10-Q 1 vrt_10-q.htm FORM 10-Q

 


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended:   

September 30, 2009

 

Or

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from:

 

to

 

 

Commission File Number:

001-11954

 

 

VORNADO REALTY TRUST

(Exact name of registrant as specified in its charter)

 

Maryland

 

22-1657560

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification Number)

 

 

 

888 Seventh Avenue, New York, New York

 

10019

(Address of principal executive offices)

 

(Zip Code)

 

 

(212) 894-7000

(Registrant’s telephone number, including area code)

 

N/A

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

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

 

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

 

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

 

x Large Accelerated Filer

 

o Accelerated Filer

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

 

o Smaller Reporting Company

 

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

 

As of September 30, 2009, 179,523,984 of the registrant’s common shares of beneficial interest are outstanding.

 


 


 

PART I.

 

Financial Information:

Page Number

 

 

 

 

 

Item 1.

Financial Statements:

 

 

 

 

 

 

 

Consolidated Balance Sheets (Unaudited) as of
September 30, 2009 and December 31, 2008

3

 

 

 

 

 

 

Consolidated Statements of Income (Unaudited) for the Three and Nine
Months Ended September 30, 2009 and 2008

4

 

 

 

 

 

 

Consolidated Statements of Changes in Equity (Unaudited) for the Nine
Months Ended September 30, 2009 and 2008

5

 

 

 

 

 

 

Consolidated Statements of Cash Flows (Unaudited) for the
Nine Months Ended September 30, 2009 and 2008

6

 

 

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

8

 

 

 

 

 

 

Report of Independent Registered Public Accounting Firm

34

 

 

 

 

 

Item 2.

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

35

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

72

 

 

 

 

 

Item 4.

Controls and Procedures

73

 

 

 

 

 

 

 

 

 

 

 

 

PART II.

 

Other Information:

 

 

 

 

 

 

Item 1.

Legal Proceedings

74

 

 

 

 

 

Item 1A.

Risk Factors

75

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

75

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

75

 

 

 

 

 

Item 4.

Submission of Matters to a Vote of Security Holders

75

 

 

 

 

 

Item 5.

Other Information

75

 

 

 

 

 

Item 6.

Exhibits

75

 

 

 

 

Signatures

 

 

76

 

 

 

 

Exhibit Index

 

 

77

 

 

 


PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements

VORNADO REALTY TRUST

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

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

 

September 30,
2009

 

December 31,
2008

 

Real estate, at cost:

 

 

 

 

 

 

 

Land

 

$

4,551,044

 

$

4,491,165

 

Buildings and improvements

 

 

12,567,415

 

 

12,134,943

 

Development costs and construction in progress

 

 

841,051

 

 

966,676

 

Leasehold improvements and equipment

 

 

125,931

 

 

118,603

 

Total

 

 

18,085,441

 

 

17,711,387

 

Less accumulated depreciation and amortization

 

 

(2,413,803

)

 

(2,167,403

)

Real estate, net

 

 

15,671,638

 

 

15,543,984

 

Cash and cash equivalents

 

 

2,560,011

 

 

1,526,853

 

Restricted cash

 

 

287,575

 

 

375,888

 

Marketable securities

 

 

313,218

 

 

334,322

 

Accounts receivable, net of allowance for doubtful accounts of $48,559 and $32,834

 

 

161,097

 

 

201,566

 

Investments in partially owned entities, including Alexander’s of $187,272 and $137,305

 

 

812,424

 

 

790,154

 

Investment in Toys “R” Us

 

 

422,165

 

 

293,096

 

Mezzanine loans receivable, net of a $122,738 allowance in 2009

 

 

269,976

 

 

472,539

 

Receivables arising from the straight-lining of rents, net of allowance of $4,139 and $5,773

 

 

661,074

 

 

592,432

 

Deferred leasing and financing costs, net of accumulated amortization of $187,937 and $168,714

 

 

301,339

 

 

304,125

 

Assets related to discontinued operations

 

 

108,151

 

 

281,110

 

Due from officers

 

 

13,148

 

 

13,185

 

Other assets

 

 

768,557

 

 

688,794

 

 

 

$

22,350,373

 

$

21,418,048

 

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS
AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

Notes and mortgages payable

 

$

8,895,328

 

$

8,761,640

 

Convertible senior debentures

 

 

1,989,955

 

 

2,221,743

 

Senior unsecured notes

 

 

711,604

 

 

617,816

 

Exchangeable senior debentures

 

 

482,875

 

 

478,256

 

Revolving credit facility debt

 

 

648,250

 

 

358,468

 

Accounts payable and accrued expenses

 

 

548,407

 

 

515,607

 

Deferred credit

 

 

701,637

 

 

764,774

 

Deferred compensation plan

 

 

76,777

 

 

69,945

 

Deferred tax liabilities

 

 

17,858

 

 

19,895

 

Liabilities related to discontinued operations

 

 

 

 

73,747

 

Other liabilities

 

 

97,009

 

 

143,527

 

Total liabilities

 

 

14,169,700

 

 

14,025,418

 

Commitments and contingencies

 

 

 

 

 

 

 

Redeemable noncontrolling interests:

 

 

 

 

 

 

 

Class A units – 14,245,103 and 14,627,005 units outstanding

 

 

917,527

 

 

882,740

 

Series D cumulative redeemable preferred units – 11,200,000 units outstanding

 

 

280,000

 

 

280,000

 

Series B convertible preferred units – 444,559 units outstanding

 

 

15,238

 

 

15,238

 

Total redeemable noncontrolling interests

 

 

1,212,765

 

 

1,177,978

 

Shareholders’ equity:

 

 

 

 

 

 

 

Preferred shares of beneficial interest: no par value per share; authorized 110,000,000
shares; issued and outstanding 33,952,324 and 33,954,124 shares

 

 

823,718

 

 

823,807

 

Common shares of beneficial interest: $.04 par value per share; authorized,
250,000,000 shares; issued and outstanding 179,523,984 and 155,285,903 shares

 

 

7,151

 

 

6,195

 

Additional capital

 

 

6,993,131

 

 

6,025,976

 

Earnings less than distributions

 

 

(1,278,727

)

 

(1,047,340

)

Accumulated other comprehensive income (loss)

 

 

16,489

 

 

(6,899

)

Total Vornado shareholders’ equity

 

 

6,561,762

 

 

5,801,739

 

Noncontrolling interests in consolidated subsidiaries

 

 

406,146

 

 

412,913

 

Total equity

 

 

6,967,908

 

 

6,214,652

 

 

 

$

22,350,373

 

$

21,418,048

 

See notes to consolidated financial statements (unaudited).

3


VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

 

 

 

For The Three Months
Ended September 30,

 

For The Nine Months
Ended September 30,

 

(Amounts in thousands, except per share amounts)

 

2009

 

2008

 

2009

 

2008

 

REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

 

Property rentals

 

$

550,054

 

$

547,498

 

$

1,654,357

 

$

1,637,831

 

Tenant expense reimbursements

 

 

89,530

 

 

97,815

 

 

270,934

 

 

269,646

 

Fee and other income

 

 

31,635

 

 

30,755

 

 

98,284

 

 

90,056

 

Total revenues

 

 

671,219

 

 

676,068

 

 

2,023,575

 

 

1,997,533

 

EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating

 

 

265,952

 

 

276,115

 

 

814,561

 

 

793,391

 

Depreciation and amortization

 

 

130,503

 

 

136,550

 

 

398,845

 

 

397,807

 

General and administrative

 

 

51,684

 

 

49,494

 

 

180,381

 

 

149,164

 

Impairment losses on development projects and costs of
acquisitions not consummated

 

 

 

 

5,000

 

 

 

 

8,009

 

Total expenses

 

 

448,139

 

 

467,159

 

 

1,393,787

 

 

1,348,371

 

Operating income

 

 

223,080

 

 

208,909

 

 

629,788

 

 

649,162

 

Income (loss) applicable to Alexander’s

 

 

21,297

 

 

(6,876

)

 

46,044

 

 

16,404

 

Income (loss) applicable to Toys “R” Us

 

 

22,077

 

 

(8,141

)

 

118,897

 

 

41,510

 

Loss from partially owned entities

 

 

(18,784

)

 

(3,099

)

 

(49,124

)

 

(29,167

)

Interest and other investment (loss) income, net

 

 

20,486

 

 

9,638

 

 

(63,608

)

 

47,535

 

Interest and debt expense (including amortization of deferred
financing costs of $4,350 and $4,257 in each three-month
period, respectively, and $12,722 and $13,181 in each
nine-month period, respectively)

 

 

(158,205

)

 

(157,646

)

 

(475,028

)

 

(474,862

)

Net gains on early extinguishment of debt

 

 

3,407

 

 

 

 

26,996

 

 

 

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

 

 

4,432

 

 

5,160

 

 

4,432

 

 

8,546

 

Income before income taxes

 

 

117,790

 

 

47,945

 

 

238,397

 

 

259,128

 

Income tax (expense) benefit

 

 

(5,267

)

 

(5,244

)

 

(15,773

)

 

207,170

 

Income from continuing operations

 

 

112,523

 

 

42,701

 

 

222,624

 

 

466,298

 

Income from discontinued operations

 

 

43,321

 

 

846

 

 

49,276

 

 

172,814

 

Net income

 

 

155,844

 

 

43,547

 

 

271,900

 

 

639,112

 

Net income attributable to noncontrolling interests, including unit distributions

 

 

(15,227

)

 

(6,540

)

 

(28,808

)

 

(67,135

)

Net income attributable to Vornado

 

 

140,617

 

 

37,007

 

 

243,092

 

 

571,977

 

Preferred share dividends

 

 

(14,269

)

 

(14,271

)

 

(42,807

)

 

(42,820

)

NET INCOME attributable to common shareholders

 

$

126,348

 

$

22,736

 

$

200,285

 

$

529,157

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME PER COMMON SHARE – BASIC:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net

 

$

0.48

 

$

0.14

 

$

0.90

 

$

2.34

 

Income from discontinued operations, net

 

 

0.22

 

 

 

 

0.27

 

 

0.98

 

Net income per common share

 

$

0.70

 

$

0.14

 

$

1.17

 

$

3.32

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME PER COMMON SHARE – DILUTED:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net

 

$

0.47

 

$

0.14

 

$

0.89

 

$

2.27

 

Income from discontinued operations, net

 

 

0.22

 

 

 

 

0.27

 

 

0.95

 

Net income per common share

 

$

0.69

 

$

0.14

 

$

1.16

 

$

3.22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DIVIDENDS PER COMMON SHARE

 

$

0.65

 

$

0.90

 

$

2.55

 

$

2.70

 

 

See notes to consolidated financial statements (unaudited).

 

4

 

 


VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(UNAUDITED)

(Amounts in thousands)

 

Preferred
Shares

 

 

Common
Shares

Additional
Capital

 

 

Earnings
Less Than
Distributions

 

Accumulated
Other
Comprehensive
Income (Loss)

 

Non-
controlling
Interests

 

Total
Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2007

 

$

825,095

 

$

6,140

 

$

5,278,717

 

$

(721,625

)

$

29,772

 

$

416,298

 

$

5,834,397

 

Cumulative effect of change in accounting principle

 

 

 

 

 

 

212,395

 

 

(35,552

)

 

 

 

 

 

176,843

 

Balance, January 1, 2008

 

 

825,095

 

 

6,140

 

 

5,491,112

 

 

(757,177

)

 

29,772

 

 

416,298

 

 

6,011,240

 

Net income (loss)

 

 

 

 

 

 

 

 

571,977

 

 

 

 

(2,767

)

 

569,210

 

Dividends paid on common shares

 

 

 

 

 

 

 

 

(415,169

)

 

 

 

 

 

(415,169

)

Dividends paid on preferred shares

 

 

 

 

 

 

 

 

(42,819

)

 

 

 

 

 

(42,819

)

Conversion of Series A preferred
shares to common shares

 

 

(1,312

)

 

2

 

 

1,310

 

 

 

 


 

 

 

 

 

Deferred compensation shares
and options

 

 

 

 

43

 

 

8,452

 

 

 

 


 

 

 

 

8,495

 

Common shares issued:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Under employee share option plan

 

 

 

 

22

 

 

20,256

 

 

 

 

 

 

 

 

20,278

 

Upon redemption of redeemable
Class A Operating Partnership
units, at redemption value

 

 

 

 

27

 

 

61,774

 

 

 

 

 

 

 

 

61,801

 

In connection with dividend
reinvestment plan

 

 

 

 

 

 

1,755

 

 

 

 


 

 

 

 

1,755

 

Sale of securities available for sale

 

 

 

 

 

 

 

 

 

 

6,128

 

 

 

 

6,128

 

Change in unrealized net loss
on securities available for sale

 

 

 

 

 

 

 

 

 

 

(22,057

)

 

 

 

(22,057

)

Adjustments to redeemable Class A
Operating Partnership units

 

 

 

 

 

 

(26,393

)

 

 

 

 

 

 

 

(26,393

)

Other

 

 

 

 

 

 

(46

)

 

 

 

(22,518

)

 

(1,856

)

 

(24,420

)

Balance, September 30, 2008

 

$

823,783

 

$

6,234

 

$

5,558,220

 

$

(643,188

)

$

(8,675

)

$

411,675

 

$

6,148,049

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2008

 

$

823,807

 

$

6,195

 

$

6,025,976

 

$

(1,047,340

)

$

(6,899

)

$

412,913

 

$

6,214,652

 

Net income (loss)

 

 

 

 

 

 

 

 

243,092

 

 

 

 

(3,442

)

 

239,650

 

Dividends paid on common shares

 

 

 

 

230

 

 

236,920

 

 

(431,237

)

 

 

 

 

 

(194,087

)

Dividends paid on preferred shares

 

 

 

 

 

 

 

 

(42,809

)

 

 

 

 

 

(42,809

)

Proceeds from the issuance of
common shares

 

 

 

 

690

 

 

709,536

 

 

 

 

 

 

 

 

710,226

 

Conversion of Series A preferred
shares to common shares

 

 

(89

)

 

 

 

89

 

 

 

 

 

 

 

 

 

Deferred compensation shares and
options

 

 

 

 

2

 

 

11,527

 

 

 

 

 

 

 

 

11,529

 

Common shares issued:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Under employee share option plan

 

 

 

 

(14

)

 

1,219

 

 

(440

)

 

 

 

 

 

765

 

Upon redemption of redeemable
Class A Operating Partnership
units, at redemption value

 

 

 

 

48

 

 

53,043

 

 

 

 

 

 

 

 

53,091

 

Change in unrealized net loss
on securities available for sale

 

 

 

 

 

 

 

 

 

 

4,099

 

 

 

 

4,099

 

Our share of partially owned entities’
OCI adjustments

 

 

 

 

 

 

 

 

 

 

11,846

 

 

 

 

11,846

 

Voluntary surrender of equity
awards on March 31, 2009

 

 

 

 

 

 

32,588

 

 

 

 

 

 

 

 

32,588

 

Adjustments to redeemable Class A
Operating Partnership units

 

 

 

 

 

 

(77,004

)

 

 

 

 

 

 

 

(77,004

)

Other

 

 

 

 

 

 

(763

)

 

7

 

 

7,443

 

 

(3,325

)

 

3,362

 

Balance, September 30, 2009

 

$

823,718

 

$

7,151

 

$

6,993,131

 

$

(1,278,727

)

$

16,489

 

$

406,146

 

$

6,967,908

 

See notes to consolidated financial statements (unaudited).

5


VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

For The Nine Months Ended
September 30,

 

(Amounts in thousands)

 

2009

 

2008

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

 

$

271,900

 

$

639,112

 

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

 

 

 

 

 

 

 

Depreciation and amortization (including amortization of debt issuance costs)

 

 

413,697

 

 

437,567

 

Mezzanine loans loss accrual

 

 

122,738

 

 

 

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

 

 

(115,817

)

 

(70,490

)

Straight-lining of rental income

 

 

(75,702

)

 

(63,184

)

Amortization of below market leases, net

 

 

(56,270

)

 

(73,655

)

Write-off of unamortized costs from the voluntary surrender of equity awards

 

 

32,588

 

 

 

Net gains on early extinguishment of debt

 

 

(26,996

)

 

 

Distributions of income from partially owned entities

 

 

21,484

 

 

12,021

 

Reversal of H Street deferred tax liability

 

 

 

 

(222,174

)

Net gain on sale of Americold Realty Trust

 

 

 

 

(112,690

)

Write-off of real estate joint ventures’ development costs

 

 

 

 

34,200

 

Net loss on derivative positions

 

 

 

 

25,812

 

Impairment losses – marketable securities

 

 

 

 

20,881

 

Net gains on sale of real estate

 

 

(42,655

)

 

(57,523

)

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

 

 

(4,432

)

 

(8,546

)

Impairment losses on development projects and costs of acquisitions not consummated

 

 

 

 

8,009

 

Amortization of discount on convertible and exchangeable senior debentures

 

 

29,106

 

 

28,328

 

Other non-cash adjustments

 

 

119

 

 

32,812

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable, net

 

 

11,611

 

 

(8,825

)

Prepaid assets

 

 

(119,608

)

 

(46,823

)

Other assets

 

 

(43,004

)

 

(26,706

)

Accounts payable and accrued expenses

 

 

70,511

 

 

88,973

 

Other liabilities

 

 

217

 

 

10,510

 

Net cash provided by operating activities

 

 

489,487

 

 

647,609

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Development costs and construction in progress

 

 

(384,655)

 

 

(413,947

)

Additions to real estate

 

 

(145,981

)

 

(158,434

)

Restricted cash

 

 

81,195

 

 

(22,674

)

Investments in partially owned entities

 

 

(28,738

)

 

(115,250

)

Proceeds from sales of real estate and related investments

 

 

291,652

 

 

352,511

 

Proceeds received from repayment of notes and mortgage loans receivable

 

 

46,339

 

 

52,032

 

Distributions of capital from partially owned entities

 

 

13,112

 

 

182,090

 

Acquisitions of real estate and other

 

 

 

 

(36,566

)

Deposits in connection with real estate acquisitions

 

 

1,000

 

 

(10,616

)

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

 

 

59,873

 

 

47,723

 

Investments in notes and mortgage loans receivable

 

 

 

 

(7,397

)

Purchases of marketable securities

 

 

(11,597

)

 

(8,035

)

Net cash used in investing activities

 

 

(77,800

)

 

(138,563

)

 

See notes to consolidated financial statements (unaudited).

 

 


VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(UNAUDITED)

 

(Amounts in thousands)

 

For The Nine Months
Ended September 30,

 

 

2009

 

2008

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from issuance of common shares

 

 

710,226

 

 

 

Proceeds from borrowings

 

 

1,208,204

 

 

1,424,458

 

Repayments of borrowings

 

 

(996,218

)

 

(1,043,734

)

Dividends paid on common shares

 

 

(194,087

)

 

(415,169

)

Distributions to noncontrolling interests

 

 

(30,291

)

 

(65,925

)

Dividends paid on preferred shares

 

 

(42,809

)

 

(42,841

)

Debt issuance costs

 

 

(9,246

)

 

(13,399

)

Exercise of share options and other

 

 

22

 

 

21,981

 

Purchase of outstanding Series G Preferred Units

 

 

(24,330

)

 

 

Net cash provided by (used in) financing activities

 

 

621,471

 

 

(134,629

)

Net increase in cash and cash equivalents

 

 

1,033,158

 

 

374,417

 

Cash and cash equivalents at beginning of period

 

 

1,526,853

 

 

1,154,595

 

Cash and cash equivalents at end of period

 

$

2,560,011

 

$

1,529,012

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Cash payments for interest (including capitalized interest of $14,054 and $49,241)

 

$

461,802

 

$

463,458

 

Cash payments for income taxes

 

$

6,880

 

$

6,153

 

 

 

 

 

 

 

 

 

Non-cash transactions:

 

 

 

 

 

 

 

Adjustments to redeemable Class A Operating Partnership units

 

$

(77,004

)

$

(26,393

)

Conversion of redeemable Class A Operating Partnership units to common shares, at redemption value

 

 

53,091

 

 

61,801

 

Dividends paid in common shares

 

 

237,150

 

 

 

Unit distributions paid in redeemable Class A Operating Partnership units

 

 

20,072

 

 

 

Unrealized net (gain) loss on securities available for sale

 

 

(4,099

)

 

22,057

 

 

 

See notes to consolidated financial statements (unaudited).

 

7

 

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

1.

Organization

Vornado Realty Trust (“Vornado”) is a fully-integrated real estate investment trust (“REIT”) and conducts its business through Vornado Realty L.P., a Delaware limited partnership (the “Operating Partnership”). Vornado is the sole general partner of, and owned approximately 92.1% of the common limited partnership interest in the Operating Partnership at September 30, 2009. All references to “we,” “us,” “our,” the “Company” and “Vornado” refer to Vornado Realty Trust and its consolidated subsidiaries, including the Operating Partnership.

 

Substantially all of Vornado’s assets are held through subsidiaries of the Operating Partnership. Accordingly, Vornado’s cash flow and ability to pay dividends to its shareholders is dependent upon the cash flow of the Operating Partnership and the ability of its direct and indirect subsidiaries to first satisfy their obligations to creditors.

 

 

2.

Basis of Presentation

The accompanying consolidated financial statements are unaudited. In our opinion, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and changes in cash flows have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. These condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of the Securities and Exchange Commission (the “SEC”) and should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K and 10-K/A for the year ended December 31, 2008, as filed with the SEC. The results of operations for the three and nine months ended September 30, 2009, are not necessarily indicative of the operating results for the full year.

 

The accompanying consolidated financial statements include the accounts of Vornado and the Operating Partnership, as well as certain partially owned entities in which we own more than 50%, unless a partner has shared board and management representation and substantive participation rights on all significant business decisions, or 50% or less when (i) we are the primary beneficiary and the entity qualifies as a variable interest entity, as defined by GAAP, or (ii) when we are a general partner and meet certain criteria under GAAP. All significant inter-company amounts have been eliminated. Equity interests in partially owned entities are accounted for under the equity method of accounting if they do not meet the criteria for consolidation and we have the ability to exercise significant influence over the operating and financial policies of the company. Generally an ownership interest of 20% or more is sufficient to demonstrate the ability to exercise significant influence. When partially owned investments are in partnership form, the 20% threshold for equity method accounting is generally reduced to 3% to 5%, based on our ability to influence the operating and financial policies of the partnership. Investments accounted for under the equity method are initially recorded at cost and subsequently adjusted for our share of the net income or loss and cash contributions and distributions to or from these entities. Investments in partially owned entities that do not meet the criteria for consolidation or for equity method accounting are accounted for on the cost method.

 

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

 

Effective July 1, 2009, the Financial Accounting Standards Board (“FASB”) established the Accounting Standards Codification (“ASC”) as the primary source of authoritative GAAP recognized by the FASB to be applied to nongovernmental entities. Although the establishment of the ASC did not change current GAAP, it did change the way we refer to GAAP throughout this document to reflect the updated referencing convention.

 

On January 1, 2009, we adopted the guidance in ASC 470-20, Debt with Conversion and Other Options. The guidance contained in ASC 470-20 was required to be applied retrospectively. Accordingly, net income for the three and nine months ended September 30, 2008 has been adjusted to include $8,700,000 and $25,600,000, respectively, of additional interest expense, net of amounts attributable to noncontrolling interests. In addition, in accordance with ASC 260, Earnings Per Share, we have included 5,736,000 additional common shares in the computation of income per share retroactively to the three and nine months ended September 30, 2008, as a result of the stock portion of our common dividends during 2009. Furthermore, certain prior year balances have been reclassified in order to conform to current year presentation as a result of an update to ASC 810, Consolidation.

 

8

 

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

2.

Basis of Presentation – continued

In connection with purchase accounting for H Street, in July 2005 and April 2007 we recorded an aggregate of $222,174,000 of deferred tax liabilities representing the differences between the tax basis and the book basis of the acquired assets and liabilities multiplied by the effective tax rate. We were required to record these deferred tax liabilities because H Street and its partially owned entities were operated as C Corporations at the time they were acquired. As of January 16, 2008, we had completed all of the actions necessary to enable these entities to elect REIT status effective for the tax year beginning on January 1, 2008. Consequently, in the first quarter of 2008, we reversed the deferred tax liabilities and recognized an income tax benefit of $222,174,000 in our consolidated statement of income.

 

 

3.

Recently Issued Accounting Literature

In December 2007, the FASB issued an update to ASC 805, Business Combinations. The amended guidance contained in ASC 805 applies to all transactions and other events in which one entity obtains control over one or more other businesses. It also broadens the fair value measurement and recognition of assets acquired, liabilities assumed, and interests transferred as a result of business combinations; and acquisition related costs will generally be expensed rather than included as part of the basis of the acquisition. The amended guidance also expands required disclosures to improve the ability to evaluate the nature and financial effects of business combinations. The amended guidance became effective for all transactions entered into on or after January 1, 2009. The adoption of this guidance on January 1, 2009 did not have any effect on our consolidated financial statements because there have been no acquisitions during 2009.

 

In December 2007, the FASB issued an update to ASC 810, Consolidation. The amended guidance contained in ASC 810 requires a noncontrolling interest in a subsidiary to be reported as equity and the amount of consolidated net income specifically attributable to the noncontrolling interest to be identified in the consolidated financial statements. It also calls for consistency in the manner of reporting changes in the parent’s ownership interest and requires fair value measurement of any noncontrolling equity investment retained in a deconsolidation. The amended guidance became effective on January 1, 2009 and resulted in (i) the reclassification of minority interests in consolidated subsidiaries to noncontrolling interests in consolidated subsidiaries, a component of permanent equity on our consolidated balance sheets, (ii) the reclassification of minority interest expense to net income attributable to noncontrolling interests, on our consolidated statements of income, and (iii) additional disclosures, including a consolidated statement of changes in equity in quarterly reporting periods.

 

In March 2008, the FASB issued an update to ASC 815, Derivatives and Hedging. The amended guidance contained in ASC 815 requires enhanced disclosures related to derivative instruments and hedging activities, including disclosures regarding how an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for and the impact of derivative instruments and related hedged items on an entity’s financial position, financial performance and cash flows. It also provided a new two-step model to be applied in determining whether a financial instrument or an embedded feature is indexed to an issuer’s own stock. The amended guidance became effective on January 1, 2009. The adoption of this guidance on January 1, 2009 did not have a material effect on our consolidated financial statements.

 

In June 2008, the FASB issued an update to ASC 260, Earnings Per Share. The amended guidance contained in ASC 260 requires companies to treat unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents as “participating securities” and include such securities in the computation of earnings per share pursuant to the two-class method as described in ASC 260. The amended guidance became effective on January 1, 2009 and required all prior period earnings per share data presented, to be adjusted retroactively. The adoption of this guidance on January 1, 2009 did not have a material effect on our computation of income per share.

 

9

 

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

3.

Recently Issued Accounting Literature - continued

On January 1, 2009, we adopted the provisions of ASC 470-20, which was required to be applied retrospectively. The adoption affected the accounting for our convertible and exchangeable senior debentures by requiring the initial proceeds from their sale to be allocated between a debt component and an equity component in a manner that results in interest expense on the debt component at our nonconvertible debt borrowing rate on the date of issue. The initial debt components of our $1.4 billion Convertible Senior Debentures, $1 billion Convertible Senior Debentures and $500 million Exchangeable Senior Debentures were $1,241,286,000, $926,361,000 and $457,699,000, respectively, based on the fair value of similar nonconvertible instruments issued at that time. The aggregate initial debt discount of $216,655,000 after original issuance costs allocated to the equity component was recorded in “additional capital” as a cumulative effect of change in accounting principle in our consolidated statement of changes in equity. We are amortizing the discount using the effective interest method over the period the debt is expected to remain outstanding (i.e., the earliest date the holders may require us to repurchase the debentures), as additional interest expense. Accordingly, interest expense for the three and nine months ended September 30, 2008 has been adjusted to include $9,600,000 and $28,300,000 of amortization in the aggregate, or $8,700,000 and $25,600,000, net of amounts attributable to noncontrolling interests. Amortization for periods prior to December 31, 2007 (not presented herein) aggregating $35,552,000 has been reflected as a cumulative effect of change in accounting principle in “earnings less than distributions” on our consolidated statement of changes in equity. Below is a summary of the financial statement effects of implementing the provisions of ASC 470-20 and related disclosures.

 

 

 

$1.4 Billion Convertible
Senior Debentures

 

$1 Billion Convertible
Senior Debentures

 

$500 Million Exchangeable
Senior Debentures

 

(Amounts in thousands, except per share amounts)
Balance Sheet:

 

September 30,
2009

 

December 31,
2008

 

September 30,
2009

 

December 31,
2008

 

September 30,
2009

 

December 31,
2008

 

Principal amount of debt component

$

1,204,359

$

1,382,700

$

888,219

$

989,800

$

499,982

$

499,982

 

Unamortized discount

 

(72,664

)

(106,415

)

(29,959

)

(44,342

)

(17,107

)

(21,726

)

Carrying amount of debt component

$

1,131,695

$

1,276,285

$

858,260

$

945,458

$

482,875

$

478,256

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Carrying amount of equity component

$

130,714

$

130,714

$

53,640

$

53,640

$

32,301

$

32,301

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective interest rate

 

5.45

%

5.45

%

5.32

%

5.32

%

5.32

%

5.32

%

 

Maturity date (period through which
discount is being amortized)

 

4/1/12

 

 

 

11/15/11

 

 

 

4/15/12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion price per share, as adjusted

$

157.18

 

 

$

148.46

 

 

$

87.17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of shares on which the aggregate
consideration to be delivered upon
conversion is determined

 

(1)

 

 

(1)

 

 

5,736

 

 

 

__________________

 

(1)

Pursuant to the provisions of ASC 470-20, we are required to disclose the conversion price and the number of shares on which the aggregate consideration to be delivered upon conversion is determined (principal plus excess value). Our convertible senior debentures require that upon conversion, the entire principal amount is to be settled in cash, and at our option, any excess value above the principal amount may be settled in cash or common shares. Based on the September 30, 2009 closing share price of our common shares and the conversion prices in the table above, there was no excess value; accordingly, no common shares would be issued if these securities were settled on this date. The number of common shares on which the aggregate consideration to be delivered upon conversion is 7,662 and 5,983 common shares, respectively.

 

10


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

3.

Recently Issued Accounting Literature - continued

 

 

(Amounts in thousands)

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

Income Statement:

 

2009

 

 

2008

 

 

2009

 

 

2008

 

$1.4 Billion Convertible Senior Debentures:

 

 

 

 

   

 

 

 

 

 

 

Coupon interest

$

8,693

 

$

9,975

 

$

28,204

 

$

29,925

 

Discount amortization – original issue

 

1,203

 

 

1,307

 

 

3,836

 

 

3,869

 

Discount amortization – ASC 470-20 implementation

 

5,631

 

 

6,121

 

 

17,958

 

 

18,116

 

 

$

15,527

 

$

17,403

 

$

49,998

 

$

51,910

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$1 Billion Convertible Senior Debentures:

 

 

 

 

 

 

 

 

 

 

 

 

Coupon interest

$

8,102

 

$

9,063

 

$

25,929

 

$

27,188

 

Discount amortization – original issue

 

908

 

 

962

 

 

2,846

 

 

2,848

 

Discount amortization – ASC 470-20 implementation

 

2,430

 

 

2,574

 

 

7,616

 

 

7,621

 

 

$

11,440

 

$

12,599

 

$

36,391

 

$

37,657

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$500 Million Exchangeable Senior Debentures:

 

 

 

 

 

 

 

 

 

 

 

 

Coupon interest

$

4,844

 

$

4,844

 

$

14,585

 

$

14,531

 

Discount amortization – original issue

 

369

 

 

350

 

 

1,091

 

 

1,035

 

Discount amortization – ASC 470-20 implementation

 

1,193

 

 

1,131

 

 

3,532

 

 

3,350

 

 

$

6,406

 

$

6,325

  

$

19,208

 

$

18,916

 

 

 

On May 28, 2009, the FASB issued ASC 855, Subsequent Events. Although ASC 855 does not significantly change current practice surrounding the disclosure of subsequent events, it provides guidance on management’s assessment of subsequent events and the requirement to disclose the date through which subsequent events have been evaluated. ASC 855 became effective on June 30, 2009. We have evaluated subsequent events through November 2, 2009, the date our consolidated financial statements were available to be issued for this Quarterly Report on Form 10-Q for the quarter ended September 30, 2009.

 

On June 12, 2009, the FASB issued Statement No. 167, Amendments to FASB Interpretation No. 46(R) (“SFAS 167”). SFAS 167 modifies the existing quantitative guidance used in determining the primary beneficiary of a variable interest entity (“VIE”) by requiring entities to qualitatively assess whether an enterprise is a primary beneficiary, based on whether the entity has (i) power over the significant activities of the VIE, and (ii) an obligation to absorb losses or the right to receive benefits that could be potentially significant to the VIE. SFAS 167 becomes effective for all new and existing VIEs on January 1, 2010. We are currently evaluating the impact SFAS 167 will have on our consolidated financial statements.

 

11

 

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

4.

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. Financial assets and liabilities measured at fair value in our consolidated financial statements consist primarily of (i) marketable equity securities and (ii) the assets of our deferred compensation plan (primarily marketable equity securities and equity investments in limited partnerships), for which there is a corresponding liability on our consolidated balance sheets. Financial assets and liabilities measured at fair value as of September 30, 2009 are presented in the table below based on their level in the fair value hierarchy.

 

 

 

 

Fair Value Hierarchy

 

(Amounts in thousands)

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Marketable equity securities

$

85,717

$

85,717

 

$

 

$

 

Deferred compensation plan assets

 

76,777

 

39,554

 

 

 

 

37,223

 

Total assets

$

162,494

$

125,271

 

$

 

$

37,223

 

 

 

 

 

 

 

 

 

 

 

 

 

Mandatorily redeemable instruments
(included in other liabilities)

$

59,762

$

59,762

 

$

 

$

 

 

The fair value of Level 3 “deferred compensation plan assets” represents equity investments in certain limited partnerships, for which there is a corresponding Level 3 liability to the plan’s participants. The following is a summary of changes in Level 3 deferred compensation plan assets and liabilities, for the three and nine months ended September 30, 2009.

 

(Amounts in thousands)

 

Beginning
Balance

 

Total Realized/
Unrealized
Gains

 

Purchases,
Sales, Other
Settlements and
Issuances, net

 

Ending
Balance

 

For the three months ended September 30, 2009

$

36,168

$

688

 

$

367

 

$

37,223

 

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended September 30, 2009

$

34,176

$

1,998

 

$

1,049

 

$

37,223

 

 

 

We have estimated the fair value of all financial instruments reflected in the accompanying consolidated balance sheets at amounts which are based upon an interpretation of available market information and valuation methodologies (including discounted cash flow analyses with respect to our mezzanine loans and debt). Below is a table that sets forth the carrying amounts and fair values of our financial instruments as of September 30, 2009 and December 31, 2008. These fair value estimates are not necessarily indicative of the amounts that would be realized upon disposition of our financial instruments.

 

 

 

As of September 30, 2009

 

As of December 31, 2008

 

(Amounts in thousands)

 

Carrying
Amount

 

Fair
Value

 

Carrying
Amount

 

Fair
Value

 

Mezzanine loans receivable

 

$

269,976

 

$

231,763

 

$

472,539

 

$

417,087

 

Debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes and mortgages payable

 

$

8,895,328

 

$

8,254,482

 

$

8,761,640

 

$

8,161,922

 

Convertible senior debentures

 

 

1,989,955

 

 

2,096,126

 

 

2,221,743

 

 

1,874,058

 

Senior unsecured notes

 

 

711,604

 

 

729,222

 

 

617,816

 

 

578,238

 

Exchangeable senior debentures

 

 

482,875

 

 

523,106

 

 

478,256

 

 

428,895

 

Revolving credit facility

 

 

648,250

 

 

648,250

 

 

358,468

 

 

358,468

 

 

 

$

12,728,012

 

$

12,251,186

 

$

12,437,923

 

$

11,401,581

 

 

12

 

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

5.

Investments in Partially Owned Entities

Toys “R” Us (“Toys”)

 

As of September 30, 2009, we own 32.7% of Toys. We account for our investment in Toys under the equity method and record our 32.7% share of Toys’ 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. Historically, Toys’ fourth quarter net income accounts for more than 80% of its fiscal year net income. As of September 30, 2009, the carrying amount of our investment in Toys does not differ materially from our share of the equity in the net assets of the parent company.

 

Below is a summary of Toys’ latest available financial information on a “purchase accounting” basis.

 

(Amounts in millions)

 

 

 

 

 

Balance Sheet:

 

As of August 1, 2009

 

As of November 1, 2008

 

Total assets

 

$

11,449

 

$

12,410

 

Total liabilities

 

$

9,999

 

$

11,393

 

Toys stockholders’ equity

 

$

1,341

 

$

929

 

 

 

 

For the Three
Months Ended

 

For the Nine
Months Ended

 

Income Statement:

 

August 1, 2009

 

August 2, 2008

 

August 1, 2009

 

August 2, 2008

 

Total revenues

 

$

2,567

 

$

2,771

 

$

10,505

 

$

11,317

 

Net income (loss) attributable to Toys

 

$

62

 

$

(31

)

$

304

 

$

113

 

 

 

Alexander’s (NYSE: ALX)

 

As of September 30, 2009, we own 32.4% of the outstanding common stock of Alexander’s. We manage, lease and develop Alexander’s properties pursuant to agreements, which expire in March of each year and are automatically renewable. As of September 30, 2009 and December 31, 2008, Alexander’s owed us $57,197,000 and $44,086,000, respectively, in fees under these agreements.

 

Based on Alexander’s September 30, 2009 closing share price of $295.88, the market value (“fair value” pursuant to ASC 820) of our investment in Alexander’s is $489,406,000, or $302,134,000 in excess of the carrying amount on our consolidated balance sheet.

 

As of September 30, 2009, the carrying amount of our investment in Alexander’s exceeds our share of the equity in the net assets of Alexander’s by approximately $35,249,000. 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 or loss. The basis difference related to the land will be recognized upon disposition of our investment.

 

13

 

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

5.

Investments in Partially Owned Entities - continued

 

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

 

As of September 30, 2009, we own 18,468,969 Lexington common shares, or approximately 16.1% of Lexington’s common equity. We account for our investment in Lexington under the equity method because we believe we have the ability to exercise significant influence over Lexington’s operating and financial policies, based on, among other factors, our representation on Lexington’s Board of Trustees and the level of our ownership in Lexington as compared to that of other shareholders. We record our pro rata share of Lexington’s net income or loss on a one-quarter lag basis because we file our consolidated financial statements on Form 10-K and 10-Q prior to the time that Lexington files its financial statements.

 

As of September 30, 2009, the carrying amount of our investment in Lexington was less than our share of the equity in the net assets of Lexington by approximately $93,668,000. This basis difference resulted primarily from $107,882,000 of non-cash impairment charges we recognized in 2008 based on our conclusion that the decline in the value of Lexington’s common shares was “other-than-temporary.” The remainder of the basis difference related to purchase accounting for our acquisition of an additional 8,000,000 common shares of Lexington in October 2008, of which the majority relates to our estimate of the fair values of Lexington’s real estate (land and buildings) as compared to their carrying amounts in Lexington’s consolidated financial statements. We are amortizing the basis difference related to the buildings into earnings as additional depreciation expense over their estimated useful lives. This depreciation is not material to our share of equity in Lexington’s net income or loss. The basis difference attributable to the land will be recognized upon disposition of our investment.

 

Based on Lexington’s September 30, 2009 closing share price of $5.10, the market value (“fair value” pursuant to ASC 820) of our investment in Lexington was $94,192,000, or $38,465,000 in excess of the carrying amount on our consolidated balance sheet. During the three months ended September 30, 2008, we concluded that our investment in Lexington was “other-than-temporarily” impaired and recognized a $7,175,000 non-cash impairment loss based on the difference between the fair value of our investment in Lexington and the carrying amount on our consolidated balance sheet.

 

The following is a summary of Lexington’s financial information as of June 30, 2009 and September 30, 2008 and for the three and nine months ended June 30, 2009 and 2008.

 

(Amounts in millions)

 

As of

 

As of

 

Balance Sheet:

 

June 30, 2009

 

September 30, 2008

 

Total assets

 

$

3,791

 

$

4,294

 

Total liabilities

 

$

2,419

 

$

2,745

 

Lexington shareholders’ equity

 

$

1,278

 

$

924

 

 

 

 

For the Three Months
Ended June 30,

 

For the Nine Months
Ended June 30,

 

Income Statement:

 

2009

 

2008

 

2009

 

2008

 

Total revenues

 

$

99

 

$

125

 

$

305

 

$

349

 

(Loss) income from continuing operations

 

$

(79

)

$

2

 

$

(150

)

$

17

 

Net (loss) income attributable to Lexington

 

$

(77

)

$

15

 

$

(153

)

$

52

 

 

 

14

 

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

5.

Investments in Partially Owned Entities - continued

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

 

Investments:

 

Balance as of

 

 (Amounts in thousands)

 

September 30, 2009

 

December 31, 2008

 

Toys

 

$

422,165

 

$

293,096

 

Alexander’s

 

$

187,272

 

$

137,305

 

Partially owned office buildings

 

 

159,041

 

 

157,468

 

India Real Estate Ventures

 

 

83,531

 

 

88,858

 

Lexington

 

 

55,727

 

 

80,748

 

Other equity method investments

 

 

326,853

 

 

325,775

 

 

 

$

812,424

 

$

790,154

 


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

 

For the Three Months
Ended September 30,

 

For the Nine Months
Ended September 30,

 

Toys:

 

2009

 

2008

 

2009

 

2008

 

32.7% share of:

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in net (loss) income, before income taxes

 

$

(15,985

) (1)

$

(21,051

)

$

106,545

(1)

$

133,228

 

Income tax benefit (expense)

 

 

36,122

 

 

10,944

 

 

(7,335

)

 

(82,778

)

Equity in net income (loss)

 

 

20,137

 

 

(10,107

)

 

99,210

 

 

50,450

 

Non-cash purchase price accounting adjustments

 

 

 

 

 

 

13,946

 

 

(14,900

)

Interest and other income

 

 

1,940

 

 

1,966

 

 

5,741

 

 

5,960

 

 

 

$

22,077

 

$

(8,141

)

$

118,897

 

$

41,510

 

Alexander’s:

 

 

 

 

 

 

 

 

 

 

 

 

 

32.4% share in 2009 and 32.6% share in 2008:

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in net income before stock appreciation rights

 

$

18,756

(2)

$

4,294

 

$

26,574

(2)

$

14,752

 

Stock appreciation rights compensation (expense) income

 

 

(3)

 

(14,557

)

 

11,105

 

 

(7,605

)

Equity in net income (loss)

 

 

18,756

 

 

(10,263

)

 

37,679

 

 

7,147

 

Management and leasing fees

 

 

2,084

 

 

2,054

 

 

5,980

 

 

6,160

 

Development fees

 

 

457

 

 

1,333

 

 

2,385

 

 

3,097

 

 

 

$

21,297

 

$

(6,876

)

$

46,044

 

$

16,404

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lexington – 16.1% share in 2009 and 7.7% share in 2008 of
equity in net loss (4)

 

$

(15,054

)

$

(6,040

)

$

(24,969

)

$

(4,153

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

India Real Estate Ventures – 4% to 36.5% share of equity in net loss

 

 

(465

)

 

(835

)

 

(1,386

)

 

(1,863

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other, net (5)

 

 

(3,265

)

 

3,776

 

 

(22,769

) (6)

 

(23,151

) (7)

 

 

$

(18,784

)

$

(3,099

)

$

(49,124

)

$

(29,167

)

_________________________

 

(1)

Includes $10,200 for our share of income from a litigation settlement.

 

(2)

Includes $13,668 for our share of an income tax benefit.

 

(3)

During the first quarter of 2009, all of the remaining stock appreciation rights were exercised.

 

(4)

The three and nine months ended September 30, 2009, include $14,541 and $19,121, respectively, for our share of non-cash impairment losses recorded by Lexington related to its investment in Concord Debt Holdings LLC. The three and nine months ended September 30, 2008 includes a $7,175 non-cash impairment loss on our investment in Lexington.

 

(5)

Includes our equity in net earnings of partially owned entities including partially owned office buildings in New York and Washington, DC, the Monmouth Mall, Dune Capital LP, Verde Realty MLP, 85 10th Avenue and others.

 

(6)

Includes $7,650 of expense for our share of the Filene’s, Boston lease termination payment.

 

(7)

Includes $34,200 of non-cash charges for the write-off of our share of certain partially owned entities’ pre-development costs.

 

15


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

5.

Investments in Partially Owned Entities - continued

Below is a summary of the debt of partially owned entities as of September 30, 2009 and December 31, 2008, none of which is guaranteed by us.

 

 

100% of
Partially Owned Entities’ Debt at


(Amounts in thousands)

 

September 30,
2009

 

December 31,
2008

Toys (32.7% interest) (as of August 1, 2009 and November 1, 2008, respectively):

 

 

 

 

 

 

10.75% senior unsecured notes, due 2017 (Face value – $950,000) (1)

 

$

925,000

 

$

$1.3 billion senior credit facility, due 2010, (1)

 

 

 

 

1,300,000

$2.0 billion credit facility, due 2012, LIBOR plus 1.00% – 4.25% (2)

 

 

23,000

 

 

367,000

Mortgage loan, due 2010, LIBOR plus 1.30% (1.55% at September 30, 2009)

 

 

800,000

 

 

800,000

$804 million secured term loan facility, due 2012, LIBOR plus 4.25%
(4.50% at September 30, 2009)

 

 

798,000

 

 

797,000

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

 

 

588,900

 

 

568,000

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

 

 

489,400

 

 

486,000

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

 

 

380,100

 

 

377,000

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

 

 

337,900

 

 

335,000

4.51% Spanish real estate facility, due 2013

 

 

185,900

 

 

167,000

$181 million unsecured term loan facility, due 2013, LIBOR plus 5.00%
(5.25% at September 30, 2009)

 

 

180,000

 

 

180,000

Japan bank loans, due 2011 – 2014, 1.20% – 2.80%

 

 

159,200

 

 

158,000

Japan borrowings, due 2010 – 2011 (weighted average rate of 0.96% at September 30, 2009)

 

 

248,000

 

 

289,000

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

 

 

103,700

 

 

101,000

4.51% French real estate facility, due 2013

 

 

89,700

 

 

81,000

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

 

 

21,000

 

 

21,000

Other

 

 

132,000

 

 

73,000

 

 

 

5,461,800

 

 

6,100,000

Alexander’s (32.4% interest):

 

 

 

 

 

 

731 Lexington Avenue mortgage note payable collateralized by the office space,
due in February 2014, with interest at 5.33% (prepayable without penalty after December 2013)

 

 

365,718

 

 

373,637

731 Lexington Avenue mortgage note payable, collateralized by the retail space,
due in July 2015, with interest at 4.93% (prepayable without penalty after December 2013)

 

 

320,000

 

 

320,000

Rego Park construction loan payable, due in December 2010, LIBOR plus 1.20%
(1.46% at September 30, 2009)

 

 

237,968

 

 

181,695

Kings Plaza Regional Shopping Center mortgage note payable, due in June 2011,
with interest at 7.46% (prepayable without penalty after December 2013)

 

 

196,374

 

 

199,537

Rego Park mortgage note payable, due in March 2012 (prepayable without penalty) (3)

 

 

78,246

 

 

78,386

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

 

 

68,000

 

 

68,000

 

 

 

1,266,306

 

 

1,221,255

Lexington (16.1% interest) (as of June 30, 2009 and September 30, 2008, respectively) Mortgage loans collateralized by the trust’s real estate, due from 2009 to 2037, with a weighted average interest rate of 5.45% at June 30, 2009 (various prepayment terms)

 

 

2,203,951

 

 

2,486,370

 

 

 

 

 

 

 

_____________________________

 

(1)

On July 9, 2009, Toys issued $950 million aggregate principal amount of 10.75% Senior Unsecured Notes due 2017 at 97.399%. The proceeds from the issuance, along with existing cash, were used to repay the outstanding balance under its $1.3 billion senior credit facility, which was subsequently terminated.

 

(2)

On June 24, 2009, Toys extended this credit facility, which was to expire in July 2010, to May 2012. The borrowing capacity under the amended facility will remain at $2.0 billion through the original maturity date in July 2010 and will continue at $1.5 billion thereafter. The interest rate will be LIBOR plus 3.20%, which may vary based on availability, through July 2010 and LIBOR plus 4.00%, subject to usage, thereafter.

 

(3)

On March 10, 2009, the $78,246 outstanding balance of the Rego Park I mortgage loan, which was scheduled to mature in June 2009, was repaid and simultaneously refinanced in the same amount. The new loan bears interest at 75 basis points, is secured by the property and is 100% cash collateralized. The proceeds of the new loan were placed in a non-interest bearing restricted mortgage escrow account.

 

 

 

16

 

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

5.

Investments in Partially Owned Entities - continued

 


(Amounts in thousands)

 

100% of
Partially Owned Entities’ Debt at


Partially owned office buildings:

          

September 30,
2009

 

December 31,
2008

Kaempfer Properties (2.5% and 5.0% interests in two partnerships) mortgage notes payable, collateralized by the partnerships’ real estate, due 2011, with a weighted average interest rate of 5.82% at September 30, 2009 (various prepayment terms)

 

$

141,905

 

$

143,000

100 Van Ness, San Francisco office complex (9% interest) up to $132 million construction loan payable, due in July 2013, LIBOR plus 2.75% (3.00% at September 30, 2009) with an interest rate floor of 6.50% and interest rate cap of 7.00%

 

 

85,249

 

 

85,249

330 Madison Avenue (25% interest) $150,000 mortgage note payable, due in June 2015, LIBOR plus 1.50% (1.75% at September 30, 2009)

 

 

150,000

 

 

70,000

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

 

 

61,831

 

 

62,815

Rosslyn Plaza (46% interest) mortgage note payable, due in December 2011, LIBOR plus 1.0% (1.26% at September 30, 2009)

 

 

56,680

 

 

56,680

West 57th Street (50% interest) mortgage note payable, due in December 2009(1), with interest at 4.94% (prepayable without penalty after July 2009)

 

 

29,000

 

 

29,000

825 Seventh Avenue (50% interest) mortgage note payable, due in October 2014, with interest at 8.07% (prepayable without penalty after April 2014)

 

 

20,880

 

 

21,426

India Real Estate Ventures:

 

 

 

 

 

 

TCG Urban Infrastructure Holdings (25% interest) mortgage notes payable, collateralized by the entity’s real estate, due from 2010 to 2022, with a weighted average interest rate of 14.06% at September 30, 2009 (various prepayment terms)

 

 

159,803

 

 

148,792

India Property Fund L.P. (36.5% interest) $120 million secured revolving credit facility, due in December 2009, LIBOR plus 2.75% (3.00% at September 30, 2009)

 

 

98,000

 

 

90,500

Waterfront Associates, LLC (2.5% interest) construction and land loan up to $250 million payable, due in September 2011 with a six month extension option, LIBOR plus 2.00% - 3.50% (2.53% at September 30, 2009)

 

 

160,403

 

 

57,600

Verde Realty Master Limited Partnership (8.5% interest) mortgage notes payable, collateralized by the partnerships’ real estate, due from 2009 to 2025, with a weighted average interest rate of 5.88% at September 30, 2009 (various prepayment terms)

 

 

601,201

 

 

559,840

Green Courte Real Estate Partners, LLC (8.3% interest) mortgage notes payable, collateralized by the partnerships’ real estate, due from 2009 to 2017, with a weighted average interest rate of 5.10% at September 30, 2009 (various prepayment terms)

 

 

307,365

 

 

307,098

Monmouth Mall (50% interest) mortgage note payable, due in September 2015, with interest at 5.44% (prepayable without penalty after July 2015)

 

 

165,000

 

 

165,000

San Jose, California Ground-up Development (45% interest) construction loan, due in March 2010, $100 million fixed at 3.30%, balance at LIBOR plus 2.54% (2.86% at September 30, 2009)

 

 

132,570

 

 

132,128

Wells/Kinzie Garage (50% interest) mortgage note payable, due in December 2013, with interest at 6.87%

 

 

14,696

 

 

14,800

Orleans Hubbard Garage (50% interest) mortgage note payable, due in December 2013, with interest at 6.87%

 

 

10,128

 

 

10,200

Other

 

 

419,529

 

 

468,559

 

Based on our ownership interest in the partially owned entities above, our pro rata share of the debt of these partially owned entities was $3,012,310,000 and $3,196,585,000 as of September 30, 2009 and December 31, 2008, respectively.

 

_________________________

(1)  

Result of a forbearance agreement while in negotiation with the lender for an extension or refinancing.

 

 

17

 

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

6.

Mezzanine Loans Receivable

 

The following is a summary of our investments in mezzanine loans as of September 30, 2009 and December 31, 2008.

 

(Amounts in thousands)

 

 

 

Interest Rate as of

 

Carrying Amount as of

 

Mezzanine Loans Receivable:

 

Maturity

 

September 30, 2009

 

September 30, 2009

 

December 31, 2008

 

Equinox

 

02/13

 

14.00%

 

$

95,325

 

$

85,796

 

Tharaldson Lodging Companies

 

04/10 (1)

 

4.49%

 

 

75,573

 

 

76,341

 

Riley HoldCo Corp

 

02/15

 

10.00%

 

 

74,438

 

 

74,381

 

280 Park Avenue

 

06/16

 

10.25%

 

 

73,750

 

 

73,750

 

Charles Square Hotel, Cambridge

 

(2)

 

(2)

 

 

 

 

41,796

 

Other, net

 

01/14-12/18

 

5.86%-12.00%

 

 

73,628

 

 

120,475

 

 

 

 

 

 

 

 

392,714

 

 

472,539

 

Valuation allowance (3)

 

 

 

 

 

 

(122,738

)

 

 

 

 

 

 

 

 

$

269,976

 

$

472,539

 

__________________

 

(1)

The borrower has a one-year extension option.

 

(2)

On June 1, 2009, this loan, which was scheduled to mature in September 2009, was repaid.

 

(3)

Represents loan loss accruals on mezzanine loans based on our estimate of the net realizable value of each loan. Our estimates are based on the present value of expected cash flows, discounted at each loan’s effective interest rate, or if a loan is collateralized, based on the fair value of the underlying collateral, adjusted for estimated costs to sell. The excess of the carrying amount over the net realizable value of a loan is recognized as a reduction of “interest and other investment (loss) income, net” in our consolidated statement of income.

 

 

7.

Discontinued Operations

On September 1, 2009, we sold 1999 K Street, a newly developed 250,000 square foot office building, in Washington’s Central Business District, for $207,800,000 in cash, which resulted in a net gain of $41,211,000. Accordingly, during the third quarter of 2009, we classified this property as a discontinued operation. In addition, we have classified the revenues and expenses of other properties sold or to be sold as “income from discontinued operations” and the related assets and liabilities as “assets related to discontinued operations” and “liabilities related to discontinued operations” for all periods presented in the accompanying consolidated financial statements. The tables below set forth the assets and liabilities related to discontinued operations at September 30, 2009 and December 31, 2008, and the combined results of operations related to discontinued operations for the three and nine months ended September 30, 2009 and 2008.

 

 

(Amounts in thousands)

 

Assets Related to
Discontinued Operations as of

 

Liabilities Related to
Discontinued Operations as of

 

 

 

September 30,
2009

 

December 31,
2008

 

September 30,
2009

 

December 31,
2008

 

H Street – land under sales contract

 

$

108,151

 

$

108,292

 

$

 

$

 

1999 K Street

 

 

 

 

124,402

 

 

 

 

73,747

 

Retail properties

 

 

 

 

48,416

 

 

 

 

 

Total

 

$

108,151

 

$

281,110

 

$

 

$

73,747

 

 

 

(Amounts in thousands)

 

For the Three Months
Ended September 30,

 

For the Nine Months
Ended September 30,

 

 

 

2009

 

2008

 

2009

 

2008

 

Revenues

 

$

1,356

 

$

1,077

 

$

9,846

 

$

225,620

 

Expenses

 

 

690

 

 

343

 

 

3,225

 

 

223,019

 

Net income

 

 

666

 

 

734

 

 

6,621

 

 

2,601

 

Net gain on sale of 1999 K Street

 

 

41,211

 

 

 

 

41,211

 

 

 

Net gain on sale of our 47.6% interest in
Americold Realty Trust

 

 

 

 

 

 

 

 

112,690

 

Net gain on sale of Tysons Dulles Plaza

 

 

 

 

 

 

 

 

56,831

 

Net gains on sale of other real estate

 

 

1,444

 

 

112

 

 

1,444

 

 

692

 

Income from discontinued operations

 

$

43,321

 

$

846

 

$

49,276

 

$

172,814

 

 

18

 

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

8.

Identified Intangible Assets and Intangible Liabilities

The following summarizes our identified intangible assets (primarily acquired above-market leases) and intangible liabilities (primarily acquired below-market leases) as of September 30, 2009 and December 31, 2008.

 

 

 

Balance as of

 

(Amounts in thousands)

 

September 30,
2009

 

December 31,
2008

 

Identified intangible assets (included in other assets):

 

 

 

 

 

 

 

Gross amount

 

$

768,364

 

$

780,476

 

Accumulated amortization

 

 

(304,309

)

 

(257,757

)

Net

 

$

464,055

 

$

522,719

 

Identified intangible liabilities (included in deferred credit):

 

 

 

 

 

 

 

Gross amount

 

$

955,651

 

$

998,179

 

Accumulated amortization

 

 

(303,350

)

 

(278,357

)

Net

 

$

652,301

 

$

719,822

 

 

Amortization of acquired below-market leases, net of acquired above-market leases resulted in an increase to rental income of $18,728,000 and $24,526,000 for the three months ended September 30, 2009 and 2008, respectively, and $56,270,000 and $73,655,000 for the nine months ended September 30, 2009 and 2008, 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, 2010 is as follows:

 

(Amounts in thousands)

 

 

 

 

2010

 

$

63,104

 

2011

 

 

58,966

 

2012

 

 

54,771

 

2013

 

 

46,798

 

2014

 

 

40,995

 

 

Amortization of all other identified intangible assets (a component of depreciation and amortization expense) was $15,698,000 and $21,207,000 for the three months ended September 30, 2009 and 2008, respectively, and $49,262,000 and $65,417,000 for the nine months ended September 30, 2009 and 2008, 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, 2010 is as follows:

 

(Amounts in thousands)

 

 

 

 

2010

 

$

55,898

 

2011

 

 

53,264

 

2012

 

 

48,828

 

2013

 

 

41,651

 

2014

 

 

23,577

 

 

We are a tenant under ground leases for certain of our properties. Amortization of these acquired below-market leases resulted in an increase to rent expense of $533,000 and $1,599,000 in each of the three-month and nine-month periods ended September 30, 2009 and 2008, respectively. Estimated annual amortization of these below market leases for each of the five succeeding years, commencing January 1, 2010 is as follows:

 

(Amounts in thousands)

 

 

 

 

2010

 

$

2,133

 

2011

 

 

2,133

 

2012

 

 

2,133

 

2013

 

 

2,133

 

2014

 

 

2,133

 

 

19

 

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

9. Debt

The following is a summary of our debt:

(Amounts in thousands)

 

 

 

Interest Rate at  

 

Balance at

 

Notes and mortgages payable:

 

Maturity (1)

 

September 30,
2009

 

September 30,
2009

 

December 31,
2008

 

Fixed rate:

 

 

 

 

 

 

 

 

 

 

 

New York Office:

 

 

 

 

 

 

 

 

 

 

 

1290 Avenue of the Americas

 

01/13

 

5.97%

 

$

437,210

 

$

444,667

 

350 Park Avenue

 

01/12

 

5.48%

 

 

430,000

 

 

430,000

 

770 Broadway

 

03/16

 

5.65%

 

 

353,000

 

 

353,000

 

888 Seventh Avenue

 

01/16

 

5.71%

 

 

318,554

 

 

318,554

 

Two Penn Plaza

 

02/11

 

4.97%

 

 

283,748

 

 

287,386

 

909 Third Avenue

 

04/15

 

5.64%

 

 

211,540

 

 

214,074

 

Eleven Penn Plaza

 

12/11

 

5.20%

 

 

204,114

 

 

206,877

 

 

 

 

 

 

 

 

 

 

 

 

 

Washington, DC Office:

 

 

 

 

 

 

 

 

 

 

 

Skyline Place

 

02/17

 

5.74%

 

 

678,000

 

 

678,000

 

Warner Building

 

05/16

 

6.26%

 

 

292,700

 

 

292,700

 

River House Apartments

 

04/15

 

5.43%

 

 

195,546

 

 

195,546

 

1215 Clark Street, 200 12th Street and 251 18th Street

 

01/25

 

7.09%

 

 

113,992

 

 

115,440

 

Bowen Building

 

06/16

 

6.14%

 

 

115,022

 

 

115,022

 

Reston Executive I, II and III

 

01/13

 

5.57%

 

 

93,000

 

 

93,000

 

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

 

08/10

 

6.74%

 

 

86,401

 

 

87,721

 

1550 and 1750 Crystal Drive

 

11/14

 

7.08%

 

 

82,399

 

 

83,912

 

Universal Buildings (2)

 

04/14

 

6.33%

 

 

107,553

 

 

59,728

 

1235 Clark Street

 

07/12

 

6.75%

 

 

53,479

 

 

54,128

 

2231 Crystal Drive

 

08/13

 

7.08%

 

 

49,054

 

 

50,394

 

1750 Pennsylvania Avenue

 

06/12

 

7.26%

 

 

46,057

 

 

46,570

 

241 18th Street

 

10/10

 

6.82%

 

 

45,860

 

 

46,532

 

2011 Crystal Drive (3)

 

8/17

 

7.30%

 

 

82,436

 

 

38,338

 

1225 Clark Street

 

08/13

 

7.08%

 

 

29,342

 

 

30,145

 

1800, 1851 and 1901 South Bell Street

 

12/11

 

6.91%

 

 

21,524

 

 

27,801

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail:

 

 

 

 

 

 

 

 

 

 

 

Cross-collateralized mortgages on 42 shopping centers (4)

 

03/10

 

7.86%

 

 

394,876

 

 

448,115

 

Springfield Mall (including present value of purchase option)

 

10/12-04/13

 

5.45%

 

 

249,683

 

 

252,803

 

Montehiedra Town Center

 

07/16

 

6.04%

 

 

120,000

 

 

120,000

 

Broadway Mall

 

07/13

 

5.40%

 

 

93,183

 

 

94,879

 

828-850 Madison Avenue Condominium

 

06/18

 

5.29%

 

 

80,000

 

 

80,000

 

Las Catalinas Mall

 

11/13

 

6.97%

 

 

59,680

 

 

60,766

 

Other

 

12/10-05/36

 

4.75%-7.33%

 

 

157,452

 

 

159,597

 

 

 

 

 

 

 

 

 

 

 

 

 

Merchandise Mart:

 

 

 

 

 

 

 

 

 

 

 

Merchandise Mart

 

12/16

 

5.57%

 

 

550,000

 

 

550,000

 

High Point Complex

 

09/16

 

6.34%

 

 

218,475

 

 

220,361

 

Boston Design Center

 

09/15

 

5.02%

 

 

69,943

 

 

70,740

 

Washington Design Center

 

11/11

 

6.95%

 

 

44,440

 

 

44,992

 

 

 

 

 

 

 

 

 

 

 

 

 

Other:

 

 

 

 

 

 

 

 

 

 

 

555 California Street (5)

 

05/10-09/11

 

5.94%

 

 

663,545

 

 

720,671

 

Industrial Warehouses

 

10/11

 

6.95%

 

 

24,956

 

 

25,268

 

Total fixed interest notes and mortgages payable

 

 

 

5.97%

 

7,056,764

 

7,117,727

 

_____________________

See notes on page 22.  

20


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

9.

Debt - continued

 

(Amounts in thousands)

 

 

 

 

Interest Rate at 

 

Balance at

 

Notes and mortgages payable:

Maturity (1)

    

Spread over
LIBOR

    

September 30,
2009

    

September 30,
2009

    

December 31,
2008

 

Variable rate:

 

 

 

 

 

 

 

 

 

 

 

 

New York Office:

 

 

 

 

 

 

 

 

 

 

 

 

Manhattan Mall

02/12

 

L+55

 

.79%

 

$

232,000

 

$

232,000

 

866 UN Plaza

05/11

 

L+40

 

.71%

 

 

44,978

 

 

44,978

 

Washington, DC Office:

 

 

 

 

 

 

 

 

 

 

 

 

2101 L Street

02/13

 

L+120

 

1.45%

 

 

150,000

 

 

150,000

 

Courthouse Plaza One and Two

01/15

 

L+75

 

1.00%

 

 

66,592

 

 

70,774

 

220 20th Street (construction loan)

01/11

 

L+115

 

1.39%

 

 

73,038

 

 

40,701

 

West End 25 (construction loan)

02/11

 

L+130

 

1.55%

 

 

69,970

 

 

24,620

 

River House Apartments

04/18

 

(6)

 

1.66%

 

 

64,000

 

 

64,000

 

Commerce Executive III, IV and V

(7)

 

(7)

 

 

 

 

 

 

50,223

 

Retail:

 

 

 

 

 

 

 

 

 

 

 

 

Green Acres Mall

02/13

 

L+140

 

1.66%

 

 

335,000

 

 

335,000

 

Bergen Town Center (construction loan)

03/13

 

L+150

 

1.76%

 

 

261,903

 

 

228,731

 

Beverly Connection (8)

07/12

 

L+350

 

5.00%

 

 

100,000

 

 

100,000

 

4 Union Square South (9)

04/14

 

L+325

 

3.50%

 

 

75,000

 

 

 

435 Seventh Avenue (10)

08/14

 

L+300

 

5.00%

 

 

52,000

 

 

 

Other (11)

11/11

 

L+175

 

2.07%

 

 

22,758

 

 

 

Other:

 

 

 

 

 

 

 

 

 

 

 

 

220 Central Park South

11/10

 

L+235 – L+245

 

2.64%

 

 

130,000

 

 

130,000

 

Other (12)

10/09(12) – 11/11

 

Various

 

1.76% - 3.01%

 

 

161,325

 

 

172,886

 

Total Variable Interest Notes and Mortgages Payable

 

 

 

 

1.95%

 

 

1,838,564

 

 

1,643,913

 

Total Notes and Mortgages Payable

 

 

 

 

5.14%

 

$

8,895,328

 

$

8,761,640

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible senior debentures: (see page 10)

 

 

 

 

 

 

 

 

 

 

 

 

2.85% due 2027

04/12

 

 

 

5.45%

 

$

1,131,695

 

$

1,276,285

 

3.63% due 2026

11/11

 

 

 

5.32%

 

 

858,260

 

 

945,458

 

Total convertible senior debentures (13)

 

 

 

 

5.39%

 

$

1,989,955

 

$

2,221,743

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior unsecured notes:

 

 

 

 

 

 

 

 

 

 

 

 

Senior unsecured notes due 2039 (14)

10/39

 

 

 

7.88%

 

$

446,056

 

$

 

Senior unsecured notes due 2010 (15)

12/10

 

 

 

4.75%

 

 

148,215

 

 

199,625

 

Senior unsecured notes due 2011 (15)

02/11

 

 

 

5.60%

 

 

117,333

 

 

249,902

 

Senior unsecured notes due 2009 (15)

08/09

 

 

 

4.50%

 

 

 

 

168,289

 

Total senior unsecured notes

 

 

 

 

6.85%

 

$

711,604

 

$

617,816

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3.88% exchangeable senior debentures due 2025
(see page 10)

04/12

 

 

 

5.32%

 

$

482,875

 

$

478,256

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unsecured revolving credit facilities:

 

 

 

 

 

 

 

 

 

 

 

 

$1.595 billion unsecured revolving credit facility

09/12

 

L+55

 

0.76%

 

$

600,000

 

$

300,000

 

$.965 billion unsecured revolving credit facility
($39,282 reserved for outstanding letters of credit)

06/11

 

L+55

 

0.76%

 

 

48,250

 

 

58,468

 

Total unsecured revolving credit facilities (16)

 

 

 

 

0.76%

 

$

648,250

 

$

358,468

 

_______________________

See notes on the following page.


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

9.

Debt - continued

Notes to preceding tabular information (Amounts in thousands):

 

 

(1)

Represents the extended maturity for certain loans in which we have the unilateral right, ability and intent to extend. In the case of our convertible and exchangeable debt, represents the earliest date holders may require us to repurchase the debentures.

 

 

(2)

On September 14, 2009, we completed a $50,000 additional financing of the Universal Buildings. The additional financing has a fixed interest rate of 8.0% and matures on the same date as the existing loans in April 2014.

 

 

(3)

On July 30, 2009, we completed an $82,500 refinancing of 2011 Crystal Drive. This loan has a fixed interest rate of 7.30% and matures in August 2017, with two one-year extension options. We retained net proceeds of approximately $44,500 after repaying the existing loan and closing costs.

 

 

(4)

In the first quarter of 2009, we purchased $47,000 of this debt for $46,231 in cash, resulting in a net gain of $769.

 

 

(5)

In June 2009, we purchased $58,399 (aggregate carrying amount) of this loan for $55,814 in cash, resulting in a net gain of $2,585.

 

 

(6)

This loan bears interest at the Freddie Mac Reference Note Rate plus 1.53%.

 

 

(7)

On June 1, 2009, we repaid the $50,223 outstanding balance of this loan, which was scheduled to mature on July 31, 2009.

 

 

(8)

On July 7, 2009, we refinanced this loan, which was scheduled to mature on July 9, 2009. The new loan has a two-year term and an interest rate of LIBOR plus 3.50%, with a LIBOR floor of 1.50% (5.00% at September 30, 2009), and provides for a one-year extension through July 2012, at LIBOR plus 5.00%.

 

 

(9)

On April 7, 2009, we completed a $75,000 financing of 4 Union Square South. This interest-only loan has a rate of LIBOR plus 3.25%, (3.50% at September 30, 2009) and matures in April 2012, with two one-year extension options. The property was previously unencumbered.

 

 

(10)

On August 11, 2009, we completed a $52,000 financing of 435 Seventh Avenue. This loan has a rate of LIBOR plus 3.00% with a LIBOR floor of 2.00% (5.00% at September 30, 2009) and matures in August 2012, with two one-year extension options. The property was previously unencumbered.

 

 

(11)

On August 20, 2009, the fixed interest rate swap on this loan expired and the loan was reclassified from fixed rate to variable rate debt. In addition, on October 15, 2009, we refinanced the principal amount of this loan at LIBOR plus 3.75%. The loan has an initial maturity of November 2011, with a one-year extension option.

 

 

(12)

We are currently in negotiations with the lender to extend or refinance a loan with an outstanding balance of $36,000, which matured on October 29, 2009.

 

 

(13)

During 2009, we purchased $279,922 (aggregate face amount) of our convertible senior debentures for $247,728 in cash, resulting in net gains of $16,072, of which $12,665 and $3,407 were recognized in the second and third quarters, respectively. In October 2009, we purchased an additional $79,671 (aggregate face amount) of our convertible senior debentures for $76,651 in cash. Furthermore, on November 2, 2009, we commenced a cash tender offer for any and all of our convertible senior debentures. Upon the terms and subject to the conditions of the tender offer, we are offering to purchase the convertible senior debentures at par, plus accrued and unpaid interest. The tender offer expires on December 1, 2009.

 

 

(14)

On September 30, 2009, we completed a public offering of $460,000 principal amount of 7.875% callable senior unsecured 30-year notes due October 1, 2039. Interest on the notes is payable quarterly in arrears on each January 1, April 1, July 1 and October 1, commencing January 1, 2010. The notes were sold to the public at par and may be redeemed at our option in whole or in part beginning October 1, 2014, at a price equal to the principal amount plus accrued and unpaid interest.  These notes are subject to substantively the same financial covenants as our previously issued senior unsecured notes. We retained net proceeds of approximately $446,000 from the offering, which will be used for general corporate purposes.

 

 

(15)

In the first quarter of 2009 we purchased $81,534 (aggregate face amount) of our senior unsecured notes for $75,977 in cash, resulting in a net gain of $5,136. In the second quarter of 2009, pursuant to our April 30, 2009 tender offer, we purchased $173,321 (aggregate face amount) of our senior unsecured notes for $169,832 in cash, resulting in a net gain of $2,434. In addition, upon maturity in August 2009, we repaid the remaining $97,900 of our 4.5% senior unsecured notes.

 

 

(16)

In October 2009, we repaid $400,000 of the amount outstanding under our unsecured revolving credit facilities.

 

22

 

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

10.

Redeemable Noncontrolling Interests

 

Redeemable noncontrolling interests on our consolidated balance sheets represent Operating Partnership units held by third parties and are comprised of (i) Class A units, (ii) Series B convertible preferred units, and (iii) Series D-10, D-11, D-12, D-14 and D-15 (collectively, “Series D”) cumulative redeemable preferred units. Redeemable noncontrolling interests are presented at the greater of their carrying amount or redemption value at the end of each reporting period. Changes in the value from period to period are charged to “additional capital” on our consolidated balance sheets. As of September 30, 2009 and December 31, 2008, the aggregate value of the redeemable noncontrolling interests was $1,212,765,000 and $1,177,978,000, respectively. Below is a table reflecting the activity of the redeemable noncontrolling interests.

 

 

 

 

 

(Amounts in thousands)

 

 

 

Balance at December 31, 2007

$

1,658,303

 

Net income

 

69,844

 

Distributions

 

(56,445

)

Conversion of Class A redeemable units into common shares, at redemption value

 

(61,801

)

Mark-to-market adjustments on Class A redeemable units

 

26,393

 

Other, net

 

19,812

 

Balance at September 30, 2008

$

1,656,106

 

 

 

 

 

 

 

 

 

Balance at December 31, 2008

$

1,177,978

 

Net income

 

32,250

 

Distributions

 

(31,313

)

Conversion of Class A redeemable units into common shares, at redemption value

 

(53,091

)

Mark-to-market adjustments on Class A redeemable units

 

77,004

 

Other, net

 

9,937

 

Balance at September 30, 2009

$

1,212,765

 

 

Redeemable noncontrolling interests exclude our Series G convertible preferred units and Series D-13 cumulative redeemable preferred units, as they are accounted for as liabilities in accordance with GAAP, 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 $59,762,000 and $83,079,000 as of September 30, 2009 and December 31, 2008, respectively.

 

On October 30, 2009, all of the Series B convertible preferred units were redeemed by us in exchange for 139,798 Class A units.

 

23

 

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

11.

Income Per Share

During 2009, we paid a portion of our common dividends in Vornado common shares. Consequently, we have included the 5,736,000 newly issued common shares in the computation of income per share retroactively for the three and nine months ended September 30, 2008.

 

On April 22, 2009, we sold 17,250,000 common shares, including underwriters’ over-allotment, in an underwritten public offering pursuant to an effective registration statement at an initial public offering price of $43.00 per share. We received net proceeds of approximately $710,226,000, after the underwriters’ discount and offering expenses and contributed the net proceeds to the Operating Partnership in exchange for 17,250,000 Class A units of the Operating Partnership.

 

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

 

(Amounts in thousands, except per share amounts)

For The Three Months
Ended September 30,

 

For The Nine Months
Ended September 30,

 

 

2009

 

2008

 

2009

 

2008

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net of income attributable to
noncontrolling interests

$

100,518

 

$

36,171

 

$

197,038

 

$

415,253

 

Income from discontinued operations, net of income attributable to
noncontrolling interests

 

40,099

 

 

836

 

 

46,054

 

 

156,724

 

Net income attributable to Vornado

 

140,617

 

 

37,007

 

 

243,092

 

 

571,977

 

Preferred share dividends

 

(14,269

)

 

(14,271

)

 

(42,807

)

 

(42,820

)

Net income attributable to common shareholders

 

126,348

 

 

22,736

 

 

200,285

 

 

529,157

 

Earnings allocated to unvested participating securities

 

(38

)

 

(80

)

 

(147

)

 

(242

)

Numerator for basic income per share

 

126,310

 

 

22,656

 

 

200,138

 

 

528,915

 

Impact of assumed conversions:

 

 

 

 

 

 

 

 

 

 

 

 

Convertible preferred share dividends

 

43

 

 

 

 

 

 

145

 

Numerator for diluted income per share

$

126,353

 

$

22,656

 

$

200,138

 

$

529,060

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic income per share – weighted average shares

 

179,422

 

 

159,761

 

 

171,620

 

 

159,405

 

Effect of dilutive securities (1):

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock options and restricted share awards

 

2,213

 

 

4,663

 

 

1,558

 

 

4,609

 

Convertible preferred shares

 

75

 

 

 

 

 

 

85

 

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

 

181,710

 

 

164,424

 

 

173,178

 

 

164,099

 

INCOME PER COMMON SHARE – BASIC:

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net

$

0.48

 

$

0.14

 

$

0.90

 

$

2.34

 

Income from discontinued operations, net

 

0.22

 

 

 

 

0.27

 

 

0.98

 

Net income per common share

$

0.70

 

$

0.14

 

$

1.17

 

$

3.32

 

INCOME PER COMMON SHARE – DILUTED:

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net

$

0.47

 

$

0.14

 

$

0.89

 

$

2.27

 

Income from discontinued operations, net

 

0.22

 

 

 

 

0.27

 

 

0.95

 

Net income per common share

$

0.69

 

$

0.14

 

$

1.16

 

$

3.22

 

__________________

(1)

The effect of dilutive securities above excludes anti-dilutive weighted average common share equivalents. Accordingly, the three and nine months ended September 30, 2009 exclude 21,372 and 21,651 weighted average common share equivalents, respectively, and the three and nine months ended September 30, 2008, exclude 24,866 and 18,641 weighted average common share equivalents, respectively.

 

24

 

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

12.

Comprehensive Income

(Amounts in thousands)

 

For The Three Months
Ended September 30,

 

For The Nine Months
Ended September 30,

 

 

 

2009

 

2008

 

2009

 

2008

 

Net income

 

$

155,844

 

$

43,547

 

$

271,900

 

$

639,112

 

Other comprehensive income (loss)

 

 

52,340

 

 

19,656

 

 

23,388

 

 

(38,447

)

Comprehensive income

 

 

208,184

 

 

63,203

 

 

295,288

 

 

600,665

 

Comprehensive income attributable to noncontrolling
interests

 

 

(19,257

)

 

(8,329

)

 

(30,796

)

 

(63,598

)

Comprehensive income attributable to Vornado

 

$

188,927

 

$

54,874

 

$

264,492

 

$

537,067

 

 

Substantially all of the other comprehensive income (loss) for the three and nine months ended September 30, 2009 and 2008 relates to the mark-to-market of marketable equity securities classified as available-for-sale and our share of other comprehensive income of partially owned entities (primarily Toys).

 

 

13.

Fee and Other Income

 

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

 

(Amounts in thousands)

 

For The Three Months
Ended September 30,

 

For The Nine Months
Ended September 30,

 

 

 

2009

 

2008

 

2009

 

2008

 

Tenant cleaning revenue

 

$

14,514

 

$

13,627

 

$

43,372

 

$

41,431

 

Management and leasing fees

 

 

2,837

 

 

2,518

 

 

8,255

 

 

10,326

 

Lease termination fees

 

 

1,608

 

 

1,455

 

 

4,356

 

 

4,469

 

Other income

 

 

12,676

 

 

13,155

 

 

42,301

 

 

33,830

 

 

 

$

31,635

 

$

30,755

 

$

98,284

 

$

90,056

 

 

 

Fee and other income above include management fee income from Interstate Properties, a related party, of $197,000 and $196,000 for the three months ended September 30, 2009 and 2008, respectively, and $578,000 and $604,000 for the nine months ended September 30, 2009 and 2008, respectively. The above table excludes fee income from partially owned entities, which is included in income from partially owned entities (see Note 5 – Investments in Partially Owned Entities).

 

 

14.

Stock-based Compensation

Our Share Option Plan (the “Plan”) provides for grants of incentive and non-qualified stock options, restricted stock, stock appreciation rights, performance shares and limited partnership units to certain of our employees and officers. We account for all stock-based compensation in accordance GAAP. Stock based compensation expense for the three months ended September 30, 2009 and 2008 consists of stock option awards, restricted common shares, Operating Partnership unit awards and out-performance plan awards. During the three and nine months ended September 30, 2009, we recognized $5,639,000 and $21,539,000 of stock-based compensation expense, respectively. During the three and nine months ended September 30, 2008 we recognized $8,789,000 and $25,762,000 of stock based compensation expense, respectively.

 

On March 31, 2009, our nine most senior executives voluntarily surrendered their 2007 and 2008 stock option awards and their 2008 out-performance plan awards. Accordingly, we recognized $32,588,000 of expense in the first quarter of 2009 representing the unamortized portion of these awards, which is included as a component of “general and administrative” expense on our consolidated statement of income. As a result of these voluntary surrenders, stock-based compensation expense will be approximately $7,000,000 lower in 2009 and $9,400,000, $9,400,000, $5,700,000 and $1,000,000 lower in 2010, 2011, 2012 and 2013, respectively.

 

25

 

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

15.

Commitments and Contingencies

Insurance

 

We carry commercial liability and all risk property insurance ((i) fire, (ii) flood, (iii) extended coverage, (iv) “acts of terrorism” as defined in the Terrorism Risk Insurance Program Reauthorization Act of 2007 (“TRIPRA”), which expires in December 2014, and (v) rental loss insurance) with respect to our assets. Our New York Office, Washington, DC Office, Retail and Merchandise Mart divisions have $2.0 billion of per occurrence all risk property insurance coverage in effect through February 15, 2011. Our California properties have earthquake insurance with coverage of $150,000,000 per occurrence, subject to a deductible in the amount of 5% of the value of the affected property, and a $150,000,000 annual aggregate.

 

Penn Plaza Insurance Company, LLC (“PPIC”), our wholly owned subsidiary, acts as a re-insurer with respect to a portion of our earthquake insurance coverage and as a direct insurer for coverage for acts of terrorism, including nuclear, biological, chemical and radiological (“NBCR”) acts, as defined by TRIPRA. Coverage for acts of terrorism is fully reinsured by third party insurance companies and the Federal government with no exposure to PPIC. Our coverage for NBCR losses is up to $2 billion, per occurrence, for which PPIC is responsible for a deductible of $3,200,000 and 15% of the balance of a covered loss and the Federal government is responsible for the remaining 85% of a covered loss. We are ultimately responsible for any loss borne by PPIC.

 

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

 

Our debt instruments, consisting of mortgage loans secured by our properties (which are generally non-recourse to us), senior unsecured notes, exchangeable senior debentures, convertible senior debentures and revolving credit agreements contain customary covenants requiring us to maintain insurance. Although we believe that we have adequate insurance coverage 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 and/or refinance our properties and expand our portfolio.

 

Other Contractual Obligations

 

At September 30, 2009, there were $39,282,000 of outstanding letters of credit under our $965,000,000 revolving credit facility. Our credit facilities and our senior unsecured notes contain financial covenants that require us to maintain minimum interest coverage and maximum debt to market capitalization ratios, and provide for higher interest rates in the event of a decline in our ratings below Baa3/BBB. Our credit facilities and our senior unsecured notes 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 items such as the failure to pay interest or principal.

 

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

 

We are committed to fund additional capital to certain of our partially owned entities aggregating approximately $201,550,000. Of this amount, $80,923,000 is committed to the India Property Fund and is pledged as collateral to its lender.

 

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

 

 

26

 

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

15.

Commitments and Contingencies - continued

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

 

On January 8, 2003, Stop & Shop filed a complaint with the United States District Court for the District of New Jersey (“USDC-NJ”) claiming that we had no right to reallocate and therefore continue to collect the $5,000,000 of annual rent from Stop & Shop pursuant to the Master Agreement and Guaranty, because of the expiration of the East Brunswick, Jersey City, Middletown, Union and Woodbridge leases to which the $5,000,000 of additional rent was previously allocated. Stop & Shop asserted that a prior order of the Bankruptcy Court for the Southern District of New York dated February 6, 2001, as modified on appeal to the District Court for the Southern District of New York on February 13, 2001, froze our right to reallocate which effectively terminated our right to collect the additional rent from Stop & Shop. On March 3, 2003, after we moved to dismiss for lack of jurisdiction, Stop & Shop voluntarily withdrew its complaint. On March 26, 2003, Stop & Shop filed a new complaint in New York Supreme Court, asserting substantially the same claims as in its USDC-NJ complaint. We removed the action to the United States District Court for the Southern District of New York. In January 2005 that court remanded the action to the New York Supreme Court. On February 14, 2005, we served an answer in which we asserted a counterclaim seeking a judgment for all the unpaid additional rent accruing through the date of the judgment and a declaration that Stop & Shop will continue to be liable for the additional rent as long as any of the leases subject to the Master Agreement and Guaranty remain in effect. On May 17, 2005, we filed a motion for summary judgment. On July 15, 2005, Stop & Shop opposed our motion and filed a cross-motion for summary judgment. On December 13, 2005, the Court issued its decision denying the motions for summary judgment. Both parties appealed the Court’s decision and on December 14, 2006, the Appellate Court division issued a decision affirming the Court’s decision. On January 16, 2007, we filed a motion for the reconsideration of one aspect of the Appellate Court’s decision which was denied on March 13, 2007. Discovery is now complete and we anticipate that a trial date will be set for some time in 2010. We intend to vigorously pursue our claims against Stop & Shop. In our opinion, after consultation with legal counsel, the outcome of such matters will not have a material effect on our financial condition, results of operations or cash flows.

 

On May 24, 2007, we acquired a 70% controlling interest in 1290 Avenue of the Americas and the 555 California Street complex. Our 70% interest was acquired through the purchase of all of the shares of a group of foreign companies that own, through U.S. entities, the 1% sole general partnership interest and a 69% limited partnership interest in the partnerships that own the two properties. The remaining 30% limited partnership interest is owned by Donald J. Trump. In August 2005, Mr. Trump brought a lawsuit in the New York State Supreme Court against, among others, the general partners of the partnerships referred to above.   Mr. Trump’s claims arose out of a dispute over the sale price of and use of proceeds from, the sale of properties located on the former Penn Central rail yards between West 59th and 72nd Streets in Manhattan which were formerly owned by the partnerships. In decisions dated September 14, 2005 and July 24, 2006, the Court denied several of Mr. Trump’s motions and ultimately dismissed all of Mr. Trump’s claims, except for his claim seeking access to books and records; that claim was dismissed by virtue of a decision dated October 1, 2007 and an Order dated January 28, 2009. Mr. Trump sought re-argument and renewal on, and filed a notice of appeal in connection with the 2006 decision.  In a decision dated January 6, 2009, the Court denied all of Mr. Trump’s motions. Mr. Trump filed an additional appeal of the 2006, 2007 and 2009 decisions. Mr. Trump’s appeals were denied on all grounds on June 30, 2009. Thereafter, Mr. Trump moved to reargue the appellate decisions but later withdrew the motion. On July 24, 2009 Mr. Trump moved for leave to appeal the June 30, 2009 decision to the New York Court of Appeals, which was denied on October 27, 2009. In connection with the acquisition, we agreed to indemnify the sellers for liabilities and expenses arising out of Mr. Trump’s claim that the general partners of the partnerships we acquired did not sell the rail yards at a fair price or could have sold the rail yards for a greater price and any other claims asserted in the legal action; provided however, that if Mr. Trump prevails on certain claims involving partnership matters, other than claims relating to sale price, the sellers will be required to reimburse us for certain costs related to those claims. We believe that the claims relating to the sale price are without merit. All other allegations are not asserted as a basis for damages and regardless of merit, in our opinion, after consultation with legal counsel, will not have a material effect on our financial condition, results of operations or cash flows.

 

In July 2005, we acquired H Street Building Corporation (“H Street”) which has a subsidiary that owns, among other things, a 50% tenancy in common interest in land located in Arlington County, Virginia, known as "Pentagon Row," leased to two tenants. In April 2007, H Street acquired the remaining 50% interest in that fee. In April 2007, we received letters from those tenants, Street Retail, Inc. and Post Apartment Homes, L.P., claiming they had a right of first offer triggered by each of those transactions. On September 25, 2008, both tenants filed suit against us and the former owners. The claim alleges the right to purchase the fee interest, damages in excess of $75,000,000 and punitive damages. We believe this claim is without merit and regardless of merit, in our opinion, after consultation with legal counsel, will not have a material effect on our financial condition, results of operations or cash flows.

 

27

 

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

16.

Retirement Plans

In the first quarter of 2009, we finalized the termination of the Merchandise Mart Properties Pension Plan, which resulted in a $2,800,000 pension settlement expense that is included as a component of “general and administrative” expense on our consolidated statement of income for the nine months ended September 30, 2009.

 

 

17.

Impairment Losses on Development Projects and Costs of Acquisitions Not Consummated

During the three months ended September 30, 2008, we recognized a $5,000,000 non-cash impairment charge to write down the carrying amount of land held for development to its fair value. During the first and second quarters of 2008, we wrote-off an aggregate of $3,009,000 of costs associated with acquisitions not consummated (primarily Hudson Rail Yards).

 

 

18.

Marketable Securities

At September 30, 2009 and December 31, 2008, we had $4,099,000 of net unrealized gains and $2,061,000 of net unrealized losses, respectively, on our marketable equity securities. During 2008, we concluded that certain of the investments in our marketable equity securities portfolio were “other-than-temporarily” impaired; accordingly, we recognized non-cash impairment charges, aggregating $20,881,000, of which $9,073,000 and $11,808,000 were recognized in the first and third quarters of 2008, respectively. Our conclusions were based on the severity of the declines in the market value of those securities and our inability to forecast a recovery in the near-term.

 

The following table sets forth the details of our marketable securities:

 

 

 

As of September 30, 2009

      

As of December 31, 2008

 

(Amounts in thousands)

 

Carrying
Amount

 

Fair
Value

 

Carrying
Amount

 

Fair
Value

 

Marketable equity securities

 

$

85,717

 

$

85,717

 

$

118,438

 

$

118,438

 

Debt securities held-to-maturity

 

 

227,501

 

 

242,848

 

 

215,884

 

 

164,728

 

 

 

$

313,218

 

$

328,565

 

$

334,322

 

$

283,166

 

 

 

 

28

 

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

19.

Segment Information

Below is a summary of net income and a reconciliation of our net income to EBITDA(1) by segment for the three and nine months ended September 30, 2009 and 2008.

 

(Amounts in thousands)

 

For the Three Months Ended September 30, 2009

 

 

 

Total

 

New York
Office

 

Washington, DC
Office

 

Retail

 

Merchandise
Mart

 

Toys

 

Other (3)

 

Property rentals

 

$

509,968

 

$

189,896

 

$

137,139

 

$

91,286

 

$

52,269

 

$

 

$

39,378

 

Straight-line rents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual rent increases

 

 

16,676

 

 

10,126

 

 

3,573

 

 

2,827

 

 

135

 

 

 

 

15

 

Amortization of free rent

 

 

4,682

 

 

(98

)

 

2,760

 

 

1,963

 

 

19

 

 

 

 

38

 

Amortization of acquired below-
market leases, net

 

 

18,728

 

 

10,710

 

 

1,069

 

 

4,826

 

 

30

 

 

 

 

2,093

 

Total rentals

 

 

550,054

 

 

210,634

 

 

144,541

 

 

100,902

 

 

52,453

 

 

 

 

41,524

 

Tenant expense reimbursements

 

 

89,530

 

 

36,360

 

 

14,892

 

 

32,121

 

 

3,661

 

 

 

 

2,496

 

Fee and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant cleaning revenue

 

 

14,514

 

 

20,661

 

 

 

 

 

 

 

 

 

 

(6,147

)

Management and leasing fees

 

 

2,837

 

 

1,269

 

 

1,984

 

 

557

 

 

11

 

 

 

 

(984

)

Lease termination fees

 

 

1,608

 

 

1,226

 

 

234

 

 

 

 

9

 

 

 

 

139

 

Other

 

 

12,676

 

 

3,182

 

 

4,979

 

 

648

 

 

3,461

 

 

 

 

406

 

Total revenues

 

 

671,219

 

 

273,332

 

 

166,630

 

 

134,228

 

 

59,595

 

 

 

 

37,434

 

Operating expenses

 

 

265,952

 

 

117,362

 

 

57,889

 

 

49,304

 

 

26,469

 

 

 

 

14,928

 

Depreciation and amortization

 

 

130,503

 

 

42,621

 

 

35,187

 

 

24,091

 

 

13,654

 

 

 

 

14,950

 

General and administrative

 

 

51,684

 

 

4,895

 

 

6,079

 

 

6,802

 

 

7,198

 

 

 

 

26,710

 

Total expenses

 

 

448,139

 

 

164,878

 

 

99,155

 

 

80,197

 

 

47,321

 

 

 

 

56,588

 

Operating income (loss)

 

 

223,080

 

 

108,454

 

 

67,475

 

 

54,031

 

 

12,274

 

 

 

 

(19,154

)

Income applicable to Alexander’s

 

 

21,297

 

 

192

 

 

 

 

187

 

 

 

 

 

 

20,918

 

Income applicable to Toys

 

 

22,077

 

 

 

 

 

 

 

 

 

 

22,077

 

 

 

(Loss) income from partially owned entities

 

 

(18,784

)

 

1,454

 

 

1,876

 

 

580

 

 

26

 

 

 

 

(22,720

)

Interest and other investment
income, net

 

 

20,486

 

 

190

 

 

254

 

 

10

 

 

12

 

 

 

 

20,020

 

Interest and debt expense

 

 

(158,205

)

 

(33,644

)

 

(32,454

)

 

(22,315

)

 

(13,088

)

 

 

 

(56,704

)

Net gains of early extinguishment of debt

 

 

3,407

 

 

 

 

 

 

 

 

 

 

 

 

3,407

 

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

 

 

4,432

 

 

 

 

 

 

 

 

 

 

 

 

4,432

 

Income (loss) before income taxes

 

 

117,790

 

 

76,646

 

 

37,151

 

 

32,493

 

 

(776

)

 

22,077

 

 

(49,801

)

Income tax expense

 

 

(5,267

)

 

(585

)

 

(44

)

 

(39

)

 

(847

)

 

 

 

(3,752

)

Income (loss) from continuing
operations

 

 

112,523

 

 

76,061

 

 

37,107

 

 

32,454

 

 

(1,623

)

 

22,077

 

 

(53,553

)

Income from discontinued operations

 

 

43,321

 

 

 

 

41,992

 

 

1,329

 

 

 

 

 

 

 

Net income (loss)

 

 

155,844

 

 

76,061

 

 

79,099

 

 

33,783

 

 

(1,623

)

 

22,077

 

 

(53,553

)

Net (income) loss attributable to
noncontrolling interests, including
unit distributions

 

 

(15,227

)

 

(2,817

)

 

 

 

15

 

 

 

 

 

 

(12,425

)

Net income (loss) attributable to
Vornado

 

 

140,617

 

 

73,244

 

 

79,099

 

 

33,798

 

 

(1,623

)

 

22,077

 

 

(65,978

)

Interest and debt expense (2)

 

 

212,727

 

 

31,945

 

 

32,980

 

 

23,978

 

 

13,315

 

 

39,136

 

 

71,373

 

Depreciation and amortization(2)

 

 

178,436

 

 

41,101

 

 

37,116

 

 

25,029

 

 

13,772

 

 

34,357

 

 

27,061

 

Income tax (benefit) expense (2)

 

 

(30,479

)

 

585

 

 

47

 

 

39

 

 

847

 

 

(36,122

)

 

4,125

 

EBITDA(1)

 

$

501,301

 

$

146,875

 

$

149,242

 

$

82,844

 

$

26,311

 

$

59,448

 

$

36,581

 

_______________________

See notes on page 33

29

 

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

19.

Segment Information – continued

(Amounts in thousands)

 

For the Three Months Ended September 30, 2008

 

 

 

Total

 

New York
Office

 

Washington, DC
Office

 

Retail

 

Merchandise
Mart

 

Toys

 

Other (3)

 

Property rentals

 

$

500,549

 

$

181,758

 

$

128,382

 

$

85,664

 

$

53,167

 

$

 

$

51,578

 

Straight-line rents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual rent increases

 

 

14,353

 

 

8,077

 

 

418

 

 

3,754

 

 

1,738

 

 

 

 

366

 

Amortization of free rent

 

 

8,070

 

 

3,649

 

 

2,925

 

 

1,539

 

 

(2

)

 

 

 

(41

)

Amortization of acquired below-
market leases, net

 

 

24,526

 

 

14,807

 

 

1,089

 

 

7,491

 

 

26

 

 

 

 

1,113

 

Total rentals

 

 

547,498

 

 

208,291

 

 

132,814

 

 

98,448

 

 

54,929

 

 

 

 

53,016

 

Tenant expense reimbursements

 

 

97,815

 

 

40,632

 

 

14,601

 

 

33,286

 

 

5,294

 

 

 

 

4,002

 

Fee and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant cleaning revenue

 

 

13,627

 

 

17,751

 

 

 

 

 

 

 

 

 

 

(4,124

)

Management and leasing fees

 

 

2,518

 

 

1,138

 

 

1,875

 

 

411

 

 

95

 

 

 

 

(1,001

)

Lease termination fees

 

 

1,455

 

 

21

 

 

1,037

 

 

362

 

 

35

 

 

 

 

 

Other

 

 

13,155

 

 

3,626

 

 

5,701

 

 

1,873

 

 

2,676

 

 

 

 

(721

)

Total revenues

 

 

676,068

 

 

271,459

 

 

156,028

 

 

134,380

 

 

63,029

 

 

 

 

51,172

 

Operating expenses

 

 

276,115

 

 

120,398

 

 

56,653

 

 

50,088

 

 

31,773

 

 

 

 

17,203

 

Depreciation and amortization

 

 

136,550

 

 

48,322

 

 

35,929

 

 

21,749

 

 

12,751

 

 

 

 

17,799

 

General and administrative

 

 

49,494

 

 

5,263

 

 

6,427

 

 

7,397

 

 

7,419

 

 

 

 

22,988

 

Impairment losses on development
projects and costs of acquisition not
consummated

 

 

5,000

 

 

 

 

 

 

 

 

 

 

 

 

5,000

 

Total expenses

 

 

467,159

 

 

173,983

 

 

99,009

 

 

79,234

 

 

51,943

 

 

 

 

62,990

 

Operating income (loss)

 

 

208,909

 

 

97,476

 

 

57,019

 

 

55,146

 

 

11,086

 

 

 

 

(11,818

)

(Loss) income applicable to Alexander’s

 

 

(6,876

)

 

189

 

 

 

 

191

 

 

 

 

 

 

(7,256

)

Loss applicable to Toys

 

 

(8,141

)

 

 

 

 

 

 

 

 

 

(8,141

)

 

 

(Loss) income from partially owned
entities

 

 

(3,099

)

 

1,798

 

 

1,696

 

 

25

 

 

158

 

 

 

 

(6,776

)

Interest and other investment income,
net

 

 

9,638

 

 

542

 

 

507

 

 

92

 

 

49

 

 

 

 

8,448

 

Interest and debt expense

 

 

(157,646

)

 

(34,647

)

 

(31,323

)

 

(21,445

)

 

(13,150

)

 

 

 

(57,081

)

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

 

 

5,160

 

 

 

 

 

 

 

 

 

 

 

 

5,160

 

Income (loss) before income taxes

 

 

47,945

 

 

65,358

 

 

27,899

 

 

34,009

 

 

(1,857

)

 

(8,141

)

 

(69,323

)

Income tax expense

 

 

(5,244

)

 

 

 

(699

)

 

(5

)

 

(814

)

 

 

 

(3,726

)

Income (loss) from continuing
operations

 

 

42,701

 

 

65,358

 

 

27,200

 

 

34,004

 

 

(2,671

)

 

(8,141

)

 

(73,049

)

Income (loss) from discontinued
operations

 

 

846

 

 

 

 

(27

)

 

873

 

 

 

 

 

 

 

Net income (loss)

 

 

43,547

 

 

65,358

 

 

27,173

 

 

34,877

 

 

(2,671

)

 

(8,141

)

 

(73,049

)

Net (income) loss attributable to
noncontrolling interests, including
unit distributions

 

 

(6,540

)

 

(1,545

)

 

 

 

30

 

 

 

 

 

 

(5,025

)

Net income (loss) attributable to
Vornado

 

 

37,007

 

 

63,813

 

 

27,173

 

 

34,907

 

 

(2,671

)

 

(8,141

)

 

(78,074

)

Interest and debt expense (2)

 

 

202,446

 

 

32,979

 

 

32,244

 

 

26,733

 

 

13,360

 

 

33,569

 

 

63,561

 

Depreciation and amortization(2)

 

 

179,574

 

 

46,113

 

 

37,222

 

 

23,488

 

 

12,885

 

 

35,155

 

 

24,711

 

Income tax (benefit) expense (2)

 

 

(5,063

)

 

 

 

701

 

 

5

 

 

814

 

 

(10,944

)

 

4,361

 

EBITDA(1)

 

$

413,964

 

$

142,905

 

$

97,340

 

$

85,133

 

$

24,388

 

$

49,639

 

$

14,559

 

 

________________________

See notes on page 33.

 

30

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

19.

Segment Information - continued

(Amounts in thousands)

 

For the Nine Months Ended September 30, 2009

 

 

 

Total

 

New York
Office

 

Washington, DC
Office

 

Retail

 

Merchandise
Mart

 

Toys

 

Other (3)

 

Property rentals

 

$

1,529,747

 

$

568,884

 

$

399,937

 

$

268,519

 

$

176,224

 

$

 

$

116,183

 

Straight-line rents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual rent increases

 

 

43,469

 

 

24,315

 

 

9,348

 

 

8,442

 

 

1,406

 

 

 

 

(42

)

Amortization of free rent

 

 

24,871

 

 

2,209

 

 

9,829

 

 

12,380

 

 

312

 

 

 

 

141

 

Amortization of acquired below-
market leases, net

 

 

56,270

 

 

30,518

 

 

3,117

 

 

18,362

 

 

71

 

 

 

 

4,202

 

Total rentals

 

 

1,654,357

 

 

625,926

 

 

422,231

 

 

307,703

 

 

178,013

 

 

 

 

120,484

 

Tenant expense reimbursements

 

 

270,934

 

 

103,609

 

 

47,936

 

 

99,337

 

 

13,492

 

 

 

 

6,560

 

Fee and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant cleaning revenue

 

 

43,372

 

 

58,917

 

 

 

 

 

 

 

 

 

 

(15,545

)

Management and leasing fees

 

 

8,255

 

 

3,363

 

 

5,936

 

 

1,248

 

 

25

 

 

 

 

(2,317

)

Lease termination fees

 

 

4,356

 

 

1,524

 

 

1,916

 

 

100

 

 

677

 

 

 

 

139

 

Other

 

 

42,301

 

 

9,923

 

 

15,129

 

 

2,296

 

 

6,324

 

 

 

 

8,629

 

Total revenues

 

 

2,023,575

 

 

803,262

 

 

493,148

 

 

410,684

 

 

198,531

 

 

 

 

117,950

 

Operating expenses

 

 

814,561

 

 

340,552

 

 

169,379

 

 

155,503

 

 

100,134

 

 

 

 

48,993

 

Depreciation and amortization

 

 

398,845

 

 

129,884

 

 

105,096

 

 

75,881

 

 

40,800

 

 

 

 

47,184

 

General and administrative

 

 

180,381

 

 

18,588

 

 

20,548

 

 

24,946

 

 

25,092

 

 

 

 

91,207

 

Total expenses

 

 

1,393,787

 

 

489,024

 

 

295,023

 

 

256,330

 

 

166,026

 

 

 

 

187,384

 

Operating income (loss)

 

 

629,788

 

 

314,238

 

 

198,125

 

 

154,354

 

 

32,505

 

 

 

 

(69,434

)

Income applicable to Alexander’s

 

 

46,044

 

 

577

 

 

 

 

598

 

 

 

 

 

 

44,869

 

Income applicable to Toys

 

 

118,897

 

 

 

 

 

 

 

 

 

 

118,897

 

 

 

(Loss) income from partially owned
entities

 

 

(49,124

)

 

3,908

 

 

5,504

 

 

2,566

 

 

186

 

 

 

 

(61,288

)

Interest and other investment (loss)
income, net

 

 

(63,608

)

 

712

 

 

573

 

 

63

 

 

83

 

 

 

 

(65,039

)

Interest and debt expense

 

 

(475,028

)

 

(100,118

)

 

(94,408

)

 

(67,093

)

 

(38,888

)

 

 

 

(174,521

)

Net gains of early extinguishment of
debt

 

 

26,996

 

 

 

 

 

 

769

 

 

 

 

 

 

26,227

 

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

 

 

4,432

 

 

 

 

 

 

 

 

 

 

 

 

4,432

 

Income (loss) before income taxes

 

 

238,397

 

 

219,317

 

 

109,794

 

 

91,257

 

 

(6,114

)

 

118,897

 

 

(294,754

)

Income tax expense

 

 

(15,773

)

 

(845

)

 

(1,232

)

 

(316

)

 

(1,755

)

 

 

 

(11,625

)

Income (loss) from continuing
operations

 

 

222,624

 

 

218,472

 

 

108,562

 

 

90,941

 

 

(7,869

)

 

118,897

 

 

(306,379

)

Income from discontinued operations

 

 

49,276

 

 

 

 

46,004

 

 

3,272

 

 

 

 

 

 

 

Net income (loss)

 

 

271,900

 

 

218,472

 

 

154,566

 

 

94,213

 

 

(7,869

)

 

118,897

 

 

(306,379

)

Net (income) loss attributable to
noncontrolling interests, including
unit distributions

 

 

(28,808

)

 

(6,438

)

 

 

 

630

 

 

 

 

 

 

(23,000

)

Net income (loss) attributable to
Vornado

 

 

243,092

 

 

212,034

 

 

154,566

 

 

94,843

 

 

(7,869

)

 

118,897

 

 

(329,379

)

Interest and debt expense (2)

 

 

612,416

 

 

95,058

 

 

96,818

 

 

71,496

 

 

39,563

 

 

89,897

 

 

219,584

 

Depreciation and amortization(2)

 

 

539,554

 

 

125,831

 

 

110,263

 

 

78,724

 

 

41,203

 

 

101,368

 

 

82,165

 

Income tax expense (2)

 

 

23,804

 

 

845

 

 

1,242

 

 

316

 

 

1,820

 

 

7,335

 

 

12,246

 

EBITDA(1)

 

$

1,418,866

 

$

433,768

 

$

362,889

 

$

245,379

 

$

74,717

 

$

317,497

 

$

(15,384

)

 

 

_______________________

See notes on page 33.

 

31

 

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

19.

Segment Information – continued

(Amounts in thousands)

 

For the Nine Months Ended September 30, 2008

 

 

 

Total

 

New York
Office

 

Washington, DC
Office

 

Retail

 

Merchandise
Mart

 

Toys

 

Other (3)

 

Property rentals

 

$

1,501,146

 

$

539,254

 

$

377,867

 

$

257,500

 

$

179,606

 

$

 

$

146,919

 

Straight-line rents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual rent increases

 

 

45,570

 

 

20,860

 

 

6,861

 

 

12,713

 

 

4,531

 

 

 

 

605

 

Amortization of free rent

 

 

17,460

 

 

8,106

 

 

5,759

 

 

319

 

 

2,662

 

 

 

 

614

 

Amortization of acquired below-
market leases, net

 

 

73,655

 

 

45,548

 

 

3,305

 

 

20,016

 

 

84

 

 

 

 

4,702

 

Total rentals

 

 

1,637,831

 

 

613,768

 

 

393,792

 

 

290,548

 

 

186,883

 

 

 

 

152,840

 

Tenant expense reimbursements

 

 

269,646

 

 

103,230

 

 

44,608

 

 

97,968

 

 

14,715

 

 

 

 

9,125

 

Fee and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant cleaning revenue

 

 

41,431

 

 

53,415

 

 

 

 

 

 

 

 

 

 

(11,984

)

Management and leasing fees

 

 

10,326

 

 

5,035

 

 

6,983

 

 

974

 

 

306

 

 

 

 

(2,972

)

Lease termination fees

 

 

4,469

 

 

2,050

 

 

1,037

 

 

1,027

 

 

355

 

 

 

 

 

Other

 

 

33,830

 

 

11,876

 

 

14,802

 

 

2,014

 

 

5,749

 

 

 

 

(611

)

Total revenues

 

 

1,997,533

 

 

789,374

 

 

461,222

 

 

392,531

 

 

208,008

 

 

 

 

146,398

 

Operating expenses

 

 

793,391

 

 

333,845

 

 

161,183

 

 

144,165

 

 

102,747

 

 

 

 

51,451

 

Depreciation and amortization

 

 

397,807

 

 

143,549

 

 

104,899

 

 

63,140

 

 

38,324

 

 

 

 

47,895

 

General and administrative

 

 

149,164

 

 

14,906

 

 

18,824

 

 

23,104

 

 

21,921

 

 

 

 

70,409

 

Impairment losses on development
projects and costs of acquisition not
consummated

 

 

8,009

 

 

 

 

 

 

 

 

 

 

 

 

8,009

 

Total expenses

 

 

1,348,371

 

 

492,300

 

 

284,906

 

 

230,409

 

 

162,992

 

 

 

 

177,764

 

Operating income (loss)

 

 

649,162

 

 

297,074

 

 

176,316

 

 

162,122

 

 

45,016

 

 

 

 

(31,366

)

Income applicable to Alexander’s

 

 

16,404

 

 

568

 

 

 

 

529

 

 

 

 

 

 

15,307

 

Income applicable to Toys

 

 

41,510

 

 

 

 

 

 

 

 

 

 

41,510

 

 

 

(Loss) income from partially owned
entities

 

 

(29,167

)

 

3,843

 

 

4,548

 

 

9,889

 

 

978

 

 

 

 

(48,425

)

Interest and other investment income,
net

 

 

47,535

 

 

1,965

 

 

1,737

 

 

422

 

 

221

 

 

 

 

43,190

 

Interest and debt expense

 

 

(474,862

)

 

(104,032

)

 

(94,085

)

 

(63,981

)

 

(39,190

)

 

 

 

(173,574

)

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

 

 

8,546

 

 

 

 

 

 

 

 

 

 

 

 

8,546

 

Income (loss) before income taxes

 

 

259,128

 

 

199,418

 

 

88,516

 

 

108,981

 

 

7,025

 

 

41,510

 

 

(186,322

)

Income tax benefit (expense)

 

 

207,170

 

 

 

 

220,916

 

 

(7

)

 

(1,205

)

 

 

 

(12,534

)

Income (loss) from continuing
operations

 

 

466,298

 

 

199,418

 

 

309,432

 

 

108,974

 

 

5,820

 

 

41,510

 

 

(198,856

)

Income from discontinued operations

 

 

172,814

 

 

 

 

59,072

 

 

1,830

 

 

 

 

 

 

111,912

 

Net income (loss)

 

 

639,112

 

 

199,418

 

 

368,504

 

 

110,804

 

 

5,820

 

 

41,510

 

 

(86,944

)

Net (income) loss attributable to
noncontrolling interests, including
unit distributions

 

 

(67,135

)

 

(3,366

)

 

 

 

104

 

 

 

 

 

 

(63,873

)

Net income (loss) attributable to
Vornado

 

 

571,977

 

 

196,052

 

 

368,504

 

 

110,908

 

 

5,820

 

 

41,510

 

 

(150,817

)

Interest and debt expense (2)

 

 

621,367

 

 

98,810

 

 

96,958

 

 

76,492

 

 

39,823

 

 

108,970

 

 

200,314

 

Depreciation and amortization(2)

 

 

531,252

 

 

136,738

 

 

110,334

 

 

67,456

 

 

38,711

 

 

103,291

 

 

74,722

 

Income tax (benefit) expense (2)

 

 

(121,844

)

 

 

 

(220,911

)

 

7

 

 

1,205

 

 

82,778

 

 

15,077

 

EBITDA(1)

 

$

1,602,752

 

$

431,600

 

$

354,885

 

$

254,863

 

$

85,559

 

$

336,549

 

$

139,296

 

 

 

________________________

See notes on the following page.

 

32

 

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

19.

Segment Information – continued

 

Notes to preceding tabular information

 

(1)

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

 

 

(2)

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

 

 

(3)

Other EBITDA is comprised of:

 

(Amounts in thousands)

 

For the Three Months
Ended September 30,

 

For the Nine Months
Ended September 30,

 

 

 

2009

 

2008

      

2009

 

2008

 

Alexander’s

 

$

26,769

 

$

68

 

$

65,229

 

$

37,180

 

555 California Street

 

 

10,090

 

 

12,296

 

 

31,885

 

 

35,554

 

Lexington

 

 

(1,863

)

 

10,803

 

 

15,129

 

 

29,271

 

Hotel Pennsylvania

 

 

3,599

 

 

11,907

 

 

7,823

 

 

29,772

 

Industrial warehouses

 

 

1,219

 

 

1,361

 

 

3,902

 

 

4,025

 

Other investments

 

 

7,071

 

 

8,058

 

 

1,904

 

 

6,211

 

 

 

 

46,885

 

 

44,493

 

 

125,872

 

 

142,013

 

Investment income and other, net

 

 

23,023

 

 

15,514

 

 

61,214

 

 

72,592

 

Corporate general and administrative expenses

 

 

(24,309

)

 

(19,633

)

 

(62,757

)

 

(62,101

)

Write-off of unamortized costs from the voluntary surrender of equity awards
on March 31, 2009

 

 

 

 

 

 

(20,202

)

 

 

Net income attributable to noncontrolling interests, including
unit distributions

 

 

(12,425

)

 

(5,025

)

 

(23,000

)

 

(63,873

)

Net gains on early extinguishment of debt

 

 

3,407

 

 

 

 

26,227

 

 

 

Non-cash asset (write-downs) reversal:

 

 

 

 

 

 

 

 

 

 

 

 

 

Mezzanine loans receivable

 

 

 

 

 

 

(122,738

)

 

10,300

 

Marketable equity securities

 

 

 

 

(11,808

)

 

 

 

(20,881

)

Real estate development projects:

 

 

 

 

 

 

 

 

 

 

 

 

 

Partially owned entities

 

 

 

 

 

 

 

 

(34,200

)

Wholly owned entities (including costs of acquisitions not consummated)

 

 

 

 

(5,000

)

 

 

 

(8,009

)

Derivative positions in marketable equity securities

 

 

 

 

(3,982

)

 

 

 

(25,812

)

Discontinued operations of Americold (including a $112,690 net gain on sale)

 

 

 

 

 

 

 

 

129,267

 

 

 

$

36,581

 

$

14,559

 

$

(15,384

)

$

139,296

 

 

 

33

 

 


 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

Shareholders and Board of Trustees

Vornado Realty Trust

New York, New York

 

We have reviewed the accompanying consolidated balance sheet of Vornado Realty Trust (the "Company") as of September 30, 2009, and the related consolidated statements of income for the three-month and nine-month periods ended September 30, 2009 and 2008, and of changes in equity and cash flows for the nine-month periods ended September 30, 2009 and 2008. These interim financial statements are the responsibility of the Company’s management.

 

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

 

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

 

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Vornado Realty Trust as of December 31, 2008, and the related consolidated statements of income, shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated February 24, 2009 (October 13, 2009, as to the effects of the retrospective application of new accounting guidance on the accounting for convertible debt instruments, noncontrolling interests, and earnings per share as disclosed in Note 2), we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2008 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

 

/s/ DELOITTE & TOUCHE LLP

 

Parsippany, New Jersey

November 2, 2009

 

34

 

 


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

Certain statements contained herein constitute forward-looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not guarantees of performance. They represent our intentions, plans, expectations and beliefs and are subject to numerous assumptions, risks and uncertainties. Our future results, financial condition and business may differ materially from those expressed in these forward-looking statements. You can find many of these statements by looking for words such as “approximates,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “would,” “may” or other similar expressions in this Quarterly Report on Form 10-Q. Many of the factors that will determine the outcome of these and our other forward-looking statements are beyond our ability to control or predict. For further discussion of factors that could materially affect the outcome of our forward-looking statements and our future results of operations and financial condition, see “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2008. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q or the date of any document incorporated by reference. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to our forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.

 

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations includes a discussion of our consolidated financial statements for the three and nine months ended September 30, 2009. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

 

Critical Accounting Policies

A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the year ended December 31, 2008 in Management’s Discussion and Analysis of Financial Condition. There have been no significant changes to our policies during 2009.

 

35

 

 


Overview

Business Objective and Operating Strategy

 

Our business objective is to maximize shareholder value, which we measure by our total return provided to our shareholders. Below is a table comparing our performance to that of the Morgan Stanley REIT Index (“RMS”) and the SNL REIT Index (“SNL”) for the following periods ending September 30, 2009:

 

 

 

Total Return (1)

 

 

 

Vornado

 

RMS

 

SNL

 

One-year

 

(25.8%)

 

(26.5%)

 

(26.0%)

 

Three-years

 

(34.2%)

 

(33.6%)

 

(31.3%)

 

Five-years

 

21.7% 

 

5.0% 

 

8.0% 

 

Ten-years

 

226.2% 

 

146.8% 

 

156.2% 

 

_________________________

 

(1)

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

 

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

 

 

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

 

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

 

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

 

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

 

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

 

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

 

We expect to finance our growth, acquisitions and investments using internally generated funds, proceeds from possible asset sales and by accessing the public and private capital markets.

 

On May 14, 2009, our Board of Trustees executed its long-planned management succession strategy and elected Michael D. Fascitelli, as our Chief Executive Officer, succeeding Steven Roth, who continues to serve as Chairman of the Board.

 

We have a large concentration of properties in the New York City metropolitan area and in the Washington, DC and Northern Virginia areas. We compete with a large number of real estate property owners and developers, some of which may be willing to accept lower returns on their investments. Principal factors of competition are rents charged, attractiveness of location, the quality of the property and breadth and quality of services provided. Our success depends upon, among other factors, trends of the national, regional and local economies, financial condition and operating results of current and prospective tenants and customers, availability and cost of capital, construction and renovation costs, taxes, governmental regulations, legislation and population trends. See “Risk Factors” in Item 1A of our Annual Report on form 10-K for the year ended December 31, 2008, for additional information regarding these factors.

 

 

36

 

 


Overview – continued

 

In the second half of 2007 the residential mortgage and capital markets began showing signs of stress, primarily in the form of escalating default rates on sub-prime mortgages, declining home values and increasing inventory nationwide. In 2008, the “credit crisis” spread to the broader commercial credit and financial markets resulting in illiquidity and volatility in the bond and equity markets. These trends and the related economic recession have continued in 2009. This economic recession has negatively affected substantially all businesses, including ours. Real estate transactions have diminished significantly and capitalization rates have risen. The commercial real estate industry may continue to be affected by declining demand for office and retail space due to bankruptcies, layoffs, downsizing, cost cutting as well as general economic conditions, which would result in lower occupancy rates and effective rents and a corresponding decrease in net income, funds from operations and cash flow. In addition, the value of investments in joint ventures, marketable securities, and mezzanine loans may continue to decline, and may result in impairment charges and/or valuation allowances and a corresponding decrease in net income and funds from operations. Impairment charges and valuation allowances are based on our judgment and represent our estimate of losses we may incur based on the difference between the carrying amounts of our investments and our estimate of the amounts we may ultimately receive upon disposition of the investments. The estimation process is inherently uncertain, and is based upon, among other factors, our expectations of future events, and accordingly, actual amounts received on these investments could differ materially from our estimates.

 

The trends discussed above have had an impact on our financial results during 2009. During the second quarter of 2009, we recorded a $122,738,000 mezzanine loans receivable valuation allowance. It is not possible for us to quantify the impact of the above trends, which may persist for the remainder of 2009 and beyond, on our future financial results.

 

37

 

 


Overview – continued

Quarter Ended September 30, 2009 Financial Results Summary  

 

Net income attributable to common shareholders for the quarter ended September 30, 2009 was $126,348,000, or $0.69 per diluted share, versus net income of $22,736,000, or $0.14 per diluted share, for the quarter ended September 30, 2008. Net income for the quarters ended September 30, 2009 and 2008 includes $43,329,000 and $1,313,000, respectively, of net gains on sale of real estate. In addition, net income for the quarters ended September 30, 2009 and 2008 includes certain items that affect comparability which are listed in the table below. The aggregate of the net gains on sale of real estate and the items in the table below, net of amounts attributable to noncontrolling interests, increased net income attributable to common shareholders for the quarter ended September 30, 2009 by $52,847,000, or $0.29 per diluted share and decreased net income attributable to common shareholders for the quarter ended September 30, 2008 by $32,260,000, or $0.20 per diluted share.

 

Funds from operations attributable to common shareholders plus assumed conversions (“FFO”) for the quarter ended September 30, 2009 was $234,246,000, or $1.25 per diluted share, compared to $159,838,000, or $0.97 per diluted share, for the prior year’s quarter. FFO for the quarters ended September 30, 2009 and 2008 includes certain items that affect comparability which are listed in the table below. The aggregate of these items, net of amounts attributable to noncontrolling interests, increased FFO for the quarter ended September 30, 2009 by $12,870,000, or $0.07 per diluted share and decreased FFO for the quarter ended September 30, 2008 by $33,454,000 or $0.20 per diluted share.

 

(Amounts in thousands, except per share amounts)

 

For the Three Months
Ended September 30,

 
   

2009

   

2008

 

Items that affect comparability (income) expense:

 

 

 

 

 

 

Our share of partially owned entities’ adjustments:

 

 

 

 

 

 

Lexington Realty Trust – impairment losses related to its
investment in Concord Debt
Holdings LLC

$

14,541

 

$

7,175

 

Toys “R” Us – litigation settlement income

 

(10,200

)

 

 

Alexander’s:

 

 

 

 

 

 

    Income tax benefit

 

(13,668

)

 

 

   Stock appreciation rights

 

 

 

14,557

 

Net gains on early extinguishment of debt

 

(3,407

)

 

 

Marketable equity securities – impairment losses

 

 

 

11,808

 

Derivative positions in marketable equity securities

 

 

 

3,982

 

Other, net

 

(1,172

)

 

(721

)

 

 

(13,906

)

 

36,801

 

Noncontrolling interests’ share of above adjustments

 

1,036

 

 

(3,347

)

Items that affect comparability, net

$

(12,870

)

$

33,454

 

 

On January 1, 2009, we adopted the guidance in Accounting Standards Codification (“ASC”) 470-20, Debt with Conversion and Other Options. The guidance contained in ASC 470-20 was required to be applied retrospectively. Accordingly, net income for the three and nine months ended September 30, 2008 has been adjusted to include $8,700,000 and $25,600,000, respectively, of additional interest expense, net of amounts attributable to noncontrolling interests. In addition, in accordance with ASC 260, Earnings Per Share, we have included 5,736,000 additional common shares in the computation of income and FFO per share retroactively to the three and nine months ended September 30, 2008, as a result of the stock portion of our common dividends during 2009.

 

The percentage increase (decrease) in GAAP basis and cash basis same store Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) of our operating segments for the quarter ended September 30, 2009 over the quarter ended September 30, 2008 and the trailing quarter ended June 30, 2009 are summarized below.

 

 

 

New York
Office

 

Washington, DC
Office

 

Retail

 

Merchandise
Mart

 

Quarter Ended:

 

 

 

 

 

 

 

 

 

September 30, 2009 vs. September 30, 2008:

 

 

 

 

 

 

 

 

 

GAAP basis

 

1.5%

 

10.0%

 

2.0%

 

(5.7%)

 

Cash basis

 

6.4%

 

8.7%

 

5.2%

 

(0.8%)

 

 

 

 

 

 

 

 

 

 

 

September 30, 2009 vs. June 30, 2009:

 

 

 

 

 

 

 

 

 

GAAP basis

 

(1.4%)

 

1.1%

 

4.2%

 

(13.0%)

 

Cash basis

 

(2.1%)

 

2.8%

 

3.9%

 

(11.1%)

 

 

 

38

 

 


Overview – continued

Nine Months Ended September 30, 2009 Financial Results Summary  

 

Net income attributable to common shares for the nine months ended September 30, 2009 was $200,285,000, or $1.16 per diluted share, versus $529,157,000, or $3.22 per diluted share, for the nine months ended September 30, 2008. Net income for the nine months ended September 30, 2009 and 2008 includes $44,002,000, and $65,918,000, respectively, of net gains on sale of real estate. In addition, net income for the nine months ended September 30, 2009 and 2008 includes certain items that affect comparability which are listed in the table below. The aggregate of net gains on sale of real estate and the items in the table below, net of amounts attributable to noncontrolling interests, decreased net income attributable to common shareholders for the nine months ended September 30, 2009 by $55,408,000, or $0.32 per diluted share and increased net income attributable to common shareholders for the nine months ended September 30, 2008 by $274,825,000, or $1.67 per diluted share.

 

FFO for the nine months ended September 30, 2009 was $602,825,000, or $3.37 per diluted share, compared to $894,829,000, or $5.27 per diluted share, for the prior year’s nine months. FFO for the nine months ended September 30, 2009 and 2008 includes certain items that affect comparability which are listed in the table below. The aggregate of these items, net of amounts attributable to noncontrolling interests, decreased FFO for the nine months ended September 30, 2009 by $96,077,000, or $0.53 per diluted share and increased FFO for the nine months ended September 30, 2008 by $222,201,000, or $1.31 per diluted share.

 

(Amounts in thousands, except per share amounts)

 

For the Nine Months
Ended September 30,

 
   

2009

   

2008

 

Items that affect comparability (income) expense:

 

 

 

 

 

 

Mezzanine loans receivable loss accrual (reversal)

$

122,738

 

$

(10,300

)

Write-off of unamortized costs from the voluntary surrender of equity awards

 

32,588

 

 

 

Net gains on early extinguishment of debt

 

(26,996

)

 

 

Our share of partially owned entities’ adjustments:

 

 

 

 

 

 

Lexington Realty Trust – impairment losses related to its
investment in Concord Debt
Holdings LLC

 

19,121

 

 

7,175

 

Toys “R” Us:

 

 

 

 

 

 

   Non-cash purchase price accounting adjustments

 

(13,946

)

 

14,900

 

   Litigation settlement income

 

(10,200

)

 

 

Alexander’s:

 

 

 

 

 

 

   Stock appreciation rights

 

(11,105

)

 

7,605

 

   Income tax benefit

 

(13,668

)

 

 

Filene’s, Boston – lease termination payment

 

7,650

 

 

 

Development joint ventures – non-cash asset write-downs

 

 

 

34,200

 

Reversal of deferred income taxes initially recorded in connection with H Street acquisition

 

 

 

(222,174

)

Net gain on sale of our 47.6% interest in Americold Realty Trust

 

 

 

(112,690

)

Derivative positions in marketable equity securities

 

 

 

25,812

 

Marketable equity securities – Impairment losses

 

 

 

20,881

 

Other, net

 

(1,791

)

 

(3,341

)

 

 

104,391

 

 

(237,932

)

Americold’s FFO – sold on March 31, 2008

 

 

 

(6,098

)

 

 

104,391

 

 

(244,030

)

Noncontrolling interests’ share of above adjustments

 

(8,314

)

 

21,829

 

Items that affect comparability, net

$

96,077

 

$

(222,201

)

 

 

The percentage increase (decrease) in GAAP basis and cash basis same store “EBITDA” of our operating segments for the nine months ended September 30, 2009 over the nine months ended September 30, 2008 is summarized below.

 

 

 

New York
Office

 

Washington, DC
Office

 

Retail

 

Merchandise
Mart

 

Nine Months Ended:

 

 

 

 

 

 

 

 

 

September 30, 2009 vs. September 30, 2008:

 

 

 

 

 

 

 

 

 

GAAP basis

 

1.7%

 

6.8%

 

3.6%

 

(11.5%)

 

Cash basis

 

5.7%

 

5.2%

 

1.8%

 

(6.4%)

 

 

 

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

 

39

 

 


Overview – continued

 

2009 Dispositions:

 

On September 1, 2009, we sold 1999 K Street, a newly developed 250,000 square foot office building, in Washington’s Central Business District, for $207,800,000 in cash, which resulted in a net gain of approximately $41,211,000.

 

During the nine months ended September 30, 2009, we sold 13 retail properties, in separate transactions (primarily our California supermarkets), for an aggregate of $48,000,000 in cash, which resulted in net gains of approximately $1,444,000 in the aggregate.

 

 

2009 Financing Activities:

 

In the first quarter of 2009, we purchased $47,000,000 of debt secured by our cross-collateralized mortgages on 42 shopping centers for $46,231,000 in cash.

 

During the first quarter of 2009, we purchased $81,534,000 (aggregate face amount) of our senior unsecured notes for $75,977,000 in cash. In the second quarter of 2009, pursuant to our April 30, 2009 tender offer, we purchased an additional $173,321,000 (aggregate face amount) of our senior unsecured notes for $169,832,000 in cash. In addition, upon maturity in August 2009, we repaid the remaining $97,900,000 of our 4.5% senior unsecured notes.

 

On April 7, 2009, we completed a $75,000,000 financing of 4 Union Square South, Manhattan, a 203,000 square foot, fully-leased retail property. This interest-only loan has a rate of LIBOR plus 3.25% (3.50% at September 30, 2009) and matures in April 2012, with two one-year extension options. The property was previously unencumbered.

 

On April 22, 2009, we sold 17,250,000 common shares, including underwriters’ over-allotment, in an underwritten public offering pursuant to an effective registration statement at an initial public offering price of $43.00 per share. We received net proceeds of approximately $710,226,000, after the underwriters’ discount and offering expenses and contributed the net proceeds to the Operating Partnership in exchange for 17,250,000 Class A units of the Operating Partnership.

 

On June 1, 2009, we repaid the $50,223,000 outstanding balance of the Commerce Executive loan, which was scheduled to mature on July 31, 2009.

 

In June 2009, we purchased $58,399,000 (aggregate carrying amount) of the debt secured by 555 California Street Complex for $55,814,000 in cash.

 

On June 24, 2009, Toys “R” Us, Inc. (“Toys”) in which we own a 32.7% interest, extended its $2.0 billion credit facility which was to expire in July 2010, to May 2012. The borrowing capacity under the amended facility will remain at $2.0 billion through the original maturity date in July 2010 and will continue at $1.5 billion thereafter. The interest rate will be LIBOR plus 3.20%, which may vary based on availability, through July 2010 and LIBOR plus 4.00%, subject to usage, thereafter. In addition, on July 9, 2009, Toys issued $950 million aggregate principal amount of senior unsecured notes due in 2017 at 97.399%. The proceeds from the issuance, along with existing cash, were used to repay the outstanding balance under its $1.3 billion senior credit facility, which was subsequently terminated.

 

During 2009, we purchased $279,922,000 (aggregate face amount) of our convertible senior debentures for $247,728,000 in cash. In October 2009, we purchased an additional $79,671,000 (aggregate face amount) of our convertible senior debentures for $76,651,000 in cash.

 

On July 7, 2009, we refinanced the loan on Beverly Connection, which was scheduled to mature on July 9, 2009. The new loan has a two-year term and an interest rate of LIBOR plus 3.50%, with a LIBOR floor of 1.50% (5.00% at September 30, 2009) and provides for a one-year extension through July 2012, at LIBOR plus 5.00%.

 

40


Overview – continued

 

2009 Financing Activities – continued:

 

On July 30, 2009, we completed an $82,500,000 refinancing of 2011 Crystal Drive, a 442,000 square foot office building located in Crystal City – Arlington, Virginia. The loan has a fixed interest rate of 7.30% and matures in August 2017, with two one-year extension options. We retained net proceeds of approximately $44,500,000 after repaying the existing loan and closing costs.

 

On August 11, 2009, we completed a $52,000,000 financing of 435 Seventh Avenue, Manhattan, a 43,000 square foot fully-leased retail property. This loan has a rate of LIBOR plus 3.00%, with a LIBOR floor of 2.00% (5.00% at September 30, 2009) and matures in August 2012, with two one-year extension option. The property was previously unencumbered.

 

On September 14, 2009, we completed a $50,000,000 additional financing of the Universal Buildings. The additional financing has a fixed interest rate of 8.0% and matures on the same date as the existing loans in April 2014.

 

On September 30, 2009, we completed a public offering of $460,000,000 principal amount of 7.875% callable senior unsecured 30-year notes due October 1, 2039. Interest on the notes is payable quarterly in arrears on each January 1, April 1, July 1 and October 1, commencing January 1, 2010. The notes were sold to the public at par and may be redeemed at our option in whole or in part beginning October 1, 2014, at a price equal to the principal amount plus accrued and unpaid interest.  These notes are subject to substantively the same financial covenants as our previously issued senior unsecured notes. We retained net proceeds of approximately $446,000,000 from the offering, which will be used for general corporate purposes.

 

In October 2009, we repaid $400,000,000 of the amounts outstanding under our unsecured revolving credit facilities.

 

On November 2, 2009, we commenced a cash tender offer for any and all of our convertible senor debentures due 2026 and 2027. Upon the terms and subject to the conditions of the tender offer, we are offering to purchase the convertible senior debentures at par, plus accrued and unpaid interest. The tender offer expires on December 1, 2009.

 

41

 

 


Overview - continued

The following table sets forth certain information for the properties we own directly or indirectly, including leasing activity. The leasing activity presented below is based on leases signed during the period and is not intended to coincide with the commencement of rental revenue recognition in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Tenant improvements and leasing commissions are presented below based on square feet leased during the period, on a per square foot and per square foot per annum basis based on weighted average lease terms and as a percentage of initial rent per square foot.

 

(Square feet in thousands)

 

 

 

 

 

 

 

 

 

New York

 

Washington, DC

 

 

 

Merchandise Mart

 

As of September 30, 2009:

 

Office

 

Office

 

Retail

 

Office

 

Showroom

 

Square feet (in service)

 

 

16,167

 

 

18,156

 

 

22,096

 

 

2,447

 

 

6,319

 

Number of properties

 

 

28

 

 

81

 

 

164

 

 

8

 

 

8

 

Occupancy rate

 

 

96.0%

 

 

94.8%

 

 

91.6%

 

 

87.1%

 

 

88.9%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leasing Activity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended September 30, 2009:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Square feet

 

 

356

 

 

313

 

 

294

 

 

15

 

 

334

 

Initial rent per square foot (1)

 

$

50.93

 

$

39.30

 

$

27.81

 

$

45.66

 

$

24.77

 

Weighted average lease terms (years)

 

 

7.8

 

 

5.0

 

 

11.4

 

 

3.4

 

 

4.0

 

Rent per square foot – relet space:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Square feet

 

 

324

 

 

257

 

 

93

 

 

15

 

 

334

 

Initial Rent – cash basis (1)

 

$

50.59

 

$

38.59

 

$

11.02

 

$

45.66

 

$

24.77

 

Prior escalated rent – cash basis

 

$

50.15

 

$

33.93

 

$

9.93

 

$

38.80

 

$

26.73

 

Percentage increase (decrease):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash basis

 

 

0.9%

 

 

13.7%

 

 

11.0%

 

 

17.7%

 

 

(7.3%

)

GAAP basis

 

 

8.3%

 

 

14.9%

 

 

17.7%

 

 

27.3%

 

 

(0.8%

)

Rent per square foot – vacant space:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Square feet

 

 

33

 

 

56

 

 

201

 

 

 

 

 

Initial rent (1)

 

$

54.31

 

$

42.55

 

$

35.62

 

$

 

$

 

Tenant improvements and leasing
commissions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per square foot

 

$

42.10

 

$

7.88

 

$

6.81

 

$

54.93

 

$

2.02

 

Per square foot per annum

 

$

5.37

 

$

1.58

 

$

0.60

 

$

16.16

 

$

0.51

 

Percentage of initial rent

 

 

10.5%

 

 

4.0%

 

 

2.2%

 

 

35.4%

 

 

2.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2009: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Square feet

 

 

924

 

 

1,382

 

 

888

 

 

15

 

 

778

 

Initial rent per square foot (1)

 

$

52.29

 

$

39.64

 

$

20.73

 

$

45.66

 

$

25.58

 

Weighted average lease terms (years)

 

 

7.9

 

 

4.8

 

 

10.4

 

 

3.4

 

 

4.0

 

Rent per square foot – relet space:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Square feet

 

 

799

 

 

1,110

 

 

375

 

 

15

 

 

778

 

Initial Rent – cash basis (1)

 

$

52.52

 

$

39.11

 

$

14.87

 

$

45.66

 

$

25.58

 

Prior escalated rent – cash basis

 

$

50.03

 

$

36.44

 

$

13.96

 

$

38.80

 

$

26.88

 

Percentage increase (decrease):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash basis

 

 

5.0%

 

 

7.3%

 

 

6.5%

 

 

17.7%

 

 

(4.8%

)

GAAP basis

 

 

10.0%

 

 

11.4%

 

 

11.6%

 

 

27.3%

 

 

2.8%

 

Rent per square foot – vacant space:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Square feet

 

 

125

 

 

272

 

 

513

 

 

 

 

 

Initial rent (1)

 

$

50.82

 

$

41.80

 

$

25.02

 

$

 

$

 

Tenant improvements and leasing
commissions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per square foot

 

$

43.02

 

$

14.11

 

$

3.33

 

$

54.93

 

$

2.81

 

Per square foot per annum

 

$

5.46

 

$

2.94

 

$

0.32

 

$

16.16

 

$

0.70

 

Percentage of initial rent

 

 

10.4%

 

 

7.4%

 

 

1.5%

 

 

35.4%

 

 

2.7%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

__________________________

See notes on the following page

 

42

 

 


Overview - continued

 

(Square feet and cubic feet in thousands)

 

 

 

 

 

 

 

 

 

New York

 

Washington, DC

 

 

 

Merchandise Mart

 

 

 

Office

 

Office

 

Retail

 

Office

 

Showroom

 

As of June 30, 2009:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Square feet (in service)

 

 

16,154

 

 

18,073

 

 

21,925

 

 

2,430

 

 

6,336

 

 

Number of properties

 

 

28

 

 

81

 

 

164

 

 

8

 

 

8

 

 

Occupancy rate

 

 

96.1%

 

 

95.3%

 

 

91.3%

 

 

95.4%

 

 

90.2%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2008:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Square feet (in service)

 

 

16,108

 

 

17,666

 

 

21,475

 

 

2,424

 

 

6,332

 

 

Number of properties

 

 

28

 

 

81

 

 

163

 

 

8

 

 

8

 

 

Occupancy rate

 

 

96.7%

 

 

95.0%

 

 

92.0%

 

 

96.5%

 

 

92.2%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September30, 2008:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Square feet (in service)

 

 

16,093

 

 

17,553

 

 

21,451

 

 

2,408

 

 

6,349

 

 

Number of properties

 

 

28

 

 

81

 

 

163

 

 

8

 

 

8

 

 

Occupancy rate

 

 

97.1%

 

 

95.7%

 

 

94.0%

 

 

96.5%

 

 

92.3%

 

 

 

_______________________________

(1)

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

 

 

43

 

 


Overview - continued

 

Recently Issued Accounting Literature

 

In December 2007, the FASB issued an update to ASC 805, Business Combinations. The amended guidance contained in ASC 805 applies to all transactions and other events in which one entity obtains control over one or more other businesses. It also broadens the fair value measurement and recognition of assets acquired, liabilities assumed, and interests transferred as a result of business combinations; and acquisition related costs will generally be expensed rather than included as part of the basis of the acquisition. The amended guidance also expands required disclosures to improve the ability to evaluate the nature and financial effects of business combinations. The amended guidance became effective for all transactions entered into on or after January 1, 2009. The adoption of this guidance on January 1, 2009 did not have any effect on our consolidated financial statements because there have been no acquisitions during 2009.

 

In December 2007, the FASB issued an update to ASC 810, Consolidation. The amended guidance contained in ASC 810 requires a noncontrolling interest in a subsidiary to be reported as equity and the amount of consolidated net income specifically attributable to the noncontrolling interest to be identified in the consolidated financial statements. It also calls for consistency in the manner of reporting changes in the parent’s ownership interest and requires fair value measurement of any noncontrolling equity investment retained in a deconsolidation. The amended guidance became effective on January 1, 2009 and resulted in (i) the reclassification of minority interests in consolidated subsidiaries to noncontrolling interests in consolidated subsidiaries, a component of permanent equity on our consolidated balance sheets, (ii) the reclassification of minority interest expense to net income attributable to noncontrolling interests, on our consolidated statements of income, and (iii) additional disclosures, including a consolidated statement of changes in equity in quarterly reporting periods.

 

In March 2008, the FASB issued an update to ASC 815, Derivatives and Hedging. The amended guidance contained in ASC 815 requires enhanced disclosures related to derivative instruments and hedging activities, including disclosures regarding how an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for and the impact of derivative instruments and related hedged items on an entity’s financial position, financial performance and cash flows. It also provided a new two-step model to be applied in determining whether a financial instrument or an embedded feature is indexed to an issuer’s own stock. The amended guidance became effective on January 1, 2009. The adoption of this guidance on January 1, 2009 did not have a material effect on our consolidated financial statements.

 

In June 2008, the FASB issued an update to ASC 260, Earnings Per Share. The amended guidance contained in ASC 260 requires companies to treat unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents as “participating securities” and include such securities in the computation of earnings per share pursuant to the two-class method as described in ASC 260. The amended guidance became effective on January 1, 2009 and required all prior period earnings per share data presented, to be adjusted retroactively. The adoption of this guidance on January 1, 2009 did not have a material effect on our computation of income per share.

 

44

 

 


Overview - continued

 

Recently Issued Accounting Literature - continued

 

On January 1, 2009, we adopted the provisions of ASC 470-20, which was required to be applied retrospectively. The adoption affected the accounting for our convertible and exchangeable senior debentures by requiring the initial proceeds from their sale to be allocated between a debt component and an equity component in a manner that results in interest expense on the debt component at our nonconvertible debt borrowing rate on the date of issue. The initial debt components of our $1.4 billion Convertible Senior Debentures, $1 billion Convertible Senior Debentures and $500 million Exchangeable Senior Debentures were $1,241,286,000, $926,361,000 and $457,699,000, respectively, based on the fair value of similar nonconvertible instruments issued at that time. The aggregate initial debt discount of $216,655,000 after original issuance costs allocated to the equity component was recorded in “additional capital” as a cumulative effect of change in accounting principle in our consolidated statement of changes in equity. We are amortizing the discount using the effective interest method over the period the debt is expected to remain outstanding (i.e., the earliest date the holders may require us to repurchase the debentures), as additional interest expense. Accordingly, interest expense for the three and nine months ended September 30, 2008 has been adjusted to include $9,600,000 and $28,300,000 of amortization in the aggregate, or $8,700,000 and $25,600,000, net of amounts attributable to noncontrolling interests. Amortization for periods prior to December 31, 2007 (not presented herein) aggregating $35,552,000 has been reflected as a cumulative effect of change in accounting principle in “earnings less than distributions” on our consolidated statement of changes in equity. Below is a summary of the financial statement effects of implementing the provisions of ASC 470-20 and related disclosures.

 

 

 

$1.4 Billion Convertible
Senior Debentures

 

$1 Billion Convertible
Senior Debentures

 

$500 Million Exchangeable
Senior Debentures

 

(Amounts in thousands, except per share amounts)
Balance Sheet:

 

September 30,
2009

 

December 31,
2008

 

September 30,
2009

 

December 31,
2008

 

September 30,
2009

 

December 31,
2008

 

Principal amount of debt component

$

1,204,359

$

1,382,700

$

888,219

$

989,800

$

499,982

$

499,982

 

Unamortized discount

 

(72,664

)

(106,415

)

(29,959

)

(44,342

)

(17,107

)

(21,726

)

Carrying amount of debt component

$

1,131,695

$

1,276,285

$

858,260

$

945,458

$

482,875

$

478,256

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Carrying amount of equity component

$

130,714

$

130,714

$

53,640

$

53,640

$

32,301

$

32,301

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective interest rate

 

5.45

%

5.45

%

5.32

%

5.32

%

5.32

%

5.32

%

 

Maturity date (period through which
discount is being amortized)

 

4/1/12

 

 

 

11/15/11

 

 

 

4/15/12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion price per share, as adjusted

$

157.18

 

 

$

148.46

 

 

$

87.17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of shares on which the aggregate
consideration to be delivered upon
conversion is determined

 

(1)

 

 

(1)

 

 

5,736

 

 

 

__________________

 

(1)

Pursuant to the provisions of ASC 470-20, we are required to disclose the conversion price and the number of shares on which the aggregate consideration to be delivered upon conversion is determined (principal plus excess value). Our convertible senior debentures require that upon conversion, the entire principal amount is to be settled in cash, and at our option, any excess value above the principal amount may be settled in cash or common shares. Based on the September 30, 2009 closing share price of our common shares and the conversion prices in the table above, there was no excess value; accordingly, no common shares would be issued if these securities were settled on this date. The number of common shares on which the aggregate consideration to be delivered upon conversion is 7,662 and 5,983 common shares, respectively.

 

45

 

 


Overview - continued

 

Recently Issued Accounting Literature - continued

 

 

(Amounts in thousands)

 

Three Months Ended
September 30,

      

Nine Months Ended
September 30,

 

Income Statement:

 

2009

 

2008

 

2009

 

2008

 

$1.4 Billion Convertible Senior Debentures:

 

 

 

 

 

 

 

 

 

Coupon interest

$

8,693

$

9,975

$

28,204

$

29,925

 

Discount amortization – original issue

 

1,203

 

1,307

 

3,836

 

3,869

 

Discount amortization – ASC 470-20 implementation

 

5,631

 

6,121

 

17,958

 

18,116

 

 

$

15,527

$

17,403

$

49,998

$

51,910

 

 

 

 

 

 

 

 

 

 

 

$1 Billion Convertible Senior Debentures:

 

 

 

 

 

 

 

 

 

Coupon interest

$

8,102

$

9,063

$

25,929

$

27,188

 

Discount amortization – original issue

 

908

 

962

 

2,846

 

2,848

 

Discount amortization – ASC 470-20 implementation

 

2,430

 

2,574

 

7,616

 

7,621

 

 

$

11,440

$

12,599

$

36,391

$

37,657

 

 

 

 

 

 

 

 

 

 

 

$500 Million Exchangeable Senior Debentures:

 

 

 

 

 

 

 

 

 

Coupon interest

$

4,844

$

4,844

$

14,585

$

14,531

 

Discount amortization – original issue

 

369

 

350

 

1,091

 

1,035

 

Discount amortization – ASC 470-20 implementation

 

1,193

 

1,131

 

3,532

 

3,350

 

 

$

6,406

$

6,325

$

19,208

$

18,916

 

 

 

On May 28, 2009, the FASB issued ASC 855, Subsequent Events. Although ASC 855 does not significantly change current practice surrounding the disclosure of subsequent events, it provides guidance on management’s assessment of subsequent events and the requirement to disclose the date through which subsequent events have been evaluated. ASC 855 became effective on June 30, 2009. We have evaluated subsequent events through November 2, 2009, the date our consolidated financial statements were available to be issued for this Quarterly Report on Form 10-Q for the quarter ended September 30, 2009.

 

On June 12, 2009, the FASB issued Statement No. 167, Amendments to FASB Interpretation No. 46(R) (“SFAS 167”). SFAS 167 modifies the existing quantitative guidance used in determining the primary beneficiary of a variable interest entity (“VIE”) by requiring entities to qualitatively assess whether an enterprise is a primary beneficiary, based on whether the entity has (i) power over the significant activities of the VIE, and (ii) an obligation to absorb losses or the right to receive benefits that could be potentially significant to the VIE. SFAS 167 becomes effective for all new and existing VIEs on January 1, 2010. We are currently evaluating the impact SFAS 167 will have on our consolidated financial statements.

 

46

 

 


Net Income and EBITDA by Segment for the Three Months Ended September 30, 2009 and 2008

 

Below is a summary of net income and a reconciliation of our net income to EBITDA(1) by segment for the three months ended September 30, 2009 and 2008.

 

(Amounts in thousands)

 

For the Three Months Ended September 30, 2009

 

 

 

Total

 

New York
Office

 

Washington, DC
Office

 

Retail

 

Merchandise
Mart

 

Toys

 

Other (3)

 

Property rentals

 

$

509,968

 

$

189,896

 

$

137,139

 

$

91,286

 

$

52,269

 

$

 

$

39,378

 

Straight-line rents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual rent increases

 

 

16,676

 

 

10,126

 

 

3,573

 

 

2,827

 

 

135

 

 

 

 

15

 

Amortization of free rent

 

 

4,682

 

 

(98

)

 

2,760

 

 

1,963

 

 

19

 

 

 

 

38

 

Amortization of acquired below-
market leases, net

 

 

18,728

 

 

10,710

 

 

1,069

 

 

4,826

 

 

30

 

 

 

 

2,093

 

Total rentals

 

 

550,054

 

 

210,634

 

 

144,541

 

 

100,902

 

 

52,453

 

 

 

 

41,524

 

Tenant expense reimbursements

 

 

89,530

 

 

36,360

 

 

14,892

 

 

32,121

 

 

3,661

 

 

 

 

2,496

 

Fee and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant cleaning revenue

 

 

14,514

 

 

20,661

 

 

 

 

 

 

 

 

 

 

(6,147

)

Management and leasing fees

 

 

2,837

 

 

1,269

 

 

1,984

 

 

557

 

 

11

 

 

 

 

(984

)

Lease termination fees

 

 

1,608

 

 

1,226

 

 

234

 

 

 

 

9

 

 

 

 

139

 

Other

 

 

12,676

 

 

3,182

 

 

4,979

 

 

648

 

 

3,461

 

 

 

 

406

 

Total revenues

 

 

671,219

 

 

273,332

 

 

166,630

 

 

134,228

 

 

59,595

 

 

 

 

37,434

 

Operating expenses

 

 

265,952

 

 

117,362

 

 

57,889

 

 

49,304

 

 

26,469

 

 

 

 

14,928

 

Depreciation and amortization

 

 

130,503

 

 

42,621

 

 

35,187

 

 

24,091

 

 

13,654

 

 

 

 

14,950

 

General and administrative

 

 

51,684

 

 

4,895

 

 

6,079

 

 

6,802

 

 

7,198

 

 

 

 

26,710

 

Total expenses

 

 

448,139

 

 

164,878

 

 

99,155

 

 

80,197

 

 

47,321

 

 

 

 

56,588

 

Operating income (loss)

 

 

223,080

 

 

108,454

 

 

67,475

 

 

54,031

 

 

12,274

 

 

 

 

(19,154

)

Income applicable to Alexander’s

 

 

21,297

 

 

192

 

 

 

 

187

 

 

 

 

 

 

20,918

 

Income applicable to Toys

 

 

22,077

 

 

 

 

 

 

 

 

 

 

22,077

 

 

 

(Loss) income from partially owned
entities

 

 

(18,784

)

 

1,454

 

 

1,876

 

 

580

 

 

26

 

 

 

 

(22,720

)

Interest and other investment
income, net

 

 

20,486

 

 

190

 

 

254

 

 

10

 

 

12

 

 

 

 

20,020

 

Interest and debt expense

 

 

(158,205

)

 

(33,644

)

 

(32,454

)

 

(22,315

)

 

(13,088

)

 

 

 

(56,704

)

Net gains of early extinguishment of
debt

 

 

3,407

 

 

 

 

 

 

 

 

 

 

 

 

3,407

 

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

 

 

4,432

 

 

 

 

 

 

 

 

 

 

 

 

4,432

 

Income (loss) before income taxes

 

 

117,790

 

 

76,646

 

 

37,151

 

 

32,493

 

 

(776

)

 

22,077

 

 

(49,801

)

Income tax expense

 

 

(5,267

)

 

(585

)

 

(44

)

 

(39

)

 

(847

)

 

 

 

(3,752

)

Income (loss) from continuing
operations

 

 

112,523

 

 

76,061

 

 

37,107

 

 

32,454

 

 

(1,623

)

 

22,077

 

 

(53,553

)

Income from discontinued operations

 

 

43,321

 

 

 

 

41,992

 

 

1,329

 

 

 

 

 

 

 

Net income (loss)

 

 

155,844

 

 

76,061

 

 

79,099

 

 

33,783

 

 

(1,623

)

 

22,077

 

 

(53,553

)

Net (income) loss attributable to
noncontrolling interests, including
unit distributions

 

 

(15,227

)

 

(2,817

)

 

 

 

15

 

 

 

 

 

 

(12,425

)

Net income (loss) attributable to
Vornado

 

 

140,617

 

 

73,244

 

 

79,099

 

 

33,798

 

 

(1,623

)

 

22,077

 

 

(65,978

)

Interest and debt expense (2)

 

 

212,727

 

 

31,945

 

 

32,980

 

 

23,978

 

 

13,315

 

 

39,136

 

 

71,373

 

Depreciation and amortization(2)

 

 

178,436

 

 

41,101

 

 

37,116

 

 

25,029

 

 

13,772

 

 

34,357

 

 

27,061

 

Income tax (benefit) expense (2)

 

 

(30,479

)

 

585

 

 

47

 

 

39

 

 

847

 

 

(36,122

)

 

4,125

 

EBITDA(1)

 

$

501,301

 

$

146,875

 

$

149,242

 

$

82,844

 

$

26,311

 

$

59,448

 

$

36,581

 

 

EBITDA above includes certain items that affect comparability, which are described in the “Overview.”

___________________

See notes on page 49.

 

47

 

 


Net Income and EBITDA by Segment for the Three Months Ended September 30, 2009 and 2008 - continued

 

(Amounts in thousands)

 

For the Three Months Ended September 30, 2008

 

 

 

Total

 

New York
Office

 

Washington, DC
Office

 

Retail

 

Merchandise
Mart

 

Toys

 

Other (3)

 

Property rentals

 

$

500,549

 

$

181,758

 

$

128,382

 

$

85,664

 

$

53,167

 

$

 

$

51,578

 

Straight-line rents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual rent increases

 

 

14,353

 

 

8,077

 

 

418

 

 

3,754

 

 

1,738

 

 

 

 

366

 

Amortization of free rent

 

 

8,070

 

 

3,649

 

 

2,925

 

 

1,539

 

 

(2

)

 

 

 

(41

)

Amortization of acquired below-
market leases, net

 

 

24,526

 

 

14,807

 

 

1,089

 

 

7,491

 

 

26

 

 

 

 

1,113

 

Total rentals

 

 

547,498

 

 

208,291

 

 

132,814

 

 

98,448

 

 

54,929

 

 

 

 

53,016

 

Tenant expense reimbursements

 

 

97,815

 

 

40,632

 

 

14,601

 

 

33,286

 

 

5,294

 

 

 

 

4,002

 

Fee and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant cleaning revenue

 

 

13,627

 

 

17,751

 

 

 

 

 

 

 

 

 

 

(4,124

)

Management and leasing fees

 

 

2,518

 

 

1,138

 

 

1,875

 

 

411

 

 

95

 

 

 

 

(1,001

)

Lease termination fees

 

 

1,455

 

 

21

 

 

1,037

 

 

362

 

 

35

 

 

 

 

 

Other

 

 

13,155

 

 

3,626

 

 

5,701

 

 

1,873

 

 

2,676

 

 

 

 

(721

)

Total revenues

 

 

676,068

 

 

271,459

 

 

156,028

 

 

134,380

 

 

63,029

 

 

 

 

51,172

 

Operating expenses

 

 

276,115

 

 

120,398

 

 

56,653

 

 

50,088

 

 

31,773

 

 

 

 

17,203

 

Depreciation and amortization

 

 

136,550

 

 

48,322

 

 

35,929

 

 

21,749

 

 

12,751

 

 

 

 

17,799

 

General and administrative

 

 

49,494

 

 

5,263

 

 

6,427

 

 

7,397

 

 

7,419

 

 

 

 

22,988

 

Impairment losses on development
projects and costs of acquisition not
consummated

 

 

5,000

 

 

 

 

 

 

 

 

 

 

 

 

5,000

 

Total expenses

 

 

467,159

 

 

173,983

 

 

99,009

 

 

79,234

 

 

51,943

 

 

 

 

62,990

 

Operating income (loss)

 

 

208,909

 

 

97,476

 

 

57,019

 

 

55,146

 

 

11,086

 

 

 

 

(11,818

)

(Loss) income applicable to Alexander’s

 

 

(6,876

)

 

189

 

 

 

 

191

 

 

 

 

 

 

(7,256

)

Loss applicable to Toys

 

 

(8,141

)

 

 

 

 

 

 

 

 

 

(8,141

)

 

 

(Loss) income from partially owned
entities

 

 

(3,099

)

 

1,798

 

 

1,696

 

 

25

 

 

158

 

 

 

 

(6,776

)

Interest and other investment income,
net

 

 

9,638

 

 

542

 

 

507

 

 

92

 

 

49

 

 

 

 

8,448

 

Interest and debt expense

 

 

(157,646

)

 

(34,647

)

 

(31,323

)

 

(21,445

)

 

(13,150

)

 

 

 

(57,081

)

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

 

 

5,160

 

 

 

 

 

 

 

 

 

 

 

 

5,160

 

Income (loss) before income taxes

 

 

47,945

 

 

65,358

 

 

27,899

 

 

34,009

 

 

(1,857

)

 

(8,141

)

 

(69,323

)

Income tax expense

 

 

(5,244

)

 

 

 

(699

)

 

(5

)

 

(814

)

 

 

 

(3,726

)

Income (loss) from continuing
operations

 

 

42,701

 

 

65,358

 

 

27,200

 

 

34,004

 

 

(2,671

)

 

(8,141

)

 

(73,049

)

Income (loss) from discontinued
operations

 

 

846

 

 

 

 

(27

)

 

873

 

 

 

 

 

 

 

Net income (loss)

 

 

43,547

 

 

65,358

 

 

27,173

 

 

34,877

 

 

(2,671

)

 

(8,141

)

 

(73,049

)

Net (income) loss attributable to
noncontrolling interests, including
unit distributions

 

 

(6,540

)

 

(1,545

)

 

 

 

30

 

 

 

 

 

 

(5,025

)

Net income (loss) attributable to
Vornado

 

 

37,007

 

 

63,813

 

 

27,173

 

 

34,907

 

 

(2,671

)

 

(8,141

)

 

(78,074

)

Interest and debt expense (2)

 

 

202,446

 

 

32,979

 

 

32,244

 

 

26,733

 

 

13,360

 

 

33,569

 

 

63,561

 

Depreciation and amortization(2)

 

 

179,574

 

 

46,113

 

 

37,222

 

 

23,488

 

 

12,885

 

 

35,155

 

 

24,711

 

Income tax (benefit) expense (2)

 

 

(5,063

)

 

 

 

701

 

 

5

 

 

814

 

 

(10,944

)

 

4,361

 

EBITDA(1)

 

$

413,964

 

$

142,905

 

$

97,340

 

$

85,133

 

$

24,388

 

$

49,639

 

$

14,559

 

 

EBITDA above includes certain items that affect comparability, which are described in the “Overview.”

______________________________

See notes on the following page.

 

48

 

 


 

Net Income and EBITDA by Segment for the Three Months Ended September 30, 2009 and 2008 - continued

 

Notes to preceding tabular information:

(1)

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

 

(2)

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

 

(3)

Other EBITDA is comprised of:

 

 

(Amounts in thousands)

For the Three Months
Ended September 30,

 

 

2009

 

2008

 

Alexander’s

$

26,769

 

$

68

 

555 California Street

 

10,090

 

 

12,296

 

Lexington

 

(1,863

)

 

10,803

 

Hotel Pennsylvania

 

3,599

 

 

11,907

 

Industrial warehouses

 

1,219

 

 

1,361

 

Other investments

 

7,071

 

 

8,058

 

 

 

46,885

 

 

44,493

 

Investment income and other, net

 

23,023

 

 

15,514

 

Corporate general and administrative expenses

 

(24,309

)

 

(19,633

)

Net income attributable to noncontrolling interests, including unit distributions

 

(12,425

)

 

(5,025

)

Net gains on early extinguishment of debt

 

3,407

 

 

 

Non-cash asset write-downs:

 

 

 

 

 

 

Marketable equity securities

 

 

 

(11,808

)

Land held for development

 

 

 

(5,000

)

Derivative positions in marketable equity securities

 

 

 

(3,982

)

 

$

36,581

 

$

14,559

 

 

 

49

 

 


Results of Operations – Three Months Ended September 30, 2009 Compared to September 30, 2008

 

Revenues

Our revenues, which consist of property rentals, tenant expense reimbursements, hotel revenues, trade shows revenues, amortization of acquired below-market leases, net of above-market leases and fee income, were $671,219,000 for the quarter ended September 30, 2009, compared to $676,068,000 in the prior year’s quarter, a decrease of $4,849,000. Below are the details of the (decrease) increase by segment:

 

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) due to:

 

Total

 

New York
Office

 

Washington, DC
Office

 

Retail

 

Merchandise
Mart

 

Other

 

Property rentals:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions (including the transfer of an
asset from other to the retail segment)

 

$

5,067

 

$

 

$

 

$

2,449

 

$

3,519

 

$

(901

)

Development/redevelopment

 

 

(944

)

 

 

 

356

 

 

(1,300

)

 

 

 

 

Amortization of acquired below-market
leases, net

 

 

(5,798

)

 

(4,097

) (1)

 

(20

)

 

(2,665

)

 

4

 

 

980

 

Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hotel Pennsylvania

 

 

(10,340

)

 

 

 

 

 

 

 

 

 

(10,340

) (2)

Trade shows

 

 

(2,093

)

 

 

 

 

 

 

 

(2,093

) (3)

 

 

Leasing activity (see page 42)

 

 

16,664

 

 

6,440

 

 

11,391

 

 

3,970

 

 

(3,906

)

 

(1,231

)

Increase (decrease) in property rentals

 

 

2,556

 

 

2,343

 

 

11,727

 

 

2,454

 

 

(2,476

)

 

(11,492

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant expense reimbursements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions/development

 

 

(2,065

)

 

 

 

(103

)

 

(1,625

)

 

 

 

(337

)

Operations

 

 

(6,220

)

 

(4,272

) (4)

 

394

 

 

460

 

 

(1,633

) (4)

 

(1,169

)

(Decrease) increase in tenant expense
reimbursements

 

 

(8,285

)

 

(4,272

)

 

291

 

 

(1,165

)

 

(1,633

)

 

(1,506

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease cancellation fee income

 

 

153

 

 

1,205

 

 

(803

)

 

(362

)

 

(26

)

 

139

 

Management and leasing fees

 

 

319

 

 

131

 

 

109

 

 

146

 

 

(84

)

 

17

 

BMS cleaning revenue

 

 

887

 

 

2,910

 

 

 

 

 

 

 

 

(2,023

)

Other

 

 

(479

)

 

(444

)

 

(722

)

 

(1,225

)

 

785

 

 

1,127

 

Increase (decrease) in fee and other income

 

 

880

 

 

3,802

 

 

(1,416

)

 

(1,441

)

 

675

 

 

(740

)

Total (decrease) increase in revenues

 

$

(4,849

)

$

1,873

 

$

10,602

 

$

(152

)

$

(3,434

)

$

(13,738

)

 

______________________________

 

(1)

Primarily due to a lease modification that reduced the term of a portion of AXA’s space at 1290 Avenue of the Americas, which resulted in additional amortization of approximately $3,000 in the prior year’s quarter.

 

(2)

Primarily due to lower REVPAR.

 

(3)

Primarily due to lower trade show revenues.

 

(4)

Primarily due to a decrease in utility reimbursements as a result of lower utility costs.

 

 

50


Results of Operations – Three Months Ended September 30, 2009 Compared to September 30, 2008 (continued)

 

Expenses

Our expenses, which consist of operating, depreciation and amortization and general and administrative expenses, were $448,139,000 for the quarter ended September 30, 2009, compared to $467,159,000 in the prior year’s quarter, a decrease of $19,020,000. Below are the details of the (decrease) increase by segment:

 

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

(Decrease) increase due to:

Total

 

New York
Office

 

Washington, DC
Office

 

Retail

 

Merchandise
Mart

 

Other

 

Operating:

 

 

 

 

 

 

 

 

     

 

 

 

 

 

 

 

 

 

Acquisitions and other (including the
transfer of an asset from other to the retail
segment)

$

3,896

 

$

 

$

 

$

1,600

 

$

2,506

 

$

(210

)

Development/redevelopment

 

(415

)

 

 

 

991

 

 

(1,406

)

 

 

 

 

Hotel activity

 

(1,902

)

 

 

 

 

 

 

 

 

 

(1,902

)

Trade shows activity

 

(1,081

)

 

 

 

 

 

 

 

(1,081

)

 

 

Operations

 

(10,661

)

 

(3,036

) (1)

 

245

 

 

(978

)

 

(6,729

) (2)

 

(163

)

(Decrease) increase in operating
expenses

 

(10,163

)

 

(3,036

)

 

1,236

 

 

(784

)

 

(5,304

)

 

(2,275

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions/development

 

(1,270

)

 

 

 

(1,499

)

 

755

 

 

 

 

(526

)

Operations (due to additions to buildings
and improvements)

 

(4,777

)

 

(5,701

) (3)

 

757

 

 

1,587

 

 

903

 

 

(2,323

)

(Decrease) increase in depreciation and
amortization

 

(6,047

)

 

(5,701

)

 

(742

)

 

2,342

 

 

903

 

 

(2,849

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred compensation plan liability –
mark-to-market of plan assets

 

8,197

 

 

 

 

 

 

 

 

 

 

8,197

 

Operations

 

(6,007

)

 

(368

)

 

(348

)

 

(595

)

 

(221

)

 

(4,475

) (4)

Increase (decrease) in general and
administrative

 

2,190

 

 

(368

)

 

(348

)

 

(595

)

 

(221

)

 

3,722

 

Costs of acquisitions not consummated

 

(5,000

)

 

 

 

 

 

 

 

 

 

(5,000

)

Total (decrease) increase in expenses

$

(19,020

)  

$

(9,105

)

$

146

  

$

963

 

$

(4,622

)   

$

(6,402

)

 

______________________________

 

(1)

Primarily due to lower utility costs.

 

(2)

Primarily due to lower bad debt reserves and utility and marketing costs.

 

(3)

Primarily due to a lease modification that reduced the term of a portion of AXA’s space at 1290 Avenue of the Americas, which resulted in additional depreciation of approximately $4,000 in the prior year’s quarter.

 

(4)

Primarily due to lower payroll and stock-based compensation expense.

 

 

51

 

 


Results of Operations – Three Months Ended September 30, 2009 Compared to September 30, 2008 (continued)

 

Income (Loss) Applicable to Alexander’s

 

Our 32.4% share of Alexander’s net income (comprised of our share of Alexander’s net income and management, leasing, and development fees) was $21,297,000 for the three months ended September 30, 2009, compared to a net loss of $6,876,000 for the prior year’s quarter, an increase of $28,173,000. This increase was primarily due to income of $13,668,000 for our share of an income tax benefit in the current year’s quarter, compared to $14,557,000 of expense for our share of stock appreciation rights compensation expense in the prior year’s quarter.

 

 

Income (Loss) Applicable to Toys

 

During the quarter ended September 30, 2009, we recognized $22,077,000 of income from our investment in Toys, comprised of (i) $20,137,000 for our 32.7% share of Toys’ net income (a net loss of $15,985,000 before our share of Toys’ income tax benefit, for its quarter ended August 1, 2009) and (ii) $1,940,000 of interest and other income.

 

During the quarter ended September 30, 2008, we recognized a net loss of $8,141,000 from our investment in Toys, comprised of (i) $10,107,000 for our 32.7% share of Toys’ net loss ($21,051,000 before our share of Toys’ income tax benefit, for its quarter ended August 2, 2008), partially offset by (ii) $1,966,000 of interest and other income.

 

 

Loss from Partially Owned Entities

Summarized below are the components of (loss) income from partially owned entities for the three months ended September 30, 2009 and 2008.

 

 

(Amounts in thousands)

 

For The Three Months
Ended September 30,

 

 

 

2009

 

2008

 

 

 

 

 

 

 

Lexington – 16.1% share in 2009 and 7.7% share in 2008 of equity in net loss (1)

 

$

(15,054

)

$

(6,040

)

 

 

 

 

 

 

 

 

India real estate ventures – 4% to 36.5% share of equity in net loss

 

 

(465

)

 

(835

)

 

 

 

 

 

 

 

 

Other, net (2)

 

 

(3,265

)

 

3,776

 

 

 

$

(18,784

)

$

(3,099

)

________________________

 

(1)

The three months ended September 30, 2009 includes $14,541 for our share of non-cash impairment losses recorded by Lexington related to its investment in Concord Debt Holdings LLC. The three months ended September 30, 2008 includes a $7,175 non-cash impairment loss on our investment in Lexington.

 

(2)

Includes our equity in net earnings of partially owned entities including, partially owned office buildings in New York and Washington, DC, the Monmouth Mall, Dune Capital LP, Verde Realty MLP, 85 10th Avenue and others.

 

 

52

 

 


Results of Operations – Three Months Ended September 30, 2009 Compared to September 30, 2008 (continued)

 

Interest and Other Investment Income, net

Interest and other investment income, net (comprised of interest income on mezzanine loans receivable, other interest income and dividend income) was $20,486,000 for the three months ended September 30, 2009, compared to $9,638,000 in the prior year’s quarter, an increase of $10,848,000. This increase resulted from:

 

(Amounts in thousands)

 

 

 

 

Marketable equity securities – impairment losses in prior year’s quarter

 

$

11,808

 

Increase in the mark-to-market of investments in our deferred compensation plan (for which
there is a corresponding increase in general and administrative expense)

 

 

8,197

 

Lower average yield on investments (0.3% in this quarter compared to 2.3% in the
prior year’s quarter)

 

 

(6,479

)

Lower average mezzanine loan investments - $268,000 in this quarter, compared to $468,000
in the prior year’s quarter

 

 

(4,122

)

Derivative positions in marketable equity securities – loss in prior year’s quarter

 

 

3,982

 

Other, net (primarily a reduction in dividend income)

 

 

(2,538

)

 

 

$

10,848

 

 

 

Interest and Debt Expense

Interest and debt expense was $158,205,000 in the three months ended September 30, 2009, compared to $157,646,000 in the prior year’s quarter, an increase of $559,000. This increase resulted primarily from (i) lower capitalized interest of $12,332,000, (ii) $2,568,000 of interest on new borrowings and refinancings and (iii) $1,220,000 of interest on additional borrowings under our revolving credit facilities, partially offset by (iv) $7,855,000 as a result of the purchase of a portion of our corporate senior unsecured debt and (v) $7,747,000 due to a decrease in weight average interest rates.

 

 

Net Gains on Early Extinguishment of Debt

Net gains on early extinguishment of debt of $3,407,000 for the three months ended September 30, 2009 resulted from purchases of certain of our convertible senior debentures.

 

 

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

Net gains on disposition of wholly owned and partially owned assets other than depreciable real estate was $4,432,000 in the three months ended September 30, 2009, compared to $5,160,000 in the prior year’s quarter and was primarily comprised of net gains on sale of marketable securities.

 

 

Income Tax Expense

Income tax expense for the three months ended September 30, 2009 was $5,267,000, compared to $5,244,000 in the prior year’s quarter.

 

53

 

 


Results of Operations – Three Months Ended September 30, 2009 Compared to September 30, 2008 (continued)

 

Income from Discontinued Operations

Income from discontinued operations for the three months ended September 30, 2009 was $43,321,000, compared to $846,000 for the prior year’s quarter. The three months ended September 30, 2009 includes a $41,211,000 net gain on the sale of 1999 K Street, which was sold on September 1, 2009.

 

 

Net Income Attributable to Noncontrolling Interests, Including Unit Distributions

 

Net income attributable to noncontrolling interests for the three months ended September 30, 2009 and 2008 is comprised of (i) allocations to redeemable noncontrolling interests of $10,151,000 and $2,188,000, respectively, (ii) net income and net loss attributable to noncontrolling interests in consolidated subsidiaries of $258,000 and $466,000, respectively and (iii) preferred unit distributions of the Operating Partnership of $4,818,000 in each three-month period. The increase of $7,963,000 in allocations to noncontrolling redeemable interests resulted primarily from higher net income subject to allocation to the unitholders.

 

 

Preferred Share Dividends

 

Preferred share dividends were $14,269,000 for the three months ended September 30, 2009, compared to $14,271,000 for the prior year’s quarter.

 

54

 

 


Results of Operations – Three Months Ended September 30, 2009 Compared to September 30, 2008 (continued)

 

Same Store EBITDA

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

 

Below are the same store EBITDA results on a GAAP basis and cash basis for each of our segments for the three months ended September 30, 2009, compared to the three months ended September 30, 2008.

 

(Amounts in thousands)

New York
Office

 

Washington, DC
Office

 

Retail

 

Merchandise
Mart

 

EBITDA for the three months ended September 30, 2009

$

146,875

 

$

149,242

 

$

82,844

 

$

26,311

 

Add-back: non-property level overhead
expenses included above

 

4,895

 

 

6,079

 

 

6,802

 

 

7,198

 

Less: EBITDA from acquisitions, dispositions
and other non-operating income or expenses

 

(2,107

)

 

(42,323

)

 

(5,765

)

 

(3,529

)

GAAP basis same store EBITDA for the three months
ended September 30, 2009

 

149,663

 

 

112,998

 

 

83,881

 

 

29,980

 

Less: Adjustments for straight-line rents,
amortization of below-market leases, net and other
non-cash adjustments

 

(16,488

)

 

(5,545

)

 

(8,202

)

 

(184

)

Cash basis same store EBITDA for the three months
ended September 30, 2009

$

133,175

 

$

107,453

 

$

75,679

 

$

29,796

 

                         
                         

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA for the three months ended September 30, 2008

$

142,905

 

$

97,340

 

$

85,133

 

$

24,388

 

Add-back: non-property level overhead expenses
included above

 

5,263

 

 

6,427

 

 

7,397

 

 

7,419

 

Less: EBITDA from acquisitions, dispositions and other
non-operating income or expenses

 

(738

)

 

(1,003

)

 

(10,259

)

 

 

GAAP basis same store EBITDA for the three months ended
September 30, 2008

 

147,430

 

 

102,764

 

 

82,271

 

 

31,807

 

Less: Adjustments for straight-line rents, amortization
of below-market leases, net and other non-cash
adjustments

 

(22,292

)

 

(3,942

)

 

(10,312

)

 

(1,762

)

Cash basis same store EBITDA for the three
months ended September 30, 2008

$

125,138

 

$

98,822

 

$

71,959

 

$

30,045

 

                         

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in GAAP basis same store EBITDA for
the three months ended September 30, 2009 over the
three months ended September 30, 2008


$

2,233

 

$

10,234

 

$

1,610

 

$

(1,827

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in Cash basis same store EBITDA for the
three months ended September 30, 2009 over the three
months ended September 30, 2008


$

8,037

 

$

8,631

 

$

3,720

 

$

(249

)

                         

 

 

 

 

 

 

 

 

 

 

 

 

 

% increase (decrease) in GAAP basis same store EBITDA

 

1.5%

 

 

10.0%

 

 

2.0%

 

 

(5.7%

)

 

 

 

 

 

 

 

 

 

 

 

 

 

% increase (decrease) in Cash basis same store EBITDA

 

6.4%

 

 

8.7%

 

 

5.2%

 

 

(0.8%

)

 

 

55

 

 


Net Income and EBITDA by Segment for the Nine Months Ended September 30, 2009 and 2008

 

Below is a summary of net income and a reconciliation of our net income to EBITDA(1) by segment for the nine months ended September 30, 2009 and 2008.

 

(Amounts in thousands)

 

For the Nine Months Ended September 30, 2009

 

 

 

Total

 

New York
Office

 

Washington, DC
Office

 

Retail

 

Merchandise
Mart

 

Toys

 

Other (3)

 

Property rentals

 

$

1,529,747

 

$

568,884

 

$

399,937

 

$

268,519

 

$

176,224

 

$

 

$

116,183

 

Straight-line rents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual rent increases

 

 

43,469

 

 

24,315

 

 

9,348

 

 

8,442

 

 

1,406

 

 

 

 

(42

)

Amortization of free rent

 

 

24,871

 

 

2,209

 

 

9,829

 

 

12,380

 

 

312

 

 

 

 

141

 

Amortization of acquired below-
market leases, net

 

 

56,270

 

 

30,518

 

 

3,117

 

 

18,362

 

 

71

 

 

 

 

4,202

 

Total rentals

 

 

1,654,357

 

 

625,926

 

 

422,231

 

 

307,703

 

 

178,013

 

 

 

 

120,484

 

Tenant expense reimbursements

 

 

270,934

 

 

103,609

 

 

47,936

 

 

99,337

 

 

13,492

 

 

 

 

6,560

 

Fee and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant cleaning revenue

 

 

43,372

 

 

58,917

 

 

 

 

 

 

 

 

 

 

(15,545

)

Management and leasing fees

 

 

8,255

 

 

3,363

 

 

5,936

 

 

1,248

 

 

25

 

 

 

 

(2,317

)

Lease termination fees

 

 

4,356

 

 

1,524

 

 

1,916

 

 

100

 

 

677

 

 

 

 

139

 

Other

 

 

42,301

 

 

9,923

 

 

15,129

 

 

2,296

 

 

6,324

 

 

 

 

8,629

 

Total revenues

 

 

2,023,575

 

 

803,262

 

 

493,148

 

 

410,684

 

 

198,531

 

 

 

 

117,950

 

Operating expenses

 

 

814,561

 

 

340,552

 

 

169,379

 

 

155,503

 

 

100,134

 

 

 

 

48,993

 

Depreciation and amortization

 

 

398,845

 

 

129,884

 

 

105,096

 

 

75,881

 

 

40,800

 

 

 

 

47,184

 

General and administrative

 

 

180,381

 

 

18,588

 

 

20,548

 

 

24,946

 

 

25,092

 

 

 

 

91,207

 

Total expenses

 

 

1,393,787

 

 

489,024

 

 

295,023

 

 

256,330

 

 

166,026

 

 

 

 

187,384

 

Operating income (loss)

 

 

629,788

 

 

314,238

 

 

198,125

 

 

154,354

 

 

32,505

 

 

 

 

(69,434

)

Income applicable to Alexander’s

 

 

46,044

 

 

577

 

 

 

 

598

 

 

 

 

 

 

44,869

 

Income applicable to Toys

 

 

118,897

 

 

 

 

 

 

 

 

 

 

118,897

 

 

 

(Loss) income from partially owned
entities

 

 

(49,124

)

 

3,908

 

 

5,504

 

 

2,566

 

 

186

 

 

 

 

(61,288

)

Interest and other investment (loss)
income, net

 

 

(63,608

)

 

712

 

 

573

 

 

63

 

 

83

 

 

 

 

(65,039

)

Interest and debt expense

 

 

(475,028

)

 

(100,118

)

 

(94,408

)

 

(67,093

)

 

(38,888

)

 

 

 

(174,521

)

Net gains of early extinguishment of
debt

 

 

26,996

 

 

 

 

 

 

769

 

 

 

 

 

 

26,227

 

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

 

 

4,432

 

 

 

 

 

 

 

 

 

 

 

 

4,432

 

Income (loss) before income taxes

 

 

238,397

 

 

219,317

 

 

109,794

 

 

91,257

 

 

(6,114

)

 

118,897

 

 

(294,754

)

Income tax expense

 

 

(15,773

)

 

(845

)

 

(1,232

)

 

(316

)

 

(1,755

)

 

 

 

(11,625

)

Income (loss) from continuing
operations

 

 

222,624

 

 

218,472

 

 

108,562

 

 

90,941

 

 

(7,869

)

 

118,897

 

 

(306,379

)

Income from discontinued operations

 

 

49,276

 

 

 

 

46,004

 

 

3,272

 

 

 

 

 

 

 

Net income (loss)

 

 

271,900

 

 

218,472

 

 

154,566

 

 

94,213

 

 

(7,869

)

 

118,897

 

 

(306,379

)

Net (income) loss attributable to
noncontrolling interests, including
unit distributions

 

 

(28,808

)

 

(6,438

)

 

 

 

630

 

 

 

 

 

 

(23,000

)

Net income (loss) attributable to
Vornado

 

 

243,092

 

 

212,034

 

 

154,566

 

 

94,843

 

 

(7,869

)

 

118,897

 

 

(329,379

)

Interest and debt expense (2)

 

 

612,416

 

 

95,058

 

 

96,818

 

 

71,496

 

 

39,563

 

 

89,897

 

 

219,584

 

Depreciation and amortization(2)

 

 

539,554

 

 

125,831

 

 

110,263

 

 

78,724

 

 

41,203

 

 

101,368

 

 

82,165

 

Income tax expense (2)

 

 

23,804

 

 

845

 

 

1,242

 

 

316

 

 

1,820

 

 

7,335

 

 

12,246

 

EBITDA(1)

 

$

1,418,866

 

$

433,768

 

$

362,889

 

$

245,379

 

$

74,717

 

$

317,497

 

$

(15,384

)

 

EBITDA above includes certain items that affect comparability, which are described in the “Overview.”

___________________

See notes on page 58.

 

56

 

 


Net Income and EBITDA by Segment for the Nine Months Ended September 30, 2009 and 2008 - continued

(Amounts in thousands)

 

For the Nine Months Ended September 30, 2008

 

 

 

Total

 

New York
Office

 

Washington, DC
Office

 

Retail

 

Merchandise
Mart

 

Toys

 

Other (3)

 

Property rentals

 

$

1,501,146

 

$

539,254

 

$

377,867

 

$

257,500

 

$

179,606

 

$

 

$

146,919

 

Straight-line rents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual rent increases

 

 

45,570

 

 

20,860

 

 

6,861

 

 

12,713

 

 

4,531

 

 

 

 

605

 

Amortization of free rent

 

 

17,460

 

 

8,106

 

 

5,759

 

 

319

 

 

2,662

 

 

 

 

614

 

Amortization of acquired below-
market leases, net

 

 

73,655

 

 

45,548

 

 

3,305

 

 

20,016

 

 

84

 

 

 

 

4,702

 

Total rentals

 

 

1,637,831

 

 

613,768

 

 

393,792

 

 

290,548

 

 

186,883

 

 

 

 

152,840

 

Tenant expense reimbursements

 

 

269,646

 

 

103,230

 

 

44,608

 

 

97,968

 

 

14,715

 

 

 

 

9,125

 

Fee and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant cleaning revenue

 

 

41,431

 

 

53,415

 

 

 

 

 

 

 

 

 

 

(11,984

)

Management and leasing fees

 

 

10,326

 

 

5,035

 

 

6,983

 

 

974

 

 

306

 

 

 

 

(2,972

)

Lease termination fees

 

 

4,469

 

 

2,050

 

 

1,037

 

 

1,027

 

 

355

 

 

 

 

 

Other

 

 

33,830

 

 

11,876

 

 

14,802

 

 

2,014

 

 

5,749

 

 

 

 

(611

)

Total revenues

 

 

1,997,533

 

 

789,374

 

 

461,222

 

 

392,531

 

 

208,008

 

 

 

 

146,398

 

Operating expenses

 

 

793,391

 

 

333,845

 

 

161,183

 

 

144,165

 

 

102,747

 

 

 

 

51,451

 

Depreciation and amortization

 

 

397,807

 

 

143,549

 

 

104,899

 

 

63,140

 

 

38,324

 

 

 

 

47,895

 

General and administrative

 

 

149,164

 

 

14,906

 

 

18,824

 

 

23,104

 

 

21,921

 

 

 

 

70,409

 

Impairment losses on development
projects and costs of acquisition
not consummated

 

 

8,009

 

 

 

 

 

 

 

 

 

 

 

 

8,009

 

Total expenses

 

 

1,348,371

 

 

492,300

 

 

284,906

 

 

230,409

 

 

162,992

 

 

 

 

177,764

 

Operating income (loss)

 

 

649,162

 

 

297,074

 

 

176,316

 

 

162,122

 

 

45,016

 

 

 

 

(31,366

)

Income applicable to Alexander’s

 

 

16,404

 

 

568

 

 

 

 

529

 

 

 

 

 

 

15,307

 

Income applicable to Toys

 

 

41,510

 

 

 

 

 

 

 

 

 

 

41,510

 

 

 

(Loss) income from partially owned
entities

 

 

(29,167

)

 

3,843

 

 

4,548

 

 

9,889

 

 

978

 

 

 

 

(48,425

)

Interest and other investment income,
net

 

 

47,535

 

 

1,965

 

 

1,737

 

 

422

 

 

221

 

 

 

 

43,190

 

Interest and debt expense

 

 

(474,862

)

 

(104,032

)

 

(94,085

)

 

(63,981

)

 

(39,190

)

 

 

 

(173,574

)

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

 

 

8,546

 

 

 

 

 

 

 

 

 

 

 

 

8,546

 

Income (loss) before income taxes

 

 

259,128

 

 

199,418

 

 

88,516

 

 

108,981

 

 

7,025

 

 

41,510

 

 

(186,322

)

Income tax benefit (expense)

 

 

207,170

 

 

 

 

220,916

 

 

(7

)

 

(1,205

)

 

 

 

(12,534

)

Income (loss) from continuing
operations

 

 

466,298

 

 

199,418

 

 

309,432

 

 

108,974

 

 

5,820

 

 

41,510

 

 

(198,856

)

Income from discontinued operations

 

 

172,814

 

 

 

 

59,072

 

 

1,830

 

 

 

 

 

 

111,912

 

Net income (loss)

 

 

639,112

 

 

199,418

 

 

368,504

 

 

110,804

 

 

5,820

 

 

41,510

 

 

(86,944

)

Net (income) loss attributable to
noncontrolling interests, including
unit distributions

 

 

(67,135

)

 

(3,366

)

 

 

 

104

 

 

 

 

 

 

(63,873

)

Net income (loss) attributable to
Vornado

 

 

571,977

 

 

196,052

 

 

368,504

 

 

110,908

 

 

5,820

 

 

41,510

 

 

(150,817

)

Interest and debt expense (2)

 

 

621,367

 

 

98,810

 

 

96,958

 

 

76,492

 

 

39,823

 

 

108,970

 

 

200,314

 

Depreciation and amortization(2)

 

 

531,252

 

 

136,738

 

 

110,334

 

 

67,456

 

 

38,711

 

 

103,291

 

 

74,722

 

Income tax (benefit) expense (2)

 

 

(121,844

)

 

 

 

(220,911

)

 

7

 

 

1,205

 

 

82,778

 

 

15,077

 

EBITDA(1)

 

$

1,602,752

 

$

431,600

 

$

354,885

 

$

254,863

 

$

85,559

 

$

336,549

 

$

139,296

 

 

EBITDA above includes certain items that affect comparability, which are described in the “Overview.”

______________________________

See notes on the following page.

57

 

 


Net Income and EBITDA by Segment for the Nine Months Ended September 30, 2009 and 2008 - continued

 

Notes to preceding tabular information:

(1)

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

 

(2)

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

 

(3)

Other EBITDA is comprised of:

 

 

(Amounts in thousands)

 

 

For the Nine Months
Ended September 30,

 

 

 

2009

 

 

2008

 

Alexander’s

 

$

65,229

 

 

$

37,180

 

555 California Street

 

 

31,885

 

 

 

35,554

 

Lexington

 

 

15,129

 

 

 

29,271

 

Hotel Pennsylvania

 

 

7,823

 

 

 

29,772

 

Industrial warehouses

 

 

3,902

 

 

 

4,025

 

Other investments

 

 

1,904

(1)

 

 

6,211

 

 

 

 

125,872

 

 

 

142,013

 

Corporate general and administrative expenses

 

 

(62,757

)

 

 

(62,101

)

Investment income and other, net

 

 

61,214

 

 

 

72,592

 

Write-off of unamortized costs from the voluntary surrender of equity awards
on March 31, 2009

 

 

(20,202

)

 

 

 

Net gains on early extinguishment of debt

 

 

26,227

 

 

 

 

Net income attributable to noncontrolling interests, including unit distributions

 

 

(23,000

)

 

 

(63,873

)

Non-cash asset (write-downs) reversal:

 

 

 

 

 

 

 

 

Mezzanine loans receivable

 

 

(122,738

)

 

 

10,300

 

Marketable equity securities

 

 

 

 

 

(20,881

)

Real estate development projects:

 

 

 

 

 

 

 

 

Partially owned entities

 

 

 

 

 

(34,200

)

Wholly owned entities (including costs of acquisitions not
consummated)

 

 

 

 

 

(8,009

)

Derivative positions in marketable equity securities

 

 

 

 

 

(25,812

)

Discontinued operations of Americold (including a $112,690 net gain on sale)

 

 

 

 

 

129,267

 

 

 

$

(15,384

)

 

$

139,296

 

 

________________________

(1)

Includes $7,650 of expense for our share of the Filene’s, Boston lease termination payment.

58

 

 


Results of Operations – Nine Months Ended September 30, 2009 Compared to September 30, 2008 - continued

 

Revenues

Our revenues, which consist of property rentals, tenant expense reimbursements, hotel revenues, trade shows revenues, amortization of acquired below-market leases, net of above market-leases, and fee income, were $2,023,575,000 for the nine months ended September 30, 2009, compared to $1,997,533,000 in the prior year’s nine months, an increase of $26,042,000. Below are the details of the increase (decrease) by segment:

 

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) due to:

 

Total

 

New York
Office

 

Washington, DC
Office

 

Retail

 

Merchandise
Mart

 

Other

 

Property rentals:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions (including the transfer of an
asset from other to the retail segment)

 

$

9,973

 

$

 

$

 

$

7,821

 

$

4,732

 

$

(2,580

)

Development/redevelopment

 

 

(987

)

 

 

 

356

 

 

(1,343

)

 

 

 

 

Amortization of acquired below-market
leases, net

 

 

(17,385

)

 

(15,030

) (1)

 

(188

)

 

(1,654

)

 

(13

)

 

(500

)

Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hotel Pennsylvania

 

 

(26,400

)

 

 

 

 

 

 

 

 

 

(26,400

) (2)

Trade shows

 

 

(9,012

)

 

 

 

 

 

 

 

(9,012

) (3)

 

 

Leasing activity (see page 42)

 

 

60,337

 

 

27,188

 

 

28,271

 

 

12,331

 

 

(4,577

)

 

(2,876

)

Increase (decrease) in property rentals

 

 

16,526

 

 

12,158

 

 

28,439

 

 

17,155

 

 

(8,870

)

 

(32,356

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant expense reimbursements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions/development

 

 

(1,508

)

 

 

 

(103

)

 

(660

)

 

 

 

(745

)

Operations

 

 

2,796

 

 

379

(4)

 

3,431

 

 

2,029

 

 

(1,223

)

 

(1,820

)

Increase (decrease) in tenant expense
reimbursements

 

 

1,288

 

 

379

 

 

3,328

 

 

1,369

 

 

(1,223

)

 

(2,565

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease cancellation fee income

 

 

(113

)

 

(526

)

 

879

 

 

(927

)

 

322

 

 

139

 

Management and leasing fees

 

 

(2,071

)

 

(1,672

)

 

(1,047

)

 

274

 

 

(281

)

 

655

 

BMS cleaning revenue

 

 

1,941

 

 

5,502

 

 

 

 

 

 

 

 

(3,561

)

Other

 

 

8,471

 

 

(1,953

)

 

327

 

 

282

 

 

575

 

 

9,240

(5)

Increase (decrease) in fee and other income

 

 

8,228

 

 

1,351

 

 

159

 

 

(371

)

 

616

 

 

6,473

 

Total increase (decrease) in revenues

 

$

26,042

 

$

13,888

 

$

31,926

 

$

18,153

 

$

(9,477

)

$

(28,448

)

 

______________________________

 

(1)

Primarily due to a lease modification that reduced the term of a portion of AXA’s space at 1290 Avenue of the Americas, which resulted in additional amortization of approximately $9,000 in the prior year’s nine months.

 

(2)

Primarily due to lower REVPAR.

 

(3)

Primarily due to lower trade show revenues.

 

(4)

Primarily due to a decrease in real estate tax reimbursements as a result of new tenant base years.

 

(5)

Includes $5,402 of income previously deferred resulting from the termination of a lease with a partially owned entity.

 

59

 

 


Results of Operations – Nine Months Ended September 30, 2009 Compared to September 30, 2008 - continued

 

Expenses

Our expenses, which consist of operating, depreciation and amortization and general and administrative expenses, were $1,393,787,000 for the nine months ended September 30, 2009, compared to $1,348,371,000 in the prior year’s nine months, an increase of $45,416,000. Below are the details of the increase (decrease) by segment:

 

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

Increase (decrease) due to:

Total

 

New York
Office

 

Washington, DC
Office

 

Retail

 

Merchandise
Mart

 

 

Other

 

Operating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions and other (including the
transfer of an asset from other to the
retail segment)

$

11,015

 

$

 

$

 

$

5,197

 

$

5,034

 

$

784

 

Development/redevelopment

 

2,781

 

 

 

 

1,001

 

 

1,780

 

 

 

 

 

Hotel activity

 

(4,496

)

 

 

 

 

 

 

 

 

 

(4,496

)

Trade shows activity

 

(4,214

)

 

 

 

 

 

 

 

(4,214

)

 

 

Operations

 

16,084

 

 

6,707

 

 

7,195

 

 

4,361

 

 

(3,433

)

 

1,254

 

Increase (decrease) in operating expenses

 

21,170

 

 

6,707

 

 

8,196

 

 

11,338

 

 

(2,613

)

 

(2,458

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions/development

 

(876

)

 

 

 

(6,305

)

 

7,064

 

 

 

 

(1,635

)

Operations (due to additions to buildings
and improvements)

 

1,914

 

 

(13,665

) (1)

 

6,502

 

 

5,677

 

 

2,476

 

 

924

 

Increase (decrease) in depreciation and
amortization

 

1,038

 

 

(13,665

)

 

197

 

 

12,741

 

 

2,476

 

 

(711

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Write-off of unamortized costs from the
voluntary surrender of equity awards (2)

 

32,588

 

 

3,451

 

 

3,131

 

 

4,793

 

 

1,011

 

 

20,202

 

Deferred compensation plan liability -
mark-to-market of plan assets

 

9,209

 

 

 

 

 

 

 

 

 

 

9,209

 

Operations

 

(10,580

)

 

231

 

 

(1,407

)

 

(2,951

)

 

2,160

(3)

 

(8,613

) (4)

Increase in general and administrative

 

31,217

 

 

3,682

 

 

1,724

 

 

1,842

 

 

3,171

 

 

20,798

 

Costs of acquisitions not consummated

 

(8,009

)

 

 

 

 

 

 

 

 

 

 

(8,009

)

Total increase (decrease) in expenses

$

45,416

 

$

(3,276

)

$

10,117

 

$

25,921

 

$

3,034

 

$

9,620

 

 

______________________________

 

(1)

Primarily due to a lease modification that reduced the term of a portion of AXA’s space at 1290 Avenue of the Americas, which resulted in additional depreciation of approximately $12,000 in the prior year’s nine months.

 

(2)

On March 31, 2009, our nine most senior executives voluntarily surrendered their 2007 and 2008 stock option awards and their 2008 out-performance plan awards. Accordingly, we recognized $32,588 of expense in the first quarter of 2009, representing the unamortized portion of these awards.

 

(3)

Primarily due to pension termination costs of $2,800.

 

(4)

Primarily due to lower payroll and stock-based compensation expense.

 

 

60

 


Results of Operations – Nine Months Ended September 30, 2009 Compared to September 30, 2008 - continued

 

Income Applicable to Alexander’s

 

Our 32.4% share of Alexander’s net income (comprised of our share of Alexander’s net income and management, leasing, and development fees) was $46,044,000 for the nine months ended September 30, 2009, compared to $16,404,000 for the prior year’s nine months, an increase of $29,640,000. This increase was primarily due to income of $13,668,000 for our share of an income tax benefit and $11,105,000 for our share of the reversal of accrued stock appreciation rights compensation expense in the current period, compared to $7,605,000 for our share of stock appreciation rights compensation expense in the prior year’s period.

 

 

Income Applicable to Toys

 

During the nine months ended September 30, 2009, we recognized $118,897,000 of income from our investment in Toys, comprised of (i) $99,210,000 for our 32.7% share of Toys’ net income ($106,545,000 before our share of Toys’ income tax expense), (ii) $13,946,000 for our share of income from the reversal of previously recognized deferred financing cost amortization expense, which we initially recorded as a reduction of the basis of our investment in Toys, and (iii) $5,741,000 of interest and other income.

 

During the nine months ended September 30, 2008, we recognized $41,510,000 of income from our investment in Toys, comprised of (i) $50,450,000 for our 32.7% share of Toys’ net income ($133,228,000 before our share of Toys’ income tax expense) and (ii) $5,960,000 of interest and other income, partially offset by (iii) $14,900,000 for our share of a non-cash charge adjusting Toys purchase accounting basis income tax expense resulting from the audit of Toys fiscal 2006 and 2007 purchase accounting financial statements.

 

 

Loss from Partially Owned Entities

Summarized below are the components of loss from partially owned entities for the nine months ended September 30, 2009 and 2008.

 

 

(Amounts in thousands)

 

For The Nine Months
Ended September 30,

 

 

 

2009

 

2008

 

 

 

 

 

 

 

Lexington – 16.1% share in 2009 and 7.7% share in 2008 of equity in net loss (1)

 

$

(24,969

)

$

(4,153

)

 

 

 

 

 

 

 

 

India real estate ventures – 4% to 36.5% share of equity in net loss

 

 

(1,386

)

 

(1,863

)

 

 

 

 

 

 

 

 

Other, net (2)

 

 

(22,769

)(3)

 

(23,151

)(4)

 

 

$

(49,124

)

$

(29,167

)

________________________

 

 

(1)

The nine months ended September 30, 2009 includes $19,121 for our share of impairment losses recorded by Lexington related to its investment in Concord Debt Holdings LLC. The nine months ended September 30, 2008 includes a $7,175 non-cash impairment loss on our investment in Lexington.

 

 

(2)

Includes our equity in net earnings of partially owned entities including, partially owned office buildings in New York and Washington, DC, the Monmouth Mall, Dune Capital LP, Verde Realty MLP, 85 10th Avenue and others.

 

 

(3)

Includes $7,650 of expense for our share of the Filene’s, Boston lease termination payment.

 

 

(4)

Includes $34,200 of non-cash charges for the write-off of our share of certain partially owned entities’pre-development costs.

 

61

 


Results of Operations – Nine Months Ended September 30, 2009 Compared to September 30, 2008 - continued

 

Interest and Other Investment (Loss) Income, net

Interest and other investment (loss) income, net (comprised of interest income on mezzanine loans receivable, loss reserves on mezzanine loans receivable, other interest income and dividend income) was a loss of $63,608,000 in the nine months ended September 30, 2009, compared to income of $47,535,000 in the prior year’s nine months, a decrease of $111,143,000. This decrease resulted from:

 

(Amounts in thousands)

 

 

 

 

Mezzanine loans – $122,738 loss accrual in the current year’s nine months, compared to $10,300
of income from the reversal of a loan loss accrual in the prior year’s nine months

 

$

(133,038

)

Derivative positions in marketable equity securities – loss in prior year’s nine months

 

 

25,812

 

Lower average yield on investments (0.4% in the current year’s nine months, compared to
2.6% in the prior year’s nine months)

 

 

(17,080

)

Marketable equity securities – impairment losses in the prior year’s nine months

 

 

20,881

 

Increase in the mark-to-market of investments in our deferred compensation plan (for which
there is a corresponding increase in general and administrative expenses)

 

 

9,209

 

Lower average mezzanine loan investments - $403,000 in the current year’s nine months,
compared to $482,000 in the prior year’s nine months

 

 

(7,291

)

Other, net (primarily a reduction in dividend income)

 

 

(9,636

)

 

 

$

(111,143

)

 

 

Interest and Debt Expense

Interest and debt expense was $475,028,000 in the nine months ended September 30, 2009, compared to $474,862,000 in the prior year’s nine months, an increase of $166,000. This increase resulted primarily from lower capitalized interest of $31,878,000 and $2,833,000 of interest on refinancings, partially offset by $21,797,000 due to a decrease in weighted average interest rates and $12,809,000 as a result of the purchase of a portion of our corporate senior unsecured debt.

 

 

Net Gains on Early Extinguishment of Debt

Net gains on early extinguishment of debt was $26,996,000 for the nine months ended September 30, 2009 and resulted primarily from purchases of certain of our convertible senior debentures and senior unsecured notes.

 

 

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

Net gains on disposition of wholly owned and partially owned assets other than depreciable real estate was $4,432,000 in the nine months ended September 30, 2009, compared to $8,546,000 in the prior year’s nine months and was primarily comprised of net gains on sale of marketable securities.

 

 

Income Tax (Expense) Benefit

In the nine months ended September 30, 2009, we had an income tax expense of $15,773,000, compared to an income tax benefit of $207,170,000 the prior year’s nine months, an increase in expense of $222,943,000. This increase resulted primarily from a $222,174,000 reversal of deferred tax liabilities in the first quarter of 2008. These deferred taxes were initially recorded in connection with our acquisition of H Street and were reversed as a result of completing all of the actions necessary to enable the entities to which these deferred taxes related to, elect REIT status effective for the tax year beginning on January 1, 2008.

 

62

 


Results of Operations – Nine Months Ended September 30, 2009 Compared to September 30, 2008 - continued

 

Income from Discontinued Operations

Income from discontinued operations for the nine months ended September 30, 2009 was $49,276,000, compared to $172,814,000 for the nine months ended September 30, 2008. The nine months ended September 30, 2009 includes a $41,211,000 net gain on the sale of 1999 K Street, which was sold on September 1, 2009. The nine months ended September 30, 2008 includes net gains on sale of Americold Realty Trust, which was sold on March 31, 2008 for a $112,690,000 net gain and Tysons Dulles Plaza, which was sold on September 10, 2008 for a $56,831,000 net gain.

 

 

Net Income Attributable to Noncontrolling Interests, Including Unit Distributions

 

Net income attributable to noncontrolling interests for the nine months ended September 30, 2009 and 2008 is comprised of (i) allocations to redeemable noncontrolling interests of $17,795,000 and $55,389,000, respectively, (ii) net loss attributable to noncontrolling interests in consolidated subsidiaries of $3,442,000 and $2,709,000, respectively and (iii) preferred unit distributions of the Operating Partnership of $14,455,000 in each nine-month period. The decrease of $37,594,000 in allocations to noncontrolling redeemable interests resulted primarily from lower net income subject to allocation to the unitholders.

 

 

Preferred Share Dividends

 

Preferred share dividends were $42,807,000 for the nine months ended September 30, 2009, compared to $42,820,000 for the prior year’s nine months.

 

63

 


Results of Operations – Nine Months Ended September 30, 2009 Compared to September 30, 2008 - continued

 

Same Store EBITDA

Below are the same store EBITDA results on a GAAP basis and cash basis for each of our segments for the nine months ended September 30, 2009, compared to the nine months ended September 30, 2008.

 

(Amounts in thousands)

New York
Office

 

Washington, DC
Office

 

Retail

 

Merchandise
Mart

 

EBITDA for the nine months ended September 30, 2009

$

433,768

 

$

362,889

 

$

245,379

 

$

74,717

 

Add-back: non-property level overhead
expenses included above (1)

 

18,588

 

 

20,548

 

 

24,946

 

 

25,092

 

Less: EBITDA from acquisitions, dispositions
and other non-operating income or expenses

 

(2,714

)

 

(50,254

)

 

(12,320

)

 

(3,826

)

GAAP basis same store EBITDA for the nine months
ended September 30, 2009

 

449,642

 

 

333,183

 

 

258,005

 

 

95,983

 

Less: Adjustments for straight-line rents, amortization
of below-market leases, net and other non-cash
adjustments

 

(48,863

)

 

(20,688

)

 

(32,048

)

 

(1,907

)

Cash basis same store EBITDA for the nine months
ended September 30, 2009

$

400,779

 

$

312,495

 

$

225,957

 

$

94,076

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA for the nine months ended September 30, 2008

$

431,600

 

$

354,885

 

$

254,863

 

$

85,559

 

Add-back: non-property level overhead expenses
included above

 

14,906

 

 

18,824

 

 

23,104

 

 

21,921

 

Less: EBITDA from acquisitions, dispositions and other
non-operating income or expenses

 

(4,387

)

 

(61,760

)

 

(28,859

)

 

945

 

GAAP basis same store EBITDA for the nine months ended
September 30, 2008

 

442,119

 

 

311,949

 

 

249,108

 

 

108,425

 

Less: Adjustments for straight-line rents, amortization
of below-market leases, net and other non-cash
adjustments

 

(63,086

)

 

(14,766

)

 

(27,253

)

 

(7,867

)

Cash basis same store EBITDA for the nine months ended
September 30, 2008

$

379,033

 

$

297,183

 

$

221,855

 

$

100,558

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in GAAP basis same store EBITDA for
the nine months ended September 30, 2009 over the
nine months ended September 30, 2008


$

7,523

 

$

21,234

 

$

8,897

 

$

(12,442

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in Cash basis same store EBITDA for the
nine months ended September 30, 2009 over the nine
months ended September 30, 2008


$

21,746

 

$

15,312

 

$

4,102

 

$

(6,482

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

% increase (decrease) in GAAP basis same store EBITDA

 

1.7%

 

 

6.8%

 

 

3.6%

 

 

(11.5%

)

 

 

 

 

 

 

 

 

 

 

 

 

 

% increase (decrease) in Cash basis same store EBITDA

 

5.7%

 

 

5.2%

 

 

1.8%

 

 

(6.4%

)

________________________

(1) Includes the write-off of unamortized costs from the voluntary surrender of equity awards on March 31, 2009, of $3,451, $3,131, $4,793 and $1,011, respectively.

 

64

 


SUPPLEMENTAL INFORMATION

 

Three Months Ended September 30, 2009 vs. Three Months Ended June 30, 2009

Our revenues and expenses are subject to seasonality during the year which impacts quarterly net earnings, cash flows and funds from operations, and therefore comparisons of the current quarter to the previous quarter. The business of Toys is highly seasonal. Historically, Toys’ fourth quarter net income, which we record on a one-quarter lag basis in our first quarter, accounts for more than 80% of Toys’ fiscal year net income. The Office and Merchandise Mart segments have historically experienced higher utility costs in the first and third quarters of the year. The Merchandise Mart segment also has experienced higher earnings in the second and fourth quarters of the year due to major trade shows occurring in those quarters. The Retail segment revenue in the fourth quarter is typically higher due to the recognition of percentage rental income.

 

Below are the same store EBITDA results on a GAAP and cash basis for each of our segments for the three months ended September 30, 2009, compared to the three months ended June 30, 2009.

(Amounts in thousands)

New York
Office

 

Washington, DC
Office

 

Retail

 

Merchandise
Mart

 

EBITDA for the three months ended September 30, 2009

$

146,875

 

$

149,242

 

$

82,844

 

$

26,311

 

Add-back: non-property level overhead expenses included above

 

4,895

 

 

6,079

 

 

6,802

 

 

7,198

 

Less: EBITDA from acquisitions, dispositions and other non-operating
income or expenses

 

(1,994

)

 

(42,323

)

 

(5,207

)

 

(3,529

)

GAAP basis same store EBITDA for the three months ended
September 30, 2009

 

149,776

 

 

112,998

 

 

84,439

 

 

29,980

 

Less: Adjustments for straight-line rents, amortization of
below-market leases, net and other non-cash adjustments

 

(16,601

)

 

(5,545

)

 

(8,760

)

 

(184

)

Cash basis same store EBITDA for the three months ended
September 30, 2009

$

133,175

 

$

107,453

 

$

75,679

 

$

29,796

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA for the three months ended June 30, 2009 (1)

$

147,774

 

$

110,269

 

$

80,883

 

$

26,969

 

Add-back: non-property level overhead expenses included above

 

4,531

 

 

5,560

 

 

6,393

 

 

6,930

 

Less: EBITDA from acquisitions, dispositions and other non-operating
income or expenses

 

(360

)

 

(4,091

)

 

(6,216

)

 

549

 

GAAP basis same store EBITDA for the three months ended June 30, 2009

 

151,945

 

 

111,738

 

 

81,060

 

 

34,448

 

Less: Adjustments for straight-line rents, amortization of
below-market leases, net and other non-cash adjustments

 

(15,908

)

 

(7,224

)

 

(8,231

)

 

(935

)

Cash basis same store EBITDA for the three months ended June 30, 2009

$

136,037

 

$

104,514

 

$

72,829

 

$

33,513

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Decrease) increase in GAAP basis same store EBITDA for the three months
ended September 30, 2009 over the three months ended June 30, 2009


$

(2,169

)

$

1,260

 

$

3,379

 

$

(4,468

)

 

 

 

 

 

 

 

 

 

 

 

 

 

(Decrease) increase in Cash basis same store EBITDA for the three months
ended September 30, 2009 over the three months ended June 30, 2009


$

(2,862

)

$

2,939

 

$

2,580

 

$

(3,717

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

% (decrease) increase in GAAP basis same store EBITDA

 

(1.4%

)

 

1.1%

 

 

4.2%

 

 

(13.0%

)

 

 

 

 

 

 

 

 

 

 

 

 

 

% (decrease) increase in Cash basis same store EBITDA

 

(2.1%

)

 

2.8%

 

 

3.9%

 

 

(11.1%

)

________________________

(1)

Below is a reconciliation of our net income (loss) to EBITDA for the three months ended June 30, 2009.

 

 

(Amounts in thousands)

New York
Office

 

Washington, DC
Office

 

Retail

 

Merchandise
Mart

 

Net income (loss) attributable to Vornado for the three months
ended June 30, 2009

$

73,870

 

$

41,367

 

$

26,688

 

$

(769

)

Interest and debt expense

 

31,675

 

 

32,237

 

 

24,459

 

 

13,190

 

Depreciation and amortization

 

41,969

 

 

35,904

 

 

29,625

 

 

13,883

 

Income tax expense

 

260

 

 

761

 

 

111

 

 

665

 

EBITDA for the three months ended June 30, 2009

$

147,774

 

$

110,269

 

$

80,883

 

$

26,969

 

 

65

 


LIQUIDITY AND CAPITAL RESOURCES

We anticipate that cash flow from continuing operations over the next twelve months will be adequate to fund our business operations, cash distributions to unitholders of the Operating Partnership, cash dividends to shareholders, debt amortization and recurring capital expenditures. Capital requirements for significant acquisitions and development expenditures may require funding from borrowings and/or equity offerings. We may from time to time purchase or retire outstanding debt securities though cash purchases and/or exchanges for our equity securities, in open market purchases, privately negotiated transactions or otherwise. Such purchases and/or exchanges, if any, will depend on prevailing market conditions, liquidity requirements and other factors. The amounts involved in connection with these transactions could be material to our consolidated financial statements.

 

We may determine to raise capital for future real estate acquisitions through an institutional investment fund. We would serve as the general partner of the fund for a fee and would also expect to be a limited partner of the fund and have the potential to earn certain incentives based on the fund’s performance.  The fund may serve as our exclusive investment vehicle for a limited period of time for all investments that fit within the fund’s investment parameters.  If we determine to raise capital through a fund, the partnership interests offered would not be registered under the Securities Act of 1933 and could not be offered or sold in the United States absent registration under that act or an applicable exemption from those registration requirements.

 

We are exploring issuing commercial mortgage backed securities that would be eligible to participate in the U.S Federal Reserve’s Term Asset-Backed Loan Facility (TALF) program. There can be no assurance that we will actually participate in this program or that our securities would be eligible for participation. Any such securities offering would not be registered under the Securities Act of 1933 and the securities could not be offered or sold in the United States absent a registration under that act or an applicable exemption from those registration requirements.

 

Our consolidated outstanding debt was $12,728,012,000 at September 30, 2009, a $290,089,000 increase from the balance at December 31, 2008. This increase resulted primarily from the issuance of $460,000,000 of 7.875% senior unsecured notes on September 30, 2009 which are due October 2039. As of September 30, 2009 and December 31, 2008, $648,250,000 and $358,468,000, respectively, was outstanding under our revolving credit facilities. During the remainder of 2009 and 2010, $84,810,000 and $899,067,000 of our outstanding debt matures, respectively. We may refinance such debt or choose to repay all or a portion, using existing cash balances or our revolving credit facilities.

 

Our share of debt of unconsolidated subsidiaries was $3,012,310,000 at September 30, 2009, a $184,275,000 decrease from the balance at December 31, 2008. This resulted primarily from a decrease in our share of Toys “R” Us outstanding debt.

 

Cash Flows for the Nine Months Ended September 30, 2009

Our cash and cash equivalents were $2,560,011,000 at September 30, 2009, a $1,033,158,000 increase over the balance at December 31, 2008. This increase resulted from $489,487,000 of net cash provided by operating activities and $621,471,000 of net cash provided by financing activities, partially offset by $77,800,000 of net cash used in investing activities. Property rental income represents our primary source of net cash provided by operating activities. Our property rental income is primarily dependent upon the occupancy and rental rates of our properties. Other sources of liquidity to fund cash requirements include proceeds from debt financings, including mortgage loans and corporate level unsecured borrowings; our revolving credit facilities; proceeds from the issuance of common and preferred equity; and asset sales. Our cash requirements include property operating expenses, capital improvements, tenant improvements, leasing commissions, distributions to our common and preferred shareholders, as well as acquisition and development costs.

 

Cash flows provided by operating activities of $489,487,000 was primarily comprised of (i) net income of $271,900,000, adjusted for $276,376,000 of non-cash adjustments, including depreciation and amortization expense, mezzanine loan loss accruals, the effect of straight-lining of rental income, equity in net income of partially owned entities and amortization of below market leases, net of above market leases, (ii) distributions of income from partially owned entities of $21,484,000 partially offset by (iii) the net change in operating assets and liabilities of $80,273,000.

 

Net cash used in investing activities of $77,800,000 was primarily comprised of (i) development and redevelopment expenditures of $384,655,000, (ii) investments in partially owned entities of $28,738,000, (iii) additions to real estate of $145,981,000, partially offset by, (iv) proceeds from the sale of real estate of $291,652,000, (v) $81,195,000 of restricted cash (vi) proceeds from the sale of marketable securities of $59,873,000 and (vii) $46,339,000 received from mezzanine loan receivables repayments.

 

Net cash provided by financing activities of $621,471,000 was primarily comprised of (i) $710,226,000 of proceeds from the issuance of common shares in April 2009, (ii) proceeds from borrowings of $1,208,204,000, partially offset by, (iii) repayments of borrowings of $996,218,000, (iv) dividends paid on common shares of $194,087,000, (v) dividends paid on preferred shares of $42,809,000 (vi) distributions to noncontrolling interests of $30,291,000 and (vi) the purchase of outstanding Series G Preferred Units of $24,330,000.

 

66

 


LIQUIDITY AND CAPITAL RESOURCES - continued

Capital Expenditures

Our capital expenditures consist of expenditures to maintain assets, tenant improvement allowances and leasing commissions. Recurring capital improvements include expenditures to maintain a property’s competitive position within the market and tenant improvements and leasing commissions necessary to re-lease expiring leases or renew or extend existing leases. Non-recurring capital improvements include expenditures completed in the year of acquisition and the following two years that were planned at the time of acquisition as well as tenant improvements and leasing commissions for space that was vacant at the time of acquisition of a property. Our development and redevelopment expenditures include all hard and soft costs associated with the development or redevelopment of a property, including tenant improvements, leasing commissions and capitalized interest and operating costs until the property is substantially complete and ready for its intended use. Below are the details of capital expenditures, leasing commissions and development and redevelopment expenditures and a reconciliation of total expenditures on an accrual basis to the cash expended in the nine months ended September 30, 2009.

 

(Amounts in thousands)

 

Total

 

New York
Office

 

Washington, DC
Office

 

Retail

 

Merchandise
Mart

 

Other

 

Capital Expenditures
(Accrual basis):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenditures to maintain the assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring

 

$

29,744

 

$

11,804

 

$

12,013

 

$

1,953

 

$

3,974

 

$

 

Non-recurring

 

 

13,433

 

 

5,181

 

 

644

 

 

 

 

 

 

7,608

 

Total

 

 

43,177

 

 

16,985

 

 

12,657

 

 

1,953

 

 

3,974

 

 

7,608

 

Tenant improvements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring

 

 

43,976

 

 

25,571

 

 

14,518

 

 

946

 

 

2,941

 

 

 

Non-recurring

 

 

6,227

 

 

4,503

 

 

 

 

 

 

 

 

1,724

 

Total

 

 

50,203

 

 

30,074

 

 

14,518

 

 

946

 

 

2,941

 

 

1,724

 

Leasing commissions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring

 

 

14,435

 

 

8,289

 

 

5,339

 

 

732

 

 

75

 

 

 

Non-recurring

 

 

2,045

 

 

1,659

 

 

 

 

34

 

 

 

 

352

 

Total

 

 

16,480

 

 

9,948

 

 

5,339

 

 

766

 

 

75

 

 

352

 

Tenant improvements and leasing commissions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per square foot

 

$

16.36

 

$

43.02

 

$

14.11

 

$

3.33

 

$

3.80

 

$

 

Per square foot per annum

 

$

2.48

 

$

5.46

 

$

2.94

 

$

0.32

 

$

0.95

 

$

 

Percentage of initial rent

 

 

6.9%

 

 

10.4%

 

 

7.4%

 

 

1.5%

 

 

3.7%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total capital expenditures and leasing
commissions (accrual basis)

 

$

109,860

 

$

57,007

 

$

32,514

 

$

3,665

 

$

6,990

 

$

9,684

 

Adjustments to reconcile accrual
basis to cash basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenditures in the current year
applicable to prior periods

 

 

97,888

 

 

53,067

 

 

33,515

 

 

4,134

 

 

4,693

 

 

2,479

 

Expenditures to be made in future
periods for the current period

 

 

(51,661

)

 

(32,103

)

 

(15,515

)

 

(1,164

)

 

(1,280

)

 

(1,599

)

Total capital expenditures and
leasing commissions (cash basis)

 

$

156,087

 

$

77,971

 

$

50,514

 

$

6,635

 

$

10,403

 

$

10,564

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Development and Redevelopment
Expenditures:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West End 25

 

$

50,975

 

$

 

$

50,975

 

$

 

$

 

$

 

Bergen Town Center

 

 

49,323

 

 

 

 

 

 

49,323

 

 

 

 

 

Wasserman Venture

 

 

38,238

 

 

 

 

 

 

 

 

 

 

38,238

 

220 20th Street

 

 

36,468

 

 

 

 

36,468

 

 

 

 

 

 

 

1999 K Street (sold in September 2009)

 

 

31,874

 

 

 

 

31,874

 

 

 

 

 

 

 

Manhattan Mall

 

 

20,144

 

 

 

 

 

 

20,144

 

 

 

 

 

North Bergen, New Jersey

 

 

19,495

 

 

 

 

 

 

19,495

 

 

 

 

 

Poughkeepsie, New York

 

 

17,446

 

 

 

 

 

 

17,446

 

 

 

 

 

Garfield, New Jersey

 

 

15,404

 

 

 

 

 

 

15,404

 

 

 

 

 

2101 L Street

 

 

12,865

 

 

 

 

12,865

 

 

 

 

 

 

 

Other

 

 

92,423

 

 

11,814

 

 

20,490

 

 

39,569

 

 

5,636

 

 

14,914

 

 

 

$

384,655

 

$

11,814

 

$

152,672

 

$

161,381

 

$

5,636

 

$

53,152

 

 

 

67

 


LIQUIDITY AND CAPITAL RESOURCES - CONTINUED

 

Cash Flows for the Nine Months Ended September 30, 2008

 

Cash and cash equivalents were $1,529,012,000 at September 30, 2008, a $374,417,000 increase over the balance at December 31, 2007. This increase resulted from $647,609,000 of net cash provided by operating activities, partially offset by $138,563,000 of net cash used in investing activities and $134,629,000 of net cash used in financing activities. Property rental income represents our primary source of net cash provided by operating activities.

 

Cash flows provided by operating activities of $647,609,000 was comprised of (i) net income of $639,112,000, (ii) distributions of income from partially owned entities of $12,021,000, and (iii) the net change in operating assets and liabilities of $17,129,000, partially offset by, $20,653,000 of non-cash adjustments, including depreciation and amortization expense, the effect of straight-lining of rental income and equity in net income of partially owned entities,

 

Net cash used in investing activities of $138,563,000 was primarily comprised of (i) development and redevelopment expenditures of $413,947,000, (ii) investments in partially owned entities of $115,250,000, (iii) additions to real estate of $158,434,000, (iv) acquisitions of real estate and related investments of $36,566,000, (v) restricted cash (primarily mortgage escrows) of $22,674,000, (vi) purchases of marketable equity securities of $8,035,000 and (vii) investments in mezzanine loans receivable of $7,397,000, partially offset by, (viii) proceeds from the sale of real estate (primarily Americold and Tysons Dulles Plaza) of $352,511,000, (ix) distributions of capital from partially owned entities of $182,090,000, (x) proceeds received from repayments on mezzanine loans receivable of $52,032,000 and (xi) proceeds from the sale marketable securities of $47,723,000.

 

Net cash used in financing activities of $134,629,000 was primarily comprised of (i) repayments of borrowings of $1,043,734,000, (ii) dividends paid on common shares of $415,169,000, (iii) distributions to noncontrolling interests of $65,925,000 and (iv) dividends paid on preferred shares of $42,841,000, partially offset by, (v) proceeds from borrowings of $1,424,458,000 and (vi) proceeds received from exercise of employee stock options of $21,981,000.

 

 

 

68

 


LIQUIDITY AND CAPITAL RESOURCES - continued

Capital Expenditures

 

Below are the details of capital expenditures, leasing commissions and development and redevelopment expenditures and a reconciliation of total expenditures on an accrual basis to the cash expended in the nine months ended September 30, 2008.

 

(Amounts in thousands)

 

Total

 

New York
Office

 

Washington, DC
Office

 

Retail

 

Merchandise
Mart

 

Other

 

Capital Expenditures (Accrual basis):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenditures to maintain the assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring

 

$

33,988

 

$

15,114

 

$

6,993

 

$

1,517

 

$

8,702

 

$

1,662

 

Non-recurring

 

 

9,950

 

 

3,034

 

 

2,069

 

 

 

 

 

 

4,847

 

Total

 

 

43,938

 

 

18,148

 

 

9,062

 

 

1,517

 

 

8,702

 

 

6,509

 

Tenant improvements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring

 

 

54,958

 

 

20,035

 

 

22,896

 

 

4,417

 

 

7,610

 

 

 

Non-recurring

 

 

14,084

 

 

6,822

 

 

 

 

285

 

 

6,846

 

 

131

 

Total

 

 

69,042

 

 

26,857

 

 

22,896

 

 

4,702

 

 

14,456

 

 

131

 

Leasing Commissions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring

 

 

21,688

 

 

15,015

 

 

5,130

 

 

1,003

 

 

540

 

 

 

Non-recurring

 

 

8,423

 

 

5,909

 

 

 

 

112

 

 

2,221

 

 

181

 

Total

 

 

30,111

 

 

20,924

 

 

5,130

 

 

1,115

 

 

2,761

 

 

181

 

Tenant improvements and leasing commissions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per square foot

 

$

22.60

 

$

46.81

 

$

16.27

 

$

9.95

 

$

19.57

 

$

 

Per square foot per annum

 

$

2.92

 

$

5.09

 

$

2.14

 

$

1.31

 

$

3.03

 

$

 

Percentage of initial rent

 

 

6.8%

 

 

7.1%

 

 

5.6%

 

 

4.1%

 

 

11.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Capital Expenditures and Leasing
Commissions (accrual basis)

 

$

143,091

 

$

65,929

 

$

37,088

 

$

7,334

 

$

25,919

 

$

6,821

 

Adjustments to reconcile accrual
basis to cash basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenditures in the current year
applicable to prior periods

 

 

98,319

 

 

53,997

 

 

14,430

 

 

6,440

 

 

20,306

 

 

3,146

 

Expenditures to be made in future
periods for the current period

 

 

(60,484

)

 

(29,135

)

 

(20,127

)

 

(5,817

)

 

(5,274

)

 

(131

)

Total Capital Expenditures and
Leasing Commissions (Cash basis)

 

$

180,926

 

$

90,791

 

$

31,391

 

$

7,957

 

$

40,951

 

$

9,836

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Development and Redevelopment
Expenditures:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bergen Town Center

 

$

93,685

 

$

 

$

 

$

93,685

 

$

 

$

 

Wasserman Venture

 

 

51,405

 

 

 

 

 

 

 

 

 

 

51,405

 

1999 K Street (sold in September 2009)

 

 

32,837

 

 

 

 

32,837

 

 

 

 

 

 

 

40 East 66th Street

 

 

28,634

 

 

 

 

 

 

 

 

 

 

28,634

 

220 Central Park South

 

 

26,538

 

 

 

 

 

 

 

 

 

 

26,538

 

220 20th Street

 

 

25,627

 

 

 

 

25,627

 

 

 

 

 

 

 

Manhattan Mall

 

 

22,493

 

 

 

 

 

 

22,493

 

 

 

 

 

West End 25

 

 

16,852

 

 

 

 

16,852

 

 

 

 

 

 

 

2101 L Street

 

 

11,987

 

 

 

 

11,987

 

 

 

 

 

 

 

Springfield Mall

 

 

9,749

 

 

 

 

 

 

9,749

 

 

 

 

 

North Bergen, New Jersey

 

 

7,267

 

 

 

 

 

 

7,267

 

 

 

 

 

Green Acres Mall

 

 

3,632

 

 

 

 

 

 

3,632

 

 

 

 

 

Other

 

 

83,241

 

 

19,045

 

 

15,861

 

 

33,365

 

 

5,023

 

 

9,947

 

 

 

$

413,947

 

$

19,045

 

$

103,164

 

$

170,191

 

$

5,023

 

$

116,524

 

 

69

 


LIQUIDITY AND CAPITAL RESOURCES - continued

 

Insurance

 

We carry commercial liability and all risk property insurance ((i) fire, (ii) flood, (iii) extended coverage, (iv) “acts of terrorism” as defined in the Terrorism Risk Insurance Program Reauthorization Act of 2007 (“TRIPRA”), which expires in December 2014, and (v) rental loss insurance) with respect to our assets. Our New York Office, Washington, DC Office, Retail and Merchandise Mart divisions have $2.0 billion of per occurrence all risk property insurance coverage in effect through February 15, 2011. Our California properties have earthquake insurance with coverage of $150,000,000 per occurrence, subject to a deductible in the amount of 5% of the value of the affected property, and a $150,000,000 annual aggregate.

 

Penn Plaza Insurance Company, LLC (“PPIC”), our wholly owned subsidiary, acts as a re-insurer with respect to a portion of our earthquake insurance coverage and as a direct insurer for coverage for acts of terrorism, including nuclear, biological, chemical and radiological (“NBCR”) acts, as defined by TRIPRA. Coverage for acts of terrorism is fully reinsured by third party insurance companies and the Federal government with no exposure to PPIC. Our coverage for NBCR losses is up to $2 billion, per occurrence, for which PPIC is responsible for a deductible of $3,200,000 and 15% of the balance of a covered loss and the Federal government is responsible for the remaining 85% of a covered loss. We are ultimately responsible for any loss borne by PPIC.

 

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

 

Our debt instruments, consisting of mortgage loans secured by our properties (which are generally non-recourse to us), senior unsecured notes, exchangeable senior debentures, convertible senior debentures and revolving credit agreements contain customary covenants requiring us to maintain insurance. Although we believe that we have adequate insurance coverage 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 and/or refinance our properties and expand our portfolio.

 

Other Contractual Obligations

 

At September 30, 2009, there were $39,282,000 of outstanding letters of credit under our $965,000,000 revolving credit facility. Our credit facilities and our senior unsecured notes contain financial covenants that require us to maintain minimum interest coverage and maximum debt to market capitalization ratios, and provide for higher interest rates in the event of a decline in our ratings below Baa3/BBB. Our credit facilities and our senior unsecured notes 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 items such as the failure to pay interest or principal.

 

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

 

We are committed to fund additional capital to certain of our partially owned entities aggregating approximately $201,550,000. Of this amount, $80,923,000 is committed to the India Property Fund and is pledged as collateral to its lender.

 

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

 

70

 


FUNDS FROM OPERATIONS (“FFO”)

 

FFO is computed in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines FFO as GAAP net income or loss adjusted to exclude net gains from sales of depreciated real estate assets and GAAP extraordinary items, and to include depreciation and amortization expense from real estate assets and other specified non-cash items, including the pro rata share of such adjustments of unconsolidated subsidiaries. FFO and FFO per diluted share are used by management, investors and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers because it excludes the effect of real estate depreciation and amortization and net gains on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions. FFO does not represent cash generated from operating activities and is not necessarily indicative of cash available to fund cash requirements and should not be considered as an alternative to net income as a performance measure or cash flows as a liquidity measure. FFO may not be comparable to similarly titled measures employed by other companies. The calculations of both the numerator and denominator used in the computation of income per share are disclosed in footnote 11 – Income Per Share, in the notes to our consolidated financial statements on page 24 of this Quarterly Report on Form 10-Q.

 

FFO for the Three and Nine Months Ended September 30, 2009 and 2008

 

FFO attributable to common shareholders plus assumed conversions was $234,246,000, or $1.25 per diluted share for the three months ended September 30, 2009, compared to $159,838,000, or $0.97 per diluted share in the prior year’s quarter. FFO attributable to common shareholders plus assumed conversions was $602,825,000 or $3.37 per diluted share for the nine months ended September 30, 2009, compared to $894,829,000, or $5.27 per diluted share for the prior year’s nine months. Details of certain items that affect comparability are discussed in the financial results summary of our “Overview.”

 

(Amounts in thousands except per share amounts)

 

For The Three
Months Ended September 30,

    

For The Nine
Months Ended September 30,

 

Reconciliation of our net income to FFO:

 

2009

 

2008

 

2009

 

2008

 

Net income attributable to Vornado

 

$

140,617

 

$

37,007

 

$

243,092

 

$

571,977

 

Depreciation and amortization of real property

 

 

122,760

 

 

127,975

 

 

375,549

 

 

380,062

 

Net gains on sale of real estate

 

 

(42,653

)

 

(112

)

 

(42,653

)

 

(57,523

)

Proportionate share of adjustments to equity in net income of
partially owned entities, excluding Toys, to arrive at FFO:

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization of real property

 

 

18,552

 

 

12,524

 

 

52,508

 

 

35,778

 

Net gains on sale of real estate

 

 

(512

)

 

(1,037

)

 

(1,185

)

 

(8,231

)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization of real property

 

 

17,685

 

 

17,892

 

 

49,831

 

 

50,902

 

Net gain on sale of real estate

 

 

(164

)

 

(164

)

 

(164

)

 

(164

)

Income tax effect of above adjustments

 

 

(6,133

)

 

(6,205

)

 

(17,384

)

 

(17,981

)

Noncontrolling interests’ share of above adjustments

 

 

(8,146

)

 

(13,816

)

 

(33,358

)

 

(36,232

)

FFO

 

 

242,006

 

 

174,064

 

 

626,236

 

 

918,588

 

Preferred share dividends

 

 

(14,269

)

 

(14,271

)

 

(42,807

)

 

(42,820

)

FFO attributable to common shareholders

 

 

227,737

 

 

159,793

 

 

583,429

 

 

875,768

 

Interest on 3.875% exchangeable senior debentures

 

 

6,466

 

 

 

 

19,268

 

 

18,916

 

Series A convertible preferred dividends

 

 

43

 

 

45

 

 

128

 

 

145

 

FFO attributable to common shareholders plus assumed conversions

 

$

234,246

 

$

159,838

 

$

602,825

 

$

894,829

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Weighted Average Shares:

 

 

179,422

 

 

159,761

 

 

171,620

 

 

159,405

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

3.875% exchangeable senior debentures

 

 

5,764

 

 

 

 

5,764

 

 

5,764

 

Employee stock options and restricted share awards

 

 

2,213

 

 

4,664

 

 

1,559

 

 

4,609

 

Series A convertible preferred shares

 

 

75

 

 

80

 

 

75

 

 

85

 

Denominator for FFO per diluted share

 

 

187,474

 

 

164,505

 

 

179,018

 

 

169,863

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFO attributable to common shareholders plus assumed conversions per diluted share

 

$

1.25

 

$

0.97

 

$

3.37

 

$

5.27

 

 

 

71

 


Item 3.

Quantitative and Qualitative Disclosures About Market Risk

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

 

(Amounts in thousands, except per share amounts)

As at September 30, 2009

 

As at December 31, 2008

Consolidated debt:

Balance

 

Weighted
Average
Interest Rate

 

Effect of 1%
Change In
Base Rates

 


Balance

 

Weighted
Average
Interest Rate

Variable rate

$

2,486,814

 

1.64%

 

$

24,868

 

$

2,002,381

 

2.71%

Fixed rate

 

10,241,198

 

5.89%

 

 

 

 

10,435,542

 

5.76%

 

$

12,728,012

 

5.06%

 

 

24,868

 

$

12,437,923

 

5.27%

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

 

 

 

 

 

 

 

 

 

 

 

 

Variable rate – excluding Toys

$

326,053

 

2.57%

 

 

3,260

 

$

282,752

 

3.63%

Variable rate – Toys

 

712,947

 

3.31%

 

 

7,129

 

 

819,512

 

3.68%

Fixed rate (including $1,072,461 and
$1,012,560 of Toys’ debt in 2009 and 2008)

 

1,973,310

 

7.17%

 

 

 

 

2,094,321

 

6.51%

 

$

3,012,310

 

5.76%

 

 

10,389

 

$

3,196,585

 

5.53%

                         

Redeemable noncontrolling interests’ share of above

 

 

 

 

 

 

(2,997

)

 

 

 

 

Total change in annual net income

 

 

 

 

 

$

32,260

 

 

 

 

 

Per share-diluted

 

 

 

 

 

$

0.19

 

 

 

 

 

 

We may utilize various financial instruments to mitigate the impact of interest rate fluctuations on our cash flows and earnings, including hedging strategies, depending on our analysis of the interest rate environment and the costs and risks of such strategies. As of September 30, 2009, variable rate debt with an aggregate principal amount of $514,000,000 and a weighted average interest rate of 2.50% was subject to LIBOR caps. These caps are based on a notional amount of $514,000,000 and cap LIBOR at a weighted average rate of 5.39%. As of September 30, 2009, we have investments in mezzanine loans with an aggregate carrying amount of $269,976,000 that are based on variable interest rates that partially mitigate our exposure to a change in interest rates on our variable rate debt.

 

Fair Value of Debt

 

As of September 30, 2009, the carrying amount of our debt exceeds its aggregate fair value by approximately $476,826,000, based on discounted cash flows at the current rate at which similar loans would be made to borrowers with similar credit ratings for the remaining term of such debt.

 

72

 


Item 4.

Controls and Procedures

Disclosure Controls and Procedures: The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2009, such disclosure controls and procedures were effective.

 

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

 

73

 


PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

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

 

On January 8, 2003, Stop & Shop filed a complaint with the United States District Court for the District of New Jersey (“USDC-NJ”) claiming that we had no right to reallocate and therefore continue to collect the $5,000,000 of annual rent from Stop & Shop pursuant to the Master Agreement and Guaranty, because of the expiration of the East Brunswick, Jersey City, Middletown, Union and Woodbridge leases to which the $5,000,000 of additional rent was previously allocated. Stop & Shop asserted that a prior order of the Bankruptcy Court for the Southern District of New York dated February 6, 2001, as modified on appeal to the District Court for the Southern District of New York on February 13, 2001, froze our right to reallocate which effectively terminated our right to collect the additional rent from Stop & Shop. On March 3, 2003, after we moved to dismiss for lack of jurisdiction, Stop & Shop voluntarily withdrew its complaint. On March 26, 2003, Stop & Shop filed a new complaint in New York Supreme Court, asserting substantially the same claims as in its USDC-NJ complaint. We removed the action to the United States District Court for the Southern District of New York. In January 2005 that court remanded the action to the New York Supreme Court. On February 14, 2005, we served an answer in which we asserted a counterclaim seeking a judgment for all the unpaid additional rent accruing through the date of the judgment and a declaration that Stop & Shop will continue to be liable for the additional rent as long as any of the leases subject to the Master Agreement and Guaranty remain in effect. On May 17, 2005, we filed a motion for summary judgment. On July 15, 2005, Stop & Shop opposed our motion and filed a cross-motion for summary judgment. On December 13, 2005, the Court issued its decision denying the motions for summary judgment. Both parties appealed the Court’s decision and on December 14, 2006, the Appellate Court division issued a decision affirming the Court’s decision. On January 16, 2007, we filed a motion for the reconsideration of one aspect of the Appellate Court’s decision which was denied on March 13, 2007. Discovery is now complete and we anticipate that a trial date will be set for some time in 2010. We intend to vigorously pursue our claims against Stop & Shop. In our opinion, after consultation with legal counsel, the outcome of such matters will not have a material effect on our financial condition, results of operations or cash flows.

 

On May 24, 2007, we acquired a 70% controlling interest in 1290 Avenue of the Americas and the 555 California Street complex. Our 70% interest was acquired through the purchase of all of the shares of a group of foreign companies that own, through U.S. entities, the 1% sole general partnership interest and a 69% limited partnership interest in the partnerships that own the two properties. The remaining 30% limited partnership interest is owned by Donald J. Trump. In August 2005, Mr. Trump brought a lawsuit in the New York State Supreme Court against, among others, the general partners of the partnerships referred to above.   Mr. Trump’s claims arose out of a dispute over the sale price of and use of proceeds from, the sale of properties located on the former Penn Central rail yards between West 59th and 72nd Streets in Manhattan which were formerly owned by the partnerships. In decisions dated September 14, 2005 and July 24, 2006, the Court denied several of Mr. Trump’s motions and ultimately dismissed all of Mr. Trump’s claims, except for his claim seeking access to books and records; that claim was dismissed by virtue of a decision dated October 1, 2007 and an Order dated January 28, 2009. Mr. Trump sought re-argument and renewal on, and filed a notice of appeal in connection with the 2006 decision.  In a decision dated January 6, 2009, the Court denied all of Mr. Trump’s motions. Mr. Trump filed an additional appeal of the 2006, 2007 and 2009 decisions. Mr. Trump’s appeals were denied on all grounds on June 30, 2009. Thereafter, Mr. Trump moved to reargue the appellate decisions but later withdrew the motion. On July 24, 2009 Mr. Trump moved for leave to appeal the June 30, 2009 decision to the New York Court of Appeals, which was denied on October 27, 2009. In connection with the acquisition, we agreed to indemnify the sellers for liabilities and expenses arising out of Mr. Trump’s claim that the general partners of the partnerships we acquired did not sell the rail yards at a fair price or could have sold the rail yards for a greater price and any other claims asserted in the legal action; provided however, that if Mr. Trump prevails on certain claims involving partnership matters, other than claims relating to sale price, the sellers will be required to reimburse us for certain costs related to those claims. We believe that the claims relating to the sale price are without merit. All other allegations are not asserted as a basis for damages and regardless of merit, in our opinion, after consultation with legal counsel, will not have a material effect on our financial condition, results of operations or cash flows.

 

In July 2005, we acquired H Street Building Corporation (“H Street”) which has a subsidiary that owns, among other things, a 50% tenancy in common interest in land located in Arlington County, Virginia, known as "Pentagon Row," leased to two tenants. In April 2007, H Street acquired the remaining 50% interest in that fee. In April 2007, we received letters from those tenants, Street Retail, Inc. and Post Apartment Homes, L.P., claiming they had a right of first offer triggered by each of those transactions. On September 25, 2008, both tenants filed suit against us and the former owners. The claim alleges the right to purchase the fee interest, damages in excess of $75,000,000 and punitive damages. We believe this claim is without merit and regardless of merit, in our opinion, after consultation with legal counsel, will not have a material effect on our financial condition, results of operations or cash flows.

 

74

 


Item 1A. Risk Factors

There were no material changes to the Risk Factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2008.

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None.

 

 

Item 3.

Defaults Upon Senior Securities

None.

 

 

Item 4.

Submission of Matters to a Vote of Security Holders

None.

 

 

Item 5.

Other Information

None.

 

 

Item 6.

Exhibits

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

 

 

 

75

 


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

VORNADO REALTY TRUST

 

 

(Registrant)

 

 

 

 

 

 

 

 

 

 

 

 

Date: November 3, 2009

By:

/s/ Joseph Macnow

 

 

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

 

76

 


EXHIBIT INDEX

Exhibit No.

 

 

 

 

3.1

 

-

Articles of Restatement of Vornado Realty Trust, as filed with the State Department of Assessments and Taxation of Maryland on July 30, 2007 - Incorporated by reference to Exhibit 3.75 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 (File No. 001-11954), filed on July 31, 2007

*

 

 

 

 

 

3.2

 

-

Amended and Restated Bylaws of Vornado Realty Trust, as amended on March 2, 2000 - Incorporated by reference to Exhibit 3.12 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 001-11954), filed on March 9, 2000

*

 

 

 

 

 

3.3

 

-

Second Amended and Restated Agreement of Limited Partnership of Vornado Realty L.P., dated as of October 20, 1997 (the “Partnership Agreement”) – Incorporated by reference to Exhibit 3.26 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 (File No. 001-11954), filed on May 8, 2003

*

 

 

 

 

 

3.4

 

-

Amendment to the Partnership Agreement, dated as of December 16, 1997 – Incorporated by reference to Exhibit 3.27 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 (File No. 001-11954), filed on May 8, 2003

*

 

 

 

 

 

3.5

 

-

Second Amendment to the Partnership Agreement, dated as of April 1, 1998 – Incorporated by reference to Exhibit 3.5 to Vornado Realty Trust’s Registration Statement on Form S-3 (File No. 333-50095), filed on April 14, 1998

*

 

 

 

 

 

3.6

 

-

Third Amendment to the Partnership Agreement, dated as of November 12, 1998 - Incorporated by reference to Exhibit 3.2 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on November 30, 1998

*

 

 

 

 

 

3.7

 

-

Fourth Amendment to the Partnership Agreement, dated as of November 30, 1998 - Incorporated by reference to Exhibit 3.1 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on February 9, 1999

*

 

 

 

 

 

3.8

 

-

Fifth Amendment to the Partnership Agreement, dated as of March 3, 1999 - Incorporated by reference to Exhibit 3.1 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on March 17, 1999

*

 

 

 

 

 

3.9

 

-

Sixth Amendment to the Partnership Agreement, dated as of March 17, 1999 - Incorporated by reference to Exhibit 3.2 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on July 7, 1999

*

 

 

 

 

 

3.10

 

-

Seventh Amendment to the Partnership Agreement, dated as of May 20, 1999 - Incorporated by reference to Exhibit 3.3 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on July 7, 1999

*

 

 

 

 

 

3.11

 

-

Eighth Amendment to the Partnership Agreement, dated as of May 27, 1999 - Incorporated by reference to Exhibit 3.4 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on July 7, 1999

*

 

 

 

 

 

3.12

 

-

Ninth Amendment to the Partnership Agreement, dated as of September 3, 1999 - Incorporated by reference to Exhibit 3.3 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on October 25, 1999

*

 

 

 

 

 

3.13

 

-

Tenth Amendment to the Partnership Agreement, dated as of September 3, 1999 - Incorporated by reference to Exhibit 3.4 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on October 25, 1999

*

 

 

 

 

 

 


*

 

_______________________
Incorporated by reference.

 

 

77

 


 

3.14

 

-

Eleventh Amendment to the Partnership Agreement, dated as of November 24, 1999 - Incorporated by reference to Exhibit 3.2 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on December 23, 1999

*

 

 

 

 

 

3.15

 

-

Twelfth Amendment to the Partnership Agreement, dated as of May 1, 2000 - Incorporated by reference to Exhibit 3.2 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on May 19, 2000

*

 

 

 

 

 

3.16

 

-

Thirteenth Amendment to the Partnership Agreement, dated as of May 25, 2000 - Incorporated by reference to Exhibit 3.2 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on June 16, 2000

*

 

 

 

 

 

3.17

 

-

Fourteenth Amendment to the Partnership Agreement, dated as of December 8, 2000 - Incorporated by reference to Exhibit 3.2 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on December 28, 2000

*

 

 

 

 

 

3.18

 

-

Fifteenth Amendment to the Partnership Agreement, dated as of December 15, 2000 - Incorporated by reference to Exhibit 4.35 to Vornado Realty Trust’s Registration Statement on Form S-8 (File No. 333-68462), filed on August 27, 2001

*

 

 

 

 

 

3.19

 

-

Sixteenth Amendment to the Partnership Agreement, dated as of July 25, 2001 - Incorporated by reference to Exhibit 3.3 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on October 12, 2001

*

 

 

 

 

 

3.20

 

-

Seventeenth Amendment to the Partnership Agreement, dated as of September 21, 2001 - Incorporated by reference to Exhibit 3.4 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on October 12, 2001

*

 

 

 

 

 

3.21

 

-

Eighteenth Amendment to the Partnership Agreement, dated as of January 1, 2002 - Incorporated by reference to Exhibit 3.1 to Vornado Realty Trust’s Current Report on Form 8-K/A (File No. 001-11954), filed on March 18, 2002

*

 

 

 

 

 

3.22

 

-

Nineteenth Amendment to the Partnership Agreement, dated as of July 1, 2002 - Incorporated by reference to Exhibit 3.47 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 (File No. 001-11954), filed on August 7, 2002

*

 

 

 

 

 

3.23

 

-

Twentieth Amendment to the Partnership Agreement, dated April 9, 2003 - Incorporated by reference to Exhibit 3.46 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 (File No. 001-11954), filed on May 8, 2003

*

 

 

 

 

 

3.24

 

-

Twenty-First Amendment to the Partnership Agreement, dated as of July 31, 2003 - Incorporated by reference to Exhibit 3.47 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 (File No. 001-11954), filed on November 7, 2003

*

 

 

 

 

 

3.25

 

-

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

*

 

 

 

 

 

3.26

 

-

Twenty-Third Amendment to the Partnership Agreement, dated May 27, 2004 – Incorporated by reference to Exhibit 99.2 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on June 14, 2004

*

 

 

 

 

 

3.27

 

-

Twenty-Fourth Amendment to the Partnership Agreement, dated August 17, 2004 – Incorporated by reference to Exhibit 3.57 to Vornado Realty Trust and Vornado Realty L.P.’s Registration Statement on Form S-3 (File No. 333-122306), filed on January 26, 2005

*

 

 

 

 

 

 


*

 

_______________________
Incorporated by reference.

 

 

78

 


 

3.28

 

-

Twenty-Fifth Amendment to the Partnership Agreement, dated November 17, 2004 – Incorporated by reference to Exhibit 3.58 to Vornado Realty Trust and Vornado Realty L.P.’s Registration Statement on Form S-3 (File No. 333-122306), filed on January 26, 2005

*

 

 

 

 

 

3.29

 

-

Twenty-Sixth Amendment to the Partnership Agreement, dated December 17, 2004 – Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on December 21, 2004

*

 

 

 

 

 

3.30

 

-

Twenty-Seventh Amendment to the Partnership Agreement, dated December 20, 2004 – Incorporated by reference to Exhibit 3.2 to Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on December 21, 2004

*

 

 

 

 

 

3.31

 

-

Twenty-Eighth Amendment to the Partnership Agreement, dated December 30, 2004 - Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on January 4, 2005

*

 

 

 

 

 

3.32

 

-

Twenty-Ninth Amendment to the Partnership Agreement, dated June 17, 2005 - Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on June 21, 2005

*

 

 

 

 

 

3.33

 

-

Thirtieth Amendment to the Partnership Agreement, dated August 31, 2005 - Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on September 1, 2005

*

 

 

 

 

 

3.34

 

-

Thirty-First Amendment to the Partnership Agreement, dated September 9, 2005 - Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on September 14, 2005

*

 

 

 

 

 

3.35

 

-

Thirty-Second Amendment and Restated Agreement of Limited Partnership, dated as of December 19, 2005 – Incorporated by reference to Exhibit 3.59 to Vornado Realty L.P.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 (File No. 000-22685), filed on May 8, 2006

*

 

 

 

 

 

3.36

 

-

Thirty-Third Amendment to Second Amended and Restated Agreement of Limited Partnership, dated as of April 25, 2006 – Incorporated by reference to Exhibit 10.2 to Vornado Realty Trust’s Form 8-K (File No. 001-11954), filed on May 1, 2006

*

 

 

 

 

 

3.37

 

-

Thirty-Fourth Amendment to Second Amended and Restated Agreement of Limited Partnership, dated as of May 2, 2006 – Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on May 3, 2006

*

 

 

 

 

 

3.38

 

-

Thirty-Fifth Amendment to Second Amended and Restated Agreement of Limited Partnership, dated as of August 17, 2006 – Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.’s Form 8-K (File No. 000-22685), filed on August 23, 2006

*

 

 

 

 

 

3.39

 

-

Thirty-Sixth Amendment to Second Amended and Restated Agreement of Limited Partnership, dated as of October 2, 2006 – Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.’s Form 8-K (File No. 000-22685), filed on January 22, 2007

*

 

 

 

 

 

3.40

 

-

Thirty-Seventh Amendment to Second Amended and Restated Agreement of Limited Partnership, dated as of June 28, 2007 – Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on June 27, 2007

*

 

 

 

 

 

 


*

 

_______________________
Incorporated by reference.

 

 

79

 


 

3.41

 

-

Thirty-Eighth Amendment to Second Amended and Restated Agreement of Limited Partnership, dated as of June 28, 2007 – Incorporated by reference to Exhibit 3.2 to Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on June 27, 2007

*

 

 

 

 

 

3.42

 

-

Thirty-Ninth Amendment to Second Amended and Restated Agreement of Limited Partnership, dated as of June 28, 2007 – Incorporated by reference to Exhibit 3.3 to Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on June 27, 2007

*

 

 

 

 

 

3.43

 

-

Fortieth Amendment to Second Amended and Restated Agreement of Limited Partnership, dated as of June 28, 2007 – Incorporated by reference to Exhibit 3.4 to Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on June 27, 2007

*

 

 

 

 

 

3.44

 

-

Forty-First Amendment to Second Amended and Restated Agreement of Limited Partnership, dated as of March 31, 2008 – Incorporated by reference to Exhibit 3.44 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 (file No. 001-11954), filed on May 6, 2008

*

 

 

 

 

 

4.1

 

-

Indenture and Servicing Agreement, dated as of March 1, 2000, among Vornado Finance LLC, LaSalle Bank National Association, ABN Amro Bank N.V. and Midland Loan Services, Inc. - Incorporated by reference to Exhibit 10.48 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 001-11954), filed on March 9, 2000

*

 

 

 

 

 

4.2

 

-

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

*

 

 

 

 

 

4.3

 

-

Indenture, dated as of November 25, 2003, between Vornado Realty L.P. and The Bank of New York, as Trustee - Incorporated by reference to Exhibit 4.10 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 (File No. 001-11954), filed on April 28, 2005

*

 

 

 

 

 

4.4

 

-

Indenture, dated as of November 20, 2006, among Vornado Realty Trust, as Issuer, Vornado Realty L.P., as Guarantor and The Bank of New York, as Trustee – Incorporated by reference to Exhibit 4.1 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on November 27, 2006

*

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

10.1

**

-

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

*

 

 

 

 

 

10.2

**

-

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

*

 

 

 

 

 

10.3

 

-

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

*

 

 

 

 

 

10.4

 

-

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

*

 


* **

 

_______________________
Incorporated by reference.
Management contract or compensatory agreement.

 

 

 

80

 


 

 

 

 

 

10.5

 

-

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

*

 

 

 

 

 

10.6

 

-

Management Agreement between Interstate Properties and Vornado, Inc. dated July 13, 1992 - Incorporated by reference to Vornado, Inc.’s Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 001-11954), filed February 16, 1993

*

 

 

 

 

 

10.7

**

-

Employment Agreement, dated as of April 15, 1997, by and among Vornado Realty Trust, The Mendik Company, L.P. and David R. Greenbaum - Incorporated by reference to Exhibit 10.4 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on April 30, 1997

*

 

 

 

 

 

10.8

 

-

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

*

 

 

 

 

 

10.9

**

-

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

*

 

 

 

 

 

10.10

**

-

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

*

 

 

 

 

 

10.11

 

-

Agreement and Plan of Merger, dated as of October 18, 2001, by and among Vornado Realty Trust, Vornado Merger Sub L.P., Charles E. Smith Commercial Realty L.P., Charles E. Smith Commercial Realty L.L.C., Robert H. Smith, individually, Robert P. Kogod, individually, and Charles E. Smith Management, Inc. - Incorporated by reference to Exhibit 2.1 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on January 16, 2002

*

 

 

 

 

 

10.12

 

-

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

*

 

 

 

 

 

10.13

 

-

Tax Reporting and Protection Agreement, dated December 31, 2001, by and among Vornado, Vornado Realty L.P., Charles E. Smith Commercial Realty L.P. and Charles E. Smith Commercial Realty L.L.C. - Incorporated by reference to Exhibit 10.3 to Vornado Realty Trust’s Current Report on Form 8-K/A (File No. 1-11954), filed on March 18, 2002

*

 

 

 

 

 

10.14

**

-

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

*

 

 

 

 

 

10.15

**

-

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

*

 

 

 

 

 

 


* **

 

_______________________
Incorporated by reference.
Management contract or compensatory agreement.

 

 

81

 


 

10.16

 

-

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

*

 

 

 

 

 

10.17

 

-

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

*

 

 

 

 

 

10.18

 

-

Amendment to Real Estate Retention Agreement, dated as of July 3, 2002, by and between Alexander’s, Inc. and Vornado Realty L.P. - Incorporated by reference to Exhibit 10(i)(E)(3) to Alexander’s Inc.’s Quarterly Report for the quarter ended June 30, 2002 (File No. 001-06064), filed on August 7, 2002

*

 

 

 

 

 

10.19

 

-

59th Street Real Estate Retention Agreement, dated as of July 3, 2002, by and between Vornado Realty L.P., 731 Residential LLC and 731 Commercial LLC - Incorporated by reference to Exhibit 10(i)(E)(4) to Alexander’s Inc.’s Quarterly Report for the quarter ended June 30, 2002 (File No. 001-06064), filed on August 7, 2002

*

 

 

 

 

 

10.20

 

-

Amended and Restated Management and Development Agreement, dated as of July 3, 2002, by and between Alexander’s, Inc., the subsidiaries party thereto and Vornado Management Corp. - Incorporated by reference to Exhibit 10(i)(F)(1) to Alexander’s Inc.’s Quarterly Report for the quarter ended June 30, 2002 (File No. 001-06064), filed on August 7, 2002

*

 

 

 

 

 

10.21

 

-

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

*

 

 

 

 

 

10.22

 

-

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

*

 

 

 

 

 

10.23

**

-

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

*

 

 

 

 

 

10.24

 

-

Registration Rights Agreement by and between Vornado Realty Trust and Bel Holdings LLC dated as of November 17, 2003 – Incorporated by reference to Exhibit 10.68 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2003 (File No. 001-11954), filed on March 3, 2004

*

 

 

 

 

 

10.25

 

-

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

*

 

 

 

 

 

10.26

 

-

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

*

 

 

 

 

 

 


* **

 

_______________________
Incorporated by reference.
Management contract or compensatory agreement.

 

 

82

 


 

10.27

**

-

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

*

 

 

 

 

 

10.28

**

-

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

*

 

 

 

 

 

10.29

**

-

Employment Agreement between Vornado Realty Trust and Sandeep Mathrani, dated February 22, 2005 and effective as of January 1, 2005 – Incorporated by reference to Exhibit 10.76 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005 (File No. 001-11954), filed on April 28, 2005

*

 

 

 

 

 

10.30

 

-

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

*

 

 

 

 

 

10.31

**

-

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

*

 

 

 

 

 

10.32

**

-

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

*

 

 

 

 

 

10.33

**

-

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

*

 

 

 

 

 

10.34

 

-

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

*

 

 

 

 

 

10.35

**

-

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

*

 

 

 

 

 

10.36

**

-

Amended and Restated Employment Agreement between Vornado Realty Trust and Joseph Macnow dated July 27, 2006 – Incorporated by reference to Exhibit 10.54 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 (File No. 001-11954), filed on August 1, 2006

*

 

 

 

 

 

10.37

 

-

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

*

 

 

 

 

 

10.38

**

-

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

*

 


* **

 

_______________________
Incorporated by reference.
Management contract or compensatory agreement.

 

 

83

 


 

10.39

**

-

Amendment to Real Estate Retention Agreement, dated January 1, 2007, by and between Vornado Realty L.P. and Alexander’s Inc. – Incorporated by reference to Exhibit 10.55 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2006 (File No. 001-11954), filed on February 27, 2007

*

 

 

 

 

 

10.40

**

-

Amendment to 59th Street Real Estate Retention Agreement, dated January 1, 2007, by and among Vornado Realty L.P., 731 Retail One LLC, 731 Restaurant LLC, 731 Office One LLC and 731 Office Two LLC. – Incorporated by reference to Exhibit 10.56 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2006 (File No. 001-11954), filed on February 27, 2007

*

 

 

 

 

 

10.41

 

-

Stock Purchase Agreement between the Sellers identified and Vornado America LLC, as the Buyer, dated as of March 5, 2007 – Incorporated by reference to Exhibit 10.45 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007 (File No. 001-11954), filed on May 1, 2007

*

 

 

 

 

 

10.42

**

-

Employment Agreement between Vornado Realty Trust and Mitchell Schear, as of April 19, 2007 – Incorporated by reference to Exhibit 10.46 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007 (File No. 001-11954), filed on May 1, 2007

*

 

 

 

 

 

10.43

 

-

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

*

 

 

 

 

 

10.44

 

-

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

*

 

 

 

 

 

10.45

**

-

Form of Vornado Realty Trust 2002 Omnibus Share Plan Non-Employee Trustee Restricted LTIP Unit Agreement – Incorporated by reference to Exhibit 10.45 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2007 (File No. 001-11954) filed on February 26, 2008

*

 

 

 

 

 

10.46

**

-

Form of Vornado Realty Trust 2008 Out-Performance Plan Award Agreement – Incorporated by reference to Exhibit 10.46 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 (File No. 001-11954) filed on May 6, 2008

*

 

 

 

 

 

10.47

**

-

Amendment to Employment Agreement between Vornado Realty Trust and Michael D. Fascitelli, dated December 29, 2008. Incorporated by reference to Exhibit 10.47 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 001-11954) filed on February 24, 2009

*

 

 

 

 

 

10.48

**

-

Amendment to Employment Agreement between Vornado Realty Trust and Joseph Macnow, dated December 29, 2008. Incorporated by reference to Exhibit 10.48 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 001-11954) filed on February 24, 2009

*

 


* **

 

_______________________
Incorporated by reference.
Management contract or compensatory agreement.

 

 

84

 


 

 

 

 

 

 

 

10.49

**

-

Amendment to Employment Agreement between Vornado Realty Trust and David R. Greenbaum, dated December 29, 2008. Incorporated by reference to Exhibit 10.49 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 001-11954) filed on February 24, 2009

*

 

 

 

 

 

10.50

**

-

Amendment to Indemnification Agreement between Vornado Realty Trust and David R. Greenbaum, dated December 29, 2008. Incorporated by reference to Exhibit 10.50 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 001-11954) filed on February 24, 2009

*

 

 

 

 

 

10.51

**

-

Amendment to Employment Agreement between Vornado Realty Trust and Mitchell N. Schear, dated December 29, 2008. Incorporated by reference to Exhibit 10.51 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 001-11954) filed on February 24, 2009

*

 

 

 

 

 

10.52

**

-

Amendment to Employment Agreement between Vornado Realty Trust and Sandeep Mathrani, dated December 29, 2008. Incorporated by reference to Exhibit 10.52 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 001-11954) filed on February 24, 2009

*

 

 

 

 

 

10.53

**

-

Amendment to Employment Agreement between Vornado Realty Trust and Christopher G. Kennedy, dated December 29, 2008. Incorporated by reference to Exhibit 10.53 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 001-11954) filed on February 24, 2009

*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15.1

 

-

Letter regarding Unaudited Interim Financial Information

 

 

 

 

 

 

31.1

 

-

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

 

 

 

 

 

 

31.2

 

-

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

 

 

 

 

 

 

32.1

 

-

Section 1350 Certification of the Chief Executive Officer

 

 

 

 

 

 

32.2

 

-

Section 1350 Certification of the Chief Financial Officer

 

 


* **

 

_______________________
Incorporated by reference.
Management contract or compensatory agreement.