EXHIBIT 99.3

ITEM 8.        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS

	Page
	Number
Report of Independent Registered Public Accounting Firm	2
Consolidated Balance Sheets at December 31, 2014 and 2013	3
Consolidated Statements of Income for the years ended December 31, 2014, 2013 and 2012	4
Consolidated Statements of Comprehensive Income for the years ended December 31, 2014, 2013 and 2012	5
Consolidated Statements of Changes in Equity for the years ended December 31, 2014, 2013 and 2012	6
Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012	9
Notes to Consolidated Financial Statements	11

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Partners

Vornado Realty L.P.

New York, New York

We have audited the accompanying consolidated balance sheets of Vornado Realty L.P. (the “Company”) as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2014. Our audits also included the financial statement schedules listed in the Index at Item 15 (not presented herein). These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audits.

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

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

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2014, based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 23, 2015 (not presented herein)  expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Parsippany, New Jersey

February 23, 2015 (May 19, 2015, as it relates to the retrospective adjustments from the effects of reporting discontinued operations and the reclassification of signage income as discussed in Note 2 to the consolidated financial statements and the effects of the change in reportable segments discussed in Note 25 to the consolidated financial statements)

2

VORNADO REALTY L.P.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except unit amounts)			December 31,		December 31,
ASSETS			2014		2013
Real estate, at cost:
	Land		$	3,861,913	$	3,644,181
	Buildings and improvements			11,705,749		10,601,162
	Development costs and construction in progress			1,128,037		1,019,337
	Leasehold improvements and equipment			126,659		128,288
		Total		16,822,358		15,392,968
	Less accumulated depreciation and amortization			(3,161,633)		(2,829,862)
Real estate, net				13,660,725		12,563,106
Cash and cash equivalents				1,198,477		583,290
Restricted cash				176,204		251,208
Marketable securities				206,323		191,917
Tenant and other receivables, net of allowance for doubtful accounts of $12,210 and $14,519				109,998		108,194
Investments in partially owned entities				1,246,496		1,166,443
Investment in Toys "R" Us				-		83,224
Real Estate Fund investments				513,973		667,710
Receivable arising from the straight-lining of rents, net of allowance of $3,188 and $4,355				787,271		707,200
Deferred leasing and financing costs, net of accumulated amortization of $281,109 and $242,068				475,158		375,567
Identified intangible assets, net of accumulated amortization of $199,821 and $252,121				225,155		253,082
Assets related to discontinued operations				2,238,474		2,636,080
Other assets				410,066		510,203
			$	21,248,320	$	20,097,224
LIABILITIES, REDEEMABLE PARTNERSHIP UNITS AND EQUITY
Mortgages payable			$	8,263,165	$	7,131,231
Senior unsecured notes				1,347,159		1,350,855
Revolving credit facility debt				-		295,870
Accounts payable and accrued expenses				447,745		373,857
Deferred revenue				358,613		359,430
Deferred compensation plan				117,284		116,515
Liabilities related to discontinued operations				1,511,362		1,441,853
Other liabilities				375,830		429,249
	Total liabilities			12,421,158		11,498,860
Commitments and contingencies
Redeemable partnership units:
	Class A units - 11,356,550 and 11,292,038 units outstanding			1,336,780		1,002,620
	Series D cumulative redeemable preferred units - 1 unit outstanding			1,000		1,000
		Total redeemable partnership units		1,337,780		1,003,620
Equity:
	Partners' capital			8,157,544		8,428,534
	Earnings less than distributions			(1,505,385)		(1,734,839)
	Accumulated other comprehensive income			93,267		71,537
		Total Vornado Realty L.P. equity		6,745,426		6,765,232
Noncontrolling interests in consolidated subsidiaries				743,956		829,512
	Total equity			7,489,382		7,594,744
			$	21,248,320	$	20,097,224
See notes to the consolidated financial statements.

3

VORNADO REALTY L.P.

CONSOLIDATED STATEMENTS OF INCOME
			Year Ended December 31,
			2014		2013		2012
(Amounts in thousands, except per unit amounts)
REVENUES:
	Property rentals		$	1,911,487	$	1,880,405	$	1,771,264
	Tenant expense reimbursements			245,819		226,831		207,149
	Cleveland Medical Mart development project			-		36,369		235,234
	Fee and other income			155,206		155,571		119,077
Total revenues				2,312,512		2,299,176		2,332,724
EXPENSES:
	Operating			953,611		928,565		891,637
	Depreciation and amortization			481,303		461,627		435,545
	General and administrative			169,270		177,366		167,194
	Cleveland Medical Mart development project			-		32,210		226,619
	Acquisition and transaction related costs, and impairment losses			18,435		24,857		17,386
Total expenses				1,622,619		1,624,625		1,738,381
Operating income				689,893		674,551		594,343
Income from Real Estate Fund				163,034		102,898		63,936
(Loss) income applicable to Toys "R" Us				(73,556)		(362,377)		14,859
Income from partially owned entities				15,425		23,592		408,267
Interest and debt expense				(412,755)		(425,782)		(431,235)
Interest and other investment income (loss), net				38,752		(24,887)		(261,200)
Net gain on disposition of wholly owned and partially owned assets				13,568		2,030		4,856
Income (loss) before income taxes				434,361		(9,975)		393,826
Income tax (expense) benefit				(9,281)		8,717		(8,132)
Income (loss) from continuing operations				425,080		(1,258)		385,694
Income from discontinued operations				583,946		565,998		308,847
Net income				1,009,026		564,740		694,541
Less net income attributable to noncontrolling interests in
	consolidated subsidiaries			(96,561)		(63,952)		(32,018)
Net income attributable to Vornado Realty L.P.				912,465		500,788		662,523
Preferred unit distributions				(81,514)		(83,965)		(86,873)
Preferred unit redemptions				-		(1,130)		8,948
NET INCOME attributable to Class A unitholders			$	830,951	$	415,693	$	584,598
INCOME (LOSS) PER CLASS A UNIT - BASIC:
		Income (loss) from continuing operations, net	$	1.22	$	(0.76)	$	1.37
		Income from discontinued operations, net		2.95		2.85		1.58
		Net income per Class A unit	$	4.17	$	2.09	$	2.95
		Weighted average units outstanding		198,213		197,551		197,082
INCOME (LOSS) PER CLASS A UNIT - DILUTED:
		Income (loss) from continuing operations, net	$	1.22	$	(0.75)	$	1.36
		Income from discontinued operations, net		2.92		2.83		1.57
		Net income per Class A unit	$	4.14	$	2.08	$	2.93
		Weighted average units outstanding		199,813		198,643		198,134
See notes to consolidated financial statements.

4

VORNADO REALTY L.P.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
				Year Ended December 31,
(Amounts in thousands)				2014		2013		2012
Net income				$	1,009,026	$	564,740	$	694,541
Other comprehensive income (loss):
	Change in unrealized net gain (loss) on securities available-for-sale				14,465		142,281		(283,649)
	Amounts reclassified from accumulated other comprehensive income:
		Non-cash impairment loss on J.C. Penney common shares			-		-		224,937
		Sale of available-for-sale securities			-		(42,404)		(3,582)
	Pro rata share of other comprehensive income (loss) of
			nonconsolidated subsidiaries		2,509		(22,814)		(31,758)
	Change in value of interest rate swap				6,079		18,183		(5,659)
	Other				-		533		329
Comprehensive income					1,032,079		660,519		595,159
Less comprehensive income attributable to noncontrolling interests
	in consolidated subsidiaries				(96,561)		(63,952)		(32,018)
Comprehensive income attributable to Vornado Realty L.P.				$	935,518	$	596,567	$	563,141
See notes to consolidated financial statements.

5

VORNADO REALTY L.P.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
															Non-
													Accumulated		controlling
(Amounts in thousands)							Class A Units				Earnings		Other		Interests in
			Preferred Units				Owned by Vornado				Less Than		Comprehensive		Consolidated		Total
			Units		Amount		Units		Amount		Distributions		Income (Loss)		Subsidiaries		Equity
Balance, December 31, 2013				52,683	$	1,277,225		187,285	$	7,151,309	$	(1,734,839)	$	71,537	$	829,512	$	7,594,744
Net income attributable to
	Vornado Realty L.P.			-		-		-		-		912,465		-		-		912,465
Net income attributable to noncontrolling
	interests in consolidated subsidiaries			-		-		-		-		-		-		96,561		96,561
Net income attributable to redeemable
	partnership units			-		-		-		-		(47,613)		-		-		(47,613)
Distributions to Vornado				-		-		-		-		(547,831)		-		-		(547,831)
Distributions to preferred unitholders				-		-		-		-		(81,464)		-		-		(81,464)
Class A units issued to Vornado:
	Upon redemption of Class A
		units, at redemption value		-		-		271		27,273		-		-		-		27,273
	Under Vornado's Omnibus share plan			-		-		304		17,440		(3,393)		-		-		14,047
	Under Vornado's dividend reinvestment
		plan		-		-		17		1,804		-		-		-		1,804
Contributions:
	Real Estate Fund			-		-		-		-		-		-		5,297		5,297
	Other			-		-		-		-		-		-		32,998		32,998
Distributions:
	Real Estate Fund			-		-		-		-		-		-		(182,964)		(182,964)
	Other			-		-		-		-		-		-		(4,463)		(4,463)
Transfer of noncontrolling interest
	in Real Estate Fund			-		-		-		-		-		-		(33,028)		(33,028)
Conversion of Series A preferred units to
	Class A units			(4)		(193)		5		193		-		-		-		-
Deferred compensation units and options				-		-		5		5,852		(340)		-		-		5,512
Change in unrealized net gain on securities
	available for sale			-		-		-		-		-		14,465		-		14,465
Pro rata share of other comprehensive
	income of nonconsolidated subsidiaries			-		-		-		-		-		2,509		-		2,509
Change in value of interest rate swap				-		-		-		-		-		6,079		-		6,079
Adjustments to carry redeemable
	Class A units at redemption value			-		-		-		(315,276)		-		-		-		(315,276)
Redeemable partnership units' share of
	above adjustments			-		-		-		-		-		(1,323)		-		(1,323)
Other				-		(6)		-		(8,077)		(2,370)		-		43		(10,410)
Balance, December 31, 2014				52,679	$	1,277,026		187,887	$	6,880,518	$	(1,505,385)	$	93,267	$	743,956	$	7,489,382
See notes to consolidated financial statements.

6

VORNADO REALTY L.P.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - CONTINUED
															Non-
													Accumulated		controlling
(Amounts in thousands)							Class A Units				Earnings		Other		Interests in
			Preferred Units				Owned by Vornado				Less Than		Comprehensive		Consolidated		Total
			Units		Amount		Units		Amount		Distributions		Income (Loss)		Subsidiaries		Equity
Balance, December 31, 2012				51,185	$	1,240,278		186,735	$	7,202,878	$	(1,573,275)	$	(18,946)	$	1,053,209	$	7,904,144
Net income attributable to
	Vornado Realty L.P.			-		-		-		-		500,788		-		-		500,788
Net income attributable to noncontrolling
	interests in consolidated subsidiaries			-		-		-		-		-		-		63,952		63,952
Net income attributable to redeemable
	partnership units			-		-		-		-		(24,817)		-		-		(24,817)
Distributions to Vornado				-		-		-		-		(545,913)		-		-		(545,913)
Distributions to preferred unitholders				-		-		-		-		(82,807)		-		-		(82,807)
Issuance of Series L preferred units				12,000		290,306		-		-		-		-		-		290,306
Redemption of Series F and Series H
	preferred units			(10,500)		(253,269)		-		-		-		-		-		(253,269)
Class A units issued to Vornado:
	Upon redemption of redeemable Class A
		units, at redemption value		-		-		299		25,317		-		-		-		25,317
	Under Vornado's Omnibus share plan			-		-		104		5,915		(107)		-		-		5,808
	Under Vornado's dividend reinvestment plan			-		-		22		1,851		-		-		-		1,851
	Upon acquisition of real estate			-		-		128		11,461		-		-		-		11,461
Contributions:
	Real Estate Fund			-		-		-		-		-		-		28,078		28,078
	Other			-		-		-		-		-		-		15,886		15,886
Distributions:
	Real Estate Fund			-		-		-		-		-		-		(47,268)		(47,268)
	Other			-		-		-		-		-		-		(133,153)		(133,153)
Conversion of Series A preferred units to
	Class A units			(2)		(90)		3		90		-		-		-		-
Deferred compensation units and options				-		-		(6)		9,577		(307)		-		-		9,270
Change in unrealized net gain on securities
	available-for-sale			-		-		-		-		-		142,281		-		142,281
Amounts reclassified related to sale
	of available-for-sale securities			-		-		-		-		-		(42,404)				(42,404)
Pro rata share of other comprehensive loss
	of nonconsolidated subsidiaries			-		-		-		-		-		(22,814)		-		(22,814)
Change in value of interest rate swap				-		-		-		-		-		18,183		-		18,183
Adjustments to carry redeemable
	Class A units at redemption value			-		-		-		(108,252)		-		-		-		(108,252)
Redeemable partnership units' share of
	above adjustments			-		-		-		-		-		(5,296)		-		(5,296)
Preferred unit redemptions				-		-		-		-		(1,130)		-		-		(1,130)
Deconsolidation of partially owned entity				-		-		-		-		-		-		(165,427)		(165,427)
Consolidation of partially owned entity				-		-		-		-		-		-		16,799		16,799
Other				-		-		-		2,472		(7,271)		533		(2,564)		(6,830)
Balance, December 31, 2013				52,683	$	1,277,225		187,285	$	7,151,309	$	(1,734,839)	$	71,537	$	829,512	$	7,594,744
See notes to consolidated financial statements.

7

VORNADO REALTY L.P.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - CONTINUED
															Non-
													Accumulated		controlling
(Amounts in thousands)							Class A Units				Earnings		Other		Interests in
			Preferred Units				Owned by Vornado				Less Than		Comprehensive		Consolidated		Total
			Units		Amount		Units		Amount		Distributions		Income (Loss)		Subsidiaries		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 attributable to
	Vornado Realty L.P.			-		-		-		-		662,523		-		-		662,523
Net income attributable to noncontrolling
	interests in consolidated subsidiaries			-		-		-		-		-		-		32,018		32,018
Net income attributable to redeemable
	partnership units			-		-		-		-		(45,263)		-		-		(45,263)
Distributions to Vornado				-		-		-		-		(699,318)		-		-		(699,318)
Distributions to preferred unitholders				-		-		-		-		(76,937)		-		-		(76,937)
Issuance of Series K preferred units				12,000		290,971		-		-		-		-		-		290,971
Redemption of Series E preferred units				(3,000)		(72,248)		-		-		-		-		-		(72,248)
Class A units issued to Vornado:
	Upon redemption of Class A
		units, at redemption value		-		-		1,121		89,762		-		-		-		89,762
	Under Vornado's Omnibus share plan			-		-		434		9,539		(16,389)		-		-		(6,850)
	Under Vornado's dividend reinvestment plan			-		-		29		2,307		-		-		-		2,307
	Upon acquisition of real estate			-		-		64		5,124		-		-		-		5,124
Contributions:
	Real Estate Fund			-		-		-		-		-		-		195,029		195,029
	Other			-		-		-		-		-		-		18,103		18,103
Distributions:
	Real Estate Fund			-		-		-		-		-		-		(48,138)		(48,138)
	Other			-		-		-		-		-		-		(59)		(59)
Conversion of Series A preferred units to
	Class A units			(2)		(105)		3		105		-		-		-		-
Deferred compensation units and options				-		-		4		13,527		(473)		-		-		13,054
Change in unrealized net loss on securities
	available-for-sale			-		-		-		-		-		(283,649)		-		(283,649)
Non-cash impairment loss on J.C. Penney
	common shares			-		-		-		-		-		224,937		-		224,937
Amounts reclassified related to sale
	of available-for-sale securities			-		-		-		-		-		(3,582)		-		(3,582)
Pro rata share of other comprehensive loss
	of nonconsolidated subsidiaries			-		-		-		-		-		(31,758)		-		(31,758)
Change in value of interest rate swap				-		-		-		-		-		(5,659)		-		(5,659)
Adjustments to carry redeemable
	Class A units at redemption value			-		-		-		(52,117)		-		-		-		(52,117)
Redeemable partnership units' share of
	above adjustments			-		-		-		-		-		6,707		-		6,707
Preferred unit redemptions				-		-		-		-		8,948		-		-		8,948
Consolidation of partially owned entity				-		-		-		-		-		-		176,132		176,132
Other				-		-		-		-		(4,662)		329		(7)		(4,340)
Balance, December 31, 2012				51,185	$	1,240,278		186,735	$	7,202,878	$	(1,573,275)	$	(18,946)	$	1,053,209	$	7,904,144
See notes to consolidated financial statements.

8

VORNADO REALTY L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS
			Year Ended December 31,
			2014		2013		2012
(Amounts in thousands)
Cash Flows from Operating Activities:
Net income			$	1,009,026	$	564,740	$	694,541
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization (including amortization of deferred financing costs)			583,408		561,998		557,888
	Net gains on sale of real estate			(507,192)		(414,502)		(245,799)
	Return of capital from Real Estate Fund investments			215,676		56,664		63,762
	Net realized and unrealized gains on Real Estate Fund investments			(150,139)		(85,771)		(55,361)
	Distributions of income from partially owned entities			96,286		54,030		226,172
	Straight-lining of rental income			(82,800)		(69,391)		(69,648)
	Equity in net loss (income) of partially owned entities, including Toys “R” Us			58,131		338,785		(423,126)
	Amortization of below-market leases, net			(46,786)		(52,876)		(54,359)
	Other non-cash adjustments			37,303		41,663		52,082
	Impairment losses and tenant buy-outs			26,518		37,170		133,977
	Net gain on disposition of wholly owned and partially owned assets			(13,568)		(3,407)		(13,347)
	Defeasance cost in connection with the refinancing of mortgage notes payable			5,589		-		-
	Losses from the disposition of investment in J.C. Penney			-		72,974		300,752
	Gain on sale of Canadian Trade Shows			-		-		(31,105)
	Changes in operating assets and liabilities:
		Real Estate Fund investments		(3,392)		(37,817)		(262,537)
		Tenant and other receivables, net		(8,282)		83,897		(23,271)
		Prepaid assets		(8,786)		(2,207)		(10,549)
		Other assets		(123,435)		(50,856)		(46,573)
		Accounts payable and accrued expenses		44,628		(41,729)		21,595
		Other liabilities		3,125		(12,576)		9,955
Net cash provided by operating activities				1,135,310		1,040,789		825,049
Cash Flows from Investing Activities:
	Development costs and construction in progress			(544,187)		(469,417)		(156,873)
	Additions to real estate			(279,206)		(260,343)		(205,652)
	Proceeds from sales of real estate and related investments			388,776		1,027,608		445,683
	Acquisitions of real estate and other			(211,354)		(193,417)		(673,684)
	Investments in partially owned entities			(120,639)		(230,300)		(134,994)
	Restricted cash			99,464		(26,892)		(75,138)
	Proceeds from sales and repayments of mortgage and mezzanine loans
		receivable and other		96,913		50,569		38,483
	Investments in mortgage and mezzanine loans receivable and other			(30,175)		(390)		(94,094)
	Distributions of capital from partially owned entities			25,943		290,404		144,502
	Proceeds from sales of, and return of investment in, marketable securities			-		378,709		60,258
	Proceeds from the sale of LNR			-		240,474		-
	Funding of J.C. Penney derivative collateral; and settlement of derivative in 2013			-		(186,079)		(191,330)
	Return of J.C. Penney derivative collateral			-		101,150		134,950
	Proceeds from the sale of Canadian Trade Shows			-		-		52,504
	Proceeds from the repayment of loan to officer			-		-		13,123
Net cash (used in) provided by investing activities				(574,465)		722,076		(642,262)
See notes to consolidated financial statements.

9

VORNADO REALTY L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
				Year Ended December 31,
				2014		2013		2012
(Amounts in thousands)
Cash Flows from Financing Activities:
	Proceeds from borrowings			$	2,428,285	$	2,262,245	$	3,593,000
	Repayments of borrowings				(1,312,258)		(3,580,100)		(2,747,694)
	Distributions to Vornado				(547,831)		(545,913)		(699,318)
	Distributions to redeemable security holders and noncontrolling interests				(220,895)		(215,247)		(104,448)
	Purchase of marketable securities in connection with the defeasance of mortgage
		notes payable			(198,884)		-		-
	Distributions to preferred unitholders				(81,468)		(83,188)		(73,976)
	Debt issuance and other costs				(58,336)		(19,883)		(39,073)
	Contributions from noncontrolling interests in consolidated subsidiaries				30,295		43,964		213,132
	Proceeds received from exercise of Vornado stock options				19,245		7,765		11,853
	Repurchase of Class A units related to stock compensation agreements and related
		tax withholdings			(3,811)		(443)		(30,168)
	Purchases of outstanding preferred units				-		(299,400)		(243,300)
	Proceeds from the issuance of preferred units				-		290,306		290,971
Net cash provided by (used in) financing activities					54,342		(2,139,894)		170,979
Net increase (decrease) in cash and cash equivalents					615,187		(377,029)		353,766
Cash and cash equivalents at beginning of period					583,290		960,319		606,553
Cash and cash equivalents at end of period				$	1,198,477	$	583,290	$	960,319
Supplemental Disclosure of Cash Flow Information:
	Cash payments for interest (net of amounts capitalized of $53,139, $42,303 and $16,801)			$	443,538	$	465,260	$	491,869
	Cash payments for income taxes			$	11,696	$	9,023	$	21,709
Non-Cash Investing and Financing Activities:
	Like-kind exchange of real estate:
		Acquisitions		$	606,816	$	66,076	$	230,913
		Dispositions			(630,352)		(128,767)		(230,913)
	Adjustments to carry redeemable Class A units at redemption value				(315,276)		(108,252)		(52,117)
	Marketable securities transferred in connection with the defeasance of mortgage
		notes payable			198,884		-		-
	Defeasance of mortgage notes payable				(193,406)		-		-
	Write-off of fully depreciated assets				(121,673)		(77,106)		(177,367)
	Accrued capital expenditures included in accounts payable and accrued expenses				100,528		72,042		80,350
	Elimination of a mortgage and mezzanine loan asset and liability				59,375		-		-
	Transfer of interest in Real Estate Fund to unconsolidated joint venture				(58,564)		-		-
	Transfer of noncontrolling interest in Real Estate Fund				(33,028)		-		-
	Beverly Connection seller financing				13,620		-		-
	Financing assumed in acquisitions				-		79,253		-
	Financing transferred in dispositions				-		-		(163,144)
	L.A. Mart seller financing				-		-		35,000
	Marriott Marquis Times Square - retail and signage capital lease:
		Asset (included in development costs and construction in progress)			-		-		240,000
		Liability (included in other liabilities)			-		-		(240,000)
	Increase in assets and liabilities resulting from the consolidation of partially owned entities:
			Real estate, net		-		-		342,919
			Notes and mortgages payable		-		-		334,225
	Decrease in assets and liabilities resulting from the deconsolidation of discontinued
		operations and/or investments that were previously consolidated:
			Real estate, net		-		(852,166)		-
			Notes and mortgages payable		-		(322,903)		-
See notes to consolidated financial statements.

10

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     Organization and Business

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 94.1% of the common limited partnership interest in the Operating Partnership at December 31, 2014.  All references to “we,” “us,” “our,” the “Company” and “Operating Partnership” refer to Vornado Realty L.P. and its consolidated subsidiaries.

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

We currently own all or portions of:

New York:

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

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

·Four residential properties containing 1,654 units;

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

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

Washington, DC:

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

·Seven residential properties containing 2,414units;

Other Real Estate and Related Investments:

·The 3.6 million square foot Mart in Chicago;

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

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

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

·Other real estate and related investments.

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VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2.    Basis of Presentation and Significant Accounting Policies

Basis of Presentation

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

The Company reclassified $37,929,000, $32,866,000 and $20,892,000 related to signage revenue from “fee and other income” to “property rentals” for the years ended December 31, 2014, 2013 and 2012, respectively.

The Company reclassified the financial results for those retail assets that were placed into discontinued operations which primarily consisted of the 79 strip shopping centers, three malls, and a warehouse park which were spun off to UE on January 15, 2015 as  well as certain other retail assets not included in the UE spin off but were determined to be part of the strategic shift in the Company’s business under the adoption of ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, in the first quarter of 2015.

Recently Issued Accounting Literature

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

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

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

12

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2.    Basis of Presentation and Significant Accounting Policies - continued

Significant Accounting Policies

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

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

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

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

(Amounts in thousands)			For the Year Ended December 31,
			2014		2013			2012
Impairment losses		$	-	$	-		$	6,138
Acquisition related costs			18,435		24,857	(1)		11,248
		$	18,435	$	24,857		$	17,386
(1)	Includes a $10,949 prepayment penalty in connection with the repayment of the mortgage loan upon the acquisition of 655 Fifth Avenue.

13

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2.    Basis of Presentation and Significant Accounting Policies – continued

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

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

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

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

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

14

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2.    Basis of Presentation and Significant Accounting Policies – continued

Allowance for Doubtful Accounts:  We periodically evaluate the collectibility of amounts due from tenants and maintain an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required payments under the lease agreements. We also maintain an allowance for receivables arising from the straight-lining of rents. This receivable arises from earnings recognized in excess of amounts currently due under the lease agreements. Management exercises judgment in establishing these allowances and considers payment history and current credit status in developing these estimates.  As of December 31, 2014 and 2013, we had $12,210,000 and $14,519,000, respectively, in allowances for doubtful accounts.  In addition, as of December 31, 2014 and 2013, we had $3,188,000 and $4,355,000, respectively, in allowances for receivables arising from the straight-lining of rents.

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

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

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

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

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

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

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

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

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

15

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2.    Basis of Presentation and Significant Accounting Policies – continued

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

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

Income Taxes: As a limited partnership, our partners are required to report their respective share of taxable income on their individual tax returns. The provision for income taxes in our consolidated financial statements relate to certain taxable REIT subsidiaries pursuant to an amendment to the Internal Revenue Code that became effective January 1, 2001.  Taxable REIT subsidiaries may participate in non-real estate related activities and/or perform non-customary services for tenants and are subject to Federal and State income tax at regular corporate tax rates. Our taxable REIT subsidiaries had a combined current income tax expense of approximately $10,777,000, $9,608,000 and $20,336,000 for the years ended December 31, 2014, 2013 and 2012, respectively, and have immaterial differences between the financial reporting and tax basis of assets and liabilities. 

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

16

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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

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

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

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

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

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

(Amounts in thousands)		For the Year Ended December 31,
		2014		2013		2012
Net investment income		$	12,895	$	8,943	$	8,575
Net realized gains			76,337		8,184		-
Net unrealized gains			73,802		85,771		55,361
Income from Real Estate Fund			163,034		102,898		63,936
Less income attributable to noncontrolling interests			(92,728)		(53,427)		(39,332)
Income from Real Estate Fund attributable to Vornado Realty L.P. (1)		$	70,306	$	49,471	$	24,604
(1)	Excludes $2,865, $2,992, and $3,278 of management and leasing fees in the years ended December 31, 2014, 2013 and 2012, respectively, which are included as a component of "fee and other income" on our consolidated statements of income.

4.     Acquisitions

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

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

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

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

17

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5.    Marketable Securities and Derivative Instruments

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

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

	Below is a summary of our marketable securities portfolio as of December 31, 2014 and 2013.
		As of December 31, 2014						As of December 31, 2013
				GAAP		Unrealized				GAAP		Unrealized
		Fair Value		Cost		Gain		Fair Value		Cost		Gain
Equity securities:
	Lexington Realty Trust	$	202,789	$	72,549	$	130,240	$	188,567	$	72,549	$	116,018
	Other		3,534		-		3,534		3,350		59		3,291
		$	206,323	$	72,549	$	133,774	$	191,917	$	72,608	$	119,309

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

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

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

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

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

Other Investments

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6.    Investments in Partially Owned Entities

Toys “R” Us (“Toys”)

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

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

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

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

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

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

(Amounts in thousands)					Balance as of
Balance Sheet:					November 1, 2014		November 2, 2013
	Assets				$	11,267,000	$	11,756,000
	Liabilities					10,377,000		10,437,000
	Noncontrolling interests					82,000		75,000
	Toys “R” Us, Inc. equity (1)					808,000		1,244,000
			For the Twelve Months Ended
Income Statement:			November 1, 2014		November 2, 2013		October 27, 2012
	Total revenues		$	12,645,000	$	13,046,000	$	13,698,000
	Net (loss) income attributable to Toys			(343,000)		(396,000)		138,000
(1)		At December 31, 2014, the carrying amount of our investment in Toys is less than our share of Toys' equity by approximately $263,455. This basis difference results primarily from non-cash impairment losses aggregating $355,953 that we have recognized through December 31, 2014. We have allocated the basis difference primarily to Toys' real estate, which is being amortized over its remaining estimated useful life.

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

As of December 31, 2014, we own 1,654,068 Alexander’s common shares, or approximately 32.4% of Alexander’s common equity.  We manage, lease and develop Alexander’s properties pursuant to agreements which expire in March of each year and are automatically renewable.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6.    Investments in Partially Owned Entities – continued

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

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

Management, Leasing and Development Agreements

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

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

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

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

Other Agreements

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

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

(Amounts in thousands)				Balance as of December 31,
Balance Sheet:				2014		2013
	Assets			$	1,423,000	$	1,458,000
	Liabilities				1,075,000		1,124,000
	Stockholders' equity				348,000		334,000
		For the Year Ended December 31,
Income Statement:		2014		2013		2012
	Total revenues	$	201,000	$	196,000	$	191,000
	Net income attributable to Alexander’s (1)		68,000		57,000		674,000
(1)	2012 includes a $600,000 net gain on sale of real estate.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6.    Investments in Partially Owned Entities – continued

LNR Property LLC (“LNR”)

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

One Park Avenue

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

61 Ninth Avenue

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

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

(Amounts in thousands)				Balance as of December 31,
Balance Sheet:				2014		2013
	Assets			$	21,389,000	$	21,773,000
	Liabilities				17,986,000		17,982,000
	Noncontrolling interests				104,000		96,000
	Equity				3,299,000		3,695,000
		For the Year Ended December 31,
Income Statement:		2014		2013		2012
	Total revenue	$	13,620,000	$	14,092,000	$	15,119,000
	Net (loss) income(1)		(434,000)		(368,000)		1,091,000
(1)	2012 includes a $600,000 net gain on sale of real estate.

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VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6.    Investments in Partially Owned Entities - continued

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

			Percentage
(Amounts in thousands)			Ownership at	As of December 31,
Investments:			December 31, 2014	2014		2013
	Toys		32.6%	$	-	$	83,224
	Alexander’s		32.4%	$	131,616	$	167,785
	India real estate ventures		4.1%-36.5%		76,752		88,467
	Partially owned office buildings (1)		Various		760,749		621,294
	Other investments (2)		Various		277,379		288,897
				$	1,246,496	$	1,166,443
______________________________________________________
(1)		Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 666 Fifth Avenue (Office), 330 Madison Avenue and others.
(2)		Includes interests in Independence Plaza, Monmouth Mall, 85 Tenth Avenue, Fashion Center Mall, 50-70 West 93rd Street and others.

				Percentage
(Amounts in thousands)				Ownership at		For the Year Ended December 31,
Our Share of Net (Loss) Income:				December 31, 2014		2014		2013		2012
	Toys:
		Equity in net (loss) earnings			32.6%	$	(4,691)	$	(128,919)	$	45,267
		Non-cash impairment losses (see page 19 for details)					(75,196)		(240,757)		(40,000)
		Management fees					6,331		7,299		9,592
						$	(73,556)	$	(362,377)	$	14,859
	Alexander's:
		Equity in net income			32.4%	$	21,287	$	17,721	$	24,709
		Management, leasing and development fees					8,722		6,681		13,748
		Net gain on sale of real estate					-		-		179,934
							30,009		24,402		218,391
	India real estate ventures (1)				4.1%-36.5%		(8,309)		(3,533)		(5,008)
	Partially owned office buildings (2)				Various		93		(4,212)		(3,770)
	Other investments (3)				Various		(6,368)		(10,817)		103,644
	LNR (see page 21 for details):
		Equity in net income			n/a		-		42,186		66,270
		Impairment loss					-		(27,231)		-
		Net gain on sale					-		3,776		-
							-		18,731		66,270
	Lexington (see page 18 for details): (4)				n/a
		Equity in net loss					-		(979)		(23)
		Net gain resulting from Lexington's stock issuance and asset
			acquisition				-		-		28,763
							-		(979)		28,740
						$	15,425	$	23,592	$	408,267
______________________________________________________
(1)			Includes a $5,771 non-cash impairment loss in 2014.
(2)			Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 666 Fifth Avenue (Office), 330 Madison Avenue and others.
(3)			Includes interests in Independence Plaza, Monmouth Mall, 85 Tenth Avenue, Fashion Center Mall, 50-70 West 93rd Street and others. In the third quarter of 2014, we recognized a $10,263 non-cash charge, comprised of a $5,959 impairment loss and a $4,304 loan loss reserve, on our equity and debt investments in Suffolk Downs.
(4)			In the first quarter of 2013, we began accounting for our investment in Lexington as a marketable equity security - available for sale.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6.    Investments in Partially Owned Entities - continued

		Below is a summary of the debt of our partially owned entities as of December 31, 2014 and 2013, none of which is recourse to us.
			Percentage		Interest
			Ownership at		Rate at	100% Partially Owned Entities’
(Amounts in thousands)			December 31,		December 31,	Debt at December 31,
			2014	Maturity	2014	2014		2013
Toys:
	Notes, loans and mortgages payable		32.6%	2015-2021	7.23%	$	5,748,350	$	5,702,247
Alexander's:
	Mortgages payable		32.4%	2015-2021	2.59%	$	1,032,780	$	1,049,959
Partially owned office buildings(1):
	Mortgages payable		Various	2015-2023	5.59%	$	3,691,274	$	3,622,759
India Real Estate Ventures:
	TCG Urban Infrastructure Holdings mortgages
		payable	25.0%	2015-2026	13.25%	$	183,541	$	199,021
Other(2):
	Mortgages payable		Various	2015-2023	4.33%	$	1,480,485	$	1,709,509
(1)		Includes 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 666 Fifth Avenue (Office), 330 Madison Avenue and others.
(2)		Includes Independence Plaza, Monmouth Mall, Fashion Center Mall, 50-70 West 93rd Street and others.

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

7.    Mortgage and Mezzanine Loans Receivable

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

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

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

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8.    Dispositions

Discontinued Operations

2014 Activity:

New York

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

Retail Properties

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

On March 2, 2014, we entered into an agreement to transfer upon completion, the redeveloped Springfield Town Center, a 1,350,000 square foot mall located in Springfield, Fairfax County, Virginia, to Pennsylvania Real Estate Investment Trust (NYSE: PEI) (“PREIT”) in exchange for $465,000,000 comprised of $340,000,000 of cash and $125,000,000 of PREIT operating partnership units.  In connection therewith, we recorded a non-cash impairment loss of $20,000,000 in the first quarter of 2014, which is included in “income from discontinued operations” on our consolidated statements of income. The redevelopment was substantially completed in October 2014, at which time we reclassified the assets, liabilities and financial results to discontinued operations, and the transfer of the property to PREIT was completed on March 31, 2015.

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

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

2013 Activity:

New York

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

Retail Properties

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

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

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

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

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

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VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8.    Dispositions - continued

2012 Activity:

Washington, DC

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

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

Merchandise Mart

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

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

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

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

Retail Properties

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

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

	Assets Related to				Liabilities Related to
(Amounts in thousands)	Discontinued Operations as of				Discontinued Operations as of
	December 31,				December 31,
	2014		2013		2014		2013
Retail	$	2,238,474	$	2,497,918	$	1,511,362	$	1,441,853
New York		-		138,162		-		-
Total	$	2,238,474	$	2,636,080	$	1,511,362	$	1,441,853
(Amounts in thousands)			For the Year Ended December 31,
			2014		2013		2012
Total revenues			$	394,056	$	499,964	$	581,392
Total expenses				275,828		312,675		418,653
				118,228		187,289		162,739
Net gains on sales of real estate				507,192		414,502		245,799
Impairment losses				(41,474)		(37,170)		(127,839)
Gain on sale of Canadian Trade Shows, net of $11,448 of income taxes				-		-		19,657
Gain on sale of assets other than real estate				-		1,377		8,491
Income from discontinued operations			$	583,946	$	565,998	$	308,847

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9.    Identified Intangible Assets and Liabilities

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

	Balance as of December 31,
(Amounts in thousands)	2014		2013
Identified intangible assets:
Gross amount	$	424,976	$	505,203
Accumulated amortization		(199,821)		(252,121)
Net	$	225,155	$	253,082
Identified intangible liabilities (included in deferred revenue):
Gross amount	$	657,976	$	622,685
Accumulated amortization		(329,775)		(295,768)
Net	$	328,201	$	326,917

Amortization of acquired below-market leases, net of acquired above-market leases, resulted in an increase to rental income of $37,516,000, $41,970,000 and $39,815,000 for the years ended December 31, 2014, 2013 and 2012, respectively.  Estimated annual amortization of acquired below-market leases, net of acquired above-market leases, for each of the five succeeding years commencing January 1, 2015 is as follows:

(Amounts in thousands)
2015	$	49,550
2016		37,894
2017		35,069
2018		34,166
2019		23,928

Amortization of all other identified intangible assets (a component of depreciation and amortization expense) was $28,275,000, $61,915,000 and $46,160,000 for the years ended December 31, 2014, 2013 and 2012, respectively.  Estimated annual amortization of all other identified intangible assets including acquired in-place leases, customer relationships, and third party contracts for each of the five succeeding years commencing January 1, 2015 is as follows:

(Amounts in thousands)
2015	$	25,735
2016		20,122
2017		16,619
2018		12,417
2019		10,470

We are a tenant under ground leases at certain properties.  Amortization of these acquired below-market leases, net of above-market leases, resulted in an increase to rent expense of $1,832,000 and $2,745,000 for the years ended December 31, 2014 and 2013 and a decrease to rent expense of $403,000 for the year ended December 31, 2012.  Estimated annual amortization of these below-market leases, net of above-market leases, for each of the five succeeding years commencing January 1, 2015 is as follows:

(Amounts in thousands)
2015	$	1,832
2016		1,832
2017		1,832
2018		1,832
2019		1,832

26

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10.    Debt

Secured Debt

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

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

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

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

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

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

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

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

Senior Unsecured Notes

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

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

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

27

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10.    Debt – continued

Unsecured Revolving Credit Facility

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

The following is a summary of our debt:

		Weighted Average
		Interest Rate at			Balance at December 31,
(Amounts in thousands)		December 31, 2014			2014		2013
Mortgages Payable:
	Fixed rate		4.46%	$	6,499,396	$	6,439,371
	Variable rate		2.20%		1,763,769		691,860
			3.98%	$	8,263,165	$	7,131,231
Unsecured Debt:
	Senior unsecured notes		3.89%	$	1,347,159	$	1,350,855
	Unsecured revolving credit facilities		-		-		295,870
			3.89%	$	1,347,159	$	1,646,725

        The net carrying amount of properties collateralizing the mortgages payable amounted to $9.4 billion at December 31, 2014.  As of December 31, 2014, the principal repayments required for the next five years and thereafter are as follows:

				Senior Unsecured
				Debt and
(Amounts in thousands)				Revolving Credit
Year Ending December 31,		Mortgages Payable		Facilities
2015	$	407,229	$	500,000
2016		1,399,378		-
2017		609,680		-
2018		240,674		-
2019		979,197		450,000
Thereafter		4,624,897		400,000

28

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11.    Redeemable Partnership Units

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

Below are the details of redeemable partnership units as of December 31, 2014 and 2013.

(Amounts in thousands, except units and										Preferred or
per unit amounts)		Balance as of				Units Outstanding at		Per Unit		Annual
		December 31,				December 31,		Liquidation		Distribution
Unit Series		2014			2013	2014	2013	Preference		Rate
Common:
	Class A units held by third parties	$	1,336,780	$	1,002,620	11,356,550	11,292,038		n/a	$	2.92
Redeemable Preferred: (1)
	5.00% D-16 Cumulative Redeemable	$	1,000	$	1,000	1	1	$	1,000,000.00	$	50,000.00
(1)	Holders may tender units for redemption to us for cash at their stated redemption amount; Vornado, at its option, may assume that obligation and pay the holders either cash or Vornado preferred shares on a one-for-one basis. These units are redeemable at any time.

Below is a table summarizing the activity of redeemable partnership units.
	(Amounts in thousands)
	Balance at December 31, 2012	$	944,152
	Net income		24,817
	Other comprehensive income		5,296
	Distributions		(34,053)
	Redemption of Class A units, at redemption value		(25,317)
	Adjustments to carry redeemable Class A units at redemption value		108,252
	Redemption of Series D-15 redeemable units		(36,900)
	Other, net		17,373
	Balance at December 31, 2013		1,003,620
	Net income		47,613
	Other comprehensive income		1,323
	Distributions		(33,469)
	Redemption of Class A units, at redemption value		(27,273)
	Adjustments to carry redeemable Class A units at redemption value		315,276
	Other, net		30,690
	Balance at December 31, 2014	$	1,337,780

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

29

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12.    Partners’ Capital

Class A units

As of December 31, 2014, there were 187,887,498 Class A units outstanding that were held by Vornado. These units are classified as “partners’ capital” on our consolidated balance sheets.  As of December 31, 2014, there were 11,356,550 Class A units outstanding, that were held by third parties. These units are classified outside of “partners’ capital” as “redeemable partnership units” on our consolidated balance sheets (See Note 11 – Redeemable Partnership Units).  During 2014, we paid an aggregate of $547,831,000 of distributions to Vornado comprised of quarterly common distributions of $0.73 per unit.

Preferred Units

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

(Amounts in thousands, except unit and		Balance as of				Units Outstanding at		Per Unit		Annual
per unit amounts)		December 31,				December 31,		Liquidation		Distribution
Preferred Units		2014		2013		2014	2013	Preference		Rate(1)
Convertible Preferred:
	6.5% Series A: authorized 83,977 units(2)	$	1,393	$	1,592	28,939	32,807	$	50.00	$	3.25
Cumulative Redeemable:
	6.625% Series G: authorized 8,000,000 units(3)		193,135		193,135	8,000,000	8,000,000	$	25.00	$	1.65625
	6.625% Series I: authorized 10,800,000 units(3)		262,379		262,379	10,800,000	10,800,000	$	25.00	$	1.65625
	6.875% Series J: authorized 9,850,000 units(3)		238,842		238,842	9,850,000	9,850,000	$	25.00	$	1.71875
	5.70% Series K: authorized 12,000,000 units(3)		290,971		290,971	12,000,000	12,000,000	$	25.00	$	1.425
	5.40% Series L: authorized 12,000,000 units(3)		290,306		290,306	12,000,000	12,000,000	$	25.00	$	1.35
		$	1,277,026	$	1,277,225	52,678,939	52,682,807
(1)	Distributions on preferred units are cumulative and are payable quarterly in arrears.
(2)	Redeemable at the option of Vornado under certain circumstances, at a redemption price of 1.4334 Class A units per Series A Preferred unit plus accrued and unpaid distributions through the date of redemption, or convertible at any time at the option of the holder for 1.4334 Class A units per Series A Preferred unit.
(3)	Redeemable at Vornado's option at a redemption price of $25.00 per unit, plus accrued and unpaid distributions through the date of redemption.

Accumulated Other Comprehensive Income (Loss)

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

	For the Year Ended December 31, 2014
			Securities		Pro rata share of		Interest
			available-		nonconsolidated		rate
(Amounts in thousands)	Total		for-sale		subsidiaries' OCI		swap		Other
Balance as of December 31, 2013	$	71,537	$	119,309	$	(11,501)	$	(31,882)	$	(4,389)
Net current period OCI		21,730		14,465		2,509		6,079		(1,323)
Balance as of December 31, 2014	$	93,267	$	133,774	$	(8,992)	$	(25,803)	$	(5,712)

13.    Variable Interest Entities (“VIEs”) 

Unconsolidated VIEs

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

30

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14.  Fair Value Measurements

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

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

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

			As of December 31, 2014
(Amounts in thousands)			Total		Level 1		Level 2		Level 3
	Marketable securities		$	206,323	$	206,323	$	-	$	-
	Real Estate Fund investments (75% of which is attributable to
		noncontrolling interests)		513,973		-		-		513,973
	Deferred compensation plan assets (included in other assets)			117,284		53,969		-		63,315
		Total assets	$	837,580	$	260,292	$	-	$	577,288
	Mandatorily redeemable instruments (included in other liabilities)		$	55,097	$	55,097	$	-	$	-
	Interest rate swap (included in other liabilities)			25,797		-		25,797		-
		Total liabilities	$	80,894	$	55,097	$	25,797	$	-
			As of December 31, 2013
(Amounts in thousands)			Total		Level 1		Level 2		Level 3
	Marketable securities		$	191,917	$	191,917	$	-	$	-
	Real Estate Fund investments (75% of which is attributable to
		noncontrolling interests)		667,710		-		-		667,710
	Deferred compensation plan assets (included in other assets)			116,515		47,733		-		68,782
		Total assets	$	976,142	$	239,650	$	-	$	736,492
	Mandatorily redeemable instruments (included in other liabilities)		$	55,097	$	55,097	$	-	$	-
	Interest rate swap (included in other liabilities)			31,882		-		31,882		-
		Total liabilities	$	86,979	$	55,097	$	31,882	$	-

31

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14.  Fair Value Measurements - continued

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

Real Estate Fund Investments

At December 31, 2014, our Real Estate Fund had seven investments with an aggregate fair value of $513,973,000, or $176,899,000 in excess of cost.  These investments are classified as Level 3.  We use a discounted cash flow valuation technique to estimate the fair value of each of these investments, which is updated quarterly by personnel responsible for the management of each investment and reviewed by senior management at each reporting period.  The discounted cash flow valuation technique requires us to estimate cash flows for each investment over the anticipated holding period, which currently ranges from 0.8 to 6.0 years.  Cash flows are derived from property rental revenue (base rents plus reimbursements) less operating expenses, real estate taxes and capital and other costs, plus projected sales proceeds in the year of exit.  Property rental revenue is based on leases currently in place and our estimates for future leasing activity, which are based on current market rents for similar space plus a projected growth factor.  Similarly, estimated operating expenses and real estate taxes are based on amounts incurred in the current period plus a projected growth factor for future periods.  Anticipated sales proceeds at the end of an investment’s expected holding period are determined based on the net cash flow of the investment in the year of exit, divided by a terminal capitalization rate, less estimated selling costs. 

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

			Weighted Average
			(based on fair
Unobservable Quantitative Input		Range	value of investments)
	Discount rates	12.0% to 17.5%	13.7%
	Terminal capitalization rates	4.7% to 6.5%	5.3%

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

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

	Real Estate Fund Investments
	For The Year Ended December 31,
(Amounts in thousands)	2014		2013
Beginning balance	$	667,710	$	600,786
Purchases		3,392		43,816
Dispositions / Distributions		(307,268)		(70,848)
Net unrealized gains		73,802		85,771
Net realized gains		76,337		8,184
Other, net		-		1
Ending balance	$	513,973	$	667,710

32

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14.  Fair Value Measurements - continued

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

Deferred Compensation Plan Assets

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

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

	Deferred Compensation Plan Assets
	For The Year Ended December 31,
(Amounts in thousands)	2014		2013
Beginning balance	$	68,782	$	62,631
Purchases		14,162		5,018
Sales		(24,951)		(7,306)
Realized and unrealized gains		3,415		7,189
Other, net		1,907		1,250
Ending balance	$	63,315	$	68,782

Fair Value Measurements on a Nonrecurring Basis

Assets measured at fair value on a nonrecurring basis on our consolidated balance sheets consist primarily of real estate assets and our investment in Toys that were written-down to estimated fair value during 2014 or 2013.  See Note 2 – Basis of Presentation and Significant Accounting Policies for details of impairment losses recognized during 2014 and 2013.  See Note 6 – Investments in Partially Owned Entities for details of impairment losses related to Toys recognized during 2014 and 2013.  The fair value of our real estate assets was determined using widely accepted valuation techniques, including (i) discounted cash flow analysis, which considers, among other things, leasing assumptions, growth rates, discount rates and terminal capitalization rates, (ii) income capitalization approach, which considers prevailing market capitalization rates, and (iii) comparable sales activity.  In determining the fair value of our investment in Toys, we considered, among other inputs, a December 31, 2013 third-party valuation of Toys and Toys’ historical results, financial forecasts and business outlook.  Our determination of the fair value of our investment in Toys included consideration of the following widely-used valuation methodologies: (i) market multiple methodology, that considered comparable publicly traded retail companies and a range of EBITDA multiples from 5.75x to 6.5x, (ii) comparable sales transactions methodology, that considered sales of retailers ranging in size from $150 million to $3 billion, (iii) a discounted cash flow methodology, that utilized five-year financial projections and assumed a terminal EBITDA multiple of 5.75x, a 10% discount rate and a 38% tax rate, and (iv) a Black-Scholes valuation analysis, that assumed one, two and three year time-to-expiration periods and 24% to 29% volatility factors.  Generally, we consider multiple valuation techniques when measuring fair values but in certain circumstances, a single valuation technique may be appropriate.  The tables below aggregate the fair values of these assets by their levels in the fair value hierarchy.

			As of December 31, 2014
(Amounts in thousands)			Total		Level 1		Level 2		Level 3
	Real estate assets		$	4,848	$	-	$	-	$	4,848
			As of December 31, 2013
(Amounts in thousands)			Total		Level 1		Level 2		Level 3
	Real estate assets		$	354,341	$	-	$	-	$	354,341
	Investment in Toys			83,224		-		-		83,224
		Total assets	$	437,565	$	-	$	-	$	437,565

33

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14.  Fair Value Measurements – continued

Financial Assets and Liabilities not Measured at Fair Value

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

				As of December 31, 2014				As of December 31, 2013
				Carrying		Fair		Carrying		Fair
(Amounts in thousands)				Amount		Value		Amount		Value
		Cash equivalents		$	749,418	$	749,000	$	295,000	$	295,000
		Mortgage and mezzanine loans receivable
			(included in other assets)		16,748		17,000		170,972		171,000
				$	766,166	$	766,000	$	465,972	$	466,000
	Debt:
		Mortgages payable		$	8,263,165	$	8,224,000	$	7,131,231	$	6,903,000
		Senior unsecured notes			1,347,159		1,385,000		1,350,855		1,402,000
		Revolving credit facility debt			-		-		295,870		296,000
				$	9,610,324	$	9,609,000	$	8,777,956	$	8,601,000

34

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15.    Stock-based Compensation

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

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

Out-Performance Plans (“the OPPs”)

OPPs are multi-year, performance-based equity compensation plans under which participants, including Vornado’s Chairman and Chief Executive Officer, have the opportunity to earn compensation payable in the form of units 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 the requisite performance periods as described below.   The aggregate notional amounts of the 2012, 2013, 2014 and 2015 OPPs are $40,000,000, $40,000,000, $50,000,000 and $40,000,000, respectively. 

Awards under the 2012 OPP have been earned.  Awards under the 2013 OPP may be earned if Vornado (i) achieves a TSR greater than 14% over the two-year performance measurement period, or 21% over the three-year performance measurement period (the “Absolute Component”), and/or (ii) achieves a TSR above that of the SNL REIT Index (the “Index”) over the two-year or three-year performance measurement period (the “Relative Component”).  Awards under the 2014 and 2015 OPP may be earned if Vornado (i) achieves a TSR level greater than 7% per annum, or 21% over the three-year performance measurement periods (the “Absolute Component”), and/or (ii) achieves a TSR above that of the Index over the three-year performance measurement periods (the “Relative Component”).  To the extent awards would be earned under the Absolute Component of each of the OPPs, but 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 fully earned under the Absolute Component, awards may still be earned or increased under the Relative Component.  To the extent awards would otherwise be earned under the Relative Component but Vornado fails to achieve at least a 6% per annum absolute TSR, such awards earned under the Relative Component would be reduced based on Vornado’s absolute TSR, 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.  Distributions on awards earned accrue during the performance period. 

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

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

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15.    Stock-based Compensation - continued

Stock Options      

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

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

					Weighted-
			Weighted-		Average
			Average		Remaining	Aggregate
			Exercise		Contractual	Intrinsic
		Shares	Price		Term	Value
Outstanding at January 1, 2014		3,248,699	$	67.51
Granted		49,088		91.32
Exercised		(434,204)		67.27
Cancelled or expired		(43,468)		104.74
Outstanding at December 31, 2014		2,820,115	$	67.38	4.6	$	145,317,000
Options vested and expected to vest at
	December 31, 2014	2,818,587	$	67.37	4.6	$	145,271,000
Options exercisable at December 31, 2014		2,606,260	$	65.62	4.4	$	138,912,000

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

	December 31,
	2014	2013	2012
Expected volatility	36.00%	36.00%	36.00%
Expected life	5.0 years	5.0 years	5.0 years
Risk free interest rate	1.81%	0.91%	1.05%
Expected dividend yield	4.10%	4.30%	4.30%

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

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VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15.    Stock-based Compensation - continued

Restricted Stock

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

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

			Weighted-Average
			Grant-Date
Unvested Shares		Shares	Fair Value
	Unvested at January 1, 2014	29,664	$	79.24
	Granted	11,475		91.31
	Vested	(15,733)		74.61
	Cancelled or expired	(2,957)		87.42
	Unvested at December 31, 2014	22,449		87.58

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

Restricted Operating Partnership Units (“OP Units”)

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

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

			Weighted-Average
			Grant-Date
Unvested Units		Units	Fair Value
	Unvested at January 1, 2014	765,971	$	76.27
	Granted	226,638		86.79
	Vested	(327,555)		69.48
	Cancelled or expired	(6,575)		83.16
	Unvested at December 31, 2014	658,479		83.20

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

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VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

16.    Fee and Other Income

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

(Amounts in thousands)		For the Year Ended December 31,
		2014		2013		2012
BMS cleaning fees		$	85,658	$	66,505	$	67,584
Management and leasing fees			19,905		23,073		18,718
Lease termination fees(1)			16,362		32,630		2,287
Other income			33,281		33,363		30,488
		$	155,206	$	155,571	$	119,077
__________________________
(1)	The year ended December 31, 2013 includes $19,500 from a tenant at 1290 Avenue of the Americas, of which our 70% share, net of a $1,529 write-off of the straight lining of rents, was $12,121, and $3,000 from the termination of our subsidiaries' agreements with Cuyahoga County to operate the Cleveland Medical Mart Convention Center.

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

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

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

(Amounts in thousands)		For the Year Ended December 31,
		2014		2013		2012
Dividends and interest on marketable securities		$	12,707	$	11,446	$	11,979
Mark-to-market of investments in our deferred compensation plan (1)			11,557		10,636		6,809
Interest on mezzanine loans receivable			3,920		19,495		13,861
Losses from the disposition of investment in J.C. Penney			-		(72,974)		(300,752)
Other, net			10,568		6,510		6,903
		$	38,752	$	(24,887)	$	(261,200)
__________________________
(1)	This income is entirely offset by the expense resulting from the mark-to-market of the deferred compensation plan liability, which is included in "general and administrative" expense.

18.     Interest and Debt Expense

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

(Amounts in thousands)	For the Year Ended December 31,
	2014		2013		2012
Interest expense	$	430,278	$	444,412	$	427,147
Amortization of deferred financing costs		45,263		23,673		20,889
Capitalized interest and debt expense		(62,786)		(42,303)		(16,801)
	$	412,755	$	425,782	$	431,235

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VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

19.    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 stock options and restricted units.

(Amounts in thousands, except per unit amounts)			Year Ended December 31,
			2014		2013		2012
Numerator:
	Income (loss) from continuing operations, net of income attributable to
		noncontrolling interests	$	328,519	$	(62,146)	$	351,979
	Income from discontinued operations, net of income attributable to noncontrolling
		interests		583,946		562,934		310,544
	Net income attributable to Vornado Realty L.P.			912,465		500,788		662,523
	Preferred unit distributions			(81,514)		(83,965)		(86,873)
	Preferred unit redemptions			-		(1,130)		8,948
	Net income attributable to Class A unitholders			830,951		415,693		584,598
	Earnings allocated to unvested participating securities			(4,260)		(2,705)		(3,413)
	Numerator for basic income per Class A unit			826,691		412,988		581,185
	Impact of assumed conversions:
		Convertible preferred unit distributions		97		-		113
	Numerator for diluted income per Class A unit		$	826,788	$	412,988	$	581,298
Denominator:
	Denominator for basic income per Class A unit – weighted average units			198,213		197,551		197,082
	Effect of dilutive securities (1):
		Vornado stock options and restricted unit awards		1,557		1,092		1,002
		Convertible preferred units		43		-		50
	Denominator for diluted income per Class A unit – weighted average units and
		assumed conversions		199,813		198,643		198,134
INCOME (LOSS) PER CLASS A UNIT – BASIC:
	Income (loss) from continuing operations, net		$	1.22	$	(0.76)	$	1.37
	Income from discontinued operations, net			2.95		2.85		1.58
	Net income per Class A unit		$	4.17	$	2.09	$	2.95
INCOME (LOSS) PER CLASS A UNIT – DILUTED:
	Income (loss) from continuing operations, net		$	1.22	$	(0.75)	$	1.36
	Income from discontinued operations, net			2.92		2.83		1.57
	Net income per Class A unit		$	4.14	$	2.08	$	2.93
(1)		The effect of dilutive securities in the years ended December 31, 2014, 2013 and 2012 excludes an aggregate of 116, 818 and 2,796 weighted average Class A unit equivalents, respectively, as their effect was anti-dilutive.

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VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

20.  Leases

As lessor:

We lease space to tenants under operating leases. Most of the leases provide for the payment of fixed base rentals payable monthly in advance. Office building leases generally require the tenants to reimburse us for operating costs and real estate taxes above their base year costs. Shopping center leases provide for pass-through to tenants the tenant’s share of real estate taxes, insurance and maintenance. Shopping center leases also provide for the payment by the lessee of additional rent based on a percentage of the tenants’ sales. As of December 31, 2014, future base rental revenue under non-cancelable operating leases, excluding rents for leases with an original term of less than one year and rents resulting from the exercise of renewal options, are as follows:

(Amounts in thousands)
Year Ending December 31:
2015	$	1,564,200
2016		1,509,781
2017		1,470,810
2018		1,395,708
2019		1,236,840
Thereafter		6,990,557

These amounts do not include percentage rentals based on tenants’ sales.  These percentage rents approximated $6,343,000, $7,344,000 and $6,987,000, for the years ended December 31, 2014, 2013 and 2012, respectively.

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

As lessee:           

We are a tenant under operating leases for certain properties.  These leases have terms that expire during the next thirty years.  Future minimum lease payments under operating leases at December 31, 2014 are as follows: 

(Amounts in thousands)
Year Ending December 31:
2015	$	29,060
2016		29,575
2017		31,141
2018		31,629
2019		32,136
Thereafter		1,208,483

Rent expense was $36,329,000, $35,920,000 and $27,634,000 for the years ended December 31, 2014, 2013 and 2012, respectively.

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VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

20.  Leases - continued

We are also a lessee under a capital lease under which we will redevelop the retail and signage components of the Marriott Marquis Times Square Hotel.  The lease has put/call options, which if exercised would lead to our ownership.  Capitalized leases are recorded at the present value of future minimum lease payments or the fair market value of the property.  Capitalized leases are depreciated on a straight-line basis over the estimated life of the asset or life of the related lease.  Depreciation expense on capital leases is included in “depreciation and amortization” on our consolidated statements of income.  As of December 31, 2014, future minimum lease payments under this capital lease are as follows:

(Amounts in thousands)
Year Ending December 31:
2015	$	12,500
2016		12,500
2017		12,500
2018		12,500
2019		12,500
Thereafter		334,792
Total minimum obligations		397,292
Interest portion		(157,292)
Present value of net minimum payments	$	240,000

At December 31, 2014, the carrying amount of the property leased under the capital lease was $249,253,000, which is included as a component of “development costs and construction in progress” on our consolidated balance sheet and present value of net minimum payments of $240,000,000 is included in “other liabilities” on our consolidated balance sheet. 

21.  Multiemployer Benefit Plans

Our subsidiaries make contributions to certain multiemployer defined benefit plans (“Multiemployer Pension Plans”) and health plans (“Multiemployer Health Plans”) for our union represented employees, pursuant to the respective collective bargaining agreements.

Multiemployer Pension Plans

Multiemployer Pension Plans differ from single-employer pension plans in that (i) contributions to multiemployer plans may be used to provide benefits to employees of other     participating employers and (ii) if other participating employers fail to make their contributions, each of our participating subsidiaries may be required to bear its then pro rata share of unfunded obligations.  If a participating subsidiary withdraws from a plan in which it participates, it may be subject to a withdrawal liability.  As of December 31, 2014, our subsidiaries’ participation in these plans were not significant to our consolidated financial statements.

In the years ended December 31, 2014, 2013 and 2012, our subsidiaries contributed $11,431,000, $10,223,000 and $10,683,000, respectively, towards Multiemployer Pension Plans, which is included as a component of “operating” expenses on our consolidated statements of income.  Our subsidiaries’ contributions did not represent more than 5% of total employer contributions in any of these plans for the years ended December 31, 2014, 2013 and 2012.

Multiemployer Health Plans

Multiemployer Health Plans in which our subsidiaries participate provide health benefits to eligible active and retired employees.  In the years ended December 31, 2014, 2013 and 2012, our subsidiaries contributed $29,073,000, $26,262,000 and $26,759,000, respectively, towards these plans, which is included as a component of “operating” expenses on our consolidated statements of income.

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VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

22.  Commitments and Contingencies

Insurance

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

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

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

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

Other Commitments and Contingencies

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

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

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

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

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

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VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

23.  Related Party Transactions

Alexander’s

We own 32.4% of Alexander’s. Steven Roth, the Chairman of Vornado’s Board of Trustees and its Chief Executive Officer is also the Chairman of Alexander’s Board of Directors and its Chief Executive Officer.  We provide various services to Alexander’s in accordance with management, development and leasing agreements.  These agreements are described in Note 6 - Investments in Partially Owned Entities.

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

Interstate Properties (“Interstate”)

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

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

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

24.  Summary of Quarterly Results (Unaudited)

The following summary represents the results of operations for each quarter in 2014 and 2013:

						Net Income (Loss)
						Attributable		Net Income (Loss) Per
						to Class A		Class A Unit (2)
	(Amounts in thousands, except per unit amounts)			Revenues		Unitholders (1)		Basic		Diluted
		2014
			December 31	$	597,010	$	544,287	$	2.73	$	2.71
			September 30		578,710		139,134		0.70		0.69
			June 30		574,411		81,333		0.41		0.40
			March 31		562,381		66,197		0.33		0.33
		2013
			December 31	$	570,977	$	(73,042)	$	(0.37)	$	(0.37)
			September 30		578,322		88,037		0.44		0.44
			June 30		582,258		154,775		0.78		0.78
			March 31		567,619		245,923		1.24		1.23
_______________________________
	(1)		Fluctuations among quarters resulted primarily from non-cash impairment losses, mark-to-market of derivative instruments, net gains on sale of real estate and from seasonality of business operations.
	(2)		The total for the year may differ from the sum of the quarters as a result of weighting.

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VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

25.    Segment Information

As a result of the spin-off of substantially all of our Retail Properties segment (see Note 1 – Organization and Business), the remaining retail properties no longer meet the criteria to be a separate reportable segment.  In addition, as a result of our investment in Toys being reduced to zero, we suspended equity method accounting for our investment in Toys (see Note 6 - Investments in Partially Owned Entities) and the Toys segment no longer meets the criteria to be a separate reportable segment.  Accordingly, the Retail Properties segment and Toys have been reclassified to the Other segment.  Below is a summary of net income and a reconciliation of net income to EBITDA⁽¹⁾ by segment for the years ended December 31, 2014, 2013 and 2012.

(Amounts in thousands)		For the Year Ended December 31, 2014
			Total		New York			Washington, DC			Other
Total revenues			$	2,312,512	$	1,520,845		$	537,151		$	254,516
Total expenses				1,622,619		946,466			358,019			318,134
Operating income (loss)				689,893		574,379			179,132			(63,618)
(Loss) income from partially owned entities, including Toys				(58,131)		20,701			(3,677)			(75,155)
Income from Real Estate Fund				163,034		-			-			163,034
Interest and other investment income, net				38,752		6,711			183			31,858
Interest and debt expense				(412,755)		(183,427)			(75,395)			(153,933)
Net gain on disposition of wholly owned and partially
	owned assets			13,568		-			-			13,568
Income (loss) before income taxes				434,361		418,364			100,243			(84,246)
Income tax expense				(9,281)		(4,305)			(242)			(4,734)
Income (loss) from continuing operations				425,080		414,059			100,001			(88,980)
Income from discontinued operations				583,946		463,163			-			120,783
Net income				1,009,026		877,222			100,001			31,803
Less net income attributable to noncontrolling interests in
	consolidated subsidiaries			(96,561)		(8,626)			-			(87,935)
Net income (loss) attributable to Vornado Realty L.P.				912,465		868,596			100,001			(56,132)
Interest and debt expense(2)				654,398		241,959			89,448			322,991
Depreciation and amortization(2)				685,973		324,239			145,853			215,881
Income tax expense(2)				24,248		4,395			288			19,565
EBITDA(1)			$	2,277,084	$	1,439,189	(3)	$	335,590	(4)	$	502,305	(5)
Balance Sheet Data:
Real estate at cost			$	16,822,358	$	9,732,818		$	4,383,418		$	2,706,122
Investments in partially owned entities				1,246,496		1,036,130			102,635			107,731
Total assets				21,248,320		10,752,763			4,310,974			6,184,583
See notes on pages 47 and 48.

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25.    Segment Information – continued

(Amounts in thousands)		For the Year Ended December 31, 2013
			Total		New York			Washington, DC			Other
Total revenues			$	2,299,176	$	1,470,907		$	541,161		$	287,108
Total expenses				1,624,625		910,498			347,686			366,441
Operating income (loss)				674,551		560,409			193,475			(79,333)
(Loss) income from partially owned entities, including Toys				(338,785)		15,527			(6,968)			(347,344)
Income from Real Estate Fund				102,898		-			-			102,898
Interest and other investment (loss) income, net				(24,887)		5,357			129			(30,373)
Interest and debt expense				(425,782)		(181,966)			(102,277)			(141,539)
Net gain on disposition of wholly owned and partially
	owned assets			2,030		-			-			2,030
(Loss) income before income taxes				(9,975)		399,327			84,359			(493,661)
Income tax benefit (expense)				8,717		(2,794)			14,031			(2,520)
(Loss) income from continuing operations				(1,258)		396,533			98,390			(496,181)
Income from discontinued operations				565,998		160,314			-			405,684
Net income (loss)				564,740		556,847			98,390			(90,497)
Less net income attributable to noncontrolling interests in
	consolidated subsidiaries			(63,952)		(10,786)			-			(53,166)
Net income (loss) attributable to Vornado Realty L.P.				500,788		546,061			98,390			(143,663)
Interest and debt expense(2)				758,781		236,645			116,131			406,005
Depreciation and amortization(2)				732,757		293,974			142,409			296,374
Income tax expense (benefit)(2)				26,371		3,002			(15,707)			39,076
EBITDA(1)			$	2,018,697	$	1,079,682	(3)	$	341,223	(4)	$	597,792	(5)
Balance Sheet Data:
Real estate at cost			$	15,392,968	$	8,422,297		$	4,243,048		$	2,727,623
Investments in partially owned entities				1,249,667		904,278			100,543			244,846
Total assets				20,097,224		9,255,964			4,107,636			6,733,624
See notes on pages 47 and 48.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

25.    Segment Information – continued

(Amounts in thousands)		For the Year Ended December 31, 2012
			Total		New York			Washington, DC			Other
Total revenues			$	2,332,724	$	1,319,470		$	554,028		$	459,226
Total expenses				1,738,381		835,563			360,056			542,762
Operating income (loss)				594,343		483,907			193,972			(83,536)
Income (loss) from partially owned entities, including Toys				423,126		207,773			(5,612)			220,965
Income from Real Estate Fund				63,936		-			-			63,936
Interest and other investment (loss) income, net				(261,200)		4,002			126			(265,328)
Interest and debt expense				(431,235)		(146,350)			(115,574)			(169,311)
Net gain on disposition of wholly owned and partially
	owned assets			4,856		-			-			4,856
Income (loss) before income taxes				393,826		549,332			72,912			(228,418)
Income tax expense				(8,132)		(3,491)			(1,650)			(2,991)
Income (loss) from continuing operations				385,694		545,841			71,262			(231,409)
Income from discontinued operations				308,847		30,293			167,766			110,788
Net income (loss)				694,541		576,134			239,028			(120,621)
Less net income attributable to noncontrolling interests in
	consolidated subsidiaries			(32,018)		(2,138)			-			(29,880)
Net income (loss) attributable to Vornado Realty L.P.				662,523		573,996			239,028			(150,501)
Interest and debt expense(2)				760,523		187,855			133,625			439,043
Depreciation and amortization(2)				735,293		252,257			157,816			325,220
Income tax expense (2)				7,026		3,751			1,943			1,332
EBITDA(1)			$	2,165,365	$	1,017,859	(3)	$	532,412	(4)	$	615,094	(5)
Balance Sheet Data:
Real estate at cost			$	15,287,078	$	8,687,141		$	4,171,879		$	2,428,058
Investments in partially owned entities				1,704,297		576,336			95,670			1,032,291
Total assets				22,065,049		9,215,438			4,196,694			8,652,917
See notes on pages 47 and 48.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

25.    Segment Information – continued

	Notes to preceding tabular information:
(1)	EBITDA represents "Earnings Before Interest, Taxes, Depreciation and Amortization." We consider EBITDA a supplemental measure for making decisions and assessing the unlevered performance of our segments as it relates to the total return on assets as opposed to the levered return on equity. As properties are bought and sold based on a multiple of EBITDA, we utilize this measure to make investment decisions as well as to compare the performance of our assets to that of our peers. EBITDA should not be considered a substitute for net income. EBITDA may not be comparable to similarly titled measures employed by other companies.
(2)	Interest and debt expense, depreciation and amortization and income tax expense (benefit) in the reconciliation of net income (loss) to EBITDA includes our share of these items from partially owned entities.
(3)	The elements of "New York" EBITDA are summarized below.
				For the Year Ended December 31,
	(Amounts in thousands)			2014		2013		2012
	Office(a)			$	1,085,262	$	759,941	$	568,518
	Retail				281,428		246,808		189,484
	Alexander's(b)				41,746		42,210		231,402
	Hotel Pennsylvania				30,753		30,723		28,455
		Total New York		$	1,439,189	$	1,079,682	$	1,017,859
	(a)		2014 and 2013 includes $440,537 and $127,512 net gains on sale of real estate, respectively.
	(b)		2012 includes $179,934 for our share of net gain on sale of Kings Plaza.
(4)	The elements of "Washington, DC" EBITDA are summarized below.
				For the Year Ended December 31,
	(Amounts in thousands)			2014		2013		2012
	Office, excluding the Skyline Properties (a)			$	266,859	$	268,373	$	449,448
	Skyline properties				27,150		29,499		40,037
		Total Office			294,009		297,872		489,485
	Residential				41,581		43,351		42,927
		Total Washington, DC		$	335,590	$	341,223	$	532,412
	(a)		2012 includes $163,367 of net gains on sale of real estate.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

25.    Segment Information – continued

	Notes to preceding tabular information:
(5)	The elements of "other" EBITDA from continuing operations are summarized below.
	(Amounts in thousands)			For the Year Ended December 31,
				2014		2013			2012
	Our share of Real Estate Fund:
		Income before net realized/unrealized gains		$	8,056	$	7,752	$	6,385
		Net realized/unrealized gains on investments			37,535		23,489		13,840
		Carried interest			24,715		18,230		4,379
	Total				70,306		49,471		24,604
	Our share of Toys "R" Us				103,632		(12,081)		281,289
	The Mart and trade shows				79,636		74,270		62,470
	555 California Street				48,844		42,667		46,167
	India real estate ventures				6,434		5,841		3,654
	LNR(a)				-		20,443		75,202
	Lexington(b)				-		6,931		32,595
	Other investments				26,586		28,505		25,103
					335,438		216,047		551,084
	Corporate general and administrative expenses(c)				(94,929)		(94,904)		(89,082)
	Investment income and other, net(c)				31,665		46,525		45,563
	Urban Edge Properties and residual retail properties discontinued operations(d)				235,989		531,493		201,035
	Acquisition and transaction related costs, and impairment losses				(16,392)		(24,857)		(17,386)
	Net gain on sale of marketable securities, land parcels and residential
		condominiums			13,568		56,868		4,856
	Our share of debt satisfaction gains and net gains on sale of real estate
		of partially owned entities			13,000		-		-
	Suffolk Downs impairment loss and loan reserve				(10,263)		-		-
	Our share of impairment losses of partially owned entities				(5,771)		-		(4,936)
	Losses from the disposition of investment in J.C. Penney				-		(127,888)		(300,752)
	Severance costs (primarily reduction in force at the Mart)				-		(5,492)		(3,005)
	Purchase price fair value adjustment and accelerated amortization of
		discount on investment in subordinated debt of Independence Plaza			-		-		105,366
	The Mart discontinued operations				-		-		93,588
	Net gain resulting from Lexington's stock issuance and asset acquisition				-		-		28,763
				$	502,305	$	597,792	$	615,094
	(a)		On April 19, 2013, LNR was sold.
	(b)		In the first quarter of 2013, we began accounting for our investment in Lexington as a marketable equity security - available for sale. This investment was previously accounted for under the equity method (see page 18 for details).
	(c)		The amounts in these captions (for this table only) exclude income/expense from the mark-to-market of our deferred compensation plan of $11,557, $10,636 and $6,809 for the years ended December 31, 2014, 2013 and 2012, respectively.
	(d)		The year ended December 31, 2014, includes $14,956 of transaction costs related to the spin-off of our strip shopping centers and malls.

48