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VORNADO REALTY TRUST - Annual Report: 2014 (Form 10-K)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-K

 

x

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

 

For the Fiscal Year Ended:

December 31, 2014

 

 

 

 

 

 

OR

 

o

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

 

 

For the transition period from

 

to

 

   

 

 

Commission File Number:

001‑11954

 

 

 

VORNADO REALTY TRUST

 

 (Exact name of Registrant as specified in its charter)

 

Maryland

 

22‑1657560

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification Number)

 

 

 

888 Seventh Avenue, New York, New York

 

10019

(Address of Principal Executive Offices)

 

(Zip Code)

 

Registrant’s telephone number including area code:

(212) 894‑7000

 

 

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

 

Title of Each Class

 

Name of Each Exchange on Which Registered

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

 

New York Stock Exchange

 

 

 

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

 

 

 

 

 

6.625% Series G

 

New York Stock Exchange

 

 

 

6.625% Series I

 

New York Stock Exchange

 

 

 

6.875% Series J

 

New York Stock Exchange

 

 

 

5.70% Series K

 

New York Stock Exchange

 

 

 

5.40% Series L

 

New York Stock Exchange

 

 

 

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

 


 

 

 

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

 

YES  x     NO o

 

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

YES o     NO x

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES x     NO o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  

YES x     NO o

 

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

 

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

 

x Large Accelerated Filer

 

o Accelerated Filer

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

 

o Smaller Reporting Company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES o  NO x

 

The aggregate market value of the voting and non-voting common shares held by non‑affiliates of the registrant, i.e. by persons other than officers and trustees of Vornado Realty Trust, was $18,241,786,000 at June 30, 2014.

 

As of December 31, 2014, there were 187,887,498 of the registrant’s common shares of beneficial interest outstanding.

 

Documents Incorporated by Reference

 

Part III:  Portions of Proxy Statement for Annual Meeting of Shareholders to be held on May 21, 2015.

 

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

 

 

 


 

 

INDEX

Item

Financial Information:

Page Number

PART I.

1.

Business

4

1A.

Risk Factors

8

1B.

Unresolved Staff Comments

17

2.

Properties

18

3.

Legal Proceedings

32

4.

Mine Safety Disclosures

32

PART II.

5.

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

Issuer Purchases of Equity Securities

33

6.

Selected Financial Data

35

7.

Management's Discussion and Analysis of Financial Condition and

Results of Operations

37

7A.

Quantitative and Qualitative Disclosures about Market Risk

94

8.

Financial Statements and Supplementary Data

95

9.

Changes in and Disagreements with Accountants on

Accounting and Financial Disclosure

143

9A.

Controls and Procedures

143

9B.

Other Information

145

PART III.

10.

Directors, Executive Officers and Corporate Governance(1)

145

11.

Executive Compensation(1)

146

12.

Security Ownership of Certain Beneficial Owners and Management

and Related Stockholder Matters(1)

146

13.

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

146

14.

Principal Accounting Fees and Services(1)

146

PART IV.

15.

Exhibits, Financial Statement Schedules

147

Signatures

148

(1)

These items are omitted in whole or in part because the registrant will file a definitive Proxy Statement pursuant to Regulation 14A under the Securities Exchange Act of 1934 with the Securities and Exchange Commission no later than 120 days after December 31, 2014, portions of which are incorporated by reference herein.

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Forward-Looking Statements

 

 

Certain statements contained herein constitute forward‑looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not guarantees of future performance. They represent our intentions, plans, expectations and beliefs and are subject to numerous assumptions, risks and uncertainties. Our future results, financial condition and business may differ materially from those expressed in these forward-looking statements. You can find many of these statements by looking for words such as “approximates,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “would,” “may” or other similar expressions in this Annual Report on Form 10‑K. We also note the following forward-looking statements: in the case of our development and redevelopment projects, the estimated completion date, estimated project cost and cost to complete; and estimates of future capital expenditures, dividends to common and preferred shareholders and operating partnership distributions. Many of the factors that will determine the outcome of these and our other forward-looking statements are beyond our ability to control or predict. For further discussion of factors that could materially affect the outcome of our forward-looking statements, see “Item 1A. Risk Factors” in this Annual Report on Form 10-K.

 

For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K or the date of any document incorporated by reference. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to our forward-looking statements to reflect events or circumstances occurring after the date of this Annual Report on Form 10-K.

 

 

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PART I

 

ITEM 1.        BUSINESS

Vornado Realty Trust (“Vornado”) is a fully‑integrated real estate investment trust (“REIT”) and conducts its business through, and substantially all of its interests in properties are held by, Vornado Realty L.P., a Delaware limited partnership (the “Operating Partnership”).  Accordingly, Vornado’s cash flow and ability to pay dividends to its shareholders is dependent upon the cash flow of the Operating Partnership and the ability of its direct and indirect subsidiaries to first satisfy their obligations to creditors.  Vornado is the sole general partner of, and owned approximately 94.1% of the common limited partnership interest in the Operating Partnership at December 31, 2014.  All references to “we,” “us,” “our,” the “Company” and “Vornado” refer to Vornado Realty Trust and its consolidated subsidiaries, including the Operating Partnership.

               

On January 15, 2015, we completed the spin-off of substantially all of our retail segment comprised of 79 strip shopping centers, three malls, a warehouse park and $225 million of cash to Urban Edge Properties (“UE”) (NYSE: UE).  As part of this transaction, we received 5,712,000 UE operating partnership units (5.4% ownership interest). 

        

We currently own all or portions of:

 

New York:

 

·         20.1 million square feet of Manhattan office space in 31 properties;

 

·         2.5 million square feet of Manhattan street retail space in 56 properties;

 

·         Four residential properties containing 1,654 units;

 

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

 

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

 

Washington, DC:

 

·         16.1 million square feet of office space in 59 properties;

 

·         Seven residential properties containing 2,414 units;

 

Other Real Estate and Related Investments:

 

·         The 3.6 million square foot Mart in Chicago;

 

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

 

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

 

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

 

·         Other real estate and related investments.

 

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Objectives and Strategy

Our business objective is to maximize shareholder value. We intend to achieve this objective by continuing to pursue our investment philosophy and execute our operating strategies through:

 

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

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

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

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

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

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

 

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

 

 

ACQUISITIONS

 

Since January 1, 2014, we completed the following acquisitions:

 

·         A 74.3% interest in the retail condominium of the St. Regis Hotel, located on the Southeast corner of 55th Street and Fifth Avenue, for $700 million

·         The land under our 715 Lexington Avenue retail property, located on the Southeast corner of 58th Street and Lexington Avenue in Manhattan, for $63 million

·         We increased our ownership in One Park Avenue to 55.0% from 46.5% through a joint venture with an institutional investor

·         We increased our ownership in Crowne Plaza Times Square Hotel to 33% from 11% by co-investing with our 25% owned Real Estate Fund and one of the Fund’s limited partners to buy out the Fund’s joint venture partner’s 57% interest

 

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

 

 

DISPOSITIONS

 

Since January 1, 2014, we sold nine assets for an aggregate of $1.025 billion, with net proceeds of approximately $989 million.  Below is a summary of these sales.

 

·         1740 Broadway for $605 million resulting in net proceeds of approximately $580 million

·         Beverly Connection Shopping Center for $260 million resulting in net proceeds of $252 million

·         Broadway Mall for $94 million resulting in net proceeds of $92.2 million

·         Six retail assets for an aggregate of $66.4 million resulting in net proceeds of $64.8 million

 

 

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

 

5

 


 

 

FINANCINGS

 

Since January 1, 2014, we completed the following financing transactions:

 

·         Extended one of two $1.25 billion unsecured revolving credit facilities to November 2018 with two six-month extension options, lowering the interest rate to LIBOR plus 1.05% from LIBOR plus 1.25% and reducing the facility fee to 20 basis points from 25 basis points

·         Issued $450 million 2.50% senior unsecured notes due June 2019

·         Redeemed $445 million 7.875% senior unsecured notes due October 2039

·         Redeemed $500 million 4.25% senior unsecured notes due April 2015

·         Obtained $2.0 billion of mortgage financings and repaid $519 million and defeased $193 million of existing mortgages for aggregate net proceeds of $1.3 billion

 

 

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

 

 

SEGMENT DATA

 

We operate in the following business segments: New York, Washington, DC, Retail Properties, and Toys “R” Us (“Toys”).  Financial information related to these business segments for the years ended December 31, 2014, 2013 and 2012 is set forth in Note 25 – Segment Information to our consolidated financial statements in this Annual Report on Form 10-K.

 

 

SEASONALITY

 

Our revenues and expenses are subject to seasonality during the year which impacts quarterly net earnings, cash flows and funds from operations, and therefore impacts comparisons of the current quarter to the previous quarter. The business of Toys is highly seasonal and substantially all of Toys’ net income is generated in its fourth quarter, which we record on a one-quarter lag basis in our first quarter. The New York and Washington, DC segments have historically experienced higher utility costs in the first and third quarters of the year.  The Retail Properties segment revenue in the fourth quarter is typically higher due to the recognition of percentage and specialty rental income.

 

 

tenants ACCOUNTING FOR over 10% of revenues

 

None of our tenants accounted for more than 10% of total revenues in any of the years ended December 31, 2014, 2013 and 2012.

 

6

 


 

 

Certain Activities

 

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

 

 

Employees

 

As of December 31, 2014, we have approximately 4,503 employees, of which 329 are corporate staff. The New York segment has 3,400 employees, including 2,735 employees of Building Maintenance Services LLC, a wholly owned subsidiary, which provides cleaning, security and engineering services primarily to our New York and Washington, DC properties and 508 employees at the Hotel Pennsylvania. The Washington, DC and Retail Properties segments have 457 and 77 employees, respectively and the Mart properties have 240 employees.  The foregoing does not include employees of partially owned entities.

 

 

principal executive offices

 

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

 

 

MATERIALS AVAILABLE ON OUR WEBSITE

 

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

7

 


 

 

ITEM 1A.     RISK FACTORS

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

 

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

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

 

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

·      global, national, regional and local economic conditions;

·      competition from other available space;

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

·      how well we manage our properties;

·         the development and/or redevelopment of our properties;

·      changes in market rental rates;

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

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

·      changes in real estate taxes and other expenses;   

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

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

·      availability of financing on acceptable terms or at all;

·         inflation or deflation;

·      fluctuations in interest rates;

·      our ability to obtain adequate insurance;

·      changes in zoning laws and taxation;

·      government regulation;

·      consequences of any armed conflict involving, or terrorist attacks against, the United States or individual acts of violence in public spaces including retail centers;

·      potential liability under environmental or other laws or regulations;

·         natural disasters;

·      general competitive factors; and

·         climate changes.

 

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

 

 

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

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

 

8

 


 

 

Real estate is a competitive business.

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

 

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

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

 

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

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

 

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

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

 

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

 

In addition, we may become subject to costs or taxes, or increases therein, associated with natural resource or energy usage (such as a “carbon tax”).  These costs or taxes could increase our operating costs and decrease the cash available to pay our obligations or distribute to equity holders.

 

9

 


 

 

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

 

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

 

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

 

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

 

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

 

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

 

Some of our potential losses may not be covered by insurance.

We maintain general liability insurance with limits of $300,000,000 per occurrence and all risk property and rental value insurance with limits of $2.0 billion per occurrence, with sub-limits for certain perils such as floods.  Our California properties have earthquake insurance with coverage of $180,000,000 per occurrence, subject to a deductible in the amount of 5% of the value of the affected property, up to a $180,000,000 annual aggregate. We maintain coverage for terrorism acts with limits of $4.0 billion per occurrence and in the aggregate, and $2.0 billion per occurrence and in the aggregate for terrorism involving nuclear, biological, chemical and radiological (“NBCR”) terrorism events, as defined by Terrorism Risk Insurance Program Reauthorization Act, which expires in December 2020.

 

Penn Plaza Insurance Company, LLC (“PPIC”), our wholly owned consolidated subsidiary, acts as a re-insurer with respect to a portion of all risk property and rental value insurance and a portion of our earthquake insurance coverage, and as a direct insurer for coverage for NBCR acts.  Coverage for acts of terrorism (excluding NBCR acts) is fully reinsured by third party insurance companies and the Federal government with no exposure to PPIC.  For NBCR acts, PPIC is responsible for a deductible of $3,200,000 and 15% of the balance of a covered loss (16% effective January 1, 2016) and the Federal government is responsible for the remaining 85% of a covered loss (84% effective January 1, 2016).  We are ultimately responsible for any loss incurred by PPIC.

 

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

 

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

 

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

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

 

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

 

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

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

In 2014, approximately 98% of our EBITDA, excluding items that affect comparability, came from properties located in the New York City metropolitan area and the Washington, DC / Northern Virginia area.  We may continue to concentrate a significant portion of our future acquisitions in these areas or in other geographic real estate markets in the United States or abroad.  Real estate markets are subject to economic downturns and we cannot predict how economic conditions will impact these markets in either the short or long term. Declines in the economy or declines in real estate markets in these areas could hurt our financial performance and the value of our properties.  In addition to the factors affecting the national economic condition generally, the factors affecting economic conditions in these regions include:

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

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

·      business layoffs or downsizing;

·      industry slowdowns;

·      relocations of businesses;

·      changing demographics;

·      increased telecommuting and use of alternative work places;

·      infrastructure quality; and

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

 

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

 

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

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

 

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

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

11

 


 

 

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

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

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

 

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

 

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

 

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

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

 

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

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

 

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

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

 

We are subject to risks that affect the general and New York City retail environments.

Certain of our properties are Manhattan street retail properties.  As such, these properties are affected by the general and New York City retail environments, including the level of consumer spending and consumer confidence, the threat of terrorism and increasing competition from retailers, outlet malls, retail websites and catalog companies.  These factors could adversely affect the financial condition of our retail tenants and the willingness of retailers to lease space in our retail locations, and in turn, adversely affect us.

 

 

 

 

 

 

 

12

 


 

 

 

Our investment in Toys has in the past and may in the future result in increased seasonality and volatility in our reported earnings.

 

We carry our Toys investment at zero.  As a result, we no longer record our equity in Toys' income or loss.   Because Toys is a retailer, its operations subject us to the risks of a retail company that are different than those presented by our other lines of business. The business of Toys is highly seasonal and substantially all of Toys net income is generated in its fourth quarter.  It is possible that the value of Toys may increase and we could again resume recording our equity in Toys' income or loss, which would increase the seasonality and volatility of our reported earnings.

 

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

 

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

 

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

We invest in marketable equity securities of publicly-traded companies, such as Lexington Realty Trust.  As of December 31, 2014, our marketable securities have an aggregate carrying amount of $206,323,000, at market.  Significant declines in the value of these investments due to, among other reasons, operating performance or economic or market conditions, may result in the recognition of impairment losses which could be material. 

 

 

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

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

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

 

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

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

 

13

 


 

 

Furthermore, the holders of preferred units of the Operating Partnership are entitled to receive preferred distributions before payment of distributions to holders of Class A units of the Operating Partnership, including Vornado. Thus, Vornado’s ability to pay cash dividends to its shareholders and satisfy its debt obligations depends on the Operating Partnership’s ability first to satisfy its obligations to its creditors and make distributions to holders of its preferred units and then to holders of its Class A units, including Vornado.  As of December 31, 2014, there were three series of preferred units of the Operating Partnership not held by Vornado with a total liquidation value of $56,206,000.

 

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

 

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

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

  

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

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

 

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

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

 

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

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

 

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

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

 

 

14

 


 

 

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

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

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

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

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

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

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

 

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

 

15

 


 

 

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

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

 

 

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

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

As of December 31, 2014, Interstate Properties, a New Jersey general partnership, and its partners owned an aggregate of approximately 6.6% of the common shares of Vornado and 26.3% of the common stock of Alexander’s Inc. (NYSE: ALX) (“Alexander’s”), which is described below.  Steven Roth, David Mandelbaum and Russell B. Wight, Jr. are the three partners of Interstate Properties. Mr. Roth is the Chairman of the Board and Chief Executive Officer of Vornado, the managing general partner of Interstate Properties and the Chairman of the Board and Chief Executive Officer of Alexander’s. Messrs. Wight and Mandelbaum are trustees of Vornado and also directors of Alexander’s.

 

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

 

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

 

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

As of December 31, 2014, we owned 32.4% of the outstanding common stock of Alexander’s. Alexander’s is a REIT that has six properties, which are located in the greater New York metropolitan area.  In addition to the 2.1% that they indirectly own through Vornado, Interstate Properties, which is described above, and its partners owned 26.3% of the outstanding common stock of Alexander’s as of December 31, 2014. Mr. Roth is the Chairman of the Board and Chief Executive Office of Vornado, the Managing General Partner of Interstate Properties, and the Chairman of the Board and Chief Executive Officer of Alexander’s.  Messrs. Wight and Mandelbaum are trustees of Vornado and also directors of Alexander’s and general partners of Interstate Properties.  Dr. Richard West is a trustee of Vornado and a director of Alexander’s.  In addition, Joseph Macnow, our Executive Vice President – Finance and Chief Administrative Officer, is the Executive Vice President and Chief Financial Officer of Alexander’s, and Stephen W. Theriot, our Chief Financial Officer, is the Assistant Treasurer of Alexander’s.

 

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

 

 

16

 


 

 

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

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

 

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

·         our financial condition and performance;

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

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

·         our dividend policy;

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

·         uncertainty and volatility in the equity and credit markets;

·         fluctuations in interest rates;

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

·         failure to meet analysts’ revenue or earnings estimates;

·         speculation in the press or investment community;

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

·         the extent of institutional investor interest in us;

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

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

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

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

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

 

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

 

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

The interests of our current shareholders could be diluted if we issue additional equity securities. As of December 31, 2014, we had authorized but unissued, 62,112,502 common shares of beneficial interest, $.04 par value and 57,266,023 preferred shares of beneficial interest, no par value; of which 19,488,139 common shares are reserved for issuance upon redemption of Class A Operating Partnership units, convertible securities and employee stock options and 11,200,000 preferred shares are reserved for issuance upon redemption of preferred Operating Partnership units.  Any shares not reserved may be issued from time to time in public or private offerings or in connection with acquisitions.  In addition, common and preferred shares reserved may be sold upon issuance in the public market after registration under the Securities Act or under Rule 144 under the Securities Act or other available exemptions from registration.  We cannot predict the effect that future sales of our common and preferred shares or Operating Partnership Class A and preferred units will have on the market prices of our outstanding shares.

 

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

 

Item 1b.     unresolved staff comments

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

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Item 2.        Properties

We operate in four business segments:  New York, Washington, DC, Retail Properties and Toys “R” Us.  The following pages provide details of our real estate properties as of December 31, 2014.

Square Feet

Under

Development

or Not

%

%

Available

Total

Property

Ownership

Type

Occupancy

In Service

for Lease

Property

NEW YORK:

One Penn Plaza (ground leased through 2098)

100.0% 

Office / Retail

95.1% 

2,521,000 

-   

2,521,000 

1290 Avenue of the Americas

70.0% 

Office / Retail

97.8% 

2,109,000 

-   

2,109,000 

Two Penn Plaza

100.0% 

Office / Retail

97.7% 

1,619,000 

-   

1,619,000 

666 Fifth Avenue Office Condominium (1)

49.5% 

Office / Retail

76.9% 

1,416,000 

-   

1,416,000 

909 Third Avenue (ground leased through 2063)

100.0% 

Office

100.0% 

1,344,000 

-   

1,344,000 

280 Park Avenue (1)

50.0% 

Office / Retail

100.0% 

755,000 

486,000 

1,241,000 

Independence Plaza, Tribeca (1,328 units) (1)

50.1% 

Residential / Retail

94.9% 

1,241,000 

-   

1,241,000 

Eleven Penn Plaza

100.0% 

Office / Retail

99.1% 

1,152,000 

-   

1,152,000 

770 Broadway

100.0% 

Office / Retail

100.0% 

1,148,000 

-   

1,148,000 

One Park Avenue (1)

55.0% 

Office / Retail

96.8% 

943,000 

-   

943,000 

90 Park Avenue

100.0% 

Office / Retail

97.2% 

936,000 

-   

936,000 

888 Seventh Avenue (ground leased through 2067)

100.0% 

Office / Retail

93.7% 

877,000 

-   

877,000 

100 West 33rd Street

100.0% 

Office

99.6% 

849,000 

-   

849,000 

330 Madison Avenue (1)

25.0% 

Office / Retail

99.1% 

838,000 

-   

838,000 

330 West 34th Street (ground leased through 2148)

100.0% 

Office / Retail

100.0% 

379,000 

292,000 

671,000 

650 Madison Avenue (1)

20.1% 

Office / Retail

87.9% 

598,000 

-   

598,000 

350 Park Avenue

100.0% 

Office / Retail

99.4% 

570,000 

-   

570,000 

150 East 58th Street

100.0% 

Office / Retail

98.2% 

544,000 

-   

544,000 

7 West 34th Street

100.0% 

Office / Retail

100.0% 

480,000 

-   

480,000 

20 Broad Street (ground leased through 2081)

100.0% 

Office

99.3% 

472,000 

-   

472,000 

640 Fifth Avenue

100.0% 

Office / Retail

89.9% 

325,000 

-   

325,000 

595 Madison Avenue

100.0% 

Office / Retail

98.7% 

322,000 

-   

322,000 

50-70 W 93rd Street (326 units) (1)

49.9% 

Residential

98.8% 

283,000 

-   

283,000 

Manhattan Mall

100.0% 

Retail

92.6% 

256,000 

-   

256,000 

40 Fulton Street

100.0% 

Office / Retail

99.0% 

249,000 

-   

249,000 

4 Union Square South

100.0% 

Retail

100.0% 

206,000 

-   

206,000 

57th Street (5 buildings) (1)

50.0% 

Office / Retail

96.6% 

158,000 

27,000 

185,000 

825 Seventh Avenue (1)

51.1% 

Office / Retail

100.0% 

174,000 

-   

174,000 

1540 Broadway

100.0% 

Retail

100.0% 

160,000 

-   

160,000 

Paramus

100.0% 

Office

96.1% 

129,000 

-   

129,000 

608 Fifth Avenue (ground leased through 2033)

100.0% 

Office / Retail

96.0% 

125,000 

-   

125,000 

666 Fifth Avenue Retail Condominium

100.0% 

Retail

100.0% 

114,000 

-   

114,000 

1535 Broadway (Marriott Marquis - retail and signage)

(ground and building leased through 2032)

100.0% 

Retail / Theatre

100.0% 

66,000 

42,000 

108,000 

689 Fifth Avenue

100.0% 

Office / Retail

100.0% 

99,000 

-   

99,000 

478-486 Broadway (2 buildings)

100.0% 

Retail

100.0% 

85,000 

-   

85,000 

510 Fifth Avenue

100.0% 

Retail

90.6% 

65,000 

-   

65,000 

655 Fifth Avenue

92.5% 

Retail

100.0% 

57,000 

-   

57,000 

155 Spring Street

100.0% 

Retail

98.5% 

49,000 

-   

49,000 

3040 M Street

100.0% 

Retail

100.0% 

44,000 

-   

44,000 

435 Seventh Avenue

100.0% 

Retail

100.0% 

43,000 

-   

43,000 

692 Broadway

100.0% 

Retail

100.0% 

35,000 

-   

35,000 

697-703 Fifth Avenue (St. Regis)

74.3% 

Retail

100.0% 

25,000 

-   

25,000 

715 Lexington

100.0% 

Retail

100.0% 

23,000 

-   

23,000 

1131 Third Avenue

100.0% 

Retail

85.9% 

22,000 

-   

22,000 

828-850 Madison Avenue

100.0% 

Retail

100.0% 

18,000 

-   

18,000 

443 Broadway

100.0% 

Retail

100.0% 

16,000 

-   

16,000 

484 Eighth Avenue

100.0% 

Retail

n/a

16,000 

-   

16,000 

334 Canal Street

100.0% 

Retail

100.0% 

3,000 

12,000 

15,000 

304 Canal Street

100.0% 

Retail

n/a

-   

14,000 

14,000 

40 East 66th Street

100.0% 

Retail

100.0% 

11,000 

-   

11,000 

431 Seventh Avenue

100.0% 

Retail

100.0% 

10,000 

-   

10,000 

677-679 Madison Avenue

100.0% 

Retail

100.0% 

8,000 

-   

8,000 

148 Spring Street

100.0% 

Retail

100.0% 

7,000 

-   

7,000 

150 Spring Street

100.0% 

Retail

100.0% 

7,000 

-   

7,000 

 

18

 


 

 

Item 2.        Properties - continued 

Square Feet

Under

Development

or Not

%

%

Available

Total

Property

Ownership

Type

Occupancy

In Service

for Lease

Property

NEW YORK - continued:

966 Third Avenue

100.0% 

Retail

100.0% 

7,000 

-   

7,000 

267 West 34th Street

100.0% 

Retail

100.0% 

6,000 

-   

6,000 

488 Eighth Avenue

100.0% 

Retail

100.0% 

6,000 

-   

6,000 

968 Third Avenue (1)

50.0% 

Retail

100.0% 

6,000 

-   

6,000 

Hotel Pennsylvania

100.0% 

Hotel

n/a

1,400,000 

-   

1,400,000 

Alexander's, Inc.:

731 Lexington Avenue (1)

32.4% 

Office / Retail

100.0% 

1,059,000 

-   

1,059,000 

Rego Park II, Queens (1)

32.4% 

Retail

98.9% 

609,000 

-   

609,000 

Rego Park I, Queens (1)

32.4% 

Retail

100.0% 

343,000 

-   

343,000 

Rego Park II Apartment Tower, Queens (1)

32.4% 

Residential

n/a

-   

255,000 

255,000 

Flushing, Queens (1)

32.4% 

Retail

100.0% 

167,000 

-   

167,000 

Paramus, New Jersey (30.3 acres

ground leased through 2041) (1)

32.4% 

Retail

100.0% 

-   

-   

-   

Rego Park III, Queens (3.2 acres) (1)

32.4% 

n/a

n/a

-   

-   

-   

Total New York

96.4% 

27,604,000 

1,128,000 

28,732,000 

Vornado's Ownership Interest

96.9% 

21,856,000 

699,000 

22,555,000 

WASHINGTON, DC:

 

2011-2451 Crystal Drive (5 buildings)

100.0% 

Office

89.3% 

2,321,000 

-   

2,321,000 

 

Skyline Properties (7 buildings)

100.0% 

Office

42.2% 

2,130,000 

-   

2,130,000 

 

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

100.0% 

Office

76.9% 

1,540,000 

-   

1,540,000 

 

1550-1750 Crystal Drive /

 

241-251 18th Street (4 buildings)

100.0% 

Office

80.4% 

1,484,000 

-   

1,484,000 

 

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

100.0% 

Office

93.8% 

506,000 

363,000 

869,000 

 

Fashion Centre Mall (1)

7.5% 

Office

98.0% 

821,000 

-   

821,000 

 

Rosslyn Plaza (4 buildings) (1)

46.2% 

Office

55.8% 

534,000 

202,000 

736,000 

 

1825-1875 Connecticut Avenue, NW

 

(Universal Buildings ) (2 buildings)

100.0% 

Office

98.4% 

685,000 

-   

685,000 

 

Waterfront Station (1)

2.5% 

Office

n/a

-   

675,000 

675,000 

 

2200 / 2300 Clarendon Blvd (Courthouse Plaza)

 

(ground leased through 2062) (2 buildings)

100.0% 

Office

94.7% 

638,000 

-   

638,000 

 

1299 Pennsylvania Avenue, NW

 

(Warner Building) (1)

55.0% 

Office

77.4% 

613,000 

-   

613,000 

 

Fairfax Square (3 buildings) (1)

20.0% 

Office

86.2% 

559,000 

-   

559,000 

 

2100 / 2200 Crystal Drive (2 buildings)

100.0% 

Office

100.0% 

529,000 

-   

529,000 

 

One Skyline Tower

100.0% 

Office

100.0% 

518,000 

-   

518,000 

 

Commerce Executive (3 buildings)

100.0% 

Office

86.8% 

400,000 

19,000 

419,000 

 

2101 L Street, NW

100.0% 

Office

99.0% 

380,000 

-   

380,000 

 

1501 K Street, NW (1)

5.0% 

Office

100.0% 

379,000 

-   

379,000 

 

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

100.0% 

Office

n/a

-   

316,000 

316,000 

 

1750 Pennsylvania Avenue, NW

100.0% 

Office

94.0% 

277,000 

-   

277,000 

 

1150 17th Street, NW

100.0% 

Office

91.7% 

241,000 

-   

241,000 

 

875 15th Street, NW (Bowen Building)

100.0% 

Office

100.0% 

231,000 

-   

231,000 

 

Democracy Plaza One

 

(ground leased through 2084)

100.0% 

Office

92.4% 

216,000 

-   

216,000 

 

1101 17th Street, NW (1)

55.0% 

Office

97.2% 

214,000 

-   

214,000 

 

1730 M Street, NW

100.0% 

Office

90.8% 

203,000 

-   

203,000 

 

Washington Tower (1)

7.5% 

Office

100.0% 

170,000 

-   

170,000 

 

2001 Jefferson Davis Highway

100.0% 

Office

63.1% 

162,000 

-   

162,000 

 

1399 New York Avenue, NW

100.0% 

Office

90.4% 

129,000 

-   

129,000 

 

1726 M Street, NW

100.0% 

Office

98.0% 

92,000 

-   

92,000 

 

Crystal City Shops at 2100

100.0% 

Office

96.0% 

80,000 

-   

80,000 

 

Crystal Drive Retail

100.0% 

Office

100.0% 

57,000 

-   

57,000 

 

                                                       

 

19

 


 

 

Item 2.        Properties - continued 

 

Square Feet

Under

Development

or Not

%

%

Available

Total

Property

Ownership

Type

Occupancy

In Service

for Lease

Property

WASHINGTON, DC - continued:

Riverhouse (1,670 units) (3 buildings)

100.0% 

Residential

97.4% 

1,802,000 

-   

1,802,000 

The Bartlett

100.0% 

Residential

n/a

-   

618,000 

618,000 

West End 25 (283 units)

100.0% 

Residential

96.8% 

273,000 

-   

273,000 

220 20th Street (265 units)

100.0% 

Residential

98.5% 

269,000 

-   

269,000 

Crystal City Hotel

100.0% 

Hotel

100.0% 

266,000 

-   

266,000 

Rosslyn Plaza (196 units) (2 buildings) (1)

43.7% 

Residential

95.9% 

253,000 

-   

253,000 

Met Park / Warehouses

100.0% 

Warehouse

100.0% 

109,000 

20,000 

129,000 

Other (3 buildings)

100.0% 

Other

100.0% 

9,000 

2,000 

11,000 

Total Washington, DC

84.5% 

19,090,000 

2,215,000 

21,305,000 

Vornado's Ownership Interest

83.8% 

16,570,000 

1,442,000 

18,012,000 

 

RETAIL PROPERTIES:

Wayne Town Center, Wayne, NJ

(ground leased through 2064)

100.0% 

Strip

100.0% 

544,000 

119,000 

663,000 

Allentown, PA

100.0% 

Strip

100.0% 

554,000 

-   

554,000 

Bronx (Bruckner Boulevard), NY

100.0% 

Strip

89.6% 

501,000 

-   

501,000 

East Brunswick, NJ

100.0% 

Strip

100.0% 

427,000 

-   

427,000 

North Bergen (Tonnelle Avenue), NJ

100.0% 

Strip

98.9% 

410,000 

-   

410,000 

East Hanover (200 - 240 Route 10 West), NJ

100.0% 

Strip

86.3% 

343,000 

-   

343,000 

Wilkes-Barre, PA (461 - 499 Mundy Street), PA

100.0% 

Strip

91.7% 

329,000 

-   

329,000 

Huntington, NY

100.0% 

Strip

100.0% 

324,000 

-   

324,000 

Buffalo (Amherst), NY

100.0% 

Strip

100.0% 

311,000 

-   

311,000 

Bricktown, NJ

100.0% 

Strip

92.8% 

278,000 

-   

278,000 

Union (Route 22 and Morris Avenue), NJ

100.0% 

Strip

99.4% 

276,000 

-   

276,000 

Hackensack, NJ

100.0% 

Strip

74.5% 

275,000 

-   

275,000 

Totowa, NJ

100.0% 

Strip

100.0% 

271,000 

-   

271,000 

Cherry Hill, NJ

100.0% 

Strip

97.3% 

261,000 

-   

261,000 

Jersey City, NJ

100.0% 

Strip

100.0% 

236,000 

-   

236,000 

Union (2445 Springfield Avenue), NJ

100.0% 

Strip

100.0% 

232,000 

-   

232,000 

Middletown, NJ

100.0% 

Strip

94.9% 

231,000 

-   

231,000 

Lancaster, PA

100.0% 

Strip

82.1% 

228,000 

-   

228,000 

Woodbridge NJ

100.0% 

Strip

100.0% 

226,000 

-   

226,000 

Chicopee, MA

100.0% 

Strip

100.0% 

224,000 

-   

224,000 

Marlton, NJ

100.0% 

Strip

100.0% 

213,000 

-   

213,000 

North Plainfield, NJ

100.0% 

Strip

88.3% 

212,000 

-   

212,000 

Bergen Town Center - East, Paramus, NJ

100.0% 

Strip

93.6% 

211,000 

-   

211,000 

Manalapan, NJ

100.0% 

Strip

100.0% 

208,000 

-   

208,000 

Rochester, NY

100.0% 

Strip

100.0% 

205,000 

-   

205,000 

East Rutherford, NJ

100.0% 

Strip

100.0% 

197,000 

-   

197,000 

Garfield, NJ

100.0% 

Strip

100.0% 

195,000 

-   

195,000 

Mt. Kisco, NY

100.0% 

Strip

100.0% 

189,000 

-   

189,000 

Newington, CT

100.0% 

Strip

100.0% 

188,000 

-   

188,000 

Bensalem, PA

100.0% 

Strip

98.9% 

185,000 

-   

185,000 

Springfield, MA

100.0% 

Strip

100.0% 

182,000 

-   

182,000 

Morris Plains, NJ

100.0% 

Strip

95.9% 

177,000 

-   

177,000 

                             

 

20

 


 

 

Item 2.        Properties - continued 

 

Square Feet

Under

Development

or Not

%

%

Available

Total

Property

Ownership

Type

Occupancy

In Service

for Lease

Property

RETAIL PROPERTIES - continued:

Dover, NJ

100.0% 

Strip

93.0% 

173,000 

-   

173,000 

Freeport (437 East Sunrise Highway), NY

100.0% 

Strip

100.0% 

173,000 

-   

173,000 

Lodi (Route 17 North), NJ

100.0% 

Strip

100.0% 

171,000 

-   

171,000 

Watchung, NJ

100.0% 

Strip

96.6% 

170,000 

-   

170,000 

Broomall, PA

100.0% 

Strip

100.0% 

169,000 

-   

169,000 

Rochester (Henrietta), NY

(ground leased through 2056)

100.0% 

Strip

96.2% 

165,000 

-   

165,000 

Staten Island, NY

100.0% 

Strip

88.2% 

165,000 

-   

165,000 

Baltimore (Towson), MD

100.0% 

Strip

100.0% 

155,000 

-   

155,000 

Waterbury, CT

100.0% 

Strip

68.8% 

148,000 

-   

148,000 

Bethlehem, PA

100.0% 

Strip

98.9% 

147,000 

-   

147,000 

Lawnside, NJ

100.0% 

Strip

100.0% 

145,000 

-   

145,000 

Annapolis, MD

(ground and building leased through 2042)

100.0% 

Strip

100.0% 

128,000 

-   

128,000 

Hazlet, NJ

100.0% 

Strip

100.0% 

123,000 

-   

123,000 

Glen Burnie, MD

100.0% 

Strip

90.5% 

121,000 

-   

121,000 

Norfolk, VA

(ground and building leased through 2069)

100.0% 

Strip

100.0% 

114,000 

-   

114,000 

York, PA

100.0% 

Strip

86.2% 

111,000 

-   

111,000 

Kearny, NJ

100.0% 

Strip

100.0% 

104,000 

-   

104,000 

Glenolden, PA

100.0% 

Strip

100.0% 

102,000 

-   

102,000 

New Hyde Park, NY

(ground and building leased through 2029)

100.0% 

Strip

100.0% 

101,000 

-   

101,000 

Inwood, NY

100.0% 

Strip

80.1% 

96,000 

-   

96,000 

Turnersville, NJ

100.0% 

Strip

96.3% 

96,000 

-   

96,000 

Rockville, MD

100.0% 

Strip

98.1% 

94,000 

-   

94,000 

Lodi (Washington Street), NJ

100.0% 

Strip

94.1% 

85,000 

-   

85,000 

Milford, MA

(ground and building leased through 2019)

100.0% 

Strip

100.0% 

83,000 

-   

83,000 

Carlstadt, NJ (ground leased through 2050)

100.0% 

Strip

100.0% 

78,000 

-   

78,000 

Bronx (1750-1780 Gun Hill Road), NY

100.0% 

Strip

90.7% 

77,000 

-   

77,000 

Wyomissing, PA

(ground and building leased through 2065)

100.0% 

Strip

93.2% 

76,000 

-   

76,000 

West Babylon, NY

100.0% 

Strip

95.4% 

66,000 

-   

66,000 

Wheaton, MD

(ground leased through 2060)

100.0% 

Strip

100.0% 

66,000 

-   

66,000 

Paramus, NJ (ground leased through 2033)

100.0% 

Strip

100.0% 

63,000 

-   

63,000 

North Bergen (Kennedy Boulevard), NJ

100.0% 

Strip

100.0% 

62,000 

-   

62,000 

South Plainfield, NJ

(ground leased through 2039)

100.0% 

Strip

85.9% 

56,000 

-   

56,000 

San Francisco (2675 Geary Street), CA

(ground and building leased through 2043)

100.0% 

Strip

100.0% 

55,000 

-   

55,000 

 

21

 


 

 

Item 2.        Properties - continued 

 

Square Feet

Under

Development

or Not

%

%

Available

Total

Property

Ownership

Type

Occupancy

In Service

for Lease

Property

RETAIL PROPERTIES - continued:

Cambridge, MA

(ground and building leased through 2033)

100.0% 

Strip

100.0% 

48,000 

-   

48,000 

Commack, NY

(ground and building leased through 2021)

100.0% 

Strip

100.0% 

47,000 

-   

47,000 

Arlington Heights, IL

(ground and building leased through 2043)

100.0% 

Strip

100.0% 

46,000 

-   

46,000 

Dewitt, NY

(ground leased through 2041)

100.0% 

Strip

100.0% 

46,000 

-   

46,000 

Charleston, SC

(ground leased through 2063)

100.0% 

Strip

100.0% 

45,000 

-   

45,000 

Signal Hill, CA

100.0% 

Strip

100.0% 

45,000 

-   

45,000 

Vallejo, CA

(ground leased through 2043)

100.0% 

Strip

100.0% 

45,000 

-   

45,000 

Freeport (240 West Sunrise Highway), NY

(ground and building leased through 2040)

100.0% 

Strip

100.0% 

44,000 

-   

44,000 

San Antonio, TX

(ground and building leased through 2041)

100.0% 

Strip

100.0% 

43,000 

-   

43,000 

Chicago, IL

(ground and building leased through 2051)

100.0% 

Strip

100.0% 

41,000 

-   

41,000 

Englewood, NJ

100.0% 

Strip

73.6% 

41,000 

-   

41,000 

Springfield, PA

(ground and building leased through 2025)

100.0% 

Strip

100.0% 

41,000 

-   

41,000 

Tyson's Corner, VA

(ground and building leased through 2035)

100.0% 

Strip

100.0% 

38,000 

-   

38,000 

Salem, NH

(ground leased through 2102)

100.0% 

Strip

100.0% 

37,000 

-   

37,000 

Owensboro, KY

(ground and building leased through 2046)

100.0% 

Strip

100.0% 

32,000 

-   

32,000 

Eatontown, NJ

100.0% 

Strip

73.7% 

30,000 

-   

30,000 

Walnut Creek (1149 South Main Street), CA

100.0% 

Strip

100.0% 

29,000 

-   

29,000 

East Hanover (280 Route 10 West), NJ

100.0% 

Strip

100.0% 

26,000 

-   

26,000 

Montclair, NJ

100.0% 

Strip

100.0% 

18,000 

-   

18,000 

Oceanside, NY

100.0% 

Strip

100.0% 

16,000 

-   

16,000 

Walnut Creek (Mt. Diablo), CA

95.0% 

Strip

100.0% 

7,000 

-   

7,000 

Monmouth Mall, Eatontown, NJ (1)

50.0% 

Mall

92.5% 

1,463,000 

-   

1,463,000 

Bergen Town Center - West, Paramus, NJ

100.0% 

Mall

99.4% 

952,000 

-   

952,000 

Montehiedra, Puerto Rico

100.0% 

Mall

90.9% 

542,000 

-   

542,000 

Las Catalinas, Puerto Rico

100.0% 

Mall

94.0% 

494,000 

-   

494,000 

Total Retail Properties

95.8% 

16,797,000 

119,000 

16,916,000 

Vornado's Ownership Interest

95.9% 

15,273,000 

119,000 

15,392,000 

 

22

 


 

 

Item 2.        Properties - continued 

 

Square Feet

Under

Development

or Not

%

%

Available

Total

Property

Ownership

Type

Occupancy

In Service

for Lease

Property

OTHER (The Mart):

The Mart, Chicago

100.0% 

Office / Retail / Showroom

94.7% 

3,568,000 

-   

3,568,000 

Other (1)

50.0% 

Retail

100.0% 

19,000 

-   

19,000 

Total The Mart

94.7% 

3,587,000 

-   

3,587,000 

Vornado's Ownership Interest

94.7% 

3,578,000 

-   

3,578,000 

OTHER (555 California Street):

555 California Street

70.0% 

Office

97.0% 

1,506,000 

-   

1,506,000 

315 Montgomery Street

70.0% 

Office / Retail

100.0% 

231,000 

-   

231,000 

345 Montgomery Street

70.0% 

Office / Retail

100.0% 

64,000 

-   

64,000 

Total 555 California Street

97.6% 

1,801,000 

-   

1,801,000 

Vornado's Ownership Interest

97.6% 

1,261,000 

-   

1,261,000 

 

OTHER (Vornado Capital Partners Real Estate Fund) (2) :

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

100.0% 

Office

57.0% 

243,000 

-   

243,000 

Crowne Plaza Times Square, NY

38.2% 

Office / Retail / Hotel

100.0% 

235,000 

-   

235,000 

Lucida, 86th Street and Lexington Avenue, NY

(ground leased through 2082)

100.0% 

Retail / Residential

100.0% 

146,000 

-   

146,000 

1100 Lincoln Road, Miami, FL

100.0% 

Retail / Theatre

100.0% 

127,000 

-   

127,000 

520 Broadway, Santa Monica, CA

100.0% 

Office

90.9% 

112,000 

-   

112,000 

11 East 68th Street Retail, NY

100.0% 

Retail

100.0% 

8,000 

3,000 

11,000 

501 Broadway, NY

100.0% 

Retail

100.0% 

9,000 

-   

9,000 

Total Real Estate Fund Properties

84.4% 

880,000 

3,000 

883,000 

Vornado's Ownership Interest

84.4% 

184,000 

1,000 

185,000 

OTHER:

85 Tenth Avenue, Manhattan

n/a (3)

Office / Retail

100.0% 

613,000 

-   

613,000 

East Hanover Warehouse Park (5 buildings)

100.0% 

Warehouse

60.8% 

942,000 

-   

942,000 

Total Other

76.3% 

1,555,000 

-   

1,555,000 

Vornado's Ownership Interest

60.8% 

942,000 

-   

942,000 

(1)

Denotes property not consolidated in the accompanying consolidated financial statements and related financial data included in the Annual Report on Form 10-K.

(2)

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

(3)

As of December 31, 2014, we own junior and senior mezzanine loans of 85 Tenth Avenue with an accreted balance of $147.6 million. The junior and senior mezzanine loans bear paid-in-kind interest of 12% and 9%, respectively and mature in May 2017. We account for our investment in 85 Tenth Avenue using the equity method of accounting because we will receive a 49.9% interest in the property after repayment of the junior mezzanine loan. As a result of recording our share of the GAAP losses of the property, the net carrying amount of these loans is $28.2 million on our consolidated balance sheets.

23

 


 
 

 

New York

 

As of December 31, 2014, our New York segment consisted of 27.6 million square feet in 72 properties.  The 27.6 million square feet is comprised of 20.1 million square feet of office space in 31 properties, 2.5 million square feet of retail space in 56 properties, four residential properties containing 1,654 units, the 1.4 million square foot Hotel Pennsylvania, and our 32.4% interest in Alexander’s, Inc. (“Alexander’s”), which owns six properties in the greater New York metropolitan area.  The New York segment also includes 10 garages totaling 1.7 million square feet (4,909 spaces) which are managed by, or leased to, third parties.

 

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

 

As of December 31, 2014, the occupancy rate for our New York segment was 96.9%.

 

Occupancy and weighted average annual rent per square foot:

Office:

Vornado's Ownership Interest

Weighted

Total

Average Annual

Property

Occupancy

Rent Per

As of December 31,

Square Feet

Square Feet

Rate

Square Foot

2014 

20,052,000 

16,808,000 

96.9 

%

$

65.37 

2013 

19,217,000 

15,776,000 

96.5 

%

61.86 

2012 

18,792,000 

15,811,000 

95.7 

%

60.18 

2011 

18,637,000 

15,664,000 

96.1 

%

58.68 

2010 

15,592,000 

14,413,000 

96.0 

%

56.13 

Retail:

Vornado's Ownership Interest

Weighted

Total

Average Annual

Property

Occupancy

Rent Per

As of December 31,

Square Feet

Square Feet

Rate

Square Foot

2014 

2,450,000 

2,179,000 

96.4 

%

$

174.08 

2013 

2,370,000 

2,147,000 

97.4 

%

162.92 

2012 

2,192,000 

2,032,000 

96.8 

%

148.71 

2011 

2,234,000 

1,975,000 

95.6 

%

105.36 

2010 

1,991,000 

1,899,000 

96.4 

%

101.82 

 

Residential:

Number of

Occupancy

Average Monthly

As of December 31,

Units

Rate

Rent Per Unit

2014 

1,654 

95.2 

%

$

3,163 

2013 

1,653 

94.8 

%

2,864 

2012 

1,651 

96.5 

%

2,672 

 

 

 

 

 

 

24

 


 

 

NEW YORK – CONTINUED

Tenants accounting for 2% or more of revenues:

Percentage of

Percentage

Square Feet

2014 

New York

of Total

Tenant

Leased

Revenues

Revenues

Revenues

IPG and affiliates

755,000 

$

40,327,000 

2.8 

%

1.5 

%

AXA Equitable Life Insurance

423,000 

37,725,000 

2.6 

%

1.4 

%

Macy’s

646,000 

35,337,000 

2.4 

%

1.3 

%

 

2014 rental revenue by tenants’ industry:

Industry

Percentage

Office:

Financial Services

14 

%

Communications

%

Family Apparel

%

Real Estate

%

Legal Services

%

Insurance

%

Advertising / Marketing

%

Publishing

%

Technology

%

Banking

%

Pharmaceutical

%

Engineering, Architect & Surveying

%

Home Entertainment & Electronics

%

Government

%

Health Services

%

Other

10 

%

74 

%

Retail:

Family Apparel

%

Women's Apparel

%

Luxury Retail

%

Banking

%

Restaurants

%

Department Stores

%

Discount Stores

%

Other

%

26 

%

Total

100 

%

 

25

 


 
 

 

NEW YORK – CONTINUED

Lease expirations as of December 31, 2014, assuming none of the tenants exercise renewal options:

Percentage of

Weighted Average Annual

Number of

Square Feet of

New York

Rent of Expiring Leases

Year

Expiring Leases

Expiring Leases

Square Feet

Total

Per Square Foot

Office:

Month to month

13 

38,000 

0.2 

%

$

2,044,000 

$

53.79 

2015 

100 

846,000 

(1)

5.5 

%

54,370,000 

64.27 

(1)

2016 

156 

1,246,000 

8.0 

%

78,552,000 

63.04 

2017 

85 

713,000 

4.6 

%

45,551,000 

63.89 

2018 

96 

1,017,000 

(2)

6.6 

%

76,091,000 

74.82 

2019 

95 

987,000 

6.4 

%

66,135,000 

67.01 

2020 

97 

1,367,000 

8.8 

%

81,391,000 

59.54 

2021 

58 

1,139,000 

7.4 

%

74,125,000 

65.08 

2022 

56 

862,000 

5.6 

%

54,673,000 

63.43 

2023 

44 

1,587,000 

10.2 

%

110,510,000 

69.63 

2024 

59 

1,098,000 

7.1 

%

79,538,000 

72.44 

Retail:

Month to month

32,000 

1.7 

%

$

4,809,000 

$

150.28 

2015 

18 

94,000 

(3)

5.1 

%

20,242,000 

215.34 

(3)

2016 

14 

56,000 

(4)

3.0 

%

16,378,000 

292.46 

2017 

14,000 

0.8 

%

2,999,000 

214.21 

2018 

29 

159,000 

8.6 

%

38,525,000 

242.30 

2019 

20 

121,000 

6.5 

%

30,882,000 

255.22 

2020 

19 

61,000 

3.3 

%

8,909,000 

146.05 

2021 

38,000 

(5)

2.1 

%

7,361,000 

193.71 

2022 

30,000 

1.6 

%

3,641,000 

121.37 

2023 

12 

81,000 

4.4 

%

18,271,000 

225.57 

2024 

11 

171,000 

9.2 

%

53,064,000 

310.32 

_______________________________________________________________________

(1)

  Based on current market conditions, we expect to re-lease this space at weighted average rents ranging from $70 to $75 per square foot.

(2)

  Excludes 492,000 square feet leased to the U.S. Post Office through 2038 (including four 5-year renewal options) for which the annual escalated rent is $11.27 per square foot.

(3)

  Based on current market conditions, we expect to re-lease this space at weighted average rents ranging from $550 to $600 per square foot.

(4)

  Excludes 141,000 square feet leased to Kmart through 2036 (including four 5-year renewal options) for which the annual escalated rent is $43.94 per square foot.

(5)

  Excludes 146,000 square feet leased to Kmart through 2036 (including four 5-year renewal options) for which the annual escalated rent is $37.64 per square foot.

 

Alexander’s

As of December 31, 2014, we own 32.4% of the outstanding common stock of Alexander’s, which owns six properties in the greater New York metropolitan area aggregating 2.2 million square feet, including 731 Lexington Avenue, the 1.3 million square foot Bloomberg L.P. headquarters building.  Alexander’s had $1.03 billion of outstanding debt at December 31, 2014, of which our pro rata share was $334.6 million, none of which is recourse to us.

 

Hotel Pennsylvania

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

 

Year Ended December 31,

2014 

2013 

2012 

2011 

2010 

Hotel:

 

Average occupancy rate

92.0 

%

93.4 

%

89.1 

%

89.1 

%

83.2 

%

Average daily rate

$

161.93 

$

158.01 

$

152.79 

$

152.53 

$

144.21 

Revenue per available room

$

148.93 

$

147.63 

$

136.21 

$

135.87 

$

120.00 

 

26

 


 
 

 

Washington, DC

 

As of December 31, 2014, our Washington, DC segment consisted of 72 properties aggregating 19.1 million square feet comprised of 16.1 million square feet of office space in 59 properties, seven residential properties containing 2,414 units and a hotel property.  In addition, we are in the process of developing a 699-unit residential project with a 37,000 square foot Whole Foods Market at the base of the building and own 18.2 acres of undeveloped land.  The Washington, DC segment also includes 56 garages totaling approximately 8.9 million square feet (29,628 spaces) which are managed by, or leased to, third parties.

 

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

 

As of December 31, 2014, the occupancy rate for our Washington DC segment was 83.8%, and 25.8% of the occupied space was leased to various agencies of the U.S. Government.

 

Occupancy and weighted average annual rent per square foot:

Office:

Vornado's Ownership Interest

Weighted

Total

Average Annual

Property

Occupancy

Rent Per

As of December 31,

Square Feet

Square Feet

Rate

Square Foot

2014 

16,109,000 

13,731,000 

80.9 

%

$

42.80 

2013 

16,233,000 

13,803,000 

80.7 

%

42.44 

2012 

16,106,000 

13,637,000 

81.2 

%

41.57 

2011 

16,623,000 

14,162,000 

89.3 

%

40.80 

2010 

17,219,000 

14,035,000 

94.8 

%

39.65 

 

Residential:

Number of

Occupancy

Average Monthly

As of December 31,

Units

Rate

Rent Per Unit

2014 

2,414 

97.4 % 

 

$

2,078 

2013 

2,405 

96.3 % 

 

2,101 

2012 

2,414 

97.9 % 

 

2,145 

2011 

2,414 

96.6 % 

 

2,056 

2010 

2,414 

95.5 % 

 

1,925 

 

Tenants accounting for 2% or more of revenues:

Percentage of

Percentage

Square Feet

2014 

Washington, DC

of Total

Tenant

Leased

Revenues

Revenues

Revenues

U.S. Government

3,576,000 

$

133,050,000 

24.8 

%

5.0 

%

Boeing

253,000 

17,249,000 

3.2 

%

0.7 

%

Lockheed Martin

329,000 

14,755,000 

2.8 

%

0.6 

%

Family Health International

359,000 

12,407,000 

2.3 

%

0.5 

%

Arlington County

241,000 

11,728,000 

2.2 

%

0.4 

%

 

27

 


 

 

WASHINGTON, DC – CONTINUED

2014 rental revenue by tenants’ industry:

Industry

Percentage

U.S. Government

29%

Government Contractors

14%

Membership Organizations

8%

Legal Services

5%

Manufacturing

4%

Business Services

3%

Management Consulting Services

3%

State and Local Government

2%

Computer and Data Processing

2%

Health Services

2%

Food

2%

Real Estate

2%

Education

2%

Communication

1%

Television Broadcasting

1%

Other

20%

100%

 

 

Lease expirations as of December 31, 2014, assuming none of the tenants exercise renewal options:

Percentage of

Weighted Average Annual

Number of

Square Feet of

Washington, DC

Rent of Expiring Leases

Year

Expiring Leases

Expiring Leases

Square Feet

Total

Per Square Foot

Month to month

38 

324,000 

3.1 

%

$

9,293,000 

$

28.70 

2015 

211 

1,680,000 

(1)

16.1 

%

72,084,000 

42.90 

(1)

2016 

140 

1,179,000 

11.3 

%

50,596,000 

42.93 

2017 

88 

626,000 

6.0 

%

25,649,000 

40.97 

2018 

97 

987,000 

9.5 

%

43,790,000 

44.36 

2019 

80 

1,557,000 

15.0 

%

65,604,000 

42.13 

2020 

61 

728,000 

7.0 

%

36,326,000 

49.89 

2021 

24 

573,000 

5.5 

%

26,117,000 

45.58 

2022 

35 

963,000 

9.3 

%

42,194,000 

43.80 

2023 

12 

161,000 

1.5 

%

7,473,000 

46.38 

2024 

30 

374,000 

3.6 

%

14,547,000 

38.85 

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

 

 

Base Realignment and Closure (“BRAC”)

 

          Our Washington, DC segment was impacted by the BRAC statute, which required the Department of Defense (“DOD”) to relocate from 2,395,000 square feet in our buildings in the Northern Virginia area to government owned military bases.  See page 47 for the status of BRAC related move-outs.

28

 


 

 

RETAIL PROPERTIES

 

During 2014, we substantially completed our exit from our Retail Properties segment which comprises our non-Manhattan strip shopping centers and regional malls business as follows: 

 

On February 24, 2014, we sold the Broadway Mall in Hicksville, Long Island, New York, for $94,000,000.

 

On March 2, 2014, we entered into an agreement to transfer upon completion, the redeveloped Springfield Town Center, a 1,350,000 square foot mall located in Springfield, Fairfax County, Virginia, to Pennsylvania Real Estate Investment Trust (NYSE: PEI) (“PREIT”) in exchange for $465,000,000 comprised of $340,000,000 of cash and $125,000,000 of PREIT operating partnership units.  The redevelopment was substantially completed in October 2014, at which time we reclassified the assets, liabilities and financial results to discontinued operations.  The transfer of the property to PREIT is expected to be completed no later than March 31, 2015.

 

On July 8, 2014, we sold the Beverly Connection, a 335,000 square foot power shopping center in Los Angeles, California, for $260,000,000, of which $239,000,000 was cash and $21,000,000 was 10-year mezzanine seller financing.   

 

We sold six small retail assets during 2014 in separate transactions, for an aggregate of $66,410,000 in cash. 

 

On January 15, 2015, we spun-off 79 strip shopping centers, three malls, and a warehouse park to Urban Edge Properties (“UE”) (NYSE: UE). Beginning with the first quarter of 2015, the financial results of these properties will be classified as discontinued operations. 

 

Retail Properties’ lease terms generally range from five years or less in some instances for smaller tenants to as long as 25 years for major tenants.  Leases generally provide for reimbursements of real estate taxes, insurance and common area maintenance charges (including roof and structure in strip shopping centers, unless it is the tenant’s direct responsibility), and percentage rents based on tenant sales volume.  Percentage rents accounted for less than 1% of the Retail Properties total revenues during 2014.

 

As of December 31, 2014, the occupancy rate for the Retail Properties segment was 95.9%.

 

Occupancy and weighted average annual rent per square foot:

 

Strip Shopping Centers:

Vornado's Ownership Interest

Total

Weighted Average

Property

Occupancy

Annual Net Rent

As of December 31,

Square Feet

Square Feet

Rate

Per Square Foot

2014 

13,346,000 

12,920,000 

96.1 

%

$

17.45 

2013 

13,302,000 

12,923,000 

95.4 

%

17.24 

2012 

13,080,000 

12,701,000 

95.2 

%

16.93 

2011 

13,126,000 

12,747,000 

95.3 

%

16.69 

2010 

13,028,000 

12,675,000 

94.6 

%

15.98 

 

Regional Malls:

Vornado's Ownership Interest

Weighted Average Annual

Net Rent Per Square Foot

Total

Mall and

Property

Occupancy

Mall

Anchor

As of December 31,

Square Feet

Square Feet

Rate

Tenants

Tenants

2014 

3,451,000 

2,353,000 

95.1 

%

$

43.89 

$

26.30 

2013 

3,451,000 

2,352,000 

95.4 

%

43.83 

25.95 

2012 

3,424,000 

2,326,000 

93.6 

%

46.37 

26.20 

2011 

3,409,000 

2,305,000 

92.9 

%

45.07 

25.49 

2010 

3,362,000 

2,133,000 

93.5 

%

45.18 

26.47 

 

29

 


 

 

RETAIL PROPERTIES – CONTINUED

Tenants accounting for 2% or more of revenues:

Percentage of

Percentage of

Square Feet

2014 

Retail Properties

Total

Tenant

Leased

Revenues

Revenues

Revenues

The Home Depot

994,000 

$

19,431,000 

5.9 

%

0.7 

%

Wal-Mart

1,439,000 

18,144,000 

5.5 

%

0.7 

%

Lowe's

976,000 

13,120,000 

4.0 

%

0.5 

%

Best Buy

443,000 

12,536,000 

3.8 

%

0.5 

%

The TJX Companies, Inc.

567,000 

11,902,000 

3.6 

%

0.5 

%

Stop & Shop / Koninklijke Ahold NV

633,000 

10,471,000 

3.2 

%

0.4 

%

Kohl's

716,000 

9,554,000 

2.9 

%

0.4 

%

Sears Holding Company (Kmart Corp. and Sears Corp.)

547,000 

7,733,000 

2.4 

%

0.3 

%

Shop Rite

337,000 

7,587,000 

2.3 

%

0.3 

%

BJ's Wholesale Club

454,000 

7,411,000 

2.3 

%

0.3 

%

 

2014 rental revenue by type of retailer

Industry

Percentage

Discount Stores

20 

%

Home Improvement

11 

%

Supermarkets

11 

%

Family Apparel

%

Restaurants

%

Home Entertainment and Electronics

%

Banking and Other Business Services

%

Personal Services

%

Sporting Goods, Toys and Hobbies

%

Home Furnishings

%

Membership Warehouse Clubs

%

Women's Apparel

%

Other

14 

%

100 

%

 

30

 


 

 

RETAIL PROPERTIES – CONTINUED

Lease expirations as of December 31, 2014, assuming none of the tenants exercise renewal options:

Percentage of

Weighted Average Annual

Number of

Square Feet of

Retail Properties

Net Rent of Expiring Leases

Year

Expiring Leases

Expiring Leases

Square Feet

Total

Per Square Foot

Strip Shopping Centers:

Month to month

38,000 

0.3 

%

$

1,036,000 

$

27.03 

2015 

32 

177,000 

(1)

1.3 

%

5,798,000 

32.62 

(1)

2016 

60 

606,000 

4.3 

%

10,304,000 

16.99 

2017 

55 

425,000 

3.0 

%

7,525,000 

17.69 

2018 

53 

1,293,000 

9.2 

%

18,767,000 

14.51 

2019 

75 

1,317,000 

9.4 

%

20,056,000 

15.23 

2020 

47 

1,142,000 

8.2 

%

15,751,000 

13.79 

2021 

32 

578,000 

4.1 

%

8,572,000 

14.83 

2022 

43 

927,000 

6.6 

%

11,147,000 

12.03 

2023 

39 

1,136,000 

8.1 

%

18,424,000 

16.22 

2024 

46 

1,225,000 

8.7 

%

14,966,000 

12.22 

Regional Malls:

Month to month

10 

30,000 

0.2 

%

$

952,000 

$

32.10 

2015 

33 

80,000 

(2)

0.6 

%

3,408,000 

42.27 

(2)

2016 

33 

87,000 

0.6 

%

4,065,000 

46.75 

2017 

21 

40,000 

0.3 

%

2,453,000 

61.82 

2018 

24 

53,000 

0.4 

%

3,476,000 

65.09 

2019 

26 

173,000 

1.2 

%

6,298,000 

36.38 

2020 

23 

105,000 

0.7 

%

4,738,000 

45.22 

2021 

12 

130,000 

0.9 

%

3,721,000 

28.72 

2022 

37,000 

0.3 

%

1,370,000 

37.28 

2023 

37,000 

0.3 

%

1,454,000 

39.55 

2024 

10 

105,000 

0.7 

%

3,253,000 

31.06 

(1)

Based on current market conditions, we expect the space to be re-leased at weighted average rents ranging from $33 to $37 per square foot.

(2)

Based on current market conditions, we expect the space to be re-leased at weighted average rents ranging from $43 to $47 per square foot.

31

 


 

 

OTHER INVESTMENTS

 

The Mart

As of December 31, 2014, we own the 3.6 million square foot the Mart in Chicago, whose largest tenant is Motorola Mobility, guaranteed by Google, which leases 608,000 square feet.  The Mart is encumbered by a $550,000,000 mortgage loan that bears interest at a fixed rate of 5.57% and matures in December 2016.  As of December 31, 2014 the Mart had an occupancy rate of 94.7% and a weighted average annual rent per square foot of $35.97.

 

 

555 California Street

As of December 31, 2014, we own a 70% controlling interest in a three-building office complex containing 1.8 million square feet, known as the Bank of America Center, located at California and Montgomery Streets in San Francisco’s financial district (“555 California Street”).  555 California Street is encumbered by a $597,868,000 mortgage loan that bears interest at a fixed rate of 5.10% and matures in September 2021.  As of December 31, 2014, 555 California Street had an occupancy rate of 97.6% and a weighted average annual rent per square foot of $65.98.

 

 

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

 

As of December 31, 2014, we own a 25.0% interest in the Fund.  We are the general partner and investment manager of the Fund.  At December 31, 2014, the Fund had seven investments which are carried at an aggregate fair value of $513,973,000.  Our share of unfunded commitments is $36,031,000.

 

 

Toys “R” Us, Inc. (“Toys”)

As of December 31, 2014 we own a 32.6% interest in Toys, a worldwide specialty retailer of toys and baby products, which has 1,826 stores worldwide.  Toys had $11.3 billion of total assets and $5.7 billion of outstanding debt at November 1, 2014, of which our pro rata share of the outstanding debt was $1.9 billion, none of which is recourse to us.

 

 

 

ITEM 3.    LEGAL PROCEEDINGS

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

 

 

 

ITEM 4.    MINE SAFETY DISCLOSURES

 

Not applicable.

32

 


 

 

PART II

 

 

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

 

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

 

Quarterly high and low sales prices of the common shares and dividends paid per common share for the years ended December 31, 2014 and 2013 were as follows:

 

Year Ended

Year Ended

December 31, 2014

December 31, 2013

Quarter

High

Low

Dividends

High

Low

Dividends

1st

$

100.02 

$

87.82 

$

0.73 

$

85.94 

$

79.43 

$

0.73 

2nd

109.01 

96.93 

0.73 

88.73 

76.19 

0.73 

3rd

109.12 

99.26 

0.73 

89.35 

79.56 

0.73 

4th

120.23 

93.09 

0.73 

91.91 

82.73 

0.73 

 

 

As of February 1, 2015, there were 1,117 holders of record of our common shares.

 

 

Recent Sales of Unregistered Securities

 

During the fourth quarter of 2014, we issued 6,179 common shares upon the redemption of Class A units of the Operating Partnership held by persons who received units, in private placements in earlier periods, in exchange for their interests in limited partnerships that owned real estate. The common shares were issued without registration under the Securities Act of 1933 in reliance on Section 4 (2) of that Act.

 

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

 

 

Recent Purchases of Equity Securities

 

None

 

33

 


 

 

Performance Graph

 

The following graph is a comparison of the five-year cumulative return of our common shares, the Standard & Poor’s 500 Index (the “S&P 500 Index”) and the National Association of Real Estate Investment Trusts’ (“NAREIT”) All Equity Index, a peer group index.  The graph assumes that $100 was invested on December 31, 2009 in our common shares, the S&P 500 Index and the NAREIT All Equity Index and that all dividends were reinvested without the payment of any commissions.  There can be no assurance that the performance of our shares will continue in line with the same or similar trends depicted in the graph below.

 

 

 

2009 

2010 

2011 

2012 

2013 

2014 

Vornado Realty Trust

$

100 

$

123 

$

118 

$

128 

$

147 

$

201 

S&P 500 Index

100 

115 

117 

136 

180 

205 

The NAREIT All Equity Index

100 

128 

139 

166 

171 

218 

34

 


 

 

ITEM 6. SELECTED FINANCIAL DATA

Year Ended December 31,

(Amounts in thousands, except per share amounts)

2014 

2013 

2012 

2011 

2010 

Operating Data:

Revenues:

Property rentals

$

2,110,797 

$

2,081,115 

$

1,990,784 

$

2,015,461 

$

2,002,920 

Tenant expense reimbursements

329,398 

301,167 

279,075 

288,889 

290,998 

Cleveland Medical Mart development project

36,369 

235,234 

154,080 

Fee and other income

195,745 

250,618 

144,124 

149,165 

146,140 

Total revenues

2,635,940 

2,669,269 

2,649,217 

2,607,595 

2,440,058 

Expenses:

Operating

1,064,753 

1,030,951 

988,883 

959,166 

950,453 

Depreciation and amortization

536,230 

515,724 

490,028 

493,657 

467,475 

General and administrative

185,924 

196,267 

190,109 

188,450 

198,117 

Cleveland Medical Mart development project

32,210 

226,619 

145,824 

Acquisition and transaction related costs,

and impairment losses

33,391 

43,857 

25,786 

35,205 

36,958 

Total expenses

1,820,298 

1,819,009 

1,921,425 

1,822,302 

1,653,003 

Operating income

815,642 

850,260 

727,792 

785,293 

787,055 

Income (loss) from Real Estate Fund

163,034 

102,898 

63,936 

22,886 

(303)

(Loss) income applicable to Toys "R" Us

(73,556)

(362,377)

14,859 

48,540 

71,624 

Income from partially owned entities

15,425 

23,592 

408,267 

70,072 

20,869 

Interest and debt expense

(467,715)

(481,304)

(484,794)

(508,555)

(509,912)

Interest and other investment income (loss), net

38,787 

(24,876)

(261,179)

148,537 

234,913 

Net gain on disposition of wholly owned and partially

owned assets

13,568 

3,407 

13,347 

15,134 

81,432 

Net loss on extinguishment of debt

(10,782)

Income before income taxes

505,185 

111,600 

482,228 

581,907 

674,896 

Income tax (expense) benefit

(11,002)

6,406 

(8,132)

(23,925)

(22,137)

Income from continuing operations

494,183 

118,006 

474,096 

557,982 

652,759 

Income from discontinued operations

514,843 

446,734 

220,445 

182,018 

55,272 

Net income

1,009,026 

564,740 

694,541 

740,000 

708,031 

Less net income attributable to noncontrolling interests in:

Consolidated subsidiaries

(96,561)

(63,952)

(32,018)

(21,786)

(4,920)

Operating Partnership

(47,563)

(23,659)

(35,327)

(41,059)

(44,033)

Preferred unit distributions of the Operating Partnership

(50)

(1,158)

(9,936)

(14,853)

(11,195)

Net income attributable to Vornado

864,852 

475,971 

617,260 

662,302 

647,883 

Preferred share dividends

(81,464)

(82,807)

(76,937)

(65,531)

(55,534)

Preferred unit and share redemptions

(1,130)

8,948 

5,000 

4,382 

Net income attributable to common shareholders

$

783,388 

$

392,034 

$

549,271 

$

601,771 

$

596,731 

Per Share Data:

Income (loss) from continuing operations, net - basic

$

1.59 

$

(0.14)

$

1.83 

$

2.34 

$

2.99 

Income (loss) from continuing operations, net - diluted

1.58 

(0.14)

1.82 

2.32 

2.96 

Net income per common share - basic

4.18 

2.10 

2.95 

3.26 

3.27 

Net income per common share - diluted

4.15 

2.09 

2.94 

3.23 

3.24 

Dividends per common share

2.92 

2.92 

3.76 

(1)

2.76 

2.60 

Balance Sheet Data:

Total assets

$

21,248,320 

$

20,097,224 

$

22,065,049 

$

20,446,487 

$

20,517,471 

Real estate, at cost

18,845,392 

17,418,946 

17,365,533 

15,444,754 

15,165,420 

Accumulated depreciation

(3,629,135)

(3,296,717)

(2,966,067)

(2,742,244)

(2,395,247)

Debt

10,898,859 

9,978,718 

11,042,050 

9,710,265 

9,971,527 

Total equity

7,489,382 

7,594,744 

7,904,144 

7,508,447 

6,830,405 

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

 

35

 


 

 

ITEM 6. SELECTED FINANCIAL DATA - CONTINUED

Year Ended December 31,

(Amounts in thousands)

2014 

2013 

2012 

2011 

2010 

Other Data:

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

Net income attributable to Vornado

$

864,852 

$

475,971 

$

617,260 

$

662,302 

$

647,883 

Depreciation and amortization of real property

517,493 

501,753 

504,407 

530,113 

505,806 

Net gains on sale of real estate

(507,192)

(411,593)

(245,799)

(51,623)

(57,248)

Real estate impairment losses

26,518 

37,170 

129,964 

28,799 

97,500 

Proportionate share of adjustments to equity in net

(loss) income of Toys, to arrive at FFO:

Depreciation and amortization of real property

21,579 

69,741 

68,483 

70,883 

70,174 

Net gains on sale of real estate

(760)

(491)

Real estate impairment losses

6,552 

9,824 

Income tax effect of above adjustments

(7,287)

(26,703)

(27,493)

(24,634)

(24,561)

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

96,187 

87,529 

86,197 

99,992 

78,151 

Net gains on sale of real estate

(10,820)

(465)

(241,602)

(9,276)

(5,784)

Real estate impairment losses

1,849 

11,481 

Noncontrolling interests' share of above adjustments

(8,073)

(15,089)

(16,649)

(40,957)

(46,794)

FFO

992,497 

724,866 

886,441 

1,265,108 

1,276,608 

Preferred share dividends

(81,464)

(82,807)

(76,937)

(65,531)

(55,534)

Preferred unit and share redemptions

(1,130)

8,948 

5,000 

4,382 

FFO attributable to common shareholders

911,033 

640,929 

818,452 

1,204,577 

1,225,456 

Convertible preferred share dividends

97 

108 

113 

124 

160 

Interest on 3.88% exchangeable senior debentures

26,272 

25,917 

FFO attributable to common shareholders

plus assumed conversions(1)

$

911,130 

$

641,037 

$

818,565 

$

1,230,973 

$

1,251,533 

 

________________________________

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

36

 


 

 

ITEM 7.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS

OF OPERATIONS

Page

Number

Overview

38

Overview - Leasing activity

43

Critical Accounting Policies

48

Net Income and EBITDA by Segment for the Years Ended

December 31, 2014, 2013 and 2012

51

Results of Operations:

Year Ended December 31, 2014 Compared to December 31, 2013

56

Year Ended December 31, 2013 Compared to December 31, 2012

63

Supplemental Information:

Net Income and EBITDA by Segment for the Three Months Ended

December 31, 2014 and 2013

71

Three Months Ended December 31, 2014 Compared to December 31, 2013

76

Three Months Ended December 31, 2014 Compared to September 30, 2014

78

Related Party Transactions

80

Liquidity and Capital Resources

81

Financing Activities and Contractual Obligations

81

Certain Future Cash Requirements

84

Cash Flows for the Year Ended December 31, 2014

87

Cash Flows for the Year Ended December 31, 2013

89

Cash Flows for the Year Ended December 31, 2012

91

Funds From Operations for the Three Months and Years Ended

December 31, 2014 and 2013

93

37

 


 

 

Overview

Vornado Realty Trust (“Vornado”) is a fully‑integrated real estate investment trust (“REIT”) and conducts its business through, and substantially all of its interests in properties are held by, Vornado Realty L.P., a Delaware limited partnership (the “Operating Partnership”).  Accordingly, Vornado’s cash flow and ability to pay dividends to its shareholders is dependent upon the cash flow of the Operating Partnership and the ability of its direct and indirect subsidiaries to first satisfy their obligations to creditors.  Vornado is the sole general partner of, and owned approximately 94.1% of the common limited partnership interest in the Operating Partnership at December 31, 2014.  All references to “we,” “us,” “our,” the “Company” and “Vornado” refer to Vornado Realty Trust and its consolidated subsidiaries, including the Operating Partnership.

 

On January 15, 2015, we completed the spin-off of substantially all of our retail segment comprised of 79 strip shopping centers, three malls, a warehouse park and $225 million of cash to Urban Edge Properties (“UE”) (NYSE: UE).  As part of this transaction, we received 5,712,000 UE operating partnership units (5.4% ownership interest).  We are providing transition services to UE for an initial period of up to two years, including information technology, human resources, tax and public reporting.  UE is providing us with leasing and property management services for (i) the Monmouth Mall, (ii) certain small retail properties which did not fit UE’s strategy that we plan to sell, and (iii) our affiliate, Alexander’s, Inc. (NYSE: ALX), Rego Park retail assets.  Steven Roth, our Chairman and Chief Executive Officer is a member of the Board of Trustees of UE.  The spin-off distribution was effected by Vornado distributing one UE common share for every two Vornado common shares.  Beginning in the first quarter of 2015, the historical financial results of UE will be reflected in our consolidated financial statements as discontinued operations for all periods presented. 

 

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

 

Our business objective is to maximize shareholder value, which we measure by the total return provided to our shareholders. Below is a table comparing our performance to the FTSE NAREIT Office Index (“Office REIT”) and the Morgan Stanley REIT Index (“RMS”) for the following periods ended December 31, 2014:

Total Return(1)

Vornado

Office REIT

RMS

Three-months

18.5% 

12.7% 

14.3% 

One-year

36.4% 

25.9% 

30.4% 

Three-year

70.8% 

51.7% 

57.3% 

Five-year

100.6% 

78.2% 

119.7% 

Ten-year

131.1% 

89.5% 

122.2% 

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

 

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

 

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

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

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

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

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

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

 

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

 

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

 

38

 


 
 

 

Overview - continued

Year Ended December 31, 2014 Financial Results Summary

 

Net income attributable to common shareholders for the year ended December 31, 2014 was $783,388,000, or $4.15 per diluted share, compared to $392,034,000, or $2.09 per diluted share for the year ended December 31, 2013. Net income for the years ended December 31, 2014 and 2013 includes $518,772,000 and $412,058,000, respectively, of net gains on sale of real estate, and $26,518,000 and $43,722,000, respectively, of real estate impairment losses.  In addition, the years ended December 31, 2014 and 2013 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 for the year ended December 31, 2014 by $371,567,000, or $1.97 per diluted share and $26,657,000, or $0.14 per diluted share for the year ended December 31, 2013.

 

Funds from operations attributable to common shareholders plus assumed conversions (“FFO”) for the year ended December 31, 2014 was $911,130,000, or $4.83 per diluted share, compared to $641,037,000, or $3.41 per diluted share for the prior year.  FFO for the years ended December 31, 2014 and 2013 includes certain items that affect comparability which are listed in the table below. The aggregate of these items, net of amounts attributable to noncontrolling interests, decreased FFO for the year ended December 31, 2014 by $69,122,000, or $0.37 per diluted share and $255,502,000, or $1.36 per diluted share for the year ended December 31, 2013.

 

For the Year Ended December 31,

(Amounts in thousands)

2014 

2013 

Items that affect comparability income (expense):

Toys "R" Us negative FFO (including impairment losses of $75,196 and $240,757,

respectively)

$

(60,024)

$

(312,788)

FFO from discontinued operations, including LNR in 2013

39,525 

80,779 

Acquisition and transaction related costs

(31,348)

(24,857)

Write-off of deferred financing costs and defeasance costs in connection with refinancings

(22,660)

(8,814)

Net gain on sale of residential condominiums and land parcels

13,568 

2,997 

Impairment loss and loan reserve on investment in Suffolk Downs

(10,263)

-   

Losses from the disposition of investment in J.C. Penney

-   

(127,888)

Stop & Shop litigation settlement income

-   

59,599 

Net gain on sale of marketable securities

-   

31,741 

Net gain on sale of Harlem Park property under development

-   

23,507 

Other, net

(2,097)

3,847 

(73,299)

(271,877)

Noncontrolling interests' share of above adjustments

4,177 

16,375 

Items that affect comparability, net

$

(69,122)

$

(255,502)

 

 

The percentage increase (decrease) in same store Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) and cash basis same store EBITDA of our operating segments for the year ended December 31, 2014 over the year ended December 31, 2013 is summarized below.

Same Store EBITDA:

New York

Washington, DC

Retail Properties

December 31, 2014 vs. December 31, 2013

Same store EBITDA

4.7% 

(2.4%)

1.7% 

Cash basis same store EBITDA

7.6% 

(2.3%)

2.3% 

 

39

 


 
 

 

Overview - continued

Quarter Ended December 31, 2014  Financial Results Summary

 

Net income attributable to common shareholders for the quarter ended December 31, 2014 was $513,238,000, or $2.72 per diluted share, compared to a net loss of $68,887,000, or $0.37 per diluted share for the quarter ended December 31, 2013.  Net income for the quarter ended December 31, 2014 and net loss for the quarter ended December 31, 2013 include $460,216,000 and $127,512,000, respectively, of net gains on sale of real estate, and $5,676,000 and $32,899,000, respectively, of real estate impairment losses.  In addition, the quarters ended December 31, 2014 and 2013 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 December 31, 2014 by $400,211,000, or $2.12 per diluted share and decreased net loss attributable to common shareholders for the quarter ended December 31, 2013 by $167,086,000, or $0.89 per diluted share.

 

FFO for the quarter ended December 31, 2014 was a positive $230,143,000, or $1.22 per diluted share, compared to a negative $6,784,000, or $0.04 per diluted share for the prior year’s quarter.  FFO for the quarters ended December 31, 2014 and 2013 include certain items that affect comparability which are listed in the table below.  The aggregate of these items, net of amounts attributable to noncontrolling interests, decreased FFO for the quarter ended December 31, 2014 by $25,994,000, or $0.14 per diluted share and $241,605,000, or $1.29 per diluted share for the quarter ended December 31, 2013.

 

For the Three Months Ended December 31,

(Amounts in thousands)

2014 

2013 

Items that affect comparability income (expense):

Acquisition and transaction related costs

$

(18,376)

$

(18,088)

Write-off of deferred financing costs and defeasance costs in connection with refinancings

(16,747)

(8,436)

FFO from discontinued operations

8,656 

15,757 

Toys "R" Us FFO (negative FFO) (including a $162,215 impairment loss in 2013)

606 

(282,041)

Net gain on sale of residential condominiums and land parcels

363 

481 

Net gain on sale of Harlem Park property under development

-   

23,507 

Deferred income tax reversal

-   

16,055 

Other, net

(2,097)

(4,183)

(27,595)

(256,948)

Noncontrolling interests' share of above adjustments

1,601 

15,343 

Items that affect comparability, net

$

(25,994)

$

(241,605)

 

 

The percentage increase (decrease) in same store EBITDA and cash basis same store EBITDA of our operating segments for the quarter ended December 31, 2014 over the quarter ended December 31, 2013 and the trailing quarter ended September 30, 2014 are summarized below.

 

Same Store EBITDA:

New York

Washington, DC

Retail Properties

December 31, 2014 vs. December 31, 2013

Same store EBITDA

3.3% 

(2.3%)

1.9% 

Cash basis same store EBITDA

8.2% 

(3.8%)

2.4% 

December 31, 2014 vs. September 30, 2014

Same store EBITDA

1.8% 

(3.0%)

0.6% 

Cash basis same store EBITDA

4.7% 

(3.4%)

0.7% 

 

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

 

40

 


 

 

Overview – continued

 

Acquisitions

 

 

On June 26, 2014, we invested an additional $22,700,000 to increase our ownership in One Park Avenue to 55.0% from 46.5% through a joint venture with an institutional investor, who increased its ownership interest to 45.0%.  The transaction was based on a property value of $560,000,000.  The property is encumbered by a $250,000,000 interest-only mortgage loan that bears interest at 4.995% and matures in March 2016. 

 

On July 23, 2014, a joint venture in which we are a 50.1% partner entered into a 99-year ground lease for 61 Ninth Avenue located on the Southwest corner of Ninth Avenue and 15th Street in Manhattan.  The venture’s current plans are to construct an office building, with retail at the base, of approximately 130,000 square feet.  Total development costs are currently estimated to be approximately $125,000,000.

 

On August 1, 2014, we acquired the land under our 715 Lexington Avenue retail property located on the Southeast corner of 58th Street and Lexington Avenue in Manhattan, for $63,000,000.

 

On October 28, 2014, we completed the purchase of the retail condominium of the St. Regis Hotel for $700,000,000.  We own a 74.3% controlling interest of the joint venture which owns the property. The acquisition was used in a like-kind exchange for income tax purposes for the sale of 1740 Broadway (see below).  We consolidate the accounts of the venture into our consolidated financial statements from the date of acquisition.

 

On November 21, 2014, we entered into an agreement to acquire the Center Building, an eight story 437,000 square foot office building, located at 33-00 Northern Boulevard in Long Island City, New York.  The building is 98% leased.  The purchase price is approximately $142,000,000, including the assumption of an existing $62,000,000 4.43% mortgage maturing in October 2018.  The purchase is expected to close in the first quarter of 2015, subject to customary closing conditions.  As of December 31, 2014, our $14,200,000 non-refundable deposit was included in “other assets” on our consolidated balance sheet.

 

On January 20, 2015, we co-invested with our 25% owned Fund and one of the Fund’s limited partners to buy out the Fund’s joint venture partner’s 57% interest in the Crowne Plaza Times Square Hotel.  The purchase price for the 57% interest was approximately $95,000,000 (our share $39,000,000) which valued the property at approximately $480,000,000.  The property is encumbered by a newly placed $310,000,000 mortgage loan bearing interest at LIBOR plus 2.80% and maturing in December 2018 with a one-year extension option.   Our aggregate ownership interest in the property increased to 33% from 11%.

 

 

Dispositions

 

 

New York

 

On December 18, 2014, we completed the sale of 1740 Broadway, a 601,000 square foot office building in Manhattan for $605,000,000.  The sale resulted in net proceeds of approximately $580,000,000, after closing costs, and resulted in a financial statement gain of approximately $441,000,000.  The tax gain of approximately $484,000,000, was deferred in like-kind exchanges, primarily for the acquisition of the St. Regis Fifth Avenue retail. 

 

Retail Properties

 

On February 24, 2014, we completed the sale of Broadway Mall in Hicksville, Long Island, New York, for $94,000,000.  The sale resulted in net proceeds of $92,174,000 after closing costs.

 

On March 2, 2014, we entered into an agreement to transfer upon completion, the redeveloped Springfield Town Center, a 1,350,000 square foot mall located in Springfield, Fairfax County, Virginia, to Pennsylvania Real Estate Investment Trust (NYSE: PEI) (“PREIT”) in exchange for $465,000,000 comprised of $340,000,000 of cash and $125,000,000 of PREIT operating partnership units.  In connection therewith, we recorded a non-cash impairment loss of $20,000,000 in the first quarter of 2014, which is included in “income from discontinued operations” on our consolidated statements of income. The redevelopment was substantially completed in October 2014, at which time we reclassified the assets, liabilities and financial results to discontinued operations, and the transfer of the property to PREIT is expected to be completed no later than March 31, 2015.

 

On July 8, 2014, we completed the sale of Beverly Connection, a 335,000 square foot power shopping center in Los Angeles, California, for $260,000,000, of which $239,000,000 was cash and $21,000,000 was 10-year mezzanine seller financing.  The sale resulted in a net gain of $44,155,000, which was recognized in the third quarter of 2014. 

 

In addition to the above, during 2014, we sold six of the 22 strip shopping centers which did not fit UE’s strategy, in separate transactions, for an aggregate of $66,410,000 in cash, which resulted in a net gain aggregating $22,500,000.

 

 

41

 


 

 

Overview – continued

 

Financings

 

 

Secured Debt

 

On January 31, 2014, we completed a $600,000,000 loan secured by our 220 Central Park South development site.  The loan bears interest at LIBOR plus 2.75% (2.92% at December 31, 2014) and matures in January 2016, with three one-year extension options.

 

On April 16, 2014, we completed a $350,000,000 refinancing of 909 Third Avenue, a 1.3 million square foot Manhattan office building.  The seven-year interest only loan bears interest at 3.91% and matures in May 2021. We realized net proceeds of approximately $145,000,000 after defeasing the existing 5.64%, $193,000,000 mortgage, defeasance cost and other closing costs.

 

On July 16, 2014, we completed a $130,000,000 financing of Las Catalinas, a 494,000 square foot mall located in the San Juan area of Puerto Rico. The 10-year fixed rate loan bears interest at 4.43% and matures in August 2024.  The loan amortizes based on a 30-year schedule beginning in year six.

 

On August 12, 2014, we completed a $185,000,000 financing of the Universal buildings, a 690,000 square foot, two-building office complex located in Washington, DC. The loan bears interest at LIBOR plus 1.90% (2.06% at December 31, 2014) and matures in August 2019 with two one-year extension options. The loan amortizes based on a 30-year schedule beginning in the fourth year.

 

On August 26, 2014, we obtained a standby commitment for up to $500,000,000 of five-year mezzanine loan financing to fund a portion of the development expenditures at 220 Central Park South. 

 

On October 27, 2014, we completed a $140,000,000 financing of 655 Fifth Avenue, a 57,500 square foot retail and office property.  The loan is interest only at LIBOR plus 1.40% (1.56% at December 31, 2014) and matures in October 2019 with two one-year extension options.

 

On December 8, 2014, we completed a $575,000,000 refinancing of Two Penn Plaza, a 1.6 million square foot Manhattan office building.  The loan is interest-only at LIBOR plus 1.65% (1.81% at December 31, 2014) and matures in 2019 with two one-year extension options.  We realized net proceeds of approximately $143,000,000.  Pursuant to an existing swap agreement, the $422,000,000 previous loan on the property was swapped to a fixed rate of 4.78% through March 2018.  Therefore, $422,000,000 of the new loan bears interest at a fixed rate of 4.78% through March 2018 and the balance of $153,000,000 floats through March 2018.  The entire $575,000,000 will float thereafter for the duration of the new loan.

 

On January 6, 2015, we completed the modification of the $120,000,000, 6.04% mortgage loan secured by our Montehiedra Town Center, in the San Juan area of Puerto Rico.  The loan has been extended from July 2016 to July 2021 and separated into two tranches, a senior $90,000,000 position with interest at 5.33% to be paid currently, and a junior $30,000,000 position with interest accruing at 3%.  Montehiedra Town Center and the loan were included in the spin-off to UE on January 15, 2015.  As part of the planned redevelopment of the property, UE is committed to fund $20,000,000 through a loan for leasing and building capital expenditures of which $8,000,000 has been funded.  This loan is senior to the $30,000,000 position noted above and accrues interest at 10%.   

 

Senior Unsecured Notes

 

On June 16, 2014, we completed a green bond public offering of $450,000,000 2.50% senior unsecured notes due June 30, 2019. The notes were sold at 99.619% of their face amount to yield 2.581%.

 

On October 1, 2014, we redeemed all of the $445,000,000 principal amount of our outstanding 7.875% senior unsecured notes, which were scheduled to mature on October 1, 2039, at a redemption price of 100% of the principal amount plus accrued interest through the redemption date.  In the fourth quarter of 2014, we wrote off $12,532,000 of unamortized deferred financing costs, which are included as a component of “interest and debt expense” on our consolidated statements of income.

 

On January 1, 2015, we redeemed all of the $500,000,000 principal amount of our outstanding 4.25% senior unsecured notes, which were scheduled to mature on April 1, 2015, at a redemption price of 100% of the principal amount plus accrued interest through December 31, 2014.

 

Unsecured Revolving Credit Facility

 

On September 30, 2014, we extended one of our two $1.25 billion unsecured revolving credit facilities from November 2015 to November 2018 with two six-month extension options.  The interest rate on the extended facility was lowered to LIBOR plus 105 basis points from LIBOR plus 125 basis points and the facility fee was reduced to 20 basis points from 25 basis points. 

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Overview - continued

 

 

Leasing Activity

 

The leasing activity presented below is based on leases signed during the period and is not intended to coincide with the commencement of rental revenue in accordance with accounting principles generally accepted in the United States of America (“GAAP”).  Tenant improvements and leasing commissions presented below are based on square feet leased during the period.  Second generation relet space represents square footage that has not been vacant for more than nine months.  The leasing activity for the New York segment excludes Alexander’s, the Hotel Pennsylvania and residential.

 

New York

Washington, DC

Retail Properties

(Square feet in thousands)

Office

Retail

Office

Strips

Malls

Quarter Ended December 31, 2014:

Total square feet leased

1,248 

51 

658 

210 

57 

Our share of square feet leased

1,095 

51 

619 

210 

51 

Initial rent (1)

$

66.79 

$

410.63 

$

36.86 

$

18.98 

$

49.18 

Weighted average lease term (years)

12.3 

11.5 

9.4 

6.6 

6.4 

Second generation relet space:

Square feet

732 

45 

461 

92 

15 

Cash basis:

Initial rent (1)

$

68.25 

$

260.31 

$

36.64 

$

13.16 

$

69.20 

Prior escalated rent

$

60.63 

$

175.49 

$

39.68 

$

13.16 

$

69.64 

Percentage increase (decrease)

12.6% 

48.3% 

(7.7%)

-   

(0.6%)

GAAP basis:

Straight-line rent (2)

$

67.80 

$

307.92 

$

34.42 

$

13.21 

$

70.22 

Prior straight-line rent

$

55.87 

$

173.75 

$

36.89 

$

12.72 

$

67.21 

Percentage increase (decrease)

21.4% 

77.2% 

(6.7%)

3.9% 

4.5% 

Tenant improvements and leasing

commissions:

Per square foot

$

78.45 

$

177.43 

$

61.48 

$

5.24 

$

16.53 

Per square foot per annum:

$

6.38 

$

15.43 

$

6.54 

$

0.79 

$

2.58 

Percentage of initial rent

9.5% 

3.8% 

17.7% 

4.2% 

5.3% 

Year Ended December 31, 2014:

Total square feet leased

3,973 

119 

1,817 

(3)

890 

161 

Our share of square feet leased

3,416 

114 

1,674 

(3)

890 

142 

Initial rent (1)

$

66.78 

$

327.38 

$

38.57 

$

19.15 

$

36.19 

Weighted average lease term (years)

11.3 

11.2 

8.2 

6.8 

5.6 

Second generation relet space:

Square feet

2,550 

92 

1,121 

434 

70 

Cash basis:

Initial rent (1)

$

68.18 

$

289.74 

$

38.57 

$

20.31 

$

34.16 

Prior escalated rent

$

60.50 

$

206.62 

$

41.37 

$

19.45 

$

32.98 

Percentage increase (decrease)

12.7% 

40.2% 

(6.8%)

4.4% 

3.6% 

GAAP basis:

Straight-line rent (2)

$

67.44 

$

331.33 

$

36.97 

$

20.53 

$

34.71 

Prior straight-line rent

$

56.76 

$

204.15 

$

38.25 

$

18.77 

$

32.29 

Percentage increase (decrease)

18.8% 

62.3% 

(3.3%)

9.4% 

7.5% 

Tenant improvements and leasing

commissions:

Per square foot

$

75.89 

$

110.60 

$

46.77 

$

10.66 

(4)

$

11.96 

Per square foot per annum:

$

6.72 

$

9.88 

$

5.70 

$

1.57 

(4)

$

2.14 

Percentage of initial rent

10.1% 

3.0% 

14.8% 

8.2% 

(4)

5.9% 

See notes on the following page.

 

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Overview - continued

Leasing Activity - continued

New York

Washington, DC

Retail Properties

(Square feet in thousands)

Office

Retail

Office

Strips

Malls

Year Ended December 31, 2013:

Total square feet leased

2,410 

138 

1,836 

1,388 

674 

Our share of square feet leased:

2,024 

121 

1,392 

1,388 

600 

Initial rent (1)

$

60.78 

$

268.52 

$

39.91 

$

17.27 

$

26.39 

Weighted average lease term (years)

11.0 

8.6 

7.0 

6.2 

8.1 

Second generation relet space:

Square feet

1,716 

103 

910 

959 

205 

Cash basis:

Initial rent (1)

$

60.04 

$

262.67 

$

40.91 

$

16.57 

$

23.59 

Prior escalated rent

$

56.84 

$

117.45 

$

41.16 

$

15.18 

$

22.76 

Percentage increase (decrease)

5.6% 

123.7% 

(0.6%)

9.2% 

3.6% 

GAAP basis:

Straight-line rent(2)

$

59.98 

$

293.45 

$

40.87 

$

16.91 

$

24.04 

Prior straight-line rent

$

52.61 

$

152.34 

$

39.36 

$

14.76 

$

21.87 

Percentage increase

14.0% 

92.6% 

3.8% 

14.6% 

9.9% 

Tenant improvements and leasing

commissions:

Per square foot

$

61.78 

$

100.93 

$

33.24 

$

3.96 

$

20.69 

Per square foot per annum:

$

5.61 

$

11.64 

$

4.75 

$

0.64 

$

2.55 

Percentage of initial rent

9.2% 

4.3% 

11.9% 

3.7% 

9.7% 

(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)

Excludes (i) 165 square feet leased to WeWork that will be redeveloped into rental residential apartments, and (ii) 82 square feet of retail space that was leased at an initial rent of $46.76 per square foot.

(4)

Tenant improvements and leasing commissions for the year ended December 31, 2014 reflect first generation leasing activity at our Kearny strip shopping center.

 

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Overview - continued

Square footage (in service) and Occupancy as of December 31, 2014:

Square Feet (in service)

Number of

Total

Our

(Square feet in thousands)

properties

Portfolio

Share

Occupancy %

New York:

Office

31 

20,052 

16,808 

96.9%

Retail

56 

2,450 

2,179 

96.4%

Alexander's

2,178 

706 

99.7%

Hotel Pennsylvania

1,400 

1,400 

Residential - 1,654 units

1,524 

763 

95.2%

27,604 

21,856 

96.9%

Washington, DC:

Office, excluding the Skyline Properties

51 

13,461 

11,083 

87.5%

Skyline Properties

2,648 

2,648 

53.5%

Total Office

59 

16,109 

13,731 

80.9%

Residential - 2,414 units

2,597 

2,455 

97.4%

Other

384 

384 

100.0%

19,090 

16,570 

83.8%

Retail Properties:

Strip Shopping Centers

86 

13,346 

12,920 

96.1%

Regional Malls

3,451 

2,353 

95.1%

16,797 

15,273 

95.9%

Other:

The Mart

3,587 

3,578 

94.7%

555 California Street

1,801 

1,261 

97.6%

Primarily Warehouses

1,555 

942 

60.8%

6,943 

5,781 

Total square feet at December 31, 2014

70,434 

59,480 

 

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Overview - continued

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

Square Feet (in service)

Number of

Total

Our

(Square feet in thousands)

properties

Portfolio

Share

Occupancy %

New York:

Office

30 

19,217 

15,776 

96.5%

Retail

54 

2,370 

2,147 

97.4%

Alexander's

2,178 

706 

99.4%

Hotel Pennsylvania

1,400 

1,400 

Residential - 1,653 units

1,523 

762 

94.8%

26,688 

20,791 

96.7%

Washington, DC:

Office, excluding the Skyline Properties

51 

13,581 

11,151 

85.4%

Skyline Properties

2,652 

2,652 

60.8%

Total Office

59 

16,233 

13,803 

80.7%

Residential - 2,405 units

2,588 

2,446 

96.3%

Other

379 

379 

100.0%

19,200 

16,628 

83.4%

Retail Properties:

Strip Shopping Centers

89 

13,302 

12,923 

95.4%

Regional Malls

3,451 

2,352 

95.4%

16,753 

15,275 

95.4%

Other:

The Mart

3,703 

3,694 

96.3%

555 California Street

1,795 

1,257 

94.5%

Primarily Warehouses

1,555 

942 

45.6%

7,053 

5,893 

Total square feet at December 31, 2013

69,694 

58,587 

 

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Overview - continued

 

 

Washington, DC Segment

 

Of the 2,395,000 square feet subject to the effects of the Base Realignment and Closure (“BRAC”) statute, 393,000 square feet has been taken out of service for redevelopment and 1,137,000 square feet has been leased or is pending.  The table below summarizes the status of the BRAC space.

 

Rent Per

Square Feet

Square Foot

Total

Crystal City

Skyline

Rosslyn

Resolved:

Relet

$

37.19 

1,126,000 

664,000 

381,000 

81,000 

Leases pending

34.29 

11,000 

11,000 

-   

-   

Taken out of service for redevelopment

393,000 

393,000 

-   

-   

1,530,000 

1,068,000 

381,000 

81,000 

To Be Resolved:

Vacated

35.92 

771,000 

281,000 

425,000 

65,000 

Expiring in 2015

43.79 

94,000 

88,000 

6,000 

-   

865,000 

369,000 

431,000 

65,000 

Total square feet subject to BRAC

2,395,000 

1,437,000 

812,000 

146,000 

 

 

Due to the effects of BRAC related move-outs and the sluggish leasing environment in the Washington, DC / Northern Virginia area, EBITDA from continuing operations for the year ended December 31, 2013 was lower than 2012 by $14,254,000 and EBITDA from continuing operations for the year ended December 31, 2014 was lower than 2013 by $5,633,000, which was offset by an interest expense reduction of $18,568,000 from the restructuring of the Skyline properties mortgage loan in October 2013.  We expect 2015 EBITDA from continuing operations will be flat to 2014.  

47

 


 

 

Critical Accounting Policies

 

 

In preparing the consolidated financial statements we have made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Set forth below is a summary of the accounting policies that we believe are critical to the preparation of our consolidated financial statements.  The summary should be read in conjunction with the more complete discussion of our accounting policies included in Note 2 to the consolidated financial statements in this Annual Report on Form 10-K.

 

Real Estate

 

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

 

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

 

As of December 31, 2014 and 2013, the carrying amounts of real estate, net of accumulated depreciation, were $15.2 billion and $14.1 billion, respectively.  As of December 31, 2014 and 2013, the carrying amounts of identified intangible assets (including acquired above-market leases, tenant relationships and acquired in-place leases) were $276,239,000 and $307,436,000, respectively, and the carrying amounts of identified intangible liabilities, a component of “deferred revenue” on our consolidated balance sheets, were $488,868,000 and $496,489,000, respectively.

 

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

 

48

 


 

 

Critical Accounting Policies – continued

 

Partially Owned Entities

 

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

 

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

 

As of December 31, 2014 and 2013, the carrying amounts of investments in partially owned entities, including Toys “R” Us, was $1.2 billion and $1.2 billion, respectively.

 

 

Mortgage and Mezzanine Loans Receivable

 

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

 

As of December 31, 2014 and 2013, the carrying amounts of mortgage and mezzanine loans receivable were $16,748,000 and $170,972,000, respectively, net of an allowance of $5,811,000 and $5,845,000, respectively, and are included in “other assets” on our consolidated balance sheets.    

49

 


 

 

Critical Accounting Policies – continued

 

 

Allowance For Doubtful Accounts

 

We periodically evaluate the collectability of amounts due from tenants and maintain an allowance for doubtful accounts ($17,060,000 and $21,869,000 as of December 31, 2014 and 2013, respectively) for estimated losses resulting from the inability of tenants to make required payments under the lease agreements. We also maintain an allowance for receivables arising from the straight-lining of rents ($3,188,000 and $4,355,000 as of December 31, 2014 and 2013, respectively). This receivable arises from earnings recognized in excess of amounts currently due under the lease agreements. Management exercises judgment in establishing these allowances and considers payment history and current credit status in developing these estimates. These estimates may differ from actual results, which could be material to our consolidated financial statements.

 

Revenue Recognition

 

We have the following revenue sources and revenue recognition policies:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Income Taxes

 

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

50

 


 

 

Net Income and EBITDA by Segment for the Years Ended December 31, 2014, 2013 and 2012

 

Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the years ended December 31, 2014, 2013 and 2012.

 

 

(Amounts in thousands)

For the Year Ended December 31, 2014

Retail

Total

New York

Washington, DC

Properties

Toys

Other

Total revenues

$

2,635,940 

$

1,520,845 

$

537,151 

$

326,947 

$

-   

$

250,997 

Total expenses

1,820,298 

946,466 

358,019 

197,206 

-   

318,607 

Operating income (loss)

815,642 

574,379 

179,132 

129,741 

-   

(67,610)

(Loss) income from partially owned

entities, including Toys

(58,131)

20,701 

(3,677)

1,730 

(73,556)

(3,329)

Income from Real Estate Fund

163,034 

-   

-   

-   

-   

163,034 

Interest and other investment

income, net

38,787 

6,711 

183 

35 

-   

31,858 

Interest and debt expense

(467,715)

(183,427)

(75,395)

(54,754)

-   

(154,139)

Net gain on disposition of wholly

owned and partially owned assets

13,568 

-   

-   

-   

-   

13,568 

Income (loss) before income taxes

505,185 

418,364 

100,243 

76,752 

(73,556)

(16,618)

Income tax expense

(11,002)

(4,305)

(242)

(1,721)

-   

(4,734)

Income (loss) from continuing

operations

494,183 

414,059 

100,001 

75,031 

(73,556)

(21,352)

Income from discontinued

operations

514,843 

463,163 

-   

50,873 

-   

807 

Net income (loss)

1,009,026 

877,222 

100,001 

125,904 

(73,556)

(20,545)

Less net income attributable to

noncontrolling interests

(144,174)

(8,626)

-   

(119)

-   

(135,429)

Net income (loss) attributable to

Vornado

864,852 

868,596 

100,001 

125,785 

(73,556)

(155,974)

Interest and debt expense(2)

654,398 

241,959 

89,448 

59,322 

100,549 

163,120 

Depreciation and amortization(2)

685,973 

324,239 

145,853 

73,433 

64,533 

77,915 

Income tax expense(2)

24,248 

4,395 

288 

1,721 

12,106 

5,738 

EBITDA(1)

$

2,229,471 

$

1,439,189 

(3)

$

335,590 

(4)

$

260,261 

(5)

$

103,632 

$

90,799 

(6)

____________________________

See notes on pages 53 and 54.

 

51

 


 

 

Net Income and EBITDA by Segment for the Years Ended December 31, 2014, 2013 and 2012 - continued

(Amounts in thousands)

For the Year Ended December 31, 2013

Retail

Total

New York

Washington, DC

Properties

Toys

Other

Total revenues

$

2,669,269 

$

1,470,907 

$

541,161 

$

372,435 

$

-   

$

284,766 

Total expenses

1,819,009 

910,498 

347,686 

199,650 

-   

361,175 

Operating income (loss)

850,260 

560,409 

193,475 

172,785 

-   

(76,409)

(Loss) income from partially owned

entities, including Toys

(338,785)

15,527 

(6,968)

2,097 

(362,377)

12,936 

Income from Real Estate Fund

102,898 

-   

-   

-   

-   

102,898 

Interest and other investment

(loss) income, net

(24,876)

5,357 

129 

11 

-   

(30,373)

Interest and debt expense

(481,304)

(181,966)

(102,277)

(55,219)

-   

(141,842)

Net gain on disposition of wholly

owned and partially owned assets

3,407 

-   

-   

1,377 

-   

2,030 

Income (loss) before income taxes

111,600 

399,327 

84,359 

121,051 

(362,377)

(130,760)

Income tax benefit (expense)

6,406 

(2,794)

14,031 

(2,311)

-   

(2,520)

Income (loss) from continuing

operations

118,006 

396,533 

98,390 

118,740 

(362,377)

(133,280)

Income (loss) from discontinued

operations

446,734 

160,314 

-   

287,067 

-   

(647)

Net income (loss)

564,740 

556,847 

98,390 

405,807 

(362,377)

(133,927)

Less net income attributable to

noncontrolling interests

(88,769)

(10,786)

-   

(3,065)

-   

(74,918)

Net income (loss) attributable to

Vornado

475,971 

546,061 

98,390 

402,742 

(362,377)

(208,845)

Interest and debt expense(2)

758,781 

236,645 

116,131 

63,803 

181,586 

160,616 

Depreciation and amortization(2)

732,757 

293,974 

142,409 

72,161 

135,178 

89,035 

Income tax expense (benefit)(2)

26,371 

3,002 

(15,707)

2,311 

33,532 

3,233 

EBITDA(1)

$

1,993,880 

$

1,079,682 

(3)

$

341,223 

(4)

$

541,017 

(5)

$

(12,081)

$

44,039 

(6)

 

 

 

 

(Amounts in thousands)

For the Year Ended December 31, 2012

 

Retail

 

Total

New York

Washington, DC

Properties

Toys

Other

 

Total revenues

$

2,649,217 

$

1,319,470 

$

554,028 

$

318,566 

$

-   

$

457,153 

 

Total expenses

1,921,425 

835,563 

360,056 

189,480 

-   

536,326 

 

Operating income (loss)

727,792 

483,907 

193,972 

129,086 

-   

(79,173)

 

Income (loss) from partially owned

 

entities, including Toys

423,126 

207,773 

(5,612)

1,458 

14,859 

204,648 

 

Income from Real Estate Fund

63,936 

-   

-   

-   

-   

63,936 

 

Interest and other investment

 

(loss) income, net

(261,179)

4,002 

126 

21 

-   

(265,328)

 

Interest and debt expense

(484,794)

(146,350)

(115,574)

(53,772)

-   

(169,098)

 

Net gain on disposition of wholly

 

owned and partially owned assets

13,347 

-   

-   

8,491 

-   

4,856 

 

Income (loss) before income taxes

482,228 

549,332 

72,912 

85,284 

14,859 

(240,159)

 

Income tax expense

(8,132)

(3,491)

(1,650)

-   

-   

(2,991)

 

Income (loss) from continuing

 

operations

474,096 

545,841 

71,262 

85,284 

14,859 

(243,150)

 

Income (loss) from discontinued

 

operations

220,445 

30,293 

167,766 

(52,561)

-   

74,947 

 

Net income (loss)

694,541 

576,134 

239,028 

32,723 

14,859 

(168,203)

 

Less net (income) loss attributable to

 

noncontrolling interests

(77,281)

(2,138)

-   

1,812 

-   

(76,955)

 

Net income (loss) attributable to

 

Vornado

617,260 

573,996 

239,028 

34,535 

14,859 

(245,158)

 

Interest and debt expense(2)

760,523 

187,855 

133,625 

79,462 

147,880 

211,701 

 

Depreciation and amortization(2)

735,293 

252,257 

157,816 

86,529 

135,179 

103,512 

 

Income tax expense (benefit)(2)

7,026 

3,751 

1,943 

-   

(16,629)

17,961 

 

EBITDA(1)

$

2,120,102 

$

1,017,859 

(3)

$

532,412 

(4)

$

200,526 

(5)

$

281,289 

$

88,016 

(6)

 

                                                                               

____________________________

See notes on pages 53 and 54.

 

52

 


 
 

 

Net Income and EBITDA by Segment for the Years Ended December 31, 2014, 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 expense (benefit) in the reconciliation of net income (loss) to EBITDA includes our share of these items from partially owned entities.

(3)

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

For the Year Ended December 31,

(Amounts in thousands)

2014 

2013 

2012 

Office(a)

$

1,085,262 

$

759,941 

$

568,518 

Retail(b)

281,428 

246,808 

189,484 

Alexander's (c)

41,746 

42,210 

231,402 

Hotel Pennsylvania

30,753 

30,723 

28,455 

Total New York

$

1,439,189 

$

1,079,682 

$

1,017,859 

(a)

2014, 2013 and 2012 includes EBITDA from discontinued operations, net gains on sale of real estate and other items that affect comparability, aggregating $462,239, $163,528 and $37,129, respectively. Excluding these items, EBITDA was $623,023, $596,413 and $531,389, respectively.

(b)

2014, 2013 and 2012 includes EBITDA from discontinued operations, net gains on sale of real estate and other items that affect comparability, aggregating $1,751, $934 and $510, respectively. Excluding these items, EBITDA was $279,677, $245,874 and $188,974, respectively.

(c)

2014, 2013 and 2012 includes EBITDA from discontinued operations, net gains on sale of real estate and other items that affect comparability, aggregating $171, $730 and $191,040, respectively. Excluding these items, EBITDA was $41,575, $41,480 and $40,362, respectively.

(4)

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

For the Year Ended December 31,

(Amounts in thousands)

2014 

2013 

2012 

Office, excluding the Skyline Properties (a)

$

266,859 

$

268,373 

$

449,448 

Skyline properties

27,150 

29,499 

40,037 

Total Office

294,009 

297,872 

489,485 

Residential

41,581 

43,351 

42,927 

Total Washington, DC

$

335,590 

$

341,223 

$

532,412 

(a)

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

(5)

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

For the Year Ended December 31,

(Amounts in thousands)

2014 

2013 

2012 

Strip shopping centers(a)

$

219,122 

$

285,612 

$

172,708 

Regional malls(b)

41,139 

255,405 

27,818 

Total Retail properties

$

260,261 

$

541,017 

$

200,526 

(a)

2014, 2013 and 2012 includes EBITDA from discontinued operations, net gains on sale of real estate and other items that affect comparability, aggregating $72,010, $143,504 and $32,697, respectively. Excluding these items, EBITDA was $147,112, $142,108 and $140,011, respectively.

(b)

2014, 2013 and 2012 includes EBITDA from discontinued operations, net gains on sale of real estate and other items that affect comparability, aggregating net losses of $16,608, net gains of $199,285 and net losses of $27,826, respectively. Excluding these items, EBITDA was $57,747, $56,120 and $55,644, respectively.

 

53

 


 

 

Net Income and EBITDA by Segment for the Years Ended December 31, 2014, 2013 and 2012 - continued

Notes to preceding tabular information:

(6)

The elements of "other" EBITDA are summarized below.

(Amounts in thousands)

For the Year Ended December 31,

2014 

2013 

2012 

Our share of Real Estate Fund:

Income before net realized/unrealized gains

$

8,056 

$

7,752 

$

6,385 

Net realized/unrealized gains on investments

37,535 

23,489 

13,840 

Carried interest

24,715 

18,230 

4,379 

Total

70,306 

49,471 

24,604 

The Mart and trade shows

79,636 

74,270 

62,470 

555 California Street

48,844 

42,667 

46,167 

India real estate ventures

6,434 

5,841 

3,654 

LNR (a)

-   

20,443 

75,202 

Lexington (b)

-   

6,931 

32,595 

Other investments

17,270 

18,981 

25,612 

222,490 

218,604 

270,304 

Corporate general and administrative expenses(c)

(94,929)

(94,904)

(89,082)

Investment income and other, net(c)

31,665 

46,525 

45,563 

Acquisition and transaction related costs, and impairment losses(d)

(31,348)

(24,857)

(17,386)

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

condominiums

13,568 

56,868 

4,856 

Our share of net gains on extinguishment of debt and net gains on sale of

real estate of partially owned entities

13,000 

-   

-   

Suffolk Downs impairment loss and loan reserve

(10,263)

-   

-   

Our share of impairment losses of partially owned entities

(5,771)

-   

(4,936)

Losses from the disposition of investment in J.C. Penney

-   

(127,888)

(300,752)

Severance costs (primarily reduction in force at the Mart)

-   

(5,492)

(3,005)

Purchase price fair value adjustment and accelerated amortization of

discount on investment in subordinated debt of Independence Plaza

-   

-   

105,366 

The Mart discontinued operations

-   

-   

93,588 

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

-   

-   

28,763 

Net income attributable to noncontrolling interests in the Operating Partnership

(47,563)

(23,659)

(35,327)

Preferred unit distributions of the Operating Partnership

(50)

(1,158)

(9,936)

$

90,799 

$

44,039 

$

88,016 

(a)

On April 19, 2013, LNR was sold.

(b)

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

(c)

The amounts in these captions (for this table only) exclude income/expense from the mark-to-market of our deferred compensation plan of $11,557, $10,636 and $6,809 for the years ended December 31, 2014, 2013 and 2012, respectively.

(d)

The year ended December 31, 2014, includes $14,956 of transaction costs related to the spin-off of our strip shopping centers and malls to UE on January 15, 2015.

 

54

 


 

 

Net Income and EBITDA by Segment for the Years Ended December 31, 2014, 2013 and 2012 - continued

      

EBITDA by Region

 

Below is a summary of the percentages of EBITDA by geographic region (excluding discontinued operations, other gains and losses that affect comparability and our Toys and Other Segments).

 

For the Year Ended December 31,

2014 

2013 

2012 

Region:

New York City metropolitan area

75%

73%

70%

Washington, DC / Northern Virginia area

23%

24%

27%

Puerto Rico

1%

2%

2%

Other geographies

1%

1%

1%

100%

100%

100%

55

 


 

 

Results of Operations – Year Ended December 31, 2014 Compared to December 31, 2013

 

Revenues

Our revenues, which consist of property rentals (including hotel and trade show revenues), tenant expense reimbursements, and fee and other income, were $2,635,940,000 in the year ended December 31, 2014, compared to $2,669,269,000 in the prior year, a decrease of $33,329,000.  This decrease was primarily attributable to income in the prior year of $59,599,000 pursuant to a settlement agreement with Stop & Shop, $36,369,000 related to the Cleveland Medical Mart development project and $23,992,000 from the deconsolidation of Independence Plaza.  Excluding these items, revenues increased by $86,631,000.  Below are the details of the (decrease) increase by segment:

 

(Amounts in thousands)

Retail

(Decrease) increase due to:

Total

New York

Washington, DC

Properties

Other

Property rentals:

Acquisitions and other

$

16,910 

$

20,244 

$

(1,867)

$

(188)

$

(1,279)

Deconsolidation of Independence Plaza (1)

(23,992)

(23,992)

-   

-   

-   

Properties placed into / taken out of

service for redevelopment

(9,143)

229 

(2,274)

1,251 

(8,349)

Same store operations

45,907 

30,213 

(2,399)

3,877 

14,216 

29,682 

26,694 

(6,540)

4,940 

4,588 

Tenant expense reimbursements:

Acquisitions and other

934 

353 

809 

(34)

(194)

Properties placed into / taken out of

service for redevelopment

(2,338)

(1,650)

94 

(101)

(681)

Same store operations

29,635 

17,782 

(879)

9,356 

3,376 

28,231 

16,485 

24 

9,221 

2,501 

Cleveland Medical Mart development project

(36,369)

(2)

-   

-   

-   

(36,369)

(2)

Fee and other income:

BMS cleaning fees

19,152 

19,358 

-   

-   

(206)

(3)

Signage revenue

5,063 

5,063 

-   

-   

-   

Management and leasing fees

(3,254)

(862)

(2,769)

(87)

464 

Lease termination fees

(75,454)

(17,093)

(4)

4,138 

(59,187)

(5)

(3,312)

Other income

(380)

293 

1,137 

(375)

(1,435)

(54,873)

6,759 

2,506 

(59,649)

(4,489)

Total (decrease) increase in revenues

$

(33,329)

$

49,938 

$

(4,010)

$

(45,488)

$

(33,769)

(1)

On June 7, 2013, we sold an 8.65% economic interest in our investment of Independence Plaza, which reduced our economic interest to 50.1%. As a result, we determined that we were no longer the primary beneficiary of the VIE and accordingly, we deconsolidated the operations of the property on June 7, 2013 and began accounting for our investment under the equity method.

(2)

Due to the completion of the project. This decrease in revenue is substantially offset by a decrease in development costs expensed in the period. See note (4) on page 57.

(3)

Represents the change in the elimination of intercompany fees from operating segments upon consolidation. See note (3) on page 57.

(4)

Primarily due to a $19,500 termination fee from a tenant at 1290 Avenue of the Americas recognized during the third quarter of 2013.

(5)

Results primarily from $59,599 of income recognized in the first quarter of 2013 pursuant to a settlement with Stop & Shop.

 

56

 


 
 

 

Results of Operations – Year Ended December 31, 2014 Compared to December 31, 2013 - continued

 

Expenses

Our expenses, which consist primarily of operating (including hotel and trade show expenses), depreciation and amortization and general and administrative expenses, were $1,820,298,000 in the year ended December 31, 2014, compared to $1,819,009,000 in the prior year, an increase of $1,289,000.  Excluding expenses of $32,210,000 related to the Cleveland Medical Mart development project in 2013 and $25,899,000 from the deconsolidation of Independence Plaza, expenses increased by $59,398,000.  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

$

(728)

$

(197)

$

1,008 

$

(71)

$

(1,468)

Deconsolidation of Independence Plaza(1)

(9,592)

(9,592)

-   

-   

-   

Properties placed into / taken out of

service for redevelopment

(10,158)

(4,374)

(1,113)

1,966 

(6,637)

Non-reimbursable expenses, including

bad-debt reserves

87 

1,301 

-   

(12)

(1,202)

BMS expenses

11,813 

12,019 

-   

-   

(206)

(3)

Same store operations

42,380 

27,651 

4,927 

7,984 

1,818 

33,802 

26,808 

4,822 

9,867 

(7,695)

Depreciation and amortization:

Acquisitions and other

9,734 

9,856 

-   

(111)

(11)

Deconsolidation of Independence Plaza(1)

(16,307)

(16,307)

-   

-   

-   

Properties placed into / taken out of

service for redevelopment

27,676 

23,488 

(649)

8,004 

(3,167)

Same store operations

(597)

(7,150)

5,881 

1,102 

(430)

20,506 

9,887 

5,232 

8,995 

(3,608)

General and administrative:

Mark-to-market of deferred compensation

plan liability (2)

921 

-   

-   

-   

921 

Non-same store

(5,403)

-   

-   

-   

(5,403)

Same store operations

(5,861)

(727)

279 

(2,306)

(3,107)

(10,343)

(727)

279 

(2,306)

(7,589)

Cleveland Medical Mart development project

(32,210)

(4)

-   

-   

-   

(32,210)

(4)

Impairment losses, acquisition related costs

and tenant buy-outs

(10,466)

-   

-   

(19,000)

8,534 

Total increase (decrease) in expenses

$

1,289 

$

35,968 

$

10,333 

$

(2,444)

$

(42,568)

(1)

On June 7, 2013, we sold an 8.65% economic interest in our investment of Independence Plaza, which reduced our economic interest to 50.1%. As a result, we determined that we were no longer the primary beneficiary of the VIE and accordingly, we deconsolidated the operations of the Property on June 7, 2013 and began accounting for our investment under the equity method.

(2)

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.

(3)

Represents the change in the elimination of intercompany fees from operating segments upon consolidation. See note (3) on page 56.

(4)

Due to the completion of the project. This decrease in expense is offset by the decrease in development revenue in the period. See note (2) on page 56.

 

57

 


 
 

 

Results of Operations – Year Ended December 31, 2014 Compared to December 31, 2013 - continued

 

(Loss) Applicable to Toys

 

We account for Toys on the equity method, which means our investment is increased or decreased for our pro rata share of Toys undistributed net income or loss.  We have not guaranteed any of Toys’ obligations and are not committed to provide any support to Toys.  Pursuant to ASC 323-10-35-20, we discontinued applying the equity method for our Toys’ investment when the carrying amount was reduced to zero in the third quarter of 2014.  We will resume application of the equity method if during the period the equity method was suspended our share of unrecognized net income exceeds our share of unrecognized net losses.

 

In the year ended December 31, 2014, we recognized a net loss of $73,556,000 from our investment in Toys, comprised of (i) $4,691,000 for our share of Toys’ net loss and a (ii) $75,196,000 non-cash impairment loss, partially offset by (iii) $6,331,000 of management fee income.  In the year ended December 31, 2013, we recognized a net loss of $362,377,000 from our investment in Toys, comprised of (i) $128,919,000 for our share of Toys’ net loss and (ii) $240,757,000 non-cash impairment losses, partially offset by (iii) $7,299,000 of management fee income.

 

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

 

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

 

In the first quarter of 2014, we recognized our share of Toys’ fourth quarter net income of $75,196,000 and a corresponding non-cash impairment loss of the same amount to continue to carry our investment at fair value.

 

 

Income from Partially Owned Entities

 

Summarized below are the components of income (loss) from partially owned entities for the years ended December 31, 2014 and 2013.

Percentage

For the Year Ended

Ownership at

December 31,

(Amounts in thousands)

December 31, 2014

2014 

2013 

Equity in Net Income (Loss):

Alexander's

32.4%

$

30,009 

$

24,402 

India real estate ventures (1)

4.1%-36.5%

(8,309)

(3,533)

Partially owned office buildings (2)

Various

93 

(4,212)

Other investments (3)

Various

(6,368)

(10,817)

LNR (4)

n/a

-   

18,731 

Lexington (5)

n/a

-   

(979)

$

15,425 

$

23,592 

(1)

Includes a $5,771 non-cash impairment loss in 2014.

(2)

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

(3)

Includes interests in Independence Plaza, Monmouth Mall, 85 Tenth Avenue, Fashion Center Mall, 50-70 West 93rd Street and others. In the third quarter of 2014, we recognized a $10,263 non-cash impairment loss and loan loss reserve on our equity and debt investments in Suffolk Downs race track and adjacent land.

(4)

On April 19, 2013, LNR was sold.

(5)

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

 

58

 


 
 

 

Results of Operations – Year Ended December 31, 2014 Compared to December 31, 2013 - continued

 

 

Income from Real Estate Fund

 

Below are the components of the income from our Real Estate Fund for the years ended December 31, 2014 and 2013.

 

(Amounts in thousands)

For the Year Ended December 31,

2014 

2013 

Net investment income

$

12,895 

$

8,943 

Net realized gains

76,337 

8,184 

Net unrealized gains

73,802 

85,771 

Income from Real Estate Fund

163,034 

102,898 

Less income attributable to noncontrolling interests

(92,728)

(53,427)

Income from Real Estate Fund attributable to Vornado (1)

$

70,306 

$

49,471 

___________________________________

(1)

Excludes management and leasing fees of $2,865 and $2,992 in the years ended December 31, 2014 and 2013, 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 $38,787,000 in the year ended December 31, 2014, compared to a loss of $24,876,000 in the prior year, an increase in income of $63,663,000.  This increase resulted from:

 

(Amounts in thousands)

Losses from the disposition of investment in J.C. Penney in 2013

$

72,974 

Lower average mezzanine loans receivable balances in 2014

(15,575)

Higher dividends on marketable securities

1,261 

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)

921 

Other, net

4,082 

$

63,663 

                 

 

Interest and Debt Expense

Interest and debt expense was $467,715,000 in the year ended December 31, 2014, compared to $481,304,000 in the prior year, a decrease of $13,589,000. This decrease was primarily due to (i) $20,483,000 of higher capitalized interest and debt expense and (ii) $18,568,000 of interest savings from the restructuring of the Skyline properties mortgage loan in the fourth quarter of 2013, partially offset by (iii) $13,287,000 of interest expense from the $600,000,000 financing of our 220 Central Park South development site in January 2014, (iv) $6,265,000 of interest expense from the issuance of the $450,000,000 unsecured notes in June 2014, and (v) $5,589,000 of defeasance cost in connection with the refinancing of 909 Third Avenue.

 

Net Gain on Disposition of Wholly Owned and Partially Owned Assets

Net gain on disposition of wholly owned and partially owned assets was $13,568,000 in the year ended December 31, 2014, primarily from the sale of residential condominiums and a land parcel, compared to $3,407,000 in the year ended December 31, 2013, primarily of net gains from the sale of marketable securities, land parcels (including Harlem Park), and residential condominiums aggregating $58,245,000, partially offset by a $54,914,000 net loss on sale of J.C. Penney common shares.

 

Income Tax (Expense) Benefit

In the year ended December 31, 2014, we had an income tax expense of $11,002,000, compared to a benefit of $6,406,000 in the prior year, an increase in expense of $17,408,000.  This increase resulted primarily from a reversal of previously accrued deferred tax liabilities in the prior year due to a change in the effective tax rate resulting from an amendment of the Washington, DC Unincorporated Business Tax Statute.

 

59

 


 

 

Results of Operations – Year Ended December 31, 2014 Compared to December 31, 2013 - continued

 

Income from Discontinued Operations

We have reclassified the revenues and expenses of the properties that were sold or 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 years ended December 31, 2014 and 2013.

 

(Amounts in thousands)

For the Year Ended December 31,

2014 

2013 

Total revenues

$

70,593 

$

129,860 

Total expenses

36,424 

79,458 

34,169 

50,402 

Net gains on sales of real estate

507,192 

414,502 

Impairment losses

(26,518)

(18,170)

Income from discontinued operations

$

514,843 

$

446,734 

                       

 

Net Income Attributable to Noncontrolling Interests in Consolidated Subsidiaries

 

Net income attributable to noncontrolling interests in consolidated subsidiaries was $96,561,000 in the year ended December 31, 2014, compared to $63,952,000 in the prior year, an increase of $32,609,000.  This increase resulted primarily from higher net income allocated to the noncontrolling interests, including 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 $47,563,000 in the year ended December 31, 2014, compared to $23,659,000 in the prior year, an increase of $23,904,000.  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 $50,000 in the year ended December 31, 2014, compared to $1,158,000 in the prior year, a decrease of $1,108,000.  This decrease resulted from the redemption of the 6.875% Series D-15 cumulative redeemable preferred units in May 2013.

 

Preferred Share Dividends

 

Preferred share dividends were $81,464,000 in the year ended December 31, 2014, compared to $82,807,000 in the prior year, a decrease of $1,343,000.  This decrease resulted primarily from the redemption of $262,500,000 of 6.75% Series F and Series H cumulative redeemable preferred shares in February 2013.

 

 

Preferred Unit and Share Redemptions

 

In the year ended December 31, 2014, we recognized $0 of expense in connection with preferred unit and share redemptions.  In the year ended December 31, 2013, we recognized $1,130,000 of expense in connection with preferred unit and share redemptions, comprised of $9,230,000 of expense from the redemption of the 6.75% Series F and Series H cumulative redeemable preferred shares in February 2013, partially offset by an $8,100,000 discount from the redemption of all of the 6.875% Series D-15 cumulative redeemable preferred units in May 2013.

 

60

 


 

 

Results of Operations – Year Ended December 31, 2014 Compared to December 31, 2013 - 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 also present same store EBITDA on a cash basis (which excludes income from the straight-lining of rents, amortization of below-market leases, net of above-market leases and other non-cash adjustments).  We present these non-GAAP measures to (i) facilitate meaningful comparisons of the operational performance of our properties and segments, (ii) make decisions on whether to buy, sell or refinance properties, and (iii) compare the performance of our properties and segments to those of our peers.  Same store EBITDA should not be considered as an alternative to net income or cash flow from operations and may not be comparable to similarly titled measures employed by other companies. 

 

Below is the reconciliation of EBITDA to same store EBITDA for each of our segments for the year ended December 31, 2014, compared to the year ended December 31, 2013.

 

(Amounts in thousands)

New York

Washington, DC

Retail Properties

EBITDA for the year ended December 31, 2014

$

1,439,189 

$

335,590 

$

260,261 

Add-back:

Non-property level overhead expenses included above

28,479 

27,339 

16,686 

Less EBITDA from:

Acquisitions

(33,917)

-   

-   

Dispositions, including net gains on sale

(463,991)

(1,858)

(54,499)

Properties taken out-of-service for redevelopment

(26,056)

(1,432)

(2,660)

Other non-operating income

(9,013)

(5,446)

(18,217)

Same store EBITDA for the year ended December 31, 2014

$

934,691 

$

354,193 

$

201,571 

EBITDA for the year ended December 31, 2013

$

1,079,682 

$

341,223 

$

541,017 

Add-back:

Non-property level overhead expenses included above

29,206 

27,060 

18,992 

Less EBITDA from:

Acquisitions

(4,764)

-   

-   

Dispositions, including net gains on sale

(160,232)

(150)

(302,264)

Properties taken out-of-service for redevelopment

(20,013)

(4,056)

(2,758)

Other non-operating income

(31,522)

(1,129)

(56,698)

Same store EBITDA for the year ended December 31, 2013

$

892,357 

$

362,948 

$

198,289 

Increase (decrease) in same store EBITDA -

Year ended December 31, 2014 vs. December 31, 2013(1)

$

42,334 

$

(8,755)

$

3,282 

% increase (decrease) in same store EBITDA

4.7% 

(2.4%)

1.7% 

(1)

See notes on following page

 

61

 


 

 

Results of Operations – Year Ended December 31, 2014 Compared to December 31, 2013 - continued

 

 

Notes to preceding tabular information:

 

 

New York:

 

The $42,334,000 increase in New York same store EBITDA resulted primarily from higher (i) rental revenue of $30,213,000 (primarily due to an increase in average rent per square foot) and (ii) cleaning fees, signage revenue, and other income of $26,882,000, partially offset by (iii) higher office operating expenses, net of reimbursements, of $14,761,000.

 

 

Washington, DC:

 

The $8,755,000 decrease in Washington, DC same store EBITDA resulted primarily from (i) lower rental revenue of $2,399,000, (ii) lower management and leasing fee income of $2,769,000 and (iii) higher operating expenses of $4,927,000, partially offset by an increase in other income of $1,538,000.

 

 

Retail Properties:

 

The $3,282,000 increase in Retail Properties same store EBITDA resulted primarily from an increase in rental revenue of $3,877,000, primarily due to an increase in average same store occupancy, partially offset by higher operating expenses, net of reimbursements. 

 

 

 

Reconciliation of Same Store EBITDA to Cash basis Same Store EBITDA

 

(Amounts in thousands)

New York

Washington, DC

Retail Properties

Same store EBITDA for the year ended December 31, 2014

$

934,691 

$

354,193 

$

201,571 

Less: Adjustments for straight line rents, amortization of acquired

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

(103,496)

(9,726)

(6,174)

Cash basis same store EBITDA for the year ended December 31, 2014

$

831,195 

$

344,467 

$

195,397 

Same store EBITDA for the year ended December 31, 2013

$

892,357 

$

362,948 

$

198,289 

Less: Adjustments for straight line rents, amortization of acquired

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

(119,625)

(10,198)

(7,346)

Cash basis same store EBITDA for the year ended December 31, 2013

$

772,732 

$

352,750 

$

190,943 

Increase (decrease) in Cash basis same store EBITDA -

Year ended December 31, 2014 vs. December 31, 2013

$

58,463 

$

(8,283)

$

4,454 

% increase (decrease) in Cash basis same store EBITDA

7.6% 

(2.3%)

2.3% 

62

 


 

 

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

 

Revenues

Our revenues, which consist primarily of property rentals (including hotel and trade show revenues), tenant expense reimbursements, and fee and other income, were $2,669,269,000 in the year ended December 31, 2013, compared to $2,649,217,000 in the year ended December 31, 2012, an increase of $20,052,000. 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

$

64,524 

$

75,004 

$

462 

$

(10,369)

$

(573)

Properties placed into / taken out of

service for redevelopment

(2,782)

(1,138)

(2,333)

735 

(46)

Same store operations

28,589 

32,602 

(15,267)

2,850 

8,404 

90,331 

106,468 

(17,138)

(6,784)

7,785 

Tenant expense reimbursements:

Acquisitions and other

1,287 

2,715 

(604)

(1,728)

904 

Properties placed into / taken out of

service for redevelopment

67 

(402)

193 

374 

(98)

Same store operations

20,738 

8,385 

2,443 

3,939 

5,971 

22,092 

10,698 

2,032 

2,585 

6,777 

Cleveland Medical Mart development project

(198,865)

(1)

-   

-   

-   

(198,865)

(1)

Fee and other income:

BMS cleaning fees

(1,079)

(9,208)

-   

-   

8,129 

(2)

Signage revenue

11,974 

11,974 

-   

-   

-   

Management and leasing fees

2,788 

4,177 

1,691 

(1,567)

(1,513)

Lease termination fees

90,136 

25,333 

(3)

983 

59,793 

(4)

4,027 

(5)

Other income

2,675 

1,995 

(435)

(158)

1,273 

106,494 

34,271 

2,239 

58,068 

11,916 

Total increase (decrease) in revenues

$

20,052 

$

151,437 

$

(12,867)

$

53,869 

$

(172,387)

(1)

Due to the completion of the project. This decrease in revenue is substantially offset by a decrease in development costs expensed in the period. See note (3) on page 64.

(2)

Represents the change in the elimination of intercompany fees from operating segments upon consolidation. See note (2) on page 64.

(3)

Primarily due to a $19,500 termination fee from a tenant at 1290 Avenue of the Americas recognized during the third quarter of 2013.

(4)

Results primarily from $59,599 of income recognized in the first quarter of 2013 pursuant to a settlement with Stop & Shop.

(5)

Primarily due to $3,000 in 2013 from the termination of our subsidiaries' agreements with Cuyahoga County to operate the Cleveland Medical Mart Convention Center.

 

63

 


 
 

 

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

 

Expenses

Our expenses, which consist primarily of operating (including hotel and trade show expenses), depreciation and amortization and general and administrative expenses, were $1,819,009,000 in the year ended December 31, 2013, compared to $1,921,425,000 in the year ended December 31, 2012, a decrease of $102,416,000. Below are the details of the (decrease) increase by segment:

 

(Amounts in thousands)

Retail

(Decrease) increase due to:

Total

New York

Washington, DC

Properties

Other

Operating:

Acquisitions and other

$

23,791 

$

26,583 

$

-   

$

(1,209)

$

(1,583)

Properties placed into / taken out of

service for redevelopment

(5,445)

(1,933)

(992)

(1,382)

(1,138)

Non-reimbursable expenses, including

bad-debt reserves

928 

(3,366)

-   

1,470 

2,824 

BMS expenses

(4,151)

(7,889)

-   

-   

3,738 

(2)

Same store operations

26,945 

20,812 

2,045 

4,747 

(659)

42,068 

34,207 

1,053 

3,626 

3,182 

Depreciation and amortization:

Acquisitions and other

39,154 

41,047 

-   

(1,519)

(374)

Properties placed into / taken out of

service for redevelopment

(16,216)

(552)

(16,177)

513 

-   

Same store operations

2,758 

(2,955)

2,369 

1,612 

1,732 

25,696 

37,540 

(13,808)

606 

1,358 

General and administrative:

Mark-to-market of deferred compensation

plan liability (1)

3,827 

-   

-   

-   

3,827 

Non-same store

9,244 

-   

-   

-   

9,244 

Same store operations

(6,913)

3,188 

385 

(4,662)

(5,824)

6,158 

3,188 

385 

(4,662)

7,247 

Cleveland Medical Mart development project

(194,409)

(3)

-   

-   

-   

(194,409)

(3)

Impairment losses, acquisition related costs

and tenant buy-outs

18,071 

-   

-   

10,600 

7,471 

Total (decrease) increase in expenses

$

(102,416)

$

74,935 

$

(12,370)

$

10,170 

$

(175,151)

(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 change in the elimination of intercompany fees from operating segments upon consolidation. See note (2) on page 63.

(3)

Due to the completion of the project. This decrease in expense is offset by the decrease in development revenue in the period. See note (1) on page 63.

 

64

 


 
 

 

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

 

(Loss) Income Applicable to Toys

 

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

 

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

 

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

 

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

 

 

Income from Partially Owned Entities

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

 

Percentage

For the Year Ended

Ownership at

December 31,

(Amounts in thousands)

December 31, 2013

2013 

2012 

Equity in Net Income (Loss):

Alexander's (1)

32.4%

$

24,402 

$

218,391 

India real estate ventures

4.1%-36.5%

(3,533)

(5,008)

Partially owned office buildings (2)

Various

(4,212)

(3,770)

Other investments(3) (4)

Various

(10,817)

103,644 

LNR (5)

n/a

18,731 

66,270 

Lexington (6)

n/a

(979)

28,740 

$

23,592 

$

408,267 

(1)

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

(2)

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

(3)

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

(4)

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

(5)

On April 19, 2013, LNR was sold.

(6)

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

 

65

 


 

 

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

 

 

Income from Real Estate Fund

 

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

 

(Amounts in thousands)

For the Year Ended December 31,

2013 

2012 

Net investment income

$

8,943 

$

8,575 

Net realized gains

8,184 

Net unrealized gains

85,771 

55,361 

Income from Real Estate Fund

102,898 

63,936 

Less income attributable to noncontrolling interests

(53,427)

(39,332)

Income from Real Estate Fund attributable to Vornado (1)

$

49,471 

$

24,604 

___________________________________

(1)

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

                   

 

 

Interest and Other Investment Loss, net

 

Interest and other investment loss, net was a loss of $24,876,000 in the year ended December 31, 2013, compared to a loss of  $261,179,000 in the year ended December 31, 2012, a decrease in loss of $236,303,000. This decrease resulted from:

 

(Amounts in thousands)

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

$224,937 in 2012)

$

185,450 

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

mark-to-market loss in 2012)

42,328 

Higher interest on mezzanine loans receivable

5,634 

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

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

3,827 

Lower dividends and interest on marketable securities

(533)

Other, net

(403)

$

236,303 

 

Interest and Debt Expense

Interest and debt expense was $481,304,000 in the year ended December 31, 2013, compared to $484,794,000 in the year ended December 31, 2012, a decrease of $3,490,000.  This decrease was primarily due to (i) $25,502,000 of higher capitalized interest and (ii) $4,738,000 of interest savings from the restructuring of the Skyline properties mortgage loan in the fourth quarter of 2013, partially offset by (iii) interest expense of $12,319,000 from the financing of the retail condominium at 666 Fifth Avenue in the first quarter of 2013, (iv) an $8,436,000 prepayment penalty in connection with the refinancing of Eleven Penn Plaza, and (v) interest expense of $6,855,000 from the financing of 1290 Avenue of the Americas in the fourth quarter of 2012.

 

 

Net Gain on Disposition of Wholly Owned and Partially Owned Assets

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

 

66

 


 

 

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

 

 

Income Tax Benefit (Expense)

Income tax benefit (expense) was a benefit of $6,406,000 in the year ended December 31, 2013, compared to an expense of $8,132,000 in the year ended December 31, 2012 a decrease in expense of $14,538,000. This decrease resulted primarily from a reversal of previously accrued deferred tax liabilities in the current year due to a change in the effective tax rate resulting from an amendment of the Washington, DC Unincorporated Business Tax Statute.

 

 

Income from Discontinued Operations

The table below sets forth the combined results of operations of assets related to discontinued operations for the years ended December 31, 2013 and 2012.

 

For the Year Ended December 31,

(Amounts in thousands)

2013 

2012 

Total revenues

$

129,860 

$

264,878 

Total expenses

79,458 

190,450 

50,402 

74,428 

Net gains on sales of real estate

414,502 

245,799 

Impairment losses

(18,170)

(119,439)

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

-   

19,657 

Income from discontinued operations

$

446,734 

$

220,445 

 

Net Income Attributable to Noncontrolling Interests in Consolidated Subsidiaries

 

Net income attributable to noncontrolling interests in consolidated subsidiaries was $63,952,000 in the year ended December 31, 2013, compared to $32,018,000 in the year ended December 31, 2012, an increase of $31,934,000.  This increase resulted primarily from (i) $14,095,000 of higher net income allocated to the noncontrolling interests of our Real Estate Fund, (ii) $13,222,000 of lower income in the prior year resulting from a priority return on our investment in 1290 Avenue of the Americas and 555 California Street, and (iii) $2,909,000 of income allocated to the noncontrolling interest for its share of the net gain on sale of a retail property in Tampa, Florida.

 

 

Net Income Attributable to Noncontrolling Interests in the Operating Partnership

 

Net income attributable to noncontrolling interests in the Operating Partnership was $23,659,000 in the year ended December 31, 2013, compared to $35,327,000 in the year ended December 31, 2012, a decrease of $11,668,000.  This decrease resulted primarily from lower net income subject to allocation to unitholders.

 

 

Preferred Unit Distributions of the Operating Partnership

 

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

 

67

 


 

 

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

 

 

Preferred Share Dividends

 

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

 

 

Preferred Unit and Share Redemptions

 

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

 

68

 


 
 

 

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

 

Same Store EBITDA

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

 

(Amounts in thousands)

New York

Washington, DC

Retail Properties

EBITDA for the year ended December 31, 2013

$

1,079,682 

$

341,223 

$

541,017 

Add-back:

Non-property level overhead expenses included above

29,206 

27,630 

18,992 

Less EBITDA from:

Acquisitions

(67,613)

-   

-   

Dispositions, including net gains on sale

(160,232)

(150)

(300,995)

Properties taken out-of-service for redevelopment

(20,050)

(4,457)

(5,089)

Other non-operating income

(27,418)

(1,129)

(41,741)

Same store EBITDA for the year ended December 31, 2013

$

833,575 

$

363,117 

$

212,184 

EBITDA for the year ended December 31, 2012

$

1,017,859 

$

532,412 

$

200,526 

Add-back:

Non-property level overhead expenses included above

26,096 

27,237 

23,654 

Less EBITDA from:

Acquisitions

(4,131)

-   

-   

Dispositions, including net gains on sale

(221,076)

(176,052)

(8,576)

Properties taken out-of-service for redevelopment

(20,056)

(9,319)

(1,394)

Other non-operating income

(6,790)

(838)

(4,519)

Same store EBITDA for the year ended December 31, 2012

$

791,902 

$

373,440 

$

209,691 

Increase (decrease) in same store EBITDA -

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

$

41,673 

$

(10,323)

$

2,493 

% increase (decrease) in same store EBITDA

5.3% 

(2.8%)

1.2% 

(1)

See notes on following page.

 

69

 


 

 

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

 

 

Notes to preceding tabular information:

 

 

New York:

 

The $41,673,000 increase in New York same store EBITDA resulted primarily from increases in Office and Retail of $29,693,000 and $9,229,000, respectively.  The Office increase resulted primarily from higher (i) rental revenue of $13,983,000 (primarily due to a $1.85 increase in average annual rents per square foot) and (ii) signage revenue and management and leasing fees of $16,037,000. The Retail increase resulted primarily from higher rental revenue of $10,414,000, (primarily due to a $9.35 increase in average annual rents per square foot).

 

 

Washington, DC:

 

The $10,323,000 decrease in Washington, DC same store EBITDA resulted primarily from lower rental revenue of $15,267,000, primarily due to a 330 basis point decrease in office average same store occupancy to 82.8% from 86.1%, a significant portion of which resulted from the effects of BRAC related move-outs and the sluggish leasing environment in the Washington, DC / Northern Virginia area (see page 47 for details).

 

 

Retail Properties:

 

The $2,493,000 increase in Retail Properties same store EBITDA resulted primarily from higher rental revenue of $2,847,000, due to a 70 basis point increase in average same store occupancy to 94.2% from 93.5%, and a $0.23 increase in average annual rents per square foot.

 

 

 

Reconciliation of Same Store EBITDA to Cash basis Same Store EBITDA

 

(Amounts in thousands)

New York

Washington, DC

Retail Properties

Same store EBITDA for the year ended December 31, 2013

$

833,575 

$

363,117 

$

212,184 

Less: Adjustments for straight line rents, amortization of acquired

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

(105,981)

(10,181)

(7,902)

Cash basis same store EBITDA for the year ended December 31, 2013

$

727,594 

$

352,936 

$

204,282 

Same store EBITDA for the year ended December 31, 2012

$

791,902 

$

373,440 

$

209,691 

Less: Adjustments for straight line rents, amortization of acquired

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

(115,711)

(6,484)

(9,039)

Cash basis same store EBITDA for the year ended December 31, 2012

$

676,191 

$

366,956 

$

200,652 

Increase (decrease) in Cash basis same store EBITDA -

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

$

51,403 

$

(14,020)

$

3,630 

% increase (decrease) in Cash basis same store EBITDA

7.6% 

(3.8%)

1.8% 

70

 


 

 

Supplemental Information

Net Income and EBITDA by Segment for the Three Months Ended December 31, 2014 and 2013

 

Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the three months ended December 31, 2014 and 2013.

 

 

(Amounts in thousands)

For the Three Months Ended December 31, 2014

Retail

Total

New York

Washington, DC

Properties

Toys

Other

Total revenues

$

679,101 

$

400,159 

$

133,506 

$

83,478 

$

-   

$

61,958 

Total expenses

476,146 

243,739 

92,720 

49,329 

-   

90,358 

Operating income (loss)

202,955 

156,420 

40,786 

34,149 

-   

(28,400)

Income from partially owned

entities, including Toys

19,295 

4,329 

1,248 

480 

606 

12,632 

Income from Real Estate Fund

20,616 

-   

-   

-   

-   

20,616 

Interest and other investment

income, net

9,947 

1,822 

90 

-   

8,026 

Interest and debt expense

(126,102)

(48,457)

(18,703)

(14,453)

-   

(44,489)

Net gain on disposition of wholly

owned and partially owned assets

363 

-   

-   

-   

-   

363 

Income (loss) before income taxes

127,074 

114,114 

23,421 

20,185 

606 

(31,252)

Income tax expense

(2,644)

(1,308)

(196)

(146)

-   

(994)

Income (loss) from continuing

operations

124,430 

112,806 

23,225 

20,039 

606 

(32,246)

Income from discontinued

operations

451,556 

445,762 

-   

5,794 

-   

-   

Net income (loss)

575,986 

558,568 

23,225 

25,833 

606 

(32,246)

Less net income attributable to

noncontrolling interests

(42,383)

(1,423)

-   

(5)

-   

(40,955)

Net income (loss) attributable to

Vornado

533,603 

557,145 

23,225 

25,828 

606 

(73,201)

Interest and debt expense(2)

143,674 

61,809 

21,979 

15,597 

-   

44,289 

Depreciation and amortization(2)

155,921 

83,199 

37,486 

17,046 

-   

18,190 

Income tax expense(2)

2,759 

1,326 

200 

146 

-   

1,087 

EBITDA(1)

$

835,957 

$

703,479 

(3)

$

82,890 

(4)

$

58,617 

(5)

$

606 

$

(9,635)

(6)

_________________________

See notes on pages 73 and 74.

 

71

 


 

 

Supplemental Information – continued

Net Income and EBITDA by Segment for the Three Months Ended December 31, 2014 and 2013 - continued

 

(Amounts in thousands)

For the Three Months Ended December 31, 2013

Retail

Total

New York

Washington, DC

Properties

Toys

Other

Total revenues

$

649,403 

$

370,040 

$

134,509 

$

79,009 

$

-   

$

65,845 

Total expenses

475,446 

222,117 

89,095 

66,448 

-   

97,786 

Operating income (loss)

173,957 

147,923 

45,414 

12,561 

-   

(31,941)

(Loss) income from partially owned

entities, including Toys

(293,165)

1,507 

(423)

585 

(293,066)

(1,768)

Income from Real Estate Fund

28,951 

-   

-   

-   

-   

28,951 

Interest and other investment

income, net

8,196 

1,418 

30 

-   

6,740 

Interest and debt expense

(120,625)

(56,538)

(18,927)

(13,339)

-   

(31,821)

Net gain on disposition of wholly

owned and partially owned assets

23,988 

-   

-   

-   

-   

23,988 

(Loss) income before income taxes

(178,698)

94,310 

26,094 

(185)

(293,066)

(5,851)

Income tax benefit (expense)

12,578 

(1,496)

15,980 

(831)

-   

(1,075)

(Loss) income from continuing

operations

(166,120)

92,814 

42,074 

(1,016)

(293,066)

(6,926)

Income (loss) from discontinued

operations

127,361 

135,528 

-   

(8,349)

-   

182 

Net (loss) income

(38,759)

228,342 

42,074 

(9,365)

(293,066)

(6,744)

Less net (income) loss attributable to

noncontrolling interests

(9,760)

(1,268)

-   

14 

-   

(8,506)

Net (loss) income attributable to

Vornado

(48,519)

227,074 

42,074 

(9,351)

(293,066)

(15,250)

Interest and debt expense(2)

207,424 

73,066 

22,416 

14,503 

62,239 

35,200 

Depreciation and amortization(2)

183,685 

73,694 

36,610 

19,721 

31,446 

22,214 

Income tax expense (benefit)(2)

8,270 

1,558 

(17,841)

831 

22,573 

1,149 

EBITDA(1)

$

350,860 

$

375,392 

(3)

$

83,259 

(4)

$

25,704 

(5)

$

(176,808)

$

43,313 

(6)

_________________________

See notes on pages 73 and 74.

 

72

 


 
 

 

Supplemental Information – continued

Net Income and EBITDA by Segment for the Three Months Ended December 31, 2014 and 2013 - continued

Notes to preceding tabular information:

(1)

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

(2)

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

(3)

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

For the Three Months Ended December 31,

(Amounts in thousands)

2014 

2013 

Office(a)

$

604,982 

$

283,092 

Retail(b)

75,959 

69,414 

Alexander's (c)

10,658 

11,069 

Hotel Pennsylvania

11,880 

11,817 

Total New York

$

703,479 

$

375,392 

(a)

2014 and 2013 includes EBITDA from discontinued operations, net gains on sale of real estate and other items that affect comparability, aggregating $445,464 and $135,064, respectively. Excluding these items, EBITDA was $159,518 and $148,028, respectively.

(b)

2014 and 2013 includes EBITDA from discontinued operations, net gains on sale of real estate and other items that affect comparability, aggregating $464 and $484, respectively. Excluding these items, EBITDA was $75,495 and $68,930, respectively.

(c)

2014 and 2013 includes EBITDA from discontinued operations, net gains on sale of real estate and other items that affect comparability, aggregating $171 and $730, respectively. Excluding these items, EBITDA was $10,487 and $10,339, respectively.

(4)

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

For the Three Months Ended December 31,

(Amounts in thousands)

2014 

2013 

Office, excluding the Skyline Properties

$

66,641 

$

65,910 

Skyline properties

5,880 

6,953 

Total Office

72,521 

72,863 

Residential

10,369 

10,396 

Total Washington, DC

$

82,890 

$

83,259 

(5)

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

For the Three Months Ended December 31,

(Amounts in thousands)

2014 

2013 

Strip shopping centers(a)

$

40,623 

$

21,547 

Regional malls(b)

17,994 

4,157 

Total Retail properties

$

58,617 

$

25,704 

(a)

2014 and 2013 includes EBITDA from discontinued operations, net gains on sale of real estate and other items that affect comparability, aggregating net gains of $4,133 and net losses of $14,563, respectively. Excluding these items, EBITDA was $36,490 and $36,110, respectively.

(b)

2014 and 2013 includes EBITDA from discontinued operations, net gains on sale of real estate and other items that affect comparability, aggregating to net income in 2014 of $2,315 and to a net loss of $10,184 in 2013. Excluding these items, EBITDA was $15,679 and $14,341, respectively.

 

73

 


 
 

 

Supplemental Information – continued

Net Income and EBITDA by Segment for the Three Months Ended December 31, 2014 and 2013 - continued

Notes to preceding tabular information:

(6)

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

For the Three Months

(Amounts in thousands)

Ended December 31,

2014 

2013 

Our share of Real Estate Fund:

Income before net realized/unrealized gains

$

1,380 

$

2,015 

Net realized/unrealized gains on investments

4,646 

6,574 

Carried interest

3,079 

6,256 

Total

9,105 

14,845 

The Mart and trade shows

18,598 

20,038 

555 California Street

13,278 

10,296 

India real estate ventures

1,860 

1,133 

Other investments

3,445 

4,774 

46,286 

51,086 

Corporate general and administrative expenses(a)

(22,977)

(23,850)

Investment income and other, net(a)

8,901 

7,372 

Acquisition and transaction related costs, and impairment losses(b)

(18,376)

(18,088)

Our share of debt satisfaction gains and net gains on sale of real estate

of partially owned entities

13,000 

-   

Our share of impairment losses of partially owned entities

(5,771)

-   

Net gain on sale of land parcels and residential condominiums

363 

23,988 

Severance costs (primarily reduction in force at the Mart)

-   

(1,338)

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

(31,049)

4,155 

Preferred unit distributions of the Operating Partnership

(12)

(12)

$

(9,635)

$

43,313 

(a)

The amounts in these captions (for this table only) exclude income/expense from the mark-to-market of our deferred compensation plan of $3,425 and $4,429 for the three months ended December 31, 2014 and 2013, respectively.

(b)

The three months ended December 31, 2014, includes $5,612 of transaction costs related to the spin-off of our strip shopping centers and malls.

 

74

 


 

 

Supplemental Information – continued

 

Net Income and EBITDA by Segment for the Three Months Ended December 31, 2014 and 2013 - continued

 

EBITDA by Region

 

Below is a summary of the percentages of EBITDA by geographic region (excluding discontinued operations, other gains and losses that affect comparability and our Toys and Other Segments).

 

For the Three Months

Ended December 31,

2014 

2013 

Region:

New York City metropolitan area

76%

74%

Washington, DC / Northern Virginia area

22%

23%

Puerto Rico

1%

2%

Other geographies

1%

1%

100%

100%

75

 


 

 

Supplemental Information – continued

Three Months Ended December 31, 2014 Compared to December 31, 2013

 

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 also present same store EBITDA on a cash basis (which excludes income from the straight-lining of rents, amortization of below-market leases, net of above-market leases and other non-cash adjustments).  We present these non-GAAP measures to (i) facilitate meaningful comparisons of the operational performance of our properties and segments, (ii) make decisions on whether to buy, sell or refinance properties, and (iii) compare the performance of our properties and segments to those of our peers.  Same store EBITDA should not be considered as an alternative to net income or cash flow from operations and may not be comparable to similarly titled measures employed by other companies. 

 

Below is the reconciliation of EBITDA to same store EBITDA for each of our segments for the three months ended December 31, 2014, compared to the three months ended December 31, 2013.

 

(Amounts in thousands)

New York

Washington, DC

Retail Properties

EBITDA for the three months ended December 31, 2014

$

703,479 

$

82,890 

$

58,617 

Add-back:

Non-property level overhead expenses included above

6,055 

6,866 

3,757 

Less EBITDA from:

Acquisitions

(9,711)

-   

-   

Dispositions, including net gains on sale

(445,928)

(1,785)

(5,562)

Properties taken out-of-service for redevelopment

(8,761)

(47)

(574)

Other non-operating (income) expense

(2,467)

(1,336)

(7,869)

Same store EBITDA for the three months ended December 31, 2014

$

242,667 

$

86,588 

$

48,369 

EBITDA for the three months ended December 31, 2013

$

375,392 

$

83,259 

$

25,704 

Add-back:

Non-property level overhead expenses included above

7,318 

6,848 

4,168 

Less EBITDA from:

Acquisitions

(4,525)

-   

-   

Dispositions, including net gains on sale

(135,548)

(33)

5,681 

Properties taken out-of-service for redevelopment

(5,269)

(1,124)

(749)

Other non-operating (income) expense

(2,442)

(316)

12,656 

Same store EBITDA for the three months ended December 31, 2013

$

234,926 

$

88,634 

$

47,460 

Increase (decrease) in GAAP basis same store EBITDA -

Three months ended December 31, 2014 vs. December 31, 2013

$

7,741 

$

(2,046)

$

909 

% increase (decrease) in same store EBITDA

3.3% 

(2.3%)

1.9% 

 

76

 


 

 

Supplemental Information – continued

Three Months Ended December 31, 2014 Compared to December 31, 2013 - continued

 

Reconciliation of Same Store EBITDA to Cash basis Same Store EBITDA

 

(Amounts in thousands)

New York

Washington, DC

Retail Properties

Same store EBITDA for the three months ended December 31, 2014

$

242,667 

$

86,588 

$

48,369 

Less: Adjustments for straight line rents, amortization of acquired

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

(24,299)

(3,142)

(700)

Cash basis same store EBITDA for the three months ended

December 31, 2014

$

218,368 

$

83,446 

$

47,669 

Same store EBITDA for the three months ended December 31, 2013

$

234,926 

$

88,634 

$

47,460 

Less: Adjustments for straight line rents, amortization of acquired

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

(33,195)

(1,909)

(927)

Cash basis same store EBITDA for the three months ended

December 31, 2013

$

201,731 

$

86,725 

$

46,533 

Increase (decrease) in Cash basis same store EBITDA -

Three months ended December 31, 2014 vs. December 31, 2013

$

16,637 

$

(3,279)

$

1,136 

% increase (decrease) in Cash basis same store EBITDA

8.2% 

(3.8%)

2.4% 

77

 


 

 

Supplemental Information – continued

 

Three Months Ended December 31, 2014 Compared to September 30, 2014

 

Below is the reconciliation of Net Income to EBITDA for the three months ended September 30, 2014.

 

(Amounts in thousands)

New York

Washington, DC

Retail Properties

Net income attributable to Vornado for the three months ended

September 30, 2014

$

112,381 

$

24,955 

$

85,198 

Interest and debt expense

58,010 

22,208 

11,205 

Depreciation and amortization

79,446 

36,411 

15,256 

Income tax expense

746 

145 

525 

EBITDA for the three months ended September 30, 2014

$

250,583 

$

83,719 

$

112,184 

 

Below is the reconciliation of EBITDA to same store EBITDA for each of our segments for the three months ended December 31, 2014, compared to the three months ended September 30, 2014.

 

(Amounts in thousands)

New York

Washington, DC

Retail Properties

EBITDA for the three months ended December 31, 2014

$

703,479 

$

82,890 

$

58,617 

Add-back:

Non-property level overhead expenses included above

6,055 

6,866 

3,757 

Less EBITDA from:

Acquisitions

(4,191)

-   

-   

Dispositions, including net gains on sale

(445,929)

(1,785)

(5,562)

Properties taken out-of-service for redevelopment

(8,761)

(47)

(574)

Other non-operating income

(2,467)

(1,336)

(7,869)

Same store EBITDA for the three months ended December 31, 2014

$

248,186 

$

86,588 

$

48,369 

EBITDA for the three months ended September 30, 2014

$

250,583 

$

83,719 

$

112,184 

Add-back:

Non-property level overhead expenses included above

7,986 

6,454 

4,163 

Less EBITDA from:

Acquisitions

50 

-   

-   

Dispositions, including net gains on sale

(5,851)

(73)

(60,273)

Properties taken out-of-service for redevelopment

(5,897)

(400)

(618)

Other non-operating income

(3,078)

(421)

(7,379)

Same store EBITDA for the three months ended September 30, 2014

$

243,793 

$

89,279 

$

48,077 

Increase (decrease) in same store EBITDA -

Three months ended December 31, 2014 vs. September 30, 2014

$

4,393 

$

(2,691)

$

292 

% increase (decrease) in same store EBITDA

1.8% 

(3.0%)

0.6% 

 

78

 


 

 

Supplemental Information – continued

Three Months Ended December 31, 2014 Compared to September 30, 2014 - continued

 

Reconciliation of Same Store EBITDA to Cash basis Same Store EBITDA

 

(Amounts in thousands)

New York

Washington, DC

Retail Properties

Same store EBITDA for the three months ended December 31, 2014

$

248,186 

$

86,588 

$

48,369 

Less: Adjustments for straight line rents, amortization of acquired

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

(25,692)

(3,142)

(700)

Cash basis same store EBITDA for the three months ended

December 31, 2014

$

222,494 

$

83,446 

$

47,669 

Same store EBITDA for the three months ended September 30, 2014

$

243,793 

$

89,279 

$

48,077 

Less: Adjustments for straight line rents, amortization of acquired

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

(31,353)

(2,918)

(743)

Cash basis same store EBITDA for the three months ended

September 30, 2014

$

212,440 

$

86,361 

$

47,334 

Increase (decrease) in Cash basis same store EBITDA -

Three months ended December 31, 2014 vs. September 30, 2014

$

10,054 

$

(2,915)

$

335 

% increase (decrease) in Cash basis same store EBITDA

4.7% 

(3.4%)

0.7% 

79

 


 

 

Related Party Transactions

 

 

Alexander’s

 

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

 

On January 15, 2015, we completed the spin-off of 79 strip shopping centers, three malls, a warehouse park and $225,000,000 of cash to UE and the transfer of all of the employees responsible for the management and leasing of those assets.   In addition, we entered into agreements with UE to provide management and leasing services, on our behalf, for Alexander’s Rego Park retail assets.  Fees for these services are similar to the fees we are receiving from Alexander’s as described in Note 6 - Investments in Partially Owned Entities to our consolidated financial statements in this Annual Report on Form 10-K.

 

Interstate Properties (“Interstate”)

 

Interstate is a general partnership in which Mr. Roth is the managing general partner. David Mandelbaum and Russell B. Wight, Jr., Trustees of Vornado and Directors of Alexander’s, are Interstate’s two other partners. As of December 31, 2014, Interstate and its partners beneficially owned an aggregate of approximately 6.6% of the common shares of beneficial interest of Vornado and 26.3% of Alexander’s common stock.

 

We manage and lease the real estate assets of Interstate pursuant to a management agreement for which we receive an annual fee equal to 4% of annual base rent and percentage rent.  The management agreement has a term of one year and is automatically renewable unless terminated by either of the parties on 60 days’ notice at the end of the term.  We believe, based upon comparable fees charged by other real estate companies, that the management agreement terms are fair to us.  We earned $535,000, $606,000, and $794,000 of management fees under the agreement for the years ended December 31, 2014, 2013 and 2012.

 

On January 15, 2015, we completed the spin-off of 79 strip shopping centers, three malls, a warehouse park and $225,000,000 of cash to UE and the transfer of all of the employees responsible for the management and leasing of those assets.   In addition, we entered into agreements with UE to provide management and leasing services, on our behalf, for Interstate’s properties.   Fees for these services are similar to the fees we are receiving from Interstate described above.

80

 


 

 

Liquidity and Capital Resources

 

 

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

 

We anticipate that cash flow from continuing operations over the next twelve months will be adequate to fund our business operations, cash distributions to unitholders of the Operating Partnership, cash dividends to shareholders, debt amortization and recurring capital expenditures.  Capital requirements for development expenditures and acquisitions may require funding from borrowings and/or equity offerings.

 

We may from time to time purchase or retire outstanding debt securities.  Such purchases, if any, will depend on prevailing market conditions, liquidity requirements and other factors.  The amounts involved in connection with these transactions could be material to our consolidated financial statements.

 

               

Dividends

 

On January 21, 2015, we declared a quarterly common dividend of $0.63 per share (an indicated annual rate of $2.52 per common share).  This dividend, if continued for all of 2015, would require us to pay out approximately $474,000,000 of cash for common share dividends.  In addition, during 2015, we expect to pay approximately $82,000,000 of cash dividends on outstanding preferred shares and approximately $29,000,000 of cash distributions to unitholders of the Operating Partnership.

 

 

Financing Activities and Contractual Obligations

 

We have an effective shelf registration for the offering of our equity and debt securities that is not limited in amount due to our status as a “well-known seasoned issuer.”  We have issued senior unsecured notes from a shelf registration statement that contain financial covenants that restrict our ability to incur debt, and that require us to maintain a level of unencumbered assets based on the level of our secured debt.  Our revolving credit facilities contain financial covenants that require us to maintain minimum interest coverage and maximum debt to market capitalization ratios, and provide for higher interest rates in the event of a decline in our ratings below Baa3/BBB.  Our revolving credit facilities also contain customary conditions precedent to borrowing, including representations and warranties, and contain customary events of default that could give rise to accelerated repayment, including such items as failure to pay interest or principal.  As of December 31, 2014, we are in compliance with all of the financial covenants required by our senior unsecured notes and our revolving credit facilities.

 

 

As of December 31, 2014, we had $1,198,477,000 of cash and cash equivalents and $2,460,448,000 of borrowing capacity under our revolving credit facilities, net of outstanding borrowings and letters of credit of $0 and $39,552,000, respectively.  A summary of our consolidated debt as of December 31, 2014 and 2013 is presented below.  

 

2014 

2013 

(Amounts in thousands)

Weighted

Weighted

December 31,

Average

December 31,

Average

Consolidated debt:

Balance

Interest Rate

Balance

Interest Rate

Variable rate

$

1,840,769 

2.20%

$

1,064,730 

2.01%

Fixed rate

9,058,090 

4.37%

8,913,988 

4.73%

$

10,898,859 

4.00%

$

9,978,718 

4.44%

 

During 2015, $742,712,000 of our outstanding debt matures; we may refinance this maturing debt as it comes due or choose to repay it using cash and cash equivalents or our revolving credit facilities.  We may also refinance or prepay other outstanding debt depending on prevailing market conditions, liquidity requirements and other factors.  The amounts involved in connection with these transactions could be material to our consolidated financial statements.

 

81

 


 

 

Liquidity and Capital Resources – continued

 

 

Financing Activities and Contractual Obligations – continued  

 

 

Below is a schedule of our contractual obligations and commitments at December 31, 2014.

 

(Amounts in thousands)

Less than

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

Total

1 Year

1 – 3 Years

3 – 5 Years

Thereafter

Notes and mortgages payable

$

11,501,953 

$

809,644 

$

2,798,399 

$

1,784,666 

$

6,109,244 

Operating leases

1,450,782 

39,925 

80,836 

77,912 

1,252,109 

Senior unsecured notes due 2019

500,625 

11,250 

22,500 

466,875 

-   

Senior unsecured notes due 2022

540,833 

20,000 

40,000 

40,000 

440,833 

Senior unsecured notes due 2015

505,313 

505,313 

-   

-   

-   

Capital lease obligations

397,292 

12,500 

25,000 

25,000 

334,792 

Purchase obligations, primarily construction commitments

664,728 

332,364 

332,364 

-   

-   

Total contractual cash obligations

$

15,561,526 

$

1,730,996 

$

3,299,099 

$

2,394,453 

$

8,136,978 

Commitments:

Capital commitments to partially owned entities

$

104,050 

$

90,277 

$

13,773 

$

-   

$

-   

Standby letters of credit

39,552 

39,552 

-   

-   

-   

Total commitments

$

143,602 

$

129,829 

$

13,773 

$

-   

$

-   

________________________

(1)

Interest on variable rate debt is computed using rates in effect at December 31, 2014.

 

 

Details of 2014 financing activities are provided in the “Overview” of Management’s Discussion and Analysis of Financial Conditions and Results of Operations.  Details of 2013 financing activities are discussed below.

 

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 in December 2012.  The 10-year fixed-rate interest only loan bears interest at 3.61%.  This property was previously unencumbered.  The net proceeds from this financing were approximately $387,000,000. 

 

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

 

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

 

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

 

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

 

 

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Liquidity and Capital Resources – continued

 

 

Unsecured Revolving Credit Facility

 

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

 

Preferred Securities

 

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

 

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

 

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

 

 

Acquisitions and Investments

 

Details of 2014 acquisitions and investments are provided in the “Overview” of Management’s Discussion and Analysis of Financial Conditions and Results of Operations.  Details of 2013 acquisitions and investments are discussed below.

 

650 Madison Avenue

 

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

 

 

655 Fifth Avenue

 

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

 

 

220 Central Park South

 

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

 

 

Other

 

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

83

 


 

 

Liquidity and Capital Resources – continued

 

 

Certain Future Cash Requirements

 

Capital Expenditures

 

The following table summarizes anticipated 2015 capital expenditures.

(Amounts in millions, except square foot data)

Total

New York

Washington, DC

Other (2)

Expenditures to maintain assets

$

130.0 

$

60.0 

(1)

$

27.0 

$

43.0 

Tenant improvements

155.0 

54.0 

88.0 

13.0 

Leasing commissions

38.0 

24.0 

12.0 

2.0 

Total capital expenditures and leasing

commissions

$

323.0 

$

138.0 

$

127.0 

$

58.0 

Square feet budgeted to be leased

(in thousands)

1,200 

1,800 

Weighted average lease term (years)

10 

Tenant improvements and leasing commissions:

Per square foot

$

65.00 

$

55.00 

Per square foot per annum

$

6.50 

$

6.85 

(1)

Includes $15.0 related to 2014 that is expected to be expended in 2015.

(2)

Primarily The Mart and 555 California Street.

 

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

 

84

 


 

 

Liquidity and Capital Resources – continued

 

 

Development and Redevelopment Expenditures

 

On March 2, 2014, we entered into an agreement to transfer upon completion, the redeveloped Springfield Town Center, a 1,350,000 square foot mall located in Springfield, Fairfax County, Virginia, to Pennsylvania Real Estate Investment Trust (NYSE: PEI) (“PREIT’) in exchange for $465,000,000 comprised of $340,000,000 of cash and $125,000,000 of PREIT operating partnership units. The incremental development cost of this project was approximately $250,000,000, of which $225,000,000 has been expended as of December 31, 2014. The redevelopment was substantially completed in October 2014 and the transfer of the property to PREIT is expected to be completed no later than March 31, 2015.

 

We are in the process of redeveloping and substantially expanding the existing retail space at the Marriott Marquis Times Square Hotel, including converting the below grade parking garage into retail, which is expected to be completed by the end of 2015.  Upon completion of the redevelopment, the retail space will include 20,000 square feet on grade and 20,000 square feet below grade.  As part of the redevelopment, we have completed the construction of a six-story, 300 foot wide block front, dynamic LED sign, which was lit for the first time in November 2014. The incremental development cost of this project is approximately $220,000,000, of which $170,000,000 has been expended as of December 31, 2014. 

 

We are constructing a residential condominium tower containing 472,000 zoning square feet on our 220 Central Park South development site. The incremental development cost of this project is approximately $1.0 billion, of which $94,000,000 has been expended as of December 31, 2014. In January 2014, we completed a $600,000,000 loan secured by this site. On August 26, 2014, we obtained a standby commitment for up to $500,000,000 of five-year mezzanine loan financing to fund a portion of the development expenditures at 220 Central Park South.

 

We are developing The Bartlett, a 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 incremental development cost of this project is approximately $250,000,000, of which $49,000,000 has been expended as of December 31, 2014.

 

We plan to redevelop an existing 165,000 square foot office building in Crystal City (2221 S. Clark Street), which we have leased to WeWork, into approximately 250 rental residential units. The incremental development cost of this project is approximately $40,000,000. The redevelopment is expected to be completed in the second half of 2015.

 

We are in the process of repositioning and re-tenanting 280 Park Avenue (50% owned). Our share of the incremental development cost of this project is approximately $62,000,000, of which $34,700,000 was expended prior to 2014, and $22,000,000 has been expended in 2014.

 

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

 

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

 

85

 


 

 

Liquidity and Capital Resources – continued

 

 

Insurance

 

We maintain general liability insurance with limits of $300,000,000 per occurrence and all risk property and rental value insurance with limits of $2.0 billion per occurrence, with sub-limits for certain perils such as floods.  Our California properties have earthquake insurance with coverage of $180,000,000 per occurrence, subject to a deductible in the amount of 5% of the value of the affected property, up to a $180,000,000 annual aggregate. We maintain coverage for terrorism acts with limits of $4.0 billion per occurrence and in the aggregate, and $2.0 billion per occurrence and in the aggregate for terrorism involving nuclear, biological, chemical and radiological (“NBCR”) terrorism events, as defined by Terrorism Risk Insurance Program Reauthorization Act, which expires in December 2020.

 

Penn Plaza Insurance Company, LLC (“PPIC”), our wholly owned consolidated subsidiary, acts as a re-insurer with respect to a portion of all risk property and rental value insurance and a portion of our earthquake insurance coverage, and as a direct insurer for coverage for NBCR acts.  Coverage for acts of terrorism (excluding NBCR acts) is fully reinsured by third party insurance companies and the Federal government with no exposure to PPIC.  For NBCR acts, PPIC is responsible for a deductible of $3,200,000 and 15% of the balance of a covered loss (16% effective January 1, 2016) and the Federal government is responsible for the remaining 85% of a covered loss (84% effective January 1, 2016).  We are ultimately responsible for any loss incurred by PPIC.

 

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

 

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

 

 

Other Commitments and Contingencies

 

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

 

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

 

Our mortgage loans are non-recourse to us.  However, in certain cases we have provided guarantees or master leased tenant space.  These guarantees and master leases terminate either upon the satisfaction of specified circumstances or repayment of the underlying loans.  As of December 31, 2014, the aggregate dollar amount of these guarantees and master leases is approximately $359,000,000.

 

At December 31, 2014, $39,552,000 of letters of credit were outstanding under one of our revolving credit facilities.  Our revolving credit facilities contain financial covenants that require us to maintain minimum interest coverage and maximum debt to market capitalization ratios, and provide for higher interest rates in the event of a decline in our ratings below Baa3/BBB. Our revolving credit facilities also contain customary conditions precedent to borrowing, including representations and warranties, and also contain customary events of default that could give rise to accelerated repayment, including such items as failure to pay interest or principal.

 

As of December 31, 2014, we expect to fund additional capital to certain of our partially owned entities aggregating approximately $104,000,000.

86

 


 

 

Liquidity and Capital Resources – continued

 

 

Cash Flows for the Year Ended December 31, 2014

 

Our cash and cash equivalents were $1,198,477,000 at December 31, 2014, a $615,187,000 increase over the balance at December 31, 2013.  Our consolidated outstanding debt was $10,898,859,000 at December 31, 2014, a $920,141,000 increase over the balance at December 31, 2013.  As of December 31, 2014 and 2013, $0 and $295,870,000, respectively, was outstanding under our revolving credit facilities.  During 2015 and 2016, $742,712,000 and $1,530,311,000, respectively, of our outstanding debt matures; we may refinance this maturing debt as it comes due or choose to repay it.

 

Cash flows provided by operating activities of $1,135,310,000 was comprised of (i) net income of $1,009,026,000, (ii) return of capital from Real Estate Fund investments of $215,676,000, and (iii) distributions of income from partially owned entities of $96,286,000, partially offset by (iv) $89,536,000 of non-cash adjustments, which include depreciation and amortization expense, the effect of straight-lining of rental income, equity in net loss of partially owned entities and net gains on sale of real estate and (v) the net change in operating assets and liabilities of $96,142,000, including $3,392,000 related to Real Estate Fund investments.

 

Net cash used in investing activities of $574,465,000 was comprised of (i) $544,187,000 of development costs and construction in progress, (ii) $279,206,000 of additions to real estate, (iii) $211,354,000 of acquisitions of real estate and other, (iv) $120,639,000 of investments in partially owned entities, and (v) $30,175,000 of investments in mortgage and mezzanine loans receivable and other, partially offset by (vi) $388,776,000 of proceeds from sales of real estate and related investments, (vii) $99,464,000 of changes in restricted cash, (viii) $96,913,000 of proceeds from sales and repayments of mortgages and mezzanine loans receivable and other, and (ix) $25,943,000 of capital distributions from partially owned entities.

 

Net cash provided by financing activities of $54,342,000 was comprised of (i) $2,428,285,000 of proceeds from borrowings, (ii) $30,295,000 of contributions from noncontrolling interests, and (iii) $19,245,000 of proceeds received from exercise of employee share options, partially offset by (iv) $1,312,258,000 for the repayments of borrowings, (v) $547,831,000 of dividends paid on common shares, (vi) $220,895,000 of distributions to noncontrolling interests, (vii) purchase of marketable securities in connection with the defeasance of mortgage notes payable of $198,884,000, (viii) $81,468,000 of dividends paid on preferred shares, (ix) $58,336,000 of debt issuance and other costs, and (x) $3,811,000 for the repurchase of shares related to stock compensation agreements and related tax withholdings.

 

 

Capital Expenditures for the Year Ended December 31, 2014

 

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. 

 

87

 


 

 

Liquidity and Capital Resources – continued

 

 

Below is a summary of capital expenditures, leasing commissions and a reconciliation of total expenditures on an accrual basis to the cash expended in the year ended December 31, 2014.

 

Retail

(Amounts in thousands)

Total

New York

Washington, DC

Properties

Other

Expenditures to maintain assets

$

107,728 

$

48,518 

$

23,425 

$

16,715 

$

19,070 

Tenant improvements

205,037 

143,007 

37,842 

551 

23,637 

Leasing commissions

79,636 

66,369 

5,857 

145 

7,265 

Non-recurring capital expenditures

122,330 

64,423 

37,798 

10,014 

10,095 

Total capital expenditures and leasing

commissions (accrual basis)

514,731 

322,317 

104,922 

27,425 

60,067 

Adjustments to reconcile to cash basis:

Expenditures in the current year

applicable to prior periods

140,490 

67,577 

45,084 

5,124 

22,705 

Expenditures to be made in future

periods for the current period

(313,746)

(205,258)

(63,283)

(9,814)

(35,391)

Total capital expenditures and leasing

commissions (cash basis)

$

341,475 

$

184,636 

$

86,723 

$

22,735 

$

47,381 

Tenant improvements and leasing commissions:

Per square foot per annum

$

5.98 

$

6.82 

$

5.70 

$

1.63 

$

-   

Percentage of initial rent

10.6%

9.1%

14.8%

7.6%

-   

 

Development and Redevelopment Expenditures

 

Development and redevelopment expenditures consist of all hard and soft costs associated with the development or redevelopment of a property, including capitalized interest, debt and operating costs, until the property is substantially completed and ready for its intended use.

 

Below is a summary of development and redevelopment expenditures incurred in the year ended December 31, 2014. These expenditures include interest of $62,787,000, payroll of $7,319,000, and other soft costs (primarily architectural and engineering fees, permits, real estate taxes and professional fees) aggregating $67,939,000, that were capitalized in connection with the development and redevelopment of these projects.

 

Retail

(Amounts in thousands)

Total

New York

Washington, DC

Properties

Other

Springfield Mall

$

127,467 

$

-   

$

-   

$

127,467 

$

-   

Marriott Marquis Times Square - retail

and signage

112,390 

112,390 

-   

-   

-   

220 Central Park South

78,059 

-   

-   

-   

78,059 

330 West 34th Street

41,592 

41,592 

-   

-   

-   

The Bartlett

38,163 

-   

38,163 

-   

-   

608 Fifth Avenue

20,377 

20,377 

-   

-   

-   

Wayne Towne Center

19,740 

-   

-   

19,740 

-   

7 West 34th Street

11,555 

11,555 

-   

-   

-   

Other

94,844 

27,892 

45,482 

8,048 

13,422 

$

544,187 

$

213,806 

$

83,645 

$

155,255 

$

91,481 

88

 


 

 

Liquidity and Capital Resources – continued

 

Cash Flows for the Year Ended December 31, 2013

 

Our cash and cash equivalents were $583,290,000 at December 31, 2013, a $377,029,000 decrease over the balance at December 31, 2012.  Our consolidated outstanding debt was $9,978,718,000 at December 31, 2013, a $1,626,297,000 decrease over the balance at December 31, 2012.

 

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

 

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

 

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

 

89

 


 
 

 

Liquidity and Capital Resources – continued

 

 

Capital Expenditures in the year ended December 31, 2013

 

Retail

(Amounts in thousands)

Total

New York

Washington, DC

Properties

Other

Expenditures to maintain assets

$

73,130 

$

34,553 

$

22,165 

$

5,664 

$

10,748 

Tenant improvements

120,139 

87,275 

6,976 

12,431 

13,457 

Leasing commissions

51,476 

39,348 

4,389 

2,113 

5,626 

Non-recurring capital expenditures

49,441 

11,579 

37,342 

-   

520 

Total capital expenditures and leasing

commissions (accrual basis)

294,186 

172,755 

70,872 

20,208 

30,351 

Adjustments to reconcile to cash basis:

Expenditures in the current year

applicable to prior periods

155,035 

56,345 

26,075 

5,562 

67,053 

Expenditures to be made in future

periods for the current period

(150,067)

(91,107)

(36,702)

(14,011)

(8,247)

Total capital expenditures and leasing

commissions (cash basis)

$

299,154 

$

137,993 

$

60,245 

$

11,759 

$

89,157 

Tenant improvements and leasing commissions:

Per square foot per annum

$

4.33 

$

5.89 

$

4.75 

$

1.33 

$

-   

Percentage of initial rent

9.5%

8.1%

11.9%

6.6%

-   

 

Development and Redevelopment Expenditures in the year ended December 31, 2013

 

Below is a summary of development and redevelopment expenditures incurred in the year ended December 31, 2013. These expenditures include interest of $42,303,000, payroll of $4,534,000, and other soft costs (primarily architectural and engineering fees, permits, real estate taxes and professional fees) aggregating $27,812,000, that were capitalized in connection with the development and redevelopment of these projects.

 

Retail

(Amounts in thousands)

Total

New York

Washington, DC

Properties

Other

220 Central Park South

$

243,687 

$

-   

$

-   

$

-   

$

243,687 

Springfield Mall

68,716 

-   

-   

68,716 

-   

Marriott Marquis Times Square - retail

and signage

40,356 

40,356 

-   

-   

-   

1290 Avenue of the Americas

13,865 

13,865 

-   

-   

-   

Other

102,793 

31,764 

41,701 

25,210 

4,118 

$

469,417 

$

85,985 

$

41,701 

$

93,926 

$

247,805 

90

 


 

 

Liquidity and Capital Resources – continued

 

 

 

Cash Flows for the Year Ended December 31, 2012

 

Our cash and cash equivalents were $960,319,000 at December 31, 2012, a $353,766,000 increase over the balance at December 31, 2011.  Our consolidated outstanding debt was $11,605,015,000 at December 31, 2012, a $1,038,979,000 increase from the balance at December 31, 2011. 

 

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

 

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

 

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

 

91

 


 

 

Liquidity and Capital Resources – continued

 

 

Capital Expenditures in the year ended December 31, 2012

 

Retail

(Amounts in thousands)

Total

New York

Washington, DC

Properties

Other

Expenditures to maintain assets

$

69,912 

$

27,434 

$

20,582 

$

4,676 

$

17,220 

Tenant improvements

169,205 

71,572 

41,846 

9,052 

46,735 

Leasing commissions

56,203 

27,573 

11,393 

2,368 

14,869 

Non-recurring capital expenditures

17,198 

5,822 

10,296 

-   

1,080 

Total capital expenditures and leasing

commissions (accrual basis)

312,518 

132,401 

84,117 

16,096 

79,904 

Adjustments to reconcile to cash basis:

Expenditures in the current year

applicable to prior periods

105,350 

41,975 

24,370 

10,353 

28,652 

Expenditures to be made in future

periods for the current period

(170,744)

(76,283)

(43,600)

(7,754)

(43,107)

Total capital expenditures and leasing

commissions (cash basis)

$

247,124 

$

98,093 

$

64,887 

$

18,695 

$

65,449 

Tenant improvements and leasing commissions:

Per square foot per annum

$

4.16 

$

5.48 

$

4.86 

$

1.04 

$

-   

Percentage of initial rent

9.6%

8.8%

12.0%

5.2%

-   

 

 

Development and Redevelopment Expenditures in the Year Ended December 31, 2012

 

Below is a summary of development and redevelopment expenditures incurred in the year ended December 31, 2012. These expenditures include interest of $16,801,000, payroll of $1,412,000, and other soft costs (primarily architectural and engineering fees, permits, real estate taxes and professional fees) aggregating $23,749,000, that were capitalized in connection with the development and redevelopment of these projects.

 

Retail

(Amounts in thousands)

Total

New York

Washington, DC

Properties

Other

Springfield Mall

$

18,278 

$

-   

$

-   

$

18,278 

$

-   

1290 Avenue of the Americas

16,778 

16,778 

-   

-   

-   

Crystal Square 5

15,039 

-   

15,039 

-   

-   

220 Central Park South

12,191 

-   

-   

-   

12,191 

Bergen Town Center

11,404 

-   

-   

11,404 

-   

510 Fifth Avenue

10,206 

10,206 

-   

-   

-   

Other

72,977 

24,576 

24,295 

23,864 

242 

$

156,873 

$

51,560 

$

39,334 

$

53,546 

$

12,433 

92

 


 

 

Funds From Operations (“FFO”)

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

 

FFO attributable to common shareholders plus assumed conversions was $911,130,000, or $4.83 per diluted share for the year ended December 31, 2014, compared to $641,037,000, or $3.41 per diluted share for the year ended December 31, 2013. FFO attributable to common shareholders plus assumed conversions was a positive $230,143,000, or $1.22 per diluted share for the three months ended December 31, 2014, compared to a negative $6,784,000, or $0.04 per diluted share for the three months ended December 31, 2013.  Details of certain items that affect comparability are discussed in the financial results summary of our “Overview.”

 

For The Year

For The Three Months

(Amounts in thousands, except per share amounts)

Ended December 31,

Ended December 31,

Reconciliation of our net income (loss) to FFO (negative FFO):

2014 

2013 

2014 

2013 

Net income (loss) attributable to Vornado

$

864,852 

$

475,971 

$

533,603 

$

(48,519)

Depreciation and amortization of real property

517,493 

501,753 

129,944 

124,611 

Net gains on sale of real estate

(507,192)

(411,593)

(449,396)

(127,512)

Real estate impairment losses

26,518 

37,170 

5,676 

32,443 

Proportionate share of adjustments to equity in net loss of

Toys, to arrive at FFO:

Depreciation and amortization of real property

21,579 

69,741 

-   

16,506 

Net gains on sale of real estate

(760)

-   

-   

-   

Real estate impairment losses

-   

6,552 

-   

456 

Income tax effect of above adjustments

(7,287)

(26,703)

-   

(5,937)

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

96,187 

87,529 

24,350 

25,282 

Net gains on sale of real estate

(10,820)

(465)

(10,820)

-   

Noncontrolling interests' share of above adjustments

(8,073)

(15,089)

17,127 

(3,746)

FFO

992,497 

724,866 

250,484 

13,584 

Preferred share dividends

(81,464)

(82,807)

(20,365)

(20,368)

Preferred unit and share redemptions

-   

(1,130)

-   

-   

FFO (negative FFO) attributable to common shareholders

911,033 

640,929 

230,119 

(6,784)

Convertible preferred share dividends

97 

108 

24 

-   

FFO (negative FFO) attributable to common shareholders

plus assumed conversions

$

911,130 

$

641,037 

$

230,143 

$

(6,784)

Reconciliation of Weighted Average Shares

Weighted average common shares outstanding

187,572 

186,941 

187,776 

187,109 

Effect of dilutive securities:

Employee stock options and restricted share awards

1,075 

768 

1,153 

-   

Convertible preferred shares

43 

48 

41 

-   

Denominator for FFO (negative FFO) per diluted share

188,690 

187,757 

188,970 

187,109 

FFO (negative FFO) attributable to common shareholders plus

assumed conversions per diluted share

$

4.83 

$

3.41 

$

1.22 

$

(0.04)

93

 


 

 

ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

 

(Amounts in thousands, except per share amounts)

2014 

2013 

Weighted

Effect of 1%

Weighted

December 31,

Average

Change In

December 31,

Average

Consolidated debt:

Balance

Interest Rate

Base Rates

Balance

Interest Rate

Variable rate

$

1,840,769 

2.20%

$

18,408 

$

1,064,730 

2.01%

Fixed rate

9,058,090 

4.37%

-   

8,913,988 

4.73%

$

10,898,859 

4.00%

18,408 

$

9,978,718 

4.44%

Prorata share of debt of non-

consolidated entities (non-recourse):

Variable rate – excluding Toys

$

319,387 

1.74%

3,194 

$

196,240 

2.09%

Variable rate – Toys

1,199,835 

6.47%

11,998 

1,179,001 

5.45%

Fixed rate (including $674,443 and

$682,484 of Toys debt in 2014 and 2013)

2,754,410 

6.43%

-   

2,814,162 

6.46%

$

4,273,632 

6.09%

15,192 

$

4,189,403 

5.97%

Redeemable noncontrolling interests’ share of above

(1,949)

Total change in annual net income

$

31,651 

Per share-diluted

$

0.17 

 

We may utilize various financial instruments to mitigate the impact of interest rate fluctuations on our cash flows and earnings, including hedging strategies, depending on our analysis of the interest rate environment and the costs and risks of such strategies. As of December 31, 2014, we have one interest rate cap with a principal amount of $60,000,000 and a weighted average interest rate of 2.36%.  This cap is based on a notional amount of $60,000,000 and caps LIBOR at a rate of 7.00%.  In addition, we have one interest rate swap on a $422,000,000 mortgage loan that swapped the rate from LIBOR plus 1.65% (1.81% at December 31, 2014) to a fixed rate of 4.78% through March 2018. 

 

 

Fair Value of Debt

 

The estimated fair value of our consolidated debt is calculated based on current market prices and discounted cash flows at the current rate at which similar loans would be made to borrowers with similar credit ratings for the remaining term of such debt.  As of December 31, 2014, the estimated fair value of our consolidated debt was $10,936,000,000.

 

94

 


 

 

ITEM 8.        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

INDEX TO FINANCIAL STATEMENTS

 

Page

Number

Report of Independent Registered Public Accounting Firm

96

Consolidated Balance Sheets at December 31, 2014 and 2013

97

Consolidated Statements of Income for the years ended December 31, 2014, 2013 and 2012

98

Consolidated Statements of Comprehensive Income for the years ended December 31, 2014, 2013 and 2012

99

Consolidated Statements of Changes in Equity for the years ended December 31, 2014, 2013 and 2012

100

Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012

103

Notes to Consolidated Financial Statements

105

95

 


 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

Shareholders and Board of Trustees

Vornado Realty Trust

New York, New York

 

We have audited the accompanying consolidated balance sheets of Vornado Realty Trust (the “Company”) as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2014. Our audits also included the financial statement schedules listed in the Index at Item 15. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audits.

 

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

 

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Vornado Realty Trust at December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

 

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2014, based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 17, 2015 expressed an unqualified opinion on the Company’s internal control over financial reporting.

 

/s/ DELOITTE & TOUCHE LLP

 

Parsippany, New Jersey

February 17, 2015

96

 


 

 

VORNADO REALTY TRUST

CONSOLIDATED BALANCE SHEETS

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

December 31,

December 31,

ASSETS

2014 

2013 

Real estate, at cost:

Land

$

4,240,009 

$

4,016,851 

Buildings and improvements

13,338,445 

12,245,111 

Development costs and construction in progress

1,136,344 

1,024,714 

Leasehold improvements and equipment

130,594 

132,270 

Total

18,845,392 

17,418,946 

Less accumulated depreciation and amortization

(3,629,135)

(3,296,717)

Real estate, net

15,216,257 

14,122,229 

Cash and cash equivalents

1,198,477 

583,290 

Restricted cash

186,512 

262,440 

Marketable securities

206,323 

191,917 

Tenant and other receivables, net of allowance for doubtful accounts of $17,060 and $21,869

124,144 

115,862 

Investments in partially owned entities

1,246,496 

1,166,443 

Investment in Toys "R" Us

-   

83,224 

Real Estate Fund investments

513,973 

667,710 

Receivable arising from the straight-lining of rents, net of allowance of $3,188 and $4,355

877,486 

795,256 

Deferred leasing and financing costs, net of accumulated amortization of $300,227 and $259,286

503,384 

404,907 

Identified intangible assets, net of accumulated amortization of $225,841 and $276,426

276,239 

307,436 

Assets related to discontinued operations

477,620 

874,050 

Other assets

421,409 

522,460 

$

21,248,320 

$

20,097,224 

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY

Mortgages payable

$

9,551,700 

$

8,331,993 

Senior unsecured notes

1,347,159 

1,350,855 

Revolving credit facility debt

-   

295,870 

Accounts payable and accrued expenses

499,702 

422,276 

Deferred revenue

519,280 

529,002 

Deferred compensation plan

117,284 

116,515 

Deferred tax liabilities

1,146 

1,280 

Liabilities related to discontinued operations

211 

14,709 

Other liabilities

384,676 

436,360 

Total liabilities

12,421,158 

11,498,860 

Commitments and contingencies

Redeemable noncontrolling interests:

Class A units - 11,356,550 and 11,292,038 units outstanding

1,336,780 

1,002,620 

Series D cumulative redeemable preferred units - 1 unit outstanding

1,000 

1,000 

Total redeemable noncontrolling interests

1,337,780 

1,003,620 

Vornado shareholders' equity:

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

shares; issued and outstanding 52,678,939 and 52,682,807 shares

1,277,026 

1,277,225 

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

250,000,000 shares; issued and outstanding 187,887,498 and 187,284,688 shares

7,493 

7,469 

Additional capital

6,873,025 

7,143,840 

Earnings less than distributions

(1,505,385)

(1,734,839)

Accumulated other comprehensive income

93,267 

71,537 

Total Vornado shareholders' equity

6,745,426 

6,765,232 

Noncontrolling interests in consolidated subsidiaries

743,956 

829,512 

Total equity

7,489,382 

7,594,744 

$

21,248,320 

$

20,097,224 

See notes to the consolidated financial statements.

97

 


 

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF INCOME

Year Ended December 31,

2014 

2013 

2012 

(Amounts in thousands, except per share amounts)

REVENUES:

Property rentals

$

2,110,797 

$

2,081,115 

$

1,990,784 

Tenant expense reimbursements

329,398 

301,167 

279,075 

Cleveland Medical Mart development project

36,369 

235,234 

Fee and other income

195,745 

250,618 

144,124 

Total revenues

2,635,940 

2,669,269 

2,649,217 

EXPENSES:

Operating

1,064,753 

1,030,951 

988,883 

Depreciation and amortization

536,230 

515,724 

490,028 

General and administrative

185,924 

196,267 

190,109 

Cleveland Medical Mart development project

32,210 

226,619 

Acquisition and transaction related costs, and impairment losses

33,391 

43,857 

25,786 

Total expenses

1,820,298 

1,819,009 

1,921,425 

Operating income

815,642 

850,260 

727,792 

Income from Real Estate Fund

163,034 

102,898 

63,936 

(Loss) income applicable to Toys "R" Us

(73,556)

(362,377)

14,859 

Income from partially owned entities

15,425 

23,592 

408,267 

Interest and debt expense

(467,715)

(481,304)

(484,794)

Interest and other investment income (loss), net

38,787 

(24,876)

(261,179)

Net gain on disposition of wholly owned and partially owned assets

13,568 

3,407 

13,347 

Income before income taxes

505,185 

111,600 

482,228 

Income tax (expense) benefit

(11,002)

6,406 

(8,132)

Income from continuing operations

494,183 

118,006 

474,096 

Income from discontinued operations

514,843 

446,734 

220,445 

Net income

1,009,026 

564,740 

694,541 

Less net income attributable to noncontrolling interests in:

Consolidated subsidiaries

(96,561)

(63,952)

(32,018)

Operating Partnership

(47,563)

(23,659)

(35,327)

Preferred unit distributions of the Operating Partnership

(50)

(1,158)

(9,936)

Net income attributable to Vornado

864,852 

475,971 

617,260 

Preferred share dividends

(81,464)

(82,807)

(76,937)

Preferred unit and share redemptions

(1,130)

8,948 

NET INCOME attributable to common shareholders

$

783,388 

$

392,034 

$

549,271 

INCOME (LOSS) PER COMMON SHARE - BASIC:

Income (loss) from continuing operations, net

$

1.59 

$

(0.14)

$

1.83 

Income from discontinued operations, net

2.59 

2.24 

1.12 

Net income per common share

$

4.18 

$

2.10 

$

2.95 

Weighted average shares outstanding

187,572 

186,941 

185,810 

INCOME (LOSS) PER COMMON SHARE - DILUTED:

Income (loss) from continuing operations, net

$

1.58 

$

(0.14)

$

1.82 

Income from discontinued operations, net

2.57 

2.23 

1.12 

Net income per common share

$

4.15 

$

2.09 

$

2.94 

Weighted average shares outstanding

188,690 

187,709 

186,530 

See notes to consolidated financial statements.

98

 


 

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Year Ended December 31,

(Amounts in thousands)

2014 

2013 

2012 

Net income

$

1,009,026 

$

564,740 

$

694,541 

Other comprehensive income (loss):

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

14,465 

142,281 

(283,649)

Amounts reclassified from accumulated other comprehensive income:

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

-   

-   

224,937 

Sale of available-for-sale securities

-   

(42,404)

(3,582)

Pro rata share of other comprehensive income (loss) of

nonconsolidated subsidiaries

2,509 

(22,814)

(31,758)

Change in value of interest rate swap

6,079 

18,183 

(5,659)

Other

-   

533 

329 

Comprehensive income

1,032,079 

660,519 

595,159 

Less comprehensive income attributable to noncontrolling interests

(145,497)

(94,065)

(70,574)

Comprehensive income attributable to Vornado

$

886,582 

$

566,454 

$

524,585 

See notes to consolidated financial statements.

99

 


 

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Accumulated

(Amounts in thousands)

Earnings

Other

Non-

Preferred Shares

Common Shares

Additional

Less Than

Comprehensive

controlling

Total

Shares

Amount

Shares

Amount

Capital

Distributions

Income (Loss)

Interests

Equity

Balance, December 31, 2013

52,683 

$

1,277,225 

187,285 

$

7,469 

$

7,143,840 

$

(1,734,839)

$

71,537 

$

829,512 

$

7,594,744 

Net income attributable to Vornado

-   

-   

-   

-   

-   

864,852 

-   

-   

864,852 

Net income attributable to

noncontrolling interests in

consolidated subsidiaries

-   

-   

-   

-   

-   

-   

-   

96,561 

96,561 

Dividends on common shares

-   

-   

-   

-   

-   

(547,831)

-   

-   

(547,831)

Dividends on preferred shares

-   

-   

-   

-   

-   

(81,464)

-   

-   

(81,464)

Common shares issued:

Upon redemption of Class A

units, at redemption value

-   

-   

271 

11 

27,262 

-   

-   

-   

27,273 

Under Omnibus share plan

-   

-   

304 

12 

17,428 

(3,393)

-   

-   

14,047 

Under dividend reinvestment plan

-   

-   

17 

1,803 

-   

-   

-   

1,804 

Contributions:

Real Estate Fund

-   

-   

-   

-   

-   

-   

-   

5,297 

5,297 

Other

-   

-   

-   

-   

-   

-   

-   

32,998 

32,998 

Distributions:

Real Estate Fund

-   

-   

-   

-   

-   

-   

-   

(182,964)

(182,964)

Other

-   

-   

-   

-   

-   

-   

-   

(4,463)

(4,463)

Transfer of noncontrolling interest

in Real Estate Fund

-   

-   

-   

-   

-   

-   

-   

(33,028)

(33,028)

Conversion of Series A preferred

shares to common shares

(4)

(193)

-   

193 

-   

-   

-   

-   

Deferred compensation shares

and options

-   

-   

-   

5,852 

(340)

-   

-   

5,512 

Change in unrealized net gain

on securities available-for-sale

-   

-   

-   

-   

-   

-   

14,465 

-   

14,465 

Pro rata share of other

comprehensive income of

nonconsolidated subsidiaries

-   

-   

-   

-   

-   

-   

2,509 

-   

2,509 

Change in value of interest rate swap

-   

-   

-   

-   

-   

-   

6,079 

-   

6,079 

Adjustments to carry redeemable

Class A units at redemption value

-   

-   

-   

-   

(315,276)

-   

-   

-   

(315,276)

Redeemable noncontrolling interests'

share of above adjustments

-   

-   

-   

-   

-   

-   

(1,323)

-   

(1,323)

Other

-   

(6)

-   

-   

(8,077)

(2,370)

-   

43 

(10,410)

Balance, December 31, 2014

52,679 

$

1,277,026 

187,887 

$

7,493 

$

6,873,025 

$

(1,505,385)

$

93,267 

$

743,956 

$

7,489,382 

See notes to consolidated financial statements.

 

100

 


 

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - CONTINUED

Accumulated

(Amounts in thousands)

Earnings

Other

Non-

Preferred Shares

Common Shares

Additional

Less Than

Comprehensive

controlling

Total

Shares

Amount

Shares

Amount

Capital

Distributions

Income (Loss)

Interests

Equity

Balance, December 31, 2012

51,185 

$

1,240,278 

186,735 

$

7,440 

$

7,195,438 

$

(1,573,275)

$

(18,946)

$

1,053,209 

$

7,904,144 

Net income attributable to Vornado

-   

-   

-   

-   

-   

475,971 

-   

-   

475,971 

Net income attributable to

noncontrolling interests in

consolidated subsidiaries

-   

-   

-   

-   

-   

-   

-   

63,952 

63,952 

Dividends on common shares

-   

-   

-   

-   

-   

(545,913)

-   

-   

(545,913)

Dividends on preferred shares

-   

-   

-   

-   

-   

(82,807)

-   

-   

(82,807)

Issuance of Series L preferred shares

12,000 

290,306 

-   

-   

-   

-   

-   

-   

290,306 

Redemption of Series F and Series H

preferred shares

(10,500)

(253,269)

-   

-   

-   

-   

-   

-   

(253,269)

Common shares issued:

Upon redemption of Class A

units, at redemption value

-   

-   

299 

12 

25,305 

-   

-   

-   

25,317 

Under Omnibus share plan

-   

-   

104 

23 

5,892 

(107)

-   

-   

5,808 

Under dividend reinvestment plan

-   

-   

22 

1,850 

-   

-   

-   

1,851 

Upon acquisition of real estate

-   

-   

128 

11,456 

-   

-   

-   

11,461 

Contributions:

Real Estate Fund

-   

-   

-   

-   

-   

-   

-   

28,078 

28,078 

Other

-   

-   

-   

-   

-   

-   

-   

15,886 

15,886 

Distributions:

Real Estate Fund

-   

-   

-   

-   

-   

-   

-   

(47,268)

(47,268)

Other

-   

-   

-   

-   

-   

-   

-   

(133,153)

(133,153)

Conversion of Series A preferred

shares to common shares

(2)

(90)

-   

90 

-   

-   

-   

-   

Deferred compensation shares

and options

-   

-   

(6)

(12)

9,589 

(307)

-   

-   

9,270 

Change in unrealized net gain

on securities available-for-sale

-   

-   

-   

-   

-   

-   

142,281 

-   

142,281 

Amounts reclassified related to sale

of available-for-sale securities

-   

-   

-   

-   

-   

-   

(42,404)

(42,404)

Pro rata share of other

comprehensive loss of

nonconsolidated subsidiaries

-   

-   

-   

-   

-   

-   

(22,814)

-   

(22,814)

Change in value of interest rate swap

-   

-   

-   

-   

-   

-   

18,183 

-   

18,183 

Adjustments to carry redeemable

Class A units at redemption value

-   

-   

-   

-   

(108,252)

-   

-   

-   

(108,252)

Redeemable noncontrolling interests'

share of above adjustments

-   

-   

-   

-   

-   

-   

(5,296)

-   

(5,296)

Preferred unit and share

redemptions

-   

-   

-   

-   

-   

(1,130)

-   

-   

(1,130)

Deconsolidation of partially

owned entity

-   

-   

-   

-   

-   

-   

-   

(165,427)

(165,427)

Consolidation of partially

owned entity

-   

-   

-   

-   

-   

-   

-   

16,799 

16,799 

Other

-   

-   

-   

-   

2,472 

(7,271)

533 

(2,564)

(6,830)

Balance, December 31, 2013

52,683 

$

1,277,225 

187,285 

$

7,469 

$

7,143,840 

$

(1,734,839)

$

71,537 

$

829,512 

$

7,594,744 

See notes to consolidated financial statements.

 

101

 


 

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - CONTINUED

Accumulated

(Amounts in thousands)

Earnings

Other

Non-

Preferred Shares

Common Shares

Additional

Less Than

Comprehensive

controlling

Total

Shares

Amount

Shares

Amount

Capital

Distributions

Income (Loss)

Interests

Equity

Balance, December 31, 2011

42,187 

$

1,021,660 

185,080 

$

7,373 

$

7,127,258 

$

(1,401,704)

$

73,729 

$

680,131 

$

7,508,447 

Net income attributable to Vornado

-   

-   

-   

-   

-   

617,260 

-   

-   

617,260 

Net income attributable to

noncontrolling interests in

consolidated subsidiaries

-   

-   

-   

-   

-   

-   

-   

32,018 

32,018 

Dividends on common shares

-   

-   

-   

-   

-   

(699,318)

-   

-   

(699,318)

Dividends on preferred shares

-   

-   

-   

-   

-   

(76,937)

-   

-   

(76,937)

Issuance of Series K preferred shares

12,000 

290,971 

-   

-   

-   

-   

-   

-   

290,971 

Redemption of Series E preferred

shares

(3,000)

(72,248)

-   

-   

-   

-   

-   

-   

(72,248)

Common shares issued:

Upon redemption of Class A

units, at redemption value

-   

-   

1,121 

45 

89,717 

-   

-   

-   

89,762 

Under Omnibus share plan

-   

-   

434 

18 

9,521 

(16,389)

-   

-   

(6,850)

Under dividend reinvestment plan

-   

-   

29 

2,306 

-   

-   

-   

2,307 

Upon acquisition of real estate

-   

-   

64 

5,121 

-   

-   

-   

5,124 

Contributions:

Real Estate Fund

-   

-   

-   

-   

-   

-   

-   

195,029 

195,029 

Other

-   

-   

-   

-   

-   

-   

-   

18,103 

18,103 

Distributions:

Real Estate Fund

-   

-   

-   

-   

-   

-   

-   

(48,138)

(48,138)

Other

-   

-   

-   

-   

-   

-   

-   

(59)

(59)

Conversion of Series A preferred

shares to common shares

(2)

(105)

-   

105 

-   

-   

-   

-   

Deferred compensation shares

and options

-   

-   

-   

13,527 

(473)

-   

-   

13,054 

Change in unrealized net loss

on securities available-for-sale

-   

-   

-   

-   

-   

-   

(283,649)

-   

(283,649)

Non-cash impairment loss on

J.C. Penney common shares

-   

-   

-   

-   

-   

-   

224,937 

-   

224,937 

Amounts reclassified related to sale

of available-for-sale securities

-   

-   

-   

-   

-   

-   

(3,582)

-   

(3,582)

Pro rata share of other

comprehensive loss of

nonconsolidated subsidiaries

-   

-   

-   

-   

-   

-   

(31,758)

-   

(31,758)

Change in value of interest rate swap

-   

-   

-   

-   

-   

-   

(5,659)

-   

(5,659)

Adjustments to carry redeemable

Class A units at redemption value

-   

-   

-   

-   

(52,117)

-   

-   

-   

(52,117)

Redeemable noncontrolling interests'

share of above adjustments

-   

-   

-   

-   

-   

-   

6,707 

-   

6,707 

Preferred unit and share

redemptions

-   

-   

-   

-   

-   

8,948 

-   

-   

8,948 

Consolidation of partially owned

entity

-   

-   

-   

-   

-   

-   

-   

176,132 

176,132 

Other

-   

-   

-   

-   

-   

(4,662)

329 

(7)

(4,340)

Balance, December 31, 2012

51,185 

$

1,240,278 

186,735 

$

7,440 

$

7,195,438 

$

(1,573,275)

$

(18,946)

$

1,053,209 

$

7,904,144 

See notes to consolidated financial statements.

102

 


 

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31,

2014 

2013 

2012 

(Amounts in thousands)

Cash Flows from Operating Activities:

Net income

$

1,009,026 

$

564,740 

$

694,541 

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

Depreciation and amortization (including amortization of deferred financing costs)

583,408 

561,998 

557,888 

Net gains on sale of real estate

(507,192)

(414,502)

(245,799)

Return of capital from Real Estate Fund investments

215,676 

56,664 

63,762 

Net realized and unrealized gains on Real Estate Fund investments

(150,139)

(85,771)

(55,361)

Distributions of income from partially owned entities

96,286 

54,030 

226,172 

Straight-lining of rental income

(82,800)

(69,391)

(69,648)

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

58,131 

338,785 

(423,126)

Amortization of below-market leases, net

(46,786)

(52,876)

(54,359)

Other non-cash adjustments

37,303 

41,663 

52,082 

Impairment losses and tenant buy-outs

26,518 

37,170 

133,977 

Net gain on disposition of wholly owned and partially owned assets

(13,568)

(3,407)

(13,347)

Defeasance cost in connection with the refinancing of mortgage notes payable

5,589 

-   

-   

Losses from the disposition of investment in J.C. Penney

-   

72,974 

300,752 

Gain on sale of Canadian Trade Shows

-   

-   

(31,105)

Changes in operating assets and liabilities:

Real Estate Fund investments

(3,392)

(37,817)

(262,537)

Tenant and other receivables, net

(8,282)

83,897 

(23,271)

Prepaid assets

(8,786)

(2,207)

(10,549)

Other assets

(123,435)

(50,856)

(46,573)

Accounts payable and accrued expenses

44,628 

(41,729)

21,595 

Other liabilities

3,125 

(12,576)

9,955 

Net cash provided by operating activities

1,135,310 

1,040,789 

825,049 

Cash Flows from Investing Activities:

Development costs and construction in progress

(544,187)

(469,417)

(156,873)

Additions to real estate

(279,206)

(260,343)

(205,652)

Proceeds from sales of real estate and related investments

388,776 

1,027,608 

445,683 

Acquisitions of real estate and other

(211,354)

(193,417)

(673,684)

Investments in partially owned entities

(120,639)

(230,300)

(134,994)

Restricted cash

99,464 

(26,892)

(75,138)

Proceeds from sales and repayments of mortgage and mezzanine loans

receivable and other

96,913 

50,569 

38,483 

Investments in mortgage and mezzanine loans receivable and other

(30,175)

(390)

(94,094)

Distributions of capital from partially owned entities

25,943 

290,404 

144,502 

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

-   

378,709 

60,258 

Proceeds from the sale of LNR

-   

240,474 

-   

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

-   

(186,079)

(191,330)

Return of J.C. Penney derivative collateral

-   

101,150 

134,950 

Proceeds from the sale of Canadian Trade Shows

-   

-   

52,504 

Proceeds from the repayment of loan to officer

-   

-   

13,123 

Net cash (used in) provided by investing activities

(574,465)

722,076 

(642,262)

See notes to consolidated financial statements.

 

103

 


 

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

Year Ended December 31,

2014 

2013 

2012 

(Amounts in thousands)

Cash Flows from Financing Activities:

Proceeds from borrowings

$

2,428,285 

$

2,262,245 

$

3,593,000 

Repayments of borrowings

(1,312,258)

(3,580,100)

(2,747,694)

Dividends paid on common shares

(547,831)

(545,913)

(699,318)

Distributions to noncontrolling interests

(220,895)

(215,247)

(104,448)

Purchase of marketable securities in connection with the defeasance of mortgage

notes payable

(198,884)

-   

-   

Dividends paid on preferred shares

(81,468)

(83,188)

(73,976)

Debt issuance and other costs

(58,336)

(19,883)

(39,073)

Contributions from noncontrolling interests

30,295 

43,964 

213,132 

Proceeds received from exercise of employee share options

19,245 

7,765 

11,853 

Repurchase of shares related to stock compensation agreements and related

tax withholdings

(3,811)

(443)

(30,168)

Purchases of outstanding preferred units and shares

-   

(299,400)

(243,300)

Proceeds from the issuance of preferred shares

-   

290,306 

290,971 

Net cash provided by (used in) financing activities

54,342 

(2,139,894)

170,979 

Net increase (decrease) in cash and cash equivalents

615,187 

(377,029)

353,766 

Cash and cash equivalents at beginning of period

583,290 

960,319 

606,553 

Cash and cash equivalents at end of period

$

1,198,477 

$

583,290 

$

960,319 

Supplemental Disclosure of Cash Flow Information:

Cash payments for interest (net of amounts capitalized of $53,139, $42,303 and $16,801)

$

443,538 

$

465,260 

$

491,869 

Cash payments for income taxes

$

11,696 

$

9,023 

$

21,709 

Non-Cash Investing and Financing Activities:

Like-kind exchange of real estate:

Acquisitions

$

606,816 

$

66,076 

$

230,913 

Dispositions

(630,352)

(128,767)

(230,913)

Adjustments to carry redeemable Class A units at redemption value

(315,276)

(108,252)

(52,117)

Marketable securities transferred in connection with the defeasance of mortgage

notes payable

198,884 

-   

-   

Defeasance of mortgage notes payable

(193,406)

-   

-   

Write-off of fully depreciated assets

(121,673)

(77,106)

(177,367)

 

Accrued capital expenditures included in accounts payable and accrued expenses

 

100,528

 

 

72,042

 

 

80,350

Elimination of a mortgage and mezzanine loan asset and liability

59,375 

-   

-   

Transfer of interest in Real Estate Fund to unconsolidated joint venture

(58,564)

-   

-   

Transfer of noncontrolling interest in Real Estate Fund

(33,028)

-   

-   

Beverly Connection seller financing

13,620 

-   

-   

Financing assumed in acquisitions

-   

79,253 

-   

Financing transferred in dispositions

-   

-   

(163,144)

L.A. Mart seller financing

-   

-   

35,000 

Marriott Marquis Times Square - retail and signage capital lease:

Asset (included in development costs and construction in progress)

-   

-   

240,000 

Liability (included in other liabilities)

-   

-   

(240,000)

Increase in assets and liabilities resulting from the consolidation of partially

owned entities:

Real estate, net

-   

-   

342,919 

Notes and mortgages payable

-   

-   

334,225 

Decrease in assets and liabilities resulting from the deconsolidation of discontinued

operations and/or investments that were previously consolidated:

Real estate, net

-   

(852,166)

-   

Notes and mortgages payable

-   

(322,903)

-   

See notes to consolidated financial statements.

104

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.     Organization and Business

 

Vornado Realty Trust (“Vornado”) is a fully‑integrated real estate investment trust (“REIT”) and conducts its business through, and substantially all of its interests in properties are held by, Vornado Realty L.P., a Delaware limited partnership (the “Operating Partnership”).  Accordingly, Vornado’s cash flow and ability to pay dividends to its shareholders is dependent upon the cash flow of the Operating Partnership and the ability of its direct and indirect subsidiaries to first satisfy their obligations to creditors.  Vornado is the sole general partner of, and owned approximately 94.1% of the common limited partnership interest in the Operating Partnership at December 31, 2014.  All references to “we,” “us,” “our,” the “Company” and “Vornado” refer to Vornado Realty Trust and its consolidated subsidiaries, including the Operating Partnership.

 

On January 15, 2015, we completed the spin-off of substantially all of our retail segment comprised of 79 strip shopping centers, three malls, a warehouse park and $225 million of cash to Urban Edge Properties (“UE”) (NYSE: UE).  As part of this transaction, we received 5,712,000 UE operating partnership units (5.4% ownership interest).  We are providing transition services to UE for an initial period of up to two years, including information technology, human resources, tax and public reporting.  UE is providing us with leasing and property management services for (i) the Monmouth Mall, (ii) certain small retail properties which did not fit UE’s strategy that we plan to sell, and (iii) our affiliate, Alexander’s, Inc. (NYSE: ALX), Rego Park retail assets.  Steven Roth, our Chairman and Chief Executive Officer is a member of the Board of Trustees of UE.  The spin-off distribution was effected by Vornado distributing one UE common share for every two Vornado common shares.  Beginning in the first quarter of 2015, the historical financial results of UE will be reflected in our consolidated financial statements as discontinued operations for all periods presented. 

 

We currently own all or portions of:

 

New York:

 

·         20.1 million square feet of Manhattan office space in 31 properties;

 

·         2.5 million square feet of Manhattan street retail space in 56 properties;

 

·         Four residential properties containing 1,654 units;

 

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

 

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

 

Washington, DC:

 

·         16.1 million square feet of office space in 59 properties;

 

·         Seven residential properties containing 2,414 units;

 

Other Real Estate and Related Investments:

 

·         The 3.6 million square foot Mart in Chicago;

 

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

 

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

 

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

 

·         Other real estate and related investments.

105

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

2.    Basis of Presentation and Significant Accounting Policies

 

 

Basis of Presentation

 

The accompanying consolidated financial statements include the accounts of Vornado and its consolidated subsidiaries, including the Operating Partnership. All inter-company amounts have been eliminated.  Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

 

Recently Issued Accounting Literature

 

In April 2014, the Financial Accounting Standards Board (“FASB”) issued an update (“ASU 2014-08”) Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity to ASC Topic 205, Presentation of Financial Statements and ASC Topic 360, Property Plant and Equipment.  Under ASU 2014-08, only disposals that represent a strategic shift that has (or will have) a major effect on the entity’s results and operations would qualify as discontinued operations.  In addition, ASU 2014-08 expands the disclosure requirements for disposals that meet the definition of a discontinued operation and requires entities to disclose information about disposals of individually significant components that do not meet the definition of discontinued operations.  ASU 2014-08 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2014.  Upon adoption of this standard, individual properties sold in the ordinary course of business are not expected to qualify as discontinued operations.  The financial results of our strip shopping centers and malls, which were spun off to UE on January 15, 2015, will be treated as a discontinued operation in the first quarter of 2015. 

 

In May 2014, the FASB issued an update ("ASU 2014-09") establishing ASC Topic 606, Revenue from Contracts with Customers.  ASU 2014-09 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance.  ASU 2014-09 requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures.  ASU 2014-09 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2016.  We are currently evaluating the impact of the adoption of ASU 2014-09 on our consolidated financial statements.

 

In June 2014, the FASB issued an update (“ASU 2014-12”) to ASC Topic 718, Compensation – Stock Compensation.  ASU 2014-12 requires an entity to treat performance targets that can be met after the requisite service period of a share based award has ended, as a performance condition that affects vesting.  ASU 2014-12 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2015.  We are currently evaluating the impact of the adoption of ASU 2014-12 on our consolidated financial statements.

 

106

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

2.    Basis of Presentation and Significant Accounting Policies - continued

 

Significant Accounting Policies

 

Real Estate:  Real estate is carried at cost, net of accumulated depreciation and amortization. Betterments, major renewals and certain costs directly related to the improvement and leasing of real estate are capitalized. Maintenance and repairs are expensed as incurred. For redevelopment of existing operating properties, the net book value of the existing property under redevelopment plus the cost for the construction and improvements incurred in connection with the redevelopment are capitalized to the extent the capitalized costs of the property do not exceed the estimated fair value of the redeveloped property when complete. If the cost of the redeveloped property, including the net book value of the existing property, exceeds the estimated fair value of redeveloped property, the excess is charged to expense. Depreciation is recognized on a straight-line basis over estimated useful lives which range from 7 to 40 years. Tenant allowances are amortized on a straight-line basis over the lives of the related leases, which approximate the useful lives of the assets. Additions to real estate include interest and debt expense capitalized during construction of $62,786,000 and $42,303,000 for the years ended December 31, 2014 and 2013, respectively.

 

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

 

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

 

The table below summarizes impairment losses, acquisition related costs and tenant buy-outs in the years ended December 31, 2014, 2013 and 2012.

 

(Amounts in thousands)

For the Year Ended December 31,

2014 

2013 

2012 

Impairment losses

$

-   

$

19,000 

$

14,538 

Acquisition related costs

33,391 

24,857 

(1)

11,248 

$

33,391 

$

43,857 

$

25,786 

(1)

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

 

107

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

2.    Basis of Presentation and Significant Accounting Policies – continued

 

 

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

 

Investments in partially owned entities are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is measured based on the excess of the carrying amount of an investment over its estimated fair value.  Impairment analyses are based on current plans, intended holding periods and available information at the time the analyses are prepared.  In the years ended December 31, 2014, 2013 and 2012, we recognized non-cash impairment losses on investments in partially owned entities, aggregating $85,459,000, $281,098,000 and $44,936,000, respectively.  Included in these amounts are $75,196,000, $240,757,000 and $40,000,000 of impairment losses related to our investment in Toys in 2014, 2013 and 2012, respectively.  

 

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

 

 

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

 

 

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

 

 

 

108

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

2.    Basis of Presentation and Significant Accounting Policies – continued

 

Allowance for Doubtful Accounts:  We periodically evaluate the collectibility of amounts due from tenants and maintain an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required payments under the lease agreements. We also maintain an allowance for receivables arising from the straight-lining of rents. This receivable arises from earnings recognized in excess of amounts currently due under the lease agreements. Management exercises judgment in establishing these allowances and considers payment history and current credit status in developing these estimates.  As of December 31, 2014 and 2013, we had $17,060,000 and $21,869,000, respectively, in allowances for doubtful accounts.  In addition, as of December 31, 2014 and 2013, we had $3,188,000 and $4,355,000, respectively, in allowances for receivables arising from the straight-lining of rents.

 

 

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

 

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

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

 

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

 

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

 

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

 

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

 

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

 

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

 

109

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

2.    Basis of Presentation and Significant Accounting Policies – continued

 

Derivative Instruments and Hedging Activities:  ASC 815, Derivatives and Hedging, as amended, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. As of December 31, 2014 and 2013, our derivative instruments consisted of an interest rate cap and an interest rate swap.  We record all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation. Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.

 

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

 

Income Taxes: We operate in a manner intended to enable us to continue to qualify as a REIT under Sections 856‑860 of the Internal Revenue Code of 1986, as amended. Under those sections, a REIT which distributes at least 90% of its REIT taxable income as a dividend to its shareholders each year and which meets certain other conditions will not be taxed on that portion of its taxable income which is distributed to its shareholders. We distribute to our shareholders 100% of our taxable income and therefore, no provision for Federal income taxes is required.  Dividends distributed for the years ended December 31, 2014 and 2013, were characterized, for federal income tax purposes, as ordinary income.  Dividend distributions for the year ended December 31, 2012, were characterized, for Federal income tax purposes, as 62.7% ordinary income and 37.3% long-term capital gain. 

 

We have elected to treat certain consolidated subsidiaries, and may in the future elect to treat newly formed subsidiaries, as taxable REIT subsidiaries pursuant to an amendment to the Internal Revenue Code that became effective January 1, 2001.  Taxable REIT subsidiaries may participate in non-real estate related activities and/or perform non-customary services for tenants and are subject to Federal and State income tax at regular corporate tax rates. Our taxable REIT subsidiaries had a combined current income tax expense of approximately $10,777,000, $9,608,000 and $20,336,000 for the years ended December 31, 2014, 2013 and 2012, respectively, and have immaterial differences between the financial reporting and tax basis of assets and liabilities. 

 

At December 31, 2014 and 2013, we had deferred tax assets from our taxable REIT subsidiaries of $94,100,000 and $87,800,000, respectively, against which we have recorded a full valuation allowance because we have not determined that it is more likely than not that we will realize these net operating loss carryforwards which expire in 2034.  The year over year change in the valuation allowance relates to an increase in the net operating loss carryforwards.

 

The following table reconciles net income attributable to common shareholders to estimated taxable income for the years ended December 31, 2014, 2013 and 2012.

 

(Amounts in thousands)

For the Year Ended December 31,

2014 

2013 

2012 

Net income attributable to common shareholders

$

783,388 

$

392,034 

$

549,271 

Book to tax differences (unaudited):

Depreciation and amortization

219,403 

155,401 

205,155 

Impairment losses on marketable equity securities

-   

37,236 

211,328 

Straight-line rent adjustments

(77,526)

(64,811)

(64,679)

Earnings of partially owned entities

71,960 

339,376 

(60,049)

Stock options

(9,566)

4,884 

(28,701)

Sale of real estate

(477,061)

(324,936)

(123,905)

Derivatives

-   

31,578 

71,228 

Other, net

1,260 

4,608 

17,080 

Estimated taxable income (unaudited)

$

511,858 

$

575,370 

$

776,728 

 

The net basis of our assets and liabilities for tax reporting purposes is approximately $3.6 billion lower than the amounts reported in our consolidated balance sheet at December 31, 2014.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

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

 

We are the general partner and investment manager of the Fund, which has an eight-year term and a three-year investment period that ended in July 2013. During the investment period, the Fund was our exclusive investment vehicle for all investments that fit within its investment parameters, as defined. The Fund is accounted for under the AICPA Investment Company Guide and its investments are reported on its balance sheet at fair value, with changes in value each period recognized in earnings. We consolidate the accounts of the Fund into our consolidated financial statements, retaining the fair value basis of accounting.

 

On June 26, 2014, the Fund sold its 64.7% interest in One Park Avenue to a newly formed joint venture that we and an institutional investor own 55% and 45%, respectively (see Note 6 - Investments in Partially Owned Entities - One Park Avenue).  This transaction was based on a property value of $560,000,000.  From the inception of this investment through its disposition, the Fund realized a $75,529,000 net gain.

 

On August 21, 2014, the Fund and its 50% joint venture partner completed the sale of The Shops at Georgetown Park, a 305,000 square foot retail property, for $272,500,000. From the inception of this investment through its disposition, the Fund realized a $51,124,000 net gain.

 

On January 20, 2015, we co-invested with the Fund and one of the Fund’s limited partners to buy out the Fund’s joint venture partner’s 57% interest in the Crowne Plaza Times Square Hotel.  The purchase price for the 57% interest was approximately $95,000,000 (our share $39,000,000) which valued the property at approximately $480,000,000.  The property is encumbered by a newly placed $310,000,000 mortgage loan bearing interest at LIBOR plus 2.80% and maturing in December 2018 with a one-year extension option.   Our aggregate ownership interest in the property increased to 33% from 11%.

 

At December 31, 2014, the Fund had seven investments with an aggregate fair value of $513,973,000, or $176,899,000 in excess of cost, and had remaining unfunded commitments of $144,123,000, of which our share was $36,031,000.  At December 31, 2013, the Fund had nine investments with an aggregate fair value of $667,710,000.

 

Below is a summary of income from the Fund for the years ended December 31, 2014, 2013 and 2012

 

(Amounts in thousands)

For the Year Ended December 31,

2014 

2013 

2012 

Net investment income

$

12,895 

$

8,943 

$

8,575 

Net realized gains

76,337 

8,184 

-   

Net unrealized gains

73,802 

85,771 

55,361 

Income from Real Estate Fund

163,034 

102,898 

63,936 

Less income attributable to noncontrolling interests

(92,728)

(53,427)

(39,332)

Income from Real Estate Fund attributable to Vornado (1)

$

70,306 

$

49,471 

$

24,604 

(1)

Excludes $2,865, $2,992, and $3,278 of management and leasing fees in the years ended December 31, 2014, 2013 and 2012, respectively, which are included as a component of "fee and other income" on our consolidated statements of income.

 

4.     Acquisitions

 

On August 1, 2014, we acquired the land under our 715 Lexington Avenue retail property located on the Southeast corner of 58th Street and Lexington Avenue in Manhattan, for $63,000,000.

 

On October 28, 2014, we completed the purchase of the retail condominium of the St. Regis Hotel for $700,000,000.  We own a 74.3% controlling interest of the joint venture which owns the property.  The acquisition was used in a like-kind exchange for income tax purposes for the sale of 1740 Broadway (see Note 8 – Dispositions).  We consolidate the accounts of the venture into our consolidated financial statements from the date of acquisition.

 

On November 21, 2014, we entered into an agreement to acquire the Center Building, an eight story 437,000 square foot office building, located at 33-00 Northern Boulevard in Long Island City, New York.  The building is 98% leased.  The purchase price is approximately $142,000,000, including the assumption of an existing $62,000,000 4.43% mortgage maturing in October 2018.  The purchase is expected to close in the first quarter of 2015, subject to customary closing conditions.  As of December 31, 2014, our $14,200,000 non-refundable deposit was included in “other assets” on our consolidated balance sheet.

 

On January 20, 2015, we co-invested with our 25% owned Fund and one of the Fund’s limited partners to acquire the Fund’s joint venture partner’s 57% interest in the Crowne Plaza Times Square Hotel (see Note 3 – Vornado Capital Partners Real Estate Fund).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

5.    Marketable Securities and Derivative Instruments

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

 

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

 

 

Below is a summary of our marketable securities portfolio as of December 31, 2014 and 2013.

As of December 31, 2014

As of December 31, 2013

GAAP

Unrealized

GAAP

Unrealized

Fair Value

Cost

Gain

Fair Value

Cost

Gain

Equity securities:

Lexington Realty Trust

$

202,789 

$

72,549 

$

130,240 

$

188,567 

$

72,549 

$

116,018 

Other

3,534 

-   

3,534 

3,350 

59 

3,291 

$

206,323 

$

72,549 

$

133,774 

$

191,917 

$

72,608 

$

119,309 

 

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

 

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

 

 

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

 

In the first quarter of 2013, we wrote down 8,584,010 J.C. Penney common shares we owned to fair value, based on J.C. Penney’s March 31, 2013 closing share price of $15.11 per share, and recorded a $39,487,000 impairment loss.  On September 19, 2013, we settled a forward contract and received 4,815,990 J.C. Penney common shares.  In connection therewith, we recognized a $33,487,000 loss from the mark-to-market of the derivative position through its settlement date.  These losses are included in “interest and other investment income (loss), net” on our consolidated statements of income.

 

In March 2013 and September 2013, we sold an aggregate of 23,400,000 J.C. Penney common shares at a price of $14.29 per share, or $334,500,000, resulting in a net loss of $54,914,000.  The net losses resulting from these sales are included in “net gain on disposition of wholly owned and partially owned assets” on our consolidated statements of income.

 

 

Other Investments

 

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

   

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VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

6.    Investments in Partially Owned Entities

 

 

Toys “R” Us (“Toys”)

As of December 31, 2014, we own 32.6% of Toys.  We account for our investment in Toys under the equity method and record our share of Toys’ net income or loss on a one-quarter lag basis because Toys’ fiscal year ends on the Saturday nearest January 31, and our fiscal year ends on December 31.  The business of Toys is highly seasonal and substantially all of Toys’ net income is generated in its fourth quarter. 

 

We have not guaranteed any of Toys’ obligations and are not committed to provide any support to Toys.  Pursuant to ASC 323-10-35-20, we discontinued applying the equity method for our Toys’ investment when the carrying amount was reduced to zero in the third quarter of 2014.  We will resume application of the equity method if during the period the equity method was suspended our share of unrecognized net income exceeds our share of unrecognized net losses.

 

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

 

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

 

In the first quarter of 2014, we recognized our share of Toys’ fourth quarter net income of $75,196,000 and a corresponding non-cash impairment loss of the same amount to continue to carry our investment at fair value.

 

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

 

(Amounts in thousands)

Balance as of

Balance Sheet:

November 1, 2014

November 2, 2013

Assets

$

11,267,000 

$

11,756,000 

Liabilities

10,377,000 

10,437,000 

Noncontrolling interests

82,000 

75,000 

Toys “R” Us, Inc. equity (1)

808,000 

1,244,000 

For the Twelve Months Ended

Income Statement:

November 1, 2014

November 2, 2013

October 27, 2012

Total revenues

$

12,645,000 

$

13,046,000 

$

13,698,000 

Net (loss) income attributable to Toys

(343,000)

(396,000)

138,000 

(1)

At December 31, 2014, the carrying amount of our investment in Toys is less than our share of Toys' equity by approximately $263,455. This basis difference results primarily from non-cash impairment losses aggregating $355,953 that we have recognized through December 31, 2014. We have allocated the basis difference primarily to Toys' real estate, which is being amortized over its remaining estimated useful life.

 

 

 

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

 

As of December 31, 2014, 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.

 

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VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

6.    Investments in Partially Owned Entities – continued

 

 

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

 

As of December 31, 2014 the market value (“fair value” pursuant to ASC 820) of our investment in Alexander’s, based on Alexander’s December 31, 2014 closing share price of $437.18, was $723,125,000, or $591,509,000 in excess of the carrying amount on our consolidated balance sheet.  As of December 31, 2014, the carrying amount of our investment in Alexander’s, excluding amounts owed to us, exceeds our share of the equity in the net assets of Alexander’s by approximately $42,048,000.  The majority of this basis difference resulted from the excess of our purchase price for the Alexander’s common stock acquired over the book value of Alexander’s net assets.  Substantially all of this basis difference was allocated, based on our estimates of the fair values of Alexander’s assets and liabilities, to real estate (land and buildings).  We are amortizing the basis difference related to the buildings into earnings as additional depreciation expense over their estimated useful lives.  This depreciation is not material to our share of equity in Alexander’s net income.  The basis difference related to the land will be recognized upon disposition of our investment.

 

Management, Leasing and Development Agreements

 

We receive an annual fee for managing Alexander’s and all of its properties equal to the sum of (i) $2,800,000, (ii) 2% of the gross revenue from the Rego Park II Shopping Center, (iii) $0.50 per square foot of the tenant-occupied office and retail space at 731 Lexington Avenue, and (iv) $280,000, escalating at 3% per annum, for managing the common area of 731 Lexington Avenue.  In addition, we are entitled to a development fee of 6% of development costs, as defined.

 

We provide Alexander’s with leasing services for a fee of 3% of rent for the first ten years of a lease term, 2% of rent for the eleventh through twentieth year of a lease term and 1% of rent for the twenty-first through thirtieth year of a lease term, subject to the payment of rents by Alexander’s tenants.  In the event third-party real estate brokers are used, our fee increases by 1% and we are responsible for the fees to the third-parties.  We are also entitled to a commission upon the sale of any of Alexander’s assets equal to 3% of gross proceeds, as defined, for asset sales less than $50,000,000, and 1% of gross proceeds, as defined, for asset sales of $50,000,000 or more.  The total of these amounts was payable to us in annual installments in an amount not to exceed $4,000,000 with interest on the unpaid balance at one-year LIBOR plus 1.0% (1.58% at December 31, 2014).

 

On December 22, 2014, the leasing agreements with Alexander’s were amended to eliminate the annual installment cap of $4,000,000.  In addition, Alexander’s repaid to us the outstanding balance of $40,353,000.

 

On January 15, 2015, we completed the spin-off of 79 strip shopping centers, three malls, a warehouse park and $225,000,000 of cash to UE and the transfer of all of the employees responsible for the management and leasing of those assets.   In addition, we entered into agreements with UE to provide management and leasing services, on our behalf, for Alexander’s Rego Park retail assets.   Fees for these services are similar to the fees we are receiving from Alexander’s described above.

 

Other Agreements

 

Building Maintenance Services (“BMS”), our wholly-owned subsidiary, supervises (i) cleaning, engineering and security services at Alexander’s 731 Lexington Avenue property and (ii) security services at Alexander’s Rego Park I and Rego Park II properties, for an annual fee of the costs for such services plus 6%.  During the years ended December 31, 2014, 2013 and 2012, we recognized $2,318,000, $2,036,000 and $2,362,000 of income, respectively, under these agreements.

 

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

 

(Amounts in thousands)

Balance as of December 31,

Balance Sheet:

2014

2013

Assets

$

1,423,000 

$

1,458,000 

Liabilities

1,075,000 

1,124,000 

Stockholders' equity

348,000 

334,000 

For the Year Ended December 31,

Income Statement:

2014

2013

2012

Total revenues

$

201,000 

$

196,000 

$

191,000 

Net income attributable to Alexander’s (1)

68,000 

57,000 

674,000 

(1)

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

 

114

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

6.    Investments in Partially Owned Entities – continued

 

 

LNR Property LLC (“LNR”)

 

In January 2013, we and the other equity holders of LNR entered into a definitive agreement to sell LNR for $1.053 billion, of which our share of the net proceeds was $240,474,000.  The definitive agreement provided that LNR would not (i) make any cash distributions to the equity holders, including us, through the completion of the sale, which occurred on April 19, 2013, and (ii) take any of the following actions (among others) without the purchaser’s approval, the lending or advancing of any money, the acquisition of assets in excess of specified amounts, or the issuance of equity interests.  Notwithstanding the terms of the definitive agreement, in accordance with GAAP, we recorded our pro rata share of LNR’s earnings on a one-quarter lag basis through the date of sale, which increased the carrying amount of our investment in LNR above our share of the net sales proceeds and resulted in us recognizing a $27,231,000 “other-than-temporary” impairment loss on our investment in the three months ended March 31, 2013.

 

One Park Avenue

 

On June 26, 2014, we invested an additional $22,700,000 to increase our ownership in One Park Avenue to 55.0% from 46.5% through a joint venture with an institutional investor, who increased its ownership interest to 45.0% (see Note 3 – Vornado Capital Partners Real Estate Fund).  The transaction was based on a property value of $560,000,000.  The property is encumbered by a $250,000,000 interest-only mortgage loan that bears interest at 4.995% and matures in March 2016.  We account for our investment in the joint venture under the equity method because we share control over major decisions with our joint venture partner.

 

61 Ninth Avenue

 

On July 23, 2014, a joint venture in which we are a 50.1% partner entered into a 99-year ground lease for 61 Ninth Avenue located on the Southwest corner of Ninth Avenue and 15th Street in Manhattan.  The venture’s current plans are to construct an office building, with retail at the base, of approximately 130,000 square feet.  Total development costs are currently estimated to be approximately $125,000,000.  We account for our investment in the joint venture under the equity method because we share control over major decisions with our joint venture partner. 

 

The following is a summary of condensed combined financial information for all of our partially owned entities, including Toys, Alexander’s and LNR (sold in April 2013), as of December 31, 2014 and 2013 and for the years ended December 31, 2014, 2013 and 2012.

(Amounts in thousands)

Balance as of December 31,

Balance Sheet:

2014 

2013 

Assets

$

21,389,000 

$

21,773,000 

Liabilities

17,986,000 

17,982,000 

Noncontrolling interests

104,000 

96,000 

Equity

3,299,000 

3,695,000 

For the Year Ended December 31,

Income Statement:

2014 

2013 

2012 

Total revenue

$

13,620,000 

$

14,092,000 

$

15,119,000 

Net (loss) income(1)

(434,000)

(368,000)

1,091,000 

(1)

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

 

115

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

6.    Investments in Partially Owned Entities - continued

 

 

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

 

Percentage

(Amounts in thousands)

Ownership at

As of December 31,

Investments:

December 31, 2014

2014 

2013 

Toys

32.6% 

$

-   

$

83,224 

Alexander’s

32.4% 

$

131,616 

$

167,785 

India real estate ventures

4.1%-36.5%

76,752 

88,467 

Partially owned office buildings (1)

Various

760,749 

621,294 

Other investments (2)

Various

277,379 

288,897 

$

1,246,496 

$

1,166,443 

______________________________________________________

(1)

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

(2)

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

 

Percentage

(Amounts in thousands)

Ownership at

For the Year Ended December 31,

Our Share of Net (Loss) Income:

December 31, 2014

2014 

2013 

2012 

Toys:

Equity in net (loss) earnings

32.6% 

$

(4,691)

$

(128,919)

$

45,267 

Non-cash impairment losses (see page 113 for details)

(75,196)

(240,757)

(40,000)

Management fees

6,331 

7,299 

9,592 

$

(73,556)

$

(362,377)

$

14,859 

Alexander's:

Equity in net income

32.4% 

$

21,287 

$

17,721 

$

24,709 

Management, leasing and development fees

8,722 

6,681 

13,748 

Net gain on sale of real estate

-   

-   

179,934 

30,009 

24,402 

218,391 

India real estate ventures (1)

4.1%-36.5%

(8,309)

(3,533)

(5,008)

Partially owned office buildings (2)

Various

93 

(4,212)

(3,770)

Other investments (3)

Various

(6,368)

(10,817)

103,644 

LNR (see page 115 for details):

Equity in net income

n/a

-   

42,186 

66,270 

Impairment loss

-   

(27,231)

-   

Net gain on sale

-   

3,776 

-   

-   

18,731 

66,270 

Lexington (see page 112 for details): (4)

n/a

Equity in net loss

-   

(979)

(23)

Net gain resulting from Lexington's stock issuance and asset

acquisition

-   

-   

28,763 

-   

(979)

28,740 

$

15,425 

$

23,592 

$

408,267 

______________________________________________________

(1)

Includes a $5,771 non-cash impairment loss in 2014.

(2)

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

(3)

Includes interests in Independence Plaza, Monmouth Mall, 85 Tenth Avenue, Fashion Center Mall, 50-70 West 93rd Street and others. In the third quarter of 2014, we recognized a $10,263 non-cash charge, comprised of a $5,959 impairment loss and a $4,304 loan loss reserve, on our equity and debt investments in Suffolk Downs.

(4)

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

 

116

 


 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

6.    Investments in Partially Owned Entities - continued

Below is a summary of the debt of our partially owned entities as of December 31, 2014 and 2013, none of which is recourse to us.

Percentage

Interest

Ownership at

Rate at

100% Partially Owned Entities’

(Amounts in thousands)

December 31,

December 31,

Debt at December 31,

2014 

Maturity

2014 

2014 

2013 

Toys:

Notes, loans and mortgages payable

32.6% 

2015-2021

7.23% 

$

5,748,350 

$

5,702,247 

Alexander's:

Mortgages payable

32.4% 

2015-2021

2.59% 

$

1,032,780 

$

1,049,959 

Partially owned office buildings(1):

Mortgages payable

Various

2015-2023

5.59% 

$

3,691,274 

$

3,622,759 

India Real Estate Ventures:

TCG Urban Infrastructure Holdings mortgages

payable

25.0% 

2015-2026

13.25% 

$

183,541 

$

199,021 

Other(2):

Mortgages payable

Various

2015-2023

4.33% 

$

1,480,485 

$

1,709,509 

(1)

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

(2)

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

 

Based on our ownership interest in the partially owned entities above, our pro rata share of the debt of these partially owned entities, was $4,273,632,000 and $4,189,403,000 as of December 31, 2014 and 2013, respectively.

 

7.    Mortgage and Mezzanine Loans Receivable

 

In October 2012, we acquired a 25% participation in a $475,000,000 first mortgage and mezzanine loan for the acquisition and redevelopment of a 10-story retail building at 701 Seventh Avenue in Times Square.  The loan had an interest rate of LIBOR plus 10.2%, with a LIBOR floor of 1.0%.  Of the $475,000,000, we funded $93,750,000, representing our 25% share of the $375,000,000 that was funded at acquisition.  In March 2013, we transferred at par, the 25% participation in the mortgage loan.  The transfer did not qualify for sale accounting given our continuing interest in the mezzanine loan.  Accordingly, we continued to include the 25% participation in the mortgage loan in “other assets” and recorded a $59,375,000 liability in “other liabilities” on our consolidated balance sheet as of December 31, 2013.  On January 14, 2014, the mortgage and mezzanine loans were repaid; accordingly, the $59,375,000 asset and liability were eliminated. 

 

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

 

In March 2014, a $30,000,000 mezzanine loan that was scheduled to mature in January 2015 was repaid. In May 2014, a $25,000,000 mezzanine loan that was scheduled to mature in November 2014 was repaid.

 

As of December 31, 2014 and 2013, the carrying amounts of mortgage and mezzanine loans receivable were $16,748,000 and $170,972,000, respectively, net of an allowance of $5,811,000 and $5,845,000, respectively, and are included in “other assets” on our consolidated balance sheets.  These loans have a weighted average interest rate of 9.1% and 11.0% at December 31, 2014 and 2013, respectively and have maturities ranging from April 2015 to May 2016.

117

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

8.    Dispositions

 

 

Discontinued Operations

 

2014 Activity:

 

New York

 

On December 18, 2014, we completed the sale of 1740 Broadway, a 601,000 square foot office building in Manhattan for $605,000,000.  The sale resulted in net proceeds of approximately $580,000,000, after closing costs, and resulted in a financial statement gain of approximately $441,000,000.  The tax gain of approximately $484,000,000, was deferred in like-kind exchanges, primarily for the acquisition of the St. Regis Fifth Avenue retail (see Note 4 – Acquisitions). 

 

Retail Properties

 

On February 24, 2014, we completed the sale of Broadway Mall in Hicksville, Long Island, New York, for $94,000,000.  The sale resulted in net proceeds of $92,174,000 after closing costs.

 

On March 2, 2014, we entered into an agreement to transfer upon completion, the redeveloped Springfield Town Center, a 1,350,000 square foot mall located in Springfield, Fairfax County, Virginia, to Pennsylvania Real Estate Investment Trust (NYSE: PEI) (“PREIT”) in exchange for $465,000,000 comprised of $340,000,000 of cash and $125,000,000 of PREIT operating partnership units.  In connection therewith, we recorded a non-cash impairment loss of $20,000,000 in the first quarter of 2014, which is included in “income from discontinued operations” on our consolidated statements of income. The redevelopment was substantially completed in October 2014, at which time we reclassified the assets, liabilities and financial results to discontinued operations, and the transfer of the property to PREIT is expected to be completed no later than March 31, 2015.

 

On July 8, 2014, we completed the sale of Beverly Connection, a 335,000 square foot power shopping center in Los Angeles, California, for $260,000,000, of which $239,000,000 was cash and $21,000,000 was 10-year mezzanine seller financing.  The sale resulted in a net gain of $44,155,000, which was recognized in the third quarter of 2014. 

 

In addition to the above, during 2014, we sold six of the 22 strip shopping centers which did not fit UE’s strategy (see Note 1 – Organization and Business), in separate transactions, for an aggregate of $66,410,000 in cash, which resulted in a net gain aggregating $22,500,000.

 

 

2013 Activity:

 

New York

 

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

 

Retail Properties

 

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

 

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

 

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

 

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

 

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

118

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

8.    Dispositions - continued

 

2012 Activity:

 

Washington, DC

 

On July 26, 2012, we sold 409 Third Street S.W., a 409,000 square foot office building in Washington, DC, for $200,000,000, which resulted in a net gain of $126,621,000.

 

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

 

Merchandise Mart

 

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

 

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

 

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

 

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

 

 

Retail Properties

 

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

 

In accordance with the provisions of ASC 360, Property, Plant, and Equipment, we have reclassified the revenues and expenses of all of the properties discussed above to “income from discontinued operations” and the related assets and liabilities to “assets related to discontinued operations” and “liabilities related to discontinued operations” for all of the periods presented in the accompanying financial statements.  The net gains resulting from the sale of these properties are included in “income from discontinued operations” on our consolidated statements of income.  The tables below set forth the assets and liabilities related to discontinued operations at December 31, 2014 and 2013, and their combined results of operations for the years ended December 31, 2014, 2013 and 2012.

 

Assets Related to

Liabilities Related to

(Amounts in thousands)

Discontinued Operations as of

Discontinued Operations as of

December 31,

December 31,

2014 

2013 

2014 

2013 

Retail

$

477,620 

$

735,888 

$

211 

$

14,709 

New York

138,162 

Total

$

477,620 

$

874,050 

$

211 

$

14,709 

(Amounts in thousands)

For the Year Ended December 31,

2014 

2013 

2012 

Total revenues

$

70,593 

$

129,860 

$

264,878 

Total expenses

36,424 

79,458 

190,450 

34,169 

50,402 

74,428 

Net gains on sales of real estate

507,192 

414,502 

245,799 

Impairment losses

(26,518)

(18,170)

(119,439)

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

19,657 

Income from discontinued operations

$

514,843 

$

446,734 

$

220,445 

119

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

9.    Identified Intangible Assets and Liabilities

The following summarizes our identified intangible assets (primarily acquired above-market leases) and liabilities (primarily acquired below-market leases) as of December 31, 2014 and 2013.

 

Balance as of December 31,

(Amounts in thousands)

2014 

2013 

Identified intangible assets:

Gross amount

$

502,080 

$

583,862 

Accumulated amortization

(225,841)

(276,426)

Net

$

276,239 

$

307,436 

Identified intangible liabilities (included in deferred revenue):

Gross amount

$

885,763 

$

855,860 

Accumulated amortization

(396,895)

(359,371)

Net

$

488,868 

$

496,489 

 

Amortization of acquired below-market leases, net of acquired above-market leases resulted in an increase to rental income of $46,277,000, $50,128,000 and $51,271,000 for the years ended December 31, 2014, 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, 2015 is as follows:

 

(Amounts in thousands)

2015 

$

57,202 

2016 

45,333 

2017 

42,457 

2018 

41,311 

2019 

30,950 

 

Amortization of all other identified intangible assets (a component of depreciation and amortization expense) was $29,870,000, $64,196,000 and $49,442,000 for the years ended December 31, 2014, 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, 2015 is as follows:

 

(Amounts in thousands)

2015 

$

27,210 

2016 

21,437 

2017 

17,859 

2018 

13,533 

2019 

11,553 

 

We are a tenant under ground leases at certain properties.  Amortization of these acquired below-market leases, net of above-market leases resulted in an increase to rent expense of $3,363,000, $4,290,000 and $1,261,000 for the years ended December 31, 2014, 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, 2015 is as follows:

 

(Amounts in thousands)

2015 

$

3,363 

2016 

3,363 

2017 

3,363 

2018 

3,363 

2019 

3,363 

120

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

10.    Debt

 

Secured Debt

 

On January 31, 2014, we completed a $600,000,000 loan secured by our 220 Central Park South development site.  The loan bears interest at LIBOR plus 2.75% (2.92% at December 31, 2014) and matures in January 2016, with three one-year extension options.

 

On April 16, 2014, we completed a $350,000,000 refinancing of 909 Third Avenue, a 1.3 million square foot Manhattan office building.  The seven-year interest only loan bears interest at 3.91% and matures in May 2021. We realized net proceeds of approximately $145,000,000 after defeasing the existing 5.64%, $193,000,000 mortgage, defeasance cost and other closing costs.

 

On July 16, 2014, we completed a $130,000,000 financing of Las Catalinas, a 494,000 square foot mall located in the San Juan area of Puerto Rico. The 10-year fixed rate loan bears interest at 4.43% and matures in August 2024.  The loan amortizes based on a 30-year schedule beginning in year six.

 

On August 12, 2014, we completed a $185,000,000 financing of the Universal buildings, a 690,000 square foot, two-building office complex located in Washington, DC. The loan bears interest at LIBOR plus 1.90% (2.06% at December 31, 2014) and matures in August 2019 with two one-year extension options. The loan amortizes based on a 30-year schedule beginning in the fourth year.

 

On August 26, 2014, we obtained a standby commitment for up to $500,000,000 of five-year mezzanine loan financing to fund a portion of the development expenditures at 220 Central Park South. 

 

On October 27, 2014, we completed a $140,000,000 financing of 655 Fifth Avenue, a 57,500 square foot retail and office property.  The loan is interest only at LIBOR plus 1.40% (1.56% at December 31, 2014) and matures in October 2019 with two one-year extension options.

 

On December 8, 2014, we completed a $575,000,000 refinancing of Two Penn Plaza, a 1.6 million square foot Manhattan office building.  The loan is interest-only at LIBOR plus 1.65% (1.81% at December 31, 2014) and matures in 2019 with two one-year extension options.  We realized net proceeds of approximately $143,000,000.  Pursuant to an existing swap agreement, the $422,000,000 previous loan on the property was swapped to a fixed rate of 4.78% through March 2018.  Therefore, $422,000,000 of the new loan bears interest at a fixed rate of 4.78% through March 2018 and the balance of $153,000,000 floats through March 2018.  The entire $575,000,000 will float thereafter for the duration of the new loan.

 

On January 6, 2015, we completed the modification of the $120,000,000, 6.04% mortgage loan secured by our Montehiedra Town Center, in the San Juan area of Puerto Rico.  The loan has been extended from July 2016 to July 2021 and separated into two tranches, a senior $90,000,000 position with interest at 5.33% to be paid currently, and a junior $30,000,000 position with interest accruing at 3%. Montehiedra Town Center and the loan were included in the spin-off to UE on January 15, 2015.  As part of the planned redevelopment of the property, UE is committed to fund $20,000,000 through a loan for leasing and building capital expenditures of which $8,000,000 has been funded.  This loan is senior to the $30,000,000 position noted above and accrues interest at 10%.    

 

Senior Unsecured Notes

 

On June 16, 2014, we completed a green bond public offering of $450,000,000 2.50% senior unsecured notes due June 30, 2019. The notes were sold at 99.619% of their face amount to yield 2.581%.

 

On October 1, 2014, we redeemed all of the $445,000,000 principal amount of our outstanding 7.875% senior unsecured notes, which were scheduled to mature on October 1, 2039, at a redemption price of 100% of the principal amount plus accrued interest through the redemption date.  In the fourth quarter of 2014, we wrote off $12,532,000 of unamortized deferred financing costs, which are included as a component of “interest and debt expense” on our consolidated statements of income.

 

On January 1, 2015, we redeemed all of the $500,000,000 principal amount of our outstanding 4.25% senior unsecured notes, which were scheduled to mature on April 1, 2015, at a redemption price of 100% of the principal amount plus accrued interest through December 31, 2014.

 

 

 

121

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

 

10.    Debt – continued

 

 

Unsecured Revolving Credit Facility

 

On September 30, 2014, we extended one of our two $1.25 billion unsecured revolving credit facilities from November 2015 to November 2018 with two six-month extension options.  The interest rate on the extended facility was lowered to LIBOR plus 105 basis points from LIBOR plus 125 basis points and the facility fee was reduced to 20 basis points from 25 basis points. 

 

 

The following is a summary of our debt:

 

Weighted Average

Interest Rate at

Balance at December 31,

(Amounts in thousands)

December 31, 2014

2014 

2013 

Mortgages Payable:

Fixed rate

4.45% 

$

7,710,931 

$

7,563,133 

Variable rate

2.20%

1,840,769 

768,860 

4.02% 

$

9,551,700 

$

8,331,993 

Unsecured Debt:

Senior unsecured notes

3.89% 

$

1,347,159 

$

1,350,855 

Unsecured revolving credit facilities

-

-   

295,870 

3.89% 

$

1,347,159 

$

1,646,725 

 

 

        The net carrying amount of properties collateralizing the mortgages payable amounted to $10.4 billion at December 31, 2014.  As of December 31, 2014, the principal repayments required for the next five years and thereafter are as follows:

 

Senior Unsecured

Debt and

(Amounts in thousands)

Revolving Credit

Year Ending December 31,

Mortgages Payable

Facilities

2015 

$

433,699 

$

500,000 

2016 

1,552,419 

-   

2017 

626,525 

-   

2018 

340,442 

-   

2019 

996,579 

450,000 

Thereafter

5,601,148 

400,000 

122

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

11.    Redeemable Noncontrolling Interests

 

Redeemable noncontrolling interests on our consolidated balance sheets are primarily comprised of Class A Operating Partnership units held by third parties and  are recorded at the greater of their carrying amount or redemption value at the end of each reporting period.  Changes in the value from period to period are charged to “additional capital” in our consolidated statements of changes in equity.  Class A units may be tendered for redemption to the Operating Partnership for cash; we, at our option, may assume that obligation and pay the holder either cash or Vornado common shares on a one-for-one basis.  Because the number of Vornado common shares outstanding at all times equals the number of Class A units owned by Vornado, the redemption value of each Class A unit is equivalent to the market value of one Vornado common share, and the quarterly distribution to a Class A unitholder is equal to the quarterly dividend paid to a Vornado common shareholder. 

 

Below are the details of redeemable noncontrolling interests as of December 31, 2014 and 2013.

(Amounts in thousands, except units and

Preferred or

per unit amounts)

Balance as of

Units Outstanding at

Per Unit

Annual

December 31,

December 31,

Liquidation

Distribution

Unit Series

2014 

2013 

2014 

2013 

Preference

Rate

Common:

Class A

$

1,336,780 

$

1,002,620 

11,356,550 

11,292,038 

n/a

$

2.92 

Perpetual Preferred: (1)

5.00% D-16 Cumulative Redeemable

$

1,000 

$

1,000 

$

1,000,000.00 

$

50,000.00 

(1)

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

 

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

(Amounts in thousands)

Balance at December 31, 2012

$

944,152 

Net income

24,817 

Other comprehensive income

5,296 

Distributions

(34,053)

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

(25,317)

Adjustments to carry redeemable Class A units at redemption value

108,252 

Redemption of Series D-15 redeemable units

(36,900)

Other, net

17,373 

Balance at December 31, 2013

1,003,620 

Net income

47,613 

Other comprehensive income

1,323 

Distributions

(33,469)

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

(27,273)

Adjustments to carry redeemable Class A units at redemption value

315,276 

Other, net

30,690 

Balance at December 31, 2014

$

1,337,780 

 

Redeemable noncontrolling interests exclude our Series G Convertible Preferred units and Series D-13 Cumulative Redeemable Preferred units, as they are accounted for as liabilities in accordance with ASC 480, Distinguishing Liabilities and Equity, because of their possible settlement by issuing a variable number of Vornado common shares.  Accordingly, the fair value of these units is included as a component of “other liabilities” on our consolidated balance sheets and aggregated $55,097,000 as of December 31, 2014 and 2013. 

123

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

12.    Shareholders’ Equity

 

Common Shares

 

As of December 31, 2014, there were 187,887,498 common shares outstanding.  During 2014, we paid an aggregate of $547,831,000 of common dividends comprised of quarterly common dividends of $0.73 per share.

 

Preferred Shares

 

The following table sets forth the details of our preferred shares of beneficial interest as of December 31, 2014 and 2013.

 

(Amounts in thousands, except share and

Balance as of

Shares Outstanding at

Per Share

Annual

per share amounts)

December 31,

December 31,

Liquidation

Dividend

Preferred Shares

2014 

2013 

2014 

2013 

Preference

Rate(1)

Convertible Preferred:

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

$

1,393 

$

1,592 

28,939 

32,807 

$

50.00 

$

3.25 

Cumulative Redeemable:

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

193,135 

193,135 

8,000,000 

8,000,000 

$

25.00 

$

1.65625 

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

262,379 

262,379 

10,800,000 

10,800,000 

$

25.00 

$

1.65625 

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

238,842 

238,842 

9,850,000 

9,850,000 

$

25.00 

$

1.71875 

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

290,971 

290,971 

12,000,000 

12,000,000 

$

25.00 

$

1.425 

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

290,306 

290,306 

12,000,000 

12,000,000 

$

25.00 

$

1.35 

$

1,277,026 

$

1,277,225 

52,678,939 

52,682,807 

(1)

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

(2)

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

(3)

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

 

Accumulated Other Comprehensive Income (Loss)

 

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

 

For the Year Ended December 31, 2014

Securities

Pro rata share of

Interest

available-

nonconsolidated

rate

(Amounts in thousands)

Total

for-sale

subsidiaries' OCI

swap

Other

Balance as of December 31, 2013

$

71,537 

$

119,309 

$

(11,501)

$

(31,882)

$

(4,389)

Net current period OCI

21,730 

14,465 

2,509 

6,079 

(1,323)

Balance as of December 31, 2014

$

93,267 

$

133,774 

$

(8,992)

$

(25,803)

$

(5,712)

 

13.    Variable Interest Entities (“VIEs”) 

 

Unconsolidated VIEs

 

At December 31, 2014, we have unconsolidated VIEs comprised of our investments in the entities that own One Park Avenue, Independence Plaza, and the Warner Building, and at December 31, 2013, our unconsolidated VIEs comprised of our investments in the entities that own Independence Plaza and the Warner Building.  We do not consolidate these entities because we are not the primary beneficiary and the nature of our involvement in the activities of these entities does not give us power over decisions that significantly affect these entities’ economic performance.  We account for our investment in these entities under the equity method (see Note 6 – Investments in Partially Owned Entities).  As of December 31, 2014 and 2013, the net carrying amount of our investments in these entities was $286,783,000 and $152,929,000, respectively, and our maximum exposure to loss in these entities, is limited to our investments.  We did not have any consolidated VIEs as of December 31, 2014 and 2013.

124

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

14.  Fair Value Measurements

 

 

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

 

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

 

Financial assets and liabilities that are measured at fair value on our consolidated balance sheets consist of (i) marketable securities, (ii) Real Estate Fund investments, (iii) the assets in our deferred compensation plan (for which there is a corresponding liability on our consolidated balance sheet), (iv) interest rate swaps and (v) mandatorily redeemable instruments (Series G-1 through G-4 convertible preferred units and Series D-13 cumulative redeemable preferred units).  The tables below aggregate the fair values of these financial assets and liabilities by their levels in the fair value hierarchy at December 31, 2014 and 2013, respectively. 

 

As of December 31, 2014

(Amounts in thousands)

Total

Level 1

Level 2

Level 3

Marketable securities

$

206,323 

$

206,323 

$

-   

$

-   

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

noncontrolling interests)

513,973 

-   

-   

513,973 

Deferred compensation plan assets (included in other assets)

117,284 

53,969 

-   

63,315 

Total assets

$

837,580 

$

260,292 

$

-   

$

577,288 

Mandatorily redeemable instruments (included in other liabilities)

$

55,097 

$

55,097 

$

-   

$

-   

Interest rate swap (included in other liabilities)

25,797 

-   

25,797 

-   

Total liabilities

$

80,894 

$

55,097 

$

25,797 

$

-   

As of December 31, 2013

(Amounts in thousands)

Total

Level 1

Level 2

Level 3

Marketable securities

$

191,917 

$

191,917 

$

-   

$

-   

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

noncontrolling interests)

667,710 

-   

-   

667,710 

Deferred compensation plan assets (included in other assets)

116,515 

47,733 

-   

68,782 

Total assets

$

976,142 

$

239,650 

$

-   

$

736,492 

Mandatorily redeemable instruments (included in other liabilities)

$

55,097 

$

55,097 

$

-   

$

-   

Interest rate swap (included in other liabilities)

31,882 

-   

31,882 

-   

Total liabilities

$

86,979 

$

55,097 

$

31,882 

$

-   

 

125

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

14.  Fair Value Measurements - continued

 

 

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

 

Real Estate Fund Investments

 

At December 31, 2014, our Real Estate Fund had seven investments with an aggregate fair value of $513,973,000, or $176,899,000 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 0.8 to 6.0 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 December 31, 2014.    

 

 

Weighted Average

(based on fair

Unobservable Quantitative Input

Range

value of investments)

Discount rates

12.0% to 17.5%

13.7%

Terminal capitalization rates

4.7% to 6.5%

5.3%

 

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

 

The table below summarizes the changes in the fair value of Fund investments that are classified as Level 3, for the years ended December 31, 2014 and 2013.

 

Real Estate Fund Investments

For The Year Ended December 31,

(Amounts in thousands)

2014 

2013 

Beginning balance

$

667,710 

$

600,786 

Purchases

3,392 

43,816 

Dispositions / Distributions

(307,268)

(70,848)

Net unrealized gains

73,802 

85,771 

Net realized gains

76,337 

8,184 

Other, net

-   

Ending balance

$

513,973 

$

667,710 

 

126

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

14.  Fair Value Measurements - continued

 

 

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

 

Deferred Compensation Plan Assets

 

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

 

The table below summarizes the changes in the fair value of Deferred Compensation Plan Assets that are classified as Level 3, for the years ended December 31, 2014 and 2013.

 

Deferred Compensation Plan Assets

For The Year Ended December 31,

(Amounts in thousands)

2014 

2013 

Beginning balance

$

68,782 

$

62,631 

Purchases

14,162 

5,018 

Sales

(24,951)

(7,306)

Realized and unrealized gains

3,415 

7,189 

Other, net

1,907 

1,250 

Ending balance

$

63,315 

$

68,782 

 

 

Fair Value Measurements on a Nonrecurring Basis

 

Assets measured at fair value on a nonrecurring basis on our consolidated balance sheets consist primarily of real estate assets and our investment in Toys that were written-down to estimated fair value during 2014 or 2013.  See Note 2 – Basis of Presentation and Significant Accounting Policies for details of impairment losses recognized during 2014 and 2013.  See Note 6 – Investments in Partially Owned Entities for details of impairment losses related to Toys recognized during 2014 and 2013.  The fair value of our real estate assets was 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.  In determining the fair value of our investment in Toys, we considered, among other inputs, a December 31, 2013 third-party valuation of Toys and Toys’ historical results, financial forecasts and business outlook.  Our determination of the fair value of our investment in Toys included consideration of the following widely-used valuation methodologies: (i) market multiple methodology, that considered comparable publicly traded retail companies and a range of EBITDA multiples from 5.75x to 6.5x, (ii) comparable sales transactions methodology, that considered sales of retailers ranging in size from $150 million to $3 billion, (iii) a discounted cash flow methodology, that utilized five-year financial projections and assumed a terminal EBITDA multiple of 5.75x, a 10% discount rate and a 38% tax rate, and (iv) a Black-Scholes valuation analysis, that assumed one, two and three year time-to-expiration periods and 24% to 29% volatility factors.  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, 2014

(Amounts in thousands)

Total

Level 1

Level 2

Level 3

Real estate assets

$

4,848 

$

-   

$

-   

$

4,848 

As of December 31, 2013

(Amounts in thousands)

Total

Level 1

Level 2

Level 3

Real estate assets

$

354,341 

$

-   

$

-   

$

354,341 

Investment in Toys

83,224 

-   

-   

83,224 

Total assets

$

437,565 

$

-   

$

-   

$

437,565 

 

127

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

14.  Fair Value Measurements – continued

 

 

Financial Assets and Liabilities not Measured at Fair Value

 

 Financial assets and liabilities that are not measured at fair value on our consolidated balance sheets include cash equivalents (primarily money market funds, which invest in obligations of the United States government), mortgage and mezzanine loans receivable (included in “other assets” in our consolidated balance sheets) and our secured and unsecured debt.  Estimates of the fair value of these instruments are determined by the standard practice of modeling the contractual cash flows required under the instrument and discounting them back to their present value at the appropriate current risk adjusted interest rate, which is provided by a third-party specialist.  For floating rate debt, we use forward rates derived from observable market yield curves to project the expected cash flows we would be required to make under the instrument.  The fair value of cash equivalents is classified as Level 1 and the fair value of our mortgage and mezzanine loans receivable is classified as Level 3.  The fair value of our secured and unsecured debt is classified as Level 2.  The table below summarizes the carrying amounts and fair value of these financial instruments as of December 31, 2014 and 2013.

 

As of December 31, 2014

As of December 31, 2013

Carrying

Fair

Carrying

Fair

(Amounts in thousands)

Amount

Value

Amount

Value

Cash equivalents

$

749,418 

$

749,000 

$

295,000 

$

295,000 

Mortgage and mezzanine loans receivable

(included in other assets)

16,748 

17,000 

170,972 

171,000 

$

766,166 

$

766,000 

$

465,972 

$

466,000 

Debt:

Mortgages payable

$

9,551,700 

$

9,551,000 

$

8,331,993 

$

8,104,000 

Senior unsecured notes

1,347,159 

1,385,000 

1,350,855 

1,402,000 

Revolving credit facility debt

-   

-   

295,870 

296,000 

$

10,898,859 

$

10,936,000 

$

9,978,718 

$

9,802,000 

128

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

15.    Stock-based Compensation

 

 

Our Omnibus Share Plan (the “Plan”), which was approved in May 2010, provides the Compensation Committee of the Board (the “Committee”) the ability to grant incentive and non-qualified stock options, restricted stock, restricted Operating Partnership units and out-performance plan awards to certain of our employees and officers.  Under the Plan, awards may be granted up to a maximum of 6,000,000 shares, if all awards granted are Full Value Awards, as defined, and up to 12,000,000 shares, if all of the awards granted are Not Full Value Awards, as defined, plus shares in respect of awards forfeited after May 2010 that were issued pursuant to our 2002 Omnibus Share Plan.  Full Value Awards are awards of securities, such as restricted shares, that, if all vesting requirements are met, do not require the payment of an exercise price or strike price to acquire the securities.  Not Full Value Awards are awards of securities, such as options, that do require the payment of an exercise price or strike price.  This means, for example, if the Committee were to award only restricted shares, it could award up to 6,000,000 restricted shares.  On the other hand, if the Committee were to award only stock options, it could award options to purchase up to 12,000,000 shares (at the applicable exercise price).  The Committee may also issue any combination of awards under the Plan, with reductions in availability of future awards made in accordance with the above limitations.  As of December 31, 2014, we have approximately 4,004,000 shares available for future grants under the Plan, if all awards granted are Full Value Awards, as defined.

 

In the years ended December 31, 2014, 2013 and 2012, we recognized an aggregate of $36,641,000, $34,914,000 and $30,588,000, respectively, of stock-based compensation expense, which is included as a component of “general and administrative” expenses on our consolidated statements of income.  The details of the various components of our stock-based compensation are discussed below.

 

 

Out-Performance Plans (“the OPPs”)

 

OPPs are multi-year, performance-based equity compensation plans under which participants, including our Chairman and Chief Executive Officer, have the opportunity to earn compensation payable in the form of equity awards if, and only if, we outperform a predetermined total shareholder return (“TSR”) and/or outperform the market with respect to a relative TSR in any year during the requisite performance periods as described below.   The aggregate notional amounts of the 2012, 2013, 2014 and 2015 OPPs are $40,000,000, $40,000,000, $50,000,000 and $40,000,000, respectively. 

 

Awards under the 2012 OPP have been earned.  Awards under the 2013 OPP may be earned if we (i) achieve a TSR greater than 14% over the two-year performance measurement period, or 21% over the three-year performance measurement period (the “Absolute Component”), and/or (ii) achieve a TSR above that of the SNL REIT Index (the “Index”) over the two-year or three-year performance measurement period (the “Relative Component”).  Awards under the 2014 and 2015 OPP may be earned if we (i) achieve a TSR level greater than 7% per annum, or 21% over the three-year performance measurement periods (the “Absolute Component”), and/or (ii) achieve a TSR above that of the Index over the three-year performance measurement periods (the “Relative Component”).  To the extent awards would be earned under the Absolute Component of each of the OPPs, but we underperform the Index, such awards would be reduced (and potentially fully negated) based on the degree to which we underperform the Index.  In certain circumstances, in the event we outperform the Index but awards would not otherwise be fully earned under the Absolute Component, awards may still be earned or increased under the Relative Component.  To the extent awards would otherwise be earned under the Relative Component but we fail to achieve at least a 6% per annum absolute TSR, such awards earned under the Relative Component would be reduced based on our absolute TSR, with no awards being earned in the event our TSR during the applicable measurement period is 0% or negative, irrespective of the degree to which we may outperform the Index.  Dividends on awards issued accrue during the performance period. 

 

If the designated performance objectives are achieved, OPP units are subject to time-based vesting requirements. Awards earned under the OPPs vest 33% in year three, 33% in year four and 34% in year five.  Our executive officers (for the purposes of Section 16 of the Exchange Act) are required to hold earned 2013, 2014 and 2015 OPP awards for one year following vesting. 

 

The fair value of the 2012, 2013, 2014 and 2015 OPPs on the date of grant was $12,250,000, $6,814,000, $8,202,000, and $9,120,000, respectively.  Such amounts are being amortized into expense over a five-year period from the date of grant, using a graded vesting attribution model.  In the years ended December 31, 2014, 2013 and 2012, we recognized $6,185,000, $3,226,000 and $2,826,000, respectively, of compensation expense related to OPPs.  As of December 31, 2014, there was $11,937,000 of total unrecognized compensation cost related to the OPPs, which will be recognized over a weighted-average period of 1.4 years.

 

129

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

15.    Stock-based Compensation - continued

 

 

Stock Options      

 

Stock options are granted at an exercise price equal to the average of the high and low market price of our common shares on the NYSE on the date of grant, generally vest over four years and expire 10 years from the date of grant.  Compensation expense related to stock option awards is recognized on a straight-line basis over the vesting period.  In the years ended December 31, 2014, 2013 and 2012, we recognized $4,550,000, $8,234,000 and $8,638,000, respectively, of compensation expense related to stock options that vested during each year.  As of December 31, 2014, there was $1,855,000 of total unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted-average period of 1.5 years.

 

 

Below is a summary of our stock option activity for the year ended December 31, 2014.

 

Weighted-

Weighted-

Average

Average

Remaining

Aggregate

Exercise

Contractual

Intrinsic

Shares

Price

Term

Value

Outstanding at January 1, 2014

3,248,699 

$

67.51 

Granted

49,088 

91.32 

Exercised

(434,204)

67.27 

Cancelled or expired

(43,468)

104.74 

Outstanding at December 31, 2014

2,820,115 

$

67.38 

4.6 

$

145,317,000 

Options vested and expected to vest at

December 31, 2014

2,818,587 

$

67.37 

4.6 

$

145,271,000 

Options exercisable at December 31, 2014

2,606,260 

$

65.62 

4.4 

$

138,912,000 

 

The fair value of each option grant is estimated on the date of grant using an option-pricing model with the following weighted-average assumptions for grants in the years ended December 31, 2014, 2013 and 2012.

December 31,

2014 

2013 

2012 

Expected volatility

36.00% 

36.00% 

36.00% 

Expected life

5.0 years 

5.0 years 

5.0 years 

Risk free interest rate

1.81% 

0.91% 

1.05% 

Expected dividend yield

4.10% 

4.30% 

4.30% 

 

The weighted average grant date fair value of options granted during the years ended December 31, 2014, 2013 and 2012 was $20.31, $17.18 and $17.50, respectively.  Cash received from option exercises for the years ended December 31, 2014, 2013 and 2012 was $17,441,000, $5,915,000 and $9,546,000, respectively.  The total intrinsic value of options exercised during the years ended December 31, 2014, 2013 and 2012 was $18,223,000, $3,386,000 and $40,887,000, respectively.

 

130

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

15.    Stock-based Compensation - continued

 

 

Restricted Stock

 

Restricted stock awards are granted at the average of the high and low market price of our common shares on the NYSE on the date of grant and generally vest over four years.  Compensation expense related to restricted stock awards is recognized on a straight-line basis over the vesting period.  In the years ended December 31, 2014, 2013 and 2012, we recognized $1,303,000, $1,344,000 and $1,604,000, respectively, of compensation expense related to restricted stock awards that vested during each year.  As of December 31, 2014, there was $1,468,000 of total unrecognized compensation cost related to unvested restricted stock, which is expected to be recognized over a weighted-average period of 1.7 years.  Dividends paid on unvested restricted stock are charged directly to retained earnings and amounted to $88,000, $110,000 and $200,000 for the years ended December 31, 2014, 2013 and 2012, respectively.

Below is a summary of our restricted stock activity under the Plan for the year ended December 31, 2014.

Weighted-Average

Grant-Date

Unvested Shares

Shares

Fair Value

Unvested at January 1, 2014

29,664 

$

79.24 

Granted

11,475 

91.31 

Vested

(15,733)

74.61 

Cancelled or expired

(2,957)

87.42 

Unvested at December 31, 2014

22,449 

87.58 

 

Restricted stock awards granted in 2014, 2013 and 2012 had a fair value of $1,048,000, $857,000 and $929,000, respectively.  The fair value of restricted stock that vested during the years ended December 31, 2014, 2013 and 2012 was $1,174,000, $1,194,000 and $1,864,000, respectively.

 

 

Restricted Operating Partnership Units (“OP Units”)

 

OP Units are granted at the average of the high and low market price of our common shares on the NYSE on the date of grant, vest ratably over four years and are subject to a taxable book-up event, as defined.  Compensation expense related to OP Units is recognized ratably over the vesting period using a graded vesting attribution model.  In the years ended December 31, 2014, 2013 and 2012, we recognized $24,603,000, $22,110,000 and $17,520,000, respectively, of compensation expense related to OP Units that vested during each year.  As of December 31, 2014, there was $20,798,000 of total unrecognized compensation cost related to unvested OP Units, which is expected to be recognized over a weighted-average period of 1.7 years.  Distributions paid on unvested OP Units are charged to “net income attributable to noncontrolling interests in the Operating Partnership” on our consolidated statements of income and amounted to $2,866,000, $2,598,000 and $3,203,000 in the years ended December 31, 2014, 2013 and 2012, respectively.   

 

Below is a summary of restricted OP unit activity under the Plan for the year ended December 31, 2014.

 

Weighted-Average

Grant-Date

Unvested Units

Units

Fair Value

Unvested at January 1, 2014

765,971 

$

76.27 

Granted

226,638 

86.79 

Vested

(327,555)

69.48 

Cancelled or expired

(6,575)

83.16 

Unvested at December 31, 2014

658,479 

83.20 

 

OP Units granted in 2014, 2013 and 2012 had a fair value of $19,669,000, $31,947,000 and $16,464,000, respectively.  The fair value of OP Units that vested during the years ended December 31, 2014, 2013 and 2012 was $22,758,000, $16,404,000 and $15,014,000, respectively.

131

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

16.    Fee and Other Income

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

 

(Amounts in thousands)

For the Year Ended December 31,

2014 

2013 

2012 

BMS cleaning fees

$

85,658 

$

66,505 

$

67,584 

Signage revenue

37,929 

32,866 

20,892 

Management and leasing fees

21,382 

24,637 

21,849 

Lease termination fees(1)

17,042 

92,497 

2,361 

Other income

33,734 

34,113 

31,438 

$

195,745 

$

250,618 

$

144,124 

__________________________

(1)

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

 

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

 

 

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

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

(Amounts in thousands)

For the Year Ended December 31,

2014 

2013 

2012 

Dividends and interest on marketable securities

$

12,707 

$

11,446 

$

11,979 

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

11,557 

10,636 

6,809 

Interest on mezzanine loans receivable

3,920 

19,495 

13,861 

Losses from the disposition of investment in J.C. Penney

-   

(72,974)

(300,752)

Other, net

10,603 

6,521 

6,924 

$

38,787 

$

(24,876)

$

(261,179)

__________________________

(1)

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

 

 

18.     Interest and Debt Expense

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

(Amounts in thousands)

For the Year Ended December 31,

2014 

2013 

2012 

Interest expense

$

483,578 

$

498,050 

$

478,688 

Amortization of deferred financing costs

46,923 

25,557 

22,907 

Capitalized interest and debt expense

(62,786)

(42,303)

(16,801)

$

467,715 

$

481,304 

$

484,794 

132

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

19.    Income Per Share

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

 

(Amounts in thousands, except per share amounts)

Year Ended December 31,

2014 

2013 

2012 

Numerator:

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

$

379,333 

$

57,727 

$

408,439 

Income from discontinued operations, net of income attributable to noncontrolling

interests

485,519 

418,244 

208,821 

Net income attributable to Vornado

864,852 

475,971 

617,260 

Preferred share dividends

(81,464)

(82,807)

(76,937)

Preferred unit and share redemptions

-   

(1,130)

8,948 

Net income attributable to common shareholders

783,388 

392,034 

549,271 

Earnings allocated to unvested participating securities

(125)

(110)

(202)

Numerator for basic income per share

783,263 

391,924 

549,069 

Impact of assumed conversions:

Convertible preferred share dividends

97 

-   

113 

Numerator for diluted income per share

$

783,360 

$

391,924 

$

549,182 

Denominator:

Denominator for basic income per share – weighted average shares

187,572 

186,941 

185,810 

Effect of dilutive securities (1):

Employee stock options and restricted share awards

1,075 

768 

670 

Convertible preferred shares

43 

-   

50 

Denominator for diluted income per share – weighted average shares and

assumed conversions

188,690 

187,709 

186,530 

INCOME (LOSS) PER COMMON SHARE – BASIC:

Income (loss) from continuing operations, net

$

1.59 

$

(0.14)

$

1.83 

Income from discontinued operations, net

2.59 

2.24 

1.12 

Net income per common share

$

4.18 

$

2.10 

$

2.95 

INCOME (LOSS) PER COMMON SHARE – DILUTED:

Income (loss) from continuing operations, net

$

1.58 

$

(0.14)

$

1.82 

Income from discontinued operations, net

2.57 

2.23 

1.12 

Net income per common share

$

4.15 

$

2.09 

$

2.94 

(1)

The effect of dilutive securities in the years ended December 31, 2014, 2013 and 2012 excludes an aggregate of 11,238, 11,752 and 14,400 weighted average common share equivalents, respectively, as their effect was anti-dilutive.

133

 


 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

20.  Leases

As lessor:

We lease space to tenants under operating leases. Most of the leases provide for the payment of fixed base rentals payable monthly in advance. Office building leases generally require the tenants to reimburse us for operating costs and real estate taxes above their base year costs. Shopping center leases provide for pass-through to tenants the tenant’s share of real estate taxes, insurance and maintenance. Shopping center leases also provide for the payment by the lessee of additional rent based on a percentage of the tenants’ sales. As of December 31, 2014, future base rental revenue under non-cancelable operating leases, excluding rents for leases with an original term of less than one year and rents resulting from the exercise of renewal options, are as follows:

(Amounts in thousands)

Year Ending December 31:

2015 

$

1,783,293 

2016 

1,717,984 

2017 

1,671,172 

2018 

1,578,671 

2019 

1,399,001 

Thereafter

8,055,804 

 

These amounts do not include percentage rentals based on tenants’ sales.  These percentage rents approximated $7,963,000, $8,578,000 and $8,090,000, for the years ended December 31, 2014, 2013 and 2012, respectively.

 

None of our tenants accounted for more than 10% of total revenues in any of the years ended December 31, 2014, 2013 and 2012.

 

 

As lessee:           

We are a tenant under operating leases for certain properties.  These leases have terms that expire during the next thirty years.  Future minimum lease payments under operating leases at December 31, 2014 are as follows: 

 

(Amounts in thousands)

Year Ending December 31:

2015 

$

39,925 

2016 

39,833 

2017 

41,003 

2018 

38,920 

2019 

38,992 

Thereafter

1,252,109 

 

Rent expense was $50,556,000, $49,968,000 and $41,778,000 for the years ended December 31, 2014, 2013 and 2012, respectively.

 

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20.  Leases - continued

We are also a lessee under a capital lease under which we will redevelop the retail and signage components of the Marriott Marquis Times Square Hotel.  The lease has put/call options, which if exercised would lead to our ownership.  Capitalized leases are recorded at the present value of future minimum lease payments or the fair market value of the property.  Capitalized leases are depreciated on a straight-line basis over the estimated life of the asset or life of the related lease.  Depreciation expense on capital leases is included in “depreciation and amortization” on our consolidated statements of income.  As of December 31, 2014, future minimum lease payments under this capital lease are as follows:

 

(Amounts in thousands)

Year Ending December 31:

2015 

$

12,500 

2016 

12,500 

2017 

12,500 

2018 

12,500 

2019 

12,500 

Thereafter

334,792 

Total minimum obligations

397,292 

Interest portion

(157,292)

Present value of net minimum payments

$

240,000 

 

At December 31, 2014, the carrying amount of the property leased under the capital lease was $249,253,000, which is included as a component of “development costs and construction in progress” on our consolidated balance sheet and present value of net minimum payments of $240,000,000 is included in “other liabilities” on our consolidated balance sheet. 

 

 

21.  Multiemployer Benefit Plans

 

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

 

Multiemployer Pension Plans

 

Multiemployer Pension Plans differ from single-employer pension plans in that (i) contributions to multiemployer plans may be used to provide benefits to employees of other     participating employers and (ii) if other participating employers fail to make their contributions, each of our participating subsidiaries may be required to bear its then pro rata share of unfunded obligations.  If a participating subsidiary withdraws from a plan in which it participates, it may be subject to a withdrawal liability.  As of December 31, 2014, our subsidiaries’ participation in these plans were not significant to our consolidated financial statements.

 

In the years ended December 31, 2014, 2013 and 2012, our subsidiaries contributed $11,431,000, $10,223,000 and $10,683,000, respectively, towards Multiemployer Pension Plans, which is included as a component of “operating” expenses on our consolidated statements of income.  Our subsidiaries’ contributions did not represent more than 5% of total employer contributions in any of these plans for the years ended December 31, 2014, 2013 and 2012.

 

Multiemployer Health Plans

 

Multiemployer Health Plans in which our subsidiaries participate provide health benefits to eligible active and retired employees.  In the years ended December 31, 2014, 2013 and 2012, our subsidiaries contributed $29,073,000, $26,262,000 and $26,759,000, respectively, towards these plans, which is included as a component of “operating” expenses on our consolidated statements of income.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

22.  Commitments and Contingencies

 

Insurance

 

We maintain general liability insurance with limits of $300,000,000 per occurrence and all risk property and rental value insurance with limits of $2.0 billion per occurrence, with sub-limits for certain perils such as floods.  Our California properties have earthquake insurance with coverage of $180,000,000 per occurrence, subject to a deductible in the amount of 5% of the value of the affected property, up to a $180,000,000 annual aggregate. We maintain coverage for terrorism acts with limits of $4.0 billion per occurrence and in the aggregate, and $2.0 billion per occurrence and in the aggregate for terrorism involving nuclear, biological, chemical and radiological (“NBCR”) terrorism events, as defined by Terrorism Risk Insurance Program Reauthorization Act, which expires in December 2020.

 

Penn Plaza Insurance Company, LLC (“PPIC”), our wholly owned consolidated subsidiary, acts as a re-insurer with respect to a portion of all risk property and rental value insurance and a portion of our earthquake insurance coverage, and as a direct insurer for coverage for NBCR acts.  Coverage for acts of terrorism (excluding NBCR acts) is fully reinsured by third party insurance companies and the Federal government with no exposure to PPIC.  For NBCR acts, PPIC is responsible for a deductible of $3,200,000 and 15% of the balance of a covered loss (16% effective January 1, 2016) and the Federal government is responsible for the remaining 85% of a covered loss (84% effective January 1, 2016).  We are ultimately responsible for any loss incurred by PPIC.

 

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

 

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

 

 

Other Commitments and Contingencies

 

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

 

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

 

Our mortgage loans are non-recourse to us.  However, in certain cases we have provided guarantees or master leased tenant space.  These guarantees and master leases terminate either upon the satisfaction of specified circumstances or repayment of the underlying loans.  As of December 31, 2014, the aggregate dollar amount of these guarantees and master leases is approximately $359,000,000.

 

At December 31, 2014, $39,552,000 of letters of credit were outstanding under one of our revolving credit facilities.  Our revolving credit facilities contain financial covenants that require us to maintain minimum interest coverage and maximum debt to market capitalization ratios, and provide for higher interest rates in the event of a decline in our ratings below Baa3/BBB. Our revolving credit facilities also contain customary conditions precedent to borrowing, including representations and warranties, and also contain customary events of default that could give rise to accelerated repayment, including such items as failure to pay interest or principal.

 

As of December 31, 2014, we expect to fund additional capital to certain of our partially owned entities aggregating approximately $104,000,000.

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23.  Related Party Transactions

 

Alexander’s

 

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

 

On January 15, 2015, we completed the spin-off of 79 strip shopping centers, three malls, a warehouse park and $225,000,000 of cash to UE and the transfer of all of the employees responsible for the management and leasing of those assets.   In addition, we entered into agreements with UE to provide management and leasing services, on our behalf, for Alexander’s Rego Park retail assets.   Fees for these services are similar to the fees we are receiving from Alexander’s described in Note 6 - Investments in Partially Owned Entities.

 

 

Interstate Properties (“Interstate”)

 

Interstate is a general partnership in which Mr. Roth is the managing general partner. David Mandelbaum and Russell B. Wight, Jr., Trustees of Vornado and Directors of Alexander’s, are Interstate’s two other partners. As of December 31, 2014, Interstate and its partners beneficially owned an aggregate of approximately 6.6% of the common shares of beneficial interest of Vornado and 26.3% of Alexander’s common stock.

 

We manage and lease the real estate assets of Interstate pursuant to a management agreement for which we receive an annual fee equal to 4% of annual base rent and percentage rent.  The management agreement has a term of one year and is automatically renewable unless terminated by either of the parties on 60 days’ notice at the end of the term.  We believe, based upon comparable fees charged by other real estate companies, that the management agreement terms are fair to us.  We earned $535,000, $606,000, and $794,000 of management fees under the agreement for the years ended December 31, 2014, 2013 and 2012.

 

On January 15, 2015, we completed the spin-off of 79 strip shopping centers, three malls, a warehouse park and $225,000,000 of cash to UE and the transfer of all of the employees responsible for the management and leasing of those assets.   In addition, we entered into agreements with UE to provide management and leasing services, on our behalf, for Interstate’s properties.   Fees for these services are similar to the fees we are receiving from Interstate described above.

 

 

24.  Summary of Quarterly Results (Unaudited)

The following summary represents the results of operations for each quarter in 2014 and 2013:

 

Net Income (Loss)

Attributable

Net Income (Loss) Per

to Common

Common Share (2)

(Amounts in thousands, except per share amounts)

Revenues

Shareholders (1)

Basic

Diluted

2014 

December 31

$

679,101 

$

513,238 

$

2.73 

$

2.72 

September 30

657,209 

131,159 

0.70 

0.69 

June 30

652,972 

76,642 

0.41 

0.41 

March 31

646,658 

62,349 

0.33 

0.33 

2013 

December 31

$

649,403 

$

(68,887)

$

(0.37)

$

(0.37)

September 30

655,883 

83,005 

0.44 

0.44 

June 30

658,550 

145,926 

0.78 

0.78 

March 31

705,433 

231,990 

1.24 

1.24 

_______________________________

(1)

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

(2)

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

137

 


 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

25.    Segment Information

 

Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the years ended December 31, 2014, 2013 and 2012.

 

 

(Amounts in thousands)

For the Year Ended December 31, 2014

Retail

Total

New York

Washington, DC

Properties

Toys

Other

Total revenues

$

2,635,940 

$

1,520,845 

$

537,151 

$

326,947 

$

-   

$

250,997 

Total expenses

1,820,298 

946,466 

358,019 

197,206 

-   

318,607 

Operating income (loss)

815,642 

574,379 

179,132 

129,741 

-   

(67,610)

(Loss) income from partially owned

entities, including Toys

(58,131)

20,701 

(3,677)

1,730 

(73,556)

(3,329)

Income from Real Estate Fund

163,034 

-   

-   

-   

-   

163,034 

Interest and other investment

income, net

38,787 

6,711 

183 

35 

-   

31,858 

Interest and debt expense

(467,715)

(183,427)

(75,395)

(54,754)

-   

(154,139)

Net gain on disposition of wholly

owned and partially owned assets

13,568 

-   

-   

-   

-   

13,568 

Income (loss) before income taxes

505,185 

418,364 

100,243 

76,752 

(73,556)

(16,618)

Income tax expense

(11,002)

(4,305)

(242)

(1,721)

-   

(4,734)

Income (loss) from continuing

operations

494,183 

414,059 

100,001 

75,031 

(73,556)

(21,352)

Income from discontinued

operations

514,843 

463,163 

-   

50,873 

-   

807 

Net income (loss)

1,009,026 

877,222 

100,001 

125,904 

(73,556)

(20,545)

Less net income attributable to

noncontrolling interests

(144,174)

(8,626)

-   

(119)

-   

(135,429)

Net income (loss) attributable to

Vornado

864,852 

868,596 

100,001 

125,785 

(73,556)

(155,974)

Interest and debt expense(2)

654,398 

241,959 

89,448 

59,322 

100,549 

163,120 

Depreciation and amortization(2)

685,973 

324,239 

145,853 

73,433 

64,533 

77,915 

Income tax expense(2)

24,248 

4,395 

288 

1,721 

12,106 

5,738 

EBITDA(1)

$

2,229,471 

$

1,439,189 

(3)

$

335,590 

(4)

$

260,261 

(5)

$

103,632 

$

90,799 

(6)

Balance Sheet Data:

Real estate at cost

$

18,845,392 

$

9,732,818 

$

4,383,418 

$

2,057,374 

-   

$

2,671,782 

Investments in partially owned entities

1,246,496 

1,036,130 

102,635 

6,007 

-   

101,724 

Total assets

21,248,320 

10,752,763 

4,310,974 

3,580,803 

-   

2,603,780 

See notes on pages 141 and 142.

 

138

 


 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

25.    Segment Information – continued

 

 

(Amounts in thousands)

For the Year Ended December 31, 2013

Retail

Total

New York

Washington, DC

Properties

Toys

Other

Total revenues

$

2,669,269 

$

1,470,907 

$

541,161 

$

372,435 

$

-   

$

284,766 

Total expenses

1,819,009 

910,498 

347,686 

199,650 

-   

361,175 

Operating income (loss)

850,260 

560,409 

193,475 

172,785 

-   

(76,409)

(Loss) income from partially owned

entities, including Toys

(338,785)

15,527 

(6,968)

2,097 

(362,377)

12,936 

Income from Real Estate Fund

102,898 

-   

-   

-   

-   

102,898 

Interest and other investment

(loss) income, net

(24,876)

5,357 

129 

11 

-   

(30,373)

Interest and debt expense

(481,304)

(181,966)

(102,277)

(55,219)

-   

(141,842)

Net gain on disposition of wholly

owned and partially owned assets

3,407 

-   

-   

1,377 

-   

2,030 

Income (loss) before income taxes

111,600 

399,327 

84,359 

121,051 

(362,377)

(130,760)

Income tax benefit (expense)

6,406 

(2,794)

14,031 

(2,311)

-   

(2,520)

Income (loss) from continuing

operations

118,006 

396,533 

98,390 

118,740 

(362,377)

(133,280)

Income (loss) from discontinued

operations

446,734 

160,314 

-   

287,067 

-   

(647)

Net income (loss)

564,740 

556,847 

98,390 

405,807 

(362,377)

(133,927)

Less net income attributable to

noncontrolling interests

(88,769)

(10,786)

-   

(3,065)

-   

(74,918)

Net income (loss) attributable to

Vornado

475,971 

546,061 

98,390 

402,742 

(362,377)

(208,845)

Interest and debt expense(2)

758,781 

236,645 

116,131 

63,803 

181,586 

160,616 

Depreciation and amortization(2)

732,757 

293,974 

142,409 

72,161 

135,178 

89,035 

Income tax expense (benefit)(2)

26,371 

3,002 

(15,707)

2,311 

33,532 

3,233 

EBITDA(1)

$

1,993,880 

$

1,079,682 

(3)

$

341,223 

(4)

$

541,017 

(5)

$

(12,081)

$

44,039 

(6)

Balance Sheet Data:

Real estate at cost

$

17,418,946 

$

8,422,297 

$

4,243,048 

$

2,060,093 

$

-   

$

2,693,508 

Investments in partially owned entities

1,249,667 

904,278 

100,543 

6,640 

83,224 

154,982 

Total assets

20,097,224 

9,255,964 

4,107,636 

3,374,896 

83,224 

3,275,504 

See notes on page 141 and 142.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

25.    Segment Information – continued

 

 

(Amounts in thousands)

For the Year Ended December 31, 2012

Retail

Total

New York

Washington, DC

Properties

Toys

Other

Total revenues

$

2,649,217 

$

1,319,470 

$

554,028 

$

318,566 

$

-   

$

457,153 

Total expenses

1,921,425 

835,563 

360,056 

189,480 

-   

536,326 

Operating income (loss)

727,792 

483,907 

193,972 

129,086 

-   

(79,173)

Income (loss) from partially owned

entities, including Toys

423,126 

207,773 

(5,612)

1,458 

14,859 

204,648 

Income from Real Estate Fund

63,936 

-   

-   

-   

-   

63,936 

Interest and other investment

(loss) income, net

(261,179)

4,002 

126 

21 

-   

(265,328)

Interest and debt expense

(484,794)

(146,350)

(115,574)

(53,772)

-   

(169,098)

Net gain on disposition of wholly

owned and partially owned assets

13,347 

-   

-   

8,491 

-   

4,856 

Income (loss) before income taxes

482,228 

549,332 

72,912 

85,284 

14,859 

(240,159)

Income tax expense

(8,132)

(3,491)

(1,650)

-   

-   

(2,991)

Income (loss) from continuing

operations

474,096 

545,841 

71,262 

85,284 

14,859 

(243,150)

Income (loss) from discontinued

operations

220,445 

30,293 

167,766 

(52,561)

-   

74,947 

Net income (loss)

694,541 

576,134 

239,028 

32,723 

14,859 

(168,203)

Less net (income) loss attributable to

noncontrolling interests

(77,281)

(2,138)

-   

1,812 

-   

(76,955)

Net income (loss) attributable to

Vornado

617,260 

573,996 

239,028 

34,535 

14,859 

(245,158)

Interest and debt expense(2)

760,523 

187,855 

133,625 

79,462 

147,880 

211,701 

Depreciation and amortization(2)

735,293 

252,257 

157,816 

86,529 

135,179 

103,512 

Income tax expense (benefit)(2)

7,026 

3,751 

1,943 

-   

(16,629)

17,961 

EBITDA(1)

$

2,120,102 

$

1,017,859 

(3)

$

532,412 

(4)

$

200,526 

(5)

$

281,289 

$

88,016 

(6)

Balance Sheet Data:

Real estate at cost

$

17,365,533 

$

8,687,141 

$

4,171,879 

$

2,108,328 

$

-   

$

2,398,185 

Investments in partially owned entities

1,704,297 

576,336 

95,670 

7,083 

478,041 

547,167 

Total assets

22,065,049 

9,215,438 

4,196,694 

3,583,999 

478,041 

4,590,877 

See notes on page 141 and 142.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

25.    Segment Information – continued

 

Notes to preceding tabular information:

(1)

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

(2)

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

(3)

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

For the Year Ended December 31,

(Amounts in thousands)

2014 

2013 

2012 

Office(a)

$

1,085,262 

$

759,941 

$

568,518 

Retail

281,428 

246,808 

189,484 

Alexander's(b)

41,746 

42,210 

231,402 

Hotel Pennsylvania

30,753 

30,723 

28,455 

Total New York

$

1,439,189 

$

1,079,682 

$

1,017,859 

(a)

2014 and 2013 includes $440,537 and $127,512 net gains on sale of real estate, respectively.

(b)

2012 includes $179,934 for our share of net gain on sale of Kings Plaza.

(4)

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

For the Year Ended December 31,

(Amounts in thousands)

2014 

2013 

2012 

Office, excluding the Skyline Properties (a)

$

266,859 

$

268,373 

$

449,448 

Skyline properties

27,150 

29,499 

40,037 

Total Office

294,009 

297,872 

489,485 

Residential

41,581 

43,351 

42,927 

Total Washington, DC

$

335,590 

$

341,223 

$

532,412 

(a)

2012 includes $163,367 of net gains on sale of real estate.

(5)

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

For the Year Ended December 31,

(Amounts in thousands)

2014 

2013 

2012 

Strip shopping centers(a)

$

219,122 

$

285,612 

$

172,708 

Regional malls(b)

41,139 

255,405 

27,818 

Total Retail properties

$

260,261 

$

541,017 

$

200,526 

(a)

2014 includes $66,023 of net gains on sale of real estate and $5,676 of impairment losses. 2013 includes $81,806 of net gains on sale of real estate, $59,599 of income pursuant to a settlement agreement with Stop & Shop and a $19,000 real estate impairment loss. 2012 includes $15,821 of net gains on sale of real estate and a $33,775 real estate impairment loss.

(b)

2014 includes $20,842 of impairment losses. 2013 includes a $202,275 net gain on sale of the Green Acres Mall and a $13,443 real estate impairment loss. 2012 includes a $70,100 real estate impairment loss.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

25.    Segment Information – continued

 

Notes to preceding tabular information:

(6)

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

(Amounts in thousands)

For the Year Ended December 31,

2014 

2013 

2012 

Our share of Real Estate Fund:

Income before net realized/unrealized gains

$

8,056 

$

7,752 

$

6,385 

Net realized/unrealized gains on investments

37,535 

23,489 

13,840 

Carried interest

24,715 

18,230 

4,379 

Total

70,306 

49,471 

24,604 

The Mart and trade shows

79,636 

74,270 

62,470 

555 California Street

48,844 

42,667 

46,167 

India real estate ventures

6,434 

5,841 

3,654 

LNR(a)

-   

20,443 

75,202 

Lexington(b)

-   

6,931 

32,595 

Other investments

17,270 

18,981 

25,612 

222,490 

218,604 

270,304 

Corporate general and administrative expenses(c)

(94,929)

(94,904)

(89,082)

Investment income and other, net(c)

31,665 

46,525 

45,563 

Acquisition and transaction related costs, and impairment losses(d)

(31,348)

(24,857)

(17,386)

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

condominiums

13,568 

56,868 

4,856 

Our share of debt satisfaction gains and net gains on sale of real estate

of partially owned entities

13,000 

-   

-   

Suffolk Downs impairment loss and loan reserve

(10,263)

-   

-   

Our share of impairment losses of partially owned entities

(5,771)

-   

(4,936)

Losses from the disposition of investment in J.C. Penney

-   

(127,888)

(300,752)

Severance costs (primarily reduction in force at the Mart)

-   

(5,492)

(3,005)

Purchase price fair value adjustment and accelerated amortization of

discount on investment in subordinated debt of Independence Plaza

-   

-   

105,366 

The Mart discontinued operations

-   

-   

93,588 

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

-   

-   

28,763 

Net income attributable to noncontrolling interests in the Operating Partnership

(47,563)

(23,659)

(35,327)

Preferred unit distributions of the Operating Partnership

(50)

(1,158)

(9,936)

$

90,799 

$

44,039 

$

88,016 

(a)

On April 19, 2013, LNR was sold.

(b)

In the first quarter of 2013, we began accounting for our investment in Lexington as a marketable equity security - available for sale. This investment was previously accounted for under the equity method (see page 112 for details).

(c)

The amounts in these captions (for this table only) exclude income/expense from the mark-to-market of our deferred compensation plan of $11,557, $10,636 and $6,809 for the years ended December 31, 2014, 2013 and 2012, respectively.

(d)

The year ended December 31, 2014, includes $14,956 of transaction costs related to the spin-off of our strip shopping centers and malls.

142

 


 

 

ITEM 9.        changes in and disagreements with accountants on accounting and financial disclosure

None.

 

 

ITEM 9A.     Controls and procedures

Disclosure Controls and Procedures:  Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rule 13a‑15 (e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this annual report on Form 10-K. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective.

 

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

 

Management’s Report on Internal Control over Financial Reporting

 

Management of Vornado Realty Trust, together with its consolidated subsidiaries (the “Company”), is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed under the supervision of our principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.

 

As of December 31, 2014, management conducted an assessment of the effectiveness of our internal control over financial reporting based on the framework established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has determined that our internal control over financial reporting as of December 31, 2014 was effective.

 

Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures are being made only in accordance with authorizations of management and our trustees; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements.

 

The effectiveness of our internal control over financial reporting as of December 31, 2014 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing on page 144, which expresses an unqualified opinion on the effectiveness of our internal control over financial reporting as of December 31, 2014.

143

 


 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

Shareholders and Board of Trustees

Vornado Realty Trust

New York, New York

 

We have audited the internal control over financial reporting of Vornado Realty Trust, together with its consolidated subsidiaries (the “Company”) as of December 31, 2014, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

 

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of trustees, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and trustees of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

 

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedules as of and for the year ended December 31, 2014 of the Company and our report dated February 17, 2015 expressed an unqualified opinion on those financial statements and financial statement schedules.

 

/s/ DELOITTE & TOUCHE LLP

 

Parsippany, New Jersey

February 17, 2015

144

 


 
 

 

ITEM 9B.     Other information

 

None.

PART III

 

ITEM 10.      Directors, Executive Officers and Corporate Governance

Information relating to trustees of the Registrant, including its audit committee and audit committee financial expert, will be contained in a definitive Proxy Statement involving the election of trustees under the caption “Election of Trustees” which the Registrant will file with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934 not later than 120 days after December 31, 2014, and such information is incorporated herein by reference. Also incorporated herein by reference is the information under the caption “16(a) Beneficial Ownership Reporting Compliance” of the Proxy Statement.

 

The following is a list of the names, ages, principal occupations and positions with Vornado of the executive officers of Vornado and the positions held by such officers during the past five years. All executive officers of Vornado have terms of office that run until the next succeeding meeting of the Board of Trustees of Vornado following the Annual Meeting of Shareholders unless they are removed sooner by the Board.

 

PRINCIPAL OCCUPATION, POSITION AND OFFICE

Name

Age

(Current and during past five years with Vornado unless otherwise stated)

Steven Roth

73 

Chairman of the Board; Chief Executive Officer since April 2013 and from May 1989 to May 2009; Managing General Partner of Interstate Properties, an owner of shopping centers and an investor in securities and partnerships; Chief Executive Officer of Alexander’s, Inc. since March 1995, a Director since 1989, and Chairman since May 2004.

Michael J. Franco

46 

Executive Vice President - Co-Head of Acquisitions and Capital Markets since November 2010; Managing Director (2003-2010) and Executive Director (2001-2003) of the Real Estate Investing Group of Morgan Stanley.

David R. Greenbaum

63 

President of the New York Division since April 1997 (date of our acquisition); President of Mendik Realty (the predecessor to the New York Office division) from 1990 until April 1997.

Joseph Macnow

69 

Executive Vice President - Finance and Chief Administrative Officer since June 2013; Executive Vice President - Finance and Administration from January 1998 to June 2013, and Chief Financial Officer from March 2001 to June 2013; Executive Vice President and Chief Financial Officer of Alexander's, Inc. since August 1995.

Mitchell N. Schear

56 

President of Vornado/Charles E. Smith L.P. (our Washington, DC division) since April 2003; President of the Kaempfer Company from 1998 to April 2003 (date acquired by us).

Wendy Silverstein

54 

Executive Vice President - Co-Head of Acquisitions and Capital Markets since November 2010; Executive Vice President of Capital Markets since 1998; Senior Credit Officer of Citicorp Real Estate and Citibank, N.A. from 1986 to 1998.

Stephen W. Theriot

55 

Chief Financial Officer since June 2013; Assistant Treasurer of Alexander's, Inc. since May 2014; Partner at Deloitte & Touche LLP (1994 - 2013) and most recently, leader of its Northeast Real Estate practice (2011 - 2013).

 

 

The Registrant has adopted a Code of Business Conduct and Ethics that applies to, among others, Steven Roth, its principal executive officer, and Stephen W. Theriot, its principal financial and accounting officer. This Code is available on our website at www.vno.com.

145

 


 
 

 

ITEM 11.      Executive Compensation

Information relating to executive officer and trustee compensation will be contained in the Proxy Statement referred to above in Item 10, “Directors, Executive Officers and Corporate Governance,” under the caption “Executive Compensation” and such information is incorporated herein by reference.

 

 

 

ITEM 12.      Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information relating to security ownership of certain beneficial owners and management will be contained in the Proxy Statement referred to in Item 10, “Directors, Executive Officers and Corporate Governance,” under the caption “Principal Security Holders” and such information is incorporated herein by reference.

 

                      Equity compensation plan information

The following table provides information as of December 31, 2014 regarding our equity compensation plans.

 

Number of securities remaining

Number of securities to be

Weighted-average

available for future issuance

issued upon exercise of

exercise price of

under equity compensation plans

outstanding options,

outstanding options,

(excluding securities reflected in

Plan Category

warrants and rights

warrants and rights

the second column)

Equity compensation plans approved

by security holders

4,668,945 

(1)

$

67.38 

4,003,507 

(2)

Equity compensation awards not

approved by security holders

-   

-   

-   

Total

4,668,945 

$

67.38 

4,003,507 

___________________________

(1)

Includes an aggregate of 1,848,830 shares/units, comprised of (i) 22,449 restricted common shares, (ii) 913,009 restricted Operating Partnership units and (iii) 913,372 Out-Performance Plan units, which do not have an exercise price.

(2)

Based on awards being granted as "Full Value Awards," as defined. If we were to grant "Not Full Value Awards," as defined, the number of securities available for future grants would be 8,007,014.

 

 

 

ITEM 13.      Certain Relationships and Related Transactions, and Director Independence

Information relating to certain relationships and related transactions will be contained in the Proxy Statement referred to in Item 10, “Directors, Executive Officers and Corporate Governance,” under the caption “Certain Relationships and Related Transactions” and such information is incorporated herein by reference.

 

 

 

ITEM 14.      Principal Accounting Fees and Services

Information relating to Principal Accounting fees and services will be contained in the Proxy Statement referred to in Item 10, “Directors, Executive Officers and Corporate Governance,” under the caption “Ratification of Selection of Independent Auditors” and such information is incorporated herein by reference.

146

 


 
 

 

PART IV

 

Item 15.              Exhibits, Financial Statement Schedules

(a)     The following documents are filed as part of this report:

 

1.     The consolidated financial statements are set forth in Item 8 of this Annual Report on Form 10-K.

 

The following financial statement schedules should be read in conjunction with the financial statements included in Item 8 of this Annual Report on Form 10-K.

 

Pages in this

Annual Report

on Form 10-K

II--Valuation and Qualifying Accounts--years ended December 31, 2014, 2013 and 2012

149 

III--Real Estate and Accumulated Depreciation as of December 31, 2014

158 

 

Schedules other than those listed above are omitted because they are not applicable or the information required is included in the consolidated financial statements or the notes thereto.

 

The following exhibits listed on the Exhibit Index, which is incorporated herein by reference, are filed with this Annual Report on Form 10-K.

 

Exhibit No.

 

 

 

12

 

 

Computation of Ratios

21

 

 

Subsidiaries of Registrant

23

 

 

Consent of Independent Registered Public Accounting Firm

31.1

 

 

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

31.2

 

 

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

32.1

 

 

Section 1350 Certification of the Chief Executive Officer

32.2

 

 

Section 1350 Certification of the Chief Financial Officer

101.INS

 

 

XBRL Instance Document

101.SCH

 

 

XBRL Taxonomy Extension Schema

101.CAL

 

 

XBRL Taxonomy Extension Calculation Linkbase

101.DEF

 

 

XBRL Taxonomy Extension Definition Linkbase

101.LAB

 

 

XBRL Taxonomy Extension Label Linkbase

101.PRE

 

 

XBRL Taxonomy Extension Presentation Linkbase

 

 

 

 

 

 

 

 

147

 


 
 

 

SIGNATURES

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

 

 

 

VORNADO REALTY TRUST

 

 

(Registrant)

 

 

 

 

 

 

Date: February 17, 2015

By:

/s/ Stephen W. Theriot

 

 

Stephen W. Theriot, Chief Financial Officer

(duly authorized officer and principal financial and accounting officer)

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

 

 

Signature

 

Title

 

Date

 

 

 

 

 

 

By:

/s/Steven Roth

 

Chairman of the Board of Trustees

 

February 17, 2015

 

     (Steven Roth)

 

     and Chief Executive Officer

 

 

 

 

 

 

 

 

By:

/s/Candace K. Beinecke

 

Trustee

 

February 17, 2015

 

     (Candace K. Beinecke)

 

 

 

 

 

 

 

 

 

 

By:

/s/Michael D. Fascitelli

 

Trustee

 

February 17, 2015

 

     (Michael D. Fascitelli)

 

 

 

 

 

 

 

 

 

 

By:

/s/Robert P. Kogod

 

Trustee

 

February 17, 2015

 

     (Robert P. Kogod)

 

 

 

 

 

 

 

 

 

 

By:

/s/Michael Lynne

 

Trustee

 

February 17, 2015

 

     (Michael Lynne)

 

 

 

 

 

 

 

 

 

 

By:

/s/David Mandelbaum

 

Trustee

 

February 17, 2015

 

     (David Mandelbaum)

 

 

 

 

 

 

 

 

 

 

By:

/s/Daniel R. Tisch

 

Trustee

 

February 17, 2015

 

     (Daniel R. Tisch)

 

 

 

 

 

 

 

 

 

 

By:

/s/Richard R. West

 

Trustee

 

February 17, 2015

 

     (Richard R. West)

 

 

 

 

 

 

 

 

 

 

By:

/s/Russell B. Wight

 

Trustee

 

February 17, 2015

 

     (Russell B. Wight, Jr.)

 

 

 

 

 

 

 

 

 

 

By:

/s/Stephen W. Theriot

 

Chief Financial Officer

 

February 17, 2015

 

     (Stephen W. Theriot)

 

     (Principal Financial and Accounting Officer)

 

 

148

 


 

 

VORNADO REALTY TRUST

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

December 31, 2014

(Amounts in Thousands)

Column A

Column B

Column C

Column D

Column E

Additions

Balance at

Charged

Uncollectible

Balance

Beginning

Against

Accounts

at End

Description

of Year

Operations

Written-off

of Year

Year Ended December 31, 2014:

Allowance for doubtful accounts

$

32,069 

$

3,614 

$

(9,624)

$

26,059 

Year Ended December 31, 2013:

Allowance for doubtful accounts

$

40,839 

$

11,417 

$

(20,187)

$

32,069 

Year Ended December 31, 2012:

Allowance for doubtful accounts

$

46,531 

$

9,697 

$

(15,389)

$

40,839 

149

 


 

 

VORNADO REALTY TRUST

SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

(Amounts in thousands)

COLUMN A

COLUMN B

COLUMN C

COLUMN D

COLUMN E

COLUMN F

COLUMN G

COLUMN H

COLUMN I

Gross amount at which

Life on which

Initial cost to company (1)

carried at close of period

depreciation

Costs

Accumulated

in latest

Building

capitalized

Buildings

depreciation

income

and

subsequent

and

and

Date of

Date

statement

Description

Encumbrances

Land

improvements

to acquisition

Land

improvements

Total (2)

amortization

construction (3)

acquired

is computed

New York

New York

Manhattan

1290 Avenue of the Americas

$

950,000 

$

515,539 

$

923,653 

$

125,754 

$

515,540 

$

1,049,406 

$

1,564,946 

$

204,622 

1963 

2007 

(4)

697-703 5th Avenue (St. Regis)

152,825 

584,230 

152,825 

584,230 

737,055 

2,591 

2014 

(4)

350 Park Avenue

294,484 

265,889 

363,381 

44,888 

265,890 

408,268 

674,158 

82,124 

1960 

2006 

(4)

666 Fifth Avenue (Retail Condo)

390,000 

189,005 

471,072 

189,005 

471,072 

660,077 

25,020 

2012

(4)

One Penn Plaza

412,169 

195,595 

607,764 

607,764 

249,036 

1972

1998

(4)

100 West 33rd Street (Manhattan Mall)

223,242 

242,776 

247,970 

31,257 

242,777 

279,226 

522,003 

52,608 

1911 

2007

(4)

1535 Broadway (Marriott Marquis)

249,285 

123,615 

372,900 

372,900 

528 

2012

(4)

1540 Broadway

105,914 

214,208 

26,132 

105,914 

240,340 

346,254 

35,089 

2006

(4)

655 Fifth Avenue

140,000 

102,594 

231,903 

102,594 

231,903 

334,497 

7,305 

2013

(4)

Two Penn Plaza

575,000 

53,615 

164,903 

88,592 

52,689 

254,421 

307,110 

124,324 

1968

1997

(4)

Manhattan Mall

101,758 

88,595 

113,473 

71,769 

88,595 

185,242 

273,837 

44,006 

2009

2007

(4)

770 Broadway

353,000 

52,898 

95,686 

96,360 

52,898 

192,046 

244,944 

81,108 

1907

1998

(4)

90 Park Avenue

8,000 

175,890 

51,271 

8,000 

227,161 

235,161 

96,584 

1964

1997

(4)

888 Seventh Avenue

318,554 

117,269 

116,624 

233,893 

233,893 

97,295 

1980

1998

(4)

909 Third Avenue

350,000 

120,723 

81,627 

202,350 

202,350 

70,234 

1969

1999

(4)

Eleven Penn Plaza

450,000 

40,333 

85,259 

70,124 

40,333 

155,383 

195,716 

67,353 

1923

1997

(4)

7 West 34th Street

179,579 

34,614 

144,965 

179,579 

58,186 

1901 

2000 

(4)

640 Fifth Avenue

38,224 

25,992 

113,920 

38,224 

139,912 

178,136 

70,078 

1950

1997

(4)

150 East 58th Street

39,303 

80,216 

35,385 

39,303 

115,601 

154,904 

46,971 

1969

1998

(4)

595 Madison Avenue

62,731 

62,888 

22,407 

62,731 

85,295 

148,026 

30,921 

1968

1999

(4)

828-850 Madison Avenue

80,000 

107,937 

28,261 

10 

107,937 

28,271 

136,208 

6,831 

2005 

(4)

715 Lexington Avenue

26,903 

63,000 

63,000 

26,903 

89,903 

6,553 

1923 

2001 

(4)

4 Union Square South

119,847 

24,079 

55,220 

2,614 

24,079 

57,834 

81,913 

14,903 

1965/2004

1993 

(4)

330 West 34th Street

8,599 

67,997 

76,596 

76,596 

1,957 

1925

1998

(4)

510 Fifth Avenue

30,154 

34,602 

18,728 

18,806 

34,602 

37,534 

72,136 

4,541 

2010 

(4)

478-482 Broadway

20,000 

13,375 

28,546 

20,000 

41,921 

61,921 

6,490 

2009 

2007 

(4)

20 Broad Street

28,760 

27,302 

56,062 

56,062 

19,666 

1956

1998

(4)

40 Fulton Street

15,732 

26,388 

13,932 

15,732 

40,320 

56,052 

16,298 

1987

1998

(4)

689 Fifth Avenue

19,721 

13,446 

19,764 

19,721 

33,210 

52,931 

7,999 

1925

1998

(4)

443 Broadway

11,187 

41,186 

11,187 

41,186 

52,373 

1,651 

2013

(4)

40 East 66th Street

13,616 

34,635 

142 

13,616 

34,777 

48,393 

7,848 

2005 

(4)

155 Spring Street

13,700 

30,544 

2,469 

13,700 

33,013 

46,713 

6,589 

2007 

(4)

435 Seventh Avenue

98,000 

19,893 

19,091 

37 

19,893 

19,128 

39,021 

5,964 

2002

1997 

(4)

3040 M Street

7,830 

27,490 

3,256 

7,830 

30,746 

38,576 

6,978 

2006

(4)

692 Broadway

6,053 

22,908 

3,536 

6,053 

26,444 

32,497 

6,124 

2005 

(4)

608 Fifth Avenue

30,826 

30,826 

30,826 

1,334 

1932

2012

(4)

677-679 Madison Avenue

13,070 

9,640 

388 

13,070 

10,028 

23,098 

2,145 

2006

(4)

484-486 Broadway

10,000 

6,688 

5,040 

10,000 

11,728 

21,728 

1,746 

2009

2007 

(4)

 

150

 


 

 

VORNADO REALTY TRUST

SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

(Amounts in thousands)

COLUMN A

COLUMN B

COLUMN C

COLUMN D

COLUMN E

COLUMN F

COLUMN G

COLUMN H

COLUMN I

Gross amount at which

Life on which

Initial cost to company (1)

carried at close of period

depreciation

Costs

Accumulated

in latest

Building

capitalized

Buildings

depreciation

income

and

subsequent

and

and

Date of

Date

statement

Description

Encumbrances

Land

improvements

to acquisition

Land

improvements

Total (2)

amortization

construction (3)

acquired

is computed

1135 Third Avenue

$

$

7,844 

$

7,844 

$

5,197 

$

7,844 

$

13,041 

$

20,885 

$

363 

1997 

(4)

431 Seventh Avenue

16,700 

2,751 

-   

16,700 

2,751 

19,451 

533 

2007 

(4)

304 - 306 Canal Street

3,511 

12,905 

-   

3,511 

12,905 

16,416 

-   

2014 

(4)

334 Canal Street

1,693 

6,507 

7,107 

1,693 

13,614 

15,307 

2011

(4)

267 West 34th Street

5,099 

10,037 

-   

5,099 

10,037 

15,136 

295 

2013

(4)

1540 Broadway Garage

4,086 

8,914 

-   

4,086 

8,914 

13,000 

1,912 

1990 

2006 

(4)

966 Third Avenue

8,869 

3,631 

-   

8,869 

3,631 

12,500 

121 

2013

(4)

148 Spring Street

3,200 

8,112 

392 

3,200 

8,504 

11,704 

1,396 

2008 

(4)

150 Spring Street

3,200 

5,822 

266 

3,200 

6,088 

9,288 

1,016 

2008 

(4)

488 Eighth Avenue

10,650 

1,767 

(4,674)

6,859 

884 

7,743 

156 

2007 

(4)

484 Eighth Avenue

3,856 

762 

383 

3,856 

1,145 

5,001 

345 

1997 

(4)

825 Seventh Avenue

1,483 

697 

33 

1,483 

730 

2,213 

322 

1997 

(4)

Other (Including Signage)

-   

5,548 

88,732 

-   

94,280 

94,280 

13,659 

Total New York

4,474,039 

2,345,852 

5,227,329 

1,860,000 

2,438,752 

6,994,429 

9,433,181 

1,591,723 

New Jersey

Paramus

-   

-   

-   

27,521 

1,033 

26,488 

27,521 

16,868 

1967 

1987 

(4)

Other Properties

Hotel Pennsylvania

-   

29,903 

121,712 

81,199 

29,903 

202,911 

232,814 

85,990 

1919

1997

(4)

Total New York

4,474,039 

2,375,755 

5,349,041 

1,968,720 

2,469,688 

7,223,828 

9,693,516 

1,694,581 

Washington, DC

Washington, DC

2011-2451 Crystal Drive

223,652 

100,935 

409,920 

138,116 

100,229 

548,742 

648,971 

196,953 

1984-1989

2002 

(4)

2001 Jefferson Davis Highway,

2100/2200 Crystal Drive, 223 23rd

Street, 2221 South Clark Street, Crystal

City Shops at 2100, 220 20th Street

71,256 

57,213 

131,206 

180,729 

49,683 

319,465 

369,148 

71,562 

1964-1969

2002 

(4)

1550-1750 Crystal Drive/

241-251 18th Street

40,865 

64,817 

218,330 

78,232 

64,652 

296,727 

361,379 

99,573 

1974-1980

2002 

(4)

Riverhouse Apartments

259,546 

118,421 

125,078 

69,507 

138,819 

174,187 

313,006 

35,074 

2007 

(4)

Skyline Place (6 buildings)

456,421 

41,986 

221,869 

29,537 

41,862 

251,530 

293,392 

84,826 

1973-1984

2002 

(4)

1215, 1225 S. Clark Street/ 200, 201

12th Street S.

58,829 

47,594 

177,373 

44,496 

47,465 

221,998 

269,463 

72,395 

1983-1987

2002 

(4)

1229-1231 25th Street (West End 25)

101,671 

67,049 

5,039 

106,659 

68,198 

110,549 

178,747 

14,439 

2007 

(4)

Met Park / Warehouses

-   

106,946 

1,326 

67,761 

82,898 

93,135 

176,033 

1,321 

2007 

(4)

2101 L Street

148,922 

32,815 

51,642 

83,554 

39,768 

128,243 

168,011 

30,848 

1975 

2003 

(4)

2200 / 2300 Clarendon Blvd

35,132 

-   

105,475 

45,831 

-   

151,306 

151,306 

50,525 

1988-1989

2002 

(4)

1800, 1851 and 1901 South Bell Street

-   

37,551 

118,806 

(7,053)

37,551 

111,753 

149,304 

31,493 

1968 

2002 

(4)

Bowen Building - 875 15th Street, NW

115,022 

30,077 

98,962 

1,962 

30,176 

100,825 

131,001 

24,031 

2004 

2005 

(4)

1875 Connecticut Ave, NW

92,500 

36,303 

82,004 

7,269 

35,886 

89,690 

125,576 

20,162 

1963 

2007 

(4)

One Skyline Tower

138,938 

12,266 

75,343 

36,416 

12,231 

111,794 

124,025 

38,697 

1988 

2002 

(4)

 

151

 


 

 

VORNADO REALTY TRUST

SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

(Amounts in thousands)

COLUMN A

COLUMN B

COLUMN C

COLUMN D

COLUMN E

COLUMN F

COLUMN G

COLUMN H

COLUMN I

Gross amount at which

Life on which

Initial cost to company (1)

carried at close of period

depreciation

Costs

Accumulated

in latest

Building

capitalized

Buildings

depreciation

income

and

subsequent

and

and

Date of

Date

statement

Description

Encumbrances

Land

improvements

to acquisition

Land

improvements

Total (2)

amortization

construction (3)

acquired

is computed

1399 New York Avenue, NW

$

-   

$

33,481 

$

67,363 

$

5,736 

$

34,178 

$

72,402 

$

106,580 

$

7,425 

2011 

(4)

Commerce Executive

-   

13,401 

58,705 

20,283 

13,140 

79,249 

92,389 

25,710 

1985-1989

2002 

(4)

Seven Skyline Place

103,971 

10,292 

58,351 

23,086 

10,262 

81,467 

91,729 

18,906 

2001 

2002 

(4)

1825 Connecticut Ave, NW

92,500 

33,090 

61,316 

(4,958)

32,726 

56,722 

89,448 

13,335 

1956 

2007 

(4)

1235 S. Clark Street

-   

15,826 

53,894 

18,636 

15,826 

72,530 

88,356 

22,186 

1981 

2002 

(4)

H Street - North 10-1D Land Parcel

-   

104,473 

55 

(33,488)

61,970 

9,070 

71,040 

-   

2007 

(4)

1750 Pennsylvania Avenue

-   

20,020 

30,032 

15,094 

21,170 

43,976 

65,146 

11,250 

1964 

2002 

(4)

Crystal City Hotel

-   

8,000 

47,191 

9,316 

8,000 

56,507 

64,507 

14,565 

1968 

2004 

(4)

1150 17th Street

28,728 

23,359 

24,876 

15,224 

24,723 

38,736 

63,459 

14,992 

1970 

2002 

(4)

1730 M Street

14,853 

10,095 

17,541 

9,895 

10,687 

26,844 

37,531 

10,198 

1963 

2002 

(4)

Democracy Plaza One

-   

-   

33,628 

3,321 

-   

36,949 

36,949 

16,407 

1987 

2002 

(4)

1726 M Street

-   

9,450 

22,062 

3,433 

9,455 

25,490 

34,945 

6,036 

1964 

2006 

(4)

Crystal Drive Retail

-   

-   

20,465 

6,771 

-   

27,236 

27,236 

10,325 

2004 

2004 

(4)

1109 South Capitol Street

-   

11,541 

178 

(253)

11,597 

(131)

11,466 

-   

2007 

(4)

South Capitol

-   

4,009 

6,273 

(1,741)

-   

8,541 

8,541 

-   

2005 

(4)

H Street

-   

1,763 

641 

41 

1,763 

682 

2,445 

161 

2005 

(4)

Other

-   

-   

51,767 

(37,673)

-   

14,094 

14,094 

156 

Total Washington, DC

1,982,806 

1,052,773 

2,376,711 

935,739 

1,004,915 

3,360,308 

4,365,223 

943,551 

Retail Properties

California

Walnut Creek (1149 S. Main St)

-   

2,699 

19,930 

-   

2,699 

19,930 

22,629 

4,599 

2006

(4)

Signal Hill

-   

9,652 

2,940 

9,653 

2,941 

12,594 

607 

2006

(4)

Walnut Creek (1556 Mount Diablo Blvd)

-   

5,909 

-   

1,536 

5,908 

1,537 

7,445 

129 

2007

(4)

Vallejo

-   

-   

2,945 

221 

-   

3,166 

3,166 

654 

2006

(4)

Total California

-   

18,260 

25,815 

1,759 

18,260 

27,574 

45,834 

5,989 

Connecticut

Waterbury

13,643 

667 

4,504 

4,666 

667 

9,170 

9,837 

6,077 

1969

1969

(4)

Newington

10,969 

2,421 

1,200 

1,193 

2,421 

2,393 

4,814 

801 

1965

1965

(4)

Total Connecticut

24,612 

3,088 

5,704 

5,859 

3,088 

11,563 

14,651 

6,878 

 

152

 


 

 

VORNADO REALTY TRUST

SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

(Amounts in thousands)

COLUMN A

COLUMN B

COLUMN C

COLUMN D

COLUMN E

COLUMN F

COLUMN G

COLUMN H

COLUMN I

Gross amount at which

Life on which

Initial cost to company (1)

carried at close of period

depreciation

Costs

Accumulated

in latest

Building

capitalized

Buildings

depreciation

income

and

subsequent

and

and

Date of

Date

statement

Description

Encumbrances

Land

improvements

to acquisition

Land

improvements

Total (2)

amortization

construction (3)

acquired

is computed

Maryland

Rockville

$

-   

$

3,470 

$

20,599 

$

810 

$

3,470 

$

21,409 

$

24,879 

$

5,106 

2005 

(4)

Baltimore (Towson)

15,248 

581 

3,227 

10,498 

581 

13,725 

14,306 

5,741 

1968 

1968 

(4)

Annapolis

-   

-   

9,652 

-   

-   

9,652 

9,652 

2,956 

2005 

(4)

Wheaton

-   

-   

5,367 

-   

-   

5,367 

5,367 

1,107 

2006

(4)

Glen Burnie

-   

462 

2,571 

1,807 

462 

4,378 

4,840 

3,088 

1958

1958 

(4)

Total Maryland

15,248 

4,513 

41,416 

13,115 

4,513 

54,531 

59,044 

17,998 

Massachusetts

Springfield

5,591 

2,797 

2,471 

591 

2,797 

3,062 

5,859 

1,111 

1993

1966

(4)

Chicopee

8,106 

895 

-   

-   

895 

-   

895 

-   

1969

1969

(4)

Cambridge

-   

-   

-   

260 

-   

260 

260 

176 

Total Massachusetts

13,697 

3,692 

2,471 

851 

3,692 

3,322 

7,014 

1,287 

New Hampshire 

Salem 

-   

6,083 

-   

-   

6,083 

-   

6,083 

-   

2006

(4)

New Jersey

Paramus (Bergen Town Center)

300,000 

19,884 

81,723 

376,240 

37,635 

440,212 

477,847 

82,904 

1957/2009

2003

(4)

North Bergen (Tonnelle Ave)

75,000 

24,493 

-   

63,717 

31,806 

56,404 

88,210 

9,486 

2009

2006

(4)

Union (Springfield Avenue)

27,822 

19,700 

45,090 

-   

19,700 

45,090 

64,790 

8,548 

2007

(4)

Wayne Towne Center

-   

-   

26,137 

22,842 

-   

48,979 

48,979 

5,575 

2010

(4)

East Rutherford

13,269 

-   

36,727 

60 

-   

36,787 

36,787 

5,284 

2007

2007

(4)

Garfield

-   

45 

8,068 

25,707 

45 

33,775 

33,820 

6,962 

2009

1998

(4)

East Hanover I and II

41,786 

2,232 

18,241 

12,033 

2,671 

29,835 

32,506 

15,472 

1962

1962/1998

(4)

Lodi (Washington Street)

-   

7,606 

13,125 

2,596 

7,606 

15,721 

23,327 

3,494 

2004

(4)

Bricktown

31,192 

1,391 

11,179 

6,317 

1,391 

17,496 

18,887 

12,300 

1968

1968

(4)

East Brunswick II (339-341 Route 18 S.)

11,503 

2,098 

10,949 

4,056 

2,098 

15,005 

17,103 

9,184 

1972

1972

(4)

Hazlet

-   

7,400 

9,413 

-   

7,400 

9,413 

16,813 

1,784 

2007

(4)

Totowa

24,183 

120 

11,994 

4,653 

92 

16,675 

16,767 

12,839 

1957/1999

1957

(4)

Carlstadt

-   

-   

16,457 

-   

16,458 

16,458 

2,959 

2007

(4)

 

153

 


 

 

VORNADO REALTY TRUST

SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

(Amounts in thousands)

COLUMN A

COLUMN B

COLUMN C

COLUMN D

COLUMN E

COLUMN F

COLUMN G

COLUMN H

COLUMN I

Gross amount at which

Life on which

Initial cost to company (1)

carried at close of period

depreciation

Costs

Accumulated

in latest

Building

capitalized

Buildings

depreciation

income

and

subsequent

and

and

Date of

Date

statement

Description

Encumbrances

Land

improvements

to acquisition

Land

improvements

Total (2)

amortization

construction (3)

acquired

is computed

North Plainfield

$

-   

$

6,577 

$

13,983 

$

(5,507)

$

6,577 

$

8,476 

$

15,053 

$

2,999 

1955

1989

(4)

Marlton

16,853 

1,611 

3,464 

9,960 

1,454 

13,581 

15,035 

8,538 

1973

1973

(4)

Hackensack

39,592 

692 

10,219 

3,284 

692 

13,503 

14,195 

9,657 

1963

1963

(4)

Union (Route 22 and Morris Ave)

31,567 

3,025 

7,470 

3,394 

3,025 

10,864 

13,889 

5,275 

1962

1962

(4)

Manalapan

20,545 

725 

7,189 

5,534 

1,046 

12,402 

13,448 

8,177 

1971

1971

(4)

Cherry Hill

13,536 

5,864 

2,694 

4,177 

4,864 

7,871 

12,735 

3,985 

1964

1964

(4)

South Plainfield

5,003 

-   

10,044 

1,582 

-   

11,626 

11,626 

2,221 

2007

(4)

Watchung

14,713 

4,178 

5,463 

1,711 

4,441 

6,911 

11,352 

4,240 

1994

1959

(4)

Englewood

11,571 

2,300 

17,245 

(8,390)

1,495 

9,660 

11,155 

566 

2007

(4)

Dover

12,841 

559 

6,363 

3,598 

559 

9,961 

10,520 

6,628 

1964

1964

(4)

Eatontown

-   

4,653 

4,999 

326 

4,653 

5,325 

9,978 

1,371 

2005

(4)

Lodi (Route 17 N.)

11,075 

238 

9,446 

-   

238 

9,446 

9,684 

3,599 

1999

1975

(4)

Morris Plains

20,866 

1,104 

6,411 

1,101 

1,104 

7,512 

8,616 

6,934 

1961

1985

(4)

Jersey City

19,796 

652 

7,495 

468 

652 

7,963 

8,615 

2,799 

1965

1965

(4)

East Brunswick I (325-333 Route 18 S.)

24,290 

319 

6,220 

1,959 

319 

8,179 

8,498 

6,725 

1957

1957

(4)

Middletown

16,960 

283 

5,248 

2,450 

283 

7,698 

7,981 

5,669 

1963

1963

(4)

Woodbridge

20,171 

1,509 

2,675 

1,969 

1,539 

4,614 

6,153 

2,636 

1959

1959

(4)

Lawnside

10,433 

851 

3,164 

1,351 

851 

4,515 

5,366 

4,313 

1969

1969

(4)

Kearny

-   

309 

3,376 

1,489 

309 

4,865 

5,174 

3,667 

1938

1959

(4)

Turnersville

-   

900 

1,342 

1,094 

900 

2,436 

3,336 

2,194 

1974

1974

(4)

North Bergen (Kennedy Blvd)

4,976 

2,308 

636 

13 

2,308 

649 

2,957 

447 

1993

1959

(4)

Montclair

2,568 

66 

419 

381 

66 

800 

866 

694 

1972

1972

(4)

Total New Jersey

822,111 

123,692 

424,668 

550,166 

147,819 

950,707 

1,098,526 

270,125 

New York

Bronx (Bruckner Blvd)

-   

66,100 

259,503 

(63,515)

61,618 

200,470 

262,088 

6,160 

2007

(4)

Huntington

16,265 

21,200 

33,667 

1,690 

21,200 

35,357 

56,557 

6,173 

2007 

(4)

Mt. Kisco

27,733 

22,700 

26,700 

784 

23,297 

26,887 

50,184 

4,653 

2007

(4)

Bronx (1750-1780 Gun Hill Road)

-   

6,427 

11,885 

19,159 

6,428 

31,043 

37,471 

5,028 

2009

2005 

(4)

Staten Island

17,000 

11,446 

21,262 

2,725 

11,446 

23,987 

35,433 

6,075 

2004 

(4)

Inwood

-   

12,419 

19,097 

795 

12,419 

19,892 

32,311 

4,974 

2004

(4)

Buffalo (Amherst)

-   

5,743 

4,056 

13,008 

5,107 

17,700 

22,807 

6,306 

1968

1968

(4)

West Babylon

-   

6,720 

13,786 

201 

6,720 

13,987 

20,707 

2,700 

2007

(4)

Freeport (437 E. Sunrise Highway)

20,866 

1,231 

4,747 

3,091 

1,231 

7,838 

9,069 

5,343 

1981

1981

(4)

Dewitt

-   

-   

7,116 

-   

-   

7,116 

7,116 

1,453 

2006

(4)

Oceanside

-   

2,710 

2,306 

-   

2,710 

2,306 

5,016 

437 

2007

(4)

 

154

 


 

 

VORNADO REALTY TRUST

SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

(Amounts in thousands)

COLUMN A

COLUMN B

COLUMN C

COLUMN D

COLUMN E

COLUMN F

COLUMN G

COLUMN H

COLUMN I

Gross amount at which

Life on which

Initial cost to company (1)

carried at close of period

depreciation

Costs

Accumulated

in latest

Building

capitalized

Buildings

depreciation

income

and

subsequent

and

and

Date of

Date

statement

Description

Encumbrances

Land

improvements

to acquisition

Land

improvements

Total (2)

amortization

construction (3)

acquired

is computed

Rochester (Henrietta)

$

-   

$

-   

$

2,647 

$

1,149 

$

-   

$

3,796 

$

3,796 

$

3,324 

1971

1971

(4)

Rochester

4,280 

2,172 

-   

-   

2,172 

-   

2,172 

-   

1966

1966

(4)

Freeport (240 West Sunrise Highway)

-   

-   

-   

260 

-   

260 

260 

151 

2005

(4)

Commack

-   

-   

43 

184 

-   

227 

227 

123 

2006

(4)

New Hyde Park

-   

-   

-   

-   

126 

1970

1976

(4)

Total New York

86,144 

158,868 

406,819 

(20,469)

154,348 

390,870 

545,218 

53,026 

Pennsylvania

Wilkes-Barre

-   

6,053 

26,646 

794 

6,053 

27,440 

33,493 

4,931 

2007 

(4)

Allentown

29,266 

187 

15,580 

1,933 

187 

17,513 

17,700 

13,818 

1957

1957

(4)

Bensalem

14,526 

2,727 

6,698 

1,895 

2,727 

8,593 

11,320 

3,689 

1972/1999

1972

(4)

Bethlehem

5,457 

827 

5,200 

1,334 

839 

6,522 

7,361 

5,593 

1966

1966

(4)

Wyomissing

-   

-   

2,646 

2,381 

-   

5,027 

5,027 

3,471 

2005

(4)

Broomall

10,433 

850 

2,171 

1,680 

850 

3,851 

4,701 

2,792 

1966

1966

(4)

York

5,083 

409 

2,568 

1,395 

409 

3,963 

4,372 

3,566 

1970

1970

(4)

Lancaster

5,270 

3,140 

63 

689 

3,140 

752 

3,892 

518 

1966

1966

(4)

Glenolden

6,688 

850 

1,820 

613 

850 

2,433 

3,283 

2,101 

1975

1975

(4)

Springfield

-   

-   

-   

80 

-   

80 

80 

80 

2005

(4)

Total Pennsylvania

76,723 

15,043 

63,392 

12,794 

15,055 

76,174 

91,229 

40,559 

South Carolina 

Charleston 

-   

-   

3,634 

-   

-   

3,634 

3,634 

750 

2006

(4)

Virginia

Norfolk

-   

-   

3,927 

15 

-   

3,942 

3,942 

2,885 

2005

(4)

Puerto Rico

Las Catalinas

130,000 

15,280 

64,370 

10,121 

15,280 

74,491 

89,771 

30,478 

1996

2002

(4)

Montehiedra

120,000 

9,182 

66,751 

8,328 

9,267 

74,994 

84,261 

31,673 

1996

1997

(4)

Total Puerto Rico

250,000 

24,462 

131,121 

18,449 

24,547 

149,485 

174,032 

62,151 

Other

-   

-   

-   

4,232 

-   

4,232 

4,232 

591 

(4)

Total Retail Properties

1,288,535 

357,701 

1,108,967 

586,771 

377,405 

1,676,034 

2,053,439 

462,239 

 

155

 


 

 

VORNADO REALTY TRUST

SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

(Amounts in thousands)

COLUMN A

COLUMN B

COLUMN C

COLUMN D

COLUMN E

COLUMN F

COLUMN G

COLUMN H

COLUMN I

Gross amount at which

Life on which

Initial cost to company (1)

carried at close of period

depreciation

Costs

Accumulated

in latest

Building

capitalized

Buildings

depreciation

income

and

subsequent

and

and

Date of

Date

statement

Description

Encumbrances

Land

improvements

to acquisition

Land

improvements

Total (2)

amortization

construction (3)

acquired

is computed

Other

The Mart

Illinois

The Mart, Chicago

$

550,000 

$

64,528 

$

319,146 

$

274,921 

$

64,535 

$

594,060 

$

658,595 

$

211,332 

1930 

1998 

(4)

527 W. Kinzie, Chicago

-   

5,166 

-   

-   

5,166 

-   

5,166 

-   

Total Illinois

550,000 

69,694 

319,146 

274,921 

69,701 

594,060 

663,761 

211,332 

New York

MMPI Piers

-   

-   

-   

12,794 

-   

12,794 

12,794 

1,020 

2008 

(4)

Total The Mart

550,000 

69,694 

319,146 

287,715 

69,701 

606,854 

676,555 

212,352 

Warehouse/Industrial

New Jersey

East Hanover

-   

576 

7,752 

19,730 

691 

27,367 

28,058 

14,259 

1972

1972

(4)

555 California Street

597,868 

221,903 

893,324 

75,383 

221,903 

968,707 

1,190,610 

197,170 

1922/1969/1970

2007 

(4)

220 Central Park South

600,000 

115,720 

16,420 

460,941 

-   

593,081 

593,081 

-   

2005

(4)

Borgata Land, Atlantic City, NJ

58,452 

83,089 

(6)

83,090 

-   

83,090 

-   

2010

(4)

40 East 66th Residential

-   

29,199 

85,798 

(86,696)

10,990 

17,311 

28,301 

3,686 

2005

(4)

677-679 Madison

-   

1,462 

1,058 

284 

1,626 

1,178 

2,804 

322 

2006

(4)

Other

-   

28,052 

-   

(27,931)

-   

121 

121 

-   

2005

(4)

Total Other

1,256,320 

479,425 

996,607 

421,975 

317,609 

1,580,398 

1,898,007 

201,178 

Leasehold Improvements

Equipment and Other

-   

-   

-   

130,594 

-   

130,594 

130,594 

100,975 

Total December 31, 2014

$

9,551,700 

$

4,335,924 

$

10,158,224 

$

4,351,244 

$

4,240,009 

$

14,605,383 

$

18,845,392 

$

3,629,135 

156

 


 

 

VORNADO REALTY TRUST

SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

Notes:

(1)

Initial cost is cost as of January 30, 1982 (the date on which Vornado commenced real estate operations) unless acquired subsequent to that date see Column H.

(2)

The net basis of the Company’s assets and liabilities for tax purposes is approximately $3.6 billion lower than the amount reported for financial statement purposes.

(3)

Date of original construction –– many properties have had substantial renovation or additional construction –– see Column D.

(4)

Depreciation of the buildings and improvements are calculated over lives ranging from the life of the lease to forty years.

 

157

 


 
 

 

VORNADO REALTY TRUST

SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

(AMOUNTS IN THOUSANDS)

The following is a reconciliation of real estate assets and accumulated depreciation:

Year Ended December 31,

2014 

2013 

2012 

Real Estate

Balance at beginning of period

$

17,418,946 

$

17,365,533 

$

15,444,754 

Additions during the period:

Land

225,536 

131,646 

514,950 

Buildings & improvements

1,348,153 

1,014,876 

1,615,077 

18,992,635 

18,512,055 

17,574,781 

Less: Assets sold, written-off and deconsolidated

147,243 

1,093,109 

209,248 

Balance at end of period

$

18,845,392 

$

17,418,946 

$

17,365,533 

Accumulated Depreciation

Balance at beginning of period

$

3,296,717 

$

2,966,067 

$

2,742,244 

Additions charged to operating expenses

461,689 

423,844 

427,189 

3,758,406 

3,389,911 

3,169,433 

Less: Accumulated depreciation on assets sold and written-off

129,271 

93,194 

203,366 

Balance at end of period

$

3,629,135 

$

3,296,717 

$

2,966,067 

158

 


 
 

 

EXHIBIT INDEX

 

Exhibit No.

 

3.1 

-

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

*

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

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

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

3.2 

-

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

*

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

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

March 9, 2000

3.3 

-

Articles Supplementary, 5.40% Series L Cumulative Redeemable Preferred Shares of

*

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

reference to Exhibit 3.6 to Vornado Realty Trust’s Registration Statement on Form 8-A

(File No. 001-11954), filed on January 25, 2013

3.4 

-

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

*

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

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

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

3.5 

-

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

*

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

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

3.6 

-

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

*

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

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

3.7 

-

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

*

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

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

3.8 

-

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

*

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

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

3.9 

-

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

*

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

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

3.10 

-

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

*

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

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

3.11 

-

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

*

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

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

3.12 

-

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

*

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

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

3.13 

-

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

*

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

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

_______________________

*

Incorporated by reference.

 

159

 


 
 

 

3.14 

-

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

*

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

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

3.15 

-

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

*

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

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

3.16 

-

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

*

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

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

3.17 

-

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

*

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

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

3.18 

-

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

*

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

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

3.19 

-

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

*

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

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

3.20 

-

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

*

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

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

3.21 

-

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

*

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

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

3.22 

-

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

*

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

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

3.23 

-

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

*

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

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

3.24 

-

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

*

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

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

3.25 

-

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

*

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

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

November 7, 2003

3.26 

-

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

*

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

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

March 3, 2004

_______________________

*

Incorporated by reference.

 

160

 


 
 

 

3.27 

-

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

*

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

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

3.28 

-

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

*

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

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

January 26, 2005

3.29 

-

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

*

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

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

January 26, 2005

3.30 

-

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

*

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

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

3.31 

-

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

*

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

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

3.32 

-

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

*

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

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

3.33 

-

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

*

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

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

3.34 

-

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

*

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

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

3.35 

-

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

*

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

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

3.36 

-

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

*

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

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

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

3.37 

-

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

*

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

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

3.38 

-

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

*

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

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

May 3, 2006

3.39 

-

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

*

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

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

3.40 

-

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

*

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

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

_______________________

*

Incorporated by reference.

 

161

 


 
 

 

3.41 

-

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

*

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

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

June 27, 2007

3.42 

-

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

*

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

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

June 27, 2007

3.43 

-

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

*

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

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

June 27, 2007

3.44 

-

Fortieth Amendment to Second Amended and Restated Agreement of Limited

*

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

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

June 27, 2007

3.45 

-

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

*

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

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

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

3.46 

-

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

*

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

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

3.47 

-

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

*

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

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

3.48 

-

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

*

dated as of July 18, 2012 – Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.’s

Current Report on Form 8-K (File No. 001-34482), filed on July 18, 2012

3.49 

-

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

*

dated as of January 25, 2013 – Incorporated by reference to Exhibit 3.1 to Vornado Realty

L.P.’s Current Report on Form 8-K (File No. 001-34482), filed on January 25, 2013

4.1 

-

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

*

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

Trust’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005

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

4.2 

-

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

*

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

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

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

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

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

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

_______________________

*

Incorporated by reference.

 

162

 


 
 

 

10.1 

-

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

*

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

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

10.2 

**

-

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

*

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

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

10.3 

**

-

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

*

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

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

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

10.4 

-

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

*

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

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

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

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

filed on January 16, 2002

10.5 

-

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

*

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

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

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

10.6 

**

-

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

*

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

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

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

10.7 

**

-

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

*

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

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

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

10.8 

-

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

*

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

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

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

filed on August 7, 2002

10.9 

**

-

Amended and Restated Employment Agreement between Vornado Realty Trust and Joseph

*

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

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

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

10.10 

**

-

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

*

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

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

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

10.11 

**

-

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

*

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

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

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

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

_______________________

*

Incorporated by reference.

**

Management contract or compensatory agreement.

 

163

 


 
 

 

10.12 

**

-

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

*

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

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

filed on May 1, 2007

10.13 

**

-

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

*

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

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

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

10.14 

**

-

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

*

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

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

001-11954) filed on February 24, 2009

10.15 

**

-

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

*

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

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

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

10.16 

**

-

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

*

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

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

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

10.17 

**

-

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

*

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

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

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

10.18 

**

-

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

*

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

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

10.19 

**

-

Form of Vornado Realty Trust 2010 Omnibus Share Plan Incentive / Non-Qualified Stock Option

*

Agreement. Incorporated by reference to Exhibit 99.1 to Vornado Realty Trust's Current

Report on Form 8-K (File No. 001-11954) filed on April 5, 2012

10.20 

**

-

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

*

Incorporated by reference to Exhibit 99.2 to Vornado Realty Trust's Current Report on Form

8-K (File No. 001-11954) filed on April 5, 2012

10.21 

**

-

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

*

Incorporated by reference to Exhibit 99.3 to Vornado Realty Trust's Current Report on Form

8-K (File No. 001-11954) filed on April 5, 2012

10.22 

**

-

Form of Vornado Realty Trust 2012 Outperformance Plan Award Agreement.

*

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

10-K for the year ended December 31, 2012 (File No. 001-11954) filed on February 26, 2013

10.23 

**

-

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

*

February 27, 2013. Incorporated by reference to Exhibit 99.1 to Vornado Realty Trust’s

Current Report on Form 8-K (File No. 001-11954), filed on February 27, 2013

_______________________

*

Incorporated by reference.

**

Management contract or compensatory agreement.

 

164

 


 
 

 

10.24 

**

-

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

10.25 

-

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

10.26 

**

-

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

10.27 

**

-

Employment agreement between Vornado Realty Trust and Stephen W. Theriot dated

*

June 1, 2013. Incorporated by reference to Exhibit 10.51 to Vornado Realty Trust’s

Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 (File No. 001-11954),

filed on August 5, 2013

10.28 

**

-

Employment agreement between Vornado Realty Trust and Michael J. Franco dated

*

January 10, 2014. Incorporated by reference to Exhibit 10.52 to Vornado Realty Trust's

Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 (File No. 001-11954),

filed on May 5, 2014

10.29 

**

-

Form of Vornado Realty Trust 2014 Outerperformance Plan Award Agreement. Incorporated

*

by reference to Exhibit 10.53 to Vornado Realty Trust's Quarterly Report on Form 10-Q

for the quarter ended March 31, 2014 (File No. 001-11954), filed on May 5, 2014

10.30 

-

Amended and Restated Revolving Credit Agreement dated as of September 30, 2014, by and

*

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

Banks listed on the signature pages thereof, and JPMorgan Chase Bank N.A. as

Administrative Agent for the Banks. Incorporated by reference to Exhibit 10.54 to

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

September 30, 2014 (File No. 001-11954), filed on November 3, 2014

_______________________

*

Incorporated by reference.

**

Management contract or compensatory agreement.

 

165

 


 

 

12 

-

Computation of Ratios

21 

-

Subsidiaries of the Registrant

23 

-

Consent of Independent Registered Public Accounting Firm

31.1 

-

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

31.2 

-

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

32.1 

-

Section 1350 Certification of the Chief Executive Officer

32.2 

-

Section 1350 Certification of the Chief Financial Officer

101.INS

-

XBRL Instance Document

101.SCH

-

XBRL Taxonomy Extension Schema

101.CAL

-

XBRL Taxonomy Extension Calculation Linkbase

101.DEF

-

XBRL Taxonomy Extension Definition Linkbase

101.LAB

-

XBRL Taxonomy Extension Label Linkbase

101.PRE

-

XBRL Taxonomy Extension Presentation Linkbase

 

166