UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark one)

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended:   

September 30, 2007

 

Or

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from:

 

to

 

 

Commission File Number:

001-11954

 

 

VORNADO REALTY TRUST

(Exact name of registrant as specified in its charter)

 

Maryland

 

22-1657560

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification Number)

 

 

 

888 Seventh Avenue, New York, New York

 

10019

(Address of principal executive offices)

 

(Zip Code)

 

 

(212) 894-7000

(Registrant’s telephone number, including area code)

 

N/A

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

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of

the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was

required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, or a non-accelerated filer.

See definitions of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

 

x Large Accelerated Filer         o Accelerated Filer         o Non-Accelerated Filer

 

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

 

As of September 30, 2007, 152,264,185 of the registrant’s common shares of beneficial interest are outstanding.

 


 

 


 

PART I.

 

Financial Information:

 

 

 

 

 

 

Item 1.

Financial Statements:

Page Number

 

 

 

 

 

 

Consolidated Balance Sheets (Unaudited) as of
September 30, 2007 and December 31, 2006

3

 

 

 

 

 

 

Consolidated Statements of Income (Unaudited) for the Three and Nine Months
Ended September 30, 2007 and September 30, 2006

4

 

 

 

 

 

 

Consolidated Statements of Cash Flows (Unaudited) for the
Nine Months Ended September 30, 2007 and September 30, 2006

5

 

 

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

7

 

 

 

 

 

 

Report of Independent Registered Public Accounting Firm

37

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition
and Results of Operations

38

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

78

 

 

 

 

 

Item 4.

Controls and Procedures

79

 

 

 

 

 

 

 

 

 

 

 

 

PART II.

 

Other Information:

 

 

 

 

 

 

Item 1.

Legal Proceedings

80

 

 

 

 

 

Item 1A.

Risk Factors

81

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

81

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

81

 

 

 

 

 

Item 4.

Submission of Matters to a Vote of Security Holders

81

 

 

 

 

 

Item 5.

Other Information

81

 

 

 

 

 

Item 6.

Exhibits

81

 

 

 

 

Signatures

 

 

82

 

 

 

 

Exhibit Index

 

 

83

 

 

2

 


Part I.

Financial Information

Item 1.

Financial Statements

VORNADO REALTY TRUST

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

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

 

 

 

ASSETS

 

September 30,
2007

 

December 31,
2006

 

Real estate, at cost:

 

 

 

 

 

 

 

Land

 

$

4,632,682

 

$

2,754,962

 

Buildings and improvements

 

 

12,951,030

 

 

9,928,776

 

Development costs and construction in progress

 

 

652,148

 

 

377,200

 

Leasehold improvements and equipment

 

 

410,960

 

 

372,432

 

Total

 

 

18,646,820

 

 

13,433,370

 

Less accumulated depreciation and amortization

 

 

(2,292,589

)

 

(1,961,974

)

Real estate, net

 

 

16,354,231

 

 

11,471,396

 

Cash and cash equivalents

 

 

834,274

 

 

2,233,317

 

Escrow deposits and restricted cash

 

 

386,792

 

 

140,351

 

Marketable securities

 

 

391,738

 

 

316,727

 

Accounts receivable, net of allowance for doubtful accounts of $22,119 and $17,727

 

 

273,910

 

 

230,908

 

Investments in and advances to partially owned entities, including
Alexander’s of $108,976 and $82,114

 

 

1,167,939

 

 

1,135,669

 

Investment in Toys “R” Us

 

 

331,129

 

 

317,145

 

Notes and mortgage loans receivable

 

 

655,428

 

 

561,164

 

Receivable arising from the straight-lining of rents, net of allowance of $2,056 and $2,334

 

 

502,098

 

 

441,321

 

Due from officers

 

 

13,185

 

 

15,197

 

Assets related to discontinued operations

 

 

145,527

 

 

115,643

 

Other assets

 

 

1,197,517

 

 

975,443

 

 

 

$

22,253,768

 

$

17,954,281

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

Notes and mortgages payable

 

$

8,933,533

 

$

6,886,884

 

Convertible senior debentures

 

 

2,357,999

 

 

980,083

 

Senior unsecured notes

 

 

698,502

 

 

1,196,600

 

Exchangeable senior debentures

 

 

492,450

 

 

491,231

 

Revolving credit facility debt

 

 

94,000

 

 

 

Accounts payable and accrued expenses

 

 

580,479

 

 

531,977

 

Deferred credit

 

 

892,498

 

 

331,760

 

Officers’ compensation payable

 

 

66,750

 

 

60,955

 

Deferred tax liabilities

 

 

266,383

 

 

34,529

 

Liabilities related to discontinued operations

 

 

 

 

10,973

 

Other liabilities

 

 

161,420

 

 

150,315

 

Total liabilities

 

 

14,544,014

 

 

10,675,307

 

Minority interest, including unitholders in the Operating Partnership

 

 

1,503,395

 

 

1,128,204

 

Commitments and contingencies

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

Preferred shares of beneficial interest: no par value per share; authorized 110,000,000
shares; issued and outstanding 33,983,962 and 34,051,635 shares

 

 

825,275

 

 

828,660

 

Common shares of beneficial interest: $.04 par value per share; authorized
250,000,000 shares; issued and outstanding 152,264,185 and 151,093,373 shares

 

 

6,130

 

 

6,083

 

Additional capital

 

 

5,344,272

 

 

5,287,923

 

Earnings less than distributions

 

 

(35,650

)

 

(69,188

)

Accumulated other comprehensive income

 

 

62,668

 

 

92,963

 

Deferred compensation shares earned but not yet delivered

 

 

3,664

 

 

4,329

 

Total shareholders’ equity

 

 

6,206,359

 

 

6,150,770

 

 

 

$

22,253,768

 

$

17,954,281

 

 

See notes to consolidated financial statements.

 

3

 


VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

 

 

 

For The Three
Months Ended
September 30,

 

For The Nine
Months Ended
September 30,

 

(Amounts in thousands, except per share amounts)

 

2007

 

2006

 

2007

 

2006

 

REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

 

Property rentals

 

$

522,814

 

$

389,018

 

$

1,441,653

 

$

1,142,897

 

Temperature Controlled Logistics

 

 

212,715

 

 

190,280

 

 

619,282

 

 

573,177

 

Tenant expense reimbursements

 

 

89,482

 

 

68,634

 

 

239,310

 

 

191,181

 

Fee and other income

 

 

28,025

 

 

27,999

 

 

81,920

 

 

71,233

 

Total revenues

 

 

853,036

 

 

675,931

 

 

2,382,165

 

 

1,978,488

 

EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating

 

 

431,339

 

 

346,565

 

 

1,193,857

 

 

996,350

 

Depreciation and amortization

 

 

140,377

 

 

101,799

 

 

380,876

 

 

289,831

 

General and administrative

 

 

58,366

 

 

52,096

 

 

170,790

 

 

148,530

 

Costs of acquisitions not consummated

 

 

 

 

 

 

8,807

 

 

 

Total expenses

 

 

630,082

 

 

500,460

 

 

1,754,330

 

 

1,434,711

 

Operating income

 

 

222,954

 

 

175,471

 

 

627,835

 

 

543,777

 

Income (loss) applicable to Alexander’s

 

 

12,111

 

 

(3,586

)

 

35,114

 

 

7,569

 

(Loss) income applicable to Toys “R” Us

 

 

(20,289

)

 

(40,699

)

 

18,343

 

 

4,177

 

Income from partially owned entities

 

 

13,901

 

 

23,010

 

 

31,599

 

 

43,696

 

Interest and other investment income

 

 

56,906

 

 

98,092

 

 

231,890

 

 

137,186

 

Interest and debt expense (including amortization of deferred
financing costs of $3,706 and $4,257 in each three month
period, respectively, and $11,702 and $11,391 in each nine
month period, respectively)

 

 

(165,889

)

 

(115,280

)

 

(469,659

)

 

(339,118

)

Net gain on disposition of wholly owned and partially owned
assets other than depreciable real estate

 

 

1,012

 

 

8,032

 

 

17,699

 

 

65,527

 

Minority interest of partially owned entities

 

 

3,587

 

 

2,534

 

 

11,819

 

 

5,378

 

Income before income taxes

 

 

124,293

 

 

147,574

 

 

504,640

 

 

468,192

 

Provision for income taxes

 

 

(3,048

)

 

(382

)

 

(6,815

)

 

(2,362

)

Income from continuing operations

 

 

121,245

 

 

147,192

 

 

497,825

 

 

465,830

 

Income from discontinued operations, net of
minority interest

 

 

24,655

 

 

577

 

 

24,592

 

 

37,865

 

Income before allocation to minority limited partners

 

 

145,900

 

 

147,769

 

 

522,417

 

 

503,695

 

Minority limited partners’ interest in the Operating Partnership

 

 

(10,241

)

 

(13,103

)

 

(44,270

)

 

(46,301

)

Perpetual preferred unit distributions of the
Operating Partnership

 

 

(4,818

)

 

(6,683

)

 

(14,455

)

 

(17,030

)

Net income

 

 

130,841

 

 

127,983

 

 

463,692

 

 

440,364

 

Preferred share dividends

 

 

(14,295

)

 

(14,351

)

 

(42,886

)

 

(43,162

)

NET INCOME applicable to common shares

 

$

116,546

 

$

113,632

 

$

420,806

 

$

397,202

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME PER COMMON SHARE – BASIC:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net of minority interest

 

$

0.61

 

$

0.80

 

$

2.61

 

$

2.54

 

Income from discontinued operations, net of minority interest

 

 

0.16

 

 

 

 

0.16

 

 

0.27

 

Net income per common share

 

$

0.77

 

$

0.80

 

$

2.77

 

$

2.81

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME PER COMMON SHARE – DILUTED:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net of minority interest

 

$

0.58

 

$

0.76

 

$

2.50

 

$

2.41

 

Income from discontinued operations, net of minority interest

 

 

0.16

 

 

 

 

0.15

 

 

0.25

 

Net income per common share

 

$

0.74

 

$

0.76

 

$

2.65

 

$

2.66

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DIVIDENDS PER COMMON SHARE

 

$

0.85

 

$

0.80

 

$

2.55

 

$

2.40

 

 

See notes to consolidated financial statements.

 

4

 


VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

For The Nine Months
Ended September 30,

 

(Amounts in thousands)

 

2007

 

2006

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

Net income

 

$

463,692

 

$

440,364

 

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

 

 

 

 

 

 

 

Depreciation and amortization (including amortization of debt issuance costs)

 

 

392,578

 

 

302,869

 

Net gains from derivative positions

 

 

(100,060

)

 

(65,589

)

Equity in income of partially owned entities, including Alexander’s and Toys

 

 

(85,056

)

 

(55,442

)

Straight-lining of rental income

 

 

(58,492

)

 

(47,688

)

Amortization of below market leases, net

 

 

(58,810

)

 

(15,558

)

Minority limited partners’ interest in the Operating Partnership

 

 

47,010

 

 

46,302

 

Net gains on dispositions of wholly owned and partially owned assets
other than depreciable real estate

 

 

(17,699

)

 

(65,527

)

Distributions of income from partially owned entities, including Alexander’s and Toys

 

 

18,047

 

 

27,518

 

Perpetual preferred unit distributions of the Operating Partnership

 

 

14,455

 

 

15,905

 

Costs of acquisitions not consummated

 

 

8,807

 

 

 

Minority interest of partially owned entities

 

 

(11,819

)

 

(5,378

)

Loss on early extinguishment of debt and write-off of unamortized financing costs

 

 

7,670

 

 

15,596

 

Other non-cash adjustments

 

 

14,311

 

 

3,977

 

Net gains on sale of real estate

 

 

(27,745

)

 

(33,769

)

Write-off of issuance costs of preferred units redeemed

 

 

 

 

1,125

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(17,899

)

 

33,047

 

Accounts payable and accrued expenses

 

 

(20,242

)

 

(48,222

)

Other assets

 

 

(75,330

)

 

(88,536

)

Other liabilities

 

 

(6,325

)

 

25,844

 

Net cash provided by operating activities

 

 

487,093

 

 

486,838

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

Acquisitions of real estate and other

 

 

(2,775,982

)

 

(577,399

)

Investments in partially owned entities

 

 

(201,432

)

 

(112,729

)

Investments in notes and mortgage loans receivable

 

 

(211,942

)

 

(361,841

)

Purchases of marketable securities

 

 

(152,683

)

 

(83,698

)

Development costs and construction in progress

 

 

(231,575

)

 

(156,051

)

Proceeds received from repayment of notes and mortgage loans receivable

 

 

126,629

 

 

169,746

 

Additions to real estate

 

 

(108,935

)

 

(139,751

)

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

 

 

57,341

 

 

157,363

 

Deposits in connection with real estate acquisitions, including pre-acquisition costs

 

 

(21,231

)

 

(21,676

)

(Increase) decrease in restricted cash balances, primarily mortgage escrows

 

 

(13,245

)

 

2,527

 

Distributions of capital from partially owned entities, including Alexander’s and Toys

 

 

13,315

 

 

108,779

 

Proceeds received from Officer loan repayment

 

 

2,000

 

 

 

Proceeds from sales of real estate

 

 

217,941

 

 

110,388

 

Proceeds received on settlement of derivatives (primarily McDonalds and Sears Holdings)

 

 

234,242

 

 

135,028

 

Net cash used in investing activities

 

 

(3,065,557

)

 

(769,314

)

 

 

See notes to consolidated financial statements.

 

5

 


VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(UNAUDITED)

 

(Amounts in thousands)

 

For The Nine Months
Ended September 30,

 

 

2007

 

2006

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

Proceeds from borrowings

 

 

2,517,105

 

 

1,807,091

 

Repayments of borrowings

 

 

(727,730

)

 

(802,785

)

Dividends paid on common shares

 

 

(387,268

)

 

(339,844

)

Purchase of marketable securities in connection with the legal
defeasance of mortgage notes payable

 

 

(109,092

)

 

(174,254

)

Distributions to minority partners

 

 

(62,169

)

 

(65,303

)

Dividends paid on preferred shares

 

 

(42,940

)

 

(43,257

)

Debt issuance costs

 

 

(13,229

)

 

(15,166

)

Proceeds from exercise of share options and other

 

 

4,744

 

 

9,510

 

Proceeds from issuance of preferred shares and units

 

 

 

 

43,862

 

Redemption of perpetual preferred shares and units

 

 

 

 

(45,000

)

Net cash provided by financing activities

 

 

1,179,421

 

 

374,854

 

Net (decrease) increase in cash and cash equivalents

 

 

(1,399,043

)

 

92,378

 

Cash and cash equivalents at beginning of period

 

 

2,233,317

 

 

294,504

 

Cash and cash equivalents at end of period

 

$

834,274

 

$

386,882

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

 

Cash payments for interest (including capitalized
interest of $38,013 and $16,014)

 

$

457,669

 

$

321,676

 

Cash payments for income taxes

 

$

25,969

 

$

3,822

 

 

 

 

 

 

 

 

 

Non-Cash Transactions:

 

 

 

 

 

 

 

Financing assumed in acquisitions

 

$

1,326,514

 

$

283,695

 

Marketable securities transferred in connection with
the legal defeasance of mortgage notes payable

 

 

109,092

 

 

174,254

 

Mortgage notes payable legally defeased

 

 

104,571

 

 

163,620

 

Conversion of Class A Operating Partnership units to
common shares

 

 

41,390

 

 

22,458

 

Unrealized net (loss) gain on securities available for sale

 

 

(32,889

)

 

22,089

 

Operating partnership units issued in connection with acquisitions

 

 

22,382

 

 

 

Increases in assets and liabilities resulting from the consolidation of our 50%
investment in H Street partially owned entities upon acquisition of the
remaining 50% interest on April 30, 2007:

 

 

 

 

 

 

 

Real estate, net

 

 

342,764

 

 

 

Restricted cash

 

 

369

 

 

 

Other assets

 

 

11,648

 

 

 

Notes and mortgages payable

 

 

55,272

 

 

 

Accounts payable and accrued expenses

 

 

3,101

 

 

 

Deferred credit

 

 

2,407

 

 

 

Deferred tax liabilities

 

 

112,797

 

 

 

Other liabilities

 

 

71

 

 

 

 

 

See notes to consolidated financial statements.

 

6

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

1.

Organization

Vornado Realty Trust is a fully-integrated real estate investment trust (“REIT”) and conducts its business through Vornado Realty L.P., a Delaware limited partnership (the “Operating Partnership”). All references to “our,” “we,” “us,” the “Company” and “Vornado” refer to Vornado Realty Trust and its consolidated subsidiaries. We are the sole general partner of, and owned approximately 90.0% of the common limited partnership interest in, the Operating Partnership at September 30, 2007.

 

Substantially all of Vornado Realty Trust’s assets are held through subsidiaries of the Operating Partnership. Accordingly, Vornado Realty Trust’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.

 

2.

Basis of Presentation

The accompanying consolidated financial statements are unaudited. In our opinion, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and changes in cash flows have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of the Securities and Exchange Commission and should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2006, as filed with the Securities and Exchange Commission. The results of operations for the three and nine months ended September 30, 2007, are not necessarily indicative of the operating results for the full year.

 

The accompanying consolidated financial statements include the accounts of Vornado and the Operating Partnership, as well as certain partially owned entities in which we own more than 50%, unless a partner has shared board and management representation and substantive participation rights on all significant business decisions, or 50% or less when (i) we are the primary beneficiary and the entity qualifies as a variable interest entity under Financial Accounting Standards Board (“FASB”) Interpretation No. 46 (Revised), Consolidation of Variable Interest Entities (“FIN 46R”), or (ii) when we are a general partner that meets the criteria under Emerging Issues Task Force (“EITF”) Issue No. 04-5. We consolidate our 47.6% investment in AmeriCold Realty Trust because we have the contractual right to appoint three out of five members of its Board of Trustees, and therefore determined that we have a controlling interest. All significant inter-company amounts have been eliminated. Equity interests in partially owned entities are accounted for under the equity method of accounting when they do not meet the criteria for consolidation and our ownership interest is greater than 20%. When partially owned investments are in partnership form, the 20% threshold for equity method accounting is generally reduced to 3% to 5%, based on our ability to influence the operating and financial policies of the partnership. Investments accounted for under the equity method are initially recorded at cost and subsequently adjusted for our share of the net income or loss and cash contributions and distributions to or from these entities. Investments in partially-owned entities that do not meet the criteria for consolidation or for equity method accounting are accounted for on the cost method.

 

We have made estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

 

Certain prior year balances related to discontinued operations and provision for income taxes have been reclassified in order to conform to current year presentation.

 

 

7

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

3.

Recently Issued Accounting Literature

In July 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 establishes new evaluation and measurement processes for all income tax positions taken. FIN 48 also requires expanded disclosures of income tax matters. The adoption of this standard on January 1, 2007 did not have a material effect on our consolidated financial statements.

 

In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 provides guidance for using fair value to measure assets and liabilities. This statement clarifies the principle that fair value should be based on the assumptions that market participants would use when pricing an asset or liability. SFAS No. 157 establishes a fair value hierarchy, giving the highest priority to quoted prices in active markets and the lowest priority to unobservable data. SFAS No. 157 applies whenever other standards require assets or liabilities to be measured at fair value. This statement is effective in fiscal years beginning after November 15, 2007. We believe that the adoption of this standard on January 1, 2008 will not have a material effect on our consolidated financial statements.

 

In September 2006, the FASB issued Statement No. 158, Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans, an Amendment of SFAS No. 87, 88, 106 and 132R (“SFAS No. 158”). SFAS No. 158 requires an employer to (i) recognize in its statement of financial position an asset for a plan’s over-funded status or a liability for a plan’s under-funded status; (ii) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year (with limited exceptions); and (iii) recognize changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur. Those changes will be reported in comprehensive income. The adoption of the requirement to recognize the funded status of a benefit plan and the disclosure requirements as of December 31, 2006 did not have a material effect on our consolidated financial statements. The requirement to measure plan assets and benefit obligations to determine the funded status as of the end of the fiscal year and to recognize changes in the funded status in the year in which the changes occur is effective for fiscal years ending after December 15, 2008. The adoption of the measurement date provisions of this standard is not expected to have a material effect on our consolidated financial statements.

 

In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS No. 159”). SFAS No. 159 expands opportunities to use fair value measurement in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value.  This Statement is effective for fiscal years beginning after November 15, 2007.  We have not decided if we will choose to measure any eligible financial assets and liabilities at fair value upon the adoption of this standard on January 1, 2008.

 

On August 31, 2007, the FASB issued a proposed FASB Staff Position (the “proposed FSP”) that affects the accounting for our convertible and exchangeable senior debentures and Series D-13 convertible preferred units. The proposed FSP requires the initial proceeds from the sale of our convertible and exchangeable senior debentures and Series D-13 convertible preferred units to be allocated between a liability component and an equity component. The resulting discount must be amortized using the effective interest method over the period the debt is expected to remain outstanding as additional interest expense. The proposed FSP, if adopted, would be effective for fiscal years beginning after December 15, 2007 and would require retroactive application. The adoption of the proposed FSP on January 1, 2008 would result in the recognition of an aggregate unamortized debt discount of $190,697,000 (as of September 30, 2007) on our consolidated balance sheet and additional interest expense on our consolidated statements of income. Our current estimate of the incremental interest expense, net of minority interest, for each reporting period is as follows:

 

(Amounts in thousands)

 

 

 

 

For the year ended December 31:

 

 

 

 

2005

 

$

3,405

 

2006

 

$

6,065

 

2007

 

$

28,590

 

2008

 

$

35,721

 

2009

 

$

37,856

 

2010

 

$

40,114

 

2011

 

$

41,112

 

2012

 

$

8,192

 

For the three months ended:

 

 

 

 

March 31, 2007

 

$

3,127

 

June 30, 2007

 

$

8,344

 

September 30, 2007

 

$

8,487

 

 

 

 

 

 

 

 

8

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

4.

Acquisitions and Dispositions

 

Acquisitions:

100 West 33rd Street, New York City (the “Manhattan Mall”)

 

On January 10, 2007, we acquired the Manhattan Mall for approximately $689,000,000 in cash. This mixed-use property is located on the entire Sixth Avenue block-front between 32nd and 33rd Streets in Manhattan and contains approximately 1,000,000 square feet, including 812,000 square feet of office space and 164,000 square feet of retail space. Included as part of the acquisition were 250,000 square feet of additional air rights. The property is adjacent to our Hotel Pennsylvania. At closing, we completed a $232,000,000 financing secured by the property, which bears interest at LIBOR plus 0.55% (5.67% at September 30, 2007) and matures in two years with three one-year extension options. The operations of the office component of the property are included in the New York Office segment and the operations of the retail component are included in the Retail segment. We consolidate the accounts of this property into our consolidated financial statements from the date of acquisition.

 

Bruckner Plaza, Bronx, New York

 

On January 11, 2007, we acquired the Bruckner Plaza shopping center, containing 386,000 square feet, for approximately $165,000,000 in cash. Also included as part of the acquisition was an adjacent parcel which is ground leased to a third party. The property is located on Bruckner Boulevard in the Bronx, New York. We consolidate the accounts of this property into our consolidated financial statements from the date of acquisition.

 

1290 Avenue of the Americas and 555 California Street

 

On May 24, 2007, we acquired a 70% controlling interest in 1290 Avenue of the Americas, a 2,000,000 square foot Manhattan office building, located on the block-front between 51st and 52nd Street on Avenue of the Americas, and the 3- building 555 California Street complex (“555 California Street”) containing 1,800,000 square feet, known as the Bank of America Center, located at California and Montgomery Streets in San Francisco’s financial district. The purchase price for our 70% interest in the real estate was approximately $1.8 billion, consisting of $1.0 billion of cash and $797,000,000 of existing debt. Our share of the debt is comprised of $308,000,000 secured by 1290 Avenue of the Americas and $489,000,000 secured by 555 California Street. Our 70% interest was acquired through the purchase of all of the shares of a group of foreign companies that own, through U.S. entities, the 1% sole general partnership interest and a 69% limited partnership interest in the partnerships that own the two properties. The remaining 30% limited partnership interest is owned by Donald J. Trump. We consolidate the accounts of these properties into our consolidated financial statements from the date of acquisition.

 

In August 2005, Mr. Trump brought a lawsuit in the New York State Supreme Court against, among others, the general partners of the partnerships referred to above.   Mr. Trump’s claims arose out of a dispute over the sale price of, and use of proceeds from, the sale of properties located on the former Penn Central rail yards between West 59th and 72nd Streets in Manhattan which were formerly owned by the partnerships. In decisions dated September 14, 2005 and July 24, 2006, the Court denied various of Mr. Trump’s motions and ultimately dismissed all of Mr. Trump’s claims, except for his claim seeking access to books and records.  In a decision dated October 1, 2007, the Court determined that Mr. Trump already received access to the books and records to which he was entitled, with the exception of certain documents which the general partners have requested from third parties but have not yet been received. Mr. Trump has sought re-argument and renewal on, and filed a notice of appeal in connection with, his dismissed claims.  

 

In connection with the acquisition, we agreed to indemnify the sellers for liabilities and expenses arising out of Mr. Trump’s claim that the general partners of the partnerships we acquired did not sell the rail yards at a fair price or could have sold the rail yards for a greater price and any other claims asserted in the legal action; provided however, that if Mr. Trump prevails on certain claims involving partnership matters, other than claims relating to sale price, the sellers will be required to reimburse us for certain costs related to those claims. We believe that the claims relating to the sale price are without merit. All other allegations are not asserted as a basis for damages and regardless of merit would not be material to our consolidated financial statements.

 

 

 

9

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

4.

Acquisitions and Dispositions - continued

1290 Avenue of the Americas and 555 California Street - continued

 

The following summarizes our allocation of the purchase price to the assets and liabilities acquired.

 

 

(Amounts in thousands)

 

 

 

 

Land

 

$

652,144

 

Building

 

 

1,219,968

 

Acquired above-market leases

 

 

33,205

 

Other assets

 

 

223,083

 

Acquired in-place leases

 

 

173,922

 

Assets acquired

 

 

2,302,322

 

Mortgage debt

 

 

812,380

 

Acquired below-market leases

 

 

223,764

 

Other liabilities

 

 

40,784

 

Liabilities acquired

 

 

1,076,928

 

Net assets acquired ($1.0 billion excluding
net working capital acquired and closing costs)

 

$

1,225,394

 

 

 

Our initial valuation of the assets and liabilities acquired (70% interest) is preliminary and subject to change within the one-year period from the date of closing as additional valuation information becomes available.

 

The following table presents our pro forma condensed consolidated statements of income for the three and nine months ended September 30, 2006 and the nine months ended September 30, 2007, as if the above transaction occurred on January 1, 2006. The unaudited pro forma information is not necessarily indicative of what our actual results would have been had the transaction been consummated on January 1, 2006, nor does it represent the results of operations for any future periods. In our opinion all adjustments necessary to reflect this transaction have been made.

 

 

 

Actual

 

Pro forma

 

Condensed Consolidated
Statements of Income

 

For the Three
Months Ended

 

For the Three
Months Ended

 

For the Nine Months
Ended September 30,

 

(Amounts in thousands, except per share amounts)

 

September 30, 2007

 

September 30, 2006

 

2007

 

2006

 

Revenues

 

$

853,036

 

$

741,511

 

$

2,480,783

 

$

2,174,124

 

Income before allocation to limited partners

 

$

145,900

 

$

136,838

 

$

478,788

 

$

468,708

 

Minority limited partners’ interest in
the Operating Partnership

 

 

(10,241

)

 

(12,046

)

 

(39,802

)

 

(42,697

)

Perpetual preferred unit distributions of
the Operating Partnership

 

 

(4,818

)

 

(6,683

)

 

(14,455

)

 

(17,030

)

Net income

 

 

130,841

 

 

118,109

 

 

424,531

 

 

408,981

 

Preferred share dividends

 

 

(14,295

)

 

(14,351

)

 

(42,886

)

 

(43,162

)

Net income applicable to common shares

 

$

116,546

 

$

103,758

 

$

381,645

 

$

365,819

 

Net income per common share – basic

 

$

0.77

 

$

0.73

 

$

2.52

 

$

2.59

 

Net income per common share - diluted

 

$

0.74

 

$

0.69

 

$

2.41

 

$

2.45

 

 

 

10

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

4.

Acquisitions and Dispositions - continued

H Street Building Corporation (“H Street”)

 

In July 2005, we acquired H Street, which owns a 50% interest in real estate assets located in Pentagon City, Virginia and Washington, DC. On April 30, 2007, we acquired the corporations that own the remaining 50% interest in these assets for approximately $383,000,000, consisting of $333,000,000 in cash and $50,000,000 of existing mortgages. These assets include twin office buildings located in Washington, DC, containing 577,000 square feet, and assets located in Pentagon City, Virginia comprised of 34 acres of land leased to three residential and retail operators, a 1,670 unit high-rise apartment complex and 10 acres of vacant land. In conjunction with this acquisition all existing litigation has been dismissed. Beginning on April 30, 2007, we consolidate the accounts of these entities into our consolidated financial statements and no longer account for them on the equity method.

 

Further, we agreed to sell approximately 19.6 of the 34 acres of land to one of the existing ground lessees in two closings over a two-year period for approximately $220,000,000. On May 11, 2007, we closed on the sale of 11 of the 19.6 acres for $104,000,000 and received $5,000,000 in cash and a $99,000,000 note due December 31, 2007. On September 28, 2007, the buyer pre-paid the note in cash and we recognized the net gain on sale of $4,803,000. The balance of the net gain of $11,028,000, representing deferred taxes will be reversed and recognized as income in the first quarter of 2008 when H Street and its affiliates elect to be taxed as REITs. In April 2007, we received letters from the two remaining ground lessees claiming a right of first offer on the sale of the land, one of which has since retracted its letter and reserved its rights under the lease.

 

Our total purchase price for 100% of the assets we will own, after the anticipated proceeds from the land sales, is $409,000,000, consisting of $286,000,000 in cash and $123,000,000 of existing mortgages.

 

Toys “R” Us Stores

 

On May 31, 2007, we acquired four properties from Toys “R” Us (“Toys”) for $12,242,000 in cash, which completed our September 2006 agreement to acquire 43 stores that were closed as part of Toys’ January 2006 store closing program. We consolidate the accounts of these properties into our consolidated financial statements from the date of acquisition. Our $1,045,000 share of Toys net gain on this transaction was recorded as an adjustment to the basis of our investment in Toys and was not recorded as income.

 

India Property Fund LP

 

In 2005 and 2006, we invested $94,200,000 in two joint ventures established to acquire, manage and develop real estate in India. On June 14, 2007, we committed to contribute $95,000,000 to a third venture, the India Property Fund, LP (the “Fund”), also established to acquire, manage and develop real estate in India. We satisfied $77,000,000 of our commitment by contributing our interest in one of the above mentioned joint ventures to the Fund. The Fund will seek to raise additional equity. As of September 30, 2007, we own 95% of the Fund and therefore consolidate the accounts of the Fund into our consolidated financial statements, pursuant to the requirements of FIN 46 R.  

 

Shopping Center Portfolio Acquisition

 

On June 26, 2007, we entered into an agreement to acquire a 15 shopping center portfolio aggregating approximately 1.9 million square feet. The properties are located primarily in Northern New Jersey and Long Island, New York. The purchase price is approximately $351,000,000, consisting of approximately $120,000,000 of cash, $89,000,000 of newly issued Vornado Realty L.P. redeemable preferred and common units and $142,000,000 of existing debt. On June 28, 2007, we completed the acquisition of five of the shopping centers for $116,561,000, consisting of $94,179,000 in cash, $15,993,000 in Vornado Realty L.P. preferred units and $6,389,000 of Vornado Realty L.P. common units. We consolidate the accounts of these properties into our consolidated financial statements from the date of acquisition. The closing of the remaining shopping centers is expected to occur in two additional tranches and be completed by the end of 2007, subject to customary closing conditions.

 

Dispositions:

Vineland, New Jersey Shopping Center Property

 

On July 16, 2007, we sold our Vineland, New Jersey shopping center property for $2,774,000 in cash, which resulted in a net gain of $1,708,000.

 

11

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

4.

Acquisitions and Dispositions - continued

BNA Complex

 

On August 9, 2007, we completed our previously announced sale of Crystal Mall Two, a 277,000 square foot office building located at 1801 South Bell Street in Crystal City, to The Bureau of National Affairs, Inc. (“BNA”), and simultaneously completed the acquisition of a three building complex from BNA. The three buildings acquired contain approximately 300,000 square feet and are located in Washington’s West End between Georgetown and the Central Business District. Vornado received sales proceeds of approximately $103,600,000 from BNA and recognized a net gain of $19,893,000. All of the proceeds from the sale were reinvested in a tax-free “like-kind” exchange in accordance with Section 1031 of the Internal Revenue Code (“Section 1031”). Vornado paid BNA $111,000,000 for the three buildings acquired. We consolidate the accounts of these properties into our consolidated financial statements from the date of acquisition.

 

Arlington Plaza

 

On October 17, 2007, we sold Arlington Plaza, a 188,000 square foot office building located in Arlington, Virginia for $71,500,000, resulting in a gain of $33,900,000 which will be recognized in the fourth quarter of 2007.

 

5.

Derivative Instruments and Related Marketable Securities

Investment in McDonald’s Corporation (“McDonalds”) (NYSE: MCD)

 

As of September 30, 2007, we owned 858,000 common shares of McDonalds. These shares are recorded as marketable equity securities on our consolidated balance sheets and are classified as “available for sale.” Appreciation or depreciation in the fair market value of these shares is recorded as an increase or decrease in “accumulated other comprehensive income” in the shareholders’ equity section of our consolidated balance sheets and not recognized in income. At September 30, 2007, based on McDonalds’ September 28, 2007 closing stock price of $54.47 per share, $21,388,000 of appreciation in the value of these shares was included in “accumulated other comprehensive income” on our consolidated balance sheet. During October 2007, we sold all of the McDonalds common shares at a weighted average price of $56.45 per share, resulting in a net gain of $23,090,000 which will be recognized in the fourth quarter of 2007.

 

In addition to the above, at July 1, 2007, we owned 13,695,500 McDonalds common shares (“option shares”) through a series of privately negotiated transactions with a financial institution pursuant to which we purchased a call option and simultaneously sold a put option at the same strike price on McDonalds’ common shares. The option shares had a weighted-average strike price of $32.70 per share, or an aggregate of $447,822,000, expired on various dates between July 30, 2007 and September 10, 2007 and provided for net cash settlement. During the three months ended September 30, 2007, we settled 10,118,800 option shares and received $234,242,000 in cash. At September 30, 2007, there were 3,576,700 option shares remaining in the derivative position at a price of $54.47 per share. During the three months ended September 30, 2007, we recognized a net gain of $28,190,000 as a result of the above transactions. The aggregate net gain recognized for the nine months ended September 30, 2007 was $102,803,000. During the three and nine months ended September 30, 2006, we recognized net gains of $68,796,000 and $60,581,000, respectively.

 

In October 2007, we settled all of the remaining option shares at a weighted average price of $56.24 per share, resulting in a net gain of $6,018,000 which will be recognized in the fourth quarter of 2007.

 

The aggregate net gain realized from inception of our investments in McDonalds in 2005 through final settlement in October 2007 was $289,414,000.

 

 

 

12

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

6.

Investments in Partially Owned Entities

Toys “R” Us (“Toys”)

 

As of September 30, 2007, we own 32.8% of Toys. Below is a summary of Toys’ latest available financial information.

 

(Amounts in thousands)

 

 

 

 

 

Balance Sheet:

 

As of August 4, 2007

 

As of July 29, 2006

 

Total Assets

 

$

11,255,700

 

$

12,515,000

 

Total Liabilities

 

$

10,212,800

 

$

11,390,000

 

Total Equity

 

$

1,042,900

 

$

1,125,000

 

 

 

 

 

For the Three
Months Ended

 

For the Nine
Months Ended

 

Income Statement:

 

August 4, 2007

 

July 29, 2006

 

August 4, 2007

 

July 29, 2006

 

Total Revenues

 

$

2,605,000

 

$

2,413,000

 

$

10,865,000

 

$

9,688,000

 

Net (Loss) Income

 

$

(70,700

)

$

(127,000

)

$

40,400

 

$

(11,000

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The business of Toys is highly seasonal. Historically, Toys’ fourth quarter net income accounts for more than 80% of its fiscal year net income. Because Toys’ fiscal year ends on the Saturday nearest January 31, we record our 32.8% share of Toys’ net income or loss on a one-quarter lag basis.

 

Alexander’s (NYSE: ALX)

 

As of September 30, 2007, we own 32.8% of the outstanding common stock of Alexander’s. We manage, lease and develop Alexander’s properties pursuant to agreements, which expire in March of each year and are automatically renewable. As of September 30, 2007, Alexander’s owed us $39,368,000 for fees under these agreements.

 

As of September 30, 2007, the market value of our investment in Alexander’s was $637,643,000, based on Alexander’s September 28, 2007 closing share price of $385.50.

 

The Lexington Master Limited Partnership (“Lexington MLP”)

 

On December 31, 2006, Newkirk Realty Trust (NYSE: NKT) was acquired in a merger by Lexington Corporate Properties Trust (“Lexington”) (NYSE: LXP), a real estate investment trust. We owned 10,186,991 limited partnership units (representing a 15.8% investment ownership interest) of Newkirk MLP, which was also acquired by Lexington as a subsidiary, and was renamed Lexington MLP. The units in Newkirk MLP, which we accounted for on the equity method, were converted on a 0.80 for 1 basis into limited partnership units of Lexington MLP, which we also account for on the equity method. The Lexington MLP units are exchangeable on a one-for-one basis into common shares of Lexington.

 

As of September 30, 2007, we own 8,149,593 limited partnership units of Lexington MLP, or a 7.3% ownership interest. We record our pro rata share of Lexington MLP’s net income or loss on a one-quarter lag basis because we file our consolidated financial statements on Form 10-K and 10-Q prior to the time that Lexington files its financial statements. Accordingly, our “equity in net income or loss from partially owned entities” for the three months ended September 30, 2007 includes our share of Lexington MLP’s net income for its three months ended June 30, 2007.

 

As of September 30, 2007, the market value of our investment in Lexington MLP based on Lexington’s September 28, 2007 closing share price of $20.01, was $163,073,000, or $17,238,000 below the carrying amount on our consolidated balance sheet. We have concluded that as of September 30, 2007, the decline in the value of our investment is not “other-than-temporary.”

 

13

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

6.

Investments in Partially Owned Entities - continued

 

GMH Communities L.P. (“GMH”)

 

As of September 30, 2007, we own 7,337,857 limited partnership units (which are exchangeable on a one-for-one basis into common shares of GMH Communities Trust (“GCT”) (NYSE: GCT), a real estate investment trust that conducts its business through GMH and of which it is the sole general partner) and 2,517,247 common shares of GCT, or 13.5% of the limited partnership interest of GMH. We account for our investment in GMH on the equity method and record our pro rata share of GMH’s net income or loss on a one-quarter lag basis as we file our consolidated financial statements on Form 10-K and 10-Q prior to the time that GCT files its financial statements. Accordingly, our “equity in net income or loss from partially owned entities” for the three months ended September 30, 2007 includes our share of GMH’s net income for its three months ended June 30, 2007.

 

As of September 30, 2007, the market value of our investment in GMH and GCT based on GCT’s September 28, 2007 closing share price of $7.75, was $76,377,000, or $27,473,000 below the carrying amount on our consolidated balance sheet. We have concluded that as of September 30, 2007, the decline in the value of our investment is not “other-than-temporary.”

 

Downtown Crossing Joint Venture

 

On January 26, 2007, a joint venture in which we have a 50% interest acquired the Filene’s property located in the Downtown Crossing district of Boston, Massachusetts for approximately $100,000,000 in cash, of which our share was $50,000,000. The venture plans to redevelop the property to include over 1,200,000 square feet, consisting of office, retail, condominium apartments and a hotel. The project is subject to governmental approvals. Our investment in the joint venture is accounted for under the equity method.

 

 

 

 

 

 

 

14

 


`

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

6.

Investments in Partially Owned Entities - continued

The carrying amount of our investments in partially owned entities and income (loss) recognized from such investments are as follows:

 

Investments:
(Amounts in thousands)

 

As of
September 30, 2007

 

As of
December 31, 2006

 

Toys

 

$

331,129

 

$

317,145

 

H Street non-consolidated subsidiaries (see page 11)

 

$

 

$

189,516

 

Lexington MLP, formerly Newkirk MLP

 

 

180,311

 

 

184,961

 

Partially Owned Office Buildings (1)

 

 

162,106

 

 

150,954

 

Alexander’s

 

 

108,976

 

 

82,114

 

GMH

 

 

103,850

 

 

103,302

 

India Real Estate Ventures

 

 

99,361

 

 

93,716

 

Beverly Connection Joint Venture

 

 

90,305

 

 

82,101

 

Other Equity Method Investments

 

 

423,030

 

 

249,005

 

 

 

$

1,167,939

 

$

1,135,669

 

 

 

Our Share of Net Income (Loss):
(Amounts in thousands)

 

For the Three Months
Ended September 30,

 

For the Nine Months
Ended September 30,

 

Toys:

 

2007

 

2006

 

2007

 

2006

 

32.8% in 2007 and 32.9% in 2006
share of equity in net (loss) income

 

$

(21,997

)

$

(41,720

)

$

13,493

 

$

(3,614

)

Interest and other income

 

 

1,708

 

 

1,021

 

 

4,850

 

 

7,791

 

 

 

$

(20,289

)

$

(40,699

)

$

18,343

 

$

4,177

 

Alexander’s:

 

 

 

 

 

 

 

 

 

 

 

 

 

32.8% in 2007 and 33.0% in 2006 share of:

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in net income before net gain on sale of condominiums
and stock appreciation rights compensation expense

 

$

5,508

 

$

4,580

 

$

16,277

 

$

13,176

 

Stock appreciation rights compensation income (expense)

 

 

3,075

 

 

(10,797

)

 

8,991

 

 

(18,356

)

Net gain on sale of condominiums

 

 

 

 

 

 

 

 

4,580

 

Equity in net income

 

 

8,583

 

 

(6,217

)

 

25,268

 

 

(600

)

Management and leasing fees

 

 

2,255

 

 

2,471

 

 

6,777

 

 

7,604

 

Development and guarantee fees

 

 

1,273

 

 

160

 

 

3,069

 

 

565

 

 

 

$

12,111

 

$

(3,586

)

$

35,114

 

$

7,569

 

H Street Non-Consolidated Subsidiaries:

 

 

 

 

 

 

 

 

 

 

 

 

 

50% share of equity in net income

 

$

 

$

4,065

(3)

$

5,923

(2)

$

8,376

(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beverly Connection:

 

 

 

 

 

 

 

 

 

 

 

 

 

50% share of equity in net loss

 

 

(1,287

)

 

(1,844

)

 

(3,676

)

 

(7,867

)

Interest and fee income

 

 

3,885

 

 

2,862

 

 

8,492

 

 

9,199

 

 

 

 

2,598

 

 

1,018

 

 

4,816

 

 

1,332

 

GMH:

 

 

 

 

 

 

 

 

 

 

 

 

 

13.5% share of equity in net income

 

 

5,709

 

 

15

 

 

5,428

 

 

15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lexington MLP, formerly Newkirk MLP:

 

 

 

 

 

 

 

 

 

 

 

 

 

7.3% in 2007 and 15.8% in 2006 share of equity in net income

 

 

1,726

 

 

13,604

(4)

 

1,484

 

 

22,177

(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

3,868

 

 

4,308

 

 

13,948

 

 

11,796

 

 

 

$

13,901

 

$

23,010

 

$

31,599

 

$

43,696

 

_________________________

See notes on following page.

15

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

6.

Investments in Partially Owned Entities - continued

Notes to preceding tabular information:

 

 

(1)

Includes interests in 330 Madison Avenue (25%), 825 Seventh Avenue (50%), Fairfax Square (20%), Kaempfer equity interests in three office buildings (2.5% to 5.0%), Rosslyn Plaza (46%) and West 57th Street properties (50%).

 

 

(2)

Represents our 50% share of equity in net income from January 1, 2007 through April 29, 2007. On April 30, 2007, we acquired the remaining 50% interest of these entities and began to consolidate the accounts into our consolidated financial statements and no longer account for this investment under the equity method on a one-quarter lag basis. For further details see footnote 4. Acquisitions and Dispositions.

 

 

(3)

Prior to the quarter ended June 30, 2006, two 50% owned entities that were contesting our acquisition of H Street impeded access to their financial information and accordingly, we were unable to record our pro rata share of their earnings. During the three and nine months ended September 30, 2006, we recognized equity in net income of $4,065 and $8,376, respectively, from these entities of which $1,083 and $3,890, respectively, was for the periods from July 20, 2005 (date of acquisition) to December 31, 2005.

 

 

(4)

Includes $10,842 for our share of net gains on sale of real estate.

 

16

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

6.

Investments in Partially Owned Entities - continued

Below is a summary of the debt of partially owned entities as of September 30, 2007 and December 31, 2006, none of which is guaranteed by us.

 

 

100% of
Partially Owned Entities Debt


(Amounts in thousands)

 

September 30,
2007

 

December 31,
2006

Toys (32.8% interest):

 

 

 

 

 

 

$1.3 billion senior credit facility, due 2008, LIBOR plus 3.00%
(8.67% at September 30, 2007)

 

$

1,300,000

 

$

1,300,000

$2.0 billion credit facility, due 2010, LIBOR plus 1.00% - 3.75%

 

 

65,000

 

 

836,000

$804 million secured term loan facility, due 2012, LIBOR plus 4.25%
(9.67% at September 30, 2007)

 

 

801,000

 

 

800,000

Mortgage loan, due 2010, LIBOR plus 1.30% (7.06% at September 30, 2007)

 

 

800,000

 

 

800,000

Senior U.K. real estate facility, due 2013, with interest at 5.02%

 

 

724,000

 

 

676,000

7.625% bonds, due 2011 (Face value – $500,000)

 

 

480,000

 

 

477,000

7.875% senior notes, due 2013 (Face value – $400,000)

 

 

372,000

 

 

369,000

7.375% senior notes, due 2018 (Face value – $400,000)

 

 

330,000

 

 

328,000

$181 million unsecured loan facility, due 2012, LIBOR + 5.00% (10.80% at September 30, 2007)

 

 

180,000

 

 

Toys “R” Us - Japan short-term borrowings, due 2007, tiered rates
(weighted average rate of 0.91% at September 30, 2007)

 

 

235,000

 

 

285,000

8.750% debentures, due 2021 (Face value – $22,000)

 

 

21,000

 

 

193,000

4.51% Spanish real estate facility, due 2012

 

 

183,000

 

 

171,000

Toys “R” Us - Japan bank loans, due 2007-2020, 1.20% - 2.80%

 

 

161,000

 

 

156,000

6.84% Junior U.K. real estate facility, due 2013

 

 

129,000

 

 

118,000

4.51% French real estate facility, due 2012

 

 

88,000

 

 

83,000

Note at an effective cost of 2.23% due in semi-annual installments through 2008

 

 

32,000

 

 

50,000

$200 million asset sale facility, due 2008, LIBOR plus 3.00% - 4.00%
(9.14% at September 30, 2007)

 

 

35,000

 

 

44,000

Multi-currency revolving credit facility, due 2010, LIBOR plus 1.50% - 2.00%

 

 

38,000

 

 

190,000

Other

 

 

39,000

 

 

39,000

 

 

 

6,013,000

 

 

6,915,000

Alexander’s (32.8% interest):

 

 

 

 

 

 

731 Lexington Avenue mortgage note payable collateralized by the office space,
due in February 2014, with interest at 5.33% (prepayable without penalty)

 

 

386,123

 

 

393,233

731 Lexington Avenue mortgage note payable, collateralized by the retail space,
due in July 2015, with interest at 4.93% (prepayable without penalty)

 

 

320,000

 

 

320,000

Kings Plaza Regional Shopping Center mortgage note payable, due in June 2011,
with interest at 7.46% (prepayable with yield maintenance)

 

 

204,411

 

 

207,130

Rego Park mortgage note payable, due in June 2009, with interest at 7.25%
(prepayable without penalty after March 2009)

 

 

79,507

 

 

80,135

Paramus mortgage note payable, due in October 2011, with interest at 5.92%
(prepayable without penalty)

 

 

68,000

 

 

68,000

 

 

 

1,058,041

 

 

1,068,498

Lexington MLP (formerly Newkirk MLP) (7.3% interest in 2007 and 15.8% interest in 2006):
Portion of first mortgages collateralized by the partnership’s real estate,
due from 2007 to 2024, with a weighted average interest rate of 5.91% (various prepayment terms)

 

 

3,251,206

 

 

2,101,104

 

 

 

 

 

 

 

GMH (13.5% interest):
Mortgage notes payable, collateralized by 64 properties, due from 2008 to 2027, with a weighted
average interest rate of 5.50% (various prepayment terms)

 

 

1,050,327

 

 

957,788

 

 

 

 

 

 

 

H Street non-consolidated entities (9.78% interest):
Mortgage notes payable, collateralized by 3 properties, due from 2007 to 2029, with a weighted
average interest rate of 7.29% (various prepayment terms)

 

 

236,573

 

 

351,584

 

 

17


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

6.

Investments in Partially Owned Entities - continued

 


(Amounts in thousands)

 

100% of
Partially Owned Entities Debt

 


Partially owned office buildings:

 

September 30,
2007

 

December 31,
2006

 

Kaempfer Properties (2.5% to 5.0% interests in two partnerships) mortgage notes payable,
collateralized by the partnerships’ real estate, due from 2011 to 2031, with a weighted
average interest rate of 6.84% at September 30, 2007 (various prepayment terms)

 

$

144,640

 

$

145,640

 

Fairfax Square (20% interest) mortgage note payable, due in August 2009, with interest at 7.50%

 

 

64,330

 

 

65,178

 

330 Madison Avenue (25% interest) mortgage note payable, due in April 2008,
with interest at 6.52% (prepayable with yield maintenance)

 

 

60,000

 

 

60,000

 

825 Seventh Avenue (50% interest) mortgage note payable, due in October 2014,
with interest at 8.07% (prepayable with yield maintenance)

 

 

21,898

 

 

22,159

 

Rosslyn Plaza (46% interest) mortgage note payable, due in November 2007, with interest at
7.27% (prepayable without penalty)

 

 

56,858

 

 

57,396

 

West 57th Street (50% interest) mortgage note payable, due in October 2009, with interest
at 4.94% (prepayable without penalty after July 2009)

 

 

29,000

 

 

29,000

 

 

 

 

 

 

 

 

 

Verde Realty Master Limited Partnership (8.51% interest) mortgage notes payable,
collateralized by the partnerships’ real estate, due from 2007 to 2025, with a weighted average
interest rate of 6.14% at September 30, 2007 (various prepayment terms)

 

 

304,044

 

 

311,133

 

 

 

 

 

 

 

 

 

Monmouth Mall (50% interest) mortgage note payable, due in September 2015, with interest
at 5.44% (prepayable with yield maintenance)

 

 

165,000

 

 

165,000

 

 

 

 

 

 

 

 

 

Green Courte Real Estate Partners, LLC (8.3% interest) mortgage notes payable, collateralized
by the partnerships’ real estate, due from 2007 to 2015, with a weighted average interest
rate of 5.73% (various prepayment terms)

 

 

255,705

 

 

201,556

 

 

 

 

 

 

 

 

 

San Jose, California Ground-up Development (45% interest) construction loan, due in March 2009,
with a one-year extension option and interest at LIBOR plus 1.75% (7.32% at September 30, 2007)

 

 

70,212

 

 

50,659

 

 

 

 

 

 

 

 

 

Beverly Connection (50% interest) mortgage and mezzanine loans payable, due in March 2008 and
July 2008, with a weighted average interest rate of 10.09%, $70,000 of which is due to Vornado
(prepayable with yield maintenance)

 

 

170,000

 

 

170,000

 

 

 

 

 

 

 

 

 

TCG Urban Infrastructure Holdings (25% interest) mortgage notes payable, collateralized by the
entity’s real estate, due from 2007 to 2022, with a weighted average interest rate of 12.47% at
September 30, 2007 (various prepayment terms)

 

 

127,042

 

 

45,601

 

 

 

 

 

 

 

 

 

478-486 Broadway (50% interest in 2006) mortgage note payable – 100% owned and consolidated as of
September 25, 2007

 

 

 

 

20,000

 

 

 

 

 

 

 

 

 

Wells/Kinzie Garage (50% interest) mortgage note payable, due in June 2009, with interest at 7.03%

 

 

14,507

 

 

14,756

 

 

 

 

 

 

 

 

 

Orleans Hubbard Garage (50% interest) mortgage note payable, due in April 2009, with interest at 7.03%

 

 

9,099

 

 

9,257

 

 

 

 

 

 

 

 

 

Other

 

 

38,079

 

 

23,656

 

 

 

Based on our ownership interest in the partially-owned entities above, our pro rata share of the debt of these partially-owned entities was $3,104,451,000 and $3,323,007,000 as of September 30, 2007 and December 31, 2006, respectively.

 

18

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

7.

Notes and Mortgage Loans Receivable

 

Blackstone/Equity Office Properties Loan

 

On March 29, 2007, we acquired a 9.4% interest in a $772,600,000 mezzanine loan for $72,400,000 in cash. During April and May of 2007, we were repaid the $72,400,000 outstanding balance of the loan.

 

Fortress Loan

 

In 2006, we acquired bonds for $99,500,000 in cash, representing a 7% interest in two margin loans aggregating $1.430 billion. On March 30, 2007, we were repaid $35,348,000. On July 10, 2007 and October 2, 2007, we were repaid an additional $13,221,000 and $13,290,000, respectively. The remaining balance of $37,641,000, is due in December 2007.

 

MPH Mezzanine Loans

 

On June 5, 2007, we acquired a 42% interest in two mezzanine loans totaling $158,700,000, for $66,403,000 in cash. The loans bear interest at LIBOR plus 5.32% (10.44% at September 30, 2007) and mature in February 2008. The loans are subordinate to $2.9 billion of other debt and are secured by the equity interests in four New York City properties: Worldwide Plaza, 1540 Broadway office condominium, 527 Madison Avenue and Tower 56.

 

Manhattan House Loan

 

On October 12, 2007, we were repaid the $42,000,000 outstanding balance of the Manhattan House mezzanine loan.

 

19

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

8.

Identified Intangible Assets, Intangible Liabilities and Goodwill

The following summarizes our identified intangible assets (acquired above-market leases and in-place leases), intangible liabilities (acquired below market leases) and goodwill as of September 30, 2007 and December 31, 2006.

 

(Amounts in thousands)

 

September 30,
2007

 

December 31,
2006

 

 

 

 

 

 

 

 

 

Identified intangible assets (included in other assets):

 

 

 

 

 

 

 

Gross amount

 

$

780,082

 

$

393,524

 

Accumulated amortization

 

 

(148,521

)

 

(89,915

)

Net

 

$

631,561

 

$

303,609

 

Goodwill (included in other assets):

 

 

 

 

 

 

 

Gross amount

 

$

7,281

 

$

7,281

 

Identified intangible liabilities (included in deferred credit):

 

 

 

 

 

 

 

Gross amount

 

$

983,275

 

$

359,407

 

Accumulated amortization

 

 

(138,064

)

 

(62,571

)

Net

 

$

845,211

 

$

296,836

 

 

Amortization of acquired below market leases, net of acquired above market leases (a component of rental income) was $24,488,000 and $58,810,000 for the three and nine months ended September 30, 2007, respectively, and $7,087,000 and $15,164,000 for the three and nine months ended September 30, 2006, respectively. The estimated annual amortization of acquired below market leases, net of acquired above market leases for each of the five succeeding years is as follows:

 

(Amounts in thousands)

 

 

 

 

2008

 

$

89,187

 

2009

 

 

76,569

 

2010

 

 

69,421

 

2011

 

 

66,085

 

2012

 

 

50,279

 

 

The estimated annual amortization of all other identified intangible assets (a component of depreciation and amortization expense) including acquired in-place leases, customer relationships, and third party contracts for each of the five succeeding years is as follows:

 

(Amounts in thousands)

 

 

 

 

2008

 

$

63,336

 

2009

 

 

61,972

 

2010

 

 

59,871

 

2011

 

 

57,760

 

2012

 

 

52,537

 

 

We are a tenant under ground leases for certain properties acquired during 2006 and 2007. Amortization of these acquired below market leases net of acquired above market leases resulted in an increase to rent expense of $394,000 and $1,183,000 for the three and nine months ended September 30, 2007, respectively. The estimated annual amortization of these below market leases for each of the five succeeding years is as follows:

 

(Amounts in thousands)

 

 

 

 

2008

 

$

1,577

 

2009

 

 

1,577

 

2010

 

 

1,577

 

2011

 

 

1,577

 

2012

 

 

1,577

 

 

20

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

9.

Debt

(Amounts in thousands)

 

 

 

Interest Rate
as of

 

Balance as of

 

Notes and Mortgages Payable:

 

Maturity

 

September 30,
2007

 

September 30,
2007

 

December 31,
2006

 

Fixed Interest:

 

 

 

 

 

 

 

 

 

New York Office:

 

 

 

 

 

 

 

 

 

 

 

1290 Avenue of the Americas

 

09/12

 

5.97%

 

$

456,511

 

$

 

350 Park Avenue

 

01/12

 

5.48%

 

 

430,000

 

 

430,000

 

770 Broadway

 

03/16

 

5.65%

 

 

353,000

 

 

353,000

 

888 Seventh Avenue

 

01/16

 

5.71%

 

 

318,554

 

 

318,554

 

Two Penn Plaza

 

02/11

 

4.97%

 

 

293,138

 

 

296,428

 

909 Third Avenue

 

04/15

 

5.64%

 

 

218,053

 

 

220,314

 

Eleven Penn Plaza

 

12/14

 

5.20%

 

 

211,159

 

 

213,651

 

866 UN Plaza (1)

 

N/A

 

N/A

 

 

 

 

45,467

 

 

 

 

 

 

 

 

 

 

 

 

 

Washington DC Office:

 

 

 

 

 

 

 

 

 

 

 

Skyline Place (2)

 

02/17

 

5.74%

 

 

678,000

 

 

155,358

 

Warner Building

 

05/16

 

6.26%

 

 

292,700

 

 

292,700

 

Crystal Gateway 1-4 and Crystal Square 5

 

10/10-08/13

 

6.75%-7.09%

 

 

204,867

 

 

207,389

 

Crystal Park 1-4 (3)

 

09/08-08/13

 

6.66%-7.08%

 

 

151,250

 

 

201,012

 

Crystal Square 2, 3 and 4

 

10/10-11/14

 

6.82%-7.08%

 

 

134,390

 

 

136,317

 

Bowen Building

 

06/16

 

6.14%

 

 

115,022

 

 

115,022

 

H Street (4)

 

06/29

 

4.88%

 

 

110,003

 

 

 

Reston Executive I, II and III

 

01/13

 

5.57%

 

 

93,000

 

 

93,000

 

1101 17th , 1140 Connecticut, 1730 M and 1150 17th

 

08/10

 

6.74%

 

 

90,043

 

 

91,232

 

Courthouse Plaza 1 and 2

 

01/08

 

7.05%

 

 

73,305

 

 

74,413

 

Crystal Gateway N. and Arlington Plaza (5)

 

11/07

 

6.77%

 

 

51,689

 

 

52,605

 

1750 Pennsylvania Avenue

 

06/12

 

7.26%

 

 

47,360

 

 

47,803

 

Crystal Malls 1, 3 and 4

 

12/11

 

6.91%

 

 

37,395

 

 

42,675

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail:

 

 

 

 

 

 

 

 

 

 

 

Cross collateralized mortgages payable on 42 shopping centers

 

03/10

 

7.93%

 

 

457,765

 

 

463,135

 

Springfield Mall (including present value of purchase
option of $70,767)

 

04/13

 

5.45%

 

 

259,579

 

 

262,391

 

Green Acres Mall

 

02/08

 

6.75%

 

 

138,122

 

 

140,391

 

Montehiedra Town Center

 

06/16

 

6.04%

 

 

120,000

 

 

120,000

 

Broadway Mall

 

06/13

 

5.30%

 

 

97,587

 

 

99,154

 

828-850 Madison Avenue Condominium

 

06/18

 

5.29%

 

 

80,000

 

 

80,000

 

Las Catalinas Mall

 

11/13

 

6.97%

 

 

62,457

 

 

63,403

 

Other retail properties

 

05/09-10/18

 

4.00%-7.40%

 

 

86,812

 

 

50,450

 

 

 

 

 

 

 

 

 

 

 

 

 

Merchandise Mart:

 

 

 

 

 

 

 

 

 

 

 

Merchandise Mart

 

12/16

 

5.57%

 

 

550,000

 

 

550,000

 

High Point Complex

 

08/16

 

6.34%

 

 

221,293

 

 

220,000

 

Boston Design Center

 

09/15

 

5.02%

 

 

72,000

 

 

72,000

 

Washington Design Center

 

11/11

 

6.95%

 

 

45,848

 

 

46,328

 

 

 

 

 

 

 

 

 

 

 

 

 

Temperature Controlled Logistics:

 

 

 

 

 

 

 

 

 

 

 

Cross collateralized mortgages payable on 50 properties

 

02/11-12/16

 

5.48%

 

 

1,055,746

 

 

1,055,712

 

 

 

 

 

 

 

 

 

 

 

 

 

Other:

 

 

 

 

 

 

 

 

 

 

 

555 California Street

 

05/10-08/11

 

5.97%

 

 

719,312

 

 

 

Industrial Warehouses (6)

 

10/11

 

6.95%

 

 

25,751

 

 

47,179

 

Total Fixed Interest Notes and Mortgages Payable

 

 

 

5.94%

 

 

8,351,711

 

 

6,657,083

 

_______________________

See notes on page 23.

21

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

9.

Debt - continued

 

(Amounts in thousands)

 

 

 

 

Interest Rate
as of

 

Balance as of

 

Notes and Mortgages Payable:

Maturity

 

Spread over
LIBOR

 

September 30,
2007

 

September 30,
2007

 

December 31,
2006

 

Variable Interest:

 

 

 

 

 

 

 

 

 

 

 

 

New York Office:

 

 

 

 

 

 

 

 

 

 

 

 

100 West 33rd Street

02/09

 

L+55

 

6.30%

 

$

232,000

 

$

 

866 UN Plaza (1)

05/09

 

L+40

 

5.78%

 

 

44,978

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Washington, DC Office:

 

 

 

 

 

 

 

 

 

 

 

 

Commerce Executive III, IV and V

07/08

 

L+55

 

6.22%

 

 

50,223

 

 

50,523

 

1999 K Street (7)

N/A

 

N/A

 

N/A

 

 

 

 

19,422

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other:

 

 

 

 

 

 

 

 

 

 

 

 

220 Central Park South

11/08

 

L+235-L+245

 

7.87%

 

 

122,990

 

 

122,990

 

India Property Fund $82.5 million secured
revolving credit facility

03/08

 

L+80

 

6.16%

 

 

82,500

 

 

 

Other

07/08-04/10

 

Various

 

7.55%

 

 

49,131

 

 

36,866

 

Total Variable Interest Notes and Mortgages
Payable

 

 

 

 

6.67%

 

 

581,822

 

 

229,801

 

Total Notes and Mortgages Payable

 

 

 

 

5.99%

 

$

8,933,533

 

$

6,886,884

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible Senior Debentures:

 

 

 

 

 

 

 

 

 

 

 

 

Due 2027 (8)

04/12 (10)

 

 

 

2.85%

 

$

1,374,878

 

$

 

Due 2026

11/11 (10)

 

 

 

3.63%

 

 

983,121

 

 

980,083

 

Total Convertible Senior Debentures

 

 

 

 

3.17%

 

$

2,357,999

 

$

980,083

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior Unsecured Notes:

 

 

 

 

 

 

 

 

 

 

 

 

Senior unsecured notes due 2009

08/09

 

 

 

4.50%

 

$

249,270

 

$

248,984

 

Senior unsecured notes due 2010

12/10

 

 

 

4.75%

 

 

199,388

 

 

199,246

 

Senior unsecured notes due 2011

02/11

 

 

 

5.60%

 

 

249,844

 

 

249,808

 

Senior unsecured notes due 2007 (9)

N/A

 

N/A

 

N/A

 

 

 

 

498,562

 

Total senior unsecured notes

 

 

 

 

4.96%

 

$

698,502

 

$

1,196,600

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exchangeable Senior Debentures due 2025

04/12 (10)

 

 

 

3.88%

 

$

492,450

 

$

491,231

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unsecured Revolving Credit Facilities:

 

 

 

 

 

 

 

 

 

 

 

 

$1.595 billion unsecured revolving credit facility (11)

09/10

 

L+55

 

N/A

 

$

 

$

 

$1.000 billion unsecured revolving credit facility
($47,939 reserved for outstanding
letters of credit) (12)

06/10

 

L+51

 

6.07%

 

 

94,000

 

 

 

Total Unsecured Revolving Credit Facilities

 

 

 

 

6.07%

 

$

94,000

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AmeriCold $30 million secured revolving
credit facility ($19,156 reserved for
outstanding letters of credit)

10/08

 

L+175

 

N/A

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

_______________________

See notes on following page.

 

22

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

9.

Debt - continued

Notes to preceding tabular information:

($ in thousands, except per share amounts)

 

 

(1)

On May 14, 2007, we completed a $44,978 financing of our 866 UN Plaza property. This interest only loan bears interest at LIBOR plus 0.40% and matures in May 2009. The net proceeds were used to repay the existing loan and closing costs.

 

 

(2)

On January 26, 2007, we completed a $678,000 financing of our Skyline Complex in Fairfax Virginia, consisting of eight office buildings containing 2,560,000 square feet. The loan bears interest only at 5.74% and matures in February 2017. We retained net proceeds of approximately $515,000 after repaying existing loans and closing costs, including $5,771 for prepayment penalties and defeasance costs which is included in “interest and debt expense” in the nine months ended September 30, 2007.

 

 

(3)

On March 30, 2007, we repaid the $47,011 balance of the Crystal Park 2 mortgage loan.

 

 

(4)

See Note 4. Acquisitions and Dispositions.

 

 

(5)

On October 11, 2007, we repaid the $51,678 balance of the Crystal Gateway N. and Arlington Plaza mortgage loan.

 

 

(6)

On July 3, 2007, we repaid $21,030 of the $46,837 outstanding balance of the mortgage loan which was secured by the Garfield, Edison and East Brunswick industrial warehouses. We incurred $1,701 for prepayment penalties and defeasance costs which is included in “interest and debt expense” in the quarter ended September 30, 2007.

 

 

(7)

On March 1, 2007, we repaid the $19,394 balance of the 1999 K Street mortgage loan.

 

 

(8)

On March 21, 2007, Vornado Realty Trust sold $1.4 billion aggregate principal amount of 2.85% convertible senior debentures due 2027, pursuant to an effective registration statement. The aggregate net proceeds from this offering, after underwriters’ discounts and expenses, were approximately $1.37 billion. The debentures are redeemable at our option beginning in 2012 for the principal amount plus accrued and unpaid interest. Holders of the debentures have the right to require us to repurchase their debentures in 2012, 2017, and 2022 and in certain other limited circumstances. The debentures are convertible, under certain circumstances, for cash and Vornado common shares at an initial conversion rate of 6.1553 common shares per one-thousand dollars of principal amount of debentures. The initial conversion price is $162.46, which represents a premium of 30% over the March 21, 2007 closing price of $124.97 for our common shares. The principal amount of debentures will be settled for cash and the amount in excess of the principal defined as the conversion value will be settled in cash or, at our election, Vornado common shares.

 

   

We are amortizing the underwriters’ discount on a straight-line basis (which approximates the interest method) over the period from the date of issuance to the date of earliest redemption of April 1, 2012. Because the conversion option associated with the debentures, when analyzed as a freestanding instrument, meets the criteria to be classified as equity specified by paragraphs 12 to 32 of EITF 00-19 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s own Common Stock,” separate accounting for the conversion option under SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” is not appropriate.

 

The net proceeds of the offering were contributed to the Operating Partnership in the form of an inter-company loan and the Operating Partnership guaranteed the payment of the debentures.

     

 

(9)

On May 11, 2007, we redeemed our $500,000 5.625% senior unsecured notes at the face amount plus accrued interest.

 

 

(10)

Represents the earliest date the holders can require us to repurchase the debentures.

 

23

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

9.

Debt - continued

Notes to preceding tabular information - continued:

($ in thousands, except per share amounts)

 

 

(11)

On September 28, 2007, the Operating Partnership entered into a new $1.510 billion unsecured revolving credit facility, which was increased by $85,000 on October 12, 2007 and can be increased up to $2.0 billion during the initial term. The new facility has a three-year term with two one-year extension options, bears interest at LIBOR plus 55 basis points (5.67% at September 30, 2007), based on our current credit ratings and requires the payment of an annual facility fee of 15 basis points. Together with the existing $1.0 billion credit facility, we have an aggregate of $2.595 billion of unsecured revolving credit. Vornado is the guarantor of the Operating Partnership’s obligations under both revolving credit agreements.

     
    The existing $1.0 billion credit facility’s financial covenants have been modified to conform to the financial covenants under the new agreement. Significant modifications include (i) changing the definition of Capitalization Value to exclude corporate unallocated general and administrative expenses and to reduce the capitalization rate to 6.5% from 7.5%, and (ii) changing the definition of Total Outstanding Indebtedness to exclude indebtedness of unconsolidated joint ventures. Under the new agreement, “Equity Value” may not be less than Three Billion Dollars; “Total Outstanding Indebtedness” may not exceed sixty percent (60%) of “Capitalization Value;” the ratio of “Combined EBITDA” to “Fixed Charges,” each measured as of the most recently ended calendar quarter, may not be less than 1.40 to 1.00; the ratio of “Unencumbered Combined EBITDA” to “Unsecured Interest Expense,” each measured as of the most recently ended calendar quarter, may not be less than 1.50 to 1.00; at any time, “Unsecured Indebtedness” may not exceed sixty percent (60%) of “Capitalization Value of Unencumbered Assets;” and the ratio of “Secured Indebtedness” to “Capitalization Value,” each measured as of the most recently ended calendar quarter, may not exceed fifty percent (50%). The new agreement also contains standard representations and warranties and other covenants. The terms in quotations in this paragraph are all defined in the new agreement, which was filed as an exhibit to our Current Report on Form 8-K dated September 28, 2007, filed on October 4, 2007.
     

 

(12)

Requires the payment of an annual facility fee of 15 basis points.

 

 

10.

Fee and Other Income

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

 


(Amounts in thousands)

 

For the Three Months
Ended September 30,

 

For the Nine Months
Ended September 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

Tenant cleaning fees

 

$

13,028

 

$

8,818

 

$

33,398

 

$

24,471

 

Management and leasing fees

 

 

2,891

 

 

2,651

 

 

12,894

 

 

7,833

 

Lease termination fees

 

 

1,575

 

 

7,522

 

 

6,310

 

 

17,911

 

Other income

 

 

10,531

 

 

9,008

 

 

29,318

 

 

21,018

 

 

 

$

28,025

 

$

27,999

 

$

81,920

 

$

71,233

 

 

Fee and other income above include management fee income from Interstate Properties, a related party, of $183,000 and $223,000 in the three months ended September 30, 2007 and 2006, respectively and $593,000 and $605,000 in the nine months ended September 30, 2007 and 2006, respectively. 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).

 

 

24

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

11.

Discontinued Operations

During the three months ended September 30, 2007, we classified our Crystal Mall Two and Arlington Plaza Washington D.C. office properties as discontinued operations. See Note 4. Acquisitions and Dispositions for details. The following table sets forth the assets and liabilities related to discontinued operations at September 30, 2007 and December 31, 2006. Assets related to discontinued operations consist primarily of the net book value of real estate. Liabilities related to discontinued operations consist primarily of below market lease intangibles and deferred tax liabilities established at acquisition.

 

(Amounts in thousands)

 

Assets related to
Discontinued Operations
as of

 

Liabilities related to
Discontinued Operations
as of

 

 

 

September 30,
2007

 

December 31,
2006

 

September 30,
2007

 

December 31,
2006

 

H Street – land subject to ground leases

 

$

108,497

 

$

23,696

 

$

 

$

10,973

 

Arlington Plaza (sold on October 17, 2007)

 

 

37,030

 

 

35,459

 

 

 

 

 

Crystal Mall Two (sold on August 9, 2007)

 

 

 

 

55,580

 

 

 

 

 

Vineland, New Jersey (sold on July 16, 2007)

 

 

 

 

908

 

 

 

 

 

Total

 

$

145,527

 

$

115,643

 

$

 

$

10,973

 

 

The following table sets forth the combined results of operations related to discontinued operations for the three and nine months ended September 30, 2007 and 2006.

 

(Amounts in thousands)

 

For the Three Months
Ended September 30,

 

For the Nine Months
Ended September 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

Revenues

 

$

334

 

$

2,608

 

$

1,746

 

$

12,820

 

Expenses

 

 

3,424

 

 

2,031

 

 

4,899

 

 

8,724

 

Net (loss) income

 

 

(3,090

)

 

577

 

 

(3,153

)

 

4,096

 

Net gain on sale of Crystal Mall Two

 

 

19,893

 

 

 

 

19,893

 

 

 

Net gain on sale of H Street land

 

 

4,803

 

 

 

 

4,803

 

 

 

Net gain on sale of Vineland, NJ

 

 

1,708

 

 

 

 

1,708

 

 

 

Net gain on sale of 1919 South Eads Street

 

 

 

 

 

 

 

 

17,609

 

Net gain on sale of 424 Sixth Avenue

 

 

 

 

 

 

 

 

9,218

 

Net gain on sale of 33 North Dearborn Street

 

 

 

 

 

 

 

 

4,835

 

Net gain on disposition of other real estate

 

 

1,341

 

 

 

 

1,341

 

 

2,107

 

Income from discontinued operations,
net of minority interest

 

$

24,655

 

$

577

 

$

24,592

 

$

37,865

 

 

 

25

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

12.

Income Per Share

The following table provides a reconciliation of both net income and the number of common shares used in the computation of (i) basic income per common share - which utilizes the weighted average number of common shares outstanding without regard to dilutive potential common shares, and (ii) diluted income per common share - which includes the weighted average common shares and potentially dilutive share equivalents. Potentially dilutive share equivalents include our Series A convertible preferred shares, employee stock options and restricted share awards, exchangeable senior debentures due 2025 as well as Class A Operating Partnership units owned by minority partners and convertible preferred units.

 

(Amounts in thousands, except per share amounts)

 

For The Three Months
Ended September 30,

 

For The Nine Months
Ended September 30,

 

 

 

2007

 

2006

 

2007

  

2006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net of minority interest in
the Operating Partnership

 

$

106,186

 

$

127,406

 

$

439,100

 

$

402,499

 

Income from discontinued operations, net of minority interest

 

 

24,655

 

 

577

 

 

24,592

 

 

37,865

 

Net income

 

 

130,841

 

 

127,983

 

 

463,692

 

 

440,364

 

Preferred share dividends

 

 

(14,295

)

 

(14,351

)

 

(42,886

)

 

(43,162

)

Numerator for basic income per share – net income
applicable to common shares

 

 

116,546

 

 

113,632

 

 

420,806

 

 

397,202

 

Impact of assumed conversions:

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible preferred share dividends

 

 

68

 

 

139

 

 

588

 

 

508

 

Numerator for diluted income per share – net income
applicable to common shares

 

$

116,614

 

$

113,771

 

$

421,394

 

$

397,710

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic income per share –
weighted average shares

 

 

151,990

 

 

141,684

 

 

151,739

 

 

141,413

 

Effect of dilutive securities (1):

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock options and restricted share awards

 

 

6,407

 

 

8,174

 

 

6,742

 

 

7,935

 

Convertible preferred shares

 

 

116

 

 

238

 

 

264

 

 

289

 

Denominator for diluted income per share –
adjusted weighted average shares and assumed conversions

 

 

158,513

 

 

150,096

 

 

158,745

 

 

149,637

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME PER COMMON SHARE – BASIC:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net of minority interest

 

$

0.61

 

$

0.80

 

$

2.61

 

$

2.54

 

Income from discontinued operations, net of minority interest

 

 

0.16

 

 

 

 

0.16

 

 

0.27

 

Net income per common share

 

$

0.77

 

$

0.80

 

$

2.77

 

$

2.81

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME PER COMMON SHARE – DILUTED:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net of minority interest

 

$

0.58

 

$

0.76

 

$

2.50

 

$

2.41

 

Income from discontinued operations, net of minority interest

 

 

0.16

 

 

 

 

0.15

 

 

0.25

 

Net income per common share

 

$

0.74

 

$

0.76

 

$

2.65

 

$

2.66

 

__________________

(1)

The effect of dilutive securities above excludes anti-dilutive weighted average common share equivalents. In the three and nine months ended September 30, 2007, there were 22,145 and 22,014 anti-dilutive weighted average common share equivalents, respectively. In the three and nine months ended September 30, 2006, there were 21,904 and 21,934 anti-dilutive weighted average common share equivalents, respectively.

 

26

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

13.

Comprehensive Income

(Amounts in thousands)

 

For The Three Months
Ended September 30,

 

For The Nine Months
Ended September 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

Net income

 

$

130,841

 

$

127,983

 

$

463,692

 

$

440,364

 

Other comprehensive (loss) income

 

 

(5,337

)

 

19,533

 

 

(30,295

)

 

(18,727

)

Comprehensive income

 

$

125,504

 

$

147,516

 

$

433,397

 

$

421,637

 

 

 

Substantially all of other comprehensive (loss) income in the three and nine months ended September 30, 2007 and 2006 relates to the mark-to-market of marketable equity securities classified as available-for-sale.

 

14.

Stock-based Compensation

Our Share Option Plan (the “Plan”) provides for grants of incentive and non-qualified stock options, restricted stock, stock appreciation rights, performance shares and limited partnership units to certain of our employees and officers.

 

We account for stock-based compensation in accordance with SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure and as revised by SFAS No. 123R, Share-Based Payment (“SFAS No. 123R”). We adopted SFAS No. 123R, using the modified prospective application, on January 1, 2006. Stock based compensation expense for the three and nine months ended September 30, 2007 and 2006 consists of stock option awards, restricted common share and Operating Partnership unit awards and our 2006 Out-Performance Plan awards.

 

During the three months ended September 30, 2007 and 2006, we recognized $6,177,000 and $3,245,000 of stock-based compensation expense, respectively and in the nine months ended September 30, 2007 and 2006 we recognized $18,797,000 and $7,018,000 of stock-based compensation expense, respectively.

 

 

27

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

15.

Commitments and Contingencies

At September 30, 2007, our $1.0 billion revolving credit facility had $47,939,000 reserved for outstanding letters of credit. Our revolving credit facilities contain financial covenants, which require us to maintain minimum interest coverage and maximum debt to market capitalization ratios, and provides for higher interest rates in the event of a decline in our ratings below Baa3/BBB. At September 30, 2007, AmeriCold’s $30,000,000 revolving credit facility had $19,156,000 reserved for outstanding letters of credit. This facility requires AmeriCold to maintain, on a trailing four-quarter basis, a minimum of $30,000,000 of free cash flow, as defined. 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.

 

We have made acquisitions and investments in partially owned entities for which we are committed to fund additional capital aggregating $152,995,000. Of this amount, $95,000,000 relates to our equity commitment to the India Property Fund, LP, and $22,800,000 relates to capital expenditures to be funded over the next four years at the Springfield Mall, in which we have a 97.5% interest.

 

On November 10, 2005, we committed to fund the junior portion of up to $30,530,000 of a $173,000,000 construction loan to an entity developing a mixed-use building complex in Boston, Massachusetts, at the north end of the Boston Harbor. We earn current-pay interest at 30-day LIBOR plus 11%. The loan matures in November 2008, with a one-year extension option. As of September 30, 2007, we have funded $13,787,000 of this commitment.

 

Our debt instruments, consisting of mortgage loans secured by our properties (which are generally non-recourse to us), senior unsecured notes, exchangeable senior debentures, convertible senior debentures and revolving credit agreements, contain customary covenants requiring us to maintain insurance. Although we believe that we have adequate insurance coverage under 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, or if the Terrorism Risk Insurance Extension Act of 2005 is not extended past 2007, it could adversely affect our ability to finance and/or refinance our properties and expand our portfolio.

 

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.

 

We enter into agreements for the purchase and resale of U.S. government obligations for periods of up to one week. The obligations purchased under these agreements are held in safekeeping in our name by various money center banks. We have the right to demand additional collateral or return of these invested funds at any time the collateral value is less than 102% of the invested funds plus any accrued earnings thereon. We had $60,080,000 and $219,990,000 of cash invested in these agreements at September 30, 2007 and December 31, 2006, respectively.

 

From time to time, we have disposed of substantial amounts of real estate to third parties for which, as to certain properties, we remain contingently liable for rent payments or mortgage indebtedness that cannot be quantified.

 

 

28

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

15.

Commitments and Contingencies - continued

Insurance

 

We carry commercial liability and all-risk property insurance (fire, flood, rental loss, extended coverage, and “acts of terrorism” as defined in the Terrorism Risk Insurance Extension Act (“TRIA”) which expires in December 2007) with respect to our assets. We also carry earthquake insurance with respect to our California properties.

 

In June 2007, we formed Penn Plaza Insurance Company, LLC (“PPIC”), a wholly owned consolidated subsidiary of the Operating Partnership, to act as a re-insurer with respect to a portion of our earthquake insurance coverage and as a direct insurer for coverage for (i) “certified” acts of terrorism by TRIA, (ii) “non-certified” acts of terrorism, and (iii) nuclear, biological, chemical and radiological (“NBCR”) “certified acts of terrorism” under TRIA. Coverage under (i) and (ii) are fully reinsured by third party insurance companies with no exposure to PPIC. Prior to the formation of PPIC, we were uninsured for losses under NBCR coverage. Subsequently, we are uninsured for the first $100,000,000 of NBCR coverage under TRIA, for which PPIC would be responsible, and ultimately we would bear such loss.

 

Effective as of September 15, 2007, we increased our property insurance per occurrence limits to $1.5 billion from $1.4 billion, including “certified” acts of terrorism. Coverage for “non-certified” acts of terrorism is $500,000,000 per occurrence with a $500,000,000 annual aggregate limit. Earthquake insurance coverage is $150,000,000 per occurrence, subject to a deductible in the amount of 5% of the value of the affected property, with a $150,000,000 annual aggregate limit. The first $10,000,000 above the deductible is provided by PPIC on a reinsurance basis.

 

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

 

 

 

29

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

15.

Commitments and Contingencies - continued

Litigation

 

Stop & Shop

 

On January 8, 2003, Stop & Shop filed a complaint with the United States District Court for the District of New Jersey claiming we had no right to reallocate and therefore continue to collect $5,000,000 of annual rent from Stop & Shop pursuant to the Master Agreement and Guaranty. On May 17, 2005, we filed a motion for summary judgment. On July 15, 2005, Stop & Shop opposed our motion and filed a cross-motion for summary judgment. On December 13, 2005, the Court issued its decision denying the motions for summary judgment. Both parties appealed the Court’s decision and on December 14, 2006, the Appellate Court division issued a decision affirming the Court’s decision. On January 16, 2007 we filed a motion for the reconsideration of one aspect of the Appellate Court’s decision which was denied on March 13, 2007. On April 16, 2007, the Court directed that discovery should be completed by December 2007, with a trial date to be determined thereafter. We intend to vigorously pursue our claims against Stop & Shop.

 

1290 Avenue of the Americas and 555 California Street

 

On May 24, 2007, we acquired a 70% controlling interest in 1290 Avenue of the Americas and 555 California Street. Our 70% interest was acquired through the purchase of all of the shares of a group of foreign companies that own, through U.S. entities, the 1% sole general partnership interest and a 69% limited partnership interest in the partnerships that own the two properties. The remaining 30% limited partnership interest is owned by Donald J. Trump.

 

In August 2005, Mr. Trump brought a lawsuit in the New York State Supreme Court against, among others, the general partners of the partnerships referred to above.   Mr. Trump’s claims arose out of a dispute over the sale price of, and use of proceeds from, the sale of properties located on the former Penn Central rail yards between West 59th and 72nd Streets in Manhattan which were formerly owned by the partnerships. In decisions dated September 14, 2005 and July 24, 2006, the Court denied various of Mr. Trump’s motions and ultimately dismissed all of Mr. Trump’s claims, except for his claim seeking access to books and records. In a decision dated October 1, 2007, the Court determined that Mr. Trump already received access to the books and records to which he was entitled, with the exception of certain documents which the general partners have requested from third parties but have not yet been received. Mr. Trump has sought re-argument and renewal on, and filed a notice of appeal in connection with, his dismissed claims.  

 

In connection with the acquisition, we agreed to indemnify the sellers for liabilities and expenses arising out of Mr. Trump’s claim that the general partners of the partnerships we acquired did not sell the rail yards at a fair price or could have sold the rail yards for a greater price and any other claims asserted in the legal action; provided however, that if Mr. Trump prevails on certain claims involving partnership matters, other than claims relating to sale price, the sellers will be required to reimburse us for certain costs related to those claims. We believe that the claims relating to the sale price are without merit. All other allegations are not asserted as a basis for damages and regardless of merit would not be material to our consolidated financial statements.

 

There are various other legal actions against us in the ordinary course of business. In our opinion, after consultation with legal counsel, the outcome of such matters will not have a material effect on our financial condition, results of operations or cash flow.

 

30

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

16.

Retirement Plans

The following table sets forth the components of net periodic benefit costs:

 

(Amounts in thousands)

 

For The Three Months
Ended September 30,

 

For The Nine Months
Ended September 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

Service cost

 

$

347

 

$

122

 

$

463

 

$

365

 

Interest cost

 

 

3,004

 

 

1,230

 

 

4,494

 

 

3,690

 

Expected return on plan assets

 

 

(4,183

)

 

(1,474

)

 

(6,077

)

 

(4,422

)

Amortization of net loss

 

 

79

 

 

125

 

 

207

 

 

306

 

Net periodic benefit cost

 

$

(753

)

$

3

 

$

(913

)

$

(61

)

 

Employer Contributions

 

We made contributions of $1,847,000 and $6,388,000 to the plans during the nine months ended September 30, 2007 and 2006, respectively. We anticipate additional contributions of $444,000 to the plans during the remainder of 2007.

 

17.

Costs of Acquisition Not Consummated

In the first quarter of 2007, we wrote-off $8,807,000 of costs associated with the Equity Office Properties Trust acquisition not consummated.

 

18.

Related Party Transactions

Transactions with Affiliates and Officers and Trustees of the Company

 

On March 13, 2007, Michael Fascitelli, our President and President of Alexander’s, exercised 350,000 of his Alexander’s stock appreciation rights (“SARS”), which were scheduled to expire on March 14, 2007 and received $144.18 for each SAR exercised, representing the difference between Alexander’s stock price of $388.01 (the average of the high and low market price) on the date of exercise and the exercise price of $243.83.

 

On March 26, 2007, Joseph Macnow, Executive Vice President – Finance and Administration and Chief Financial Officer, repaid to the Company his $2,000,000 outstanding loan which was scheduled to mature in June 2007.

 

Effective as of April 19, 2007, we entered into a new employment agreement with Mitchell Schear, the President of our Washington, DC Office Division. This agreement, which replaced his prior agreement, was approved by the Compensation Committee of our Board of Trustees and provides for a term of five years and is automatically renewable for one-year terms thereafter. The agreement also provides for a minimum salary of $1,000,000 per year and bonuses and other customary benefits. Pursuant to the terms of the agreement, on April 19, 2007, the Compensation Committee granted options to Mr. Schear to acquire 200,000 of our common shares at an exercise price of $119.94 per share. These options vest ratably over three years beginning in 2010 and accelerate on a change of control or if we terminate his employment without cause or by him for breach by us. The agreement also provides that if we terminate Mr. Schear’s employment without cause or by him for breach by us, he will receive a lump-sum payment equal to one time salary and bonus, up to a maximum of $2,000,000.

 

 

31

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

19.

Segment Information

Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the three months ended September 30, 2007 and 2006.

(Amounts in thousands)

 

For the Three Months Ended September 30, 2007

 

 

 

 

 

Office

 

 

 

 

 

Temperature

 

 

 

 

 

 

 

Total

 

New
York

 

Washington,
DC

 

Retail

 

Merchandise
Mart

 

Controlled
Logistics

 

Toys

 

Other (2)

 

Property rentals

 

$

481,964

 

$

173,180

 

$

120,299

 

$

83,184

 

$

57,176

 

$

 

$

 

$

48,125

 

Straight-line rents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual rent increases

 

 

10,565

 

 

3,124

 

 

3,376

 

 

2,986

 

 

1,023

 

 

 

 

 

 

56

 

Amortization of free rent

 

 

5,797

 

 

1,562

 

 

3,353

 

 

44

 

 

91

 

 

 

 

 

 

747

 

Amortization of acquired below-
market leases, net

 

 

24,488

 

 

15,216

 

 

1,055

 

 

6,272

 

 

10

 

 

 

 

 

 

1,935

 

Total rentals

 

 

522,814

 

 

193,082

 

 

128,083

 

 

92,486

 

 

58,300

 

 

 

 

 

 

50,863

 

Temperature Controlled Logistics

 

 

212,715

 

 

 

 

 

 

 

 

 

 

212,715

 

 

 

 

 

Tenant expense reimbursements

 

 

89,482

 

 

35,701

 

 

11,843

 

 

30,338

 

 

7,043

 

 

 

 

 

 

4,557

 

Fee and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant cleaning fees

 

 

13,028

 

 

15,672

 

 

 

 

 

 

 

 

 

 

 

 

(2,644

)

Management and leasing fees

 

 

2,891

 

 

1,494

 

 

2,178

 

 

310

 

 

8

 

 

 

 

 

 

(1,099

)

Lease termination fees

 

 

1,575

 

 

1,326

 

 

 

 

51

 

 

198

 

 

 

 

 

 

 

Other

 

 

10,531

 

 

4,058

 

 

4,079

 

 

515

 

 

2,026

 

 

 

 

 

 

(147

)

Total revenues

 

 

853,036

 

 

251,333

 

 

146,183

 

 

123,700

 

 

67,575

 

 

212,715

 

 

 

 

51,530

 

Operating expenses

 

 

431,339

 

 

106,616

 

 

50,501

 

 

43,656

 

 

35,240

 

 

171,214

 

 

 

 

24,112

 

Depreciation and amortization

 

 

140,377

 

 

41,346

 

 

30,804

 

 

19,634

 

 

12,715

 

 

20,495

 

 

 

 

15,383

 

General and administrative

 

 

58,366

 

 

5,330

 

 

6,193

 

 

6,739

 

 

7,497

 

 

10,474

 

 

 

 

22,133

 

Total expenses

 

 

630,082

 

 

153,292

 

 

87,498

 

 

70,029

 

 

55,452

 

 

202,183

 

 

 

 

61,628

 

Operating income (loss)

 

 

222,954

 

 

98,041

 

 

58,685

 

 

53,671

 

 

12,123

 

 

10,532

 

 

 

 

(10,098

)

Income applicable to Alexander’s

 

 

12,111

 

 

189

 

 

 

 

187

 

 

 

 

 

 

 

 

11,735

 

Loss applicable to Toys “R” Us

 

 

(20,289

)

 

 

 

 

 

 

 

 

 

 

 

(20,289

)

 

 

Income from partially owned entities

 

 

13,901

 

 

1,290

 

 

743

 

 

3,972

 

 

(50

)

 

340

 

 

 

 

7,606

 

Interest and other investment income

 

 

56,906

 

 

668

 

 

3,558

 

 

195

 

 

104

 

 

325

 

 

 

 

52,056

 

Interest and debt expense

 

 

(165,889

)

 

(36,186

)

 

(31,289

)

 

(19,423

)

 

(13,174

)

 

(16,167

)

 

 

 

(49,650

)

Net gain on disposition of wholly
owned and partially owned
assets other than depreciable
real estate

 

 

1,012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,012

 

Minority interest of partially owned
entities

 

 

3,587

 

 

(1,613

)

 

 

 

54

 

 

 

 

3,869

 

 

 

 

1,277

 

Income (loss) before income taxes

 

 

124,293

 

 

62,389

 

 

31,697

 

 

38,656

 

 

(997

)

 

(1,101

)

 

(20,289

)

 

13,938

 

Provision for income taxes

 

 

(3,048

)

 

 

 

(2,330

)

 

(3

)

 

(172

)

 

(242

)

 

 

 

(301

)

Income (loss) from
continuing operations

 

 

121,245

 

 

62,389

 

 

29,367

 

 

38,653

 

 

(1,169

)

 

(1,343

)

 

(20,289

)

 

13,637

 

Income (loss) from discontinued
operations, net

 

 

24,655

 

 

 

 

29,324

 

 

3,078

 

 

 

 

 

 

 

 

(2,747

)

Income (loss) before allocation to
minority limited partners

 

 

145,900

 

 

62,389

 

 

53,691

 

 

41,731

 

 

(1,169

)

 

(1,343

)

 

(20,289

)

 

10,890

 

Minority limited partners’ interest
in the Operating Partnership

 

 

(10,241

)

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,241

)

Perpetual preferred unit
distributions of the
Operating Partnership

 

 

(4,818

)

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,818

)

Net income (loss)

 

 

130,841

 

 

62,389

 

 

53,691

 

 

41,731

 

 

(1,169

)

 

(1,343

)

 

(20,289

)

 

(4,169

)

Interest and debt expense (1)

 

 

207,934

 

 

34,853

 

 

31,999

 

 

21,947

 

 

13,388

 

 

7,693

 

 

40,875

 

 

57,179

 

Depreciation and amortization (1)

 

 

171,106

 

 

39,543

 

 

32,869

 

 

20,617

 

 

12,865

 

 

9,780

 

 

34,495

 

 

20,937

 

Income tax (benefit) expense (1)

 

 

(13,094

)

 

952

 

 

2,334

 

 

3

 

 

172

 

 

115

 

 

(18,213

)

 

1,543

 

EBITDA

 

$

496,787

 

$

137,737

 

$

120,893

 

$

84,298

 

$

25,256

 

$

16,245

 

$

36,868

 

$

75,490

 

 

EBITDA includes net gains on sale of real estate of $36,725, of which $24,696 is included in the Washington, DC office segment, $3,049 is included in the Retail segment and $8,980 is included in the Other segment. In addition, Other segment EBITDA includes a $18,606 net gain on mark-to-market of derivative instruments and a $1,012 net gain on sale of marketable equity securities.

_______________________

See notes on page 36.

32

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

19.

Segment Information – continued

(Amounts in thousands)

 

For the Three Months Ended September 30, 2006

 

 

 

 

 

Office

 

 

 

 

 

Temperature

 

 

 

 

 

 

 

Total

 

New
York

 

Washington,
DC

 

Retail

 

Merchandise
Mart

 

Controlled
Logistics

 

Toys

 

Other (2)

 

Property rentals

 

$

364,421

 

$

122,743

 

$

97,923

 

$

65,106

 

$

56,079

 

$

 

$

 

$

22,570

 

Straight-line rents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual rent increases

 

 

11,287

 

 

1,281

 

 

6,338

 

 

2,399

 

 

1,387

 

 

 

 

 

 

(118

)

Amortization of free rent

 

 

6,223

 

 

1,002

 

 

3,000

 

 

1,595

 

 

626

 

 

 

 

 

 

 

Amortization of acquired below-
market leases, net

 

 

7,087

 

 

66

 

 

1,074

 

 

5,451

 

 

5

 

 

 

 

 

 

491

 

Total rentals

 

 

389,018

 

 

125,092

 

 

108,335

 

 

74,551

 

 

58,097

 

 

 

 

 

 

22,943

 

Temperature Controlled Logistics

 

 

190,280

 

 

 

 

 

 

 

 

 

 

190,280

 

 

 

 

 

Tenant expense reimbursements

 

 

68,634

 

 

29,192

 

 

8,880

 

 

24,521

 

 

5,376

 

 

 

 

 

 

665

 

Fee and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant cleaning fees

 

 

8,818

 

 

11,059

 

 

 

 

 

 

 

 

 

 

 

 

(2,241

)

Management and leasing fees

 

 

2,651

 

 

330

 

 

1,757

 

 

464

 

 

100

 

 

 

 

 

 

 

Lease termination fees

 

 

7,522

 

 

4,752

 

 

2,544

 

 

 

 

226

 

 

 

 

 

 

 

Other

 

 

9,008

 

 

3,699

 

 

3,519

 

 

339

 

 

1,449

 

 

 

 

 

 

2

 

Total revenues

 

 

675,931

 

 

174,124

 

 

125,035

 

 

99,875

 

 

65,248

 

 

190,280

 

 

 

 

21,369

 

Operating expenses

 

 

346,565

 

 

80,310

 

 

41,150

 

 

32,343

 

 

27,613

 

 

152,277

 

 

 

 

12,872

 

Depreciation and amortization

 

 

101,799

 

 

23,199

 

 

26,834

 

 

14,335

 

 

10,682

 

 

18,651

 

 

 

 

8,098

 

General and administrative

 

 

52,096

 

 

4,387

 

 

8,996

 

 

5,063

 

 

6,816

 

 

7,875

 

 

 

 

18,959

 

Total expenses

 

 

500,460

 

 

107,896

 

 

76,980

 

 

51,741

 

 

45,111

 

 

178,803

 

 

 

 

39,929

 

Operating income (loss)

 

 

175,471

 

 

66,228

 

 

48,055

 

 

48,134

 

 

20,137

 

 

11,477

 

 

 

 

(18,560

)

Loss applicable to Alexander’s

 

 

(3,586

)

 

187

 

 

 

 

177

 

 

 

 

 

 

 

 

(3,950

)

Loss applicable to Toys “R” Us

 

 

(40,699

)

 

 

 

 

 

 

 

 

 

 

 

(40,699

)

 

 

Income from partially owned entities

 

 

23,010

 

 

1,042

 

 

4,851

 

 

1,805

 

 

206

 

 

285

 

 

 

 

14,821

 

Interest and other investment income

 

 

98,092

 

 

110

 

 

378

 

 

174

 

 

83

 

 

793

 

 

 

 

96,554

 

Interest and debt expense

 

 

(115,280

)

 

(20,829

)

 

(26,101

)

 

(17,682

)

 

(12,955

)

 

(14,044

)

 

 

 

(23,669

)

Net gain on disposition of wholly
owned and partially owned
assets other than depreciable
real estate

 

 

8,032

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,032

 

Minority interest of partially owned
entities

 

 

2,534

 

 

 

 

 

 

37

 

 

 

 

2,036

 

 

 

 

461

 

Income (loss) before income taxes

 

 

147,574

 

 

46,738

 

 

27,183

 

 

32,645

 

 

7,471

 

 

547

 

 

(40,699

)

 

73,689

 

Provision for income taxes

 

 

(382

)

 

 

 

57

 

 

 

 

(215

)

 

(224

)

 

 

 

 

Income (loss) from continuing operations

 

 

147,192

 

 

46,738

 

 

27,240

 

 

32,645

 

 

7,256

 

 

323

 

 

(40,699

)

 

73,689

 

Income (loss) from discontinued
operations, net

 

 

577

 

 

 

 

621

 

 

(51

)

 

8

 

 

 

 

 

 

(1

)

Income (loss) before allocation to
minority limited partners

 

 

147,769

 

 

46,738

 

 

27,861

 

 

32,594

 

 

7,264

 

 

323

 

 

(40,699

)

 

73,688

 

Minority limited partners’ interest
in the Operating Partnership

 

 

(13,103

)

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,103

)

Perpetual preferred unit
distributions of the
Operating Partnership

 

 

(6,683

)

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,683

)

Net income (loss)

 

 

127,983

 

 

46,738

 

 

27,861

 

 

32,594

 

 

7,264

 

 

323

 

 

(40,699

)

 

53,902

 

Interest and debt expense (1)

 

 

168,864

 

 

21,566

 

 

27,774

 

 

20,254

 

 

13,175

 

 

6,682

 

 

43,348

 

 

36,065

 

Depreciation and amortization (1)

 

 

141,206

 

 

24,179

 

 

31,235

 

 

15,137

 

 

10,827

 

 

8,900

 

 

34,951

 

 

15,977

 

Income tax (benefit) expense (1)

 

 

(383

)

 

 

 

3,087

 

 

 

 

215

 

 

106

 

 

(4,756

)

 

965

 

EBITDA

 

$

437,670

 

$

92,483

 

$

89,957

 

$

67,985

 

$

31,481

 

$

16,011

 

$

32,844

 

$

106,909

 

 

Other Segment EBITDA includes a $70,687 net gain on mark-to-market of derivative instruments, a $10,842 net gain on sale of real estate, and a $8,032 net gain on sale of marketable equity securities.

________________________

See notes on page 36.

 

33

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

19.

Segment Information – continued

(Amounts in thousands)

 

For the Nine Months Ended September 30, 2007

 

 

 

 

 

Office

 

 

 

 

 

Temperature

 

 

 

 

 

 

 

Total

 

New
York

 

Washington,
DC

 

Retail

 

Merchandise
Mart

 

Controlled
Logistics

 

Toys

 

Other (2)

 

Property rentals

 

$

1,324,351

 

$

463,678

 

$

335,239

 

$

240,975

 

$

181,985

 

$

 

$

 

$

102,474

 

Straight-line rents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual rent increases

 

 

29,248

 

 

11,003

 

 

6,772

 

 

8,794

 

 

2,296

 

 

 

 

 

 

383

 

Amortization of free rent

 

 

29,244

 

 

14,747

 

 

11,962

 

 

555

 

 

1,021

 

 

 

 

 

 

959

 

Amortization of acquired below-
market leases, net

 

 

58,810

 

 

32,895

 

 

3,178

 

 

19,119

 

 

130

 

 

 

 

 

 

3,488

 

Total rentals

 

 

1,441,653

 

 

522,323

 

 

357,151

 

 

269,443

 

 

185,432

 

 

 

 

 

 

107,304

 

Temperature Controlled Logistics

 

 

619,282

 

 

 

 

 

 

 

 

 

 

619,282

 

 

 

 

 

Tenant expense reimbursements

 

 

239,310

 

 

94,051

 

 

31,473

 

 

87,922

 

 

17,852

 

 

 

 

 

 

8,012

 

Fee and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant cleaning fees

 

 

33,398

 

 

40,820

 

 

 

 

 

 

 

 

 

 

 

 

(7,422

)

Management and leasing fees

 

 

12,894

 

 

3,323

 

 

10,711

 

 

1,234

 

 

11

 

 

 

 

 

 

(2,385

)

Lease termination fees

 

 

6,310

 

 

3,224

 

 

225

 

 

2,458

 

 

403

 

 

 

 

 

 

 

Other

 

 

29,318

 

 

12,081

 

 

10,799

 

 

1,170

 

 

6,029

 

 

 

 

 

 

(761

)

Total revenues

 

 

2,382,165

 

 

675,822

 

 

410,359

 

 

362,227

 

 

209,727

 

 

619,282

 

 

 

 

104,748

 

Operating expenses

 

 

1,193,857

 

 

288,155

 

 

133,038

 

 

125,861

 

 

101,565

 

 

492,510

 

 

 

 

52,728

 

Depreciation and amortization

 

 

380,876

 

 

107,895

 

 

84,607

 

 

59,026

 

 

35,782

 

 

60,330

 

 

 

 

33,236

 

General and administrative

 

 

170,790

 

 

14,778

 

 

20,540

 

 

20,070

 

 

21,982

 

 

32,691

 

 

 

 

60,729

 

Costs of acquisition not consummated

 

 

8,807

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,807

 

Total expenses

 

 

1,754,330

 

 

410,828

 

 

238,185

 

 

204,957

 

 

159,329

 

 

585,531

 

 

 

 

155,500

 

Operating income (loss)

 

 

627,835

 

 

264,994

 

 

172,174

 

 

157,270

 

 

50,398

 

 

33,751

 

 

 

 

(50,752

)

Income applicable to Alexander’s

 

 

35,114

 

 

567

 

 

 

 

560

 

 

 

 

 

 

 

 

33,987

 

Income applicable to Toys “R” Us

 

 

18,343

 

 

 

 

 

 

 

 

 

 

 

 

18,343

 

 

 

Income from partially owned entities

 

 

31,599

 

 

3,688

 

 

8,178

 

 

7,360

 

 

737

 

 

1,148

 

 

 

 

10,488

 

Interest and other investment income

 

 

231,890

 

 

1,810

 

 

4,609

 

 

387

 

 

292

 

 

2,116

 

 

 

 

222,676

 

Interest and debt expense

 

 

(469,659

)

 

(97,767

)

 

(96,331

)

 

(59,206

)

 

(39,069

)

 

(48,946

)

 

 

 

(128,340

)

Net gain on disposition of wholly
owned and partially owned
assets other than depreciable
real estate

 

 

17,699

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,699

 

Minority interest of partially owned
entities

 

 

11,819

 

 

(2,182

)

 

 

 

112

 

 

 

 

10,405

 

 

 

 

3,484

 

Income (loss) before income taxes

 

 

504,640

 

 

171,110

 

 

88,630

 

 

106,483

 

 

12,358

 

 

(1,526

)

 

18,343

 

 

109,242

 

Provision for income taxes

 

 

(6,815

)

 

 

 

(3,914

)

 

(185

)

 

(743

)

 

(1,412

)

 

 

 

(561

)

Income (loss) from continuing
operations

 

 

497,825

 

 

171,110

 

 

84,716

 

 

106,298

 

 

11,615

 

 

(2,938

)

 

18,343

 

 

108,681

 

Income (loss) from discontinued
operations, net

 

 

24,592

 

 

 

 

24,332

 

 

3,000

 

 

 

 

 

 

 

 

(2,740

)

Income (loss) before allocation to
minority limited partners

 

 

522,417

 

 

171,110

 

 

109,048

 

 

109,298

 

 

11,615

 

 

(2,938

)

 

18,343

 

 

105,941

 

Minority limited partners’ interest
in the Operating Partnership

 

 

(44,270

)

 

 

 

 

 

 

 

 

 

 

 

 

 

(44,270

)

Perpetual preferred unit distributions
of the Operating Partnership

 

 

(14,455

)

 

 

 

 

 

 

 

 

 

 

 

 

 

(14,455

)

Net income (loss)

 

 

463,692

 

 

171,110

 

 

109,048

 

 

109,298

 

 

11,615

 

 

(2,938

)

 

18,343

 

 

47,216

 

Interest and debt expense (1)

 

 

609,548

 

 

96,822

 

 

100,002

 

 

67,222

 

 

39,716

 

 

23,289

 

 

128,493

 

 

154,004

 

Depreciation and amortization (1)

 

 

500,247

 

 

106,885

 

 

93,959

 

 

61,815

 

 

36,212

 

 

28,788

 

 

123,194

 

 

49,394

 

Income tax expense (1)

 

 

34,419

 

 

2,052

 

 

7,738

 

 

185

 

 

743

 

 

672

 

 

20,250

 

 

2,779

 

EBITDA

 

$

1,607,906

 

$

376,869

 

$

310,747

 

$

238,520

 

$

88,286

 

$

49,811

 

$

290,280

 

$

253,393

 

 

EBITDA includes net gains on sale of real estate of $37,218, of which $24,696 is included in the Washington, DC office segment, $3,049 is included in the Retail segment and $9,473 is included in the Other segment. In addition, Other segment EBITDA includes a $100,060 net gain on mark-to-market of derivative instruments, a $17,699 net gain on sale of marketable equity securities, $8,807 of expense for costs of an acquisition not consummated and $1,677 of expense for our share of India Property Fund LP organization costs.

_______________________

See notes on page 36.

 

34

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

19.

Segment Information – continued

(Amounts in thousands)

 

For the Nine Months Ended September 30, 2006

 

 

 

 

 

Office

 

 

 

 

 

Temperature

 

 

 

 

 

 

 

Total

 

New
York

 

Washington,
DC

 

Retail

 

Merchandise
Mart

 

Controlled
Logistics

 

Toys

 

Other (2)

 

Property rentals

 

$

1,079,797

 

$

362,560

 

$

293,246

 

$

190,631

 

$

171,924

 

$

 

$

 

$

61,436

 

Straight-line rents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual rent increases

 

 

24,782

 

 

3,435

 

 

10,451

 

 

6,484

 

 

4,579

 

 

 

 

 

 

(167

)

Amortization of free rent

 

 

23,154

 

 

4,796

 

 

12,623

 

 

4,216

 

 

1,519

 

 

 

 

 

 

 

Amortization of acquired below-
market leases, net

 

 

15,164

 

 

44

 

 

2,810

 

 

9,998

 

 

27

 

 

 

 

 

 

2,285

 

Total rentals

 

 

1,142,897

 

 

370,835

 

 

319,130

 

 

211,329

 

 

178,049

 

 

 

 

 

 

63,554

 

Temperature Controlled Logistics

 

 

573,177

 

 

 

 

 

 

 

 

 

 

573,177

 

 

 

 

 

Tenant expense reimbursements

 

 

191,181

 

 

77,544

 

 

23,136

 

 

73,131

 

 

15,245

 

 

 

 

 

 

2,125

 

Fee and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant cleaning fees

 

 

24,471

 

 

30,889

 

 

 

 

 

 

 

 

 

 

 

 

(6,418

)

Management and leasing fees

 

 

7,833

 

 

818

 

 

5,687

 

 

1,184

 

 

144

 

 

 

 

 

 

 

Lease termination fees

 

 

17,911

 

 

13,911

 

 

2,610

 

 

371

 

 

1,019

 

 

 

 

 

 

 

Other

 

 

21,018

 

 

8,545

 

 

6,552

 

 

1,290

 

 

4,628

 

 

 

 

 

 

3

 

Total revenues

 

 

1,978,488

 

 

502,542

 

 

357,115

 

 

287,305

 

 

199,085

 

 

573,177

 

 

 

 

59,264

 

Operating expenses

 

 

996,350

 

 

226,443

 

 

110,674

 

 

92,507

 

 

78,532

 

 

452,505

 

 

 

 

35,689

 

Depreciation and amortization

 

 

289,831

 

 

68,877

 

 

80,695

 

 

37,149

 

 

32,881

 

 

53,641

 

 

 

 

16,588

 

General and administrative

 

 

148,530

 

 

12,400

 

 

24,746

 

 

15,280

 

 

19,841

 

 

26,883

 

 

 

 

49,380

 

Total expenses

 

 

1,434,711

 

 

307,720

 

 

216,115

 

 

144,936

 

 

131,254

 

 

533,029

 

 

 

 

101,657

 

Operating income (loss)

 

 

543,777

 

 

194,822

 

 

141,000

 

 

142,369

 

 

67,831

 

 

40,148

 

 

 

 

(42,393

)

Income applicable to Alexander’s

 

 

7,569

 

 

586

 

 

 

 

535

 

 

 

 

 

 

 

 

6,448

 

Income applicable to Toys “R” Us

 

 

4,177

 

 

 

 

 

 

 

 

 

 

 

 

4,177

 

 

 

Income from partially owned entities

 

 

43,696

 

 

2,852

 

 

10,575

 

 

4,035

 

 

985

 

 

1,049

 

 

 

 

24,200

 

Interest and other investment income

 

 

137,186

 

 

478

 

 

1,067

 

 

647

 

 

209

 

 

2,789

 

 

 

 

131,996

 

Interest and debt expense

 

 

(339,118

)

 

(61,951

)

 

(74,260

)

 

(61,474

)

 

(20,024

)

 

(46,758

)

 

 

 

(74,651

)

Net gain on disposition of wholly
owned and partially owned
assets other than depreciable
real estate

 

 

65,527

 

 

 

 

 

 

 

 

 

 

 

 

 

 

65,527

 

Minority interest of partially owned
entities

 

 

5,378

 

 

 

 

 

 

66

 

 

4

 

 

4,415

 

 

 

 

893

 

Income before income taxes

 

 

468,192

 

 

136,787

 

 

78,382

 

 

86,178

 

 

49,005

 

 

1,643

 

 

4,177

 

 

112,020

 

Provision for income taxes

 

 

(2,362

)

 

 

 

(778)

 

 

 

 

(334

)

 

(1,250

)

 

 

 

 

Income from continuing operations

 

 

465,830

 

 

136,787

 

 

77,604

 

 

86,178

 

 

48,671

 

 

393

 

 

4,177

 

 

112,020

 

Income from discontinued
operations, net

 

 

37,865

 

 

 

 

20,768

 

 

9,247

 

 

5,744

 

 

2,107

 

 

 

 

(1

)

Income before allocation to
minority limited partners

 

 

503,695

 

 

136,787

 

 

98,372

 

 

95,425

 

 

54,415

 

 

2,500

 

 

4,177

 

 

112,019

 

Minority limited partners’ interest
in the Operating Partnership

 

 

(46,301

)

 

 

 

 

 

 

 

 

 

 

 

 

 

(46,301

)

Perpetual preferred unit
distributions of the
Operating Partnership

 

 

(17,030

)

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,030

)

Net income

 

 

440,364

 

 

136,787

 

 

98,372

 

 

95,425

 

 

54,415

 

 

2,500

 

 

4,177

 

 

48,688

 

Interest and debt expense (1)

 

 

511,103

 

 

64,000

 

 

82,173

 

 

69,710

 

 

20,686

 

 

22,247

 

 

148,797

 

 

103,490

 

Depreciation and amortization (1)

 

 

400,014

 

 

71,393

 

 

92,620

 

 

41,703

 

 

33,308

 

 

25,601

 

 

101,637

 

 

33,752

 

Income tax (benefit) expense (1)

 

 

(3,287

)

 

 

 

6,940

 

 

 

 

334

 

 

595

 

 

(12,312

)

 

1,156

 

EBITDA

 

$

1,348,194

 

$

272,180

 

$

280,105

 

$

206,838

 

$

108,743

 

$

50,943

 

$

242,299

 

$

187,086

 

 

EBITDA includes net gains on sale of real estate of $44,611, of which $17,609 is included in the Washington, DC segment $9,218 is included in the Retail segment, $4,835 is included in the Merchandise Mart segment, $2,107 is included in the Temperature Controlled Logistics segment and $10,842 is included in the Other segment. In addition, Other segment EBITDA includes a $65,527 net gain on sale of marketable equity securities and a $65,589 net gain on mark-to-market of derivative instruments.

________________________

See notes on the following page.

 

35

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

19.

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 un-levered 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)

Other EBITDA is comprised of:

 

(Amounts in thousands)

 

For the Three Months
Ended September 30,

 

For the Nine Months
Ended September 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

Alexander’s

 

$

19,012

 

$

3,732

 

$

56,511

 

$

29,238

 

Hotel Pennsylvania

 

 

9,973

 

 

6,448

 

 

24,754

 

 

17,007

 

555 California Street (70% interest acquired on May 24, 2007)

 

 

12,164

 

 

 

 

18,513

 

 

 

Lexington MLP

 

 

9,022

 

 

18,067

 

 

15,006

 

 

34,804

 

GMH

 

 

9,527

 

 

8,427

 

 

17,872

 

 

8,427

 

Industrial warehouses

 

 

1,399

 

 

1,146

 

 

3,595

 

 

4,167

 

Other investments

 

 

3,419

 

 

4,022

 

 

9,171

 

 

10,425

 

 

 

 

64,516

 

 

41,842

 

 

145,422

 

 

104,068

 

Investment income and other

 

 

46,551

 

 

102,648

 

 

229,385

 

 

192,145

 

Corporate general and administrative expenses

 

 

(20,518

)

 

(17,795

)

 

(53,882

)

 

(45,796

)

Minority limited partners’ interest in the Operating Partnership

 

 

(10,241

)

 

(13,103

)

 

(44,270

)

 

(46,301

)

Perpetual preferred unit distributions of the Operating Partnership

 

 

(4,818

)

 

(6,683

)

 

(14,455

)

 

(17,030

)

Costs of acquisition not consummated

 

 

 

 

 

 

(8,807

)

 

 

 

 

$

75,490

 

$

106,909

 

$

253,393

 

$

187,086

 

 

 

36

 


 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Shareholders and Board of Trustees

Vornado Realty Trust

New York, New York

 

We have reviewed the accompanying consolidated balance sheet of Vornado Realty Trust (“the Company”) as of September 30, 2007, and the related consolidated statements of income for the three-month and nine-month periods ended September 30, 2007 and 2006, and of cash flows for the nine-month periods ended September 30, 2007 and 2006. These interim financial statements are the responsibility of the Company’s management.

 

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

 

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

 

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Vornado Realty Trust as of December 31, 2006, and the related consolidated statements of income, shareholders’ equity, and cash flows for the year then ended. Prior to reclassification for the discontinued operations described in Note 11 to the accompanying financial statements (not presented herein); and in our report dated February 27, 2007, we expressed an unqualified opinion on those consolidated financial statements. We also audited the adjustments described in Note 11 that were applied to reclassify the December 31, 2006 consolidated balance sheet of Vornado Realty Trust (not presented herein) for discontinued operations. In our opinion, such adjustments are appropriate and have been properly applied to the previously issued consolidated balance sheet in deriving the accompanying retrospectively adjusted consolidated balance sheet as of December 31, 2006.

 

/s/ DELOITTE & TOUCHE LLP

 

Parsippany, New Jersey

October 30, 2007

 

37

 


 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 performance. They involve risks, uncertainties and assumptions. 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 similar expressions in this quarterly report on Form 10-Q. These forward-looking statements are subject to numerous assumptions, risks and uncertainties. Many of the factors that will determine these items are beyond our ability to control or predict. Factors that may cause actual results to differ materially from those contemplated by the forward-looking statements include, but are not limited to, those set forth in our Annual Report on Form 10-K for the year ended December 31, 2006 under “Forward Looking Statements” and “Item 1. Business – Certain Factors That May Adversely Affect Our Business and Operations.” 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. We expressly disclaim any responsibility to update forward-looking statements, whether as a result of new information, future events or otherwise. Accordingly, investors should use caution in relying on forward-looking statements, which are based on results and trends at the time they are made, to anticipate future results or trends.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations include a discussion of our consolidated financial statements for the three and nine months ended September 30, 2007. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

 

 

Critical Accounting Policies

 

A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the year ended December 31, 2006 in Management’s Discussion and Analysis of Financial Condition. There have been no significant changes to our policies during 2007.

 

38

 


Overview

Business Objective and Operating Strategy

 

Our business objective is to maximize shareholder value. We measure our success in meeting this objective by our total return to shareholders. Below is a table comparing our performance to the Morgan Stanley REIT Index (“RMS”) for the following periods ending September 30, 2007:

 

 

 

 

Total Return (1)

 

 

 

Vornado

 

RMS

 

One-year

 

3.8%

 

4.7%

 

Three-years

 

95.9%

 

68.4%

 

Five-years

 

251.0%

 

163.0%

 

Ten-years

 

333.8%

 

211.8%

 

_________________________

 

(1)

Past performance is not necessarily indicative of how we will perform in the future.

 

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

 

 

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

 

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

 

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

 

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

 

Investing in fully-integrated operating companies that have a significant real estate component;

 

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

 

Providing specialty financing to real estate related companies.

 

Competition

 

We compete with a large number of real estate property owners and developers. Principal factors of competition are rent charged, attractiveness of location and quality and breadth of services provided. Our success depends upon, among other factors, trends of the national 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 regulations, legislation and population trends. Economic growth has been fostered, in part, by low interest rates, Federal tax cuts, and increases in government spending. To the extent economic growth stalls, we may experience lower occupancy rates, which may lead to lower initial rental rates, higher leasing costs and a corresponding decrease in our net income, funds from operations and cash flow. Alternatively, if economic growth is sustained, we may experience higher occupancy rates leading to higher initial rents and higher interest rates causing an increase in our weighted average cost of capital and a corresponding effect on our net income, funds from operations and cash flow. Our net income and funds from operations will also be affected by the seasonality of Toys’ business and competition from discount and mass merchandisers.

 

39

 


Overview (continued)

Quarter Ended September 30, 2007 Financial Results Summary  

 

Net income applicable to common shares for the quarter ended September 30, 2007 was $116,546,000, or $0.74 per diluted share, versus $113,632,000, or $0.76 per diluted share, for the quarter ended September 30, 2006. Net income for the quarters ended September 30, 2007 and 2006 includes certain items that affect comparability which are listed in the table on page 42. Net income for the quarters ended September 30, 2007 and 2006 also includes our share of net gains on sales of real estate of $31,922,000 and $10,842,000, respectively. The aggregate of these items, net of minority interest, increased net income applicable to common shares for the quarter ended September 30, 2007 by $50,524,000, or $0.31 per diluted share and increased net income for the quarter ended September 30, 2006 by $52,276,000, or $0.34 per diluted share.

 

Funds from operations applicable to common shares plus assumed conversions (“FFO”) for the quarter ended September 30, 2007 was $221,199,000, or $1.35 per diluted share, compared to $204,535,000, or $1.31 per diluted share, for the prior year’s quarter. FFO for the quarters ended September 30, 2007 and 2006 includes certain items that affect comparability which are listed in the table on page 42. The aggregate of these items, net of minority interest, increased FFO for the quarter ended September 30, 2007 by $21,533,000, or $0.13 per diluted share and increased FFO for the quarter ended September 30, 2006 by $42,162,000, or $0.27 per diluted share.

 

Net income per diluted share and FFO per diluted share for the quarter ended September 30, 2007 were negatively impacted by an 8.4 million increase in weighted average common shares outstanding over the prior year’s quarter.

 

We did not recognize income on certain assets with an aggregate carrying amount of approximately $1.1 billion during the quarter ended September 30, 2007, because they were out of service for redevelopment. Assets under development include all or portions of the Bergen Town Center, 2101 L Street, Crystal Mall Two, Crystal Plaza Two, 1999 K Street, 220 Central Park South, 40 East 66th Street, and investments in joint ventures including our Beverly Connection and Wasserman ventures.

 

The percentage increase (decrease) in the same-store Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) of our operating segments for the quarter ended September 30, 2007 over the quarter ended September 30, 2006 and the trailing quarter ended December 31, 2006 are summarized below.

 

 

Quarter Ended:

 

Office

 

 

 

 

 

Temperature

 

 

New York

 

Washington,
DC

 

Retail

 

Merchandise
Mart

 

Controlled
Logistics

 

September 30, 2007 vs.
September 30, 2006

 

9.4%

 

4.0%

 

4.2%

 

0.0%

 

(1.9)%

 

September 30, 2007 vs.
June 30, 2007

 

0.2%

 

(2.3)%

 

1.0%

 

0.2%

 

(4.0)%

 

 

 

Calculations of same-store EBITDA, reconciliations of net income to EBITDA and FFO and the reasons we consider these 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)

Nine Months Ended September 30, 2007 Financial Results Summary  

 

Net income applicable to common shares for the nine months ended September 30, 2007 was $420,806,000, or $2.65 per diluted share, versus $397,202,000, or $2.66 per diluted share, for the nine months ended September 30, 2006. Net income for the nine months ended September 30, 2007 and 2006 includes certain items that affect comparability which are listed in the table on the following page. Net income for the nine months ended September 30, 2007 and 2006 also includes our share of net gains on sale of real estate of $32,415,000 and $44,611,000, respectively. The aggregate of these items, net of minority interest, increased net income applicable to common shares for the nine months ended September 30, 2007 by $111,857,000, or $0.68 per diluted share and increased net income for the nine months ended September 30, 2006 by $115,322,000, or $0.74 per diluted share.

 

Funds from operations applicable to common shares plus assumed conversions (“FFO”) for the nine months ended September 30, 2007 was $773,457,000, or $4.71 per diluted share, compared to $646,881,000, or $4.17 per diluted share, for the prior year’s nine months. FFO for the nine months ended September 30, 2007 and 2006 include certain items that affect comparability which are listed in the table on the following page. The aggregate of these items, net of minority interest, increased FFO for the nine months ended September 30, 2007 by $82,409,000, or $0.50 per diluted share and increased FFO for the nine months ended September 30, 2006 by $75,988,000, or $0.49 per diluted share.

 

The percentage increase (decrease) in the same-store EBITDA of our operating segments for the nine months ended September 30, 2007 over the nine months ended September 30, 2006 is summarized below.

 

 

Nine Months Ended:

 

Office

 

 

 

 

 

Temperature

 

 

New York

 

Washington,
DC

 

Retail

 

Merchandise
Mart

 

Controlled
Logistics

 

September 30, 2007 vs.
September 30, 2006

 

9.4%

 

5.1%

 

2.6%(1)

 

(2.3)%

 

(4.1)%

 

_____________________

 

(1)

The same store increase would be 4.4% exclusive of the effect of tenants vacating 47,550 square feet of New York City retail space in December 2006, at an average rent of $61.00 per square foot. As of September 30, 2007, 10,600 of this square feet has been re-leased at an initial rent of $204.00 per square foot.

 

41

 


Overview (continued)

 

(Amounts in thousands)

 

For the Three Months
Ended September 30,

 

For the Nine Months
Ended September 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

Items that affect comparability (income)/expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

McDonalds common shares

 

$

(28,190

)

$

(68,796

)

$

(102,803

)

$

(60,581

)

Sears Holdings common shares

 

 

 

 

 

 

 

 

(18,611

)

GMH warrants

 

 

 

 

 

 

 

 

16,370

 

Other

 

 

9,584

 

 

(1,891

)

 

2,743

 

 

(2,767

)

Alexander’s:

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock appreciation rights

 

 

(3,075

)

 

10,797

 

 

(8,991

)

 

18,356

 

Net gain on sale of 731 Lexington Avenue condominiums

 

 

 

 

 

 

 

 

(4,580

)

Other:

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on sale of H Street land parcels

 

 

(4,803

)

 

 

 

(4,803

)

 

 

Prepayment penalties and write-off of unamortized
financing costs

 

 

1,701

 

 

8,548

 

 

7,562

 

 

13,481

 

H Street litigation costs

 

 

 

 

3,033

 

 

1,891

 

 

6,594

 

Costs of acquisition not consummated

 

 

 

 

 

 

8,807

 

 

 

India Property Fund LP – organization costs

 

 

 

 

 

 

1,677

 

 

 

Net gain on sale of Sears Canada common shares

 

 

 

 

 

 

 

 

(55,438

)

Other, net

 

 

1,073

 

 

1,711

 

 

3,204

 

 

3,126

 

 

 

 

(23,710

)

 

(46,598

)

 

(90,713

)

 

(84,050

)

Minority limited partners’ share of above adjustments

 

 

2,177

 

 

4,436

 

 

8,304

 

 

8,062

 

Total items that affect comparability

 

$

(21,533

)

$

(42,162

)

$

(82,409

)

$

(75,988

)

 

 

42

 


Overview (continued)

2007 Acquisitions, Dispositions and Significant Investments

Acquisitions:

100 West 33rd Street, New York City (the “Manhattan Mall”)

 

On January 10, 2007, we acquired the Manhattan Mall for approximately $689,000,000 in cash. This mixed-use property is located on the entire Sixth Avenue block-front between 32nd and 33rd Streets in Manhattan and contains approximately 1,000,000 square feet, including 812,000 square feet of office space and 164,000 square feet of retail space. Included as part of the acquisition were 250,000 square feet of additional air rights. The property is adjacent to our Hotel Pennsylvania. At closing, we completed a $232,000,000 financing secured by the property, which bears interest at LIBOR plus 0.55% (5.67% at September 30, 2007) and matures in two years with three one-year extension options. The operations of the office component of the property are included in the New York Office segment and the operations of the retail component are included in the Retail segment. We consolidate the accounts of this property into our consolidated financial statements from the date of acquisition.

 

Bruckner Plaza, Bronx, New York

 

On January 11, 2007, we acquired the Bruckner Plaza shopping center, containing 386,000 square feet, for approximately $165,000,000 in cash. Also included as part of the acquisition was an adjacent parcel which is ground leased to a third party. The property is located on Bruckner Boulevard in the Bronx, New York. We consolidate the accounts of this property into our consolidated financial statements from the date of acquisition.

 

1290 Avenue of the Americas and 555 California Street

 

On May 24, 2007, we acquired a 70% controlling interest in 1290 Avenue of the Americas, a 2,000,000 square foot Manhattan office building, located on the block-front between 51st and 52nd Street on Avenue of the Americas, and the 3-building 555 California Street complex (“555 California Street”) containing 1,800,000 square feet, known as the Bank of America Center, located at California and Montgomery Streets in San Francisco’s financial district. The purchase price for our 70% interest in the real estate was approximately $1.8 billion, consisting of $1.0 billion of cash and $797,000,000 of existing debt. Our share of the debt is comprised of $308,000,000 secured by 1290 Avenue of the Americas and $489,000,000 secured by 555 California Street. Our 70% interest was acquired through the purchase of all of the shares of a group of foreign companies that own, through U.S. entities, the 1% sole general partnership interest and a 69% limited partnership interest in the partnerships that own the two properties. The remaining 30% limited partnership interest is owned by Donald J. Trump. We consolidate the accounts of these properties into our consolidated financial statements from the date of acquisition.

 

In August 2005, Mr. Trump brought a lawsuit in the New York State Supreme Court against, among others, the general partners of the partnerships referred to above.   Mr. Trump’s claims arose out of a dispute over the sale price of, and use of proceeds from, the sale of properties located on the former Penn Central rail yards between West 59th and 72nd Streets in Manhattan which were formerly owned by the partnerships. In decisions dated September 14, 2005 and July 24, 2006, the Court denied various of Mr. Trump’s motions and ultimately dismissed all of Mr. Trump’s claims, except for his claim seeking access to books and records.  In a decision dated October 1, 2007, the Court determined that Mr. Trump already received access to the books and records to which he was entitled, with the exception of certain documents which the general partners have requested from third parties but have not yet been received. Mr. Trump has sought re-argument and renewal on, and filed a notice of appeal in connection with, his dismissed claims.  

 

In connection with the acquisition, we agreed to indemnify the sellers for liabilities and expenses arising out of Mr. Trump’s claim that the general partners of the partnerships we acquired did not sell the rail yards at a fair price or could have sold the rail yards for a greater price and any other claims asserted in the legal action; provided however, that if Mr. Trump prevails on certain claims involving partnership matters, other than claims relating to sale price, the sellers will be required to reimburse us for certain costs related to those claims. We believe that the claims relating to the sale price are without merit. All other allegations are not asserted as a basis for damages and regardless of merit would not be material to our consolidated financial statements.

 

 

 

43

 


Overview (continued)

1290 Avenue of the Americas and 555 California Street - continued

 

The following summarizes our allocation of the purchase price to the assets and liabilities acquired.

 

 

(Amounts in thousands)

 

 

 

 

Land

 

$

652,144

 

Building

 

 

1,219,968

 

Acquired above-market leases

 

 

33,205

 

Other assets

 

 

223,083

 

Acquired in-place leases

 

 

173,922

 

Assets acquired

 

 

2,302,322

 

Mortgage debt

 

 

812,380

 

Acquired below-market leases

 

 

223,764

 

Other liabilities

 

 

40,784

 

Liabilities acquired

 

 

1,076,928

 

Net assets acquired ($1.0 billion excluding
net working capital acquired and closing costs)

 

$

1,225,394

 

 

 

Our initial valuation of the assets and liabilities acquired (70% interest) is preliminary and subject to change within the one-year period from the date of closing as additional valuation information becomes available.

 

The following table presents our pro forma condensed consolidated statements of income for the three and nine months ended September 30, 2006 and the nine months ended September 30, 2007, as if the above transaction occurred on January 1, 2006. The unaudited pro forma information is not necessarily indicative of what our actual results would have been had the transaction been consummated on January 1, 2006, nor does it represent the results of operations for any future periods. In our opinion all adjustments necessary to reflect this transaction have been made.

 

 

 

Actual

          

Pro forma

 

Condensed Consolidated
Statements of Income

 

For the Three
Months Ended

 

For the Three
Months Ended

   

For the Nine Months
Ended September 30,

 

(Amounts in thousands, except per share amounts)

 

September 30, 2007

 

September 30, 2006

 

2007

          

2006

 

Revenues

 

$

853,036

 

$

741,511

 

$

2,480,783

 

$

2,174,124

 

Income before allocation to limited partners

 

$

145,900

 

$

136,838

 

$

478,788

 

$

468,708

 

Minority limited partners’ interest in
the Operating Partnership

 

 

(10,241

)

 

(12,046

)

 

(39,802

)

 

(42,697

)

Perpetual preferred unit distributions of
the Operating Partnership

 

 

(4,818

)

 

(6,683

)

 

(14,455

)

 

(17,030

)

Net income

 

 

130,841

 

 

118,109

 

 

424,531

 

 

408,981

 

Preferred share dividends

 

 

(14,295

)

 

(14,351

)

 

(42,886

)

 

(43,162

)

Net income applicable to common shares

 

$

116,546

 

$

103,758

 

$

381,645

 

$

365,819

 

Net income per common share – basic

 

$

0.77

 

$

0.73

 

$

2.52

 

$

2.59

 

Net income per common share - diluted

 

$

0.74

 

$

0.69

 

$

2.41

 

$

2.45

 

 

 

44

 


Overview (continued)

H Street Building Corporation (“H Street”)

 

In July 2005, we acquired H Street, which owns a 50% interest in real estate assets located in Pentagon City, Virginia and Washington, DC. On April 30, 2007, we acquired the corporations that own the remaining 50% interest in these assets for approximately $383,000,000, consisting of $333,000,000 in cash and $50,000,000 of existing mortgages. These assets include twin office buildings located in Washington, DC, containing 577,000 square feet, and assets located in Pentagon City, Virginia comprised of 34 acres of land leased to three residential and retail operators, a 1,670 unit high-rise apartment complex and 10 acres of vacant land. In conjunction with this acquisition all existing litigation has been dismissed. Beginning on April 30, 2007, we consolidate the accounts of these entities into our consolidated financial statements and no longer account for them on the equity method.

 

Further, we agreed to sell approximately 19.6 of the 34 acres of land to one of the existing ground lessees in two closings over a two-year period for approximately $220,000,000. On May 11, 2007, we closed on the sale of 11 of the 19.6 acres for $104,000,000 and received $5,000,000 in cash and a $99,000,000 note due December 31, 2007. On September 28, 2007, the buyer pre-paid the note in cash and we recognized the net gain on sale of $4,803,000. The balance of the net gain of $11,028,000, representing deferred taxes will be reversed and recognized as income in the first quarter of 2008 when H Street and its affiliates elect to be taxed as REITs. In April 2007, we received letters from the two remaining ground lessees claiming a right of first offer on the sale of the land, one of which has since retracted its letter and reserved its rights under the lease.

 

Our total purchase price for 100% of the assets we will own, after the anticipated proceeds from the land sales, is $409,000,000, consisting of $286,000,000 in cash and $123,000,000 of existing mortgages.

 

Toys “R” Us Stores

 

On May 31, 2007, we acquired four properties from Toys “R” Us (“Toys”) for $12,242,000 in cash, which completed our September 2006 agreement to acquire 43 stores that were closed as part of Toys’ January 2006 store closing program. We consolidate the accounts of these properties into our consolidated financial statements from the date of acquisition. Our $1,045,000 share of Toys net gain on this transaction was recorded as an adjustment to the basis of our investment in Toys and was not recorded as income.

 

India Property Fund LP

 

In 2005 and 2006, we invested $94,200,000 in two joint ventures established to acquire, manage and develop real estate in India. On June 14, 2007, we committed to contribute $95,000,000 to a third venture, the India Property Fund, LP (the “Fund”), also established to acquire, manage and develop real estate in India. We satisfied $77,000,000 of our commitment by contributing our interest in one of the above mentioned joint ventures to the Fund. The Fund will seek to raise additional equity. As of September 30, 2007, we own 95% of the Fund and therefore consolidate the accounts of the Fund into our consolidated financial statements, pursuant to the requirements of FIN 46 (R) - Consolidation of Variable Interest Entities.  

 

Shopping Center Portfolio Acquisition

 

On June 26, 2007, we entered into an agreement to acquire a 15 shopping center portfolio aggregating approximately 1.9 million square feet. The properties are located primarily in Northern New Jersey and Long Island, New York. The purchase price is approximately $351,000,000, consisting of approximately $120,000,000 of cash, $89,000,000 of newly issued Vornado Realty L.P. redeemable preferred and common units and $142,000,000 of existing debt. On June 28, 2007, we completed the acquisition of five of the shopping centers for $116,561,000, consisting of $94,179,000 in cash, $15,993,000 in Vornado Realty L.P. preferred units and $6,389,000 of Vornado Realty L.P. common units. We consolidate the accounts of these properties into our consolidated financial statements from the date of acquisition. The closing of the remaining shopping centers is expected to occur in two additional tranches and be completed by the end of 2007, subject to customary closing conditions.

 

 

45

 


Overview (continued)

Dispositions:

Vineland, New Jersey Shopping Center Property

 

On July 16, 2007, we sold our Vineland, New Jersey shopping center property for $2,774,000 in cash, which resulted in a net gain of $1,708,000.

 

BNA Complex

 

On August 9, 2007, we completed our previously announced sale of Crystal Mall Two, a 277,000 square foot office building located at 1801 South Bell Street in Crystal City, to The Bureau of National Affairs, Inc. (“BNA”), and simultaneously completed the acquisition of a three building complex from BNA. The three buildings acquired contain approximately 300,000 square feet and are located in Washington’s West End between Georgetown and the Central Business District. Vornado received sales proceeds of approximately $103,600,000 from BNA and recognized a net gain of $19,893,000. All of the proceeds from the sale were reinvested in a tax-free “like-kind” exchange in accordance with Section 1031 of the Internal Revenue Code (“Section 1031”). Vornado paid BNA $111,000,000 for the three buildings acquired. We consolidate the accounts of these properties into our consolidated financial statements from the date of acquisition.

 

Arlington Plaza

 

On October 17, 2007, we sold Arlington Plaza, a 188,000 square foot office building located in Arlington, Virginia for $71,500,000, resulting in a gain of $33,900,000 which will be recognized in the fourth quarter of 2007.

 

 

2007 Mezzanine Loan Activity:

 

Blackstone/Equity Office Properties Loan

 

On March 29, 2007, we acquired a 9.4% interest in a $772,600,000 mezzanine loan for $72,400,000 in cash. During April and May of 2007, we were repaid the $72,400,000 outstanding balance of the loan.

 

Fortress Loan

 

In 2006, we acquired bonds for $99,500,000 in cash, representing a 7% interest in two margin loans aggregating $1.430 billion. On March 30, 2007, we were repaid $35,348,000. On July 10, 2007 and October 2, 2007, we were repaid an additional $13,221,000 and $13,290,000, respectively. The remaining balance of $37,641,000, is due in December 2007.

 

MPH Mezzanine Loans

 

On June 5, 2007, we acquired a 42% interest in two mezzanine loans totaling $158,700,000, for $66,403,000 in cash. The loans bear interest at LIBOR plus 5.32% (10.44% at September 30, 2007) and mature in February 2008. The loans are subordinate to $2.9 billion of other debt and are secured by the equity interests in four New York City properties: Worldwide Plaza, 1540 Broadway office condominium, 527 Madison Avenue and Tower 56.

 

Manhattan House Loan

 

On October 12, 2007, we were repaid the $42,000,000 outstanding balance of the Manhattan House mezzanine loan.

 

46

 


Overview (continued)

 

Other Investments:

 

The Lexington Master Limited Partnership (“Lexington MLP”)

 

On December 31, 2006, Newkirk Realty Trust (NYSE: NKT) was acquired in a merger by Lexington Corporate Properties Trust (“Lexington”) (NYSE: LXP), a real estate investment trust. We owned 10,186,991 limited partnership units (representing a 15.8% investment ownership interest) of Newkirk MLP, which was also acquired by Lexington as a subsidiary, and was renamed Lexington MLP. The units in Newkirk MLP, which we accounted for on the equity method, were converted on a 0.80 for 1 basis into limited partnership units of Lexington MLP, which we also account for on the equity method. The Lexington MLP units are exchangeable on a one-for-one basis into common shares of Lexington. We record our pro rata share of Lexington MLP’s net income or loss on a one-quarter lag basis because we file our consolidated financial statements on Form 10-K and 10-Q prior to the time that Lexington files its financial statements.

 

As of September 30, 2007, we own 8,149,593 limited partnership units of Lexington MLP, or a 7.3% ownership interest. We record our pro rata share of Lexington MLP’s net income or loss on a one-quarter lag basis because we file our consolidated financial statements on Form 10-K and 10-Q prior to the time that Lexington files its financial statements. Accordingly, our “equity in net income or loss from partially owned entities” for the three months ended September 30, 2007 includes our share of Lexington MLP’s net income for its three months ended June 30, 2007.

 

As of September 30, 2007, the market value of our investment in Lexington MLP based on Lexington’s September 28, 2007 closing share price of $20.01, was $163,073,000, or $17,238,000 below the carrying amount on our consolidated balance sheet. We have concluded that as of September 30, 2007, the decline in the value of our investment is not “other-than-temporary.”

 

GMH Communities L.P. (“GMH”)

 

As of September 30, 2007, we own 7,337,857 limited partnership units (which are exchangeable on a one-for-one basis into common shares of GMH Communities Trust (“GCT”) (NYSE: GCT), a real estate investment trust that conducts its business through GMH and of which it is the sole general partner) and 2,517,247 common shares of GCT, or 13.5% of the limited partnership interest of GMH. We account for our investment in GMH on the equity method and record our pro rata share of GMH’s net income or loss on a one-quarter lag basis as we file our consolidated financial statements on Form 10-K and 10-Q prior to the time that GCT files its financial statements. Accordingly, our “equity in net income or loss from partially owned entities” for the three months ended September 30, 2007 includes our share of GMH’s net income for its three months ended June 30, 2007.

 

As of September 30, 2007, the market value of our investment in GMH and GCT based on GCT’s September 28, 2007 closing share price of $7.75, was $76,377,000, or $27,473,000 below the carrying amount on our consolidated balance sheet. We have concluded that as of September 30, 2007, the decline in the value of our investment is not “other-than-temporary.”

 

Downtown Crossing Joint Venture

 

On January 26, 2007, a joint venture in which we have a 50% interest acquired the Filene’s property located in the Downtown Crossing district of Boston, Massachusetts for approximately $100,000,000 in cash, of which our share was $50,000,000. The venture plans to redevelop the property to include over 1,200,000 square feet, consisting of office, retail, condominium apartments and a hotel. The project is subject to governmental approvals. Our investment in the joint venture is accounted for under the equity method.

 

47

 


Overview (continued)

 

Other Investments: (continued)

 

Investment in McDonald’s Corporation (“McDonalds”) (NYSE: MCD)

 

As of September 30, 2007, we owned 858,000 common shares of McDonalds. These shares are recorded as marketable equity securities on our consolidated balance sheets and are classified as “available for sale.” Appreciation or depreciation in the fair market value of these shares is recorded as an increase or decrease in “accumulated other comprehensive income” in the shareholders’ equity section of our consolidated balance sheets and not recognized in income. At September 30, 2007, based on McDonalds’ September 28, 2007 closing stock price of $54.47 per share, $21,388,000 of appreciation in the value of these shares was included in “accumulated other comprehensive income” on our consolidated balance sheet. During October 2007, we sold all of the McDonalds common shares at a weighted average price of $56.45 per share, resulting in a net gain of $23,090,000 which will be recognized in the fourth quarter of 2007.

 

In addition to the above, at July 1, 2007, we owned 13,695,500 McDonalds common shares (“option shares”) through a series of privately negotiated transactions with a financial institution pursuant to which we purchased a call option and simultaneously sold a put option at the same strike price on McDonalds’ common shares. The option shares had a weighted-average strike price of $32.70 per share, or an aggregate of $447,822,000, expired on various dates between July 30, 2007 and September 10, 2007 and provided for net cash settlement. During the three months ended September 30, 2007, we settled 10,118,800 option shares and received $234,242,000 in cash. At September 30, 2007, there were 3,576,700 option shares remaining in the derivative position at a price of $54.47 per share. During the three months ended September 30, 2007, we recognized a net gain of $28,190,000 as a result of the above transactions. The aggregate net gain recognized for the nine months ended September 30, 2007 was $102,803,000. During the three and nine months ended September 30, 2006, we recognized net gains of $68,796,000 and $60,581,000, respectively.

 

In October 2007, we settled all of the remaining option shares at a weighted average price of $56.24 per share, resulting in a net gain of $6,018,000 which will be recognized in the fourth quarter of 2007.

 

The aggregate net gain realized from inception of our investments in McDonalds in 2005 through final settlement in October 2007 was $289,414,000.

 

 

48

 


Overview (continued)

 

2007 Financings:

 

On January 26, 2007, we completed a $678,000,000 financing of our Skyline Complex in Fairfax Virginia, consisting of eight office buildings containing 2,560,000 square feet. This loan bears interest only at 5.74% and matures in February 2017. We retained net proceeds of approximately $515,000,000 after repaying existing loans and closing costs, including $5,771,000 for prepayment penalties and defeasance costs which is included in “interest and debt expense” in the nine months ended September 30, 2007.

 

On March 1, 2007, we repaid the $19,394,000 balance of the 1999 K Street mortgage loan.

 

On March 30, 2007, we repaid the $47,011,000 balance of the Crystal Park 2 mortgage loan.

 

On May 11, 2007, we redeemed our $500,000,000 5.625% senior unsecured notes at the face amount plus accrued interest.

 

On May 14, 2007, we completed a $45,000,000 financing of our 866 UN Plaza property. The loan bears interest at LIBOR plus 0.40% and matures in May 2009. The net proceeds were used to repay the existing loan and closing costs.

 

On July 3, 2007, we repaid $21,030,000 of the $46,837,000 outstanding balance of the mortgage loan which was secured by the Garfield, Edison and East Brunswick industrial warehouses. We incurred $1,701,000 of prepayment penalties and defeasance costs which is included in interest and debt expense in the quarter ended September 30, 2007.

 

On September 28, 2007, the Operating Partnership entered into a new $1.510 billion unsecured revolving credit facility, which was increased by $85,000,000 on October 12, 2007 and can be increased up to $2.0 billion during the initial term. The new facility has a three-year term with two one-year extension options, bears interest at LIBOR plus 55 basis points (5.67% at September 30, 2007), based on our current credit ratings and requires the payment of an annual facility fee of 15 basis points. Together with the existing $1.0 billion credit facility we have an aggregate of $2.595 billion of unsecured revolving credit. Vornado is the guarantor of the Operating Partnership’s obligations under both revolving credit agreements. The existing $1.0 billion credit facility’s financial covenants have been modified to conform to the financial covenants under the new agreement. Significant modifications include (i) changing the definition of Capitalization Value to exclude corporate unallocated general and administrative expenses and to reduce the capitalization rate to 6.5% from 7.5%, and (ii) changing the definition of Total Outstanding Indebtedness to exclude indebtedness of unconsolidated joint ventures. Under the new agreement, “Equity Value” may not be less than Three Billion Dollars; “Total Outstanding Indebtedness” may not exceed sixty percent (60%) of “Capitalization Value;” the ratio of “Combined EBITDA” to “Fixed Charges,” each measured as of the most recently ended calendar quarter, may not be less than 1.40 to 1.00; the ratio of “Unencumbered Combined EBITDA” to “Unsecured Interest Expense,” each measured as of the most recently ended calendar quarter, may not be less than 1.50 to 1.00; at any time, “Unsecured Indebtedness” may not exceed sixty percent (60%) of “Capitalization Value of Unencumbered Assets;” and the ratio of “Secured Indebtedness” to “Capitalization Value,” each measured as of the most recently ended calendar quarter, may not exceed fifty percent (50%). The new agreement also contains standard representations and warranties and other covenants. The terms in quotations in this paragraph are all defined in the new agreement, which was filed as an exhibit to our Current Report on Form 8-K dated September 28, 2007, filed on October 4, 2007.

 

On October 11, 2007, we repaid the $51,678,000 balance of the Crystal Gateway N. and Arlington Plaza mortgage loan.

 

 

49

 


Overview (continued)

 

2007 Financings: (continued)

 

2.85% Convertible Senior Debentures due 2027

 

On March 21, 2007, Vornado Realty Trust sold $1.4 billion aggregate principal amount of 2.85% convertible senior debentures due 2027, pursuant to an effective registration statement. The aggregate net proceeds from this offering, after underwriters’ discounts and expenses, were approximately $1.37 billion. The debentures are redeemable at our option beginning in 2012 for the principal amount plus accrued and unpaid interest. Holders of the debentures have the right to require us to repurchase their debentures in 2012, 2017, and 2022 and in certain other limited circumstances. The debentures are convertible, under certain circumstances, for cash and Vornado common shares at an initial conversion rate of 6.1553 common shares per $1,000 of principal amount of debentures. The initial conversion price is $162.46, which represents a premium of 30% over the March 21, 2007 closing price of $124.97 for our common shares. The principal amount of debentures will be settled for cash and the amount in excess of the principal defined as the conversion value will be settled in cash or, at our election, Vornado common shares.

 

We are amortizing the underwriters’ discount on a straight-line basis (which approximates the interest method) over the period from the date of issuance to the date of earliest redemption of April 1, 2012. Because the conversion option associated with the debentures, when analyzed as a freestanding instrument, meets the criteria to be classified as equity specified by paragraphs 12 to 32 of EITF 00-19 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s own Common Stock,” separate accounting for the conversion option under SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” is not appropriate.

 

The net proceeds of the offering were contributed to the Operating Partnership in the form of an inter-company loan and the Operating Partnership guaranteed the payment of the debentures. The Operating Partnership used the net proceeds primarily for acquisitions and investments and for general corporate purposes.

 

On August 31, 2007, the FASB issued a proposed FASB Staff Position (the “proposed FSP”) that affects the accounting for our convertible and exchangeable senior debentures and Series D-13 convertible preferred units. The proposed FSP requires the initial proceeds from the sale of our convertible and exchangeable senior debentures and Series D-13 convertible preferred units to be allocated between a liability component and an equity component. The resulting discount must be amortized using the effective interest method over the period the debt is expected to remain outstanding as additional interest expense. The proposed FSP, if adopted, would be effective for fiscal years beginning after December 15, 2007 and would require retroactive application. The adoption of the proposed FSP on January 1, 2008 would result in the recognition of an aggregate unamortized debt discount of $190,697,000 (as of September 30, 2007) on our consolidated balance sheet and additional interest expense on our consolidated statements of income. Our current estimate of the incremental interest expense, net of minority interest, for each reporting period is as follows:

 

(Amounts in thousands)

 

 

 

 

For the year ended December 31:

 

 

 

 

2005

 

$

3,405

 

2006

 

$

6,065

 

2007

 

$

28,590

 

2008

 

$

35,721

 

2009

 

$

37,856

 

2010

 

$

40,114

 

2011

 

$

41,112

 

2012

 

$

8,192

 

For the three months ended:

 

 

 

 

March 31, 2007

 

$

3,127

 

June 30, 2007

 

$

8,344

 

September 30, 2007

 

$

8,487

 

 

 

 

 

 

 

 

50

 


Overview (continued)

The following table sets forth certain information for the properties we own directly or indirectly, including leasing activity. Tenant improvements and leasing commissions are presented below based on square feet leased during the period and on a per annum basis based on the weighted average term of the leases.

 

(Square feet and cubic feet in thousands)

 

Office

 

 

 

Merchandise Mart

 

Temperature

As of September 30, 2007:

 

New
York

 

Washington,
DC

 

Retail

     

Office

 

Showroom

     

Controlled
Logistics

Square feet/ cubic feet

 

 

15,979

 

 

17,587

 

 

21,071

 

 

2,763

 

 

6,320

 

18,940/

497,700

Number of properties

 

 

28

 

 

83

 

 

173

 

 

9

 

 

9

 

           

          91

Occupancy rate

 

 

97.7%

 

 

93.5%

 

 

93.9%

 

 

95.5%

 

 

91.6%

 

 

      77.0%

Leasing Activity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended September 30, 2007:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Square feet

 

 

454

 

 

384

 

 

160

 

 

20

 

 

310

 

 

 

Initial rent (1)

 

$

78.25

 

$

35.29

 

$

30.22

 

$

23.12

 

$

28.68

 

 

 

Weighted average lease terms (years)

 

 

10.9

 

 

4.7

 

 

7.7

 

 

10.8

 

 

5.2

 

 

 

Rent per square foot – relet space:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Square feet

 

 

440

 

 

339

 

 

76

 

 

18

 

 

275

 

 

 

Initial Rent (1)

 

$

78.55

 

$

35.69

 

$

33.04

 

$

23.50

 

$

29.31

 

 

 

Prior escalated rent

 

$

44.90

 

$

31.97

 

$

23.95

 

$

18.00

 

$

29.20

 

 

 

Percentage increase:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash basis

 

 

74.9%

(2)

 

11.6%

 

 

38.0%

(2)

 

30.6%

 

 

0.4%

 

 

 

GAAP basis

 

 

71.1%

(2)

 

15.6%

 

 

24.3%

(2)

 

59.6%

 

 

10.6%

 

 

 

Rent per square foot – vacant space:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Square feet

 

 

14

 

 

45

 

 

84

 

 

2

 

 

36

 

 

 

Initial rent (1)

 

$

68.82

 

$

32.26

 

$

27.65

 

$

19.50

 

$

23.57

 

 

 

Tenant improvements and leasing
commissions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per square foot

 

$

56.33

 

$

14.93

 

$

5.40

 

$

50.75

 

$

10.04

 

 

 

Per square foot per annum

 

$

5.18

 

$

3.18

 

$

0.70

 

$

4.70

 

$

1.93

 

 

 

Percentage of initial rent

 

 

6.6%

 

 

9.0%

 

 

2.3%

 

 

20.3%

 

 

6.7%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2007:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Square feet

 

 

901

 

 

1,806

 

 

622

 

 

164

 

 

901

 

 

 

Initial rent (1)

 

$

72.63

 

$

35.55

 

$

33.79

 

$

23.69

 

$

26.63

 

 

 

Weighted average lease terms (years)

 

 

9.0

 

 

5.9

 

 

8.6

 

 

12.6

 

 

4.9

 

 

 

Rent per square foot – relet space:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Square feet

 

 

830

 

 

1,397

 

 

266

 

 

162

 

 

856

 

 

 

Initial Rent (1)

 

$

74.05

 

$

34.17

 

$

42.83

 

$

23.74

 

$

26.77

 

 

 

Prior escalated rent

 

$

45.81

 

$

32.44

 

$

26.97

 

$

24.98

 

$

26.44

 

 

 

Percentage increase (decrease):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash basis

 

 

61.7%

 

 

5.3%

 

 

58.8%

(2)

 

(5.0%

)

 

1.2%

 

 

 

GAAP basis

 

 

67.2%

 

 

6.8%

 

 

42.3%

(2)

 

23.5%

 

 

12.2%

 

 

 

Rent per square foot – vacant space:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Square feet

 

 

71

 

 

409

 

 

356

 

 

2

 

 

45

 

 

 

Initial rent (1)

 

$

55.91

 

$

40.26

 

$

26.90

 

$

19.50

 

$

24.04

 

 

 

Tenant improvements and leasing
commissions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per square foot

 

$

48.69

 

$

14.93

 

$

10.40

 

$

64.10

 

$

8.63

 

 

 

Per square foot per annum

 

$

5.41

 

$

2.53

 

$

1.21

 

$

5.09

 

$

1.76

 

 

 

Percentage of initial rent

 

 

7.4%

 

 

7.1%

 

 

3.6%

 

 

21.5%

 

 

6.6%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail space contained in office buildings
of the New York Office segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Square feet/cubic feet

 

 

9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Initial Rent

 

$

103.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage increase over prior
escalated rent for relet space

 

 

110.6%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The information above does not include 555 California Street, in which we acquired a 70% interest on May 24, 2007, because its operations are included in the “Other” for segment reporting purposes. 555 California Street, located in San Francisco’s financial district, aggregates 1.8 million square feet and is 96.3% occupied as of September 30, 2007.

 

_________________________

See notes on following page.

 

51

 


Overview (continued)

 

(Square feet and cubic feet in thousands)

 

Office

 

 

 

Merchandise Mart

 

Temperature

 

 

New York

 

Washington,
DC

 

Retail

          

Office

 

Showroom

 

Controlled
Logistics

As of June 30, 2007:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Square feet/ cubic feet

 

 

15,962

 

 

17,900

 

 

21,053

 

 

2,756

 

 

6,330

 

18,940/

497,700

Number of properties

 

 

28

 

 

84

 

 

175

 

 

9

 

 

9

 

91

 

Occupancy rate

 

 

97.8%

 

 

93.2%

 

 

93.4%

 

 

96.3%

 

 

91.3%

 

70.4%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2006:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Square feet/ cubic feet

 

 

13,692

 

 

17,017

 

 

19,264

 

 

2,714

 

 

6,370

 

18,940

/497,700

Number of properties

 

 

25

 

 

81

 

 

158

 

 

9

 

 

9

 

91

 

Occupancy rate

 

 

97.5%

 

 

92.2%

 

 

92.7%

 

 

97.4%

 

 

93.6%

 

77.4%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2006:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Square feet/ cubic feet

 

 

13,138

 

 

18,006

 

 

17,790

 

 

2,720

 

 

6,357

 

17,595

/445,400

Number of properties

 

 

24

 

 

91

 

 

122

 

 

9

 

 

9

 

86

 

Occupancy rate

 

 

97.4%

 

 

91.2%

 

 

95.3%

 

 

97.1%

 

 

93.5%

 

78.3%

 

 

_______________________________

(1)

Most leases include periodic step-ups in rent, which are not reflected in the initial rent per square foot leased.

(2)

Because generally accepted accounting principles require tenant leases to be marked to fair value when they are acquired, the cash basis increase is greater than the GAAP basis rent increase when the acquired space is relet.

 

 

52

 


Reconciliation of Net Income and EBITDA – Three Months Ended September 30, 2007 and 2006

Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the three months ended September 30, 2007 and 2006.

 

(Amounts in thousands)

 

For the Three Months Ended September 30, 2007

 

 

 

 

 

Office

 

 

 

 

 

Temperature

 

 

 

 

 

 

 

Total

 

New
York

 

Washington,
DC

 

Retail

 

Merchandise
Mart

 

Controlled
Logistics

 

Toys

 

Other (2)

 

Property rentals

 

$

481,964

 

$

173,180

 

$

120,299

 

$

83,184

 

$

57,176

 

$

 

$

 

$

48,125

 

Straight-line rents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual rent increases

 

 

10,565

 

 

3,124

 

 

3,376

 

 

2,986

 

 

1,023

 

 

 

 

 

 

56

 

Amortization of free rent

 

 

5,797

 

 

1,562

 

 

3,353

 

 

44

 

 

91

 

 

 

 

 

 

747

 

Amortization of acquired below-
market leases, net

 

 

24,488

 

 

15,216

 

 

1,055

 

 

6,272

 

 

10

 

 

 

 

 

 

1,935

 

Total rentals

 

 

522,814

 

 

193,082

 

 

128,083

 

 

92,486

 

 

58,300

 

 

 

 

 

 

50,863

 

Temperature Controlled Logistics

 

 

212,715

 

 

 

 

 

 

 

 

 

 

212,715

 

 

 

 

 

Tenant expense reimbursements

 

 

89,482

 

 

35,701

 

 

11,843

 

 

30,338

 

 

7,043

 

 

 

 

 

 

4,557

 

Fee and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant cleaning fees

 

 

13,028

 

 

15,672

 

 

 

 

 

 

 

 

 

 

 

 

(2,644

)

Management and leasing fees

 

 

2,891

 

 

1,494

 

 

2,178

 

 

310

 

 

8

 

 

 

 

 

 

(1,099

)

Lease termination fees

 

 

1,575

 

 

1,326

 

 

 

 

51

 

 

198

 

 

 

 

 

 

 

Other

 

 

10,531

 

 

4,058

 

 

4,079

 

 

515

 

 

2,026

 

 

 

 

 

 

(147

)

Total revenues

 

 

853,036

 

 

251,333

 

 

146,183

 

 

123,700

 

 

67,575

 

 

212,715

 

 

 

 

51,530

 

Operating expenses

 

 

431,339

 

 

106,616

 

 

50,501

 

 

43,656

 

 

35,240

 

 

171,214

 

 

 

 

24,112

 

Depreciation and amortization

 

 

140,377

 

 

41,346

 

 

30,804

 

 

19,634

 

 

12,715

 

 

20,495

 

 

 

 

15,383

 

General and administrative

 

 

58,366

 

 

5,330

 

 

6,193

 

 

6,739

 

 

7,497

 

 

10,474

 

 

 

 

22,133

 

Total expenses

 

 

630,082

 

 

153,292

 

 

87,498

 

 

70,029

 

 

55,452

 

 

202,183

 

 

 

 

61,628

 

Operating income (loss)

 

 

222,954

 

 

98,041

 

 

58,685

 

 

53,671

 

 

12,123

 

 

10,532

 

 

 

 

(10,098

)

Income applicable to Alexander’s

 

 

12,111

 

 

189

 

 

 

 

187

 

 

 

 

 

 

 

 

11,735

 

Loss applicable to Toys “R” Us

 

 

(20,289

)

 

 

 

 

 

 

 

 

 

 

 

(20,289

)

 

 

Income from partially owned entities

 

 

13,901

 

 

1,290

 

 

743

 

 

3,972

 

 

(50

)

 

340

 

 

 

 

7,606

 

Interest and other investment income

 

 

56,906

 

 

668

 

 

3,558

 

 

195

 

 

104

 

 

325

 

 

 

 

52,056

 

Interest and debt expense

 

 

(165,889

)

 

(36,186

)

 

(31,289

)

 

(19,423

)

 

(13,174

)

 

(16,167

)

 

 

 

(49,650

)

Net gain on disposition of wholly
owned and partially owned
assets other than depreciable
real estate

 

 

1,012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,012

 

Minority interest of partially owned
entities

 

 

3,587

 

 

(1,613

)

 

 

 

54

 

 

 

 

3,869

 

 

 

 

1,277

 

Income (loss) before income taxes

 

 

124,293

 

 

62,389

 

 

31,697

 

 

38,656

 

 

(997

)

 

(1,101

)

 

(20,289

)

 

13,938

 

Provision for income taxes

 

 

(3,048

)

 

 

 

(2,330

)

 

(3

)

 

(172

)

 

(242

)

 

 

 

(301

)

Income (loss) from
continuing operations

 

 

121,245

 

 

62,389

 

 

29,367

 

 

38,653

 

 

(1,169

)

 

(1,343

)

 

(20,289

)

 

13,637

 

Income (loss) from discontinued
operations, net

 

 

24,655

 

 

 

 

24,324

 

 

3,078

 

 

 

 

 

 

 

 

(2,747

)

Income (loss) before allocation to
minority limited partners

 

 

145,900

 

 

62,389

 

 

53,691

 

 

41,731

 

 

(1,169

)

 

(1,343

)

 

(20,289

)

 

10,890

 

Minority limited partners’ interest
in the Operating Partnership

 

 

(10,241

)

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,241

)

Perpetual preferred unit
distributions of the
Operating Partnership

 

 

(4,818

)

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,818

)

Net income (loss)

 

 

130,841

 

 

62,389

 

 

53,691

 

 

41,731

 

 

(1,169

)

 

(1,343

)

 

(20,289

)

 

(4,169

)

Interest and debt expense (1)

 

 

207,934

 

 

34,853

 

 

31,999

 

 

21,947

 

 

13,388

 

 

7,693

 

 

40,875

 

 

57,179

 

Depreciation and amortization (1)

 

 

171,106

 

 

39,543

 

 

32,869

 

 

20,617

 

 

12,865

 

 

9,780

 

 

34,495

 

 

20,937

 

Income tax (benefit) expense (1)

 

 

(13,094

)

 

952

 

 

2,334

 

 

3

 

 

172

 

 

115

 

 

(18,213

)

 

1,543

 

EBITDA

 

$

496,787

 

$

137,737

 

$

120,893

 

$

84,298

 

$

25,256

 

$

16,245

 

$

36,868

 

$

75,490

 

 

EBITDA includes net gains on sale of real estate of $36,725, of which $24,696 is included in the Washington, DC office segment, $3,049 is included in the Retail segment and $8,980 is included in the Other segment. In addition, Other segment EBITDA includes a $18,606 net gain on mark-to-market of derivative instruments and a $1,012 net gain on sale of marketable equity securities.

___________________

See notes on page 55.

 

53

 


Reconciliation of Net Income and EBITDA – Three Months Ended September 30, 2007 and 2006 (continued)

 

(Amounts in thousands)

 

For the Three Months Ended September 30, 2006

 

 

 

 

 

Office

 

 

 

 

 

Temperature

 

 

 

 

 

 

 

Total

 

New
York

 

Washington,
DC

 

Retail

 

Merchandise
Mart

 

Controlled
Logistics

 

Toys

 

Other (2)

 

Property rentals

 

$

364,421

 

$

122,743

 

$

97,923

 

$

65,106

 

$

56,079

 

$

 

$

 

$

22,570

 

Straight-line rents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual rent increases

 

 

11,287

 

 

1,281

 

 

6,338

 

 

2,399

 

 

1,387

 

 

 

 

 

 

(118

)

Amortization of free rent

 

 

6,223

 

 

1,002

 

 

3,000

 

 

1,595

 

 

626

 

 

 

 

 

 

 

Amortization of acquired below-
market leases, net

 

 

7,087

 

 

66

 

 

1,074

 

 

5,451

 

 

5

 

 

 

 

 

 

491

 

Total rentals

 

 

389,018

 

 

125,092

 

 

108,335

 

 

74,551

 

 

58,097

 

 

 

 

 

 

22,943

 

Temperature Controlled Logistics

 

 

190,280

 

 

 

 

 

 

 

 

 

 

190,280

 

 

 

 

 

Tenant expense reimbursements

 

 

68,634

 

 

29,192

 

 

8,880

 

 

24,521

 

 

5,376

 

 

 

 

 

 

665

 

Fee and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant cleaning fees

 

 

8,818

 

 

11,059

 

 

 

 

 

 

 

 

 

 

 

 

(2,241

)

Management and leasing fees

 

 

2,651

 

 

330

 

 

1,757

 

 

464

 

 

100

 

 

 

 

 

 

 

Lease termination fees

 

 

7,522

 

 

4,752

 

 

2,544

 

 

 

 

226

 

 

 

 

 

 

 

Other

 

 

9,008

 

 

3,699

 

 

3,519

 

 

339

 

 

1,449

 

 

 

 

 

 

2

 

Total revenues

 

 

675,931

 

 

174,124

 

 

125,035

 

 

99,875

 

 

65,248

 

 

190,280

 

 

 

 

21,369

 

Operating expenses

 

 

346,565

 

 

80,310

 

 

41,150

 

 

32,343

 

 

27,613

 

 

152,277

 

 

 

 

12,872

 

Depreciation and amortization

 

 

101,799

 

 

23,199

 

 

26,834

 

 

14,335

 

 

10,682

 

 

18,651

 

 

 

 

8,098

 

General and administrative

 

 

52,096

 

 

4,387

 

 

8,996

 

 

5,063

 

 

6,816

 

 

7,875

 

 

 

 

18,959

 

Total expenses

 

 

500,460

 

 

107,896

 

 

76,980

 

 

51,741

 

 

45,111

 

 

178,803

 

 

 

 

39,929

 

Operating income (loss)

 

 

175,471

 

 

66,228

 

 

48,055

 

 

48,134

 

 

20,137

 

 

11,477

 

 

 

 

(18,560

)

Loss applicable to Alexander’s

 

 

(3,586

)

 

187

 

 

 

 

177

 

 

 

 

 

 

 

 

(3,950

)

Loss applicable to Toys “R” Us

 

 

(40,699

)

 

 

 

 

 

 

 

 

 

 

 

(40,699

)

 

 

Income from partially owned entities

 

 

23,010

 

 

1,042

 

 

4,851

 

 

1,805

 

 

206

 

 

285

 

 

 

 

14,821

 

Interest and other investment income

 

 

98,092

 

 

110

 

 

378

 

 

174

 

 

83

 

 

793

 

 

 

 

96,554

 

Interest and debt expense

 

 

(115,280

)

 

(20,829

)

 

(26,101

)

 

(17,682

)

 

(12,955

)

 

(14,044

)

 

 

 

(23,669

)

Net gain on disposition of wholly
owned and partially owned
assets other than depreciable
real estate

 

 

8,032

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,032

 

Minority interest of partially owned
entities

 

 

2,534

 

 

 

 

 

 

37

 

 

 

 

2,036

 

 

 

 

461

 

Income (loss) before income taxes

 

 

147,574

 

 

46,738

 

 

27,183

 

 

32,645

 

 

7,471

 

 

547

 

 

(40,699

)

 

73,689

 

Provision for income taxes

 

 

(382

)

 

 

 

57

 

 

 

 

(215

)

 

(224

)

 

 

 

 

Income (loss) from continuing operations

 

 

147,192

 

 

46,738

 

 

27,240

 

 

32,645

 

 

7,256

 

 

323

 

 

(40,699

)

 

73,689

 

Income (loss) from discontinued
operations, net

 

 

577

 

 

 

 

621

 

 

(51

)

 

8

 

 

 

 

 

 

(1

)

Income (loss) before allocation to
minority limited partners

 

 

147,769

 

 

46,738

 

 

27,861

 

 

32,594

 

 

7,264

 

 

323

 

 

(40,699

)

 

73,688

 

Minority limited partners’ interest
in the Operating Partnership

 

 

(13,103

)

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,103

)

Perpetual preferred unit
distributions of the
Operating Partnership

 

 

(6,683

)

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,683

)

Net income (loss)

 

 

127,983

 

 

46,738

 

 

27,861

 

 

32,594

 

 

7,264

 

 

323

 

 

(40,699

)

 

53,902

 

Interest and debt expense (1)

 

 

168,864

 

 

21,566

 

 

27,774

 

 

20,254

 

 

13,175

 

 

6,682

 

 

43,348

 

 

36,065

 

Depreciation and amortization (1)

 

 

141,206

 

 

24,179

 

 

31,235

 

 

15,137

 

 

10,827

 

 

8,900

 

 

34,951

 

 

15,977

 

Income tax (benefit) expense (1)

 

 

(383

)

 

 

 

3,087

 

 

 

 

215

 

 

106

 

 

(4,756

)

 

965

 

EBITDA

 

$

437,670

 

$

92,483

 

$

89,957

 

$

67,985

 

$

31,481

 

$

16,011

 

$

32,844

 

$

106,909

 

 

Other segment EBITDA includes a $70,687 net gain on mark-to-market of derivative instruments, a $10,842 net gain on sale of real estate and a $8,032 net gain on sale of marketable equity securities.

 

______________________________

See notes on following page.

 

54

 


Reconciliation of Net Income and EBITDA – Three Months Ended September 30, 2007 and 2006 (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 un-levered 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)

Other EBITDA is comprised of:

 

(Amounts in thousands)

 

For the Three Months
Ended September 30,

 

 

 

2007

 

2006

 

Alexander’s

 

$

19,012

 

$

3,732

 

Hotel Pennsylvania

 

 

9,973

 

 

6,448

 

555 California Street (acquired 70% interest on May 24, 2007)

 

 

12,164

 

 

 

Lexington MLP, formerly Newkirk MLP

 

 

9,022

 

 

18,067

 

GMH

 

 

9,527

 

 

8,427

 

Industrial warehouses

 

 

1,399

 

 

1,146

 

Other investments

 

 

3,419

 

 

4,022

 

 

 

 

64,516

 

 

41,842

 

Investment income and other

 

 

46,551

 

 

102,648

 

Corporate general and administrative expenses

 

 

(20,518

)

 

(17,795

)

Minority limited partners’ interest in the Operating Partnership

 

 

(10,241

)

 

(13,103

)

Perpetual preferred unit distributions of the Operating Partnership

 

 

(4,818

)

 

(6,683

)

 

 

$

75,490

 

$

106,909

 

 

 

55

 


Results of Operations – Three Months Ended September 30, 2007 and 2006

Revenues

Our revenues, which consist of property rentals, tenant expense reimbursements, Temperature Controlled Logistics revenues, hotel revenues, trade shows revenues, amortization of acquired below market leases, net of above market leases pursuant to SFAS No. 141 and 142, and fee income, were $853,036,000 for the three months ended September 30, 2007, compared to $675,931,000 for the prior year’s three months, an increase of $177,105,000. Below are the details of the increase (decrease) by segment:

 

(Amounts in thousands)

 

 

 

Office

 

 

 

 

 

Temperature

 

 

 

Property rentals:

 

Total

 

New
York

 

Washington,
DC

 

Retail

 

Merchandise
Mart

 

Controlled
Logistics

 

Other

 

Increase (decrease) due to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1290 Avenue of the Americas

 

$

24,824

 

$

24,824

 

$

 

$

 

$

 

$

 

$

 

555 California Street

 

 

22,519

 

 

 

 

 

 

 

 

 

 

 

 

22,519

 

H Street – (consolidated from
May 1, 2007, vs. equity method
prior)

 

 

13,392

 

 

 

 

13,392

 

 

 

 

 

 

 

 

 

Manhattan Mall

 

 

12,899

 

 

8,809

 

 

 

 

4,090

 

 

 

 

 

 

 

350 Park Avenue

 

 

8,063

 

 

8,063

 

 

 

 

 

 

 

 

 

 

 

Former Toys “R” Us stores

 

 

5,139

 

 

 

 

 

 

5,139

 

 

 

 

 

 

 

Bruckner Plaza

 

 

1,889

 

 

 

 

 

 

1,889

 

 

 

 

 

 

 

1540 Broadway

 

 

177

 

 

21

 

 

 

 

156

 

 

 

 

 

 

 

Other

 

 

7,284

 

 

 

 

1,710

 

 

4,712

 

 

862

 

 

 

 

 

 

Development/Redevelopment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bergen Town Center – portion
out of service

 

 

(804

)

 

 

 

 

 

(804

)

 

 

 

 

 

 

Springfield Mall portion out of service

 

 

(628

)

 

 

 

 

 

(628

)

 

 

 

 

 

 

2101 L Street – portion phased
into service

 

 

574

 

 

 

 

574

 

 

 

 

 

 

 

 

 

Other

 

 

(4,256

)

 

 

 

(855

)

 

(169

)

 

 

 

 

 

(3,232

)

Amortization of acquired below
market leases, net

 

 

17,401

 

 

15,150

 

 

(19

)

 

821

 

 

5

 

 

 

 

1,444

 

Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leasing activity (see page 51)

 

 

20,562

 

 

11,123

 

 

4,946

 

 

2,729

 

 

(781

)

 

 

 

2,545

 

Hotel Pennsylvania

 

 

4,644

 

 

 

 

 

 

 

 

 

 

 

 

4,644

(1)

Trade shows

 

 

117

 

 

 

 

 

 

 

 

117

 

 

 

 

 

Total increase in property rentals

 

 

133,796

 

 

67,990

 

 

19,748

 

 

17,935

 

 

203

 

 

 

 

27,920

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Temperature Controlled Logistics:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase due to acquisitions
(ConAgra warehouses)

 

 

7,132

 

 

 

 

 

 

 

 

 

 

7,132

 

 

 

Increase due to operations

 

 

15,303

 

 

 

 

 

 

 

 

 

 

15,303

(2)

 

 

Total increase

 

 

22,435

 

 

 

 

 

 

 

 

 

 

22,435

 

 

 

Tenant expense reimbursements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) due to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions/development

 

 

16,122

 

 

8,832

 

 

293

 

 

3,674

 

 

 

 

 

 

3,323

 

Operations

 

 

4,726

 

 

(2,323

) (3)

 

2,670

 

 

2,143

 

 

1,667

 

 

 

 

569

 

Total increase in tenant expense
reimbursements

 

 

20,848

 

 

6,509

 

 

2,963

 

 

5,817

 

 

1,667

 

 

 

 

3,892

 

Fee and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease cancellation fee income

 

 

(5,947

)

 

(3,426

)(4)

 

(2,544

)

 

51

 

 

(28

)

 

 

 

 

BMS Cleaning fees

 

 

4,210

 

 

4,613

 

 

 

 

 

 

 

 

 

 

(403

)

Management and leasing fees

 

 

240

 

 

1,164

 

 

421

 

 

(154

)

 

(92

)

 

 

 

(1,099

)

Other

 

 

1,523

 

 

359

 

 

560

 

 

176

 

 

577

 

 

 

 

(149

)

Total increase (decrease) in fee
and other income

 

 

26

 

 

2,710

 

 

(1,563

)

 

73

 

 

457

 

 

 

 

(1,651

)

Total increase in revenues

 

$

177,105

 

$

77,209

 

$

21,148

 

$

23,825

 

$

2,327

 

$

22,435

 

$

30,161

 

______________________________

See Notes on the following page.

 

 

56


Results of Operations – Three Months Ended September 30, 2007 and 2006 (continued)

 

Notes to the preceding tabular information:

 

 

(1)

Revenue per available room (“REVPAR”) was $136.85 for the three months ended September 30, 2007 compared to $107.65 for the prior year’s quarter.

 

 

(2)

Primarily from (i) a $8,725 increase in transportation operations resulting from new transportation business in connection with the acquisition of the ConAgra warehouses in the fourth quarter of 2006, (ii) a $4,369 increase in owned warehouse operations and (iii) a $2,855 increase in managed warehouse operations (resulting in a $102 increase in EBITDA) as a result of a new management contract beginning in March 2007. See page 58 for a discussion of AmeriCold’s gross margin.

 

 

(3)

Primarily as a result of lower real estate taxes on certain New York office properties.

 

 

(4)

Primarily due to lease termination fee income received from MONY Life Insurance Company in connection with the termination of their 289,000 square foot lease at 1740 Broadway in 2006.

 

 

 

57

 


Results of Operations – Three Months Ended September 30, 2007 and 2006 (continued)

 

Expenses

Our expenses, which consist of operating, depreciation and amortization and general and administrative expenses, were $630,082,000 for the three months ended September 30, 2007, compared to $500,460,000 for the prior year’s three months, an increase of $129,622,000. Below are the details of the increase (decrease) by segment:

 

(Amounts in thousands)

 

 

 

Office

 

 

 

 

 

Temperature

 

 

 

Operating:

 

Total

 

New
York

 

Washington,
DC

 

Retail

 

Merchandise
Mart

 

Controlled
Logistics

 

Other

 

Increase (decrease) due to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1290 Avenue of the Americas

 

$

13,684

 

$

13,684

 

$

 

$

 

$

 

$

 

$

 

555 California Street

 

 

12,305

 

 

 

 

 

 

 

 

 

 

 

 

12,305

 

Manhattan Mall

 

 

6,220

 

 

3,305

 

 

 

 

2,915

 

 

 

 

 

 

 

H Street – (consolidated from May 1, 2007
vs. equity method prior)

 

 

5,507

 

 

 

 

5,507

 

 

 

 

 

 

 

 

 

Former Toys stores

 

 

4,310

 

 

 

 

 

 

4,310

 

 

 

 

 

 

 

350 Park Avenue

 

 

4,164

 

 

4,164

 

 

 

 

 

 

 

 

 

 

 

Bruckner Plaza

 

 

740

 

 

 

 

 

 

740

 

 

 

 

 

 

 

1540 Broadway

 

 

220

 

 

123

 

 

 

 

97

 

 

 

 

 

 

 

Other

 

 

10,020

 

 

 

 

934

 

 

2,218

 

 

695

 

 

6,173

 

 

 

Development/Redevelopment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2101 L Street – portion out of service

 

 

(424

)

 

 

 

(424

)

 

 

 

 

 

 

 

 

Springfield Mall – portion out of service

 

 

(304

)

 

 

 

 

 

(304

)

 

 

 

 

 

 

Bergen Town Center – portion out of service

 

 

(47

)

 

 

 

 

 

(47

)

 

 

 

 

 

 

Other

 

 

(3,300

)

 

 

 

(557

)

 

(209

)

 

 

 

 

 

(2,534

)

Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operations

 

 

29,694

 

 

5,030

(1)

 

3,891

 

 

1,593

 

 

6,034

(2)

 

12,764

(3)

 

382

 

Hotel activity

 

 

1,087

 

 

 

 

 

 

 

 

 

 

 

 

1,087

 

Trade shows activity

 

 

898

 

 

 

 

 

 

 

 

898

 

 

 

 

 

Total increase in operating expenses

 

 

84,774

 

 

26,306

 

 

9,351

 

 

11,313

 

 

7,627

 

 

18,937

 

 

11,240

 

Depreciation and amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) due to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions/Development

 

 

33,884

 

 

16,684

 

 

2,008

 

 

4,023

 

 

 

 

2,137

 

 

9,032

 

Operations (due to additions to buildings and
improvements)

 

 

4,694

 

 

1,463

 

 

1,962

 

 

1,276

 

 

2,033

 

 

(293

)

 

(1,747

)

Total increase in depreciation and amortization

 

 

38,578

 

 

18,147

 

 

3,970

 

 

5,299

 

 

2,033

 

 

1,844

 

 

7,285

 

General and administrative:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) due to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions/Development and Other

 

 

3,710

 

 

1,257

 

 

(33

)

 

1,356

 

 

 

 

1,523

 

 

(393

)

Operations

 

 

2,560

 

 

(314

 

(2,770

) (4)

 

320

 

 

681

 

 

1,076

 

 

3,567

(5)

Total increase (decrease) in general
and administrative

 

 

6,270

 

 

943

 

 

(2,803

)

 

1,676

 

 

681

 

 

2,599

 

 

3,174

 

Total increase in expenses

 

$

129,622

 

$

45,396

 

$

10,518

 

$

18,288

 

$

10,341

 

$

23,380

 

$

21,699

 

__________________________

 

(1)

Primarily from a $1,013 increase in property level operating expenses and a $4,017 increase in operating expenses of Building Maintenance Services, Inc., a wholly-owned subsidiary which provides cleaning, security and engineering services principally to New York office properties (for which the corresponding increase in BMS revenues is included in “other income”).

 

(2)

Reflects an increase in real estate taxes as a result of a reassessment of 2006 ($2,800) and 2007 ($2,200).

 

(3)

AmeriCold’s gross margin from comparable warehouses was $37,720 or 32.3%, for the quarter ended September 30, 2007, compared to $35,528 or 31.1% for the quarter ended September 30, 2006, an increase of $2,192. Gross margin from transportation management services, managed warehouses and other non-warehouse activities was $4,510 for the quarter ended September 30, 2007, compared to $3,021 for the quarter ended September 30, 2006, an increase of $1,489.

 

(4)

Primarily from H Street litigation costs incurred during the prior year’s quarter.

 

(5)

Primarily from a $2,485 increase in amortization of stock-based compensation.

 

58

 


Results of Operations – Three Months Ended September 30, 2007 and 2006 (continued)

 

Income Applicable to Alexander’s

 

Our 32.8% share of Alexander’s net income (comprised of equity in net income or loss, management, leasing, development and commitment fees) was $12,111,000 for the three months ended September 30, 2007, compared to $3,586,000 for the prior year’s three months, an increase of $15,697,000. This increase was primarily due to $3,075,000 for our share of income in the current quarter for the reversal of accrued stock appreciation rights compensation expense as compared to $10,797,000 of expense in the prior year’s quarter, and an increase of $1,113,000 in development fees in the current quarter.

 

Loss Applicable to Toys

 

Our 32.8% share of Toys’ financial results (comprised of our share of Toys’ net loss, interest income on loans receivable, and management fees) for the three months ended September 30, 2007 and September 30, 2006 are for Toys fiscal quarters ended August 5, 2007 and July 29, 2006, respectively. In the three months ended September 30, 2007, our loss applicable to Toys was $20,289,000, or $37,855,000 before our share of Toys’ income tax benefit, as compared to $40,699,000, or $45,627,000 before our share of Toys’ income tax benefit in the prior year’s three months. The decrease in our loss applicable to Toys’ before income tax benefit of $7,772,000 results primarily from (i) an increase in Toys’ net sales due to improvements in comparable store sales across all divisions and benefits in foreign currency translation (comparable store sales increases were 1.1% for Toys “R” Us – U.S., 5.9% for Toys “R” Us – International, and 2.2% for Babies “R” Us), (ii) a net gain related to a lease termination, (iii) decreased interest expense primarily due to reduced borrowings and reduced amortization of deferred financing costs, partially offset by, (iv) an increase in selling, general and administrative expenses as a result of higher payroll, store occupancy, corporate and advertising expenses, which as a percentage of net sales were 31.4% and 30.3% for the quarters ended August 5, 2007 and July 29, 2006, respectively.

 

59

 


Results of Operations – Three Months Ended September 30, 2007 and 2006 (continued)

 

Income from Partially Owned Entities

Summarized below are the components of income from partially owned entities for the three months ended September 30, 2007 and 2006.

 

Equity in Net Income (Loss):

 

For The Three Months
Ended September 30,

 

(Amounts in thousands)

 

2007

 

2006

 

H Street non-consolidated subsidiaries:

 

 

 

 

 

50% share of equity in net income (1)

 

$

 

$

4,065

 

 

 

 

 

 

 

 

 

Beverly Connection:

 

 

 

 

 

 

 

50% share of equity in net loss

 

 

(1,287

)

 

(1,844

)

Interest and fee income

 

 

3,885

 

 

2,862

 

 

 

 

2,598

 

 

1,018

 

GMH Communities L.P:

 

 

 

 

 

 

 

13.5% in 2007 and 11.3% in 2006 share of equity in net income (2)

 

 

5,709

 

 

15

 

 

 

 

 

 

 

 

 

Lexington MLP, formerly Newkirk MLP:

 

 

 

 

 

 

 

7.1% in 2007 and 15.8% in 2006 share of equity in net income (3)

 

 

1,726

 

 

13,604

 

 

 

 

 

 

 

 

 

Other (4)

 

 

3,868

 

 

4,308

 

 

 

$

13,901

 

$

23,010

 

________________________

 

(1)

On April 30, 2007, we acquired the corporations that own the remaining 50% interest in these assets and we now consolidate the accounts of these entities into our consolidated financial statements and no longer account for them under the equity method. Prior to the quarter ended September 30, 2006, these corporations were contesting our acquisition of H Street and impeded access to their financial information. Accordingly, we were unable to record our pro rata share of their earnings. During the quarter ended September 30, 2006, we recognized equity in net income of $4,065 from these entities of which $1,083 was for the periods from July 20, 2005 (date of acquisition) to December 31, 2005.

 

 

(2)

We record our pro rata share of GMH’s net income or loss on a one-quarter lag basis because we file our consolidated financial statements on Form 10-K and 10-Q prior to the time that GCT files its financial statements. Accordingly, our “equity in net income or loss from partially owned entities” for the three months ended September 30, 2007 includes our share of GMH’s net income for its second quarter ended June, 2007. On July 31, 2006 GCT filed its annual report on Form 10-K for the year ended December 31, 2005, which restated the quarterly financial results of each of the first three quarters of 2005. On September 15, 2006 GCT filed its quarterly reports on Form 10-Q for the quarters ended March 31, 2006 and June 30, 2006. Accordingly, our “equity in net income or loss from partially owned entities” for the three months ended September 30, 2006 included equity in net income of $15, which consists of (i) a $94 net loss representing our share of GMH’s fourth quarter results, net of adjustments to restate its first three quarters of 2005, and (ii) $109 of net income for our share of GMH’s 2006 earnings through June 30, 2006.

 

 

(3)

Beginning on January 1, 2007, we record our pro rata share of Lexington MLP’s net income or loss on a one-quarter lag basis because we file our consolidated financial statements on Form 10-K and 10-Q prior to the time that Lexington files its financial statements. Prior to the January 1, 2007, we recorded our pro rata share of Newkirk MLP’s (Lexington MLP’s predecessor) quarterly earnings current in our same quarter. Accordingly, our “equity in net income or loss from partially owned entities” for the three months ended September 30, 2007 includes our share of Lexington MLP’s net income for its second quarter ended June, 2007.

 

    The decrease in our share of earnings from the prior year’s quarter is primarily due to (i) higher depreciation expense and amortization of above market lease intangibles in the current quarter as a result of Lexington’s purchase price accounting adjustments in connection with the merger of Newkirk MLP on December 31, 2006 and (ii) our share of net gains on sale of real estate of $10,842 in 2006.
     

 

(4)

Includes our equity in net earnings of partially owned entities including, partially owned office buildings in New York and Washington, DC, the Monmouth Mall, Dune Capital LP, Verde Group LLC, and others.

 

60

 


Results of Operations – Three Months Ended September 30, 2007 and 2006 (continued)

Interest and Other Investment Income  

Interest and other investment income (mark-to-market of derivative positions, interest income on mortgage loans receivable, other interest income and dividend income) was $56,906,000 for the three months ended September 30, 2007, compared to $98,092,000 for the prior year’s three months, a decrease of $41,186,000. This decrease resulted primarily from a net gain of $68,796,000 from the mark-to-market of the McDonalds derivative position in the three months ended September 30, 2006, as compared to a net gain of $28,190,000 in the three months ended September 30, 2007.

 

Interest and Debt Expense

Interest and debt expense was $165,889,000 for the three months ended September 30, 2007, compared to $115,280,000 for the prior year’s three months, an increase of $50,609,000. This increase was primarily due to (i) $40,025,000 from a $2.8 billion increase in outstanding mortgage debt due to property acquisitions, new property financings and refinancings, (ii) $21,339,000 from the November 20, 2006 issuance of $1 billion convertible senior debentures and the March 21, 2007 issuance of $1.4 billion convertible senior debentures, partially offset by (iii) a $3,961,000 increase in the amount of capitalized interest in connection with properties under development and (iv) $6,847,000 of expense arising from the prepayment of debt in the prior year’s quarter.

 

Net Gain on Disposition of Wholly Owned and Partially Owned Assets Other than Depreciable Real Estate

Net gain on disposition of wholly owned and partially owned assets other than depreciable real estate was $1,012,000 and $8,032,000 for the three months ended September 30, 2007, and 2006, respectively, and represent net gains on sale of marketable securities in each period.

 

Minority Interest of Partially Owned Entities

Minority interest of partially owned entities was income of $3,587,000 for the three months ended September 30, 2007, compared to $2,534,000 of income for the prior year’s three months and represents the minority partners’ pro rata share of the net income or loss of consolidated partially owned entities, including 1290 Avenue of the Americas, the 555 California Street complex, AmeriCold, 220 Central Park South, Wasserman and the Springfield Mall.

 

Provision for Income Taxes

Provision for income taxes was $3,048,000 for the three months ended September 30, 2007, compared to $382,000 for the prior year’s three months, an increase of $2,666,000. This increase results primarily from two H Street corporations which we consolidate as of April 30, 2007, the date we acquired the remaining 50% of these corporations we did not previously own (we previously accounted for our 50% interest on the equity method). Beginning on January 1, 2008, these corporations will elect to be treated as real estate investment trusts under Sections 856-860 of the Internal Revenue Code of 1986, as amended, which will eliminate their Federal income tax provision to the extent that 100% of their taxable income is distributed to shareholders.

 

Income From Discontinued Operations

The combined results of operations of the assets related to discontinued operations for the three months ended September 30, 2007 and 2006 include Vineland, New Jersey, which was sold on July 16, 2007; Crystal Mall Two, which was sold on August 9, 2007; and Arlington Plaza, which was sold on October 17, 2007.

.

(Amounts in thousands)

 

For the Three Months
Ended September 30,

 

 

2007

 

2006

Revenues

 

$

334

 

$

2,608

Expenses

 

 

3,424

 

 

2,031

Net (loss) income

 

 

(3,090

)

 

577

Net gain on sale of Crystal Mall Two

 

 

19,893

 

 

Net gain on sale of H Street land

 

 

4,803

 

 

Net gain on sale of Vineland, New Jersey

 

 

1,708

 

 

Other

 

 

1,341

 

 

 

Income from discontinued operations,
net of minority interest

 

$

24,655

 

$

577

 

61

 


Results of Operations – Three Months Ended September 30, 2007 and 2006 (continued)

 

EBITDA by Segment

Below are the details of the changes in EBITDA by segment for the three months ended September 30, 2007 from the three months ended September 30, 2006.

 

 

 

 

 

Office

 

 

 

 

 

Temperature

 

 

 

 

(Amounts in thousands)

 

Total

 

New York

 

Washington,
DC

 

Retail

 

Merchandise
Mart

 

Controlled
Logistics

 

Toys

 

Other

Three Months ended
September 30, 2006

 

$

437,670

 

$

92,483

 

$

89,957

 

$

67,985

 

$

31,481

 

$

16,011

 

$

32,844

 

$

106,909

2007 Operations:
Same store operations(1)

 

 

 

 

 

8,739

 

 

3,323

 

 

2,660

 

 

(5

)

 

(374

)

 

 

 

 

 

Acquisitions, dispositions and
non-same store
income and expenses

 

 

 

 

 

36,515

 

 

27,613

 

 

13,653

 

 

(6,220

)

 

608

 

 

 

 

 

 

Three Months ended
September 30, 2007

 

$

496,787

 

$

137,737

 

$

120,893

 

$

84,298

 

$

25,256

 

$

16,245

 

$

36,868

 

$

75,490

% increase (decrease) in
same store operations

 

 

 

 

 

9.4%

 

 

4.0%

 

 

4.2%

 

 

0.0%

 

 

(1.9)%

 

 

 

 

 

 

 

__________________________

(1)

Represents the increase (decrease) in property-level operations which were owned for the same period in each year and excludes the effect of property acquisitions, dispositions and other non-operating items that affect comparability, including general and administrative expenses. We utilize this measure to make decisions on whether to buy or sell properties as well as to compare the performance of our properties to that of our peers. Same store operations may not be comparable to similarly titled measures employed by other companies.

 

 

62

 


Reconciliation of Net Income and EBITDA – Nine Months Ended September 30, 2007 and 2006

Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the nine months ended September 30, 2007 and 2006.

 

(Amounts in thousands)

 

For the Nine Months Ended September 30, 2007

 

 

 

 

 

Office

 

 

 

 

 

Temperature

 

 

 

 

 

 

 

Total

 

New
York

 

Washington,
DC

 

Retail

 

Merchandise
Mart

 

Controlled
Logistics

 

Toys

 

Other (2)

 

Property rentals

 

$

1,324,351

 

$

463,678

 

$

335,239

 

$

240,975

 

$

181,985

 

$

 

$

 

$

102,474

 

Straight-line rents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual rent increases

 

 

29,248

 

 

11,003

 

 

6,772

 

 

8,794

 

 

2,296

 

 

 

 

 

 

383

 

Amortization of free rent

 

 

29,244

 

 

14,747

 

 

11,962

 

 

555

 

 

1,021

 

 

 

 

 

 

959

 

Amortization of acquired below-
market leases, net

 

 

58,810

 

 

32,895

 

 

3,178

 

 

19,119

 

 

130

 

 

 

 

 

 

3,488

 

Total rentals

 

 

1,441,653

 

 

522,323

 

 

357,151

 

 

269,443

 

 

185,432

 

 

 

 

 

 

107,304

 

Temperature Controlled Logistics

 

 

619,282

 

 

 

 

 

 

 

 

 

 

619,282

 

 

 

 

 

Tenant expense reimbursements

 

 

239,310

 

 

94,051

 

 

31,473

 

 

87,922

 

 

17,852

 

 

 

 

 

 

8,012

 

Fee and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant cleaning fees

 

 

33,398

 

 

40,820

 

 

 

 

 

 

 

 

 

 

 

 

(7,422

)

Management and leasing fees

 

 

12,894

 

 

3,323

 

 

10,711

 

 

1,234

 

 

11

 

 

 

 

 

 

(2,385

)

Lease termination fees

 

 

6,310

 

 

3,224

 

 

225

 

 

2,458

 

 

403

 

 

 

 

 

 

 

Other

 

 

29,318

 

 

12,081

 

 

10,799

 

 

1,170

 

 

6,029

 

 

 

 

 

 

(761

)

Total revenues

 

 

2,382,165

 

 

675,822

 

 

410,359

 

 

362,227

 

 

209,727

 

 

619,282

 

 

 

 

104,748

 

Operating expenses

 

 

1,193,857

 

 

288,155

 

 

133,038

 

 

125,861

 

 

101,565

 

 

492,510

 

 

 

 

52,728

 

Depreciation and amortization

 

 

380,876

 

 

107,895

 

 

84,607

 

 

59,026

 

 

35,782

 

 

60,330

 

 

 

 

33,236

 

General and administrative

 

 

170,790

 

 

14,778

 

 

20,540

 

 

20,070

 

 

21,982

 

 

32,691

 

 

 

 

60,729

 

Costs of acquisition not consummated

 

 

8,807

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,807

 

Total expenses

 

 

1,754,330

 

 

410,828

 

 

238,185

 

 

204,957

 

 

159,329

 

 

585,531

 

 

 

 

155,500

 

Operating income (loss)

 

 

627,835

 

 

264,994

 

 

172,174

 

 

157,270

 

 

50,398

 

 

33,751

 

 

 

 

(50,752

)

Income applicable to Alexander’s

 

 

35,114

 

 

567

 

 

 

 

560

 

 

 

 

 

 

 

 

33,987

 

Income applicable to Toys “R” Us

 

 

18,343

 

 

 

 

 

 

 

 

 

 

 

 

18,343

 

 

 

Income from partially owned entities

 

 

31,599

 

 

3,688

 

 

8,178

 

 

7,360

 

 

737

 

 

1,148

 

 

 

 

10,488

 

Interest and other investment income

 

 

231,890

 

 

1,810

 

 

4,609

 

 

387

 

 

292

 

 

2,116

 

 

 

 

222,676

 

Interest and debt expense

 

 

(469,659

)

 

(97,767

)

 

(96,331

)

 

(59,206

)

 

(39,069

)

 

(48,946

)

 

 

 

(128,340

)

Net gain on disposition of wholly
owned and partially owned
assets other than depreciable
real estate

 

 

17,699

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,699

 

Minority interest of partially owned
entities

 

 

11,819

 

 

(2,182

)

 

 

 

112

 

 

 

 

10,405

 

 

 

 

3,484

 

Income (loss) before income taxes

 

 

504,640

 

 

171,110

 

 

88,630

 

 

106,483

 

 

12,358

 

 

(1,526

)

 

18,343

 

 

109,242

 

Provision for income taxes

 

 

(6,815

)

 

 

 

(3,914

)

 

(185

)

 

(743

)

 

(1,412

)

 

 

 

(561

)

Income (loss) from continuing
operations

 

 

497,825

 

 

171,110

 

 

84,716

 

 

106,298

 

 

11,615

 

 

(2,938

)

 

18,343

 

 

108,681

 

(Loss) income from discontinued
operations, net

 

 

24,592

 

 

 

 

24,332

 

 

3,000

 

 

 

 

 

 

 

 

(2,740

)

Income (loss) before allocation to
minority limited partners

 

 

522,417

 

 

171,110

 

 

109,048

 

 

109,298

 

 

11,615

 

 

(2,938

)

 

18,343

 

 

105,941

 

Minority limited partners’ interest
in the Operating Partnership

 

 

(44,270

)

 

 

 

 

 

 

 

 

 

 

 

 

 

(44,270

)

Perpetual preferred unit
distributions of the
Operating Partnership

 

 

(14,455

)

 

 

 

 

 

 

 

 

 

 

 

 

 

(14,455

)

Net income (loss)

 

 

463,692

 

 

171,110

 

 

109,048

 

 

109,298

 

 

11,615

 

 

(2,938

)

 

18,343

 

 

47,216

 

Interest and debt expense (1)

 

 

609,548

 

 

96,822

 

 

100,002

 

 

67,222

 

 

39,716

 

 

23,289

 

 

128,493

 

 

154,004

 

Depreciation and amortization (1)

 

 

500,247

 

 

106,885

 

 

93,959

 

 

61,815

 

 

36,212

 

 

28,788

 

 

123,194

 

 

49,394

 

Income tax expense (1)

 

 

34,419

 

 

2,052

 

 

7,738

 

 

185

 

 

743

 

 

672

 

 

20,250

 

 

2,779

 

EBITDA

 

$

1,607,906

 

$

376,869

 

$

310,717

 

$

238,520

 

$

88,286

 

$

49,811

 

$

290,280

 

$

253,393

 

 

EBITDA includes net gains on sale of real estate of $37,218, of which $24,696 is included in the Washington, DC office segment, $3,049 is included in the Retail segment and $9,473 is included in the Other segment. In addition, Other segment EBITDA includes a $100,060 net gain on mark-to-market of derivative instruments, a $17,699 net gain on sale of marketable equity securities, $8,807 of expense for costs of an acquisition not consummated and $1,677 of expense for our share of India Property Fund LP organization costs.

_______________________

See notes on page 65.

63

 


Reconciliation of Net Income and EBITDA – Nine Months Ended September 30, 2007 and 2006 (continued)

 

(Amounts in thousands)

 

For the Nine Months Ended September 30, 2006

 

 

 

 

 

Office

 

 

 

 

 

Temperature

 

 

 

 

 

 

 

Total

 

New
York

 

Washington,
DC

 

Retail

 

Merchandise
Mart

 

Controlled
Logistics

 

Toys

 

Other (2)

 

Property rentals

 

$

1,079,797

 

$

362,560

 

$

293,246

 

$

190,631

 

$

171,924

 

$

 

$

 

$

61,436

 

Straight-line rents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual rent increases

 

 

24,782

 

 

3,435

 

 

10,451

 

 

6,484

 

 

4,579

 

 

 

 

 

 

(167

)

Amortization of free rent

 

 

23,154

 

 

4,796

 

 

12,623

 

 

4,216

 

 

1,519

 

 

 

 

 

 

 

Amortization of acquired below-
market leases, net

 

 

15,164

 

 

44

 

 

2,810

 

 

9,998

 

 

27

 

 

 

 

 

 

2,285

 

Total rentals

 

 

1,142,897

 

 

370,835

 

 

319,130

 

 

211,329

 

 

178,049

 

 

 

 

 

 

63,554

 

Temperature Controlled Logistics

 

 

573,177

 

 

 

 

 

 

 

 

 

 

573,177

 

 

 

 

 

Tenant expense reimbursements

 

 

191,181

 

 

77,544

 

 

23,136

 

 

73,131

 

 

15,245

 

 

 

 

 

 

2,125

 

Fee and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant cleaning fees

 

 

24,471

 

 

30,889

 

 

 

 

 

 

 

 

 

 

 

 

(6,418

)

Management and leasing fees

 

 

7,833

 

 

818

 

 

5,687

 

 

1,184

 

 

144

 

 

 

 

 

 

 

Lease termination fees

 

 

17,911

 

 

13,911

 

 

2,610

 

 

371

 

 

1,019

 

 

 

 

 

 

 

Other

 

 

21,018

 

 

8,545

 

 

6,552

 

 

1,290

 

 

4,628

 

 

 

 

 

 

3

 

Total revenues

 

 

1,978,488

 

 

502,542

 

 

357,115

 

 

287,305

 

 

199,085

 

 

573,177

 

 

 

 

59,264

 

Operating expenses

 

 

996,350

 

 

226,443

 

 

110,674

 

 

92,507

 

 

78,532

 

 

452,505

 

 

 

 

35,689

 

Depreciation and amortization

 

 

289,831

 

 

68,877

 

 

80,695

 

 

37,149

 

 

32,881

 

 

53,641

 

 

 

 

16,588

 

General and administrative

 

 

148,530

 

 

12,400

 

 

24,746

 

 

15,280

 

 

19,841

 

 

26,883

 

 

 

 

49,380

 

Total expenses

 

 

1,434,711

 

 

307,720

 

 

216,115

 

 

144,936

 

 

131,254

 

 

533,029

 

 

 

 

101,657

 

Operating income (loss)

 

 

543,777

 

 

194,822

 

 

141,000

 

 

142,369

 

 

67,831

 

 

40,148

 

 

 

 

(42,393

)

Income applicable to Alexander’s

 

 

7,569

 

 

586

 

 

 

 

535

 

 

 

 

 

 

 

 

6,448

 

Income applicable to Toys “R” Us

 

 

4,177

 

 

 

 

 

 

 

 

 

 

 

 

4,177

 

 

 

Income from partially owned entities

 

 

43,696

 

 

2,852

 

 

10,575

 

 

4,035

 

 

985

 

 

1,049

 

 

 

 

24,200

 

Interest and other investment income

 

 

137,186

 

 

478

 

 

1,067

 

 

647

 

 

209

 

 

2,789

 

 

 

 

131,996

 

Interest and debt expense

 

 

(339,118

)

 

(61,951

)

 

(74,260

)

 

(61,474

)

 

(20,024

)

 

(46,758

)

 

 

 

(74,651

)

Net gain on disposition of wholly
owned and partially owned
assets other than depreciable
real estate

 

 

65,527

 

 

 

 

 

 

 

 

 

 

 

 

 

 

65,527

 

Minority interest of partially owned
entities

 

 

5,378

 

 

 

 

 

 

66

 

 

4

 

 

4,415

 

 

 

 

893

 

Income before income taxes

 

 

468,192

 

 

136,787

 

 

78,382

 

 

86,178

 

 

49,005

 

 

1,643

 

 

4,177

 

 

112,020

 

Provision for income taxes

 

 

(2,362

)

 

 

 

(778)

 

 

 

 

(334

)

 

(1,250

)

 

 

 

 

Income from continuing operations

 

 

465,830

 

 

136,787

 

 

77,604

 

 

86,178

 

 

48,671

 

 

393

 

 

4,177

 

 

112,020

 

Income from discontinued
operations, net

 

 

37,865

 

 

 

 

20,768

 

 

9,247

 

 

5,744

 

 

2,107

 

 

 

 

(1

)

Income before allocation to
minority limited partners

 

 

503,695

 

 

136,787

 

 

98,372

 

 

95,425

 

 

54,415

 

 

2,500

 

 

4,177

 

 

112,019

 

Minority limited partners’ interest
in the Operating Partnership

 

 

(46,301

)

 

 

 

 

 

 

 

 

 

 

 

 

 

(46,301

)

Perpetual preferred unit
distributions of the
Operating Partnership

 

 

(17,030

)

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,030

)

Net income

 

 

440,364

 

 

136,787

 

 

98,372

 

 

95,425

 

 

54,415

 

 

2,500

 

 

4,177

 

 

48,688

 

Interest and debt expense (1)

 

 

511,103

 

 

64,000

 

 

82,173

 

 

69,710

 

 

20,686

 

 

22,247

 

 

148,797

 

 

103,490

 

Depreciation and amortization (1)

 

 

400,014

 

 

71,393

 

 

92,620

 

 

41,703

 

 

33,308

 

 

25,601

 

 

101,637

 

 

33,752

 

Income tax (benefit) expense (1)

 

 

(3,287

)

 

 

 

6,940

 

 

 

 

334

 

 

595

 

 

(12,312

)

 

1,156

 

EBITDA

 

$

1,348,194

 

$

272,180

 

$

280,105

 

$

206,838

 

$

108,743

 

$

50,943

 

$

242,299

 

$

187,086

 

 

EBITDA includes net gains on sale of real estate of $44,611, of which $17,609 is included in the Washington, DC segment, $9,218 is included in the Retail segment, $4,835 is included in the Merchandise Mart segment, $2,107 is included in the Temperature Controlled Logistics segment and $10,842 is included in the Other segment. In addition, Other segment EBITDA includes a $65,527 net gain on sale of marketable equity securities and a $65,589 net gain on mark-to-market of derivative instruments.

 

________________________

See notes on the following page.

 

64

 


Reconciliation of Net Income and EBITDA – Nine Months Ended September 30, 2007 and 2006 (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 un-levered 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)

Other EBITDA is comprised of:

 

(Amounts in thousands)

 

For the Nine Months
Ended June 30,

 

 

 

2007

 

2006

 

Alexander’s

 

$

56,511

 

$

29,238

 

Hotel Pennsylvania

 

 

24,754

 

 

17,007

 

GMH

 

 

17,872

 

 

8,427

 

555 California Street (70% interest acquired on May 24, 2007)

 

 

18,513

 

 

 

Lexington MLP, formerly Newkirk MLP

 

 

15,006

 

 

34,804

 

Industrial warehouses

 

 

3,595

 

 

4,167

 

Other investments

 

 

9,171

 

 

10,425

 

 

 

 

145,422

 

 

104,068

 

Investment income and other

 

 

229,385

 

 

192,145

 

Corporate general and administrative expenses

 

 

(53,882

)

 

(45,796

)

Minority limited partners’ interest in the Operating Partnership

 

 

(44,270

)

 

(46,301

)

Perpetual preferred unit distributions of the Operating Partnership

 

 

(14,455

)

 

(17,030

)

Costs of acquisition not consummated

 

 

(8,807

)

 

 

 

 

$

253,393

 

$

187,086

 

 

 

65

 


Results of Operations – Nine Months Ended September 30, 2007 and 2006 (continued)

Revenues

Our revenues, which consist of property rentals, tenant expense reimbursements, Temperature Controlled Logistics revenues, hotel revenues, trade shows revenues, amortization of acquired below market leases, net of above market leases pursuant to SFAS No. 141 and 142, and fee income, were $2,382,165,000 for the nine months ended September 30, 2007, compared to $1,978,488,000 for the prior year’s nine months, an increase of $403,677,000. Below are the details of the increase (decrease) by segment:

 

(Amounts in thousands)

 

 

 

Office

 

 

 

 

 

Temperature

 

 

 

Property rentals:

 

Total

 

New
York

 

Washington,
DC

 

Retail

 

Merchandise
Mart

 

Controlled
Logistics

 

Other

 

Increase (decrease) due to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Manhattan Mall

 

$

37,700

 

$

25,601

 

$

 

$

12,099

 

$

 

$

 

$

 

1290 Avenue of the Americas

 

 

35,227

 

 

35,227

 

 

 

 

 

 

 

 

 

 

 

555 California Street

 

 

33,038

 

 

 

 

 

 

 

 

 

 

 

 

33,038

 

350 Park Avenue

 

 

23,873

 

 

23,873

 

 

 

 

 

 

 

 

 

 

 

H Street – (effect of consolidating
from May 1, 2007, vs. equity
method prior)

 

 

23,077

 

 

 

 

23,077

 

 

 

 

 

 

 

 

 

Former Toys “R” Us stores

 

 

14,973

 

 

 

 

 

 

14,973

 

 

 

 

 

 

 

Bruckner Plaza

 

 

5,530

 

 

 

 

 

 

5,530

 

 

 

 

 

 

 

1540 Broadway

 

 

3,619

 

 

407

 

 

 

 

3,212

 

 

 

 

 

 

 

Other

 

 

19,789

 

 

 

 

3,355

 

 

8,385

 

 

8,049

 

 

 

 

 

Development/Redevelopment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2101 L Street – taken out of service

 

 

(4,368

)

 

 

 

(4,368

)

 

 

 

 

 

 

 

 

Bergen Town Center – portion
out of service

 

 

(1,108

)

 

 

 

 

 

(1,108

)

 

 

 

 

 

 

Springfield Mall – portion out of service

 

 

243

 

 

 

 

 

 

243

 

 

 

 

 

 

 

Other

 

 

(4,507

)

 

 

 

(833

)

 

(442

)

 

 

 

 

 

(3,232

)

Amortization of acquired below market
leases, net

 

 

43,646

 

 

32,851

 

 

368

 

 

9,121

 

 

103

 

 

 

 

1,203

 

Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leasing activity (see page 51)

 

 

58,247

 

 

33,529

 

 

16,422

 

 

6,101

 

 

(498

)

 

 

 

2,693

 

Hotel Pennsylvania

 

 

10,048

 

 

 

 

 

 

 

 

 

 

 

 

10,048

(1)

Trade shows

 

 

(271

)

 

 

 

 

 

 

 

(271

)

 

 

 

 

Total increase in property rentals

 

 

298,756

 

 

151,488

 

 

38,021

 

 

58,114

 

 

7,383

 

 

 

 

43,750

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Temperature Controlled Logistics:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase due to acquisitions
(ConAgra warehouses)

 

 

20,124

 

 

 

 

 

 

 

 

 

 

20,124

 

 

 

Increase due to operations

 

 

25,981

 

 

 

 

 

 

 

 

 

 

25,981

(2)

 

 

Total increase

 

 

46,105

 

 

 

 

 

 

 

 

 

 

46,105

 

 

 

Tenant expense reimbursements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase due to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions/development

 

 

30,013

 

 

16,009

 

 

1,141

 

 

8,165

 

 

 

 

 

 

4,698

 

Operations

 

 

18,116

 

 

498

(3)

 

7,196

 

 

6,626

 

 

2,607

 

 

 

 

1,189

 

Total increase in tenant expense
reimbursements

 

 

48,129

 

 

16,507

 

 

8,337

 

 

14,791

 

 

2,607

 

 

 

 

5,887

 

Fee and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease cancellation fee income

 

 

(11,601

)

 

(10,687

)(4)

 

(2,385

)

 

2,087

 

 

(616

)

 

 

 

 

BMS Cleaning fees

 

 

8,927

 

 

9,931

 

 

 

 

 

 

 

 

 

 

(1,004

)

Management and leasing fees

 

 

5,061

 

 

2,505

 

 

5,024

 

 

50

 

 

(133

)

 

 

 

(2,385

)

Other

 

 

8,300

 

 

3,536

 

 

4,247

 

 

(120

)

 

1,401

 

 

 

 

(764

)

Total increase (decrease) in fee and
other income

 

 

10,687

 

 

5,285

 

 

6,886

 

 

2,017

 

 

652

 

 

 

 

(4,153

)

Total increase in revenues

 

$

403,677

 

$

173,280

 

$

53,244

 

$

74,922

 

$

10,642

 

$

46,105

 

$

45,484

 

_____________________

See Notes on the following page.

 

 

66

 


Results of Operations – Nine Months Ended September 30, 2007 and 2006 (continued)

 

Notes to the preceding tabular information:

 

(1)

Revenue per available room (“REVPAR”) was $121.91 for the nine months ended September 30, 2007 compared to $101.52 for the prior year’s nine months.

 

(2)

Primarily from (i) a $19,395 increase in transportation operations resulting from new transportation business in connection with the acquisition of the ConAgra warehouses in the fourth quarter of 2006, (ii) a $5,438 increase in managed warehouse operations (resulting in a $238 increase in EBITDA) as a result of a new management contract beginning in March 2007, and (iii) a $2,057 increase in owned warehouse operations. See page 68 for a discussion of AmeriCold’s gross margin.

 

(3)

Reflects an increase in tenant expense reimbursements associated with higher operating expenses, offset by leases with new base-years as a result of space re-let.

 

(4)

Primarily due to lease termination fee income received from MONY Life Insurance Company in connection with the termination of their 289,000 square foot lease at 1740 Broadway in 2006.

 

 

67

 


Results of Operations – Nine Months Ended September 30, 2007 and 2006 (continued)

Expenses

Our expenses, which consist of operating, depreciation and amortization and general and administrative expenses, were $1,754,330,000 for the nine months ended September 30, 2007, compared to $1,434,711,000 for the prior year’s nine months, an increase of $319,619,000. Below are the details of the increase (decrease) by segment:

 

(Amounts in thousands)

 

 

 

Office

 

 

 

 

 

Temperature

 

 

 

Operating:

 

Total

 

New
York

 

Washington,
DC

 

Retail

 

Merchandise
Mart

 

Controlled
Logistics

 

Other

 

Increase (decrease) due to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1290 Avenue of the Americas

 

$

18,931

 

$

18,931

 

$

 

$

 

$

 

$

 

$

 

Manhattan Mall

 

 

17,298

 

 

9,823

 

 

 

 

7,475

 

 

 

 

 

 

 

555 California Street

 

 

16,076

 

 

 

 

 

 

 

 

 

 

 

 

16,076

 

350 Park Avenue

 

 

12,498

 

 

12,498

 

 

 

 

 

 

 

 

 

 

 

Former Toys stores

 

 

11,575

 

 

 

 

 

 

11,575

 

 

 

 

 

 

 

H Street – (effect of consolidating from
May 1, 2007, vs. equity method prior)

 

 

10,529

 

 

 

 

10,529

 

 

 

 

 

 

 

 

 

1540 Broadway

 

 

2,309

 

 

748

 

 

 

 

1,561

 

 

 

 

 

 

 

Bruckner Plaza

 

 

2,183

 

 

 

 

 

 

2,183

 

 

 

 

 

 

 

Other

 

 

30,222

 

 

 

 

1,774

 

 

3,704

 

 

9,987

 

 

14,757

 

 

 

Development/Redevelopment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2101 L Street – portion out of service

 

 

(2,596

)

 

 

 

(2,596

)

 

 

 

 

 

 

 

 

Bergen Town Center – portion out of service

 

 

(954

)

 

 

 

 

 

(954

)

 

 

 

 

 

 

Springfield Mall – portion out of service

 

 

(215

)

 

 

 

 

 

(215

)

 

 

 

 

 

 

Other

 

 

(3,355

)

 

 

 

(559

)

 

(262

)

 

 

 

 

 

(2,534

)

Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operations

 

 

79,954

 

 

19,712

(1)

 

13,216

 

 

8,287

 

 

12,527

(2)

 

25,248

(3)

 

964

 

Hotel activity

 

 

2,533

 

 

 

 

 

 

 

 

 

 

 

 

2,533

 

Trade shows activity

 

 

519

 

 

 

 

 

 

 

 

519

 

 

 

 

 

Total increase in operating expenses

 

 

197,507

 

 

61,712

 

 

22,364

 

 

33,354

 

 

23,033

 

 

40,005

 

 

17,039

 

Depreciation and amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase due to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions/Development

 

 

72,809

 

 

33,776

 

 

3,453

 

 

17,545

 

 

 

 

5,197

 

 

12,838

 

Operations (due to additions to buildings and
improvements)

 

 

18,236

 

 

5,242

 

 

459

 

 

4,332

 

 

2,901

 

 

1,492

 

 

3,810

 

Total increase in depreciation and amortization

 

 

91,045

 

 

39,018

 

 

3,912

 

 

21,877

 

 

2,901

 

 

6,689

 

 

16,648

 

General and administrative:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) due to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions/Development and Other

 

 

13,519

 

 

2,653

 

 

 

 

3,830

 

 

 

 

5,679

 

 

1,357

(4)

Operations

 

 

8,741

 

 

(275

 

(4,206

) (5)

 

960

 

 

2,141

 

 

129

 

 

9,992

(6)

Total increase (decrease) in general and
administrative

 

 

22,260

 

 

2,378

 

 

(4,206

)

 

4,790

 

 

2,141

 

 

5,808

 

 

11,349

 

Costs of acquisition not consummated

 

 

8,807

 

 

 

 

 

 

 

 

 

 

 

 

8,807

 

Total increase in expenses

 

$

319,619

 

$

103,108

 

$

22,070

 

$

60,021

 

$

28,075

 

$

52,502

 

$

53,843

 

_____________________________

(1)

The $19,712 increase in New York Office operating expenses is primarily due to (i) a $7,500 increase in property level costs, (ii) an $8,547 increase in operating expenses of Building Maintenance Services, Inc., a wholly-owned subsidiary which provides cleaning, security and engineering services to New York office properties (for which the corresponding increase in BMS revenues is included in “other income”) and (iii) a $2,409 increase in bad debt expense for which there is no corresponding tenant expense reimbursement.

 

(2)

Reflects an increase in real estate taxes as a result of a reassessment of 2006 ($2,800) and 2007 ($2,200), and from a $1,900 reversal of a reserve for bad debts in 2006.

 

(3)

AmeriCold’s gross margin from comparable warehouses was $113,326 or 33.4% for the nine months ended September 30, 2007, compared to $111,888 or 32.5% for the nine months ended September 30, 2006, an increase of $1,438. Gross margin from transportation management services, managed warehouses and other non-warehouse activities was $13,047 for the nine months ended September 30, 2007, compared to $12,026 for the nine months ended September 30, 2006, an increase of $1,021.

 

(4)

Primarily from India Property Fund organization costs in the current year’s nine months.

 

(5)

Primarily from H Street litigation costs incurred in the prior year’s nine months.

 

(6)

Primarily from an $8,811 increase in amortization of stock-based compensation.

 

68

 


Results of Operations – Nine Months Ended September 30, 2007 and 2006 (continued)

Income Applicable to Alexander’s

 

Our 32.8% share of Alexander’s net income (comprised of equity in net income or loss, management, leasing, development and commitment fees) was $35,114,000 for the nine months ended September 30, 2007, compared to $7,569,000 for the prior year’s nine months, an increase of $27,545,000. This increase was primarily due to (i) our $8,991,000 share of income in the current nine month period for the reversal of accrued stock appreciation rights compensation expense as compared to $18,356,000 for our share of expense in the prior year’s nine months, (ii) an increase of $3,101,000 in our equity in earnings of Alexander’s before stock appreciation rights and net gains on sales of condominiums, (iii) an increase of $2,504,000 in development fees in the current period, partially offset by (iv) our $4,580,000 share of Alexander’s net gain on sale of 731 Lexington Avenue condominiums in the prior year’s nine months.

 

Income Applicable to Toys

 

Our 32.8% share of Toys’ net income (comprised of equity in net income, interest income on loans receivable, and management fees) was $18,343,000 for the nine months ended September 30, 2007, compared to $4,177,000 for the prior year’s nine months, an increase of $14,166,000.

 

Income from Partially Owned Entities

Summarized below are the components of income from partially owned entities for the nine months ended September 30, 2007 and 2006.

Equity in Net Income (Loss):

 

For The Nine Months
Ended September 30,

 

(Amounts in thousands)

 

2007

 

2006

 

H Street non-consolidated subsidiaries:

 

 

 

 

 

50% share of equity in net income (1)

 

$

5,923

 

$

8,376

 

 

 

 

 

 

 

 

 

Beverly Connection:

 

 

 

 

 

 

 

50% share of equity in net loss

 

 

(3,676

)

 

(7,867

)

Interest and fee income

 

 

8,492

 

 

9,199

 

 

 

 

4,816

 

 

1,332

 

GMH Communities L.P:

 

 

 

 

 

 

 

13.5% in 2007 and 11.3% in 2006 share of equity in net income (2)

 

 

5,428

 

 

15

 

 

 

 

 

 

 

 

 

Lexington MLP:

 

 

 

 

 

 

 

7.1% in 2007 and 15.8% in 2006 share of equity in net income (3)

 

 

1,484

 

 

22,177

 

Other (4)

 

 

13,948

 

 

11,796

 

 

 

$

31,599

 

$

43,696

 

________________________

 

(1)

On April 30, 2007, we acquired the corporations that own the remaining 50% interest in these assets and we now consolidate the accounts of these entities into our consolidated financial statements and no longer account for them under the equity method. Prior to the quarter ended September 30, 2006, these corporations were contesting our acquisition of H Street and impeded access to their financial information. Accordingly, we were unable to record our pro rata share of their unable to record our pro rata share of their earnings. During the quarter ended September 30, 2006, we recognized equity in net income of $8,376 from these entities of which $3,890 was for the periods from July 20, 2005 (date of acquisition) to December 31, 2005.

 

 

(2)

We record our pro rata share of GMH’s net income or loss on a one-quarter lag basis because we file our consolidated financial statements on Form 10-K and 10-Q prior to the time that GCT files its financial statements. On July 31, 2006 GCT filed its annual report on Form 10-K for the year ended December 31, 2005, which restated the quarterly financial results of each of the first three quarters of 2005. On September 15, 2006 GCT filed its quarterly reports on Form 10-Q for the quarters ended March 31, 2006 and June 30, 2006. Accordingly, our “equity in net income or loss from partially owned entities” for the nine months ended September 30, 2006 includes equity in net income of $15, which consists of (i) a $94 net loss representing our share of GMH’s fourth quarter results, net of adjustments to restate its first three quarters of 2005 and (ii) $109 of net income for our share of GMH’s 2006 earnings through June 30, 2006.

 

 

(3)

Beginning on January 1, 2007, we record our pro rata share of Lexington MLP’s net income or loss on a one-quarter lag basis because we file our consolidated financial statements on Form 10-K and 10-Q prior to the time that Lexington files its financial statements. Prior to the January 1, 2007, we recorded our pro rata share of Newkirk MLP’s (Lexington MLP’s predecessor) quarterly earnings current in our same quarter. Accordingly, our “equity in net income or loss from partially owned entities” for the nine months ended September 30, 2007 includes our share of Lexington MLP’s net income or loss for its six months ended June 30, 2007.

 

    The decrease in our share of earnings from the prior year’s nine months is primarily due to (i) the current year including our share of Lexington MLP’s first and quarter results (lag basis) compared to the prior year’s nine months including our share of Newkirk MLP’s first, second and third quarter results, (ii) higher depreciation expense and amortization of above market lease intangibles in the current year as a result of Lexington’s purchase price accounting adjustments in connection with the merger of Newkirk MLP on December 31, 2006 and (iii) $10,842 for our share of net gains on sale of real estate in 2006.
     

 

(4)

Includes our equity in net earnings of partially owned entities including, partially owned office buildings in New York and Washington, DC, the Monmouth Mall, Dune Capital LP, Verde Group LLC, and others.

 

69


Results of Operations – Nine Months Ended September 30, 2007 and 2006 (continued)

 

Interest and Other Investment Income  

Interest and other investment income (mark-to-market of derivative positions, interest income on mortgage loans receivable, other interest income and dividend income) was $231,890,000 for the nine months ended September 30, 2007, compared to $137,186,000 for the prior year’s nine months, an increase of $94,704,000. This increase resulted primarily from:

 

(Amounts in thousands)

 

 

 

 

McDonalds derivative position – net gain of $102,803 in this year’s nine months compared to a
net gain of $60,581 in the prior year’s nine months

 

$

42,222

 

Increase in interest income on higher average cash balances ($1,295,000 through September 30,
2007, compared to $391,000 for the prior year’s nine months)

 

 

36,930

 

GMH warrants derivative position – net loss of $16,370 in the prior year’s nine months
(investment converted to common shares of GCT in the second quarter of 2006)

 

 

16,370

 

Sears Holdings derivative position – net gain of $18,611 in the prior year’s nine months
(investment sold in the first quarter of 2006)

 

 

(18,611

)

Other derivatives – net loss of $2,743 in this year’s nine months compared to a net gain of
2,767 in the prior year’s nine months

 

 

(5,510

)

Other, net – primarily due to interest earned on higher average loans receivable and from
prepayment premiums received upon loan repayments

 

 

23,303

 

 

 

$

94,704

 

 

Interest and Debt Expense

Interest and debt expense was $469,659,000 for the nine months ended September 30, 2007, compared to $339,118,000 for the prior year’s nine months, an increase of $130,541,000. This increase was primarily due to (i) $96,532,000 from a $2.8 billion increase in outstanding mortgage debt due to property acquisitions, new property financings and refinancings and repayments, (ii) $53,295,000 from the November 20, 2006 issuance of $1 billion convertible senior debentures and the March 21, 2007 issuance of $1.4 billion convertible senior debentures, partially offset by (iii) an $22,054,000 increase in the amount of capitalized interest in connection with properties under development.

 

Net Gain on Disposition of Wholly Owned and Partially Owned Assets Other than Depreciable Real Estate

Net gain on disposition of wholly owned and partially owned assets other than depreciable real estate was $17,699,000 and $65,527,000 for the nine months ended September 30, 2007, and 2006, respectively, and represents net gains on sale of marketable securities in each period.

 

Minority Interest of Partially Owned Entities

Minority interest of partially owned entities was income of $11,819,000 for the nine months ended September 30, 2007, compared to income of $5,378,000 for the prior year’s nine months and represents the minority partners’ pro rata share of the net income or loss of consolidated partially owned entities, including 1290 Avenue of the Americas, the 555 California Street complex, AmeriCold, 220 Central Park South, Wasserman and the Springfield Mall.

 

Provision For Income Taxes

The provision for income taxes was $6,815,000 for the nine months ended September 30, 2007, compared to $2,362,000 for the prior year’s nine months, an increase of $4,453,000. This increase results from two H Street corporations, which we consolidate as of April 30, 2007, the date we acquired the remaining 50% of these corporations we did not previously own (we previously accounted for our 50% investment on the equity method). Beginning on January 1, 2008, these corporations will elect to be treated as real estate investment trusts under Sections 856-860 of the Internal Revenue Code of 1986, as amended, which will eliminate their Federal income tax provision to the extent that 100% of their taxable income is distributed to shareholders.

 

 

70


Results of Operations – Nine Months Ended September 30, 2007 and 2006 (continued)

 

Income From Discontinued Operations

The combined results of operations of the assets related to discontinued operations for the nine months ended September 30, 2007 and 2006 include Vineland, New Jersey, which was sold on July 16, 2007; Crystal Mall Two, which was sold on August 9, 2007; Arlington Plaza, which was sold on October 17, 2007; 33 North Dearborn Street, which was sold on March 14, 2006; 424 Sixth Avenue, which was sold on March 13, 2006 and 1919 South Eads Street, which was sold on June 22, 2006.

(Amounts in thousands)

 

For the Nine Months
Ended September 30,

 

 

 

2007

 

2006

 

Revenues

 

$

1,746

 

$

12,820

 

Expenses

 

 

4,899

 

 

8,724

 

Net (loss) income

 

 

(3,153

)

 

4,096

 

Net gains on sale of real estate

 

 

27,745

 

 

33,769

 

Income from discontinued operations,
net of minority interest

 

$

24,592

 

$

37,865

 

 

 

EBITDA by Segment

Below are the details of the changes in EBITDA by segment for the nine months ended September 30, 2007 from the nine months ended September 30, 2006.

 

 

 

 

Office

 

 

 

 

 

Temperature

 

 

 

 

(Amounts in thousands)

 

Total

 

New York

 

Washington,
DC

 

Retail

 

Merchandise
Mart

 

Controlled
Logistics

 

Toys

 

Other

Nine months ended
September 30, 2006

 

$

1,348,194

 

$

272,180

 

$

280,105

 

$

206,838

 

$

108,743

 

$

50,943

 

$

242,299

 

$

187,086

2007 Operations:
Same store operations(1)

 

 

 

 

 

25,516

 

 

12,585

 

 

4,823

 

 

(2,720

)

 

(2,519

)

 

 

 

 

 

Acquisitions, dispositions and
non-same store
income and expenses

 

 

 

 

 

79,173

 

 

18,057

 

 

26,859

 

 

(17,737

)

 

1,387

 

 

 

 

 

 

Nine months ended
September 30, 2007

 

$

1,607,906

 

$

376,869

 

$

310,747

 

$

238,520

 

$

88,286

 

$

49,811

 

$

290,280

 

$

253,393

% increase (decrease) in
same store operations

 

 

 

 

 

9.4%

 

 

5.1%

 

 

2.6%

(2)

 

(2.3)%

(3)

 

(4.1)%

 

 

 

 

 

 

__________________________

(1)

Represents the increase (decrease) in property-level operations which were owned for the same period in each year and excludes the effect of property acquisitions, dispositions and other non-operating items that affect comparability, including general and administrative expenses. We utilize this measure to make decisions on whether to buy or sell properties as well as to compare the performance of our properties to that of our peers. Same store operations may not be comparable to similarly titled measures employed by other companies.

 

(2)

The same store increase would be 4.4% exclusive of the effect of tenants vacating 47,550 square feet of New York City retail space in December 2006, at an average rent of $61.00 per square foot. As of September 30, 2007, 10,600 of this square feet has been re-leased at an initial rent of $204.00 per square foot.

 

(3)

Reflects income of $1,900 in 2006 from the reversal of a reserve for bad debts on receivables arising from the straight-lining of rents. The same store operations decreased by 0.7% exclusive of this item.

 

71

 


Liquidity and Capital Resources – Nine Months ended September 30, 2007 and 2006

Cash Flows for the Nine Months Ended September 30, 2007

Our cash and cash equivalents was $834,274,000 at September 30, 2007, a $1,399,043,000 decrease over the balance at December 31, 2006. This decrease resulted from $3,065,557,000 of net cash used in investing activities, partially offset by, $1,179,421,000 of net cash provided by financing activities and $487,093,000 of net cash provided by operating activities. Property rental income represents our primary source of net cash provided by operating activities. Our property rental income is primarily dependent upon the occupancy and rental rates of our properties. Other sources of liquidity to fund our cash requirements include proceeds from debt financings, including mortgage loans and corporate level unsecured borrowings; our revolving credit facilities; proceeds from the issuance of common and preferred equity; and asset sales. Our cash requirements include property operating expenses, capital improvements, tenant improvements, leasing commissions, distributions to our common and preferred shareholders, as well as acquisition and development costs.

 

Our consolidated outstanding debt was $12,576,484,000 at September 30, 2007, a $3,021,686,000 increase over the balance at December 31, 2006. This increase resulted primarily from the issuance of $1,400,000,000 of convertible senior debentures due 2026 and from mortgage debt associated with asset acquisitions and property refinancings during the current quarter. As of September 30, 2007 and December 31, 2006, our revolving credit facilities had a $94,000,000 balance. During 2007 and 2008, $51,689,000 and $538,198,000 of our outstanding debt matures, respectively. We may refinance such debt or choose to repay all or a portion, using existing cash balances or our revolving credit facilities.

 

Our share of debt of unconsolidated subsidiaries was $3,104,451,000 at September 30, 2007, a $218,556,000 decrease from the balance at December 31, 2006. This decrease resulted primarily from our $297,906,000 share of Toys’ decrease in outstanding debt.

 

Cash flows provided by operating activities of $487,093,000 was primarily comprised of (i) net income of $463,692,000, after adjustments of $125,150,000 for non-cash items, including depreciation and amortization expense, net gains from derivative positions, the effect of straight-lining of rental income, equity in net income of partially owned entities, minority interest expense, (ii) distributions of income from partially owned entities of $18,047,000, partially offset by, (iii) the net change in operating assets and liabilities of $119,796,000.

 

Net cash used in investing activities of $3,065,557,000 was primarily comprised of (i) acquisitions of real estate of $2,775,982,000, (ii) investments in notes and mortgage loans receivable of $211,942,000, (iii) deposits in connection with real estate acquisitions and pre-acquisition costs of $21,231,000, (iv) investments in partially owned entities of $201,432,000, (v) development and redevelopment expenditures of $231,575,000, (vi) investments in marketable securities of $152,683,000, partially offset by, (vii) proceeds received from repayments on mortgage loans receivable of $211,942,000 and (viii) proceeds received from sales of real estate of $217,941,000.

 

Net cash provided by financing activities of $1,179,421,000 was primarily comprised of (i) proceeds from borrowings of $2,517,105,000, of which $1,372,000,000 were proceeds received from the offering of the 2.85% convertible senior debentures due 2027, partially offset by, (ii) repayments of borrowings of $727,730,000, (iii) dividends paid on common shares of $387,268,000, (iv) purchases of marketable securities in connection with the legal defeasance of mortgage notes payable of $109,092,000, (v) distributions to minority partners of $62,169,000, and (vi) dividends paid on preferred shares of $42,940,000.

 

Capital Expenditures

Our capital expenditures consist of expenditures to maintain assets, tenant improvements and leasing commissions. Recurring capital improvements include expenditures to maintain a property’s competitive position within the market and tenant improvements and leasing commissions necessary to re-lease expiring leases or renew or extend existing leases. Non-recurring capital improvements include expenditures 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. Our development and redevelopment expenditures include all hard and soft costs associated with the development or redevelopment of a property, including tenant improvements, leasing commissions and capitalized interest and operating costs until the property is substantially complete and ready for its intended use.

 

72

 


Liquidity and Capital Resources – Nine Months ended September 30, 2007 and 2006 (continued)

 

Below are the details of capital expenditures, leasing commissions and development and redevelopment expenditures and a reconciliation of total expenditures on an accrual basis to the cash expended in the nine months ended September 30, 2007.

 

 

 

 

 

 

Office

 

 

 

 

 

 

 

Temperature

 

 

 

 

(Amounts in thousands)

 

Total

 

New York

 

Washington,
DC

 

Retail

 

Merchandise
Mart

 

Controlled
Logistics

 

Other

 

Capital Expenditures

(Accrual basis):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenditures to maintain the assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring

 

$

40,047

 

$

9,380

 

$

8,808

 

$

1,477

 

$

9,172

 

$

11,188

 

$

22

 

Non-recurring

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

40,047

 

 

9,380

 

 

8,808

 

 

1,477

 

 

9,172

 

 

11,188

 

 

22

 

Tenant improvements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring

 

 

61,107

 

 

25,781

 

 

17,472

 

 

2,184

 

 

15,670

 

 

 

 

 

Non-recurring

 

 

260

 

 

 

 

 

 

260

 

 

 

 

 

 

 

Total

 

 

61,367

 

 

25,781

 

 

17,472

 

 

2,444

 

 

15,670

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leasing Commissions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring

 

 

29,311

 

 

18,581

 

 

5,871

 

 

2,228

 

 

2,631

 

 

 

 

 

Non-recurring

 

 

381

 

 

 

 

 

 

381

 

 

 

 

 

 

 

Total

 

 

29,692

 

 

18,581

 

 

5,871

 

 

2,609

 

 

2,631

 

 

 

 

 

Tenant improvements and leasing
commissions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per square foot

 

$

21.75

 

$

48.69

 

$

14.93

 

$

10.40

 

$

17.17

 

 

 

 

 

 

 

Per square foot per annum

 

$

3.12

 

$

5.41

 

$

2.53

 

$

1.21

 

$

2.82

 

 

 

 

 

 

 

Percentage of initial rent

 

 

7.7%

 

 

7.4%

 

 

7.1%

 

 

3.6%

 

 

10.8%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Capital Expenditures and
Leasing Commissions
(accrual basis)

 

$

131,106

 

$

53,742

 

$

32,151

 

$

6,530

 

$

27,473

 

$

11,188

 

$

22

 

Adjustments to reconcile accrual
basis to cash basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenditures in the current year
applicable to prior periods

 

 

49,843

 

 

13,420

 

 

25,115

 

 

3,368

 

 

7,940

 

 

 

 

 

Expenditures to be made in future
periods for the current period

 

 

(63,695

)

 

(32,594

)

 

(16,873

)

 

(3,797

)

 

(10,431

)

 

 

 

 

Total Capital Expenditures and
Leasing Commissions
(Cash basis)

 

$

117,254

 

$

34,568

 

$

40,393

 

$

6,101

 

$

24,982

 

$

11,188

 

$

22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Development and Redevelopment
Expenditures (1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bergen Town Center

 

$

41,043

 

$

 

$

 

$

41,043

 

$

 

$

 

$

 

2101 L Street

 

 

28,387

 

 

 

 

28,387

 

 

 

 

 

 

 

 

 

Crystal Mall Two

 

 

26,895

 

 

 

 

26,895

 

 

 

 

 

 

 

 

 

Wasserman venture

 

 

26,893

 

 

 

 

 

 

 

 

 

 

 

 

26,893

 

Green Acres Mall

 

 

26,830

 

 

 

 

 

 

26,830

 

 

 

 

 

 

 

North Bergen, New Jersey
(Ground-up development)

 

 

14,493

 

 

 

 

 

 

14,493

 

 

 

 

 

 

 

220 Central Park South

 

 

12,400

 

 

 

 

 

 

 

 

 

 

 

 

12,400

 

Springfield Mall

 

 

4,412

 

 

 

 

 

 

4,412

 

 

 

 

 

 

 

888 Seventh Avenue

 

 

4,211

 

 

4,211

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

46,011

 

 

2,953

 

 

21,353

 

 

12,596

 

 

 

 

 

 

9,109

 

 

 

$

231,575

 

$

7,164

 

$

76,635

 

$

99,374

 

$

 

$

 

$

48,402

 

_______________________

 

(1)

Excludes development expenditures of partially owned, non-consolidated investments.

 

73

 


Liquidity and Capital Resources – Nine Months ended September 30, 2007 and 2006 (continued)

 

Cash Flows for the Nine Months Ended September 30, 2006

 

Our cash and cash equivalents was $386,882,000 at September 30, 2006, a $92,378,000 increase over the balance at December 31, 2005. This increase resulted from $486,838,000 of net cash provided by operating activities, $374,854,000 of net cash provided by financing activities, partially offset by $769,314,000 of net cash used in investing activities. Property rental income represents our primary source of net cash provided by operating activities. Our property rental income is primarily dependent upon the occupancy and rental rates of our properties. Other sources of liquidity to fund our cash requirements include proceeds from debt financings, including mortgage loans and corporate level unsecured borrowings; our $1 billion revolving credit facility; proceeds from the issuance of common and preferred equity; and asset sales. Our cash requirements include property operating expenses, capital improvements, tenant improvements, leasing commissions, distributions to our common and preferred shareholders, as well as acquisition and development costs.

 

Our consolidated outstanding debt was $7,382,460,000 at September 30, 2006, a $1,139,334,000 increase over the balance at December 31, 2005. This increase resulted primarily from debt associated with asset acquisitions and property refinancings during 2006.

 

Our share of debt of unconsolidated subsidiaries was $3,286,180,000 at September 30, 2006, a $283,834,000 increase over the balance at December 31, 2005. This increase resulted primarily from our $92,120,000 share of an increase in Toys “R” Us outstanding debt and from debt associated with asset acquisitions and refinancings.

 

Cash flows provided by operating activities of $486,838,000 was primarily comprised of (i) net income of $440,364,000, after adjustments of $96,823,000 for non-cash items, including depreciation and amortization expense, the effect of straight-lining of rental income, minority interest expense and net gains on sale of real estate and assets other than depreciable real estate, (ii) distributions of income from partially-owned entities of $27,518,000, partially offset by, (iii) the net change in operating assets and liabilities of $77,867,000.

 

Net cash used in investing activities of $769,314,000 was primarily comprised of (i) investments in notes and mortgage loans receivable of $361,841,000, (ii) capital expenditures of $139,751,000, (iii) development and redevelopment expenditures of $156,051,000, (iv) investments in partially-owned entities of $112,729,000, (v) acquisitions of real estate of $572,472,000, (vi) investments in marketable securities of $83,698,000, (vii) deposits in connection with real estate acquisitions, including pre-acquisition costs, of $21,676,000, (viii) restricted cash, including mortgage escrows, of $2,527,000, partially offset by, (ix) proceeds received on the settlement of derivatives (primarily Sears Holdings) of $135,028,000, (x) proceeds from the sale of real estate of $110,388,000, (xi) distributions of capital from partially-owned entities of $108,779,000, (xii) proceeds from the sale of, and returns of investment in, marketable securities of $157,363,000, and (xiii) proceeds from  repayments on notes and mortgages receivable of $169,746,000.

 

Net cash provided by financing activities of $374,854,000 was primarily comprised of (i) proceeds from borrowings of $1,807,091,000, (ii) proceeds from the issuance of preferred units of $43,862,000, (iii) proceeds of $9,510,000 from the exercise by employees of share options, partially offset by, (iv) dividends paid on common shares of $339,844,000, (v) repayments of borrowings of $802,785,000, (vi) purchases of marketable securities in connection with the legal defeasance of mortgage notes payable of $174,254,000, (vii) dividends paid on preferred shares of $43,257,000, (viii) distributions to minority partners of $65,303,000 and (ix) debt issuance costs of $15,166,000.

 

 

 

74

 


Liquidity and Capital Resources – Nine Months ended September 30, 2007 and 2006 (continued)

 

Below are the details of capital expenditures, leasing commissions and development and redevelopment expenditures and a reconciliation of total expenditures on an accrual basis to the cash expended in the nine months ended September 30, 2006.

 

(Amounts in thousands)

 

 

 

Office

 

 

 

 

 

Temperature

 

 

 

Capital Expenditures

(Accrual basis):

 

Total

 

New York

 

Washington,
DC

 

Retail

 

Merchandise
Mart

 

Controlled
Logistics

 

Other

 

Expenditures to maintain the assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring

 

$

35,863

 

$

9,260

 

$

13,459

 

$

618

 

$

7,690

 

$

1,520

 

$

3,316

 

Non-recurring

 

 

2,021

 

 

 

 

2,021

 

 

 

 

 

 

 

 

 

Total

 

 

37,884

 

 

9,260

 

 

15,480

 

 

618

 

 

7,690

 

 

1,520

 

 

3,316

 

Tenant improvements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring

 

 

75,007

 

 

38,493

 

 

22,059

 

 

4,910

 

 

9,545

 

 

 

 

 

Non-recurring

 

 

1,737

 

 

 

 

89

 

 

1,648

 

 

 

 

 

 

 

Total

 

 

76,744

 

 

38,493

 

 

22,148

 

 

6,558

 

 

9,545

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leasing Commissions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring

 

 

25,636

 

 

17,640

 

 

5,218

 

 

2,049

 

 

729

 

 

 

 

 

Non-recurring

 

 

290

 

 

 

 

32

 

 

258

 

 

 

 

 

 

 

Total

 

 

25,926

 

 

17,640

 

 

5,250

 

 

2,307

 

 

729

 

 

 

 

 

Tenant improvements and leasing
commissions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per square foot

 

$

19.46

 

$

38.83

 

$

16.21

 

$

7.92

 

$

9.97

 

 

 

 

 

 

 

Per square foot per annum

 

$

2.33

 

$

4.03

 

$

2.42

 

$

0.64

 

$

1.59

 

 

 

 

 

 

 

Percentage of initial rent

 

 

7.0%

 

 

8.0%

 

 

7.7%

 

 

2.9%

 

 

6.6%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Capital Expenditures and
Leasing Commissions
(accrual basis)

 

$

140,554

 

$

65,393

 

$

42,878

 

$

9,483

 

$

17,964

 

$

1,520

 

$

3,316

 

Adjustments to reconcile accrual
basis to cash basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenditures in the current year
applicable to prior periods

 

 

49,122

 

 

21,324

 

 

22,736

 

 

768

 

 

4,294

 

 

 

 

 

Expenditures to be made in future
periods for the current period

 

 

(64,003

)

 

(33,494

)

 

(19,787

)

 

(8,184

)

 

(2,538

)

 

 

 

 

Total Capital Expenditures and
Leasing Commissions
(Cash basis)

 

$

125,673

 

$

53,223

 

$

45,827

 

$

2,067

 

$

19,720

 

$

1,520

 

$

3,316

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Development and Redevelopment
Expenditures: (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North Bergen, New Jersey
(Ground-up development)

 

$

27,294

 

$

 

$

 

$

27,294

 

$

 

$

 

$

 

Green Acres Mall

 

 

26,235

 

 

 

 

 

 

26,235

 

 

 

 

 

 

 

Wasserman Venture

 

 

24,422

 

 

 

 

 

 

 

 

 

 

 

 

24,422

 

Bergen Town Center

 

 

15,582

 

 

 

 

 

 

15,582

 

 

 

 

 

 

 

Crystal Plazas (PTO)

 

 

9,671

 

 

 

 

9,671

 

 

 

 

 

 

 

 

 

7 W. 34th Street

 

 

8,883

 

 

 

 

 

 

 

 

8,883

 

 

 

 

 

220 Central Park South

 

 

8,646

 

 

 

 

 

 

 

 

 

 

 

 

8,646

 

1740 Broadway

 

 

8,127

 

 

8,127

 

 

 

 

 

 

 

 

 

 

 

2101 L Street

 

 

2,582

 

 

 

 

2,582

 

 

 

 

 

 

 

 

 

 

 

640 Fifth Avenue

 

 

1,729

 

 

1,729

 

 

 

 

 

 

 

 

 

 

 

Crystal Mall Two

 

 

1,609

 

 

 

 

1,609

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

13,244

 

 

668

 

 

1,678

 

 

9,073

 

 

 

 

 

 

1,825

 

 

 

$

148,024

 

$

10,524

 

$

15,540

 

$

78,184

 

$

8,883

 

$

 

$

34,893

 

___________________

(1)

Excludes development expenditures of partially owned, non-consolidated investments.

 

75

 


SUPPLEMENTAL INFORMATION

 

Three Months Ended September 30, 2007 vs. Three Months Ended June 30, 2007

Below are the details of the changes in EBITDA by segment for the three months ended September 30, 2007 from the three months ended June 30, 2007.

 

 

 

 

 

Office

 

 

 

 

 

Temperature

 

 

 

 

 

(Amounts in thousands)

 

Total

 

New
York

 

Washington,
DC

 

Retail

 

Merchandise
Mart

 

Controlled
Logistics

 

Toys

 

Other

 

For the three months ended
June 30, 2007

 

$

526,682

 

$

124,595

 

$

98,676

 

$

79,328

 

$

30,709

 

$

17,422

 

$

39,324

 

$

136,628

 

2007 Operations:
Same store operations(1)

 

 

 

 

 

186

 

 

(2,042

)

 

742

 

 

84

 

 

(831

)

 

 

 

 

 

 

Acquisitions, dispositions
and non-same store
income and expenses

 

 

 

 

 

12,956

 

 

24,259

 

 

4,228

 

 

(5,537

)

 

(346

)

 

 

 

 

 

 

For the three months ended
September 30, 2007

 

$

496,787

 

$

137,737

 

$

120,893

 

$

84,298

 

$

25,256

 

$

16,245

 

$

36,868

 

$

75,490

 

% increase (decrease) in
same store operations

 

 

 

 

 

0.2%

(2)

 

(2.3)%

(2)

 

1.0%

 

 

0.2%

(3)

 

(4.0)%

(3)

 

 

 

 

 

 

______________________________________

 

(1)

Represents the increase (decrease) in property-level operations which were owned for the same period in each year and excludes the effect of property acquisitions, dispositions and other non-operating items that affect comparability, including general and administrative expenses. We utilize this measure to make decisions on whether to buy or sell properties as well as to compare the performance of our properties to that of our peers. Same store operations may not be comparable to similarly titled measures employed by other companies.

 

 

(2)

Reflects a seasonal increase in utility costs during the third quarter, of which $4,648 relates to the New York portfolio and $1,597 relates to the Washington, DC portfolio. Same store operations exclusive of the seasonal increase in utilities increased by 4.6% for the New York portfolio and decreased by 0.4% for the Washington, DC portfolio.

 

 

(3)

Results primarily from seasonality of operations.

 

 

The following table reconciles Net income to EBITDA for the quarter ended June 30, 2007.

 

 

 

 

Office

 

 

 

 

 

Temperature

 

 

 

 

 

(Amounts in thousands)

Total

 

New
York

 

Washington,
DC

 

Retail

 

Merchandise
Mart

 

Controlled
Logistics

 

Toys

 

Other

 

Net income (loss) for the
three months ended
June 30, 2007

$

165,920

 

$

55,064

 

$

29,961

 

$

33,756

 

$

5,679

 

$

(557

)

$

(20,029

)

$

62,046

 

Interest and debt expense

 

202,843

 

 

31,831

 

 

32,095

 

 

22,478

 

 

13,264

 

 

7,735

 

 

40,984

 

 

54,456

 

Depreciation and
amortization

 

165,990

 

 

36,600

 

 

32,831

 

 

22,912

 

 

11,525

 

 

9,740

 

 

33,303

 

 

19,079

 

Income tax expense

 

(8,071

)

 

1,100

 

 

3,789

 

 

182

 

 

241

 

 

504

 

 

(14,934

)

 

1,047

 

EBITDA for the three
months ended
June 30, 2007

$

526,682

 

$

124,595

 

$

98,676

 

$

79,328

 

$

30,709

 

$

17,422

 

$

39,324

 

$

136,628

 

 

 

76


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 net income or loss determined in accordance with Generally Accepted Accounting Principles (“GAAP”), excluding extraordinary items as defined under GAAP and gains or losses from sales of previously depreciated operating real estate assets, plus specified non-cash items, such as real estate asset depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. FFO does not represent cash generated from operating activities in accordance with GAAP and is not necessarily indicative of cash available to fund cash needs as disclosed in our Consolidated Statements of Cash Flows. FFO should not be considered as an alternative to net income as an indicator of our operating performance or as an alternative to cash flows as a measure of liquidity.

 

FFO and FFO per diluted share are used by management, investors and industry analysts as supplemental measures of operating performance of equity REITs. FFO and FFO per diluted share should be evaluated along with GAAP net income and income per diluted share (the most directly comparable GAAP measures), as well as cash flow from operating activities, investing activities and financing activities, in evaluating the operating performance of equity REITs. We believe that FFO and FFO per diluted share are helpful to investors as supplemental performance measures because these measures exclude the effect of depreciation, amortization and gains or losses from sales of real estate, all of which are based on historical costs which implicitly assumes that the value of real estate diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, these non-GAAP measures can facilitate comparisons of operating performance between periods and among other equity REITs.

 

The calculations of both the numerator and denominator used in the computation of income per share are disclosed in footnote 12 - Income Per Share, in the notes to our consolidated financial statements on page 26 of this Quarterly Report on Form 10-Q.

 

FFO applicable to common shares plus assumed conversions was $221,199,000, or $1.35 per diluted share for the three months ended September 30, 2007, compared to $204,535,000, or $1.31 per diluted share for the prior year’s quarter. FFO applicable to common shares plus assumed conversions was $773,457,000, or $4.71 per diluted share for the nine months ended September 30, 2007, compared to $646,881,000, or $4.17 per diluted share for the prior years nine months. Details of certain items that affect comparability are discussed in the financial results summary of our “Overview.”

 

(Amounts in thousands except per share amounts)

 

For The Three
Months Ended
September 30,

 

For The Nine
Months Ended
September 30,

 

Reconciliation of Net Income to FFO:

 

2007

 

2006

        

2007

 

2006

 

Net income

 

$

130,841

 

$

127,983

 

$

463,692

 

$

440,364

 

Depreciation and amortization of real property

 

 

117,148

 

 

86,235

 

 

325,324

 

 

246,834

 

Net gains on sale of real estate

 

 

(22,942

)

 

 

 

(22,942

)

 

(33,769

)

Proportionate share of adjustments to equity in net income of Toys to arrive at FFO:

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization of real property

 

 

17,949

 

 

13,468

 

 

68,984

 

 

41,391

 

Net gains on sale of real estate

 

 

 

 

(329

)

 

(493

)

 

 

Income tax effect of above adjustments

 

 

(6,282

)

 

(5,190

)

 

(23,972

)

 

(16,031

)

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

 

 

13,506

 

 

14,058

 

 

36,091

 

 

34,155

 

Net gains on sale of real estate

 

 

(8,980

)

 

(10,842

)

 

(8,980

)

 

(10,842

)

Minority limited partners’ share of above adjustments

 

 

(11,070

)

 

(11,729

)

 

(37,570

)

 

(27,849

)

FFO

 

 

230,170

 

 

213,654

 

 

800,134

 

 

674,253

 

Preferred share dividends

 

 

(14,295

)

 

(14,351

)

 

(42,886

)

 

(43,162

)

FFO applicable to common shares

 

 

215,875

 

 

199,303

 

 

757,248

 

 

631,091

 

Interest on 3.875% exchangeable senior debentures

 

 

5,256

 

 

5,093

 

 

15,768

 

 

15,281

 

Series A convertible preferred dividends

 

 

68

 

 

139

 

 

441

 

 

509

 

FFO applicable to common shares plus assumed conversions

 

$

221,199

 

$

204,535

 

$

773,457

 

$

646,881

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Weighted Average Shares:

 

 

151,990

 

 

141,684

 

 

151,739

 

 

141,413

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock options and restricted share awards

 

 

6,407

 

 

8,174

 

 

6,743

 

 

7,935

 

3.875% exchangeable senior debentures

 

 

5,559

 

 

5,531

 

 

5,559

 

 

5,531

 

Series A convertible preferred shares

 

 

116

 

 

239

 

 

172

 

 

289

 

Denominator for diluted FFO per share

 

 

164,072

 

 

155,628

 

 

164,213

 

 

155,168

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFO applicable to common shares plus assumed conversions per diluted share

 

$

1.35

 

$

1.31

 

$

4.71

 

$

4.17

 

 

 

77

 


Item 3.

Quantitative and Qualitative Disclosures About Market Risk

We have exposure to fluctuations in market interest rates. Market interest rates are highly 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)

As at September 30, 2007

 

As at December 31, 2006

 

Balance

 

Weighted
Average
Interest Rate

 

Effect of 1%
Change In
Base Rates

 

Balance

 

Weighted
Average
Interest Rate

Consolidated debt:

 

 

 

 

 

 

 

 

 

 

 

 

Variable rate

$

675,822

 

6.59%

 

$

6,758

 

$

728,363

 

6.48%

Fixed rate

 

11,900,662

 

5.25%

 

 

 

 

8,826,435

 

5.56%

 

$

12,576,484

 

5.32%

 

 

6,758

 

$

9,554,798

 

5.63%

Pro-rata share of debt of non-
consolidated entities (non-recourse):

 

 

 

 

 

 

 

 

 

 

 

 

Variable rate – excluding Toys

$

135,614

 

7.24%

 

 

1,356

 

$

162,254

 

7.31%

Variable rate – Toys

 

949,218

 

7.74%

 

 

9,492

 

 

1,213,479

 

7.03%

Fixed rate (including $1,023,797,
and $1,057,422 of Toys debt in
2007 and 2006)

 

2,019,619

 

6.89%

 

 

 

 

1,947,274

 

6.95%

 

$

3,104,451

 

7.17%

 

 

10,848

 

$

3,323,007

 

7.00%

Minority limited partners’ share of above

 

 

 

 

 

 

(1,761

)

 

 

 

 

Total change in annual net income

 

 

 

 

 

$

15,845

 

 

 

 

 

Per share-diluted

 

 

 

 

 

$

0.10

 

 

 

 

 

 

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. In addition, we have notes and mortgage loans receivables aggregating $295,889,000, as of September 30, 2007, which are based on variable rates and partially mitigate our exposure to a change in interest rates.

 

Fair Value of Our Debt

 

The carrying amount of our debt exceeds its aggregate fair value, based on 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, by approximately $421,002,000 at September 30, 2007.

 

Derivative Instruments

 

We have, and may in the future enter into, derivative positions that do not qualify for hedge accounting treatment, including our economic interest in McDonald’s common shares. Because these derivatives do not qualify for hedge accounting treatment, the gains or losses resulting from their mark-to-market at the end of each reporting period are recognized as an increase or decrease in “interest and other investment income” on our consolidated statements of income. In addition, we are, and may in the future be, subject to additional expense based on the notional amount of the derivative positions and a specified spread over LIBOR. Because the market value of these instruments can vary significantly between periods, we may experience significant fluctuations in the amount of our investment income or expense. During the three and nine months ended September 30, 2007, we recognized net gains aggregating approximately $18,606,000 and $100,060,000 respectively, from these positions, after all expenses and LIBOR charges.

 

78

 


 

Item 4.

Controls and Procedures

Disclosure Controls and Procedures: The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2007, such disclosure controls and procedures were effective.

 

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

 

79

 


 

 

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

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

 

The following updates the discussion set forth under “Item 3. Legal Proceedings” in our Annual Report on Form 10-K for the year ended December 31, 2006.

 

Stop & Shop

On January 8, 2003, Stop & Shop filed a complaint with the United States District Court for the District of New Jersey (“USDC-NJ”) claiming we had no right to reallocate and therefore continue to collect $5,000,000 of annual rent from Stop & Shop pursuant to the Master Agreement and Guaranty. Stop & Shop asserted that a prior order of the Bankruptcy Court for the Southern District of New York dated February 6, 2001, as modified on appeal to the District Court for the Southern District of New York on February 13, 2001, froze our right to re-allocate which effectively terminated our right to collect the additional rent from Stop & Shop. On March 3, 2003, after we moved to dismiss for lack of jurisdiction, Stop & Shop voluntarily withdrew its complaint. On March 26, 2003, Stop & Shop filed a new complaint in New York Supreme Court, asserting substantially the same claims as in its USDC-NJ complaint. We removed the action to the United States District Court for the Southern District of New York. In January 2005 that court remanded the action to the New York Supreme Court. On February 14, 2005, we served an answer in which we asserted a counterclaim seeking a judgment for all the unpaid additional rent accruing through the date of the judgment and a declaration that Stop & Shop will continue to be liable for the additional rent as long as any of the leases subject to the Master Agreement and Guaranty remain in effect. On May 17, 2005, we filed a motion for summary judgment. On July 15, 2005, Stop & Shop opposed our motion and filed a cross-motion for summary judgment. On December 13, 2005, the Court issued its decision denying the motions for summary judgment. Both parties appealed the Court’s decision and on December 14, 2006, the Appellate Court division issued a decision affirming the Court’s decision. On January 16, 2007 we filed a motion for the reconsideration of one aspect of the Appellate Court’s decision which was denied on March 13, 2007. On April 16, 2007, the Court directed that discovery should be completed by December 2007, with a trial date to be determined thereafter. We intend to vigorously pursue our claims against Stop & Shop.

 

1290 Avenue of the Americas and 555 California Street

 

On May 24, 2007, we acquired a 70% controlling interest in 1290 Avenue of the Americas and the 555 California Street complex. Our 70% interest was acquired through the purchase of all of the shares of a group of foreign companies that own, through U.S. entities, the 1% sole general partnership interest and a 69% limited partnership interest in the partnerships that own the two properties. The remaining 30% limited partnership interest is owned by Donald J. Trump.

 

In August 2005, Mr. Trump brought a lawsuit in the New York State Supreme Court against, among others, the general partners of the partnerships referred to above.   Mr. Trump’s claims arose out of a dispute over the sale price of, and use of proceeds from, the sale of properties located on the former Penn Central rail yards between West 59th and 72nd Streets in Manhattan which were formerly owned by the partnerships. In decisions dated September 14, 2005 and July 24, 2006, the Court denied various of Mr. Trump’s motions and ultimately dismissed all of Mr. Trump’s claims, except for his claim seeking access to books and records. In a decision dated October 1, 2007, the Court determined that Mr. Trump already received access to the books and records to which he was entitled, with the exception of certain documents which the general partners have requested from third parties but have not yet been received. Mr. Trump has sought re-argument and renewal on, and filed a notice of appeal in connection with, his dismissed claims.  

 

In connection with the acquisition, we agreed to indemnify the sellers for liabilities and expenses arising out of Mr. Trump’s claim that the general partners of the partnerships we acquired did not sell the rail yards at a fair price or could have sold the rail yards for a greater price and any other claims asserted in the legal action; provided however, that if Mr. Trump prevails on certain claims involving partnership matters, other than claims relating to sale price, the sellers will be required to reimburse us for certain costs related to those claims. We believe that the claims relating to the sale price are without merit. All other allegations are not asserted as a basis for damages and regardless of merit would not be material to our consolidated financial statements.

 

80

 


Item 1A. Risk Factors

There were no material changes to the Risk Factors disclosed in our annual report on Form 10-K for the year ended December 31, 2006.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None.

 

Item 3.

Defaults Upon Senior Securities

None.

 

Item 4.

Submission of Matters to a Vote of Security Holders

None.

 

Item 5.

Other Information

None.

 

Item 6.

Exhibits

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

 

 

 

81

 


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: October 30, 2007

By:

/s/ Joseph Macnow

 

 

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

 

 

 

82

 


EXHIBIT INDEX

Exhibit No.

 

 

 

 

3.1

 

-

Amended and Restated Declaration of Trust of Vornado Realty Trust, as filed with the State
Department of Assessments and Taxation of Maryland on April 16, 1993 - Incorporated
by reference to Exhibit 3(a) to Vornado Realty Trust’s Registration Statement on Form
S-4/A (File No. 33-60286), filed on April 15, 1993

*

 

 

 

 

 

3.2

 

-

Articles of Amendment of Declaration of Trust of Vornado Realty Trust, as filed with the
State Department of Assessments and Taxation of Maryland on May 23, 1996 –
Incorporated by reference to Exhibit 3.2 to Vornado Realty Trust’s Annual Report on
Form 10-K for the year ended December 31, 2001 (File No. 001-11954), filed on
March 11, 2002

*

 

 

 

 

 

3.3

 

-

Articles of Amendment of Declaration of Trust of Vornado Realty Trust, as filed with the
State Department of Assessments and Taxation of Maryland on April 3, 1997 –
Incorporated by reference to Exhibit 3.3 to Vornado Realty Trust’s Annual Report on
Form 10-K for the year ended December 31, 2001 (File No. 001-11954), filed on
March 11, 2002

*

 

 

 

 

 

3.4

 

-

Articles of Amendment of Declaration of Trust of Vornado Realty Trust, as filed with the
State Department of Assessments and Taxation of Maryland on October 14, 1997 -
Incorporated by reference to Exhibit 3.2 to Vornado Realty Trust’s Registration Statement
on Form S-3 (File No. 333-36080), filed on May 2, 2000

*

 

 

 

 

 

3.5

 

-

Articles of Amendment of Declaration of Trust of Vornado Realty Trust, as filed with the
State Department of Assessments and Taxation of Maryland on April 22, 1998 -
Incorporated by reference to Exhibit 3.5 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

 

-

Articles of Amendment of Declaration of Trust of Vornado Realty Trust, as filed with the
State Department of Assessments and Taxation of Maryland on November 24, 1999 -
Incorporated by reference to Exhibit 3.4 to Vornado Realty Trust’s Registration Statement
on Form S-3 (File No. 333-36080), filed on May 2, 2000

*

 

 

 

 

 

3.7

 

-

Articles of Amendment of Declaration of Trust of Vornado Realty Trust, as filed with the
State Department of Assessments and Taxation of Maryland on April 20, 2000 -
Incorporated by reference to Exhibit 3.5 to Vornado Realty Trust’s Registration Statement
on Form S-3 (File No. 333-36080), filed on May 2, 2000

*

 

 

 

 

 

3.8

 

-

Articles of Amendment of Declaration of Trust of Vornado Realty Trust, as filed with the
State Department of Assessments and Taxation of Maryland on September 14, 2000 -
Incorporated by reference to Exhibit 4.6 to Vornado Realty Trust’s Registration Statement
on Form S-8 (File No. 333-68462), filed on August 27, 2001

*

 

 

 

 

 

3.9

 

-

Articles of Amendment of Declaration of Trust of Vornado Realty Trust, dated May 31,
2002, as filed with the State Department of Assessments and Taxation of Maryland on
June 13, 2002 - Incorporated by reference to Exhibit 3.9 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

*

 

 

 

 

 

 


*

 

_______________________
Incorporated by reference.

 

 

83

 


 

3.10

 

-

Articles of Amendment of Declaration of Trust of Vornado Realty Trust, dated June 6, 2002,
as filed with the State Department of Assessments and Taxation of Maryland on
June 13, 2002 - Incorporated by reference to Exhibit 3.10 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

*

 

 

 

 

 

3.11

 

-

Articles of Amendment of Declaration of Trust of Vornado Realty Trust, dated December 16,
2004, as filed with the State Department of Assessments and Taxation of Maryland on
December 16, 2004 – Incorporated by reference to Exhibit 3.1 to Vornado Realty Trust’s
Current Report on Form 8-K (File No. 001-11954), filed on December 21, 2004

*

 

 

 

 

 

3.12

 

-

Articles Supplementary Classifying Vornado Realty Trust’s $3.25 Series A Convertible
Preferred Shares of Beneficial Interest, liquidation preference $50.00 per share -
Incorporated by reference to Exhibit 3.11 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

*

 

 

 

 

 

3.13

 

-

Articles Supplementary Classifying Vornado Realty Trust’s $3.25 Series A Convertible
Preferred Shares of Beneficial Interest, liquidation preference $25.00 per share, as filed
with the State Department of Assessments and Taxation of Maryland on December 15,
1997- Incorporated by reference to Exhibit 3.10 to Vornado Realty Trust’s Annual Report
on Form 10-K for the year ended December 31, 2001 (File No. 001-11954), filed on
March 11, 2002

*

 

 

 

 

 

3.14

 

-

Articles Supplementary Classifying Vornado Realty Trust’s Series D-6 8.25% Cumulative
Redeemable Preferred Shares, liquidation preference $25.00 per share, as filed with the
State Department of Assessments and Taxation of Maryland on May 1, 2000 -
Incorporated by reference to Exhibit 3.1 to Vornado Realty Trust’s Current Report on
Form 8-K (File No. 001-11954), filed May 19, 2000

*

 

 

 

 

 

3.15

 

-

Articles Supplementary Classifying Vornado Realty Trust’s Series D-8 8.25% Cumulative
Redeemable Preferred Shares, liquidation preference $25.00 per share - Incorporated by
reference to Exhibit 3.1 to Vornado Realty Trust’s Current Report on Form 8-K
(File No. 001-11954), filed on December 28, 2000

*

 

 

 

 

 

3.16

 

-

Articles Supplementary Classifying Vornado Realty Trust’s Series D-9 8.75% Preferred
Shares, liquidation preference $25.00 per share, as filed with the State Department of
Assessments and Taxation of Maryland on September 25, 2001 – Incorporated
by reference to Exhibit 3.1 to Vornado Realty Trust’s Current Report on Form 8-K
(File No. 001-11954), filed on October 12, 2001

*

 

 

 

 

 

3.17

 

-

Articles Supplementary Classifying Vornado Realty Trust’s Series D-10 7.00% Cumulative
Redeemable Preferred Shares, liquidation preference $25.00 per share, as filed with the
State Department of Assessments and Taxation of Maryland on November 17, 2003 –
Incorporated by reference to Exhibit 3.1 to Vornado Realty Trust’s Current Report on
Form 8-K (File No. 001-11954), filed on November 18, 2003

*

 

 

 

 

 

3.18

 

-

Articles Supplementary Classifying Vornado Realty Trust’s Series D-11 7.20% Cumulative
Redeemable Preferred Shares, liquidation preference $25.00 per share, as filed with the
State Department of Assessments and Taxation of Maryland on May 27, 2004 -
Incorporated by reference to Exhibit 99.1 to Vornado Realty Trust’s Current Report on
Form 8-K (File No. 001-11954), filed on June 14, 2004

*

 

 

 

 

 

 


*

 

_______________________
Incorporated by reference.

 

 

84

 


 

3.19

 

-

Articles Supplementary Classifying Vornado Realty Trust’s 7.00% Series E Cumulative
Redeemable Preferred Shares of Beneficial Interest, liquidation preference $25.00 per
share - Incorporated by reference to Exhibit 3.27 to Vornado Realty Trust’s Registration
Statement on Form 8-A (File No. 001-11954), filed on August 20, 2004

*

 

 

 

 

 

3.20

 

-

Articles Supplementary Classifying Vornado Realty Trust’s 6.75% Series F Cumulative
Redeemable Preferred Shares of Beneficial Interest, liquidation preference $25.00 per
share - Incorporated by reference to Exhibit 3.28 to Vornado Realty Trust’s Registration
Statement on Form 8-A (File No. 001-11954), filed on November 17, 2004

*

 

 

 

 

 

3.21

 

-

Articles Supplementary Classifying Vornado Realty Trust’s 6.55% Series D-12 Cumulative
Redeemable Preferred Shares of Beneficial Interest, liquidation preference $25.00 per
share - 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 21, 2004

*

 

 

 

 

 

3.22

 

-

Articles Supplementary Classifying Vornado Realty Trust’s 6.625% Series G Cumulative
Redeemable Preferred Shares of Beneficial Interest, liquidation preference $25.00 per
share - Incorporated by reference to Exhibit 3.3 to Vornado Realty Trust’s Current Report
on Form 8-K (File No. 001-11954), filed on December 21, 2004

*

 

 

 

 

 

3.23

 

-

Articles Supplementary Classifying Vornado Realty Trust’s 6.750% Series H Cumulative
Redeemable Preferred Shares of Beneficial Interest, liquidation preference $25.00 per
share, no par value – Incorporated by reference to Exhibit 3.32 to Vornado Realty Trust’s
Registration Statement on Form 8-A (File No. 001-11954), filed on June 16, 2005

*

 

 

 

 

 

3.24

 

-

Articles Supplementary Classifying Vornado Realty Trust’s 6.625% Series I Cumulative
Redeemable Preferred Shares of Beneficial Interest, liquidation preference $25.00 per
share, no par value – Incorporated by reference to Exhibit 3.33 to Vornado Realty Trust’s
Registration Statement on Form 8-A (File No. 001-11954), filed on August 30, 2005

*

 

 

 

 

 

3.25

 

-

Articles Supplementary Classifying Vornado Realty Trust’s Series D-14 6.75% Cumulative
Redeemable Preferred Shares of Beneficial Interest, liquidation preference $25.00 per
share - Incorporated by reference to Exhibit 3.1 to Vornado Realty Trust’s Current Report
on Form 8-K (File No. 001-11954), filed on September 14, 2005

*

 

 

 

 

 

3.26

 

-

Articles Supplementary Classifying Vornado Realty Trust’s Series D-15 6.875% Cumulative
Redeemable Preferred Shares of Beneficial Interest, liquidation preference $25.00 per
share – Incorporated by reference to Exhibit 3.1 to Vornado Realty Trust’s Current Report
on Form 8-K (File No. 001-11954), filed on May 3, 2006, and Exhibit 3.1 to
Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on
August 23, 2006

*

 

 

 

 

 

3.27

 

-

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

*

 

 

 

 

 

3.28

 

-

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

*

 

 

 

 

 

3.29

 

-

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

*

 

 

 

 

 

 


*

 

_______________________
Incorporated by reference.

 

 

85

 


 

3.30

 

-

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

*

 

 

 

 

 

3.31

 

-

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

*

 

 

 

 

 

3.32

 

-

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

*

 

 

 

 

 

3.33

 

-

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

*

 

 

 

 

 

3.34

 

-

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

*

 

 

 

 

 

3.35

 

-

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

*

 

 

 

 

 

3.36

 

-

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

*

 

 

 

 

 

3.37

 

-

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

*

 

 

 

 

 

3.38

 

-

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

*

 

 

 

 

 

3.39

 

-

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

*

 

 

 

 

 

3.40

 

-

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

*

 

 

 

 

 

3.41

 

-

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

*

 

 

 

 

 

3.42

 

-

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

*

 

 

 

 

 

3.43

 

-

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

*

 

 

 

 

 

 


*

 

_______________________
Incorporated by reference.

 

 

86

 


 

3.44

 

-

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

*

 

 

 

 

 

3.45

 

-

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

*

 

 

 

 

 

3.46

 

-

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

*

 

 

 

 

 

3.47

 

-

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

*

 

 

 

 

 

3.48

 

-

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

*

 

 

 

 

 

3.49

 

-

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

*

 

 

 

 

 

3.50

 

-

Twenty-Second Amendment to the Partnership Agreement, dated as of November 17, 2003 –
Incorporated by reference to Exhibit 3.49 to Vornado Realty Trust’s Annual Report on
Form 10-K for the year ended December 31, 2003 (File No. 001-11954), filed on
March 3, 2004

*

 

 

 

 

 

3.51

 

-

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

*

 

 

 

 

 

3.52

 

-

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

*

 

 

 

 

 

3.53

 

-

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

*

 

 

 

 

 

3.54

 

-

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

*

 

 

 

 

 

3.55

 

-

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

*

 

 

 

 

 

3.56

 

-

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

*

 

 

 

 

 

 


*

 

_______________________
Incorporated by reference.

 

 

87

 


 

3.57

 

-

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

*

 

 

 

 

 

3.58

 

-

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

*

 

 

 

 

 

3.59

 

-

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

*

 

 

 

 

 

3.60

 

-

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

*

 

 

 

 

 

3.61

 

-

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

*

 

 

 

 

 

3.62

 

-

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

*

 

 

 

 

 

3.63

 

-

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

*

 

 

 

 

 

3.64

 

-

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

*

 

 

 

 

 

3.65

 

-

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

*

 

 

 

 

 

3.66

 

-

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

*

 

 

 

 

 

3.67

 

-

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

*

 

 

 

 

 

3.68

 

-

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

*

 

 

 

 

 

 


*

 

_______________________
Incorporated by reference.

 

 

 

 

 

 

 

88

 


 

3.69

 

-

Vornado Realty Trust – Articles Supplementary, dated July 25, 2007 Incorporated by
reference to Exhibit 3.69 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

*

 

 

 

 

 

3.70

 

-

Vornado Realty Trust – Articles of Amendment of Declaration of Trust, dated July 25, 2007
Incorporated by reference to Exhibit 3.70 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

*

 

 

 

 

 

3.71

 

-

Vornado Realty Trust – Certificate of Correction of Amendment of Declaration of Trust,
dated July 25, 2007 Incorporated by reference to Exhibit 3.71 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

*

 

 

 

 

 

3.72

 

-

Vornado Realty Trust – Certificate of Correction of Amendment of Declaration of Trust,
dated July 25, 2007 Incorporated by reference to Exhibit 3.72 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

*

 

 

 

 

 

3.73

 

-

Vornado Realty Trust – Certificate of Correction of Articles Supplementary, dated
July 25, 2007 Incorporated by reference to Exhibit 3.73 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

*

 

 

 

 

 

3.74

 

-

Vornado Realty Trust – Certificate of Correction of Articles Supplementary,
dated July 25, 2007 Incorporated by reference to Exhibit 3.74 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

*

 

 

 

 

 

3.75

 

-

Vornado Realty Trust – Articles of Restatement of Declaration of Trust, dated July 25, 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

*

 

 

 

 

 

4.1

 

-

Indenture and Servicing Agreement, dated as of March 1, 2000, among Vornado Finance
LLC, LaSalle Bank National Association, ABN Amro Bank N.V. and Midland Loan
Services, Inc. - Incorporated by reference to Exhibit 10.48 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

*

 

 

 

 

 

4.2

 

-

Indenture, dated as of June 24, 2002, between Vornado Realty L.P. and The Bank of New
York, as Trustee - Incorporated by reference to Exhibit 4.1 to Vornado Realty L.P.’s
Current Report on Form 8-K (File No. 000-22685), filed on June 24, 2002

*

 

 

 

 

 

4.3

 

-

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

*

 

 

 

 

 

4.4

 

-

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

*

 

 

 

 

 

 


*

 

_______________________
Incorporated by reference.

 

 

89

 


 

 

 

 

Certain instruments defining the rights of holders of long-term debt securities of Vornado
Realty Trust and its subsidiaries are omitted pursuant to Item 601(b)(4)(iii) of Regulation
S-K. Vornado Realty Trust hereby undertakes to furnish to the Securities and Exchange
Commission, upon request, copies of any such instruments.

 

 

 

 

 

 

10.1

**

-

Vornado Realty Trust’s 1993 Omnibus Share Plan - Incorporated by reference to Exhibit 4.1
to Vornado Realty Trust’s Registration Statement on Form S-8 (File No. 331-09159),
filed on July 30, 1996

*

 

 

 

 

 

10.2

**

-

Vornado Realty Trust’s 1993 Omnibus Share Plan, as amended - Incorporated by reference to
Exhibit 4.1 to Vornado Realty Trust’s Registration Statement on Form S-8
(File No. 333-29011), filed on June 12, 1997

*

 

 

 

 

 

10.3

 

-

Master Agreement and Guaranty, between Vornado, Inc. and Bradlees New Jersey, Inc. dated
as of May 1, 1992 - Incorporated by reference to Vornado, Inc.’s Quarterly Report on
Form 10-Q for the quarter ended March 31, 1992 (File No. 001-11954), filed May 8, 1992

*

 

 

 

 

 

10.4

**

-

Employment Agreement between Vornado Realty Trust and Michael D. Fascitelli, dated
December 2, 1996 - Incorporated by reference to Exhibit 10(C)(3) to Vornado Realty
Trust’s Annual Report on Form 10-K for the year ended December 31, 1996
(File No. 001-11954), filed March 13, 1997

*

 

 

 

 

 

10.5

 

-

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

*

 

 

 

 

 

10.6

 

-

Stock Pledge Agreement between Vornado, Inc. and Steven Roth dated December 29, 1992 -
Incorporated by reference to Vornado, Inc.’s Annual Report on Form 10-K for the year
ended December 31, 1992 (File No. 001-11954), filed February 16, 1993

*

 

 

 

 

 

10.7

 

-

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

*

 

 

 

 

 

10.8

 

-

Real Estate Retention Agreement between Vornado, Inc., Keen Realty Consultants, Inc. and
Alexander’s, Inc., dated as of July 20, 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

*

 

 

 

 

 

10.9

 

-

Amendment to Real Estate Retention Agreement between Vornado, Inc., Keen Realty
Consultants, Inc. and Alexander’s, Inc., dated February 6, 1995 - Incorporated by
reference to Exhibit 10(F)(2) to Vornado Realty Trust’s Annual Report on Form 10-K for
the year ended December 31, 1994 (File No. 001-11954), filed March 23, 1995

*

 

 

 

 

 

10.10

 

-

Stipulation between Keen Realty Consultants Inc. and Vornado Realty Trust re: Alexander’s
Retention Agreement - Incorporated by reference to Exhibit 10(F)(2) to Vornado Realty
Trust’s Annual Report on Form 10-K for the year ended December 31, 1993
(File No. 001-11954), filed March 24, 1994

*

 

 

 

 

 

10.11

**

-

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

*

 

 

 

 

 

 


*
**

 

_______________________
Incorporated by reference.
Management contract or compensatory agreement.

 

 

90

 


 

10.12

 

-

Consolidated and Restated Mortgage, Security Agreement, Assignment of Leases and Rents
and Fixture Filing, dated as of March 1, 2000, between Entities named therein
(as Mortgagors) and Vornado (as Mortgagee) - Incorporated by reference to Exhibit 10.47
to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31,
1999 (File No. 001-11954), filed on March 9, 2000

*

 

 

 

 

 

10.13

**

-

Promissory Note from Steven Roth to Vornado Realty Trust, dated December 23, 2005 –
Incorporated by reference to Exhibit 10.15 to Vornado Realty Trust Annual Report on
Form 10-K for the year ended December 31, 2005 (File No. 001-11954), filed on
February 28, 2006

*

 

 

 

 

 

10.14

**

-

Letter agreement, dated November 16, 1999, between Steven Roth and Vornado Realty Trust
- Incorporated by reference to Exhibit 10.51 to Vornado Realty Trust’s Annual Report on
Form 10-K for the year ended December 31, 1999 (File No. 001-11954), filed on
March 9, 2000

*

 

 

 

 

 

10.15

 

-

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

*

 

 

 

 

 

10.16

 

-

Registration Rights Agreement, dated January 1, 2002, between Vornado Realty Trust and
the holders of the Units listed on Schedule A thereto - Incorporated by reference to
Exhibit 10.2 to Vornado Realty Trust’s Current Report on Form 8-K/A
(File No. 1-11954), filed on March 18, 2002

*

 

 

 

 

 

10.17

 

-

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

*

 

 

 

 

 

10.18

**

-

Employment Agreement between Vornado Realty Trust and Michael D. Fascitelli, dated
March 8, 2002 - Incorporated by reference to Exhibit 10.7 to Vornado Realty Trust’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2002
(File No. 001-11954), filed on May 1, 2002

*

 

 

 

 

 

10.19

**

-

First Amendment, dated October 31, 2002, to the Employment Agreement between Vornado
Realty Trust and Michael D. Fascitelli, dated March 8, 2002 - Incorporated by reference
to Exhibit 99.6 to the Schedule 13D filed by Michael D. Fascitelli on November 8, 2002

*

 

 

 

 

 

10.20

 

-

Registration Rights Agreement, dated as of July 21, 1999, by and between Vornado Realty
Trust and the holders of Units listed on Schedule A thereto - Incorporated by reference to
Exhibit 10.2 to Vornado Realty Trust’s Registration Statement on Form S-3
(File No. 333-102217), filed on December 26, 2002

*

 

 

 

 

 

10.21

 

-

Form of Registration Rights Agreement between Vornado Realty Trust and the holders of
Units listed on Schedule A thereto - Incorporated by reference to Exhibit 10.3 to Vornado
Realty Trust’s Registration Statement on Form S-3 (File No. 333-102217), filed on
December 26, 2002

*

 

 

 

 

 

10.22

 

-

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

*

 

 

 

 

 

 


*
**

 

_______________________
Incorporated by reference.
Management contract or compensatory agreement.

 

 

91

 


 

10.23

 

-

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

*

 

 

 

 

 

10.24

 

-

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

*

 

 

 

 

 

10.25

 

-

59th Street Management and Development Agreement, dated as of July 3, 2002, by and
between 731 Residential LLC, 731 Commercial LLC and Vornado Management Corp. -
Incorporated by reference to Exhibit 10(i)(F)(2) to Alexander’s Inc.’s Quarterly Report
for the quarter ended June 30, 2002 (File No. 001-06064), filed on August 7, 2002

*

 

 

 

 

 

10.26

 

-

Amendment dated May 29, 2002, to the Stock Pledge Agreement between Vornado Realty
Trust and Steven Roth dated December 29, 1992 - Incorporated by reference to Exhibit 5
of Interstate Properties’ Schedule 13D/A dated May 29, 2002 (File No. 005-44144), filed
on May 30, 2002

*

 

 

 

 

 

10.27

**

-

Vornado Realty Trust’s 2002 Omnibus Share Plan - Incorporated by reference to Exhibit 4.2
to Vornado Realty Trust’s Registration Statement on Form S-8 (File No. 333-102216)
filed December 26, 2002

*

 

 

 

 

 

10.28

 

-

Registration Rights Agreement by and between Vornado Realty Trust and Bel Holdings LLC
dated as of November 17, 2003 – Incorporated by reference to Exhibit 10.68 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

*

 

 

 

 

 

10.29

 

-

Registration Rights Agreement, dated as of May 27, 2004, by and between Vornado Realty
Trust and 2004 Realty Corp. – Incorporated by reference to Exhibit 10.75 to Vornado
Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2004
(File No. 001-11954), filed on February 25, 2005

*

 

 

 

 

 

10.30

 

-

Registration Rights Agreement, dated as of December 17, 2004, by and between Vornado
Realty Trust and Montebello Realty Corp. 2002 – Incorporated by reference to Exhibit
10.76 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended
December 31, 2004 (File No. 001-11954), filed on February 25, 2005

*

 

 

 

 

 

10.31

**

-

Form of Stock Option Agreement between the Company and certain employees –
Incorporated by reference to Exhibit 10.77 to Vornado Realty Trust’s
Annual Report on Form 10-K for the year ended December 31, 2004
(File No. 001-11954), filed on February 25, 2005

*

 

 

 

 

 

10.32

**

-

Form of Restricted Stock Agreement between the Company and certain employees –
Incorporated by reference to Exhibit 10.78 to Vornado Realty Trust’s Annual Report on
Form 10-K for the year ended December 31, 2004 (File No. 001-11954), filed on
February 25, 2005

*

 

 

 

 

 

10.33

**

-

Employment Agreement between Vornado Realty Trust and Sandeep Mathrani, dated
February 22, 2005 and effective as of January 1, 2005 – Incorporated by reference to
Exhibit 10.76 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

*

 

 

 

 

 

 


*
**

 

_______________________
Incorporated by reference.
Management contract or compensatory agreement.

 

 

92

 


 

10.34

 

-

Contribution Agreement, dated May 12, 2005, by and among Robert Kogod, Vornado Realty
L.P. and certain Vornado Realty Trust’s affiliates – Incorporated by reference to Exhibit
10.49 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended
December 31, 2005 (File No. 001-11954), filed on February 28, 2006

*

 

 

 

 

 

10.35

**

-

Amendment, dated March 17, 2006, to the Vornado Realty Trust Omnibus Share Plan –
Incorporated by reference to Exhibit 10.50 to Vornado Realty Trust’s Quarterly Report on
Form 10-Q for the quarter ended March 31, 2006 (File No. 001-11954), filed on
May 2, 2006

*

 

 

 

 

 

10.36

**

-

Form of Vornado Realty Trust 2006 Out-Performance Plan Award Agreement, dated as of
April 25, 2006 – Incorporated by reference to Exhibit 10.1 to Vornado Realty Trust’s
Form 8-K (File No. 001-11954), filed on May 1, 2006

*

 

 

 

 

 

10.37

**

-

Form of Vornado Realty Trust 2002 Restricted LTIP Unit Agreement – Incorporated by
reference to Vornado Realty Trust’s Form 8-K (Filed No. 001-11954), filed on
May 1, 2006

*

 

 

 

 

 

10.38

 

-

Revolving Credit Agreement, dated as of June 28, 2006, among the Operating Partnership,
the banks party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of
America, N.A. and Citicorp North America, Inc., as Syndication Agents, Deutsche Bank
Trust Company Americas, Lasalle Bank National Association, and UBS Loan Finance
LLC, as Documentation Agents and Vornado Realty Trust – Incorporated by reference to
Exhibit 10.1 to Vornado Realty Trust’s Form 8-K (File No. 001-11954), filed on
June 28, 2006

*

 

 

 

 

 

10.39

**

-

Amendment No.2, dated May 18, 2006, to the Vornado Realty Trust Omnibus Share Plan
– Incorporated by reference to Exhibit 10.53 to Vornado Realty Trust’s Quarterly
Report on Form 10-Q for the quarter ended June 30, 2006 (File No. 001-11954), filed
on August 1, 2006

*

 

 

 

 

 

10.40

**

-

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

*

 

 

 

 

 

10.41

 

-

Guaranty, made as of June 28, 2006, by Vornado Realty Trust, for the benefit of JP Morgan
Chase Bank – Incorporated by reference to Exhibit 10.53 to Vornado Realty Trust’s
Quarterly Report on Form 10-Q for the quarter ended September 30, 2006
(File No. 001-11954), filed on October 31, 2006

*

 

 

 

 

 

10.42

**

-

Amendment, dated October 26, 2006, to the Vornado Realty Trust Omnibus Share Plan –
Incorporated by reference to Exhibit 10.54 to Vornado Realty Trust’s Quarterly Report
on Form 10-Q for the quarter ended September 30, 2006 (File No. 001-11954), filed on
October 31, 2006

*

 

 

 

 

 

10.43

**

-

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

*

 

 

 

 

 

10.44

**

-

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.

 

 

 

 

 

 

 

93

 


 

10.45

 

-

Stock Purchase Agreement between the Sellers identified and Vornado America LLC, as the
Buyer, dated as of March 5, 2007 – Incorporated by reference to Exhibit 10.45 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, 2007

*

 

 

 

 

 

10.46

**

-

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, 2007

*

 

 

 

 

 

10.47

 

-

Revolving Credit Agreement, dated as of September 28, 2007, among Vornado Realty L.P. as
borrower, Vornado Realty Trust as General Partner, the Banks signatory thereto, each as a
Bank, JPMorgan Chase Bank, N.A. as Administrative Agent, Bank of America, N.A. as
Syndication Agent, Citicorp North America, Inc., Deutsche Bank Trust Company
Americas, and UBS Loan Finance LLC as Documentation Agents, and J.P. Morgan
Securities Inc. and Bank of America Securities LLC as Lead Arrangers and Bookrunners.
- Incorporated by reference to Exhibit 10.1 to Vornado Realty Trust’s Current Report
on Form 8-K (File No. 001-11954), filed on October 4, 2007

*

 

 

 

 

 

10.48

 

-

Second Amendment to Revolving Credit Agreement, dated as of September 28, 2007, by and
among Vornado Realty L.P. as borrower, Vornado Realty Trust as General Partner, the
Banks listed on the signature pages thereof, and J.P. Morgan Chase Bank N.A., as
Administrative Agent for the Banks. . - Incorporated by reference to Exhibit 10.2 to
Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954),
filed on October 4, 2007

*

 

 

 

 

 

15.1

 

-

Letter Regarding Unaudited Interim Financial Information

 

 

 

 

 

 

31.1

 

-

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

 

 

 

 

 

 

31.2

 

-

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

 

 

 

 

 

 

32.1

 

-

Section 1350 Certification of the Chief Executive Officer

 

 

 

 

 

 

32.2

 

-

Section 1350 Certification of the Chief Financial Officer

 

 

 

 

 

 

 


*
**

 

_______________________
Incorporated by reference.
Management contract or compensatory agreement.

 

 

 

 

 

 

 

 

94