Vornado Realty Trust (VNO) 10-Q 2013 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended:    September 30, 2013

Or

o TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from: to

Commission File Number: 001-11954

VORNADO REALTY TRUST

(Exact name of registrant as specified in its charter)

Maryland	22-1657560
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
888 Seventh Avenue, New York, New York	10019
(Address of principal executive offices)	(Zip Code)

(212) 894-7000

(Registrant’s telephone number, including area code)

N/A

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yesx Noo 

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).  Yesx Noo 

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).  Yeso Nox 

As of September 30, 2013, 187,048,110 of the registrant’s common shares of beneficial interest are outstanding.

PART I.		Financial Information:	Page Number
	Item 1.	Financial Statements:
		Consolidated Balance Sheets (Unaudited) as of
		September 30, 2013 and December 31, 2012	3
		Consolidated Statements of Income (Unaudited) for the
		Three and Nine Months Ended September 30, 2013 and 2012	4
		Consolidated Statements of Comprehensive Income (Unaudited)
		for the Three and Nine Months Ended September 30, 2013 and 2012	5
		Consolidated Statements of Changes in Equity (Unaudited) for the
		Nine Months Ended September 30, 2013 and 2012	6
		Consolidated Statements of Cash Flows (Unaudited) for the
		Nine Months Ended September 30, 2013 and 2012	8
		Notes to Consolidated Financial Statements (Unaudited)	10
		Report of Independent Registered Public Accounting Firm	40
	Item 2.	Management's Discussion and Analysis of Financial Condition
		and Results of Operations	41
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	84
	Item 4.	Controls and Procedures	85
PART II.		Other Information:
	Item 1.	Legal Proceedings	86
	Item 1A.	Risk Factors	86
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	86
	Item 3.	Defaults Upon Senior Securities	86
	Item 4.	Mine Safety Disclosures	86
	Item 5.	Other Information	86
	Item 6.	Exhibits	86
SIGNATURES			87
EXHIBIT INDEX			88

2

PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements

VORNADO REALTY TRUST
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Amounts in thousands, except share and per share amounts)			September 30,		December 31,
ASSETS			2013		2012
Real estate, at cost:
	Land		$	4,170,656	$	4,791,049
	Buildings and improvements			12,387,153		12,445,970
	Development costs and construction in progress			1,077,703		920,349
	Leasehold improvements and equipment			129,425		130,030
		Total		17,764,937		18,287,398
	Less accumulated depreciation and amortization			(3,334,920)		(3,078,667)
Real estate, net				14,430,017		15,208,731
Cash and cash equivalents				872,323		960,319
Restricted cash				320,979		183,256
Marketable securities				210,554		398,188
Tenant and other receivables, net of allowance for doubtful accounts of $22,105 and $37,674				131,479		195,718
Investments in partially owned entities				1,169,728		1,226,256
Investment in Toys "R" Us				378,615		478,041
Real Estate Fund investments				635,990		600,786
Mortgage and mezzanine loans receivable				176,388		225,359
Receivable arising from the straight-lining of rents, net of allowance of $5,106 and $3,165				804,526		759,742
Deferred leasing and financing costs, net of accumulated amortization of $261,548 and $223,670				400,970		407,126
Identified intangible assets, net of accumulated amortization of $297,391 and $346,613				275,250		406,309
Assets related to discontinued operations				27,413		634,139
Other assets				441,089		381,079
			$	20,275,321	$	22,065,049
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Mortgages payable			$	8,566,582	$	8,644,200
Senior unsecured notes				1,350,769		1,358,008
Revolving credit facility debt				83,982		1,170,000
Accounts payable and accrued expenses				442,623		484,746
Deferred revenue				472,805		596,067
Deferred compensation plan				111,752		105,200
Deferred tax liabilities				15,420		15,305
Liabilities related to discontinued operations				-		442,293
Other liabilities				452,456		400,934
	Total liabilities			11,496,389		13,216,753
Commitments and contingencies
Redeemable noncontrolling interests:
	Class A units - 11,302,612 and 11,215,682 units outstanding			950,098		898,152
	Series D cumulative redeemable preferred units - 1 and 1,800,001 units outstanding			1,000		46,000
		Total redeemable noncontrolling interests		951,098		944,152
Vornado shareholders' equity:
	Preferred shares of beneficial interest: no par value per share; authorized 110,000,000
		shares; issued and outstanding 52,682,807 and 51,184,609 shares		1,277,455		1,240,278
	Common shares of beneficial interest: $.04 par value per share; authorized
		250,000,000 shares; issued and outstanding 187,048,110 and 186,734,711 shares		7,440		7,440
	Additional capital			7,183,660		7,195,438
	Earnings less than distributions			(1,527,663)		(1,573,275)
	Accumulated other comprehensive income (loss)			83,327		(18,946)
		Total Vornado shareholders' equity		7,024,219		6,850,935
Noncontrolling interests in consolidated subsidiaries				803,615		1,053,209
	Total equity			7,827,834		7,904,144
			$	20,275,321	$	22,065,049
See notes to consolidated financial statements (unaudited).

3

VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
		For the Three				For the Nine
		Months Ended September 30,				Months Ended September 30,
(Amounts in thousands, except per share amounts)		2013		2012		2013		2012
REVENUES:
	Property rentals	$	532,691	$	511,561	$	1,609,442	$	1,536,216
	Tenant expense reimbursements		84,638		79,215		236,580		220,679
	Cleveland Medical Mart development project		4,893		72,651		34,026		184,014
	Fee and other income		61,158		39,625		206,330		105,889
Total revenues			683,380		703,052		2,086,378		2,046,798
EXPENSES:
	Operating		264,422		261,512		784,031		749,213
	Depreciation and amortization		124,079		122,241		400,952		381,270
	General and administrative		48,250		48,456		157,155		150,578
	Cleveland Medical Mart development project		3,239		70,431		29,764		177,127
	Acquisition related costs		2,818		1,070		6,769		4,314
Total expenses			442,808		503,710		1,378,671		1,462,502
Operating income			240,572		199,342		707,707		584,296
(Loss) income applicable to Toys "R" Us			(34,209)		(8,585)		(69,311)		88,696
Income from partially owned entities			1,453		21,268		23,691		53,491
Income from Real Estate Fund			22,913		5,509		73,947		37,572
Interest and other investment (loss) income, net			(10,275)		10,523		(32,933)		(22,984)
Interest and debt expense			(119,870)		(119,330)		(363,128)		(373,257)
Net gain (loss) on disposition of wholly owned and
	partially owned assets		15,138		-		(20,581)		4,856
Income before income taxes			115,722		108,727		319,392		372,670
Income tax expense			(2,222)		(3,015)		(6,172)		(17,319)
Income from continuing operations			113,500		105,712		313,220		355,351
Income from discontinued operations			18,751		158,444		290,279		247,297
Net income			132,251		264,156		603,499		602,648
Less net income attributable to noncontrolling interests in:
	Consolidated subsidiaries		(23,833)		(6,610)		(50,049)		(30,928)
	Operating Partnership		(5,032)		(14,837)		(27,814)		(31,445)
	Preferred unit distributions of the Operating Partnership		(12)		(1,403)		(1,146)		(9,150)
Net income attributable to Vornado			103,374		241,306		524,490		531,125
Preferred share dividends			(20,369)		(20,613)		(62,439)		(56,187)
Preferred unit and share redemptions			-		11,700		(1,130)		11,700
NET INCOME attributable to common shareholders		$	83,005	$	232,393	$	460,921	$	486,638
INCOME PER COMMON SHARE - BASIC:
	Income from continuing operations, net	$	0.36	$	0.45	$	1.02	$	1.36
	Income from discontinued operations, net		0.08		0.80		1.45		1.26
	Net income per common share	$	0.44	$	1.25	$	2.47	$	2.62
	Weighted average shares outstanding		186,969		185,924		186,885		185,656
INCOME PER COMMON SHARE - DILUTED:
	Income from continuing operations, net	$	0.36	$	0.44	$	1.01	$	1.36
	Income from discontinued operations, net		0.08		0.80		1.45		1.25
	Net income per common share	$	0.44	$	1.24	$	2.46	$	2.61
	Weighted average shares outstanding		187,724		186,655		187,679		186,399
DIVIDENDS PER COMMON SHARE		$	0.73	$	0.69	$	2.19	$	2.07
See notes to consolidated financial statements (unaudited).

4

VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
			For the Three				For the Nine
			Months Ended September 30,				Months Ended September 30,
(Amounts in thousands)			2013		2012		2013		2012
Net income			$	132,251	$	264,156	$	603,499	$	602,648
Other comprehensive income:
	Change in unrealized net (loss) gain on
		available-for-sale securities		(8,252)		18,358		160,886		(202,167)
	Amounts reclassified from accumulated other comprehensive
		income related to sale of available-for-sale securities		(42,404)		-		(42,404)		-
	Pro rata share of other comprehensive loss of
		nonconsolidated subsidiaries		(1,669)		(12,607)		(25,023)		(38,861)
	Change in value of interest rate swap			(295)		(2,866)		14,265		(8,868)
	Other			1		(30)		531		343
Comprehensive income				79,632		267,011		711,754		353,095
Less comprehensive income attributable to noncontrolling interests				(25,825)		(23,027)		(84,991)		(55,806)
Comprehensive income attributable to Vornado			$	53,807	$	243,984	$	626,763	$	297,289
See notes to consolidated financial statements (unaudited).

5

VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(UNAUDITED)
																	Non-
															Accumulated		controlling
(Amounts in thousands)													Earnings		Other		Interests in
			Preferred Shares				Common Shares				Additional		Less Than		Comprehensive		Consolidated		Total
			Shares		Amount		Shares		Amount		Capital		Distributions		Income (Loss)		Subsidiaries		Equity
Balance, December 31, 2011				42,187	$	1,021,660		185,080	$	7,373	$	7,127,258	$	(1,401,704)	$	73,729	$	680,131	$	7,508,447
Net income				-		-		-		-		-		531,125		-		30,928		562,053
Dividends on common shares				-		-		-		-		-		(384,353)		-		-		(384,353)
Dividends on preferred shares				-		-		-		-		-		(56,187)		-		-		(56,187)
Issuance of Series K preferred shares				12,000		291,144		-		-		-		-		-		-		291,144
Redemption of Series E preferred
	shares			(3,000)		(75,000)		-		-		-		-		-		-		(75,000)
Common shares issued:
	Upon redemption of Class A
		units, at redemption value		-		-		624		25		51,191		-		-		-		51,216
	Under employees' share
		option plan		-		-		414		16		8,915		(16,389)		-		-		(7,458)
	Under dividend reinvestment plan			-		-		15		1		1,269		-		-		-		1,270
Contributions:
	Real Estate Fund			-		-		-		-		-		-		-		120,606		120,606
	Other			-		-		-		-		-		-		-		140		140
Distributions:
	Real Estate Fund			-		-		-		-		-		-		-		(44,910)		(44,910)
	Other			-		-		-		-		-		-		-		(10)		(10)
Conversion of Series A preferred
	shares to common shares			(2)		(105)		3		-		105		-		-		-		-
Deferred compensation shares
	and options			-		-		7		-		11,009		(339)		-		-		10,670
Change in unrealized net loss
	on available-for-sale securities			-		-		-		-		-		-		(202,167)		-		(202,167)
Pro rata share of other
	comprehensive loss of
	nonconsolidated subsidiaries			-		-		-		-		-		-		(38,861)		-		(38,861)
Change in value of interest rate swap				-		-		-		-		-		-		(8,868)		-		(8,868)
Adjustments to carry redeemable
	Class A units at redemption value			-		-		-		-		(63,657)		-		-		-		(63,657)
Redeemable noncontrolling interests'
	share of above adjustments			-		-		-		-		-		-		15,717		-		15,717
Preferred unit and share
	redemptions			-		-		-		-		-		11,700		-		-		11,700
Other				-		-		-		-		-		(2,971)		343		(10)		(2,638)
Balance, September 30, 2012				51,185	$	1,237,699		186,143	$	7,415	$	7,136,090	$	(1,319,118)	$	(160,107)	$	786,875	$	7,688,854
See notes to consolidated financial statements (unaudited).

6

VORNADO REALTY TRUST
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY - CONTINUED
(UNAUDITED)
																	Non-
															Accumulated		controlling
(Amounts in thousands)													Earnings		Other		Interests in
			Preferred Shares				Common Shares				Additional		Less Than		Comprehensive		Consolidated		Total
			Shares		Amount		Shares		Amount		Capital		Distributions		Income (Loss)		Subsidiaries		Equity
Balance, December 31, 2012				51,185	$	1,240,278		186,735	$	7,440	$	7,195,438	$	(1,573,275)	$	(18,946)	$	1,053,209	$	7,904,144
Net income				-		-		-		-		-		524,490		-		50,049		574,539
Dividends on common shares				-		-		-		-		-		(409,332)		-		-		(409,332)
Dividends on preferred shares				-		-		-		-		-		(62,439)		-		-		(62,439)
Issuance of Series L preferred shares				12,000		290,536		-		-		-		-		-		-		290,536
Redemption of Series F and Series H
	preferred shares			(10,500)		(253,269)		-		-		-		-		-		-		(253,269)
Common shares issued:
	Upon redemption of Class A
		units, at redemption value		-		-		234		9		19,618		-		-		-		19,627
	Under employees' share
		option plan		-		-		66		3		3,678		-		-		-		3,681
	Under dividend reinvestment plan			-		-		16		-		1,376		-		-		-		1,376
Contributions:
	Real Estate Fund			-		-		-		-		-		-		-		24,328		24,328
	Other			-		-		-		-		-		-		-		15,687		15,687
Distributions:
	Real Estate Fund			-		-		-		-		-		-		-		(47,268)		(47,268)
	Other			-		-		-		-		-		-		-		(126,799)		(126,799)
Conversion of Series A preferred
	shares to common shares			(2)		(90)		3		-		90		-		-		-		-
Deferred compensation shares
	and options			-		-		(6)		(12)		7,194		(305)		-		-		6,877
Change in unrealized net gain on
	available-for-sale securities			-		-		-		-		-		-		160,886		-		160,886
Amounts reclassified related to sale
	of available-for-sale securities			-		-		-		-		-		-		(42,404)		-		(42,404)
Pro rata share of other
	comprehensive loss of
	nonconsolidated subsidiaries			-		-		-		-		-		-		(25,023)		-		(25,023)
Change in value of interest rate swap				-		-		-		-		-		-		14,265		-		14,265
Adjustments to carry redeemable
	Class A units at redemption value			-		-		-		-		(43,709)		-		-		-		(43,709)
Redeemable noncontrolling interests'
	share of above adjustments			-		-		-		-		-		-		(5,982)		-		(5,982)
Preferred unit and share
	redemptions			-		-		-		-		-		(1,130)		-		-		(1,130)
Deconsolidation of partially
	owned entity			-		-		-		-		-		-		-		(165,427)		(165,427)
Other				-		-		-		-		(25)		(5,672)		531		(164)		(5,330)
Balance, September 30, 2013				52,683	$	1,277,455		187,048	$	7,440	$	7,183,660	$	(1,527,663)	$	83,327	$	803,615	$	7,827,834
See notes to consolidated financial statements (unaudited).

7

VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
			For the Nine Months Ended
			September 30,
			2013		2012
(Amounts in thousands)
Cash Flows from Operating Activities:
Net income			$	603,499	$	602,648
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization (including amortization of deferred financing costs)			419,249		419,007
	Net gains on sale of real estate			(286,990)		(203,801)
	Other non-cash adjustments			60,957		39,360
	Net unrealized gain on Real Estate Fund investments			(59,476)		(33,537)
	Return of capital from Real Estate Fund investments			56,664		61,052
	Straight-lining of rental income			(48,561)		(55,553)
	Equity in net loss (income) of partially owned entities, including Toys “R” Us			45,620		(142,187)
	Amortization of below-market leases, net			(40,341)		(39,693)
	Non-cash impairment loss on J.C. Penney common shares			39,487		-
	Distributions of income from partially owned entities			34,350		59,322
	Loss from the mark-to-market of J.C. Penney derivative position			33,487		53,343
	Net loss (gain) on disposition of wholly owned and partially owned assets			20,581		(4,856)
	Impairment losses			4,727		13,511
	Gain on sale of Canadian Trade Shows			-		(31,105)
	Changes in operating assets and liabilities:
		Real Estate Fund investments		(32,392)		(163,307)
		Accounts receivable, net		63,280		(9,444)
		Prepaid assets		(60,388)		(52,895)
		Other assets		(25,854)		(43,103)
		Accounts payable and accrued expenses		(38,904)		34,546
		Other liabilities		597		7,338
Net cash provided by operating activities				789,592		510,646
Cash Flows from Investing Activities:
	Proceeds from sales of real estate and related investments			734,427		408,856
	Proceeds from sales of marketable securities			378,676		58,460
	Distributions of capital from partially owned entities			287,944		26,665
	Proceeds from the sale of LNR			240,474		-
	Investments in partially owned entities			(212,624)		(116,264)
	Funding of J.C. Penney derivative collateral; and settlement of derivative in 2013			(186,079)		(121,117)
	Additions to real estate			(170,424)		(138,060)
	Development costs and construction in progress			(149,010)		(106,502)
	Return of J.C. Penney derivative collateral			101,150		89,850
	Acquisitions of real estate and other			(75,079)		(73,069)
	Proceeds from repayments of mortgage and mezzanine loans receivable and other			49,452		2,379
	Restricted cash			21,883		(62,813)
	Investment in mortgage and mezzanine loans receivable			(390)		-
	Proceeds from the sale of Canadian Trade Shows			-		52,504
	Proceeds from the repayment of loan to officer			-		13,123
Net cash provided by investing activities				1,020,400		34,012
See notes to consolidated financial statements (unaudited).

8

 

VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(UNAUDITED)
				For the Nine Months Ended
				September 30,
				2013		2012
(Amounts in thousands)
Cash Flows from Financing Activities:
	Repayments of borrowings			$	(2,851,420)	$	(2,070,295)
	Proceeds from borrowings				1,600,357		1,773,000
	Dividends paid on common shares				(409,332)		(384,353)
	Purchases of outstanding preferred units and shares				(299,400)		(243,300)
	Proceeds from the issuance of preferred shares				290,536		291,144
	Distributions to noncontrolling interests				(200,667)		(80,994)
	Dividends paid on preferred shares				(62,820)		(54,034)
	Contributions from noncontrolling interests				40,015		120,746
	Debt issuance and other costs				(9,982)		(17,417)
	Proceeds received from exercise of employee share options				5,057		10,210
	Repurchase of shares related to stock compensation agreements and/or related
		tax withholdings			(332)		(30,034)
Net cash used in financing activities					(1,897,988)		(685,327)
Net decrease in cash and cash equivalents					(87,996)		(140,669)
Cash and cash equivalents at beginning of period					960,319		606,553
Cash and cash equivalents at end of period				$	872,323	$	465,884
Supplemental Disclosure of Cash Flow Information:
	Cash payments for interest, excluding capitalized interest of $28,024 and $7,884			$	350,899	$	368,018
	Cash payments for income taxes			$	7,529	$	19,222
Non-Cash Investing and Financing Activities:
	Decrease in assets and liabilities resulting from the deconsolidation of Independence Plaza:
			Real estate, net	$	(852,166)	$	-
			Notes and mortgages payable		(322,903)		-
	Financing provided to purchaser of L.A. Mart				-		35,000
	Marriott Marquis Times Square - retail and signage capital lease:
		Asset (included in development costs and construction in progress)			-		240,000
		Liability (included in other liabilities)			-		(240,000)
	Like-kind exchange of real estate				(155,805)		(230,913)
See notes to consolidated financial statements (unaudited).

9

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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”).  Vornado is the sole general partner of, and owned approximately 94.0% of the common limited partnership interest in the Operating Partnership at September 30, 2013.  All references to “we,” “us,” “our,” the “Company” and “Vornado” refer to Vornado Realty Trust and its consolidated subsidiaries, including the Operating Partnership.

2.    Basis of Presentation

The accompanying consolidated financial statements are unaudited and include the accounts of Vornado and its consolidated subsidiaries, including the Operating Partnership.  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, for the year ended December 31, 2012, 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 and nine months ended September 30, 2013 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 February 2013, the Financial Accounting Standards Board (“FASB”) issued an update (“ASU 2013-02”) to Accounting Standards Codification (“ASC”) Topic 220, Comprehensive Income (“Topic 220”).  ASU 2013-02 requires additional disclosures regarding significant reclassifications out of each component of accumulated other comprehensive income, including the effect on the respective line items of net income for amounts that are required to be reclassified into net income in their entirety and cross-references to other disclosures providing additional information for amounts that are not required to be reclassified into net income in their entirety.  The adoption of this update as of January 1, 2013, did not have a material impact on our consolidated financial statements, but resulted in additional disclosures (see Note 13 - Accumulated Other Comprehensive Income).  

In June 2013, the FASB issued an update (“ASU 2013-08”) to ASC Topic 946, Financial Services - Investment Companies (“Topic 946”).  ASU 2013-08 amends the guidance in Topic 946 for determining whether an entity qualifies as an investment company and requires certain additional disclosures.  ASU 2013-08 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2013.  We are currently evaluating the impact, if any, of ASU 2013-08 on our real estate fund and our consolidated financial statements. 

10

 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

4.     Vornado Capital Partners Real Estate Fund (the “Fund”)

We are the general partner and investment manager of our $800,000,000 Fund, to which we committed $200,000,000.  The Fund has an eight-year term and a three-year investment periodwhich ended in July 2013.  During the investment period, the Fund was 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.

At September 30, 2013, the Fund had nine investments with an aggregate fair value of $635,990,000, or $127,118,000 in excess of cost, and had remaining unfunded commitments of $239,186,000, of which our share was $59,796,000.  Below is a summary of income from the Fund for the three and nine months ended September 30, 2013 and 2012.

		For the Three Months				For the Nine Months
(Amounts in thousands)		Ended September 30,				Ended September 30,
		2013		2012		2013		2012
Net investment income (loss)		$	2,362	$	(49)	$	6,287	$	4,035
Net realized gain			8,184		-		8,184		-
Net unrealized gains			12,367		5,558		59,476		33,537
Income from Real Estate Fund			22,913		5,509		73,947		37,572
Less (income) attributable to noncontrolling interests			(15,422)		(4,787)		(39,321)		(25,026)
Income from Real Estate Fund attributable to Vornado(1)		$	7,491	$	722	$	34,626	$	12,546
___________________________________
(1)	Excludes management, leasing and development fees of $770 and $954 for the three months ended September 30, 2013 and 2012, respectively, and $2,446 and $2,374 for the nine months ended September 30, 2013 and 2012, respectively, which are included as a component of "fee and other income" on our consolidated statements of income.

5.    Mortgage and Mezzanine Loans Receivable

As of September 30, 2013 and December 31, 2012, the carrying amount of mortgage and mezzanine loans receivable was $176,388,000 and $225,359,000, respectively.  These loans have a weighted average interest rate of 10.8% and 10.3% at September 30, 2013 and December 31, 2012, respectively, and have maturities ranging from August 2014 to May 2016. 

On March 27, 2013, we transferred, at par, a 25% participation in a mortgage loan on 701 Seventh Avenue to a third party for $59,375,000 in cash.  We acquired this participation in October 2012, together with a 25% interest in a mezzanine loan on the property.  The transfer did not qualify for sale accounting given our continuing interest in the mezzanine loan.  Accordingly, we continue to include the 25% participation in the mortgage loan in “Mortgage and Mezzanine Loans Receivable” and have recorded a $59,375,000 liability in “Other Liabilities” on our consolidated balance sheet. 

On April 17, 2013, a $50,091,000 mezzanine loan that was scheduled to mature in August 2015, was repaid.  In connection therewith, we received net proceeds of $55,358,000, including prepayment penalties, which resulted in income of $5,267,000, included in “interest and other investment (loss) income” on our consolidated statement of income.

11

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

6.    Marketable Securities and Derivative Instruments

Investment in Lexington Realty Trust (“Lexington”) (NYSE: LXP)

From the inception of our investment in Lexington in 2008, until the first quarter of 2013, we accounted for our investment under the equity method because of our ability to exercise significant influence over Lexington’s operating and financial policies.  As a result of Lexington’s common share issuances, our ownership interest has been reduced over time from approximately 17.2% to 8.8% at March 31, 2013.  In the first quarter of 2013, we concluded that we no longer have the ability to exercise significant influence over Lexington’s operating and financial policies, and began accounting for this investment as a marketable equity security – available for sale, in accordance with ASC Topic 320, Investments – Debt and Equity Securities.   

Investment in J.C. Penney Company, Inc. (“J.C. Penney”) (NYSE: JCP)

At December 31, 2012, we owned 23,400,000 J.C. Penney common shares comprised of (i) 18,584,010 common shares at a GAAP cost of $19.71 per share, or $366,291,000 in the aggregate, and (ii) 4,815,990 common shares through a forward contract at a weighted average strike price of $29.34 per share, or $141,309,000 in the aggregate.

On March 4, 2013, we sold 10,000,000 J.C. Penney common shares at a price of $16.03 per share, or $160,300,000 in the aggregate, resulting in a net loss of $36,800,000, which is included in “net gain (loss) on disposition of wholly owned and partially owned assets” on our consolidated statements of income.  In addition, in the first quarter of 2013, we wrote down the remaining 8,584,010 J.C. Penney common shares we owned to fair value, based on J.C. Penney’s March 31, 2013 closing share price of $15.11 per share, and recorded a $39,487,000 impairment loss, which is included in “interest and other investment (loss) income, net” on our consolidated statements of income.

On September 19, 2013, we settled the forward contract and received 4,815,990 J.C. Penney common shares.  In connection therewith, we recognized a $20,012,000 loss from the mark-to-market of the derivative position through its settlement date, which is included in “interest and other investment (loss) income, net” on our consolidated statements of income.

On September 19, 2013, we also sold the remaining 13,400,000 J.C. Penney common shares in a block trade at a price of $13.00 per share, or $174,200,000 in the aggregate and recognized an $18,114,000 net loss, which is included in “net gain (loss) on disposition of wholly owned and partially owned assets” on our consolidated statements of income.

The aggregate economic net loss on our investment in J.C. Penney, from inception through disposition, was $256,156,000.

Other Investments

In the third quarter of 2013, we sold a marketable security for $44,176,000, resulting in a net gain of $31,741,000, which is included in “net gain (loss) on disposition of wholly owned and partially owned assets.”

Below is a summary of our marketable securities portfolio as of September 30, 2013 and December 31, 2012.

(Amounts in thousands)		As of September 30, 2013						As of December 31, 2012
				GAAP		Unrealized				GAAP		Unrealized
		Fair Value		Cost		Gain		Fair Value		Cost		Gain
Equity securities:
	Lexington	$	207,407	$	72,549	$	134,858	$	-	$	-	$	-
	J.C. Penney		-		-		-		366,291		366,291		-
	Other		3,147		91		3,056		31,897		12,465		19,432
		$	210,554	$	72,640	$	137,914	$	398,188	$	378,756	$	19,432

12

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

7.    Investments in Partially Owned Entities

Toys “R” Us (“Toys”)

As of September 30, 2013, we own 32.6% of Toys.  We account for our investment in Toys under the equity method and record our 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.  The business of Toys is highly seasonal.  Historically, Toys’ fourth quarter net income accounts for more than 80% of its fiscal year net income.

In the fourth quarter of 2012, we recorded a $40,000,000 non-cash impairment loss on our investment in Toys and disclosed, that if current facts don’t change, our share of Toys’ undistributed income, which in accordance with the equity method of accounting, would increase the carrying amount of our investment above fair value, would require an offsetting impairment loss.  

In the first quarter of 2013, we recognized our share of Toys’ fourth quarter net income of $78,542,000 and a corresponding non-cash impairment loss of the same amount.

As of September 30, 2013, the carrying amount of our investment in Toys is less than our share of Toys' equity by approximately $145,809,000.  This basis difference resulted primarily from the non-cash impairment losses we recognized in 2012 and 2013 aggregating $118,542,000.  We have allocated the basis difference to Toys' intangible assets (primarily trade names and trademarks).  The basis difference is not being amortized and will be recognized upon disposition of our investment. 

Below is a summary of Toys’ latest available financial information on a purchase accounting basis:

(Amounts in thousands)						Balance as of
Balance Sheet:						August 3, 2013		October 27, 2012
	Assets					$	11,274,000	$	12,953,000
	Liabilities						9,562,000		11,190,000
	Noncontrolling interests						72,000		44,000
	Toys “R” Us, Inc. equity						1,640,000		1,719,000
		For the Three Months Ended				For the Nine Months Ended
Income Statement:		August 3, 2013		July 28, 2012		August 3, 2013		July 28, 2012
	Total revenues	$	2,377,000	$	2,552,000	$	10,555,000	$	11,089,000
	Net (loss) income attributable to Toys		(111,000)		(34,000)		11,000		249,000

13

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

7.    Investments in Partially Owned Entities – continued

Alexander’s, Inc. (“Alexander’s”) (NYSE: ALX)

As of September 30, 2013, 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 September 30, 2013, we have a $44,032,000 receivable from Alexander’s for fees under these agreements.

As of September 30, 2013, the market value (“fair value” pursuant to ASC 820) of our investment in Alexander’s, based on Alexander’s September 30, 2013 closing share price of $286.12, was $473,262,000, or $305,644,000in excess of the carrying amount on our consolidated balance sheet.  As of September 30, 2013, 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 $42,224,000.  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:

(Amounts in thousands)						Balance as of
Balance Sheet:						September 30, 2013		December 31, 2012
	Assets					$	1,471,000	$	1,482,000
	Liabilities						1,141,000		1,150,000
	Stockholders' equity						330,000		332,000
		For the Three Months Ended				For the Nine Months Ended
Income Statement:		September 30, 2013		September 30, 2012		September 30, 2013		September 30, 2012
	Total revenues	$	50,000	$	49,000	$	146,000	$	143,000
	Net income attributable to Alexander’s		14,000		19,000		41,000		57,000

LNR Property LLC (“LNR”)

In the first quarter of 2013, we recognized our 26.2% share of LNR’s fourth quarter net income of $18,731,000, which increased the carrying amount of our investment to approximately $241,000,000.  On April 22, 2013, LNR was sold for $1.053 billion, and we received net proceeds of $241,000,000 for our interest. Pursuant to the sale agreement, we ceased receiving income as of January 1, 2013.

14

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

7.    Investments in Partially Owned Entities – continued

Independence Plaza

On December 21, 2012, we acquired a 58.75% economic interest in Independence Plaza, a three-building 1,328 unit residential complex in the Tribeca submarket of Manhattan (the “Property”).  We determined, at that time, that we were the primary beneficiary of the variable interest entity (“VIE”) that owned the Property.  Accordingly, we consolidated the operations of the Property from the date of acquisition.  Upon consolidation, our preliminary purchase price allocation was primarily to land ($309,848,000) and building ($527,578,000).  Based on a third party appraisal and additional information about facts and circumstances that existed at the acquisition date, which was obtained subsequent to the acquisition date, we finalized the purchase price allocation in the first quarter of 2013, and retroactively adjusted our December 31, 2012 consolidated balance sheet as follows:

(Amounts in thousands)
Land	$	602,662
Building and improvements		252,844
Acquired above-market leases (included in identified intangible assets)		13,115
Acquired in-place leases (included in identified intangible assets)		67,879
Other assets		7,374
Acquired below-market leases (included in deferred revenue)		(99,074)
Purchase price	$	844,800

On June 7, 2013, the existing $323,000,000 mortgage loan was refinanced with a $550,000,000 five-year, fixed-rate interest only mortgage loan bearing interest at 3.48%.  The net proceeds of $219,000,000, after repaying the existing loan and closing costs, were distributed to the partners, of which our share was $137,000,000.  Simultaneously with the refinancing, we sold an 8.65% economic interest in the Property to our partner for $41,000,000 in cash, which reduced our economic interest to 50.1%.  As a result of this transaction, we determined that we were no longer the primary beneficiary of the VIE.  Accordingly, we deconsolidated the operations of the Property on June 7, 2013 and began accounting for our investment under the equity method. 

650 Madison Avenue

On September 30, 2013, a joint venture, in which we have a 20.1% interest, acquired 650 Madison Avenue, a 27-story, 594,000 square foot Class A office and retail tower located on the full western blockfront of Madison Avenue between 59th and 60th Street, for $1.295 billion.  The property contains 523,000 square feet of office space and 71,000 square feet of retail space.  The purchase price was funded with cash and a new $800,000,000 seven-year 4.39% interest-only loan.  We account for our investment in the joint venture under the equity method.

15

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

7.    Investments in Partially Owned Entities – continued

Below is a schedule of our investments in partially owned entities as of September 30, 2013 and December 31, 2012.

			Percentage
(Amounts in thousands)			Ownership at		Balance as of
Investments:			September 30, 2013		September 30, 2013		December 31, 2012
Toys				32.6%	$	378,615	$	478,041
Alexander’s				32.4%	$	167,618	$	171,013
Lexington(1)				n/a		-		75,542
LNR(2)				n/a		-		224,724
India real estate ventures				4.0%-36.5%		90,200		95,516
Partially owned office buildings:
	280 Park Avenue			49.5%		229,152		197,516
	650 Madison Avenue (see page 15 for details)			20.1%		121,775		-
	Rosslyn Plaza			43.7%-50.4%		59,416		62,627
	West 57th Street properties			50.0%		56,743		57,033
	One Park Avenue			30.3%		56,064		50,509
	666 Fifth Avenue Office Condominium			49.5%		40,047		35,527
	330 Madison Avenue			25.0%		33,991		30,277
	Warner Building			55.0%		13,387		8,775
	Fairfax Square			20.0%		5,191		5,368
	Other partially owned office buildings			Various		9,338		9,315
Other investments:
	Independence Plaza (includes $26,266 attributable
		to non-controlling interests)(3)		50.1%		164,488		-
	Monmouth Mall			50.0%		6,876		7,205
	Downtown Crossing, Boston(4)			n/a		-		48,122
	Other investments(5)			Various		115,442		147,187
					$	1,169,728	$	1,226,256
(1)		In the first quarter of 2013, we began accounting for our investment in Lexington as a marketable equity security - available for sale(see page 12 for details).
(2)		On April 22, 2013, LNR was sold (see page 14 for details).
(3)		On June 7, 2013, we sold an 8.65% economic interest in the property (see page 15 for details).
(4)		On April 24, 2013, the joint venture sold the site in Downtown Crossing, Boston (see note 3 on page 17 for details).
(5)		Includes interests in 85 10th Avenue, Fashion Centre Mall, 50-70 West 93rd Street and others.

16

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

7.    Investments in Partially Owned Entities - continued

Below is a schedule of income recognized from investments in partially owned entities for the three and nine months ended September 30, 2013 and 2012.

			Percentage	For the Three Months				For the Nine Months
(Amounts in thousands)			Ownership	Ended September 30,				Ended September 30,
Our Share of Net Income (Loss):			September 30, 2013	2013		2012		2013		2012
Toys:
	Equity in net (loss) income before income taxes		32.6%	$	(58,746)	$	(22,074)	$	14,737	$	99,649
	Income tax benefit (expense)				22,690		11,118		(10,959)		(17,982)
	Equity in net (loss) income				(36,056)		(10,956)		3,778		81,667
	Non-cash impairment loss (see page 13 for details)				-		-		(78,542)		-
	Management fees				1,847		2,371		5,453		7,029
				$	(34,209)	$	(8,585)	$	(69,311)	$	88,696
Alexander’s:
	Equity in net income		32.4%	$	4,299	$	7,137	$	12,785	$	19,210
	Management, leasing and development fees				1,676		1,821		5,017		5,617
					5,975		8,958		17,802		24,827
Lexington(1)			n/a		-		(323)		(979)		371
LNR(2)			n/a		-		16,600		18,731		39,319
India real estate ventures			4.0%-36.5%		(1,449)		82		(2,630)		(4,526)
Partially owned office buildings:
	Warner Building		55.0%		(2,004)		(2,839)		(6,346)		(7,438)
	280 Park Avenue		49.5%		(1,890)		(1,717)		(6,480)		(9,267)
	666 Fifth Avenue Office Condominium		49.5%		1,858		1,744		5,776		5,244
	330 Madison Avenue		25.0%		1,225		1,224		3,714		2,036
	Rosslyn Plaza		43.7%-50.4%		(707)		(204)		(2,158)		99
	One Park Avenue		30.3%		680		256		1,054		890
	1101 17th Street		55.0%		376		591		996		1,920
	West 57th Street properties		50.0%		47		167		415		732
	Fairfax Square		20.0%		(24)		(33)		(87)		(85)
	Other partially owned office buildings		Various		477		505		1,530		1,587
					38		(306)		(1,586)		(4,282)
Other investments:
	Independence Plaza (see page 15 for details)		50.1%		(2,081)		1,828		(3,199)		5,243
	Monmouth Mall		50.0%		165		347		1,450		1,007
	Downtown Crossing, Boston(3)		n/a		-		(38)		(2,358)		(872)
	Other investments(4)		Various		(1,195)		(5,880)		(3,540)		(7,596)
					(3,111)		(3,743)		(7,647)		(2,218)
				$	1,453	$	21,268	$	23,691	$	53,491
(1)		In the first quarter of 2013, we began accounting for our investment in Lexington as a marketable equity security - available for sale (see page 12 for details).
(2)		On April 22, 2013, LNR was sold (see page 14 for details).
(3)		On April 24, 2013, the joint venture sold the site in Downtown Crossing, Boston, and we received approximately $45,000 for our 50% interest. In connection therewith, we recognized a $2,335 impairment loss in the first quarter.
(4)		Includes interests in 85 10th Avenue, Fashion Centre Mall, 50-70 West 93rd Street and others.

17

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

7.    Investments in Partially Owned Entities – continued

Below is a summary of the debt of our partially owned entities as of September 30, 2013 and December 31, 2012, none of which is recourse to us.

			Percentage		Interest	100% of
			Ownership at		Rate at	Partially Owned Entities’ Debt at
(Amounts in thousands)			September 30,		September 30,	September 30,		December 31,
			2013	Maturity	2013	2013		2012
Toys:
	Notes, loans and mortgages payable		32.6%	2014-2021	7.69%	$	5,253,323	$	5,683,733
Alexander's:
	Mortgages payable		32.4%	2014-2018	3.84%	$	1,054,046	$	1,065,916
Lexington(1):
	Mortgages payable		n/a	n/a	n/a	$	-	$	1,994,179
LNR(2):
	Mortgages payable		n/a	n/a	n/a	$	-	$	309,787
	Liabilities of consolidated CMBS and CDO trusts			n/a	n/a		-		97,211,734
						$	-	$	97,521,521
Partially owned office buildings:
	666 Fifth Avenue Office Condominium mortgage
		payable	49.5%	02/19	6.76%	$	1,155,038	$	1,109,700
	650 Madison Avenue mortgage payable		20.1%	10/20	4.39%		800,000		-
	280 Park Avenue mortgage payable		49.5%	06/16	6.64%		738,582		738,228
	Warner Building mortgage payable		55.0%	05/16	6.26%		292,700		292,700
	One Park Avenue mortgage payable		30.3%	03/16	5.00%		250,000		250,000
	330 Madison Avenue mortgage payable		25.0%	06/15	1.68%		150,000		150,000
	Fairfax Square mortgage payable		20.0%	12/14	7.00%		69,452		70,127
	1101 17th Street mortgage payable		55.0%	01/15	1.43%		31,000		31,000
	Rosslyn Plaza mortgage payable		43.7%-50.4%	03/16	2.68%		23,785		-
	West 57th Street properties mortgages payable		50.0%	07/23	3.50%		20,000		20,434
	Other		Various	Various	6.36%		69,280		69,704
						$	3,599,837	$	2,731,893
India Real Estate Ventures:
	TCG Urban Infrastructure Holdings mortgages
		payable	25.0%	2013-2022	13.63%	$	213,963	$	236,579
Other:
	Independence Plaza (see page 15 for details)		50.1%	06/18	3.48%		550,000		-
	Monmouth Mall mortgage payable		50.0%	09/15	5.44%		158,296		159,896
	Other(3)		Various	Various	5.01%		972,135		990,647
						$	1,680,431	$	1,150,543
(1)		In the first quarter of 2013, we began accounting for our investment in Lexington as a marketable equity security - available for sale (see page 12 for details).
(2)		On April 22, 2013, LNR was sold (see page 14 for details).
(3)		Includes interests in Fashion Centre Mall, 50-70 West 93rd Street 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 $4,032,534,000 and $29,443,128,000 at September 30, 2013 and December 31, 2012, respectively.  Excluding our pro rata share of LNR’s liabilities related to consolidated CMBS and CDO trusts, which were non-recourse to LNR and its equity holders, including us, our pro rata share of partially owned entities debt was $3,998,929,000 at December 31, 2012.

18

 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

8.    Discontinued Operations

On January 24, 2013, we sold the Green Acres Mall located in Valley Stream, New York, for $500,000,000.  The sale resulted in net proceeds of $185,000,000, after repaying the existing loan and closing costs, and a net gain of $202,275,000. 

On April 15, 2013, we sold The Plant, a power strip shopping center in San Jose, California, for $203,000,000.  The sale resulted in net proceeds of $98,000,000, after repaying the existing loan and closing costs, and a net gain of $32,169,000.

On April 15, 2013, we sold a retail property in Philadelphia, which is a part of the Gallery at Market Street, for $60,000,000.  The sale resulted in net proceeds of $58,000,000, and a net gain of $33,058,000.

On September 23, 2013, we sold a retail property in Tampa, Florida for $45,000,000, of which our 75% share was $33,750,000.  Our share of the net proceeds after repaying the existing loan and closing costs were $20,810,000, and our share of the net gain was $8,728,000.

In addition to the above, during 2013, we sold 12 other non-core properties, in separate transactions, for an aggregate of $82,300,000, in cash, which resulted in a net gain aggregating $7,851,000.

We have reclassified the revenues and expenses of all of the properties discussed above, as well as certain other retail properties that are currently held for sale to “income from discontinued operations” and the related assets and liabilities to “assets related to discontinued operations” and “liabilities related to discontinued operations” for all of the periods presented in the accompanying financial statements.  The tables below set forth the assets and liabilities related to discontinued operations at September 30, 2013 and December 31, 2012 and their combined results of operations for the three and nine months ended September 30, 2013 and 2012.  

		Assets Related to				Liabilities Related to
(Amounts in thousands)		Discontinued Operations as of				Discontinued Operations as of
		September 30,		December 31,		September 30,		December 31,
		2013		2012		2013		2012
Retail properties		$	20,428	$	600,640	$	-	$	442,293
Other properties			6,985		33,499		-		-
Total		$	27,413	$	634,139	$	-	$	442,293
		For the Three Months				For the Nine Months
(Amounts in thousands)		Ended September 30,				Ended September 30,
		2013		2012		2013		2012
Total revenues		$	2,963	$	35,576	$	35,193	$	144,274
Total expenses			2,488		27,877		27,177		106,924
			475		7,699		8,016		37,350
Net gains on sale of real estate (2013 includes $2,909
	attributable to noncontrolling interests)		18,996		131,088		286,990		203,801
Gain on sale of Canadian Trade Shows, net of $11,448 of
	income taxes		-		19,657		-		19,657
Impairment losses			(720)		-		(4,727)		(13,511)
Income from discontinued operations		$	18,751	$	158,444	$	290,279	$	247,297

19

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

9.    Identified Intangible Assets and Liabilities

The following summarizes our identified intangible assets (primarily acquired in-place and above-market leases) and liabilities (primarily acquired below-market leases) as of September 30, 2013 and December 31, 2012.

	Balance as of
	September 30,		December 31,
(Amounts in thousands)	2013		2012
Identified intangible assets:
Gross amount	$	572,641	$	752,922
Accumulated amortization		(297,391)		(346,613)
Net	$	275,250	$	406,309
Identified intangible liabilities (included in deferred revenue):
Gross amount	$	811,917	$	902,525
Accumulated amortization		(372,329)		(341,536)
Net	$	439,588	$	560,989

Amortization of acquired below-market leases, net of acquired above-market leases, resulted in an increase to rental income of $11,820,000 and $13,256,000 for the three months ended September 30, 2013 and 2012, respectively, and $40,326,000 and $39,569,000 for the nine months ended September 30, 2013 and 2012, 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, 2014 is as follows:

(Amounts in thousands)
2014	$	41,069
2015		38,263
2016		36,321
2017		30,936
2018		29,171

Amortization of all other identified intangible assets (a component of depreciation and amortization expense) was $11,257,000 and $11,415,000 for the three months ended September 30, 2013 and 2012, respectively, and $53,339,000 and $35,519,000 for the nine months ended September 30, 2013 and 2012, 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, 2014 is as follows:

(Amounts in thousands)
2014	$	26,708
2015		21,543
2016		18,363
2017		15,203
2018		11,005

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 $981,000 and $312,000 for the three months ended September 30, 2013 and 2012, respectively, and $3,704,000 and $894,000 for the nine months ended September 30, 2013 and 2012, respectively.  Estimated annual amortization of these below-market leases, net of above-market leases for each of the five succeeding years commencing January 1, 2014 is as follows:

(Amounts in thousands)
2014	$	3,921
2015		3,921
2016		3,921
2017		3,921
2018		3,921

20

 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

10.    Debt

The following is a summary of our debt:

				Interest
(Amounts in thousands)				Rate at	Balance at
				September 30,	September 30,		December 31,
Mortgages payable:			Maturity (1)	2013	2013		2012
Fixed rate:
	New York:
		1290 Avenue of the Americas (70% owned)	11/22	3.34%	$	950,000	$	950,000
		Two Penn Plaza	03/18	5.13%		425,000		425,000
		666 Fifth Avenue Retail Condominium(2)	03/23	3.61%		390,000		-
		770 Broadway	03/16	5.65%		353,000		353,000
		888 Seventh Avenue	01/16	5.71%		318,554		318,554
		350 Park Avenue	01/17	3.75%		300,000		300,000
		909 Third Avenue	04/15	5.64%		196,013		199,198
		828-850 Madison Avenue Retail Condominium	06/18	5.29%		80,000		80,000
		510 Fifth Avenue	01/16	5.60%		30,872		31,253
	Washington, DC:
		Skyline Properties(3)	02/17	5.74%		736,259		704,957
		River House Apartments	04/15	5.43%		195,546		195,546
		2101 L Street	08/24	3.97%		150,000		150,000
		2121 Crystal Drive	03/23	5.51%		149,005		150,000
		Bowen Building	06/16	6.14%		115,022		115,022
		1215 Clark Street, 200 12th Street and 251 18th Street	01/25	7.09%		103,794		105,724
		West End 25	06/21	4.88%		101,671		101,671
		Universal Buildings	04/14	6.56%		89,321		93,226
		2011 Crystal Drive	08/17	7.30%		78,875		79,624
		220 20th Street	02/18	4.61%		73,003		73,939
		1550 and 1750 Crystal Drive	11/14	7.08%		71,841		74,053
		2231 Crystal Drive	n/a	n/a		-		41,298
		1225 Clark Street	n/a	n/a		-		24,834
	Retail Properties:
		Cross-collateralized mortgages on 40 strip shopping centers	09/20	4.25%		563,692		573,180
		Bergen Town Center(4)	04/23	3.56%		300,000		-
		Montehiedra Town Center(5)	07/16	6.04%		120,000		120,000
		North Bergen (Tonnelle Avenue)	01/18	4.59%		75,000		75,000
		Las Catalinas Mall	11/13	6.97%		52,822		54,101
		Broadway Mall	n/a	n/a		-		85,180
		Other	06/14-11/34	5.12%-7.30%		68,659		86,641
	Other:
		555 California Street (70% owned)	09/21	5.10%		600,000		600,000
		Merchandise Mart	12/16	5.57%		550,000		550,000
		Borgata Land	02/21	5.14%		59,518		60,000
Total fixed rate mortgages payable				4.91%	$	7,297,467	$	6,771,001
___________________
	See notes on page 23.

21

 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

10.    Debt - continued

					Interest
(Amounts in thousands)					Rate at	Balance at
				Spread over	September 30,	September 30,		December 31,
Mortgages payable:			Maturity (1)	LIBOR	2013	2013		2012
Variable rate:
	New York:
		Eleven Penn Plaza	01/19	L+235	2.53%	$	330,000	$	330,000
		100 West 33rd Street - office and retail	03/17	L+250	2.68%		325,000		325,000
		4 Union Square South - retail	11/19	L+215	2.33%		120,000		120,000
		435 Seventh Avenue - retail	08/19	L+225	2.43%		98,000		98,000
		866 UN Plaza	05/16	L+125	1.43%		44,978		44,978
		Independence Plaza (see page 15 for details)	n/a	n/a	n/a		-		334,225
	Washington, DC:
		River House Apartments	04/18	n/a(6)	1.58%		64,000		64,000
		2200 / 2300 Clarendon Boulevard	01/15	L+75	0.93%		42,806		47,353
		1730 M and 1150 17th Street	06/14	L+140	1.58%		43,581		43,581
	Retail:
		Cross-collateralized mortgages on 40 strip
		shopping centers(7)	09/20	L+136(7)	2.36%		60,000		60,000
		Bergen Town Center(4)	n/a	n/a	n/a		-		282,312
		Other	07/18	L+130	1.48%		17,000		-
	Other:
		220 Central Park South	10/13	L+275	2.93%		123,750		123,750
	Total variable rate mortgages payable				2.39%		1,269,115		1,873,199
	Total mortgages payable				4.54%	$	8,566,582	$	8,644,200
Senior unsecured notes:
	Senior unsecured notes due 2015		04/15		4.25%	$	499,752	$	499,627
	Senior unsecured notes due 2039(8)		10/39		7.88%		452,500		460,000
	Senior unsecured notes due 2022		01/22		5.00%		398,517		398,381
	Total senior unsecured notes				5.69%	$	1,350,769	$	1,358,008
Unsecured revolving credit facilities:
	$1.25 billion unsecured revolving credit facility		11/16	L+125	-	$	-	$	1,150,000
	$1.25 billion unsecured revolving credit facility
		($33,068 and $22,807 reserved for outstanding
		letters of credit)(9)	06/18	L+115	1.33%		83,982		20,000
	Total unsecured revolving credit facilities				1.33%	$	83,982	$	1,170,000
___________________________
	See notes on the following page.

22

 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

10.    Debt - continued

Notes to preceding tabular information (amounts in thousands):
(1)	Represents the extended maturity for certain loans in which we have the unilateral right, ability and intent to extend.
(2)	On February 20, 2013, we completed a $390,000 financing of this property. The 10-year fixed-rate interest only loan bears interest at 3.61%. This property was previously unencumbered.
(3)	On October 31, 2013, we completed the restructuring of the $678,000 (face amount) 5.74% Skyline properties mortgage loan. The loan has been separated into two tranches; a senior $350,000 position and a junior $328,000 position. The maturity date hasbeen extended from February 2017 to February 2022, with a one-year extension option. The effective interest rate is 2.965%. Capital we invest to re-lease the property will be senior to the $328,000 junior position.
(4)	On March 25, 2013, we completed a $300,000 financing of this property. The 10-year fixed-rate interest only loan bears interest at 3.56%. The property was previously encumbered by a $282,312 floating-rate loan.
(5)	On May 13, 2013, we notified the lender that due to tenants vacating, the property's operating cash flow will be insufficient to pay the debt service; accordingly, at our request, the mortgage loan was transferred to the special servicer. We are in discussions with the special servicer to restructure the terms of the loan; there can be no assurance as to the timing and ultimate resolution of these discussions.
(6)	Interest at the Freddie Mac Reference Note Rate plus 1.53%.
(7)	LIBOR floor of 1.00%.
(8)	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.
(9)	On March 28, 2013, we extended this revolving credit facility from June 2015 to June 2017, with two six-month extension options. The interest on the extended facility was reduced from LIBOR plus 135 basis points to LIBOR plus 115 basis points. In addition, the facility fee was reduced from 30 basis points to 20 basis points.

23

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

11.    Redeemable Noncontrolling Interests

Redeemable noncontrolling interests on our consolidated balance sheets are primarily comprised of Class A Operating Partnership units held by third parties.  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.

(Amounts in thousands)
Balance at December 31, 2011	$	1,160,677
Net income		40,595
Other comprehensive loss		(15,717)
Distributions		(34,138)
Redemption of Class A units for common shares, at redemption value		(51,216)
Adjustments to carry redeemable Class A units at redemption value		63,657
Redemption of Series D-10 and D-14 redeemable units		(168,300)
Other, net		(59)
Balance at September 30, 2012	$	995,499
Balance at December 31, 2012	$	944,152
Net income		28,960
Other comprehensive income		5,982
Distributions		(25,827)
Redemption of Class A units for common shares, at redemption value		(19,627)
Adjustments to carry redeemable Class A units at redemption value		43,709
Redemption of Series D-15 redeemable units		(36,900)
Other, net		10,649
Balance at September 30, 2013	$	951,098

As of September 30, 2013 and December 31, 2012, the aggregate redemption value of redeemable Class A units was $950,098,000 and $898,152,000, 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 $55,011,000 as of September 30, 2013 and December 31, 2012, respectively. 

On May 9, 2013, we redeemed all of the outstanding 6.875% Series D-15 Cumulative Redeemable Preferred Units with an aggregate face amount of $45,000,000 for $36,900,000 in cash, plus accrued and unpaid distributions through the date of redemption.

12.    Shareholders’ Equity

On January 25, 2013, we sold 12,000,000 5.40% Series L Cumulative Redeemable Preferred Shares at a price of $25.00 per share in an underwritten public offering pursuant to an effective registration statement.  We retained aggregate net proceeds of $290,536,000, after underwriters’ discounts and issuance costs, and contributed the net proceeds to the Operating Partnership in exchange for 12,000,000 Series L Preferred Units (with economic terms that mirror those of the Series L Preferred Shares).  Dividends on the Series L Preferred Shares are cumulative and payable quarterly in arrears.  The Series L Preferred Shares are not convertible into, or exchangeable for, any of our properties or securities.  On or after five years from the date of issuance (or sooner under limited circumstances), we may redeem the Series L Preferred Shares at a redemption price of $25.00 per share, plus accrued and unpaid dividends through the date of redemption.  The Series L Preferred Shares have no maturity date and will remain outstanding indefinitely unless redeemed by us.

On February 19, 2013, we redeemed all of the outstanding 6.75% Series F Cumulative Redeemable Preferred Shares and 6.75% Series H Cumulative Redeemable Preferred Shares at par, for an aggregate of $262,500,000 in cash, plus accrued and unpaid dividends through the date of redemption.

24

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

13.    Accumulated Other Comprehensive Income

The following tables set forth the changes in accumulated other comprehensive income (loss) by component.

			For the Three Months Ended September 30, 2013
					Securities			Pro rata share of		Interest
					available-			nonconsolidated		rate
(Amounts in thousands)			Total		for-sale			subsidiaries' OCI		swap		Other
Balance as of June 30, 2013			$	132,894	$	188,570		$	(12,041)	$	(35,505)	$	(8,130)
	OCI before reclassifications			(7,163)		(8,252)			(1,669)		(295)		3,053
	Amounts reclassified from AOCI			(42,404)		(42,404)	(1)		-		-		-
Net current period OCI				(49,567)		(50,656)			(1,669)		(295)		3,053
Balance as of September 30, 2013			$	83,327	$	137,914		$	(13,710)	$	(35,800)	$	(5,077)
(1)		Reclassified to "net gain (loss) on disposition of wholly owned and partially owned assets" on our consolidated statements of income.
			For the Nine Months Ended September 30, 2013
					Securities			Pro rata share of		Interest
					available-			nonconsolidated		rate
(Amounts in thousands)			Total		for-sale			subsidiaries' OCI		swap		Other
Balance as of December 31, 2012			$	(18,946)	$	19,432		$	11,313	$	(50,065)	$	374
	OCI before reclassifications			144,677		160,886			(25,023)		14,265		(5,451)
	Amounts reclassified from AOCI			(42,404)		(42,404)	(1)		-		-		-
Net current period OCI				102,273		118,482			(25,023)		14,265		(5,451)
Balance as of September 30, 2013			$	83,327	$	137,914		$	(13,710)	$	(35,800)	$	(5,077)
(1)		Reclassified to "net gain (loss) on disposition of wholly owned and partially owned assets" on our consolidated statements of income.

14.    Variable Interest Entities (“VIEs”)

Consolidated VIEs

The entity that owns Independence Plaza was a consolidated VIE at December 31, 2012.  On June 7, 2013, we sold a portion of our economic interest in this entity and determined that we are no longer its primary beneficiary.  Accordingly, we deconsolidated this VIE (see Note 7 – Investments in Partially Owned Entities).  The table below summarizes the assets and liabilities of the VIE at December 31, 2012.  The liabilities were secured only by the assets of the VIE, and were non-recourse to us.

	As of September 30,		As of December 31,
(Amounts in thousands)	2013		2012
Total assets	$	-	$	957,730
Total liabilities	$	-	$	443,894
Noncontrolling interest	$	-	$	193,933

Unconsolidated VIEs

At September 30, 2013, we have unconsolidated VIEs comprised of our investments in the entities that own the Warner Building and Independence Plaza.  We do not consolidate these entities because we are not the primary beneficiary and the nature of our involvement in the activities of these entities does not give us power over decisions that significantly affect these entities’ economic performance.  We account for our investment in these entities under the equity method (see Note 7 – Investments in Partially Owned Entities).  As of September 30, 2013, the net carrying amount of our investment in these entities was $151,609,000, and at December 31, 2012, the carrying amount of our investment in the Warner Building was $8,775,000.  Our maximum exposure to loss in these entities, is limited to our investment.

25

 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

15.    Fair Value Measurements

ASC 820,Fair Value Measurement and Disclosuresdefines 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 on a Recurring Basis

Financial assets and liabilities that are measured at fair value in our consolidated financial statements consist of (i) marketable securities, (ii) Real Estate Fund investments, (iii) the assets in our deferred compensation plan (for which there is a corresponding liability on our consolidated balance sheet), (iv) interest rate swaps 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 September 30, 2013 and December 31, 2012, respectively.

		As of September 30, 2013
(Amounts in thousands)		Total		Level 1		Level 2		Level 3
Marketable securities		$	210,554	$	210,554	$	-	$	-
Real Estate Fund investments (75% of which is attributable to
	noncontrolling interests)		635,990		-		-		635,990
Deferred compensation plan assets (included in other assets)			111,752		45,227		-		66,525
	Total assets	$	958,296	$	255,781	$	-	$	702,515
Mandatorily redeemable instruments (included in other liabilities)		$	55,097	$	55,097	$	-	$	-
Interest rate swap (included in other liabilities)			35,800		-		35,800		-
	Total liabilities	$	90,897	$	55,097	$	35,800	$	-
		As of December 31, 2012
(Amounts in thousands)		Total		Level 1		Level 2		Level 3
Marketable securities		$	398,188	$	398,188	$	-	$	-
Real Estate Fund investments (75% of which is attributable to
	noncontrolling interests)		600,786		-		-		600,786
Deferred compensation plan assets (included in other assets)			105,200		42,569		-		62,631
J.C. Penney derivative position (included in other assets)(1)			11,165		-		11,165		-
	Total assets	$	1,115,339	$	440,757	$	11,165	$	663,417
Mandatorily redeemable instruments (included in other liabilities)		$	55,011	$	55,011	$	-	$	-
Interest rate swap (included in other liabilities)			50,065		-		50,065		-
	Total liabilities	$	105,076	$	55,011	$	50,065	$	-
(1)     Represents the cash deposited with the counterparty in excess of the mark-to-market loss on the derivative position.

26

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

15.  Fair Value Measurements – continued

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis - continued

Real Estate Fund Investments

At September 30, 2013, our Real Estate Fund had nine investments with an aggregate fair value of $635,990,000, or $127,118,000 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 0.8 to 6.7 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 at September 30, 2013.

			Weighted Average
			(based on fair
Unobservable Quantitative Input		Range	value of investments)
	Discount rates	12.0% to 17.5%	13.9%
	Terminal capitalization rates	5.3% to 6.0%	5.7%

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 that are classified as Level 3, for the three and nine months ended September 30, 2013 and 2012.

	Real Estate Fund Investments				Real Estate Fund Investments
	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(Amounts in thousands)		2013		2012	2013		2012
Beginning balance	$	622,124	$	388,455	$	600,786	$	346,650
Purchases		7,406		88,429		38,299		163,021
Sales/Returns		(14,184)		-		(70,848)		(61,052)
Net realized gain		8,184		-		8,184		-
Net unrealized gains		12,367		5,558		59,476		33,537
Other, net		93		-		93		286
Ending balance	$	635,990	$	482,442	$	635,990	$	482,442

27

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

15.    Fair Value Measurements – continued

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis - continued

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 that are classified as Level 3, for the three and nine months ended September 30, 2013 and 2012. 

	Deferred Compensation Plan Assets				Deferred Compensation Plan Assets
	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(Amounts in thousands)		2013		2012	2013		2012
Beginning balance	$	66,502	$	58,313	$	62,631	$	56,221
Purchases		880		1,650		4,027		5,416
Sales		(873)		(276)		(5,318)		(4,287)
Realized and unrealized (loss) gain		(42)		1,080		4,094		3,349
Other, net		58		-		1,091		68
Ending balance	$	66,525	$	60,767	$	66,525	$	60,767

Fair Value Measurements on a Nonrecurring Basis

Assets measured at fair value on a nonrecurring basis on our consolidated balance sheets consist primarily of our investment in Toys “R” Us and real estate assets that were written-down to estimated fair value at December 31, 2012.  The fair values of these assets were determined using widely accepted valuation techniques, including (i) discounted cash flow analysis, which considers, among other things, leasing assumptions, growth rates, discount rates and terminal capitalization rates, (ii) income capitalization approach, which considers prevailing market capitalization rates, and (iii) comparable sales activity.  Generally, we consider multiple valuation techniques when measuring fair values but in certain circumstances, a single valuation technique may be appropriate.  The tables below aggregate the fair values of these assets by their levels in the fair value hierarchy.

			As of December 31, 2012
(Amounts in thousands)			Total		Level 1		Level 2		Level 3
	Investment in Toys "R" Us		$	478,041	$	-	$	-	$	478,041
	Real estate assets			189,529		-		-		189,529
	Condominium units (included in other assets)			52,142		-		-		52,142
		Total assets	$	719,712	$	-	$	-	$	719,712

28

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

15.    Fair Value Measurements – continued

Financial Assets and Liabilities not Measured at Fair Value

Financial assets and liabilities that are not measured at fair value on our consolidated balance sheets include cash equivalents (primarily money market funds, which invest in obligations of the United States government), mortgage and mezzanine loans receivable and our secured and unsecured debt.  Estimates of the fair value 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 cash equivalents and borrowings under our revolving credit facility is classified as Level 1, and the fair value of our mortgage and mezzanine loans receivable is classified as Level 3.  The fair value of our secured and unsecured debt are classified as Level 2.  The table below summarizes the carrying amounts and fair value of these financial instruments as of September 30, 2013 and December 31, 2012.

			As of September 30, 2013				As of December 31, 2012
			Carrying		Fair		Carrying		Fair
(Amounts in thousands)			Amount		Value		Amount		Value
	Cash equivalents		$	380,248	$	380,248	$	543,000	$	543,000
	Mortgage and mezzanine loans receivable			176,388		176,098		225,359		221,446
			$	556,636	$	556,346	$	768,359	$	764,446
	Debt:
		Mortgages payable	$	8,566,582	$	8,638,000	$	8,644,200	$	8,672,000
		Senior unsecured notes		1,350,769		1,413,000		1,358,008		1,468,000
		Revolving credit facility debt		83,982		83,982		1,170,000		1,170,000
			$	10,001,333	$	10,134,982	$	11,172,208	$	11,310,000

16.    Incentive Compensation

Our 2010 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 was $9,201,000 and $7,774,000 in the three months ended September 30, 2013 and 2012, respectively and $25,796,000 and $22,821,000 in the nine months ended September 30, 2013 and 2012, respectively.

On March 15, 2013, our Compensation Committee (the “Committee”) approved the 2013 Outperformance Plan, a performance-based equity compensation plan and related form of award agreement (the “2013 OPP”).  Under the 2013 OPP, participants have the opportunity to earn compensation payable in the form of operating partnership units in the second and/or third year during a three-year performance measurement period, if and only if, we outperform a predetermined total shareholder return (“TSR”) and/or outperform the market with respect to relative total TSR.  Awards under our 2013 OPP may be earned if (i) we achieve a TSR greater than 14% over the two-year performance measurement period, or 21% over the three-year performance measurement period (the “Absolute Component”), and/or (ii) we achieve a TSR above that of the SNL US REIT Index (the “Index”) over a two-year or three-year performance measurement period (the “Relative Component”).  To the extent awards would be earned under the Absolute Component but we underperform the Index, such awards earned 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 fully earned under the Absolute Component, awards may be increased 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, such awards earned under the Relative Component 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. Awards earned under the 2013 OPP vest 33% in year three, 33% in year four and 34% in year five. Dividends on awards earned accrue during the performance measurement period. In addition, our executive officers (for the purposes of Section 16 of the Exchange Act) are required to hold earned OPP awards for one year following vesting. 

29

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

17.    Fee and Other Income

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

		For the Three Months				For the Nine Months
(Amounts in thousands)		Ended September 30,				Ended September 30,
		2013		2012		2013		2012
BMS cleaning fees		$	15,898	$	16,945	$	49,071	$	49,437
Signage revenue			8,738		4,783		23,566		14,252
Management and leasing fees			7,982		7,234		19,675		16,534
Lease termination fees (1)			20,432		282		87,587		1,172
Other income			8,108		10,381		26,431		24,494
		$	61,158	$	39,625	$	206,330	$	105,889
(1)	The three months ended September 30, 2013 includes a $19,500 termination fee from a tenant at 1290 Avenue of the Americas, of which our 70% share, net of a $1,529 write-off of the straight lining of rents, was $12,121, and the nine months ended September 30, 2013 also includes $59,599 of income pursuant to a settlement agreement with Stop & Shop, which terminates our right to receive $6,000 of additional annual rent under a 1992 agreement, for a period potentially through 2031.

Management and leasing fees include management fees from Interstate Properties, a related party, of $134,000 and $198,000 for the three months ended September 30, 2013 and 2012, respectively, and $467,000 and $588,000 for the nine months ended September 30, 2013 and 2012, respectively.  The above table excludes fee income from partially owned entities, which is typically included in “income from partially owned entities” (see Note 7 –Investments in Partially Owned Entities). 

18.     Interest and Other Investment (Loss) Income, Net

The following table sets forth the details of interest and other investment (loss) income:

			For the Three Months				For the Nine Months
(Amounts in thousands)			Ended September 30,				Ended September 30,
			2013		2012		2013		2012
(Loss) income from the mark-to-market of J.C. Penney derivative
	position		$	(20,012)	$	4,344	$	(33,487)	$	(53,343)
Interest on mezzanine loans receivable				4,766		2,852		14,783		8,867
Dividends and interest on marketable securities				2,804		-		8,344		11,093
Mark-to-market of investments in our deferred compensation plan (1)				269		1,116		6,207		5,267
Non-cash impairment loss on J.C. Penney common shares				-		-		(39,487)		-
Income from prepayment penalties in connection with the
	repayment of a mezzanine loan			-		-		5,267		-
Other, net				1,898		2,211		5,440		5,132
			$	(10,275)	$	10,523	$	(32,933)	$	(22,984)
(1)		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.

19.     Interest and Debt Expense

The following table sets forth the details of interest and debt expense:

	For the Three Months				For the Nine Months
(Amounts in thousands)	Ended September 30,				Ended September 30,
	2013		2012		2013		2012
Interest expense	$	125,422	$	121,230	$	375,963	$	364,223
Amortization of deferred financing costs		4,980		5,623		15,189		16,918
Capitalized interest		(10,532)		(7,523)		(28,024)		(7,884)
	$	119,870	$	119,330	$	363,128	$	373,257

30

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

20.    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 and restricted stock.

			For the Three Months				For the Nine Months
(Amounts in thousands, except per share amounts)			Ended September 30,				Ended September 30,
			2013		2012		2013		2012
Numerator:
	Income from continuing operations, net of income attributable
		to noncontrolling interests	$	88,486	$	92,208	$	253,567	$	297,290
	Income from discontinued operations, net of income attributable
		to noncontrolling interests		14,888		149,098		270,923		233,835
	Net income attributable to Vornado			103,374		241,306		524,490		531,125
	Preferred share dividends			(20,369)		(20,613)		(62,439)		(56,187)
	Preferred unit and share redemptions			-		11,700		(1,130)		11,700
	Net income attributable to common shareholders			83,005		232,393		460,921		486,638
	Earnings allocated to unvested participating securities			(24)		(71)		(97)		(149)
	Numerator for basic income per share			82,981		232,322		460,824		486,489
	Impact of assumed conversions:
		Convertible preferred share dividends		-		28		54		85
	Numerator for diluted income per share		$	82,981	$	232,350	$	460,878	$	486,574
Denominator:
	Denominator for basic income per share – weighted average shares			186,969		185,924		186,885		185,656
	Effect of dilutive securities(1):
		Employee stock options and restricted share awards		755		681		746		693
		Convertible preferred shares		-		50		48		50
	Denominator for diluted income per share – weighted average
		shares and assumed conversions		187,724		186,655		187,679		186,399
INCOME PER COMMON SHARE – BASIC:
	Income from continuing operations, net		$	0.36	$	0.45	$	1.02	$	1.36
	Income from discontinued operations, net			0.08		0.80		1.45		1.26
	Net income per common share		$	0.44	$	1.25	$	2.47	$	2.62
INCOME PER COMMON SHARE – DILUTED:
	Income from continuing operations, net		$	0.36	$	0.44	$	1.01	$	1.36
	Income from discontinued operations, net			0.08		0.80		1.45		1.25
	Net income per common share		$	0.44	$	1.24	$	2.46	$	2.61
(1)		The effect of dilutive securities in the three months ended September 30, 2013 and 2012 excludes an aggregate of 12,002 and 12,652 weighted average common share equivalents, respectively, and 11,890 and 15,048 weighted average common share equivalents in the nine months ended September 30, 2013 and 2012, respectively, as their effect was anti-dilutive.

31

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

21.    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 losses incurred 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 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

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 is not expected to have a material adverse effect on our financial position, results of operations or cash flows.

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.

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 September 30, 2013, the aggregate dollar amount of these guarantees and master leases is approximately $367,000,000.

At September 30, 2013, $33,068,000 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.

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 September 30, 2013, our subsidiaries have funded approximately $3,598,000 of the commitment.

As of September 30, 2013, we expect to fund additional capital to certain of our partially owned entities aggregating approximately $155,000,000. 

32

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

22.  Subsequent Events

On October 1, 2013, we sold a parcel of land known as Harlem Park located at 1800 Park Avenue (at 125^th Street) in New York City for $66,000,000. The sale resulted in net proceeds of approximately $63,000,000 and a net gain of approximately $23,000,000.

On October 4, 2013, we acquired a 92.5% interest in 655 Fifth Avenue, a 57,500 square foot retail and office property located at the northeast corner of Fifth Avenue and 52nd Street in Manhattan with 50 feet of frontage on Fifth Avenue, for $277,500,000 in cash. We consolidate the accounts of the property into our consolidated financial statements.

On October 15, 2013, we acquired, for $194,000,000, land and air rights for 137,000 zoning square feet thereby completing the assemblage for our 220 Central Park South site in Manhattan. 

33

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

23.    Segment Information

As a result of certain organizational changes and asset sales in 2012, the Merchandise Mart segment no longer meets the criteria to be a separate reportable segment; accordingly, effective January 1, 2013, the remaining assets have been reclassified to “Other.”  We have also reclassified the prior period segment financial results to conform to the current year presentation.  Below is a summary of net income and a reconciliation of net income to EBITDA⁽¹⁾ by segment for the three and nine months ended September 30, 2013 and 2012.  

(Amounts in thousands)			For the Three Months Ended September 30, 2013
												Retail
				Total		New York			Washington, DC			Properties			Toys		Other
Property rentals				$	505,062	$	277,855		$	113,737		$	63,361		$	-	$	50,109
Straight-line rent adjustments					15,809		9,430			234			1,491			-		4,654
Amortization of acquired below-market
	leases, net				11,820		7,151			521			2,894			-		1,254
Total rentals					532,691		294,436			114,492			67,746			-		56,017
Tenant expense reimbursements					84,638		47,142			10,462			21,670			-		5,364
Cleveland Medical Mart development project					4,893		-			-			-			-		4,893
Fee and other income:
	BMS cleaning fees				15,898		21,191			-			-			-		(5,293)
	Signage revenue				8,738		8,738			-			-			-		-
	Management and leasing fees				7,982		2,615			5,263			371			-		(267)
	Lease termination fees				20,432		19,496			867			-			-		69
	Other income				8,108		581			6,520			656			-		351
Total revenues					683,380		394,199			137,604			90,443			-		61,134
Operating expenses					264,422		160,465			49,646			31,628			-		22,683
Depreciation and amortization					124,079		58,058			31,109			16,455			-		18,457
General and administrative					48,250		7,849			6,857			4,240			-		29,304
Cleveland Medical Mart development project					3,239		-			-			-			-		3,239
Acquisition related costs					2,818		-			-			-			-		2,818
Total expenses					442,808		226,372			87,612			52,323			-		76,501
Operating income (loss)					240,572		167,827			49,992			38,120			-		(15,367)
(Loss) applicable to Toys					(34,209)		-			-			-			(34,209)		-
Income (loss) from partially owned entities					1,453		4,189			(2,003)			188			-		(921)
Income from Real Estate Fund					22,913		-			-			-			-		22,913
Interest and other investment
	(loss) income, net				(10,275)		1,468			17			1			-		(11,761)
Interest and debt expense					(119,870)		(42,538)			(27,246)			(10,839)			-		(39,247)
Net gain on disposition of wholly owned and
	partially owned assets				15,138		-			-			1,377			-		13,761
Income (loss) before income taxes					115,722		130,946			20,760			28,847			(34,209)		(30,622)
Income tax expense					(2,222)		(65)			(766)			(731)			-		(660)
Income (loss) from continuing operations					113,500		130,881			19,994			28,116			(34,209)		(31,282)
Income (loss) from discontinued operations					18,751		-			-			19,012			-		(261)
Net income (loss)					132,251		130,881			19,994			47,128			(34,209)		(31,543)
Less net income attributable to
	noncontrolling interests in:
	Consolidated subsidiaries				(23,833)		(6,556)			-			(2,970)			-		(14,307)
	Operating Partnership				(5,032)		-			-			-			-		(5,032)
	Preferred unit distributions of the
		Operating Partnership			(12)		-			-			-			-		(12)
Net income (loss) attributable to
	Vornado				103,374		124,325			19,994			44,158			(34,209)		(50,894)
Interest and debt expense(2)					183,116		59,344			30,717			12,119			38,435		42,501
Depreciation and amortization(2)					172,756		67,294			35,403			17,573			32,176		20,310
Income tax (benefit) expense (2)					(20,292)		67			828			731			(22,690)		772
EBITDA(1)				$	438,954	$	251,030	(3)	$	86,942	(4)	$	74,581	(5)	$	13,712	$	12,689	(6)
See notes on page 38.

34

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

23.    Segment Information – continued

(Amounts in thousands)			For the Three Months Ended September 30, 2012
												Retail
				Total		New York			Washington, DC			Properties			Toys		Other
Property rentals				$	486,914	$	255,703		$	115,641		$	63,408		$	-	$	52,162
Straight-line rent adjustments					11,391		8,140			1,267			1,873			-		111
Amortization of acquired below-market
	leases, net				13,256		8,458			506			2,882			-		1,410
Total rentals					511,561		272,301			117,414			68,163			-		53,683
Tenant expense reimbursements					79,215		45,164			9,601			19,787			-		4,663
Cleveland Medical Mart development project					72,651		-			-			-			-		72,651
Fee and other income:
	BMS cleaning fees				16,945		23,918			-			-			-		(6,973)
	Signage revenue				4,783		4,783			-			-			-		-
	Management and leasing fees				7,234		1,816			4,615			736			-		67
	Lease termination fees				282		78			128			73			-		3
	Other income				10,381		1,116			8,288			569			-		408
Total revenues					703,052		349,176			140,046			89,328			-		124,502
Operating expenses					261,512		159,048			50,305			30,726			-		21,433
Depreciation and amortization					122,241		57,967			29,825			16,359			-		18,090
General and administrative					48,456		6,739			6,668			6,103			-		28,946
Cleveland Medical Mart development project					70,431		-			-			-			-		70,431
Acquisition related costs					1,070		-			-			-			-		1,070
Total expenses					503,710		223,754			86,798			53,188			-		139,970
Operating income (loss)					199,342		125,422			53,248			36,140			-		(15,468)
(Loss) applicable to Toys					(8,585)		-			-			-			(8,585)		-
Income (loss) from partially owned entities					21,268		9,309			(2,182)			342			-		13,799
Income from Real Estate Fund					5,509		-			-			-			-		5,509
Interest and other investment
	income, net				10,523		1,057			24			4			-		9,438
Interest and debt expense					(119,330)		(36,817)			(28,311)			(13,292)			-		(40,910)
Income (loss) before income taxes					108,727		98,971			22,779			23,194			(8,585)		(27,632)
Income tax (expense) benefit					(3,015)		(815)			25			-			-		(2,225)
Income (loss) from continuing operations					105,712		98,156			22,804			23,194			(8,585)		(29,857)
Income from discontinued operations					158,444		-			126,437			11,370			-		20,637
Net income (loss)					264,156		98,156			149,241			34,564			(8,585)		(9,220)
Less net (income) loss attributable to
	noncontrolling interests in:
	Consolidated subsidiaries				(6,610)		(2,092)			-			97			-		(4,615)
	Operating Partnership				(14,837)		-			-			-			-		(14,837)
	Preferred unit distributions of the
		Operating Partnership			(1,403)		-			-			-			-		(1,403)
Net income (loss) attributable to
	Vornado				241,306		96,064			149,241			34,661			(8,585)		(30,075)
Interest and debt expense(2)					183,241		46,823			33,280			17,499			34,526		51,113
Depreciation and amortization(2)					177,593		62,905			35,071			21,345			33,160		25,112
Income tax expense (benefit)(2)					3,850		871			(25)			-			(11,118)		14,122
EBITDA(1)				$	605,990	$	206,663	(3)	$	217,567	(4)	$	73,505	(5)	$	47,983	$	60,272	(6)
See notes on page 38.

35

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

23.    Segment Information – continued

(Amounts in thousands)			For the Nine Months Ended September 30, 2013
												Retail
				Total		New York			Washington, DC			Properties			Toys		Other
Property rentals				$	1,521,127	$	839,349		$	338,742		$	189,964		$	-	$	153,072
Straight-line rent adjustments					47,989		27,289			4,242			3,741			-		12,717
Amortization of acquired below-market
	leases, net				40,326		26,184			1,543			8,669			-		3,930
Total rentals					1,609,442		892,822			344,527			202,374			-		169,719
Tenant expense reimbursements					236,580		128,598			31,264			63,601			-		13,117
Cleveland Medical Mart development project					34,026		-			-			-			-		34,026
Fee and other income:
	BMS cleaning fees				49,071		63,192			-			-			-		(14,121)
	Signage revenue				23,566		23,566			-			-			-		-
	Management and leasing fees				19,675		7,533			11,529			1,170			-		(557)
	Lease termination fees				87,587		24,986			1,417			59,797			-		1,387
	Other income				26,431		4,550			17,915			1,448			-		2,518
Total revenues					2,086,378		1,145,247			406,652			328,390			-		206,089
Operating expenses					784,031		478,318			145,258			98,374			-		62,081
Depreciation and amortization					400,952		203,679			92,678			47,935			-		56,660
General and administrative					157,155		25,552			20,655			14,824			-		96,124
Cleveland Medical Mart development project					29,764		-			-			-			-		29,764
Acquisition related costs					6,769		-			-			-			-		6,769
Total expenses					1,378,671		707,549			258,591			161,133			-		251,398
Operating income (loss)					707,707		437,698			148,061			167,257			-		(45,309)
(Loss) applicable to Toys					(69,311)		-			-			-			(69,311)		-
Income (loss) from partially owned entities					23,691		14,020			(6,545)			1,512			-		14,704
Income from Real Estate Fund					73,947		-			-			-			-		73,947
Interest and other investment (loss)
	income, net				(32,933)		4,076			99			5			-		(37,113)
Interest and debt expense					(363,128)		(125,991)			(83,350)			(34,523)			-		(119,264)
Net (loss) gain on disposition of wholly
	owned and partially owned assets				(20,581)		-			-			1,377			-		(21,958)
Income (loss) before income taxes					319,392		329,803			58,265			135,628			(69,311)		(134,993)
Income tax expense					(6,172)		(1,298)			(1,949)			(1,480)			-		(1,445)
Income (loss) from continuing operations					313,220		328,505			56,316			134,148			(69,311)		(136,438)
Income from discontinued operations					290,279		-			-			290,267			-		12
Net income (loss)					603,499		328,505			56,316			424,415			(69,311)		(136,426)
Less net income attributable to
	noncontrolling interests in:
	Consolidated subsidiaries				(50,049)		(9,518)			-			(3,079)			-		(37,452)
	Operating Partnership				(27,814)		-			-			-			-		(27,814)
	Preferred unit distributions of the
		Operating Partnership			(1,146)		-			-			-			-		(1,146)
Net income (loss) attributable to
	Vornado				524,490		318,987			56,316			421,336			(69,311)		(202,838)
Interest and debt expense(2)					551,357		163,579			93,715			40,057			119,347		134,659
Depreciation and amortization(2)					549,072		220,280			105,799			52,440			103,732		66,821
Income tax expense(2)					18,101		1,444			2,134			1,480			10,959		2,084
EBITDA(1)				$	1,643,020	$	704,290	(3)	$	257,964	(4)	$	515,313	(5)	$	164,727	$	726	(6)
See notes on page 38.

36

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

23.    Segment Information – continued

(Amounts in thousands)			For the Nine Months Ended September 30, 2012
											Retail
			Total		New York			Washington, DC			Properties			Toys		Other
Property rentals			$	1,443,478	$	735,587		$	356,459		$	190,671		$	-	$	160,761
Straight-line rent adjustments				53,169		42,334			4,382			5,265			-		1,188
Amortization of acquired below-market
	leases, net			39,569		23,776			1,537			9,989			-		4,267
Total rentals				1,536,216		801,697			362,378			205,925			-		166,216
Tenant expense reimbursements				220,679		118,861			30,471			61,307			-		10,040
Cleveland Medical Mart development project				184,014		-			-			-			-		184,014
Fee and other income:
	BMS cleaning fees			49,437		70,476			-			-			-		(21,039)
	Signage revenue			14,252		14,252			-			-			-		-
	Management and leasing fees			16,534		4,037			9,782			2,640			-		75
	Lease termination fees			1,172		334			256			74			-		508
	Other income			24,494		3,449			18,846			1,232			-		967
Total revenues				2,046,798		1,013,106			421,733			271,178			-		340,781
Operating expenses				749,213		447,910			143,923			97,154			-		60,226
Depreciation and amortization				381,270		168,391			107,395			51,877			-		53,607
General and administrative				150,578		21,980			19,849			18,803			-		89,946
Cleveland Medical Mart development project				177,127		-			-			-			-		177,127
Acquisition related costs				4,314		-			-			-			-		4,314
Total expenses				1,462,502		638,281			271,167			167,834			-		385,220
Operating income (loss)				584,296		374,825			150,566			103,344			-		(44,439)
Income applicable to Toys				88,696		-			-			-			88,696		-
Income (loss) from partially owned entities				53,491		20,345			(4,571)			1,040			-		36,677
Income from Real Estate Fund				37,572		-			-			-			-		37,572
Interest and other investment (loss)
	income, net			(22,984)		3,166			97			24			-		(26,271)
Interest and debt expense				(373,257)		(109,365)			(85,408)			(45,362)			-		(133,122)
Net gain on disposition of wholly owned and
	partially owned assets			4,856		-			-			-			-		4,856
Income (loss) before income taxes				372,670		288,971			60,684			59,046			88,696		(124,727)
Income tax expense				(17,319)		(2,480)			(1,277)			-			-		(13,562)
Income (loss) from continuing operations				355,351		286,491			59,407			59,046			88,696		(138,289)
Income (loss) from discontinued operations				247,297		(640)			130,979			37,456			-		79,502
Net income (loss)				602,648		285,851			190,386			96,502			88,696		(58,787)
Less net (income) loss attributable to
	noncontrolling interests in:
	Consolidated subsidiaries			(30,928)		(7,266)			-			308			-		(23,970)
	Operating Partnership			(31,445)		-			-			-			-		(31,445)
	Preferred unit distributions of the
		Operating Partnership		(9,150)		-			-			-			-		(9,150)
Net income (loss) attributable to
	Vornado			531,125		278,585			190,386			96,810			88,696		(123,352)
Interest and debt expense(2)				567,265		140,294			99,486			58,039			103,388		166,058
Depreciation and amortization(2)				552,794		188,480			122,987			65,751			100,371		75,205
Income tax expense(2)				50,076		2,677			1,532			-			17,982		27,885
EBITDA(1)			$	1,701,260	$	610,036	(3)	$	414,391	(4)	$	220,600	(5)	$	310,437	$	145,796	(6)
See notes on the following page.

37

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

23.    Segment Information – continued

	Notes to preceding tabular information:
(1)	EBITDA represents "Earnings Before Interest, Taxes, Depreciation and Amortization." We consider EBITDA a supplemental measure for making decisions and assessing the 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.
(2)	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.
(3)	The elements of "New York" EBITDA are summarized below.
				For the Three Months				For the Nine Months
				Ended September 30,				Ended September 30,
	(Amounts in thousands)			2013		2012		2013		2012
	Office			$	172,367	$	139,894	$	476,849	$	418,414
	Retail				59,782		46,165		177,394		135,399
	Alexander's (decrease due to sale of Kings Plaza
		in November 2012)			10,387		13,080		31,141		39,477
	Hotel Pennsylvania				8,494		7,524		18,906		16,746
		Total New York		$	251,030	$	206,663	$	704,290	$	610,036
(4)	The elements of "Washington, DC" EBITDA are summarized below.
				For the Three Months				For the Nine Months
				Ended September 30,				Ended September 30,
	(Amounts in thousands)			2013		2012		2013		2012
	Office, excluding the Skyline Properties (a)			$	69,220	$	197,009	$	202,463	$	350,296
	Skyline properties				6,841		9,936		22,546		32,127
		Total Office			76,061		206,945		225,009		382,423
	Residential				10,881		10,622		32,955		31,968
		Total Washington, DC		$	86,942	$	217,567	$	257,964	$	414,391
	(a)		The three and nine months ended September 30, 2012, includes a $126,621 net gain on sale of real estate.
(5)	The elements of "Retail Properties" EBITDA are summarized below.
				For the Three Months				For the Nine Months
				Ended September 30,				Ended September 30,
	(Amounts in thousands)			2013		2012		2013		2012
	Strip shopping centers(a)			$	59,175	$	49,378	$	264,065	$	148,554
	Regional malls(b)				15,406		24,127		251,248		72,046
		Total Retail properties		$	74,581	$	73,505	$	515,313	$	220,600
	(a)		The three and nine months ended September 30, 2013, includes $16,087 and $81,806, respectively, of net gains on sale of real estate and the nine months ended also includes $59,599 of income pursuant to a settlement agreement with Stop & Shop.
	(b)		The nine months ended September 30, 2013, includes a $202,275 net gain on sale of the Green Acres Mall.

38

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

23.    Segment Information – continued

	Notes to preceding tabular information - continued:
(6)	The elements of "other" EBITDA are summarized below.
				For the Three Months				For the Nine Months
				Ended September 30,				Ended September 30,
	(Amounts in thousands)			2013		2012		2013		2012
	Our share of Real Estate Fund:
		Income before net realized/unrealized gains		$	1,997	$	1,874	$	1,746	$	4,162
		Net unrealized gains			3,092		1,389		14,869		8,384
		Net realized gain			2,046		-		2,046		-
		Carried interest			356		(2,541)		15,965		-
	Total				7,491		722		34,626		12,546
	Merchandise Mart Building, 7 West 34th Street and trade shows				15,006		13,869		52,167		46,518
	555 California Street				10,720		10,714		32,371		31,406
	India real estate ventures				695		1,841		4,708		1,718
	LNR(a)				-		18,773		20,443		46,006
	Lexington(b)				-		7,859		6,931		24,780
	Other investments				5,330		9,280		14,207		30,226
					39,242		63,058		165,453		193,200
	Corporate general and administrative expenses(c)				(23,467)		(22,811)		(71,054)		(66,940)
	Investment income and other, net(c)				11,108		6,854		39,153		30,900
	Net gain on sale of marketable securities				31,741		-		31,741		3,582
	(Loss) income from the mark-to-market of J.C. Penney
		derivative position			(20,012)		4,344		(33,487)		(53,343)
	Loss on sale of J.C. Penney common shares				(18,114)		-		(54,914)		-
	Non-cash impairment loss on J.C. Penney common shares				-		-		(39,487)		-
	Acquisition related costs				(2,818)		(1,070)		(6,769)		(4,314)
	Net gain on sale of residential condominiums				134		-		1,139		1,274
	Merchandise Mart discontinued operations (including
		net gains on sale of assets)			(81)		32,087		2,065		88,488
	Verde Realty impairment loss				-		(4,936)		-		(4,936)
	Severance costs (primarily reduction in force at
		the Merchandise Mart)			-		(1,014)		(4,154)		(1,520)
	Net income attributable to noncontrolling interests in
		the Operating Partnership			(5,032)		(14,837)		(27,814)		(31,445)
	Preferred unit distributions of the Operating Partnership				(12)		(1,403)		(1,146)		(9,150)
				$	12,689	$	60,272	$	726	$	145,796
	(a)		On April 22, 2013, LNR was sold (see page 14 for details).
	(b)		In the first quarter of 2013, we began accounting for our investment in Lexington as a marketable equity security - available for sale (see page 12 for details).
	(c)		The amounts in these captions (for this table only) exclude income(expense) from the mark-to-market of our deferred compensation plan.

39

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 September 30, 2013, and the related consolidated statements of income and comprehensive income for the three-month and nine-month periods ended September 30, 2013 and 2012, and changes in equity and cash flows for the nine-month periods ended September 30, 2013 and 2012.  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, 2012, 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 26, 2013, we expressed an unqualified opinion on those consolidated financial statements.  In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2012 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ DELOITTE & TOUCHE LLP

Parsippany, New Jersey

November 4, 2013

40

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, 2012.  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 and nine months ended September 30, 2013.  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.  The results of operations for the three and nine months ended September 30, 2013 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.

41

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 FTSE NAREIT Office REIT Index (“Office REIT”) and the Morgan Stanley REIT Index (“RMS”) for the following periods ended September 30, 2013.

		Total Return(1)
		Vornado	Office REIT	RMS
	Three-month	2.3%	(1.7%)	(3.0%)
	Nine-month	7.7%	4.9%	3.2%
	One-year	8.8%	5.0%	5.8%
	Three-year	10.0%	23.3%	41.8%
	Five-year	15.2%	14.5%	33.0%
	Ten-year	170.1%	102.7%	147.1%
(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 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, for additional information regarding these factors.

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Overview – continued

Quarter Ended September 30, 2013 Financial Results Summary

Net income attributable to common shareholders for the quarter ended September 30, 2013 was $83,005,000, or $0.44 per diluted share, compared to $232,393,000, or $1.24 per diluted share for the quarter ended September 30, 2012.  Net income for the quarters ended September 30, 2013 and 2012 include $16,087,000 and $132,244,000, respectively, of net gains on sale of real estate, and $2,546,000 of real estate impairment losses in the quarter ended September 30, 2013.  In addition, the quarters ended September 30, 2013 and 2012 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, decreased net income attributable to common shareholders for the quarter ended September 30, 2013 by $24,585,000, or $0.13 per diluted share and increased net income attributable to common shareholders for the quarter ended September 30, 2012 by $163,257,000 or $0.87 per diluted share.

Funds From Operations attributable to common shareholders plus assumed conversions (“FFO”) for the quarter ended September 30, 2013 was $210,627,000, or $1.12 per diluted share, compared to $251,019,000, or $1.34 per diluted share for the prior year’s quarter.  FFO for the quarters ended September 30, 2013 and 2012 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, decreased FFO for the quarter ended September 30, 2013 by $27,622,000, or $0.15 per diluted share, and increased FFO for the quarter ended September 30, 2012 by $58,779,000, or 0.31 per diluted share.

			For the Three Months Ended September 30,
(Amounts in thousands)			2013		2012
Items that affect comparability income (expense):
	Net gain on sale of marketable securities		$	31,741	$	-
	FFO from discontinued operations, including LNR and discontinued operations of
		Alexander's		699		32,454
	Toys "R" Us FFO			(22,343)		2,403
	(Loss) income from the mark-to-market of J.C. Penney derivative position			(20,012)		4,344
	Loss on sale of J.C. Penney common shares			(18,114)		-
	Acquisition related costs			(2,818)		(1,070)
	After-tax net gain on sale of Canadian Trade Shows			-		19,657
	Other, net			1,511		5,013
				(29,336)		62,801
Noncontrolling interests' share of above adjustments				1,714		(4,022)
Items that affect comparability, net			$	(27,622)	$	58,779

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 September 30, 2013 over the quarter ended September 30, 2012 and the trailing quarter ended June 30, 2013 are summarized below.

Same Store EBITDA:			New York			Washington, DC		Retail Properties
	September 30, 2013 vs. September 30, 2012
		GAAP basis	7.0	%		(1.8	%)	2.5	%
		Cash basis	8.6	%		(2.1	%)	3.7	%
	September 30, 2013 vs. June 30, 2013
		GAAP basis	(0.9	%)	(1)	0.5	%	(0.7	%)
		Cash basis	0.3	%	(1)	1.7	%	(0.2	%)
(1)		Excluding the Hotel Pennsylvania, same store EBITDA decreased by 0.3% on a GAAP basis and increased by 1.2% on a cash basis.

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Overview – continued

Nine Months Ended September 30, 2013 Financial Results Summary

Net income attributable to common shareholders for the nine months ended September 30, 2013 was $460,921,000, or $2.46 per diluted share, compared to $486,638,000, or $2.61 per diluted share for the nine months ended September 30, 2012. Net income for the nine months ended September 30, 2013 and 2012 include $284,546,000 and $205,852,000, respectively, of net gains on sale of real estate, and $10,823,000 and $23,754,000, respectively, of real estate impairment losses.  In addition, the nine months ended September 30, 2013 and 2012 include certain 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 for the nine months ended September 30, 2013  by $172,832,000, or $0.92 per diluted share, and $300,868,000, or $1.61 per diluted share for the nine months ended September 30, 2012.

FFO for the nine months ended September 30, 2013 was $647,767,000, or $3.45 per diluted share, compared to $767,347,000, or $4.07 per diluted share for the nine months ended September 30, 2012.  FFO for the nine months ended September 30, 2013 and 2012 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, decreased FFO for the nine months ended September 30, 2013 by $48,077,000, or $0.26 per diluted share, and increased FFO for the nine months ended September 30, 2012 by $188,576,000, or $1.00 per diluted share.

			For the Nine Months Ended September 30,
(Amounts in thousands)			2013		2012
Items that affect comparability income (expense):
	Stop & Shop litigation settlement income		$	59,599	$	-
	Net gain on sale of marketable securities			31,741		3,582
	FFO from discontinued operations, including LNR and discontinued operations
		of Alexander's		28,903		103,921
	After-tax net gain on sale of Canadian Trade Shows			-		19,657
	Loss on sale of J.C. Penney common shares			(54,914)		-
	Non-cash impairment loss on J.C. Penney common shares			(39,487)		-
	Loss from the mark-to-market of J.C. Penney derivative position			(33,487)		(53,343)
	Toys "R" Us FFO (after a $78,542 impairment loss in 2013)			(30,747)		127,031
	Acquisition related costs			(6,769)		(4,314)
	Preferred unit and share redemptions			(1,130)		11,700
	Other, net			(4,757)		(7,254)
				(51,048)		200,980
Noncontrolling interests' share of above adjustments				2,971		(12,404)
Items that affect comparability, net			$	(48,077)	$	188,576

The percentage increase (decrease) in GAAP basis and Cash basis same store EBITDA of our operating segments for the nine months ended September 30, 2013 over the nine months ended September 30, 2012 is summarized below.

Same Store EBITDA:			New York		Washington, DC		Retail Properties
	September 30, 2013 vs. September 30, 2012
		GAAP basis	5.3	%	(5.0	%)	2.6	%
		Cash basis	8.6	%	(6.0	%)	3.1	%

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.

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Overview – continued

2013 Acquisitions and Investments

On September 30, 2013, a joint venture, in which we have a 20.1% interest, acquired 650 Madison Avenue, a 27-story, 594,000 square foot Class A office and retail tower located on the full western blockfront of Madison Avenue between 59th and 60th Street, for $1.295 billion.  The property contains 523,000 square feet of office space and 71,000 square feet of retail space.  The purchase price was funded with cash and a new $800,000,000 seven-year 4.39% interest-only loan.

On October 4, 2013, we acquired a 92.5% interest in 655 Fifth Avenue, a 57,500 square foot retail and office property located at the northeast corner of Fifth Avenue and 52nd Street in Manhattan with 50 feet of frontage on Fifth Avenue, for $277,500,000 in cash. 

On October 15, 2013, we acquired, for $194,000,000, land and air rights for 137,000 zoning square feet thereby completing the assemblage for our 220 Central Park South site in Manhattan.

2013 Dispositions

During 2013, we sold an aggregate of $1.230 billion in assets resulting in net proceeds of approximately $790,000,000 and net gains aggregating $307,000,000.  Below are the details of these sales.

On January 24, 2013, we sold the Green Acres Mall located in Valley Stream, New York, for $500,000,000.  The sale resulted in net proceeds of $185,000,000, after repaying the existing loan and closing costs, and a net gain of $202,275,000. 

On April 15, 2013, we sold The Plant, a power strip shopping center in San Jose, California, for $203,000,000.  The sale resulted in net proceeds of $98,000,000, after repaying the existing loan and closing costs, and a net gain of $32,169,000.

On April 15, 2013, we sold a retail property in Philadelphia, which is a part of the Gallery at Market Street, for $60,000,000.  The sale resulted in net proceeds of $58,000,000, and a net gain of $33,058,000.

On April 22, 2013, LNR was sold for $1.053 billion.  We owned 26.2% of LNR and received net proceeds of approximately $241,000,000.

On April 24, 2013, a site located in the Downtown Crossing district of Boston was sold by a joint venture, which we owned 50% of.  Our share of the net proceeds were approximately $45,000,000, which resulted in a $2,335,000 impairment loss that was recognized in the first quarter.

On September 23, 2013, we sold a retail property in Tampa, Florida for $45,000,000, of which our 75% share was $33,750,000.  Our share of the net proceeds after repaying the existing loan and closing costs were $20,810,000, and our share of the net gain was $8,728,000.

On October 1, 2013, we sold a parcel of land known as Harlem Park located at 1800 Park Avenue (at 125th Street) in New York City for $66,000,000.  The sale resulted in net proceeds of approximately $63,000,000 and a net gain of approximately $23,000,000. 

In addition to the above, during 2013, we sold 12 other non-core properties, in separate transactions, for an aggregate of $82,300,000, in cash, which resulted in a net gain aggregating $7,851,000.

45

Overview – continued

2013 Financings

Secured Debt

On February 20, 2013, we completed a $390,000,000 financing of the retail condominium located at 666 Fifth Avenue at 53^rd Street, which we had acquired December 2012.  The 10-year fixed-rate interest only loan bears interest at 3.61%.  This property was previously unencumbered.  The net proceeds from this financing were approximately $387,000,000. 

On March 25, 2013, we completed a $300,000,000 financing of the Outlets at Bergen Town Center, a 948,000 square foot shopping center located in Paramus, New Jersey.  The 10-year fixed-rate interest only loan bears interest at 3.56%.  The property was previously encumbered by a $282,312,000 floating-rate loan. 

On June 7, 2013, we completed a $550,000,000 refinancing of Independence Plaza, a three-building 1,328 unit residential complex in the Tribeca submarket of Manhattan.  The five-year, fixed-rate interest only mortgage loan bears interest at 3.48%.  The property was previously encumbered by a $323,000,000 floating-rate loan.  The net proceeds of $219,000,000, after repaying the existing loan and closing costs, were distributed to the partners, of which our share was $137,000,000.   

Unsecured Revolving Credit Facility

On March 28, 2013, we extended one of our two revolving credit facilities from June 2015 to June 2017, with two six-month extension options. The interest on the extended facility was reduced from LIBOR plus 135 basis points to LIBOR plus 115 basis points. In addition, the facility fee was reduced from 30 basis points to 20 basis points.

Preferred Securities

On January 25, 2013, we sold 12,000,000 5.40% Series L Cumulative Redeemable Preferred Shares at a price of $25.00 per share in an underwritten public offering pursuant to an effective registration statement.  We retained aggregate net proceeds of $290,536,000, after underwriters’ discounts and issuance costs, and contributed the net proceeds to the Operating Partnership in exchange for 12,000,000 Series L Preferred Units (with economic terms that mirror those of the Series L Preferred Shares).

On February 19, 2013, we redeemed all of the outstanding 6.75% Series F Cumulative Redeemable Preferred Shares and 6.75% Series H Cumulative Redeemable Preferred Shares at par, for an aggregate of $262,500,000 in cash, plus accrued and unpaid dividends through the date of redemption.

On May 9, 2013, we redeemed all of the outstanding 6.875% Series D-15 Cumulative Redeemable Preferred Units with an aggregate face amount of $45,000,000 for $36,900,000 in cash, plus accrued and unpaid distributions through the date of redemption.

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Overview – continued

Recently Issued Accounting Literature

In February 2013, the Financial Accounting Standards Board (“FASB”) issued an update (“ASU 2013-02”) to Accounting Standards Codification (“ASC”) Topic 220, Comprehensive Income (“Topic 220”).  ASU 2013-02 requires additional disclosures regarding significant reclassifications out of each component of accumulated other comprehensive income, including the effect on the respective line items of net income for amounts that are required to be reclassified into net income in their entirety and cross-references to other disclosures providing additional information for amounts that are not required to be reclassified into net income in their entirety.  The adoption of this update as of January 1, 2013, did not have a material impact on our consolidated financial statements, but resulted in additional disclosures. 

In June 2013, the FASB issued an update (“ASU 2013-08”) to ASC Topic 946, Financial Services - Investment Companies (“Topic 946”).  ASU 2013-08 amends the guidance in Topic 946 for determining whether an entity qualifies as an investment company and requires certain additional disclosures.  ASU 2013-08 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2013.  We are currently evaluating the impact, if any, of ASU 2013-08 on our real estate fund and our consolidated financial statements. 

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, 2012 in Management’s Discussion and Analysis of Financial Condition. There have been no significant changes to our policies during 2013.

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Overview - continued

Leasing Activity:

The leasing activity and related statistics in the table below are based on leases signed during the period and are not intended to coincide with the commencement of rental revenue in accordance with accounting principles generally accepted in the United States of America (“GAAP”).  Second generation relet space represents square footage that has not been vacant for more than nine months and tenant improvements and leasing commissions are based on our share of square feet leased during the period.

					New York				Washington, DC		Retail Properties
(Square feet in thousands)					Office		Retail		Office		Strips		Malls
Quarter Ended September 30, 2013
	Total square feet leased					396		35		953		288		243
	Our share of square feet leased:					323		35		626		288		195
		Initial rent (1)			$	62.04	$	270.81	$	38.35	$	18.07	$	20.42
		Weighted average lease term (years)				6.7		8.3		9.3		4.9		10.6
		Second generation relet space:
			Square feet			226		22		397		134		41
			Cash basis:
				Initial rent (1)	$	60.01	$	221.79	$	42.02	$	24.50	$	12.60
				Prior escalated rent	$	55.12	$	98.14	$	42.47	$	22.82	$	12.16
				Percentage increase (decrease)		8.9%		126.0%		(1.1%)		7.4%		3.6%
			GAAP basis:
				Straight-line rent (2)	$	58.45	$	259.00	$	42.73	$	25.10	$	12.93
				Prior straight-line rent	$	54.11	$	77.15	$	41.15	$	22.07	$	11.61
				Percentage increase		8.0%		235.7%		3.8%		13.7%		11.4%
		Tenant improvements and leasing
			commissions:
			Per square foot		$	56.11	$	102.21	$	34.76	$	1.76	$	37.02
			Per square foot per annum		$	8.38	$	12.31	$	3.74	$	0.36	$	3.49
				Percentage of initial rent		13.5%		4.5%		9.8%		2.0%		17.1%
Nine Months Ended September 30, 2013:
	Total square feet leased					1,851		75		1,525		1,188		537
	Our share of square feet leased:					1,599		69		1,116		1,188		465
		Initial rent (1)			$	61.13	$	262.38	$	39.87	$	16.26	$	26.74
		Weighted average lease term (years)				11.4		8.0		7.4		5.8		9.1
		Second generation relet space:
			Square feet			1,419		53		731		830		117
			Cash basis:
				Initial rent (1)	$	60.06	$	243.40	$	41.39	$	16.22	$	25.31
				Prior escalated rent	$	57.35	$	100.98	$	41.45	$	14.91	$	24.13
				Percentage increase (decrease)		4.7%		141.0%		(0.1%)		8.8%		4.9%
			GAAP basis:
				Straight-line rent (2)	$	60.23	$	275.86	$	41.44	$	16.55	$	25.89
				Prior straight-line rent	$	52.77	$	91.20	$	39.88	$	14.51	$	23.43
				Percentage increase		14.1%		202.5%		3.9%		14.1%		10.5%
		Tenant improvements and leasing
			commissions:
			Per square foot		$	60.14	$	114.50	$	34.82	$	3.51	$	27.28
			Per square foot per annum:		$	5.31	$	14.31	$	4.71	$	0.61	$	3.00
				Percentage of initial rent		8.7%		5.5%		11.8%		3.8%		11.2%
(1)			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.
(2)			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.

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Square footage (in service) and Occupancy as of September 30, 2013:
			Square Feet (in service)
		Number of	Total	Our
(Square feet in thousands)		Properties	Portfolio	Share	Occupancy %
New York:
	Office	32	20,379	16,957	95.9%
	Retail	52	2,302	2,087	97.1%
	Alexander's	6	2,179	706	99.4%
	Hotel Pennsylvania	1	1,400	1,400
	Residential - 1,655 units	4	1,523	870	94.0%
			27,783	22,020	96.1%
Washington, DC:
	Office, excluding the Skyline Properties	51	13,584	11,153	85.4%
	Skyline Properties	8	2,652	2,652	61.3%
	Total Office	59	16,236	13,805	80.7%
	Residential - 2,414 units	7	2,597	2,455	97.2%
	Other	7	418	418	100.0%
			19,251	16,678	83.6%
	Total occupancy, excluding the Skyline Properties				87.9%
Retail Properties:
	Strip Shopping Centers	99	14,306	13,927	94.3%
	Regional Malls	6	5,250	3,613	94.0%
			19,556	17,540	94.3%
Other:
	Merchandise Mart	2	3,842	3,833	96.3%
	555 California Street	3	1,796	1,257	93.8%
	Primarily Warehouses	5	971	971	43.2%
			6,609	6,061
Total square feet at September 30, 2013			73,199	62,299

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Overview - continued
	Square footage (in service) and Occupancy as of December 31, 2012:
				Square Feet (in service)
			Number of	Total	Our
	(Square feet in thousands)		properties	Portfolio	Share	Occupancy %
	New York:
		Office	31	19,729	16,751	95.9%
		Retail	49	2,217	2,057	96.8%
		Alexander's	6	2,179	706	99.1%
		Hotel Pennsylvania	1	1,400	1,400
		Residential - 1,655 units	4	1,528	873	96.9%
				27,053	21,787	96.2%
	Washington, DC:
		Office, excluding the Skyline Properties	51	13,463	10,994	86.3%
		Skyline Properties	8	2,643	2,643	60.0%
		Total Office	59	16,106	13,637	81.2%
		Residential - 2,414 units	7	2,599	2,457	97.9%
		Other	7	435	435	100.0%
				19,140	16,529	84.1%
		Total occupancy, excluding the Skyline Properties				88.8%
	Retail Properties:
		Strip Shopping Centers	100	14,126	13,748	93.9%
		Regional Malls	6	5,244	3,608	92.7%
				19,370	17,356	93.7%
	Other:
		Merchandise Mart	2	3,905	3,896	94.6%
		555 California Street	3	1,795	1,257	93.1%
		Primarily Warehouses	5	971	971	55.9%
				6,671	6,124
	Total square feet at December 31, 2012			72,234	61,796

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Overview - continued

Washington, DC Segment

For the nine months ended September 30, 2013, EBITDA from continuing operations was lower than the prior year’s nine months by approximately $17,720,000, which is above the range of EBITDA diminution of $5,000,000 to $15,000,000 that we had previously estimated for the full year.  We expect this EBITDA reduction to be partially offset by an increase in the fourth quarter and that EBITDA for the full year will be lower than the prior year by approximately $10,000,000 to $15,000,000.

Of the 2,395,000 square feet subject to the effects of the Base Realignment and Closure (“BRAC”) statute, 348,000 square feet has been taken out of service for redevelopment and 755,000 square feet has been leased or is pending.  The table below summarizes the status of the BRAC space as of September 30, 2013.

			Rent Per		Square Feet
			Square Foot		Total	Crystal City	Skyline	Rosslyn
Resolved:
	Relet as of September 30, 2013		$	37.77	716,000	389,000	263,000	64,000
	Leases pending			45.09	39,000	39,000	-	-
	Taken out of service for redevelopment				348,000	348,000	-	-
					1,103,000	776,000	263,000	64,000
To Be Resolved:
	Vacated as of September 30, 2013			37.58	930,000	507,000	341,000	82,000
	Expiring in:
		2014		32.34	292,000	91,000	201,000	-
		2015		43.13	70,000	65,000	5,000	-
					1,292,000	663,000	547,000	82,000
Total square feet subject to BRAC					2,395,000	1,439,000	810,000	146,000

On October 31, 2013, we completed the restructuring of the $678,000,000 (face amount) 5.74% Skyline properties mortgage loan.  The loan has been separated into two tranches; a senior $350,000,000 position and a junior $328,000,000 position.  The maturity date has been extended from February 2017 to February 2022, with a one-year extension option.  The effective interest rate is 2.965%.  Capital we invest to re-lease the property will be senior to the $328,000,000 junior position.    

51

Net Income and EBITDA by Segment for the Three Months Ended September 30, 2013 and 2012

As a result of certain organizational changes and asset sales in 2012, the Merchandise Mart segment no longer meets the criteria to be a separate reportable segment; accordingly, effective January 1, 2013, the remaining assets have been reclassified to “Other.”  We have also reclassified the prior period segment financial results to conform to the current year presentation.  Below is a summary of net income and a reconciliation of net income to EBITDA⁽¹⁾ by segment for the three months ended September 30, 2013 and 2012.

(Amounts in thousands)			For the Three Months Ended September 30, 2013
												Retail
				Total		New York			Washington, DC			Properties			Toys		Other
Property rentals				$	505,062	$	277,855		$	113,737		$	63,361		$	-	$	50,109
Straight-line rent adjustments					15,809		9,430			234			1,491			-		4,654
Amortization of acquired below-market
	leases, net				11,820		7,151			521			2,894			-		1,254
Total rentals					532,691		294,436			114,492			67,746			-		56,017
Tenant expense reimbursements					84,638		47,142			10,462			21,670			-		5,364
Cleveland Medical Mart development project					4,893		-			-			-			-		4,893
Fee and other income:
	BMS cleaning fees				15,898		21,191			-			-			-		(5,293)
	Signage revenue				8,738		8,738			-			-			-		-
	Management and leasing fees				7,982		2,615			5,263			371			-		(267)
	Lease termination fees				20,432		19,496			867			-			-		69
	Other income				8,108		581			6,520			656			-		351
Total revenues					683,380		394,199			137,604			90,443			-		61,134
Operating expenses					264,422		160,465			49,646			31,628			-		22,683
Depreciation and amortization					124,079		58,058			31,109			16,455			-		18,457
General and administrative					48,250		7,849			6,857			4,240			-		29,304
Cleveland Medical Mart development project					3,239		-			-			-			-		3,239
Acquisition related costs					2,818		-			-			-			-		2,818
Total expenses					442,808		226,372			87,612			52,323			-		76,501
Operating income (loss)					240,572		167,827			49,992			38,120			-		(15,367)
(Loss) applicable to Toys					(34,209)		-			-			-			(34,209)		-
Income (loss) from partially owned entities					1,453		4,189			(2,003)			188			-		(921)
Income from Real Estate Fund					22,913		-			-			-			-		22,913
Interest and other investment
	(loss) income, net				(10,275)		1,468			17			1			-		(11,761)
Interest and debt expense					(119,870)		(42,538)			(27,246)			(10,839)			-		(39,247)
Net gain on disposition of wholly owned and
	partially owned assets				15,138		-			-			1,377			-		13,761
Income (loss) before income taxes					115,722		130,946			20,760			28,847			(34,209)		(30,622)
Income tax expense					(2,222)		(65)			(766)			(731)			-		(660)
Income (loss) from continuing operations					113,500		130,881			19,994			28,116			(34,209)		(31,282)
Income (loss) from discontinued operations					18,751		-			-			19,012			-		(261)
Net income (loss)					132,251		130,881			19,994			47,128			(34,209)		(31,543)
Less net income attributable to
	noncontrolling interests in:
	Consolidated subsidiaries				(23,833)		(6,556)			-			(2,970)			-		(14,307)
	Operating Partnership				(5,032)		-			-			-			-		(5,032)
	Preferred unit distributions of the
		Operating Partnership			(12)		-			-			-			-		(12)
Net income (loss) attributable to
	Vornado				103,374		124,325			19,994			44,158			(34,209)		(50,894)
Interest and debt expense(2)					183,116		59,344			30,717			12,119			38,435		42,501
Depreciation and amortization(2)					172,756		67,294			35,403			17,573			32,176		20,310
Income tax (benefit) expense (2)					(20,292)		67			828			731			(22,690)		772
EBITDA(1)				$	438,954	$	251,030	(3)	$	86,942	(4)	$	74,581	(5)	$	13,712	$	12,689	(6)

_____________________________

See notes on page 54.

52

Net Income and EBITDA by Segment for the Three Months Ended September 30, 2013 and 2012 - continued

(Amounts in thousands)			For the Three Months Ended September 30, 2012
												Retail
				Total		New York			Washington, DC			Properties			Toys		Other
Property rentals				$	486,914	$	255,703		$	115,641		$	63,408		$	-	$	52,162
Straight-line rent adjustments					11,391		8,140			1,267			1,873			-		111
Amortization of acquired below-market
	leases, net				13,256		8,458			506			2,882			-		1,410
Total rentals					511,561		272,301			117,414			68,163			-		53,683
Tenant expense reimbursements					79,215		45,164			9,601			19,787			-		4,663
Cleveland Medical Mart development project					72,651		-			-			-			-		72,651
Fee and other income:
	BMS cleaning fees				16,945		23,918			-			-			-		(6,973)
	Signage revenue				4,783		4,783			-			-			-		-
	Management and leasing fees				7,234		1,816			4,615			736			-		67
	Lease termination fees				282		78			128			73			-		3
	Other income				10,381		1,116			8,288			569			-		408
Total revenues					703,052		349,176			140,046			89,328			-		124,502
Operating expenses					261,512		159,048			50,305			30,726			-		21,433
Depreciation and amortization					122,241		57,967			29,825			16,359			-		18,090
General and administrative					48,456		6,739			6,668			6,103			-		28,946
Cleveland Medical Mart development project					70,431		-			-			-			-		70,431
Acquisition related costs					1,070		-			-			-			-		1,070
Total expenses					503,710		223,754			86,798			53,188			-		139,970
Operating income (loss)					199,342		125,422			53,248			36,140			-		(15,468)
(Loss) applicable to Toys					(8,585)		-			-			-			(8,585)		-
Income (loss) from partially owned entities					21,268		9,309			(2,182)			342			-		13,799
Income from Real Estate Fund					5,509		-			-			-			-		5,509
Interest and other investment
	income, net				10,523		1,057			24			4			-		9,438
Interest and debt expense					(119,330)		(36,817)			(28,311)			(13,292)			-		(40,910)
Income (loss) before income taxes					108,727		98,971			22,779			23,194			(8,585)		(27,632)
Income tax (expense) benefit					(3,015)		(815)			25			-			-		(2,225)
Income (loss) from continuing operations					105,712		98,156			22,804			23,194			(8,585)		(29,857)
Income from discontinued operations					158,444		-			126,437			11,370			-		20,637
Net income (loss)					264,156		98,156			149,241			34,564			(8,585)		(9,220)
Less net (income) loss attributable to
	noncontrolling interests in:
	Consolidated subsidiaries				(6,610)		(2,092)			-			97			-		(4,615)
	Operating Partnership				(14,837)		-			-			-			-		(14,837)
	Preferred unit distributions of the
		Operating Partnership			(1,403)		-			-			-			-		(1,403)
Net income (loss) attributable to
	Vornado				241,306		96,064			149,241			34,661			(8,585)		(30,075)
Interest and debt expense(2)					183,241		46,823			33,280			17,499			34,526		51,113
Depreciation and amortization(2)					177,593		62,905			35,071			21,345			33,160		25,112
Income tax expense (benefit)(2)					3,850		871			(25)			-			(11,118)		14,122
EBITDA(1)				$	605,990	$	206,663	(3)	$	217,567	(4)	$	73,505	(5)	$	47,983	$	60,272	(6)

_____________________________

See notes on the following page.

53

Net Income and EBITDA by Segment for the Three Months Ended September 30, 2013 and 2012 - continued

	Notes to preceding tabular information:
(1)	EBITDA represents "Earnings Before Interest, Taxes, Depreciation and Amortization." We consider EBITDA a supplemental measure for making decisions and assessing the 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.
(2)	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.
(3)	The elements of "New York" EBITDA are summarized below.
				For the Three Months Ended September 30,
	(Amounts in thousands)			2013		2012
	Office			$	172,367	$	139,894
	Retail				59,782		46,165
	Alexander's (decrease due to sale of Kings Plaza in November 2012)				10,387		13,080
	Hotel Pennsylvania				8,494		7,524
		Total New York		$	251,030	$	206,663
(4)	The elements of "Washington, DC" EBITDA are summarized below.
				For the Three Months Ended September 30,
	(Amounts in thousands)			2013		2012
	Office, excluding the Skyline Properties (a)			$	69,220	$	197,009
	Skyline properties				6,841		9,936
		Total Office			76,061		206,945
	Residential				10,881		10,622
		Total Washington, DC		$	86,942	$	217,567
	(a)		2012 includes EBITDA from discontinued operations, net gains on sale of real estate and other items that affect comparability, aggregating $128,745. Excluding these items, EBITDA was $68,264.
(5)	The elements of "Retail Properties" EBITDA are summarized below.
				For the Three Months Ended September 30,
	(Amounts in thousands)			2013		2012
	Strip shopping centers(a)			$	59,175	$	49,378
	Regional malls(b)				15,406		24,127
		Total Retail properties		$	74,581	$	73,505
	(a)		The three months ended September 30, 2013 and 2012 includes EBITDA from discontinued operations, net gains on sale of real estate and other items that affect comparability, aggregating $17,756 and $12,161, respectively. Excluding these items, EBITDA was $41,419 and $37,217, respectively.
	(b)		2012 includes EBITDA from discontinued operations, net gains on sale of real estate and other items that affect comparability, aggregating $8,329. Excluding these items, EBITDA was $15,798.

54

Net Income and EBITDA by Segment for the Three Months Ended September 30, 2013 and 2012 - continued

	Notes to preceding tabular information - continued:
(6)	The elements of "other" EBITDA are summarized below.
				For the Three Months Ended September 30,
	(Amounts in thousands)			2013		2012
	Our share of Real Estate Fund:
		Income before net realized/unrealized gains		$	1,997	$	1,874
		Net unrealized gains			3,092		1,389
		Net realized gain			2,046		-
		Carried interest			356		(2,541)
	Total				7,491		722
	Merchandise Mart Building, 7 West 34th Street and trade shows				15,006		13,869
	555 California Street				10,720		10,714
	India real estate ventures				695		1,841
	LNR(a)				-		18,773
	Lexington(b)				-		7,859
	Other investments				5,330		9,280
					39,242		63,058
	Corporate general and administrative expenses(c)				(23,467)		(22,811)
	Investment income and other, net(c)				11,108		6,854
	Net gain on sale of marketable securities				31,741		-
	(Loss) income from the mark-to-market of J.C. Penney derivative position				(20,012)		4,344
	Loss on sale of J.C. Penney common shares				(18,114)		-
	Acquisition related costs				(2,818)		(1,070)
	Net gain on sale of residential condominiums				134		-
	Merchandise Mart discontinued operations				(81)		32,087
	Verde Realty impairment loss				-		(4,936)
	Severance costs (primarily reduction in force at the Merchandise Mart)				-		(1,014)
	Net income attributable to noncontrolling interests in the Operating Partnership				(5,032)		(14,837)
	Preferred unit distributions of the Operating Partnership				(12)		(1,403)
				$	12,689	$	60,272
	(a)		On April 22, 2013, LNR was sold.
	(b)		In the first quarter of 2013, we began accounting for our investment in Lexington as a marketable equity security - available for sale.
	(c)		The amounts in these captions (for this table only) exclude income(expense) from the mark-to-market of our deferred compensation plan.

EBITDA by Region

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 and Retail Properties segments.

		For the Three Months
		Ended September 30,
		2013	2012
Region:
	New York City metropolitan area	74%	70%
	Washington, DC / Northern Virginia metropolitan area	23%	26%
	Puerto Rico	1%	2%
	California	1%	1%
	Other geographies	1%	1%
		100%	100%

55

Results of Operations – Three Months Ended September 30, 2013 Compared to September 30, 2012

Revenues

Our revenues, which consist primarily of property rentals (including hotel and trade show revenues), tenant expense reimbursements, and fee and other income, were $683,380,000 in the three months ended September 30, 2013, compared to $703,052,000 in the prior year’s quarter, a decrease of $19,672,000.  Below are the details of the increase (decrease) by segment:

(Amounts in thousands)
											Retail
Increase (decrease) due to:			Total			New York			Washington, DC		Properties		Other
Property rentals:
	Acquisitions and other		$	7,765		$	11,162		$	-	$	(2,473)	$	(924)
	Properties placed into / taken out of
		service for redevelopment		527			128			64		330		5
	Hotel Pennsylvania			2,941			2,941			-		-		-
	Trade Shows			(1,973)			-			-		-		(1,973)
	Same store operations			11,870			7,904			(2,986)		1,726		5,226
				21,130			22,135			(2,922)		(417)		2,334
Tenant expense reimbursements:
	Acquisitions and other			(364)			175			-		(276)		(263)
	Properties placed into / taken out of
		service for redevelopment		296			52			184		76		(16)
	Same store operations			5,491			1,751			677		2,083		980
				5,423			1,978			861		1,883		701
Cleveland Medical Mart development
	project			(67,758)	(1)		-			-		-		(67,758)	(1)
Fee and other income:
	BMS cleaning fees			(1,047)			(2,727)			-		-		1,680	(2)
	Signage revenue			3,955			3,955			-		-		-
	Management and leasing fees			748			799			648		(365)		(334)
	Lease termination fees			20,150			19,418	(3)		739		(73)		66
	Other income			(2,273)			(535)			(1,768)		87		(57)
				21,533			20,910			(381)		(351)		1,355
Total (decrease) increase in revenues			$	(19,672)		$	45,023		$	(2,442)	$	1,115	$	(63,368)
(1)		Primarily due to the project nearing completion. This decrease in revenue is offset by a decrease in development costs expensed in the period. See note (3) on page 57.
(2)		Represents the elimination of intercompany fees from operating segments upon consolidation. See note (2) on page 57.
(3)		Primarily due to a $19,500 termination fee from a tenant at 1290 Avenue of the Americas. Our share of this income, net of the write off of the straight lining of rents and amounts attributable to the noncontrolling interest was $12,121.

56

Results of Operations – Three Months Ended September 30, 2013 Compared to September 30, 2012 - continued

Expenses

Our expenses, which consist primarily of operating (including hotel and trade show expenses), depreciation and amortization and general and administrative expenses, were $442,808,000 in the three months ended September 30, 2013, compared to $503,710,000 in the prior year’s quarter, a decrease of $60,902,000.  Below are the details of the increase (decrease) by segment:

(Amounts in thousands)
										Retail
Increase (decrease) due to:			Total			New York		Washington, DC		Properties		Other
Operating:
	Acquisitions and other		$	2,197		$	3,355	$	-	$	(507)	$	(651)
	Properties placed into / taken out of
		service for redevelopment		(1,159)			(93)		(111)		(938)		(17)
	Non-reimbursable expenses, including
		bad debt reserves		(3,292)			(2,316)		(48)		-		(928)
	Hotel Pennsylvania			1,919			1,919		-		-		-
	Trade Shows			(2,189)			-		-		-		(2,189)
	BMS expenses			(847)			(2,527)		-		-		1,680	(2)
	Same store operations			6,281			1,079		(500)		2,347		3,355
				2,910			1,417		(659)		902		1,250
Depreciation and amortization:
	Acquisitions and other			4,504			5,114		-		(504)		(106)
	Properties placed into / taken out of
		service for redevelopment		415			(268)		37		646		-
	Same store operations			(3,081)			(4,755)		1,247		(46)		473
				1,838			91		1,284		96		367
General and administrative:
	Mark-to-market of deferred
		compensation plan liability (1)		(847)			-		-		-		(847)
	Severance costs (primarily reduction
		in force at the Merchandise Mart)		(1,014)			-		-		-		(1,014)
	Same store operations			1,655			1,110		189		(1,863)		2,219
				(206)			1,110		189		(1,863)		358
Cleveland Medical Mart development
	project			(67,192)	(3)		-		-		-		(67,192)	(3)
Acquisition related costs				1,748			-		-		-		1,748
Total (decrease) increase in expenses			$	(60,902)		$	2,618	$	814	$	(865)	$	(63,469)
(1)		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 (loss) income, net” on our consolidated statements of income.
(2)		Represents the elimination of intercompany fees from operating segments upon consolidation. See note (2) on page 56.
(3)		Primarily due to the project nearing completion. This decrease in expense is offset by the decrease in development revenue in the period. See note (1) on page 56.

57

Results of Operations – Three Months Ended September 30, 2013 Compared to September 30, 2012 - continued

(Loss) Income Applicable to Toys

In the three months ended September 30, 2013, we recognized a net loss of $34,209,000 from our investment in Toys, comprised of $36,056,000 for our 32.6% share of Toys’ net loss, partially offset by $1,847,000 of management fee income.  In the three months ended September 30, 2012, we recognized a net loss of $8,585,000 from our investment in Toys, comprised of $10,956,000 for our 32.5% share of Toys’ net loss, partially offset by $2,371,000 of management fee income.

Income from Partially Owned Entities

Summarized below are the components of income (loss) from partially owned entities for the three months ended September 30, 2013 and 2012.

			Percentage	For the Three Months Ended
			Ownership at	September 30,
(Amounts in thousands)			September 30, 2013	2013		2012
Equity in Net Income (Loss):
Alexander's (decrease due to sale of Kings Plaza
	in November 2012)		32.4%	$	5,975	$	8,958
India real estate ventures			4.0%-36.5%		(1,449)		82
Partially owned office buildings:
	Warner Building		55.0%		(2,004)		(2,839)
	280 Park Avenue		49.5%		(1,890)		(1,717)
	666 Fifth Avenue Office Condominium		49.5%		1,858		1,744
	330 Madison Avenue		25.0%		1,225		1,224
	Rosslyn Plaza		43.7%-50.4%		(707)		(204)
	One Park Avenue		30.3%		680		256
	1101 17th Street		55.0%		376		591
	West 57th Street Properties		50.0%		47		167
	Fairfax Square		20.0%		(24)		(33)
	Other partially owned office buildings		Various		477		505
Other investments:
	Independence Plaza		50.1%		(2,081)		1,828
	Monmouth Mall		50.0%		165		347
	Lexington (1)		n/a		-		(323)
	LNR (2)		n/a		-		16,600
	Downtown Crossing, Boston (3)		n/a		-		(38)
	Other investments (4)		Various		(1,195)		(5,880)
				$	1,453	$	21,268
(1)		In the first quarter of 2013, we began accounting for our investment in Lexington as a marketable equity security - available for sale.
(2)		On April 22, 2013, LNR was sold for $1.053 billion. We owned 26.2% of LNR and received net proceeds of approximately $241,000.
(3)		On April 24, 2013, the joint venture sold the site in Downtown Crossing, Boston, and we received approximately $45,000 for our 50% interest.
(4)		Includes interests in 85 10th Avenue, Fashion Centre Mall, 50-70 West 93rd Street and others.

58

Results of Operations – Three Months Ended September 30, 2013 Compared to September 30, 2012 - continued

Income from Real Estate Fund

Below are the components of the income from our Real Estate Fund for the three months ended September 30, 2013 and 2012.

(Amounts in thousands)		For the Three Months Ended September 30,
		2013		2012
Net investment income (loss)		$	2,362	$	(49)
Net realized gain			8,184		-
Net unrealized gains			12,367		5,558
Income from Real Estate Fund			22,913		5,509
Less (income) attributable to noncontrolling interests			(15,422)		(4,787)
Income from Real Estate Fund attributable to Vornado (1)		$	7,491	$	722
___________________________________
(1)	Excludes management, leasing and development fees of $770 and $954 for the three months ended September 30, 2013 and 2012, respectively, which are included as a component of "fee and other income" on our consolidated statements of income.

Interest and Other Investment (Loss) Income, net

Interest and other investment (loss) income, net was a loss of $10,275,000 in the three months ended September 30, 2013, compared to income of $10,523,000 in the prior year’s quarter, a decrease in income of $20,798,000. This decrease resulted from:

(Amounts in thousands)
J.C. Penney derivative position ($20,012 mark-to-market loss in the current year's quarter, compared to a
	$4,344 mark-to-market gain in the prior year's quarter)	$	(24,356)
Dividends and interest on marketable securities in the current year's quarter			2,804
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)		(847)
Other, net			1,601
		$	(20,798)

Interest and Debt Expense

Interest and debt expense was $119,870,000 in the three months ended September 30, 2013, compared to $119,330,000 in the prior year’s quarter, an increase of $540,000. 

Net Gain (Loss) on Disposition of Wholly Owned and Partially Owned Assets

In the three months ended September 30, 2013, we recognized a $15,138,000 gain on disposition of wholly owned and partially owned assets, primarily from a $31,741,000 net gain on the sale of a marketable security, partially offset by an $18,114,000 loss on sale of the remaining 13,400,000 J.C. Penney common shares.

Income Tax Expense

Income tax expense was $2,222,000 in the three months ended September 30, 2013, compared to $3,015,000 in the prior year’s quarter, a decrease of $793,000.  This decrease resulted primarily from an income tax provision in the prior year’s quarter applicable to a taxable REIT subsidiary that was liquidated in the fourth quarter of 2012.

59

Results of Operations – Three Months Ended September 30, 2013 Compared to September 30, 2012 - continued

Income from Discontinued Operations

We have reclassified the revenues and expenses of the properties that were sold and that are currently held for sale to “income from discontinued operations” and the related assets and liabilities to “assets related to discontinued operations” and “liabilities related to discontinued operations” for all the periods presented in the accompanying financial statements.  The table below sets forth the combined results of assets related to discontinued operations for the three months ended September 30, 2013 and 2012. 

		For the Three Months Ended September 30,
(Amounts in thousands)		2013		2012
Total revenues		$	2,963	$	35,576
Total expenses			2,488		27,877
			475		7,699
Net gains on sale of real estate (2013 includes $2,909
	attributable to noncontrolling interests)		18,996		131,088
Gain on sale of Canadian Trade Shows, net of $11,448 of
	income taxes		-		19,657
Impairment losses			(720)		-
Income from discontinued operations		$	18,751	$	158,444

Net Income Attributable to Noncontrolling Interests in Consolidated Subsidiaries

Net income attributable to noncontrolling interests in consolidated subsidiaries was $23,833,000 in the three months ended September 30, 2013, compared to $6,610,000 in the prior year’s quarter, an increase of $17,223,000.  This increase resulted primarily from higher net income allocated to the noncontrolling interests of our Real Estate Fund and the noncontrolling interests’ share of the net gain on sale of a retail property in Tampa, Florida.

Net Income Attributable to Noncontrolling Interests in the Operating Partnership

Net income attributable to noncontrolling interests in the Operating Partnership was $5,032,000 in the three months ended September 30, 2013, compared to $14,837,000 in the prior year’s quarter, a decrease of $9,805,000.  This decrease resulted primarily from lower net income subject to allocation to unitholders.

Preferred Unit Distributions of the Operating Partnership

Preferred unit distributions of the Operating Partnership were $12,000 in the three months ended September 30, 2013, compared to $1,403,000 in the prior year’s quarter, a decrease of $1,391,000.  This decrease resulted from the redemption of the 7.0% Series D-10 and 6.75% Series D-14 cumulative redeemable preferred units in July 2012.

Preferred Share Dividends

Preferred share dividends were $20,369,000 in the three months ended September 30, 2013, compared to $20,613,000 in the prior year’s quarter, a decrease of $244,000. 

Preferred Unit and Share Redemptions

In the three months ended September 30, 2012, we recognized an $11,700,000 discount from the redemption of all of the 7.0% Series D-10 and 6.75% Series D-14 cumulative redeemable preferred units. 

60

Results of Operations – Three Months Ended September 30, 2013 Compared to September 30, 2012 - continued

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 reconciliations of EBITDA to the same store EBITDA on a GAAP basis for each of our segments for the three months ended September 30, 2013, compared to the three months ended September 30, 2012.

(Amounts in thousands)				New York		Washington, DC		Retail Properties
EBITDA for the three months ended September 30, 2013				$	251,030	$	86,942	$	74,581
	Add-back:
		Non-property level overhead expenses included above			7,849		6,857		4,240
	Less EBITDA from:
		Acquisitions			(14,310)		-		-
		Dispositions, including net gains on sale			-		(46)		(17,873)
		Properties taken out-of-service for redevelopment			(5,461)		(1,182)		(2,196)
		Other non-operating (income) expense			(20,114)		(867)		(549)
GAAP basis same store EBITDA for the three months ended
	September 30, 2013			$	218,994	$	91,704	$	58,203
EBITDA for the three months ended September 30, 2012				$	206,663	$	217,567	$	73,505
	Add-back:
		Non-property level overhead expenses included above			6,739		6,668		6,103
	Less EBITDA from:
		Acquisitions			(581)		-		-
		Dispositions, including net gains on sale			(3,016)		(128,754)		(19,325)
		Properties taken out-of-service for redevelopment			(5,012)		(1,776)		(597)
		Other non-operating (income) expense			(61)		(327)		(2,878)
GAAP basis same store EBITDA for the three months ended
	September 30, 2012			$	204,732	$	93,378	$	56,808
Increase (decrease) in GAAP basis same store EBITDA -
	Three months ended September 30, 2013 vs. September 30, 2012(1)			$	14,262	$	(1,674)	$	1,395
% increase (decrease) in GAAP basis same store EBITDA					7.0%		(1.8%)		2.5%
(1)			See notes on following page

61

Results of Operations – Three Months Ended September 30, 2013 Compared to September 30, 2012 - continued

Notes to preceding tabular information

New York:

The $14,262,000 increase in New York GAAP basis same store EBITDA resulted primarily from an increase in Office and Retail GAAP basis same store EBITDA of $10,690,000 and $2,562,000, respectively.  The $10,690,000 increase in Office GAAP basis same store EBITDA resulted primarily from an increase in (i) rental revenue of $4,889,000 (due to a $0.60 increase in average annual rents per square foot, and a 150 basis point increase in average same store occupancy to 95.3% from 93.8%), and (ii) signage revenue and management and leasing fees of $4,754,000.  The $2,562,000 increase in Retail GAAP basis same store EBITDA resulted primarily from an increase in rental revenue of $3,019,000 (due to a $9.80 increase in average annual rents per square foot).

Washington, DC:

The $1,674,000 decrease in Washington, DC GAAP basis same store EBITDA resulted primarily from a decrease in rental revenue of $2,986,000, primarily due to a 150 basis point decrease in office average same store occupancy to 83.6% from 85.1%, a significant portion of which resulted from the effects of the BRAC statute (see page 51).

Retail Properties:

The $1,395,000 increase in Retail Properties GAAP basis same store EBITDA resulted primarily from an increase in rental revenue of $1,726,000, primarily due to a 200 basis point increase in average same store occupancy to 94.0% from 92.0%.

62

Results of Operations – Three Months Ended September 30, 2013 Compared to September 30, 2012 - continued

Reconciliation of GAAP basis Same Store EBITDA to Cash basis Same Store EBITDA

(Amounts in thousands)		New York		Washington, DC		Retail Properties
GAAP basis same store EBITDA for the three months ended
	September 30, 2013	$	218,994	$	91,704	$	58,203
Less: Adjustments for straight line rents, amortization of acquired
	below-market leases, net, and other non-cash adjustments		(25,220)		(1,519)		(2,852)
Cash basis same store EBITDA for the three months ended
	September 30, 2013	$	193,774	$	90,185	$	55,351
GAAP basis same store EBITDA for the three months ended
	September 30, 2012	$	204,732	$	93,378	$	56,808
Less: Adjustments for straight line rents, amortization of acquired
	below-market leases, net, and other non-cash adjustments		(26,341)		(1,241)		(3,439)
Cash basis same store EBITDA for the three months ended
	September 30, 2012	$	178,391	$	92,137	$	53,369
Increase (decrease) in Cash basis same store EBITDA -
	Three months ended September 30, 2013 vs. September 30, 2012	$	15,383	$	(1,952)	$	1,982
% increase (decrease) in Cash basis same store EBITDA			8.6%		(2.1%)		3.7%

63

Net Income and EBITDA by Segment for the Nine Months Ended September 30, 2013 and 2012

As a result of certain organizational changes and asset sales in 2012, the Merchandise Mart segment no longer meets the criteria to be a separate reportable segment; accordingly, effective January 1, 2013, the remaining assets have been reclassified to “Other.”  We have also reclassified the prior period segment financial results to conform to the current year presentation.  Below is a summary of net income and a reconciliation of net income to EBITDA⁽¹⁾ by segment for the nine months ended September 30, 2013 and 2012.

(Amounts in thousands)			For the Nine Months Ended September 30, 2013
												Retail
				Total		New York			Washington, DC			Properties			Toys		Other
Property rentals				$	1,521,127	$	839,349		$	338,742		$	189,964		$	-	$	153,072
Straight-line rent adjustments					47,989		27,289			4,242			3,741			-		12,717
Amortization of acquired below-market
	leases, net				40,326		26,184			1,543			8,669			-		3,930
Total rentals					1,609,442		892,822			344,527			202,374			-		169,719
Tenant expense reimbursements					236,580		128,598			31,264			63,601			-		13,117
Cleveland Medical Mart development project					34,026		-			-			-			-		34,026
Fee and other income:
	BMS cleaning fees				49,071		63,192			-			-			-		(14,121)
	Signage revenue				23,566		23,566			-			-			-		-
	Management and leasing fees				19,675		7,533			11,529			1,170			-		(557)
	Lease termination fees				87,587		24,986			1,417			59,797			-		1,387
	Other income				26,431		4,550			17,915			1,448			-		2,518
Total revenues					2,086,378		1,145,247			406,652			328,390			-		206,089
Operating expenses					784,031		478,318			145,258			98,374			-		62,081
Depreciation and amortization					400,952		203,679			92,678			47,935			-		56,660
General and administrative					157,155		25,552			20,655			14,824			-		96,124
Cleveland Medical Mart development project					29,764		-			-			-			-		29,764
Acquisition related costs					6,769		-			-			-			-		6,769
Total expenses					1,378,671		707,549			258,591			161,133			-		251,398
Operating income (loss)					707,707		437,698			148,061			167,257			-		(45,309)
(Loss) applicable to Toys					(69,311)		-			-			-			(69,311)		-
Income (loss) from partially owned entities					23,691		14,020			(6,545)			1,512			-		14,704
Income from Real Estate Fund					73,947		-			-			-			-		73,947
Interest and other investment (loss)
	income, net				(32,933)		4,076			99			5			-		(37,113)
Interest and debt expense					(363,128)		(125,991)			(83,350)			(34,523)			-		(119,264)
Net (loss) gain on disposition of wholly
	owned and partially owned assets				(20,581)		-			-			1,377			-		(21,958)
Income (loss) before income taxes					319,392		329,803			58,265			135,628			(69,311)		(134,993)
Income tax expense					(6,172)		(1,298)			(1,949)			(1,480)			-		(1,445)
Income (loss) from continuing operations					313,220		328,505			56,316			134,148			(69,311)		(136,438)
Income from discontinued operations					290,279		-			-			290,267			-		12
Net income (loss)					603,499		328,505			56,316			424,415			(69,311)		(136,426)
Less net income attributable to
	noncontrolling interests in:
	Consolidated subsidiaries				(50,049)		(9,518)			-			(3,079)			-		(37,452)
	Operating Partnership				(27,814)		-			-			-			-		(27,814)
	Preferred unit distributions of the
		Operating Partnership			(1,146)		-			-			-			-		(1,146)
Net income (loss) attributable to
	Vornado				524,490		318,987			56,316			421,336			(69,311)		(202,838)
Interest and debt expense(2)					551,357		163,579			93,715			40,057			119,347		134,659
Depreciation and amortization(2)					549,072		220,280			105,799			52,440			103,732		66,821
Income tax expense(2)					18,101		1,444			2,134			1,480			10,959		2,084
EBITDA(1)				$	1,643,020	$	704,290	(3)	$	257,964	(4)	$	515,313	(5)	$	164,727	$	726	(6)

__________________________

See notes on page 66.

64

Net Income and EBITDA by Segment for the Nine Months Ended September 30, 2013 and 2012 - continued

(Amounts in thousands)			For the Nine Months Ended September 30, 2012
											Retail
			Total		New York			Washington, DC			Properties			Toys		Other
Property rentals			$	1,443,478	$	735,587		$	356,459		$	190,671		$	-	$	160,761
Straight-line rent adjustments				53,169		42,334			4,382			5,265			-		1,188
Amortization of acquired below-market
	leases, net			39,569		23,776			1,537			9,989			-		4,267
Total rentals				1,536,216		801,697			362,378			205,925			-		166,216
Tenant expense reimbursements				220,679		118,861			30,471			61,307			-		10,040
Cleveland Medical Mart development project				184,014		-			-			-			-		184,014
Fee and other income:
	BMS cleaning fees			49,437		70,476			-			-			-		(21,039)
	Signage revenue			14,252		14,252			-			-			-		-
	Management and leasing fees			16,534		4,037			9,782			2,640			-		75
	Lease termination fees			1,172		334			256			74			-		508
	Other income			24,494		3,449			18,846			1,232			-		967
Total revenues				2,046,798		1,013,106			421,733			271,178			-		340,781
Operating expenses				749,213		447,910			143,923			97,154			-		60,226
Depreciation and amortization				381,270		168,391			107,395			51,877			-		53,607
General and administrative				150,578		21,980			19,849			18,803			-		89,946
Cleveland Medical Mart development project				177,127		-			-			-			-		177,127
Acquisition related costs				4,314		-			-			-			-		4,314
Total expenses				1,462,502		638,281			271,167			167,834			-		385,220
Operating income (loss)				584,296		374,825			150,566			103,344			-		(44,439)
Income applicable to Toys				88,696		-			-			-			88,696		-
Income (loss) from partially owned entities				53,491		20,345			(4,571)			1,040			-		36,677
Income from Real Estate Fund				37,572		-			-			-			-		37,572
Interest and other investment (loss)
	income, net			(22,984)		3,166			97			24			-		(26,271)
Interest and debt expense				(373,257)		(109,365)			(85,408)			(45,362)			-		(133,122)
Net gain on disposition of wholly owned and
	partially owned assets			4,856		-			-			-			-		4,856
Income (loss) before income taxes				372,670		288,971			60,684			59,046			88,696		(124,727)
Income tax expense				(17,319)		(2,480)			(1,277)			-			-		(13,562)
Income (loss) from continuing operations				355,351		286,491			59,407			59,046			88,696		(138,289)
Income (loss) from discontinued operations				247,297		(640)			130,979			37,456			-		79,502
Net income (loss)				602,648		285,851			190,386			96,502			88,696		(58,787)
Less net (income) loss attributable to
	noncontrolling interests in:
	Consolidated subsidiaries			(30,928)		(7,266)			-			308			-		(23,970)
	Operating Partnership			(31,445)		-			-			-			-		(31,445)
	Preferred unit distributions of the
		Operating Partnership		(9,150)		-			-			-			-		(9,150)
Net income (loss) attributable to
	Vornado			531,125		278,585			190,386			96,810			88,696		(123,352)
Interest and debt expense(2)				567,265		140,294			99,486			58,039			103,388		166,058
Depreciation and amortization(2)				552,794		188,480			122,987			65,751			100,371		75,205
Income tax expense(2)				50,076		2,677			1,532			-			17,982		27,885
EBITDA(1)			$	1,701,260	$	610,036	(3)	$	414,391	(4)	$	220,600	(5)	$	310,437	$	145,796	(6)

_____________________________

See notes on the following page.

65

Net Income and EBITDA by Segment for the Nine Months Ended September 30, 2013 and 2012 - continued

	Notes to preceding tabular information:
(1)	EBITDA represents "Earnings Before Interest, Taxes, Depreciation and Amortization." We consider EBITDA a supplemental measure for making decisions and assessing the 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.
(2)	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.
(3)	The elements of "New York" EBITDA are summarized below.
				For the Nine Months Ended September 30,
	(Amounts in thousands)			2013		2012
	Office			$	476,849	$	418,414
	Retail				177,394		135,399
	Alexander's (decrease due to sale of Kings Plaza in November 2012)				31,141		39,477
	Hotel Pennsylvania				18,906		16,746
		Total New York		$	704,290	$	610,036
(4)	The elements of "Washington, DC" EBITDA are summarized below.
				For the Nine Months Ended September 30,
	(Amounts in thousands)			2013		2012
	Office, excluding the Skyline Properties (a)			$	202,463	$	350,296
	Skyline properties				22,546		32,127
		Total Office			225,009		382,423
	Residential				32,955		31,968
		Total Washington, DC		$	257,964	$	414,391
	(a)		2012 includes EBITDA from discontinued operations, net gains on sale of real estate and other items that affect comparability, aggregating $138,707. Excluding these items, EBITDA was $211,589.
(5)	The elements of "Retail Properties" EBITDA are summarized below.
				For the Nine Months Ended September 30,
	(Amounts in thousands)			2013		2012
	Strip shopping centers(a)			$	264,065	$	148,554
	Regional malls(b)				251,248		72,046
		Total Retail properties		$	515,313	$	220,600
	(a)		The nine months ended September 30, 2013 and 2012 includes EBITDA from discontinued operations, net gains on sale of real estate and other items that affect comparability, aggregating $149,659 and $38,856, respectively. Excluding these items, EBITDA was $114,406 and $109,698, respectively.
	(b)		The nine months ended September 30, 2013 and 2012 includes EBITDA from discontinued operations, net gains on sale of real estate and other items that affect comparability, aggregating $203,151 and $25,057, respectively. Excluding these items, EBITDA was $48,097 and $46,989, respectively.

66

Net Income and EBITDA by Segment for the Nine Months Ended September 30, 2013 and 2012 - continued

	Notes to preceding tabular information - continued:
(6)	The elements of "other" EBITDA are summarized below.
				For the Nine Months Ended September 30,
	(Amounts in thousands)			2013		2012
	Our share of Real Estate Fund:
		Income before net realized/unrealized gains		$	1,746	$	4,162
		Net unrealized gains			14,869		8,384
		Net realized gain			2,046		-
		Carried interest			15,965		-
	Total				34,626		12,546
	Merchandise Mart Building, 7 West 34th Street and trade shows				52,167		46,518
	555 California Street				32,371		31,406
	India real estate ventures				4,708		1,718
	LNR(a)				20,443		46,006
	Lexington(b)				6,931		24,780
	Other investments				14,207		30,226
					165,453		193,200
	Corporate general and administrative expenses(c)				(71,054)		(66,940)
	Investment income and other, net(c)				39,153		30,900
	Loss on sale of J.C. Penney common shares				(54,914)		-
	Non-cash impairment loss on J.C. Penney common shares				(39,487)		-
	Loss from the mark-to-market of J.C. Penney derivative position				(33,487)		(53,343)
	Net gain on sale of marketable securities				31,741		3,582
	Acquisition related costs				(6,769)		(4,314)
	Severance costs (primarily reduction in force at the Merchandise Mart)				(4,154)		(1,520)
	Merchandise Mart discontinued operations (including net gains on sale of assets)				2,065		88,488
	Net gain on sale of residential condominiums				1,139		1,274
	Verde Realty impairment loss				-		(4,936)
	Net income attributable to noncontrolling interests in the Operating Partnership				(27,814)		(31,445)
	Preferred unit distributions of the Operating Partnership				(1,146)		(9,150)
				$	726	$	145,796
	(a)		On April 22, 2013, LNR was sold.
	(b)		In the first quarter of 2013, we began accounting for our investment in Lexington as a marketable equity security - available for sale.
	(c)		The amounts in these captions (for this table only) exclude income(expense) from the mark-to-market of our deferred compensation plan.

EBITDA by Region

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 and Retail Properties segments.

		For the Nine Months
		Ended September 30,
		2013	2012
Region:
	New York City metropolitan area	73%	69%
	Washington, DC / Northern Virginia metropolitan area	23%	27%
	Puerto Rico	2%	2%
	California	1%	1%
	Other geographies	1%	1%
		100%	100%

67

Results of Operations – Nine Months Ended September 30, 2013 Compared to September 30, 2012

Revenues

Our revenues, which consist primarily of property rentals (including hotel and trade show revenues), tenant expense reimbursements, and fee and other income, were $2,086,378,000 for the nine months ended September 30, 2013, compared to $2,046,798,000 in the prior year’s nine months, an increase of $39,580,000.  Below are the details of the increase (decrease) by segment:

(Amounts in thousands)
											Retail
Increase (decrease) due to:			Total			New York			Washington, DC		Properties			Other
Property rentals:
	Acquisitions and other		$	56,273		$	63,808		$	655	$	(7,443)		$	(747)
	Properties placed into / taken out of
		service for redevelopment		(4,553)			(320)			(2,196)		(1,939)			(98)
	Hotel Pennsylvania			7,357			7,357			-		-			-
	Trade Shows			(5,049)			-			-		-			(5,049)
	Same store operations			19,198			20,280			(16,310)		5,831			9,397
				73,226			91,125			(17,851)		(3,551)			3,503
Tenant expense reimbursements:
	Acquisitions and other			(14)			2,207			(523)		(1,597)			(101)
	Properties placed into / taken out of
		service for redevelopment		(1,500)			(83)			22		(1,325)			(114)
	Same store operations			17,415			7,613			1,294		5,216			3,292
				15,901			9,737			793		2,294			3,077
Cleveland Medical Mart development
	project			(149,988)	(1)		-			-		-			(149,988)	(1)
Fee and other income:
	BMS cleaning fees			(366)			(7,284)			-		-			6,918	(2)
	Signage revenue			9,314			9,314			-		-			-
	Management and leasing fees			3,141			3,496			1,747		(1,470)			(632)
	Lease termination fees			86,415			24,652	(3)		1,161		59,723	(4)		879
	Other income			1,937			1,101			(931)		216			1,551
				100,441			31,279			1,977		58,469			8,716
Total increase (decrease) in revenues			$	39,580		$	132,141		$	(15,081)	$	57,212		$	(134,692)
(1)		Primarily due to the project nearing completion. This decrease in revenue is offset by a decrease in development costs expensed in the period. See note (3) on page 69.
(2)		Represents the elimination of intercompany fees from operating segments upon consolidation. See note (2) on page 69.
(3)		Primarily due to a $19,500 termination fee from a tenant at 1290 Avenue of the Americas. Our share of this income, net of the write off of the straight lining of rents and amounts attributable to the noncontrolling interest was $12,121.
(4)		Results primarily from income recognized in the first quarter of 2013 in connection with the settlement of the Stop & Shop litigation.

68

Results of Operations – Nine Months Ended September 30, 2013 Compared to September 30, 2012 - continued

Expenses

Our expenses, which consist primarily of operating (including hotel and trade show expenses), depreciation and amortization and general and administrative expenses, were $1,378,671,000 for the nine months ended September 30, 2013, compared to $1,462,502,000 in the prior year’s nine months, a decrease of $83,831,000.  Below are the details of the increase (decrease) by segment:

(Amounts in thousands)
										Retail
Increase (decrease) due to:			Total			New York		Washington, DC		Properties		Other
Operating:
	Acquisitions and other		$	22,086		$	24,007	$	-	$	(1,029)	$	(892)
	Properties placed into / taken out of
		service for redevelopment		(8,800)			(1,099)		(1,009)		(5,537)		(1,155)
	Non-reimbursable expenses, including
		bad debt reserves		(2,113)			(3,784)		-		1,470		201
	Hotel Pennsylvania			5,089			5,089		-		-		-
	Trade Shows			(4,642)			-		-		-		(4,642)
	BMS expenses			565			(6,353)		-		-		6,918	(2)
	Same store operations			22,633			12,548		2,344		6,316		1,425
				34,818			30,408		1,335		1,220		1,855
Depreciation and amortization:
	Acquisitions and other			35,112			36,718		-		(1,335)		(271)
	Properties placed into / taken out of
		service for redevelopment		(19,136)			(463)		(16,109)		(2,564)		-
	Same store operations			3,706			(967)		1,392		(43)		3,324
				19,682			35,288		(14,717)		(3,942)		3,053
General and administrative:
	Mark-to-market of deferred
		compensation plan liability (1)		940			-		-		-		940
	Severance costs (primarily reduction
		in force at the Merchandise Mart)		2,634			-		-		-		2,634
	Same store operations			3,003			3,572		806		(3,979)		2,604
				6,577			3,572		806		(3,979)		6,178
Cleveland Medical Mart development
	project			(147,363)	(3)		-		-		-		(147,363)	(3)
Acquisition related costs				2,455			-		-		-		2,455
Total (decrease) increase in expenses			$	(83,831)		$	69,268	$	(12,576)	$	(6,701)	$	(133,822)
(1)		This increase in expense is entirely offset by a corresponding increase in income from the mark-to-market of the deferred compensation plan assets, a component of “interest and other investment (loss) income, net” on our consolidated statements of income.
(2)		Represents the elimination of intercompany fees from operating segments upon consolidation. See note (2) on page 68.
(3)		Primarily due to the project nearing completion. This decrease in expense is offset by the decrease in development revenue in the period. See note (1) on page 68.

69

Results of Operations – Nine Months Ended September 30, 2013 Compared to September 30, 2012 - continued

(Loss) Income Applicable to Toys

In the fourth quarter of 2012, we recorded a $40,000,000 non-cash impairment loss on our investment in Toys and disclosed, that if current facts don’t change, our share of Toys’ undistributed income, which in accordance with the equity method of accounting, would increase the carrying amount of our investment above fair value, would require an offsetting impairment loss.

In the first quarter of 2013, we recognized our share of Toys’ fourth quarter net income of $78,542,000 and a corresponding non-cash impairment loss of the same amount. 

In the nine months ended September 30, 2013, we recognized a net loss of $69,311,000 from our investment in Toys, comprised of $3,778,000 for our 32.6% share of Toys’ net income and $5,453,000 of management fee income, offset by a $78,542,000 impairment loss (see above).  In the nine months ended September 30, 2012, we recognized net income of $88,696,000 from our investment in Toys, comprised of $81,667,000 for our 32.5% share of Toys’ net income and $7,029,000 of management fee income.

Income from Partially Owned Entities

Summarized below are the components of income (loss) from partially owned entities for the nine months ended September 30, 2013 and 2012.

			Percentage	For the Nine Months Ended
			Ownership at	September 30,
(Amounts in thousands)			September 30, 2013	2013		2012
Equity in Net Income (Loss):
Alexander's (decrease due to sale of Kings Plaza
	in November 2012)		32.4%	$	17,802	$	24,827
Lexington (1)			n/a		(979)		371
LNR (2)			n/a		18,731		39,319
India real estate ventures			4.0%-36.5%		(2,630)		(4,526)
Partially owned office buildings:
	280 Park Avenue		49.5%		(6,480)		(9,267)
	Warner Building		55.0%		(6,346)		(7,438)
	666 Fifth Avenue Office Condominium		49.5%		5,776		5,244
	330 Madison Avenue		25.0%		3,714		2,036
	Rosslyn Plaza		43.7%-50.4%		(2,158)		99
	One Park Avenue		30.3%		1,054		890
	1101 17th Street		55.0%		996		1,920
	West 57th Street Properties		50.0%		415		732
	Fairfax Square		20.0%		(87)		(85)
	Other partially owned office buildings		Various		1,530		1,587
Other investments:
	Independence Plaza		50.1%		(3,199)		5,243
	Downtown Crossing, Boston (3)		n/a		(2,358)		(872)
	Monmouth Mall		50.0%		1,450		1,007
	Other investments (4)		Various		(3,540)		(7,596)
				$	23,691	$	53,491
(1)		In the first quarter of 2013, we began accounting for our investment in Lexington as a marketable equity security - available for sale.
(2)		On April 22, 2013, LNR was sold for $1.053 billion. We owned 26.2% of LNR and received net proceeds of approximately $241,000.
(3)		On April 24, 2013, the joint venture sold the site in Downtown Crossing, Boston, and we received approximately $45,000 for our 50% interest. In connection therewith, we recognized a $2,335 impairment loss in the first quarter.
(4)		Includes interests in 85 10th Avenue, Fashion Centre Mall, 50-70 West 93rd Street and others.

70

 

Results of Operations – Nine Months Ended September 30, 2013 Compared to September 30, 2012 - continued

Income from Real Estate Fund

Below are the components of the income from our Real Estate Fund for the nine months ended September 30, 2013 and 2012.

(Amounts in thousands)		For the Nine Months Ended September 30,
		2013		2012
Net investment income		$	6,287	$	4,035
Net realized gain			8,184		-
Net unrealized gains			59,476		33,537
Income from Real Estate Fund			73,947		37,572
Less (income) attributable to noncontrolling interests			(39,321)		(25,026)
Income from Real Estate Fund attributable to Vornado(1)		$	34,626	$	12,546
___________________________________
(1)	Excludes management, leasing and development fees of $2,446 and $2,374 for the nine months ended September 30, 2013 and 2012, respectively, which are included as a component of "fee and other income" on our consolidated statements of income.

Interest and Other Investment (Loss) Income, net

Interest and other investment loss, net was a loss of $32,933,000 in the nine months ended September 30, 2013, compared to a loss of $22,984,000 in the prior year’s nine months, an increase in loss of $9,949,000. This increase resulted from:

(Amounts in thousands)
Non-cash impairment loss on J.C. Penney common shares in 2013		$	(39,487)
J.C. Penney derivative position ($33,487 mark-to-market loss in 2013, compared to a
	$53,343 mark-to-market loss in the prior year)		19,856
Higher interest on mezzanine loans receivable			5,916
Income from prepayment penalties in connection with the repayment of a mezzanine loan			5,267
Lower dividends and interest on marketable securities			(2,749)
Increase in the value of investments in our deferred compensation plan (offset by a corresponding
	increase in the liability for plan assets in general and administrative expenses)		940
Other, net			308
		$	(9,949)

Interest and Debt Expense

Interest and debt expense was $363,128,000 in the nine months ended September 30, 2013, compared to $373,257,000 in the prior year’s nine months, a decrease of $10,129,000.  This decrease was primarily due to $20,140,000 of higher capitalized interest in the current period, partially offset by interest expense of $8,721,000 from the financing of the retail condominium at 666 Fifth Avenue in the first quarter of 2013.

Net Gain (Loss) on Disposition of Wholly Owned and Partially Owned Assets

In the nine months ended September 30, 2013, we recognized a $20,581,000 loss on disposition of wholly owned and partially owned assets, primarily from a $54,914,000 loss on sale of the J.C. Penney common shares, partially offset by a $31,741,000 net gain on the sale of a marketable security, compared to a $4,856,000 net gain in the prior year’s nine months, primarily from the sale of residential condominiums and marketable securities.

Income Tax Expense

Income tax expense was $6,172,000 in the nine months ended September 30, 2013, compared to $17,319,000 in the prior year’s nine months, a decrease of $11,147,000.  This decrease resulted primarily from an $12,038,000 income tax provision in the prior year’s nine months applicable to a taxable REIT subsidiary that was liquidated in the fourth quarter of 2012. 

71

Results of Operations – Nine Months Ended September 30, 2013 Compared to September 30, 2012 - continued

Income from Discontinued Operations

We have reclassified the revenues and expenses of the properties that were sold and that are currently held for sale to “income from discontinued operations” and the related assets and liabilities to “assets related to discontinued operations” and “liabilities related to discontinued operations” for all the periods presented in the accompanying financial statements.  The table below sets forth the combined results of assets related to discontinued operations for the nine months ended September 30, 2013 and 2012.

		For the Nine Months Ended September 30,
(Amounts in thousands)		2013		2012
Total revenues		$	35,193	$	144,274
Total expenses			27,177		106,924
			8,016		37,350
Net gains on sale of real estate (2013 includes $2,909
	attributable to noncontrolling interests)		286,990		203,801
Gain on sale of Canadian Trade Shows, net of $11,448 of
	income taxes		-		19,657
Impairment losses			(4,727)		(13,511)
Income from discontinued operations		$	290,279	$	247,297

Net Income Attributable to Noncontrolling Interests in Consolidated Subsidiaries

Net income attributable to noncontrolling interests in consolidated subsidiaries was $50,049,000 in the nine months ended September 30, 2013, compared to $30,928,000 in the prior year’s nine months, an increase of $19,121,000.  This increase resulted primarily from higher net income allocated to the noncontrolling interests of our Real Estate Fund and the noncontrolling interests’ share of the net gain on sale of a retail property in Tampa, Florida.

Net Income Attributable to Noncontrolling Interests in the Operating Partnership

Net income attributable to noncontrolling interests in the Operating Partnership was $27,814,000 in the nine months ended September 30, 2013, compared to $31,445,000 in the prior year’s nine months, a decrease of $3,631,000.  This decrease resulted primarily from lower net income subject to allocation to unitholders.

Preferred Unit Distributions of the Operating Partnership

Preferred unit distributions of the Operating Partnership were $1,146,000 in the nine months ended September 30, 2013, compared to $9,150,000 in the prior year’s nine months, a decrease of $8,004,000.  This decrease resulted from the redemption of the 6.875% Series D-15 cumulative redeemable preferred units in May 2013, and the 7.0% Series D-10 and 6.75% Series D-14 cumulative redeemable preferred units in July 2012.

Preferred Share Dividends

Preferred share dividends were $62,439,000 in the nine months ended September 30, 2013, compared to $56,187,000 in the prior year’s nine months, an increase of $6,252,000.  This increase resulted from the issuance of $300,000,000 of 5.70% Series K cumulative redeemable preferred shares in July 2012 and $300,000,000 of 5.40% Series L cumulative redeemable preferred shares in January 2013, partially offset by the redemption of $262,500,000 of 6.75% Series F and Series H cumulative redeemable preferred shares in February 2013 and $75,000,000 of 7.0% Series E cumulative redeemable preferred shares in August 2012.

Preferred Unit and Share Redemptions

In the nine months ended September 30, 2013, we recognized $1,130,000 of expense in connection with preferred unit and share redemptions, comprised of $9,230,000 of expense from the redemption of the 6.75% Series F and Series H cumulative redeemable preferred shares in February 2013, partially offset by an $8,100,000 discount from the redemption of all of the 6.875% Series D-15 cumulative redeemable preferred units in May 2013.  In the nine months ended September 30, 2012, we recognized an $11,700,000 discount from the redemption of all of the 7.0% Series D-10 and 6.75% Series D-14 cumulative redeemable preferred units in July 2012.

72

Results of Operations – Nine Months Ended September 30, 2013 Compared to September 30, 2012 - continued

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 reconciliations of EBITDA to same store EBITDA on a GAAP basis for each of our segments for the nine months ended September 30, 2013, compared to nine months ended September 30, 2012.

(Amounts in thousands)				New York		Washington, DC		Retail Properties
EBITDA for the nine months ended September 30, 2013				$	704,290	$	257,964	$	515,313
	Add-back:
		Non-property level overhead expenses included above			25,552		20,655		14,824
	Less EBITDA from:
		Acquisitions			(47,549)		-		-
		Dispositions, including net gains on sale			-		(117)		(293,042)
		Properties taken out-of-service for redevelopment			(14,771)		(3,280)		(3,579)
		Other non-operating (income) expense			(27,003)		(813)		(59,492)
GAAP basis same store EBITDA for the nine months ended
	September 30, 2013			$	640,519	$	274,409	$	174,024
EBITDA for the nine months ended September 30, 2012				$	610,036	$	414,391	$	220,600
	Add-back:
		Non-property level overhead expenses included above			21,980		19,849		18,803
	Less EBITDA from:
		Acquisitions			(581)		-		-
		Dispositions, including net gains on sale			(8,423)		(138,705)		(60,497)
		Properties taken out-of-service for redevelopment			(14,915)		(7,045)		(606)
		Other non-operating (income) expense			24		289		(8,657)
GAAP basis same store EBITDA for the nine months ended
	September 30, 2012			$	608,121	$	288,779	$	169,643
Increase (decrease) in GAAP basis same store EBITDA -
	Nine months ended September 30, 2013 vs. September 30, 2012(1)			$	32,398	$	(14,370)	$	4,381
% increase (decrease) in GAAP basis same store EBITDA					5.3%		(5.0%)		2.6%
(1)			See notes on following page

73

 

Results of Operations – Nine Months Ended September 30, 2013 Compared to September 30, 2012 - continued

Notes to preceding tabular information

New York:

The $32,398,000 increase in New York GAAP basis same store EBITDA resulted primarily from an increase in Office and Retail GAAP basis same store EBITDA of $24,560,000 and $5,576,000, respectively.  The $24,560,000 increase in Office GAAP basis same store EBITDA resulted primarily from an increase in (i) rental revenue of $14,036,000 (due to a $2.34 increase in average annual rents per square foot, partially offset by a 40 basis point decrease in average same store occupancy to 95.0% from 95.4%), and (ii) signage revenue and management and leasing fees of $12,810,000.  The $5,576,000 increase in Retail GAAP basis same store EBITDA resulted primarily from an increase in (i) rental revenue of $6,244,000, (primarily due a $7.22 increase in average annual rents per square foot).

Washington, DC:

The $14,370,000 decrease in Washington, DC GAAP basis same store EBITDA resulted primarily from a decrease in rental revenue of $16,310,000, primarily due to a 420 basis point decrease in office average same store occupancy to 82.9% from 87.1%, a significant portion of which resulted from the effects of the BRAC statute (see page 51).

Retail Properties:

The $4,381,000 increase in Retail Properties GAAP basis same store EBITDA resulted primarily from an increase in rental revenue of $5,831,000, due to a 120 basis point increase in average same store occupancy to 93.4% from 92.2%, and a $0.29 increase in average annual rents per square foot.

74

Results of Operations – Nine Months Ended September 30, 2013 Compared to September 30, 2012 - continued

Reconciliation of GAAP basis Same Store EBITDA to Cash basis Same Store EBITDA

(Amounts in thousands)		New York		Washington, DC		Retail Properties
GAAP basis same store EBITDA for the nine months ended
	September 30, 2013	$	640,519	$	274,409	$	174,024
Less: Adjustments for straight line rents, amortization of acquired
	below-market leases, net, and other non-cash adjustments		(77,291)		(8,282)		(9,179)
Cash basis same store EBITDA for the nine months ended
	September 30, 2013	$	563,228	$	266,127	$	164,845
GAAP basis same store EBITDA for the nine months ended
	September 30, 2012	$	608,121	$	288,779	$	169,643
Less: Adjustments for straight line rents, amortization of acquired
	below-market leases, net, and other non-cash adjustments		(89,594)		(5,662)		(9,701)
Cash basis same store EBITDA for the nine months ended
	September 30, 2012	$	518,527	$	283,117	$	159,942
Increase (decrease) in Cash basis same store EBITDA -
	Nine months ended September 30, 2013 vs. September 30, 2012	$	44,701	$	(16,990)	$	4,903
% increase (decrease) in Cash basis same store EBITDA			8.6%		(6.0%)		3.1%

75

SUPPLEMENTAL INFORMATION

Reconciliation of Net Income to EBITDA for the Three Months Ended June 30, 2013.

						Retail
(Amounts in thousands)		New York		Washington, DC		Properties
Net income attributable to Vornado for the three months ended
	June 30, 2013	$	105,574	$	17,433	$	87,594
Interest and debt expense			54,546		31,245		13,715
Depreciation and amortization			74,573		35,248		16,348
Income tax expense			1,030		852		749
EBITDA for the three months ended June 30, 2013		$	235,723	$	84,778	$	118,406

Reconciliation of EBITDA to GAAP basis Same Store EBITDA – Three Months Ended September 30, 2013 compared to June 30, 2013

(Amounts in thousands)			New York		Washington, DC		Retail Properties
EBITDA for the three months ended September 30, 2013			$	251,030	$	86,942	$	74,581
	Add-back:
		Non-property level overhead expenses included above		7,849		6,857		4,240
	Less EBITDA from:
		Acquisitions		(575)		-		-
		Dispositions, including net gains on sale		-		(46)		(17,873)
		Properties taken out-of-service for redevelopment		(5,461)		(1,182)		(2,196)
		Other non-operating (income) expense		(20,115)		(867)		(549)
GAAP basis same store EBITDA for the three months ended
	September 30, 2013		$	232,728	$	91,704	$	58,203
EBITDA for the three months ended June 30, 2013			$	235,723	$	84,778	$	118,406
	Add-back:
		Non-property level overhead expenses included above		8,881		6,873		5,169
	Less EBITDA from:
		Acquisitions		913		-		-
		Dispositions, including net gains on sale		-		27		(64,874)
		Properties taken out-of-service for redevelopment		(4,900)		(822)		(916)
		Other non-operating (income) expense		(5,679)		422		839
GAAP basis same store EBITDA for the three months ended
	June 30, 2013		$	234,938	$	91,278	$	58,624
(Decrease) increase in GAAP basis same store EBITDA -
	Three months ended September 30, 2013 vs. June 30, 2013		$	(2,210)	$	426	$	(421)
% (decrease) increase in GAAP basis same store EBITDA				(0.9%)		0.5%		(0.7%)

76

SUPPLEMENTAL INFORMATION – CONTINUED

Reconciliation of GAAP basis Same Store EBITDA to Cash basis Same Store EBITDA – Three Months Ended September 30, 2013 vs. June 30, 2013

(Amounts in thousands)		New York		Washington, DC		Retail Properties
GAAP basis same store EBITDA for the three months ended
	September 30, 2013	$	232,728	$	91,704	$	58,203
Less: Adjustments for straight line rents, amortization of acquired
	below-market leases, net, and other non-cash adjustments		(25,219)		(1,519)		(2,852)
Cash basis same store EBITDA for the three months ended
	September 30, 2013	$	207,509	$	90,185	$	55,351
GAAP basis same store EBITDA for the three months ended June 30, 2013		$	234,938	$	91,278	$	58,624
Less: Adjustments for straight line rents, amortization of acquired
	below-market leases, net, and other non-cash adjustments		(28,106)		(2,596)		(3,160)
Cash basis same store EBITDA for the three months ended June 30, 2013		$	206,832	$	88,682	$	55,464
Increase (decrease) in Cash basis same store EBITDA -
	Three months ended September 30, 2013 vs. June 30, 2013	$	677	$	1,503	$	(113)
% increase (decrease) in Cash basis same store EBITDA			0.3%		1.7%		(0.2%)

77

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.   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.  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.    

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.  Our Real Estate Fund has aggregate unfunded commitments of $239,186,000, including $59,796,000 from us. 

We may from time to time purchase or retire outstanding debt securities or redeem our equity 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 Nine Months Ended September 30, 2013

Our cash and cash equivalents were $872,323,000 at September 30, 2013, a $87,996,000 decrease over the balance at December 31, 2012.  Our consolidated outstanding debt was $10,001,333,000 at September 30, 2013, a $1,170,875,000 decrease over the balance at December 31, 2012.  As of September 30, 2013 and December 31, 2012, $83,982,000 and $1,170,000,000, respectively, was outstanding under our revolving credit facilities.  During the remainder of 2013 and 2014, $176,572,000 and $233,283,000, respectively, of our outstanding debt matures; we may refinance this maturing debt as it comes due or choose to repay it.

Cash flows provided by operating activities of $789,592,000 was comprised of (i) net income of $603,499,000, (ii) $188,740,000 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, (iii) return of capital from Real Estate Fund investments of $56,664,000, and (iv) distributions of income from partially owned entities of $34,350,000, partially offset by (v) the net change in operating assets and liabilities of $93,661,000, including $32,392,000 related to Real Estate Fund investments.

Net cash provided by investing activities of $1,020,400,000 was comprised of (i) $734,427,000 of proceeds from sales of real estate and related investments, (ii) $378,676,000 of proceeds from the sale of marketable securities, (iii) $287,944,000 of capital distributions from partially owned entities, (iv) $240,474,000 from the sale of LNR, (v) $101,150,000 from the return of the J.C. Penney derivative collateral, (vi) $49,452,000 of proceeds from repayments of mortgages and mezzanine loans receivable and other, and (vii) $21,883,000 of changes in restricted cash, partially offset by (viii) $212,624,000 of investments in partially owned entities, (ix) $186,079,000 for the funding of the J.C. Penney derivative collateral; and settlement of derivative position in 2013, (x) $170,424,000 of additions to real estate, (xi) $149,010,000 of development costs and construction in progress, (xii) $75,079,000 of acquisitions of real estate, and (xiii) $390,000 of investment in mortgage and mezzanine loans receivable.

Net cash used in financing activities of $1,897,988,000 was comprised of (i) $2,851,420,000 for the repayments of borrowings, (ii) $409,332,000 of dividends paid on common shares, (iii) $299,400,000 for purchases of outstanding preferred units and shares, (iv) $200,667,000 of distributions to noncontrolling interests, (v) $62,820,000 of dividends paid on preferred shares, (vi) $9,982,000 of debt issuance and other costs, and (vii) $332,000 for the repurchase of shares related to stock compensation agreements and related tax holdings, partially offset by (viii) $1,600,357,000 of proceeds from borrowings, (ix) $290,536,000 of proceeds from the issuance of preferred shares, (x) $40,015,000 of contributions from noncontrolling interests in consolidated subsidiaries, and (xi) $5,057,000 of proceeds received from the exercise of employee share options.

78

Liquidity and Capital Resources – continued

Capital Expenditures

Capital expenditures consist of expenditures to maintain assets, tenant improvement allowances and leasing commissions.  Recurring capital expenditures 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 nine months ended September 30, 2013.

										Retail
(Amounts in thousands)				Total		New York		Washington, DC		Properties		Other
Expenditures to maintain assets				$	39,322	$	20,665	$	9,244	$	3,160	$	6,253
Tenant improvements					117,088		67,476		32,087		11,075		6,450
Leasing commissions					42,341		31,324		8,030		1,686		1,301
Non-recurring capital expenditures					6,454		6,183		-		-		271
Total capital expenditures and leasing
	commissions (accrual basis)				205,205		125,648		49,361		15,921		14,275
Adjustments to reconcile to cash basis:
		Expenditures in the current year
			applicable to prior periods		111,984		43,536		22,228		4,577		41,643
		Expenditures to be made in future
			periods for the current period		(116,655)		(68,813)		(34,191)		(12,556)		(1,095)
Total capital expenditures and leasing
	commissions (cash basis)			$	200,534	$	100,371	$	37,398	$	7,942	$	54,823
Tenant improvements and leasing commissions:
	Per square foot per annum			$	4.19	$	5.54	$	4.71	$	1.52	$	-
	Percentage of initial rent				9.7%		8.0%		11.8%		7.9%		-

Development and Redevelopment Expenditures

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. 

We are in the process of renovating the Springfield Mall, which is expected to be substantially completed in 2014.  The estimated cost of this project is approximately $225,000,000, of which $21,500,000 was expended prior to 2013, $80,000,000 is expected to be expended in 2013 and the balance is to be expended in 2014. 

We plan to develop a new 699-unit residential project in Pentagon City (Metropolitan Park 4&5), which is expected to be completed in 2016.  The project will include a 37,000 square foot Whole Foods Market at the base of the building.  The estimated cost of this project is approximately $250,000,000; a significant portion of which is expected to be financed.

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Liquidity and Capital Resources – continued

Development and Redevelopment Expenditures - continued

Below is a summary of development and redevelopment expenditures incurred in the nine months ended September 30, 2013.

								Retail
(Amounts in thousands)		Total		New York		Washington, DC		Properties		Other
Springfield Mall		$	39,810	$	-	$	-	$	39,810	$	-
220 Central Park South			23,946		-		-		-		23,946
Marriott Marquis Times Square - retail
	and signage		13,920		13,920		-		-		-
1290 Avenue of the Americas			11,374		11,374		-		-		-
Metropolitan Park 4 & 5			5,054		-		5,054		-		-
LED Signage			4,589		4,589		-		-		-
1540 Broadway			4,267		4,267		-		-		-
1851 South Bell Street (1900 Crystal Drive)			3,739		-		3,739		-		-
Other			42,311		7,949		15,039		15,910		3,413
		$	149,010	$	42,099	$	23,832	$	55,720	$	27,359

In addition to the development and redevelopment projects above, we are in the process of retenanting and repositioning 280 Park Avenue (50% owned).  Our share of the estimated cost of this project is approximately $62,000,000, of which $11,000,000 was expended prior to 2013 and $18,000,000 has been expended in 2013.

There can be no assurance that any of our development projects will commence, or if commenced, be completed on schedule or within budget.   

Cash Flows for the Nine Months Ended September 30, 2012

Our cash and cash equivalents were $465,884,000 at September 30, 2012, a $140,669,000 decrease over the balance at December 31, 2011.  This decrease was primarily due to cash flows from financing activities, partially offset by cash flows from operating and investing activities, as discussed below.

Cash flows provided by operating activities of $510,646,000 was comprised of (i) net income of $602,648,000, (ii) return of capital from Real Estate Fund investments of $61,052,000, (iii) distributions of income from partially owned entities of $59,322,000, and (iv) $14,489,000 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, partially offset by (v) the net change in operating assets and liabilities of $226,865,000, including $163,307,000 related to Real Estate Fund investments.

Net cash provided by investing activities of $34,012,000 was comprised of (i) $408,856,000 of proceeds from sales of real estate and related investments, (ii) $89,850,000 from the return of the J.C. Penney derivative collateral,  (iii) $58,460,000 of proceeds from the sale of marketable securities, (iv) $52,504,000 of proceeds from the sale of the Canadian Trade Shows, (v) $26,665,000 of capital distributions from partially owned entities, (vi) $13,123,000 of proceeds from the repayment of loan to officer, and (vii) $2,379,000 of proceeds from repayments of mezzanine loans, partially offset by (viii) $138,060,000 of additions to real estate, (ix) $121,117,000 for the funding of the J.C. Penney derivative collateral, (x) $116,264,000 of investments in partially owned entities, (xi) $106,502,000 of development costs and construction in progress, (xii) $73,069,000 of acquisitions of real estate and other, and (xiii) $62,813,000 of changes in restricted cash.

Net cash used in financing activities of $685,327,000 was comprised of (i) $2,070,295,000 for the repayments of borrowings, (ii) $384,353,000 of dividends paid on common shares, (iii) $243,300,000 for purchases of outstanding preferred units and shares, (iv) $80,994,000 of distributions to noncontrolling interests, (v) $54,034,000 of dividends paid on preferred shares, (vi) $30,034,000 for the repurchase of shares related to stock compensation agreements and related tax holdings, and (vii) $17,417,000 of debt issuance and other costs, partially offset by (viii) $1,773,000,000 of proceeds from borrowings, (ix) $291,144,000 of proceeds from the issuance of preferred shares, (x) $120,746,000 of contributions from noncontrolling interests in consolidated subsidiaries, and (xi) $10,210,000 of proceeds from exercise of employee share options.

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Liquidity and Capital Resources – continued

Capital Expenditures in the nine months ended September 30, 2012

										Retail
(Amounts in thousands)				Total		New York		Washington, DC		Properties		Other
Expenditures to maintain assets				$	37,829	$	17,925	$	10,758	$	2,497	$	6,649
Tenant improvements					150,099		55,628		41,874		6,682		45,915
Leasing commissions					48,900		21,536		10,607		1,971		14,786
Non-recurring capital expenditures					5,227		4,240		-		-		987
Total capital expenditures and leasing
	commissions (accrual basis)				242,055		99,329		63,239		11,150		68,337
Adjustments to reconcile to cash basis:
		Expenditures in the current year
			applicable to prior periods		74,087		35,008		11,811		6,868		20,400
		Expenditures to be made in future
			periods for the current period		(157,152)		(66,954)		(38,221)		(5,731)		(46,246)
Total capital expenditures and leasing
	commissions (cash basis)			$	158,990	$	67,383	$	36,829	$	12,287	$	42,491
Tenant improvements and leasing commissions:
	Per square foot per annum			$	4.28	$	5.43	$	5.18	$	1.05	$	-
	Percentage of initial rent				9.8%		8.5%		12.9%		5.4%		-

Development and Redevelopment Expenditures in the nine months ended September 30, 2012

								Retail
(Amounts in thousands)		Total		New York		Washington, DC		Properties		Other
Crystal Square 5		$	12,773	$	-	$	12,773	$	-	$	-
1290 Avenue of the Americas			11,613		11,613		-		-		-
510 Fifth Avenue			10,203		10,203		-		-		-
Bergen Town Center			9,881		-		-		9,881		-
Springfield Mall			8,801		-		-		8,801		-
Marriott Marquis Times Square - retail
	and signage		5,970		5,970		-		-		-
1851 South Bell Street (1900 Crystal Drive)			2,840		-		2,840		-		-
Other			44,421		9,581		9,716		17,252		7,872
		$	106,502	$	37,367	$	25,329	$	35,934	$	7,872

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Liquidity and Capital Resources – continued

Other Commitments and Contingencies

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 is not expected to have a material adverse effect on our financial position, results of operations or cash flows.

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.

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 September 30, 2013, the aggregate dollar amount of these guarantees and master leases is approximately $367,000,000.

At September 30, 2013, $33,068,000 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.

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 September 30, 2013, our subsidiaries have funded approximately $3,598,000 of the commitment.

As of September 30, 2013, we expect to fund additional capital to certain of our partially owned entities aggregating approximately $155,000,000.

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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 Note 20 – Income per Share, in our consolidated financial statements on page 31 of this Quarterly Report on Form 10-Q.

FFO for the Three and Nine Months Ended September 30, 2013 and 2012

FFO attributable to common shareholders plus assumed conversions was $210,627,000, or $1.12 per diluted share for the three months ended September 30, 2013, compared to $251,019,000, or $1.34 per diluted share, for the prior year’s quarter.  FFO attributable to common shareholders plus assumed conversions was $647,767,000, or $3.45 per diluted share for the nine months ended September 30, 2013, compared to $767,347,000, or $4.07 per diluted share, for the prior year’s nine months.  Details of certain items that affect comparability are discussed in the financial results summary of our “Overview.”

			For The Three Months				For The Nine Months
(Amounts in thousands, except per share amounts)			Ended September 30,				Ended September 30,
Reconciliation of our net income to FFO:			2013		2012		2013		2012
Net income attributable to Vornado			$	103,374	$	241,306	$	524,490	$	531,125
Depreciation and amortization of real property				117,901		118,717		377,142		377,338
Net gains on sale of real estate				(16,087)		(131,088)		(284,081)		(203,801)
Real estate impairment losses				720		-		4,727		13,511
Proportionate share of adjustments to equity in net income
	of Toys, to arrive at FFO:
		Depreciation and amortization of real property		16,430		16,905		53,235		50,706
		Real estate impairment losses		1,826		-		6,096		8,394
		Income tax effect of above adjustments		(6,390)		(5,917)		(20,766)		(20,765)
Proportionate share of adjustments to equity in net income of
	partially owned entities, excluding Toys, to arrive at FFO:
		Depreciation and amortization of real property		20,931		22,750		62,247		65,810
		Net gains on sale of real estate		-		(1,156)		(465)		(2,051)
		Real estate impairment losses		-		-		-		1,849
Noncontrolling interests' share of above adjustments				(7,736)		(1,613)		(11,343)		(18,197)
FFO				230,969		259,904		711,282		803,919
Preferred share dividends				(20,369)		(20,613)		(62,439)		(56,187)
Preferred unit and share redemptions				-		11,700		(1,130)		11,700
FFO attributable to common shareholders				210,600		250,991		647,713		759,432
Convertible preferred share dividends				27		28		54		85
Interest on 3.88% exchangeable senior debentures				-		-		-		7,830
FFO attributable to common shareholders plus assumed conversions			$	210,627	$	251,019	$	647,767	$	767,347
Reconciliation of Weighted Average Shares
	Weighted average common shares outstanding			186,969		185,924		186,885		185,656
	Effect of dilutive securities:
		Employee stock options and restricted share awards		755		681		746		693
		Convertible preferred shares		47		50		48		50
		3.88% exchangeable senior debentures		-		-		-		2,279
	Denominator for FFO per diluted share			187,771		186,655		187,679		188,678
FFO attributable to common shareholders plus assumed conversions
	per diluted share		$	1.12	$	1.34	$	3.45	$	4.07

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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:

(Amounts in thousands, except per share amounts)			2013					2012
					Weighted	Effect of 1%				Weighted
			September 30,		Average	Change In		December 31,		Average
Consolidated debt:			Balance		Interest Rate	Base Rates		Balance		Interest Rate
	Variable rate		$	1,353,097	2.32%	$	13,531	$	3,043,199	1.84%
	Fixed rate			8,648,236	5.03%		-		8,129,009	5.18%
			$	10,001,333	4.67%		13,531	$	11,172,208	4.27%
Prorata share of debt of non-consolidated
	entities (non-recourse):
	Variable rate – excluding Toys		$	194,423	2.12%		1,944	$	264,531	2.88%
	Variable rate – Toys			731,522	5.71%		7,315		703,922	5.69%
	Fixed rate (including $984,990 and
		$1,148,407 of Toys debt in 2013 and 2012)		3,106,589	6.89%		-		3,030,476	7.04%
			$	4,032,534	6.44%		9,259	$	3,998,929	6.53%
Noncontrolling interests’ share of above							(1,322)
Total change in annual net income						$	21,468
Per share-diluted						$	0.11

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 September 30, 2013, we have one interest rate cap with a principal amount of $60,000,000 and an interest rate of 2.36%.  This cap is based on a notional amount of $60,000,000 and caps LIBOR at a rate of 7.00%.  In addition, we have one interest rate swap on a $425,000,000 mortgage loan that swapped the rate from LIBOR plus 2.00% (2.18% at September 30, 2013) to a fixed rate of 5.13% for the remaining five-year term of the loan. 

As of September 30, 2013, we have investments in mezzanine loans with an aggregate carrying amount of $152,079,000 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 September 30, 2013, the estimated fair value of our consolidated debt was $10,134,982,000.

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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 September 30, 2013, 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.

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PART II.   OTHER INFORMATION

Item 1.  Legal Proceedings

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 is not expected to have a material adverse effect on our financial position, results of operations or cash flows.

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, 2012.

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds

During the third quarter of 2013, we issued 6,558 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, 2012, 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

       None.

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.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		VORNADO REALTY TRUST
		(Registrant)
Date: November 4, 2013	By:	/s/ Stephen W. Theriot
		Stephen W. Theriot, Chief Financial Officer (duly authorized officer and principal financial and accounting officer)

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	EXHIBIT INDEX
Exhibit No.
	3.3		-	Articles Supplementary, 5.40% Series L Cumulative Redeemable Preferred Shares of	*
				Beneficial Interest, liquidation preference $25.00 per share, no par value – Incorporated by
				reference to Exhibit 3.6 to Vornado Realty Trust’s Registration Statement on Form 8-A
				(File No. 001-11954), filed on January 25, 2013
	3.49		-	Forty-Fifth Amendment to Second Amended and Restated Agreement of Limited Partnership,	*
				dated as of January 25, 2013 – Incorporated by reference to Exhibit 3.1 to Vornado Realty
				L.P.’s Current Report on Form 8-K (File No. 001-34482), filed on January 25, 2013
	10.46	**	-	Letter Agreement between Vornado Realty Trust and Michael D. Fascitelli, dated	*
				February 27, 2013. Incorporated by reference to Exhibit 99.1 to Vornado Realty Trust’s
				Current Report on Form 8-K (File No. 001-11954), filed on February 27, 2013
	10.47	**	-	Waiver and Release between Vornado Realty Trust and Michael D. Fascitelli, dated	*
				February 27, 2013. Incorporated by reference to Exhibit 99.2 to Vornado Realty Trust’s
				Current Report on Form 8-K (File No. 001-11954), filed on February 27, 2013
	10.48		-	Amendment to June 2011 Revolving Credit Agreement dated as of March 28, 2013, by and	*
				among Vornado Realty L.P., as Borrower, the banks listed on the signature pages, and
				J.P. Morgan Chase Bank N.A., as Administrative Agent. Incorporated by reference to
				Exhibit 10.48 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter
				ended March 31, 2013 (File No. 001-11954), filed on May 6, 2013
	10.49		-	Amendment to November 2011 Revolving Credit Agreement dated as of March 28, 2013, by	*
				and among Vornado Realty L.P., as Borrower, the banks listed on the signature pages, and
				J.P. Morgan Chase Bank N.A., as Administrative Agent. Incorporated by reference to
				Exhibit 10.49 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter
				ended March 31, 2013 (File No. 001-11954), filed on May 6, 2013
	10.50	**	-	Form of Vornado Realty Trust 2013 Outperformance Plan Award Agreement. Incorporated	*
				by reference to Exhibit 10.50 to Vornado Realty Trust’s Quarterly Report on Form 10-Q
				for the quarter ended March 31, 2013 (File No. 001-11954), filed on May 6, 2013
	10.51	**	-	Employment agreement between Vornado Realty Trust and Stephen W. Theriot dated	*
				June 1, 2013. Incorporated by reference to Exhibit 10.51 to Vornado Realty Trust’s
				Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 (File No. 001-11954),
				filed on August 5, 2013
				______________________________
		*		Incorporated by reference
		**		Management contract or compensation agreement

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	EXHIBIT INDEX
Exhibit No.
	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

89