<Page> EXHIBIT INDEX ON PAGE 51 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: JUNE 30, 2002 or / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from_______________________ TO _______________________ Commission File Number: 001-11954 VORNADO REALTY TRUST - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) MARYLAND 22-1657560 - ---------------------------------------- -------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) 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. /X/ Yes / / No As of August 2, 2002, 107,276,095 of the registrant's common shares of beneficial interest are outstanding. Page 1 <Page> INDEX <Table> <Caption> Page Number ----------- <S> <C> PART I. FINANCIAL INFORMATION: Item 1. Financial Statements: Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001....................................... 3 Consolidated Statements of Income for the Three Months and Six Months Ended June 30, 2002 and June 30, 2001..................................... 4 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2002 and June 30, 2001........................................... 5 Notes to Consolidated Financial Statements................................ 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................. 24 Item 3. Quantitative and Qualitative Disclosures About Market Risk................ 48 PART II. OTHER INFORMATION: Item 1. Legal Proceedings......................................................... 49 Item 4. Submission of Matters to a Vote of Security Holders....................... 49 Item 6. Exhibits and Reports on Form 8-K.......................................... 49 Signatures .......................................................................... 50 Exhibit Index .......................................................................... 51 </Table> Page 2 <Page> PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS VORNADO REALTY TRUST CONSOLIDATED BALANCE SHEETS <Table> <Caption> (amounts in thousands, except share and per share amounts) JUNE 30, DECEMBER 31, 2002 2001 ----------- ------------ <S> <C> <C> ASSETS Real estate, at cost: Land................................................................................. $ 1,491,706 $ 895,831 Buildings and improvements........................................................... 5,613,451 3,480,249 Development costs and construction in progress....................................... 125,608 258,357 Leasehold improvements and equipment................................................. 65,699 55,774 ----------- ------------ Total........................................................................... 7,296,464 4,690,211 Less accumulated depreciation and amortization....................................... (639,704) (506,225) ----------- ------------ Real estate, net................................................................ 6,656,760 4,183,986 Cash and cash equivalents, including U.S. government obligations under repurchase agreements of $90,520 and $15,235......................................... 684,183 265,584 Escrow deposits and restricted cash..................................................... 355,198 204,463 Marketable securities................................................................... 77,201 126,774 Investments in and advances to partially-owned entities, including Alexander's of $185,953 and $188,522................................................. 948,825 1,270,195 Due from officers....................................................................... 18,266 18,197 Accounts receivable, net of allowance for doubtful accounts of $9,303 and $8,831................................................................. 70,698 47,406 Notes and mortgage loans receivable..................................................... 94,887 258,555 Receivable arising from the straight-lining of rents.................................... 157,093 138,154 Other assets............................................................................ 309,626 264,029 ----------- ------------ $ 9,372,737 $ 6,777,343 =========== ============ LIABILITIES AND SHAREHOLDERS' EQUITY Notes and mortgages payable............................................................. $ 3,935,646 $ 2,477,173 Senior unsecured notes due 2007......................................................... 499,283 -- Accounts payable and accrued expenses................................................... 199,960 179,597 Officers' compensation payable.......................................................... 14,120 6,708 Deferred leasing fee income............................................................. 11,579 11,940 Other liabilities....................................................................... 1,707 51,895 ----------- ------------ Total liabilities.................................................................... 4,662,295 2,727,313 ----------- ------------ Minority interest of unitholders in the Operating Partnership........................... 2,083,733 1,479,658 ----------- ------------ Commitments and contingencies Shareholders' equity: Preferred shares of beneficial interest: no par value per share; authorized 45,000,000 shares; Series A: liquidation preference $50.00 per share; issued and outstanding 2,027,323 and 5,520,435 shares................................................... 101,370 276,024 Series B: liquidation preference $25.00 per share; issued and outstanding 3,400,000 shares................................................................. 81,805 81,805 Series C: liquidation preference $25.00 per share; issued and outstanding 4,600,000 shares................................................................. 111,148 111,148 Common shares of beneficial interest: $.04 par value per share; authorized, 200,000,000 shares; issued and outstanding, 106,953,869 and 99,035,023 shares...... 4,279 3,961 Additional capital................................................................... 2,452,293 2,162,512 Distributions in excess of net income................................................ (128,768) (95,647) ----------- ------------ 2,622,127 2,539,803 Deferred compensation shares earned but not yet delivered............................ 38,253 38,253 Deferred compensation shares issued but not yet earned............................... (16,286) -- Accumulated other comprehensive loss................................................. (12,681) (2,980) Due from officers for purchase of common shares of beneficial interest............... (4,704) (4,704) ----------- ------------ Total shareholders' equity...................................................... 2,626,709 2,570,372 ----------- ------------ $ 9,372,737 $ 6,777,343 =========== ============ </Table> See notes to consolidated financial statements. Page 3 <Page> VORNADO REALTY TRUST CONSOLIDATED STATEMENTS OF INCOME (amounts in thousands except per share amounts) <Table> <Caption> FOR THE THREE MONTHS FOR THE SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, ---------------------- ---------------------- 2002 2001 2002 2001 --------- --------- --------- --------- <S> <C> <C> <C> <C> Revenues: Rentals .................................. $ 309,869 $ 212,252 $ 611,629 $ 416,970 Expense reimbursements ................... 36,315 31,543 74,119 66,635 Other income (including fee income from related parties of $381 and $514 in each three month period and $584 and $884 in each six month period) ......... 7,063 2,280 13,823 5,080 --------- --------- --------- --------- Total revenues ............................. 353,247 246,075 699,571 488,685 --------- --------- --------- --------- Expenses: Operating ................................ 126,267 96,831 253,713 197,214 Depreciation and amortization ............ 49,563 30,086 97,151 61,951 General and administrative ............... 23,759 22,415 47,226 36,663 Amortization of Officer's deferred compensation expense ................... 6,875 -- 13,750 -- Costs of acquisitions not consummated .... -- -- -- 5,000 --------- --------- --------- --------- Total expenses ............................. 206,464 149,332 411,840 300,828 --------- --------- --------- --------- Operating income ........................... 146,783 96,743 287,731 187,857 Income applicable to Alexander's ........... 4,487 4,676 10,055 16,980 Income from partially-owned entities ....... 9,826 19,228 23,612 43,218 Interest and other investment income ....... 9,934 15,874 19,577 29,347 Interest and debt expense .................. (60,119) (43,994) (118,137) (93,389) Net gain (loss) on disposition of wholly-owned and partially-owned assets... (4,981) 1,934 (3,450) (2,789) Minority interest: Perpetual preferred unit distributions ... (18,254) (17,326) (36,508) (34,652) Minority limited partnership earnings .... (18,411) (10,614) (33,094) (20,243) Partially-owned entities ................. (554) (409) (1,543) (768) --------- --------- --------- --------- Income before cumulative effect of change in accounting principle and extraordinary item ....................... 68,711 66,112 148,243 125,561 Cumulative effect of change in accounting principle ................................ -- -- (30,129) (4,110) Extraordinary item ......................... -- -- -- 1,170 --------- --------- --------- --------- Net income ................................. 68,711 66,112 118,114 122,621 Preferred share dividends (including accretion of issuance expenses of $240 and $958 in 2001) ........................ (5,896) (9,192) (12,027) (18,865) --------- --------- --------- --------- NET INCOME applicable to common shares ..... $ 62,815 $ 56,920 $ 106,087 $ 103,756 ========= ========= ========= ========= NET INCOME PER COMMON SHARE - BASIC ........ $ .59 $ .65 $ 1.02 $ 1.19 ========= ========= ========= ========= NET INCOME PER COMMON SHARE - DILUTED ...... $ .57 $ .64 $ .97 $ 1.16 ========= ========= ========= ========= DIVIDENDS PER COMMON SHARE ................. $ .66 $ .53 $ 1.32 $ 1.06 ========= ========= ========= ========= </Table> See notes to consolidated financial statements. Page 4 <Page> VORNADO REALTY TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS <Table> <Caption> (amounts in thousands) FOR THE SIX MONTHS ENDED JUNE 30, ----------------------------------- 2002 2001 ----------- ----------- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income............................................................... $ 118,114 $ 122,621 Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of change in accounting principle................. 30,129 4,110 Extraordinary item.................................................. -- (1,170) Minority interest................................................... 71,145 55,663 Net gain on disposition of wholly-owned and partially-owned assets............................................ 3,450 2,789 Depreciation and amortization....................................... 97,151 61,951 Amortization of Officer's deferred compensation expense............. 13,750 -- Straight-lining of rental income.................................... (18,939) (14,542) Equity in income of Alexander's..................................... (10,055) (16,980) Equity in income of partially-owned entities........................ (23,612) (43,218) Changes in operating assets and liabilities......................... (33,835) 21,642 ----------- ----------- Net cash provided by operating activities................................ 247,298 192,866 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Development costs and construction in progress........................... (34,841) (74,856) Investments in partially-owned entities.................................. (21,984) (25,221) Distributions from partially-owned entities.............................. 67,454 93,032 Investment in notes and mortgage loans receivable........................ (741) (30,767) Repayment of notes and mortgage loans receivable......................... 60,000 6,057 Cash restricted, primarily mortgage escrows.............................. (113,831) 27,851 Additions to real estate................................................. (60,323) (49,326) Purchases of marketable securities ...................................... -- (9,350) Proceeds from sale of marketable securities ............................. 53,445 1,121 Real estate deposits and other........................................... (24,970) 1,493 ----------- ----------- Net cash used in investing activities.................................... (75,791) (59,966) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings................................................. 622,765 118,853 Repayments of borrowings................................................. (200,612) (111,748) Debt issuance costs...................................................... (2,800) -- Proceeds from issuance of common shares.................................. 56,658 -- Distributions to minority partners....................................... (70,782) (53,710) Dividends paid on common shares.......................................... (169,838) (90,992) Dividends paid on preferred shares....................................... (12,027) (17,926) Exercise of stock options................................................ 23,728 5,554 ----------- ----------- Net cash provided by (used in) financing activities...................... 247,092 (149,969) ----------- ----------- Net increase (decrease) in cash and cash equivalents..................... 418,599 (17,069) Cash and cash equivalents at beginning of period......................... 265,584 136,989 ----------- ----------- Cash and cash equivalents at end of period............................... $ 684,183 $ 119,920 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash payments for interest (including capitalized interest of $4,721 in 2002 and $7,556 in 2001)................................................... $ 113,172 $ 95,737 =========== =========== NON-CASH TRANSACTIONS: Class A units issued in acquisitions..................................... $ 607,155 $ -- Financing assumed in acquisitions........................................ 991,980 -- Unrealized gain on securities available for sale......................... -- 2,760 </Table> See notes to consolidated financial statements. Page 5 <Page> VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION Vornado Realty Trust is a fully-integrated real estate investment trust ("REIT"). Vornado 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 79% of the common limited partnership interest in, the Operating Partnership at June 30, 2002. All references to the "Company" and "Vornado" refer to Vornado Realty Trust and its consolidated subsidiaries, including the Operating Partnership. 2. BASIS OF PRESENTATION The consolidated balance sheet as of June 30, 2002, the consolidated statements of income for the three and six months ended June 30, 2002 and 2001 and the consolidated statements of cash flows for the six months ended June 30, 2002 and 2001 are unaudited. In the opinion of management, 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 have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in Vornado's Annual Report on Form 10-K for the year ended December 31, 2001 as filed with the Securities and Exchange Commission. The results of operations for the six months ended June 30, 2002 are not necessarily indicative of the operating results for the full year. The accompanying consolidated financial statements include the accounts of Vornado Realty Trust and its majority-owned subsidiary, Vornado Realty L.P., as well as entities in which the Company has a 50% or greater interest, provided that the Company exercises control (where the Company does not exercise control, such entities are accounted for under the equity method). All significant intercompany amounts have been eliminated. Equity interests in partially-owned corporate entities are accounted for under the equity method of accounting when the Company's ownership interest is more than 20% but less than 50%. When partially-owned investments are in partnership form, the 20% threshold may be reduced. For all other investments, the Company uses the cost method. Equity investments are recorded initially at cost and subsequently adjusted for the Company's share of the net income or loss and cash contributions and distributions to or from these entities. Management has made estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Certain amounts in the prior year's financial statements have been reclassified to conform to the current year presentation. Page 6 <Page> VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 3. RECENTLY ISSUED ACCOUNTING STANDARDS In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS (effective January 1, 2002). SFAS No. 142 specifies that goodwill and some intangible assets will no longer be amortized but instead be subject to periodic impairment testing. In the first quarter of 2002, the Company wrote-off goodwill of approximately $30,129,000 of which (i) $15,490,000 represents its share of the goodwill arising from the Company's investment in Temperature Controlled Logistics and (ii) $14,639,000 represents goodwill arising from the Company's acquisition of the Hotel Pennsylvania. The write-off has been reflected as a cumulative effect of a change in accounting principle. Earnings allocable to the minority limited partners has been reduced by their pro-rata share of the write-off of goodwill. Previously reported Net Income Applicable to Common Shares for the three and six months ended June 30, 2001 would have been approximately $300,000 and $600,000 higher if such goodwill was not amortized in the prior year's quarter and six months. In August 2001, the FASB issued SFAS No. 143, ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS (effective January 1, 2003) and SFAS No. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS (effective January 1, 2002). SFAS No. 143 requires the recording of the fair value of a liability for an asset retirement obligation in the period which it is incurred. SFAS No. 144 supersedes current accounting literature and now provides for a single accounting model for long-lived assets to be disposed of by sale and requires discontinued operations presentation for disposals of a "component" of an entity. The adoption of these statements did not have a material effect on the Company's financial statements; however under SFAS No. 144, if the Company were to dispose of a material operating property, such property's results of operations will have to be separately disclosed as discontinued operations in the Company's financial statements. In April 2002, the FASB issued SFAS No. 145, RESCISSION OF SFAS NO. 4, 44, AND 64, AMENDMENT OF SFAS NO. 13, AND TECHNICAL CORRECTION. SFAS No. 145 rescinds SFAS No. 4, REPORTING GAINS AND LOSSES FROM EXTINGUISHMENT OF DEBT, SFAS No. 44, ACCOUNTING FOR INTANGIBLE ASSETS OF MOTOR CARRIERS, and SFAS No. 64, EXTINGUISHMENTS OF DEBT MADE TO SATISFY SINKING-FUND REQUIREMENTS. SFAS No. 145 requires, among other things, (i) that the modification of a lease that results in a change of the classification of the lease from capital to operating under the provisions of SFAS No. 13 be accounted for as a sale-leaseback transaction and (ii) the reporting of gains or losses from the early extinguishment of debt as extraordinary items only if they met the criteria of Accounting Principles Board Opinion No. 30, REPORTING THE RESULTS OF OPERATIONS. The rescission of SFAS No. 4 is effective January 1, 2003. The amendment of SFAS No. 13 is effective for transactions occurring on or after May 15, 2002. The adoption of this statement will not have a material effect on the Company's financial statements. In July 2002, the FASB issued SFAS No. 146, ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES (effective January 1, 2003). SFAS No. 146 replaces current accounting literature and requires the recognition of costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. The Company does not anticipate the adoption of this statement will have a material effect on the Company's financial statements. Page 7 <Page> VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 4. ACQUISITIONS AND DISPOSITIONS ACQUISITIONS CHARLES E. SMITH COMMERCIAL REALTY L.P. On January 1, 2002, the Company completed the combination of Charles E. Smith Commercial Realty L.P. ("CESCR") with Vornado. Prior to the combination, Vornado owned a 34% interest in CESCR. The consideration for the remaining 66% of CESCR was approximately $1,600,000,000, consisting of 15.6 million newly issued Vornado Operating Partnership units (valued at $607,155,000) and $991,980,000 of debt (66% of CESCR's total debt). This acquisition was recorded under the purchase method of accounting. The related purchase costs were allocated to acquired assets and assumed liabilities using their relative fair values as of January 1, 2002 based on valuations and other studies certain of which are not yet complete. Accordingly, the initial valuations are subject to change as such information is finalized. The Company believes that any such change will not be significant because the allocations were principally to real estate. The unaudited pro forma information set forth below presents the condensed consolidated statements of income for the Company for the three and six months ended June 30, 2001 as if the following transactions had occurred on January 1, 2001, (i) the acquisition of CESCR described above and (ii) the Company's November 21, 2001 sale of 9,775,000 common shares and the use of proceeds to repay indebtedness. <Table> <Caption> Condensed Consolidated Statements of Income For the Three Months Ended For the Six Months Ended (in thousands, except per share amounts) June 30, June 30, -------------------------- -------------------------- Pro Forma Pro Forma 2002 2001 2002 2001 ----------- ---------- ---------- ---------- <S> <C> <C> <C> <C> Revenues........................................... $ 353,247 $ 341,686 $ 699,571 $ 679,542 =========== ========== ========== ========== Income before cumulative effect of change in accounting principle and extraordinary item...... $ 68,711 $ 67,657 $ 148,243 $ 131,459 Cumulative effect of change in accounting principle........................................ -- -- (30,129) (4,110) Extraordinary item................................. -- -- -- 1,170 ----------- ---------- ---------- ---------- Net income......................................... 68,711 67,657 118,114 128,519 Preferred share dividends.......................... (5,896) (9,192) (12,027) (18,865) ----------- ---------- ---------- ---------- Net income applicable to common shares............. $ 62,815 $ 58,465 $ 106,087 $ 109,654 =========== ========== ========== ========== Net income per common share - basic................ $ .59 $ .60 $ 1.02 $ 1.13 =========== ========== ========== ========== Net income per common share - diluted.............. $ .57 $ .59 $ .97 $ 1.10 =========== ========== ========== ========== </Table> Page 8 <Page> VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 4. ACQUISITIONS AND DISPOSITIONS - CONTINUED INVESTMENT IN PRIMESTONE On September 28, 2000, the Company made a $62,000,000 loan to Primestone Investment Partners, L.P. ("Primestone"). The Company received a 1% upfront fee and was entitled to receive certain other fees aggregating approximately 3% upon repayment of the loan. The loan bore interest at 16% per annum. Primestone defaulted on the repayment of this loan on October 25, 2001. The loan was subordinate to $37,957,000 of other debt of the borrower. On October 31, 2001, the Company purchased the other debt for its face amount. The loans were secured by 7,944,893 partnership units in Prime Group Realty, L.P., the operating partnership of Prime Group Realty Trust (NYSE:PGE) and the partnership units are exchangeable for the same number of common shares of PGE. The loans are also guaranteed by affiliates of Primestone. On November 19, 2001, the Company sold, pursuant to a participation agreement with a subsidiary of Cadim inc., a Canadian pension fund, a 50% participation in both loans at par for approximately $50,000,000 reducing the Company's net investment in the loans at December 31, 2001 to $56,768,000 including unpaid interest and fees of $6,790,000. On April 30, 2002, the Company and Cadim acquired the 7,944,893 partnership units at a foreclosure auction. The price paid for the units by application of a portion of Primestone's indebtedness to the Company and Cadim was $8.35 per unit, the April 30, 2002 PGE closing price on The New York Stock Exchange. On June 28, 2002, pursuant to the terms of the participation agreement, the Company transferred 3,972,447 of the partnership units to Cadim. In the second quarter, in accordance with foreclosure accounting, the Company recorded a loss on the Primestone foreclosure of $17,671,000 calculated based on (i) the acquisition price of the units and (ii) its valuation of the amounts realizable under the guarantees by affiliates of Primestone, as compared with the net carrying amount of the investment at April 30, 2002. At June 30, 2002, the Company's carrying amount of the investment was $40,270,000, of which $33,170,000 represents the carrying amount of the 3,972,447 partnership units owned by the Company ($8.35 per unit) and $7,100,000 represents the amount realizable under the guarantees (see Note 5. Investments in and Advances to Partially-Owned Entities). At July 30, 2002, PGE's closing stock price on the New York Stock Exchange was $5.43 per share. The ultimate realization of the Company's investment will depend upon the future performance of the Chicago real estate market and the performance of PGE, as well as the ultimate realizable value of the net assets supporting the guarantees and the Company's ability to collect under the guarantees. The Company will continue to monitor this investment to determine whether additional write-downs are required based on (i) declines in value of the PGE stock (for which the partnership units are exchangeable) which are "other than temporary" as used in accounting literature and (ii) the realizable value of the guarantees. CRYSTAL GATEWAY ONE On July 1, 2002, the Company acquired a 360,000 square foot office building from a limited partnership, which is approximately 50% owned by Mr. Robert H. Smith and Mr. Robert P. Kogod, trustees of the Company in exchange for approximately 325,700 newly issued Vornado Operating Partnership units (valued at $14,800,000). The building is located in the Crystal City complex in Arlington, Virginia where the Company already owns 24 office buildings containing over 6.9 million square feet, which it acquired on January 1, 2002, in connection with the Company's acquisition of CESCR. In March 2002, the Company had purchased the mortgage on this property for $55,000,000. On June 28, 2002, the limited partnership completed a $58,500,000 mortgage refinancing which bears interest at 6.75% and matures in July 2012 and repaid the Company's $55,000,000 mortgage. Page 9 <Page> VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 4. ACQUISITIONS AND DISPOSITIONS - CONTINUED DISPOSITIONS The following table sets forth the details of net (loss) gain on disposition of wholly-owned and partially-owned assets for the three and six months ended June 30, 2002 and 2001: <Table> <Caption> For the Three Months Ended For the Six Months Ended (amounts in thousands) June 30, June 30, --------------------------- -------------------------- 2002 2001 2002 2001 ----------- ---------- ---------- ---------- <S> <C> <C> <C> <C> Wholly-owned Assets: Loss on Primestone foreclosure.......................... $ (17,671) $ -- $ (17,671) $ -- Gain on sale of Kinzie Park condominiums units.......... 344 -- 1,875 -- Net gain on sale of marketable securities............... 12,346 -- 12,346 -- Net gain from condemnation proceedings.................. -- 3,050 -- 3,050 Write-off of investments in technology companies........ -- (13,561) -- (18,284) Partially-owned Assets: Net gain on sale of 50% interest in 570 Lexington Avenue -- 12,445 -- 12,445 ----------- ---------- ---------- ---------- $ (4,981) $ 1,934 $ (3,450) $ (2,789) =========== ========== ========== ========== </Table> 5. INVESTMENTS IN AND ADVANCES TO PARTIALLY-OWNED ENTITIES The Company's investments in and advances to partially-owned entities and income recognized from such investments are as follows: INVESTMENTS AND ADVANCES: <Table> <Caption> (amounts in thousands) June 30, 2002 December 31, 2001 ------------- ----------------- <S> <C> <C> Temperature Controlled Logistics.......................... $ 458,004 $ 474,862 Charles E. Smith Commercial Realty L.P. ("CESCR")(1)...... -- 347,263 Alexander's............................................... 185,953 188,522 Newkirk Joint Ventures (2)................................ 162,247 191,534 Prime Group Realty, L.P. and other guarantees (3)......... 40,270 -- Partially-Owned Office Buildings (4)...................... 22,619 23,346 Starwood Ceruzzi Joint Ventures........................... 26,055 25,791 Park Laurel............................................... 4,357 (4,745) Other..................................................... 49,320 23,622 ------------- -------------- $ 948,825 $ 1,270,195 ============= ============== </Table> - ---------- (1) On January 1, 2002, the Company acquired the remaining 66% of CESCR it did not previously own. Accordingly, CESCR is consolidated as of January 1, 2002. (2) The Company's investment in and advances to Newkirk Joint Ventures is comprised of: <Table> <Caption> June 30, 2002 December 31, 2001 ------------- ----------------- <S> <C> <C> Investments in limited partnerships.. $ 113,982 $ 143,269 Mortgages and loans receivable....... 39,511 39,511 Other ............................... 8,754 8,754 ------------- ----------------- Total ............................... $ 162,247 $ 191,534 ============= ================= </Table> On January 2, 2002, the Newkirk Joint Ventures' partnership interests were merged into a master limited partnership (the "MLP") in which the Company has a 21% interest. In conjunction with the merger, the MLP completed a $225,000 mortgage financing collateralized by its properties, subject to the existing first and certain second mortgages on those properties. The loan bears interest at LIBOR plus 5.5% with a LIBOR floor of 3% (8.5% at June 30, 2002) and matures on January 31, 2005, with two one-year extension options. As a result of the financing on February 6, 2002, the MLP repaid approximately $28,200 of existing debt and distributed approximately $37,000 to the Company. (3) The Company's carrying amount of the investment consists of 3,972,447 partnership units valued at $33,170 ($8.35 per unit) and guarantees valued at $7,100. The Company's 14.9% share of equity in the income or loss of Prime Group Realty L.P. for the period from April 30, 2002 (date of acquisition) to June 30, 2002 will be recognized in earnings in the quarter ending September 30, 2002, as the investee has not released its earnings prior to the filing of the Company's quarterly report on Form 10-Q. Prior to April 30, 2002, this investment was in the form of a loan and was included in Notes and Mortgage Loans Receivable on the balance sheet. (4) As at June 30, 2002, includes a 20% interest in a property which was part of the CESCR acquisition in 2002. Page 10 <Page> VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 5. INVESTMENTS IN AND ADVANCES TO PARTIALLY-OWNED ENTITIES - CONTINUED Below is a summary of the debt of partially owned entities, none of which is guaranteed by the Company. <Table> <Caption> (amounts in thousands) 100% OF PARTIALLY-OWNED ENTITIES DEBT ------------------------- JUNE 30, DECEMBER 31, 2002 2001 ---------- ------------ <S> <C> <C> Alexander's (33.1% interest) (see "Alexander's" on page 13 for further details): Term loan secured by all of Alexander's assets except for the Kings Plaza Regional Shopping Center: Portion financed by the Company due on April 15, 2003 with interest at 12.48% ...................................... $ 95,000 $ 95,000 Portion financed by a bank, due March 15, 2003, with interest at LIBOR + 1.85% (3.69% at June 30, 2002) (repaid on July 3, 2002) ..... 10,000 10,000 Unsecured Line of Credit financed by the Company, due on April 15, 2003 with interest at 12.48% ....... 24,000 24,000 Rego Park mortgage payable, due in June 2009, with interest at 7.25% ................................... 82,000 82,000 Kings Plaza Regional Shopping Center mortgage payable, due in June 2011, with interest at 7.46% (prepayable with yield maintenance) ............................. 220,571 221,831 Paramus mortgage payable, due in October 2011, with interest at 5.92% (prepayable without penalty) ...... 68,000 68,000 Other notes and mortgages payable (repaid on July 3, 2002)........................................ 15,000 15,000 Temperature Controlled Logistics (60% interest): Mortgage notes payable collateralized by 58 temperature controlled warehouses, due in May 2008, requires amortization based on a 25 year term with interest at 6.89% (prepayable with yield maintenance) 589,893 563,782 Other notes and mortgages payable ...................... 15,324 38,748 Newkirk Joint Ventures (21.1% interest): Portion of first mortgages and contract rights, collateralized by the partnerships' real estate, due from 2002 to 2024, with a weighted average interest rate of 11.32% at June 30, 2002 (various prepayment rights) ........... 1,516,757 1,336,989 Charles E. Smith Commercial Realty L.P. (34% interest in 2001): 29 mortgages payable ................................... -- 1,470,057 Unsecured line of credit ............................... -- 33,000 Partially Owned Office Buildings: 330 Madison Avenue (25% interest) mortgage note payable, due in April 2008, with interest at 6.52% (prepayable with yield maintenance) ........................................ 60,000 60,000 825 Seventh Avenue (50% interest) mortgage payable, due in October 2014, with interest at 8.07% (prepayable with yield maintenance) ................. 23,416 23,552 Las Catalinas Mall (50% interest): Mortgage notes payable, due in November 2013 with interest at 6.97% (prepayable after December 2002 with yield maintenance) ............................. 68,075 68,591 RussianTea Room (50% interest) mortgages payable, due in March 2012, with interest at Prime plus 50 basis points (5.25% at June 30, 2002) (1) ........... 13,000 13,000 </Table> The Company's share of the debt of partially owned entities was $862,529,000 and $1,319,535,000 as of June 30, 2002 and December 31, 2001, excluding the Company's share of Prime Group Realty L.P.'s outstanding debt as the investee has not filed its quarterly report on Form 10-Q for the period ended June 30, 2002, subsequent to the Company's acquisition of the partnership units. Based on Prime Group Realty L.P.'s outstanding debt of $914,253,000 at March 31, 2002, the Company's pro-rata share would be $136,224,000 (14.9% interest). - ---------- (1) On July 28, 2002 the Russian Tea Room ceased operations which represented an event of default under the loans. Page 11 <Page> VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 5. INVESTMENTS IN AND ADVANCES TO PARTIALLY-OWNED ENTITIES - CONTINUED INCOME: <Table> <Caption> For The Three Months For The Six Months (amounts in thousands) Ended June 30, Ended June 30, ----------------------------- ------------------------- 2002 2001 2002 2001 ----------- ---------- ---------- ---------- <S> <C> <C> <C> <C> Income applicable to Alexander's: 33.1% share of equity in net (loss) income.... $ (375)(1) $ 535 $ 794(1) $ 7,691(1) Interest income............................... 2,756 2,935 5,287 6,362 Management and leasing fee income............. 2,106 1,206 3,974 2,927 ----------- ---------- ---------- ---------- $ 4,487 $ 4,676 $ 10,055 $ 16,980 =========== ========== ========== ========== Temperature Controlled Logistics: 60% share of equity in net (loss) income (2).. $ (424) $ 2,222 $ 3,383 $ 6,686 Management fee (40% of 1% per annum of Total Combined Assets, as defined)......... 1,511 1,499 3,009 2,983 ----------- ---------- ---------- ---------- 1,087 3,721 6,392 9,669 ----------- ---------- ---------- ---------- CESCR-34% share of equity in net income (3)..... -- 6,828 -- 14,195 ----------- ---------- ---------- ---------- Newkirk Joint Ventures: Equity in net income of limited partnerships.. 5,974 6,484 11,403 12,726 Interest and other income..................... 2,326 1,477 4,597 3,202 ----------- ---------- ---------- ---------- 8,300 7,961 16,000 15,928 ----------- ---------- ---------- ---------- Partially-Owned Office Buildings (4)............ 726 1,509 1,276 2,773 Other........................................... (287) (791) (56) 653(5) ----------- ---------- ---------- ---------- $ 9,826 $ 19,228 $ 23,612 $ 43,218 =========== ========== ========== ========== </Table> - ---------- (1) Equity in income for the three and six months ended June 30, 2002 includes a charge of $1,402 representing the Company's share of Alexander's stock appreciation rights compensation expense of $4,236 based on Alexander's closing stock price of $76.80 on June 30, 2002. Equity in income for the six months ended June 30, 2001 includes $6,298 representing the Company's share of Alexander's gain on sale of its Fordham Road property and excludes $1,170 representing the Company's share of Alexander's extraordinary gain on the early extinguishment of debt on this property which is reflected as an extraordinary item on the consolidated statements of income. (2) Equity in net income for the three and six months ended June 30, 2002, reflects (i) a decrease in rental income of $793 and $1,351, respectively, and (ii) a $1,376 loss on the disposition of an asset. (3) On January 1, 2002, the Company acquired the remaining 66% of CESCR it did not previously own. Accordingly, CESCR is consolidated as of January 1, 2002. (4) 2002 includes a 20% interest in a property which was part of the acquisition of CESCR, and does not include 570 Lexington Avenue which was sold in May 2001. (5) Includes $1,300 for the Company's share of the Starwood Ceruzzi Joint Venture's gain on the sale of a property. Page 12 <Page> VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 5. INVESTMENTS IN AND ADVANCES TO PARTIALLY-OWNED ENTITIES - CONTINUED TEMPERATURE CONTROLLED LOGISTICS Based on the Company's policy of recognizing rental income when earned and collection is assured or cash is received, the Company did not recognize $3,744,000 and $5,552,000 of rent it was due for the three and six months ended June 30, 2002 and $2,340,000 of rent it was due for the three and six months ended June 30, 2001. At June 30, 2002, the Company's balance of the tenant's total deferred rent is $10,553,000. ALEXANDER'S The Company owns 1,655,000 common shares or 33.1% of the common stock of Alexander's at June 30, 2002. Alexander's is managed by and its properties are leased by the Company pursuant to management, leasing and development agreements with one-year terms expiring in March of each year, which are automatically renewable. In conjunction with the closing of the Alexander's Lexington Avenue construction loan on July 3, 2002, these agreements were bifurcated to cover the Alexander's Lexington Avenue property separately. Further, the Lexington Avenue management and development agreements were amended to provide for a term lasting until substantial completion of the development of the property, with automatic renewals, and for the payment of the development fee upon the earlier of January 3, 2006, or the payment in full of the construction loan encumbering the property. Pursuant to both the pre and post July 3, 2002 management, leasing and development agreements, the Company is entitled to a development fee based on 6% of construction costs as defined. The development fee for the Alexander's Lexington Avenue project is estimated to be approximately $26,300,000, of which $1,957,000 and $2,988,000 have been recorded during the three and six months ended June 30, 2002. Of these amounts, $1,425,000 and $2,115,000 have been recognized as income and the balance has been reflected as a reduction in the Investment account. The Company is also owed $1,073,000 under the leasing agreement which is payable in 2002. At June 30, 2002, the Company has loans receivable from Alexander's of $119,000,000, including $24,000,000 under the $50,000,000 line of credit the Company granted to Alexander's. On March 15, 2002, the loan and the line of credit were extended to April 15, 2003. The interest rates on the loan and line of credit were reset on March 15, 2002, from 13.74% to 12.48%, using a Treasury index (with a 3% floor) plus the same spread to treasuries as previously existed. On July 3, 2002, in conjunction with the closing of Alexander's Lexington Avenue construction loan, the maturity of the Company's loans was extended to the earlier of January 3, 2006 or the date the Alexander's Lexington Avenue construction loan is repaid in full and the debt was bifurcated among various subsidiaries of Alexander's (all guaranteed by Alexander's). In addition, amounts which may be due under the Completion Guarantee described in the next paragraph would be due at the same time. On July 3, 2002, Alexander's finalized a $490,000,000 loan with HVB Real Estate Capital (HYPO Vereinsbank) to finance the construction of its 1.3 million square foot multi-use building at its 59th Street and Lexington Avenue location. The estimated construction costs in excess of the construction loan of approximately $140,000,000 will be provided by Alexander's. The loan has an interest rate of LIBOR plus 2.5% and a term of forty-two months plus two one-year extensions. Alexander's has received an initial funding of $55,500,000 under the loan of which $25,000,000 was used to repay existing loans and notes payable. Pursuant to this loan, Vornado has agreed to guarantee, among other things, the lien free, timely completion of the construction of the project and funding of project costs in excess of a stated loan budget, if not funded by Alexander's (the "Completion Guarantee"). The $6,300,000 estimated fee payable by Alexander's to the Company for the Completion Guarantee is 1% of construction costs (as defined) and is due at the same time that the development fee is due. In addition, if the Company should advance any funds under the Completion Guarantee in excess of the $26,000,000 currently available under the secured line of credit, interest on those advances is at 15% per annum. Page 13 <Page> VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 6. DEBT AND EQUITY FINANCING Following is a summary of the Company's debt, by segment, at June 30, 2002: <Table> <Caption> (amounts in thousands) INTEREST BALANCE AS OF RATE AS AT --------------------------- JUNE 30, JUNE 30, DECEMBER 31, MATURITY 2002 2002 2001 ----------- ----------- ----------- ------------ <S> <C> <C> <C> <C> Notes and Mortgages Payable: Fixed Interest: NYC Office: Two Penn Plaza............................ 03/04 7.08% $ 156,210 $ 157,697 888 Seventh Avenue........................ 02/06 6.63% 105,000 105,000 Eleven Penn Plaza......................... 05/07 8.39% 50,890 51,376 866 UN Plaza.............................. 04/04 7.79% 33,000 33,000 CESCR Office (1): Crystal Park 1-5.......................... 07/06-08/13 7.00%-7.21% 266,691 (1) Crystal Gateway 2, 3, 4/Crystal Square 5 08/13-01/25 7.11%-7.43% 158,181 (1) Crystal Square 2, 3 and 4................. 10/10-11/14 7.14%-7.42% 146,266 (1) Skyline Place 1, 3, 4, 5 and 6............ 08/06-12/09 7.00% 141,636 (1) 1101 17th , 1140 Connecticut, 1730 M & 1150 17th............................... 08/10 7.00% 97,981 (1) Courthouse Plaza 1 and 2.................. 01/08 7.06% 80,760 (1) Crystal Gateway N., Arlington Plaza and 1919 S. Eads............................ 11/07 7.00% 73,299 (1) Reston Executive I, II & III.............. 01/06 7.00% 74,068 (1) Crystal Plaza 1-6......................... 10/04 7.00% 71,293 (1) One Skyline Tower......................... 06/08 7.12% 66,207 (1) Crystal Malls 1-4......................... 12/11 7.08% 68,281 (1) 1750 Pennsylvania Avenue.................. 06/32 7.26% 50,000 (1) One Democracy Plaza....................... 02/05 7.00% 28,028 (1) Retail: Cross collateralized mortgages payable on 42 shopping centers..................... 03/10 7.93% 489,776 492,156 Green Acres Mall.......................... 02/08 6.75% 151,810 152,894 Montehiedra Town Center................... 05/17 8.23% 59,999 60,359 Merchandise Mart: Market Square Complex..................... 07/11 7.95% 48,966 49,702 Washington Design Center.................. 10/11 6.95% 48,730 48,959 Washington Office Center.................. 02/04 6.80% 45,774 46,572 Other..................................... 03/09-06/13 7.03%-7.71% 44,864 18,951 Other: Industrial Warehouses..................... 10/11 6.95% 49,648 50,000 Student Housing Complex................... 11/07 7.45% 19,131 19,243 Other..................................... 7.95% 6,942 8,659 ----------- ------------ Total Fixed Interest Notes and Mortgages Payable............................. 7.29% 2,633,431 1,294,568 ----------- ------------ </Table> Page 14 <Page> VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 6. DEBT AND EQUITY FINANCING - CONTINUED <Table> <Caption> INTEREST BALANCE AS OF (amounts in thousands) RATE AS AT --------------------------- JUNE 30 JUNE 30, DECEMBER 31, MATURITY SPREAD 2002 2002 2001 ----------- ------- ----------- ----------- ------------ <S> <C> <C> <C> <C> <C> Notes and Mortgages Payable: Variable Interest: NYC Office: One Penn Plaza (2)...................... 06/03 L+125 3.23% $ 275,000 $ 275,000 770 Broadway/595 Madison Avenue cross-collateralized mortgage (3)..... 04/03 L+40 2.24% 238,659 123,500 909 Third Avenue........................ 07/03 L+165 3.49% 106,420 105,253 Two Park Avenue (5)..................... 03/03 L+145 3.35% 90,000 90,000 CESCR Office: Tyson Dulles Plaza...................... 06/03 L+130 3.14% 70,000 (1) Commerce Executive III, IV & V.......... 07/03 L+150 3.34% 53,670 (1) Seven Skyline (5)....................... 10/02 L+135 3.20% 52,185 (1) Merchandise Mart: Merchandise Mart (5).................... 10/02 L+150 3.34% 250,000 250,000 Furniture Plaza......................... 02/03 L+200 3.91% 48,290 43,524 33 North Dearborn Street................ 09/03 L+175 3.65% 19,000 19,000 350 North Orleans (5)................... 06/02 L+165 -- -- 70,000 Other................................... 01/03 P-50 4.25% 139 294 Other: Palisades construction loan............. 01/03 L+185 3.90% 98,852 90,526 Hotel Pennsylvania (4).................. 10/02 L+160 -- -- 115,508 ----------- ------------ Total Variable Interest Notes and Mortgages Payable................ 3.18% 1,302,215 1,182,605 ----------- ------------ Total Notes and Mortgages Payable......... $ 3,935,646 $ 2,477,173 =========== ============ Unsecured revolving credit facility....... 03/03 L+90 -- $ -- $ -- =========== ============ Senior unsecured debt due 2007 (5)........ 06/07 L+77 2.59% $ 499,283 $ -- =========== ============ </Table> - ---------- (1) On January 1, 2002, the Company acquired the remaining 66% of CESCR it did not previously own. Prior to January 1, 2002, the Company's share of CESCR's debt was netted in Investments in and Advances to Partially-Owned Entities. In connection with the acquisition, CESCR's fixed rate debt of $1,289,837 was fair valued at $1,322,685 upon the application of purchase accounting. (2) On June 21, 2002, one of the lenders purchased the other participant's interest in the loan. At the same time, the loan was extended for one year, with certain modifications including, (i) making the risk of a loss due to terrorism (as defined) not covered by insurance recourse to the Company and (ii) the granting of two 1-year renewal options to the Company. (3) On April 1, 2002, the Company increased its mortgage financing cross-collateralized by its 770 Broadway/595 Madison Avenue properties by $115,000. The proceeds of the loan are in a restricted mortgage escrow account which bears interest at the same rate as the loan, and at June 30, 2002, totals $238,659. (4) On April 1, 2002, the loan was prepaid in full. (5) On June 24, 2002, the Company completed an offering of $500,000 aggregate principal amount of 5.625% senior unsecured notes due June 15, 2007. Interest on the notes is payable semi-annually on June 15th and December 15th, commencing December 15, 2002. The notes were priced at 99.856% of their face amount to yield 5.659%. Of the net proceeds of approximately $496,300, (i) $70,000 was used to repay the mortgage payable on 350 North Orleans prior to June 30, 2002 and (ii) $393,000 was used to repay the mortgages on Two Park Avenue, the Merchandise Mart and a portion of Seven Skyline in July and August 2002. After the repayment of these mortgages, the balance of the Company's wholly-owned debt was $4,041,929, as compared to $3,970,486 at March 31, 2002. On June 27, 2002, the Company entered into interest rate swaps that effectively converted the interest rate on the $500,000 senior unsecured notes due 2007 from a fixed rate of 5.625% to a floating rate of LIBOR plus .7725, based upon the trailing 3 month LIBOR rate (2.59% if set on August 1, 2002). Page 15 <Page> VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 6. DEBT AND EQUITY FINANCING - CONTINUED The principal repayments for the next five years and thereafter are as follows: <Table> <Caption> (amounts in thousands) As at As at YEAR ENDING DECEMBER 31, June 30, 2002 July 31, 2002 ------------------------ ------------- ------------- <S> <C> <C> 2002.............................................. $ 302,185 $ -- 2003.............................................. 1,000,030 910,030 2004.............................................. 306,093 306,093 2005.............................................. 27,197 27,197 2006.............................................. 259,429 259,429 Thereafter........................................ 2,539,995 2,539,995 </Table> The Company's debt instruments, consisting of mortgage loans secured by its properties (which are generally non-recourse to the Company), its revolving credit agreement and its senior unsecured notes due 2007, contain customary covenants requiring the Company to maintain insurance. There can be no assurance that the lenders under these instruments will not take the position that an exclusion from all risk insurance coverage for losses due to terrorist acts is a breach of these debt instruments that allows the lenders to declare an event of default and accelerate repayment of debt. The Company has received correspondence from four lenders regarding terrorism insurance coverage, which the Company has responded to. If lenders insist on coverage for these risks, it could adversely affect the Company's ability to finance and/or refinance its properties and to expand its portfolio. EQUITY On February 25, 2002, the Company sold 1,398,743 common shares based on the closing price of $42.96 on the NYSE. The net proceeds to the Company were approximately $57,042,000. 7. OTHER RELATED PARTY TRANSACTIONS The Company currently manages and leases the real estate assets of Interstate Properties pursuant to a management agreement. Management fees earned by the Company pursuant to the management agreement were $381,000 and $514,000 for the three months ended June 30, 2002 and 2001 and $584,000 and $884,000 for the six months ended June 30, 2002 and 2001. The estate of Bernard Mendik and certain other individuals including Mr. Greenbaum, own an entity which provides cleaning and related services and security services to office properties, including the Company's Manhattan office properties. The Company was charged fees in connection with these contracts of $14,122,000 and $12,725,000 for the three months ended June 30, 2002 and 2001, and $27,622,000 and $25,625,000 for the six months ended June 30, 2002 and 2001. Effective January 1, 2002, the Company extended its employment agreement with Mr. Fascitelli for a five year period through December 31, 2006. Pursuant to the extended employment agreement, he is entitled to receive a deferred payment on December 31, 2006 of 626,566 Vornado common shares which are valued for compensation purposes at $27,500,000 (the value of the shares on March 8, 2002, the date the extended employment agreement was signed). The number of shares was set by the Company's Compensation Committee in December 2001 to achieve a value of $25,000,000 and had appreciated $2,500,000 as of March 8, 2002. The shares are being held in an irrevocable trust for the benefit of Mr. Fascitelli and will vest on December 31, 2002. Mr. Fascitelli will also receive regular annual cash compensation as determined by the Company's Compensation Committee and will continue as a member of Vornado's Board. Mr. Fascitelli may also borrow up to $20,000,000 from the Company during the term of his 2002 employment agreement reduced by $8,600,000, the amount of his outstanding loans under his 1996 employment agreement. Each loan will bear interest, payable quarterly, at the applicable Federal Rate on the date the loan is made and will mature on the fifth anniversary of the loan. Page 16 <Page> VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 7. OTHER RELATED PARTY TRANSACTIONS - CONTINUED On May 29, 2002, Mr. Roth replaced common shares of the Company securing the Company's outstanding loan to Mr. Roth with options to purchase common shares of the Company with a value of not less than two times the loan amount. See Exhibit 10.11 to this Quarterly Report on Form 10-Q for a copy of the related agreement. Pursuant to the Company's annual compensation review in February 2002 with Joseph Macnow, the Company's Chief Financial Officer, the Compensation Committee approved a $2,000,000 loan to Mr. Macnow, bearing interest at the applicable federal rate of 4.65% per annum and due January 1, 2006. The loan, which was funded on July 23, 2002, was made in conjunction with Mr. Macnow's June 2002 exercised of options to purchase 225,000 shares of the Company's common stock. The loan is collateralized by assets with a value of not less than two times the loan amount. VORNADO OPERATING COMPANY ("VORNADO OPERATING") Pursuant to a revolving credit facility which expires December 31, 2004, Vornado Operating owes the Company $31,489,000 at June 30, 2002. Vornado Operating has disclosed that in the aggregate, its investments do not, and for the foreseeable future, are not expected to generate sufficient cash flow to pay all of its debts and expenses. Further, Vornado Operating states that its only investee, AmeriCold Logistics ("Tenant"), anticipates that its Landlord, a partnership 60% owned by the Company and 40% owned by Crescent Real Estate Equities, will need to restructure the leases between the Landlord and the Tenant to provide additional cash flow to the Tenant (the Landlord has previously restructured the leases to provide additional cash flow to the Tenant). Management anticipates a further lease restructuring and the sale of non-core assets by AmeriCold Logistics, and accordingly, Vornado Operating is expected to have a source to repay the debt under this facility which may be extended. Since January 1, 2002, the Company has not recognized income on the debt under this facility. Page 17 <Page> VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 8. INCOME PER SHARE The following table sets forth the computation of basic and diluted income per share: <Table> <Caption> For The Three Months For The Six Months Ended June 30, Ended June 30, -------------------------- --------------------------- 2002 2001 2002 2001 (amounts in thousands except per share amounts) ----------- ---------- ---------- ----------- <S> <C> <C> <C> <C> Numerator: Income before cumulative effect of change in accounting principle and extraordinary item..... $ 68,711 $ 66,112 $ 148,243 $ 125,561 Cumulative effect of change in accounting principle....................................... -- -- (30,129) (4,110) Extraordinary item................................ -- -- -- 1,170 ----------- ---------- ---------- ----------- Net income........................................ 68,711 66,112 118,114 122,621 Preferred share dividends......................... (5,896) (9,192) (12,027) (18,865) ----------- ---------- ---------- ----------- Numerator for basic and diluted income per share - net income applicable to common shares.... $ 62,815 $ 56,920 $ 106,087 $ 103,756 =========== ========== ========== =========== Denominator: Denominator for basic income per share - weighted average shares.................................. 105,903 86,901 104,486 86,864 Effect of dilutive securities: Employee stock options.......................... 4,464 2,701 4,204 2,637 Deferred compensation shares issued but not yet earned 347 -- 264 -- ----------- ---------- ---------- ----------- Denominator for diluted income per share - adjusted weighted average shares and assumed conversions............................. 110,714 89,602 108,954 89,501 =========== ========== ========== =========== INCOME PER COMMON SHARE - BASIC: Income before cumulative effect of change in accounting principle and extraordinary item... $ .59 $ .65 $ 1.31 $ 1.23 Cumulative effect of change in accounting principle..................................... -- -- (.29) (.05) Extraordinary item.............................. -- -- -- .01 ----------- ---------- ---------- ----------- Net income per common share..................... $ .59 $ .65 $ 1.02 $ 1.19 =========== ========== ========== =========== INCOME PER COMMON SHARE - DILUTED: Income before cumulative effect of change in accounting principle and extraordinary item... $ .57 $ .64 $ 1.25 $ 1.20 Cumulative effect of change in accounting principle.................................... -- -- (.28) (.05) Extraordinary item.............................. -- -- -- .01 ----------- ---------- ---------- ----------- Net income per common share..................... $ .57 $ .64 $ .97 $ 1.16 =========== ========== ========== =========== </Table> Page 18 <Page> VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 9. COMPREHENSIVE INCOME The following table sets forth the Company's comprehensive income: <Table> <Caption> (amounts in thousands) For The Three Months For The Six Months Ended June 30, Ended June 30, ----------------------- ----------------------- 2002 2001 2002 2001 ----------- -------- ---------- --------- <S> <C> <C> <C> <C> Net income applicable to common shares................. $ 62,815 $ 56,920 $ 106,087 $ 103,756 Adjustment to record cumulative effect of change in accounting principle.............................. -- -- -- 4,110 Other comprehensive (loss) income...................... (11,787) 8,532 (8,862) 9,050 ----------- -------- ---------- --------- Comprehensive income................................... $ 51,028 $ 65,452 $ 97,225 $ 116,916 =========== ======== ========== ========= </Table> 10. COMMITMENTS AND CONTINGENCIES At June 30, 2002, the Company's revolving credit facility had a zero balance, and the Company utilized $15,718,000 of availability under the facility for letters of credit and guarantees. In conjunction with the closing of Alexander's Lexington Avenue construction loan on July 3, 2002, the Company agreed to guarantee, among other things, the lien free, timely completion of the construction of the project and funding of all project costs in excess of a stated loan budget, if not funded by Alexander's. Each of the Company's 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 the Company. The Company carries comprehensive liability and all risk property insurance (fire, flood, extended coverage and rental loss insurance) with respect to its assets. The Company's all risk insurance policies in effect before September 11, 2001 do not expressly exclude coverage for hostile acts, except for acts of war. Since September 11, 2001, insurance companies have for the most part excluded terrorist acts from coverage in all risk policies. The Company has generally been unable to obtain all risk insurance which includes coverage for terrorist acts for policies it has renewed since September 11, 2001, for each of its business. In 2002, the Company obtained $200,000,000 of separate coverage for terrorist acts for each of its New York City Office, Washington, D.C. Office, Retail and Merchandise Mart businesses and $60,000,000 for its Temperature Controlled Logistics business. Therefore, the Company is at risk for financial loss in excess of these limits for terrorist acts (as defined), which loss could be material. Page 19 <Page> VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 10. COMMITMENTS AND CONTINGENCIES - CONTINUED The Company's debt instruments, consisting of mortgage loans secured by its properties (which are generally non-recourse to the Company), its senior unsecured notes due 2007 and its revolving credit agreement, contain customary covenants requiring the Company to maintain insurance. There can be no assurance that the lenders under these instruments will not take the position that an exclusion from all risk insurance coverage for losses due to terrorist acts is a breach of these debt instruments that allows the lenders to declare an event of default and accelerate repayment of debt. The Company has received correspondence from four lenders regarding terrorism insurance coverage, which the Company has responded to. If lenders insist on coverage for these risks, it could adversely affect the Company's ability to finance and/or refinance its properties and to expand its portfolio. From time to time, the Company has disposed of substantial amounts of real estate to third parties for which, as to certain properties, it remains contingently liable for rent payments or mortgage indebtedness. There are various legal actions against the Company in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the outcome of such matters will not have a material effect on the Company's financial condition, results of operations or cash flow. Page 20 <Page> VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 11. SEGMENT INFORMATION The Company has four business segments: Office, Retail, Merchandise Mart and Temperature Controlled Logistics. <Table> <Caption> For the Three Months Ended June 30, ------------------------------------------------------------------------------------------- (amounts in thousands) 2002 ------------------------------------------------------------------------------------------- Temperature Merchandise Controlled Total Office Retail Mart Logistics Other(2) ------------- ------------- ------------- ------------- ------------- ------------- <S> <C> <C> <C> <C> <C> <C> Rentals .............................. $ 309,869 $ 213,762 $ 28,922 $ 52,868 $ -- $ 14,317 Expense reimbursements ............... 36,315 19,949 11,800 3,872 -- 694 Other income ......................... 7,063 5,090 391 1,220 -- 362 ------------- ------------- ------------- ------------- ------------- ------------- Total revenues........................ 353,247 238,801 41,113 57,960 -- 15,373 ------------- ------------- ------------- ------------- ------------- ------------- Operating expenses ................... 126,267 80,395 12,987 21,353 -- 11,532 Depreciation and amortization ........ 49,563 34,121 3,546 7,288 -- 4,608 General and administrative ........... 23,759 9,400 1,796 4,894 -- 7,669 Amortization of officer's deferred compensation expense ............... 6,875 -- -- -- -- 6,875 ------------- ------------- ------------- ------------- ------------- ------------- Total expenses ....................... 206,464 123,916 18,329 33,535 -- 30,684 ------------- ------------- ------------- ------------- ------------- ------------- Operating income ..................... 146,783 114,885 22,784 24,425 -- (15,311) Income applicable to Alexander's ..... 4,487 -- -- -- -- 4,487 Income from partially-owned entities . 9,826 726 (298) 11 1,087(6) 8,300 Interest and other investment income . 9,934 2,758 78 143 -- 6,955 Interest and debt expense ............ (60,119) (34,748) (14,018) (6,687) -- (4,666) Net gain on disposition of wholly-owned and partially-owned assets ............................. (4,981) -- -- 344 -- (5,325) Minority interest .................... (37,219) (28,976) (2,853) (6,474) (668) 1,752 ------------- ------------- ------------- ------------- ------------- ------------- Income before cumulative effect of change in accounting principle and extraordinary item ................. 68,711 54,645 5,693 11,762 419 (3,808) Cumulative effect of change in accounting principle ............... -- -- -- -- -- -- Extraordinary item ................... -- -- -- -- -- -- ------------- ------------- ------------- ------------- ------------- ------------- Net income ........................... 68,711 54,645 5,693 11,762 419 (3,808) Cumulative effect of change in accounting principle ............... -- -- -- -- -- -- Extraordinary item ................... -- -- -- -- -- -- Minority interest .................... 37,219 28,976 2,853 6,474 668 (1,752) Net gain on disposition of wholly-owned and partially-owned assets ............................. -- -- -- -- -- -- Interest and debt expense(4) ......... 76,199 35,253 14,653 6,687 6,302 13,304 Depreciation and amortization(4) ..... 62,360 34,577 4,097 7,288 8,344 8,054 Straight-lining of rents(4) .......... (9,224) (7,392) (426) (742) -- (664) Other ................................ 334 (1,127) 160 -- 912 389 ------------- ------------- ------------- ------------- ------------- ------------- EBITDA(1) ............................ $ 235,599 $ 144,932 $ 27,030 $ 31,469 $ 16,645 $ 15,523 ============= ============= ============= ============= ============= ============= - ---------- See footnotes on page 23. <Caption> For the Three Months Ended June 30, ------------------------------------------------------------------------------------------- (amounts in thousands) 2001 ------------------------------------------------------------------------------------------- Temperature Merchandise Controlled Total Office Retail Mart Logistics Other(2) ------------- ------------- ------------- ------------- ------------- ------------- <S> <C> <C> <C> <C> <C> <C> Rentals .............................. $ 212,252 $ 114,260 $ 28,764 $ 50,118 $ -- $ 19,110 Expense reimbursements ............... 31,543 15,920 11,711 3,858 -- 54 Other income ......................... 2,280 813 542 818 -- 107 ------------- ------------- ------------- ------------- ------------- ------------- Total revenues........................ 246,075 130,993 41,017 54,794 -- 19,271 ------------- ------------- ------------- ------------- ------------- ------------- Operating expenses ................... 96,831 51,684 13,002 21,662 -- 10,483 Depreciation and amortization ........ 30,086 17,300 3,447 6,064 -- 3,275 General and administrative ........... 22,415 2,637 819 4,650 -- 14,309 Amortization of officer's deferred compensation expense ............... -- -- -- -- -- -- ------------- ------------- ------------- ------------- ------------- ------------- Total expenses ....................... 149,332 71,621 17,268 32,376 -- 28,067 ------------- ------------- ------------- ------------- ------------- ------------- Operating income ..................... 96,743 59,372 23,749 22,418 -- (8,796) Income applicable to Alexander's ..... 4,676 -- -- -- -- 4,676 Income from partially-owned entities . 19,228 8,365 495 (4) 3,721(6) 6,651 Interest and other investment income . 15,874 1,897 416 714 -- 12,847 Interest and debt expense ............ (43,994) (14,407) (14,264) (8,317) -- (7,006) Net gain on disposition of wholly-owned and partially-owned assets ............................. 1,934 12,445 3,050 -- -- (13,561) Minority interest .................... (28,349) (14,734) (4,349) (4,125) (2,815) (2,326) ------------- ------------- ------------- ------------- ------------- ------------- Income before cumulative effect of change in accounting principle and extraordinary item ................. 66,112 52,938 9,097 10,686 906 (7,515) Cumulative effect of change in accounting principle ............... -- -- -- -- -- -- Extraordinary item ................... -- -- -- -- -- -- ------------- ------------- ------------- ------------- ------------- ------------- Net income ........................... 66,112 52,938 9,097 10,686 906 (7,515) Cumulative effect of change in accounting principle ............... -- -- -- -- -- -- Extraordinary item ................... -- -- -- -- -- -- Minority interest .................... 28,349 14,734 4,349 4,125 2,815 2,326 Net gain on disposition of wholly-owned and partially-owned assets ............................. (15,495) (12,445) (3,050) -- -- -- Interest and debt expense(4) ......... 67,151 24,859 14,906 8,317 6,773 12,296 Depreciation and amortization(4) ..... 45,918 21,992 4,612 6,064 8,403 4,847 Straight-lining of rents(4) .......... (6,339) (4,050) (534) (1,280) -- (475) Other ................................ 2,997 (630) (498) -- 69 4,056 ------------- ------------- ------------- ------------- ------------- ------------- EBITDA(1) ............................ $ 188,693 $ 97,398 $ 28,882 $ 27,912 $ 18,966 $ 15,535 ============= ============= ============= ============= ============= ============= </Table> - ---------- See footnotes on page 23. Page 21 <Page> 11. SEGMENT INFORMATION The Company has four business segments: Office, Retail, Merchandise Mart and Temperature Controlled Logistics. <Table> <Caption> For the Six Months Ended June 30, --------------------------------------------------------------------------------------- (amounts in thousands) 2002 --------------------------------------------------------------------------------------- Temperature Merchandise Controlled Total Office Retail Mart Logistics Other(2) ---------- ---------- --------- ----------- ----------- --------- <S> <C> <C> <C> <C> <C> <C> Rentals.................................. $ 611,629 $ 427,574 $ 57,992 $ 99,878 $ -- $ 26,185 Expense reimbursements................... 74,119 41,356 23,817 7,215 -- 1,731 Other income............................. 13,823 10,073 605 2,637 -- 508 ---------- ---------- --------- --------- --------- --------- Total revenues........................... 699,571 479,003 82,414 109,730 -- 28,424 ---------- ---------- --------- --------- --------- --------- Operating expenses....................... 253,713 162,628 27,668 42,580 -- 20,837 Depreciation and amortization............ 97,151 68,251 6,926 13,768 -- 8,206 General and administrative............... 47,226 18,510 2,366 9,705 -- 16,645 Costs of acquisitions not consummated.... -- -- -- -- -- -- Amortization of officer's deferred compensation expense................... 13,750 -- -- -- -- 13,750 ---------- ---------- --------- --------- --------- --------- Total expenses........................... 411,840 249,389 36,960 66,053 -- 59,438 ---------- ---------- --------- --------- --------- --------- Operating income......................... 287,731 229,614 45,454 43,677 -- (31,014) Income applicable to Alexander's......... 10,055 -- -- -- -- 10,055 Income from partially-owned entities..... 23,612 1,276 (69) 13 6,392(6) 16,000 Interest and other investment income..... 19,577 3,869 157 278 -- 15,273 Interest and debt expense................ (118,137) (69,510) (27,711) (13,870) -- (7,046) Net gain on disposition of wholly-owned and partially-owned assets................................. (3,450) -- -- 1,875 -- (5,325) Minority interest........................ (71,145) (61,681) (6,473) (12,379) 3,304 6,084 ---------- ---------- --------- --------- --------- --------- Income before cumulative effect of change in accounting principle and extraordinary item..................... 148,243 103,568 11,358 19,594 9,696 4,027 Cumulative effect of change in accounting principle................... (30,129) -- -- -- (15,490) (14,639) Extraordinary item....................... -- -- -- -- -- -- ---------- ---------- --------- --------- --------- --------- Net income............................... 118,114 103,568 11,358 19,594 (5,794) (10,612) Cumulative effect of change in accounting principle................... 30,129 -- -- -- 15,490 14,639 Extraordinary item....................... -- -- -- -- -- -- Minority interest........................ 71,145 61,681 6,473 12,379 (3,304) (6,084) Net gain on disposition of wholly-owned and partially-owned assets................................. -- -- -- -- -- -- Interest and debt expense(4)............. 150,492 70,519 28,981 13,870 12,861 24,261 Depreciation and amortization(4)......... 122,935 69,171 7,747 13,768 17,253 14,996 Straight-lining of rents(4).............. (18,263) (14,702) (855) (1,791) -- (915) Other.................................... 75 (2,427) 860 (123) 1,376 389 ---------- ---------- --------- --------- --------- --------- EBITDA(1) $ 474,627 $ 287,810 $ 54,564 $ 57,697 $ 37,882 $ 36,674 ========== ========== ========= ========= ========= ========= - ---------- See footnotes on page 23. <Caption> For the Six Months Ended June 30, ------------------------------------------------------------------------------------- (amounts in thousands) 2001 ------------------------------------------------------------------------------------- Temperature Merchandise Controlled Total Office Retail Mart Logistics Other(2) ---------- ---------- --------- ----------- ----------- --------- <S> <C> <C> <C> <C> <C> <C> Rentals.................................. $ 416,970 $ 228,120 $ 56,901 $ 97,123 $ -- $ 34,826 Expense reimbursements................... 66,635 34,961 23,506 7,831 -- 337 Other income............................. 5,080 1,385 905 1,537 -- 1,253 ---------- ---------- --------- --------- --------- --------- Total revenues........................... 488,685 264,466 81,312 106,491 -- 36,416 ---------- ---------- --------- --------- --------- --------- Operating expenses....................... 197,214 107,445 27,854 42,794 -- 19,121 Depreciation and amortization............ 61,951 35,944 7,007 12,506 -- 6,494 General and administrative............... 36,663 6,007 1,402 9,245 -- 20,009 Costs of acquisitions not consummated.... 5,000 -- -- -- -- 5,000 Amortization of officer's deferred compensation expense................... -- -- -- -- -- -- ---------- ---------- --------- --------- --------- --------- Total expenses........................... 300,828 149,396 36,263 64,545 -- 50,624 ---------- ---------- --------- --------- --------- --------- Operating income......................... 187,857 115,070 45,049 41,946 -- (14,208) Income applicable to Alexander's......... 16,980 -- -- -- -- 16,980 Income from partially-owned entities..... 43,218 17,060 2,392 109 9,669(6) 13,988 Interest and other investment income..... 29,347 4,195 416 1,377 -- 23,359 Interest and debt expense................ (93,389) (31,014) (28,413) (17,986) -- (15,976) Net gain on disposition of wholly-owned and partially-owned assets................................. (2,789) 12,445 3,050 -- -- (18,284) Minority interest........................ (55,663) (28,322) (8,476) (7,769) (5,825) (5,271) ---------- ---------- --------- --------- --------- --------- Income before cumulative effect of change in accounting principle and extraordinary item..................... 125,561 89,434 14,018 17,677 3,844 588 Cumulative effect of change in accounting principle................... (4,110) -- -- -- -- (4,110) Extraordinary item....................... 1,170 -- -- -- -- 1,170 Net income............................... 122,621 89,434 14,018 17,677 3,844 (2,352) Cumulative effect of change in accounting principle................... 4,110 -- -- -- -- 4,110 Extraordinary item....................... (1,170) -- -- -- -- (1,170) ---------- ---------- --------- --------- --------- --------- Minority interest........................ 55,663 28,322 8,476 7,769 5,825 5,271 Net gain on disposition of wholly-owned and partially-owned assets................................. (15,495) (12,445) (3,050) -- -- -- Interest and debt expense(4)............. 140,405 52,306 29,697 17,986 13,486 26,930 Depreciation and amortization(4)......... 93,836 45,636 9,339 12,506 16,811 9,544 Straight-lining of rents(4).............. (14,076) (10,005) (695) (2,388) -- (988) Other.................................... (7,560) (2,220) (1,335) -- 181 (4,186)(5) ---------- ---------- --------- --------- --------- --------- EBITDA(1)................................ $ 378,334 $ 191,028 $ 56,450 $ 53,550 $ 40,147 $ 37,159 ========== ========== ========= ========= ========= ========= </Table> - ---------- See footnotes on page 23. Page 22 <Page> VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 11. SEGMENT INFORMATION- CONTINUED Notes to segment information: (1) EBITDA represents income before interest, taxes, depreciation and amortization, extraordinary or non-recurring items, gains or losses on sales of depreciable real estate, the effect of straight-lining of property rentals for rent escalations and minority interest. Management considers EBITDA a supplemental measure for making decisions and assessing the performance of its segments. EBITDA may not be comparable to similarly titled measures employed by other companies. (2) Other EBITDA is comprised of: <Table> <Caption> (amounts in thousands) For the Three Months For the Six Months Ended June 30, Ended June 30, ----------------------- ----------------------- 2002 2001 2002 2001 --------- --------- --------- --------- <S> <C> <C> <C> <C> Hotel Pennsylvania (3)......................... $ 2,152 $ 6,141 $ 2,906 $ 11,421 Newkirk Joint Ventures: Equity in income of limited partnerships..... 15,500 12,107 30,529 26,708 Interest and other income.................... 2,200 1,590 4,471 3,202 Other partially-owned entities (Alexander's and other)....................................... 6,760 4,834 14,766 9,639 Investment income and other (7)................ 8,163 13,611 17,849 26,193 Palisades (8).................................. (260) -- (260) -- Unallocated general and administrative expenses................................... (6,792) (9,187) (14,512) (16,720) Amortization of Officer's deferred compensation expense.................................... (6,875) -- (13,750) -- Loss on Primestone foreclosure................. (17,671) -- (17,671) -- Net gain on sale of marketable equity securities 12,346 -- 12,346 -- Costs of acquisitions not consummated.......... -- -- -- (5,000) Write-off of investments in technology companies.................................. -- (13,561) -- (18,284) --------- --------- --------- --------- Total................................. $ 15,523 $ 15,535 $ 36,674 $ 37,159 ========= ========= ========= ========= </Table> (3) Average occupancy and REVPAR for the Hotel Pennsylvania was 66% and $59.37 for the three months ended June 30, 2002 compared to 77% and $88.37 for the prior year's quarter. Average occupancy and REVPAR for the Hotel Pennsylvania was 58% and $52.39 for the six months ended June 30, 2002 compared to 67% and $76.54 for the prior year's six months (4) Interest and debt expense, depreciation and amortization and straight-lining of rents included in the reconciliation of net income to EBITDA reflects amounts which are netted in income from partially-owned entities. (5) Includes the elimination of $6,298 representing the Company's share of Alexander's gain on sale of its Fordham Road property on January 12, 2001. (6) Net of rent not recognized of $3,744 and $5,552 for the three and six months ended June 30, 2002 and $2,340 for the three and six months ended June 30, 2001. (7) No income was recognized on the Company's loans to Primestone and Vornado Operating Company for the three and six months ended June 30, 2002. (8) The development of the Palisades residential complex was substantially complete as of March 1, 2002. Accordingly the Company has placed the property into service on March 1, 2002 and discontinued the capitalization of interest and other property specific costs. As of June 30, 2002, the property is 23.8% occupied (128 of the 538 total apartments have been leased). Page 23 <Page> 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 involve risks, uncertainties and assumptions. 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 "believes," "expects," "anticipates," "intends," "plans" or similar expressions in this quarterly report on Form 10-Q. These forward-looking statements are subject to numerous assumptions, risks and uncertainties. Many of the factors that will determine these items are beyond our ability to control or predict. Factors that may cause actual results to differ materially from those contemplated by the forward-looking statements include, but are not limited to, those set forth in our Annual Report on Form 10-K for the year ended December 31, 2001 under "Forward-Looking Statements." For these statements, we claim protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. OVERVIEW Management's Discussion and Analysis of Financial Condition and Results of Operations discusses the Company's consolidated financial statements for the three and six months ended June 30, 2002 and 2001. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management 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. A summary of the Company's significant accounting policies is included in Note 2 -Summary of Significant Accounting Policies to the Company's annual report on Form 10-K for the year ended December 31, 2001. Operating results for the three and six months ended June 30, 2002, reflect the Company's January 1, 2002 acquisition of the remaining 66% of Charles E. Smith Commercial Realty L.P. ("CESCR") and the resulting consolidation of CESCR's operations. See Supplemental Information beginning on page 42 for Condensed Pro Forma Operating Results for the three and six months ended June 30, 2001 giving effect to the CESCR acquisition as if it had occurred on January 1, 2001. Further, the Supplemental Information contains data regarding (i) details of the changes by segment in EBITDA for the three months ended June 30, 2002 compared to the three months ended March 31, 2002, (ii) leasing activity and (iii) pro forma senior unsecured debt covenant compliance ratios. Page 24 <Page> RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2002 AND JUNE 30, 2001 Below is a summary of Net income and EBITDA (1): <Table> <Caption> (amounts in thousands) Three Months Ended June 30, 2002 --------------------------------------------------------------------------------- Temperature Merchandise Controlled Total Office Retail Mart Logistics Other(2) ---------- ---------- ----------- ------------- ------------- ------------- <S> <C> <C> <C> <C> <C> <C> Rentals....................................... $309,869 $213,762 $28,922 $ 52,868 $ -- $ 14,317 Expense reimbursements........................ 36,315 19,949 11,800 3,872 -- 694 Other income.................................. 7,063 5,090 391 1,220 -- 362 ---------- ---------- ----------- ------------- ------------- ------------- Total revenues................................ 353,247 238,801 41,113 57,960 -- 15,373 ---------- ---------- ----------- ------------- ------------- ------------- Operating expenses............................ 126,267 80,395 12,987 21,353 -- 11,532 Depreciation and amortization................. 49,563 34,121 3,546 7,288 -- 4,608 General and administrative.................... 23,759 9,400 1,796 4,894 -- 7,669 Amortization of officer's deferred compensation expense........................ 6,875 -- -- -- -- 6,875 ---------- ---------- ----------- ------------- ------------- ------------- Total expenses................................ 206,464 123,916 18,329 33,535 -- 30,684 ---------- ---------- ----------- ------------- ------------- ------------- Operating income.............................. 146,783 114,885 22,784 24,425 -- (15,311) Income applicable to Alexander's.............. 4,487 -- -- -- -- 4,487 Income from partially-owned entities.......... 9,826 726 (298) 11 1,087(5) 8,300 Interest and other investment income.......... 9,934 2,758 78 143 -- 6,955 Interest and debt expense..................... (60,119) (34,748) (14,018) (6,687) -- (4,666) Net gain on disposition of wholly-owned and partially-owned assets....................... (4,981) -- -- 344 -- (5,325) Minority interest............................. (37,219) (28,976) (2,853) (6,474) (668) 1,752 ---------- ---------- ----------- ------------- ------------- ------------- Income before cumulative effect of change in accounting principle and extraordinary item.. 68,711 54,645 5,693 11,762 419 (3,808) Cumulative effect of change in accounting principle.................................... -- -- -- -- -- -- Extraordinary item............................ -- -- -- -- -- -- ---------- ---------- ----------- ------------- ------------- ------------- Net income.................................... 68,711 54,645 5,693 11,762 419 (3,808) Cumulative effect of change in accounting principle.................................... -- -- -- -- -- -- Extraordinary item............................ -- -- -- -- -- -- Minority interest............................. 37,219 28,976 2,853 6,474 668 (1,752) Net gain on disposition of assets............. -- -- -- -- -- -- Interest and debt expense(4).................. 76,199 35,253 14,653 6,687 6,302 13,304 Depreciation and amortization(4).............. 62,360 34,577 4,097 7,288 8,344 8,054 Straight-lining of rents(4)................... (9,224) (7,392) (426) (742) -- (664) Other......................................... 334 (1,127) 160 -- 912 389 ---------- ---------- ----------- ------------- ------------- ------------- EBITDA(1)..................................... $235,599 $144,932 $27,030 $ 31,469 $ 16,645 $ 15,523 ========== ========== =========== ============= ============= ============= </Table> Page 25 <Page> <Table> <Caption> (amounts in thousands) Three Months Ended June 30, 2001 --------------------------------------------------------------------------------- Temperature Merchandise Controlled Total Office Retail Mart Logistics Other(2) ---------- ---------- ----------- ------------- ------------- ------------- <S> <C> <C> <C> <C> <C> <C> Rentals....................................... $ 212,252 $ 114,260 $ 28,764 $ 50,118 $ -- $ 19,110 Expense reimbursements........................ 31,543 15,920 11,711 3,858 -- 54 Other income.................................. 2,280 813 542 818 -- 107 ---------- ---------- ----------- ------------- ------------- ------------- Total revenues................................ 246,075 130,993 41,017 54,794 -- 19,271 ---------- ---------- ----------- ------------- ------------- ------------- Operating expenses............................ 96,831 51,684 13,002 21,662 -- 10,483 Depreciation and amortization................. 30,086 17,300 3,447 6,064 -- 3,275 General and administrative.................... 22,415 2,637 819 4,650 -- 14,309 Costs of acquisitions not consummated......... -- -- -- -- -- -- ---------- ---------- ----------- ------------- ------------- ------------- Total expenses................................ 149,332 71,621 17,268 32,376 -- 28,067 ---------- ---------- ----------- ------------- ------------- ------------- Operating income.............................. 96,743 59,372 23,749 22,418 -- (8,796) Income applicable to Alexander's.............. 4,676 -- -- -- -- 4,676 Income from partially-owned entities.......... 19,228 8,365 495 (4) 3,721(5) 6,651 Interest and other investment income.......... 15,874 1,897 416 714 -- 12,847 Interest and debt expense..................... (43,994) (14,407) (14,264) (8,317) -- (7,006) Net gain on disposition of wholly-owned and partially-owned assets...................... 1,934 12,445 3,050 -- -- (13,561) Minority interest............................. (28,349) (14,734) (4,349) (4,125) (2,815) (2,326) ---------- ---------- ----------- ------------- ------------- ------------- Income before cumulative effect of change in accounting principle and extraordinary item. 66,112 52,938 9,097 10,686 906 (7,515) Cumulative effect of change in accounting principle................................... -- -- -- -- -- -- Extraordinary item............................ -- -- -- -- -- -- ---------- ---------- ----------- ------------- ------------- ------------- Net income.................................... 66,112 52,938 9,097 10,686 906 (7,515) Minority interest............................. 28,349 14,734 4,349 4,125 2,815 2,326 Net gain on disposition....................... (15,495) (12,445) (3,050) -- -- -- Interest and debt expense(4).................. 67,151 24,859 14,906 8,317 6,773 12,296 Depreciation and amortization(4).............. 45,918 21,992 4,612 6,064 8,403 4,847 Straight-lining of rents(4)................... (6,339) (4,050) (534) (1,280) -- (475) Other......................................... 2,997 (630) (498) -- 69 4,056 ---------- ---------- ----------- ------------- ------------- ------------- EBITDA(1)..................................... $ 188,693 $ 97,398 $ 28,882 $ 27,912 $ 18,966 $ 15,535 ========== ========== =========== ============= ============= ============= </Table> - ---------- (1) EBITDA represents income before interest, taxes, depreciation and amortization, extraordinary or non-recurring items, gains or losses on sales of depreciable real estate, the effect of straight-lining of property rentals for rent escalations and minority interest. Management considers EBITDA a supplemental measure for making decisions and assessing the performance of its segments. EBITDA may not be comparable to similarly titled measures employed by other companies. (2) Other EBITDA is comprised of: <Table> <Caption> (amounts in thousands) For the Three Months Ended June 30, ----------------------------- 2002 2001 ----------- -------------- <S> <C> <C> Hotel Pennsylvania (3)......................................... $ 2,152 $ 6,141 Newkirk Joint Ventures: Equity in income of limited partnerships..................... 15,500 12,107 Interest and other income.................................... 2,200 1,590 Other partially-owned entities (Alexander's and other)......... 6,760 4,834 Investment income and other (6)................................ 8,163 13,611 Palisades (7).................................................. (260) -- Unallocated general and administrative expenses................ (6,792) (9,187) Amortization of Officer's deferred compensation expense........ (6,875) -- Loss on Primestone foreclosure................................. (17,671) -- Net gain on sale of marketable securities...................... 12,346 -- Costs of acquisitions not consummated.......................... -- -- Write-off of investments in technology companies............... -- (13,561) ----------- -------------- Total................................................. $ 15,523 $ 15,535 =========== ============== </Table> (3) Average occupancy and REVPAR for the Hotel Pennsylvania was 66% and $59.37 for the three months ended June 30, 2002 compared to 77% and $88.37 for the prior year's quarter. (4) Interest and debt expense, depreciation and amortization and straight-lining of rents included in the reconciliation of net income to EBITDA reflects amounts which are netted in income from partially-owned entities. (5) Net of rent not recognized of $3,744 and $2,340 for the three months ended June 30, 2002 and 2001. (6) No income was recognized on the Company's loans to Primestone and Vornado Operating Company for the three months ended June 30, 2002. (7) The development of the Palisades residential complex was substantially complete as of March 1, 2002. Accordingly the Company has placed the property into service on March 1, 2002 and discontinued the capitalization of interest and other property specific costs. As of June 30, 2002, the property is 23.8% occupied (128 of the 538 total apartments have been leased). Page 26 <Page> THREE MONTHS ENDED JUNE 30, 2002 AND JUNE 30, 2001 Below are the details of the changes by segment in EBITDA. <Table> <Caption> Temperature Merchandise Controlled (amounts in thousands) Total Office Retail Mart Logistics Other --------- ---------- ---------- ------------- ------------- --------- <S> <C> <C> <C> <C> <C> <C> Three months ended June 30, 2001..... $ 188,693 $ 97,398 $ 28,882 $ 27,912 18,966 $15,535 2002 Operations: Same store operations(1)........ 1,714 4,466 897 1,172 (2,321)(3) (2,500) Acquisitions, dispositions and non-recurring income and expenses..................... 45,192 43,068 (2,749) 2,385 -- 2,488 --------- ----------- ---------- ------------- ------------- --------- Three months ended June 30, 2002..... $ 235,599 $ 144,932(2) $ 27,030 $ 31,469 $ 16,645 $15,523 ========= =========== ========== ============= ============= ========= % increase (decrease) in same store operations.............. 0.9% 4.6%(2) 3.1% 4.2% (12.2%)(3) (16.1%) </Table> - ---------- (1) Represents operations which were owned for the same period in each year and excludes non-recurring income and expenses. (2) EBITDA and the same store percentage increase was $78,073 and 4.8% for the New York City office portfolio and $66,859 and 4.0% for the CESCR portfolio. (3) The Company reflects its 60% share of the Vornado/Crescent Partnerships' ("the Landlord") equity in the rental income it receives from AmeriCold Logistics, its tenant, which leases the underlying temperature controlled warehouses used in its business. Based on the Company's policy of recognizing rental income when earned and collection is assured or cash is received, the Company did not recognize $3,744 of rent it was due for the three months ended June 30, 2002. The tenant has advised the Landlord that (i) its revenue for the quarter ended June 30, 2002 from the warehouses it leases from the Landlord, was higher than last year by 0.4 %, and (ii) its gross profit before rent at these warehouses for the corresponding period decreased by $483 (a 1.3% decrease). The increase in revenue is primarily attributable to higher occupancy rates, offset by a reduction in customer inventory turns. The decrease in gross profit is primarily attributable to higher insurance costs, partially offset by lower payroll expenses. In addition, the tenant's cash requirements for capital expenditures, debt service and pension liability funding were $1,579 higher in the current quarter than in the prior year's quarter, which impacted the ability of the tenant to pay rent. Page 27 <Page> REVENUES The Company's revenues, which consist of property rentals, tenant expense reimbursements, hotel revenues, trade shows revenues and other income, were $353,247,000 for the three months ended June 30, 2002, compared to $246,075,000 in the prior year's quarter, an increase of $107,172,000 of which $99,558,000 resulted from the acquisition of the remaining 66% of CESCR and the resulting consolidation of their operations. Below are the details of the increase (decrease) by segment: <Table> <Caption> (amounts in thousands) Date of Merchandise Acquisition Total Office Retail Mart Other -------------- ----------- ---------- ---------- ------------- ----------- <S> <C> <C> <C> <C> <C> <C> Property rentals: Acquisitions: CESCR (effect of acquisition of 66% and consolidation vs. equity method accounting for 34%).................. January 2002 $ 94,300 $ 94,300 $ -- $ -- $ -- 715 Lexington Avenue........ July 2001 481 481 -- -- -- Hotel activity................. (4,666)(1) -- -- -- (4,666)(1) Trade Shows activity........... 3,439 -- -- 3,439 -- Leasing activity................ 4,063 4,721 158 (689) (127) ---------- -------- ---------- ----------- ---------- Total increase (decrease) in property rentals............ 97,617 99,502 158 2,750 (4,793) ---------- -------- ---------- ----------- ---------- Tenant expense reimbursements: Increase (decrease) due to acquisitions................ 1,817 1,817 -- -- -- Other.......................... 2,955 2,212 89 14 640 ---------- -------- ---------- ----------- ---------- Total increase (decrease) in tenant expense reimbursements...... 4,772 4,029 89 14 640 ---------- -------- ---------- ----------- ---------- Other Income: Increase due to acquisitions... 3,441 3,441 -- -- -- Other.......................... 1,342 836 (151) 402 255 ---------- -------- ---------- ----------- ---------- Total increase (decrease) in other income...................... 4,783 4,277 (151) 402 255 ---------- -------- ---------- ----------- ---------- Total increase (decrease) in revenues.................... $ 107,172 $107,808 $ 96 $ 3,166 $(3,898) ========== ======== ========== =========== ========== </Table> - ---------- (1) Average occupancy and REVPAR for the Hotel Pennsylvania was 66% and $59.37 for the three months ended June 30, 2002 compared to 77 % and $88.37 for the prior year's quarter. See supplemental information beginning on page 42 for further details. Page 28 <Page> EXPENSES The Company's expenses were $206,464,000 for the three months ended June 30, 2002, compared to $149,332,000 in the prior year's quarter, an increase of $57,132,000 of which $47,481,000 resulted from the acquisition of the remaining 66% of CESCR and the resulting consolidation of their operations. Below are the details of the increase (decrease) by segment: <Table> <Caption> (amounts in thousands) Merchandise Total Office Retail Mart Other ------------ ----------- ----------- ------------ ------------ <S> <C> <C> <C> <C> <C> Operating: Acquisitions: CESCR (effect of acquisition of 66% and consolidation vs. equity method accounting for 34%)....................... $ 25,841 $ 25,841 $ -- $ -- $ -- 715 Lexington Avenue........................ 251 251 -- -- -- Hotel activity.............................. (252) -- -- -- (252) Trade Shows activity........................ 505 -- -- 505 -- Same store operations....................... 3,091 2,619 (15) (814) 1,301 ------------ ----------- ----------- ------------ ----------- 29,436 28,711 (15) (309) 1,049 ------------ ----------- ----------- ------------ ----------- Depreciation and amortization: Acquisitions ............................. 15,635 15,635 -- -- -- Same store operations .................... 3,842 1,186 99 1,224 1,333 ------------ ----------- ----------- ------------ ----------- 19,477 16,821 99 1,224 1,333 ------------ ----------- ----------- ------------ ----------- General and administrative: Appreciation in value of Vornado shares and other securities held in officers' deferred compensation trust in the three months ended June 30, 2001 ............. (4,021) -- -- -- (4,021) Acquisitions ............................. 6,005 6,005 -- -- -- Other expenses ........................... (640) 758 977 244 (2,619)(1) ------------ ----------- ----------- ------------ ----------- Total increase (decrease) in general and administrative ......................... 1,344 6,763 977 244 (6,640) ------------ ----------- ----------- ------------ ----------- Amortization of officer's deferred compensation expense ..................... 6,875 -- -- -- 6,875 ------------ ----------- ----------- ------------ ----------- $ 57,132 $ 52,295 $ 1,061 $ 1,159 $ 2,617 ============ =========== =========== ============ =========== </Table> ---------- (1) Primarily results from lower professional fees. INCOME APPLICABLE TO ALEXANDER'S Income applicable to Alexander's (loan interest income, management, leasing, development and commitment fees, and equity in income) was $4,487,000 in the three months ended June 30, 2002, compared to $4,676,000 in the prior year's quarter, a decrease of $189,000. This decrease resulted from Alexander's recognizing stock appreciation rights compensation expense of $4,236,000 in the current quarter, of which the Company's share is $1,402,000; partially offset by higher development fees. 29 <Page> INCOME FROM PARTIALLY-OWNED ENTITIES In accordance with accounting principles generally accepted in the United States, the Company reflects the income it receives from (i) entities it owns less than 50% of and (ii) entities it owns more than 50% of, but which have a partner who exercises significant control, on the equity method of accounting resulting in such income appearing on one line in the Company's consolidated statements of income. Below is the detail of income from partially-owned entities by investment as well as the increase (decrease) in income of partially-owned entities for the three months ended June 30, 2002 as compared to the prior year's quarter: <Table> <Caption> (amounts in thousands) Starwood Temperatur Newkirk Las Ceruzzi Partially- Controlled Joint Catalinas Joint Owned Office Total CESCR Logistics Venture Mall Venture Buildings Other ---------- ----------- ---------- ---------- ---------- ---------- ------------ -------- <S> <C> <C> <C> <C> <C> <C> <C> <C> JUNE 30, 2002: Revenues ........... $ 115,347 $ 29,143 $ 72,707 $ 3,937 $ 117 $ 9,443 Expenses: Operating, general and administrative . (8,597) (2,302) (912) (1,030) (363) (3,990) Depreciation ..... (29,447) (14,870) (12,516) (501) (261) (1,299) Interest expense ........ (44,583) (10,941) (30,629) (1,476) -- (1,537) Other, net ....... (2,671) (1,987) (336) -- (400) 52 ---------- ---------- ---------- ---------- ---------- ------------ Net income/(loss) .. $ 30,049 $ (957) $ 28,314 $ 930 $ (907) $ 2,669 ========== ========== ========== ========== ========== ============ Vornado's interest ........ 60% 21% 50% 80% 25% Equity in net income .......... $ 5,839 $ (574) $ 5,974 $ 428 $ (726) $ 673 $ 64 Interest and other income .... 2,476 150 2,326 -- -- -- -- Fee income ......... 1,511 1,511 -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- ------------ --------- Income from partially-owned entities ........ $ 9,826 $ --(1) $ 1,087 $ 8,300 $ 428 $ (726) $ 673 $ 64 ========== =========== ========== ========== ========== ========== ============ ========= JUNE 30, 2001: Revenues $ 214,090 $ 94,755 $ 30,465 $ 73,114 $ 4,115 $ 414 $ 11,227 Expenses: Operating, general and administrative . (44,964) (33,285) (1,839) (3,505) (1,119) (169) (5,047) Depreciation ..... (43,385) (13,168) (14,471) (14,264) (491) (289) (702) Interest expense ........ (77,098) (28,417) (11,519) (33,574) (1,491) -- (2,097) Other, net ....... 1,157 188 471 (158) (1) 657 ---------- ----------- ---------- ---------- ---------- ---------- ------------ Net income/(loss) .. $ 49,800 $ 20,073 $ 3,107 $ 21,613 $ 1,014 $ (45) $ 4,038 ========== =========== ========== ========== ========== ========== ============ Vornado's interest ........ 34% 60% 30% 50% 80% 38% Equity in net income .......... 15,895 $ 6,828 $ 1,863 $ 6,484 $ 531 $ (36) $ 1,537 $ (1,312) Interest and other income $ 1,834 -- 359 1,475 -- -- -- -- Fee income ......... 1,499 -- 1,499 -- -- -- -- -- ---------- ----------- ---------- ---------- ---------- ---------- ------------ --------- Income from partially-owned entities ........ $ 19,228 $ 6,828 $ 3,721 $ 7,959 $ 531 $ (36) $ 1,537 $ (1,312) ========== =========== ========== ========== ========== ========== ============ ========= (DECREASE) INCREASE IN INCOME FROM PARTIALLY-OWNED ENTITIES $ (9,402) $ (6,828)(1)$ (2,634) $ 341 $ (103) $ (690) $ (864)(2) $ 1,376(3) ========== =========== ========== ========== ========== ========== ============ ========= </Table> - ---------- (1) On January 1, 2002, the Company acquired the remaining 66% of CESCR it did not previously own. Accordingly, CESCR is consolidated as of January 1, 2002. (2) The quarter ended June 30, 2002 excludes 570 Lexington Avenue which was sold in May 2001. (3) The prior year's quarter includes $720 for the Company's share of equity in loss of its Russian Tea Room ("RTR") investment. In the third quarter of 2001, the Company wrote-off its entire net investment in RTR based on the operating losses and an assessment of the value of the real estate. Page 30 <Page> INTEREST AND OTHER INVESTMENT INCOME Interest and other investment income (interest income on mortgage loans receivable, other interest income, and dividend income) was $9,934,000 for the three months ended June 30, 2002, compared to $15,874,000 in the prior year's quarter, a decrease of $5,940,000. Of this decrease (i) $956,000 resulted from the lower yield on the investment of the proceeds received from the repayment of its loan to NorthStar Partnership, L.P. in May 2002, (ii) $3,751,000 resulted from not recognizing income on its loans to Primestone and Vornado Operating Company (See "Liquidity and Capital Resources -- Vornado Operating Company") for the three months ended June 30, 2002 and (iii) $1,233,000 resulted from lower yields on other investments. INTEREST AND DEBT EXPENSE Interest and debt expense was $60,119,000 for the three months ended June 30, 2002, compared to $43,994,000 in the prior year's quarter, an increase of $16,125,000. This increase was primarily comprised of (i) $24,375,000 from the acquisition of the remaining 66% of CESCR and the resulting consolidation of their operations, partially offset by (ii) a $8,250,000 savings from a 227 basis point reduction in weighted average interest rates of the Company's variable rate debt and (iii) lower average outstanding debt balances. NET GAIN (LOSS) ON DISPOSITION OF WHOLLY-OWNED AND PARTIALLY-OWNED ASSETS The following table sets forth the details of net (loss) gain on disposition of wholly-owned and partially-owned assets for the three months ended June 30, 2002 and 2001: <Table> <Caption> (amounts in thousands) For the Three Months Ended June 30, ---------------------------- 2002 2001 ----------- ----------- <S> <C> <C> Wholly-owned Assets: Loss on Primestone foreclosure...................... $ (17,671) $ -- Gain on sale of Kinzie Park condominiums units...... 344 -- Net gain on sale of marketable securities........... 12,346 3,050 Write-off of investments in technology companies.... -- (13,561) Partially-owned Assets: Net gain on sale of 50% interest in 570 Lexington Avenue ........................................... -- 12,445 ----------- ---------- $ (4,981) $ 1,934 =========== ========== </Table> INVESTMENT IN PRIMESTONE On September 28, 2000, the Company made a $62,000,000 loan to Primestone Investment Partners, L.P. ("Primestone"). The Company received a 1% upfront fee and was entitled to receive certain other fees aggregating approximately 3% upon repayment of the loan. The loan bore interest at 16% per annum. Primestone defaulted on the repayment of this loan on October 25, 2001. The loan was subordinate to $37,957,000 of other debt of the borrower. On October 31, 2001, the Company purchased the other debt for its face amount. The loans were secured by 7,944,893 partnership units in Prime Group Realty, L.P., the operating partnership of Prime Group Realty Trust (NYSE:PGE) and the partnership units are exchangeable for the same number of common shares of PGE. The loans are also guaranteed by affiliates of Primestone. Page 31 <Page> On November 19, 2001, the Company sold, pursuant to a participation agreement with a subsidiary of Cadim inc., a Canadian pension fund, a 50% participation in both loans at par for approximately $50,000,000 reducing the Company's net investment in the loans at December 31, 2001 to $56,768,000 including unpaid interest and fees of $6,790,000. On April 30, 2002, the Company and Cadim acquired the 7,944,893 partnership units at a foreclosure auction. The price paid for the units by application of a portion of Primestone's indebtedness to the Company and Cadim was $8.35 per unit, the April 30, 2002 PGE closing price on The New York Stock Exchange. On June 28, 2002, pursuant to the terms of the participation agreement, the Company transferred 3,972,447 of the partnership units to Cadim. In the second quarter, in accordance with foreclosure accounting, the Company recorded a loss on the Primestone foreclosure of $17,671,000 calculated based on (i) the acquisition price of the units and (ii) its valuation of the amounts realizable under the guarantees by affiliates of Primestone, as compared with the net carrying amount of the investment at April 30, 2002. At June 30, 2002, the Company's carrying amount of the investment was $40,270,000, of which $33,170,000 represents the carrying amount of the 3,972,447 partnership units owned by the Company ($8.35 per unit) and $7,100,000 represents the amount realizable under the guarantees (see Note 5. Investments in and Advances to Partially-Owned Entities). At July 30, 2002, PGE's closing stock price on the New York Stock Exchange was $5.43 per share. The ultimate realization of the Company's investment will depend upon the future performance of the Chicago real estate market and the performance of PGE, as well as the ultimate realizable value of the net assets supporting the guarantees and the Company's ability to collect under the guarantees. The Company will continue to monitor this investment to determine whether additional write-downs are required based on (i) declines in value of the PGE stock (for which the partnership units are exchangeable) which are "other than temporary" as used in accounting literature and (ii) the realizable value of the guarantees. Page 32 <Page> SIX MONTHS ENDED JUNE 30, 2002 AND JUNE 30, 2001 Below is a summary of Net income and EBITDA (1): <Table> <Caption> (amounts in thousands) Six Months Ended June 30, 2002 ----------------------------------------------------------------------------- Temperature Merchandise Controlled Total Office Retail Mart Logistics Other(2) --------- --------- --------- --------- --------- --------- <S> <C> <C> <C> <C> <C> <C> Rentals ............................. $ 611,629 $ 427,574 $ 57,992 $ 99,878 $ -- $ 26,185 Expense reimbursements .............. 74,119 41,356 23,817 7,215 -- 1,731 Other income ........................ 13,823 10,073 605 2,637 -- 508 --------- --------- --------- --------- --------- --------- Total revenues ...................... 699,571 479,003 82,414 109,730 -- 28,424 --------- --------- --------- --------- --------- --------- Operating expenses .................. 253,713 162,628 27,668 42,580 -- 20,837 Depreciation and amortization ....... 97,151 68,251 6,926 13,768 -- 8,206 General and administrative .......... 47,226 18,510 2,366 9,705 -- 16,645 Amortization of officer's deferred compensation expense ............. 13,750 -- -- -- -- 13,750 --------- --------- --------- --------- --------- --------- Total expenses ...................... 411,840 249,389 36,960 66,053 -- 59,438 --------- --------- --------- --------- --------- --------- Operating income .................... 287,731 229,614 45,454 43,677 -- (31,014) Income applicable to Alexander's .... 10,055 -- -- -- -- 10,055 Income from partially-owned entities 23,612 1,276 (69) 13 6,392(6) 16,000 Interest and other investment income 19,577 3,869 157 278 -- 15,273 Interest and debt expense ........... (118,137) (69,510) (27,711) (13,870) -- (7,046) Net gain on disposition of wholly-owned and partially-owned assets ........................... (3,450) -- -- 1,875 -- (5,325) Minority interest ................... (71,145) (61,681) (6,473) (12,379) 3,304 6,084 --------- --------- --------- --------- --------- --------- Income before cumulative effect of change in accounting principle and extraordinary item ........... 148,243 103,568 11,358 19,594 9,696 4,027 Cumulative effect of change in accounting principle ............. (30,129) -- -- -- (15,490) (14,639) Extraordinary item .................. -- -- -- -- -- -- --------- --------- --------- --------- --------- --------- Net income .......................... 118,114 103,568 11,358 19,594 (5,794) (10,612) Cumulative effect of change in accounting principle ............. 30,129 -- -- -- 15,490 14,639 Extraordinary item .................. -- -- -- -- -- -- Minority interest ................... 71,145 61,681 6,473 12,379 (3,304) (6,084) Net gain on disposition of assets ... -- -- -- -- -- -- Interest and debt expense(4) ........ 150,492 70,519 28,981 13,870 12,861 24,261 Depreciation and amortization(4) .... 122,935 69,171 7,747 13,768 17,253 14,996 Straight-lining of rents(4) ......... (18,263) (14,702) (855) (1,791) -- (915) Other ............................... 75 (2,427) 860 (123) 1,376 389 --------- --------- --------- --------- --------- --------- EBITDA(1) ........................... $ 474,627 $ 287,810 $ 54,564 $ 57,697 $ 37,882 $ 36,674 ========= ========= ========= ========= ========= ========= </Table> Page 33 <Page> <Table> <Caption> (amounts in thousands) Six Months Ended June 30, 2001 ----------------------------------------------------------------------------- Temperature Merchandise Controlled Total Office Retail Mart Logistics Other(2) --------- --------- --------- ----------- ----------- --------- <S> <C> <C> <C> <C> <C> <C> Rentals ...................... $ 416,970 $ 228,120 $ 56,901 $ 97,123 $ -- $ 34,826 Expense reimbursements ....... 66,635 34,961 23,506 7,831 -- 337 Other income ................. 5,080 1,385 905 1,537 -- 1,253 --------- --------- --------- --------- --------- --------- Total revenues ............... 488,685 264,466 81,312 106,491 -- 36,416 --------- --------- --------- --------- --------- --------- Operating expenses ........... 197,214 107,445 27,854 42,794 -- 19,121 Depreciation and amortization 61,951 35,944 7,007 12,506 -- 6,494 General and administrative ... 36,663 6,007 1,402 9,245 -- 20,009 Costs of acquisitions not consummated ............... 5,000 -- -- -- -- 5,000 --------- --------- --------- --------- --------- --------- Total expenses ............... 300,828 149,396 36,263 64,545 -- 50,624 --------- --------- --------- --------- --------- --------- Operating income ............. 187,857 115,070 45,049 41,946 -- (14,208) Income applicable to Alexander's ............... 16,980 -- -- -- -- 16,980 Income from partially-owned entities .................. 43,218 17,060 2,392 109 9,669(6) 13,988 Interest and other investment income .................... 29,347 4,195 416 1,377 -- 23,359 Interest and debt expense .... (93,389) (31,014) (28,413) (17,986) -- (15,976) Net gain on disposition of wholly-owned and partially-owned assets .... (2,789) 12,445 3,050 -- -- (18,284) Minority interest ............ (55,663) (28,322) (8,476) (7,769) (5,825) (5,271) --------- --------- --------- --------- --------- --------- Income before cumulative effect of change in accounting principle and extraordinary item ........ 125,561 89,434 14,018 17,677 3,844 588 Cumulative effect of change in accounting principle ... (4,110) -- -- -- -- (4,110) Extraordinary item ........... 1,170 -- -- -- -- 1,170 --------- --------- --------- --------- --------- --------- Net income ................... 122,621 89,434 14,018 17,677 3,844 (2,352) Cumulative effect of change in accounting principle ...... 4,110 -- -- -- -- 4,110 Extraordinary item ........... (1,170) -- -- -- -- (1,170) Minority interest ............ 55,663 28,322 8,476 7,769 5,825 5,271 Net gain on disposition of wholly-owned and partially-owned assets .... (15,495) (12,445) (3,050) -- -- -- Interest and debt expense(4) . 140,405 52,306 29,697 17,986 13,486 26,930 Depreciation and amortization(4) ........... 93,836 45,636 9,339 12,506 16,811 9,544 Straight-lining of rents(4) .. (14,076) (10,005) (695) (2,388) -- (988) Other ........................ (7,560) (2,220) (1,335) -- 181 (4,186)(5) --------- --------- --------- --------- --------- --------- EBITDA(1) .................... $ 378,334 $ 191,028 $ 56,450 $ 53,550 $ 40,147 $ 37,159 ========= ========= ========= ========= ========= ========= </Table> - ---------- (1) EBITDA represents income before interest, taxes, depreciation and amortization, extraordinary or non-recurring items, gains or losses on sales of depreciable real estate, the effect of straight-lining of property rentals for rent escalations and minority interest. Management considers EBITDA a supplemental measure for making decisions and assessing the performance of its segments. EBITDA may not be comparable to similarly titled measures employed by other companies. (2) Other EBITDA is comprised of: <Table> <Caption> (amounts in thousands) For the Six Months Ended June 30, ----------------------------- 2002 2001 ------------- ------------- <S> <C> <C> Hotel Pennsylvania (3)......................................... $ 2,906 $ 11,421 Newkirk Joint Ventures: Equity in income of limited partnerships..................... 30,529 26,708 Interest and other income.................................... 4,471 3,202 Other partially-owned entities (Alexander's and other)......... 14,766 9,639 Investment income and other (7)................................ 17,849 26,193 Palisades...................................................... (260) -- Unallocated general and administrative expenses................ (14,512) (16,720) Amortization of Officer's deferred compensation expense........ (13,750) -- Loss on Primestone foreclosure................................. (17,671) -- Net gain on sale of marketable securities...................... 12,346 -- Costs of acquisitions not consummated.......................... -- (5,000) Write-off of investments in technology companies............... -- (18,284) --------- ---------- Total................................................. $ 36,674 $ 37,159 ========== ========== </Table> (3) Average occupancy and REVPAR for the Hotel Pennsylvania was 58% and $52.39 for the six months ended June 30, 2002 compared to 67% and $76.54 for the prior year's six months. (4) Interest and debt expense, depreciation and amortization and straight-lining of rents included in the reconciliation of net income to EBITDA reflects amounts which are netted in income from partially-owned entities. (5) Includes the elimination of $6,298 representing the Company's share of Alexander's gain on sale of its Fordham Road property on January 12, 2001. (6) Net of rent not recognized of $5,552 and $2,340 for the six months ended June 30, 2002 and 2001. (7) No income was recognized on the Company's loans to Primestone and Vornado Operating Company for the six months ended June 30, 2002. Page 34 <Page> RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2002 AND JUNE 30, 2001 Below are the details of the changes by segment in EBITDA. <Table> <Caption> Temperature Merchandise Controlled (amounts in thousands) Total Office Retail Mart Logistics Other --------- --------- -------- ----------- ------------ -------- <S> <C> <C> <C> <C> <C> <C> Six months ended June 30, 2001....... $ 378,334 $ 191,028 $ 56,450 $ 53,550 $ 40,147 $ 37,159 2002 Operations: Same store operations(1)......... 10,418 11,245 1,764 2,272 (2,265)(3) (2,598) Acquisitions, dispositions and non-recurring income and expenses 85,875 85,537 (3,650) 1,875 -- 2,113 --------- --------- -------- ----------- ------------ -------- Six months ended June 30, 2002....... $ 474,627 $ 287,810(2) $ 54,564 $ 57,697 $ 37,882 $ 36,674 ========= ========= ======== =========== ============ ======== % increase (decrease) in same store operations.............. 2.8% 5.9%(2) 3.1% 4.2% (5.6%)(3) (7.0%) </Table> - ---------- (1) Represents operations which were owned for the same period in each year and excludes non-recurring income and expenses. (2) EBITDA and the same store percentage increase was $155,171 and 6.8% for the New York City office portfolio and $132,639 and 2.7% for the CESCR portfolio. (3) The Company reflects its 60% share of the Vornado/Crescent Partnerships' ("the Landlord") equity in the rental income it receives from AmeriCold Logistics, its tenant, which leases the underlying temperature controlled warehouses used in its business. Based on the Company's policy of recognizing rental income when earned and collection is assured or cash is received, the Company did not recognize $5,552 of rent it was due for the six months ended June 30, 2002. The tenant has advised the Landlord that (i) its revenue for the six months ended June 30, 2002 from the warehouses it leases from the Landlord, is lower than last year by 0.9%, and (ii) its gross profit before rent at these warehouses for the corresponding period decreased by $116 (a 0.1% decrease). The decrease in revenue is primarily attributable to a reduction in customer inventory turns. The decrease in gross profit is primarily attributable to higher insurance costs partially offset by lower payroll expenses. In addition, the tenant's cash requirements for capital expenditures, debt service and pension liability funding were $1,853 higher in the current six month period than in the prior year's six months, which impacted the ability of the tenant to pay rent. Page 35 <Page> REVENUES The Company's revenues, which consist of property rentals, tenant expense reimbursements, hotel revenues, trade shows revenues and other income were $699,571,000 for the six months ended June 30, 2002, compared to $488,685,000 in the six months ended June 30, 2001, an increase of $210,886,000 of which $199,419,000 resulted from the acquisition of the remaining 66% of CESCR and the resulting consolidation of their operations. Below are the details of the increase (decrease) by segment: <Table> <Caption> (amounts in thousands) Date of Merchandise Property rentals: Acquisition Total Office Retail Mart Other ---------------- ----------- --------- ------------ ----------- ----------- <S> <C> <C> <C> <C> <C> <C> Acquisitions: CESCR (effect of acquisition of 66% and consolidation vs. equity method accounting for 34%)................... January 2002 $ 187,776 $ 187,776 $ -- $ -- $ -- 715 Lexington Avenue........ July 2001 939 939 -- -- -- Hotel activity................. (7,939)(1) -- -- -- (7,939)(1) Trade Shows activity........... 1,117 -- -- 1,117 -- Leasing activity............... 12,766 10,739 1,091 1,638 (702) ----------- --------- ------------ ----------- ----------- Total increase (decrease) in property rentals............. 194,659 199,454 1,091 2,755 (8,641) ----------- --------- ------------ ----------- ----------- Tenant expense reimbursements: Increase (decrease) due to acquisitions/dispositions.... 4,200 4,200 -- -- -- Other.......................... 3,284 2,195 311 (616) 1,394 ----------- --------- ------------ ----------- ----------- Total increase (decrease) in tenant expense reimbursements...... 7,484 6,395 311 (616) 1,394 ----------- --------- ------------ ----------- ----------- Other Income: Increase due to acquisitions/dispositions.... 7,443 7,443 -- -- Other.......................... 1,300 1,245 (300) 1,100 (745) ----------- --------- ------------ ----------- ----------- Total increase (decrease) in other income....................... 8,743 8,688 (300) 1,100 (745) ----------- --------- ------------ ----------- ----------- Total increase (decrease) in revenues..................... $ 210,886 $ 214,537 $ 1,102 $ 3,239 $ (7,992) =========== ========= ============ =========== =========== </Table> - ---------- (1) Average occupancy and REVPAR for the Hotel Pennsylvania was 58% and $52.39 for the six months ended June 30, 2002 compared to 67% and $76.54 for the prior year's six months. See supplemental information beginning on page 42 for further details. Page 36 <Page> EXPENSES The Company's expenses were $411,840,000 for the six months ended June 30, 2002, compared to $300,828,000 in the six months ended June 30, 2001, an increase of $111,012,000 of which $95,526,000 resulted from the acquisition of the remaining 66% of CESCR and the resulting consolidation of their operations. Below are the details of the increase (decrease) by segment: (amounts in thousands) <Table> <Caption> Merchandise Total Office Retail Mart Other ------------- ----------- --------- ------------ ----------- <S> <C> <C> <C> <C> <C> Operating: Acquisitions: CESCR (effect of acquisition of 66% and consolidation vs. equity method accounting for 34%)...................... $ 52,815 $ 52,815 $ -- $ -- $ -- 715 Lexington Avenue............ 509 509 -- -- -- Hotel activity.................. (486) -- -- -- (486) Trade Shows activity............ 172 -- -- 172 -- Same store operations........... 3,489 1,859 (186) (386) 2,202 ------------- ----------- --------- ------------ ----------- 56,499 55,183 (186) (214) 1,716 ------------- ----------- --------- ------------ ----------- Depreciation and amortization: Acquisitions.................... 31,215 31,215 -- -- -- Same store operations........... 3,985 1,092 (81) 1,262 1,712 ------------- ----------- --------- ------------ ----------- 35,200 32,307 (81) 1,262 1,712 ------------- ----------- --------- ------------ ----------- General and administrative: Appreciation in value of Vornado shares and other securities held in officers' deferred compensation trust in the six months ended June 30, 2001.................. (739) -- -- -- (739) Acquisitions................... 11,496 11,496 -- -- -- Other expenses.................. (194) 1,007 964 460 (2,625) ------------- ----------- --------- ------------ ----------- Total increase (decrease) in general and administrative..... 10,563 12,503 964 460 (3,364) ------------- ----------- --------- ------------ ----------- Amortization of officer's deferred compensation expense.... 13,750 -- -- -- 13,750 ------------- ----------- --------- ------------ ----------- Costs of acquisitions not consummated...................... (5,000) -- -- -- (5,000) ------------- ----------- --------- ------------ ----------- $ 111,012 $ 99,993 $ 697 $ 1,508 $ 8,814 ============= =========== ========= ============ =========== </Table> INCOME APPLICABLE TO ALEXANDER'S Income applicable to Alexander's (loan interest income, management, leasing, development and commitment fees, and equity in income) was $10,055,000 in the six months ended June 30, 2002, compared to $16,980,000 in the six months ended June 30, 2001, a decrease of $6,925,000. This decrease resulted primarily from (i) the Company's $6,298,000 share of Alexander's gain on the sale of its Fordham Road property in the prior year's six months and (ii) the Company's $1,402,000 share of Alexander's stock appreciation rights compensation expense in the current quarter. Page 37 <Page> INCOME FROM PARTIALLY-OWNED ENTITIES In accordance with accounting principles generally accepted in the United States, the Company reflects the income it receives from (i) entities it owns less than 50% of and (ii) entities it owns more than 50% of, but which have a partner who exercises significant control, on the equity method of accounting resulting in such income appearing on one line in the Company's consolidated statements of income. Below is the detail of income from partially-owned entities by investment as well as the increase (decrease) in income of partially-owned entities for the six months ended June 30, 2002 as compared to the prior year: <Table> <Caption> (amounts in thousands) Temperature Newkirk Las Controlled Joint Catalinas Total CESCR Logistics Venture Mall ---------- --------- ----------- --------- --------- <S> <C> <C> <C> <C> <C> JUNE 30, 2002: Revenues..................... $ 234,857 $ 62,709 $ 146,050 $ 7,329 Expenses: Operating, general and administrative........... (19,616) (4,217) (4,578) (1,939) Depreciation............... (60,373) (29,686) (26,498) (1,032) Interest expense........... (88,050) (21,873) (60,594) (2,519) Other, net................. (1,556) (1,805) (336) -- ---------- ---------- --------- --------- Net income/(loss)............ $ 65,262 $ 5,128(2) $ 54,044 $ 1,839 ========== ========== ========= ========= Vornado's interest........... 60% 21% 50% Equity in net income......... $ 15,700 $ 3,077 $ 11,403 $ 937 Interest and other income.... 4,903 306 4,597 -- Fee income................... 3,009 3,009 -- -- ---------- ---------- --------- --------- Income from partially-owned entities.................... $ 23,612 $ --(1) $ 6,392 $ 16,000 $ 937 ========== ========= ========== ========= ========= JUNE 30, 2001: Revenues..................... $ 430,355 $ 188,692 $ 64,961 $ 143,808 $ 7,206 Expenses: Operating, general and administrative.......... (88,137) (63,949) (4,071) (6,875) (1,823) Depreciation............... (86,603) (25,292) (29,113) (27,979) (1,007) Interest expense........... (154,045) (57,811) (22,935) (65,857) (2,546) Other, net................. 3,515 111 1,110 (677) -- ---------- --------- ---------- --------- --------- Net income/(loss)............ $ 105,085 $ 41,751 $ 9,952 $ 42,420 $ 1,830 ========== ========= ========== ========= ========= Vornado's interest........... 34% 60% 30% 50% Equity in net income......... $ 36,318 $ 14,195 $ 5,971 $ 12,726 $ 939 Interest and other income.... 3,917 -- 715 3,202 -- Fee income................... 2,983 -- 2,983 -- -- ---------- --------- ---------- --------- --------- Income from partially-owned entities................... $ 43,218 $ 14,195 $ 9,669 $ 15,928 $ 939 ========== ========= ========== ========= ========= (DECREASE) INCREASE IN INCOME FROM PARTIALLY-OWNED ENTITIES................. $ (19,606) (14,195)(1) $ (3,277) $ 72 $ (2) ========== ========= ========== ========= ========= <Caption> (amounts in thousands) Starwood Partially- Ceruzzi Owned Joint Office Venture Buildings Other -------- --------- ------- <S> <C> <C> <C> JUNE 30, 2002: Revenues..................... $ 117 $ 18,652 Expenses: Operating, general and administrative........... (913) (7,969) Depreciation............... (523) (2,634) Interest expense........... -- (3,064) Other, net................. 62 523 -------- -------- Net income/(loss)............ $ (1,257) $ 5,508 ======== ======== Vornado's interest........... 80% 22% Equity in net income......... $ (1,006) $ 1,237 $ 52 Interest and other income.... -- -- -- Fee income................... -- -- -- -------- -------- ------- Income from partially-owned entities.................... (1,006) $ 1,237 $ 52 ======== ======== ======= JUNE 30, 2001: Revenues..................... $ 800 $ 24,888 Expenses: Operating, general and administrative.......... (406) (11,013) Depreciation............... (321) (2,891) Interest expense........... -- (4,896) Other, net................. 1,743 1,228 -------- -------- Net income/(loss)............ $ 1,816 $ 7,316 ======== ======== Vornado's interest........... 80% 39% Equity in net income......... $ 1,453 $ 2,865 $(1,831) Interest and other income.... -- -- -- Fee income................... -- -- -- -------- -------- ------- Income from partially-owned entities................... $ 1,453 $ 2,865 $(1,831)(5) ======== ======== ======= (DECREASE) INCREASE IN INCOME FROM PARTIALLY-OWNED ENTITIES................. (2,459)(3) $ (1,628)(4) $ 1,883(5) ======= ======== ======= </Table> - ---------- (1) On January 1, 2002, the Company acquired the remaining 66% of CESCR it did not previously own. Accordingly, CESCR is consolidated as of January 1, 2002. (2) Excludes the write-off of goodwill of $25,817 upon the adoption of SFAS 142 - "Goodwill and Other Intangible Assets." The Company's share of this write-off of $15,490 is reflected as a cumulative effect of change in accounting principle on the Company's Consolidated Statements of Income. (3) The prior year's six months includes $1,300 for the Company's share of a gain on sale of a property. (4) The six months ended June 30, 2002 excludes 570 Lexington Avenue which was sold in May 2001. (5) The prior year's six months includes $1,352 for the Company's share of equity in loss of its Russian Tea Room ("RTR") investment. In the third quarter of 2001, the Company wrote-off its entire net investment in RTR based on the operating losses and an assessment of the value of the real estate. Page 38 <Page> INTEREST AND OTHER INVESTMENT INCOME Interest and other investment income (interest income on mortgage loans receivable, other interest income, and dividend income) was $19,577,000 for the six months ended June 30, 2002, compared to $29,347,000 in the six months ended June 30, 2001, a decrease of $9,770,000. Of this decrease (i) $1,244,000 resulted from the lower yield on the investment of the proceeds received from the repayment of it's loan to NorthStar Partnership, L.P. in May 2002, (ii) $7,599,000 resulted primarily from the Company not recognizing income on its loans to Primestone and Vornado Operating Company (See "Liquidity and Capital Resources -- Vornado Operating Company") for the six months ended June 30, 2002 and (iii) $927,000 resulted from lower yields on other investments. INTEREST AND DEBT EXPENSE Interest and debt expense was $118,137,000 for the six months ended June 30, 2002, compared to $93,389,000 in the six months ended June 30, 2001, an increase of $24,748,000. This increase was primarily comprised of (i) $49,404,000 from the acquisition of the remaining 66% of CESCR and the resulting consolidation of their operations, partially offset by (ii) a $24,656,000 savings from a 282 basis point reduction in weighted average interest rates of the Company's variable rate debt and (iii) lower average outstanding debt balances. NET GAIN (LOSS) ON DISPOSITION OF WHOLLY-OWNED AND PARTIALLY-OWNED ASSETS The following table sets forth the details of net (loss) gain on disposition of wholly-owned and partially-owned assets for the six months ended June 30, 2002 and 2001: <Table> <Caption> (amounts in thousands) For the Six Months Ended June 30, -------------------------- 2002 2001 ------------ ---------- <S> <C> <C> Wholly-owned Assets: Loss on Primestone foreclosure..................... $ (17,671) $ -- Gain on sale of Kinzie Park condominiums units..... 1,875 -- Net gain on sale of marketable securities.......... 12,346 -- Net gain from condemnation proceedings............. -- 3,050 Write-off of investments in technology companies... -- (18,284) Partially-owned Assets: Net gain on sale of 50% interest in 570 Lexington Avenue.......................................... -- 12,445 ----------- ---------- $ (3,450) $ (2,789) =========== ========== </Table> Page 39 <Page> LIQUIDITY AND CAPITAL RESOURCES SIX MONTHS ENDED JUNE 30, 2002 Cash flow provided by operating activities of $247,298,000 was primarily comprised of (i) income of $118,114,000, (ii) adjustments for non-cash items of $159,569,000, partially offset by (iii) the net change in operating assets and liabilities of $33,835,000. The adjustments for non-cash items were primarily comprised of (i) a cumulative effect of change in accounting principle of $30,129,000, (ii) amortization of Officer's deferred compensation expense of $13,750,000, (iii) depreciation and amortization of $97,151,000, (iv) minority interest of $71,145,000, partially offset by (v) the effect of straight-lining of rental income of $18,939,000, and (vi) equity in net income of partially-owned entities and income applicable to Alexander's of $33,667,000. Net cash used in investing activities of $75,791,000 was primarily comprised of (i) recurring capital expenditures of $27,851,000, (ii) non-recurring capital expenditures of $13,603,000, (iii) development and redevelopment expenditures of $34,831,000, (iv) investment in notes and mortgages receivable of $741,000, (v) investments in partially-owned entities of $21,984,000, (vi) cash restricted of $113,831,000 for funds escrowed in connection with a mortgage financing, partially offset by (vii) distributions from partially-owned entities of $67,454,000, (viii) repayments on notes receivable of $60,000,000 and (ix) proceeds from the sale of marketable securities of $53,445,000. Net cash provided by financing activities of $247,092,000 was primarily comprised of (i) dividends paid on common shares of $169,838,000, (ii) dividends paid on preferred shares of $12,027,000, (iii) distributions to minority partners of $70,782,000, (iv) repayments of borrowings of $200,612,000, partially offset by proceeds from (iv) the issuance of common shares of $56,658,000, (vi) notes and mortgages payable of $622,765,000, of which $500,000,000 was from the issuance of the Company's senior unsecured notes on June 24, 2002, and (vii) the exercise of employee share options of $23,728,000. Below are the details of capital expenditures, leasing commissions and development and redevelopment expenditures. Capital expenditures are categorized as follows: Recurring -- capital improvements expended to maintain a property's competitive position within the market and tenant improvements and leasing commissions for costs to re-lease expiring leases or renew or extend existing leases. Non-recurring -- capital improvements completed in the year of acquisition and the following two years which were planned at the time of acquisition and tenant improvements and leasing commissions for space which was vacant at the time of acquisition of a property. Development and redevelopment expenditures include all hard and soft costs associated with the development or redevelopment of a property, including tenant improvements, leasing commissions and capitalized interest and operating costs until the property is substantially complete and ready for its intended use. (amounts in thousands) <Table> <Caption> New York City Merchandise Capital Expenditures: Total Office CESCR Retail Mart Other --------- ------------- ---------- -------- ----------- --------- <S> <C> <C> <C> <C> <C> <C> Expenditures to maintain the assets: Recurring............................ $ 6,095 $ 2,411 $ 1,734 $ 397 $ 1,112 $ 441 Non-recurring........................ 7,090 3,762 1,570 -- 1,758 -- --------- ------------- ---------- -------- ----------- --------- 13,185 6,173 3,304 397 2,870 441 --------- ------------- ---------- -------- ----------- --------- Tenant improvements: Recurring............................ 21,756 6,857 12,783 765 1,351 -- Non-recurring........................ 6,513 1,525 4,988 -- -- -- --------- ------------- ---------- -------- ----------- --------- 28,269 8,382 17,771 765 1,351 -- --------- ------------- ---------- -------- ----------- --------- Total.................................. $ 41,454 $ 14,555 $ 21,075 $ 1,162 $ 4,221 $ 441 ========= ============= ========== ======== =========== ========= Leasing Commissions: Recurring............................ $ 3,659 $ 2,028 $ 1,292 $ 153 $ 98 $ 88 Non-recurring........................ 2,644 1,630 1,014 -- -- -- --------- ------------- ---------- -------- ----------- --------- $ 6,303 $ 3,658 $ 2,306 $ 153 $ 98 $ 88 ========= ============= ========== ======== =========== ========= Total Capital Expenditures and Leasing Commissions: Recurring............................ $ 31,510 $ 11,296 $ 15,809 $ 1,315 $ 2,561 $ 529 Non-recurring........................ 16,247 6,917 7,572 -- 1,758 -- --------- ------------- ---------- -------- ----------- --------- $ 47,757 $ 18,213 $ 23,381 $ 1,315 $ 4,319 $ 529 ========= ============= ========== ======== =========== ========= Development and Redevelopment Expenditures: Palisades-Fort Lee, NJ (1)......... $ 9,287 $ -- $ -- $ -- $ -- $ 9,287 Other.............................. 25,544 20,189 5,097 (871)(2) 558 571 --------- ------------- ---------- -------- ----------- --------- $ 34,831 $ 20,189 $ 5,097 $ (871) $ 558 $ 9,858 ========= ============= ========== ======== =========== ========= </Table> - ---------- (1) Does not include $15,421 of Fort Lee development costs funded by a construction loan. (2) Represents reimbursements from tenants for expenditures incurred in the prior year. Page 40 <Page> VORNADO OPERATING COMPANY ("VORNADO OPERATING") Pursuant to a revolving credit facility which expires December 31, 2004, Vornado Operating owes the Company $31,489,000 at June 30, 2002. Vornado Operating has disclosed that in the aggregate, its investments do not, and for the foreseeable future, are not expected to generate sufficient cash flow to pay all of its debts and expenses. Further, Vornado Operating states that its only investee, AmeriCold Logistics ("Tenant"), anticipates that its Landlord, a partnership 60% owned by the Company and 40% owned by Crescent Real Estate Equities, will need to restructure the leases between the Landlord and the Tenant to provide additional cash flow to the Tenant (the Landlord has previously restructured the leases to provide additional cash flow to the Tenant). Management anticipates a further lease restructuring and the sale of non-core assets by AmeriCold Logistics, and accordingly, Vornado Operating is expected to have a source to repay the debt under this facility which may be extended. Since January 1, 2002, the Company has not recognized income on the debt under this facility. SIX MONTHS ENDED JUNE 30, 2001 Cash flows provided by operating activities of $192,866,000 was primarily comprised of (i) income of $122,621,000 and (ii) adjustments for non-cash items of $63,798,000 and (iii) the net change in operating assets and liabilities of $21,642,000. The adjustments for non-cash items are primarily comprised of (i) cumulative effect of change in accounting principle of $4,110,000, (ii) the write-off of equity investments in technology companies of $18,284,000, (iii) depreciation and amortization of $61,951,000 and (iv) minority interest of $55,663,000, partially offset by (v) the effect of straight-lining of rental income of $14,542,000 and (vi) equity in net income of partially-owned entities and income applicable to Alexander's of $60,198,000. Net cash used in investing activities of $59,966,000 was primarily comprised of (i) recurring capital expenditures of $26,490,000, (ii) non-recurring capital expenditures of $22,836,000, (iii) development and redevelopment expenditures of $74,856,000, (iv) investment in notes and mortgages receivable of $30,767,000, (v) investments in partially-owned entities of $25,221,000 partially offset by, (vi) distributions from partially-owned entities of $93,032,000 and (vii) a decrease in restricted cash arising primarily from the repayment of mortgage escrows of $27,851,000. Net cash used in financing activities of $149,969,000 was primarily comprised of (i) proceeds from borrowings of $118,853,000, partially offset by, (ii) repayments of borrowings of $111,748,000, (iii) dividends paid on common shares of $90,992,000, (iv) dividends paid on preferred shares of $17,926,000, and (v) distributions to minority partners of $53,710,000. Below are the details of capital expenditures, leasing commissions and development and redevelopment expenditures. <Table> <Caption> New York Merchandise (amounts in thousands) Total City Office Retail Mart Other ------------ ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> <C> Capital Expenditures: Expenditures to maintain the assets: Recurring ......................... $ 8,268 $ 4,937 $ 412 $ 1,187 $ 1,732 Non-recurring ..................... 19,732 10,523 -- 3,259 5,950 ------------ ------------ ------------ ------------ ------------ 28,000 15,460 412 4,446 7,682 ------------ ------------ ------------ ------------ ------------ Tenant improvements: Recurring ......................... 18,222 15,242 265 2,715 -- Non-recurring ..................... 3,104 3,104 -- -- -- ------------ ------------ ------------ ------------ ------------ 21,326 18,346 265 2,715 -- ------------ ------------ ------------ ------------ ------------ Total ............................... $ 49,326 $ 33,806 $ 677 $ 7,161 $ 7,682 ------------ ------------ ------------ ------------ ------------ Leasing Commissions: Recurring ........................... $ 6,090 $ 5,710 $ 195 $ 48 $ 137 Non-recurring ....................... -- -- -- -- -- ------------ ------------ ------------ ------------ ------------ $ 6,090 $ 5,710 $ 195 $ 48 $ 137 ============ ============ ============ ============ ============ Development and Redevelopment: Expenditures: Park Laurel (80% interest) ...... $ 29,212 $ -- $ -- $ -- $ 29,212 Market Square on Main Street ...... 17,597 -- -- 17,597 -- Other ............................. 28,047 14,682 1,964 1,863 9,538(1) ------------ ------------ ------------ ------------ ------------ $ 74,856 $ 14,682 $ 1,964 $ 19,460 $ 38,750 ============ ============ ============ ============ ============ </Table> - ---------- (1) Does not include $37,592 of Fort Lee development costs funded by a construction loan. Page 41 <Page> SUPPLEMENTAL INFORMATION Below is a summary of net income, EBITDA and funds from operations for the three and six months ended June 30, 2002 and 2001, giving effect to the following transactions as if they had occurred on January 1, 2001: (i) the acquisition of the remaining 66% of CESCR on January 1, 2002 and (ii) the Company's November 21, 2001 sale of 9,775,000 common shares and the use of proceeds to repay indebtedness. <Table> <Caption> Three Months Ended Six Months Ended --------------------------- --------------------------- (amounts in thousands) June 30, June 30, June 30, 2001 June 30, 2001 2002 (Pro Forma) 2002 (Pro Forma) ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> Revenues ............................... $ 353,247 $ 341,686 $ 699,571 $ 679,542 ============ ============ ============ ============ Net income ............................. $ 68,711 $ 67,657 $ 118,114 $ 128,519 Preferred share dividends .............. (5,896) (9,192) (12,027) (18,865) ------------ ------------ ------------ ------------ Net income applicable to common shares . $ 62,815 $ 58,465 $ 106,087 $ 109,654 ============ ============ ============ ============ Net income per common share - diluted .. $ .57 $ .59 $ .97 $ 1.10 ============ ============ ============ ============ EBITDA ................................. $ 235,599 $ 229,575 $ 474,627 $ 461,745 ============ ============ ============ ============ Funds from operations(1) ............... $ 107,327 $ 99,757 $ 216,573 $ 198,247 ============ ============ ============ ============ Shares used for determining funds from operations per share ................. 113,563 107,395 112,526 107,294 ============ ============ ============ ============ </Table> - ---------- (1) See page 45 for further details on funds from operations. Below are the details of the changes by segment in EBITDA for the three months ended June 30, 2002 from the three months ended March 31, 2002. <Table> <Caption> Temperature Merchandise Controlled (amounts in thousands) Total Office Retail Mart Logistics Other ----------- ------------ ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> <C> <C> Three months ended March 31, 2002 .......... $ 239,028 $ 142,878 $ 27,534 26,228 $ 21,237 21,151 2002 Operations: Same store operations(1) 4,739 1,954 496 6,018 (4,592) 863 Non-recurring income and expenses (8,168) 100 (1,000) (777) -- (6,491) ----------- ------------ ------------ ------------ ------------ ------------ Three months ended June 30, 2002 ........... 235,599 $ 144,932 $ 27,030 31,469 $ 16,645 15,523 =========== ============ ============ ============ ============ ============ % increase (decrease) in same store operations ...... 2.0% 1.4%(2) 1.8% 22.9%(3) (21.6%)(4) 4.1% =========== ============ ============ ============ ============ ============ </Table> - ---------- (1) Represents operations which were owned for the same period in each year and excludes non-recurring income and expenses. (2) Same store percentage increase was 1.1% for the New York City office portfolio, and 1.6% for the CESCR portfolio. (3) Increase results primarily from (i) EBITDA generated by the Chicago NeoCon and High Point North Carolina furniture shows in the three months ended June 30, 2002 in excess of the EBITDA generated by shows in the three months ended March 31, 2002 and (ii) a .7% same store increase in other operations. (4) The tenant has advised the Landlord that (i) its revenue for the quarter ended June 30, 2002 from the warehouses it leases from the Landlord, was higher than last quarter by .6%, and (ii) its gross profit before rent at these warehouses decreased by $2,724 (6.2%). The increase in revenue is primarily attributable to higher occupancy rates, offset by a reduction in customer inventory turns. The decrease in gross profit is primarily attributable to higher insurance costs, partially offset by lower payroll expenses. In addition, the tenant's cash requirements for capital expenditures, debt service and pension liability funding were $1,668 higher in the current quarter than in the prior quarter, which impacted the ability of the tenant to pay rent. Page 42 <Page> LEASING ACTIVITY The following table sets forth certain information for the properties the Company owns directly or indirectly, including leasing activity for space previously occupied: <Table> <Caption> (square feet and cubic feet in thousands) Office Merchandise Mart --------------------------- ---------------------- Temperature As of June 30, 2002: New York Controlled City CESCR Retail Office Showroom Logistics ------------ ------------ ----------- -------- ---------- ------------ <S> <C> <C> <C> <C> <C> <C> Square feet ............................. 14,325 13,008 11,301 2,831 5,497 17,509 Cubic feet .............................. -- -- -- -- -- 441,500 Number of properties .................... 22 51 55 9 9 88 Occupancy rate .......................... 96.1% 94.7% 88.5%(3) 89.8% 94.9% 78.6% Leasing Activity: For the quarter ended June 30, 2002: Square feet ..................... 100(2) 454 403 29 213 -- Rent per square foot: Initial rent (1) .............. $ 42.69 $ 32.25 $ 12.04 $ 20.51 $ 19.80 -- Prior escalated rent .......... $ 36.33 $ 31.44 $ 9.91 $ 18.35 $ 20.16 -- Percentage increase(decrease) . 17.5% 2.6% 21.5% 11.8% (1.7%) -- For the Six Months Ended June 30, 2002: Square feet ..................... 221(2) 913 509 85 416 -- Rent per square foot: Initial Rent(1) ............... $ 46.27 $ 32.03 $ 12.35 $ 20.88 $ 17.45 -- Prior escalated rent .......... $ 34.51 $ 30.50 $ 9.67 $ 19.81 $ 16.95 -- Percentage increase ........... 34.1% 5.0% 27.7% 5.4% 3.0% -- As of March 31, 2002: Square feet ............................. 14,317 13,008 11,301 2,822 5,490 17,695 Cubic feet .............................. -- -- -- -- -- 445,200 Number of properties .................... 22 51 55 9 9 89 Occupancy rate .......................... 96.7% 94.1% 91.0% 90.4% 95.3% 75.1% As of December 31, 2001: Square feet ............................. 14,300 4,386 11,301 2,840 5,532 17,695 Cubic feet .............................. -- -- -- -- -- 445,200 Number of properties .................... 22 51 55 9 9 89 Occupancy rate .......................... 97.4% 94.7% 92.0% 90.9% 95.5% 80.7% As of June 30, 2001: Square feet ............................. 14,465 4,249 11,301 2,869 5,044 17,569 Cubic feet .............................. -- -- -- -- -- 440,200 Number of properties .................... 22 50 55 9 9 88 Occupancy rate .......................... 95.0% 96.0% 92.0% 90.2% 96.8% 74.06% </Table> - ---------- (1) Most leases include periodic step-ups in rent, which are not reflected in the initial rent per square foot leased. (2) In addition to the above, the Company leased 45 and 67 square feet of previously vacant space (first generation space - space which has been vacant for more than nine months) at an average initial rent per square foot of $50.83 and $53.03 for the three and six months ended June 30, 2002. (3) On June 29, 2002, K-Mart rejected its lease at the Company's Green Acres location (131 square feet at $13.64 per square foot). Page 43 <Page> SENIOR UNSECURED DEBT COVENANT COMPLIANCE RATIOS The following ratios as of and for the three months ended June 30,2002, are computed pursuant to the covenants and definitions of the Company's senior unsecured notes due 2007 and are presented on a basis to give effect to the Company's sale of the notes and the subsequent repayment of $463 million of mortgages payable as if these transactions had occurred on January 1, 2002. <Table> <Caption> Actual Required ------ -------- <S> <C> Total Outstanding Debt/Total Assets.................. 42% Less than 60% Secured Debt/Total Assets............................ 37% Less than 55% Interest coverage (Annualized Combined EBITDA to Annualized Interest Expense)....................... 3.04 Greater than 1.50 Unencumbered Assets/ Unsecured Debt.................. 636% Greater than 150% </Table> The covenants and definitions of the Company's senior unsecured notes due 2007 are described in Exhibit 4.2 to this quarterly report on Form 10-Q. Page 44 <Page> FUNDS FROM OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001 Funds from operations was $107,327,000 in the three months ended June 30, 2002, compared to $83,930,000 in the prior year's quarter, an increase of $23,397,000. Funds from operations include nonrecurring charges of $11,856,000(1) and $13,561,000(1) in the three months ended June 30, 2002 and 2001. Funds from operations before these items and after minority interest was $116,763,000 in the three months ended June 30, 2002, compared to $95,658,000 in the prior year's quarter, a $21,105,000 increase over the prior year, or 5.1% on a per share basis. Funds from operations was $216,573,000 in the six months ended June 30, 2002, compared to $165,837,000 in the prior year's six months, an increase of $50,736,000. Funds from operations includes nonrecurring charges of $17,200,000(1) and $23,284,000(1) in the six months ended June 30, 2002 and 2001. Funds from operations before these items and after minority interest was $230,242,000 in the six months ended June 30, 2002, compared to $185,970,000 in the prior year's six months, a $44,272,000 increase over the prior year, or 7.3% on a per share basis. The following table reconciles funds from operations and net income: <Table> <Caption> (amounts in thousands) For the Three Months Ended For the Six Months Ended June 30 June 30 --------------------------- ---------------------------- 2002 2001 2002 2001 ---------- ---------- ------------ ------------ <S> <C> <C> <C> <C> Net income applicable to common shares.................... $ 62,815 $ 56,920 $ 106,087 $ 103,756 Cumulative effect of a change in accounting principle..... -- -- 30,129 4,110 Extraordinary item........................................ -- -- -- (1,170) Depreciation and amortization of real property............ 47,992 29,041 93,479 60,081 Straight-lining of property rentals for rent escalations.. (8,864) (5,819) (17,541) (13,074) Leasing fees received in excess of income recognized...... 432 (124) 750 (248) Appreciation of securities held in officer's deferred compensation trust.................................... -- 2,952 -- 669 Net gain on sale of real estate and partially-owned entities.............................................. -- (12,445) -- (12,445) Net gain from condemnation proceedings.................... -- (3,050) -- (3,050) Proportionate share of adjustments to equity in net income of partially-owned entities to arrive at funds from operations: Depreciation and amortization of real property... 12,903 15,615 25,784 31,607 Net gain on sale of real estate (Alexander's Fordham Road property).................................. -- -- -- (6,298) Other............................................... 716 (323) 206 (751) Minority interest in excess of preferential distributions. (10,314) (3,780) (25,849) (7,716) ---------- ---------- ------------ ------------ 105,680 78,987 213,045 155,471 Series A preferred shares................................. 1,647 4,943 3,528 10,366 ---------- ---------- ------------ ------------ Funds from operations--diluted (2)........................ $ 107,327 $ 83,930 $ 216,573 $ 165,837 ========== ========== ============ ============ </Table> The number of shares that should be used for determining funds from operations per share is as follows: <Table> <Caption> (amounts in thousands) For the Three Months Ended For the Six Months Ended June 30, June 30, --------------------------- ---------------------------- 2002 2001 2002 2001 ---------- ---------- ------------ ------------ <S> <C> <C> <C> <C> Weighted average shares used for determining diluted income per share 110,714 89,602 108,954 89,501 Series A preferred shares.......................... 2,849 8,018 3,572 8,018 ---------- ---------- ------------ ------------ Shares used for determining diluted funds from operations per share (2).............................. 113,563 97,620 112,526 97,519 ========== ========== ============ ============ </Table> Page 45 <Page> Funds from operations does not represent cash generated from operating activities in accordance with accounting principles generally accepted in the United States of America and is not necessarily indicative of cash available to fund cash needs which is disclosed in the Consolidated Statements of Cash Flows for the applicable periods. There are no material legal or functional restrictions on the use of funds from operations. Funds from operations should not be considered as an alternative to net income as an indicator of the Company's operating performance or as an alternative to cash flows as a measure of liquidity. Management considers funds from operations a supplemental measure of operating performance and along with cash flow from operating activities, financing activities and investing activities, it provides investors with an indication of the ability of the Company to incur and service debt, to make capital expenditures and to fund other cash needs. Funds from operations may not be comparable to similarly titled measures reported by other REITs since a number of REITs, including the Company, calculate funds from operations in a manner different from that used by NAREIT. Funds from operations, as defined by NAREIT, represents net income applicable to common shares before depreciation and amortization, extraordinary items and gains or losses on sales of real estate. Funds from operations as disclosed above has been modified from this definition to adjust primarily for the effect of straight-lining of property rentals for rent escalations and leasing fee income. - ---------- (1) Net Nonrecurring charges which are included in funds from operations above are as follows: <Table> <Caption> For the Three Months Ended June 30, For the Six Months Ended June 30, ----------------------------------- --------------------------------- 2002 2001 2002 2001 -------------- ------------------ -------------- -------------- <S> <C> <C> <C> <C> Loss on Primestone foreclosure..................... $ (17,671) $ -- $ (17,671) $ -- Gains on sale of marketable securities............. 12,346 -- 12,346 -- Amortization of Officer's deferred compensation ... (6,875) -- (13,750) -- Gain on sale of residential condominium units ..... 344 -- 1,875 -- Write-off of investments in technology companies... -- (13,561) -- (18,284) Costs of acquisitions not consummated.............. -- -- -- (5,000) ---------- ---------- ---------- ---------- $ (11,856) $ (13,561) $ (17,200) $ (23,284) ========== ========== ========== ========== </Table> (2) Assuming all of the convertible units of the Operating Partnership were converted to shares, the minority interest in partnership earnings would not be deducted in calculating funds from operations and the shares used in calculating funds from operations per share would be increased to reflect the conversion. Funds from operations per share would not change. The following table reconciles funds from operations as shown above, to the Operating Partnership's funds from operations for the three months and six months ended June 30, 2002 and 2001: <Table> <Caption> For the Three Months Ended June 30, For the Six Months Ended June 30, ----------------------------------- --------------------------------- 2002 2001 2002 2001 -------------- ----------------- ------------- -------------- <S> <C> <C> <C> <C> Funds from operations, as above.................... $ 107,327 $ 83,930 $ 216,573 $ 165,837 Addback of minority interest reflected as equity in the Operating Partnership............. 27,521 13,147 55,936 25,951 ---------- ---------- ---------- ---------- Operating Partnership funds from operations........ $ 134,848 $ 97,077 $ 272,509 $ 191,788 ========== ========== ========== ========== </Table> The number of shares that should be used for determining Operating Partnership funds from operations per share is as follows: <Table> <S> <C> <C> <C> <C> Shares used for determining diluted funds from operations per share, as above...................................... 113,563 97,620 112,526 97,519 Convertible units: Non-Vornado owned Class A units..................... 21,352 6,628 21,295 6,628 Class D units....................................... -- 864 -- 864 B-1 units........................................... 822 822 822 822 B-2 units........................................... 411 411 411 411 C-1 units........................................... 855 855 855 855 E-1 units....................................... 5,680 5,680 5,680 5,680 ---------- -------- -------- -------- Shares used for determining Operating Partnership diluted funds from operations per share.......................... 142,683 112,880 141,589 112,779 ---------- -------- -------- -------- </Table> Page 46 <Page> Below are the cash flows provided by (used in) operating, investing and financing activities: <Table> <Caption> (amounts in thousands) For the Six Months Ended June 30, --------------------------------- 2002 2001 -------------- -------------- <S> <C> <C> Operating activities................. $ 247,298 $ 192,866 =========== =========== Investing activities................. $ (75,791) $ (59,966) =========== =========== Financing activities................. $ 247,092 $ (149,969) ----------- ----------- </Table> FINANCINGS The Company anticipates that cash from continuing operations will be adequate to fund business operations and the payment of dividends and distributions on an on-going basis for more than the next twelve months; however, capital outlays for significant acquisitions would require funding from borrowings or equity offerings. On June 24, 2002, the Company completed an offering of $500,000,000 aggregate principal amount of 5.625% senior unsecured notes due June 15, 2007. Interest on the notes is payable semi-annually on June 15th and December 15th, commencing December 15, 2002. The notes were priced at 99.856% of their face amount to yield 5.659%. Of the net proceeds of approximately $496,300,000, (i) $70,000,000 was used to repay the mortgage payable on 350 North Orleans prior to June 30, 2002, and (ii) $393,000,000 was used to repay the mortgages on Two Park Avenue, the Merchandise Mart and a portion of Seven Skyline in July and August 2002. After the repayment of these mortgages, the balance of the Company's wholly-owned debt was $4,041,929, as compared to $3,970,486 at March 31, 2002. On June 27, 2002, the Company entered into interest rate swaps that effectively converted the interest rate on the $500,000,000 senior unsecured notes due 2007 from a fixed rate of 5.625% to a floating rate of LIBOR plus .7725, based upon the trailing 3 month LIBOR rate (2.59 % if set on August 1, 2002). COMMITMENTS In conjunction with the closing of Alexander's Lexington Avenue construction loan on July 3, 2002, the Company agreed to guarantee, among other things, the lien free, timely completion of the construction of the project and funding of all project costs in excess of a stated loan budget, if not funded by Alexander's. Page 47 <Page> ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS The Company's exposure to a change in interest rates on its wholly-owned and partially-owned debt (all of which arises out of non-trading activity) is as follows: <Table> <Caption> (amounts in thousands except per share amounts) June 30, 2002 December 31, 2001 -------------------------------------------------- ------------------------------ Weighted Effect of 1% Weighted Average Change In Base Average Balance Interest Rate Rates Balance Interest Rate --------------- --------------- ----------------- ------------ --------------- <S> <C> <C> <C> <C> <C> Wholly-owned debt: Variable rate........... $ 1,801,498 3.04% $ 11,007(1) $ 1,182,605 3.39% Fixed rate.............. 2,633,431 7.29% -- 1,294,568 7.53% -------------- ------------ -------------- $ 4,434,929 5.56% 11,007 $ 2,477,173 ============== ------------ ============== Partially-owned debt: Variable rate........... $ 14,775 5.07% 559(2) $ 85,516 5.63% Fixed rate.............. 847,754 8.66% -- 1,234,019 8.29% -------------- ------------ -------------- $ 862,529 8.60% 559 $ 1,319,535 ============== ------------ ============== Minority interest.............. (2,358) ------------ Total decrease in the Company's annual net income................... $ 9,208 ============ Per share-diluted......... $ .08 ============ </Table> - ---------- (1) The effect of a 1% change in wholly-owned debt base rates shown above is calculated after giving effect to (i) the Company's issuance of $500,000 senior unsecured notes due 2007 and the use of proceeds to repay existing variable rate debt and (ii) the exclusion of $238,659 of variable rate mortgage financing, cross-collateralized by the Company's 770 Broadway and 595 Madison Avenue office properties as the proceeds are held in a restricted mortgage escrow account which bears interest at the same rate as the loans. (2) The effect of a 1% change in partially-owned debt base rates shown above is calculated after including $41,148, representing the Company's 14.9% share of Prime Group Realty L.P.'s ("PGE") outstanding variable rate debt as at March 31, 2002. PGE has not filed its quarterly report on Form 10-Q for the quarter ended June 30, 2002, prior to the filing of this quarterly report on Form 10-Q. Page 48 <Page> PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is from time to time involved in legal actions arising in the ordinary course of its business. In the opinion of management, after consultation with legal counsel, the outcome of such matters will not have a material adverse effect on the Company's financial condition, results of operations or cash flows. As a result of the Company's April 30, 2002 foreclosure on the partnership units of Prime Group Realty L.P., the Company's litigation against Primestone discussed in the quarterly report on Form 10-Q for the quarter ended March 31, 2002, has been dismissed pursuant to the parties stipulation on May 28, 2002. As previously disclosed, on February 13, 2002, Primestone counterclaimed against the Company, alleging, among other things, that the Company tortiously interfered with a prospective contract with Cadim inc., and on March 4, 2002, the Company filed an answer denying the essential allegations of the counterclaim. On May 20, 2002, the Company served a motion for summary judgment asking the Court to enter judgment in its favor on its claims against Primestone and to dismiss Primestone's counterclaims. On July 31, 2002, Primestone moved for leave to amend its counterclaim, primarily to assert that Vornado's April 30, 2002 foreclosure on the collateral pledged by Primestone did not comply with the Uniform Commercial Code. This litigation is continuing. SEE "Item 3. Legal Proceedings" of the Company's Annual Report on Form 10-K for the year ended December 31, 2001 for more information about this litigation. Primestone and several affiliates commenced an action against the Company on May 3, 2002 in New York Supreme Court, alleging substantially the same causes of action as in Primestone's February 13, 2002 counterclaim. In the May 3, 2002 action, Primestone also alleges that Vornando's foreclosure on the collateral pledged by Primestone did not comply with the Uniform Commercial Code. On June 10, 2002, Vornando moved to dismiss this action. This litigation is continuing. On May 9, 2002, five affiliates of Primestone asserted counterclaims in an action which the Company had commenced against them on March 28, 2002 in New York Supreme Court. The counterclaims are virtually identical to the claims asserted in the May 3, 2002 action. On May 29, 2002, Vornado filed an answer denying the essential allegations of this counterclaim. This litigation is continuing. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On May 29, 2002, the Company held its annual meeting of shareholders. The matters on which the shareholders voted, in person or by proxy, were (i) the election of four nominees to serve on the Board of Trustees for terms described below and until their respective successors are duly elected and qualified, (ii) to approve an amendment of the Declaration of Trust of the Company, (iii) to adopt the 2002 Omnibus Share Plan, and (iv) a shareholder proposal to declassify the Board of Trustees. The results of the voting are shown below: <Table> <Caption> Election of Trustees: Votes Cast Against or Trustee Term Votes Cast for Withheld -------------------- --------- ---------------- ------------ <S> <C> <C> <C> Stanley Simon 3 years 92,329,572 2,657,160 Ronald Targan 3 years 91,954,952 3,031,780 Robert H. Smith 3 years 92,248,933 2,737,799 Robert P. Kogod 2 years 92,264,425 2,722,307 <Caption> Votes Cast Against or Broker Non- Votes cast for Withheld Votes -------------- ------------ ------------- <S> <C> <C> <C> Amendment of Declaration of Trust 82,411,065 592,224 11,983,443 Adoption of 2002 Omnibus Share Plan 49,144,394 33,858,895 11,983,443 Shareholder Proposal to Declassify Board of Trustees 42,537,404 40,465,885 11,983,443 </Table> ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits required by Item 601 of Regulation S-K are incorporated herein by reference and are listed in the attached Exhibit Index. (b) Reports on Form 8-K: During the quarter ended June 30, 2002, the Company did not file any reports on Form 8-K. Page 49 <Page> SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. VORNADO REALTY TRUST ----------------------------------------- (Registrant) Date: August 7, 2002 By: /s/ Joseph Macnow ------------------------------------------ Joseph Macnow, Executive Vice President - Finance and Administration and Chief Financial Officer Page 50 <Page> EXHIBIT INDEX <Table> <Caption> EXHIBIT NO. - ------- <S> <C> <C> 2.1 -- Agreement and Plan of Merger, dated as of October 18, 2001, by and among Vornado, 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 of Vornado's Current Report on Form 8-K (File No. 001-11954), filed on January 16, 2002............................................................... * 3.1 -- Amended and Restated Declaration of Trust of Vornado, as filed with the State Department of Assessments and Taxation of Maryland on April 16, 1993 - Incorporated by reference to Exhibit 3(a) of Vornado's Registration Statement on Form S-4 (File No. 33-60286), filed on April 15, 1993................................................................................................ * 3.2 -- Articles of Amendment of Declaration of Trust of Vornado, as filed with the State Department of Assessments and Taxation of Maryland on May 23, 1996 - Incorporated by reference to Exhibit 3.2 of Vornado's Annual Report on Form 10-K for the year ended December 31, 2001 (File No. 001-11954), filed on March 11, 2002............................................................................. * 3.3 -- Articles of Amendment of Declaration of Trust of Vornado, as filed with the State Department of Assessments and Taxation of Maryland on April 3, 1997 - Incorporated by reference to Exhibit 3.3 of Vornado's Annual Report on Form 10-K for the year ended December 31, 2001 (File No. 1-11954), filed on March 11, 2002................................................................................... * 3.4 -- Articles of Amendment of Declaration of Trust of Vornado, as filed with the State Department of Assessments and Taxation of Maryland on October 14, 1997 - Incorporated by reference to Exhibit 3.2 of Vornado's Registration Statement on Form S-3 (File No. 333-36080), filed on May 2, 2000................................................................................................ * 3.5 -- Articles of Amendment of Declaration of Trust of Vornado, as filed with the State Department of Assessments and Taxation of Maryland on April 22, 1998 - Incorporated by reference to Exhibit 3.1 of Vornado's Current Report on Form 8-K, dated April 22, 1998 (File No. 001-11954), filed on April 28, 1998................................................................................................ * 3.6 -- Articles of Amendment of Declaration of Trust of Vornado, as filed with the State Department of Assessments and Taxation of Maryland on November 24, 1999 - Incorporated by reference to Exhibit 3.4 of Vornado's Registration Statement on Form S-3 (File No. 333-36080), filed on May 2, 2000................................................................................................ * 3.7 -- Articles of Amendment of Declaration of Trust of Vornado, as filed with the State Department of Assessments and Taxation of Maryland on April 20, 2000 - Incorporated by reference to Exhibit 3.5 of Vornado's Registration Statement on Form S-3 (File No. 333-36080), filed on May 2, 2000................................................................................................ * 3.8 -- Articles of Amendment of Declaration of Trust of Vornado, as filed with the State Department of Assessments and Taxation of Maryland on September 14, 2000 - Incorporated by reference to Exhibit 4.6 of Vornado's Registration Statement on Form S-8 (File No. 333-68462), filed on August 27, 2001................................................................................................ * 3.9 -- Articles of Amendment of Declaration of Trust of Vornado dated May 31, 2002, as filed with the Department of Assessments and Taxation of the State of Maryland on June 13, 2002 3.10 -- Articles of Amendment of Declaration of Trust of Vornado dated June 6, 2002, as filed with the Department of Assessments and Taxation of the State of Maryland on June 13, 2002 </Table> - ---------- * Incorporated by reference Page 51 <Page> <Table> <Caption> EXHIBIT NO. - ------- <S> <C> <C> 3.11 -- Articles Supplementary Classifying Vornado's $3.25 Series A Preferred Shares of Beneficial Interest, liquidation preference $50.00 per share - Incorporated by reference to Exhibit 4.1 of Vornado's Current Report on Form 8-K, dated April 3, 1997 (File No. 001-11954), filed on April 8, 1997................................................................................................ * 3.12 -- Articles Supplementary Classifying Vornado's $3.25 Series A Convertible Preferred Shares of Beneficial Interest, as filed with the State Department of Assessments and Taxation of Maryland on December 15, 1997 - Incorporated by reference to Exhibit 3.10 to Vornado's Annual Report on Form 10-K for the year ended December 31, 2001 (File No. 001-11954), filed on March 31, 2002................................................................................................ * 3.13 -- Articles Supplementary Classifying Vornado's Series D-1 8.5% Cumulative Redeemable Preferred Shares of Beneficial Interest, no par value (the "Series D-1 Preferred Shares") - Incorporated by reference to Exhibit 3.1 of Vornado's Current Report on Form 8-K, dated November 12, 1998 (File No. 001-11954), filed on November 30, 1998.............................................................. * 3.14 -- Articles Supplementary Classifying Additional Series D-1 8.5% Preferred Shares of Beneficial Interest, liquidation preference $25.00 per share, no par value - Incorporated by reference to Exhibit 3.2 of Vornado's Current Report on Form 8-K/A, dated November 12, 1998 (File No. 001-11954), filed on February 9, 1999........................................................................... * 3.15 -- Articles Supplementary Classifying 8.5% Series B Cumulative Redeemable Preferred Shares of Beneficial Interest, liquidation preference $25.00 per share, no par value - Incorporated by reference to Exhibit 3.3 of Vornado's Current Report on Form 8-K, dated March 3, 1999 (File No. 001-11954), filed on March 17, 1999................................................................. * 3.16 -- Articles Supplementary Classifying Vornado's Series C 8.5% Cumulative Redeemable Preferred Shares of Beneficial Interest, liquidation preference $25.00 per share, no par value - Incorporated by reference to Exhibit 3.7 of Vornado's Registration Statement on Form 8-A (File No. 001-11954), filed on May 19, 1999..................................................................................... * 3.17 -- Articles Supplementary Classifying Vornado Realty Trust's Series D-2 8.375% Cumulative Redeemable Preferred Shares, dated as of May 27, 1999, as filed with the State Department of Assessments and Taxation of Maryland on May 27, 1999 - Incorporated by reference to Exhibit 3.1 of Vornado's Current Report on Form 8-K, dated May 27, 1999 (File No. 001-11954), filed on July 7, 1999................................................................................................ * 3.18 -- Articles Supplementary Classifying Vornado's Series D-3 8.25% Cumulative Redeemable Preferred Shares, dated September 3, 1999, as filed with the State Department of Assessments and Taxation of Maryland on September 3, 1999 - Incorporated by reference to Exhibit 3.1 of Vornado's Current Report on Form 8-K, dated September 3, 1999 (File No. 001-11954), filed on October 25, 1999................................................................................................ * 3.19 -- Articles Supplementary Classifying Vornado's Series D-4 8.25% Cumulative Redeemable Preferred Shares, dated September 3, 1999, as filed with the State Department of Assessments and Taxation of Maryland on September 3, 1999 - Incorporated by reference to Exhibit 3.2 of Vornado's Current Report on Form 8-K, dated September 3, 1999 (File No. 001-11954), filed on October 25, 1999................................................................................................ * 3.20 -- Articles Supplementary Classifying Vornado's Series D-5 8.25% Cumulative Redeemable Preferred Shares - Incorporated by reference to Exhibit 3.1 of Vornado's Current Report on Form 8-K, dated November 24, 1999 (File No. 001-11954), filed on December 23, 1999........................................... * </Table> - ---------- * Incorporated by reference Page 52 <Page> <Table> <Caption> EXHIBIT NO. - ------- <S> <C> <C> 3.21 -- Articles Supplementary Classifying Vornado`s Series D-6 8.25% Cumulative Redeemable Preferred Shares, dated May 1, 2000, as filed with the State Department of Assessments and Taxation of Maryland on May 1, 2000 - Incorporated by reference to Exhibit 3.1 of Vornado's Current Report on Form 8-K, dated May 1, 2000 (File No. 001-11954), filed May 19, 2000................................ * 3.22 -- Articles Supplementary Classifying Vornado's Series D-7 8.25% Cumulative Redeemable Preferred Shares, dated May 25, 2000, as filed with the State Department of Assessments and Taxation of Maryland on June 1, 2000 - Incorporated by reference to Exhibit 3.1 of Vornado's Current Report on Form 8-K, dated May 25, 2000 (File No. 001-11954), filed on June 16, 2000........................... * 3.23 -- Articles Supplementary Classifying Vornado's Series D-8 8.25% Cumulative Redeemable Preferred Shares - Incorporated by reference to Exhibit 3.1 of Vornado's Current Report on Form 8-K, dated December 8, 2000 (File No. 001-11954), filed on December 28, 2000............................................ * 3.24 -- Articles Supplementary Classifying Vornado's Series D-9 8.75% Preferred Shares, dated September 21, 2001, as filed with the State Department of Assessments and Taxation of Maryland on September 25, 2001 - Incorporated by reference to Exhibit 3.1 of Vornado's Current Report on Form 8-K (File No. 001-11954), filed on October 12, 2001............................................................... * 3.25 -- Amended and Restated Bylaws of Vornado, as amended on March 2, 2000 - Incorporated by reference to Exhibit 3.12 of Vornado's Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 001-11954), filed on March 9, 2000.................................................................. * 3.26 -- Second Amended and Restated Agreement of Limited Partnership of the Operating Partnership, dated as of October 20, 1997 (the "Partnership Agreement") - Incorporated by reference to Exhibit 3.4 of Vornado's Annual Report on Form 10-K for the year ended December 31, 1997 filed on March 31, 1998................................................................................................ * 3.27 -- Amendment to the Partnership Agreement, dated as of December 16, 1997-Incorporated by reference to Exhibit 3.5 of Vornado's Annual Report on Form 10-K for the year ended December 31, 1997 (File No. 001-11954) filed on March 31, 1998.................................................................. * 3.28 -- Second Amendment to the Partnership Agreement, dated as of April 1, 1998 - Incorporated by reference to Exhibit 3.5 of Vornado's Registration Statement on Form S-3 (File No. 333-50095), filed on April 14, 1998............................................................................................ * 3.29 -- Third Amendment to the Partnership Agreement, dated as of November 12, 1998 - Incorporated by reference to Exhibit 3.2 of Vornado's Current Report on Form 8-K, dated November 12, 1998 (File No. 001-11954), filed on November 30, 1998.............................................................. * 3.30 -- Fourth Amendment to the Partnership Agreement, dated as of November 30, 1998 - Incorporated by reference to Exhibit 3.1 of Vornado's Current Report on Form 8-K, dated December 1, 1998 (File No. 001-11954), filed on February 9, 1999............................................................... * 3.31 -- Exhibit A to the Partnership Agreement, dated as of December 22, 1998 - Incorporated by reference to Exhibit 3.4 of Vornado's Current Report on Form 8-K/A, dated November 12, 1998 (File No. 001-11954), filed on February 9, 1999........................................................................... * 3.32 -- Fifth Amendment to the Partnership Agreement, dated as of March 3, 1999 - Incorporated by reference to Exhibit 3.1 of Vornado's Current Report on Form 8-K, dated March 3, 1999 (File No. 001-11954), filed on March 17, 1999............................................................................. * </Table> - ---------- * Incorporated by reference Page 53 <Page> <Table> <Caption> EXHIBIT NO. - ------- <S> <C> <C> 3.33 -- Exhibit A to the Partnership Agreement, dated as of March 11, 1999 - Incorporated by reference to Exhibit 3.2 of Vornado's Current Report on Form 8-K, dated March 3, 1999 (File No. 001-11954), filed on March 17, 1999................................................................................... * 3.34 -- Sixth Amendment to the Partnership Agreement, dated as of March 17, 1999 - Incorporated by reference to Exhibit 3.2 of Vornado's Current Report on Form 8-K, dated May 27, 1999 (File No. 001-11954), filed on July 7, 1999............................................................................... * 3.35 -- Seventh Amendment to the Partnership Agreement, dated as of May 20, 1999 - Incorporated by reference to Exhibit 3.3 of Vornado's Current Report on Form 8-K, dated May 27, 1999 (File No. 001-11954), filed on July 7, 1999............................................................................... * 3.36 -- Eighth Amendment to the Partnership Agreement, dated as of May 27, 1999 - Incorporated by reference to Exhibit 3.4 of Vornado's Current Report on Form 8-K, dated May 27, 1999 (File No. 001-11954), filed on July 7, 1999............................................................................... * 3.37 -- Ninth Amendment to the Partnership Agreement, dated as of September 3, 1999 - Incorporated by reference to Exhibit 3.3 of Vornado's Current Report on Form 8-K (File No. 001-11954), filed on October 25, 1999.................................................................................... * 3.38 -- Tenth Amendment to the Partnership Agreement, dated as of September 3, 1999 - Incorporated by reference to Exhibit 3.4 of Vornado's Current Report on Form 8-K, dated September 3, 1999 (File No. 001-11954), filed on October 25, 1999............................................................... * 3.39 -- Eleventh Amendment to the Partnership Agreement, dated as of November 24, 1999 - Incorporated by reference to Exhibit 3.2 of Vornado's Current Report on Form 8-K, dated November 24, 1999 (File No. 001-11954), filed on December 23, 1999.............................................................. * 3.40 -- Twelfth Amendment to the Partnership Agreement, dated as of May 1, 2000 - Incorporated by reference to Exhibit 3.2 of Vornado's Current Report on Form 8-K, dated May 1, 2000 (File No. 001-11954), filed on May 19, 2000............................................................................... * 3.41 -- Thirteenth Amendment to the Partnership Agreement, dated as of May 25, 2000 - Incorporated by reference to Exhibit 3.2 of Vornado's Current Report on Form 8-K, dated May 25, 2000 (File No. 001-11954), filed on June 16, 2000.................................................................. * 3.42 -- Fourteenth Amendment to the Partnership Agreement, dated as of December 8, 2000 - Incorporated by reference to Exhibit 3.2 of Vornado's Current Report on Form 8-K, dated December 8, 2000 (File No. 001-11954), filed on December 28, 2000.............................................................. * 3.43 -- Fifteenth Amendment to the Partnership Agreement, dated as of December 15, 2000 - Incorporated by reference to Exhibit 4.35 of Vornado Realty Trust's Registration Statement on Form S-8 (File No. 333-68462), filed on August 27, 2001................................................................ * 3.44 -- Sixteenth Amendment to the Partnership Agreement, dated as of July 25, 2001 - Incorporated by reference to Exhibit 3.3 of Vornado Realty Trust's Current Report on Form 8-K (File No. 001-11954), filed on October 12, 2001........................................................................... * 3.45 -- Seventeenth Amendment to the Partnership Agreement, dated as of September 21, 2001 - Incorporated by reference to Exhibit 3.4 of Vornado Realty Trust's Current Report on Form 8-K (File No. 001-11954), filed on October 12, 2001........................................................................... * </Table> - ---------- * Incorporated by reference Page 54 <Page> <Table> <Caption> EXHIBIT NO. - ------- <S> <C> <C> 3.46 -- Eighteenth Amendment to the Partnership Agreement, dated as of January 1, 2002 - Incorporated by reference to Exhibit 3.1 of Vornado's Current Report on Form 8-K (File No. 1-11954), filed on March 18, 2002............................................................................................ * 3.47 -- Nineteenth Amendment to the Partnership Agreement, dated as of July 1, 2002 4.1 -- Indenture, dated as of June 24, 2002, between Vornado Realty L.P. and The Bank of New York, as Trustee - Incorporated by reference to Exhibit 4.1 to Vornado Realty L.P.'s Current Report on Form 8-K dated June 19, 2002 (File No. 000-22685), filed on June 24, 2002................................ * 4.2 -- Officer's Certificate pursuant to Sections 102 and 301 of the Indenture, dated June 24, 2002 10.1 -- Amended and Restated Credit Agreement dated July 3, 2002, between 59th Street Corporation and Vornado Lending L.L.C. (evidencing $40,000,000 of debt) - Incorporated by reference to Exhibit 10(i)(B)(1) of Alexander's Inc.'s quarterly report for the period ended June 30, 2002 (File No. 001-06064), filed on August 7, 2002................................................................. * 10.2 -- Credit Agreement, dated July 3, 2002, between Alexander's Inc. and Vornado Lending L.L.C. (evidencing a $20,000,000 loan) - Incorporated by reference to Exhibit 10(i)(B)(2) of Alexander's Inc.'s quarterly report for the period ended June 30, 2002 (File No. 001-06064), filed on August 7, 2002................................................................................................ * 10.3 -- Amended and Restated Credit Agreement, dated July 3, 2002, between Alexander's Inc. and Vornado Lending L.L.C. (evidencing a $50,000,000 line of credit facility) - Incorporated by reference to Exhibit 10(i)(B)(3) of Alexander's Inc.'s quarterly report for the period ended June 30, 2002 (File No. 001-06064), filed on August 7, 2002............................................................. * 10.4 -- Credit Agreement, dated July 3, 2002, between Alexander's and Vornado Lending L.L.C. (evidencing a $35,000,000 loan) - Incorporated by reference to Exhibit 10(i)(B)(4) of Alexander's Inc.'s quarterly report for the period ended June 30, 2002 (File No. 001-06064), filed on August 7, 2002................................................................................................ * 10.5 -- Guaranty of Completion, dated as of July 3, 2002, executed by Vornado Realty L.P. for the benefit of Bayerische Hypo- and Vereinsbank AG, New York Branch, as Agent for the Lenders - Incorporated by reference to Exhibit 10(i)(C)(5) of Alexander's Inc.'s quarterly report for the period ended June 30, 2002 (File No. 001-06064), filed on August 7, 2002.............................................. * 10.6 -- Reimbursement Agreement, dated as of July 3, 2002, by and between Alexander's, Inc., 731 Commercial LLC, 731 Residential LLC and Vornado Realty L.P. - Incorporated by reference to Exhibit 10(i)(C)(8) of Alexander's Inc.'s quarterly report for the period ended June 30, 2002 (File No. 001-06064), filed on August 7, 2002............................................................................. * 10.7 -- 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) of Alexander's Inc.'s quarterly report for the period ended June 30, 2002 (File No. 001-06064), filed on August 7, 2002................................................................................................ * 10.8 -- 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) of Alexander's Inc.'s quarterly report for the period ended June 30, 2002 (File No. 001-06064), filed on August 7, 2002............................................................................. * 10.9 -- 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) of Alexander's Inc.'s quarterly report for the period ended June 30, 2002 (File No. 001-06064), filed on August 7, 2002.............................................. * </Table> - ---------- * Incorporated by reference Page 55 <Page> <Table> <Caption> EXHIBIT NO. - ------- <S> <C> <C> 10.10 -- 59th Street Management and Development Agreement, dated as of July 3, 2002, by and between 731 Commercial LLC and Vornado Management Corp. - Incorporated by reference to Exhibit 10(i)(F)(2) of Alexander's Inc.'s quarterly report for the period ended June 30, 2002 (File No. 001-06064), filed on August 7, 2002................................................................................... * 10.11 -- Amendment to the Stock Pledge Agreement between Vornado Realty Trust and Steven Roth dated May 29, 2002 - Incorporated by reference to Exhibit 5 of Interstate Properties' Schedule 13D dated May 29, 2002 (File No. 005-44144), filed on May 30, 2002.................................................... * </Table> Page 56