UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended:
March 31, 2009
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 has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
x Large Accelerated Filer
o Accelerated Filer
o Non-Accelerated Filer (Do not check if smaller reporting company)
o Smaller Reporting Company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of March 31, 2009, 158,278,305 of the registrant’s common shares of beneficial interest are outstanding.
PART I.
Financial Information:
Page Number
Item 1.
Financial Statements:
Consolidated Balance Sheets (Unaudited) as of March 31, 2009 and December 31, 2008
3
Consolidated Statements of Income (Unaudited) for the Three Months Ended March 31, 2009 and 2008
4
Consolidated Statement of Changes in Equity (Unaudited) for the Three Months Ended March 31, 2009 and 2008
5
Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2009 and 2008
6
Notes to Consolidated Financial Statements (Unaudited)
8
Report of Independent Registered Public Accounting Firm
30
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
31
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
55
Item 4.
Controls and Procedures
56
PART II.
Other Information:
Legal Proceedings
57
Item 1A.
Risk Factors
58
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
59
Exhibit Index
60
2
PART I. FINANCIAL INFORMATIONItem 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Amounts in thousands, except share and per share amounts)
ASSETS
December 31, 2008
Real estate, at cost:
Land
$
4,569,734
4,517,558
Buildings and improvements
12,467,651
12,154,857
Development costs and construction in progress
846,790
1,088,356
Leasehold improvements and equipment
120,175
118,603
Total
18,004,350
17,879,374
Less accumulated depreciation and amortization
(2,253,005
)
(2,168,997
Real estate, net
15,751,345
15,710,377
Cash and cash equivalents
1,625,450
1,526,853
Restricted cash
400,147
375,888
Marketable securities
298,352
334,322
Accounts receivable, net of allowance for doubtful accounts of $38,900 and $32,834
175,645
201,566
Investments in partially owned entities, including Alexander’s of $151,901 and $137,305
792,724
790,154
Investment in Toys “R” Us
388,405
293,096
Mezzanine loans receivable, net of allowance of $46,700
471,982
472,539
Receivable arising from the straight-lining of rents, net of allowance of $6,067 and $5,773
619,706
592,903
Deferred leasing and financing costs, net of accumulated amortization of $179,700 and $168,714
304,381
306,847
Assets related to discontinued operations
108,295
108,292
Due from officers
13,153
13,185
Other assets
699,342
692,026
21,648,927
21,418,048
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS’ AND SHAREHOLDERS’ EQUITY
Notes and mortgages payable
8,824,247
8,835,387
Convertible senior debentures
2,232,874
2,221,743
Senior unsecured notes
536,468
617,816
Exchangeable senior debentures
479,773
478,256
Revolving credit facility debt
658,468
358,468
Accounts payable and accrued expenses
497,930
515,607
Deferred credit
741,465
764,774
Deferred compensation plan
63,523
69,945
Deferred tax liabilities
19,884
19,895
Other liabilities
126,207
143,527
Total liabilities
14,180,839
14,025,418
Commitments and contingencies
Redeemable noncontrolling interests:
Class A units – 14,999,038 and 14,627,005 units outstanding
612,071
882,740
Series D cumulative redeemable preferred units – 11,200,000 units outstanding
280,000
Series B convertible preferred units – 444,559 units outstanding
15,238
Total redeemable noncontrolling interests
907,309
1,177,978
Shareholders’ equity:
Preferred shares of beneficial interest: no par value per share; authorized 110,000,000 shares; issued and outstanding 33,952,324 and 33,954,124 shares
823,717
823,807
Common shares of beneficial interest: $.04 par value per share; authorized, 250,000,000 shares; issued and outstanding 158,278,305 and 155,285,903 shares
6,301
6,195
Additional capital
6,434,715
6,025,976
Earnings less than distributions
(1,069,607
(1,047,340
Accumulated other comprehensive loss
(46,797
(6,899
Total Vornado shareholders’ equity
6,148,329
5,801,739
Noncontrolling interests in consolidated subsidiaries
412,450
412,913
Total equity
6,560,779
6,214,652
See notes to consolidated financial statements.3
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share amounts)
For The Three Months Ended March 31,
2009
2008
REVENUES:
Property rentals
553,130
533,434
Tenant expense reimbursements
98,134
87,160
Fee and other income
30,750
28,688
Total revenues
682,014
649,282
EXPENSES:
Operating
279,376
261,251
Depreciation and amortization
132,119
130,610
General and administrative
79,069
49,385
Costs of acquisitions not consummated
—
2,283
Total expenses
490,564
443,529
Operating income
191,450
205,753
Income applicable to Alexander’s
18,133
7,929
Income applicable to Toys “R” Us
97,147
80,362
Loss from partially owned entities
(7,543
(30,353
Interest and other investment income, net
14,059
14,104
Interest and debt expense (including amortization of deferred financing costs of $4,059 and $4,243)
(151,766
(157,457
Income before income taxes
161,480
120,338
Income tax (expense) benefit
(5,049
217,329
Income from continuing operations
156,431
337,667
Income from discontinued operations, net (including $112,690 net gain on sale of Americold Realty Trust)
112,081
Net income
449,748
Less: Net income attributable to noncontrolling interests, including unit distributions
16,321
45,910
Net income attributable to Vornado
140,110
403,838
Preferred share dividends
(14,269
(14,275
NET INCOME attributable to common shareholders
125,841
389,563
INCOME PER COMMON SHARE – BASIC:
0.80
1.87
Income from discontinued operations
0.63
Net income per common share
2.50
INCOME PER COMMON SHARE – DILUTED:
0.79
1.79
0.59
2.38
DIVIDENDS PER COMMON SHARE
0.95
0.90
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Preferred Shares
Common Shares
AdditionalCapital
Earnings in Excess of (Less Than) Distributions
Accumulated Other ComprehensiveIncome (Loss)
Non- controlling Interests
Total Equity
Balance, December 31, 2007
825,095
6,140
5,278,717
(721,625
29,772
416,298
5,834,397
Cumulative effect of change in accounting principle
212,395
(35,552
176,843
Balance, January 1, 2008
5,491,112
(757,177
6,011,240
Net income (loss)
(2,420
401,418
Dividends paid on common shares
(138,030
Dividends paid on Preferred Shares
(14,277
Conversion of Series A Preferred shares to common shares
(1,025
1
1,024
Deferred compensation shares and options
(1
2,688
2,687
Common shares issued:
Under employees’ share option plan
11
10,461
10,472
Upon redemption of Class A Operating Partnership Units, at redemption value
9
18,762
18,771
In connection with dividend reinvestment plan
584
Change in unrealized net loss on securities available for sale
(10,537
Adjustments to redeemable Class A Operating Partnership Units
51,060
Other
(919
(9,714
(10,633
Balance, March 31, 2008
824,070
6,160
5,574,772
(505,646
9,521
413,878
6,322,755
Balance, December 31, 2008
(463
139,647
110
88,453
(147,678
(59,115
(90
90
23,288
23,290
(14
505
(435
10,938
10,946
(39,305
Surrender of 2008 equity awards on March 31, 2009
13,722
271,856
(113
(593
(701
Balance, March 31, 2009
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 deferred financing costs)
136,178
156,955
Equity in income of partially owned entities, including Alexander’s and Toys
(107,737
(92,529
Write-off of unamortized costs from the voluntary surrender of equity awards
32,588
Amortization of below market leases, net
(17,982
(23,264
Straight-lining of rental income
(27,138
(22,050
Distributions of income from partially owned entities
8,381
9,978
Other non-cash adjustments
19,522
2,401
Net gain on early extinguishment of debt
(5,905
Reversal of H Street of deferred tax liability
(222,174
Net gain on sale of Americold
(112,690
Write-off of real estate joint ventures’ development costs
34,200
Net loss on derivative positions
18,362
Impairment loss – marketable securities
9,073
Net gains on sale of real estate
(580
Changes in operating assets and liabilities:
Accounts receivable, net
7,469
3,686
14,887
46,443
(40,320
(50,270
(6,562
12,003
Net cash provided by operating activities
169,812
221,575
Cash Flows from Investing Activities:
(132,529
(106,688
Additions to real estate
(38,916
(50,838
(27,298
866
Proceeds from sales of real estate and real estate related investments
20,858
199,331
Purchases of marketable securities
(9,882
(830
Investments in partially owned entities
(9,582
(74,552
Proceeds from sales of, and return of investment in, marketable securities
7,835
174
Distributions of capital from partially owned entities
7,504
22,163
Proceeds received from repayment of notes and mortgage loans receivable
3,593
19,099
Deposits in connection with real estate acquisitions
(9
(1,623
Acquisitions of real estate and other
(4,874
Investments in notes and mortgage loans receivable
(4,632
Net cash used in investing activities
(178,426
(2,404
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Cash Flows from Financing Activities:
Proceeds from borrowings
353,856
956,499
Repayments of borrowings
(138,291
(605,342
Purchase of outstanding Series G Preferred Units
(24,330
Dividends paid on preferred shares
(14,292
Distributions to noncontrolling interests
(10,514
(28,308
Debt issuance costs
(94
(13,526
Proceeds from exercise of share options and other
(32
10,307
Net cash provided by financing activities
107,211
167,308
Net increase in cash and cash equivalents
98,597
386,479
Cash and cash equivalents at beginning of period
1,154,595
Cash and cash equivalents at end of period
1,541,074
Supplemental Disclosure of Cash Flow Information:
Cash payments for interest (including capitalized interest of $4,716 and $16,219)
132,208
135,872
Cash payments for income taxes
1,150
1,800
Non-Cash Transactions:
Adjustments to redeemable Class A Operating Partnerships units
Conversion of Class A Operating Partnership units to common shares, at redemption value
Dividends paid in common shares
88,563
Unit distributions paid in Class A units
8,213
Unrealized net loss on securities available for sale
39,305
10,537
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Organization
Vornado Realty Trust (“Vornado”) is a fully-integrated real estate investment trust (“REIT”) and conducts its business through Vornado Realty L.P., a Delaware limited partnership (the “Operating Partnership”). Vornado is the sole general partner of, and owned approximately 90.4% of the common limited partnership interest in, the Operating Partnership at March 31, 2009. All references to “we,” “us,” “our,” the “Company” and “Vornado” refer to Vornado Realty Trust and its consolidated subsidiaries, including the Operating Partnership.
Substantially all of Vornado’s assets are held through subsidiaries of the Operating Partnership. Accordingly, Vornado’s cash flow and ability to pay dividends to its shareholders is dependent upon the cash flow of the Operating Partnership and the ability of its direct and indirect subsidiaries to first satisfy their obligations to creditors.
2.
Basis of Presentation
The accompanying consolidated financial statements are unaudited. In our opinion, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and changes in cash flows have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. These condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of the Securities and Exchange Commission (the “SEC”) and should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2008, as filed with the SEC. The results of operations for the three months ended March 31, 2009 are not necessarily indicative of the operating results for the full year.
The accompanying consolidated financial statements include the accounts of Vornado and the Operating Partnership, as well as certain partially owned entities in which we own more than 50%, unless a partner has shared board and management representation and substantive participation rights on all significant business decisions, or 50% or less when (i) we are the primary beneficiary and the entity qualifies as a variable interest entity 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 if they do not meet the criteria for consolidation and we have the ability to exercise significant influence over the operating and financial policies of the company. Generally an ownership interest of 20% or more is sufficient to demonstrate the ability to exercise significant influence. When partially owned investments are in partnership form, the 20% threshold for equity method accounting is generally reduced to 3% to 5%, based on our ability to influence the operating and financial policies of the partnership. Investments accounted for under the equity method are initially recorded at cost and subsequently adjusted for our share of the net income or loss and cash contributions and distributions to or from these entities. Investments in partially owned entities that do not meet the criteria for consolidation or for equity method accounting are accounted for on the cost method.
We have made estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
On January 1, 2009, we adopted FASB Staff Position APB 14-1, Accounting for Convertible Debt Instruments that may be Settled in Cash upon Conversion (Including Partial Cash Settlement) (“FSP 14-1”). FSP 14-1 was required to be applied retrospectively. Accordingly, net income for the quarter ended March 31, 2008 has been adjusted to include $8,400,000 of additional interest expense, net of amounts attributable to noncontrolling interests. In addition, in accordance with FASB Statement No. 128, Earnings Per Share (“SFAS 128”), we have included 2,762,000 additional common shares resulting from the March 12, 2009 common share dividend in the computation of income per share retroactively to the quarter ended March 31, 2008. Furthermore, certain prior year balances have been reclassified in order to conform to current year presentation as a result of the adoption of FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements - An Amendment of ARB No. 51 (“SFAS 160”).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3.
Recently Issued Accounting Literature
On January 1, 2009, we adopted FSP 14-1, which was required to be applied retrospectively. The adoption of FSP 14-1 affected the accounting for our convertible and exchangeable senior debentures by requiring the initial proceeds from their sale to be allocated between a liability component and an equity component in a manner that results in interest expense on the debt component at our nonconvertible debt borrowing rate on the date of issue. The initial debt components of our $1.4 billion Convertible Senior Debentures, $1 billion Convertible Senior Debentures and $500 million Exchangeable Senior Debentures were $1,241,286,000, $926,361,000 and $457,699,000, respectively, based on the fair value of similar nonconvertible instruments issued. The aggregate initial debt discount of $212,395,000 after original issuance costs allocated to the equity component was recorded in “additional capital” as a cumulative effect of change in accounting principle in our consolidated statement of shareholders’ equity. We are amortizing the discount using the effective interest method over the period the debt is expected to remain outstanding (i.e., the earliest date the holders may require us to repurchase the debentures), as additional interest expense. Accordingly, interest expense for the quarter ended March 31, 2008 has been adjusted to include $9,300,000 of amortization in the aggregate, or $8,400,000, net of amounts attributable to noncontrolling interests. Amortization for periods prior to December 31, 2007 (not presented herein) aggregating $35,552,000 have been reflected as a cumulative effect of change in accounting principle in “earnings in excess of (less than) distributions” on our consolidated statement of changes in equity. Below is a summary of the financial statement effects of implementing FSP 14-1 and related disclosures.
$1.4 Billion Convertible Senior Debentures
$1 Billion Convertible Senior Debentures
$500 Million Exchangeable Senior Debentures
(Amounts in thousands, except per share amounts) Balance Sheet:
Principal amount of liability component
1,382,700
989,800
499,982
Unamortized discount
(98,878
(106,415
(40,748
(44,342
(20,209
(21,726
Carrying amount of liability component
1,283,822
1,276,285
949,052
945,458
Carrying amount of equity component
130,714
53,640
32,301
March 31,
Income Statement:
Coupon interest
9,852
9,975
8,970
9,063
4,844
Discount amortization – original issue
1,351
1,400
981
1,012
359
411
Discount amortization – FSP 14-1 implementation
6,180
5,823
2,609
2,427
1,159
1,028
17,383
17,198
12,560
12,502
6,362
6,283
Effective interest rate
5.45
%
5.32
Maturity date (period through which discount is being amortized)
4/1/12
11/15/11
4/15/12
Conversion price per share, as adjusted
159.04
150.22
88.20
Number of shares on which the aggregate consideration to be delivered upon conversion is determined
(1)
5,669
__________________
In accordance with FSP 14-1, we are required to disclose the conversion price and the number of shares on which the aggregate consideration to be delivered upon conversion is determined (principal plus excess value.) Our convertible senior debentures require the entire principal amount to be settled in cash, and at our option, any excess value above the principal amount may be settled in cash or common shares. Based on the March 31, 2009 closing share price of our common shares and the conversion prices in the table above, there was no excess value; accordingly, no common shares would be issued if these securities were settled on this date. The number of common shares on which the aggregate consideration to be delivered upon conversion is 8,694 and 6,589 common shares, respectively.
Recently Issued Accounting Literature - continued
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. It also broadens the fair value measurement and recognition of assets acquired, liabilities assumed, and interests transferred as a result of business combinations; and acquisition related costs will generally be expensed rather than included as part of the basis of the acquisition. SFAS 141R expands required disclosures to improve the ability to evaluate the nature and financial effects of business combinations. SFAS 141R became effective for all transactions entered into on or after January 1, 2009. The adoption of SFAS 141R on January 1, 2009 did not have any effect on our consolidated financial statements.
In December 2007, the FASB issued 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 became effective on January 1, 2009. The adoption of SFAS 160 on January 1, 2009, resulted in (i) the reclassification of minority interests in consolidated subsidiaries to noncontrolling interests in consolidated subsidiaries, a component of permanent equity on our consolidated balance sheets, (ii) the reclassification of minority interest expense to net income attributable to noncontrolling interests, on our consolidated statements of income, and (iii) additional disclosures, including a consolidated statement of changes in equity in quarterly reporting periods.
In March 2008, the FASB issued 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 SFAS 133, and the impact of derivative instruments and related hedged items on an entity’s financial position, financial performance and cash flows. SFAS 161 became effective on January 1, 2009. The adoption of SFAS 161 on January 1, 2009 did not have a material effect on our consolidated financial statements.
In June 2008, the FASB ratified EITF Issue 07-5, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock (“EITF 07-5”). Paragraph 11(a) of SFAS 133 specifies that a contract that would otherwise meet the definition of a derivative but is both (a) indexed to the Company’s own stock and (b) classified in stockholders’ equity in the statement of financial position would not be considered a derivative financial instrument. EITF 07-5 provides a new two-step model to be applied in determining whether a financial instrument or an embedded feature is indexed to an issuer’s own stock and thus able to qualify for the SFAS 133 paragraph 11(a) scope exception. EITF 07-5 is effective on January 1, 2009. The adoption of this standard on January 1, 2009, did not have any effect on our consolidated financial statements.
In June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Investments Granted in Share-Based Payment Transactions are Participating Securities (“FSP 03-6-1”). FSP 03-6-1 requires companies to treat unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents as “participating securities” and include such securities in the computation of earnings per share pursuant to the two-class method as described in FASB Statement No. 128, Earnings Per Share (“SFAS 128”). FSP 03-6-1 became effective on January 1, 2009 and required all prior period earnings per share data presented, to be adjusted retroactively. The adoption of FSP 03-6-1 on January 1, 2009 did not have a material effect on our computation of income per share.
10
4.
Fair Value Measurements
FASB Statement No. 157, Fair Value Measurements (“SFAS 157”) defines fair value and establishes a framework for measuring fair value. The objective of fair value is to determine the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price). 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 that are used when little or no market data is available. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as consider counterparty credit risk in our assessment of fair value. Financial assets and liabilities measured at fair value in our consolidated financial statements consist primarily of (i) marketable securities and (ii) 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 sheets. Financial assets and liabilities measured at fair value as of March 31, 2009 are presented in the table below based on their level in the fair value hierarchy.
Fair Value Hierarchy
Level 1
Level 2
Level 3
79,175
Deferred compensation plan assets
31,097
32,426
Interest rate caps (included in other assets)
48
Total assets
142,746
110,272
Deferred compensation plan liabilities
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 months ended March 31, 2009.
Beginning Balance
Total Realized/ Unrealized Losses
Purchases, Sales, Other Settlements andIssuances, net
Ending
Balance
For the three months ended March 31, 2009
34,176
(1,496
(254
5.
Investments in Partially Owned Entities
Toys “R” Us (“Toys”)
As of March 31, 2009, we own 32.7% of Toys. We account for our investment in Toys under the equity method and record our 32.7% share of Toys income of loss on a one-quarter lag basis because Toys’ fiscal year ends on the Saturday nearest January 31, and our fiscal year ends on December 31. The business of Toys is highly seasonal. Historically, Toys’ fourth quarter net income accounts for more than 80% of its fiscal year net income. As of March 31, 2009, the carrying amount of our investment in Toys does not differ materially from our share of the equity in the net assets of the parent company.
Below is a summary of Toys’ latest available financial information on a “purchase accounting” basis.
(Amounts in millions)
Balance as of
Balance Sheet:
January 31, 2009
November 1, 2008
Total Assets
11,500
12,410
Total Liabilities
10,285
11,481
1,215
929
For the Quarterly Period Ended
February 2, 2008
Total Revenues
5,461
5,827
Net Income
291
240
Alexander’s, Inc. (“Alexander’s”) (NYSE: ALX)
As of March 31, 2009, we own 32.4% of the outstanding common stock of Alexander’s. We manage, lease and develop Alexander’s properties pursuant to agreements, which expire in March of each year and are automatically renewable. As of March 31, 2009, Alexander’s owed us $44,130,000 in fees under these agreements.
Based on Alexander’s March 31, 2009 closing share price of $170.38, the market value (“fair value” pursuant to SFAS 157) of our investment in Alexander’s is $281,820,000, or $129,919,000 in excess of the carrying amount on our consolidated balance sheet.
As of March 31, 2009, the carrying amount of our investment in Alexander’s exceeds our share of the equity in the net assets of Alexander’s by approximately $35,874,000. The majority of this basis difference resulted from the excess of our purchase price for the Alexander’s common shares acquired over the book value of Alexander’s net assets. Substantially all of this basis difference was allocated, based on our estimates of the fair values of Alexander’s assets and liabilities, to their real estate (land and building). We are writing-off the basis difference related to the buildings into earnings as additional depreciation expense over their estimated useful lives. This depreciation is not material to our share of equity in Alexander’s net income or loss. The basis difference related to the land is not being written-off and will be recognized upon disposition of our investment.
12
Investments in Partially Owned Entities - continued
Lexington Realty Trust (“Lexington”) (NYSE: LXP)
As of March 31, 2009, we own 16,149,592 Lexington common shares, or approximately 16.1% of Lexington common equity. Pursuant to the guidance in APB Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock, we account for our investment in Lexington under the equity method because we believe we have the ability to exercise significant influence over Lexington’s operating and financial policies, based on, among other factors, our representation on Lexington’s Board of Trustees and the level of our ownership in Lexington as compared to that of other shareholders. We record our pro rata share of Lexington’s net income or loss on a one-quarter lag basis because we file our consolidated financial statements on Form 10-K and 10-Q prior to the time that Lexington files its financial statements.
As of March 31, 2009, the carrying amount of our investment in Lexington was less than our share of the equity in the net assets of Lexington by approximately $148,000,000. This basis difference resulted primarily from $107,882,000 of non-cash impairment charges we recognized in 2008 based on our conclusion that the decline in the value of Lexington’s common shares was “other-than-temporary.” The remainder of the basis difference related to purchase accounting for our acquisition of an additional 8,000,000 common shares of Lexington in October 2008, of which the majority relates to our estimate of the fair values of Lexington’s real estate (land and building) as compared to their carrying amounts in Lexington’s consolidated financial statements. We are writing-off the basis difference related to the buildings into earnings as additional depreciation expense over their estimated useful lives. This depreciation is not material to our share of equity in Lexington’s net income or loss. The basis difference attributable to the land is not written-off and will be recognized upon disposition of our investment.
Based on Lexington’s March 31, 2009 closing share price of $2.38, the market value (“fair value” pursuant to SFAS 157) of our investment in Lexington was $38,436,000, or $39,274,000 below the carrying amount of $77,710,000, or $4.81 per share, on our consolidated balance sheet. We have concluded that, as of March 31, 2009, the decline in the value of our investment in Lexington is not “other-than-temporary.”
The following is a summary of Lexington’s financial information as of December 31, 2008 and September 30, 2008 and for the three months ended December 31, 2008 and 2007.
September 30, 2008
4,106
4,294
2,707
3,370
1,399
924
For the Three Months Ended
December 31, 2007
Total revenue
105
119
(Loss) income from continuing operations
(4
Net (loss) income
(18
24
13
The carrying amount of our investments in partially owned entities and income (loss) recognized from such investments are as follows:
Investments: (Amounts in thousands)
Toys
Partially Owned Office Buildings
155,677
157,468
Alexander’s
151,901
137,305
India Real Estate Ventures
88,432
88,858
Lexington
77,710
80,748
Other Equity Method Investments
319,004
325,775
Our Share of Net Income (Loss): (Amounts in thousands)
For the Three Months Ended March 31,
Toys:
32.7% share of equity in net income
95,294
78,355
Interest and other income
1,853
2,007
Alexander’s:
32.4% share in 2009 and 32.7% in 2008:
Equity in net income before reversal (accrual) of stock appreciation rights compensation expense
3,855
5,127
Reversal (accrual) of stock appreciation rights compensation expense
11,105
(205
Equity in net income
14,960
4,922
Management and leasing fees
1,893
2,127
Development fees
1,280
880
Lexington – 16.1% in 2009 and 7.5% in 2008 share of equity in net (loss) income (see page 13)
(3,039
1,827
India Real Estate Ventures – 4% to 36.5% share of equity in net loss
(137
(414)
Other (1)
(4,367
(31,766
)(2)
Includes our equity in net earnings of partially owned entities including partially owned office buildings in New York and Washington, DC, the Monmouth Mall, Dune Capital LP, Verde Group LLC and others.
(2)
Includes $34,200 of non-cash charges for the write-off of our share of certain partially owned entities’ development costs.
14
Below is a summary of the debt of our partially owned entities as of March 31, 2009 and December 31, 2008, none of which is recourse to us.
100% of Partially Owned Entities’ Debt
Toys (32.7% interest) (as of January 31, 2009 and November 1, 2008, respectively):
$1.3 billion senior credit facility, due 2010, (6.14% at March 31, 2009)
1,300,000
$2.0 billion credit facility, due 2010, LIBOR plus 1.00% – 3.75% ($103,000 reserved for outstanding letters of credit)
367,000
Mortgage loan, due 2010, LIBOR plus 1.30% (1.86% at March 31, 2009)
800,000
$804 million secured term loan facility, due 2012, LIBOR plus 4.25% (4.80% at March 31, 2009)
797,000
Senior U.K. real estate facility, due 2013, with interest at 5.02%
514,000
568,000
7.625% bonds, due 2011 (Face value – $500,000)
486,900
486,000
7.875% senior notes, due 2013 (Face value – $400,000)
377,900
377,000
7.375% senior notes, due 2018 (Face value – $400,000)
335,900
335,000
4.51% Spanish real estate facility, due 2013
168,000
167,000
$181 million unsecured term loan facility, due 2013, LIBOR plus 5.00%
(5.55% at March 31, 2009)
180,000
Japan bank loans, due 2011 – 2014, 1.20% – 2.80%
172,000
158,000
Japan borrowings, due 2011 (weighted average rate of 1.05% at March 31, 2009)
18,000
289,000
6.84% Junior U.K. real estate facility, due 2013
91,000
101,000
4.51% French real estate facility, due 2013
81,000
8.750% debentures, due 2021 (Face value – $22,000)
21,000
92,000
73,000
5,434,700
6,100,000
Alexander’s (32.4% interest):
731 Lexington Avenue mortgage note payable collateralized by the office space, due in February 2014, with interest at 5.33% (prepayable without penalty after December 2013)
370,960
373,637
731 Lexington Avenue mortgage note payable, collateralized by the retail space, due in July 2015, with interest at 4.93% (prepayable without penalty after December 2013)
320,000
Kings Plaza Regional Shopping Center mortgage note payable, due in June 2011, with interest at 7.46% (prepayable without penalty after December 2013)
198,449
199,537
Rego Park mortgage note payable, due in March 2012, (prepayable without penalty after June 2009) (1)
78,246
78,386
Rego Park construction loan payable, due in December 2010, LIBOR plus 1.20% (1.70% at March 31, 2009)
195,082
181,695
Paramus mortgage note payable, due in October 2011, with interest at 5.92% (prepayable without penalty)
68,000
1,230,737
1,221,255
Lexington (16.1% interest) (as of December 31, 2008 and September 30, 2008, respectively) Mortgage loans collateralized by the trust’s real estate, due from 2009 to 2037, with a weighted average interest rate of 5.58% at December 31, 2008 (various prepayment terms)
2,383,407
2,486,370
_____________________________
On March 10, 2009, the $78,246 outstanding balance of the Rego Park I mortgage loan, which was scheduled to mature in June 2009, was repaid and simultaneously refinanced in the same amount. The loan bears interest at 75 basis points and is secured by the property and is 100% cash collateralized. The proceeds of the new loan were placed in a non-interest bearing restricted mortgage escrow account.
15
Partially owned office buildings:
March 31,2009
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 5.63% at March 31, 2009 (various prepayment terms)
142,600
143,000
100 Van Ness, San Francisco office complex (9% interest) up to $132 million construction loan payable, due in July 2013, LIBOR plus 2.75% with an interest rate floor of 6.50% and interest rate cap of 7.00%
85,249
330 Madison Avenue (25% interest) up to $150,000 mortgage note payable, due in June 2015, LIBOR plus 1.50% with interest at 2.03%
70,000
Fairfax Square (20% interest) mortgage note payable, due in August 2009, with interest at 7.50%
62,490
62,815
Rosslyn Plaza (46% interest) mortgage note payable, due in December 2011, LIBOR plus 1.0% (1.50% at March 31, 2009)
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)
21,326
21,426
India Real Estate Ventures:
TCG Urban Infrastructure Holdings (25% interest) mortgage notes payable, collateralized by the entity’s real estate, due from 2009 to 2022, with a weighted average interest rate of 14.72% at March 31, 2009 (various prepayment terms)
149,227
148,792
India Property Fund L.P. (36.5% interest) $120 million secured revolving credit facility, due in December 2009, LIBOR plus 2.75% (3.23% at March 31, 2009)
93,000
90,500
Waterfront Associates, LLC (2.5% interest) construction and land loan up to $250 million payable, due in September 2011 with a six month extension option, LIBOR plus 2.00%-3.00% (3.02% at March 31, 2009)
90,880
57,600
Verde Realty Master Limited Partnership (8.5% interest) mortgage notes payable, collateralized by the partnerships’ real estate, due from 2009 to 2037, with a weighted average interest rate of 5.96% at March 31, 2009 (various prepayment terms)
575,213
559,840
Green Courte Real Estate Partners, LLC (8.3% interest) mortgage notes payable, collateralized by the partnerships’ real estate, due from 2009 to 2015, with a weighted average interest rate of 4.96% at March 31, 2009 (various prepayment terms)
307,098
Monmouth Mall (50% interest) mortgage note payable, due in September 2015, with interest at 5.44% (prepayable without penalty after July 2015)
165,000
San Jose, California Ground-up Development (45% interest) construction loan, due in March 2010, LIBOR plus 1.75% (2.25% at March 31, 2009)
132,810
132,128
Wells/Kinzie Garage (50% interest) mortgage note payable, due in December 2013, with interest at 6.87%
14,767
14,800
Orleans Hubbard Garage (50% interest) mortgage note payable, due in December 2013, with interest at 6.87%
10,178
10,200
433,412
468,559
Based on our ownership interest in the partially owned entities above, our pro rata share of the debt of these partially owned entities was $2,999,693,000 and $3,196,585,000 as of March 31, 2009 and December 31, 2008, respectively.
16
6.
Mezzanine Loans Receivable
The following is a summary of our investments in mezzanine loans as of March 31, 2009 and December 31, 2008.
Interest Rate as of
Carrying Amount as of
Mezzanine Loans Receivable:
Maturity
Equinox
02/13
14.00%
88,829
85,796
Tharaldson Lodging Companies
04/10 (1)
4.74%
76,341
Riley HoldCo Corp
02/15
10.00%
74,409
74,381
280 Park Avenue
06/16
10.25%
73,750
Charles Square Hotel, Cambridge
09/09
7.56%
41,634
41,796
MPH, net of a valuation allowance of $46,700
19,300
08/14-12/18
4.75%-12.00%
97,719
101,175
The borrower has a one-year extension option.
7.
Discontinued Operations
In accordance with the provisions of FASB Statement No. 144, Accounting for the Impairment and Disposal of Long- Lived Assets, we have classified the revenues and expenses of properties and businesses sold or to be sold to “income from discontinued operations, net” and the related assets and liabilities to “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 and liabilities related to discontinued operations at March 31, 2009 and December 31, 2008, which consist primarily of the net book value of real estate.
Assets related to Discontinued Operations as of
Liabilities related to Discontinued Operations as of
H Street – land under sales contract
The following table sets forth the combined results of operations related to discontinued operations for the three months ended March 31, 2009 and 2008.
Revenues
219,421
Expenses
220,610
Net loss
(1,189
112,690
Net gain on sale of other real estate
580
Income from discontinued operations, net
17
8.
Identified Intangible Assets and Intangible Liabilities
The following summarizes our identified intangible assets (primarily acquired above-market leases) and intangible liabilities (primarily acquired below-market leases) as of March 31, 2009 and December 31, 2008.
Identified intangible assets (included in other assets):
Gross amount
781,350
784,192
Accumulated amortization
(273,479
(258,242
Net
507,871
525,950
Identified intangible liabilities (included in deferred credit):
996,537
998,179
(297,598
(278,357
698,939
719,822
Amortization of acquired below-market leases, net of acquired above-market leases resulted in an increase to rental income of $17,982,000 and $23,271,000 for the three months ended March 31, 2009 and 2008, respectively. Estimated annual amortization of acquired below-market leases, net of acquired above-market leases for each of the five succeeding years commencing January 1, 2010 is as follows:
2010
62,283
2011
59,224
2012
55,508
2013
47,543
2014
41,718
Amortization of all other identified intangible assets (a component of depreciation and amortization expense) was $15,786,000 and $24,572,000 for the three months ended March 31, 2009 and 2008, respectively. Estimated annual amortization of all other identified intangible assets including acquired in-place leases, customer relationships, and third party contracts for each of the five succeeding years commencing January 1, 2010 is as follows:
56,294
53,889
49,304
42,116
23,750
We are a tenant under ground leases for certain properties. Amortization of these acquired below-market leases resulted in an increase to rent expense of $533,000 and $533,000 for the three months ended March 31, 2009 and 2008, respectively. Estimated annual amortization of these below-market leases for each of the five succeeding years commencing January 1, 2010 is as follows:
2,133
18
9.
Debt
The following is a summary of our notes and mortgages payable:
Interest Rate at
Balance at
Notes and Mortgages Payable:Fixed Rate:
Maturity (1)
December 31,2008
New York Office:
1290 Avenue of the Americas
01/13
5.97%
442,116
444,667
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%
286,137
287,386
909 Third Avenue
04/15
5.64%
213,198
214,074
Eleven Penn Plaza
12/11
5.20%
205,938
206,877
Washington, DC Office:
Skyline Place
02/17
5.74%
678,000
Warner Building
05/16
6.26%
292,700
River House Apartment Complex
5.43%
195,546
1215 Clark Street, 200 12th Street and 251 18th Street
01/25
7.09%
115,071
115,440
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%
87,326
87,721
1550 and 1750 Crystal Drive
11/14
7.08%
83,524
83,912
Universal Buildings
04/14
4.88%
59,051
59,728
1235 Clark Street
07/12
6.75%
53,902
54,128
2231 Crystal Drive
08/13
50,067
50,394
241 18th Street
10/10
6.82%
46,331
46,532
1750 Pennsylvania Avenue
06/12
7.26%
46,390
46,570
2011 Crystal Drive
10/09
6.88%
38,208
38,338
1225 Clark Street
29,948
30,145
1800, 1851 and 1901 South Bell Street
6.91%
25,754
27,801
Retail:
Cross-collateralized mortgages on 42 shopping centers (2)
03/10
7.86%
399,074
448,115
Springfield Mall (including present value of purchase option)
10/12-04/13
5.45%
251,729
252,803
Montehiedra Town Center
07/16
6.04%
120,000
Broadway Mall
07/13
5.40%
94,298
94,879
828-850 Madison Avenue Condominium
06/18
5.29%
80,000
Las Catalinas Mall
11/13
6.97%
60,410
60,766
05/09-11/34
4.00%-7.33%
158,650
159,597
Merchandise Mart:
Merchandise Mart
12/16
550,000
High Point Complex
08/16
6.34%
219,690
220,361
Boston Design Center
09/15
5.02%
70,465
70,740
Washington Design Center
11/11
6.95%
44,800
44,992
Other:
555 California Street
05/10-09/11
721,001
720,671
Industrial Warehouses
10/11
25,159
25,268
Total Fixed Interest Notes and Mortgages Payable
5.95%
7,054,059
7,117,727
See notes on page 21.
19
Debt - continued
Notes and Mortgages Payable:
Spread over LIBOR
Variable Rate:
Manhattan Mall
02/12
L+55
1.11%
232,000
866 UN Plaza
05/11
L+40
.90%
44,978
2101 L Street
L+120
1.73%
150,000
1999 K Street (construction loan)
12/10
L+130
1.80%
81,165
73,747
Courthouse Plaza One and Two
01/15
L+75
1.30%
69,446
70,774
04/18
(3)
1.78%
64,000
Commerce Executive III, IV and V
07/09
1.05%
50,223
220 20th Street (construction loan)
01/11
L+115
1.71%
49,894
40,701
West End 25 (construction loan)
1.81%
35,356
24,620
Green Acres Mall
L+140
1.90%
Bergen Town Center (construction loan)
03/13
L+150
2.00%
248,177
228,731
Beverly Connection
L+245
3.01%
100,000
220 Central Park South
11/10
L+235 – L+245
2.87%
130,000
07/09 – 11/11
Various
3.03%
179,949
172,886
Total Variable Interest Notes and Mortgages Payable
1.96%
1,770,188
1,717,660
Total Notes and Mortgages Payable
5.15%
Convertible Senior Debentures: (see page 9)
2.85% Due 2027
04/12
3.63% Due 2026
5.32%
Total Convertible Senior Debentures
5.39%
Senior Unsecured Notes:
Senior unsecured notes due 2009
08/09
4.50%
154,812
168,289
Senior unsecured notes due 2010
4.75%
176,915
199,625
Senior unsecured notes due 2011
5.60%
204,741
249,902
Total Senior Unsecured Notes (4)
5.00%
3.88% Exchangeable Senior Debentures due 2025 (see page 9)
Unsecured Revolving Credit Facilities:
$1.595 billion unsecured revolving credit facility
09/12
1.02%
600,000
300,000
$.965 billion unsecured revolving credit facility ($44,565 reserved for outstanding letters of credit)
06/11
.99%
58,468
Total Unsecured Revolving Credit Facilities
_______________________
See notes on following page.
20
Notes to preceding tabular information (Amounts in thousands):
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.
In the first quarter of 2009, we repaid $47,000 of this debt for $46,231 in cash.
This loan bears interest at the Freddie Mac Reference Note Rate plus 1.53%.
(4)
In the first quarter of 2009, we purchased $81,534 (aggregate face amount) of our senior unsecured notes for $75,977 in cash, resulting in a $5,136 net gain which is included as a component of “interest expense” on our consolidated statement of income.
10.
Redeemable Noncontrolling Interests
Redeemable noncontrolling interests on our consolidated balance sheets represent Operating Partnership units held by third parties and are comprised of (i) Class A units, (ii) Series B convertible preferred units, and (iii) Series D-10, D-11, D-12, D-14 and D-15 (collectively, “Series D”) cumulative redeemable preferred units. Redeemable noncontrolling interests are accounted for in accordance with EITF Topic D-98, Classification and Measurement of Redeemable Securities, and are presented at the greater of their carrying amount or redemption value at the end of each reporting period. Changes in the value from period to period are charged to “additional capital” on our consolidated balance sheets. As of March 31, 2009 and December 31, 2008, the aggregate value of the redeemable noncontrolling interests was $907,309,000 and $1,177,978,000, respectively. Below is a table reflecting the activity of the redeemable noncontrolling interests.
Balance at December 31, 2007
1,658,303
46,569
Distributions
(18,828
Conversion of Class A redeemable units into common shares, at redemption value
(18,771
Adjustments to Class A redeemable units
(51,060
Other, net
5,405
Balance at March 31, 2008
1,621,618
Balance at December 31, 2008
16,821
(18,733
(10,946
(271,856
14,045
Balance at March 31, 2009
Redeemable noncontrolling interests exclude our Series G convertible preferred units and Series D-13 cumulative redeemable preferred units, as they are accounted for in accordance with FASB Statement No. 150, Accounting for Certain Financial Investments with Characteristics of both Liabilities and Equity, because of their possible settlement by issuing a variable number of Vornado common shares. Accordingly the fair value of these units is included as a component of “other liabilities” on our consolidated balance sheets and aggregated $56,652,000 and $83,079,000 as of March 31, 2009 and December 31, 2008, respectively.
21
11.
Income Per Share
Income per share is computed in accordance with the provisions of SFAS 128. In January 2009, we adopted the provisions of FSP 03-6-1, which required us to include unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents as “participating securities” in the computation of basic and diluted income per share pursuant to the two-class method as described in SFAS 128. The adoption of FSP 03-6-1 did not have a material effect on our computation of income per share.
On March 12, 2009, we paid a regular quarterly dividend of $0.95 per share, consisting of approximately $59,000,000 in cash and 2,762,000 common shares priced at $32.07 per share. In accordance with SFAS 128, we have included the 2,762,000 common shares in the computation of basic and diluted income per share retroactively for all periods presented.
The following table provides a reconciliation of both net income and the number of common shares used in the computation of (i) basic income per common share - which utilizes the weighted average number of common shares outstanding without regard to dilutive potential common shares, and (ii) diluted income per common share - which includes the weighted average common shares and potentially dilutive share equivalents. Potentially dilutive share equivalents include our Series A convertible preferred shares, employee stock options, exchangeable senior debentures due 2025 as well as Operating Partnership convertible preferred units.
Numerator:
Income from continuing operations, net of income attributable to noncontrolling interests
306,078
97,760
Numerator for basic income per share – net income attributable to common shareholders
Impact of assumed conversions:
Interest on 3.875% exchangeable senior debentures
Convertible preferred share dividends
43
52
Numerator for diluted income per share – net income attributable to common shareholders
125,884
395,898
Denominator:
Denominator for basic income per share – weighted average shares
158,173
156,093
Effect of dilutive securities (1):
Employee stock options
1,034
4,408
3.875% exchangeable senior debentures
Convertible preferred shares
74
Denominator for diluted income per share – adjusted weighted average shares and assumed conversions
159,281
166,260
The effect of dilutive securities in the three months ended March 31, 2009 and 2008 excludes an aggregate of 23,389 and 18,405 weighted average common share equivalents, respectively, as their effect was anti-dilutive.
22
12.
Comprehensive Income
Other comprehensive loss
(39,898
(20,251
Comprehensive income
116,533
429,497
Less: Comprehensive income attributable to noncontrolling interests
12,846
43,885
Comprehensive income attributable to Vornado
103,687
385,612
Substantially all of other comprehensive loss for the three months ended March 31, 2009 and 2008 relates to losses from the mark-to-market of marketable equity securities classified as available-for-sale.
13.
Fee and Other Income
The following table sets forth the details of our fee and other income:
Tenant cleaning revenue
14,294
13,422
3,968
Lease termination fees
1,624
2,453
Other income
12,431
8,845
Fee and other income above include management fee income from Interstate Properties, a related party, of $198,000 and $211,000 for the three months ended March 31, 2009 and 2008, respectively. The above table excludes fee income from partially owned entities, which is included in income from partially owned entities (see Note 5 – Investments in Partially Owned Entities).
14.
Stock-based Compensation
Our Share Option Plan (the “Plan”) provides for grants of incentive and non-qualified stock options, restricted stock, stock appreciation rights, performance shares and limited partnership units to certain of our employees and officers. We account for all stock-based compensation in accordance FASB Statement No. 123R, Share-Based Payment (“SFAS 123R”). Stock based compensation expense for the three months ended March 31, 2009 and 2008 consists of stock option awards, restricted common shares, Operating Partnership unit awards and out-performance plan awards. During the three months ended March 31, 2009 and 2008, we recognized $10,249,000 and $8,075,000 of stock-based compensation expense, respectively.
On March 31, 2009, our nine most senior executives voluntarily surrendered their 2007 and 2008 stock option awards and their 2008 out-performance plan awards. Accordingly, we recognized $32,588,000 of expense in the first quarter of 2009 representing the unamortized portion of these awards, which is included as a component of “general and administrative” expense on our consolidated statement of income. As a result of these voluntary surrenders, stock-based compensation expense will be approximately $7,000,000 lower for the remainder of 2009 and $9,400,000, $9,400,000, $5,700,000 and $1,000,000 lower for 2010, 2011, 2012 and 2013, respectively.
23
15.
Commitments and Contingencies
Insurance
We carry commercial liability and all risk property insurance ((i) fire, (ii) flood, (iii) extended coverage, (iv) “acts of terrorism” as defined in the Terrorism Risk Insurance Program Reauthorization Act of 2007 (“TRIPRA”), which expires in December 2014, and (v) rental loss insurance) with respect to our assets. Our New York Office, Washington, DC Office, Retail and Merchandise Mart divisions have $2.0 billion of per occurrence all risk property insurance coverage in effect through 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.
Penn Plaza Insurance Company, LLC (“PPIC”), our wholly owned subsidiary, acts as a re-insurer with respect to a portion of our earthquake insurance coverage and as a direct insurer for coverage for acts of terrorism, including nuclear, biological, chemical and radiological (“NBCR”) acts, as defined by TRIPRA. Coverage for acts of terrorism is fully reinsured by third party insurance companies and the Federal government with no exposure to PPIC. Our coverage for NBCR losses is up to $2 billion, per occurrence, for which PPIC is responsible for a deductible of $3,200,000 and 15% of the balance of a covered loss and the Federal government is responsible for the remaining 85% of a covered loss. We are ultimately responsible for any loss borne by PPIC.
We continue to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism. However, we cannot anticipate what coverage will be available on commercially reasonable terms in future policy years.
Our debt instruments, consisting of mortgage loans secured by our properties (which are generally non-recourse to us), senior unsecured notes, exchangeable senior debentures, convertible senior debentures and revolving credit agreements contain customary covenants requiring us to maintain insurance. Although we believe that we have adequate insurance coverage for purposes of these agreements, we may not be able to obtain an equivalent amount of coverage at reasonable costs in the future. Further, if lenders insist on greater coverage than we are able to obtain it could adversely affect our ability to finance and/or refinance our properties and expand our portfolio.
Other Contractual Obligations
At March 31, 2009, there were $44,565,000 of outstanding letters of credit under our $965,000,000 revolving credit facility. Our credit facilities and our senior unsecured notes contain financial covenants that require us to maintain minimum interest coverage and maximum debt to market capitalization ratios, and provide for higher interest rates in the event of a decline in our ratings below Baa3/BBB. Our credit facilities and our senior unsecured notes also contain customary conditions precedent to borrowing, including representations and warranties and also contain customary events of default that could give rise to accelerated repayment, including items such as the failure to pay interest or principal.
Each of our properties has been subjected to varying degrees of environmental assessment at various times. The environmental assessments did not reveal any material environmental contamination. However, there can be no assurance that the identification of new areas of contamination, changes in the extent or known scope of contamination, the discovery of additional sites, or changes in cleanup requirements would not result in significant costs to us.
We are committed to fund additional capital to certain of our partially owned entities aggregating approximately $205,917,000. Of this amount, $80,923,000 is committed to the India Property Fund and is pledged as collateral to its lender.
From time to time, we have disposed of substantial amounts of real estate to third parties for which, as to certain properties, we remain contingently liable for rent payments or mortgage indebtedness that we cannot quantify.
Commitments and Contingencies - continued
We are from time to time involved in various other legal actions arising in the ordinary course of business. In our opinion, after consultation with legal counsel, the outcome of such matters in the aggregate, including the matters referred to below, are not expected to have a material adverse effect on our financial position, results of operations or cash flows.
On January 8, 2003, Stop & Shop filed a complaint with the United States District Court for the District of New Jersey (“USDC-NJ”) claiming that we had no right to reallocate and therefore continue to collect the $5,000,000 of annual rent from Stop & Shop pursuant to the Master Agreement and Guaranty, because of the expiration of the East Brunswick, Jersey City, Middletown, Union and Woodbridge leases to which the $5,000,000 of additional rent was previously allocated. Stop & Shop asserted that a prior order of the Bankruptcy Court for the Southern District of New York dated February 6, 2001, as modified on appeal to the District Court for the Southern District of New York on February 13, 2001, froze our right to reallocate which effectively terminated our right to collect the additional rent from Stop & Shop. On March 3, 2003, after we moved to dismiss for lack of jurisdiction, Stop & Shop voluntarily withdrew its complaint. On March 26, 2003, Stop & Shop filed a new complaint in New York Supreme Court, asserting substantially the same claims as in its USDC-NJ complaint. We removed the action to the United States District Court for the Southern District of New York. In January 2005 that court remanded the action to the New York Supreme Court. On February 14, 2005, we served an answer in which we asserted a counterclaim seeking a judgment for all the unpaid additional rent accruing through the date of the judgment and a declaration that Stop & Shop will continue to be liable for the additional rent as long as any of the leases subject to the Master Agreement and Guaranty remain in effect. On May 17, 2005, we filed a motion for summary judgment. On July 15, 2005, Stop & Shop opposed our motion and filed a cross-motion for summary judgment. On December 13, 2005, the Court issued its decision denying the motions for summary judgment. Both parties appealed the Court’s decision and on December 14, 2006, the Appellate Court division issued a decision affirming the Court’s decision. On January 16, 2007, we filed a motion for the reconsideration of one aspect of the Appellate Court’s decision which was denied on March 13, 2007. 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 several of Mr. Trump’s motions and ultimately dismissed all of Mr. Trump’s claims, except for his claim seeking access to books and records; that claim was dismissed by virtue of a decision dated October 1, 2007 and an Order dated January 28, 2009. Mr. Trump sought re-argument and renewal on, and filed a notice of appeal in connection with the 2006 decision. In a decision dated January 6, 2009, the Court denied all of Mr. Trump’s motions. Mr. Trump has filed a notice appealing the 2007 and 2009 decisions. Mr. Trump’s appeals of the 2006, 2007 and 2009 decisions are now proceeding. In connection with the acquisition, we agreed to indemnify the sellers for liabilities and expenses arising out of Mr. Trump’s claim that the general partners of the partnerships we acquired did not sell the rail yards at a fair price or could have sold the rail yards for a greater price and any other claims asserted in the legal action; provided however, that if Mr. Trump prevails on certain claims involving partnership matters, other than claims relating to sale price, the sellers will be required to reimburse us for certain costs related to those claims. We believe that the claims relating to the sale price are without merit. All other allegations are not asserted as a basis for damages and regardless of merit, in our opinion, after consultation with legal counsel, will not have a material effect on our financial condition, results of operations or cash flows.
In July 2005, we acquired H Street Building Corporation (“H Street”) which has a subsidiary that owns, among other things, a 50% tenancy in common interest in land located in Arlington County, Virginia, known as "Pentagon Row," leased to two tenants. In April 2007, H Street acquired the remaining 50% interest in that fee. In April 2007, we received letters from those tenants, Street Retail, Inc. and Post Apartment Homes, L.P., claiming they had a right of first offer triggered by each of those transactions. On September 25, 2008, both tenants filed suit against us and the former owners. The claim alleges the right to purchase the fee interest, damages in excess of $75,000,000 and punitive damages. We believe this claim is without merit and regardless of merit, in our opinion, after consultation with legal counsel, will not have a material effect on our financial condition, results of operations or cash flows.
25
16.
Retirement Plan
In the first quarter of 2009, we finalized the termination of the Merchandise Mart Properties Pension Plan, which resulted in a $2,800,000 pension settlement expense that is included as a component of “general and administrative” expense on our consolidated statement of income.
17.
Costs of Acquisitions Not Consummated
In the first quarter of 2008, we wrote-off $2,283,000 of costs associated with the Hudson Rail Yards acquisition not consummated.
18.
Marketable Securities
At March 31, 2009, the market value (“fair value” pursuant to SFAS 157) of our marketable equity securities portfolio was $41,362,000 below its carrying amount. We have concluded that the decline in the value of the securities in our portfolio as of March 31, 2009, is not “other-than-temporary.” In the three months ended 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 of $9,073,000, based on the March 31, 2008 closing share price of the security.
19.
Subsequent Events
On April 7, 2009, we completed a $75,000,000 financing of 4 Union Square South, Manhattan, a 203,000 square foot, fully-leased retail property. This interest-only loan has a rate of LIBOR plus 3.25% (3.78% as of April 22, 2009) and matures in April 2012, with two one-year extension options. The property was previously unencumbered.
On April 22, 2009, we sold 17,250,000 common shares, including underwriters’ over-allotment, in an underwritten public offering pursuant to an effective registration statement at an initial public offering price of $43.00 per share. We received net proceeds of approximately $709,700,000, after the underwriters’ discount and offering expenses and contributed the net proceeds to the Operating Partnership in exchange for 17,250,000 Class A units of the Operating Partnership.
On April 30, 2009, the Operating Partnership commenced a cash tender offer for any and all of its senior unsecured notes dues 2009, 2010 and 2011. Upon the terms and subject to the conditions of the tender offer, we are offering to purchase the senior unsecured notes due 2009 at par, plus accrued and unpaid interest and the senior unsecured notes due 2010 and 2011 at a purchase price of $970 per $1,000 in principal, plus accrued and unpaid interest. The tender offer expires on May 7, 2009.
26
20.
Segment Information
Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the three months ended March 31, 2009 and 2008.
For the Three Months Ended March 31, 2009
New York Office
Washington, DC Office
Retail
Other (3)
508,010
188,762
129,374
89,077
63,001
37,796
Straight-line rents:
Contractual rent increases
13,972
6,715
3,044
3,505
619
89
Amortization of free rent
13,166
1,540
5,364
6,308
(68
Amortization of acquired below- market leases, net
17,982
9,923
1,102
5,269
29
1,659
Total rentals
206,940
138,884
104,159
63,671
39,476
35,157
18,530
37,173
5,319
1,955
Fee and other income:
18,294
(4,000
1,095
1,965
278
(994
42
982
600
3,527
5,438
459
1,338
1,669
265,055
165,799
142,069
70,985
38,106
Operating expenses
113,544
57,292
52,942
39,195
16,403
44,110
36,032
23,160
13,379
15,438
9,162
8,910
11,754
10,964
38,279
166,816
102,234
87,856
63,538
70,120
Operating income (loss)
98,239
63,565
54,213
7,447
(32,014
192
149
17,792
Income applicable to Toys
(Loss) income from partially owned entities
1,202
1,584
1,192
125
(11,646
282
140
251
13,356
Interest and debt expense
(33,118
(30,756
(21,400
(12,836
(53,656
Income (loss) before income taxes
66,797
34,533
34,405
(5,234
(66,168
Income tax expense
(433
(166
(243
(4,207
34,100
34,239
(5,477
(70,375
Less: Net income (loss) attributable to noncontrolling interests, including unit distributions
1,877
(118
14,562
Net income (loss) attributable to Vornado
64,920
34,357
(84,937
Interest and debt expense (2)
202,177
31,438
31,601
23,059
13,058
35,183
67,838
Depreciation and amortization(2)
179,590
42,761
37,243
24,070
13,548
35,257
26,711
Income tax expense (2)
58,067
434
166
308
53,091
4,068
EBITDA (1)
579,944
139,119
103,378
81,652
21,437
220,678
13,680
See notes on page 29.
27
Segment Information – continued
For the Three Months Ended March 31, 2008
488,192
176,503
123,402
86,721
57,543
44,023
17,872
7,283
3,270
5,799
1,377
143
4,099
871
1,505
(1,221
2,353
591
23,271
15,329
1,112
4,954
33
1,843
199,986
129,289
96,253
61,306
46,600
31,523
15,215
33,690
4,589
2,143
17,154
(3,732
1,402
3,156
365
(1,095
1,924
375
154
3,935
4,200
(379
1,440
(351
255,924
151,860
130,304
67,629
43,565
106,646
51,587
48,054
35,368
19,596
45,775
36,866
21,136
11,787
15,046
4,786
7,069
7,762
7,471
22,297
Costs of acquisition not consummated
157,207
95,522
76,952
54,626
59,222
98,717
56,338
53,352
13,003
(15,657
189
148
7,592
1,053
1,279
2,907
518
(36,110
708
679
242
93
12,382
(35,631
(29,622
(20,246
(13,021
(58,937
65,036
28,674
36,403
593
(90,730
Income tax benefit (expense)
221,677
(2
(210
(4,136
Income (loss) from continuing operations
250,351
36,401
383
(94,866
Income (loss) from discontinued operations, net
987
(520
111,614
251,338
35,881
16,748
Less: Net income (loss) attributable tononcontrolling interests, including unit distributions
945
44,979
64,091
35,895
(28,231)
217,239
34,004
30,628
23,827
13,233
41,495
74,052
181,185
43,620
39,242
22,202
11,907
34,102
30,112
Income tax (benefit) expense (2)
(122,780
(221,672
210
93,919
4,761
679,482
141,715
99,536
81,926
25,733
249,878
80,694
________________________
See notes on the following page.
28
Notes to preceding tabular information
EBITDA represents “Earnings Before Interest, Taxes, Depreciation and Amortization.” We consider EBITDA a supplemental measure for making decisions and assessing the unlevered performance of our segments as it relates to the total return on assets as opposed to the levered return on equity. As properties are bought and sold based on a multiple of EBITDA, we utilize this measure to make investment decisions as well as to compare the performance of our assets to that of our peers. EBITDA should not be considered a substitute for net income. EBITDA may not be comparable to similarly titled measures employed by other companies.
Interest and debt expense, depreciation and amortization and income tax (benefit) expense in the reconciliation of net income (loss) to EBITDA includes our share of these items from partially owned entities.
Other EBITDA is comprised of:
24,399
11,638
11,645
10,389
11,077
Hotel Pennsylvania
607
5,413
Industrial warehouses
1,314
1,438
Other investments (1)
3,947
(1,310
52,294
43,150
Corporate general and administrative expenses
(35,876
(20,242
Investment income and other, net
11,824
23,541
Net income attributable to noncontrolling interests, including unit distributions
(14,562
(23,751
Non-cash asset write-downs:
Marketable equity security
(9,073
Real estate development projects:
Partially owned entities
(34,200
Wholly owned entities (including costs of acquisitions not consummated)
(2,283
MPH mezzanine loan loss reversal
10,300
Derivative positions in marketable equity securities
(18,362
Discontinued operations of Americold (including a $112,690 net gain on sale)
2009 includes our share of EBITDA from a partially owned entity, which was accounted for as a mezzanine loan in 2008.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and Board of Trustees
Vornado Realty Trust
New York, New York
We have reviewed the accompanying consolidated balance sheet of Vornado Realty Trust (the “Company”) as of March 31, 2009, and the related consolidated statements of income, changes in equity and cash flows for the three-month periods ended March 31, 2009 and 2008. These interim financial statements are the responsibility of the Company’s management.
We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to such consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 2 and Note 3 to the consolidated financial statements, in 2009 the Company changed its method of accounting for its convertible and exchangeable senior debentures to conform to FASB Staff Position APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement) and adopted FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements and, retrospectively, adjusted the 2008 consolidated financial statements for the changes.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Vornado Realty Trust as of December 31, 2008, and the related consolidated statements of income, shareholders’ equity, and cash flows for the year then ended prior to retrospective adjustments for the adoption of FASB Staff Position APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement) and FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements, (not presented herein); and in our report dated February 24, 2009, we expressed an unqualified opinion on those consolidated financial statements. We also audited the adjustments described in Note 3 that were applied to retrospectively adjust the December 31, 2008 consolidated balance sheet of Vornado Realty Trust (not presented herein). 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, 2008.
/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
May 5, 2009
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, see “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2008. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q or the date of any document incorporated by reference. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to our forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.
Management’s Discussion and Analysis of Financial Condition and Results of Operations includes a discussion of our consolidated financial statements for the three months ended March 31, 2009. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Critical Accounting Policies
A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the year ended December 31, 2008 in Management’s Discussion and Analysis of Financial Condition. There have been no significant changes to our policies during 2009.
Overview
Business Objective and Operating Strategy
Our business objective is to maximize shareholder value, which we measure by the total return provided to our shareholders. Below is a table comparing our performance to the Morgan Stanley REIT Index (“RMS”) and the SNL REIT Index (“SNL”) for the following periods ending March 31, 2009:
Total Return (1)
Vornado
RMS
SNL
One-year
(61.9%)
(61.3%)
(59.7%)
Three-years
(61.4%)
(59.0%)
(57.2%)
Five-years
(33.1%)
(38.5%)
(35.6%)
Ten-years
60.3%
42.2%
49.4%
_________________________
Past performance is not necessarily indicative of how we will perform in the future.
We intend to achieve our business objective by continuing to pursue our investment philosophy and executing our operating strategies through:
•
Maintaining a superior team of operating and investment professionals and an entrepreneurial spirit;
Investing in properties in select markets, such as New York City and Washington, DC, where we believe there is a high likelihood of capital appreciation;
Acquiring quality properties at a discount to replacement cost and where there is a significant potential for higher rents;
Investing in retail properties in select under-stored locations such as the New York City metropolitan area;
Investing in fully-integrated operating companies that have a significant real estate component; and
Developing and redeveloping our existing properties to increase returns and maximize value.
We expect to finance our growth, acquisitions and investments using internally generated funds, proceeds from possible asset sales and by accessing the public and private capital markets.
We have a large concentration of properties in the New York City metropolitan area and in the Washington, DC and Northern Virginia areas. We compete with a large number of real estate property owners and developers, some of which may be willing to accept lower returns on their investments. Principal factors of competition are rents charged, attractiveness of location, the quality of the property and breadth and quality of services provided. Our success depends upon, among other factors, trends of the national, regional and local economies, financial condition and operating results of current and prospective tenants and customers, availability and cost of capital, construction and renovation costs, taxes, governmental regulations, legislation and population trends. See “Risk Factors” in Item 1A of our Annual Report on form 10-K for the year ended December 31, 2008, for additional information regarding these factors.
32
Overview – continued
In the second half of 2007 the residential mortgage and capital markets began showing signs of stress, primarily in the form of escalating default rates on sub-prime mortgages, declining home values and increasing inventory nationwide. In 2008, the “credit crisis” spread to the broader commercial credit and financial markets resulting in illiquidity and volatility in the bond and equity markets. These trends have continued in the first quarter of 2009. We are currently in an economic recession which has negatively affected substantially all businesses, including ours. During the past year, real estate transactions have diminished significantly and capitalization rates have risen. The commercial real estate industry may continue to be affected by declining demand for office and retail space due to bankruptcies, layoffs, downsizing, cost cutting as well as general economic conditions, which would result in lower occupancy rates and effective rents and a corresponding decrease in net income, funds from operations and cash flow. In addition, the value of investments in joint ventures, marketable securities, and mezzanine loans may continue to decline, and may result in impairment charges and/or valuation allowances and a corresponding decrease in net income and funds from operations.
The trends discussed above have had an impact on our financial results for the first quarter ended March 31, 2009. As shown in our table of leasing statistics by segment on page 36 of this “Overview,” changes in occupancy rates from December 31, 2008 to March 31, 2009 ranged from a decrease of 80 basis points for our New York Office portfolio to an increase of 20 basis points for our Washington, DC Office portfolio. Initial rents on space re-leased during the quarter ended March 31, 2009 exceeded expiring escalated rents, although at spreads significantly below increases achieved during 2008. During the quarter ended March 31, 2009, retail tenant delinquencies have risen and our allowance for doubtful accounts has increased accordingly. At March 31, 2009, the market values of our investment in Lexington Realty Trust (NYSE: LXP) common shares and our marketable securities portfolio were $39,274,000 and $41,362,000, respectively, below their carrying amounts. We have concluded that, as of March 31, 2009, the declines in the value of these investments were not “other-than-temporary.” It is not possible for us to quantify the impact of the above trends, which may persist for the remainder of 2009 and beyond, on our future financial results.
Quarter Ended March 31, 2009 Financial Results Summary
Net income attributable to common shareholders for the quarter ended March 31, 2009 was $125,841,000, or $0.79 per diluted share, versus $389,563,000, or $2.38 per diluted share, for the quarter ended March 31, 2008. Net income for the quarter ended March 31, 2009 and 2008 include $173,000 and $6,002,000, respectively, of net gains on sale of real estate. In addition, net income for the quarters ended March 31, 2009 and 2008 also include certain items that affect comparability which are listed in the table below. The aggregate of the net gains on sale of real estate and the items in the table below, net of amounts attributable to noncontrolling interests, decreased net income attributable to common shareholders for the quarter ended March 31, 2009 by $15,689,000, or $0.10 per diluted share and increased net income attributable to common shareholders for the quarter ended March 31, 2008 by $258,314,000, or $1.55 per diluted share.
Funds from operations attributable to common shareholders plus assumed conversions (“FFO”) for the quarter ended March 31, 2009 was $268,582,000, or $1.63 per diluted share, compared to $527,880,000, or $3.17 per diluted share, for the prior year’s quarter. FFO for the quarters ended March 31, 2009 and 2008 include certain items that affect comparability which are listed in the table below. The aggregate of these items, net of amounts attributable to noncontrolling interests, decreased FFO for the quarter ended March 31, 2009 by $15,971,000, or $0.10 per diluted share and increased FFO for the quarter ended March 31, 2008 by $259,379,000 or $1.56 per diluted share.
Items that affect comparability (income) expense:
Alexander’s stock appreciation rights
(11,105
205
Net gain on extinguishment of debt
Reversal of deferred income taxes initially recorded in connection with H Street acquisition
Net gain on sale of our 47.6% interest in Americold
Reversal of MPH mezzanine loan loss accrual
(10,300
1,874
1,663
17,452
(279,378
47.6% share of Americold’s FFO (Net loss of $1,076) – sold on March 31, 2008
(6,098
(285,476
Noncontrolling interests’ share of above adjustments
(1,481
26,097
Total items that affect comparability
15,971
(259,379
On January 1, 2009, we adopted FASB Staff Position APB 14-1, Accounting for Convertible Debt Instruments that may be Settled in Cash upon Conversion (Including Partial Cash Settlement) (“FSP 14-1”). FSP 14-1 was required to be applied retrospectively. Accordingly, net income for the quarter ended March 31, 2008 has been adjusted to include $8,400,000 of additional interest expense, net of amounts attributable to noncontrolling interests. In addition, in accordance with FASB Statement No. 128, Earnings Per Share (“SFAS 128), we have included 2,762,000 additional common shares resulting from the March 12, 2009 common share dividend, in the computation of income per share retroactively to the quarter ended March 31, 2008.
34
During the quarter ended March 31, 2009, we did not recognize income on certain assets with an aggregate carrying amount of approximately $900 million during the quarter ended March 31, 2009, because they were out of service for redevelopment, although we capitalized $4,716,000 of interest costs in connection with the development of these assets. Assets under development include all or portions of the Bergen Town Center, 220 20th Street, 1229-1231 25th Street (“West End 25”), and certain investments in partially owned entities.
The percentage increase (decrease) in the same store Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) of our operating segments for the quarter ended March 31, 2009 over the quarter ended March 31, 2008 and the trailing quarter ended December 31, 2008 are summarized below.
Quarter Ended:
March 31, 2009 vs. March 31, 2008
2.1%
4.7%
5.5%
(5.0%)
March 31, 2009 vs. December 31, 2008
(4.9%)(1)
0.6%
5.9%
(14.3%) (2)
Reflects a seasonal increase in utility costs and additional amortization of an acquired below market lease in the prior year's quarter resulting from AXA Equitable Life Insurance’s (“AXA”) lease modification at 1290 Avenue of the Americas. Excluding the effect of these items, same store operations decreased by 0.9%.
Results primarily from the 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 the Financial Condition and Results of Operations.
35
Overview - continued
The following table sets forth certain information for the properties we own directly or indirectly, including leasing activity. The leasing activity presented below is based on leases signed during the period and is not intended to coincide with the commencement of rental revenue 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 service)
16,138
17,963
22,224
2,438
6,337
Number of properties
82
176
Occupancy rate
95.9
95.2
92.0
95.1
90.1
Leasing Activity:
Quarter Ended March 31, 2009:
Square feet
161
539
247
118
Initial rent (1)
53.24
39.37
16.93
30.82
Weighted average lease terms (years)
5.6
3.8
5.8
4.5
Rent per square foot - relet space:
153
498
232
Initial rent – cash basis (1)
52.41
39.47
14.35
Prior escalated rent – cash basis
48.08
37.74
13.42
32.00
Percentage increase:
Cash basis
9.0
4.6
6.9
(3.7
%)
GAAP basis
8.3
10.6
2.1
Rent per square foot – vacant space
41
68.96
38.16
58.04
Tenant improvements and leasing commissions:
Per square foot
18.83
14.02
2.62
5.21
Per square foot per annum
3.36
3.69
.45
1.16
Percentage of initial rent
6.3
9.2
2.7
As of December 31, 2008:
16,108
17,666
21,861
2,424
6,332
96.7
95.0
92.1
96.5
92.2
As of March 31, 2008:
16,025
17,392
21,820
2,390
6,169
97.6
93.4
94.2
92.6
93.5
_______________________________
Most leases include periodic step-ups in rent, which are not reflected in the initial rent per square foot leased.
36
37
Recently Issued Accounting Literature – continued
38
Net Income and EBITDA by Segment for the Three Months Ended March 31, 2009 and 2008
___________________
See notes on page 41.
39
Net Income and EBITDA by Segment for the Three Months Ended March 31, 2009 and 2008 – continued
______________________________
40
Net Income and EBITDA by Segment for the Three Months Ended March 31, 2009 and 2008 - continued
Notes to preceding tabular information:
Results of Operations – Three Months Ended March 31, 2009 Compared to March 31, 2008
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 $682,014,000 for the quarter ended March 31, 2009, compared to $649,282,000 in the prior year’s quarter, an increase of $32,732,000. Below are the details of the increase (decrease) by segment:
Property rentals:
Increase (decrease) due to:
Acquisitions
1,432
374
1,058
Development/redevelopment
3,285
2,365
920
Amortization of acquired below-market leases, net
(5,289
(5,406
)(1)
(10
315
(184
Operations:
(5,443
Trade shows
1,263
Leasing activity (see page 36)
24,448
12,360
7,240
6,297
(1,497
Total increase (decrease) in property rentals
19,696
6,954
9,595
7,906
(7,124
Tenant expense reimbursements:
Acquisitions/development
440
Operations
10,534
3,634
3,315
3,043
730
(188
Total increase (decrease) in tenant expense reimbursements
10,974
3,483
Increase (decrease) in:
Lease cancellation fee income
(829
(1,882
(375
446
(1,567
(307
(1,191
)(3)
(87
(83
101
BMS Cleaning revenue
872
1,140
(268
3,586
(408
1,238
838
(102
2,020
Total increase (decrease) in fee and other income
2,062
(1,457
1,029
376
261
Total increase (decrease) in revenues
32,732
9,131
13,939
11,765
3,356
(5,459
Results primarily from a lease modification that reduced the term of a portion of AXA’s space at 1290 Avenue of the Americas, which resulted in additional amortization of approximately $3,000 in the prior year’s quarter.
Primarily due to lower REVPAR.
Results primarily from fees recognized in the prior year’s quarter in connection with the management of a development project.
Our expenses, which consist of operating, depreciation and amortization and general and administrative expenses, were $490,564,000 for the quarter ended March 31, 2009, compared to $443,529,000 in the prior year’s quarter, an increase of $47,035,000. Below are the details of the increase (decrease) by segment:
Operating:
408
73
1,035
(700
742
307
435
Hotel activity
(786
Trade shows activity
666
17,095
6,898
5,398
4,380
2,126
(1,707
Total increase (decrease) in operating expenses
18,125
5,705
4,888
3,827
(3,193
Depreciation and amortization:
(3,975
(4,188
213
Operations (due to additions to buildings andimprovements)
5,484
(1,665
3,354
1,811
1,592
392
Total increase (decrease) in depreciation and amortization
1,509
(834
2,024
General and administrative:
3,451
3,131
4,793
1,011
20,202
(2,904
925
(1,290
(801
2,482
(4,220
Total increase in general and administrative
29,684
4,376
1,841
3,992
3,493
15,982
Total increase in expenses
47,035
9,609
6,712
10,904
8,912
10,898
Results primarily from a lease modification that reduced the term of a portion of AXA’s space at 1290 Avenue of the Americas, which resulted in additional depreciation of approximately $4,000 in the prior year’s quarter.
Primarily due to pension termination costs of $2,800.
Results from a $5,794 mark-to-market reduction of investments in our deferred compensation plan, for which there is a corresponding reduction in “interest and other investment income, net.”
Income Applicable to Alexander’s
Our 32.4% share of Alexander’s net income (comprised of our share of Alexander’s net income, management, leasing, and development fees) was $18,133,000 for the three months ended March 31, 2009, compared to $7,929,000 for the prior year’s first quarter, an increase of $10,204,000. This increase was primarily due to $11,105,000 of income for our share of the reversal of accrued stock appreciation rights compensation expense in the current quarter, compared to $205,000 for our share of accrued stock appreciation rights compensation expense in the prior year’s quarter.
Income Applicable to Toys
Our 32.7% share of Toys’ net income (comprised of our share of Toys net income, interest income on loans receivable, and management fees) was $97,147,000 for the three months ended March 31, 2009, or $150,238,000 before our share of Toys’ income tax expense, compared to $80,362,000, or $174,281,000 before our share of Toys’ income tax expense for the prior year’s quarter.
Loss from Partially Owned Entities
Summarized below are the components of loss from partially owned entities for the three months ended March 31, 2009 and 2008.
Equity in Net Income (Loss):
Lexington – 16.1% in 2009 and 7.5% share in 2008 of equity in net (loss) income
India real estate ventures – 4% to 36.5% share of equity in net loss
(414
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 others.
44
Interest and Other Investment Income, net
Interest and other investment income, net (comprised of interest income on mezzanine loans receivable, other interest income and dividend income) was $14,059,000 for the three months ended March 31, 2009, compared to $14,104,000 in the prior year’s quarter, a decrease of $45,000. This decrease resulted from:
Derivative positions in marketable equity securities – loss in prior year
Partial reversal of MPH mezzanine loan loss accrual – income in the prior year
Marketable equity security – impairment loss in the prior year
Decrease in interest income as a result of lower average yield on investments (0.6% in this quarter compared to 3.6% in the prior year’s quarter)
(6,440
Mark-to-market reduction of investments in our deferred compensation plan (for which there is a corresponding reduction in general and administrative expense)
(5,794
Other, net (primarily a reduction in dividend income)
(4,946
(45
Interest and Debt Expense
Interest and debt expense was $151,766,000 for the three months ended March 31, 2009, compared to $157,457,000 in the prior year’s quarter, a decrease of $5,691,000. This decrease resulted primarily from a $5,905,000 net gain on extinguishment of debt.
Income Tax (Expense) Benefit
In the three months ended March 31, 2009, we had an income tax expense of $5,049,000, compared to an income tax benefit of $217,329,000 the prior year’s quarter, an increase in expense of $222,378,000. This increase resulted primarily from a $222,174,000 reversal in the first quarter of 2008, related to deferred taxes recorded in connection with the acquisition of H Street.
The combined results of operations of the assets related to discontinued operations for the three months ended March 31, 2008 include the operating results of Americold, which was sold on March 31, 2008 and 19.6 acres of land we acquired as part of our acquisition of H Street, of which 11 acres were sold in September 2007.
234,931
(15,510
Net gain on sale of real estate
45
Net Income Attributable to Noncontrolling Interests, Including Unit Distributions
Net income attributable to noncontrolling interests for the three months ended March 31, 2009 and 2008 is comprised of allocations to redeemable noncontrolling interests of $16,821,000 and $46,316,000, respectively, and net loss attributable to noncontrolling interests in consolidated subsidiaries of $500,000 and $406,000, respectively. The decrease of $29,589,000 in allocations to noncontrolling redeemable interests resulted primarily from lower net income subject to allocation and the redemption of Class A units during 2008 and the first quarter of 2009. The decrease of $3,481,000 in net loss attributable to noncontrolling interests in consolidated subsidiaries resulted primarily from the sale of Americold Realty Trust on March 31, 2008.
Preferred Share Dividends
Preferred share dividends were $14,269,000 for the three months ended March 31, 2009, compared to $14,275,000 for the prior year’s first quarter.
46
Same Store EBITDA
Same store EBITDA represents EBITDA from property level operations owned for the same period in each year. Same store EBITDA excludes segment non-property level overhead expenses and EBITDA from acquisitions, dispositions and other non-operating income or 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 those of our peers. Same store EBITDA may not be comparable to similarly titled measures employed by other companies.
Below are the same store EBITDA results for each of our segments for the three months ended March 31, 2009, compared to the three months ended March 31, 2008.
EBITDA for the three months ended March 31, 2009
Add-back: segment non-property level overhead expenses included above (1)
Less: EBITDA from acquisitions, dispositions and other non-operating income or expenses
(3,030
(2,861
(846
Same store EBITDA for the three months ended March 31, 2009
148,281
109,258
90,545
31,555
EBITDA for the three months ended March 31, 2008
Add-back: segment non property level overhead expenses included above
(1,285
(2,233
(3,832
Same store EBITDA for the three months ended March 31, 2008
145,216
104,372
85,856
33,204
Increase (decrease) in same store EBITDA for the three months ended March 31, 2009 over the three months ended March 31, 2008
3,065
4,886
4,689
(1,649
% increase (decrease)
(1) Includes the write-off of unamortized costs associated with the voluntary surrender of equity awards on March 31, 2009, of $3,451, $3,131, $4,793 and $1,011, respectively.
47
SUPPLEMENTAL INFORMATION
Three Months Ended March 31, 2009 vs. Three Months Ended December 31, 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 record on a one-quarter lag basis in our first quarter, accounts for more than 80% of Toys’ fiscal year net income. The Office and Merchandise Mart segments have historically experienced higher utility costs in the first and third quarters of the year. The Merchandise Mart segment also has experienced higher earnings in the second and fourth quarters of the year due to major trade shows occurring in those quarters. The Retail segment revenue in the fourth quarter is typically higher due to the recognition of percentage rental income.
Below are the same store EBITDA results for each of our segments for the three months ended March 31, 2009, compared to the three months ended December 31, 2008.
Washington, DCOffice
MerchandiseMart
(1,679
91,727
EBITDA for the three months ended December 31, 2008
155,198
103,129
77,910
30,878
Add-back: segment non-property level overhead expenses included above
5,311
7,724
6,761
7,333
(4,533
(2,217
1,937
(1,383
Same store EBITDA for the three months ended December 31, 2008
155,976
108,636
86,608
36,828
(Decrease) increase in same store EBITDA forthe three months ended March 31, 2009 overthe three months ended December 31, 2008
(7,695
622
5,119
(5,273
% (decrease) increase
(4.9%)
(14.3%)
Below is a reconciliation of net income to EBITDA for the three months ended December 31, 2008.
Net income for the three months ended December 31, 2008
76,641
36,176
20,945
3,928
33,596
33,352
26,108
13,249
44,961
33,655
30,782
13,646
Income tax (benefit) expense
(54
75
LIQUIDITY AND CAPITAL RESOURCES
We anticipate that cash flow from continuing operations over the next twelve months will be adequate to fund our business operations, cash distributions to unitholders of the Operating Partnership, cash dividends to shareholders, debt amortization and recurring capital expenditures. Capital requirements for significant acquisitions and development expenditures may require funding from borrowings and/or equity offerings. We may from time to time purchase or retire outstanding debt securities though cash purchases and/or exchanges for our equity securities, in open market purchases, privately negotiated transactions or otherwise. Such purchases and/or exchanges, if any, will depend on prevailing market conditions, liquidity requirements and other factors. The amounts involved in connection with these transactions could be material to our consolidated financial statements.
Cash Flows for the Three Months Ended March 31, 2009
Our cash and cash equivalents were $1,625,450,000 at March 31, 2009, a $98,597,000 increase over the balance at December 31, 2008. This increase resulted from $169,812,000 of net cash provided by operating activities and $107,211,000 of net cash provided by financing activities, partially offset by $178,426,000 of net cash used in investing activities. Property rental income represents our primary source of net cash provided by operating activities. Our property rental income is primarily dependent upon the occupancy and rental rates of our properties. Other sources of liquidity to fund cash requirements include proceeds from debt financings, including mortgage loans and corporate level unsecured borrowings; our revolving credit facilities; proceeds from the issuance of common and preferred equity; and asset sales. Our cash requirements include property operating expenses, capital improvements, tenant improvements, leasing commissions, distributions to our common and preferred shareholders, as well as acquisition and development costs.
Our consolidated outstanding debt was $12,731,830,000 at March 31, 2009, a $220,160,000 increase over the balance at December 31, 2008. This increase resulted primarily from $300,000,000 of draws under our revolving credit facilities during the first quarter, partially offset by the $81,534,000 purchase of our senior unsecured notes and $47,000,000 of repayments on our cross-collateralized retail mortgage. As of March 31, 2009 and December 31, 2008, $658,468,000 and $358,468,000 respectively, was outstanding under our revolving credit facilities. During 2009 and 2010, $439,853,000 and $1,038,792,000 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 $2,999,693,000 at March 31, 2009, a $196,892,000 decrease from the balance at December 31, 2008.
Cash flows provided by operating activities of $169,812,000 was primarily comprised of (i) net income of $156,431,000, net of $29,526,000 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, (ii) distributions of income from partially owned entities of $8,381,000, and (iii) the net change in operating assets and liabilities of $24,526,000.
Net cash used in investing activities of $178,426,000 was primarily comprised of (i) development and redevelopment expenditures of $132,529,000, (ii) additions to real estate of $38,916,000, (iii) restricted cash of $27,298,000, (iv) investments in partially owned entities of $9,582,000 and (v) purchases of marketable equity securities of $9,882,000, partially offset by (vi) proceeds from the sale of real estate of $20,858,000, (vii) proceeds from the sale of marketable equity securities of $7,835,000 and (viii) distributions of capital from partially owned entities of $7,504,000.
Net cash provided by financing activities of $107,211,000 was primarily comprised of (i) proceeds from borrowings of $353,856,000, partially offset by, (ii) repayments of borrowings, including the purchase of our senior unsecured notes, of $138,291,000, (iii) dividends paid on common shares of $59,115,000, (iv) distributions to noncontrolling interests of $10,514,000 and (v) dividends paid on preferred shares of $14,269,000.
Capital Expenditures
Our capital expenditures consist of expenditures to maintain assets, tenant improvement allowances and leasing commissions. Recurring capital improvements include expenditures to maintain a property’s competitive position within the market and tenant improvements and leasing commissions necessary to re-lease expiring leases or renew or extend existing leases. Non-recurring capital improvements include expenditures completed in the year of acquisition and the following two years that were planned at the time of acquisition as well as tenant improvements and leasing commissions for space that was vacant at the time of acquisition of a property. Our development and redevelopment expenditures include all hard and soft costs associated with the development or redevelopment of a property, including tenant improvements, leasing commissions and capitalized interest and operating costs until the property is substantially complete and ready for its intended use.
49
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 three months ended March 31, 2009.
New YorkOffice
(Accrual basis):
Expenditures to maintain the assets:
Recurring
8,625
4,555
2,044
1,953
Non-recurring
3,752
1,157
1,197
1,398
12,377
5,712
3,241
Tenant improvements:
9,121
2,059
5,992
455
615
399
9,520
2,066
Leasing Commissions:
3,222
983
2,080
159
92
3,314
1,003
193
11.02
2.58
0.45
Total Capital Expenditures and Leasing Commissions (accrual basis)
25,211
8,781
11,313
721
2,568
1,828
Adjustments to reconcile accrual basis to cash basis:
Expenditures in the current year applicable to prior periods
29,631
12,953
12,818
1,818
2,155
Expenditures to be made in future periods for the current period
(10,566
(2,843
(7,006
(636
(81
Total Capital Expenditures and Leasing Commissions (Cash basis)
44,276
18,891
17,125
1,903
4,723
1,634
Development and Redevelopment Expenditures (1):
Bergen Town Center
25,477
West End 25
19,053
Wasserman venture
17,993
11,611
11,222
1999 K Street
8,594
North Bergen, New Jersey
6,792
South Hills Mall
220 20th Street
6,401
18,625
3,747
5,780
1,472
5,671
132,529
49,406
56,032
23,664
Excludes development expenditures of partially owned, non-consolidated investments.
50
Cash Flows for the Three Months Ended March 31, 2008
Cash and cash equivalents were $1,541,074,000 at March 31, 2008, a $386,479,000 increase over the balance at December 31, 2007. This increase resulted from $221,575,000 of net cash provided by operating activities and $167,308,000 of net cash provided by financing activities, partially offset by $2,404,000 of net cash used in investing activities. Property rental income represents our primary source of net cash provided by operating activities.
Our consolidated outstanding debt was $12,168,503,000 at March 31, 2008, a $272,465,000 increase over the balance at December 31, 2007. This increase resulted primarily from debt associated with property refinancings during the current quarter
Cash flows provided by operating activities of $221,575,000 was primarily comprised of (i) net income of $449,748,000, net of $221,371,000 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, (ii) distributions of income from partially owned entities of $9,978,000, and (iii) the net change in operating assets and liabilities of $11,862,000.
Net cash used in investing activities of $2,404,000 was primarily comprised of (i) development and redevelopment expenditures of $106,688,000, (ii) investments in partially owned entities of $74,552,000, (iii) additions to real estate of $50,838,000, (iv) acquisitions of real estate of $4,874,000, (v) investments in notes and mortgage loans receivable of $4,632,000, partially offset by, (vi) proceeds from the sale of real estate and investments (primarily Americold) of $199,331,000, (vii) distributions of capital from partially owned entities of $22,163,000 and (viii) proceeds received from repayments on mortgage loans receivable of $19,099,000.
Net cash provided by financing activities of $167,308,000 was primarily comprised of (i) proceeds from borrowings of $956,499,000, partially offset by, (ii) repayments of borrowings of $605,342,000, (iii) dividends paid on common shares of $138,030,000, (iv) distributions to noncontrolling interests of $28,308,000 and (v) dividends paid on preferred shares of $14,292,000.
51
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 three months ended March 31, 2008.
15,841
6,021
4,144
467
3,589
1,620
2,222
1,541
670
18,063
7,562
4,155
2,290
26,720
9,362
14,839
1,729
790
126
26,846
1,855
9,505
6,345
3,141
21.23
45.80
20.45
6.73
3.83
2.69
5.46
0.78
54,414
23,269
22,135
2,341
4,379
30,081
9,937
6,323
2,988
10,833
(33,282
(14,741
(15,587
(1,874
(1,080
51,213
18,465
12,871
3,455
14,132
27,414
10,819
40 East 66th Street
8,966
8,089
5,168
4,353
3,416
Springfield Mall
3,179
1,405
33,879
4,927
12,364
11,030
2,313
3,245
106,688
25,621
47,381
26,446
At March 31, 2009, there were $44,565,000 of outstanding letters of credit under our $965,000,000 revolving credit facility. Our credit facilities and senior unsecured notes contain financial covenants that require us to maintain minimum interest coverage and maximum debt to market capitalization ratios, and provide for higher interest rates in the event of a decline in our ratings below Baa3/BBB. Our credit facilities and senior unsecured notes also contain customary conditions precedent to borrowing, including representations and warranties and also contain customary events of default that could give rise to accelerated repayment, including items such as the failure to pay interest or principal.
53
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 Generally Accepted Accounting Principles (“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 11 – Income Per Share, in the notes to our consolidated financial statements on page 22 of this Quarterly Report on Form 10-Q.
FFO for the Three Months Ended March 31, 2009, and 2008
FFO attributable to common shareholders plus assumed conversions was $268,582,000, or $1.63 per diluted share for the three months ended March 31, 2009, compared to $527,880,000, or $3.17 per diluted share for the prior year’s quarter. Details of certain items that affect comparability are discussed in the financial results summary of our “Overview.”
(Amounts in thousands except per share amounts)
Reconciliation of our Net Income to FFO:
Depreciation and amortization of real property
124,127
129,860
Proportionate share of adjustments to equity in net income of Toys to arrive at FFO:
16,580
16,652
Income tax effect of Toys adjustments included above
(5,803
(5,828
Proportionate share of adjustments to equity in net income of partially owned entities excluding Toys, to arrive at FFO:
14,608
11,586
(173
(5,422
(13,003
(14,286
FFO
276,446
535,820
FFO attributable to common shareholders
262,177
521,545
Convertible preferred dividends and unit distributions
FFO attributable to common shareholders plus assumed conversions
268,582
527,880
Reconciliation of Weighted Average Shares:
Weighted average common shares outstanding
Effect of dilutive securities:
Convertible preferred shares and units
Denominator for diluted FFO per share
164,950
FFO attributable to common shareholders plus assumed conversions per diluted share
1.63
3.17
54
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:
As at March 31, 2009
As at December 31, 2008
Consolidated debt:
Weighted Average Interest Rate
Effect of 1% Change In Base Rates
Variable rate
2,428,656
1.70%
24,287
2,076,128
2.70%
Fixed rate
10,303,174
5.75%
10,435,542
5.76%
12,731,830
4.98%
12,511,670
5.25%
Pro-rata share of debt of non- consolidated entities (non-recourse):
Variable rate – excluding Toys
293,250
2.41%
2,933
282,752
3.63%
Variable rate – Toys
617,087
3.77%
6,171
819,512
3.68%
Fixed rate (including $1,160,169, and $1,012,560 of Toys debt in 2009 and 2008)
2,089,356
6.40%
2,094,321
6.51%
2,999,693
5.47%
9,104
3,196,585
5.53%
Redeemable noncontrolling interests’ share of above
(3,072
Total change in annual net income
30,319
Per share-diluted
0.19
We may utilize various financial instruments to mitigate the impact of interest rate fluctuations on our cash flows and earnings, including hedging strategies, depending on our analysis of the interest rate environment and the costs and risks of such strategies. As of March 31, 2009, variable rate debt with an aggregate principal amount of $462,000,000 and a weighted average interest rate of 2.02% was subject to LIBOR caps. These caps are based on a notional amount of $462,000,000 and cap LIBOR at a weighted average rate of 5.93%. As of March 31, 2009, we have investments in mezzanine loans with an aggregate carrying amount of $95,752,000 that are based on variable interest rates which partially mitigate our exposure to a change in interest rates on our variable rate debt.
Fair Value of Debt
As of March 31, 2009, the carrying amount of our debt exceeded its aggregate fair value by approximately $1,316,339,000, 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.
Item 4. Controls and Procedures
Disclosure Controls and Procedures: The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2009, such disclosure controls and procedures were effective.
Internal Control Over Financial Reporting: There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Securities and Exchange Act of 1934, as amended) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 1A. Risk Factors
There were no material changes to the Risk Factors disclosed in our annual report on Form 10-K for the year ended December 31, 2008.
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: May 5, 2009
By:
/s/ Joseph Macnow
Joseph Macnow, Executive Vice President - Finance and Administration and Chief Financial Officer (duly authorized officer and principal financial and accounting officer)
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
Fifth Amendment to the Partnership Agreement, dated as of March 3, 1999 - Incorporated by reference to Exhibit 3.1 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on March 17, 1999
3.9
Sixth Amendment to the Partnership Agreement, dated as of March 17, 1999 - Incorporated by reference to Exhibit 3.2 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on July 7, 1999
3.10
Seventh Amendment to the Partnership Agreement, dated as of May 20, 1999 - Incorporated by reference to Exhibit 3.3 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on July 7, 1999
3.11
Eighth Amendment to the Partnership Agreement, dated as of May 27, 1999 - Incorporated by reference to Exhibit 3.4 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on July 7, 1999
3.12
Ninth Amendment to the Partnership Agreement, dated as of September 3, 1999 - Incorporated by reference to Exhibit 3.3 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on October 25, 1999
3.13
Tenth Amendment to the Partnership Agreement, dated as of September 3, 1999 - Incorporated by reference to Exhibit 3.4 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on October 25, 1999
_______________________ Incorporated by reference.
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
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
61
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
Thirty-Third Amendment to Second Amended and Restated Agreement of Limited Partnership, dated as of April 25, 2006 – Incorporated by reference to Exhibit 10.2 to Vornado Realty Trust’s Form 8-K (File No. 001-11954), filed on May 1, 2006
3.37
Thirty-Fourth Amendment to Second Amended and Restated Agreement of Limited Partnership, dated as of May 2, 2006 – Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on May 3, 2006
3.38
Thirty-Fifth Amendment to Second Amended and Restated Agreement of Limited Partnership, dated as of August 17, 2006 – Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.’s Form 8-K (File No. 000-22685), filed on August 23, 2006
3.39
Thirty-Sixth Amendment to Second Amended and Restated Agreement of Limited Partnership, dated as of October 2, 2006 – Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.’s Form 8-K (File No. 000-22685), filed on January 22, 2007
3.40
Thirty-Seventh Amendment to Second Amended and Restated Agreement of Limited Partnership, dated as of June 28, 2007 – Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on June 27, 2007
_______________________Incorporated by reference.
62
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.
63
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
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
64
10.16
Registration Rights Agreement, dated as of July 21, 1999, by and between Vornado Realty Trust and the holders of Units listed on Schedule A thereto - Incorporated by reference to Exhibit 10.2 to Vornado Realty Trust’s Registration Statement on Form S-3 (File No. 333-102217), filed on December 26, 2002
10.17
Form of Registration Rights Agreement between Vornado Realty Trust and the holders of Units listed on Schedule A thereto - Incorporated by reference to Exhibit 10.3 to Vornado Realty Trust’s Registration Statement on Form S-3 (File No. 333-102217), filed on December 26, 2002
10.18
Amendment to Real Estate Retention Agreement, dated as of July 3, 2002, by and between Alexander’s, Inc. and Vornado Realty L.P. - Incorporated by reference to Exhibit 10(i)(E)(3) to Alexander’s Inc.’s Quarterly Report for the quarter ended June 30, 2002 (File No. 001-06064), filed on August 7, 2002
10.19
59th Street Real Estate Retention Agreement, dated as of July 3, 2002, by and between Vornado Realty L.P., 731 Residential LLC and 731 Commercial LLC - Incorporated by reference to Exhibit 10(i)(E)(4) to Alexander’s Inc.’s Quarterly Report for the quarter ended June 30, 2002 (File No. 001-06064), filed on August 7, 2002
10.20
Amended and Restated Management and Development Agreement, dated as of July 3, 2002, by and between Alexander’s, Inc., the subsidiaries party thereto and Vornado Management Corp. - Incorporated by reference to Exhibit 10(i)(F)(1) to Alexander’s Inc.’s Quarterly Report for the quarter ended June 30, 2002 (File No. 001-06064), filed on August 7, 2002
10.21
59th Street Management and Development Agreement, dated as of July 3, 2002, by and between 731 Residential LLC, 731 Commercial LLC and Vornado Management Corp. - Incorporated by reference to Exhibit 10(i)(F)(2) to Alexander’s Inc.’s Quarterly Report for the quarter ended June 30, 2002 (File No. 001-06064), filed on August 7, 2002
10.22
Amendment dated May 29, 2002, to the Stock Pledge Agreement between Vornado Realty Trust and Steven Roth dated December 29, 1992 - Incorporated by reference to Exhibit 5 of Interstate Properties’ Schedule 13D/A dated May 29, 2002 (File No. 005-44144), filed on May 30, 2002
10.23
Vornado Realty Trust’s 2002 Omnibus Share Plan - Incorporated by reference to Exhibit 4.2 to Vornado Realty Trust’s Registration Statement on Form S-8 (File No. 333-102216) filed December 26, 2002
10.24
Registration Rights Agreement by and between Vornado Realty Trust and Bel Holdings LLC dated as of November 17, 2003 – Incorporated by reference to Exhibit 10.68 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2003 (File No. 001-11954), filed on March 3, 2004
10.25
Registration Rights Agreement, dated as of May 27, 2004, by and between Vornado Realty Trust and 2004 Realty Corp. – Incorporated by reference to Exhibit 10.75 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2004 (File No. 001-11954), filed on February 25, 2005
10.26
Registration Rights Agreement, dated as of December 17, 2004, by and between Vornado Realty Trust and Montebello Realty Corp. 2002 – Incorporated by reference to Exhibit 10.76 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2004 (File No. 001-11954), filed on February 25, 2005
_______________________Incorporated by reference. Management contract or compensatory agreement.
65
10.27
Form of Stock Option Agreement between the Company and certain employees – Incorporated by reference to Exhibit 10.77 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2004 (File No. 001-11954), filed on February 25, 2005
10.28
Form of Restricted Stock Agreement between the Company and certain employees – Incorporated by reference to Exhibit 10.78 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2004 (File No. 001-11954), filed on February 25, 2005
10.29
Employment Agreement between Vornado Realty Trust and Sandeep Mathrani, dated February 22, 2005 and effective as of January 1, 2005 – Incorporated by reference to Exhibit 10.76 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005 (File No. 001-11954), filed on April 28, 2005
10.30
Contribution Agreement, dated May 12, 2005, by and among Robert Kogod, Vornado Realty L.P. and certain Vornado Realty Trust’s affiliates – Incorporated by reference to Exhibit 10.49 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2005 (File No. 001-11954), filed on February 28, 2006
10.31
Amendment, dated March 17, 2006, to the Vornado Realty Trust Omnibus Share Plan – Incorporated by reference to Exhibit 10.50 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 (File No. 001-11954), filed on May 2, 2006
10.32
Form of Vornado Realty Trust 2006 Out-Performance Plan Award Agreement, dated as of April 25, 2006 – Incorporated by reference to Exhibit 10.1 to Vornado Realty Trust’s Form 8-K (File No. 001-11954), filed on May 1, 2006
10.33
Form of Vornado Realty Trust 2002 Restricted LTIP Unit Agreement – Incorporated by reference to Vornado Realty Trust’s Form 8-K (Filed No. 001-11954), filed on May 1, 2006
10.34
Revolving Credit Agreement, dated as of June 28, 2006, among the Operating Partnership, the banks party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A. and Citicorp North America, Inc., as Syndication Agents, Deutsche Bank Trust Company Americas, Lasalle Bank National Association, and UBS Loan Finance LLC, as Documentation Agents and Vornado Realty Trust – Incorporated by reference to Exhibit 10.1 to Vornado Realty Trust’s Form 8-K (File No. 001-11954), filed on June 28, 2006
10.35
Amendment No.2, dated May 18, 2006, to the Vornado Realty Trust Omnibus Share Plan – Incorporated by reference to Exhibit 10.53 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 (File No. 001-11954), filed on August 1, 2006
10.36
Amended and Restated Employment Agreement between Vornado Realty Trust and Joseph Macnow dated July 27, 2006 – Incorporated by reference to Exhibit 10.54 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 (File No. 001-11954), filed on August 1, 2006
10.37
Guaranty, made as of June 28, 2006, by Vornado Realty Trust, for the benefit of JP Morgan Chase Bank – Incorporated by reference to Exhibit 10.53 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 (File No. 001-11954), filed on October 31, 2006
10.38
Amendment, dated October 26, 2006, to the Vornado Realty Trust Omnibus Share Plan – Incorporated by reference to Exhibit 10.54 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 (File No. 001-11954), filed on October 31, 2006
66
10.39
Amendment to Real Estate Retention Agreement, dated January 1, 2007, by and between Vornado Realty L.P. and Alexander’s Inc. – Incorporated by reference to Exhibit 10.55 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2006 (File No. 001-11954), filed on February 27, 2007
10.40
Amendment to 59th Street Real Estate Retention Agreement, dated January 1, 2007, by and among Vornado Realty L.P., 731 Retail One LLC, 731 Restaurant LLC, 731 Office One LLC and 731 Office Two LLC. – Incorporated by reference to Exhibit 10.56 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2006 (File No. 001-11954), filed on February 27, 2007
10.41
Stock Purchase Agreement between the Sellers identified and Vornado America LLC, as the Buyer, dated as of March 5, 2007 – Incorporated by reference to Exhibit 10.45 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007 (File No. 001-11954), filed on May 1, 2007
10.42
Employment Agreement between Vornado Realty Trust and Mitchell Schear, as of April 19, 2007 – Incorporated by reference to Exhibit 10.46 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007 (File No. 001-11954), filed on May 1, 2007
10.43
Revolving Credit Agreement, dated as of September 28, 2007, among Vornado Realty L.P. as borrower, Vornado Realty Trust as General Partner, the Banks signatory thereto, each as a Bank, JPMorgan Chase Bank, N.A. as Administrative Agent, Bank of America, N.A. as Syndication Agent, Citicorp North America, Inc., Deutsche Bank Trust Company Americas, and UBS Loan Finance LLC as Documentation Agents, and J.P. Morgan Securities Inc. and Bank of America Securities LLC as Lead Arrangers and Bookrunners. - Incorporated by reference to Exhibit 10.1 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on October 4, 2007
10.44
Second Amendment to Revolving Credit Agreement, dated as of September 28, 2007, by and among Vornado Realty L.P. as borrower, Vornado Realty Trust as General Partner, the Banks listed on the signature pages thereof, and J.P. Morgan Chase Bank N.A., as Administrative Agent for the Banks - Incorporated by reference to Exhibit 10.2 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on October 4, 2007
10.45
Form of Vornado Realty Trust 2002 Omnibus Share Plan Non-Employee Trustee Restricted LTIP Unit Agreement – Incorporated by reference to Exhibit 10.45 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2007 (File No. 001-11954) filed on February 26, 2008
10.46
Form of Vornado Realty Trust 2008 Out-Performance Plan Award Agreement – Incorporated by reference to Exhibit 10.46 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 (File No. 001-11954) filed on May 6, 2008
10.47
Amendment to Employment Agreement between Vornado Realty Trust and Michael D. Fascitelli, dated December 29, 2008. Incorporated by reference to Exhibit 10.47 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 001-11954) filed on February 24, 2009
10.48
Amendment to Employment Agreement between Vornado Realty Trust and Joseph Macnow, dated December 29, 2008. Incorporated by reference to Exhibit 10.48 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 001-11954) filed on February 24, 2009
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10.49
Amendment to Employment Agreement between Vornado Realty Trust and David R. Greenbaum, dated December 29, 2008. Incorporated by reference to Exhibit 10.49 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 001-11954) filed on February 24, 2009
10.50
Amendment to Indemnification Agreement between Vornado Realty Trust and David R. Greenbaum, dated December 29, 2008. Incorporated by reference to Exhibit 10.50 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 001-11954) filed on February 24, 2009
10.51
Amendment to Employment Agreement between Vornado Realty Trust and Mitchell N. Schear, dated December 29, 2008. Incorporated by reference to Exhibit 10.51 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 001-11954) filed on February 24, 2009
10.52
Amendment to Employment Agreement between Vornado Realty Trust and Sandeep Mathrani, dated December 29, 2008. Incorporated by reference to Exhibit 10.52 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 001-11954) filed on February 24, 2009
10.53
Amendment to Employment Agreement between Vornado Realty Trust and Christopher G. Kennedy, dated December 29, 2008. Incorporated by reference to Exhibit 10.53 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 001-11954) filed on February 24, 2009
15.1
Letter regarding Unaudited Interim Financial Information
31.1
Rule 13a-14 (a) Certification of the Chief Executive Officer
31.2
Rule 13a-14 (a) Certification of the Chief Financial Officer
32.1
Section 1350 Certification of the Chief Executive Officer
32.2
Section 1350 Certification of the Chief Financial Officer
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