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, 2012
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
o Non-Accelerated Filer (Do not check if smaller reporting company)
o Smaller Reporting Company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of March 31, 2012, 185,642,051 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, 2012 and December 31, 2011
3
Consolidated Statements of Income (Unaudited) for the
Three Months Ended March 31, 2012 and 2011
4
Consolidated Statements of Comprehensive Income (Unaudited) for the
5
Consolidated Statements of Changes in Equity (Unaudited) for the
6
Consolidated Statements of Cash Flows (Unaudited) for the
7
Notes to the Consolidated Financial Statements (Unaudited)
9
Report of Independent Registered Public Accounting Firm
35
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
36
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
61
Item 4.
Controls and Procedures
62
PART II.
Other Information:
Legal Proceedings
63
Item 1A.
Risk Factors
64
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
SIGNATURES
65
EXHIBIT INDEX
66
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
2012
2011
Real estate, at cost:
Land
$
4,677,940
4,666,929
Buildings and improvements
12,720,139
12,709,356
Development costs and construction in progress
118,811
122,075
Leasehold improvements and equipment
128,391
128,651
Total
17,645,281
17,627,011
Less accumulated depreciation and amortization
(3,173,515)
(3,095,037)
Real estate, net
14,471,766
14,531,974
Cash and cash equivalents
614,359
606,553
Restricted cash
117,423
98,068
Marketable securities
754,510
741,321
Accounts receivable, net of allowance for doubtful accounts of $42,785 and $43,241
191,184
171,798
Investments in partially owned entities
1,285,104
1,233,650
Investment in Toys "R" Us
597,860
506,809
Real Estate Fund investments
324,514
346,650
Mezzanine loans receivable
133,143
133,948
Receivable arising from the straight-lining of rents, net of allowance of $3,986 and $4,046
750,017
728,626
Deferred leasing and financing costs, net of accumulated amortization of $218,111 and $245,087
387,481
376,292
Identified intangible assets, net of accumulated amortization of $361,856 and $359,944
304,385
319,704
Assets related to discontinued operations
-
251,202
Due from officers
13,127
Other assets
337,983
386,765
20,269,729
20,446,487
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Notes and mortgages payable
8,434,938
8,558,275
Senior unsecured notes
1,357,748
1,357,661
Exchangeable senior debentures
499,680
497,898
Convertible senior debentures
10,233
10,168
Revolving credit facility debt
138,000
Accounts payable and accrued expenses
453,578
423,512
Deferred revenue
500,266
516,259
Deferred compensation plan
99,810
95,457
Deferred tax liabilities
13,380
13,315
Liabilities related to discontinued operations
14,153
Other liabilities
139,660
152,665
Total liabilities
11,509,293
11,777,363
Commitments and contingencies
Redeemable noncontrolling interests:
Class A units - 12,172,197 and 12,160,771 units outstanding
1,024,899
934,677
Series D cumulative redeemable preferred units - 9,000,001 units outstanding
226,000
Total redeemable noncontrolling interests
1,250,899
1,160,677
Vornado shareholders' equity:
Preferred shares of beneficial interest: no par value per share; authorized 110,000,000
shares; issued and outstanding 42,184,609 and 42,186,709 shares
1,021,555
1,021,660
Common shares of beneficial interest: $.04 par value per share; authorized
250,000,000 shares; issued and outstanding 185,642,051 and 185,080,020 shares
7,396
7,373
Additional capital
7,058,212
7,127,258
Earnings less than distributions
(1,312,670)
(1,401,704)
Accumulated other comprehensive income
67,174
73,729
Total Vornado shareholders' equity
6,841,667
6,828,316
Noncontrolling interests in consolidated subsidiaries
667,870
680,131
Total equity
7,509,537
7,508,447
See notes to consolidated financial statements (unaudited).
CONSOLIDATED STATEMENTS OF INCOME
For the Three
Months Ended March 31,
(Amounts in thousands, except per share amounts)
REVENUES:
Property rentals
557,413
562,252
Tenant expense reimbursements
81,607
89,669
Cleveland Medical Mart development project
55,059
40,699
Fee and other income
33,387
34,263
Total revenues
727,466
726,883
EXPENSES:
Operating
276,826
286,362
Depreciation and amortization
139,437
129,833
General and administrative
55,890
58,946
52,761
38,278
Acquisition related costs and tenant buy-outs
685
18,270
Total expenses
525,599
531,689
Operating income
201,867
195,194
Income applicable to Toys "R" Us
116,471
112,944
Income from partially owned entities
20,033
16,284
Income from Real Estate Fund (of which $7,933 and ($74), respectively,
are attributable to noncontrolling interests)
11,762
1,080
Interest and other investment income, net
15,681
117,108
Interest and debt expense (including amortization of deferred financing
costs of $5,867 and $4,633, respectively)
(135,169)
(134,710)
Net gain on disposition of wholly owned and partially owned assets
6,677
Income before income taxes
230,645
314,577
Income tax expense
(7,096)
(6,382)
Income from continuing operations
223,549
308,195
Income from discontinued operations
56,715
137,626
Net income
280,264
445,821
Less net income attributable to noncontrolling interests in:
Consolidated subsidiaries
(9,597)
(1,350)
Operating Partnership, including unit distributions
(19,145)
(31,808)
Net income attributable to Vornado
251,522
412,663
Preferred share dividends
(17,787)
(13,448)
NET INCOME attributable to common shareholders
233,735
399,215
INCOME PER COMMON SHARE - BASIC:
Income from continuing operations, net
0.97
1.47
Income from discontinued operations, net
0.29
0.70
Net income per common share
1.26
2.17
Weighted average shares outstanding
185,370
183,988
INCOME PER COMMON SHARE - DILUTED:
1.45
0.28
0.67
1.25
2.12
191,886
191,529
DIVIDENDS PER COMMON SHARE
0.69
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
Other comprehensive income (loss):
Change in unrealized net gain on securities available-for-sale
12,693
68,039
Pro rata share of other comprehensive loss of nonconsolidated subsidiaries
(21,944)
(3,791)
Change in value of interest rate swap
2,386
(7,146)
Other
(123)
59
Comprehensive income
273,276
502,982
Less comprehensive income attributable to noncontrolling interests
(28,309)
(36,759)
Comprehensive income attributable to Vornado
244,967
466,223
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Accumulated
Earnings
Non-
Preferred Shares
Common Shares
Additional
Less Than
Comprehensive
controlling
Shares
Amount
Capital
Distributions
Income
Interests
Equity
Balance, December 31, 2010
32,340
783,088
183,662
7,317
6,932,728
(1,480,876)
73,453
514,695
6,830,405
1,350
414,013
Dividends on common shares
(126,936)
Dividends on preferred shares
(13,559)
Common shares issued:
Upon redemption of Class A
units, at redemption value
320
13
27,526
27,539
Under employees' share
option plan
240
10
15,027
(398)
14,639
Under dividend reinvestment plan
434
Contributions:
Real Estate Fund
92,068
170
Distributions:
(11,027)
Conversion of Series A preferred
shares to common shares
(1)
(50)
50
Deferred compensation shares
and options
11
2,370
Change in unrealized net gain
on securities available-for-sale
Pro rata share of other
comprehensive loss of
nonconsolidated subsidiaries
Adjustments to carry redeemable
Class A units at redemption value
(42,227)
(105)
(173)
113
(41)
(147)
Balance, March 31, 2011
32,339
782,933
184,240
7,340
6,935,735
(1,208,993)
130,614
597,215
7,244,844
Balance, December 31, 2011
42,187
185,080
9,597
261,119
(127,973)
158
13,022
13,028
389
16
7,562
(16,389)
(8,811)
411
(21,856)
(2)
105
1
5,915
(339)
5,577
(96,061)
Redeemable noncontrolling interests'
share of above adjustments
433
(125)
Balance, March 31, 2012
42,185
185,642
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)
145,304
136,860
Equity in net income of partially owned entities, including Toys “R” Us
(136,504)
(129,228)
Net gains on sale of real estate
(55,817)
(51,165)
Straight-lining of rental income
(21,808)
(13,942)
Distributions of income from partially owned entities
14,194
25,921
Amortization of below-market leases, net
(13,813)
(16,892)
Other non-cash adjustments
7,795
8,211
Unrealized gain on Real Estate Fund assets
(6,844)
Income from the mark-to-market of J.C. Penney derivative position
(1,045)
(17,163)
Net gain on extinguishment of debt
(83,907)
Mezzanine loans loss reversal and net gain on disposition
(82,744)
(6,677)
Changes in operating assets and liabilities:
28,980
(85,536)
Accounts receivable, net
(19,386)
(10,475)
Prepaid assets
51,202
34,761
(8,872)
2,947
40,609
30,906
2,844
8,404
Net cash provided by operating activities
307,103
196,102
Cash Flows from Investing Activities:
Proceeds from sales of real estate and related investments
306,022
127,199
(46,732)
(316,129)
Additions to real estate
(44,052)
(30,281)
Acquisitions of real estate and other
(21,054)
(20,614)
(10,994)
(19,355)
12,174
Proceeds from the repayment of loan to officer
13,123
Distributions of capital from partially owned entities
4,203
192,523
Proceeds from sales and repayments of mezzanine loans
554
73,608
Proceeds from sales of marketable securities
15,162
Investments in mezzanine loans receivable and other
(2,841)
Net cash provided by investing activities
172,095
60,421
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Cash Flows from Financing Activities:
Repayments of borrowings
(884,679)
(1,197,312)
Proceeds from borrowings
625,000
937,518
Dividends paid on common shares
Distributions to noncontrolling interests
(34,092)
(23,639)
Repurchase of shares related to stock compensation agreements and related
tax withholdings
(30,034)
(570)
Dividends paid on preferred shares
(17,789)
Debt issuance and other costs
(9,822)
(12,161)
Proceeds received from exercise of employee share options
7,997
15,470
Contributions from noncontrolling interests
92,238
Net cash used in financing activities
(471,392)
(328,951)
Net increase (decrease) in cash and cash equivalents
7,806
(72,428)
Cash and cash equivalents at beginning of period
690,789
Cash and cash equivalents at end of period
618,361
Supplemental Disclosure of Cash Flow Information:
Cash payments for interest, net of capitalized interest of $16 and $0
117,282
108,458
Cash payments for income taxes
2,563
2,509
Non-Cash Investing and Financing Activities:
Adjustments to carry redeemable Class A units at redemption value
Common shares issued upon redemption of Class A units, at redemption value
Contribution of mezzanine loan receivable to a joint venture
73,750
Like-kind exchange of real estate
(45,625)
Decrease in assets and liabilities resulting from deconsolidation
of discontinued operations:
(145,333)
(232,502)
Write-off of fully depreciated assets
(37,890)
(25,893)
8
NOTES 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 dividends to its shareholders is dependent upon the cash flow of the Operating Partnership and the ability of its direct and indirect subsidiaries to first satisfy their obligations to creditors. Vornado is the sole general partner of, and owned approximately 93.5% of the common limited partnership interest in the Operating Partnership at March 31, 2012. 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. 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, 2011, as filed with the SEC.
We have made estimates and assumptions that affect the reported amounts of assets and liabilities, 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. The results of operations for the three months ended March 31, 2012 are not necessarily indicative of the operating results for the full year. Certain prior year balances have been reclassified in order to conform to current year presentation.
3. Recently Issued Accounting Literature
In May 2011, the Financial Accounting Standards Board (“FASB”) issued Update No. 2011-04, Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS (“ASU No. 2011-04”). ASU No. 2011-04 provides a uniform framework for fair value measurements and related disclosures between GAAP and International Financial Reporting Standards (“IFRS”) and requires additional disclosures, including: (i) quantitative information about unobservable inputs used, a description of the valuation processes used, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs, for Level 3 fair value measurements; (ii) fair value of financial instruments not measured at fair value but for which disclosure of fair value is required, based on their levels in the fair value hierarchy; and (iii) transfers between Level 1 and Level 2 of the fair value hierarchy. The adoption of this update on January 1, 2012 did not have a material impact on our consolidated financial statements, but resulted in additional fair value measurement disclosures (see Note 12 – Fair Value Measurements).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. Vornado Capital Partners Real Estate Fund (the “Fund”)
In February 2011, the Fund’s subscription period closed with an aggregate of $800,000,000 of capital commitments, of which we committed $200,000,000. We are the general partner and investment manager of the Fund, which has an eight-year term and a three-year investment period. During the investment period, which concludes in July 2013, the Fund is our exclusive investment vehicle for all investments that fit within its 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, retaining the fair value basis of accounting.
As of March 31, 2012, the Fund has five investments with an aggregate fair value of approximately $324,514,000, or $18,839,000 in excess of cost, and has remaining unfunded commitments of $445,679,000, of which our share is $111,419,750. Below is a summary of income from the Fund for the three months ended March 31, 2012 and 2011.
For the Three Months
Ended March 31,
4,918
Net unrealized gains
6,844
Income from Real Estate Fund
Less (income) loss attributable to noncontrolling interests
(7,933)
74
Income from Real Estate Fund attributable to Vornado (1)
3,829
1,154
___________________________________
Excludes $541 and $579 of management, leasing and development fees in the three months ended March 31, 2012 and 2011, respectively, which are included as a component of "fee and other income" on our consolidated statements of income.
5. 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. Gains and losses resulting from the mark-to-market of these securities are included in “other comprehensive 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.
In the three months ended March 31, 2011, we sold certain marketable securities for aggregate proceeds of $15,162,000, resulting in a net gain of $2,091,000.
Below is a summary of our marketable securities portfolio as of March 31, 2012 and December 31, 2011.
As of March 31, 2012
As of December 31, 2011
GAAP
Unrealized
Maturity
Fair Value
Cost
Gain
Equity securities:
J.C. Penney
n/a
658,431
591,069
67,362
653,228
62,159
36,503
13,561
22,942
29,544
15,983
Debt securities
04/13 - 10/18
59,576
55,460
4,116
58,549
54,965
3,584
660,090
94,420
659,595
81,726
5. Marketable Securities and Derivative Instruments- continued
Investment in J.C. Penney Company, Inc. (“J.C. Penney”) (NYSE: JCP)
We own 23,400,000 J.C. Penney common shares, or 11.0% of its outstanding common shares. Below are the details of our investment.
We own 18,584,010 common shares at an average economic cost of $25.75 per share, or $478,532,000 in the aggregate. As of March 31, 2012, these shares have an aggregate fair value of $658,431,000, based on J.C. Penney’s closing share price of $35.43 per share. Unrealized gains from the mark-to-market of these shares are included in “other comprehensive income” and were $5,203,000 and $66,903,000 in the three months ended March 31, 2012 and 2011, respectively.
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 $28.86 per share, or $138,986,000 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 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. In the three months ended March 31, 2012 and 2011, we recognized gains of $1,045,000 and $17,163,000, respectively, from the mark-to-market of the underlying common shares.
As of March 31, 2012, the aggregate economic net gain on our investment in J.C. Penney was $211,544,000, based on our economic cost of $26.39 per share.
6. Investments in Partially Owned Entities
Toys “R” Us (“Toys”)
As of March 31, 2012, 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, 2012, 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.
Below is a summary of Toys’ latest available financial information on a purchase accounting basis:
Balance as of
Balance Sheet:
January 28, 2012
October 29, 2011
Assets
11,890,000
13,221,000
Liabilities
9,894,000
11,530,000
Noncontrolling interests
29,000
Toys “R” Us, Inc. equity
1,967,000
1,691,000
Income Statement:
January 29, 2011
5,925,000
5,972,000
Net income attributable to Toys
349,000
339,000
6. Investments in Partially Owned Entities – continued
As of March 31, 2012, we own 1,654,068 Alexander’s common shares, or approximately 32.4% of Alexander’s common equity. We manage, lease and develop Alexander’s properties pursuant to agreements which expire in March of each year and are automatically renewable. As of March 31, 2012, Alexander’s owed us $40,685,000 in fees under these agreements.
As of March 31, 2012, the market value of our investment in Alexander’s, based on Alexander’s March 31, 2012 closing share price of $393.88, was $651,504,000, or $462,362,000 in excess of the carrying amount on our consolidated balance sheet. As of March 31, 2012, 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 $58,833,000. 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, 2011
1,773,000
1,771,000
1,410,000
1,408,000
4,000
Stockholders' equity
359,000
March 31, 2011
64,000
63,000
Net income attributable to Alexander’s
19,000
18,000
Lexington Realty Trust (“Lexington”) (NYSE: LXP)
As of March 31, 2012, we own 18,468,969 Lexington common shares, or approximately 11.9% 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, ourrepresentation 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, 2012 closing share price of $8.99, the market value of our investment in Lexington was $166,036,000, or $109,930,000 in excess of the March 31, 2012 carrying amount on our consolidated balance sheet. As of March 31, 2012, the carrying amount of our investment in Lexington was less than our share of the equity in the net assets of Lexington by approximately $45,082,000. This basis difference resulted primarily from $107,882,000 of non-cash impairment charges recognized in 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.
12
Below is a summary of Lexington’s latest available financial information:
September 30, 2011
3,078,000
3,164,000
1,857,000
1,888,000
58,000
59,000
Shareholders’ equity
1,163,000
1,217,000
December 31, 2010
83,000
86,000
Net income attributable to Lexington
13,000
12,000
LNR Property LLC (“LNR”)
As of March 31, 2012, we own a 26.2% equity interest in LNR. 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 $78.7 billion as of December 31, 2011, 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, 2012, the carrying amount of our investment in LNR does not materially differ from our share of LNR’s equity.
Below is a summary of LNR’s latest available financial information:
79,951,000
128,536,000
79,214,000
127,809,000
16,000
55,000
LNR Property Corporation equity
721,000
672,000
49,000
36,000
Net income attributable to LNR
51,000
Below is a schedule of our investments in partially owned entities as of March 31, 2012 and December 31, 2011.
Percentage
Ownership at
Investments:
Toys
32.7 %
Alexander’s
32.4 %
189,142
189,775
Lexington
11.9 %(1)
56,106
57,402
LNR
26.2 %
187,251
174,408
India real estate ventures
4.0%-36.5%
100,571
80,499
Partially owned office buildings:
280 Park Avenue
49.5 %
182,998
184,516
Rosslyn Plaza
43.7%-50.4%
62,562
53,333
West 57th Street properties
50.0 %
58,841
58,529
One Park Avenue
30.3 %
47,899
47,568
666 Fifth Avenue Office Condominium
31,769
23,655
330 Madison Avenue
25.0 %
22,238
20,353
1101 17th Street
55.0 %
21,056
20,407
Fairfax Square
20.0 %
6,199
6,343
Warner Building
4,746
2,715
Other partially owned office buildings
Various
10,991
11,547
Other equity method investments:
Verde Realty Operating Partnership
8.3 %
59,478
59,801
Independence Plaza
51.0 %
50,194
48,511
Downtown Crossing, Boston
46,821
46,691
Monmouth Mall
7,805
7,536
Other equity method investments (2)
138,437
140,061
12.0% at December 31, 2011.
Includes interests in 85 10th Avenue, Farley Project, Suffolk Downs, Dune Capital L.P., Fashion Centre Mall and others.
14
6. Investments in Partially Owned Entities - continued
Below is a schedule of income recognized from investments in partially owned entities for the three months ended March 31, 2012 and 2011.
Ownership
Our Share of Net Income (Loss):
Toys:
Equity in net income before income taxes
157,387
179,839
(43,203)
(69,018)
Equity in net income
114,184
110,821
Management fees
2,287
2,123
Alexander’s:
6,132
5,719
Management, leasing and development fees
2,262
2,292
8,394
8,011
Lexington:
930
720
Net gain resulting from Lexington's stock issuance
1,452
2,172
LNR:
13,250
6,277
Tax settlement gain
8,977
15,254
(793)
(207)
(3,010)
(300)
Straight-line reserves and write-off of tenant improvements
(9,022)
(9,322)
280 Park Avenue (acquired in May 2011)
(5,595)
666 Fifth Avenue Office Condominium (acquired in December 2011)
1,715
794
619
683
723
One Park Avenue (acquired in March 2011)
331
(1,228)
313
98
2,415
(12)
(13)
527
2,089
(4,096)
(4,619)
Independence Plaza (acquired in June 2011)
1,682
362
131
(334)
(506)
(323)
(1,794)
961
(2,158)
2,348
(4,327)
12.6% at March 31, 2011.
15
Below is a summary of the debt of our partially owned entities as of March 31, 2012 and December 31, 2011, none of which is recourse to us.
Interest
100% of
Rate at
Partially Owned Entities’ Debt at
2012-2021
7.67 %
5,110,529
6,047,521
Alexander's:
Mortgage notes payable
2013-2018
3.52 %
1,327,234
1,330,932
2012-2037
5.78 %
1,673,470
1,712,750
2013-2031
4.29 %
392,952
353,504
Liabilities of consolidated CMBS and CDO trusts
5.35 %
78,714,179
127,348,336
79,107,131
127,701,840
666 Fifth Avenue Office Condominium mortgage
note payable
02/19
6.76 %
1,050,235
1,035,884
280 Park Avenue mortgage notes payable
06/16
6.65 %
737,892
737,678
Warner Building mortgage note payable
05/16
6.26 %
292,700
One Park Avenue mortgage note payable
03/16
5.00 %
250,000
330 Madison Avenue mortgage note payable
06/15
1.74 %
150,000
Fairfax Square mortgage note payable
12/14
7.00 %
70,768
70,974
Rosslyn Plaza mortgage note payable
43.7% to 50.4%
56,680
West 57th Street properties mortgage note payable
02/14
4.94 %
21,225
21,864
6.38 %
70,102
70,230
2,642,922
2,686,010
India Real Estate Ventures:
TCG Urban Infrastructure Holdings mortgage notes
payable
2012-2022
12.61 %
239,543
226,534
Other:
Verde Realty Operating Partnership mortgage notes
2013-2025
6.21 %
311,112
340,378
Monmouth Mall mortgage note payable
09/15
5.44 %
161,589
162,153
Other(2)
4.88 %
975,154
992,872
1,447,855
1,495,403
Includes interests in Suffolk Downs, Fashion Centre Mall and others.
Based on our ownership interest in the partially owned entities above, our pro rata share of the debt of these partially owned entities was $24,477,803,000 and $37,531,298,000 as of March 31, 2012 and December 31, 2011, 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 was $3,875,154,000 and $4,199,145,000 at March 31, 2012 and December 31, 2011, respectively.
7. Mezzanine Loans Receivable
As of March 31, 2012 and December 31, 2011, the carrying amount of mezzanine loans receivable was $133,143,000 and $133,948,000, respectively. These loans have a weighted average interest rate of 9.53% and maturities ranging from August 2014 to May 2016.
8. Discontinued Operations
On January 6, 2012, we completed the sale of 350 West Mart Center, a 1.2 million square foot office building in Chicago, Illinois, for $228,000,000 in cash, which resulted in a net gain of $54,911,000.
In the first quarter of 2012, we sold seven retail properties in separate transactions, for an aggregate of $83,670,000 in cash, which resulted in a net gain aggregating $906,000.
The tables below set forth the assets and liabilities related to discontinued operations at March 31, 2012 and December 31, 2011 and their combined results of operations for the three months ended March 31, 2012 and 2011.
Assets Related to
Liabilities Related to
Discontinued Operations as of
350 West Mart Center
173,780
6,361
Retail properties
77,422
7,792
1,320
16,215
422
13,661
898
2,554
Net gain on sale of 350 West Mart Center
54,911
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
906
5,303
17
9. 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, 2012 and December 31, 2011.
Identified intangible assets:
Gross amount
666,241
679,648
Accumulated amortization
(361,856)
(359,944)
Net
Identified intangible liabilities (included in deferred revenue):
837,729
841,440
(385,886)
(374,253)
451,843
467,187
Amortization of acquired below-market leases, net of acquired above-market leases, resulted in an increase to rental income of $13,813,000 and $16,606,000 for the three months ended March 31, 2012 and 2011, 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, 2013 is as follows:
2013
44,133
2014
37,504
2015
34,399
2016
31,339
2017
25,819
Amortization of all other identified intangible assets (a component of depreciation and amortization expense) was $12,366,000 and $14,155,000 for the three months ended March 31, 2012 and 2011, 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, 2013 is as follows:
40,162
21,758
16,757
14,156
11,709
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 $344,000 and $344,000 for the three months ended March 31, 2012 and 2011, respectively. Estimated annual amortization of these below-market leases, net of above-market leases for each of the five succeeding years commencing January 1, 2013 is as follows:
1,377
18
10. Debt
The following is a summary of our debt:
Balance at
Notes and mortgages payable:
Maturity (1)
Fixed rate:
New York:
350 Park Avenue(2)
01/17
3.75 %
300,000
430,000
Two Penn Plaza
03/18
5.13 %
425,000
1290 Avenue of the Americas
01/13
5.97 %
411,661
413,111
770 Broadway
5.65 %
353,000
888 Seventh Avenue
01/16
5.71 %
318,554
909 Third Avenue
04/15
5.64 %
202,218
203,217
828-850 Madison Avenue Condominium - retail
06/18
5.29 %
80,000
510 5th Avenue - retail
5.60 %
31,612
31,732
Washington, DC:
Skyline Place(3)
02/17
5.74 %
678,000
River House Apartments
5.43 %
195,546
2121 Crystal Drive
03/23
5.51 %
Bowen Building
6.14 %
115,022
1215 Clark Street, 200 12th Street and 251 18th Street
01/25
7.09 %
107,766
108,423
West End 25
06/21
101,671
Universal Buildings
04/14
6.45 %
97,003
98,239
Reston Executive I, II, and III
5.57 %
93,000
2011 Crystal Drive
08/17
7.30 %
80,256
80,486
1550 and 1750 Crystal Drive
11/14
7.08 %
75,946
76,624
220 20th Street
02/18
4.61 %
74,739
75,037
1235 Clark Street
07/12
6.75 %
51,045
51,309
2231 Crystal Drive
08/13
43,205
43,819
1225 Clark Street
25,844
26,211
1750 Pennsylvania Avenue
44,330
Retail:
Cross-collateralized mortgages on 40 strip shopping centers
09/20
4.21 %
582,389
585,398
Montehiedra Town Center
07/16
6.04 %
120,000
Broadway Mall
07/13
5.30 %
87,111
87,750
North Bergen (Tonnelle Avenue)
01/18
4.59 %
75,000
Las Catalinas Mall
11/13
6.97 %
55,471
55,912
06/14-05/36
5.12%-7.30%
87,841
95,541
Merchandise Mart:
Merchandise Mart
12/16
550,000
Boston Design Center
5.02 %
67,042
67,350
555 California Street
09/21
5.10 %
600,000
Borgata Land
02/21
5.14 %
60,000
Total fixed rate notes and mortgages payable
6,295,942
6,489,282
___________________
See notes on page 21.
19
10. Debt - continued
Spread over
LIBOR
Variable rate:
Eleven Penn Plaza
01/19
L+235
2.59 %
330,000
100 West 33rd Street - office & retail(4)
03/17
L+250
2.74 %
325,000
232,000
4 Union Square South - retail
L+325
3.49 %
435 Seventh Avenue (5)
08/14
L+300 (5)
51,224
51,353
866 UN Plaza
L+125
1.49 %
44,978
2101 L Street
02/13
L+120
1.44 %
148,125
04/18
n/a (6)
1.60 %
2200/2300 Clarendon Boulevard
01/15
L+75
0.99 %
51,856
53,344
1730 M and 1150 17th Street
06/14
L+140
1.64 %
43,581
Green Acres Mall
1.65 %
308,825
325,045
Bergen Town Center
03/13
L+150
282,312
283,590
San Jose Strip Center
L+400
4.25 %
110,619
112,476
Beverly Connection (7)
09/14
L+425 (7)
4.75 %
100,000
Cross-collateralized mortgages on 40 strip
shopping centers (8)
L+136 (8)
2.36 %
11/12
L+375
3.99 %
19,726
19,876
220 Central Park South
10/13
L+275
2.99 %
123,750
Total variable rate notes and mortgages payable
2.48 %
2,138,996
2,068,993
Total notes and mortgages payable
4.69 %
Senior unsecured notes:
Senior unsecured notes due 2015
499,503
499,462
Senior unsecured notes due 2039 (9)
10/39
7.88 %
460,000
Senior unsecured notes due 2022
01/22
398,245
398,199
Total senior unsecured notes
5.70 %
3.88% exchangeable senior debentures(10)
04/12
5.32 %
2.85% convertible senior debentures(10)
5.45 %
Unsecured revolving credit facilities:
$1.25 billion unsecured revolving credit facility
($22,085 reserved for outstanding letters of credit)
L+135
11/16
Total unsecured revolving credit facilities
___________________________
See notes on the following page.
20
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 January 9, 2012, we completed a $300,000 refinancing of this property. The five-year fixed rate loan bears interest at 3.75% and amortizes based on a 30-year schedule beginning in the third year. The proceeds of the new loan and $132,000 of existing cash were used to repay the existing loan and closing costs.
(3)
In the first quarter of 2012, we notified the lender that this property had a 26% vacancy rate, which is expected to increase due to scheduled lease expirations resulting primarily from the effects of the Base Realignment and Closure statute. Based on the projected vacancy and the significant amount of capital required to re-tenant this property, at our request, the mortgage loan was transferred to the special servicer.
(4)
On March 5, 2012, we completed a $325,000 refinancing of this property. The three-year loan bears interest at LIBOR plus 2.50% and has two one-year extension options. We retained net proceeds of approximately $87,000, after repaying the existing loan and closing costs.
(5)
LIBOR floor of 2.00%.
(6)
Interest at the Freddie Mac Reference Note Rate plus 1.53%.
(7)
LIBOR floor of 0.50%.
(8)
LIBOR floor of 1.00%.
(9)
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.
(10)
In April 2012, we redeemed all of the outstanding exchangeable and convertible senior debentures at par, for an aggregate of $510,215 in cash.
21
10. 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.
3.88% Exchangeable
2.85% Convertible
Senior Debentures
Principal amount of debt component
499,982
Unamortized discount
(302)
(2,084)
(65)
Carrying amount of debt component
Carrying amount of equity component
32,301
956
Effective interest rate
Maturity date (period through which discount is being amortized)
4/15/12
4/1/12
Conversion price per share, as adjusted
86.40
155.79
Number of shares on which the aggregate consideration to be delivered
delivered upon conversion is determined
- (1)
__________________
3.88% Exchangeable Senior Debentures:
Coupon interest
4,844
Discount amortization – original issue
421
399
Discount amortization – ASC 470-20 implementation
1,361
1,291
6,626
6,534
2.85% Convertible Senior Debentures:
73
54
52
138
136
3.63% Convertible Senior Debentures:
1,623
196
526
2,345
22
11. 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-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, 2010
1,327,974
31,808
(12,702)
Conversion of Class A units into common shares, at redemption value
(27,539)
42,227
Other, net
4,752
Balance at March 31, 2011
1,366,520
Balance at December 31, 2011
19,145
(12,236)
(13,028)
96,061
280
Balance at March 31, 2012
As of March 31, 2012 and December 31, 2011, the aggregate redemption value of redeemable Class A units was $1,024,899,000 and $934,677,000, 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 and $54,865,000 as of March 31, 2012 and December 31, 2011, respectively.
23
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 in our deferred compensation plan (for which there is a corresponding liability on our consolidated balance sheet), (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 these financial assets and liabilities by their levels in the fair value hierarchy at March 31, 2012 and December 31, 2011, respectively.
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)
40,929
58,881
Derivative positions in marketable equity securities
(included in other assets)
31,645
Total assets
1,210,479
795,439
383,395
Mandatorily redeemable instruments (included in other liabilities)
55,097
39,236
56,221
30,600
1,214,028
780,557
402,871
54,865
24
12. Fair Value Measurements – continued
Financial Assets and Liabilities Measured at Fair Value - continued
Real Estate Fund Investments
As of March 31, 2012, our real estate fund has five investments with an aggregate fair value of approximately $324,514,000, or $18,839,000 in excess of cost. These investments are classified as Level 3. We use a discounted cash flow valuation technique to estimate the fair value of each of these investments, which is updated quarterly by personnel responsible for the management of each investment and reviewed by senior management at each reporting period. The discounted cash flow valuation technique requires us to estimate cash flows for each investment over the anticipated holding period, which currently ranges from 2.3 to 6.8 years. Cash flows are derived from property rental revenue (base rents plus reimbursements) less operating expenses, real estate taxes and capital and other costs, plus projected sales proceeds in the year of exit. Property rental revenue is based on leases currently in place and our estimates for future leasing activity, which are based on current market rents for similar space plus a projected growth factor. Similarly, estimated operating expenses and real estate taxes are based on amounts incurred in the current period plus a projected growth factor for future periods. Anticipated sales proceeds at the end of an investment’s expected holding period are determined based on the net cash flow of the investment in the year of exit, divided by a terminal capitalization rate, less estimated selling costs.
The fair value of each property is calculated by discounting the future cash flows (including the projected sales proceeds), using an appropriate discount rate and then reduced by the property’s outstanding debt, if any, to determine the fair value of the equity in each investment. Significant unobservable quantitative inputs used in determining the fair value of each investment include capitalization rates and discount rates. These rates are based on the location, type and nature of each property, and current and anticipated market conditions, which are derived from original underwriting assumptions, industry publications and from the experience of our Acquisitions and Capital Markets departments. Significant unobservable quantitative inputs in the table below were utilized in determining the fair value of these Fund investments for the quarter ended March 31, 2012.
Weighted Average
(based on fair
Unobservable Quantitative Input
Range
value of investments)
Discount rates
12.5% to 23.3%
15.0 %
Terminal capitalization rates
5.5% to 6.8%
5.9 %
The above inputs are subject to change based on changes in economic and market conditions and/or changes in use or timing of exit. Changes in discount rates and terminal capitalization rates result in increases or decreases in the fair values of these investments. The discount rates encompass, among other things, uncertainties in the valuation models with respect to terminal capitalization rates and the amount and timing of cash flows. Therefore, a change in the fair value of these investments resulting from a change in the terminal capitalization rate, may be partially offset by a change in the discount rate. It is not possible for us to predict the effect of future economic or market conditions on our estimated fair values. The table below summarizes the changes in the fair value of Fund investments for the three months ended March 31, 2012 and 2011.
For the Three Months Ended March 31,
Beginning balance
144,423
Purchases
100,238
Sales
(31,052)
Realized and unrealized gains
698
2,072
(14,702)
Ending balance
230,657
25
Deferred Compensation Plan Assets
Deferred compensation plan assets that are classified as Level 3 consist of investments in limited partnerships and investment funds, which are managed by third parties. We receive quarterly financial reports from a third-party administrator, which are compiled from the quarterly reports provided to them from each limited partnership and investment fund. The quarterly reports provide net asset values on a fair value basis which are audited by independent public accounting firms on an annual basis. The third-party administrator does not adjust these values in determining our share of the net assets and we do not adjust these values when reported in our consolidated financial statements. The table below summarizes the changes in the fair value of Deferred Compensation Plan Assets for the three months ended March 31, 2012 and 2011.
47,850
3,611
1,286
(3,395)
2,392
3,623
(1,147)
51,612
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 our secured and unsecured debt. Estimates of the fair values of these instruments are determined by the standard practice of modeling the contractual cash flows required under the instrument and discounting them back to their present value at the appropriate current risk adjusted interest rate, which is provided by a third-party specialist. For floating rate debt, we use forward rates derived from observable market yield curves to project the expected cash flows we would be required to make under the instrument. The fair value of our mezzanine loans receivable is classified as Level 3 and the fair value of our secured and unsecured debt is classified as Level 2. The table below summarizes the carrying amounts and fair values of these financial instruments as of March 31, 2012 and December 31, 2011.
Carrying
Fair
Value
128,000
129,000
Debt:
8,505,000
8,686,000
1,439,000
1,426,000
501,000
510,000
10,000
10,302,599
10,455,000
10,562,002
10,770,000
26
13. Incentive Compensation
Our Omnibus Share 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, 2012 and 2011 consists of stock option awards, restricted stock awards, Operating Partnership unit awards and out-performance plan awards. Stock-based compensation expense was $6,609,000 and $7,146,000 in the three months ended March 31, 2012 and 2011, respectively.
On March 30, 2012, our Compensation Committee (the “Committee”) approved the 2012 formulaic annual incentive program for our senior executive management team. Under the program, our senior executive management team, including our Chairman and our President and Chief Executive Officer, will have the ability to earn annual incentive payments (cash or equity) if and only if we achieve comparable funds from operations (“Comparable FFO”) of at least 80% or more of the prior year Comparable FFO. Moreover, even if we achieve the stipulated Comparable FFO performance requirement, the Committee retains the right, consistent with best practices, to elect to make no payments under the program. Comparable FFO excludes the impact of certain non-recurring items such as income or loss from discontinued operations, the sale or mark-to-market of marketable securities or derivatives and early extinguishment of debt, restructuring costs and non-cash impairment losses, among others, and thus the Committee believes provides a better metric than total FFO for assessing management’s performance for the year. Aggregate incentive awards earned under the program are subject to a cap of 1.25% of Comparable FFO for the year, with individual award allocations determined by the Committee based on an assessment of individual and overall performance.
On March 30, 2012, the Committee also approved the 2012 Out-Performance Plan, a multi-year, performance-based equity compensation plan (the “2012 OPP”). The aggregate notional amount of the 2012 OPP is $40,000,000. Under the 2012 OPP, participants, including our Chairman and our President and Chief Executive Officer, have the opportunity to earn compensation payable in the form of equity awards if and only if we outperform a predetermined total shareholder return (“TSR”) and/or outperform the market with respect to a relative TSR in any year during a three-year performance period. Specifically, awards under our 2012 OPP may be earned if we (i) achieve a TSR above that of the SNL US REIT Index (the “Index”) over a one-year, two-year or three-year performance period (the “Relative Component”), and/or (ii) achieve a TSR level greater than 7% per annum, or 21% over the three-year performance period (the “Absolute Component”). To the extent awards would be earned under the Absolute Component of the 2012 OPP but we underperform the Index, such awards would be reduced (and potentially fully negated) based on the degree to which we underperform the Index. In certain circumstances, in the event we outperform the Index but awards would not otherwise be earned under the Absolute Component, awards may still be earned under the Relative Component. To the extent awards would otherwise be earned under the Relative Component but we fail to achieve at least a 6% per annum absolute TSR level, such awards would be reduced based on our absolute TSR performance, with no awards being earned in the event our TSR during the applicable measurement period is 0% or negative, irrespective of the degree to which we may outperform the Index. If the designated performance objectives are achieved, OPP Units are also subject to time-based vesting requirements. Dividends on awards issued accrue during the performance period and are paid to participants if and only if awards are ultimately earned based on the achievement of the designated performance objectives. Awards earned under the 2012 OPP vest 33% in year three, 33% in year four and 34% in year five. The fair value of the 2012 OPP on the date of grant, as adjusted for estimated forfeitures, was $12,250,000, and is being amortized into expense over a five-year period from the date of grant, using a graded vesting attribution model.
27
14. Fee and Other Income
The following table sets forth the details of our fee and other income:
BMS cleaning fees
15,510
15,423
Management and leasing fees
4,381
4,106
Lease termination fees
1,176
Other income
13,085
13,558
Fee and other income above includes management fee income from Interstate Properties, a related party, of $199,000 and $197,000 for the three months ended March 31, 2012 and 2011, respectively. The above table excludes management fee income from Alexander’s and Toys, among others, which is included in income from partially owned entities (see Note 6 – 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:
Dividends and interest on marketable securities
6,247
7,667
Mark-to-market of investments in our deferred compensation plan (1)
4,127
4,952
Interest on mezzanine loans
2,851
2,644
1,045
17,163
82,744
1,411
1,938
__________________________
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.
28
16. 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 includes 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 dilutive share equivalents. Dilutive share equivalents may include our Series A convertible preferred shares, employee stock options, restricted stock and exchangeable senior debentures.
Numerator:
Income from continuing operations, net of income attributable to noncontrolling interests
198,285
283,636
Income from discontinued operations, net of income attributable to noncontrolling interests
53,237
129,027
Net income attributable to common shareholders
Earnings allocated to unvested participating securities
(69)
(46)
Numerator for basic income per share
233,666
399,169
Impact of assumed conversions:
Interest on 3.88% exchangeable senior debentures
Convertible preferred share dividends
29
32
Numerator for diluted income per share
240,321
405,735
Denominator:
Denominator for basic income per share – weighted average shares
Effect of dilutive securities(1):
3.88% exchangeable senior debentures
5,736
Employee stock options and restricted share awards
730
1,749
Convertible preferred shares
56
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, 2012 and 2011 excludes an aggregate of 12,943 and 12,786 weighted average common share equivalents, respectively, as their effect was anti-dilutive.
17. 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 $180,000,000 per occurrence, subject to a deductible in the amount of 5% of the value of the affected property, up to a $180,000,000 annual aggregate.
Penn Plaza Insurance Company, LLC (“PPIC”), our wholly owned consolidated subsidiary, acts as a re-insurer with respect to a portion of all risk property and rental value insurance and 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. Coverage for NBCR losses is up to $2.0 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.
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, 2012, the aggregate dollar amount of these guarantees and master leases is approximately $269,444,000.
At March 31, 2012, $22,085,000 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.
Two of our wholly owned subsidiaries that are contracted to develop and operate the Cleveland Medical Mart and Convention Center, in Cleveland, Ohio, 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, upon the completion of development and the commencement of operations.
As of March 31, 2012, we expect to fund additional capital to certain of our partially owned entities aggregating approximately $288,337,000.
30
17. Commitments and Contingencies – continued
Litigation
We are from time to time involved in legal actions arising in the ordinary course of business. In our opinion, after consultation with legal counsel, the outcome of such matters, including the matter referred to below, is not expected to have a material adverse effect on our financial position, results of operations or cash flows.
In 2003, Stop & Shop filed an action against us in the New York Supreme Court, claiming that we had no right to reallocate and therefore continue to collect $5,000,000 of annual rent from Stop & Shop pursuant to a Master Agreement and Guaranty, because of the expiration of the leases to which the annual rent was previously allocated. Stop & Shop asserted that an order of the Bankruptcy Court for the Southern District of New York, as modified on appeal by the District Court, froze our right to reallocate and effectively terminated our right to collect the annual rent from Stop & Shop. We asserted a counterclaim seeking a judgment for all the unpaid annual rent accruing through the date of the judgment and a declaration that Stop & Shop will continue to be liable for the annual rent as long as any of the leases subject to the Master Agreement and Guaranty remain in effect. After summary judgment motions by both sides were denied, the parties conducted discovery. A trial was held in November 2010. On November 7, 2011, the Court determined that we have a continuing right to allocate the annual rent to unexpired leases covered by the Master Agreement and Guaranty, and directed entry of a judgment in our favor ordering Stop & Shop to pay us the unpaid annual rent accrued through February 28, 2011 in the amount of $37,422,000, a portion of the annual rent due from March 1, 2011 through the date of judgment, interest, and attorneys’ fees. On December 16, 2011, a money judgment based on the Court’s decision was entered in our favor in the amount of $56,597,000 (including interest and costs). The amount for attorneys’ fees is being addressed in a proceeding before a special referee. Stop & Shop has appealed the Court’s decision and the judgment, and has posted a bond to secure payment of the judgment. On January 12, 2012, we commenced a new action against Stop & Shop seeking recovery of $2,500,000 of annual rent not included in the money judgment, plus additional annual rent as it accrues. Stop & Shop has filed a motion to dismiss this action.
As of March 31, 2012, we have a $43,400,000 receivable from Stop & Shop, excluding amounts due to us for interest and costs resulting from the Court’s judgment. As a result of Stop & Shop appealing the Court’s decision, we believe, after consultation with counsel, that the maximum reasonably possible loss is up to the total amount of the receivable of $43,400,000.
18. Related Party Transactions
On March 8, 2012, Steven Roth, the Chairman of our Board of Trustees, repaid his $13,122,500 outstanding loan from the Company.
31
19. Segment Information
Effective January 1, 2012, as a result of certain organizational and operational changes, we redefined the New York business segment to encompass all of our Manhattan assets by including the 1.0 million square feet in 21 freestanding Manhattan street retail assets (formerly in our Retail segment), and the Hotel Pennsylvania and our interest in Alexander’s, Inc. (formerly in our Other segment). Accordingly, we have reclassified the prior period segment financial results to conform to the current year presentation. See note (3) on page 34 for the elements of the New York segment’s EBITDA.
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, 2012 and 2011.
For the Three Months Ended March 31, 2012
Retail
Merchandise
New York
Washington, DC
Properties
Mart
521,792
233,936
129,607
79,914
56,086
22,249
Straight-line rent adjustments
21,808
17,129
1,814
2,029
476
360
Amortization of acquired below-
market leases, net
13,813
7,695
523
4,230
1,368
Total rentals
258,760
131,944
86,173
56,559
23,977
36,712
10,384
30,794
2,149
1,568
Cleveland Medical Mart development
project
Fee and other income:
22,647
(7,137)
907
2,783
664
45
(18)
388
6,347
5,784
351
706
(103)
325,396
150,895
117,982
114,906
18,287
Operating expenses
145,672
49,003
45,933
33,553
2,665
53,759
44,153
21,614
9,365
10,546
8,587
6,953
6,333
6,219
27,798
Acquisition related costs and
tenant buy-outs
208,018
100,109
73,880
101,898
41,694
Operating income (loss)
117,378
50,786
44,102
13,008
(23,407)
Income applicable to Toys
Income (loss) from partially owned
entities
4,386
(1,870)
576
156
16,785
Interest and other investment
income, net
1,052
57
14,555
Interest and debt expense
(36,141)
(30,411)
(19,295)
(8,634)
(40,688)
Income (loss) before income taxes
86,675
18,562
25,397
4,533
(20,993)
(601)
(490)
(1,162)
(4,843)
Income (loss) from continuing
operations
86,074
18,072
3,371
(25,836)
Income (loss) from discontinued operations
(608)
2,519
54,804
Net income (loss)
85,466
27,916
58,175
Less net (income) loss attributable to
noncontrolling interests in:
(2,176)
114
(7,535)
Operating Partnership, including
unit distributions
Net income (loss) attributable to
Vornado
83,290
28,030
(52,516)
Interest and debt expense(2)
193,082
47,058
33,657
20,438
8,790
31,569
51,570
Depreciation and amortization(2)
191,173
61,911
48,260
22,275
9,478
34,706
14,543
Income tax expense(2)
51,440
693
1,162
43,203
5,859
EBITDA(1)
687,217
192,952
100,512
70,743
77,605
225,949
19,456
See notes on page 34.
19. Segment Information – continued
For the Three Months Ended March 31, 2011
532,865
233,874
138,884
79,811
57,292
23,004
12,781
10,098
1,972
(314)
1,030
16,606
11,669
466
3,315
1,139
255,641
139,345
85,098
56,995
25,173
38,905
9,297
34,003
3,200
4,264
22,042
(6,619)
769
2,885
555
103
(206)
1,111
5,658
5,345
500
2,019
323,080
157,983
120,156
103,016
22,648
143,375
48,836
50,134
38,667
5,350
54,812
33,684
21,412
9,329
10,596
7,534
6,537
7,212
7,545
30,118
15,000
3,040
230
220,721
89,057
78,758
96,859
46,294
102,359
68,926
41,398
6,157
(23,646)
6,904
(3,915)
221
76
12,998
1,072
115,987
(36,584)
(28,926)
(19,520)
(9,338)
(40,342)
Net gain on disposition of wholly
owned and partially owned assets
73,751
36,117
22,107
(3,096)
72,754
(519)
(738)
(410)
(4,710)
73,232
35,379
22,102
(3,506)
68,044
123
46,466
6,339
84,698
73,355
81,845
28,441
81,192
(2,271)
155
766
Net income attributable to
71,084
28,596
37,002
198,848
40,289
32,221
20,670
12,907
40,135
52,626
185,848
56,709
41,899
22,375
11,175
34,673
19,017
Income tax expense (benefit)(2)
66,828
467
848
410
69,018
(3,920)
864,187
168,549
156,813
71,646
105,684
256,770
104,725
33
19. 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 elements of "New York" EBITDA are summarized below.
Office and retail(a)
180,137
155,365
Alexander's
13,371
13,281
Hotel Pennsylvania
(556)
(97)
Total New York
(a)
The EBITDA for the three months ended March 31, 2011 is after a $15,000 expense for the buy-out of a below market lease.
The elements of "other" EBITDA are summarized below.
Our share of Real Estate Fund:
Income before net realized/unrealized gains
2,118
980
1,711
174
15,562
9,390
10,315
10,965
9,218
10,541
Other investments
9,300
8,201
48,224
40,251
Corporate general and administrative expenses(a)
(22,317)
(21,355)
Investment income and other, net(a)
10,445
13,083
Fee income from Alexander's
1,889
1,887
Acquisition costs
(685)
(230)
Net gain on sale of condominiums
4,586
Real Estate Fund placement fees
(3,048)
Net income attributable to noncontrolling interests in the Operating
Partnership, including unit distributions
The amounts in these captions (for this table only) exclude the mark-to-market of our deferred compensation plan assets and offsetting liability.
34
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, 2012, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for the three-month periods ended March 31, 2012 and 2011. 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, 2011, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for the year then ended (not presented herein); and in our report dated February 27, 2012, we expressed an unqualified opinion on those consolidated financial statements and included an explanatory paragraph relating to the change in method of presenting comprehensive income due to the adoption of FASB Accounting Standards Update No. 2011-05, Presentation of Comprehensive Income. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2011 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 7, 2012
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Certain statements contained in this Quarterly Report 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, 2011. 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, 2012. 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.
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, 2012.
Total Return(1)
RMS
SNL
One-year
(0.5%)
13.0%
11.9%
Three-year
178.9%
195.6%
192.8%
Five-year
(16.4%)
(0.8%)
2.9%
Ten-year
194.2%
169.1%
181.1%
(1) Past performance is not necessarily indicative of future performance.
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 these 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.
37
Overview - continued
Quarter Ended March 31, 2012 Financial Results Summary
Net income attributable to common shareholders for the quarter ended March 31, 2012 was $233,735,000, or $1.25 per diluted share, compared to $399,215,000, or $2.12 per diluted share, for the quarter ended March 31, 2011. Net income for the quarters ended March 31, 2012 and 2011 include $56,478,000 and $51,165,000, respectively, of net gains on sale of real estate, and $8,875,000 for our share of real estate impairment losses recorded by certain of our partially owned entities, for the quarter ended March 31, 2012. In addition, the quarters ended March 31, 2012 and 2011 include certain other items that affect comparability, which are listed in the table below. The aggregate of net gains on sale of real estate, real estate impairment losses and the items in the table below, net of amounts attributable to noncontrolling interests, increased net income attributable to common shareholders by $46,281,000, or $0.24 per diluted share for the quarter ended March 31, 2012 and $220,460,000, or $1.15 per diluted share for the prior year’s quarter.
Funds From Operations attributable to common shareholders plus assumed conversions (“FFO”) for the quarter ended March 31, 2012 was $348,452,000, or $1.82 per diluted share, compared to $505,931,000, or $2.64 per diluted share, for the prior year’s quarter. FFO for the quarters ended March 31, 2012 and 2011 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 $1,609,000, or $0.01 per diluted share for the quarter ended March 31, 2012 and $174,757,000, or $0.91 for the prior year’s quarter.
Items that affect comparability income (expense):
Our share of LNR's tax settlement gain
Buy-out of a below market lease
(15,000)
FFO attributable to discontinued operations
4,928
(228)
3,845
186,564
Noncontrolling interests' share of above adjustments
(106)
(11,807)
Items that affect comparability, net
1,609
174,757
The percentage increase (decrease) 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, 2012 over the quarter ended March 31, 2011 and the trailing quarter ended December 31, 2011 are summarized below.
Same Store EBITDA:
March 31, 2012 vs. March 31, 2011
GAAP basis
3.5%
(7.1%)
5.4%
Cash Basis
1.8%
(8.2%)
(0.1%)
2.4%
March 31, 2012 vs. December 31, 2011
(8.7%)
(2.7%)
11.6%
(11.3%)
(2.1%)
(2.9%)
7.1%
Excluding the seasonality impact of the Hotel Pennsylvania, same store decreased by 3.2% and 5.4% on a GAAP and Cash basis, respectively.
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.
38
2012 Dispositions
2012 Financing Activities
Secured Debt
On January 9, 2012, we completed a $300,000,000 refinancing of 350 Park Avenue, a 559,000 square foot Manhattan office building. The five-year fixed rate loan bears interest at 3.75% and amortizes based on a 30-year schedule beginning in the third year. The proceeds of the new loan and $132,000,000 of existing cash were used to repay the existing loan and closing costs.
On March 5, 2012, we completed a $325,000,000 refinancing of 100 West 33rdStreet, a 1.1 million square foot property located on the entire Sixth Avenue block front between 32nd and 33rd Streets in Manhattan. The building contains the 257,000 square foot Manhattan Mall and 848,000 square feet of office space. The three-year loan bears interest at LIBOR plus 2.50% (2.74% at March 31, 2012) and has two one-year extension options. We retained net proceeds of approximately $87,000,000 after repaying the existing loan and closing costs.
Senior Unsecured Debt
In April 2012, we redeemed all of the outstanding exchangeable and convertible senior debentures at par, for an aggregate of $510,215,000 in cash.
Recently Issued Accounting Literature
In May 2011, the Financial Accounting Standards Board (“FASB”) issued Update No. 2011-04, Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS(“ASU No. 2011-04”). ASU No. 2011-04 provides a uniform framework for fair value measurements and related disclosures between GAAP and International Financial Reporting Standards (“IFRS”) and requires additional disclosures, including: (i) quantitative information about unobservable inputs used, a description of the valuation processes used, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs, for Level 3 fair value measurements; (ii) fair value of financial instruments not measured at fair value but for which disclosure of fair value is required, based on their levels in the fair value hierarchy; and (iii) transfers between Level 1 and Level 2 of the fair value hierarchy. The adoption of this update on January 1, 2012 did not have a material impact on our consolidated financial statements, but resulted in additional fair value measurement disclosures.
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, 2011 in Management’s Discussion and Analysis of Financial Condition. There have been no significant changes to our policies during 2012.
39
Leasing Activity:
The leasing activity in the table below is based on leases signed during the period and is not intended to coincide with the commencement of rental revenue in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Tenant improvements and leasing commissions are based on our share of square feet leased during the period. Second generation relet space represents square footage that has not been vacant for more than nine months. The leasing activity for the New York segment excludes Alexander’s and the Hotel Pennsylvania.
Washington,
Retail Properties
(Square feet in thousands)
Office
DC
Strips
Malls(3)
Showroom
Quarter Ended March 31, 2012:
Total square feet leased
513
712
522
43
Our share of square feet leased:
509
628
Initial rent(1)
53.63
238.11
40.42
18.76
38.58
23.50
35.89
Weighted average lease term (years)
9.1
2.5
6.0
8.2
5.2
5.0
7.0
Second generation relet space:
Square feet
482
589
386
Cash basis:
53.94
563.76
40.44
15.02
104.61
Prior escalated rent
52.76
311.13
40.07
14.31
98.50
36.99
Percentage increase (decrease)
2.2%
81.2%
0.9%
5.0%
6.2%
-%
(3.0%)
GAAP basis:
Straight-line rent (2)
52.88
598.83
39.88
15.94
106.32
25.50
36.22
Prior straight-line rent
51.35
292.75
38.77
12.62
95.75
32.94
Percentage increase
3.0%
104.6%
26.3%
11.0%
10.0%
Tenant improvements and leasing
commissions:
Per square foot
42.54
49.23
31.61
12.84
5.77
13.60
13.38
Per square foot per annum:
4.66
19.59
5.28
1.57
1.11
2.72
1.91
Percentage of initial rent
8.7%
8.2%
13.1%
8.4%
5.3%
Represents the cash basis weighted average starting rent per square foot, which is generally indicative of market rents. Most leases include free rent and periodic step-ups in rent which are not included in the initial cash basis rent per square foot but are included in the GAAP basis straight-line rent per square foot.
Represents the GAAP basis weighted average rent per square foot that is recognized over the term of the respective leases, and includes the effect of free rent and periodic step-ups in rent.
Mall sales per square foot, including partially owned malls, for the trailing twelve months ended March 31, 2012 and 2011 were $479 and $470, respectively.
40
Overview – continued
Square footage (in service) and Occupancy as of March 31, 2012:
Square Feet (in service)
Number of
Our
properties
Portfolio
Share
Occupancy %
19,298
16,441
96.2%
46
2,223
1,977
94.5%
3,389
1,098
97.8%
1,400
26,310
20,916
96.1%
77
19,998
17,391
87.5%(1)
Retail Properties:
16,663
16,080
93.5%
Regional Malls
7,244
5,603
92.3%
23,907
21,683
93.2%
1,762
1,753
87.2%
3,915
81.9%
5,677
5,668
83.5%
1,795
1,257
93.1%
Primarily Warehouses
1,507
38.9%
3,302
2,764
Total square feet at March 31, 2012
79,194
68,422
The occupancy rate for office properties excluding residential and other properties is 85.4%
Square footage (in service) and Occupancy as of December 31, 2011:
19,571
16,598
2,239
1,982
95.6%
26,599
21,078
20,529
17,925
90.3%(1)
127
16,930
16,347
7,278
5,631
92.0%
24,208
21,978
92.8%
1,648
1,639
90.5%
4,014
83.0%
5,662
5,653
85.1%
35.2%
Total square feet at December 31, 2011
80,300
69,398
The occupancy rate for office properties excluding residential and other properties is 89.0%
41
Square footage (in service) and Occupancy as of March 31, 2011:
17,432
15,647
44
2,124
1,962
96.9%
3,402
1,102
24,358
20,111
82
21,171
17,829
93.7%(1)
129
17,189
16,861
6,966
5,455
91.7%
24,155
22,316
92.2%
1,551
1,542
90.7%
4,109
93.7%
5,660
5,651
92.9%
93.0%
1,523
1,509
48.2%
3,318
2,766
Total square feet at March 31, 2011
78,662
68,673
The occupancy rate for office properties excluding residential and other properties is 92.8%
42
Washington, DC Properties Segment
In our Form 10-K for the year ended December 31, 2011, as a result of the BRAC statute, we estimated that occupancy will decrease from 90% at year end, to between 82% to 84% in 2012 and that 2012 EBITDA before discontinued operations will be lower than 2011 by approximately $55,000,000 to $65,000,000 based on 2,902,000 square feet expiring in 2012, partially offset by leasing over 1,000,000 square feet. At March 31, 2012, occupancy is at 87.5% and EBITDA before discontinued operations for the three months ended March 31, 2012 is approximately $7,900,000 lower than it was in the three months ended March 31, 2011.
Of the 2,395,000 square feet subject to BRAC, 348,000 square feet has been taken out of service for redevelopment and 382,000 square feet has been leased or is pending. The table below summarizes the status of the BRAC space as of March 31, 2012.
Rent Per
Square Feet
Square Foot
Crystal City
Skyline
Rosslyn
Resolved:
Relet as of March 31, 2012
41.49
266,000
Leases pending
39.55
116,000
Taken out of service for redevelopment
348,000
730,000
To Be Resolved:
Already vacated
31.14
642,000
201,000
441,000
Expiring in:
41.06
490,000
361,000
119,000
36.86
179,000
43,000
136,000
30.48
261,000
42.25
88,000
5,000
1,665,000
710,000
809,000
146,000
Total square feet subject to BRAC
2,395,000
1,440,000
In the first quarter of 2012, we notified the lender that the Skyline property had a 26% vacancy rate, which is expected to increase due to scheduled lease expirations resulting primarily from the effects of the BRAC statute. Based on the projected vacancy and the significant amount of capital required to re-tenant the property, at our request, the mortgage loan was transferred to the special servicer.
Net Income and EBITDA by Segment for the Three Months Ended March 31, 2012 and 2011
Effective January 1, 2012, as a result of certain organizational and operational changes, we redefined the New York business segment to encompass all of our Manhattan assets by including the 1.0 million square feet in 21 freestanding Manhattan street retail assets (formerly in our Retail segment), and the Hotel Pennsylvania and our interest in Alexander’s, Inc. (formerly in our Other segment). Accordingly, we have reclassified the prior period segment financial results to conform to the current year presentation. See note (3) on page 46 for the elements of the New York segment’s EBITDA.
____________________
See notes on page 46.
Net Income and EBITDA by Segment for the Three Months Ended March 31, 2012 and 2011 - continued
Below is a summary of the percentages of EBITDA by geographic region (excluding discontinued operations and other gains and losses that affect comparability), from our New York, Washington, DC, Retail and Merchandise Mart segments.
Region:
New York City metropolitan area
63%
61%
Washington, DC / Northern Virginia metropolitan area
27%
30%
California
2%
Chicago
4%
3%
Puerto Rico
Other geographies
100%
Results of Operations – Three Months Ended March 31, 2012 Compared to March 31, 2011
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 $727,466,000 for the three months ended March 31, 2012, compared to $726,883,000 in the prior year’s three months, an increase of $583,000. Below are the details of the increase (decrease) by segment:
Increase (decrease) due to:
Property rentals:
Acquisitions, sale of partial interests
and other
1,634
1,624
Development
(3,354)
(3,440)
86
585
Trade Shows
1,621
Amortization of acquired below-market
leases, net
(2,793)
(3,974)
915
(20)
229
Leasing activity (see page 40)
(2,532)
6,508
(5,642)
(2,037)
(1,425)
(4,839)
3,119
(7,401)
1,075
(436)
(1,196)
Tenant expense reimbursements:
Acquisitions/development, sale of partial
interests and other
(3,114)
(134)
578
(871)
(2,687)
Operations
(4,948)
(2,059)
(2,338)
(1,051)
(8,062)
(2,193)
1,087
(3,209)
(2,696)
14,360
87
605
(518)
275
(102)
109
(58)
188
Lease cancellation fee income
(765)
(42)
(1,111)
(473)
689
439
(149)
(1,313)
(139)
(876)
1,390
(774)
(40)
(983)
(469)
Total increase (decrease) in revenues
583
2,316
(7,088)
(2,174)
11,890
(4,361)
This increase in income is offset by an increase in development costs expensed in the period. See note (4) on page 48.
Primarily from the elimination of intercompany fees from operating segments upon consolidation.
Primarily from $1,000 of development fees in the prior year.
47
Results of Operations – Three Months Ended March 31, 2012 Compared to March 31, 2011 - continued
Expenses
Our expenses, which consist primarily of operating, depreciation and amortization and general and administrative expenses, were $525,599,000 for the three months ended March 31, 2012, compared to $531,689,000 in the prior year’s three months, a decrease of $6,090,000. Below are the details of the increase (decrease) by segment:
(Decrease) increase due to:
Operating:
(1,700)
89
928
(30)
Development/redevelopment
(1,527)
(731)
(796)
Non-reimbursable expenses, including
bad debt reserves
(5,717)
(1,202)
(879)
(3,636)
929
653
BMS expenses
(320)
198
(1,854)
2,283
(2,496)
(2,131)
520
(9,536)
2,297
167
(4,201)
(5,114)
(2,685)
Depreciation and amortization:
12,280
81
11,939
260
(2,676)
(1,134)
(1,470)
9,604
(1,053)
10,469
202
General and administrative:
Mark-to-market of deferred compensation
plan liability(1)
(825)
817
1,053
416
(1,326)
1,553
(3,056)
(2,320)
14,483
(17,585)
(3,040)
455
Total (decrease) increase in expenses
(6,090)
(12,703)
11,052
(4,878)
5,039
(4,600)
This decrease in expense is entirely offset by a corresponding decrease in income from the mark-to-market of the deferred compensation plan assets, a component of “interest and other investment income, net” on our consolidated statements of income.
Primarily from lower payroll costs due to a reduction in workforce.
Primarily from higher payroll costs and stock based compensation.
This increase in expense is offset by the increase in development revenue in the period. See note (1) on page 47.
Represents the buy-out of a below-market lease in the prior year.
48
Income Applicable to Toys
In the three months ended March 31, 2012, we recognized net income of $116,471,000 from our investment in Toys, comprised of $114,184,000 for our 32.7% share of Toys’ net income ($157,387,000 before our share of Toys’ income tax expense) and $2,287,000 of management fees. 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 management fees.
Income from Partially Owned Entities
Summarized below are the components of income (loss) from partially owned entities for the three months ended March 31, 2012 and 2011.
Equity in Net Income (Loss):
32.4%
Lexington (1)
11.9% (2)
LNR (3)
26.2%
49.5%
Warner Building (4)
55.0%
25.0%
30.3%
West 57th Street Properties
50.0%
20.0%
51.0%
8.3%
Other equity method investments
2011 includes a $1,452 net gain resulting from Lexington's stock issuance.
2011 includes $8,977 for our share of a tax settlement gain.
2011 includes $9,022 for our share of expense, primarily for straight-line 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, 2012, we recognized $11,762,000 of income from the Fund, including $6,844,000 of net unrealized gains from the mark-to-market of investments in the Fund. Of the $11,762,000, $7,933,000 was attributable to noncontrolling interests. Accordingly, our share of the Fund’s income was $3,829,000. In addition, we recognized $541,000 of management, leasing and development fees which are included as a component of “fee and other income.” In the three months ended March 31, 2011, we recognized $1,080,000 of income from the Fund.
49
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 $15,681,000 in the three months ended March 31, 2012, compared to $117,108,000 in the prior year’s three months, a decrease of $101,427,000. This decrease resulted from:
Mezzanine loan loss reversal and net gain on disposition in 2011
J.C. Penney derivative position ($1,045 mark-to-market gain in 2012, compared to a $17,163
mark-to-market gain in 2011)
(16,118)
Decrease in the value of investments in our deferred compensation plan (offset by a corresponding
decrease in the liability for plan assets in general and administrative expenses)
Other, net (primarily lower dividends and interest on marketable securities and mezzanine loans)
(1,740)
(101,427)
Interest and Debt Expense
Interest and debt expense was $135,169,000 in the three months ended March 31, 2012, compared to $134,710,000 in the prior year’s three months, an increase of $459,000. This increase was primarily due to $5,045,000 from the issuance of $400,000,000 of senior unsecured notes in November 2011, partially offset by $2,513,000 from the refinancing of 350 Park Avenue in January 2012 (of which $1,674,000 was due to a lower rate and $839,000 was due to a decrease in the outstanding loan balance), and $2,345,000 from the redemption of our convertible senior debentures in November 2011.
Net Gain on Disposition of Wholly Owned and Partially Owned Assets
In the three months ended March 31, 2011, we recognized a $6,677,000 net gain from the sale of residential condominiums and marketable securities.
Income Tax Expense
Income tax expense was $7,096,000 in the three months ended March 31, 2012, compared to $6,382,000 in the prior year’s three months, an increase of $714,000. This increase resulted primarily from higher taxable income of our taxable REIT subsidiaries.
Income from Discontinued Operations
In the first quarter of 2012, we sold seven retail properties in separate transactions, for an aggregate of $83,760,000 in cash, which resulted in a net gain aggregating $906,000.
The table below sets forth the combined results of assets related to discontinued operations for thethree months ended March 31, 2012 and 2011.
Net Income Attributable to Noncontrolling Interests in Consolidated Subsidiaries
Net income attributable to noncontrolling interests in consolidated subsidiaries was $9,597,000 in the three months ended March 31, 2012, compared to $1,350,000 in the prior year’s three months, an increase of $8,247,000. This resulted primarily from an $8,007,000 increase in income allocated to the noncontrolling interests of our Real Estate Fund.
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, 2012 and 2011 is primarily comprised of allocations of income to redeemable noncontrolling interests of $15,271,000 and $27,305,000, respectively, and preferred unit distributions of the Operating Partnership of $3,874,000 and $4,503,000, respectively. The decrease of $12,034,000 in allocations of income to redeemable noncontrolling interests resulted primarily from lower net income subject to allocation to unitholders.
Preferred Share Dividends
Preferred share dividends were $17,787,000 for the three months ended March 31, 2012, compared to $13,448,000 for the prior year’s three months, an increase of $4,339,000. This increase resulted from the issuance of $246,250,000 face amount of Series J preferred shares in 2011.
51
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, 2012, compared to the three months ended March 31, 2011.
EBITDA for the three months ended March 31, 2012
Add-back: non-property level overhead
expenses included above
Less: EBITDA from acquisitions, dispositions
and other non-operating income or expenses
(9,400)
(5,025)
(5,233)
(55,980)
GAAP basis same store EBITDA for the three months
ended March 31, 2012
192,139
102,440
71,843
27,844
Less: Adjustments for straight-line rents,
amortization of below-market leases, net, and other
non-cash adjustments
(22,393)
(1,770)
(3,404)
Cash basis same store EBITDA for the three months
169,746
100,670
68,439
27,371
EBITDA for the three months ended March 31, 2011
9,564
(53,079)
(6,638)
(86,804)
ended March 31, 2011
185,647
110,271
72,220
26,425
(18,829)
(634)
(3,704)
297
166,818
109,637
68,516
26,722
Increase (decrease) in GAAP basis same store EBITDA for
the three months ended March 31, 2012 over the
three months ended March 31, 2011
6,492
(7,831)
(377)
1,419
Increase (decrease) in Cash basis same store EBITDA for
2,928
(8,967)
(77)
649
% increase (decrease) in GAAP basis same store EBITDA
% increase (decrease) in Cash basis same store EBITDA
SUPPLEMENTAL INFORMATION
Reconciliation of EBITDA to Same Store EBITDA - Three Months Ended March 31, 2012 vs. December 31, 2011
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, 2012, compared to the three months ended December 31, 2011.
Add-back: non-property level overhead expenses
included above
(6,375)
(2,479)
(55,192)
195,164
74,597
28,632
Less: Adjustments for straight-line rents, amortization of
below-market leases, net, and other non-cash adjustments
(23,220)
(4,274)
171,944
70,323
28,159
EBITDA for the three months ended December 31, 2011(1)
207,122
106,140
94,706
(1,678)
6,399
6,876
5,443
6,141
301
(10,016)
(23,512)
21,203
ended December 31, 2011
213,822
103,000
76,637
25,666
(19,940)
(120)
(4,246)
638
193,882
102,880
72,391
26,304
(Decrease) increase in GAAP basis same store EBITDA for
three months ended December 31, 2011
(18,658)
(560)
(2,040)
2,966
(Decrease) increase in Cash basis same store EBITDA for
(21,938)
(2,210)
(2,068)
1,855
% (decrease) increase in GAAP basis same store EBITDA
% (decrease) increase in Cash basis same store EBITDA
Below is the reconciliation of net income to EBITDA for the three months ended December 31, 2011.
Net income (loss) attributable to Vornado for the three months
91,086
7,874
51,467
(22,688)
49,491
34,253
20,464
8,891
66,019
63,270
22,746
12,093
743
EBITDA for the three months ended December 31, 2011
53
Related Party Transactions
Liquidity and Capital Resources
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.
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 $445,679,000 for acquisitions, including $111,419,750 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.
Cash Flows for the Three Months Ended March 31, 2012
Our cash and cash equivalents were $614,359,000 at March 31, 2012, a $7,806,000 increase over the balance at December 31, 2011. Our consolidated outstanding debt was $10,302,599,000 at March 31, 2012, a $259,403,000 decrease over the balance at December 31, 2011. As of March 31, 2012 and December 31, 2011, $0 and $138,000,000, respectively, was outstanding under our revolving credit facilities. During the remainder of 2012 and 2013, $580,684,000 and $1,689,923,000, respectively, of our outstanding debt matures; we may refinance this maturing debt as it comes due or choose to repay it using a portion of our $3,114,359,000 of available capacity (comprised of $614,359,000 of cash and cash equivalents and $2,500,000,000 of availability under our revolving credit facilities).
Cash flows provided by operating activities of $307,103,000 was comprised of (i) net income of $280,264,000, (ii) distributions of income from partially owned entities of $14,194,000, and (iii) the net change in operating assets and liabilities of $95,377,000, including $28,980,000 related to Real Estate Fund investments, partially offset by (iv) $82,732,000 of non-cash adjustments, which include depreciation and amortization expense, the effect of straight-lining of rental income, equity in net income of partially owned entities and net gains on sale of real estate.
Net cash provided by investing activities of $172,095,000 was comprised of (i) $306,022,000 of proceeds from sales of real estate and related investments, (ii) $4,203,000 of capital distributions from partially owned entities, (iii) $13,123,000 of proceeds from the repayment of loan to officer, and (iv) $554,000 of proceeds from sales and repayments of mezzanine loans, partially offset by (v) $46,732,000 of investments in partially owned entities, (vi) $44,052,000 of additions to real estate, (vii) $20,614,000 of development costs and construction in progress, (viii) $21,054,000 of acquisitions of real estate, and (ix) $19,355,000 of changes in restricted cash.
Net cash used in financing activities of $471,392,000 was comprised of (i) $884,679,000 for the repayments of borrowings, (ii) $127,973,000 of dividends paid on common shares, (iii) $34,092,000 of distributions to noncontrolling interests, (iv) $30,034,000 for the repurchase of shares related to stock compensation agreements and related tax holdings, (v) $17,789,000 of dividends paid on preferred shares, and (vi) $9,822,000 of debt issuance and other costs, partially offset by (vii) $625,000,000 of proceeds from borrowings and (viii) $7,997,000 of proceeds from exercise of employee share options.
Liquidity and Capital Resources – continued
Capital Expenditures in the three months ended March 31, 2012
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 to lease space that has been vacant for more than nine months and 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. Below is a summary of capital expenditures, leasing commissions and a reconciliation of total expenditures on an accrual basis to the cash expended in the three months ended March 31, 2012.
Expenditures to maintain assets
7,728
4,234
1,195
428
901
970
Tenant improvements
38,512
14,198
16,374
5,840
2,100
Leasing commissions
12,712
7,719
3,892
Non-recurring capital expenditures
799
185
614
Total capital expenditures and leasing
commissions (accrual basis)
59,751
26,336
21,461
7,355
3,015
1,584
Adjustments to reconcile to cash basis:
Expenditures in the current year
applicable to prior periods
40,067
14,685
10,946
3,595
6,942
3,899
Expenditures to be made in future
periods for the current period
(43,359)
(16,004)
(18,720)
(5,620)
(3,015)
commissions (cash basis)
56,459
25,017
13,687
5,330
5,483
Tenant improvements and leasing commissions:
Per square foot per annum
3.71
4.95
1.55
1.92
9.0%
7.6%
7.7%
Development and Redevelopment Expenditures in the three months ended March 31, 2012
Development and redevelopment expenditures consist of 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 completed and ready for its intended use. Below is a summary of development and redevelopment expenditures incurred in the three months ended months ended March 31, 2012.
3,979
Beverly Connection
3,437
510 Fifth Avenue
2,294
Poughkeepsie, New York
1,108
504
Crystal City Hotel
394
Crystal Plaza 5
349
8,549
2,990
3,202
68
20,614
5,284
3,945
10,786
572
As of March 31, 2012, the estimated costs to complete the above projects are approximately $27,529,000. In addition, during 2012, we plan to redevelop 1851 South Bell Street, a 348,000 square foot office building in Crystal City, into a new 700,000 square foot office building (readdressed as 1900 Crystal Drive). The estimated cost of this project is approximately $300,000,000, or $425 per square foot. There can be no assurance that these projects will commence, or, if commenced, be completed on schedule or within budget.
55
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.
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.
Capital Expenditures in the three months ended March 31, 2011
7,051
3,435
1,069
212
1,577
758
13,390
8,310
3,632
1,033
415
3,392
1,959
963
470
11,881
11,481
400
35,714
25,185
5,664
1,992
1,158
27,096
14,971
3,608
3,635
4,564
318
(25,799)
(19,599)
(4,297)
(1,503)
(400)
37,011
20,557
4,975
3,847
6,156
1,476
2.74
4.37
3.17
0.51
0.44
7.0%
7.5%
1.2%
Development and Redevelopment Expenditures in the three months ended March 31, 2011
3,034
2,982
535
4,443
1,678
1,763
615
232
10,994
7,166
58
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, real estate impairment losses, 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 16 – Income per Share, in the notes to our consolidated financial statements on page 29 of this Quarterly Report on Form 10-Q.
FFO for the Three Months Ended March 31, 2012 and 2011
FFO attributable to common shareholders plus assumed conversions was $348,452,000, or $1.82 per diluted share for the three months ended March 31, 2012, compared to $505,931,000, or $2.64 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.”
For The Three Months
Reconciliation of our net income to FFO:
Depreciation and amortization of real property
132,558
124,321
Proportionate share of adjustments to equity in net income of Toys, to arrive at FFO:
17,288
17,729
Real estate impairment losses
7,026
Income tax effect of above adjustments
(8,497)
(6,205)
Proportionate share of adjustments to equity in net income of partially owned entities, excluding
Toys, to arrive at FFO:
21,376
23,969
(661)
(1,649)
1,849
(7,060)
(6,850)
FFO
359,584
512,813
FFO attributable to common shareholders
341,797
499,365
FFO attributable to common shareholders plus assumed conversions
348,452
505,931
Reconciliation of Weighted Average Shares
Weighted average common shares outstanding
Effect of dilutive securities:
Denominator for FFO per diluted share
FFO attributable to common shareholders plus assumed conversions per diluted share
1.82
2.64
60
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
2.48%
21,390
2,206,993
2.25%
Fixed rate
8,163,603
5.47%
8,355,009
5.55%
4.85%
4.86%
Pro-rata share of debt of non-consolidated
entities (non-recourse):
Variable rate – excluding Toys
352,866
2.73%
3,529
284,372
2.85%
Variable rate – Toys
413,939
6.35%
4,139
706,301
4.83%
Fixed rate (including $1,256,182,000 and
$1,270,029 of Toys debt in 2012 and 2011)
3,108,349
7.03%
3,208,472
6.96%
3,875,154
6.56%
7,668
4,199,145
6.32%
Noncontrolling interests’ share of above
(1,802)
Total change in annual net income
27,256
Per share-diluted
0.14
Excludes $20.6 billion for our 26.2% pro rata shares of LNR's 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, 2012, variable rate debt with an aggregate principal amount of $211,224,000 and a weighted average interest rate of 4.13% was subject to LIBOR caps. These caps are based on a notional amount of $211,224,000 and cap LIBOR at a weighted average rate of 4.03%. In addition, we have one interest rate swap on a $425,000,000 loan that swapped the rate from LIBOR plus 2.00% (2.24% at March 31, 2012) to a fixed rate of 5.13% for the remaining seven-year term of the loan.
As of March 31, 2012, we have investments in mezzanine loans with an aggregate carrying amount of $54,747,000 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 rate at which similar loans could be made currently to borrowers with similar credit ratings, for the remaining term of such debt. As of March 31, 2012, the estimated fair value of our consolidated debt was $10,455,000,000.
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, 2012 and 2011, we recognized $1,045,000 and $17,163,000, respectively, 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, 2012, 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, 2011.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the first quarter of 2012, we issued 279 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, 2011, and such information is incorporated by reference herein.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
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 7, 2012
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 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
3.8
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
3.11
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.
3.14
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
67
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
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
______________________
69
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
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
10.7
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
10.8
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
10.9
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
10.10
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
10.11
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
10.12
59th Street Real Estate Retention Agreement, dated as of July 3, 2002, by and between
Vornado Realty L.P., 731 Residential LLC and 731 Commercial LLC – Incorporated by
reference to Exhibit 10(i)(E)(4) to Alexander’s Inc.’s Quarterly Report for the quarter
ended June 30, 2002 (File No. 001-06064), filed on August 7, 2002
10.13
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
Management contract or compensatory agreement.
70
10.14
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
10.15
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
10.16
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
10.17
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
10.18
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
10.19
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
10.20
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
10.21
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
10.22
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
10.23
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
10.24
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
71
10.25
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
10.26
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
10.27
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
10.28
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
10.29
Amendment to Employment Agreement between Vornado Realty Trust and Michael D.
Fascitelli, dated December 29, 2008 – Incorporated by reference to Exhibit 10.47 to
Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31,
2008 (File No. 001-11954) filed on February 24, 2009
10.30
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
10.31
Amendment to Employment Agreement between Vornado Realty Trust and David R.
Greenbaum, dated December 29, 2008 – Incorporated by reference to Exhibit 10.49 to
10.32
Amendment to Indemnification Agreement between Vornado Realty Trust and David R.
Greenbaum, dated December 29, 2008 – Incorporated by reference to Exhibit 10.50 to
10.33
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
10.34
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
72
10.35
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
10.36
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
10.37
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
10.38
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
10.39
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
10.40
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
10.41
Revolving Credit Agreement dated as of June 8, 2011, 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 10.46 to Vornado Realty Trust's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2011 (File No. 001-11954) filed on August 1, 2011
10.42
Letter Agreement between Vornado Realty Trust and Christopher G. Kennedy, dated August 5,
2011 – Incorporated by reference to Exhibit 10.47 to Vornado Realty Trust’s Quarterly Reporton Form 10-Q for the quarter ended September 30, 2011 (File No. 001-11954) filed on November 3, 2011
10.43
Waiver and Release between Vornado Realty Trust and Christopher G. Kennedy, dated August 5,
2011 – Incorporated by reference to Exhibit 10.48 to Vornado Realty Trust’s Quarterly Reporton Form 10-Q for the quarter ended September 30, 2011 (File No. 001-11954) filed on November 3, 2011
10.44
Revolving Credit Agreement dated on November 7, 2011, by and among Vornado Realty L.P. as
thereof, and JP Morgan Chase Bank N.A., as administrative agent for the Banks –
Incorporated by reference to Exhibit 10.1 to Vornado Realty Trust’s Current Report on
Form 8-K (File No. 001-11954) filed on November 11, 2011
10.45
Fascitelli, dated April 13, 2012
15.1
Letter regarding Unaudited Interim Financial
31.1
Rule 13a-14 (a) Certification of the Chief Executive Officer
31.2
Rule 13a-14 (a) Certification of the Chief Financial Officer
32.1
Section 1350 Certification of the Chief Executive Officer
32.2
Section 1350 Certification of the Chief Financial Officer
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