UNITED STATESSECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark one)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2004
Or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from: to
Commission File Number: 001-11954
VORNADO REALTY TRUST
(Exact name of registrant as specified in its charter)
Maryland
22-1657560
(State or other jurisdiction of incorporationor organization)
(I.R.S. Employer Identification Number)
888 Seventh Avenue, New York, New York
10019
(Address of principal executive offices)
(Zip Code)
(212) 894-7000
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
ý Yes o No
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
As of October 31, 2004, 127,217,439 of the registrant’s common shares of beneficial interest are outstanding.
PART I.
Financial Information:
Item 1.
Financial Statements:
Consolidated Balance Sheets (Unaudited) as of September 30, 2004 and December 31, 2003
3
Consolidated Statements of Income (Unaudited) for the Three and Nine Months Ended September 30, 2004 and September 30, 2003
4
Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2004 and September 30, 2003
5
Notes to Consolidated Financial Statements (Unaudited)
6
Report of Independent Registered Public Accounting Firm
27
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
28
Item 3.
Quantitative and Qualitative Disclosures About Market Risks
58
Item 4.
Controls and Procedures
PART II.
Other Information:
Legal Proceedings
59
Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.
Exhibits
Signatures
60
Exhibit Index
61
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Amounts in thousands, except share and per share amounts)
September 30,2004
December 31,2003
ASSETS
Real estate, at cost:
Land
$
1,575,211
1,503,965
Buildings and improvements
6,316,899
6,038,275
Development costs and construction in progress
148,766
133,915
Leasehold improvements and equipment
90,954
72,297
Total
8,131,830
7,748,452
Less accumulated depreciation and amortization
(1,017,452
)
(869,849
Real estate, net
7,114,378
6,878,603
Cash and cash equivalents, including U.S. government obligations under repurchase agreements of $40,150 and $30,310
212,074
320,542
Escrow deposits and restricted cash
206,482
161,833
Marketable securities
148,051
81,491
Investments and advances to partially-owned entities, including Alexander’s of $205,075 and $207,872
771,893
900,600
Due from officers
21,743
19,628
Accounts receivable, net of allowance for doubtful accounts of $12,960 and $15,246
88,449
83,913
Notes and mortgage loans receivable
490,468
285,965
Receivable arising from the straight-lining of rents, net of allowance of $2,551 and $2,830
311,901
267,848
Other assets
385,864
376,801
Assets related to discontinued operations
908
141,704
TOTAL ASSETS
9,752,211
9,518,928
LIABILITIES AND SHAREHOLDERS’ EQUITY
Notes and mortgages payable
3,261,112
3,339,365
Senior unsecured notes due 2007 through 2010
967,454
725,020
Revolving credit facility
—
Accounts payable and accrued expenses
241,749
226,100
Officers’ compensation payable
35,246
23,349
Deferred credit
103,049
74,253
Other liabilities
11,482
11,982
Liabilities related to discontinued operations
120,000
Total liabilities
4,620,092
4,520,069
Minority interest of unitholders in the Operating Partnership
1,643,210
1,921,286
Commitments and contingencies
Shareholders’ equity:
Preferred shares of beneficial interest: no par value; authorized 70,000,000 shares;
Series A: liquidation preference $50.00 per share; issued and outstanding 327,604 and 360,705 shares
16,384
18,039
Series B: liquidation preference $25.00 per share; issued and outstanding 3,400,000 shares at December 31, 2003
81,805
Series C: liquidation preference $25.00 per share; issued and outstanding 4,600,000 shares
111,148
Series D-10: liquidation preference $25.00 per share; issued and outstanding 1,600,000 shares
40,000
Series E: liquidation preference $25.00 per share; issued and outstanding 3,000,000 shares
72,530
Common shares of beneficial interest: $.04 par value per share; authorized 200,000,000 shares; issued and outstanding, 126,915,743 and 118,247,944 shares
5,093
4,739
Additional paid-in capital
3,178,644
2,827,789
Distributions in excess of net income
(2,502
(57,618
3,421,297
3,025,902
Deferred compensation shares earned but not yet delivered
69,229
70,610
Deferred compensation shares issued but not yet earned
(10,819
(7,295
Accumulated other comprehensive income (loss)
13,906
(6,940
Due from officers for purchase of common shares of beneficial interest
(4,704
Total shareholders’ equity
3,488,909
3,077,573
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
For The Three MonthsEnded September 30,
For The Nine MonthsEnded September 30,
(Amounts in thousands, except per share amounts)
2004
2003
Revenues:
Rentals
341,113
318,516
1,004,108
937,777
Expense reimbursements
48,793
46,390
141,815
133,631
Fee and other income
26,944
15,262
64,031
44,872
Total revenues
416,850
380,168
1,209,954
1,116,280
Expenses:
Operating
161,132
148,843
459,756
434,860
Depreciation and amortization
59,981
51,871
175,013
155,497
General and administrative
29,774
31,972
90,652
86,642
Costs of acquisition not consummated
1,475
Total expenses
252,362
232,686
726,896
676,999
Operating income
164,488
147,482
483,058
439,281
Income applicable to Alexander’s
1,127
739
4,377
12,341
Income from partially-owned entities
9,826
11,132
33,642
54,165
Interest and other investment income
17,813
2,800
36,667
16,224
Interest and debt expense
(61,163
(56,261
(176,989
(170,798
Net gain (loss) on disposition of wholly-owned and partially-owned assets other than real estate
499
776
(607
Minority interest:
Perpetual preferred unit distributions
(17,334
(17,738
(51,580
(53,215
Minority limited partnership earnings
(16,116
(17,859
(55,584
(57,341
Partially-owned entities
87
(268
212
(1,079
Income from continuing operations
98,728
70,526
274,579
238,971
Income from discontinued operations
9,795
5,534
78,384
16,588
Net income
108,523
76,060
352,963
255,559
Preferred share dividends
(4,022
(5,079
(15,569
(15,930
NET INCOME applicable to common shares
104,501
70,981
337,394
239,629
NET INCOME PER COMMON SHARE – BASIC:
.75
.58
2.08
2.00
.08
.05
.63
.15
Net income per common share
.83
2.71
2.15
NET INCOME PER COMMON SHARE – DILUTED:
.72
.55
1.99
1.95
.07
.60
.14
.79
2.59
2.09
DIVIDENDS PER COMMON SHARE
.71
.68
2.13
2.04
CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)
For The Nine Months Ended September 30,
(Amounts in thousands)
Cash Flows From Operating Activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization (including debt issuance costs)
180,226
159,651
Minority interest
106,252
111,635
Gains on sale of real estate
(75,755
(3,411
Straight-lining of rental income
(44,826
(31,785
Equity in income of partially-owned entities
(33,642
(54,165
Amortization of acquired below market leases, net
(11,492
(6,914
Equity in income of Alexander’s
(4,377
(12,341
Write-off of preferred unit issuance costs
700
Net (gain) loss on disposition of wholly-owned and partially-owned assets other than real estate
(776
607
Changes in operating assets and liabilities
(3,497
6,772
Net cash provided by operating activities
467,251
425,608
Cash Flows From Investing Activities:
Investments in notes and mortgage loans receivable
(246,005
(7,300
Acquisitions of real estate and other
(194,399
(31,189
Proceeds from sale of real estate
233,347
5,436
Distributions from partially-owned entities
173,365
42,027
(87,798
(102,254
Additions to real estate
(81,413
(78,353
Investments in marketable securities
(45,509
(10,419
Cash restricted for escrows and deposits
(44,649
142,363
Repayment of notes and mortgage loans receivable
38,500
26,092
Investments in partially-owned entities
(6,220
(10,360
Acquisition of Building Maintenance Service Company
(13,000
Acquisition of Kaempfer Management Company
(27,622
Net cash used in investing activities
(260,781
(64,579
Cash Flows From Financing Activities:
Repayments of borrowings
(542,297
(593,780
Proceeds from borrowings
575,158
448,987
Dividends paid on common shares
(282,731
(227,079
Redemption of perpetual preferred shares and units
(112,467
Proceeds from issuance of preferred shares and units
106,655
Distributions to minority partners
(99,861
(112,043
Dividends paid on preferred shares
(13,594
Exercise of share options
54,199
54,474
Net cash used in financing activities
(314,938
(445,371
Net decrease in cash and cash equivalents
(108,468
(84,342
Cash and cash equivalents at beginning of period
208,200
Cash and cash equivalents at end of period
123,858
Supplemental Disclosure Of Cash Flow Information:
Cash payments for interest (including capitalized interest of $5,003 and $3,565)
113,382
179,098
Non-Cash Transactions:
Conversion of Class A operating partnership units to common shares
291,000
97,003
Financing assumed in acquisitions
18,500
Unrealized gain on securities available for sale
20,544
8,698
Capitalized leasing and development payroll
4,859
2,484
1. Organization
Vornado Realty Trust (“Vornado”) is a fully-integrated real estate investment trust. 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 86.8% of the common limited partnership interest in, the Operating Partnership at September 30, 2004. 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 accompanying consolidated financial statements 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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2003, as filed with the Securities and Exchange Commission. The results of operations for the three and nine months ended September 30, 2004, are not necessarily indicative of the operating results for the full year.
The accompanying consolidated financial statements include the accounts of Vornado and its majority-owned subsidiary, Vornado Realty L.P., as well as certain partially-owned entities in which the Company owns (i) more than 50% unless a partner has shared board and management representation and authority and substantive participation rights on all significant business decisions or (ii) 50% or less when the Company is considered the primary beneficiary and the entity qualifies as a variable interest entity under Financial Accounting Standards Board (“FASB”) Interpretation No. 46 (Revised) – Consolidation of Variable Interest Entities (“FIN 46R”), which became effective on March 31, 2004. 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 for equity method accounting may be reduced. Investments accounted for under the equity method 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. For all other investments, the Company uses the cost method.
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 prior year balances have been reclassified in order to conform to current year presentation.
3. Recently Issued Accounting Standards
FASB Interpretation No. 46 (Revised) - - Consolidation of Variable Interest Entities (“FIN 46R”)
In January 2003, the FASB issued FIN 46, as amended in December 2003 by FIN 46R, which deferred the effective date until the first interim or annual reporting period ending after March 15, 2004. FIN 46R requires the consolidation of an entity by an enterprise known as a “primary beneficiary,” (i) if that enterprise has a variable interest that will absorb a majority of the entity’s expected losses, if they occur, receive a majority of the entity’s expected residual returns, if they occur, or both and (ii) if the entity is a variable interest entity (“VIE”), as defined. An entity qualifies as a VIE if (i) the total equity investment at risk in the entity is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties or (ii) the equity investors do not have the characteristics of a controlling financial interest in the entity. The initial determination of whether an entity is a VIE shall be made as of the date at which an enterprise becomes involved with the entity and re-evaluated as of the date of triggering events, as defined. The Company has evaluated each partially-owned entity to determine whether any qualify as a VIE, and if so, whether the Company is the primary beneficiary, as defined. The Company has determined that Newkirk Master Limited Partnership (“Newkirk MLP”), in which it owns a 22.3% equity interest (see Note 5 – Investments and Advances to Partially-Owned Entities), qualifies as a VIE. However, the Company has also determined that it is not the primary beneficiary and accordingly, consolidation is not required. The Company’s maximum exposure to loss as a result of its involvement in Newkirk MLP is limited to its equity investment of approximately $153,758,000, as of September 30, 2004. In addition, the Company has variable interests in certain other entities which are primarily financing arrangements. The Company has evaluated these entities in accordance with FIN 46R and has determined that they are not VIEs. Based on the Company’s evaluations, the adoption of FIN 46R on March 31, 2004 did not have a material effect on its consolidated financial statements.
4. Acquisitions, Dispositions and Financings
Acquisitions
On February 3, 2004, the Company acquired the Forest Plaza Shopping Center for approximately $32,500,000, of which $14,000,000 was paid in cash and $18,500,000 was debt assumed. The purchase was funded as part of a Section 1031 tax-free “like-kind” exchange with the remaining portion of the proceeds from the sale of the Company’s Two Park Avenue property. Forest Plaza is a 165,000 square foot shopping center located in Staten Island, New York, anchored by a Waldbaum’s supermarket. The operations of Forest Plaza are consolidated into the accounts of the Company from the date of acquisition.
On March 19, 2004, the Company acquired a 62,000 square foot freestanding retail building located at 25 W. 14thStreet in Manhattan for $40,000,000 in cash. The operations of 25 W. 14th Street are consolidated into the accounts of the Company from the date of acquisition.
On July 1, 2004, the Company acquired the Marriott hotel located in its Crystal City office complex from a limited partnership in which Robert H. Smith and Robert P. Kogod, trustees of the Company, together with family members own approximately 67 percent. The purchase price of $21,500,000 was paid in cash. The hotel contains 343 rooms and is leased to an affiliate of Marriott International, Inc. until July 31, 2015, with one 10-year extension option. The land under the hotel was acquired in 1999. The operations of the hotel are consolidated into the accounts of the Company from the date of acquisition.
On July 29, 2004, the Company acquired a real estate portfolio containing 25 supermarkets for $65,000,000. These properties, all of which are all located in Southern California and contain an aggregate of approximately 766,000 square feet, were purchased from the Newkirk MLP, in which the Company currently owns a 22.3% interest. The supermarkets are net leased to Stater Brothers for an initial term expiring in 2008, with six 5-year extension options. Stater Brothers is a Southern California regional grocery chain that operates 158 supermarkets and has been in business since 1936. The operations of this portfolio are consolidated into the accounts of the Company from the date of acquisition. The Company’s share of gain recognized by Newkirk MLP on this transaction was $7,119,000 and was reflected as an adjustment to the Company’s basis in its investment in Newkirk MLP and not recognized as income.
7
On August 30, 2004, the Company acquired a 68,000 square foot free-standing building in Forest Hills, New York for $26,500,000. The property is located at 99-01 Queens Boulevard and its principal tenants are Rite Aid and Fleet Bank. The operations of this property are consolidated into the accounts of the Company from the date of acquisition.
The acquisitions of 25 West 14th Street, the Crystal City Marriott, the Stater Brothers real estate portfolio, and the Queens Boulevard properties were funded as part of a Section 1031 tax-free “like-kind” exchange with a portion of the proceeds from the sale of the Company’s Palisades Residential Complex (see Dispositions).
On July 20, 2004, the Company committed to make up to a $159,000,000 convertible preferred investment in GMH Communities L.P. (“GMH”), a partnership focused on the student and military housing sectors. Distributions accrue on the full committed balance of the investment, whether or not drawn, from July 20, 2004, at a rate of 16.27%, and the Company receives a monthly cash payment of 8.0% on the weighted average amount funded. In connection with this commitment, the Company received a placement fee of $3,200,000. The Company also purchased for $1,000,000, warrants to acquire GMH common equity. As a result of GMH Communities Trust (“GCT”) initial public offering (“IPO”) discussed below, these warrants entitle the Company to acquire (i) 6,666,667 limited partnership units in GMH at an exercise price of $7.50 per unit and (ii) 5,496,724 limited partnership units at an exercise price of $9.10 per unit. As of September 30, 2004, the Company has funded $80,378,000 of its commitment, which is included in Notes and Mortgage Loans Receivable on the Company’s consolidated balance sheet. In October 2004, the Company funded an additional $33,399,000 of the commitment.
On November 3, 2004, GCT closed its IPO at a price of $12.00 per share. GCT is a real estate investment trust that conducts its business through GMH, of which it is the sole general partner. In connection with the IPO, the $113,777,000 funded of the Company’s $159,000,000 commitment has been repaid, together with accrued distributions of $13,381,000. The Company also exercised warrants to purchase 6,666,667 limited partnership units at a price of $7.50 per unit, or $50,000,000 in total. The Company has recorded a gain of approximately $29,500,000 on the acquisition of these units which is the difference between cost (exercise price of $7.50 plus $0.08 warrant purchase price allocation) and the $12.00 market price. In addition, the Company retains warrants to purchase an additional 5,496,724 limited partnership units of GMH or common shares of GCT at a price of $9.10 per unit or share through May 2, 2006. Until these warrants are exercised or sold, they will be marked-to-market at the end of each reporting period and the resulting gain or loss will be recognized in earnings.
Of the $46,033,000 of income the Company recorded from these transactions, $5,527,000 was recognized in the quarter ended September 30, 2004 and $40,506,000 will be recognized in the fourth quarter of 2004 (in addition to the unrealized gain on the mark-to-market of the remaining warrants and the Company’s pro rata share of GMH’s net income or loss).
Further, in connection with the IPO, the Company contributed its 90% interest in Campus Club Gainesville, which it acquired in 2000, in exchange for an additional 671,190 GMH limited partnership units.
Of the Company’s GMH units, 6,666,667 may be converted into an equivalent number of common shares of GCT commencing on May 2, 2005 and 671,190 units may be converted commencing on November 2, 2005. The Company has agreed not to sell any common shares or units it owns or may acquire until May 2, 2005.
8
On November 2, 2004, the Company acquired a 50% joint venture interest in a 92,500 square foot retail property located at Broome Street and Broadway in New York City. The Company contributed $4,462,000 of equity and provided a $24,000,000 bridge loan for 90 days with interest at 10% per annum. Upon refinancing of the bridge loan, the Company will be repaid $15,106,000 and the balance of $8,894,000 will remain in the venture as additional equity.
Dispositions
On January 9, 2003, the Company sold its Baltimore, Maryland shopping center for $4,752,000, which resulted in a net gain on sale after closing costs of $2,644,000.
On June 29, 2004, the Company sold its Palisades Residential Complex for $222,500,000, which resulted in a gain on sale after closing costs of $65,905,000. All or a portion of the proceeds from the sale will be reinvested pursuant to Section 1031 tax-free “like kind” exchanges, including certain of the acquisitions described above. On February 27, 2004, the Company had acquired the remaining 25% interest in the Palisades venture it did not previously own for approximately $17,000,000 in cash.
On August 12, 2004, the Company sold its Dundalk, Maryland shopping center for $12,900,000, which resulted in a net gain on sale after closing costs of $9,850,000. The proceeds from the sale have been deposited into an account to permit Section 1031 tax-free “like-kind” exchange investments.
Net gain on disposition of wholly-owned and partially-owned assets other than depreciated real estate of $776,000 for the nine months ended September 30, 2004 represents a gain on sale of certain partially-owned development property. Net loss on disposition of wholly-owned and partially-owned assets other than depreciated real estate of $607,000 the nine months ended September 30, 2003 includes the Company’s $1,388,000 share of loss on settlement of guarantees with affiliates of Primestone Investment Partners, partially offset by gains on sale of condominiums and land parcels of $282,000 and $499,000, respectively.
Financings
On January 6, 2004, the Company redeemed all of its 8.375% Series D-2 Cumulative Redeemable Preferred Units at a redemption price equal to $50.00 per unit for an aggregate of $27,500,000 plus accrued distributions. The redemption amount exceeded the carrying amount by $700,000, representing the original issuance costs. Upon redemption, these issuance costs were recorded as a reduction to earnings in arriving at net income applicable to common shares, in accordance with the July 2003 EITF clarification of Topic D-42.
On March 17, 2004, the Company redeemed all of its Series B Preferred Shares at a redemption price equal to $25.00 per share for an aggregate of $85,000,000 plus accrued dividends. The redemption amount exceeded the carrying amount by $3,195,000, representing the original issuance costs. Upon redemption, these issuance costs were recorded as a reduction to earnings in arriving at net income applicable to common shares, in accordance with the July 2003 EITF clarification of Topic D-42.
On May 27, 2004, the Company sold $35,000,000 of 7.2% Series D-11 Cumulative Redeemable Preferred Units to an institutional investor in a private placement. These perpetual preferred units may be called without penalty at the Company’s option commencing in May 2009.
On August 16, 2004, the Company completed a public offering of $250,000,000 aggregate principal amount of 4.50% senior unsecured notes due August 15, 2009. Interest on the notes is payable semi-annually on February 15, and August 15, commencing February 15, 2005. The notes were priced at 99.797% of their face amount to yield 4.546%. The notes are subject to the same financial covenants as the Company’s previously issued senior unsecured debt.
On August 18, 2004, the Company sold $75,000,000 of 7.0% Series E Cumulative Redeemable Preferred Shares at a price of $25.00 per share, in a public offering pursuant to an effective registration statement. The Company may redeem the Series E Preferred Shares at a redemption price of $25.00 per share after August 20, 2009.
9
5. Investments and Advances to Partially-Owned Entities
The Company’s investments in partially-owned entities and income recognized from such investments are as follows:
September 30, 2004
December 31, 2003
Temperature Controlled Logistics
302,696
436,225
Alexander’s
205,075
207,872
Newkirk MLP
153,758
138,762
Partially-Owned Office Buildings
45,543
44,645
Monmouth Mall Joint Venture
29,854
30,612
Starwood Ceruzzi Joint Venture
19,002
23,821
Other
15,965
18,663
Equity in Income (loss):
Income applicable to Alexander’s:
33% share of equity in income before stock appreciation rights compensation expense
4,788
1,628
9,817
4,698
33% share of stock appreciation rights compensation expense
(8,796
(6,192
(20,880
(9,477
33% share of equity in net loss
(4,008
)(1)
(4,564
(11,063
(4,779
Interest income (2)
2,039
2,666
6,637
7,760
Development and guarantee fees (2)
925
1,548
2,991
6,107
Management and leasing fees
2,171
1,089
5,812
3,253
Temperature Controlled Logistics:
60% share of equity in net income
1,298
901
1,167
6,578
Management fees
1,393
1,398
4,148
4,151
90
102
289
474
2,781
2,401
5,604
11,203
Newkirk MLP:
22.3% share of equity in income
4,904
(3)
5,990
17,049
(4)
29,547
Interest and other income
803
1,782
10,557
(5)
5,353
5,707
7,772
27,606
34,900
692
659
1,979
2,068
646
300
(1,547
)(6)
5,994
(7)
(1) The three and nine months ended September 30, 2004, includes the Company’s $1,274 share of Alexander’s gain on sale of a land parcel. The nine months ended September 30, 2004, also includes the Company’s $1,010 share of Alexander’s loss on early extinguishment of debt.
(2) The Company recognizes 67% of amounts charged to Alexander’s as income and the remaining 33% (representing the Company’s ownership) is reflected as a reduction of the Company’s carrying amount of its investment in Alexander’s.
(3) The three months ended September 30, 2004 includes $759 for the Company’s share of an impairment loss on one of Newkirk MLP’s assets.
(4) The nine months ended September 30, 2004 includes $2,479 for the Company’s share of net gains on sale of real estate and $2,901 representing the Company’s share of impairment losses. The nine months ended September 30, 2003 includes the Company’s $9,900 share of gains from the sale of properties and early extinguishment of debt.
(5) Includes a gain of $7,494 resulting from the exercise of an option by the Company’s joint venture partner to acquire certain MLP units held by the Company. The MLP units subject to this option had been issued to the Company on behalf of the Company’s joint venture partner in exchange for the Company’s Operating Partnership units as part of the tender offers to acquire certain of the units of the MLP in 1998 and 1999.
(6) Includes the Company’s $3,833 share of an impairment loss on one of Starwood Ceruzzi Joint Venture’s properties.
(7) Includes the Company’s $4,413 share of Prime Group Realty L.P.’s lease termination fee income recognized in the second quarter of 2003. On May 23, 2003, the Company exchanged the units it owned of Prime Group L.P. for common shares of its parent and no longer accounted for its investment in the partnership on the equity method.
10
Below is a summary of the debt of partially-owned entities as of September 30, 2004 and December 31, 2003, none of which is guaranteed by the Company.
100% ofPartially-Owned Entities Debt
Alexander’s (33% interest):
Lexington Avenue mortgage note payable collateralized by the office space, due in February 2014, with interest at 5.33%
400,000
Kings Plaza Regional Shopping Center mortgage note payable, due in June 2011, with interest at 7.46% (prepayable with yield maintenance)
214,463
216,586
Due to Vornado on January 3, 2006 with interest at 9.0% (one-year treasuries plus 6.0% with a 3.0% floor for treasuries) (prepayable without penalty)
124,000
Rego Park mortgage note payable, due in June 2009, with interest at 7.25%
81,841
82,000
Paramus mortgage note payable, due in October 2011, with interest at 5.92% (prepayable without penalty)
68,000
Lexington Avenue construction loan payable, due in January 2006, plus two one-year extensions, with interest at 4.34% (LIBOR plus 2.50%)
45,675
240,899
Temperature Controlled Logistics (60% interest):
Mortgage notes payable collateralized by 85 temperature controlled warehouses, due 2009 with a weighted average interest rate of 6.15% at September 30, 2004 (various prepayment terms)
738,277
509,456
Other notes payable
35,073
39,365
Newkirk MLP (22.3% interest):
Portion of first mortgages collateralized by the partnership’s real estate, due from 2004 to 2024, with a weighted average interest rate of 7.18% at September 30, 2004 (various prepayment terms)
877,988
1,069,545
Partially-Owned Office Buildings:
Fairfax Square (20% interest) mortgage note payable, due in August 2009, with interest at 7.50%
67,450
68,051
330 Madison Avenue (25% interest) mortgage note payable, due in April 2008, with interest at 6.52% (prepayable with yield maintenance)
60,000
825 Seventh Avenue (50% interest) mortgage note payable, due in October 2014, with interest at 8.07% (prepayable with yield maintenance)
22,854
23,060
Wells/Kinzie Garage (50% interest) mortgage note payable, due in May 2009, with interest at 7.03%
15,404
15,606
Orleans Hubbard (50% interest) mortgage note payable, due in March 2009, with interest at 7.03%
9,670
9,799
Kaempfer Equity Interests (2.1% to 10% interests in five partnerships)Mortgage notes payable, collateralized by the partnerships’ real estate, due from 2007 to 2031, with a weighted average interest rate of 6.15% at September 30, 2004 (various prepayment terms)
340,481
361,263
Monmouth Mall (50% interest):
Mortgage note payable, due in November 2005, with interest at LIBOR plus 2.05% and two one-year extension options (3.53% at September 30, 2004)
135,000
Based on the Company’s ownership interest in the partially-owned entities above, the Company’s share of the debt of these partially-owned entities was $1,084,228,000 and $930,567,000 as of September 30, 2004 and December 31, 2003, respectively.
11
Based on the joint venture’s policy of recognizing rental income when earned and collection is assured or cash is received, the Company did not recognize $7,913,000 and $24,029,000 of rent it was due for the three and nine months ended September 30, 2004 and $8,416,000 and $19,518,000 of rent it was due for the three and nine months ended September 30, 2003, which together with previously unrecognized rent is $73,465,000. This unrecognized rent was eliminated as a result of the acquisition of OPCO on November 4, 2004 (see below).
In the first quarter of 2004, a joint venture in which the Company has a 44% interest acquired an aggregate of $10,200,000 of trade receivables from AmeriCold Logistics (“OPCO”) for $10,000,000 in cash. These receivables have been subsequently collected in full. In the third quarter of 2004, the joint venture acquired an additional $11,730,000 of trade receivables for $11,500,000 in cash.
On February 5, 2004, AmeriCold Realty Trust (“AmeriCold”) completed a $254,400,000 mortgage financing for 21 of its owned and 7 of its leased temperature-controlled warehouses. The loan bears interest at LIBOR plus 2.95% (with a LIBOR floor of 1.5% with respect to $54,400,000 of the loan) and requires principal payments of $5,000,000 annually. The loan matures in April 2009 and is pre-payable without penalty after April 9, 2006. The net proceeds were approximately $225,000,000 after providing for usual escrows, closing costs and the repayment of $12,900,000 of existing mortgages on two of the warehouses, of which $135,000,000 was distributed to the Company and the remainder was distributed to its partner.
On November 4, 2004, AmeriCold purchased its tenant, OPCO, for $47,700,000 in cash. As part of this transaction, Vornado Operating Company repaid the $21,989,000 loan due to the Company as well as $4,771,000 of interest applicable thereto. Since the Company stopped recognizing interest income on this loan in January 2002, it will recognize the $4,771,000 income upon collection in the fourth quarter 2004. In addition, the Company and its 40% partner, Crescent Real Estate Equities Company (“CEI”) entered into a definitive agreement to collectively sell 20.7% of AmeriCold’s common shares to The Yucaipa Companies (“Yucaipa”) for $145,000,000, which will result in a gain, of which the Company’s share is approximately $20,000,000. The purchase price was based on a $1.450 billion valuation for AmeriCold before debt and other obligations. The agreement provides for Yucaipa to earn a promote of 20% of the increase in the value of AmeriCold through December 31, 2007, limited to 10% of the Company’s and CEI’s remaining interest in AmeriCold. Yucaipa is a private equity firm with significant expertise in the food distribution, logistics and retail industries. Upon closing of the sale of Yucaipa, which is scheduled to close before year-end, AmeriCold will be owned 47.6% by the Company, 31.7% by CEI and 20.7% by Yucaipa. Further, the joint venture between the Company and CEI will be dissolved and the Company will have three of the five members of AmeriCold’s Board of Trustees and will consolidate the operations and financial position of AmeriCold into its accounts rather than account for the investment on the equity method.
The Company owns 33% of the outstanding common stock of Alexander’s at September 30, 2004. Alexander’s is managed, and its properties are leased and developed, by the Company. In addition, Building Maintenance Services (“BMS”), a wholly-owned subsidiary of the Company, supervises the cleaning, engineering and security at 731 Lexington Avenue for a fee of 6% of Alexander’s costs for such services. On May 27, 2004, the Company entered into a further agreement with Alexander’s under which the Company provides property management services to Alexander’s for an annual fee of $0.50 per square foot of tenant-occupied office and retail space at 731 Lexington Avenue. The agreements covering all of the above expire in March of each year and are automatically renewable, except for the 731 Lexington Avenue development agreement which provides for a term lasting until substantial completion of the development of the property.
Effective April 1, 2004, based on Alexander’s improved liquidity, the Company modified its term loan and line of credit to Alexander’s to reduce the spread on the interest rate it charges from 9.48% to 6%. Accordingly, the current interest rate was reduced from 12.48% to 9%.
As of September 30, 2004, the Company had a receivable from Alexander’s of $46,788,000 under the agreements discussed above. In addition, in the three and nine months ended September 30, 2004, Alexander’s paid $370,000 and $940,000, respectively, to BMS for cleaning and engineering services at Alexander’s Lexington Avenue project.
12
On February 13, 2004, Alexander’s completed a $400,000,000 mortgage financing on the office space of its Lexington Avenue development project which was placed by German American Capital Corporation, an affiliate of Deutsche Bank. The loan bears interest at 5.33%, matures in February 2014 and beginning in the third year, provides for principal payments based on a 25-year amortization schedule such that over the remaining eight years of the loan, ten years of amortization will be paid. $253,529,000 of the loan proceeds was used to repay the entire amount outstanding under the construction loan with Hypo Real Estate Capital Corporation (“the Construction Loan”). The Construction Loan was modified so that the remaining availability is $237,000,000, which was approximately the amount estimated to complete the Lexington Avenue development project. The interest rate on the Construction Loan is LIBOR plus 2.5% (3.82% at September 30, 2004) and matures in January 2006, with two one-year extensions. The collateral for the Construction Loan is the same except that the office space has been removed from the lien. Further, the Construction Loan permits the release of the retail space for $15,000,000 and requires all proceeds from the sale of the residential condominiums units to be applied to the Construction Loan balance until it is fully repaid. In connection with reducing the principal amount of the Construction Loan, Alexander’s wrote-off $3,050,000 of unamortized deferred financing costs in the first quarter of 2004, of which the Company’s share was $1,010,000.
Equity in income from Alexander’s includes Alexander’s stock appreciation rights compensation expense of which the Company’s share was $8,796,000 and $20,880,000 for the three and nine months ended September 30, 2004, based on a closing Alexander’s stock price of $199.10 on September 30, 2004. The three and nine months ended September 30, 2003 include the Company’s $6,192,000 and $9,477,000 share of Alexander’s stock appreciation rights compensation expense based on a closing Alexander’s stock price of $105.50 on September 30, 2003.
6. Notes, Mortgage Loans Receivable and Other Investments
On March 1, 2004, the Company’s note receivable of $38,500,000 from Commonwealth Atlantic Properties was repaid.
On May 12, 2004, the Company made an $83,000,000 mezzanine loan secured by ownership interests in a subsidiary of Extended Stay America, Inc., which was recently acquired for approximately $3.1 billion by an affiliate of the Blackstone Group. The loan is part of a $166,000,000 facility, the balance of which was funded by Soros Credit LP, and is subordinate to $2.3 billion of other debt. The loan bears interest at LIBOR plus 5.50% (7.34% at Septemner 30, 2004) and matures in May 2007, with two one-year extensions. Extended Stay America owns and operates 485 hotels in 42 states.
On June 1, 2004, and September 24, 2004, the Company acquired Verde Group LLC (“Verde”) convertible subordinated debentures for $14,350,000 and $8,150,000, in cash, bringing its total investment in Verde at September 30, 2004 to $25,000,000 (of a $25,000,000 commitment). Verde invests, operates and develops residential communities on the Texas-Mexico border. The debentures yield a fixed rate of 4.75% per annum.
On June 1, 2004, the Company invested $5,000,000 in a senior mezzanine loan, and $3,050,000 in senior preferred equity of 3700 Associates, LLC which owns 3700 Las Vegas Boulevard, a development land parcel located in Las Vegas, Nevada. The loan bears interest at 12% and matures on March 31, 2007. The preferred equity yields a 10% per annum cumulative preferred return.
On September 1, 2004, the Company acquired a $50,000,000 participation in an existing $200,000,000 loan on the General Motors Building made by an affiliate of Soros Fund Management LLC. This loan, which is subordinate to $1.15 billion of other debt, is secured by partnership interests in the building and additional guarantees and collateral. The $50,000,000 participation bears interest at 16%, matures on March 25, 2005 and is prepayable at any time.
13
Also included in the “Notes and Mortgage Loans Receivable” as of September 30, 2004 is $80,378,000 representing the amount funded by the Company on its $159,000,000 convertible preferred commitment to GMH Communities L.P. (see page 8 for details of this transaction).
On September 21, 2004, the Company converted its $30,000,000 Capital Trust Convertible Preferred Securities into 1,424,474 common shares of Capital Trust with a market value of $39,073,000, based on the then closing stock price on the NYSE of $27.43. Upon conversion, the Company’s unamortized discount of $622,000 was recognized as investment income and the difference between the $30,000,000 face amount of the preferred securities and the $39,073,000 market value of the common shares of $9,073,000 was recorded as “accumulated other comprehensive income (loss)”, a component of shareholders’ equity on the Company’s consolidated balance sheet. The common shares are classified as marketable securities on the Company’s consolidated balance sheet and are classified as “available for sale.”
In July and August 2004, the Company acquired an aggregate of 1,176,600 common shares of Sears, Roebuck and Co. (“Sears”) for $40,576,000, an average price of $34.44 per share. These shares are recorded as marketable securities on the Company’s consolidated balance sheet and are classified as “available for sale.” Appreciation or depreciation in the fair market value of these shares is recorded as an increase or decrease in “accumulated other comprehensive income (loss)” in the shareholders’ equity section of the Company’s consolidated balance sheet and not recognized in income. At September 30, 2004, based on Sears’ closing stock price of $39.85 per share, $6,312,000 of appreciation was included in “accumulated other comprehensive income (loss).”
In August and September 2004, the Company acquired an economic interest in an additional 7,916,900 Sears common shares through a series of privately negotiated transactions with a financial institution pursuant to which the Company purchased a call option and simultaneously sold a put option at the same strike price on Sears common shares. These call and put options have a weighted-average strike price of $39.82 per share, or an aggregate of $315,200,000, expire in April 2006 and provide for net cash settlement. Under these agreements, the strike price for each pair of options increases at an annual rate of LIBOR plus 45 basis points and is credited for the dividends received on the shares. The options provide the Company with the same economic gain or loss as if it had purchased the underlying common shares and borrowed the aggregate strike price at an annual rate of LIBOR plus 45 basis points. Because these options are derivatives and do not qualify for hedge accounting treatment, the gains or losses resulting from the mark-to-market of the options at the end of each reporting period is recognized as an increase or decrease in “interest and other investment income” on the Company’s consolidated statement of income. During the quarter ended September 30, 2004, the Company recorded a net expense of $88,000 on these transactions, comprised of (i) $966,000 for the increase in strike price resulting from the LIBOR charge and (ii) $572,000 of legal fees, partially offset by (iii) $1,214,000 of accrued dividends on the common shares and (iv) the $238,000 increase in the value of the options resulting from an increase in the market price of the underlying common shares.
Based on Sears’ most recent Form 10-Q, the Company’s aggregate investment represents 4.3% of Sears outstanding common shares. As of November 4, 2004, based on the closing price of Sears common shares on the NYSE of $37.18 per share, the market value of the 7,916,900 shares underlying the option agreements was $294,350,000, and the market value of the 1,176,600 shares owned by the Company was $43,746,000. As of November 4, 2004, the Company has funded $64,205,000 to the financial institution as margin collateral which earns interest at an annual rate equal to the Federal Funds rate.
14
7. Identified Intangible Assets and Goodwill
The following summarizes the Company’s identified intangible assets, intangible liabilities (deferred credit) and goodwill as of September 30, 2004 and December 31, 2003.
Identified intangible assets (included in other assets):
Gross amount
189,533
171,950
Accumulated amortization
(56,647
(41,075
Net
132,886
130,875
Goodwill (included in other assets):
4,345
Identified intangible liabilities (included in deferred credit):
115,508
79,146
(47,277
(31,787
68,231
47,359
Amortization of acquired below market leases net of acquired above market leases (components of rental income) was $4,730,000 and $11,492,000 for the three and nine months ended September 30, 2004, and $3,162,000 and $6,914,000 for the three and nine months ended September 30, 2003. The estimated annual amortization of acquired below market leases net of acquired above market leases for each of the five succeeding years is as follows:
2005
8,714
2006
5,817
2007
4,832
2008
4,025
2009
3,731
The estimated annual amortization of all other identified intangible assets (a component of depreciation and amortization expense) including acquired in-place leases, customer relationships, and third party contracts for each of the five succeeding years is as follows:
13,066
11,719
11,152
11,006
10,364
15
8. Notes and Mortgages Payable
Following is a summary of the Company’s debt:
Maturity
Interest Rateas atSeptember 30, 2004
Balance as of
Notes and Mortgages Payable:
Fixed Interest:
Office:
NYC Office:
Two Penn Plaza (1)
02/11
4.97%
300,000
151,420
888 Seventh Avenue
02/06
6.63%
105,000
Eleven Penn Plaza
05/07
8.39%
48,433
49,304
866 UN Plaza
(2)
33,000
CESCR Office:
Crystal Park 1-5
07/06-08/13
6.66%-7.08%
255,181
258,733
Crystal Gateway 1-4 Crystal Square 5
07/12-01/25
6.75%-7.09%
213,152
214,323
Crystal Square 2, 3 and 4
10/10-11/14
6.82%-7.08%
142,246
143,854
Skyline Place
08/06-12/09
6.60%-6.93%
133,533
135,955
1101 17th , 1140 Connecticut, 1730 M and 1150 17th
08/10
6.74%
94,853
95,860
Courthouse Plaza 1 and 2
01/08
7.05%
77,884
78,848
Reston Executive I, II and III
01/06
6.75%
71,988
72,769
Crystal Gateway N., Arlington Plaza and 1919 S. Eads
11/07
6.77%
70,547
71,508
Crystal Plaza 1-6
68,654
One Skyline Tower
06/08
7.12%
64,078
64,818
Crystal Malls 1-4
12/11
6.91%
56,665
60,764
1750 Pennsylvania Avenue
06/12
7.26%
49,002
49,346
One Democracy Plaza
02/05
26,358
26,900
Retail:
Cross collateralized mortgages payable on 42 shopping centers
03/10
7.93%
477,547
481,902
Green Acres Mall
02/08
146,566
148,386
Las Catalinas Mall
11/13
6.97%
65,961
66,729
Montehiedra Town Center
8.23%
58,241
58,855
Forest Plaza
05/09
4.00%
21,149
08/21
9.90%
6,904
6,920
Merchandise Mart:
Washington Design Center
11/11
6.95%
47,633
48,012
Market Square Complex
07/11
7.95%
45,802
46,816
Furniture Plaza
02/13
5.23%
44,854
45,775
Washington Office Center
43,166
10/10-06/28
7.52%-7.71%
18,228
18,434
Other:
Industrial Warehouses
10/11
48,566
48,917
Student Housing Complex
7.45%
18,589
18,777
Total Fixed Interest Notes and Mortgages Payable
7.15%
2,708,960
2,713,745
16
8. Notes and Mortgages Payable- continued
Spreadover LIBOR
Interest Rateas atSeptember 30,2004
Variable Interest:
One Penn Plaza (1)
06/05
L+125
3.10
%
200,000
275,000
770 Broadway
06/06
L+105
2.86
170,000
909 Third Avenue
08/06
L+70
2.45
125,000
Commerce Executive III, IV and V
07/05
L+150
3.15
42,037
42,582
Commerce Executive III, IV and V B
L+85
2.50
10,000
400 North LaSalle
L+250
4.75
5,115
3,038
Total Variable Interest Notes and Mortgages Payable
2.89
552,152
625,620
Total Notes and Mortgages Payable
6.42
Unsecured revolving credit facility
07/06
L+65
Liabilities related to discontinued operations:
Palisades construction loan (5)
Senior Unsecured Notes:
Senior unsecured notes due 2007 at fair value (accreted carrying amount of $499,607 and $499,499) (6)
06/07
L+77
518,184
525,279
Senior unsecured notes due 2009 (7)
08/09
4.50
249,501
Senior unsecured notes due 2010
12/10
4.77
199,769
199,741
(1) On February 5, 2004, the Company completed a $300,000 refinancing of Two Penn Plaza. The loan bears interest at 4.97% and matures in February 2011. The Company retained net proceeds of $41,000 after repaying the existing $151,000 loan, $75,000 of the $275,000 mortgage loan on its One Penn Plaza property and the $33,000 mortgage loan on 866 UN Plaza.
(2) Repaid in February 2004.
(3) Repaid in July 2004.
(4) Repaid in January 2004.
(5) Repaid in June 2004 in connection with the sale of Palisades.
(6) Upon the issuance of the notes, the Company entered into interest rate swap agreements that effectively converted the interest rate from a fixed rate of 5.625% to a floating rate of LIBOR plus ..7725%, based upon the trailing three month LIBOR rate (2.13% on September 30, 2004). In accordance with SFAS No. 133, as amended, the Company is required to fair value the debt at each reporting period. At September 30, 2004, the fair value adjustment was $18,577 and is included in the balance of the senior unsecured notes above.
(7) On August 16, 2004, the Company completed a public offering of $250,000, aggregate principal amount of 4.50% senior unsecured notes due August 15, 2009. Interest on the notes is payable semi-annually on February 15 and August 15 commencing, February 15, 2005. The notes were priced at 99.797% of their face amount to yield 4.546%. The notes are subject to the same financial covenants as the Company’s previously issued senior unsecured notes. The net proceeds of approximately $247,700 were used for general corporate purposes.
17
The following table sets forth the details of fee and other income:
Tenant cleaning fees
7,976
7,087
22,687
21,762
3,239
3,736
13,194
9,781
Other income
15,729
4,439
28,150
13,329
Fee and other income above includes management fee income from Interstate Properties, a related party, of $172,000 and $171,000 in the three months ended September 30, 2004 and 2003 and $568,000 and $519,000 in the nine months ended September 30, 2004 and 2003. The above table excludes fee and other income from partially-owned entities which is included in income from partially-owned entities (see Note 5).
Assets related to discontinued operations at September 30, 2004, consist primarily of real estate, net of accumulated depreciation, and represent the Company’s retail property located in Vineland, New Jersey. At December 31, 2003, the assets related to discontinued operations consist primarily of real estate, net of accumulated depreciation, related to the Palisades and liabilities related to discontinued operations represent the Palisades mortgage payable of $120,000,000.
The combined results of discontinued operations in the following table include the operating results from the assets held for sale above, as well as (i) Palisades Residential Complex, sold on June 29, 2004, (ii) Two Park Avenue office property, sold on October 10, 2003, and (iii) Baltimore, Hagerstown, and Dundalk, Maryland retail properties, sold on January 9, 2003, November 3, 2003 and August 12, 2004, respectively.
178
13,180
9,285
37,678
233
8,413
6,656
24,501
(55
4,767
2,629
13,177
Gain on sale of Dundalk
9,850
Gain on sale of Palisades
65,905
Gain on sale of Baltimore
2,644
Gain on sale of other real estate
767
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11. Income Per Share
The following table provides a reconciliation of both net income and the number of common shares used in the computation of basic income per common share, which utilizes the weighted average number of common shares outstanding without regard to dilutive potential common shares, and diluted income per common share, which includes the weighted average common shares and dilutive share equivalents. Potential dilutive share equivalents include employee stock options and deferred compensation share awards, the Company’s Series A convertible preferred shares as well as Vornado Realty L.P.’s convertible preferred units.
Numerator:
Numerator for basic income per share – net income applicable to common shares
Impact of assumed conversions:
Series A convertible preferred share dividends
266
805
3,265
Series E-1 convertible preferred unit distributions
1,581
Numerator for diluted income per share – net income applicable to common shares
104,767
339,780
242,894
Denominator:
Denominator for basic income per share – weighted average shares
126,397
113,028
124,624
111,217
Effect of dilutive securities:
Employee stock options
5,486
4,317
5,002
3,030
Series A convertible preferred shares
454
461
1,855
Series E-1 convertible preferred units
851
140
277
105
225
Denominator for diluted income per share – weighted average shares and assumed conversions
132,477
117,622
131,043
116,327
INCOME PER COMMON SHARE – BASIC:
INCOME PER COMMON SHARE – DILUTED:
12. Comprehensive Income
The following table sets forth the Company’s comprehensive income:
For The Three MonthsEnded September 30, ,
For The Nine MonthsEnded September 30
Other comprehensive income
21,672
5,273
20,846
9,033
Comprehensive income
130,195
81,333
373,809
264,592
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13. Commitments and Contingencies
At September 30, 2004, the Company utilized $21,788,000 of availability under its revolving credit facility for letters of credit and guarantees.
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 ((i) fire, (ii) flood, (iii) extended coverage, (iv) “acts of terrorism” as defined in the Terrorism Risk Insurance Act of 2002 which expires in 2005 and (v) rental loss insurance) with respect to its assets. In April 2004, the Company renewed its all risk policies and increased its coverage for Acts of Terrorism for each of its New York Office, CESCR Office and Merchandise Mart divisions. Below is a summary of the current all risk property insurance and terrorism risk insurance for each of the Company’s business segments:
Coverage Per Occurrence
All Risk (1)
Sub-Limits forActs of Terrorism
New York Office
1,400,000,000
750,000,000
CESCR Office
Retail
500,000,000
Merchandise Mart
225,000,000
(1) Limited as to terrorism insurance by the sub-limit shown in the adjacent column.
In addition to the coverage above, the Company carries lesser amounts of coverage for terrorist acts not covered by the Terrorism Risk Insurance Act of 2002.
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, 2009 and 2010 and its revolving credit agreement, contain customary covenants requiring the Company to maintain insurance. Although the Company believes that it has adequate insurance coverage under these agreements, the Company may not be able to obtain an equivalent amount of coverage at reasonable costs in the future. Further, if lenders insist on greater coverage than the Company is able to obtain, it could adversely affect the Company’s ability to finance and/or refinance its properties and 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 that cannot be quantified by the Company.
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.
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14. Stock-Based Compensation
Prior to 2003, the Company accounted for stock-based compensation using the intrinsic value method (i.e. the difference between the price per share at the grant date and the option exercise price). Accordingly, no stock-based compensation was recognized in the Company’s consolidated financial statements for plan awards granted prior to 2003. If compensation cost for plan awards granted prior to 2003 had been determined based on fair value at the grant dates, net income and income per share would have been reduced to the pro-forma amounts below:
Net income applicable to common shares:
As reported
Stock-based compensation cost, net of minority interest
(988
(1,115
(2,964
(3,345
Pro-forma
103,513
69,866
334,430
236,284
Net income per share applicable to common shares:
Basic:
.82
.62
2.68
2.12
Diluted:
.78
.59
2.57
2.05
15. Retirement Plans
The following table sets forth the components of net periodic benefit costs:
Service cost
Interest cost
304
311
912
933
Expected return on plan assets
(267
(279
(802
(836
Amortization of prior service cost
53
51
160
152
Net periodic cost
83
270
249
Employer Contributions
During the nine months ended September 30, 2004, the Company made contributions of $750,000 to the plans. The Company anticipates additional contributions of $240,000 to the plans during the remainder of 2004.
16. Related Party Transactions
On March 11, 2004, the Company loaned $2,000,000 to Melvyn Blum, an executive officer of the Company, pursuant to the revolving credit facility contained in his January 2000 employment agreement. The loan bears interest at 1.57% per annum (the Federal rate) and is due on March 10, 2007.
On July 1, 2004, the Company acquired the Marriott hotel located in its Crystal City office complex from a limited partnership in which Robert H. Smith and Robert P. Kogod, trustees of the Company, together with family members own approximately 67 percent. The purchase price was $21,500,000.
On October 1, 2004, the Company increased its ownership interest in the Investment Building in Washington, D.C. to 5% by acquiring an additional 2.9% interest for $2,240,000 in cash. The Company’s original interest in the property was acquired in connection with the acquisition of the Kaempfer Company in April 2003. Mitchell N. Schear, President of the Company’s CESCR division and other former members of Kaempfer management were also partners in the Investment Building partnership.
21
17. Segment Information
Below is a summary of net income and a reconciliation of net income to EBITDA (1) by segment for the three months ended September 30, 2004 and 2003.
For The Three Months Ended September 30, 2004
Office
MerchandiseMart
TemperatureControlledLogistics
Other(4)
Property rentals
319,445
212,827
39,793
49,556
17,269
Straight-line rents:
Contractual rent increases
9,783
7,441
1,464
831
47
Amortization of free rent
7,155
1,395
3,768
1,479
513
4,730
3,599
1,131
Total rentals
225,262
46,156
51,866
17,829
28,481
14,744
4,563
1,005
Fee and other income:
2,868
243
128
13,371
737
1,526
95
277,958
61,880
58,083
18,929
Operating expenses
106,523
18,626
23,033
12,950
41,911
6,060
7,866
4,144
8,752
3,424
5,237
12,361
157,186
28,110
36,136
30,930
Operating income (loss)
120,772
33,770
21,947
(12,001
662
112
5,579
230
26
17,445
(33,131
(14,911
(2,786
(10,335
(33,363
Income (loss) from continuing operations
88,563
19,633
19,299
(31,548
Income (loss) from discontinued operations
9,845
(50
Net income (loss)
29,478
(31,598
Interest and debt expense(2)
80,335
34,092
15,720
3,013
7,796
19,714
Depreciation and amortization(2)
74,294
42,673
6,780
8,000
8,614
8,227
Income taxes
273
279
55
EBITDA(1)
263,759
165,601
51,978
30,591
19,191
(3,602
EBITDA includes a net gain on sale of real estate of $9,850, which relates to the Retail segment.
See footnotes on page 26.
22
For The Three Months Ended September 30, 2003
304,739
208,671
34,427
47,706
13,935
9,018
8,138
821
1
1,597
1,104
483
3,162
2,998
164
219,817
36,516
48,190
13,993
26,582
14,317
4,455
1,036
3,349
380
1,270
2,368
786
258,105
53,581
53,431
15,051
100,761
15,838
20,509
11,735
37,062
4,219
7,379
3,211
9,190
2,554
4,677
15,551
147,013
22,611
32,565
30,497
111,092
30,970
20,866
(15,446
651
142
7,279
248
2,479
(33,173
(14,924
(3,587
(4,577
Net gain on disposition of wholly-owned and partially-owned assets other than real estate
180
319
(35,865
(301
(35,564
78,705
16,744
17,447
(44,771
5,762
68
(296
84,467
16,812
(45,067
73,180
34,150
15,741
3,818
6,169
13,302
67,555
38,253
4,848
7,468
8,687
8,299
216,795
156,870
37,401
28,733
17,257
(23,466
23
Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the nine months ended September 30, 2004 and 2003.
For The Nine Months Ended September 30, 2004
947,790
632,984
115,595
151,881
47,330
25,514
19,928
3,602
1,910
74
19,312
6,806
8,632
3,326
548
11,492
7,959
3,533
667,677
131,362
157,117
47,952
80,847
45,986
12,611
2,371
12,223
788
150
33
21,273
1,567
5,055
255
804,707
179,703
174,933
50,611
296,032
56,716
69,542
37,466
119,839
18,917
24,127
12,130
28,590
9,506
15,743
36,813
444,461
85,139
109,412
87,884
360,246
94,564
65,521
(37,273
(2,234
481
27,812
634
217
35,733
(98,259
(44,481
(8,456
(25,793
(106,952
264,600
48,066
57,629
(101,320
10,243
68,141
58,309
(33,179
234,815
101,129
46,798
9,141
23,011
54,736
218,602
122,083
21,431
24,528
25,966
24,594
835
293
263
807,215
488,105
126,538
91,577
54,581
46,414
EBITDA includes net gains on sale of real estate of $75,755, of which $65,905 relates to the Other segment and $9,850 relates to the Retail segment.
24
For The Nine Months Ended September 30, 2003
899,468
617,028
101,048
145,648
35,744
26,747
22,393
2,935
1,371
48
4,648
(798
3,975
1,471
6,914
6,423
491
645,046
108,449
148,490
35,792
74,826
42,625
13,453
2,727
8,807
943
31
6,560
4,368
2,318
757,001
156,385
164,261
38,633
284,242
53,309
64,642
32,667
111,783
12,513
21,201
26,817
7,606
14,343
37,876
422,842
73,428
100,186
80,543
334,159
82,957
64,075
(41,910
2,905
145
37,844
1,893
148
14,100
(101,128
(44,894
(11,151
(13,625
Net (loss) gain on disposition of wholly-owned and partially-owned assets other than real estate
188
(975
(111,635
(1,119
(110,516
236,053
41,116
53,340
(102,741
15,522
2,852
(1,786
251,575
43,968
(104,527
223,218
103,824
47,135
11,846
18,512
41,901
201,237
114,872
14,846
21,467
26,157
23,895
680,014
470,271
105,949
86,653
55,872
(38,731
EBITDA includes net gains on sale of real estate of $3,411, of which $2,644 relates to the Retail segment and $767 relates to the Office segment.
25
Notes to segment information:
(1) EBITDA represents “Earnings Before Interest, Taxes, Depreciation and Amortization.” Management considers EBITDA a supplemental measure for making decisions and assessing the performance of its segments. EBITDA should not be considered a substitute for net income. EBITDA may not be comparable to similarly titled measures employed by other companies.
(2) Interest and debt expense and depreciation and amortization included in the reconciliation of net income to EBITDA reflects the Company’s share of the interest and debt expense and depreciation and amortization of its partially-owned entities.
(3) Net of rent not recognized of $7,913 and $8,416 for the three months ended September 30, 2004 and 2003 and $24,029 and $19,518 for the nine months ended September 30, 2004 and 2003.
(4) Other EBITDA is comprised of:
Equity in income of limited partnership
11,972
14,765
38,585
53,222
2,506
2,650
15,646
6,221
5,873
2,192
17,909
16,944
Hotel Pennsylvania
3,643
1,188
7,963
550
Industrial warehouses
1,409
1,715
3,803
4,843
400 North LaSalle (phased into service beginning October 2003)
728
540
Student Housing
241
446
1,254
1,506
Palisades
1,402
3,799
3,309
26,372
24,358
89,499
86,595
Minority interest expense
Unallocated general and administrative expenses
(11,242
(14,447
(33,366
(34,703
Investment income and other
14,631
2,187
31,328
21,281
Settlement of Primestone guarantees
(1,388
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and Board of TrusteesVornado Realty TrustNew York, New York
We have reviewed the accompanying condensed consolidated balance sheet of Vornado Realty Trust as of September 30, 2004, and the related condensed consolidated statements of income for the three-month and nine-month periods ended September 30, 2004 and 2003, and cash flows for the nine-month periods ended September 30, 2004 and 2003. These interim financial statements are the responsibility of the Company’s management.
We conducted our reviews in accordance with standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Vornado Realty Trust as of December 31, 2003, and the related consolidated statements of income, shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated March 2, 2004, we expressed an unqualified opinion on those consolidated financial statements and included an explanatory paragraph relating to the Company’s adoption of the provisions of SFAS No. 142 “Goodwill and Other Intangible Assets” and application of the provisions of SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets.” In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2003 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
November 4, 2004
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,” “will,” “would,” “may” 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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2003 under “Forward Looking Statements” and “Item 1. Business – Certain Factors That May Adversely Affect the Company’s Business and Operations.” For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. We expressly disclaim any responsibility to update forward-looking statements, whether as a result of new information, future events or otherwise. Accordingly, investors should use caution in relying on forward-looking statements, which are based on results and trends at the time they are made, to anticipate future results or trends.
Management’s Discussion and Analysis of Financial Condition and Results of Operations includes a discussion of the Company’s consolidated financial statements for the three and nine months ended September 30, 2004. 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.
Overview
The Company owns and operates office, retail and showroom properties with large concentrations of office and retail properties in the New York City metropolitan area and in the Washington, DC and Northern Virginia area. In addition, the Company has a 60% interest in a partnership that owns cold storage warehouses nationwide.
The Company’s business objective is to maximize shareholder value. The Company measures its success in meeting this objective by the total return to its shareholders. Below is a table comparing the Company’s performance to the Morgan Stanley REIT Index (“RMS”) for the following periods ending September 30, 2004:
Total Return (1)
Vornado
RMS
Three-months
11.1
8.4
One-year
38.3
24.8
Three-years
92.0
67.0
Five-years
162.9
127.3
Ten-years
554.9
233.6
%(2)
(1) Past performance is not necessarily indicative of how the Company will perform in the future.
(2) From inception on July 25, 1995
The Company intends to continue to achieve its business objective by pursuing its investment philosophy and executing its operating strategies through:
• Maintaining a superior team of operating and investment professionals and an entrepreneurial spirit;
• Investing in properties in select markets, such as New York City and Washington, DC, where we believe there is high likelihood of capital appreciation;
• Acquiring quality properties at a discount to replacement cost and where there is a significant potential for higher rents;
• Investing in retail properties in select under-stored locations such as the New York City metropolitan area;
• Developing/redeveloping the Company’s existing properties to increase returns and maximize value.
The Company competes with a large number of real estate property owners and developers. Principal factors of competition are rent charged, attractiveness of location and quality and breadth of services provided. The Company’s success depends upon, among other factors, trends of the national and local economies, financial condition and operating results of current and prospective tenants and customers, availability and cost of capital, construction and renovation costs, taxes, governmental regulations, legislation and population trends. The current economic recovery is fostered, in part, by low interest rates, Federal tax cuts, and increases in government spending. To the extent this recovery stalls, the Company may experience lower occupancy rates which may lead to lower initial rental rates, higher leasing costs and a corresponding decrease in net income, funds from operations and cash flow. Alternatively, if the recovery continues, the Company may experience higher occupancy rates leading to higher initial rents and higher interest rates causing an increase in the Company’s weighted average cost of capital and a corresponding effect on net income, funds from operations and cash flow.
29
Overview - Leasing Activity
The following table sets forth certain information for the properties the Company owns directly or indirectly, including leasing activity. Tenant improvements and leasing commissions are presented below based on square feet leased during the period and on a per annum basis based on the weighted average term of the leases.
(Square feet and cubic feet in thousands)
New YorkCity
CESCR
Showroom
As of September 30, 2004:
Square feet
13,315
14,330
13,965
5,385
17,476
Cubic feet
440,700
Number of properties
64
88
Occupancy rate
96.4
94.1
93.5
96.2
97.2
76
Leasing Activity:
Quarter ended September 30, 2004:
326
629
116
56
204
Initial rent (1)
43.65
27.21
17.05
17.81
23.48
Weighted average lease term (years)
7.2
7.4
8.5
8.9
4.6
Rent per square foot on relet space:
205
485
27.50
30.28
Prior escalated rent
41.94
28.48
24.11
23.53
22.89
Percentage increase (decrease)
4.1
(3.4
)%
25.6
(24.3
2.6
Rent per square foot on space previously vacant:
121
144
85
26.26
12.27
Tenant improvements and leasing commissions per square foot
30.83
26.16
6.32
8.11
2.26
Tenant improvements and leasing commissions per square foot per annum (2)
4.26
3.54
0.74
0.91
0.50
Nine months ended September 30, 2004:
1,239
2,256
840
488
758
28.89
16.04
22.39
22.96
9.7
5.8
8.2
12.9
5.3
921
1,708
580
287
41.85
29.39
15.80
21.91
39.90
29.86
13.31
23.82
23.06
4.9
(1.6
18.7
(8.0
(0.4
318
260
201
42.19
27.34
16.59
23.09
38.85
15.41
4.24
68.85
5.07
4.01
2.66
0.52
5.32
0.95
(1) Most leases include periodic step-ups in rent, which are not reflected in the initial rent per square foot leased.
(2) May not be indicative of the amounts for the full year.
30
As of June 30, 2004:
13,269
13,116
2,944
5,479
62
96.1
93.2
92.9
96.5
96.8
72.0
As of December 31, 2003:
13,253
13,963
12,888
2,808
5,624
63
95.2
93.9
93.0
92.6
95.1
76.2
As of September 30, 2003:
13,583
13,879
12,514
2,803
5,614
95.9
93.3
91.0
94.7
76.7
Square feet leased in the nine months ended September 30, 2004 does not include 39,000 square feet of retail space included in the NYC office properties which was leased at an initial rent of $131 per square foot.
Critical Accounting Policies
A summary of the Company’s critical accounting policies is included in the Company’s annual report on Form 10-K for the year ended December 31, 2003 in Management’s Discussion and Analysis of Financial Condition. There have been no significant changes to those policies during 2004.
Reconciliation of Net Income and EBITDA
Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the three months ended September 30, 2004 and 2003.
See footnotes on page 34.
32
See following page for footnotes.
Notes:
(1) EBITDA represents “Earnings Before Interest, Taxes, Depreciation and Amortization.” EBITDA should not be considered a substitute for net income. EBITDA may not be comparable to similarly titled measures employed by other companies.
(3) Net of rent not recognized of $7,913 and $8,416 for the three months ended September 30, 2004 and 2003.
Equity in income of limited partnership (A)
Alexander’s (B)
Hotel Pennsylvania (C)
(A) EBITDA for the three months ended September 30, 2004, includes the Company’s $759 share of Newkirk MLP’s impairment loss on one of its real estate assets. EBITDA for the three months ended September 30, 2003, includes the Company’s $1,900 share of gains on sale of real estate.
(B) Includes Alexander’s stock appreciation rights compensation expense, of which the Company’s share was $8,796, and $6,192 for the three months ended September 30, 2004 and 2003, respectively. The three months ended September 30, 2004 also includes the Company’s $1,274 share of gain on sale of a land parcel.
(C) Average occupancy and revenue per available room (“REVPAR”) were 82.9% and $80.35 for the three months ended September 30, 2004 compared to 67.3% and $59.29 for the prior year’s quarter.
34
Results of Operations
Revenues
The Company’s revenues, which consist of property rentals, expense reimbursements, hotel revenues, trade show revenues, amortization of acquired below market leases net of above market leases pursuant to SFAS No. 141, and fee and other income, were $416,850,000 for the quarter ended September 30, 2004, compared to $380,168,000 in the prior year’s quarter, an increase of $36,682,000. Below are the details of the increase by segment:
Date ofAcquisition
Rentals:
Increase (decrease) due to:
Acquisitions:
Bergen Mall
December 2003
2,537
2101 L Street
August 2003
1,234
So. California supermarkets
July 2004
Marriot Hotel
905
25 W. 14th Street
March 2004
704
Forest Plaza Shopping Center
February 2004
702
99-01 Queens Boulevard
August 2004
130
Development placed into service:
4 Union Square South
2,707
400 N. LaSalle
1,489
1,568
601
967
Operations:
Hotel activity
3,171
(1)
Trade shows activity
452
Leasing activity
6,086
2,705
981
3,224
(824
Total increase in property rentals
22,597
5,445
9,640
3,676
3,836
Tenant expense reimbursements:
2,091
1,352
Operations
312
1,160
(925
108
(31
Total increase (decrease) in tenant expense reimbursements
2,403
1,899
427
Increase (decrease) in:
Lease cancellation fee income
11,020
9,773
585
BMS Cleaning fees
617
608
(112
(7
(1,194
889
(2,241
78
80
Total increase (decrease) in fee and other income
11,682
12,509
(1,768
868
73
Total increase in revenues
36,682
19,853
4,652
3,878
(1) Average occupancy and REVPAR were 82.9% and $80.35 for the three months ended September 30, 2004 compared to 67.3% and $59.29 for the prior year’s quarter.
(2) The increase relates to early lease terminations at the Company’s 888 Seventh Avenue and 909 Third Avenue office properties for approximately 175 square feet, a substantial portion of which has been re-leased during the current quarter at equal or higher rents (see page 30).
See “Overview – Leasing Activity” on page 30 for details of leasing activity and corresponding changes in occupancy.
35
Expenses
The Company’s expenses were $252,362,000 for the quarter ended September 30, 2004, compared to $232,686,000 in the prior year’s quarter, an increase of $19,676,000. Below are the details of the increase by segment:
Operating:
1,004
337
881
592
852
7,538
5,425
520
1,672
(79
Total increase in operating
12,289
2,788
2,524
1,215
Depreciation and amortization:
Increase due to:
Acquisitions/Development
3,002
557
1,815
630
5,108
4,292
487
303
Total increase in depreciation and amortization
8,110
4,849
1,841
General and administrative:
126
(2,324
(438
870
560
(3,316
)(3)
Total (decrease) increase in general and administrative
(2,198
(3,190
Cost of acquisition not consummated
Total increase in expenses
19,676
10,173
5,499
3,571
433
(1) Primarily relates to (i) a $2,713 increase in utility costs, (ii) a $867 increase in real estate taxes (primarily New York Office) and (iii) a $763 increase due to the timing of repairs and maintenance.
(2) Primarily due to additions to buildings and improvements during 2003.
(3) Primarily due to a severance payment of $1,570 in the three months ended September 30, 2003 for an executive officer and a related charge of $867 for the accelerated vesting of his restricted stock awards.
(4) Mervyn’s.
Income applicable to Alexander’s (loan interest income, management, leasing, development and commitment fees, and equity in income) was $9,923,000 before $8,796,000 of Alexander’s stock appreciation rights compensation (“SAR”) expense or $1,127,000, net in the quarter ended September 30, 2004, compared to income of $6,931,000 before $6,192,000 of SAR expense or $739,000, net in the prior year’s quarter, an increase of $388,000. This increase resulted primarily from (i) income from the commencement of leases with Bloomberg on November 15, 2003, and other tenants during May and June 2004 at Alexander’s 731 Lexington Avenue property and (ii) the Company’s $1,274,000 share of a gain on sale of a land parcel in the quarter ended September 30, 2004, partially offset by (iii) an increase of $2,604,000 for the Company’s share of Alexander’s SAR expense.
36
Income from Partially-Owned Entities
Below is the detail of income from partially-owned entities by investment as well as the increase (decrease) in income from partially-owned entities for the quarters ended September 30, 2004 and 2003:
MonmouthMall
StarwoodCeruzziJointVenture
Partially-Owned OfficeBuildings
For the three months ended:
September 30, 2004:
5,961
29,603
58,461
451
31,038
Operating, general and administrative
(2,429
(1,564
(5,972
(698
(12,902
Depreciation
(1,214
(13,996
(11,454
(141
(4,972
Interest expense
(1,619
(12,993
(19,954
(7,752
Other, net
(805
1,114
32,758
(760
Net (loss) income
(106
2,164
53,839
(388
Company’s interest
50
22.3
15.5
Equity in net income
6,507
(53
(310
720
(52
1,688
823
(28
Fee income
1,631
238
Income (loss) from partially-owned entities
1,008
September 30, 2003:
5,329
26,201
65,656
346
29,193
(2,013
(1,693
(2,911
(11,496
(999
(14,141
(11,436
(193
(4,950
(1,634
(10,281
(23,614
(8,253
(806
1,416
(1,190
229
9,148
(123
1,502
26,505
(420
13,642
22.6
6,801
(61
(336
(352
1,624
226
988
(Decrease) increase in income of partially-owned entities
(1,306
(2,065
(1) Excludes the Company’s $7,119 share of the gain recognized by Newkirk MLP on the sale of its Stater Brothers real estate portfolio to the Company on July 29, 2004, which was reflected as an adjustment to the basis of the Company’s investment. The quarter ended September 30, 2004 includes the Company’s $759 share of an impairment loss on one of Newkirk MLP’s assets.
37
Interest and Other Investment Income
Interest and other investment income (interest income on mortgage loans receivable, other interest income and dividend income) was $17,813,000 for the quarter ended September 30, 2004, compared to $2,800,000 in the prior year’s quarter, an increase of $15,013,000. This increase resulted primarily from (i) interest income of $6,781,000 on the $275,000,000 GM Building mezzanine loans made by the Company in the fourth quarter of 2003 and third quarter of 2004, (ii) income of $5,527,000 on the Company’s investment in GMH Communities LP (“GMH”) which accrues a 16.27% preferred return on the committed amount of $159,000,000, from July 28, 2004 and (iii) income of $1,481,000 on the Company’s mezzanine loan to Extended Stay America in May 2004, partially offset by (iv) a net charge of $88,000 relating to a series of privately negotiated option agreements with a financial institution pursuant to which the Company purchased a call option and simultaneously sold a put option at the same strike price on the common shares of Sears, Roebuck and Co. (“Sears”).
Under the option agreements described above, the strike price for each pair of options increases at an annual rate of LIBOR plus 45 basis points and is credited for dividends received on the common shares. The options expire in April 2006 and provide for net cash settlement. The options provide the Company with the same economic gain or loss as if it had purchased the underlying common shares and borrowed the aggregate strike price at an annual rate of LIBOR plus 45 basis points. Because these options are derivatives and do not qualify for hedge accounting treatment, the gains or losses resulting from the mark-to-market of the options at the end of each reporting period are recognized as an increase or decrease in “interest and other investment income.” The net charge is comprised of (i) $966,000 for the increase in strike price resulting from the LIBOR charge and (ii) $572,000 of legal fees, partially offset by (iii) $1,214,000 of accrued dividends on the common shares underlying the option agreements and (iv) the $238,000 increase in the market price of the common shares underlying the options. At September 30, 2004, the aggregate strike price under these options, exclusive of accrued interest and dividends, was $315,200,000.
Based on Sears’ most recent Form 10-Q, the Company’s aggregate investment represents 4.3% of Sears outstanding common shares. As of November 4, 2004, based on the closing price of Sears common shares on the NYSE of $37.18 per share, the market value of the 7,916,900 shares underlying these agreements was $294,350,000, as compared to the Company’s cost of $315,200,000, and the market value of the 1,176,600 shares owned by the Company was $41,099,000, as compared to the Company’s cost of $43,746,000. As of November 4, 2004, the Company has funded $64,205,000 in cash to the financial institution as margin collateral which earns interest at an annual rate equal to the Federal Funds rate.
Interest and Debt Expense
Interest and debt expense was $61,163,000 for the three months ended September 30, 2004, compared to $56,261,000 in the prior year’s quarter, an increase of $4,902,000. This increase resulted primarily from higher average outstanding debt balances and a 39 basis point increase in weighted average floating rates.
Net Gain on Disposition of Wholly-owned and Partially-owned Assets other than Real Estate
Net gain on disposition of wholly-owned and partially-owned assets other than depreciable real estate of $499,000 for the three months ended September 30, 2003 represents a gain on sale of land held for development.
Minority Interest Expense
Minority interest expense (consisting of perpetual preferred unit distributions, minority limited partnership earnings and partially-owned entities) was $33,363,000 for the three months ended September 30, 2004, compared to $35,865,000 for the prior year’s quarter, a decrease of $2,502,000. This decrease resulted primarily from lower distributions and allocations to preferred unit holders as a result of the Company’s redemption of the Series D-2 preferred units in January 2004, the Series D-1 preferred units in November 2003, and the Series C-1 preferred units during the fourth quarter of 2003.
38
Income From Discontinued Operations
The combined results of discontinued operations in the following table include the operating results of the Company’s retail property located in Vineland, New Jersey, as well as (i) Palisades Residential Complex, sold on June 29, 2004, (ii) Two Park Avenue office property, sold on October 10, 2003, and (iii) Baltimore, Hagerstown, and Dundalk, Maryland retail properties, sold on January 9, 2003, November 3, 2003 and August 12, 2004, respectively.
For The Three Months EndedSeptember 30,
39
Three Months Ended September 30, 2004 and September 30, 2003
Below are the details of the changes by segment in EBITDA.
Three months ended September 30, 2003
2004 Operations:
Same store operations(1)
3,852
1,085
1,288
2,334
Acquisitions, dispositions and non-same store income and expenses
4,879
13,492
570
(400
Three months ended September 30, 2004
% increase in same store operations
3.3
4.5
13.8
%(3)
(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 were $89,540 and 4.3% for the New York office portfolio and $76,061 and .7% for the CESCR portfolio.
(3) Represents the Company’s 60% share of income of the Vornado Crescent Portland Partnership which owns Americold Realty Trust (the “Landlord” or “AmeriCold”). The Landlord leases all of its temperature controlled logistics warehouses to AmeriCold Logistics (“OPCO”) for which it receives rental income. The Landlord does not recognize rental income unless earned and collection is assured or cash is received. Accordingly, the Company did not recognize $7,913 of rent it was due for the three months ended September 30, 2004, which together with previously unrecognized rent is $73,465. This unrecognized rent was eliminated as a result of the acquisition of OPCO on November 4, 2004 (see below). OPCO has advised the Landlord that (i) its revenue for the quarter ended September 30, 2004 from the warehouses it leases from the Landlord is higher than last year by 2.3% and (ii) its gross margin before rent at these warehouses for the corresponding period is lower than last year by $1,614 (a 4.2% decrease). This decrease in gross margin is attributable to (i) start up costs for existing customers at new locations during the first six months and (ii) a change in revenue mix as higher margin storage revenues declined and lower margin handling revenues increased.
On November 4, 2004, AmeriCold purchased its tenant, OPCO, for $47,700 in cash. As part of this transaction, Vornado Operating Company repaid the $21,989 loan due to the Company as well as $4,771 of interest applicable thereto. Since the Company stopped recognizing interest income on this loan in January 2002, it will recognize the $4,771 income upon collection in the fourth quarter 2004. In addition, the Company and its 40% partner, Crescent Real Estate Equities Company (“CEI”) entered into a definitive agreement to collectively sell 20.7% of AmeriCold’s common shares to The Yucaipa Companies (“Yucaipa”) for $145,000 which will result in a gain, of which the Company’s share is approximately $20,000. The purchase price was based on a $1.450 billion valuation for AmeriCold before debt and other obligations. The agreement provides for Yucaipa to earn a promote of 20% of the increase in the value of AmeriCold through December 31, 2007, limited to 10% of the Company’s and CEI’s remaining interest in AmeriCold. Yucaipa is a private equity firm with significant expertise in the food distribution, logistics and retail industries. Upon closing of the sale of Yucaipa, which is scheduled to close before year-end, AmeriCold will be owned 47.6% by the Company, 31.7% by CEI and 20.7% by Yucaipa. Further, the joint venture between the Company and CEI will be dissolved and the Company will have three of the five members of AmeriCold’s Board of Trustees and will consolidate the operations and financial position of AmeriCold into its accounts rather than account for the investment on the equity method.
40
Net gains on disposition of wholly-owned and partially-owned assets other than real estate
—-
See footnotes on page 43.
41
42
(2) Interest and debt expense and depreciation and amortization included in the reconciliation of net income to EBITDA includes the Company’s share of the interest and debt expense and depreciation and amortization of its partially-owned entities.
(3) Net of rent not recognized of $24,029 and $19,518 for the nine months ended September 30, 2004 and 2003.
Interest and other income (B)
Alexander’s (C)
Hotel Pennsylvania (D)
Investment income and other (E)
Settlement on Primestone guarantees
(A) EBITDA for the nine months ended September 30, 2004, includes the Company’s $2,479 share of gains on sale of real estate, offset by the Company’s $2,901 share of impairment losses recorded by Newkirk MLP. EBITDA for the nine months ended September 30, 2003, includes the Company’s $9,900 share of gains on sale of real estate and early extinguishment of debt.
(B) Interest and other income for the nine months ended September 30, 2004, includes a gain of $7,494, resulting from the exercise of an option by the Company’s joint venture partner to acquire certain MLP units held by the Company. The MLP units subject to this option had been issued to the Company on behalf of the Company’s joint venture partner in exchange for the Company’s operating partnership units as part of the tender offers to acquire certain of the units of the MLP in 1998 and 1999.
(C) Includes Alexander’s stock appreciation rights compensation expense, of which the Company’s share was $20,880 and $9,477 for the nine months ended September 30, 2004 and 2003, respectively. The nine months ended September 30, 2004, also includes the Company’s $1,274 share of a gain on sale of land parcel and the Company’s $1,010 share of Alexander’s loss on early extinguishment of debt.
(D) Average occupancy and REVPAR were 76.9% and $71.80 for the nine months ended September 30, 2004, compared to 58.6% and $50.41 for the prior year’s nine months.
(E) The nine months ended September 30, 2004, includes $5,583 for the Company’s share of Prime Group Realty L.P.’s equity in net income of which $4,413 was for the Company’s share of Prime Group’s lease termination fee income. On May 23, 2003, the Company exchanged the units it owned in Prime Group L.P. for common shares of its parent and no longer accounts for its investment in the partnership on the equity method.
43
The Company’s revenues, which consist of property rentals, expense reimbursements, hotel revenues, trade show revenues, amortization of acquired below market leases net of above market leases pursuant to SFAS No. 141, and fee and other income, were $1,209,954,000 for the nine months ended September 30, 2004, compared to $1,116,280,000 in the prior year’s nine months, an increase of $93,674,000. Below are the details of the increase by segment:
7,477
7,197
1,900
25 W. 14thStreet
1,451
4,047
4,578
1,536
3,042
10,621
Trade show activity
2,333
21,767
12,993
3,954
6,294
(1,474
66,331
22,631
22,913
8,627
12,160
.
5,468
1,157
4,311
2,716
4,864
(950
(842
(356
8,184
6,021
3,361
Kaempfer management and leasing fees
3,695
9,545
9,677
(1,291
1,159
BMS tenant cleaning fees
756
734
(130
4,238
4,023
(1,535
1,578
172
19,159
19,054
(2,956
2,887
174
93,674
23,318
10,672
11,978
(1) Average occupancy and REVPAR were 76.9% and $71.80 for the nine months ended September 30, 2004 compared to 58.6% and $50.41 for the prior year’s nine months.
(2) Reflects increases of $9,800 from New York City Office and $3,193 from CESCR. These increases resulted primarily from higher rents for space relet.
(3) Reflects higher reimbursements from tenants resulting primarily from increases in New York City Office real estate taxes and utilities.
(4) The increase relates to early lease terminations at the Company’s 888 Seventh Avenue and 909 Third Avenue office properties for approximately 175 square feet, a substantial portion of which has been re-leased during the current quarter at equal or higher rents (see page 30).
See “Overview — Leasing Activity” on page 30 for further details of leasing activity and corresponding changes in occupancy.
44
The Company’s expenses were $726,896,000 for the nine months ended September 30, 2004, compared to $676,999,000 in the prior year’s nine months, an increase of $49,897,000. Below are the details of the increase by segment:
4,065
2,431
721
143
2,191
3,016
Trade Show activity
2,027
9,397
9,359
(2,427
)(2)
2,873
(408
24,896
11,790
3,407
4,900
4,799
8,822
1,671
5,289
1,862
10,694
6,385
1,115
2,926
268
19,516
8,056
6,404
2,130
1,527
1,037
490
2,483
736
1,400
(1,553
Total increase (decrease) in general and administrative
4,010
1,773
(1,063
49,897
21,619
11,711
9,226
7,341
(1) Results primarily from an increase in utilities and real estate taxes, of which $5,647 relates to the New York City Office portfolio and $3,446 relates to the CESCR portfolio.
(2) Results primarily from a net decrease in the allowance for bad debts due to recoveries in 2004.
(3) Primarily due to additions to buildings and improvements during 2003 and 2004.
(4) This increase is primarily due to (i) $2,994 of higher payroll and fringe benefits, (ii) $648 of higher professional fees and (iii) $970 of severance primarily in connection with exiting the Washington, DC third-party tenant representation business, partially offset by, (iv) $2,437 of severance related charges in the prior year’s nine months.
(5) Mervyn’s.
Income applicable to Alexander’s (loan interest income, management, leasing, development and commitment fees, and equity in income) was $25,257,000 before $20,880,000 of Alexander’s SAR expense or $4,377,000, net in the nine months ended September 30, 2004, compared to income of $21,818,000 before $9,477,000 of SAR expense or $12,341,000, net in the prior year’s nine months, a decrease of $7,964,000. This decrease resulted primarily from (i) an increase in the Company’s share of Alexander’s stock appreciation rights compensation expense of $11,403,000 and (ii) the Company’s $1,010,000 share of Alexander’s loss on early extinguishment of debt in the nine months ended September 30, 2004, partially offset by (iii) income in 2004 from the commencement of leases with Bloomberg on November 15, 2003 and other tenants in May and June 2004 at Alexander’s 731 Lexington Avenue property, and (iv) the Company’s $1,274 share of gain on sale of a land parcel in the quarter ended September 30, 2004.
45
Below is the detail of income from partially-owned entities by investment as well as the increase (decrease) in income from partially-owned entities for the nine months ended September 30, 2004 and 2003:
TemperatureControlled Logistics
NewkirkMLP
StarwoodCeruzzi JointVenture
PartiallyOwned OfficeBuildings
For the nine months ended:
17,958
84,628
178,801
1,112
87,814
(6,972
(5,199
(20,621
(2,391
(36,692
(4,238
(42,196
(34,548
(494
(14,570
(4,635
(38,351
(60,766
(24,336
3,063
43,447
(4,791
1,919
(316
1,945
106,313
(6,564
14,135
15.2
15,610
(158
(5,251
2,151
652
13,142
2,468
(172
4,890
742
3,052
)(5)
16,964
87,076
204,240
3,779
72,561
(7,485
(5,252
(9,105
(2,172
(27,401
(2,995
(42,581
(32,076
(825
(12,411
(4,481
(30,853
(75,643
(19,277
2,574
43,324
(866
5,551
(426
10,964
130,740
(84
19,023
41,001
(213
(67
3,088
(6)
8,295
4,869
718
2,973
(20,523
79
(5,599
(7,294
(5,184
(89
(2,436
(1) The tenant has reported that (i) its revenue for the nine months ended September 30, 2004 from the warehouses it leases from the Landlord is higher than last year by .7%, and (ii) its gross margin before rent at these warehouses for the corresponding period is lower than last year by $5,999 (a 5.2% decrease). This decrease in gross margin is attributable to (i) start up costs for existing customers at new locations and (ii) a change in revenue mix as higher margin storage revenues declined and lower margin handling revenues increased.
(2) Includes the Company’s $2,479 share of gains on sale of real estate and the Company’s $2,901 share of impairment losses recorded by Newkirk MLP. Excludes the Company’s $7,119 share of the gain recognized by Newkirk MLP on the sale of its Stater Brothers real estate portfolio to the Company on July 29, 2004, which was reflected as an adjustment to the basis of the Company’s investment.
(3) Includes a gain of $7,494, resulting from the exercise of an option by the Company’s joint venture partner to acquire certain MLP units held by the Company.
(4) Includes the Company’s $9,900 share of gains on sale of real estate and early extinguishment of debt.
(5) Equity in income for the nine months ended September 30, 2004 includes the Company’s $3,833 share of an impairment loss. Equity in income for the nine months ended September 30, 2003 includes the Company’s $2,271 share of income from the settlement of a tenant bankruptcy claim, partially offset by the Company’s $876 share of a net loss on disposition of leasehold improvements.
(6) Includes $5,583 for the Company’s share of Prime Group Realty L.P.’s equity in net income of which $4,413 was for the Company’s share of Prime Group’s lease termination fee income. On May 23, 2003, the Company exchanged the units it owned for common shares and no longer accounts for its investment in the partnership on the equity method.
46
Interest and other investment income (interest income on mortgage loans receivable, other interest income and dividend income) was $36,667,000 for the nine months ended September 30, 2004, compared to $16,224,000 in the prior year’s nine months, an increase of $20,443,000. This increase resulted primarily from (i) interest income of $18,883,000 on the $275,000,000 GM Building mezzanine loans made by the Company in the fourth quarter of 2003 and third quarter of 2004, (ii) income of $5,527,000 on the Company’s investment in GMH which accrues distributions at 16.27% per annum on the Company’s committed amount of $159,000,000 from July 28, 2004 and (iii) income of $2,238,000 on the Company’s mezzanine loan to Extended Stay America in May 2004, partially offset by (iv) $6,284,000 of interest received in the first quarter of 2003 in connection with the Dearborn Center loan receivable repayment (of which $5,655,000 was contingent interest income).
Interest and debt expense was $176,989,000 for the nine months ended September 30, 2004, compared to $170,798,000 in the prior year’s nine months, an increase of $6,191,000. This increase resulted primarily from higher average outstanding debt during the nine months ended September 30, 2004, which resulted primarily from the issuance of an aggregate of $450,000,000 of the Company’s senior unsecured notes in November 2003 and August 2004.
Net gain (loss) on disposition of wholly-owned and partially-owned assets other than depreciable real estate for the nine months ended September 30, 2004 reflects the Company’s $776,000 share of gains on disposition of certain partially-owned development assets. Net loss on disposition of wholly-owned and partially-owned assets other than depreciable real estate for the nine months ended September 30, 2003 includes a $1,388,000 loss on settlement of the guarantees of the Primestone Loans, partially offset by gains on the sale of condominiums and land parcels of $282,000 and $ 499,000, respectively.
Minority interest expense (consisting of perpetual preferred unit distributions, minority limited partnership earnings and partially-owned entities) was $106,952,000 for the nine months ended September 30, 2004, compared to $111,635,000 for the prior year’s nine months, a decrease of $4,683,000. This decrease resulted primarily from lower distributions and allocations to preferred unit holders as a result of the Company’s redemption of the Series D-2 preferred units in January 2004, the Series D-1 preferred units in November 2003, and the Series C-1 preferred units during the fourth quarter of 2003.
The combined results of discontinued operations in the following table include the operating results of the Company’s retail property located in Vineland, New Jersey, as well as (i) Palisades Residential Complex, sold on June 29, 2004, (ii) Two Park Avenue office property, sold on October 10, 2003, and (iii) Baltimore, Hagerstown and Dundalk, Maryland retail properties, sold on January 9, 2003, November 3, 2003 and August 12, 2004, respectively.
For The Nine Months EndedSeptember 30,
Nine months ended September 30, 2003
14,690
5,096
3,734
(1,020
3,144
15,493
1,190
(271
Nine months ended September 30, 2004
% increase (decrease) in same store operations
3.2
4.3
(1.8
)%(3)
(2) EBITDA and the same store percentage increase were $255,631 and 3.8% for the New York Office portfolio and $232,474 and 2.6% for the CESCR portfolio.
(3) Represents the Company’s 60% share of income of the Vornado Crescent Portland Partnership which owns Americold Realty Trust (the “Landlord”). The Landlord leases all of its temperature controlled logistics warehouses to AmeriCold Logistics (“OPCO”) for which it receives rental income. The Landlord does not recognize rental income unless earned and collection is assured or cash is received. Accordingly, the Company did not recognize $24,029 of rent it was due for the nine months ended September 30, 2004, which together with previously unrecognized rent is $73,465. This unrecognized rent was eliminated as a result of the acquisition of OPCO on November 4, 2004 (see page 40). OPCO has advised the Landlord that (i) its revenue for the nine months ended September 30, 2004 from the warehouses it leases from the Landlord is higher than last year by .7% and (ii) its gross margin before rent at these warehouses for the corresponding period is lower than last year by $5,999 (a 5.2% decrease). This decrease in gross margin is attributable to (i) start up costs for existing customers at new locations and (ii) a change in revenue mix as higher margin storage revenues declined and lower margin handling revenues increased.
49
Cash flows provided by operating activities of $467,251,000 was primarily comprised of (i) net income of $352,963,000, (ii) adjustments for non-cash items of $117,785,000, partially offset by (iii) the net change in operating assets and liabilities of $3,497,000. The adjustments for non-cash items are primarily comprised of (i) depreciation and amortization of $180,226,000, (ii) minority interest of $106,252,000 and (iii) the write-off of preferred unit issuance costs of $700,000, partially offset by, (iv) gains on sale of real estate of $75,755,000, (v) the effect of straight-lining of rental income of $44,826,000, (vi) equity in net income of partially-owned entities and Alexander’s of $38,019,000 and (vii) amortization of acquired below market leases net of above market leases of $11,492,000.
Net cash used in investing activities of $260,781,000 was primarily comprised of (i) investments in notes and mortgage loans receivable of $246,005,000, (ii) capital expenditures of $81,413,000, (iii) development and redevelopment expenditures of $87,798,000, (iv) investments in partially-owned entities of $6,220,000, (v) acquisitions of real estate of $194,399,000 (vi) restricted cash of $44,649,000 and (vii) investments in marketable securities of $45,509,000, partially offset by (viii) proceeds from the sale of real estate of $233,347,000, (ix) distributions from partially-owned entities of $173,365,000 and (x) repayments on notes and mortgages receivable of $38,500,000.
Net cash used in financing activities of $314,938,000 was primarily comprised of (i) dividends paid on common shares of $282,731,000, (ii) repayments of borrowings of $542,297,000, (iii) redemption of preferred shares and units of $112,467,000, (iv) dividends paid on preferred shares of $13,594,000, and (v) distributions to minority partners of $99,861,000, partially offset by (vi) proceeds from borrowings of $575,158,000, (vii) proceeds of $106,655,000 from the issuance of preferred shares and units and (viii) proceeds of $54,199,000 from the exercise by employees of share options.
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 necessary 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.
Below are the details of capital expenditures, leasing commissions and development and redevelopment expenditures and a reconciliation of total expenditures on an accrual basis to the cash expended in the nine months ended September 30, 2004. See page 30 for per square foot data.
NewYorkOffice
Capital Expenditures – Accrual basis:
Expenditures to maintain the assets:
Recurring
29,977
6,529
7,290
1,227
11,267
3,664
Non-recurring
Tenant improvements:
84,196
32,370
19,470
3,107
29,249
4,140
88,336
23,610
118,313
38,899
30,900
4,334
40,516
Leasing Commissions:
29,348
15,390
5,351
447
8,160
749
30,097
6,100
Square feet leased
5,320
1,995
1,246
Total Capital Expenditures and Leasing Commissions - Accrual basis
148,410
54,289
37,000
4,781
48,676
Adjustments to reconcile accrual basis to cash basis:
Expenditures in the current year applicable to prior periods
46,373
19,345
21,990
1,542
3,496
Expenditures to be made in future periods for the current period
(78,930
(35,819
(20,298
(3,221
(19,592
Total Capital Expenditures and Leasing Commissions - Cash basis
115,853
37,815
38,692
3,102
32,580
Development and Redevelopment Expenditures:
640 Fifth Avenue
13,114
21,495
Crystal Drive – retail
17,596
35,593
599
1,394
18,747
14,156
697
87,798
13,713
18,990
40,242
(1) Excludes 261 square feet of development space leased during the period.
Nine Months Ended September 30, 2003
Cash flows provided by operating activities of $425,608,000 was primarily comprised of (i) income of $255,559,000, (ii) adjustments for non-cash items of $166,688,000, (iii) the net change in operating assets and liabilities of $6,772,000 and (iv) net gains on sale of real estate of $3,411,000. The adjustments for non-cash items are primarily comprised of (i) depreciation and amortization of $159,651,000, and (ii) minority interest of $111,635,000, partially offset by, (iii) the effect of straight-lining of rental income of $31,785,000, (iv) equity in net income of partially-owned entities and income applicable to Alexander’s of $66,506,000 and (v) amortization of acquired below market leases net of above market leases of $6,914,000.
Net cash used in investing activities of $64,579,000 was primarily comprised of (i) capital expenditures of $78,353,000, (ii) development and redevelopment expenditures of $102,254,000, (iii) investments in partially-owned entities of $10,360,000, (iv) the acquisition of Building Maintenance Service Company of $13,000,000, (v) the acquisition of Kaempfer company of $27,622,000, (vi) acquisitions of real estate of $31,189,000, (vii) investments in notes and mortgage loans receivable of $7,300,000, and (viii) investments in marketable securities of $10,419, partially offset by, (ix) distributions from partially-owned entities of $42,027,000, (x) proceeds from the sale of real estate of $5,436,000, (xi) repayments on notes and mortgages receivable of $26,092,000, and (xii) a decrease in restricted cash of $142,363,000 (used primarily to repay the cross-collateralized mortgages on 770 Broadway and 595 Madison Avenue).
Net cash used in financing activities of $445,371,000 was primarily comprised of (i) dividends paid on common shares of $227,079,000, (ii) repayments of borrowing of $593,780,000, (iii) dividends paid on preferred shares of $15,930,000, and (iv) distributions to minority partners of $112,043,000, partially offset by, (v) proceeds from borrowings of $448,987,000 and (vi) proceeds of $54,474,000 from the exercise by employee of stock options.
Below are the details of capital expenditures, leasing commissions and development and redevelopment expenditures and a reconciliation of total expenditures on an accrual basis to the cash expended in the nine months ended September 30, 2003.
New YorkOffice
Capital Expenditures (Accrual basis):
23,622
8,473
4,620
395
9,702
432
2,795
26,417
7,415
55,733
17,507
20,164
2,802
15,260
4,479
60,212
24,643
86,629
25,980
32,058
3,197
24,962
15,543
7,682
4,952
75
2,834
970
16,513
5,922
Total Capital Expenditures and Leasing Commissions (Accrual basis)
103,142
33,662
37,980
3,272
27,796
34,557
7,881
11,096
3,861
(51,291
(17,485
(23,858
(1,933
(8,015
Total Capital Expenditures and Leasing Commissions (Cash basis)
86,408
24,058
25,841
12,435
23,642
Development and Redevelopment: Expenditures:
44,549
22,084
8,462
27,159
9,483
6,985
10,301
390
102,254
31,567
18,763
52
SUPPLEMENTAL INFORMATION
Below are the details of the changes by segment in EBITDA for the three months ended September 30, 2004 from the three months ended June 30, 2004.
Temperature ControlledLogistics
EBITDA for the three months ended June 30, 2004
311,659
164,306
36,747
34,160
16,654
59,792
Same storeoperations(1)
(7,245
286
(3,836
2,753
Acquisitions,dispositions andother non-same store income and expenses
8,540
14,945
267
(216
EBITDA for the threemonths ended September 30, 2004
% (decrease) increasein same storeoperations
(4.5
)%(2)
.7
(11.4
16.7
(2) Same store percentage decrease was (4.0)% for the New York Office portfolio, and (4.9)% for the CESCR portfolio. These decreases reflect seasonally higher operating expenses, primarily utility costs, in the third quarter, of which $6,993 relates to the New York Office portfolio and $4,385 relates to the CESCR portfolio. The same store operations exclusive of the seasonal increases in utilities increased by 3.6% for New York Office and .7% for CESCR.
(3) Primarily due to seasonality of operations as the second and fourth quarters include major trade shows and, therefore have historically been higher than the first and third quarters.
Below is a reconciliation of net income and EBITDA for the three months ended June 30, 2004.
Net income for the three months ended June 30, 2004
162,001
91,846
13,512
22,201
282
76,499
32,991
15,334
3,000
7,708
17,466
73,012
39,460
7,901
8,959
8,664
8,028
147
138
FUNDS FROM OPERATIONS (“FFO”)
FFO is computed in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines FFO as net income or loss determined in accordance with Generally Accepted Accounting Principles (“GAAP”), excluding extraordinary items as defined under GAAP and gains or losses from sales of previously depreciated operating real estate assets, plus specified non-cash items, such as real estate asset depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures.
FFO and FFO per diluted share are used by management, investors and industry analysts as supplemental measures of operating performance of equity REITs. FFO and FFO per diluted share should be evaluated along with GAAP net income and income per diluted share (the most directly comparable GAAP measures), as well as cash flow from operating activities, investing activities and financing activities, in evaluating the operating performance of equity REITs. Management believes that FFO and FFO per diluted share are helpful to investors as supplemental performance measures because these measures exclude the effect of depreciation, amortization and gains or losses from sales of real estate, all of which are based on historical costs which implicitly assumes that the value of real estate diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, these non-GAAP measures can facilitate comparisons of operating performance between periods and among other equity REITs.
FFO does not represent cash generated from operating activities in accordance with GAAP and is not necessarily indicative of cash available to fund cash needs as disclosed in the Company’s Statements of Cash Flows. FFO 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.
The calculations of both the numerator and denominator used in the computation of income per share are disclosed in footnote 11 - Income per Share, in the Company’s note to financial statements on page 19 of this Quarterly Report on Form 10-Q.
FFO applicable to common shares plus assumed conversions was $156,703,000, or $1.18 per diluted share for three months ended September 30, 2004, compared to $123,914,000, or $1.04 per diluted share for prior year’s quarter, an increase of $32,789,000 or $.14 per share. FFO applicable to common shares plus assumed conversions was $446,925,000, or $3.41 per diluted share for nine months ended September 30, 2004, compared to $387,430,000, or $3.33 per diluted share for prior year’s nine months, an increase of $59,495,000, or $.08 per share.
(Amounts in thousands except per share amounts)
For The Three MonthsEnded September, 30
For The Nine MonthsEnded September, 30
Reconciliation of Net Income to FFO:
Depreciation and amortization of real property
56,799
49,926
164,931
150,499
Net gains on sale of real estate
(9,850
(767
Proportionate share of adjustments to equity in net income of partially-owned entities to arrive at FFO:
13,080
13,522
39,623
40,307
(43
(2,822
(6,952
Minority interests’ share of above adjustments
(8,050
(10,549
(18,832
(35,822
FFO
160,459
128,164
460,108
400,180
Preferred dividends
FFO applicable to common shares
156,437
123,085
444,539
384,250
Series A convertible preferred dividends
829
3,180
FFO applicable to common shares plus assumed conversions
156,703
123,914
446,925
387,430
Reconciliation of Weighted Average Shares:
Weighted average common shares outstanding
Employee stock options and restricted share awards
5,626
4,594
5,107
3,255
1,571
Denominator for diluted FFO per share
119,193
Diluted FFO per share
1.18
1.04
3.41
3.33
54
Included in FFO are certain items that affect comparability as detailed below. Before these items, the three months ended September 30, 2004 is 14.8% higher than the prior year’s three months on a per share basis. The nine months ended September 30, 2004 is 5.3% higher than the prior year’s nine months on a per share basis.
For the Three Months Ended
September 30, 2003
Amount
Per Share
Items that affect comparability:
Add:
Alexander’s stock appreciation rights compensation expense
8,796
6,192
Impairment loss – Newkirk MLP
759
Less:
Gain on sale of land parcel – Alexander’s
1,274
1,250
1,135
8,506
.06
5,057
.04
For the Nine Months Ended
FFO applicable to common shares plus assumedconversions
20,880
9,477
Write-off of perpetual preferred share and unit issuance costs
3,895
Impairment loss – Starwood Ceruzzi
3,833
Impairment losses – Newkirk MLP
2,901
Loss on early extinguishment of debt - Alexander’s
1,434
Loss on settlement of Primestone guarantees
1,388
Gain on sale of Newkirk MLP option units
7,494
Gain on sale of condominiums
Gain on early extinguishment of debt - Newkirk
1,600
3,449
1,694
21,425
.16
7,289
On February 3, 2004, the Company acquired the Forest Plaza Shopping Center for approximately $32,500,000, of which $14,000,000 was paid in cash and $18,500,000 was debt assumed. The purchase was funded as part of a Section 1031 tax-free “like-kind” exchange with the remaining portion of the proceeds from the sale of the Company’s Two Park Avenue property. Forest Plaza is a 165,000 square foot shopping center located in Staten Island, New York, anchored by a Waldbaum’s supermarket.
On March 19, 2004, the Company acquired a 62,000 square foot freestanding retail building located at 25 W. 14thStreet in Manhattan for $40,000,000 in cash.
On July 1, 2004, the Company acquired the Marriott hotel located in its Crystal City office complex from a limited partnership in which Robert H. Smith and Robert P. Kogod, trustees of the Company, together with family members own approximately 67 percent. The purchase price of $21,500,000 was paid in cash. The hotel contains 343 rooms and is leased to an affiliate of Marriott International, Inc. until July 31, 2015, with one 10-year extension option. The land under the hotel was acquired in 1999.
On November 3, 2004, GCT closed its IPO at a price of $12.00 per share. GCT is a real estate investment trust that conducts its business through GMH, of which it is the sole general partner. In connection with the IPO, the $113,777,000 funded of the Company’s $159,000,000 commitment has been repaid, together with accrued distributions of $13,381,000. The Company also exercised warrants to purchase 6,666,667 limited partnership units at a price of $7.50 per unit, or $50,000,000 in total. The Company has recorded a gain of approximately $29,500,000 on the acquisition of these units which is the difference between cost (exercise price of $7.50 plus $0.08 warrant purchase price allocation) and the $12.00 market price. In addition, the Company retains warrants to purchase an additional 5,496,724 limited partnership units of GMH or common shares of GCT at a price of $9.10 per unit or share through May 2, 2006. Until these warrants are exercised or sold, they will be marked-to-market at the end of each reporting period and the resulting gain or loss will be recognized in earnings. Accordingly, if the market value of GCT shares is greater than the cost per share (exercise price of $9.10 plus $0.08 warrant purchase price allocation), when the Company reports earnings, it would recognize a $15,500,000 unrealized gain on its consolidated statement of income based on the IPO price of $12.00 per share.
On July 29, 2004, the Company acquired a real estate portfolio containing 25 supermarkets for $65,000,000. These properties, all of which are all located in Southern California and contain an aggregate of approximately 766,000 square feet, were purchased from the Newkirk MLP, in which the Company currently owns a 22.3% interest. The supermarkets are net leased to Stater Brothers for an initial term expiring in 2008, with six 5-year extension options. Stater Brothers is a Southern California regional grocery chain that operates 158 supermarkets and has been in business since 1936. The Company’s share of gain recognized by Newkirk MLP on this transaction was $7,119,000 and was reflected as an adjustment to the Company’s basis in its investment in Newkirk MLP and not recognized as income.
On August 30, 2004, the Company acquired a 68,000 square foot free-standing building in Forest Hills, New York for $26,500,000. The property is located at 99-01 Queens Boulevard and its principal tenants are Rite Aid and Fleet Bank.
On June 29, 2004, the Company sold its Palisades Residential Complex for $222,500,000, which resulted in a gain on sale after closing costs of $65,905,000. All or a portion of the proceeds from the sale will be reinvested pursuant to Section 1031 tax-free “like kind” exchanges, including certain of the acquisitions described above.
On January 6, 2004, the Company redeemed all of its 8.375% Series D-2 Cumulative Redeemable Preferred Units at a redemption price equal to $50.00 per unit for an aggregate of $27,500,000 plus accrued distributions. The redemption amount exceeded the carrying amount by $700,000, representing the original issuance costs.
On March 17, 2004, the Company redeemed all of its Series B Preferred Shares at a redemption price equal to $25.00 per share for an aggregate of $85,000,000 plus accrued dividends. The redemption amount exceeded the carrying amount by $3,195,000, representing the original issuance costs.
On May 27, 2004, the Company sold $35,000,000 of 7.2% Series D-11 Cumulative Redeemable Preferred Units to an institutional investor in a private placement. These perpetual preferred units may be called without penalty at the Company’s option commencing in May 2009. The net proceeds were used for general corporate purposes.
On August 16, 2004, the Company completed a public offering of $250,000,000 aggregate principal amount of 4.50% senior unsecured notes due August 15, 2009. Interest on the notes is payable semi-annually on February 15, and August 15, commencing February 15, 2005. The notes were priced at 99.797% of their face amount to yield 4.546%. The net proceeds of approximately $247,700,000 were used for general corporate purposes.
On August 18, 2004, the Company sold $75,000,000 of 7.0% Series E Cumulative Redeemable Preferred Shares at a price of $25.00 per share, in a public offering pursuant to an effective registration statement. The Company may redeem the Series E Preferred Shares at a redemption price of $25.00 per share after August 20, 2009. The net proceeds were used for general corporate purposes.
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.
57
The Company has exposure to fluctuations in market interest rates. Market interest rates are highly sensitive to many factors that are beyond the control of the Company. Various financial instruments exist which would allow management to mitigate the impact of interest rate fluctuations on the Company’s cash flows and earnings.
As of September 30, 2004, the Company has an interest rate swap as described in footnote 1 to the table below. In addition, during 2003 the Company purchased two interest rate caps with notional amounts aggregating $295,000,000, and simultaneously sold two interest rate caps with the same aggregate notional amount on substantially the same terms as the caps purchased. As the significant terms of these arrangements are the same, the effects of a revaluation of these instruments are expected to substantially offset one another. Management may engage in additional hedging strategies in the future, depending on management’s analysis of the interest rate environment and the costs and risks of such strategies.
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:
As at September 30, 2004
As at December 31, 2003
Balance
WeightedAverageInterest Rate
Effect of 1% Increase In Base Rates
Wholly-owned debt:
Variable rate
1,070,336
2.52
10,703
1,270,899
2.22
Fixed rate
3,158,230
6.79
2,913,486
7.19
4,228,566
5.71
4,184,385
5.68
Partially-owned debt:
240,676
4.35
2,407
153,140
3.64
843,552
6.84
777,427
7.07
1,084,228
6.29
930,567
6.51
(1,731
Total decrease in the Company’s annual net income
11,379
Per share-diluted
.09
(1) Includes $518,184 for the Company’s senior unsecured notes due 2007, as the Company entered into interest rate swap agreements that effectively converted the interest rate from a fixed rate of 5.625% to a floating rate of LIBOR plus .7725%, based upon the trailing three month LIBOR rate (2.13% if set on September 30, 2004). In accordance with SFAS No. 133, as amended, the Company is required to fair value the debt at each reporting period. At September 30, 2004, the fair value adjustment was $18,577 and is included in the balance of the senior unsecured notes above.
The fair value of the Company’s debt, based on discounted cash flows at the current rate at which similar loans would be made to borrowers with similar credit ratings for the remaining term of such debt, exceeds the aggregate carrying amount by approximately $144,272,000 at September 30, 2004.
Disclosure Controls and Procedures: The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective.
Internal Control Over Financial Reporting: There have not been any changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities and Exchange Act of 1934, as amended) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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, including the matters referred to below, is not expected to have a material adverse effect on the Company’s financial position, results of operations or cash flows.
The following updates the discussion set forth under “Item 3. Legal Proceedings” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.
As previously disclosed, on January 8, 2003, Stop & Shop filed a complaint with the United States District Court for the District of New Jersey (“USDC-NJ”) claiming the Company has no right to reallocate and therefore continue to collect the $5,000,000 of annual rent from Stop & Shop pursuant to the Master Agreement and Guaranty, because of the expiration of the East Brunswick, Jersey City, Middletown, Union and Woodbridge leases to which the $5,000,000 of additional rent was previously allocated. Stop & Shop asserted that a prior order of the Bankruptcy Court for the Southern District of New York dated February 6, 2001, as modified on appeal to the District Court for the Southern District of New York on February 13, 2001, terminated the Company’s right to reallocate. On March 3, 2003, after the Company moved to dismiss for lack of jurisdiction, Stop & Shop voluntarily withdrew its complaint.
On March 26, 2003, Stop & Shop filed a new complaint in New York Supreme Court, asserting substantially the same claims as in its USDC-NJ complaint. On April 9, 2003, the Company moved the New York Supreme Court action to the United States District Court for the Southern District of New York. On June 30, 2003, the District Court ordered that the case be placed in suspension and ordered the parties to proceed in a related case that the Company commenced in the United States Bankruptcy Court for the Southern District of New York. On July 24, 2003, the Bankruptcy Court referred the related case to mediation. The mediation concluded in June 2004 without resolving the dispute. On June 9, 2004, after reconvening the hearing on the Company’s motion to interpret, the Bankruptcy Court entered an order abstaining from hearing the Company’s motion. On June 17, 2004, the Company filed a notice of appeal from the Bankruptcy Court’s order. The appeal will be heard in the District Court. Briefing of the appeal is complete, however the hearing has not yet been scheduled.
The Company believes that the additional rent provision of the guaranty expires at the earliest in 2012 and will vigorously oppose Stop & Shop’s complaint.
Not Applicable.
Exhibits required by Item 601 of Regulation S-K are filed herewith or incorporated herein by reference and are listed in the attached Exhibit Index.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
(Registrant)
Date: November 5, 2004
By:
/s/ Joseph Macnow
Joseph Macnow, Executive Vice President -Finance and Administration andChief Financial Officer (duly authorized officerand principal financial and accounting officer)
EXHIBIT INDEX
ExhibitNo.
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) to Vornado’s Registration Statement on Form S-4 (File No. 33-60286), filed on April 15, 1993
*
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 to Vornado’s Annual Report on Form 10-K for the year ended December 31, 2001 (File No. 001-11954), filed on March 11, 2002
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 to Vornado’s Annual Report on Form 10-K for the year ended December 31, 2001 (File No. 001-11954), filed on March 11, 2002
3.4
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 to 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 3.5 to Vornado’s Quarterly Report on Form 10-Q for the period ended March 31, 2003 (File No. 001-11954), filed on May 8, 2003
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 to 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 to 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 to 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 - incorporated by reference to Exhibit 3.9 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 (File No. 001-11954) filed on August 7, 2002
* Incorporated by reference.
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 - incorporated by reference to Exhibit 3.10 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 (File No. 001-11954), filed on August 7, 2002
3.11
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 3.11 to Vornado’s Quarterly Report on Form 10-Q for the period ended March 31, 2003 (File No.001-11954), filed on May 8, 2003
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 to 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 to Vornado’s Current Report on Form 8-K/A, dated November 12, 1998 (File No. 001-11954), filed on February 9, 1999
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 to 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 to 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 to 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 to 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 to Vornado’s Current Report on Form 8-K, dated November 24, 1999 (File No. 001-11954), filed on December 23, 1999
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 to 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 to 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 to 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 to Vornado’s Current Report on Form 8-K (File No. 001-11954), filed on October 12, 2001
3.25
Articles Supplementary Classifying Vornado’s Series D-10 7.00% Cumulative Redeemable Preferred Shares, dated November 17, 2003 (incorporated by reference to Exhibit 3.1 to Vornado’s Current Report on Form 8-K (File No. 001-11954), filed on November 18, 2003)
3.26
Articles Supplementary Classifying Vornado’s Series D-11 Cumulative Redeemable Preferred Shares, dated May 27, 2004, as filed with the State Department of Assessments and Taxation of Maryland on May 27, 2004 — Incorporated by reference to Exhibit 99.1 to Vornado’s Current Report on Form 8-K (File No. 001-11954), filed on June 9, 2004
3.27
Amended and Restated Bylaws of Vornado, as amended on March 2, 2000 - Incorporated by reference to Exhibit 3.12 to Vornado’s Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 001-11954), filed on March 9, 2000
3.28
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 3.26 to Vornado’s Quarterly Report on Form 10-Q for the period ended March 31, 2003 (File No. 001-11954), filed on May 8, 2003
3.29
Amendment to the Partnership Agreement, dated as of December 16, 1997 - Incorporated by reference to Exhibit 3.27 to Vornado’s Quarterly Report on Form 10-Q for the period ended March 31, 2003 (File No. 001-11954), filed on May 8, 2003
3.30
Second Amendment to the Partnership Agreement, dated as of April 1, 1998 - Incorporated by reference to Exhibit 3.5 to Vornado’s Registration Statement on Form S-3 (File No. 333-50095), filed on April 14, 1998
3.31
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
3.32
Fourth Amendment to the Partnership Agreement, dated as of November 30, 1998 - Incorporated by reference to Exhibit 3.1 to Vornado’s Current Report on Form 8-K, dated December 1, 1998 (File No. 001-11954), filed on February 9, 1999
Fifth Amendment to the Partnership Agreement, dated as of March 3, 1999 - Incorporated by reference to Exhibit 3.1 to Vornado’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 to 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 to 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 to 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 to 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 to 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 to 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 to Vornado’s Current Report on Form 8-K, dated May 1, 2000 (File No. 001-11954), filed on May 19, 2000
Thirteenth Amendment to the Partnership Agreement, dated as of May 25, 2000 - Incorporated by reference to Exhibit 3.2 to 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 to 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 to 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 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on October 12, 2001
3.46
Eighteenth Amendment to the Partnership Agreement, dated as of January 1, 2002 - Incorporated by reference to Exhibit 3.1 to Vornado’s Current Report on Form 8-K/A (File No. 001-11954), filed on March 18, 2002
3.47
Nineteenth Amendment to the Partnership Agreement, dated as of July 1, 2002 - Incorporated by reference to Exhibit 3.47 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 (File No. 001-11954), filed on August 7, 2002
3.48
Twentieth Amendment to the Partnership Agreement, dated April 9, 2003 - Incorporated by reference to Exhibit 3.27 to Vornado’s Quarterly Report on Form 10-Q for the period ended March 31, 2003 (File No. 001-11954), filed on May 8, 2003
3.49
Twenty-First Amendment to the Partnership Agreement, dated as of July 31, 2003 - Incorporated by reference to Exhibit 10.5 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 (File No. 001-11954), filed on November 7, 2003
3.50
Twenty-Second Amendment to the Partnership Agreement, dated as of November 17, 2003 — Incorporated by reference to Exhibit 3.49 to Vornado’s Annual Report on Form 10-K for the year ended December 31, 2003, (File No. 001-11954), filed on March 3, 2004
3.51
Twenty-Third Amendment to the Partnership Agreement, dated as of May 27, 2004 — Incorporated by reference to Exhibit 99.2 to Vornado’s current report on Form 8-K (File No. 001-11954), filed on June 9, 2004
Instruments defining the rights of security holders (see Exhibits 3.1 through 3.24 to this Quarterly Report on Form 10-Q)
4.2
Specimen certificate representing Vornado’s Common Shares of Beneficial Interest, par value $0.04 per share - Incorporated by reference to Exhibit 4.1 of Amendment No. 1 to Vornado’s Registration Statement on Form S-3 (File No. 33-62395), filed on October 26, 1995
Specimen certificate representing Vornado’s $3.25 Series A Preferred Shares of Beneficial Interest, liquidation preference $50.00 per share, no par value - Incorporated by reference to Exhibit 4.3 to Vornado’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 (File No. 001-11954), filed on May 8, 2003
4.4
Specimen certificate evidencing Vornado’s Series B 8.5% Cumulative Redeemable Preferred Shares of Beneficial Interest, liquidation preference $25.00 per share, no par value - Incorporated by reference to Exhibit 4.2 to Vornado’s Registration Statement on Form 8-A (File No. 001-11954), filed on March 15, 1999
65
Specimen certificate evidencing Vornado’s 8.5% Series C Cumulative Redeemable Preferred Shares of Beneficial Interest, liquidation preferences $25.00 per share, no par value - Incorporated by reference to Exhibit 4.2 to Vornado’s Registration Statement on Form 8-A (File No. 001-11954), filed May 19, 1999
Indenture and Servicing Agreement, dated as of March 1, 2000, among Vornado, LaSalle Bank National Association, ABN Amro Bank N.V. and Midland Loan Services, Inc. - Incorporated by reference to Exhibit 10.48 to Vornado’s Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 001-11954), filed on March 9, 2000
4.7
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
4.8
Officer’s Certificate pursuant to Sections 102 and 301 of the Indenture, dated June 24, 2002 - Incorporated by reference to Exhibit 4.2 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 (File No. 001-11954), filed on August 7, 2002
10.1
Vornado Realty Trust’s 1993 Omnibus Share Plan, as amended - Incorporated by reference to Exhibit 4.1 to Vornado Realty Trust’s registration statement on Form S-8 (File No. 331-09159), filed on July 30, 1996
10.2
Second Amendment, dated as of June 12, 1997, to Vornado’s 1993 Omnibus Share Plan, as amended - Incorporated by reference to Vornado’s Registration Statement on Form S-8 (File No. 333-29011), filed on June 12, 1997
10.3
Master Agreement and Guaranty, between Vornado, Inc. and Bradlees New Jersey, Inc. dated as of May 1, 1992 - Incorporated by reference to Vornado’s Quarterly Report on Form 10-Q for quarter ended March 31, 1992 (File No. 001-11954), filed on May 8, 1992
10.4
Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Filing dated as of November 24, 1993 made by each of the entities listed therein, as mortgagors to Vornado Finance Corp., as mortgagee - Incorporated by reference to Vornado’s Current Report on Form 8-K dated November 24, 1993 (File No. 001-11954), filed on December 1, 1993
10.5**
Employment Agreement between Vornado Realty Trust and Joseph Macnow dated January 1, 1998 - Incorporated by reference to Exhibit 10.7 to Vornado’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 (File No. 001-11954), filed on November 12, 1998
10.6**
Employment Agreement between Vornado Realty Trust and Michael D. Fascitelli, dated December 2, 1996 - Incorporated by reference to Exhibit 10 (c)3 to Vornado’s Annual Report on Form 10-K for the year ended December 31, 1996 (File No. 001-11954), filed on March 13, 1997
10.7
Registration Rights Agreement between Vornado, Inc. and Steven Roth, dated December 29, 1992 - Incorporated by reference to Vornado’s Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 001-11954), filed on February 16, 1993
10.8
Stock Pledge Agreement between Vornado, Inc. and Steven Roth dated December 29, 1992 - Incorporated by reference to Vornado’s Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 001-11954), filed on February 16, 1993
** Management contract or compensatory agreement.
66
10.9
Management Agreement between Interstate Properties and Vornado, Inc. dated July 13, 1992 -Incorporated by reference to Vornado’s Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 001-11954), filed on February 16, 1993
10.10
Real Estate Retention Agreement between Vornado, Inc., Keen Realty Consultants, Inc. and Alexander’s, Inc., dated as of July 20, 1992 - Incorporated by reference to Vornado’s Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 001-11954), filed on February 16, 1993
10.11
Amendment to Real Estate Retention Agreement dated February 6, 1995 - Incorporated by reference to Exhibit 10(f)2 to Vornado’s Annual Report on Form 10-K for the year ended December 31, 1994 (File No. 001-11954), filed on March 23, 1995
10.12
Stipulation between Keen Realty Consultants Inc. and Vornado Realty Trust re: Alexander’s Retention Agreement - Incorporated by reference to Vornado’s Annual Report on Form 10-K for the year ended December 31, 1993 (File No. 001-11954), filed on March 24, 1994
10.13
Stock Purchase Agreement, dated February 6, 1995, among Vornado Realty Trust and Citibank, N.A. Incorporated by reference to Exhibit 2.1 to Vornado’s Current Report on Form 8-K dated February 6, 1995 (File No. 001-11954), filed on February 21, 1995
10.14
Management and Development Agreement, dated as of February 6, 1995 - Incorporated by reference to Exhibit 99.1 to Vornado’s Current Report on Form 8-K dated February 6, 1995 (File No. 001-11954), filed on February 21, 1995
10.15
Standstill and Corporate Governance Agreement, dated as of February 6, 1995 - Incorporated by reference to Exhibit 99.3 to Vornado’s Current Report on Form 8-K dated February 6, 1995 (File No. 001-11954), filed on February 21, 1995
10.16
Credit Agreement, dated as of March 15, 1995, among Alexander’s Inc., as borrower, and Vornado Lending Corp., as lender - Incorporated by reference to Exhibit 10(f) 7 to Vornado’s Annual Report on Form 10-K for the year ended December 31, 1994 (File No. 001 - 11954), filed on March 23, 1995
10.17
Subordination and Intercreditor Agreement, dated as of March 15, 1995 among Vornado Lending Corp., Vornado Realty Trust and First Fidelity Bank, National Association - Incorporated by reference to Exhibit 10(f)8 to Vornado’s Annual Report on Form 10-K for the year ended December 31, 1994 (File No. 001-11954), filed on March 23, 1995
10.18
Form of Intercompany Agreement between Vornado Realty L.P. and Vornado Operating, Inc. -Incorporated by reference to Exhibit 10.1 to Amendment No. 1 to Vornado Operating, Inc.’s Registration Statement on Form S-11 (File No. 333-40701), filed on January 23, 1998
10.19
Form of Revolving Credit Agreement between Vornado Realty L.P. and Vornado Operating, Inc., together with related form of Note - Incorporated by reference to Exhibit 10.2 to Amendment No. 1 to Vornado Operating, Inc.’s Registration Statement on Form S-11 (File No. 333-40701), filed on January 23, 1998
10.20
Registration Rights Agreement, dated as of April 15, 1997, between Vornado Realty Trust and the holders of Units listed on Schedule A thereto - Incorporated by reference to Exhibit 10.2 to Vornado’s Current Report on Form 8-K (File No. 001-11954), filed on April 30, 1997
67
10.21
Noncompetition Agreement, dated as of April 15, 1997, by and among Vornado Realty Trust, the Mendik Company, L.P., and Bernard H. Mendik - Incorporated by reference to Exhibit 10.3 to Vornado’s Current Report on Form 8-K (File No. 001-11954), filed on April 30, 1997
10.22**
Employment Agreement, dated as of April 15, 1997, by and among Vornado Realty Trust, The Mendik Company, L.P. and David R. Greenbaum - Incorporated by reference to Exhibit 10.4 to Vornado’s Current Report on Form 8-K (File No. 001-11954), filed on April 30, 1997
10.23
Agreement, dated September 28, 1997, between Atlanta Parent Incorporated, Portland Parent Incorporated and Crescent Real Estate Equities, Limited Partnership - Incorporated by reference to Exhibit 99.6 to Vornado’s Current Report on Form 8-K (File No. 001-11954), filed on October 8, 1997
10.24
Contribution Agreement between Vornado Realty Trust, Vornado Realty L.P. and The Contributors Signatory - thereto - Merchandise Mart Properties, Inc. (DE) and Merchandise Mart Enterprises, Inc. - Incorporated by reference to Exhibit 10.34 to Vornado’s Annual Report on Form 10-K/A for the year ended December 31, 1997 (File No. 001-11954), filed on April 8, 1998
10.25
Sale Agreement executed November 18, 1997, and effective December 19, 1997, between MidCity Associates, a New York partnership, as Seller, and One Penn Plaza LLC, a New York Limited liability company, as purchaser - Incorporated by reference to Exhibit 10.35 to Vornado’s Annual Report on Form 10-K/A for the year ended December 31, 1997 (File No. 001-11954), filed on April 8, 1998
10.26
Credit Agreement dated as of June 22, 1998 among One Penn Plaza, LLC, as Borrower, The Lenders Party hereto, The Chase Manhattan Bank, as Administrative Agent - Incorporated by reference to Exhibit 10 to Vornado’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 (File No. 001-11954), filed on August 13, 1998
10.27
Registration Rights Agreement, dated as of April 1, 1998, between Vornado and the Unit Holders named herein - Incorporated by reference to Exhibit 10.2 to Amendment No. 1 to Vornado’s Registration Statement on Form S-3 (File No. 333-50095), filed on May 6, 1998
10.28
Registration Rights Agreement, dated as of August 5, 1998, between Vornado and the Unit Holders named therein - Incorporated by reference to Exhibit 10.1 to Vornado’s Registration Statement on Form S-3 (File No. 333-89667), filed on October 25, 1999
10.29
Registration Rights Agreement, dated as of July 23, 1998, between Vornado and the Unit Holders named therein - Incorporated by reference to Exhibit 10.2 of Vornado’s Registration Statement on Form S-3 (File No. 333-89667), filed on October 25, 1999
10.30
Consolidated and Restated Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Filing, dated as of March 1, 2000, between Entities named therein (as Mortgagors) and Vornado (as Mortgagee) - Incorporated by reference to Exhibit 10.47 to Vornado’s Annual Report on Form 10-K for the period ended December 31, 1999 (File No. 001-11954), filed on March 9, 2000
10.31**
Employment Agreement, dated January 22, 2000, between Vornado Realty Trust and Melvyn Blum - Incorporated by reference to Exhibit 10.49 to Vornado’s Annual Report on Form 10-K for the period ended December 31, 1999 (File No. 001-11954), filed on March 9, 2000
10.32**
Deferred Stock Agreement, dated December 29, 2000, between Vornado Realty Trust and Melvyn Blum - Incorporated by reference to Exhibit 10.32 to Vornado’s Annual Report on Form 10-K for the period ended December 31, 2002 (File No. 001-11954), filed on March 7, 2003
10.33
First Amended and Restated Promissory Note of Steven Roth, dated November 16, 1999 - Incorporated by reference to Exhibit 10.50 to Vornado’s Annual Report on Form 10-K for the period ended December 31, 1999 (File No. 001-11954), filed on March 9, 2000
10.34
Letter agreement, dated November 16, 1999, between Steven Roth and Vornado Realty Trust - Incorporated by reference to Exhibit 10.51 to Vornado’s Annual Report on Form 10-K for the period ended December 31, 1999 (File No. 001-11954), filed on March 9, 2000
10.35
Revolving Credit Agreement dated as of March 21, 2000 among Vornado Realty L.P., as borrower, Vornado Realty Trust, as general partner, and UBS AG, as Bank - Incorporated by reference to Exhibit 10.54 to Vornado’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2000 (File No. 001-11954), filed on May 5, 2000
10.36
Agreement and Plan of Merger, dated as of October 18, 2001, by and among Vornado Realty Trust, Vornado Merger Sub L.P., Charles E. Smith Commercial Realty L.P., Charles E. Smith Commercial Realty L.L.C., Robert H. Smith, individually, Robert P. Kogod, individually, and Charles E. Smith Management, Inc. - Incorporated by reference to Exhibit 2.1 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on January 16, 2002
10.37
Registration Rights Agreement, dated January 1, 2002, between Vornado Realty Trust and the holders of the Units listed on Schedule A thereto - Incorporated by reference to Exhibit 10.1 to Vornado’s Current Report on Form 8-K (File No. 1-11954), filed on March 18, 2002
10.38
Registration Rights Agreement, dated January 1, 2002, between Vornado Realty Trust and the holders of the Units listed on Schedule A thereto - Incorporated by reference to Exhibit 10.2 to Vornado’s Current Report on Form 8-K (File No. 1-11954), filed on March 18, 2002
10.39
Tax Reporting and Protection Agreement, dated December 31, 2001, by and among Vornado, Vornado Realty L.P., Charles E. Smith Commercial Realty L.P. and Charles E. Smith Commercial Realty L.L.C. - Incorporated by reference to Exhibit 10.3 to Vornado’s Current Report on Form 8-K (File No. 1-11954), filed on March 18, 2002
10.40**
Employment Agreement between Vornado Realty Trust and Michael D. Fascitelli, dated March 8, 2002 - Incorporated by reference to Exhibit 10.7 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2002 (File No. 001-11954), filed on May 1, 2002
10.41**
First Amendment, dated October 31, 2002, to the Employment Agreement between Vornado Realty Trust and Michael D. Fascitelli, dated March 8, 2002 - Incorporated by reference to Exhibit 99.6 to the Schedule 13D filed by Michael D. Fascitelli on November 8, 2002
10.42**
First Amendment, dated June 7, 2002, to the Convertible Units Agreement between Vornado Realty Trust and Michael D. Fascitelli, dated December 2, 1996 - Incorporated by reference to Exhibit 99.3 to Schedule 13D filed by Michael D. Fascitelli on November 8, 2002
69
10.43**
Second Amendment, dated October 31, 2002, to the Convertible Units Agreement between Vornado Realty Trust and Michael D. Fascitelli, dated December 2, 1996 - Incorporated by reference to Exhibit 99.4 to the Schedule 13D filed by Michael D. Fascitelli on November 8, 2002
10.44**
2002 Units Agreement between Vornado Realty Trust and Michael D. Fascitelli, dated March 8, 2002 - Incorporated by reference to Exhibit 99.7 to the Schedule 13D filed by Michael D. Fascitelli on November 8, 2002
10.45**
First Amendment, dated October 31, 2002, to the 2002 Units Agreement between Vornado Realty Trust and Michael D. Fascitelli, dated March 8, 2002 - Incorporated by reference to Exhibit 99.8 to the Schedule 13D filed by Michael D. Fascitelli on November 8, 2002
10.46**
First Amendment, dated October 31, 2002, to the Registration Agreement between Vornado Realty Trust and Michael D. Fascitelli, dated December 2, 1996 - Incorporated by reference to Exhibit 99.9 to the Schedule 13D filed by Michael D. Fascitelli on November 8, 2002
10.47**
Trust Agreement between Vornado Realty Trust and Chase Manhattan Bank, dated December 2, 1996 - Incorporated by reference to Exhibit 99.10 to the Schedule 13D filed by Michael D. Fascitelli on November 8, 2002
10.48**
First Amendment, dated September 17, 2002, to the Trust Agreement between Vornado Realty Trust and Chase Manhattan Bank, dated December 2, 1996 - Incorporated by reference to Exhibit 99.11 to the Schedule 13D filed by Michael D. Fascitelli on November 8, 2002
10.49
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) to Alexander’s Inc.’s quarterly report for the period ended June 30, 2002 (File No. 001-06064), filed on August 7, 2002
10.50
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) to Alexander’s Inc.’s quarterly report for the period ended June 30, 2002 (File No. 001-06064), filed on August 7, 2002
10.51
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) to Alexander’s Inc.’s quarterly report for the period ended June 30, 2002 (File No. 001-06064), filed on August 7, 2002
10.52
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) to Alexander’s Inc.’s quarterly report for the period ended June 30, 2002 (File No. 001-06064), filed on August 7, 2002
10.53
Amendment to Real Estate Retention Agreement, dated as of July 3, 2002, by and between Alexander’s, Inc. and Vornado Realty L.P. - Incorporated by reference to Exhibit 10(i)(E)(3) to Alexander’s Inc.’s quarterly report for the period ended June 30, 2002 (File No. 001-06064), filed on August 7, 2002
70
10.54
59th Street Real Estate Retention Agreement, dated as of July 3, 2002, by and between Vornado Realty L.P., 731 Residential LLC and 731 Commercial LLC - Incorporated by reference to Exhibit 10(i)(E)(4) to Alexander’s Inc.’s quarterly report for the period ended June 30, 2002 (File No. 001-06064), filed on August 7, 2002
10.55
Amended and Restated Management and Development Agreement, dated as of July 3, 2002, by and between Alexander’s, Inc., the subsidiaries party thereto and Vornado Management Corp. - Incorporated by reference to Exhibit 10(i)(F)(1) to Alexander’s Inc.’s quarterly report for the period ended June 30, 2002 (File No. 001-06064), filed on August 7, 2002
10.56
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) to Alexander’s Inc.’s quarterly report for the period ended June 30, 2002 (File No. 001-06064), filed on August 7, 2002
10.57
Amendment dated May 29, 2002, to the Stock Pledge Agreement between Vornado Realty Trust and Steven Roth dated December 29, 1992 - Incorporated by reference to Exhibit 5 to Interstate Properties’ Schedule 13D dated May 29, 2002 (File No. 005-44144), filed on May 30, 2002
10.58
Vornado Realty Trust’s 2002 Omnibus Share Plan - Incorporated by reference to Exhibit 4.2 to Vornado’s Registration Statement on Form S-8 (File No. 333-102216), filed on December 26, 2002
10.59
First Amended and Restated Promissory Note from Michael D Fascitelli to Vornado Realty Trust, dated December 17, 2001 — Incorporated by reference to Exhibit 10.59 to Vornado’s Annual Report on Form 10-K for the year ended December 31, 2002 (File No. 001-11954), filed on March 7, 2003
10.60**
Promissory Note from Joseph Macnow to Vornado Realty Trust, dated July 23, 2002— Incorporated by reference to Exhibit 10.60 to Vornado’s Annual Report on Form 10-K for the year ended December 31, 2002 (File No. 001-11954), filed on March 7, 2003
10.61**
Amendment to Employment Agreement by and between Vornado Realty Trust and Melvyn H. Blum, dated February 13, 2003 — Incorporated by reference to Exhibit 10.61 to Vornado’s Annual Report on Form 10-K for the year ended December 31, 2002 (File No. 001-11954), filed on March 7, 2003
10.62**
Amendment No. 1 to Deferred Stock Agreement by and between Vornado Realty Trust and Melvyn H. Blum, dated February 13, 2003 — Incorporated by reference to Exhibit 10.62 to Vornado’s Annual Report on Form 10-K for the year ended December 31, 2002 (File No. 001-11954), filed on March 7, 2003
10.63**
Employment agreement between Vornado Realty Trust and Mitchell Schear, dated April 7, 2003 — Incorporated by reference to Exhibit 10.1 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 (File No. 001-11954), filed on August 8, 2003
10.64
Revolving Credit Agreement, dated as of July 2, 2003 among Vornado Realty L.P., as borrower, Vornado Realty Trust, as general partner, and JPMorgan Chase Bank (as Administrative Agent), Bank of America, N.A. and Citicorp North American, Inc., Deutsche Bank Trust Company Americas and Fleet National Bank, and JPMorgan Chase Bank (in its individual capacity) - Incorporated by reference to Exhibit 10.2 to Vornado Realty Trust’s Quarterly
71
Report on Form 10-Q for the quarter ended June 30, 2003 (File No. 001-11954), filed on August 8, 2003
10.65
Guaranty of Payment, made as of July 2, 2003, by Vornado Realty Trust, for the benefit of JPMorgan Chase Bank - Incorporated by reference to Exhibit 10.3 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 (File No. 001-11954), filed on August 8, 2003
10.66
Registration Rights Agreement, dated as of July 31, 2003, by and between Vornado Realty Trust and the Unit Holders named therein - Incorporated by reference to Exhibit 10.4 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 (File No. 001-11954), filed on November 7, 2003
10.67
Second Amendment to the Registration Rights Agreement, dated as of July 31, 2003, between Vornado Realty Trust and the Unit Holders named therein - Incorporated by reference to Exhibit 10.5 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 (File No. 001-11954), filed on November 7, 2003
10.68
Registration Rights Agreement, dated November 17, 2003, between Vornado Realty Trust and Bel Holdings L.L.C. — Incorporated by reference to Exhibit 10.68 to Vornado’s Annual Report on Form 10-K for the year ended December 31, 2003 (File No. 001-11954), filed on March 3, 2004
10.69
Registration Rights Agreement, dated April 9, 2003, between Vornado Realty Trust and the holders of Units listed on Schedule A thereto — Incorporated by reference to Exhibit 10.1 to Vornado’s Registration Statement on Form S-3 (File No.333-114807), filed on April 23, 2004
10.70**
Employment Agreement by and between Vornado Realty Trust and Sandeep Mathrani, dated as of February 4, 2002- Incorporated by reference to Exhibit 10.70 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004 (File No. 001-11954), filed on May 6, 2004
10.71**
First Amendment to the Employment Agreement by and between Vornado Realty Trust and Sandeep Mathrani, dated as of December 12, 2003- Incorporated by reference to Exhibit 10.71 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004 (File No. 001-11954), filed on May 6, 2004
10.72**
Deferred Stock Agreement by and between Vornado Realty Trust and Sandeep Mathrani, dated as of March 4, 2002- Incorporated by reference to Exhibit 10.72 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004 (File No. 001-11954), filed on May 6, 2004
10.73**
Promissory Note from Melvyn Blum to Vornado Realty Trust, dated March 11, 2004- Incorporated by reference to Exhibit 10.73 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004 (File No. 001-11954), filed on May 6, 2004
15.1
Letter regarding unaudited interim financial information
31.1
Rule 13a-14 (a) Certification of Chief Executive Officer
31.2
Rule 13a-14 (a) Certification of Chief Financial Officer
72
32.1
Section 1350 Certification of the Chief Executive Officer
Section 1350 Certification of the Chief Financial Officer