vno1q1410q.htm - Generated by SEC Publisher for SEC Filing

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended:

March 31, 2014

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

For the transition period from:

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

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

x Large Accelerated Filer		o Accelerated Filer
o Non-Accelerated Filer (Do not check if smaller reporting company)		o Smaller Reporting Company

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

As of March 31, 2014, 187,411,596 of the registrant’s common shares of beneficial interest are outstanding.


PART I.		Financial Information:	Page Number

	Item 1.	Financial Statements:

		Consolidated Balance Sheets (Unaudited) as of
		March 31, 2014 and December 31, 2013	3

		Consolidated Statements of Income (Unaudited) for the
		Three Months Ended March 31, 2014 and 2013	4

		Consolidated Statements of Comprehensive Income (Unaudited)
		for the Three Months Ended March 31, 2014 and 2013	5

		Consolidated Statements of Changes in Equity (Unaudited) for the
		Three Months Ended March 31, 2014 and 2013	6

		Consolidated Statements of Cash Flows (Unaudited) for the
		Three Months Ended March 31, 2014 and 2013	8

		Notes to Consolidated Financial Statements (Unaudited)	10

		Report of Independent Registered Public Accounting Firm	30

	Item 2.	Management's Discussion and Analysis of Financial Condition
		and Results of Operations	31

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	58

	Item 4.	Controls and Procedures	59


PART II.		Other Information:

	Item 1.	Legal Proceedings	60

	Item 1A.	Risk Factors	60

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	60

	Item 3.	Defaults Upon Senior Securities	60

	Item 4.	Mine Safety Disclosures	60

	Item 5.	Other Information	60

	Item 6.	Exhibits	60

SIGNATURES			61

EXHIBIT INDEX			62

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

VORNADO REALTY TRUST
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

(Amounts in thousands, except share and per share amounts)			March 31,		December 31,
ASSETS			2014		2013
Real estate, at cost:
	Land		$	4,058,317	$	4,068,306
	Buildings and improvements			12,477,661		12,475,556
	Development costs and construction in progress			1,410,465		1,353,121
	Leasehold improvements and equipment			133,699		132,483
		Total		18,080,142		18,029,466
	Less accumulated depreciation and amortization			(3,441,223)		(3,381,457)
Real estate, net				14,638,919		14,648,009
Cash and cash equivalents				1,156,727		583,290
Restricted cash				210,184		262,440
Marketable securities				205,042		191,917
Tenant and other receivables, net of allowance for doubtful accounts of $20,233 and $21,869				123,486		115,862
Investments in partially owned entities				1,168,996		1,166,443
Investment in Toys "R" Us				75,932		83,224
Real Estate Fund investments				682,002		667,710
Mortgage and mezzanine loans receivable, net of allowance of $5,824 and $5,845				42,749		170,972
Receivable arising from the straight-lining of rents, net of allowance of $3,979 and $4,355				830,381		817,357
Deferred leasing and financing costs, net of accumulated amortization of $277,257 and $264,451				437,056		411,927
Identified intangible assets, net of accumulated amortization of $290,214 and $277,998				299,759		311,963
Assets related to discontinued operations				207,575		314,622
Other assets				290,544		351,488
			$	20,369,352	$	20,097,224

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Mortgages payable			$	8,913,358	$	8,331,993
Senior unsecured notes				1,343,442		1,350,855
Revolving credit facility debt				88,138		295,870
Accounts payable and accrued expenses				457,858		422,276
Deferred revenue				514,605		529,048
Deferred compensation plan				121,970		116,515
Deferred tax liabilities				1,272		1,280
Liabilities related to discontinued operations				-		13,950
Other liabilities				378,551		437,073
	Total liabilities			11,819,194		11,498,860
Commitments and contingencies
Redeemable noncontrolling interests:
	Class A units - 11,564,839 and 11,292,038 units outstanding			1,139,831		1,002,620
	Series D cumulative redeemable preferred unit - 1 unit outstanding			1,000		1,000
		Total redeemable noncontrolling interests		1,140,831		1,003,620
Vornado shareholders' equity:
	Preferred shares of beneficial interest: no par value per share; authorized 110,000,000
		shares; issued and outstanding 52,682,807 shares		1,277,225		1,277,225
	Common shares of beneficial interest: $.04 par value per share; authorized
		250,000,000 shares; issued and outstanding 187,411,596 and 187,284,688 shares		7,474		7,469
	Additional capital			7,017,611		7,143,840
	Earnings less than distributions			(1,809,609)		(1,734,839)
	Accumulated other comprehensive income			77,626		71,537
		Total Vornado shareholders' equity		6,570,327		6,765,232
Noncontrolling interests in consolidated subsidiaries				839,000		829,512
	Total equity			7,409,327		7,594,744
			$	20,369,352	$	20,097,224

See notes to consolidated financial statements (unaudited).

VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

		For the Three
		Months Ended March 31,
(Amounts in thousands, except per share amounts)		2014		2013

REVENUES:
	Property rentals	$	528,100	$	533,793
	Tenant expense reimbursements		86,590		75,964
	Cleveland Medical Mart development project		-		12,143
	Fee and other income		45,928		96,813
Total revenues			660,618		718,713
EXPENSES:
	Operating		273,391		265,747
	Depreciation and amortization		147,651		139,317
	General and administrative		52,158		51,380
	Cleveland Medical Mart development project		-		11,374
	Impairment losses and acquisition related costs		21,784		601
Total expenses			494,984		468,419
Operating income			165,634		250,294
Income applicable to Toys "R" Us			1,847		1,759
Income from partially owned entities			132		20,766
Income from Real Estate Fund			18,148		16,564
Interest and other investment income (loss), net			11,893		(49,075)
Interest and debt expense			(109,442)		(120,346)
Net gain (loss) on disposition of wholly owned and partially owned assets			9,635		(36,724)
Income before income taxes			97,847		83,238
Income tax expense			(1,582)		(1,073)
Income from continuing operations			96,265		82,165
Income from discontinued operations			1,891		206,762
Net income			98,156		288,927
Less net income attributable to noncontrolling interests in:
	Consolidated subsidiaries		(11,579)		(11,286)
	Operating Partnership		(3,848)		(13,933)
	Preferred unit distributions of the Operating Partnership		(12)		(786)
Net income attributable to Vornado			82,717		262,922
Preferred share dividends			(20,368)		(21,702)
Preferred share redemptions			-		(9,230)
NET INCOME attributable to common shareholders		$	62,349	$	231,990

INCOME PER COMMON SHARE - BASIC:
	Income from continuing operations, net	$	0.32	$	0.20
	Income from discontinued operations, net		0.01		1.04
	Net income per common share	$	0.33	$	1.24
	Weighted average shares outstanding		187,307		186,752

INCOME PER COMMON SHARE - DILUTED:
	Income from continuing operations, net	$	0.32	$	0.20
	Income from discontinued operations, net		0.01		1.04
	Net income per common share	$	0.33	$	1.24
	Weighted average shares outstanding		188,240		187,529

DIVIDENDS PER COMMON SHARE		$	0.73	$	0.73


See notes to consolidated financial statements (unaudited).

VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)


		For the Three
		Months Ended March 31,
(Amounts in thousands)		2014		2013

Net income		$	98,156	$	288,927
Other comprehensive income:
	Change in unrealized net gain on available-for-sale securities		13,125		148,789
	Pro rata share of other comprehensive loss of nonconsolidated subsidiaries		(8,286)		(3,647)
	Change in value of interest rate swap		1,610		2,523
	Other		1		533
Comprehensive income			104,606		437,125
Less comprehensive income attributable to noncontrolling interests			(15,800)		(34,304)
Comprehensive income attributable to Vornado		$	88,806	$	402,821


See notes to consolidated financial statements (unaudited).

VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(UNAUDITED)


																	Non-
															Accumulated		controlling
(Amounts in thousands)													Earnings		Other		Interests in
			Preferred Shares				Common Shares				Additional		Less Than		Comprehensive		Consolidated		Total
			Shares		Amount		Shares		Amount		Capital		Distributions		Income (Loss)		Subsidiaries		Equity
Balance, December 31, 2012				51,185	$	1,240,278		186,735	$	7,440	$	7,195,438	$	(1,573,275)	$	(18,946)	$	1,053,209	$	7,904,144
Net income attributable to Vornado				-		-		-		-		-		262,922		-		-		262,922
Net income attributable to
	noncontrolling interests in
	consolidated subsidiaries			-		-		-		-		-		-		-		11,286		11,286
Dividends on common shares				-		-		-		-		-		(136,342)		-		-		(136,342)
Dividends on preferred shares				-		-		-		-		-		(21,702)		-		-		(21,702)
Issuance of Series L preferred shares				12,000		290,710		-		-		-		-		-		-		290,710
Redemption of Series F and Series H
	preferred shares			(10,500)		(253,269)		-		-		-		-		-		-		(253,269)
Common shares issued:
	Upon redemption of Class A
		units, at redemption value		-		-		162		5		13,399		-		-		-		13,404
	Under employees' share
		option plan		-		-		27		1		1,175		-		-		-		1,176
	Under dividend reinvestment plan			-		-		5		-		433		-		-		-		433
Contributions:
	Real Estate Fund			-		-		-		-		-		-		-		10,251		10,251
	Other			-		-		-		-		-		-		-		14,316		14,316
Distributions:
	Real Estate Fund			-		-		-		-		-		-		-		(43,145)		(43,145)
	Other			-		-		-		-		-		-		-		(120,051)		(120,051)
Deferred compensation shares
	and options			-		-		6		1		2,512		(305)		-		-		2,208
Change in unrealized net gain
	on available-for-sale securities			-		-		-		-		-		-		148,789		-		148,789
Pro rata share of other
	comprehensive loss of
	nonconsolidated subsidiaries			-		-		-		-		-		-		(3,647)		-		(3,647)
Change in value of interest rate swap				-		-		-		-		-		-		2,523		-		2,523
Adjustments to carry redeemable
	Class A units at redemption value			-		-		-		-		(44,998)		-		-		-		(44,998)
Redeemable noncontrolling interests'
	share of above adjustments			-		-		-		-		-		-		(8,299)		-		(8,299)
Preferred unit and share
	redemptions			-		-		-		-		-		(9,230)		-		-		(9,230)
Other				-		-		-		-		-		(1,364)		533		(38)		(869)
Balance, March 31, 2013				52,685	$	1,277,719		186,935	$	7,447	$	7,167,959	$	(1,479,296)	$	120,953	$	925,828	$	8,020,610


See notes to consolidated financial statements (unaudited).

VORNADO REALTY TRUST
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY - CONTINUED
(UNAUDITED)


																	Non-
															Accumulated		controlling
(Amounts in thousands)													Earnings		Other		Interests in
			Preferred Shares				Common Shares				Additional		Less Than		Comprehensive		Consolidated		Total
			Shares		Amount		Shares		Amount		Capital		Distributions		Income (Loss)		Subsidiaries		Equity
Balance, December 31, 2013				52,683	$	1,277,225		187,285	$	7,469	$	7,143,840	$	(1,734,839)	$	71,537	$	829,512	$	7,594,744
Net income attributable to Vornado				-		-		-		-		-		82,717		-		-		82,717
Net income attributable to
	noncontrolling interests in
	consolidated subsidiaries			-		-		-		-		-		-		-		11,579		11,579
Dividends on common shares				-		-		-		-		-		(136,761)		-		-		(136,761)
Dividends on preferred shares				-		-		-		-		-		(20,368)		-		-		(20,368)
Common shares issued:
	Upon redemption of Class A
		units, at redemption value		-		-		55		2		5,154		-		-		-		5,156
	Under employees' share
		option plan		-		-		60		2		3,228		-		-		-		3,230
	Under dividend reinvestment plan			-		-		5		-		446		-		-		-		446
Distributions:
	Real Estate Fund			-		-		-		-		-		-		-		(1,950)		(1,950)
	Other			-		-		-		-		-		-		-		(142)		(142)
Deferred compensation shares
	and options			-		-		7		1		2,118		(340)		-		-		1,779
Change in unrealized net gain on
	available-for-sale securities			-		-		-		-		-		-		13,125		-		13,125
Pro rata share of other
	comprehensive loss of
	nonconsolidated subsidiaries			-		-		-		-		-		-		(8,286)		-		(8,286)
Change in value of interest rate swap				-		-		-		-		-		-		1,610		-		1,610
Adjustments to carry redeemable
	Class A units at redemption value			-		-		-		-		(136,937)		-		-		-		(136,937)
Redeemable noncontrolling interests'
	share of above adjustments			-		-		-		-		-		-		(361)		-		(361)
Other				-		-		-		-		(238)		(18)		1		1		(254)
Balance, March 31, 2014				52,683	$	1,277,225		187,412	$	7,474	$	7,017,611	$	(1,809,609)	$	77,626	$	839,000	$	7,409,327



See notes to consolidated financial statements (unaudited).

VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

			For the Three Months Ended
			March 31,
			2014		2013
(Amounts in thousands)
Cash Flows from Operating Activities:
Net income			$	98,156	$	288,927
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization (including amortization of deferred financing costs)			153,869		148,918
	Impairment losses			20,842		1,514
	Net unrealized gain on Real Estate Fund investments			(14,169)		(13,516)
	Straight-lining of rental income			(13,236)		(18,868)
	Distributions of income from partially owned entities			12,966		10,627
	Amortization of below-market leases, net			(12,144)		(16,815)
	Other non-cash adjustments			11,885		18,569
	Net (gain) loss on disposition of wholly owned and partially owned assets			(9,635)		36,724
	Equity in net income of partially owned entities, including Toys “R” Us			(1,979)		(22,525)
	Net gains on sale of real estate			-		(202,329)
	Return of capital from Real Estate Fund investments			-		56,664
	Non-cash impairment loss on J.C. Penney common shares			-		39,487
	Loss from the mark-to-market of J.C. Penney derivative position			-		22,540
	Changes in operating assets and liabilities:
		Real Estate Fund investments		(123)		(13,668)
		Accounts receivable, net		(7,624)		51,514
		Prepaid assets		53,841		67,814
		Other assets		(18,297)		(15,326)
		Accounts payable and accrued expenses		31,554		(21,908)
		Other liabilities		3,225		(3,416)
Net cash provided by operating activities				309,131		414,927

Cash Flows from Investing Activities:
	Proceeds from sales of real estate and related investments			120,270		499,369
	Development costs and construction in progress			(90,653)		(35,334)
	Proceeds from repayments of mortgage and mezzanine loans receivable and other			69,347		631
	Additions to real estate			(53,103)		(57,460)
	Restricted cash			52,256		14,149
	Investments in partially owned entities			(16,633)		(39,892)
	Distributions of capital from partially owned entities			1,277		5,544
	Funding of J.C. Penney derivative collateral			-		(58,522)
	Proceeds from sales of marketable securities			-		160,300
	Return of J.C. Penney derivative collateral			-		38,900
Net cash provided by investing activities				82,761		527,685

See notes to consolidated financial statements (unaudited).

VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(UNAUDITED)

			For the Three Months Ended
			March 31,
			2014		2013
(Amounts in thousands)
Cash Flows from Financing Activities:
	Proceeds from borrowings		$	600,000	$	1,499,375
	Repayments of borrowings			(233,198)		(2,529,836)
	Dividends paid on common shares			(136,761)		(136,342)
	Debt issuance and other costs			(20,752)		(9,080)
	Dividends paid on preferred shares			(20,368)		(23,161)
	Distributions to noncontrolling interests			(10,474)		(172,142)
	Proceeds received from exercise of employee share options			3,676		1,609
	Repurchase of shares related to stock compensation agreements and/or related
		tax withholdings		(578)		(307)
	Proceeds from the issuance of preferred shares			-		290,710
	Purchases of outstanding preferred units and shares			-		(262,500)
	Contributions from noncontrolling interests			-		24,566
Net cash provided by (used in) financing activities				181,545		(1,317,108)
Net increase (decrease) in cash and cash equivalents				573,437		(374,496)
Cash and cash equivalents at beginning of period				583,290		960,319
Cash and cash equivalents at end of period			$	1,156,727	$	585,823


Supplemental Disclosure of Cash Flow Information:
	Cash payments for interest, excluding capitalized interest of $13,622 and $8,260		$	100,209	$	116,141
	Cash payments for income taxes		$	1,214	$	1,825


Non-cash Investing and Financing Activities:
	Elimination of a mortgage and mezzanine loan asset and liability		$	59,375	$	-





See notes to consolidated financial statements (unaudited).

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Organization

Vornado Realty Trust (“Vornado”) is a fully‑integrated real estate investment trust (“REIT”) and conducts its business through, and substantially all of its interests in properties are held by, Vornado Realty L.P., a Delaware limited partnership (the “Operating Partnership”). Vornado is the sole general partner of, and owned approximately 93.9% of the common limited partnership interest in the Operating Partnership at March 31, 2014. All references to “we,” “us,” “our,” the “Company” and “Vornado” refer to Vornado Realty Trust and its consolidated subsidiaries, including the Operating Partnership.

On April 11, 2014, we announced a plan to spin off our shopping center business consisting of 81 strip shopping centers and four malls into a new publicly traded REIT (“SpinCo”). The spin-off is expected to be effectuated through a 1:2 distribution of SpinCo’s shares to Vornado common shareholders and Vornado Realty L.P. common unitholders, and is intended to be treated as tax-free for U.S. federal income tax purposes. We intend to file the initial registration statement on Form 10 with the Securities and Exchange Commission (“SEC”) by the end of the second quarter of 2014 and expect the spin-off to be completed by the end of 2014. The transaction is subject to certain conditions, including the SEC declaring that SpinCo’s registration statement is effective, filing and approval of SpinCo’s listing application, receipt of third party consents, and formal approval and declaration of the distribution by Vornado’s Board of Trustees. Vornado may, at any time and for any reason until the proposed transaction is complete, abandon the separation or modify or change its terms.

Vornado will retain, for disposition in the near term, 20 small retail assets which do not fit SpinCo’s strategy, and the Beverly Connection and Springfield Town Center, both of which are under contract for disposition (see Note 8 – Dispositions).

2. Basis of Presentation

The accompanying consolidated financial statements are unaudited and include the accounts of Vornado and its consolidated subsidiaries, including the Operating Partnership. All intercompany amounts have been eliminated. In our opinion, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and changes in cash flows have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. These condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of the SEC and should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2013, as filed with the SEC.

We have made estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The results of operations for the three months ended March 31, 2014 are not necessarily indicative of the operating results for the full year. Certain prior year balances have been reclassified in order to conform to current year presentation.

3. Recently Issued Accounting Literature

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

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

3. Recently Issued Accounting Literature – continued

In April 2014, the FASB issued an update (“ASU 2014-08”) Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity to ASC Topic 205, Presentation of Financial Statements and ASC Topic 360, Property Plant and Equipment. Under ASU 2014-08, only disposals that represent a strategic shift that has (or will have) a major effect on the entity’s results and operations would qualify as discontinued operations. In addition, the ASU expands the disclosure requirements for disposals that meet the definition of a discontinued operation and requires entities to disclose information about disposals of individually significant components that do not meet the definition of discontinued operations. ASU 2014-08 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2014. We are currently evaluating the impact of ASU 2014-08 on our consolidated financial statements.

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

We are the general partner and investment manager of the Fund. The Fund is accounted for under the AICPA Investment Company Guide and its investments are reported on its balance sheet at fair value, with changes in value each period recognized in earnings. We consolidate the accounts of the Fund into our consolidated financial statements, retaining the fair value basis of accounting.

At March 31, 2014, the Fund had nine investments with an aggregate fair value of $682,002,000, or $167,582,000 in excess of cost, and had remaining unfunded commitments of $149,186,000, of which our share was $37,297,000. Below is a summary of income from the Fund for the three months ended March 31, 2014 and 2013.

		For the Three Months
(Amounts in thousands)		Ended March 31,
		2014		2013
Net investment income		$	3,979	$	3,048
Net unrealized gains			14,169		13,516
Income from Real Estate Fund			18,148		16,564
Less (income) attributable to noncontrolling interests			(10,849)		(9,540)
Income from Real Estate Fund attributable to Vornado ⁽¹⁾		$	7,299	$	7,024
___________________________________
___________________________________
(1)	Excludes management, leasing and development fees of $704 and $849 for the three months ended March 31, 2014 and 2013, respectively, which are included as a component of "fee and other income" on our consolidated statements of income.

5. Marketable Securities and Derivative Instruments

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

(Amounts in thousands)		As of March 31, 2014						As of December 31, 2013
				GAAP		Unrealized				GAAP		Unrealized
		Fair Value		Cost		Gain		Fair Value		Cost		Gain
Equity securities:
	Lexington	$	201,496	$	72,549	$	128,947	$	188,567	$	72,549	$	116,018
	Other		3,546		59		3,487		3,350		59		3,291
		$	205,042	$	72,608	$	132,434	$	191,917	$	72,608	$	119,309

On March 4, 2013, we sold 10,000,000 J.C. Penney common shares at a price of $16.03 per share, or $160,300,000 in the aggregate, resulting in a net loss of $36,800,000, which is included in “net gain (loss) on disposition of wholly owned and partially owned assets” on our consolidated statements of income.

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

6. Mortgage and Mezzanine Loans Receivable

In October 2012, we acquired a 25.0% participation in a mortgage and mezzanine loan on 701 Seventh Avenue. In March 2013, we transferred at par, the 25.0% participation in the mortgage loan to a third party, for $59,375,000 in cash. The transfer did not qualify for sale accounting given our continuing interest in the mezzanine loan. Accordingly, we continued to include the 25.0% participation in the mortgage loan in “mortgage and mezzanine loans receivable” and recorded a $59,375,000 liability in “other liabilities” on our consolidated balance sheet. In January 2014, the mortgage and mezzanine loans were repaid; accordingly, the $59,375,000 asset and liability were eliminated.

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

As of March 31, 2014 and December 31, 2013, the carrying amount of mortgage and mezzanine loans receivable was $42,749,000 and $170,972,000, respectively. These loans have a weighted average interest rate of 8.7% and 11.0% at March 31, 2014 and December 31, 2013, respectively, and have maturities ranging from November 2014 to May 2016.

7. Investments in Partially Owned Entities

Toys “R” Us (“Toys”)

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

In the fourth quarter of 2013, we wrote down our investment in Toys to its estimated fair value and disclosed that to the extent the fair value of our investment did not change, we would recognize a non-cash impairment loss equal to our share of Toys’ fourth quarter net earnings in our first quarter of 2014.

In the first quarter of 2014, we recognized (i) $1,847,000 of income applicable to Toys, representing management fees earned and received, and (ii) our share of the equity in earnings of Toys’ fourth quarter totaling $75,196,000 and a corresponding non-cash impairment loss of the same amount.

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

(Amounts in thousands)			Balance as of
Balance Sheet:			February 1, 2014		November 2, 2013
	Assets		$	10,400,000	$	11,756,000
	Liabilities			9,018,000		10,437,000
	Noncontrolling interests			78,000		75,000
	Toys “R” Us, Inc. equity⁽¹⁾			1,304,000		1,244,000

			For the Three Months Ended
Income Statement:			February 1, 2014		February 2, 2013
	Total revenues		$	5,267,000	$	5,770,000
	Net income attributable to Toys			82,500		241,000


(1)		At March 31, 2014, the carrying amount of our investment in Toys is less than our share of Toys' equity by approximately $349,759. This basis difference results primarily from non-cash impairment losses aggregating $355,953 that we have recognized through March 31, 2014. We have allocated the basis difference primarily to Toys' real estate, which is being amortized over its remaining estimated useful life.

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

7. Investments in Partially Owned Entities – continued

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

As of March 31, 2014, we own 1,654,068 Alexander’s common shares, or approximately 32.4% of Alexander’s common equity. We manage, lease and develop Alexander’s properties pursuant to agreements which expire in March of each year and are automatically renewable. As of March 31, 2014, we have a $42,492,000 receivable from Alexander’s for fees under these agreements.

As of March 31, 2014, the market value (“fair value” pursuant to ASC 820) of our investment in Alexander’s, based on Alexander’s March 31, 2014 closing share price of $360.99, was $597,102,000, or $429,978,000 in excess of the carrying amount on our consolidated balance sheet. As of March 31, 2014, the carrying amount of our investment in Alexander’s, excluding amounts owed to us, exceeds our share of the equity in the net assets of Alexander’s by approximately $41,873,000. The majority of this basis difference resulted from the excess of our purchase price for the Alexander’s common stock acquired over the book value of Alexander’s net assets. Substantially all of this basis difference was allocated, based on our estimates of the fair values of Alexander’s assets and liabilities, to real estate (land and buildings). We are amortizing the basis difference related to the buildings into earnings as additional depreciation expense over their estimated useful lives. This depreciation is not material to our share of equity in Alexander’s net income. The basis difference related to the land will be recognized upon disposition of our investment.

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

(Amounts in thousands)		Balance as of
Balance Sheet:		March 31, 2014		December 31, 2013
	Assets	$	1,452,000	$	1,458,000
	Liabilities		1,118,000		1,124,000
	Stockholders' equity		334,000		334,000

		For the Three Months Ended March 31,
Income Statement:		2014		2013
	Total revenues	$	49,000	$	49,000
	Net income attributable to Alexander’s		15,000		14,000

LNR Property LLC (“LNR”)

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

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

7. Investments in Partially Owned Entities – continued

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

			Percentage
(Amounts in thousands)			Ownership at		Balance as of
Investments:			March 31, 2014		March 31, 2014		December 31, 2013
	Toys ($80,062 in each period, excluding our share of
		Toys' other comprehensive loss/income)		32.6%	$	75,932	$	83,224

	Alexander’s			32.4%	$	167,124	$	167,785
	India real estate ventures			4.1%-36.5%		88,563		88,467
	Partially owned office buildings⁽¹⁾			Various		628,881		621,294
	Other investments⁽²⁾			Various		284,428		288,897
					$	1,168,996	$	1,166,443


(1)	Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 666 Fifth Avenue (Office), 330 Madison Avenue and others.
(2)	Includes interests in Independence Plaza, Monmouth Mall, 85 10th Avenue, Fashion Center Mall, 50-70 West 93rd Street and others.

			Percentage		For the Three Months
(Amounts in thousands)			Ownership at		Ended March 31,
Our Share of Net Income (Loss):			March 31, 2014		2014		2013
	Toys:			32.6%
		Equity in net earnings			$	75,196	$	78,542
		Non-cash impairment losses				(75,196)		(78,542)
		Management fees				1,847		1,759
					$	1,847	$	1,759

	Alexander's:			32.4%
		Equity in net income			$	4,759	$	4,589
		Management, leasing and development fees				1,626		1,487
						6,385		6,076

	India real estate ventures			4.1%-36.5%		(137)		(767)

	Partially owned office buildings⁽¹⁾			Various		(2,395)		(582)

	Other investments⁽²⁾			Various		(3,721)		(1,713)

	Lexington⁽³⁾			n/a		-		(979)

	LNR (see page 13 for details):			n/a
		Equity in net income				-		45,962
		Impairment loss				-		(27,231)
						-		18,731

					$	132	$	20,766


(1)	Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 666 Fifth Avenue (Office), 330 Madison Avenue and others.
(2)	Includes interests in Independence Plaza, Monmouth Mall, 85 10th Avenue, Fashion Center Mall, 50-70 West 93rd Street and others.
(3)	In the first quarter of 2013, we began accounting for our investment in Lexington as a marketable equity security - available for sale. The 2013 amount represents our share of Lexington's 2012 fourth quarter earnings which was recorded on a one-quarter lag basis.

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

7. Investments in Partially Owned Entities – continued

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

			Percentage		Interest	100% of
			Ownership at		Rate at	Partially Owned Entities’ Debt at
(Amounts in thousands)			March 31,		March 31,	March 31,		December 31,
			2014	Maturity	2014	2014		2013
Toys:
	Notes, loans and mortgages payable		32.6%	2014-2021	7.14%	$	4,977,482	$	5,702,247

Alexander's:
	Mortgages payable		32.4%	2015-2021	2.59%	$	1,035,022	$	1,049,959

India Real Estate Ventures:
	TCG Urban Infrastructure Holdings mortgages
		payable	25.0%	2014-2022	13.23%	$	202,496	$	199,021

Partially owned office buildings⁽¹⁾:			Various	2014-2023	5.74%	$	3,632,588	$	3,622,759

Other⁽²⁾:			Various	2014-2023	4.56%	$	1,705,703	$	1,709,509


(1)		Includes 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 666 Fifth Avenue (Office), 330 Madison Avenue and others.
(2)		Includes Independence Plaza, Monmouth Mall, Fashion Center Mall, 50-70 West 93rd Street and others.

Based on our ownership interest in the partially owned entities above, our pro rata share of the debt of these partially owned entities was $3,953,375,000 and $4,189,403,000 at March 31, 2014 and December 31, 2013, respectively.

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

8. Dispositions

Discontinued Operations

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

On March 17, 2014, we entered into an agreement to sell Beverly Connection, a 335,000 square foot power shopping center in Los Angeles, California, for $260,000,000. The property is unencumbered. The sale will result in a net gain of approximately $40,000,000. The sale, which is subject to customary closing conditions, is expected to be completed in the third quarter of 2014.

We have reclassified the revenues and expenses of the properties discussed above to “income from discontinued operations” and the related assets and liabilities to “assets related to discontinued operations” and “liabilities related to discontinued operations” for all of the periods presented in the accompanying consolidated financial statements. The net gains resulting from the sale of these properties are included in “income from discontinued operations” on our consolidated statements of income. The tables below set forth the assets and liabilities related to discontinued operations at March 31, 2014 and December 31, 2013 and their combined results of operations for the three months ended March 31, 2014 and 2013.

	Assets Related to				Liabilities Related to
(Amounts in thousands)	Discontinued Operations as of				Discontinued Operations as of
	March 31,		December 31,		March 31,		December 31,
	2014		2013		2014		2013
Beverly Connection	$	207,575	$	208,458	$	-	$	-
Broadway Mall		-		106,164		-		13,950
Total	$	207,575	$	314,622	$	-	$	13,950

					For the Three Months
(Amounts in thousands)					Ended March 31,
					2014		2013
Total revenues					$	8,283	$	25,990
Total expenses						5,550		20,043
						2,733		5,947
Impairment losses						(842)		(1,514)
Net gain on sale of Green Acres Mall						-		202,275
Net gain on sale of other real estate						-		54
Income from discontinued operations					$	1,891	$	206,762

Other

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

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

9. Identified Intangible Assets and Liabilities

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

	Balance as of
	March 31,		December 31,
(Amounts in thousands)	2014		2013
Identified intangible assets:
Gross amount	$	589,973	$	589,961
Accumulated amortization		(290,214)		(277,998)
Net	$	299,759	$	311,963
Identified intangible liabilities (included in deferred revenue):
Gross amount	$	850,765	$	856,933
Accumulated amortization		(367,972)		(360,398)
Net	$	482,793	$	496,535

Amortization of acquired below-market leases, net of acquired above-market leases, resulted in an increase to rental income of $11,682,000 and $16,177,000 for the three months ended March 31, 2014 and 2013, respectively. Estimated annual amortization of acquired below-market leases, net of acquired above-market leases, for each of the five succeeding years commencing January 1, 2015 is as follows:

(Amounts in thousands)
2015	$	39,972
2016		38,631
2017		34,929
2018		33,309
2019		30,072

Amortization of all other identified intangible assets (a component of depreciation and amortization expense) was $9,325,000 and $25,213,000 for the three months ended March 31, 2014 and 2013, respectively. Estimated annual amortization of all other identified intangible assets including acquired in-place leases, customer relationships, and third party contracts for each of the five succeeding years commencing January 1, 2015 is as follows:

(Amounts in thousands)
2015	$	23,254
2016		20,237
2017		16,821
2018		12,441
2019		11,535

We are a tenant under ground leases for certain properties. Amortization of these acquired below-market leases, net of above-market leases resulted in an increase to rent expense of $858,000 and $1,102,000 for the three months ended March 31, 2014 and 2013, respectively. Estimated annual amortization of these below-market leases, net of above-market leases for each of the five succeeding years commencing January 1, 2015 is as follows:

(Amounts in thousands)
2015	$	3,430
2016		3,430
2017		3,430
2018		3,430
2019		3,430

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

10. Debt

On January 31, 2014, we completed a $600,000,000 loan secured by our 220 Central Park South development site. The loan bears interest at LIBOR plus 2.75% (2.90% at March 31, 2014) and matures in January 2016, with three one-year extension options.

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

The following is a summary of our debt:

		Interest Rate at			Balance at
(Amounts in thousands)		March 31, 2014			March 31, 2014		December 31, 2013
Mortgages Payable:
	Fixed rate		4.56%	$	7,546,030	$	7,563,133
	Variable rate		2.55%		1,367,328		768,860
			4.25%	$	8,913,358	$	8,331,993

Unsecured Debt:
	Senior unsecured notes		5.67%	$	1,343,442	$	1,350,855
	Revolving credit facility debt		1.31%		88,138		295,870
			5.41%	$	1,431,580	$	1,646,725

11. Redeemable Noncontrolling Interests

Redeemable noncontrolling interests on our consolidated balance sheets are comprised primarily of Class A Operating Partnership units that are held by third parties, and are recorded at the greater of their carrying amount or redemption value at the end of each reporting period. Changes in the value from period to period are charged to “additional capital” in our consolidated statements of changes in equity. Below is a table summarizing the activity of redeemable noncontrolling interests.

(Amounts in thousands)
Balance at December 31, 2012	$	944,152
Net income		14,719
Other comprehensive income		8,299
Distributions		(8,946)
Redemption of Class A units for common shares, at redemption value		(13,404)
Adjustments to carry redeemable Class A units at redemption value		44,998
Other, net		5,264
Balance at March 31, 2013	$	995,082

Balance at December 31, 2013	$	1,003,620
Net income		3,860
Other comprehensive income		361
Distributions		(8,383)
Redemption of Class A units for common shares, at redemption value		(5,156)
Adjustments to carry redeemable Class A units at redemption value		136,937
Other, net		9,592
Balance at March 31, 2014	$	1,140,831

As of March 31, 2014 and December 31, 2013, the aggregate redemption value of redeemable Class A units was $1,139,831,000 and $1,002,620,000, respectively.

Redeemable noncontrolling interests exclude our Series G-1 through G-4 convertible preferred units and Series D-13 cumulative redeemable preferred units, as they are accounted for as liabilities in accordance with ASC 480, Distinguishing Liabilities and Equity, because of their possible settlement by issuing a variable number of Vornado common shares. Accordingly, the fair value of these units is included as a component of “other liabilities” on our consolidated balance sheets and aggregated $55,097,000 as of March 31, 2014 and December 31, 2013.

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

12. Accumulated Other Comprehensive Income

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

		For the Three Months Ended March 31, 2013
				Securities		Pro rata share of		Interest
				available-		nonconsolidated		rate
(Amounts in thousands)		Total		for-sale		subsidiaries' OCI		swap		Other
Balance as of December 31, 2012		$	(18,946)	$	19,432	$	11,313	$	(50,065)	$	374
	OCI before reclassifications		139,899		148,789		(3,647)		2,523		(7,766)
	Amounts reclassified from AOCI		-		-		-		-		-
Net current period OCI			139,899		148,789		(3,647)		2,523		(7,766)
Balance as of March 31, 2013		$	120,953	$	168,221	$	7,666	$	(47,542)	$	(7,392)


		For the Three Months Ended March 31, 2014
				Securities		Pro rata share of		Interest
				available-		nonconsolidated		rate
(Amounts in thousands)		Total		for-sale		subsidiaries' OCI		swap		Other
Balance as of December 31, 2013		$	71,537	$	119,309	$	(11,501)	$	(31,882)	$	(4,389)
	OCI before reclassifications		6,089		13,125		(8,286)		1,610		(360)
	Amounts reclassified from AOCI		-		-		-		-		-
Net current period OCI			6,089		13,125		(8,286)		1,610		(360)
Balance as of March 31, 2014		$	77,626	$	132,434	$	(19,787)	$	(30,272)	$	(4,749)

13. Variable Interest Entities (“VIEs”)

We do not have any consolidated VIEs. At March 31, 2014 and December 31, 2013, we have unconsolidated VIEs comprised of our investments in the entities that own the Warner Building and Independence Plaza. We do not consolidate these entities because we are not the primary beneficiary and the nature of our involvement in the activities of these entities does not give us power over decisions that significantly affect these entities’ economic performance. We account for our investment in these entities under the equity method. As of March 31, 2014 and December 31, 2013, the net carrying amount of our investment in these entities was $148,120,000, and $152,929,000, respectively, and our maximum exposure to loss in these entities is limited to our investment.

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

14. Fair Value Measurements

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

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

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

		As of March 31, 2014
(Amounts in thousands)		Total		Level 1		Level 2		Level 3
Marketable securities		$	205,042	$	205,042	$	-	$	-
Real Estate Fund investments (75% of which is attributable to
	noncontrolling interests)		682,002		-		-		682,002
Deferred compensation plan assets (included in other assets)			121,970		54,343		-		67,627
	Total assets	$	1,009,014	$	259,385	$	-	$	749,629

Mandatorily redeemable instruments (included in other liabilities)		$	55,097	$	55,097	$	-	$	-
Interest rate swap (included in other liabilities)			30,272		-		30,272		-
	Total liabilities	$	85,369	$	55,097	$	30,272	$	-


		As of December 31, 2013
(Amounts in thousands)		Total		Level 1		Level 2		Level 3
Marketable securities		$	191,917	$	191,917	$	-	$	-
Real Estate Fund investments (75% of which is attributable to
	noncontrolling interests)		667,710		-		-		667,710
Deferred compensation plan assets (included in other assets)			116,515		47,733		-		68,782
	Total assets	$	976,142	$	239,650	$	-	$	736,492

Mandatorily redeemable instruments (included in other liabilities)		$	55,097	$	55,097	$	-	$	-
Interest rate swap (included in other liabilities)			31,882		-		31,882		-
	Total liabilities	$	86,979	$	55,097	$	31,882	$	-

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

14. Fair Value Measurements – continued

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

Real Estate Fund Investments

At March 31, 2014, our Real Estate Fund had nine investments with an aggregate fair value of $682,002,000, or $167,582,000 in excess of cost. These investments are classified as Level 3. We use a discounted cash flow valuation technique to estimate the fair value of each of these investments, which is updated quarterly by personnel responsible for the management of each investment and reviewed by senior management at each reporting period. The discounted cash flow valuation technique requires us to estimate cash flows for each investment over the anticipated holding period, which currently ranges from 0.3 to 6.3 years. Cash flows are derived from property rental revenue (base rents plus reimbursements) less operating expenses, real estate taxes and capital and other costs, plus projected sales proceeds in the year of exit. Property rental revenue is based on leases currently in place and our estimates for future leasing activity, which are based on current market rents for similar space plus a projected growth factor. Similarly, estimated operating expenses and real estate taxes are based on amounts incurred in the current period plus a projected growth factor for future periods. Anticipated sales proceeds at the end of an investment’s expected holding period are determined based on the net cash flow of the investment in the year of exit, divided by a terminal capitalization rate, less estimated selling costs.

The fair value of each property is calculated by discounting the future cash flows (including the projected sales proceeds), using an appropriate discount rate and then reduced by the property’s outstanding debt, if any, to determine the fair value of the equity in each investment. Significant unobservable quantitative inputs used in determining the fair value of each investment include capitalization rates and discount rates. These rates are based on the location, type and nature of each property, and current and anticipated market conditions, which are derived from original underwriting assumptions, industry publications and from the experience of our Acquisitions and Capital Markets departments. Significant unobservable quantitative inputs in the table below were utilized in determining the fair value of these Fund investments at March 31, 2014.

			Weighted Average
			(based on fair
Unobservable Quantitative Input		Range	value of investments)
	Discount rates	12.0% to 17.5%	13.9%
	Terminal capitalization rates	5.0% to 6.1%	5.7%

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

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

	Real Estate Fund Investments
	For the Three Months Ended March 31,
(Amounts in thousands)	2014		2013
Beginning balance	$	667,710	$	600,786
Purchases		123		13,668
Sales/Returns		-		(56,664)
Net unrealized gains		14,169		13,516
Ending balance	$	682,002	$	571,306

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

14. Fair Value Measurements – continued

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

Deferred Compensation Plan Assets

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

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

	Deferred Compensation Plan Assets
	For the Three Months Ended March 31,
(Amounts in thousands)	2014		2013
Beginning balance	$	68,782	$	62,631
Purchases		1,644		2,707
Sales		(5,124)		(2,697)
Realized and unrealized gain		2,172		1,354
Other, net		153		1,015
Ending balance	$	67,627	$	65,010

Fair Value Measurements on a Nonrecurring Basis

Assets measured at fair value on a nonrecurring basis on our consolidated balance sheets consist primarily of our investment in Toys “R” Us and real estate assets that were written-down to estimated fair value at March 31, 2014 and December 31, 2013. The fair values of these assets were determined using widely accepted valuation techniques, including (i) discounted cash flow analysis, which considers, among other things, leasing assumptions, growth rates, discount rates and terminal capitalization rates, (ii) income capitalization approach, which considers prevailing market capitalization rates, and (iii) comparable sales activity. Generally, we consider multiple valuation techniques when measuring fair values but in certain circumstances, a single valuation technique may be appropriate. The tables below aggregate the fair values of these assets by their levels in the fair value hierarchy.

			As of March 31, 2014
(Amounts in thousands)			Total		Level 1		Level 2		Level 3
	Real estate assets		$	341,660	$	-	$	-	$	341,660
	Investment in Toys"R" Us			75,932		-		-		75,932
		Total assets	$	417,592	$	-	$	-	$	417,592

			As of December 31, 2013
(Amounts in thousands)			Total		Level 1		Level 2		Level 3
	Real estate assets		$	354,351	$	-	$	-	$	354,351
	Investment in Toys "R" Us			83,224		-		-		83,224
		Total assets	$	437,575	$	-	$	-	$	437,575

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

14. Fair Value Measurements – continued

Financial Assets and Liabilities not Measured at Fair Value

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

			As of March 31, 2014				As of December 31, 2013
			Carrying		Fair		Carrying		Fair
(Amounts in thousands)			Amount		Value		Amount		Value
	Cash equivalents		$	922,872	$	923,000	$	295,000	$	295,000
	Mortgage and mezzanine loans receivable			42,749		43,000		170,972		171,000
			$	965,621	$	966,000	$	465,972	$	466,000
	Debt:
		Mortgages payable	$	8,913,358	$	8,763,000	$	8,331,993	$	8,104,000
		Senior unsecured notes		1,343,442		1,398,000		1,350,855		1,402,000
		Revolving credit facility debt		88,138		88,000		295,870		296,000
			$	10,344,938	$	10,249,000	$	9,978,718	$	9,802,000

15. Incentive Compensation

Our 2010 Omnibus Share Plan (the “Plan”) provides for grants of incentive and non-qualified stock options, restricted stock, restricted Operating Partnership units and out-performance plan awards to certain of our employees and officers. We account for all stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation. Stock-based compensation expense was $11,024,000 and $7,466,000 in the three months ended March 31, 2014 and 2013, respectively.

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

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

16. Fee and Other Income

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

		For the Three Months
(Amounts in thousands)		Ended March 31,
		2014		2013
BMS cleaning fees		$	18,956	$	16,664
Signage revenue			9,318		6,481
Management and leasing fees			6,214		5,253
Lease termination fees⁽¹⁾			3,793		59,968
Other income			7,647		8,447
		$	45,928	$	96,813


(1)	2013 includes $59,599 of income pursuant to a settlement agreement with Stop & Shop.

Management and leasing fees include management fees from Interstate Properties, a related party, of $134,000 and $203,000 for the three months ended March 31, 2014 and 2013, respectively. The above table excludes fee income from partially owned entities, which is typically included in “income from partially owned entities” (see Note 7 – Investments in Partially Owned Entities).

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

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

		For the Three Months
(Amounts in thousands)		Ended March 31,
		2014		2013
Mark-to-market of investments in our deferred compensation plan⁽¹⁾		$	4,400	$	3,446
Dividends and interest on marketable securities			3,106		2,770
Interest on mezzanine loans receivable			2,384		5,077
Non-cash impairment loss on J.C. Penney common shares			-		(39,487)
Loss from the mark-to-market of J.C. Penney derivative position			-		(22,540)
Other, net			2,003		1,659
		$	11,893	$	(49,075)


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

18. Interest and Debt Expense

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

	For the Three Months
(Amounts in thousands)	Ended March 31,
	2014		2013
Interest expense	$	118,252	$	123,228
Amortization of deferred financing costs		4,812		5,378
Capitalized interest		(13,622)		(8,260)
	$	109,442	$	120,346

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

19. Income Per Share

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

			For the Three Months
(Amounts in thousands, except per share amounts)			Ended March 31,
			2014		2013
Numerator:
	Income from continuing operations, net of income attributable to noncontrolling interests		$	80,936	$	67,986
	Income from discontinued operations, net of income attributable to noncontrolling interests			1,781		194,936
	Net income attributable to Vornado			82,717		262,922
	Preferred share dividends			(20,368)		(21,702)
	Preferred share redemptions			-		(9,230)
	Net income attributable to common shareholders			62,349		231,990
	Earnings allocated to unvested participating securities			(30)		(56)
	Numerator for basic income per share			62,319		231,934
	Impact of assumed conversions:
		Convertible preferred share dividends		-		28
	Numerator for diluted income per share		$	62,319	$	231,962

Denominator:
	Denominator for basic income per share – weighted average shares			187,307		186,752
	Effect of dilutive securities⁽¹⁾:
		Employee stock options and restricted share awards		933		727
		Convertible preferred shares		-		50
	Denominator for diluted income per share – weighted average shares and assumed conversions			188,240		187,529

INCOME PER COMMON SHARE – BASIC:
	Income from continuing operations, net		$	0.32	$	0.20
	Income from discontinued operations, net			0.01		1.04
	Net income per common share		$	0.33	$	1.24

INCOME PER COMMON SHARE – DILUTED:
	Income from continuing operations, net		$	0.32	$	0.20
	Income from discontinued operations, net			0.01		1.04
	Net income per common share		$	0.33	$	1.24


(1)		The effect of dilutive securities in the three months ended March 31, 2014 and 2013 excludes an aggregate of 11,326 and 11,997 weighted average common share equivalents, respectively, as their effect was anti-dilutive.

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

20. Commitments and Contingencies

Insurance

We maintain general liability insurance with limits of $300,000,000 per occurrence and all risk property and rental value insurance with limits of $2.0 billion per occurrence, with sub-limits for certain perils such as floods. Our California properties have earthquake insurance with coverage of $180,000,000 per occurrence, subject to a deductible in the amount of 5% of the value of the affected property, up to a $180,000,000 annual aggregate. We maintain coverage for terrorism acts with limits of $4.0 billion per occurrence and in the aggregate, including terrorism involving nuclear, biological, chemical and radiological (“NBCR”) terrorism events, as defined by the Terrorism Risk Insurance Program Reauthorization Act, which expires in December 2014.

Penn Plaza Insurance Company, LLC (“PPIC”), our wholly owned consolidated subsidiary, acts as a re-insurer with respect to a portion of all risk property and rental value insurance and a portion of our earthquake insurance coverage, and as a direct insurer for coverage for NBCR acts. Coverage for acts of terrorism (excluding NBCR acts) is fully reinsured by third party insurance companies and the federal government with no direct exposure to PPIC. For NBCR acts, PPIC is responsible for a deductible of $2,150,000 and 15% of the balance of a covered loss and the federal government is responsible for the remaining 85% of a covered loss. We are ultimately responsible for any loss incurred by PPIC.

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

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

Other Commitments and Contingencies

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

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

Our mortgage loans are non-recourse to us. However, in certain cases we have provided guarantees or master leased tenant space. These guarantees and master leases terminate either upon the satisfaction of specified circumstances or repayment of the underlying loans. As of March 31, 2014, the aggregate dollar amount of these guarantees and master leases is approximately $420,000,000.

At March 31, 2014, $38,477,000 of letters of credit were outstanding under one of our revolving credit facilities. Our revolving credit facilities contain financial covenants that require us to maintain minimum interest coverage and maximum debt to market capitalization ratios, and provide for higher interest rates in the event of a decline in our ratings below Baa3/BBB. Our revolving credit facilities also contain customary conditions precedent to borrowing, including representations and warranties, and also contain customary events of default that could give rise to accelerated repayment, including such items as failure to pay interest or principal.

As of March 31, 2014, we expect to fund additional capital to certain of our partially owned entities aggregating approximately $125,000,000.

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

21. 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 March 31, 2014 and 2013.


(Amounts in thousands)		For the Three Months Ended March 31, 2014
											Retail
			Total		New York			Washington, DC			Properties			Toys		Other
Total revenues			$	660,618	$	371,282		$	135,278		$	88,805		$	-	$	65,253
Total expenses				494,984		241,999			89,572			82,231			-		81,182
Operating income (loss)				165,634		129,283			45,706			6,574			-		(15,929)
Income (loss) from partially owned
	entities, including Toys			1,979		1,566			(1,266)			538			1,847		(706)
Income from Real Estate Fund				18,148		-			-			-			-		18,148
Interest and other investment
	income, net			11,893		1,475			36			9			-		10,373
Interest and debt expense				(109,442)		(42,839)			(19,347)			(9,217)			-		(38,039)
Net gain on disposition of wholly
	owned and partially owned assets			9,635		-			-			-			-		9,635
Income (loss) before income taxes				97,847		89,485			25,129			(2,096)			1,847		(16,518)
Income tax (expense) benefit				(1,582)		(969)			199			(731)			-		(81)
Income (loss) from continuing operations				96,265		88,516			25,328			(2,827)			1,847		(16,599)
Income from discontinued operations				1,891		-			-			1,714			-		177
Net income (loss)				98,156		88,516			25,328			(1,113)			1,847		(16,422)
Less net income attributable to
	noncontrolling interests			(15,439)		(1,405)			-			(17)			-		(14,017)
Net income (loss) attributable to Vornado				82,717		87,111			25,328			(1,130)			1,847		(30,439)
Interest and debt expense⁽²⁾				170,952		58,068			22,798			10,351			38,549		41,186
Depreciation and amortization⁽²⁾				196,339		87,587			36,150			25,328			26,924		20,350
Income tax expense (benefit)⁽²⁾				19,831		1,032			(189)			731			18,077		180
EBITDA⁽¹⁾			$	469,839	$	233,798	⁽³⁾	$	84,087	⁽⁴⁾	$	35,280	⁽⁵⁾	$	85,397	$	31,277	⁽⁶⁾

(Amounts in thousands)		For the Three Months Ended March 31, 2013
										Retail
		Total		New York			Washington, DC			Properties			Toys		Other
Total revenues		$	718,713	$	364,801		$	134,731		$	142,212		$	-	$	76,969
Total expenses			468,419		242,927			85,197			48,580			-		91,715
Operating income (loss)			250,294		121,874			49,534			93,632			-		(14,746)
Income (loss) from partially owned
	entities, including Toys		22,525		5,605			(2,093)			901			1,759		16,353
Income from Real Estate Fund			16,564		-			-			-			-		16,564
Interest and other investment (loss)
	income, net		(49,075)		1,165			76			51			-		(50,367)
Interest and debt expense			(120,346)		(40,431)			(28,250)			(10,286)			-		(41,379)
Net loss on disposition of wholly owned and
	partially owned assets		(36,724)		-			-			-			-		(36,724)
Income (loss) before income taxes			83,238		88,213			19,267			84,298			1,759		(110,299)
Income tax expense			(1,073)		(272)			(378)			-			-		(423)
Income (loss) from continuing operations			82,165		87,941			18,889			84,298			1,759		(110,722)
Income (loss) from discontinued operations			206,762		2,728			-			205,382			-		(1,348)
Net income (loss)			288,927		90,669			18,889			289,680			1,759		(112,070)
Less net income attributable to
	noncontrolling interests		(26,005)		(1,581)			-			(96)			-		(24,328)
Net income (loss) attributable to Vornado			262,922		89,088			18,889			289,584			1,759		(136,398)
Interest and debt expense⁽²⁾			188,780		49,689			31,753			14,223			43,182		49,933
Depreciation and amortization⁽²⁾			194,185		78,413			35,148			18,519			37,674		24,431
Income tax expense⁽²⁾			60,759		347			454			-			59,346		612
EBITDA⁽¹⁾		$	706,646	$	217,537	⁽³⁾	$	86,244	⁽⁴⁾	$	322,326	⁽⁵⁾	$	141,961	$	(61,422)	⁽⁶⁾


See notes on the following page.

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

21. Segment Information – continued


	Notes to preceding tabular information:


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


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


(3)	The elements of "New York" EBITDA are summarized below.

				For the Three Months
				Ended March 31,
	(Amounts in thousands)			2014		2013
	Office			$	157,879	$	146,296
	Retail				66,195		60,382
	Alexander's				10,430		10,541
	Hotel Pennsylvania				(706)		318
		Total New York		$	233,798	$	217,537


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

				For the Three Months
				Ended March 31,
	(Amounts in thousands)			2014		2013
	Office, excluding the Skyline Properties			$	67,257	$	67,107
	Skyline properties				6,499		8,162
		Total Office			73,756		75,269
	Residential				10,331		10,975
		Total Washington, DC		$	84,087	$	86,244


(5)	The elements of "Retail Properties" EBITDA are summarized below.

				For the Three Months
				Ended March 31,
	(Amounts in thousands)			2014		2013
	Strip shopping centers^(a)			$	41,321	$	103,361
	Regional malls^(b)				(6,041)		218,965
		Total Retail properties		$	35,280	$	322,326


	(a)		The three months ended March 31, 2013, includes $59,599 of income pursuant to a settlement agreement with Stop & Shop.

	(b)		The three months ended March 31, 2014, includes a $20,000 non-cash impairment loss on the Springfield Town Center. The three months ended March 31, 2013, includes a $202,275 net gain on sale of Green Acres Mall.

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

21. Segment Information – continued


	Notes to preceding tabular information - continued:


(6)	The elements of "other" EBITDA are summarized below.

				For the Three Months
				Ended March 31,
	(Amounts in thousands)			2014		2013
	Our share of Real Estate Fund:
		Income before net realized/unrealized gains		$	1,982	$	1,462
		Net unrealized gains			3,542		3,379
		Carried interest			1,775		2,183
	Total				7,299		7,024
	Merchandise Mart Building and trade shows				19,087		16,854
	555 California Street				12,066		10,629
	India real estate ventures				1,824		1,759
	LNR^(a)				-		20,443
	Lexington^(b)				-		6,931
	Other investments				4,919		3,117
					45,195		66,757
	Corporate general and administrative expenses^(c)				(25,982)		(22,756)
	Investment income and other, net^(c)				8,073		11,336
	Net gain on sale of a land parcel and residential condominiums				9,635		-
	Acquisition related costs				(1,784)		(601)
	Non-cash impairment loss on J.C. Penney common shares				-		(39,487)
	Loss on sale of J.C. Penney common shares				-		(36,800)
	Loss from the mark-to-market of J.C. Penney derivative position				-		(22,540)
	Merchandise Mart reduction-in-force and severance costs				-		(2,612)
	Net income attributable to noncontrolling interests in the Operating Partnership				(3,848)		(13,933)
	Preferred unit distributions of the Operating Partnership				(12)		(786)
				$	31,277	$	(61,422)


	(a)		On April 19, 2013, LNR was sold for $1.053 billion.

	(b)		In the first quarter of 2013, we began accounting for our investment in Lexington as a marketable equity security - available for sale. The 2013 amount represents our share of Lexington's 2012 fourth quarter earnings which was recorded on a one-quarter lag basis.

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

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 March 31, 2014, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for the three-month periods ended March 31, 2014 and 2013. 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, 2013, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for the year then ended (not presented herein); and in our report dated February 24, 2014, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2013 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ DELOITTE & TOUCHE LLP

Parsippany, New Jersey

May 5, 2014

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

Certain statements contained in this Quarterly Report constitute forward‑looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not guarantees of performance. They represent our intentions, plans, expectations and beliefs and are subject to numerous assumptions, risks and uncertainties. Our future results, financial condition and business may differ materially from those expressed in these forward-looking statements. You can find many of these statements by looking for words such as “approximates,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “would,” “may” or other similar expressions in this Quarterly Report on Form 10‑Q. Many of the factors that will determine the outcome of these and our other forward-looking statements are beyond our ability to control or predict. For further discussion of factors that could materially affect the outcome of our forward-looking statements, see “Item 1A. Risk Factors” in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2013. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q or the date of any document incorporated by reference. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to our forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.

Management’s Discussion and Analysis of Financial Condition and Results of Operations includes a discussion of our consolidated financial statements for the three months ended March 31, 2014. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The results of operations for the three months ended March 31, 2014 are not necessarily indicative of the operating results for the full year. Certain prior year balances have been reclassified in order to conform to current year presentation.

Overview

Business Objective and Operating Strategy

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

		Total Return⁽¹⁾
		Vornado	Office REIT	RMS
	Three-month	11.9%	11.2%	10.0%
	One-year	21.8%	8.9%	4.3%
	Three-year	26.2%	23.6%	35.5%
	Five-year	261.1%	218.9%	254.3%
	Ten-year	147.6%	89.4%	120.0%


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

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

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

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

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

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

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

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

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

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

On April 11, 2014, we announced a plan to spin off our shopping center business consisting of 81 strip shopping centers and four malls into a new publicly traded REIT (“SpinCo”). The spin-off is expected to be effectuated through a 1:2 distribution of SpinCo's shares to Vornado common shareholders and Vornado Realty L.P. common unitholders, and is intended to be treated as tax-free for U.S. federal income tax purposes. We intend to file the initial registration statement on Form 10 with the Securities and Exchange Commission (“SEC”) by the end of the second quarter of 2014 and expect the spin-off to be completed by the end of 2014. The transaction is subject to certain conditions, including the SEC declaring that SpinCo’s registration statement is effective, filing and approval of SpinCo’s listing application, receipt of third party consents, and formal approval and declaration of the distribution by Vornado’s Board of Trustees. Vornado may, at any time and for any reason until the proposed transaction is complete, abandon the separation or modify or change its terms.

Overview – continued

Quarter Ended March 31, 2014 Financial Results Summary

Net income attributable to common shareholders for the quarter ended March 31, 2014 was $62,349,000, or $0.33 per diluted share, compared to $231,990,000, or $1.24 per diluted share for the quarter ended March 31, 2013. Net income for the quarters ended March 31, 2014 and 2013 include $20,842,000 and $5,164,000, respectively of real estate impairment losses. The quarter ended March 31, 2013 also includes $202,794,000 of net gains on sale of real estate. In addition, the quarters ended March 31, 2014 and 2013 include certain other items that affect comparability, which are listed in the table below. The aggregate of net gains on sale of real estate, real estate impairment losses and the items in the table below, net of amounts attributable to noncontrolling interests, decreased net income attributable to common shareholders for the quarter ended March 31, 2014 by $7,942,000, or $0.04 per diluted share and increased net income attributable to common shareholders for the quarter ended March 31, 2013 by $157,880,000 or $0.84 per diluted share.

Funds From Operations attributable to common shareholders plus assumed conversions (“FFO”) for the quarter ended March 31, 2014 was $247,079,000, or $1.31 per diluted share, compared to $201,820,000, or $1.08 per diluted share for the prior year’s quarter. FFO for the quarters ended March 31, 2014 and 2013 include certain items that affect comparability, which are listed in the table below. The aggregate of these items, net of amounts attributable to noncontrolling interests, increased FFO for the quarter ended March 31, 2014 by $20,197,000, or $0.11 per diluted share, and decreased FFO for the quarter ended March 31, 2013 by $9,820,000, or $0.05 per diluted share.


		For the Three Months Ended March 31,
(Amounts in thousands)		2014		2013
Items that affect comparability income (expense):
	Toys "R" Us FFO (including impairment losses of $75,196 and $78,542 respectively)	$	9,267	$	16,684
	Net gain on sale of a land parcel and residential condominiums		9,635		-
	FFO from discontinued operations, including LNR in 2013		4,139		27,951
	Losses from the mark-to-market, impairment and disposition of investment in J.C. Penney		-		(98,827)
	Stop & Shop litigation settlement income		-		59,599
	Preferred share redemptions		-		(9,230)
	Merchandise Mart reduction-in-force and severance costs		-		(2,612)
	Other, net		(1,784)		(3,964)
			21,257		(10,399)
Noncontrolling interests' share of above adjustments			(1,060)		579
Items that affect comparability, net		$	20,197	$	(9,820)

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


Same Store EBITDA:			New York			Washington, DC		Retail Properties
	March 31, 2014 vs. March 31, 2013
		GAAP basis	6.2	%	⁽¹⁾	(2.5	%)	2.2	%
		Cash basis	10.1	%	⁽¹⁾	0.5	%	2.4	%
	March 31, 2014 vs. December 31, 2013
		GAAP basis	(4.1	%)	⁽²⁾	0.1	%	0.2	%
		Cash basis	(2.7	%)	⁽²⁾	0.9	%	1.3	%


(1)		Excluding the Hotel Pennsylvania, same store EBITDA increased by 6.7% and 10.7% on a GAAP basis and cash basis, respectively.

(2)		Excluding the Hotel Pennsylvania, same store EBITDA increased by 1.1% and 3.4% on a GAAP basis and cash basis, respectively.

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

Overview – continued

2014 Dispositions

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

On March 17, 2014, we entered into an agreement to sell Beverly Connection, a 335,000 square foot power shopping center in Los Angeles, California, for $260,000,000. The property is unencumbered. The sale, which is subject to customary closing conditions, is expected to be completed in the third quarter of 2014.

2014 Financings

Recently Issued Accounting Literature

In April 2014, the FASB issued an update (“ASU 2014-08”) Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity to ASC Topic 205, Presentation of Financial Statements and ASC Topic 360, Property Plant and Equipment. Under ASU 2014-08, only disposals that represent a strategic shift that has (or will have) a major effect on the entity’s results and operations would qualify as discontinued operations. In addition, the ASU expands the disclosure requirements for disposals that meet the definition of a discontinued operation and requires entities to disclose information about disposals of individually significant components that do not meet the definition of discontinued operations. ASU 2014-08 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2014. We are currently evaluating the impact of ASU 2014-08 on our consolidated financial statements.

Critical Accounting Policies

A summary of our critical accounting policies is included in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2013 in Management’s Discussion and Analysis of Financial Condition. There have been no significant changes to our policies during 2014.

Overview - continued

Leasing Activity:

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


					New York				Washington, DC			Retail Properties
(Square feet in thousands)					Office		Retail		Office			Strips		Malls

Quarter Ended March 31, 2014
	Total square feet leased					947		11		357	⁽³⁾		233		25
	Our share of square feet leased:					806		11		342	⁽³⁾		233		21
		Initial rent⁽¹⁾			$	62.39	$	121.16	$	42.49		$	18.15	$	33.18
		Weighted average lease term (years)				10.7		14.9		8.7			6.1		5.7
		Second generation relet space:
			Square feet			565		10		211			207		6
			Cash basis:
				Initial rent⁽¹⁾	$	65.33	$	120.47	$	41.97		$	18.46	$	46.67
				Prior escalated rent	$	56.91	$	83.46	$	43.30		$	17.91	$	44.34
				Percentage increase (decrease)		14.8%		44.3%		(3.1%)			3.1%		5.3%
			GAAP basis:
				Straight-line rent⁽²⁾	$	63.23	$	130.67	$	39.83		$	18.94	$	50.18
				Prior straight-line rent	$	53.49	$	122.17	$	38.33		$	17.32	$	43.74
				Percentage increase		18.2%		7.0%		3.9%			9.4%		14.7%
		Tenant improvements and leasing
			commissions:
				Per square foot	$	67.53	$	-	$	45.48		$	2.77	$	12.48
				Per square foot per annum	$	6.31	$	-	$	5.23		$	0.45	$	2.19
				Percentage of initial rent		10.1%		-		12.3%			2.5%		6.6%



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

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

(3)			Excludes (i) 165 square feet leased to WeWork for a 20-year term at an initial rent of $24.77 per square foot, that will be redeveloped into rental residential apartments (see page 53), and (ii) 8 square feet of retail space that was leased at an initial rent of $40.74 per square foot.

Overview – continued

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

			Square Feet (in service)
		Number of	Total	Our
(Square feet in thousands)		Properties	Portfolio	Share	Occupancy %
New York:
	Office	32	19,841	16,396	96.9%
	Retail	55	2,379	2,164	97.1%
	Alexander's	6	2,178	706	99.4%
	Hotel Pennsylvania	1	1,400	1,400
	Residential - 1,655 units	4	1,523	762	96.2%
			27,321	21,428	97.0%

Washington, DC:
	Office, excluding the Skyline Properties	51	13,406	11,035	85.7%
	Skyline Properties	8	2,652	2,652	58.7%
	Total Office	59	16,058	13,687	80.5%
	Residential - 2,414 units	7	2,597	2,454	96.8%
	Other	5	379	379	100.0%
			19,034	16,520	83.3%

Retail Properties:
	Strip Shopping Centers	104	14,519	14,140	93.9%
	Regional Malls	5	4,134	2,646	95.7%
			18,653	16,786	94.2%

Other:
	Merchandise Mart	1	3,578	3,569	95.6%
	555 California Street	3	1,795	1,257	96.1%
	Primarily Warehouses	5	971	971	45.6%
			6,344	5,797

Total square feet at March 31, 2014			71,352	60,531

Overview - continued

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

				Square Feet (in service)
			Number of	Total	Our
	(Square feet in thousands)		properties	Portfolio	Share	Occupancy %
	New York:
		Office	31	19,799	16,358	96.6%
		Retail	55	2,389	2,166	97.4%
		Alexander's	6	2,178	706	99.4%
		Hotel Pennsylvania	1	1,400	1,400
		Residential - 1,655 units	4	1,523	762	94.8%
				27,289	21,392	96.8%

	Washington, DC:
		Office, excluding the Skyline Properties	51	13,581	11,151	85.4%
		Skyline Properties	8	2,652	2,652	60.8%
		Total Office	59	16,233	13,803	80.7%
		Residential - 2,405 units	7	2,588	2,446	96.3%
		Other	5	379	379	100.0%
				19,200	16,628	83.4%

	Retail Properties:
		Strip Shopping Centers	105	14,616	14,237	94.3%
		Regional Malls	5	4,135	2,646	95.9%
				18,751	16,883	94.6%

	Other:
		Merchandise Mart	2	3,703	3,694	96.3%
		555 California Street	3	1,795	1,257	94.5%
		Primarily Warehouses	5	971	971	45.6%
				6,469	5,922

	Total square feet at December 31, 2013			71,709	60,825

Overview - continued

Washington, DC Segment

We estimate that 2014 EBITDA from continuing operations will be between $10,000,000 and $15,000,000 lower than 2013 EBITDA, due to the effects of Base Realignment and Closure (“BRAC”) related move-outs and the sluggish leasing environment in the Washington, DC / Northern Virginia area. EBITDA from continuing operations for the three months ended March 31, 2014, was lower than the prior year’s three months by approximately $2,157,000, which was offset by an interest expense reduction of $5,462,000 from the restructuring of the Skyline properties mortgage loan in October 2013. As a result of this and other items, the overall earnings in the three months ended March 31, 2014 were higher than the prior year’s three months.

Of the 2,395,000 square feet subject to the effects of the BRAC statute, 393,000 square feet has been taken out of service for redevelopment and 769,000 square feet has been leased or is pending. The table below summarizes the status of the BRAC space as of March 31, 2014.

			Rent Per		Square Feet
			Square Foot		Total	Crystal City	Skyline	Rosslyn

Resolved:
	Relet as of March 31, 2014		$	37.92	745,000	411,000	268,000	66,000
	Leases pending			45.12	24,000	24,000	-	-
	Taken out of service for redevelopment				393,000	393,000	-	-
					1,162,000	828,000	268,000	66,000

To Be Resolved:
	Vacated as of March 31, 2014			37.54	916,000	500,000	336,000	80,000
	Expiring in:
		2014		28.75	224,000	23,000	201,000	-
		2015		43.48	93,000	88,000	5,000	-
					1,233,000	611,000	542,000	80,000

Total square feet subject to BRAC					2,395,000	1,439,000	810,000	146,000

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

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


(Amounts in thousands)		For the Three Months Ended March 31, 2014
											Retail
			Total		New York			Washington, DC			Properties			Toys		Other
Total revenues			$	660,618	$	371,282		$	135,278		$	88,805		$	-	$	65,253
Total expenses				494,984		241,999			89,572			82,231			-		81,182
Operating income (loss)				165,634		129,283			45,706			6,574			-		(15,929)
Income (loss) from partially owned
	entities, including Toys			1,979		1,566			(1,266)			538			1,847		(706)
Income from Real Estate Fund				18,148		-			-			-			-		18,148
Interest and other investment
	income, net			11,893		1,475			36			9			-		10,373
Interest and debt expense				(109,442)		(42,839)			(19,347)			(9,217)			-		(38,039)
Net gain on disposition of wholly
	owned and partially owned assets			9,635		-			-			-			-		9,635
Income (loss) before income taxes				97,847		89,485			25,129			(2,096)			1,847		(16,518)
Income tax (expense) benefit				(1,582)		(969)			199			(731)			-		(81)
Income (loss) from continuing operations				96,265		88,516			25,328			(2,827)			1,847		(16,599)
Income from discontinued operations				1,891		-			-			1,714			-		177
Net income (loss)				98,156		88,516			25,328			(1,113)			1,847		(16,422)
Less net income attributable to
	noncontrolling interests			(15,439)		(1,405)			-			(17)			-		(14,017)
Net income (loss) attributable to Vornado				82,717		87,111			25,328			(1,130)			1,847		(30,439)
Interest and debt expense⁽²⁾				170,952		58,068			22,798			10,351			38,549		41,186
Depreciation and amortization⁽²⁾				196,339		87,587			36,150			25,328			26,924		20,350
Income tax expense (benefit)⁽²⁾				19,831		1,032			(189)			731			18,077		180
EBITDA⁽¹⁾			$	469,839	$	233,798	⁽³⁾	$	84,087	⁽⁴⁾	$	35,280	⁽⁵⁾	$	85,397	$	31,277	⁽⁶⁾


(Amounts in thousands)		For the Three Months Ended March 31, 2013
										Retail
		Total		New York			Washington, DC			Properties			Toys		Other
Total revenues		$	718,713	$	364,801		$	134,731		$	142,212		$	-	$	76,969
Total expenses			468,419		242,927			85,197			48,580			-		91,715
Operating income (loss)			250,294		121,874			49,534			93,632			-		(14,746)
Income (loss) from partially owned
	entities, including Toys		22,525		5,605			(2,093)			901			1,759		16,353
Income from Real Estate Fund			16,564		-			-			-			-		16,564
Interest and other investment (loss)
	income, net		(49,075)		1,165			76			51			-		(50,367)
Interest and debt expense			(120,346)		(40,431)			(28,250)			(10,286)			-		(41,379)
Net loss on disposition of wholly owned and
	partially owned assets		(36,724)		-			-			-			-		(36,724)
Income (loss) before income taxes			83,238		88,213			19,267			84,298			1,759		(110,299)
Income tax expense			(1,073)		(272)			(378)			-			-		(423)
Income (loss) from continuing operations			82,165		87,941			18,889			84,298			1,759		(110,722)
Income (loss) from discontinued operations			206,762		2,728			-			205,382			-		(1,348)
Net income (loss)			288,927		90,669			18,889			289,680			1,759		(112,070)
Less net income attributable to
	noncontrolling interests		(26,005)		(1,581)			-			(96)			-		(24,328)
Net income (loss) attributable to Vornado			262,922		89,088			18,889			289,584			1,759		(136,398)
Interest and debt expense⁽²⁾			188,780		49,689			31,753			14,223			43,182		49,933
Depreciation and amortization⁽²⁾			194,185		78,413			35,148			18,519			37,674		24,431
Income tax expense⁽²⁾			60,759		347			454			-			59,346		612
EBITDA⁽¹⁾		$	706,646	$	217,537	⁽³⁾	$	86,244	⁽⁴⁾	$	322,326	⁽⁵⁾	$	141,961	$	(61,422)	⁽⁶⁾

_____________________________

See notes on the following page.

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


	Notes to preceding tabular information:



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



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



(3)	The elements of "New York" EBITDA are summarized below.

			For the Three Months Ended March 31,
	(Amounts in thousands)		2014		2013
	Office		$	157,879	$	146,296
	Retail			66,195		60,382
	Alexander's			10,430		10,541
	Hotel Pennsylvania			(706)		318
		Total New York	$	233,798	$	217,537




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

			For the Three Months Ended March 31,
	(Amounts in thousands)		2014		2013
	Office, excluding the Skyline Properties		$	67,257	$	67,107
	Skyline properties			6,499		8,162
		Total Office		73,756		75,269
	Residential			10,331		10,975
		Total Washington, DC	$	84,087	$	86,244


(5)	The elements of "Retail Properties" EBITDA are summarized below.

			For the Three Months Ended March 31,
	(Amounts in thousands)		2014		2013
	Strip shopping centers^(a)		$	41,321	$	103,361
	Regional malls^(b)			(6,041)		218,965
		Total Retail properties	$	35,280	$	322,326

	_________________________________________________
	(a)	Includes income from discontinued operations and other gains and losses that affect comparability, aggregating $2,886 and $66,773 for the three months ended March 31, 2014 and 2013, respectively. Excluding these items, EBITDA was $38,435 and $36,588, respectively.

	(b)	Includes income from discontinued operations and other gains and losses that affect comparability, aggregating $(19,766) and $204,819 for the three months ended March 31, 2014 and 2013, respectively. Excluding these items, EBITDA was $13,725 and $14,146, respectively.

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



	Notes to preceding tabular information - continued:


(6)	The elements of "other" EBITDA are summarized below.

				For the Three Months Ended March 31,
	(Amounts in thousands)			2014		2013
	Our share of Real Estate Fund:
		Income before net realized/unrealized gains		$	1,982	$	1,462
		Net unrealized gains			3,542		3,379
		Carried interest			1,775		2,183
	Total				7,299		7,024
	Merchandise Mart Building and trade shows				19,087		16,854
	555 California Street				12,066		10,629
	India real estate ventures				1,824		1,759
	LNR^(a)				-		20,443
	Lexington^(b)				-		6,931
	Other investments				4,919		3,117
					45,195		66,757
	Corporate general and administrative expenses^(c)				(25,982)		(22,756)
	Investment income and other, net^(c)				8,073		11,336
	Net gain on sale of a land parcel and residential condominiums				9,635		-
	Acquisition related costs				(1,784)		(601)
	Non-cash impairment loss on J.C. Penney common shares				-		(39,487)
	Loss on sale of J.C. Penney common shares				-		(36,800)
	Loss from the mark-to-market of J.C. Penney derivative position				-		(22,540)
	Merchandise Mart reduction-in-force and severance costs				-		(2,612)
	Net income attributable to noncontrolling interests in the Operating Partnership				(3,848)		(13,933)
	Preferred unit distributions of the Operating Partnership				(12)		(786)
				$	31,277	$	(61,422)


	(a)		On April 19, 2013, LNR was sold for $1.053 billion.

	(b)		In the first quarter of 2013, we began accounting for our investment in Lexington as a marketable equity security - available for sale. The 2013 amount represents our share of Lexington's 2012 fourth quarter earnings which was recorded on a one-quarter lag basis.

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

EBITDA by Region

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

		For the Three Months
		Ended March 31,
		2014	2013
Region:
	New York City metropolitan area	74%	72%
	Washington, DC / Northern Virginia metropolitan area	23%	25%
	Puerto Rico	2%	2%
	Other geographies	1%	1%
		100%	100%

Results of Operations – Three Months Ended March 31, 2014 Compared to March 31, 2013

Revenues

Our revenues, which consist primarily of property rentals (including hotel and trade show revenues), tenant expense reimbursements, and fee and other income, were $660,618,000 for the three months ended March 31, 2014, compared to $718,713,000 in the prior year’s three months, a decrease of $58,095,000. This decrease was attributable to income in the prior year of (i) $59,599,000 pursuant to a settlement agreement with Stop & Shop and (ii) $12,143,000 related to the Cleveland Medical Mart development project. Below are the details of the (decrease) increase by segment:

(Amounts in thousands)

										Retail
(Decrease) increase due to:			Total			New York		Washington, DC		Properties			Other
Property rentals:
	Acquisitions and other		$	(135)		$	2,262	$	(692)	$	(936)		$	(769)
	Deconsolidation of Independence Plaza			(14,391)			(14,391)		-		-			-
	Properties placed into / taken out of
		service for redevelopment		(3,043)			(1,017)		(184)		276			(2,118)
	Hotel Pennsylvania			(294)			(294)		-		-			-
	Trade Shows			897			-		-		-			897
	Same store operations			11,273			9,288		(2,647)		853			3,779
				(5,693)			(4,152)		(3,523)		193			1,789

Tenant expense reimbursements:
	Acquisitions and other			396			(235)		-		-			631
	Properties placed into / taken out of
		service for redevelopment		(555)			(559)		36		144			(176)
	Same store operations			10,785			3,800		1,363		5,860			(238)
				10,626			3,006		1,399		6,004			217

Cleveland Medical Mart development
	project			(12,143)	⁽¹⁾		-		-		-			(12,143)	⁽¹⁾

Fee and other income:
	BMS cleaning fees			2,292			2,936		-		-			(644)	⁽²⁾
	Signage revenue			2,837			2,837		-		-			-
	Management and leasing fees			961			1,002		219		(93)			(167)
	Lease termination fees			(56,175)			818		2,128		(59,383)	⁽³⁾		262
	Other income			(800)			34		324		(128)			(1,030)
				(50,885)			7,627		2,671		(59,604)			(1,579)

Total (decrease) increase in revenues			$	(58,095)		$	6,481	$	547	$	(53,407)		$	(11,716)



(1)		Due to the completion of the project. This decrease in revenue is substantially offset by a decrease in development costs expensed in the period. See note (4) on page 43.

(2)		Represents the elimination of intercompany fees from operating segments upon consolidation. See note (2) on page 43.

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

Results of Operations – Three Months Ended March 31, 2014 Compared to March 31, 2013 - continued

Expenses

Our expenses, which consist primarily of operating (including hotel and trade show expenses), depreciation and amortization and general and administrative expenses, were $494,984,000 for the three months ended March 31, 2014, compared to $468,419,000 in the prior year’s three months, an increase of $26,565,000. Below are the details of the increase (decrease) by segment:

(Amounts in thousands)

										Retail
Increase (decrease) due to:			Total			New York		Washington, DC		Properties			Other
Operating:
	Acquisitions and other		$	(567)		$	296	$	-	$	(97)		$	(766)
	Deconsolidation of Independence Plaza			(5,766)			(5,766)		-		-			-
	Properties placed into / taken out of
		service for redevelopment		(2,813)			(1,690)		133		(141)			(1,115)
	Non-reimbursable expenses, including
		bad debt reserves		(550)			(301)		-		-			(249)
	Hotel Pennsylvania			808			808		-		-			-
	Trade Shows			775			-		-		-			775
	BMS expenses			(858)			(122)		-		-			(736)	⁽²⁾
	Same store operations			16,615			7,359		2,689		5,872			695
				7,644			584		2,822		5,634			(1,396)

Depreciation and amortization:
	Acquisitions and other			2,190			2,303		-		(106)			(7)
	Deconsolidation of Independence Plaza			(9,994)			(9,994)		-		-			-
	Properties placed into / taken out of
		service for redevelopment		21,164			13,816		(29)		8,155			(778)
	Same store operations			(5,026)			(7,915)		940		727			1,222
				8,334			(1,790)		911		8,776			437

General and administrative:
	Mark-to-market of deferred
		compensation plan liability⁽¹⁾		954			-		-		-			954
	Severance costs (primarily reduction
		in force at the Merchandise Mart)		(2,612)			-		-		-			(2,612)
	Same store operations			2,436			278		642		(759)			2,275	⁽³⁾
				778			278		642		(759)			617

Cleveland Medical Mart development
	project			(11,374)	⁽⁴⁾		-		-		-			(11,374)	⁽⁴⁾

Impairment losses and acquisition
	related costs			21,183			-		-		20,000	⁽⁵⁾		1,183

Total increase (decrease) in expenses			$	26,565		$	(928)	$	4,375	$	33,651		$	(10,533)



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

(2)		Represents the elimination of intercompany fees from operating segments upon consolidation. See note (2) on page 42.

(3)		Primarily from an increase in stock-based compensation expense, of which $1,117 relates to additional amortization in 2014, due to the timing of the 2014 equity grant.

(4)		Due to the completion of the project. This decrease in expense is offset by the decrease in development revenue in the period. See note (1) on page 42.

(5)		Represents a non-cash impairment loss on the Springfield Town Center.

Results of Operations – Three Months Ended March 31, 2014 Compared to March 31, 2013 - continued

Income Applicable to Toys

In the three months ended March 31, 2014, we recognized (i) $1,847,000 of income applicable to Toys, representing management fees earned and received, and (ii) our share of the equity in earnings of Toys’ fourth quarter totaling $75,196,000 and a corresponding non-cash impairment loss of the same amount.

In the three months ended March 31, 2013, we recognized (i) $1,759,000 of income applicable to Toys, representing management fees earned and received, and (ii) our share of the equity in earnings of Toys’ fourth quarter totaling $78,542,000 and a corresponding non-cash impairment loss of the same amount.

Income from Partially Owned Entities

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

		Percentage	For the Three Months Ended
		Ownership at	March 31,
(Amounts in thousands)		March 31, 2014	2014		2013
Equity in Net Income (Loss):
Alexander's		32.4%	$	6,385	$	6,076
India real estate ventures		4.1%-36.5%		(137)		(767)
Partially owned office buildings⁽¹⁾		Various		(2,395)		(582)
Other investments⁽²⁾		Various		(3,721)		(1,713)
Lexington⁽³⁾		n/a		-		(979)
LNR⁽⁴⁾		n/a		-		18,731
			$	132	$	20,766


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

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

(3)	In the first quarter of 2013, we began accounting for our investment in Lexington as a marketable equity security - available for sale. The 2013 amount represents our share of Lexington's 2012 fourth quarter earnings which was recorded on a one-quarter lag basis.

(4)	On April 19, 2013, LNR was sold for $1.053 billion.

Results of Operations – Three Months Ended March 31, 2014 Compared to March 31, 2013 - continued

Income from Real Estate Fund

Below are the components of the income from our Real Estate Fund for the three months ended March 31, 2014 and 2013.


(Amounts in thousands)		For the Three Months Ended March 31,
		2014		2013
Net investment income		$	3,979	$	3,048
Net unrealized gains			14,169		13,516
Income from Real Estate Fund			18,148		16,564
Less (income) attributable to noncontrolling interests			(10,849)		(9,540)
Income from Real Estate Fund attributable to Vornado ⁽¹⁾		$	7,299	$	7,024
___________________________________
___________________________________
(1)	Excludes management, leasing and development fees of $704 and $849 for the three months ended March 31, 2014 and 2013, respectively, which are included as a component of "fee and other income" on our consolidated statements of income.

Interest and Other Investment Income (Loss), net

Interest and other investment income (loss), net was $11,893,000 in the three months ended March 31, 2014, compared to a loss of $49,075,000 in the prior year’s three months, an increase in income of $60,968,000. This increase resulted from:


(Amounts in thousands)

Non-cash impairment loss on J.C. Penney common shares in 2013		$	39,487
J.C. Penney derivative position mark-to-market loss in 2013			22,540
Lower interest on mezzanine loans receivable			(2,693)
Increase in the value of investments in our deferred compensation plan (offset by a corresponding
	decrease in the liability for plan assets in general and administrative expenses)		954
Higher dividends and interest on marketable securities			336
Other, net			344
		$	60,968

Interest and Debt Expense

Interest and debt expense was $109,442,000 in the three months ended March 31, 2014, compared to $120,346,000 in the prior year’s three months, a decrease of $10,904,000. This decrease was primarily due to $5,462,000 of interest savings from the restructuring of the Skyline properties mortgage loan in October 2013 and $5,362,000 of higher capitalized interest in the current period.

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

In the three months ended March 31, 2014, we recognized a $9,635,000 gain on disposition of wholly owned and partially owned assets, primarily from the sale of a land parcel and residential condominiums, compared to a net loss of $36,724,000 in the prior year’s three months, primarily from the sale of 10,000,000 J.C. Penney common shares.

Income Tax Expense

Income tax expense was $1,582,000 in the three months ended March 31, 2014, compared to $1,073,000 in the prior year’s three months, an increase of $509,000. This increase was primarily attributable to higher income from our taxable REIT subsidiaries.

Results of Operations – Three Months Ended March 31, 2014 Compared to March 31, 2013 - continued

Income from Discontinued Operations

We have reclassified the revenues and expenses of the properties that were sold or are currently held for sale to “income from discontinued operations” and the related assets and liabilities to “assets related to discontinued operations” and “liabilities related to discontinued operations” for all the periods presented in the accompanying financial statements. The table below sets forth the combined results of assets related to discontinued operations for the three months ended March 31, 2014 and 2013.


	For the Three Months Ended March 31,
(Amounts in thousands)	2014		2013
Total revenues	$	8,283	$	25,990
Total expenses		5,550		20,043
		2,733		5,947
Impairment losses		(842)		(1,514)
Net gain on sale of Green Acres Mall		-		202,275
Net gain on sales of other real estate		-		54
Income from discontinued operations	$	1,891	$	206,762

Net Income Attributable to Noncontrolling Interests in Consolidated Subsidiaries

Net income attributable to noncontrolling interests in consolidated subsidiaries was $11,579,000 in the three months ended March 31, 2014, compared to $11,286,000 in the prior year’s three months, an increase of $293,000.

Net Income Attributable to Noncontrolling Interests in the Operating Partnership

Net income attributable to noncontrolling interests in the Operating Partnership was $3,848,000 in the three months ended March 31, 2014, compared to $13,933,000 in the prior year’s three months, a decrease of $10,085,000. This decrease resulted primarily from lower net income subject to allocation to unitholders.

Preferred Unit Distributions of the Operating Partnership

Preferred unit distributions of the Operating Partnership were $12,000 in the three months ended March 31, 2014, compared to $786,000 in the prior year’s three months, a decrease of $774,000. This decrease resulted from the redemption of the 6.875% Series D-15 cumulative redeemable preferred units in May 2013.

Preferred Share Dividends

Preferred share dividends were $20,368,000 in the three months ended March 31, 2014, compared to $21,702,000 in the prior year’s three months, a decrease of $1,334,000. This decrease resulted primarily from the redemption of the 6.75% Series F and Series H preferred shares in February 2013.

Preferred Share Redemptions

In the three months ended March 31, 2013, we recognized $9,230,000 of expense in connection with the redemption of the 6.75% Series F and Series H cumulative redeemable preferred shares in February 2013.

Results of Operations – Three Months Ended March 31, 2014 Compared to March 31, 2013 - continued

Same Store EBITDA

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

Below are reconciliations of EBITDA to same store EBITDA on a GAAP basis for each of our segments for the three months ended March 31, 2014, compared to three months ended March 31, 2013.


(Amounts in thousands)				New York		Washington, DC		Retail Properties

EBITDA for the three months ended March 31, 2014				$	233,798	$	84,087	$	35,280
	Add-back:
		Non-property level overhead expenses included above			7,792		7,447		4,656
	Less EBITDA from:
		Acquisitions			(4,572)		-		-
		Dispositions, including net gains on sale			-		-		(3,109)
		Properties taken out-of-service for redevelopment			(8,218)		(1,082)		(604)
		Other non-operating (income) expense			(1,415)		(1,801)		16,553
GAAP basis same store EBITDA for the three months ended
	March 31, 2014			$	227,385	$	88,651	$	52,776

EBITDA for the three months ended March 31, 2013				$	217,537	$	86,244	$	322,326
	Add-back:
		Non-property level overhead expenses included above			7,514		6,805		5,415
	Less EBITDA from:
		Acquisitions			-		-		-
		Dispositions, including net gains on sale			(2,432)		(98)		(211,839)
		Properties taken out-of-service for redevelopment			(4,440)		(1,659)		(97)
		Other non-operating income			(4,021)		(368)		(64,168)
GAAP basis same store EBITDA for the three months ended
	March 31, 2013			$	214,158	$	90,924	$	51,637

Increase (decrease) in GAAP basis same store EBITDA -
	Three months ended March 31, 2014 vs. March 31, 2013⁽¹⁾			$	13,227	$	(2,273)	$	1,139

% increase (decrease) in GAAP basis same store EBITDA					6.2%		(2.5%)		2.2%

(1)			See notes on following page.

Results of Operations – Three Months Ended March 31, 2014 Compared to March 31, 2013 - continued

Notes to preceding tabular information

New York:

The $13,227,000 increase in New York GAAP basis same store EBITDA resulted primarily from increases in Office and Retail of $11,409,000 and $2,897,000, respectively. The Office increase resulted primarily from higher (i) rental revenue of $7,675,000 (primarily due to a $1.38 increase in average annual rents per square foot), and (ii) cleaning fees, signage revenue and management and leasing fees of $6,977,000. The Retail increase resulted primarily from higher rental revenue of $1,724,000, (primarily due to an increase in average same store occupancy).

Washington, DC:

The $2,273,000 decrease in Washington, DC GAAP basis same store EBITDA resulted primarily from lower rental revenue of $1,597,000 at our Skyline properties, primarily due to a decrease in occupancy and average annual rents per square foot.

Retail Properties:

The $1,139,000 increase in Retail Properties GAAP basis same store EBITDA resulted primarily from an increase in rental revenue of $853,000, primarily due to an increase in average same store occupancy.

Results of Operations – Three Months Ended March 31, 2014 Compared to March 31, 2013 - continued

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

(Amounts in thousands)		New York		Washington, DC		Retail Properties

GAAP basis same store EBITDA for the three months ended
	March 31, 2014	$	227,385	$	88,651	$	52,776
Less: Adjustments for straight line rents, amortization of acquired
	below-market leases, net, and other non-cash adjustments		(24,648)		(1,201)		(1,648)
Cash basis same store EBITDA for the three months ended
	March 31, 2014	$	202,737	$	87,450	$	51,128

GAAP basis same store EBITDA for the three months ended
	March 31, 2013	$	214,158	$	90,924	$	51,637
Less: Adjustments for straight line rents, amortization of acquired
	below-market leases, net, and other non-cash adjustments		(29,957)		(3,943)		(1,690)
Cash basis same store EBITDA for the three months ended
	March 31, 2013	$	184,201	$	86,981	$	49,947

Increase in Cash basis same store EBITDA -
	Three months ended March 31, 2014 vs. March 31, 2013	$	18,536	$	469	$	1,181

% increase in Cash basis same store EBITDA			10.1%		0.5%		2.4%

SUPPLEMENTAL INFORMATION

Reconciliation of Net Income to EBITDA for the Three Months Ended December 31, 2013

(Amounts in thousands)		New York		Washington, DC		Retail Properties
Net income (loss) attributable to Vornado for the three months ended
	December 31, 2013	$	227,074	$	42,074	$	(5,692)
Interest and debt expense			73,066		22,416		10,844
Depreciation and amortization			73,694		36,610		19,721
Income tax expense (benefit)			1,558		(17,841)		831
EBITDA for the three months ended December 31, 2013		$	375,392	$	83,259	$	25,704

Reconciliation of EBITDA to GAAP basis Same Store EBITDA – Three Months Ended March 31, 2014 compared to December 31, 2013

(Amounts in thousands)			New York		Washington, DC		Retail Properties

EBITDA for the three months ended March 31, 2014			$	233,798	$	84,087	$	35,280
	Add-back:
		Non-property level overhead expenses included above		7,792		7,447		4,656
	Less EBITDA from:
		Acquisitions		(3,576)		-		-
		Dispositions, including net gains on sale		-		-		(3,109)
		Properties taken out-of-service for redevelopment		(5,305)		(1,082)		(604)
		Other non-operating income		(1,290)		(1,801)		16,553
GAAP basis same store EBITDA for the three months ended
	March 31, 2014		$	231,419	$	88,651	$	52,776

EBITDA for the three months ended December 31, 2013			$	375,392	$	83,259	$	25,704
	Add-back:
		Non-property level overhead expenses included above		7,318		6,848		4,168
	Less EBITDA from:
		Acquisitions		(4,455)		-		-
		Dispositions, including net gains on sale		(129,333)		(33)		(5,786)
		Properties taken out-of-service for redevelopment		(5,269)		(1,195)		(624)
		Other non-operating income		(2,319)		(317)		29,229
GAAP basis same store EBITDA for the three months ended
	December 31, 2013		$	241,334	$	88,562	$	52,691

(Decrease) increase in GAAP basis same store EBITDA -
	Three months ended March 31, 2014 vs. December 31, 2013		$	(9,915)	$	89	$	85

% (decrease) increase in GAAP basis same store EBITDA				(4.1%)		0.1%		0.2%

SUPPLEMENTAL INFORMATION – CONTINUED

Reconciliation of GAAP basis Same Store EBITDA to Cash basis Same Store EBITDA – Three Months Ended March 31, 2014 vs. December 31, 2013

(Amounts in thousands)		New York		Washington, DC		Retail Properties

GAAP basis same store EBITDA for the three months ended
	March 31, 2014	$	231,419	$	88,651	$	52,776
Less: Adjustments for straight line rents, amortization of acquired
	below-market leases, net, and other non-cash adjustments		(26,759)		(1,201)		(1,648)
Cash basis same store EBITDA for the three months ended
	March 31, 2014	$	204,660	$	87,450	$	51,128

GAAP basis same store EBITDA for the three months ended
	December 31, 2013	$	241,334	$	88,562	$	52,691
Less: Adjustments for straight line rents, amortization of acquired
	below-market leases, net, and other non-cash adjustments		(30,950)		(1,899)		(2,243)
Cash basis same store EBITDA for the three months ended
	December 31, 2013	$	210,384	$	86,663	$	50,448

(Decrease) increase in Cash basis same store EBITDA -
	Three months ended March 31, 2014 vs. December 31, 2013	$	(5,724)	$	787	$	680

% (decrease) increase in Cash basis same store EBITDA			(2.7%)		0.9%		1.3%

Liquidity and Capital Resources

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

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

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

Cash Flows for the Three Months Ended March 31, 2014

Our cash and cash equivalents were $1,156,727,000 at March 31, 2014, a $573,437,000 increase over the balance at December 31, 2013. Our consolidated outstanding debt was $10,344,938,000 at March 31, 2014, a $366,220,000 increase over the balance at December 31, 2013. As of March 31, 2014 and December 31, 2013, $88,138,000 and $295,870,000, respectively, was outstanding under our revolving credit facilities. During the remainder of 2014 and 2015, $133,695,000 and $941,059,000, respectively, of our outstanding debt matures; we may refinance this maturing debt as it comes due or choose to repay it.

Cash flows provided by operating activities of $309,131,000 was comprised of (i) net income of $98,156,000, (ii) $135,433,000 of non-cash adjustments, which include depreciation and amortization expense, the effect of straight-lining of rental income, equity in net income of partially owned entities and impairment losses on real estate, (iii) the net change in operating assets and liabilities of $62,576,000, including $123,000 related to Real Estate Fund investments, and (iv) distributions of income from partially owned entities of $12,966,000.

Net cash provided by investing activities of $82,761,000 was comprised of (i) $120,270,000 of proceeds from sales of real estate and related investments, (ii) $69,347,000 of proceeds from repayments of mortgages and mezzanine loans receivable and other, (iii) $52,256,000 of changes in restricted cash, and (iv) $1,277,000 of capital distributions from partially owned entities, partially offset by (v) $90,653,000 of development costs and construction in progress, (vi) $53,103,000 of additions to real estate, and (vii) $16,633,000 of investments in partially owned entities.

Net cash provided by financing activities of $181,545,000 was comprised of (i) $600,000,000 of proceeds from borrowings, and (ii) $3,676,000 of proceeds received from the exercise of employee share options, partially offset by (iii) $233,198,000 for the repayments of borrowings, (iv) $136,761,000 of dividends paid on common shares, (v) $20,752,000 of debt issuance and other costs, (vi) $20,368,000 of dividends paid on preferred shares, (vii) $10,474,000 of distributions to noncontrolling interests, and (viii) $578,000 for the repurchase of shares related to stock compensation agreements and/or related tax withholdings.

Capital Expenditures

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

Liquidity and Capital Resources – continued

Capital Expenditures - continued

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

										Retail
(Amounts in thousands)				Total		New York		Washington, DC		Properties		Other
Expenditures to maintain assets				$	12,208	$	8,931	$	1,521	$	88	$	1,668
Tenant improvements					57,964		40,311		11,680		815		5,158
Leasing commissions					18,095		14,018		2,322		95		1,660
Non-recurring capital expenditures					84		84		-		-		-
Total capital expenditures and leasing
	commissions (accrual basis)				88,351		63,344		15,523		998		8,486
Adjustments to reconcile to cash basis:
		Expenditures in the current year
			applicable to prior periods		40,186		18,716		12,186		2,566		6,718
		Expenditures to be made in future
			periods for the current period		(56,023)		(40,184)		(12,807)		(910)		(2,122)
Total capital expenditures and leasing
	commissions (cash basis)			$	72,514	$	41,876	$	14,902	$	2,654	$	13,082

Tenant improvements and leasing commissions:
	Per square foot per annum			$	5.33	$	6.19	$	5.23	$	0.59	$	n/a
	Percentage of initial rent				10.6%		9.8%		12.3%		3.0%		n/a

Development and Redevelopment Expenditures

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

On March 2, 2014, we entered into an agreement to transfer upon completion, the redeveloped Springfield Town Center, a 1,350,000 square foot mall located in Springfield, Fairfax County, Virginia, to Pennsylvania Real Estate Investment Trust (NYSE: PEI) (“PREIT’) in exchange for $465,000,000 comprised of $340,000,000 of cash and $125,000,000 of PREIT operating partnership units. The incremental development cost of this project is approximately $250,000,000, of which $126,500,000 has been expended as of March 31, 2014. The redevelopment is expected to be completed in the fourth quarter of 2014. The closing will be no later than March 31, 2015.

We are in the process of redeveloping and substantially expanding the existing retail space at the Marriott Marquis Times Square Hotel, including converting the below grade parking garage into retail and creating a six-story, 300 foot wide block front, dynamic LED sign, all of which is expected to be completed by the end of 2014. Upon completion of the redevelopment, the retail space will include 20,000 square feet on grade and 20,000 square feet below grade. The incremental development cost of this project is approximately $215,000,000, of which $67,700,000 has been expended as of March 31, 2014.

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

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

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

Liquidity and Capital Resources – continued

Development and Redevelopment Expenditures - continued

Below is a summary of development and redevelopment expenditures incurred in the three months ended March 31, 2014.

								Retail
(Amounts in thousands)		Total		New York		Washington, DC		Properties		Other
Springfield Town Center		$	25,172	$	-	$	-	$	25,172	$	-
Marriott Marquis Times Square - retail
	and signage		12,822		12,822		-		-		-
330 West 34th Street			9,541		9,541		-		-		-
220 Central Park South			9,034		-		-		-		9,034
608 Fifth Avenue			7,248		7,248		-		-		-
Metropolitan Park 4 & 5			4,517		-		4,517		-		-
7 West 34th Street			3,044		3,044		-		-		-
Wayne Towne Center			2,419				-		2,419		-
Other			16,856		6,526		7,068		2,303		959
		$	90,653	$	39,181	$	11,585	$	29,894	$	9,993

In addition to the development and redevelopment projects above, we are in the process of repositioning and re-tenanting 280 Park Avenue (49.5% owned). Our share of the incremental development cost of this project is approximately $62,000,000, of which $34,700,000 was expended prior to 2014, and $6,100,000 has been expended in 2014.

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

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

Cash Flows for the Three Months Ended March 31, 2013

Our cash and cash equivalents were $585,823,000 at March 31, 2013, a $374,496,000 decrease over the balance at December 31, 2012. This decrease is primarily due to cash flows from financing activities, partially offset by cash flows from operating and investing activities, as discussed below.

Cash flows provided by operating activities of $414,927,000 was comprised of (i) net income of $288,927,000, (ii) the net change in operating assets and liabilities of $65,010,000, including $13,668,000 related to Real Estate Fund investments, (iii) return of capital from Real Estate Fund investments of $56,664,000, and (iv) distributions of income from partially owned entities of $10,627,000, partially offset by (v) $6,301,000 of non-cash adjustments, which include depreciation and amortization expense, the effect of straight-lining of rental income, equity in net income of partially owned entities and net gains on sale of real estate.

Net cash provided by investing activities of $527,685,000 was comprised of (i) $499,369,000 of proceeds from sales of real estate and related investments, (ii) $160,300,000 of proceeds from the sale of marketable securities, (iii) $38,900,000 from the return of the J.C. Penney derivative collateral, (iv) $14,149,000 of changes in restricted cash, (v) $5,544,000 of capital distributions from partially owned entities, and (vi) $631,000 of proceeds from repayments of mezzanine loans, partially offset by (vii) $58,522,000 for the funding of the J.C. Penney derivative collateral, (viii) $57,460,000 of additions to real estate, (ix) $39,892,000 of investments in partially owned entities, and (x) $35,334,000 of development costs and construction in progress.

Net cash used in financing activities of $1,317,108,000 was comprised of (i) $2,529,836,000 for the repayments of borrowings, (ii) $262,500,000 for purchases of outstanding preferred units and shares, (iii) $172,142,000 of distributions to noncontrolling interests, (iv) $136,342,000 of dividends paid on common shares, (v) $23,161,000 of dividends paid on preferred shares, (vi) $9,080,000 of debt issuance and other costs, and (vii) $307,000 for the repurchase of shares related to stock compensation agreements and/or related tax withholdings, partially offset by (viii) $1,499,375,000 of proceeds from borrowings, (ix) $290,710,000 of proceeds from the issuance of preferred shares, (x) $24,566,000 of contributions from noncontrolling interests in consolidated subsidiaries, and (xi) $1,609,000 of proceeds from exercise of employee share options.

Liquidity and Capital Resources – continued

Capital Expenditures in the three months ended March 31, 2013

										Retail
(Amounts in thousands)				Total		New York		Washington, DC		Properties		Other
Expenditures to maintain assets				$	5,267	$	3,636	$	1,496	$	103	$	32
Tenant improvements					55,505		39,517		12,931		2,296		761
Leasing commissions					21,026		18,418		2,023		585		-
Non-recurring capital expenditures					1,576		1,576		-		-		-
Total capital expenditures and leasing
	commissions (accrual basis)				83,374		63,147		16,450		2,984		793
Adjustments to reconcile to cash basis:
		Expenditures in the current year
			applicable to prior periods		37,330		9,192		7,718		2,019		18,401
		Expenditures to be made in future
			periods for the current period		(45,265)		(30,579)		(14,539)		(2,881)		2,734
Total capital expenditures and leasing
	commissions (cash basis)			$	75,439	$	41,760	$	9,629	$	2,122	$	21,928

Tenant improvements and leasing commissions:
	Per square foot per annum			$	3.83	$	4.56	$	8.44	$	0.61	$	n/a
	Percentage of initial rent				9.2%		7.2%		20.7%		3.6%		n/a

Development and Redevelopment Expenditures in the three months ended March 31, 2013

								Retail
(Amounts in thousands)		Total		New York		Washington, DC		Properties		Other
Springfield Town Center		$	8,792	$	-	$	-	$	8,792	$	-
1290 Avenue of the Americas			6,105		6,105		-		-		-
220 Central Park South			3,914		-		-		-		3,914
1540 Broadway			2,707		2,707		-		-		-
Marriott Marquis Times Square - retail
	and signage		2,695		2,695		-		-		-
LED Signage			2,228		2,228		-		-		-
North Plainfield, New Jersey			1,071		-		-		1,071		-
Other			7,822		1,621		5,205		807		189
		$	35,334	$	15,356	$	5,205	$	10,670	$	4,103

Liquidity and Capital Resources – continued

Other Commitments and Contingencies

As of March 31, 2014, we expect to fund additional capital to certain of our partially owned entities aggregating approximately $125,000,000.

Funds From Operations (“FFO”)

FFO is computed in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines FFO as GAAP net income or loss adjusted to exclude net gain from sales of depreciated real estate assets, real estate impairment losses, depreciation and amortization expense from real estate assets, extraordinary items and other specified non-cash items, including the pro rata share of such adjustments of unconsolidated subsidiaries. FFO and FFO per diluted share are used by management, investors and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers because it excludes the effect of real estate depreciation and amortization and net gains on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions. FFO does not represent cash generated from operating activities and is not necessarily indicative of cash available to fund cash requirements and should not be considered as an alternative to net income as a performance measure or cash flows as a liquidity measure. FFO may not be comparable to similarly titled measures employed by other companies. The calculations of both the numerator and denominator used in the computation of income per share are disclosed in Note 19 – Income per Share, in our consolidated financial statements on page 25 of this Quarterly Report on Form 10-Q.

FFO for the Three Months Ended March 31, 2014 and 2013

FFO attributable to common shareholders plus assumed conversions was $247,079,000, or $1.31 per diluted share for the three months ended March 31, 2014, compared to $201,820,000, or $1.08 per diluted share, for the prior year’s quarter. Details of certain items that affect comparability are discussed in the financial results summary of our “Overview.”

			For The Three Months
(Amounts in thousands, except per share amounts)			Ended March 31,
Reconciliation of our net income to FFO:			2014		2013
Net income attributable to Vornado			$	82,717	$	262,922
Depreciation and amortization of real property				142,569		132,513
Net gains on sale of real estate				-		(202,329)
Real estate impairment losses				20,842		1,514
Proportionate share of adjustments to equity in net income of
	Toys, to arrive at FFO:
		Depreciation and amortization of real property		11,415		19,325
		Real estate impairment losses		-		3,650
		Income tax effect of above adjustments		(3,995)		(8,050)
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		25,271		21,830
		Net gains on sale of real estate		-		(465)
Noncontrolling interests' share of above adjustments				(11,399)		1,814
FFO				267,420		232,724
Preferred share dividends				(20,368)		(21,702)
Preferred share redemptions				-		(9,230)
FFO attributable to common shareholders				247,052		201,792
Convertible preferred share dividends				27		28
FFO attributable to common shareholders plus assumed conversions			$	247,079	$	201,820

Reconciliation of Weighted Average Shares
	Weighted average common shares outstanding			187,307		186,752
	Effect of dilutive securities:
		Employee stock options and restricted share awards		933		727
		Convertible preferred shares		47		50
	Denominator for FFO per diluted share			188,287		187,529

FFO attributable to common shareholders plus assumed conversions
	per diluted share		$	1.31	$	1.08

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

(Amounts in thousands, except per share amounts)			2014					2013
					Weighted	Effect of 1%				Weighted
			March 31,		Average	Change In		December 31,		Average
Consolidated debt:			Balance		Interest Rate	Base Rates		Balance		Interest Rate
	Variable rate		$	1,455,466	2.47%	$	14,555	$	1,064,730	2.01%
	Fixed rate			8,889,472	4.73%		-		8,913,988	4.73%
			$	10,344,938	4.41%		14,555	$	9,978,718	4.44%
Prorata share of debt of non-consolidated
	entities (non-recourse):
	Variable rate – excluding Toys		$	293,418	1.76%		2,934	$	196,240	2.09%
	Variable rate – Toys			944,432	6.14%		9,444		1,179,001	5.45%
	Fixed rate (including $680,648 and
		$682,484 of Toys debt in 2014 and 2013)		2,715,525	6.51%		-		2,814,162	6.46%
			$	3,953,375	6.07%		12,378	$	4,189,403	5.97%
Noncontrolling interests’ share of above							(1,521)
Total change in annual net income						$	25,412
Per share-diluted						$	0.13

We may utilize various financial instruments to mitigate the impact of interest rate fluctuations on our cash flows and earnings, including hedging strategies, depending on our analysis of the interest rate environment and the costs and risks of such strategies. As of March 31, 2014, we have an interest rate cap with a notional amount of $60,000,000 that caps LIBOR at a rate of 7.00%. In addition, we have an interest rate swap on a $425,000,000 mortgage loan that swapped the rate from LIBOR plus 2.00% (2.15% at March 31, 2014) to a fixed rate of 5.13% for the remaining four-year term of the loan.

As of March 31, 2014, we have investments in mezzanine loans with an aggregate carrying amount of $25,006,000 that are based on variable interest rates which partially mitigate our exposure to a change in interest rates on our variable rate debt.

Fair Value of Debt

The estimated fair value of our consolidated debt is calculated based on current market prices and discounted cash flows at the rate at which similar loans could be made currently to borrowers with similar credit ratings, for the remaining term of such debt. As of March 31, 2014, the estimated fair value of our consolidated debt was $10,249,000,000.

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 March 31, 2014, 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.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors

There were no material changes to the Risk Factors disclosed in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2013.

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

During the first quarter of 2014, we issued 4,239 common shares upon the redemption of Class A units of the Operating Partnership held by persons who received units, in private placements in earlier periods, in exchange for their interests in limited partnerships that owned real estate. The common shares were issued without registration under the Securities Act of 1933 in reliance on Section 4 (2) of that Act.

Information relating to compensation plans under which our equity securities are authorized for issuance is set forth under Part III, Item 12 of the Annual Report on Form 10-K, as amended, for the year ended December 31, 2013, and such information is incorporated by reference herein.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

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

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: May 5, 2014	By:	/s/ Stephen W. Theriot
		Stephen W. Theriot, Chief Financial Officer (duly authorized officer and principal financial and accounting officer)

	EXHIBIT INDEX

Exhibit No.


	10.52	**	-	Employment agreement between Vornado Realty Trust and Michael J. Franco dated
				January 10, 2014.

	10.53	**	-	Form of Vornado Realty Trust 2014 Outperformance Plan Award Agreement.

	15.1		-	Letter regarding Unaudited Interim Financial Information

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

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

	32.1		-	Section 1350 Certification of the Chief Executive Officer

	32.2		-	Section 1350 Certification of the Chief Financial Officer

	101.INS		-	XBRL Instance Document

	101.SCH		-	XBRL Taxonomy Extension Schema

	101.CAL		-	XBRL Taxonomy Extension Calculation Linkbase

	101.DEF		-	XBRL Taxonomy Extension Definition Linkbase

	101.LAB		-	XBRL Taxonomy Extension Label Linkbase

	101.PRE		-	XBRL Taxonomy Extension Presentation Linkbase


				______________________________
		**		Management contract or compensation agreement