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, 2008
Or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
For the transition period from:
to
Commission File Number:
001-11954
VORNADO REALTY TRUST
(Exact name of registrant as specified in its charter)
Maryland
22-1657560
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
888 Seventh Avenue, New York, New York
10019
(Address of principal executive offices)
(Zip Code)
(212) 894-7000
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, 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, 2008, 154,354,021 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, 2008 and December 31, 2007
3
Consolidated Statements of Income (Unaudited) for the Three and Nine Months Ended September 30, 2008 and 2007
4
Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2008 and 2007
5
Notes to Consolidated Financial Statements (Unaudited)
7
Report of Independent Registered Public Accounting Firm
33
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
34
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
69
Item 4.
Controls and Procedures
70
PART II.
Other Information:
Legal Proceedings
71
Item 1A.
Risk Factors
72
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Submission of Matters to a Vote of Security Holders
Item 5.
Other Information
Item 6.
Exhibits
Signatures
73
Exhibit Index
74
2
Part 1. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Amounts in thousands, except share and per share amounts)
ASSETS
December 31, 2007
Real estate, at cost:
Land
$
4,417,272
4,576,479
Buildings and improvements
11,869,677
11,523,977
Development costs and construction in progress
1,048,500
821,991
Leasehold improvements
114,521
106,060
Total
17,449,970
17,028,507
Less accumulated depreciation and amortization
(2,063,168
)
(1,802,055
Real estate, net
15,386,802
15,226,452
Cash and cash equivalents
1,529,012
1,154,595
Escrow deposits and restricted cash
390,353
378,732
Marketable securities
249,102
322,992
Accounts receivable, net of allowance for doubtful accounts of $27,581 and $19,151
263,375
168,183
Investments in partially owned entities, including Alexander’s of $130,887 and $122,797
1,059,497
1,206,742
Investment in Toys “R” Us
334,444
298,089
Mezzanine loans receivable, net of allowance of $46,700 and $57,000
468,531
492,339
Receivable arising from the straight-lining of rents, net of allowance of $3,780 and $3,076
571,770
513,137
Deferred leasing and financing costs, net of accumulated amortization of $158,541 and $123,624
300,964
273,958
Assets related to discontinued operations
110,370
1,632,318
Due from officers
13,185
13,228
Other assets
766,735
798,170
21,444,140
22,478,935
LIABILITIES AND SHAREHOLDERS’ EQUITY
Notes and mortgages payable
8,669,651
7,938,457
Convertible senior debentures
2,367,650
2,360,412
Senior unsecured notes
649,188
698,656
Exchangeable senior debentures
494,090
492,857
Revolving credit facility debt
10,218
405,656
Accounts payable and accrued expenses
599,005
480,123
Deferred credit
760,913
848,852
Deferred compensation plan
80,302
67,714
Deferred tax liabilities
19,829
241,895
Other liabilities
139,707
118,983
Liabilities related to discontinued operations
750
1,332,630
Total liabilities
13,791,303
14,986,235
Minority interest, including unitholders in the Operating Partnership
1,370,255
1,374,301
Commitments and contingencies
Shareholders’ equity:
Preferred shares of beneficial interest: no par value per share; authorized 110,000,000 shares; issued and outstanding 33,954,124 and 33,980,362 shares
823,782
825,095
Common shares of beneficial interest: $0.04 par value per share; authorized, 250,000,000 shares; issued and outstanding 154,354,021 and 153,076,606 shares
6,234
6,140
Additional capital
5,403,850
5,339,570
Earnings in excess of (less than) distributions
57,391
(82,178
Accumulated other comprehensive (loss) income
(8,675
29,772
Total shareholders’ equity
6,282,582
6,118,399
See notes to consolidated financial statements (unaudited).
CONSOLIDATED STATEMENTS OF INCOME
For The Three Months Ended September 30,
For The Nine Months Ended September 30,
(Amounts in thousands, except per share amounts)
2008
2007
REVENUES:
Property rentals
548,475
519,780
1,640,764
1,432,519
Tenant expense reimbursements
97,912
89,293
269,970
238,983
Fee and other income
30,758
28,005
90,058
81,848
Total revenues
677,145
637,078
2,000,792
1,753,350
EXPENSES:
Operating
276,302
259,000
793,911
697,961
Depreciation and amortization
136,705
118,994
398,263
317,915
General and administrative
49,495
47,888
149,165
138,091
Costs of acquisitions and development not consummated
5,000
—
8,009
8,807
Total expenses
467,502
425,882
1,349,348
1,162,774
Operating income
209,643
211,196
651,444
590,576
(Loss) income applicable to Alexander’s
(6,876
12,111
16,404
35,114
(Loss) income applicable to Toys “R” Us
(8,141
(20,289
41,510
18,343
(Loss) income from partially owned entities
(3,099
13,561
(29,167
30,451
Interest and other investment income, net
9,638
56,581
47,535
229,774
Interest and debt expense (including amortization of deferred financing costs of $4,257 and $3,537 in each three-month period, respectively, and $13,181 and $11,051 in each nine-month period, respectively)
(148,039
(149,722
(446,534
(420,713
Net gains on disposition of wholly owned and partially owned assets other than depreciable real estate
5,160
1,012
8,546
17,699
Minority interest of partially owned entities
466
(282
2,709
1,414
Income before income taxes
58,752
124,168
292,447
502,658
Income tax (expense) benefit
(5,244
(2,806
207,170
(5,403
Income from continuing operations
53,508
121,362
499,617
497,255
Income from discontinued operations, net of minority interest
102
24,538
154,442
25,162
Income before allocation to minority limited partners
53,610
145,900
654,059
522,417
Minority limited partners’ interest in the Operating Partnership
(3,091
(10,241
(42,046
(44,270
Perpetual preferred unit distributions of the Operating Partnership
(4,818
(14,455
Net income
45,701
130,841
597,558
463,692
Preferred share dividends
(14,271
(14,295
(42,820
(42,886
NET INCOME applicable to common shares
31,430
116,546
554,738
420,806
INCOME PER COMMON SHARE – BASIC:
0.20
0.61
2.60
2.61
Income from discontinued operations
0.16
1.01
Net income per common share
0.77
3.61
2.77
INCOME PER COMMON SHARE – DILUTED:
0.58
2.54
2.49
0.94
0.74
3.48
2.65
DIVIDENDS PER COMMON SHARE
0.90
0.85
2.70
2.55
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Cash Flows from Operating Activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization (including amortization of debt issuance costs)
437,567
392,578
Write-off of deferred tax liability
(222,174
Net gain on sale of Americold
(112,690
Equity in income of partially owned entities, including Alexander’s and Toys
(70,490
(85,056
Net gains on sale of real estate
(57,523
(27,745
58,136
47,010
Amortization of below market leases, net
(73,655
(58,810
Straight-lining of rental income
(63,184
(58,492
Write-off of pre-development costs
34,200
Net losses (gains) from derivative positions
25,812
(100,060
Distributions of income from partially owned entities
12,021
18,047
Other non-cash adjustments
36,387
14,311
14,455
Marketable equity securities – impairment losses
20,881
(6,284
(11,819
Net gains on dispositions of wholly owned and partially owned assets other than depreciable real estate
(8,546
(17,699
Write-off for costs of acquisitions and development not consummated
Loss on early extinguishment of debt and write-off of unamortized financing costs
7,670
Changes in operating assets and liabilities:
Accounts receivable, net
(8,825
(17,899
(73,529
(75,330
88,973
(20,242
10,510
(6,325
Net cash provided by operating activities
647,609
487,093
Cash Flows from Investing Activities:
Proceeds from sales of real estate and real estate related investments
352,511
217,941
(413,947
(231,575
Distributions of capital from partially owned entities
182,090
13,315
Investments in partially owned entities
(115,250
(201,432
Additions to real estate
(158,434
(108,935
Proceeds received from repayment of mezzanine loans receivable
52,032
126,629
Acquisitions of real estate and other
(36,566
(2,775,982
Deposits in connection with real estate acquisitions, including pre-acquisition costs
(10,616
(21,231
Proceeds from sales of, and return of investment in, marketable securities
47,723
57,341
Investments in mezzanine loans receivable
(7,397
(211,942
Cash restricted, including mortgage escrows
(22,674
(13,245
Purchases of marketable securities
(8,035
(152,683
Proceeds received on settlement of derivatives
234,242
Proceeds received from Officer loan repayment
2,000
Net cash used in investing activities
(138,563
(3,065,557
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Cash Flows from Financing Activities:
Proceeds from borrowings
1,424,458
2,517,105
Repayments of borrowings
(1,043,734
(727,730
Dividends paid on common shares
(415,169
(387,268
Distributions to minority partners
(65,925
(62,169
Dividends paid on preferred shares
(42,841
(42,940
Debt issuance costs
(13,399
(13,229
Proceeds from exercise of share options and other
21,981
4,744
Purchase of marketable securities in connection with the defeasance of mortgage notes payable
(109,092
Net cash (used in) provided by financing activities
(134,629
1,179,421
Net increase (decrease) in cash and cash equivalents
374,417
(1,399,043
Cash and cash equivalents at beginning of period
2,233,317
Cash and cash equivalents at end of period
834,274
Supplemental Disclosure of Cash Flow Information:
Cash payments for interest (including capitalized interest of $49,241 and $39,287)
463,458
457,669
Cash payments for income taxes
6,153
25,969
Non-Cash Transactions:
Financing assumed in acquisitions
1,326,514
Marketable securities transferred in connection with the defeasance of mortgage notes payable
109,092
Mortgage notes payable defeased
104,571
Conversion of Class A Operating Partnership units to common shares
32,585
41,390
Unrealized net loss on securities available for sale
27,902
32,889
Operating partnership units issued in connection with acquisitions
22,382
Increases in assets and liabilities resulting from the consolidation of our 50% investment in H Street partially owned entities upon acquisition of the remaining 50% interest on April 30, 2007:
342,764
Restricted cash
369
11,648
55,272
3,101
2,407
112,797
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Organization
Vornado Realty Trust is a fully-integrated real estate investment trust (“REIT”) and conducts its business through Vornado Realty L.P., a Delaware limited partnership (the “Operating Partnership”). All references to “we,” “us,” “our,” the “Company” and “Vornado” refer to Vornado Realty Trust and its consolidated subsidiaries. We are the sole general partner of, and owned approximately 90.5% of the common limited partnership interest in, the Operating Partnership at September 30, 2008.
Substantially all of our assets are held through subsidiaries of the Operating Partnership. Accordingly, our cash flow and ability to pay dividends to our shareholders are 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 for the year ended December 31, 2007, as filed with the SEC. The results of operations for the three and nine months ended September 30, 2008, are not necessarily indicative of the operating results for the full year.
The accompanying consolidated financial statements include the accounts of Vornado and the Operating Partnership, as well as certain partially owned entities in which we own more than 50%, unless a partner has shared board and management representation and substantive participation rights on all significant business decisions, or 50% or less when (i) we are the primary beneficiary and the entity qualifies as a variable interest entity under Financial Accounting Standards Board (“FASB”) Interpretation No. 46 (Revised), Consolidation of Variable Interest Entities (“FIN 46R”), or (ii) when we are a general partner that meets the criteria under Emerging Issues Task Force (“EITF”) Issue No. 04-5. All significant inter-company amounts have been eliminated. Equity interests in partially owned entities are accounted for under the equity method of accounting when they do not meet the criteria for consolidation and our ownership interest is greater than 20%. When partially owned investments are in partnership form, the 20% threshold for equity method accounting is generally reduced to 3% to 5%, based on our ability to influence the operating and financial policies of the partnership. Investments accounted for under the equity method are initially recorded at cost and subsequently adjusted for our share of the net income or loss and cash contributions and distributions to or from these entities. Investments in partially owned entities that do not meet the criteria for consolidation or for equity method accounting are accounted for on the cost method.
We have made estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Certain prior year balances related to discontinued operations and income tax (expense) benefit have been reclassified in order to conform to current year presentation.
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3.
Recently Issued Accounting Literature
In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States of America and expands disclosures about fair value measurements. SFAS 157 was effective for our financial assets and liabilities on January 1, 2008. The FASB has deferred the implementation of the provisions of SFAS 157 relating to certain non-financial assets and liabilities until January 1, 2009. This standard did not materially affect how we determine fair value, but resulted in certain additional disclosures. SFAS 157 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 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 of (i) marketable securities, (ii) derivative positions in marketable securities and (iii) the assets of our deferred compensation plan (primarily marketable securities and equity investments in limited partnerships), for which there is a corresponding liability on our consolidated balance sheet. Financial assets and liabilities measured at fair value as of September 30, 2008 are presented in the table below based on their level in the fair value hierarchy.
Fair Value Hierarchy
Level 1
Level 2
Level 3
146,469
Deferred compensation plan assets
40,646
39,656
(2)
Interest rate caps
40
Total Assets, measured at fair value (1)
226,811
187,115
Derivative positions in marketable equity securities
8,978
Deferred compensation plan liabilities
Total Liabilities, measured at fair value (1)
89,280
___________________
(1)
We chose not to elect the fair value option prescribed by Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”), for our financial assets and liabilities that had not been previously measured at fair value. These financial assets and liabilities include our outstanding debt, accounts receivable, accounts payable and investments in partially owned entities.
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, 2008.
Beginning Balance
Total Realized/ Unrealized Gains/ (Losses)
Purchases, Sales, Other Settlements and Issuances, net
Ending
Balance
For the three months ended September 30, 2008
41,028
(1,688
316
For the nine months ended September 30, 2008
50,578
(10,115
(807
8
Recently Issued Accounting Literature - continued
In September 2006, the FASB issued Statement No. 158, Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans, an Amendment of SFAS No. 87, 88, 106 and 132R (“SFAS 158”). SFAS 158 requires an employer to (i) recognize in its statement of financial position an asset for a plan’s over-funded status or a liability for a plan’s under-funded status; (ii) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year (with limited exceptions); and (iii) recognize changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur. Those changes will be reported in comprehensive income. The adoption of the requirement to recognize the funded status of a benefit plan and the disclosure requirements as of December 31, 2006 did not have a material effect on our consolidated financial statements. The requirement to measure plan assets and benefit obligations to determine the funded status as of the end of the fiscal year and to recognize changes in the funded status in the year in which the changes occur is effective on January 1, 2009. The adoption of the measurement date provisions of this standard is not expected to have a material effect on our consolidated financial statements.
In February 2007, the FASB issued SFAS 159, which permits companies to measure many financial instruments and certain other items at fair value. SFAS 159 was effective on January 1, 2008. We did not elect the fair value option for any of our existing financial instruments on the effective date and have not determined whether we will elect this option for any eligible financial instruments we acquire in the future.
In December 2007, the FASB issued Statement No. 141R, Business Combinations (“SFAS 141R”). SFAS 141R broadens the guidance of SFAS 141, extending its applicability to all transactions and other events in which one entity obtains control over one or more other businesses. SFAS 141R 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. SFAS 141R expands required disclosures to improve the ability to evaluate the nature and financial effects of business combinations. SFAS 141R is effective for all transactions entered into on or after January 1, 2009. The adoption of this standard on January 1, 2009 could materially impact our future financial results to the extent that we acquire significant amounts of real estate, as related acquisition costs will be expensed as incurred compared to our current practice of capitalizing such costs and amortizing them over the estimated useful life of the assets acquired.
In December 2007, the FASB issued Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements - An Amendment of ARB No. 51 (“SFAS 160”). SFAS 160 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. SFAS 160 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. SFAS 160 is effective on January 1, 2009. We believe that the adoption of this standard on January 1, 2009 will not have a material effect on our consolidated financial statements.
In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities – an Amendment of FASB Statement No. 133 (“SFAS 161”). SFAS 161 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 under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, and the impact of derivative instruments and related hedged items on an entity’s financial position, financial performance and cash flows. SFAS 161 is effective on January 1, 2009. We believe that the adoption of this standard on January 1, 2009 will not have a material effect on our consolidated financial statements.
9
In May 2008, the FASB issued Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments that may be Settled in Cash upon Conversion (Including Partial Cash Settlement), (the “FSP”). The adoption of this FSP will affect the accounting for our convertible and exchangeable senior debentures and Series D-13 convertible preferred units. The FSP requires the initial proceeds from the sale of our convertible and exchangeable senior debentures and Series D-13 convertible preferred units to be allocated between a liability component and an equity component. The resulting discount will be amortized using the effective interest method over the period the debt is expected to remain outstanding as additional interest expense. The FSP is effective for our fiscal year beginning on January 1, 2009 and requires retroactive application. The adoption of the FSP on January 1, 2009 will result in the recognition of an aggregate unamortized debt discount of $151,422,000 (as of September 30, 2008) in our consolidated balance sheets and additional interest expense in our consolidated statements of income. Our current estimate of the incremental interest expense, net of minority interest, for each reporting period is as follows:
For the year ended December 31:
2005
3,401
2006
6,062
28,191
35,065
2009
37,808
2010
40,066
2011
41,065
2012
8,188
In May 2008, the FASB issued Statement No. 162, The Hierarchy of Generally Accepted Accounting Principles (“SFAS 162”). The purpose of this statement is to improve financial reporting by providing a consistent framework for determining applicable accounting principles to be used in the preparation of financial statements presented in conformity with GAAP. SFAS 162 will become effective 60 days after the SEC’s approval. We believe that the adoption of this standard on its effective date will not have a material effect on our consolidated financial statements.
In May 2008, the FASB issued Statement No. 163, Accounting for Financial Guarantee Insurance Contracts (“SFAS 163”). SFAS 163 was issued to decrease inconsistencies within Statement No. 60, Accounting and Reporting by Insurance Enterprises, and clarify how it applies to financial guarantee insurance contracts issued by insurance enterprises, including the recognition of premium revenue and claim liabilities. SFAS 163 also requires expanded disclosures about financial guarantee insurance contracts. SFAS 163 is effective on January 1, 2009. We believe that the adoption of this standard on January 1, 2009 will not have any effect on our consolidated financial statements.
10
4.
Investments in Partially Owned Entities
Toys “R” Us (“Toys”)
Toys prepares its consolidated financial statements using the historical cost basis (“Recap basis”) of accounting. We account for our investment in Toys on the purchase accounting basis. In July 2008, in connection with an audit of Toys’ purchase accounting basis financial statements for its fiscal years 2006 and 2007, it was determined that the purchase accounting basis income tax expense was understated. Our share of this non-cash charge was $14,900,000, which we recognized as part of our equity in Toys’ net loss in the quarter ended June 30, 2008. This non-cash charge had no effect on cash actually paid for income taxes or Toys’ previously issued Recap basis consolidated financial statements.
At September 30, 2008, we owned 32.7% of Toys. Toys’ business is highly seasonal. Historically, Toys’ fourth quarter net income accounts for more than 80% of its fiscal year net income. Because Toys’ fiscal year ends on the Saturday nearest January 31, we record our 32.7% share of Toys’ net income or loss on a one-quarter lag basis. Below is a summary of Toys’ latest available financial information presented on a purchase accounting basis.
(Amounts in millions)
Balance Sheet:
August 2, 2008
August 4, 2007
Total Assets
11,868
11,256
Total Liabilities
10,617
10,213
Total Equity
1,251
1,043
For the Three Months Ended
For the Nine Months Ended
Income Statement:
Total Revenues
2,771
2,605
11,317
10,865
Net (Loss) Income
(31
(71
113
Alexander’s (NYSE: ALX)
At September 30, 2008, we owned 32.6% of the outstanding common stock of Alexander’s. We manage, lease and develop Alexander’s properties pursuant to agreements that expire in March of each year and are automatically renewed. As of September 30, 2008, Alexander’s owed us $43,609,000 in fees under these agreements.
Based on Alexander’s September 30, 2008 closing share price on the NYSE of $400.00, the market value (“fair value” pursuant to SFAS 157) of our investment in Alexander’s is $661,627,000, or $530,740,000 in excess of the carrying amount on our consolidated balance sheet.
11
Investments in Partially Owned Entities – continued
The Lexington Master Limited Partnership (“Lexington MLP”)
At September 30, 2008, we owned 8,149,594 limited partnership units of Lexington MLP which are exchangeable on a one-for-one basis into common shares of Lexington Realty Trust (“Lexington”) (NYSE: LXP) or a 7.7% limited partnership interest. We account for our investment on the equity method. We record our pro rata share of Lexington MLP’s net income or loss on a one-quarter lag basis because we file our consolidated financial statements on Form 10-K and 10-Q prior to the time that Lexington files its financial statements.
Based on Lexington’s September 30, 2008 closing share price of $17.22, the market value (“fair value” pursuant to SFAS 157) of our investment in Lexington MLP was $140,336,000, or $7,175,000 below the carrying amount on our consolidated balance sheet. We have concluded that our investment is “other-than-temporarily” impaired and recorded a $7,175,000 non-cash impairment loss on our consolidated statement of income. Our conclusion was based on the recent deterioration in the capital and financial markets and our inability to forecast a recovery in the near-term.
On October 28, 2008, we acquired 8,000,000 Lexington common shares for $5.60 per share, or $44,800,000. The purchase price consisted of $22,400,000 in cash and a $22,400,000 margin loan recourse only to the 8,000,000 shares acquired. In addition, we exchanged our existing limited partnership units of Lexington MLP for 8,149,592 common shares of Lexington. We now own 16,149,592 Lexington common shares, or approximately 17.6% of Lexington’s common equity, with a carrying amount of $185,136,000, or $11.46 per share.
The market value of Lexington’s common shares declined substantially subsequent to September 30, 2008, as did share prices of many public companies. Based on Lexington’s October 31, 2008 closing share price of $8.03, the market value of our investment is approximately $55,500,000 below its carrying amount.
GMH Communities L.P. (“GMH”)
Prior to June 11, 2008, we owned 7,337,857 GMH limited partnership units, which were exchangeable on a one-for-one basis into common shares of GMH Communities Trust (“GCT”) (NYSE: GCT), and 2,517,247 common shares of GCT, or 13.8% of the limited partnership interest of GMH, which had an aggregate carrying amount of $101,634,000, or $10.31 per share/unit.
Pursuant to the sale of GMH’s military housing division and the merger of its student housing division with American Campus Communities, Inc. (“ACC”) (NYSE: ACC), subsequent to June 11, 2008 we received an aggregate of $105,180,000, consisting of $82,142,000 in cash and 753,126 shares of ACC common stock valued at $23,038,000 based on ACC’s then closing share price of $30.59, in exchange for our entire interest in GMH. We subsequently sold all of the ACC common shares. The above transactions resulted in a net gain of $2,038,000, which was recognized in the quarter ended June 30, 2008, and is included as a component of “net gains on disposition of wholly owned and partially owned assets other than depreciable real estate” in our consolidated statement of income.
The aggregate net income realized from inception of this investment in 2004 through its disposition was $77,000,000.
India Real Estate Ventures
In August 2008, we entered into a joint venture with Reliance Industries Limited (“Reliance”) (BSE: RIL), under which each partner has an equal ownership interest, to acquire, develop, and operate retail shopping centers across key cities in India. We are also a partner in four other joint ventures established to develop real estate in India’s major cities. During the nine months ended September 30, 2008, we funded an aggregate of $48,898,000 in cash to our India ventures, including $7,500,000 to the Reliance venture and $34,077,000 to the India Property Fund L.P. (“IPF”). As of September 30, 2008, our aggregate investment in all of these ventures was $91,077,000 and our remaining capital commitment is approximately $192,000,000. At September 30, 2008 and December 31, 2007, our ownership interest in IPF was 36.5% and 50.6%, respectively. Based on the reduction of our ownership interest in 2008, we no longer consolidate the accounts of IPF into our consolidated financial statements and beginning on January 1, 2008 we account for IPF under the equity method.
12
Investments in Partially Owned Entities - continued
The carrying amount of our investments in partially owned entities and income (loss) recognized from such investments are as follows:
Investments:(Amounts in thousands)
Balance at
Toys
Lexington MLP (see page 12)
140,336
160,868
Partially Owned Office Buildings
265,400
215,153
GMH (sold in June 2008)
103,260
91,077
123,997
Alexander’s
130,887
122,797
Beverly Connection Joint Venture (“Beverly Connection”)
101,505
91,302
Other Equity Method Investments
330,292
389,365
Our Share of Net Income (Loss): (Amounts in thousands)
For the Three Months Ended September 30,
For the Nine Months Ended September 30,
Toys:
32.7% share of equity in net (loss) income (see page 11)
(10,107
(21,997
35,550
13,493
Interest and other income
1,966
1,708
5,960
4,850
Alexander’s:
32.6% share of:
Equity in net income before stock appreciation rights compensation (expense) income
4,294
5,508
14,752
16,277
Stock appreciation rights compensation (expense) income
(14,557
3,075
(7,605
8,991
Equity in net (loss) income
(10,263
8,583
7,147
25,268
Management and leasing fees
2,054
2,255
6,160
6,777
Development fees
1,333
1,273
3,097
3,069
Beverly Connection:
50% share of equity in net loss
(4,585
)(1)
(1,287
(3,950
)(1) (2)
(3,676
Interest and fee income
3,686
3,885
10,630
8,492
(899
2,598
6,680
4,816
Lexington MLP –7.7% share of equity in net (loss) income (see page 12)
(6,040
1,726
(4,153
1,484
H Street partially owned entities – 50% share of equity in net income
5,923
(3)
GMH –13.8% share of equity in net income
5,709
5,428
India Real Estate Ventures – 4% to 50% share of equity in net losses
(835
(1,863
Other (4)
4,675
3,528
(29,831
)(5)
12,800
_________________________
See notes on following page.
13
Notes to preceding tabular information
(Amounts in thousands):
In accordance with EITF 99-10, during the quarter ended September 30, 2008 our partner’s capital account was reduced to zero and, accordingly, we recognized $1,528 of additional net loss for the portion that related to our partner’s pro rata share of the venture’s net loss.
Includes $4,100 for the reversal of a non-cash charge recorded by the joint venture in prior periods which, pursuant to paragraph 19(n) of APB Opinion 18, The Equity Method of Accounting For Investments In Common Stock, should have been eliminated in the determination of our share of the earnings of the venture.
Represents our 50% share of equity in net income from January 1, 2007 through April 29, 2007. On April 30, 2007, we acquired the remaining 50% interest of these entities and began to consolidate the accounts into our consolidated financial statements and no longer account for this investment under the equity method.
(4)
Includes our equity in net earnings of partially owned entities, including partially owned office buildings in New York and Washington, DC, the Monmouth Mall, Dune Capital LP, Verde Group LLC, and other equity method investments.
(5)
Includes a $34,200 write-off for our share of two joint ventures’ pre-development costs, of which $23,000 represents our 50% share of costs in connection with the abandonment of the “arena move”/Moynihan East portions of the Farley project.
14
Below is a summary of the debt of partially owned entities as of September 30, 2008 and December 31, 2007, none of which is guaranteed by us.
100% of Partially Owned Entities Debt at
Toys (32.7% interest) (as of August 2, 2008 and November 3, 2007, respectively):
$1.3 billion senior credit facility, due 2010, (6.14% at September 30, 2008)
1,300,000
$2.0 billion credit facility, due 2010, LIBOR plus 1.00%-3.75% ($104,000 reserved for outstanding letters of credit)
489,000
Mortgage loan, due 2010, LIBOR plus 1.30% (3.79% at September 30, 2008)
800,000
$804 million secured term loan facility, due 2012, LIBOR plus 4.25% (7.06% at September 30, 2008)
797,000
Senior U.K. real estate facility, due 2013, with interest at 5.02%
699,000
741,000
7.625% bonds, due 2011 (Face value – $500,000)
485,000
481,000
7.875% senior notes, due 2013 (Face value – $400,000)
376,000
373,000
7.375% senior notes, due 2018 (Face value – $400,000)
334,000
331,000
4.51% Spanish real estate facility, due 2013
205,000
193,000
$181 million unsecured term loan facility, due 2013, LIBOR plus 5.00%
(7.49% at September 30, 2008)
180,000
Japan bank loans, due 2011-2014, 1.20%-2.80%
148,000
161,000
Japan borrowings, due 2009-2011 (weighted average rate of 1.33% at September 30, 2008)
268,000
243,000
6.84% Junior U.K. real estate facility, due 2013
124,000
132,000
4.51% French real estate facility, due 2013
99,000
93,000
8.750% debentures, due 2021 (Face value – $22,000)
21,000
Note at an effective cost of 2.23% due in semi-annual installments through 2008
19,000
Multi-currency revolving credit facility, due 2010, LIBOR plus 1.50%-2.00%
28,000
Other
58,000
41,000
5,894,000
6,423,000
Alexander’s (32.6% interest):
731 Lexington Avenue mortgage note payable collateralized by the office space, due in March 2014, with interest at 5.33% (prepayable without penalty after December 2013)
376,224
383,670
731 Lexington Avenue mortgage note payable, collateralized by the retail space, due in July 2015, with interest at 4.93% (prepayable without penalty after March 2015)
320,000
Kings Plaza Regional Shopping Center mortgage note payable, due in June 2011, with interest at 7.46% (prepayable without penalty after March 2011)
200,565
203,456
Rego Park construction loan payable, due in December 2010 with a one-year extension,LIBOR plus 1.20% (3.69% at September 30, 2008)
143,571
55,786
Rego Park mortgage note payable, due in June 2009, with interest at 7.25% (prepayable without penalty after March 2009)
78,625
79,285
Paramus mortgage note payable, due in October 2011, with interest at 5.92% (prepayable without penalty)
68,000
1,186,985
1,110,197
Lexington MLP (7.7% interest) (as of June 30, 2008 and September 30, 2007, respectively): Mortgage loans collateralized by the partnership’s real estate, due from 2008 to 2037, with a weighted average interest rate of 5.65% at September 30, 2008 (various prepayment terms)
2,540,201
3,320,261
GMH – 13.8% interest in mortgage notes payable
995,818
15
100% ofPartially Owned Entities Debt at
Partially owned office buildings:
September 30,2008
Kaempfer Properties (2.5% and 5.0% interests in two partnerships) mortgage notes payable, collateralized by the partnerships’ real estate, due from 2011 to 2031, with a weighted average interest rate of 5.72% at September 30, 2008 (various prepayment terms)
143,306
144,340
100 Van Ness, San Francisco office complex (9% interest) up to $132 million construction loan payable, due in July 2013, LIBOR plus 2.75% with an interest rate floor of 6.50% and interest rate cap of 7.00%
85,249
330 Madison Avenue (25% interest) mortgage note payable (refinanced in May 2008 up to $150,000), due in June 2015, LIBOR plus 1.50% with interest at 3.99%
70,000
60,000
Fairfax Square (20% interest) mortgage note payable, due in August 2009, with interest at 7.50%
63,130
64,035
Rosslyn Plaza (46% interest) mortgage note payable, due in December 2011, LIBOR plus 1.0% (3.49% at September 30, 2008)
56,680
West 57th Street (50% interest) mortgage note payable, due in October 2009, with interest at 4.94% (prepayable without penalty after July 2009)
29,000
825 Seventh Avenue (50% interest) mortgage note payable, due in October 2014, with interest at 8.07% (prepayable without penalty after April 2014)
21,524
21,808
India Real Estate Ventures:
TCG Urban Infrastructure Holdings (25% interest) mortgage notes payable, collateralized by the entity’s real estate, due from 2008 to 2022, with a weighted average interest rate of 13.23% at September 30, 2008 (various prepayment terms)
158,267
136,431
India Property Fund L.P. (36.5% interest) $120 million secured revolving credit facility, due in December 2009, LIBOR plus 2.75% (5.25% at September 30, 2008)
85,500
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%-3.00% (6.27% at September 30, 2008)
36,312
Verde Realty Master Limited Partnership (8.5% interest) mortgage notes payable, collateralized by the partnerships’ real estate, due from 2008 to 2037, with a weighted average interest rate of 6.06% at September 30, 2008 (various prepayment terms)
576,303
487,122
Green Courte Real Estate Partners, LLC (8.3% interest) mortgage notes payable, collateralized by the partnerships’ real estate, due from 2008 to 2015, with a weighted average interest rate of 5.52% at September 30, 2008 (various prepayment terms)
306,642
225,704
Beverly Connection (50% interest) mortgage and mezzanine loans payable, with a weighted average interest rate of 9.37%, $107,082 of which is due to Vornado
207,082
170,000
Monmouth Mall (50% interest) mortgage note payable, due in September 2015, with interest at 5.44% (prepayable without penalty after July 2015)
165,000
San Jose, California Ground-up Development (45% interest) construction loan, due in March 2009, with a one-year extension option; $114 million fixed at 4.62%, balance at LIBOR plus 1.75% (4.25% at September 30, 2008)
123,945
101,045
Wells/Kinzie Garage (50% interest) mortgage note payable, due in June 2009, with interest at 7.03%
14,155
14,422
Orleans Hubbard Garage (50% interest) mortgage note payable, due in April 2009, with interest at 7.03%
8,875
9,045
295,961
282,320
Based on our ownership interest in the partially owned entities above, our pro rata share of the debt of these partially owned entities was $3,045,615,000 and $3,289,873,000 as of September 30, 2008 and December 31, 2007, respectively.
16
5.
Mezzanine Loans Receivable
The following is a summary of our investments in mezzanine loans as of September 30, 2008 and December 31, 2007.
Interest Rate at
Carrying Amount at
Mezzanine Loans Receivable:
Maturity
Equinox
02/13
14.00%
81,324
73,162
Tharaldson Lodging Companies
04/09
6.70%
76,341
76,219
Riley HoldCo Corp.
02/15
10.00%
74,353
74,268
280 Park Avenue
06/16
10.25%
73,750
MPH, net of a valuation allowance of $46,700 and $57,000, respectively (1)
19,300
9,000
01/09-12/18
4.75% - 12.0%
143,463
185,940
_____________________
On June 5, 2007, we acquired a 42% interest in two MPH mezzanine loans totaling $158,700, for $66,000 in cash. The loans, which were due on February 8, 2008 and have not been repaid, are subordinate to $2.9 billion of mortgage and other debt and secured by the equity interests in four New York City properties: Worldwide Plaza, 1540 Broadway office condominium, 527 Madison Avenue and Tower 56. At December 31, 2007, we reduced the net carrying amount of the loans to $9,000, by recognizing a $57,000 non-cash charge which was included as a reduction of “interest and other investment income” in our 2007 consolidated statement of income. On April 2, 2008, we sold a sub-participation interest in the loans for $19,300. The sub-participation did not meet the criteria for sale accounting under Statement of Financial Accounting Standard No. 140,Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (“SFAS 140”) because the sub-participant is not free to pledge or exchange the asset. In the first quarter of 2008, we reduced our valuation allowance from $57,000 to $46,700, resulting in the recognition of $10,300 of “interest and other investment income” in our consolidated statement of income.
17
6.
Identified Intangible Assets, Intangible Liabilities and Goodwill
The following summarizes our identified intangible assets (primarily acquired above-market leases), intangible liabilities (primarily acquired below-market leases) and goodwill as of September 30, 2008 and December 31, 2007.
Identified intangible assets (included in other assets):
Gross amount
781,483
727,205
Accumulated amortization
(225,968
(163,688
Net
555,515
563,517
Goodwill (included in other assets):
4,345
Identified intangible liabilities (included in deferred credit):
965,786
977,574
(251,013
(163,473
714,773
814,101
Amortization of acquired below market leases, net of acquired above market leases (a component of rental income) was $24,526,000 and $24,499,000 for the three months ended September 30, 2008 and 2007, respectively, and $73,655,000 and $58,842,000 for the nine months ended September 30, 2008 and 2007, respectively. Estimated annual amortization of acquired below market leases, net of acquired above market leases for each of the five succeeding years is as follows:
68,026
60,845
57,909
54,221
2013
46,274
Amortization of all other identified intangible assets (a component of depreciation and amortization expense) was $21,239,000 and $10,647,000 for the three months ended September 30, 2008 and 2007, respectively, and $65,502,000 and $33,100,000 for the nine months ended September 30, 2008 and 2007, 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 is as follows:
58,731
56,088
53,672
49,074
41,170
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 $394,000 for the three months ended September 30, 2008 and 2007, respectively, and $1,599,000 and $1,183,000 for the nine months ended September 30, 2008 and 2007, respectively. Estimated annual amortization of these below market leases for each of the five succeeding years is as follows:
2,133
18
7.
Debt
The following is a summary of our notes and mortgages payable:
Notes and Mortgages Payable:
Maturity (1)
Fixed Interest:
New York Office:
1290 Avenue of the Americas
01/13
5.97%
447,118
454,166
350 Park Avenue
01/12
5.48%
430,000
770 Broadway
03/16
5.65%
353,000
888 Seventh Avenue
01/16
5.71%
318,554
Two Penn Plaza
02/11
4.97%
288,581
292,000
909 Third Avenue
04/15
5.64%
214,906
217,266
Eleven Penn Plaza
12/11
5.20%
207,744
210,338
Washington, DC Office:
Skyline Place
02/17
5.74%
678,000
Warner Building
05/16
6.26%
292,700
1215, 1225, 1235 Clark Street, 200 12th Street and 251 18th Street
07/12-01/25
6.75%-7.09%
200,987
203,679
River House Apartment Complex (2)
5.43%
195,546
46,339
2011 and 2231 Crystal Drive
10/09-08/13
6.88%-7.08%
89,662
150,084
1550, 1750 Crystal Drive and 241 18th Street
10/10-11/14
6.82%-7.08%
131,429
133,471
Bowen Building
6.14%
115,022
Reston Executive I, II and III
5.57%
1101 17th , 1140 Connecticut, 1730 M and 1150 17th Street
08/10
6.74%
88,282
89,514
Universal Buildings
04/14
4.88%
60,532
62,613
1750 Pennsylvania Avenue
06/12
7.26%
46,737
47,204
1800, 1851, 1901 South Bell Street
6.91%
29,803
35,558
Retail:
Cross collateralized mortgages on 42 shopping centers
03/10
7.93%
450,118
455,907
Springfield Mall (including present value of purchase option)
10/12-04/13
5.45%
253,832
256,796
Green Acres Mall (3)
137,331
Montehiedra Town Center
07/16
6.04%
120,000
Broadway Mall
07/13
5.40%
95,437
97,050
828-850 Madison Avenue Condominium
06/18
5.29%
80,000
Las Catalinas Mall
11/13
6.97%
61,116
62,130
05/09-11/34
4.00%-7.57%
163,522
165,299
Merchandise Mart:
Merchandise Mart
12/16
550,000
High Point Complex
08/16
6.34%
220,982
221,258
Boston Design Center
09/15
5.02%
71,003
71,750
Washington Design Center
11/11
6.95%
45,173
45,679
Other:
555 California Street
05/10-09/11
720,409
719,568
Industrial Warehouses
10/11
25,370
25,656
Total Fixed Interest Notes and Mortgages Payable
5.96%
7,138,565
7,230,932
See notes on page 21.
19
Debt - continued
Spread over LIBOR
Variable Interest:
Manhattan Mall
02/12
L+55
3.04%
232,000
866 UN Plaza
05/11
L+40
3.15%
44,978
2101 L Street (4)
L+120
4.91%
150,000
Courthouse Plaza One and Two
01/15
L+75
3.24%
71,739
74,200
River House Apartments (2)
04/18
3.81%
64,000
Commerce Executive III, IV and V
07/09
50,223
1999 K Street (5)
12/10
L+130
5.01%
59,230
220 20th Street (6)
01/11
L+115
4.34%
27,291
West End 25 (7)
3.79%
15,583
L+140
3.89%
335,000
Bergen Town Center (8)
03/13
L+150
3.94%
214,279
220 Central Park South
11/10
L+235 – L+245
4.87%
128,998
India Property Fund L.P. (9)
(9)
82,500
07/09 – 10/10
Various
5.47%
137,765
94,626
Total Variable Interest Notes and Mortgages Payable
4.06%
1,531,086
707,525
Total Notes and Mortgages Payable
5.62%
Convertible Senior Debentures:
Due 2027
04/12
2.85%
1,380,478
1,376,278
Due 2026
3.63%
987,172
984,134
Total Convertible Senior Debentures
3.17%
Senior Unsecured Notes:
Senior unsecured notes due 2009 (10)
08/09
4.50%
199,721
249,365
Senior unsecured notes due 2010
4.75%
199,577
199,436
Senior unsecured notes due 2011
5.60%
249,890
249,855
Total Senior Unsecured Notes
4.96%
Exchangeable Senior Debentures due 2025
3.88%
Unsecured Revolving Credit Facilities:
$1.595 billion unsecured revolving credit facility
09/12
L+55(12)
300,000
$.965 billion unsecured revolving credit facility (11) ($45,690 reserved for outstanding letters of credit)
06/11
L+50(12)
2.99%
105,656
Total Unsecured Revolving Credit Facilities
_______________________
20
Notes to preceding tabular information:
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 March 12, 2008, we completed a $260,000 refinancing of the River House Apartment Complex. The financing is comprised of a $196,000 interest-only seven-year 5.43% fixed rate mortgage and a $64,000 interest-only ten-year floating rate mortgage at the Freddie Mac Reference Note Rate plus 1.53% (3.81% at September 30, 2008). We retained net proceeds of $205,000 after repaying the existing loan.
3)
On February 11, 2008, we completed a $335,000 refinancing of the Green Acres regional mall. This interest-only loan has a rate of LIBOR plus 1.40% (3.89% at September 30, 2008) and matures in February 2011, with two one-year extension options. We retained net proceeds of $193,000 after repaying the existing loan.
4)
On February 26, 2008, we completed a $150,000 financing of 2101 L Street. The loan bears interest at LIBOR plus 1.20% (4.91% at September 30, 2008) and matures in February 2011 with two one-year extension options. We retained net proceeds of $148,000.
5)
On March 27, 2008, we closed a construction loan providing up to $124,000 to finance the redevelopment of 1999 K Street. The interest-only loan has a rate of LIBOR plus 1.30% (5.01% at September 30, 2008) and matures in December 2010 with two six-month extension options.
6)
On January 18, 2008, we closed a construction loan providing up to $87,000 to finance the residential redevelopment project at 220 20th Street (formally Crystal Plaza Two). The construction loan bears interest at LIBOR plus 1.15% (4.34% at September 30, 2008) and matures in January 2011 with two six-month extension options.
7)
On February 20, 2008, we closed a construction loan providing up to $104,000 to finance the residential redevelopment project at 1229-1231 25th Street NW (“West End 25”). The construction loan bears interest at LIBOR plus 1.30% (3.79% at September 30, 2008) and matures in February 2011 with two six-month extension options.
8)
On March 24, 2008, we closed a construction loan providing up to $290,000 to finance the redevelopment of a portion of the Bergen Town Center. The interest-only loan has a rate of LIBOR plus 1.50% (3.94% at September 30, 2008) and matures in March 2011 with two one-year extension options.
9)
Beginning in the first quarter of 2008, we account for our investment in the India Property Fund on the equity method and no longer consolidate its accounts into our consolidated financial statements, based on the reduction in our ownership interest from 50.6% as of December 31, 2007 to 36.5%.
10)
On September 9, 2008, we purchased $50,000 of our senior unsecured notes due August 15, 2009 for $49,746.
11)
Lehman Brothers is part of the syndicate of banks under this unsecured revolving credit facility with a total commitment of $35 million. On September 15, 2008, Lehman Brothers filed for Chapter 11 bankruptcy protection. All of the banks in the syndicate, except for Lehman Brothers, have funded their pro rata share of a draw we made subsequent to Lehman’s bankruptcy filing.
12)
Requires the payment of an annual facility fee of 15 basis points.
21
8.
Fee and Other Income
The following table sets forth the details of our fee and other income:
Tenant cleaning fees
13,627
13,028
41,431
33,398
2,518
2,891
10,326
12,894
Lease termination fees
1,455
1,574
4,469
6,295
Other income
13,158
10,512
33,832
29,261
Fee and other income above include management fee income from Interstate Properties, a related party, of $196,000 and $183,000 for the three months ended September 30, 2008 and 2007, respectively, and $604,000 and $593,000 for the nine months ended September 30, 2008 and 2007, respectively.
9.
Discontinued Operations
On March 31, 2008, we sold our 47.6% interest in Americold Realty Trust (“Americold”), our Temperature Controlled Logistics segment, for $220,000,000 in cash, which resulted in a net gain of $112,690,000.
On June 6, 2008, we sold our Tysons Dulles Plaza office building complex located in Tysons Corner, Virginia for approximately $152,800,000 in cash, which resulted in a net gain of $56,831,000.
In accordance with the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we classified our Temperature Controlled Logistics segment and our Tysons Dulles Plaza office building complex as discontinued operations and reported their revenues and expenses as “income from discontinued operations, net of minority interest” 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 following table sets forth the assets (primarily net book value of real estate) and liabilities (primarily mortgage debt) related to discontinued operations at September 30, 2008 and December 31, 2007.
Assets related to Discontinued Operations at
Liabilities related to Discontinued Operations at
H Street – land under sales contract
108,282
108,470
Retail properties
2,088
4,030
Americold
1,424,770
1,332,627
Tysons Dulles Plaza
95,048
The following table sets forth the combined results of discontinued operations for the three and nine months ended September 30, 2008 and 2007.
Revenues
216,957
222,361
633,825
Expenses
220,164
238,132
636,408
Net loss
(10
(3,207
(15,771
(2,583
112,690
Net gain on sale of Tysons Dulles Plaza
56,831
Net gain on sale of Crystal Mall Two
19,893
Net gains on sale of other real estate
112
7,852
692
22
10.
Income Per Share
The table below computes (i) basic income per common share - which utilizes weighted average common shares outstanding without regard to potentially dilutive common shares, and (ii) diluted income per common share - which includes weighted average common shares outstanding and dilutive common share equivalents. Potentially dilutive common share equivalents include our Series A convertible preferred shares, employee stock options and restricted share awards, exchangeable senior debentures due 2025, as well as Operating Partnership convertible preferred units.
Numerator:
Income from continuing operations, net of minority interest in the Operating Partnership
45,599
106,303
443,116
438,530
Numerator for basic income per share – net income applicable to common shares
Impact of assumed conversions:
Interest on 3.875% exchangeable senior debentures
15,764
Convertible preferred share dividends
68
145
588
Numerator for diluted income per share – net income applicable to common shares
116,614
570,647
421,394
Denominator:
Denominator for basic income per share – weighted average shares
154,025
151,990
153,668
151,739
Effect of dilutive securities (1):
Employee stock options and restricted share awards
4,663
6,407
4,609
6,742
3.875% exchangeable senior debentures
5,559
Convertible preferred shares
116
82
264
Denominator for diluted income per share – adjusted weighted average shares and assumed conversions
158,688
158,513
163,918
158,745
__________________
The effect of dilutive securities above excludes anti-dilutive weighted average common share equivalents. Accordingly, the three and nine months ended September 30, 2008 exclude 25,226 and 19,308 weighted average common share equivalents, respectively. The three and nine months ended September 30, 2007 exclude 22,881 and 22,544 weighted average common share equivalents, respectively.
11.
Comprehensive Income
Other comprehensive income (loss)
19,656
(5,337
(38,447
(30,295
Comprehensive income
65,357
125,504
559,111
433,397
Accumulated other comprehensive (loss) income was ($8,675,000) and $29,772,000 as of September 30, 2008 and December 31, 2007, respectively, and consists primarily of accumulated unrealized (loss) income from the mark-to-market of marketable equity securities classified as available-for-sale.
23
12.
Stock-based Compensation
Our Share Option Plan (the “Plan”) provides for grants of incentive and non-qualified stock options, restricted stock, stock appreciation rights, performance shares and limited partnership units to certain of our employees and officers. We account for stock-based compensation in accordance with SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure and as revised by SFAS No. 123R, Share-Based Payment (“SFAS 123R”). We adopted SFAS 123R, using the modified prospective application, on January 1, 2006. Stock based compensation expense for the three and nine months ended September 30, 2008 and 2007 consists of stock option awards, restricted common shares, Operating Partnership unit awards and Out-Performance Plan awards. We recognized $8,789,000 and $25,762,000 of stock based compensation expense in the three and nine months ended September 30, 2008, respectively, of which $4,284,000 and $11,732,000, respectively, relates to our 2006 and 2008 out-performance plans. During the three and nine months ended September 30, 2007, we recognized $6,177,000 and $18,797,000 of stock based compensation expense, respectively.
On March 31, 2008, our Compensation Committee approved a grant of Vornado stock options to senior executives and employees. The options were granted with an exercise price 17.5% in excess of the average of the high and low price of our common shares on the New York Stock Exchange on that date. The options are expensed pro rata over the 5-year vesting period in accordance with SFAS 123R.
2008 Out-Performance Plan
On March 31, 2008, our Compensation Committee approved a $75,000,000 out-performance plan (the “2008 OPP”) that requires the achievement of performance objectives against both absolute and relative thresholds. The 2008 OPP establishes a potential performance pool in which 78 members of senior management have the opportunity to share in if the total return to our shareholders (the “Total Return”) resulting from both share appreciation and dividends for the four-year period from March 31, 2008 to March 31, 2012 exceeds both an absolute and a relative hurdle. The initial value from which to determine the Total Return is $86.20 per share, a 0.93% premium to the trailing 10-day average closing price on the New York Stock Exchange for our common shares on the date the plan was adopted.
The size of the out-performance pool for the 2008 OPP is 6% of the aggregate “out-performance return” subject to a maximum total award of $75,000,000 (the “Maximum Award”). The “out-performance return” is comprised of (i) 3% of the total dollar value of the Total Return in excess of 10% per annum (the “Absolute Component”), plus (ii) 3% of the total dollar value of the Total Return in excess of the Relative Threshold (the “Relative Component”), based on the SNL Equity REIT Index (the “Index”) over the four-year performance period. In the event that the Relative Component creates a negative award as a result of underperforming the Index, the value of any out-performance award potentially earned under the Absolute Component will be reduced dollar for dollar. In addition, awards potentially earned under the Relative Component will be reduced on a ratable sliding scale to the extent the Total Return is less than 10% per annum and to zero to the extent the Total Return is less than 7% per annum. The size of this out-performance pool, if any, will be determined based on the highest 30-trading day trailing average price of our common shares during the final 150 days of the four-year period. During the four-year performance period, participants are entitled to receive 10% of the common dividends paid on Vornado’s common shares for each OPP unit awarded, regardless of whether the OPP units are ultimately earned.
The 2008 OPP also provides participants an opportunity to earn partial awards during two interim measurement periods (the “Interim Periods”): (a) one for a period consisting of the first two years of the performance period and (b) one for a period consisting of the final two years of the performance period. For each Interim Period, participants may be entitled to share in 40% ($30,000,000) of the maximum $75,000,000 performance pool if the performance thresholds have been met for the applicable Interim Periods on a pro rated basis. The starting share price for the first Interim Period is $86.20 per share. The starting share price for the second Interim Period is equal to the greater of our common share price on March 31, 2010, or the initial starting share price of $86.20 per share less dividends paid during the first two years of the plan. If the maximum award is earned during the first Interim Period, participants lose the potential to earn the second Interim Period award, but not the potential to earn the remainder of the maximum award over the four-year period. The size of any out-performance pool for an Interim Period will be determined based on the highest 30-day trailing average price of our shares during the final 120 days of the applicable Interim Period.
Awards earned under the program (including any awards earned for the Interim Periods), will vest 50% on March 31, 2012 and 50% on March 31, 2013. The 2008 OPP is accounted for in accordance with SFAS 123R. The fair value of the OPP awards on the date of grant, as adjusted for estimated forfeitures, was approximately $21,600,000, and is being amortized into expense over a five-year period beginning on the date of grant through the final vesting period, using a graded vesting attribution model.
24
13.
Commitments and Contingencies
At September 30, 2008, there were $45,690,000 of outstanding letters of credit under our $.965 billion revolving credit facility. Our credit facilities contain financial covenants, that require us to maintain minimum interest coverage and maximum debt to market capitalization ratios, and provides for higher interest rates in the event of a decline in our ratings below Baa3/BBB. Our credit facilities also contain customary conditions precedent to borrowing, including representations and warranties and also contain customary events of default that could give rise to accelerated repayment, including such items as failure to pay interest or principal.
Our debt instruments, consisting of mortgage loans secured by our properties (which are generally non-recourse to us), senior unsecured notes, exchangeable senior debentures, convertible senior debentures and revolving credit agreements, contain customary covenants requiring us to maintain insurance. Although we believe that we have adequate insurance coverage under these agreements, we may not be able to obtain an equivalent amount of coverage at reasonable costs in the future. Further, if lenders insist on greater coverage than we are able to obtain, it could adversely affect our ability to finance and/or refinance our properties and expand our portfolio.
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, including terrorism coverage in effect through September 15, 2009. 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.
In June 2007 we formed Penn Plaza Insurance Company, LLC (“PPIC”), a wholly owned consolidated subsidiary, to act as a re-insurer with respect to a portion of our earthquake insurance coverage and as a direct insurer for coverage for “certified” acts of terrorism and for nuclear, biological, chemical and radiological (“NBCR”) acts, as defined by the Terrorism Risk Insurance Program Reauthorization Act of 2007 (“TRIPRA”). Coverage for “certified” acts of terrorism is fully reinsured by third party insurance companies and the Federal government with no exposure to PPIC. Prior to the formation of PPIC, we were uninsured for losses under NBCR coverage. Subsequently, we have $2.0 billion of NBCR coverage under TRIPRA, for which PPIC is responsible for 15% of each NBCR loss and the insurance company deductible of $1,000,000. We are ultimately responsible for any loss borne by PPIC.
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 $215,000,000. Of this amount, $80,923,000 is committed to IPF and is pledged as collateral to IPF’s lender. We have also guaranteed the completion of two joint venture development projects for which the aggregate estimated cost to complete both projects is approximately $88,700,000.
We enter into agreements for the purchase and resale of U.S. government obligations for periods of up to one week. The obligations purchased under these agreements are held in safekeeping in our name by various money center banks. We have the right to demand additional collateral or return of these invested funds at any time the collateral value is less than 102% of the invested funds plus any accrued earnings thereon. We had $56,180,000 and $82,240,000 of cash invested in these agreements at September 30, 2008 and December 31, 2007, respectively.
On January 16, 2008, our Board of Trustees approved the termination of the Vornado Realty Trust Retirement Plan and the Merchandise Mart Properties Pension Plan. The plans were frozen in 1998 and 1999, respectively. The termination is expected to be completed in the fourth quarter of 2008. Our current estimate of the cost we will incur during the fourth quarter of 2008 to buy annuities from an insurance company or to make lump-sum payments to plan participants to terminate both plans is approximately $4,000,000.
From time to time, we have disposed of substantial amounts of real estate to third parties for which, as to certain properties, we remain contingently liable for rent payments or mortgage indebtedness that cannot be quantified.
25
Commitments and Contingencies - continued
Litigation
On January 8, 2003, Stop & Shop filed a complaint with the United States District Court for the District of New Jersey (“USDC-NJ”) claiming we had no right to reallocate and therefore continue to collect $5,000,000 of annual rent from Stop & Shop pursuant to the Master Agreement and Guaranty. Stop & Shop asserted that a prior order of the Bankruptcy Court for the Southern District of New York dated February 6, 2001, as modified on appeal to the District Court for the Southern District of New York on February 13, 2001, froze our right to 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. We are currently engaged in discovery and anticipate that a trial date will be set for some time in 2009. 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 various of Mr. Trump’s motions and ultimately dismissed all of Mr. Trump’s claims, except for his claim seeking access to books and records. In a decision dated October 1, 2007, the Court determined that Mr. Trump already received access to the books and records to which he was entitled, with the exception of certain documents which were subsequently delivered to Mr. Trump. Mr. Trump has sought re-argument and renewal on, and filed a notice of appeal in connection with, his dismissed claims. In connection with the acquisition, we agreed to indemnify the sellers for liabilities and expenses arising out of Mr. Trump’s claim that the general partners of the partnerships we acquired did not sell the rail yards at a fair price or could have sold the rail yards for a greater price and any other claims asserted in the legal action; provided however, that if Mr. Trump prevails on certain claims involving partnership matters, other than claims relating to sale price, the sellers will be required to reimburse us for certain costs related to those claims. We believe that the claims relating to the sale price are without merit. All other allegations are not asserted as a basis for damages and regardless of merit would not be material to our consolidated financial statements.
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, we 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 will not have a material effect on our financial condition, results of operations or cash flows.
There are various other legal actions against us in the ordinary course of business. We believe the outcome of such matters will not have a material effect on our financial condition, results of operations or cash flows.
26
14.
Retirement Plans
On January 16, 2008, our Board of Trustees approved the termination of the Vornado Realty Trust Retirement Plan (“Vornado Plan”) and the Merchandise Mart Properties Pension Plan (“Mart Plan”). The termination is expected to be completed in the fourth quarter of 2008. Our current estimate of the cost we will incur during the fourth quarter of 2008 to buy annuities from an insurance company or to make lump-sum payments to plan participants to terminate both plans is approximately $4,000,000.
The following table sets forth the components of net periodic benefit costs:
Service cost
Interest cost
292
293
876
878
Expected return on plan assets
(309
(299
(927
(897
Amortization of net loss
64
61
193
183
Net periodic benefit cost
47
55
142
164
Employer Contributions
During the nine months ended September 30, 2008 and 2007, we contributed $403,000 and $1,005,000, respectively, to the plans. We anticipate making additional contributions of $2,113,000 to the plans during the remainder of 2008.
15.
Marketable Equity Securities
At March 31, 2008, we concluded that an investment in a marketable equity security was other-than-temporarily impaired and recognized a non-cash impairment charge $9,073,000, based on the March 31, 2008 closing share price of that security. At September 30, 2008, we concluded that certain other investments in marketable equity securities were other-than-temporarily impaired based on the severity of the declines in the market value (“fair value” pursuant to SFAS 157) of those securities at September 30, 2008 and, accordingly, we recognized a non-cash impairment charge of $11,808,000. These non-cash charges are included in “interest and other investment income, net” on our consolidated statement of income. Based on the October 31, 2008 closing share prices of these securities, their market value is approximate $39,100,000 below their carrying amount.
16.
Costs of Acquisitions and Development not Consummated
In 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 Yards). In the first quarter of 2007, we wrote-off $8,807,000 of costs associated with the Equity Office Properties Trust acquisition not consummated.
During the quarter ended September 30, 2008, we recognized a $5,000,000 non-cash charge to write-down the carrying amount of land held for development to its fair value.
27
17.
Segment Information
Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the three months ended September 30, 2008 and 2007.
For the Three Months Ended September 30, 2008
New York Office
Washington, DC Office
Retail
Other (2)
501,475
181,758
128,382
86,590
53,167
51,578
Straight-line rents:
Contractual rent increases
14,404
8,077
418
3,805
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
1,113
Total rentals
208,291
132,814
99,425
54,929
53,016
40,632
14,601
33,383
5,294
4,002
Fee and other income:
Tenant cleaning revenue
17,751
(4,124
1,138
1,875
411
95
(1,001
1,037
362
35
3,626
5,701
1,876
2,676
(721
271,459
156,028
135,457
63,029
51,172
Operating expenses
120,398
50,248
31,773
17,203
48,322
35,929
21,904
12,751
17,799
5,263
6,427
7,398
7,419
22,988
173,983
99,036
79,550
51,943
62,990
Operating income (loss)
97,476
56,992
55,907
11,086
(11,818
189
191
(7,256
Loss applicable to Toys
3,429
1,696
158
(8,407
542
507
92
49
8,448
Interest and debt expense
(34,647
(31,323
(21,445
(13,150
(47,474
Net gains (losses) on disposition of wholly owned and partially owned assets other than depreciable real estate
(1,545
30
1,981
Income (loss) before income taxes
65,444
27,872
34,800
(1,857
(59,366
Income tax expense
(699
(5
(814
(3,726
Income (loss) from continuing operations
27,173
34,795
(2,671
(63,092
Income (loss) from discontinued operations, net
Income (loss) before allocation to minority limited partners
34,907
(63,102
Net income (loss)
(71,011
Interest and debt expense (1)
192,839
32,979
32,244
26,733
13,360
33,569
53,954
Depreciation and amortization(1)
179,574
46,113
37,222
23,488
12,885
35,155
24,711
Income tax expense (benefit) (1)
(5,063
701
814
(10,944
4,361
EBITDA(1)
413,051
144,536
97,340
85,133
24,388
49,639
12,015
The Other segment EBITDA includes $23,983 for non-cash impairment charges (primarily marketable securities and our investment Lexington MLP), a $3,982 net loss on the mark-to-market of derivative instruments and a $3,570 after-tax net gain on sale of residential condominiums at our 40 East 66th Street property.
See notes on page 32.
28
Segment Information – continued
For the Three Months Ended September 30, 2007
478,951
173,180
120,540
83,184
53,922
48,125
10,533
3,124
3,333
2,986
1,034
56
5,797
1,562
3,346
44
98
747
24,499
15,216
1,066
6,272
1,935
193,082
128,285
92,486
55,064
50,863
35,701
12,065
30,338
6,632
4,557
15,672
(2,644
1,494
2,178
310
(1,099
1,326
(1
51
198
4,058
4,317
515
1,769
(147)
251,333
146,844
123,700
63,671
51,530
106,616
50,825
43,656
33,791
24,112
41,346
30,521
19,634
12,110
15,383
5,330
6,247
6,739
7,439
22,133
153,292
87,593
70,029
53,340
61,628
98,041
59,251
53,671
10,331
(10,098
Income applicable to Alexander’s
187
11,735
Income (loss) from partially owned entities
2,745
743
3,972
(50
6,151
668
3,558
195
104
52,056
(36,186
(31,289
(19,423
(13,174
(49,650
(1,613
54
1,277
63,844
32,263
38,656
(2,789
12,483
(2,349
(3
(153
(301
29,914
38,653
(2,942
12,182
25,550
3,078
(4,090
55,464
41,731
8,092
Perpetual preferred unit distributions
of the Operating Partnership
(6,967
207,934
34,853
31,999
21,947
13,388
40,875
64,872
171,106
39,543
33,474
20,617
12,260
34,495
30,717
Income tax (benefit) expense (1)
(13,094
952
2,353
153
(18,213
1,658
496,787
139,192
123,290
84,298
22,859
36,868
90,280
The Washington, DC Office segment EBITDA and the Retail segment EBITDA includes $24,696 and $3,049, respectively, of net gains on sale of real estate (included in “Income (loss) from discontinues operations, net”). The Other segment EBITDA includes an $18,606 net gain on the mark-to-market of derivative instruments and a $1,012 net gain on sale of marketable equity securities.
________________________
29
Segment Information - continued
For the Nine Months Ended September 30, 2008
1,503,925
539,254
377,867
260,279
179,606
146,919
45,724
20,860
6,861
12,867
4,531
605
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
613,768
393,792
293,481
186,883
152,840
103,230
44,649
98,251
14,715
9,125
53,415
(11,984
5,035
6,983
974
306
(2,972
2,050
1,027
355
11,876
14,802
2,016
5,749
(611
789,374
461,263
395,749
208,008
146,398
333,845
161,220
144,648
102,747
51,451
143,549
104,899
63,596
38,324
47,895
14,906
18,824
23,105
21,921
70,409
492,300
284,943
231,349
162,992
177,764
297,074
176,320
164,400
45,016
(31,366
568
529
15,307
Income applicable to Toys
8,566
4,548
9,889
978
(53,148
1,965
1,737
422
221
43,190
(104,032
(94,085
(63,981
(39,190
(145,246
(3,366
5,971
200,775
88,520
111,363
7,025
(156,746
Income tax benefit (expense)
220,916
(7
(1,205
(12,534
309,436
111,356
5,820
(169,280
59,068
(448
95,822
368,504
110,908
(73,458
(129,959
593,039
98,810
96,958
76,492
39,823
108,970
171,986
531,252
136,738
110,334
67,456
38,711
103,291
74,722
(121,844
(220,911
1,205
82,778
15,077
1,600,005
436,323
354,885
254,863
85,559
336,549
131,826
The Washington, DC Office segment EBITDA includes a $222,174 reduction in income tax expense resulting from a reversal of deferred tax liabilities in connection with the acquisition of H Street, and a $56,831 net gain on sale of real estate (included in “Income (loss) from discontinued operations, net”). The Other segment EBITDA includes, a $112,690 net gain on sale of our 47.6% interest in Americold (included in “Income (loss) from discontinued operations, net”), a $34,200 write-off of pre-development costs, a $25,812 net loss on the mark-to-market of derivative instruments, $28,056 of other non-cash charges, a $3,570 after-tax net gain on sale of residential condominiums at our 40 East 66th Street property, an $8,009 write-off for costs of acquisitions and development not consummated and a $2,038 net gain on disposition of our 13.8% interest in GMH.
For the Nine Months Ended September 30, 2007
Washington, DCOffice
1,315,862
463,678
336,304
240,975
172,431
102,474
28,571
11,003
6,074
8,794
2,317
383
29,244
14,747
11,939
555
1,044
959
58,842
32,895
3,210
19,119
130
3,488
522,323
357,527
269,443
175,922
107,304
94,051
32,659
87,922
16,339
8,012
40,820
(7,422
3,323
10,711
1,234
(2,385
3,224
210
2,458
403
12,081
11,568
1,170
5,203
(761
675,822
412,675
362,227
197,878
104,748
288,155
134,049
125,861
97,168
52,728
107,895
83,801
59,026
33,957
33,236
14,778
20,708
20,070
21,806
60,729
410,828
238,558
204,957
152,931
155,500
264,994
174,117
157,270
44,947
(50,752
567
560
33,987
Income from partially owned entities
5,932
8,178
7,360
737
8,244
1,810
387
222,676
(97,767
(96,331
(59,206
(39,069
(128,340
Net gains (losses) on disposition of wholly owned and partially owned assetsother than depreciable real estate
(2,182
3,484
173,354
90,573
106,483
6,907
106,998
(3,992
(185
(665
(561
86,581
106,298
6,242
106,437
27,840
3,000
(5,678
114,421
109,298
100,759
42,034
609,548
96,822
100,002
67,222
39,716
128,493
177,293
500,247
106,885
95,784
61,815
34,387
123,194
78,182
Income tax expense (1)
34,419
2,052
7,816
185
665
20,250
3,451
1,607,906
379,113
318,023
238,520
81,010
290,280
300,960
The Washington, DC Office segment EBITDA and the Retail segment EBITDA includes $24,696 and $3,049, respectively, of net gains on sale of real estate (included in “Income (loss) from discontinued operations, net”). The Other segment EBITDA includes a $100,060 net gain on the mark-to-market of derivative instruments, a $17,699 net gain on sale of marketable equity securities, an $8,807 write-off for costs of acquisition not consummated and $1,677 of expense for our share of India real estate ventures organization costs.
See notes on the following page.
31
EBITDA represents “Earnings Before Interest, Taxes, Depreciation and Amortization.” We consider EBITDA a supplemental measure for making decisions and assessing the un-levered performance of our segments as it relates to the total return on assets as opposed to the levered return on equity. As properties are bought and sold based on a multiple of EBITDA, we utilize this measure to make investment decisions as well as to compare the performance of our assets to that of our peers. EBITDA should not be considered a substitute for net income. EBITDA may not be comparable to similarly titled measures employed by other companies.
Other EBITDA is comprised of:
555 California Street (acquired in May 2007)
12,295
12,164
35,554
18,513
Hotel Pennsylvania
11,907
9,973
24,754
Lexington MLP
10,803
9,022
29,271
15,006
Industrial warehouses
1,361
1,399
4,025
3,595
19,012
37,180
56,511
GMH (see page 12)
9,527
17,872
Other investments
1,964
1,488
6,927
42,861
63,061
137,290
143,178
Corporate general and administrative expenses
(19,633
(20,518
(62,101
(53,882
Impairment loss- Lexington MLP
(7,175
Investment income and other
8,871
46,551
44,001
229,385
Write-off of pre-development costs (see footnote (5) on page 14)
(34,200
(5,000
(8,009
(8,807
Discontinued operations of Americold, net (including a $112,690 net gain on sale in the nine months ended September 30, 2008)
16,245
118,521
49,811
32
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 as of September 30, 2008, and the related consolidated statements of income for the three-month and nine-month periods ended September 30, 2008 and 2007, and of cash flows for the nine-month periods ended September 30, 2008 and 2007. 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, 2007, and the related consolidated statements of income, shareholders’ equity, and cash flows for the year then ended prior to reclassification for the discontinued operations described in Note 9 to the accompanying financial statements (not presented herein); and in our report dated February 26, 2008, we expressed an unqualified opinion on those consolidated financial statements. We also audited the adjustments described in Note 9 that were applied to reclassify the December 31, 2007 consolidated balance sheet of Vornado Realty Trust (not presented herein) for discontinued operations. In our opinion, such adjustments are appropriate and have been properly applied to the previously issued consolidated balance sheet in deriving the accompanying retrospectively adjusted consolidated balance sheet as of December 31, 2007.
/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
November 4, 2008
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 and financial condition, see “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2007. 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 include a discussion of our consolidated financial statements for the three and nine months ended September 30, 2008. 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, 2007 in Management’s Discussion and Analysis of Financial Condition. There have been no significant changes to our policies during 2008.
Overview
Business Objective and Operating Strategy
Our business objective is to maximize shareholder value. We measure our success in meeting this objective by our total return to shareholders. Below is a table comparing our performance to the Morgan Stanley REIT Index (“RMS”) and the SNL REIT Index (“SNL”) for the following periods ending September 30, 2008:
Total Return (1)
Vornado
RMS
SNL
One-year
(13.8%)
(11.6%)
(9.9%)
Three-years
17.8%
17.1%
19.2%
Five-years
134.4%
85.8%
91.0%
Ten-years
365.3%
221.5%
228.0%
Past performance is not necessarily indicative of how we will perform in the future.
We intend to achieve our business objective by continuing to pursue our investment philosophy and executing our operating strategies through:
•
Maintaining a superior team of operating and investment professionals and an entrepreneurial spirit;
Investing in properties in select markets, such as New York City and Washington, DC, where we believe there is a high likelihood of capital appreciation;
Acquiring quality properties at a discount to replacement cost and where there is a significant potential for higher rents;
Investing in retail properties in select under-stored locations such as the New York City metropolitan area;
Investing in fully-integrated operating companies that have a significant real estate component;
Developing and redeveloping our existing properties to increase returns and maximize value; and
Providing specialty financing to real estate related companies.
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.
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 rent 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.
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 extreme volatility in the equity and bond markets. These factors, coupled with a slowing economy, higher unemployment, and lower consumer sentiment, have significantly reduced the volume of real estate transactions and increased capitalization rates. Our existing real estate portfolio may be affected by tenant bankruptcies, store closures, lower occupancy and effective rents, which would result in a corresponding decrease in net income, funds from operations and cash flow. For example, Circuit City has recently announced layoffs, second quarter losses and is considering significant store-closures. Circuit City leases 12 locations in our portfolio aggregating 380,000 square feet (approximately $8,100,000 of annual property rental income and approximately $13,000,000 of unamortized costs at September 30, 2008, including tenant improvements, leasing commissions and receivables arising from the straight-lining of rent). In addition, the value of our investments in joint ventures, marketable securities, and mezzanine loans may decline, which may result in impairment charges and/or valuation allowances and a corresponding decrease in net income and funds from operations. It is difficult to predict when or if these markets will return to historical capacity and pricing levels.
Overview – continued
Quarter Ended September 30, 2008 Financial Results Summary
Net income applicable to common shares for the quarter ended September 30, 2008 was $31,430,000, or $0.20 per diluted share, versus $116,546,000, or $0.74 per diluted share, for the quarter ended September 30, 2007. Net income for the quarters ended September 30, 2008 and 2007 include $1,313,000 and $31,922,000, respectively, for our share of net gains on sale of real estate. Net income for the quarters ended September 30, 2008 and 2007 also include certain items that affect comparability which are listed in the table below. The aggregate of these items and net gains on sale of real estate, net of minority interest, decreased net income applicable to common shares for the quarter ended September 30, 2008 by $31,236,000 or $0.20 per diluted share and increased net income applicable to common shares for the quarter ended September 30, 2007 by $54,489,000, or $0.33 per diluted share.
Funds from operations applicable to common shares plus assumed conversions (“FFO”) for the quarter ended September 30, 2008 was $173,787,000, or $1.06 per diluted share, compared to $221,199,000, or $1.35 per diluted share, for the prior year’s quarter. FFO for the quarters ended September 30, 2008 and 2007 include certain items that affect comparability which are listed in the table below. The aggregate of these items, net of minority interest, decreased FFO for the quarter ended September 30, 2008 by $33,542,000, or $0.20 per diluted share and increased FFO for the quarter ended September 30, 2007 by $28,215,000, or $0.17 per diluted share.
Items that affect comparability (income) expense:
Alexander’s stock appreciation rights compensation expense (income)
14,557
(3,075
11,808
Lexington MLP – impairment loss
7,175
Land held for development – impairment loss
3,982
(18,606
After-tax net gain on sale of residential condominiums
(3,570
Other, net
(2,151
(2,029
36,801
(23,710
47.6% share of Americold’s FFO (Net loss of $1,343 in the three months ended September 30, 2007) – sold in March 2008
(5,673
13.8% share of GMH’s FFO (Equity in net income of $5,708 in the three months ended September 30, 2007) – sold in June 2008
(1,685
(31,068
Minority limited partners’ share of above adjustments
(3,259
2,853
Total items that affect comparability
33,542
(28,215
We did not recognize income during the quarter ended September 30, 2008, on certain assets with an aggregate carrying amount of approximately $1.5 billion at September 30, 2008, because they were out of service for redevelopment. Assets under development include all or portions of the Bergen Town Center, 2101 L Street, 220 20th Street, 1229-1231 25th Street (“West End 25”), 1999 K Street, 220 Central Park South, and certain investments in joint ventures including Beverly Connection, Wasserman and 800 17th Street/PNC Place investments.
The percentage increase in the same-store Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) of our operating segments for the quarter ended September 30, 2008 over the quarter ended September 30, 2007 and the trailing quarter ended June 30, 2008 are summarized below.
Quarter Ended:
New York
Office
Washington, DC
September 30, 2008 vs. September 30, 2007
5.0%
3.0%
(9.5%)
September 30, 2008 vs. June 30, 2008
(1.2%)(1)
(2.4%)(1)
0.7%
(26.1%)(2)
Results primarily from seasonal increases in utility costs.
Results primarily from seasonality of operations.
Calculations of same-store EBITDA, reconciliations of 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 Financial Condition and Results of Operations.
36
Nine Months Ended September 30, 2008 Financial Results Summary
Net income applicable to common shares for the nine months ended September 30, 2008 was $554,738,000, or $3.48 per diluted share, versus $420,806,000 or $2.65 per diluted share, for the nine months ended September 30, 2007. Net income for the nine months ended September 30, 2008 and 2007 include $65,918,000 and $32,415,000, respectively, for our share of net gains on sale of real estate. Net income for the nine months ended September 30, 2008 and 2007 also include certain items that affect comparability which are listed in the table below. The aggregate of these items and net gains on sale of real estate, net of minority interest, increased net income applicable to common shares for the nine months ended September 30, 2008 by $275,551,000, or $1.68 per diluted share and increased net income applicable to common shares for the nine months ended September 30, 2007 by $114,200,000, or $0.70 per diluted share.
FFO for the nine months ended September 30, 2008 was $917,258,000, or $5.60 per diluted share, compared to $773,457,000, or $4.71 per diluted share, for the prior year’s nine months. FFO for the nine months ended September 30, 2008 and 2007 include certain items that affect comparability which are listed in the table below. The aggregate of these items, net of minority interest, increased FFO for the nine months ended September 30, 2008 by $222,089,000, or $1.36 per diluted share and increased FFO for the nine months ended September 30, 2007 by $102,888,000, or $0.63 per diluted share.
Reversal of deferred income taxes initially recorded in connection with H Street acquisition
Net gain on sale of our 47.6% interest in Americold
Partially owned entities – non-cash purchase price accounting adjustments:
14,900
Beverly Connection
(4,100
Reversal of MPH mezzanine loan loss accrual
(10,300
7,605
(8,991
Costs of acquisitions not consummated
3,009
Net gain on disposition of our 13.8% interest in GMH
(2,038
Prepayment penalties and write-off of unamortized financing costs
7,562
(1,642
1,969
(237,932
(90,713
47.6% share of Americold’s FFO (Net losses of $1,076 and $2,848 in each nine-month period, respectively) – sold in March 2008
(6,098
(17,824
13.8% share of GMH’s FFO (Equity in net income of $5,427 in the nine months ended September 30, 2007) – sold in June 2008
(4,718
(244,030
(113,255
21,941
10,367
(222,089
(102,888
The percentage increase in the same-store “EBITDA” of our operating segments for the nine months ended September 30, 2008 over the nine months ended September 30, 2007 is summarized below.
6.1%
4.6%
3.8%
1.3%
37
Reversal of Deferred Tax Liabilities
In connection with the 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.
Marketable Securities
At March 31, 2008, we concluded that an investment in a marketable equity security was other-than-temporarily impaired and recognized a non-cash impairment charge $9,073,000, based on the March 31, 2008 closing share price of that security. At September 30, 2008, we concluded that certain other investments in marketable equity securities were other-than-temporarily impaired based on the severity of the declines in the market value (“fair value” pursuant to SFAS 157) of those securities at September 30, 2008 and, accordingly, we recognized a non-cash impairment charge of $11,808,000. These non-cash charges are included in “interest and other investment income” on our consolidated statement of income. Based on the October 31, 2008 closing share prices of these securities, their market value is approximately $39,100,000 below their carrying amount.
Subsequent to September 30, 2008, the market value of Lexington’s common shares declined substantially, as did share prices of many public companies. Based on Lexington’s October 31, 2008 closing share price of $8.03, the market value of our investment is approximately $55,500,000 below its carrying amount.
Other Non-Cash Charges
During the quarter ended March 31, 2008, we recognized a non-cash charge of $34,200,000 for the write-off for our share of two joint ventures’ pre-development costs, of which $23,000,000 represented our 50% share of costs in connection with the abandonment of the “arena move”/Moynihan East portions of the Farley project. During the quarter ended September 30, 2008, we recognized a non-cash charge of $5,000,000 to write-down the carrying amount of land held for development to its fair value.
38
2008 Dispositions
On March 31, 2008, we sold our 47.6% interest in Americold, our Temperature Controlled Logistics segment, for $220,000,000, in cash, which resulted in a net gain of $112,690,000.
On June 6, 2008, we sold our Tysons Dulles Plaza office building complex located in Tysons Corner, Virginia for approximately $152,800,000, in cash, which resulted in a net gain of $56,831,000.
Pursuant to the sale of GMH’s military housing division and the merger of its student housing division with American Campus Communities, Inc (“ACC”) (NYSE: ACC), in June 2008 we received an aggregate of $105,180,000, consisting of $82,142,000 in cash and 753,126 shares of ACC common stock valued at $23,038,000 based on ACC’s then closing share price of $30.59, in exchange for our entire interest in GMH. We subsequently sold all of the ACC common shares. The above transactions resulted in a net gain of $2,038,000, which was recognized in the second quarter of 2008, and is included as a component of “net gains on disposition of wholly owned and partially owned assets other than depreciable real estate” in our consolidated statement of income.
2008 Financings
On January 18, 2008, we closed a construction loan providing up to $87,000,000 to finance the residential redevelopment project at 220 20th Street (formally Crystal Plaza Two). The construction loan bears interest at LIBOR plus 1.15% (4.34% at September 30, 2008) and matures in January 2011 with two six-month extension options. As of September 30, 2008, $27,291,000 was drawn under this loan.
On February 11, 2008, we completed a $335,000,000 refinancing of the Green Acres regional mall. This interest-only loan has a rate of LIBOR plus 1.40% (3.89% at September 30, 2008) and matures in February 2011, with two one-year extension options. We retained net proceeds of $193,000,000 after repaying the existing loan.
On February 20, 2008, we closed a construction loan providing up to $104,000,000 to finance the residential redevelopment project at 1229-1231 25th Street NW (“West End 25”). The construction loan bears interest at LIBOR plus 1.30% (3.79% at September 30, 2008) and matures in February 2011 with two six-month extension options. As of September 30, 2008, $15,583,000 was drawn under this loan.
On February 26, 2008, we completed a $150,000,000 financing of our 2101 L Street property located in Washington, DC. The loan bears interest at LIBOR plus 1.20% (4.91% at September 30, 2008) and matures in February 2011 with two one-year extension options. We retained net proceeds of $148,000,000.
On March 12, 2008 we completed a $260,000,000 refinancing of the River House Apartment Complex. The financing is comprised of a $196,000,000 interest-only seven year 5.43% fixed rate mortgage and a $64,000,000 interest-only ten year floating rate mortgage at the Freddie Mac Reference Note Rate plus 1.53% (3.81% at September 30, 2008). We retained net proceeds of $205,000,000 after repaying the existing loan.
On March 24, 2008, we closed a construction loan providing up to $290,000,000 to finance the redevelopment of a portion of the Bergen Town Center. The interest-only loan has a rate of LIBOR plus 1.50% (3.94% at September 30, 2008) and matures in March 2011 with two one-year extension options. As of September 30, 2008, $214,279,000 was drawn under this loan.
On March 27, 2008, we closed a construction loan providing up to $124,000,000 to finance the redevelopment of 1999 K Street. The interest-only loan has a rate of LIBOR plus 1.30% (5.01% at September 30, 2008) and matures in December 2010 with two six-month extension options. As of September 30, 2008, $59,230,000 was drawn under this loan.
On September 9, 2008, we purchased $50,000,000 of our senior unsecured notes due August 15, 2009 for $49,746,000.
39
Overview - continued
Leasing Activity
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)
As of September 30, 2008:
Showroom
Square feet (in service)
16,093
17,649
21,837
2,408
6,348
Number of properties
85
176
Occupancy rate
97.1%
95.7%
94.1%
96.5%
92.3%
Leasing Activity:
Quarter Ended September 30, 2008:
Square feet
234
582
65
Initial rent per square foot (1)
73.55
38.97
34.80
25.68
26.79
Weighted average lease terms (years)
9.7
7.8
7.4
9.1
5.6
Rent per square foot – relet space:
223
169
111
192
Initial Rent (1)
74.66
37.31
37.26
Prior escalated rent
45.61
34.62
32.98
27.94
27.74
Percentage increase (decrease):
Cash basis
63.7%
7.8%
13.0%
(8.1%)
(3.4%)
GAAP basis
74.3%
11.8%
20.7%
9.5%
10.1%
Rent per square foot – vacant space:
413
110
1
Initial rent (1)
50.20
39.65
32.35
27.00
Tenant improvements and leasing commissions:
Per square foot
39.84
9.31
11.20
57.43
8.08
Per square foot per annum
4.11
1.19
1.52
6.31
1.44
Percentage of initial rent
5.6%
3.1%
4.4%
24.6%
5.4%
Nine Months Ended September 30, 2008:
1,014
1,856
801
656
71.99
38.43
31.84
24.43
28.67
9.2
7.6
9.3
5.5
941
1,088
157
633
73.77
35.43
31.44
24.54
28.43
48.70
29.99
27.17
26.94
28.85
51.5%
18.1%
15.7%
(8.9%)
(1.5%)
56.4%
19.5%
23.5%
11.3%
768
335
66
49.00
42.67
32.39
24.17
35.52
46.81
16.27
9.95
52.00
8.55
5.09
2.14
1.31
5.59
1.55
7.1%
4.1%
22.9%
Overview (continued)
(Square feet and cubic feet in thousands)
As of June 30, 2008:
16,074
17,553
21,928
2,390
6,360
177
97.5
%
93.9
94.5
96.7
93.4
As of December 31, 2007:
15,994
17,931
21,934
6,139
97.6
93.3
94.3
96.8
93.7
As of September 30, 2007:
15,979
17,587
21,071
2,763
6,320
83
173
97.7
93.5
95.5
91.6
_______________________________
Most leases include periodic step-ups in rent which are not reflected in the initial rent per square foot leased.
41
In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands disclosures about fair value measurements. SFAS 157 was effective for our financial assets and liabilities on January 1, 2008. The FASB has deferred the implementation of the provisions of SFAS 157 relating to certain non-financial assets and liabilities until January 1, 2009. This standard did not materially affect how we determine fair value, but resulted in certain additional disclosures. SFAS 157 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 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 of (i) marketable securities, (ii) derivative positions in marketable securities and (iii) the assets of our deferred compensation plan (primarily marketable securities and equity investments in limited partnerships), for which there is a corresponding liability on our consolidated balance sheet. Financial assets and liabilities measured at fair value as of September 30, 2008 are presented in the table below based on their level in the fair value hierarchy.
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, 2008.
Total Realized and Unrealized Gains or (Losses)
42
43
Recently Issued Accounting Literature – continued
In May 2008, the FASB issued Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments that may be Settled in Cash upon Conversion (Including Partial Cash Settlement), (the “FSP”). The adoption of this FSP will affect the accounting for our convertible and exchangeable senior debentures and Series D-13 convertible preferred units. The FSP requires the initial proceeds from the sale of our convertible and exchangeable senior debentures and Series D-13 convertible preferred units to be allocated between a liability component and an equity component. The resulting discount will be amortized using the effective interest method over the period the debt is expected to remain outstanding as additional interest expense. The FSP is effective for our fiscal year beginning on January 1, 2009 and requires retroactive application. The adoption of the FSP on January 1, 2009 will result in the recognition of an aggregate unamortized debt discount of $151,422,000 (as of September 30, 2008) on our consolidated balance sheet and additional interest expense on our consolidated statements of income. Our current estimate of the incremental interest expense, net of minority interest, for each reporting period is as follows:
Net Income and EBITDA by Segment for the Three Months Ended September 30, 2008 and 2007
See notes on page 47.
45
Net Income and EBITDA by Segment for the Three Months Ended September 30, 2008 and 2007 – continued
The Washington, DC Office segment EBITDA and the Retail segment EBITDA includes $24,696 and $3,049, respectively, of net gains on sale of real estate (included in “Income (loss) from discontinues operations, net”). The Other segment EBITDA includes an $18,606 net gain on the mark-to-market of derivative instruments and a $1,012 net gain on sale of marketable equity.
__________________________
46
Net Income and EBITDA by Segment for the Three Months Ended September 30, 2008 and 2007 - continued
Cost of acquisitions and development not consummated
Discontinued operations of Americold, net (sold in March 2008)
Results of Operations – Three Months Ended September 30, 2008 Compared to September 30, 2007
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 $677,145,000 in the quarter ended September 30, 2008, compared to $637,078,000 in the prior year’s quarter, an increase of $40,067,000. Below are the details of the increase (decrease) by segment:
Property rentals:
Increase (decrease) due to:
Acquisitions
2,599
(319
2,898
Development/Redevelopment
(452
(335
(110
Amortization of acquired below market leases, net
(409
1,219
(822
Operations:
3,318
Trade shows
(474
Leasing activity (see page 40)
24,122
15,618
5,277
3,157
303
(233
Total increase (decrease) in property rentals
28,695
15,209
4,529
6,939
(135
2,153
Tenant expense reimbursements:
Acquisitions/development
858
(121
979
Operations
7,761
4,931
2,657
2,066
(1,338
)(2)
(555
Total increase (decrease) in tenant expense reimbursements
8,619
2,536
3,045
Increase (decrease) in:
Lease cancellation fee income
(119
(1,305
1,038
311
(163
(373
(356
(303
101
87
BMS Cleaning revenue
599
2,079
(1,480
)(3)
2,646
(432
1,384
907
(574
Total increase (decrease) in fee and other income
2,753
(14
2,119
1,773
831
(1,956
Total increase (decrease) in revenues
40,067
20,126
9,184
11,757
(642
(358
______________________________
Revenue per available room (“REVPAR”) was $159.20 for the three months ended September 30, 2008, compared to $136.85 for the prior year’s quarter.
Primarily from reimbursements recorded in the prior year’s quarter resulting from a reassessment of 2006 real estate taxes in 2007.
Primarily from an increase in the elimination of inter-company fees of our operating segment upon consolidation.
48
Results of Operations – Three Months Ended September 30, 2008 Compared to September 30, 2007 (continued)
Our expenses, which consist of operating, depreciation and amortization and general and administrative expenses, were $467,502,000 in the quarter ended September 30, 2008, compared to $425,882,000 in the prior year’s quarter, an increase of $41,620,000. Below are the details of the increase (decrease) by segment:
Operating:
1,369
1,013
161
174
455
Hotel activity
1,166
Trade shows activity
(1,012
15,605
13,782
5,632
5,124
(1,167
(7,766
)(4)
Total increase (decrease) in operating expenses
17,302
5,855
6,592
(2,018
(6,909
Depreciation and amortization:
Acquisitions/Development
1,324
495
1,524
(695
Operations (due to additions to buildings and improvements)
16,387
6,976
4,913
746
641
3,111
Total increase in depreciation and amortization
17,711
5,408
2,270
2,416
General and administrative:
Acquisitions/Development and other
989
289
700
618
(67
180
370
(20
155
Total increase (decrease) in general and administrative
1,607
659
855
Total increase (decrease) in expenses
41,620
20,691
11,443
9,521
(1,397
1,362
Primarily due to a trade show in the prior year’s quarter that did not reoccur this year.
Results from a $2,319 increase in BMS operating expenses and an $11,463 increase in property level operating expenses.
Primarily from the reassessment of 2006 real estate taxes in 2007.
Primarily from an increase in the elimination of inter-company fees of our operating segments upon consolidation.
Income Applicable to Alexander’s
Our 32.6% share of Alexander’s net loss (comprised of equity in net loss or income, management, leasing, and development fees) was $6,876,000 in the quarter ended September 30, 2008, compared to net income of $12,111,000 in the prior year’s quarter, a decrease of $18,987,000. This decrease was primarily due to $14,557,000 for our share of stock appreciation rights compensation expense in the current quarter, compared to $3,075,000 of income for our share of the reversal of accrued stock appreciation rights compensation expense in the prior year’s quarter.
Loss Applicable to Toys
Our 32.7% share of Toys’ net loss (comprised of equity in net loss, interest income on loans receivable, and management fees) was $8,141,000 in the quarter ended September 30, 2008, or $19,085,000 before our share of Toys’ income tax benefit, compared to a net loss of $20,289,000, or $37,855,000 before our share of Toys’ income tax benefit in the prior year’s quarter. Historically, Toys’ fourth quarter net income, which we recorded on a lag basis in our first quarter, accounts for more than 80% of Toys’ fiscal year net income.
Income from Partially Owned Entities
Summarized below are the components of income from partially owned entities for the quarter ended September 30, 2008 and 2007.
Equity in Net Income:
50% share of equity in net loss (1)
Lexington MLP – 7.7% share of equity in net income (2)
India real estate ventures – 4% to 50% share of equity in net losses
GMH Communities L.P. – 13.8% share of equity in net income in 2007 (3)
In accordance with EITF 99-10, during the quarter ended September 30, 2008 our partner’s capital account was reduced to zero and, accordingly, we recognized $1,528 of additional net loss for the portion that relates to our partner’s pro rata share of the venture’s net loss.
The three months ended September 30, 2008 includes a $7,175 non-cash impairment charge.
Pursuant to the sale of GMH’s military housing division and the merger of its student housing division with American Campus Communities, Inc. (“ACC”) (NYSE: ACC), in June 2008 we received an aggregate of $105,180, consisting of $82,142 in cash and 753,126 shares of ACC common stock valued at $23,038 based on ACC’s then closing share price of $30.59, in exchange for our entire interest in GMH. We subsequently sold all of the ACC common shares. The above transactions resulted in a net gain of $2,038, which was recognized in the second quarter of 2008, and is included as a component of “net gains on disposition of wholly owned and partially owned assets other than depreciable real estate” in our consolidated statement of income.
50
Interest and Other Investment Income, net
Interest and other investment income, net (mark-to-market of derivative positions, interest income on mortgage loans receivable, other interest income and dividend income) was $9,638,000 in the quarter ended September 30, 2008, compared to $56,581,000 in the prior year’s quarter, a decrease of $46,943,000. This decrease resulted primarily from:
Derivative positions in marketable equity securities – net loss of $3,982 this quarter compared to a net gain of $18,606 in the prior year’s quarter
(22,588
(11,808
Decrease in interest income on mezzanine loans as a result of lower average investments ($468,469 this quarter compared to $652,489 in the prior year’s quarter)
(7,395
(5,152
(46,943
Interest and Debt Expense
Interest and debt expense was $148,039,000 in the quarter ended September 30, 2008, compared to $149,722,000 in the prior year’s quarter, a decrease of $1,683,000. The prior year’s quarter included $1,701,000 of expense from the early extinguishment of debt. The decrease in interest expense from lower weighted average rates this quarter was offset by higher average outstanding debt.
Net Gains (Losses) 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 $5,160,000 in the quarter ended September 30, 2008, compared to $1,012,000 in the quarter ended September 30, 2007. The quarter ended September 30, 2008 includes a $4,427,000 pre-tax gain on sale of residential condominiums at our 40 East 66th Street property and $733,000 of net gains on sale of marketable securities. The $1,012,000 net gain in the quarter ended September 30, 2007 represents net gains on sale of marketable securities.
Minority Interest of Partially Owned Entities
Minority interest of partially owned entities was income of $466,000 in the quarter ended September 30, 2008, compared to expense of $282,000 in the prior year’s quarter and represents the minority partners’ pro rata share of the net loss of consolidated partially owned entities, including 1290 Avenue of the Americas, 555 California Street, 220 Central Park South, Wasserman and the Springfield Mall.
Income Tax Expense
Income tax expense was $5,244,000 in the quarter ended September 30, 2008, compared to $2,806,000 in the prior year’s quarter, an increase of $2,438,000. This increase was primarily due to the acquisition of 555 California Street and income taxes on the sale of residential condominiums at our 40 East 66th Street property.
The combined results of discontinued operations for the quarter ended September 30, 2008 and 2007 include the operating results of Tysons Dulles Plaza, which was sold on June 10, 2008; Americold, which was sold on March 31, 2008; 19.6 acres of land we acquired as part of our acquisition of H Street, of which 11 acres were sold in September 2007; Vineland, New Jersey, which was sold on July 16, 2007; Crystal Mall Two, which was sold on August 9, 2007; and Arlington Plaza, which was sold on October 17, 2007.
27,745
Minority Limited Partners’ Interest in the Operating Partnership
Minority limited partners’ interest in the Operating Partnership was $3,091,000 in the quarter ended September 30, 2008, compared to $10,241,000 in the prior year’s quarter, a decrease of $7,150,000. This decrease results primarily from lower net income subject to allocation to the minority limited partners.
Perpetual Preferred Unit Distributions of the Operating Partnership
Perpetual preferred unit distributions of the Operating Partnership were $4,818,000 in the quarters ended September 30, 2008 and 2007.
Preferred Share Dividends
Preferred share dividends were $14,271,000 in the quarter ended September 30, 2008, compared to $14,295,000 in the prior year’s quarter.
52
EBITDA by Segment
Below are the details of the changes in EBITDA by segment for the three months ended September 30, 2008 from the three months ended September 30, 2007.
Three Months ended September 30, 2007
2008 Operations: Same store operations(1)
7,126
3,026
2,240
(3,323
Acquisitions, dispositions and non-same store income and expenses
(1,782
(28,976
(1,405
4,852
Three Months ended September 30, 2008
% increase (decrease) in same store operations
Represents the increase in property-level operations which were owned for the same period in each year and excludes the effect of property acquisitions, dispositions and other non-operating items that affect comparability, including divisional general and administrative expenses. We utilize this measure to make decisions on whether to buy or sell properties as well as to compare the performance of our properties to that of our peers. Same store operations may not be comparable to similarly titled measures employed by other companies.
53
Net Income and EBITDA by Segment for the Nine Months Ended September 30, 2008 and 2007
Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the nine months ended September 30, 2008 and 2007.
______________________
See notes on page 56.
Net Income and EBITDA by Segment for the Nine Months Ended September 30, 2008 and 2007 – continued
Impairment loss-Lexington MLP
Discontinued operations of Americold, net (including a $112,690 net gain on sale in 2008)
Results of Operations – Nine Months Ended September 30, 2008 Compared to September 30, 2007
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 $2,000,792,000 in the nine months ended September 30, 2008, compared to $1,753,350,000 in the prior year’s nine months, an increase of $247,442,000. Below are the details of the increase (decrease) by segment:
Acquisitions:
46,780
37,301
H Street (effect of consolidating from May 1, 2007 vs. equity method prior)
19,330
21,610
961
14,846
5,803
(5,535
(2,552
(2,345
(638
14,813
12,653
897
(46
1,214
8,146
4,841
Leasing activity
60,959
32,012
18,431
10,640
363
(487
Total increase in property rentals
208,245
91,445
36,265
24,038
10,961
45,536
13,446
6,041
2,114
3,442
1,849
17,541
3,138
9,876
6,887
(1,624
(736
30,987
9,179
11,990
10,329
(1,826
(1,174
827
(1,431
(48
(2,568
1,712
(3,728
(260
295
(587
8,033
12,595
(4,562
4,571
(205
3,234
846
546
150
8,210
12,928
333
(845
793
(4,999
Total increase in revenues
247,442
113,552
48,588
33,522
10,130
41,650
Revenue per available room (“REVPAR”) was $140.54 in the nine months ended September 30, 2008 compared to $121.91 in the prior year’s nine months.
Reflects a decrease in real estate tax reimbursements resulting from lower tax assessments and new tenant base years.
Primarily from reimbursements recorded in the prior year’s nine months resulting from a reassessment of 2006 real estate taxes.
Primarily from leasing fees in 2007 in connection with our management of a development project.
Represents the elimination of inter-company cleaning revenue from our other operating segments upon consolidation. See page 58 for the elimination of inter-company cleaning charges.
57
Results of Operations – Nine Months Ended September 30, 2008 Compared to September 30, 2007 - continued
Our expenses, which consist of operating, depreciation and amortization and general and administrative expenses, were $1,349,348,000 in the nine months ended September 30, 2008, compared to $1,162,774,000 in the prior year’s nine months, an increase of $186,574,000. Below are the details of the increase (decrease) by segment:
19,148
17,442
H Street (effective of consolidating from May 1, 2007 vs. equity method prior)
8,300
12,196
1,581
5,286
5,329
225
(784
1,318
2,784
(1,308
37,163
26,542
18,074
12,183
1,558
(21,194
95,950
45,690
27,171
18,787
5,579
(1,277
Increase due to:
44,632
23,618
7,288
2,372
11,354
35,716
12,036
13,810
2,198
4,367
80,348
35,654
21,098
4,570
14,659
Acquisitions/Development and Other
6,628
1,924
4,718
4,446
128
(1,870
1,111
115
4,962
11,074
(1,884
3,035
9,680
(798
Total increase in expenses
186,574
81,472
46,385
26,392
10,061
22,264
Primarily from an $11,498 increase in BMS operating expenses and a $15,044 increase in property level operating expenses.
Primarily from an increase in compensation expense and professional fees.
58
Our 32.6% share of Alexander’s net income (comprised of equity in net income, management, leasing, and development fees) was $16,404,000 in the nine months ended September 30, 2008, compared to $35,114,000 in the prior year’s nine months, a decrease of $18,710,000. This decrease was primarily due to $7,605,000 for our share of stock appreciations rights compensation expense in the current period, compared to $8,991,000 of income for our share of the reversal of accrued stock appreciation right compensation expense in the prior period.
Income Applicable to Toys
Our 32.7% share of Toys’ net income (comprised of equity in net income, interest income on loans receivable, and management fees) was $41,510,000 in the nine months ended September 30, 2008, or $124,288,000 before our share of Toys’ income tax expense, compared to $18,343,000, or $38,593,000 before our share of Toys’ income tax expense for the prior year’s nine months. Toys prepares its consolidated financial statements using the historical cost basis (“Recap basis”) of accounting. We account for our investment in Toys on the purchase accounting basis. In July 2008, in connection with an audit of Toys’ purchase accounting basis financial statements for its fiscal years 2006 and 2007, it was determined that the purchase accounting basis income tax expense was understated. Our share of this non-cash charge was $14,900,000, which we recognized as part of our equity in Toys’ net loss in the second quarter of 2008. This non-cash charge has no effect on cash actually paid for income taxes or Toys’ previously issued Recap basis consolidated financial statements.
(Loss) Income from Partially Owned Entities
Summarized below are the components of (loss) income from partially owned entities for the nine months ended September 30, 2008 and 2007.
(Amount in thousands)
Equity in Net (Loss) Income:
Lexington MLP – 7.7% share of equity in net income
India real estate ventures – 4% to 50% share of equity in net loss
GMH Communities L.P. – 13.8% share of equity in net income
The nine months ended September 30, 2008 includes $4,100 for the reversal of a non-cash charge recorded by the joint venture in prior periods which, pursuant to paragraph 19(n) of APB Opinion 18 “The Equity Method of Accounting For Investments In Common Stock,” should have been eliminated in the determination of our share of the earnings of the venture. In addition, in accordance with EITF 99-10, during the quarter ended September 30, 2008 our partner’s capital account was reduced to zero and, accordingly, we recognized $1,528 of additional net loss for the portion that related to our partner’s pro rata share of the venture’s net loss.
The nine months ended September 30, 2008 includes a $34,200 write-off for our share of two joint ventures’ pre-development costs, of which $23,000 represents our 50% share of costs in connection with the abandonment of the “arena move”/Moynihan East portions of the Farley project.
59
Interest and other investment income, net (mark-to-market of derivative positions, interest income on mortgage loans receivable, other interest income and dividend income) was $47,535,000 in the nine months ended September 30, 2008, compared to $229,774,000 in the prior year’s nine months, a decrease of $182,239,000. This decrease resulted primarily from:
Derivative positions in marketable equity securities – net loss of $25,812 in the current year’s nine months compared to a net gain of $100,060 in the prior year’s nine months
(125,872
Decrease in interest income as a result of lower average yields on investments (2.7% in the current year’s nine months compared to 5.1% in the prior year’s nine months)
(27,675
Decrease in interest income on mezzanine loans as a result of lower average investments ($482,053 in the current year’s nine months compared to $623,198 in the prior year’s nine months)
(14,904
Partial reversal of MPH mezzanine loan loss accrual (see below)
10,300
Marketable equity securities - impairment losses
(20,881
(182,239
On June 5, 2007, we acquired a 42% interest in two MPH mezzanine loans totaling $158,700,000, for $66,000,000 in cash. The loans, which were due on February 8, 2008 and have not been repaid, are subordinate to $2.9 billion of mortgage and other debt and secured by the equity interests in four New York City properties: Worldwide Plaza, 1540 Broadway office condominium, 527 Madison Avenue and Tower 56. As of December 31, 2007, we reduced the net carrying amount of the loans to $9,000,000 by recognizing a $57,000,000 non-cash charge which is included as a reduction of “interest and other investment income” on our consolidated statement of income. On April 2, 2008, we sold a sub-participation interest in the loans for $19,300,000. The sub-participation did not meet the criteria for sale accounting under Statement of Financial Accounting Standard No. 140 Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (“SFAS 140”) because the sub-participant is not free to pledge or exchange the asset. In the first quarter of 2008, we reduced our valuation allowance from $57,000,000 to $46,700,000, resulting in the recognition of $10,300,000 of “interest and other investment income, net” in our consolidated statement of income in the nine months ended September 30, 2008.
Interest and debt expense was $446,534,000 in the nine months ended September 30, 2008, compared to $420,713,000 in the prior year’s nine months, an increase of $25,821,000. This increase resulted primarily from higher average debt outstanding partially offset by lower weighted average interest rates and higher capitalized interest related to a larger amount of assets under development. The prior year’s nine months also included $7,472,000 of expense from the early extinguishment of debt.
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 $8,546,000 in the nine months ended September 30, 2008, compared to $17,669,000 in the nine months ended September 30, 2007. The nine months ended September 30, 2008 includes a $4,427,000 pre-tax gain on sale of residential condominiums at our 40 East 66th Street property, a $2,038,000 net gain on disposition of our 13.8% interest in GMH and $2,081,000 for net gains on sale of marketable securities. The $17,669,000 net gain in the nine months ended September 30, 2007 represents net gains on sale of marketable securities.
Minority interest of partially owned entities was income of $2,709,000 in the nine months ended September 30, 2008, compared to income of $1,414,000 in the prior years nine months and represents the minority partners’ pro rata share of the net income or loss of consolidated partially owned entities, including 1290 Avenue of the Americas, 555 California Street, 220 Central Park South, Wasserman and the Springfield Mall.
60
Income Tax Benefit / Expense
In the nine months ended September 30, 2008, we had an income tax benefit of $207,170,000, compared to an expense of $5,403,000 in the prior year’s nine months, a decrease of $212,573,000. The decrease results primarily from a $222,174,000 reversal of deferred taxes recorded in connection with the acquisition of H Street. 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.
The combined results of discontinued operations for the nine months ended September 30, 2008 and 2007 include the operating results of Tysons Dulles Plaza, which was sold on June 10, 2008; Americold, which was sold on June 30, 2008; 19.6 acres of land we acquired as part of our acquisition of H Street, of which 11 acres were sold in September 2007; Vineland, New Jersey, which was sold on July 16, 2007; Crystal Mall Two, which was sold on August 9, 2007; and Arlington Plaza, which was sold on October 17, 2007.
Minority limited partners’ interest in the Operating Partnership was $42,046,000 in the nine months ended September 30, 2008, compared to $44,270,000 in the prior year’s nine months.
Perpetual preferred unit distributions of the Operating Partnership were $14,455,000 in the nine-month periods ended September 30, 2008 and 2007.
Preferred share dividends were $42,820,000 in the nine months ended September 30, 2008, compared to $42,886,000 in the prior year’s nine months.
Below are the details of the changes in EBITDA by segment for the nine months ended September 30, 2008 from the nine months ended September 30, 2007.
Nine Months ended September 30, 2007
23,031
13,097
8,190
1,417
34,179
23,765
8,153
3,132
Nine Months ended September 30, 2008
% increase in same store operations
62
LIQUIDITY AND CAPITAL RESOURCES
We may from time to time seek to purchase or retire our 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, our liquidity requirements and other factors. The amounts involved in connection with these transactions could be material to our consolidated financial statements.
Cash Flows for the Nine Months Ended September 30, 2008
Property rental income is our primary source of cash flow and is 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, senior unsecured borrowings, and 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 common and preferred shareholders, as well as acquisition and development costs. Our 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.
Our consolidated outstanding debt was $12,190,797,000 at September 30, 2008, a $294,759,000 increase over the balance at December 31, 2007. This increase resulted primarily from debt associated with property refinancings. As of September 30, 2008 and December 31, 2007, $10,218,000 and $405,656,000, respectively, was outstanding under our revolving credit facilities. During the remainder of 2008 and 2009, $0 and $380,000,000 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 $3,045,615,000 at September 30, 2008, a $244,258,000 decrease from the balance at December 31, 2007. This resulted primarily from a $173,000,000 decrease in our share of Toys “R” Us outstanding debt and from the disposition of our 13.8% interest in GMH.
Cash flows provided by operating activities of $647,609,000 was primarily comprised of (i) net income of $597,558,000, (ii) $20,901,000 of non-cash adjustments, including depreciation and amortization expense, the effect of straight-lining of rental income, equity in net income of partially owned entities, minority interest expense, (iii) distributions of income from partially owned entities of $12,021,000, and (iv) the net change in operating assets and liabilities of $17,129,000.
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 of 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 minority partners 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 exercises of employee stock options of $21,981,000.
Capital Expenditures
Our capital expenditures consist of expenditures to maintain assets, tenant improvements and leasing commissions. Recurring capital improvements include expenditures to maintain a property’s competitive position within the market and tenant improvements and leasing commissions necessary to re-lease expiring leases or renew or extend existing leases. Non-recurring capital improvements include expenditures completed in the year of acquisition and the following two years that were planned at the time of acquisition as well as tenant improvements and leasing commissions for space that was vacant at the time of acquisition of a property. Our development and redevelopment expenditures include all hard and soft costs associated with the development or redevelopment of a property, including tenant improvements, leasing commissions and capitalized interest and operating costs until the property is substantially complete and ready for its intended use.
63
LIQUIDITY AND CAPITAL RESOURCES - continued
Below are the details of capital expenditures, leasing commissions and development and redevelopment expenditures and a reconciliation of total expenditures on an accrual basis to the cash expended in the nine months ended September 30, 2008.
(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
43,938
18,148
9,062
6,509
Tenant improvements:
54,958
20,035
22,896
4,417
7,610
14,084
6,822
285
6,846
131
69,042
26,857
14,456
Leasing Commissions:
21,688
15,015
5,130
1,003
540
8,423
5,909
2,221
181
30,111
20,924
1,115
2,761
22.60
19.57
2.92
3.03
6.8%
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 (1):
Bergen Town Center
93,685
Wasserman venture
51,405
1999 K Street
32,837
40 East 66th Street
28,634
26,538
220 20th Street
25,627
22,493
West End 25
16,852
2101 L Street
11,987
Springfield Mall
9,749
North Bergen, New Jersey
7,267
Green Acres Mall
3,632
83,241
19,045
15,861
33,365
5,023
9,947
413,947
103,164
170,191
116,524
Excludes development expenditures of partially owned, non-consolidated investments.
LIQUIDITY AND CAPITAL RESOURCES - CONTINUED
Cash Flows for the Nine Months Ended September 30, 2007
Our cash and cash equivalents was $834,274,000 at September 30, 2007, a $1,399,043,000 decrease over the balance at December 31, 2006. This decrease resulted from $3,065,557,000 of net cash used in investing activities, partially offset by, $1,179,421,000 of net cash provided by financing activities and $487,093,000 of net cash provided by operating activities. Property rental income represents our primary source of net cash provided by operating activities. Our property rental income is primarily dependent upon the occupancy and rental rates of our properties. Other sources of liquidity to fund our cash requirements include proceeds from debt financings, including mortgage loans and corporate level unsecured borrowings; our revolving credit facilities; proceeds from the issuance of common and preferred equity; and asset sales. Our cash requirements include property operating expenses, capital improvements, tenant improvements, leasing commissions, distributions to our common and preferred shareholders, as well as acquisition and development costs.
Our consolidated outstanding debt was $12,576,484,000 at September 30, 2007, a $3,021,686,000 increase over the balance at December 31, 2006. This increase resulted primarily from the issuance of $1,400,000,000 of convertible senior debentures due 2026 and from mortgage debt associated with asset acquisitions and property refinancings during 2007.
Our share of debt of unconsolidated subsidiaries was $3,104,451,000 at September 30, 2007, a $218,556,000 decrease from the balance at December 31, 2006. This decrease resulted primarily from our $297,906,000 share of Toys’ decrease in outstanding debt.
Cash flows provided by operating activities of $487,093,000 was primarily comprised of (i) net income of $463,692,000, after adjustments of $125,150,000 for non-cash items, including depreciation and amortization expense, net gains from derivative positions, the effect of straight-lining of rental income, equity in net income of partially owned entities, minority interest expense, (ii) distributions of income from partially owned entities of $18,047,000, partially offset by, (iii) the net change in operating assets and liabilities of $119,796,000.
Net cash used in investing activities of $3,065,557,000 was primarily comprised of (i) acquisitions of real estate of $2,775,982,000, (ii) investments in notes and mortgage loans receivable of $211,942,000, (iii) deposits in connection with real estate acquisitions and pre-acquisition costs of $21,231,000, (iv) investments in partially owned entities of $201,432,000, (v) development and redevelopment expenditures of $231,575,000, (vi) investments in marketable securities of $152,683,000, partially offset by, (vii) proceeds received from repayments on mortgage loans receivable of $211,942,000 and (viii) proceeds received from sales of real estate of $217,941,000.
Net cash provided by financing activities of $1,179,421,000 was primarily comprised of (i) proceeds from borrowings of $2,517,105,000, of which $1,372,000,000 were proceeds received from the offering of the 2.85% convertible senior debentures due 2027, partially offset by, (ii) repayments of borrowings of $727,730,000, (iii) dividends paid on common shares of $387,268,000, (iv) purchases of marketable securities in connection with the legal defeasance of mortgage notes payable of $109,092,000, (v) distributions to minority partners of $62,169,000, and (vi) dividends paid on preferred shares of $42,940,000.
Below are the details of capital expenditures, leasing commissions and development and redevelopment expenditures and a reconciliation of total expenditures on an accrual basis to the cash expended in the nine months ended September 30, 2007.
28,859
9,380
8,808
1,477
9,172
61,107
25,781
17,472
2,184
15,670
260
61,367
2,444
29,311
18,581
5,871
2,228
2,631
381
29,692
2,609
21.75
48.69
14.93
10.40
17.17
3.12
5.41
2.53
1.21
2.82
7.7%
7.4%
3.6%
10.8%
Total Capital Expenditures and LeasingCommissions (accrual basis)
119,918
53,742
32,151
6,530
27,473
49,843
13,420
25,115
3,368
7,940
(63,695
(32,594
(16,873
(3,797
(10,431
106,066
34,568
40,393
6,101
24,982
41,043
28,387
Crystal Mall Two
26,895
26,893
26,830
North Bergen, New Jersey (Ground-up development)
14,493
12,400
4,412
4,211
46,011
2,953
21,353
12,596
9,109
231,575
7,164
76,635
99,374
48,402
___________________________
SUPPLEMENTAL INFORMATION
Three Months Ended September 30, 2008 vs. Three Months Ended June 30, 2008
Our revenues and expenses are subject to seasonality during the year which impacts quarter-by-quarter net earnings, cash flows and funds from operations. The business of Toys is highly seasonal. Historically, Toys’ fourth quarter net income, which we recorded 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.
Below are the details of the changes in EBITDA by segment for the three months ended September 30, 2008 from the three months ended June 30, 2008.
For the three months ended June 30, 2008
508,391
148,548
158,009
87,804
35,438
37,032
41,560
(1,893
(2,487
(11,250
(2,119
(58,182
(3,213
200
% (decrease) increase in same store operations
(1.2%)
(2.4%)
(26.1%)
______________________________________
Reflects a seasonal increase in utility costs during the third quarter, of which $6,501 relates to the New York Office segment and $3,504 relates to the Washington, DC Office segment. Excluding the seasonal increase in utilities, New York Office same store operations increased by 3.0% and Washington, DC Office same store operations increased by 1.0%.
The following table reconciles net income to EBITDA for the quarter ended June 30, 2008.
Net income (loss) for the quarter ended
June 30, 2008
139,660
69,716
89,993
40,106
8,108
(30,711
(37,552
192,239
31,827
34,086
25,932
13,230
33,906
53,258
170,493
47,005
33,870
21,766
13,919
34,034
19,899
Income tax (benefit) expense
5,999
(197
5,955
EBITDA for the
quarter ended June 30, 2008
67
FUNDS FROM OPERATIONS (“FFO”)
FFO is computed in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines FFO as net income or loss determined in accordance with GAAP, excluding extraordinary items as defined under GAAP and gains or losses from sales of previously depreciated operating real estate assets, plus specified non-cash items, such as real estate asset depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. FFO and FFO per diluted share are used by management, investors and industry analysts as supplemental measures of operating performance of equity REITs. FFO and FFO per diluted share should be evaluated along with GAAP net income and income per diluted share (the most directly comparable GAAP measures), as well as cash flow from operating activities, investing activities and financing activities, in evaluating the operating performance of equity REITs. Management believes that FFO and FFO per diluted share are helpful to investors as supplemental performance measures because these measures exclude the effect of depreciation, amortization and gains or losses from sales of real estate, all of which are based on historical costs which implicitly assumes that the value of real estate diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, these non-GAAP measures can facilitate comparisons of operating performance between periods and among other equity REITs. FFO does not represent cash generated from operating activities in accordance with GAAP and is not necessarily indicative of cash available to fund cash needs as disclosed in Our Statements of Cash Flows. FFO should not be considered as an alternative to net income as an indicator of our operating performance or as an alternative to cash flows as a measure of liquidity. The calculations of both the numerator and denominator used in the computation of income per share are disclosed in footnote 10 – Income Per Share, in the notes to our consolidated financial statements on page 23 of this Quarterly Report on Form 10-Q.
FFO for the Three and Nine Months Ended September 30, 2008, and 2007
FFO applicable to common shares plus assumed conversions was $173,787,000, or $1.06 per diluted share in the quarter ended September 30, 2008, compared to $221,199,000, or $1.35 per diluted share in the prior year’s quarter. FFO applicable to common shares plus assumed conversions was $917,258,000 or $5.60 per diluted share, in the nine months ended September 30, 2008, compared to $773,457,000, or $4.71 per diluted share, in 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 Nine Months
Ended September 30,
Reconciliation of Net Income to FFO:
Depreciation and amortization of real property
127,975
117,148
380,062
325,324
(112
(22,942
Proportionate share of adjustments to equity in net income of Toys to arrive at FFO:
17,892
17,949
50,902
68,984
Net gain on sale of real estate
(164
(493
Income tax effect of above adjustments
(6,205
(6,282
(17,981
(23,972
Proportionate share of adjustments to equity in net income of partially owned entities, excluding Toys, to arrive at FFO:
12,524
13,506
35,778
36,091
(1,037
(8,980
(8,231
(13,816
(11,070
(36,232
(37,570
FFO
182,758
230,170
944,169
800,134
FFO applicable to common shares
168,487
215,875
901,349
757,248
5,255
5,256
15,768
Series A convertible preferred dividends
441
FFO applicable to common shares plus assumed conversions
173,787
221,199
917,258
773,457
Reconciliation of Weighted Average Shares:
Weighted average common shares outstanding
Effect of dilutive securities:
6,743
Series A convertible preferred shares
77
172
Denominator for diluted FFO per share
164,324
164,072
164,213
FFO applicable to common shares plus assumed conversions per diluted share
1.06
1.35
5.60
4.71
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:
Consolidated debt:
Weighted Average Interest Rate
Effect of 1% Change In Base Rates
Variable rate
1,541,304
4.05%
15,413
1,113,181
5.86%
Fixed rate
10,649,493
5.19%
10,782,857
5.24%
12,190,797
5.05%
11,896,038
Pro-rata share of debt of non- consolidated entities (non-recourse):
Variable rate – excluding Toys
291,202
4.42%
2,912
193,655
Variable rate – Toys
688,018
5.16%
6,880
1,072,431
7.14%
Fixed rate (including $1,240,264, and $1,010,487 of Toys debt in 2008 and 2007)
2,066,395
2,023,787
6.88%
3,045,615
6.13%
9,792
3,289,873
6.96%
Minority limited partners’ share of above
(2,520
Total change in annual net income
22,685
Per share-diluted
0.13
We may utilize various financial instruments to mitigate the impact of interest rate fluctuations on our cash flows and earnings, including hedging strategies, depending on our analysis of the interest rate environment and the costs and risks of such strategies. As of September 30, 2008, variable rate debt with an aggregate principal amount of $410,998,000 and a weighted average interest rate of 3.85% was subject to LIBOR caps. These caps are based on a notional amount of $412,000,000 and cap LIBOR at a weighted average rate of 6.16%. As of September 30, 2008, we have investments in mezzanine loans with an aggregate carrying amount of $468,531,000 at variable interest rates which partially mitigate our exposure to a change in interest rates on our variable rate debt.
Fair Value of Debt
As of September 30, 2008, the carrying amount of our debt exceeds its aggregate fair value by approximately $556,875,000, based on current market prices and 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.
Derivative Instruments in Marketable Equity Securities
We have, and may in the future enter into, derivative positions in marketable equity securities that do not qualify for hedge accounting treatment. Because these derivatives do not qualify for hedge accounting treatment, the gains or losses resulting from their mark-to-market at the end of each reporting period are recognized as an increase or decrease in “interest and other investment income” on our consolidated statements of income. In addition, we are, and may in the future be, subject to additional expense based on the notional amount of the derivative positions and a specified spread over LIBOR. Because the market value of these instruments can vary significantly between periods, we may experience significant fluctuations in the amount of our investment income or expense. During the three and nine months ended September 30, 2008 we recognized net losses of $3,982,000 and $25,812,000, respectively, and during the three and nine months ended September 30, 2007 we recognized net gains of $18,606,000, and $100,060,000 respectively.
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, 2008, 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.
OTHER INFORMATION
We are from time to time involved in legal actions arising in the ordinary course of business. In our opinion, after consultation with legal counsel, the outcome of such matters, including the matters referred to below, are not expected to have a material adverse effect on our financial position, results of operations or cash flows.
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 re-allocate which effectively terminated our right to collect the additional rent from Stop & Shop. On March 3, 2003, after we moved to dismiss for lack of jurisdiction, Stop & Shop voluntarily withdrew its complaint. On March 26, 2003, Stop & Shop filed a new complaint in New York Supreme Court, asserting substantially the same claims as in its USDC-NJ complaint. We removed the action to the United States District Court for the Southern District of New York. In January 2005 that court remanded the action to the New York Supreme Court. On February 14, 2005, we served an answer in which we asserted a counterclaim seeking a judgment for all the unpaid additional rent accruing through the date of the judgment and a declaration that Stop & Shop will continue to be liable for the additional rent as long as any of the leases subject to the Master Agreement and Guaranty remain in effect. On May 17, 2005, we filed a motion for summary judgment. On July 15, 2005, Stop & Shop opposed our motion and filed a cross-motion for summary judgment. On December 13, 2005, the Court issued its decision denying the motions for summary judgment. Both parties appealed the Court’s decision and on December 14, 2006, the Appellate Court division issued a decision affirming the Court’s decision. On January 16, 2007, we filed a motion for the reconsideration of one aspect of the Appellate Court’s decision which was denied on March 13, 2007. We are currently engaged in discovery and anticipate that a trial date will be set for some time in 2009. 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 various of Mr. Trump’s motions and ultimately dismissed all of Mr. Trump’s claims, except for his claim seeking access to books and records. In a decision dated October 1, 2007, the Court determined that Mr. Trump had already received access to the books and records to which he was entitled, with the exception of certain documents which were subsequently delivered to Mr. Trump. Mr. Trump has sought re-argument and renewal on, and filed a notice of appeal in connection with, his dismissed claims. In connection with the acquisition, we agreed to indemnify the sellers for liabilities and expenses arising out of Mr. Trump’s claim that the general partners of the partnerships we acquired did not sell the rail yards at a fair price or could have sold the rail yards for a greater price and any other claims asserted in the legal action; provided however, that if Mr. Trump prevails on certain claims involving partnership matters, other than claims relating to sale price, the sellers will be required to reimburse us for certain costs related to those claims. We believe that the claims relating to the sale price are without merit. All other allegations are not asserted as a basis for damages and regardless of merit would not be material to our consolidated financial statements.
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, 2007.
None.
Exhibits required by Item 601 of Regulation S-K are filed herewith or incorporated herein by reference and are listed in the attached Exhibit Index.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
(Registrant)
Date: November 4, 2008
By:
/s/ Joseph Macnow
Joseph Macnow, Executive Vice President -Finance and Administration andChief Financial Officer (duly authorized officer and principal financial and accounting officer)
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
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.
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
75
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
76
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.
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.
78
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
79
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 byreference 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
80
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
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
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.
81