UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended:
March 31, 2011
Or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
For the transition period from:
to
Commission File Number:
001-11954
VORNADO REALTY TRUST
(Exact name of registrant as specified in its charter)
Maryland
22-1657560
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
888 Seventh Avenue, New York, New York
10019
(Address of principal executive offices)
(Zip Code)
(212) 894-7000
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes 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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
x Large Accelerated Filer
o Accelerated Filer
oNon-Accelerated Filer (Do not check if smaller reporting company)
o Smaller Reporting Company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of March 31, 2011, 184,239,623 of the registrant’s common shares of beneficial interest are outstanding.
PART I.
Financial Information:
Page Number
Item 1.
Financial Statements:
Consolidated Balance Sheets (Unaudited) as of
March 31, 2011 and December 31, 2010
3
Consolidated Statements of Income (Unaudited) for the
Three Months Ended March 31, 2011 and 2010
4
Consolidated Statements of Changes in Equity (Unaudited) for the
5
Consolidated Statements of Cash Flows (Unaudited) for the
6
Notes to the Consolidated Financial Statements (Unaudited)
8
Report of the Independent Registered Public Accounting Firm
32
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
33
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
55
Item 4.
Controls and Procedures
56
PART II.
Other Information:
Legal Proceedings
57
Item 1A.
Risk Factors
58
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Item 5.
Other Information
Item 6.
Exhibits
Signatures
59
Exhibit Index
60
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Amounts in thousands, except share and per share amounts)
March 31,
December 31,
ASSETS
2011
2010
Real estate, at cost:
Land
$
4,594,154
4,598,303
Buildings and improvements
12,723,892
12,733,487
Development costs and construction in progress
220,356
218,156
Leasehold improvements and equipment
125,859
124,976
Total
17,664,261
17,674,922
Less accumulated depreciation and amortization
(2,841,824)
(2,763,997)
Real estate, net
14,822,437
14,910,925
Cash and cash equivalents
618,361
690,789
Restricted cash
234,273
200,822
Marketable securities
821,920
766,116
Accounts receivable, net of allowance for doubtful accounts of $67,589 and $62,979
167,621
157,146
Investments in partially owned entities
1,116,294
927,672
Investment in Toys "R" Us
556,189
447,334
Real Estate Fund investments
230,657
144,423
Mezzanine loans receivable, net
140,567
202,412
Receivable arising from the straight-lining of rents, net of allowance of $7,972 and $7,323
732,384
720,806
Deferred leasing and financing costs, net of accumulated amortization of $233,987 and $223,131
359,677
368,314
Identified intangible assets, net of accumulated amortization of $350,104 and $338,508
333,270
348,745
Assets related to discontinued operations
-
234,464
Due from officers
13,181
13,187
Other assets
345,569
384,316
20,492,400
20,517,471
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Notes and mortgages payable
8,594,920
8,259,298
Senior unsecured notes
982,588
1,082,928
Exchangeable senior debentures
492,690
491,000
Convertible senior debentures
187,198
186,413
Revolving credit facility debt
374,000
874,000
Accounts payable and accrued expenses
469,443
438,479
Deferred credit
578,629
583,369
Deferred compensation plan
97,951
91,549
Deferred tax liabilities
13,279
13,278
Liabilities related to discontinued operations
255,922
Other liabilities
90,338
82,856
Total liabilities
11,881,036
12,359,092
Commitments and contingencies
Redeemable noncontrolling interests:
Class A units - 12,634,510 and 12,804,202 units outstanding
1,105,520
1,066,974
Series D cumulative redeemable preferred units - 10,400,001 units outstanding
261,000
Total redeemable noncontrolling interests
1,366,520
1,327,974
Vornado shareholders' equity:
Preferred shares of beneficial interest: no par value per share; authorized 110,000,000
shares; issued and outstanding 32,339,009 and 32,340,009 shares
782,933
783,088
Common shares of beneficial interest: $.04 par value per share; authorized
250,000,000 shares; issued and outstanding 184,239,623 and 183,661,875 shares
7,340
7,317
Additional capital
6,935,735
6,932,728
Earnings less than distributions
(1,208,993)
(1,480,876)
Accumulated other comprehensive income
130,614
73,453
Total Vornado shareholders' equity
6,647,629
6,315,710
Noncontrolling interests in consolidated subsidiaries
597,215
514,695
Total equity
7,244,844
6,830,405
See notes to the consolidated financial statements (unaudited).
VORNADO REALTY TRUSTCONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31,
(Amounts in thousands, except per share amounts)
REVENUES:
Property rentals
571,160
552,457
Tenant expense reimbursements
90,959
91,930
Cleveland Medical Mart development project
40,699
Fee and other income
34,293
40,927
Total revenues
737,111
685,314
EXPENSES:
Operating
290,773
274,693
Depreciation and amortization
132,227
133,793
General and administrative
59,003
48,630
38,278
Acquisition and other costs
18,270
Total expenses
538,551
457,116
Operating income
198,560
228,198
Income applicable to Toys "R" Us
112,944
125,870
Income from partially owned entities
16,284
11,344
Income from Real Estate Fund
1,080
Interest and other investment income, net
117,108
14,704
Interest and debt expense (including amortization of deferred
financing costs of $4,633 and $4,426 respectively)
(134,765)
(135,727)
Net gain on disposition of wholly owned and partially owned assets
6,677
3,305
Income before income taxes
317,888
247,694
Income tax expense
(6,382)
(5,580)
Income from continuing operations
311,506
242,114
Income (loss) from discontinued operations
134,315
(9,570)
Net income
445,821
232,544
Net (income) attributable to noncontrolling interests in consolidated subsidiaries
(1,350)
(213)
Net (income) attributable to noncontrolling interests in the Operating Partnership,
including unit distributions
(31,808)
(17,779)
Net income attributable to Vornado
412,663
214,552
Preferred share dividends
(13,448)
(14,267)
NET INCOME attributable to common shareholders
399,215
200,285
INCOME PER COMMON SHARE - BASIC:
Income from continuing operations, net
1.49
1.15
Income (loss) from discontinued operations, net
0.68
(0.05)
Net income per common share
2.17
1.10
Weighted average shares
183,988
181,542
INCOME PER COMMON SHARE - DILUTED:
1.46
1.14
0.66
2.12
1.09
191,529
183,445
DIVIDENDS PER COMMON SHARE
0.69
0.65
See notes to consolidated financial statements (unaudited).
VORNADO REALTY TRUSTCONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Accumulated
(Amounts in thousands)
Earnings
Other
Non-
Preferred Shares
Common Shares
Additional
Less Than
Comprehensive
controlling
Shares
Amount
Capital
Distributions
Income (Loss)
Interests
Equity
Balance, December 31, 2009
33,952
823,686
181,214
7,218
6,961,007
(1,577,591)
28,449
406,637
6,649,406
213
214,765
Dividends paid on common
shares
(117,958)
Dividends paid on preferred
Common shares issued:
Upon redemption of Class A
units, at redemption value
268
11
18,117
18,128
Under employees' share
option plan
405
16
541
(25,428)
(24,871)
Under dividend reinvestment
plan
390
Conversion of Series A
preferred shares to common
(2)
(137)
137
Deferred compensation shares
and options
17
1,644
1,646
Change in unrealized net gain
on securities available-for-sale
17,588
Our share of partially owned
entities' OCI adjustments
(15,688)
Adjustments to carry redeemable
Class A units at redemption value
(104,247)
(60)
(396)
(59)
(513)
Balance, March 31, 2010
33,950
823,549
181,914
7,247
6,877,529
(1,520,690)
29,953
406,791
6,624,379
Balance, December 31, 2010
32,340
183,662
1,350
414,013
(126,936)
(13,559)
320
13
27,526
27,539
240
10
15,027
(398)
14,639
434
Limited partners' contribution:
Real Estate Fund
92,068
170
(1)
(50)
50
2,370
or loss on securities
available-for-sale
68,039
(3,791)
(42,227)
Distributions to limited partners
(11,027)
(105)
(173)
113
(7,087)
(41)
(7,293)
Balance, March 31, 2011
32,339
184,240
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended
Cash Flows from Operating Activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization (including amortization of deferred financing costs)
136,860
140,250
Equity in net income of partially owned entities, including Toys “R” Us
(129,228)
(137,214)
Net gain on early extinguishment of debt
(83,907)
Mezzanine loans loss reversal and net gain on disposition
(82,744)
Net gain on sales of real estate
(51,165)
Distributions of income from partially owned entities
25,921
7,123
Income from the mark-to-market of J.C. Penney derivative position
(17,163)
Amortization of below-market leases, net
(16,892)
(15,907)
Straight-lining of rental income
(13,942)
(20,922)
Other non-cash adjustments
8,211
2,252
(6,677)
(3,305)
Litigation loss accrual
10,056
Changes in operating assets and liabilities:
(85,536)
Prepaid assets
34,761
44,855
2,947
(7,464)
30,906
26,137
Accounts receivable, net
(10,475)
(2,480)
8,404
12,123
Net cash provided by operating activities
196,102
288,048
Cash Flows from Investing Activities:
(316,129)
(36,741)
Distributions of capital from partially owned entities
192,523
7,617
Proceeds from sales of real estate and related investments
127,199
38,879
Proceeds from sales and repayments of mezzanine loans
73,608
101,839
12,174
(13,899)
Additions to real estate
(30,281)
(30,247)
Proceeds from sales of, and return of investment in, marketable securities
15,162
285
(10,994)
(37,598)
Investments in mezzanine loans receivable and other
(2,841)
(28,873)
Proceeds from maturing short-term investments
25,000
Purchases of marketable securities
(13,917)
Acquisitions of real estate and other
(5,003)
Net cash provided by investing activities
60,421
7,342
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Cash Flows from Financing Activities:
Repayments of borrowings
(1,197,312)
(525,246)
Proceeds from borrowings
937,518
660,335
Dividends paid on common shares
Contributions from noncontrolling interests
92,238
Distributions to noncontrolling interests
(23,639)
(13,082)
Proceeds received from exercise of employee share options
15,470
963
Dividends paid on preferred shares
Debt issuance and other costs
(12,161)
(3,351)
Repurchase of shares related to stock compensation agreements and related
tax withholdings
(570)
(25,323)
Purchases of outstanding preferred units and shares
(4,000)
Net cash used in financing activities
(328,951)
(41,929)
Net (decrease) increase in cash and cash equivalents
(72,428)
253,461
Cash and cash equivalents at beginning of period
535,479
Cash and cash equivalents at end of period
788,940
Supplemental Disclosure of Cash Flow Information:
Cash payments for interest (including capitalized interest of $0 and $614)
108,458
121,573
Cash payments for income taxes
2,509
1,701
Non-Cash Investing and Financing Activities:
Net unrealized gain on securities available for sale
Contribution of mezzanine loan receivable to a joint venture
73,750
Exchange of real estate
(45,625)
Adjustments to carry redeemable Class A units at redemption value
Common shares issued upon redemption of Class A units, at redemption value
Decrease in assets and liabilities resulting from deconsolidation
of discontinued operations:
(145,333)
(232,502)
7
VORNADO REALTY TRUSTNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
Vornado Realty Trust (“Vornado”) is a fully‑integrated real estate investment trust (“REIT”) and conducts its business through, and substantially all of its interests in properties are held by, Vornado Realty L.P., a Delaware limited partnership (the “Operating Partnership”). Accordingly, Vornado’s cash flow and ability to pay dividend to its shareholders is dependent upon the cash flow of the Operating Partnership and the ability of its direct and indirect subsidiaries to first satisfy their obligations to creditors. Vornado is the sole general partner of, and owned approximately 93.3% of the common limited partnership interest in the Operating Partnership at March 31, 2011. All references to “we,” “us,” “our,” the “Company” and “Vornado” refer to Vornado Realty Trust and its consolidated subsidiaries, including the Operating Partnership.
The accompanying consolidated financial statements are unaudited and include the accounts of Vornado, and the Operating Partnership and its consolidated partially owned entities. All intercompany amounts have been eliminated. In our opinion, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and changes in cash flows have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. We have made estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
These condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of the Securities and Exchange Commission (the “SEC”) and should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2010, as filed with the SEC. The results of operations for the three months ended March 31, 2011 are not necessarily indicative of the operating results for the full year.
3. Acquisitions
Vornado Capital Partners, L.P. and Vornado Capital Partners Parallel, L.P. (the “Fund”)
We are the general partner and investment manager of the $800,000,000 real estate investment Fund, to which we have committed $200,000,000. The Fund has a term of eight years and is our exclusive investment vehicle during its three-year investment period for all investments that fit within the Fund’s investment parameters, as defined. The Fund is accounted for under the AICPA Investment Company Guide and its investments are reported on its balance sheet at fair value, with changes in value each period recognized in earnings. We consolidate the accounts of the Fund into our consolidated financial statements.
As of March 31, 2011, the Fund received $232,301,000 of capital from partners, including $58,076,000 from us and has five investments aggregating approximately $229,959,000. In the first quarter of 2011, we incurred $3,048,000 of placement fees in connection with the February 2011 closing of the Fund, which are included in “general and administrative” expenses on our consolidated statement of income.
One Park Avenue
On March 1, 2011, we as a co-investor, together with the Fund, acquired a 95% interest in One Park Avenue, a 932,000 square foot office building located between 32nd and 33rd Streets in New York, for $374,000,000. The purchase price consisted of $137,000,000 in cash and 95% of a new $250,000,000 5-year mortgage that bears interest at 5.0%. The Fund accounts for its 64.7% interest in the property at fair value in accordance with the AICPA Investment Company Guide. We account for our directly owned 30.3% equity interest under the equity method of accounting in our New York Office Properties segment.
VORNADO REALTY TRUSTNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. Marketable Securities and Derivative InstrumentsMarketable Securities
Our portfolio of marketable securities is comprised of debt and equity securities that are classified as available for sale. Available for sale securities are presented on our consolidated balance sheets at fair value at the end of each reporting period. Gains and losses resulting from the mark-to-market of these securities are recognized as an increase or decrease in “accumulated other comprehensive income” (a component of shareholders’ equity on our consolidated balance sheet) and not recognized in income. Gains and losses are recognized in earnings only upon the sale of the securities and are recorded based on the weighted average cost of such securities.
As of March 31, 2011 and December 31, 2010, the fair value of marketable securities on our consolidated balance sheets, including the owned J.C. Penney common shares, as described below, was $821,920,000 and $766,116,000, respectively, and their average cost was $708,792,000 and $721,027,000, respectively. Aggregate unrealized gains were $113,128,000 and $45,089,000 as of March 31, 2011 and December 31, 2010, respectively. In the first quarter of 2011, we sold certain marketable securities for aggregate proceeds of $15,162,000, resulting in a net gain of $2,091,000 which is included as a component of "net gain on disposition of wholly owned and partially owned assets" on our consolidated statement of income.
Investment in J.C. Penney Company, Inc. (“J.C. Penney”) (NYSE: JCP)
We own an economic interest in 23,400,000 J.C. Penney common shares, or 9.9% of J.C. Penney’s outstanding common shares. Below are the details of our investment.
We own 18,584,010 common shares at an average cost of $25.70 per share, or $477,678,000 in the aggregate. These shares, which have an aggregate fair value of $667,352,000 at March 31, 2011, are included in marketable equity securities on our consolidated balance sheet and are classified as “available for sale.” During the three months ended March 31, 2011, we recognized $66,903,000 from the mark-to-market of these shares, which is included in “accumulated other comprehensive income” (a component of shareholders’ equity on our consolidated balance sheet).
We also own an economic interest in 4,815,990 common shares through a forward contract executed on October 7, 2010, at a weighted average strike price of $28.69 per share, or $138,163,000 in the aggregate. The contract may be settled, at our election, in cash or common shares, in whole or in part, at any time prior to October 9, 2012. The counterparty may accelerate settlement, in whole or in part, upon one year’s notice to us. The strike price per share increases at an annual rate of LIBOR plus 80 basis points. The contract is a derivative instrument that does not qualify for hedge accounting treatment. Mark-to-market adjustments on the underlying common shares are recognized in “interest and other investment income, net” on our consolidated statements of income. During the three months ended March 31, 2011, we recognized $17,163,000 of income from the mark-to-market of the underlying common shares, based on J.C.Penney’s closing share price of $35.91 per share at March 31, 2011.
As of March 31, 2011, the aggregate economic net gain on our investment in J.C. Penney was $224,453,000, based on J.C. Penney’s closing share price of $35.91 per share and our weighted average cost of $26.32 per share.
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. Investments in Partially Owned Entities
Toys “R” Us (“Toys”)
As of March 31, 2011, we own 32.7% of Toys. The business of Toys is highly seasonal. Historically, Toys’ fourth quarter net income accounts for more than 80% of its fiscal year net income. We account for our investment in Toys under the equity method and record our 32.7% share of Toys net income or loss on a one-quarter lag basis because Toys’ fiscal year ends on the Saturday nearest January 31, and our fiscal year ends on December 31. As of March 31, 2011, the carrying amount of our investment in Toys does not differ materially from our share of the equity in the net assets of Toys on a purchase accounting basis.
On May 28, 2010, Toys filed a registration statement with the SEC for the offering and sale of its common stock. The offering, if completed, would result in a reduction of our percentage ownership of Toys’ equity. The size of the offering and its completion are subject to market and other conditions.
Below is a summary of Toys’ latest available financial information on a purchase accounting basis:
Balance as of
Balance Sheet:
January 29, 2011
October 30, 2010
Assets
11,972,000
12,810,000
Liabilities
10,145,000
11,317,000
Toys “R” Us, Inc. equity
1,827,000
1,493,000
Income Statement:
January 30, 2010
5,972,000
5,857,000
Net income attributable to Toys
339,000
379,000
As of March 31, 2011, we own 32.4% of the outstanding common shares of Alexander’s. We manage, lease and develop Alexander’s properties pursuant to the agreements described below which expire in March of each year and are automatically renewable. As of March 31, 2011, Alexander’s owed us $44,357,000 in fees under these agreements.
As of March 31, 2011, the fair value of our investment in Alexander’s, based on Alexander’s March 31, 2011 closing share price of $406.95, was $673,123,000, or $484,843,000 in excess of the carrying amount on our consolidated balance sheet. As of March 31, 2011, the carrying amount of our investment in Alexander’s, excluding amounts owed to us, exceeds our share of the equity in the net assets of Alexander’s by approximately $59,643,000. The majority of this basis difference resulted from the excess of our purchase price for the Alexander’s common stock acquired over the book value of Alexander’s net assets. Substantially all of this basis difference was allocated, based on our estimates of the fair values of Alexander’s assets and liabilities, to real estate (land and buildings). We are amortizing the basis difference related to the buildings into earnings as additional depreciation expense over their estimated useful lives. This depreciation is not material to our share of equity in Alexander’s net income. The basis difference related to the land will be recognized upon disposition of our investment.
Below is a summary of Alexander’s latest available financial information:
December 31, 2010
1,685,000
1,679,000
1,339,000
1,335,000
Noncontrolling interests
3,000
Stockholders' equity
343,000
341,000
March 31, 2010
63,000
59,000
Net income attributable to Alexander’s
18,000
15,000
5. Investments in Partially Owned Entities – continued
Lexington Realty Trust (“Lexington”) (NYSE: LXP)
As of March 31, 2011, we own 18,468,969 Lexington common shares, or approximately 12.6% of Lexington’s common equity. We account for our investment in Lexington under the equity method because we believe we have the ability to exercise significant influence over Lexington’s operating and financial policies, based on, among other factors, our representation on Lexington’s Board of Trustees and the level of our ownership in Lexington as compared to other shareholders. We record our pro rata share of Lexington’s net income or loss on a one-quarter lag basis because we file our consolidated financial statements on Form 10-K and 10-Q prior to the time that Lexington files its consolidated financial statements.
Based on Lexington’s March 31, 2011 closing share price of $9.35, the fair value of our investment in Lexington was $172,685,000, or $115,251,000 in excess of the March 31, 2011 carrying amount on our consolidated balance sheet. As of March 31, 2011, the carrying amount of our investment in Lexington was less than our share of the equity in the net assets of Lexington by approximately $62,315,000. This basis difference resulted primarily from $107,882,000 of non-cash impairment charges recognized during 2008, partially offset by purchase accounting for our acquisition of an additional 8,000,000 common shares of Lexington in October 2008, of which the majority relates to our estimate of the fair values of Lexington’s real estate (land and buildings) as compared to the carrying amounts in Lexington’s consolidated financial statements. The basis difference related to the buildings is being amortized over their estimated useful lives as an adjustment to our equity in net income or loss of Lexington. This amortization is not material to our share of equity in Lexington’s net income or loss. The basis difference attributable to the land will be recognized upon disposition of our investment.
Below is a summary of Lexington’s latest available financial information:
September 30, 2010
3,335,000
3,385,000
1,979,000
2,115,000
76,000
71,000
Shareholders’ equity
1,280,000
1,199,000
December 31, 2009
86,000
Net income (loss) attributable to Lexington
12,000
(46,000)
LNR Property LLC (“LNR”)
As of March 31, 2011, we own a 26.2% equity interest in LNR, which we acquired in July 2010. We account for our investment in LNR under the equity method and record our 26.2% share of LNR’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 receiving LNR’s consolidated financial statements.
LNR consolidates certain commercial mortgage-backed securities (“CMBS”) and Collateralized Debt Obligation (“CDO”) trusts for which it is the primary beneficiary. The assets of these trusts (primarily commercial mortgage loans), which aggregate approximately $142 billion as of December 31, 2010, are the sole source of repayment of the related liabilities, which are non-recourse to LNR and its equity holders, including us. Changes in the fair value of these assets each period are offset by changes in the fair value of the related liabilities through LNR’s consolidated income statement. As of March 31, 2011, the carrying amount of our investment in LNR does not materially differ from our share of LNR’s equity.
LNR Property LLC (“LNR”) – continued
Below is a summary of LNR’s latest available financial information:
143,327,000
142,723,000
34,000
LNR equity
570,000
36,000
Net income attributable to LNR
58,000
280 Park Avenue Mezzanine Loans Joint Venture
On March 16, 2011, we formed a 50/50 joint venture with SL Green Realty Corp (“SL Green”) to own the mezzanine debt of 280 Park Avenue, a 1.2 million square foot office building located between 48th and 49th Streets in Manhattan. We contributed our mezzanine loan with a face amount of $73,750,000 and they contributed their mezzanine loans with a face amount of $326,250,000 to the joint venture. We equalized our interest in the joint venture with SL Green by paying them $111,250,000 in cash and assuming $15,000,000 of their debt position. We account for our 50% interest in the joint venture under the equity method of accounting from the date of contribution.
12
5. Investments in Partially Owned Entities - continued
Investments in partially owned entities as of March 31, 2011 and December 31, 2010 and income recognized from these investments for the three months ended March 31, 2011 and 2010 are as follows:
Percentage
Ownership as of
Investments:
Toys
32.7 %
Alexander’s
32.4 %
188,280
186,811
Partially owned office buildings
220,050
181,838
280 Park Avenue Mezzanine Loans (see page 12)
50 %
185,131
LNR
26.2 %
148,227
132,973
India real estate ventures
4%-36.5%
94,077
127,193
Lexington
12.6 %
57,434
57,270
Other equity method investments
223,095
241,587
For the Three Months
Ended March 31,
Our Share of Net Income (Loss):
Toys – 32.7% share of:
Equity in net income before income taxes
179,839
173,550
(69,018)
(49,710)
Equity in net income
110,821
123,840
Interest and other income
2,123
2,030
Alexander’s – 32.4% share of:
5,719
3,777
Management, leasing and development fees
2,292
2,683
8,011
6,460
Lexington – 12.6% share in 2011 and 13.9% share in 2010 of
equity in net income (3)
2,172
6,045
LNR – 26.2% share of equity in net income (acquired in July 2010) (4)
15,254
India real estate ventures – 4% to 36.5% range in our
share of equity in net (loss) income
(207)
1,651
Other, net (including partially owned office buildings) (5)
(8,946)
(2,812)
___________________________________
Includes interests in 330 Madison Avenue (25%), One Park Avenue (30.3%), 825 Seventh Avenue (50%), Warner Building and 1101 17th Street (55%), Fairfax Square (20%), Kaempfer equity interests in three office buildings (2.5% to 5.0%), Rosslyn Plaza (46%) and West 57th Street properties (50%).
Includes interests in Monmouth Mall, Verde Realty Operating Partnership, 85 10th Avenue Associates and redevelopment ventures, including Harlem Park and Farley.
(3)
The three months ended March 31, 2011 and 2010 include $1,452 and $5,998, respectively, of net gains resulting from Lexington's stock issuances.
(4)
Includes $8,977 for our share of a tax settlement gain.
(5)
2011 includes $9,022 for our share of expense, primarily for straight-line rent reserves and the write-off of tenant improvements in connection with a tenant's bankruptcy at the Warner Building.
Below is a summary of the debt of our partially owned entities as of March 31, 2011 and December 31, 2010, none of which is recourse to us.
Interest
100% of
Rate at
Partially Owned Entities’ Debt at
Maturity
Toys (32.7% interest) (as of January 29, 2011 and October 30, 2010,
respectively):
Senior unsecured notes (Face value – $950,000)
07/17
10.75 %
928,597
928,045
Senior unsecured notes (Face value – $725,000)
12/17
8.50 %
715,821
715,577
$700 million secured term loan facility
09/16
6.00 %
688,357
689,757
Senior U.K. real estate facility
04/13
5.02 %
554,621
561,559
7.625% bonds (Face value – $500,000)
08/11
8.82 %
497,349
495,943
7.875% senior notes (Face value – $400,000)
9.50 %
387,459
386,167
7.375% senior secured notes (Face value – $350,000)
7.38 %
348,219
350,000
7.375% senior notes (Face value – $400,000)
10/18
9.99 %
344,734
343,528
Japan bank loans
03/12-01/16
2.45%-2.85%
177,511
180,500
Spanish real estate facility
02/13
4.51 %
175,186
179,511
Japan borrowings
06/13
0.81 %
17,080
141,360
Junior U.K. real estate facility
6.81%-7.84%
96,921
98,266
French real estate facility
84,291
86,599
8.750% debentures (Face value – $21,600)
09/21
9.17 %
21,063
21,054
$1.85 billion credit facility
08/15
519,810
European and Australian asset-based revolving credit facility
10/12
25,767
Various
176,137
156,853
5,213,346
5,880,296
Alexander’s (32.4% interest):
731 Lexington Avenue mortgage note payable, collateralized by
the office space (prepayable without penalty after 12/13)
02/14
5.33 %
348,781
351,751
the retail space (prepayable without penalty after 12/13)
07/15
4.93 %
320,000
Rego Park construction loan payable
12/11
1.50 %
277,200
Kings Plaza Regional Shopping Center mortgage note payable
06/11
7.46 %
150,375
151,214
Rego Park mortgage note payable (prepayable without penalty)
03/12
0.75 %
78,246
Paramus mortgage note payable (prepayable without penalty)
10/11
5.92 %
68,000
1,242,602
1,246,411
Lexington (12.6% interest) (as of December 31, 2010 and
September 30, 2010, respectively):
Mortgage loans collateralized by Lexington’s real estate (various
prepayment terms)
2011-2037
5.82 %
1,792,761
1,927,729
LNR (26.2% interest) (as of December 31, 2010 and
September 30, 2010):
Mortgage notes payable
2011-2043
5.75 %
366,069
508,547
Liabilities of consolidated CMBS and CDO trusts
n/a
6.06 %
142,197,352
142,001,333
142,563,421
142,509,880
14
Partially owned office buildings:
One Park Avenue (30.3% interest) mortgage note payable
03/16
5.00 %
250,000
Warner Building (55% interest) mortgage note payable
05/16
6.26 %
292,700
330 Madison Avenue (25% interest) mortgage note payable
06/15
1.81 %
150,000
Kaempfer Properties (2.5% and 5.0% interests in two partnerships)
mortgage notes payable, collateralized by the partnerships’ real estate
11/11-12/11
5.86 %
138,705
139,337
Fairfax Square (20% interest) mortgage note payable (prepayable
without penalty after 07/14)
12/14
7.00 %
71,571
71,764
Rosslyn Plaza (46% interest) mortgage note payable
1.30 %
56,680
330 West 34th Street (34.8% interest) mortgage note payable,
collateralized by land
07/22
5.71 %
50,150
West 57th Street (50% interest) mortgage note payable (prepayable
without penalty)
4.94 %
22,720
22,922
825 Seventh Avenue (50% interest) mortgage note payable (prepayable
without penalty after 04/14)
10/14
8.07 %
20,447
20,565
India Real Estate Ventures:
TCG Urban Infrastructure Holdings (25% interest) mortgage notes
payable, collateralized by the entity’s real estate (various
2011-2022
13.88 %
202,029
196,319
Other:
Verde Realty Operating Partnership (8.3% interest) mortgage notes
payable, collateralized by the partnerships’ real estate (various
2011-2025
5.91 %
564,270
581,086
Green Courte Real Estate Partners, LLC (8.3% interest) (as of
December 31, 2010 and September 30, 2010), mortgage notes
2011-2018
5.50 %
296,991
Waterfront Associates (2.5% interest) up to $250 million construction
and land loan payable
09/11
2.26% - 3.76%
219,442
217,106
Monmouth Mall (50% interest) mortgage note payable (prepayable
without penalty after 07/15)
09/15
5.44 %
163,917
164,474
Wells/Kinzie Garage (50% interest) mortgage note payable
14,977
15,022
Orleans Hubbard Garage (50% interest) mortgage note payable
9,480
9,508
5.39 %
417,553
418,339
Based on our ownership interest in the partially owned entities above, our pro rata share of the debt of these partially owned entities was $40,260,412,000 and $40,443,346,000 as of March 31, 2011 and December 31, 2010, respectively. Excluding our pro rata share of LNR’s liabilities related to consolidated CMBS and CDO trusts which are non-recourse to LNR and its equity holders, including us, our pro rata share of partially owned entities debt is $3,041,677,000 and $3,275,917,000 at March 31, 2011 and December 31, 2010, respectively.
15
6. Mezzanine Loans Receivable
On March 2, 2011, we sold our mezzanine loan in the Tharaldson Lodging Companies for $70,848,000 in cash, which had a carrying amount of $60,416,000 and recognized a net gain of $10,474,000. The gain is included as a component of “interest and other investment income, net” on our consolidated statement of income.
In the first quarter of 2011, we recognized $72,270,000 of income, representing the difference between the fair value of our 280 Park Avenue Mezzanine Loan of $73,750,000, and its carrying amount of $1,480,000. The $72,270,000 of income, which is included in “interest and other investment income, net” on our consolidated statement of income, is comprised of $63,145,000 from the reversal of the loan loss reserve and $9,125,000 of previously unrecognized interest income. Our decision to reverse the loan loss reserve was based on the increase in value of the underlying collateral. On March 16, 2011, we contributed this mezzanine loan to a 50/50 joint venture with SL Green Realty Corp (see Note 5 – Investments in Partially Owned Entities).
As of March 31, 2011 and December 31, 2010, the carrying amount of mezzanine loans receivable was $140,567,000 and $202,412,000, respectively, net of allowances of $0 and $73,216,000, respectively.
7. Discontinued Operations
On March 31, 2011, the receiver completed the disposition of the High Point Complex in North Carolina. In connection therewith, the property and related debt were removed from our consolidated balance sheet and we recognized a net gain of $83,907,000 on the extinguishment of debt.
In the first quarter of 2011, we sold (i) 1140 Connecticut Avenue and 1227 25th Street for $127,000,000 in cash, which resulted in a $45,862,000 net gain, and (ii) two retail properties in separate transactions for an aggregate of $38,711,000 in cash, which resulted in net gains aggregating $5,303,000.
The tables below set forth the assets and liabilities related to discontinued operations at March 31, 2011 and December 31, 2010, and their combined results of operations for the three months ended March 31, 2011 and 2010.
Assets Related to
Liabilities Related to
Discontinued Operations as of
High Point
154,563
236,974
1227 25th Street
43,630
1140 Connecticut Avenue
36,271
18,948
For The Three Months
5,987
11,021
6,744
10,535
(757)
486
Net gain on extinguishment of High Point debt
83,907
Net gain on sale of 1140 Connecticut Avenue and 1227 25th Street
45,862
Net gain on sales of other real estate
5,303
(10,056)
8. Identified Intangible Assets and Liabilities
The following summarizes our identified intangible assets (primarily acquired above-market leases) and liabilities (primarily acquired below-market leases) as of March 31, 2011 and December 31, 2010.
Identified intangible assets:
Gross amount
683,374
687,253
Accumulated amortization
(350,104)
(338,508)
Net
Identified intangible liabilities (included in deferred credit):
883,451
870,623
(358,794)
(341,718)
524,657
528,905
Amortization of acquired below-market leases, net of acquired above-market leases, resulted in an increase to rental income of $16,759,000 and $15,771,000 for the three months ended March 31, 2011 and 2010, respectively. Estimated annual amortization of acquired below-market leases, net of acquired above-market leases, for each of the five succeeding years commencing January 1, 2012 is as follows:
2012
52,016
2013
44,087
2014
38,236
2015
35,472
2016
32,093
Amortization of all other identified intangible assets (a component of depreciation and amortization expense) was $14,262,000 and $14,853,000 for the three months ended March 31, 2011 and 2010, respectively. Estimated annual amortization of all other identified intangible assets including acquired in-place leases, customer relationships, and third party contracts for each of the five succeeding years commencing January 1, 2012 is as follows:
44,777
37,281
18,885
13,929
11,325
We are a tenant under ground leases for certain properties. Amortization of these acquired below-market leases, net of above-market leases resulted in an increase to rent expense of $314,000 and $509,000 for the three months ended March 31, 2011 and 2010, respectively. Estimated annual amortization of these below-market leases, net of above-market leases, for each of the five succeeding years commencing January 1, 2012 is as follows:
1,256
9. Debt
The following is a summary of our debt:
Balance at
Notes and mortgages payable:
Maturity (1)
Fixed rate:
New York Office:
350 Park Avenue
01/12
5.48 %
430,000
Two Penn Plaza(2)
03/18
5.13 %
425,000
277,347
1290 Avenue of the Americas
01/13
5.97 %
421,345
424,136
770 Broadway
5.65 %
353,000
888 Seventh Avenue
01/16
318,554
909 Third Avenue
04/15
5.64 %
206,069
207,045
Eleven Penn Plaza
5.20 %
198,282
199,320
Washington, DC Office:
Skyline Place
02/17
5.74 %
678,000
River House Apartments
5.43 %
195,546
2121 Crystal Drive(3)
03/23
5.51 %
Bowen Building
06/16
6.14 %
115,022
1215 Clark Street, 200 12th Street and 251 18th Street
01/25
7.09 %
110,509
110,931
Universal Buildings
04/14
6.38 %
102,119
103,049
Reston Executive I, II, and III
5.57 %
93,000
2011 Crystal Drive
08/17
7.30 %
81,221
81,362
1550 and 1750 Crystal Drive
11/14
7.08 %
78,782
79,411
220 20th Street(4)
02/18
4.61 %
75,982
1235 Clark Street
07/12
6.75 %
52,057
52,314
2231 Crystal Drive
08/13
45,790
46,358
1750 Pennsylvania Avenue
06/12
7.26 %
44,926
45,132
1225 Clark Street
27,389
27,616
1800, 1851 and 1901 South Bell Street
6.91 %
7,658
10,099
Retail:
Cross-collateralized mortgages on 40 strip shopping centers
09/20
4.19 %
594,247
597,138
Montehiedra Town Center
07/16
6.04 %
120,000
Broadway Mall
07/13
5.30 %
89,598
90,227
828-850 Madison Avenue Condominium
06/18
5.29 %
80,000
North Bergen (Tonnelle Avenue)(5)
01/18
4.59 %
75,000
Las Catalinas Mall
11/13
6.97 %
57,328
57,737
510 5th Avenue
5.60 %
32,071
32,189
03/12-05/36
5.10%-7.33%
100,870
101,251
Merchandise Mart:
Merchandise Mart
12/16
550,000
Boston Design Center
68,235
68,538
Washington Design Center
11/11
6.95 %
43,227
43,447
555 California Street
5.79 %
641,551
640,911
Borgata Land(6)
02/21
5.14 %
60,000
Industrial Warehouses
24,271
24,358
Total fixed rate notes and mortgages payable
5.61 %
6,746,649
6,253,038
___________________
See notes on page 20.
18
9. Debt - continued
Spread over
LIBOR
Variable rate:
Manhattan Mall
02/12
L+55
0.82 %
232,000
866 UN Plaza
05/11
L+40
0.71 %
44,978
2101 L Street
L+120
1.45 %
West End 25 (construction loan)(7)
n/a (7)
2.75 %
78,554
95,220
04/18
n/a (8)
1.62 %
64,000
2200/2300 Clarendon Boulevard
01/15
L+75
1.01 %
57,802
59,278
1730 M and 1150 17th Street
06/14
L+140
1.66 %
43,580
43,581
83,573
Green Acres Mall
1.75 %
325,045
335,000
Bergen Town Center (construction loan)
03/13
L+150
1.79 %
279,044
San Jose Strip Center
L+400
4.32 %
118,285
120,863
Beverly Connection(9)
L+350 (9)
100,000
4 Union Square South
L+325
3.56 %
Cross-collateralized mortgages on 40 strip
shopping centers(10)
L+136 (10)
2.36 %
435 Seventh Avenue(11)
08/14
L+300 (11)
51,725
51,844
11/12
L+375
4.02 %
22,108
21,862
220 Central Park South
L+235–L+245
2.65 %
123,750
L+250
2.80 %
22,400
66,267
Total variable rate notes and mortgages payable
2.23 %
1,848,271
2,006,260
Total notes and mortgages payable
4.88 %
Senior unsecured notes:
Senior unsecured notes due 2015
4.25 %
499,338
499,296
Senior unsecured notes due 2039(12)
10/39
7.88 %
460,000
Floating rate senior unsecured notes due 2011
L+200
2.30 %
23,250
Senior unsecured notes due 2011
100,382
Total senior unsecured notes
5.90 %
3.88% exchangeable senior debentures due 2025
(see page 21)
04/12
5.32 %
Convertible senior debentures: (see page 21)
3.63% due 2026
177,221
176,499
2.85% due 2027
5.45 %
9,977
9,914
Total convertible senior debentures (13)
Unsecured revolving credit facilities:
$1.595 billion unsecured revolving credit facility
09/12
0.79 %
324,000
669,000
$1.000 billion unsecured revolving credit facility
($12,423 reserved for outstanding letters of credit)
50,000
205,000
Total unsecured revolving credit facilities
___________________________
See notes on the following page.
19
Notes to preceding tabular information (Amounts in thousands):
Represents the extended maturity for certain loans in which we have the unilateral right, ability and intent to extend. In the case of our convertible and exchangeable debt, represents the earliest date holders may require us to repurchase the debentures.
On February 11, 2011, we completed a $425,000 refinancing of this loan. The seven-year loan bears interest at LIBOR plus 2.00%, which was swapped for the term of the loan to a fixed rate of 5.13%. The loan amortizes based on a 30-year schedule beginning in the fourth year. We retained net proceeds of approximately $139,000, after repaying the existing loan and closing costs.
On February 10, 2011, we completed a $150,000 financing of this property. The 12-year fixed rate loan bears interest at 5.51% and amortizes based on a 30-year schedule beginning in the third year. This property was previously unencumbered.
On January 18, 2011, we repaid the outstanding balance of the construction loan on this property and closed on a new $76,100 mortgage financing at a fixed rate of 4.61%. The new loan has a seven-year term and amortizes based on a 30-year schedule.
On January 10, 2011, we completed a $75,000 financing on this property. The seven-year fixed rate loan bears interest at 4.59% and amortizes based on a 25-year schedule beginning in the sixth year. This property was previously unencumbered.
(6)
In January 2011, we completed a $60,000 financing of this property. The 10-year fixed rate loan bears interest at 5.14% and amortizes based on a 30-year schedule beginning in the third year.
(7)
In February 2011, we repaid a portion of this loan and extended the maturity to August 2011. This loan bears interest at the prime rate minus 0.50%.
(8)
This loan bears interest at the Freddie Mac Reference Note Rate plus 1.53%.
(9)
This loan has a LIBOR floor of 1.50%. The spread over LIBOR increases from 3.50% currently to 5.00% in July 2011.
(10)
This loan has a LIBOR floor of 1.00%.
(11)
This loan has a LIBOR floor of 2.00%.
(12)
These notes may be redeemed at our option in whole or in part beginning on October 1, 2014, at a price equal to the principal amount plus accrued interest.
(13)
The net proceeds from the offering of these debentures were contributed to the Operating Partnership in the form of an inter-company loan and the Operating Partnership fully and unconditionally guaranteed payment of these debentures. There are no restrictions which limit the Operating Partnership from making distributions to Vornado and Vornado has virtually no independent assets or operations outside of the Operating Partnership.
20
9. Debt – continued
Pursuant to the provisions of Accounting Standards Codification (“ASC”) 470-20, Debt with Conversion and Other Options, below is a summary of required disclosures related to our convertible and exchangeable senior debentures.
2.85% Convertible
3.63% Convertible
3.88% Exchangeable
Senior Debentures due 2027
Senior Debentures due 2026
Senior Debentures due 2025
Principal amount of debt component
10,233
179,052
499,982
Unamortized discount
(256)
(319)
(1,831)
(2,553)
(7,292)
(8,982)
Carrying amount of debt component
Carrying amount of equity component
956
9,604
32,301
Effective interest rate
Maturity date (period through which
discount is being amortized)
4/1/12
11/15/11
4/15/12
Conversion price per share, as adjusted
157.18
148.46
87.17
Number of shares on which the
aggregate consideration to be
delivered upon conversion is
determined
- (1)
5,736
__________________
Our convertible senior debentures require that upon conversion, the entire principal amount is to be settled in cash, and at our option, any excess value above the principal amount may be settled in cash or common shares. Based on the March 31, 2011 closing share price of our common shares and the conversion prices in the table above, there was no excess value; accordingly, no common shares would be issued if these securities were settled on this date. The number of common shares on which the aggregate consideration that would be delivered upon conversion is 65 and 1,206 common shares, respectively.
2.85% Convertible Senior Debentures due 2027:
Coupon interest
73
160
Discount amortization – original issue
23
Discount amortization – ASC 470-20 implementation
52
106
136
289
3.63% Convertible Senior Debentures due 2026:
1,623
3,963
196
455
526
1,219
2,345
5,637
3.88% Exchangeable Senior Debentures due 2025:
4,844
399
379
1,291
1,225
6,534
6,448
21
10. Redeemable Noncontrolling Interests
Redeemable noncontrolling interests on our consolidated balance sheets represent Operating Partnership units held by third parties and are comprised of Class A units and Series D-10, D-11, D-14, D-15 and D-16 (collectively, “Series D”) cumulative redeemable preferred units. Redeemable noncontrolling interests on our consolidated balance sheets are recorded at the greater of their carrying amount or redemption value at the end of each reporting period. Changes in the value from period to period are charged to “additional capital” in our consolidated statements of changes in equity. Below is a table summarizing the activity of redeemable noncontrolling interests.
Balance at December 31, 2009
1,251,628
17,779
Conversion of Class A units into common shares, at redemption value
(18,128)
104,247
Redemption of Series D-12 redeemable units
Other, net
1,304
Balance at March 31, 2010
1,339,748
Balance at December 31, 2010
31,808
(12,702)
(27,539)
42,227
4,752
Balance at March 31, 2011
As of March 31, 2011 and December 31, 2010, the aggregate redemption value of redeemable Class A units was $1,105,520,000 and $1,066,974,000, respectively.
Redeemable noncontrolling interests exclude our Series G-1 through G-4 convertible preferred units and Series D-13 cumulative redeemable preferred units, as they are accounted for as liabilities in accordance with ASC 480, Distinguishing Liabilities and Equity, because of their possible settlement by issuing a variable number of Vornado common shares. Accordingly the fair value of these units is included as a component of “other liabilities” on our consolidated balance sheets and aggregated $55,097,000 as of March 31, 2011 and December 31, 2010.
In March 2010, we redeemed 246,153 Series D-12 cumulative redeemable preferred units for $16.25 per unit in cash, or $4,000,000 in the aggregate. In connection therewith, we recognized a $2,154,000 net gain which is included as a component of “net income attributable to noncontrolling interests in the Operating Partnership, including unit distributions,” on our consolidated statement of income for the three months ended March 31, 2010.
22
11. Shareholders’ Equity
On April 20, 2011, we sold 7,000,000 6.875% Series J Cumulative Redeemable Preferred Shares at a price of $25.00 per share, or $175,000,000 in the aggregate, in an underwritten public offering pursuant to an effective registration statement. On April 21, 2011, the underwriters exercised their option to purchase an additional 1,050,000 shares to cover over-allotments. We retained aggregate net proceeds of $194,736,000, after underwriters’ discounts and issuance costs and contributed the net proceeds to the Operating Partnership in exchange for 8,050,000 Series J Preferred Units (with economic terms that mirror those of the Series J Preferred Shares). Dividends on the Series J Preferred Shares are cumulative and payable quarterly in arrears. The Series J Preferred Shares are not convertible into, or exchangeable for, any of our properties or securities. On or after April 20, 2016 (or sooner under limited circumstances), we, at our option, may redeem the Series J Preferred Shares at a redemption price of $25.00 per share, plus accrued and unpaid dividends through the date of redemption. The Series J Preferred Shares have no maturity date and will remain outstanding indefinitely unless redeemed by us.
12. Fair Value Measurements
ASC 820, Fair Value Measurement and Disclosures defines fair value and establishes a framework for measuring fair value. The objective of fair value is to determine the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price). ASC 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels: Level 1 – quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities; Level 2 – observable prices that are based on inputs not quoted in active markets, but corroborated by market data; and Level 3 – unobservable inputs that are used when little or no market data is available. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as consider counterparty credit risk in our assessment of fair value. Considerable judgment is necessary to interpret Level 2 and 3 inputs in determining the fair value of our financial and non-financial assets and liabilities. Accordingly, our fair value estimates, which are made at the end of each reporting period, may be different than the amounts that may ultimately be realized upon sale or disposition of these assets.
Financial Assets and Liabilities Measured at Fair Value
Financial assets and liabilities that are measured at fair value in our consolidated financial statements consist of (i) marketable securities, (ii) derivative positions in marketable equity securities, (iii) the assets of our deferred compensation plan, which are primarily marketable equity securities and equity investments in limited partnerships, (iv) Real Estate Fund investments, and (v) mandatorily redeemable instruments (Series G-1 through G-4 convertible preferred units and Series D-13 cumulative redeemable preferred units). The tables below aggregate the fair values of financial assets and liabilities by the levels in the fair value hierarchy at March 31, 2011 and December 31, 2010, respectively.
As of March 31, 2011
Level 1
Level 2
Level 3
Real Estate Fund investments (75% of which is attributable to
noncontrolling interests)
Deferred compensation plan assets (included in other assets)
46,339
51,612
Derivative positions in marketable equity securities
34,779
Total assets
1,185,307
868,259
282,269
Mandatorily redeemable instruments (included in other liabilities)
55,097
As of December 31, 2010
43,699
47,850
17,616
1,019,704
809,815
192,273
12. Fair Value Measurements - continued
Financial Assets and Liabilities Measured at Fair Value - continued
The tables below summarize the changes in the fair value of the Level 3 assets above, by category, for the three months ended March 31, 2011 and 2010.
Real Estate Fund Investments:
Beginning balance
Purchases
100,238
Realized and unrealized gains
698
(14,702)
Ending balance
Deferred Compensation Plan Assets:
39,589
1,286
3,132
3,623
1,108
(1,147)
(566)
43,263
Financial Assets and Liabilities not Measured at Fair Value
Financial assets and liabilities that are not measured at fair value in our consolidated financial statements include mezzanine loans receivable and debt. Estimates of the fair values of these instruments are based on our assessments of available market information and valuation methodologies, including discounted cash flow analyses. The table below summarizes the carrying amounts and fair values of these financial instruments as of March 31, 2011 and December 31, 2010.
Carrying
Fair
Value
Mezzanine loans receivable
135,330
197,581
Debt:
8,857,040
8,450,812
1,033,680
1,119,512
558,105
554,355
191,958
191,510
10,631,396
11,014,783
10,893,639
11,190,189
13. Stock-based Compensation
Our Share Option Plan (the “Plan”) provides for grants of incentive and non-qualified stock options, restricted stock, restricted Operating Partnership units and out-performance plan rewards to certain of our employees and officers. We account for all stock-based compensation in accordance ASC 718, Compensation – Stock Compensation. Stock-based compensation expense for the three months ended March 31, 2011 and 2010 consists of stock option awards, restricted stock awards, Operating Partnership unit awards and out-performance plan awards. In the three months ended March 31, 2011 and 2010, we recognized $7,146,000 and $6,477,000 of stock-based compensation expense, respectively.
24
14. Fee and Other Income
The following table sets forth the details of our fee and other income:
Tenant cleaning fees
15,423
13,652
Management and leasing fees
4,106
9,140
Lease termination fees
1,176
4,970
Other income
13,588
13,165
Fee and other income above includes management fee income from Interstate Properties, a related party, of $197,000 and $200,000 for the three months ended March 31, 2011 and 2010, respectively. The above table excludes fee income from partially owned entities which is included in income from partially owned entities (see Note 5 – Investments in Partially Owned Entities).
15. Interest and Other Investment Income, Net
The following table sets forth the details of our interest and other investment income:
82,744
17,163
Dividends and interest on marketable securities
7,667
7,245
Mark-to-market of investments in our deferred compensation plan (1)
4,952
2,763
Interest on mezzanine loans
2,644
2,715
1,938
1,981
__________________________
This income is entirely offset by the expense resulting from the mark-to-market of the deferred compensation plan liability, which is included in "general and administrative" expense.
16. Comprehensive Income
Other comprehensive income
57,161
1,504
Comprehensive income
502,982
234,048
Less: Comprehensive income attributable to noncontrolling interests
36,759
18,098
Comprehensive income attributable to Vornado
466,223
215,950
Substantially all of other comprehensive income for the three months ended March 31, 2011 and 2010 relates to income from the mark-to-market of marketable securities classified as available-for-sale and our share of other comprehensive income or loss of partially owned entities.
25
17. Income Per Share
The following table provides a reconciliation of both net income and the number of common shares used in the computation of (i) basic income per common share - which utilizes the weighted average number of common shares outstanding without regard to dilutive potential common shares, and (ii) diluted income per common share - which includes the weighted average common shares and potentially dilutive share equivalents. Potentially dilutive share equivalents include our Series A convertible preferred shares, employee stock options, restricted stock and exchangeable senior debentures due 2025.
Numerator:
Income from continuing operations, net of income attributable to noncontrolling interests
286,947
224,122
Income (loss) from discontinued operations, net of income attributable to noncontrolling interests
125,716
Net income attributable to common shareholders
Earnings allocated to unvested participating securities
(46)
(20)
Numerator for basic income per share
399,169
200,265
Impact of assumed conversions:
Interest on 3.875% exchangeable senior debentures
Convertible preferred share dividends
41
Numerator for diluted income per share
405,735
200,306
Denominator:
Denominator for basic income per share –
weighted average shares
Effect of dilutive securities(1):
3.875% exchangeable senior debentures
Employee stock options and restricted share awards
1,749
1,831
Convertible preferred shares
72
Denominator for diluted income per share –
weighted average shares and assumed conversions
INCOME PER COMMON SHARE – BASIC:
INCOME PER COMMON SHARE – DILUTED:
The effect of dilutive securities in the three months ended March 31, 2011 and 2010 excludes an aggregate of 12,787 and 21,029 weighted average common share equivalents, respectively, as their effect was anti-dilutive.
26
18. Cleveland Medical Mart Development Project
During 2010, two of our wholly owned subsidiaries entered into agreements with Cuyahoga County, Ohio (the “County”) to develop and operate the Cleveland Medical Mart and Convention Center (the “Facility”), a 1,000,000 square foot showroom, trade show and conference center in Cleveland’s central business district. The County will fund the development of the Facility, using the proceeds it received from the issuance of general obligation bonds and other sources, up to the development budget of $465,000,000 and maintain effective control of the property. During the 17-year development and operating period, our subsidiaries will receive net settled payments of approximately $10,000,000 per year, which is net of its $36,000,000 annual obligation to the County. Our subsidiaries’ obligation has been pledged by the County to the bondholders, but is payable by our subsidiaries only to the extent that they first receive at least an equal payment from the County. Our subsidiaries engaged a contractor to construct the Facility pursuant to a guaranteed maximum price contract; although our subsidiaries are ultimately responsible for cost overruns, the contractor is responsible for all costs incurred in excess of its contract and has provided a completion guaranty. Construction of the Facility is expected to be completed in 2013. Upon completion, our subsidiaries are required to fund $11,500,000, primarily for tenant improvements, and they are responsible for operating expenses and are entitled to the net operating income, if any, of the Facility. The County may terminate the operating agreement five years from the completion of development and periodically thereafter, if our subsidiaries fail to achieve certain performance thresholds.
We account for these agreements using criteria set forth in ASC 605-25, Multiple-Element Arrangements, as our subsidiaries are providing development, marketing, leasing, and other property management related services over the 17-year term. We recognize development fees using the percentage of completion method of accounting. In the first quarter of 2011, we recognized $40,699,000 of revenue, of which $38,278,000 is offset by development costs expensed in the quarter.
19. Commitments and Contingencies
Insurance
We maintain general liability insurance with limits of $300,000,000 per occurrence and all risk property and rental value insurance with limits of $2.0 billion per occurrence, including coverage for terrorist acts, with sub-limits for certain perils such as floods. Our California properties have earthquake insurance with coverage of $150,000,000 per occurrence, subject to a deductible in the amount of 5% of the value of the affected property, up to a $150,000,000 annual aggregate.
Penn Plaza Insurance Company, LLC (“PPIC”), our wholly owned consolidated subsidiary, acts as a re-insurer with respect to a portion of our earthquake insurance coverage and as a direct insurer for coverage for acts of terrorism, including nuclear, biological, chemical and radiological (“NBCR”) acts, as defined by Terrorism Risk Insurance Program Reauthorization Act. Coverage for acts of terrorism (excluding NBCR acts) is fully reinsured by third party insurance companies and the Federal government with no exposure to PPIC. Our coverage for NBCR losses is up to $2 billion per occurrence, for which PPIC is responsible for a deductible of $3,200,000 and 15% of the balance of a covered loss and the Federal government is responsible for the remaining 85% of a covered loss. We are ultimately responsible for any loss borne by PPIC.
We continue to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism. However, we cannot anticipate what coverage will be available on commercially reasonable terms in future policy years.
Our debt instruments, consisting of mortgage loans secured by our properties which are non-recourse to us, senior unsecured notes, exchangeable senior debentures, convertible senior debentures and revolving credit agreements contain customary covenants requiring us to maintain insurance. Although we believe that we have adequate insurance coverage for purposes of these agreements, we may not be able to obtain an equivalent amount of coverage at reasonable costs in the future. Further, if lenders insist on greater coverage than we are able to obtain it could adversely affect our ability to finance our properties and expand our portfolio.
27
19. Commitments and Contingencies – continued
Other Commitments and Contingencies
Our mortgage loans are non-recourse to us. However, in certain cases we have provided guarantees or master leased tenant space. These guarantees and master leases terminate either upon the satisfaction of specified circumstances or repayment of the underlying loans. As of March 31, 2011, the aggregate dollar amount of these guarantees and master leases is approximately $203,250,000.
At March 31, 2011, $12,423,000 of letters of credit were outstanding under one of our revolving credit facilities. Our credit facilities contain financial covenants that require us to maintain minimum interest coverage and maximum debt to market capitalization ratios, and provide for higher interest rates in the event of a decline in our ratings below Baa3/BBB. Our credit facilities also contain customary conditions precedent to borrowing, including representations and warranties, and also contain customary events of default that could give rise to accelerated repayment, including such items as failure to pay interest or principal.
Each of our properties has been subjected to varying degrees of environmental assessment at various times. The environmental assessments did not reveal any material environmental contamination. However, there can be no assurance that the identification of new areas of contamination, changes in the extent or known scope of contamination, the discovery of additional sites, or changes in cleanup requirements would not result in significant costs to us.
We are committed to fund additional capital to certain of our partially owned entities aggregating approximately $195,255,000, of which $141,924,000 is committed to the Fund. In addition, we have agreed in principle to contribute up to $52,000,000 to a new investment management fund which will be managed by LNR.
As part of the process of obtaining the required approvals to demolish and develop our 220 Central Park South property into a new residential tower, we have committed to fund the estimated project cost of approximately $400,000,000 to $425,000,000.
Litigation
We are from time to time involved in legal actions arising in the ordinary course of business. In our opinion, after consultation with legal counsel, the outcome of such matters, including the matters referred to below, are not expected to have a material adverse effect on our financial position, results of operations or cash flows.
On January 8, 2003, Stop & Shop filed a complaint with the United States District Court for the District of New Jersey (“USDC-NJ”) claiming that we had no right to reallocate and therefore continue to collect the $5,000,000 of annual rent from Stop & Shop pursuant to the Master Agreement and Guaranty, because of the expiration of the East Brunswick, Jersey City, Middletown, Union and Woodbridge leases to which the $5,000,000 of additional rent was previously allocated. Stop & Shop asserted that a prior order of the Bankruptcy Court for the Southern District of New York dated February 6, 2001, as modified on appeal to the District Court for the Southern District of New York on February 13, 2001, froze our right to reallocate which effectively terminated our right to collect the additional rent from Stop & Shop. On March 3, 2003, after we moved to dismiss for lack of jurisdiction, Stop & Shop voluntarily withdrew its complaint. On March 26, 2003, Stop & Shop filed a new complaint in New York State Supreme Court, asserting substantially the same claims as in its USDC-NJ complaint. We removed the action to the United States District Court for the Southern District of New York. In January 2005, that court remanded the action to the New York State Supreme Court. On February 14, 2005, we served an answer in which we asserted a counterclaim seeking a judgment for all the unpaid additional rent accruing through the date of the judgment and a declaration that Stop & Shop will continue to be liable for the additional rent as long as any of the leases subject to the Master Agreement and Guaranty remain in effect. On May 17, 2005, we filed a motion for summary judgment. On July 15, 2005, Stop & Shop opposed our motion and filed a cross-motion for summary judgment. On December 13, 2005, the Court issued its 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. A trial was held in November 2010 and closing arguments were held in March 2011. We intend to continue to vigorously pursue our claims against Stop & Shop.
28
20. Segment Information
Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the three months ended March 31, 2011 and 2010.
For the Three Months Ended March 31, 2011
New York
Washington, DC
Merchandise
Office
Retail
Mart
Other(3)
540,472
194,242
138,884
107,447
62,565
37,334
Straight-line rent adjustments
7,870
4,181
790
1,093
Amortization of acquired below-
market leases, net
16,759
8,177
466
6,960
1,139
Total rentals
210,289
139,345
118,588
63,372
39,566
33,876
9,297
39,331
4,023
4,432
Cleveland Medical Mart development
project
Fee and other income:
23,430
(8,007)
1,495
2,885
555
103
(932)
65
1,111
4,763
5,345
1,407
2,036
37
273,918
157,983
159,881
110,233
35,096
Operating expenses
121,909
48,836
60,680
41,946
17,402
46,146
33,684
28,541
11,062
12,794
5,364
6,537
8,022
7,598
31,482
3,040
230
173,419
89,057
112,243
101,924
61,908
Operating income (loss)
100,499
68,926
47,638
8,309
(26,812)
Income applicable to Toys
Income (loss) from partially owned
entities
1,088
(3,915)
318
76
18,717
Interest and other investment
income, net
172
116,887
Interest and debt expense
(33,086)
(28,926)
(23,069)
(9,338)
(40,346)
Net gain on disposition of wholly
owned and partially owned assets
Income (loss) before income taxes
68,673
36,117
24,895
(944)
76,203
(519)
(738)
(410)
(4,710)
Income (loss) from continuing
operations
68,154
35,379
24,890
(1,354)
71,493
Income from discontinued operations
46,466
82,546
81,845
30,193
81,192
Net (income) loss attributable to
noncontrolling interests in
consolidated subsidiaries
(2,271)
155
766
Net (income) attributable to
noncontrolling interests in the
Operating Partnership, including
unit distributions
Net income attributable to
Vornado
65,883
30,348
40,451
Interest and debt expense(2)
198,848
31,994
32,221
24,164
12,907
40,135
57,427
Depreciation and amortization(2)
185,848
45,093
41,899
28,976
11,175
34,673
24,032
Income tax expense (benefit)(2)
66,828
519
848
410
69,018
(3,972)
EBITDA(1)
864,187
143,489
156,813
83,493
105,684
256,770
117,938
See notes on page 31.
29
20. Segment Information – continued
For the Three Months Ended March 31, 2010
516,623
192,604
136,826
95,107
57,657
34,429
20,063
7,794
4,208
6,358
1,102
601
15,771
9,205
621
4,516
(121)
1,550
209,603
141,655
105,981
58,638
36,580
33,252
14,917
37,595
3,977
2,189
20,418
(6,766)
1,457
8,096
224
(651)
728
446
3,408
388
4,410
5,837
740
1,962
216
269,868
170,951
147,948
64,979
31,568
115,049
54,757
53,127
37,210
14,550
43,707
36,212
27,797
11,979
14,098
4,579
5,893
6,941
7,198
24,019
163,335
96,862
87,865
56,387
52,667
106,533
74,089
60,083
8,592
(21,099)
1,303
(192)
1,391
176
8,666
164
14,499
(32,686)
(34,157)
(17,642)
(9,363)
(41,879)
796
75,314
39,766
43,835
(37,304)
(474)
(686)
(35)
(194)
(4,191)
74,840
39,080
43,800
(41,495)
(Loss) from discontinued operations
(8,323)
(202)
(1,045)
Net income (loss)
30,757
43,598
(1,026)
(2,292)
242
1,837
Net income (loss) attributable to
72,548
43,840
(57,437)
196,187
30,992
35,171
19,354
13,009
41,140
56,521
186,149
42,074
39,841
28,811
13,482
35,327
26,614
Income tax expense(2)
55,706
474
724
35
253
49,710
4,510
652,594
146,088
106,493
92,040
25,718
252,047
30,208
30
20. Segment Information - continued
Notes to preceding tabular information:
EBITDA represents "Earnings Before Interest, Taxes, Depreciation and Amortization." We consider EBITDA a supplemental measure for making decisions and assessing the unlevered performance of our segments as it relates to the total return on assets as opposed to the levered return on equity. As properties are bought and sold based on a multiple of EBITDA, we utilize this measure to make investment decisions as well as to compare the performance of our assets to that of our peers. EBITDA should not be considered a substitute for net income. EBITDA may not be comparable to similarly titled measures employed by other companies.
Interest and debt expense, depreciation and amortization and income tax (benefit) expense in the reconciliation of net income (loss) to EBITDA includes our share of these items from partially owned entities.
The components of other EBITDA are summarized below. The totals for each of the columns below agree to the total EBITDA for the "other" column in the preceding EBITDA by segment reconciliations.
Alexander's
15,168
14,399
11,993
17,848
10,965
11,488
LNR (acquired in July 2010)
9,390
Industrial warehouses
356
839
Hotel Pennsylvania
(68)
(447)
Other investments
8,999
9,307
56,803
53,434
Corporate general and administrative expenses (1)
(21,355)
(19,388)
Investment income and other, net (1)
14,376
11,514
Net gain on sale of condominiums
4,586
2,427
Real Estate Fund placement fees
(3,048)
Acquisition costs
(1,523)
Net income attributable to noncontrolling interests in the Operating Partnership,
The amounts in these captions (for this table only) exclude the mark-to-market of our deferred compensation plan assets
and offsetting liability.
31
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and Board of Trustees
Vornado Realty Trust
New York, New York
We have reviewed the accompanying consolidated balance sheet of Vornado Realty Trust (the “Company”) as of March 31, 2011, and the related consolidated statements of income, changes in equity, and cash flows for the three-month periods ended March 31, 2011 and 2010. 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, 2010, and the related consolidated statements of income, changes in equity, and cash flows for the year then ended (not presented herein); and in our report dated February 23, 2011, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2010 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
May 3, 2011
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Certain statements contained herein constitute forward‑looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not guarantees of performance. They represent our intentions, plans, expectations and beliefs and are subject to numerous assumptions, risks and uncertainties. Our future results, financial condition and business may differ materially from those expressed in these forward-looking statements. You can find many of these statements by looking for words such as “approximates,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “would,” “may” or other similar expressions in this Quarterly Report on Form 10‑Q. Many of the factors that will determine the outcome of these and our other forward-looking statements are beyond our ability to control or predict. For further discussion of factors that could materially affect the outcome of our forward-looking statements, see “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q or the date of any document incorporated by reference. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to our forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.
Management’s Discussion and Analysis of Financial Condition and Results of Operations includes a discussion of our consolidated financial statements for the three months ended March 31, 2011. 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, 2010 in Management’s Discussion and Analysis of Financial Condition. There have been no significant changes to our policies during 2011.
Overview
Business Objective and Operating Strategy
Our business objective is to maximize shareholder value, which we measure by the total return provided to our shareholders. Below is a table comparing our performance to the Morgan Stanley REIT Index (“RMS”) and the SNL REIT Index ("SNL") for the following periods ended March 31, 2011:
Total Return(1)
RMS
SNL
One-year
19.2%
24.3%
24.9%
Three-year
12.6%
6.9%
11.2%
Five-year
8.2%
7.2%
11.9%
Ten-year
281.0%
191.9%
207.4%
(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;
· Developing and redeveloping existing properties to increase returns and maximize value; and
· Investing in operating companies that have a significant real estate component.
We expect to finance our growth, acquisitions and investments using internally generated funds, proceeds from possible asset sales and by accessing the public and private capital markets. We may also offer Vornado common or preferred shares or Operating Partnership units in exchange for property and may repurchase or otherwise reacquire our shares or any other securities in the future.
We compete with a large number of real estate property owners and developers, some of which may be willing to accept lower returns on their investments. Principal factors of competition are rents charged, attractiveness of location, the quality of the property and the breadth and the quality of services provided. Our success depends upon, among other factors, trends of the national, regional and local economies, the financial condition and operating results of current and prospective tenants and customers, availability and cost of capital, construction and renovation costs, taxes, governmental regulations, legislation and population trends. See “Item 1A. Risk Factors” in our Annual Report on Form 10-K, as amended, for additional information regarding these factors.
2011 Acquisitions and Investments
34
Overview - continued
2011 Dispositions
In the first quarter of 2011, we sold (i) 1140 Connecticut Avenue and 1227 25thStreet for $127,000,000 in cash, which resulted in a $45,862,000 net gain, and (ii) two retail properties in separate transactions for an aggregate of $38,711,000 in cash, which resulted in net gains aggregating $5,303,000.
2011 Financing Activities
On February 11, 2011, we completed a $425,000,000 refinancing of Two Penn Plaza, a 1.6 million square foot Manhattan office building. The seven-year loan bears interest at LIBOR plus 2.00%, which was swapped for the term of the loan to a fixed rate of 5.13%. The loan amortizes based on a 30-year schedule beginning in the fourth year. We retained net proceeds of approximately $139,000,000 after repaying the existing loan and closing costs.
On February 10, 2011, we completed a $150,000,000 financing of 2121 Crystal Drive, a 506,000 square foot office building located in Crystal City, Arlington, Virginia. The 12-year fixed rate loan bears interest at 5.51% and amortizes based on a 30-year schedule beginning in the third year. This property was previously unencumbered.
On January 18, 2011, we repaid the outstanding balance of the construction loan on 220 20th Street and closed on a new $76,100,000 mortgage financing at a fixed rate of 4.61%. The new loan has a seven-year term and amortizes based on a 30-year schedule.
On January 10, 2011, we completed a $75,000,000 financing of North Bergen (Tonnelle Avenue), a 410,000 square foot strip shopping center. The seven-year fixed rate loan bears interest rate at 4.59% and amortizes based on a 25-year schedule beginning in the sixth year. This property was previously unencumbered.
In January 2011, we completed a $60,000,000 financing of land under a portion of the Borgata Hotel and Casino complex. The 10-year fixed rate loan bears interest at 5.14% and amortizes based on a 30-year schedule beginning in the third year.
Quarter Ended March 31, 2011 Financial Results Summary
Net income attributable to common shareholders for the quarter ended March 31, 2011 was $399,215,000, or $2.12 per diluted share, compared to $200,285,000, or $1.09 per diluted share, for the quarter ended March 31, 2010. Net income for the quarters ended March 31, 2011 and 2010 include $51,165,000 and $307,000, respectively, of net gains on sale of real estate and certain other items that affect comparability, which are listed in the table below. The aggregate of net gains on sale of real estate and the items in the table below, net of amounts attributable to noncontrolling interests, increased net income attributable to common shareholders by $215,400,000, or $1.12 per diluted share for the quarter ended March 31, 2011 and $2,389,000, or $0.01 per diluted share for the quarter ended March 31, 2010.
Funds From Operations attributable to common shareholders plus assumed conversions (“FFO”) for the quarter ended March 31, 2011 was $505,931,000, or $2.64 per diluted share, compared to $353,826,000, or $1.87 per diluted share, for the prior year’s quarter. FFO for the quarters ended March 31, 2011 and 2010 include certain items that affect comparability which are listed in the table below. The aggregate of these items, net of amounts attributable to noncontrolling interests, increased FFO by $167,473,000, or $0.87 per diluted share for the quarter ended March 31, 2011 and $5,248,000, or $0.03 per diluted share for the quarter ended March 31, 2010.
Items that affect comparability income (expense):
Net gain on extinguishment of debt
Our share of LNR's tax settlement gain
8,977
Net gain resulting from Lexington's stock issuances
1,452
5,998
Net gain on redemption of perpetual preferred units
2,154
Buy-out of a below-market lease
(15,000)
(Negative FFO) FFO attributable to discontinued operations
3,750
(1,236)
1,373
178,788
5,646
Noncontrolling interests' share of above adjustments
(11,315)
Items that affect comparability, net
167,473
5,248
The percentage increase in GAAP basis and cash basis same store Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) of our operating segments for the quarter ended March 31, 2011 over the quarter ended March 31, 2010 and the trailing quarter ended December 31, 2010 are summarized below.
Same Store EBITDA:
March 31, 2011 vs. March 31, 2010
GAAP basis
(1.7%)
5.1%
3.9%
8.6%
Cash Basis
(0.7%)
10.7%
9.6%
March 31, 2011 vs. December 31, 2010
(3.7%)
2.0%
(2.1%)
5.8%
(1.3%)
2.3%
0.4%
6.2%
Reflects a seasonal increase in utility costs.
Primarily due to rents from holiday leasing and percentage rents recognized in the fourth quarter.
Calculations of same store EBITDA, reconciliations of our net income to EBITDA and FFO and the reasons we consider these non-GAAP financial measures useful are provided in the following pages of Management’s Discussion and Analysis of the Financial Condition and Results of Operations.
36
The leasing activity presented below is based on leases signed during the period and is not intended to coincide with the commencement of rental revenue in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Tenant improvements and leasing commissions presented below are based on our share of square feet leased during the period.
(Square feet in thousands)
As of March 31, 2011:
Retail (3)
Showroom
Total square feet (in service)
18,445
21,171
25,266
2,621
4,191
Our share of square feet (in service)
16,501
17,829
23,424
Number of properties
82
Occupancy rate
95.7%
93.4%(2)
92.4%
90.8%
93.1%
Leasing Activity:
Quarter Ended March 31, 2011:
Total square feet leased
673
404
353
116
Our share of square feet leased:
336
311
346
Initial rent (1)
50.38
37.57
31.56
36.06
Weighted average lease term (years)
13.9
3.8
9.3
7.0
Relet space (included above):
Square feet
183
75
Initial rent - cash basis (1)
57.32
36.50
26.22
Prior escalated rent - cash basis
49.27
35.32
21.09
37.48
Percentage (decrease) increase:
Cash basis
16.3%
3.3%
(3.8%)
16.6%
10.2%
31.1%
Tenant improvements and leasing
commissions:
Per square foot
58.08
12.04
10.01
3.11
Per square foot per annum:
4.17
3.17
1.08
0.44
Percentage of initial rent
8.3%
8.4%
3.4%
1.2%
As of December 31, 2010:
17,454
21,149
25,557
2,608
4,204
16,194
17,823
23,453
161
95.6%
94.3%(2)
92.3%
91.5%
93.2%
As of March 31, 2010:
17,489
20,551
25,075
2,470
6,301
16,175
18,210
22,684
95.3%
94.1%(2)
91.2%
87.5%
89.1%
Most leases include periodic step-ups in rent which are not reflected in the initial rent per square foot leased.
Excluding residential and other properties, occupancy rates for the office properties were as follows.
92.5%
94.0%
94.6%
Mall sales per square foot, including partially owned malls, for the trailing twelve months ended March 31, 2011 and 2010 were $460 and
$468, respectively.
Net Income and EBITDA by Segment for the Three Months Ended March 31, 2011 and 2010
____________________
See notes on page 40.
38
Net Income and EBITDA by Segment for the Three Months Ended March 31, 2011 and 2010 - continued
39
(1) EBITDA represents “Earnings Before Interest, Taxes, Depreciation and Amortization.” We consider EBITDA a supplemental measure for making decisions and assessing the unlevered performance of our segments as it relates to the total return on assets as opposed to the levered return on equity. As properties are bought and sold based on a multiple of EBITDA, we utilize these measures to make investment decisions as well as to compare the performance of our assets to that of our peers. EBITDA should not be considered a substitute for net income. EBITDA may not be comparable to similarly titled measures employed by other companies.
(2) Interest and debt expense, depreciation and amortization and income tax (benefit) expense in the reconciliation of our net income (loss) to EBITDA includes our share of these items from partially owned entities.
(3) The components of other EBITDA are summarized below. The totals for each of the columns below agree to the total EBITDA for the “other” column in the preceding EBITDA by segment reconciliations.
40
Results of Operations – Three Months Ended March 31, 2011 Compared to March 31, 2010
Our revenues, which consist of property rentals, tenant expense reimbursements, hotel revenues, trade shows revenues, amortization of acquired below-market leases, net of above-market leases and fee income, were $737,111,000 for the three months ended March 31, 2011, compared to $685,314,000 in the prior year’s quarter, an increase of $51,797,000. Below are the details of the increase (decrease) by segment:
Increase (decrease) due to:
Property rentals:
Acquisitions and other
(1,976)
(8,410)
4,997
1,437
Development
2,366
2,569
(203)
2,014
Trade Shows
2,314
Amortization of acquired below-market
leases, net
1,174
(1,028)
(155)
2,444
138
(225)
Leasing activity (see page 37)
12,811
1,714
3,686
5,369
2,282
(240)
18,703
686
(2,310)
12,607
4,734
2,986
Tenant expense reimbursements:
Acquisitions/development
(2,217)
(3,821)
(1,083)
2,687
Operations
1,246
624
(1,799)
2,819
46
(444)
(971)
(5,620)
1,736
2,243
BMS cleaning fees
1,771
3,012
(1,241)
(5,034)
(5,211)
331
89
(281)
Lease cancellation fee income
(3,794)
(663)
665
(3,408)
(388)
423
(492)
667
74
(179)
(6,634)
2,740
(5,038)
(2,410)
(1,701)
Total increase (decrease) in revenues
51,797
4,050
(12,968)
11,933
45,254
3,528
$38,278 is offset by development costs expensed in the quarter. See note (5) on page 42.
Primarily from the elimination of intercompany fees from operating segments upon consolidation. See note (2) on page 42.
Primarily from leasing fees in the prior year in connection with our management of a development project.
Results of Operations – Three Months Ended March 31, 2011 Compared to March 31, 2010 - continued
Expenses
Our expenses, which consist primarily of operating, depreciation and amortization and general and administrative expenses, were $538,551,000 for the three months ended March 31, 2011, compared to $457,116,000 in the prior year’s quarter, an increase of $81,435,000. Below are the details of the increase (decrease) by segment:
Operating:
1,569
(4,796)
3,678
Development/redevelopment
508
1,562
962
11,479
6,860
(1,114)
3,356
3,774
(1,397)
16,080
(5,921)
7,553
4,736
2,852
Depreciation and amortization:
(3,027)
(4,058)
1,031
1,461
2,439
1,530
(287)
(917)
(1,304)
(1,566)
(2,528)
744
General and administrative:
Mark-to-market of deferred compensation
plan liability (3)
3,048
5,136
785
644
1,081
400
2,226
10,373
7,463
project (5)
Total increase (decrease) in expenses
81,435
10,084
(7,805)
24,378
45,537
9,241
Results from increases in (i) reimbursable operating expenses of $3,980, (ii) BMS operating expenses of $2,720 and (iii) non-reimbursable operating expenses of $160.
Primarily from the elimination of intercompany fees from operating segments upon consolidation. See note (2) on page 41.
This increase in expense is entirely offset by a corresponding increase in income from the mark-to-market of the deferred compensation plan assets, a component of “interest and other investment income, net” on our consolidated statements of income.
Primarily from higher payroll costs and stock-based compensation expense.
See note (1) on page 41.
Represents the buy-out of a below-market lease.
42
Income Applicable to Toys
In the three months ended March 31, 2011, we recognized net income of $112,944,000 from our investment in Toys, comprised of $110,821,000 for our 32.7% share of Toys’ net income ($179,839,000 before our share of Toys’ income tax expense) and $2,123,000 of interest and other income.
In the three months ended March 31, 2010, we recognized net income of $125,870,000 from our investment in Toys, comprised of $123,840,000 for our 32.7% share of Toys’ net income ($173,550,000 before our share of Toys’ income tax expense) and $2,030,000 of interest and other income.
Income from Partially Owned Entities
Summarized below are the components of income from partially owned entities for the three months ended March 31, 2011 and 2010.
Equity in Net Income (Loss):
Alexander's - 32.4% share of equity in net income
Lexington - 12.6% share in 2011 and 13.9% share in 2010 of equity in net income (1)
LNR - 26.2% share of equity in net income (acquired in July 2010) (2)
India real estate ventures - 4% to 36.5% range in our share of equity in net (loss) income
Other, net (3)
Represents our equity in net income or loss of partially owned office buildings in New York and Washington, DC, the Monmouth Mall, Verde Realty Operating Partnership, 85 10th Avenue Associates and others. The three months ended March 31, 2011 includes $9,022 for our share of expense, primarily for straight-line rent reserves and the write-off of tenant improvements in connection with a tenant's bankruptcy at the Warner Building.
In the three months ended March 31, 2011, we recognized income of $1,080,000 from our Real Estate Fund.
43
Interest and Other Investment Income, net
Interest and other investment income, net (comprised of the mark-to-market of derivative positions in marketable equity securities, interest income on mezzanine loans receivable, other interest income and dividend income) was $117,108,000 in the three months ended March 31, 2011, compared to $14,704,000 in the prior year’s quarter, an increase of $102,404,000. This increase resulted from:
Increase in the value of investments in our deferred compensation plan (offset by a corresponding
increase in the liability for plan assets in general and administrative expenses)
308
102,404
Interest and Debt Expense
Interest and debt expense was $134,765,000 in the three months ended March 31, 2011, compared to $135,727,000 in the prior year’s quarter, a decrease of $962,000. This decrease was primarily due to savings of (i) $6,196,000 applicable to the acquisition, retirement and repayment of our convertible senior debentures and senior unsecured notes, (ii) $4,579,000 from the deconsolidation of the Warner Building resulting from the sale of a 45% interest in October 2010, and (iii) $3,950,000 from the repayment of the Springfield Mall mortgage at a discount in December 2010, partially offset by (iv) $6,645,000 from the issuance of $660,000,000 of cross-collateralized debt secured by 40 of our strip shopping centers, (v) $5,057,000 from the issuance of $500,000,000 of senior unsecured notes in March 2010, and (vi) $1,262,000 from the consolidation of the San Jose Shopping Center resulting from our acquisition in October 2010 of the 55% interest we did not previously own.
Net Gain on Disposition of Wholly Owned and Partially Owned Assets
Net gain on disposition of wholly owned and partially owned assets was $6,677,000 in the three months ended March 31, 2011, compared to $3,305,000 in the prior year’s quarter and resulted primarily from the sales of residential condominiums and marketable securities.
Income Tax Expense
Income tax expense was $6,382,000 in the three months ended March 31, 2011, compared to $5,580,000 in the prior year’s quarter, an increase of $802,000. This increase resulted primarily from higher taxable income of our taxable REIT subsidiaries.
44
Income (Loss) from Discontinued Operations
The table below sets forth the combined results of assets related to discontinued operations for the three months ended March 31, 2011 and 2010, including the High Point Complex in North Carolina, which was disposed by the receiver on March 31, 2011.
Net Income Attributable to Noncontrolling Interests in Consolidated Subsidiaries
Net income attributable to noncontrolling interests in consolidated subsidiaries was $1,350,000 in the three months ended March 31, 2011, compared to $213,000 in the prior year’s quarter, an increase of $1,137,000. This increase resulted primarily from higher income allocated to the noncontrolling interests at 555 California Street.
Net Income Attributable to Noncontrolling Interests in the Operating Partnership, including Unit Distributions
Net income attributable to noncontrolling interests in the Operating Partnership, including unit distributions for the three months ended March 31, 2011 and 2010 is comprised of (i) allocations of income to redeemable noncontrolling interests of $27,305,000 and $15,215,000, respectively, (ii) preferred unit distributions of the Operating Partnership of $4,503,000 and $4,718,000, respectively, and (iii) a net gain of $2,154,000 on the redemption of a portion of the Series D-12 perpetual preferred units in the three months ended March 31, 2010. The increase of $12,090,000 in allocations of income to redeemable noncontrolling interests resulted primarily from higher net income subject to allocation to unitholders.
Preferred Share Dividends
Preferred share dividends were $13,448,000 for the three months ended March 31, 2011, compared to $14,267,000 for the prior year’s quarter, a decrease of $819,000. This decrease resulted from the redemption of all of the Series D-10 preferred shares in September 2010.
45
Same Store EBITDA
Same store EBITDA represents EBITDA from property level operations which are owned by us in both the current and prior year reporting periods. Same store EBITDA excludes segment-level overhead expenses, which are expenses that we do not consider to be property-level expenses, as well as other non-operating items. We present same store EBITDA on both a GAAP basis and a cash basis, which excludes income from the straight-lining of rents, amortization of below-market leases, net of above-market leases and other non-cash adjustments. We present these non-GAAP measures to (i) facilitate meaningful comparisons of the operational performance of our properties and segments, (ii) make decisions on whether to buy, sell or refinance properties, and (iii) compare the performance of our properties and segments to those of our peers. Same store EBITDA should not be considered as an alternative to net income or cash flow from operations and may not be comparable to similarly titled measures employed by other companies.
Below are the same store EBITDA results on a GAAP and cash basis for each of our segments for the three months ended March 31, 2011, compared to the three months ended March 31, 2010.
EBITDA for the three months ended March 31, 2011
Add-back: non-property level overhead
expenses included above
Less: EBITDA from acquisitions, dispositions
and other non-operating income or expenses
(1,325)
(51,629)
5,982
(83,798)
GAAP basis same store EBITDA for the three months
ended March 31, 2011
147,528
111,721
97,497
29,484
Less: Adjustments for straight-line rents,
amortization of below-market leases, net and other
non-cash adjustments
(14,037)
469
(6,834)
(807)
Cash basis same store EBITDA for the three months
133,491
112,190
90,663
28,677
EBITDA for the three months ended March 31, 2010
(624)
(6,091)
(5,116)
(5,776)
ended March 31, 2010
150,043
106,295
93,865
27,140
(15,608)
(4,992)
(9,029)
(981)
134,435
101,303
84,836
26,159
(Decrease) increase in GAAP basis same store EBITDA for
the three months ended March 31, 2011 over the
three months ended March 31, 2010
(2,515)
5,426
3,632
2,344
(Decrease) increase in Cash basis same store EBITDA for
10,887
5,827
2,518
% (decrease) increase in GAAP basis same store EBITDA
% (decrease) increase in Cash basis same store EBITDA
SUPPLEMENTAL INFORMATION
Three Months Ended March 31, 2011 vs. Three Months Ended December 31, 2010
Our revenues and expenses are subject to seasonality during the year which impacts quarterly net earnings, cash flows and funds from operations, and therefore impacts comparisons of the current quarter to the previous quarter. The business of Toys is highly seasonal. Historically, Toys’ fourth quarter net income, which we record on a one-quarter lag basis in our first quarter, accounts for more than 80% of Toys’ fiscal year net income. The Office and Merchandise Mart segments have historically experienced higher utility costs in the first and third quarters of the year. The Merchandise Mart segment also has experienced higher earnings in the second and fourth quarters of the year due to major trade shows occurring in those quarters. The Retail segment revenue in the fourth quarter is typically higher due to the recognition of percentage rental income.
Below are the same store EBITDA results on a GAAP and cash basis for each of our segments for the three months ended March 31, 2011, compared to the three months ended December 31, 2010.
Add-back: non-property level overhead expenses
included above
(1,070)
(82,919)
147,783
99,692
30,363
Less: Adjustments for straight-line rents, amortization of
below-market leases, net and other non-cash adjustments
(14,038)
133,745
29,556
EBITDA for the three months ended December 31, 2010(1)
139,451
163,581
136,535
9,124
4,761
7,385
7,019
9,229
(61,441)
(41,747)
13,043
ended December 31, 2010
153,441
109,525
101,807
28,701
(17,930)
(11,524)
(858)
135,511
109,708
90,283
27,843
three months ended December 31, 2010
(5,658)
2,196
(2,115)
1,662
(1,766)
2,482
380
1,713
Below is the reconciliation of net income (loss) to EBITDA for the three months ended December 31, 2010
Net income (loss) attributable to Vornado for the three months
63,985
92,542
83,157
(19,191)
31,805
31,819
16,009
43,164
38,354
29,000
12,015
497
866
291
EBITDA for the three months ended December 31, 2010
47
LIQUIDITY AND CAPITAL RESOURCES
We anticipate that cash flow from continuing operations over the next twelve months will be adequate to fund our business operations, cash distributions to unitholders of the Operating Partnership, cash dividends to shareholders, debt amortization and recurring capital expenditures. Capital requirements for development expenditures and acquisitions (excluding Fund acquisitions) may require funding from borrowings and/or equity offerings. In addition, the Fund has aggregate unfunded equity commitments of $567,699,000 for acquisitions, including $141,924,000 from us. We may from time to time purchase or retire outstanding debt securities. Such purchases, if any, will depend on prevailing market conditions, liquidity requirements and other factors. The amounts involved in connection with these transactions could be material to our consolidated financial statements.
Property rental income is our primary source of cash flow and is dependent upon the occupancy and rental rates of our properties. Other sources of liquidity to fund cash requirements include proceeds from debt financings, including mortgage loans, senior unsecured borrowings, and our revolving credit facilities; proceeds from the issuance of common and preferred equity; and asset sales. Our cash requirements include property operating expenses, capital improvements, tenant improvements, leasing commissions, dividends to shareholders, distributions to unitholders of the Operating Partnership, as well as acquisition and development costs.
Cash Flows for the Three Months Ended March 31, 2011
Our cash and cash equivalents were $618,361,000 at March 31, 2011, a $72,428,000 decrease over the balance at December 31, 2010. This decrease was primarily due to cash flows from financing activities as discussed below.
Our consolidated outstanding debt was $10,631,396,000 at March 31, 2011, a $262,243,000 decrease over the balance at December 31, 2010. As of March 31, 2011 and December 31, 2010, $374,000,000 and $874,000,000, respectively, was outstanding under our revolving credit facilities. During the remainder of 2011 and 2012, $1,435,142,000 and $1,715,165,000 of our outstanding debt matures, respectively. We may refinance our maturing debt as it comes due or choose to repay it.
Cash flows provided by operating activities of $196,102,000 was comprised of (i) net income of $445,821,000 and (ii) distributions of income from partially owned entities of $25,921,000, partially offset by (iii) $256,647,000 of non-cash adjustments, which include depreciation and amortization expense, the effect of straight-lining of rental income and equity in net income of partially owned entities, and (iv) the net change in operating assets and liabilities of $18,993,000, including $85,536,000 related to Real Estate Fund investments.
Net cash provided by investing activities of $60,421,000 was comprised of (i) $192,523,000 of capital distributions from partially owned entities, (ii) $127,199,000 of proceeds from sales of real estate and related investments, (iii) $73,608,000 of proceeds from sales and repayments of mezzanine loans (iv) $15,162,000 of proceeds from sales of, and return of investments in, marketable securities and (v) changes in restricted cash of $12,174,000, partially offset by (vi) $316,129,000 of investments in partially owned entities, (vii) $30,281,000 of additions to real estate, (viii) $10,994,000 of development costs and construction in progress and (ix) $2,841,000 of investments in mezzanine loans receivable and other.
Net cash used in financing activities of $328,951,000 was comprised of (i) $1,197,312,000 for the repayments of borrowings, (ii) $126,936,000 of dividends paid on common shares, (iii) $23,639,000 of distributions to noncontrolling interests, (iv) $13,559,000 of dividends paid on preferred shares, (v) $12,161,000 of debt issuance and other costs and (vi) $570,000 for the repurchase of shares related to stock compensation agreements and related tax holdings, partially offset by (vii) $937,518,000 of proceeds from borrowings, (viii) $92,238,000 of contributions from noncontrolling interests and (ix) $15,470,000 of proceeds received from exercise of employee share options.
48
LIQUIDITY AND CAPITAL RESOURCES – continued
Cash Flows for the Three Months Ended March 31, 2010
Our cash and cash equivalents were $788,940,000 at March 31, 2010, a $253,461,000 increase over the balance at December 31, 2009. This increase resulted from $288,048,000 of net cash provided by operating activities and $7,342,000 of net cash provided by investing activities, partially offset by $41,929,000 of net cash used in financing activities.
Our consolidated outstanding debt was $10,838,141,000 at March 31, 2010, a $152,438,000 increase over the balance at December 31, 2009. This increase was primarily due to the public offering of $500,000,000 of 4.25% senior unsecured notes in March 2010.
Our share of debt of unconsolidated subsidiaries was $2,822,363,000 at March 31, 2010, a $327,277,000 decrease from the balance at December 31, 2009.
Cash flows provided by operating activities of $288,048,000 was comprised of (i) net income of $232,544,000, (ii) distributions of income from partially owned entities of $7,123,000 and (iii) the net change in operating assets and liabilities of $73,171,000, partially offset by (iv) $24,790,000 of non-cash adjustments, including depreciation and amortization expense, non-cash impairment losses, the effect of straight-lining of rental income and equity in net income of partially owned entities.
Net cash provided by investing activities of $7,342,000 was primarily comprised of (i) proceeds received from repayment of mezzanine loans receivable of $101,839,000, (ii) proceeds from the sale of real estate and related investments of $38,879,000, (iii) proceeds from maturing short-term investments of $25,000,000 and (iv) distributions of capital from partially owned entities of $7,617,000, partially offset by (v) development and redevelopment expenditures of $37,598,000, (vi) investments in partially owned entities of $36,741,000, (vii) additions to real estate of $30,247,000, (viii) investments in mezzanine loans receivable and other of $28,873,000, (ix) purchases of marketable equity securities of $13,917,000, (x) restricted cash of $13,899,000 and (xi) deposits in connection with real estate acquisitions of $5,003,000.
Net cash used in financing activities of $41,929,000 was primarily comprised of (i) proceeds from borrowings of $660,335,000, partially offset by, (ii) repayments of borrowings, including the purchase of our senior unsecured notes, of $525,246,000, (iii) dividends paid on common shares of $117,958,000, (iv) repurchase of shares related to stock compensation arrangements and related tax withholdings of $25,323,000, (v) dividends paid on preferred shares of $14,267,000 and (vi) distributions to noncontrolling interests of $13,082,000.
49
LIQUIDITY AND CAPITAL RESOURCES - continued
Capital Expenditures
Our capital expenditures consist of expenditures to maintain assets, tenant improvement allowances and leasing commissions. Recurring capital improvements include expenditures to maintain a property’s competitive position within the market and tenant improvements and leasing commissions necessary to re-lease expiring leases or renew or extend existing leases. Non-recurring capital improvements include expenditures completed in the year of acquisition and the following two years that were planned at the time of acquisition as well as tenant improvements and leasing commissions for space that was vacant at the time of acquisition of a property. Our development and redevelopment expenditures include all hard and soft costs associated with the development or redevelopment of a property, including tenant improvements, leasing commissions, capitalized interest and operating costs until the property is substantially complete and ready for its intended use.
Below are the details of capital expenditures, leasing commissions and development and redevelopment expenditures and a reconciliation of total expenditures on an accrual basis to the cash expended in the three months ended March 31, 2011.
Capital Expenditures (accrual basis):
Expenditures to maintain assets
7,051
3,002
1,069
645
1,577
758
Tenant improvements
13,390
8,310
1,033
415
Leasing commissions
3,392
1,959
470
Non-recurring capital expenditures
11,881
9,237
1,967
677
Total capital expenditures and leasing
commissions (accrual basis)
35,714
22,508
5,664
4,115
1,992
1,435
Adjustments to reconcile to cash basis:
Expenditures in the current year
applicable to prior periods
27,096
13,804
3,608
4,802
4,564
Expenditures to be made in future
periods for the current period
(25,799)
(17,632)
(4,297)
(3,470)
(400)
commissions (cash basis)
37,011
18,680
4,975
5,447
6,156
1,753
Tenant improvements and leasing commissions:
Per square foot per annum
2.74
7.0%
Development and Redevelopment
Expenditures:
Bergen Town Center
3,034
2,982
Poughkeepsie, New York
535
4,443
1,009
1,763
1,249
267
10,994
7,800
Below are the details of capital expenditures, leasing commissions and development and redevelopment expenditures and a reconciliation of total expenditures on an accrual basis to the cash expended in the three months ended March 31, 2010.
7,784
4,505
1,118
383
614
1,164
19,673
11,686
1,991
3,944
2,052
4,565
3,221
795
505
421
104
317
32,443
19,412
3,904
4,936
2,666
1,525
26,340
16,928
4,174
2,927
821
1,490
(20,884)
(11,017)
(2,361)
(4,553)
(1,355)
(1,598)
37,899
25,323
5,717
3,310
2,132
1,417
3.14
6.86
2.05
2.23
0.94
9.8%
15.3%
10.6%
West End 25
4,521
1540 Broadway
4,030
4,003
220 20th Street
3,762
Residential condominiums
North Bergen, New Jersey
2,688
1,548
Beverly Connection
1,528
Garfield, New Jersey
1,344
11,192
1,899
4,419
1,592
321
2,961
37,598
12,702
16,733
5,943
51
Penn Plaza Insurance Company, LLC (“PPIC”), our wholly owned consolidated subsidiary, acts as a re-insurer with respect to a portion of our earthquake insurance coverage and as a direct insurer for coverage for acts of terrorism, including nuclear, biological, chemical and radiological (“NBCR”) acts, as defined by the Terrorism Risk Insurance Program Reauthorization Act Coverage for acts of terrorism (excluding NBCR acts) is fully reinsured by third party insurance companies and the Federal government with no exposure to PPIC. Our coverage for NBCR losses is up to $2 billion per occurrence, for which PPIC is responsible for a deductible of $3,200,000 and 15% of the balance of a covered loss and the Federal government is responsible for the remaining 85% of a covered loss. We are ultimately responsible for any loss borne by PPIC.
Other Commitments and Contingencies - continued
53
FUNDS FROM OPERATIONS (“FFO”)
FFO is computed in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines FFO as GAAP net income or loss adjusted to exclude net gain from sales of depreciated real estate assets, depreciation and amortization expense from real estate assets, extraordinary items and other specified non-cash items, including the pro-rata share of such adjustments of unconsolidated subsidiaries. FFO and FFO per diluted share are used by management, investors and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers because it excludes the effect of real estate depreciation and amortization and net gains on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions. FFO does not represent cash generated from operating activities and is not necessarily indicative of cash available to fund cash requirements and should not be considered as an alternative to net income as a performance measure or cash flows as a liquidity measure. FFO may not be comparable to similarly titled measures employed by other companies. The calculations of both the numerator and denominator used in the computation of income per share are disclosed in footnote 17 – Income per Share, in the notes to our consolidated financial statements on page 26 of this Quarterly Report on Form 10-Q.
FFO for the Three Months Ended March 31, 2011 and 2010
FFO attributable to common shareholders plus assumed conversions was $505,931,000, or $2.64 per diluted share for the three months ended March 31, 2011, compared to $353,826,000, or $1.87 per diluted share for the prior year’s quarter. Details of certain items that affect comparability are discussed in the financial results summary of our “Overview.”
Reconciliation of our net income to FFO:
Depreciation and amortization of real property
124,321
127,614
Proportionate share of adjustments to equity in net income of Toys, to arrive at FFO:
17,729
17,501
Income tax effect of above adjustment
(6,205)
(6,125)
Proportionate share of adjustments to equity in net income of partially owned entities,
excluding Toys, to arrive at FFO:
23,969
19,541
(1,649)
(307)
(6,850)
(11,171)
FFO
512,813
361,605
FFO attributable to common shareholders
499,365
347,338
6,447
FFO attributable to common shareholders plus assumed conversions
505,931
353,826
Reconciliation of Weighted Average Shares
Weighted average common shares outstanding
Effect of dilutive securities:
Denominator for FFO per diluted share
189,181
FFO attributable to common shareholders plus assumed conversions per diluted share
2.64
1.87
54
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We have exposure to fluctuations in market interest rates. Market interest rates are sensitive to many factors that are beyond our control. Our exposure to a change in interest rates on our consolidated and non-consolidated debt (all of which arises out of non-trading activity) is as follows:
Weighted
Effect of 1%
Average
Change In
Consolidated debt:
Balance
Interest Rate
Base Rates
Variable rate
2,245,521
1.99%
22,455
2,903,510
1.76%
Fixed rate
8,385,875
5.63%
7,990,129
5.66%
4.86%
4.62%
Pro-rata share of debt of non-consolidated
entities (non-recourse):
Variable rate – excluding Toys
296,541
1.43%
2,965
345,308
1.39%
Variable rate – Toys
283,000
6.50%
2,830
501,623
4.95%
Fixed rate (including $1,417,000 and
$1,421,820 of Toys debt in 2011 and 2010)
2,462,136
6.71%
2,428,986
6.86%
3,041,677
6.17%
5,795
3,275,917
5.99%
Noncontrolling interests’ share of above
(1,780)
Total change in annual net income
26,470
Per share-diluted
0.14
Excludes $37 billion for our 26.2% pro rata shares of liabilities related to consolidated CMBS and CDO trusts which are non-recourse to LNR and its equity holders, including us.
We may utilize various financial instruments to mitigate the impact of interest rate fluctuations on our cash flows and earnings, including hedging strategies, depending on our analysis of the interest rate environment and the costs and risks of such strategies. As of March 31, 2011, variable rate debt with an aggregate principal amount of $562,010,000 and a weighted average interest rate of 2.84% was subject to LIBOR caps. These caps are based on a notional amount of $558,725,000 and cap LIBOR at a weighted average rate of 5.68%. In addition, we have one interest rate swap on a $425,000,000 loan that swapped the rate from LIBOR plus 2.00% (2.26% at March 31, 2011) to a fixed rate of 5.13% for the seven-year term of the loan.
As of March 31, 2011, we have investments in mezzanine loans with an aggregate carrying amount of $78,544,000 that are based on variable interest rates which partially mitigate our exposure to a change in interest rates on our variable rate debt.
Fair Value of Debt
The estimated fair value of our consolidated debt is calculated based on current market prices and discounted cash flows at the current rate at which similar loans would be made to borrowers with similar credit ratings for the remaining term of such debt. As of March 31, 2011, the estimated fair value of our consolidated debt was $11,014,783,000.
Derivative Instruments
We have, and may in the future enter into, derivative positions that do not qualify for hedge accounting treatment, including our economic interest in J.C. Penney common shares. Because these derivatives do not qualify for hedge accounting treatment, the gains or losses resulting from their mark-to-market at the end of each reporting period are recognized as an increase or decrease in “interest and other investment income, net” on our consolidated statements of income. In addition, we are, and may in the future be, subject to additional expense based on the notional amount of the derivative positions and a specified spread over LIBOR. Because the market value of these instruments can vary significantly between periods, we may experience significant fluctuations in the amount of our investment income or expense in any given period. During the three months ended March 31, 2011 we recognized $17,163,000 of income from derivative instruments.
Item 4. Controls and Procedures
Disclosure Controls and Procedures: The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a‑15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2011, such disclosure controls and procedures were effective.
Internal Control Over Financial Reporting: There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Securities and Exchange Act of 1934, as amended) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 1. Legal Proceedings
Item 1A. Risk Factors
There were no material changes to the Risk Factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2010.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In the first quarter of 2011, we issued 30,317 common shares upon the redemption of Class A units of the Operating Partnership held by persons who received units, in private placements in earlier periods, in exchange for their interests in limited partnerships that owned real estate. The common shares were issued without registration under the Securities Act of 1933 in reliance on Section 4 (2) of that Act.
Information relating to compensation plans under which our equity securities are authorized for issuance is set forth under Part III, Item 12 of the Annual Report on Form 10-K for the year ended December 31, 2010, and such information is incorporated by reference herein.
Item 3. Defaults Upon Senior Securities
None.
Item 5. Other Information
Item 6. Exhibits
Exhibits required by Item 601 of Regulation S-K are filed herewith or incorporated herein by reference and are listed in the attached Exhibit Index.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
(Registrant)
Date: May 3, 2011
By:
/s/ Joseph Macnow
Joseph Macnow, Executive Vice President -Finance and Administration andChief Financial Officer (duly authorized officer and principal financial and accounting officer)
EXHIBIT INDEX
Exhibit No.
3.1
Articles of Restatement of Vornado Realty Trust, as filed with the State
*
Department of Assessments and Taxation of Maryland on July 30, 2007 - Incorporated
by reference to Exhibit 3.75 to Vornado Realty Trust’s Quarterly Report on Form 10-Q
for the quarter ended June 30, 2007 (File No. 001-11954), filed on July 31, 2007
3.2
Amended and Restated Bylaws of Vornado Realty Trust, as amended on March 2, 2000 -
Incorporated by reference to Exhibit 3.12 to Vornado Realty Trust’s Annual Report on
Form 10-K for the year ended December 31, 1999 (File No. 001-11954), filed on
March 9, 2000
3.3
Articles Supplementary, 6.875% Series J Cumulative Redeemable Preferred Shares of
Beneficial Interest, liquidation preference $25.00 per share, no par value - Incorporated by
reference to Exhibit 3.2 of Vornado Realty Trust's Registration Statement on Form 8-A
(File No. 001-11954), filed on April 20, 2011
3.4
Second Amended and Restated Agreement of Limited Partnership of Vornado Realty L.P.,
dated as of October 20, 1997 (the “Partnership Agreement”) – Incorporated by reference
to Exhibit 3.26 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter
ended March 31, 2003 (File No. 001-11954), filed on May 8, 2003
3.5
Amendment to the Partnership Agreement, dated as of December 16, 1997 – Incorporated by
reference to Exhibit 3.27 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for
the quarter ended March 31, 2003 (File No. 001-11954), filed on May 8, 2003
3.6
Second Amendment to the Partnership Agreement, dated as of April 1, 1998 – Incorporated
by reference to Exhibit 3.5 to Vornado Realty Trust’s Registration Statement on Form S-3
(File No. 333-50095), filed on April 14, 1998
3.7
Third Amendment to the Partnership Agreement, dated as of November 12, 1998 -
Incorporated by reference to Exhibit 3.2 to Vornado Realty Trust’s Current Report on
Form 8-K (File No. 001-11954), filed on November 30, 1998
Fourth Amendment to the Partnership Agreement, dated as of November 30, 1998 -
Incorporated by reference to Exhibit 3.1 to Vornado Realty Trust’s Current Report on
Form 8-K (File No. 001-11954), filed on February 9, 1999
3.9
Fifth Amendment to the Partnership Agreement, dated as of March 3, 1999 - Incorporated by
reference to Exhibit 3.1 to Vornado Realty Trust’s Current Report on Form 8-K
(File No. 001-11954), filed on March 17, 1999
3.10
Sixth Amendment to the Partnership Agreement, dated as of March 17, 1999 - Incorporated
by reference to Exhibit 3.2 to Vornado Realty Trust’s Current Report on Form 8-K
(File No. 001-11954), filed on July 7, 1999
Seventh Amendment to the Partnership Agreement, dated as of May 20, 1999 - Incorporated
by reference to Exhibit 3.3 to Vornado Realty Trust’s Current Report on Form 8-K
3.12
Eighth Amendment to the Partnership Agreement, dated as of May 27, 1999 - Incorporated
by reference to Exhibit 3.4 to Vornado Realty Trust’s Current Report on Form 8-K
3.13
Ninth Amendment to the Partnership Agreement, dated as of September 3, 1999 -
Incorporated by reference to Exhibit 3.3 to Vornado Realty Trust’s Current Report on
Form 8-K (File No. 001-11954), filed on October 25, 1999
_______________________
Incorporated by reference.
Tenth Amendment to the Partnership Agreement, dated as of September 3, 1999 -
Incorporated by reference to exhibit 3,4 to Vornado Realty Trust's Current Report on
3.15
Eleventh Amendment to the Partnership Agreement, dated as of November 24, 1999 -
Form 8-K (File No. 001-11954), filed on December 23, 1999
3.16
Twelfth Amendment to the Partnership Agreement, dated as of May 1, 2000 - Incorporated
(File No. 001-11954), filed on May 19, 2000
Thirteenth Amendment to the Partnership Agreement, dated as of May 25, 2000 -
Form 8-K (File No. 001-11954), filed on June 16, 2000
3.18
Fourteenth Amendment to the Partnership Agreement, dated as of December 8, 2000 -
Form 8-K (File No. 001-11954), filed on December 28, 2000
3.19
Fifteenth Amendment to the Partnership Agreement, dated as of December 15, 2000 -
Incorporated by reference to Exhibit 4.35 to Vornado Realty Trust’s Registration
Statement on Form S-8 (File No. 333-68462), filed on August 27, 2001
3.20
Sixteenth Amendment to the Partnership Agreement, dated as of July 25, 2001 - Incorporated
(File No. 001 11954), filed on October 12, 2001
3.21
Seventeenth Amendment to the Partnership Agreement, dated as of September 21, 2001 -
Incorporated by reference to Exhibit 3.4 to Vornado Realty Trust’s Current Report on
Form 8 K (File No. 001-11954), filed on October 12, 2001
3.22
Eighteenth Amendment to the Partnership Agreement, dated as of January 1, 2002 -
Form 8-K/A (File No. 001-11954), filed on March 18, 2002
3.23
Nineteenth Amendment to the Partnership Agreement, dated as of July 1, 2002 - Incorporated
by reference to Exhibit 3.47 to Vornado Realty Trust’s Quarterly Report on Form 10-Q
for the quarter ended June 30, 2002 (File No. 001-11954), filed on August 7, 2002
3.24
Twentieth Amendment to the Partnership Agreement, dated April 9, 2003 - Incorporated by
reference to Exhibit 3.46 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for
3.25
Twenty-First Amendment to the Partnership Agreement, dated as of July 31, 2003 -
Incorporated by reference to Exhibit 3.47 to Vornado Realty Trust’s Quarterly Report
on Form 10-Q for the quarter ended September 30, 2003 (File No. 001-11954), filed on
November 7, 2003
3.26
Twenty-Second Amendment to the Partnership Agreement, dated as of November 17, 2003 –
Incorporated by reference to Exhibit 3.49 to Vornado Realty Trust’s Annual Report on
Form 10-K for the year ended December 31, 2003 (File No. 001-11954), filed on
March 3, 2004
3.27
Twenty-Third Amendment to the Partnership Agreement, dated May 27, 2004 – Incorporated
by reference to Exhibit 99.2 to Vornado Realty Trust’s Current Report on Form 8-K
(File No. 001-11954), filed on June 14, 2004
61
3.28
Twenty-Fourth Amendment to the Partnership Agreement, dated August 17, 2004 –
Incorporated by reference to Exhibit 3.57 to Vornado Realty Trust and Vornado Realty
L.P.’s Registration Statement on Form S-3 (File No. 333-122306), filed on
January 26, 2005
3.29
Twenty-Fifth Amendment to the Partnership Agreement, dated November 17, 2004 –
Incorporated by reference to Exhibit 3.58 to Vornado Realty Trust and Vornado Realty
3.30
Twenty-Sixth Amendment to the Partnership Agreement, dated December 17, 2004 –
Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.’s Current Report on
Form 8-K (File No. 000-22685), filed on December 21, 2004
3.31
Twenty-Seventh Amendment to the Partnership Agreement, dated December 20, 2004 –
Incorporated by reference to Exhibit 3.2 to Vornado Realty L.P.’s Current Report on
3.32
Twenty-Eighth Amendment to the Partnership Agreement, dated December 30, 2004 -
Form 8-K (File No. 000-22685), filed on January 4, 2005
3.33
Twenty-Ninth Amendment to the Partnership Agreement, dated June 17, 2005 - Incorporated
by reference to Exhibit 3.1 to Vornado Realty L.P.’s Current Report on Form 8-K
(File No. 000-22685), filed on June 21, 2005
3.34
Thirtieth Amendment to the Partnership Agreement, dated August 31, 2005 - Incorporated by
reference to Exhibit 3.1 to Vornado Realty L.P.’s Current Report on Form 8-K
(File No. 000-22685), filed on September 1, 2005
3.35
Thirty-First Amendment to the Partnership Agreement, dated September 9, 2005 -
Form 8-K (File No. 000-22685), filed on September 14, 2005
3.36
Thirty-Second Amendment and Restated Agreement of Limited Partnership, dated as of
December 19, 2005 – Incorporated by reference to Exhibit 3.59 to Vornado Realty L.P.’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2006
(File No. 000-22685), filed on May 8, 2006
3.37
Thirty-Third Amendment to Second Amended and Restated Agreement of Limited
Partnership, dated as of April 25, 2006 – Incorporated by reference to Exhibit 10.2 to
Vornado Realty Trust’s Form 8-K (File No. 001-11954), filed on May 1, 2006
3.38
Thirty-Fourth Amendment to Second Amended and Restated Agreement of Limited
Partnership, dated as of May 2, 2006 – Incorporated by reference to Exhibit 3.1 to
Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on
May 3, 2006
3.39
Thirty-Fifth Amendment to Second Amended and Restated Agreement of Limited
Partnership, dated as of August 17, 2006 – Incorporated by reference to Exhibit 3.1 to
Vornado Realty L.P.’s Form 8-K (File No. 000-22685), filed on August 23, 2006
3.40
Thirty-Sixth Amendment to Second Amended and Restated Agreement of Limited
Partnership, dated as of October 2, 2006 – Incorporated by reference to Exhibit 3.1 to
Vornado Realty L.P.’s Form 8-K (File No. 000-22685), filed on January 22, 2007
62
3.41
Thirty-Seventh Amendment to Second Amended and Restated Agreement of Limited
Partnership, dated as of June 28, 2007 – Incorporated by reference to Exhibit 3.1 to
June 27, 2007
3.42
Thirty-Eighth Amendment to Second Amended and Restated Agreement of Limited
Partnership, dated as of June 28, 2007 – Incorporated by reference to Exhibit 3.2 to
3.43
Thirty-Ninth Amendment to Second Amended and Restated Agreement of Limited
Partnership, dated as of June 28, 2007 – Incorporated by reference to Exhibit 3.3 to
3.44
Fortieth Amendment to Second Amended and Restated Agreement of Limited
Partnership, dated as of June 28, 2007 – Incorporated by reference to Exhibit 3.4 to
3.45
Forty-First Amendment to Second Amended and Restated Agreement of Limited
Partnership, dated as of March 31, 2008 – Incorporated by reference to Exhibit 3.44 to
Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended March 31,
2008 (file No. 001-11954), filed on May 6, 2008
3.46
Forty-Second Amendment to Second Amended and Restated Agreement of Limited Partnership,
dated as of December 17, 2010 – Incorporated by reference to Exhibit 99.1 to Vornado
Realty L.P.'s Current Report on Form 8-K (File No. 000-22685), filed on December 21, 2010
3.47
Forty-Third Amendment to Second Amended and Restated Agreement of Limited Partnership,
dated as of April 20, 2011 – Incorporated by reference to Exhibit 3.1 to Vornado
Realty L.P.'s Current Report on Form 8-K (File No. 000-22685), filed on April 21, 2011
4.1
Indenture, dated as of November 25, 2003, between Vornado Realty L.P. and The Bank of
New York, as Trustee - Incorporated by reference to Exhibit 4.10 to Vornado Realty
Trust’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005
(File No. 001-11954), filed on April 28, 2005
4.2
Indenture, dated as of November 20, 2006, among Vornado Realty Trust, as Issuer, Vornado
Realty L.P., as Guarantor and The Bank of New York, as Trustee – Incorporated by
reference to Exhibit 4.1 to Vornado Realty Trust’s Current Report on Form 8-K
(File No. 001-11954), filed on November 27, 2006
Certain instruments defining the rights of holders of long-term debt securities of Vornado
Realty Trust and its subsidiaries are omitted pursuant to Item 601(b)(4)(iii) of Regulation
S-K. Vornado Realty Trust hereby undertakes to furnish to the Securities and Exchange
Commission, upon request, copies of any such instruments.
10.1
Master Agreement and Guaranty, between Vornado, Inc. and Bradlees New Jersey, Inc. dated
as of May 1, 1992 - Incorporated by reference to Vornado, Inc.’s Quarterly Report on
Form 10-Q for the quarter ended March 31, 1992 (File No. 001-11954), filed May 8, 1992
10.2
Registration Rights Agreement between Vornado, Inc. and Steven Roth, dated December 29,
1992 - Incorporated by reference to Vornado Realty Trust’s Annual Report on Form 10-K
for the year ended December 31, 1992 (File No. 001-11954), filed February 16, 1993
______________________
63
10.3
**
Stock Pledge Agreement between Vornado, Inc. and Steven Roth dated December 29, 1992
- Incorporated by reference to Vornado, Inc.’s Annual Report on Form 10-K for the year
ended December 31, 1992 (File No. 001-11954), filed February 16, 1993
10.4
Management Agreement between Interstate Properties and Vornado, Inc. dated July 13, 1992
10.5
Employment Agreement, dated as of April 15, 1997, by and among Vornado Realty Trust,
The Mendik Company, L.P. and David R. Greenbaum - Incorporated by reference to
Exhibit 10.4 to Vornado Realty Trust’s Current Report on Form 8-K
(File No. 001-11954), filed on April 30, 1997
10.6
Promissory Note from Steven Roth to Vornado Realty Trust, dated December 23, 2005 –
Incorporated by reference to Exhibit 10.15 to Vornado Realty Trust Annual Report on
Form 10-K for the year ended December 31, 2005 (File No. 001-11954), filed on
February 28, 2006
10.7
Letter agreement, dated November 16, 1999, between Steven Roth and Vornado Realty Trust
- Incorporated by reference to Exhibit 10.51 to Vornado Realty Trust’s Annual Report on
10.8
Agreement and Plan of Merger, dated as of October 18, 2001, by and among Vornado Realty
Trust, Vornado Merger Sub L.P., Charles E. Smith Commercial Realty L.P., Charles E.
Smith Commercial Realty L.L.C., Robert H. Smith, individually, Robert P. Kogod,
individually, and Charles E. Smith Management, Inc. - Incorporated by reference to
Exhibit 2.1 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954),
filed on January 16, 2002
10.9
Tax Reporting and Protection Agreement, dated December 31, 2001, by and among Vornado,
Vornado Realty L.P., Charles E. Smith Commercial Realty L.P. and Charles E. Smith
Commercial Realty L.L.C. - Incorporated by reference to Exhibit 10.3 to Vornado Realty
Trust’s Current Report on Form 8-K/A (File No. 1-11954), filed on March 18, 2002
10.10
Employment Agreement between Vornado Realty Trust and Michael D. Fascitelli, dated
March 8, 2002 - Incorporated by reference to Exhibit 10.7 to Vornado Realty Trust’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2002
(File No. 001-11954), filed on May 1, 2002
10.11
First Amendment, dated October 31, 2002, to the Employment Agreement between Vornado
Realty Trust and Michael D. Fascitelli, dated March 8, 2002 - Incorporated by reference
to Exhibit 99.6 to the Schedule 13D filed by Michael D. Fascitelli on November 8, 2002
10.12
Amendment to Real Estate Retention Agreement, dated as of July 3, 2002, by and between
Alexander’s, Inc. and Vornado Realty L.P. - Incorporated by reference to Exhibit
10(i)(E)(3) to Alexander’s Inc.’s Quarterly Report for the quarter ended June 30, 2002
(File No. 001-06064), filed on August 7, 2002
10.13
59th Street Real Estate Retention Agreement, dated as of July 3, 2002, by and between
Vornado Realty L.P., 731 Residential LLC and 731 Commercial LLC - Incorporated by
reference to Exhibit 10(i)(E)(4) to Alexander’s Inc.’s Quarterly Report for the quarter
ended June 30, 2002 (File No. 001-06064), filed on August 7, 2002
Management contract or compensatory agreement.
64
10.14
Amended and Restated Management and Development Agreement, dated as of July 3, 2002,
by and between Alexander's, Inc., the subsidiaries party thereto and Vornado
Management Corp. - Incorporated by reference to Exhibit 10(i)(F)(1) to Alexander's
Inc.'s Quarterly Report for the quarter ended June 30, 2002 (File No. 001-06064),
filed on August 7, 2002
10.15
Amendment dated May 29, 2002, to the Stock Pledge Agreement between Vornado Realty
Trust and Steven Roth dated December 29, 1992 - Incorporated by reference to Exhibit 5
of Interstate Properties’ Schedule 13D/A dated May 29, 2002 (File No. 005-44144), filed
on May 30, 2002
10.16
Vornado Realty Trust’s 2002 Omnibus Share Plan - Incorporated by reference to Exhibit 4.2
to Vornado Realty Trust’s Registration Statement on Form S-8 (File No. 333-102216)
filed December 26, 2002
10.17
Form of Stock Option Agreement between the Company and certain employees –
Incorporated by reference to Exhibit 10.77 to Vornado Realty Trust’s
Annual Report on Form 10-K for the year ended December 31, 2004
(File No. 001-11954), filed on February 25, 2005
10.18
Form of Restricted Stock Agreement between the Company and certain employees –
Incorporated by reference to Exhibit 10.78 to Vornado Realty Trust’s Annual Report on
Form 10-K for the year ended December 31, 2004 (File No. 001-11954), filed on
February 25, 2005
10.19
Amendment, dated March 17, 2006, to the Vornado Realty Trust Omnibus Share Plan –
Incorporated by reference to Exhibit 10.50 to Vornado Realty Trust’s Quarterly Report on
Form 10-Q for the quarter ended March 31, 2006 (File No. 001-11954), filed on
May 2, 2006
10.20
Form of Vornado Realty Trust 2006 Out-Performance Plan Award Agreement, dated as of
April 25, 2006 – Incorporated by reference to Exhibit 10.1 to Vornado Realty Trust’s
Form 8-K (File No. 001-11954), filed on May 1, 2006
10.21
Form of Vornado Realty Trust 2002 Restricted LTIP Unit Agreement – Incorporated by
reference to Vornado Realty Trust’s Form 8-K (Filed No. 001-11954), filed on
May 1, 2006
10.22
Revolving Credit Agreement, dated as of June 28, 2006, among the Operating Partnership,
the banks party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of
America, N.A. and Citicorp North America, Inc., as Syndication Agents, Deutsche Bank
Trust Company Americas, Lasalle Bank National Association, and UBS Loan Finance
LLC, as Documentation Agents and Vornado Realty Trust – Incorporated by reference to
Exhibit 10.1 to Vornado Realty Trust’s Form 8-K (File No. 001-11954), filed on
June 28, 2006
10.23
Amendment No.2, dated May 18, 2006, to the Vornado Realty Trust Omnibus Share Plan
– Incorporated by reference to Exhibit 10.53 to Vornado Realty Trust’s Quarterly
Report on Form 10-Q for the quarter ended June 30, 2006 (File No. 001-11954), filed
on August 1, 2006
10.24
Amended and Restated Employment Agreement between Vornado Realty Trust and Joseph
Macnow dated July 27, 2006 – Incorporated by reference to Exhibit 10.54 to Vornado
Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006
(File No. 001-11954), filed on August 1, 2006
10.25
Guaranty, made as of June 28, 2006, by Vornado Realty Trust, for the benefit of JP Morgan
Chase Bank - Incorporated by reference to Exhibit 10.53 to Vornado Realty Trust's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2006
(File No. 001-11954), filed on October 31, 2006
10.26
Amendment, dated October 26, 2006, to the Vornado Realty Trust Omnibus Share Plan –
Incorporated by reference to Exhibit 10.54 to Vornado Realty Trust’s Quarterly Report
on Form 10-Q for the quarter ended September 30, 2006 (File No. 001-11954), filed on
October 31, 2006
10.27
Amendment to Real Estate Retention Agreement, dated January 1, 2007, by and between
Vornado Realty L.P. and Alexander’s Inc. – Incorporated by reference to Exhibit 10.55
to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended
December 31, 2006 (File No. 001-11954), filed on February 27, 2007
10.28
Amendment to 59th Street Real Estate Retention Agreement, dated January 1, 2007, by and
among Vornado Realty L.P., 731 Retail One LLC, 731 Restaurant LLC, 731 Office One
LLC and 731 Office Two LLC. – Incorporated by reference to Exhibit 10.56 to
Vornado Realty Trust’s Annual Report on Form 10-K for the year ended
10.29
Employment Agreement between Vornado Realty Trust and Mitchell Schear, as of April 19,
2007 – Incorporated by reference to Exhibit 10.46 to Vornado Realty Trust’s Quarterly
Report on Form 10-Q for the quarter ended March 31, 2007 (File No. 001-11954),
filed on May 1, 2007
10.30
Revolving Credit Agreement, dated as of September 28, 2007, among Vornado Realty L.P. as
borrower, Vornado Realty Trust as General Partner, the Banks signatory thereto, each as a
Bank, JPMorgan Chase Bank, N.A. as Administrative Agent, Bank of America, N.A. as
Syndication Agent, Citicorp North America, Inc., Deutsche Bank Trust Company
Americas, and UBS Loan Finance LLC as Documentation Agents, and J.P. Morgan
Securities Inc. and Bank of America Securities LLC as Lead Arrangers and Bookrunners.
- Incorporated by reference to Exhibit 10.1 to Vornado Realty Trust’s Current Report
on Form 8-K (File No. 001-11954), filed on October 4, 2007
10.31
Second Amendment to Revolving Credit Agreement, dated as of September 28, 2007, by and
among Vornado Realty L.P. as borrower, Vornado Realty Trust as General Partner, the
Banks listed on the signature pages thereof, and J.P. Morgan Chase Bank N.A., as
Administrative Agent for the Banks - Incorporated by reference to Exhibit 10.2 to
Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954),
filed on October 4, 2007
10.32
Form of Vornado Realty Trust 2002 Omnibus Share Plan Non-Employee Trustee Restricted
LTIP Unit Agreement – Incorporated by reference to Exhibit 10.45 to Vornado Realty
Trust’s Annual Report on Form 10-K for the year ended December 31, 2007 (File No.
001-11954) filed on February 26, 2008
10.33
Form of Vornado Realty Trust 2008 Out-Performance Plan Award Agreement – Incorporated
by reference to Exhibit 10.46 to Vornado Realty Trust’s Quarterly Report on Form 10-Q
for the quarter ended March 31, 2008 (File No. 001-11954) filed on May 6, 2008
10.34
Amendment to Employment Agreement between Vornado Realty Trust and Michael D.
Fascitelli, dated December 29, 2008. Incorporated by reference to Exhibit 10.47 to
Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31,
2008 (File No. 001-11954) filed on February 24, 2009
66
10.35
Amendment to Employment Agreement between Vornado Realty Trust and Joseph Macnow,
dated December 29, 2008. Incorporated by reference to Exhibit 10.48 to Vornado Realty
Trust’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No.
001-11954) filed on February 24, 2009
10.36
Amendment to Employment Agreement between Vornado Realty Trust and David R.
Greenbaum, dated December 29, 2008. Incorporated by reference to Exhibit 10.49 to
10.37
Amendment to Indemnification Agreement between Vornado Realty Trust and David R.
Greenbaum, dated December 29, 2008. Incorporated by reference to Exhibit 10.50 to
10.38
Amendment to Employment Agreement between Vornado Realty Trust and Mitchell N.
Schear, dated December 29, 2008. Incorporated by reference to Exhibit 10.51 to Vornado
Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2008 (File
No. 001-11954) filed on February 24, 2009
10.39
Amendment to Employment Agreement between Vornado Realty Trust and Christopher G.
Kennedy, dated December 29, 2008. Incorporated by reference to Exhibit 10.53 to
10.40
Vornado Realty Trust's 2010 Omnibus Share Plan. Incorporated by reference to Exhibit 10.41 to
Vornado Realty Trust's Quarterly Report on Form 10-Q for the quarter ended June 30, 2010
(File No. 001-11954) filed on August 3, 2010
10.41
Employment Agreement between Vornado Realty Trust and Michael J. Franco, dated
September 24, 2010. Incorporated by reference to Exhibit 10.42 to Vornado Realty Trust's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2010 (File No. 001-11954)
filed on November 2, 2010
10.42
Form of Vornado Realty Trust 2010 Omnibus Share Plan Stock Agreement. Incorporated by
reference to Exhibit 10.42 to Vornado Realty Trust's Annual Report on Form 10-K for the year
ended December 31, 2010 (File No. 001-11954) filed on February 23, 2011
10.43
Form of Vornado Realty Trust 2010 Omnibus Share Plan Restricted LTIP Unit Agreement
Incorporated by reference to Exhibit 10.43 to Vornado Realty Trust's Annual Report on Form
10-K for the year ended December 31, 2010 (File No. 001-11954) filed on February 23, 2011
10.44
Form of Vornado Realty Trust 2010 Omnibus Share Plan Restricted Stock Agreement
Incorporated by reference to Exhibit 10.44 to Vornado Realty Trust's Annual Report on Form
10.45
Letter Agreement between Vornado Realty Trust and Michelle Felman, dated December 21, 2010.
Incorporated by reference to Exhibit 10.45 to Vornado Realty Trust's Annual Report on Form
67
10.46
Waiver and Release between Vornado Realty Trust and Michelle Felman, dated December 21,
2010. Incorporated by reference to Exhibit 10.46 to Vornado Realty Trust's Annual Report
on Form 10-K for the year ended December 31, 2010 (File No. 001-11954) filed on
February 23, 2011
15.1
Letter regarding Unaudited Interim Financial Infromation
31.1
Rule 13a-14 (a) Certification of the Chief Executive Officer
31.2
Rule 13a-14 (a) Certification of the Chief Financial Officer
32.1
Section 1350 Certification fo the Chief Executive Officer
32.2
Section 1350 Certification fo the Chief Finacial Officer
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
101.DEF
XBRL Taxonomy Extension Definition Linkbase
101.LAB
XBRL Taxonomy Extension Label Linkbase
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
68