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Vornado Realty Trust · 10-Q · For 9/30/08

Filed On 11/4/08, 8:30am ET   ·   Accession Number 899689-8-28   ·   SEC File 1-11954

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11/04/08  Vornado Realty Trust              10-Q        9/30/08    6:4.1M

Quarterly Report   —   Form 10-Q
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 2: EX-15       Exhibit 15.1                                        HTML     12K 
 3: EX-31       Exhibit 31.1                                        HTML     14K 
 4: EX-31       Exhibit 31.2                                        HTML     14K 
 5: EX-32       Exhibit 32.1                                        HTML      8K 
 6: EX-32       Exhibit 32.2                                        HTML      8K 


10-Q   —   Quarterly Report — vrt_10-q


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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended:   

September 30, 2008

 

Or

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

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 incorporation or organization)

 

(I.R.S. Employer Identification Number)

 

 

 

888 Seventh Avenue, New York, New York

 

10019

(Address of principal executive offices)

 

(Zip Code)

 

 

(212) 894-7000

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

x Large Accelerated Filer

 

o Accelerated Filer

o Non-Accelerated Filer (Do not check if smaller reporting company)

 

o Smaller Reporting Company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

 

As of September 30, 2008, 154,354,021 of the registrant’s common shares of beneficial interest are outstanding.

 


 


 

PART I.

 

Financial Information:

Page Number

 

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

 

 

Consolidated Balance Sheets (Unaudited) as of
September 30, 2008 and December 31, 2007

3

 

 

 

 

 

 

Consolidated Statements of Income (Unaudited) for the Three and Nine
Months Ended September 30, 2008 and 2007

4

 

 

 

 

 

 

Consolidated Statements of Cash Flows (Unaudited) for the
Nine Months Ended September 30, 2008 and 2007

5

 

 

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

7

 

 

 

 

 

 

Report of Independent Registered Public Accounting Firm

33

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition
and Results of Operations

34

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

69

 

 

 

 

 

Item 4.

Controls and Procedures

70

 

 

 

 

 

 

 

 

 

 

 

 

PART II.

 

Other Information:

 

 

 

 

 

 

Item 1.

Legal Proceedings

71

 

 

 

 

 

Item 1A.

Risk Factors

72

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

72

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

72

 

 

 

 

 

Item 4.

Submission of Matters to a Vote of Security Holders

72

 

 

 

 

 

Item 5.

Other Information

72

 

 

 

 

 

Item 6.

Exhibits

72

 

 

 

 

Signatures

 

 

73

 

 

 

 

Exhibit Index

 

 

74

 

 

2

 

 


Part 1. FINANCIAL INFORMATION

Item 1. Financial Statements

 

VORNADO REALTY TRUST

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

(Amounts in thousands, except share and per share amounts)

 

 

 

ASSETS

 

      

 

Real estate, at cost:

 

 

 

 

 

 

 

Land

 

$

4,417,272

 

$

4,576,479

 

Buildings and improvements

 

 

11,869,677

 

 

11,523,977

 

Development costs and construction in progress

 

 

1,048,500

 

 

821,991

 

Leasehold improvements 

 

 

114,521

 

 

106,060

 

Total

 

 

17,449,970

 

 

17,028,507

 

Less accumulated depreciation and amortization

 

 

(2,063,168

)

 

(1,802,055

)

Real estate, net

 

 

15,386,802

 

 

15,226,452

 

Cash and cash equivalents

 

 

1,529,012

 

 

1,154,595

 

Escrow deposits and restricted cash

 

 

390,353

 

 

378,732

 

Marketable securities

 

 

249,102

 

 

322,992

 

Accounts receivable, net of allowance for doubtful accounts of $27,581 and $19,151

 

 

263,375

 

 

168,183

 

Investments in partially owned entities, including Alexander’s of $130,887 and $122,797

 

 

1,059,497

 

 

1,206,742

 

Investment in Toys “R” Us

 

 

334,444

 

 

298,089

 

Mezzanine loans receivable, net of allowance of $46,700 and $57,000

 

 

468,531

 

 

492,339

 

Receivable arising from the straight-lining of rents, net of allowance of $3,780 and $3,076

 

 

571,770

 

 

513,137

 

Deferred leasing and financing costs, net of accumulated amortization of $158,541 and $123,624

 

 

300,964

 

 

273,958

 

Assets related to discontinued operations

 

 

110,370

 

 

1,632,318

 

Due from officers

 

 

13,185

 

 

13,228

 

Other assets

 

 

766,735

 

 

798,170

 

 

 

$

21,444,140

 

$

22,478,935

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes and mortgages payable

 

$

8,669,651

 

$

7,938,457

 

Convertible senior debentures

 

 

2,367,650

 

 

2,360,412

 

Senior unsecured notes

 

 

649,188

 

 

698,656

 

Exchangeable senior debentures

 

 

494,090

 

 

492,857

 

Revolving credit facility debt

 

 

10,218

 

 

405,656

 

Accounts payable and accrued expenses

 

 

599,005

 

 

480,123

 

Deferred credit

 

 

760,913

 

 

848,852

 

Deferred compensation plan

 

 

80,302

 

 

67,714

 

Deferred tax liabilities

 

 

19,829

 

 

241,895

 

Other liabilities

 

 

139,707

 

 

118,983

 

Liabilities related to discontinued operations

 

 

750

 

 

1,332,630

 

Total liabilities

 

 

13,791,303

 

 

14,986,235

 

Minority interest, including unitholders in the Operating Partnership

 

 

1,370,255

 

 

1,374,301

 

Commitments and contingencies

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

Preferred shares of beneficial interest: no par value per share; authorized 110,000,000
shares; issued and outstanding 33,954,124 and 33,980,362 shares

 

 

823,782

 

 

825,095

 

Common shares of beneficial interest: $0.04 par value per share; authorized,
250,000,000 shares; issued and outstanding 154,354,021 and 153,076,606 shares

 

 

6,234

 

 

6,140

 

Additional capital

 

 

5,403,850

 

 

5,339,570

 

Earnings in excess of (less than) distributions

 

 

57,391

 

 

(82,178

)

Accumulated other comprehensive (loss) income

 

 

(8,675

)

 

29,772

 

Total shareholders’ equity

 

 

6,282,582

 

 

6,118,399

 

 

 

$

21,444,140

 

$

22,478,935

 

See notes to consolidated financial statements (unaudited).

 

3

 


VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

 

 

 

For The Three Months
Ended September 30,

      

For The Nine Months
Ended September 30,

 

(Amounts in thousands, except per share amounts)

 

2008

 

2007

 

2008

 

2007

 

REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

 

Property rentals

 

$

548,475

 

$

519,780

 

$

1,640,764

 

$

1,432,519

 

Tenant expense reimbursements

 

 

97,912

 

 

89,293

 

 

269,970

 

 

238,983

 

Fee and other income

 

 

30,758

 

 

28,005

 

 

90,058

 

 

81,848

 

Total revenues

 

 

677,145

 

 

637,078

 

 

2,000,792

 

 

1,753,350

 

EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating

 

 

276,302

 

 

259,000

 

 

793,911

 

 

697,961

 

Depreciation and amortization

 

 

136,705

 

 

118,994

 

 

398,263

 

 

317,915

 

General and administrative

 

 

49,495

 

 

47,888

 

 

149,165

 

 

138,091

 

Costs of acquisitions and development not consummated

 

 

5,000

 

 

 

 

8,009

 

 

8,807

 

Total expenses

 

 

467,502

 

 

425,882

 

 

1,349,348

 

 

1,162,774

 

Operating income

 

 

209,643

 

 

211,196

 

 

651,444

 

 

590,576

 

(Loss) income applicable to Alexander’s

 

 

(6,876

)

 

12,111

 

 

16,404

 

 

35,114

 

(Loss) income applicable to Toys “R” Us

 

 

(8,141

)

 

(20,289

)

 

41,510

 

 

18,343

 

(Loss) income from partially owned entities

 

 

(3,099

)

 

13,561

 

 

(29,167

)

 

30,451

 

Interest and other investment income, net

 

 

9,638

 

 

56,581

 

 

47,535

 

 

229,774

 

Interest and debt expense (including amortization of deferred
financing costs of $4,257 and $3,537 in each three-month
period, respectively, and $13,181 and $11,051 in each
nine-month period, respectively)

 

 

(148,039

)

 

(149,722

)

 

(446,534

)

 

(420,713

)

Net gains on disposition of wholly owned and partially owned
assets other than depreciable real estate

 

 

5,160

 

 

1,012

 

 

8,546

 

 

17,699

 

Minority interest of partially owned entities

 

 

466

 

 

(282

)

 

2,709

 

 

1,414

 

Income before income taxes

 

 

58,752

 

 

124,168

 

 

292,447

 

 

502,658

 

Income tax (expense) benefit

 

 

(5,244

)

 

(2,806

)

 

207,170

 

 

(5,403

)

Income from continuing operations

 

 

53,508

 

 

121,362

 

 

499,617

 

 

497,255

 

Income from discontinued operations, net of minority interest

 

 

102

 

 

24,538

 

 

154,442

 

 

25,162

 

Income before allocation to minority limited partners

 

 

53,610

 

 

145,900

 

 

654,059

 

 

522,417

 

Minority limited partners’ interest in the Operating Partnership

 

 

(3,091

)

 

(10,241

)

 

(42,046

)

 

(44,270

)

Perpetual preferred unit distributions of the Operating Partnership

 

 

(4,818

)

 

(4,818

)

 

(14,455

)

 

(14,455

)

Net income

 

 

45,701

 

 

130,841

 

 

597,558

 

 

463,692

 

Preferred share dividends

 

 

(14,271

)

 

(14,295

)

 

(42,820

)

 

(42,886

)

NET INCOME applicable to common shares

 

$

31,430

 

$

116,546

 

$

554,738

 

$

420,806

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME PER COMMON SHARE – BASIC:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.20

 

$

0.61

 

$

2.60

 

$

2.61

 

Income from discontinued operations

 

 

 

 

0.16

 

 

1.01

 

 

0.16

 

Net income per common share

 

$

0.20

 

$

0.77

 

$

3.61

 

$

2.77

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME PER COMMON SHARE – DILUTED:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.20

 

$

0.58

 

$

2.54

 

$

2.49

 

Income from discontinued operations

 

 

 

 

0.16

 

 

0.94

 

 

0.16

 

Net income per common share

 

$

0.20

 

$

0.74

 

$

3.48

 

$

2.65

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DIVIDENDS PER COMMON SHARE

 

$

0.90

 

$

0.85

 

$

2.70

 

$

2.55

 

 

See notes to consolidated financial statements (unaudited).

 

4

 

 


VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

For The Nine Months Ended
September 30,

 

(Amounts in thousands)

 

2008

 

2007

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

Net income

 

$

597,558

 

$

463,692

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization (including amortization of debt issuance costs)

 

 

437,567

 

 

392,578

 

Write-off of deferred tax liability

 

 

(222,174

)

 

 

Net gain on sale of Americold

 

 

(112,690

)

 

 

Equity in income of partially owned entities, including Alexander’s and Toys

 

 

(70,490

)

 

(85,056

)

Net gains on sale of real estate

 

 

(57,523

)

 

(27,745

)

Minority limited partners’ interest in the Operating Partnership

 

 

58,136

 

 

47,010

 

Amortization of below market leases, net

 

 

(73,655

)

 

(58,810

)

Straight-lining of rental income

 

 

(63,184

)

 

(58,492

)

Write-off of pre-development costs

 

 

34,200

 

 

 

Net losses (gains) from derivative positions

 

 

25,812

 

 

(100,060

)

Distributions of income from partially owned entities

 

 

12,021

 

 

18,047

 

Other non-cash adjustments

 

 

36,387

 

 

14,311

 

Perpetual preferred unit distributions of the Operating Partnership

 

 

14,455

 

 

14,455

 

Marketable equity securities – impairment losses

 

 

20,881

 

 

 

Minority interest of partially owned entities

 

 

(6,284

)

 

(11,819

)

Net gains on dispositions of wholly owned and partially owned assets
other than depreciable real estate

 

 

(8,546

)

 

(17,699

)

Write-off for costs of acquisitions and development not consummated

 

 

8,009

 

 

8,807

 

Loss on early extinguishment of debt and write-off of unamortized financing costs

 

 

 

 

7,670

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(8,825

)

 

(17,899

)

Other assets

 

 

(73,529

)

 

(75,330

)

Accounts payable and accrued expenses

 

 

88,973

 

 

(20,242

)

Other liabilities

 

 

10,510

 

 

(6,325

)

Net cash provided by operating activities

 

 

647,609

 

 

487,093

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

Proceeds from sales of real estate and real estate related investments

 

 

352,511

 

 

217,941

 

Development costs and construction in progress

 

 

(413,947

)

 

(231,575

)

Distributions of capital from partially owned entities

 

 

182,090

 

 

13,315

 

Investments in partially owned entities

 

 

(115,250

)

 

(201,432

)

Additions to real estate

 

 

(158,434

)

 

(108,935

)

Proceeds received from repayment of mezzanine loans receivable

 

 

52,032

 

 

126,629

 

Acquisitions of real estate and other

 

 

(36,566

)

 

(2,775,982

)

Deposits in connection with real estate acquisitions, including pre-acquisition costs

 

 

(10,616

)

 

(21,231

)

Proceeds from sales of, and return of investment in, marketable securities

 

 

47,723

 

 

57,341

 

Investments in mezzanine loans receivable

 

 

(7,397

)

 

(211,942

)

Cash restricted, including mortgage escrows

 

 

(22,674

)

 

(13,245

)

Purchases of marketable securities

 

 

(8,035

)

 

(152,683

)

Proceeds received on settlement of derivatives

 

 

 

 

234,242

 

Proceeds received from Officer loan repayment

 

 

 

 

2,000

 

Net cash used in investing activities

 

 

(138,563

)

 

(3,065,557

)

 

See notes to consolidated financial statements (unaudited).

 

5

 

 


VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(UNAUDITED)

 

(Amounts in thousands)

 

For The Nine Months
Ended September 30,

 

 

 

2007

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

Proceeds from borrowings

 

 

1,424,458

 

 

2,517,105

 

Repayments of borrowings

 

 

(1,043,734

)

 

(727,730

)

Dividends paid on common shares

 

 

(415,169

)

 

(387,268

)

Distributions to minority partners

 

 

(65,925

)

 

(62,169

)

Dividends paid on preferred shares

 

 

(42,841

)

 

(42,940

)

Debt issuance costs

 

 

(13,399

)

 

(13,229

)

Proceeds from exercise of share options and other

 

 

21,981

 

 

4,744

 

Purchase of marketable securities in connection with the defeasance of mortgage notes payable

 

 

 

 

(109,092

)

Net cash (used in) provided by financing activities

 

 

(134,629

)

 

1,179,421

 

Net increase (decrease) in cash and cash equivalents

 

 

374,417

 

 

(1,399,043

)

Cash and cash equivalents at beginning of period

 

 

1,154,595

 

 

2,233,317

 

Cash and cash equivalents at end of period

 

$

1,529,012

 

$

834,274

 

 

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

 

Cash payments for interest (including capitalized interest of $49,241 and $39,287)

 

$

463,458

 

$

457,669

 

Cash payments for income taxes

 

$

6,153

 

$

25,969

 

 

 

 

 

 

 

 

 

Non-Cash Transactions:

 

 

 

 

 

 

 

Financing assumed in acquisitions

 

$

 

$

1,326,514

 

Marketable securities transferred in connection with the defeasance of mortgage notes payable

 

 

 

 

109,092

 

Mortgage notes payable defeased

 

 

 

 

104,571

 

Conversion of Class A Operating Partnership units to common shares

 

 

32,585

 

 

41,390

 

Unrealized net loss on securities available for sale

 

 

27,902

 

 

32,889

 

Operating partnership units issued in connection with acquisitions

 

 

 

 

22,382

 

Increases in assets and liabilities resulting from the consolidation of our 50%
investment in H Street partially owned entities upon acquisition of the
remaining 50% interest on April 30, 2007:

 

 

 

 

 

 

 

Real estate, net

 

 

 

 

342,764

 

Restricted cash

 

 

 

 

369

 

Other assets

 

 

 

 

11,648

 

Notes and mortgages payable

 

 

 

 

55,272

 

Accounts payable and accrued expenses

 

 

 

 

3,101

 

Deferred credit

 

 

 

 

2,407

 

Deferred tax liabilities

 

 

 

 

112,797

 

Other liabilities

 

 

 

 

71

 

 

See notes to consolidated financial statements (unaudited).

 

6

 

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

1.

Organization

Vornado Realty Trust is a fully-integrated real estate investment trust (“REIT”) and conducts its business through Vornado Realty L.P., a Delaware limited partnership (the “Operating Partnership”). All references to “we,” “us,” “our,” the “Company” and “Vornado” refer to Vornado Realty Trust and its consolidated subsidiaries. We are the sole general partner of, and owned approximately 90.5% of the common limited partnership interest in, the Operating Partnership at September 30, 2008.

 

Substantially all of our assets are held through subsidiaries of the Operating Partnership. Accordingly, our cash flow and ability to pay dividends to our shareholders are dependent upon the cash flow of the Operating Partnership and the ability of its direct and indirect subsidiaries to first satisfy their obligations to creditors.

 

2.

Basis of Presentation

The accompanying consolidated financial statements are unaudited. In our opinion, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and changes in cash flows have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. These condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of the Securities and Exchange Commission (the “SEC”) and should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2007, as filed with the SEC. The results of operations for the three and nine months ended September 30, 2008, are not necessarily indicative of the operating results for the full year.

 

The accompanying consolidated financial statements include the accounts of Vornado and the Operating Partnership, as well as certain partially owned entities in which we own more than 50%, unless a partner has shared board and management representation and substantive participation rights on all significant business decisions, or 50% or less when (i) we are the primary beneficiary and the entity qualifies as a variable interest entity under Financial Accounting Standards Board (“FASB”) Interpretation No. 46 (Revised), Consolidation of Variable Interest Entities (“FIN 46R”), or (ii) when we are a general partner that meets the criteria under Emerging Issues Task Force (“EITF”) Issue No. 04-5. All significant inter-company amounts have been eliminated. Equity interests in partially owned entities are accounted for under the equity method of accounting when they do not meet the criteria for consolidation and our ownership interest is greater than 20%. When partially owned investments are in partnership form, the 20% threshold for equity method accounting is generally reduced to 3% to 5%, based on our ability to influence the operating and financial policies of the partnership. Investments accounted for under the equity method are initially recorded at cost and subsequently adjusted for our share of the net income or loss and cash contributions and distributions to or from these entities. Investments in partially owned entities that do not meet the criteria for consolidation or for equity method accounting are accounted for on the cost method.

 

We have made estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

 

Certain prior year balances related to discontinued operations and income tax (expense) benefit have been reclassified in order to conform to current year presentation.

 

In connection with purchase accounting for H Street, in July 2005 and April 2007 we recorded an aggregate of $222,174,000 of deferred tax liabilities representing the differences between the tax basis and the book basis of the acquired assets and liabilities multiplied by the effective tax rate. We were required to record these deferred tax liabilities because H Street and its partially owned entities were operated as C Corporations at the time they were acquired. As of January 16, 2008, we had completed all of the actions necessary to enable these entities to elect REIT status effective for the tax year beginning on January 1, 2008. Consequently, in the first quarter of 2008, we reversed the deferred tax liabilities and recognized an income tax benefit of $222,174,000 in our consolidated statement of income.

 

7

 

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

3.

Recently Issued Accounting Literature

In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States of America and expands disclosures about fair value measurements. SFAS 157 was effective for our financial assets and liabilities on January 1, 2008.  The FASB has deferred the implementation of the provisions of SFAS 157 relating to certain non-financial assets and liabilities until January 1, 2009. This standard did not materially affect how we determine fair value, but resulted in certain additional disclosures. SFAS 157 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels: Level 1 – quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities; Level 2 – observable prices that are based on inputs not quoted in active markets, but corroborated by market data; and Level 3 – unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as consider counterparty credit risk in our assessment of fair value. Financial assets and liabilities measured at fair value in our consolidated financial statements consist of (i) marketable securities, (ii) derivative positions in marketable securities and (iii) the assets of our deferred compensation plan (primarily marketable securities and equity investments in limited partnerships), for which there is a corresponding liability on our consolidated balance sheet. Financial assets and liabilities measured at fair value as of September 30, 2008 are presented in the table below based on their level in the fair value hierarchy.

 

 

 

 

 

Fair Value Hierarchy

 

(Amounts in thousands)

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Marketable securities

$

146,469

$

146,469

 

$

 

$

 

Deferred compensation plan assets

 

80,302

 

40,646

 

 

 

 

39,656

(2)

Interest rate caps

 

40

 

 

 

40

 

 

 

Total Assets, measured at fair value (1)

$

226,811

$

187,115

 

$

40

 

$

39,656

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative positions in marketable equity securities

$

8,978

$

 

$

8,978

 

$

 

Deferred compensation plan liabilities

 

80,302

 

40,646

 

 

 

 

39,656

(2)

Total Liabilities, measured at fair value (1)

$

89,280

$

40,646

 

$

8,978

 

$

39,656

 

___________________

 

(1)

We chose not to elect the fair value option prescribed by Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”), for our financial assets and liabilities that had not been previously measured at fair value. These financial assets and liabilities include our outstanding debt, accounts receivable, accounts payable and investments in partially owned entities.

 

 

(2)

The fair value of Level 3 “deferred compensation plan assets” represents equity investments in certain limited partnerships, for which there is a corresponding Level 3 liability to the plan’s participants. The following is a summary of changes in Level 3 deferred compensation plan assets and liabilities, for the three and nine months ended September 30, 2008.

 

(Amounts in thousands)

 

Beginning Balance

 

Total Realized/
Unrealized
Gains/ (Losses)

 

Purchases,
Sales, Other
Settlements and
Issuances, net

 

Ending

Balance

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended
September 30, 2008

$

41,028

$

(1,688

)

$

316

 

$

39,656

 

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended
September 30, 2008

$

50,578

$

(10,115

)

$

(807

)

$

39,656

 

 

 

8

 

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

3.

Recently Issued Accounting Literature - continued

In September 2006, the FASB issued Statement No. 158, Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans, an Amendment of SFAS No. 87, 88, 106 and 132R (“SFAS 158”). SFAS 158 requires an employer to (i) recognize in its statement of financial position an asset for a plan’s over-funded status or a liability for a plan’s under-funded status; (ii) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year (with limited exceptions); and (iii) recognize changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur. Those changes will be reported in comprehensive income. The adoption of the requirement to recognize the funded status of a benefit plan and the disclosure requirements as of December 31, 2006 did not have a material effect on our consolidated financial statements. The requirement to measure plan assets and benefit obligations to determine the funded status as of the end of the fiscal year and to recognize changes in the funded status in the year in which the changes occur is effective on January 1, 2009. The adoption of the measurement date provisions of this standard is not expected to have a material effect on our consolidated financial statements.

 

In February 2007, the FASB issued SFAS 159, which permits companies to measure many financial instruments and certain other items at fair value.  SFAS 159 was effective on January 1, 2008. We did not elect the fair value option for any of our existing financial instruments on the effective date and have not determined whether we will elect this option for any eligible financial instruments we acquire in the future.

 

In December 2007, the FASB issued Statement No. 141R, Business Combinations (“SFAS 141R”). SFAS 141R broadens the guidance of SFAS 141, extending its applicability to all transactions and other events in which one entity obtains control over one or more other businesses. SFAS 141R also broadens the fair value measurement and recognition of assets acquired, liabilities assumed, and interests transferred as a result of business combinations; and acquisition related costs will generally be expensed rather than included as part of the basis of the acquisition. SFAS 141R expands required disclosures to improve the ability to evaluate the nature and financial effects of business combinations. SFAS 141R is effective for all transactions entered into on or after January 1, 2009. The adoption of this standard on January 1, 2009 could materially impact our future financial results to the extent that we acquire significant amounts of real estate, as related acquisition costs will be expensed as incurred compared to our current practice of capitalizing such costs and amortizing them over the estimated useful life of the assets acquired.

 

In December 2007, the FASB issued Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements - An Amendment of ARB No. 51 (“SFAS 160”). SFAS 160 requires a noncontrolling interest in a subsidiary to be reported as equity and the amount of consolidated net income specifically attributable to the noncontrolling interest to be identified in the consolidated financial statements. SFAS 160 also calls for consistency in the manner of reporting changes in the parent’s ownership interest and requires fair value measurement of any noncontrolling equity investment retained in a deconsolidation. SFAS 160 is effective on January 1, 2009. We believe that the adoption of this standard on January 1, 2009 will not have a material effect on our consolidated financial statements.

 

In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities – an Amendment of FASB Statement No. 133 (“SFAS 161”). SFAS 161 requires enhanced disclosures related to derivative instruments and hedging activities, including disclosures regarding how an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, and the impact of derivative instruments and related hedged items on an entity’s financial position, financial performance and cash flows. SFAS 161 is effective on January 1, 2009. We believe that the adoption of this standard on January 1, 2009 will not have a material effect on our consolidated financial statements.

 

 

 

9

 

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

3.

Recently Issued Accounting Literature - continued

In May 2008, the FASB issued Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments that may be Settled in Cash upon Conversion (Including Partial Cash Settlement), (the “FSP”). The adoption of this FSP will affect the accounting for our convertible and exchangeable senior debentures and Series D-13 convertible preferred units. The FSP requires the initial proceeds from the sale of our convertible and exchangeable senior debentures and Series D-13 convertible preferred units to be allocated between a liability component and an equity component. The resulting discount will be amortized using the effective interest method over the period the debt is expected to remain outstanding as additional interest expense. The FSP is effective for our fiscal year beginning on January 1, 2009 and requires retroactive application. The adoption of the FSP on January 1, 2009 will result in the recognition of an aggregate unamortized debt discount of $151,422,000 (as of September 30, 2008) in our consolidated balance sheets and additional interest expense in our consolidated statements of income. Our current estimate of the incremental interest expense, net of minority interest, for each reporting period is as follows:

 

(Amounts in thousands)

 

 

 

 

For the year ended December 31:

 

 

 

 

2005

 

$

3,401

 

2006

 

 

6,062

 

2007

 

 

28,191

 

2008

 

 

35,065

 

2009

 

 

37,808

 

2010

 

 

40,066

 

2011

 

 

41,065

 

2012

 

 

8,188

 

 

In May 2008, the FASB issued Statement No. 162, The Hierarchy of Generally Accepted Accounting Principles (“SFAS 162”). The purpose of this statement is to improve financial reporting by providing a consistent framework for determining applicable accounting principles to be used in the preparation of financial statements presented in conformity with GAAP. SFAS 162 will become effective 60 days after the SEC’s approval. We believe that the adoption of this standard on its effective date will not have a material effect on our consolidated financial statements.

 

In May 2008, the FASB issued Statement No. 163, Accounting for Financial Guarantee Insurance Contracts (“SFAS 163”). SFAS 163 was issued to decrease inconsistencies within Statement No. 60, Accounting and Reporting by Insurance Enterprises, and clarify how it applies to financial guarantee insurance contracts issued by insurance enterprises, including the recognition of premium revenue and claim liabilities. SFAS 163 also requires expanded disclosures about financial guarantee insurance contracts. SFAS 163 is effective on January 1, 2009. We believe that the adoption of this standard on January 1, 2009 will not have any effect on our consolidated financial statements.

 

 

10

 

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

4.

Investments in Partially Owned Entities

Toys “R” Us (“Toys”)

 

Toys prepares its consolidated financial statements using the historical cost basis (“Recap basis”) of accounting. We account for our investment in Toys on the purchase accounting basis. In July 2008, in connection with an audit of Toys’ purchase accounting basis financial statements for its fiscal years 2006 and 2007, it was determined that the purchase accounting basis income tax expense was understated. Our share of this non-cash charge was $14,900,000, which we recognized as part of our equity in Toys’ net loss in the quarter ended June 30, 2008. This non-cash charge had no effect on cash actually paid for income taxes or Toys’ previously issued Recap basis consolidated financial statements.

 

At September 30, 2008, we owned 32.7% of Toys. Toys’ business is highly seasonal. Historically, Toys’ fourth quarter net income accounts for more than 80% of its fiscal year net income. Because Toys’ fiscal year ends on the Saturday nearest January 31, we record our 32.7% share of Toys’ net income or loss on a one-quarter lag basis. Below is a summary of Toys’ latest available financial information presented on a purchase accounting basis.

 

(Amounts in millions)

 

 

 

 

 

Balance Sheet:

 

 

 

Total Assets

 

$

11,868

 

$

11,256

 

Total Liabilities

 

$

10,617

 

$

10,213

 

Total Equity

 

$

1,251

 

$

1,043

 

 

 

 

 

For the Three
Months Ended

 

For the Nine
Months Ended

 

Income Statement:

 

 

 

 

 

Total Revenues

 

$

2,771

 

$

2,605

 

$

11,317

 

$

10,865

 

Net (Loss) Income

 

$

(31

)

$

(71

)

$

113

 

$

40

 

 

 

 

Alexander’s (NYSE: ALX)

 

At September 30, 2008, we owned 32.6% of the outstanding common stock of Alexander’s. We manage, lease and develop Alexander’s properties pursuant to agreements that expire in March of each year and are automatically renewed. As of September 30, 2008, Alexander’s owed us $43,609,000 in fees under these agreements.

 

Based on Alexander’s September 30, 2008 closing share price on the NYSE of $400.00, the market value (“fair value” pursuant to SFAS 157) of our investment in Alexander’s is $661,627,000, or $530,740,000 in excess of the carrying amount on our consolidated balance sheet.

 

11

 

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

4.

Investments in Partially Owned Entities – continued

The Lexington Master Limited Partnership (“Lexington MLP”)

 

At September 30, 2008, we owned 8,149,594 limited partnership units of Lexington MLP which are exchangeable on a one-for-one basis into common shares of Lexington Realty Trust (“Lexington”) (NYSE: LXP) or a 7.7% limited partnership interest. We account for our investment on the equity method. We record our pro rata share of Lexington MLP’s net income or loss on a one-quarter lag basis because we file our consolidated financial statements on Form 10-K and 10-Q prior to the time that Lexington files its financial statements.

 

Based on Lexington’s September 30, 2008 closing share price of $17.22, the market value (“fair value” pursuant to SFAS 157) of our investment in Lexington MLP was $140,336,000, or $7,175,000 below the carrying amount on our consolidated balance sheet. We have concluded that our investment is “other-than-temporarily” impaired and recorded a $7,175,000 non-cash impairment loss on our consolidated statement of income. Our conclusion was based on the recent deterioration in the capital and financial markets and our inability to forecast a recovery in the near-term.

 

On October 28, 2008, we acquired 8,000,000 Lexington common shares for $5.60 per share, or $44,800,000. The purchase price consisted of $22,400,000 in cash and a $22,400,000 margin loan recourse only to the 8,000,000 shares acquired. In addition, we exchanged our existing limited partnership units of Lexington MLP for 8,149,592 common shares of Lexington. We now own 16,149,592 Lexington common shares, or approximately 17.6% of Lexington’s common equity, with a carrying amount of $185,136,000, or $11.46 per share.

 

The market value of Lexington’s common shares declined substantially subsequent to September 30, 2008, as did share prices of many public companies. Based on Lexington’s October 31, 2008 closing share price of $8.03, the market value of our investment is approximately $55,500,000 below its carrying amount.

 

GMH Communities L.P. (“GMH”)

 

Prior to June 11, 2008, we owned 7,337,857 GMH limited partnership units, which were exchangeable on a one-for-one basis into common shares of GMH Communities Trust (“GCT”) (NYSE: GCT), and 2,517,247 common shares of GCT, or 13.8% of the limited partnership interest of GMH, which had an aggregate carrying amount of $101,634,000, or $10.31 per share/unit.

 

Pursuant to the sale of GMH’s military housing division and the merger of its student housing division with American Campus Communities, Inc. (“ACC”) (NYSE: ACC), subsequent to June 11, 2008 we received an aggregate of $105,180,000, consisting of $82,142,000 in cash and 753,126 shares of ACC common stock valued at $23,038,000 based on ACC’s then closing share price of $30.59, in exchange for our entire interest in GMH. We subsequently sold all of the ACC common shares. The above transactions resulted in a net gain of $2,038,000, which was recognized in the quarter ended June 30, 2008, and is included as a component of “net gains on disposition of wholly owned and partially owned assets other than depreciable real estate” in our consolidated statement of income.

 

The aggregate net income realized from inception of this investment in 2004 through its disposition was $77,000,000.

 

India Real Estate Ventures

 

In August 2008, we entered into a joint venture with Reliance Industries Limited (“Reliance”) (BSE: RIL), under which each partner has an equal ownership interest, to acquire, develop, and operate retail shopping centers across key cities in India. We are also a partner in four other joint ventures established to develop real estate in India’s major cities. During the nine months ended September 30, 2008, we funded an aggregate of $48,898,000 in cash to our India ventures, including $7,500,000 to the Reliance venture and $34,077,000 to the India Property Fund L.P. (“IPF”). As of September 30, 2008, our aggregate investment in all of these ventures was $91,077,000 and our remaining capital commitment is approximately $192,000,000. At September 30, 2008 and December 31, 2007, our ownership interest in IPF was 36.5% and 50.6%, respectively. Based on the reduction of our ownership interest in 2008, we no longer consolidate the accounts of IPF into our consolidated financial statements and beginning on January 1, 2008 we account for IPF under the equity method.

 

12

 

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

4.

Investments in Partially Owned Entities - continued

The carrying amount of our investments in partially owned entities and income (loss) recognized from such investments are as follows:

Investments:
(Amounts in thousands)

 

Balance at

 

 

 

 

 

Toys

 

$

334,444

 

$

298,089

 

Lexington MLP (see page 12)

 

$

140,336

 

$

160,868

 

Partially Owned Office Buildings

 

 

265,400

 

 

215,153

 

GMH (sold in June 2008)

 

 

 

 

103,260

 

India Real Estate Ventures

 

 

91,077

 

 

123,997

 

Alexander’s

 

 

130,887

 

 

122,797

 

Beverly Connection Joint Venture (“Beverly Connection”)

 

 

101,505

 

 

91,302

 

Other Equity Method Investments

 

 

330,292

 

 

389,365

 

 

 

$

1,059,497

 

$

1,206,742

 

 

 

 

Our Share of Net Income (Loss):
(Amounts in thousands)

 

For the Three Months
Ended September 30,

      

For the Nine Months
Ended September 30,

 

Toys:

 

2008

 

2007

 

2008

 

2007

 

32.7% share of equity in net (loss) income (see page 11)

 

$

(10,107

)

$

(21,997

)

$

35,550

 

$

13,493

 

Interest and other income

 

 

1,966

 

 

1,708

 

 

5,960

 

 

4,850

 

 

 

$

(8,141

)

$

(20,289

)

$

41,510

 

$

18,343

 

Alexander’s:

 

 

 

 

 

 

 

 

 

 

 

 

 

32.6% share of:

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in net income before stock appreciation rights
compensation (expense) income

 

$

4,294

 

$

5,508

 

$

14,752

 

$

16,277

 

Stock appreciation rights compensation (expense) income

 

 

(14,557

)

 

3,075

 

 

(7,605

)

 

8,991

 

Equity in net (loss) income

 

 

(10,263

)

 

8,583

 

 

7,147

 

 

25,268

 

Management and leasing fees

 

 

2,054

 

 

2,255

 

 

6,160

 

 

6,777

 

Development fees

 

 

1,333

 

 

1,273

 

 

3,097

 

 

3,069

 

 

 

$

(6,876

)

$

12,111

 

$

16,404

 

$

35,114

 

Beverly Connection:

 

 

 

 

 

 

 

 

 

 

 

 

 

50% share of equity in net loss

 

$

(4,585

)(1)

$

(1,287

)

$

(3,950

)(1) (2)

$

(3,676

)

Interest and fee income

 

 

3,686

 

 

3,885

 

 

10,630

 

 

8,492

 

 

 

 

(899

)

 

2,598

 

 

6,680

 

 

4,816

 

Lexington MLP –7.7% share of equity in net (loss) income (see page 12)

 

 

(6,040

)

 

1,726

 

 

(4,153

)

 

1,484

 

H Street partially owned entities – 50% share of equity in net income

 

 

 

 

 

 

 

 

5,923

(3)

GMH –13.8% share of equity in net income

 

 

 

 

5,709

 

 

 

 

5,428

 

India Real Estate Ventures – 4% to 50% share of equity in net losses

 

 

(835

)

 

 

 

(1,863

)

 

 

Other (4)

 

 

4,675

 

 

3,528

 

 

(29,831

)(5)

 

12,800

 

 

 

$

(3,099

)

$

13,561

 

$

(29,167

)

$

30,451

 

 

_________________________

See notes on following page.

13

 

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

4.

Investments in Partially Owned Entities - continued

Notes to preceding tabular information

(Amounts in thousands):

 

(1)

In accordance with EITF 99-10, during the quarter ended September 30, 2008 our partner’s capital account was reduced to zero and, accordingly, we recognized $1,528 of additional net loss for the portion that related to our partner’s pro rata share of the venture’s net loss.

 

 

(2)

Includes $4,100 for the reversal of a non-cash charge recorded by the joint venture in prior periods which, pursuant to paragraph 19(n) of APB Opinion 18, The Equity Method of Accounting For Investments In Common Stock, should have been eliminated in the determination of our share of the earnings of the venture.

 

 

(3)

Represents our 50% share of equity in net income from January 1, 2007 through April 29, 2007. On April 30, 2007, we acquired the remaining 50% interest of these entities and began to consolidate the accounts into our consolidated financial statements and no longer account for this investment under the equity method.

 

 

(4)

Includes our equity in net earnings of partially owned entities, including partially owned office buildings in New York and Washington, DC, the Monmouth Mall, Dune Capital LP, Verde Group LLC, and other equity method investments.

 

 

(5)

Includes a $34,200 write-off for our share of two joint ventures’ pre-development costs, of which $23,000 represents our 50% share of costs in connection with the abandonment of the “arena move”/Moynihan East portions of the Farley project.

 

 

14

 

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

4.

Investments in Partially Owned Entities - continued

Below is a summary of the debt of partially owned entities as of September 30, 2008 and December 31, 2007, none of which is guaranteed by us.

 

 

100% of
Partially Owned Entities Debt at


(Amounts in thousands)

 

      

Toys (32.7% interest) (as of August 2, 2008 and November 3, 2007, respectively):

 

 

 

 

 

 

$1.3 billion senior credit facility, due 2010, (6.14% at September 30, 2008)

 

$

1,300,000

 

$

1,300,000

$2.0 billion credit facility, due 2010, LIBOR plus 1.00%-3.75% ($104,000 reserved for
outstanding letters of credit)

 

 

 

 

489,000

Mortgage loan, due 2010, LIBOR plus 1.30% (3.79% at September 30, 2008)

 

 

800,000

 

 

800,000

$804 million secured term loan facility, due 2012, LIBOR plus 4.25%
(7.06% at September 30, 2008)

 

 

797,000

 

 

797,000

Senior U.K. real estate facility, due 2013, with interest at 5.02%

 

 

699,000

 

 

741,000

7.625% bonds, due 2011 (Face value – $500,000)

 

 

485,000

 

 

481,000

7.875% senior notes, due 2013 (Face value – $400,000)

 

 

376,000

 

 

373,000

7.375% senior notes, due 2018 (Face value – $400,000)

 

 

334,000

 

 

331,000

4.51% Spanish real estate facility, due 2013

 

 

205,000

 

 

193,000

$181 million unsecured term loan facility, due 2013, LIBOR plus 5.00%

(7.49% at September 30, 2008)

 

 

180,000

 

 

180,000

Japan bank loans, due 2011-2014, 1.20%-2.80%

 

 

148,000

 

 

161,000

Japan borrowings, due 2009-2011
(weighted average rate of 1.33% at September 30, 2008)

 

 

268,000

 

 

243,000

6.84% Junior U.K. real estate facility, due 2013

 

 

124,000

 

 

132,000

4.51% French real estate facility, due 2013

 

 

99,000

 

 

93,000

8.750% debentures, due 2021 (Face value – $22,000)

 

 

21,000

 

 

21,000

Note at an effective cost of 2.23% due in semi-annual installments through 2008

 

 

 

 

19,000

Multi-currency revolving credit facility, due 2010, LIBOR plus 1.50%-2.00%

 

 

 

 

28,000

Other

 

 

58,000

 

 

41,000

 

 

 

5,894,000

 

 

6,423,000

Alexander’s (32.6% interest):

 

 

 

 

 

 

731 Lexington Avenue mortgage note payable collateralized by the office space,
due in March 2014, with interest at 5.33% (prepayable without penalty after December 2013)

 

 

376,224

 

 

383,670

731 Lexington Avenue mortgage note payable, collateralized by the retail space,
due in July 2015, with interest at 4.93% (prepayable without penalty after March 2015)

 

 

320,000

 

 

320,000

Kings Plaza Regional Shopping Center mortgage note payable, due in June 2011,
with interest at 7.46% (prepayable without penalty after March 2011)

 

 

200,565

 

 

203,456

Rego Park construction loan payable, due in December 2010 with a one-year extension,
LIBOR plus 1.20% (3.69% at September 30, 2008)

 

 

143,571

 

 

55,786

Rego Park mortgage note payable, due in June 2009, with interest at 7.25%
(prepayable without penalty after March 2009)

 

 

78,625

 

 

79,285

Paramus mortgage note payable, due in October 2011, with interest at 5.92%
(prepayable without penalty)

 

 

68,000

 

 

68,000

 

 

 

1,186,985

 

 

1,110,197

Lexington MLP (7.7% interest) (as of June 30, 2008 and September 30, 2007, respectively):
Mortgage loans collateralized by the partnership’s real estate, due from 2008 to 2037, with a
weighted average interest rate of 5.65% at September 30, 2008 (various prepayment terms)

 

 

2,540,201

 

 

3,320,261

 

 

 

 

 

 

 

GMH – 13.8% interest in mortgage notes payable

 

 

 

 

995,818

 

 

 

 

 

 

 

 

 

15

 

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

4.

Investments in Partially Owned Entities - continued

 


(Amounts in thousands)

 

100% of
Partially Owned Entities Debt at


Partially owned office buildings:

   

September 30,
2008

   

December 31,
2007

Kaempfer Properties (2.5% and 5.0% interests in two partnerships) mortgage notes payable, collateralized by the partnerships’ real estate, due from 2011 to 2031, with a weighted average interest rate of 5.72% at September 30, 2008 (various prepayment terms)

 

$

143,306

 

$

144,340

100 Van Ness, San Francisco office complex (9% interest) up to $132 million construction loan payable, due in July 2013, LIBOR plus 2.75% with an interest rate floor of 6.50% and interest rate cap of 7.00%

 

 

85,249

 

 

330 Madison Avenue (25% interest) mortgage note payable (refinanced in May 2008 up to $150,000), due in June 2015, LIBOR plus 1.50% with interest at 3.99%

 

 

70,000

 

 

60,000

Fairfax Square (20% interest) mortgage note payable, due in August 2009, with interest at 7.50%

 

 

63,130

 

 

64,035

Rosslyn Plaza (46% interest) mortgage note payable, due in December 2011, LIBOR plus 1.0% (3.49% at September 30, 2008)

 

 

56,680

 

 

56,680

West 57th Street (50% interest) mortgage note payable, due in October 2009, with interest at 4.94% (prepayable without penalty after July 2009)

 

 

29,000

 

 

29,000

825 Seventh Avenue (50% interest) mortgage note payable, due in October 2014, with interest at 8.07% (prepayable without penalty after April 2014)

 

 

21,524

 

 

21,808

India Real Estate Ventures:

 

 

 

 

 

 

TCG Urban Infrastructure Holdings (25% interest) mortgage notes payable, collateralized by the entity’s real estate, due from 2008 to 2022, with a weighted average interest rate of 13.23% at September 30, 2008 (various prepayment terms)

 

 

158,267

 

 

136,431

India Property Fund L.P. (36.5% interest) $120 million secured revolving credit facility, due in December 2009, LIBOR plus 2.75% (5.25% at September 30, 2008)

 

 

85,500

 

 

Waterfront associates, LLC (2.5% interest) construction and land loan up to $250 million payable, due in September 2011 with a six month extension option, LIBOR plus 2.00%-3.00% (6.27% at September 30, 2008)

 

 

36,312

 

 

Verde Realty Master Limited Partnership (8.5% interest) mortgage notes payable, collateralized by the partnerships’ real estate, due from 2008 to 2037, with a weighted average interest rate of 6.06% at September 30, 2008 (various prepayment terms)

 

 

576,303

 

 

487,122

Green Courte Real Estate Partners, LLC (8.3% interest) mortgage notes payable, collateralized by the partnerships’ real estate, due from 2008 to 2015, with a weighted average interest rate of 5.52% at September 30, 2008 (various prepayment terms)

 

 

306,642

 

 

225,704

Beverly Connection (50% interest) mortgage and mezzanine loans payable, with a weighted average interest rate of 9.37%, $107,082 of which is due to Vornado

 

 

207,082

 

 

170,000

Monmouth Mall (50% interest) mortgage note payable, due in September 2015, with interest
at 5.44% (prepayable without penalty after July 2015)

 

 

165,000

 

 

165,000

San Jose, California Ground-up Development (45% interest) construction loan, due in March 2009, with a one-year extension option; $114 million fixed at 4.62%, balance at LIBOR plus 1.75% (4.25% at September 30, 2008)

 

 

123,945

 

 

101,045

Wells/Kinzie Garage (50% interest) mortgage note payable, due in June 2009, with interest at 7.03%

 

 

14,155

 

 

14,422

Orleans Hubbard Garage (50% interest) mortgage note payable, due in April 2009, with interest at 7.03%

 

 

8,875

 

 

9,045

Other

 

 

295,961

 

 

282,320

       

   Based on our ownership interest in the partially owned entities above, our pro rata share of the debt of these partially owned entities was $3,045,615,000 and $3,289,873,000 as of September 30, 2008 and December 31, 2007, respectively.

16

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

5.

Mezzanine Loans Receivable

 

The following is a summary of our investments in mezzanine loans as of September 30, 2008 and December 31, 2007.

 

(Amounts in thousands)

 

 

 

Interest Rate at

 

Carrying Amount at

 

Mezzanine Loans Receivable:

 

Maturity

 

 

 

 

Equinox

 

02/13

 

14.00%

 

$

81,324

 

$

73,162

 

Tharaldson Lodging Companies

 

04/09

 

6.70%

 

 

76,341

 

 

76,219

 

Riley HoldCo Corp.

 

02/15

 

10.00%

 

 

74,353

 

 

74,268

 

280 Park Avenue

 

06/16

 

10.25%

 

 

73,750

 

 

73,750

 

MPH, net of a valuation allowance of $46,700 and $57,000, respectively (1)

 

(1)

 

(1)

 

 

19,300

 

 

9,000

 

Other

 

01/09-12/18

 

4.75% - 12.0%

 

 

143,463

 

 

185,940

 

 

 

 

 

 

 

$

468,531

 

$

492,339

 

_____________________

 

 

(1)

On June 5, 2007, we acquired a 42% interest in two MPH mezzanine loans totaling $158,700, for $66,000 in cash. The loans, which were due on February 8, 2008 and have not been repaid, are subordinate to $2.9 billion of mortgage and other debt and secured by the equity interests in four New York City properties: Worldwide Plaza, 1540 Broadway office condominium, 527 Madison Avenue and Tower 56. At December 31, 2007, we reduced the net carrying amount of the loans to $9,000, by recognizing a $57,000 non-cash charge which was included as a reduction of “interest and other investment income” in our 2007 consolidated statement of income. On April 2, 2008, we sold a sub-participation interest in the loans for $19,300. The sub-participation did not meet the criteria for sale accounting under Statement of Financial Accounting Standard No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (“SFAS 140”) because the sub-participant is not free to pledge or exchange the asset. In the first quarter of 2008, we reduced our valuation allowance from $57,000 to $46,700, resulting in the recognition of $10,300 of “interest and other investment income” in our consolidated statement of income.

 

17

 

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

6.

Identified Intangible Assets, Intangible Liabilities and Goodwill

The following summarizes our identified intangible assets (primarily acquired above-market leases), intangible liabilities (primarily acquired below-market leases) and goodwill as of September 30, 2008 and December 31, 2007.

 

 

 

Balance at

 

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

Identified intangible assets (included in other assets):

 

 

 

 

 

 

 

Gross amount

 

$

781,483

 

$

727,205

 

Accumulated amortization

 

 

(225,968

)

 

(163,688

)

Net

 

$

555,515

 

$

563,517

 

Goodwill (included in other assets):

 

 

 

 

 

 

 

Gross amount

 

$

4,345

 

$

4,345

 

Identified intangible liabilities (included in deferred credit):

 

 

 

 

 

 

 

Gross amount

 

$

965,786

 

$

977,574

 

Accumulated amortization

 

 

(251,013

)

 

(163,473

)

Net

 

$

714,773

 

$

814,101

 

 

Amortization of acquired below market leases, net of acquired above market leases (a component of rental income) was $24,526,000 and $24,499,000 for the three months ended September 30, 2008 and 2007, respectively, and $73,655,000 and $58,842,000 for the nine months ended September 30, 2008 and 2007, respectively. Estimated annual amortization of acquired below market leases, net of acquired above market leases for each of the five succeeding years is as follows:

 

(Amounts in thousands)

 

 

 

 

2009

 

$

68,026

 

2010

 

 

60,845

 

2011

 

 

57,909

 

2012

 

 

54,221

 

2013

 

 

46,274

 

 

Amortization of all other identified intangible assets (a component of depreciation and amortization expense) was $21,239,000 and $10,647,000 for the three months ended September 30, 2008 and 2007, respectively, and $65,502,000 and $33,100,000 for the nine months ended September 30, 2008 and 2007, respectively. Estimated annual amortization of all other identified intangible assets including acquired in-place leases, customer relationships, and third party contracts for each of the five succeeding years is as follows:

 

(Amounts in thousands)

 

 

 

 

2009

 

$

58,731

 

2010

 

 

56,088

 

2011

 

 

53,672

 

2012

 

 

49,074

 

2013

 

 

41,170

 

 

We are a tenant under ground leases for certain of our properties. Amortization of these acquired below market leases resulted in an increase to rent expense of $533,000 and $394,000 for the three months ended September 30, 2008 and 2007, respectively, and $1,599,000 and $1,183,000 for the nine months ended September 30, 2008 and 2007, respectively. Estimated annual amortization of these below market leases for each of the five succeeding years is as follows:

 

(Amounts in thousands)

 

 

 

 

2009

 

$

2,133

 

2010

 

 

2,133

 

2011

 

 

2,133

 

2012

 

 

2,133

 

2013

 

 

2,133

 

 

18

 

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

7.

Debt

The following is a summary of our notes and mortgages payable:

               

(Amounts in thousands)

 

 

 

Interest Rate at

 

Balance at

 

Notes and Mortgages Payable:

 

Maturity (1)

 

 

 

 

Fixed Interest:

 

 

 

 

 

 

 

 

 

 

 

New York Office:

 

 

 

 

 

 

 

 

 

 

 

1290 Avenue of the Americas

 

01/13

 

5.97%

 

$

447,118

 

$

454,166

 

350 Park Avenue

 

01/12

 

5.48%

 

 

430,000

 

 

430,000

 

770 Broadway

 

03/16

 

5.65%

 

 

353,000

 

 

353,000

 

888 Seventh Avenue

 

01/16

 

5.71%

 

 

318,554

 

 

318,554

 

Two Penn Plaza

 

02/11

 

4.97%

 

 

288,581

 

 

292,000

 

909 Third Avenue

 

04/15

 

5.64%

 

 

214,906

 

 

217,266

 

Eleven Penn Plaza

 

12/11

 

5.20%

 

 

207,744

 

 

210,338

 

 

 

 

 

 

 

 

 

 

 

 

 

Washington, DC Office:

 

 

 

 

 

 

 

 

 

 

 

Skyline Place

 

02/17

 

5.74%

 

 

678,000

 

 

678,000

 

Warner Building

 

05/16

 

6.26%

 

 

292,700

 

 

292,700

 

1215, 1225, 1235 Clark Street, 200 12th Street and 251 18th Street

 

07/12-01/25

 

6.75%-7.09%

 

 

200,987

 

 

203,679

 

River House Apartment Complex (2)

 

04/15

 

5.43%

 

 

195,546

 

 

46,339

 

2011 and 2231 Crystal Drive

 

10/09-08/13

 

6.88%-7.08%

 

 

89,662

 

 

150,084

 

1550, 1750 Crystal Drive and 241 18th Street

 

10/10-11/14

 

6.82%-7.08%

 

 

131,429

 

 

133,471

 

Bowen Building

 

06/16

 

6.14%

 

 

115,022

 

 

115,022

 

Reston Executive I, II and III

 

01/13

 

5.57%

 

 

93,000

 

 

93,000

 

1101 17th , 1140 Connecticut, 1730 M and 1150 17th Street

 

08/10

 

6.74%

 

 

88,282

 

 

89,514

 

Universal Buildings

 

04/14

 

4.88%

 

 

60,532

 

 

62,613

 

1750 Pennsylvania Avenue

 

06/12

 

7.26%

 

 

46,737

 

 

47,204

 

1800, 1851, 1901 South Bell Street

 

12/11

 

6.91%

 

 

29,803

 

 

35,558

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail:

 

 

 

 

 

 

 

 

 

 

 

Cross collateralized mortgages on
42 shopping centers

 

03/10

 

7.93%

 

 

450,118

 

 

455,907

 

Springfield Mall (including present value of
purchase option)

 

10/12-04/13

 

5.45%

 

 

253,832

 

 

256,796

 

Green Acres Mall (3)

 

(3)

 

(3)

 

 

 

 

137,331

 

Montehiedra Town Center

 

07/16

 

6.04%

 

 

120,000

 

 

120,000

 

Broadway Mall

 

07/13

 

5.40%

 

 

95,437

 

 

97,050

 

828-850 Madison Avenue Condominium

 

06/18

 

5.29%

 

 

80,000

 

 

80,000

 

Las Catalinas Mall

 

11/13

 

6.97%

 

 

61,116

 

 

62,130

 

Other

 

05/09-11/34

 

4.00%-7.57%

 

 

163,522

 

 

165,299

 

 

 

 

 

 

 

 

 

 

 

 

 

Merchandise Mart:

 

 

 

 

 

 

 

 

 

 

 

Merchandise Mart

 

12/16

 

5.57%

 

 

550,000

 

 

550,000

 

High Point Complex

 

08/16

 

6.34%

 

 

220,982

 

 

221,258

 

Boston Design Center

 

09/15

 

5.02%

 

 

71,003

 

 

71,750

 

Washington Design Center

 

11/11

 

6.95%

 

 

45,173

 

 

45,679

 

 

 

 

 

 

 

 

 

 

 

 

 

Other:

 

 

 

 

 

 

 

 

 

 

 

555 California Street

 

05/10-09/11

 

5.97%

 

 

720,409

 

 

719,568

 

Industrial Warehouses

 

10/11

 

6.95%

 

 

25,370

 

 

25,656

 

Total Fixed Interest Notes and Mortgages Payable

 

 

 

5.96%

 

 

7,138,565

 

 

7,230,932

 

_____________________

See notes on page 21.

19


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

7.

Debt - continued

 

(Amounts in thousands)

 

 

 

 

Interest Rate at

 

Balance at

 

Notes and Mortgages Payable:

Maturity (1)

 

Spread over
LIBOR

 

 

 

 

Variable Interest:

 

 

 

 

 

 

 

 

 

 

 

 

New York Office:

 

 

 

 

 

 

 

 

 

 

 

 

Manhattan Mall

02/12

 

L+55

 

3.04%

 

$

232,000

 

$

232,000

 

866 UN Plaza

05/11

 

L+40

 

3.15%

 

 

44,978

 

 

44,978

 

Washington, DC Office:

 

 

 

 

 

 

 

 

 

 

 

 

2101 L Street (4)

02/13

 

L+120

 

4.91%

 

 

150,000

 

 

 

Courthouse Plaza One and Two

01/15

 

L+75

 

3.24%

 

 

71,739

 

 

74,200

 

River House Apartments (2)

04/18

 

(2)

 

3.81%

 

 

64,000

 

 

 

Commerce Executive III, IV and V

07/09

 

L+55

 

3.04%

 

 

50,223

 

 

50,223

 

1999 K Street (5)

12/10

 

L+130

 

5.01%

 

 

59,230

 

 

 

220 20th Street (6)

01/11

 

L+115

 

4.34%

 

 

27,291

 

 

 

West End 25 (7)

02/11

 

L+130

 

3.79%

 

 

15,583

 

 

 

Retail:

 

 

 

 

 

 

 

 

 

 

 

 

Green Acres Mall (3)

02/13

 

L+140

 

3.89%

 

 

335,000

 

 

 

Bergen Town Center (8)

03/13

 

L+150

 

3.94%

 

 

214,279

 

 

 

Other:

 

 

 

 

 

 

 

 

 

 

 

 

220 Central Park South

11/10

 

L+235 – L+245

 

4.87%

 

 

128,998

 

 

128,998

 

India Property Fund L.P. (9)

(9)

 

(9)

 

 

 

 

 

82,500

 

Other

07/09 – 10/10

 

Various

 

5.47%

 

 

137,765

 

 

94,626

 

Total Variable Interest Notes and Mortgages Payable

 

 

 

 

4.06%

 

 

1,531,086

 

 

707,525

 

Total Notes and Mortgages Payable

 

 

 

 

5.62%

 

$

8,669,651

 

$

7,938,457

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible Senior Debentures:

 

 

 

 

 

 

 

 

 

 

 

 

Due 2027

04/12

 

 

 

2.85%

 

$

1,380,478

 

$

1,376,278

 

Due 2026

11/11

 

 

 

3.63%

 

 

987,172

 

 

984,134

 

Total Convertible Senior Debentures

 

 

 

 

3.17%

 

$

2,367,650

 

$

2,360,412

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior Unsecured Notes:

 

 

 

 

 

 

 

 

 

 

 

 

Senior unsecured notes due 2009 (10)

08/09

 

 

 

4.50%

 

$

199,721

 

$

249,365

 

Senior unsecured notes due 2010

12/10

 

 

 

4.75%

 

 

199,577

 

 

199,436

 

Senior unsecured notes due 2011

02/11

 

 

 

5.60%

 

 

249,890

 

 

249,855

 

Total Senior Unsecured Notes

 

 

 

 

4.96%

 

$

649,188

 

$

698,656

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exchangeable Senior Debentures due 2025

04/12

 

 

 

3.88%

 

$

494,090

 

$

492,857

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unsecured Revolving Credit Facilities:

 

 

 

 

 

 

 

 

 

 

 

 

$1.595 billion unsecured revolving credit facility

09/12

 

L+55(12)

 

 

$

 

$

300,000

 

$.965 billion unsecured revolving credit facility (11)
($45,690 reserved for outstanding letters of credit)

06/11

 

L+50(12)

 

2.99%

 

 

10,218

 

 

105,656

 

Total Unsecured Revolving Credit Facilities

 

 

 

 

 

 

$

10,218

 

$

405,656

 

 

_______________________

See notes on following page.

 

20


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

7.

Debt - continued

Notes to preceding tabular information:

 

(Amounts in thousands)

 

 

1)

Represents the extended maturity for certain loans in which we have the unilateral right, ability and intent to extend. In the case of our convertible and exchangeable debt, represents the earliest date holders may require us to repurchase the debentures.

 

 

2)

On March 12, 2008, we completed a $260,000 refinancing of the River House Apartment Complex. The financing is comprised of a $196,000 interest-only seven-year 5.43% fixed rate mortgage and a $64,000 interest-only ten-year floating rate mortgage at the Freddie Mac Reference Note Rate plus 1.53% (3.81% at September 30, 2008). We retained net proceeds of $205,000 after repaying the existing loan.

 

 

3)

On February 11, 2008, we completed a $335,000 refinancing of the Green Acres regional mall. This interest-only loan has a rate of LIBOR plus 1.40% (3.89% at September 30, 2008) and matures in February 2011, with two one-year extension options. We retained net proceeds of $193,000 after repaying the existing loan.

 

 

4)

On February 26, 2008, we completed a $150,000 financing of 2101 L Street. The loan bears interest at LIBOR plus 1.20% (4.91% at September 30, 2008) and matures in February 2011 with two one-year extension options. We retained net proceeds of $148,000.

 

 

5)

On March 27, 2008, we closed a construction loan providing up to $124,000 to finance the redevelopment of 1999 K Street. The interest-only loan has a rate of LIBOR plus 1.30% (5.01% at September 30, 2008) and matures in December 2010 with two six-month extension options.

 

 

6)

On January 18, 2008, we closed a construction loan providing up to $87,000 to finance the residential redevelopment project at 220 20th Street (formally Crystal Plaza Two). The construction loan bears interest at LIBOR plus 1.15% (4.34% at September 30, 2008) and matures in January 2011 with two six-month extension options.

 

 

7)

On February 20, 2008, we closed a construction loan providing up to $104,000 to finance the residential redevelopment project at 1229-1231 25th Street NW (“West End 25”). The construction loan bears interest at LIBOR plus 1.30% (3.79% at September 30, 2008) and matures in February 2011 with two six-month extension options.

 

 

8)

On March 24, 2008, we closed a construction loan providing up to $290,000 to finance the redevelopment of a portion of the Bergen Town Center. The interest-only loan has a rate of LIBOR plus 1.50% (3.94% at September 30, 2008) and matures in March 2011 with two one-year extension options.

 

 

9)

Beginning in the first quarter of 2008, we account for our investment in the India Property Fund on the equity method and no longer consolidate its accounts into our consolidated financial statements, based on the reduction in our ownership interest from 50.6% as of December 31, 2007 to 36.5%.

 

 

10)

On September 9, 2008, we purchased $50,000 of our senior unsecured notes due August 15, 2009 for $49,746.

 

 

11)

Lehman Brothers is part of the syndicate of banks under this unsecured revolving credit facility with a total commitment of $35 million. On September 15, 2008, Lehman Brothers filed for Chapter 11 bankruptcy protection. All of the banks in the syndicate, except for Lehman Brothers, have funded their pro rata share of a draw we made subsequent to Lehman’s bankruptcy filing.

 

 

12)

Requires the payment of an annual facility fee of 15 basis points.

 

21

 

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

8.

Fee and Other Income

The following table sets forth the details of our fee and other income:

 


(Amounts in thousands)

 

For the Three Months
Ended September 30,

 

For the Nine Months
Ended September 30,

 

 

 

 

2007

 

2008

 

2007

 

Tenant cleaning fees

 

$

13,627

 

$

13,028

 

$

41,431

 

$

33,398

 

Management and leasing fees

 

 

2,518

 

 

2,891

 

 

10,326

 

 

12,894

 

Lease termination fees

 

 

1,455

 

 

1,574

 

 

4,469

 

 

6,295

 

Other income

 

 

13,158

 

 

10,512

 

 

33,832

 

 

29,261

 

 

 

$

30,758

 

$

28,005

 

$

90,058

 

$

81,848

 

 

Fee and other income above include management fee income from Interstate Properties, a related party, of $196,000 and $183,000 for the three months ended September 30, 2008 and 2007, respectively, and $604,000 and $593,000 for the nine months ended September 30, 2008 and 2007, respectively.

 

9.

Discontinued Operations

On March 31, 2008, we sold our 47.6% interest in Americold Realty Trust (“Americold”), our Temperature Controlled Logistics segment, for $220,000,000 in cash, which resulted in a net gain of $112,690,000.

 

On June 6, 2008, we sold our Tysons Dulles Plaza office building complex located in Tysons Corner, Virginia for approximately $152,800,000 in cash, which resulted in a net gain of $56,831,000.

 

In accordance with the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we classified our Temperature Controlled Logistics segment and our Tysons Dulles Plaza office building complex as discontinued operations and reported their revenues and expenses as “income from discontinued operations, net of minority interest” and the related assets and liabilities as “assets related to discontinued operations” and “liabilities related to discontinued operations” for all periods presented in the accompanying consolidated financial statements. The following table sets forth the assets (primarily net book value of real estate) and liabilities (primarily mortgage debt) related to discontinued operations at September 30, 2008 and December 31, 2007.

 

(Amounts in thousands)

 

Assets related to
Discontinued Operations at

 

Liabilities related to
Discontinued Operations at

 

 

 

 

 

 

 

H Street – land under sales contract

 

$

108,282

 

$

108,470

 

$

 

$

 

Retail properties

 

 

2,088

 

 

4,030

 

 

 

 

 

Americold

 

 

 

 

1,424,770

 

 

750

 

 

1,332,627

 

Tysons Dulles Plaza

 

 

 

 

95,048

 

 

 

 

3

 

 

 

$

110,370

 

$

1,632,318

 

$

750

 

$

1,332,630

 

 

The following table sets forth the combined results of discontinued operations for the three and nine months ended September 30, 2008 and 2007.

           

(Amounts in thousands)

 

For the Three Months
Ended September 30,

 

For the Nine Months
Ended September 30,

 

 

 

 

2007

 

2008

 

2007

 

Revenues

 

$

 

$

216,957

 

$

222,361

 

$

633,825

 

Expenses

 

 

10

 

 

220,164

 

 

238,132

 

 

636,408

 

Net loss

 

 

(10

)

 

(3,207

)

 

(15,771

)

 

(2,583

)

Net gain on sale of Americold

 

 

 

 

 

 

112,690

 

 

 

Net gain on sale of Tysons Dulles Plaza

 

 

 

 

 

 

56,831

 

 

 

Net gain on sale of Crystal Mall Two

 

 

 

 

19,893

 

 

 

 

19,893

 

Net gains on sale of other real estate

 

 

112

 

 

7,852

 

 

692

 

 

7,852

 

Income from discontinued operations,
net of minority interest

 

$

102

 

$

24,538

 

$

154,442

 

$

25,162

 

 

 

22

 

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

10.

Income Per Share

The table below computes (i) basic income per common share - which utilizes weighted average common shares outstanding without regard to potentially dilutive common shares, and (ii) diluted income per common share - which includes weighted average common shares outstanding and dilutive common share equivalents. Potentially dilutive common share equivalents include our Series A convertible preferred shares, employee stock options and restricted share awards, exchangeable senior debentures due 2025, as well as Operating Partnership convertible preferred units.

 

(Amounts in thousands, except per share amounts)

 

For The Three Months
Ended September 30,

 

For The Nine Months
Ended September 30,

 

 

 

 

2007

 

2008

 

2007

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net of minority interest in
the Operating Partnership

 

$

45,599

 

$

106,303

 

$

443,116

 

$

438,530

 

Income from discontinued operations, net of minority interest

 

 

102

 

 

24,538

 

 

154,442

 

 

25,162

 

Net income

 

 

45,701

 

 

130,841

 

 

597,558

 

 

463,692

 

Preferred share dividends

 

 

(14,271

)

 

(14,295

)

 

(42,820

)

 

(42,886

)

Numerator for basic income per share – net income applicable to
common shares

 

 

31,430

 

 

116,546

 

 

554,738

 

 

420,806

 

Impact of assumed conversions:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest on 3.875% exchangeable senior debentures

 

 

 

 

 

 

15,764

 

 

 

Convertible preferred share dividends

 

 

 

 

68

 

 

145

 

 

588

 

Numerator for diluted income per share – net income
applicable to common shares

 

$

31,430

 

$

116,614

 

$

570,647

 

$

421,394

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic income per share – weighted average shares

 

 

154,025

 

 

151,990

 

 

153,668

 

 

151,739

 

Effect of dilutive securities (1):

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock options and restricted share awards

 

 

4,663

 

 

6,407

 

 

4,609

 

 

6,742

 

3.875% exchangeable senior debentures

 

 

 

 

 

 

5,559

 

 

 

Convertible preferred shares

 

 

 

 

116

 

 

82

 

 

264

 

Denominator for diluted income per share –
adjusted weighted average shares and assumed conversions

 

 

158,688

 

 

158,513

 

 

163,918

 

 

158,745

 

INCOME PER COMMON SHARE – BASIC:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.20

 

$

0.61

 

$

2.60

 

$

2.61

 

Income from discontinued operations, net of minority interest

 

 

 

 

0.16

 

 

1.01

 

 

0.16

 

Net income per common share

 

$

0.20

 

$

0.77

 

$

3.61

 

$

2.77

 

INCOME PER COMMON SHARE – DILUTED:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.20

 

$

0.58

 

$

2.54

 

$

2.49

 

Income from discontinued operations, net of minority interest

 

 

 

 

0.16

 

 

0.94

 

 

0.16

 

Net income per common share

 

$

0.20

 

$

0.74

 

$

3.48

 

$

2.65

 

__________________

(1)

The effect of dilutive securities above excludes anti-dilutive weighted average common share equivalents. Accordingly, the three and nine months ended September 30, 2008 exclude 25,226 and 19,308 weighted average common share equivalents, respectively. The three and nine months ended September 30, 2007 exclude 22,881 and 22,544 weighted average common share equivalents, respectively.

 

11.

Comprehensive Income

(Amounts in thousands)

 

For The Three Months
Ended September 30,

 

For The Nine Months
Ended September 30,

 

 

 

 

2007

 

2008

 

2007

 

Net income

 

$

45,701

 

$

130,841

 

$

597,558

 

$

463,692

 

Other comprehensive income (loss)

 

 

19,656

 

 

(5,337

)

 

(38,447

)

 

(30,295

)

Comprehensive income

 

$

65,357

 

$

125,504

 

$

559,111

 

$

433,397

 

 

Accumulated other comprehensive (loss) income was ($8,675,000) and $29,772,000 as of September 30, 2008 and December 31, 2007, respectively, and consists primarily of accumulated unrealized (loss) income from the mark-to-market of marketable equity securities classified as available-for-sale.

 

23


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

12.

Stock-based Compensation

Our Share Option Plan (the “Plan”) provides for grants of incentive and non-qualified stock options, restricted stock, stock appreciation rights, performance shares and limited partnership units to certain of our employees and officers. We account for stock-based compensation in accordance with SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure and as revised by SFAS No. 123R, Share-Based Payment (“SFAS 123R”). We adopted SFAS 123R, using the modified prospective application, on January 1, 2006. Stock based compensation expense for the three and nine months ended September 30, 2008 and 2007 consists of stock option awards, restricted common shares, Operating Partnership unit awards and Out-Performance Plan awards. We recognized $8,789,000 and $25,762,000 of stock based compensation expense in the three and nine months ended September 30, 2008, respectively, of which $4,284,000 and $11,732,000, respectively, relates to our 2006 and 2008 out-performance plans. During the three and nine months ended September 30, 2007, we recognized $6,177,000 and $18,797,000 of stock based compensation expense, respectively.

 

On March 31, 2008, our Compensation Committee approved a grant of Vornado stock options to senior executives and employees. The options were granted with an exercise price 17.5% in excess of the average of the high and low price of our common shares on the New York Stock Exchange on that date. The options are expensed pro rata over the 5-year vesting period in accordance with SFAS 123R.

 

2008 Out-Performance Plan

 

On March 31, 2008, our Compensation Committee approved a $75,000,000 out-performance plan (the “2008 OPP”) that requires the achievement of performance objectives against both absolute and relative thresholds. The 2008 OPP establishes a potential performance pool in which 78 members of senior management have the opportunity to share in if the total return to our shareholders (the “Total Return”) resulting from both share appreciation and dividends for the four-year period from March 31, 2008 to March 31, 2012 exceeds both an absolute and a relative hurdle. The initial value from which to determine the Total Return is $86.20 per share, a 0.93% premium to the trailing 10-day average closing price on the New York Stock Exchange for our common shares on the date the plan was adopted.

 

The size of the out-performance pool for the 2008 OPP is 6% of the aggregate “out-performance return” subject to a maximum total award of $75,000,000 (the “Maximum Award”). The “out-performance return” is comprised of (i) 3% of the total dollar value of the Total Return in excess of 10% per annum (the “Absolute Component”), plus (ii) 3% of the total dollar value of the Total Return in excess of the Relative Threshold (the “Relative Component”), based on the SNL Equity REIT Index (the “Index”) over the four-year performance period. In the event that the Relative Component creates a negative award as a result of underperforming the Index, the value of any out-performance award potentially earned under the Absolute Component will be reduced dollar for dollar. In addition, awards potentially earned under the Relative Component will be reduced on a ratable sliding scale to the extent the Total Return is less than 10% per annum and to zero to the extent the Total Return is less than 7% per annum. The size of this out-performance pool, if any, will be determined based on the highest 30-trading day trailing average price of our common shares during the final 150 days of the four-year period. During the four-year performance period, participants are entitled to receive 10% of the common dividends paid on Vornado’s common shares for each OPP unit awarded, regardless of whether the OPP units are ultimately earned.

 

The 2008 OPP also provides participants an opportunity to earn partial awards during two interim measurement periods (the “Interim Periods”): (a) one for a period consisting of the first two years of the performance period and (b) one for a period consisting of the final two years of the performance period. For each Interim Period, participants may be entitled to share in 40% ($30,000,000) of the maximum $75,000,000 performance pool if the performance thresholds have been met for the applicable Interim Periods on a pro rated basis. The starting share price for the first Interim Period is $86.20 per share. The starting share price for the second Interim Period is equal to the greater of our common share price on March 31, 2010, or the initial starting share price of $86.20 per share less dividends paid during the first two years of the plan. If the maximum award is earned during the first Interim Period, participants lose the potential to earn the second Interim Period award, but not the potential to earn the remainder of the maximum award over the four-year period. The size of any out-performance pool for an Interim Period will be determined based on the highest 30-day trailing average price of our shares during the final 120 days of the applicable Interim Period.

 

Awards earned under the program (including any awards earned for the Interim Periods), will vest 50% on March 31, 2012 and 50% on March 31, 2013. The 2008 OPP is accounted for in accordance with SFAS 123R. The fair value of the OPP awards on the date of grant, as adjusted for estimated forfeitures, was approximately $21,600,000, and is being amortized into expense over a five-year period beginning on the date of grant through the final vesting period, using a graded vesting attribution model.

 

24

 

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

13.

Commitments and Contingencies

At September 30, 2008, there were $45,690,000 of outstanding letters of credit under our $.965 billion revolving credit facility. Our credit facilities contain financial covenants, that require us to maintain minimum interest coverage and maximum debt to market capitalization ratios, and provides for higher interest rates in the event of a decline in our ratings below Baa3/BBB. Our credit facilities also contain customary conditions precedent to borrowing, including representations and warranties and also contain customary events of default that could give rise to accelerated repayment, including such items as failure to pay interest or principal.

 

Our debt instruments, consisting of mortgage loans secured by our properties (which are generally non-recourse to us), senior unsecured notes, exchangeable senior debentures, convertible senior debentures and revolving credit agreements, contain customary covenants requiring us to maintain insurance. Although we believe that we have adequate insurance coverage under these agreements, we may not be able to obtain an equivalent amount of coverage at reasonable costs in the future. Further, if lenders insist on greater coverage than we are able to obtain, it could adversely affect our ability to finance and/or refinance our properties and expand our portfolio.

 

We carry commercial liability and all risk property insurance ((i) fire, (ii) flood, (iii) extended coverage, (iv) “acts of terrorism” as defined in the Terrorism Risk Insurance Program Reauthorization Act of 2007 (“TRIPRA”) , which expires in December 2014, and (v) rental loss insurance) with respect to our assets. Our New York Office, Washington, DC Office, Retail and Merchandise Mart divisions have $2.0 billion of per occurrence all risk property insurance coverage, including terrorism coverage in effect through September 15, 2009. Our California properties have earthquake insurance with coverage of $150,000,000 per occurrence, subject to a deductible in the amount of 5% of the value of the affected property, and a $150,000,000 annual aggregate.

 

In June 2007 we formed Penn Plaza Insurance Company, LLC (“PPIC”), a wholly owned consolidated subsidiary, to act as a re-insurer with respect to a portion of our earthquake insurance coverage and as a direct insurer for coverage for “certified” acts of terrorism and for nuclear, biological, chemical and radiological (“NBCR”) acts, as defined by the Terrorism Risk Insurance Program Reauthorization Act of 2007 (“TRIPRA”). Coverage for “certified” acts of terrorism is fully reinsured by third party insurance companies and the Federal government with no exposure to PPIC. Prior to the formation of PPIC, we were uninsured for losses under NBCR coverage. Subsequently, we have $2.0 billion of NBCR coverage under TRIPRA, for which PPIC is responsible for 15% of each NBCR loss and the insurance company deductible of $1,000,000. We are ultimately responsible for any loss borne by PPIC.

 

Each of our properties has been subjected to varying degrees of environmental assessment at various times. The environmental assessments did not reveal any material environmental contamination. However, there can be no assurance that the identification of new areas of contamination, changes in the extent or known scope of contamination, the discovery of additional sites, or changes in cleanup requirements would not result in significant costs to us.

 

We are committed to fund additional capital to certain of our partially owned entities aggregating approximately $215,000,000. Of this amount, $80,923,000 is committed to IPF and is pledged as collateral to IPF’s lender. We have also guaranteed the completion of two joint venture development projects for which the aggregate estimated cost to complete both projects is approximately $88,700,000.

 

We enter into agreements for the purchase and resale of U.S. government obligations for periods of up to one week. The obligations purchased under these agreements are held in safekeeping in our name by various money center banks. We have the right to demand additional collateral or return of these invested funds at any time the collateral value is less than 102% of the invested funds plus any accrued earnings thereon. We had $56,180,000 and $82,240,000 of cash invested in these agreements at September 30, 2008 and December 31, 2007, respectively.

 

On January 16, 2008, our Board of Trustees approved the termination of the Vornado Realty Trust Retirement Plan and the Merchandise Mart Properties Pension Plan. The plans were frozen in 1998 and 1999, respectively. The termination is expected to be completed in the fourth quarter of 2008. Our current estimate of the cost we will incur during the fourth quarter of 2008 to buy annuities from an insurance company or to make lump-sum payments to plan participants to terminate both plans is approximately $4,000,000.

 

From time to time, we have disposed of substantial amounts of real estate to third parties for which, as to certain properties, we remain contingently liable for rent payments or mortgage indebtedness that cannot be quantified.

 

 

25


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

13.

Commitments and Contingencies - continued

 

Litigation

 

On January 8, 2003, Stop & Shop filed a complaint with the United States District Court for the District of New Jersey (“USDC-NJ”) claiming we had no right to reallocate and therefore continue to collect $5,000,000 of annual rent from Stop & Shop pursuant to the Master Agreement and Guaranty. Stop & Shop asserted that a prior order of the Bankruptcy Court for the Southern District of New York dated February 6, 2001, as modified on appeal to the District Court for the Southern District of New York on February 13, 2001, froze our right to reallocate which effectively terminated our right to collect the additional rent from Stop & Shop. On March 3, 2003, after we moved to dismiss for lack of jurisdiction, Stop & Shop voluntarily withdrew its complaint. On March 26, 2003, Stop & Shop filed a new complaint in New York Supreme Court, asserting substantially the same claims as in its USDC-NJ complaint. We removed the action to the United States District Court for the Southern District of New York. In January 2005 that court remanded the action to the New York Supreme Court. On February 14, 2005, we served an answer in which we asserted a counterclaim seeking a judgment for all the unpaid additional rent accruing through the date of the judgment and a declaration that Stop & Shop will continue to be liable for the additional rent as long as any of the leases subject to the Master Agreement and Guaranty remain in effect. On May 17, 2005, we filed a motion for summary judgment. On July 15, 2005, Stop & Shop opposed our motion and filed a cross-motion for summary judgment. On December 13, 2005, the Court issued its decision denying the motions for summary judgment. Both parties appealed the Court’s decision and on December 14, 2006, the Appellate Court division issued a decision affirming the Court’s decision. On January 16, 2007 we filed a motion for the reconsideration of one aspect of the Appellate Court’s decision which was denied on March 13, 2007. We are currently engaged in discovery and anticipate that a trial date will be set for some time in 2009. We intend to vigorously pursue our claims against Stop & Shop. In our opinion, after consultation with legal counsel, the outcome of such matters will not have a material effect on our financial condition, results of operations or cash flows.

 

On May 24, 2007, we acquired a 70% controlling interest in 1290 Avenue of the Americas and the 555 California Street complex. Our 70% interest was acquired through the purchase of all of the shares of a group of foreign companies that own, through U.S. entities, the 1% sole general partnership interest and a 69% limited partnership interest in the partnerships that own the two properties. The remaining 30% limited partnership interest is owned by Donald J. Trump. In August 2005, Mr. Trump brought a lawsuit in the New York State Supreme Court against, among others, the general partners of the partnerships referred to above.   Mr. Trump’s claims arose out of a dispute over the sale price of, and use of proceeds from, the sale of properties located on the former Penn Central rail yards between West 59th and 72nd Streets in Manhattan which were formerly owned by the partnerships. In decisions dated September 14, 2005 and July 24, 2006, the Court denied various of Mr. Trump’s motions and ultimately dismissed all of Mr. Trump’s claims, except for his claim seeking access to books and records. In a decision dated October 1, 2007, the Court determined that Mr. Trump already received access to the books and records to which he was entitled, with the exception of certain documents which were subsequently delivered to Mr. Trump. Mr. Trump has sought re-argument and renewal on, and filed a notice of appeal in connection with, his dismissed claims.  In connection with the acquisition, we agreed to indemnify the sellers for liabilities and expenses arising out of Mr. Trump’s claim that the general partners of the partnerships we acquired did not sell the rail yards at a fair price or could have sold the rail yards for a greater price and any other claims asserted in the legal action; provided however, that if Mr. Trump prevails on certain claims involving partnership matters, other than claims relating to sale price, the sellers will be required to reimburse us for certain costs related to those claims. We believe that the claims relating to the sale price are without merit. All other allegations are not asserted as a basis for damages and regardless of merit would not be material to our consolidated financial statements.

 

In July 2005, we acquired H Street Building Corporation (“H Street”) which has a subsidiary that owns, among other things, a 50% tenancy in common interest in land located in Arlington County, Virginia, known as "Pentagon Row," leased to two tenants. In April 2007, we acquired the remaining 50% interest in that fee. In April 2007 we received letters from those tenants, Street Retail, Inc. and Post Apartment Homes, L.P., claiming they had a right of first offer triggered by each of those transactions. On September 25, 2008, both tenants filed suit against us and the former owners. The claim alleges the right to purchase the fee interest, damages in excess of $75,000,000 and punitive damages. We believe this claim is without merit and will not have a material effect on our financial condition, results of operations or cash flows.

 

There are various other legal actions against us in the ordinary course of business. We believe the outcome of such matters will not have a material effect on our financial condition, results of operations or cash flows.

 

26

 

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

14.

Retirement Plans

On January 16, 2008, our Board of Trustees approved the termination of the Vornado Realty Trust Retirement Plan (“Vornado Plan”) and the Merchandise Mart Properties Pension Plan (“Mart Plan”). The termination is expected to be completed in the fourth quarter of 2008. Our current estimate of the cost we will incur during the fourth quarter of 2008 to buy annuities from an insurance company or to make lump-sum payments to plan participants to terminate both plans is approximately $4,000,000.

 

The following table sets forth the components of net periodic benefit costs:

 

(Amounts in thousands)

 

For The Three Months
Ended September 30,

 

For The Nine Months
Ended September 30,

 

 

 

 

2007

 

2008

 

2007

 

Service cost

 

$

 

$

 

$

 

$

 

Interest cost

 

 

292

 

 

293

 

 

876

 

 

878

 

Expected return on plan assets

 

 

(309

)

 

(299

)

 

(927

)

 

(897

)

Amortization of net loss

 

 

64

 

 

61

 

 

193

 

 

183

 

Net periodic benefit cost

 

$

47

 

$

55

 

$

142

 

$

164

 

 

Employer Contributions

 

During the nine months ended September 30, 2008 and 2007, we contributed $403,000 and $1,005,000, respectively, to the plans. We anticipate making additional contributions of $2,113,000 to the plans during the remainder of 2008.

 

 

15.

Marketable Equity Securities

At March 31, 2008, we concluded that an investment in a marketable equity security was other-than-temporarily impaired and recognized a non-cash impairment charge $9,073,000, based on the March 31, 2008 closing share price of that security. At September 30, 2008, we concluded that certain other investments in marketable equity securities were other-than-temporarily impaired based on the severity of the declines in the market value (“fair value” pursuant to SFAS 157) of those securities at September 30, 2008 and, accordingly, we recognized a non-cash impairment charge of $11,808,000. These non-cash charges are included in “interest and other investment income, net” on our consolidated statement of income. Based on the October 31, 2008 closing share prices of these securities, their market value is approximate $39,100,000 below their carrying amount.

 

 

16.

Costs of Acquisitions and Development not Consummated

In the first and second quarters of 2008, we wrote-off an aggregate of $3,009,000 of costs associated with acquisitions not consummated (primarily Hudson Yards). In the first quarter of 2007, we wrote-off $8,807,000 of costs associated with the Equity Office Properties Trust acquisition not consummated.

 

During the quarter ended September 30, 2008, we recognized a $5,000,000 non-cash charge to write-down the carrying amount of land held for development to its fair value.

 

27

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

17.

Segment Information

Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the three months ended September 30, 2008 and 2007.

(Amounts in thousands)

 

For the Three Months Ended September 30, 2008

 

 

 

Total

 

New York
Office

 

Washington, DC
Office

 

Retail

 

Merchandise
Mart

 

Toys

 

Other (2)

 

Property rentals

 

$

501,475

 

$

181,758

 

$

128,382

 

$

86,590

 

$

53,167

 

$

 

$

51,578

 

Straight-line rents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual rent increases

 

 

14,404

 

 

8,077

 

 

418

 

 

3,805

 

 

1,738

 

 

 

 

366

 

Amortization of free rent

 

 

8,070

 

 

3,649

 

 

2,925

 

 

1,539

 

 

(2

)

 

 

 

(41

)

Amortization of acquired below-
market leases, net

 

 

24,526

 

 

14,807

 

 

1,089

 

 

7,491

 

 

26

 

 

 

 

1,113

 

Total rentals

 

 

548,475

 

 

208,291

 

 

132,814

 

 

99,425

 

 

54,929

 

 

 

 

53,016

 

Tenant expense reimbursements

 

 

97,912

 

 

40,632

 

 

14,601

 

 

33,383

 

 

5,294

 

 

 

 

4,002

 

Fee and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant cleaning revenue

 

 

13,627

 

 

17,751

 

 

 

 

 

 

 

 

 

 

(4,124

)

Management and leasing fees

 

 

2,518

 

 

1,138

 

 

1,875

 

 

411

 

 

95

 

 

 

 

(1,001

)

Lease termination fees

 

 

1,455

 

 

21

 

 

1,037

 

 

362

 

 

35

 

 

 

 

 

Other

 

 

13,158

 

 

3,626

 

 

5,701

 

 

1,876

 

 

2,676

 

 

 

 

(721

)

Total revenues

 

 

677,145

 

 

271,459

 

 

156,028

 

 

135,457

 

 

63,029

 

 

 

 

51,172

 

Operating expenses

 

 

276,302

 

 

120,398

 

 

56,680

 

 

50,248

 

 

31,773

 

 

 

 

17,203

 

Depreciation and amortization

 

 

136,705

 

 

48,322

 

 

35,929

 

 

21,904

 

 

12,751

 

 

 

 

17,799

 

General and administrative

 

 

49,495

 

 

5,263

 

 

6,427

 

 

7,398

 

 

7,419

 

 

 

 

22,988

 

Costs of acquisitions and development not consummated

 

 

5,000

 

 

 

 

 

 

 

 

 

 

 

 

5,000

 

Total expenses

 

 

467,502

 

 

173,983

 

 

99,036

 

 

79,550

 

 

51,943

 

 

 

 

62,990

 

Operating income (loss)

 

 

209,643

 

 

97,476

 

 

56,992

 

 

55,907

 

 

11,086

 

 

 

 

(11,818

)

(Loss) income applicable to Alexander’s

 

 

(6,876

)

 

189

 

 

 

 

191

 

 

 

 

 

 

(7,256

)

Loss applicable to Toys

 

 

(8,141

)

 

 

 

 

 

 

 

 

 

(8,141

)

 

 

(Loss) income from partially owned
entities

 

 

(3,099

)

 

3,429

 

 

1,696

 

 

25

 

 

158

 

 

 

 

(8,407

)

Interest and other investment income, net

 

 

9,638

 

 

542

 

 

507

 

 

92

 

 

49

 

 

 

 

8,448

 

Interest and debt expense

 

 

(148,039

)

 

(34,647

)

 

(31,323

)

 

(21,445

)

 

(13,150

)

 

 

 

(47,474

)

Net gains (losses) on disposition of wholly
owned and partially owned assets
other than depreciable real estate

 

 

5,160

 

 

 

 

 

 

 

 

 

 

 

 

5,160

 

Minority interest of partially owned
entities

 

 

466

 

 

(1,545

)

 

 

 

30

 

 

 

 

 

 

1,981

 

Income (loss) before income taxes

 

 

58,752

 

 

65,444

 

 

27,872

 

 

34,800

 

 

(1,857

)

 

(8,141

)

 

(59,366

)

Income tax expense

 

 

(5,244

)

 

 

 

(699

)

 

(5

)

 

(814

)

 

 

 

(3,726

)

Income (loss) from continuing operations

 

 

53,508

 

 

65,444

 

 

27,173

 

 

34,795

 

 

(2,671

)

 

(8,141

)

 

(63,092

)

Income (loss) from discontinued
operations, net

 

 

102

 

 

 

 

 

 

112

 

 

 

 

 

 

(10

)

Income (loss) before allocation to minority limited partners

 

 

53,610

 

 

65,444

 

 

27,173

 

 

34,907

 

 

(2,671

)

 

(8,141

)

 

(63,102

)

Minority limited partners’ interest in the Operating Partnership

 

 

(3,091

)

 

 

 

 

 

 

 

 

 

 

 

(3,091

)

Perpetual preferred unit distributions of the Operating Partnership

 

 

(4,818

)

 

 

 

 

 

 

 

 

 

 

 

(4,818

)

Net income (loss)

 

 

45,701

 

 

65,444

 

 

27,173

 

 

34,907

 

 

(2,671

)

 

(8,141

)

 

(71,011

)

Interest and debt expense (1)

 

 

192,839

 

 

32,979

 

 

32,244

 

 

26,733

 

 

13,360

 

 

33,569

 

 

53,954

 

Depreciation and amortization(1)

 

 

179,574

 

 

46,113

 

 

37,222

 

 

23,488

 

 

12,885

 

 

35,155

 

 

24,711

 

Income tax expense (benefit) (1)

 

 

(5,063

)

 

 

 

701

 

 

5

 

 

814

 

 

(10,944

)

 

4,361

 

EBITDA(1)

 

$

413,051

 

$

144,536

 

$

97,340

 

$

85,133

 

$

24,388

 

$

49,639

 

$

12,015

 

      

 The Other segment EBITDA includes $23,983 for non-cash impairment charges (primarily marketable securities and our investment Lexington MLP), a $3,982 net loss on the mark-to-market of derivative instruments and a $3,570 after-tax net gain on sale of residential condominiums at our 40 East 66th Street property.

_______________________

See notes on page 32.

28


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

17.

Segment Information – continued

(Amounts in thousands)

 

For the Three Months Ended September 30, 2007

 

 

Total

 

New York
Office

 

Washington, DC
Office

 

Retail

 

Merchandise
Mart

 

Toys

 

Other (2)

 

Property rentals

 

$

478,951

 

$

173,180

 

$

120,540

 

$

83,184

 

$

53,922

 

$

 

$

48,125

 

Straight-line rents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual rent increases

 

 

10,533

 

 

3,124

 

 

3,333

 

 

2,986

 

 

1,034

 

 

 

 

56

 

Amortization of free rent

 

 

5,797

 

 

1,562

 

 

3,346

 

 

44

 

 

98

 

 

 

 

747

 

Amortization of acquired below-
market leases, net

 

 

24,499

 

 

15,216

 

 

1,066

 

 

6,272

 

 

10

 

 

 

 

1,935

 

Total rentals

 

 

519,780

 

 

193,082

 

 

128,285

 

 

92,486

 

 

55,064

 

 

 

 

50,863

 

Tenant expense reimbursements

 

 

89,293

 

 

35,701

 

 

12,065

 

 

30,338

 

 

6,632

 

 

 

 

4,557

 

Fee and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant cleaning revenue

 

 

13,028

 

 

15,672

 

 

 

 

 

 

 

 

 

 

(2,644

)

Management and leasing fees

 

 

2,891

 

 

1,494

 

 

2,178

 

 

310

 

 

8

 

 

 

 

(1,099

)

Lease termination fees

 

 

1,574

 

 

1,326

 

 

(1

)

 

51

 

 

198

 

 

 

 

 

Other

 

 

10,512

 

 

4,058

 

 

4,317

 

 

515

 

 

1,769

 

 

 

 

(147)

 

Total revenues

 

 

637,078

 

 

251,333

 

 

146,844

 

 

123,700

 

 

63,671

 

 

 

 

51,530

 

Operating expenses

 

 

259,000

 

 

106,616

 

 

50,825

 

 

43,656

 

 

33,791

 

 

 

 

24,112

 

Depreciation and amortization

 

 

118,994

 

 

41,346

 

 

30,521

 

 

19,634

 

 

12,110

 

 

 

 

15,383

 

General and administrative

 

 

47,888

 

 

5,330

 

 

6,247

 

 

6,739

 

 

7,439

 

 

 

 

22,133

 

Total expenses

 

 

425,882

 

 

153,292

 

 

87,593

 

 

70,029

 

 

53,340

 

 

 

 

61,628

 

Operating income (loss)

 

 

211,196

 

 

98,041

 

 

59,251

 

 

53,671

 

 

10,331

 

 

 

 

(10,098

)

Income applicable to Alexander’s

 

 

12,111

 

 

189

 

 

 

 

187

 

 

 

 

 

 

11,735

 

Loss applicable to Toys

 

 

(20,289

)

 

 

 

 

 

 

 

 

 

(20,289

)

 

 

Income (loss) from partially owned entities

 

 

13,561

 

 

2,745

 

 

743

 

 

3,972

 

 

(50

)

 

 

 

6,151

 

Interest and other investment income, net

 

 

56,581

 

 

668

 

 

3,558

 

 

195

 

 

104

 

 

 

 

52,056

 

Interest and debt expense

 

 

(149,722

)

 

(36,186

)

 

(31,289

)

 

(19,423

)

 

(13,174

)

 

 

 

(49,650

)

Net gains (losses) on disposition of
wholly owned and partially owned
assets other than depreciable real
estate

 

 

1,012

 

 

 

 

 

 

 

 

 

 

 

 

1,012

 

Minority interest of partially owned
entities

 

 

(282

)

 

(1,613

)

 

 

 

54

 

 

 

 

 

 

1,277

 

Income (loss) before income taxes

 

 

124,168

 

 

63,844

 

 

32,263

 

 

38,656

 

 

(2,789

)

 

(20,289

)

 

12,483

 

Income tax expense

 

 

(2,806

)

 

 

 

(2,349

)

 

(3

)

 

(153

)

 

 

 

(301

)

Income (loss) from continuing operations

 

 

121,362

 

 

63,844

 

 

29,914

 

 

38,653

 

 

(2,942

)

 

(20,289

)

 

12,182

 

Income (loss) from discontinued operations, net

 

 

24,538

 

 

 

 

25,550

 

 

3,078

 

 

 

 

 

 

(4,090

)

Income (loss) before allocation to
minority limited partners

 

 

145,900

 

 

63,844

 

 

55,464

 

 

41,731

 

 

(2,942

)

 

(20,289

)

 

8,092

 

Minority limited partners’ interest
in the Operating Partnership

 

 

(10,241

)

 

 

 

 

 

 

 

 

 

 

 

(10,241

)

Perpetual preferred unit distributions

of the Operating Partnership

 

 

(4,818

)

 

 

 

 

 

 

 

 

 

 

 

(4,818

)

Net income (loss)

 

 

130,841

 

 

63,844

 

 

55,464

 

 

41,731

 

 

(2,942

)

 

(20,289

)

 

(6,967

)

Interest and debt expense (1)

 

 

207,934

 

 

34,853

 

 

31,999

 

 

21,947

 

 

13,388

 

 

40,875

 

 

64,872

 

Depreciation and amortization(1)

 

 

171,106

 

 

39,543

 

 

33,474

 

 

20,617

 

 

12,260

 

 

34,495

 

 

30,717

 

Income tax (benefit) expense (1)

 

 

(13,094

)

 

952

 

 

2,353

 

 

3

 

 

153

 

 

(18,213

)

 

1,658

 

EBITDA(1)

 

$

496,787

 

$

139,192

 

$

123,290

 

$

84,298

 

$

22,859

 

$

36,868

 

$

90,280

 

 

The Washington, DC Office segment EBITDA and the Retail segment EBITDA includes $24,696 and $3,049, respectively, of net gains on sale of real estate (included in “Income (loss) from discontinues operations, net”). The Other segment EBITDA includes an $18,606 net gain on the mark-to-market of derivative instruments and a $1,012 net gain on sale of marketable equity securities.

________________________

See notes on page 32.

29

 


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

17.

Segment Information - continued

(Amounts in thousands)

 

For the Nine Months Ended September 30, 2008

 

 

 

Total

 

New York
Office

 

Washington, DC
Office

 

Retail

 

Merchandise
Mart

 

Toys

 

Other (2)

 

Property rentals

 

$

1,503,925

 

$

539,254

 

$

377,867

 

$

260,279

 

$

179,606

 

$

 

$

146,919

 

Straight-line rents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual rent increases

 

 

45,724

 

 

20,860

 

 

6,861

 

 

12,867

 

 

4,531

 

 

 

 

605

 

Amortization of free rent

 

 

17,460

 

 

8,106

 

 

5,759

 

 

319

 

 

2,662

 

 

 

 

614

 

Amortization of acquired below-market leases, net

 

 

73,655

 

 

45,548

 

 

3,305

 

 

20,016

 

 

84

 

 

 

 

4,702

 

Total rentals

 

 

1,640,764

 

 

613,768

 

 

393,792

 

 

293,481

 

 

186,883

 

 

 

 

152,840

 

Tenant expense reimbursements

 

 

269,970

 

 

103,230

 

 

44,649

 

 

98,251

 

 

14,715

 

 

 

 

9,125

 

Fee and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant cleaning revenue

 

 

41,431

 

 

53,415

 

 

 

 

 

 

 

 

 

 

(11,984

)

Management and leasing fees

 

 

10,326

 

 

5,035

 

 

6,983

 

 

974

 

 

306

 

 

 

 

(2,972

)

Lease termination fees

 

 

4,469

 

 

2,050

 

 

1,037

 

 

1,027

 

 

355

 

 

 

 

 

Other

 

 

33,832

 

 

11,876

 

 

14,802

 

 

2,016

 

 

5,749

 

 

 

 

(611

)

Total revenues

 

 

2,000,792

 

 

789,374

 

 

461,263

 

 

395,749

 

 

208,008

 

 

 

 

146,398

 

Operating expenses

 

 

793,911

 

 

333,845

 

 

161,220

 

 

144,648

 

 

102,747

 

 

 

 

51,451

 

Depreciation and amortization

 

 

398,263

 

 

143,549

 

 

104,899

 

 

63,596

 

 

38,324

 

 

 

 

47,895

 

General and administrative

 

 

149,165

 

 

14,906

 

 

18,824

 

 

23,105

 

 

21,921

 

 

 

 

70,409

 

Costs of acquisitions and development not consummated

 

 

8,009

 

 

 

 

 

 

 

 

 

 

 

 

8,009

 

Total expenses

 

 

1,349,348

 

 

492,300

 

 

284,943

 

 

231,349

 

 

162,992

 

 

 

 

177,764

 

Operating income (loss)

 

 

651,444

 

 

297,074

 

 

176,320

 

 

164,400

 

 

45,016

 

 

 

 

(31,366

)

Income applicable to Alexander’s

 

 

16,404

 

 

568

 

 

 

 

529

 

 

 

 

 

 

15,307

 

Income applicable to Toys

 

 

41,510

 

 

 

 

 

 

 

 

 

 

41,510

 

 

 

(Loss) income from partially owned entities

 

 

(29,167

)

 

8,566

 

 

4,548

 

 

9,889

 

 

978

 

 

 

 

(53,148

)

Interest and other investment income, net

 

 

47,535

 

 

1,965

 

 

1,737

 

 

422

 

 

221

 

 

 

 

43,190

 

Interest and debt expense

 

 

(446,534

)

 

(104,032

)

 

(94,085

)

 

(63,981

)

 

(39,190

)

 

 

 

(145,246

)

Net gains (losses) on disposition of wholly
owned and partially owned assets
other than depreciable real estate

 

 

8,546

 

 

 

 

 

 

 

 

 

 

 

 

8,546

 

Minority interest of partially owned entities

 

 

2,709

 

 

(3,366

)

 

 

 

104

 

 

 

 

 

 

5,971

 

Income (loss) before income taxes

 

 

292,447

 

 

200,775

 

 

88,520

 

 

111,363

 

 

7,025

 

 

41,510

 

 

(156,746

)

Income tax benefit (expense)

 

 

207,170

 

 

 

 

220,916

 

 

(7

)

 

(1,205

)

 

 

 

(12,534

)

Income (loss) from continuing operations

 

 

499,617

 

 

200,775

 

 

309,436

 

 

111,356

 

 

5,820

 

 

41,510

 

 

(169,280

)

Income (loss) from discontinued operations, net

 

 

154,442

 

 

 

 

59,068

 

 

(448

)

 

 

 

 

 

95,822

 

Income (loss) before allocation to
minority limited partners

 

 

654,059

 

 

200,775

 

 

368,504

 

 

110,908

 

 

5,820

 

 

41,510

 

 

(73,458

)

Minority limited partners’ interest in the
Operating Partnership

 

 

(42,046

)

 

 

 

 

 

 

 

 

 

 

 

(42,046

)

Perpetual preferred unit distributions
of the Operating Partnership

 

 

(14,455

)

 

 

 

 

 

 

 

 

 

 

 

(14,455

)

Net income (loss)

 

 

597,558

 

 

200,775

 

 

368,504

 

 

110,908

 

 

5,820

 

 

41,510

 

 

(129,959

)

Interest and debt expense (1)

 

 

593,039

 

 

98,810

 

 

96,958

 

 

76,492

 

 

39,823

 

 

108,970

 

 

171,986

 

Depreciation and amortization(1)

 

 

531,252

 

 

136,738

 

 

110,334

 

 

67,456

 

 

38,711

 

 

103,291

 

 

74,722

 

Income tax (benefit) expense (1)

 

 

(121,844

)

 

 

 

(220,911

)

 

7

 

 

1,205

 

 

82,778

 

 

15,077

 

EBITDA(1)

 

$

1,600,005

 

$

436,323

 

$

354,885

 

$

254,863

 

$

85,559

 

$

336,549

 

$

131,826

 

 

The Washington, DC Office segment EBITDA includes a $222,174 reduction in income tax expense resulting from a reversal of deferred tax liabilities in connection with the acquisition of H Street, and a $56,831 net gain on sale of real estate (included in “Income (loss) from discontinued operations, net”). The Other segment EBITDA includes, a $112,690 net gain on sale of our 47.6% interest in Americold (included in “Income (loss) from discontinued operations, net”), a $34,200 write-off of pre-development costs, a $25,812 net loss on the mark-to-market of derivative instruments, $28,056 of other non-cash charges, a $3,570 after-tax net gain on sale of residential condominiums at our 40 East 66th Street property, an $8,009 write-off for costs of acquisitions and development not consummated and a $2,038 net gain on disposition of our 13.8% interest in GMH.

_______________________

See notes on page 32.

30


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

17.

Segment Information – continued

(Amounts in thousands)

 

For the Nine Months Ended September 30, 2007

 

 

Total

 

New York
Office

 

Washington, DC
Office

 

Retail

 

Merchandise
Mart

 

Toys

 

Other (2)

 

Property rentals

 

$

1,315,862

 

$

463,678

 

$

336,304

 

$

240,975

 

$

172,431

 

$

 

$

102,474

 

Straight-line rents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual rent increases

 

 

28,571

 

 

11,003

 

 

6,074

 

 

8,794

 

 

2,317

 

 

 

 

383

 

Amortization of free rent

 

 

29,244

 

 

14,747

 

 

11,939

 

 

555

 

 

1,044

 

 

 

 

959

 

Amortization of acquired below-market leases, net

 

 

58,842

 

 

32,895

 

 

3,210

 

 

19,119

 

 

130

 

 

 

 

3,488

 

Total rentals

 

 

1,432,519

 

 

522,323

 

 

357,527

 

 

269,443

 

 

175,922

 

 

 

 

107,304

 

Tenant expense reimbursements

 

 

238,983

 

 

94,051

 

 

32,659

 

 

87,922

 

 

16,339

 

 

 

 

8,012

 

Fee and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant cleaning revenue

 

 

33,398

 

 

40,820

 

 

 

 

 

 

 

 

 

 

(7,422

)

Management and leasing fees

 

 

12,894

 

 

3,323

 

 

10,711

 

 

1,234

 

 

11

 

 

 

 

(2,385

)

Lease termination fees

 

 

6,295

 

 

3,224

 

 

210

 

 

2,458

 

 

403

 

 

 

 

 

Other

 

 

29,261

 

 

12,081

 

 

11,568

 

 

1,170

 

 

5,203

 

 

 

 

(761

)

Total revenues

 

 

1,753,350

 

 

675,822

 

 

412,675

 

 

362,227

 

 

197,878

 

 

 

 

104,748

 

Operating expenses

 

 

697,961

 

 

288,155

 

 

134,049

 

 

125,861

 

 

97,168

 

 

 

 

52,728

 

Depreciation and amortization

 

 

317,915

 

 

107,895

 

 

83,801

 

 

59,026

 

 

33,957

 

 

 

 

33,236

 

General and administrative

 

 

138,091

 

 

14,778

 

 

20,708

 

 

20,070

 

 

21,806

 

 

 

 

60,729

 

Costs of acquisitions and development not consummated

 

 

8,807

 

 

 

 

 

 

 

 

 

 

 

 

8,807

 

Total expenses

 

 

1,162,774

 

 

410,828

 

 

238,558

 

 

204,957

 

 

152,931

 

 

 

 

155,500

 

Operating income (loss)

 

 

590,576

 

 

264,994

 

 

174,117

 

 

157,270

 

 

44,947

 

 

 

 

(50,752

)

Income applicable to Alexander’s

 

 

35,114

 

 

567

 

 

 

 

560

 

 

 

 

 

 

33,987

 

Income applicable to Toys

 

 

18,343

 

 

 

 

 

 

 

 

 

 

18,343

 

 

 

Income from partially owned entities

 

 

30,451

 

 

5,932

 

 

8,178

 

 

7,360

 

 

737

 

 

 

 

8,244

 

Interest and other investment income, net

 

 

229,774

 

 

1,810

 

 

4,609

 

 

387

 

 

292

 

 

 

 

222,676

 

Interest and debt expense

 

 

(420,713

)

 

(97,767

)

 

(96,331

)

 

(59,206

)

 

(39,069

)

 

 

 

(128,340

)

Net gains (losses) on disposition of wholly
owned and partially owned assets
other than depreciable real estate

 

 

17,699

 

 

 

 

 

 

 

 

 

 

 

 

17,699

 

Minority interest of partially owned entities

 

 

1,414

 

 

(2,182

)

 

 

 

112

 

 

 

 

 

 

3,484

 

Income before income taxes

 

 

502,658

 

 

173,354

 

 

90,573

 

 

106,483

 

 

6,907

 

 

18,343

 

 

106,998

 

Income tax expense

 

 

(5,403

)

 

 

 

(3,992

)

 

(185

)

 

(665

)

 

 

 

(561

)

Income from continuing operations

 

 

497,255

 

 

173,354

 

 

86,581

 

 

106,298

 

 

6,242

 

 

18,343

 

 

106,437

 

Income (loss) from discontinued operations, net

 

 

25,162

 

 

 

 

27,840

 

 

3,000

 

 

 

 

 

 

(5,678

)

Income before allocation to
minority limited partners

 

 

522,417

 

 

173,354

 

 

114,421

 

 

109,298

 

 

6,242

 

 

18,343

 

 

100,759

 

Minority limited partners’ interest
in the Operating Partnership

 

 

(44,270

)

 

 

 

 

 

 

 

 

 

 

 

(44,270

)

Perpetual preferred unit distributions

of the Operating Partnership

 

 

(14,455

)

 

 

 

 

 

 

 

 

 

 

 

(14,455

)

Net income

 

 

463,692

 

 

173,354

 

 

114,421

 

 

109,298

 

 

6,242

 

 

18,343

 

 

42,034

 

Interest and debt expense (1)

 

 

609,548

 

 

96,822

 

 

100,002

 

 

67,222

 

 

39,716

 

 

128,493

 

 

177,293

 

Depreciation and amortization(1)

 

 

500,247

 

 

106,885

 

 

95,784

 

 

61,815

 

 

34,387

 

 

123,194

 

 

78,182

 

Income tax expense (1)

 

 

34,419

 

 

2,052

 

 

7,816

 

 

185

 

 

665

 

 

20,250

 

 

3,451

 

EBITDA(1)

 

$

1,607,906

 

$

379,113

 

$

318,023

 

$

238,520

 

$

81,010

 

$

290,280

 

$

300,960

 

       

The Washington, DC Office segment EBITDA and the Retail segment EBITDA includes $24,696 and $3,049, respectively, of net gains on sale of real estate (included in “Income (loss) from discontinued operations, net”). The Other segment EBITDA includes a $100,060 net gain on the mark-to-market of derivative instruments, a $17,699 net gain on sale of marketable equity securities, an $8,807 write-off for costs of acquisition not consummated and $1,677 of expense for our share of India real estate ventures organization costs.

________________________

See notes on the following page.

31


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

17.

Segment Information – continued

 

Notes to preceding tabular information

 

(1)

EBITDA represents “Earnings Before Interest, Taxes, Depreciation and Amortization.” We consider EBITDA a supplemental measure for making decisions and assessing the un-levered performance of our segments as it relates to the total return on assets as opposed to the levered return on equity. As properties are bought and sold based on a multiple of EBITDA, we utilize this measure to make investment decisions as well as to compare the performance of our assets to that of our peers. EBITDA should not be considered a substitute for net income. EBITDA may not be comparable to similarly titled measures employed by other companies.

 

 

(2)

Other EBITDA is comprised of:

 

(Amounts in thousands)

 

For the Three Months
Ended September 30,

 

For the Nine Months
Ended September 30,

 

 

 

 

2007

 

2008

 

2007

 

555 California Street (acquired in May 2007)

 

$

12,295

 

$

12,164

 

$

35,554

 

$

18,513

 

Hotel Pennsylvania

 

 

11,907

 

 

9,973

 

 

29,772

 

 

24,754

 

Lexington MLP

 

 

10,803

 

 

9,022

 

 

29,271

 

 

15,006

 

Industrial warehouses

 

 

1,361

 

 

1,399

 

 

4,025

 

 

3,595

 

Alexander’s

 

 

68

 

 

19,012

 

 

37,180

 

 

56,511

 

GMH (see page 12)

 

 

 

 

9,527

 

 

 

 

17,872

 

Other investments

 

 

6,427

 

 

1,964

 

 

1,488

 

 

6,927

 

 

 

 

42,861

 

 

63,061

 

 

137,290

 

 

143,178

 

Corporate general and administrative expenses

 

 

(19,633

)

 

(20,518

)

 

(62,101

)

 

(53,882

)

Impairment loss- Lexington MLP

 

 

(7,175

)

 

 

 

(7,175

)

 

 

Perpetual preferred unit distributions of the Operating Partnership

 

 

(4,818

)

 

(4,818

)

 

(14,455

)

 

(14,455

)

Minority limited partners’ interest in the Operating Partnership

 

 

(3,091

)

 

(10,241

)

 

(42,046

)

 

(44,270

)

Investment income and other

 

 

8,871

 

 

46,551

 

 

44,001

 

 

229,385

 

Write-off of pre-development costs (see footnote (5) on page 14)

 

 

 

 

 

 

(34,200

)

 

 

Costs of acquisitions and development not consummated

 

 

(5,000

)

 

 

 

(8,009

)

 

(8,807

)

Discontinued operations of Americold, net (including a $112,690 net gain
on sale in the nine months ended September 30, 2008)

 

 

 

 

16,245

 

 

118,521

 

 

49,811

 

 

 

$

12,015

 

$

90,280

 

$

131,826

 

$

300,960

 

 

 

32

 

 


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

Shareholders and Board of Trustees

Vornado Realty Trust

New York, New York

 

We have reviewed the accompanying consolidated balance sheet of Vornado Realty Trust as of September 30, 2008, and the related consolidated statements of income for the three-month and nine-month periods ended September 30, 2008 and 2007, and of cash flows for the nine-month periods ended September 30, 2008 and 2007. These interim financial statements are the responsibility of the Company’s management.

 

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

 

Based on our reviews, we are not aware of any material modifications that should be made to such consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

 

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Vornado Realty Trust as of December 31, 2007, and the related consolidated statements of income, shareholders’ equity, and cash flows for the year then ended prior to reclassification for the discontinued operations described in Note 9 to the accompanying financial statements (not presented herein); and in our report dated February 26, 2008, we expressed an unqualified opinion on those consolidated financial statements. We also audited the adjustments described in Note 9 that were applied to reclassify the December 31, 2007 consolidated balance sheet of Vornado Realty Trust (not presented herein) for discontinued operations. In our opinion, such adjustments are appropriate and have been properly applied to the previously issued consolidated balance sheet in deriving the accompanying retrospectively adjusted consolidated balance sheet as of December 31, 2007.

 

/s/ DELOITTE & TOUCHE LLP

 

Parsippany, New Jersey

November 4, 2008

 

33

 

 


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Certain statements contained herein constitute forward-looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not guarantees of performance. They represent our intentions, plans, expectations and beliefs and are subject to numerous assumptions, risks and uncertainties. Our future results, financial condition and business may differ materially from those expressed in these forward-looking statements. You can find many of these statements by looking for words such as “approximates,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “would,” “may” or other similar expressions in this Quarterly Report on Form 10-Q. Many of the factors that will determine the outcome of these and our other forward-looking statements are beyond our ability to control or predict. For further discussion of factors that could materially affect the outcome of our forward-looking statements and our future results and financial condition, see “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2007. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q or the date of any document incorporated by reference. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to our forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.

 

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations include a discussion of our consolidated financial statements for the three and nine months ended September 30, 2008. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

 

Critical Accounting Policies

A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the year ended December 31, 2007 in Management’s Discussion and Analysis of Financial Condition. There have been no significant changes to our policies during 2008.

 

34

 

 


Overview

 

Business Objective and Operating Strategy

 

Our business objective is to maximize shareholder value. We measure our success in meeting this objective by our total return to shareholders. Below is a table comparing our performance to the Morgan Stanley REIT Index (“RMS”) and the SNL REIT Index (“SNL”) for the following periods ending September 30, 2008:

 

 

 

Total Return (1)

 

 

 

Vornado

 

RMS

 

SNL

 

One-year

 

(13.8%)

 

(11.6%)

 

(9.9%)

 

Three-years

 

17.8%

 

17.1%

 

19.2%

 

Five-years

 

134.4% 

 

85.8%

 

91.0%

 

Ten-years

 

365.3% 

 

221.5% 

 

228.0% 

 

_________________________

 

(1)

Past performance is not necessarily indicative of how we will perform in the future.

 

We intend to achieve our business objective by continuing to pursue our investment philosophy and executing our operating strategies through:

 

 

Maintaining a superior team of operating and investment professionals and an entrepreneurial spirit;

 

Investing in properties in select markets, such as New York City and Washington, DC, where we believe there is a high likelihood of capital appreciation;

 

Acquiring quality properties at a discount to replacement cost and where there is a significant potential for higher rents;

 

Investing in retail properties in select under-stored locations such as the New York City metropolitan area;

 

Investing in fully-integrated operating companies that have a significant real estate component;

 

Developing and redeveloping our existing properties to increase returns and maximize value; and

 

Providing specialty financing to real estate related companies.

 

We expect to finance our growth, acquisitions and investments using internally generated funds, proceeds from possible asset sales and by accessing the public and private capital markets.

 

We have a large concentration of properties in the New York City metropolitan area and in the Washington, DC and Northern Virginia areas. We compete with a large number of real estate property owners and developers, some of which may be willing to accept lower returns on their investments. Principal factors of competition are rent charged, attractiveness of location, the quality of the property and breadth and quality of services provided. Our success depends upon, among other factors, trends of the national, regional and local economies, financial condition and operating results of current and prospective tenants and customers, availability and cost of capital, construction and renovation costs, taxes, governmental regulations, legislation and population trends.

 

In the second half of 2007 the residential mortgage and capital markets began showing signs of stress, primarily in the form of escalating default rates on sub-prime mortgages, declining home values and increasing inventory nationwide. In 2008, the “credit crisis” spread to the broader commercial credit and financial markets resulting in illiquidity and extreme volatility in the equity and bond markets. These factors, coupled with a slowing economy, higher unemployment, and lower consumer sentiment, have significantly reduced the volume of real estate transactions and increased capitalization rates. Our existing real estate portfolio may be affected by tenant bankruptcies, store closures, lower occupancy and effective rents, which would result in a corresponding decrease in net income, funds from operations and cash flow. For example, Circuit City has recently announced layoffs, second quarter losses and is considering significant store-closures. Circuit City leases 12 locations in our portfolio aggregating 380,000 square feet (approximately $8,100,000 of annual property rental income and approximately $13,000,000 of unamortized costs at September 30, 2008, including tenant improvements, leasing commissions and receivables arising from the straight-lining of rent). In addition, the value of our investments in joint ventures, marketable securities, and mezzanine loans may decline, which may result in impairment charges and/or valuation allowances and a corresponding decrease in net income and funds from operations. It is difficult to predict when or if these markets will return to historical capacity and pricing levels.

 

35

 

 


Overview – continued

Quarter Ended September 30, 2008 Financial Results Summary  

 

Net income applicable to common shares for the quarter ended September 30, 2008 was $31,430,000, or $0.20 per diluted share, versus $116,546,000, or $0.74 per diluted share, for the quarter ended September 30, 2007. Net income for the quarters ended September 30, 2008 and 2007 include $1,313,000 and $31,922,000, respectively, for our share of net gains on sale of real estate. Net income for the quarters ended September 30, 2008 and 2007 also include certain items that affect comparability which are listed in the table below. The aggregate of these items and net gains on sale of real estate, net of minority interest, decreased net income applicable to common shares for the quarter ended September 30, 2008 by $31,236,000 or $0.20 per diluted share and increased net income applicable to common shares for the quarter ended September 30, 2007 by $54,489,000, or $0.33 per diluted share.

 

Funds from operations applicable to common shares plus assumed conversions (“FFO”) for the quarter ended September 30, 2008 was $173,787,000, or $1.06 per diluted share, compared to $221,199,000, or $1.35 per diluted share, for the prior year’s quarter. FFO for the quarters ended September 30, 2008 and 2007 include certain items that affect comparability which are listed in the table below. The aggregate of these items, net of minority interest, decreased FFO for the quarter ended September 30, 2008 by $33,542,000, or $0.20 per diluted share and increased FFO for the quarter ended September 30, 2007 by $28,215,000, or $0.17 per diluted share.

 

(Amounts in thousands)

 

For the Three Months
Ended September 30,

 

Items that affect comparability (income) expense:

 

2008

      

2007

 

Alexander’s stock appreciation rights compensation expense (income)

 

$

14,557

 

$

(3,075

)

Marketable equity securities – impairment losses

 

 

11,808

 

 

 

Lexington MLP – impairment loss

 

 

7,175

 

 

 

Land held for development – impairment loss

 

 

5,000

 

 

 

Derivative positions in marketable equity securities

 

 

3,982

 

 

(18,606

)

After-tax net gain on sale of residential condominiums

 

 

(3,570

)

 

 

Other, net

 

 

(2,151

)

 

(2,029

)

 

 

 

36,801

 

 

(23,710

)

47.6% share of Americold’s FFO (Net loss of $1,343 in the three months ended
September 30, 2007) – sold in March 2008

 

 

 

 

(5,673

)

13.8% share of GMH’s FFO (Equity in net income of $5,708 in the three months
ended September 30, 2007) – sold in June 2008

 

 

 

 

(1,685

)

 

 

 

36,801

 

 

(31,068

)

Minority limited partners’ share of above adjustments

 

 

(3,259

)

 

2,853

 

Total items that affect comparability

 

$

33,542

 

$

(28,215

)

 

We did not recognize income during the quarter ended September 30, 2008, on certain assets with an aggregate carrying amount of approximately $1.5 billion at September 30, 2008, because they were out of service for redevelopment. Assets under development include all or portions of the Bergen Town Center, 2101 L Street, 220 20th Street, 1229-1231 25th Street (“West End 25”), 1999 K Street, 220 Central Park South, and certain investments in joint ventures including Beverly Connection, Wasserman and 800 17th Street/PNC Place investments.

 

The percentage increase in the same-store Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) of our operating segments for the quarter ended September 30, 2008 over the quarter ended September 30, 2007 and the trailing quarter ended June 30, 2008 are summarized below.

Quarter Ended:

 

 

 

 

 

 

 

 

New York

Office

 

Washington, DC

Office

 

Retail

 

Merchandise
Mart

 

September 30, 2008 vs. September 30, 2007

 

5.0%

 

3.0%

 

3.0%

 

(9.5%)

 

September 30, 2008 vs. June 30, 2008

 

(1.2%)(1)

 

(2.4%)(1)

 

0.7%

 

(26.1%)(2)

 

_________________________

(1)

Results primarily from seasonal increases in utility costs.

(2)

Results primarily from seasonality of operations.

 

Calculations of same-store EBITDA, reconciliations of net income to EBITDA and FFO and the reasons we consider these non-GAAP financial measures useful are provided in the following pages of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

 

36

 

 


Overview – continued

Nine Months Ended September 30, 2008 Financial Results Summary  

 

Net income applicable to common shares for the nine months ended September 30, 2008 was $554,738,000, or $3.48 per diluted share, versus $420,806,000 or $2.65 per diluted share, for the nine months ended September 30, 2007. Net income for the nine months ended September 30, 2008 and 2007 include $65,918,000 and $32,415,000, respectively, for our share of net gains on sale of real estate. Net income for the nine months ended September 30, 2008 and 2007 also include certain items that affect comparability which are listed in the table below. The aggregate of these items and net gains on sale of real estate, net of minority interest, increased net income applicable to common shares for the nine months ended September 30, 2008 by $275,551,000, or $1.68 per diluted share and increased net income applicable to common shares for the nine months ended September 30, 2007 by $114,200,000, or $0.70 per diluted share.

 

FFO for the nine months ended September 30, 2008 was $917,258,000, or $5.60 per diluted share, compared to $773,457,000, or $4.71 per diluted share, for the prior year’s nine months. FFO for the nine months ended September 30, 2008 and 2007 include certain items that affect comparability which are listed in the table below. The aggregate of these items, net of minority interest, increased FFO for the nine months ended September 30, 2008 by $222,089,000, or $1.36 per diluted share and increased FFO for the nine months ended September 30, 2007 by $102,888,000, or $0.63 per diluted share.

 

(Amounts in thousands)

 

For the Nine Months
Ended September 30,

 

Items that affect comparability (income) expense:

 

2008

 

2007

 

Reversal of deferred income taxes initially recorded in connection with H Street acquisition

 

$

(222,174

)

$

 

Net gain on sale of our 47.6% interest in Americold

 

 

(112,690

)

 

 

Write-off of pre-development costs

 

 

34,200

 

 

 

Derivative positions in marketable equity securities

 

 

25,812

 

 

(100,060

)

Marketable equity securities – impairment losses

 

 

20,881

 

 

 

Partially owned entities – non-cash purchase price accounting adjustments:

 

 

 

 

 

 

 

Toys

 

 

14,900

 

 

 

Beverly Connection

 

 

(4,100

)

 

 

Reversal of MPH mezzanine loan loss accrual

 

 

(10,300

)

 

 

Alexander’s stock appreciation rights compensation expense (income)

 

 

7,605

 

 

(8,991

)

Lexington MLP – impairment loss

 

 

7,175

 

 

 

Land held for development – impairment loss

 

 

5,000

 

 

 

After-tax net gain on sale of residential condominiums

 

 

(3,570

)

 

 

Costs of acquisitions not consummated

 

 

3,009

 

 

8,807

 

Net gain on disposition of our 13.8% interest in GMH

 

 

(2,038

)

 

 

 

Prepayment penalties and write-off of unamortized
financing costs

 

 

 

 

7,562

 

Other, net

 

 

(1,642

)

 

1,969

 

 

 

 

(237,932

)

 

(90,713

)

47.6% share of Americold’s FFO (Net losses of $1,076 and $2,848 in each nine-month period,
respectively) – sold in March 2008

 

 

(6,098

)

 

(17,824

)

13.8% share of GMH’s FFO (Equity in net income of $5,427 in the nine months ended
September 30, 2007) – sold in June 2008

 

 

 

 

(4,718

)

 

 

 

(244,030

)

 

(113,255

)

Minority limited partners’ share of above adjustments

 

 

21,941

 

 

10,367

 

Total items that affect comparability

 

$

(222,089

)

$

(102,888

)

 

 

The percentage increase in the same-store “EBITDA” of our operating segments for the nine months ended September 30, 2008 over the nine months ended September 30, 2007 is summarized below.

 

 

 

New York

Office

 

Washington, DC

Office

 

Retail

 

Merchandise
Mart

 

September 30, 2008 vs. September 30, 2007

 

6.1%

 

4.6%

 

3.8%

 

1.3%

 

 

 

37

 

 


Overview – continued

Reversal of Deferred Tax Liabilities

 

In connection with the purchase accounting for H Street, in July 2005 and April 2007 we recorded an aggregate of $222,174,000 of deferred tax liabilities representing the differences between the tax basis and the book basis of the acquired assets and liabilities multiplied by the effective tax rate. We were required to record these deferred tax liabilities because H Street and its partially owned entities were operated as C Corporations at the time they were acquired. As of January 16, 2008, we had completed all of the actions necessary to enable these entities to elect REIT status effective for the tax year beginning on January 1, 2008. Consequently, in the first quarter of 2008, we reversed the deferred tax liabilities and recognized an income tax benefit of $222,174,000 in our consolidated statement of income.

 

Marketable Securities

 

At March 31, 2008, we concluded that an investment in a marketable equity security was other-than-temporarily impaired and recognized a non-cash impairment charge $9,073,000, based on the March 31, 2008 closing share price of that security. At September 30, 2008, we concluded that certain other investments in marketable equity securities were other-than-temporarily impaired based on the severity of the declines in the market value (“fair value” pursuant to SFAS 157) of those securities at September 30, 2008 and, accordingly, we recognized a non-cash impairment charge of $11,808,000. These non-cash charges are included in “interest and other investment income” on our consolidated statement of income. Based on the October 31, 2008 closing share prices of these securities, their market value is approximately $39,100,000 below their carrying amount.

 

The Lexington Master Limited Partnership (“Lexington MLP”)

 

At September 30, 2008, we owned 8,149,594 limited partnership units of Lexington MLP which are exchangeable on a one-for-one basis into common shares of Lexington Realty Trust (“Lexington”) (NYSE: LXP) or a 7.7% limited partnership interest. We account for our investment on the equity method. We record our pro rata share of Lexington MLP’s net income or loss on a one-quarter lag basis because we file our consolidated financial statements on Form 10-K and 10-Q prior to the time that Lexington files its financial statements.

 

Based on Lexington’s September 30, 2008 closing share price of $17.22, the market value (“fair value” pursuant to SFAS 157) of our investment in Lexington MLP was $140,336,000, or $7,175,000 below the carrying amount on our consolidated balance sheet. We have concluded that our investment is “other-than-temporarily” impaired and recorded a $7,175,000 non-cash impairment loss on our consolidated statement of income. Our conclusion was based on the recent deterioration in the capital and financial markets and our inability to forecast a recovery in the near-term.

 

On October 28, 2008, we acquired 8,000,000 Lexington common shares for $5.60 per share, or $44,800,000. The purchase price consisted of $22,400,000 in cash and a $22,400,000 margin loan recourse only to the 8,000,000 shares acquired. In addition, we exchanged our existing limited partnership units of Lexington MLP for 8,149,592 common shares of Lexington. We now own 16,149,592 Lexington common shares, or approximately 17.6% of Lexington’s common equity, with a carrying amount of $185,136,000, or $11.46 per share.

 

Subsequent to September 30, 2008, the market value of Lexington’s common shares declined substantially, as did share prices of many public companies. Based on Lexington’s October 31, 2008 closing share price of $8.03, the market value of our investment is approximately $55,500,000 below its carrying amount.

 

Other Non-Cash Charges

 

During the quarter ended March 31, 2008, we recognized a non-cash charge of $34,200,000 for the write-off for our share of two joint ventures’ pre-development costs, of which $23,000,000 represented our 50% share of costs in connection with the abandonment of the “arena move”/Moynihan East portions of the Farley project. During the quarter ended September 30, 2008, we recognized a non-cash charge of $5,000,000 to write-down the carrying amount of land held for development to its fair value.

 

 

38

 

 


Overview – continued

2008 Dispositions

 

On March 31, 2008, we sold our 47.6% interest in Americold, our Temperature Controlled Logistics segment, for $220,000,000, in cash, which resulted in a net gain of $112,690,000.

 

On June 6, 2008, we sold our Tysons Dulles Plaza office building complex located in Tysons Corner, Virginia for approximately $152,800,000, in cash, which resulted in a net gain of $56,831,000.

 

Pursuant to the sale of GMH’s military housing division and the merger of its student housing division with American Campus Communities, Inc (“ACC”) (NYSE: ACC), in June 2008 we received an aggregate of $105,180,000, consisting of $82,142,000 in cash and 753,126 shares of ACC common stock valued at $23,038,000 based on ACC’s then closing share price of $30.59, in exchange for our entire interest in GMH. We subsequently sold all of the ACC common shares. The above transactions resulted in a net gain of $2,038,000, which was recognized in the second quarter of 2008, and is included as a component of “net gains on disposition of wholly owned and partially owned assets other than depreciable real estate” in our consolidated statement of income.

 

2008 Financings

 

On January 18, 2008, we closed a construction loan providing up to $87,000,000 to finance the residential redevelopment project at 220 20th Street (formally Crystal Plaza Two). The construction loan bears interest at LIBOR plus 1.15% (4.34% at September 30, 2008) and matures in January 2011 with two six-month extension options. As of September 30, 2008, $27,291,000 was drawn under this loan.

 

On February 11, 2008, we completed a $335,000,000 refinancing of the Green Acres regional mall. This interest-only loan has a rate of LIBOR plus 1.40% (3.89% at September 30, 2008) and matures in February 2011, with two one-year extension options. We retained net proceeds of $193,000,000 after repaying the existing loan.

 

On February 20, 2008, we closed a construction loan providing up to $104,000,000 to finance the residential redevelopment project at 1229-1231 25th Street NW (“West End 25”). The construction loan bears interest at LIBOR plus 1.30% (3.79% at September 30, 2008) and matures in February 2011 with two six-month extension options. As of September 30, 2008, $15,583,000 was drawn under this loan.

 

On February 26, 2008, we completed a $150,000,000 financing of our 2101 L Street property located in Washington, DC. The loan bears interest at LIBOR plus 1.20% (4.91% at September 30, 2008) and matures in February 2011 with two one-year extension options. We retained net proceeds of $148,000,000.

 

On March 12, 2008 we completed a $260,000,000 refinancing of the River House Apartment Complex. The financing is comprised of a $196,000,000 interest-only seven year 5.43% fixed rate mortgage and a $64,000,000 interest-only ten year floating rate mortgage at the Freddie Mac Reference Note Rate plus 1.53% (3.81% at September 30, 2008). We retained net proceeds of $205,000,000 after repaying the existing loan.

 

On March 24, 2008, we closed a construction loan providing up to $290,000,000 to finance the redevelopment of a portion of the Bergen Town Center. The interest-only loan has a rate of LIBOR plus 1.50% (3.94% at September 30, 2008) and matures in March 2011 with two one-year extension options. As of September 30, 2008, $214,279,000 was drawn under this loan.

 

On March 27, 2008, we closed a construction loan providing up to $124,000,000 to finance the redevelopment of 1999 K Street. The interest-only loan has a rate of LIBOR plus 1.30% (5.01% at September 30, 2008) and matures in December 2010 with two six-month extension options. As of September 30, 2008, $59,230,000 was drawn under this loan.

 

On September 9, 2008, we purchased $50,000,000 of our senior unsecured notes due August 15, 2009 for $49,746,000.

 

39

 

 


Overview - continued

Leasing Activity

 

The following table sets forth certain information for the properties we own directly or indirectly, including leasing activity. The leasing activity presented below is based on leases signed during the period and is not intended to coincide with the commencement of rental revenue recognition in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Tenant improvements and leasing commissions are presented below based on square feet leased during the period, on a per square foot and per square foot per annum basis based on weighted average lease terms and as a percentage of initial rent per square foot.

 

(Square feet in thousands)

 

 

 

 

 

 

 

 

 

New York

 

Washington, DC

 

 

 

Merchandise Mart

 

As of September 30, 2008:

 

Office

 

Office

 

Retail

 

Office

 

Showroom

 

Square feet (in service)

 

 

16,093

 

 

17,649

 

 

21,837

 

 

2,408

 

 

6,348

 

Number of properties

 

 

28

 

 

85

 

 

176

 

 

8

 

 

8

 

Occupancy rate

 

 

97.1%

 

 

95.7%