Annual Statements Open main menu

VORNADO REALTY TRUST - Quarter Report: 2013 June (Form 10-Q)

vno2q2013.htm - Generated by SEC Publisher for SEC Filing  

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)   

OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the quarterly period ended:   

June 30, 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)

 

 

(212) 894-7000

(Registrant’s telephone number, including area code)

 

N/A

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

 

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

 

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

 

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

 

x Large Accelerated Filer

 

o Accelerated Filer

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

 

o Smaller Reporting Company

 

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

 

As of June 30, 2013, 186,991,076 of the registrant’s common shares of beneficial interest are outstanding.

 


 

 

 

 

 

 

 

 

 

PART I.

 

Financial Information:

 

Page Number

 

 

 

 

 

 

 

 

 

Item 1.

 

Financial Statements:

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheets (Unaudited) as of

 

 

 

 

 

 

June 30, 2013 and December 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Income (Unaudited) for the

 

 

 

 

 

 

Three and Six Months Ended June 30, 2013 and 2012

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Unaudited)

 

 

 

 

 

 

for the Three and Six Months Ended June 30, 2013 and 2012

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Changes in Equity (Unaudited) for the

 

 

 

 

 

 

Six Months Ended June 30, 2013 and 2012

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows (Unaudited) for the

 

 

 

 

 

 

Six Months Ended June 30, 2013 and 2012

 

 

 

 

 

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

 

10 

 

 

 

 

 

 

 

 

 

 

 

Report of Independent Registered Public Accounting Firm

 

39 

 

 

 

 

 

 

 

 

 

Item 2.

 

Management's Discussion and Analysis of Financial Condition

 

 

 

 

 

 

and Results of Operations

 

40 

 

 

 

 

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

82 

 

 

 

 

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

83 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PART II.

 

 

Other Information:

 

 

 

 

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

84 

 

 

 

 

 

 

 

 

 

Item 1A.

 

Risk Factors

 

84 

 

 

 

 

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

84 

 

 

 

 

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

84 

 

 

 

 

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

84 

 

 

 

 

 

 

 

 

 

Item 5.

 

Other Information

 

84 

 

 

 

 

 

 

 

 

 

Item 6.

 

Exhibits

 

84 

 

 

 

 

 

 

 

SIGNATURES

 

 

 

85 

 

 

 

 

 

 

 

EXHIBIT INDEX

 

 

 

86 

 

 

 

 

 

 

 

2

 


 

 

PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements

 

VORNADO REALTY TRUST

 

CONSOLIDATED BALANCE SHEETS

 

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

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

 

June 30,

 

December 31,

 

ASSETS

 

2013 

 

2012 

 

Real estate, at cost:

 

 

 

 

 

 

 

 

Land

 

$

4,209,969 

 

$

4,797,773 

 

 

Buildings and improvements

 

 

12,302,151 

 

 

12,476,372 

 

 

Development costs and construction in progress

 

 

997,381 

 

 

920,357 

 

 

Leasehold improvements and equipment

 

 

127,491 

 

 

130,077 

 

 

 

Total

 

 

17,636,992 

 

 

18,324,579 

 

 

Less accumulated depreciation and amortization

 

 

(3,246,837)

 

 

(3,084,700)

 

Real estate, net

 

 

14,390,155 

 

 

15,239,879 

 

Cash and cash equivalents

 

 

781,655 

 

 

960,319 

 

Restricted cash

 

 

312,071 

 

 

183,256 

 

Marketable securities

 

 

402,935 

 

 

398,188 

 

Tenant and other receivables, net of allowance for doubtful accounts of $25,963 and $37,674

 

 

140,938 

 

 

195,718 

 

Investments in partially owned entities

 

 

1,031,644 

 

 

1,226,256 

 

Investment in Toys "R" Us

 

 

417,764 

 

 

478,041 

 

Real Estate Fund investments

 

 

622,124 

 

 

600,786 

 

Mortgage and mezzanine loans receivable

 

 

175,699 

 

 

225,359 

 

Receivable arising from the straight-lining of rents, net of allowance of $4,307 and $3,165

 

 

790,358 

 

 

760,310 

 

Deferred leasing and financing costs, net of accumulated amortization of $251,202 and $224,453

 

 

412,695 

 

 

407,500 

 

Identified intangible assets, net of accumulated amortization of $365,854 and $346,664

 

 

289,110 

 

 

406,358 

 

Assets related to discontinued operations

 

 

63,573 

 

 

602,000 

 

Other assets

 

 

502,510 

 

 

381,079 

 

 

 

 

 

$

20,333,231 

 

$

22,065,049 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY

 

 

 

 

 

 

 

Mortgages payable

 

$

8,582,573 

 

$

8,663,326 

 

Senior unsecured notes

 

 

1,358,182 

 

 

1,358,008 

 

Revolving credit facility debt

 

 

83,982 

 

 

1,170,000 

 

Accounts payable and accrued expenses

 

 

393,362 

 

 

484,746 

 

Deferred revenue

 

 

486,901 

 

 

596,067 

 

Deferred compensation plan

 

 

111,093 

 

 

105,200 

 

Deferred tax liabilities

 

 

15,369 

 

 

15,305 

 

Liabilities related to discontinued operations

 

 

2,677 

 

 

423,163 

 

Other liabilities

 

 

436,877 

 

 

400,938 

 

 

Total liabilities

 

 

11,471,016 

 

 

13,216,753 

 

Commitments and contingencies

 

 

 

 

 

 

 

Redeemable noncontrolling interests:

 

 

 

 

 

 

 

 

Class A units - 11,345,667 and 11,215,682 units outstanding

 

 

939,988 

 

 

898,152 

 

 

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

 

 

1,000 

 

 

46,000 

 

 

 

Total redeemable noncontrolling interests

 

 

940,988 

 

 

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

 

 

1,277,455 

 

 

1,240,278 

 

 

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

 

 

 

 

 

 

 

 

 

250,000,000 shares; issued and outstanding 186,991,076 and 186,734,711 shares

 

 

7,450 

 

 

7,440 

 

 

Additional capital

 

 

7,190,336 

 

 

7,195,438 

 

 

Earnings less than distributions

 

 

(1,471,643)

 

 

(1,573,275)

 

 

Accumulated other comprehensive income (loss)

 

 

132,894 

 

 

(18,946)

 

 

 

Total Vornado shareholders' equity

 

 

7,136,492 

 

 

6,850,935 

 

Noncontrolling interests in consolidated subsidiaries

 

 

784,735 

 

 

1,053,209 

 

 

Total equity

 

 

7,921,227 

 

 

7,904,144 

 

 

 

 

 

$

20,333,231 

 

$

22,065,049 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

 

3

 


 
 

 

VORNADO REALTY TRUST

 

CONSOLIDATED STATEMENTS OF INCOME

 

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three

 

For the Six

 

 

 

 

 

Months Ended June 30,

 

Months Ended June 30,

 

(Amounts in thousands, except per share amounts)

 

2013 

 

2012 

 

2013 

 

2012 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property rentals

 

$

545,194 

 

$

517,233 

 

$

1,079,050 

 

$

1,026,726 

 

 

Tenant expense reimbursements

 

 

75,659 

 

 

71,409 

 

 

152,415 

 

 

141,906 

 

 

Cleveland Medical Mart development project

 

 

16,990 

 

 

56,304 

 

 

29,133 

 

 

111,363 

 

 

Fee and other income

 

 

48,015 

 

 

33,037 

 

 

145,239 

 

 

66,315 

 

Total revenues

 

 

685,858 

 

 

677,983 

 

 

1,405,837 

 

 

1,346,310 

 

EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating

 

 

261,080 

 

 

243,485 

 

 

520,953 

 

 

489,462 

 

 

Depreciation and amortization

 

 

135,486 

 

 

128,372 

 

 

277,570 

 

 

259,767 

 

 

General and administrative

 

 

54,323 

 

 

46,832 

 

 

108,905 

 

 

102,122 

 

 

Cleveland Medical Mart development project

 

 

15,151 

 

 

53,935 

 

 

26,525 

 

 

106,696 

 

 

Acquisition related costs

 

 

3,350 

 

 

2,559 

 

 

3,951 

 

 

3,244 

 

Total expenses

 

 

469,390 

 

 

475,183 

 

 

937,904 

 

 

961,291 

 

Operating income

 

 

216,468 

 

 

202,800 

 

 

467,933 

 

 

385,019 

 

(Loss) income applicable to Toys "R" Us

 

 

(36,861)

 

 

(19,190)

 

 

(35,102)

 

 

97,281 

 

Income from partially owned entities

 

 

1,472 

 

 

12,563 

 

 

22,238 

 

 

32,223 

 

Income from Real Estate Fund

 

 

34,470 

 

 

20,301 

 

 

51,034 

 

 

32,063 

 

Interest and other investment income (loss), net

 

 

26,416 

 

 

(49,172)

 

 

(22,658)

 

 

(33,507)

 

Interest and debt expense

 

 

(121,762)

 

 

(124,320)

 

 

(243,650)

 

 

(254,379)

 

Net gain (loss) on disposition of wholly owned and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

partially owned assets

 

 

1,005 

 

 

4,856 

 

 

(35,719)

 

 

4,856 

 

Income before income taxes

 

 

121,208 

 

 

47,838 

 

 

204,076 

 

 

263,556 

 

Income tax expense

 

 

(2,877)

 

 

(7,479)

 

 

(3,950)

 

 

(14,304)

 

Income from continuing operations

 

 

118,331 

 

 

40,359 

 

 

200,126 

 

 

249,252 

 

Income from discontinued operations

 

 

63,990 

 

 

17,869 

 

 

271,122 

 

 

89,240 

 

Net income

 

 

182,321 

 

 

58,228 

 

 

471,248 

 

 

338,492 

 

Less net income attributable to noncontrolling interests in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated subsidiaries

 

 

(14,930)

 

 

(14,721)

 

 

(26,216)

 

 

(24,318)

 

 

Operating Partnership

 

 

(8,849)

 

 

(1,337)

 

 

(22,782)

 

 

(16,608)

 

 

Preferred unit distributions of the Operating Partnership

 

 

(348)

 

 

(3,873)

 

 

(1,134)

 

 

(7,747)

 

Net income attributable to Vornado

 

 

158,194 

 

 

38,297 

 

 

421,116 

 

 

289,819 

 

Preferred share dividends

 

 

(20,368)

 

 

(17,787)

 

 

(42,070)

 

 

(35,574)

 

Preferred unit and share redemptions

 

 

8,100 

 

 

 

 

(1,130)

 

 

 

NET INCOME attributable to common shareholders

 

$

145,926 

 

$

20,510 

 

$

377,916 

 

$

254,245 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME PER COMMON SHARE - BASIC:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net

 

$

0.46 

 

$

0.02 

 

$

0.65 

 

$

0.91 

 

 

Income from discontinued operations, net

 

 

0.32 

 

 

0.09 

 

 

1.37 

 

 

0.46 

 

 

Net income per common share

 

$

0.78 

 

$

0.11 

 

$

2.02 

 

$

1.37 

 

 

Weighted average shares outstanding

 

 

186,931 

 

 

185,673 

 

 

186,842 

 

 

185,521 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME PER COMMON SHARE - DILUTED:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net

 

$

0.46 

 

$

0.02 

 

$

0.65 

 

$

0.91 

 

 

Income from discontinued operations, net

 

 

0.32 

 

 

0.09 

 

 

1.36 

 

 

0.45 

 

 

Net income per common share

 

$

0.78 

 

$

0.11 

 

$

2.01 

 

$

1.36 

 

 

Weighted average shares outstanding

 

 

187,720 

 

 

186,342 

 

 

187,627 

 

 

186,271 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DIVIDENDS PER COMMON SHARE

 

$

0.73 

 

$

0.69 

 

$

1.46 

 

$

1.38 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

 

4

 


 

 

VORNADO REALTY TRUST

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three

 

For the Six

 

 

 

 

 

Months Ended June 30,

 

Months Ended June 30,

 

(Amounts in thousands)

 

2013 

 

2012 

 

2013 

 

2012 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

182,321 

 

$

58,228 

 

$

471,248 

 

$

338,492 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized net gain (loss) on

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

available-for-sale securities

 

 

20,348 

 

 

(233,218)

 

 

169,138 

 

 

(220,525)

 

 

Pro rata share of other comprehensive loss of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

nonconsolidated subsidiaries

 

 

(19,707)

 

 

(4,310)

 

 

(23,354)

 

 

(26,254)

 

 

Change in value of interest rate swap

 

 

12,037 

 

 

(8,388)

 

 

14,560 

 

 

(6,002)

 

 

Other

 

 

(3)

 

 

496 

 

 

530 

 

 

373 

 

Comprehensive income (loss)

 

 

194,996 

 

 

(187,192)

 

 

632,122 

 

 

86,084 

 

Less comprehensive income attributable to noncontrolling interests

 

 

(24,862)

 

 

(4,470)

 

 

(59,166)

 

 

(32,779)

 

Comprehensive income (loss) attributable to Vornado

 

$

170,134 

 

$

(191,662)

 

$

572,956 

 

$

53,305 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

 

5

 


 

 

VORNADO REALTY TRUST

 

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

controlling

 

 

 

 

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings

 

Other

 

Interests in

 

 

 

 

 

 

 

 

Preferred Shares

 

Common Shares

 

Additional

 

Less Than

 

Comprehensive

 

Consolidated

 

Total

 

 

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Distributions

 

Income (Loss)

 

Subsidiaries

 

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

 

 

 

 

 

 

 

 

 

 

 

 

289,819 

 

 

 

 

24,318 

 

 

314,137 

 

Dividends on common shares

 

 

 

 

 

 

 

 

 

 

 

 

(256,119)

 

 

 

 

 

 

(256,119)

 

Dividends on preferred shares

 

 

 

 

 

 

 

 

 

 

 

 

(35,574)

 

 

 

 

 

 

(35,574)

 

Common shares issued:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Upon redemption of Class A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

units, at redemption value

 

 

 

 

 

 

303 

 

 

12 

 

 

24,964 

 

 

 

 

 

 

 

 

24,976 

 

 

Under employees' share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

option plan

 

 

 

 

 

 

412 

 

 

16 

 

 

8,800 

 

 

(16,389)

 

 

 

 

 

 

(7,573)

 

 

Under dividend reinvestment plan

 

 

 

 

 

 

10 

 

 

 

 

842 

 

 

 

 

 

 

 

 

843 

 

Contributions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real Estate Fund

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

108,319 

 

 

108,319 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30 

 

 

30 

 

Distributions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real Estate Fund

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(44,910)

 

 

(44,910)

 

Conversion of Series A preferred

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

shares to common shares

 

 

(2)

 

 

(105)

 

 

 

 

 

 

105 

 

 

 

 

 

 

 

 

 

Deferred compensation shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and options

 

 

 

 

 

 

 

 

 

 

8,484 

 

 

(339)

 

 

 

 

 

 

8,145 

 

Change in unrealized net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(220,525)

 

 

 

 

(220,525)

 

Pro rata share of other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

comprehensive loss of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

nonconsolidated subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(26,254)

 

 

 

 

(26,254)

 

Change in value of interest rate swap

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,002)

 

 

 

 

(6,002)

 

Adjustments to carry redeemable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A units at redemption value

 

 

 

 

 

 

 

 

 

 

(110,581)

 

 

 

 

 

 

 

 

(110,581)

 

Redeemable noncontrolling interests'

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

share of above adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15,894 

 

 

 

 

15,894 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

373 

 

 

(3)

 

 

372 

 

Balance, June 30, 2012

 

 

42,185 

 

$

1,021,555 

 

 

185,815 

 

$

7,402 

 

$

7,059,872 

 

$

(1,420,304)

 

$

(162,785)

 

$

767,885 

 

$

7,273,625 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6

 


 

 

VORNADO REALTY TRUST

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY - CONTINUED

 

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

controlling

 

 

 

 

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings

 

Other

 

Interests in

 

 

 

 

 

 

 

 

Preferred Shares

 

Common Shares

 

Additional

 

Less Than

 

Comprehensive

 

Consolidated

 

Total

 

 

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Distributions

 

Income (Loss)

 

Subsidiaries

 

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

 

 

 

 

 

 

 

 

 

 

 

 

421,116 

 

 

 

 

26,216 

 

 

447,332 

 

Dividends on common shares

 

 

 

 

 

 

 

 

 

 

 

 

(272,825)

 

 

 

 

 

 

(272,825)

 

Dividends on preferred shares

 

 

 

 

 

 

 

 

 

 

 

 

(42,070)

 

 

 

 

 

 

(42,070)

 

Issuance of Series L preferred shares

 

 

12,000 

 

 

290,536 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

290,536 

 

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

 

 

 

 

 

 

180 

 

 

 

 

14,973 

 

 

 

 

 

 

 

 

14,980 

 

 

Under employees' share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

option plan

 

 

 

 

 

 

62 

 

 

 

 

3,564 

 

 

 

 

 

 

 

 

3,567 

 

 

Under dividend reinvestment plan

 

 

 

 

 

 

11 

 

 

 

 

903 

 

 

 

 

 

 

 

 

903 

 

Contributions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real Estate Fund

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18,781 

 

 

18,781 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15,186 

 

 

15,186 

 

Distributions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real Estate Fund

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(43,145)

 

 

(43,145)

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(120,051)

 

 

(120,051)

 

Conversion of Series A preferred

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

shares to common shares

 

 

(2)

 

 

(90)

 

 

 

 

 

 

90 

 

 

 

 

 

 

 

 

 

Deferred compensation shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and options

 

 

 

 

 

 

 

 

 

 

4,786 

 

 

(305)

 

 

 

 

 

 

4,481 

 

Change in unrealized net gain on

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

169,138 

 

 

 

 

169,138 

 

Pro rata share of other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

comprehensive loss of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

nonconsolidated subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(23,354)

 

 

 

 

(23,354)

 

Change in value of interest rate swap

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14,560 

 

 

 

 

14,560 

 

Adjustments to carry redeemable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A units at redemption value

 

 

 

 

 

 

 

 

 

 

(29,393)

 

 

 

 

 

 

 

 

(29,393)

 

Redeemable noncontrolling interests'

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

share of above adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,034)

 

 

 

 

(9,034)

 

Preferred share redemptions

 

 

 

 

 

 

 

 

 

 

 

 

(1,130)

 

 

 

 

 

 

(1,130)

 

Deconsolidation of partially

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

owned entity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(165,427)

 

 

(165,427)

 

Other

 

 

 

 

 

 

 

 

 

 

(25)

 

 

(3,154)

 

 

530 

 

 

(34)

 

 

(2,683)

 

Balance, June 30, 2013

 

 

52,683 

 

$

1,277,455 

 

 

186,991 

 

$

7,450 

 

$

7,190,336 

 

$

(1,471,643)

 

$

132,894 

 

$

784,735 

 

$

7,921,227 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

 

7

 


 

 

VORNADO REALTY TRUST

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended

 

 

 

 

 

June 30,

 

 

 

 

 

2013 

 

2012 

 

(Amounts in thousands)

 

 

 

 

 

 

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

Net income

 

$

471,248 

 

$

338,492 

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization (including amortization of deferred financing costs)

 

 

289,643 

 

 

285,617 

 

 

Net gains on sale of real estate

 

 

(267,994)

 

 

(72,713)

 

 

Return of capital from Real Estate Fund investments

 

 

56,664 

 

 

 

 

Net unrealized gain on Real Estate Fund investments

 

 

(47,109)

 

 

(27,979)

 

 

Other non-cash adjustments

 

 

42,339 

 

 

20,993 

 

 

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

 

 

39,487 

 

 

 

 

Net loss (gain) on disposition of wholly owned and partially owned assets

 

 

35,719 

 

 

(4,856)

 

 

Straight-lining of rental income

 

 

(32,730)

 

 

(43,124)

 

 

Amortization of below-market leases, net

 

 

(28,511)

 

 

(26,457)

 

 

Distributions of income from partially owned entities

 

 

23,774 

 

 

34,613 

 

 

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

 

 

13,475 

 

 

57,687 

 

 

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

 

 

12,864 

 

 

(129,504)

 

 

Impairment losses

 

 

4,007 

 

 

13,511 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

Real Estate Fund investments

 

 

(30,893)

 

 

(85,867)

 

 

 

Accounts receivable, net

 

 

53,821 

 

 

(8,971)

 

 

 

Prepaid assets

 

 

(104,149)

 

 

(100,012)

 

 

 

Other assets

 

 

(35,570)

 

 

(18,582)

 

 

 

Accounts payable and accrued expenses

 

 

(50,690)

 

 

25,940 

 

 

 

Other liabilities

 

 

(595)

 

 

5,076 

 

Net cash provided by operating activities

 

 

444,800 

 

 

263,864 

 

 

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

Proceeds from sales of real estate and related investments

 

 

648,167 

 

 

370,037 

 

 

Distributions of capital from partially owned entities

 

 

281,991 

 

 

17,963 

 

 

Proceeds from the sale of LNR

 

 

240,474 

 

 

 

 

Proceeds from sales of marketable securities

 

 

160,715 

 

 

58,460 

 

 

Additions to real estate

 

 

(113,060)

 

 

(83,368)

 

 

Funding of J.C. Penney derivative collateral

 

 

(98,447)

 

 

(70,000)

 

 

Development costs and construction in progress

 

 

(85,550)

 

 

(58,069)

 

 

Return of J.C. Penney derivative collateral

 

 

85,450 

 

 

24,950 

 

 

Investments in partially owned entities

 

 

(59,472)

 

 

(57,237)

 

 

Acquisitions of real estate and other

 

 

(53,992)

 

 

(32,156)

 

 

Proceeds from repayments of mortgage and mezzanine loans receivable and other

 

 

47,950 

 

 

1,994 

 

 

Restricted cash

 

 

16,596 

 

 

(14,658)

 

 

Investment in mortgage and mezzanine loans receivable and other

 

 

(137)

 

 

(145)

 

 

Proceeds from the repayment of loan to officer

 

 

 

 

13,123 

 

Net cash provided by investing activities

 

 

1,070,685 

 

 

170,894 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

 

 

 

 

 

 

 

 

 

 

 

 

8

 


 

 

VORNADO REALTY TRUST

 

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

 

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended

 

 

 

 

 

 

June 30,

 

 

 

 

 

 

2013 

 

2012 

 

(Amounts in thousands)

 

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

Repayments of borrowings

 

$

(2,800,441)

 

$

(1,507,220)

 

 

Proceeds from borrowings

 

 

1,583,357 

 

 

1,225,000 

 

 

Purchases of outstanding preferred units and shares

 

 

(299,400)

 

 

 

 

Proceeds from the issuance of preferred shares

 

 

290,536 

 

 

 

 

Dividends paid on common shares

 

 

(272,825)

 

 

(256,119)

 

 

Distributions to noncontrolling interests

 

 

(181,510)

 

 

(69,367)

 

 

Dividends paid on preferred shares

 

 

(42,451)

 

 

(35,576)

 

 

Contributions from noncontrolling interests

 

 

33,967 

 

 

108,349 

 

 

Debt issuance and other costs

 

 

(9,520)

 

 

(14,648)

 

 

Proceeds received from exercise of employee share options

 

 

4,470 

 

 

9,667 

 

 

Repurchase of shares related to stock compensation agreements and/or related

 

 

 

 

 

 

 

 

 

tax withholdings

 

 

(332)

 

 

(30,034)

 

Net cash used in financing activities

 

 

(1,694,149)

 

 

(569,948)

 

Net decrease in cash and cash equivalents

 

 

(178,664)

 

 

(135,190)

 

Cash and cash equivalents at beginning of period

 

 

960,319 

 

 

606,553 

 

Cash and cash equivalents at end of period

 

$

781,655 

 

$

471,363 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

 

 

Cash payments for interest, excluding capitalized interest of $17,492 and $361

 

$

235,588 

 

$

251,434 

 

 

Cash payments for income taxes

 

$

4,732 

 

$

6,494 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Cash Investing and Financing Activities:

 

 

 

 

 

 

 

 

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

 

$

169,138 

 

$

(220,525)

 

 

Adjustments to carry redeemable Class A units at redemption value

 

 

(29,393)

 

 

(110,581)

 

 

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

 

 

14,980 

 

 

24,976 

 

 

Decrease in assets and liabilities resulting from the deconsolidation of Independence Plaza:

 

 

 

 

 

 

 

 

 

 

Real estate, net

 

 

(852,166)

 

 

 

 

 

 

Notes and mortgages payable

 

 

(322,903)

 

 

 

 

Cash restricted for like kind exchange of real estate

 

 

(155,810)

 

 

 

 

L.A. Mart seller financing

 

 

 

 

35,000 

 

 

Write-off of fully depreciated assets

 

 

(47,598)

 

 

(131,770)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

 

 

 

 

 

 

 

 

 

 

 

 

9

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

1.     Organization

 

Vornado Realty Trust (“Vornado”) is a fully‑integrated real estate investment trust (“REIT”) and conducts its business through, and substantially all of its interests in properties are held by, Vornado Realty L.P., a Delaware limited partnership (the “Operating Partnership”).  Vornado is the sole general partner of, and owned approximately 94.0% of the common limited partnership interest in the Operating Partnership at June 30, 2013.  All references to “we,” “us,” “our,” the “Company” and “Vornado” refer to Vornado Realty Trust and its consolidated subsidiaries, including the Operating Partnership.

 

2.    Basis of Presentation

 

The accompanying consolidated financial statements are unaudited and include the accounts of Vornado and its consolidated subsidiaries, including the Operating Partnership.  All intercompany amounts have been eliminated. In our opinion, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and changes in cash flows have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted.  These condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of the Securities and Exchange Commission (the “SEC”) and should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K, for the year ended December 31, 2012, as filed with the SEC.

 

We have made estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.  The results of operations for the three and six months ended June 30, 2013 are not necessarily indicative of the operating results for the full year.  Certain prior year balances have been reclassified in order to conform to current year presentation. 

 

3.    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 13 - Accumulated Other Comprehensive Income).  

 

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.  We are currently evaluating the impact, if any, of ASU 2013-08 on our real estate fund and our consolidated financial statements. 

10

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

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

 

We are the general partner and investment manager of our $800,000,000 Fund, to which we committed $200,000,000.  The Fund has an eight-year term and a three-year investment period which 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 June 30, 2013, the Fund had ten investments with an aggregate fair value of $622,124,000, or $114,751,000 in excess of cost, and had remaining unfunded commitments of $246,582,000, of which our share was $61,645,000.  Below is a summary of income from the Fund for the three and six months ended June 30, 2013 and 2012.

 

 

For the Three Months

 

For the Six Months

 

(Amounts in thousands)

 

Ended June 30,

 

Ended June 30,

 

 

 

2013 

2012 

 

2013 

2012 

 

Net investment income (loss)

 

$

877 

 

$

(834)

 

$

3,925 

 

$

4,084 

 

Net unrealized gains

 

 

33,593 

 

 

21,135 

 

 

47,109 

 

 

27,979 

 

Income from Real Estate Fund

 

 

34,470 

 

 

20,301 

 

 

51,034 

 

 

32,063 

 

Less (income) attributable to noncontrolling interests

 

 

(14,359)

 

 

(12,306)

 

 

(23,899)

 

 

(20,239)

 

Income from Real Estate Fund attributable to Vornado (1)

 

$

20,111 

 

$

7,995 

 

$

27,135 

 

$

11,824 

 

___________________________________

 
 

(1)

Excludes management, leasing and development fees of $827 and $717 for the three months ended June 30, 2013 and 2012, respectively, and $1,676 and $1,420 for the six months ended June 30, 2013 and 2012, respectively, which are included as a component of "fee and other income" on our consolidated statements of income.

 
                           

 

 

5.    Mortgage and Mezzanine Loans Receivable

 

As of June 30, 2013 and December 31, 2012, the carrying amount of mortgage and mezzanine loans receivable was $175,699,000 and $225,359,000, respectively.  These loans have a weighted average interest rate of 10.8% and 10.3% at June 30, 2013 and December 31, 2012, respectively, and have maturities ranging from August 2014 to May 2016. 

 

On March 27, 2013, we transferred, at par, a 25% participation in a mortgage loan on 701 Seventh Avenue to a third party for $59,375,000 in cash.  We acquired this participation in October 2012, together with a 25% interest in a mezzanine loan on the property.  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 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, included in “interest and other investment income (loss)” on our consolidated statement of income.

11

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

6.    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.

 

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

 

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 (loss) on disposition of wholly owned and partially owned assets” on our consolidated statement of income.  In addition, in the first quarter of 2013, we wrote down the remaining 8,584,010 J.C. Penney common shares we own to fair value and recorded a $39,487,000 impairment loss, which is included in “interest and other investment income (loss), net” on our consolidated statement of income. 

 

As of June 30, 2013, we own an economic interest in 13,400,000 J.C. Penney common shares, or 6.1% of its outstanding common shares.  Below are the details of our investment.

 

We own 8,584,010 common shares at a GAAP cost of $15.11, per share, or $129,704,000 in the aggregate.  As of June 30, 2013, these shares have an aggregate fair value of $146,615,000, based on J.C. Penney’s closing share price of $17.08 per share. 

 

We also own an economic interest in 4,815,990 common shares through a forward contract at a weighted average strike price of $29.27 per share, or $140,947,000 in the aggregate.  The forward contract may be settled, at our election, in cash or common shares, in whole or in part, at any time prior to October 8, 2022. The counterparty may accelerate settlement, in whole or in part, on October 8, 2014, or any anniversary thereof, or in the event we were to receive a credit downgrade.  The forward contract strike price per share increases at an annual rate of LIBOR plus 95 basis points during the first two years of the contract and LIBOR plus 80 basis points thereafter.  The contract is a derivative instrument that does not qualify for hedge accounting treatment.  Gains and losses from the mark-to-market of the underlying common shares are recognized in “interest and other investment income (loss), net” on our consolidated statements of income.  In the three and six months ended June 30, 2013, we recognized income of $9,065,000 and a loss of $13,475,000, respectively, from the mark-to-market of the underlying common shares, and as of June 30, 2013, have funded $69,377,000 in connection with this derivative position.  In the three and six months ended June 30, 2012, we recognized losses of $58,732,000 and $57,687,000, respectively, from the mark-to-market of the underlying common shares.

 

As of June 30, 2013, the aggregate economic net loss on our investment in J.C. Penney, including shares sold, was $201,119,000.

 

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 that 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 has been 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 Accounting Standards Codification (“ASC”) Topic 320, Investments – Debt and Equity Securities.   

 

Below is a summary of our marketable securities portfolio as of June 30, 2013 and December 31, 2012.

 

(Amounts in thousands)

As of June 30, 2013

 

As of December 31, 2012

 

 

 

 

 

GAAP

 

Unrealized

 

 

 

 

GAAP

 

Unrealized

 

 

Fair Value

 

Cost

 

Gain

 

Fair Value

 

Cost

 

Gain

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lexington

$

215,718 

 

$

72,549 

 

$

143,169 

 

$

 

$

 

$

 

J.C. Penney

 

146,615 

 

 

129,704 

 

 

16,911 

 

 

366,291 

 

 

366,291 

 

 

 

Other

 

40,602 

 

 

12,112 

 

 

28,490 

 

 

31,897 

 

 

12,465 

 

 

19,432 

 

 

$

402,935 

 

$

214,365 

 

$

188,570 

 

$

398,188 

 

$

378,756 

 

$

19,432 

12

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

7.    Investments in Partially Owned Entities

 

 

Toys “R” Us (“Toys”)

 

As of June 30, 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.  Historically, Toys’ fourth quarter net income accounts for more than 80% of its fiscal year net income.

 

In the fourth quarter of 2012, we recorded a $40,000,000 non-cash impairment loss on our investment in Toys and disclosed, that if current facts don’t change, our share of Toys’ undistributed income, which in accordance with the equity method of accounting, would increase the carrying amount of our investment above fair value, would require an offsetting impairment loss.   

 

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.

 

As of June 30, 2013, the carrying amount of our investment in Toys is less than our share of Toys' equity by approximately $146,215,000.  This basis difference resulted primarily from the non-cash impairment losses aggregating $118,542,000 that were recognized in 2012 and 2013.  We have allocated the basis difference to Toys' intangible assets (primarily trade names and trademarks).  The basis difference is not being amortized and will be recognized upon disposition of our investment. 

 

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

 

 

(Amounts in thousands)

 

 

 

 

 

 

 

Balance as of

 

 

 

Balance Sheet:

 

 

 

 

 

 

 

May 4, 2013

 

October 27, 2012

 

 

 

 

Assets

 

 

 

 

 

 

 

$

11,303,000 

 

$

12,953,000 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

9,475,000 

 

 

11,190,000 

 

 

 

 

Noncontrolling interests

 

 

 

 

 

 

 

 

67,000 

 

 

44,000 

 

 

 

 

Toys “R” Us, Inc. equity

 

 

 

 

 

 

 

 

1,761,000 

 

 

1,719,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

 

Income Statement:

May 4, 2013

 

April 28, 2012

 

May 4, 2013

April 28, 2012

 

 

 

 

Total revenues

$

2,408,000 

 

 

$

2,612,000 

 

$

8,178,000 

 

$

8,537,000 

 

 

 

 

Net (loss) income attributable to Toys

 

(119,000)

 

 

 

(66,000)

 

 

122,000 

 

 

283,000 

 

 

 

13

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

7.    Investments in Partially Owned Entities – continued

 

 

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

 

As of June 30, 2013, we own 1,654,068 Alexander’s common shares, or approximately 32.4% of Alexander’s common equity.  We manage, lease and develop Alexander’s properties pursuant to agreements which expire in March of each year and are automatically renewable.  As of June 30, 2013, Alexander’s owed us $44,883,000 in fees under these agreements.

 

As of June 30, 2013, the market value (“fair value” pursuant to ASC 820) of our investment in Alexander’s, based on Alexander’s June 30, 2013 closing share price of $293.71, was $485,816,000, or $315,635,000 in excess of the carrying amount on our consolidated balance sheet.  As of June 30, 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 $43,292,000.  The majority of this basis difference resulted from the excess of our purchase price for the Alexander’s common stock acquired over the book value of Alexander’s net assets.  Substantially all of this basis difference was allocated, based on our estimates of the fair values of Alexander’s assets and liabilities, to real estate (land and buildings).  We are amortizing the basis difference related to the buildings into earnings as additional depreciation expense over their estimated useful lives.  This depreciation is not material to our share of equity in Alexander’s net income.  The basis difference related to the land will be recognized upon disposition of our investment.

 

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

 

(Amounts in thousands)

 

 

 

 

 

 

Balance as of

 

Balance Sheet:

 

 

 

 

 

 

June 30, 2013

 

December 31, 2012

 

 

Assets

 

 

 

 

 

 

$

1,469,000 

 

$

1,482,000 

 

 

Liabilities

 

 

 

 

 

 

 

1,136,000 

 

 

1,150,000 

 

 

Stockholders' equity

 

 

 

 

 

 

 

333,000 

 

 

332,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

Income Statement:

June 30, 2013

 

June 30, 2012

 

June 30, 2013

 

June 30, 2012

 

 

Total revenues

$

47,000 

 

$

47,000 

 

$

96,000 

 

$

94,000 

 

 

Net income attributable to Alexander’s

 

13,000 

 

 

19,000 

 

 

27,000 

 

 

38,000 

 

                             

 

 

LNR Property LLC (“LNR”)  

 

In the first quarter of 2013, we recognized our 26.2% share of LNR’s fourth quarter net income of $18,731,000, which increased the carrying amount of our investment to approximately $241,000,000.  On April 22, 2013, LNR was sold for $1.053 billion, and we received net proceeds of $241,000,000 for our interest. Pursuant to the sale agreement, we ceased receiving income as of January 1, 2013.

 

14

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

7.    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 date of acquisition, 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 are 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. 

 

15

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

7.    Investments in Partially Owned Entities – continued

 

Below is a schedule of our investments in partially owned entities as of June 30, 2013 and December 31, 2012.

 

 

 

 

 

 

Percentage

 

 

 

(Amounts in thousands)

 

Ownership at

 

Balance as of

 

Investments:

 

June 30, 2013

 

June 30, 2013

 

December 31, 2012

 

Toys

 

 

 

32.6 %

 

$

417,764 

 

$

478,041 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alexander’s

 

 

 

32.4 %

 

$

170,181 

 

$

171,013 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lexington(1)

 

 

 

n/a

 

 

 

 

75,542 

 

 

 

 

 

 

 

 

 

 

 

 

 

LNR(2)

 

 

 

n/a

 

 

 

 

224,724 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

India real estate ventures

 

 

 

4.0%-36.5%

 

 

90,717 

 

 

95,516 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Partially owned office buildings:

 

 

 

 

 

 

 

 

 

 

 

 

280 Park Avenue

 

 

 

49.5 %

 

 

207,956 

 

 

197,516 

 

 

Rosslyn Plaza

 

 

 

43.7%-50.4%

 

 

60,345 

 

 

62,627 

 

 

West 57th Street properties

 

 

 

50.0 %

 

 

56,696 

 

 

57,033 

 

 

One Park Avenue

 

 

 

30.3 %

 

 

54,367 

 

 

50,509 

 

 

666 Fifth Avenue Office Condominium

 

 

 

49.5 %

 

 

38,664 

 

 

35,527 

 

 

330 Madison Avenue

 

 

 

25.0 %

 

 

32,766 

 

 

30,277 

 

 

Warner Building

 

 

 

55.0 %

 

 

11,754 

 

 

8,775 

 

 

Fairfax Square

 

 

 

20.0 %

 

 

5,242 

 

 

5,368 

 

 

Other partially owned office buildings

 

 

 

Various

 

 

9,508 

 

 

9,315 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other investments:

 

 

 

 

 

 

 

 

 

 

 

 

Independence Plaza (includes $26,679 attributable

 

 

 

 

 

 

 

 

 

 

 

 

 

to non-controlling interests)(3)

 

 

 

50.1 %

 

 

166,569 

 

 

 

 

Monmouth Mall

 

 

 

50.0 %

 

 

7,248 

 

 

7,205 

 

 

Downtown Crossing, Boston(4)

 

 

 

n/a

 

 

 

 

48,122 

 

 

Other investments(5)

 

 

 

Various

 

 

119,631 

 

 

147,187 

 

 

 

 

 

 

 

 

 

 

$

1,031,644 

 

$

1,226,256 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

 

In the first quarter of 2013, we began accounting for our investment in Lexington as a marketable equity security - available for sale (see page 12 for details).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2)

 

On April 22, 2013, LNR was sold (see page 14 for details).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3)

 

On June 7, 2013, we sold an 8.65% economic interest in the property (see page 15 for details).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4)

 

On April 24, 2013, the joint venture sold the site in Downtown Crossing, Boston (see note 3 on page 17 for details).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5)

 

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

 

16

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

7.    Investments in Partially Owned Entities - continued

 

Below is a schedule of income recognized from investments in partially owned entities for the three and six months ended June 30, 2013 and 2012.

 

 

 

 

 

Percentage

 

For the Three Months

 

For the Six Months

(Amounts in thousands)

 

Ownership

 

Ended June 30,

 

Ended June 30,

Our Share of Net Income (Loss):

 

June 30, 2013

 

2013 

 

2012 

 

2013 

 

2012 

Toys:

 

32.6 %

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in net (loss) income before income taxes

 

 

 

$

(64,372)

 

$

(35,664)

 

$

73,516 

 

$

121,723 

 

Income tax benefit (expense)

 

 

 

 

25,664 

 

 

14,103 

 

 

(33,682)

 

 

(29,100)

 

Equity in net (loss) income

 

 

 

 

(38,708)

 

 

(21,561)

 

 

39,834 

 

 

92,623 

 

Non-cash impairment loss (see page 13 for details)

 

 

 

 

 

 

 

 

(78,542)

 

 

 

Management fees

 

 

 

 

1,847 

 

 

2,371 

 

 

3,606 

 

 

4,658 

 

 

 

 

 

 

 

$

(36,861)

 

$

(19,190)

 

$

(35,102)

 

$

97,281 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alexander’s:

 

32.4 %

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in net income

 

 

 

$

4,077 

 

$

5,941 

 

$

8,486 

 

$

12,073 

 

Management, leasing and development fees

 

 

 

 

1,674 

 

 

1,907 

 

 

3,341 

 

 

3,796 

 

 

 

 

 

 

 

 

5,751 

 

 

7,848 

 

 

11,827 

 

 

15,869 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lexington(1)

 

n/a

 

 

 

 

(236)

 

 

(979)

 

 

694 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LNR(2)

 

n/a

 

 

 

 

9,469 

 

 

18,731 

 

 

22,719 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

India real estate ventures

 

4.0%-36.5%

 

 

(414)

 

 

(3,815)

 

 

(1,181)

 

 

(4,608)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Partially owned office buildings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

280 Park Avenue

 

49.5 %

 

 

(2,021)

 

 

(1,955)

 

 

(4,590)

 

 

(7,550)

 

Warner Building

 

55.0 %

 

 

(1,996)

 

 

(1,589)

 

 

(4,342)

 

 

(4,599)

 

666 Fifth Avenue Office Condominium

 

49.5 %

 

 

1,899 

 

 

1,785 

 

 

3,918 

 

 

3,500 

 

330 Madison Avenue

 

25.0 %

 

 

1,185 

 

 

18 

 

 

2,489 

 

 

812 

 

Rosslyn Plaza

 

43.7%-50.4%

 

 

(1,005)

 

 

145 

 

 

(1,451)

 

 

303 

 

1101 17th Street

 

55.0 %

 

 

236 

 

 

646 

 

 

620 

 

 

1,329 

 

West 57th Street properties

 

50.0 %

 

 

196 

 

 

252 

 

 

368 

 

 

565 

 

One Park Avenue

 

30.3 %

 

 

(83)

 

 

303 

 

 

374 

 

 

634 

 

Fairfax Square

 

20.0 %

 

 

(18)

 

 

(40)

 

 

(63)

 

 

(52)

 

Other partially owned office buildings

 

Various

 

 

565 

 

 

555 

 

 

1,053 

 

 

1,082 

 

 

 

 

 

 

 

 

(1,042)

 

 

120 

 

 

(1,624)

 

 

(3,976)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Independence Plaza (see page 15 for details)

 

50.1 %

 

 

(1,118)

 

 

1,733 

 

 

(1,118)

 

 

3,415 

 

Monmouth Mall

 

50.0 %

 

 

426 

 

 

298 

 

 

1,285 

 

 

660 

 

Downtown Crossing, Boston(3)

 

n/a

 

 

16 

 

 

(500)

 

 

(2,358)

 

 

(834)

 

Other investments(4)

 

Various

 

 

(2,147)

 

 

(2,354)

 

 

(2,345)

 

 

(1,716)

 

 

 

 

 

 

 

 

(2,823)

 

 

(823)

 

 

(4,536)

 

 

1,525 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

1,472 

 

$

12,563 

 

$

22,238 

 

$

32,223 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

 

In the first quarter of 2013, we began accounting for our investment in Lexington as a marketable equity security - available for sale (see page 12 for details).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2)

 

On April 22, 2013, LNR was sold (see page 14 for details).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3)

 

On April 24, 2013, the joint venture sold the site in Downtown Crossing, Boston, and we received approximately $45,000 for our 50% interest. In connection therewith, we recognized a $2,335 impairment loss in the first quarter.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4)

 

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

 

17

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

7.    Investments in Partially Owned Entities – continued

Below is a summary of the debt of our partially owned entities as of June 30, 2013 and December 31, 2012, none of which is recourse to us.

 

 

 

Percentage

 

 

 

Interest

 

100% of

 

 

 

Ownership at

 

 

 

Rate at

 

Partially Owned Entities’ Debt at

(Amounts in thousands)

June 30,

 

 

 

June 30,

 

June 30,

 

December 31,

 

2013 

 

Maturity

 

2013 

 

2013 

 

2012 

Toys:

32.6 %

 

 

 

 

 

 

 

 

 

 

 

Notes, loans and mortgages payable

 

 

2014-2021

 

7.83 %

 

$

5,158,005 

 

$

5,683,733 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alexander's:

32.4 %

 

 

 

 

 

 

 

 

 

 

 

Mortgages payable

 

 

2014-2018

 

3.85 %

 

$

1,058,028 

 

$

1,065,916 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lexington(1):

n/a

 

 

 

 

 

 

 

 

 

 

 

Mortgages payable

 

 

n/a

 

n/a

 

$

 

$

1,994,179 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LNR(2):

n/a

 

 

 

 

 

 

 

 

 

 

 

Mortgages payable

 

 

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:

 

 

 

 

 

 

 

 

 

 

 

 

666 Fifth Avenue Office Condominium mortgage

 

 

 

 

 

 

 

 

 

 

 

 

 

payable

49.5 %

 

02/19

 

6.76 %

 

$

1,139,585 

 

$

1,109,700 

 

280 Park Avenue mortgage payable

49.5 %

 

06/16

 

6.64 %

 

 

738,462 

 

 

738,228 

 

Warner Building mortgage payable

55.0 %

 

05/16

 

6.26 %

 

 

292,700 

 

 

292,700 

 

One Park Avenue mortgage payable

30.3 %

 

03/16

 

5.00 %

 

 

250,000 

 

 

250,000 

 

330 Madison Avenue mortgage payable

25.0 %

 

06/15

 

1.69 %

 

 

150,000 

 

 

150,000 

 

Fairfax Square mortgage payable

20.0 %

 

12/14

 

7.00 %

 

 

69,681 

 

 

70,127 

 

1101 17th Street mortgage payable

55.0 %

 

01/15

 

1.44 %

 

 

31,000 

 

 

31,000 

 

Rosslyn Plaza

43.7%-50.4%

 

03/18

 

2.69 %

 

 

20,984 

 

 

 

West 57th Street properties mortgages payable

50.0 %

 

02/14

 

4.94 %

 

 

19,899 

 

 

20,434 

 

Other

Various

 

Various

 

6.37 %

 

 

69,424 

 

 

69,704 

 

 

 

 

 

 

 

 

 

$

2,781,735 

 

$

2,731,893 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

India Real Estate Ventures:

 

 

 

 

 

 

 

 

 

 

 

 

TCG Urban Infrastructure Holdings mortgages

 

 

 

 

 

 

 

 

 

 

 

 

 

payable

25.0 %

 

2013-2022

 

13.62 %

 

$

222,016 

 

$

236,579 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other:

 

 

 

 

 

 

 

 

 

 

 

 

Independence Plaza (see page 15 for details)

50.1 %

 

06/18

 

3.48 %

 

 

550,000 

 

 

 

Monmouth Mall mortgage payable

50.0 %

 

09/15

 

5.44 %

 

 

158,882 

 

 

159,896 

 

Other(3)

Various

 

Various

 

5.00 %

 

 

970,518 

 

 

990,647 

 

 

 

 

 

 

 

 

 

$

1,679,400 

 

$

1,150,543 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

 

In the first quarter of 2013, we began accounting for our investment in Lexington as a marketable equity security - available for sale (see page 12 for details).

 

 

 

(2)

 

On April 22, 2013, LNR was sold (see page 14 for details).

 

 

 

(3)

 

Includes interests in Fashion Centre 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 $3,831,483,000 and $29,443,128,000 at June 30, 2013 and December 31, 2012, respectively.  Excluding our pro rata share of LNR’s liabilities related to consolidated CMBS and CDO trusts, which were 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.

18

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

8.    Discontinued Operations

 

2013 Activity

 

On January 24, 2013, we completed the sale of 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.

 

During 2013, we sold an additional 10 properties, including nine non-core retail properties, in separate transactions, for an aggregate of $40,200,000, in cash, which resulted in a net gain aggregating $492,000.

 

2012 Activity

 

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

 

During 2012, we sold 11 non-core retail properties in separate transactions, for an aggregate of $136,000,000, in cash, which resulted in a net gain aggregating $17,802,000.

 

We have reclassified the revenues and expenses of all of the properties discussed above, as well as certain other retail properties that are currently held for sale 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 tables below set forth the assets and liabilities related to discontinued operations at June 30, 2013 and December 31, 2012 and their combined results of operations for the three and six months ended June 30, 2013 and 2012.  

 

 

 

 

Assets Related to

 

Liabilities Related to

(Amounts in thousands)

 

Discontinued Operations as of

 

Discontinued Operations as of

 

 

June 30,

 

December 31,

 

June 30,

 

December 31,

 

 

2013 

 

2012 

 

2013 

 

2012 

Retail properties

 

$

56,348 

 

$

568,501 

 

$

2,677 

 

$

423,163 

Other properties

 

 

7,225 

 

 

33,499 

 

 

 

 

Total

 

$

63,573 

 

$

602,000 

 

$

2,677 

 

$

423,163 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months

 

For the Six Months

(Amounts in thousands)

 

Ended June 30,

 

Ended June 30,

 

 

2013 

 

2012 

 

2013 

 

2012 

Total revenues

 

$

4,668 

 

$

45,286 

 

$

29,391 

 

$

106,134 

Total expenses

 

 

3,850 

 

 

30,802 

 

 

22,256 

 

 

76,096 

 

 

 

818 

 

 

14,484 

 

 

7,135 

 

 

30,038 

Net gains on sale of:

 

 

 

 

 

 

 

 

 

 

 

 

 

901 Market Street, Philadelphia

 

 

33,058 

 

 

 

 

33,058 

 

 

 

The Plant

 

 

32,169 

 

 

 

 

32,169 

 

 

 

Green Acres Mall

 

 

 

 

 

 

202,275 

 

 

 

350 West Mart Center

 

 

 

 

 

 

 

 

54,911 

 

Other real estate

 

 

438 

 

 

16,896 

 

 

492 

 

 

17,802 

Impairment losses

 

 

(2,493)

 

 

(13,511)

 

 

(4,007)

 

 

(13,511)

Income from discontinued operations

 

$

63,990 

 

$

17,869 

 

$

271,122 

 

$

89,240 

19

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

9.    Identified Intangible Assets and Liabilities

 

 

The following summarizes our identified intangible assets (primarily acquired in-place and above-market leases) and liabilities (primarily acquired below-market leases) as of June 30, 2013 and December 31, 2012.

 

 

Balance as of

 

 

 

June 30,

 

December 31,

 

 

(Amounts in thousands)

2013 

 

2012 

 

 

Identified intangible assets:

 

 

 

 

 

 

 

Gross amount

$

654,964 

 

$

753,022 

 

 

Accumulated amortization

 

(365,854)

 

 

(346,664)

 

 

Net

$

289,110 

 

$

406,358 

 

 

Identified intangible liabilities (included in deferred revenue):

 

 

 

 

 

 

 

Gross amount

$

816,671 

 

$

902,525 

 

 

Accumulated amortization

 

(363,687)

 

 

(341,536)

 

 

Net

$

452,984 

 

$

560,989 

 

 

Amortization of acquired below-market leases, net of acquired above-market leases, resulted in an increase to rental income of $11,672,000 and $12,570,000 for the three months ended June 30, 2013 and 2012, respectively, and $28,506,000 and $26,313,000 for the six months ended June 30, 2013 and 2012, 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 

$

41,069 

 

 

2015 

 

38,263 

 

 

2016 

 

36,321 

 

 

2017 

 

30,936 

 

 

2018 

 

29,171 

 

 

Amortization of all other identified intangible assets (a component of depreciation and amortization expense) was $16,992,000 and $12,807,000 for the three months ended June 30, 2013 and 2012, respectively, and $42,086,000 and $24,024,000 for the six months ended June 30, 2013 and 2012, 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 

$

27,533 

 

 

2015 

 

22,369 

 

 

2016 

 

19,189 

 

 

2017 

 

16,029 

 

 

2018 

 

11,830 

 

 

We are a tenant under ground leases for certain properties.  Amortization of these acquired below-market leases, net of above-market leases resulted in an increase to rent expense of $1,622,000 and $312,000 for the three months ended June 30, 2013 and 2012, respectively, and $2,723,000 and $582,000 for the six months ended June 30, 2013 and 2012, 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 

$

3,921 

 

 

2015 

 

3,921 

 

 

2016 

 

3,921 

 

 

2017 

 

3,921 

 

 

2018 

 

3,921 

 

20

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

10.    Debt

 

The following is a summary of our debt:

 

 

 

 

Interest

 

 

 

 

 

 

 

(Amounts in thousands)

 

 

Rate at

 

Balance at

 

 

 

 

 

 

June 30,

 

June 30,

 

December 31,

 

Mortgages payable:

Maturity (1)

 

2013 

 

2013 

 

2012 

 

Fixed rate:

 

 

 

 

 

 

 

 

 

 

New York:

 

 

 

 

 

 

 

 

 

 

 

 

1290 Avenue of the Americas (70% owned)

11/22

 

3.34 %

 

$

950,000 

 

$

950,000 

 

 

 

Two Penn Plaza

03/18

 

5.13 %

 

 

425,000 

 

 

425,000 

 

 

 

666 Fifth Avenue Retail Condominium(2)

03/23

 

3.61 %

 

 

390,000 

 

 

 

 

 

770 Broadway

03/16

 

5.65 %

 

 

353,000 

 

 

353,000 

 

 

 

888 Seventh Avenue

01/16

 

5.71 %

 

 

318,554 

 

 

318,554 

 

 

 

350 Park Avenue

01/17

 

3.75 %

 

 

300,000 

 

 

300,000 

 

 

 

909 Third Avenue

04/15

 

5.64 %

 

 

197,069 

 

 

199,198 

 

 

 

828-850 Madison Avenue Retail Condominium

06/18

 

5.29 %

 

 

80,000 

 

 

80,000 

 

 

 

510 Fifth Avenue

01/16

 

5.60 %

 

 

30,998 

 

 

31,253 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Washington, DC:

 

 

 

 

 

 

 

 

 

 

 

 

Skyline Properties(3)

02/17

 

5.74 %

 

 

725,559 

 

 

704,957 

 

 

 

River House Apartments

04/15

 

5.43 %

 

 

195,546 

 

 

195,546 

 

 

 

2101 L Street

08/24

 

3.97 %

 

 

150,000 

 

 

150,000 

 

 

 

2121 Crystal Drive

03/23

 

5.51 %

 

 

149,506 

 

 

150,000 

 

 

 

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

01/25

 

7.09 %

 

 

104,522 

 

 

105,724 

 

 

 

Bowen Building

06/16

 

6.14 %

 

 

115,022 

 

 

115,022 

 

 

 

West End 25

06/21

 

4.88 %

 

 

101,671 

 

 

101,671 

 

 

 

Universal Buildings

04/14

 

6.54 %

 

 

90,633 

 

 

93,226 

 

 

 

2011 Crystal Drive

08/17

 

7.30 %

 

 

79,129 

 

 

79,624 

 

 

 

220 20th Street

02/18

 

4.61 %

 

 

73,312 

 

 

73,939 

 

 

 

1550 and 1750 Crystal Drive

11/14

 

7.08 %

 

 

72,592 

 

 

74,053 

 

 

 

2231 Crystal Drive

n/a

 

n/a

 

 

 

 

41,298 

 

 

 

1225 Clark Street

n/a

 

n/a

 

 

 

 

24,834 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail Properties:

 

 

 

 

 

 

 

 

 

 

 

 

Cross-collateralized mortgages on 40 strip shopping centers

09/20

 

4.25 %

 

 

566,886 

 

 

573,180 

 

 

 

Bergen Town Center(4)

04/23

 

3.56 %

 

 

300,000 

 

 

 

 

 

Montehiedra Town Center(5)

07/16

 

6.04 %

 

 

120,000 

 

 

120,000 

 

 

 

North Bergen (Tonnelle Avenue)

01/18

 

4.59 %

 

 

75,000 

 

 

75,000 

 

 

 

Las Catalinas Mall

11/13

 

6.97 %

 

 

53,308 

 

 

54,101 

 

 

 

Broadway Mall

n/a

 

n/a

 

 

 

 

85,180 

 

 

 

Other

06/14-05/36

 

5.12%-7.30%

 

 

85,789 

 

 

86,641 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other:

 

 

 

 

 

 

 

 

 

 

 

 

555 California Street (70% owned)

09/21

 

5.10 %

 

 

600,000 

 

 

600,000 

 

 

 

Merchandise Mart

12/16

 

5.57 %

 

 

550,000 

 

 

550,000 

 

 

 

Borgata Land

02/21

 

5.14 %

 

 

59,717 

 

 

60,000 

 

Total fixed rate mortgages payable

 

 

4.91 %

 

$

7,312,813 

 

$

6,771,001 

 

___________________

 

 

 

 

 

 

 

 

 

 

 

See notes on page 23.

 

21

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

10.    Debt - continued

 

 

 

 

 

 

 

 

 

Interest

 

 

 

 

 

 

 

 

(Amounts in thousands)

 

 

 

 

Rate at

 

Balance at

 

 

 

 

 

 

Spread over

 

 

June 30,

 

June 30,

 

December 31,

 

 

Mortgages payable:

Maturity (1)

 

LIBOR

 

 

2013 

 

2013 

 

2012 

 

 

Variable rate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New York:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eleven Penn Plaza

01/19

 

L+235 

 

 

2.54 %

 

$

330,000 

 

$

330,000 

 

 

 

 

100 West 33rd Street - office and retail

03/17

 

L+250 

 

 

2.69 %

 

 

325,000 

 

 

325,000 

 

 

 

 

4 Union Square South - retail

11/19

 

L+215 

 

 

2.34 %

 

 

120,000 

 

 

120,000 

 

 

 

 

435 Seventh Avenue - retail

08/19

 

L+225 

 

 

2.44 %

 

 

98,000 

 

 

98,000 

 

 

 

 

866 UN Plaza

05/16

 

L+125 

 

 

1.44 %

 

 

44,978 

 

 

44,978 

 

 

 

 

Independence Plaza

n/a

 

n/a

 

 

n/a

 

 

 

 

334,225 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Washington, DC:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

River House Apartments

04/18

 

n/a(6)

 

 

1.55 %

 

 

64,000 

 

 

64,000 

 

 

 

 

2200 / 2300 Clarendon Boulevard

01/15

 

L+75 

 

 

0.94 %

 

 

44,325 

 

 

47,353 

 

 

 

 

1730 M and 1150 17th Street

06/14

 

L+140 

 

 

1.59 %

 

 

43,581 

 

 

43,581 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cross-collateralized mortgages on 40 strip

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

shopping centers (7)

09/20

 

L+136 (7)

 

 

2.36 %

 

 

60,000 

 

 

60,000 

 

 

 

 

Bergen Town Center(4)

n/a

 

n/a

 

 

n/a

 

 

 

 

282,312 

 

 

 

 

Other

05/15

 

L+325 

 

 

3.45 %

 

 

16,126 

 

 

19,126 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

220 Central Park South

10/13

 

L+275 

 

 

2.94 %

 

 

123,750 

 

 

123,750 

 

 

 

Total variable rate mortgages payable

 

 

 

 

 

2.42 %

 

 

1,269,760 

 

 

1,892,325 

 

 

 

Total mortgages payable

 

 

 

 

 

4.55 %

 

$

8,582,573 

 

$

8,663,326 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior unsecured notes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior unsecured notes due 2015

04/15

 

 

 

 

4.25 %

 

$

499,710 

 

$

499,627 

 

 

 

Senior unsecured notes due 2039 (8)

10/39

 

 

 

 

7.88 %

 

 

460,000 

 

 

460,000 

 

 

 

Senior unsecured notes due 2022

01/22

 

 

 

 

5.00 %

 

 

398,472 

 

 

398,381 

 

 

 

Total senior unsecured notes

 

 

 

 

 

5.70 %

 

$

1,358,182 

 

$

1,358,008 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unsecured revolving credit facilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$1.25 billion unsecured revolving credit facility

11/16

 

L+125 

 

 

-

 

$

 

$

1,150,000 

 

 

 

$1.25 billion unsecured revolving credit facility

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($22,053 reserved for outstanding letters of credit) (9)

06/18

 

L+115 

 

 

1.32 %

 

 

83,982 

 

 

20,000 

 

 

 

Total unsecured revolving credit facilities

 

 

 

 

 

1.32 %

 

$

83,982 

 

$

1,170,000 

 

 

___________________________

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes on the following page.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

22

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

10.    Debt - continued

 

Notes to preceding tabular information (amounts in thousands):

 

 

 

 

(1)

Represents the extended maturity for certain loans in which we have the unilateral right, ability and intent to extend.

 

 

 

 

(2)

On February 20, 2013, we completed a $390,000 financing of this property. The 10-year fixed-rate interest only loan bears interest at 3.61%. This property was previously unencumbered.

 

 

 

 

(3)

In 2012, due to the rising vacancy rate at the Skyline properties (45.2% at June 30, 2013), primarily from the effects of the Base Realignment and Closure statute; insufficient cash flows to pay current obligations, including interest payments to the lender; and the significant amount of capital required to re-tenant these properties, we requested that the mortgage loan be transferred to the special servicer. In connection therewith, we entered into a forbearance agreement with the special servicer, that provides for interest shortfalls to be deferred and added to the principal balance of the loan and not give rise to a loan default. The forbearance agreement has been amended and extended a number of times, the latest of which extends its maturity through September 1, 2013. As of June 30, 2013, the accrued deferred interest amounted to $47,559. We continue to negotiate with the special servicer to restructure the terms of the loan.

 

 

 

 

(4)

On March 25, 2013, we completed a $300,000 financing of this property. The 10-year fixed-rate interest only loan bears interest at 3.56%. The property was previously encumbered by a $282,000 floating-rate loan.

 

 

 

 

(5)

On May 13, 2013, we notified the lender that due to tenants vacating, the property's 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.

 

 

 

 

(6)

Interest at the Freddie Mac Reference Note Rate plus 1.53%.

 

 

 

 

(7)

LIBOR floor of 1.00%.

 

 

 

 

(8)

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

 

 

 

 

(9)

On March 28, 2013, we extended this revolving credit facility 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.

 

 

 

23

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

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.  Redeemable noncontrolling interests on our consolidated balance sheets are recorded at the greater of their carrying amount or redemption value at the end of each reporting period.  Changes in the value from period to period are charged to “additional capital” in our consolidated statements of changes in equity.  Below is a table summarizing the activity of redeemable noncontrolling interests.

 

 

(Amounts in thousands)

 

 

 

 

Balance at December 31, 2011

$

1,160,677 

 

 

Net income

 

24,355 

 

 

Distributions

 

(24,457)

 

 

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

 

(24,976)

 

 

Adjustments to carry redeemable Class A units at redemption value

 

110,581 

 

 

Other, net

 

(9,355)

 

 

Balance at June 30, 2012

$

1,236,825 

 

 

 

 

 

 

 

Balance at December 31, 2012

$

944,152 

 

 

Net income

 

23,916 

 

 

Distributions

 

(17,541)

 

 

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

 

(14,980)

 

 

Adjustments to carry redeemable Class A units at redemption value

 

29,393 

 

 

Redemption of Series D-15 redeemable units

 

(36,900)

 

 

Other, net

 

12,948 

 

 

Balance at June 30, 2013

$

940,988 

 

 

As of June 30, 2013 and December 31, 2012, the aggregate redemption value of redeemable Class A units was $939,988,000 and $898,152,000, respectively. 

 

Redeemable noncontrolling interests exclude our Series G-1 through G-4 convertible preferred units and Series D-13 cumulative redeemable preferred units, as they are accounted for as liabilities in accordance with ASC 480, Distinguishing Liabilities and Equity, because of their possible settlement by issuing a variable number of Vornado common shares.  Accordingly, the fair value of these units is included as a component of “other liabilities” on our consolidated balance sheets and aggregated $55,073,000 and $55,011,000 as of June 30, 2013 and December 31, 2012, respectively. 

 

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.

 

 

12.    Shareholders’ Equity

 

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 $290,536,000, 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.

24

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

13.    Accumulated Other Comprehensive Income

 

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

 

 

 

 

 

For the Three Months Ended June 30, 2013

 

 

 

 

 

 

Securities

 

Pro rata share of

 

Interest

 

 

 

 

 

 

 

 

available-

 

nonconsolidated

 

rate

 

 

(Amounts in thousands)

 

Total

 

for-sale

 

subsidiaries' OCI

 

swap

 

Other

Balance as of March 31, 2013

 

$

120,953 

 

$

168,221 

 

$

7,666 

 

$

(47,542)

 

$

(7,392)

Other comprehensive income (loss)(1)

 

 

11,941 

 

 

20,349 

 

 

(19,707)

 

 

12,037 

 

 

(738)

Balance as of June 30, 2013

 

$

132,894 

 

$

188,570 

 

$

(12,041)

 

$

(35,505)

 

$

(8,130)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

In the three months ended June 30, 2013, there were no amounts reclassified from accumulated other comprehensive income.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended June 30, 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 

Other comprehensive income (loss)(1)

 

 

151,840 

 

 

169,138 

 

 

(23,354)

 

 

14,560 

 

 

(8,504)

Balance as of June 30, 2013

 

$

132,894 

 

$

188,570 

 

$

(12,041)

 

$

(35,505)

 

$

(8,130)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

In the six months ended June 30, 2013, there were no amounts reclassified from accumulated other comprehensive income.

 

 

14.  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 7 – 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 June 30,

 

 

As of December 31,

 

 

 

(Amounts in thousands)

2013 

 

 

2012 

 

 

 

Total assets

$

 

 

$

957,730 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities

$

 

 

$

443,894 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncontrolling interest

$

 

 

$

193,933 

 

 

 

Unconsolidated VIEs

 

At June 30, 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 7 – Investments in Partially Owned Entities).  As of June 30, 2013, the net carrying amount of our investment in these entities was $151,644,000, and at December 31, 2012, the carrying amount of our investment in the Warner Building was $8,775,000.  Our maximum exposure to loss in these entities, is limited to our investment.

25

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

15.  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 in our consolidated financial statements 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) derivative positions in marketable equity securities, (v) interest rate swaps and (vi) 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 June 30, 2013 and December 31, 2012, respectively.

 

 

 

 

As of June 30, 2013

 

 

(Amounts in thousands)

Total

 

Level 1

 

Level 2

 

Level 3

 

 

Marketable securities

$

402,935 

 

$

402,935 

 

$

 

$

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests)

 

622,124 

 

 

 

 

 

 

622,124 

 

 

Deferred compensation plan assets (included in other assets)

 

111,093 

 

 

44,591 

 

 

 

 

66,502 

 

 

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

 

10,687 

 

 

 

 

10,687 

 

 

 

 

 

Total assets

$

1,146,839 

 

$

447,526 

 

$

10,687 

 

$

688,626 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mandatorily redeemable instruments (included in other liabilities)

$

55,073 

 

$

55,073 

 

$

 

$

 

 

Interest rate swap (included in other liabilities)

 

35,505 

 

 

 

 

35,505 

 

 

 

 

 

Total liabilities

$

90,578 

 

$

55,073 

 

$

35,505 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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.

 

 

26

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

15.  Fair Value Measurements – continued

 

 

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

 

Real Estate Fund Investments

 

At June 30, 2013, our Real Estate Fund had ten investments with an aggregate fair value of $622,124,000, or $114,751,000 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 0.1 to 7.0 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 June 30, 2013.

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

 

 

 

 

 

 

 

(based on fair

 

 

Unobservable Quantitative Input

 

Range

 

value of investments)

 

 

 

Discount rates

 

12.5% to 19.0%

 

14.3 %

 

 

 

Terminal capitalization rates

 

5.3% to 6.0%

 

5.8 %

 

 

 

 

 

 

 

 

 

 

 

 

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 three and six months ended June 30, 2013 and 2012.

 

 

 

 

 

Real Estate Fund Investments

 

Real Estate Fund Investments

 

 

 

 

For the Three Months Ended June 30,

 

For the Six Months Ended June 30,

 

 

(Amounts in thousands)

 

 

2013 

 

 

2012 

 

2013 

 

2012 

 

 

Beginning balance

 

$

571,306 

 

$

324,514 

 

$

600,786 

 

$

346,650 

 

 

Purchases

 

 

17,225 

 

 

44,592 

 

 

30,893 

 

 

44,592 

 

 

Sales/Returns

 

 

 

 

 

 

(56,664)

 

 

(31,052)

 

 

Unrealized gains

 

 

33,593 

 

 

21,135 

 

 

47,109 

 

 

27,979 

 

 

Other, net

 

 

 

 

(1,786)

 

 

 

 

286 

 

 

Ending balance

 

$

622,124 

 

$

388,455 

 

$

622,124 

 

$

388,455 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

27

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

15.  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 three and six months ended June 30, 2013 and 2012. 

 

 

 

 

Deferred Compensation Plan Assets

 

Deferred Compensation Plan Assets

 

 

 

 

 

For the Three Months Ended June 30,

 

For the Six Months Ended June 30,

 

 

(Amounts in thousands)

 

 

2013 

 

 

2012 

 

2013 

 

2012 

 

 

Beginning balance

 

$

65,010 

 

$

58,881 

 

$

62,631 

 

$

56,221 

 

 

Purchases

 

 

440 

 

 

155 

 

 

3,147 

 

 

3,766 

 

 

Sales

 

 

(1,748)

 

 

(616)

 

 

(4,445)

 

 

(4,011)

 

 

Realized and unrealized gains

 

 

2,782 

 

 

(123)

 

 

4,136 

 

 

2,269 

 

 

Other, net

 

 

18 

 

 

16 

 

 

1,033 

 

 

68 

 

 

Ending balance

 

$

66,502 

 

$

58,313 

 

$

66,502 

 

$

58,313 

 

                               

 

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 “R” Us and real estate assets that were written-down to estimated fair value at December 31, 2012.  The fair values of these assets were 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, 2012

 

 

(Amounts in thousands)

Total

 

Level 1

 

Level 2

 

Level 3

 

 

 

Investment in Toys "R" Us

$

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 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

15.  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 money market funds, which invest in obligations of the United States government), 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 are classified as Level 2.  The table below summarizes the carrying amounts and fair value of these financial instruments as of June 30, 2013 and December 31, 2012.

 

 

 

 

 

As of June 30, 2013

 

As of December 31, 2012

 

 

 

 

 

Carrying

 

Fair

 

Carrying

 

Fair

 

 

(Amounts in thousands)

Amount

 

Value

 

Amount

 

Value

 

 

 

Cash equivalents

$

525,834 

 

$

525,834 

 

$

543,000 

 

$

543,000 

 

 

 

Mortgage and mezzanine loans receivable

 

175,699 

 

 

175,331 

 

 

225,359 

 

 

221,446 

 

 

 

 

 

$

701,533 

 

$

701,165 

 

$

768,359 

 

$

764,446 

 

 

 

Debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgages payable

$

8,582,573 

 

$

8,571,000 

 

$

8,663,326 

 

$

8,690,000 

 

 

 

 

Senior unsecured notes

 

1,358,182 

 

 

1,427,000 

 

 

1,358,008 

 

 

1,468,000 

 

 

 

 

Revolving credit facility debt

 

83,982 

 

 

83,982 

 

 

1,170,000 

 

 

1,170,000 

 

 

 

 

 

$

10,024,737 

 

$

10,081,982 

 

$

11,191,334 

 

$

11,328,000 

 

 

16.    Incentive Compensation

 

Our 2010 Omnibus Share Plan (the “Plan”) provides for grants of incentive and non-qualified stock options, restricted stock, restricted Operating Partnership units and out-performance plan rewards to certain of our employees and officers.  We account for all stock-based compensation in accordance ASC 718, Compensation – Stock Compensation.  Stock-based compensation expense was $9,129,000 and $8,438,000 in the three months ended June 30, 2013 and 2012, respectively and $16,595,000 and $15,047,000 in the six months ended June 30, 2013 and 2012, respectively.

 

On March 15, 2013, our Compensation Committee (the “Committee”) approved the 2013 Outperformance Plan, a performance-based equity compensation plan and related form of award agreement (the “2013 OPP”).  Under the 2013 OPP, participants have the opportunity to earn compensation payable in the form of operating partnership units in the second and/or third year 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 total TSR.  Awards under our 2013 OPP may be earned if (i) we 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) we achieve a TSR above that of the SNL US REIT Index (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 but we underperform the Index, such awards earned 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 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 performance, 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 2013 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 earned OPP awards for one year following vesting. 

29

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

17.    Fee and Other Income

 

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

 

 

 

 

For the Three Months

For the Six Months

 

 

(Amounts in thousands)

 

Ended June 30,

 

Ended June 30,

 

 

 

 

2013 

2012 

 

2013 

2012 

 

 

BMS cleaning fees

 

$

16,509 

 

$

16,982 

 

$

33,173 

 

$

32,492 

 

 

Signage revenue

 

 

8,347 

 

 

4,879 

 

 

14,828 

 

 

9,469 

 

 

Management and leasing fees

 

 

6,435 

 

 

4,546 

 

 

11,693 

 

 

9,300 

 

 

Lease termination fees(1)

 

 

7,129 

 

 

479 

 

 

67,155 

 

 

890 

 

 

Other income

 

 

9,595 

 

 

6,151 

 

 

18,390 

 

 

14,164 

 

 

 

 

$

48,015 

 

$

33,037 

 

$

145,239 

 

$

66,315 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

On February 6, 2013, we received $124,000 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. As a result of this settlement, we collected a $47,900 receivable and recognized $59,599 of income in the first quarter of 2013.

 

                               

 

Management and leasing fees include management fees from Interstate Properties, a related party, of $131,000 and $192,000 for the three months ended June 30, 2013 and 2012, respectively, and $333,000 and $391,000 for the six months ended June 30, 2013 and 2012, respectively.  The above table excludes fee income from partially owned entities, which is typically included in “income from partially owned entities” (see Note 7 – Investments in Partially Owned Entities). 

 

 

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

 

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

 

 

 

For the Three Months

 

For the Six Months

(Amounts in thousands)

 

Ended June 30,

 

Ended June 30,

 

 

 

 

2013 

 

2012 

 

2013 

 

2012 

Income (loss) from the mark-to-market of J.C. Penney derivative

 

 

 

 

 

 

 

 

 

 

 

 

 

position

 

$

9,065 

 

$

(58,732)

 

$

(13,475)

 

$

(57,687)

Income from prepayment penalties in connection with the

 

 

 

 

 

 

 

 

 

 

 

 

 

repayment of a mezzanine loan

 

 

5,267 

 

 

 

 

5,267 

 

 

Interest on mezzanine loans receivable

 

 

4,940 

 

 

3,165 

 

 

10,017 

 

 

6,015 

Dividends and interest on marketable securities

 

 

2,770 

 

 

4,846 

 

 

5,540 

 

 

11,093 

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

 

 

2,492 

 

 

24 

 

 

5,938 

 

 

4,151 

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

 

 

 

 

 

 

(39,487)

 

 

Other, net

 

 

1,882 

 

 

1,525 

 

 

3,542 

 

 

2,921 

 

 

$

26,416 

 

$

(49,172)

 

$

(22,658)

 

$

(33,507)

__________________________

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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.

 

19.     Interest and Debt Expense

 

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

 

 

 

 

For the Three Months

 

For the Six Months

 

 

(Amounts in thousands)

 

Ended June 30,

 

Ended June 30,

 

 

 

 

 

 

2013 

 

2012 

 

2013 

 

2012 

 

 

Interest expense

 

$

126,161 

 

$

118,747 

 

$

250,887 

 

$

243,394 

 

 

Amortization of deferred financing costs

 

 

4,833 

 

 

5,918 

 

 

10,255 

 

 

11,346 

 

 

Capitalized interest

 

 

(9,232)

 

 

(345)

 

 

(17,492)

 

 

(361)

 

 

 

 

$

121,762 

 

$

124,320 

 

$

243,650 

 

$

254,379 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

20.    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.

 

 

 

 

 

For the Three Months

 

For the Six Months

 

(Amounts in thousands, except per share amounts)

Ended June 30,

 

Ended June 30,

 

 

 

 

 

2013 

 

2012 

 

2013 

 

2012 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net of income attributable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

to noncontrolling interests

$

97,862 

 

$

21,163 

 

$

165,383 

 

$

204,792 

 

 

Income from discontinued operations, net of income attributable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

to noncontrolling interests

 

60,332 

 

 

17,134 

 

 

255,733 

 

 

85,027 

 

 

Net income attributable to Vornado

 

158,194 

 

 

38,297 

 

 

421,116 

 

 

289,819 

 

 

Preferred share dividends

 

(20,368)

 

 

(17,787)

 

 

(42,070)

 

 

(35,574)

 

 

Preferred unit and share redemptions

 

8,100 

 

 

 

 

(1,130)

 

 

 

 

Net income attributable to common shareholders

 

145,926 

 

 

20,510 

 

 

377,916 

 

 

254,245 

 

 

Earnings allocated to unvested participating securities

 

(31)

 

 

(40)

 

 

(86)

 

 

(79)

 

 

Numerator for basic income per share

 

145,895 

 

 

20,470 

 

 

377,830 

 

 

254,166 

 

 

Impact of assumed conversions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible preferred share dividends

 

27 

 

 

 

 

55 

 

 

57 

 

 

Numerator for diluted income per share

$

145,922 

 

$

20,470 

 

$

377,885 

 

$

254,223 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic income per share – weighted average shares

 

186,931 

 

 

185,673 

 

 

186,842 

 

 

185,521 

 

 

Effect of dilutive securities(1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock options and restricted share awards

 

742 

 

 

669 

 

 

737 

 

 

700 

 

 

 

Convertible preferred shares

 

47 

 

 

 

 

48 

 

 

50 

 

 

Denominator for diluted income per share – weighted average

 

 

 

 

 

 

 

 

 

 

 

 

 

 

shares and assumed conversions

 

187,720 

 

 

186,342 

 

 

187,627 

 

 

186,271 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME PER COMMON SHARE – BASIC:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net

$

0.46 

 

$

0.02 

 

$

0.65 

 

$

0.91 

 

 

Income from discontinued operations, net

 

0.32 

 

 

0.09 

 

 

1.37 

 

 

0.46 

 

 

Net income per common share

$

0.78 

 

$

0.11 

 

$

2.02 

 

$

1.37 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME PER COMMON SHARE – DILUTED:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net

$

0.46 

 

$

0.02 

 

$

0.65 

 

$

0.91 

 

 

Income from discontinued operations, net

 

0.32 

 

 

0.09 

 

 

1.36 

 

 

0.45 

 

 

Net income per common share

$

0.78 

 

$

0.11 

 

$

2.01 

 

$

1.36 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

 

The effect of dilutive securities in the three months ended June 30, 2013 and 2012 excludes an aggregate of 11,913 and 14,002 weighted average common share equivalents, respectively, and 11,911 and 16,292 weighted average common share equivalents in the six months ended June 30, 2013 and 2012, respectively, as their effect was anti-dilutive.

 

31

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

21.    Commitments and Contingencies

 

 

Insurance 

 

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

 

Penn Plaza Insurance Company, LLC (“PPIC”), our wholly owned consolidated subsidiary, acts as a re-insurer with respect to 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 acts of terrorism, including nuclear, biological, chemical and radiological (“NBCR”) acts, as defined by the Terrorism Risk Insurance Program Reauthorization Act.  Coverage for acts of terrorism (excluding NBCR acts) is fully reinsured by third party insurance companies and the Federal government with no exposure to PPIC.  Coverage for NBCR losses is up to $2.0 billion per occurrence, for which PPIC is responsible for a deductible of $3,200,000 and 15% of the balance of a covered loss and the Federal government is responsible for the remaining 85% of a covered loss.  We are ultimately responsible for any losses 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 future policy years.

 

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 June 30, 2013, the aggregate dollar amount of these guarantees and master leases is approximately $372,000,000.

 

At June 30, 2013, $22,053,000 of letters of credit were outstanding under one of our revolving credit facilities.  Our credit facilities contain financial covenants that require us to maintain minimum interest coverage and maximum debt to market capitalization ratios, and provide for higher interest rates in the event of a decline in our ratings below Baa3/BBB. Our credit facilities also contain customary conditions precedent to borrowing, including representations and warranties, and also contain customary events of default that could give rise to accelerated repayment, including such items as failure to pay interest or principal.

 

Two of our wholly owned subsidiaries that are contracted to develop and operate the Cleveland Medical Mart and Convention Center, in Cleveland, Ohio, are required to fund $11,500,000, primarily for tenant improvements, and they are responsible for operating expenses and are entitled to the net operating income, if any, upon the completion of development and the commencement of operations.  As of June 30, 2013, our subsidiaries have funded approximately $3,177,000 of the commitment.

 

As of June 30, 2013, we expect to fund additional capital to certain of our partially owned entities aggregating approximately $168,000,000. 

32

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

22.    Segment Information

 

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 our Other segment.  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 three and six months ended June 30, 2013 and 2012.  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

For the Three Months Ended June 30, 2013

 

 

 

 

 

 

 

 

 

 

Retail

 

 

 

 

 

 

 

 

 

Total

 

New York

 

Washington, DC

 

Properties

 

Toys

 

Other

 

Property rentals

 

$

519,733 

 

$

286,844 

 

$

112,733 

 

$

64,374 

 

$

 

$

55,782 

 

Straight-line rent adjustments

 

 

13,789 

 

 

7,533 

 

 

1,231 

 

 

909 

 

 

 

 

4,116 

 

Amortization of acquired below-market

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

leases, net

 

 

11,672 

 

 

6,944 

 

 

516 

 

 

2,885 

 

 

 

 

1,327 

 

Total rentals

 

 

545,194 

 

 

301,321 

 

 

114,480 

 

 

68,168 

 

 

 

 

61,225 

 

Tenant expense reimbursements

 

 

75,659 

 

 

38,785 

 

 

10,666 

 

 

22,028 

 

 

 

 

4,180 

 

Cleveland Medical Mart development project

 

 

16,990 

 

 

 

 

 

 

 

 

 

 

16,990 

 

Fee and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BMS cleaning fees

 

 

16,509 

 

 

20,979 

 

 

 

 

 

 

 

 

(4,470)

 

 

Signage revenue

 

 

8,347 

 

 

8,347 

 

 

 

 

 

 

 

 

 

 

Management and leasing fees

 

 

6,435 

 

 

2,854 

 

 

3,459 

 

 

320 

 

 

 

 

(198)

 

 

Lease termination fees

 

 

7,129 

 

 

5,432 

 

 

182 

 

 

198 

 

 

 

 

1,317 

 

 

Other income

 

 

9,595 

 

 

3,254 

 

 

5,530 

 

 

283 

 

 

 

 

528 

 

Total revenues

 

 

685,858 

 

 

380,972 

 

 

134,317 

 

 

90,997 

 

 

 

 

79,572 

 

Operating expenses

 

 

261,080 

 

 

157,622 

 

 

48,290 

 

 

34,091 

 

 

 

 

21,077 

 

Depreciation and amortization

 

 

135,486 

 

 

69,387 

 

 

30,619 

 

 

15,457 

 

 

 

 

20,023 

 

General and administrative

 

 

54,323 

 

 

8,881 

 

 

6,873 

 

 

5,169 

 

 

 

 

33,400 

 

Cleveland Medical Mart development project

 

 

15,151 

 

 

 

 

 

 

 

 

 

 

15,151 

 

Acquisition related costs

 

 

3,350 

 

 

 

 

 

 

 

 

 

 

3,350 

 

Total expenses

 

 

469,390 

 

 

235,890 

 

 

85,782 

 

 

54,717 

 

 

 

 

93,001 

 

Operating income (loss)

 

 

216,468 

 

 

145,082 

 

 

48,535 

 

 

36,280 

 

 

 

 

(13,429)

 

(Loss) applicable to Toys

 

 

(36,861)

 

 

 

 

 

 

 

 

(36,861)

 

 

 

Income (loss) from partially owned entities

 

 

1,472 

 

 

4,226 

 

 

(2,449)

 

 

423 

 

 

 

 

(728)

 

Income from Real Estate Fund

 

 

34,470 

 

 

 

 

 

 

 

 

 

 

34,470 

 

Interest and other investment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

income (loss), net

 

 

26,416 

 

 

1,443 

 

 

 

 

(48)

 

 

 

 

25,015 

 

Interest and debt expense

 

 

(121,762)

 

 

(42,835)

 

 

(27,854)

 

 

(12,435)

 

 

 

 

(38,638)

 

Net gain on disposition of wholly owned and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

partially owned assets

 

 

1,005 

 

 

 

 

 

 

 

 

 

 

1,005 

 

Income (loss) before income taxes

 

 

121,208 

 

 

107,916 

 

 

18,238 

 

 

24,220 

 

 

(36,861)

 

 

7,695 

 

Income tax expense

 

 

(2,877)

 

 

(961)

 

 

(805)

 

 

(749)

 

 

 

 

(362)

 

Income (loss) from continuing operations

 

 

118,331 

 

 

106,955 

 

 

17,433 

 

 

23,471 

 

 

(36,861)

 

 

7,333 

 

Income (loss) from discontinued operations

 

 

63,990 

 

 

 

 

 

 

64,136 

 

 

 

 

(146)

 

Net income (loss)

 

 

182,321 

 

 

106,955 

 

 

17,433 

 

 

87,607 

 

 

(36,861)

 

 

7,187 

 

Less net income attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated subsidiaries

 

 

(14,930)

 

 

(1,381)

 

 

 

 

(13)

 

 

 

 

(13,536)

 

 

Operating Partnership

 

 

(8,849)

 

 

 

 

 

 

 

 

 

 

(8,849)

 

 

Preferred unit distributions of the

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Partnership

 

 

(348)

 

 

 

 

 

 

 

 

 

 

(348)

 

Net income (loss) attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vornado

 

 

158,194 

 

 

105,574 

 

 

17,433 

 

 

87,594 

 

 

(36,861)

 

 

(15,546)

 

Interest and debt expense(2)

 

 

179,461 

 

 

54,546 

 

 

31,245 

 

 

13,715 

 

 

37,730 

 

 

42,225 

 

Depreciation and amortization(2)

 

 

182,131 

 

 

74,573 

 

 

35,248 

 

 

16,348 

 

 

33,882 

 

 

22,080 

 

Income tax (benefit) expense (2)

 

 

(22,366)

 

 

1,030 

 

 

852 

 

 

749 

 

 

(25,697)

 

 

700 

 

EBITDA(1)

 

$

497,420 

 

$

235,723 

(3)

$

84,778 

(4)

$

118,406 

(5)

$

9,054 

 

$

49,459 

(6)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes on page 37.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

33

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

22.    Segment Information – continued

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

For the Three Months Ended June 30, 2012

 

 

 

 

 

 

 

 

 

 

Retail

 

 

 

 

 

 

 

 

 

Total

 

New York

 

Washington, DC

 

Properties

 

Toys

 

Other

 

Property rentals

 

$

484,016 

 

$

245,948 

 

$

118,014 

 

$

64,554 

 

$

 

$

55,500 

 

Straight-line rent adjustments

 

 

20,647 

 

 

17,065 

 

 

1,258 

 

 

2,276 

 

 

 

 

48 

 

Amortization of acquired below-market

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

leases, net

 

 

12,570 

 

 

7,623 

 

 

508 

 

 

2,950 

 

 

 

 

1,489 

 

Total rentals

 

 

517,233 

 

 

270,636 

 

 

119,780 

 

 

69,780 

 

 

 

 

57,037 

 

Tenant expense reimbursements

 

 

71,409 

 

 

36,985 

 

 

10,862 

 

 

20,986 

 

 

 

 

2,576 

 

Cleveland Medical Mart development project

 

 

56,304 

 

 

 

 

 

 

 

 

 

 

56,304 

 

Fee and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BMS cleaning fees

 

 

16,982 

 

 

23,911 

 

 

 

 

 

 

 

 

(6,929)

 

 

Signage revenue

 

 

4,879 

 

 

4,879 

 

 

 

 

 

 

 

 

 

 

Management and leasing fees

 

 

4,546 

 

 

1,113 

 

 

2,384 

 

 

1,068 

 

 

 

 

(19)

 

 

Lease termination fees

 

 

479 

 

 

233 

 

 

128 

 

 

 

 

 

 

117 

 

 

Other income

 

 

6,151 

 

 

576 

 

 

4,968 

 

 

373 

 

 

 

 

234 

 

Total revenues

 

 

677,983 

 

 

338,333 

 

 

138,122 

 

 

92,208 

 

 

 

 

109,320 

 

Operating expenses

 

 

243,485 

 

 

143,190 

 

 

47,416 

 

 

33,708 

 

 

 

 

19,171 

 

Depreciation and amortization

 

 

128,372 

 

 

56,665 

 

 

35,017 

 

 

18,495 

 

 

 

 

18,195 

 

General and administrative

 

 

46,832 

 

 

6,654 

 

 

6,231 

 

 

6,367 

 

 

 

 

27,580 

 

Cleveland Medical Mart development project

 

 

53,935 

 

 

 

 

 

 

 

 

 

 

53,935 

 

Acquisition related costs

 

 

2,559 

 

 

 

 

 

 

 

 

 

 

2,559 

 

Total expenses

 

 

475,183 

 

 

206,509 

 

 

88,664 

 

 

58,570 

 

 

 

 

121,440 

 

Operating income (loss)

 

 

202,800 

 

 

131,824 

 

 

49,458 

 

 

33,638 

 

 

 

 

(12,120)

 

(Loss) applicable to Toys

 

 

(19,190)

 

 

 

 

 

 

 

 

(19,190)

 

 

 

Income (loss) from partially owned entities

 

 

12,563 

 

 

6,851 

 

 

(519)

 

 

294 

 

 

 

 

5,937 

 

Income from Real Estate Fund

 

 

20,301 

 

 

 

 

 

 

 

 

 

 

20,301 

 

Interest and other investment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(loss) income, net

 

 

(49,172)

 

 

1,057 

 

 

29 

 

 

 

 

 

 

(50,264)

 

Interest and debt expense

 

 

(124,320)

 

 

(36,407)

 

 

(27,999)

 

 

(16,170)

 

 

 

 

(43,744)

 

Net gain on disposition of wholly owned and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

partially owned assets

 

 

4,856 

 

 

 

 

 

 

 

 

 

 

4,856 

 

Income (loss) before income taxes

 

 

47,838 

 

 

103,325 

 

 

20,969 

 

 

17,768 

 

 

(19,190)

 

 

(75,034)

 

Income tax expense

 

 

(7,479)

 

 

(1,064)

 

 

(852)

 

 

 

 

 

 

(5,563)

 

Income (loss) from continuing operations

 

 

40,359 

 

 

102,261 

 

 

20,117 

 

 

17,768 

 

 

(19,190)

 

 

(80,597)

 

Income (loss) from discontinued operations

 

 

17,869 

 

 

(32)

 

 

2,956 

 

 

16,254 

 

 

 

 

(1,309)

 

Net income (loss)

 

 

58,228 

 

 

102,229 

 

 

23,073 

 

 

34,022 

 

 

(19,190)

 

 

(81,906)

 

Less net (income) loss attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated subsidiaries

 

 

(14,721)

 

 

(2,998)

 

 

 

 

97 

 

 

 

 

(11,820)

 

 

Operating Partnership

 

 

(1,337)

 

 

 

 

 

 

 

 

 

 

(1,337)

 

 

Preferred unit distributions of the

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Partnership

 

 

(3,873)

 

 

 

 

 

 

 

 

 

 

(3,873)

 

Net income (loss) attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vornado

 

 

38,297 

 

 

99,231 

 

 

23,073 

 

 

34,119 

 

 

(19,190)

 

 

(98,936)

 

Interest and debt expense(2)

 

 

190,942 

 

 

46,413 

 

 

32,549 

 

 

20,102 

 

 

37,293 

 

 

54,585 

 

Depreciation and amortization(2)

 

 

184,028 

 

 

63,664 

 

 

39,656 

 

 

22,131 

 

 

32,505 

 

 

26,072 

 

Income tax (benefit) expense(2)

 

 

(5,214)

 

 

1,113 

 

 

1,034 

 

 

 

 

(14,103)

 

 

6,742 

 

EBITDA(1)

 

$

408,053 

 

$

210,421 

(3)

$

96,312 

(4)

$

76,352 

(5)

$

36,505 

 

$

(11,537)

(6)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes on page 37.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

34

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

22.    Segment Information – continued

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

For the Six Months Ended June 30, 2013

 

 

 

 

 

 

 

 

 

 

Retail

 

 

 

 

 

 

 

 

 

Total

 

New York

 

Washington, DC

 

Properties

 

Toys

 

Other

 

Property rentals

 

$

1,018,247 

 

$

561,494 

 

$

225,005 

 

$

128,785 

 

$

 

$

102,963 

 

Straight-line rent adjustments

 

 

32,297 

 

 

17,859 

 

 

4,008 

 

 

2,367 

 

 

 

 

8,063 

 

Amortization of acquired below-market

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

leases, net

 

 

28,506 

 

 

19,033 

 

 

1,022 

 

 

5,775 

 

 

 

 

2,676 

 

Total rentals

 

 

1,079,050 

 

 

598,386 

 

 

230,035 

 

 

136,927 

 

 

 

 

113,702 

 

Tenant expense reimbursements

 

 

152,415 

 

 

81,456 

 

 

20,802 

 

 

42,404 

 

 

 

 

7,753 

 

Cleveland Medical Mart development project

 

 

29,133 

 

 

 

 

 

 

 

 

 

 

29,133 

 

Fee and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BMS cleaning fees

 

 

33,173 

 

 

42,001 

 

 

 

 

 

 

 

 

(8,828)

 

 

Signage revenue

 

 

14,828 

 

 

14,828 

 

 

 

 

 

 

 

 

 

 

Management and leasing fees

 

 

11,693 

 

 

4,918 

 

 

6,266 

 

 

799 

 

 

 

 

(290)

 

 

Lease termination fees

 

 

67,155 

 

 

5,490 

 

 

550 

 

 

59,797 

 

 

 

 

1,318 

 

 

Other income

 

 

18,390 

 

 

3,969 

 

 

11,395 

 

 

859 

 

 

 

 

2,167 

 

Total revenues

 

 

1,405,837 

 

 

751,048 

 

 

269,048 

 

 

240,786 

 

 

 

 

144,955 

 

Operating expenses

 

 

520,953 

 

 

317,853 

 

 

95,612 

 

 

68,090 

 

 

 

 

39,398 

 

Depreciation and amortization

 

 

277,570 

 

 

145,621 

 

 

61,569 

 

 

32,177 

 

 

 

 

38,203 

 

General and administrative

 

 

108,905 

 

 

17,703 

 

 

13,798 

 

 

10,584 

 

 

 

 

66,820 

 

Cleveland Medical Mart development project

 

 

26,525 

 

 

 

 

 

 

 

 

 

 

26,525 

 

Acquisition related costs

 

 

3,951 

 

 

 

 

 

 

 

 

 

 

3,951 

 

Total expenses

 

 

937,904 

 

 

481,177 

 

 

170,979 

 

 

110,851 

 

 

 

 

174,897 

 

Operating income (loss)

 

 

467,933 

 

 

269,871 

 

 

98,069 

 

 

129,935 

 

 

 

 

(29,942)

 

(Loss) applicable to Toys

 

 

(35,102)

 

 

 

 

 

 

 

 

(35,102)

 

 

 

Income (loss) from partially owned entities

 

 

22,238 

 

 

9,831 

 

 

(4,542)

 

 

1,324 

 

 

 

 

15,625 

 

Income from Real Estate Fund

 

 

51,034 

 

 

 

 

 

 

 

 

 

 

51,034 

 

Interest and other investment (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

income, net

 

 

(22,658)

 

 

2,608 

 

 

82 

 

 

 

 

 

 

(25,352)

 

Interest and debt expense

 

 

(243,650)

 

 

(83,453)

 

 

(56,104)

 

 

(24,076)

 

 

 

 

(80,017)

 

Net loss on disposition of wholly owned and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

partially owned assets

 

 

(35,719)

 

 

 

 

 

 

 

 

 

 

(35,719)

 

Income (loss) before income taxes

 

 

204,076 

 

 

198,857 

 

 

37,505 

 

 

107,187 

 

 

(35,102)

 

 

(104,371)

 

Income tax expense

 

 

(3,950)

 

 

(1,233)

 

 

(1,183)

 

 

(749)

 

 

 

 

(785)

 

Income (loss) from continuing operations

 

 

200,126 

 

 

197,624 

 

 

36,322 

 

 

106,438 

 

 

(35,102)

 

 

(105,156)

 

Income from discontinued operations

 

 

271,122 

 

 

 

 

 

 

270,849 

 

 

 

 

273 

 

Net income (loss)

 

 

471,248 

 

 

197,624 

 

 

36,322 

 

 

377,287 

 

 

(35,102)

 

 

(104,883)

 

Less net income attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated subsidiaries

 

 

(26,216)

 

 

(2,962)

 

 

 

 

(109)

 

 

 

 

(23,145)

 

 

Operating Partnership

 

 

(22,782)

 

 

 

 

 

 

 

 

 

 

(22,782)

 

 

Preferred unit distributions of the

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Partnership

 

 

(1,134)

 

 

 

 

 

 

 

 

 

 

(1,134)

 

Net income (loss) attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vornado

 

 

421,116 

 

 

194,662 

 

 

36,322 

 

 

377,178 

 

 

(35,102)

 

 

(151,944)

 

Interest and debt expense(2)

 

 

368,241 

 

 

104,235 

 

 

62,998 

 

 

27,938 

 

 

80,912 

 

 

92,158 

 

Depreciation and amortization(2)

 

 

376,316 

 

 

152,986 

 

 

70,396 

 

 

34,867 

 

 

71,556 

 

 

46,511 

 

Income tax expense(2)

 

 

38,393 

 

 

1,377 

 

 

1,306 

 

 

749 

 

 

33,649 

 

 

1,312 

 

EBITDA(1)

 

$

1,204,066 

 

$

453,260 

(3)

$

171,022 

(4)

$

440,732 

(5)

$

151,015 

 

$

(11,963)

(6)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes on page 37.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

35

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

22.    Segment Information – continued

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

 

For the Six Months Ended June 30, 2012

 

 

 

 

 

 

 

 

 

 

Retail

 

 

 

 

 

 

 

 

 

Total

 

New York

 

Washington, DC

 

Properties

 

Toys

 

Other

 

Property rentals

 

$

958,447 

 

$

479,884 

 

$

240,818 

 

$

129,146 

 

$

 

$

108,599 

 

Straight-line rent adjustments

 

 

41,966 

 

 

34,194 

 

 

3,115 

 

 

3,580 

 

 

 

 

1,077 

 

Amortization of acquired below-market

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

leases, net

 

 

26,313 

 

 

15,318 

 

 

1,031 

 

 

7,107 

 

 

 

 

2,857 

 

Total rentals

 

 

1,026,726 

 

 

529,396 

 

 

244,964 

 

 

139,833 

 

 

 

 

112,533 

 

Tenant expense reimbursements

 

 

141,906 

 

 

73,697 

 

 

20,870 

 

 

41,962 

 

 

 

 

5,377 

 

Cleveland Medical Mart development project

 

 

111,363 

 

 

 

 

 

 

 

 

 

 

111,363 

 

Fee and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BMS cleaning fees

 

 

32,492 

 

 

46,558 

 

 

 

 

 

 

 

 

(14,066)

 

 

Signage revenue

 

 

9,469 

 

 

9,469 

 

 

 

 

 

 

 

 

 

 

Management and leasing fees

 

 

9,300 

 

 

2,221 

 

 

5,167 

 

 

1,904 

 

 

 

 

 

 

Lease termination fees

 

 

890 

 

 

256 

 

 

128 

 

 

 

 

 

 

505 

 

 

Other income

 

 

14,164 

 

 

2,333 

 

 

10,558 

 

 

714 

 

 

 

 

559 

 

Total revenues

 

 

1,346,310 

 

 

663,930 

 

 

281,687 

 

 

184,414 

 

 

 

 

216,279 

 

Operating expenses

 

 

489,462 

 

 

288,862 

 

 

93,618 

 

 

68,189 

 

 

 

 

38,793 

 

Depreciation and amortization

 

 

259,767 

 

 

110,424 

 

 

77,570 

 

 

36,256 

 

 

 

 

35,517 

 

General and administrative

 

 

102,122 

 

 

15,241 

 

 

13,181 

 

 

12,700 

 

 

 

 

61,000 

 

Cleveland Medical Mart development project

 

 

106,696 

 

 

 

 

 

 

 

 

 

 

106,696 

 

Acquisition related costs

 

 

3,244 

 

 

 

 

 

 

 

 

 

 

3,244 

 

Total expenses

 

 

961,291 

 

 

414,527 

 

 

184,369 

 

 

117,145 

 

 

 

 

245,250 

 

Operating income (loss)

 

 

385,019 

 

 

249,403 

 

 

97,318 

 

 

67,269 

 

 

 

 

(28,971)

 

Income applicable to Toys

 

 

97,281 

 

 

 

 

 

 

 

 

97,281 

 

 

 

Income (loss) from partially owned entities

 

 

32,223 

 

 

11,036 

 

 

(2,389)

 

 

698 

 

 

 

 

22,878 

 

Income from Real Estate Fund

 

 

32,063 

 

 

 

 

 

 

 

 

 

 

32,063 

 

Interest and other investment (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

income, net

 

 

(33,507)

 

 

2,109 

 

 

73 

 

 

20 

 

 

 

 

(35,709)

 

Interest and debt expense

 

 

(254,379)

 

 

(72,548)

 

 

(57,097)

 

 

(32,522)

 

 

 

 

(92,212)

 

Net gain on disposition of wholly owned and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

partially owned assets

 

 

4,856 

 

 

 

 

 

 

 

 

 

 

4,856 

 

Income (loss) before income taxes

 

 

263,556 

 

 

190,000 

 

 

37,905 

 

 

35,465 

 

 

97,281 

 

 

(97,095)

 

Income tax expense

 

 

(14,304)

 

 

(1,665)

 

 

(1,302)

 

 

 

 

 

 

(11,337)

 

Income (loss) from continuing operations

 

 

249,252 

 

 

188,335 

 

 

36,603 

 

 

35,465 

 

 

97,281 

 

 

(108,432)

 

Income (loss) from discontinued operations

89,240 

 

 

(640)

 

 

4,542 

 

 

26,473 

 

 

 

 

58,865 

 

Net income (loss)

 

 

338,492 

 

 

187,695 

 

 

41,145 

 

 

61,938 

 

 

97,281 

 

 

(49,567)

 

Less net (income) loss attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated subsidiaries

 

 

(24,318)

 

 

(5,174)

 

 

 

 

211 

 

 

 

 

(19,355)

 

 

Operating Partnership

 

 

(16,608)

 

 

 

 

 

 

 

 

 

 

(16,608)

 

 

Preferred unit distributions of the

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Partnership

 

 

(7,747)

 

 

 

 

 

 

 

 

 

 

(7,747)

 

Net income (loss) attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vornado

 

 

289,819 

 

 

182,521 

 

 

41,145 

 

 

62,149 

 

 

97,281 

 

 

(93,277)

 

Interest and debt expense(2)

 

 

384,024 

 

 

93,471 

 

 

66,206 

 

 

40,540 

 

 

68,862 

 

 

114,945 

 

Depreciation and amortization(2)

 

 

375,201 

 

 

125,575 

 

 

87,916 

 

 

44,406 

 

 

67,211 

 

 

50,093 

 

Income tax expense(2)

 

 

46,226 

 

 

1,806 

 

 

1,557 

 

 

 

 

29,100 

 

 

13,763 

 

EBITDA(1)

 

$

1,095,270 

 

$

403,373 

(3)

$

196,824 

(4)

$

147,095 

(5)

$

262,454 

 

$

85,524 

(6)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes on the following page.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

36

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

22. Segment Information - continued

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes to preceding tabular information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months

 

For the Six Months

 

 

 

 

 

 

 

 

 

Ended June 30,

 

Ended June 30,

 

 

(Amounts in thousands)

 

2013 

 

2012 

 

2013 

 

2012 

 

 

Office

 

$

158,186 

 

$

142,077 

 

$

304,482 

 

$

277,257 

 

 

Retail

 

 

57,230 

 

 

45,577 

 

 

117,612 

 

 

90,497 

 

 

Alexander's (decrease due to sale of Kings Plaza

 

 

 

 

 

 

 

 

 

 

 

 

 

in November 2012)

10,213 

 

 

13,026 

 

 

20,754 

 

 

26,397 

 

 

Hotel Pennsylvania

 

 

10,094 

 

 

9,741 

 

 

10,412 

 

 

9,222 

 

 

 

Total New York

 

$

235,723 

 

$

210,421 

 

$

453,260 

 

$

403,373 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months

 

For the Six Months

 

 

 

 

 

 

 

 

 

Ended June 30,

 

Ended June 30,

 

 

(Amounts in thousands)

 

2013 

 

2012 

 

2013 

 

2012 

 

 

Office, excluding the Skyline Properties

 

$

66,136 

 

$

74,953 

 

$

133,243 

 

$

153,287 

 

 

Skyline properties

 

 

7,543 

 

 

10,661 

 

 

15,705 

 

 

22,191 

 

 

 

Total Office

 

 

73,679 

 

 

85,614 

 

 

148,948 

 

 

175,478 

 

 

Residential

 

 

11,099 

 

 

10,698 

 

 

22,074 

 

 

21,346 

 

 

 

Total Washington, DC

 

$

84,778 

 

$

96,312 

 

$

171,022 

 

$

196,824 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months

 

For the Six Months

 

 

 

 

 

 

 

 

 

Ended June 30,

 

Ended June 30,

 

 

(Amounts in thousands)

 

2013 

 

2012 

 

2013 

 

2012 

 

 

Strip shopping centers(a)

 

$

101,529 

 

$

52,268 

 

$

204,890 

 

$

99,176 

 

 

Regional malls(b)

 

 

16,877 

 

 

24,084 

 

 

235,842 

 

 

47,919 

 

 

 

Total Retail properties

 

$

118,406 

 

$

76,352 

 

$

440,732 

 

$

147,095 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

 

The three and six months ended June 30, 2013, includes a $33,058 net gain on sale of Philadelphia (Market Street) and a $32,169 net gain on sale of San Jose (The Plant). The six months ended June 30, 2013, includes $59,599 of income pursuant to a settlement agreement with Stop & Shop.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(b)

 

The six months ended June 30, 2013, includes a $202,275 net gain on sale of Green Acres Mall.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

37

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

22. Segment Information - continued

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes to preceding tabular information - continued:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6)

The elements of "other" EBITDA are summarized below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months

 

For the Six Months

 

 

 

 

 

 

 

 

Ended June 30,

 

Ended June 30,

 

(Amounts in thousands)

 

2013 

 

2012 

 

2013 

 

2012 

 

Our share of Real Estate Fund:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income before net realized/unrealized gains

 

$

(1,713)

 

$

170 

 

$

(251)

 

$

2,288 

 

 

Net unrealized gains

 

 

8,398 

 

 

5,284 

 

 

11,777 

 

 

6,995 

 

 

Carried interest

 

 

13,426 

 

 

2,541 

 

 

15,609 

 

 

2,541 

 

Total

 

 

20,111 

 

 

7,995 

 

 

27,135 

 

 

11,824 

 

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

 

 

22,448 

 

 

17,349 

 

 

37,161 

 

 

32,649 

 

555 California Street

 

 

11,022 

 

 

10,377 

 

 

21,651 

 

 

20,692 

 

LNR(a)

 

 

 

 

11,671 

 

 

20,443 

 

 

27,233 

 

Lexington(b)

 

 

 

 

7,703 

 

 

6,931 

 

 

16,921 

 

Other investments

 

 

8,014 

 

 

11,523 

 

 

12,890 

 

 

20,823 

 

 

 

 

61,595 

 

 

66,618 

 

 

126,211 

 

 

130,142 

 

Corporate general and administrative expenses(c)

 

 

(24,831)

 

 

(21,812)

 

 

(47,587)

 

 

(44,129)

 

Investment income and other, net(c)

 

 

16,709 

 

 

15,294 

 

 

28,045 

 

 

27,628 

 

Income (loss) from the mark-to-market of J.C. Penney

 

 

 

 

 

 

 

 

 

 

 

 

 

 

derivative position

 

 

9,065 

 

 

(58,732)

 

 

(13,475)

 

 

(57,687)

 

Acquisition related costs

(3,350)

 

 

(2,559)

 

 

(3,951)

 

 

(3,244)

 

Severance costs (primarily reduction in force at

 

 

 

 

 

 

 

 

 

 

 

 

the Merchandise Mart)

 

 

(1,542)

 

 

 

 

(4,154)

 

 

(506)

 

Net gain on sale of residential condominiums

1,005 

 

 

1,274 

 

 

1,005 

 

 

1,274 

 

Merchandise Mart discontinued operations (including

 

 

 

 

 

 

 

 

 

 

 

 

net gains on sale of assets)

 

 

 

 

(6,410)

 

 

2,146 

 

 

56,401 

 

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

 

 

 

 

(39,487)

 

 

 

Loss on sale of J.C. Penney common shares

 

 

 

 

(36,800)

 

 

 

Net income attributable to noncontrolling interests in

 

 

 

 

 

 

 

 

 

 

 

 

the Operating Partnership

 

 

(8,849)

 

 

(1,337)

 

 

(22,782)

 

 

(16,608)

 

Preferred unit distributions of the Operating Partnership

(348)

 

 

(3,873)

 

 

(1,134)

 

 

(7,747)

 

 

 

 

 

 

 

 

$

49,459 

 

$

(11,537)

 

$

(11,963)

 

$

85,524 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

On April 22, 2013, LNR was sold (see page 14 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 (see page 12 for details).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(c)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

38

 


 

  

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

Shareholders and Board of Trustees

Vornado Realty Trust

New York, New York

 

We have reviewed the accompanying consolidated balance sheet of Vornado Realty Trust (the “Company”) as of June 30, 2013, and the related consolidated statements of income and comprehensive income for the three-month and six-month periods ended June 30, 2013 and 2012, and changes in equity and cash flows for the six-month periods ended June 30, 2013 and 2012.  These interim financial statements are the responsibility of the Company’s management.

 

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

 

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

 

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Vornado Realty Trust as of December 31, 2012, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for the year then ended (not presented herein); and in our report dated February 26, 2013, we expressed an unqualified opinion on those consolidated financial statements.  In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2012 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

 

/s/ DELOITTE & TOUCHE LLP

 

Parsippany, New Jersey

August 5, 2013

39

 


 

  

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

 

 

Certain statements contained in this Quarterly Report constitute forward‑looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not guarantees of performance. They represent our intentions, plans, expectations and beliefs and are subject to numerous assumptions, risks and uncertainties. Our future results, financial condition and business may differ materially from those expressed in these forward-looking statements. You can find many of these statements by looking for words such as “approximates,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “would,” “may” or other similar expressions in this Quarterly Report on Form 10‑Q.  Many of the factors that will determine the outcome of these and our other forward-looking statements are beyond our ability to control or predict. For further discussion of factors that could materially affect the outcome of our forward-looking statements, see “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2012.  For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q or the date of any document incorporated by reference. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to our forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations includes a discussion of our consolidated financial statements for the three and six months ended June 30, 2013.  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.  The results of operations for the three and six months ended June 30, 2013 are not necessarily indicative of the operating results for the full year.  Certain prior year balances have been reclassified in order to conform to current year presentation.

40

 


 
 

  

Overview

 

Business Objective and Operating Strategy

Our business objective is to maximize shareholder value, which we measure by the total return provided to our shareholders. Below is a table comparing our performance to the FTSE NAREIT Office REIT Index (“Office REIT”) and the Morgan Stanley REIT Index (“RMS”) for the following periods ended June 30, 2013.

 

 

 

 

Total Return(1)

 

 

 

 

Vornado

 

Office REIT

 

RMS

 

 

 

Three-month

(0.1%)

 

(1.0%)

 

(1.6%)

 

 

 

Six-month

5.2%

 

6.7%

 

6.4%

 

 

 

One-year

3.4%

 

7.1%

 

9.0%

 

 

 

Three-year

27.0%

 

42.1%

 

65.5%

 

 

 

Five-year

17.5%

 

19.3%

 

44.5%

 

 

 

Ten-year

195.1%

 

117.2%

 

179.4%

 

 

 

 

 

 

 

 

 

 

 

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

 

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

 

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

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

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

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

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

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

 

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

 

 

41

 


 

  

Overview – continued

 

 

Quarter Ended June 30, 2013 Financial Results Summary

 

Net income attributable to common shareholders for the quarter ended June 30, 2013 was $145,926,000, or $0.78 per diluted share, compared to $20,510,000, or $0.11 per diluted share for the quarter ended June 30, 2012.  Net income for the quarters ended June 30, 2013 and 2012 include $65,665,000 and $17,130,000, respectively, of net gains on sale of real estate, and $3,113,000 and $14,879,000, respectively, of real estate impairment losses.  In addition, the quarters ended June 30, 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 income attributable to common shareholders for the quarter ended June 30, 2013 by $37,984,000, or $0.20 per diluted share and decreased net income attributable to common shareholders for the quarter ended June 30, 2012 by $48,933,000, or $0.26 per diluted share.

 

Funds From Operations attributable to common shareholders plus assumed conversions (“FFO”) for the quarter ended June 30, 2013 was $235,348,000, or $1.25 per diluted share, compared to $166,672,000, or $0.89 per diluted share for the prior year’s quarter.  FFO for the quarters ended June 30, 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 by $9,645,000, or $0.05 per diluted share for the quarter ended June 30, 2013, and $31,816,000, or $0.17 per diluted share for the quarter ended June 30, 2012.

 

 

 

 

 

 

 

 

For the Three Months Ended June 30,

(Amounts in thousands)

2013 

 

2012 

Items that affect comparability income (expense):

 

 

 

 

 

 

Toys "R" Us FFO

$

(25,088)

 

$

(7,660)

 

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

 

9,065 

 

 

(58,732)

 

Preferred unit redemptions

 

8,100 

 

 

 

FFO from discontinued operations, including LNR and discontinued operations of

 

 

 

 

 

 

 

Alexander's

 

985 

 

 

31,885 

 

Acquisition related costs

 

(3,350)

 

 

(2,559)

 

Other, net

 

(484)

 

 

2,646 

 

 

 

 

(10,772)

 

 

(34,420)

Noncontrolling interests' share of above adjustments

 

1,127 

 

 

2,604 

Items that affect comparability, net

$

(9,645)

 

$

(31,816)

 

 

The percentage increase (decrease) in GAAP basis and Cash basis same store Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) of our operating segments for the quarter ended June 30, 2013 over the quarter ended June 30, 2012 and the trailing quarter ended March 31, 2013 are summarized below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Same Store EBITDA:

 

New York

 

Washington, DC

 

Retail Properties

 

 

 

June 30, 2013 vs. June 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP basis

 

4.4

%

(1)

 

(5.5

%)

 

 

3.1

%

 

 

 

 

 

Cash basis

 

8.8

%

(1)

 

(5.9

%)

 

 

4.2

%

 

 

 

 

June 30, 2013 vs. March 31, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP basis

 

8.2

%

(2)

 

0.1

%

 

 

1.9

%

 

 

 

 

 

Cash basis

 

9.8

%

(2)

 

1.9

%

 

 

2.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Excluding the Hotel Pennsylvania, same store EBITDA increased by 4.5% and 9.1% on a GAAP and cash basis, respectively.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2)

Excluding the Hotel Pennsylvania, same store EBITDA increased by 3.7% and 4.6% on a GAAP and cash basis, respectively.

 

 

42

 


 
 

  

Overview – continued

 

 

Six Months Ended June 30, 2013 Financial Results Summary

 

Net income attributable to common shareholders for the six months ended June 30, 2013 was $377,916,000, or $2.01 per diluted share, compared to $254,245,000, or $1.36 per diluted share for the six months ended June 30, 2012. Net income for the six months ended June 30, 2013 and 2012 include $268,459,000 and $73,608,000, respectively, of net gains on sale of real estate, and $8,277,000 and $23,754,000, respectively, of real estate impairment losses.  In addition, the six months ended June 30, 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, increased net income attributable to common shareholders by $197,488,000, or $1.05 per diluted share for the six months ended June 30, 2013, and $137,840,000, or $0.74 per diluted share for the six months ended June 30, 2012.

 

FFO for the six months ended June 30, 2013 was $437,168,000, or $2.33 per diluted share, compared to $516,328,000, or $2.72 per diluted share for the six months ended June 30, 2012.  FFO for the six months ended June 30, 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 by $20,873,000, or $0.11 per diluted share for the six months ended June 30, 2013, and increased FFO by $129,387,000, or $0.68 per diluted share for six months ended June 30, 2012.

 

 

 

 

For the Six Months Ended June 30,

(Amounts in thousands)

2013 

 

2012 

Items that affect comparability income (expense):

 

 

 

 

 

 

Stop & Shop litigation settlement income

$

59,599 

 

$

 

FFO from discontinued operations, including LNR and discontinued operations of Alexander's

27,379 

 

 

71,205 

 

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

 

(39,487)

 

 

 

Loss on sale of J.C. Penney common shares

 

(36,800)

 

 

 

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

 

(13,475)

 

 

(57,687)

 

Toys "R" Us FFO (after a $78,542 impairment loss in 2013)

 

(8,404)

 

 

124,628 

 

Acquisition related costs

 

(3,951)

 

 

(3,244)

 

Preferred unit and share redemptions

 

(1,130)

 

 

 

Other, net

 

(6,268)

 

 

3,015 

 

 

 

(22,537)

 

 

137,917 

Noncontrolling interests' share of above adjustments

 

1,664 

 

 

(8,530)

Items that affect comparability, net

$

(20,873)

 

$

129,387 

 

The percentage increase (decrease) in GAAP basis and Cash basis same store EBITDA of our operating segments for the six months ended June 30, 2013 over the six months ended June 30, 2012 is summarized below.

 

 

Same Store EBITDA:

 

New York

 

Washington, DC

 

Retail Properties

 

 

 

June 30, 2013 vs. June 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP basis

4.5

%

(1)

 

(6.4

%)

 

 

3.1

%

 

 

 

 

 

Cash basis

8.9

%

(1)

 

(7.8

%)

 

 

3.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Excluding the Hotel Pennsylvania, same store EBITDA increased by 4.4% and 8.9% on a GAAP and cash basis, respectively.

 

 

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.

 

43

 


 

  

Overview - continued

 

 

2013 Dispositions

 

On January 24, 2013, we completed the sale of 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 April 22, 2013, LNR was sold for $1.053 billion.  We owned 26.2% of LNR and received net proceeds of approximately $241,000,000.

 

On April 24, 2013, a site located in the Downtown Crossing district of Boston was sold by a joint venture, which we owned 50% of.  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.

 

During 2013, we sold an additional 10 properties, including nine non-core retail properties, in separate transactions, for an aggregate of $40,200,000, in cash, which resulted in a net gain aggregating $492,000.

 

In the second quarter of 2013, we entered into an agreement to sell a parcel of land known as Harlem Park located at 1800 Park Avenue (at 125th Street) in New York City for $65,000,000, plus additional amounts which may be received for brownfield credits.  The sale will result in net proceeds of approximately $62,000,000 and a net gain of approximately $22,000,000.  The sale, which is subject to customary closing conditions, is expected to be completed in the third quarter.

 

 

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 $282,000,000 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.   

  

 

Unsecured Revolving Credit Facility

 

On March 28, 2013, we extended one of our two 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.

 

 

44

 


 

  

Overview – continued

 

 

2013 Financings – continued  

 

 

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 $290,536,000, 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.

 

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.

 

 

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. 

 

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.  We are currently evaluating the impact, if any, of ASU 2013-08 on our real estate fund and our consolidated financial statements. 

 

 

Critical Accounting Policies

 

A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the year ended December 31, 2012 in Management’s Discussion and Analysis of Financial Condition. There have been no significant changes to our policies during 2013.

45

 


 

  

Overview - continued

 

 

Leasing Activity:

 

The leasing activity and related statistics in the table below are based on leases signed during the period and are not intended to coincide with the commencement of rental revenue in accordance with accounting principles generally accepted in the United States of America (“GAAP”).  Second generation relet space represents square footage that has not been vacant for more than nine months and tenant improvements and leasing commissions are based on our share of square feet leased during the period.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New York

 

Washington, DC

 

Retail Properties

 

(Square feet in thousands)

Office

 

Retail

 

Office

 

Strips

 

Malls

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended June 30, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total square feet leased

 

546 

 

 

 

 

275 

 

 

256 

 

 

135 

 

 

Our share of square feet leased:

 

433 

 

 

 

 

232 

 

 

256 

 

 

131 

 

 

 

Initial rent (1)

$

68.76 

 

$

160.53 

 

$

43.10 

 

$

19.12 

 

$

32.39 

 

 

 

Weighted average lease term (years)

 

7.3 

 

 

7.2 

 

 

5.2 

 

 

7.7 

 

 

7.5 

 

 

 

Second generation relet space:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Square feet

 

380 

 

 

 

 

169 

 

 

145 

 

 

59 

 

 

 

 

Cash basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Initial rent (1)

$

67.42 

 

$

154.17 

 

$

42.88 

 

$

19.58 

 

$

26.20 

 

 

 

 

 

Prior escalated rent

$

61.16 

 

$

141.79 

 

$

43.38 

 

$

17.75 

 

$

24.65 

 

 

 

 

 

Percentage increase (decrease)

 

10.2%

 

 

8.7%

 

 

(1.1%)

 

 

10.3%

 

 

6.3%

 

 

 

 

GAAP basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Straight-line rent (2)

$

64.69 

 

$

157.32 

 

$

42.08 

 

$

20.11 

 

$

26.82 

 

 

 

 

 

Prior straight-line rent

$

55.88 

 

$

129.26 

 

$

40.93 

 

$

17.04 

 

$

24.15 

 

 

 

 

 

Percentage increase

 

15.8%

 

 

21.7%

 

 

2.8%

 

 

18.0%

 

 

11.1%

 

 

 

Tenant improvements and leasing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

commissions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per square foot

$

52.21 

 

$

49.05 

 

$

28.62 

 

$

10.87 

 

$

28.27 

 

 

 

 

Per square foot per annum

$

7.15 

 

$

6.81 

 

$

5.50 

 

$

1.41 

 

$

3.77 

 

 

 

 

 

Percentage of initial rent

 

10.4%

 

 

4.2%

 

 

12.8%

 

 

7.4%

 

 

11.6%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2013:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total square feet leased

 

1,455 

 

 

40 

 

 

572 

 

 

900 

 

 

294 

 

 

Our share of square feet leased:

 

1,276 

 

 

33 

 

 

491 

 

 

900 

 

 

270 

 

 

 

Initial rent (1)

$

60.47 

 

$

253.38 

 

$

41.82 

 

$

15.67 

 

$

31.30 

 

 

 

Weighted average lease term (years)

 

12.5 

 

 

7.6 

 

 

5.0 

 

 

6.1 

 

 

7.9 

 

 

 

Second generation relet space:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Square feet

 

1,193 

 

 

31 

 

 

334 

 

 

696 

 

 

76 

 

 

 

 

Cash basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Initial rent (1)

$

60.07 

 

$

259.10 

 

$

40.64 

 

$

14.63 

 

$

32.13 

 

 

 

 

 

Prior escalated rent

$

57.78 

 

$

103.05 

 

$

40.25 

 

$

13.37 

 

$

30.55 

 

 

 

 

 

Percentage increase

 

4.0%

 

 

151.4%

 

 

0.9%

 

 

9.4%

 

 

5.2%

 

 

 

 

GAAP basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Straight-line rent (2)

$

60.56 

 

$

288.10 

 

$

39.91 

 

$

14.91 

 

$

32.85 

 

 

 

 

 

Prior straight-line rent

$

52.52 

 

$

101.41 

 

$

38.36 

 

$

13.05 

 

$

29.77 

 

 

 

 

 

Percentage increase

 

15.3%

 

 

184.1%

 

 

4.0%

 

 

14.3%

 

 

10.3%

 

 

 

Tenant improvements and leasing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

commissions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per square foot

$

61.16 

 

$

127.61 

 

$

34.89 

 

$

4.07 

 

$

21.11 

 

 

 

 

Per square foot per annum:

$

4.89 

 

$

16.79 

 

$

6.98 

 

$

0.67 

 

$

2.67 

 

 

 

 

 

Percentage of initial rent

 

8.1%

 

 

6.6%

 

 

16.7%

(3)

 

4.3%

 

 

8.5%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2)

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3)

 

Excluding two leases with unusually high tenant improvement allowances in place of free rent, the tenant improvements and leasing commissions were 12.0% of initial rent.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                                                                   

 

46

 


 

  

Overview – continued

 

 

Square footage (in service) and Occupancy as of June 30, 2013:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Square Feet (in service)

 

 

 

 

 

 

 

 

 

 

Number of

 

Total

 

Our

 

 

 

 

 

(Square feet in thousands)

 

 

Properties

 

Portfolio

 

Share

 

Occupancy %

 

 

New York:

 

 

 

 

 

 

 

 

 

 

 

 

 

Office

 

31 

 

19,835 

 

16,848 

 

95.9%

 

 

 

 

Retail

 

50 

 

2,225 

 

2,069 

 

96.3%

 

 

 

 

Alexander's

 

 

2,179 

 

706 

 

99.2%

 

 

 

 

Hotel Pennsylvania

 

 

1,400 

 

1,400 

 

 

 

 

 

 

Residential (1,655 units)

 

 

1,523 

 

870 

 

96.5%

 

 

 

 

 

 

 

 

 

 

27,162 

 

21,893 

 

96.1%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Washington, DC:

 

 

 

 

 

 

 

 

 

 

 

 

 

Office, excluding the Skyline Properties

51 

 

13,307 

 

10,919 

 

87.0%

 

 

 

 

Skyline Properties

 

 

2,643 

 

2,643 

 

54.8%

 

 

 

 

Total Office

 

59 

 

15,950 

 

13,562 

 

80.7%

 

 

 

 

Residential (2,414 units)

 

 

2,597 

 

2,455 

 

97.1%

 

 

 

 

Other

 

 

393 

 

393 

 

100.0%

 

 

 

 

 

 

 

 

 

 

18,940 

 

16,410 

 

83.6%

 

 

 

 

Total occupancy, excluding the Skyline Properties

 

 

 

89.2%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail Properties:

 

 

 

 

 

 

 

 

 

 

 

 

 

Strip Shopping Centers

 

100 

 

14,556 

 

14,110 

 

94.1%

 

 

 

 

Regional Malls

 

 

5,247 

 

3,611 

 

93.5%

 

 

 

 

 

 

 

 

 

 

19,803 

 

17,721 

 

94.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other:

 

 

 

 

 

 

 

 

 

 

 

 

 

Merchandise Mart

 

3,872 

 

3,863 

 

94.8%

 

 

 

 

555 California Street

 

1,796 

 

1,257 

 

93.8%

 

 

 

 

Primarily Warehouses

 

971 

 

971 

 

47.1%

 

 

 

 

 

 

 

 

 

 

6,639 

 

6,091 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total square feet at June 30, 2013

 

 

 

72,544 

 

62,115 

 

 

 

 

 

47

 


 

  

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

 

31 

 

19,729 

 

16,751 

 

95.9%

 

 

 

 

Retail

 

49 

 

2,217 

 

2,057 

 

96.8%

 

 

 

 

Alexander's

 

 

2,179 

 

706 

 

99.1%

 

 

 

 

Hotel Pennsylvania

 

 

1,400 

 

1,400 

 

 

 

 

 

 

Residential (1,655 units)

 

 

1,528 

 

873 

 

96.9%

 

 

 

 

 

 

 

 

 

 

27,053 

 

21,787 

 

96.2%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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%

 

 

 

 

Total occupancy, excluding the Skyline Properties

 

 

 

 

88.8%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail Properties:

 

 

 

 

 

 

 

 

 

 

 

 

 

Strip Shopping Centers

 

101 

 

14,390 

 

13,946 

 

93.7%

 

 

 

 

Regional Malls

 

 

5,244 

 

3,608 

 

92.7%

 

 

 

 

 

 

 

 

 

 

19,634 

 

17,554 

 

93.5%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

72,498 

 

61,994 

 

 

 

 

 

48

 


 

  

Overview - continued

 

 

Washington, DC Segment

 

For the six months ended June 30, 2013, EBITDA from continuing operations was lower than the prior year’s six months by approximately $15,840,000, which is above the range of EBITDA diminution of $5,000,000 to $15,000,000 that we had previously estimated for the full year.  We expect that the EBITDA reduction in the first half of 2013 and the expected further reduction in the third quarter will be partially offset by an increase in the fourth quarter and that EBITDA for the full year will be lower than the prior year by approximately $10,000,000 to $15,000,000.

 

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 745,000 square feet has been leased or is pending.  The table below summarizes the status of the BRAC space as of June 30, 2013.

 

 

 

Rent Per

 

Square Feet

 

 

 

 

 

Square Foot

 

Total

 

Crystal City

 

Skyline

 

Rosslyn

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Resolved:

 

 

 

 

 

 

 

 

 

 

 

 

Relet as of June 30, 2013

 

$

39.80 

 

531,000 

 

383,000 

 

88,000 

 

60,000 

 

Leases pending

 

 

33.89 

 

214,000 

 

39,000 

 

175,000 

 

 

Taken out of service for redevelopment

 

 

 

 

348,000 

 

348,000 

 

 

 

 

 

 

 

 

 

 

1,093,000 

 

770,000 

 

263,000 

 

60,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

To Be Resolved:

 

 

 

 

 

 

 

 

 

 

 

 

Vacated as of June 30, 2013

 

 

37.61 

 

940,000 

 

513,000 

 

341,000 

 

86,000 

 

Expiring in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2014 

 

 

32.25 

 

292,000 

 

91,000 

 

201,000 

 

 

 

 

2015 

 

 

43.13 

 

70,000 

 

65,000 

 

5,000 

 

 

 

 

 

 

 

 

 

1,302,000 

 

669,000 

 

547,000 

 

86,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total square feet subject to BRAC

 

 

 

 

2,395,000 

 

1,439,000 

 

810,000 

 

146,000 

 

 

In 2012, due to the rising vacancy rate at the Skyline properties (45.2% at June 30, 2013), primarily from the effects of the BRAC statute; insufficient cash flows to pay current obligations, including interest payments to the lender; and the significant amount of capital required to re-tenant these properties, we requested that the mortgage loan be transferred to the special servicer.  In connection therewith, we entered into a forbearance agreement with the special servicer, that provides for interest shortfalls to be deferred and added to the principal balance of the loan and not give rise to a loan default.  The forbearance agreement has been amended and extended a number of times, the latest of which extends its maturity through September 1, 2013.  As of June 30, 2013, the accrued deferred interest amounted to $47,559,000.  We continue to negotiate with the special servicer to restructure the terms of the loan.

49

 


 

  

Net Income and EBITDA by Segment for the Three Months Ended June 30, 2013 and 2012

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 our Other segment.  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 three months ended June 30, 2013 and 2012.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

For the Three Months Ended June 30, 2013

 

 

 

 

 

 

 

 

 

 

Retail

 

 

 

 

 

 

 

 

 

Total

 

New York

 

Washington, DC

 

Properties

 

Toys

 

Other

 

Property rentals

 

$

519,733 

 

$

286,844 

 

$

112,733 

 

$

64,374 

 

$

 

$

55,782 

 

Straight-line rent adjustments

 

 

13,789 

 

 

7,533 

 

 

1,231 

 

 

909 

 

 

 

 

4,116 

 

Amortization of acquired below-market

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

leases, net

 

 

11,672 

 

 

6,944 

 

 

516 

 

 

2,885 

 

 

 

 

1,327 

 

Total rentals

 

 

545,194 

 

 

301,321 

 

 

114,480 

 

 

68,168 

 

 

 

 

61,225 

 

Tenant expense reimbursements

 

 

75,659 

 

 

38,785 

 

 

10,666 

 

 

22,028 

 

 

 

 

4,180 

 

Cleveland Medical Mart development project

 

 

16,990 

 

 

 

 

 

 

 

 

 

 

16,990 

 

Fee and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BMS cleaning fees

 

 

16,509 

 

 

20,979 

 

 

 

 

 

 

 

 

(4,470)

 

 

Signage revenue

 

 

8,347 

 

 

8,347 

 

 

 

 

 

 

 

 

 

 

Management and leasing fees

 

 

6,435 

 

 

2,854 

 

 

3,459 

 

 

320 

 

 

 

 

(198)

 

 

Lease termination fees

 

 

7,129 

 

 

5,432 

 

 

182 

 

 

198 

 

 

 

 

1,317 

 

 

Other income

 

 

9,595 

 

 

3,254 

 

 

5,530 

 

 

283 

 

 

 

 

528 

 

Total revenues

 

 

685,858 

 

 

380,972 

 

 

134,317 

 

 

90,997 

 

 

 

 

79,572 

 

Operating expenses

 

 

261,080 

 

 

157,622 

 

 

48,290 

 

 

34,091 

 

 

 

 

21,077 

 

Depreciation and amortization

 

 

135,486 

 

 

69,387 

 

 

30,619 

 

 

15,457 

 

 

 

 

20,023 

 

General and administrative

 

 

54,323 

 

 

8,881 

 

 

6,873 

 

 

5,169 

 

 

 

 

33,400 

 

Cleveland Medical Mart development project

 

 

15,151 

 

 

 

 

 

 

 

 

 

 

15,151 

 

Acquisition related costs

 

 

3,350 

 

 

 

 

 

 

 

 

 

 

3,350 

 

Total expenses

 

 

469,390 

 

 

235,890 

 

 

85,782 

 

 

54,717 

 

 

 

 

93,001 

 

Operating income (loss)

 

 

216,468 

 

 

145,082 

 

 

48,535 

 

 

36,280 

 

 

 

 

(13,429)

 

(Loss) applicable to Toys

 

 

(36,861)

 

 

 

 

 

 

 

 

(36,861)

 

 

 

Income (loss) from partially owned entities

 

 

1,472 

 

 

4,226 

 

 

(2,449)

 

 

423 

 

 

 

 

(728)

 

Income from Real Estate Fund

 

 

34,470 

 

 

 

 

 

 

 

 

 

 

34,470 

 

Interest and other investment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

income (loss), net

 

 

26,416 

 

 

1,443 

 

 

 

 

(48)

 

 

 

 

25,015 

 

Interest and debt expense

 

 

(121,762)

 

 

(42,835)

 

 

(27,854)

 

 

(12,435)

 

 

 

 

(38,638)

 

Net gain on disposition of wholly owned and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

partially owned assets

 

 

1,005 

 

 

 

 

 

 

 

 

 

 

1,005 

 

Income (loss) before income taxes

 

 

121,208 

 

 

107,916 

 

 

18,238 

 

 

24,220 

 

 

(36,861)

 

 

7,695 

 

Income tax expense

 

 

(2,877)

 

 

(961)

 

 

(805)

 

 

(749)

 

 

 

 

(362)

 

Income (loss) from continuing operations

 

 

118,331 

 

 

106,955 

 

 

17,433 

 

 

23,471 

 

 

(36,861)

 

 

7,333 

 

Income (loss) from discontinued operations

 

 

63,990 

 

 

 

 

 

 

64,136 

 

 

 

 

(146)

 

Net income (loss)

 

 

182,321 

 

 

106,955 

 

 

17,433 

 

 

87,607 

 

 

(36,861)

 

 

7,187 

 

Less net income attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated subsidiaries

 

 

(14,930)

 

 

(1,381)

 

 

 

 

(13)

 

 

 

 

(13,536)

 

 

Operating Partnership

 

 

(8,849)

 

 

 

 

 

 

 

 

 

 

(8,849)

 

 

Preferred unit distributions of the

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Partnership

 

 

(348)

 

 

 

 

 

 

 

 

 

 

(348)

 

Net income (loss) attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vornado

 

 

158,194 

 

 

105,574 

 

 

17,433 

 

 

87,594 

 

 

(36,861)

 

 

(15,546)

 

Interest and debt expense(2)

 

 

179,461 

 

 

54,546 

 

 

31,245 

 

 

13,715 

 

 

37,730 

 

 

42,225 

 

Depreciation and amortization(2)

 

 

182,131 

 

 

74,573 

 

 

35,248 

 

 

16,348 

 

 

33,882 

 

 

22,080 

 

Income tax (benefit) expense (2)

 

 

(22,366)

 

 

1,030 

 

 

852 

 

 

749 

 

 

(25,697)

 

 

700 

 

EBITDA(1)

 

$

497,420 

 

$

235,723 

(3)

$

84,778 

(4)

$

118,406 

(5)

$

9,054 

 

$

49,459 

(6)

_____________________________

See notes on page 52.

 

50

 


 

  

Net Income and EBITDA by Segment for the Three Months Ended June 30, 2013 and 2012 - continued

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

For the Three Months Ended June 30, 2012

 

 

 

 

 

 

 

 

 

 

Retail

 

 

 

 

 

 

 

 

 

Total

 

New York

 

Washington, DC

 

Properties

 

Toys

 

Other

 

Property rentals

 

$

484,016 

 

$

245,948 

 

$

118,014 

 

$

64,554 

 

$

 

$

55,500 

 

Straight-line rent adjustments

 

 

20,647 

 

 

17,065 

 

 

1,258 

 

 

2,276 

 

 

 

 

48 

 

Amortization of acquired below-market

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

leases, net

 

 

12,570 

 

 

7,623 

 

 

508 

 

 

2,950 

 

 

 

 

1,489 

 

Total rentals

 

 

517,233 

 

 

270,636 

 

 

119,780 

 

 

69,780 

 

 

 

 

57,037 

 

Tenant expense reimbursements

 

 

71,409 

 

 

36,985 

 

 

10,862 

 

 

20,986 

 

 

 

 

2,576 

 

Cleveland Medical Mart development project

 

 

56,304 

 

 

 

 

 

 

 

 

 

 

56,304 

 

Fee and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BMS cleaning fees

 

 

16,982 

 

 

23,911 

 

 

 

 

 

 

 

 

(6,929)

 

 

Signage revenue

 

 

4,879 

 

 

4,879 

 

 

 

 

 

 

 

 

 

 

Management and leasing fees

 

 

4,546 

 

 

1,113 

 

 

2,384 

 

 

1,068 

 

 

 

 

(19)

 

 

Lease termination fees

 

 

479 

 

 

233 

 

 

128 

 

 

 

 

 

 

117 

 

 

Other income

 

 

6,151 

 

 

576 

 

 

4,968 

 

 

373 

 

 

 

 

234 

 

Total revenues

 

 

677,983 

 

 

338,333 

 

 

138,122 

 

 

92,208 

 

 

 

 

109,320 

 

Operating expenses

 

 

243,485 

 

 

143,190 

 

 

47,416 

 

 

33,708 

 

 

 

 

19,171 

 

Depreciation and amortization

 

 

128,372 

 

 

56,665 

 

 

35,017 

 

 

18,495 

 

 

 

 

18,195 

 

General and administrative

 

 

46,832 

 

 

6,654 

 

 

6,231 

 

 

6,367 

 

 

 

 

27,580 

 

Cleveland Medical Mart development project

 

 

53,935 

 

 

 

 

 

 

 

 

 

 

53,935 

 

Acquisition related costs

 

 

2,559 

 

 

 

 

 

 

 

 

 

 

2,559 

 

Total expenses

 

 

475,183 

 

 

206,509 

 

 

88,664 

 

 

58,570 

 

 

 

 

121,440 

 

Operating income (loss)

 

 

202,800 

 

 

131,824 

 

 

49,458 

 

 

33,638 

 

 

 

 

(12,120)

 

(Loss) applicable to Toys

 

 

(19,190)

 

 

 

 

 

 

 

 

(19,190)

 

 

 

Income (loss) from partially owned entities

 

 

12,563 

 

 

6,851 

 

 

(519)

 

 

294 

 

 

 

 

5,937 

 

Income from Real Estate Fund

 

 

20,301 

 

 

 

 

 

 

 

 

 

 

20,301 

 

Interest and other investment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(loss) income, net

 

 

(49,172)

 

 

1,057 

 

 

29 

 

 

 

 

 

 

(50,264)

 

Interest and debt expense

 

 

(124,320)

 

 

(36,407)

 

 

(27,999)

 

 

(16,170)

 

 

 

 

(43,744)

 

Net gain on disposition of wholly owned and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

partially owned assets

 

 

4,856 

 

 

 

 

 

 

 

 

 

 

4,856 

 

Income (loss) before income taxes

 

 

47,838 

 

 

103,325 

 

 

20,969 

 

 

17,768 

 

 

(19,190)

 

 

(75,034)

 

Income tax expense

 

 

(7,479)

 

 

(1,064)

 

 

(852)

 

 

 

 

 

 

(5,563)

 

Income (loss) from continuing operations

 

 

40,359 

 

 

102,261 

 

 

20,117 

 

 

17,768 

 

 

(19,190)

 

 

(80,597)

 

Income (loss) from discontinued operations

 

 

17,869 

 

 

(32)

 

 

2,956 

 

 

16,254 

 

 

 

 

(1,309)

 

Net income (loss)

 

 

58,228 

 

 

102,229 

 

 

23,073 

 

 

34,022 

 

 

(19,190)

 

 

(81,906)

 

Less net (income) loss attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated subsidiaries

 

 

(14,721)

 

 

(2,998)

 

 

 

 

97 

 

 

 

 

(11,820)

 

 

Operating Partnership

 

 

(1,337)

 

 

 

 

 

 

 

 

 

 

(1,337)

 

 

Preferred unit distributions of the

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Partnership

 

 

(3,873)

 

 

 

 

 

 

 

 

 

 

(3,873)

 

Net income (loss) attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vornado

 

 

38,297 

 

 

99,231 

 

 

23,073 

 

 

34,119 

 

 

(19,190)

 

 

(98,936)

 

Interest and debt expense(2)

 

 

190,942 

 

 

46,413 

 

 

32,549 

 

 

20,102 

 

 

37,293 

 

 

54,585 

 

Depreciation and amortization(2)

 

 

184,028 

 

 

63,664 

 

 

39,656 

 

 

22,131 

 

 

32,505 

 

 

26,072 

 

Income tax (benefit) expense(2)

 

 

(5,214)

 

 

1,113 

 

 

1,034 

 

 

 

 

(14,103)

 

 

6,742 

 

EBITDA(1)

 

$

408,053 

 

$

210,421 

(3)

$

96,312 

(4)

$

76,352 

(5)

$

36,505 

 

$

(11,537)

(6)

_____________________________

See notes on the following page.

 

51

 


 

  

Net Income and EBITDA by Segment for the Three Months Ended June 30, 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 June 30,

 

 

 

(Amounts in thousands)

2013 

 

2012 

 

 

 

Office

$

158,186 

 

$

142,077 

 

 

 

Retail

 

57,230 

 

 

45,577 

 

 

 

Alexander's (decrease due to sale of Kings Plaza in November 2012)

 

10,213 

 

 

13,026 

 

 

 

Hotel Pennsylvania

 

10,094 

 

 

9,741 

 

 

 

 

Total New York

$

235,723 

 

$

210,421 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended June 30,

 

 

 

(Amounts in thousands)

2013 

 

2012 

 

 

 

Office, excluding the Skyline Properties (a)

$

66,136 

 

$

74,953 

 

 

 

Skyline properties

 

7,543 

 

 

10,661 

 

 

 

 

Total Office

 

73,679 

 

 

85,614 

 

 

 

Residential

 

11,099 

 

 

10,698 

 

 

 

 

Total Washington, DC

$

84,778 

 

$

96,312 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

 

2012 includes EBITDA from discontinued operations and other items that affect comparability, aggregating $5,423. Excluding these items, EBITDA was $69,530.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended June 30,

 

 

 

(Amounts in thousands)

2013 

 

2012 

 

 

 

Strip shopping centers(a)

$

101,529 

 

$

52,268 

 

 

 

Regional malls(b)

 

16,877 

 

 

24,084 

 

 

 

 

Total Retail properties

$

118,406 

 

$

76,352 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

 

Includes EBITDA from discontinued operations, net gains on sale of real estate, and other items that affect comparability, aggregating $64,506 and $15,631 for the three months ended June 30, 2013 and 2012, respectively. Excluding these items, EBITDA was $37,023 and $36,637, respectively.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(b)

 

2012 includes EBITDA from discontinued operations, net gains on sale of real estate, and other items that affect comparability, aggregating $8,449. Excluding these items, EBITDA was $15,635.

 

 

 

52

 


 

  

Net Income and EBITDA by Segment for the Three Months Ended June 30, 2013 and 2012 - continued

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes to preceding tabular information - continued:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6)

The elements of "other" EBITDA are summarized below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended June 30,

 

 

 

(Amounts in thousands)

2013 

 

2012 

 

 

 

Our share of Real Estate Fund:

 

 

 

 

 

 

 

 

 

(Loss) income before net realized/unrealized gains

$

(1,713)

 

$

170 

 

 

 

 

Net unrealized gains

 

8,398 

 

 

5,284 

 

 

 

 

Carried interest

 

13,426 

 

 

2,541 

 

 

 

Total

 

20,111 

 

 

7,995 

 

 

 

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

 

22,448 

 

 

17,349 

 

 

 

555 California Street

 

11,022 

 

 

10,377 

 

 

 

LNR(a)

 

 

 

11,671 

 

 

 

Lexington(b)

 

 

 

7,703 

 

 

 

Other investments

 

8,014 

 

 

11,523 

 

 

 

 

 

61,595 

 

 

66,618 

 

 

 

Corporate general and administrative expenses(c)

 

(24,831)

 

 

(21,812)

 

 

 

Investment income and other, net(c)

 

16,709 

 

 

15,294 

 

 

 

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

 

9,065 

 

 

(58,732)

 

 

 

Acquisition related costs

 

(3,350)

 

 

(2,559)

 

 

 

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

 

(1,542)

 

 

 

 

 

Net gain on sale of residential condominiums

 

1,005 

 

 

1,274 

 

 

 

Merchandise Mart discontinued operations

 

 

 

(6,410)

 

 

 

Net income attributable to noncontrolling interests in the Operating Partnership

 

(8,849)

 

 

(1,337)

 

 

 

Preferred unit distributions of the Operating Partnership

 

(348)

 

 

(3,873)

 

 

 

 

 

 

 

 

 

$

49,459 

 

$

(11,537)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

 

On April 22, 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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(c)

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 June 30,

 

 

 

 

 

 

2013 

 

2012 

 

 

 

Region:

 

 

 

 

 

 

 

 

New York City metropolitan area

 

74%

 

70%

 

 

 

 

Washington, DC / Northern Virginia metropolitan area

23%

 

26%

 

 

 

 

Puerto Rico

 

1%

 

2%

 

 

 

 

California

 

1%

 

1%

 

 

 

 

Other geographies

 

1%

 

1%

 

 

 

 

 

100%

 

100%

 

 

53

 


 

  

Results of Operations – Three Months Ended June 30, 2013 Compared to June 30, 2012

 

 

Revenues

Our revenues, which consist of property rentals, tenant expense reimbursements, hotel revenues, trade shows revenues, amortization of acquired below-market leases, net of above-market leases and fee income, were $685,858,000 in the three months ended June 30, 2013, compared to $677,983,000 in the prior year’s quarter, an increase of $7,875,000.  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

 

$

20,977 

 

 

$

23,400 

 

 

$

 

 

$

(2,423)

 

 

$

 

 

Properties taken out of service for

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

redevelopment

 

 

(1,309)

 

 

 

(296)

 

 

 

90 

 

 

 

(1,018)

 

 

 

(85)

 

 

Hotel Pennsylvania

 

 

2,159 

 

 

 

2,159 

 

 

 

 

 

 

 

 

 

 

 

Trade Shows

 

 

1,229 

 

 

 

 

 

 

 

 

 

 

 

 

1,229 

 

 

Same store operations

 

 

4,905 

 

 

 

5,422 

 

 

 

(5,390)

 

 

 

1,829 

 

 

 

3,044 

 

 

 

 

27,961 

 

 

 

30,685 

 

 

 

(5,300)

 

 

 

(1,612)

 

 

 

4,188 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant expense reimbursements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions and other

 

 

2,597 

 

 

 

1,393 

 

 

 

95 

 

 

 

1,109 

 

 

 

 

 

Properties taken out of service for

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

redevelopment

 

 

(788)

 

 

 

(66)

 

 

 

(60)

 

 

 

(661)

 

 

 

(1)

 

 

Same store operations

 

 

2,441 

 

 

 

473 

 

 

 

(231)

 

 

 

594 

 

 

 

1,605 

 

 

 

 

 

4,250 

 

 

 

1,800 

 

 

 

(196)

 

 

 

1,042 

 

 

 

1,604 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cleveland Medical Mart development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

project

 

 

(39,314)

(1)

 

 

 

 

 

 

 

 

 

 

 

(39,314)

(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BMS cleaning fees

 

 

(473)

 

 

 

(2,932)

 

 

 

 

 

 

 

 

 

2,459 

(2)

 

Signage revenue

 

 

3,468 

 

 

 

3,468 

 

 

 

 

 

 

 

 

 

 

 

Management and leasing fees

 

 

1,889 

 

 

 

1,741 

 

 

 

1,075 

 

 

 

(748)

 

 

 

(179)

 

 

Lease termination fees

 

 

6,650 

 

 

 

5,199 

 

 

 

54 

 

 

 

197 

 

 

 

1,200 

 

 

Other income

 

 

3,444 

 

 

 

2,678 

 

 

 

562 

 

 

 

(90)

 

 

 

294 

 

 

 

 

14,978 

 

 

 

10,154 

 

 

 

1,691 

 

 

 

(641)

 

 

 

3,774 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total increase (decrease) in revenues

 

$

7,875 

 

 

$

42,639 

 

 

$

(3,805)

 

 

$

(1,211)

 

 

$

(29,748)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Primarily due to the project nearing completion. This decrease in revenue is offset by a decrease in development costs expensed in the period. See note (3) on page 55.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2)

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

54

 


 
 

  

Results of Operations – Three Months Ended June 30, 2013 Compared to June 30, 2012 - continued

 

 

Expenses

Our expenses, which consist primarily of operating, depreciation and amortization and general and administrative expenses, were $469,390,000 in the three months ended June 30, 2013, compared to $475,183,000 in the prior year’s quarter, a decrease of $5,793,000.  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

 

$

9,297 

 

 

$

9,557 

 

 

$

 

 

$

(260)

 

 

$

 

 

Properties taken out of service for

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

redevelopment

 

 

(3,503)

 

 

 

(346)

 

 

 

(134)

 

 

 

(2,441)

 

 

 

(582)

 

 

Non-reimbursable expenses, including

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

bad debt reserves

 

 

6,636 

 

 

 

3,201 

 

 

 

693 

 

 

 

2,006 

 

 

 

736 

 

 

Hotel Pennsylvania

 

 

1,773 

 

 

 

1,773 

 

 

 

 

 

 

 

 

 

 

 

Trade Shows

 

 

856 

 

 

 

 

 

 

 

 

 

 

 

 

856 

 

 

BMS expenses

 

 

(506)

 

 

 

(2,965)

 

 

 

 

 

 

 

 

 

2,459 

(2)

 

Same store operations

 

 

3,042 

 

 

 

3,212 

 

 

 

315 

 

 

 

1,078 

 

 

 

(1,563)

 

 

 

 

 

17,595 

 

 

 

14,432 

 

 

 

874 

 

 

 

383 

 

 

 

1,906 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions and other

 

 

13,195 

 

 

 

13,771 

 

 

 

 

 

 

(576)

 

 

 

 

 

Properties taken out of service for

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

redevelopment

 

 

(6,153)

 

 

 

(201)

 

 

 

(3,621)

 

 

 

(2,413)

 

 

 

82 

 

 

Same store operations

 

 

72 

 

 

 

(848)

 

 

 

(777)

 

 

 

(49)

 

 

 

1,746 

 

 

 

 

 

 

7,114 

 

 

 

12,722 

 

 

 

(4,398)

 

 

 

(3,038)

 

 

 

1,828 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark-to-market of deferred

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

compensation plan liability (1)

 

 

2,468 

 

 

 

 

 

 

 

 

 

 

 

 

2,468 

 

 

Severance costs (primarily reduction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

in force at the Merchandise Mart)

 

 

1,542 

 

 

 

 

 

 

 

 

 

 

 

 

1,542 

 

 

Same store operations

 

 

3,481 

 

 

 

2,227 

 

 

 

642 

 

 

 

(1,198)

 

 

 

1,810 

 

 

 

 

 

7,491 

 

 

 

2,227 

 

 

 

642 

 

 

 

(1,198)

 

 

 

5,820 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cleveland Medical Mart development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

project

 

 

(38,784)

(3)

 

 

 

 

 

 

 

 

 

 

 

(38,784)

(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition related costs

 

 

791 

 

 

 

 

 

 

 

 

 

 

 

 

791 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total (decrease) increase in expenses

 

$

(5,793)

 

 

$

29,381 

 

 

$

(2,882)

 

 

$

(3,853)

 

 

$

(28,439)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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 income (loss), net” on our consolidated statements of income.

 

 

 

(2)

Represents the elimination of intercompany fees from operating segments upon consolidation. See note (2) on page 54.

 

 

 

(3)

Primarily due to the project nearing completion. This decrease in expense is offset by the decrease in development revenue in the period. See note (1) on page 54.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

55

 


 

  

Results of Operations – Three Months Ended June 30, 2013 Compared to June 30, 2012 - continued

 

 

(Loss) Income Applicable to Toys

 

In the three months ended June 30, 2013, we recognized a net loss of $36,861,000 from our investment in Toys, comprised of $38,708,000 for our 32.6% share of Toys’ net loss, partially offset by $1,847,000 of management fee income.  In the three months ended June 30, 2012, we recognized a net loss of $19,190,000 from our investment in Toys, comprised of $21,561,000 for our 32.5% share of Toys’ net loss, partially offset by $2,371,000 of management fee income.

 

 

Income from Partially Owned Entities

Summarized below are the components of income (loss) from partially owned entities for the three months ended June 30, 2013 and 2012.

 

 

 

 

 

 

 

 

Percentage

 

For the Three Months Ended

 

 

 

 

 

 

 

 

Ownership at

 

June 30,

 

 

(Amounts in thousands)

 

June 30, 2013

 

2013 

 

2012 

 

 

Equity in Net Income (Loss):

 

 

 

 

 

 

 

 

 

 

 

 

Alexander's (decrease due to sale of Kings Plaza

 

 

 

 

 

 

 

 

 

 

 

 

in November 2012)

 

 

32.4%

 

$

5,751 

 

 

$

7,848 

 

 

 

India real estate ventures

 

4.0%-36.5%

 

 

(414)

 

 

 

(3,815)

 

 

 

Partially owned office buildings:

 

 

 

 

 

 

 

 

 

 

 

 

 

280 Park Avenue

 

49.5%

 

 

(2,021)

 

 

 

(1,955)

 

 

 

 

Warner Building

 

55.0%

 

 

(1,996)

 

 

 

(1,589)

 

 

 

 

666 Fifth Avenue Office Condominium

 

49.5%

 

 

1,899 

 

 

 

1,785 

 

 

 

 

330 Madison Avenue

 

25.0%

 

 

1,185 

 

 

 

18 

 

 

 

 

Rosslyn Plaza

 

43.7%-50.4%

 

 

(1,005)

 

 

 

145 

 

 

 

 

1101 17th Street

 

55.0%

 

 

236 

 

 

 

646 

 

 

 

 

West 57th Street Properties

 

50.0%

 

 

196 

 

 

 

252 

 

 

 

 

One Park Avenue

 

30.3%

 

 

(83)

 

 

 

303 

 

 

 

 

Fairfax Square

 

20.0%

 

 

(18)

 

 

 

(40)

 

 

 

 

Other partially owned office buildings

 

Various

 

 

565 

 

 

 

555 

 

 

 

Other investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

Independence Plaza

 

 

50.1%

 

 

(1,118)

 

 

 

1,733 

 

 

 

 

Monmouth Mall

 

50.0%

 

 

426 

 

 

 

298 

 

 

 

 

Lexington (1)

 

n/a

 

 

 

 

 

(236)

 

 

 

 

LNR (2)

 

n/a

 

 

 

 

 

9,469 

 

 

 

 

Downtown Crossing, Boston (3)

 

n/a

 

 

16 

 

 

 

(500)

 

 

 

 

Other investments (4)

 

Various

 

 

(2,147)

 

 

 

(2,354)

 

 

 

 

 

 

 

 

 

 

 

$

1,472 

 

 

$

12,563 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2)

 

On April 22, 2013, LNR was sold for $1.053 billion. We owned 26.2% of LNR and received net proceeds of approximately $241,000.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3)

 

On April 24, 2013, the joint venture sold the site in Downtown Crossing, Boston, and we received approximately $45,000 for our 50% interest.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4)

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

56

 


 

  

Results of Operations – Three Months Ended June 30, 2013 Compared to June 30, 2012 - continued

 

 

Income from Real Estate Fund

Below are the components of the income from our Real Estate Fund for the three months ended June 30, 2013 and 2012.

 

 

(Amounts in thousands)

 

For the Three Months Ended June 30,

 

 

 

 

2013 

2012 

 

 

Net investment income (loss)

 

$

877 

 

$

(834)

 

 

Net unrealized gains

 

 

33,593 

 

 

21,135 

 

 

Income from Real Estate Fund

 

 

34,470 

 

 

20,301 

 

 

Less (income) attributable to noncontrolling interests

 

 

(14,359)

 

 

(12,306)

 

 

Income from Real Estate Fund attributable to Vornado (1)

 

$

20,111 

 

$

7,995 

 

 

___________________________________

 

 

 

 

(1)

Excludes management, leasing and development fees of $827 and $717 for the three months ended June 30, 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 Income (Loss), net

 

Interest and other investment income (loss), net was income of $26,416,000 in the three months ended June 30, 2013, compared to a loss of $49,172,000 in the prior year’s quarter, an increase of $75,588,000. This increase resulted from:

 

 

(Amounts in thousands)

 

 

 

 

 

 

J.C. Penney derivative position ($9,065 mark-to-market gain in the current year's quarter, compared to a

 

 

 

 

 

 

$58,732 mark-to-market loss in the prior year's quarter)

 

 

$

67,797 

 

 

 

Income from prepayment penalties in connection with the repayment of a mezzanine loan

 

 

 

5,267 

 

 

 

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)

 

 

2,468 

 

 

 

Other, net

 

 

56 

 

 

 

 

 

 

 

$

75,588 

 

 

 

 

Interest and Debt Expense

 

Interest and debt expense was $121,762,000 in the three months ended June 30, 2013, compared to $124,320,000 in the prior year’s quarter, a decrease of $2,558,000.  This decrease was primarily due to $8,887,000 of higher capitalized interest in the current year’s quarter, partially offset by interest expense of $5,017,000 from the financing of the retail condominium at 666 Fifth Avenue and the Outlets at Bergen Town Center in the first quarter of 2013 and $1,877,000 from the refinancing of 1290 Avenue of the Americas in November 2012.

 

 

Net Gain (Loss) on Disposition of Wholly Owned and Partially Owned Assets

In the three months ended June 30, 2013, we recognized a $1,005,000 net gain from the sale of residential condominiums, compared to a $4,856,000 net gain in the prior year’s quarter, primarily from the sale of residential condominiums and marketable securities.

 

 

Income Tax Expense

 

Income tax expense was $2,877,000 in the three months ended June 30, 2013, compared to $7,479,000 in the prior year’s quarter, a decrease of $4,602,000.  This decrease resulted primarily from a $4,277,000 income tax provision in the prior year’s quarter applicable to a taxable REIT subsidiary that was liquidated in the fourth quarter of 2012.

 

57

 


 

  

Results of Operations – Three Months Ended June 30, 2013 Compared to June 30, 2012 - continued

 

 

Income from Discontinued Operations

 

We have reclassified the revenues and expenses of the properties that were sold and that are currently held for sale 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 three months ended June 30, 2013 and 2012. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended June 30,

 

 

(Amounts in thousands)

 

2013 

 

2012 

 

 

Total revenues

 

$

4,668 

 

$

45,286 

 

 

Total expenses

 

 

3,850 

 

 

30,802 

 

 

 

 

 

818 

 

 

14,484 

 

 

Net gains on sale of:

 

 

 

 

 

 

 

 

 

 

901 Market Street, Philadelphia

 

 

 

33,058 

 

 

 

 

 

The Plant

 

 

 

32,169 

 

 

 

 

 

Other real estate

 

 

 

438 

 

 

16,896 

 

 

Impairment losses

 

 

(2,493)

 

 

(13,511)

 

 

Income from discontinued operations

 

$

63,990 

 

$

17,869 

 

 

 

Net Income Attributable to Noncontrolling Interests in Consolidated Subsidiaries

 

Net income attributable to noncontrolling interests in consolidated subsidiaries was $14,930,000 in the three months ended June 30, 2013, compared to $14,721,000 in the prior year’s quarter, an increase of $209,000. 

 

 

Net Income Attributable to Noncontrolling Interests in the Operating Partnership

 

Net income attributable to noncontrolling interests in the Operating Partnership was $8,849,000 in the three months ended June 30, 2013, compared to $1,337,000 in the prior year’s quarter, an increase of $7,512,000.  This increase resulted primarily from higher net income subject to allocation to unitholders.

 

 

Preferred Unit Distributions of the Operating Partnership

 

Preferred unit distributions of the Operating Partnership were $348,000 in the three months ended June 30, 2013, compared to $3,873,000 in the prior year’s quarter, a decrease of $3,525,000.  This decrease resulted from the redemption of the 6.875% Series D-15 cumulative redeemable preferred units in May 2013, and 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 $20,368,000 in the three months ended June 30, 2013, compared to $17,787,000 in the prior year’s quarter, an increase of $2,581,000.  This increase resulted primarily 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 the three months ended June 30, 2013, we recognized an $8,100,000 discount from the redemption of all of the 6.875% Series D-15 cumulative redeemable preferred units. 

 

58

 


 

  

Results of Operations – Three Months Ended June 30, 2013 Compared to June 30, 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 are reconciliations of EBITDA to the same store EBITDA on a GAAP basis for each of our segments for the three months ended June 30, 2013, compared to the three months ended June 30, 2012.

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

 

New York

 

Washington, DC

 

Retail Properties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA for the three months ended June 30, 2013

 

$

235,723 

 

$

84,778 

 

$

118,406 

 

 

Add-back:

 

 

 

 

 

 

 

 

 

 

 

 

Non-property level overhead expenses included above

 

 

8,881 

 

 

6,873 

 

 

5,169 

 

 

Less EBITDA from:

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

 

(14,810)

 

 

 

 

 

 

 

Dispositions, including net gains on sale

 

 

(2)

 

 

27 

 

 

(64,466)

 

 

 

Properties taken out-of-service for redevelopment

 

 

(4,900)

 

 

(1,066)

 

 

(916)

 

 

 

Other non-operating (income) expense

 

 

(5,677)

 

 

422 

 

 

839 

 

GAAP basis same store EBITDA for the three months ended June 30, 2013

 

$

219,215 

 

$

91,034 

 

$

59,032 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA for the three months ended June 30, 2012

 

$

210,421 

 

$

96,312 

 

$

76,352 

 

 

Add-back:

 

 

 

 

 

 

 

 

 

 

 

 

Non-property level overhead expenses included above

 

 

6,654 

 

 

6,231 

 

 

6,367 

 

 

Less EBITDA from:

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

 

 

 

 

 

 

 

 

Dispositions, including net gains on sale

 

 

(2,936)

 

 

(5,423)

 

 

(22,368)

 

 

 

Properties taken out-of-service for redevelopment

 

 

(5,123)

 

 

(1,450)

 

 

152 

 

 

 

Other non-operating expense (income)

 

 

873 

 

 

640 

 

 

(3,265)

 

GAAP basis same store EBITDA for the three months ended June 30, 2012

 

$

209,889 

 

$

96,310 

 

$

57,238 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in GAAP basis same store EBITDA -

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30, 2013 and June 30, 2012(1)

 

$

9,326 

 

$

(5,276)

 

$

1,794 

 

 

 

 

 

 

 

 

 

 

% increase (decrease) in GAAP basis same store EBITDA

 

 

4.4%

 

 

(5.5%)

 

 

3.1%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

See notes on following page

 

 

 

 

 

 

 

 

 

 

 

59

 


 
 

  

Results of Operations – Three Months Ended June 30, 2013 Compared to June 30, 2012 - continued

 

 

Notes to preceding tabular information

 

 

New York:

 

The $9,326,000 increase in New York GAAP basis same store EBITDA resulted primarily from an increase in Office and Retail GAAP basis same store EBITDA of $7,687,000 and $1,223,000, respectively.  The $7,687,000 increase in Office GAAP basis same store EBITDA resulted primarily from an increase in (i) rental revenue of $4,250,000 (due to a $3.97 increase in average annual rents per square foot to $56.60 from $52.63, partially offset by a 70 basis point decrease in average same store occupancy to 95.6% from 96.3%), and (ii) signage revenue and management and leasing fees of $4,757,000, partially offset by (iii) higher operating expenses, net of reimbursements.  The $1,223,000 increase in Retail GAAP basis same store EBITDA resulted primarily from an increase in rental revenue of $1,172,000 (due to a $4.97 increase in average annual rents per square foot to $118.22 from $113.25).

 

 

Washington, DC:

 

The $5,276,000 decrease in Washington, DC GAAP basis same store EBITDA resulted primarily from a decrease in rental revenue of $5,390,000, primarily due to a 460 basis point decrease in office average same store occupancy to 80.1% from 84.7%, a significant portion of which resulted from the effects of the BRAC statute (see page 49).

 

 

Retail Properties:

 

The $1,794,000 increase in Retail Properties GAAP basis same store EBITDA resulted primarily from an increase in Strips GAAP basis same store EBITDA of $1,576,000, which resulted primarily from higher rental revenue of $1,423,000, due to a 140 basis point increase in average same store occupancy to 93.0% from 91.6%.

 

60

 


 

  

Results of Operations – Three Months Ended June 30, 2013 Compared to June 30, 2012 - continued

 

 

Reconciliation of GAAP basis Same Store EBITDA to Cash basis Same Store EBITDA

 

 

(Amounts in thousands)

 

New York

 

Washington, DC

 

Retail Properties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP basis same store EBITDA for the three months ended June 30, 2013

 

$

219,215 

 

$

91,034 

 

$

59,032 

 

Less: Adjustments for straight line rents, amortization of acquired

 

 

 

 

 

 

 

 

 

 

 

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

 

 

(25,862)

 

 

(2,597)

 

 

(3,216)

 

Cash basis same store EBITDA for the three months ended June 30, 2013

 

$

193,353 

 

$

88,437 

 

$

55,816 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP basis same store EBITDA for the three months ended June 30, 2012

 

$

209,889 

 

$

96,310 

 

$

57,238 

 

Less: Adjustments for straight line rents, amortization of acquired

 

 

 

 

 

 

 

 

 

 

 

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

 

 

(32,142)

 

 

(2,360)

 

 

(3,654)

 

Cash basis same store EBITDA for the three months ended June 30, 2012

 

$

177,747 

 

$

93,950 

 

$

53,584 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in Cash basis same store EBITDA -

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30, 2013 vs. June 30, 2012

 

$

15,606 

 

$

(5,513)

 

$

2,232 

 

 

 

 

 

 

 

 

 

 

 

 

% increase (decrease) in Cash basis same store EBITDA

 

 

8.8%

 

 

(5.9%)

 

 

4.2%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

61

 


 

  

Net Income and EBITDA by Segment for the Six Months Ended June 30, 2013 and 2012

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 our Other segment.  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 six months ended June 30, 2013 and 2012.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

For the Six Months Ended June 30, 2013

 

 

 

 

 

 

 

 

 

 

Retail

 

 

 

 

 

 

 

 

 

Total

 

New York

 

Washington, DC

 

Properties

 

Toys

 

Other

 

Property rentals

 

$

1,018,247 

 

$

561,494 

 

$

225,005 

 

$

128,785 

 

$

 

$

102,963 

 

Straight-line rent adjustments

 

 

32,297 

 

 

17,859 

 

 

4,008 

 

 

2,367 

 

 

 

 

8,063 

 

Amortization of acquired below-market

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

leases, net

 

 

28,506 

 

 

19,033 

 

 

1,022 

 

 

5,775 

 

 

 

 

2,676 

 

Total rentals

 

 

1,079,050 

 

 

598,386 

 

 

230,035 

 

 

136,927 

 

 

 

 

113,702 

 

Tenant expense reimbursements

 

 

152,415 

 

 

81,456 

 

 

20,802 

 

 

42,404 

 

 

 

 

7,753 

 

Cleveland Medical Mart development project

 

 

29,133 

 

 

 

 

 

 

 

 

 

 

29,133 

 

Fee and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BMS cleaning fees

 

 

33,173 

 

 

42,001 

 

 

 

 

 

 

 

 

(8,828)

 

 

Signage revenue

 

 

14,828 

 

 

14,828 

 

 

 

 

 

 

 

 

 

 

Management and leasing fees

 

 

11,693 

 

 

4,918 

 

 

6,266 

 

 

799 

 

 

 

 

(290)

 

 

Lease termination fees

 

 

67,155 

 

 

5,490 

 

 

550 

 

 

59,797 

 

 

 

 

1,318 

 

 

Other income

 

 

18,390 

 

 

3,969 

 

 

11,395 

 

 

859 

 

 

 

 

2,167 

 

Total revenues

 

 

1,405,837 

 

 

751,048 

 

 

269,048 

 

 

240,786 

 

 

 

 

144,955 

 

Operating expenses

 

 

520,953 

 

 

317,853 

 

 

95,612 

 

 

68,090 

 

 

 

 

39,398 

 

Depreciation and amortization

 

 

277,570 

 

 

145,621 

 

 

61,569 

 

 

32,177 

 

 

 

 

38,203 

 

General and administrative

 

 

108,905 

 

 

17,703 

 

 

13,798 

 

 

10,584 

 

 

 

 

66,820 

 

Cleveland Medical Mart development project

 

 

26,525 

 

 

 

 

 

 

 

 

 

 

26,525 

 

Acquisition related costs

 

 

3,951 

 

 

 

 

 

 

 

 

 

 

3,951 

 

Total expenses

 

 

937,904 

 

 

481,177 

 

 

170,979 

 

 

110,851 

 

 

 

 

174,897 

 

Operating income (loss)

 

 

467,933 

 

 

269,871 

 

 

98,069 

 

 

129,935 

 

 

 

 

(29,942)

 

(Loss) applicable to Toys

 

 

(35,102)

 

 

 

 

 

 

 

 

(35,102)

 

 

 

Income (loss) from partially owned entities

 

 

22,238 

 

 

9,831 

 

 

(4,542)

 

 

1,324 

 

 

 

 

15,625 

 

Income from Real Estate Fund

 

 

51,034 

 

 

 

 

 

 

 

 

 

 

51,034 

 

Interest and other investment (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

income, net

 

 

(22,658)

 

 

2,608 

 

 

82 

 

 

 

 

 

 

(25,352)

 

Interest and debt expense

 

 

(243,650)

 

 

(83,453)

 

 

(56,104)

 

 

(24,076)

 

 

 

 

(80,017)

 

Net loss on disposition of wholly owned and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

partially owned assets

 

 

(35,719)

 

 

 

 

 

 

 

 

 

 

(35,719)

 

Income (loss) before income taxes

 

 

204,076 

 

 

198,857 

 

 

37,505 

 

 

107,187 

 

 

(35,102)

 

 

(104,371)

 

Income tax expense

 

 

(3,950)

 

 

(1,233)

 

 

(1,183)

 

 

(749)

 

 

 

 

(785)

 

Income (loss) from continuing operations

 

 

200,126 

 

 

197,624 

 

 

36,322 

 

 

106,438 

 

 

(35,102)

 

 

(105,156)

 

Income from discontinued operations

 

 

271,122 

 

 

 

 

 

 

270,849 

 

 

 

 

273 

 

Net income (loss)

 

 

471,248 

 

 

197,624 

 

 

36,322 

 

 

377,287 

 

 

(35,102)

 

 

(104,883)

 

Less net income attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated subsidiaries

 

 

(26,216)

 

 

(2,962)

 

 

 

 

(109)

 

 

 

 

(23,145)

 

 

Operating Partnership

 

 

(22,782)

 

 

 

 

 

 

 

 

 

 

(22,782)

 

 

Preferred unit distributions of the

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Partnership

 

 

(1,134)

 

 

 

 

 

 

 

 

 

 

(1,134)

 

Net income (loss) attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vornado

 

 

421,116 

 

 

194,662 

 

 

36,322 

 

 

377,178 

 

 

(35,102)

 

 

(151,944)

 

Interest and debt expense(2)

 

 

368,241 

 

 

104,235 

 

 

62,998 

 

 

27,938 

 

 

80,912 

 

 

92,158 

 

Depreciation and amortization(2)

 

 

376,316 

 

 

152,986 

 

 

70,396 

 

 

34,867 

 

 

71,556 

 

 

46,511 

 

Income tax expense(2)

 

 

38,393 

 

 

1,377 

 

 

1,306 

 

 

749 

 

 

33,649 

 

 

1,312 

 

EBITDA(1)

 

$

1,204,066 

 

$

453,260 

(3)

$

171,022 

(4)

$

440,732 

(5)

$

151,015 

 

$

(11,963)

(6)

 

__________________________

See notes on page 64.

 

62

 


 
 

  

Net Income and EBITDA by Segment for the Six Months Ended June 30, 2013 and 2012 - continued

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

 

For the Six Months Ended June 30, 2012

 

 

 

 

 

 

 

 

 

 

Retail

 

 

 

 

 

 

 

 

 

Total

 

New York

 

Washington, DC

 

Properties

 

Toys

 

Other

 

Property rentals

 

$

958,447 

 

$

479,884 

 

$

240,818 

 

$

129,146 

 

$

 

$

108,599 

 

Straight-line rent adjustments

 

 

41,966 

 

 

34,194 

 

 

3,115 

 

 

3,580 

 

 

 

 

1,077 

 

Amortization of acquired below-market

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

leases, net

 

 

26,313 

 

 

15,318 

 

 

1,031 

 

 

7,107 

 

 

 

 

2,857 

 

Total rentals

 

 

1,026,726 

 

 

529,396 

 

 

244,964 

 

 

139,833 

 

 

 

 

112,533 

 

Tenant expense reimbursements

 

 

141,906 

 

 

73,697 

 

 

20,870 

 

 

41,962 

 

 

 

 

5,377 

 

Cleveland Medical Mart development project

 

 

111,363 

 

 

 

 

 

 

 

 

 

 

111,363 

 

Fee and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BMS cleaning fees

 

 

32,492 

 

 

46,558 

 

 

 

 

 

 

 

 

(14,066)

 

 

Signage revenue

 

 

9,469 

 

 

9,469 

 

 

 

 

 

 

 

 

 

 

Management and leasing fees

 

 

9,300 

 

 

2,221 

 

 

5,167 

 

 

1,904 

 

 

 

 

 

 

Lease termination fees

 

 

890 

 

 

256 

 

 

128 

 

 

 

 

 

 

505 

 

 

Other income

 

 

14,164 

 

 

2,333 

 

 

10,558 

 

 

714 

 

 

 

 

559 

 

Total revenues

 

 

1,346,310 

 

 

663,930 

 

 

281,687 

 

 

184,414 

 

 

 

 

216,279 

 

Operating expenses

 

 

489,462 

 

 

288,862 

 

 

93,618 

 

 

68,189 

 

 

 

 

38,793 

 

Depreciation and amortization

 

 

259,767 

 

 

110,424 

 

 

77,570 

 

 

36,256 

 

 

 

 

35,517 

 

General and administrative

 

 

102,122 

 

 

15,241 

 

 

13,181 

 

 

12,700 

 

 

 

 

61,000 

 

Cleveland Medical Mart development project

 

 

106,696 

 

 

 

 

 

 

 

 

 

 

106,696 

 

Acquisition related costs

 

 

3,244 

 

 

 

 

 

 

 

 

 

 

3,244 

 

Total expenses

 

 

961,291 

 

 

414,527 

 

 

184,369 

 

 

117,145 

 

 

 

 

245,250 

 

Operating income (loss)

 

 

385,019 

 

 

249,403 

 

 

97,318 

 

 

67,269 

 

 

 

 

(28,971)

 

Income applicable to Toys

 

 

97,281 

 

 

 

 

 

 

 

 

97,281 

 

 

 

Income (loss) from partially owned entities

 

 

32,223 

 

 

11,036 

 

 

(2,389)

 

 

698 

 

 

 

 

22,878 

 

Income from Real Estate Fund

 

 

32,063 

 

 

 

 

 

 

 

 

 

 

32,063 

 

Interest and other investment (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

income, net

 

 

(33,507)

 

 

2,109 

 

 

73 

 

 

20 

 

 

 

 

(35,709)

 

Interest and debt expense

 

 

(254,379)

 

 

(72,548)

 

 

(57,097)

 

 

(32,522)

 

 

 

 

(92,212)

 

Net gain on disposition of wholly owned and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

partially owned assets

 

 

4,856 

 

 

 

 

 

 

 

 

 

 

4,856 

 

Income (loss) before income taxes

 

 

263,556 

 

 

190,000 

 

 

37,905 

 

 

35,465 

 

 

97,281 

 

 

(97,095)

 

Income tax expense

 

 

(14,304)

 

 

(1,665)

 

 

(1,302)

 

 

 

 

 

 

(11,337)

 

Income (loss) from continuing operations

 

 

249,252 

 

 

188,335 

 

 

36,603 

 

 

35,465 

 

 

97,281 

 

 

(108,432)

 

Income (loss) from discontinued operations

89,240 

 

 

(640)

 

 

4,542 

 

 

26,473 

 

 

 

 

58,865 

 

Net income (loss)

 

 

338,492 

 

 

187,695 

 

 

41,145 

 

 

61,938 

 

 

97,281 

 

 

(49,567)

 

Less net (income) loss attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated subsidiaries

 

 

(24,318)

 

 

(5,174)

 

 

 

 

211 

 

 

 

 

(19,355)

 

 

Operating Partnership

 

 

(16,608)

 

 

 

 

 

 

 

 

 

 

(16,608)

 

 

Preferred unit distributions of the

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Partnership

 

 

(7,747)

 

 

 

 

 

 

 

 

 

 

(7,747)

 

Net income (loss) attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vornado

 

 

289,819 

 

 

182,521 

 

 

41,145 

 

 

62,149 

 

 

97,281 

 

 

(93,277)

 

Interest and debt expense(2)

 

 

384,024 

 

 

93,471 

 

 

66,206 

 

 

40,540 

 

 

68,862 

 

 

114,945 

 

Depreciation and amortization(2)

 

 

375,201 

 

 

125,575 

 

 

87,916 

 

 

44,406 

 

 

67,211 

 

 

50,093 

 

Income tax expense(2)

 

 

46,226 

 

 

1,806 

 

 

1,557 

 

 

 

 

29,100 

 

 

13,763 

 

EBITDA(1)

 

$

1,095,270 

 

$

403,373 

(3)

$

196,824 

(4)

$

147,095 

(5)

$

262,454 

 

$

85,524 

(6)

_____________________________

See notes on the following page.

 

63

 


 
 

  

Net Income and EBITDA by Segment for the Six Months Ended June 30, 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 Six Months Ended June 30,

 

 

 

(Amounts in thousands)

2013 

 

2012 

 

 

 

Office

$

304,482 

 

$

277,257 

 

 

 

Retail

 

117,612 

 

 

90,497 

 

 

 

Alexander's (decrease due to sale of Kings Plaza in November 2012)

 

20,754 

 

 

26,397 

 

 

 

Hotel Pennsylvania

 

10,412 

 

 

9,222 

 

 

 

 

Total New York

$

453,260 

 

$

403,373 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended June 30,

 

 

 

(Amounts in thousands)

2013 

 

2012 

 

 

 

Office, excluding the Skyline Properties (a)

$

133,243 

 

$

153,287 

 

 

 

Skyline properties

 

15,705 

 

 

22,191 

 

 

 

 

Total Office

 

148,948 

 

 

175,478 

 

 

 

Residential

 

22,074 

 

 

21,346 

 

 

 

 

Total Washington, DC

$

171,022 

 

$

196,824 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

 

2012 includes EBITDA from discontinued operations and other items that affect comparability, aggregating $9,962. Excluding these items, EBITDA was $143,325.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended June 30,

 

 

 

(Amounts in thousands)

2013 

 

2012 

 

 

 

Strip shopping centers(a)

$

204,890 

 

$

99,176 

 

 

 

Regional malls(b)

 

235,842 

 

 

47,919 

 

 

 

 

Total Retail properties

$

440,732 

 

$

147,095 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

 

Includes income from discontinued operations, net gains on sale of real estate, and other items that affect comparability, aggregating $130,784 and $26,093 for the six months ended June 30, 2013 and 2012, respectively. Excluding these items, EBITDA was $74,106 and $73,083, respectively.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(b)

 

Includes income from discontinued operations, net gains on sale of real estate, and other items that affect comparability, aggregating $203,090 and $16,728 for the six months ended June 30, 2013 and 2012, respectively. Excluding these items, EBITDA was $32,752 and $31,191, respectively.

 

 

 

64

 


 
 

  

Net Income and EBITDA by Segment for the Six Months Ended June 30, 2013 and 2012 - continued

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes to preceding tabular information - continued:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6)

The elements of "other" EBITDA are summarized below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended June 30,

 

 

 

(Amounts in thousands)

2013 

 

2012 

 

 

 

Our share of Real Estate Fund:

 

 

 

 

 

 

 

 

 

(Loss) income before net realized/unrealized gains

$

(251)

 

$

2,288 

 

 

 

 

Net unrealized gains

 

11,777 

 

 

6,995 

 

 

 

 

Carried interest

 

15,609 

 

 

2,541 

 

 

 

Total

 

27,135 

 

 

11,824 

 

 

 

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

 

37,161 

 

 

32,649 

 

 

 

555 California Street

 

21,651 

 

 

20,692 

 

 

 

LNR(a)

 

20,443 

 

 

27,233 

 

 

 

Lexington(b)

 

6,931 

 

 

16,921 

 

 

 

Other investments

 

12,890 

 

 

20,823 

 

 

 

 

 

126,211 

 

 

130,142 

 

 

 

Corporate general and administrative expenses(c)

 

(47,587)

 

 

(44,129)

 

 

 

Investment income and other, net(c)

 

28,045 

 

 

27,628 

 

 

 

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

 

(39,487)

 

 

 

 

 

Loss on sale of J.C. Penney common shares

 

(36,800)

 

 

 

 

 

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

 

(13,475)

 

 

(57,687)

 

 

 

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

 

(4,154)

 

 

(506)

 

 

 

Acquisition related costs

 

(3,951)

 

 

(3,244)

 

 

 

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

2,146 

 

 

56,401 

 

 

 

Net gain on sale of residential condominiums

 

1,005 

 

 

1,274 

 

 

 

Net income attributable to noncontrolling interests in the Operating Partnership

 

(22,782)

 

 

(16,608)

 

 

 

Preferred unit distributions of the Operating Partnership

 

(1,134)

 

 

(7,747)

 

 

 

 

 

 

 

 

 

$

(11,963)

 

$

85,524 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

 

On April 22, 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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(c)

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 Six Months

 

 

 

 

 

 

Ended June 30,

 

 

 

 

 

 

2013 

 

2012 

 

 

 

Region:

 

 

 

 

 

 

 

 

New York City metropolitan area

 

73%

 

69%

 

 

 

 

Washington, DC / Northern Virginia metropolitan area

24%

 

27%

 

 

 

 

Puerto Rico

 

1%

 

2%

 

 

 

 

California

1%

 

1%

 

 

 

 

Other geographies

 

1%

 

1%

 

 

 

 

 

100%

 

100%

 

 

65

 


 

  

Results of Operations – Six Months Ended June 30, 2013 Compared to June 30, 2012

 

 

Revenues

Our revenues, which consist of property rentals, tenant expense reimbursements, hotel revenues, trade shows revenues, amortization of acquired below-market leases, net of above-market leases and fee income, were $1,405,837,000 for the six months ended June 30, 2013, compared to $1,346,310,000 in the prior year’s six months, an increase of $59,527,000.  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

 

$

51,709 

 

 

$

55,626 

 

 

$

 

 

$

(3,917)

 

 

$

 

 

Properties taken out of service for

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

redevelopment

 

 

(4,983)

 

 

 

(448)

 

 

 

(2,258)

 

 

 

(2,174)

 

 

 

(103)

 

 

Hotel Pennsylvania

 

 

4,416 

 

 

 

4,416 

 

 

 

 

 

 

 

 

 

 

 

Trade Shows

 

 

(3,076)

 

 

 

 

 

 

 

 

 

 

 

 

(3,076)

 

 

Same store operations

 

 

4,258 

 

 

 

9,396 

 

 

 

(12,671)

 

 

 

3,185 

 

 

 

4,348 

 

 

 

 

52,324 

 

 

 

68,990 

 

 

 

(14,929)

 

 

 

(2,906)

 

 

 

1,169 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant expense reimbursements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions and other

 

 

2,930 

 

 

 

3,530 

 

 

 

(341)

 

 

 

(259)

 

 

 

 

 

Properties taken out of service for

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

redevelopment

 

 

(1,766)

 

 

 

(135)

 

 

 

(132)

 

 

 

(1,401)

 

 

 

(98)

 

 

Same store operations

 

 

9,345 

 

 

 

4,364 

 

 

 

405 

 

 

 

2,102 

 

 

 

2,474 

 

 

 

 

 

10,509 

 

 

 

7,759 

 

 

 

(68)

 

 

 

442 

 

 

 

2,376 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cleveland Medical Mart development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

project

 

 

(82,230)

(1)

 

 

 

 

 

 

 

 

 

 

 

(82,230)

(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BMS cleaning fees

 

 

681 

 

 

 

(4,557)

 

 

 

 

 

 

 

 

 

5,238 

(2)

 

Signage revenue

 

 

5,359 

 

 

 

5,359 

 

 

 

 

 

 

 

 

 

 

 

Management and leasing fees

 

 

2,393 

 

 

 

2,697 

 

 

 

1,099 

 

 

 

(1,105)

 

 

 

(298)

 

 

Lease termination fees

 

 

66,265 

 

 

 

5,234 

 

 

 

422 

 

 

 

59,796 

(3)

 

 

813 

 

 

Other income

 

 

4,226 

 

 

 

1,636 

 

 

 

837 

 

 

 

145 

 

 

 

1,608 

 

 

 

 

78,924 

 

 

 

10,369 

 

 

 

2,358 

 

 

 

58,836 

 

 

 

7,361 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total increase (decrease) in revenues

 

$

59,527 

 

 

$

87,118 

 

 

$

(12,639)

 

 

$

56,372 

 

 

$

(71,324)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Primarily due to the project nearing completion. This decrease in revenue is offset by a decrease in development costs expensed in the period. See note (3) on page 67.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2)

 

Represents the elimination of intercompany fees from operating segments upon consolidation. See note (2) on page 67.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3)

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

66

 


 

  

Results of Operations – Six Months Ended June 30, 2013 Compared to June 30, 2012 - continued

 

 

Expenses

Our expenses, which consist primarily of operating, depreciation and amortization and general and administrative expenses, were $937,904,000 for the six months ended June 30, 2013, compared to $961,291,000 in the prior year’s six months, a decrease of $23,387,000.  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

 

$

20,219 

 

 

$

20,741 

 

 

$

 

 

$

(522)

 

 

$

 

 

Properties taken out of service for

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

redevelopment

 

 

(7,477)

 

 

 

(1,006)

 

 

 

(734)

 

 

 

(4,599)

 

 

 

(1,138)

 

 

Non-reimbursable expenses, including

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

bad debt reserves

 

 

6,907 

 

 

 

2,830 

 

 

 

1,518 

 

 

 

1,430 

 

 

 

1,129 

 

 

Hotel Pennsylvania

 

 

3,170 

 

 

 

3,170 

 

 

 

 

 

 

 

 

 

 

 

Trade Shows

 

 

(2,453)

 

 

 

 

 

 

 

 

 

 

 

 

(2,453)

 

 

BMS expenses

 

 

1,411 

 

 

 

(3,827)

 

 

 

 

 

 

 

 

 

5,238 

(2)

 

Same store operations

 

 

9,714 

 

 

 

7,083 

 

 

 

1,210 

 

 

 

3,592 

 

 

 

(2,171)

 

 

 

 

 

31,491 

 

 

 

28,991 

 

 

 

1,994 

 

 

 

(99)

 

 

 

605 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions and other

 

 

31,012 

 

 

 

31,843 

 

 

 

 

 

 

(831)

 

 

 

 

 

Properties taken out of service for

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

redevelopment

 

 

(19,550)

 

 

 

(195)

 

 

 

(16,145)

 

 

 

(3,210)

 

 

 

 

 

Same store operations

 

 

6,341 

 

 

 

3,549 

 

 

 

144 

 

 

 

(38)

 

 

 

2,686 

 

 

 

 

 

 

17,803 

 

 

 

35,197 

 

 

 

(16,001)

 

 

 

(4,079)

 

 

 

2,686 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark-to-market of deferred

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

compensation plan liability (1)

 

 

1,787 

 

 

 

 

 

 

 

 

 

 

 

 

1,787 

 

 

Severance costs (primarily reduction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

in force at the Merchandise Mart)

 

 

3,648 

 

 

 

 

 

 

 

 

 

 

 

 

3,648 

 

 

Same store operations

 

 

1,348 

 

 

 

2,462 

 

 

 

617 

 

 

 

(2,116)

 

 

 

385 

 

 

 

 

 

6,783 

 

 

 

2,462 

 

 

 

617 

 

 

 

(2,116)

 

 

 

5,820 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cleveland Medical Mart development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

project

 

 

(80,171)

(3)

 

 

 

 

 

 

 

 

 

 

 

(80,171)

(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition related costs

 

 

707 

 

 

 

 

 

 

 

 

 

 

 

 

707 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total (decrease) increase in expenses

 

$

(23,387)

 

 

$

66,650 

 

 

$

(13,390)

 

 

$

(6,294)

 

 

$

(70,353)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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 income (loss), net” on our consolidated statements of income.

 

 

 

(2)

Represents the elimination of intercompany fees from operating segments upon consolidation. See note (2) on page 66.

 

 

 

(3)

Primarily due to the project nearing completion. This decrease in expense is offset by the decrease in development revenue in the period. See note (1) on page 66.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

67

 


 

  

Results of Operations – Six Months Ended June 30, 2013 Compared to June 30, 2012 - continued

 

 

(Loss) Income Applicable to Toys

 

In the fourth quarter of 2012, we recorded a $40,000,000 non-cash impairment loss on our investment in Toys and disclosed, that if current facts don’t change, our share of Toys’ undistributed income, which in accordance with the equity method of accounting, would increase the carrying amount of our investment above fair value, would require an offsetting impairment loss.

 

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. 

 

In the six months ended June 30, 2013, we recognized a net loss of $35,102,000 from our investment in Toys, comprised of $39,834,000 for our 32.6% share of Toys’ net income, partially offset by a $78,542,000 impairment loss (see above), and $3,606,000 of management fee income.  In the six months ended June 30, 2012, we recognized net income of $97,281,000 from our investment in Toys, comprised of $92,623,000 for our 32.5% share of Toys’ net income and $4,658,000 of management fee income.

 

 

Income from Partially Owned Entities

Summarized below are the components of income (loss) from partially owned entities for the six months ended June 30, 2013 and 2012.

 

 

 

 

 

 

 

Percentage

 

For the Six Months Ended

 

 

 

 

 

 

 

 

Ownership at

 

June 30,

 

 

(Amounts in thousands)

 

June 30, 2013

 

2013 

 

2012 

 

 

Equity in Net Income (Loss):

 

 

 

 

 

 

 

 

 

 

 

 

Alexander's (decrease due to sale of Kings Plaza

 

 

 

 

 

 

 

 

 

 

 

 

in November 2012)

 

 

 

32.4%

 

$

11,827 

 

 

$

15,869 

 

 

 

Lexington (1)

 

n/a

 

 

(979)

 

 

 

694 

 

 

 

LNR (2)

 

n/a

 

 

18,731 

 

 

 

22,719 

 

 

 

India real estate ventures

 

4.0%-36.5%

 

 

(1,181)

 

 

 

(4,608)

 

 

 

Partially owned office buildings:

 

 

 

 

 

 

 

 

 

 

 

 

 

280 Park Avenue

 

49.5%

 

 

(4,590)

 

 

 

(7,550)

 

 

 

 

Warner Building

 

55.0%

 

 

(4,342)

 

 

 

(4,599)

 

 

 

 

666 Fifth Avenue Office Condominium

 

49.5%

 

 

3,918 

 

 

 

3,500 

 

 

 

 

330 Madison Avenue

 

25.0%

 

 

2,489 

 

 

 

812 

 

 

 

 

Rosslyn Plaza

 

43.7%-50.4%

 

 

(1,451)

 

 

 

303 

 

 

 

 

1101 17th Street

 

55.0%

 

 

620 

 

 

 

1,329 

 

 

 

 

One Park Avenue

 

30.3%

 

 

374 

 

 

 

634 

 

 

 

 

West 57th Street Properties

 

50.0%

 

 

368 

 

 

 

565 

 

 

 

 

Fairfax Square

 

20.0%

 

 

(63)

 

 

 

(52)

 

 

 

 

Other partially owned office buildings

 

Various

 

 

1,053 

 

 

 

1,082 

 

 

 

Other investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

Independence Plaza

 

50.1%

 

 

(1,118)

 

 

 

3,415 

 

 

 

 

Monmouth Mall

 

50.0%

 

 

1,285 

 

 

 

660 

 

 

 

 

Downtown Crossing, Boston (3)

 

n/a

 

 

(2,358)

 

 

 

(834)

 

 

 

 

Other investments (4)

 

Various

 

 

(2,345)

 

 

 

(1,716)

 

 

 

 

 

 

 

 

 

 

 

$

22,238 

 

 

$

32,223 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2)

 

On April 22, 2013, LNR was sold for $1.053 billion. We owned 26.2% of LNR and received net proceeds of approximately $241,000.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3)

 

On April 24, 2013, the joint venture sold the site in Downtown Crossing, Boston, and we received approximately $45,000 for our 50% interest. In connection therewith, we recognized a $2,335 impairment loss in the first quarter.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4)

 

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

 

 

68

 


 

  

Results of Operations – Six Months Ended June 30, 2013 Compared to June 30, 2012 - continued

 

 

Income from Real Estate Fund

 

Below are the components of the income from our Real Estate Fund for the six months ended June 30, 2013 and 2012.

 

 

 

 

 

(Amounts in thousands)

 

For the Six Months Ended June 30,

 

 

 

 

2013 

2012 

 

 

Net investment income

 

$

3,925 

 

$

4,084 

 

 

Net unrealized gains

 

 

47,109 

 

 

27,979 

 

 

Income from Real Estate Fund

 

 

51,034 

 

 

32,063 

 

 

Less (income) attributable to noncontrolling interests

 

 

(23,899)

 

 

(20,239)

 

 

Income from Real Estate Fund attributable to Vornado (1)

 

$

27,135 

 

$

11,824 

 

 

___________________________________

 

 

 

 

(1)

Excludes management, leasing and development fees of $1,676 and $1,420 for the six months ended June 30, 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 Income (Loss), net

 

Interest and other investment income (loss), net was a loss of $22,658,000 in the six months ended June 30, 2013, compared to loss of $33,507,000 in the prior year’s six months, an increase in income of $10,849,000. This increase resulted from:

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

J.C. Penney derivative position ($13,475 mark-to-market loss in 2013, compared to a

 

 

 

 

 

 

 

 

$57,687 mark-to-market loss in the prior year)

 

 

$

44,212 

 

 

 

Non-cash impairment loss on J.C. Penney common shares in 2013

 

 

 

(39,487)

 

 

 

Lower dividends and interest on marketable securities

 

(5,553)

 

 

 

Income from prepayment penalties in connection with the repayment of a mezzanine loan

 

 

5,267 

 

 

 

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)

 

 

1,787 

 

 

 

Other, net

 

 

4,623 

 

 

 

 

 

 

 

$

10,849 

 

 

 

 

Interest and Debt Expense

 

Interest and debt expense was $243,650,000 in the six months ended June 30, 2013, compared to $254,379,000 in the prior year’s six months, a decrease of $10,729,000.  This decrease was primarily due to $17,131,000 of higher capitalized interest in the current period, partially offset by interest expense of $6,315,000 from the financing of the retail condominium at 666 Fifth Avenue and the Outlets at Bergen Town Center in the first quarter of 2013.

 

 

Net Gain (Loss) on Disposition of Wholly Owned and Partially Owned Assets

 

In the six months ended June 30, 2013, we recognized a $35,719,000 loss on disposition of wholly owned and partially owned assets (primarily from the sale of 10,000,000 J.C. Penney common shares), compared to a $4,856,000 net gain in the prior year’s six months (primarily from the sale of residential condominiums and marketable securities).

 

 

Income Tax Expense

 

Income tax expense was $3,950,000 in the six months ended June 30, 2013, compared to $14,304,000 in the prior year’s six months, a decrease of $10,354,000.  This decrease resulted primarily from an $8,554,000 income tax provision in the prior year’s six months applicable to a taxable REIT subsidiary that was liquidated in the fourth quarter of 2012. 

 

69

 


 

  

Results of Operations – Six Months Ended June 30, 2013 Compared to June 30, 2012 - continued

 

 

Income from Discontinued Operations

We have reclassified the revenues and expenses of the properties that were sold and that are currently held for sale 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 six months ended June 30, 2013 and 2012.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended June 30,

 

 

(Amounts in thousands)

 

2013 

 

2012 

 

 

Total revenues

 

$

29,391 

 

$

106,134 

 

 

 

Total expenses

 

 

22,256 

 

 

76,096 

 

 

 

 

 

 

7,135 

 

 

30,038 

 

 

 

Net gains on sale of:

 

 

 

 

 

 

 

 

 

 

 

Green Acres Mall

 

 

 

202,275 

 

 

 

 

 

 

901 Market Street, Philadelphia

 

 

 

33,058 

 

 

 

 

 

 

The Plant

 

 

 

32,169 

 

 

 

 

 

 

350 West Mart Center

 

 

 

 

 

54,911 

 

 

 

 

Other real estate

 

 

 

492 

 

 

17,802 

 

 

 

Impairment losses

 

 

 

(4,007)

 

 

(13,511)

 

 

 

Income from discontinued operations

 

$

271,122 

 

$

89,240 

 

 

 

Net Income Attributable to Noncontrolling Interests in Consolidated Subsidiaries

 

Net income attributable to noncontrolling interests in consolidated subsidiaries was $26,216,000 in the six months ended June 30, 2013, compared to $24,318,000 in the prior year’s six months, an increase of $1,898,000.  This increase resulted primarily from higher net income allocated to the noncontrolling interests of our Real Estate Fund.

 

Net Income Attributable to Noncontrolling Interests in the Operating Partnership

 

Net income attributable to noncontrolling interests in the Operating Partnership was $22,782,000 in the six months ended June 30, 2013, compared to $16,608,000 in the prior year’s six months, an increase of $6,174,000.  This increase resulted primarily from higher net income subject to allocation to unitholders.

 

Preferred Unit Distributions of the Operating Partnership

 

Preferred unit distributions of the Operating Partnership were $1,134,000 in the six months ended June 30, 2013, compared to $7,747,000 in the prior year’s six months, a decrease of $6,613,000.  This decrease resulted 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 $42,070,000 in the six months ended June 30, 2013, compared to $35,574,000 in the prior year’s six months, an increase of $6,496,000.  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 the six months ended June 30, 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.

 

70

 


 

  

Results of Operations – Six Months Ended June 30, 2013 Compared to June 30, 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 are reconciliations of EBITDA to same store EBITDA on a GAAP basis for each of our segments for the six months ended June 30, 2013, compared to the six months ended June 30, 2012.

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

 

New York

 

Washington, DC

 

Retail Properties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA for the six months ended June 30, 2013

 

$

453,260 

 

$

171,022 

 

$

440,732 

 

 

Add-back:

 

 

 

 

 

 

 

 

 

 

 

 

Non-property level overhead expenses included above

 

 

17,703 

 

 

13,798 

 

 

10,584 

 

 

Less EBITDA from:

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

 

(33,240)

 

 

 

 

 

 

 

Dispositions, including net gains on sale

 

 

 

 

(71)

 

 

(274,050)

 

 

 

Properties taken out-of-service for redevelopment

 

 

(9,309)

 

 

(2,806)

 

 

(1,383)

 

 

 

Other non-operating (income) expense

 

 

(6,887)

 

 

54 

 

 

(58,943)

 

GAAP basis same store EBITDA for the six months ended June 30, 2013

 

$

421,527 

 

$

181,997 

 

$

116,940 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA for the six months ended June 30, 2012

 

$

403,373 

 

$

196,824 

 

$

147,095 

 

 

Add-back:

 

 

 

 

 

 

 

 

 

 

 

 

Non-property level overhead expenses included above

 

 

15,241 

 

 

13,181 

 

 

12,700 

 

 

Less EBITDA from:

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

 

 

 

 

 

 

 

 

Dispositions, including net gains on sale

 

 

(5,408)

 

 

(9,962)

 

 

(39,734)

 

 

 

Properties taken out-of-service for redevelopment

 

 

(9,903)

 

 

(6,065)

 

 

(9)

 

 

 

Other non-operating expense (income)

 

 

93 

 

 

531 

 

 

(6,615)

 

GAAP basis same store EBITDA for the six months ended June 30, 2012

 

$

403,396 

 

$

194,509 

 

$

113,437 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in GAAP basis same store EBITDA -

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2013 and June 30, 2012(1)

 

$

18,131 

 

$

(12,512)

 

$

3,503 

 

 

 

 

 

 

 

 

 

 

% increase (decrease) in GAAP basis same store EBITDA

 

 

4.5%

 

 

(6.4%)

 

 

3.1%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

See notes on following page

 

 

 

 

 

 

 

 

 

 

 

71

 


 
 

  

Results of Operations – Six Months Ended June 30, 2013 Compared to June 30, 2012 - continued

 

 

Notes to preceding tabular information

 

 

New York:

 

The $18,131,000 increase in New York GAAP basis same store EBITDA resulted primarily from an increase in Office and Retail GAAP basis same store EBITDA of $13,900,000 and $3,014,000, respectively.  The $13,900,000 increase in Office GAAP basis same store EBITDA resulted primarily from an increase in (i) rental revenue of $7,596,000 (due to a $4.51 increase in average annual rents per square foot to $57.03 from $52.52, partially offset by a 150 basis point decrease in average same store occupancy to 94.8% from 96.3%), and (ii) signage revenue and management and leasing fees of $8,243,000, partially offset by (iii) higher operating expenses, net of reimbursements.  The $3,014,000 increase in Retail GAAP basis same store EBITDA resulted primarily from an increase in (i) rental revenue of $1,800,000, (principally due a $4.34 increase in average annual rents per square foot to $117.46 from $113.12), and (ii) fee and other income of $1,116,000.   

 

 

Washington, DC:

 

The $12,512,000 decrease in Washington, DC GAAP basis same store EBITDA resulted primarily from a decrease in rental revenue of $12,671,000, primarily due to a 570 basis point decrease in office average same store occupancy to 80.2% from 85.9%, a significant portion of which resulted from the effects of the BRAC statute (see page 49).

 

 

Retail Properties:

 

The $3,503,000 increase in Retail Properties GAAP basis same store EBITDA resulted primarily from an increase in Strips GAAP basis same store EBITDA of $3,344,000, which resulted primarily from higher rental revenue of $2,841,000, due to an 80 basis point increase in average same store occupancy to 92.9% from 92.1%.

 

72

 


 
 

  

Results of Operations – Six Months Ended June 30, 2013 Compared to June 30, 2012 - continued

 

 

Reconciliation of GAAP basis Same Store EBITDA to Cash basis Same Store EBITDA

 

 

(Amounts in thousands)

 

New York

 

Washington, DC

 

Retail Properties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP basis same store EBITDA for the six months ended June 30, 2013

 

$

421,527 

 

$

181,997 

 

$

116,940 

 

Less: Adjustments for straight line rents, amortization of acquired

 

 

 

 

 

 

 

 

 

 

 

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

 

 

(52,073)

 

 

(6,763)

 

 

(6,412)

 

Cash basis same store EBITDA for the six months ended June 30, 2013

 

$

369,454 

 

$

175,234 

 

$

110,528 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP basis same store EBITDA for the six months ended June 30, 2012

 

$

403,396 

 

$

194,509 

 

$

113,437 

 

Less: Adjustments for straight line rents, amortization of acquired

 

 

 

 

 

 

 

 

 

 

 

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

 

 

(64,171)

 

 

(4,482)

 

 

(6,403)

 

Cash basis same store EBITDA for the six months ended June 30, 2012

 

$

339,225 

 

$

190,027 

 

$

107,034 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in Cash basis same store EBITDA -

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2013 vs. June 30, 2012

 

$

30,229 

 

$

(14,793)

 

$

3,494 

 

 

 

 

 

 

 

 

 

 

 

 

% increase (decrease) in Cash basis same store EBITDA

 

 

8.9%

 

 

(7.8%)

 

 

3.3%

 

73

 


 
 

  

SUPPLEMENTAL INFORMATION

 

Reconciliation of Net Income (Loss) to EBITDA for the Three Months Ended March 31, 2013.

 

 

 

 

 

 

 

 

 

 

Retail

 

(Amounts in thousands)

New York

 

Washington, DC

 

Properties

 

Net income attributable to Vornado for the three months ended

 

 

 

 

 

 

 

 

 

 

March 31, 2013

$

89,088 

 

$

18,889 

 

$

289,584 

 

Interest and debt expense

 

49,689 

 

 

31,753 

 

 

14,223 

 

Depreciation and amortization

 

78,413 

 

 

35,148 

 

 

18,519 

 

Income tax expense

 

347 

 

 

454 

 

 

 

EBITDA for the three months ended March 31, 2013

$

217,537 

 

$

86,244 

 

$

322,326 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of EBITDA to GAAP basis Same Store EBITDA – Three Months Ended June 30, 2013 vs. March 31, 2013

 

(Amounts in thousands)

 

New York

 

Washington, DC

 

Retail Properties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA for the three months ended June 30, 2013

 

$

235,723 

 

$

84,778 

 

$

118,406 

 

 

Add-back:

 

 

 

 

 

 

 

 

 

 

 

 

Non-property level overhead expenses included above

 

 

8,881 

 

 

6,873 

 

 

5,169 

 

 

Less EBITDA from:

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

 

913 

 

 

 

 

 

 

 

Dispositions, including net gains on sale

 

 

 

 

27 

 

 

(64,466)

 

 

 

Properties taken out-of-service for redevelopment

 

 

(4,900)

 

 

(1,066)

 

 

(916)

 

 

 

Other non-operating (income) expense

 

 

(5,679)

 

 

422 

 

 

839 

 

GAAP basis same store EBITDA for the three months ended June 30, 2013

 

$

234,938 

 

$

91,034 

 

$

59,032 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA for the three months ended March 31, 2013

 

$

217,537 

 

$

86,244 

 

$

322,326 

 

 

Add-back:

 

 

 

 

 

 

 

 

 

 

 

 

Non-property level overhead expenses included above

 

 

8,821 

 

 

6,925 

 

 

5,415 

 

 

Less EBITDA from:

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

 

(3,684)

 

 

 

 

 

 

 

Dispositions, including net gains on sale

 

 

 

 

(98)

 

 

(209,583)

 

 

 

Properties taken out-of-service for redevelopment

 

 

(4,410)

 

 

(1,740)

 

 

(467)

 

 

 

Other non-operating (income) expense

 

 

(1,207)

 

 

(368)

 

 

(59,783)

 

GAAP basis same store EBITDA for the three months ended March 31, 2013

$

217,057 

 

$

90,963 

 

$

57,908 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase in GAAP basis same store EBITDA -

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30, 2013 and March 31, 2013

 

$

17,881 

 

$

71 

 

$

1,124 

 

 

 

 

 

 

 

 

 

 

% increase in GAAP basis same store EBITDA

 

 

8.2%

 

 

0.1%

 

 

1.9%

 

 

74

 


 
 

  

SUPPLEMENTAL INFORMATION – CONTINUED

 

Reconciliation of GAAP basis Same Store EBITDA to Cash basis Same Store EBITDA – Three Months Ended June 30, 2013 vs. March 31, 2013

 

 

(Amounts in thousands)

 

New York

 

Washington, DC

 

Retail Properties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP basis same store EBITDA for the three months ended June 30, 2013

 

$

234,938 

 

$

91,034 

 

$

59,032 

 

Less: Adjustments for straight line rents, amortization of acquired

 

 

 

 

 

 

 

 

 

 

 

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

 

 

(28,108)

 

 

(2,597)

 

 

(3,216)

 

Cash basis same store EBITDA for the three months ended June 30, 2013

 

$

206,830 

 

$

88,437 

 

$

55,816 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP basis same store EBITDA for the three months ended March 31, 2013

$

217,057 

 

$

90,963 

 

$

57,908 

 

Less: Adjustments for straight line rents, amortization of acquired

 

 

 

 

 

 

 

 

 

 

 

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

 

 

(28,740)

 

 

(4,167)

 

 

(3,196)

 

Cash basis same store EBITDA for the three months ended March 31, 2013

 

$

188,317 

 

$

86,796 

 

$

54,712 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase in Cash basis same store EBITDA -

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30, 2013 vs. March 31, 2013

 

$

18,513 

 

$

1,641 

 

$

1,104 

 

 

 

 

 

 

 

 

 

 

 

 

% increase in Cash basis same store EBITDA

 

 

9.8%

 

 

1.9%

 

 

2.0%

 

75

 


 

  

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, leasing commissions, dividends to shareholders, 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 (excluding Fund acquisitions) may require funding from borrowings and/or equity offerings.  Our Real Estate Fund has aggregate unfunded commitments of $246,582,000, including $61,645,000 from us. 

 

We may from time to time purchase or retire outstanding debt securities or redeem our equity 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.

 

 

Cash Flows for the Six Months Ended June 30, 2013

Our cash and cash equivalents were $781,655,000 at June 30, 2013, a $178,664,000 decrease over the balance at December 31, 2012.  Our consolidated outstanding debt was $10,024,737,000 at June 30, 2013, a $1,166,597,000 decrease over the balance at December 31, 2012.  As of June 30, 2013 and December 31, 2012, $83,982,000 and $1,170,000,000, respectively, was outstanding under our revolving credit facilities.  During the remainder of 2013 and 2014, $177,058,000 and $235,548,000, 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 $444,800,000 was comprised of (i) net income of $471,248,000, (ii) $61,190,000 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 $23,774,000, partially offset by (v) the net change in operating assets and liabilities of $168,076,000, including $30,893,000 related to Real Estate Fund investments.

 

Net cash provided by investing activities of $1,070,685,000 was comprised of (i) $648,167,000 of proceeds from sales of real estate and related investments, (ii) $281,991,000 of capital distributions from partially owned entities, (iii) $240,474,000 from the sale of LNR, (iv) $160,715,000 of proceeds from the sale of marketable securities, (v) $85,450,000 from the return of the J.C. Penney derivative collateral, (vi) 47,950,000 of proceeds from repayments of mortgages and mezzanine loans receivable, and (vii) $16,596,000 of changes in restricted cash, partially offset by (viii) $113,060,000 of additions to real estate, (ix) $98,447,000 for the funding of the J.C. Penney derivative collateral, (x) $85,550,000 of development costs and construction in progress, (xi) $59,472,000 of investments in partially owned entities, (xii) $53,992,000 of acquisitions of real estate, and (xiii) 137,000 of investment in mortgage and mezzanine loans receivable and other.

 

Net cash used in financing activities of $1,694,149,000 was comprised of (i) $2,800,441,000 for the repayments of borrowings, (ii) $299,400,000 for purchases of outstanding preferred units and shares, (iii) $272,825,000 of dividends paid on common shares, (iv) $181,510,000 of distributions to noncontrolling interests, (v) $42,451,000 of dividends paid on preferred shares, (vi) $9,520,000 of debt issuance and other costs, and (vii) $332,000 for the repurchase of shares related to stock compensation agreements and related tax holdings, partially offset by (viii) $1,583,357,000 of proceeds from borrowings, (ix) $290,536,000 of proceeds from the issuance of preferred shares, (x) $33,967,000 of contributions from noncontrolling interests in consolidated subsidiaries, and (xi) $4,470,000 of proceeds received from the exercise of employee share options.

 

76

 


 

  

Liquidity and Capital Resources – continued

 

 

Capital Expenditures

 

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 six months ended June 30, 2013.

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

 

 

(Amounts in thousands)

Total

 

New York

 

Washington, DC

 

Properties

 

Other

Expenditures to maintain assets

$

23,035 

 

$

10,119 

 

$

4,814 

 

$

1,855 

 

$

6,247 

Tenant improvements

 

86,797 

 

 

55,834 

 

 

17,373 

 

 

8,032 

 

 

5,558 

Leasing commissions

 

30,654 

 

 

24,840 

 

 

3,479 

 

 

1,339 

 

 

996 

Non-recurring capital expenditures

 

2,163 

 

 

2,163 

 

 

 

 

 

 

Total capital expenditures and leasing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

commissions (accrual basis)

 

142,649 

 

 

92,956 

 

 

25,666 

 

 

11,226 

 

 

12,801 

Adjustments to reconcile to cash basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenditures in the current year

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

applicable to prior periods

 

71,961 

 

 

24,978 

 

 

17,393 

 

 

4,576 

 

 

25,014 

 

 

Expenditures to be made in future

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

periods for the current period

 

(77,870)

 

 

(50,081)

 

 

(18,297)

 

 

(9,292)

 

 

(200)

Total capital expenditures and leasing

 

 

 

 

 

 

 

 

 

 

commissions (cash basis)

$

136,740 

 

$

67,853 

 

$

24,762 

 

$

6,510 

 

$

37,615 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant improvements and leasing commissions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per square foot per annum

$

4.14 

 

$

5.08 

 

$

6.98 

 

$

1.23 

 

$

 

Percentage of initial rent

 

9.6%

 

 

7.8%

 

 

16.7%

 

 

6.4%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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. 

 

We are in the process of renovating the Springfield Mall, which is expected to be substantially completed in 2014.  The estimated cost of this project is approximately $225,000,000, of which $21,500,000 was expended prior to 2013, $100,000,000 is expected to be expended in 2013 and the balance is to be expended in 2014. 

 

We also plan to develop a new 699-unit residential project in Pentagon City, 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 estimated cost of this project is approximately $250,000,000; a significant portion of which is expected to be financed.

 

77

 


 
 

  

Liquidity and Capital Resources – continued

 

Development and Redevelopment Expenditures - continued

 

Below is a summary of development and redevelopment expenditures incurred in the six months ended June 30, 2013.

 

 

 

 

 

 

 

 

 

 

 

Retail

 

 

 

(Amounts in thousands)

Total

 

New York

 

Washington, DC

 

Properties

 

Other

Springfield Mall

$

24,707 

 

$

 

$

 

$

24,707 

 

$

220 Central Park South

 

10,556 

 

 

 

 

 

 

 

 

10,556 

1290 Avenue of the Americas

 

8,723 

 

 

8,723 

 

 

 

 

 

 

Marriott Marquis Times Square - retail

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and signage

 

5,907 

 

 

5,907 

 

 

 

 

 

 

1540 Broadway

 

4,355 

 

 

4,355 

 

 

 

 

 

 

LED Signage

 

3,685 

 

 

3,685 

 

 

 

 

 

 

1851 South Bell Street (1900 Crystal Drive)

 

2,685 

 

 

 

 

2,685 

 

 

 

 

North Plainfield, New Jersey

 

2,045 

 

 

 

 

 

 

2,045 

 

 

Other

 

22,887 

 

 

3,639 

 

 

11,481 

 

 

5,489 

 

 

2,278 

 

 

 

 

$

85,550 

 

$

26,309 

 

$

14,166 

 

$

32,241 

 

$

12,834 

 

In addition to the development and redevelopment projects above, we are in the process of retenanting and repositioning 280 Park Avenue (50% owned).  Our share of the estimated cost of this project is approximately $62,000,000, of which $11,000,000 was expended prior to 2013 and $12,000,000 has been expended in 2013.

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

 

 

Cash Flows for the Six Months Ended June 30, 2012

 

Our cash and cash equivalents were $471,363,000 at June 30, 2012, a $135,190,000 decrease over the balance at December 31, 2011.  This decrease was primarily due to cash flows from financing activities, partially offset by cash flows from operating and investing activities, as discussed below.

 

Cash flows provided by operating activities of $263,864,000 was comprised of (i) net income of $338,492,000, (ii) distributions of income from partially owned entities of $34,613,000, and (iii) $73,175,000 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, partially offset by (iv) the net change in operating assets and liabilities of $182,416,000, including $85,867,000 related to Real Estate Fund investments.

 

Net cash provided by investing activities of $170,894,000 was comprised of (i) $370,037,000 of proceeds from sales of real estate and related investments, (ii) $58,460,000 of proceeds from the sale of marketable securities, (iii) $24,950,000 from the return of the J.C. Penney derivative collateral, (iv) $17,963,000 of capital distributions from partially owned entities, (v) $13,123,000 of proceeds from the repayment of loan to officer, and (vi) $1,994,000 of proceeds from repayments of mortgage and mezzanine loans receivable, partially offset by (vii) $83,368,000 of additions to real estate, (viii) $70,000,000 for the funding of the J.C. Penney derivative collateral, (ix) $58,069,000 of development costs and construction in progress, (x) $57,237,000 of investments in partially owned entities, (xi) $32,156,000 of acquisitions of real estate and other, (xii) $14,658,000 of changes in restricted cash, and (xiii) $145,000 of investment in mortgage and mezzanine loans receivable and other.

 

Net cash used in financing activities of $569,948,000 was comprised of (i) $1,507,220,000 for the repayments of borrowings, (ii) $256,119,000 of dividends paid on common shares, (iii) $69,367,000 of distributions to noncontrolling interests, (iv) $35,576,000 of dividends paid on preferred shares, (v) $30,034,000 for the repurchase of shares related to stock compensation agreements and related tax holdings, and (vi) $14,648,000 of debt issuance and other costs, partially offset by (vii) $1,225,000,000 of proceeds from borrowings, (viii) $108,349,000 of contributions from noncontrolling interests in consolidated subsidiaries, and (ix) $9,667,000 of proceeds received from exercise of employee share options.

 

78

 


 

  

Liquidity and Capital Resources – continued

 

 

Capital Expenditures in the six months ended June 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

 

 

(Amounts in thousands)

Total

 

New York

 

Washington, DC

 

Properties

 

Other

Expenditures to maintain assets

$

22,625 

 

$

10,033 

 

$

5,244 

 

$

2,665 

 

$

4,683 

Tenant improvements

 

60,511 

 

 

25,820 

 

 

25,332 

 

 

6,503 

 

 

2,856 

Leasing commissions

 

23,438 

 

 

14,219 

 

 

7,342 

 

 

1,755 

 

 

122 

Non-recurring capital expenditures

 

4,877 

 

 

4,095 

 

 

 

 

 

 

782 

Total capital expenditures and leasing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

commissions (accrual basis)

 

111,451 

 

 

54,167 

 

 

37,918 

 

 

10,923 

 

 

8,443 

Adjustments to reconcile to cash basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenditures in the current year

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

applicable to prior periods

 

58,095 

 

 

20,667 

 

 

16,603 

 

 

4,917 

 

 

15,908 

 

 

Expenditures to be made in future

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

periods for the current period

 

(69,209)

 

 

(33,249)

 

 

(27,479)

 

 

(6,951)

 

 

(1,530)

Total capital expenditures and leasing

 

 

 

 

 

 

 

 

 

 

commissions (cash basis)

$

100,337 

 

$

41,585 

 

$

27,042 

 

$

8,889 

 

$

22,821 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant improvements and leasing commissions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per square foot per annum

$

3.56 

 

$

4.57 

 

$

4.91 

 

$

1.05 

 

$

 

Percentage of initial rent

 

8.6%

 

7.0%

 

12.7%

 

5.4%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Development and Redevelopment Expenditures in the six months ended June 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

 

 

(Amounts in thousands)

Total

 

New York

 

Washington, DC

 

Properties

 

Other

510 Fifth Avenue

$

8,369 

 

$

8,369 

 

$

 

$

 

$

Bergen Town Center

 

8,114 

 

 

 

 

 

 

8,114 

 

 

Crystal Square 5

 

6,976 

 

 

 

 

6,976 

 

 

 

 

Beverly Connection

 

5,842 

 

 

 

 

 

 

5,842 

 

 

220 Central Park South

 

3,108 

 

 

 

 

 

 

 

 

3,108 

1290 Avenue of the Americas

 

2,947 

 

 

2,947 

 

 

 

 

 

 

Poughkeepsie, New York

 

1,411 

 

 

 

 

 

 

1,411 

 

 

Crystal City Hotel

 

1,316 

 

 

 

 

1,316 

 

 

 

 

Crystal Plaza 5

 

1,191 

 

 

 

 

1,191 

 

 

 

 

Other

 

18,795 

 

 

5,933 

 

 

5,327 

 

 

7,260 

 

 

275 

 

 

 

 

$

58,069 

 

$

17,249 

 

$

14,810 

 

$

22,627 

 

$

3,383 

 

79

 


 

  

Liquidity and Capital Resources – continued

 

 

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 June 30, 2013, the aggregate dollar amount of these guarantees and master leases is approximately $372,000,000.

 

At June 30, 2013, $22,053,000 of letters of credit were outstanding under one of our revolving credit facilities.  Our credit facilities contain financial covenants that require us to maintain minimum interest coverage and maximum debt to market capitalization ratios, and provide for higher interest rates in the event of a decline in our ratings below Baa3/BBB. Our credit facilities also contain customary conditions precedent to borrowing, including representations and warranties, and also contain customary events of default that could give rise to accelerated repayment, including such items as failure to pay interest or principal.

 

Two of our wholly owned subsidiaries that are contracted to develop and operate the Cleveland Medical Mart and Convention Center, in Cleveland, Ohio, are required to fund $11,500,000, primarily for tenant improvements, and they are responsible for operating expenses and are entitled to the net operating income, if any, upon the completion of development and the commencement of operations.  As of June 30, 2013, our subsidiaries have funded approximately $3,177,000 of the commitment.

 

As of June 30, 2013, we expect to fund additional capital to certain of our partially owned entities aggregating approximately $168,000,000.

80

 


 

  

Funds From Operations (“FFO”)

 

FFO is computed in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines FFO as GAAP net income or loss adjusted to exclude net gain from sales of depreciated real estate assets, 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.  The calculations of both the numerator and denominator used in the computation of income per share are disclosed in Note 20 – Income per Share, in our consolidated financial statements on page 31 of this Quarterly Report on Form 10-Q.

 

FFO for the Three and Six Months Ended June 30, 2013 and 2012

 

FFO attributable to common shareholders plus assumed conversions was $235,348,000, or $1.25 per diluted share for the three months ended June 30, 2013, compared to $166,672,000, or $0.89 per diluted share, for the prior year’s quarter.  FFO attributable to common shareholders plus assumed conversions was $437,168,000, or $2.33 per diluted share for the six months ended June 30, 2013, compared to $516,328,000, or $2.72 per diluted share, for the prior year’s six months.  Details of certain items that affect comparability are discussed in the financial results summary of our “Overview.”

 

 

For The Three Months

 

For The Six Months

(Amounts in thousands, except per share amounts)

Ended June 30,

 

Ended June 30,

Reconciliation of our net income to FFO:

2013 

 

2012 

 

2013 

 

2012 

Net income attributable to Vornado

$

158,194 

 

$

38,297 

 

$

421,116 

 

$

289,819 

Depreciation and amortization of real property

 

126,728 

 

 

126,063 

 

 

259,241 

 

 

258,621 

Net gains on sale of real estate

 

(65,665)

 

 

(16,896)

 

 

(267,994)

 

 

(72,713)

Real estate impairment losses

 

2,493 

 

 

13,511 

 

 

4,007 

 

 

13,511 

Proportionate share of adjustments to equity in net income

 

 

 

 

 

 

 

 

 

 

 

 

of Toys, to arrive at FFO:

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization of real property

 

17,480 

 

 

16,513 

 

 

36,805 

 

 

33,801 

 

 

Real estate impairment losses

 

620 

 

 

1,368 

 

 

4,270 

 

 

8,394 

 

 

Income tax effect of above adjustments

 

(6,326)

 

 

(6,351)

 

 

(14,376)

 

 

(14,848)

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

 

19,486 

 

 

21,684 

 

 

41,316 

 

 

43,060 

 

 

Net gains on sale of real estate

 

 

 

(234)

 

 

(465)

 

 

(895)

 

 

Real estate impairment losses

 

 

 

 

 

 

 

1,849 

Noncontrolling interests' share of above adjustments

 

(5,421)

 

 

(9,524)

 

 

(3,607)

 

 

(16,584)

FFO

 

247,589 

 

 

184,431 

 

 

480,313 

 

 

544,015 

Preferred share dividends

 

(20,368)

 

 

(17,787)

 

 

(42,070)

 

 

(35,574)

Preferred unit and share redemptions

 

8,100 

 

 

 

 

(1,130)

 

 

FFO attributable to common shareholders

 

235,321 

 

 

166,644 

 

 

437,113 

 

 

508,441 

Convertible preferred share dividends

 

27 

 

 

28 

 

 

55 

 

 

57 

Interest on 3.88% exchangeable senior debentures

 

 

 

 

 

 

 

7,830 

FFO attributable to common shareholders plus assumed conversions

$

235,348 

 

$

166,672 

 

$

437,168 

 

$

516,328 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Weighted Average Shares

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

186,931 

 

 

185,673 

 

 

186,842 

 

 

185,521 

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock options and restricted share awards

 

742 

 

 

669 

 

 

737 

 

 

700 

 

 

Convertible preferred shares

 

47 

 

 

49 

 

 

48 

 

 

50 

 

 

3.88% exchangeable senior debentures

 

 

 

 

 

 

 

3,430 

 

Denominator for FFO per diluted share

 

187,720 

 

 

186,391 

 

 

187,627 

 

 

189,701 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFO attributable to common shareholders plus assumed conversions

 

 

 

 

 

 

 

 

 

 

 

 

per diluted share

$

1.25 

 

$

0.89 

 

$

2.33 

 

$

2.72 

81

 


 

  

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

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

 

(Amounts in thousands, except per share amounts)

2013 

 

2012 

 

 

 

 

 

 

 

Weighted

 

Effect of 1%

 

 

 

 

Weighted

 

 

 

June 30,

 

 

Average

 

Change In

 

December 31,

 

Average

Consolidated debt:

Balance

 

 

Interest Rate

 

Base Rates

 

Balance

 

Interest Rate

 

Variable rate

$

1,353,742 

 

 

2.35%

 

$

13,537 

 

$

3,062,325 

 

1.85%

 

Fixed rate

 

8,670,995 

 

 

5.04%

 

 

 

 

8,129,009 

 

5.18%

 

 

 

$

10,024,737 

 

 

4.67%

 

 

13,537 

 

$

11,191,334 

 

4.27%

Pro-rata share of debt of non-consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

entities (non-recourse):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variable rate – excluding Toys

$

193,143 

 

 

2.12%

 

 

1,931 

 

$

264,531 

 

2.88%

 

Variable rate – Toys

 

699,034 

 

 

5.95%

 

 

6,990 

 

 

703,922 

 

5.69%

 

Fixed rate (including $982,992 and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

2,939,306 

 

 

7.03%

 

 

 

 

3,030,476 

 

7.04%

 

 

 

$

3,831,483 

 

 

6.59%

 

 

8,921 

 

$

3,998,929 

 

6.53%

Noncontrolling interests’ share of above

 

 

 

 

 

 

 

(1,303)

 

 

 

 

 

Total change in annual net income

 

 

 

 

 

 

$

21,155 

 

 

 

 

 

Per share-diluted

 

 

 

 

 

 

$

0.11 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 June 30, 2013, we have one interest rate cap with a principal amount of $60,000,000 and an 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% (2.19% at June 30, 2013) to a fixed rate of 5.13% for the remaining five-year term of the loan. 

 

As of June 30, 2013, we have investments in mezzanine loans with an aggregate carrying amount of $151,052,000 that are based on variable interest rates which partially mitigate our exposure to a change in interest rates on our variable rate debt.

 

Fair Value of Debt

 

The estimated fair value of our consolidated debt is calculated based on current market prices and discounted cash flows at the rate at which similar loans could be made currently to borrowers with similar credit ratings, for the remaining term of such debt.  As of June 30, 2013, the estimated fair value of our consolidated debt was $10,081,982,000.

 

Derivative Instruments

 

We have, and may in the future enter into, derivative positions that do not qualify for hedge accounting treatment, including our economic interest in J.C. Penney common shares.  Because these derivatives do not qualify for hedge accounting treatment, the gains or losses resulting from their mark-to-market at the end of each reporting period are recognized as an increase or decrease in “interest and other investment income (loss), net” on our consolidated statements of income. In addition, we are, and may in the future be, subject to additional expense based on the notional amount of the derivative positions and a specified spread over LIBOR. Because the market value of these instruments can vary significantly between periods, we may experience significant fluctuations in the amount of our investment income or expense in any given period. In the three months ended June 30, 2013 and 2012, we recognized income of $9,065,000 and a loss of $58,732,000, respectively.  In the six months ended June 30, 2013 and 2012, we recognized losses of $13,475,000 and $57,687,000, respectively. 

82

 


 

  

Item 4.   Controls and Procedures

Disclosure Controls and Procedures:  The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a‑15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2013, such disclosure controls and procedures were effective.

 

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

 

83

 


 

  

PART II.   OTHER INFORMATION

 

Item 1.  Legal Proceedings

 

 

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

 

Item 1A. Risk Factors

 

 

There were no material changes to the Risk Factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012.

 

 

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

 

During the second quarter of 2013, we issued 17,933 common shares upon the redemption of Class A units of the Operating Partnership held by persons who received units, in private placements in earlier periods, in exchange for their interests in limited partnerships that owned real estate. The common shares were issued without registration under the Securities Act of 1933 in reliance on Section 4 (2) of that Act.

 

Information relating to compensation plans under which our equity securities are authorized for issuance is set forth under Part III, Item 12 of the Annual Report on Form 10-K for the year ended December 31, 2012, and such information is incorporated by reference herein.

 

 

Item 3.   Defaults Upon Senior Securities

        None.

 

 

Item 4.   Mine Safety Disclosures

        Not applicable.

 

 

Item 5.   Other Information

       None.

 

Item 6.   Exhibits

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

 

84

 


 

  

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: August 5, 2013

By:

/s/ Stephen W. Theriot

 

 

Stephen W. Theriot, Chief Financial Officer
(duly authorized officer and principal financial and
accounting officer)

85

 


 
 

  

 

EXHIBIT INDEX

Exhibit No.

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

3.49

 

-

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

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

15.1

 

-

Letter regarding Unaudited Interim Financial

 

 

 

 

 

 

 

 

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

 

 

 

 

______________________________

 

 

 

 

   *

Incorporated by reference

 

 

**

Management contract or compensation agreement

 

 

 

86

 


 
 

  

 

 

 

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

 

 

 

 

87