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:
June 30, 2010
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 oNo o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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 June 30, 2010, 182,290,243 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
June 30, 2010 and December 31, 2009
3
Consolidated Statements of Income (Unaudited) for the
Three and Six Months Ended June 30, 2010 and 2009
4
Consolidated Statements of Changes in Equity (Unaudited)
for the Six Months Ended June 30, 2010 and 2009
5
Consolidated Statements of Cash Flows (Unaudited)
6
Notes to Consolidated Financial Statements (Unaudited)
8
Report of Independent Registered Public Accounting Firm
33
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
34
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
67
Item 4.
Controls and Procedures
68
Part II.
Other Information:
Legal Proceedings
69
Item 1A.
Risk Factors
70
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Item 5.
Other Information
Item 6.
Exhibits
Signatures
71
Exhibit Index
72
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Amounts in thousands, except share and per share amounts)
June 30,
December 31,
ASSETS
2010
2009
Real estate, at cost:
Land
$
4,617,946
4,606,065
Buildings and improvements
13,055,659
12,902,086
Development costs and construction in progress
214,804
313,310
Leasehold improvements and equipment
130,929
128,056
Total
18,019,338
17,949,517
Less accumulated depreciation and amortization
(2,683,233)
(2,494,441)
Real estate, net
15,336,105
15,455,076
Cash and cash equivalents
652,121
535,479
Short-term investments
-
40,000
Restricted cash
139,562
293,950
Marketable securities
305,292
380,652
Accounts receivable, net of allowance for doubtful accounts of $52,810 and $46,708
157,725
157,325
Investments in partially owned entities, including Alexander's of $198,318 and $193,174
833,884
799,832
Investments in Toys "R" Us
495,800
409,453
Mezzanine loans receivable, net of allowance of $192,638 and $190,738
136,857
203,286
Receivable arising from the straight-lining of rents, net of allowance of $5,150 and $4,680
718,809
681,526
Deferred leasing and financing costs, net of accumulated amortization of $204,656 and $183,224
330,789
311,825
Due from officers
13,182
13,150
Other assets
770,751
903,918
19,890,877
20,185,472
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Notes and mortgages payable
8,400,599
8,445,766
Senior unsecured notes
1,224,866
711,716
Exchangeable senior debentures
487,685
484,457
Convertible senior debentures
404,850
445,458
Revolving credit facility debt
152,218
852,218
Accounts payable and accrued expenses
458,628
475,242
Deferred credit
652,449
682,384
Deferred compensation plan
83,787
80,443
Deferred tax liabilities
17,704
17,842
Other liabilities
98,265
88,912
Total liabilities
11,981,051
12,284,438
Commitments and contingencies
Redeemable noncontrolling interests:
Class A units - 13,857,608 and 13,892,313 units outstanding
1,010,913
971,628
Series D cumulative redeemable preferred units - 10,400,000 and 11,200,000 units outstanding
260,000
280,000
Total redeemable noncontrolling interests
1,270,913
1,251,628
Vornado shareholders' equity:
Preferred shares of beneficial interest: no par value per share; authorized 110,000,000
shares; issued and outstanding 33,949,284 and 33,952,324 shares
823,534
823,686
Common shares of beneficial interest: $.04 par value per share; authorized,
250,000,000 shares; issued and outstanding 182,290,243 and 181,214,161 shares
7,262
7,218
Additional capital
6,944,410
6,961,007
Earnings less than distributions
(1,581,176)
(1,577,591)
Accumulated other comprehensive income
37,597
28,449
Total Vornado shareholder's equity
6,231,627
6,242,769
Noncontrolling interest in consolidated subsidiaries
407,286
406,637
Total equity
6,638,913
6,649,406
See notes to the consolidated financial statements (unaudited).
CONSOLIDATED STATEMENTS OF INCOME
For the Three
For the Six
Months Ended June 30,
(Amounts in thousands, except per share amounts)
REVENUES:
Property rentals
575,776
554,516
1,136,726
1,104,303
Tenant expense reimbursements
88,080
83,375
181,001
181,404
Fee and other income
32,249
35,899
74,709
66,649
Total revenues
696,105
673,790
1,392,436
1,352,356
EXPENSES:
Operating
267,925
269,711
546,980
548,609
Depreciation and amortization
135,265
136,686
271,089
268,342
General and administrative
49,582
49,632
98,312
128,697
Litigation loss accrual and acquisition costs
1,930
11,986
Total expenses
454,702
456,029
928,367
945,648
Operating income
241,403
217,761
464,069
406,708
Income applicable to Alexander's
7,066
6,614
13,526
24,747
(Loss) income applicable to Toys "R" Us
(21,004)
(327)
104,866
96,820
(Loss) income from partially owned entities
(2,614)
(22,797)
2,270
(30,340)
Interest and other investment income (loss), net
3,876
(98,153)
18,584
(84,094)
Interest and debt expense (including amortization of deferred
financing costs of $4,543 and $4,313 in each three-month
period, respectively, and $8,969 and $8,732 in each six-month
period, respectively)
(149,887)
(159,063)
(289,622)
(316,823)
Net (loss) gain on early extinguishment of debt
(1,072)
17,684
23,589
Net gains on disposition of wholly owned and partially owned
assets other than depreciable real estate
4,382
7,687
Income (loss) before income taxes
82,150
(38,281)
320,308
120,607
Income tax expense
(4,939)
(5,457)
(10,553)
(10,506)
Income (loss) from continuing operations
77,211
(43,738)
309,755
110,101
Income from discontinued operations
3,363
5,955
Net income (loss)
(40,375)
116,056
Net (income) loss attributable to noncontrolling interests, including
unit distributions
(5,105)
2,740
(23,097)
(13,581)
Net income (loss) attributable to Vornado
72,106
(37,635)
286,658
102,475
Preferred share dividends
(14,266)
(14,269)
(28,533)
(28,538)
NET INCOME (LOSS) attributable to common shareholders
57,840
(51,904)
258,125
73,937
INCOME (LOSS) PER COMMON SHARE - BASIC:
Income (loss) from continuing operations, net
0.32
(0.32)
1.42
0.41
Income from discontinued operations, net
0.02
0.04
Net income (loss) per common share
(0.30)
0.45
Weighted average shares
182,027
171,530
181,786
164,009
INCOME (LOSS) PER COMMON SHARE - DILUTED:
0.31
1.41
183,644
183,598
165,183
DIVIDENDS PER COMMON SHARE
0.65
0.95
1.30
1.90
See notes to consolidated financial statements (unaudited).
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Accumulated
(Amounts in thousands)
Earnings
Other
Non-
Preferred Shares
Common Shares
Additional
Less Than
Comprehensive
controlling
Shares
Amount
Capital
Distributions
Income (Loss)
Interests
Equity
Balance, December 31, 2008
33,954
823,807
155,286
6,195
6,025,976
(1,047,340)
(6,899)
412,913
6,214,652
(3,700)
98,775
Dividends paid on common
shares
4,849
194
188,792
(315,159)
(126,173)
Dividends paid on preferred
(28,540)
Proceeds from the issuance of
common shares
17,250
690
709,536
710,226
Conversion of Series A
preferred shares to common
(2)
(89)
89
Deferred compensation shares
and options
9,967
9,969
Common shares issued:
Upon redemption of Class A
Operating Partnership units,
at redemption value
1,167
46
49,944
49,990
Under employees' share
option plan
(14)
548
(351)
183
Change in unrealized net gain
or loss on securities
available-for-sale
(12,213)
Our share of partially owned
entities OCI adjustments
(16,556)
Voluntary surrender of equity
awards on March 31, 2009
32,588
Adjustments to redeemable
Class A Operating Partnership
units
194,183
(646)
(183)
(4,086)
(4,909)
Balance, June 30, 2009
33,952
823,718
178,562
7,113
7,210,977
(1,288,909)
(35,851)
405,127
7,122,175
Balance, December 31, 2009
181,214
Net income
1,194
287,852
(236,279)
(3)
(152)
152
17
1
3,905
3,906
495
20
35,691
35,711
22
8,989
(25,433)
(16,422)
Under dividend reinvestment
plan
12
801
802
25,531
(15,965)
(66,075)
(60)
(418)
(545)
(1,021)
Balance, June 30, 2010
33,949
182,290
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended
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)
280,058
277,806
Equity in income of partially owned entities, including Alexander’s and Toys “R” Us
(114,664)
(91,227)
Straight-lining of rental income
(38,557)
(53,002)
Amortization of below market leases, net
(32,209)
(37,542)
Distributions of income from partially owned entities
18,517
15,131
Other non-cash adjustments
17,007
25,069
Litigation loss accrual
10,056
Net gain on dispositions of assets other than depreciable real estate
(7,687)
Net gain resulting from Lexington Realty Trust’s March 2010 stock issuance
(5,998)
Net loss (gain) on early extinguishment of debt
1,072
(23,589)
Mezzanine loans loss accrual
6,900
122,738
Write-off of unamortized costs from the voluntary surrender of equity awards
Changes in operating assets and liabilities:
Accounts receivable, net
(400)
15,654
53,598
(17,773)
23,576
7,715
11,341
(10,185)
Net cash provided by operating activities
532,365
379,439
Cash Flows from Investing Activities:
133,888
60,786
Proceeds from sales of, and return of investment in, marketable securities
122,956
9,115
Proceeds from repayment of mezzanine loans receivable
105,061
45,472
Additions to real estate
(68,925)
(84,750)
(68,499)
(267,124)
Proceeds from sales of real estate and related investments
49,544
43,873
Investments in mezzanine loans receivable and other
(48,339)
Investments in partially owned entities
(41,920)
(25,712)
Proceeds from maturing short-term investments
Deposits in connection with real estate acquisitions
(15,128)
991
Purchases of marketable securities
(13,917)
(11,597)
Distributions of capital from partially owned entities
12,638
9,636
Net cash provided by (used in) investing activities
207,359
(219,310)
CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED
Cash Flows from Financing Activities:
Repayments of borrowings
(1,197,525)
(644,011)
Proceeds from borrowings
901,040
520,137
Dividends paid on common shares
(126,174)
Dividends paid on preferred shares
Distributions to noncontrolling interests
(27,665)
(20,931)
Repurchase of shares related to stock compensation agreements and related tax withholdings
(15,396)
(522)
Purchases of outstanding preferred units
(13,000)
(24,331)
Debt issuance costs
(5,724)
(4,338)
Proceeds from issuance of common shares
Net cash (used in) provided by financing activities
(623,082)
381,516
Net increase in cash and cash equivalents
116,642
541,645
Cash and cash equivalents at beginning of period
1,526,853
Cash and cash equivalents at end of period
2,068,498
Supplemental Disclosure of Cash Flow Information:
Cash payments for interests (including capitalized interest of $875 and $10,078)
270,997
321,065
Cash payments for income taxes
3,861
3,840
Non-Cash Transactions:
Adjustments to redeemable Class A Operating Partnership units
Conversion of Class A Operating Partnership units to common shares, at redemption value
Unrealized net gain (loss) on sale of securities available for sale
Extinguishment of a liability in connection with the acquisition of real estate
20,500
Dividends paid in common shares
188,986
Unit distributions paid in Class A units
16,280
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. Organization
Vornado Realty Trust (“Vornado”) is a fully‑integrated real estate investment trust (“REIT”) and conducts its business through Vornado Realty L.P., a Delaware limited partnership (the “Operating Partnership”). Vornado is the sole general partner of, and owned approximately 92.5% of the common limited partnership interest in the Operating Partnership at June 30, 2010. 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.
On July 8, 2010, we completed the first closing of Vornado Capital Partners, L.P., our real estate investment fund (the “Fund”) with initial equity commitments of $550,000,000, of which we committed $200,000,000. We expect to raise an additional $450,000,000 bringing total commitments to $1 billion. We serve as the general partner and investment manager of the Fund and it will be our exclusive investment vehicle during its three-year investment period for all investments that fit within the Fund’s investment parameters. The Fund’s investment parameters include debt, equity and other interests in real estate, and excludes (i) investments in vacant land and ground-up development; (ii) investments acquired by merger or primarily for our securities or properties; (iii) properties which can be combined with or relate to our existing properties; (iv) securities of commercial mortgage loan servicers and investments derived from any such investments; (v) non-controlling interests in equity and debt securities; and (vi) investments located outside of North America. The Fund has a term of eight years from the final closing date. In the six months ended June 30, 2010, we expensed $2,730,000 of Fund organization costs, which is included as a component of “general and administrative” expenses on our consolidated statement of income, and expect to incur additional expenses of approximately $3,700,000 in the third quarter of 2010.
The accompanying consolidated financial statements are unaudited and include the accounts of Vornado, and the Operating Partnership and its consolidated partially owned entities. All intercompany amounts have been eliminated. In our opinion, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and changes in cash flows have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. 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 fina ncial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
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 Reports on Form 10-K and Form 10-K/A for the year ended December 31, 2009, as filed with the SEC. The results of operations for the three and six months ended June 30, 2010 are not necessarily indicative of the operating results for the full year.
3. Recently Issued Accounting Literature
On January 21, 2010, the Financial Accounting Standards Board (“FASB”) issued an update to Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures, adding new requirements for disclosures about transfers into and out of Levels 1 and 2 fair value measurements and additional disclosures about the activity within Level 3 fair value measurements. The application of this guidance on January 1, 2010 did not have a material effect on our consolidated financial statements.
In June 2009, the FASB issued an update to ASC 810, Consolidation, which modifies the existing quantitative guidance used in determining the primary beneficiary of a variable interest entity (“VIE”) by requiring entities to qualitatively assess whether an enterprise is a primary beneficiary, based on whether the entity has (i) power over the significant activities of the VIE, and (ii) an obligation to absorb losses or the right to receive benefits that could be potentially significant to the VIE. The adoption of this guidance on January 1, 2010 did not have a material effect on our consolidated financial statements.
4. Investments in Partially Owned Entities
Toys “R” Us (“Toys”)
As of June 30, 2010, we own 32.7% of Toys. The business of Toys is highly seasonal. Historically, Toys’ fourth quarter net income accounts for more than 80% of its fiscal year net income. We account for our investment in Toys under the equity method and record our 32.7% share of Toys net income or loss on a one-quarter lag basis because Toys’ fiscal year ends on the Saturday nearest January 31, and our fiscal year ends on December 31. As of June 30, 2010, the carrying amount of our investment in Toys does not differ materially from our share of the equity in the net assets of Toys on a purchase accounting basis.
On May 28, 2010, Toys filed a registration statement with the SEC for the offering and sale of its common stock. The offering, if completed, would result in a reduction of our percentage ownership of Toys’ equity. The size of the offering and its completion are subject to market and other conditions.
Below is a summary of Toys’ latest available financial information on a purchase accounting basis:
Balance as of
Balance Sheet:
May 1, 2010
October 31, 2009
Assets
11,410,000
12,589,000
Liabilities
9,877,000
11,198,000
Noncontrolling interests
112,000
Toys “R” Us, Inc. equity
1,533,000
1,279,000
Months Ended
Income Statement:
May 2, 2009
2,608,000
2,477,000
8,465,000
7,938,000
Net (loss) income attributable to Toys
(71,000)
(50,000)
308,000
242,000
As of June 30, 2010, 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 June 30, 2010, Alexander’s owed us $58,817,000 in fees under these agreements.
Based on Alexander’s June 30, 2010 closing share price of $302.92, the market value (“fair value” pursuant to ASC 820) of our investment in Alexander’s is $501,050,000, or $302,732,000 in excess of the June 30, 2010 carrying amount on our consolidated balance sheet. As of June 30, 2010, the carrying amount of our investment in Alexander’s, excluding amounts owed to us, exceeds our share of the equity in the net assets of Alexander’s by approximately $60,169,000. The majority of this basis difference resulted from the excess of our purchase price for the Alexander’s common stock acquired over the book value of Alexander’s net assets. Substantially all of this basis difference was allocated, based on our estimates of the fair values of Alexander’s assets and liabilities, to the real esta te (land and buildings). The basis difference related to the buildings is being amortized over their estimated useful lives as an adjustment to our equity in net income of Alexander’s. This amortization is not material to our share of equity in Alexander’s net income or loss. The basis difference related to the land will be recognized upon disposition of our investment.
9
4. Investments in Partially Owned Entities - continued
Alexander’s, Inc. (“Alexander’s”) (NYSE: ALX) – continued
Below is a summary of Alexander’s latest available financial information:
December 31, 2009
1,696,000
1,704,000
1,363,000
1,389,000
3,000
2,000
Stockholders' equity
330,000
313,000
June 30, 2009
59,000
55,000
118,000
108,000
Net income attributable to Alexander’s
15,000
13,000
31,000
Lexington Realty Trust (“Lexington”) (NYSE: LXP)
As of June 30, 2010, we own 18,468,969 Lexington common shares, or approximately 13.8% of Lexington’s common equity. We account for our investment in Lexington on the equity method because we believe we have the ability to exercise significant influence over Lexington’s operating and financial policies, based on, among other factors, our representation on Lexington’s Board of Trustees and the level of our ownership in Lexington as compared to other shareholders. We record our pro rata share of Lexington’s net income or loss on a one-quarter lag basis because we file our consolidated financial statements on Form 10-K and 10-Q prior to the time that Lexington files its financial statements.
Based on Lexington’s June 30, 2010 closing share price of $6.01, the market value (“fair value” pursuant to ASC 820) of our investment in Lexington was $110,999,000, or $55,355,000 in excess of the June 30, 2010 carrying amount on our consolidated balance sheet. As of June 30, 2010, the carrying amount of our investment in Lexington was less than our share of the equity in the net assets of Lexington by approximately $71,885,000. This basis difference resulted primarily from $107,882,000 of non-cash impairment charges recognized during 2008, partially offset by purchase accounting for our acquisition of an additional 8,000,000 common shares of Lexington in October 2008, of which the majority relates to our estimate of the fair values of Lexington’s real estate (land and buildings) as compared to the carrying amounts in Lexington’s consolidated financial statements. The basis difference related to the buildings is being amortized over their estimated useful lives as an adjustment to our equity in net income or loss of Lexington. This amortization is not material to our share of equity in Lexington’s net income or loss. The basis difference attributable to the land will be recognized upon disposition of our investment. Below is a summary of Lexington’s latest available financial information:
March 31, 2010
September 30, 2009
3,537,000
3,702,000
2,199,000
2,344,000
86,000
94,000
Shareholders’ equity
1,252,000
1,264,000
For the Three Months
For the Six Months
Ended March 31,
89,000
93,000
179,000
192,000
Net loss attributable to Lexington
(27,000)
(65,000)
(73,000)
(79,000)
10
The carrying amount of our investments in partially owned entities and income (loss) recognized from such investments are as follows:
Investments:
Toys
Alexander’s
198,318
193,174
Partially owned office buildings
158,063
158,444
India real estate ventures
124,607
93,322
Lexington
55,644
55,106
Other equity method investments
297,252
299,786
Ended June 30,
Our Share of Net (Loss) Income:
Toys:
32.7% share of:
Equity in net (loss) income before income taxes
(47,314)
(25,854)
126,236
122,531
Income tax benefit (expense)
24,123
9,634
(25,587)
(43,457)
Equity in net (loss) income
(23,191)
(16,220)
100,649
79,074
Non-cash purchase price accounting adjustments
13,946
Interest and other income
2,187
1,947
4,217
3,800
Alexander’s:
32.4% share of:
Equity in net income before reversal of stock
appreciation rights compensation expense
4,920
3,767
8,697
7,622
Reversal of stock appreciation rights
compensation expense
11,105
Equity in net income
18,727
Management and leasing fees
2,092
2,199
4,170
4,092
Development fees
54
648
659
1,928
Lexington – 13.8% share in 2010 and 16.1%
share in 2009 of equity in net (loss) income
(428)
(6,876)
(1)
5,617
(9,915)
India real estate ventures – 4% to 36.5% range in our
share of equity in net income (loss)
606
(784)
2,257
(921)
Other, net (3)
(2,792)
(15,137)
(4)
(5,604)
(19,504)
___________________________________
Includes $4,580 for our share of impairment losses recorded by Lexington.
Includes a $5,998 net gain resulting from Lexington’s March 2010 stock issuance.
Represents equity in net income or loss of partially owned office buildings in New York and Washington, DC, the Monmouth Mall, Verde Realty Operating Partnership, 85 10th Avenue Associates and others.
Includes $7,650 of expense for our share of the Downtown Crossing, Boston lease termination payment.
11
Below is a summary of the debt of our partially owned entities as of June 30, 2010 and December 31, 2009, none of which is recourse to us.
100% of
Partially Owned Entities’ Debt at
Toys (32.7% interest) (as of May 1, 2010 and October 31, 2009, respectively):
10.75% senior unsecured notes, due 2017 (Face value – $950,000)
926,970
925,931
8.50% senior unsecured notes, due 2017 (Face value $725,000)
715,098
$2.0 billion credit facility, due 2012, LIBOR plus 1.00% – 4.25%
418,777
$800 million secured term loan facility, due 2012, LIBOR plus 4.25% (4.60% at
June 30, 2010)
798,255
797,911
Senior U.K. real estate facility, due 2013, with interest at 5.02%
536,167
578,982
7.625% bonds, due 2011 (Face value – $500,000)
493,220
490,613
7.875% senior notes, due 2013 (Face value – $400,000)
383,673
381,293
7.375% senior notes, due 2018 (Face value – $400,000)
341,202
338,989
$181 million unsecured term loan facility, due 2013, LIBOR plus 5.00% (5.35% at
180,529
180,456
4.51% Spanish real estate facility, due 2013
172,004
191,436
Japan borrowings, due 2011
171,550
168,720
Japan bank loans, due 2011 – 2014, 1.20% – 2.85%
161,155
172,902
6.84% Junior U.K. real estate facility, due 2013
94,076
101,861
4.51% French real estate facility, due 2013
82,978
92,353
8.750% debentures, due 2021 (Face value – $22,000)
21,038
21,022
Mortgage loan, due 2010, LIBOR plus 1.30%
800,000
European and Australian asset-based revolving credit facility, due 2012, LIBOR/EURIBOR
plus 4.00%
102,760
149,508
136,206
5,227,423
5,900,212
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)
357,419
362,989
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
Rego Park construction loan payable, due in December 2010, LIBOR plus 1.20% (1.55% at
282,615
266,411
Kings Plaza Regional Shopping Center mortgage note payable, due in June 2011, with interest at
7.46% (prepayable without penalty after December 2010)
153,540
183,319
Rego Park mortgage note payable, due in March 2012 (prepayable without penalty)
78,246
Paramus mortgage note payable, due in October 2011, with interest at 5.92% (prepayable
without penalty)
68,000
1,259,820
1,278,965
Lexington (13.8% interest) (as of March 31, 2010 and September 30, 2009, respectively)
Mortgage loans collateralized by Lexington’s real estate, due from 2010 to 2037, with a
weighted average interest rate of 5.78% at March 31, 2010 (various prepayment terms)
2,002,650
2,132,253
Partially owned office buildings:
330 Madison Avenue (25% interest) $150,000 mortgage note payable, due in June 2015,
150,000
LIBOR plus 1.50% (1.87% at June 30, 2010)
Kaempfer Properties (2.5% and 5.0% interests in two partnerships) mortgage notes
payable, collateralized by the partnerships’ real estate, due 2011, with a weighted
average interest rate of 5.85% at June 30, 2010 (various prepayment terms)
140,444
141,547
100 Van Ness, San Francisco office complex (9% interest) up to $132 million construction
loan payable, due in July 2013, LIBOR plus 2.75% (3.10% at June 30, 2010)
with an interest rate floor of 6.50%
85,249
Fairfax Square (20% interest) mortgage note payable, due in December 2014,
with interest at 7.00% (prepayable without penalty after July 2014)
72,138
72,500
Rosslyn Plaza (46% interest) mortgage note payable, due in December 2011,
LIBOR plus 1.00% (1.34% at June 30, 2010)
56,680
330 West 34th Street (34.8% interest) mortgage note payable, collateralized by land, due in July
2022, with interest at 5.71%; we obtained a fee interest in the land upon foreclosure
of our $9,041 mezzanine loan
50,150
West 57th Street (50% interest) mortgage note payable, due in February 2014,
with interest at 4.94% (prepayable without penalty)
23,086
29,000
825 Seventh Avenue (50% interest) mortgage note payable, due in October 2014,
with interest at 8.07% (prepayable without penalty after April 2014)
20,794
20,773
India Real Estate Ventures:
TCG Urban Infrastructure Holdings (25% interest) mortgage notes payable, collateralized
by the entity’s real estate, due from 2010 to 2022, with a weighted average interest rate
of 12.78% at June 30, 2010 (various prepayment terms)
189,031
178,553
India Property Fund L.P. (36.5% interest) revolving credit facility, repaid upon
maturity in March 2010
77,000
Verde Realty Operating Partnership (8.3% interest) mortgage notes payable,
collateralized by the partnerships’ real estate, due from 2010 to 2025, with a weighted
582,982
607,089
Green Courte Real Estate Partners, LLC (8.3% interest) (as of March 31, 2010
and September 30, 2009), mortgage notes payable, collateralized by the partnerships’
real estate, due from 2010 to 2018, with a weighted average interest rate of 5.29% at
June 30, 2010 (various prepayment terms)
303,263
304,481
Waterfront Associates, LLC (2.5% interest) construction and land loan up to $250 million
payable, due in September 2011 with a six month extension option, LIBOR
plus 2.00% - 3.50% (2.56% at June 30, 2010)
209,606
183,742
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 (45% interest) construction loan, due in March 2013,
LIBOR plus 4.00% (4.38% at June 30, 2010)
130,215
132,570
Wells/Kinzie Garage (50% interest) mortgage note payable, due in December 2013,
with interest at 6.87%
14,576
14,657
Orleans Hubbard Garage (50% interest) mortgage note payable, due in December 2013,
10,045
10,101
431,784
425,717
Based on our ownership interest in the partially owned entities above, our pro rata share of the debt of these partially owned entities was $2,844,923,000 and $3,149,640,000 as of June 30, 2010 and December 31, 2009, respectively.
13
5. Marketable Securities
The carrying amount of marketable securities on our consolidated balance sheets and their corresponding fair values at June 30, 2010 and December 31, 2009 are as follows:
As of June 30, 2010
As of December 31, 2009
Carrying
Fair
Value
Marketable equity securities - available for sale
104,712
79,925
Debt securities(1)
200,580
300,727
319,393
399,318
In the three months ended June 30, 2010, we sold certain of our investments in debt securities that were classified as “held-to-maturity,” for an aggregate of $122,294 in cash and recognized a $3,774 net gain, which is included as a component of “net gains on disposition of wholly owned and partially owned assets other than depreciable real estate” on our consolidated statement of income. In connection therewith, we reclassified $184,697 of investments in debt securities that were previously classified as “held-to-maturity” to “available for sale” and recorded a $14,135 unrealized gain, which is included as a component of “accumulated other comprehensive income” on our consolidated balance sheet.
At June 30, 2010 and December 31, 2009, we had $37,175,000 and $13,026,000, respectively, of gross unrealized gains. There were no unrealized losses at June 30, 2010 and $1,223,000 of gross unrealized losses at December 31, 2009.
6. Mezzanine Loans Receivable
The following is a summary of our investments in mezzanine loans as of June 30, 2010 and December 31, 2009.
Interest Rate
as of
Carrying Amount as of
Mezzanine Loans Receivable:
Maturity
Riley HoldCo Corp. (1)
02/15
10.00%
74,437
Tharaldson Lodging Companies
04/11
4.65%
72,856
74,701
280 Park Avenue
06/16
10.25%
70,352
73,750
Equinox (2)
n/a
97,968
Other, net
11/11-8/15
1.45% - 8.95%
111,850
73,168
329,495
394,024
Valuation allowance (3)
(192,638)
(190,738)
On July 29, 2010, as part of LNR Property Corporation’s (“LNR”) recapitalization, we acquired a 26.2% equity interest in LNR for a new investment of $116,000 in cash and conversion into equity of our mezzanine loan made to LNR’s parent, Riley HoldCo Corp. At June 30, 2010, the carrying amount of the loan was $15,000, after a $52,537 loss accrual recognized in 2009 and $6,900 in the current quarter. LNR is the industry leading servicer and special servicer of commercial mortgage loans and CMBS and a diversified real estate, investment, finance and management company. We will account for our investment in LNR on the equity method from the date of the recapitalization.
In January 2010, Equinox prepaid the entire balance of this loan which was scheduled to mature in February 2013. We received $99,314, including accrued interest, for our 50% interest in the loan which we acquired in 2006 for $57,500.
Represents loan loss accruals on certain mezzanine loans based on our estimate of the net realizable value of each loan. Our estimates are based on the present value of expected cash flows, discounted at each loan’s effective interest rate, or if a loan is collateralized, based on the fair value of the underlying collateral, adjusted for estimated costs to sell. The excess of the carrying amount over the net realizable value of a loan is recognized as a reduction of “interest and other investment income (loss), net” in our consolidated statements of income.
14
7. 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 June 30, 2010 and December 31, 2009.
Identified intangible assets (included in other assets):
Gross amount
742,453
755,467
Accumulated amortization
(338,372)
(312,957)
Net
404,081
442,510
Identified intangible liabilities (included in deferred credit):
928,349
942,968
(331,657)
(309,476)
596,692
633,492
Amortization of acquired below-market leases, net of acquired above-market leases resulted in an increase to rental income of $16,302,000 and $19,560,000 for the three months ended June 30, 2010 and 2009, respectively, and $32,209,000 and $37,542,000 for the six months ended June 30, 2010 and 2009, 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, 2011 is as follows:
2011
58,657
2012
54,359
2013
46,429
2014
40,471
2015
37,608
Amortization of all other identified intangible assets (a component of depreciation and amortization expense) was $15,814,000 and $17,778,000 for the three months ended June 30, 2010 and 2009, respectively, and $30,728,000 and $33,564,000 for the six months ended June 30, 2010 and 2009, 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, 2011 is as follows:
51,724
46,397
38,908
20,099
14,993
We are a tenant under ground leases for certain properties. Amortization of these acquired below-market leases, net of above-market leases resulted in an increase to rent expense of $509,000 and $533,000 for the three months ended June 30, 2010 and 2009, respectively and $1,018,000 and $1,066,000 for the six months ended June 30, 2010 and 2009, respectively. Estimated annual amortization of these below-market leases, net of above-market leases for each of the five succeeding years commencing January 1, 2011 is as follows:
2,036
15
8. Debt
The following is a summary of our debt:
Interest
Rate at
Balance at
Notes and mortgages payable:
Maturity (1)
Fixed rate:
New York Office:
350 Park Avenue
01/12
5.48%
430,000
1290 Avenue of the Americas
01/13
5.97%
429,417
434,643
770 Broadway
03/16
5.65%
353,000
888 Seventh Avenue
01/16
5.71%
318,554
Two Penn Plaza
02/11
4.97%
279,932
282,492
909 Third Avenue
04/15
5.64%
208,862
210,660
Eleven Penn Plaza
12/11
5.20%
201,241
203,198
Washington, DC Office:
Skyline Place
02/17
5.74%
678,000
Warner Building
05/16
6.26%
292,700
River House Apartments
5.43%
195,546
1215 Clark Street, 200 12th Street and 251 18th Street
01/25
7.09%
112,297
113,267
Bowen Building
6.14%
115,022
Universal Buildings
04/14
6.36%
104,854
106,630
Reston Executive I, II, and III
5.57%
2011 Crystal Drive
08/17
7.30%
81,845
82,178
1550 and 1750 Crystal Drive
11/14
7.08%
80,638
81,822
1235 Clark Street
07/12
6.75%
52,786
53,252
2231 Crystal Drive
08/13
47,465
48,533
1750 Pennsylvania Avenue
06/12
7.26%
45,507
45,877
241 18th Street
10/10
6.82%
45,097
45,609
1225 Clark Street
28,391
28,925
1800, 1851 and 1901 South Bell Street
6.91%
14,821
19,338
1101 17th, 1140 Connecticut, 1730 M and 1150 17th Street(2)
85,910
Retail:
Springfield Mall (including present value of purchase option)(3)
10/12-04/13
9.01%
245,254
242,583
Montehiedra Town Center
07/16
6.04%
120,000
Broadway Mall
07/13
5.30%
91,419
92,601
828-850 Madison Avenue Condominium
06/18
5.29%
80,000
Las Catalinas Mall
11/13
6.97%
58,534
59,304
Other(4)
12/10-05/36
4.75%-10.70%
156,003
156,709
Merchandise Mart:
Merchandise Mart
12/16
550,000
High Point Complex(5)
09/16
10.35%
220,456
217,815
Boston Design Center
09/15
5.02%
69,105
69,667
Washington Design Center
11/11
6.95%
43,849
44,247
Other:
555 California Street
09/11
5.79%
639,754
664,117
Industrial Warehouses
10/11
24,622
24,813
Total fixed rate notes and mortgages payable
6.12%
6,507,971
6,640,012
___________________
See notes on page 18.
16
8. Debt - continued
Spread over
LIBOR
Variable rate:
Manhattan Mall
02/12
L+55
0.90%
232,000
866 UN Plaza
05/11
L+40
0.88%
44,978
2101 L Street
02/13
L+120
1.53%
West End 25 (construction loan)
L+130
1.65%
93,998
85,735
1101 17th, 1140 Connecticut, 1730 M and
1150 17th Street(2)
06/14
L+140
1.94%
84,966
220 20th Street (construction loan)
01/11
L+115
1.60%
81,239
75,629
04/18
n/a(6)
1.67%
64,000
2200/2300 Clarendon Boulevard
01/15
L+75
1.10%
62,204
65,133
Green Acres Mall
1.74%
335,000
Bergen Town Center (construction loan)
03/13
L+150
1.84%
261,903
Beverly Connection (7)
L+350(7)
5.00%
100,000
4 Union Square South
L+325
3.62%
75,000
435 Seventh Avenue (8)
08/14
L+300(8)
52,000
11/12
L+375
4.11%
22,612
22,758
220 Central Park South
11/10
L+235–L+245
2.74%
123,750
Other (9)
09/10-02/12
Various
1.85%-4.00%
108,978
117,868
Total variable rate notes and mortgages payable
2.09%
1,892,628
1,805,754
Total notes and mortgages payable
5.21%
Senior unsecured notes:
Senior unsecured notes due 2015 (10)
4.25%
499,214
Senior unsecured notes due 2039(11)
10/39
7.88%
460,000
446,134
Senior unsecured notes due 2010
12/10
4.75%
148,292
148,240
Senior unsecured notes due 2011
5.60%
117,360
117,342
Total senior unsecured notes
5.80%
3.88% exchangeable senior debentures due 2025
(see page 19)
04/12
5.32%
Convertible senior debentures: (see page 19)
3.63% due 2026(12)
383,338
424,207
2.85% due 2027
5.45%
21,512
21,251
Total convertible senior debentures (13)
5.33%
Unsecured revolving credit facilities:
$1.595 billion unsecured revolving credit facility
09/12
427,218
$.965 billion unsecured revolving credit facility
($21,947 reserved for outstanding letters of credit)
06/11
425,000
Total unsecured revolving credit facilities
___________________________
See notes on the following page.
Notes to preceding tabular information (Amounts in thousands):
(1) Represents the extended maturity for certain loans in which we have the unilateral right, ability and intent to extend. In the case of our convertible and exchangeable debt, represents the earliest date holders may require us to repurchase the debentures.
(2) On June 1, 2010, we refinanced this loan in the same amount. The new loan, which is guaranteed by the Operating Partnership, has a rate of LIBOR plus 1.40% (1.94% at June 30, 2010) and matures in June 2011, with three one-year extension options.
(3) In the fourth quarter of 2009, we requested that the Springfield Mall mortgage loan with a principal balance of $163,554 be placed with the special servicer. In March 2010, we received notice from the special servicer that the loan was in default. We are in negotiations with the special servicer; there can be no assurance as to the timing and ultimate resolution of these negotiations.
(4) In March 2010, we requested that the mortgage loan on a California retail property with a principal balance of $17,540 be placed with the special servicer. We have not made debt service payments since March and are in default. We are in negotiations with the special servicer; there can be no assurance as to the timing and ultimate resolution of these negotiations.
(5) In March 2010, we requested that the High Point Complex mortgage loan be placed with the special servicer. We have not made debt service payments since March and are in default. We are in negotiations with the special servicer; there can be no assurance as to the timing and ultimate resolution of these negotiations.
(6) This loan bears interest at the Freddie Mac Reference Note Rate plus 1.53%.
(7) This loan has a LIBOR floor of 1.50%.
(8) This loan has a LIBOR floor of 2.00%.
(9) In June 2010, we extended the maturity date of a $50,000 construction loan to February 2011, with a one-year extension option. In addition, in July 2010, we extended the maturity date of a $36,000 loan which had matured in October 2009, to September 2010, and are in negotiations to further extend this loan.
(10) On March 26, 2010, we completed a public offering of $500,000 aggregate principal amount of 4.25% senior unsecured notes due April 1, 2015. Interest on the notes is payable semi-annually on April 1 and October 1, commencing on October 1, 2010. The notes were sold at 99.834% of their face amount to yield 4.287%. The notes can be redeemed without penalty beginning January 1, 2015. We retained net proceeds of approximately $496,000.
(11) These notes may be redeemed at our option in whole or in part beginning on October 1, 2014, at a price equal to the principal amount plus accrued interest. In the quarter ended March 31, 2010, we reclassified $13,866 of deferred financing costs to “deferred leasing and financing costs” on our consolidated balance sheet.
(12) In the second quarter of 2010, we purchased $45,251 aggregate face amount ($44,170 aggregate carrying amount) of our convertible senior debentures for $45,242 in cash, resulting in a net loss of $1,072.
(13) The net proceeds from the offering of these debentures were contributed to the Operating Partnership in the form of an inter-company loan and the Operating Partnership fully and unconditionally guaranteed payment of these debentures. There are no restrictions which limit the Operating Partnership from making distributions to Vornado and Vornado has no independent assets or operations outside of the Operating Partnership.
18
Pursuant to the provisions of ASC 470-20, Debt with Conversion and Other Options, below is a summary of required disclosures related to our convertible and exchangeable senior debentures.
$1.4 Billion Convertible
$1 Billion Convertible
$500 Million Exchangeable
Senior Debentures
Principal amount of debt component
22,479
392,046
437,297
499,982
Unamortized discount
(967)
(1,228)
(8,708)
(13,090)
(12,297)
(15,525)
Carrying amount of debt component
Carrying amount of equity component
2,104
21,027
23,457
32,301
Effective interest rate
Maturity date (period through which
discount is being amortized)
4/1/12
11/15/11
4/15/12
Conversion price per share, as adjusted
157.18
148.46
87.17
Number of shares on which the
aggregate consideration to be
delivered upon conversion is
determined
- (1)
5,736
__________________
Pursuant to the provisions of ASC 470-20, we are required to disclose the conversion price and the number of shares on which the aggregate consideration to be delivered upon conversion is determined (principal plus excess value). Our convertible senior debentures require that upon conversion, the entire principal amount is to be settled in cash, and at our option, any excess value above the principal amount may be settled in cash or common shares. Based on the June 30, 2010 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 that would be delivered upon conversion is 143 and 2,641 common shares, respectively.
Three Months Ended
Six Months Ended
$1.4 Billion Convertible Senior Debentures:
Coupon interest
160
9,660
320
19,512
Discount amortization – original issue
23
1,305
2,631
Discount amortization – ASC 470-20 implementation
107
6,111
215
12,316
290
17,076
581
34,459
$1 Billion Convertible Senior Debentures:
3,842
8,856
7,805
17,826
447
959
903
1,936
1,198
2,567
2,416
5,180
5,487
12,382
11,124
24,942
$500 Million Exchangeable Senior Debentures:
4,844
9,688
384
375
762
733
1,241
1,215
2,466
2,375
6,469
6,434
12,916
12,796
19
9. Redeemable Noncontrolling Interests
Redeemable noncontrolling interests on our consolidated balance sheets represent Operating Partnership units held by third parties and are comprised of Class A units and Series D-10, D-11, D-14 and D-15 (collectively, “Series D”) cumulative redeemable preferred units. Redeemable noncontrolling interests on our consolidated balance sheets are recorded at the greater of their carrying amount or redemption value at the end of each reporting period. Changes in the value from period to period are charged to “additional capital” in our consolidated statements of changes in equity. Below is a table summarizing the activity of redeemable noncontrolling interests.
Balance at December 31, 2008
1,177,978
17,281
Conversion of Class A redeemable units into common shares, at redemption value
(49,990)
Adjustment to carry Class A redeemable units at redemption value
(194,183)
5,944
Balance at June 30, 2009
936,099
Balance at December 31, 2009
21,903
(27,338)
(35,711)
66,075
Redemption of Series D-12 redeemable units
7,356
Balance at June 30, 2010
As of June 30, 2010 and December 31, 2009, the aggregate redemption value of our Class A operating partnership units was $1,010,913,000 and $971,628,000, respectively.
Redeemable noncontrolling interests exclude our Series G convertible preferred units and Series D-13 cumulative redeemable preferred units, as they are accounted for as liabilities in accordance with ASC 480, Distinguishing Liabilities and Equity, because of their possible settlement by issuing a variable number of Vornado common shares. Accordingly the fair value of these units is included as a component of “other liabilities” on our consolidated balance sheets and aggregated $61,122,000 and $60,271,000 as of June 30, 2010 and December 31, 2009, respectively.
In March and May of 2010, we redeemed 246,153 and 553,847 Series D-12 cumulative redeemable preferred units, respectively, for $16.25 per unit in cash, or $13,000,000 in the aggregate. In connection with these redemptions, we recognized a $6,972,000 net gain, of which $4,818,000 was recognized in the second quarter of 2010. Such gain is included as a component of “net income attributable to noncontrolling interests, including unit distributions,” on our consolidated statement of income.
10. Fair Value Measurements
ASC 820, Fair Value Measurement and Disclosures defines fair value and establishes a framework for measuring fair value. The objective of fair value is to determine the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price). ASC 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels: Level 1 – quoted prices (un adjusted) in active markets that are accessible at the measurement date for assets or liabilities; Level 2 – observable prices that are based on inputs not quoted in active markets, but corroborated by market data; and Level 3 – unobservable inputs that are used when little or no market data is available. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as consider counterparty credit risk in our assessment of fair value. Considerable judgment is necessary to interpret Level 2 and 3 inputs in determining the fair value of our financial and non-financial assets and liabilities. Accordingly, our fair value estimates, which are made at the end of each reporting period, may be different than the amounts that may ultimately be realized upon sale or disp osition of these assets.
Financial Assets and Liabilities Measured at Fair Value
Financial assets and liabilities that are measured at fair value in our consolidated financial statements consist primarily of (i) marketable securities, (ii) the assets of our deferred compensation plan, which are primarily marketable equity securities and equity investments in limited partnerships, (iii) short-term investments (CDARS classified as available-for-sale) and (iv) mandatorily redeemable instruments (Series G convertible preferred units and Series D-13 cumulative redeemable preferred units). The tables below aggregate the fair values of financial assets and liabilities by the levels in the fair value hierarchy at June 30, 2010 and December 31, 2009, respectively.
Level 1
Level 2
Level 3
Deferred compensation plan assets (included in other assets)
40,189
43,598
Total assets
389,079
345,481
Mandatorily redeemable instruments (included in other liabilities)
61,122
Marketable equity securities
40,854
39,589
200,368
160,779
60,271
The fair value of Level 3 “deferred compensation plan assets” represents equity investments in certain limited partnerships. The tables below summarize the changes in these assets for the three and six months ended June 30, 2010 and 2009, respectively.
For the Three Months Ended
Beginning balance
43,263
32,426
34,176
Total realized/unrealized gains
41
2,806
1,149
1,310
Purchases, sales, other settlements and issuances, net
294
936
2,860
682
Ending balance
36,168
21
10. Fair Value Measurements - continued
Financial Assets and Liabilities not Measured at Fair Value
Financial assets and liabilities that are not measured at fair value in our consolidated financial statements include mezzanine loans receivable and debt. Estimates of the fair values of these instruments are based on our assessments of available market information and valuation methodologies, including discounted cash flow analyses. The table below summarizes the carrying amounts and fair values of these financial instruments as of June 30, 2010 and December 31, 2009.
Mezzanine loans receivable
128,591
192,612
Debt:
8,236,755
7,858,873
1,228,601
718,302
537,481
547,480
414,497
461,275
10,670,218
10,569,552
10,939,615
10,438,148
11. Discontinued Operations
The table below sets forth the combined results of operations of assets related to discontinued operations for the three and six months ended June 30, 2010 and 2009 and includes the operating results of 1999 K Street, which was sold on September 1, 2009 and 15 other retail properties, which were sold during 2009.
5,042
8,490
1,679
2,535
12. Fee and Other Income
The following table sets forth the details of our fee and other income:
For The Three Months
For The Six Months
Tenant cleaning fees
13,468
12,420
27,120
25,192
3,380
3,017
12,520
5,418
Lease termination fees
2,841
1,124
9,276
2,748
Other income
12,560
25,793
33,291
Fee and other income above includes management fee income from Interstate Properties, a related party, of $192,000 and $183,000 for the three months ended June 30, 2010 and 2009, respectively, and $392,000 and $381,000 for the six months ended June 30, 2010 and 2009, respectively. The above table excludes fee income from partially owned entities, which is included in income from partially owned entities (see Note 4 – Investments in Partially Owned Entities).
13. Stock-based Compensation
On May 13, 2010, our shareholders approved the 2010 Omnibus Share Plan (the “Plan’), which replaces the 2002 Omnibus Share Plan. Under the Plan, the Compensation Committee of the Board (the “Committee”) may grant eligible participants awards of stock options, stock appreciation rights, performance shares, restricted shares and other stock-based awards and operating partnership units, certain of which may provide for dividends or dividend equivalents and voting rights prior to vesting. Awards may be granted up to a maximum of 6,000,000 shares, if all awards granted are Full Value Awards, as defined, and up to 12,000,000 shares, if all of the awards granted are Not Full Value Awards, as defined. Full Value Awards are awards of securities, such as restricted shares, that, if all vesting requirements are met, do not re quire the payment of an exercise price or strike price to acquire the securities. Not Full Value Awards are awards of securities, such as options, that do require the payment of an exercise price or strike price. This means, for example, if the Committee were to award only restricted shares, it could award up to 6,000,000 restricted shares. On the other hand, if the Committee were to award only stock options, it could award options to purchase up to 12,000,000 shares (at the applicable exercise price). The Committee may also issue any combination of awards under the Plan, with reductions in availability of future awards made in accordance with the above limitations.
We account for all stock-based compensation in accordance ASC 718, Compensation – Stock Compensation. Stock-based compensation expense for the three and six months ended June 30, 2010 and 2009 consists of stock option awards, restricted stock awards, Operating Partnership unit awards and out-performance plan awards. Stock-based compensation expense was $8,480,000 and $5,651,000 in the quarter ended June 30, 2010 and 2009, respectively, and $14,957,000 and $15,900,000 in the six months ended June 30, 2010 and 2009, 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.
14. Interest and Other Investment Income (Loss), Net
The following table sets forth the details of our interest and other investment income (loss):
Dividends and interest on marketable securities
7,377
6,095
14,622
12,513
Mezzanine loans receivable loss accrual
(6,900)
(122,738)
Interest on mezzanine loans
2,325
9,780
5,040
20,104
Mark-to-market of investments in our deferred compensation plan (1)
(986)
6,210
1,777
416
2,060
2,500
4,045
5,611
__________________________
This income (loss) is entirely offset by the expense (income) resulting from the mark-to-market of the deferred compensation plan liability, which is included in “general and administrative” expense.
15. Income Per Share
The following table provides a reconciliation of both net income and the number of common shares used in the computation of (i) basic income per common share - which utilizes the weighted average number of common shares outstanding without regard to dilutive potential common shares, and (ii) diluted income per common share - which includes the weighted average common shares and potentially dilutive share equivalents. Potentially dilutive share equivalents include our Series A convertible preferred shares, employee stock options, restricted stock and exchangeable senior debentures due 2025.
Numerator:
Income (loss) from continuing operations, net of income
attributable to noncontrolling interests
(40,998)
96,520
Income from discontinued operations, net of income attributable to
noncontrolling interests
Net income (loss) attributable to common shareholders
Earnings allocated to unvested participating securities
(29)
(55)
(49)
(110)
Numerator for basic income (loss) per share
57,811
(51,959)
258,076
73,827
Impact of assumed conversions:
Convertible preferred share dividends
81
Numerator for diluted income (loss) per share
258,157
Denominator:
Denominator for basic income (loss) per share –
weighted average shares
Effect of dilutive securities(1):
Employee stock options and restricted share awards
1,617
1,741
1,174
Convertible preferred shares
Denominator for diluted income (loss) per share –
weighted average shares and assumed conversions
INCOME (LOSS) PER COMMON SHARE – BASIC:
INCOME (LOSS) PER COMMON SHARE – DILUTED:
The effect of dilutive securities above excludes anti-dilutive weighted average common share equivalents. Accordingly the three months ended June 30, 2010 and 2009 exclude 20,075 and 22,729 weighted average common share equivalents, respectively, and the six months ended June 30, 2010 and 2009 exclude 19,941 and 21,551 weighted average common share equivalents, respectively.
24
16. Comprehensive Income (Loss)
Other comprehensive income (loss)
7,644
10,946
9,148
(28,952)
Comprehensive income (loss)
84,855
(29,429)
318,903
87,104
Less: Comprehensive income (loss) attributable to noncontrolling interests
5,640
(1,853)
23,737
11,236
Comprehensive income (loss) attributable to Vornado
79,215
(27,576)
295,166
75,868
Substantially all of other comprehensive income (loss) for the three and six months ended June 30, 2010 and 2009 relates to income or loss from the mark-to-market of marketable securities classified as available-for-sale and our share of other comprehensive income or loss of partially owned entities.
17. 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.
18. Subsequent Event
On July 29, 2010, as part of LNR Property Corporation’s (“LNR”) recapitalization, we acquired a 26.2% equity interest in LNR for a new investment of $116,000,000 in cash and conversion into equity of our mezzanine loan made to LNR’s parent, Riley HoldCo Corp. At June 30, 2010, the carrying amount of the loan was $15,000,000, after a $52,537,000 loss accrual recognized in 2009 and $6,900,000 in the current quarter. LNR is the industry leading servicer and special servicer of commercial mortgage loans and CMBS and a diversified real estate, investment, finance and management company. We will account for our investment in LNR on the equity method from the date of the recapitalization.
25
19. Commitments and Contingencies
Insurance
We maintain general liability insurance with limits of $300,000,000 per occurrence and all risk property and rental value insurance with limits of $2.0 billion per occurrence, including coverage for terrorist acts, with sub-limits for certain perils such as floods. Our California properties have earthquake insurance with coverage of $150,000,000 per occurrence, subject to a deductible in the amount of 5% of the value of the affected property, up to a $150,000,000 annual aggregate.
Penn Plaza Insurance Company, LLC (“PPIC”), our wholly owned consolidated subsidiary, acts as a re-insurer with respect to a portion of 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 (excluding NBCR acts) 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 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 Commitments and Contingencies
Our mortgage loans are non-recourse to us. However, in certain cases we have provided guarantees or master leased tenant space. These guarantees and master leases terminate either upon the satisfaction of specified circumstances or repayment of the underlying loans. As of June 30, 2010, the aggregate dollar amount of these guarantees and master leases is approximately $254,042,000.
At June 30, 2010, $21,947,000 of letters of credit were outstanding under one of our revolving credit facilities. Our credit facilities contain financial covenants that require us to maintain minimum interest coverage and maximum debt to market capitalization ratios, and provide for higher interest rates in the event of a decline in our ratings below Baa3/BBB. Our credit facilities also contain customary conditions precedent to borrowing, including representations and warranties and also contain customary events of default that could give rise to accelerated repayment, including such items as failure to pay interest or principal.
Each of our properties has been subjected to varying degrees of environmental assessment at various times. The environmental assessments did not reveal any material environmental contamination. However, there can be no assurance that the identification of new areas of contamination, changes in the extent or known scope of contamination, the discovery of additional sites, or changes in cleanup requirements would not result in significant costs to us.
We are committed to fund additional capital to certain of our partially owned entities aggregating approximately $217,800,000, of which $200,000,000 is committed to our real estate Fund.
As part of the process of obtaining the required approvals to demolish and develop our 220 Central Park South property into a new residential tower, we have committed to fund the estimated project cost of approximately $400,000,000 to $425,000,000.
26
19. Commitments and Contingencies - continued
Litigation
We are from time to time involved in legal actions arising in the ordinary course of business. In our opinion, after consultation with legal counsel, the outcome of such matters, including the 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 State 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 State 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 dec ision denying the motions for summary judgment. Both parties appealed the Court’s decision and on December 14, 2006, the Appellate Court division issued a decision affirming the Court’s decision. On January 16, 2007, we filed a motion for the reconsideration of one aspect of the Appellate Court’s decision which was denied on March 13, 2007. Discovery is now complete. On October 19, 2009, Stop & Shop filed a motion for leave to amend its pleadings to assert new claims for relief, including a claim for damages in an unspecified amount, and an additional affirmative defense. On April 26, 2010, Stop and Shop’s motion was denied. We anticipate that a trial date will be set for some time in 2010. We intend to continue 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 f lows.
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 relating to a dispute over 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 issued in 2006, 2007 and 2009, the New York State Supreme Court dismissed all of Mr. Trump’s claims, and those decisions were affirmed by the Appellate Division. Mr. Trump cannot further appeal those decisions. In April 2010, Mr. Trump notified us of his intent to file a new suit claiming, among other things, that the limited partnerships should be dissolved. On April 29, 2010, we filed a motion for declaratory judgment in New York courts seeking to dispose of this claim. In June 2010, our motion was granted and a final judgment was entered that disposed of Mr. Trump’s claims with prejudice.
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, Street Retail, Inc. and Post Apartment Homes, L.P. In April 2007, H Street acquired the remaining 50% interest in that fee. On September 25, 2008, both tenants filed suit against us and the former owners claiming the right of first offer to purchase the fee interest, damages in excess of $75,000,000 and punitive damages. In April 2010, the Trial Court entered judgment in favor of the tenants, that we sell the land to the tenants for a net sales price of $14,992,000, representing the Trial Court’s allocation of our purchase price for H Street. T he request for damages and punitive damages was denied. We have filed a notice of appeal and the Trial Court’s judgment is stayed pending the appeal. As a result of the Trial Court’s decision, we recorded a $10,056,000 loss accrual in the three months ended March 31, 2010, primarily representing previously recognized rental income.
27
20. Segment Information
Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the three and six months ended June 30, 2010 and 2009.
For the Three Months Ended June 30, 2010
New York
Washington, DC
Merchandise
Office
Retail
Mart
Other(3)
541,839
195,248
146,059
97,000
60,932
42,600
Straight-line rents:
Contractual rent increases
12,824
6,387
1,626
3,672
847
292
Amortization of free rent
4,811
868
(687)
4,134
(59)
555
Amortization of acquired below-
market leases, net
16,302
9,134
615
4,957
1,581
Total rentals
211,637
147,613
109,763
61,735
45,028
32,431
13,376
36,073
3,937
2,263
Fee and other income:
20,639
(7,171)
1,393
2,384
321
(737)
2,297
82
428
4,513
5,055
1,063
784
1,145
272,910
168,510
147,648
66,509
40,528
Operating expenses
111,055
52,052
56,604
31,812
16,402
44,271
36,533
27,714
12,674
14,073
4,767
6,200
6,827
7,181
24,607
Litigation loss accrual and acquisition
costs
160,093
94,785
91,145
51,667
57,012
Operating income (loss)
112,817
73,725
56,503
14,842
(16,484)
195
198
6,673
Loss applicable to Toys
(Loss) income from partially owned
entities
1,142
188
931
55
(4,930)
Interest and other investment
income, net
163
186
3,492
Interest and debt expense
(33,047)
(34,304)
(21,000)
(16,255)
(45,281)
Net loss on early extinguishment of
debt
Net gain on disposition of wholly
owned and partially owned assets
other than depreciable real estate
(31)
4,413
81,270
39,632
36,818
(1,377)
(53,189)
Income tax (expense) benefit
(335)
620
(402)
(4,822)
80,935
40,252
(1,779)
(58,011)
Net (income) loss attributable to
noncontrolling interests, including
(2,556)
256
(2,805)
Net income (loss) attributable to
Vornado
78,379
37,074
(60,816)
Interest and debt expense(2)
207,512
31,595
34,943
22,526
16,478
42,093
59,877
Depreciation and amortization(2)
184,103
42,736
39,694
28,500
12,785
34,444
25,944
Income tax (benefit) expense(2)
(19,140)
335
(617)
402
(24,123)
4,863
EBITDA(1)
444,581
153,045
114,272
88,100
27,886
31,410
29,868
See notes on page 32.
28
20. Segment Information – continued
For the Three Months Ended June 30, 2009
512,696
190,226
133,424
89,083
60,954
39,009
13,297
7,474
3,156
2,161
652
(146)
8,963
767
3,645
4,109
271
171
19,560
9,885
946
8,267
450
208,352
141,171
103,620
61,889
39,484
32,092
14,514
30,148
4,512
2,109
17,818
(5,398)
999
1,987
413
(43)
(339)
700
100
5,358
4,712
1,189
1,525
6,554
264,875
163,084
135,470
67,951
42,410
109,646
54,514
53,419
34,470
17,662
43,153
34,186
28,784
13,767
16,796
4,531
5,560
6,393
6,930
26,218
157,330
94,260
88,596
55,167
60,676
107,545
68,824
46,874
12,784
(18,266)
193
262
6,159
1,252
2,044
794
35
(26,922)
Interest and other investment (loss)
240
179
(198)
(98,415)
(33,356)
(31,109)
(22,609)
(12,964)
(59,025)
Net gain on early extinguishment of
(Loss) income before income taxes
75,874
39,938
25,123
(104)
(178,785)
(260)
(755)
(111)
(665)
(3,666)
(Loss) income from continuing
operations
75,614
39,183
25,012
(769)
(182,451)
2,184
1,179
Net (loss) income
41,367
26,191
Net loss (income) attributable to
(1,744)
497
3,987
Net (loss) income attributable to
73,870
26,688
(178,464)
197,512
31,675
32,237
24,459
13,190
15,578
80,373
181,528
41,969
35,904
29,625
13,883
31,754
28,393
(3,784)
260
761
111
665
(9,634)
4,053
337,621
147,774
110,269
80,883
26,969
37,371
(65,645)
29
For the Six Months Ended June 30, 2010
1,065,960
387,852
285,939
192,764
122,376
77,029
26,324
13,280
3,823
7,508
1,230
483
12,233
1,769
1,770
6,674
1,055
965
32,209
18,339
1,347
9,498
(106)
3,131
421,240
292,879
216,444
124,555
81,608
65,683
29,126
73,716
8,024
4,452
41,057
(13,937)
2,850
10,480
545
(1,388)
3,025
528
3,836
1,887
8,923
10,922
1,803
2,784
1,361
542,778
343,935
296,344
137,283
72,096
226,104
108,715
110,178
71,031
30,952
87,978
73,216
55,695
26,029
28,171
9,346
12,097
13,832
14,411
48,626
323,428
204,084
179,705
111,471
109,679
219,350
139,851
116,639
25,812
(37,583)
388
409
12,729
Income applicable to Toys
Income (loss) from partially owned
2,252
2,111
231
(2,320)
327
50
191
17,991
(65,733)
(68,788)
(38,899)
(29,042)
(87,160)
765
6,922
156,584
71,109
80,451
(2,209)
(90,493)
(809)
(100)
(35)
(596)
(9,013)
155,775
71,009
80,416
(99,506)
(4,848)
498
(18,747)
150,927
80,914
(118,253)
403,699
62,587
70,114
41,880
29,487
83,233
116,398
370,252
84,810
79,535
57,311
26,267
69,771
52,558
Income tax expense(2)
36,566
809
655
25,587
9,373
1,097,175
299,133
220,765
180,140
53,604
283,457
60,076
30
For the Six Months Ended June 30, 2009
1,019,779
378,988
262,798
177,233
123,955
76,805
26,793
14,189
5,775
5,615
1,271
(57)
20,189
2,307
7,069
10,417
293
103
37,542
19,808
2,048
13,536
415,292
277,690
206,801
125,560
78,960
67,249
33,044
67,216
9,831
4,064
34,590
(9,398)
2,094
3,952
691
(1,333)
298
1,682
668
10,407
10,150
1,648
2,863
8,223
529,930
326,518
276,456
138,936
80,516
223,190
111,490
106,199
73,665
34,065
87,263
69,909
51,790
27,146
32,234
13,693
14,469
18,144
17,894
64,497
324,146
195,868
176,133
118,705
130,796
205,784
130,650
100,323
20,231
(50,280)
385
411
23,951
2,454
3,628
1,986
(38,568)
522
319
53
(85,059)
(66,474)
(61,954)
(44,778)
(25,800)
(117,817)
769
22,820
142,671
72,643
58,764
(5,338)
(244,953)
(1,188)
(277)
(908)
(7,873)
Income (loss) from continuing
142,411
71,455
58,487
(6,246)
(252,826)
4,012
1,943
75,467
60,430
(3,621)
(10,575)
138,790
61,045
(263,401)
399,689
63,113
63,838
47,518
26,248
50,761
148,211
361,118
84,730
73,147
53,695
27,431
67,011
55,104
54,283
1,195
277
973
43,457
8,121
917,565
286,893
213,647
162,535
48,406
258,049
(51,965)
31
20. Segment Information - continued
Notes to preceding tabular information:
(1) EBITDA represents “Earnings Before Interest, Taxes, Depreciation and Amortization.” We consider EBITDA a supplemental measure for making decisions and assessing the unlevered performance of our segments as it relates to the total return on assets as opposed to the levered return on equity. As properties are bought and sold based on a multiple of EBITDA, we utilize this measure to make investment decisions as well as to compare the performance of our assets to that of our peers. EBITDA should not be considered a substitute for net income. EBITDA may not be comparable to similarly titled measures employed by other companies.
(2) Interest and debt expense, depreciation and amortization and income tax expense in the reconciliation of net income (loss) to EBITDA includes our share of these items from partially owned entities.
(3) The tables below provide information about EBITDA from certain investments that are included in the “other” column of the preceding EBITDA by segment reconciliations. The totals for each of the columns below agree to the total EBITDA for the “other” column in the preceding EBITDA by segment reconciliations.
Alexander's
14,260
14,061
28,659
38,460
11,435
6,603
29,283
16,992
11,136
10,157
22,624
21,795
Hotel Pennsylvania
6,616
3,617
6,169
4,224
Industrial warehouses
768
1,369
1,607
2,683
Other investments
8,423
(9,114)
20,157
(5,167)
52,638
26,693
108,499
78,987
Corporate general and administrative expenses (1)
(20,642)
(16,564)
(39,956)
(38,032)
Investment income and other, net (1)
13,235
25,293
22,912
37,775
Real estate Fund organization costs
(2,656)
(2,730)
Costs of acquisitions not consummated
(1,930)
Write-off of unamortized costs from the voluntary surrender of equity
awards
(20,202)
The amounts in these captions (for this table only) exclude the mark-to-market of our deferred compensation plan assets and offsetting liability.
Includes a $5,998 net gain resulting from Lexington's March 2010 stock issuance.
32
Shareholders and Board of TrusteesVornado Realty TrustNew York, New York
We have reviewed the accompanying consolidated balance sheet of Vornado Realty Trust (the "Company") as of June 30, 2010, and the related consolidated statements of income for the three-month and six-month periods ended June 30, 2010 and 2009, and of changes in equity and cash flows for the six-month periods ended June 30, 2010 and 2009. These interim financial statements are the responsibility of the Company’s management.
We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to such consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Vornado Realty Trust as of December 31, 2009, and the related consolidated statements of income, changes in equity, and cash flows for the year then ended (not presented herein); and in our report dated February 23, 2010, we expressed an unqualified opinion on those consolidated financial statements and included an explanatory paragraph relating to a change in method of accounting for debt with conversion options and noncontrolling interests in consolidated subsidiaries. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2009 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
August 3, 2010
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 Fo rm 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, 2009. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q or the date of any document incorporated by reference. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to our forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.
Management’s Discussion and Analysis of Financial Condition and Results of Operations includes a discussion of our consolidated financial statements for the three and six months ended June 30, 2010. 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, 2009 in Management’s Discussion and Analysis of Financial Condition. There have been no significant changes to our policies during 2010.
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 June 30, 2010:
Total Return(1)
RMS
SNL
One-year
67.1%
55.2%
Three-year
(26.2%)
(25.0%)
(22.4%)
Five-year
9.2%
0.5%
3.9%
Ten-year
241.8%
151.6%
164.7%
(1) Past performance is not necessarily indicative of how we will perform in the future.
We intend to achieve our business objective by continuing to pursue our investment philosophy and executing our operating strategies through:
· Maintaining a superior team of operating and investment professionals and an entrepreneurial spirit;
· Investing in properties in select markets, such as New York City and Washington, DC, where we believe thereis 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 may also offer Vornado common or preferred shares or Operating Partnership units in exchange for property and may repurchase or otherwise reacquire our shares or any other securities in the future.
On July 8, 2010, we completed the first closing of Vornado Capital Partners, L.P., our real estate investment fund (the “Fund”) with initial equity commitments of $550,000,000, of which we committed $200,000,000. We expect to raise an additional $450,000,000 bringing total commitments to $1 billion. We serve as the general partner and investment manager of the Fund and it will be our exclusive investment vehicle during its three-year investment period for all investments that fit within the Fund’s investment parameters. The Fund’s investment parameters include debt, equity and other interests in real estate, and excludes (i) investments in vacant land and ground-up development; (ii) investments acquired by merger or primarily for our securities or properties; (iii) properties which can be combined with or relate to our existing prop erties; (iv) securities of commercial mortgage loan servicers and investments derived from any such investments; (v) non-controlling interests in equity and debt securities; and (vi) investments located outside of North America. The Fund has a term of eight years from the final closing date. In the six months ended June 30, 2010, we expensed $2,730,000 of Fund organization costs, which is included as a component of “general and administrative” expenses on our consolidated statement of income, and expect to incur additional expenses of approximately $3,700,000 in the third quarter of 2010.
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, 2009 for additional information regarding these factors.
The economic recession and illiquidity and volatility in the financial and capital markets during 2008 and 2009 negatively affected substantially all businesses, including ours. Although signs of a recovery in 2010 have emerged, it is not possible for us to quantify the timing and impact of such a recovery, or lack thereof, on our future financial results.
Overview - continued
Quarter Ended June 30, 2010 Financial Results Summary
Net income attributable to common shareholders for the quarter ended June 30, 2010 was $57,840,000, or $0.31 per diluted share, compared to a net loss of $51,904,000, or $0.30 per diluted share, for the quarter ended June 30, 2009. Net loss for the quarter ended June 30, 2009 includes $500,000 for our share of net gains on sale of real estate. In addition, the quarters ended June 30, 2010 and 2009 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 June 30, 2010 by $12,596,000, or $0.07 per diluted share and increased net loss attributable t o common shareholders for the quarter ended June 30, 2009 by $91,516,000, or $0.53 per diluted share.
Funds from operations attributable to common shareholders plus assumed conversions (“FFO”) for the quarter ended June 30, 2010 was $204,772,000, or $1.11 per diluted share, compared to $93,515,000, or $0.54 per diluted share, for the prior year’s quarter. FFO for the quarters ended June 30, 2010 and 2009 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 June 30, 2010 by $12,596,000, or $0.07 per diluted share and decreased FFO for the quarter ended June 30, 2009 by $92,700,000 or $0.54 per diluted share.
(Amounts in thousands, except per share amounts
Items that affect comparability (income) expense:
Default interest and fees accrued on three loans in special servicing
6,558
Net gain on redemption of perpetual perferred units
(4,818)
2,656
(17,684)
(722)
(4,209)
13,576
100,845
Noncontrolling interests’ share of above adjustments
(980)
(8,145)
Items that affect comparability, net
12,596
92,700
The percentage increase in GAAP basis and cash basis same store Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) of our operating segments for the quarter ended June 30, 2010 over the quarter ended June 30, 2009 and the trailing quarter ended March 31, 2010 are summarized below.
New YorkOffice
Washington, DCOffice
MerchandiseMart
Same Store EBITDA:
June 30, 2010 vs. June 30, 2009
GAAP basis
2.2%
6.9%
12.3%
2.6%
Cash Basis
3.5%
13.2%
12.7%
3.1%
June 30, 2010 vs. March 31, 2010
3.6%
1.5%
19.1%
4.8%
6.7%
0.1%
22.1%
Primarily from the timing of trade shows.
36
Overview – continued
Six Months Ended June 30, 2010 Financial Results Summary
Net income attributable to common shares for the six months ended June 30, 2010 was $258,125,000, or $1.41 per diluted share, compared to $73,937,000, or $0.45 per diluted share, for the six months ended June 30, 2009. Net income for the six months ended June 30, 2010 and 2009 include $307,000 and $673,000, respectively, for our share of net gains on sale of real estate. In addition, the six months ended June 30, 2010 and 2009 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 six months ended June 30, 2010 by $10,552,000, or $0.06 per diluted share and decreased net income attributable to common shareholders for the six months ended June 30, 2009 by $107,531,000, or $0.65 per diluted share.
FFO for the six months ended June 30, 2010 was $565,066,000, or $2.98 per diluted share, compared to $355,777,000, or $2.15 per diluted share, for the prior year’s six months. FFO for the six months ended June 30, 2010 and 2009 includes certain items that affect comparability which are listed in the table below. The aggregate of these items, net of amounts attributable to noncontrolling interests, decreased FFO for the six months ended June 30, 2010 by $10,861,000, or $0.06 per diluted share and decreased FFO for the six months ended June 30, 2009 by $108,194,000, or $0.66 per diluted share.
Litigation loss accrual and costs of acquisitions not consummated
Net gain on redemption of perpetual preferred units
(6,972)
Net gain resulting from Lexington's March 2010 stock issuance
Net gain on sale of condominiums
(3,149)
2,730
Alexander's stock appreciation rights
(11,105)
(1,447)
(2,335)
11,680
118,297
(819)
(10,103)
10,861
108,194
The percentage increase (decrease) in GAAP basis and cash basis same store EBITDA of our operating segments for the six months ended June 30, 2010 over the six months ended June 30, 2009 is summarized below.
1.7%
6.5%
7.8%
(1.0%)
2.7%
10.8%
11.2%
(1.9%)
Calculations of same store EBITDA, reconciliations of our net income to EBITDA and FFO and the reasons we consider these non-GAAP financial measures useful are provided in the following pages of Management’s Discussion and Analysis of the Financial Condition and Results of Operations.
37
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 thousands)
As of June 30, 2010:
Retail (3)
Showroom
Square feet (in service)
16,187
18,558
22,767
2,630
6,166
Number of properties
84
164
Occupancy rate
95.5%
95.0%(2)
92.3%
91.1%
91.7%
Leasing Activity:
Quarter Ended June 30, 2010:
Square feet
308
363
453
306
288
Initial rent per square foot (1)
49.69
36.96
21.47
24.51
25.78
Weighted average lease terms (years)
7.5
3.9
8.6
14.4
3.3
Rent per square foot - relet space:
245
285
169
42
Initial rent - cash basis (1)
49.64
37.25
16.54
25.37
Prior escalated rent - cash basis
53.52
35.21
16.30
25.49
26.34
Percentage (decrease) increase:
Cash basis
(7.3%)
5.8%
(0.5%)
(2.1%)
GAAP Basis
(7.1%)
10.2%
9.0%
23.3%
0.2%
Rent per square foot - vacant space:
63
78
284
264
Initial rent (1)
49.90
35.89
24.40
24.37
Tenant improvements and leasing
commissions:
Per square foot
55.70
15.24
10.69
92.52
3.46
Per square foot per annum
7.46
3.91
1.25
6.43
1.05
Percentage of initial rent
15.0%
10.6%
26.2%
4.1%
Six Months Ended June 30, 2010:
614
723
731
770
47.27
38.39
21.29
24.48
24.74
7.3
3.8
8.1
14.3
4.0
478
282
44
48.50
38.79
14.25
52.56
35.87
13.62
(7.7%)
8.1%
4.6%
(6.1%)
(7.5%)
13.0%
(0.8%)
136
201
449
42.96
37.35
25.72
24.34
52.18
11.53
12.81
91.94
3.98
7.17
3.03
1.59
1.00
15.2%
7.9%
7.5%
26.3%
4.0%
See notes on the following table.
38
As of March 31, 2010:
16,175
18,530
22,684
2,470
6,301
95.3%
94.1%(2)
91.2%
87.5%
89.1%
As of December 31, 2009:
16,173
18,560
22,553
2,464
93.3%(2)
91.6%
88.9%
88.4%
As of June 30, 2009:
16,154
18,073
21,925
2,430
6,337
96.1%
94.7%(2)
91.3%
95.4%
90.2%
Most leases include periodic step-ups in rent which are not reflected in the initial rent per square foot leased.
Excluding residential and other properties, occupancy rates for the office properties were as follows.
94.8%
94.6%
95.1%
Mall sales per square foot, including partially owned malls, for the trailing twelve months ended June 30, 2010 and 2009 were $462 and $476,
respectively.
39
2010 Financing Activities:
On March 26, 2010, we completed a public offering of $500,000,000 aggregate principal amount of 4.25% senior unsecured notes due April 1, 2015. Interest on the notes is payable semi-annually on April 1 and October 1, commencing on October 1, 2010. The notes were sold at 99.834% of their face amount to yield 4.287%. The notes can be redeemed without penalty beginning January 1, 2015. We retained net proceeds of approximately $496,000,000.
On June 1, 2010, we refinanced a cross-collateralized loan of approximately $85,000,000, secured by 1101 17th, 1140 Connecticut, 1730 M and 1150 17th Streets, in Washington, DC. The new loan, which is guaranteed by the Operating Partnership, has a rate of LIBOR plus 1.40% (1.94% at June 30, 2010) and matures in June 2011, with three one-year extension options.
In the second quarter of 2010, we purchased $45,251,000 aggregate face amount ($44,170,000 aggregate carrying amount) of our convertible senior debentures for $45,242,000 in cash, resulting in net loss of $1,072,000.
In June 2010, we extended the maturity date of a $50,000,000 construction loan to February 2011, with a one-year extension option. In addition, in July 2010, we extended the maturity date of a $36,000,000 loan which had matured in October 2009, to September 2010, and are in negotiations to further extend this loan.
Recently Issued Accounting Literature
40
Net Income and EBITDA by Segment for the Three Months Ended June 30, 2010 and 2009
Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the three months ended June 30, 2010 and 2009.
See notes on page 43.
Net Income and EBITDA by Segment for the Three Months Ended June 30, 2010 and 2009 - continued
Net (income) loss attributable to noncontrolling interests, including unit distributions
The amounts in these captions (for this table only) exclude the mark-to-market of our deferred compensation plan assets and offsetting
liability.
43
Results of Operations – Three Months Ended June 30, 2010 Compared to June 30, 2009
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 $696,105,000 for the quarter ended June 30, 2010, compared to $673,790,000 in the prior year’s quarter, an increase of $22,315,000. Below are the details of the increase (decrease) by segment:
Increase (decrease) due to:
Property rentals:
Acquisitions and other
(2,097)
(904)
(1,193)
Development/redevelopment
3,746
2,533
1,213
Amortization of acquired below-market
leases, net
(3,258)
(751)
(331)
(3,310)
1,131
5,369
Trade shows
2,021
Leasing activity (see page 38)
15,479
4,036
5,144
9,433
(2,178)
(956)
Increase (decrease) in property rentals
21,260
3,285
6,442
6,143
(154)
5,544
Tenant expense reimbursements:
Acquisitions/development
689
650
Operations
4,016
339
(1,177)
5,275
(575)
154
Increase (decrease) in tenant expense
reimbursements
4,705
(1,138)
5,925
Lease cancellation fee income
1,717
2,041
(618)
328
(34)
394
397
(92)
62
(398)
BMS cleaning fees
1,048
2,821
(1,773)
(6,778)
(845)
343
(126)
(741)
(5,409)
(Decrease) increase in fee and other income
(3,650)
4,411
122
110
(713)
(7,580)
Total increase (decrease) in revenues
22,315
8,035
5,426
12,178
(1,442)
(1,882)
Primarily due to higher REVPAR.
Primarily from the elimination of inter-company fees from operating segments upon consolidation. See note (2) on page 45.
Primarily due to $5,402 of income in the prior year, resulting from the termination of a lease with a partially owned entity.
Results of Operations – Three Months Ended June 30, 2010 Compared to June 30, 2009 - continued
Expenses
Our expenses, which consist primarily of operating, depreciation and amortization and general and administrative expenses, were $454,702,000 for the quarter ended June 30, 2010, compared to $456,029,000 in the prior year’s quarter, a decrease of $1,327,000. Below are the details of the (decrease) increase by segment:
(Decrease) increase due to:
Operating:
(4,102)
(2,144)
(136)
(1,822)
424
1,082
(658)
Hotel activity
3,259
Trade shows activity
1,408
(2,775)
3,553
(3,408)
5,665
(4,066)
(4,519)
(Decrease) increase in operating expenses
(1,786)
1,409
(2,462)
3,185
(2,658)
(1,260)
Depreciation and amortization:
(99)
109
(208)
Operations (due to additions to buildings
and improvements)
(1,322)
1,118
2,238
(862)
(1,093)
(2,723)
(Decrease) increase in depreciation and
amortization
(1,421)
2,347
(1,070)
General and administrative:
Mark-to-market of deferred compensation
plan liability (3)
(7,196)
4,490
236
640
434
251
2,929
(Decrease) increase in general and administrative
(50)
(1,611)
Total (decrease) increase in expenses
(1,327)
2,763
525
2,549
(3,500)
(3,664)
Results from a $2,742 increase in BMS operating expenses and a $2,017 increase in reimbursable operating expenses, partially offset by a $1,206 decrease in non-reimbursable operating expenses.
Primarily from the elimination of inter-company fees from operating segments upon consolidation. See note (2) on page 44.
This decrease in expense is entirely offset by a corresponding decrease in income from the mark-to-market of the deferred compensation plan assets, a component of “interest and other investment income (loss), net” on our consolidated statements of income.
Primarily from higher stock-based compensation expense as a result of awards granted in March 2010.
45
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 $7,066,000 for the three months ended June 30, 2010, compared to $6,614,000 in the prior year’s quarter, an increase of $452,000.
(Loss) Income Applicable to Toys
During the quarter ended June 30, 2010, we recognized a net loss of $21,004,000 from our investment in Toys, comprised of $23,191,000 for our 32.7% share of Toys’ net loss ($47,314,000 before our share of Toys’ income tax benefit) and $2,187,000 of interest and other income.
During the quarter ended June 30, 2009, we recognized a net loss of $327,000 from our investment in Toys, comprised of (i) $16,220,000 for our 32.7% share of Toys’ net loss ($25,854,000 before our share of Toys’ income tax benefit), partially offset by (ii) $13,946,000 for our share of income from previously recognized deferred financing cost amortization expense, which we initially recorded as a reduction of the basis of our investment in Toys, and (iii) $1,947,000 of interest and other income.
(Loss) Income from Partially Owned Entities
Summarized below are the components of loss from partially owned entities for the three months ended June 30, 2010 and 2009.
Equity in Net (Loss) Income:
Lexington - 13.8% share in 2010 and 16.1% share in 2009 of equity in net loss
India real estate ventures - 4% to 36.5% range in our share of equity in net income (loss)
Other, net (2)
Includes $7,650 of expense for our share of Downtown Crossing, Boston lease termination payment.
Interest and Other Investment Income (Loss), net
Interest and other investment income (loss), net (comprised of interest income on mezzanine loans receivable, other interest income and dividend income) was income of $3,876,000 for the three months ended June 30, 2010, compared to a loss of $98,153,000 in the prior year’s quarter, an increase in income of $102,029,000. This increase resulted from:
Mezzanine loans receivable loss accrual ($6,900 in this quarter compared to $122,738 in the prior
year's quarter)
115,838
Lower average mezzanine loan investments ($137,260 in this quarter compared to $459,682 in the
prior year's quarter)
(7,455)
Decrease in the value of investments in our deferred compensation plan (offset by a corresponding
decrease in the liability for plan assets in general and administrative expenses)
Lower average yields on investments (0.1% in this quarter compared to 0.4% in the prior year's
quarter)
(1,552)
Increase in dividends and interest on marketable securities
1,282
1,112
102,029
Interest and Debt Expense
Interest and debt expense was $149,887,000 for the three months ended June 30, 2010, compared to $159,063,000 in the prior year’s quarter, a decrease of $9,176,000. This decrease was primarily due to savings of (i) $24,727,000 from the acquisition and retirement of an aggregate of $2.1 billion of our convertible senior debentures and senior unsecured notes in 2009 and (ii) $7,903,000 from the repayment of $400,000,000 of cross-collateralized debt secured by our portfolio of 42 strip shopping centers, partially offset by (iii) $14,411,000 of interest from the issuance of $460,000,000 of senior unsecured notes in September 2009 and $500,000,000 of senior unsecured notes in March 2010, (iv) $6,558,000 of default interest and fees accrued on three loans that are currently in special servicing and (v) $2,527,000 from new financings and refinancings.
Net (Loss) Gain on Early Extinguishment of Debt
In the three months ended June 30, 2010, we recognized a $1,072,000 net loss on the early extinguishment of debt, compared to a $17,684,000 net gain in the prior year’s quarter. The current year’s loss resulted from the purchase of $45,251,000 aggregate face amount ($44,170,000 aggregate carrying amount) of our convertible senior debentures for $45,242,000 in cash. The prior year’s gain resulted primarily from the acquisition and retirement of our convertible senior debentures.
Net Gains on Disposition of Wholly Owned and Partially Owned Assets Other Than Depreciable Real Estate
Net gains on disposition of wholly owned and partially owned assets other than depreciable real estate was $4,382,000 in the three months ended June 30, 2010 and was primarily comprised of net gains on sale of marketable securities.
Income Tax Expense
Income tax expense was $4,939,000 in the three months ended June 30, 2010, compared to $5,457,000 in the prior year’s quarter, a decrease of $518,000.
47
Discontinued Operations
The table below sets forth the combined results of operations of assets related to discontinued operations for the three months ended June 30, 2010 and 2009 and include the operating results of 1999 K Street, which was sold on September 1, 2009 and 15 other retail properties, which were sold during 2009.
.
Net (Income) Loss Attributable to Noncontrolling Interests, Including Unit Distributions
In the three months ended June 30, 2010, we recorded $5,105,000 of net income attributable to noncontrolling interests, compared to a net loss of $2,740,000 in the prior year’s quarter. Net income and net loss attributable to noncontrolling interests for the three months ended June 30, 2010 and 2009, respectively, is comprised of (i) allocations of income and loss to redeemable noncontrolling interests of $4,451,000 and $4,358,000, respectively, (ii) net income and net loss attributable to noncontrolling interests in consolidated subsidiaries of $981,000 and $3,200,000, respectively, (iii) preferred unit distributions of the Operating Partnership of $4,491,000 and $4,818,000, respectively and (iv) a net gain of $4,818,000 on the redemption of the remaining portion of the Series D-12 perpetual preferred units in the current period. The inc rease of $8,809,000 in allocations of income to redeemable noncontrolling interests resulted primarily from higher net income subject to allocation to unitholders.
Preferred Share Dividends
Preferred share dividends were $14,266,000 for the three months ended June 30, 2010, compared to $14,269,000 for the prior year’s quarter.
48
Same Store EBITDA
Same store EBITDA represents EBITDA from property level operations which are owned by us in both the current and prior year reporting periods. Same store EBITDA excludes segment-level overhead expenses, which are expenses that we do not consider to be property-level expenses, as well as other non-operating items. We present same store EBITDA on both a GAAP basis and a cash basis, which excludes income from the straight-lining of rents, amortization of below-market leases, net of above-market leases and other non-cash adjustments. We present these non-GAAP measures to (i) facilitate meaningful comparisons of the operational performance of our properties and segments, (ii) make decisions on whether to buy, sell or refinance properties, and (iii) compare the performance of our properties and segments to those of our peers. Same store EBITDA should not be considered as an alternative to net income or cash flow from operations and may not be comparable to similarly titled measures employed by other companies.
Below are the same store EBITDA results on a GAAP and cash basis for each of our segments for the three months ended June 30, 2010, compared to the three months ended June 30, 2009.
EBITDA for the three months ended June 30, 2010
Add-back: non-property level overhead
expenses included above
Less: EBITDA from acquisitions, dispositions
and other non-operating income or expenses
(2,314)
(1,874)
(3,616)
(879)
GAAP basis same store EBITDA for the three months
ended June 30, 2010
155,498
118,598
91,311
34,188
Less: Adjustments for straight-line rents,
amortization of below-market leases, net and other
non-cash adjustments
(14,622)
(586)
(10,623)
(803)
Cash basis same store EBITDA for the three months
140,876
118,012
80,688
33,385
EBITDA for the three months ended June 30, 2009
(119)
(4,862)
(5,946)
(582)
ended June 30, 2009
152,186
110,967
81,330
33,317
(16,080)
(6,754)
(9,747)
(935)
136,106
104,213
71,583
32,382
Increase in GAAP basis same store EBITDA for
the three months ended June 30, 2010 over the
three months ended June 30, 2009
3,312
7,631
9,981
871
Increase in Cash basis same store EBITDA for
4,770
13,799
9,105
1,003
% increase in GAAP basis same store EBITDA
% increase in Cash basis same store EBITDA
49
Net Income and EBITDA by Segment for the Six Months Ended June 30, 2010 and 2009
Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the six months ended June 30, 2010 and 2009.
See notes on page 52.
Net Income and EBITDA by Segment for the Six Months Ended June 30, 2010 and 2009 - continued
51
(2) Interest and debt expense, depreciation and amortization and income tax (benefit) expense in the reconciliation of our net income (loss) to EBITDA includes our share of these items from partially owned entities.
(3) The tables below provide information about EBITDA from certain investments that are included in the “other” column of the preceding EBITDA by segment reconciliations. The totals for each of the columns below agree to the total EBITDA for the “other” column in the preceding EBITDA by segment reconciliations
Net income attributable to noncontrolling interests, including unit distributions
The amount in these captions (for this table only) exclude the mark-to-market of our deferred compensation plan assets and offsetting
52
Results of Operations – Six Months Ended June 30, 2010 Compared to June 30, 2009
Revenues
Our revenues, which consist of property rentals, tenant expense reimbursements, hotel revenues, trade shows revenues, amortization of acquired below-market leases, net of above-market leases and fee income, were $1,392,436,000 for the six months ended June 30, 2010, compared to $1,352,356,000 in the prior year’s six months, an increase of $40,080,000. Below are the details of the increase (decrease) by segment:
(176)
(288)
2,064
(1,048)
6,332
4,302
2,030
(5,333)
(1,469)
(701)
(4,038)
(147)
1,022
3,945
25,973
7,417
12,492
11,939
(4,604)
(1,271)
32,423
5,948
15,189
9,643
(1,005)
2,648
707
(40)
996
(249)
(1,110)
(1,566)
(3,878)
5,504
(1,807)
637
(Decrease) increase in tenant expense
(403)
(3,918)
6,500
6,528
2,727
(1,154)
3,736
1,219
7,102
756
6,467
(4,539)
(7,498)
(1,484)
772
155
(79)
(6,862)
Increase (decrease) in fee and other income
8,060
8,466
6,146
3,745
1,159
(11,456)
40,080
12,848
17,417
19,888
(1,653)
(8,420)
Primarily from leasing fees in connection with our management of a development project.
Primarily from the elimination of inter-company fees from operating segments upon consolidation. See note (2) on page 54.
Results of Operations – Six Months Ended June 30, 2010 Compared to June 30, 2009 - continued
Our expenses, which consist primarily of operating, depreciation and amortization and general and administrative expenses, were $928,367,000 for the six months ended June 30, 2010, compared to $945,648,000 in the prior year’s six months, a decrease of $17,281,000. Below are the details of the (decrease) increase by segment:
(3,875)
(1,147)
(696)
2,207
2,481
(274)
3,870
(4,949)
6,580
(5,120)
5,400
(5,522)
(6,287)
(1,629)
2,914
3,979
(2,634)
(3,113)
1,846
1,584
869
(607)
901
715
1,723
3,036
(1,117)
(3,456)
Increase (decrease) in depreciation and
2,747
3,307
(4,063)
Write-off of unamortized costs from the
voluntary surrender of equity awards (3)
(32,588)
(3,451)
(3,131)
(4,793)
(1,011)
plan liability (4)
(1,888)
(896)
759
481
(2,472)
(5)
Decrease in general and administrative
(30,385)
(4,347)
(2,372)
(4,312)
(3,483)
(15,871)
(6)
(17,281)
(718)
8,216
3,572
(7,234)
(21,117)
Results from a $6,358 increase in BMS operating expenses.
Primarily from the elimination of inter-company fees from operating segments upon consolidation. See note (2) on page 53.
On March 31, 2009, our nine most senior executives voluntarily surrendered their 2007 and 2008 stock option awards and their 2008 out-performance plan awards. Accordingly, we recognized $32,588 of expense in the first quarter of 2009, representing the unamortized portion of these awards.
This increase in expense is entirely offset by a corresponding increase in income from the mark-to-market of the deferred compensation plan assets, a component of “interest and other investment income (loss), net” on our consolidated statements of income.
Primarily due to $2,800 of pension plan termination costs in 2009.
For additional information, see page 65.
Our 32.4% share of Alexander’s net income (comprised of our share of Alexander’s net income, management, leasing, and development fees) was $13,526,000 in the six months ended June 30, 2010, compared to $24,747,000 for the prior year’s six months, a decrease of $11,221,000. This decrease was primarily due to $11,105,000 of income for our share of the reversal of accrued stock appreciation rights compensation expense in the prior year.
Income Applicable to Toys
During the six months ended June 30, 2010, we recognized $104,866,000 of income from our investment in Toys, comprised of $100,649,000 for our 32.7% share of Toys’ net income ($126,236,000 before our share of Toys’ income tax expense) and $4,217,000 of interest and other income.
During the six months ended June 30, 2009, we recognized $96,820,000 of income from our investment in Toys, comprised of (i) $79,074,000 for our 32.7% share of Toys’ net income ($122,531,000 before our share of Toys’ income tax expense), (ii) $13,946,000 for our share of income from previously recognized deferred financing cost amortization expense, which we initially recorded as a reduction of the basis of our investment in Toys, and (iii) $3,800,000 of interest and other income.
Income (Loss) from Partially Owned Entities
Summarized below are the components of loss from partially owned entities for the six months ended June 30, 2010 and 2009.
Equity in Net Income (Loss):
Lexington - 13.8% share in 2010 and 16.1% share in 2009 of equity in
net income (loss)
Includes a $4,580 for our share of impairment losses recorded by Lexington.
Represents our equity in net income or loss of partially owned office buildings in New York and Washington, DC, the Monmouth Mall, Verde Realty Operating Partnership, 85 10th Avenue Associates and others.
Interest and other investment income (loss), net (comprised of interest income on mezzanine loans receivable, other interest income and dividend income) was income of $18,584,000 for the six months ended June 30, 2010, compared to a loss of $84,094,000 in the prior year’s six months, an increase in income of $102,678,000. This increase resulted from:
Mezzanine loans receivable loss accrual ($6,900 in this year's six months compared to $122,738 in
the prior year's six months)
Lower average mezzanine loan investments ($127,925 in this year's six months compared to $466,272
in the prior year's six months)
(15,064)
Lower average yields on investments (0.2% in this year's six months compared to 0.5% in the prior
year's six months)
(3,659)
Increase in the value of investments in our deferred compensation plan (offset by a corresponding
increase in the liability for plan assets in general and administrative expenses)
2,093
102,678
Interest and debt expense was $289,622,000 for the six months ended June 30, 2010, compared to $316,823,000 in the prior year’s six months, a decrease of $27,201,000. This decrease was primarily due to savings of (i) $51,507,000 from the acquisition and retirement of an aggregate of $2.1 billion of our convertible senior debentures and senior unsecured notes in 2009 and (ii) $16,449,000 from the repayment of $400,000,000 of cross-collateralized debt secured by our portfolio of 42 strip shopping centers, partially offset by (iii) $23,764,000 of interest from the issuance of $460,000,000 of senior unsecured notes in September 2009 and $500,000,000 of a senior unsecured notes in March 2010, (iv) $9,158,000 of lower capitalized interest and (v) $6,558,000 of default interest and fees accrued on three loans that are currently in special servicing. font>
In the six months ended June 30, 2010, we recognized a $1,072,000 net loss on the early extinguishment of debt, compared to a $23,589,000 net gain in the prior year’s six months. The current year’s loss resulted from the purchase of $45,251,000 aggregate face amount ($44,170,000 aggregate carrying amount) of our convertible senior debentures for $45,242,000 in cash. The prior year’s gain resulted primarily from the acquisition and retirement of our convertible senior debentures.
Net gains on disposition of wholly owned and partially owned assets other than depreciable real estate was $7,687,000 in the six months ended June 30, 2010 and was primarily comprised of net gains on the sale of marketable securities and net gains on sale of condominiums at our 40 East 66th Street property.
Income tax expense was $10,553,000 in the six months ended June 30, 2010, compared to $10,506,000 in the prior year’s six months.
56
The table below sets forth the combined results of operations of assets related to discontinued operations for the six months ended June 30, 2010 and 2009 and include the operating results of 1999 K Street, which was sold on September 1, 2009 and 15 other retail properties, which were sold during 2009.
In the six months ended June 30, 2010 and 2009, we recorded $23,097,000 and $13,581,000, respectively, of net income attributable to noncontrolling interests. Net income attributable to noncontrolling interests for the six months ended June 30, 2010 and 2009 is comprised of (i) allocations of income to redeemable noncontrolling interests of $19,666,000 and $7,644,000, respectively, (ii) net income and net loss attributable to noncontrolling interests in consolidated subsidiaries of $1,194,000 and $3,700,000, respectively, (iii) preferred unit distributions of the Operating Partnership of $9,209,000 and $9,637,000, respectively and (iv) a net gain of $6,972,000 on the redemption of all of the Series D-12 perpetual preferred units in the current year. The increase of $12,022,000 in allocations of income to redeemable noncontrolling interests resulted p rimarily from higher net income subject to allocation to unitholders.
Preferred share dividends were $28,533,000 for the six months ended June 30, 2010, compared to $28,538,000 for the prior year’s six months.
57
Below are the same store EBITDA results on a GAAP and cash basis for each of our segments for the six months ended June 30, 2010, compared to the six months ended June 30, 2009.
EBITDA for the six months ended June 30, 2010
(2,938)
758
(10,753)
(3,607)
GAAP basis same store EBITDA for the six months
305,541
233,620
183,219
64,408
(30,230)
(5,048)
(20,014)
(2,179)
Cash basis same store EBITDA for the six months
275,311
228,572
163,205
62,229
EBITDA for the six months ended June 30, 2009
(129)
(10,783)
(1,250)
300,457
219,408
169,896
65,050
(32,322)
(13,042)
(23,112)
(1,605)
268,135
206,366
146,784
63,445
Increase (decrease) in GAAP basis same store EBITDA for
the six months ended June 30, 2010 over the
six months ended June 30, 2009
5,084
14,212
13,323
(642)
Increase (decrease) in Cash basis same store EBITDA for
7,176
22,206
16,421
(1,216)
% increase (decrease) in GAAP basis same store EBITDA
% increase (decrease) in Cash basis same store EBITDA
58
SUPPLEMENTAL INFORMATION
Three Months Ended June 30, 2010 vs. Three Months Ended March 31, 2010
Our revenues and expenses are subject to seasonality during the year which impacts quarterly net earnings, cash flows and funds from operations, and therefore impacts comparisons of the current quarter to the previous quarter. The business of Toys is highly seasonal. Historically, Toys’ fourth quarter net income, which we record on a one-quarter lag basis in our first quarter, accounts for more than 80% of Toys’ fiscal year net income. The Office and Merchandise Mart segments have historically experienced higher utility costs in the first and third quarters of the year. The Merchandise Mart segment also has experienced higher earnings in the second and fourth quarters of the year due to major trade shows occurring in those quarters. The Retail segment revenue in the fourth quarter is typically higher due to the recognition of percentage rental income. Be low are the same store EBITDA results on a GAAP and cash basis for each of our segments for the three months ended June 30, 2010, compared to the three months ended March 31, 2010.
Add-back: non-property level overhead expenses
included above
86
35,153
Less: Adjustments for straight-line rents, amortization of
below-market leases, net and other non-cash adjustments
34,350
EBITDA for the three months ended March 31, 2010(1)
146,088
106,493
92,040
25,718
4,579
5,897
7,005
7,230
(624)
(9,081)
(3,430)
ended March 31, 2010
150,043
115,020
89,964
29,518
(15,608)
(4,461)
(9,391)
(1,376)
134,435
110,559
80,573
28,142
three months ended March 31, 2010
5,455
3,578
5,635
6,441
7,453
115
6,208
Below is the reconciliation of net income (loss) to EBITDA for the three months ended March 31, 2010.
Net income (loss) attributable to Vornado for the three months
72,548
30,757
43,840
(1,026)
30,992
35,171
19,354
13,009
42,074
39,841
28,811
13,482
474
724
253
EBITDA for the three months ended March 31, 2010
59
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 development expenditures and acquisitions (excluding Fund acquisitions as described below), may require funding from borrowings and/or equity offerings. We may from time to time purchase or retire outstanding debt securities. Such purchases, if any, will depend on prevailing market conditions, liquidity requirements and other factors. The amounts involved in connection with these transactions could be material to our consolidated financial statements.
We have raised, and may continue to raise, capital for future real estate acquisitions through our real estate investment Fund. On July 8, 2010, we completed the first closing of the Fund with initial equity commitments of $550,000,000, of which we committed $200,000,000. We expect to raise an additional $450,000,000 bringing total commitments to $1 billion. We serve as the general partner and investment manager of the Fund and it will be our exclusive investment vehicle for all investments that fit within the Fund’s investment parameters during its three-year investment period.
Cash Flows for the Six Months Ended June 30, 2010
Property rental income is our primary source of cash flow and is dependent upon the occupancy and rental rates of our properties. Other sources of liquidity to fund cash requirements include proceeds from debt financings, including mortgage loans, senior unsecured borrowings, and our revolving credit facilities; proceeds from the issuance of common and preferred equity; and asset sales. Our cash requirements include property operating expenses, capital improvements, tenant improvements, leasing commissions, distributions to common and preferred shareholders, as well as acquisition and development costs. Our cash and cash equivalents were $652,121,000 at June 30, 2010, a $116,642,000 increase over the balance at December 31, 2009. This increase resulted from $532,365,000 of net cash provided by operating activities and $207,359,000 of net ca sh provided by investing activities, partially offset by, $623,082,000 of net cash used in financing activities.
Our consolidated outstanding debt was $10,670,218,000 at June 30, 2010, a $269,397,000 decrease over the balance at December 31, 2009. This decrease was primarily due to net repayments of $700,000,000 under our revolving credit facilities, partially offset by the public offering of $500,000,000 of 4.25% senior unsecured notes in March 2010. During the remainder of 2010 and 2011, $373,000,000 and $1,981,000,000 of our outstanding debt matures, respectively. We may refinance such debt or choose to repay all or a portion, using existing cash balances or our revolving credit facilities.
Our share of debt of unconsolidated subsidiaries was $2,844,923,000 at June 30, 2010, a $304,717,000 decrease from the balance at December 31, 2009.
Cash flows provided by operating activities of $532,365,000 was comprised of (i) net income of $309,755,000, (ii) $115,978,000 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, (iii) distributions of income from partially owned entities of $18,517,000, and (iv) the net change in operating assets and liabilities of $88,115,000.
Net cash provided by investing activities of $207,359,000 was comprised of (i) restricted cash of $133,888,000, (ii) proceeds from sales of marketable securities of $122,956,000, (iii) proceeds received from repayment of mezzanine loans receivable of $105,061,000, (iv) proceeds from the sale of real estate and related investments of $49,544,000, (v) proceeds from maturing short-term investments of $40,000,000 and (vi) distributions of capital from partially owned entities of $12,638,000, partially offset by (vii) additions to real estate of $68,925,000, (viii) development and redevelopment expenditures of $68,499,000, (ix) investments in mezzanine loans receivable and other of $48,339,000, (x) investments in partially owned entities of $41,920,000, (xi) deposits in connection with real estate acquisitions of $15,128,000, and (xii) purchases of marketable equity securiti es of $13,917,000.
Net cash used in financing activities of $623,082,000 was comprised of (i) proceeds from borrowings of $901,040,000, offset by, (ii) repayments of borrowings, including the purchase of our senior unsecured notes, of $1,197,525,000, (iii) dividends paid on common shares of $236,279,000, (iv) dividends paid on preferred shares of $28,533,000, (v) distributions to noncontrolling interests of $27,665,000, (vi) repurchase of shares related to stock compensation arrangements and related tax withholdings of $15,396,000, (vii) purchases of outstanding preferred units of $13,000,000 and (viii) debt issuance costs of $5,724,000.
60
LIQUIDITY AND CAPITAL RESOURCES - continued
Capital Expenditures
Our capital expenditures consist of expenditures to maintain assets, tenant improvement allowances and leasing commissions. Recurring capital improvements include expenditures to maintain a property’s competitive position within the market and tenant improvements and leasing commissions necessary to re-lease expiring leases or renew or extend existing leases. Non-recurring capital improvements include expenditures completed in the year of acquisition and the following two years that were planned at the time of acquisition as well as tenant improvements and leasing commissions for space that was vacant at the time of acquisition of a property. Our development and redevelopment expenditures include all hard and soft costs associated with the development or redevelopment of a property, including tenant improvements, leasing commissions , capitalized interest and operating costs until the property is substantially complete and ready for its intended use.
Below are the details of capital expenditures, leasing commissions and development and redevelopment expenditures and a reconciliation of total expenditures on an accrual basis to the cash expended in the six months ended June 30, 2010.
Capital Expenditures (accrual basis):
Expenditures to maintain assets
20,389
10,237
3,161
1,539
2,721
2,731
Tenant improvements
70,845
25,300
6,127
7,045
27,550
4,823
Leasing commissions
15,516
6,781
2,283
1,416
3,804
1,232
Non-recurring capital expenditures
3,985
898
3,087
Total capital expenditures and leasing
commissions (accrual basis)
110,735
42,318
11,571
10,898
34,075
11,873
Adjustments to reconcile to cash basis:
Expenditures in the current year
applicable to prior periods
47,536
26,786
7,803
6,772
2,777
3,398
Expenditures to be made in future
periods for the current period
(73,756)
(22,985)
(7,149)
(9,278)
(28,644)
(5,700)
commissions (cash basis)
84,515
46,119
12,225
8,392
8,208
9,571
Tenant improvements and leasing commissions:
3.93
4.19
12.5%
17.0%
Development and Redevelopment
Expenditures:
Wasserman Venture
10,275
West End 25
7,639
1540 Broadway
6,182
6,085
Bergen Town Center
5,976
220 20th Street
3,794
Beverly Connection
3,184
North Bergen, New Jersey
3,078
Garfield, New Jersey
1,288
Poughkeepsie, New York
953
20,045
3,742
7,758
2,999
824
4,722
68,499
19,191
29,745
14,997
61
Cash Flows for the Six Months Ended June 30, 2009
Our cash and cash equivalents were $2,068,498,000 at June 30, 2009, a $541,645,000 increase over the balance at December 31, 2008. This increase resulted from $379,439,000 of net cash provided by operating activities and $381,516,000 of net cash provided by financing activities, partially offset by $219,310,000 of net cash used in investing activities.
Our consolidated outstanding debt was $11,652,801,000 at June 30, 2009, a $426,654,000 decrease from the balance at December 31, 2008. This decrease resulted primarily from the repurchase of a portion of our convertible senior debentures and senior unsecured notes during 2009. As of June 30, 2009 and December 31, 2008, $648,250,000 and $358,468,000, respectively, was outstanding under our revolving credit facilities.
Our share of debt of unconsolidated subsidiaries was $3,068,868,000 at June 30, 2009, a $127,717,000 decrease from the balance at December 31, 2008. This resulted primarily from a decrease in our share of Toys “R” Us outstanding debt.
Cash flows provided by operating activities of $379,439,000 was primarily comprised of (i) net income of $116,056,000, adjusted for $252,841,000 of non-cash adjustments, including depreciation and amortization expense, mezzanine loan loss accruals, the effect of straight-lining of rental income, equity in net income of partially owned entities and amortization of below market leases, net of above market leases, (ii) distributions of income from partially owned entities of $15,131,000, partially offset by (iii) the net change in operating assets and liabilities of $4,589,000.
Net cash used in investing activities of $219,310,000 was primarily comprised of (i) development and redevelopment expenditures of 267,124,000, (ii) investments in partially owned entities of $25,712,000, (iii) additions to real estate of $84,750,000, partially offset by, (iv) $60,786,000 of restricted cash and (v) $45,472,000 received from mezzanine loan receivables repayments.
Net cash provided by financing activities of $381,516,000 was primarily comprised of (i) $710,226,000 of proceeds from the issuance of common shares in April 2009, (ii) proceeds from borrowings of $520,137,000, partially offset by, (iii) repayments of borrowings of $644,011,000, (iv) dividends paid on common shares of $126,174,000, (v) distributions to noncontrolling interests of $20,931,000 and (vi) dividends paid on preferred shares of $28,540,000.
Below are the details of capital expenditures, leasing commissions and development and redevelopment expenditures and a reconciliation of total expenditures on an accrual basis to the cash expended in the six months ended June 30, 2009.
15,274
7,564
3,561
843
3,306
34,078
18,765
13,369
429
1,515
10,243
6,138
3,925
180
10,323
3,511
4,314
69,918
35,978
25,169
1,486
4,821
53,373
17,135
30,092
2,885
3,344
(83)
(27,623)
(12,037)
(14,477)
(610)
(300)
(199)
95,668
41,076
40,784
3,761
7,865
2,182
2.60
5.51
3.39
0.14
0.90
7.3%
10.4%
8.5%
0.8%
3.4%
45,763
39,215
28,650
25,776
17,359
South Hills Mall
13,955
13,749
12,397
1999 K Street
8,107
62,153
7,903
14,492
24,560
4,014
11,184
267,124
109,409
108,838
36,960
64
65
FUNDS FROM OPERATIONS (“FFO”)
FFO is computed in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines FFO as GAAP net income or loss adjusted to exclude net gains from sales of depreciated real estate assets, depreciation and amortization expense from real estate assets, extraordinary items and other specified non-cash items, including the pro rata share of such adjustments of unconsolidated subsidiaries. FFO and FFO per diluted share are used by management, investors and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers because it excludes the effect of real estate depreciation and amortization and net gains on sales, which are based on historical costs and implicitly assume that the value of real estate diminish es predictably over time, rather than fluctuating based on existing market conditions. FFO does not represent cash generated from operating activities and is not necessarily indicative of cash available to fund cash requirements and should not be considered as an alternative to net income as a performance measure or cash flow as a liquidity measure. FFO may not be comparable to similarly titled measures employed by other companies. The calculations of both the numerator and denominator used in the computation of income per share are disclosed in footnote 15 – Income Per Share, in the notes to our consolidated financial statements on page 24 of this Quarterly Report on Form 10-Q.
FFO for the Three and Six Months Ended June 30, 2010, and 2009
FFO attributable to common shareholders plus assumed conversions for the three months ended June 30, 2010 was $204,772,000, or $1.11 per diluted share, compared to $93,515,000, or $0.54 per diluted share for the prior year’s quarter. FFO attributable to common shareholders plus assumed conversions for the six months ended June 30, 2010 was $565,066,000 or $2.98 per diluted share, compared to $355,777,000, or $2.15 per diluted share for the prior year’s six months. Details of certain items that affect comparability are discussed in the financial results summary of our “Overview.”
For The Three
For The Six
Reconciliation of our net income (loss) to FFO:
Depreciation and amortization of real property
127,181
128,662
254,795
252,789
Proportionate share of adjustments to equity in net income of
Toys, to arrive at FFO:
17,663
15,566
35,164
32,146
Income tax effect of Toys' adjustments included above
(6,182)
(5,448)
(12,307)
(11,251)
partially owned entities, excluding Toys, to arrive at FFO:
19,533
19,348
39,074
33,956
Net gains on sale of real estate
(500)
(307)
(673)
Noncontrolling interests' share of above adjustments
(11,303)
(12,209)
(22,474)
(25,212)
FFO
218,998
107,784
580,603
384,230
FFO attributable to common shareholders
204,732
93,515
552,070
355,692
Interest on 3.875% exchangeable senior debentures
12,915
Convertible preferred dividends
85
FFO attributable to common shareholders plus assumed conversions
204,772
565,066
355,777
Reconciliation of Weighted Average Shares
Weighted average common shares outstanding
Effect of dilutive securities:
3.875% exchangeable senior debentures
1,371
74
Denominator for FFO per diluted share
183,715
172,901
189,334
165,257
FFO attributable to common shareholders plus assumed conversions per diluted share
1.11
0.54
2.98
2.15
66
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We have exposure to fluctuations in market interest rates. Market interest rates are sensitive to many factors that are beyond our control. Our exposure to a change in interest rates on our consolidated and non-consolidated debt (all of which arises out of non-trading activity) is as follows:
As at June 30, 2010
As at December 31, 2009
Weighted
Effect of 1%
Average
Change In
Consolidated debt:
Balance
Base Rates
Variable rate
2,044,846
2.00%
20,448
2,657,972
Fixed rate
8,625,372
5.99%
8,281,643
5.89%
5.23%
4.86%
Pro-rata share of debt of non-
consolidated entities (non-recourse):
Variable rate – excluding Toys
289,428
2.85%
2,894
331,980
2.87%
Variable rate – Toys
425,439
4,254
852,040
3.45%
Fixed rate (including $1,285,497, and
$1,077,919 of Toys debt in 2010 and 2009)
2,130,056
7.36%
1,965,620
7.16%
2,844,923
6.49%
7,148
3,149,640
5.70%
Redeemable noncontrolling interests’ share of above
(1,987)
Total change in annual net income
25,609
Per share-diluted
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 June 30, 2010, variable rate debt with an aggregate principal amount of $507,750,000 and a weighted average interest rate of 2.58% was subject to LIBOR caps. These caps are based on a notional amount of $507,750,000 and cap LIBOR at a weighted average rate of 5.39%.
Fair Value of Debt
The estimated fair value of our consolidated debt is calculated based on current market prices and discounted cash flows at the current rate at which similar loans would be made to borrowers with similar credit ratings for the remaining term of such debt. As of June 30, 2010, the estimated fair value of our consolidated debt was $10,569,552,000.
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 June 30, 2010, 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.
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, 2009.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In the second quarter of 2010, we issued 29,782 common shares upon the redemption of Class A units of the Operating Partnership held by persons who received units, in private placements in earlier periods, in exchange for their interests in limited partnerships that owned real estate. The common shares were issued without registration under the Securities Act of 1933 in reliance on Section 4 (2) of that Act.
Information relating to compensation plans under which our equity securities are authorized for issuance is set forth under Part III, Item 12 of the Annual Report on Form 10-K for the year ended December 31, 2009, and such information is incorporated by reference herein.
Item 3. Defaults Upon Senior Securities
None.
Item 5. Other Information
Item 6. Exhibits
Exhibits required by Item 601 of Regulation S-K are filed herewith or incorporated herein by reference and are listed in the attached Exhibit Index.
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: August 3, 2010
By:
/s/ Joseph Macnow
Joseph Macnow, Executive Vice President -Finance and Administration andChief Financial Officer (duly authorized officer and principal financial and accounting officer)
EXHIBIT INDEX
Exhibit No.
3.1
Articles of Restatement of Vornado Realty Trust, as filed with the State
*
Department of Assessments and Taxation of Maryland on July 30, 2007 - Incorporated
by reference to Exhibit 3.75 to Vornado Realty Trust’s Quarterly Report on Form 10-Q
for the quarter ended June 30, 2007 (File No. 001-11954), filed on July 31, 2007
3.2
Amended and Restated Bylaws of Vornado Realty Trust, as amended on March 2, 2000 -
Incorporated by reference to Exhibit 3.12 to Vornado Realty Trust’s Annual Report on
Form 10-K for the year ended December 31, 1999 (File No. 001-11954), filed on
March 9, 2000
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
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
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
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
_______________________
Incorporated by reference.
3.14
Eleventh Amendment to the Partnership Agreement, dated as of November 24, 1999 -
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
(File No. 001-11954), filed on May 19, 2000
3.16
Thirteenth Amendment to the Partnership Agreement, dated as of May 25, 2000 -
Form 8-K (File No. 001-11954), filed on June 16, 2000
3.17
Fourteenth Amendment to the Partnership Agreement, dated as of December 8, 2000 -
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
(File No. 001 11954), filed on October 12, 2001
3.20
Seventeenth Amendment to the Partnership Agreement, dated as of September 21, 2001 -
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 -
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
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
73
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
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
3.31
Twenty-Eighth Amendment to the Partnership Agreement, dated December 30, 2004 -
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 -
Form 8-K (File No. 000-22685), filed on September 14, 2005
3.35
Thirty-Second Amendment and Restated Agreement of Limited Partnership, dated as of
December 19, 2005 – Incorporated by reference to Exhibit 3.59 to Vornado Realty L.P.’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2006
(File No. 000-22685), filed on May 8, 2006
3.36
Thirty-Third Amendment to Second Amended and Restated Agreement of Limited
Partnership, dated as of April 25, 2006 – Incorporated by reference to Exhibit 10.2 to
Vornado Realty Trust’s Form 8-K (File No. 001-11954), filed on May 1, 2006
3.37
Thirty-Fourth Amendment to Second Amended and Restated Agreement of Limited
Partnership, dated as of May 2, 2006 – Incorporated by reference to Exhibit 3.1 to
Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on
May 3, 2006
3.38
Thirty-Fifth Amendment to Second Amended and Restated Agreement of Limited
Partnership, dated as of August 17, 2006 – Incorporated by reference to Exhibit 3.1 to
Vornado Realty L.P.’s Form 8-K (File No. 000-22685), filed on August 23, 2006
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
June 27, 2007
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
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
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
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, 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
4.2
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
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
10.2
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
10.3
Stock Pledge Agreement between Vornado, Inc. and Steven Roth dated December 29, 1992 -
Incorporated by reference to Vornado, Inc.’s Annual Report on Form 10-K for the year
ended December 31, 1992 (File No. 001-11954), filed February 16, 1993
10.4
**
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
Management contract or compensatory agreement.
75
10.5
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
10.6
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
10.7
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
10.8
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
10.9
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
10.10
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
10.11
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
10.12
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
10.13
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
10.14
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
10.15
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
76
10.16
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
10.17
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
10.18
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
10.19
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
10.20
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
10.21
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
10.22
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
10.23
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
10.24
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
10.25
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
10.26
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
77
10.27
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
10.28
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
10.29
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
10.30
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
10.31
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
10.32
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
10.33
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
10.34
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
10.35
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
10.36
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
10.37
Amendment to Employment Agreement between Vornado Realty Trust and David R.
Greenbaum, dated December 29, 2008. Incorporated by reference to Exhibit 10.49 to
10.38
Amendment to Indemnification Agreement between Vornado Realty Trust and David R.
Greenbaum, dated December 29, 2008. Incorporated by reference to Exhibit 10.50 to
10.39
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
10.40
Amendment to Employment Agreement between Vornado Realty Trust and Christopher G.
Kennedy, dated December 29, 2008. Incorporated by reference to Exhibit 10.53 to
10.41
Vornado Realty Trust's 2010 Omnibus Share Plan
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
79