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:    September 30, 2012

Or

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

For the transition period from: to

Commission File Number: 001-34482

VORNADO REALTY L.P.

(Exact name of registrant as specified in its charter)

Delaware	13-3925979
(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.

o Large Accelerated Filer	o Accelerated Filer
x 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 

PART I.		Financial Information:	Page Number
	Item 1.	Financial Statements:
		Consolidated Balance Sheets (Unaudited) as of
		September 30, 2012 and December 31, 2011	3
		Consolidated Statements of Income (Unaudited) for the
		Three and Nine Months Ended September 30, 2012 and 2011	4
		Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
		for the Three and Nine Months Ended September 30, 2012 and 2011	5
		Consolidated Statements of Changes in Equity (Unaudited) for the
		Nine Months Ended September 30, 2012 and 2011	6
		Consolidated Statements of Cash Flows (Unaudited) for the
		Nine Months Ended September 30, 2012 and 2011	8
		Notes to Consolidated Financial Statements (Unaudited)	10
		Report of Independent Registered Public Accounting Firm	40
	Item 2.	Management's Discussion and Analysis of Financial Condition
		and Results of Operations	41
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	82
	Item 4.	Controls and Procedures	83
PART II.		Other Information:
	Item 1.	Legal Proceedings	84
	Item 1A.	Risk Factors	85
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	85
	Item 3.	Defaults Upon Senior Securities	85
	Item 4.	Mine Safety Disclosures	85
	Item 5.	Other Information	85
	Item 6.	Exhibits	85
SIGNATURES			86
EXHIBIT INDEX			87

2

PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements

VORNADO REALTY L.P.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Amounts in thousands, except unit amounts)			September 30,		December 31,
ASSETS			2012		2011
Real estate, at cost:
	Land		$	4,143,581	$	4,416,613
	Buildings and improvements			11,851,152		12,041,054
	Development costs and construction in progress			865,953		119,540
	Leasehold improvements and equipment			128,168		126,712
		Total		16,988,854		16,703,919
	Less accumulated depreciation and amortization			(3,034,815)		(2,901,203)
Real estate, net				13,954,039		13,802,716
Cash and cash equivalents				465,884		606,553
Restricted cash				391,794		98,068
Marketable securities				485,001		741,321
Accounts receivable, net of allowance for doubtful accounts of $38,351 and $43,241				181,242		171,798
Investments in partially owned entities				1,319,710		1,233,650
Investment in Toys "R" Us				549,421		506,809
Real Estate Fund investments				482,442		346,650
Mezzanine loans receivable				131,585		133,948
Receivable arising from the straight-lining of rents, net of allowance of $4,448 and $3,290				755,866		701,827
Deferred leasing and financing costs, net of accumulated amortization of $220,846 and $237,766				389,155		364,855
Identified intangible assets, net of accumulated amortization of $362,516 and $347,039				252,683		295,432
Assets related to discontinued operations				537,938		1,049,153
Due from officers				-		13,127
Other assets				501,056		380,580
			$	20,397,816	$	20,446,487
LIABILITIES, REDEEMABLE PARTNERSHIP UNITS AND EQUITY
Notes and mortgages payable			$	7,852,657	$	8,065,576
Senior unsecured notes				1,357,921		1,357,661
Revolving credit facility debt				600,000		138,000
Exchangeable senior debentures				-		497,898
Convertible senior debentures due to Vornado				-		10,168
Accounts payable and accrued expenses				442,644		423,512
Deferred revenue				465,929		511,959
Deferred compensation plan				103,003		95,457
Deferred tax liabilities				15,432		13,315
Liabilities related to discontinued operations				478,980		518,319
Other liabilities				396,897		145,498
	Total liabilities			11,713,463		11,777,363
Commitments and contingencies
Redeemable partnership units:
	Class A units - 11,714,978 and 12,160,771 units outstanding			949,499		934,677
	Series D cumulative redeemable preferred units - 1,800,001 and 9,000,001 units outstanding			46,000		226,000
		Total redeemable partnership units		995,499		1,160,677
Equity:
	Partners' capital			8,381,204		8,156,291
	Earnings less than distributions			(1,319,118)		(1,401,704)
	Accumulated other comprehensive (loss) income			(160,107)		73,729
		Total Vornado Realty L.P. equity		6,901,979		6,828,316
Noncontrolling interests in consolidated subsidiaries				786,875		680,131
	Total equity			7,688,854		7,508,447
			$	20,397,816	$	20,446,487
See notes to consolidated financial statements (unaudited).

3

VORNADO REALTY L.P.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
		For the Three				For the Nine
		Months Ended September 30,				Months Ended September 30,
(Amounts in thousands, except per unit amounts)		2012		2011		2012		2011
REVENUES:
	Property rentals	$	518,141	$	530,192	$	1,564,168	$	1,592,867
	Tenant expense reimbursements		80,497		85,757		224,287		237,945
	Cleveland Medical Mart development project		72,651		35,135		184,014		108,203
	Fee and other income		39,688		36,776		106,018		111,813
Total revenues			710,977		687,860		2,078,487		2,050,828
EXPENSES:
	Operating		264,487		262,837		764,018		773,331
	Depreciation and amortization		124,335		126,935		386,974		373,380
	General and administrative		48,742		46,121		151,142		154,359
	Cleveland Medical Mart development project		70,431		33,419		177,127		101,637
	Acquisition related costs and tenant buy-outs		1,070		2,288		4,314		22,455
Total expenses			509,065		471,600		1,483,575		1,425,162
Operating income			201,912		216,260		594,912		625,666
(Loss) income applicable to Toys "R" Us			(8,585)		(9,304)		88,696		80,794
Income from partially owned entities			21,268		13,140		53,491		55,035
Income from Real Estate Fund (of which $4,787 and $3,675 in
	each three-month period, respectively, and $25,026 and $15,703
	in each nine-month period, respectively, are attributable to
	noncontrolling interests)		5,509		5,353		37,572		25,491
Interest and other investment income (loss), net			10,523		(30,011)		(22,984)		95,086
Interest and debt expense (including amortization of deferred
	financing costs of $5,725 and $4,670, in each three-month period,
	respectively, and $17,204 and $14,093 in each nine-month
	period, respectively)		(120,770)		(131,998)		(377,600)		(394,192)
Net gain on disposition of wholly owned and partially owned assets			-		1,298		4,856		7,975
Income before income taxes			109,857		64,738		378,943		495,855
Income tax expense			(3,015)		(6,959)		(17,319)		(18,548)
Income from continuing operations			106,842		57,779		361,624		477,307
Income from discontinued operations			157,314		8,444		241,024		165,706
Net income			264,156		66,223		602,648		643,013
Less net income attributable to noncontrolling interests in
	consolidated subsidiaries		(6,610)		(5,636)		(30,928)		(20,643)
Net income attributable to Vornado Realty L.P.			257,546		60,587		571,720		622,370
Preferred unit distributions			(22,016)		(21,655)		(65,337)		(58,722)
Discount on preferred unit redemptions			11,700		5,000		11,700		5,000
NET INCOME attributable to Class A unitholders		$	247,230	$	43,932	$	518,083	$	568,648
INCOME PER CLASS A UNIT - BASIC:
	Income from continuing operations	$	0.45	$	0.18	$	1.40	$	2.04
	Income from discontinued operations		0.80		0.04		1.22		0.85
	Net income per Class A unit	$	1.25	$	0.22	$	2.62	$	2.89
	Weighted average units outstanding		197,155		196,239		197,050		196,090
INCOME PER CLASS A UNIT - DILUTED:
	Income from continuing operations	$	0.45	$	0.18	$	1.39	$	2.02
	Income from discontinued operations		0.79		0.04		1.21		0.83
	Net income per Class A unit	$	1.24	$	0.22	$	2.60	$	2.85
	Weighted average units outstanding		198,251		198,305		198,128		198,280
DISTRIBUTIONS PER CLASS A UNIT		$	0.69	$	0.69	$	2.07	$	2.07
See notes to consolidated financial statements (unaudited).

4

VORNADO REALTY L.P.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
			For the Three				For the Nine
			Months Ended September 30,				Months Ended September 30,
(Amounts in thousands)			2012		2011		2012		2011
Net income			$	264,156	$	66,223	$	602,648	$	643,013
Other comprehensive income (loss):
	Change in unrealized net gain (loss) on securities
		available-for-sale		18,358		(161,178)		(202,167)		(120,334)
	Pro rata share of other comprehensive (loss) income of
		nonconsolidated subsidiaries		(12,607)		112		(38,861)		26,477
	Change in value of interest rate swap			(2,866)		(24,424)		(8,868)		(42,458)
	Other			(30)		(69)		343		28
Comprehensive income (loss)				267,011		(119,336)		353,095		506,726
Less comprehensive income attributable to noncontrolling interests				(6,610)		(5,636)		(30,928)		(20,643)
Comprehensive income (loss) attributable to Vornado Realty L.P.			$	260,401	$	(124,972)	$	322,167	$	486,083
See notes to consolidated financial statements (unaudited).

5

VORNADO REALTY L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(UNAUDITED)
													Accumulated
(Amounts in thousands)							Class A Units				Earnings		Other		Non-
			Preferred Units				Owned by Vornado				Less Than		Comprehensive		controlling		Total
			Units		Amount		Units		Amount		Distributions		Income (Loss)		Interests		Equity
Balance, December 31, 2010				32,340	$	783,088		183,662	$	6,940,045	$	(1,480,876)	$	73,453	$	514,695	$	6,830,405
Net income				-		-		-		-		622,370		-		20,643		643,013
Net income attributable to redeemable
	partnership units			-		-		-		-		(47,364)		-		-		(47,364)
Distributions to Vornado				-		-		-		-		(381,382)		-		-		(381,382)
Distributions to preferred unitholders				-		-		-		-		(47,905)		-		-		(47,905)
Issuance of Series J preferred units				9,850		239,037		-		-		-		-		-		239,037
Class A units issued to Vornado:
	Upon redemption of redeemable Class A
		units, at redemption value		-		-		435		38,220		-		-		-		38,220
	Under Vornado's Omnibus Share plan			-		-		369		21,618		(397)		-		-		21,221
	Under Vornado's dividend reinvestment plan			-		-		15		1,330		-		-		-		1,330
Contributions:
	Real Estate Fund			-		-		-		-		-		-		109,241		109,241
	Other			-		-		-		-		-		-		364		364
Distributions:
	Real Estate Fund			-		-		-		-		-		-		(22,713)		(22,713)
	Other			-		-		-		-		-		-		(15,604)		(15,604)
Conversion of Series A preferred units to
	Class A units			(3)		(165)		5		165		-		-		-		-
Deferred compensation units and options				-		-		10		7,866		-		-		-		7,866
Change in unrealized net gain (loss) on securities
	available-for-sale			-		-		-		-		-		(120,334)		-		(120,334)
Pro rata share of other comprehensive income of
	nonconsolidated subsidiaries			-		-		-		-		-		26,477		-		26,477
Change in value of interest rate swap				-		-		-		-		-		(42,458)		-		(42,458)
Adjustments to carry redeemable Class A units,
	at redemption value			-		-		-		114,628		-		-		-		114,628
Redeemable partnership units' share of above
	adjustments			-		-		-		-		-		8,957		-		8,957
Discount on redemption of preferred units				-		-		-		-		5,000		-		-		5,000
Other				-		(105)		-		(4,518)		149		(5,114)		4,558		(5,030)
Balance, September 30, 2011				42,187	$	1,021,855		184,496	$	7,119,354	$	(1,330,405)	$	(59,019)	$	611,184	$	7,362,969
See notes to consolidated financial statements (unaudited).

6

 

VORNADO REALTY L.P.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY - CONTINUED
(UNAUDITED)
													Accumulated
(Amounts in thousands)							Class A Units				Earnings		Other		Non-
			Preferred Units				Owned by Vornado				Less Than		Comprehensive		controlling		Total
			Units		Amount		Units		Amount		Distributions		Income (Loss)		Interests		Equity
Balance, December 31, 2011				42,187	$	1,021,660		185,080	$	7,134,631	$	(1,401,704)	$	73,729	$	680,131	$	7,508,447
Net income				-		-		-		-		571,720		-		30,928		602,648
Net income attributable to redeemable
	partnership units			-		-		-		-		(40,595)		-		-		(40,595)
Distributions to Vornado				-		-		-		-		(384,353)		-		-		(384,353)
Distributions to preferred unitholders				-		-		-		-		(56,187)		-		-		(56,187)
Issuance of Series K preferred units				12,000		291,144		-		-		-		-		-		291,144
Redemption of Series E preferred units				(3,000)		(75,000)		-		-		-		-		-		(75,000)
Class A units issued to Vornado:
	Upon redemption of redeemable Class A units,
		at redemption value		-		-		624		51,216		-		-		-		51,216
	Under Vornado's Omnibus Share plan			-		-		414		8,931		(16,389)		-		-		(7,458)
	Under Vornado's dividend reinvestment plan			-		-		15		1,270		-		-		-		1,270
Contributions:
	Real Estate Fund			-		-		-		-		-		-		120,606		120,606
	Other			-		-		-		-		-		-		140		140
Distributions:
	Real Estate Fund			-		-		-		-		-		-		(44,910)		(44,910)
	Other			-		-		-		-		-		-		(10)		(10)
Conversion of Series A preferred units to
	Class A units			(2)		(105)		3		105		-		-		-		-
Deferred compensation units and options				-		-		7		11,009		(339)		-		-		10,670
Change in unrealized net gain (loss) on securities
	available-for-sale			-		-		-		-		-		(202,167)		-		(202,167)
Pro rata share of other comprehensive loss of
	nonconsolidated subsidiaries			-		-		-		-		-		(38,861)		-		(38,861)
Change in value of interest rate swap				-		-		-		-		-		(8,868)		-		(8,868)
Adjustments to carry redeemable Class A units,
	at redemption value			-		-		-		(63,657)		-		-		-		(63,657)
Redeemable partnership units' share of above
	adjustments			-		-		-		-		-		15,717		-		15,717
Discount on redemption of preferred units				-		-		-		-		11,700		-		-		11,700
Other				-		-		-		-		(2,971)		343		(10)		(2,638)
Balance, September 30, 2012				51,185	$	1,237,699		186,143	$	7,143,505	$	(1,319,118)	$	(160,107)	$	786,875	$	7,688,854
See notes to consolidated financial statements (unaudited).

7

VORNADO REALTY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
			For the Nine Months Ended
			September 30,
			2012		2011
(Amounts in thousands)
Cash Flows from Operating Activities:
Net income			$	602,648	$	643,013
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization (including amortization of deferred financing costs)			419,007		414,992
	Net gains on sale of real estate			(203,801)		(51,623)
	Equity in net income of partially owned entities, including Toys “R” Us			(142,187)		(135,829)
	Return of capital from Real Estate Fund investments			61,052		-
	Distributions of income from partially owned entities			59,322		75,612
	Straight-lining of rental income			(55,553)		(38,262)
	Loss from the mark-to-market of J.C. Penney derivative position			53,343		27,136
	Amortization of below-market leases, net			(39,693)		(49,988)
	Other non-cash adjustments			39,360		20,261
	Net unrealized gain on Real Estate Fund investments			(33,537)		(19,209)
	Gain on sale of Canadian Trade Shows			(31,105)		-
	Impairment losses			13,511		-
	Net gain on disposition of wholly owned and partially owned assets			(4,856)		(7,975)
	Net gain on extinguishment of debt			-		(83,907)
	Mezzanine loans loss reversal and net gain on disposition			-		(82,744)
	Changes in operating assets and liabilities:
		Real Estate Fund investments		(163,307)		(97,785)
		Accounts receivable, net		(9,444)		11,292
		Prepaid assets		(52,895)		(68,558)
		Other assets		(43,103)		(44,617)
		Accounts payable and accrued expenses		34,546		32,227
		Other liabilities		7,338		22,635
Net cash provided by operating activities				510,646		566,671
Cash Flows from Investing Activities:
	Proceeds from sales of real estate and related investments			408,856		135,762
	Additions to real estate			(138,060)		(109,963)
	Funding of J.C. Penney derivative collateral			(121,117)		(33,850)
	Investments in partially owned entities			(116,264)		(440,865)
	Development costs and construction in progress			(106,502)		(52,816)
	Return of J.C. Penney derivative collateral			89,850		28,700
	Acquisitions of real estate and other			(73,069)		-
	Restricted cash			(62,813)		121,463
	Proceeds from sales of marketable securities			58,460		19,301
	Proceeds from the sale of Canadian Trade Shows			52,504		-
	Distributions of capital from partially owned entities			26,665		274,283
	Proceeds from the repayment of loan to officer			13,123		-
	Proceeds from sales and repayments of mezzanine loans and other			2,379		100,525
	Investments in mezzanine loans receivable			-		(44,215)
Net cash provided by (used in) investing activities				34,012		(1,675)
See notes to consolidated financial statements (unaudited).

8

VORNADO REALTY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(UNAUDITED)
				For the Nine Months Ended
				September 30,
				2012		2011
(Amounts in thousands)
Cash Flows from Financing Activities:
	Repayments of borrowings			$	(2,070,295)	$	(2,666,610)
	Proceeds from borrowings				1,773,000		2,184,167
	Distributions to Vornado				(384,353)		(381,382)
	Proceeds from the issuance of preferred units				291,144		239,037
	Purchases of outstanding preferred units				(243,300)		(28,000)
	Contributions from noncontrolling interests in consolidated subsidiaries				120,746		109,605
	Distributions to redeemable security holders and noncontrolling interests				(80,994)		(77,330)
	Distributions to preferred unitholders				(54,034)		(43,675)
	Repurchase of Class A units related to stock compensation agreements and/or related
		tax withholdings			(30,034)		(747)
	Debt issuance and other costs				(17,417)		(28,614)
	Proceeds received from exercise of Vornado stock options				10,210		22,947
Net cash used in financing activities					(685,327)		(670,602)
Net decrease in cash and cash equivalents					(140,669)		(105,606)
Cash and cash equivalents at beginning of period					606,553		690,789
Cash and cash equivalents at end of period				$	465,884	$	585,183
Supplemental Disclosure of Cash Flow Information:
	Cash payments for interest, excluding capitalized interest of $7,884 and $0			$	368,018	$	388,938
	Cash payments for income taxes			$	19,222	$	10,299
Non-Cash Investing and Financing Activities:
	Change in unrealized net loss on securities available-for-sale			$	(202,167)	$	(120,334)
	Adjustments to carry redeemable Class A units at redemption value				(63,657)		114,628
	L.A. Mart seller financing				35,000		-
	Class A units issued upon redemption of redeemable Class A units, at redemption value				51,216		38,220
	Contribution of mezzanine loan receivable to a joint venture				-		73,750
	Marriott Marquis Times Square - retail and signage capital lease:
		Asset (included in development costs and construction in progress)			240,000		-
		Liability (included in other liabilities)			(240,000)		-
	Like-kind exchange of real estate				230,913		45,625
	Decrease in assets and liabilities resulting from deconsolidation
		of discontinued operations:
			Assets related to discontinued operations		-		(145,333)
			Liabilities related to discontinued operations		-		(232,502)
	Write-off of fully depreciated assets				(151,496)		(58,279)
See notes to consolidated financial statements (unaudited).

9

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1.     Organization

Vornado Realty L.P. (the “Operating Partnership,” and/or the “Company”) is a Delaware limited partnership.  Vornado Realty Trust (“Vornado”) is the sole general partner of, and owned approximately 93.8% of the common limited partnership interest in the Operating Partnership at September 30, 2012.  All references to “we,” “us,” “our,” the “Company” and the “Operating Partnership” refer to Vornado Realty L.P. and its consolidated subsidiaries.

2.    Basis of Presentation

The accompanying consolidated financial statements are unaudited and include the accounts of Vornado Realty L.P. and its consolidated partially owned entities.  All intercompany amounts have been eliminated. In our opinion, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and changes in cash flows have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted.  These condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of the Securities and Exchange Commission (the “SEC”) and should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K, for the year ended December 31, 2011, as filed with the SEC.

We have made estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.  The results of operations for the three and nine months ended September 30, 2012 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 May 2011, the Financial Accounting Standards Board (“FASB”) issued Update No. 2011-04, Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS (“ASU No. 2011-04”).  ASU No. 2011-04 provides a uniform framework for fair value measurements and related disclosures between GAAP and International Financial Reporting Standards (“IFRS”) and requires additional disclosures, including: (i) quantitative information about unobservable inputs used, a description of the valuation processes used, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs, for Level 3 fair value measurements; (ii) fair value of financial instruments not measured at fair value but for which disclosure of fair value is required, based on their levels in the fair value hierarchy; and (iii) transfers between Level 1 and Level 2 of the fair value hierarchy.  The adoption of this update on January 1, 2012 did not have a material impact on our consolidated financial statements, but resulted in additional fair value measurement disclosures (see Note 14 – Fair Value Measurements).

10

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

4.     Acquisitions

On July 5, 2012, we entered into an agreement to acquire a retail condominium located at 666 Fifth Avenue at 53rd Street for $707,000,000. The property has 126 feet of frontage on Fifth Avenue and contains 114,000 square feet, 39,000 square feet in fee and 75,000 square feet by long-term lease from the 666 Fifth Avenue office condominium, which is 49.5% owned by Vornado.  The acquisition will be funded with proceeds from asset sales and property level debt and is expected to close in the fourth quarter, subject to customary closing conditions.

On July 30, 2012, we entered into a lease with Host Hotels & Resorts, Inc. (NYSE: HST) (“Host”), under which we will redevelop the retail and signage components of the Marriott Marquis Times Square Hotel.  The Marriott Marquis with over 1,900 rooms is one of the largest hotels in Manhattan.  It is located in the heart of the bow-tie of Times Square and spans the entire block front from 45th Street to 46th Street on Broadway.  The Marriott Marquis is directly across from our 1540 Broadway iconic retail property leased to Forever 21 and Disney flagship stores.  We plan to spend as much as $140,000,000 to redevelop and substantially expand the existing retail space, including converting the below grade parking garage into retail, and creating six-story, 300 foot wide block front, dynamic LED signs.  During the term of the lease we will pay fixed rent equal to the sum of $12,500,000 plus a portion of the property’s net cash flow, after we receive a 5.2% preferred return on our invested capital.  The lease contains put/call options which, if exercised, would lead to our ownership.  Host can exercise the put option during defined periods following the conversion of the project to a condominium.  We can exercise our call option under the same terms, at any time after the fifteenth year of the lease term.  We are accounting for this lease as a “capital lease” and have recorded a $240,000,000 capital lease asset and liability, which are included as a component of “development and construction in progress” and “other liabilities,” respectively, on our consolidated balance sheet.  Although we have commenced paying the annual rent, there will be no income statement activity until the redevelopment is substantially complete. 

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

In February 2011, the Fund’s subscription period closed with an aggregate of $800,000,000 of capital commitments, of which we committed $200,000,000.  We are the general partner and investment manager of the Fund, which has an eight-year term and a three-year investment period.  During the investment period, which concludes in July 2013, the Fund is our exclusive investment vehicle for all investments that fit within its investment parameters, as defined.  The Fund is accounted for under the AICPA Investment Company Guide and its investments are reported on its balance sheet at fair value, with changes in value each period recognized in earnings.  We consolidate the accounts of the Fund into our consolidated financial statements, retaining the fair value basis of accounting.

On April 26, 2012, the Fund acquired 520 Broadway, a 112,000 square foot office building located in Santa Monica, California for $59,650,000 and subsequently placed a $30,000,000 mortgage loan on the property.  The three-year loan bears interest at LIBOR plus 2.25% and has two one-year extension options.

On July 2, 2012, the Fund acquired 1100 Lincoln Road, a 167,000 square foot retail property, the western anchor of the Lincoln Road Shopping District in Miami Beach, Florida, for $132,000,000.  The purchase price consisted of $66,000,000 in cash and a $66,000,000 mortgage loan.  The three-year loan bears interest at LIBOR plus 2.75% and has two one-year extension options.

On August 20, 2012, the Fund acquired 501 Broadway, a 9,000 square foot retail property in New York for $31,000,000.  The purchase price consisted of $11,000,000 in cash and a $20,000,000 mortgage loan.  The three-year loan bears interest at LIBOR plus 2.75% with a floor of 3.50%, and has two one-year extension options.

11

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

5.     Vornado Capital Partners Real Estate Fund (the “Fund”) - continued

At September 30, 2012, the Fund had eight investments with an aggregate fair value of approximately $482,442,000, or $45,818,000 in excess of cost, and had remaining unfunded commitments of $314,371,000, of which our share was $78,592,750.  Below is a summary of income from the Fund for the three and nine months ended September 30, 2012 and 2011.

		For the Three Months				For the Nine Months
(Amounts in thousands)		Ended September 30,				Ended September 30,
		2012		2011		2012		2011
Operating (loss) income		$	(49)	$	(286)	$	4,035	$	3,197
Net realized gain			-		-		-		3,085
Net unrealized gains			5,558		5,639		33,537		19,209
Income from Real Estate Fund			5,509		5,353		37,572		25,491
Less (income) attributable to noncontrolling interests			(4,787)		(3,675)		(25,026)		(15,703)
Income from Real Estate Fund attributable to Vornado (1)		$	722	$	1,678	$	12,546	$	9,788
___________________________________
(1)	Excludes management, leasing and development fees of $681 and $638 for the three months ended September 30, 2012 and 2011, respectively, and $2,025 and $1,803 for the nine months ended September 30, 2012 and 2011, respectively, which are included as a component of "fee and other income" on our consolidated statements of income.

6.    Marketable Securities and Derivative InstrumentsMarketable Securities

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

In the nine months ended September 30, 2012 and 2011, we sold certain marketable securities for aggregate proceeds of $58,460,000 and $19,301,000, resulting in net gains of $3,582,000 and $2,139,000, respectively.

Below is a summary of our marketable securities portfolio as of September 30, 2012 and December 31, 2011.

		As of September 30, 2012							As of December 31, 2011
					GAAP		Unrealized					GAAP		Unrealized
		Maturity	Fair Value		Cost		(Loss) Gain		Maturity	Fair Value		Cost		Gain
Equity securities:
	J.C. Penney	n/a	$	451,406	$	591,214	$	(139,808)	n/a	$	653,228	$	591,069	$	62,159
	Other	n/a		33,595		14,228		19,367	n/a		30,568		14,585		15,983
Debt securities		n/a		-		-		-	04/13 - 10/18		57,525		53,941		3,584
			$	485,001	$	605,442	$	(120,441)		$	741,321	$	659,595	$	81,726

12

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

6.    Marketable Securities and Derivative Instruments - continued

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

We own 23,400,000 J.C. Penney common shares, or 10.7% of its outstanding common shares.  Below are the details of our investment.

We own 18,584,010 common shares at an average economic cost of $25.76 per share, or $478,677,000 in the aggregate.  As of September 30, 2012, these shares have an aggregate fair value of $451,406,000, based on J.C. Penney’s closing share price of $24.29 per share.  Unrealized gains and losses from the mark-to-market of these shares are included in “other comprehensive income (loss).”  The three and nine months ended September 30, 2012 include $18,213,000 of unrealized gains and $201,967,000 of unrealized losses, respectively.  The three and nine months ended September 30, 2011 include unrealized losses of $144,212,000 and $102,920,000, respectively.

We also own an economic interest in 4,815,990 common shares through a forward contract at a weighted average strike price of $29.01 per share, or $139,723,000 in the aggregate.  The forward contract was amended on October 8, 2012, such that, among other things, the contract may be settled, at our election, in cash or common shares, in whole or in part, at any time prior to October 8, 2022.  The counterparty may accelerate settlement, in whole or in part, on October 8, 2014, or any anniversary thereof, or in the event we were to receive a credit downgrade.  The forward contract strike price per share increases at an annual rate of LIBOR plus 95 basis points during the first two years of the contract and LIBOR plus 80 basis points thereafter.  The contract is a derivative instrument that does not qualify for hedge accounting treatment.  Gains and losses from the mark-to-market of the underlying common shares are recognized in “interest and other investment income (loss), net” on our consolidated statements of income.  In the three and nine months ended September 30, 2012 we recognized income of $4,344,000 and a loss of $53,343,000, respectively, from the mark-to-market of the underlying common shares, and as of September 30, 2012, have funded $31,267,000 in connection with this derivative position.  In the three and nine months ended September 30, 2011, we recognized losses of $37,537,000 and $27,136,000, respectively, from the mark-to-market of the underlying common shares.

At September 30, 2012, the aggregate economic net loss on our investment in J.C. Penney, after dividends, was $20,667,000, based on our economic cost of $26.43 per share.

7.    Investments in Partially Owned Entities

Toys “R” Us (“Toys”)

As of September 30, 2012, we own 32.5% of Toys.  The business of Toys is highly seasonal.  Historically, Toys’ fourth quarter net income accounts for more than 80% of its fiscal year net income.  We account for our investment in Toys under the equity method and record our 32.5% 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.  As of September 30, 2012, the carrying amount of our investment in Toys does not differ materially from our share of the equity in the net assets of Toys on a purchase accounting basis.

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

(Amounts in thousands)						Balance as of
Balance Sheet:						July 28, 2012		October 29, 2011
	Assets					$	11,680,000	$	13,221,000
	Liabilities						9,836,000		11,530,000
	Noncontrolling interests						39,000		-
	Toys “R” Us, Inc. equity						1,805,000		1,691,000
		For the Three Months Ended				For the Nine Months Ended
Income Statement:		July 28, 2012		July 30, 2011		July 28, 2012		July 30, 2011
	Total revenues	$	2,552,000	$	2,648,000	$	11,089,000	$	11,256,000
	Net (loss) income attributable to Toys		(34,000)		(36,000)		249,000		227,000

13

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

7.    Investments in Partially Owned Entities – continued

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

As of September 30, 2012, 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 September 30, 2012, Alexander’s owed us $39,794,000 in fees under these agreements.

As of September 30, 2012, the market value of our investment in Alexander’s, based on Alexander’s September 30, 2012 closing share price of $427.49, was $707,098,000, or $520,384,000 in excess of the carrying amount on our consolidated balance sheet.  As of September 30, 2012, 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 $57,292,000.  The majority of this basis difference resulted from the excess of our purchase price for the Alexander’s common stock acquired over the book value of Alexander’s net assets.  Substantially all of this basis difference was allocated, based on our estimates of the fair values of Alexander’s assets and liabilities, to real estate (land and buildings).  We are amortizing the basis difference related to the buildings into earnings as additional depreciation expense over their estimated useful lives.  This amortization 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.

On October 21, 2012, Alexander’s entered into an agreement to sell its Kings Plaza Regional Shopping Center located in Brooklyn, New York, for $751,000,000.  Upon completion of the sale, we will recognize a financial statement gain of approximately $181,000,000.  Alexander’s expects to distribute the taxable gain to its stockholders as a special long-term capital gain dividend, of which our share is approximately $202,000,000 and we expect to pay this amount to our Class A unitholders as a special long-term capital gain dividend.  The sale, which is subject to customary closing conditions, is expected to be completed in the fourth quarter. 

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

(Amounts in thousands)						Balance as of
Balance Sheet:						September 30, 2012		December 31, 2011
	Assets					$	1,765,000	$	1,771,000
	Liabilities						1,401,000		1,408,000
	Noncontrolling interests						5,000		4,000
	Stockholders' equity						359,000		359,000
		For the Three Months Ended				For the Nine Months Ended
Income Statement:		September 30, 2012		September 30, 2011		September 30, 2012		September 30, 2011
	Total revenues	$	49,000	$	47,000	$	143,000	$	139,000
	Net income attributable to Alexander’s		19,000		20,000		57,000		59,000

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

As of September 30, 2012, we own 18,468,969 Lexington common shares, or approximately 11.8% of Lexington’s common equity.  We account for our investment in Lexington under the equity method because we believe we have the ability to exercise significant influence over Lexington’s operating and financial policies, based on, among other factors, our representation on Lexington’s Board of Trustees and the level of our ownership in Lexington as compared to other shareholders.  We record our pro rata share of Lexington’s net income or loss on a one-quarter lag basis because we file our consolidated financial statements on Form 10-K and 10-Q prior to the time that Lexington files its consolidated financial statements. 

14

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

7.    Investments in Partially Owned Entities – continued

Based on Lexington’s September 30, 2012 closing share price of $9.66, the market value of our investment in Lexington was $178,410,000, or $128,139,000 in excess of the September 30, 2012 carrying amount on our consolidated balance sheet.  As of September 30, 2012, the carrying amount of our investment in Lexington was less than our share of the equity in the net assets of Lexington by approximately $45,445,000.  This basis difference resulted primarily from $107,882,000 of non-cash impairment charges recognized in 2008, partially offset by purchase accounting for our acquisition of an additional 8,000,000 common shares of Lexington in October 2008, of which the majority relates to our estimate of the fair values of Lexington’s real estate (land and buildings) as compared to the carrying amounts in Lexington’s consolidated financial statements.  We are amortizing the basis difference related to the buildings into earnings as additional depreciation expense over their estimated useful lives.  This amortization is not material to our share of equity in Lexington’s net income or loss.  The basis difference related to the land will be recognized upon disposition of our investment.  Below is a summary of Lexington’s latest available financial information: 

(Amounts in thousands)						Balance as of
Balance Sheet:						June 30, 2012		September 30, 2011
	Assets					$	3,017,000	$	3,164,000
	Liabilities						1,937,000		1,888,000
	Noncontrolling interests						28,000		59,000
	Shareholders’ equity						1,052,000		1,217,000
		For the Three Months Ended				For the Nine Months Ended
Income Statement:		June 30, 2012		June 30, 2011		June 30, 2012		June 30, 2011
	Total revenues	$	84,000	$	78,000	$	250,000	$	238,000
	Net income (loss) attributable to Lexington		5,000		(44,000)		22,000		(49,000)

In October 2012, Lexington sold 15,000,000 shares in an underwritten public offering at a public offering price of $9.45 per share.  As a result, our ownership in Lexington will decrease to 10.8% and we will record a $12,983,000 net gain in connection with this stock issuance, in the fourth quarter.

LNR Property LLC (“LNR”)

As of September 30, 2012, we own a 26.2% equity interest in LNR.  We account for our investment in LNR under the equity method and record our 26.2% share of LNR’s net income or loss on a one-quarter lag basis because we file our consolidated financial statements on Form 10-K and 10-Q prior to receiving LNR’s consolidated financial statements.

LNR consolidates certain Commercial Mortgage-Backed Securities (“CMBS”) and Collateralized Debt Obligation (“CDO”) trusts for which it is the primary beneficiary.  The assets of these trusts (primarily commercial mortgage loans), which aggregate approximately $83 billion as of June 30, 2012, are the sole source of repayment of the related liabilities, which are non-recourse to LNR and its equity holders, including us.  Changes in the fair value of these assets each period are offset by changes in the fair value of the related liabilities through LNR’s consolidated income statement.  As of September 30, 2012, the carrying amount of our investment in LNR does not materially differ from our share of LNR’s equity.  Below is a summary of LNR’s latest available financial information:

(Amounts in thousands)						Balance as of
Balance Sheet:						June 30, 2012		September 30, 2011
	Assets					$	83,899,000	$	128,536,000
	Liabilities						83,087,000		127,809,000
	Noncontrolling interests						9,000		55,000
	LNR Property Corporation equity						803,000		672,000
		For the Three Months Ended				For the Nine Months Ended
Income Statement:		June 30, 2012		June 30, 2011		June 30, 2012		June 30, 2011
	Total revenues	$	59,000	$	73,000	$	163,000	$	156,000
	Net income attributable to LNR		63,000		52,000		150,000		152,000

15

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

7.    Investments in Partially Owned Entities – continued

Below is a schedule of our investments in partially owned entities as of September 30, 2012 and December 31, 2011.

			Percentage
(Amounts in thousands)			Ownership at		Balance as of
Investments:			September 30, 2012		September 30, 2012		December 31, 2011
Toys				32.5 %(1)	$	549,421	$	506,809
Alexander’s				32.4 %	$	186,714	$	189,775
Lexington				11.8 %(2)		50,271		57,402
LNR				26.2 %		197,231		174,408
India real estate ventures				4.0%-36.5%		94,241		80,499
Partially owned office buildings:
	280 Park Avenue			49.5 %		190,034		184,516
	Rosslyn Plaza			43.7%-50.4%		62,272		53,333
	West 57th Street properties			50.0 %		57,920		58,529
	One Park Avenue			30.3 %		50,275		47,568
	666 Fifth Avenue Office Condominium			49.5 %		34,162		23,655
	330 Madison Avenue			25.0 %		24,900		20,353
	1101 17th Street			55.0 %		22,271		20,407
	Warner Building			55.0 %		11,603		2,715
	Fairfax Square			20.0 %		5,870		6,343
	Other partially owned office buildings			Various		10,042		11,547
Other investments:
	Independence Plaza Partnership (3)			51.0 %		53,545		48,511
	Verde Realty Operating Partnership (4)			8.3 %		52,910		59,801
	Downtown Crossing, Boston			50.0 %		47,605		46,691
	Monmouth Mall			50.0 %		7,373		7,536
	Other investments (5)			Various		160,471		140,061
					$	1,319,710	$	1,233,650
(1)		32.7% at December 31, 2011.
(2)		12.0% at December 31, 2011.
(3)		Represents an investment in mezzanine loans to the property owner entity.
(4)		In the third quarter of 2012, we converted our 2,015,151 units in Verde Realty Operating Partnership into 2,015,151 common shares of Verde Realty ("Verde"). Pursuant to a merger agreement which was approved by Verde shareholders on September 14, 2012, we accepted an offer to receive cash of $13.85 per share, or $27,910 in the aggregate; accordingly, we recognized a $4,936 impairment loss in the third quarter. At September 30, 2012, the $52,910 carrying amount of our investment in Verde is comprised of the $27,910 value of the common shares and $25,000 of convertible debentures that are senior to the equity and mature in December 2018. Upon completion of the merger, we will reclassify the convertible debentures to other assets.
(5)		Includes interests in 85 10th Avenue, Farley Project, Suffolk Downs, Dune Capital L.P., Fashion Centre Mall and others.

16

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

7.    Investments in Partially Owned Entities - continued

Below is a schedule of income recognized from investments in partially owned entities for the three and nine months ended September 30, 2012 and 2011.

				Percentage	For the Three Months				For the Nine Months
(Amounts in thousands)				Ownership	Ended September 30,				Ended September 30,
Our Share of Net Income (Loss):				September 30, 2012	2012		2011		2012		2011
Toys:				32.5 %
	Equity in net (loss) income before income taxes				$	(22,074)	$	(26,773)	$	99,649	$	104,049
	Income tax benefit (expense)					11,118		15,135		(17,982)		(29,914)
	Equity in net (loss) income					(10,956)		(11,638)		81,667		74,135
	Management fees					2,371		2,334		7,029		6,659
					$	(8,585)	$	(9,304)	$	88,696	$	80,794
Alexander’s:				32.4 %
	Equity in net income				$	7,137	$	6,437	$	19,210	$	18,507
	Fee income					1,821		1,758		5,617		5,545
						8,958		8,195		24,827		24,052
Lexington:				11.8 %
	Equity in net (loss) income					(323)		(617)		371		449
	Net gain resulting from Lexington's stock issuance					-		-		-		9,760
						(323)		(617)		371		10,209
LNR:				26.2 %
	Equity in net income					16,600		13,656		39,319		24,916
	Net gains from asset sales and tax settlement gains					-		-		-		14,997
						16,600		13,656		39,319		39,913
India real estate ventures				4.0%-36.5%		82		(690)		(4,526)		(692)
Partially owned office buildings:
	Warner Building:			55.0 %
		Equity in net loss				(2,839)		(2,783)		(7,438)		(6,308)
		Straight-line reserves and write-off of tenant
			improvements			-		-		-		(9,022)
						(2,839)		(2,783)		(7,438)		(15,330)
	280 Park Avenue (acquired in May 2011)			49.5 %		(1,717)		(6,461)		(9,267)		(8,645)
	666 Fifth Avenue Office Condominium (acquired
		in December 2011)		49.5 %		1,744		-		5,244		-
	330 Madison Avenue			25.0 %		1,224		315		2,036		1,440
	1101 17th Street			55.0 %		591		671		1,920		2,094
	One Park Avenue (acquired in March 2011)			30.3 %		256		124		890		(1,347)
	West 57th Street properties			50.0 %		167		298		732		634
	Rosslyn Plaza			43.7%-50.4%		(204)		(60)		99		2,160
	Fairfax Square			20.0 %		(33)		(22)		(85)		7
	Other partially owned office buildings			Various		505		1,079		1,587		5,165
						(306)		(6,839)		(4,282)		(13,822)
Other investments:
	Verde Realty Operating Partnership (1)			8.3 %		(5,388)		2,413		(6,000)		1,204
	Independence Plaza Partnership (acquired in June 2011) (2)			51.0 %		1,828		1,811		5,243		1,811
	Monmouth Mall			50.0 %		347		631		1,007		1,588
	Downtown Crossing, Boston			50.0 %		(38)		(408)		(872)		(1,156)
	Other investments (3)			Various		(492)		(5,012)		(1,596)		(8,072)
						(3,743)		(565)		(2,218)		(4,625)
					$	21,268	$	13,140	$	53,491	$	55,035
(1)		2012 includes a $4,936 impairment loss (see note 4 on page 16)
(2)		Represents an investment in mezzanine loans to the property owner entity.
(3)		Includes interests in 85 10th Avenue, Farley Project, Suffolk Downs, Dune Capital L.P., Fashion Centre Mall and others.

17

VORNADO REALTY L.P.

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 September 30, 2012 and December 31, 2011, none of which is recourse to us.

			Percentage		Interest	100% of
			Ownership at		Rate at	Partially Owned Entities’ Debt at
(Amounts in thousands)			September 30,		September 30,	September 30,		December 31,
			2012	Maturity	2012	2012		2011
Toys:			32.5 %(1)
	Notes, loans and mortgages payable			2013-2021	7.40 %	$	5,423,735	$	6,047,521
Alexander's:			32.4 %
	Mortgage notes payable			2013-2018	3.50 %	$	1,319,776	$	1,330,932
Lexington:			11.8 %(2)
	Mortgage notes payable			2012-2037	5.45 %	$	1,739,466	$	1,712,750
LNR:			26.2 %
	Mortgage notes payable			2013-2031	3.89 %	$	466,882	$	353,504
	Liabilities of consolidated CMBS and CDO trusts			n/a	5.32 %		82,522,220		127,348,336
						$	82,989,102	$	127,701,840
Partially owned office buildings:
	666 Fifth Avenue Office Condominium mortgage
		note payable	49.5 %	02/19	6.76 %	$	1,090,592	$	1,035,884
	280 Park Avenue mortgage notes payable		49.5 %	06/16	6.65 %		738,009		737,678
	Warner Building mortgage note payable		55.0 %	05/16	6.26 %		292,700		292,700
	One Park Avenue mortgage note payable		30.3 %	03/16	5.00 %		250,000		250,000
	330 Madison Avenue mortgage note payable		25.0 %	06/15	1.73 %		150,000		150,000
	Fairfax Square mortgage note payable		20.0 %	12/14	7.00 %		70,344		70,974
	Rosslyn Plaza mortgage note payable		43.7% to 50.4%	n/a	n/a		-		56,680
	West 57th Street properties mortgage note payable		50.0 %	02/14	4.94 %		20,628		21,864
	Other		Various	Various	6.38 %		69,839		70,230
						$	2,682,112	$	2,686,010
India Real Estate Ventures:
	TCG Urban Infrastructure Holdings mortgage notes
		payable	25.0 %	2012-2022	13.13 %	$	241,208	$	226,534
Other:
	Verde Realty Operating Partnership mortgage notes
		payable	8.3 %	2013-2025	5.52 %	$	503,211	$	340,378
	Monmouth Mall mortgage note payable		50.0 %	09/15	5.44 %		160,662		162,153
	Other(3)		Various	Various	4.93 %		994,009		992,872
						$	1,657,882	$	1,495,403
(1)		32.7% at December 31, 2011.
(2)		12.0% at December 31, 2011.
(3)		Includes interests in Suffolk Downs, Fashion Centre Mall 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 $25,648,473,000 and $37,531,298,000 at September 30, 2012 and December 31, 2011, respectively.  Excluding our pro rata share of LNR’s liabilities related to consolidated CMBS and CDO trusts, which are non-recourse to LNR and its equity holders, including us, our pro rata share of partially owned entities debt was $4,049,108,000 and $4,199,145,000 at September 30, 2012 and December 31, 2011, respectively.

18

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

8.    Discontinued Operations

2012 Activity: 

During 2012, we sold or have entered into agreements to sell (i) five Mart properties, (ii) four Washington, DC properties, (iii) 13 non-core strip shopping centers and the Green Acres Mall, for an aggregate of $1,500,000,000.  Below are the details of these transactions.

Merchandise Mart Properties

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

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

On July 5, 2012, we entered into agreements to sell the Washington Design Center, the Boston Design Center and the Canadian Trade Shows, for an aggregate of $175,000,000 in cash.  The sales of the Canadian Trade Shows and the Washington Design Center were completed in July 2012 and the sale of the Canadian Trade Shows resulted in an after-tax net gain of $19,657,000.  The sale of the Boston Design Center will result in a net gain of approximately $5,300,000 and is expected to be completed in the fourth quarter, subject to customary closing conditions. 

Washington, DC Properties

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

On October 26, 2012, we entered into an agreement to sell three office buildings (“Reston Executive”) located in suburban Fairfax County, Virginia, containing 494,000 square feet for $126,000,000, which will result in a net gain of approximately $35,000,000.  The sale, which is subject to customary closing conditions, is expected to be completed in the fourth quarter.

Retail Properties

In 2012, we sold 12 non-core strip shopping centers in separate transactions, for an aggregate of $157,000,000 in cash, which resulted in a net gain aggregating $22,266,000, of which $4,464,000 was recognized in the third quarter.  In addition we have entered into an agreement to sell a building on Market Street, Philadelphia, which is part of the Gallery at Market East for $60,000,000, which will result in a net gain of approximately $35,000,000.  The sale, which is subject to customary closing conditions, is expected to be completed in the fourth quarter.

On October 21, 2012, we entered into an agreement to sell the Green Acres Mall located in Valley Stream, New York, for $500,000,000.  Net proceeds from the sale will be approximately $185,000,000.  The financial statement gain will be approximately $195,000,000.  The tax gain will be approximately $304,000,000, which is expected to be deferred as part of a like-kind exchange.  The sale, which is expected to be completed in the first quarter of 2013, is subject to customary closing conditions and is conditioned on the closing of the sale of Kings Plaza (an Alexander’s property), which is being sold to the same purchaser.

2011 Activity: 

During 2011, we (i) completed the disposition of the High Point Complex in North Carolina, which resulted in an $83,907,000 net gain on extinguishment of debt and (ii) sold three non-core strip shopping centers and two office buildings in Washington, DC for an aggregate of $168,000,000 in cash, which resulted in a net gain aggregating $51,623,000.

19

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

8.    Discontinued Operations - continued

We have reclassified the revenues and expenses of all of the properties discussed above, as well as eight other retail properties that are currently held for sale to “income from discontinued operations” and the related assets and liabilities to “assets related to discontinued operations” and “liabilities related to discontinued operations” for all of the periods presented in the accompanying financial statements.  The tables below set forth the assets and liabilities related to discontinued operations at September 30, 2012 and December 31, 2011 and their combined results of operations for the three and nine months ended September 30, 2012 and 2011.  

		Assets Related to				Liabilities Related to
(Amounts in thousands)		Discontinued Operations as of				Discontinued Operations as of
		September 30,		December 31,		September 30,		December 31,
		2012		2011		2012		2011
Retail Properties		$	384,973	$	520,014	$	319,233	$	351,083
Washington, DC Properties			86,933		152,568		93,000		93,000
Merchandise Mart Properties			66,032		376,571		66,747		74,236
Total		$	537,938	$	1,049,153	$	478,980	$	518,319
		For the Three Months				For the Nine Months
(Amounts in thousands)		Ended September 30,				Ended September 30,
		2012		2011		2012		2011
Total revenues		$	27,651	$	49,656	$	112,585	$	160,747
Total expenses			21,082		41,212		81,508		130,571
			6,569		8,444		31,077		30,176
Net gains on sale of real estate			131,088		-		203,801		51,623
Gain on sale of Canadian Trade Shows, net of $11,448 of
	income taxes		19,657		-		19,657		-
Impairment losses			-		-		(13,511)		-
Net gain on extinguishment of High Point debt			-		-		-		83,907
Income from discontinued operations		$	157,314	$	8,444	$	241,024	$	165,706

9.    Mezzanine Loans Receivable

As of September 30, 2012 and December 31, 2011, the carrying amount of mezzanine loans receivable was $131,585,000 and $133,948,000, respectively.  These loans have a weighted average interest rate of 9.53% and maturities ranging from August 2014 to May 2016.

On October 19, 2012, we acquired a 25% participation in a $475,000,000 first mortgage and mezzanine loan for the acquisition and redevelopment of a 10-story retail building at 701 Seventh Avenue in Times Square.  The loan has an interest rate of LIBOR plus 10.2%, with a LIBOR floor of 1.0%.  Of the $475,000,000, we have funded $93,750,000, representing our 25% share of the $375,000,000 that has been funded.  $25,000,000, our 25% share of the remaining $100,000,000, will be funded during the development of the property.    

20

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

10.    Identified Intangible Assets and Liabilities

The following summarizes our identified intangible assets (primarily acquired above-market leases) and liabilities (primarily acquired below-market leases) as of September 30, 2012 and December 31, 2011.

	Balance as of
	September 30,		December 31,
(Amounts in thousands)	2012		2011
Identified intangible assets:
Gross amount	$	615,199	$	642,471
Accumulated amortization		(362,516)		(347,039)
Net	$	252,683	$	295,432
Identified intangible liabilities (included in deferred revenue):
Gross amount	$	816,774	$	830,411
Accumulated amortization		(398,262)		(367,525)
Net	$	418,512	$	462,886

Amortization of acquired below-market leases, net of acquired above-market leases, resulted in an increase to rental income of $13,242,000 and $15,847,000 for the three months ended September 30, 2012 and 2011, respectively, and $39,228,000 and $48,681,000 for the nine months ended September 30, 2012 and 2011, respectively.  Estimated annual amortization of acquired below-market leases, net of acquired above-market leases, for each of the five succeeding years commencing January 1, 2013 is as follows:

(Amounts in thousands)
2013	$	42,023
2014		36,603
2015		33,816
2016		31,333
2017		25,841

Amortization of all other identified intangible assets (a component of depreciation and amortization expense) was $11,940,000 and $15,397,000 for the three months ended September 30, 2012 and 2011, respectively, and $38,361,000 and $42,090,000 for the nine months ended September 30, 2012 and 2011, respectively.  Estimated annual amortization of all other identified intangible assets including acquired in-place leases, customer relationships, and third party contracts for each of the five succeeding years commencing January 1, 2013 is as follows:

(Amounts in thousands)
2013	$	40,739
2014		22,450
2015		17,244
2016		14,714
2017		11,853

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 $408,000 and $344,000 for the three months ended September 30, 2012 and 2011, respectively, and $1,182,000 and $1,033,000 for the nine months ended September 30, 2012 and 2011, respectively.  Estimated annual amortization of these below-market leases, net of above-market leases for each of the five succeeding years commencing January 1, 2013 is as follows:

(Amounts in thousands)
2013	$	1,472
2014		1,457
2015		1,457
2016		1,457
2017		1,457

21

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

11.    Debt

The following is a summary of our debt:

				Interest
(Amounts in thousands)				Rate at	Balance at
				September 30,	September 30,		December 31,
Notes and mortgages payable:			Maturity (1)	2012	2012		2011
Fixed rate:
	New York:
		Two Penn Plaza	03/18	5.13 %	$	425,000	$	425,000
		1290 Avenue of the Americas	01/13	5.97 %		410,021		413,111
		770 Broadway	03/16	5.65 %		353,000		353,000
		888 Seventh Avenue	01/16	5.71 %		318,554		318,554
		350 Park Avenue(2)	01/17	3.75 %		300,000		430,000
		909 Third Avenue	04/15	5.64 %		200,241		203,217
		828-850 Madison Avenue Condominium - retail	06/18	5.29 %		80,000		80,000
		510 5th Avenue - retail	01/16	5.60 %		31,377		31,732
	Washington, DC:
		Skyline Properties(3)	02/17	5.74 %		694,711		678,000
		River House Apartments	04/15	5.43 %		195,546		195,546
		2101 L Street(4)	08/24	3.97 %		150,000		-
		2121 Crystal Drive	03/23	5.51 %		150,000		150,000
		Bowen Building	06/16	6.14 %		115,022		115,022
		1215 Clark Street, 200 12th Street and 251 18th Street	01/25	7.09 %		106,628		108,423
		West End 25	06/21	4.88 %		101,671		101,671
		Universal Buildings	04/14	6.49 %		94,497		98,239
		2011 Crystal Drive	08/17	7.30 %		79,865		80,486
		1550 and 1750 Crystal Drive	11/14	7.08 %		74,765		76,624
		220 20th Street	02/18	4.61 %		74,246		75,037
		2231 Crystal Drive	08/13	7.08 %		42,160		43,819
		1225 Clark Street	08/13	7.08 %		25,219		26,211
		1235 Clark Street	n/a	n/a		-		51,309
		1750 Pennsylvania Avenue	n/a	n/a		-		44,330
	Retail:
		Cross-collateralized mortgages on 40 strip shopping centers	09/20	4.23 %		576,281		585,398
		Montehiedra Town Center	07/16	6.04 %		120,000		120,000
		Broadway Mall	07/13	5.30 %		85,840		87,750
		North Bergen (Tonnelle Avenue)	01/18	4.59 %		75,000		75,000
		Las Catalinas Mall	11/13	6.97 %		54,719		55,912
		Other	06/14-05/36	5.12%-7.30%		87,055		88,237
	Merchandise Mart:
		Merchandise Mart	12/16	5.57 %		550,000		550,000
	Other:
		555 California Street	09/21	5.10 %		600,000		600,000
		Borgata Land	02/21	5.14 %		60,000		60,000
Total fixed rate notes and mortgages payable				5.40 %	$	6,231,418	$	6,321,628
___________________
		See notes on page 24.

22

 

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

11.    Debt - continued

					Interest
(Amounts in thousands)					Rate at	Balance at
				Spread over	September 30,	September 30,		December 31,
Notes and mortgages payable:			Maturity (1)	LIBOR	2012	2012		2011
Variable rate:
	New York:
		Eleven Penn Plaza	01/19	L+235	2.58 %	$	330,000	$	330,000
		100 West 33rd Street - office & retail(5)	03/17	L+250	2.73 %		325,000		232,000
		4 Union Square South - retail	04/14	L+325	3.48 %		75,000		75,000
		435 Seventh Avenue - retail(6)	08/19	L+225	2.47 %		98,000		51,353
		866 UN Plaza	05/16	L+125	1.48 %		44,978		44,978
	Washington, DC:
		River House Apartments	04/18	n/a (7)	1.63 %		64,000		64,000
		2200/2300 Clarendon Boulevard	01/15	L+75	0.98 %		48,859		53,344
		1730 M and 1150 17th Street	06/14	L+140	1.62 %		43,581		43,581
		2101 L Street (4)	n/a	n/a	n/a		-		150,000
	Retail:
		Bergen Town Center	03/13	L+150	1.73 %		282,312		283,590
		San Jose Strip Center	03/13	L+400	4.25 %		106,332		112,476
		Cross-collateralized mortgages on 40 strip
		shopping centers (8)	09/20	L+136  (8)	2.36 %		60,000		60,000
		Beverly Connection	n/a	n/a	n/a		-		100,000
		Other	11/12	L+375	3.98 %		19,427		19,876
	Other:
		220 Central Park South	10/13	L+275	2.97 %		123,750		123,750
	Total variable rate notes and mortgages payable				2.50 %		1,621,239		1,743,948
	Total notes and mortgages payable				4.80 %	$	7,852,657	$	8,065,576
Senior unsecured notes:
	Senior unsecured notes due 2015		04/15		4.25 %	$	499,586	$	499,462
	Senior unsecured notes due 2039 (9)		10/39		7.88 %		460,000		460,000
	Senior unsecured notes due 2022		01/22		5.00 %		398,335		398,199
	Total senior unsecured notes				5.70 %	$	1,357,921	$	1,357,661
Unsecured revolving credit facilities:
	$1.25 billion unsecured revolving credit facility		11/16	L+125	1.43 %	$	600,000	$	138,000
	$1.25 billion unsecured revolving credit facility
		($22,576 reserved for outstanding letters of credit)	06/16	L+135	-		-		-
	Total unsecured revolving credit facilities				1.43 %	$	600,000	$	138,000
3.88% exchangeable senior debentures(10)			n/a		n/a	$	-	$	497,898
2.85% convertible senior debentures due
	to Vornado(10)		n/a		n/a	$	-	$	10,168
	See notes on the following page.

23

 

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

11.    Debt - continued

Notes to preceding tabular information (amounts in thousands):
(1)	Represents the extended maturity for certain loans in which we have the unilateral right, ability and intent to extend.
(2)	On January 9, 2012, we completed a $300,000 refinancing of this property. The five-year fixed rate loan bears interest at 3.75% and amortizes based on a 30-year schedule beginning in the third year. The proceeds of the new loan and $132,000 of existing cash were used to repay the existing loan and closing costs.
(3)	In the first quarter of 2012, we notified the lender that due to scheduled lease expirations resulting primarily from the effects of the Base Realignment and Closure statute, the Skyline properties had a 26% vacancy rate, which is expected to increase and, accordingly, cash flows are expected to decrease. As a result, our subsidiary that owns these properties does not have and is not expected to have for some time sufficient funds to pay all of its current obligations, including interest payments to the lender. Based on the projected vacancy and the significant amount of capital required to re-tenant these properties, at our request, the mortgage loan was transferred to the special servicer. In the second quarter of 2012, we entered into a forbearance agreement with the special servicer to apply cash flows of the property, before interest on the loan, towards the repayment of $4,000 of tenant improvements and leasing commissions we recently funded in connection with a new lease at these properties. In the third quarter, we were repaid our capital in full. The forbearance agreement (amended September 1, 2012, to extend its maturity) provides that through the December 1, 2012 payment date, any interest shortfall would be deferred and added to the principal balance of the loan and not give rise to a loan default. As of September 30, 2012, the deferred interest amounted to $16,711. We continue to negotiate with the special servicer to restructure the terms of the loan.
(4)	On July 26, 2012, we completed a $150,000 refinancing of this property. The twelve-year fixed rate loan bears interest at 3.97% and amortizes based on a 30-year schedule beginning in the third year.
(5)	On March 5, 2012, we completed a $325,000 refinancing of this property. The three-year loan bears interest at LIBOR plus 2.50% and has two one-year extension options. We retained net proceeds of approximately $87,000, after repaying the existing loan and closing costs.
(6)	On August 17, 2012, we completed a $98,000 refinancing of this property. The seven-year loan bears interest at LIBOR plus 2.25%. We retained net proceeds of approximately $44,000 after repaying the existing loan and closing costs.
(7)	Interest at the Freddie Mac Reference Note Rate plus 1.53%.
(8)	LIBOR floor of 1.00%.
(9)	May be redeemed at our option in whole or in part beginning on October 1, 2014, at a price equal to the principal amount plus accrued interest.
(10)	In April 2012, we redeemed all of the outstanding exchangeable debentures and repaid the convertible senior debentures due to Vornado at par, for an aggregate of $510,215 in cash.

24

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

12.    Redeemable Partnership Units

Redeemable partnership units on our consolidated balance sheets represent units held by third parties and are comprised of Class A units not held by Vornado and Series D-15 and D-16 cumulative redeemable preferred units.  Redeemable partnership units on our consolidated balance sheets are recorded at the greater of their carrying amount or redemption value at the end of each reporting period.  Changes in the value from period to period are charged to “partners’ capital” on our consolidated balance sheets.  Below is a table summarizing the activity of redeemable partnership units.

(Amounts in thousands)
Balance at December 31, 2010	$	1,327,974
Net income		47,364
Distributions		(38,393)
Redemption of Class A units, at redemption value		(38,220)
Adjustments to carry redeemable Class A units at redemption value		(114,628)
Redemption of Series D-11 redeemable units		(28,000)
Other, net		4,623
Balance at September 30, 2011	$	1,160,720
Balance at December 31, 2011	$	1,160,677
Net income		40,595
Distributions		(34,138)
Redemption of Class A units, at redemption value		(51,216)
Adjustments to carry redeemable Class A units at redemption value		63,657
Redemption of Series D-10 and D-14 redeemable units		(168,300)
Other, net		(15,776)
Balance at September 30, 2012	$	995,499

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

As of September 30, 2012 and December 31, 2011, the aggregate redemption value of redeemable Class A units, which are those units held by third parties, was $949,499,000 and $934,677,000, respectively. 

Redeemable partnership units 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 and $54,865,000 as of September 30, 2012 and December 31, 2011, respectively. 

13.    Partners’ Capital

On July 11, 2012, Vornado sold 12,000,000 5.70% Series K Cumulative Redeemable Preferred Shares at a price of $25.00 per share in an underwritten public offering pursuant to an effective registration statement.  Vornado retained aggregate net proceeds of $291,144,000, after underwriters’ discounts and issuance costs and contributed the net proceeds to us in exchange for 12,000,000 Series K Preferred Units (with economic terms that mirror those of Series K Preferred Shares).  Distributions on the Series K Preferred Units are cumulative and payable quarterly in arrears.  The Series K Preferred Units are not convertible into, or exchangeable for, any of our properties or securities.  On or after five years from the date of issuance (or sooner under limited circumstances), Vornado may require us to redeem the Series K Preferred Units at a redemption price of $25.00 per unit, plus accrued and unpaid distributions through the date of redemption.  The Series K Preferred Units have no maturity date and will remain outstanding indefinitely unless redeemed.

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

25

VORNADO REALTY L.P.

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

Financial assets and liabilities that are measured at fair value in our consolidated financial statements consist of (i) marketable securities, (ii) Real Estate Fund investments, (iii) the assets in our deferred compensation plan (for which there is a corresponding liability on our consolidated balance sheet), (iv) derivative positions in marketable equity securities, (v) interest rate swaps and (vi) mandatorily redeemable instruments (Series G-1 through G-4 convertible preferred units and Series D-13 cumulative redeemable preferred units).  The tables below aggregate the fair values of these financial assets and liabilities by their levels in the fair value hierarchy at September 30, 2012 and December 31, 2011, respectively.

			As of September 30, 2012
(Amounts in thousands)			Total		Level 1		Level 2		Level 3
	Marketable securities		$	485,001	$	485,001	$	-	$	-
	Real Estate Fund investments (75% of which is attributable to
		noncontrolling interests)		482,442		-		-		482,442
	Deferred compensation plan assets (included in other assets)			103,003		42,236		-		60,767
	J.C. Penney derivative position (included in other assets)(1)			8,524		-		8,524		-
		Total assets	$	1,078,970	$	527,237	$	8,524	$	543,209
	Mandatorily redeemable instruments (included in other liabilities)		$	55,097	$	55,097	$	-	$	-
	Interest rate swap (included in other liabilities)			52,935		-		52,935		-
		Total liabilities	$	108,032	$	55,097	$	52,935	$	-
	(1) Represents the cash deposited with the counterparty in excess of the mark-to-market loss on the derivative position.
			As of December 31, 2011
(Amounts in thousands)			Total		Level 1		Level 2		Level 3
	Marketable securities		$	741,321	$	741,321	$	-	$	-
	Real Estate Fund investments (75% of which is attributable to
		noncontrolling interests)		346,650		-		-		346,650
	Deferred compensation plan assets (included in other assets)			95,457		39,236		-		56,221
	J.C. Penney derivative position (included in other assets)(1)			30,600		-		30,600		-
		Total assets	$	1,214,028	$	780,557	$	30,600	$	402,871
	Mandatorily redeemable instruments (included in other liabilities)		$	54,865	$	54,865	$	-	$	-
	Interest rate swap (included in other liabilities)			44,114		-		44,114		-
		Total liabilities	$	98,979	$	54,865	$	44,114	$	-
	(1) Represents the mark-to-market gain on the derivative position.

26

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

14.  Fair Value Measurements – continued

Financial Assets and Liabilities Measured at Fair Value - continued

Real Estate Fund Investments

At September 30, 2012, our Real Estate Fund had eight investments with an aggregate fair value of approximately $482,442,000, or $45,818,000 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 1.8 to 6.4 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 September 30, 2012.

			Weighted Average
			(based on fair
Unobservable Quantitative Input		Range	value of investments)
	Discount rates	12.5% to 23.3%	14.6 %
	Terminal capitalization rates	5.3% to 6.8%	6.0 %

The above inputs are subject to change based on changes in economic and market conditions and/or changes in use or timing of exit.  Changes in discount rates and terminal capitalization rates result in increases or decreases in the fair values of these investments.  The discount rates encompass, among other things, uncertainties in the valuation models with respect to terminal capitalization rates and the amount and timing of cash flows.  Therefore, a change in the fair value of these investments resulting from a change in the terminal capitalization rate, may be partially offset by a change in the discount rate.  It is not possible for us to predict the effect of future economic or market conditions on our estimated fair values.  The table below summarizes the changes in the fair value of Fund investments that are classified as Level 3, for the three and nine months ended September 30, 2012 and 2011.

	For the Three Months				For the Nine Months
	Ended September 30,				Ended September 30,
(Amounts in thousands)		2012		2011	2012		2011
Beginning balance	$	388,455	$	255,795	$	346,650	$	144,423
Purchases		88,429		-		163,021		123,047
Sales/Returns		-		-		(61,052)		(12,831)
Realized gains		-		-		-		3,085
Unrealized gains		5,558		5,639		33,537		19,209
Other, net		-		(17)		286		(15,516)
Ending balance	$	482,442	$	261,417	$	482,442	$	261,417

27

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

14.  Fair Value Measurements – continued

Financial Assets and Liabilities Measured at Fair Value - 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 for the three and nine months ended September 30, 2012 and 2011. 

	For the Three Months				For the Nine Months
	Ended September 30,				Ended September 30,
(Amounts in thousands)		2012		2011	2012		2011
Beginning balance	$	58,313	$	53,724	$	56,221	$	47,850
Purchases		1,650		3,155		5,416		22,259
Sales		(276)		(1,044)		(4,287)		(18,538)
Realized and unrealized gain (loss)		1,080		(2,051)		3,349		2,166
Other, net		-		103		68		150
Ending balance	$	60,767	$	53,887	$	60,767	$	53,887

Financial Assets and Liabilities not Measured at Fair Value

Financial assets and liabilities that are not measured at fair value in our consolidated financial statements include mezzanine loans receivable, a stock purchase warrant, 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 our mezzanine loans receivable and the stock purchase warrant are classified as Level 3 and 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 September 30, 2012 and December 31, 2011.

				As of September 30, 2012				As of December 31, 2011
				Carrying		Fair		Carrying		Fair
(Amounts in thousands)				Amount		Value		Amount		Value
	Assets:
	Mezzanine loans receivable			$	131,585	$	127,000	$	133,948	$	129,000
	Stock purchase warrant (residential property)				-		35,000		-		-
				$	131,585	$	162,000	$	133,948	$	129,000
	Liabilities:
		Notes and mortgages payable		$	7,852,657	$	7,900,000	$	8,065,576	$	8,181,000
		Senior unsecured notes			1,357,921		1,476,000		1,357,661		1,426,000
		Revolving credit facility debt			600,000		600,000		138,000		138,000
		Exchangeable senior debentures			-		-		497,898		510,000
		Convertible senior debentures
			due to Vornado		-		-		10,168		10,000
				$	9,810,578	$	9,976,000	$	10,069,303	$	10,265,000

28

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

15.    Incentive Compensation

Vornado’s Omnibus Share Plan (the “Plan”) provides for grants of incentive and non-qualified Vornado stock options, Vornado restricted stock, restricted units and out-performance plan awards to certain of Vornado’s employees and officers.  We account for all stock-based compensation in accordance ASC 718, Compensation – Stock Compensation.   

On March 30, 2012, the Compensation Committee of Vornado’s Board of Trustees (the “Committee”) approved the 2012 formulaic annual incentive program for Vornado’s senior executive management team.  Under the program, Vornado’s senior executive management team, including its Chairman and its President and Chief Executive Officer, will have the ability to earn annual incentive payments (cash or equity) if and only if Vornado achieves comparable funds from operations (“Comparable FFO”) of at least 80% or more of the prior year Comparable FFO.  Moreover, even if Vornado achieves the stipulated Comparable FFO performance requirement, the Committee retains the right, consistent with best practices, to elect to make no payments under the program.  Comparable FFO excludes the impact of certain non-recurring items such as income or loss from discontinued operations, the sale or mark-to-market of marketable securities or derivatives and early extinguishment of debt, restructuring costs and non-cash impairment losses, among others, and thus the Committee believes provides a better metric than total FFO for assessing management’s performance for the year.  Aggregate incentive awards earned under the program are subject to a cap of 1.25% of Comparable FFO for the year, with individual award allocations determined by the Committee based on an assessment of individual and overall performance.

On March 30, 2012, the Committee also approved the 2012 Out-Performance Plan, a multi-year, performance-based equity compensation plan (the “2012 OPP”).  The aggregate notional amount of the 2012 OPP is $40,000,000.  Under the 2012 OPP, participants, including Vornado’s Chairman and its President and Chief Executive Officer, have the opportunity to earn compensation payable in the form of equity awards if and only if Vornado outperforms a predetermined total shareholder return (“TSR”) and/or outperforms the market with respect to a relative TSR in any year during a three-year performance period.   Specifically, awards under Vornado’s 2012 OPP may be earned if Vornado (i) achieves a TSR above that of the SNL US REIT Index (the “Index”) over a one-year, two-year or three-year performance period (the “Relative Component”), and/or (ii) achieves a TSR level greater than 7% per annum, or 21% over the three-year performance period (the “Absolute Component”).  To the extent awards would be earned under the Absolute Component of the 2012 OPP but Vornado underperforms the Index, such awards would be reduced (and potentially fully negated) based on the degree to which Vornado underperforms the Index.  In certain circumstances, in the event Vornado outperforms the Index but awards would not otherwise be earned under the Absolute Component, awards may still be earned under the Relative Component.  To the extent awards would otherwise be earned under the Relative Component but Vornado fails to achieve at least a 6% per annum absolute TSR level, such awards would be reduced based on Vornado’s absolute TSR performance, with no awards being earned in the event Vornado’s TSR during the applicable measurement period is 0% or negative, irrespective of the degree to which Vornado may outperform the Index.  If the designated performance objectives are achieved, OPP Units are also subject to time-based vesting requirements. Distributions on awards issued accrue during the performance period and are paid to participants if and only if awards are ultimately earned based on the achievement of the designated performance objectives.  Awards earned under the 2012 OPP vest 33% in year three, 33% in year four and 34% in year five.  The fair value of the 2012 OPP on the date of grant, as adjusted for estimated forfeitures, was $12,250,000, and is being amortized into expense over a five-year period from the date of grant, using a graded vesting attribution model.

Stock-based compensation expense consists of Vornado stock option awards, Vornado restricted stock awards, restricted unit awards and out-performance plan awards.  Stock-based compensation expense was $7,774,000 and $7,320,000 in the three months ended September 30, 2012 and 2011, respectively, and $22,821,000 and $21,384,000 in the nine months ended September 30, 2012 and 2011, respectively.

29

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

16.    Fee and Other Income

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

	For the Three Months				For the Nine Months
(Amounts in thousands)	Ended September 30,				Ended September 30,
	2012		2011		2012		2011
BMS cleaning fees	$	16,945	$	15,647	$	49,437	$	46,479
Signage revenue		4,783		5,085		14,252		14,746
Management and leasing fees		7,234		4,773		16,534		16,660
Lease termination fees		282		4,803		1,172		12,478
Other income		10,444		6,468		24,623		21,450
	$	39,688	$	36,776	$	106,018	$	111,813

Management and leasing fees include management fees from Interstate Properties, a related party, of $197,000 and $195,000 for the three months ended September 30, 2012 and 2011, respectively, and $588,000 and $586,000 for the nine months ended September 30, 2012 and 2011, 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 our interest and other investment income (loss):

		For the Three Months				For the Nine Months
(Amounts in thousands)		Ended September 30,				Ended September 30,
		2012		2011		2012		2011
Income (loss) from the mark-to-market of J.C. Penney derivative position		$	4,344	$	(37,537)	$	(53,343)	$	(27,136)
Interest on mezzanine loans receivable			2,852		3,442		8,867		9,169
Mark-to-market of investments in our deferred compensation plan (1)			1,116		(5,243)		5,267		1,502
Dividends and interest on marketable securities			-		7,605		11,093		22,941
Mezzanine loans loss reversal and net gain on disposition			-		-		-		82,744
Other, net			2,211		1,722		5,132		5,866
		$	10,523	$	(30,011)	$	(22,984)	$	95,086
__________________________
(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.

30

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

18.    Income Per Class A Unit

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

			For the Three Months				For the Nine Months
(Amounts in thousands, except per unit amounts)			Ended September 30,				Ended September 30,
			2012		2011		2012		2011
Numerator:
	Income from continuing operations		$	106,842	$	57,779	$	361,624	$	477,307
	Income from discontinued operations			157,314		8,444		241,024		165,706
	Net income			264,156		66,223		602,648		643,013
	Less net income attributable to noncontrolling interests in
		consolidated subsidiaries		(6,610)		(5,636)		(30,928)		(20,643)
	Net income attributable to Vornado Realty L.P.			257,546		60,587		571,720		622,370
	Preferred unit distributions			(22,016)		(21,655)		(65,337)		(58,722)
	Discount on preferred unit redemptions			11,700		5,000		11,700		5,000
	Net income attributable to Class A unitholders			247,230		43,932		518,083		568,648
	Earnings allocated to unvested participating securities			(1,008)		(706)		(2,302)		(2,721)
	Numerator for basic income per Class A unit			246,222		43,226		515,781		565,927
	Impact of assumed conversions:
		Convertible preferred unit distributions		28		-		85		94
	Numerator for diluted income per Class A unit		$	246,250	$	43,226	$	515,866	$	566,021
Denominator:
	Denominator for basic income per Class A unit –
		weighted average units		197,155		196,239		197,050		196,090
	Effect of dilutive securities(1):
		Vornado stock options and restricted unit awards		1,046		2,066		1,028		2,135
		Convertible preferred units		50		-		50		55
	Denominator for diluted income per Class A unit –
		weighted average units and assumed conversions		198,251		198,305		198,128		198,280
INCOME PER CLASS A UNIT – BASIC:
	Income from continuing operations		$	0.45	$	0.18	$	1.40	$	2.04
	Income from discontinued operations			0.80		0.04		1.22		0.85
	Net income per Class A unit		$	1.25	$	0.22	$	2.62	$	2.89
INCOME PER CLASS A UNIT – DILUTED:
	Income from continuing operations		$	0.45	$	0.18	$	1.39	$	2.02
	Income from discontinued operations			0.79		0.04		1.21		0.83
	Net income per Class A unit		$	1.24	$	0.22	$	2.60	$	2.85
(1)		The effect of dilutive securities above excludes anti-dilutive weighted average Class A unit equivalents of 1,056 and 6,617 in the three months ended September 30, 2012 and 2011, respectively, and 3,320 and 6,446 in the nine months ended September 30, 2012 and 2011, respectively.

31

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

19.    Commitments and Contingencies

Insurance 

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

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

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

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

Other Commitments and Contingencies

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 September 30, 2012, the aggregate dollar amount of these guarantees and master leases is approximately $267,090,000.

At September 30, 2012, $22,576,000 of letters of credit were outstanding under one of our revolving credit facilities.  Our credit facilities contain financial covenants that require us to maintain minimum interest coverage and maximum debt to market capitalization ratios, and provide for higher interest rates in the event of a decline in our ratings below Baa3/BBB. Our credit facilities also contain customary conditions precedent to borrowing, including representations and warranties, and also contain customary events of default that could give rise to accelerated repayment, including such items as failure to pay interest or principal.

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.

Two of our wholly owned subsidiaries that are contracted to develop and operate the Cleveland Medical Mart and Convention Center, in Cleveland, Ohio, are required to fund $11,500,000, primarily for tenant improvements, and they are responsible for operating expenses and are entitled to the net operating income, if any, upon the completion of development and the commencement of operations.  As of September 30, 2012, our subsidiaries have funded $1,100,000 of the commitment.

As of September 30, 2012, we expect to fund additional capital to certain of our partially owned entities aggregating approximately $244,463,000. 

32

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

19.          Commitments and Contingencies – continued

Litigation  

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

In 2003, Stop & Shop filed an action against us in the New York Supreme Court, claiming that we had no right to reallocate and therefore continue to collect $5,000,000 of annual rent from Stop & Shop pursuant to a Master Agreement and Guaranty, because of the expiration of the leases to which the annual rent was previously allocated. Stop & Shop asserted that an order of the Bankruptcy Court for the Southern District of New York, as modified on appeal by the District Court, froze our right to reallocate and effectively terminated our right to collect the annual rent from Stop & Shop.  We asserted a counterclaim seeking a judgment for all the unpaid annual rent accruing through the date of the judgment and a declaration that Stop & Shop will continue to be liable for the annual rent as long as any of the leases subject to the Master Agreement and Guaranty remain in effect.  After summary judgment motions by both sides were denied, the parties conducted discovery.  A trial was held in November 2010.  On November 7, 2011, the Court determined that we have a continuing right to allocate the annual rent to unexpired leases covered by the Master Agreement and Guaranty, and directed entry of a judgment in our favor ordering Stop & Shop to pay us the unpaid annual rent accrued through February 28, 2011 in the amount of $37,422,000, a portion of the annual rent due from March 1, 2011 through the date of judgment, interest, and attorneys’ fees.  On December 16, 2011, a money judgment based on the Court’s decision was entered in our favor in the amount of $56,597,000 (including interest and costs).  The amount for attorneys’ fees is being addressed in a proceeding before a special referee.  Stop & Shop appealed the Court’s decision and the judgment, and has posted a bond to secure payment of the judgment.  On January 12, 2012, we commenced a new action against Stop & Shop seeking recovery of $2,500,000 of annual rent not included in the money judgment, plus additional annual rent as it accrues.  A motion by Stop & Shop to dismiss the new action was denied on July 19, 2012.  Stop & Shop’s appeal of that ruling was heard on October 18, 2012, and a decision has not yet been issued.

As of September 30, 2012, we have a $46,400,000 receivable from Stop & Shop, excluding amounts due to us for interest and costs resulting from the Court’s judgment.  As a result of Stop & Shop appealing the Court’s decision, we believe, after consultation with counsel, that the maximum reasonably possible loss is up to the total amount of the receivable of $46,400,000.

20.    Related Party Transactions

On March 8, 2012, Steven Roth, the Chairman of Vornado’s Board of Trustees, repaid his $13,122,500 outstanding loan from Vornado.

33

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

21.    Segment Information

Effective January 1, 2012, as a result of certain organizational and operational changes, we redefined the New York business segment to encompass all of our Manhattan assets by including the 1.0 million square feet in 21 freestanding Manhattan street retail assets (formerly in our Retail segment), and the Hotel Pennsylvania and our interest in Alexander’s, Inc. (formerly in our Other segment).  Accordingly, we have reclassified the prior period segment financial results to conform to the current year presentation.  See note (4) on page 38 for the elements of the New York segment’s EBITDA.  Below is a summary of net income and a reconciliation of net income to EBITDA⁽¹⁾ by segment for the three and nine months ended September 30, 2012 and 2011.

(Amounts in thousands)		For the Three Months Ended September 30, 2012
											Retail			Merchandise
			Total			New York			Washington, DC		Properties			Mart		Toys		Other
Property rentals			$	492,989		$	255,703		$	115,641	$	67,919		$	31,625	$	-	$	22,101
Straight-line rent adjustments				11,910			8,140			1,267		2,392			(171)		-		282
Amortization of acquired below-
	market leases, net			13,242			8,458			506		2,868			-		-		1,410
Total rentals				518,141			272,301			117,414		73,179			31,454		-		23,793
Tenant expense reimbursements				80,497			45,164			9,601		21,069			1,201		-		3,462
Cleveland Medical Mart development
	project			72,651			-			-		-			72,651		-		-
Fee and other income:
	BMS cleaning fees			16,945			23,918			-		-			-		-		(6,973)
	Signage revenue			4,783			4,783			-		-			-		-		-
	Management and leasing fees			7,234			1,816			4,615		736			142		-		(75)
	Lease termination fees			282			78			128		73			3		-		-
	Other income			10,444			1,116			8,288		632			481		-		(73)
Total revenues				710,977			349,176			140,046		95,689			105,932		-		20,134
Operating expenses				264,487			159,048			50,305		33,519			19,130		-		2,485
Depreciation and amortization				124,335			57,967			29,825		18,202			7,439		-		10,902
General and administrative				48,742			6,739			6,668		6,103			4,120		-		25,112
Cleveland Medical Mart development
	project			70,431			-			-		-			70,431		-		-
Acquisition related costs and
	tenant buy-outs			1,070			-			-		-			-		-		1,070
Total expenses				509,065			223,754			86,798		57,824			101,120		-		39,569
Operating income (loss)				201,912			125,422			53,248		37,865			4,812		-		(19,435)
(Loss) applicable to Toys				(8,585)			-			-		-			-		(8,585)		-
Income (loss) from partially owned
	entities			21,268			9,309			(2,182)		342			219		-		13,580
Income from Real Estate Fund				5,509			-			-		-			-		-		5,509
Interest and other investment
	income, net			10,523			1,057			24		4			-		-		9,438
Interest and debt expense				(120,770)			(36,817)			(28,311)		(14,732)			(7,906)		-		(33,004)
Income (loss) before income taxes				109,857			98,971			22,779		23,479			(2,875)		(8,585)		(23,912)
Income tax (expense) benefit				(3,015)			(815)			25		-			2,166		-		(4,391)
Income (loss) from continuing
	operations			106,842			98,156			22,804		23,479			(709)		(8,585)		(28,303)
Income from discontinued
	operations			157,314			-			126,437		11,085			19,792		-		-
Net income (loss)				264,156			98,156			149,241		34,564			19,083		(8,585)		(28,303)
Less net (income) loss attributable to
	noncontrolling interests in
	consolidated subsidiaries			(6,610)			(2,092)			-		97			-		-		(4,615)
Net income (loss) attributable to
	Vornado Realty L.P.			257,546			96,064			149,241		34,661			19,083		(8,585)		(32,918)
Interest and debt expense(2)				183,241			46,823			33,280		17,499			8,916		34,526		42,197
Depreciation and amortization(2)				177,593			62,905			35,071		21,345			7,662		33,160		17,450
Income tax expense (benefit)(2)				3,850			871			(25)		-			9,281		(11,118)		4,841
EBITDA(1)				622,230			206,663			217,567		73,505			44,942		47,983		31,570
Less EBITDA from discontinued
	operations			(176,110)	(3)		-			(128,745)		(15,160)			(32,205)		-		-
EBITDA from continuing operations			$	446,120		$	206,663	(4)	$	88,822	$	58,345	(5)	$	12,737	$	47,983	$	31,570	(6)
See notes on page 38.

34

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

21.    Segment Information – continued

(Amounts in thousands)		For the Three Months Ended September 30, 2011
											Retail			Merchandise
			Total			New York			Washington, DC		Properties			Mart		Toys		Other
Property rentals			$	507,258		$	247,794		$	133,659	$	67,616		$	35,586	$	-	$	22,603
Straight-line rent adjustments				7,087			6,445			(1,308)		1,911			(501)		-		540
Amortization of acquired below-
	market leases, net			15,847			9,833			557		4,346			-		-		1,111
Total rentals				530,192			264,072			132,908		73,873			35,085		-		24,254
Tenant expense reimbursements				85,757			49,125			9,640		23,059			1,681		-		2,252
Cleveland Medical Mart development
	project			35,135			-			-		-			35,135		-		-
Fee and other income:
	BMS cleaning fees			15,647			22,571			-		-			-		-		(6,924)
	Signage revenue			5,085			5,085			-		-			-		-		-
	Management and leasing fees			4,773			1,022			2,670		755			45		-		281
	Lease termination fees			4,803			3,540			1,002		261			-		-		-
	Other income			6,468			1,049			5,039		229			543		-		(392)
Total revenues				687,860			346,464			151,259		98,177			72,489		-		19,471
Operating expenses				262,837			152,880			49,013		37,415			21,289		-		2,240
Depreciation and amortization				126,935			55,685			32,346		20,414			7,642		-		10,848
General and administrative				46,121			6,452			6,502		6,088			9,206		-		17,873
Cleveland Medical Mart development
	project			33,419			-			-		-			33,419		-		-
Acquisition related costs and
	tenant buy-outs			2,288			1,558			-		35			-		-		695
Total expenses				471,600			216,575			87,861		63,952			71,556		-		31,656
Operating income (loss)				216,260			129,889			63,398		34,225			933		-		(12,185)
(Loss) applicable to Toys				(9,304)			-			-		-			-		(9,304)		-
Income (loss) from partially owned
	entities			13,140			1,203			(1,356)		575			38		-		12,680
Income from Real Estate Fund				5,353			-			-		-			-		-		5,353
Interest and other investment
	(loss) income, net			(30,011)			1,047			39		1			1		-		(31,099)
Interest and debt expense				(131,998)			(39,088)			(28,928)		(17,639)			(7,866)		-		(38,477)
Net gain on disposition of wholly
	owned and partially owned assets			1,298			-			-		-			-		-		1,298
Income (loss) before income taxes				64,738			93,051			33,153		17,162			(6,894)		(9,304)		(62,430)
Income tax expense				(6,959)			(678)			(881)		-			(784)		-		(4,616)
Income (loss) from continuing
	operations			57,779			92,373			32,272		17,162			(7,678)		(9,304)		(67,046)
Income (loss) from discontinued
	operations			8,444			165			1,622		6,272			483		-		(98)
Net income (loss)				66,223			92,538			33,894		23,434			(7,195)		(9,304)		(67,144)
Less net (income) loss attributable to
	noncontrolling interests in
	consolidated subsidiaries			(5,636)			(2,219)			-		110			-		-		(3,527)
Net income (loss) attributable to
	Vornado Realty L.P.			60,587			90,319			33,894		23,544			(7,195)		(9,304)		(70,671)
Interest and debt expense(2)				197,864			46,691			33,703		20,678			9,523		38,018		49,251
Depreciation and amortization(2)				193,394			65,539			38,085		24,117			12,230		34,293		19,130
Income tax (benefit) expense(2)				(7,350)			734			925		-			890		(15,135)		5,236
EBITDA(1)				444,495			203,283			106,607		68,339			15,448		47,872		2,946
Less EBITDA from discontinued
	operations			(22,597)	(3)		(276)			(4,568)		(11,288)			(6,563)		-		98
EBITDA from continuing operations			$	421,898		$	203,007	(4)	$	102,039	$	57,051	(5)	$	8,885	$	47,872	$	3,044	(6)
See notes on page 38.

35

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

21.    Segment Information – continued

(Amounts in thousands)		For the Nine Months Ended September 30, 2012
											Retail			Merchandise
			Total			New York			Washington, DC		Properties			Mart		Toys		Other
Property rentals			$	1,469,751		$	735,587		$	356,459	$	203,237		$	107,687	$	-	$	66,781
Straight-line rent adjustments				55,189			42,334			4,382		7,285			580		-		608
Amortization of acquired below-
	market leases, net			39,228			23,776			1,537		9,648			-		-		4,267
Total rentals				1,564,168			801,697			362,378		220,170			108,267		-		71,656
Tenant expense reimbursements				224,287			118,861			30,471		64,915			3,702		-		6,338
Cleveland Medical Mart development
	project			184,014			-			-		-			184,014		-		-
Fee and other income:
	BMS cleaning fees			49,437			70,476			-		-			-		-		(21,039)
	Signage revenue			14,252			14,252			-		-			-		-		-
	Management and leasing fees			16,534			4,037			9,782		2,640			188		-		(113)
	Lease termination fees			1,172			334			256		74			508		-		-
	Other income			24,623			3,449			18,846		1,361			1,221		-		(254)
Total revenues				2,078,487			1,013,106			421,733		289,160			297,900		-		56,588
Operating expenses				764,018			447,910			143,923		104,788			59,929		-		7,468
Depreciation and amortization				386,974			168,391			107,395		56,830			22,324		-		32,034
General and administrative				151,142			21,980			19,849		18,803			14,877		-		75,633
Cleveland Medical Mart development
	project			177,127			-			-		-			177,127		-		-
Acquisition related costs and
	tenant buy-outs			4,314			-			-		-			-		-		4,314
Total expenses				1,483,575			638,281			271,167		180,421			274,257		-		119,449
Operating income (loss)				594,912			374,825			150,566		108,739			23,643		-		(62,861)
Income applicable to Toys				88,696			-			-		-			-		88,696		-
Income (loss) from partially owned
	entities			53,491			20,345			(4,571)		1,040			560		-		36,117
Income from Real Estate Fund				37,572			-			-		-			-		-		37,572
Interest and other investment
	(loss) income, net			(22,984)			3,166			97		24			-		-		(26,271)
Interest and debt expense				(377,600)			(109,365)			(85,408)		(49,705)			(23,467)		-		(109,655)
Net gain on disposition of wholly
	owned and partially owned assets			4,856			-			-		-			-		-		4,856
Income (loss) before income taxes				378,943			288,971			60,684		60,098			736		88,696		(120,242)
Income tax (expense) benefit				(17,319)			(2,480)			(1,277)		-			343		-		(13,905)
Income (loss) from continuing
	operations			361,624			286,491			59,407		60,098			1,079		88,696		(134,147)
Income (loss) from discontinued
	operations			241,024			(640)			130,979		36,404			67,291		-		6,990
Net income (loss)				602,648			285,851			190,386		96,502			68,370		88,696		(127,157)
Less net (income) loss attributable to
	noncontrolling interests in
	consolidated subsidiaries			(30,928)			(7,266)			-		308			-		-		(23,970)
Net income (loss) attributable to
	Vornado Realty L.P.			571,720			278,585			190,386		96,810			68,370		88,696		(151,127)
Interest and debt expense(2)				567,265			140,294			99,486		58,039			26,492		103,388		139,566
Depreciation and amortization(2)				552,794			188,480			122,987		65,751			26,966		100,371		48,239
Income tax expense(2)				50,076			2,677			1,532		-			11,658		17,982		16,227
EBITDA(1)				1,741,855			610,036			414,391		220,600			133,486		310,437		52,905
Less EBITDA from discontinued
	operations			(279,464)	(3)		640			(138,707)		(48,251)			(86,156)		-		(6,990)
EBITDA from continuing operations			$	1,462,391		$	610,676	(4)	$	275,684	$	172,349	(5)	$	47,330	$	310,437	$	45,915	(6)
See notes on page 38.

36

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

21.    Segment Information – continued

(Amounts in thousands)		For the Nine Months Ended September 30, 2011
										Retail			Merchandise
		Total			New York			Washington, DC		Properties			Mart		Toys		Other
Property rentals		$	1,517,994		$	727,886		$	400,909	$	202,701		$	118,540	$	-	$	67,958
Straight-line rent adjustments			26,192			22,636			(2,138)		4,666			(1,261)		-		2,289
Amortization of acquired below-
	market leases, net		48,681			33,173			1,597		10,552			-		-		3,359
Total rentals			1,592,867			783,695			400,368		217,919			117,279		-		73,606
Tenant expense reimbursements			237,945			125,921			27,242		71,926			4,988		-		7,868
Cleveland Medical Mart development
	project		108,203			-			-		-			108,203		-		-
Fee and other income:
	BMS cleaning fees		46,479			66,913			-		-			-		-		(20,434)
	Signage revenue		14,746			14,746			-		-			-		-		-
	Management and leasing fees		16,660			3,560			9,629		3,068			348		-		55
	Lease termination fees		12,478			9,176			3,013		289			-		-		-
	Other income		21,450			3,391			15,316		1,172			1,791		-		(220)
Total revenues			2,050,828			1,007,402			455,568		294,374			232,609		-		60,875
Operating expenses			773,331			435,519			142,211		113,167			71,210		-		11,224
Depreciation and amortization			373,380			165,031			96,940		57,472			21,594		-		32,343
General and administrative			154,359			20,409			19,496		20,046			22,659		-		71,749
Cleveland Medical Mart development
	project		101,637			-			-		-			101,637		-		-
Acquisition related costs and
	tenant buy-outs		22,455			16,558			-		35			3,040		-		2,822
Total expenses			1,425,162			637,517			258,647		190,720			220,140		-		118,138
Operating income (loss)			625,666			369,885			196,921		103,654			12,469		-		(57,263)
Income applicable to Toys			80,794			-			-		-			-		80,794		-
Income (loss) from partially owned
	entities		55,035			13,320			(6,038)		1,221			292		-		46,240
Income from Real Estate Fund			25,491			-			-		-			-		-		25,491
Interest and other investment
	income, net		95,086			3,169			119		1			1		-		91,796
Interest and debt expense			(394,192)			(114,381)			(85,971)		(53,024)			(23,342)		-		(117,474)
Net gain on disposition of wholly
	owned and partially owned assets		7,975			-			-		-			-		-		7,975
Income (loss) before income taxes			495,855			271,993			105,031		51,852			(10,580)		80,794		(3,235)
Income tax expense			(18,548)			(1,637)			(2,055)		(5)			(1,523)		-		(13,328)
Income (loss) from continuing
	operations		477,307			270,356			102,976		51,847			(12,103)		80,794		(16,563)
Income (loss) from discontinued
	operations		165,706			398			51,274		26,010			88,365		-		(341)
Net income (loss)			643,013			270,754			154,250		77,857			76,262		80,794		(16,904)
Less net (income) loss attributable to
	noncontrolling interests in
	consolidated subsidiaries		(20,643)			(6,815)			-		196			-		-		(14,024)
Net income (loss) attributable to
	Vornado Realty L.P.		622,370			263,939			154,250		78,053			76,262		80,794		(30,928)
Interest and debt expense(2)			599,668			132,248			100,017		62,144			32,025		121,546		151,688
Depreciation and amortization(2)			561,738			181,611			118,290		68,294			34,632		101,862		57,049
Income tax expense(2)			42,135			1,644			2,380		5			2,211		29,914		5,981
EBITDA(1)			1,825,911			579,442			374,937		208,496			145,130		334,116		183,790
Less EBITDA from discontinued
	operations		(211,539)	(3)		(710)			(60,220)		(40,988)			(109,962)		-		341
EBITDA from continuing operations		$	1,614,372		$	578,732	(4)	$	314,717	$	167,508	(5)	$	35,168	$	334,116	$	184,131	(6)
See notes on the following page.

37

VORNADO REALTY L.P.

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 following table reconciles income from discontinued operations to EBITDA from discontinued operations.
				For the Three Months				For the Nine Months
				Ended September 30,				Ended September 30,
	(Amounts in thousands)			2012		2011		2012		2011
	Income from discontinued operations			$	157,314	$	8,444	$	241,024	$	165,706
	Interest and debt expense				3,799		4,732		11,415		17,917
	Depreciation and amortization				3,560		9,236		14,818		26,916
	Income taxes				11,437		185		12,207		1,000
		EBITDA from discontinued operations		$	176,110	$	22,597	$	279,464	$	211,539
(4)	The elements of "New York" EBITDA from continuing operations are summarized below.
				For the Three Months				For the Nine Months
				Ended September 30,				Ended September 30,
	(Amounts in thousands)			2012		2011		2012		2011
	Office			$	139,894	$	137,295	$	419,054	$	399,182
	Retail				46,165		43,109		135,399		121,136	(a)
	Alexander's				13,080		12,830		39,477		40,032
	Hotel Pennsylvania				7,524		9,773		16,746		18,382
		Total New York		$	206,663	$	203,007	$	610,676	$	578,732
	(a)		The EBITDA for the nine months ended September 30, 2011 is after a $16,558 expense for the buy-out of below-market leases.
(5)	The elements of "Retail Properties" EBITDA from continuing operations are summarized below.
				For the Three Months				For the Nine Months
				Ended September 30,				Ended September 30,
	(Amounts in thousands)			2012		2011		2012		2011
	Strip shopping centers			$	42,468	$	41,282	$	125,072	$	120,887
	Regional malls				15,877		15,769		47,277		46,621
		Total Retail properties		$	58,345	$	57,051	$	172,349	$	167,508

38

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

21. Segment Information - continued
	Notes to preceding tabular information - continued:
(6)	The elements of "other" EBITDA from continuing operations are summarized below.
				For the Three Months				For the Nine Months
				Ended September 30,				Ended September 30,
	(Amounts in thousands)			2012		2011		2012		2011
	Our share of Real Estate Fund:
		Income before net realized/unrealized gains		$	1,874	$	743	$	4,162	$	2,550
		Net unrealized gains			1,389		1,410		8,384		4,802
		Net realized gains			-		-		-		771
		Carried interest			(2,541)		(475)		-		1,665
	Total				722		1,678		12,546		9,788
	LNR				18,773		15,769		46,006		38,569
	555 California Street				10,714		11,220		31,406		32,608
	Lexington				7,859		8,424		24,780		27,970
	Other investments				11,121		10,173		24,954		30,352
					49,189		47,264		139,692		139,287
	Corporate general and administrative expenses(a)				(22,811)		(21,585)		(66,940)		(62,964)
	Investment income and other, net(a)				5,033		12,541		28,865		37,284
	Fee income from Alexander's				1,821		1,758		5,617		5,545
	Income (loss) from the mark-to-market of J.C. Penney derivative
		position			4,344		(37,537)		(53,343)		(27,136)
	Verde Realty impairment loss				(4,936)		-		(4,936)		-
	Acquisition costs				(1,070)		(695)		(4,314)		(2,822)
	Net gain on sale of residential condominiums				-		1,298		1,274		5,884
	Mezzanine loans loss reversal and net gain on disposition				-		-		-		82,744
	Net gain resulting from Lexington's stock issuance				-		-		-		9,760
	Real Estate Fund placement fees				-		-		-		(3,451)
				$	31,570	$	3,044	$	45,915	$	184,131
	(a)		The amounts in these captions (for this table only) exclude the mark-to-market of our deferred compensation plan assets and offsetting liability.

39

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Partners

Vornado Realty L.P.

New York, New York

We have reviewed the accompanying consolidated balance sheet of Vornado Realty L.P. (the “Company”) as of September 30, 2012, and the related consolidated statements of income and comprehensive income for the three-month and nine-month periods ended September 30, 2012 and 2011, and of changes in equity and cash flows for the nine-month periods ended September 30, 2012 and 2011.  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 L.P. as of December 31, 2011, 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 March 2, 2012, we expressed an unqualified opinion on those consolidated financial statements and included an explanatory paragraph relating to the change in method of presenting comprehensive income due to the adoption of FASB Accounting Standards Update No. 2011-05, Presentation of Comprehensive Income.  In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2011 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

November 7, 2012

40

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

Certain statements contained in this Quarterly Report constitute forward‑looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not guarantees of performance. They represent our intentions, plans, expectations and beliefs and are subject to numerous assumptions, risks and uncertainties. Our future results, financial condition and business may differ materially from those expressed in these forward-looking statements. You can find many of these statements by looking for words such as “approximates,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “would,” “may” or other similar expressions in this Quarterly Report on Form 10‑Q.  Many of the factors that will determine the outcome of these and our other forward-looking statements are beyond our ability to control or predict. For further discussion of factors that could materially affect the outcome of our forward-looking statements, see “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2011.  For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q or the date of any document incorporated by reference. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to our forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.

Management’s Discussion and Analysis of Financial Condition and Results of Operations includes a discussion of our consolidated financial statements for the three and nine months ended September 30, 2012.  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.

41

Overview

Business Objective and Operating Strategy

Our business objective is to maximize Vornado shareholder value, which we measure by the total return provided to Vornado’s shareholders. Below is a table comparing Vornado’s performance to the Morgan Stanley REIT Index (“RMS”) and the SNL REIT Index (“SNL”) for the following periods ended September 30, 2012.

		Total Return(1)
		Vornado	RMS	SNL
	One-year	12.3%	32.4%	34.6%
	Three-year	38.7%	75.1%	78.7%
	Five-year	(12.1%)	11.1%	16.4%
	Ten-year	212.5%	192.3%	209.7%
(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 partnership units in exchange for property and may repurchase or otherwise reacquire these units or any other 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.

42

Overview – continued

Quarter Ended September 30, 2012 Financial Results Summary

Net income attributable to Class A unitholders for the quarter ended September 30, 2012 was $247,230,000, or $1.24 per diluted unit, compared to $43,932,000, or $0.22 per diluted unit for the quarter ended September 30, 2011.  Net income for the quarters ended September 30, 2012 and 2011 include $132,244,000 and $3,591,000, respectively, of net gains on sale of real estate.  In addition, the quarters ended September 30, 2012 and 2011 include certain other items that affect comparability, which are listed in the table below.  The aggregate of net gains on sale of real estate and the items in the table below increased net income attributable to Class A unitholders for the quarter ended September 30, 2012 by $169,583,000, or $0.85 per diluted unit and decreased net income attributable to Class A unitholders for the quarter ended September 30, 2011 by $21,646,000, or $0.11 per diluted unit.

			For the Three Months Ended September 30,
(Amounts in thousands)			2012		2011
Items that affect comparability income (expense):
	After-tax net gain on sale of Canadian Trade Shows		$	19,657	$	-
	Income attributable to discontinued operations, including discontinued operations
		of a partially owned entity		8,658		10,221
	Discount on preferred unit redemptions			11,700		5,000
	Income (loss) from the mark-to-market of J.C. Penney derivative position			4,344		(37,537)
	Net gain on sale of residential condominiums			-		1,298
	Verde Realty impairment loss			(4,936)		-
	Buy-out of a below-market lease			-		(1,593)
	Other, net			(2,084)		(2,626)
Items that affect comparability			$	37,339	$	(25,237)

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 September 30, 2012 over the quarter ended September 30, 2011 and the trailing quarter ended June 30, 2012 are summarized below.

						Retail	Merchandise
Same Store EBITDA:			New York		Washington, DC	Properties	Mart
	September 30, 2012 vs. September 30, 2011
		GAAP basis	0.3%	(1)	(6.9%)	0.1%	(0.9%)
		Cash basis	0.7%	(1)	(9.2%)	2.5%	(2.7%)
	September 30, 2012 vs. June 30, 2012
		GAAP basis	(2.2%)	(2)	(2.2%)	0.1%	(24.2%)
		Cash basis	0.6%	(2)	(2.3%)	1.0%	(23.1%)
(1)		Excluding the Hotel Pennsylvania, same store increased by 1.3% and 1.9% on a GAAP and Cash basis, respectively.
(2)		Excluding the Hotel Pennsylvania, same store decreased by (1.3%) on a GAAP basis and increased by 1.8% on a Cash basis.

43

Overview – continued

Nine Months Ended September 30, 2012 Financial Results Summary

Net income attributable to Class A unitholders for the nine months ended September 30, 2012 was $518,083,000, or $2.60 per diluted unit, compared to $568,648,000, or $2.85 per diluted unit for the nine months ended September 30, 2011. Net income for the nine months ended September 30, 2012 and 2011 include $205,852,000 and $59,474,000, respectively, of net gains on sale of real estate and $23,754,000 of real estate impairment losses in the nine months ended September 30, 2012.  In addition, the nine months ended September 30, 2012 and 2011 include certain items that affect comparability, which are listed in the table below.  The aggregate of net gains on sale of real estate, real estate impairment losses and the items in the table below increased net income attributable to Class A unitholders by $191,051,000, or $0.96 per diluted unit for the nine months ended September 30, 2012 and $250,206,000, or $1.26 per diluted unit for the nine months ended September 30, 2011.

			For the Nine Months Ended September 30,
(Amounts in thousands)			2012		2011
Items that affect comparability income (expense):
	Income attributable to discontinued operations, including discontinued operations of
		a partially owned entity	$	37,305	$	35,773
	After-tax net gain on sale of Canadian Trade Shows			19,657		-
	Discount on preferred unit redemptions			11,700		7,000
	Net gain on sale of residential condominiums			1,274		5,884
	Net gain on extinguishment of debt			-		83,907
	Mezzanine loans loss reversal and net gain on disposition			-		82,744
	Our share of LNR's asset sales and tax settlement gains			-		14,997
	Net gain resulting from Lexington's stock issuances			-		9,760
	Loss from the mark-to-market of J.C. Penney derivative position			(53,343)		(27,136)
	Verde Realty impairment loss			(4,936)		-
	Buy-out of below-market leases			-		(16,593)
	Other, net			(2,704)		(5,604)
Items that affect comparability			$	8,953	$	190,732

The percentage increase (decrease) in GAAP basis and Cash basis same store EBITDA of our operating segments for the nine months ended September 30, 2012 over the nine months ended September 30, 2011 is summarized below.

						Retail	Merchandise
Same Store EBITDA:			New York		Washington, DC	Properties	Mart
	September 30, 2012 vs. September 30, 2011
		GAAP basis	2.3%	(1)	(7.0%)	(0.6%)	2.8%
		Cash basis	1.5%	(1)	(6.0%)	(0.5%)	(0.3%)
(1)		Excluding the Hotel Pennsylvania, same store increased by 2.6% and 1.7% on a GAAP and Cash basis, respectively.

Calculations of same store EBITDA, reconciliations of our net income to EBITDA 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.

44

Overview - continued

2012 Acquisitions

On July 5, 2012, we entered into an agreement to acquire a retail condominium located at 666 Fifth Avenue at 53rd Street for $707,000,000. The property has 126 feet of frontage on Fifth Avenue and contains 114,000 square feet, 39,000 square feet in fee and 75,000 square feet by long-term lease from the 666 Fifth Avenue office condominium, which is 49.5% owned by Vornado. The acquisition will be funded with proceeds from asset sales and property level debt and is expected to close in the fourth quarter, subject to customary closing conditions.

On July 30, 2012, we entered into a lease with Host Hotels & Resorts, Inc. (NYSE: HST) (“Host”), under which we will redevelop the retail and signage components of the Marriott Marquis Times Square Hotel.  The Marriott Marquis with over 1,900 rooms is one of the largest hotels in Manhattan.  It is located in the heart of the bow-tie of Times Square and spans the entire block front from 45th Street to 46th Street on Broadway.  The Marriott Marquis is directly across from our 1540 Broadway iconic retail property leased to Forever 21 and Disney flagship stores.  We plan to spend as much as $140,000,000 to redevelop and substantially expand the existing retail space, including converting the below grade parking garage into retail, and creating six-story, 300 foot wide block front, dynamic LED signs.  During the term of the lease we will pay fixed rent equal to the sum of $12,500,000 plus a portion of the property’s net cash flow, after we receive a 5.2% preferred return on our invested capital.  The lease contains put/call options which, if exercised, would lead to our ownership.  Host can exercise the put option during defined periods following the conversion of the project to a condominium.  We can exercise our call option under the same terms, at any time after the fifteenth year of the lease term. 

On April 26, 2012, our 25% owned Real Estate Fund acquired 520 Broadway, a 112,000 square foot office building in Santa Monica, California for $59,650,000 and subsequently placed a $30,000,000 mortgage loan on the property.  The three-year loan bears interest at LIBOR plus 2.25% and has two one-year extension options.

On July 2, 2012, our 25% owned Real Estate Fund acquired 1100 Lincoln Road, a 167,000 square foot retail property, the western anchor of the Lincoln Road Shopping District in Miami Beach, Florida, for $132,000,000.  The purchase price consisted of $66,000,000 in cash and a $66,000,000 mortgage loan.  The three-year loan bears interest at LIBOR plus 2.75% and has two one-year extension options.

On August 20, 2012, our 25% owned Real Estate Fund acquired 501 Broadway, a 9,000 square foot retail property in New York for $31,000,000.  The purchase price consisted of $11,000,000 in cash and a $20,000,000 mortgage loan.  The three-year loan bears interest at LIBOR plus 2.75% with a floor of 3.50%, and has two one-year extension options.

45

Overview – continued

2012 Dispositions

During 2012, we sold or have entered into agreements to sell (i) five Mart properties, (ii) four Washington, DC properties, and (iii) 13 non-core strip shopping centers and the Green Acres Mall, for an aggregate of $1,500,000,000.  Below are the details of these transactions.

Merchandise Mart Properties

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

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

On July 5, 2012, we entered into agreements to sell the Washington Design Center, the Boston Design Center and the Canadian Trade Shows, for an aggregate of $175,000,000 in cash.  The sales of the Canadian Trade Shows and the Washington Design Center were completed in July 2012 and the sale of the Canadian Trade Shows resulted in an after-tax net gain of $19,657,000.  The sale of the Boston Design Center will result in a net gain of approximately $5,300,000 and is expected to be completed in the fourth quarter, subject to customary closing conditions.

Washington, DC Properties

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

On October 26, 2012, we entered into an agreement to sell three office buildings (“Reston Executive”) located in suburban Fairfax County, Virginia, containing 494,000 square feet for $126,000,000, which will result in a net gain of approximately $35,000,000.  The sale, which is subject to customary closing conditions, is expected to be completed in the fourth quarter.

Retail Properties

In 2012, we sold 12 non-core strip shopping center properties in separate transactions, for an aggregate of $157,000,000 in cash, which resulted in a net gain aggregating $22,266,000 of which $4,464,000 was recognized in the third quarter.  In addition we have entered into an agreement to sell a building on Market Street, Philadelphia, which is part of the Gallery at Market East for $60,000,000, which will result in a net gain of approximately $35,000,000.  The sale, which is subject to customary closing conditions, is expected to be completed in the fourth quarter.

On October 21, 2012, we entered into an agreement to sell the Green Acres Mall located in Valley Stream, New York, for $500,000,000.  Net proceeds from the sale will be approximately $185,000,000.  The financial statement gain will be approximately $195,000,000.  The tax gain will be approximately $304,000,000, which is expected to be deferred as part of a like-kind exchange.  The sale, which is expected to be completed in the first quarter of 2013, is subject to customary closing conditions and is conditioned on the closing of the sale of Kings Plaza (an Alexander’s property), which is being sold to the same purchaser.

On October 21, 2012, Alexander’s, our 32.4% owned affiliate, entered into an agreement to sell its Kings Plaza Regional Shopping Center located in Brooklyn, New York, for $751,000,000.  Upon completion of the sale, we will recognize a financial statement gain of approximately $181,000,000.  Alexander’s expects to distribute the taxable gain to its stockholders as a special long-term capital gain dividend, of which our share is approximately $202,000,000 and we expect to pay this amount to our Class A unitholders as a special long-term capital gain dividend.  The sale, which is subject to customary closing conditions, is expected to be completed in the fourth quarter. 

46

Overview – continued

2012 Financings

Secured Debt

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

On March 5, 2012, we completed a $325,000,000 refinancing of 100 West 33^rd Street, a 1.1 million square foot property located on the entire Sixth Avenue block front between 32^nd and 33^rd Streets in Manhattan.  The building contains the 257,000 square foot Manhattan Mall and 848,000 square feet of office space.  The three-year loan bears interest at LIBOR plus 2.50% (2.73% at September 30, 2012) and has two one-year extension options.  We retained net proceeds of approximately $87,000,000, after repaying the existing loan and closing costs.       

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

On August 17, 2012, we completed a $98,000,000 refinancing of 435 Seventh Avenue, a 43,000 square foot retail property in Manhattan. The seven-year loan bears interest at LIBOR plus 2.25% (2.47% at September 30, 2012). We retained net proceeds of approximately $44,000,000 after repaying the existing loan and closing costs.

Senior Unsecured Debt

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

Preferred Equity

On July 11, 2012, Vornado sold 12,000,000 5.70% Series K Cumulative Redeemable Preferred Shares at a price of $25.00 per share in an underwritten public offering pursuant to an effective registration statement.  Vornado retained aggregate net proceeds of $291,144,000, after underwriters’ discounts and issuance costs and contributed the net proceeds to us in exchange for 12,000,000 Series K Preferred Units (with economic terms that mirror those of Series K Preferred Shares).  Distributions on the Series K Preferred Units are cumulative and payable quarterly in arrears.  The Series K Preferred Units are not convertible into, or exchangeable for, any of our properties or securities.  On or after five years from the date of issuance (or sooner under limited circumstances), Vornado may require us to redeem the Series K Preferred Units at a redemption price of $25.00 per unit, plus accrued and unpaid distributions through the date of redemption.  The Series K Preferred Units have no maturity date and will remain outstanding indefinitely unless redeemed. 

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

Redeemable Partnership Units

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

47

Overview – continued

Recently Issued Accounting Literature

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Update No. 2011-04, Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS (“ASU No. 2011-04”).  ASU No. 2011-04 provides a uniform framework for fair value measurements and related disclosures between GAAP and International Financial Reporting Standards (“IFRS”) and requires additional disclosures, including: (i) quantitative information about unobservable inputs used, a description of the valuation processes used, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs, for Level 3 fair value measurements; (ii) fair value of financial instruments not measured at fair value but for which disclosure of fair value is required, based on their levels in the fair value hierarchy; and (iii) transfers between Level 1 and Level 2 of the fair value hierarchy.  The adoption of this update on January 1, 2012 did not have a material impact on our consolidated financial statements, but resulted in additional fair value measurement disclosures.

Critical Accounting Policies

A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the year ended December 31, 2011 in Management’s Discussion and Analysis of Financial Condition. There have been no significant changes to our policies during 2012.

48

 

Overview - continued

Leasing Activity:

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

						New York												Retail Properties								Merchandise Mart
(Square feet in thousands)						Office				Retail				Washington, DC				Strips				Malls				Office						Showroom
Quarter Ended September 30, 2012:
	Total square feet leased							505				9				435				79				23				581						129
	Our share of square feet leased:							480				6				400				79				15				581						129
		Initial rent (1)				$		58.74		$		199.10		$		44.02		$		24.41		$		41.01		$		33.01				$		39.59
		Weighted average lease term (years)						10.9				6.4				9.1				6.5				6.9				14.9						5.9
		Second generation relet space:
			Square feet					359				5				314				63				2				8						129
			Cash basis:
				Initial rent (1)		$		61.99		$		174.86		$		40.57		$		22.06		$		46.75		$		33.88				$		39.59
				Prior escalated rent		$		56.95		$		142.55		$		37.24		$		21.21		$		43.74		$		16.78				$		40.22
				Percentage increase (decrease)				8.9%				22.7%				8.9%				4.0%				6.9%				101.9%						(1.6%)
			GAAP basis:
				Straight-line rent (2)		$		62.27		$		182.86		$		41.41		$		22.33		$		46.75		$		35.53				$		40.03
				Prior straight-line rent		$		59.31		$		142.55		$		36.39		$		20.53		$		42.78		$		14.07				$		36.95
				Percentage increase				5.0%				28.3%				13.8%				8.8%				9.3%				152.5%						8.3%
		Tenant improvements and leasing
			commissions:
			Per square foot			$		75.87		$		37.98		$		50.97		$		2.22		$		32.17		$		97.44				$		7.89
			Per square foot per annum:			$		6.96		$		5.93		$		5.60		$		0.34		$		4.66		$		6.54		(3)		$		1.34
				Percentage of initial rent				11.8%				3.0%				12.7%				1.4%				11.4%				19.8%						3.4%
Nine Months Ended September 30, 2012:
	Total square feet leased						1,492				183				1,630				953				71				593						322
	Our share of square feet leased:						1,317				180				1,496				953				50				593						322
		Initial rent (1)			$		58.20		$		105.39		$		40.30		$		18.04		$		43.92		$		32.97				$		38.20
		Weighted average lease term (years)					9.5				12.0				7.3				8.4				4.7				14.7						5.9
		Second generation relet space:
			Square feet				1,032				152				1,367				721				12				20						322
			Cash basis:
				Initial rent (1)	$		59.78		$		101.56		$		39.25		$		15.66		$		62.80		$		32.24				$		38.20
				Prior escalated rent	$		56.92		$		85.04		$		38.90		$		14.14		$		57.60		$		24.88				$		38.94
				Percentage increase (decrease)			5.0%				19.4%				0.9%				10.7%				9.0%				29.6%						(1.9%)
			GAAP basis:
				Straight-line rent (2)	$		59.46		$		109.81		$		39.15		$		16.29		$		63.75		$		32.38				$		38.49
				Prior straight-line rent	$		56.81		$		86.31		$		37.45		$		13.04		$		55.73		$		23.15				$		35.59
				Percentage increase			4.7%				27.2%				4.5%				24.9%				14.4%				39.9%						8.1%
		Tenant improvements and leasing
			commissions:
			Per square foot		$		56.54		$		28.51		$		37.82		$		8.57		$		9.74		$		96.41				$		11.03
			Per square foot per annum:		$		5.95		$		2.38		$		5.18		$		1.02		$		2.07		$		6.56		(3)		$		1.87
				Percentage of initial rent			10.2%				2.3%				12.9%				5.7%				4.7%				19.9%						4.9%

(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)	Includes $6.50 per square foot per annum of tenant improvements and leasing commissions in connection with a 572,000 square foot lease.

49

Overview – continued

Square footage (in service) and Occupancy as of September 30, 2012:

				Square Feet (in service)
			Number of	Total	Our
(Square feet in thousands)			Properties	Portfolio	Share	Occupancy %
New York:
	Office		30	19,608	16,627	95.8%
	Retail		47	2,041	1,883	95.9%
	Alexander's		6	2,179	706	99.1%
	Hotel Pennsylvania		1	1,400	1,400
	Residential		1	284	142	96.6%
				25,512	20,758	95.9%
Washington, DC			73	19,131	16,521	84.0%(1)
Retail Properties:
	Strip Shopping Centers		113	15,461	14,879	93.6%
	Regional Malls		6	5,226	3,589	92.6%
				20,687	18,468	93.4%
Merchandise Mart:
	Office		2	1,728	1,719	92.4%
	Showroom		2	2,263	2,263	95.5%
				3,991	3,982	94.2%
Other
	555 California Street		3	1,795	1,257	92.6%
	Primarily Warehouses		5	1,096	1,096	53.0%
				2,891	2,353
Total square feet at September 30, 2012				72,212	62,082
(1)		The occupancy rate for office properties excluding residential and other properties is 81.1%.

Square footage (in service) and Occupancy as of December 31, 2011:
				Square Feet (in service)
			Number of	Total	Our
(Square feet in thousands)			properties	Portfolio	Share	Occupancy %
New York:
	Office		30	19,571	16,598	96.2%
	Retail		46	2,239	1,982	95.6%
	Alexander's		6	2,179	706	98.7%
	Hotel Pennsylvania		1	1,400	1,400
				25,389	20,686	96.2%
Washington, DC			73	19,626	17,022	90.6%(1)
Retail Properties:
	Strip Shopping Centers		112	15,417	14,834	93.3%
	Regional Malls		6	5,448	3,800	92.7%
				20,865	18,634	93.1%
Merchandise Mart:
	Office		2	1,220	1,211	90.3%
	Showroom		2	2,715	2,715	89.8%
				3,935	3,926	89.9%
Other
	555 California Street		3	1,795	1,257	93.1%
	Primarily Warehouses		5	1,235	1,235	45.3%
				3,030	2,492
Total square feet at December 31, 2011				72,845	62,760
(1)		The occupancy rate for office properties excluding residential and other properties is 89.3%.

50

Overview - continued

Square footage (in service) and Occupancy as of September 30, 2011:
				Square Feet (in service)
			Number of	Total	Our
(Square feet in thousands)			properties	Portfolio	Share	Occupancy %
New York:
	Office		29	19,236	17,136	95.4%
	Retail		45	2,100	1,907	97.1%
	Alexander's		6	2,192	710	98.1%
	Hotel Pennsylvania		1	1,400	1,400
				24,928	21,153	95.7%
Washington, DC			73	19,699	16,961	91.0%(1)
Retail Properties:
	Strip Shopping Centers		111	15,577	14,994	92.3%
	Regional Malls		6	5,412	3,773	93.3%
				20,989	18,767	92.5%
Merchandise Mart:
	Office		2	1,207	1,198	90.9%
	Showroom		2	2,728	2,728	95.0%
				3,935	3,926	93.8%
Other
	555 California Street		3	1,795	1,257	92.6%
	Primarily Warehouses		5	1,235	1,235	35.2%
				3,030	2,492
Total square feet at September 30, 2011				72,581	63,299
(1)		The occupancy rate for office properties excluding residential and other properties is 89.7%.

51

Overview - continued

Washington, DC Properties Segment

In our Form 10-K for the year ended December 31, 2011, as a result of the Base Realignment and Closure (“BRAC”) statute, we estimated that occupancy will decrease from 90% at year end, to between 82% to 84% in 2012 and that 2012 EBITDA from continuing operations will be lower than 2011 by approximately $55,000,000 to $65,000,000 based on 2,902,000 square feet expiring in 2012, partially offset by leasing over 1,000,000 square feet.

At September 30, 2012, occupancy is at 84.0% and EBITDA from continuing operations for the three and nine months ended September 30, 2012 is lower by approximately $13,200,000 and $39,000,000, respectively, than it was for the three and nine months ended September 30, 2011.  Based on leasing activity as of September 30, 2012, we currently estimate that 2012 EBITDA from continuing operations will be lower than 2011 by approximately $50,000,000 to $60,000,000.

Of the 2,395,000 square feet subject to BRAC, 348,000 square feet has been taken out of service for redevelopment and 523,000 square feet has been leased or is pending.  The table below summarizes the status of the BRAC space as of September 30, 2012.

			Rent Per		Square Feet
			Square Foot		Total	Crystal City	Skyline	Rosslyn
Resolved:
	Relet as of September 30, 2012		$	38.45	432,000	344,000	88,000	-
	Leases pending			39.49	91,000	38,000	-	53,000
	Taken out of service for redevelopment				348,000	348,000	-	-
					871,000	730,000	88,000	53,000
To Be Resolved:
	Already vacated			35.95	1,024,000	541,000	473,000	10,000
	Expiring in:
		2013		37.39	126,000	-	43,000	83,000
		2014		32.32	304,000	103,000	201,000	-
		2015		42.23	70,000	65,000	5,000	-
					1,524,000	709,000	722,000	93,000
Total square feet subject to BRAC					2,395,000	1,439,000	810,000	146,000

In the first quarter of 2012, we notified the lender that due to scheduled lease expirations resulting primarily from the effects of the BRAC statute, the Skyline properties had a 26% vacancy rate, which is expected to increase and, accordingly, cash flows are expected to decrease.  As a result, our subsidiary that owns these properties does not have and is not expected to have for some time sufficient funds to pay all of its current obligations, including interest payments to the lender.  Based on the projected vacancy and the significant amount of capital required to re-tenant these properties, at our request, the mortgage loan was transferred to the special servicer.  In the second quarter of 2012, we entered into a forbearance agreement with the special servicer to apply cash flows of the property, before interest on the loan, towards the repayment of $4,000,000 of tenant improvements and leasing commissions we recently funded in connection with a new lease at these properties.  In the third quarter, we were repaid our capital in full.  The forbearance agreement (amended September 1, 2012, to extend its maturity) provides that through the December 1, 2012 payment date, any interest shortfall would be deferred and added to the principal balance of the loan and not give rise to a loan default. As of September 30, 2012 the deferred interest amounted to $16,711,000.  We continue to negotiate with the special servicer to restructure the terms of the loan.

52

Net Income and EBITDA by Segment for the Three Months Ended September 30, 2012 and 2011

Effective January 1, 2012, as a result of certain organizational and operational changes, we redefined the New York business segment to encompass all of our Manhattan assets by including the 1.0 million square feet in 21 freestanding Manhattan street retail assets (formerly in our Retail segment), and the Hotel Pennsylvania and our interest in Alexander’s, Inc. (formerly in our Other segment).  Accordingly, we have reclassified the prior period segment financial results to conform to the current year presentation.  See note (4) on page 55 for the elements of the New York segment’s EBITDA.   

Below is a summary of net income and a reconciliation of net income to EBITDA⁽¹⁾ by segment for the three months ended September 30, 2012 and 2011.

(Amounts in thousands)		For the Three Months Ended September 30, 2012
											Retail			Merchandise
			Total			New York			Washington, DC		Properties			Mart		Toys		Other
Property rentals			$	492,989		$	255,703		$	115,641	$	67,919		$	31,625	$	-	$	22,101
Straight-line rent adjustments				11,910			8,140			1,267		2,392			(171)		-		282
Amortization of acquired below-
	market leases, net			13,242			8,458			506		2,868			-		-		1,410
Total rentals				518,141			272,301			117,414		73,179			31,454		-		23,793
Tenant expense reimbursements				80,497			45,164			9,601		21,069			1,201		-		3,462
Cleveland Medical Mart development
	project			72,651			-			-		-			72,651		-		-
Fee and other income:
	BMS cleaning fees			16,945			23,918			-		-			-		-		(6,973)
	Signage revenue			4,783			4,783			-		-			-		-		-
	Management and leasing fees			7,234			1,816			4,615		736			142		-		(75)
	Lease termination fees			282			78			128		73			3		-		-
	Other income			10,444			1,116			8,288		632			481		-		(73)
Total revenues				710,977			349,176			140,046		95,689			105,932		-		20,134
Operating expenses				264,487			159,048			50,305		33,519			19,130		-		2,485
Depreciation and amortization				124,335			57,967			29,825		18,202			7,439		-		10,902
General and administrative				48,742			6,739			6,668		6,103			4,120		-		25,112
Cleveland Medical Mart development
	project			70,431			-			-		-			70,431		-		-
Acquisition related costs and
	tenant buy-outs			1,070			-			-		-			-		-		1,070
Total expenses				509,065			223,754			86,798		57,824			101,120		-		39,569
Operating income (loss)				201,912			125,422			53,248		37,865			4,812		-		(19,435)
(Loss) applicable to Toys				(8,585)			-			-		-			-		(8,585)		-
Income (loss) from partially owned
	entities			21,268			9,309			(2,182)		342			219		-		13,580
Income from Real Estate Fund				5,509			-			-		-			-		-		5,509
Interest and other investment
	income, net			10,523			1,057			24		4			-		-		9,438
Interest and debt expense				(120,770)			(36,817)			(28,311)		(14,732)			(7,906)		-		(33,004)
Income (loss) before income taxes				109,857			98,971			22,779		23,479			(2,875)		(8,585)		(23,912)
Income tax (expense) benefit				(3,015)			(815)			25		-			2,166		-		(4,391)
Income (loss) from continuing
	operations			106,842			98,156			22,804		23,479			(709)		(8,585)		(28,303)
Income from discontinued
	operations			157,314			-			126,437		11,085			19,792		-		-
Net income (loss)				264,156			98,156			149,241		34,564			19,083		(8,585)		(28,303)
Less net (income) loss attributable to
	noncontrolling interests in
	consolidated subsidiaries			(6,610)			(2,092)			-		97			-		-		(4,615)
Net income (loss) attributable to
	Vornado Realty L.P.			257,546			96,064			149,241		34,661			19,083		(8,585)		(32,918)
Interest and debt expense(2)				183,241			46,823			33,280		17,499			8,916		34,526		42,197
Depreciation and amortization(2)				177,593			62,905			35,071		21,345			7,662		33,160		17,450
Income tax expense (benefit)(2)				3,850			871			(25)		-			9,281		(11,118)		4,841
EBITDA(1)				622,230			206,663			217,567		73,505			44,942		47,983		31,570
Less EBITDA from discontinued
	operations			(176,110)	(3)		-			(128,745)		(15,160)			(32,205)		-		-
EBITDA from continuing operations			$	446,120		$	206,663	(4)	$	88,822	$	58,345	(5)	$	12,737	$	47,983	$	31,570	(6)

____________________

See notes on page 55.

53

Net Income and EBITDA by Segment for the Three Months Ended September 30, 2012 and 2011 - continued

(Amounts in thousands)		For the Three Months Ended September 30, 2011
											Retail			Merchandise
			Total			New York			Washington, DC		Properties			Mart		Toys		Other
Property rentals			$	507,258		$	247,794		$	133,659	$	67,616		$	35,586	$	-	$	22,603
Straight-line rent adjustments				7,087			6,445			(1,308)		1,911			(501)		-		540
Amortization of acquired below-
	market leases, net			15,847			9,833			557		4,346			-		-		1,111
Total rentals				530,192			264,072			132,908		73,873			35,085		-		24,254
Tenant expense reimbursements				85,757			49,125			9,640		23,059			1,681		-		2,252
Cleveland Medical Mart development
	project			35,135			-			-		-			35,135		-		-
Fee and other income:
	BMS cleaning fees			15,647			22,571			-		-			-		-		(6,924)
	Signage revenue			5,085			5,085			-		-			-		-		-
	Management and leasing fees			4,773			1,022			2,670		755			45		-		281
	Lease termination fees			4,803			3,540			1,002		261			-		-		-
	Other income			6,468			1,049			5,039		229			543		-		(392)
Total revenues				687,860			346,464			151,259		98,177			72,489		-		19,471
Operating expenses				262,837			152,880			49,013		37,415			21,289		-		2,240
Depreciation and amortization				126,935			55,685			32,346		20,414			7,642		-		10,848
General and administrative				46,121			6,452			6,502		6,088			9,206		-		17,873
Cleveland Medical Mart development
	project			33,419			-			-		-			33,419		-		-
Acquisition related costs and
	tenant buy-outs			2,288			1,558			-		35			-		-		695
Total expenses				471,600			216,575			87,861		63,952			71,556		-		31,656
Operating income (loss)				216,260			129,889			63,398		34,225			933		-		(12,185)
(Loss) applicable to Toys				(9,304)			-			-		-			-		(9,304)		-
Income (loss) from partially owned
	entities			13,140			1,203			(1,356)		575			38		-		12,680
Income from Real Estate Fund				5,353			-			-		-			-		-		5,353
Interest and other investment
	(loss) income, net			(30,011)			1,047			39		1			1		-		(31,099)
Interest and debt expense				(131,998)			(39,088)			(28,928)		(17,639)			(7,866)		-		(38,477)
Net gain on disposition of wholly
	owned and partially owned assets			1,298			-			-		-			-		-		1,298
Income (loss) before income taxes				64,738			93,051			33,153		17,162			(6,894)		(9,304)		(62,430)
Income tax expense				(6,959)			(678)			(881)		-			(784)		-		(4,616)
Income (loss) from continuing
	operations			57,779			92,373			32,272		17,162			(7,678)		(9,304)		(67,046)
Income (loss) from discontinued
	operations			8,444			165			1,622		6,272			483		-		(98)
Net income (loss)				66,223			92,538			33,894		23,434			(7,195)		(9,304)		(67,144)
Less net (income) loss attributable to
	noncontrolling interests in
	consolidated subsidiaries			(5,636)			(2,219)			-		110			-		-		(3,527)
Net income (loss) attributable to
	Vornado Realty L.P.			60,587			90,319			33,894		23,544			(7,195)		(9,304)		(70,671)
Interest and debt expense(2)				197,864			46,691			33,703		20,678			9,523		38,018		49,251
Depreciation and amortization(2)				193,394			65,539			38,085		24,117			12,230		34,293		19,130
Income tax (benefit) expense(2)				(7,350)			734			925		-			890		(15,135)		5,236
EBITDA(1)				444,495			203,283			106,607		68,339			15,448		47,872		2,946
Less EBITDA from discontinued
	operations			(22,597)	(3)		(276)			(4,568)		(11,288)			(6,563)		-		98
EBITDA from continuing operations			$	421,898		$	203,007	(4)	$	102,039	$	57,051	(5)	$	8,885	$	47,872	$	3,044	(6)

__________________________

See notes on the following page.

54

Net Income and EBITDA by Segment for the Three Months Ended September 30, 2012 and 2011 - continued

	Notes to preceding tabular information:
(1)	EBITDA represents "Earnings Before Interest, Taxes, Depreciation and Amortization." We consider EBITDA a supplemental measure for making decisions and assessing the unlevered performance of our segments as it relates to the total return on assets as opposed to the levered return on equity. As properties are bought and sold based on a multiple of EBITDA, we utilize this measure to make investment decisions as well as to compare the performance of our assets to that of our peers. EBITDA should not be considered a substitute for net income. EBITDA may not be comparable to similarly titled measures employed by other companies.
(2)	Interest and debt expense, depreciation and amortization and income tax (benefit) expense in the reconciliation of net income (loss) to EBITDA includes our share of these items from partially owned entities.
(3)	The following table reconciles income from discontinued operations to EBITDA from discontinued operations.
			For the Three Months Ended September 30,
	(Amounts in thousands)		2012		2011
	Income from discontinued operations		$	157,314	$	8,444
	Interest and debt expense			3,799		4,732
	Depreciation and amortization			3,560		9,236
	Income taxes			11,437		185
		EBITDA from discontinued operations	$	176,110	$	22,597
(4)	The elements of "New York" EBITDA from continuing operations are summarized below.
			For the Three Months Ended September 30,
	(Amounts in thousands)		2012		2011
	Office		$	139,894	$	137,295
	Retail			46,165		43,109
	Alexander's			13,080		12,830
	Hotel Pennsylvania			7,524		9,773
		Total New York	$	206,663	$	203,007
(5)	The elements of "Retail Properties" EBITDA from continuing operations are summarized below.
			For the Three Months Ended September 30,
	(Amounts in thousands)		2012		2011
	Strip shopping centers		$	42,468	$	41,282
	Regional malls			15,877		15,769
		Total retail properties	$	58,345	$	57,051

55

Net Income and EBITDA by Segment for the Three Months Ended September 30, 2012 and 2011 - continued

	Notes to preceding tabular information - continued:
(6)	The elements of "other" EBITDA from continuing operations are summarized below.
				For the Three Months Ended September 30,
	(Amounts in thousands)			2012		2011
	Our share of Real Estate Fund:
		Income before net realized/unrealized gains		$	1,874	$	743
		Net unrealized gains			1,389		1,410
		Carried interest			(2,541)		(475)
	Total				722		1,678
	LNR				18,773		15,769
	555 California Street				10,714		11,220
	Lexington				7,859		8,424
	Other investments				11,121		10,173
					49,189		47,264
	Corporate general and administrative expenses(a)				(22,811)		(21,585)
	Investment income and other, net(a)				5,033		12,541
	Fee income from Alexander's				1,821		1,758
	Verde Realty impairment loss				(4,936)		-
	Income (loss) from the mark-to-market of J.C. Penney derivative position				4,344		(37,537)
	Acquisition costs				(1,070)		(695)
	Net gain on sale of residential condominiums				-		1,298
				$	31,570	$	3,044
	(a)		The amounts in these captions (for this table only) exclude the mark-to-market of our deferred compensation plan assets and offsetting liability.

56

Net Income and EBITDA by Segment for the Three Months Ended September 30, 2012 and 2011 - continued

EBITDA by Region

Below is a summary of the percentages of EBITDA by geographic region (excluding discontinued operations and other gains and losses that affect comparability), from our New York, Washington, DC, Retail Properties and Merchandise Mart segments.

		For the Three Months
		Ended September 30,
		2012	2011
Region:
	New York City metropolitan area	66%	64%
	Washington, DC / Northern Virginia metropolitan area	25%	28%
	Chicago	4%	3%
	California	2%	2%
	Puerto Rico	2%	2%
	Other geographies	1%	1%
		100%	100%

57

Results of Operations – Three Months Ended September 30, 2012 Compared to September 30, 2011

Revenues

Our revenues, which consist of property rentals, tenant expense reimbursements, hotel revenues, trade shows revenues, amortization of acquired below-market leases, net of above-market leases and fee income, were $710,977,000 in the three months ended September 30, 2012, compared to $687,860,000 in the prior year’s quarter, an increase of $23,117,000.  Below are the details of the increase (decrease) by segment:

(Amounts in thousands)
										Retail		Merchandise
Increase (decrease) due to:			Total			New York		Washington, DC		Properties		Mart			Other
Property rentals:
	Acquisitions		$	3,910		$	2,507	$	1,403	$	-	$	-		$	-
	Development (out of service)			(8,571)			(1,368)		(6,255)		(948)		-			-
	Hotel Pennsylvania			(1,916)			(1,916)		-		-		-			-
	Trade Shows			(1,509)			-		-		-		(1,509)			-
	Amortization of acquired below-market
		leases, net		(2,605)			(1,375)		(51)		(1,478)		-			299
	Leasing activity (see page 49)			(1,360)			10,381		(10,591)		1,732		(2,122)			(760)
				(12,051)			8,229		(15,494)		(694)		(3,631)			(461)
Tenant expense reimbursements:
	Acquisitions/development			(6,604)			(2,926)		(588)		(3,090)		-			-
	Operations			1,344			(1,035)		549		1,100		(480)			1,210
				(5,260)			(3,961)		(39)		(1,990)		(480)			1,210
Cleveland Medical Mart development
	project			37,516	(1)		-		-		-		37,516	(1)		-
Fee and other income:
	BMS cleaning fees			1,298			1,347		-		-		-			(49)
	Signage revenue			(302)			(302)		-		-		-			-
	Management and leasing fees			2,461			794		1,945		(19)		97			(356)
	Lease termination fees			(4,521)			(3,462)		(874)		(188)		3			-
	Other income			3,976			67		3,249		403		(62)			319
				2,912			(1,556)		4,320		196		38			(86)
Total increase (decrease) in revenues			$	23,117		$	2,712	$	(11,213)	$	(2,488)	$	33,443		$	663
(1)		This increase in income is offset by an increase in development costs expensed in the quarter. See note (3) on page 59.

58

Results of Operations – Three Months Ended September 30, 2012 Compared to September 30, 2011 - continued

Expenses

Our expenses, which consist primarily of operating, depreciation and amortization and general and administrative expenses, were $509,065,000 in the three months ended September 30, 2012, compared to $471,600,000 in the prior year’s quarter, an increase of $37,465,000.  Below are the details of the increase (decrease) by segment:

(Amounts in thousands)
										Retail		Merchandise
Increase (decrease) due to:			Total			New York		Washington, DC		Properties		Mart			Other
Operating:
	Acquisitions		$	3,329		$	2,447	$	882	$	-	$	-		$	-
	Development (out of service)			(4,117)			(492)		(1,414)		(2,211)		-			-
	Non-reimbursable expenses, including
		bad debt reserves		(4,167)			(2,183)		316		(996)		(1,304)			-
	Hotel Pennsylvania			307			307		-		-		-			-
	Trade Shows			(119)			-		-		-		(119)			-
	BMS expenses			1,295			1,344		-		-		-			(49)
	Operations			5,122			4,745		1,508		(689)		(736)			294
				1,650			6,168		1,292		(3,896)		(2,159)			245
Depreciation and amortization:
	Acquisitions/development			(2,415)			(183)		(687)		(1,545)		-			-
	Operations			(185)			2,465		(1,834)		(667)		(203)			54
				(2,600)			2,282		(2,521)		(2,212)		(203)			54
General and administrative:
	Mark-to-market of deferred compensation
		plan liability (1)		6,359			-		-		-		-			6,359
	Operations			(3,738)			287		166		15		(5,086)	(2)		880
				2,621			287		166		15		(5,086)			7,239
Cleveland Medical Mart development
	project			37,012	(3)		-		-		-		37,012	(3)		-
Acquisition related costs and
	tenant buy-outs			(1,218)			(1,558)		-		(35)		-			375
Total increase (decrease) in expenses			$	37,465		$	7,179	$	(1,063)	$	(6,128)	$	29,564		$	7,913
(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)		Primarily from lower payroll costs due to a reduction in workforce.
(3)		This increase in expense is offset by the increase in development revenue in the quarter. See note (1) on page 58.

59

Results of Operations – Three Months Ended September 30, 2012 Compared to September 30, 2011 - continued

Loss Applicable to Toys

In the three months ended September 30, 2012, we recognized a net loss of $8,585,000 from our investment in Toys, comprised of $10,956,000 for our 32.5% share of Toys’ net loss ($22,074,000 before our share of Toys’ income tax benefit) and $2,371,000 of management fees.  In the three months ended September 30, 2011, we recognized a net loss of $9,304,000 from our investment in Toys, comprised of $11,638,000 for our 32.7% share of Toys’ net loss ($26,773,000 before our share of Toys’ income tax benefit) and $2,334,000 of management fees.

Income from Partially Owned Entities

Summarized below are the components of income (loss) from partially owned entities for the three months ended September 30, 2012 and 2011.

			Percentage	For the Three Months Ended
			Ownership at	September 30,
(Amounts in thousands)			September 30, 2012	2012		2011
Equity in Net Income (Loss):
Alexander's			32.4%	$	8,958	$	8,195
Lexington			11.8%		(323)		(617)
LNR			26.2%		16,600		13,656
India real estate ventures			4.0%-36.5%		82		(690)
Partially owned office buildings:
	Warner Building		55.0%		(2,839)		(2,783)
	666 Fifth Avenue Office Condominium (acquired in
		December 2011)	49.5%		1,744		-
	280 Park Avenue		49.5%		(1,717)		(6,461)
	330 Madison Avenue		25.0%		1,224		315
	1101 17th Street		55.0%		591		671
	One Park Avenue		30.3%		256		124
	Rosslyn Plaza		43.7%-50.4%		(204)		(60)
	West 57th Street Properties		50.0%		167		298
	Fairfax Square		20.0%		(33)		(22)
	Other partially owned office buildings		Various		505		1,079
Other investments:
	Verde Realty Operating Partnership (1)		8.3%		(5,388)		2,413
	Independence Plaza Partnership (mezzanine position)		51.0%		1,828		1,811
	Monmouth Mall		50.0%		347		631
	Downtown Crossing, Boston		50.0%		(38)		(408)
	Other investments		Various		(492)		(5,012)
				$	21,268	$	13,140
(1)		In the third quarter of 2012, we converted our 2,015,151 units in Verde Realty Operating Partnership into 2,015,151 common shares of Verde Realty ("Verde"). Pursuant to a merger agreement which was approved by Verde shareholders on September 14, 2012, we accepted an offer to receive cash of $13.85 per share, or $27,910 in the aggregate; accordingly, we recognized a $4,936 impairment loss in the third quarter.

60

Results of Operations – Three Months Ended September 30, 2012 Compared to September 30, 2011 - continued

Income from Real Estate Fund

Below are the components of the income from our Real Estate Fund for the three months ended September 30, 2012 and 2011.

(Amounts in thousands)		For the Three Months Ended September 30,
		2012		2011
Operating loss		$	(49)	$	(286)
Net unrealized gains			5,558		5,639
Income from Real Estate Fund			5,509		5,353
Less (income) attributable to noncontrolling interests			(4,787)		(3,675)
Income from Real Estate Fund attributable to Vornado (1)		$	722	$	1,678
___________________________________
(1)	Excludes management, leasing and development fees of $681 and $638 for the three months ended September 30, 2012 and 2011, 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 (comprised primarily of the mark-to-market of derivative positions in marketable equity securities, interest income on mezzanine loans receivable and other interest and dividend income) was income of $10,523,000 in the three months ended September 30, 2012, compared to a loss of $30,011,000 in the prior year’s quarter, an increase of $40,534,000. This increase resulted from:

(Amounts in thousands)
J.C. Penney derivative position ($4,344 mark-to-market gain in the current year's quarter, compared to
	$37,537 mark-to-market loss in the prior year's quarter)	$	41,881
Dividends and interest on marketable securities in the prior year's quarter			(7,605)
Increase in the value of investments in our deferred compensation plan (offset by a corresponding
	increase in the liability for plan assets in general and administrative expenses)		6,359
Other, net			(101)
		$	40,534

Interest and Debt Expense

Interest and debt expense was $120,770,000 in the three months ended September 30, 2012, compared to $131,998,000 in the prior year’s quarter, a decrease of $11,228,000.  This decrease was primarily due to (i) $9,082,000 from the redemption of exchangeable senior debentures and repayment of convertible senior debentures due to Vornado in April 2012 and November 2011, respectively, (ii) $7,523,000 of capitalized interest in the current period, and (iii) $3,212,000 from the refinancing of 350 Park Avenue in January 2012 (of which $1,860,000 was due to a lower rate and $1,352,000 was due to a lower outstanding loan balance), partially offset by (iv) $5,045,000 from the issuance of $400,000,000 of senior unsecured notes in November 2011, and (v) $1,849,000 from the refinancing of 100 West 33^rd Street in March 2012.

Net Gain on Disposition of Wholly Owned and Partially Owned Assets

Net gain on disposition of wholly owned and partially owned assets was $1,298,000 in the three months ended September 30, 2011 and resulted primarily from the sale of residential condominiums.

Income Tax Expense

Income tax expense was $3,015,000 in the three months ended September 30, 2012, compared to $6,959,000 in the prior year’s quarter, a decrease of $3,944,000.  This decrease resulted primarily from the true-up of estimated tax liabilities of our taxable REIT subsidiaries.

61

Results of Operations – Three Months Ended September 30, 2012 Compared to September 30, 2011 - continued

Income from Discontinued Operations

We have reclassified the revenues and expenses of the properties that were sold and that are currently held for sale to “income from discontinued operations” and the related assets and liabilities to “assets related to discontinued operations” and “liabilities related to discontinued operations” for all the periods presented in the accompanying financial statements.  The table below sets forth the combined results of assets related to discontinued operations for the three months ended September 30, 2012 and 2011. 

		For the Three Months Ended September 30,
(Amounts in thousands)		2012		2011
Total revenues		$	27,651	$	49,656
Total expenses			21,082		41,212
			6,569		8,444
Net gains on sale of real estate			131,088		-
Gain on sale of Canadian Trade Shows, net of $11,448 of
	income taxes		19,657		-
Income from discontinued operations		$	157,314	$	8,444

Net Income Attributable to Noncontrolling Interests in Consolidated Subsidiaries

Net income attributable to noncontrolling interests in consolidated subsidiaries was $6,610,000 in the three months ended September 30, 2012, compared to $5,636,000 in the prior year’s quarter, an increase of $974,000.  This increase resulted primarily from higher income allocated to the noncontrolling interests of our Real Estate Fund.

Preferred Unit Distributions

Preferred unit distributions were $22,016,000 in the three months ended September 30, 2012, compared to $21,655,000 in the prior year’s quarter, an increase of $361,000.  This increase resulted from the issuance of $300,000,000 of 5.70% Series K cumulative redeemable preferred units in July 2012, partially offset by redemption of 7.0% Series D-10 and 6.75% Series D-14 cumulative redeemable preferred units in July 2012 and the redemption of $75,000,000 of 7.0% Series E cumulative redeemable preferred units in August 2012.

Discount on Preferred Unit Redemption

In the three months ended September 30, 2012, we recognized a $11,700,000 discount from the redemption of all of the 7.0% Series D-10 and 6.75% Series D-14 cumulative redeemable preferred units, compared to a $5,000,000 discount in the prior year’s quarter from the redemption of Series D-11 cumulative redeemable preferred units. 

62

Results of Operations – Three Months Ended September 30, 2012 Compared to September 30, 2011 - 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 the same store EBITDA results on a GAAP and cash basis for each of our segments for the three months ended September 30, 2012, compared to the three months ended September 30, 2011.

							Retail		Merchandise
(Amounts in thousands)			New York		Washington, DC		Properties		Mart
EBITDA for the three months ended September 30, 2012			$	206,663	$	217,567	$	73,505	$	44,942
	Add-back: non-property level overhead
		expenses included above		6,739		6,668		6,103		4,120
	Less: EBITDA from acquisitions, dispositions
		and other non-operating income or expenses		(13,236)		(128,541)		(17,346)		(32,205)
GAAP basis same store EBITDA for the three months
		ended September 30, 2012		200,166		95,694		62,262		16,857
	Less: Adjustments for straight-line rents,
		amortization of below-market leases, net, and other
		non-cash adjustments		(20,611)		(1,943)		(3,830)		171
Cash basis same store EBITDA for the three months
		ended September 30, 2012	$	179,555	$	93,751	$	58,432	$	17,028
EBITDA for the three months ended September 30, 2011			$	203,283	$	106,607	$	68,339	$	15,448
	Add-back: non-property level overhead
		expenses included above		6,452		6,502		6,088		9,206
	Less: EBITDA from acquisitions, dispositions
		and other non-operating income or expenses		(10,107)		(10,310)		(12,250)		(7,648)
GAAP basis same store EBITDA for the three months
		ended September 30, 2011		199,628		102,799		62,177		17,006
	Less: Adjustments for straight-line rents,
		amortization of below-market leases, net, and other
		non-cash adjustments		(21,353)		454		(5,163)		501
Cash basis same store EBITDA for the three months
		ended September 30, 2011	$	178,275	$	103,253	$	57,014	$	17,507
Increase (decrease) in GAAP basis same store EBITDA for
		the three months ended September 30, 2012 over the
		three months ended September 30, 2011	$	538	$	(7,105)	$	85	$	(149)
Increase (decrease) in Cash basis same store EBITDA for
		the three months ended September 30, 2012 over the
		three months ended September 30, 2011	$	1,280	$	(9,502)	$	1,418	$	(479)
% increase (decrease) in GAAP basis same store EBITDA				0.3%		(6.9%)		0.1%		(0.9%)
% increase (decrease) in Cash basis same store EBITDA				0.7%		(9.2%)		2.5%		(2.7%)

63

Net Income and EBITDA by Segment for the Nine Months Ended September 30, 2012 and 2011

Effective January 1, 2012, as a result of certain organizational and operational changes, we redefined the New York business segment to encompass all of our Manhattan assets by including the 1.0 million square feet in 21 freestanding Manhattan street retail assets (formerly in our Retail segment), and the Hotel Pennsylvania and our interest in Alexander’s, Inc. (formerly in our Other segment).  Accordingly, we have reclassified the prior period segment financial results to conform to the current year presentation.  See note (4) on page 66 for the elements of the New York segment’s EBITDA.   

Below is a summary of net income and a reconciliation of net income to EBITDA⁽¹⁾ by segment for the nine months ended September 30, 2012 and 2011.

(Amounts in thousands)		For the Nine Months Ended September 30, 2012
											Retail			Merchandise
			Total			New York			Washington, DC		Properties			Mart		Toys		Other
Property rentals			$	1,469,751		$	735,587		$	356,459	$	203,237		$	107,687	$	-	$	66,781
Straight-line rent adjustments				55,189			42,334			4,382		7,285			580		-		608
Amortization of acquired below-
	market leases, net			39,228			23,776			1,537		9,648			-		-		4,267
Total rentals				1,564,168			801,697			362,378		220,170			108,267		-		71,656
Tenant expense reimbursements				224,287			118,861			30,471		64,915			3,702		-		6,338
Cleveland Medical Mart development
	project			184,014			-			-		-			184,014		-		-
Fee and other income:
	BMS cleaning fees			49,437			70,476			-		-			-		-		(21,039)
	Signage revenue			14,252			14,252			-		-			-		-		-
	Management and leasing fees			16,534			4,037			9,782		2,640			188		-		(113)
	Lease termination fees			1,172			334			256		74			508		-		-
	Other income			24,623			3,449			18,846		1,361			1,221		-		(254)
Total revenues				2,078,487			1,013,106			421,733		289,160			297,900		-		56,588
Operating expenses				764,018			447,910			143,923		104,788			59,929		-		7,468
Depreciation and amortization				386,974			168,391			107,395		56,830			22,324		-		32,034
General and administrative				151,142			21,980			19,849		18,803			14,877		-		75,633
Cleveland Medical Mart development
	project			177,127			-			-		-			177,127		-		-
Acquisition related costs and
	tenant buy-outs			4,314			-			-		-			-		-		4,314
Total expenses				1,483,575			638,281			271,167		180,421			274,257		-		119,449
Operating income (loss)				594,912			374,825			150,566		108,739			23,643		-		(62,861)
Income applicable to Toys				88,696			-			-		-			-		88,696		-
Income (loss) from partially owned
	entities			53,491			20,345			(4,571)		1,040			560		-		36,117
Income from Real Estate Fund				37,572			-			-		-			-		-		37,572
Interest and other investment
	(loss) income, net			(22,984)			3,166			97		24			-		-		(26,271)
Interest and debt expense				(377,600)			(109,365)			(85,408)		(49,705)			(23,467)		-		(109,655)
Net gain on disposition of wholly
	owned and partially owned assets			4,856			-			-		-			-		-		4,856
Income (loss) before income taxes				378,943			288,971			60,684		60,098			736		88,696		(120,242)
Income tax (expense) benefit				(17,319)			(2,480)			(1,277)		-			343		-		(13,905)
Income (loss) from continuing
	operations			361,624			286,491			59,407		60,098			1,079		88,696		(134,147)
Income (loss) from discontinued
	operations			241,024			(640)			130,979		36,404			67,291		-		6,990
Net income (loss)				602,648			285,851			190,386		96,502			68,370		88,696		(127,157)
Less net (income) loss attributable to
	noncontrolling interests in
	consolidated subsidiaries			(30,928)			(7,266)			-		308			-		-		(23,970)
Net income (loss) attributable to
	Vornado Realty L.P.			571,720			278,585			190,386		96,810			68,370		88,696		(151,127)
Interest and debt expense(2)				567,265			140,294			99,486		58,039			26,492		103,388		139,566
Depreciation and amortization(2)				552,794			188,480			122,987		65,751			26,966		100,371		48,239
Income tax expense(2)				50,076			2,677			1,532		-			11,658		17,982		16,227
EBITDA(1)				1,741,855			610,036			414,391		220,600			133,486		310,437		52,905
Less EBITDA from discontinued
	operations			(279,464)	(3)		640			(138,707)		(48,251)			(86,156)		-		(6,990)
EBITDA from continuing operations			$	1,462,391		$	610,676	(4)	$	275,684	$	172,349	(5)	$	47,330	$	310,437	$	45,915	(6)

____________________

See notes on page 66.

64

Net Income and EBITDA by Segment for the Nine Months Ended September 30, 2012 and 2011 - continued

(Amounts in thousands)		For the Nine Months Ended September 30, 2011
										Retail			Merchandise
		Total			New York			Washington, DC		Properties			Mart		Toys		Other
Property rentals		$	1,517,994		$	727,886		$	400,909	$	202,701		$	118,540	$	-	$	67,958
Straight-line rent adjustments			26,192			22,636			(2,138)		4,666			(1,261)		-		2,289
Amortization of acquired below-
	market leases, net		48,681			33,173			1,597		10,552			-		-		3,359
Total rentals			1,592,867			783,695			400,368		217,919			117,279		-		73,606
Tenant expense reimbursements			237,945			125,921			27,242		71,926			4,988		-		7,868
Cleveland Medical Mart development
	project		108,203			-			-		-			108,203		-		-
Fee and other income:
	BMS cleaning fees		46,479			66,913			-		-			-		-		(20,434)
	Signage revenue		14,746			14,746			-		-			-		-		-
	Management and leasing fees		16,660			3,560			9,629		3,068			348		-		55
	Lease termination fees		12,478			9,176			3,013		289			-		-		-
	Other income		21,450			3,391			15,316		1,172			1,791		-		(220)
Total revenues			2,050,828			1,007,402			455,568		294,374			232,609		-		60,875
Operating expenses			773,331			435,519			142,211		113,167			71,210		-		11,224
Depreciation and amortization			373,380			165,031			96,940		57,472			21,594		-		32,343
General and administrative			154,359			20,409			19,496		20,046			22,659		-		71,749
Cleveland Medical Mart development
	project		101,637			-			-		-			101,637		-		-
Acquisition related costs and
	tenant buy-outs		22,455			16,558			-		35			3,040		-		2,822
Total expenses			1,425,162			637,517			258,647		190,720			220,140		-		118,138
Operating income (loss)			625,666			369,885			196,921		103,654			12,469		-		(57,263)
Income applicable to Toys			80,794			-			-		-			-		80,794		-
Income (loss) from partially owned
	entities		55,035			13,320			(6,038)		1,221			292		-		46,240
Income from Real Estate Fund			25,491			-			-		-			-		-		25,491
Interest and other investment
	income, net		95,086			3,169			119		1			1		-		91,796
Interest and debt expense			(394,192)			(114,381)			(85,971)		(53,024)			(23,342)		-		(117,474)
Net gain on disposition of wholly
	owned and partially owned assets		7,975			-			-		-			-		-		7,975
Income (loss) before income taxes			495,855			271,993			105,031		51,852			(10,580)		80,794		(3,235)
Income tax expense			(18,548)			(1,637)			(2,055)		(5)			(1,523)		-		(13,328)
Income (loss) from continuing
	operations		477,307			270,356			102,976		51,847			(12,103)		80,794		(16,563)
Income (loss) from discontinued
	operations		165,706			398			51,274		26,010			88,365		-		(341)
Net income (loss)			643,013			270,754			154,250		77,857			76,262		80,794		(16,904)
Less net (income) loss attributable to
	noncontrolling interests in
	consolidated subsidiaries		(20,643)			(6,815)			-		196			-		-		(14,024)
Net income (loss) attributable to
	Vornado Realty L.P.		622,370			263,939			154,250		78,053			76,262		80,794		(30,928)
Interest and debt expense(2)			599,668			132,248			100,017		62,144			32,025		121,546		151,688
Depreciation and amortization(2)			561,738			181,611			118,290		68,294			34,632		101,862		57,049
Income tax expense(2)			42,135			1,644			2,380		5			2,211		29,914		5,981
EBITDA(1)			1,825,911			579,442			374,937		208,496			145,130		334,116		183,790
Less EBITDA from discontinued
	operations		(211,539)	(3)		(710)			(60,220)		(40,988)			(109,962)		-		341
EBITDA from continuing operations		$	1,614,372		$	578,732	(4)	$	314,717	$	167,508	(5)	$	35,168	$	334,116	$	184,131	(6)

___________________________

See notes on the following page.

65

Net Income and EBITDA by Segment for the Nine Months Ended September 30, 2012 and 2011 - continued

	Notes to preceding tabular information:
(1)	EBITDA represents "Earnings Before Interest, Taxes, Depreciation and Amortization." We consider EBITDA a supplemental measure for making decisions and assessing the unlevered performance of our segments as it relates to the total return on assets as opposed to the levered return on equity. As properties are bought and sold based on a multiple of EBITDA, we utilize this measure to make investment decisions as well as to compare the performance of our assets to that of our peers. EBITDA should not be considered a substitute for net income. EBITDA may not be comparable to similarly titled measures employed by other companies.
(2)	Interest and debt expense, depreciation and amortization and income tax (benefit) expense in the reconciliation of net income (loss) to EBITDA includes our share of these items from partially owned entities.
(3)	The following table reconciles income from discontinued operations to EBITDA from discontinued operations.
				For the Nine Months Ended September 30,
	(Amounts in thousands)			2012		2011
	Income from discontinued operations			$	241,024	$	165,706
	Interest and debt expense				11,415		17,917
	Depreciation and amortization				14,818		26,916
	Income taxes				12,207		1,000
		EBITDA from discontinued operations		$	279,464	$	211,539
(4)	The elements of "New York" EBITDA from continuing operations are summarized below.
				For the Nine Months Ended September 30,
	(Amounts in thousands)			2012		2011
	Office			$	419,054	$	399,182
	Retail				135,399		121,136	(a)
	Alexander's				39,477		40,032
	Hotel Pennsylvania				16,746		18,382
		Total New York		$	610,676	$	578,732
	(a)		The EBITDA for the nine months ended September 30, 2011 is after a $16,558 expense for the buy-out of below-market leases.
(5)	The elements of "Retail Properties" EBITDA from continuing operations are summarized below.
				For the Nine Months Ended September 30,
	(Amounts in thousands)			2012		2011
	Strip shopping centers			$	125,072	$	120,887
	Regional malls				47,277		46,621
		Total Retail properties		$	172,349	$	167,508

66

Net Income and EBITDA by Segment for the Nine Months Ended September 30, 2012 and 2011 - continued

	Notes to preceding tabular information - continued:
(6)	The elements of "other" EBITDA from continuing operations are summarized below.
				For the Nine Months Ended September 30,
	(Amounts in thousands)			2012		2011
	Our share of Real Estate Fund:
		Income before net realized/unrealized gains		$	4,162	$	2,550
		Net unrealized gains			8,384		4,802
		Net realized gains			-		771
		Carried interest			-		1,665
	Total				12,546		9,788
	LNR				46,006		38,569
	555 California Street				31,406		32,608
	Lexington				24,780		27,970
	Other investments				24,954		30,352
					139,692		139,287
	Corporate general and administrative expenses(a)				(66,940)		(62,964)
	Investment income and other, net(a)				28,865		37,284
	Fee income from Alexander's				5,617		5,545
	Loss from the mark-to-market of J.C. Penney derivative position				(53,343)		(27,136)
	Verde Realty impairment loss				(4,936)		-
	Acquisition costs				(4,314)		(2,822)
	Net gain on sale of residential condominiums				1,274		5,884
	Mezzanine loans loss reversal and net gain on disposition				-		82,744
	Net gain resulting from Lexington's stock issuance				-		9,760
	Real Estate Fund placement fees				-		(3,451)
				$	45,915	$	184,131
	(a)		The amounts in these captions (for this table only) exclude the mark-to-market of our deferred compensation plan assets and offsetting liability.

67

Net Income and EBITDA by Segment for the Nine Months Ended September 30, 2012 and 2011 - continued

EBITDA by Region

Below is a summary of the percentages of EBITDA by geographic region (excluding discontinued operations and other gains and losses that affect comparability), from our New York, Washington, DC, Retail Properties and Merchandise Mart segments.

		For the Nine Months
		Ended September 30,
		2012	2011
Region:
	New York City metropolitan area	65%	63%
	Washington, DC / Northern Virginia metropolitan area	26%	29%
	Chicago	4%	3%
	California	2%	2%
	Puerto Rico	2%	2%
	Other geographies	1%	1%
		100%	100%

68

Results of Operations – Nine Months Ended September 30, 2012 Compared to September 30, 2011

Revenues

Our revenues, which consist of property rentals, tenant expense reimbursements, hotel revenues, trade shows revenues, amortization of acquired below-market leases, net of above-market leases and fee income, were $2,078,487,000 for the nine months ended September 30, 2012, compared to $2,050,828,000 in the prior year’s nine months, an increase of $27,659,000.  Below are the details of the increase (decrease) by segment:

(Amounts in thousands)
										Retail		Merchandise
Increase (decrease) due to:			Total			New York		Washington, DC		Properties		Mart			Other
Property rentals:
	Acquisitions		$	6,947		$	2,507	$	4,440	$	-	$	-		$	-
	Development (out of service)			(21,774)			(4,528)		(16,385)		(861)		-			-
	Hotel Pennsylvania			313			313		-		-		-			-
	Trade Shows			(5,059)			-		-		-		(5,059)			-
	Amortization of acquired below-market
		leases, net		(9,453)			(9,397)		(60)		(904)		-			908
	Leasing activity (see page 49)			327			29,107		(25,985)		4,016		(3,953)			(2,858)
				(28,699)			18,002		(37,990)		2,251		(9,012)			(1,950)
Tenant expense reimbursements:
	Acquisitions/development			(9,182)			(3,923)		1,243		(3,815)		-			(2,687)
	Operations			(4,476)			(3,137)		1,986		(3,196)		(1,286)			1,157
				(13,658)			(7,060)		3,229		(7,011)		(1,286)			(1,530)
Cleveland Medical Mart development
	project			75,811	(1)		-		-		-		75,811	(1)		-
Fee and other income:
	BMS cleaning fees			2,958			3,563		-		-		-			(605)
	Signage revenue			(494)			(494)		-		-		-			-
	Management and leasing fees			(126)			477		153		(428)		(160)			(168)
	Lease termination fees			(11,306)			(8,842)		(2,757)		(215)		508			-
	Other income			3,173			58		3,530		189		(570)			(34)
				(5,795)			(5,238)		926		(454)		(222)			(807)
Total increase (decrease) in revenues			$	27,659		$	5,704	$	(33,835)	$	(5,214)	$	65,291		$	(4,287)
(1)		This increase in income is offset by an increase in development costs expensed in the period. See note (4) on page 70.

69

Results of Operations – Nine Months Ended September 30, 2012 Compared to September 30, 2011 - continued

Expenses

Our expenses, which consist primarily of operating, depreciation and amortization and general and administrative expenses, were $1,483,575,000 for the nine months ended September 30, 2012, compared to $1,425,162,000 in the prior year’s nine months, an increase of $58,413,000.  Below are the details of the increase (decrease) by segment:

(Amounts in thousands)
											Retail		Merchandise
Increase (decrease) due to:			Total			New York			Washington, DC		Properties		Mart			Other
Operating:
	Acquisitions		$	2,567		$	2,607		$	2,647	$	-	$	-		$	(2,687)
	Development (out of service)			(6,226)			(392)			(3,458)		(2,376)		-			-
	Non-reimbursable expenses, including
		bad debt reserves		(13,287)			(4,052)			(60)		(2,943)		(6,232)			-
	Hotel Pennsylvania			1,735			1,735			-		-		-			-
	Trade Shows			(4,024)			-			-		-		(4,024)			-
	BMS expenses			2,418			3,023			-		-		-			(605)
	Operations			7,504			9,470			2,583		(3,060)		(1,025)			(464)
				(9,313)			12,391			1,712		(8,379)		(11,281)			(3,756)
Depreciation and amortization:
	Acquisitions/development			13,542			(891)			15,162		(729)		-			-
	Operations			52			4,251			(4,707)		87		730			(309)
				13,594			3,360			10,455		(642)		730			(309)
General and administrative:
	Mark-to-market of deferred compensation
		plan liability (1)		3,765			-			-		-		-			3,765
	Real Estate Fund placement fees			(3,451)			-			-		-		-			(3,451)
	Operations			(3,531)			1,571			353		(1,243)		(7,782)	(2)		3,570	(3)
				(3,217)			1,571			353		(1,243)		(7,782)			3,884
Cleveland Medical Mart development
	project			75,490	(4)		-			-		-		75,490	(4)		-
Acquisition related costs and
	tenant buy-outs			(18,141)			(16,558)	(5)		-		(35)		(3,040)			1,492
Total increase (decrease) in expenses			$	58,413		$	764		$	12,520	$	(10,299)	$	54,117		$	1,311
(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)		Primarily from lower payroll costs due to a reduction in workforce.
(3)		Primarily from higher payroll costs and stock based compensation.
(4)		This increase in expense is offset by the increase in development revenue in the period. See note (1) on page 69.
(5)		Represents the buy-out of below-market leases in the prior year.

70

Results of Operations – Nine Months Ended September 30, 2012 Compared to September 30, 2011 - continued

Income Applicable to Toys

In the nine months ended September 30, 2012, we recognized net income of $88,696,000 from our investment in Toys, comprised of $81,667,000 for our 32.5% share of Toys’ net income ($99,649,000 before our share of Toys’ income tax expense) and $7,029,000 of management fees.  In the nine months ended September 30, 2011, we recognized net income of $80,794,000 from our investment in Toys, comprised of $74,135,000 for our 32.7% share of Toys’ net income ($104,049,000 before our share of Toys’ income tax expense) and $6,659,000 of management fees.

Income from Partially Owned Entities

Summarized below are the components of income (loss) from partially owned entities for the nine months ended September 30, 2012 and 2011.

			Percentage	For the Nine Months Ended
			Ownership at	September 30,
(Amounts in thousands)			September 30, 2012	2012		2011
Equity in Net Income (Loss):
Alexander's			32.4%	$	24,827	$	24,052
Lexington (1)			11.8%		371		10,209
LNR (2)			26.2%		39,319		39,913
India real estate ventures			4.0%-36.5%		(4,526)		(692)
Partially owned office buildings:
	280 Park Avenue (acquired in May 2011)		49.5%		(9,267)		(8,645)
	Warner Building (3)		55.0%		(7,438)		(15,330)
	666 Fifth Avenue Office Condominium (acquired in
		December 2011)	49.5%		5,244		-
	330 Madison Avenue		25.0%		2,036		1,440
	1101 17th Street		55.0%		1,920		2,094
	One Park Avenue (acquired in March 2011)		30.3%		890		(1,347)
	West 57th Street Properties		50.0%		732		634
	Rosslyn Plaza		43.7%-50.4%		99		2,160
	Fairfax Square		20.0%		(85)		7
	Other partially owned office buildings		Various		1,587		5,165
Other investments:
	Verde Realty Operating Partnership (4)		8.3%		(6,000)		1,204
	Independence Plaza Partnership (mezzanine position)
		(acquired in June 2011)	51.0%		5,243		1,811
	Monmouth Mall		50.0%		1,007		1,588
	Downtown Crossing, Boston		50.0%		(872)		(1,156)
	Other investments		Various		(1,596)		(8,072)
				$	53,491	$	55,035
(1)		2011 includes a $9,760 net gain resulting from Lexington's stock issuance.
(2)		2011 includes $8,977 for our share of a tax settlement gain and $6,020 of net gains from asset sales.
(3)		2011 includes $9,022 for our share of expense, primarily for straight-line reserves and the write-off of tenant improvements in connection with a tenant's bankruptcy at the Warner Building.
(4)		In the third quarter of 2012, we converted our 2,015,151 units in Verde Realty Operating Partnership into 2,015,151 common shares of Verde Realty ("Verde"). Pursuant to a merger agreement which was approved by Verde shareholders on September 14, 2012, we accepted an offer to receive cash of $13.85 per share, or $27,910 in the aggregate; accordingly, we recognized a $4,936 impairment loss in the third quarter.

71

Results of Operations – Nine Months Ended September 30, 2012 Compared to September 30, 2011 - continued

Income from Real Estate Fund

Below are the components of the income from our Real Estate Fund for the nine months ended September 30, 2012 and 2011.

(Amounts in thousands)		For the Nine Months Ended September 30,
		2012		2011
Operating income		$	4,035	$	3,197
Net realized gain			-		3,085
Net unrealized gains			33,537		19,209
Income from Real Estate Fund			37,572		25,491
Less (income) attributable to noncontrolling interests			(25,026)		(15,703)
Income from Real Estate Fund attributable to Vornado (1)		$	12,546	$	9,788
___________________________________
(1)	Excludes management, leasing and development fees of $2,025 and $1,803 for the nine months ended September 30, 2012 and 2011, 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 (comprised primarily of the mark-to-market of derivative positions in marketable equity securities, interest income on mezzanine loans receivable and other interest and dividend income) was a loss of  $22,984,000 in the nine months ended September 30, 2012, compared to income of $95,086,000 in the prior year’s nine months, a decrease in income of $118,070,000. This decrease resulted from:

(Amounts in thousands)
Mezzanine loan loss reversal and net gain on disposition in 2011		$	(82,744)
J.C. Penney derivative position ($53,343 mark-to-market loss in 2012, compared to a $27,136
	mark-to-market loss in 2011)		(26,207)
Lower dividends and interest on marketable securities			(11,848)
Increase in the value of investments in our deferred compensation plan (offset by a corresponding
	increase in the liability for plan assets in general and administrative expenses)		3,765
Other, net			(1,036)
		$	(118,070)

Interest and Debt Expense

Interest and debt expense was $377,600,000 in the nine months ended September 30, 2012, compared to $394,192,000 in the prior year’s nine months, a decrease of $16,592,000.  This decrease was primarily due to (i) $19,175,000 from the redemption of exchangeable senior debentures and repayment of convertible senior debentures due to Vornado in April 2012 and November 2011, respectively, (ii) $8,871,000 from the refinancing of 350 Park Avenue in January 2012 (of which $5,414,000 was due to a lower rate and $3,457,000 was due to a lower outstanding loan balance), and (iii) $7,884,000 of capitalized interest, partially offset by (iv) $15,136,000 from the issuance of $400,000,000 of senior unsecured notes in November 2011 and (v) $4,331,000 from the refinancing of 100 West 33^rd Street in March 2012. 

Net Gain on Disposition of Wholly Owned and Partially Owned Assets

Net gain on disposition of wholly owned and partially owned assets was $4,856,000 in the nine months ended September 30, 2012, compared to $7,975,000, in the prior year’s nine months and resulted primarily from the sale of marketable securities and residential condominiums.

Income Tax Expense

Income tax expense was $17,319,000 in the nine months ended September 30, 2012, compared to $18,548,000 in the prior year’s nine months, a decrease of $1,229,000.  This decrease resulted primarily from the true-up of estimated tax liabilities of our taxable REIT subsidiaries. 

72

Results of Operations – Nine Months Ended September 30, 2012 Compared to September 30, 2011 - continued

Income from Discontinued Operations

We have reclassified the revenues and expenses of the properties that were sold and that are currently held for sale to “income from discontinued operations” and the related assets and liabilities to “assets related to discontinued operations” and “liabilities related to discontinued operations” for all the periods presented in the accompanying financial statements.  The table below sets forth the combined results of assets related to discontinued operations for the nine months ended September 30, 2012 and 2011.

		For the Nine Months Ended September 30,
(Amounts in thousands)		2012		2011
Total revenues		$	112,585	$	160,747
Total expenses			81,508		130,571
			31,077		30,176
Net gains on sale of real estate			203,801		51,623
Gain on sale of Canadian Trade Shows, net of $11,448 of
	income taxes		19,657		-
Impairment losses			(13,511)		-
Net gain on extinguishment of High Point debt			-		83,907
Income from discontinued operations		$	241,024	$	165,706

Net Income Attributable to Noncontrolling Interests in Consolidated Subsidiaries

Net income attributable to noncontrolling interests in consolidated subsidiaries was $30,928,000 in the nine months ended September 30, 2012, compared to $20,643,000 in the prior year’s nine months, an increase of $10,285,000.  This increase resulted primarily from a $9,323,000 increase in income allocated to the noncontrolling interests of our Real Estate Fund.

Preferred Unit Distributions

Preferred unit distributions were $65,337,000 in the nine months ended September 30, 2012, compared to $58,722,000 in the prior year’s nine months, an increase of $6,615,000.  This increase resulted from the issuance of $246,000,000 of 6.875% Series J cumulative redeemable preferred units in April 2011 and $300,000,000 of 5.70% of Series K cumulative redeemable preferred units in July 2012, partially offset by the redemption of the 7.0% Series D-10 and 6.75% Series D-14 cumulative redeemable preferred units in July 2012 and the redemption of $75,000,000 of 7.0% Series E cumulative redeemable preferred units in August 2012.

Discount on Preferred Unit Redemption

In the nine months ended September 30, 2012, we recognized a $11,700,000 discount from the redemption of all of the 7.0% Series D-10 and 6.75% Series D-14 cumulative redeemable preferred units, compared to a $5,000,000 discount in the prior year’s nine months from the redemption of Series D-11 cumulative redeemable preferred units. 

73

Results of Operations – Nine Months Ended September 30, 2012 Compared to September 30, 2011 - 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 the same store EBITDA results on a GAAP and cash basis for each of our segments for the nine months ended September 30, 2012, compared to the nine months ended September 30, 2011.

							Retail		Merchandise
(Amounts in thousands)			New York		Washington, DC		Properties		Mart
EBITDA for the nine months ended September 30, 2012			$	610,036	$	414,391	$	220,600	$	133,486
	Add-back: non-property level overhead
		expenses included above		21,980		19,849		18,803		14,877
	Less: EBITDA from acquisitions, dispositions
		and other non-operating income or expenses		(39,254)		(140,744)		(54,537)		(86,904)
GAAP basis same store EBITDA for the nine months
		ended September 30, 2012		592,762		293,496		184,866		61,459
	Less: Adjustments for straight-line rents,
		amortization of below-market leases, net, and other
		non-cash adjustments		(73,249)		(4,754)		(11,259)		(580)
Cash basis same store EBITDA for the nine months
		ended September 30, 2012	$	519,513	$	288,742	$	173,607	$	60,879
EBITDA for the nine months ended September 30, 2011			$	579,442	$	374,937	$	208,496	$	145,130
	Add-back: non-property level overhead
		expenses included above		20,409		19,496		20,046		22,659
	Less: EBITDA from acquisitions, dispositions
		and other non-operating income or expenses		(20,536)		(78,976)		(42,603)		(108,006)
GAAP basis same store EBITDA for the nine months
		ended September 30, 2011		579,315		315,457		185,939		59,783
	Less: Adjustments for straight-line rents,
		amortization of below-market leases, net, and other
		non-cash adjustments		(67,404)		(8,332)		(11,426)		1,261
Cash basis same store EBITDA for the nine months
		ended September 30, 2011	$	511,911	$	307,125	$	174,513	$	61,044
Increase (decrease) in GAAP basis same store EBITDA for
		the nine months ended September 30, 2012 over the
		nine months ended September 30, 2011	$	13,447	$	(21,961)	$	(1,073)	$	1,676
Increase (decrease) in Cash basis same store EBITDA for
		the nine months ended September 30, 2012 over the
		nine months ended September 30, 2011	$	7,602	$	(18,383)	$	(906)	$	(165)
% increase (decrease) in GAAP basis same store EBITDA				2.3%		(7.0%)		(0.6%)		2.8%
% increase (decrease) in Cash basis same store EBITDA				1.5%		(6.0%)		(0.5%)		(0.3%)

74

SUPPLEMENTAL INFORMATION

Reconciliation of EBITDA to Same Store EBITDA - Three Months Ended September 30, 2012 vs. June 30, 2012

Below are the same store EBITDA results on a GAAP and cash basis for each of our segments for the three months ended September 30, 2012, compared to the three months ended June 30, 2012.

							Retail		Merchandise
(Amounts in thousands)			New York		Washington, DC		Properties		Mart
EBITDA for the three months ended September 30, 2012			$	206,663	$	217,567	$	73,505	$	44,942
	Add-back: non-property level overhead expenses
		included above		6,739		6,668		6,103		4,120
	Less: EBITDA from acquisitions, dispositions
		and other non-operating income or expenses		(9,119)		(128,541)		(17,346)		(32,205)
GAAP basis same store EBITDA for the three months
	ended September 30, 2012			204,283		95,694		62,262		16,857
	Less: Adjustments for straight-line rents, amortization of
		below-market leases, net, and other non-cash adjustments		(24,728)		(1,943)		(3,830)		171
Cash basis same store EBITDA for the three months
	ended September 30, 2012		$	179,555	$	93,751	$	58,432	$	17,028
EBITDA for the three months ended June 30, 2012(1)			$	210,421	$	96,312	$	76,352	$	10,939
	Add-back: non-property level overhead expenses
		included above		6,654		6,231		6,367		4,848
	Less: EBITDA from acquisitions, dispositions
		and other non-operating income or expenses		(8,239)		(4,743)		(20,543)		6,448
GAAP basis same store EBITDA for the three months
	ended June 30, 2012			208,836		97,800		62,176		22,235
	Less: Adjustments for straight-line rents, amortization of
		below-market leases, net, and other non-cash adjustments		(30,345)		(1,883)		(4,313)		(83)
Cash basis same store EBITDA for the three months
	ended June 30, 2012		$	178,491	$	95,917	$	57,863	$	22,152
(Decrease) increase in GAAP basis same store EBITDA for
	the three months ended September 30, 2012 over the
	three months ended June 30, 2012		$	(4,553)	$	(2,106)	$	86	$	(5,378)
Increase (decrease) in Cash basis same store EBITDA for
	the three months ended September 30, 2012 over the
	three months ended June 30, 2012		$	1,064	$	(2,166)	$	569	$	(5,124)
% (decrease) increase in GAAP basis same store EBITDA				(2.2%)		(2.2%)		0.1%		(24.2%)
% increase (decrease) in Cash basis same store EBITDA				0.6%		(2.3%)		1.0%		(23.1%)
(1)		Below is the reconciliation of net income to EBITDA for the three months ended June 30, 2012.
							Retail		Merchandise
(Amounts in thousands)			New York		Washington, DC		Properties		Mart
Net income attributable to Vornado Realty L.P. for the three months
	ended June 30, 2012		$	99,231	$	23,073	$	34,119	$	(8,888)
Interest and debt expense				46,413		32,549		20,102		8,786
Depreciation and amortization				63,664		39,656		22,131		9,826
Income tax expense				1,113		1,034		-		1,215
EBITDA for the three months ended June 30, 2012			$	210,421	$	96,312	$	76,352	$	10,939

75

Related Party Transactions

On March 8, 2012, Steven Roth, the Chairman of Vornado’s Board of Trustees, repaid his $13,122,500 outstanding loan from Vornado.

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, distributions to unitholders, 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 equity securities; 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, debt amortization and recurring capital expenditures.  Capital requirements for development expenditures and acquisitions (excluding Fund acquisitions) may require funding from borrowings and/or equity offerings.  Our Real Estate Fund has aggregate unfunded commitments of $314,371,000 for acquisitions, including $78,592,750 from us. 

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

Details of our 2012 Investing and Financing Activities are provided in the “Overview” of Management’s Discussion and Analysis of Financial Condition on page 45.

Cash Flows for the Nine Months Ended September 30, 2012

Our cash and cash equivalents were $465,884,000 at September 30, 2012, a $140,669,000 decrease over the balance at December 31, 2011.  Our consolidated outstanding debt was $9,810,578,000 at September 30, 2012, a $258,725,000 decrease over the balance at December 31, 2011.  As of September 30, 2012 and December 31, 2011, $600,000,000 and $138,000,000, respectively, was outstanding under our revolving credit facilities.  During the remainder of 2012 and 2013, $19,427,000 and $1,130,353,000, respectively, of our outstanding debt matures; we may refinance this maturing debt as it comes due or choose to repay it using a portion of our $2,365,884,000 of available capacity (comprised of $465,884,000 of cash and cash equivalents and $1,900,000,000 of availability under our revolving credit facilities).

Cash flows provided by operating activities of $510,646,000 was comprised of (i) net income of $602,648,000, (ii) return of capital from Real Estate Fund investments of $61,052,000, (iii) distributions of income from partially owned entities of $59,322,000, and (iv) $14,489,000 of non-cash adjustments, which include depreciation and amortization expense, the effect of straight-lining of rental income, equity in net income of partially owned entities and net gains on sale of real estate, partially offset by (v) the net change in operating assets and liabilities of $226,865,000, including $163,307,000 related to Real Estate Fund investments.

Net cash provided by investing activities of $34,012,000 was comprised of (i) $408,856,000 of proceeds from sales of real estate and related investments, (ii) $89,850,000 from the return of the J.C. Penney derivative collateral,  (iii) $58,460,000 of proceeds from the sale of marketable securities, (iv) $52,504,000 of proceeds from the sale of the Canadian Trade Shows, (v) $26,665,000 of capital distributions from partially owned entities, (vi) $13,123,000 of proceeds from the repayment of loan to officer, and (vii) $2,379,000 of proceeds from repayments of mezzanine loans, partially offset by (viii) $138,060,000 of additions to real estate, (ix) $121,117,000 for the funding of the J.C. Penney derivative collateral, (x) $116,264,000 of investments in partially owned entities, (xi) $106,502,000 of development costs and construction in progress, (xii) $73,069,000 of acquisitions of real estate and other, and (xiii) $62,813,000 of changes in restricted cash.

Net cash used in financing activities of $685,327,000 was comprised of (i) $2,070,295,000 for the repayments of borrowings, (ii) $384,353,000 of distributions to Vornado, (iii) $243,300,000 for purchases of outstanding preferred units, (iv) $80,994,000 of distributions to redeemable security holders and noncontrolling interests, (v) $54,034,000 of distributions to preferred unitholders, (vi) $30,034,000 for the repurchase of Class A units related to stock compensation agreements and related tax holdings, and (vii) $17,417,000 of debt issuance and other costs, partially offset by (viii) $1,773,000,000 of proceeds from borrowings, (ix) $291,144,000 of proceeds from the issuance of preferred units, (x) $120,746,000 of contributions from noncontrolling interests in consolidated subsidiaries, and (xi) $10,210,000 of proceeds from exercise of Vornado stock options.

76

Liquidity and Capital Resources – continued

Capital Expenditures in the nine months ended September 30, 2012

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 expenditures 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.  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 nine months ended September 30, 2012.

										Retail		Merchandise
(Amounts in thousands)				Total		New York		Washington, DC		Properties		Mart		Other
Expenditures to maintain assets				$	37,829	$	17,925	$	10,758	$	2,497	$	3,140	$	3,509
Tenant improvements					150,099		55,628		41,874		6,682		45,915		-
Leasing commissions					48,900		21,536		10,607		1,971		14,786		-
Non-recurring capital expenditures					5,227		4,240		-		-		-		987
Total capital expenditures and leasing
	commissions (accrual basis)				242,055		99,329		63,239		11,150		63,841		4,496
Adjustments to reconcile to cash basis:
		Expenditures in the current year
			applicable to prior periods		74,087		35,008		11,811		6,868		15,905		4,495
		Expenditures to be made in future
			periods for the current period		(157,152)		(66,954)		(38,221)		(5,731)		(46,246)		-
Total capital expenditures and leasing
	commissions (cash basis)			$	158,990	$	67,383	$	36,829	$	12,287	$	33,500	$	8,991
Tenant improvements and leasing commissions:
	Per square foot per annum			$	4.62	$	5.43	$	5.18	$	1.05	$	5.72 (1)	$	-
	Percentage of initial rent				11.0%		8.5%		12.9%		5.4%		16.4%		-
(1)			Includes $6.50 per square foot per annum of tenant improvements and leasing commissions in connection with a 572,000 square foot lease.

Development and Redevelopment Expenditures in the nine months ended September 30, 2012

Development and redevelopment expenditures consist of all hard and soft costs associated with the development or redevelopment of a property, including tenant improvements, leasing commissions, capitalized interest and operating costs until the property is substantially completed and ready for its intended use.  Below is a summary of development and redevelopment expenditures incurred in the nine months ended September 30, 2012.

								Retail		Merchandise
(Amounts in thousands)		Total		New York		Washington, DC		Properties		Mart		Other
Crystal Square 5		$	12,773	$	-	$	12,773	$	-	$	-	$	-
1290 Avenue of the Americas			11,613		11,613		-		-		-		-
510 Fifth Avenue			10,203		10,203		-		-		-		-
Bergen Town Center			9,881		-		-		9,881		-		-
Springfield Mall			8,801		-		-		8,801		-		-
Marriott Marquis Times Square - retail
	and signage		5,970		5,970		-		-		-		-
Beverly Connection			5,539		-		-		5,539		-		-
Amherst, New York			3,439		-		-		3,439		-		-
1851 South Bell Street (1900 Crystal Drive)			2,840		-		2,840		-		-		-
Crystal Plaza 5			2,021		-		2,021		-		-		-
Poughkeepsie, New York			1,529		-		-		1,529		-		-
Crystal City Hotel			1,479		-		1,479		-		-		-
Green Acres Mall			1,205		-		-		1,205		-		-
Other			29,209		9,581		6,216		5,540		20		7,852
		$	106,502	$	37,367	$	25,329	$	35,934	$	20	$	7,852

As of September 30, 2012, the estimated costs to complete the above projects are approximately $707,000,000.  In addition, we plan to redevelop our 220 Central Park South property into a new residential tower.  The estimated cost of this project is approximately $425,000,000, which is expected to be substantially funded by project financing. There can be no assurance that these projects will commence, or, if commenced, be completed on schedule or within budget. 

77

Liquidity and Capital Resources – continued

Cash Flows for the Nine Months Ended September 30, 2011

Our cash and cash equivalents were $585,183,000 at September 30, 2011, a $105,606,000 decrease over the balance at December 31, 2010.  This decrease was primarily due to cash flows from financing activities, partially offset by cash flows from operating activities, as discussed below.

Cash flows provided by operating activities of $566,671,000 was comprised of (i) net income of $643,013,000 and (ii) distributions of income from partially owned entities of $75,612,000, partially offset by (iii) $7,148,000 of non-cash adjustments, which include depreciation and amortization expense, the effect of straight-lining of rental income and equity in net income of partially owned entities, and (iv) the net change in operating assets and liabilities of $144,806,000, including $97,785,000 related to Real Estate Fund investments.

Net cash used in investing activities of $1,675,000 was comprised of (i) $440,865,000 of investments in partially owned entities, (ii) $109,963,000 of additions to real estate, (iii) $52,816,000 of development costs and construction in progress, (iv) $44,215,000 of investments in mezzanine loans receivable and other, and (v) $33,850,000 for the funding of J.C. Penney derivative collateral, partially offset by (vi) $274,283,000 of capital distributions from partially owned entities, (vii) $135,762,000 of proceeds from sales of real estate and related investments, (viii) changes in restricted cash of $121,463,000, (ix) $100,525,000 of proceeds from sales and repayments of mezzanine loans, (x) $28,700,000 from the return of the J.C. Penney derivative collateral and (xi) $19,301,000 of proceeds from sales of marketable securities.

Net cash used in financing activities of $670,602,000 was comprised of (i) $2,666,610,000 for the repayments of borrowings, (ii) $381,382,000 of distributions to Vornado, (iii) $77,330,000 of distributions to redeemable security holders and noncontrolling interests, (iv) $43,675,000 of distributions to preferred unitholders, (v) $28,614,000 of debt issuance and other costs, (vi) $28,000,000 for the purchase of outstanding preferred units, and (vii) $747,000 for the repurchase of Class A units related to stock compensation agreements and related tax holdings, partially offset by (viii) $2,184,167,000 of proceeds from borrowings, (ix) $239,037,000 of proceeds from the issuance of Series J preferred units, (x) $109,605,000 of contributions from noncontrolling interests in consolidated subsidiaries and (xi) $22,947,000 of proceeds received from exercise of Vornado stock options.

78

Liquidity and Capital Resources – continued

Capital Expenditures in the nine months ended September 30, 2011

										Retail		Merchandise
(Amounts in thousands)				Total		New York		Washington, DC		Properties		Mart		Other
Expenditures to maintain assets				$	31,347	$	12,355	$	8,760	$	4,168	$	3,495	$	2,569
Tenant improvements					82,537		48,105		18,671		4,734		10,705		322
Leasing commissions					23,762		16,567		4,182		1,315		1,575		123
Non-recurring capital expenditures					17,044		15,195		-		-		-		1,849
Total capital expenditures and leasing
	commissions (accrual basis)				154,690		92,222		31,613		10,217		15,775		4,863
Adjustments to reconcile to cash basis:
		Expenditures in the current year
			applicable to prior periods		69,717		32,564		11,363		8,268		11,993		5,529
		Expenditures to be made in future
			periods for the current period		(97,374)		(59,499)		(17,794)		(5,726)		(9,711)		(4,644)
Total capital expenditures and leasing
	commissions (cash basis)			$	127,033	$	65,287	$	25,182	$	12,759	$	18,057	$	5,748
Tenant improvements and leasing commissions:
	Per square foot per annum			$	3.59	$	5.16	$	4.38	$	0.65	$	3.53	$	-
	Percentage of initial rent				8.6%		8.5%		10.9%		3.0%		10.6%		-

Development and Redevelopment Expenditures in the nine months ended September 30, 2011

							Retail		Merchandise
(Amounts in thousands)	Total		New York		Washington, DC		Properties		Mart		Other
Bergen Town Center	$	17,145	$	-	$	-	$	17,145	$	-	$	-
Green Acres Mall		3,443		-		-		3,443		-		-
510 Fifth Avenue		2,367		2,367		-		-		-		-
West End 25		1,897		-		1,897		-		-		-
North Bergen, New Jersey		1,746		-		-		1,746		-		-
Crystal City Hotel		1,556		-		1,556		-		-		-
Crystal Square		1,502		-		1,502		-		-		-
Crystal Plaza 5		1,346		-		1,346		-		-		-
Poughkeepsie, New York		936		-		-		936		-		-
Other		20,878		4,203		7,249		3,890		412		5,124
	$	52,816	$	6,570	$	13,550	$	27,160	$	412	$	5,124

79

Liquidity and Capital Resources – continued

Insurance

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

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

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

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

Other Commitments and Contingencies

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 September 30, 2012, the aggregate dollar amount of these guarantees and master leases is approximately $267,090,000.

At September 30, 2012, $22,576,000 of letters of credit were outstanding under one of our revolving credit facilities.  Our credit facilities contain financial covenants that require us to maintain minimum interest coverage and maximum debt to market capitalization ratios, and provide for higher interest rates in the event of a decline in our ratings below Baa3/BBB. Our credit facilities also contain customary conditions precedent to borrowing, including representations and warranties, and also contain customary events of default that could give rise to accelerated repayment, including such items as failure to pay interest or principal.

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.

Two of our wholly owned subsidiaries that are contracted to develop and operate the Cleveland Medical Mart and Convention Center, in Cleveland, Ohio, are required to fund $11,500,000, primarily for tenant improvements, and they are responsible for operating expenses and are entitled to the net operating income, if any, upon the completion of development and the commencement of operations.  As of September 30, 2012, our subsidiaries have funded $1,100,000 of the commitment.

As of September 30, 2012, we expect to fund additional capital to certain of our partially owned entities aggregating approximately $244,463,000.

80

Liquidity and Capital Resources – continued

Litigation

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

In 2003, Stop & Shop filed an action against us in the New York Supreme Court, claiming that we had no right to reallocate and therefore continue to collect $5,000,000 of annual rent from Stop & Shop pursuant to a Master Agreement and Guaranty, because of the expiration of the leases to which the annual rent was previously allocated. Stop & Shop asserted that an order of the Bankruptcy Court for the Southern District of New York, as modified on appeal by the District Court, froze our right to reallocate and effectively terminated our right to collect the annual rent from Stop & Shop.  We asserted a counterclaim seeking a judgment for all the unpaid annual rent accruing through the date of the judgment and a declaration that Stop & Shop will continue to be liable for the annual rent as long as any of the leases subject to the Master Agreement and Guaranty remain in effect.  After summary judgment motions by both sides were denied, the parties conducted discovery.  A trial was held in November 2010.  On November 7, 2011, the Court determined that we have a continuing right to allocate the annual rent to unexpired leases covered by the Master Agreement and Guaranty, and directed entry of a judgment in our favor ordering Stop & Shop to pay us the unpaid annual rent accrued through February 28, 2011 in the amount of $37,422,000, a portion of the annual rent due from March 1, 2011 through the date of judgment, interest, and attorneys’ fees.  On December 16, 2011, a money judgment based on the Court’s decision was entered in our favor in the amount of $56,597,000 (including interest and costs).  The amount for attorneys’ fees is being addressed in a proceeding before a special referee.  Stop & Shop appealed the Court’s decision and the judgment, and has posted a bond to secure payment of the judgment.  On January 12, 2012, we commenced a new action against Stop & Shop seeking recovery of $2,500,000 of annual rent not included in the money judgment, plus additional annual rent as it accrues.  A motion by Stop & Shop to dismiss the new action was denied on July 19, 2012.  Stop & Shop’s appeal of that ruling was heard on October 18, 2012, and a decision has not yet been issued.

As of September 30, 2012, we have a $46,400,000 receivable from Stop & Shop, excluding amounts due to us for interest and costs resulting from the Court’s judgment.  As a result of Stop & Shop appealing the Court’s decision, we believe, after consultation with counsel, that the maximum reasonably possible loss is up to the total amount of the receivable of $46,400,000.

81

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

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

(Amounts in thousands, except per unit amounts)			2012						2011
						Weighted	Effect of 1%				Weighted
			September 30,			Average	Change In		December 31,		Average
Consolidated debt:			Balance			Interest Rate	Base Rates		Balance		Interest Rate
	Variable rate		$	2,221,239		2.21%	$	22,212	$	1,881,948	2.35%
	Fixed rate			7,589,339		5.45%		-		8,187,355	5.55%
			$	9,810,578		4.72%		22,212	$	10,069,303	4.95%
Pro-rata share of debt of non-consolidated
	entities (non-recourse):
	Variable rate – excluding Toys		$	368,747		2.66%		3,687	$	284,372	2.85%
	Variable rate – Toys			638,646		5.95%		6,386		706,301	4.83%
	Fixed rate (including $1,124,610 and
		$1,270,029 of Toys debt in 2012 and 2011)		3,041,715	(1)	6.97%		-		3,208,472	6.96%
			$	4,049,108		6.42%		10,073	$	4,199,145	6.32%
Total change in annual net income							$	32,285
Per Class A unit - diluted							$	0.16
(1)	Excludes $21.6 billion for our 26.2% pro rata share of LNR's liabilities related to consolidated CMBS and CDO trusts which are non-recourse to LNR and its equity holders, including us.

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 September 30, 2012, we have one interest rate cap with a principal amount of $60,000,000 and an interest rate of 2.36%.  This cap is based on a notional amount of $60,000,000 and caps LIBOR at a rate of 7.00%.  In addition, we have one interest rate swap on a $425,000,000 mortgage loan that swapped the rate from LIBOR plus 2.00% (2.21% at September 30, 2012) to a fixed rate of 5.13% for the remaining seven-year term of the loan. 

As of September 30, 2012, we have investments in mezzanine loans with an aggregate carrying amount of $54,793,000 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 September 30, 2012, the estimated fair value of our consolidated debt was $9,976,000,000.

Derivative Instruments

We have, and may in the future enter into, derivative positions that do not qualify for hedge accounting treatment, including our economic interest in J.C. Penney common shares.  Because these derivatives do not qualify for hedge accounting treatment, the gains or losses resulting from their mark-to-market at the end of each reporting period are recognized as an increase or decrease in “interest and other investment income, net” on our consolidated statements of income. In addition, we are, and may in the future be, subject to additional expense based on the notional amount of the derivative positions and a specified spread over LIBOR. Because the market value of these instruments can vary significantly between periods, we may experience significant fluctuations in the amount of our investment income or expense in any given period. In the three and nine months ended September 30, 2012, we recognized income of $4,344,000 and a loss of $53,343,000 from derivative instruments, compared to losses of $37,537,000 and $27,136,000, respectively, for the three and nine months ended September 30, 2011.

82

Item 4.   Controls and Procedures

Disclosure Controls and Procedures:  Vornado’s management, with the participation of the Vornado’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, Vornado’s Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2012, such disclosure controls and procedures were effective.

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

83

PART II.   OTHER INFORMATION

Item 1.  Legal Proceedings

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

In 2003, Stop & Shop filed an action against us in the New York Supreme Court, claiming that we had no right to reallocate and therefore continue to collect $5,000,000 of annual rent from Stop & Shop pursuant to a Master Agreement and Guaranty, because of the expiration of the leases to which the annual rent was previously allocated. Stop & Shop asserted that an order of the Bankruptcy Court for the Southern District of New York, as modified on appeal by the District Court, froze our right to reallocate and effectively terminated our right to collect the annual rent from Stop & Shop.  We asserted a counterclaim seeking a judgment for all the unpaid annual rent accruing through the date of the judgment and a declaration that Stop & Shop will continue to be liable for the annual rent as long as any of the leases subject to the Master Agreement and Guaranty remain in effect.  After summary judgment motions by both sides were denied, the parties conducted discovery.  A trial was held in November 2010.  On November 7, 2011, the Court determined that we have a continuing right to allocate the annual rent to unexpired leases covered by the Master Agreement and Guaranty, and directed entry of a judgment in our favor ordering Stop & Shop to pay us the unpaid annual rent accrued through February 28, 2011 in the amount of $37,422,000, a portion of the annual rent due from March 1, 2011 through the date of judgment, interest, and attorneys’ fees.  On December 16, 2011, a money judgment based on the Court’s decision was entered in our favor in the amount of $56,597,000 (including interest and costs).  The amount for attorneys’ fees is being addressed in a proceeding before a special referee.  Stop & Shop appealed the Court’s decision and the judgment, and has posted a bond to secure payment of the judgment.  On January 12, 2012, we commenced a new action against Stop & Shop seeking recovery of $2,500,000 of annual rent not included in the money judgment, plus additional annual rent as it accrues.  A motion by Stop & Shop to dismiss the new action was denied on July 19, 2012.  Stop & Shop’s appeal of that ruling was heard on October 18, 2012, and a decision has not yet been issued. 

As of September 30, 2012, we have a $46,400,000 receivable from Stop & Shop, excluding amounts due to us for interest and costs resulting from the Court’s judgment.  As a result of Stop & Shop appealing the Court’s decision, we believe, after consultation with counsel, that the maximum reasonably possible loss is up to the total amount of the receivable of $46,400,000.

84

Item 1A. Risk Factors

There were no material changes to the Risk Factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011.

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

During the third quarter of 2012, we issued 4,436 Class A units to Vornado in connection with Vornado’s issuance of 4,436 common shares upon the redemption of Class A units held by third parties. The Class A units were issued in reliance on the exemption from registration under Section 4(2) of the Securities Act of 1933, as amended.

On July 11, 2012, we issued 12,000,000 5.70% Series K Preferred Units, liquidation preference $25.00 per unit (“Series K Preferred Units”), to Vornado in connection with Vornado’s public offering of 12,000,000 5.70% Series K Preferred Shares.  The Series K Preferred Units were issued in reliance on the exemption from registration under Section 4(2) of the Securities Act of 1933, as amended.

Item 3.   Defaults Upon Senior Securities

        None.

Item 4.   Mine Safety Disclosures

        Not applicable.

Item 5.   Other Information

        On October 30, 2012, Mr. Anthony W. Deering resigned from Vornado’s Board of Trustees for personal reasons, effective as of December 31, 2012.  Mr. Deering stated that he had no disagreements with Vornado, its Board of Trustees or its management.

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.

85

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 L.P.
		(Registrant)
Date: November 7, 2012	By:	/s/ Joseph Macnow
		Joseph Macnow, Executive Vice President - Finance and Administration and Chief Financial Officer of Vornado Realty Trust, sole General Partner of Vornado Realty L.P. (duly authorized officer and principal financial and accounting officer)

86

	EXHIBIT INDEX
Exhibit No.
	3.3		-	Articles Supplementary, 5.70% Series K Cumulative Redeemable Preferred Shares of	*
				Beneficial Interest, liquidation preference $25.00 per share, no par value – Incorporated by
				reference to Exhibit 3.5 to Vornado Realty Trust’s Registration Statement on Form 8-A
				(File No. 001-11954), filed on July 18, 2012
	3.48		-	Forty-Fourth Amendment to Second Amended and Restated Agreement of Limited Partnership,	*
				dated as of July 18, 2012 – Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.’s
				Current Report on Form 8-K (File No. 001-34482), filed on July 18, 2012
	15.1		-	Letter regarding Unaudited Interim Financial
	31.1		-	Rule 13a-14 (a) Certification of the Chief Executive Officer
	31.2		-	Rule 13a-14 (a) Certification of the Chief Financial Officer
	32.1		-	Section 1350 Certification of the Chief Executive Officer
	32.2		-	Section 1350 Certification of the Chief Financial Officer
	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
				______________________________
		*		Incorporated by reference