined by Terrorism Risk Insurance Program Reauthorization Act, which expires in December 2014.

 

Penn Plaza Insurance Company, LLC (“PPIC”), our wholly owned consolidated subsidiary, acts as a re-insurer with respect to a portion of all risk property and rental value insurance and a portion of our earthquake insurance coverage, and as a direct insurer for coverage for NBCR acts.  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.  For NBCR acts, 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 incurred 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 the future.

 

Our debt instruments, consisting of mortgage loans secured by our properties which are non-recourse to us, senior unsecured notes 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.

 

Compliance or failure to comply with the Americans with Disabilities Act or other safety regulations and requirements could result in substantial costs. 

The Americans with Disabilities Act (“ADA”) generally requires that public buildings, including our properties, meet certain federal requirements related to access and use by disabled persons.  Noncompliance could result in the imposition of fines by the federal government or the award of damages to private litigants and/or legal fees to their counsel.  From time to time persons have asserted claims against us with respect to some of our properties under the ADA, but to date such claims have not resulted in any material expense or liability.  If, under the ADA, we are required to make substantial alterations and capital expenditures in one or more of our properties, including the removal of access barriers, it could adversely affect our financial condition and results of operations, as well as the amount of cash available for distribution to shareholders.

 

 

 

 

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Our properties are subject to various federal, state and local regulatory requirements, such as state and local fire and life safety requirements.  If we fail to comply with these requirements, we could incur fines or private damage awards.  We do not know whether existing requirements will change or whether compliance with future requirements will require significant unanticipated expenditures that will affect our cash flow and results of operations.

 

 

Our Investments Are Concentrated in the New York CITY METROPOLITAN AREA and Washington, DC / NORTHERN VIRGINIA Area. Circumstances Affecting These Areas Generally Could Adversely Affect Our Business.

A significant portion of our properties are located in the New York City / New Jersey metropolitan area and Washington, DC / Northern Virginia area and are affected by the economic cycles and risks inherent to those areas.

In 2013, approximately 96% of our EBITDA, excluding items that affect comparability, came from properties located in the New York City metropolitan areas and the Washington, DC / Northern Virginia area.  We may continue to concentrate a significant portion of our future acquisitions in these areas or in other geographic real estate markets in the United States or abroad.  Real estate markets are subject to economic downturns and we cannot predict how economic conditions will impact these markets in either the short or long term. Declines in the economy or declines in real estate markets in these areas could hurt our financial performance and the value of our properties.  In addition to the factors affecting the national economic condition generally, the factors affecting economic conditions in these regions include:

·      financial performance and productivity of the media, advertising, financial, technology, retail, insurance and real estate industries;

·      space needs of, and budgetary constraints affecting, the United States Government, including the effect of a deficit reduction plan and/or base closures and repositioning under the Defense Base Closure and Realignment Act of 2005, as amended;

·      business layoffs or downsizing;

·      industry slowdowns;

·      relocations of businesses;

·      changing demographics;

·      increased telecommuting and use of alternative work places;

·      infrastructure quality; and

·      any oversupply of, or reduced demand for, real estate.

 

It is impossible for us to assess the future effects of trends in the economic and investment climates of the geographic areas in which we concentrate, and more generally of the United States, or the real estate markets in these areas.  Local, national or global economic downturns, would negatively affect our businesses and profitability.

 

Terrorist attacks, such as those of September 11, 2001 in New York City and the Washington, DC area, may adversely affect the value of our properties and our ability to generate cash flow.

We have significant investments in large metropolitan areas, including the New York, Washington, DC and San Francisco metropolitan areas. In the aftermath of a terrorist attack, tenants in these areas may choose to relocate their businesses to less populated, lower-profile areas of the United States that may be perceived to be less likely targets of future terrorist activity and fewer customers may choose to patronize businesses in these areas. This, in turn, would trigger a decrease in the demand for space in these areas, which could increase vacancies in our properties and force us to lease space on less favorable terms. As a result, the value of our properties and the level of our revenues and cash flows could decline materially.

 

Natural Disasters could have a concentrated impact on the areas where we operate and could adversely impact our results.

Our investments are concentrated in the New York, Washington, DC, Chicago and San Francisco metropolitan areas.  Natural disasters, including earthquakes, storms and hurricanes, could impact our properties in these and other areas in which we operate.  Potentially adverse consequences of “global warming” could similarly have an impact on our properties.  As a result, we could become subject to significant losses and/or repair costs that may or may not be fully covered by insurance and to the risk of business interruption.  The incurrence of these losses, costs or business interruptions may adversely affect our operating and financial results.

 

 

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We May Acquire or Sell Assets or Entities or Develop Properties. Our Failure or Inability to Consummate These Transactions or Manage the Results of These Transactions Could Adversely Affect Our Operations and Financial Results.

We may acquire, develop or redevelop real estate and acquire related companies and this may create risks.

We may acquire, develop or redevelop properties or acquire real estate related companies when we believe doing so is consistent with our business strategy. We may not succeed in (i) developing, redeveloping or acquiring real estate and real estate related companies; (ii) completing these activities on time or within budget; and (iii) leasing or selling developed, redeveloped or acquired properties at amounts sufficient to cover our costs.  Competition in these activities could also significantly increase our costs. Difficulties in integrating acquisitions may prove costly or time-consuming and could divert management’s attention. Acquisitions or developments in new markets or industries where we do not have the same level of market knowledge may result in weaker than anticipated performance. We may also abandon acquisition or development opportunities that we have begun pursuing and consequently fail to recover expenses already incurred.  Furthermore, we may be exposed to the liabilities of properties or companies acquired, some of which we may not be aware of at the time of acquisition.  

 

From time to time we have made, and in the future we may seek to make, one or more material acquisitions.  The announcement of such a material acquisition may result in a rapid and significant decline in the price of our common shares.

 

We are continuously looking at material transactions that we believe will maximize shareholder value.  However, an announcement by us of one or more significant acquisitions could result in a quick and significant decline in the price of our common shares. 

 

It may be difficult to buy and sell real estate quickly, which may limit our flexibility.

Real estate investments are relatively difficult to buy and sell quickly. Consequently, we may have limited ability to vary our portfolio promptly in response to changes in economic or other conditions.

 

We may not be permitted to dispose of certain properties or pay down the debt associated with those properties when we might otherwise desire to do so without incurring additional costs.  In addition, when we dispose of or sell assets, we may not be able to reinvest the sales proceeds and earn similar returns.

As part of an acquisition of a property, or a portfolio of properties, we may agree, and in the past have agreed, not to dispose of the acquired properties or reduce the mortgage indebtedness for a long-term period, unless we pay certain of the resulting tax costs of the seller. These agreements could result in us holding on to properties that we would otherwise sell and not pay down or refinance.  In addition, when we dispose of or sell assets, we may not be able to reinvest the sales proceeds and earn returns similar to those generated by the assets that were sold.

 

From time to time we have made, and in the future we may seek to make, investments in companies over which we do not have sole control. Some of these companies operate in industries with different risks than investing and operating real estate.

From time to time we have made, and in the future we may seek to make, investments in companies that we may not control, including, but not limited to, Alexander’s, Inc. (“Alexander’s”), Toys “R” Us (“Toys”), Lexington Realty Trust (“Lexington”), and other equity and mezzanine investments. Although these businesses generally have a significant real estate component, some of them operate in businesses that are different from investing and operating real estate, including operating or managing toy stores. Consequently, we are subject to operating and financial risks of those industries and to the risks associated with lack of control, such as having differing objectives than our partners or the entities in which we invest, or becoming involved in disputes, or competing directly or indirectly with these partners or entities.  In addition, we rely on the internal controls and financial reporting controls of these entities and their failure to maintain effectiveness or comply with applicable standards may adversely affect us.

 

We are subject to risks that affect the general retail environment.

A substantial portion of our properties are in the retail shopping center real estate market and we have a significant investment in Toys.  This means that we are subject to factors that affect the retail environment generally, including the level of consumer spending and consumer confidence, the threat of terrorism and increasing competition from discount retailers, outlet malls, retail websites and catalog companies.  These factors could adversely affect the financial condition of our retail tenants and the retailer in which we hold an investment and the willingness of retailers to lease space in our shopping centers, and in turn, adversely affect us.

 

 

 

 

 

 

 

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Our investment in Toys subjects us to risks that are different from our other lines of business and may result in increased seasonality and volatility in our reported earnings.

Because Toys is a retailer, its operations subject us to the risks of a retail company that are different than those presented by our other lines of business. The business of Toys is highly seasonal and substantially all of Toys net income is generated in its fourth quarter. In addition, our fiscal year ends on December 31 whereas, as is common for retailers, Toys’ fiscal year ends on the Saturday nearest to January 31. Therefore, we record our pro rata share of Toys’ net earnings on a one-quarter lag basis. For example, our financial results for the year ended December 31, 2013 include Toys’ financial results for its first, second and third quarters ended November 2, 2013, as well as Toys’ fourth quarter results of 2012. Because of the seasonality of Toys, our reported quarterly net income shows increased volatility. We may also, in the future and from time to time, invest in other businesses that may report financial results that are more volatile than our historical financial results. 

 

We depend upon our anchor tenants to attract shoppers.

We own several regional malls and other shopping centers that are typically anchored by well-known department stores and other tenants who generate shopping traffic at the mall or shopping center. The value of our properties would be adversely affected if tenants or anchors failed to meet their contractual obligations, sought concessions in order to continue operations or ceased their operations, including as a result of bankruptcy. If the sales of stores operating in our properties were to decline significantly due to economic conditions, closing of anchors or for other reasons, tenants may be unable to pay their minimum rents or expense recovery charges. In the event of a default by a tenant or anchor, we may experience delays and costs in enforcing our rights as landlord.

 

Our decision to dispose of real estate assets would change the holding period assumption in our valuation analyses, which could result in material impairment losses and adversely affect our financial results.

 

 We evaluate real estate assets for impairment based on the projected cash flow of the asset over our anticipated holding period.  If we change our intended holding period, due to our intention to sell or otherwise dispose of an asset, then under accounting principles generally accepted in the United States of America, we must reevaluate whether that asset is impaired.  Depending on the carrying value of the property at the time we change our intention and the amount that we estimate we would receive on disposal, we may record an impairment loss that would adversely affect our financial results. This loss could be material to our results of operations in the period that it is recognized.

 

We invest in marketable equity securities.  The value of these investments may decline as a result of operating performance or economic or market conditions. 

We invest in marketable equity securities of publicly-traded companies, such as Lexington Realty Trust.  As of December 31, 2013, our marketable securities have an aggregate carrying amount of $191,917,000, at market.  Significant declines in the value of these investments due to, among other reasons, operating performance or economic or market conditions, may result in the recognition of impairment losses which could be material. 

 

 

Our Organizational and Financial Structure Gives Rise to Operational and Financial Risks.

We may not be able to obtain capital to make investments.

We depend primarily on external financing to fund the growth of our business. This is because one of the requirements of the Internal Revenue Code of 1986, as amended, for a REIT is that it distributes 90% of its taxable income, excluding net capital gains, to its shareholders. There is a separate requirement to distribute net capital gains or pay a corporate level tax in lieu thereof. Our access to debt or equity financing depends on the willingness of third parties to lend or make equity investments and on conditions in the capital markets generally. Although we believe that we will be able to finance any investments we may wish to make in the foreseeable future, there can be no assurance that new financing will be available or available on acceptable terms.  For information about our available sources of funds, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” and the notes to the consolidated financial statements in this Annual Report on Form 10-K.

 

 

 

 

 

 

 

 

 

 

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Vornado Realty Trust (“Vornado”) depends on dividends and distributions from its direct and indirect subsidiaries. The creditors and preferred security holders of these subsidiaries are entitled to amounts payable to them by the subsidiaries before the subsidiaries may pay any dividends or distributions to Vornado.

Substantially all of Vornado’s assets are held through its Operating Partnership that holds substantially all of its properties and assets through subsidiaries. The Operating Partnership’s cash flow is dependent on cash distributions to it by its subsidiaries, and in turn, substantially all of Vornado’s cash flow is dependent on cash distributions to it by the Operating Partnership. The creditors of each of Vornado’s direct and indirect subsidiaries are entitled to payment of that subsidiary’s obligations to them, when due and payable, before distributions may be made by that subsidiary to its equity holders. Thus, the Operating Partnership’s ability to make distributions to holders of its units depends on its subsidiaries’ ability first to satisfy their obligations to their creditors and then to make distributions to the Operating Partnership. Likewise, Vornado’s ability to pay dividends to holders of common and preferred shares depends on the Operating Partnership’s ability first to satisfy its obligations to its creditors and make distributions payable to holders of preferred units and then to make distributions to Vornado.

 

Furthermore, the holders of preferred units of the Operating Partnership are entitled to receive preferred distributions before payment of distributions to holders of Class A units of the Operating Partnership, including Vornado. Thus, Vornado’s ability to pay cash dividends to its shareholders and satisfy its debt obligations depends on the Operating Partnership’s ability first to satisfy its obligations to its creditors and make distributions to holders of its preferred units and then to holders of its Class A units, including Vornado.  As of December 31, 2013, there were three series of preferred units of the Operating Partnership not held by Vornado with a total liquidation value of $56,139,000.

 

In addition, Vornado’s participation in any distribution of the assets of any of its direct or indirect subsidiaries upon the liquidation, reorganization or insolvency, is only after the claims of the creditors, including trade creditors and preferred security holders, are satisfied.

 

We have outstanding debt, and the amount of debt and its cost may increase and refinancing may not be available on acceptable terms.

We rely on both secured and unsecured, variable rate and non-variable rate debt to finance acquisitions and development activities and for working capital. If we are unable to obtain debt financing or refinance existing indebtedness upon maturity, our financial condition and results of operations would likely be adversely affected.  In addition, the cost of our existing debt may increase, especially in the case of a rising interest rate environment, and we may not be able to refinance our existing debt in sufficient amounts or on acceptable terms.  If the cost or amount of our indebtedness increases or we cannot refinance our debt in sufficient amounts or on acceptable terms, we are at risk of credit ratings downgrades and default on our obligations that could adversely affect our financial condition and results of operations.

    

Covenants in our debt instruments could adversely affect our financial condition and our acquisitions and development activities.

The mortgages on our properties contain customary covenants such as those that limit our ability, without the prior consent of the lender, to further mortgage the applicable property or to discontinue insurance coverage. Our unsecured indebtedness and debt that we may obtain in the future may contain customary restrictions, requirements and other limitations on our ability to incur indebtedness, including covenants that limit our ability to incur debt based upon the level of our ratio of total debt to total assets, our ratio of secured debt to total assets, our ratio of EBITDA to interest expense, and fixed charges, and that require us to maintain a certain level of unencumbered assets to unsecured debt. Our ability to borrow is subject to compliance with these and other covenants. In addition, failure to comply with our covenants could cause a default under the applicable debt instrument, and we may then be required to repay such debt with capital from other sources or give possession of a secured property to the lender. Under those circumstances, other sources of capital may not be available to us, or may be available only on unattractive terms.

 

Vornado may fail to qualify or remain qualified as a REIT and may be required to pay income taxes at corporate rates.

Although we believe that we will remain organized and will continue to operate so as to qualify as a REIT for federal income tax purposes, we may fail to remain so qualified. Qualifications are governed by highly technical and complex provisions of the Internal Revenue Code for which there are only limited judicial or administrative interpretations and depend on various facts and circumstances that are not entirely within our control.  In addition, legislation, new regulations, administrative interpretations or court decisions may significantly change the relevant tax laws and/or the federal income tax consequences of qualifying as a REIT.  If, with respect to any taxable year, we fail to maintain our qualification as a REIT and do not qualify under statutory relief provisions, we could not deduct distributions to shareholders in computing our taxable income and would have to pay federal income tax on our taxable income at regular corporate rates. The federal income tax payable would include any applicable alternative minimum tax. If we had to pay federal income tax, the amount of money available to distribute to shareholders and pay our indebtedness would be reduced for the year or years involved, and we would no longer be required to make distributions to shareholders.  In addition, we would also be disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost, unless we were entitled to relief under the relevant statutory provisions.  

 

 

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We face possible adverse changes in tax laws, which may result in an increase in our tax liability.

From time to time changes in state and local tax laws or regulations are enacted, which may result in an increase in our tax liability. The shortfall in tax revenues for states and municipalities in recent years may lead to an increase in the frequency and size of such changes. If such changes occur, we may be required to pay additional taxes on our assets or income. These increased tax costs could adversely affect our financial condition and results of operations and the amount of cash available for payment of dividends.

 

Loss of our key personnel could harm our operations and adversely affect the value of our common shares.

We are dependent on the efforts of Steven Roth, the Chairman of the Board of Trustees and Chief Executive Officer of Vornado.  While we believe that we could find a replacement for him and other key personnel, the loss of their services could harm our operations and adversely affect the value of our common shares.

 

 

Vornado’s charter documents and applicable law may hinder any attempt to acquire us.

Our Amended and Restated Declaration of Trust (the “declaration of trust”) sets limits on the ownership of our shares.

Generally, for Vornado to maintain its qualification as a REIT under the Internal Revenue Code, not more than 50% in value of the outstanding shares of beneficial interest of Vornado may be owned, directly or indirectly, by five or fewer individuals at any time during the last half of Vornado’s taxable year. The Internal Revenue Code defines “individuals” for purposes of the requirement described in the preceding sentence to include some types of entities. Under Vornado’s declaration of trust, as amended, no person may own more than 6.7% of the outstanding common shares of any class, or 9.9% of the outstanding preferred shares of any class, with some exceptions for persons who held common shares in excess of the 6.7% limit before Vornado adopted the limit and other persons approved by Vornado’s Board of Trustees. These restrictions on transferability and ownership may delay, deter or prevent a change in control of Vornado or other transaction that might involve a premium price or otherwise be in the best interest of the shareholders.

 

The Maryland General Corporation Law (the “MGCL”) contains provisions that may reduce the likelihood of certain takeover transactions.

 

The MGCL imposes conditions and restrictions on certain “business combinations” (including, among other transactions, a merger, consolidation, share exchange, or, in certain circumstances, an asset transfer or issuance of equity securities) between a Maryland REIT and certain persons who beneficially own at least 10% of the corporation’s stock (an “interested shareholder”). Unless approved in advance by the board of trustees of the trust, or otherwise exempted by the statute, such a business combination is prohibited for a period of five years after the most recent date on which the interested shareholder became an interested shareholder.  After such five-year period, a business combination with an interested shareholder must be: (a) recommended by the board of trustees of the trust, and (b) approved by the affirmative vote of at least (i) 80% of the trust’s outstanding shares entitled to vote and (ii) two-thirds of the trust’s outstanding shares entitled to vote which are not held by the interested shareholder with whom the business combination is to be effected, unless, among other things, the trust’s common shareholders receive a “fair price” (as defined by the statute) for their shares and the consideration is received in cash or in the same form as previously paid by the interested shareholder for his or her shares.

 

In approving a transaction, the Board may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the Board.  Vornado’s Board has adopted a resolution exempting any business combination between Vornado and any trustee or officer of Vornado or its affiliates.  As a result, any trustee or officer of Vornado or its affiliates may be able to enter into business combinations with Vornado that may not be in the best interest of Vornado’s shareholders. With respect to business combinations with other persons, the business combination provisions of the MGCL may have the effect of delaying, deferring or preventing a change in control of Vornado or other transaction that might involve a premium price or otherwise be in the best interest of the shareholders. The business combination statute may discourage others from trying to acquire control of Vornado and increase the difficulty of consummating any offer.

 

Vornado has a classified Board of Trustees and that may reduce the likelihood of certain takeover transactions.

 

Vornado’s Board of Trustees is divided into three classes of trustees. Trustees of each class are chosen for three-year staggered terms. Staggered terms of trustees may reduce the possibility of a tender offer or an attempt to change control of Vornado, even though a tender offer or change in control might be in the best interest of Vornado’s shareholders.

 

 

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We may issue additional shares in a manner that could adversely affect the likelihood of certain takeover transactions.

 

Vornado’s declaration of trust authorizes the Board of Trustees to:

·      cause Vornado to issue additional authorized but unissued common shares or preferred shares;

·      classify or reclassify, in one or more series, any unissued preferred shares;

·      set the preferences, rights and other terms of any classified or reclassified shares that Vornado issues; and

·      increase, without shareholder approval, the number of shares of beneficial interest that Vornado may issue.

 

The Board of Trustees could establish a series of preferred shares whose terms could delay, deter or prevent a change in control of Vornado or other transaction that might involve a premium price or otherwise be in the best interest of Vornado’s shareholders, although the Board of Trustees does not now intend to establish a series of preferred shares of this kind. Vornado’s declaration of trust and bylaws contain other provisions that may delay, deter or prevent a change in control of Vornado or other transaction that might involve a premium price or otherwise be in the best interest of our shareholders.

 

We may change our policies without obtaining the approval of our shareholders.

Our operating and financial policies, including our policies with respect to acquisitions of real estate or other companies, growth, operations, indebtedness, capitalization and dividends, are exclusively determined by our Board of Trustees. Accordingly, our shareholders do not control these policies.

 

 

Our Ownership Structure and Related-Party Transactions May Give Rise to Conflicts of Interest.

Steven Roth and Interstate Properties may exercise substantial influence over us. They and some of our other trustees and officers have interests or positions in other entities that may compete with us.

As of December 31, 2013, Interstate Properties, a New Jersey general partnership, and its partners owned an aggregate of approximately 6.6% of the common shares of Vornado and 26.3% of the common stock of Alexander’s Inc. (NYSE: ALX) (“Alexander’s”), which is described below.  Steven Roth, David Mandelbaum and Russell B. Wight, Jr. are the three partners of Interstate Properties. Mr. Roth is the Chairman of the Board and Chief Executive Officer of Vornado, the managing general partner of Interstate Properties and the Chairman of the Board and Chief Executive Officer of Alexander’s. Messrs. Wight and Mandelbaum are trustees of Vornado and also directors of Alexander’s.

 

Because of these overlapping interests, Mr. Roth and Interstate Properties and its partners may have substantial influence over Vornado and on the outcome of any matters submitted to Vornado’s shareholders for approval. In addition, certain decisions concerning our operations or financial structure may present conflicts of interest among Messrs. Roth, Mandelbaum and Wight and Interstate Properties and our other equity or debt holders. In addition, Mr. Roth, Interstate Properties and its partners, and Alexander’s currently and may in the future engage in a wide variety of activities in the real estate business which may result in conflicts of interest with respect to matters affecting us, such as which of these entities or persons, if any, may take advantage of potential business opportunities, the business focus of these entities, the types of properties and geographic locations in which these entities make investments, potential competition between business activities conducted, or sought to be conducted, competition for properties and tenants, possible corporate transactions such as acquisitions and other strategic decisions affecting the future of these entities.

 

We currently manage and lease the real estate assets of Interstate Properties under a management agreement for which we receive an annual fee equal to 4% of base rent and percentage rent.  See the related party disclosures in the notes to the consolidated financial statements in this Annual Report on Form 10-K for additional information.

 

There may be conflicts of interest between Alexander’s and us.

As of December 31, 2013, we owned 32.4% of the outstanding common stock of Alexander’s. Alexander’s is a REIT that has six properties, which are located in the greater New York metropolitan area.  In addition to the 2.1% that they indirectly own through Vornado, Interstate Properties, which is described above, and its partners owned 26.3% of the outstanding common stock of Alexander’s as of December 31, 2013. Mr. Roth is the Chairman of the Board and Chief Executive Office of Vornado, the managing general partner of Interstate Properties, and the Chairman of the Board and Chief Executive Officer of Alexander’s.  Messrs. Wight and Mandelbaum are trustees of Vornado and also directors of Alexander’s and general partners of Interstate Properties.  Dr. Richard West is a trustee of Vornado and a director of Alexander’s.  In addition, Joseph Macnow, our Executive Vice President – Finance and Chief Administrative Officer, is the Executive Vice President and Chief Financial Officer of Alexander’s. 

 

 

 

 

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We manage, develop and lease Alexander’s properties under management and development agreements and leasing agreements under which we receive annual fees from Alexander’s. See the related party disclosures in the notes to the consolidated financial statements in this Annual Report on Form 10-K for additional information. 

 

 

The Number of Shares of Vornado Realty Trust and the Market for Those Shares Give Rise to Various Risks.

The trading price of our common shares has been volatile and may fluctuate. 

 

The trading price of our common shares has been volatile and may continue to fluctuate widely as a result of a number of factors, many of which are outside our control.  In addition, the stock market is subject to fluctuations in the share prices and trading volumes that affect the market prices of the shares of many companies.  These broad market fluctuations have in the past and may in the future adversely affect the market price of our common shares.  Among the factors that could affect the price of our common shares are:

·         our financial condition and performance;

·         the financial condition of our tenants, including the extent of tenant bankruptcies or defaults;

·         actual or anticipated quarterly fluctuations in our operating results and financial condition;

·         our dividend policy;

·        the reputation of REITs and real estate investments generally and the attractiveness of REIT equity securities in comparison to other equity securities, including securities issued by other real estate companies, and fixed income securities;

·         uncertainty and volatility in the equity and credit markets;

·         fluctuations in interest rates;

·        changes in revenue or earnings estimates or publication of research reports and recommendations by financial analysts or actions taken by rating agencies with respect to our securities or those of other REITs;

·         failure to meet analysts’ revenue or earnings estimates;

·         speculation in the press or investment community;

·         strategic actions by us or our competitors, such as acquisitions or restructurings;

·         the extent of institutional investor interest in us;

·         the extent of short-selling of our common shares and the shares of our competitors;

·         fluctuations in the stock price and operating results of our competitors;

·        general financial and economic market conditions and, in particular, developments related to market conditions for REITs and other real estate related companies;

·         domestic and international economic factors unrelated to our performance; and

·         all other risk factors addressed elsewhere in this Annual Report on the Form 10-K. 

 

A significant decline in our stock price could result in substantial losses for shareholders.

 

Vornado has many shares available for future sale, which could hurt the market price of its shares.

The interests of our current shareholders could be diluted if we issue additional equity securities. As of December 31, 2013, we had authorized but unissued, 62,715,312 common shares of beneficial interest, $.04 par value and 57,266,023 preferred shares of beneficial interest, no par value; of which 20,356,425 common shares are reserved for issuance upon redemption of Class A Operating Partnership units, convertible securities and employee stock options and 11,200,000 preferred shares are reserved for issuance upon redemption of preferred Operating Partnership units.  Any shares not reserved may be issued from time to time in public or private offerings or in connection with acquisitions.  In addition, common and preferred shares reserved may be sold upon issuance in the public market after registration under the Securities Act or under Rule 144 under the Securities Act or other available exemptions from registration.  We cannot predict the effect that future sales of our common and preferred shares or Operating Partnership Class A and preferred units will have on the market prices of our outstanding shares.

 

In addition, under Maryland law, the Board has the authority to increase the number of authorized shares without shareholder approval.

 

Item 1b.     unresolved staff comments

There are no unresolved comments from the staff of the Securities Exchange Commission as of the date of this Annual Report on Form 10-K.

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Item 2.        Properties

We operate in four business segments:  New York, Washington, DC, Retail Properties and Toys “R” Us.  The following pages provide details of our real estate properties.

Square Feet 

Under 

Development 

or Not

%

%

Available 

Total

Property

Ownership

Type

Occupancy

In Service 

for Lease 

Property 

NEW YORK:

One Penn Plaza (ground leased through 2098)

100.0%

Office / Retail

97.0%

2,509,000 

2,509,000 

1290 Avenue of the Americas

70.0%

Office / Retail

94.4%

2,113,000 

2,113,000 

Two Penn Plaza

100.0%

Office / Retail

95.5%

1,619,000 

1,619,000 

666 Fifth Avenue Office Condominium

49.5%

Office

87.0%

1,418,000 

1,418,000 

909 Third Avenue (ground leased through 2063)

100.0%

Office

100.0%

1,343,000 

1,343,000 

Independence Plaza, Tribeca (1,328 units)

50.1%

Residential / Retail

95.4%

1,240,000 

1,240,000 

280 Park Avenue

49.5%

Office / Retail

100.0%

741,000 

488,000 

1,229,000 

Eleven Penn Plaza

100.0%

Office / Retail

99.1%

1,148,000 

1,148,000 

770 Broadway

100.0%

Office / Retail

100.0%

1,126,000 

1,126,000 

One Park Avenue(2)

30.3%

Office / Retail

96.7%

944,000 

944,000 

90 Park Avenue

100.0%

Office / Retail

96.5%

918,000 

918,000 

888 Seventh Avenue (ground leased through 2067)

100.0%

Office / Retail

93.4%

877,000 

877,000 

100 West 33rd Street

100.0%

Office

99.2%

848,000 

848,000 

330 Madison Avenue

25.0%

Office / Retail

94.2%

832,000 

832,000 

330 West 34th Street (ground leased through 2148)

100.0%

Office / Retail

100.0%

95,000 

540,000 

635,000 

1740 Broadway

100.0%

Office / Retail

100.0%

601,000 

601,000 

650 Madison Avenue

20.1%

Office / Retail

91.3%

595,000 

595,000 

350 Park Avenue

100.0%

Office / Retail

99.0%

569,000 

569,000 

150 East 58th Street

100.0%

Office / Retail

95.8%

538,000 

538,000 

20 Broad Street (ground leased through 2081)

100.0%

Office

99.3%

472,000 

472,000 

640 Fifth Avenue

100.0%

Office / Retail

96.0%

324,000 

324,000 

595 Madison Avenue

100.0%

Office / Retail

100.0%

322,000 

322,000 

50-70 W 93rd Street (325 units)

49.9%

Residential

93.2%

283,000 

283,000 

Manhattan Mall

100.0%

Retail

96.1%

256,000 

256,000 

40 Fulton Street

100.0%

Office / Retail

99.0%

249,000 

249,000 

4 Union Square South

100.0%

Retail

100.0%

206,000 

206,000 

57th Street (5 buildings)

50.0%

Office / Retail

82.6%

188,000 

188,000 

825 Seventh Avenue

51.2%

Office / Retail

100.0%

169,000 

169,000 

1540 Broadway

100.0%

Retail

100.0%

160,000 

160,000 

Paramus

100.0%

Office

97.6%

129,000 

129,000 

608 Fifth Avenue (ground leased through 2026)

100.0%

Office / Retail

91.4%

126,000 

126,000 

666 Fifth Avenue Retail Condominium

100.0%

Retail

100.0%

113,000 

113,000 

689 Fifth Avenue

100.0%

Office / Retail

68.2%

92,000 

92,000 

478-486 Broadway (2 buildings)

100.0%

Retail

100.0%

85,000 

85,000 

510 Fifth Avenue

100.0%

Retail

90.6%

64,000 

64,000 

1535 Broadway (Marriott Marquis)

(ground and building leased through 2032)

100.0%

Retail

n/a

64,000 

64,000 

655 Fifth Avenue

92.5%

Retail

100.0%

57,000 

57,000 

155 Spring Street

100.0%

Retail

100.0%

49,000 

49,000 

435 Seventh Avenue

100.0%

Retail

100.0%

43,000 

43,000 

3040 M Street

100.0%

Retail

100.0%

42,000 

42,000 

692 Broadway

100.0%

Retail

100.0%

35,000 

35,000 

715 Lexington (ground leased through 2041)

100.0%

Retail

100.0%

23,000 

23,000 

1131 Third Avenue

100.0%

Retail

100.0%

11,000 

11,000 

22,000 

7 West 34th Street

100.0%

Retail

100.0%

21,000 

21,000 

828-850 Madison Avenue

100.0%

Retail

100.0%

18,000 

18,000 

484 Eighth Avenue

100.0%

Retail

80.6%

16,000 

16,000 

443 Broadway

100.0%

Retail

100.0%

16,000 

16,000 

334 Canal Street

100.0%

Retail

n/a

15,000 

15,000 

40 East 66th Street

100.0%

Retail

100.0%

11,000 

11,000 

431 Seventh Avenue

100.0%

Retail

100.0%

10,000 

10,000 

677-679 Madison Avenue

100.0%

Retail

100.0%

8,000 

8,000 

148 Spring Street

100.0%

Retail

100.0%

7,000 

7,000 

150 Spring Street

100.0%

Retail

100.0%

7,000 

7,000 

18

 


 
 

 

Item 2.        Properties - continued 

Square Feet 

Under 

Development 

or Not

%

%

Available 

Total

Property

Ownership

Type

Occupancy

In Service 

for Lease 

Property 

NEW YORK - continued:

966 Third Avenue

100.0%

Retail

100.0%

7,000 

7,000 

488 Eighth Avenue

100.0%

Retail

100.0%

6,000 

6,000 

968 Third Avenue

50.0%

Retail

100.0%

6,000 

6,000 

267 West 34th Street

100.0%

Retail

100.0%

6,000 

6,000 

Hotel Pennsylvania

100.0%

Hotel

n/a

1,400,000 

1,400,000 

Alexander's, Inc.:

731 Lexington Avenue

32.4%

Office / Retail

100.0%

1,059,000 

1,059,000 

Rego Park II, Queens

32.4%

Retail

97.8%

609,000 

609,000 

Rego Park I, Queens

32.4%

Retail

100.0%

343,000 

343,000 

Flushing, Queens

32.4%

Retail

100.0%

167,000 

167,000 

Paramus, New Jersey (30.3 acres

ground leased through 2041)

32.4%

Retail

100.0%

Rego Park II Apartment Tower, Queens

32.4%

Retail

n/a

250,000 

250,000 

Rego Park III, Queens (3.2 acres)

32.4%

Retail

n/a

Total New York

96.4% 

27,289,000 

1,368,000 

28,657,000 

Vornado's Ownership Interest

96.8% 

21,392,000 

952,000 

22,344,000 

WASHINGTON, DC:

Skyline Properties (8 buildings)

100.0%

Office

60.8%

2,652,000 

2,652,000 

2011-2451 Crystal Drive (5 buildings)

100.0%

Office

84.5%

2,316,000 

2,316,000 

S. Clark Street / 12th Street (5 buildings)

100.0%

Office

71.9%

1,528,000 

1,528,000 

1550-1750 Crystal Drive /

241-251 18th Street (4 buildings)

100.0%

Office

75.9%

1,486,000 

1,486,000 

Waterfront Station

2.5%

Office

n/a 

1,058,000 

1,058,000 

1800, 1851 and 1901 South Bell Street (3 buildings)

100.0%

Office

96.9%

506,000 

363,000 

869,000 

Fashion Centre Mall

7.5%

Office

99.4%

822,000 

822,000 

Rosslyn Plaza (4 buildings)

46.2%

Office

72.3%

575,000 

159,000 

734,000 

1825-1875 Connecticut Avenue, NW

(Universal Buildings ) (2 buildings)

100.0%

Office

95.5%

679,000 

679,000 

2200 / 2300 Clarendon Blvd (Courthouse Plaza)

(ground leased through 2062) (2 buildings)

100.0%

Office

94.0%

636,000 

636,000 

1299 Pennsylvania Avenue, NW

(Warner Building)

55.0%

Office

75.8%

614,000 

614,000 

Fairfax Square (3 buildings)

20.0%

Office

89.0%

558,000 

558,000 

2100 / 2200 Crystal Drive (2 buildings)

100.0%

Office

99.2%

529,000 

529,000 

Commerce Executive (3 buildings)

100.0%

Office

93.8%

400,000 

19,000 

419,000 

1501 K Street, NW

5.0%

Office

98.0%

398,000 

398,000 

2101 L Street, NW

100.0%

Office

99.0%

380,000 

380,000 

223 23rd Street / 2221 South Clark Street (2 buildings)

100.0%

Office

100.0%

84,000 

225,000 

309,000 

1750 Pennsylvania Avenue, NW

100.0%

Office

88.2%

279,000 

279,000 

1150 17th Street, NW

100.0%

Office

89.2%

241,000 

241,000 

875 15th Street, NW (Bowen Building)

100.0%

Office

96.7%

231,000 

231,000 

Democracy Plaza One

(ground leased through 2084)

100.0%

Office

89.4%

216,000 

216,000 

1101 17th Street, NW

55.0%

Office

89.1%

213,000 

213,000 

1730 M Street, NW

100.0%

Office

89.9%

202,000 

202,000 

Washington Tower

7.5%

Office

100.0%

170,000 

170,000 

2001 Jefferson Davis Highway

100.0%

Office

64.3%

162,000 

162,000 

1399 New York Avenue, NW

100.0%

Office

84.1%

128,000 

128,000 

1726 M Street, NW

100.0%

Office

100.0%

91,000 

91,000 

Crystal City Shops at 2100

100.0%

Office

99.0%

80,000 

80,000 

Crystal Drive Retail

100.0%

Office

100.0%

57,000 

57,000 

19

 


 

 

Item 2.        Properties - continued 

 

Square Feet 

Under 

Development 

or Not

%

%

Available 

Total

Property

Ownership

Type

Occupancy

In Service 

for Lease 

Property 

WASHINGTON, DC - continued:

Riverhouse (1,661 units) (3 buildings)

100.0%

Residential

96.6%

1,793,000 

1,793,000 

West End 25 (283 units)

100.0%

Residential

94.7%

273,000 

273,000 

220 20th Street (265 units)

100.0%

Residential

96.6%

269,000 

269,000 

Crystal City Hotel

100.0%

Hotel

n/a

266,000 

266,000 

Rosslyn Plaza (196 units) (2 buildings)

43.7%

Residential

95.4%

253,000 

253,000 

Met Park / Warehouses

100.0%

Warehouse

100.0%

104,000 

127,000 

231,000 

Other (3 buildings)

100.0%

Other

100.0%

9,000 

2,000 

11,000 

Total Washington, DC

83.5%

19,200,000 

1,953,000 

21,153,000 

Vornado's Ownership Interest

83.4%

16,628,000 

842,000 

17,470,000 

 

RETAIL PROPERTIES:

Wayne Town Center, Wayne, NJ

(ground leased through 2064)

100.0%

Strip

100.0%

316,000 

347,000 

663,000 

Allentown, PA

100.0%

Strip

90.3%

627,000 

627,000 

Poughkeepsie, NY

100.0%

Strip

85.9%

517,000 

517,000 

Bronx (Bruckner Boulevard), NY

100.0%

Strip

91.3%

501,000 

501,000 

North Bergen (Tonnelle Avenue), NJ

100.0%

Strip

100.0%

410,000 

410,000 

Beverly Connection, Los Angeles CA

100.0%

Strip

91.5%

335,000 

335,000 

Wilkes-Barre, PA

100.0%

Strip

83.2%

329,000 

329,000 

Buffalo (Amherst), NY

100.0%

Strip

100.0%

311,000 

311,000 

Bricktown, NJ

100.0%

Strip

94.7%

279,000 

279,000 

Union (Route 22 and Morris Avenue), NJ

100.0%

Strip

99.4%

276,000 

276,000 

Hackensack, NJ

100.0%

Strip

75.4%

275,000 

275,000 

Totowa, NJ

100.0%

Strip

100.0%

271,000 

271,000 

East Hanover (240 Route 10 West), NJ

100.0%

Strip

95.9%

267,000 

267,000 

Cherry Hill, NJ

100.0%

Strip

98.6%

263,000 

263,000 

Jersey City, NJ

100.0%

Strip

100.0%

236,000 

236,000 

East Brunswick (325 - 333 Route 18 South), NJ

100.0%

Strip

100.0%

232,000 

232,000 

Union (2445 Springfield Avenue), NJ

100.0%

Strip

100.0%

232,000 

232,000 

Middletown, NJ

100.0%

Strip

96.3%

231,000 

231,000 

Lancaster, PA

100.0%

Strip

82.1%

228,000 

228,000 

Woodbridge NJ

100.0%

Strip

84.1%

226,000 

226,000 

Chicopee, MA

100.0%

Strip

100.0%

224,000 

224,000 

Marlton, NJ

100.0%

Strip

100.0%

213,000 

213,000 

North Plainfield, NJ

(ground leased through 2060)

100.0%

Strip

85.0%

212,000 

212,000 

Bergen Town Center - East, Paramus, NJ

100.0%

Strip

93.6%

211,000 

211,000 

Huntington, NY

100.0%

Strip

97.9%

209,000 

209,000 

Manalapan, NJ

100.0%

Strip

99.3%

208,000 

208,000 

Rochester, NY

100.0%

Strip

100.0%

205,000 

205,000 

East Rutherford, NJ

100.0%

Strip

100.0%

197,000 

197,000 

East Brunswick (339-341 Route 18 South), NJ

100.0%

Strip

100.0%

196,000 

196,000 

Garfield, NJ

100.0%

Strip

100.0%

195,000 

195,000 

Mt. Kisco, NY

100.0%

Strip

100.0%

189,000 

189,000 

Newington, CT

100.0%

Strip

100.0%

188,000 

188,000 

Bensalem, PA

100.0%

Strip

98.9%

185,000 

185,000 

Springfield, MA

100.0%

Strip

97.8%

182,000 

182,000 

Bordentown, NJ

100.0%

Strip

80.4%

83,000 

96,000 

179,000 

Morris Plains, NJ

100.0%

Strip

95.9%

177,000 

177,000 

20

 


 

 

Item 2.        Properties - continued 

 

Square Feet 

Under 

Development 

or Not

%

%

Available 

Total 

Property

Ownership

Type

Occupancy

In Service

for Lease 

Property 

RETAIL PROPERTIES - continued:

Dover, NJ

100.0%

Strip

96.3%

173,000 

173,000 

Freeport (437 East Sunrise Highway), NY

100.0%

Strip

100.0%

173,000 

173,000 

Delran, NJ

100.0%

Strip

7.2%

43,000 

128,000 

171,000 

Lodi (Route 17 North), NJ

100.0%

Strip

100.0%

171,000 

171,000 

Watchung, NJ

100.0%

Strip

96.6%

170,000 

170,000 

Broomall, PA

100.0%

Strip

100.0%

169,000 

169,000 

Bethlehem, PA

100.0%

Strip

95.3%

167,000 

167,000 

Rochester (Henrietta), NY

(ground leased through 2056)

100.0%

Strip

96.2%

165,000 

165,000 

Staten Island, NY

100.0%

Strip

96.3%

165,000 

165,000 

Baltimore (Towson), MD

100.0%

Strip

100.0%

155,000 

155,000 

Waterbury, CT

100.0%

Strip

97.6%

148,000 

148,000 

Lawnside, NJ

100.0%

Strip

100.0%

145,000 

145,000 

Albany (Menands), NY

100.0%

Strip

74.0%

140,000 

140,000 

Annapolis, MD

(ground and building leased through 2042)

100.0%

Strip

100.0%

128,000 

128,000 

Hazlet, NJ

100.0%

Strip

100.0%

123,000 

123,000 

Glen Burnie, MD

100.0%

Strip

90.5%

121,000 

121,000 

Roseville, MI

100.0%

Strip

100.0%

119,000 

119,000 

Norfolk, VA

(ground and building leased through 2069)

100.0%

Strip

100.0%

114,000 

114,000 

York, PA

100.0%

Strip

100.0%

110,000 

110,000 

Kearny, NJ

100.0%

Strip

43.5%

104,000 

104,000 

Glenolden, PA

100.0%

Strip

100.0%

102,000 

102,000 

New Hyde Park, NY

(ground and building leased through 2029)

100.0%

Strip

100.0%

101,000 

101,000 

Inwood, NY

100.0%

Strip

88.8%

100,000 

100,000 

North Syracuse, NY

(ground and building leased through 2014)

100.0%

Strip

100.0%

98,000 

98,000 

Turnersville, NJ

100.0%

Strip

100.0%

96,000 

96,000 

Rockville, MD

100.0%

Strip

100.0%

94,000 

94,000 

Lodi (Washington Street), NJ

100.0%

Strip

92.1%

85,000 

85,000 

Milford, MA

(ground and building leased through 2019)

100.0%

Strip

100.0%

83,000 

83,000 

Wilkes-Barre, PA

(ground and building leased through 2014)

100.0%

Strip

100.0%

41,000 

40,000 

81,000 

West Babylon, NY

100.0%

Strip

83.4%

79,000 

79,000 

Carlstadt, NJ (ground leased through 2050)

100.0%

Strip

95.2%

78,000 

78,000 

Bronx (1750-1780 Gun Hill Road), NY

100.0%

Strip

90.7%

77,000 

77,000 

East Hanover (200 Route 10 West), NJ

100.0%

Strip

89.5%

76,000 

76,000 

Wyomissing, PA

(ground and building leased through 2065)

100.0%

Strip

93.2%

76,000 

76,000 

Colton (1904 North Rancho Avenue), CA

100.0%

Strip

100.0%

73,000 

73,000 

Wheaton, MD

(ground leased through 2060)

100.0%

Strip

100.0%

66,000 

66,000 

Paramus, NJ (ground leased through 2033)

100.0%

Strip

100.0%

63,000 

63,000 

North Bergen (Kennedy Boulevard), NJ

100.0%

Strip

100.0%

62,000 

62,000 

Queens, NY

100.0%

Strip

100.0%

56,000 

56,000 

South Plainfield, NJ

(ground leased through 2039)

100.0%

Strip

85.9%

56,000 

56,000 

San Francisco (2675 Geary Street), CA

(ground and building leased through 2043)

100.0%

Strip

100.0%

55,000 

55,000 

21

 


 

 

Item 2.        Properties - continued 

 

Square Feet 

Under 

Development 

or Not

%

%

Available 

Total 

Property

Ownership

Type

Occupancy

In Service

for Lease 

Property 

RETAIL PROPERTIES - continued:

Cambridge, MA

(ground and building leased through 2033)

100.0%

Strip

100.0%

48,000 

48,000 

Battle Creek, MI

100.0%

Strip

47,000 

47,000 

Commack, NY

(ground and building leased through 2021)

100.0%

Strip

100.0%

47,000 

47,000 

Lansing, IL

100.0%

Strip

100.0%

47,000 

47,000 

Springdale, OH

(ground and building leased through 2046)

100.0%

Strip

47,000 

47,000 

Arlington Heights, IL

(ground and building leased through 2043)

100.0%

Strip

100.0%

46,000 

46,000 

Dewitt, NY

(ground leased through 2041)

100.0%

Strip

100.0%

46,000 

46,000 

Antioch, TN

100.0%

Strip

100.0%

45,000 

45,000 

Charleston, SC

(ground leased through 2063)

100.0%

Strip

100.0%

45,000 

45,000 

Signal Hill, CA

100.0%

Strip

100.0%

45,000 

45,000 

Vallejo, CA

(ground leased through 2043)

100.0%

Strip

100.0%

45,000 

45,000 

Freeport (240 West Sunrise Highway), NY

(ground and building leased through 2040)

100.0%

Strip

100.0%

44,000 

44,000 

Fond Du Lac, WI

(ground leased through 2073)

100.0%

Strip

100.0%

43,000 

43,000 

San Antonio, TX

(ground and building leased through 2041)

100.0%

Strip

100.0%

43,000 

43,000 

Chicago, IL

(ground and building leased through 2051)

100.0%

Strip

100.0%

41,000 

41,000 

Englewood, NJ

100.0%

Strip

79.7%

41,000 

41,000 

Springfield, PA

(ground and building leased through 2025)

100.0%

Strip

100.0%

41,000 

41,000 

Riverside (5571 Mission Boulevard), CA

100.0%

Strip

100.0%

39,000 

39,000 

Tyson's Corner, VA

(ground and building leased through 2035)

100.0%

Strip

100.0%

38,000 

38,000 

Salem, NH

(ground leased through 2102)

100.0%

Strip

100.0%

37,000 

37,000 

Owensboro, KY

(ground and building leased through 2046)

100.0%

Strip

100.0%

32,000 

32,000 

Dubuque, IA

(ground leased through 2043)

100.0%

Strip

100.0%

31,000 

31,000 

Midland, MI

(ground leased through 2043)

100.0%

Strip

83.6%

31,000 

31,000 

Eatontown, NJ

100.0%

Strip

100.0%

30,000 

30,000 

Walnut Creek (1149 South Main Street), CA

100.0%

Strip

100.0%

29,000 

29,000 

East Hanover (280 Route 10 West), NJ

100.0%

Strip

94.0%

26,000 

26,000 

Montclair, NJ

100.0%

Strip

100.0%

18,000 

18,000 

Oceanside, NY

100.0%

Strip

100.0%

16,000 

16,000 

Walnut Creek (Mt. Diablo), CA

95.0%

Strip

100.0%

7,000 

7,000 

22

 


 
 

 

Item 2.        Properties - continued 

 

Square Feet 

Under 

Development 

or Not

%

%

Available 

Total 

Property

Ownership

Type

Occupancy

In Service

for Lease 

Property 

RETAIL PROPERTIES - continued:

Monmouth Mall, Eatontown, NJ

50.0%

Mall

93.9%

1,464,000 

1,464,000 

Springfield Mall, Springfield, VA

100.0%

Mall

100.0%

684,000 

690,000 

1,374,000 

Broadway Mall, Hicksville, NY

100.0%

Mall

90.1%

1,138,000 

1,138,000 

Bergen Town Center - West, Paramus, NJ

100.0%

Mall

99.5%

951,000 

951,000 

Montehiedra, Puerto Rico

100.0%

Mall

91.0%

542,000 

542,000 

Las Catalinas, Puerto Rico

100.0%

Mall

93.1%

494,000 

494,000 

Total Retail Properties

94.3%

20,224,000 

1,301,000 

21,525,000 

Vornado's Ownership Interest

94.3%

18,215,000 

1,301,000 

19,516,000 

 

OTHER (Merchandise Mart):

Merchandise Mart, Chicago

100.0%

Office / Retail / Showroom

96.4%

3,559,000 

3,559,000 

Other

50.0%

Retail

100.0%

19,000 

19,000 

7 West 34th Street

100.0%

Office / Showroom

90.9%

125,000 

295,000 

420,000 

Total Merchandise Mart

96.3%

3,703,000 

295,000 

3,998,000 

Vornado's Ownership Interest

96.3%

3,694,000 

295,000 

3,989,000 

OTHER (555 California Street):

555 California Street

70.0%

Office

94.3%

1,503,000 

1,503,000 

315 Montgomery Street

70.0%

Office / Retail

94.1%

228,000 

228,000 

345 Montgomery Street

70.0%

Office / Retail

100.0%

64,000 

64,000 

Total 555 California Street

94.5%

1,795,000 

1,795,000 

Vornado's Ownership Interest

94.5%

1,257,000 

1,257,000 

OTHER (Warehouses):

East Hanover (5 buildings)

100.0%

Warehouse

45.6%

942,000 

942,000 

Total Warehouses

45.6%

942,000 

942,000 

Vornado's Ownership Interest

45.6%

942,000 

942,000 

 

OTHER (Vornado Capital Partners Real Estate Fund) (1) :

One Park Avenue, NY (2)

64.7%

Office / Retail

96.7%

944,000 

944,000 

Georgetown Park Retail Shopping Center, DC

50.0%

Office / Retail

100.0%

223,000 

90,000 

313,000 

800 Corporate Pointe, Culver City, CA (2 buildings)

100.0%

Office

57.0%

243,000 

243,000 

Crowne Plaza Times Square, NY

38.2%

Office / Retail / Hotel

100.0%

226,000 

226,000 

Lucida, 86th Street and Lexington Avenue, NY

100.0%

Retail / Residential

100.0%

146,000 

146,000 

1100 Lincoln Road, Miami, FL

100.0%

Retail

99.6%

127,000 

127,000 

520 Broadway, Santa Monica, CA

100.0%

Office

81.6%

112,000 

112,000 

11 East 68th Street Retail, NY

100.0%

Retail

100.0%

9,000 

9,000 

501 Broadway, NY

100.0%

Retail

100.0%

9,000 

9,000 

Total Real Estate Fund Properties

89.3%

2,039,000 

90,000 

2,129,000 

Vornado's Ownership Interest

89.3%

364,000 

11,000 

375,000 

(1) We own a 25% interest in the Fund. The ownership percentage in this section represents the Fund's ownership in the underlying asset.

(2) Our combined ownership interest in this asset, including our direct ownership and our indirect ownership through the Fund, is 46.5%.

23

 


 
 

 

New York

 

As of December 31, 2013, our New York segment consisted of 27.3 million square feet in 71 properties.  The 27.3 million square feet is comprised of 19.8 million square feet of office space in 31 properties, 2.4 million square feet of retail space in 55 properties, four residential properties containing 1,653 units, the 1.4 million square foot Hotel Pennsylvania, and our 32.4% interest in Alexander’s, Inc. (“Alexander’s”), which owns six properties in the greater New York metropolitan area.  The New York segment also includes 10 garages totaling 1.7 million square feet (4,909 spaces) which are managed by, or leased to, third parties.

 

New York lease terms generally range from five to seven years for smaller tenants to as long as 20 years for major tenants, and may provide for extension options at market rates.  Leases typically provide for periodic step‑ups in rent over the term of the lease and pass through to tenants their share of increases in real estate taxes and operating expenses over a base year.  Electricity is provided to tenants on a sub-metered basis or included in rent based on surveys and adjusted for subsequent utility rate increases.  Leases also typically provide for free rent and tenant improvement allowances for all or a portion of the tenant’s initial construction costs of its premises.

 

As of December 31, 2013, the occupancy rate for our New York segment, in which we own 21.4 million square feet (of a total of 27.3 million square feet), was 96.8%.  The statistics provided in the following sections include information for our share of the office, retail and residential space.

 

Occupancy and weighted average annual rent per square foot:

Office:

Weighted

Average Annual

Rentable

Occupancy

Rent Per

As of December 31,

Square Feet

Rate

Square Foot

2013 

16,358,000 

96.6 

%

$

62.03 

2012 

16,397,000 

95.8 

%

60.33 

2011 

16,241,000 

96.2 

%

58.84 

2010 

14,991,000 

96.1 

%

56.29 

2009 

14,974,000 

97.1 

%

55.68 

Retail:

Weighted

Average Annual

Rentable

Occupancy

Rent Per

As of December 31,

Square Feet

Rate

Square Foot

2013 

2,166,000 

97.4 

%

$

162.39 

2012 

2,051,000 

96.8 

%

147.50 

2011 

1,994,000 

95.6 

%

110.17 

2010 

1,918,000 

96.4 

%

106.52 

2009 

1,814,000 

97.0 

%

101.53 

 

Residential:

Number of

Occupancy

Average Monthly

As of December 31,

Units

Rate

Rent Per Unit

2013 

1,653 

94.8 

%

$

2,864 

2012 

1,651 

96.5 

%

2,672 

 

24

 


 
 

 

NEW YORK – CONTINUED

Tenants accounting for 2% or more of revenues:

Percentage of

Percentage

Square Feet

2013 

New York

of Total

Tenant

Leased

Revenues

Revenues

Revenues

AXA Equitable Life Insurance

423,000 

$

36,329,000 

2.7 

%

1.3 

%

Macy’s

646,000 

34,630,000 

2.6 

%

1.3 

%

Limited Brands

504,000 

29,704,000 

2.2 

%

1.1 

%

McGraw-Hill Companies, Inc.

480,000 

26,395,000 

2.0 

%

1.0 

%

Draftfcb

744,000 

26,276,000 

2.0 

%

1.0 

%

 

2013 rental revenue by tenants’ industry:

Industry

Percentage

Office:

Financial Services

15 

%

Legal Services

%

Communications

%

Family Apparel

%

Real Estate

%

Insurance

%

Publishing

%

Technology

%

Pharmaceutical

%

Government

%

Home Entertainment & Electronics

%

Banking

%

Advertising / Marketing

%

Engineering, Architect & Surveying

%

Health Services

%

Other

%

75 

%

Retail:

Family Apparel

%

Department Stores

%

Women's Apparel

%

Restaurants

%

Luxury Retail

%

Banking

%

Discount Stores

%

Other

%

25 

%

Total

100 

%

 

25

 


 
 

 

NEW YORK – CONTINUED

Lease expirations as of December 31, 2013, assuming none of the tenants exercise renewal options:

Percentage of

Weighted Average Annual

Number of

Square Feet of

New York

Rent of Expiring Leases

Year

Expiring Leases

Expiring Leases

Square Feet

Total

Per Square Foot

Office:

Month to month

16 

36,000 

0.2 

%

$

1,620,000 

$

45.00 

2014 

142 

798,000 

(1)

5.2 

%

52,488,000 

65.77 

(1)

2015 

138 

1,579,000 

10.3 

%

87,965,000 

55.71 

2016 

148 

1,204,000 

7.8 

%

72,933,000 

60.58 

2017 

105 

1,184,000 

7.7 

%

70,550,000 

59.59 

2018 

94 

1,006,000 

(2)

6.5 

%

72,236,000 

71.81 

2019 

80 

953,000 

6.2 

%

59,502,000 

62.44 

2020 

94 

1,270,000 

8.2 

%

74,114,000 

58.36 

2021 

61 

1,118,000 

7.3 

%

69,518,000 

62.18 

2022 

60 

1,197,000 

7.8 

%

74,878,000 

62.55 

2023 

45 

1,582,000 

10.3 

%

107,319,000 

67.84 

Retail:

Month to month

12 

41,000 

3.3 

%

$

7,191,000 

$

175.39 

2014 

24 

67,000 

(3)

5.3 

%

9,591,000 

143.15 

(3)

2015 

40 

142,000 

11.3 

%

30,637,000 

215.75 

2016 

20 

222,000 

17.7 

%

21,173,000 

95.37 

2017 

166,000 

13.2 

%

9,094,000 

54.78 

2018 

38 

220,000 

17.5 

%

41,672,000 

189.42 

2019 

23 

106,000 

8.4 

%

23,907,000 

225.54 

2020 

20 

93,000 

7.4 

%

10,683,000 

114.87 

2021 

11 

38,000 

3.0 

%

7,184,000 

189.05 

2022 

23,000 

1.8 

%

3,569,000 

155.17 

2023 

14 

137,000 

10.9 

%

31,395,000 

229.16 

(1)

Based on current market conditions, we expect to release this space at weighted average rents ranging from $65 to $75 per square foot.

(2)

Excludes 492,000 square feet at 909 Third Avenue leased to the U.S. Post Office through 2038 (including four 5-year renewal options) for which the annual escalated rent is $9.81 per square foot.

(3)

Based on current market conditions, we expect to release this space at weighted average rents ranging from $150 to $200 per square foot.

 

Alexander’s

As of December 31, 2013, we own 32.4% of the outstanding common stock of Alexander’s, which owns six properties in the greater New York metropolitan area aggregating 2.2 million square feet, including 731 Lexington Avenue, the 1.3 million square foot Bloomberg L.P. headquarters building.  Alexander’s had $1.05 billion of outstanding debt at December 31, 2013, of which our pro rata share was $340 million, none of which is recourse to us.

 

Hotel Pennsylvania

We own the Hotel Pennsylvania which is located in New York City on Seventh Avenue opposite Madison Square Garden and consists of a hotel portion containing 1,000,000 square feet of hotel space with 1,700 rooms and a commercial portion containing 400,000 square feet of retail and office space.

Year Ended December 31,

2013 

2012 

2011 

2010 

2009 

Hotel:

Average occupancy rate

93.4 

%

89.1 

%

89.1 

%

83.2 

%

71.5 

%

Average daily rate

$

158.01 

$

152.79 

$

152.53 

$

144.21 

$

133.87 

Revenue per available room

$

147.63 

$

136.21 

$

135.87 

$

120.00 

$

95.67 

Commercial:

Office space:

Average occupancy rate

33.4 

%

33.4 

%

33.4 

%

33.4 

%

30.4 

%

Weighted average annual rent per square foot

$

17.81 

$

17.32 

$

13.49 

$

7.52 

$

20.54 

Retail space:

Average occupancy rate

62.5 

%

64.3 

%

63.0 

%

62.3 

%

70.7 

%

Weighted average annual rent per square foot

$

30.59 

$

27.19 

$

29.01 

$

31.42 

$

35.05 

26

 


 
 

 

Washington, DC

 

As of December 31, 2013, our Washington, DC segment consisted of 71 properties aggregating 19.2 million square feet.  The 19.2 million square feet is comprised of 16.2 million square feet of office space in 59 properties, seven residential properties containing 2,405 units, a hotel property, and 20.8 acres of undeveloped land.  The Washington, DC segment also includes 56 garages totaling approximately 8.9 million square feet (29,611 spaces) which are managed by, or leased to, third parties.

 

Washington, DC office lease terms generally range from five to seven years for smaller tenants to as long as 15 years for major tenants, and may provide for extension options at either pre-negotiated or market rates. Leases typically provide for periodic step-ups in rent over the term of the lease and pass through to tenants, the tenants’ share of increases in real estate taxes and certain property operating expenses over a base year. Periodic step-ups in rent are usually based upon either fixed percentage increases or the consumer price index. Leases also typically provide for free rent and tenant improvement allowances for all or a portion of the tenant’s initial construction costs of its premises.

 

As of December 31, 2013, the occupancy rate for our Washington DC segment, in which we own 16.6 million square feet (of a total of 19.2 million square feet), was 83.4%, and 29.0% of the occupied space was leased to various agencies of the U.S. Government.  The statistics provided in the following sections include information for our share of the office and residential space.

 

Occupancy and weighted average annual rent per square foot:

Office:

Weighted

Average Annual

Rentable

Occupancy

Rent Per

As of December 31,

Square Feet

Rate

Square Foot

2013 

13,803,000 

80.7 

%

$

42.44 

2012 

13,637,000 

81.2 

%

41.57 

2011 

14,162,000 

89.3 

%

40.80 

2010 

14,035,000 

94.8 

%

39.65 

2009 

14,035,000 

94.9 

%

38.46 

Residential:

Number of

Occupancy

Average Monthly

As of December 31,

Units

Rate

Rent Per Unit

2013 

2,405 

96.3 

%

$

2,083 

2012 

2,414 

97.9 

%

2,104 

2011 

2,414 

96.6 

%

2,056 

2010 

2,414 

95.5 

%

1,925 

2009 

2,414 

84.0 

%

1,622 

 

Tenants accounting for 2% or more of revenues:

Percentage of

Percentage

Square Feet

2013 

Washington, DC

of Total

Tenant

Leased

Revenues

Revenues

Revenues

U.S. Government

3,667,000 

$

143,870,000 

26.6 

%

5.2 

%

Family Health International

618,000 

19,188,000 

3.6 

%

0.7 

%

Boeing

377,000 

16,317,000 

3.0 

%

0.6 

%

Lockheed Martin

325,000 

14,114,000 

2.6 

%

0.5 

%

 

27

 


 
 

 

WASHINGTON, DC – CONTINUED

2013 rental revenue by tenants’ industry:

Industry

Percentage

U.S. Government

29%

Government Contractors

17%

Membership Organizations

10%

Legal Services

5%

Manufacturing

3%

Business Services

3%

Management Consulting Services

3%

State and Local Government

2%

Real Estate

2%

Food

2%

Health Services

2%

Computer and Data Processing

2%

Communication

2%

Education

1%

Television Broadcasting

1%

Other

16%

100%

 

 

Lease expirations as of December 31, 2013, assuming none of the tenants exercise renewal options:

Percentage of

Weighted Average Annual

Number of

Square Feet of

Washington, DC

Rent of Expiring Leases

Year

Expiring Leases

Expiring Leases

Square Feet

Total

Per Square Foot

Month to month

33 

115,000 

1.1 

%

$

4,564,000 

$

39.82 

2014 

171 

1,340,000 

(1) 

12.9 

%

52,762,000 

39.38 

(1) 

2015 

173 

1,690,000 

16.2 

%

69,763,000 

41.29 

2016 

118 

1,160,000 

11.1 

%

50,018,000 

43.12 

2017 

75 

647,000 

6.2 

%

26,009,000 

40.19 

2018 

92 

1,040,000 

10.0 

%

44,659,000 

42.94 

2019 

60 

1,289,000 

12.4 

%

54,658,000 

42.39 

2020 

44 

636,000 

6.1 

%

32,330,000 

50.82 

2021 

14 

549,000 

5.3 

%

24,632,000 

44.84 

2022 

24 

866,000 

8.3 

%

38,161,000 

44.08 

2023 

12 

172,000 

1.6 

%

7,612,000 

44.32 

(1) Based on current market conditions, we expect to release this space at weighted average rents ranging from $35 to $40 per square foot.

 

 

Base Realignment and Closure (“BRAC”)

 

          Our Washington, DC segment was impacted by the BRAC statute, which required the Department of Defense (“DOD”) to relocate from 2,395,000 square feet in our buildings in the Northern Virginia area to government owned military bases.  See page 46 for the status of BRAC related move-outs and the sluggish leasing environment in the Washington, DC / Northern Virginia area, and its impact on 2013 EBITDA and the estimated impact on 2014 EBITDA.

28

 


 
 

 

RETAIL PROPERTIES

 

As of December 31, 2013, our Retail Properties segment consisted of 112 retail properties aggregating 20.2 million square feet.  Of the 112 retail properties, 106 are strip shopping centers and single tenant retail assets located primarily in the Northeast and California, and six are regional malls located in New York, New Jersey, Virginia and San Juan, Puerto Rico.  Our strip shopping centers and malls are generally located on major highways in mature, densely populated areas, and therefore attract consumers from a regional, rather than a neighborhood market place.  Our strip shopping centers are substantially (approximately 78%) leased to large stores (over 20,000 square feet).

 

Retail Properties’ lease terms generally range from five years or less in some instances for smaller tenants to as long as 25 years for major tenants.  Leases generally provide for reimbursements of real estate taxes, insurance and common area maintenance charges (including roof and structure in strip shopping centers, unless it is the tenant’s direct responsibility), and percentage rents based on tenant sales volume.  Percentage rents accounted for less than 1% of the Retail Properties total revenues during 2013.

 

As of December 31, 2013, the occupancy rate for the Retail Properties segment, in which we own 18.2 million square feet (of a total of 20.2 million square feet), was 94.3%.  The statistics provided in the following sections includes information for our share of the Strip Shopping Centers and Regional Malls.

 

Occupancy and weighted average annual rent per square foot:

 

Strip Shopping Centers:

Weighted Average

Rentable

Occupancy

Annual Net Rent

As of December 31,

Square Feet

Rate

Per Square Foot

2013 

14,572,000 

94.3 

%

$

16.97 

2012 

14,350,000 

94.0 

%

16.59 

2011 

14,370,000 

93.9 

%

16.28 

2010 

14,492,000 

93.0 

%

15.44 

2009 

14,019,000 

93.3 

%

15.16 

 

Regional Malls:

Weighted Average Annual

Net Rent Per Square Foot

Mall and

Rentable

Occupancy

Mall

Anchor

As of December 31,

Square Feet

Rate

Tenants

Tenants

2013 

3,643,000 

94.3 

%

$

40.21 

$

22.37 

2012 

3,608,000 

92.7 

%

41.86 

22.46 

2011 

3,800,000 

92.7 

%

37.68 

21.98 

2010 

3,653,000 

92.8 

%

38.08 

22.77 

2009 

3,607,000 

92.9 

%

38.11 

21.72 

Tenants accounting for 2% or more of revenues:

 

 

Percentage of

Percentage of

 

Square Feet

2013 

Retail Properties

Total

 

Tenant

Leased

Revenues

Revenues

Revenues

 

The Home Depot

994,000 

$

19,146,000 

4.5 

%

0.7 

%

 

Wal-Mart

1,439,000 

15,811,000 

3.7 

%

0.6 

%

 

Best Buy

530,000 

12,739,000 

3.0 

%

0.5 

%

 

Lowe's

976,000 

12,728,000 

3.0 

%

0.5 

%

 

The TJX Companies, Inc.

552,000 

10,815,000 

2.5 

%

0.4 

%

 

Stop & Shop / Koninklijke Ahold NV

633,000 

10,307,000 

(1)

2.4 

%(1)

0.4 

%(1)

 

Kohl's

716,000 

9,186,000 

2.2 

%

0.3 

%

 

Shop Rite

471,000 

9,098,000 

2.1 

%

0.3 

%

 

 

(1) Excludes $59,599,000 of income pursuant to a settlement agreement with Stop & Shop.

 

                                                                   

 

29

 


 
 

 

RETAIL PROPERTIES – CONTINUED

2013 rental revenue by type of retailer:

Industry

Percentage

Discount Stores

20 

%

Home Improvement

10 

%

Supermarkets

10 

%

Family Apparel

%

Home Entertainment and Electronics

%

Restaurants

%

Banking and Other Business Services

%

Home Furnishings

%

Personal Services

%

Sporting Goods, Toys and Hobbies

%

Women's Apparel

%

Membership Warehouse Clubs

%

Other

17 

%

100 

%

 

Lease expirations as of December 31, 2013, assuming none of the tenants exercise renewal options:

Percentage of

Weighted Average Annual

Number of

Square Feet of

Retail Properties

Net Rent of Expiring Leases

Year

Expiring Leases

Expiring Leases

Square Feet

Total

Per Square Foot

Strip Shopping Centers:

Month to month

53,000 

0.3 

%

$

1,088,000 

$

20.55 

2014 

56 

631,000 

(1)

3.8 

%

10,325,000 

16.37 

(1)

2015 

61 

581,000 

3.5 

%

11,504,000 

19.81 

2016 

65 

785,000 

4.8 

%

11,928,000 

15.19 

2017 

60 

528,000 

3.2 

%

8,222,000 

15.58 

2018 

68 

1,601,000 

9.7 

%

22,455,000 

14.02 

2019 

67 

1,384,000 

8.4 

%

20,211,000 

14.60 

2020 

29 

899,000 

5.4 

%

11,573,000 

12.87 

2021 

36 

660,000 

4.0 

%

11,096,000 

16.80 

2022 

46 

996,000 

6.0 

%

12,387,000 

12.43 

2023 

46 

1,195,000 

7.2 

%

19,785,000 

16.56 

Regional Malls:

Month to month

39,000 

0.2 

%

$

710,000 

$

18.00 

2014 

48 

134,000 

(2)

0.8 

%

4,518,000 

33.82 

(2)

2015 

42 

140,000 

0.8 

%

5,192,000 

37.17 

2016 

45 

131,000 

0.8 

%

5,053,000 

38.65 

2017 

27 

350,000 

2.1 

%

3,178,000 

9.07 

2018 

33 

88,000 

0.5 

%

4,353,000 

49.74 

2019 

27 

149,000 

0.9 

%

5,793,000 

38.84 

2020 

22 

168,000 

1.0 

%

5,600,000 

33.27 

2021 

18 

414,000 

2.5 

%

5,514,000 

13.32 

2022 

43,000 

0.3 

%

1,672,000 

38.91 

2023 

14 

55,000 

0.3 

%

1,991,000 

36.04 

(1) Based on current market conditions, we expect to release this space at weighted average rents ranging from $17 to $19 per square foot.

(2) Based on current market conditions, we expect to release this space at weighted average rents ranging from $34 to $38 per square foot.

30

 


 
 

 

TOYS “R” US, INC. (“TOYS”)

As of December 31, 2013 we own a 32.6% interest in Toys, a worldwide specialty retailer of toys and baby products, which has a significant real estate component. Toys had $5.7 billion of outstanding debt at November 2, 2013, of which our pro rata share was $1.9 billion, none of which is recourse to us.

 

The following table sets forth the total number of stores operated by Toys as of December 31, 2013:  

Building

Owned on

Leased

Total

Owned

Ground

Leased

Domestic

879 

287 

222 

370 

International

700 

78 

26 

596 

Total Owned and Leased

1,579 

365 

248 

966 

Franchised Stores

177 

Total

1,756 

 

 

OTHER INVESTMENTS

 

Merchandise Mart

As of December 31, 2013, we own the 3.6 million square foot Merchandise Mart in Chicago, whose largest tenant is Motorola Mobility, owned by Google, which leases 608,000 square feet.  The Merchandise Mart is encumbered by a $550,000,000 mortgage loan that bears interest at a fixed rate of 5.57% and matures in December 2016.  As of December 31, 2013 the Merchandise Mart had an occupancy rate of 96.4% and a weighted average annual rent per square foot of $33.18.

 

 

555 California Street

As of December 31, 2013, we own a 70% controlling interest in a three-building office complex containing 1.8 million square feet, known as the Bank of America Center, located at California and Montgomery Streets in San Francisco’s financial district (“555 California Street”).  555 California Street is encumbered by a $600,000,000 mortgage loan that bears interest at a fixed rate of 5.10% and matures in September 2021.  As of December 31, 2013 555 California Street had an occupancy rate of 94.5% and a weighted average annual rent per square foot of $58.22.

 

 

Vornado Capital Partners Real Estate Fund (the “Fund”)

 

As of December 31, 2013, we own a 25.0% interest in the Fund.  We are the general partner and investment manager of the Fund.  At December 31, 2013, the Fund had nine investments with an aggregate fair value of $667,710,000, or $153,413,000 in excess of cost, and had remaining unfunded commitments of $149,186,000, of which our share was $37,297,000. 

 

 

 

ITEM 3.    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 is not expected to have a material adverse effect on our financial position, results of operations or cash flows.

 

 

 

ITEM 4.    MINE SAFETY DISCLOSURES

 

Not applicable.

31

 


 
 

 

PART II

 

 

Item 5.        Market for Registrant’s Common Equity, Related STOCKholder Matters and issuer purchases of equity securities

 

Vornado’s common shares are traded on the New York Stock Exchange under the symbol “VNO.” 

 

Quarterly high and low sales prices of the common shares and dividends paid per common share for the years ended December 31, 2013 and 2012 were as follows:

 

Year Ended

Year Ended

December 31, 2013

December 31, 2012

Quarter

High

Low

Dividends

High

Low

Dividends

1st

$

85.94 

$

79.43 

$

0.73 

$

86.21 

$

75.17 

$

0.69 

2nd

88.73 

76.19 

0.73 

88.50 

78.56 

0.69 

3rd

89.35 

79.56 

0.73 

86.56 

79.50 

0.69 

4th

91.91 

82.73 

0.73 

82.50 

72.64 

1.69 

(1)

(1) Comprised of a regular quarterly dividend of $0.69 per share and a special long-term capital gain dividend of $1.00 per share.

 

 

As of February 1, 2014, there were 1,029 holders of record of our common shares.

 

 

Recent Sales of Unregistered Securities

 

During the fourth quarter of 2013, we issued 11,249 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 this Annual Report on Form 10-K and such information is incorporated by reference herein.

 

 

Recent Purchases of Equity Securities

 

None

32

 


 
 

 

Performance Graph

 

The following graph is a comparison of the five-year cumulative return of our common shares, the Standard & Poor’s 500 Index (the “S&P 500 Index”) and the National Association of Real Estate Investment Trusts’ (“NAREIT”) All Equity Index, a peer group index.  The graph assumes that $100 was invested on December 31, 2008 in our common shares, the S&P 500 Index and the NAREIT All Equity Index and that all dividends were reinvested without the payment of any commissions.  There can be no assurance that the performance of our shares will continue in line with the same or similar trends depicted in the graph below.

 

 

 

2008 

2009 

2010 

2011 

2012 

2013 

Vornado Realty Trust

$

100 

123 

152 

145 

$

158 

$

182 

S&P 500 Index

100 

126 

146 

149 

172 

228 

The NAREIT All Equity Index

100 

128 

164 

177 

212 

218 

33

 


 
 

 

ITEM 6. SELECTED FINANCIAL DATA

Year Ended December 31,

(Amounts in thousands, except per share amounts)

2013 

2012 

2011 

2010 

2009 

Operating Data:

Revenues:

Property rentals

$

2,155,963 

$

2,062,061 

$

2,091,488 

$

2,081,028 

$

1,998,425 

Tenant expense reimbursements

317,345 

294,584 

307,609 

312,550 

309,509 

Cleveland Medical Mart development project

36,369 

235,234 

154,080 

Fee and other income

251,232 

144,353 

149,631 

146,812 

154,462 

Total revenues

2,760,909 

2,736,232 

2,702,808 

2,540,390 

2,462,396 

Expenses:

Operating

1,054,897 

1,017,331 

984,707 

980,974 

955,038 

Depreciation and amortization

531,212 

510,383 

516,222 

491,129 

489,259 

General and administrative

211,100 

202,444 

208,530 

212,233 

228,650 

Cleveland Medical Mart development project

32,210 

226,619 

145,824 

Impairment losses, acquisition related costs

and tenant buy-outs

57,300 

114,886 

35,299 

101,458 

71,863 

Total expenses

1,886,719 

2,071,663 

1,890,582 

1,785,794 

1,744,810 

Operating income

874,190 

664,569 

812,226 

754,596 

717,586 

(Loss) income applicable to Toys "R" Us

(362,377)

14,859 

48,540 

71,624 

92,300 

Income (loss) from partially owned entities

23,592 

408,267 

70,072 

20,869 

(21,471)

Income (loss) from Real Estate Fund

102,898 

63,936 

22,886 

(303)

Interest and other investment (loss) income, net

(24,699)

(260,945)

148,783 

235,266 

(116,436)

Interest and debt expense

(483,190)

(493,713)

(519,157)

(536,363)

(595,800)

Net gain (loss) on extinguishment of debt

94,789 

(25,915)

Net gain on disposition of wholly owned and partially

owned assets

3,407 

13,347 

15,134 

81,432 

5,641 

Income before income taxes

133,821 

410,320 

598,484 

721,910 

55,905 

Income tax benefit (expense)

6,406 

(8,132)

(23,925)

(22,137)

(20,134)

Income from continuing operations

140,227 

402,188 

574,559 

699,773 

35,771 

Income from discontinued operations

424,513 

292,353 

165,441 

8,258 

92,679 

Net income

564,740 

694,541 

740,000 

708,031 

128,450 

Less net (income) loss attributable to noncontrolling interests in:

Consolidated subsidiaries

(63,952)

(32,018)

(21,786)

(4,920)

2,839 

Operating Partnership

(23,659)

(35,327)

(41,059)

(44,033)

(5,834)

Preferred unit distributions of the Operating Partnership

(1,158)

(9,936)

(14,853)

(11,195)

(19,286)

Net income attributable to Vornado

475,971 

617,260 

662,302 

647,883 

106,169 

Preferred share dividends

(82,807)

(76,937)

(65,531)

(55,534)

(57,076)

Preferred unit and share redemptions

(1,130)

8,948 

5,000 

4,382 

Net income attributable to common shareholders

$

392,034 

$

549,271 

$

601,771 

$

596,731 

$

49,093 

Per Share Data:

(Loss) income from continuing operations, net - basic

$

(0.03)

$

1.46 

$

2.42 

$

3.23 

$

(0.20)

(Loss) income from continuing operations, net - diluted

(0.03)

1.46 

2.40 

3.20 

(0.20)

Net income per common share - basic

2.10 

2.95 

3.26 

3.27 

0.28 

Net income per common share - diluted

2.09 

2.94 

3.23 

3.24 

0.28 

Dividends per common share

2.92 

3.76 

(1)

2.76 

2.60 

3.20 

Balance Sheet Data:

Total assets

$

20,097,224 

$

22,065,049 

$

20,446,487 

$

20,517,471 

$

20,185,472 

Real estate, at cost

18,354,626 

18,238,218 

16,421,701 

16,139,344 

16,203,842 

Accumulated depreciation

(3,410,933)

(3,072,269)

(2,874,529)

(2,513,658)

(2,214,796)

Debt

9,978,718 

11,127,230 

9,899,277 

10,161,754 

10,035,691 

Total equity

7,594,744 

7,904,144 

7,508,447 

6,830,405 

6,649,406 

(1) Includes a special long-term capital gain dividend of $1.00 per share.

 

34

 


 

 

Year Ended December 31,

(Amounts in thousands)

2013 

2012 

2011 

2010 

2009 

Other Data:

Funds From Operations ("FFO")(1):

Net income attributable to Vornado

$

475,971 

$

617,260 

$

662,302 

$

647,883 

$

106,169 

Depreciation and amortization of real property

501,753 

504,407 

530,113 

505,806 

508,572 

Net gains on sale of real estate

(411,593)

(245,799)

(51,623)

(57,248)

(45,282)

Real estate impairment losses

37,170 

129,964 

28,799 

97,500 

23,203 

Proportionate share of adjustments to equity in net income

of Toys, to arrive at FFO:

Depreciation and amortization of real property

69,741 

68,483 

70,883 

70,174 

65,358 

Net gains on sale of real estate

(491)

(164)

Real estate impairment losses

6,552 

9,824 

Income tax effect of above adjustments

(26,703)

(27,493)

(24,634)

(24,561)

(22,819)

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

87,529 

86,197 

99,992 

78,151 

75,200 

Net gains on sale of real estate

(465)

(241,602)

(9,276)

(5,784)

(1,188)

Real estate impairment losses

1,849 

11,481 

Noncontrolling interests' share of above adjustments

(15,089)

(16,649)

(40,957)

(46,794)

(47,022)

FFO

724,866 

886,441 

1,265,108 

1,276,608 

662,027 

Preferred share dividends

(82,807)

(76,937)

(65,531)

(55,534)

(57,076)

Preferred unit and share redemptions

(1,130)

8,948 

5,000 

4,382 

FFO attributable to common shareholders

640,929 

818,452 

1,204,577 

1,225,456 

604,951 

Convertible preferred share dividends

108 

113 

124 

160 

170 

Interest on 3.88% exchangeable senior debentures

26,272 

25,917 

-  

FFO attributable to common shareholders

plus assumed conversions(1)

$

641,037 

$

818,565 

$

1,230,973 

$

1,251,533 

$

605,121 

 

________________________________

(1)   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, real estate impairment losses, 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.

35

 


 

 

ITEM 7.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS

OF OPERATIONS

Page

Number

Overview

37

Overview - Leasing activity

42

Critical Accounting Policies

47

Net Income and EBITDA by Segment for the Years Ended

December 31, 2013, 2012 and 2011

50

Results of Operations:

Years Ended December 31, 2013 and 2012

55

Years Ended December 31, 2012 and 2011

62

Supplemental Information:

Net Income and EBITDA by Segment for the Three Months Ended

December 31, 2013 and 2012

69

Three Months Ended December 31, 2013 Compared to December 31, 2012

74

Three Months Ended December 31, 2013 Compared to September 30, 2013

76

Related Party Transactions

78

Liquidity and Capital Resources

79

Financing Activities and Contractual Obligations

79

Certain Future Cash Requirements

83

Cash Flows for the Year Ended December 31, 2013

85

Cash Flows for the Year Ended December 31, 2012

87

Cash Flows for the Year Ended December 31, 2011

89

Funds From Operations for the Three Months and Years Ended

December 31, 2013 and 2012

91

36

 


 
 

 

Overview

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 94.0% of the common limited partnership interest in the Operating Partnership at December 31, 2013.  All references to “we,” “us,” “our,” the “Company” and “Vornado” refer to Vornado Realty Trust and its consolidated subsidiaries, including the Operating Partnership.

 

We own and operate office and retail properties (our “core” operations) with large concentrations in the New York City metropolitan area and in the Washington, DC / Northern Virginia area. In addition, we have a 32.4% interest in Alexander’s, Inc. (NYSE: ALX) (“Alexander’s”), which owns six properties in the greater New York metropolitan area, a 32.6% interest in Toys “R” Us, Inc. (“Toys”) as well as interests in other real estate and related investments.

 

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 FTSE NAREIT Office Index (“Office REIT”) and the Morgan Stanley REIT Index (“RMS”) for the following periods ended December 31, 2013:

 

Total Return(1)

Vornado

Office REIT

RMS

Three-months

6.5% 

0.6% 

(0.1%) 

One-year

14.7% 

5.6% 

2.5% 

Three-year

19.4% 

19.6% 

31.2% 

Five-year

82.4% 

92.0% 

116.7% 

Ten-year

148.3% 

85.7% 

124.1% 

(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 execute 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 these securities in the future.

 

We compete with a large number of property owners and developers, some of which may be willing to accept lower returns on their investments than we are. Principal factors of competition include rents charged, sales prices, attractiveness of location, the quality of the property and the breadth and the quality of services provided.  See “Risk Factors” in Item 1A for additional information regarding these factors.

37

 


 
 

 

Overview - continued

Year Ended December 31, 2013 Financial Results Summary

 

Net income attributable to common shareholders for the year ended December 31, 2013 was $392,034,000, or $2.09 per diluted share, compared to $549,271,000, or $2.94 per diluted share for the year ended December 31, 2012. Net income for the years ended December 31, 2013 and 2012 includes $412,058,000 and $487,401,000, respectively, of net gains on sale of real estate, and $43,722,000 and $141,637,000, respectively, of real estate impairment losses.  In addition, the years ended December 31, 2013 and 2012 include certain items that affect comparability which are listed in the table below.  The aggregate of net gains on sale of real estate, real estate impairment losses and the items in the table below, net of amounts attributable to noncontrolling interests, decreased net income attributable to common shareholders for the year ended December 31, 2013 by $3,302,000, or $0.02 per diluted share and increased net income attributable to common shareholders for the year ended December 31, 2012 by $287,099,000, or $1.54 per diluted share.

 

Funds from operations attributable to common shareholders plus assumed conversions (“FFO”) for the year ended December 31, 2013 was $641,037,000, or $3.41 per diluted share, compared to $818,565,000, or $4.39 per diluted share for the prior year.  FFO for the years ended December 31, 2013 and 2012 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, decreased FFO by $300,434,000, or $1.60 per diluted share for the year ended December 31, 2013, and increased FFO by $40,090,000, or $0.21 per diluted share for the year ended December 31, 2012.

 

For the Year Ended December 31,

(Amounts in thousands)

2013 

2012 

Items that affect comparability income (expense):

Toys "R" Us (Negative FFO) FFO (including impairment losses of $240,757 and $40,000,

respectively)

$

(312,788)

$

65,673 

Loss on sale of J.C. Penney common shares

(54,914)

Non-cash impairment loss on J.C. Penney common shares

(39,487)

(224,937)

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

(33,487)

(75,815)

Acquisition related costs

(24,857)

(11,248)

Preferred unit and share redemptions

(1,130)

8,948 

Stop & Shop litigation settlement income

59,599 

Net gain on sale of marketable securities, land parcels and residential condominiums

58,245 

13,347 

FFO attributable to discontinued operations, including LNR, and discontinued operations

of Alexander's in 2012

33,928 

153,179 

Accelerated amortization of discount on investment in subordinated debt of Independence Plaza

60,396 

After-tax net gain on sale of Canadian Trade Shows

19,657 

Net gain resulting from Lexington Realty Trust's stock issuance

14,116 

1290 Avenue of the Americas and 555 California Street priority return

13,222 

Other, net

(3,890)

6,196 

(318,781)

42,734 

Noncontrolling interests' share of above adjustments

18,347 

(2,644)

Items that affect comparability, net

(300,434)

40,090 

 

 

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 year ended December 31, 2013 over the year ended December 31, 2012 is summarized below.

Same Store EBITDA:

New York

Washington, DC

Retail Properties

December 31, 2013 vs. December 31, 2012

GAAP basis

5.5% 

(2.8%) 

2.8% 

Cash basis

7.7% 

(3.8%) 

3.7% 

38

 


 
 

 

Overview - continued

Quarter Ended December 31, 2013  Financial Results Summary

 

Net loss attributable to common shareholders for the quarter ended December 31, 2013 was $68,887,000, or $0.37 per diluted share, compared to net income of $62,633,000, or $0.33 per diluted share for the quarter ended December 31, 2012.  Net loss for the quarter ended December 31, 2013 and net income for the quarter ended December 31, 2012 include $127,512,000 and $281,549,000, respectively, of net gains on sale of real estate, and $32,899,000 and $117,883,000, respectively, of real estate impairment losses.  In addition, the quarters ended December 31, 2013 and 2012 include certain other items that affect comparability which are listed in the table below.  The aggregate of net gains on sale of real estate, real estate impairment losses and the items in the table below, net of amounts attributable to noncontrolling interests, increased net loss attributable to common shareholders for the quarter ended December 31, 2013 by $176,464,000, or $0.94 per diluted share and decreased net income attributable to common shareholders for the quarter ended December 31, 2012 by $14,761,000, or $0.08 per diluted share.

 

FFO for the quarter ended December 31, 2013 was a negative $6,784,000, or $0.04 per diluted share, compared to a positive $55,890,000, or $0.30 per diluted share for the prior year’s quarter.  FFO for the quarters ended December 31, 2013 and 2012 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 for the quarter ended December 31, 2013 by $255,479,000, or $1.37 per diluted share and $151,361,000, or $0.81 per diluted share for the quarter ended December 31, 2012.

 

For the Three Months Ended December 31,

(Amounts in thousands)

2013 

2012 

Items that affect comparability income (expense):

Toys "R" Us Negative FFO (including impairment losses of $162,215 and $40,000, respectively)

$

(282,041)

$

(61,358)

Acquisition related costs

(18,088)

(6,934)

Non-cash impairment loss on J.C. Penney common shares

(224,937)

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

(22,472)

Net gain on sale of land parcels and residential condominiums

23,988 

FFO attributable to discontinued operations, including LNR and discontinued operations

of Alexander's in 2012

1,671 

46,365 

Accelerated amortization of discount on investment in subordinated debt of Independence Plaza

60,396 

1290 Avenue of the Americas and 555 California Street priority return and income tax benefit

25,260 

Net gain resulting from Lexington Realty Trust's stock issuance

14,116 

Other, net

3,436 

8,425 

(271,034)

(161,139)

Noncontrolling interests' share of above adjustments

15,555 

9,778 

Items that affect comparability, net

$

(255,479)

$

(151,361)

 

 

The percentage increase (decrease) in GAAP basis and cash basis same store EBITDA of our operating segments for the quarter ended December 31, 2013 over the quarter ended December 31, 2012 and the trailing quarter ended September 30, 2013 are summarized below.

Same Store EBITDA:

New York

Washington, DC

Retail Properties

December 31, 2013 vs. December 31, 2012

GAAP basis

6.7% 

4.1% 

3.1% 

Cash basis

4.4% 

2.8% 

5.1% 

December 31, 2013 vs. September 30, 2013

GAAP basis

3.9% 

(3.1%) 

3.2% 

Cash basis

1.9% 

(3.6%) 

3.7% 

 

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.

39

 


 
 

 

Overview – continued

  

2013 Acquisitions

 

On September 30, 2013, a joint venture, in which we have a 20.1% interest, acquired 650 Madison Avenue, a 27-story, 594,000 square foot Class A office and retail tower located on Madison Avenue between 59th and 60th Street, for $1.295 billion.  The property contains 523,000 square feet of office space and 71,000 square feet of retail space.  The purchase price was funded with cash and a new $800,000,000 seven-year 4.39% interest-only loan.

 

On October 4, 2013, we acquired a 92.5% interest in 655 Fifth Avenue, a 57,500 square foot retail and office property located at the northeast corner of Fifth Avenue and 52nd Street in Manhattan, for $277,500,000 in cash. 

 

On October 15, 2013, we acquired, for $194,000,000 in cash, land and air rights for 137,000 zoning square feet thereby completing the assemblage for our 220 Central Park South development site in Manhattan.

 

In addition to the above, during 2013, we acquired three Manhattan street retail properties, in separate transactions, for an aggregate of $65,300,000.

 

2013 Dispositions

 

During 2013, we sold an aggregate of $1.430 billion in assets resulting in net proceeds of approximately $940,000,000 and net gains aggregating $435,000,000.  Below are the details of these sales.

 

Retail Properties

 

On January 24, 2013, we sold the Green Acres Mall located in Valley Stream, New York, for $500,000,000.  The sale resulted in net proceeds of $185,000,000, after repaying the existing loan and closing costs, and a net gain of $202,275,000. 

 

On April 15, 2013, we sold The Plant, a power strip shopping center in San Jose, California, for $203,000,000.  The sale resulted in net proceeds of $98,000,000, after repaying the existing loan and closing costs, and a net gain of $32,169,000.

 

On April 15, 2013, we sold a retail property in Philadelphia, which is a part of the Gallery at Market Street, for $60,000,000.  The sale resulted in net proceeds of $58,000,000, and a net gain of $33,058,000.

 

On September 23, 2013, we sold a retail property in Tampa, Florida for $45,000,000, of which our 75% share was $33,750,000.  Our share of the net proceeds after repaying the existing loan and closing costs were $20,810,000, and our share of the net gain was $8,728,000.

 

In addition to the above, during 2013, we sold 12 other properties, in separate transactions, for an aggregate of $82,300,000, in cash, which resulted in a net gain aggregating $7,851,000.

 

New York

 

On December 17, 2013, we sold 866 United Nations Plaza, a 360,000 square foot office building in Manhattan for $200,000,000.  The sale resulted in net proceeds of $146,439,000 after repaying the existing loan and closing costs, and a net gain of $127,512,000.

 

Other

 

On January 23, 2013, we and the other equity holders of LNR entered into a definitive agreement to sell LNR for $1.053 billion, of which our 26.2% share was $275,900,000.  The definitive agreement provided that LNR would not (i) make any cash distributions to the equity holders, including us, through the completion of the sale, which occurred on April 19, 2013, and (ii) take any of the following actions (among others) without the purchaser’s approval, the lending or advancing of any money, the acquisition of assets in excess of specified amounts, or the issuance of equity interests.  The sale was the result of a competitive bidding process that we believe resulted in a sale price that represented the fair value of our investment in LNR.  The sale was consummated on April 19, 2013, and we received net proceeds after transaction and closing costs of $240,474,000.  Notwithstanding the terms of the definitive agreement, in accordance with GAAP, we recorded our pro rata share of LNR’s earnings on a one-quarter lag basis through the date of sale, which increased our investment in LNR above our share of the net sales proceeds and resulted in us recognizing an other than temporary impairment loss on our investment of $27,231,000 in the three months ended March 31, 2013.  LNR’s net loss for the period from January 1, 2013 through April 19, 2013 was $80,654,000, including a $66,241,000 non-cash impairment loss. Our share of the net loss was $21,131,000, including $17,355,000 for our share of the non-cash impairment loss.  In the three months ended June 30, 2013, we recorded our share of the net loss but did not record our share of the non-cash impairment loss, as it was effectively considered in our assessment of “other-than-temporary” impairment loss when we recorded the $27,231,000 impairment loss in the three months ended March 31, 2013.  As a result of recording our share of the net loss of $3,776,000 for the three months ended June 30, 2013, the carrying amount of our investment decreased below our share of the net sales proceeds; accordingly, we recorded an offsetting gain on the sale of our investment.

40

 


 

 

Overview – continued

 

2013 Dispositions – continued

 

Other - continued

 

On April 24, 2013, a site located in the Downtown Crossing district of Boston was sold by a joint venture, of which we owned a 50% interest.  Our share of the net proceeds were approximately $45,000,000, which resulted in a $2,335,000 impairment loss that was recognized in the first quarter.

 

On October 1, 2013, we sold a parcel of land known as Harlem Park located at 1800 Park Avenue (at 125th Street) in New York City, for $66,000,000. The sale resulted in net proceeds of $63,000,000 and a net gain of $23,507,000.

 

 

2013 Financings

 

Secured Debt

 

On February 20, 2013, we completed a $390,000,000 financing of the retail condominium located at 666 Fifth Avenue at 53rd Street, which we had acquired December 2012.  The 10-year fixed-rate interest only loan bears interest at 3.61%.  This property was previously unencumbered.  The net proceeds from this financing were approximately $387,000,000. 

 

On March 25, 2013, we completed a $300,000,000 financing of the Outlets at Bergen Town Center, a 948,000 square foot shopping center located in Paramus, New Jersey.  The 10-year fixed-rate interest only loan bears interest at 3.56%.  The property was previously encumbered by a $282,312,000 floating-rate loan. 

 

On June 7, 2013, we completed a $550,000,000 refinancing of Independence Plaza, a three-building 1,328 unit residential complex in the Tribeca submarket of Manhattan.  The five-year fixed-rate interest only mortgage loan bears interest at 3.48%.  The property was previously encumbered by a $323,000,000 floating-rate loan.  The net proceeds of $219,000,000, after repaying the existing loan and closing costs, were distributed to the partners, of which our share was $137,000,000.   

 

On October 30, 2013, we completed the restructuring of the $678,000,000 (face amount) 5.74% Skyline properties mortgage loan. The loan was separated into two tranches; a senior $350,000,000 position and a junior $328,000,000 position. The maturity date has been extended from February 2017 to February 2022, with a one-year extension option. The effective interest rate is 2.965%. Amounts expended to re-lease the property are senior to the $328,000,000 junior position.

 

On November 27, 2013, we completed a $450,000,000 refinancing of Eleven Penn Plaza, a 1.1 million square foot Manhattan office building.  The seven-year fixed-rate interest only loan bears interest at 3.95%. The net proceeds from this refinancing were approximately $107,000,000 after repaying the existing loan and closing costs.

 

Unsecured Revolving Credit Facility

 

On March 28, 2013, we extended one of our two $1.25 billion revolving credit facilities from June 2015 to June 2017, with two six-month extension options. The interest on the extended facility was reduced from LIBOR plus 135 basis points to LIBOR plus 115 basis points. In addition, the facility fee was reduced from 30 basis points to 20 basis points.

 

Preferred Securities

 

On January 25, 2013, we sold 12,000,000 5.40% Series L Cumulative Redeemable Preferred Shares at a price of $25.00 per share in an underwritten public offering pursuant to an effective registration statement.  We retained aggregate net proceeds of $290,306,000, after underwriters’ discounts and issuance costs, and contributed the net proceeds to the Operating Partnership in exchange for 12,000,000 Series L Preferred Units (with economic terms that mirror those of the Series L Preferred Shares).

 

On February 19, 2013, we redeemed all of the outstanding 6.75% Series F Cumulative Redeemable Preferred Shares and 6.75% Series H Cumulative Redeemable Preferred Shares at par, for an aggregate of $262,500,000 in cash, plus accrued and unpaid dividends through the date of redemption.

 

On May 9, 2013, we redeemed all of the outstanding 6.875% Series D-15 Cumulative Redeemable Preferred Units with an aggregate face amount of $45,000,000 for $36,900,000 in cash, plus accrued and unpaid distributions through the date of redemption.

41

 


 
 

 

Overview - continued

 

 

Leasing Activity

 

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 square feet leased during the period.  Second generation relet space represents square footage that has not been vacant for more than nine months.  The leasing activity for the New York segment excludes Alexander’s, the Hotel Pennsylvania and residential.

 

New York

Washington, DC

Retail Properties

(Square feet in thousands)

Office

Retail

Office

Strips

Malls

Quarter Ended December 31, 2013:

Total square feet leased

559 

63 

312 

200 

137 

Our share of square feet leased

425 

52 

276 

200 

135 

Initial rent (1)

$

59.45 

$

276.62 

$

40.03 

$

23.27 

$

25.19 

Weighted average lease term (years)

9.4 

9.5 

5.3 

8.4 

4.6 

Second generation relet space:

Square feet

298 

50 

179 

129 

88 

Cash basis:

Initial rent (1)

$

59.92 

$

283.31 

$

38.95 

$

18.78 

$

21.30 

Prior escalated rent

$

54.39 

$

135.08 

$

39.96 

$

16.96 

$

20.94 

Percentage increase (decrease)

10.2% 

109.7% 

(2.5%) 

10.7% 

1.7% 

GAAP basis:

Straight-line rent (2)

$

58.79 

$

312.27 

$

38.53 

$

19.19 

$

21.57 

Prior straight-line rent

$

51.87 

$

217.85 

$

37.26 

$

16.34 

$

19.79 

Percentage increase

13.3% 

43.3% 

3.4% 

17.4% 

9.0% 

Tenant improvements and leasing

commissions:

Per square foot

$

67.95 

$

81.80 

$

26.84 

$

7.20 

$

4.77 

Per square foot per annum:

$

7.23 

$

8.61 

$

5.06 

$

0.86 

$

1.04 

Percentage of initial rent

12.2% 

3.1% 

12.6% 

3.7% 

4.1% 

Year Ended December 31, 2013:

Total square feet leased

2,410 

138 

1,836 

1,388 

674 

Our share of square feet leased

2,024 

121 

1,392 

1,388 

600 

Initial rent (1)

$

60.78 

$

268.52 

$

39.91 

$

17.27 

$

26.39 

Weighted average lease term (years)

11.0 

8.6 

7.0 

6.2 

8.1 

Second generation relet space:

Square feet

1,716 

103 

910 

959 

205 

Cash basis:

Initial rent (1)

$

60.04 

$

262.67 

$

40.91 

$

16.57 

$

23.59 

Prior escalated rent

$

56.84 

$

117.45 

$

41.16 

$

15.18 

$

22.76 

Percentage increase (decrease)

5.6% 

123.7% 

(0.6%) 

9.2% 

3.6% 

GAAP basis:

Straight-line rent (2)

$

59.98 

$

293.45 

$

40.87 

$

16.91 

$

24.04 

Prior straight-line rent

$

52.61 

$

152.34 

$

39.36 

$

14.76 

$

21.87 

Percentage increase

14.0% 

92.6% 

3.8% 

14.6% 

9.9% 

Tenant improvements and leasing

commissions:

Per square foot

$

61.78 

$

100.93 

$

33.24 

$

3.96 

$

20.69 

Per square foot per annum:

$

5.61 

$

11.64 

$

4.75 

$

0.64 

$

2.55 

Percentage of initial rent

9.2% 

4.3% 

11.9% 

3.7% 

9.7% 

See notes on the following page.

 

42

 


 
 

 

Overview - continued

Leasing Activity - continued

New York

Washington, DC

Retail Properties

(Square feet in thousands)

Office

Retail

Office

Strips

Malls

Year Ended December 31, 2012:

Total square feet leased

1,950 

192 

2,111 

1,276 

146 

Our share of square feet leased:

1,754 

185 

1,901 

1,276 

101 

Initial rent (1)

$

57.15 

$

110.71 

$

40.55 

$

18.65 

$

38.45 

Weighted average lease term (years)

9.3 

11.9 

7.3 

8.2 

5.3 

Second generation relet space:

Square feet

1,405 

154 

1,613 

941 

17 

Cash basis:

Initial rent (1)

$

57.88 

$

110.21 

$

39.27 

$

15.98 

$

64.85 

Prior escalated rent

$

55.31 

$

88.47 

$

39.13 

$

14.58 

$

60.78 

Percentage increase

4.6% 

24.6% 

0.4% 

9.6% 

6.7% 

GAAP basis:

Straight-line rent(2)

$

57.34 

$

115.97 

$

38.96 

$

16.49 

$

66.24 

Prior straight-line rent

$

54.64 

$

89.52 

$

37.67 

$

13.69 

$

58.61 

Percentage increase

4.9% 

29.5% 

3.4% 

20.5% 

13.0% 

Tenant improvements and leasing

commissions:

Per square foot

$

54.45 

$

32.52 

$

35.49 

$

7.48 

$

18.66 

Per square foot per annum:

$

5.85 

$

2.73 

$

4.86 

$

0.91 

$

3.52 

Percentage of initial rent

10.2% 

2.5% 

12.0% 

4.9% 

9.2% 

(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.

 

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Overview - continued

Square footage (in service) and Occupancy as of December 31, 2013:

Square Feet (in service)

Number of

Total

Our

(Square feet in thousands)

properties

Portfolio

Share

Occupancy %

New York:

Office

31 

19,799 

16,358 

96.6%

Retail

55 

2,389 

2,166 

97.4%

Alexander's

2,178 

706 

99.4%

Hotel Pennsylvania

1,400 

1,400 

Residential - 1,653 units

1,523 

762 

94.8%

27,289 

21,392 

96.8%

Washington, DC:

Office, excluding the Skyline Properties

51 

13,581 

11,151 

85.4%

Skyline Properties

2,652 

2,652 

60.8%

Total Office

59 

16,233 

13,803 

80.7%

Residential - 2,405 units

2,588 

2,446 

96.3%

Other

379 

379 

100.0%

19,200 

16,628 

83.4%

Retail Properties:

Strip Shopping Centers

106 

14,951 

14,572 

94.3%

Regional Malls

5,273 

3,643 

94.3%

20,224 

18,215 

94.3%

Other:

Merchandise Mart

3,703 

3,694 

96.3%

555 California Street

1,795 

1,257 

94.5%

Primarily Warehouses

971 

971 

45.6%

6,469 

5,922 

Total square feet at December 31, 2013

73,182 

62,157 

 

44

 


 
 

 

Overview - continued

Square footage (in service) and Occupancy as of December 31, 2012:

Square Feet (in service)

Number of

Total

Our

(Square feet in thousands)

properties

Portfolio

Share

Occupancy %

New York:

Office

30 

19,375 

16,397 

95.8%

Retail

49 

2,211 

2,051 

96.8%

Alexander's

2,179 

706 

99.1%

Hotel Pennsylvania

1,400 

1,400 

Residential - 1,651 units

1,528 

873 

96.5%

26,693 

21,427 

96.1%

Washington, DC:

Office, excluding the Skyline Properties

51 

13,463 

10,994 

86.3%

Skyline Properties

2,643 

2,643 

60.0%

Total Office

59 

16,106 

13,637 

81.2%

Residential - 2,414 units

2,599 

2,457 

97.9%

Other

435 

435 

100.0%

19,140 

16,529 

84.1%

Retail Properties:

Strip Shopping Centers

107 

14,729 

14,350 

94.0%

Regional Malls

5,244 

3,608 

92.7%

19,973 

17,958 

93.7%

Other:

Merchandise Mart

3,905 

3,896 

94.6%

555 California Street

1,795 

1,257 

93.1%

Primarily Warehouses

971 

971 

55.9%

6,671 

6,124 

Total square feet at December 31, 2012

72,477 

62,038 

45

 


 
 

 

Overview - continued

 

 

Washington, DC Segment

 

Of the 2,395,000 square feet subject to the effects of the Base Realignment and Closure (“BRAC”) statute, 348,000 square feet has been taken out of service for redevelopment and 763,000 square feet has been leased or is pending.  The table below summarizes the status of the BRAC space as of December 31, 2013.

 

Rent Per

Square Feet

Square Foot

Total

Crystal City

Skyline

Rosslyn

Resolved:

Relet as of December 31, 2013

$

37.76 

724,000 

392,000 

268,000 

64,000 

Leases pending

45.16 

39,000 

39,000 

Taken out of service for redevelopment

348,000 

348,000 

1,111,000 

779,000 

268,000 

64,000 

To Be Resolved:

Vacated as of December 31, 2013

37.58 

922,000 

504,000 

336,000 

82,000 

Expiring in:

2014 

32.29 

292,000 

91,000 

201,000 

2015 

43.54 

70,000 

65,000 

5,000 

1,284,000 

660,000 

542,000 

82,000 

Total square feet subject to BRAC

2,395,000 

1,439,000 

810,000 

146,000 

 

 

Due to the effects of BRAC related move-outs and the sluggish leasing environment in the Washington, DC / Northern Virginia area, EBITDA from continuing operations for the year ended December 31, 2012 was lower than 2011 by $54,857,000 and EBITDA from continuing operations for the year ended December 31, 2013 was lower than 2012 by $14,254,000.  We estimate that 2014 EBITDA will be between $10,000,000 and $15,000,000 lower than 2013 EBITDA.

46

 


 

 

Critical Accounting Policies

 

 

In preparing the consolidated financial statements we have made estimates and assumptions that affect the reported amounts of 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. Set forth below is a summary of the accounting policies that we believe are critical to the preparation of our consolidated financial statements.  The summary should be read in conjunction with the more complete discussion of our accounting policies included in Note 2 to the consolidated financial statements in this Annual Report on Form 10-K.

 

Real Estate

 

Real estate is carried at cost, net of accumulated depreciation and amortization. Maintenance and repairs are expensed as incurred. Depreciation requires an estimate by management of the useful life of each property and improvement as well as an allocation of the costs associated with a property to its various components. If we do not allocate these costs appropriately or incorrectly estimate the useful lives of our real estate, depreciation expense may be misstated.  As real estate is undergoing development activities, all property operating expenses directly associated with and attributable to, the development and construction of a project, including interest expense, are capitalized to the cost of real property to the extent we believe such costs are recoverable through the value of the property.  The capitalization period begins when development activities are underway and ends when the project is substantially complete.  General and administrative costs are expensed as incurred.

 

Upon the acquisition of real estate, we assess the fair value of acquired assets (including land, buildings and improvements, identified intangibles, such as acquired above and below-market leases and acquired in-place leases and tenant relationships) and acquired liabilities and we allocate purchase price based on these assessments. We assess fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information.  Estimates of future cash flows are based on a number of factors, including historical operating results, known trends and market/economic conditions. Identified intangibles are recorded at their estimated fair value, separate and apart from goodwill. Identified intangibles that are determined to have finite lives are amortized over the period in which they are expected to contribute directly or indirectly to the future cash flows of the property or business acquired.   

 

As of December 31, 2013 and 2012, the carrying amounts of real estate, net of accumulated depreciation, were $14.9 billion and $15.2 billion, respectively.  As of December 31, 2013 and 2012, the carrying amounts of identified intangible assets (including acquired above-market leases, tenant relationships and acquired in-place leases) were $323,322,000 and $415,330,000, respectively, and the carrying amounts of identified intangible liabilities, a component of “deferred revenue” on our consolidated balance sheets, were $510,485,000 and $560,989,000, respectively.

 

Our properties, including any related intangible assets, are individually reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment exists when the carrying amount of an asset exceeds the aggregate projected future cash flows over the anticipated holding period on an undiscounted basis.  An impairment loss is measured based on the excess of the property’s carrying amount over its estimated fair value.  Impairment analyses are based on our current plans, intended holding periods and available market information at the time the analyses are prepared.  If our estimates of the projected future cash flows, anticipated holding periods, or market conditions change, our evaluation of impairment losses may be different and such differences could be material to our consolidated financial statements.  The evaluation of anticipated cash flows is subjective and is based, in part, on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results.  Plans to hold properties over longer periods decrease the likelihood of recording impairment losses.

 

47

 


 

 

Critical Accounting Policies – continued

 

Partially Owned Entities

 

We consolidate entities in which we have a controlling financial interest.  In determining whether we have a controlling financial interest in a partially owned entity and the requirement to consolidate the accounts of that entity, we consider factors such as ownership interest, board representation, management representation, authority to make decisions, and contractual and substantive participating rights of the partners/members as well as whether the entity is a variable interest entity (“VIE”) and we are the primary beneficiary.  We are deemed to be the primary beneficiary of a VIE when we have (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses or receive benefits that could potentially be significant to the VIE. When the requirements for consolidation are not met, we account for investments under the equity method of accounting if we have the ability to exercise significant influence over the entity.  Equity method investments are initially recorded at cost and subsequently adjusted for our share of net income or loss and cash contributions and distributions each period. Investments that do not qualify for consolidation or the equity method are accounted for on the cost method. 

 

Investments in partially owned entities are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.  An impairment loss is measured based on the excess of the carrying amount of an investment over its estimated fair value.  Impairment analyses are based on current plans, intended holding periods and available information at the time the analyses are prepared.  The ultimate realization of our investments in partially owned entities is dependent on a number of factors, including the performance of each investment and market conditions.  If our estimates of the projected future cash flows, the nature of development activities for properties for which such activities are planned and the estimated fair value of the investment change based on market conditions or otherwise, our evaluation of impairment losses may be different and such differences could be material to our consolidated financial statements.  The evaluation of anticipated cash flows is subjective and is based, in part, on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results. 

 

As of December 31, 2013 and 2012, the carrying amounts of investments in partially owned entities, including Toys “R” Us, was $1.2 billion and $1.7 billion, respectively.

 

 

Mortgage and Mezzanine Loans Receivable

 

We invest in mortgage and mezzanine loans of entities that have significant real estate assets.  These investments are either secured by the real property or by pledges of the equity interests of the entities owning the underlying real estate.  We record these investments at the stated principal amount net of any unamortized discount or premium.  We accrete or amortize any discount or premium over the life of the related receivable utilizing the effective interest method or straight-line method, if the result is not materially different. We evaluate the collectability of both interest and principal of each of our loans whenever events or changes in circumstances indicate such amounts may not be recoverable. A loan is impaired when it is probable that we will be unable to collect all amounts due according to the existing contractual terms. When a loan is impaired, the amount of the loss accrual is calculated by comparing the carrying amount of the investment to the present value of expected future cash flows discounted at the loan’s effective interest rate, or as a practical expedient, to the value of the collateral if the loan is collateral dependent. If our estimates of the collectability of both interest and principal or the fair value of our loans change based on market conditions or otherwise, our evaluation of impairment losses may be different and such differences could be material to our consolidated financial statements.

 

As of December 31, 2013 and 2012, the carrying amounts of mortgage and mezzanine loans receivable, net of a $5,845,000 allowance in 2013, were $170,972,000 and $225,359,000, respectively.  

48

 


 

 

Critical Accounting Policies – continued

 

 

Allowance For Doubtful Accounts

 

We periodically evaluate the collectability of amounts due from tenants and maintain an allowance for doubtful accounts ($21,869,000 and $37,674,000 as of December 31, 2013 and 2012) for estimated losses resulting from the inability of tenants to make required payments under the lease agreements. We also maintain an allowance for receivables arising from the straight-lining of rents ($4,355,000 and $3,165,000 as of December 31, 2013 and 2012, respectively). This receivable arises from earnings recognized in excess of amounts currently due under the lease agreements. Management exercises judgment in establishing these allowances and considers payment history and current credit status in developing these estimates. These estimates may differ from actual results, which could be material to our consolidated financial statements.

 

Revenue Recognition

 

We have the following revenue sources and revenue recognition policies:

 

·       Base Rent — income arising from tenant leases. These rents are recognized over the non-cancelable term of the related leases on a straight-line basis which includes the effects of rent steps and rent abatements under the leases.  We commence rental revenue recognition when the tenant takes possession of the leased space and the leased space is substantially ready for its intended use.  In addition, in circumstances where we provide a tenant improvement allowance for improvements that are owned by the tenant, we recognize the allowance as a reduction of rental revenue on a straight-line basis over the term of the lease.   

 

·       Percentage Rent — income arising from retail tenant leases that is contingent upon tenant sales exceeding defined thresholds. These rents are recognized only after the contingency has been removed (i.e., when tenant sales thresholds have been achieved).

 

·       Hotel Revenue — income arising from the operation of the Hotel Pennsylvania which consists of rooms revenue, food and beverage revenue, and banquet revenue. Income is recognized when rooms are occupied. Food and beverage and banquet revenue are recognized when the services have been rendered.

 

·       Trade Shows Revenue — income arising from the operation of trade shows, including rentals of booths. This revenue is recognized when the trade shows have occurred.

 

·       Expense Reimbursements — revenue arising from tenant leases which provide for the recovery of all or a portion of the operating expenses and real estate taxes of the respective property. This revenue is accrued in the same periods as the expenses are incurred.

 

·       Management, Leasing and Other Fees — income arising from contractual agreements with third parties or with partially owned entities. This revenue is recognized as the related services are performed under the respective agreements.

 

·      Cleveland Medical Mart — revenue arising from the development of the Cleveland Medical Mart.  This revenue was recognized as the related services were performed under the respective agreements using the criteria set forth in ASC 605-25, Multiple Element Arrangements.

 

Before we recognize revenue, we assess, among other things, its collectibility. If our assessment of the collectibility of revenue changes, the impact on our consolidated financial statements could be material.

 

Income Taxes

 

We operate in a manner intended to enable us to continue to qualify as a Real Estate Investment Trust (“REIT”) under Sections 856-860 of the Internal Revenue Code of 1986, as amended. Under those sections, a REIT which distributes at least 90% of its REIT taxable income as a dividend to its shareholders each year and which meets certain other conditions will not be taxed on that portion of its taxable income which is distributed to its shareholders. We distribute to our shareholders 100% of our taxable income. Therefore, no provision for Federal income taxes is required. If we fail to distribute the required amount of income to our shareholders, or fail to meet other REIT requirements, we may fail to qualify as a REIT which may result in substantial adverse tax consequences.

49

 


 
 

 

Net Income and EBITDA by Segment for the Years Ended December 31, 2013, 2012 and 2011

 

As a result of certain organizational changes and asset sales in 2012, the Merchandise Mart segment no longer met the criteria to be a separate reportable segment; accordingly, effective January 1, 2013, the remaining assets were reclassified to “Other.”  We have also reclassified the prior period segment financial results to conform to the current year presentation.  Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the years ended December 31, 2013, 2012 and 2011.

 

 

(Amounts in thousands)

For the Year Ended December 31, 2013

Retail

Total

New York

Washington, DC

Properties

Toys

Other

Total revenues

2,760,909 

1,509,266 

541,161 

425,716 

284,766 

Total expenses

1,886,719 

926,963 

347,686 

251,516 

360,554 

Operating income (loss)

874,190 

582,303 

193,475 

174,200 

(75,788)

(Loss) income from partially owned

entities, including Toys

(338,785)

15,527 

(6,968)

2,097 

(362,377)

12,936 

Income from Real Estate Fund

102,898 

102,898 

Interest and other investment

(loss) income, net

(24,699)

5,532 

129 

13 

(30,373)

Interest and debt expense

(483,190)

(181,966)

(102,277)

(44,203)

(154,744)

Net gain on disposition of wholly

owned and partially owned assets

3,407 

1,377 

2,030 

Income (loss) before income taxes

133,821 

421,396 

84,359 

133,484 

(362,377)

(143,041)

Income tax benefit (expense)

6,406 

(2,794)

14,031 

(2,311)

(2,520)

Income (loss) from continuing

operations

140,227 

418,602 

98,390 

131,173 

(362,377)

(145,561)

Income (loss) from discontinued

operations

424,513 

138,245 

287,536 

(1,268)

Net income (loss)

564,740 

556,847 

98,390 

418,709 

(362,377)

(146,829)

Less net (income) attributable to

noncontrolling interests

(88,769)

(10,786)

(3,065)

(74,918)

Net income (loss) attributable to

Vornado

475,971 

546,061 

98,390 

415,644 

(362,377)

(221,747)

Interest and debt expense(2)

758,781 

236,645 

116,131 

50,901 

181,586 

173,518 

Depreciation and amortization(2)

732,757 

293,974 

142,409 

72,161 

135,178 

89,035 

Income tax expense (benefit)(2)

26,371 

3,002 

(15,707)

2,311 

33,532 

3,233 

EBITDA(1)

1,993,880 

1,079,682 

(3)

341,223 

(4)

541,017 

(5)

(12,081)

44,039 

(6)

____________________________

See notes on page 52.

50

 


 
 

 

Net Income and EBITDA by Segment for the Years Ended December 31, 2013, 2012 and 2011 - continued

(Amounts in thousands)

For the Year Ended December 31, 2012

Retail

Total

New York

Washington, DC

Properties

Toys

Other

Total revenues

2,736,232 

1,354,874 

554,028 

370,177 

457,153 

Total expenses

2,071,663 

851,512 

360,056 

324,096 

535,999 

Operating income (loss)

664,569 

503,362 

193,972 

46,081 

(78,846)

Income (loss) from partially owned

entities, including Toys

423,126 

207,773 

(5,612)

1,458 

14,859 

204,648 

Income from Real Estate Fund

63,936 

63,936 

Interest and other investment

(loss) income, net

(260,945)

4,230 

126 

27 

(265,328)

Interest and debt expense

(493,713)

(146,350)

(115,574)

(57,057)

(174,732)

Net gain on disposition of wholly

owned and partially owned assets

13,347 

8,491 

4,856 

Income (loss) before income taxes

410,320 

569,015 

72,912 

(1,000)

14,859 

(245,466)

Income tax expense

(8,132)

(3,491)

(1,650)

(2,991)

Income (loss) from continuing

operations

402,188 

565,524 

71,262 

(1,000)

14,859 

(248,457)

Income from discontinued

operations

292,353 

10,610 

167,766 

39,357 

74,620 

Net income (loss)

694,541 

576,134 

239,028 

38,357 

14,859 

(173,837)

Less net (income) loss attributable to

noncontrolling interests

(77,281)

(2,138)

1,812 

(76,955)

Net income (loss) attributable to

Vornado

617,260 

573,996 

239,028 

40,169 

14,859 

(250,792)

Interest and debt expense(2)

760,523 

187,855 

133,625 

73,828 

147,880 

217,335 

Depreciation and amortization(2)

735,293 

252,257 

157,816 

86,529 

135,179 

103,512 

Income tax expense (benefit)(2)

7,026 

3,751 

1,943 

(16,629)

17,961 

EBITDA(1)

2,120,102 

1,017,859 

(3)

532,412 

(4)

200,526 

(5)

281,289 

88,016 

(6)

____________________________

See notes on the following page.

(Amounts in thousands)

For the Year Ended December 31, 2011

Retail

Total

New York

Washington, DC

Properties

Toys

Other

Total revenues

2,702,808 

1,333,280 

603,317 

374,482 

391,729 

Total expenses

1,890,582 

841,863 

369,255 

215,075 

464,389 

Operating income (loss)

812,226 

491,417 

234,062 

159,407 

(72,660)

Income (loss) from partially owned

entities, including Toys

118,612 

12,062 

(6,381)

2,700 

48,540 

61,691 

Income from Real Estate Fund

22,886 

22,886 

Interest and other investment

income (loss), net

148,783 

4,245 

199 

(33)

144,372 

Interest and debt expense

(519,157)

(151,728)

(115,456)

(64,592)

(187,381)

Net gain on disposition of wholly

owned and partially owned assets

15,134 

4,278 

10,856 

Income (loss) before income taxes

598,484 

355,996 

112,424 

101,760 

48,540 

(20,236)

Income tax expense

(23,925)

(2,084)

(2,690)

(34)

(19,117)

Income (loss) from continuing

operations

574,559 

353,912 

109,734 

101,726 

48,540 

(39,353)

Income from discontinued operations

165,441 

11,155 

52,390 

27,557 

74,339 

Net income

740,000 

365,067 

162,124 

129,283 

48,540 

34,986 

Less net (income) loss attributable to

noncontrolling interests

(77,698)

(10,042)

237 

(67,893)

Net income (loss) attributable to

Vornado

662,302 

355,025 

162,124 

129,520 

48,540 

(32,907)

Interest and debt expense(2)

797,920 

181,740 

134,270 

82,608 

157,135 

242,167 

Depreciation and amortization(2)

777,421 

247,630 

181,560 

91,040 

134,967 

122,224 

Income tax expense (benefit)(2)

4,812 

2,170 

3,123 

34 

(1,132)

617 

EBITDA(1)

2,242,455 

786,565 

(3)

481,077 

(4)

303,202 

(5)

339,510 

332,101 

(6)

____________________________

See notes on the following page.

51

 


 
 

 

Net Income and EBITDA by Segment for the Years Ended December 31, 2013, 2012 and 2011 - 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 expense (benefit) in the reconciliation of net income (loss) to EBITDA includes our share of these items from partially owned entities.

(3)

The elements of "New York" EBITDA are summarized below.

For the Year Ended December 31,

(Amounts in thousands)

2013 

2012 

2011 

Office(a)

759,941 

568,518 

539,734 

Retail

246,808 

189,484 

163,033 

Alexander's (b)

42,210 

231,402 

53,663 

Hotel Pennsylvania

30,723 

28,455 

30,135 

Total New York

1,079,682 

1,017,859 

786,565 

(a)

2013, 2012 and 2011 includes EBITDA from discontinued operations, net gains on sale of real estate and other items that affect comparability, aggregating $136,427, $16,245 and $9,635, respectively. Excluding these items, EBITDA was $623,514, $552,273 and $530,099, respectively.

(b)

2012 and 2011 includes EBITDA from discontinued operations, net gains on sale of real estate and other items that affect comparability, aggregating $191,040 and $14,204, respectively. Excluding these items, EBITDA was $40,362 and $39,459, respectively.

(4)

The elements of "Washington, DC" EBITDA are summarized below.

For the Year Ended December 31,

(Amounts in thousands)

2013 

2012 

2011 

Office, excluding the Skyline Properties (a)

268,373 

449,448 

385,285 

Skyline properties

29,499 

40,037 

56,148 

Total Office

297,872 

489,485 

441,433 

Residential

43,351 

42,927 

39,644 

Total Washington, DC

341,223 

532,412 

481,077 

(a)

2012 and 2011 includes EBITDA from discontinued operations, net gains on sale of real estate and other items that affect comparability, aggregating $176,935 and $70,743, respectively. Excluding these items, EBITDA was $272,513 and $314,542, respectively.

(5)

The elements of "Retail Properties" EBITDA are summarized below.

For the Year Ended December 31,

(Amounts in thousands)

2013 

2012 

2011 

Strip shopping centers(a)

285,612 

172,708 

210,022 

Regional malls(b)

255,405 

27,818 

93,180 

Total Retail properties

541,017 

200,526 

303,202 

(a)

2013, 2012 and 2011 includes EBITDA from discontinued operations, net gains on sale of real estate and other items that affect comparability, aggregating $128,343, $20,480 and $59,922, respectively. Excluding these items, EBITDA was $157,269, $152,228 and $150,100, respectively.

(b)

2013, 2012 and 2011 includes EBITDA from discontinued operations, net gains on sale of real estate and other items that affect comparability, aggregating $189,708, ($36,390) and $28,285, respectively. Excluding these items, EBITDA was $65,697, $64,208 and $64,895, respectively.

52

 


 
 

 

Net Income and EBITDA by Segment for the Years Ended December 31, 2013, 2012 and 2011 - continued

Notes to preceding tabular information:

(6)

The elements of "other" EBITDA are summarized below.

(Amounts in thousands)

For the Year Ended December 31,

2013 

2012 

2011 

Our share of Real Estate Fund:

Income before net realized/unrealized gains

1,676 

4,926 

4,205 

Net unrealized gains

21,443 

13,840 

2,999 

Net realized gains

2,046 

1,348 

Carried interest

24,306 

5,838 

736 

Total

49,471 

24,604 

9,288 

Merchandise Mart Building, 7 West 34th Street and trade shows

74,270 

62,470 

50,406 

555 California Street

42,667 

46,167 

44,724 

India real estate ventures

5,841 

3,654 

7,037 

LNR (a) 

20,443 

75,202 

47,614 

Lexington (b) 

6,931 

32,595 

34,779 

Other investments

18,981 

25,612 

26,092 

218,604 

270,304 

219,940 

Corporate general and administrative expenses(c) 

(94,904)

(89,082)

(85,922)

Investment income and other, net(c) 

46,525 

45,563 

55,202 

Net gain on sale of marketable securities, land parcels and residential

condominiums

56,868 

4,856 

10,904 

Loss on sale of J.C. Penney common shares

(54,914)

Non-cash impairment loss on J.C. Penney common shares

(39,487)

(224,937)

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

(33,487)

(75,815)

12,984 

Acquisition related costs and impairment losses

(24,857)

(17,386)

(5,925)

Severance costs (primarily reduction in force at the Merchandise Mart)

(5,492)

(3,005)

(4,226)

Purchase price fair value adjustment and accelerated amortization of

discount on investment in subordinated debt of Independence Plaza

105,366 

Merchandise Mart discontinued operations (including net gains on sale of assets)

93,588 

97,272 

Net gain resulting from Lexington's stock issuance and asset acquisition

28,763 

9,760 

Verde Realty impairment loss

(4,936)

Mezzanine loans loss reversal and net gain on disposition

82,744 

Non-cash impairment loss on India land parcel

(13,794)

Net gain from Suffolk Downs' sale of a partial interest

12,525 

Real Estate Fund placement fees

(3,451)

Net income attributable to noncontrolling interests in the Operating Partnership

(23,659)

(35,327)

(41,059)

Preferred unit distributions of the Operating Partnership

(1,158)

(9,936)

(14,853)

44,039 

88,016 

332,101 

(a) 

On April 19, 2013, LNR was sold.

(b) 

In the first quarter of 2013, we began accounting for our investment in Lexington as a marketable equity security - available for sale. This investment was previously accounted for under the equity method.

(c) 

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

53

 


 

 

Net Income and EBITDA by Segment for the Years Ended December 31, 2013, 2012 and 2011 - continued

        

EBITDA by Region

 

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, Washington, DC and Retail Properties segments.

 

For the Year Ended December 31,

2013 

2012 

2011 

Region:

New York City metropolitan area

73%

70%

66%

Washington, DC / Northern Virginia metropolitan area

23%

26%

29%

Puerto Rico

2%

2%

2%

California

1%

1%

1%

Other geographies

1%

1%

2%

100%

100%

100%

54

 


 
 

 

Results of Operations – Year Ended December 31, 2013 Compared to December 31, 2012

 

Revenues

Our revenues, which consist of property rentals (including hotel and trade show revenues), tenant expense reimbursements, and fee and other income, were $2,760,909,000 in the year ended December 31, 2013, compared to $2,736,232,000 in the prior year, an increase of $24,677,000.  Below are the details of the increase (decrease) by segment:

 

(Amounts in thousands)

Retail

Increase (decrease) due to:

Total

New York

Washington, DC

Properties

Other

Property rentals:

Acquisitions and other

$

63,291 

$

75,004 

$

462 

$

(11,602)

$

(573)

Properties placed into / taken out of

service for redevelopment

(5,164)

(1,138)

(2,333)

(1,647)

(46)

Hotel Pennsylvania

8,201 

8,201 

Trade Shows

(6,210)

(6,210)

Same store operations

33,784 

27,115 

(15,267)

7,322 

14,614 

93,902 

109,182 

(17,138)

(5,927)

7,785 

Tenant expense reimbursements:

Acquisitions and other

1,155 

2,715 

(604)

(1,860)

904 

Properties placed into / taken out of

service for redevelopment

(1,334)

(402)

193 

(1,027)

(98)

Same store operations

22,940 

8,624 

2,443 

5,902 

5,971 

22,761 

10,937 

2,032 

3,015 

6,777 

Cleveland Medical Mart development project

(198,865)

(1)

(198,865)

(1)

Fee and other income:

BMS cleaning fees

(1,079)

(9,208)

8,129 

(2)

Signage revenue

11,974 

11,974 

Management and leasing fees

2,788 

4,177 

1,691 

(1,567)

(1,513)

Lease termination fees

90,136 

25,333 

(3) 

983 

59,793 

(4) 

4,027 

(5) 

Other income

3,060 

1,997 

(435)

225 

1,273 

106,879 

34,273 

2,239 

58,451 

11,916 

Total increase (decrease) in revenues

$

24,677 

$

154,392 

$

(12,867)

$

55,539 

$

(172,387)

(1)

Primarily due to the completion of the project. This decrease in revenue is offset by a decrease in development costs expensed in the period. See note (3) on page 56.

(2)

Represents the elimination of intercompany fees from operating segments upon consolidation. See note (2) on page 56.

(3)

Primarily due to a $19,500 termination fee from a tenant at 1290 Avenue of the Americas. Our share of this income, net of the write off of the straight lining of rents and amounts attributable to the noncontrolling interest was $12,121.

(4)

Results primarily from income recognized in the first quarter of 2013 in connection with the settlement of the Stop & Shop litigation.

(5)

Primarily due to $3,000 from the termination of our subsidiaries' agreements with Cuyahoga County to operate the Cleveland Medical Mart Convention Center.

55

 


 
 

 

Results of Operations – Year Ended December 31, 2013 Compared to December 31, 2012 - continued

 

Expenses

Our expenses, which consist primarily of operating (including hotel and trade show expenses), depreciation and amortization and general and administrative expenses, were $1,886,719,000 in the year ended December 31, 2013, compared to $2,071,663,000 in the prior year, a decrease of $184,944,000.  Below are the details of the increase (decrease) by segment:

 

(Amounts in thousands)

Retail

Increase (decrease) due to:

Total

New York

Washington, DC

Properties

Other

Operating:

Acquisitions and other

$

23,591 

$

26,583 

$

$

(1,409)

$

(1,583)

Properties placed into / taken out of

service for redevelopment

(9,370)

(1,933)

(992)

(5,307)

(1,138)

Non-reimbursable expenses, including

bad-debt reserves

928 

(3,366)

1,470 

2,824 

Hotel Pennsylvania

6,012 

6,012 

Trade Shows

(4,872)

(4,872)

BMS expenses

(5,056)

(8,500)

3,444 

(2) 

Same store operations

26,333

15,132

2,037 

6,581 

2,583 

37,566 

33,928 

1,045 

1,335 

1,258 

Depreciation and amortization:

Acquisitions and other

38,791 

41,047 

(1,882)

(374)

Properties placed into / taken out of

service for redevelopment

(20,644)

(552)

(16,177)

(3,915)

Same store operations

2,682 

(3,020)

2,369 

1,601 

1,732 

20,829 

37,475 

(13,808)

(4,196)

1,358 

General and administrative:

Mark-to-market of deferred compensation

plan liability (1)

3,827 

3,827 

Non-same store

7,287 

7,287 

Same store operations

(2,458)

4,048 

393 

(4,662)

(2,237)

8,656 

4,048 

393 

(4,662)

8,877 

Cleveland Medical Mart development project

(194,409)

(3)

(194,409)

(3)

Impairment losses, acquisition related costs

and tenant buy-outs

(57,586)

(65,057)

7,471 

Total (decrease) increase in expenses

$

(184,944)

$

75,451 

$

(12,370)

$

(72,580)

$

(175,445)

(1)

This increase in expense is entirely offset by a corresponding increase 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)

Represents the elimination of intercompany fees from operating segments upon consolidation. See note (2) on page 55.

(3)

Primarily due to the completion of the project. This decrease in expense is offset by the decrease in development revenue in the period. See note (1) on page 55.

56

 


 
 

 

Results of Operations – Year Ended December 31, 2013 Compared to December 31, 2012 - continued

 

(Loss) Income Applicable to Toys

 

In the year ended December 31, 2013, we recognized a net loss of $362,377,000 from our investment in Toys, comprised of $128,919,000 for our 32.6% share of Toys’ net loss and $240,757,000 of non-cash impairment losses (see below), partially offset by $7,299,000 of management fee income.  In the year ended December 31, 2012, we recognized net income of $14,859,000 from our investment in Toys, comprised of $45,267,000 for our 32.6% share of Toys’ net income and $9,592,000 of management fee income, partially offset by a $40,000,000 non-cash impairment loss (see below). 

 

We account for Toys on the equity method, which means our investment is increased for our pro rata share of Toys undistributed net income.  At December 31, 2012, we estimated that the fair value of our investment was $40,000,000 less than the carrying amount of $518,041,000 and concluded that the decline in the value of our investment was “other-than-temporary” based on, among other factors, compression of earnings multiples of comparable retailers and our inability to forecast a recovery in the near term.  Accordingly, we recognized a non-cash impairment loss of $40,000,000 in the fourth quarter of 2012. 

 

In the first quarter of 2013, we recognized our share of Toys’ fourth quarter net income of $78,542,000 and a corresponding non-cash impairment loss of the same amount to continue to carry our investment at fair value. 

 

At December 31, 2013, we estimated that the fair value of our investment in Toys was approximately $80,062,000 ($83,224,000 including $3,162,000 for our share of Toys’ accumulated other comprehensive income), or $162,215,000 less than the carrying amount after recognizing our share of Toys third quarter net loss in our fourth quarter.  In determining the fair value of our investment, we considered, among other inputs, a December 31, 2013 third-party valuation of Toys.  We have concluded that the decline in the value of our investment is “other-than-temporary” based on, among other factors, Toys’ 2013 holiday sales results, compression of earnings multiples of comparable retailers and our inability to forecast a recovery in the near term.  Accordingly, we recognized an additional non-cash impairment loss of $162,215,000 in the fourth quarter of 2013. 

 

We will continue to assess the recoverability of our investment each quarter.  To the extent the fair value of our investment does not change, we will recognize a non-cash impairment loss equal to our share of Toys’ fourth quarter net income, if any, in our first quarter of 2014.

 

 

Income from Partially Owned Entities

 

Summarized below are the components of income (loss) from partially owned entities for the years ended December 31, 2013 and 2012.

 

Percentage

For the Year Ended

Ownership at

December 31,

(Amounts in thousands)

December 31, 2013

2013 

2012 

Equity in Net Income (Loss):

Alexander's (1)

32.4%

$

24,402 

$

218,391 

Lexington (2)

n/a

(979)

28,740 

LNR (3)

n/a

18,731 

66,270 

India real estate ventures

4.1%-36.5%

(3,533)

(5,008)

Partially owned office buildings (4)

Various

(4,212)

(3,770)

Other investments(5) (6) 

Various

(10,817)

103,644 

$

23,592 

$

408,267 

(1)

2012 includes $186,357 of income comprised of (i) a $179,934 net gain and (ii) $6,423 of commissions in connection with the sale of real estate.

(2)

2012 includes a $28,763 net gain resulting primarily from Lexington's stock issuances. In the first quarter of 2013, we began accounting for our investment in Lexington as a marketable equity security - available for sale.

(3)

On April 19, 2013, LNR was sold for $1.053 billion. See page 40 for details.

(4)

Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 666 Fifth Avenue (Office), 330 Madison Avenue and others.

(5)

Includes interests in Independence Plaza, Monmouth Mall, 85 10th Avenue, Fashion Center Mall, 50-70 West 93rd Street and others.

(6)

2012 includes $105,366 of income from Independence Plaza comprised of (i) $60,396 from the accelerated amortization of discount on investment in the subordinated debt of the property and (ii) a $44,970 purchase price fair value adjustment from the exercise of a warrant to acquire 25% of the equity interest in the property.

57

 


 
 

 

Results of Operations – Year Ended December 31, 2013 Compared to December 31, 2012 - continued

 

 

Income from Real Estate Fund

 

Below are the components of the income from our Real Estate Fund for the year ended December 31, 2013 and 2012.

 

(Amounts in thousands)

For the Year Ended December 31,

2013 

2012 

Net investment income

$

8,943 

$

8,575 

Net realized gains

8,184 

Net unrealized gains

85,771 

55,361 

Income from Real Estate Fund

102,898 

63,936 

Less (income) attributable to noncontrolling interests

(53,427)

(39,332)

Income from Real Estate Fund attributable to Vornado (1)

$

49,471 

$

24,604 

___________________________________ 

(1)

Excludes management, leasing and development fees of $2,992 and $3,278 for the years ended December 31, 2013 and 2012, respectively, which are included as a component of "fee and other income" on our consolidated statements of income.

                   

 

 

Interest and Other Investment (Loss) Income, net

Interest and other investment (loss) income, net was a loss of $24,699,000 in the year ended December 31, 2013, compared to a loss of $260,945,000 in the prior year, a decrease in loss of $236,246,000.  This decrease resulted from:

 

(Amounts in thousands)

Non-cash impairment on J.C. Penney common shares ($39,487 in 2013, compared to

$224,937 in 2012)

$

185,450 

J.C. Penney derivative position ($33,487 mark-to-market loss in 2013, compared to a $75,815

mark-to-market loss in 2012)

42,328 

Higher interest on mezzanine loans receivable

5,634 

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

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

3,827 

Lower dividends and interest on marketable securities

(533)

Other, net

(460)

$

236,246 

 

Interest and Debt Expense

Interest and debt expense was $483,190,000 in the year ended December 31, 2013, compared to $493,713,000 in the prior year, a decrease of $10,523,000.  This decrease was primarily due to (i) $25,502,000 of higher capitalized interest and (ii) $4,738,000 of interest savings from the restructuring of the Skyline properties mortgage loan in the fourth quarter of 2013, partially offset by (iii) interest expense of $12,319,000 from the financing of the retail condominium at 666 Fifth Avenue in the first quarter of 2013, and (iv) an $8,436,000 prepayment penalty in connection with the refinancing of Eleven Penn Plaza.

 

Net Gain on Disposition of Wholly Owned and Partially Owned Assets

Net gain on disposition of wholly owned and partially owned assets was $3,407,000 in the year ended December 31, 2013 (comprised primarily of net gains from the sale of marketable securities, land parcels (including Harlem Park), and residential condominiums aggregating $58,245,000, partially offset by a $54,914,000 net loss on sale of J.C. Penney common shares), compared to $13,347,000 in the year ended December 31, 2012 (comprised of net gains from the sale of marketable securities, land parcels and residential condominiums).

 

Income Tax Benefit (Expense)

In the year ended December 31, 2013, we had an income tax benefit of $6,406,000, compared to an expense of $8,132,000 in the prior year, a decrease in expense of $14,538,000.  This decrease resulted primarily from a reversal of previously accrued deferred tax liabilities in the current year due to a change in the effective tax rate resulting from an amendment of the Washington, DC Unincorporated Business Tax Statute. 

58

 


 

 

Results of Operations – Year Ended December 31, 2013 Compared to December 31, 2012 - continued

 

Income from Discontinued Operations

We have reclassified the revenues and expenses of the properties that were sold to “income from discontinued operations” and the related assets and liabilities to “assets related to discontinued operations” and “liabilities related to discontinued operations” for all the periods presented in the accompanying financial statements.  The table below sets forth the combined results of assets related to discontinued operations for the years ended December 31, 2013 and 2012.

 

For the Year Ended December 31,

(Amounts in thousands)

2013 

2012 

Total revenues

$

38,043 

$

177,629 

Total expenses

23,305 

120,393 

14,738 

57,236 

Net gains on sale of real estate

414,502 

245,799 

Gain on sale of Canadian Trade Shows, net of $11,448 of income taxes

19,657 

Impairment losses

(4,727)

(30,339)

Income from discontinued operations

$

424,513 

$

292,353 

 

Net Income Attributable to Noncontrolling Interests in Consolidated Subsidiaries

 

Net income attributable to noncontrolling interests in consolidated subsidiaries was $63,952,000 in the year ended December 31, 2013, compared to $32,018,000 in the prior year, an increase of $31,934,000.  This increase resulted primarily from (i) $14,095,000 of higher net income allocated to the noncontrolling interests of our Real Estate Fund, (ii) $13,222,000 of lower income in the prior year resulting from a priority return on our investment in 1290 Avenue of the Americas and 555 California Street, and (iii) $2,909,000 of income allocated to the noncontrolling interest for its share of the net gain on sale of a retail property in Tampa, Florida.

 

 

Net Income Attributable to Noncontrolling Interests in the Operating Partnership

 

Net income attributable to noncontrolling interests in the Operating Partnership was $23,659,000 in the year ended December 31, 2013, compared to $35,327,000 in the prior year, a decrease of $11,668,000.  This decrease resulted primarily from lower net income subject to allocation to unitholders.

 

 

Preferred Unit Distributions of the Operating Partnership

 

Preferred unit distributions of the Operating Partnership were $1,158,000 in the year ended December 31, 2013, compared to $9,936,000 in the prior year, a decrease of $8,778,000.  This decrease resulted primarily from the redemption of the 6.875% Series D-15 cumulative redeemable preferred units in May 2013, and the 7.0% Series D-10 and 6.75% Series D-14 cumulative redeemable preferred units in July 2012.

 

Preferred Share Dividends

 

Preferred share dividends were $82,807,000 in the year ended December 31, 2013, compared to $76,937,000 in the prior year, an increase of $5,870,000.  This increase resulted from the issuance of $300,000,000 of 5.70% Series K cumulative redeemable preferred shares in July 2012 and $300,000,000 of 5.40% Series L cumulative redeemable preferred shares in January 2013, partially offset by the redemption of $262,500,000 of 6.75% Series F and Series H cumulative redeemable preferred shares in February 2013 and $75,000,000 of 7.0% Series E cumulative redeemable preferred shares in August 2012.

 

 

Preferred Unit and Share Redemptions

 

In year ended December 31, 2013, we recognized $1,130,000 of expense in connection with preferred unit and share redemptions, comprised of $9,230,000 of expense from the redemption of the 6.75% Series F and Series H cumulative redeemable preferred shares in February 2013, partially offset by an $8,100,000 discount from the redemption of all of the 6.875% Series D-15 cumulative redeemable preferred units in May 2013.  In the year ended December 31, 2012, we recognized an $8,948,000 discount primarily from the redemption of all of the 7.0% Series D-10 and 6.75% Series D-14 cumulative redeemable preferred units.

59

 


 
 

 

Results of Operations – Year Ended December 31, 2013 Compared to December 31, 2012 - 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 is the reconciliation of EBITDA to same store EBITDA on a GAAP basis for each of our segments for the year ended December 31, 2013, compared to year ended December 31, 2012.

 

(Amounts in thousands)

New York

Washington, DC

Retail Properties

EBITDA for the year ended December 31, 2013

$

1,079,682 

$

341,223 

$

541,017 

Add-back:

Non-property level overhead expenses included above

34,087 

27,630 

18,992 

Less EBITDA from:

Acquisitions

(67,613)

Dispositions, including net gains on sale

(136,854)

(150)

(290,727)

Properties taken out-of-service for redevelopment

(20,050)

(4,457)

(4,723)

Other non-operating (income) expense

(29,856)

(1,129)

(27,335)

GAAP basis same store EBITDA for the year ended

December 31, 2013

$

859,396 

$

363,117 

$

237,224 

EBITDA for the year ended December 31, 2012

$

1,017,859 

$

532,412 

$

200,526 

Add-back:

Non-property level overhead expenses included above

30,039 

27,237 

23,654 

Less EBITDA from:

Acquisitions

(4,131)

Dispositions, including net gains on sale

(200,050)

(176,052)

(77,048)

Properties taken out-of-service for redevelopment

(20,056)

(9,319)

(970)

Other non-operating (income) expense

(9,024)

(838)

84,581 

GAAP basis same store EBITDA for the year ended

December 31, 2012

$

814,637 

$

373,440 

$

230,743 

Increase (decrease) in GAAP basis same store EBITDA -

Year ended December 31, 2013 vs. December 31, 2012(1)

$

44,759 

$

(10,323)

$

6,481 

% increase (decrease) in GAAP basis same store EBITDA

5.5% 

(2.8%) 

2.8% 

(1)

See notes on following page

60

 


 
 

 

Results of Operations – Year Ended December 31, 2013 Compared to December 31, 2012 - continued

 

 

Notes to preceding tabular information:

 

 

New York:

 

The $44,759,000 increase in New York GAAP basis same store EBITDA resulted primarily from increases in Office and Retail of $32,415,000 and $9,595,000, respectively.  The Office increase resulted primarily from higher (i) rental revenue of $16,405,000 (primarily due to a $1.85 increase in average annual rents per square foot) and (ii) signage revenue and management and leasing fees of $16,151,000.  The Retail increase resulted primarily from higher rental revenue of $10,710,000, (primarily due to a $9.35 increase in average annual rents per square foot).

 

 

Washington, DC:

 

The $10,323,000 decrease in Washington, DC GAAP basis same store EBITDA resulted primarily from lower rental revenue of $15,267,000, primarily due to a 330 basis point decrease in office average same store occupancy to 82.8% from 86.1%, a significant portion of which resulted from the effects of BRAC related move-outs and the sluggish environment in the Washington, DC / Northern Virginia area (see page 46).

 

 

Retail Properties:

 

The $6,481,000 increase in Retail Properties GAAP basis same store EBITDA resulted primarily from higher rental revenue of $7,322,000, due to a 130 basis point increase in average same store occupancy to 93.5% from 92.2%, and a $0.19 increase in average annual rents per square foot. 

 

 

 

Below is the reconciliation of GAAP basis same store EBITDA to same store EBITDA on a Cash basis for each of our segments for the year ended December 31, 2013, compared to year ended December 31, 2012.

 

(Amounts in thousands)

New York

Washington, DC

Retail Properties

GAAP basis same store EBITDA for the year ended

December 31, 2013

$

859,396 

$

363,117 

$

237,224 

Less: Adjustments for straight line rents, amortization of acquired

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

(107,060)

(10,181)

(11,762)

Cash basis same store EBITDA for the year ended

December 31, 2013

$

752,336 

$

352,936 

$

225,462 

GAAP basis same store EBITDA for the year ended

December 31, 2012

$

814,637 

$

373,440 

$

230,743 

Less: Adjustments for straight line rents, amortization of acquired

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

(115,828)

(6,484)

(13,279)

Cash basis same store EBITDA for the year ended

December 31, 2012

$

698,809 

$

366,956 

$

217,464 

Increase (decrease) in Cash basis same store EBITDA -

Year ended December 31, 2013 vs. December 31, 2012

$

53,527 

$

(14,020)

$

7,998 

% increase (decrease) in Cash basis same store EBITDA

7.7% 

(3.8%) 

3.7% 

61

 


 
 

 

Results of Operations – Year Ended December 31, 2012 Compared to December 31, 2011

 

Revenues

Our revenues, which consist primarily of property rentals (including hotel and trade show revenues), tenant expense reimbursements, and fee and other income, were $2,736,232,000 in the year ended December 31, 2012, compared to $2,702,808,000 in the year ended December 31, 2011, an increase of $33,424,000. Below are the details of the increase (decrease) by segment:

 

(Amounts in thousands)

Retail

Increase (decrease) due to:

Total

New York

Washington, DC

Properties

Other

Property rentals:

Acquisitions and other

$

15,139 

$

9,528 

$

5,611 

$

$

Properties placed into / taken out of

service for redevelopment

(29,707)

(5,339)

(22,312)

(2,056)

Hotel Pennsylvania

1,113 

1,113 

Trade Shows

(4,281)

(4,281)

Same store operations

(11,691)

27,521 

(38,658)

7,004 

(7,558)

(29,427)

32,823 

(55,359)

4,948 

(11,839)

Tenant expense reimbursements:

Acquisitions and other

(7,146)

(4,790)

2,724 

(2,393)

(2,687)

Properties placed into / taken out of

service for redevelopment

(4,930)

(845)

(1,643)

(2,442)

Same store operations

(949)

549 

3,362 

(3,004)

(1,856)

(13,025)

(5,086)

4,443 

(7,839)

(4,543)

Cleveland Medical Mart development project

81,154 

(1)

81,154 

(1)

Fee and other income:

BMS cleaning fees

5,830 

4,932 

898 

Signage revenue

1,069 

1,069 

Management and leasing fees

66 

544 

414 

(859)

(33)

Lease termination fees

(13,973)

(10,703)

(3,151)

(393)

274 

Other income

1,730 

(1,985)

4,364 

(162)

(487)

(5,278)

(6,143)

1,627 

(1,414)

652 

Total increase (decrease) in revenues

$

33,424 

$

21,594 

$

(49,289)

$

(4,305)

$

65,424 

(1)

This increase in income is offset by an increase in development costs expensed in the period. See note (5) on page 63.

62

 


 
 

 

Results of Operations – Year Ended December 31, 2012 Compared to December 31, 2011 - continued

 

Expenses

Our expenses, which consist primarily of operating (including hotel and trade show expenses), depreciation and amortization and general and administrative expenses, were $2,071,663,000 in the year ended December 31, 2012, compared to $1,890,582,000 in the year ended December 31, 2011, an increase of $181,081,000. Below are the details of the increase (decrease) by segment:

 

(Amounts in thousands)

Retail

Increase (decrease) due to:

Total

New York

Washington, DC

Properties

Other

Operating:

Acquisitions and other

$

7,422 

$

6,617 

$

3,492 

$

$

(2,687)

Properties placed into / taken out of

service for redevelopment

(9,037)

(1,074)

(4,829)

(3,134)

Non-reimbursable expenses, including

bad-debt reserves

14,446 

(3,347)

2,662 

21,761 

(2)

(6,630)

Hotel Pennsylvania

2,594 

2,594 

Trade Shows

(4,438)

(4,438)

BMS expenses

5,139 

4,241 

898 

Same store operations

16,498 

15,820 

4,454 

(4,897)

1,121 

32,624 

24,851 

5,779 

13,730 

(11,736)

Depreciation and amortization:

Acquisitions and other

7,960 

3,298 

4,662 

Properties placed into / taken out of

service for redevelopment

(16,777)

(975)

(15,188)

(3)

(614)

Same store operations

2,978 

2,959 

(5,320)

609 

4,730 

(5,839)

5,282 

(15,846)

(5)

4,730 

General and administrative:

Mark-to-market of deferred compensation

plan liability (1)

5,151 

5,151 

Non-same store

(3,451)

(3,451)

Same store operations

(7,786)

3,293 

868 

(1,835)

(10,112)

(4)

(6,086)

3,293 

868 

(1,835)

(8,412)

Cleveland Medical Mart development project

80,795 

(5)

80,795 

(5)

Impairment losses, acquisition related costs

and tenant buy-outs

79,587 

(23,777)

(6)

97,131 

(7)

6,233 

Total increase (decrease) in expenses

$

181,081 

$

9,649 

$

(9,199)

$

109,021 

$

71,610 

(1)

This increase in expense is entirely offset by a corresponding increase 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)

Primarily from a $23,521 reversal of the Stop & Shop accounts receivable reserve in 2011.

(3)

Primarily from depreciation expense on 1851 South Bell Street in 2011, which was taken out of service for redevelopment.

(4)

Primarily from lower payroll costs due to a reduction in workforce at the Merchandise Mart.

(5)

This increase in expense is offset by the increase in development revenue in the period. See note (1) on page 62.

(6)

Represents the buy-out of below-market leases in 2011.

(7)

Primarily from a non-cash impairment loss of $70,100 on the Broadway Mall.

63

 


 
 

 

Results of Operations – Year Ended December 31, 2012 Compared to December 31, 2011 - continued

 

Income Applicable to Toys

 

In the year ended December 31, 2012, we recognized net income of $14,859,000 from our investment in Toys, comprised of $45,267,000 for our 32.6% share of Toys’ net income and $9,592,000 of management fee income, partially offset by a $40,000,000 non-cash impairment loss. 

 

In the year ended December 31, 2011, we recognized net income of $48,540,000 from our investment in Toys, comprised of $39,592,000 for our 32.7% share of Toys’ net income and $8,948,000 of management fee income. 

 

 

Income from Partially Owned Entities

Summarized below are the components of income (loss) from partially owned entities for the years ended December 31, 2012 and 2011.

 

Percentage

For the Year Ended

Ownership at

December 31,

(Amounts in thousands)

December 31, 2012

2012 

2011 

Equity in Net Income (Loss):

Alexander's (1)

32.4%

$

218,391 

$

32,430 

Lexington (2)

10.5%

28,740 

8,351 

LNR

26.2%

66,270 

58,786 

India real estate ventures

4.0%-36.5%

(5,008)

(14,881)

Partially owned office buildings (3)

Various

(3,770)

(22,270)

Other investments(4) (5) 

Various

103,644 

7,656 

$

408,267 

$

70,072 

(1)

2012 includes $186,357 of income comprised of (i) a $179,934 net gain and (ii) $6,423 of commissions in connection with the sale of real estate.

(2)

2012 includes a $28,763 net gain resulting primarily from Lexington's stock issuances.

(3)

Includes interests in 280 Park Avenue, One Park Avenue, 666 Fifth Avenue (Office), 330 Madison Avenue and others.

(4)

Includes interests in Independence Plaza, Monmouth Mall, 85 10th Avenue, Fashion Center Mall, 50-70 West 93rd Street and others.

(5)

2012 includes $105,366 of income from Independence Plaza comprised of (i) $60,396 from the accelerated amortization of discount on investment in the subordinated debt of the property and (ii) a $44,970 purchase price fair value adjustment from the exercise of a warrant to acquire 25% of the equity interest in the property.

 

 

Income from Real Estate Fund

 

Below are the components of the income from our Real Estate Fund for the year ended December 31, 2012 and 2011.

 

(Amounts in thousands)

For the Year Ended December 31,

2012 

2011 

Net investment income

$

8,575 

$

5,500 

Net realized gains

5,391 

Net unrealized gains

55,361 

11,995 

Income from Real Estate Fund

63,936 

22,886 

Less (income) attributable to noncontrolling interests

(39,332)

(13,598)

Income from Real Estate Fund attributable to Vornado (1)

$

24,604 

$

9,288 

___________________________________ 

(1)

Excludes management, leasing and development fees of $3,278 and $2,695 for the years ended December 31, 2012 and 2011, respectively, which are included as a component of "fee and other income" on our consolidated statements of income.

                   

64

 


 

 

Results of Operations – Year Ended December 31, 2012 Compared to December 31, 2011 - continued

 

 

Interest and Other Investment (Loss) Income, net

 

Interest and other investment (loss) income, net was a loss of $260,945,000 in the year ended December 31, 2012, compared to income of  $148,783,000 in the year ended December 31, 2011, a decrease in income of $409,728,000. This decrease resulted from:

 

(Amounts in thousands)

Non-cash impairment loss on J.C. Penney common shares in 2012

$

(224,937)

J.C. Penney derivative position ($75,815 mark-to-market loss in 2012, compared to a $12,984

mark-to-market gain in 2011)

(88,799)

Mezzanine loan loss reversal and net gain on disposition in 2011

(82,744)

Lower dividends and interest on marketable securities

(17,608)

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

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

5,151 

Other, net

(791)

$

(409,728)

 

Interest and Debt Expense

Interest and debt expense was $493,713,000 in the year ended December 31, 2012, compared to $519,157,000 in the year ended December 31, 2011, a decrease of $25,444,000.  This decrease was primarily due to (i) $27,077,000 from the redemption of our exchangeable and convertible senior debentures in April 2012 and November 2011, respectively, (ii) $15,604,000 of higher capitalized interest and (iii) $12,082,000 from the refinancing of 350 Park Avenue in January 2012, partially offset by (iv) $18,833,000 from the issuance of $400,000,000 of senior unsecured notes in November 2011, (v) $6,093,000 from the refinancing of 100 West 33rd Street in March 2012 and (vi) $4,715,000 from borrowings under our revolving credit facilities. 

 

 

Net Gain on Disposition of Wholly Owned and Partially Owned Assets

Net gain on disposition of wholly owned and partially owned assets was $13,347,000 in year ended December 31, 2012, compared to $15,134,000, in the year ended December 31, 2011 and resulted primarily from the sale of marketable securities, land parcels and residential condominiums.

 

 

Income Tax Benefit (Expense)

Income tax benefit (expense) was an expense of $8,132,000 in the year ended December 31, 2012, compared to an expense of $23,925,000 in the year ended December 31, 2011 a decrease of $15,793,000.  This decrease resulted primarily from the reversal of a $12,038,000 tax liability in the fourth quarter of 2012 upon liquidation of a taxable REIT subsidiary that was formed in connection with the acquisition of our 555 California Street property.

65

 


 

 

Results of Operations – Year Ended December 31, 2012 Compared to December 31, 2011 - continued

 

 

Income from Discontinued Operations

The table below sets forth the combined results of operations of assets related to discontinued operations for the years ended December 31, 2012 and 2011.

 

For the Year Ended December 31,

(Amounts in thousands)

2012 

2011 

Total revenues

$

177,629 

$

260,343 

Total expenses

120,393 

201,633 

57,236 

58,710 

Net gains on sale of real estate

245,799 

51,623 

Impairment losses

(30,339)

(28,799)

Gain on sale of Canadian Trade Shows, net of $11,448 of income taxes

19,657 

Net gain on extinguishment of High Point debt

83,907 

Income from discontinued operations

$

292,353 

$

165,441 

 

Net Income Attributable to Noncontrolling Interests in Consolidated Subsidiaries

 

Net income attributable to noncontrolling interests in consolidated subsidiaries was $32,018,000 in the year ended December 31, 2012, compared to $21,786,000 in the year ended December 31, 2011, an increase of $10,232,000.  This increase resulted primarily from a $25,734,000 increase in income allocated to the noncontrolling interests of our Real Estate Fund, partially offset by a $13,222,000 priority return on our investment in 1290 Avenue of the Americas and 555 California Street.

 

 

Net Income Attributable to Noncontrolling Interests in the Operating Partnership

 

Net income attributable to noncontrolling interests in the Operating Partnership was $35,327,000 in the year ended December 31, 2012, compared to $41,059,000 in the year ended December 31, 2011, a decrease of $5,732,000.  This decrease resulted primarily from lower net income subject to allocation to unitholders.

 

 

Preferred Unit Distributions of the Operating Partnership

 

Preferred unit distributions of the Operating Partnership were $9,936,000 in the year ended December 31, 2012, compared to $14,853,000 in the year ended December 31, 2011, a decrease of $4,917,000.  This decrease resulted primarily from the redemption of the 7.0% Series D-10 and 6.75% Series D-14 cumulative redeemable preferred units in July 2012.

 

 

Preferred Share Dividends

 

Preferred share dividends were $76,937,000 in the year ended December 31, 2012, compared to $65,531,000 in the year ended December 31, 2011, an increase of $11,406,000.  This increase resulted from the issuance of $246,000,000 of 6.875% Series J cumulative redeemable preferred shares in April 2011 and $300,000,000 of 5.70% Series K cumulative redeemable preferred shares in July 2012, partially offset by the redemption of $75,000,000 of 7.0% Series E cumulative redeemable preferred shares in August 2012.

 

 

Preferred Unit and Share Redemptions

 

In the year ended December 31, 2012, we recognized an $8,948,000 discount primarily from the redemption of all of the 7.0% Series D-10 and 6.75% Series D-14 cumulative redeemable preferred units, compared to a $5,000,000 discount in the year ended December 31, 2011, which resulted from the redemption of the Series D-11 cumulative redeemable preferred units. 

66

 


 
 

 

Results of Operations – Year Ended December 31, 2012 Compared to December 31, 2011 - continued

 

Same Store EBITDA

Below is the reconciliation of EBITDA to same store EBITDA on a GAAP basis for each of our segments for the year ended December 31, 2012, compared to the year ended December 31, 2011.

 

(Amounts in thousands)

New York

Washington, DC

Retail Properties

EBITDA for the year ended December 31, 2012

$

1,017,859 

$

532,412 

$

200,526 

Add-back:

Non-property level overhead expenses included above

30,039 

27,237 

23,654 

Less EBITDA from:

Acquisitions

(42,129)

(5,005)

Dispositions, including net gains on sale

(190,396)

(172,832)

(64,863)

Properties taken out-of-service for redevelopment

(961)

(5,329)

(1,134)

Other non-operating (income) expense

(9,981)

(723)

99,079 

GAAP basis same store EBITDA for the year ended

December 31, 2012

$

804,431 

$

375,760 

$

257,262 

EBITDA for the year ended December 31, 2011

$

786,565 

$

481,077 

$

303,202 

Add-back:

Non-property level overhead expenses included above

26,746 

26,369 

25,489 

Less EBITDA from:

Acquisitions

(14,956)

(150)

Dispositions, including net gains on sale

(13,432)

(69,940)

(54,537)

Properties taken out-of-service for redevelopment

(6,009)

(25,644)

(2,925)

Other non-operating (income) expense

9,926 

(785)

(17,043)

GAAP basis same store EBITDA for the year ended

December 31, 2011

$

788,840 

$

410,927 

$

254,186 

Increase (decrease) in GAAP basis same store EBITDA -

Year ended December 31, 2012 vs. December 31,2011(1)

$

15,591 

$

(35,167)

$

3,076 

% increase (decrease) in GAAP basis same store EBITDA

2.0% 

(8.6%) 

1.2% 

(1)

See notes on following page.

67

 


 

 

Results of Operations – Year Ended December 31, 2012 Compared to December 31, 2011 - continued

 

 

Notes to preceding tabular information:

 

 

New York:

 

The $15,591,000 increase in New York GAAP basis same store EBITDA resulted primarily from an increase in Office of $13,029,000.  The Office increase resulted from higher rental revenue of $29,671,000 (primarily due to a $1.93 increase in average annual rents per square foot), partially offset by an increase in operating expenses.

 

 

Washington, DC:

 

The $35,167,000 decrease in Washington, DC GAAP basis same store EBITDA resulted primarily from lower rental revenue of $38,658,000, primarily due to a 740 basis point decrease in office average same store occupancy to 86.2% from 93.6%, a significant portion of which resulted from the effects of BRAC related move-outs and the sluggish leasing environment in the Washington, DC / Northern Virginia area (see page 46).

 

 

Retail Properties:

 

The $3,076,000 increase in Retail Properties GAAP basis same store EBITDA resulted primarily from higher rental revenue of $7,004,000, due to an increase in average same store occupancy and average annual rents per square foot. 

 

 

 

Below is the reconciliation of GAAP basis same store EBITDA to same store EBITDA on a Cash basis for each of our segments for the year ended December 31, 2012, compared to year ended December 31, 2011.

 

(Amounts in thousands)

New York

Washington, DC

Retail Properties

GAAP basis same store EBITDA for the year ended

December 31, 2012

$

804,431 

$

375,760 

$

257,262 

Less: Adjustments for straight line rents, amortization of acquired

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

(94,560)

(5,573)

(15,676)

Cash basis same store EBITDA for the year ended

December 31, 2012

$

709,871 

$

370,187 

$

241,586 

GAAP basis same store EBITDA for the year ended

December 31, 2011

$

788,840 

$

410,927 

$

254,186 

Less: Adjustments for straight line rents, amortization of acquired

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

(93,053)

(357)

(15,685)

Cash basis same store EBITDA for the year ended

December 31, 2011

$

695,787 

$

410,570 

$

238,501 

Increase (decrease) in Cash basis same store EBITDA -

Year ended December 31, 2012 vs. December 31, 2011

$

14,084 

$

(40,383)

$

3,085 

% increase (decrease) in Cash basis same store EBITDA

2.0% 

(9.8%) 

1.3% 

68

 


 
 

 

Supplemental Information

Net Income and EBITDA by Segment for the Three Months Ended December 31, 2013 and 2012

 

Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the three months ended December 31, 2013 and 2012.

 

 

(Amounts in thousands)

For the Three Months Ended December 31, 2013

Retail

Total

New York

Washington, DC

Properties

Toys

Other

Total revenues

673,308 

380,018 

134,509 

92,936 

65,845 

Total expenses

501,743 

226,311 

89,095 

88,724 

97,613 

Operating income (loss)

171,565 

153,707 

45,414 

4,212 

(31,768)

(Loss) income from partially owned

entities, including Toys

(293,165)

1,507 

(423)

585 

(293,066)

(1,768)

Income from Real Estate Fund

28,951 

28,951 

Interest and other investment

income, net

8,234 

1,456 

30 

6,740 

Interest and debt expense

(120,625)

(56,538)

(18,927)

(9,680)

(35,480)

Net gain on disposition of wholly

owned and partially owned assets

23,988 

23,988 

(Loss) income before income taxes

(181,052)

100,132 

26,094 

(4,875)

(293,066)

(9,337)

Income tax benefit (expense)

12,578 

(1,496)

15,980 

(831)

(1,075)

(Loss) income from continuing

operations

(168,474)

98,636 

42,074 

(5,706)

(293,066)

(10,412)

Income from discontinued

operations

129,715 

129,706 

Net (loss) income

(38,759)

228,342 

42,074 

(5,706)

(293,066)

(10,403)

Less net (income) loss attributable to

noncontrolling interests

(9,760)

(1,268)

14 

(8,506)

Net (loss) income attributable to

Vornado

(48,519)

227,074 

42,074 

(5,692)

(293,066)

(18,909)

Interest and debt expense(2)

207,424 

73,066 

22,416 

10,844 

62,239 

38,859 

Depreciation and amortization(2)

183,685 

73,694 

36,610 

19,721 

31,446 

22,214 

Income tax expense (benefit)(2)

8,270 

1,558 

(17,841)

831 

22,573 

1,149 

EBITDA(1)

350,860 

375,392 

(3)

83,259 

(4)

25,704 

(5)

(176,808)

43,313 

(6)

________________­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­__­­­­_______

See notes on page 71.

69

 


 
 

 

Supplemental Information – continued

Net Income and EBITDA by Segment for the Three Months Ended December 31, 2013 and 2012 - continued

 

(Amounts in thousands)

For the Three Months Ended December 31, 2012

Retail

Total

New York

Washington, DC

Properties

Toys

Other

Total revenues

686,693 

356,786 

132,295 

94,947 

102,665 

Total expenses

600,728 

219,340 

88,889 

153,846 

138,653 

Operating income (loss)

85,965 

137,446 

43,406 

(58,899)

(35,988)

Income (loss) from partially owned

entities, including Toys

280,939 

187,428 

(1,041)

418 

(73,837)

167,971 

Income from Real Estate Fund

26,364 

26,364 

Interest and other investment

(loss) income, net

(237,961)

1,064 

29 

(239,057)

Interest and debt expense

(121,049)

(37,578)

(30,166)

(11,695)

(41,610)

Net gain on disposition of wholly

owned and partially owned assets

8,491 

8,491 

Income (loss) before income taxes

42,749 

288,360 

12,228 

(61,682)

(73,837)

(122,320)

Income tax benefit (expense)

9,187 

(1,011)

(373)

10,571 

Income (loss) from continuing

operations

51,936 

287,349 

11,855 

(61,682)

(73,837)

(111,749)

Income (loss) from discontinued

operations

39,957 

2,934 

36,787 

3,537 

(3,301)

Net income (loss)

91,893 

290,283 

48,642 

(58,145)

(73,837)

(115,050)

Less net (income) loss attributable to

noncontrolling interests

(5,758)

5,128 

1,504 

(12,390)

Net income (loss) attributable to

Vornado

86,135 

295,411 

48,642 

(56,641)

(73,837)

(127,440)

Interest and debt expense(2)

193,258 

47,561 

34,139 

15,789 

44,492 

51,277 

Depreciation and amortization(2)

182,499 

63,777 

34,829 

20,778 

34,808 

28,307 

Income tax (benefit) expense(2)

(43,050)

1,074 

411 

(34,611)

(9,924)

EBITDA(1)

418,842 

407,823 

(3)

118,021 

(4)

(20,074)

(5)

(29,148)

(57,780)

(6)

________________­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­__­­­­_______

See notes on the following page.

 

70

 


 
 

 

Supplemental Information – continued

Net Income and EBITDA by Segment for the Three Months Ended December 31, 2013 and 2012 - 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 elements of "New York" EBITDA are summarized below.

For the Three Months Ended December 31,

(Amounts in thousands)

2013 

2012 

Office(a)

283,092 

151,613 

Retail

69,414 

52,576 

Alexander's (b)

11,069 

191,925 

Hotel Pennsylvania

11,817 

11,709 

Total New York

375,392 

407,823 

(a)

2013 and 2012 includes EBITDA from discontinued operations, net gains on sale of real estate and other items that affect comparability, aggregating $129,229 and $10,044, respectively. Excluding these items, EBITDA was $153,863 and $141,569, respectively.

(b)

2012 includes EBITDA from discontinued operations, net gains on sale of real estate and other items that affect comparability, aggregating $181,973. Excluding these items, EBITDA was $9,952.

(4)

The elements of "Washington, DC" EBITDA are summarized below.

For the Three Months Ended December 31,

(Amounts in thousands)

2013 

2012 

Office, excluding the Skyline Properties (a)

65,910 

99,153 

Skyline properties

6,953 

7,910 

Total Office

72,863 

107,063 

Residential

10,396 

10,958 

Total Washington, DC

83,259 

118,021 

(a)

2012 includes EBITDA from discontinued operations, net gains on sale of real estate and other items that affect comparability, aggregating $37,348. Excluding these items, EBITDA was $61,805.

(5)

The elements of "Retail Properties" EBITDA are summarized below.

For the Three Months Ended December 31,

(Amounts in thousands)

2013 

2012 

Strip shopping centers(a)

21,547 

24,154 

Regional malls(b)

4,157 

(44,228)

Total Retail properties

25,704 

(20,074)

(a)

2013 and 2012 includes EBITDA from discontinued operations, net gains on sale of real estate and other items that affect comparability, aggregating net losses of $19,000 and $16,324, respectively. Excluding these items, EBITDA was $40,547 and $40,478, respectively.

(b)

2013 and 2012 includes EBITDA from discontinued operations, net gains on sale of real estate and other items that affect comparability, aggregating net losses of $13,443 and $61,447, respectively. Excluding these items, EBITDA was $17,600 and $17,219, respectively.

71

 


 
 

 

Supplemental Information – continued

Net Income and EBITDA by Segment for the Three Months Ended December 31, 2013 and 2012 - continued

Notes to preceding tabular information:

(6)

The elements of "other" EBITDA from continuing operations are summarized below.

For the Three Months

(Amounts in thousands)

Ended December 31,

2013 

2012 

Our share of Real Estate Fund:

(Loss) income before net realized/unrealized gains

(70)

764 

Net unrealized gain

6,574 

5,456 

Carried interest

8,341 

5,838 

Total

14,845 

12,058 

Merchandise Mart Building, 7 West 34th Street and trade shows

20,038 

13,620 

555 California Street

10,296 

14,761 

India real estate ventures

1,133 

1,936 

LNR(a) 

29,196 

Lexington(b) 

7,815 

Other investments

4,774 

(4,614)

51,086 

74,772 

Corporate general and administrative expenses(c) 

(23,850)

(22,142)

Investment income and other, net(c) 

7,372 

14,663 

Net gain on sale of land parcels and residential condominiums

23,988 

Acquisition related costs and impairment losses

(18,088)

(13,072)

Severance costs (primarily reduction in force at the Merchandise Mart)

(1,338)

(1,485)

Non-cash impairment loss on J.C. Penney common shares

(224,937)

Purchase price fair value adjustment and accelerated amortization of discount on

investment in subordinated debt of Independence Plaza

105,366 

Net gain resulting from Lexington's stock issuance and asset acquisition

28,763 

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

(22,472)

Merchandise Mart discontinued operations

7,432 

Net loss (income) attributable to noncontrolling interests in the Operating Partnership

4,155 

(3,882)

Preferred unit distributions of the Operating Partnership

(12)

(786)

43,313 

(57,780)

(a)

On April 19, 2013, LNR was sold.

(b)

In the first quarter of 2013, we began accounting for our investment in Lexington as a marketable equity security - available for sale. This investment was previously accounted for under the equity method.

(c)

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

72

 


 
 

 

Supplemental Information – continued

 

Net Income and EBITDA by Segment for the Three Months Ended December 31, 2013 and 2012 - continued

 

EBITDA by Region

 

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, Washington, DC and Retail Properties segments.

 

For the Three Months

Ended December 31,

2013 

2012 

Region:

New York City metropolitan area

75%

73%

Washington, DC / Northern Virginia metropolitan area

22%

23%

Puerto Rico

1%

2%

California

1%

1%

Other geographies

1%

1%

100%

100%

73

 


 
 

 

Supplemental Information – continued

Three Months Ended December 31, 2013 Compared to December 31, 2012

 

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 is the reconciliation of EBITDA to same store EBITDA on a GAAP basis for each of our segments for the three months ended December 31, 2013, compared to the three months ended December 31, 2012.

 

(Amounts in thousands)

New York

Washington, DC

Retail Properties

EBITDA for the three months ended December 31, 2013

$

375,392 

$

83,259 

$

25,704 

Add-back:

Non-property level overhead expenses included above

8,550 

6,975 

4,168 

Less EBITDA from:

Acquisitions

(20,063)

Dispositions, including net gains on sale

(129,332)

(33)

(4)

Properties taken out-of-service for redevelopment

(5,279)

(1,035)

(1,144)

Other non-operating (income) expense

(2,986)

(316)

32,157 

GAAP basis same store EBITDA for the three months ended

December 31, 2013

$

226,282 

$

88,850 

$

60,881 

EBITDA for the three months ended December 31, 2012

$

407,823 

$

118,021 

$

(20,074)

Add-back:

Non-property level overhead expenses included above

8,070 

7,388 

4,851 

Less EBITDA from:

Acquisitions

(3,474)

Dispositions, including net gains on sale

(184,507)

(37,347)

(18,605)

Properties taken out-of-service for redevelopment

(5,141)

(2,070)

(364)

Other non-operating (income) expense

(10,665)

(615)

93,238 

GAAP basis same store EBITDA for the three months ended

December 31, 2012

$

212,106 

$

85,377 

$

59,046 

Increase in GAAP basis same store EBITDA -

Three months ended December 31, 2013 vs. December 31, 2012

$

14,176 

$

3,473 

$

1,835 

% increase in GAAP basis same store EBITDA

6.7% 

4.1% 

3.1% 

74

 


 
 

 

Supplemental Information – continued

Three Months Ended December 31, 2013 Compared to December 31, 2012

 

Below is the reconciliation of GAAP basis same store EBITDA to same store EBITDA on a Cash basis for each of our segments for the three months ended December 31, 2013, compared to the three months ended December 31, 2012.

 

(Amounts in thousands)

New York

Washington, DC

Retail Properties

GAAP basis same store EBITDA for the three months ended

December 31, 2013

$

226,282 

$

88,850 

$

60,881 

Less: Adjustments for straight line rents, amortization of acquired

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

(29,712)

(1,899)

(2,655)

Cash basis same store EBITDA for the three months ended

December 31, 2013

$

196,570 

$

86,951 

$

58,226 

GAAP basis same store EBITDA for the three months ended

December 31, 2012

$

212,106 

$

85,377 

$

59,046 

Less: Adjustments for straight line rents, amortization of acquired

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

(23,843)

(775)

(3,645)

Cash basis same store EBITDA for the three months ended

December 31, 2012

$

188,263 

$

84,602 

$

55,401 

Increase in Cash basis same store EBITDA -

Three months ended December 31, 2013 vs. December 31, 2012

$

8,307 

$

2,349 

$

2,825 

% increase in Cash basis same store EBITDA

4.4% 

2.8% 

5.1% 

75

 


 
 

 

Supplemental Information – continued

 

Three Months Ended December 31, 2013 Compared to September 30, 2013

 

Below is the reconciliation of Net Income to EBITDA for the three months ended September 30, 2013.

 

(Amounts in thousands)

New York

Washington, DC

Retail Properties

Net income attributable to Vornado for the three months ended

September 30, 2013

$

124,325 

$

19,994 

$

44,158 

Interest and debt expense

59,344 

30,717 

12,119 

Depreciation and amortization

67,294 

35,403 

17,573 

Income tax expense

67 

828 

731 

EBITDA for the three months ended September 30, 2013

$

251,030 

$

86,942 

$

74,581 

 

Below is the reconciliation of GAAP basis same store EBITDA to same store EBITDA on a Cash basis for each of our segments for the three months ended December 31, 2013, compared to the three months ended September 30, 2013.

 

(Amounts in thousands)

New York

Washington, DC

Retail Properties

EBITDA for the three months ended December 31, 2013

$

375,392 

$

83,259 

$

25,704 

Add-back:

Non-property level overhead expenses included above

8,550 

6,975 

4,168 

Less EBITDA from:

Acquisitions

(7,120)

Dispositions, including net gains on sale

(129,332)

(33)

(4)

Properties taken out-of-service for redevelopment

(5,279)

(1,035)

(1,144)

Other non-operating (income) expense

(2,860)

(316)

32,157 

GAAP basis same store EBITDA for the three months ended

December 31, 2013

$

239,351 

$

88,850 

$

60,881 

EBITDA for the three months ended September 30, 2013

$

251,030 

$

86,942 

$

74,581 

Add-back:

Non-property level overhead expenses included above

7,842 

6,857 

4,240 

Less EBITDA from:

Acquisitions

(575)

Dispositions, including net gains on sale

(2,481)

(46)

(17,097)

Properties taken out-of-service for redevelopment

(5,461)

(1,157)

(2,196)

Other non-operating (income) expense

(19,936)

(868)

(549)

GAAP basis same store EBITDA for the three months ended

September 30, 2013

$

230,419 

$

91,728 

$

58,979 

Increase (decrease) in GAAP basis same store EBITDA -

Three months ended December 31, 2013 vs. September 30, 2013

$

8,932 

$

(2,878)

$

1,902 

% increase (decrease) in GAAP basis same store EBITDA

3.9% 

(3.1%) 

3.2% 

76

 


 
 

 

Supplemental Information – continued

Three Months Ended December 31, 2013 Compared to September 30, 2013

 

Below is the reconciliation of GAAP basis same store EBITDA to same store EBITDA on a Cash basis for each of our segments for the three months ended December 31, 2013, compared to the three months ended September 30, 2013.

 

(Amounts in thousands)

New York

Washington, DC

Retail Properties

GAAP basis same store EBITDA for the three months ended

December 31, 2013

$

239,351 

$

88,850 

$

60,881 

Less: Adjustments for straight line rents, amortization of acquired

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

(29,479)

(1,899)

(2,655)

Cash basis same store EBITDA for the three months ended

December 31, 2013

$

209,872 

$

86,951 

$

58,226 

GAAP basis same store EBITDA for the three months ended

September 30, 2013

$

230,419 

$

91,728 

$

58,979 

Less: Adjustments for straight line rents, amortization of acquired

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

(24,496)

(1,518)

(2,814)

Cash basis same store EBITDA for the three months ended

September 30, 2013

$

205,923 

$

90,210 

$

56,165 

Increase (decrease) in Cash basis same store EBITDA -

Three months ended December 31, 2013 vs. September 30, 2013

$

3,949 

$

(3,259)

$

2,061 

% increase (decrease) in Cash basis same store EBITDA

1.9% 

(3.6%) 

3.7% 

77

 


 

 

Related Party Transactions

 

 

Alexander’s

 

We own 32.4% of Alexander’s. Steven Roth, the Chairman of our Board and Chief Executive Officer is also the Chairman of the Board and Chief Executive Officer of Alexander’s.  We provide various services to Alexander’s in accordance with management, development and leasing agreements.  These agreements are described in Note 6 - Investments in Partially Owned Entities to our consolidated financial statements in this Annual Report on Form 10-K.

  

 

Interstate Properties (“Interstate”)

 

Interstate is a general partnership in which Mr. Roth is the managing general partner. David Mandelbaum and Russell B. Wight, Jr., Trustees of Vornado and Directors of Alexander’s, are Interstate’s two other partners. As of December 31, 2013, Interstate and its partners beneficially owned an aggregate of approximately 6.6% of the common shares of beneficial interest of Vornado and 26.3% of Alexander’s common stock.

 

We manage and lease the real estate assets of Interstate pursuant to a management agreement for which we receive an annual fee equal to 4% of annual base rent and percentage rent.  The management agreement has a term of one year and is automatically renewable unless terminated by either of the parties on 60 days’ notice at the end of the term.  We believe, based upon comparable fees charged by other real estate companies, that the management agreement terms are fair to us.  We earned $606,000, $794,000, and $787,000 of management fees under the agreement for the years ended December 31, 2013, 2012 and 2011.

78

 


 
 

 

Liquidity and Capital Resources

 

 

Property rental income is our primary source of cash flow and is dependent upon the occupancy and rental rates of our properties. Our cash requirements include property operating expenses, capital improvements, tenant improvements, debt service, leasing commissions, dividends to shareholders and distributions to unitholders of the Operating Partnership, as well as acquisition and development costs.    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. 

 

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 may require funding from borrowings and/or equity offerings.

 

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.

 

                 

Dividends

 

On January 15, 2014, we declared a quarterly common dividend of $0.73 per share (an indicated annual rate of $2.92 per common share).  This dividend, if continued for all of 2014, would require us to pay out approximately $547,000,000 of cash for common share dividends.  In addition, during 2014, we expect to pay approximately $82,000,000 of cash dividends on outstanding preferred shares and approximately $33,000,000 of cash distributions to unitholders of the Operating Partnership.

 

 

Financing Activities and Contractual Obligations

 

We have an effective shelf registration for the offering of our equity and debt securities that is not limited in amount due to our status as a “well-known seasoned issuer.”  We have issued publicly senior unsecured notes from a shelf registration statement that contain financial covenants that restrict our ability to incur debt, and that require us to maintain a level of unencumbered assets based on the level of our secured debt.  Our revolving 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 revolving credit facilities also contain customary conditions precedent to borrowing, including representations and warranties, and contain customary events of default that could give rise to accelerated repayment, including such items as failure to pay interest or principal.  As of December 31, 2013, we are in compliance with all of the financial covenants required by our senior unsecured notes and our revolving credit facilities.

 

 

As of December 31, 2013, we had $583,290,000 of cash and cash equivalents and $2,171,009,000 of borrowing capacity under our revolving credit facilities, net of outstanding borrowings and letters of credit of $295,870,000 and $33,121,000, respectively.  A summary of our consolidated debt as of December 31, 2013 and 2012 is presented below.  

 

2013 

2012 

(Amounts in thousands)

Weighted

Weighted

December 31,

Average

December 31,

Average

Consolidated debt:

Balance

Interest Rate

Balance

Interest Rate

Variable rate

$

1,064,730 

2.01%

$

2,998,221 

1.84%

Fixed rate

8,913,988 

4.73%

8,129,009 

5.18%

$

9,978,718 

4.44%

$

11,127,230 

4.28%

 

During 2014 and 2015, $142,753,000 and $943,731,000, respectively, of our outstanding debt matures; we may refinance this maturing debt as it comes due or choose to repay it using cash and cash equivalents or our revolving credit facilities.  We may also refinance or prepay other outstanding debt depending 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.

 

79

 


 
 

 

Liquidity and Capital Resources – continued

 

 

Financing Activities and Contractual Obligations – continued  

 

 

Below is a schedule of our contractual obligations and commitments at December 31, 2013.

 

(Amounts in thousands)

Less than

Contractual cash obligations (principal and interest(1)):

Total

1 Year

1 – 3 Years

3 – 5 Years

Thereafter

Notes and mortgages payable

$

10,290,431 

$

551,348 

$

2,760,195 

$

1,781,397 

$

5,197,491 

Operating leases

1,486,447 

42,845 

83,401 

82,831 

1,277,370 

Senior unsecured notes due 2039 (PINES)

1,370,076 

35,634 

71,268 

71,268 

1,191,906 

Revolving credit facilities

329,258 

4,201 

13,048 

312,009 

Senior unsecured notes due 2022

560,833 

20,000 

40,000 

40,000 

460,833 

Senior unsecured notes due 2015

526,563 

21,250 

505,313 

Capital lease obligations

409,792 

12,500 

25,000 

25,000 

347,292 

Purchase obligations, primarily construction commitments

302,677 

302,677 

Total contractual cash obligations

$

15,276,077 

$

990,455 

$

3,498,225 

$

2,312,505 

$

8,474,892 

Commitments:

Capital commitments to partially owned entities

$

144,931 

$

122,136 

$

22,795 

$

$

Standby letters of credit

33,121 

33,121 

Total commitments

$

178,052 

$

155,257 

$

22,795 

$

$

________________________

(1)

Interest on variable rate debt is computed using rates in effect at December 31, 2013.

 

 

Details of 2013 financing activities are provided in the “Overview” of Management’s Discussion and Analysis of Financial Conditions and Results of Operations.  Details of 2012 financing activities are discussed below.

 

 

Secured Debt

 

On January 9, 2012, we completed a $300,000,000 refinancing of 350 Park Avenue, a 559,000 square foot Manhattan office building. The five-year fixed rate loan bears interest at 3.75% and amortizes based on a 30-year schedule beginning in the third year. The proceeds of the new loan and $132,000,000 of existing cash were used to repay the existing loan and closing costs.

 

On March 5, 2012, we completed a $325,000,000 refinancing of 100 West 33rd Street, a 1.1 million square foot property located between 32nd and 33rd Streets in Manhattan.  The building contains the 257,000 square foot Manhattan Mall and 848,000 square feet of office space.  The three-year loan bears interest at LIBOR plus 2.50% and has two one-year extension options.  We retained net proceeds of approximately $87,000,000, after repaying the existing loan and closing costs.             

 

On July 26, 2012, we completed a $150,000,000 refinancing of 2101 L Street, a 380,000 square foot office building located in Washington, DC. The 12-year fixed rate loan bears interest at 3.97% and amortizes based on a 30-year schedule beginning in the third year.

 

On August 17, 2012, we completed a $98,000,000 refinancing of 435 Seventh Avenue, a 43,000 square foot retail property in Manhattan. The seven-year loan bears interest at LIBOR plus 2.25%. We retained net proceeds of approximately $44,000,000, after repaying the existing loan and closing costs.

 

On November 8, 2012, we completed a $950,000,000 refinancing of 1290 Avenue of the Americas (70% owned), a 2.1 million square foot Manhattan office building. The 10-year fixed rate interest-only loan bears interest at 3.34%.  The partnership retained net proceeds of approximately $522,000,000, after repaying the existing loan and closing costs.

 

On November 16, 2012, we completed a $120,000,000 refinancing of 4 Union Square South, a 206,000 square foot Manhattan retail property. The seven-year loan bears interest at LIBOR plus 2.15% and amortizes based on a 30-year schedule beginning in the third year. We retained net proceeds of approximately $42,000,000, after repaying the existing loan and closing costs.

80

 


 

 

Liquidity and Capital Resources – continued

 

 

Financing Activities and Contractual Obligations – continued  

 

Senior Unsecured Debt

 

In April 2012, we redeemed all of the outstanding exchangeable and convertible senior debentures at par, for an aggregate of $510,215,000 in cash.

 

 

Preferred Securities

 

On July 11, 2012, we sold 12,000,000 5.70% Series K Cumulative Redeemable Preferred Shares at a price of $25.00 per share in an underwritten public offering pursuant to an effective registration statement.  We retained aggregate net proceeds of $290,971,000, after underwriters’ discounts and issuance costs and contributed the net proceeds to the Operating Partnership in exchange for 12,000,000 Series K Preferred Units (with economic terms that mirror those of the Series K Preferred Shares).  Dividends on the Series K Preferred Shares are cumulative and payable quarterly in arrears.  The Series K 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 may redeem the Series K Preferred Shares at a redemption price of $25.00 per share, plus accrued and unpaid dividends through the date of redemption. The Series K Preferred Shares have no maturity date and will remain outstanding indefinitely unless redeemed by us. 

 

On July 19, 2012, we redeemed all of the outstanding 7.0% Series D-10 and 6.75% Series D-14 cumulative redeemable preferred units with an aggregate face amount of $180,000,000 for $168,300,000 in cash, plus accrued and unpaid distributions through the date of redemption.

 

On August 16, 2012, we redeemed all of the outstanding 7.0% Series E Cumulative Redeemable Preferred Shares at par, for an aggregate of $75,000,000 in cash, plus accrued and unpaid dividends through the date of redemption.

81

 


 

 

Liquidity and Capital Resources – continued

 

 

Acquisitions and Investments

 

 

Details of 2013 acquisitions and investments are provided in the “Overview” of Management’s Discussion and Analysis of Financial Conditions and Results of Operations.  Details of 2012 acquisitions and investments are discussed below.

 

Marriott Marquis Times Square - Retail and Signage

 

On July 30, 2012, we entered into a lease with Host Hotels & Resorts, Inc. (NYSE: HST) (“Host”), under which we will redevelop the retail and signage components of the Marriott Marquis Times Square Hotel.  The Marriott Marquis with over 1,900 rooms is one of the largest hotels in Manhattan.  We plan to redevelop and substantially expand the existing retail space, including converting the below grade parking garage into retail, and creating six-story, 300 foot wide block front, dynamic LED signs.  During the term of the lease we will pay fixed rent equal to the sum of $12,500,000, plus a portion of the property’s net cash flow after we receive a 5.2% preferred return on our invested capital.  The lease contains put/call options which, if exercised, would lead to our ownership.  Host can exercise the put option during defined periods following the conversion of the project to a condominium.  We can exercise our call option under the same terms, at any time after the fifteenth year of the lease term. 

 

666 Fifth Avenue - Retail

 

On December 6, 2012, we acquired a retail condominium located at 666 Fifth Avenue at 53rd Street for $707,000,000 in cash. The property contains 114,000 square feet, 39,000 square feet in fee and 75,000 square feet by long-term lease from the 666 Fifth Avenue office condominium, which is 49.5% owned by us. 

 

Independence Plaza

 

In 2011, we acquired a 51% interest in the subordinated debt of Independence Plaza, a three-building 1,328 unit residential complex in the Tribeca submarket of Manhattan which has 54,500 square feet of retail space and 550 parking spaces, for $45,000,000 and a warrant to purchase 25% of the equity for $1,000,000.  On December 21, 2012, we acquired a 58.75% interest in the property as follows: (i) buying one of the equity partners’ 33.75% interest for $160,000,000, (ii) exercising our warrant for 25% of the equity and (iii) contributing the appreciated value of our interest in the subordinated debt as preferred equity.  In connection therewith, we recognized income of $105,366,000, comprised of $60,396,000 from the accelerated amortization of the discount on the subordinated debt immediately preceding the conversion to preferred equity, and a $44,970,000 purchase price fair value adjustment upon exercising the warrant.  The transaction valued the property at $844,800,000. We manage the retail space at the property and Stellar Management, our partner, manages the residential space.

 

 

Vornado Capital Partners Real Estate Fund (the “Fund”)

 

During 2012, the Fund made four investments aggregating $203,700,000.  At December 31, 2012, the Fund had nine investments with an aggregate fair value of $600,786,000, or $67,642,000 in excess of cost.

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Liquidity and Capital Resources – continued

 

 

Certain Future Cash Requirements

 

Capital Expenditures

 

The following table summarizes anticipated 2014 capital expenditures.

Retail

(Amounts in millions, except square foot data)

Total

New York

Washington, DC

Properties

Other (2)

Expenditures to maintain assets

$

116.0 

61.0(1) 

28.0 

4.0 

23.0 

Tenant improvements

124.0 

43.0 

58.0 

6.0 

17.0 

Leasing commissions

33.0 

17.0 

10.0 

2.0 

4.0 

Total capital expenditures and leasing

commissions

$

273.0 

121.0 

96.0 

12.0 

44.0 

Square feet budgeted to be leased

(in thousands)

1,000 

1,600 

600 

Weighted average lease term (years)

10 

 

Tenant improvements and leasing commissions:

Per square foot

$

60.00 

$

42.50 

$

13.50 

Per square foot per annum

$

6.00 

$

7.00 

$

2.00 

________________________________________________

(1)

Includes $17.0 related to 2013 that is expected to be expended in 2014.

(2)

Primarily Merchandise Mart and 555 California Street.

 

The table above excludes anticipated capital expenditures of each of our partially owned non-consolidated subsidiaries, as these entities fund their capital expenditures without additional equity contributions from us.  

 

 

Development and Redevelopment Expenditures

 

We are in the process of renovating the Springfield Mall, which is expected to be completed in 2015.  The incremental development cost of this project is approximately $250,000,000, of which $97,600,000 has been expended as of December 31, 2013, approximately $130,000,000 is expected to be expended in 2014, and the balance of $22,400,000 is expected to be expended in 2015.

 

We are in the process of redeveloping and substantially expanding the existing retail space at the Marriott Marquis Times Square Hotel, including converting the below grade parking garage into retail and creating a six-story, 300 foot wide block front, dynamic LED sign, all of which is expected to be completed in 2015.  The incremental development cost of this project is approximately $215,000,000, of which $52,100,000 has been expended as of December 31, 2013, approximately $118,000,000 is expected to be expended in 2014, and the balance of $44,900,000 is expected to be expended in 2015. 

 

We plan to construct a residential condominium tower containing 472,000 zoning square feet on our 220 Central Park South development site.  The incremental development cost of this project is approximately $850,000,000.  In February 2014, we completed a $600,000,000 loan secured by this site.

 

We plan to develop a 699-unit residential project in Pentagon City (Metropolitan Park 4&5), which is expected to be completed in 2016.  The project will include a 37,000 square foot Whole Foods Market at the base of the building.  The incremental development cost of this project is approximately $250,000,000; a significant portion of which is expected to be financed.

 

We are in the process of repositioning and re-tenanting 280 Park Avenue (49.5% owned).  Our share of the incremental development cost of this project is approximately $62,000,000, of which $34,700,000 has been expended as of December 31, 2013, and the balance of $27,300,000 is expected to be expended in 2014.

 

We are also evaluating other development and redevelopment opportunities at certain of our properties in Manhattan, including the Hotel Pennsylvania and in Washington, including 1900 Crystal Drive, Rosslyn and Pentagon City.

 

There can be no assurance that any of our development or redevelopment projects will commence, or if commenced, be completed, or completed on schedule or within budget.

83

 


 
 

 

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, 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. We maintain coverage for terrorism acts with limits of $4.0 billion per occurrence and in the aggregate, and $2.0 billion per occurrence and in the aggregate for terrorism involving nuclear, biological, chemical and radiological (“NBCR”) terrorism events, as defined by Terrorism Risk Insurance Program Reauthorization Act, which expires in December 2014.

 

Penn Plaza Insurance Company, LLC (“PPIC”), our wholly owned consolidated subsidiary, acts as a re-insurer with respect to a portion of all risk property and rental value insurance and a portion of our earthquake insurance coverage, and as a direct insurer for coverage for NBCR acts.  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.  For NBCR acts, 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 incurred 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 the future.

 

Our debt instruments, consisting of mortgage loans secured by our properties which are non-recourse to us, senior unsecured notes 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

 

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 is not expected to have a material adverse effect on our financial position, results of operations or cash flows.

 

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.

 

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 December 31, 2013, the aggregate dollar amount of these guarantees and master leases is approximately $342,000,000.

 

At December 31, 2013, $33,121,000 of letters of credit were outstanding under one of our revolving credit facilities.  Our revolving 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 revolving 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.

 

As of December 31, 2013, we expect to fund additional capital to certain of our partially owned entities aggregating approximately $145,000,000.    

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Liquidity and Capital Resources – continued

 

 

Cash Flows for the Year Ended December 31, 2013

 

Our cash and cash equivalents were $583,290,000 at December 31, 2013, a $377,029,000 decrease over the balance at December 31, 2012.  Our consolidated outstanding debt was $9,978,718,000 at December 31, 2013, a $1,148,512,000 decrease over the balance at December 31, 2012.  As of December 31, 2013 and December 31, 2012, $295,870,000 and $1,170,000,000, respectively, was outstanding under our revolving credit facilities.  During 2014 and 2015, $142,753,000 and $943,731,000, respectively, of our outstanding debt matures; we may refinance this maturing debt as it comes due or choose to repay it.

 

Cash flows provided by operating activities of $1,040,789,000 was comprised of (i) net income of $564,740,000, (ii) $426,643,000 of non-cash adjustments, which include depreciation and amortization expense, the effect of straight-lining of rental income, equity in net income of partially owned entities and net gains on sale of real estate, (iii) return of capital from Real Estate Fund investments of $56,664,000, and (iv) distributions of income from partially owned entities of $54,030,000, partially offset by (v) the net change in operating assets and liabilities of $61,288,000, including $37,817,000 related to Real Estate Fund investments.

 

Net cash provided by investing activities of $722,076,000 was comprised of (i) $1,027,608,000 of proceeds from sales of real estate and related investments, (ii) $378,709,000 of proceeds from the sale of marketable securities, (iii) $290,404,000 of capital distributions from partially owned entities, (iv) $240,474,000 from the sale of LNR, (v) $101,150,000 from the return of the J.C. Penney derivative collateral, and (vi) $50,569,000 of proceeds from repayments of mortgages and mezzanine loans receivable and other, partially offset by (vii) $469,417,000 of development costs and construction in progress, (viii) $260,343,000 of additions to real estate, (ix) $230,300,000 of investments in partially owned entities, (x) $193,417,000 of acquisitions of real estate, (xi) $186,079,000 for the funding of the J.C. Penney derivative collateral and settlement of derivative position, (xii) $26,892,000 of changes in restricted cash, and (xiii) $390,000 of investments in mortgage and mezzanine loans receivable.

 

Net cash used in financing activities of $2,139,894,000 was comprised of (i) $3,580,100,000 for the repayments of borrowings, (ii) $545,913,000 of dividends paid on common shares, (iii) $299,400,000 for purchases of outstanding preferred units and shares, (iv) $215,247,000 of distributions to noncontrolling interests, (v) $83,188,000 of dividends paid on preferred shares, (vi) $19,883,000 of debt issuance and other costs, and (vii) $443,000 for the repurchase of shares related to stock compensation agreements and related tax holdings, partially offset by (viii) $2,262,245,000 of proceeds from borrowings, (ix) $290,306,000 of proceeds from the issuance of preferred shares, (x) $43,964,000 of contributions from noncontrolling interests in consolidated subsidiaries, and (xi) $7,765,000 of proceeds received from the exercise of employee share options.

85

 


 
 

 

Liquidity and Capital Resources – continued

 

 

Capital Expenditures for the Year Ended December 31, 2013

 

Capital expenditures consist of expenditures to maintain assets, tenant improvement allowances and leasing commissions.  Recurring capital expenditures 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 year ended December 31, 2013.

 

Retail

(Amounts in thousands)

Total

New York

Washington, DC

Properties

Other

Expenditures to maintain assets

$

73,130 

$

34,553 

$

22,165 

$

5,664 

$

10,748 

Tenant improvements

152,319 

87,275 

39,156 

12,431 

13,457 

Leasing commissions

56,638 

39,348 

9,551 

2,113 

5,626 

Non-recurring capital expenditures

12,099 

11,579 

520 

Total capital expenditures and leasing

commissions (accrual basis)

294,186 

172,755 

70,872 

20,208 

30,351 

Adjustments to reconcile to cash basis:

Expenditures in the current year

applicable to prior periods

155,035 

56,345 

26,075 

5,562 

67,053 

Expenditures to be made in future

periods for the current period

(150,067)

(91,107)

(36,702)

(14,011)

(8,247)

Total capital expenditures and leasing

commissions (cash basis)

$

299,154 

$

137,993 

$

60,245 

$

11,759 

$

89,157 

(1)

Tenant improvements and leasing commissions:

Per square foot per annum

$

4.33 

$

5.89 

$

4.75 

$

1.33 

$

Percentage of initial rent

9.5%

8.1%

11.9%

6.6%

(1)

Includes tenant improvements and leasing commissions aggregating $61,895 in connection with the 608,000 square foot Motorola Mobility lease at the Merchandise Mart.

 

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 year ended December 31, 2013.

 

Retail

(Amounts in thousands)

Total

New York

Washington, DC

Properties

Other

220 Central Park South

$

243,687 

$

$

$

$

243,687 

Springfield Mall

68,716 

68,716 

Marriott Marquis Times Square - retail

and signage

40,356 

40,356 

1290 Avenue of the Americas

13,865 

13,865 

330 West 34th Street

6,832 

6,832 

Metropolitan Park 4 & 5

6,289 

6,289 

1135 Third Avenue

5,247 

5,247 

LED Signage

5,042 

5,042 

Other

79,383 

14,643 

35,412 

25,210 

4,118 

$

469,417 

$

85,985 

$

41,701 

$

93,926 

$

247,805 

86

 


 

 

Liquidity and Capital Resources – continued

 

Cash Flows for the Year Ended December 31, 2012

 

Our cash and cash equivalents were $960,319,000 at December 31, 2012, a $353,766,000 increase over the balance at December 31, 2011.  Our consolidated outstanding debt was $11,127,230,000 at December 31, 2012, a $1,227,953,000 increase over the balance at December 31, 2011.

 

Cash flows provided by operating activities of $825,049,000 was comprised of (i) net income of $694,541,000, (ii) distributions of income from partially owned entities of $226,172,000, (iii) return of capital from Real Estate Fund investments of $63,762,000, and (iv) $151,954,000 of non-cash adjustments, which include depreciation and amortization expense, impairment loss on J.C. Penney common shares, the effect of straight-lining of rental income, equity in net income of partially owned entities and net gains on sale of real estate, partially offset by (v) the net change in operating assets and liabilities of $311,380,000, including $262,537,000 related to Real Estate Fund investments.

 

Net cash used in investing activities of $642,262,000 was comprised of (i) $673,684,000 of acquisitions of real estate and other, (ii) $205,652,000 of additions to real estate, (iii) $191,330,000 for the funding of the J.C. Penney derivative collateral, (iv) $156,873,000 of development costs and construction in progress, (v) $134,994,000 of investments in partially owned entities, (vi) $94,094,000 investments in mortgage and mezzanine loans receivable and other, and (vii) $75,138,000 of changes in restricted cash, partially offset by (viii) $445,683,000 of proceeds from sales of real estate and related investments, (ix) $144,502,000 of capital distributions from partially owned entities, (x) $134,950,000 from the return of the J.C. Penney derivative collateral, (xi) $60,258,000 of proceeds from the sale of marketable securities, (xii) $52,504,000 of proceeds from the sale of the Canadian Trade Shows, (xiii) $38,483,000 of proceeds from repayments of mezzanine loans receivable and other, and (xiv) $13,123,000 of proceeds from the repayment of loan to officer.

 

Net cash provided by financing activities of $170,979,000 was comprised of (i) $3,593,000,000 of proceeds from borrowings, (ii) $290,971,000 of proceeds from the issuance of preferred shares, (iii) $213,132,000 of contributions from noncontrolling interests in consolidated subsidiaries, and (iv) $11,853,000 of proceeds from exercise of employee share options, partially offset by (v) $2,747,694,000 for the repayments of borrowings, (vi) $699,318,000 of dividends paid on common shares, (vii) $243,300,000 for purchases of outstanding preferred units and shares, (viii) $104,448,000 of distributions to noncontrolling interests, (ix) $73,976,000 of dividends paid on preferred shares, (x) $39,073,000 of debt issuance and other costs, and (xi) $30,168,000 for the repurchase of shares related to stock compensation agreements and related tax withholdings.

87

 


 
 

 

Liquidity and Capital Resources – continued

 

 

Capital Expenditures in the year ended December 31, 2012

 

Retail

(Amounts in thousands)

Total

New York

Washington, DC

Properties

Other

Expenditures to maintain assets

$

69,912 

$

27,434 

$

20,582 

$

4,676 

$

17,220 

Tenant improvements

177,743 

71,572 

50,384 

9,052 

46,735 

Leasing commissions

57,961 

27,573 

13,151 

2,368 

14,869 

Non-recurring capital expenditures

6,902 

5,822 

1,080 

Total capital expenditures and leasing

commissions (accrual basis)

312,518 

132,401 

84,117 

16,096 

79,904 

Adjustments to reconcile to cash basis:

Expenditures in the current year

applicable to prior periods

105,350 

41,975 

24,370 

10,353 

28,652 

Expenditures to be made in future

periods for the current period

(170,744)

(76,283)

(43,600)

(7,754)

(43,107)

Total capital expenditures and leasing

commissions (cash basis)

$

247,124 

$

98,093 

$

64,887 

$

18,695 

$

65,449 

(1) 

Tenant improvements and leasing commissions:

Per square foot per annum

$

4.16 

$

5.48 

$

4.86 

$

1.04 

$

Percentage of initial rent

9.6%

8.8%

12.0%

5.2%

(1)

Includes tenant improvements and leasing commissions aggregating $24,354 in connection with the 608,000 square foot Motorola Mobility lease at the Merchandise Mart. 

 

Development and Redevelopment Expenditures in the year ended December 31, 2012

 

Retail

(Amounts in thousands)

Total

New York

Washington, DC

Properties

Other

Springfield Mall

$

18,278 

$

-  

$

-  

$

18,278 

$

1290 Avenue of the Americas

16,778 

16,778 

-  

-  

Crystal Square 5

15,039 

-  

15,039 

-  

220 Central Park South

12,191 

-  

-  

-  

12,191 

Bergen Town Center

11,404 

-  

-  

11,404 

510 Fifth Avenue

10,206 

10,206 

-  

-  

Marriott Marquis Times Square - retail

and signage

9,092 

9,092 

-  

-  

1851 South Bell Street (1900 Crystal Drive)

6,243 

-  

6,243 

-  

Amherst, New York

5,585 

-  

-  

5,585 

Other

52,057 

15,484 

18,052 

18,279 

242 

$

156,873 

$

51,560 

$

39,334 

$

53,546 

$

12,433 

88

 


 

 

Liquidity and Capital Resources – continued

 

 

 

Cash Flows for the Year Ended December 31, 2011

 

Our cash and cash equivalents were $606,553,000 at December 31, 2011, a $84,236,000 decrease over the balance at December 31, 2010.  Our consolidated outstanding debt was $9,899,277,000 at December 31, 2011, a $262,477,000 decrease from the balance at December 31, 2010. 

 

Cash flows provided by operating activities of $702,499,000 was comprised of (i) net income of $740,000,000, (ii) distributions of income from partially owned entities of $93,635,000, and (iii) $151,745,000 of non-cash adjustments, including depreciation and amortization expense, the effect of straight-lining of rental income, equity in net income of partially owned entities, income from the mark-to-market of derivative positions in marketable equity securities, impairment losses and tenant buy-out costs, net realized and unrealized gains on Real Estate Fund assets and net gain on early extinguishment of debt, partially offset by (iv) the net change in operating assets and liabilities of $282,881,000, of which $184,841,000 relates to Real Estate Fund investments.

 

Net cash used in investing activities of $164,761,000 was comprised of (i) $571,922,000 of investments in partially owned entities, (ii) $165,680,000 of additions to real estate, (iii) $98,979,000 of investments in mortgage and mezzanine loans receivable and other, (iv) $93,066,000 of development costs and construction in progress, (v) $90,858,000 of acquisitions of real estate and other, and (vi) $43,850,000 for the funding of collateral for the J.C. Penney derivative, partially offset by (vii) $318,966,000 of capital distributions from partially owned entities, (viii) $187,294,000 of proceeds from sales and repayments of mortgage and mezzanine loans receivable and other, (ix) $140,186,000 of proceeds from sales of real estate and related investments, (x) changes in restricted cash of $126,380,000, (xi) $70,418,000 of proceeds from sales of marketable securities, and (xii) $56,350,000 from the return of derivative collateral.

 

Net cash used in financing activities of $621,974,000 was comprised of (i) $3,740,327,000 for the repayments of borrowings, (ii) $508,745,000 of dividends paid on common shares, (iii) $116,510,000 of distributions to noncontrolling interests, (iv) $61,464,000 of dividends paid on preferred shares, (v) $47,395,000 of debt issuance and other costs, (vi) $28,000,000 for the purchase of outstanding preferred units and shares, and (vii) $964,000 for the repurchase of shares related to stock compensation agreements and related tax withholdings, partially offset by (viii) $3,412,897,000 of proceeds from borrowings, (ix) $238,842,000 of proceeds from the issuance of Series J preferred shares, (x) $204,185,000 of contributions from noncontrolling interests, and (xi) $25,507,000 of proceeds received from exercise of employee share options.

89

 


 
 

 

Liquidity and Capital Resources – continued

 

 

Capital Expenditures in the year ended December 31, 2011

 

Retail

(Amounts in thousands)

Total

New York

Washington, DC

Properties

Other

Expenditures to maintain assets

$

58,463 

$

22,698 

$

18,939 

$

6,448 

$

10,378 

Tenant improvements

138,076 

76,493 

33,803 

6,515 

21,265 

Leasing commissions

43,613 

28,072 

9,114 

2,114 

4,313 

Non-recurring capital expenditures

19,442 

17,157 

2,285 

Total capital expenditures and leasing

commissions (accrual basis)

259,594 

144,420 

61,856 

15,077 

38,241 

Adjustments to reconcile to cash basis:

Expenditures in the current year

applicable to prior periods

90,799 

43,392 

13,517 

9,705 

24,185 

Expenditures to be made in future

periods for the current period

(146,062)

(79,941)

(33,530)

(7,058)

(25,533)

Total capital expenditures and leasing

commissions (cash basis)

$

204,331 

$

107,871 

$

41,843 

$

17,724 

$

36,893 

Tenant improvements and leasing commissions:

Per square foot per annum

$

3.88 

$

5.21 

$

4.47 

$

0.71 

$

Percentage of initial rent

8.9%

9.1%

10.8%

3.3%

 

 

 

Development and Redevelopment Expenditures in the Year Ended December 31, 2011

 

Retail

(Amounts in thousands)

Total

New York

Washington, DC

Properties

Other

Bergen Town Center

$

23,748 

$

$

$

23,748 

$

510 Fifth Avenue

8,833 

8,833 

Other

48,903 

6,627 

20,496 

18,580 

3,200 

$

81,484 

$

15,460 

$

20,496 

$

42,328 

$

3,200 

90

 


 
 

 

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 gains from sales of depreciated real estate assets, real estate impairment losses, 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. 

 

FFO attributable to common shareholders plus assumed conversions was $641,037,000, or $3.41 per diluted share for the year ended December 31, 2013, compared to $818,565,000, or $4.39 per diluted share for the year ended December 31, 2012. FFO attributable to common shareholders plus assumed conversions was a negative $6,784,000, or $0.04 per diluted share for the three months ended December 31, 2013, compared to a positive $55,890,000, or $0.30 per diluted share for the three months ended December 31, 2012.  Details of certain items that affect comparability are discussed in the financial results summary of our “Overview.”

 

For The Year

For The Three Months

(Amounts in thousands, except per share amounts)

Ended December 31,

Ended December 31,

Reconciliation of our net income (loss) to FFO:

2013 

2012 

2013 

2012 

Net income (loss) attributable to Vornado

$

475,971 

$

617,260 

$

(48,519)

$

86,135 

Depreciation and amortization of real property

501,753 

504,407 

124,611 

125,069 

Net gains on sale of real estate

(411,593)

(245,799)

(127,512)

(41,998)

Real estate impairment losses

37,170 

129,964 

32,443 

116,453 

Proportionate share of adjustments to equity in net income of

Toys, to arrive at FFO:

Depreciation and amortization of real property

69,741 

68,483 

16,506 

17,777 

Real estate impairment losses

6,552 

9,824 

456 

1,430 

Income tax effect of above adjustments

(26,703)

(27,493)

(5,937)

(6,728)

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

87,529 

86,197 

25,282 

20,387 

Net gains on sale of real estate

(465)

(241,602)

(239,551)

Real estate impairment losses

1,849 

Noncontrolling interests' share of above adjustments

(15,089)

(16,649)

(3,746)

418 

FFO

724,866 

886,441 

13,584 

79,392 

Preferred share dividends

(82,807)

(76,937)

(20,368)

(20,750)

Preferred unit and share redemptions

(1,130)

8,948 

(2,752)

FFO (Negative FFO) attributable to common shareholders

640,929 

818,452 

(6,784)

55,890 

Convertible preferred share dividends

108 

113 

FFO (Negative FFO) attributable to common shareholders

plus assumed conversions

$

641,037 

$

818,565 

$

(6,784)

$

55,890 

Reconciliation of Weighted Average Shares

Weighted average common shares outstanding

186,941 

185,810 

187,109 

186,267 

Effect of dilutive securities:

Employee stock options and restricted share awards

768 

670 

599 

Convertible preferred shares

48 

50 

Denominator for FFO (Negative FFO) per diluted share

187,757 

186,530 

187,109 

186,866 

FFO (Negative FFO) attributable to common shareholders plus

assumed conversions per diluted share

$

3.41 

$

4.39 

$

(0.04) 

$

0.30 

91

 


 
 

 

ITEM 7A.     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)

2013 

2012 

Weighted

Effect of 1%

Weighted

December 31,

Average

Change In

December 31,

Average

Consolidated debt:

Balance

Interest Rate

Base Rates

Balance

Interest Rate

Variable rate

$

1,064,730 

2.01%

$

10,647 

$

2,998,221 

1.84%

Fixed rate

8,913,988 

4.73%

8,129,009 

5.18%

$

9,978,718 

4.44%

10,647 

$

11,127,230 

4.28%

Prorata share of debt of non-

consolidated entities (non-recourse):

Variable rate – excluding Toys

$

196,240 

2.09%

1,962 

$

264,531 

2.88%

Variable rate – Toys

1,179,001 

5.45%

11,790 

703,922 

5.69%

Fixed rate (including $682,484 and

$1,148,407 of Toys debt in 2013 and 2012)

2,814,162 

6.46%

3,030,476 

7.04%

$

4,189,403 

5.97%

13,752 

$

3,998,929 

6.53%

Redeemable noncontrolling interests’ share of above

(1,415)

Total change in annual net income

$

22,984 

Per share-diluted

$

0.12 

 

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 December 31, 2013, we have one interest rate cap with a principal amount of $60,000,000 and a weighted average interest rate of 2.36%.  This cap is based on a notional amount of $60,000,000 and caps LIBOR at a rate of 7.00%.  In addition, we have one interest rate swap on a $425,000,000 mortgage loan that swapped the rate from LIBOR plus 2.00% (2.17% at December 31, 2013) to a fixed rate of 5.13% for the remaining five-year term of the loan. 

 

As of December 31, 2013, we have investments in mezzanine loans with an aggregate carrying amount of $152,853,000 that are based on variable interest rates which partially mitigate our exposure to a change in interest rates.

 

 

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 current rate at which similar loans would be made to borrowers with similar credit ratings for the remaining term of such debt.  As of December 31, 2013, the estimated fair value of our consolidated debt was $9,802,000,000.

92

 


 

 

ITEM 8.        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

INDEX TO FINANCIAL STATEMENTS

 

Page

Number

Report of Independent Registered Public Accounting Firm

94

Consolidated Balance Sheets at December 31, 2013 and 2012

95

Consolidated Statements of Income for the years ended December 31, 2013, 2012 and 2011

96

Consolidated Statements of Comprehensive Income for the years ended December 31, 2013, 2012 and 2011

97

Consolidated Statements of Changes in Equity for the years ended December 31, 2013, 2012 and 2011

98

Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2012 and 2011

101

Notes to Consolidated Financial Statements

103

93

 


 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

Shareholders and Board of Trustees

Vornado Realty Trust

New York, New York

 

We have audited the accompanying consolidated balance sheets of Vornado Realty Trust (the “Company”) as of December 31, 2013 and 2012, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2013. Our audits also included the financial statement schedules listed in the Index at Item 15. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Vornado Realty Trust at December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

 

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2013, based on the criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24, 2014 expressed an unqualified opinion on the Company’s internal control over financial reporting.

 

/s/ DELOITTE & TOUCHE LLP

 

Parsippany, New Jersey

February 24, 2014

94

 


 
 

 

VORNADO REALTY TRUST

CONSOLIDATED BALANCE SHEETS

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

December 31,

December 31,

ASSETS

2013 

2012 

Real estate, at cost:

Land

4,205,815 

4,766,315 

Buildings and improvements

12,661,938 

12,421,086 

Development costs and construction in progress

1,354,350 

920,273 

Leasehold improvements and equipment

132,523 

130,544 

Total

18,354,626 

18,238,218 

Less accumulated depreciation and amortization

(3,410,933)

(3,072,269)

Real estate, net

14,943,693 

15,165,949 

Cash and cash equivalents

583,290 

960,319 

Restricted cash

262,440 

183,256 

Marketable securities

191,917 

398,188 

Tenant and other receivables, net of allowance for doubtful accounts of $21,869 and $37,674

115,862 

195,718 

Investments in partially owned entities

1,166,443 

1,226,256 

Investment in Toys "R" Us

83,224 

478,041 

Real Estate Fund investments

667,710 

600,786 

Mortgage and mezzanine loans receivable, net of allowance of $5,845 in 2013

170,972 

225,359 

Receivable arising from the straight-lining of rents, net of allowance of $4,355 and $3,165

823,137 

758,191 

Deferred leasing and financing costs, net of accumulated amortization of $265,482 and $222,202

413,726 

405,004 

Identified intangible assets, net of accumulated amortization of $282,593 and $352,035

323,322 

415,330 

Assets related to discontinued operations

671,573 

Other assets

351,488 

381,079 

20,097,224 

22,065,049 

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY

Mortgages payable

8,331,993 

8,599,222 

Senior unsecured notes

1,350,855 

1,358,008 

Revolving credit facility debt

295,870 

1,170,000 

Accounts payable and accrued expenses

422,276 

484,746 

Deferred revenue

542,998 

596,067 

Deferred compensation plan

116,515 

105,200 

Deferred tax liabilities

1,280 

15,305 

Liabilities related to discontinued operations

487,271 

Other liabilities

437,073 

400,934 

Total liabilities

11,498,860 

13,216,753 

Commitments and contingencies

Redeemable noncontrolling interests:

Class A units - 11,292,038 and 11,215,682 units outstanding

1,002,620 

898,152 

Series D cumulative redeemable preferred units - 1 and 1,800,001 units outstanding

1,000 

46,000 

Total redeemable noncontrolling interests

1,003,620 

944,152 

Vornado shareholders' equity:

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

shares; issued and outstanding 52,682,807 and 51,184,609 shares

1,277,225 

1,240,278 

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

250,000,000 shares; issued and outstanding 187,284,688 and 186,734,711 shares

7,469 

7,440 

Additional capital

7,143,840 

7,195,438 

Earnings less than distributions

(1,734,839)

(1,573,275)

Accumulated other comprehensive income (loss)

71,537 

(18,946)

Total Vornado shareholders' equity

6,765,232 

6,850,935 

Noncontrolling interests in consolidated subsidiaries

829,512 

1,053,209 

Total equity

7,594,744 

7,904,144 

20,097,224 

22,065,049 

See notes to the consolidated financial statements.

95

 


 
 

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF INCOME

Year Ended December 31,

2013 

2012 

2011 

(Amounts in thousands, except per share amounts)

REVENUES:

Property rentals

$

2,155,963 

$

2,062,061 

$

2,091,488 

Tenant expense reimbursements

317,345 

294,584 

307,609 

Cleveland Medical Mart development project

36,369 

235,234 

154,080 

Fee and other income

251,232 

144,353 

149,631 

Total revenues

2,760,909 

2,736,232 

2,702,808 

EXPENSES:

Operating

1,054,897 

1,017,331 

984,707 

Depreciation and amortization

531,212 

510,383 

516,222 

General and administrative

211,100 

202,444 

208,530 

Cleveland Medical Mart development project

32,210 

226,619 

145,824 

Impairment losses, acquisition related costs and tenant buy-outs

57,300 

114,886 

35,299 

Total expenses

1,886,719 

2,071,663 

1,890,582 

Operating income

874,190 

664,569 

812,226 

(Loss) income applicable to Toys "R" Us

(362,377)

14,859 

48,540 

Income from partially owned entities

23,592 

408,267 

70,072 

Income from Real Estate Fund

102,898 

63,936 

22,886 

Interest and other investment (loss) income, net

(24,699)

(260,945)

148,783 

Interest and debt expense

(483,190)

(493,713)

(519,157)

Net gain on disposition of wholly owned and partially owned assets

3,407 

13,347 

15,134 

Income before income taxes

133,821 

410,320 

598,484 

Income tax benefit (expense)

6,406 

(8,132)

(23,925)

Income from continuing operations

140,227 

402,188 

574,559 

Income from discontinued operations

424,513 

292,353 

165,441 

Net income

564,740 

694,541 

740,000 

Less net income attributable to noncontrolling interests in:

Consolidated subsidiaries

(63,952)

(32,018)

(21,786)

Operating Partnership

(23,659)

(35,327)

(41,059)

Preferred unit distributions of the Operating Partnership

(1,158)

(9,936)

(14,853)

Net income attributable to Vornado

475,971 

617,260 

662,302 

Preferred share dividends

(82,807)

(76,937)

(65,531)

Preferred unit and share redemptions

(1,130)

8,948 

5,000 

NET INCOME attributable to common shareholders

$

392,034 

$

549,271 

$

601,771 

(LOSS) INCOME PER COMMON SHARE - BASIC:

(Loss) income from continuing operations, net

$

(0.03)

$

1.46 

$

2.42 

Income from discontinued operations, net

2.13 

1.49 

0.84 

Net income per common share

$

2.10 

$

2.95 

$

3.26 

Weighted average shares outstanding

186,941 

185,810 

184,308 

(LOSS) INCOME PER COMMON SHARE - DILUTED:

(Loss) income from continuing operations, net

$

(0.03)

$

1.46 

$

2.40 

Income from discontinued operations, net

2.12 

1.48 

0.83 

Net income per common share

$

2.09 

$

2.94 

$

3.23 

Weighted average shares outstanding

187,709 

186,530 

186,021 

See notes to consolidated financial statements.

96

 


 
 

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Year Ended December 31,

(Amounts in thousands)

2013 

2012 

2011 

Net income

$

564,740 

$

694,541 

$

740,000 

Other comprehensive income:

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

142,281 

(283,649)

41,657 

Amounts reclassified from accumulated other comprehensive income:

Non-cash impairment loss on J.C. Penney common shares

224,937 

Sale of available-for-sale securities

(42,404)

(3,582)

(5,020)

Pro rata share of other comprehensive (loss) income of

nonconsolidated subsidiaries

(22,814)

(31,758)

12,859 

Change in value of interest rate swap

18,183 

(5,659)

(43,704)

Other

533 

329 

(5,245)

Comprehensive income

660,519 

595,159 

740,547 

Less comprehensive income attributable to noncontrolling interests

(94,065)

(70,574)

(77,969)

Comprehensive income attributable to Vornado

$

566,454 

$

524,585 

$

662,578 

See notes to consolidated financial statements.

97

 


 
 

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

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

662,302 

21,786 

684,088 

Dividends on common shares

(508,745)

(508,745)

Dividends on preferred shares

(65,694)

(65,694)

Issuance of Series J preferred shares

9,850 

238,842 

238,842 

Common shares issued:

Upon redemption of Class A

units, at redemption value

798 

32 

64,798 

64,830 

Under Omnibus share plan

590 

23 

23,705 

(13,289)

10,439 

Under dividend reinvestment plan

21 

1,771 

1,772 

Contributions:

Real Estate Fund

203,407 

203,407 

Other

778 

778 

Distributions:

Real Estate Fund

(49,422)

(49,422)

Other

(15,604)

(15,604)

Conversion of Series A preferred

shares to common shares

(3)

(165)

165 

Deferred compensation shares

and options

10,608 

(523)

10,085 

Change in unrealized net gain

on securities available-for-sale

41,657 

41,657 

Amounts reclassified related to sale

of available-for-sale securities

(5,020)

(5,020)

Pro rata share of other

comprehensive income of

nonconsolidated subsidiaries

12,859 

12,859 

Change in value of interest rate swap

(43,704)

(43,704)

Adjustments to carry redeemable

Class A units at redemption value

98,092 

98,092 

Redeemable noncontrolling interests'

share of above adjustments

(271)

(271)

Other

(105)

(4,609)

5,121 

(5,245)

4,491 

(347)

Balance, December 31, 2011

42,187 

1,021,660 

185,080 

7,373 

7,127,258 

(1,401,704)

73,729 

680,131 

7,508,447 

See notes to consolidated financial statements.

 

98

 


 
 

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - CONTINUED

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, 2011

42,187 

1,021,660 

185,080 

7,373 

7,127,258 

(1,401,704)

73,729 

680,131 

7,508,447 

Net income

617,260 

32,018 

649,278 

Dividends on common shares

(699,318)

(699,318)

Dividends on preferred shares

(76,937)

(76,937)

Issuance of Series K preferred shares

12,000 

290,971 

290,971 

Redemption of Series E preferred

shares

(3,000)

(72,248)

(72,248)

Common shares issued:

Upon redemption of Class A

units, at redemption value

1,121 

45 

89,717 

89,762 

Under Omnibus share plan

434 

18 

9,521 

(16,389)

(6,850)

Under dividend reinvestment plan

29 

2,306 

2,307 

Upon acquisition of real estate

64 

5,121 

5,124 

Contributions:

Real Estate Fund

195,029 

195,029 

Other

18,103 

18,103 

Distributions:

Real Estate Fund

(48,138)

(48,138)

Other

(59)

(59)

Conversion of Series A preferred

shares to common shares

(2)

(105)

105 

Deferred compensation shares

and options

13,527 

(473)

13,054 

Change in unrealized net loss

on securities available-for-sale

(283,649)

(283,649)

Non-cash impairment loss on

J.C. Penney common shares

224,937 

224,937 

Amounts reclassified related to sale

of available-for-sale securities

(3,582)

(3,582)

Pro rata share of other

comprehensive loss of

nonconsolidated subsidiaries

(31,758)

(31,758)

Change in value of interest rate swap

(5,659)

(5,659)

Adjustments to carry redeemable

Class A units at redemption value

(52,117)

(52,117)

Redeemable noncontrolling interests'

share of above adjustments

6,707 

6,707 

Preferred unit and share

redemptions

8,948 

8,948 

Consolidation of partially owned

entity

176,132 

176,132 

Other

(4,662)

329 

(7)

(4,340)

Balance, December 31, 2012

51,185 

1,240,278 

186,735 

7,440 

7,195,438 

(1,573,275)

(18,946)

1,053,209 

7,904,144 

See notes to consolidated financial statements.

 

99

 


 
 

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - CONTINUED

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, 2012

51,185 

1,240,278 

186,735 

7,440 

7,195,438 

(1,573,275)

(18,946)

1,053,209 

7,904,144 

Net income

475,971 

63,952 

539,923 

Dividends on common shares

(545,913)

(545,913)

Dividends on preferred shares

(82,807)

(82,807)

Issuance of Series L preferred shares

12,000 

290,306 

290,306 

Redemption of Series F and Series H

preferred shares

(10,500)

(253,269)

(253,269)

Common shares issued:

Upon redemption of Class A

units, at redemption value

299 

12 

25,305 

25,317 

Under Omnibus share plan

104 

23 

5,892 

(107)

5,808 

Under dividend reinvestment plan

22 

1,850 

1,851 

Upon acquisition of real estate

128 

11,456 

11,461 

Contributions:

Real Estate Fund

28,078 

28,078 

Other

15,886 

15,886 

Distributions:

Real Estate Fund

(47,268)

(47,268)

Other

(133,153)

(133,153)

Conversion of Series A preferred

shares to common shares

(2)

(90)

90 

Deferred compensation shares

and options

(6)

(12)

9,589 

(307)

9,270 

Change in unrealized net gain

on securities available-for-sale

142,281 

142,281 

Amounts reclassified related to sale

of available-for-sale securities

(42,404)

(42,404)

Pro rata share of other

comprehensive loss of

nonconsolidated subsidiaries

(22,814)

(22,814)

Change in value of interest rate swap

18,183 

18,183 

Adjustments to carry redeemable

Class A units at redemption value

(108,252)

(108,252)

Redeemable noncontrolling interests'

share of above adjustments

(5,296)

(5,296)

Preferred unit and share

redemptions

(1,130)

(1,130)

Deconsolidation of partially

owned entity

(165,427)

(165,427)

Consolidation of partially

owned entity

16,799 

16,799 

Other

2,472 

(7,271)

533 

(2,564)

(6,830)

Balance, December 31, 2013

52,683 

1,277,225 

187,285 

7,469 

7,143,840 

(1,734,839)

71,537 

829,512 

7,594,744 

See notes to consolidated financial statements.

100

 


 
 

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31,

2013 

2012 

2011 

(Amounts in thousands)

Cash Flows from Operating Activities:

Net income

$

564,740 

$

694,541 

$

740,000 

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

Depreciation and amortization (including amortization of deferred financing costs)

561,998 

557,888 

580,990 

Net gains on sale of real estate

(414,502)

(245,799)

(51,623)

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

338,785 

(423,126)

(118,612)

Net unrealized gains on Real Estate Fund investments

(85,771)

(55,361)

(17,386)

Straight-lining of rental income

(69,391)

(69,648)

(45,788)

Return of capital from Real Estate Fund investments

56,664 

63,762 

Distributions of income from partially owned entities

54,030 

226,172 

93,635 

Amortization of below-market leases, net

(52,876)

(54,359)

(63,044)

Other non-cash adjustments

41,663 

52,082 

27,325 

Non-cash impairment loss on J.C. Penney common shares

39,487 

224,937 

Impairment losses and tenant buy-outs

37,170 

133,977 

58,173 

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

33,487 

75,815 

(12,984)

Net gain on disposition of wholly owned and partially owned assets

(3,407)

(13,347)

(15,134)

Gain on sale of Canadian Trade Shows

(31,105)

Net gain on extinguishment of debt

(83,907)

Mezzanine loans loss reversal and net gain on disposition

(82,744)

Recognition of disputed account receivable from Stop & Shop

(23,521)

Changes in operating assets and liabilities:

Real Estate Fund investments

(37,817)

(262,537)

(184,841)

Tenant and other receivables, net

83,897 

(23,271)

8,869 

Prepaid assets

(2,207)

(10,549)

(7,779)

Other assets

(50,856)

(46,573)

(89,186)

Accounts payable and accrued expenses

(41,729)

21,595 

(28,699)

Other liabilities

(12,576)

9,955 

18,755 

Net cash provided by operating activities

1,040,789 

825,049 

702,499 

Cash Flows from Investing Activities:

Proceeds from sales of real estate and related investments

1,027,608 

445,683 

140,186 

Development costs and construction in progress

(469,417)

(156,873)

(93,066)

Proceeds from sales of, and return of investment in, marketable securities

378,709 

60,258 

70,418 

Distributions of capital from partially owned entities

290,404 

144,502 

318,966 

Additions to real estate

(260,343)

(205,652)

(165,680)

Proceeds from the sale of LNR

240,474 

Investments in partially owned entities

(230,300)

(134,994)

(571,922)

Acquisitions of real estate and other

(193,417)

(673,684)

(90,858)

Funding of J.C. Penney derivative collateral; and settlement of derivative in 2013

(186,079)

(191,330)

(43,850)

Return of J.C. Penney derivative collateral

101,150 

134,950 

56,350 

Proceeds from sales and repayments of mortgage and mezzanine loans

receivable and other

50,569 

38,483 

187,294 

Restricted cash

(26,892)

(75,138)

126,380 

Investments in mortgage and mezzanine loans receivable and other

(390)

(94,094)

(98,979)

Proceeds from the sale of Canadian Trade Shows

52,504 

Proceeds from the repayment of loan to officer

13,123 

13,123 

Loan to officer

(13,123)

Net cash provided by (used in) investing activities

722,076 

(642,262)

(164,761)

See notes to consolidated financial statements.

 

101

 


 
 

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

Year Ended December 31,

2013 

2012 

2011 

(Amounts in thousands)

Cash Flows from Financing Activities:

Repayments of borrowings

$

(3,580,100)

$

(2,747,694)

$

(3,740,327)

Proceeds from borrowings

2,262,245 

3,593,000 

3,412,897 

Dividends paid on common shares

(545,913)

(699,318)

(508,745)

Purchases of outstanding preferred units and shares

(299,400)

(243,300)

(28,000)

Proceeds from the issuance of preferred shares

290,306 

290,971 

238,842 

Distributions to noncontrolling interests

(215,247)

(104,448)

(116,510)

Dividends paid on preferred shares

(83,188)

(73,976)

(61,464)

Contributions from noncontrolling interests

43,964 

213,132 

204,185 

Debt issuance and other costs

(19,883)

(39,073)

(47,395)

Proceeds received from exercise of employee share options

7,765 

11,853 

25,507 

Repurchase of shares related to stock compensation agreements and related

tax withholdings

(443)

(30,168)

(964)

Net cash (used in) provided by financing activities

(2,139,894)

170,979 

(621,974)

Net (decrease) increase in cash and cash equivalents

(377,029)

353,766 

(84,236)

Cash and cash equivalents at beginning of period

960,319 

606,553 

690,789 

Cash and cash equivalents at end of period

$

583,290 

$

960,319 

$

606,553 

Supplemental Disclosure of Cash Flow Information:

Cash payments for interest (net of amounts capitalized of $42,303, $16,801 and $1,197)

$

465,260 

$

491,869 

$

531,174 

Cash payments for income taxes

$

9,023 

$

21,709 

$

26,187 

Non-Cash Investing and Financing Activities:

Like-kind exchange of real estate:

Acquisitions

$

66,076 

$

230,913 

$

21,999 

Dispositions

(128,767)

(230,913)

(45,625)

Financing assumed in acquisitions

79,253 

Financing transferred in dispositions

(163,144)

L.A. Mart seller financing

35,000 

Marriott Marquis Times Square - retail and signage capital lease:

Asset (included in development costs and construction in progress)

240,000 

Liability (included in other liabilities)

(240,000)

Increase in assets and liabilities resulting from the consolidation of partially

owned entities:

Real estate, net

342,919 

Notes and mortgages payable

334,225 

Decrease in assets and liabilities resulting from the deconsolidation of discontinued

operations and/or investments that were previously consolidated:

Real estate, net

(852,166)

(145,333)

Notes and mortgages payable

(322,903)

(232,502)

See notes to consolidated financial statements.

102

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.     Organization and Business

 

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 94.0% of the common limited partnership interest in the Operating Partnership at December 31, 2013.  All references to “we,” “us,” “our,” the “Company” and “Vornado” refer to Vornado Realty Trust and its consolidated subsidiaries, including the Operating Partnership.

                 

As of December 31, 2013, we own all or portions of:

 

New York:

 

·         19.8 million square feet of Manhattan office space in 31 properties and four residential properties containing 1,653 units;

 

·         2.4 million square feet of Manhattan street retail space in 55 properties;

 

·         The 1,700 room Hotel Pennsylvania located on Seventh Avenue at 33rd Street in the heart of the Penn Plaza district;

 

·         A 32.4% interest in Alexander’s, Inc. (NYSE: ALX), which owns six properties in the greater New York metropolitan area, including 731 Lexington Avenue, the 1.3 million square foot Bloomberg, L.P. headquarters building;

 

Washington, DC:

 

·         16.2 million square feet of office space in 59 properties and seven residential properties containing 2,405 units;

 

Retail Properties:

 

·         14.9 million square feet of retail space in 106 strip shopping centers and single tenant retail assets, primarily in the northeast states and California;

 

·         5.3 million square feet of retail space in six regional malls, located in the northeast / mid-Atlantic states and Puerto Rico;

 

 

Other Real Estate and Related Investments:

 

·         The 3.6 million square foot Merchandise Mart in Chicago, whose largest tenant is Motorola Mobility, owned by Google, which leases 608,000 square feet;

 

·         A 70% controlling interest in 555 California Street, a three-building office complex in San Francisco’s financial district aggregating 1.8 million square feet, known as the Bank of America Center;

 

·         A 25.0% interest in Vornado Capital Partners, our real estate fund.  We are the general partner and investment manager of the fund;

 

·         A 32.6% interest in Toys “R” Us, Inc.; and

 

·         Other real estate and related investments and mortgage and mezzanine loans on real estate.

103

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

2.    Basis of Presentation and Significant Accounting Policies

 

Basis of Presentation

 

The accompanying consolidated financial statements include the accounts of Vornado and its consolidated subsidiaries, including the Operating Partnership. All inter-company amounts have been eliminated.  Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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.

 

 

Recently Issued Accounting Literature

 

In February 2013, the Financial Accounting Standards Board (“FASB”) issued an update (“ASU 2013-02”) to Accounting Standards Codification (“ASC”) Topic 220, Comprehensive Income (“Topic 220”). ASU 2013-02 requires additional disclosures regarding significant reclassifications out of each component of accumulated other comprehensive income, including the effect on the respective line items of net income for amounts that are required to be reclassified into net income in their entirety and cross-references to other disclosures providing additional information for amounts that are not required to be reclassified into net income in their entirety. The adoption of this update as of January 1, 2013, did not have a material impact on our consolidated financial statements, but resulted in additional disclosures (see Note 12 – Shareholders’ Equity – Accumulated Other Comprehensive Income (Loss)).  

 

In June 2013, the FASB issued an update (“ASU 2013-08”) to ASC Topic 946, Financial Services - Investment Companies (“Topic 946”). ASU 2013-08 amends the guidance in Topic 946 for determining whether an entity qualifies as an investment company and requires certain additional disclosures. ASU 2013-08 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2013. The adoption of this update as of January 1, 2014, did not have any impact on our real estate fund and our consolidated financial statements.

 

 

Significant Accounting Policies

 

Real Estate:  Real estate is carried at cost, net of accumulated depreciation and amortization. Betterments, major renewals and certain costs directly related to the improvement and leasing of real estate are capitalized. Maintenance and repairs are expensed as incurred. For redevelopment of existing operating properties, the net book value of the existing property under redevelopment plus the cost for the construction and improvements incurred in connection with the redevelopment are capitalized to the extent the capitalized costs of the property do not exceed the estimated fair value of the redeveloped property when complete. If the cost of the redeveloped property, including the net book value of the existing property, exceeds the estimated fair value of redeveloped property, the excess is charged to expense. Depreciation is recognized on a straight-line basis over estimated useful lives which range from 7 to 40 years. Tenant allowances are amortized on a straight-line basis over the lives of the related leases, which approximate the useful lives of the assets. Additions to real estate include interest expense capitalized during construction of $42,303,000 and $16,801,000 for the years ended December 31, 2013 and 2012, respectively.

 

Upon the acquisition of real estate, we assess the fair value of acquired assets (including land, buildings and improvements, identified intangibles, such as acquired above and below-market leases, acquired in-place leases and tenant relationships) and acquired liabilities and we allocate the purchase price based on these assessments. We assess fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information.  Estimates of future cash flows are based on a number of factors including historical operating results, known trends, and market/economic conditions.  We record acquired intangible assets (including acquired above-market leases, acquired in-place leases and tenant relationships) and acquired intangible liabilities (including below–market leases) at their estimated fair value separate and apart from goodwill. We amortize identified intangibles that have finite lives over the period they are expected to contribute directly or indirectly to the future cash flows of the property or business acquired.

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2.    Basis of Presentation and Significant Accounting Policies - continued

 

Our properties, including any related intangible assets, are individually reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment exists when the carrying amount of an asset exceeds the aggregate projected future cash flows over the anticipated holding period on an undiscounted basis.  An impairment loss is measured based on the excess of the property’s carrying amount over its estimated fair value.  Impairment analyses are based on our current plans, intended holding periods and available market information at the time the analyses are prepared.  If our estimates of the projected future cash flows, anticipated holding periods, or market conditions change, our evaluation of impairment losses may be different and such differences could be material to our consolidated financial statements.  The evaluation of anticipated cash flows is subjective and is based, in part, on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results.  Plans to hold properties over longer periods decrease the likelihood of recording impairment losses. 

 

The table below summarizes impairment losses, acquisition related costs and tenant buy-outs in the years ended December 31, 2013, 2012 and 2011.

 

(Amounts in thousands)

For the Year Ended December 31,

2013 

2012 

2011 

Impairment losses

$

32,443 

$

103,638 

$

5,228 

Acquisition related costs

24,857 

(1) 

11,248 

5,925 

Tenant buy-outs

24,146 

$

57,300 

$

114,886 

$

35,299 

(1)

Includes a $10,949 prepayment penalty in connection with the repayment of the mortgage loan upon the acquisition of 655 Fifth Avenue.

 

 

Partially Owned Entities:  We consolidate entities in which we have a controlling financial interest.  In determining whether we have a controlling financial interest in a partially owned entity and the requirement to consolidate the accounts of that entity, we consider factors such as ownership interest, board representation, management representation, authority to make decisions, and contractual and substantive participating rights of the partners/members as well as whether the entity is a variable interest entity (“VIE”) and we are the primary beneficiary.  We are deemed to be the primary beneficiary of a VIE when we have (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses or receive benefits that could potentially be significant to the VIE. We generally do not control a partially owned entity if the entity is not considered a VIE and the approval of all of the partners/members is contractually required with respect to major decisions, such as operating and capital budgets, the sale, exchange or other disposition of real property, the hiring of a chief executive officer, the commencement, compromise or settlement of any lawsuit, legal proceeding or arbitration or the placement of new or additional financing secured by assets of the venture.  We account for investments under the equity method when the requirements for consolidation are not met, and we have significant influence over the operations of the investee. Equity method investments are initially recorded at cost and subsequently adjusted for our share of net income or loss and cash contributions and distributions each period. Investments that do not qualify for consolidation or equity method accounting are accounted for on the cost method. 

 

Investments in partially owned entities are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is measured based on the excess of the carrying amount of an investment over its estimated fair value.  Impairment analyses are based on current plans, intended holding periods and available information at the time the analyses are prepared.  In the years ended December 31, 2013, 2012 and 2011, we recognized non-cash impairment losses on investments in partially owned entities, aggregating $281,098,000, $44,936,000 and $13,794,000, respectively.  Included in these amounts are $240,757,000 and $40,000,000 of impairment losses related to our investment in Toys in 2013 and 2012, respectively.  

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2.    Basis of Presentation and Significant Accounting Policies – continued

 

Mortgage and Mezzanine Loans Receivable: We invest in mortgage and mezzanine loans of entities that have significant real estate assets.  These investments are either secured by the real property or by pledges of the equity interests of the entities owning the underlying real estate.  We record these investments at the stated principal amount net of any unamortized discount or premium. We accrete or amortize any discount or premium over the life of the related receivable utilizing the effective interest method or straight-line method, if the result is not materially different.  We evaluate the collectibility of both interest and principal of each of our loans whenever events or changes in circumstances indicate such amounts may not be recoverable. A loan is impaired when it is probable that we will be unable to collect all amounts due according to the existing contractual terms. When a loan is impaired, the amount of the loss accrual is calculated by comparing the carrying amount of the investment to the present value of expected future cash flows discounted at the loan’s effective interest rate, or as a practical expedient, to the value of the collateral if the loan is collateral dependent.  Interest on impaired loans is recognized when received in cash.

 

 

Cash and Cash Equivalents:  Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less and are carried at cost, which approximates fair value due to their short-term maturities.  The majority of our cash and cash equivalents consists of (i) deposits at major commercial banks, which may at times exceed the Federal Deposit Insurance Corporation limit, (ii) United States Treasury Bills, and (iii) Certificate of Deposits placed through an Account Registry Service (“CDARS”).  To date, we have not experienced any losses on our invested cash.

 

 

Restricted Cash:  Restricted cash consists of security deposits, cash restricted for the purposes of facilitating a Section 1031 Like-Kind exchange, cash restricted in connection with our deferred compensation plan and cash escrowed under loan agreements for debt service, real estate taxes, property insurance and capital improvements.   

 

  

Allowance for Doubtful Accounts:  We periodically evaluate the collectibility of amounts due from tenants and maintain an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required payments under the lease agreements. We also maintain an allowance for receivables arising from the straight-lining of rents. This receivable arises from earnings recognized in excess of amounts currently due under the lease agreements. Management exercises judgment in establishing these allowances and considers payment history and current credit status in developing these estimates.  As of December 31, 2013 and 2012, we had $21,869,000 and $37,674,000, respectively, in allowances for doubtful accounts.  In addition, as of December 31, 2013 and 2012, we had $4,355,000 and $3,165,000, respectively, in allowances for receivables arising from the straight-lining of rents.

 

 

Deferred Charges: Direct financing costs are deferred and amortized over the terms of the related agreements as a component of interest expense. Direct costs related to successful leasing activities are capitalized and amortized on a straight line basis over the lives of the related leases. All other deferred charges are amortized on a straight line basis, which approximates the effective interest rate method, in accordance with the terms of the agreements to which they relate.

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2.    Basis of Presentation and Significant Accounting Policies – continued

 

Revenue Recognition:  We have the following revenue sources and revenue recognition policies:

•      Base Rent — income arising from tenant leases. These rents are recognized over the non-cancelable term of the related leases on a straight-line basis which includes the effects of rent steps and rent abatements under the leases.  We commence rental revenue recognition when the tenant takes possession of the leased space and the leased space is substantially ready for its intended use.  In addition, in circumstances where we provide a tenant improvement allowance for improvements that are owned by the tenant, we recognize the allowance as a reduction of rental revenue on a straight-line basis over the term of the lease.

  

•      Percentage Rent — income arising from retail tenant leases that is contingent upon tenant sales exceeding defined thresholds. These rents are recognized only after the contingency has been removed (i.e., when tenant sales thresholds have been achieved).

 

•      Hotel Revenue — income arising from the operation of the Hotel Pennsylvania which consists of rooms revenue, food and beverage revenue, and banquet revenue. Income is recognized when rooms are occupied. Food and beverage and banquet revenue is recognized when the services have been rendered.

 

•      Trade Shows Revenue — income arising from the operation of trade shows, including rentals of booths. This revenue is recognized when the trade shows have occurred.

 

•      Expense Reimbursements — revenue arising from tenant leases which provide for the recovery of all or a portion of the operating expenses and real estate taxes of the respective property. This revenue is accrued in the same periods as the expenses are incurred.

 

•      Management, Leasing and Other Fees — income arising from contractual agreements with third parties or with partially owned entities. This revenue is recognized as the related services are performed under the respective agreements.

 

•      Cleveland Medical Mart — revenue arising from the development of the Cleveland Medical Mart.  This revenue was recognized as the related services were performed under the respective agreements using the criteria set forth in ASC 605-25, Multiple Element Arrangements

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

2.    Basis of Presentation and Significant Accounting Policies – continued

 

Derivative Instruments and Hedging Activities:  ASC 815, Derivatives and Hedging, as amended, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. As of December 31, 2013 and 2012, our derivative instruments consisted of an interest rate cap and an interest rate swap.  We record all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation. Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.

 

For derivatives designated as fair value hedges, changes in the fair value of the derivative and the hedged item related to the hedged risk are recognized in earnings. For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income (loss) (outside of earnings) and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. We assess the effectiveness of each hedging relationship by comparing the changes in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the designated hedged item or transaction. For derivatives not designated as hedges, changes in fair value are recognized in earnings.

 

Income Taxes: We operate in a manner intended to enable us to continue to qualify as a REIT under Sections 856‑860 of the Internal Revenue Code of 1986, as amended. Under those sections, a REIT which distributes at least 90% of its REIT taxable income as a dividend to its shareholders each year and which meets certain other conditions will not be taxed on that portion of its taxable income which is distributed to its shareholders. We distribute to shareholders 100% of taxable income and therefore, no provision for Federal income taxes is required.  Dividends distributed for the year ended December 31, 2013, were characterized, for federal income tax income tax purposes, as ordinary income.  Dividend distributions for the year ended December 31, 2012, were characterized, for Federal income tax purposes, as 62.7% ordinary income and 37.3% long-term capital gain.  Dividend distributions for the year ended December 31, 2011 were characterized, for Federal income tax purposes, as 93.2% ordinary income and 6.8% long-term capital gain.

 

We have elected to treat certain consolidated subsidiaries, and may in the future elect to treat newly formed subsidiaries, as taxable REIT subsidiaries pursuant to an amendment to the Internal Revenue Code that became effective January 1, 2001.  Taxable REIT subsidiaries may participate in non-real estate related activities and/or perform non-customary services for tenants and are subject to Federal and State income tax at regular corporate tax rates. Our taxable REIT subsidiaries had a combined current income tax expense of approximately $9,608,000, $20,336,000 and $26,645,000 for the years ended December 31, 2013, 2012 and 2011, respectively, and have immaterial differences between the financial reporting and tax basis of assets and liabilities. 

 

The following table reconciles net income attributable to common shareholders to estimated taxable income for the years ended December 31, 2013, 2012 and 2011.

 

(Amounts in thousands)

For the Year Ended December 31,

2013 

2012 

2011 

Net income attributable to common shareholders

$

392,034 

$

549,271 

$

601,771 

Book to tax differences (unaudited):

Depreciation and amortization

155,401 

205,155 

225,802 

Impairment losses on marketable equity securities

37,236 

211,328 

Straight-line rent adjustments

(64,811)

(64,679)

(38,800)

Earnings of partially owned entities

339,376 

(60,049)

(96,178)

Stock options

4,884 

(28,701)

(27,697)

Sale of real estate

(324,936)

(123,905)

(18,766)

Derivatives

31,578 

71,228 

(12,160)

Mortgage and mezzanine loans receivable

(82,512)

Other, net

4,608 

17,080 

(6,223)

Estimated taxable income (unaudited)

$

575,370 

$

776,728 

$

545,237 

 

The net basis of our assets and liabilities for tax reporting purposes is approximately $3.6 billion lower than the amounts reported in our consolidated balance sheet at December 31, 2013.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

3.     Vornado Capital Partners Real Estate Fund (the “Fund”)

 

We are the general partner and investment manager of the Fund, which has an eight-year term and a three-year investment period that ended in July 2013. During the investment period, the Fund was our exclusive investment vehicle for all investments that fit within its investment parameters, as defined. The Fund is accounted for under the AICPA Investment Company Guide 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, retaining the fair value basis of accounting.  

 

At December 31, 2013, the Fund had nine investments with an aggregate fair value of $667,710,000, or $153,413,000 in excess of cost, and had remaining unfunded commitments of $149,186,000, of which our share was $37,297,000.  At December 31, 2012, the Fund had nine investments with an aggregate fair value of $600,786,000.

 

Below is a summary of income (loss) from the Fund for the years ended December 31, 2013, 2012  and 2011.   

 

(Amounts in thousands)

For the Year Ended December 31,

2013 

2012 

2011 

Net investment income

$

8,943 

$

8,575 

$

5,500 

Net realized gains

8,184 

5,391 

Net unrealized gains

85,771 

55,361 

11,995 

Income from Real Estate Fund

102,898 

63,936 

22,886 

Less income attributable to noncontrolling interests

(53,427)

(39,332)

(13,598)

Income from Real Estate Fund attributable to Vornado (1)

$

49,471 

$

24,604 

$

9,288 

__________________________________________________________

(1)

Excludes $2,992, $3,278 and $2,695 of management, leasing and development fees in the years ended December 31, 2013, 2012 and 2011, respectively, which are included as a component of "fee and other income" on our consolidated statements of income.

 

 

4.     Acquisitions

 

On October 4, 2013, we acquired a 92.5% interest in 655 Fifth Avenue, a 57,500 square foot retail and office property located at the northeast corner of Fifth Avenue and 52nd Street in Manhattan, for $277,500,000 in cash. We consolidate the accounts of the property into our consolidated financial statements from the date of acquisition.

 

On October 15, 2013, we acquired, for $194,000,000 in cash, land and air rights for 137,000 zoning square feet thereby completing the assemblage for our 220 Central Park South development site in Manhattan.   

 

In addition to the above, during 2013, we acquired three Manhattan street retail properties, in separate transactions, for an aggregate of $65,300,000.

 

5.    Marketable Securities and Derivative Instruments

Our portfolio of marketable securities is comprised of equity securities that are classified as available-for-sale.  Available-for-sale securities are presented on our consolidated balance sheets at fair value.  Unrealized gains and losses resulting from the mark-to-market of these securities are included in “other comprehensive income (loss).”  Realized 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.

 

We evaluate our portfolio of marketable securities for impairment each reporting period.  For each of the securities in our portfolio with unrealized losses, we review the underlying cause of the decline in value and the estimated recovery period, as well as the severity and duration of the decline.  In our evaluation, we consider our ability and intent to hold these investments for a reasonable period of time sufficient for us to recover our cost basis.  We also evaluate the near-term prospects for each of these investments in relation to the severity and duration of the decline.

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5.    Marketable Securities and Derivative Instruments – continued

  

 

Below is a summary of our marketable securities portfolio as of December 31, 2013 and 2012.

As of December 31, 2013

As of December 31, 2012

GAAP

Unrealized

GAAP

Unrealized

Fair Value

Cost

Gain

Fair Value

Cost

Gain

Equity securities:

 

Lexington

$

188,567 

$

72,549 

$

116,018 

$

$

$

J.C. Penney

366,291 

366,291 

Other

3,350 

59 

3,291 

31,897 

12,465 

19,432 

$

191,917 

$

72,608 

$

119,309 

$

398,188 

$

378,756 

$

19,432 

 

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

 

From the inception of our investment in Lexington in 2008, until the first quarter of 2013, we accounted for our investment under the equity method because of our ability to exercise significant influence over Lexington’s operating and financial policies. As a result of Lexington’s common share issuances, our ownership interest was reduced over time from approximately 17.2% to 8.8% at March 31, 2013. In the first quarter of 2013, we concluded that we no longer have the ability to exercise significant influence over Lexington’s operating and financial policies, and began accounting for this investment as a marketable equity security – available for sale, in accordance with ASC Topic 320, Investments – Debt and Equity Securities.    

 

 

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

 

At December 31, 2012, we owned 23,400,000 J.C. Penney common shares comprised of (i) 18,584,010 common shares at a GAAP cost of $19.71 per share, or $366,291,000 in the aggregate, and (ii) 4,815,990 common shares through a forward contract at a weighted average strike price of $29.34 per share, or $141,309,000 in the aggregate.

 

On March 4, 2013, we sold 10,000,000 J.C. Penney common shares at a price of $16.03 per share, or $160,300,000 in the aggregate, resulting in a net loss of $36,800,000, which is included in “net gain on disposition of wholly owned and partially owned assets” on our consolidated statements of income. In addition, in the first quarter of 2013, we wrote down the remaining 8,584,010 J.C. Penney common shares we owned to fair value, based on J.C. Penney’s March 31, 2013 closing share price of $15.11 per share, and recorded a $39,487,000 impairment loss, which is included in “interest and other investment (loss) income, net” on our consolidated statements of income.

 

On September 19, 2013, we settled the forward contract and received 4,815,990 J.C. Penney common shares. In connection therewith, we recognized a $33,487,000 loss from the mark-to-market of the derivative position through its settlement date, which is included in “interest and other investment (loss) income, net” on our consolidated statements of income.

 

On September 19, 2013, we also sold the remaining 13,400,000 J.C. Penney common shares in a block trade at a price of $13.00 per share, or $174,200,000 in the aggregate and recognized an $18,114,000 net loss, which is included in “net gain on disposition of wholly owned and partially owned assets” on our consolidated statements of income.

 

The aggregate economic net loss on our investment in J.C. Penney, from inception through disposition, was $256,156,000. 

 

 

Other Investments

 

During 2013, 2012 and 2011, we sold other marketable securities for aggregate proceeds of $44,209,000, $58,718,000, and $69,559,000, respectively resulting in net gains of $31,741,000, $3,582,000, and $5,020,000, respectively, which are included as a component of “net gain on disposition of wholly owned and partially owned assets” on our consolidated statements of income. 

     

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

6.    Investments in Partially Owned Entities

 

 

Toys “R” Us (“Toys”)

As of December 31, 2013, we own 32.6% of Toys.  We account for our investment in Toys under the equity method and record our 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.  The business of Toys is highly seasonal and substantially all of Toys’ net income is generated in its fourth quarter. 

 

At December 31, 2012, we estimated that the fair value of our investment was $40,000,000 less than the carrying amount of $518,041,000 and concluded that the decline in the value of our investment was “other-than-temporary” based on, among other factors, compression of earnings multiples of comparable retailers and our inability to forecast a recovery in the near term.  Accordingly, we recognized a non-cash impairment loss of $40,000,000 in the fourth quarter of 2012.

 

In the first quarter of 2013, we recognized our share of Toys’ fourth quarter net income of $78,542,000 and a corresponding non-cash impairment loss of the same amount to continue to carry over our investment at fair value. 

 

At December 31, 2013, we estimated that the fair value of our investment in Toys was approximately $80,062,000 ($83,224,000 including $3,162,000 for our share of Toys’ accumulated other comprehensive income), or $162,215,000 less than the carrying amount after recognizing our share of Toys third quarter net loss in our fourth quarter.  In determining the fair value of our investment, we considered, among other inputs, a December 31, 2013 third-party valuation of Toys.  We have concluded that the decline in the value of our investment is “other-than-temporary” based on, among other factors, Toys’ 2013 holiday sales results, compression of earnings multiples of comparable retailers and our inability to forecast a recovery in the near term.  Accordingly, we recognized an additional non-cash impairment loss of $162,215,000 in the fourth quarter of 2013. 

 

We will continue to assess the recoverability of our investment each quarter.  To the extent the fair value of our investment does not change, we will recognize a non-cash impairment loss equal to our share of Toys’ fourth quarter net income, if any, in our first quarter of 2014.

 

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

 

(Amounts in thousands)

Balance as of

Balance Sheet:

November 2, 2013

October 27, 2012

Assets

$

11,756,000 

$

12,953,000 

Liabilities

10,437,000 

11,190,000 

Noncontrolling interests

75,000 

44,000 

Toys “R” Us, Inc. equity (1)

1,244,000 

1,719,000 

For the Twelve Months Ended

Income Statement:

November 2, 2013

October 27, 2012

October 29, 2011

Total revenues

$

13,046,000 

$

13,698,000 

$

13,956,000 

Net (loss) income attributable to Toys

(396,000)

138,000 

121,000 

(1)

As of December 31, 2013, the carrying amount of our investment in Toys is less than our share of Toys' equity by approximately $322,255,000. This basis difference results primarily from non-cash impairment losses aggregating $280,757,000 that we recognized in 2013 and 2012. We have allocated the basis difference to Toys' real estate (which will be amortized over its estimated useful life), and intangible assets, primarily trade names and trademarks (which is not being amortized and will be recognized upon disposition of our investment).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

6.    Investments in Partially Owned Entities – continued

 

 

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

 

As of December 31, 2013, we own 1,654,068 Alexander’s commons 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 December 31, 2013, we have a $43,307,000 receivable from Alexander’s for fees under these agreements. 

 

As of December 31, 2013 the market value (“fair value” pursuant to ASC 820) of our investment in Alexander’s, based on Alexander’s December 31, 2013 closing share price of $330.00, was $545,842,000, or $378,057,000 in excess of the carrying amount on our consolidated balance sheet.  As of December 31, 2013, 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 $42,048,000.  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.

 

Management and Development Agreements

 

We receive an annual fee for managing Alexander’s and all of its properties equal to the sum of (i) $2,800,000, (ii) 2% of the gross revenue from the Rego Park II Shopping Center, (iii) $0.50 per square foot of the tenant-occupied office and retail space at 731 Lexington Avenue, and (iv) $272,000, escalating at 3% per annum, for managing the common area of 731 Lexington Avenue.  In addition, we are entitled to a development fee of 6% of development costs, as defined.

 

Leasing Agreements

 

We provide Alexander’s with leasing services for a fee of 3% of rent for the first ten years of a lease term, 2% of rent for the eleventh through twentieth year of a lease term and 1% of rent for the twenty-first through thirtieth year of a lease term, subject to the payment of rents by Alexander’s tenants.  In the event third-party real estate brokers are used, our fee increases by 1% and we are responsible for the fees to the third-parties.  We are also entitled to a commission upon the sale of any of Alexander’s assets equal to 3% of gross proceeds, as defined, for asset sales less than $50,000,000, or 1% of gross proceeds, as defined, for asset sales of $50,000,000 or more.  The total of these amounts is payable to us in annual installments in an amount not to exceed $4,000,000 with interest on the unpaid balance at one-year LIBOR plus 1.0% (1.84% at December 31, 2013).

 

Other Agreements

 

Building Maintenance Services (“BMS”), our wholly-owned subsidiary, supervises (i) cleaning, engineering and security services at Alexander’s 731 Lexington Avenue property and (ii) security services at Alexander’s Rego Park I and Rego Park II properties, for an annual fee of the costs for such services plus 6%.  During the years ended December 31, 2013, 2012 and 2011, we recognized $2,036,000, $2,362,000 and $2,442,000 of income, respectively, under these agreements.

 

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

 

(Amounts in thousands)

Balance as of December 31,

Balance Sheet:

2013

2012

Assets

$

1,458,000 

$

1,482,000 

Liabilities

1,124,000 

1,150,000 

Stockholders' equity

334,000 

332,000 

For the Year Ended December 31,

Income Statement:

2013

2012

2011

Total revenues

$

196,000 

$

191,000 

$

185,000 

Net income attributable to Alexander’s (1)

57,000 

674,000 

79,000 

(1)

2012 includes a $600,000 net gain on sale of real estate.

112

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

6.    Investments in Partially Owned Entities – continued

 

 

LNR Property Corporation (“LNR”)

 

In January 2013, we and the other equity holders of LNR entered into a definitive agreement to sell LNR for $1.053 billion, of which our share of the net proceeds was $240,474,000.  The definitive agreement provided that LNR would not (i) make any cash distributions to the equity holders, including us, through the completion of the sale, which occurred on April 19, 2013, and (ii) take any of the following actions (among others) without the purchaser’s approval, the lending or advancing of any money, the acquisition of assets in excess of specified amounts, or the issuance of equity interests.  Notwithstanding the terms of the definitive agreement, in accordance with GAAP, we recorded our pro rata share of LNR’s earnings on a one-quarter lag basis through the date of sale, which increased the carrying amount of our investment in LNR above our share of the net sales proceeds and resulted in us recognizing an “other-than-temporary” impairment loss on our investment of $27,231,000 in the three months ended March 31, 2013.  LNR’s net loss for the period from January 1, 2013 through April 19, 2013 was $80,654,000, including a $66,241,000 non-cash impairment loss. Our share of the net loss was $21,131,000, including $17,355,000 for our share of the non-cash impairment loss.  In the three months ended June 30, 2013, we recorded our share of the net loss but did not record our share of the non-cash impairment loss, as it was effectively considered in our assessment of “other-than-temporary” impairment loss when we recorded the $27,231,000 impairment loss in the three months ended March 31, 2013.  As a result of recording our share of the net loss of $3,776,000 for the three months ended June 30, 2013, the carrying amount of our investment decreased below our share of the net sales proceeds; accordingly, we recorded an offsetting gain on the sale of our investment.

  

The following table summarizes the activity related to our investment in LNR by quarter for the year ended December 31, 2013.

For the Three Months Ended

For the Year Ended

(Amounts in thousands)

March 31, 2013

June 30, 2013

December 31, 2013

Balance at beginning of period

$

224,724 

$

241,377 

$

224,724 

Equity in earnings of LNR

45,962 

(3,776)

 

42,186 

Other comprehensive loss

(2,078)

(903)

(2,981)

Balance before impairment loss

268,608 

236,698 

263,929 

Other-than-temporary impairment loss

(27,231)

(27,231)

Net gain on sale

3,776 

3,776 

Net sales proceeds

(240,474)

(240,474)

Balance at end of period

$

241,377 

$

$

 

Below is a summary of LNR’s financial information as of December 31, 2012 and through the date of sale:

(Amounts in thousands)

Balance as of September 30,

Balance Sheet:

2013

2012

Assets (1)

$

$

98,530,000 

Liabilities (1)

97,643,000 

Noncontrolling interests

8,000 

LNR Property Corporation equity

879,000 

For the period ended

October 1, 2012

For the Twelve Months Ended September 30,

Income Statement:

to April 19, 2013

2012

2011

Total revenues

$

122,222 

$

238,000 

$

208,000 

Net income attributable to LNR

94,949 

266,000 

224,000 

______________________________________________________________________

 

(1)

Includes $97 billion of assets and liabilities of LNR related to consolidated CMBS and CDO trusts which were non-recourse to LNR and its equity holders, including us.

113

 


 
 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

6.    Investments in Partially Owned Entities – continued

 

 

Independence Plaza

 

On December 21, 2012, we acquired a 58.75% economic interest in Independence Plaza, a three-building 1,328 unit residential complex in the Tribeca submarket of Manhattan (the “Property”).  We determined, at that time, that we were the primary beneficiary of the variable interest entity (“VIE”) that owned the Property.  Accordingly, we consolidated the operations of the Property from the date of acquisition.  Upon consolidation, our preliminary purchase price allocation was primarily to land ($309,848,000) and building ($527,578,000).  Based on a third party appraisal and additional information about facts and circumstances that existed at the acquisition date, which was obtained subsequent to the acquisition date, we finalized the purchase price allocation in the first quarter of 2013, and retroactively adjusted our December 31, 2012 consolidated balance sheet as follows:

  

(Amounts in thousands)

Land

$

602,662 

Building and improvements

252,844 

Acquired above-market leases (included in identified intangible assets)

13,115 

Acquired in-place leases (included in identified intangible assets)

67,879 

Other assets

7,374 

Acquired below-market leases (included in deferred revenue)

(99,074)

Purchase price

$

844,800 

 

On June 7, 2013, the existing $323,000,000 mortgage loan was refinanced with a $550,000,000 five-year fixed-rate interest only mortgage loan bearing interest at 3.48%.  The net proceeds of $219,000,000, after repaying the existing loan and closing costs, were distributed to the partners, of which our share was $137,000,000.  Simultaneously with the refinancing, we sold an 8.65% economic interest in the Property to our partner for $41,000,000 in cash, which reduced our economic interest to 50.1%.  As a result of this transaction, we determined that we were no longer the primary beneficiary of the VIE.  Accordingly, we deconsolidated the operations of the Property on June 7, 2013 and began accounting for our investment under the equity method. 

 

650 Madison Avenue

 

On September 30, 2013, a joint venture, in which we have a 20.1% interest, acquired 650 Madison Avenue, a 27-story, 594,000 square foot Class A office and retail tower located on Madison Avenue between 59th and 60th Street in Manhattan, for $1.295 billion.  The property contains 523,000 square feet of office space and 71,000 square feet of retail space.  The purchase price was funded with cash and a new $800,000,000 seven-year 4.39% interest-only loan.  We account for our investment in the joint venture under the equity method.

  

 

The following is a summary of condensed combined financial information for all of our partially owned entities, including Toys, Alexander’s and LNR (sold in April 2013), as of December 31, 2013 and 2012 and for the years ended December 31, 2013, 2012 and 2011.

(Amounts in thousands)

Balance as of December 31,

Balance Sheet:

2013 

2012 

Assets(1)

$

21,773,000 

$

122,692,000 

Liabilities(1)

17,982,000 

117,064,000 

Noncontrolling interests

96,000 

88,000 

Equity

3,695,000 

5,540,000 

For the Year Ended December 31,

Income Statement:

2013 

2012 

2011 

Total revenue

$

14,092,000 

$

15,119,000 

$

15,321,000 

Net income(2)

(368,000)

1,091,000 

199,000 

(1)

2012 includes $97 billion of assets and liabilities of LNR related to consolidated CMBS and CDO trusts which were non-recourse to LNR and its equity holders, including us.

(2)

2012 includes a $600,000 net gain on sale of real estate.

114

 


 
 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

6.    Investments in Partially Owned Entities - continued

 

 

Below are schedules summarizing our investments in, and income from, partially owned entities.

 

Percentage

(Amounts in thousands)

Ownership at

As of December 31,

Investments:

December 31, 2013

2013 

2012 

Toys

32.6%

$

83,224 

$

478,041 

Alexander’s

32.4%

$

167,785 

$

171,013 

Lexington (see page 110 for details)

n/a

75,542 

LNR (see page 113 for details)

n/a

224,724 

India real estate ventures

4.1%-36.5%

88,467 

95,516 

Partially owned office buildings (1)

Various

621,294 

446,933 

Other investments (2)

Various

288,897 

212,528 

$

1,166,443 

$

1,226,256 

______________________________________________________

(1)

Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 666 Fifth Avenue (Office), 330 Madison Avenue and others.

(2)

Includes interests in Independence Plaza, Monmouth Mall, 85 10th Avenue, Fashion Center Mall, 50-70 West 93rd Street and others.

 

Percentage

(Amounts in thousands)

Ownership at

For the Year Ended December 31,

Our Share of Net Income (Loss):

December 31, 2013

2013 

2012 

2011 

Toys:

 

Equity in net (loss) income

32.6%

$

(128,919)

$

45,267 

$

39,592 

Non-cash impairment losses (see page 111 for details)

(240,757)

(40,000)

Management fees

7,299 

9,592 

8,948 

$

(362,377)

$

14,859 

$

48,540 

Alexander's:

Equity in net income

32.4%

$

17,721 

$

24,709 

$

25,013 

Management, leasing and development fees

6,681 

13,748 

7,417 

Gain on sale of real estate

179,934 

24,402 

218,391 

32,430 

Lexington (see page 110 for details):

Equity in net loss

n/a

(979)

(23)

(1,409)

Net gain resulting from Lexington's stock issuance and asset acquisition

28,763 

9,760 

(979)

28,740 

8,351 

LNR (see page 113 for details):

Equity in net income

n/a

42,186 

66,270 

31,409 

Impairment loss

(27,231)

Net gain on sale

3,776 

Income tax benefit, assets sales and tax settlement gains

27,377 

18,731 

66,270 

58,786 

 

India real estate ventures:

Equity in net loss

4.1%-36.5%

(3,533)

(5,008)

(1,087)

Impairment loss

(13,794)

(3,533)

(5,008)

(14,881)

Partially owned office buildings (1)

Various

(4,212)

(3,770)

(22,270)

Other investments (2)

Various

(10,817)

103,644 

7,656 

$

23,592 

$

408,267 

$

70,072 

______________________________________________________

(1)

Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 666 Fifth Avenue (Office), 330 Madison Avenue and others.

(2)

Includes interests in Independence Plaza, Monmouth Mall, 85 10th Avenue, Fashion Center Mall, 50-70 West 93rd Street and others.

115

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

6.    Investments in Partially Owned Entities - continued

Below is a summary of the debt of our partially owned entities as of December 31, 2013 and 2012, none of which is recourse to us.

Percentage

Interest

Ownership at

Rate at

100% Partially Owned Entities’

(Amounts in thousands)

December 31,

December 31,

Debt at December 31,

2013 

Maturity

2013 

2013 

2012 

Toys:

 

Notes, loans and mortgages payable

32.6%

2014-2021

6.56%

$

5,702,247 

$

5,683,733 

Alexander's:

Mortgages payable

32.4%

2014-2018

3.83%

$

1,049,959 

$

1,065,916 

Lexington (see page 110 for details):

Mortgages payable

n/a

n/a

n/a

$

$

1,994,179 

LNR (see page 113 for details):

Mortgages payable

n/a

n/a

n/a

$

$

309,787 

Liabilities of consolidated CMBS and CDO trusts

n/a

n/a

97,211,734 

$

$

97,521,521 

Partially owned office buildings(1):

Mortgages payable

Various

2014-2023

5.74%

$

3,622,759 

$

2,731,893 

India Real Estate Ventures:

TCG Urban Infrastructure Holdings mortgages

payable

25.0%

2014-2022

13.50%

$

199,021 

$

236,579 

Other(2):

Mortgages payable

Various

2014-2023

4.56%

$

1,709,509 

$

1,150,543 

(1) 

Includes 666 Fifth Avenue (Office), 650 Madison Avenue, 280 Park Avenue, One Park Avenue, 330 Madison Avenue and others.

(2) 

Includes Independence Plaza, Monmouth Mall, Fashion Center Mall, 50-70 West 93rd Street and others.

 

Based on our ownership interest in the partially owned entities above, our pro rata share of the debt of these partially owned entities, was $4,189,403,000 and $29,443,128,000 as of December 31, 2013 and 2012, 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 was $3,998,929,000 at December 31, 2012.

 

7.    Mortgage and Mezzanine Loans Receivable

 

In October 2012, we acquired a 25% participation in a $475,000,000 first mortgage and mezzanine loan for the acquisition and redevelopment of a 10-story retail building at 701 Seventh Avenue in Times Square.  The loan had an interest rate of LIBOR plus 10.2%, with a LIBOR floor of 1.0%.  Of the $475,000,000, we funded $93,750,000, representing our 25% share of the $375,000,000 that was funded at acquisition.  In March 2013, we transferred at par, the 25% participation in the mortgage loan.  The transfer did not qualify for sale accounting given our continuing interest in the mezzanine loan.  Accordingly, we continue to include the 25% participation in the mortgage loan in “Mortgage and Mezzanine Loans Receivable” and have recorded a $59,375,000 liability in “Other Liabilities” on our consolidated balance sheet.  On January 14, 2014, the mezzanine loan was repaid. 

 

On April 17, 2013, a $50,091,000 mezzanine loan that was scheduled to mature in August 2015, was repaid. In connection therewith, we received net proceeds of $55,358,000, including prepayment penalties, which resulted in income of $5,267,000, which is included in “interest and other investment (loss) income” on our consolidated statement of income.

 

As of December 31, 2013 and 2012, the carrying amount of mortgage and mezzanine loans receivable was $170,972,000 and $225,359,000, respectively.  These loans have a weighted average interest rate of 11.0% and 10.3% at December 31, 2013 and 2012, respectively and have maturities ranging from August 2014 to May 2016.

116

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

8.    Discontinued Operations

 

        In accordance with the provisions of ASC 360, Property, Plant, and Equipment, we have reclassified the revenues and expenses of all the properties discussed below to “income from discontinued operations” and the related assets and liabilities to “assets related to discontinued operations” and “liabilities related to discontinued operations” for all of the periods presented in the accompanying financial statements.  The net gains resulting from the sale of these properties are included in “income from discontinued operations” on our consolidated statements of income.

 

2013 Activity

 

Retail Properties

 

On January 24, 2013, we sold the Green Acres Mall located in Valley Stream, New York, for $500,000,000. The sale resulted in net proceeds of $185,000,000 after repaying the existing loan and closing costs, and a net gain of $202,275,000.

 

On April 15, 2013, we sold The Plant, a power strip shopping center in San Jose, California, for $203,000,000. The sale resulted in net proceeds of $98,000,000 after repaying the existing loan and closing costs, and a net gain of $32,169,000.

 

On April 15, 2013, we sold a retail property in Philadelphia, which is a part of the Gallery at Market Street, for $60,000,000. The sale resulted in net proceeds of $58,000,000, and a net gain of $33,058,000.

 

On September 23, 2013, we sold a retail property in Tampa, Florida for $45,000,000, of which our 75% share was $33,750,000. Our share of the net proceeds after repaying the existing loan and closing costs were $20,810,000, and our share of the net gain was $8,728,000.

 

In addition to the above, during 2013, we sold 12 other properties, in separate transactions, for an aggregate of $82,300,000, in cash, which resulted in a net gain aggregating $7,851,000.

 

New York

 

On December 17, 2013, we sold 866 United Nations Plaza, a 360,000 square foot office building in Manhattan for $200,000,000.  The sale resulted in net proceeds of $146,439,000 after repaying the existing loan and closing costs, and a net gain of $127,512,000.

 

 

2012 Activity

 

Merchandise Mart

 

On January 6, 2012, we sold the 350 West Mart Center, a 1.2 million square foot office building in Chicago, Illinois, for $228,000,000, which resulted in a net gain of $54,911,000.

 

On June 22, 2012, we sold the L.A. Mart, a 784,000 square foot showroom building in Los Angeles, California, for $53,000,000, of which $18,000,000 was cash and $35,000,000 was nine-month seller financing at 6.0%, which was paid on December 28, 2012.

 

On July 26, 2012, we sold the Washington Design Center, a 393,000 square foot showroom building in Washington, DC and the Canadian Trade Shows, for an aggregate of $103,000,000.  The sale of the Canadian Trade Shows resulted in an after-tax net gain of $19,657,000.

 

On December 31, 2012, we sold the Boston Design Center, a 554,000 square foot showroom building in Boston, Massachusetts, for $72,400,000, which resulted in a net gain of $5,252,000.

 

Washington, DC

 

On July 26, 2012, we sold 409 Third Street S.W., a 409,000 square foot office building in Washington, DC, for $200,000,000, which resulted in a net gain of $126,621,000.  This building is contiguous to the Washington Design Center and was sold to the same purchaser.

 

On November 7, 2012, we sold three office buildings (“Reston Executive”) located in suburban Fairfax County, Virginia, containing 494,000 square feet for $126,250,000, which resulted in a net gain of $36,746,000.

117

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

8.    Discontinued Operations - continued

 

 

Retail Properties

 

In 2012, we sold 12 other properties in separate transactions, for an aggregate of $157,000,000, which resulted in a net gain aggregating $22,266,000.

 

 

2011 Activity

 

During 2011, we completed the disposition of the High Point Complex in North Carolina, which resulted in an $83,907,000 net gain on extinguishment of debt and sold three other retail properties and two Washington, DC office buildings for an aggregate of $168,000,000 in cash, which resulted in a net gain aggregating $51,623,000.

 

The tables below set forth the assets and liabilities related to discontinued operations at December 31, 2013 and 2012, and their combined results of operations for the years ended December 31, 2013, 2012 and 2011.

    

Assets Related to

Liabilities Related to

(Amounts in thousands)

Discontinued Operations as of

Discontinued Operations as of

December 31,

December 31,

2013 

2012 

2013 

2012 

Retail

$

$

580,415 

$

$

442,293 

New York

65,418 

44,978 

Other

25,740 

Total

$

$

671,573 

$

$

487,271 

(Amounts in thousands)

For the Year Ended December 31,

2013 

2012 

2011 

Total revenues

$

38,043 

$

177,629 

$

260,343 

Total expenses

23,305 

120,393 

201,633 

14,738 

57,236 

58,710 

Net gains on sale of real estate

414,502 

245,799 

51,623 

Impairment losses

(4,727)

(30,339)

(28,799)

Gain on sale of Canadian Trade Shows, net of $11,448 of income taxes

19,657 

Net gain on extinguishment of High Point debt

83,907 

Income from discontinued operations

$

424,513 

$

292,353 

$

165,441 

118

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

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 December 31, 2013 and 2012.

 

Balance as of December 31,

(Amounts in thousands)

2013 

2012 

Identified intangible assets:

Gross amount

$

605,915 

$

767,365 

Accumulated amortization

(282,593)

(352,035)

Net

$

323,322 

$

415,330 

Identified intangible liabilities (included in deferred revenue):

Gross amount

$

892,487 

$

902,525 

Accumulated amortization

(382,002)

(341,536)

Net

$

510,485 

$

560,989 

 

Amortization of acquired below-market leases, net of acquired above-market leases resulted in an increase to rental income of $52,861,000, $54,215,000 and $61,869,000 for the years ended December 31, 2013, 2012 and 2011, 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, 2014 is as follows:

 

(Amounts in thousands)

2014 

$

45,588 

2015 

42,095 

2016 

40,489 

2017 

35,173 

2018 

33,408 

 

Amortization of all other identified intangible assets (a component of depreciation and amortization expense) was $64,330,000, $49,597,000 and $52,632,000 for the years ended December 31, 2013, 2012 and 2011, 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, 2014 is as follows:

 

(Amounts in thousands)

2014 

$

29,238 

2015 

23,869 

2016 

20,689 

2017 

17,260 

2018 

12,860 

 

We are a tenant under ground leases at certain properties.  Amortization of these acquired below-market leases, net of above-market leases resulted in an increase to rent expense of $4,357,000, $1,328,000 and $993,000 for the years ended December 31, 2013, 2012 and 2011, respectively.  Estimated annual amortization of these below-market leases, net of above-market leases for each of the five succeeding years commencing January 1, 2014 is as follows:

 

(Amounts in thousands)

2014 

$

3,430 

2015 

3,430 

2016 

3,430 

2017 

3,430 

2018 

3,430 

119

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

10.    Debt

 

 

Mortgages Payable

 

On February 20, 2013, we completed a $390,000,000 financing of the retail condominium located at 666 Fifth Avenue at 53rd Street, which we had acquired December 2012. The 10-year fixed-rate interest only loan bears interest at 3.61%. This property was previously unencumbered. The net proceeds from this financing were approximately $387,000,000.

 

On March 25, 2013, we completed a $300,000,000 financing of the Outlets at Bergen Town Center, a 948,000 square foot shopping center located in Paramus, New Jersey. The 10-year fixed-rate interest only loan bears interest at 3.56%. The property was previously encumbered by a $282,312,000 floating-rate loan.

 

On May 13, 2013, we notified the lender that due to tenants vacating the Montehiedra Town Center, its operating cash flow will be insufficient to pay the debt service; accordingly, at our request, the mortgage loan was transferred to the special servicer. We are in discussions with the special servicer to restructure the terms of the loan; there can be no assurance as to the timing and ultimate resolution of these discussions.

 

On October 30, 2013, we completed the restructuring of the $678,000,000 (face amount) 5.74% Skyline properties mortgage loan. The loan was separated into two tranches; a senior $350,000,000 position and a junior $328,000,000 position. The maturity date has been extended from February 2017 to February 2022, with a one-year extension option. The effective interest rate is 2.965%. Amounts expended to re-lease the property are senior to the $328,000,000 junior position.

 

On November 27, 2013, we completed a $450,000,000 refinancing of Eleven Penn Plaza, a 1.1 million square foot Manhattan office building.  The seven-year fixed-rate interest only loan bears interest at 3.95%. The net proceeds from this refinancing were approximately $107,000,000 after repaying the existing loan and closing costs.

 

 

Unsecured Revolving Credit Facility

 

On March 28, 2013, we extended one of our two $1.25 billion revolving credit facilities from June 2015 to June 2017, with two six-month extension options. The interest on the extended facility was reduced from LIBOR plus 135 basis points to LIBOR plus 115 basis points. In addition, the facility fee was reduced from 30 basis points to 20 basis points.

  

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

10.    Debt - continued

 

 

The following is a summary of our debt:

 

Interest Rate at

Balance at December 31,

(Amounts in thousands)

December 31, 2013

2013 

2012 

Mortgages Payable:

 

Fixed rate

4.56%

$

7,563,133 

6,771,001 

Variable rate

2.28%

768,860 

1,828,221 

4.35%

$

8,331,993 

8,599,222 

Unsecured Debt:

Senior unsecured notes

5.69%

$

1,350,855 

1,358,008 

Unsecured revolving credit facilities

1.32%

295,870 

1,170,000 

4.90%

$

1,646,725 

2,528,008 

 

 

        The net carrying amount of properties collateralizing the mortgages payable amounted to $9.3 billion at December 31, 2013.  As of December 31, 2013, the principal repayments required for the next five years and thereafter are as follows:

 

Senior Unsecured

Debt and

(Amounts in thousands)

Revolving Credit

Year Ending December 31,

Mortgages Payable

Facilities

2014 

$

189,953 

$

2015 

584,358 

500,000 

2016 

1,556,375 

2017 

630,548 

2018 

744,472 

295,870 

Thereafter

4,625,224 

852,500 

 

We may refinance our maturing debt as it comes due or choose to repay it.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

11.    Redeemable Noncontrolling Interests

 

Redeemable noncontrolling interests on our consolidated balance sheets are primarily comprised of Class A Operating Partnership units held by third parties and  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.  Class A units may be tendered for redemption to the Operating Partnership for cash; we, at our option, may assume that obligation and pay the holder either cash or Vornado common shares on a one-for-one basis.  Because the number of Vornado common shares outstanding at all times equals the number of Class A units owned by Vornado, the redemption value of each Class A unit is equivalent to the market value of one Vornado common share, and the quarterly distribution to a Class A unitholder is equal to the quarterly dividend paid to a Vornado common shareholder. 

 

Below are the details of redeemable noncontrolling interests as of December 31, 2013 and 2012.

(Amounts in thousands, except units and

Preferred or

per unit amounts)

Balance as of

Units Outstanding at

Per Unit

Annual

December 31,

December 31,

Liquidation

Distribution

Unit Series

2013 

2012 

2013 

2012 

Preference

Rate

Common:

Class A

$

1,002,620 

$

898,152 

11,292,038 

11,215,682 

n/a 

$

2.92 

Perpetual Preferred: (1)

5.00% D-16 Cumulative Redeemable

$

1,000 

$

1,000 

$

1,000,000.00 

$

50,000.00 

6.875% D-15 Cumulative Redeemable (2)

45,000 

1,800,000 

$

n/a 

$

n/a 

$

1,000 

$

46,000 

1,800,001 

(1)

Holders may tender units for redemption to the Operating Partnership for cash at their stated redemption amount; we, at our option, may assume that obligation and pay the holders either cash or Vornado preferred shares on a one-for-one basis. These units are redeemable at our option at any time.

(2)

On May 9, 2013, we redeemed all of the outstanding 6.875% Series D-15 Cumulative Redeemable Preferred units with an aggregate face amount of $45,000 for $36,900 in cash, plus accrued and unpaid distributions through the date of redemption.

 

Below is a table summarizing the activity of redeemable noncontrolling interests.

(Amounts in thousands)

Balance at December 31, 2011

$

1,160,677 

Net income

45,263 

Other comprehensive loss

(6,707)

Distributions

(54,315)

Redemption of Class A units for common shares, at redemption value

(89,762)

Adjustment to carry redeemable Class A units at redemption value

52,117 

Redemption of Series D-10 and Series D-14 redeemable units

(168,300)

Other, net

5,179 

Balance at December 31, 2012

944,152 

Net income

24,817 

Other comprehensive income

5,296 

Distributions

(34,053)

Redemption of Class A units for common shares, at redemption value

(25,317)

Adjustment to carry redeemable Class A units at redemption value

108,252 

Redemption of Series D-15 redeemable units

(36,900)

Other, net

17,373 

Balance at December 31, 2013

$

1,003,620 

 

Redeemable noncontrolling interests exclude our Series G 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 $55,097,000 and $55,011,000 as of December 31, 2013 and 2012, respectively. 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

12.    Shareholders’ Equity

 

Common Shares

 

As of December 31, 2013, there were 187,284,688 common shares outstanding.  During 2013, we paid an aggregate of $545,913,000 of common dividends comprised of quarterly common dividends of $0.73 per share.

 

Preferred Shares

 

On January 25, 2013, we sold 12,000,000 5.40% Series L Cumulative Redeemable Preferred Shares at a price of $25.00 per share in an underwritten public offering pursuant to an effective registration statement.  We retained aggregate net proceeds of $290,306,000, after underwriters’ discounts and issuance costs and contributed the net proceeds to the Operating Partnership in exchange for 12,000,000 Series L Preferred Units (with economic terms that mirror those of the Series L Preferred Shares).  Dividends on the Series L Preferred Shares are cumulative and payable quarterly in arrears.  The Series L 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 may redeem the Series L Preferred Shares at a redemption price of $25.00 per share, plus accrued and unpaid dividends through the date of redemption. The Series L Preferred Shares have no maturity date and will remain outstanding indefinitely unless redeemed by us.

 

On February 19, 2013, we redeemed all of the outstanding 6.75% Series F Cumulative Redeemable Preferred Shares and 6.75% Series H Cumulative Redeemable Preferred Shares at par, for an aggregate of $262,500,000 in cash, plus accrued and unpaid dividends through the date of redemption.

 

The following table sets forth the details of our preferred shares of beneficial interest as of December 31, 2013 and 2012.

 

(Amounts in thousands, except share and

Balance as of

Shares Outstanding at

Per Share

Annual

per share amounts)

December 31,

December 31,

Liquidation

Dividend

Preferred Shares

2013 

2012 

2013 

2012 

Preference

Rate(1)

Convertible Preferred:

6.5% Series A: authorized 83,977 shares(2)

$

1,592 

$

1,682 

32,807 

34,609 

$

50.00 

$

3.25 

Cumulative Redeemable:

6.625% Series G: authorized 8,000,000 shares(3)

193,135 

193,135 

8,000,000 

8,000,000 

$

25.00 

$

1.65625 

6.625% Series I: authorized 10,800,000 shares(3)

262,379 

262,379 

10,800,000 

10,800,000 

$

25.00 

$

1.65625 

6.875% Series J: authorized 9,850,000 shares(3)

238,842 

238,842 

9,850,000 

9,850,000 

$

25.00 

$

1.71875 

5.70% Series K: authorized 12,000,000 shares(3)

290,971 

290,971 

12,000,000 

12,000,000 

$

25.00 

$

1.425 

5.40% Series L: authorized 12,000,000 shares(3)

290,306 

12,000,000 

$

25.00 

$

1.35 

6.75% Series F: authorized 6,000,000 shares

144,720 

6,000,000 

$

25.00 

$

1.6875 

6.75% Series H: authorized 4,500,000 shares

108,549 

4,500,000 

$

25.00 

$

1.6875 

$

1,277,225 

$

1,240,278 

52,682,807 

51,184,609 

(1)

Dividends on preferred shares are cumulative and are payable quarterly in arrears.

(2)

Redeemable at our option under certain circumstances, at a redemption price of 1.4334 common shares per Series A Preferred Share plus accrued and unpaid dividends through the date of redemption, or convertible at anytime at the option of the holder for 1.4334 common shares per Series A Preferred Share.

(3)

Redeemable at our option at a redemption price of $25.00 per share, plus accrued and unpaid dividends through the date of redemption.

123

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

12.    Shareholders’ Equity – continued

 

Accumulated Other Comprehensive Income (Loss)

 

 

The following tables set forth the changes in accumulated comprehensive income (loss) by component.

 

For the Year Ended December 31, 2013

Securities

Pro rata share of

Interest

available-

nonconsolidated

rate

(Amounts in thousands)

Total

for-sale

subsidiaries' OCI

swap

Other

Balance as of December 31, 2012

$

(18,946)

$

19,432 

$

11,313 

$

(50,065)

$

374 

OCI before reclassifications

132,887 

142,281 

(22,814)

18,183 

(4,763)

Amounts reclassified from AOCI

(42,404)

(42,404)

(1)

Net current period OCI

90,483 

99,877 

(22,814)

18,183 

(4,763)

Balance as of December 31, 2013

$

71,537 

$

119,309 

$

(11,501)

$

(31,882)

$

(4,389)

(1)

Reclassified to "net gain on disposition of wholly owned and partially owned assets" on our consolidated statements of income.

 

 

13.    Variable Interest Entities (“VIEs”)

 

Consolidated VIEs

 

The entity that owns Independence Plaza was a consolidated VIE at December 31, 2012.  On June 7, 2013, we sold a portion of our economic interest in this entity and determined that we are no longer its primary beneficiary.  Accordingly, we deconsolidated this VIE (see Note 6 – Investments in Partially Owned Entities).  The table below summarizes the assets and liabilities of the VIE at December 31, 2012.  The liabilities were secured only by the assets of the VIE, and were non-recourse to us.

 

As of December 31,

(Amounts in thousands)

2012 

Total assets

$

957,730 

Total liabilities

$

443,894 

Noncontrolling interest

$

193,933 

 

Unconsolidated VIEs

 

At December 31, 2013, we have unconsolidated VIEs comprised of our investments in the entities that own the Warner Building and Independence Plaza.  We do not consolidate these entities because we are not the primary beneficiary and the nature of our involvement in the activities of these entities does not give us power over decisions that significantly affect these entities’ economic performance.  We account for our investment in these entities under the equity method (see Note 6 – Investments in Partially Owned Entities).  As of December 31, 2013, the net carrying amount of our investment in these entities was $152,929,000, and our maximum exposure to loss in these entities, is limited to our investment.  At December 31, 2012, we had one unconsolidated VIE, comprised of our investment in the Warner Building which had a carrying amount of $8,775,000. 

124

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

14.  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 on a Recurring Basis

 

Financial assets and liabilities that are measured at fair value on our consolidated balance sheets consist of (i) marketable securities, (ii) Real Estate Fund investments, (iii) the assets in our deferred compensation plan (for which there is a corresponding liability on our consolidated balance sheet), (iv) interest rate swaps 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 these financial assets and liabilities by their levels in the fair value hierarchy at December 31, 2013 and 2012, respectively. 

 

As of December 31, 2013

(Amounts in thousands)

Total

Level 1

Level 2 

Level 3

Marketable securities

191,917 

191,917 

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

noncontrolling interests)

667,710 

667,710 

Deferred compensation plan assets (included in other assets)

116,515 

47,733 

68,782 

Total assets

976,142 

239,650 

736,492 

Mandatorily redeemable instruments (included in other liabilities)

55,097 

55,097 

Interest rate swap (included in other liabilities)

31,882 

31,882 

Total liabilities

86,979 

55,097 

31,882 

As of December 31, 2012 

(Amounts in thousands)

Total 

Level 1 

Level 2 

Level 3 

Marketable securities

398,188 

398,188 

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

noncontrolling interests)

600,786 

600,786 

Deferred compensation plan assets (included in other assets)

105,200 

42,569 

62,631 

J.C. Penney derivative position (included in other assets)(1)

11,165 

11,165 

Total assets

1,115,339 

440,757 

11,165 

663,417 

Mandatorily redeemable instruments (included in other liabilities)

55,011 

55,011 

Interest rate swap (included in other liabilities)

50,065 

50,065 

Total liabilities

105,076 

55,011 

50,065 

(1)

Represents the cash deposited with the counterparty in excess of the mark-to-market loss on the derivative position.

125

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

14.  Fair Value Measurements - continued

 

 

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis - continued

 

Real Estate Fund Investments

 

At December 31, 2013, our Real Estate Fund had nine investments with an aggregate fair value of $667,710,000, or $153,413,000 in excess of cost.  These investments are classified as Level 3.  We use a discounted cash flow valuation technique to estimate the fair value of each of these investments, which is updated quarterly by personnel responsible for the management of each investment and reviewed by senior management at each reporting period.  The discounted cash flow valuation technique requires us to estimate cash flows for each investment over the anticipated holding period, which currently ranges from 0.6 to 6.5 years.  Cash flows are derived from property rental revenue (base rents plus reimbursements) less operating expenses, real estate taxes and capital and other costs, plus projected sales proceeds in the year of exit.  Property rental revenue is based on leases currently in place and our estimates for future leasing activity, which are based on current market rents for similar space plus a projected growth factor.  Similarly, estimated operating expenses and real estate taxes are based on amounts incurred in the current period plus a projected growth factor for future periods.  Anticipated sales proceeds at the end of an investment’s expected holding period are determined based on the net cash flow of the investment in the year of exit, divided by a terminal capitalization rate, less estimated selling costs. 

 

The fair value of each property is calculated by discounting the future cash flows (including the projected sales proceeds), using an appropriate discount rate and then reduced by the property’s outstanding debt, if any, to determine the fair value of the equity in each investment. Significant unobservable quantitative inputs used in determining the fair value of each investment include capitalization rates and discount rates.  These rates are based on the location, type and nature of each property, and current and anticipated market conditions, which are derived from original underwriting assumptions, industry publications and from the experience of our Acquisitions and Capital Markets departments.  Significant unobservable quantitative inputs in the table below were utilized in determining the fair value of these Fund investments at December 31, 2013.    

 

 

 

Weighted Average

(based on fair

Unobservable Quantitative Input

Range

value of investments)

Discount rates

12.0% to 17.5%

13.9%

Terminal capitalization rates

5.0% to 6.0%

5.5%

 

The above inputs are subject to change based on changes in economic and market conditions and/or changes in use or timing of exit.  Changes in discount rates and terminal capitalization rates result in increases or decreases in the fair values of these investments.  The discount rates encompass, among other things, uncertainties in the valuation models with respect to terminal capitalization rates and the amount and timing of cash flows.  Therefore, a change in the fair value of these investments resulting from a change in the terminal capitalization rate, may be partially offset by a change in the discount rate.  It is not possible for us to predict the effect of future economic or market conditions on our estimated fair values.

 

The table below summarizes the changes in the fair value of Fund investments that are classified as Level 3, for the years ended December 31, 2013 and 2012.

 

Real Estate Fund Investments

For The Year Ended December 31,

(Amounts in thousands)

2013 

2012 

Beginning balance

$

600,786 

$

346,650 

Purchases

43,816 

262,251 

Sales/Returns

(70,848)

(63,762)

Net realized gains

8,184 

Net unrealized gains

85,771 

55,361 

Other, net

286 

Ending balance

$

667,710 

$

600,786 

126

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

14.  Fair Value Measurements - continued

 

 

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis - continued

 

Deferred Compensation Plan Assets

 

Deferred compensation plan assets that are classified as Level 3 consist of investments in limited partnerships and investment funds, which are managed by third parties.  We receive quarterly financial reports from a third-party administrator, which are compiled from the quarterly reports provided to them from each limited partnership and investment fund.  The quarterly reports provide net asset values on a fair value basis which are audited by independent public accounting firms on an annual basis.  The third-party administrator does not adjust these values in determining our share of the net assets and we do not adjust these values when reported in our consolidated financial statements.

 

The table below summarizes the changes in the fair value of Deferred Compensation Plan Assets that are classified as Level 3, for the years ended December 31, 2013 and 2012.

 

Deferred Compensation Plan Assets

For The Year Ended December 31,

(Amounts in thousands)

2013 

2012 

Beginning balance

$

62,631 

$

56,221 

Purchases

5,018 

9,951 

Sales

(7,306)

(8,367)

Realized and unrealized gains

7,189 

4,703 

Other, net

1,250 

123 

Ending balance

$

68,782 

$

62,631 

 

 

Fair Value Measurements on a Nonrecurring Basis

 

Assets measured at fair value on a nonrecurring basis on our consolidated balance sheets consist primarily of our investment in Toys and real estate assets that have been written-down to estimated fair value during 2013 and 2012.  See Note 2 – Basis of Presentation and Significant Accounting Policies for details of impairment losses recognized during 2013 and 2012.  See Note 6 – Investment in Partially Owned Entities for details of impairment losses related to Toys.  The fair values of these assets are determined using widely accepted valuation techniques, including (i) discounted cash flow analysis, which considers, among other things, leasing assumptions, growth rates, discount rates and terminal capitalization rates, (ii) income capitalization approach, which considers prevailing market capitalization rates, and (iii) comparable sales activity.  Generally, we consider multiple valuation techniques when measuring fair values but in certain circumstances, a single valuation technique may be appropriate.  The tables below aggregate the fair values of these assets by their levels in the fair value hierarchy.

 

As of December 31, 2013

(Amounts in thousands)

Total

Level 1

Level 2 

Level 3

Real estate assets

$

354,341 

$

$

$

354,341 

Investment in Toys

83,224 

83,224 

Total assets

$

437,565 

$

$

$

437,565 

As of December 31, 2012

(Amounts in thousands)

Total

Level 1

Level 2 

Level 3

Investment in Toys

$

478,041 

$

$

$

478,041 

Real estate assets

189,529 

189,529 

Condominium units (included in other assets)

52,142 

52,142 

Total assets

$

719,712 

$

$

$

719,712 

127

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

14.  Fair Value Measurements – continued

 

 

Financial Assets and Liabilities not Measured at Fair Value

 

 Financial assets and liabilities that are not measured at fair value on our consolidated balance sheets include cash equivalents (primarily U.S. Treasury Bills), mortgage and mezzanine loans receivable and our secured and unsecured debt.  Estimates of the fair value of these instruments are determined by the standard practice of modeling the contractual cash flows required under the instrument and discounting them back to their present value at the appropriate current risk adjusted interest rate, which is provided by a third-party specialist.  For floating rate debt, we use forward rates derived from observable market yield curves to project the expected cash flows we would be required to make under the instrument.  The fair value of cash equivalents is classified as Level 1 and the fair value of our mortgage and mezzanine loans receivable is classified as Level 3.  The fair value of our secured and unsecured debt is classified as Level 2.  The table below summarizes the carrying amounts and fair value of these financial instruments as of December 31, 2013 and 2012.

 

As of December 31, 2013

As of December 31, 2012

Carrying

Fair

Carrying

Fair

(Amounts in thousands)

Amount

Value

Amount

Value

Cash equivalents

$

295,000 

$

295,000 

$

543,000 

$

543,000 

Mortgage and mezzanine loans receivable

170,972 

170,959 

225,359 

221,446 

$

465,972 

$

465,959 

$

768,359 

$

764,446 

Debt:

Mortgages payable

$

8,331,993 

$

8,104,000 

$

8,599,222 

$

8,631,000 

Senior unsecured notes

1,350,855 

1,402,000 

1,358,008 

1,468,000 

Revolving credit facility debt

295,870 

296,000 

1,170,000 

1,170,000 

$

9,978,718 

$

9,802,000 

$

11,127,230 

$

11,269,000 

128

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

15.    Stock-based Compensation

 

 

Our Omnibus Share Plan (the “Plan”), which was approved in May 2010, provides the Compensation Committee of the Board (the “Committee”) the ability to grant incentive and non-qualified stock options, restricted stock, restricted Operating Partnership units and out-performance plan awards to certain of our employees and officers.  Under the Plan, awards may be granted up to a maximum of 6,000,000 shares, if all awards granted are Full Value Awards, as defined, and up to 12,000,000 shares, if all of the awards granted are Not Full Value Awards, as defined, plus shares in respect of awards forfeited after May 2010 that were issued pursuant to our 2002 Omnibus Share Plan.  Full Value Awards are awards of securities, such as restricted shares, that, if all vesting requirements are met, do not require the payment of an exercise price or strike price to acquire the securities.  Not Full Value Awards are awards of securities, such as options, that do require the payment of an exercise price or strike price.  This means, for example, if the Committee were to award only restricted shares, it could award up to 6,000,000 restricted shares.  On the other hand, if the Committee were to award only stock options, it could award options to purchase up to 12,000,000 shares (at the applicable exercise price).  The Committee may also issue any combination of awards under the Plan, with reductions in availability of future awards made in accordance with the above limitations.  As of December 31, 2013, we have approximately 4,672,000 shares available for future grants under the Plan, if all awards granted are Full Value Awards, as defined.

 

In the years ended December 31, 2013, 2012 and 2011, we recognized an aggregate of $34,914,000, $30,588,000 and $28,853,000, respectively, of stock-based compensation expense, which is included as a component of “general and administrative” expenses on our consolidated statements of income.  The details of the various components of our stock-based compensation are discussed below.

 

 

Out-Performance Plans (“OPP Units”)

 

On March 30, 2012 and March 15, 2013, the Committee approved the 2012 and 2013 Out-Performance Plans (the “OPPs”), respectively.  The OPPs are multi-year, performance-based equity compensation plans under which participants, including our Chairman and Chief Executive Officer, have the opportunity to earn compensation payable in the form of equity awards if, and only if, we outperform a predetermined total shareholder return (“TSR”) and/or outperform the market with respect to a relative TSR in any year during the requisite performance periods as described below.   The aggregate notional amount of each of the OPPs is $40,000,000. 

 

Awards under the 2012 OPP may be earned if we (i) achieve a TSR level greater than 7% per annum, or 21% over the three-year performance period (the “Absolute Component”), and/or (ii) achieve a TSR above that of the SNL US REIT Index (the “Index”) over a one-year, two-year or three-year performance period (the “Relative Component”).  Awards under the 2013 OPP may be earned if we (i) achieve a TSR greater than 14% over the two-year performance measurement period, or 21% over the three-year performance measurement period (the “Absolute Component”), and/or (ii) achieve a TSR above that of the Index over a two-year or three-year performance measurement period (the “Relative Component”).  To the extent awards would be earned under the Absolute Component of each of the OPPs, but we underperform the Index, such awards would be reduced (and potentially fully negated) based on the degree to which we underperform the Index.  In certain circumstances, in the event we outperform the Index but awards would not otherwise be fully earned under the Absolute Component, awards may still be earned or increased under the Relative Component.  To the extent awards would otherwise be earned under the Relative Component but we fail to achieve at least a 6% per annum absolute TSR, such awards earned under the Relative Component would be reduced based on our absolute TSR, with no awards being earned in the event our TSR during the applicable measurement period is 0% or negative, irrespective of the degree to which we may outperform the Index.  Dividends on awards issued accrue during the performance period. 

 

If the designated performance objectives are achieved, OPP Units are subject to time-based vesting requirements. Awards earned under the OPPs vest 33% in year three, 33% in year four and 34% in year five.  Our executive officers (for the purposes of Section 16 of the Exchange Act) are required to hold earned 2013 OPP awards for one year following vesting. 

 

The fair value of the 2012 and 2013 OPPs on the date of grant was $12,250,000, and $6,814,000, respectively.  Such amounts are being amortized into expense over a five-year period from the date of grant, using a graded vesting attribution model.  In the years ended December 31, 2013, 2012 and 2011, we recognized $3,226,000, $2,826,000 and $740,000, respectively, of compensation expense related to OPP Units.  As of December 31, 2013, there was $10,065,000 of total unrecognized compensation cost related to the OPPs, which will be recognized over a weighted-average period of 1.9 years.

129

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

15.    Stock-based Compensation - continued

 

 

Stock Options      

 

Stock options are granted at an exercise price equal to the average of the high and low market price of our common shares on the NYSE on the date of grant, generally vest over four years and expire 10 years from the date of grant.  Compensation expense related to stock option awards is recognized on a straight-line basis over the vesting period.  In the years ended December 31, 2013, 2012 and 2011, we recognized $8,234,000, $8,638,000 and $8,794,000, respectively, of compensation expense related to stock options that vested during each year.  As of December 31, 2013, there was $5,398,000 of total unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted-average period of 1.3 years.

 

 

Below is a summary of our stock option activity for the year ended December 31, 2013.

 

Weighted-

Weighted-

Average

Average

Remaining

Aggregate

Exercise

Contractual

Intrinsic

Shares

Price

Term

Value

Outstanding at January 1, 2013

3,360,072 

$

67.16 

Granted

49,972 

83.11 

Exercised

(107,835)

55.85 

Cancelled or expired

(53,510)

83.80 

Outstanding at December 31, 2013

3,248,699 

$

67.51 

5.2 

$

76,089,000 

Options vested and expected to vest at

December 31, 2013

3,245,409 

$

67.50 

5.2 

$

76,022,000 

Options exercisable at December 31, 2013

2,478,838 

$

67.12 

4.8 

$

60,013,000 

 

The fair value of each option grant is estimated on the date of grant using an option-pricing model with the following weighted-average assumptions for grants in the years ended December 31, 2013, 2012 and 2011.

December 31,

2013 

2012 

2011 

Expected volatility

36.00%

36.00%

35.00%

Expected life

5.0 years

5.0 years

7.1 years

Risk free interest rate

0.91%

1.05%

2.90%

Expected dividend yield

4.30%

4.30%

4.40%

 

The weighted average grant date fair value of options granted during the years ended December 31, 2013, 2012 and 2011 was $17.18, $17.50 and $21.42, respectively.  Cash received from option exercises for the years ended December 31, 2013, 2012 and 2011 was $5,915,000, $9,546,000 and $23,736,000, respectively.  The total intrinsic value of options exercised during the years ended December 31, 2013, 2012 and 2011 was $3,386,000, $40,887,000 and $39,348,000, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

15.    Stock-based Compensation - continued

 

 

Restricted Stock

 

Restricted stock awards are granted at the average of the high and low market price of our common shares on the NYSE on the date of grant and generally vest over four years.  Compensation expense related to restricted stock awards is recognized on a straight-line basis over the vesting period.  In the years ended December 31, 2013, 2012 and 2011, we recognized $1,344,000, $1,604,000 and $1,814,000, respectively, of compensation expense related to restricted stock awards that vested during each year.  As of December 31, 2013, there was $1,781,000 of total unrecognized compensation cost related to unvested restricted stock, which is expected to be recognized over a weighted-average period of 1.6 years.  Dividends paid on unvested restricted stock are charged directly to retained earnings and amounted to $110,000, $200,000 and $185,000 for the years ended December 31, 2013, 2012 and 2011, respectively.

Below is a summary of our restricted stock activity under the Plan for the year ended December 31, 2013.

Weighted-Average

Grant-Date

Unvested Shares

Shares

Fair Value

Unvested at January 1, 2013

48,020 

$

78.61 

Granted

10,318 

83.11 

Vested

(16,018)

74.51 

Cancelled or expired

(12,656)

86.00 

Unvested at December 31, 2013

29,664 

79.23 

 

Restricted stock awards granted in 2013, 2012 and 2011 had a fair value of $857,000, $929,000 and $1,042,000, respectively.  The fair value of restricted stock that vested during the years ended December 31, 2013, 2012 and 2011 was $1,194,000, $1,864,000 and $2,031,000, respectively.

 

 

Restricted Operating Partnership Units (“OP Units”)

 

OP Units are granted at the average of the high and low market price of our common shares on the NYSE on the date of grant, vest ratably over four years and are subject to a taxable book-up event, as defined.  Compensation expense related to OP Units is recognized ratably over the vesting period using a graded vesting attribution model.  In the years ended December 31, 2013, 2012 and 2011, we recognized $22,110,000, $17,520,000 and $17,505,000, respectively, of compensation expense related to OP Units that vested during each year.  As of December 31, 2013, there was $25,971,000 of total unrecognized compensation cost related to unvested OP Units, which is expected to be recognized over a weighted-average period of 1.8 years.  Distributions paid on unvested OP Units are charged to “net income attributable to noncontrolling interests in the Operating Partnership” on our consolidated statements of income and amounted to $2,598,000, $3,203,000 and $2,567,000 in the years ended December 31, 2013, 2012 and 2011, respectively.   

 

Below is a summary of restricted OP unit activity under the Plan for the year ended December 31, 2013.

 

Weighted-Average

Grant-Date

Unvested Units

Units

Fair Value

 

 

Unvested at January 1, 2013

640,670 

$

69.61 

Granted

400,500 

79.77 

Vested

(252,052)

65.08 

Cancelled or expired

(23,147)

74.31 

Unvested at December 31, 2013

765,971 

76.27 

 

OP Units granted in 2013, 2012 and 2011 had a fair value of $31,947,000, $16,464,000 and $18,727,000, respectively.  The fair value of OP Units that vested during the years ended December 31, 2013, 2012 and 2011 was $16,404,000, $15,014,000 and $10,260,000, respectively.

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VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

16.    Fee and Other Income

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

 

(Amounts in thousands)

For the Year Ended December 31,

2013 

2012 

2011 

BMS cleaning fees

$

66,505 

$

67,584 

$

61,754 

Signage revenue

32,866 

20,892 

19,823 

Management and leasing fees

24,637 

21,849 

21,783 

Lease termination fees(1)

92,497 

2,361 

16,334 

Other income

34,727 

31,667 

29,937 

$

251,232 

$

144,353 

$

149,631 

__________________________

(1)

The year ended December 31, 2013 includes (i) $59,599 of income pursuant to a settlement agreement with Stop & Shop, which terminates our right to receive $6,000 of additional annual rent under a 1992 agreement, for a period potentially through 2031, (ii) $19,500 from a tenant at 1290 Avenue of the Americas, of which our 70% share, net of a $1,529 write-off of the straight lining of rents, was $12,121, and (iii) $3,000 from the termination of our subsidiaries' agreements with Cuyahoga County to operate the Cleveland Medical Mart Convention Center.

 

The above table excludes fee income from partially owned entities, which is included in “income from partially owned entities” (see Note 6 – Investments in Partially Owned Entities). 

 

 

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

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

(Amounts in thousands)

For the Year Ended December 31,

2013 

2012 

2011 

Non-cash impairment loss on J.C. Penney common shares

$

(39,487)

$

(224,937)

$

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

(33,487)

(75,815)

12,984 

Interest on mezzanine loans receivable

19,495 

13,861 

14,023 

Dividends and interest on marketable securities

11,446 

11,979 

29,587 

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

10,636 

6,809 

1,658 

Mezzanine loans loss reversal and net gain on disposition

82,744 

Other, net

6,698 

7,158 

7,787 

$

(24,699)

$

(260,945)

$

148,783 

__________________________

(1)

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

 

 

18.     Interest and Debt Expense

          The following table sets forth the details of our interest and debt expense.

(Amounts in thousands)

For the Year Ended December 31,

2013 

2012 

2011 

Interest expense

$

499,900 

$

486,875 

$

500,897 

Amortization of deferred financing costs

25,593 

23,639 

19,457 

Capitalized interest

(42,303)

(16,801)

(1,197)

$

483,190 

$

493,713 

$

519,157 

132

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

19.    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 includes 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 and restricted stock.

 

(Amounts in thousands, except per share amounts)

Year Ended December 31,

2013 

2012 

2011 

Numerator:

Income from continuing operations, net of income attributable to noncontrolling interests

$

78,193 

$

340,877 

$

507,428 

Income from discontinued operations, net of income attributable to noncontrolling

interests

397,778 

276,383 

154,874 

Net income attributable to Vornado

475,971 

617,260 

662,302 

Preferred share dividends

(82,807)

(76,937)

(65,531)

Preferred unit and share redemptions

(1,130)

8,948 

5,000 

Net income attributable to common shareholders

392,034 

549,271 

601,771 

Earnings allocated to unvested participating securities

(110)

(202)

(221)

Numerator for basic income per share

391,924 

549,069 

601,550 

Impact of assumed conversions:

Convertible preferred share dividends

113 

124 

Numerator for diluted income per share

$

391,924 

$

549,182 

$

601,674 

Denominator:

Denominator for basic income per share – weighted average shares

186,941 

185,810 

184,308 

Effect of dilutive securities (1):

Employee stock options and restricted share awards

768 

670 

1,658 

Convertible preferred shares

50 

55 

Denominator for diluted income per share – weighted average shares and

assumed conversions

187,709 

186,530 

186,021 

INCOME PER COMMON SHARE – BASIC:

(Loss) income from continuing operations, net

$

(0.03)

$

1.46 

$

2.42 

Income from discontinued operations, net

2.13 

1.49 

0.84 

Net income per common share

$

2.10 

$

2.95 

$

3.26 

INCOME PER COMMON SHARE – DILUTED:

(Loss) income from continuing operations, net

$

(0.03)

$

1.46 

$

2.40 

Income from discontinued operations, net

2.12 

1.48 

0.83 

Net income per common share

$

2.09 

$

2.94 

$

3.23 

(1)

The effect of dilutive securities in the years ended December 31, 2013, 2012 and 2011 excludes an aggregate of 11,752, 14,400 and 18,896 weighted average common share equivalents, respectively, as their effect was anti-dilutive.

133

 


 
 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

20.  Leases

As lessor:

We lease space to tenants under operating leases. Most of the leases provide for the payment of fixed base rentals payable monthly in advance. Office building leases generally require the tenants to reimburse us for operating costs and real estate taxes above their base year costs. Shopping center leases provide for pass-through to tenants the tenant’s share of real estate taxes, insurance and maintenance. Shopping center leases also provide for the payment by the lessee of additional rent based on a percentage of the tenants’ sales. As of December 31, 2013, future base rental revenue under non-cancelable operating leases, excluding rents for leases with an original term of less than one year and rents resulting from the exercise of renewal options, are as follows:

(Amounts in thousands)

Year Ending December 31:

2014 

$

1,811,280 

2015 

1,648,957 

2016 

1,535,967 

2017 

1,406,377 

2018 

1,272,529 

Thereafter

6,529,277 

 

These amounts do not include percentage rentals based on tenants’ sales.  These percentage rents approximated $8,796,000, $8,466,000 and $7,995,000, for the years ended December 31, 2013, 2012 and 2011, respectively.

 

Excluding the $59,599,000 of income pursuant to a settlement agreement with Stop & Shop in the year ended December 31, 2013, none of our tenants accounted for more than 10% of total revenues in any of the years ended December 31, 2013, 2012 and 2011.

 

 

As lessee:           

We are a tenant under operating leases for certain properties.  These leases have terms that expire during the next thirty years.  Future minimum lease payments under operating leases at December 31, 2013 are as follows. 

 

(Amounts in thousands)

Year Ending December 31:

2014 

$

42,845 

2015 

41,997 

2016 

41,404 

2017 

42,530 

2018 

40,301 

Thereafter

1,277,370 

 

Rent expense was $51,186,000, $43,274,000 and $35,553,000 for the years ended December 31, 2013, 2012 and 2011, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

20.  Leases - continued

We are also a lessee under a capital lease under which we will redevelop the retail and signage components of the Marriot Marquis Times Square Hotel.  The lease has put/call options, which if exercised would lead to our ownership.  Capitalized leases are recorded at the present value of future minimum lease payments or the fair market value of the property.  Capitalized leases are depreciated on a straight-line basis over the estimated life of the asset or life of the related lease.  Depreciation expense on capital leases is included in “depreciation and amortization” on our consolidated statements of income.  As of December 31, 2013, future minimum lease payments under this capital lease are as follows:

 

(Amounts in thousands)

Year Ending December 31:

2014 

$

12,500 

2015 

12,500 

2016 

12,500 

2017 

12,500 

2018 

12,500 

Thereafter

347,292 

Total minimum obligations

409,792 

Interest portion

(169,792)

Present value of net minimum payments

$

240,000 

 

At December 31, 2013, the carrying amount of the property leased under the capital lease was $292,101,000, which is included as a component of “development costs and construction in progress” on our consolidated balance sheet and present value of net minimum payments of $240,000,000 is included in “other liabilities” on our consolidated balance sheet. 

 

 

21.  Multiemployer Benefit Plans

 

Our subsidiaries make contributions to certain multiemployer defined benefit plans (“Multiemployer Pension Plans”) and health plans (“Multiemployer Health Plans”) for our union represented employees, pursuant to the respective collective bargaining agreements.

 

Multiemployer Pension Plans

 

Multiemployer Pension Plans differ from single-employer pension plans in that (i) contributions to multiemployer plans may be used to provide benefits to employees of other participating employers and (ii) if other participating employers fail to make their contributions, each of our participating subsidiaries may be required to bear its then pro rata share of unfunded obligations.  If a participating subsidiary withdraws from a plan in which it participates, it may be subject to a withdrawal liability.  As of December 31, 2013, our subsidiaries’ participation in these plans were not significant to our consolidated financial statements.

 

In the years ended December 31, 2013, 2012 and 2011, our subsidiaries contributed $10,223,000, $10,683,000 and $10,168,000, respectively, towards Multiemployer Pension Plans, which is included as a component of “operating” expenses on our consolidated statements of income.  Our subsidiaries’ contributions did not represent more than 5% of total employer contributions in any of these plans for the years ended December 31, 2013, 2012 and 2011.

 

Multiemployer Health Plans

 

Multiemployer Health Plans in which our subsidiaries participate provide health benefits to eligible active and retired employees.  In the years ended December 31, 2013, 2012 and 2011, our subsidiaries contributed $26,262,000, $26,759,000 and $23,847,000, respectively, towards these plans, which is included as a component of “operating” expenses on our consolidated statements of income.

135

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

22.  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, 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. We maintain coverage for terrorism acts with limits of $4.0 billion per occurrence and in the aggregate, and $2.0 billion per occurrence and in the aggregate for terrorism involving nuclear, biological, chemical and radiological (“NBCR”) terrorism events, as defined by Terrorism Risk Insurance Program Reauthorization Act, which expires in December 2014.

 

Penn Plaza Insurance Company, LLC (“PPIC”), our wholly owned consolidated subsidiary, acts as a re-insurer with respect to a portion of all risk property and rental value insurance and a portion of our earthquake insurance coverage, and as a direct insurer for coverage for NBCR acts.  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.  For NBCR acts, 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 incurred 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 the future.

 

Our debt instruments, consisting of mortgage loans secured by our properties which are non-recourse to us, senior unsecured notes 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

 

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 is not expected to have a material adverse effect on our financial position, results of operations or cash flows.

 

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.

 

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 December 31, 2013, the aggregate dollar amount of these guarantees and master leases is approximately $342,000,000.

 

At December 31, 2013, $33,121,000 of letters of credit were outstanding under one of our revolving credit facilities.  Our revolving 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 revolving 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.

 

As of December 31, 2013, we expect to fund additional capital to certain of our partially owned entities aggregating approximately $145,000,000.    

136

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

23.  Related Party Transactions

 

Alexander’s

 

We own 32.4% of Alexander’s. Steven Roth, the Chairman of our Board and Chief Executive Officer is also the Chairman of the Board and Chief Executive Officer of Alexander’s.  We provide various services to Alexander’s in accordance with management, development and leasing agreements.  These agreements are described in Note 6 - Investments in Partially Owned Entities.  

  

Interstate Properties (“Interstate”)

 

Interstate is a general partnership in which Mr. Roth is the managing general partner. David Mandelbaum and Russell B. Wight, Jr., Trustees of Vornado and Directors of Alexander’s, are Interstate’s two other partners. As of December 31, 2013, Interstate and its partners beneficially owned an aggregate of approximately 6.6% of the common shares of beneficial interest of Vornado and 26.3% of Alexander’s common stock.

 

We manage and lease the real estate assets of Interstate pursuant to a management agreement for which we receive an annual fee equal to 4% of annual base rent and percentage rent.  The management agreement has a term of one year and is automatically renewable unless terminated by either of the parties on 60 days’ notice at the end of the term.  We believe, based upon comparable fees charged by other real estate companies, that the management agreement terms are fair to us.  We earned $606,000, $794,000, and $787,000 of management fees under the agreement for the years ended December 31, 2013, 2012 and 2011.

 

 

24.  Summary of Quarterly Results (Unaudited)

The following summary represents the results of operations for each quarter in 2013 and 2012:

 

Net (Loss) Income

Attributable

Net (Loss) Income Per

to Common

Common Share (2)

(Amounts in thousands, except per share amounts)

Revenues

Shareholders (1)

Basic

Diluted

2013 

December 31

$

673,308 

$

(68,887)

$

(0.37)

$

(0.37)

September 30

679,435 

83,005 

0.44 

0.44 

June 30

681,699 

145,926 

0.78 

0.78 

March 31

726,467 

231,990 

1.24 

1.24 

2012 

December 31

$

686,693 

$

62,633 

$

0.34 

$

0.33 

September 30

700,991 

232,393 

1.25 

1.24 

June 30

674,007 

20,510 

0.11 

0.11 

March 31

674,541 

233,735 

1.26 

1.25 

_______________________________

(1)

Fluctuations among quarters resulted primarily from non-cash impairment losses, mark-to-market of derivative instruments, net gains on sale of real estate and from seasonality of business operations.

(2)

The total for the year may differ from the sum of the quarters as a result of weighting.

137

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

25.  Subsequent Events

 

 

2014 Out-Performance Plan

 

 On January 10, 2014, the Compensation Committee approved the 2014 Outperformance Plan, a multi-year, performance-based equity compensation plan and related form of award agreement (the “2014 OPP”).  Under the 2014 OPP, participants have the opportunity to earn compensation payable in the form of operating partnership units during a three-year performance measurement period, if and only if we outperform a predetermined total shareholder return (“TSR”) and/or outperform the market with respect to relative TSR.  Awards under the 2014 OPP may be earned if we (i) achieve a TSR level greater than 7% per annum, or 21% over the three-year performance measurement period (the “Absolute Component”), and/or (ii) achieve a TSR above that of the SNL US REIT Index (the “Index”) over a three-year performance measurement period (the “Relative Component”).  To the extent awards would be earned under the Absolute Component but we underperform the Index, such awards earned under the Absolute Component would be reduced (and potentially fully negated) based on the degree to which we underperform the Index.  In certain circumstances, in the event we outperform the Index but awards would not otherwise be earned under the Absolute Component, awards may be increased under the Relative Component.  To the extent awards would otherwise be earned under the Relative Component but we fail to achieve at least a 6% per annum absolute TSR, such awards earned under the Relative Component would be reduced based on our absolute TSR, with no awards being earned in the event our TSR during the applicable measurement period is 0% or negative, irrespective of the degree to which we may outperform the Index.  If the designated performance objectives are achieved, OPP Units are also subject to time-based vesting requirements. Awards earned under the 2014 OPP vest 33% in year three, 33% in year four and 34% in year five.  Dividends on awards earned accrue during the performance measurement period.  In addition, our executive officers (for the purposes of Section 16 of the Exchange Act) are required to hold any earned OPP awards (or related equity) for at least one year following vesting.

 

 

220 Central Park South Development Site

 

On January 31, 2014, we completed a $600,000,000 loan secured by our 220 Central Park South development site.  The loan bears interest at LIBOR plus 2.75% and matures in January 2016, with three one-year extension options.

 

 

Broadway Mall

 

On February 14, 2014, we entered into an agreement to sell the Broadway Mall in Hicksville, Long Island, New York for $94,000,000.  The sale will result in net proceeds of approximately $92,000,000 after closing costs.  In the fourth quarter of 2013, we recognized a $13,443,000 non-cash impairment loss related to this property, which is included in “impairment losses, acquisition related costs and tenant buy-outs” on our consolidated statements of income.

138

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

26.    Segment Information

 

As a result of certain organizational changes and asset sales in 2012, the Merchandise Mart segment no longer met the criteria to be a separate reportable segment; accordingly, effective January 1, 2013, the remaining assets were reclassified to “Other.”  We have also reclassified the prior period segment financial results to conform to the current year presentation.  Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the years ended December 31, 2013, 2012 and 2011.

 

 

(Amounts in thousands)

For the Year Ended December 31, 2013

 

Retail

Total

New York

Washington, DC

Properties

Toys

Other

Total revenues

2,760,909 

1,509,266 

541,161 

425,716 

284,766 

Total expenses

1,886,719 

926,963 

347,686 

251,516 

360,554 

Operating income (loss)

874,190 

582,303 

193,475 

174,200 

(75,788)

(Loss) income from partially owned

entities, including Toys

(338,785)

15,527 

(6,968)

2,097 

(362,377)

12,936 

Income from Real Estate Fund

102,898 

102,898 

Interest and other investment

(loss) income, net

(24,699)

5,532 

129 

13 

(30,373)

Interest and debt expense

(483,190)

(181,966)

(102,277)

(44,203)

(154,744)

Net gain on disposition of wholly

owned and partially owned assets

3,407 

1,377 

2,030 

Income (loss) before income taxes

133,821 

421,396 

84,359 

133,484 

(362,377)

(143,041)

Income tax benefit (expense)

6,406 

(2,794)

14,031 

(2,311)

(2,520)

Income (loss) from continuing

operations

140,227 

418,602 

98,390 

131,173 

(362,377)

(145,561)

Income (loss) from discontinued

operations

424,513 

138,245 

287,536 

(1,268)

Net income (loss)

564,740 

556,847 

98,390 

418,709 

(362,377)

(146,829)

Less net (income) attributable to

noncontrolling interests

(88,769)

(10,786)

(3,065)

(74,918)

Net income (loss) attributable to

Vornado

475,971 

546,061 

98,390 

415,644 

(362,377)

(221,747)

Interest and debt expense(2)

758,781 

236,645 

116,131 

50,901 

181,586 

173,518 

Depreciation and amortization(2)

732,757 

293,974 

142,409 

72,161 

135,178 

89,035 

Income tax expense (benefit)(2)

26,371 

3,002 

(15,707)

2,311 

33,532 

3,233 

EBITDA(1)

1,993,880 

1,079,682 

(3)

341,223 

(4)

541,017 

(5)

(12,081)

44,039 

(6)

Balance Sheet Data:

Real estate at cost

18,354,626 

8,591,026 

4,243,048 

2,827,044 

2,693,508 

Investments in partially owned entities

1,249,667 

904,278 

100,543 

6,640 

83,224 

154,982 

Total assets

20,097,224 

9,255,964 

4,107,636 

3,387,798 

83,224 

3,262,602 

See notes on page 142.

139

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

26.    Segment Information – continued

 

 

(Amounts in thousands)

For the Year Ended December 31, 2012

Retail

Total

New York

Washington, DC

Properties

Toys

Other

Total revenues

2,736,232 

1,354,874 

554,028 

370,177 

457,153 

Total expenses

2,071,663 

851,512 

360,056 

324,096 

535,999 

Operating income (loss)

664,569 

503,362 

193,972 

46,081 

(78,846)

Income (loss) from partially owned

entities, including Toys

423,126 

207,773 

(5,612)

1,458 

14,859 

204,648 

Income from Real Estate Fund

63,936 

63,936 

Interest and other investment

(loss) income, net

(260,945)

4,230 

126 

27 

(265,328)

Interest and debt expense

(493,713)

(146,350)

(115,574)

(57,057)

(174,732)

Net gain on disposition of wholly

owned and partially owned assets

13,347 

8,491 

4,856 

Income (loss) before income taxes

410,320 

569,015 

72,912 

(1,000)

14,859 

(245,466)

Income tax expense

(8,132)

(3,491)

(1,650)

(2,991)

Income (loss) from continuing

operations

402,188 

565,524 

71,262 

(1,000)

14,859 

(248,457)

Income from discontinued

operations

292,353 

10,610 

167,766 

39,357 

74,620 

Net income (loss)

694,541 

576,134 

239,028 

38,357 

14,859 

(173,837)

Less net (income) loss attributable to

noncontrolling interests

(77,281)

(2,138)

1,812 

(76,955)

Net income (loss) attributable to

Vornado

617,260 

573,996 

239,028 

40,169 

14,859 

(250,792)

Interest and debt expense(2)

760,523 

187,855 

133,625 

73,828 

147,880 

217,335 

Depreciation and amortization(2)

735,293 

252,257 

157,816 

86,529 

135,179 

103,512 

Income tax expense (benefit)(2)

7,026 

3,751 

1,943 

(16,629)

17,961 

EBITDA(1)

2,120,102 

1,017,859 

(3)

532,412 

(4)

200,526 

(5)

281,289 

88,016 

(6)

Balance Sheet Data:

Real estate at cost

18,238,218 

8,855,243 

4,171,879 

2,812,911 

2,398,185 

Investments in partially owned entities

1,704,297 

576,336 

95,670 

7,083 

478,041 

547,167 

Total assets

22,065,049 

9,215,438 

4,196,694 

3,589,633 

478,041 

4,585,243 

See notes on page 142.

140

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

26.    Segment Information – continued

 

 

(Amounts in thousands)

For the Year Ended December 31, 2011

Retail

Total

New York

Washington, DC

Properties

Toys

Other

Total revenues

2,702,808 

1,333,280 

603,317 

374,482 

391,729 

Total expenses

1,890,582 

841,863 

369,255 

215,075 

464,389 

Operating income (loss)

812,226 

491,417 

234,062 

159,407 

(72,660)

Income (loss) from partially owned

entities, including Toys

118,612 

12,062 

(6,381)

2,700 

48,540 

61,691 

Income from Real Estate Fund

22,886 

22,886 

Interest and other investment

income (loss), net

148,783 

4,245 

199 

(33)

144,372 

Interest and debt expense

(519,157)

(151,728)

(115,456)

(64,592)

(187,381)

Net gain on disposition of wholly

owned and partially owned assets

15,134 

4,278 

10,856 

Income (loss) before income taxes

598,484 

355,996 

112,424 

101,760 

48,540 

(20,236)

Income tax expense

(23,925)

(2,084)

(2,690)

(34)

(19,117)

Income (loss) from continuing

operations

574,559 

353,912 

109,734 

101,726 

48,540 

(39,353)

Income from discontinued operations

165,441 

11,155 

52,390 

27,557 

74,339 

Net income

740,000 

365,067 

162,124 

129,283 

48,540 

34,986 

Less net (income) loss attributable to

noncontrolling interests

(77,698)

(10,042)

237 

(67,893)

Net income (loss) attributable to

Vornado

662,302 

355,025 

162,124 

129,520 

48,540 

(32,907)

Interest and debt expense(2)

797,920 

181,740 

134,270 

82,608 

157,135 

242,167 

Depreciation and amortization(2)

777,421 

247,630 

181,560 

91,040 

134,967 

122,224 

Income tax expense (benefit)(2)

4,812 

2,170 

3,123 

34 

(1,132)

617 

EBITDA(1)

2,242,455 

786,565 

(3)

481,077 

(4)

303,202 

(5)

339,510 

332,101 

(6)

Balance Sheet Data:

Real estate at cost

16,421,701 

6,991,960 

4,176,894 

2,898,501 

2,354,346 

Investments in partially owned entities

1,740,459 

536,393 

113,536 

7,747 

506,809 

575,974 

Total assets

20,446,487 

7,130,240 

4,150,140 

3,748,303 

506,809 

4,910,995 

See notes on the following page.

141

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

26.    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 expense (benefit) in the reconciliation of net income (loss) to EBITDA includes our share of these items from partially owned entities.

(3)

The elements of "New York" EBITDA are summarized below.

For the Year Ended December 31,

(Amounts in thousands)

2013 

2012 

2011 

Office(a)

759,941 

568,518 

539,734 

Retail

246,808 

189,484 

163,033 

Alexander's(b)

42,210 

231,402 

53,663 

Hotel Pennsylvania

30,723 

28,455 

30,135 

Total New York

1,079,682 

1,017,859 

786,565 

(a)

2013 includes a $127,512 net gain on sale of real estate.

(b)

2012 includes $179,934 for our share of net gain on sale of Kings Plaza.

(4)

The elements of "Washington, DC" EBITDA are summarized below.

For the Year Ended December 31,

(Amounts in thousands)

2013 

2012 

2011 

Office, excluding the Skyline Properties (a)

268,373 

449,448 

385,285 

Skyline properties

29,499 

40,037 

56,148 

Total Office

297,872 

489,485 

441,433 

Residential

43,351 

42,927 

39,644 

Total Washington, DC

341,223 

532,412 

481,077 

(a)

2012 includes a $163,367 net gain on sale of real estate.

(5)

The elements of "Retail Properties" EBITDA are summarized below.

For the Year Ended December 31,

(Amounts in thousands)

2013 

2012 

2011 

Strip shopping centers(a)

285,612 

172,708 

210,022 

Regional malls(b)

255,405 

27,818 

93,180 

Total Retail properties

541,017 

200,526 

303,202 

(a)

2013 includes $81,806 of net gains on sale of real estate, $59,599 of income pursuant to a settlement agreement with Stop & Shop and a $19,000 real estate impairment loss.  2012 includes $15,821 of net gains on sale of real estate and a $33,775 real estate impairment loss.

(b)

2013 includes a $202,275 net gain on sale of the Green Acres Mall and a $13,443 real estate impairment loss.  2012 includes a $70,100 real estate impairment loss.

142

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

26.    Segment Information – continued

 

Notes to preceding tabular information:

(6)

The elements of "other" EBITDA from continuing operations are summarized below.

(Amounts in thousands)

For the Year Ended December 31,

2013 

2012 

2011 

Our share of Real Estate Fund:

Income before net realized/unrealized gains

1,676 

4,926 

4,205 

Net unrealized gains

21,443 

13,840 

2,999 

Net realized gains

2,046 

1,348 

Carried interest

24,306 

5,838 

736 

Total

49,471 

24,604 

9,288 

Merchandise Mart Building, 7 West 34th Street and trade shows

74,270 

62,470 

50,406 

555 California Street

42,667 

46,167 

44,724 

India real estate ventures

5,841 

3,654 

7,037 

LNR(a) 

20,443 

75,202 

47,614 

Lexington(b) 

6,931 

32,595 

34,779 

Other investments

18,981 

25,612 

26,092 

218,604 

270,304 

219,940 

Corporate general and administrative expenses(c) 

(94,904)

(89,082)

(85,922)

Investment income and other, net(c) 

46,525 

45,563 

55,202 

Net gain on sale of marketable securities, land parcels and residential

condominiums

56,868 

4,856 

10,904 

Loss on sale of J.C. Penney common shares

(54,914)

Non-cash impairment loss on J.C. Penney common shares

(39,487)

(224,937)

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

(33,487)

(75,815)

12,984 

Acquisition related costs and impairment losses

(24,857)

(17,386)

(5,925)

Severance costs (primarily reduction in force at the Merchandise Mart)

(5,492)

(3,005)

(4,226)

Purchase price fair value adjustment and accelerated amortization of

discount on investment in subordinated debt of Independence Plaza

105,366 

Merchandise Mart discontinued operations (including net gains on sale of assets)

93,588 

97,272 

Net gain resulting from Lexington's stock issuance and asset acquisition

28,763 

9,760 

Verde Realty impairment loss

(4,936)

Mezzanine loans loss reversal and net gain on disposition

82,744 

Non-cash impairment loss on India land parcel

(13,794)

Net gain from Suffolk Downs' sale of a partial interest

12,525 

Real Estate Fund placement fees

(3,451)

Net income attributable to noncontrolling interests in the Operating Partnership

(23,659)

(35,327)

(41,059)

Preferred unit distributions of the Operating Partnership

(1,158)

(9,936)

(14,853)

44,039 

88,016 

332,101 

(a)

On April 19, 2013, LNR was sold (see page 113 for details).

(b)

In the first quarter of 2013, we began accounting for our investment in Lexington as a marketable equity security - available for sale. This investment was previously accounted for under the equity method (see page 110 for details).

(c)

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

143

 


 
 

  

ITEM 9.        changes in and disagreements with accountants on accounting and financial disclosure

None.

 

 

ITEM 9A.     Controls and procedures

Disclosure Controls and Procedures:  Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our 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 annual report on Form 10-K. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective.

 

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

 

Management’s Report on Internal Control over Financial Reporting

 

Management of Vornado Realty Trust, together with its consolidated subsidiaries (the “Company”), is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed under the supervision of our principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.

 

As of December 31, 2013, management conducted an assessment of the effectiveness of our internal control over financial reporting based on the framework established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has determined that our internal control over financial reporting as of December 31, 2013 was effective.

 

Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles in the United States, and that receipts and expenditures are being made only in accordance with authorizations of management and our trustees; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements.

 

The effectiveness of our internal control over financial reporting as of December 31, 2013 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing on page 145, which expresses an unqualified opinion on the effectiveness of our internal control over financial reporting as of December 31, 2013.

144

 


 
 

  

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

Shareholders and Board of Trustees

Vornado Realty Trust

New York, New York

 

We have audited the internal control over financial reporting of Vornado Realty Trust, together with its consolidated subsidiaries (the “Company”) as of December 31, 2013, based on criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

 

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of trustees, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and trustees of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on the criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

 

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedules as of and for the year ended December 31, 2013 of the Company and our report dated February 24, 2014 expressed an unqualified opinion on those financial statements and financial statement schedules.

 

/s/ DELOITTE & TOUCHE LLP

 

Parsippany, New Jersey

February 24, 2014

145

 


 
 

  

ITEM 9B.     Other information

 

None.

PART III

 

ITEM 10.      Directors, Executive Officers and Corporate Governance

Information relating to trustees of the Registrant, including its audit committee and audit committee financial expert, will be contained in a definitive Proxy Statement involving the election of trustees under the caption “Election of Trustees” which the Registrant will file with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934 not later than 120 days after December 31, 2013, and such information is incorporated herein by reference. Also incorporated herein by reference is the information under the caption “16(a) Beneficial Ownership Reporting Compliance” of the Proxy Statement.

 

The following is a list of the names, ages, principal occupations and positions with Vornado of the executive officers of Vornado and the positions held by such officers during the past five years. All executive officers of Vornado have terms of office that run until the next succeeding meeting of the Board of Trustees of Vornado following the Annual Meeting of Shareholders unless they are removed sooner by the Board.

 

PRINCIPAL OCCUPATION, POSITION AND OFFICE

Name

Age

(Current and during past five years with Vornado unless otherwise stated)

Steven Roth

72 

Chairman of the Board; Chief Executive Officer since April 2013 and from May 1989 to May 2009; Managing General Partner of Interstate Properties, an owner of shopping centers and an investor in securities and partnerships; Chief Executive Officer of Alexander’s, Inc. since March 1995, a Director since 1989, and Chairman since May 2004.

Michael J. Franco

45 

Executive Vice President - Co-Head of Acquisitions and Capital Markets since November 2010; Managing Director (2003-2010) and Executive Director (2001-2003) of the Real Estate Investing Group of Morgan Stanley.

David R. Greenbaum

62 

President of the New York Division since April 1997 (date of our acquisition); President of Mendik Realty (the predecessor to the New York Office division) from 1990 until April 1997.

Joseph Macnow

68 

Executive Vice President - Finance and Chief Administrative Officer since June 2013; Executive Vice President - Finance and Administration from January 1998 to June 2013, and Chief Financial Officer from March 2001 to June 2013; Vice President and Chief Financial Officer of the Company from 1985 to January 1998; Executive Vice President and Chief Financial Officer of Alexander's, Inc. since August 1995.

Robert Minutoli

63 

Executive Vice President - Retail since April 2013; Senior Vice President - Retail from April 2009 to April 2013.

Mitchell N. Schear

55 

President of Vornado/Charles E. Smith L.P. (our Washington, DC division) since April 2003; President of the Kaempfer Company from 1998 to April 2003 (date acquired by us).

Wendy Silverstein

53 

Executive Vice President - Co-Head of Acquisitions and Capital Markets since November 2010; Executive Vice President of Capital Markets since 1998; Senior Credit Officer of Citicorp Real Estate and Citibank, N.A. from 1986 to 1998.

Stephen W. Theriot

54 

Chief Financial Officer since June 2013; Partner at Deloitte & Touche LLP (1994 - 2013) and most recently, leader of its Northeast Real Estate practice (2011 - 2013).

 

 

The Registrant has adopted a Code of Business Conduct and Ethics that applies to, among others, Steven Roth, its principal executive officer, and Stephen W. Theriot, its principal financial and accounting officer. This Code is available on our website at www.vno.com.  

146

 


 
 

  

ITEM 11.      Executive Compensation

Information relating to executive officer and director compensation will be contained in the Proxy Statement referred to above in Item 10, “Directors, Executive Officers and Corporate Governance,” under the caption “Executive Compensation” and such information is incorporated herein by reference.

 

 

 

ITEM 12.      Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information relating to security ownership of certain beneficial owners and management will be contained in the Proxy Statement referred to in Item 10, “Directors, Executive Officers and Corporate Governance,” under the caption “Principal Security Holders” and such information is incorporated herein by reference.

 

                      Equity compensation plan information

The following table provides information as of December 31, 2013 regarding our equity compensation plans.

 

Number of securities remaining

Number of securities to be

Weighted-average

available for future issuance

issued upon exercise of

exercise price of

under equity compensation plans

outstanding options,

outstanding options,

(excluding securities reflected in

Plan Category

warrants and rights

warrants and rights

the second column)

Equity compensation plans approved

by security holders

4,732,733 

(1)

$

67.51 

4,672,329 

(2)

Equity compensation awards not

approved by security holders

Total

4,732,733 

$

67.51 

4,672,329 

___________________________

(1)

Includes an aggregate of 1,484,034 shares/units, comprised of (i) 29,664 restricted common shares, (ii) 978,232 restricted Operating Partnership units and (iii) 476,138 Out-Performance Plan units, which do not have an exercise price.

(2)

Based on awards being granted as "Full Value Awards," as defined. If we were to grant "Not Full Value Awards," as defined, the number of securities available for future grants would be 9,344,658.

 

 

 

ITEM 13.      Certain Relationships and Related Transactions, and Director Independence

Information relating to certain relationships and related transactions will be contained in the Proxy Statement referred to in Item 10, “Directors, Executive Officers and Corporate Governance,” under the caption “Certain Relationships and Related Transactions” and such information is incorporated herein by reference.

 

 

 

ITEM 14.      Principal Accounting Fees and Services

Information relating to Principal Accounting fees and services will be contained in the Proxy Statement referred to in Item 10, “Directors, Executive Officers and Corporate Governance,” under the caption “Ratification of Selection of Independent Auditors” and such information is incorporated herein by reference.

147

 


 
 

  

PART IV

 

Item 15.              Exhibits, Financial Statement Schedules

(a)     The following documents are filed as part of this report:

 

1.     The consolidated financial statements are set forth in Item 8 of this Annual Report on Form 10-K.

 

The following financial statement schedules should be read in conjunction with the financial statements included in Item 8 of this Annual Report on Form 10-K.

 

Pages in this

Annual Report

on Form 10-K

II--Valuation and Qualifying Accounts--years ended December 31, 2013, 2012 and 2011

150 

III--Real Estate and Accumulated Depreciation as of December 31, 2013

151 

 

Schedules other than those listed above are omitted because they are not applicable or the information required is included in the consolidated financial statements or the notes thereto.

 

The following exhibits listed on the Exhibit Index, which is incorporated herein by reference, are filed with this Annual Report on Form 10-K.

 

Exhibit No.

 

 

 

12

 

 

Computation of Ratios

21

 

 

Subsidiaries of Registrant

23

 

 

Consent of Independent Registered Public Accounting Firm

31.1

 

 

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

31.2

 

 

Rule 13a-14 (a) Certification of 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

 

 

 

 

 

 

 

 

148

 


 
 

  

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: February 24, 2014

By:

/s/ Stephen W. Theriot

 

 

Stephen W. Theriot, Chief Financial Officer

(duly authorized officer and principal financial and accounting officer)

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

 

 

Signature

 

Title

 

Date

 

 

 

 

 

 

By:

/s/Steven Roth

 

Chairman of the Board of Trustees

 

February 24, 2014

 

     (Steven Roth)

 

     and Chief Executive Officer

 

 

 

 

 

 

 

 

By:

/s/Michael D. Fascitelli

 

Trustee

 

February 24, 2014

 

     (Michael D. Fascitelli)

 

 

 

 

 

 

 

 

 

 

By:

/s/Candace K. Beinecke

 

Trustee

 

February 24, 2014

 

     (Candace K. Beinecke)

 

 

 

 

 

 

 

 

 

 

By:

/s/Robert P. Kogod

 

Trustee

 

February 24, 2014

 

     (Robert P. Kogod)

 

 

 

 

 

 

 

 

 

 

By:

/s/Michael Lynne

 

Trustee

 

February 24, 2014

 

     (Michael Lynne)

 

 

 

 

 

 

 

 

 

 

By:

/s/David Mandelbaum

 

Trustee

 

February 24, 2014

 

     (David Mandelbaum)

 

 

 

 

 

 

 

 

 

 

By:

/s/Ronald G. Targan

 

Trustee

 

February 24, 2014

 

     (Ronald G. Targan)

 

 

 

 

 

 

 

 

 

 

By:

/s/Daniel R. Tisch

 

Trustee

 

February 24, 2014

 

     (Daniel R. Tisch)

 

 

 

 

 

 

 

 

 

 

By:

/s/Richard R. West

 

Trustee

 

February 24, 2014

 

     (Richard R. West)

 

 

 

 

 

 

 

 

 

 

By:

/s/Russell B. Wight

 

Trustee

 

February 24, 2014

 

     (Russell B. Wight, Jr.)

 

 

 

 

 

 

 

 

 

 

By:

/s/ Stephen W. Theriot

 

Chief Financial Officer

 

February 24, 2014

 

     (Stephen W. Theriot)

 

     (Principal Financial and Accounting Officer)

 

 

149

 


 
 

  

VORNADO REALTY TRUST

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

December 31, 2013

(Amounts in Thousands)

Column A

Column B

Column C

Column D

Column E

Additions

Balance at

Charged

Uncollectible

Balance

Beginning

Against

Accounts

at End

Description

of Year

Operations

Written-off

of Year

Year Ended December 31, 2013:

Allowance for doubtful accounts

$

40,839 

$

11,417 

$

(20,187)

$

32,069 

Year Ended December 31, 2012:

Allowance for doubtful accounts

$

46,531 

$

9,697 

$

(15,389)

$

40,839 

Year Ended December 31, 2011:

Allowance for doubtful accounts

$

140,780 

$

(56,995)

$

(37,254)

$

46,531 

 

150

 


 
 

  

VORNADO REALTY TRUST

SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

(Amounts in thousands)

COLUMN A

COLUMN B

COLUMN C

COLUMN D

COLUMN E 

COLUMN F

COLUMN G

COLUMN H

COLUMN I 

Gross amount at which 

Life on which

Initial cost to company (1)

carried at close of period 

depreciation

Costs

Accumulated

in latest

Building

capitalized

Buildings 

depreciation

income

and

subsequent

and  

and

Date of

Date

statement

Description

Encumbrances

Land

improvements

to acquisition

Land 

improvements 

Total (2) 

amortization

construction (3)

acquired

is computed

New York

New York

Manhattan

1290 Avenue of the Americas

$

950,000 

515,539 

923,653 

113,956 

515,539 

1,037,609 

1,553,148 

177,161 

1963 

2007 

(4)

350 Park Avenue

300,000 

265,889 

363,381 

34,075 

265,889 

397,456 

663,345 

70,876 

1960 

2006 

(4)

666 Fifth Avenue (Retail Condo)

390,000 

189,005 

471,072 

189,005 

471,072 

660,077 

13,011 

2012

(4)

One Penn Plaza

412,169 

181,159 

593,328 

593,328 

227,919 

1972

1998

(4)

100 West 33rd Street (Manhattan Mall)

223,242 

242,776 

247,970 

12,661 

242,776 

260,631 

503,407 

44,717 

1911 

2007

(4)

1540 Broadway

105,914 

214,208 

25,955 

105,914 

240,163 

346,077 

28,847 

2006

(4)

655 Fifth Avenue

102,594 

231,903 

102,594 

231,903 

334,497 

1,461 

2013

(4)

Two Penn Plaza

425,000 

53,615 

164,903 

84,924 

52,689 

250,753 

303,442 

117,909 

1968

1997

(4)

1535 Broadway (Marriott Marquis)

249,285 

42,816 

292,101 

292,101 

2012

(4)

Manhattan Mall

101,758 

88,595 

113,473 

72,225 

88,595 

185,698 

274,293 

38,089 

2009

2007

(4)

770 Broadway

353,000 

52,898 

95,686 

90,361 

52,898 

186,047 

238,945 

73,059 

1907

1998

(4)

90 Park Avenue

8,000 

175,890 

40,927 

8,000 

216,817 

224,817 

90,125 

1964

1997

(4)

888 Seventh Avenue

318,554 

117,269 

105,383 

222,652 

222,652 

90,120 

1980

1998

(4)

909 Third Avenue

194,910 

120,723 

85,724 

206,447 

206,447 

62,044 

1969

1999

(4)

Eleven Penn Plaza

450,000 

40,333 

85,259 

61,146 

40,333 

146,405 

186,738 

62,040 

1923

1997

(4)

640 Fifth Avenue

38,224 

25,992 

113,404 

38,224 

139,396 

177,620 

62,664 

1950

1997

(4)

1740 Broadway

26,971 

102,890 

38,868 

26,971 

141,758 

168,729 

56,364 

1950

1997

(4)

150 East 58th Street

39,303 

80,216 

31,394 

39,303 

111,610 

150,913 

45,234 

1969

1998

(4)

595 Madison Avenue

62,731 

62,888 

19,656 

62,731 

82,544 

145,275 

28,720 

1968

1999

(4)

828-850 Madison Avenue

80,000 

107,937 

28,261 

10 

107,937 

28,271 

136,208 

6,124 

2005 

(4)

4 Union Square South

120,000 

24,079 

55,220 

2,233 

24,079 

57,453 

81,532 

13,383 

1965/2004

1993 

(4)

510 Fifth Avenue

30,740 

34,602 

18,728 

18,737 

34,602 

37,465 

72,067 

3,269 

2010 

(4)

478-482 Broadway

20,000 

13,375 

27,843 

20,000 

41,218 

61,218 

5,419 

2009 

2007 

(4)

20 Broad Street

28,760 

27,401 

56,161 

56,161 

18,774 

1956

1998

(4)

40 Fulton Street

15,732 

26,388 

12,411 

15,732 

38,799 

54,531 

14,314 

1987

1998

(4)

443 Broadway

11,187 

41,186 

11,187 

41,186 

52,373 

608 

2013

(4)

40 East 66th Street

13,616 

34,635 

121 

13,616 

34,756 

48,372 

6,957 

2005 

(4)

155 Spring Street

13,700 

30,544 

2,545 

13,700 

33,089 

46,789 

5,780 

2007 

(4)

689 Fifth Avenue

19,721 

13,446 

10,237 

19,721 

23,683 

43,404 

8,387 

1925

1998

(4)

435 Seventh Avenue

98,000 

19,893 

19,091 

43 

19,893 

19,134 

39,027 

5,480 

2002

1997 

(4)

3040 M Street

7,830 

27,490 

3,256 

7,830 

30,746 

38,576 

5,996 

2006

(4)

692 Broadway

6,053 

22,908 

3,388 

6,053 

26,296 

32,349 

5,369 

2005 

(4)

715 Lexington Avenue

26,903 

26,903 

26,903 

5,864 

1923 

2001 

(4)

677-679 Madison Avenue

13,070 

9,640 

388 

13,070 

10,028 

23,098 

1,890 

2006

(4)

330 West 34th Street

8,599 

13,610 

22,209 

22,209 

2,764 

1925

1998

(4)

484-486 Broadway

10,000 

6,688 

5,054 

10,000 

11,742 

21,742 

1,432 

2009

2007 

(4)

1135 Third Avenue

7,844 

7,844 

4,173 

7,844 

12,017 

19,861 

33 

1997 

(4)

431 Seventh Avenue

16,700 

2,751 

16,700 

2,751 

19,451 

464 

2007 

(4)

267 West 34th Street

5,099 

10,037 

5,099 

10,037 

15,136 

42 

2013

(4)

334 Canal Street

1,693 

6,507 

4,815 

13,015 

13,015 

2011

(4)

 

151

 


 
 

  

VORNADO REALTY TRUST

SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

(Amounts in thousands)

COLUMN A

COLUMN B

COLUMN C

COLUMN D

COLUMN E 

COLUMN F

COLUMN G

COLUMN H

COLUMN I 

Gross amount at which 

Life on which

Initial cost to company (1)

carried at close of period 

depreciation

Costs

Accumulated

in latest

Building

capitalized

Buildings 

depreciation

income

and

subsequent

and  

and

Date of

Date

statement

Description

Encumbrances

Land

improvements

to acquisition

Land 

improvements 

Total (2) 

amortization

construction (3)

acquired

is computed

1540 Broadway Garage

$

$

4,086 

$

8,914 

$

$

4,086 

$

8,914 

$

13,000 

$

1,687 

1990 

2006 

(4)

966 Third Avenue

8,869 

3,631 

8,869 

3,631 

12,500 

30 

2013

(4)

148 Spring Street

3,200 

8,112 

374 

3,200 

8,486 

11,686 

1,159 

2008 

(4)

608 Fifth Avenue

10,572 

10,572 

10,572 

1932

2012

(4)

150 Spring Street

3,200 

5,822 

192 

3,200 

6,014 

9,214 

860 

2008 

(4)

488 Eighth Avenue

10,650 

1,767 

(4,671)

6,862 

884 

7,746 

134 

2007 

(4)

484 Eighth Avenue

3,856 

762 

299 

3,856 

1,061 

4,917 

324 

1997 

(4)

825 Seventh Avenue

1,483 

697 

33 

1,483 

730 

2,213 

302 

1997 

(4)

Other (Primarily Signage)

5,548 

43,641 

49,189 

49,189 

9,669 

Total New York

4,035,204 

2,216,487 

4,733,084 

1,341,339 

2,210,080 

6,080,830 

8,290,910 

1,416,874 

New Jersey

Paramus

27,673 

1,033 

26,640 

27,673 

15,897 

1967 

1987 

(4)

Other Properties

Hotel Pennsylvania

29,903 

121,712 

78,876 

29,903 

200,588 

230,491 

80,180 

1919

1997

(4)

Total New York

4,035,204 

2,246,390 

4,854,796 

1,447,888 

2,241,016 

6,308,058 

8,549,074 

1,512,951 

Washington, DC

Washington, DC

2011-2451 Crystal Drive

226,855 

100,935 

409,920 

132,550 

100,228 

543,177 

643,405 

181,658 

1984-1989

2002 

(4)

2001 Jefferson Davis Highway,

2100/2200 Crystal Drive, 223 23rd

Street, 2221 South Clark Street, Crystal

City Shops at 2100, 220 20th Street

72,579 

57,213 

131,206 

183,233 

57,070 

314,582 

371,652 

73,439 

1964-1969

2002 

(4)

1550-1750 Crystal Drive/

241-251 18th Street

112,987 

64,817 

218,330 

74,331 

64,652 

292,826 

357,478 

90,441 

1974-1980

2002 

(4)

Riverhouse Apartments

259,546 

118,421 

125,078 

64,211 

138,696 

169,014 

307,710 

29,476 

2007 

(4)

Skyline Place (6 buildings)

458,569 

41,986 

221,869 

29,071 

41,862 

251,064 

292,926 

78,373 

1973-1984

2002 

(4)

1215, 1225 S. Clark Street/ 200, 201

12th Street S.

60,674 

47,594 

177,373 

32,917 

47,465 

210,419 

257,884 

66,549 

1983-1987

2002 

(4)

1229-1231 25th Street (West End 25)

101,671 

67,049 

5,039 

106,456 

68,198 

110,346 

178,544 

11,499 

2007 

(4)

2101 L Street

150,000 

32,815 

51,642 

83,379 

39,768 

128,068 

167,836 

26,103 

1975 

2003 

(4)

1800, 1851 and 1901 South Bell Street

37,551 

118,806 

(9,349)

37,551 

109,457 

147,008 

30,997 

1968 

2002 

(4)

2200 / 2300 Clarendon Blvd

41,279 

105,475 

40,977 

146,452 

146,452 

47,179 

1988-1989

2002 

(4)

Met Park / Warehouses

106,946 

1,326 

26,591 

82,897 

51,966 

134,863 

1,237 

2007 

(4)

Bowen Building - 875 15th Street, NW

115,022 

30,077 

98,962 

1,712 

30,176 

100,575 

130,751 

21,759 

2004 

2005 

(4)

One Skyline Tower

139,536 

12,266 

75,343 

35,222 

12,231 

110,600 

122,831 

34,684 

1988 

2002 

(4)

1875 Connecticut Ave, NW

36,303 

82,004 

4,447 

35,886 

86,868 

122,754 

18,030 

1963 

2007 

(4)

 

152

 


 
 

  

VORNADO REALTY TRUST

SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

(Amounts in thousands)

COLUMN A

COLUMN B

COLUMN C

COLUMN D

COLUMN E 

COLUMN F

COLUMN G

COLUMN H

COLUMN I 

Gross amount at which 

Life on which

Initial cost to company (1)

carried at close of period 

depreciation

Costs

Accumulated

in latest

Building

capitalized

Buildings 

depreciation

income

and

subsequent

and  

and

Date of

Date

statement

Description

Encumbrances

Land

improvements

to acquisition

Land 

improvements 

Total (2) 

amortization

construction (3)

acquired

is computed

1399 New York Avenue, NW

$

$

33,481 

$

67,363 

$

4,236 

$

34,178 

$

70,902 

$

105,080 

$

4,880 

2011 

(4)

1825 Connecticut Ave, NW

33,090 

61,316 

(5,122)

32,726 

56,558 

89,284 

11,695 

1956 

2007 

(4)

1235 S. Clark Street

15,826 

53,894 

17,221 

15,826 

71,115 

86,941 

20,001 

1981 

2002 

(4)

Commerce Executive

13,401 

58,705 

14,473 

13,140 

73,439 

86,579 

24,578 

1985-1989

2002 

(4)

Seven Skyline Place

104,419 

10,292 

58,351 

2,210 

10,262 

60,591 

70,853 

16,367 

2001 

2002 

(4)

Crystal City Hotel

8,000 

47,191 

8,993 

8,000 

56,184 

64,184 

12,890 

1968 

2004 

(4)

1150 17th Street

28,728 

23,359 

24,876 

15,276 

24,723 

38,788 

63,511 

13,523 

1970 

2002 

(4)

1750 Pennsylvania Avenue

20,020 

30,032 

5,410 

21,170 

34,292 

55,462 

9,446 

1964 

2002 

(4)

H Street - North 10-1D Land Parcel

104,473 

55 

(49,301)

46,866 

8,361 

55,227 

2007 

(4)

1730 M Street

14,853 

10,095 

17,541 

9,867 

10,687 

26,816 

37,503 

10,017 

1963 

2002 

(4)

Democracy Plaza One

33,628 

2,772 

36,400 

36,400 

15,039 

1987 

2002 

(4)

1726 M Street

9,450 

22,062 

3,588 

9,455 

25,645 

35,100 

5,270 

1964 

2006 

(4)

Crystal Drive Retail

20,465 

5,753 

26,218 

26,218 

9,985 

2004 

2004 

(4)

1109 South Capitol Street

11,541 

178 

(205)

11,597 

(83)

11,514 

2007 

(4)

South Capitol

4,009 

6,273 

(2,078)

8,204 

8,204 

2005 

(4)

H Street

1,763 

641 

41 

1,763 

682 

2,445 

143 

2005 

(4)

Other

51,767 

(42,411)

9,356 

9,356 

45 

Total Washington, DC

1,886,718 

1,052,773 

2,376,711 

796,471 

997,073 

3,228,882 

4,225,955 

865,303 

Retail Properties

California

Los Angeles (Beverly Connection)

72,996 

131,510 

25,162 

72,995 

156,673 

229,668 

26,727 

2008

2005

(4)

Walnut Creek (1149 S. Main St)

2,699 

19,930 

2,699 

19,930 

22,629 

4,088 

2006

(4)

Signal Hill

9,652 

2,940 

9,652 

2,941 

12,593 

533 

2006

(4)

Walnut Creek (1556 Mount Diablo Blvd)

5,909 

1,536 

5,908 

1,537 

7,445 

73 

2007

(4)

Vallejo

2,945 

221 

3,166 

3,166 

549 

2006

(4)

Colton (1904 North Rancho Avenue)

1,239 

954 

1,239 

954 

2,193 

225 

2004

(4)

Riverside (5571 Mission Blvd)

209 

704 

209 

704 

913 

166 

2004

(4)

Total California

92,704 

158,983 

26,920 

92,702 

185,905 

278,607 

32,361 

Connecticut

Waterbury

13,941 

667 

4,504 

4,111 

667 

8,615 

9,282 

5,746 

1969

1969

(4)

Newington

11,206 

2,421 

1,200 

691 

2,421 

1,891 

4,312 

720 

1965

1965

(4)

Total Connecticut

25,147 

3,088 

5,704 

4,802 

3,088 

10,506 

13,594 

6,466 

Illinois

Lansing

2,135 

1,064 

71 

2,135 

1,135 

3,270 

205 

2006

(4)

 

153

 


 
 

  

VORNADO REALTY TRUST

SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

(Amounts in thousands)

COLUMN A

COLUMN B

COLUMN C

COLUMN D

COLUMN E 

COLUMN F

COLUMN G

COLUMN H

COLUMN I 

Gross amount at which 

Life on which

Initial cost to company (1)

carried at close of period 

depreciation

Costs

Accumulated

in latest

Building

capitalized

Buildings 

depreciation

income

and

subsequent

and  

and

Date of

Date

statement

Description

Encumbrances

Land

improvements

to acquisition

Land 

improvements 

Total (2) 

amortization

construction (3)

acquired

is computed

Iowa 

Dubuque 

$

1,479 

1,479 

1,479 

266 

2006

(4)

Maryland

Rockville

3,470 

20,599 

93 

3,470 

20,692 

24,162 

4,559 

2005 

(4)

Baltimore (Towson)

15,581 

581 

3,227 

10,134 

581 

13,361 

13,942 

5,281 

1968 

1968 

(4)

Annapolis

9,652 

9,652 

9,652 

2,705 

2005 

(4)

Wheaton

5,367 

5,367 

5,367 

973 

2006

(4)

Glen Burnie

462 

2,571 

1,262 

462 

3,833 

4,295 

2,959 

1958

1958 

(4)

Total Maryland

15,581 

4,513 

41,416 

11,489 

4,513 

52,905 

57,418 

16,477 

Massachusetts

Springfield

5,713 

2,797 

2,471 

592 

2,797 

3,063 

5,860 

982 

1993

1966

(4)

Chicopee

8,282 

895 

895 

895 

1969

1969

(4)

Cambridge

260 

260 

260 

149 

Total Massachusetts

13,995 

3,692 

2,471 

852 

3,692 

3,323 

7,015 

1,131 

Michigan

Roseville

30 

6,128 

1,461 

30 

7,589 

7,619 

2,223 

2005

(4)

Battle Creek

1,264 

2,144 

(2,443)

264 

701 

965 

127 

2006

(4)

Midland

133 

133 

133 

24 

2006

(4)

Total Michigan 

1,294 

8,405 

(982)

294 

8,423 

8,717 

2,374 

New Hampshire 

Salem 

6,083 

6,083 

6,083 

2006

(4)

New Jersey

Paramus (Bergen Town Center)

300,000 

19,884 

81,723 

372,514 

37,635 

436,486 

474,121 

69,290 

1957/2009

2003

(4)

North Bergen (Tonnelle Ave)

75,000 

24,493 

63,816 

31,806 

56,503 

88,309 

7,814 

2009

2006

(4)

Union (Springfield Avenue)

28,428 

19,700 

45,090 

19,700 

45,090 

64,790 

7,421 

2007

(4)

Wayne Towne Center

26,137 

11,926 

38,063 

38,063 

3,651 

2010

(4)

East Rutherford

13,558 

36,727 

60 

36,787 

36,787 

4,582 

2007

2007

(4)

Garfield

45 

8,068 

25,807 

45 

33,875 

33,920 

5,413 

2009

1998

(4)

East Hanover I and II

42,696 

2,232 

18,241 

11,224 

2,671 

29,026 

31,697 

14,988 

1962

1962/1998

(4)

Lodi (Washington Street)

8,433 

7,606 

13,125 

2,252 

7,606 

15,377 

22,983 

3,043 

2004

(4)

Bricktown

31,872 

1,391 

11,179 

6,224 

1,391 

17,403 

18,794 

11,699 

1968

1968

(4)

Hazlet

7,400 

9,413 

7,400 

9,413 

16,813 

1,549 

2007

(4)

Totowa

24,710 

120 

11,994 

4,561 

120 

16,555 

16,675 

12,369 

1957/1999

1957

(4)

Carlstadt

16,457 

16,458 

16,458 

2,546 

2007

(4)

East Brunswick II (339-341 Route 18 S.)

11,754 

2,098 

10,949 

2,938 

2,098 

13,887 

15,985 

8,842 

1972

1972

(4)

Marlton

17,221 

1,611 

3,464 

9,961 

1,454 

13,582 

15,036 

7,905 

1973

1973

(4)

 

154

 


 
 

  

VORNADO REALTY TRUST

SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

(Amounts in thousands)

COLUMN A

COLUMN B

COLUMN C

COLUMN D

COLUMN E 

COLUMN F

COLUMN G

COLUMN H

COLUMN I 

Gross amount at which 

Life on which

Initial cost to company (1)

carried at close of period 

depreciation

Costs

Accumulated

in latest

Building

capitalized

Buildings 

depreciation

income

and

subsequent

and  

and

Date of

Date

statement

Description

Encumbrances

Land

improvements

to acquisition

Land 

improvements 

Total (2) 

amortization

construction (3)

acquired

is computed

Hackensack

$

40,455 

692 

10,219 

2,911 

692 

13,130 

13,822 

9,301 

1963

1963

(4)

Union (Route 22 and Morris Ave)

32,255 

3,025 

7,470 

2,618 

3,025 

10,088 

13,113 

5,037 

1962

1962

(4)

Manalapan

20,993 

725 

7,189 

4,924 

1,046 

11,792 

12,838 

7,868 

1971

1971

(4)

Cherry Hill

13,831 

5,864 

2,694 

3,821 

4,864 

7,515 

12,379 

3,807 

1964

1964

(4)

South Plainfield

5,112 

10,044 

1,562 

11,606 

11,606 

1,825 

2007

(4)

Watchung

15,034 

4,178 

5,463 

1,526 

4,441 

6,726 

11,167 

3,980 

1994

1959

(4)

Englewood

11,760 

2,300 

17,245 

(8,390)

1,495 

9,660 

11,155 

285 

2007

(4)

Eatontown

4,653 

4,999 

326 

4,653 

5,325 

9,978 

1,210 

2005

(4)

Dover

13,121 

559 

6,363 

2,962 

559 

9,325 

9,884 

6,380 

1964

1964

(4)

Lodi (Route 17 N.)

11,316 

238 

9,446 

238 

9,446 

9,684 

3,363 

1999

1975

(4)

North Plainfield

500 

13,983 

(5,785)

500 

8,198 

8,698 

2,709 

1955

1989

(4)

Jersey City

20,227 

652 

7,495 

468 

652 

7,963 

8,615 

2,621 

1965

1965

(4)

Morris Plains

21,321 

1,104 

6,411 

915 

1,104 

7,326 

8,430 

6,810 

1961

1985

(4)

Middletown

17,330 

283 

5,248 

1,947 

283 

7,195 

7,478 

5,542 

1963

1963

(4)

East Brunswick I (325-333 Route 18 S.)

24,820 

319 

6,220 

586 

319 

6,806 

7,125 

6,712 

1957

1957

(4)

Woodbridge

20,610 

1,509 

2,675 

1,867 

1,539 

4,512 

6,051 

2,600 

1959

1959

(4)

Delran

756 

4,468 

724 

756 

5,192 

5,948 

5,192 

1972

1972

(4)

Lawnside

10,660 

851 

3,164 

1,351 

851 

4,515 

5,366 

4,198 

1969

1969

(4)

Kearny

309 

3,376 

1,211 

309 

4,587 

4,896 

3,530 

1938

1959

(4)

Bordentown

498 

3,176 

1,178 

713 

4,139 

4,852 

4,058 

1958

1958

(4)

Turnersville

900 

1,342 

1,094 

900 

2,436 

3,336 

2,195 

1974

1974

(4)

North Bergen (Kennedy Blvd)

5,084 

2,308 

636 

48 

2,308 

684 

2,992 

458 

1993

1959

(4)

Montclair

2,624 

66 

419 

381 

66 

800 

866 

684 

1972

1972

(4)

Total New Jersey

840,225 

118,869 

432,312 

529,529 

143,239 

937,471 

1,080,710 

251,477 

New York

Bronx (Bruckner Blvd)

66,100 

259,503 

(18,471)

62,243 

244,889 

307,132 

45,494 

2007

(4)

Hicksville (Broadway Mall)

126,324 

48,904 

(79,777)

64,513 

30,938 

95,451 

2,748 

2005 

(4)

Huntington

16,619 

21,200 

33,667 

1,377 

21,200 

35,044 

56,244 

5,292 

2007 

(4)

Mt. Kisco

28,206 

22,700 

26,700 

442 

23,297 

26,545 

49,842 

4,002 

2007

(4)

Poughkeepsie

12,733 

12,026 

16,556 

8,469 

32,846 

41,315 

5,348 

2009

2005 

(4)

Bronx (1750-1780 Gun Hill Road)

6,427 

11,885 

19,156 

6,428 

31,040 

37,468 

4,109 

2009

2005 

(4)

Staten Island

17,000 

11,446 

21,262 

959 

11,446 

22,221 

33,667 

5,454 

2004 

(4)

Inwood

12,419 

19,097 

588 

12,419 

19,685 

32,104 

4,413 

2004

(4)

Queens (99-01 Queens Blvd)

7,839 

20,392 

2,123 

7,839 

22,515 

30,354 

5,567 

2004 

(4)

West Babylon

6,720 

13,786 

27 

6,720 

13,813 

20,533 

2,347 

2007

(4)

Buffalo (Amherst)

5,743 

4,056 

9,966 

5,107 

14,658 

19,765 

5,409 

1968

1968

(4)

Freeport (437 E. Sunrise Highway)

21,321 

1,231 

4,747 

1,453 

1,231 

6,200 

7,431 

5,178 

1981

1981

(4)

Dewitt

7,116 

7,116 

7,116 

1,277 

2006

(4)

Oceanside

2,710 

2,306 

2,710 

2,306 

5,016 

379 

2007

(4)

 

155

 


 
 

  

VORNADO REALTY TRUST

SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

(Amounts in thousands)

COLUMN A

COLUMN B

COLUMN C

COLUMN D

COLUMN E 

COLUMN F

COLUMN G

COLUMN H

COLUMN I 

Gross amount at which 

Life on which

Initial cost to company (1)

carried at close of period 

depreciation

Costs

Accumulated

in latest

Building

capitalized

Buildings 

depreciation

income

and

subsequent

and  

and

Date of

Date

statement

Description

Encumbrances

Land

improvements

to acquisition

Land 

improvements 

Total (2) 

amortization

construction (3)

acquired

is computed

Albany (Menands)

$

460 

2,091 

2,389 

460 

4,480 

4,940 

3,620 

1965

1965

(4)

Rochester (Henrietta)

2,647 

892 

3,539 

3,539 

3,229 

1971

1971

(4)

Rochester

4,374 

2,172 

2,172 

2,172 

1966

1966

(4)

Freeport (240 West Sunrise Highway)

260 

260 

260 

128 

2005

(4)

Commack

43 

184 

227 

227 

88 

2006

(4)

New Hyde Park

126 

1970

1976

(4)

Total New York

87,520 

306,224 

490,232 

(41,876)

236,254 

518,326 

754,580 

104,208 

Pennsylvania

Wilkes-Barre

19,898 

6,053 

26,646 

424 

6,053 

27,070 

33,123 

4,129 

2007 

(4)

Allentown

29,904 

187 

15,580 

1,584 

187 

17,164 

17,351 

13,169 

1957

1957

(4)

Bensalem

14,843 

2,727 

6,698 

1,895 

2,727 

8,593 

11,320 

3,443 

1972/1999

1972

(4)

Bethlehem

5,576 

827 

5,200 

960 

839 

6,148 

6,987 

5,530 

1966

1966

(4)

Wyomissing

2,646 

2,381 

5,027 

5,027 

3,139 

2005

(4)

York

5,194 

409 

2,568 

1,566 

409 

4,134 

4,543 

3,609 

1970

1970

(4)

Broomall

10,660 

850 

2,171 

1,224 

850 

3,395 

4,245 

2,696 

1966

1966

(4)

Lancaster

5,385 

3,140 

63 

711 

3,140 

774 

3,914 

491 

1966

1966

(4)

Glenolden

6,834 

850 

1,820 

568 

850 

2,388 

3,238 

2,022 

1975

1975

(4)

Springfield

80 

80 

80 

44 

2005

(4)

Total Pennsylvania

98,294 

15,043 

63,392 

11,393 

15,055 

74,773 

89,828 

38,272 

South Carolina 

Charleston 

3,634 

3,634 

3,634 

659 

2006

(4)

Tennessee 

Antioch 

1,521 

2,386 

1,521 

2,386 

3,907 

432 

2006

(4)

Virginia

Springfield (Springfield Mall)

49,516 

265,964 

17,936 

849 

332,567 

333,416 

830 

2006

(4)

Norfolk

3,927 

15 

3,942 

3,942 

2,684 

2005

(4)

Total Virginia 

49,516 

269,891 

17,951 

849 

336,509 

337,358 

3,514 

Wisconsin 

Fond Du Lac

174 

102 

276 

276 

93 

2006

(4)

Puerto Rico

Las Catalinas

15,280 

64,370 

9,015 

15,280 

73,385 

88,665 

28,700 

1996

2002

(4)

Montehiedra

120,000 

9,182 

66,751 

7,874 

9,267 

74,540 

83,807 

29,843 

1996

1997

(4)

Total Puerto Rico

120,000 

24,462 

131,121 

16,889 

24,547 

147,925 

172,472 

58,543 

Other

3,861 

3,861 

3,861 

487 

(4)

 

Total Retail Properties

1,200,762 

629,144 

1,612,664 

581,001 

533,972 

2,288,837 

2,822,809 

516,965 

 

156

 


 
 

  

VORNADO REALTY TRUST

SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

(Amounts in thousands)

COLUMN A

COLUMN B

COLUMN C

COLUMN D

COLUMN E 

COLUMN F

COLUMN G

COLUMN H

COLUMN I 

Gross amount at which 

Life on which

Initial cost to company (1)

carried at close of period 

depreciation

Costs

Accumulated

in latest

Building

capitalized

Buildings 

depreciation

income

and

subsequent

and  

and

Date of

Date

statement

Description

Encumbrances

Land

improvements

to acquisition

Land 

improvements 

Total (2) 

amortization

construction (3)

acquired

is computed

Merchandise Mart

Illinois

Merchandise Mart, Chicago

$

550,000 

$

64,528 

$

319,146 

$

247,014 

$

64,535 

$

566,153 

$

630,688 

$

186,040 

1930 

1998 

(4)

527 W. Kinzie, Chicago

5,166 

5,166 

5,166 

Total Illinois

550,000 

69,694 

319,146 

247,014 

69,701 

566,153 

635,854 

186,040 

New York

7 West 34th Street

34,614 

94,167 

35,522 

34,614 

129,689 

164,303 

38,836 

1901 

2000 

(4)

MMPI Piers

11,702 

11,702 

11,702 

749 

2008 

(4)

Total New York

34,614 

94,167 

47,224 

34,614 

141,391 

176,005 

39,585 

Total Merchandise Mart

550,000 

104,308 

413,313 

294,238 

104,315 

707,544 

811,859 

225,625 

Warehouse/Industrial

New Jersey

East Hanover

576 

7,752 

9,039 

691 

16,676 

17,367 

13,996 

1972

1972

(4)

Total Warehouse/Industrial

576 

7,752 

9,039 

691 

16,676 

17,367 

13,996 

Other

555 California Street 

600,000 

221,903 

893,324 

49,758 

221,903 

943,082 

1,164,985 

169,495 

1922/1969/1970

2007 

(4)

220 Central Park South 

115,720 

16,420 

367,471 

499,611 

499,611 

2005

(4)

Borgata Land, Atlantic City, NJ 

59,309 

83,089 

(7)

83,089 

83,089 

2010

(4)

40 East 66th Residential 

29,199 

85,798 

(82,151)

12,765 

20,081 

32,846 

3,777 

2005

(4)

677-679 Madison 

1,462 

1,058 

285 

1,627 

1,178 

2,805 

283 

2006

(4)

Other  

28,052 

(16,349)

9,364 

2,339 

11,703 

2005

(4)

Total Other

659,309 

479,425 

996,607 

319,007 

328,748 

1,466,291 

1,795,039 

173,555 

Leasehold Improvements

Equipment and Other

132,523 

132,523 

132,523 

102,538 

Total December 31, 2013

$

8,331,993 

4,512,616 

10,261,843 

3,580,167 

4,205,815 

14,148,811 

18,354,626 

3,410,933 

157

 


 
 

  

VORNADO REALTY TRUST

SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

Notes:

(1)

Initial cost is cost as of January 30, 1982 (the date on which Vornado commenced real estate operations) unless acquired subsequent to that date see Column H.

(2)

The net basis of the Company’s assets and liabilities for tax purposes is approximately $3.6 billion lower than the amount reported for financial statement purposes.

(3)

Date of original construction –– many properties have had substantial renovation or additional construction –– see Column D.

(4)

Depreciation of the buildings and improvements are calculated over lives ranging from the life of the lease to forty years.

 

158

 


 
 

  

VORNADO REALTY TRUST

SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

(AMOUNTS IN THOUSANDS)

The following is a reconciliation of real estate assets and accumulated depreciation:

Year Ended December 31,

2013 

2012 

2011 

Real Estate

Balance at beginning of period

$

18,238,218 

$

16,421,701 

$

16,193,864 

Additions during the period:

Land

131,646 

514,950 

33,481 

Buildings & improvements

1,014,876 

1,615,077 

315,762 

19,384,740 

18,551,728 

16,543,107 

Less: Assets sold, written-off and deconsolidated

1,030,114 

313,510 

121,406 

Balance at end of period

$

18,354,626 

$

18,238,218 

$

16,421,701 

Accumulated Depreciation

Balance at beginning of period

$

3,072,269 

$

2,874,529 

$

2,520,818 

Additions charged to operating expenses

423,844 

427,189 

452,793 

3,496,113 

3,301,718 

2,973,611 

Less: Accumulated depreciation on assets sold and written-off

85,180 

229,449 

99,082 

Balance at end of period

$

3,410,933 

$

3,072,269 

$

2,874,529 

159

 


 
 

  

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, 5.40% Series L Cumulative Redeemable Preferred Shares of

*

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

reference to Exhibit 3.6 to Vornado Realty Trust’s Registration Statement on Form 8-A

(File No. 001-11954), filed on January 25, 2013

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.

 

160

 


 
 

  

 

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.

 

161

 


 
 

  

 

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.

 

162

 


 
 

  

 

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

 

 

 

 

 

 

3.48

-

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

*

 

dated as of July 18, 2012 – Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.’s

 

Current Report on Form 8-K (File No. 001-34482), filed on July 18, 2012

 

 

 

 

 

 

 

 

3.49

 

-

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

*

 

 

 

 

 

dated as of January 25, 2013 – Incorporated by reference to Exhibit 3.1 to Vornado Realty

 

 

 

 

 

 

L.P.’s Current Report on Form 8-K (File No. 001-34482), filed on January 25, 2013

 

 

 

 

 

 

 

 

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 March 31, 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

 

_______________________

*

Incorporated by reference.

 

163

 


 
 

  

 

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

 

 

 

 

 

 

 

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 

**

-

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

10.7 

 

-

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,

dinividually, 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

 

10.8 

-

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

10.9 

-

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

10.10

-

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

10.11 

**

-

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

 

10.12 

**

-

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.

                           

 

164

 


 
 

  

 

10.13

 

-

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

 

 

 

 

 

 

 

 

10.14

-

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

 

10.15

**

-

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

 

10.16

**

-

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

 

 

10.17

**

-

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

 

10.18

**

-

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

 

10.19

**

-

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

 

10.20

**

-

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

 

10.21

**

-

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

 

 

10.22

**

-

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

 

10.23

**

-

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

 

10.24

** 

-

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

 

_______________________

*

 

Incorporated by reference.

**

 

Management contract or compensatory agreement.

 

165

 


 
 

  

10.25

**

-

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

 

 

10.26

**

-

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

 

 

10.27

**

-

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

 

 

10.28

**

-

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

 

 

10.29

**

-

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

 

 

   

 

10.30

**

-

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

 

 

 

 

 

 

 

 

 

 

10.31

**

-

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

 

 

 

 

 

 

 

 

 

 

10.32

**

-

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

 

 

 

 

 

 

 

 

 

 

10.33

**

-

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

 

 

 

 

 

 

 

 

 

 

10.34

**

-

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

 

 

 

 

 

 

 

 
 

10.35

**

-

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

   

_______________________

 

*

Incorporated by reference.

 

**

Management contract or compensatory agreement.

 

                   

 

166

 


 
 

  

10.36

**

-

Form of Vornado Realty Trust 2010 Omnibus Share Plan Incentive / Non-Qualified Stock Option

*

Agreement. Incorporated by reference to Exhibit 99.1 to Vornado Realty Trust's Current

Report on Form 8-K (File No. 001-11954) filed on April 5, 2012

 

 

 

 

 

 

 

 

10.37

**

-

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

*

 

 

 

 

 

Incorporated by reference to Exhibit 99.2 to Vornado Realty Trust's Current Report on Form

 

 

 

 

 

 

8-K (File No. 001-11954) filed on April 5, 2012

 

 

 

 

 

 

 

10.38

**

-

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

*

 

Incorporated by reference to Exhibit 99.3 to Vornado Realty Trust's Current Report on Form

 

8-K (File No. 001-11954) filed on April 5, 2012

10.39

**

-

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

10.40

**

-

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

10.41

**

-

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

 

 

 

 

 

 

10.42

**

-

Letter Agreement between Vornado Realty Trust and Christopher G. Kennedy, dated August 5,

*

2011. Incorporated by reference to Exhibit 10.47 to Vornado Realty Trust’s Quarterly Report
on Form 10-Q for the quarter ended September 30, 2011 (File No. 001-11954) filed on
November 3, 2011

10.43

**

-

Waiver and Release between Vornado Realty Trust and Christopher G. Kennedy, dated August 5,

*

2011. Incorporated by reference to Exhibit 10.48 to Vornado Realty Trust’s Quarterly Report
on Form 10-Q for the quarter ended September 30, 2011 (File No. 001-11954) filed on
November 3, 2011

 

10.44

-

Revolving Credit Agreement dated on November 7, 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 JP Morgan Chase Bank N.A., as administrative agent for the Banks.

 

 

 

 

 

 

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

 

 

Form 8-K (File No. 001-11954) filed on November 11, 2011

 

 

 

 

 

 

 

10.45

**

-

Form of Vornado Realty Trust 2012 Outperformance Plan Award 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, 2012 (File No. 001-11954) filed on February 26, 2013

 

 

 

 

 

 

 

 

10.46

**

-

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

*

 

 

 

 

 

February 27, 2013. Incorporated by reference to Exhibit 99.1 to Vornado Realty Trust’s

 

 

 

 

 

 

Current Report on Form 8-K (File No. 001-11954), filed on February 27, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

_______________________

 

*

Incorporated by reference.

**

Management contract or compensatory agreement.

 

 

 

 

 

 

 

                   

167

 


 
 

  

 

10.47

**

-

Waiver and Release between Vornado Realty Trust and Michael D. Fascitelli, dated

*

 

 

 

 

February 27, 2013. Incorporated by reference to Exhibit 99.2 to Vornado Realty Trust’s

 

 

 

 

 

Current Report on Form 8-K (File No. 001-11954), filed on February 27, 2013

 

 

 

 

 

 

 

 

10.48

 

-

Amendment to June 2011 Revolving Credit Agreement dated as of March 28, 2013, by and

*

 

 

 

 

among Vornado Realty L.P., as Borrower, the banks listed on the signature pages, and

 

 

 

 

 

J.P. Morgan Chase Bank N.A., as Administrative Agent. Incorporated by reference to

 

 

 

 

 

Exhibit 10.48 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter

 

 

 

 

 

ended March 31, 2013 (File No. 001-11954), filed on May 6, 2013

 

 

 

 

 

 

 

 

10.49

 

-

Amendment to November 2011 Revolving Credit Agreement dated as of March 28, 2013, by

*

 

 

 

 

and among Vornado Realty L.P., as Borrower, the banks listed on the signature pages, and

 

 

 

 

 

J.P. Morgan Chase Bank N.A., as Administrative Agent. Incorporated by reference to

 

 

 

 

 

Exhibit 10.49 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter

 

 

 

 

 

ended March 31, 2013 (File No. 001-11954), filed on May 6, 2013

 

 

 

 

 

 

 

 

10.50

**

-

Form of Vornado Realty Trust 2013 Outperformance Plan Award Agreement. Incorporated

*

 

 

 

 

by reference to Exhibit 10.50 to Vornado Realty Trust’s Quarterly Report on Form 10-Q

 

 

 

 

 

for the quarter ended March 31, 2013 (File No. 001-11954), filed on May 6, 2013

 

 

 

 

 

 

 

 

10.51

**

-

Employment agreement between Vornado Realty Trust and Stephen W. Theriot dated

*

 

 

 

 

June 1, 2013. Incorporated by reference to Exhibit 10.51 to Vornado Realty Trust’s

 

 

 

 

 

Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 (File No. 001-11954),

 

 

 

 

 

filed on August 5, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

_______________________

 

 

    *

Incorporated by reference.

 

    **

Management contract or compensatory agreement.

 

 

 

 

 

 

 

 

 

                   

 

168

 


 
 

  

 

 

 

 

 

 

 

12

 

-

Computation of Ratios

 

 

 

 

 

 

 

 

21

 

-

Subsidiaries of the Registrant

 

 

 

 

 

 

 

 

23

 

-

Consent of Independent Registered Public Accounting Firm

 

 

 

 

 

 

 

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

 

 

169