<Page>
EXHIBIT INDEX ON PAGE 35
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2001
-----------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
-------------------- to --------------------
Commission File Number: 000-22635
--------------------------------------------------------
VORNADO REALTY L.P.
---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3925979
- --------------------------------------------------- ---------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) 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.
[X] Yes [ ] No
Page 1
INDEX
PART I. Financial Information: Page Number
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 2001 and
December 31, 2000......................................................... 3
Consolidated Statements of Income for the Three and Six Months Ended June
30, 2001 and June 30, 2000................................................ 4
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2001 and June 30, 2000..................................... 5
Notes to Consolidated Financial Statements................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................. 16
Item 3. Quantitative and Qualitative Disclosures About Market Risks............... 32
PART II. Other Information:
Item 1. Legal Proceedings......................................................... 33
Item 6. Exhibits and Reports on Form 8-K.......................................... 33
Signatures .......................................................................... 34
Exhibit Index ......................................................................... 35
Page 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VORNADO REALTY L.P.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands except unit amounts)
June 30, December 31,
2001 2000
-------- ------------
ASSETS
Real estate, at cost:
Land..................................... $ 887,769 $ 870,023
Buildings and improvements............... 3,459,286 3,328,760
Development costs and construction-in-
progress............................. 213,151 66,264
Leasehold improvements and
equipment............................ 36,320 29,795
------------ -----------
Total.......................... 4,596,526 4,294,842
Less accumulated depreciation and
amortization......................... (462,336) (393,787)
------------ -----------
Real estate, net......................... 4,134,190 3,901,055
Cash and cash equivalents, including U.S.
government obligations under repurchase
agreements of $27,430 and $27,793........ 119,920 136,989
Escrow deposits and restricted cash........... 186,508 214,359
Marketable securities......................... 118,809 120,340
Investments and advances to partially-owned
entities, including Alexander's of
$189,060 and $178,413.................... 1,279,468 1,459,211
Due from officers............................. 19,522 20,549
Accounts receivable, net of allowance for
doubtful accounts of $8,947 and $9,343... 52,322 47,937
Notes and mortgage loans receivable........... 213,432 188,722
Receivable arising from the straight-lining of
rents.................................... 126,592 111,504
Other assets.................................. 251,888 169,648
------------ -----------
TOTAL ASSETS $ 6,502,651 $ 6,370,314
============ ===========
June 30, December 31,
2001 2000
-------- ------------
LIABILITIES AND PARTNERS' CAPITAL
Notes and mortgages payable........................... $ 2,284,009 $ 2,231,897
Revolving credit facility............................. 450,000 425,000
Accounts payable and accrued expenses................. 142,775 130,464
Officer's compensation payable........................ 39,644 38,424
Deferred leasing fee income........................... 7,595 7,852
Other liabilities..................................... 1,725 1,798
-------------- -----------
Total liabilities...................... 2,925,748 2,835,435
-------------- -----------
Minority interest..................................... 16,189 15,462
-------------- -----------
Commitments and contingencies
Partners' Capital:
Equity.......................................... 3,650,285 3,634,913
Accumulated deficit............................. (77,601) (90,366)
-------------- -----------
3,572,684 3,544,547
Accumulated other comprehensive loss............ (7,266) (20,426)
Due from officers for purchase of
limited partnership units of
beneficial interest........................ (4,704) (4,704)
-------------- -----------
Total partners' capital............... 3,560,714 3,519,417
-------------- -----------
TOTAL LIABILITIES AND
PARTNERS' CAPITAL............................... $ 6,502,651 $ 6,370,314
============== ===========
</Table>
See notes to consolidated financial statements.
Page 3
VORNADO REALTY L.P.
CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands except per unit amounts)
For The Three Months For The Six Months
Ended June 30, Ended June 30,
--------------------- -------------------
2001 2000 2001 2000
---------- --------- ---------- --------
Revenues:
Rentals.................................................... $ 212,252 $ 169,107 $ 416,970 $ 336,010
Expense reimbursements..................................... 31,543 28,413 66,635 55,220
Other income (including fee income from related
parties of $514 and $346 in each three month
period and $884 and $667 in each six month period)....... 2,280 1,225 5,080 2,794
--------- --------- ---------- ----------
Total revenues................................................ 246,075 198,745 488,685 394,024
--------- --------- ---------- ----------
Expenses:
Operating.................................................. 96,831 74,366 197,214 150,671
Depreciation and amortization.............................. 30,086 24,687 61,951 47,940
General and administrative................................. 22,415 10,770 36,663 20,967
Costs of acquisitions not consummated....................... -- -- 5,000 --
--------- --------- ---------- ----------
Total expenses................................................ 149,332 109,823 300,828 219,578
--------- --------- ---------- ----------
Operating income.............................................. 96,743 88,922 187,857 174,446
Income applicable to Alexander's.............................. 4,676 4,458 16,980 8,565
Income from partially-owned entities.......................... 19,228 22,681 43,218 45,231
Interest and other investment income.......................... 15,874 4,939 29,347 10,698
Write-off of investments in technology companies.............. (13,561) -- (18,284) --
Interest and debt expense..................................... (43,994) (39,335) (93,389) (78,682)
Net gain on sale of real estate and partially-owned entities.. 12,445 -- 12,445 2,560
Net gain from condemnation proceeding......................... 3,050 -- 3,050 --
Minority interest............................................. (409) (577) (768) (1,067)
--------- --------- ---------- ----------
Income before cumulative effect of change in accounting
principle and extraordinary item............................ 94,052 81,088 180,456 161,751
Cumulative effect of change in accounting principle........... -- -- (4,110) --
--------- --------- ---------- ----------
Extraordinary item............................................ -- -- 1,170 (1,125)
--------- --------- ---------- ----------
Net income.................................................... 94,052 81,088 177,516 160,626
Preferred unit distributions (including accretion of issuance
expenses of $240 and $719 in each three month period
and $958 and $1,438 in each six month period)............... (9,192) (9,672) (18,865) (19,345)
Preferential allocations...................................... (23,576) (21,125) (46,885) (40,467)
--------- --------- ---------- ----------
NET INCOME applicable to Class A Units........................ $ 61,284 $ 50,291 $ 111,766 $ 100,814
========= ========= ========== ==========
NET INCOME PER CLASS A UNIT - BASIC........................... $ .65 .55 $ 1.19 $ 1.10
========= ========= ========== ==========
NET INCOME PER CLASS A UNIT - DILUTED......................... $ .64 .53 $ 1.16 $ 1.08
========= ========= ========== ==========
DIVIDENDS PER CLASS A UNIT.................................... $ .53 .48 $ 1.06 $ .96
========= ========= ========== ==========
See notes to consolidated financial statements.
Page 4
VORNADO REALTY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
For The Six Months Ended June 30,
----------------------------------
2001 2000
--------------- -------------
Cash Flows From Operating Activities:
Net income............................................................... $ 177,516 $ 160,626
Adjustments to reconcile net income to net
cash provided by operations:
Cumulative effect of change in accounting principle................. 4,110 --
Extraordinary item.................................................. (1,170) 1,125
Minority interest................................................... 768 1,067
Net gain on sale of real estate and partially-owned entities........ (12,445) (2,560)
Net gain from condemnation proceeding............................... (3,050) --
Write-off of investments in technology companies.................... 18,284 --
Depreciation and amortization....................................... 61,951 47,940
Straight-lining of rental income.................................... (14,542) (15,183)
Equity in income of Alexander's..................................... (16,980) (8,565)
Equity in net income of partially-owned entities.................... (43,218) (45,231)
Changes in operating assets and liabilities......................... 21,642 (34,668)
----------- -----------
Net cash provided by operating activities................................ 192,866 104,551
----------- -----------
Cash Flows From Investing Activities:
Development costs and construction in progress........................... (74,856) (24,655)
Proceeds from sale of real estate........................................ -- 23,992
Investments in partially-owned entities.................................. (25,221) (45,450)
Distributions from partially-owned entities.............................. 93,032 17,705
Investment in notes and mortgage loans receivable........................ (30,767) (7,595)
Repayment of notes and mortgage loans receivable......................... 6,057 --
Cash restricted for tenant improvements.................................. 27,851 (3,645)
Additions to real estate................................................. (49,326) (49,116)
Purchases of marketable securities ...................................... (9,350) (24,412)
Acquisitions of real estate and other.................................... -- (6,660)
Proceeds from sale of marketable securities ............................. 1,121 --
Real estate deposits and other........................................... 1,493 (1,020)
----------- -----------
Net cash (used in) investing activities.................................. (59,966) (120,856)
----------- -----------
Cash Flows From Financing Activities:
Proceeds from borrowings................................................. 118,853 590,000
Repayments of borrowings................................................. (111,748) (619,444)
Debt issuance costs...................................................... -- (17,996)
Proceeds from issuance of preferred units................................ -- 195,639
Distributions to minority partners....................................... (53,710) (47,144)
Dividends paid on common shares.......................................... (90,992) (82,051)
Dividends paid on preferred shares....................................... (17,926) (17,907)
Exercise of stock options................................................ 5,554 1,715
----------- -----------
Net cash (used in) provided by financing activities...................... (149,969) 2,812
----------- -----------
Net decrease in cash and cash equivalents................................ (17,069) (13,493)
Cash and cash equivalents at beginning of period......................... 136,989 112,630
----------- -----------
Cash and cash equivalents at end of period............................... $ 119,920 $ 99,137
=========== ===========
Supplemental Disclosure Of Cash Flow Information:
Cash payments for interest (including capitalized interest of $7,556 in 2001
and $5,646 in 2000)................................................... $ 95,737 $ 82,381
=========== ===========
Non-Cash Transactions:
Financing assumed in acquisitions........................................ $ -- $ 17,640
Unrealized gain on securities available for sale......................... 2,760 8,039
See notes to consolidated financial statements.
Page 5
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Vornado Realty L.P. (the "Operating Partnership") is a Delaware limited
partnership. Vornado Realty Trust "(Vornado"), a fully-integrated real estate
investment trust ("REIT"), is the sole general partner of, and owned
approximately 86% of the limited partnership common interest in, the Operating
Partnership at June 30, 2001. All references to the "Company" refer to Vornado
and its consolidated subsidiaries.
2. BASIS OF PRESENTATION
The consolidated balance sheet as of June 30, 2001, the consolidated
statements of income for the three and six months ended June 30, 2001 and 2000
and the consolidated statements of changes in cash flows for the six months
ended June 30, 2001 and 2000 are unaudited. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and changes in cash
flows have been made. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted. These condensed consolidated financial statements should
be read in conjunction with the consolidated financial statements and notes
thereto included in the Operating Partnership's annual report on Form 10-K for
the year ended December 31, 2000 as filed with the Securities and Exchange
Commission. The results of operations for the three and six months ended June
30, 2001 are not necessarily indicative of the operating results for the full
year.
The accompanying consolidated financial statements include the accounts of
Vornado Realty L.P., as well as equity interests acquired that individually (or
in the aggregate with prior interests) exceed a 50% interest and the Company
exercises unilateral control. All significant intercompany amounts have been
eliminated. Equity interests in partially-owned entities include partnerships
and joint ventures and are accounted for under the equity method of accounting
as the Company exercises significant influence. These investments are recorded
initially at cost and subsequently adjusted for net equity in income (loss) and
cash contributions and distributions. Prior to January 1, 2001, the Company's
equity interests in partially-owned entities also included investments in
preferred stock affiliates (corporations in which the Company owned all of the
preferred stock and none of the common equity). Ownership of the preferred stock
entitled the Company to substantially all of the economic benefits in the
preferred stock affiliates. On January 1, 2001, the Company acquired the common
stock of the preferred stock affiliates, which was owned by Officers and
Trustees of Vornado, and converted them to taxable REIT subsidiaries.
Accordingly, the Hotel portion of the Hotel Pennsylvania, the Company's
investment in the Park Laurel (including the minority interest for the 20% the
Company does not own) and the management companies (which provide services to
the Company's business segments and operate the Trade Show business of the
Merchandise Mart division) have been consolidated beginning January 1, 2001.
Management has made estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimates.
Certain amounts in the prior year's financial statements have been
reclassified to conform to the current year presentation.
Page 6
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
3. RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and
Hedging Activities, as amended, which establishes accounting and reporting
standards requiring every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded on the balance sheet as
either an asset or liability measured at its fair value. The Statement requires
that changes in the derivative instrument's fair value be recognized currently
in earnings unless specific hedge accounting criteria are met.
The Company's investment securities include stock purchase warrants
received from companies that provide fiber-optic network and broadband access to
the Company's Office division tenants. Statement 133 requires these warrants to
be marked-to-market at each reporting period with the change in value recognized
currently in earnings.
The Company has previously marked-to-market changes in value through
accumulated other comprehensive loss. Under Statement 133, those changes are
recognized through earnings, and accordingly, the Company has reclassed
$4,110,000 from accumulated other comprehensive loss to the consolidated
statement of income as of January 1, 2001. Future changes in value of such
securities will be recorded through earnings.
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
Business Combinations (effective July 1, 2001) and SFAS No, 142, Goodwill and
Other Intangible Assets (effective January 1, 2002). SFAS No. 141 prohibits
pooling-of-interests accounting for acquisitions. SFAS No. 142 specifies that
goodwill and some intangible assets will no longer be amortized but instead be
subject to periodic impairment testing. The Company is in the process of
evaluating the financial statement impact of the adoption of SFAS No. 142.
4. Financings and Dispositions
On January 11, 2001, the Company completed a $105,000,000 refinancing of
its 888 Seventh Avenue office building. The loan bears interest at a fixed rate
of 6.6% and matures on February 11, 2006. A portion of the proceeds received
were used to repay the then existing mortgage of $55,000,000.
On May 17, 2001, the Company sold its 50% interest in 570 Lexington Avenue
for $60,000,000, resulting in a gain of $12,445,000.
In September 1998, Atlantic City condemned the Company's vacant property.
In the third quarter of 1998, the Company recorded a gain of $1,694,000, which
reflected the condemnation award of $3,100,000, net of the carrying value of the
property of $1,406,000. The Company appealed the amount and on June 27, 2001,
was awarded an additional $3,050,000, which has been recorded as a gain in the
quarter ended June 30, 2001.
On June 29, 2001, the Company entered into an agreement to sell its
leasehold interest in 550/600 Mamaroneck Avenue, a 235,000 square foot office
building, for $22,500,000. Vornado's gain on the sale will be approximately
$1,000,000. The sale, which is subject to customary closing conditions, is
expected to be completed in the third quarter of this year.
5. INVESTMENTS AND ADVANCES TO PARTIALLY-OWNED ENTITIES
The Company's investments and advances to partially-owned entities and
income recognized from such investments are as follows:
Investments and Advances
(amounts in thousands) June 30, 2001 December 31, 2000
------------- -----------------
Temperature Controlled Logistics........................ $ 480,455 $ 469,613
Charles E. Smith Commercial Realty L.P. ("CESCR")....... 329,251 325,328
Alexander's............................................. 189,060 178,413
Newkirk Joint Ventures.................................. 181,071 163,157
Hotel Pennsylvania (1).................................. -- 73,531
Partially-Owned Office Buildings (4).................... 23,329 61,002
Vornado Ceruzzi Joint Ventures.......................... 27,542 28,847
Fort Lee................................................ 30,905 28,208
Park Laurel (2)......................................... -- 70,007
Management Companies and Other (2)...................... 17,855 61,105
----------- -----------
$ 1,279,468 $ 1,459,211
=========== ===========
Page 7
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Income For The Three Months For The Six Months
(amounts in thousands) Ended June 30, Ended June 30,
-------------------- -------------------
2001 2000 2001 2000
---------- -------- -------- -------
Income applicable to Alexander's:
33.1% share of equity in income............. $ 535 $ 171 $ 7,691(3) $ 478
Interest Income............................. 2,935 2,942 6,362 5,678
Management and Leasing Fee Income........... 1,206 1,345 2,927(3) 2,409
--------- -------- -------- --------
$ 4,676 $ 4,458 $ 16,980 $ 8,565
========= ======== ======== ========
Temperature Controlled Logistics:
60% share of equity in net income............. $ 2,466 $ 5,585 $ 6,930 $ 13,660
Management fee (40% of 1% per annum of
Total Combined Assets, as defined)......... 1,255 1,357 2,739 2,680
--------- -------- -------- --------
3,721 6,942 9,669 16,340
--------- -------- -------- --------
CESCR-34% share of equity in income............. 6,828 6,589 14,195 13,318
--------- -------- -------- --------
Newkirk Joint Ventures:
Equity in income of limited partnerships.... 6,371 3,377 12,726 6,392
Interest and other income................... 1,590 2,025 3,202 3,346
--------- -------- -------- --------
7,961 5,402 15,928 9,738
--------- -------- -------- --------
Hotel Pennsylvania (1).......................... -- 2,886 -- 3,307
Partially-Owned Office Buildings (4)............ 1,509 978 2,773 1,678
Management Companies and Other.................. (791) (116) 653 850
--------- -------- -------- --------
$ 19,228 $ 2,681 $ 43,218 $45,231
========= ======== ======== ========
- ------------
(1) As of December 31, 2000, the Company owned 100% of the commercial portion
of the building (retail and office space) and 98% of the hotel portion
which was owned through a preferred stock affiliate. On January 1, 2001,
the Company acquired the common stock of the preferred stock affiliate and
converted it to a taxable REIT subsidiary. Accordingly, the hotel portion
is also consolidated in 2001.
(2) On January 1, 2001, the Company acquired the common stock of the preferred
stock affiliates and converted them to taxable REIT subsidiaries.
Accordingly, the Park Laurel and the management companies are consolidated
in 2001.
(3) Equity in income includes $6,298 representing the Company's share of
Alexander's gain on sale of its Fordham Road property on January 12, 2001
and excludes $1,170 representing the Company's share of Alexander's
extraordinary gain on the early extinguishment of debt on this property
which is reflected as an extraordinary item on the consolidated statements
of income. Management and leasing fee income include a fee of $520 paid to
the Company in connection with the sale.
(4) Represents the Company's interests in 330 Madison Avenue (24.8%), and 570
Lexington Avenue (50%). On May 17, 2001, the Company sold its 50% interest
in 570 Lexington Avenue for $60,000,000, resulting in a gain of
$12,445,000 which is not included in income in the table above.
Page 8
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Temperature Controlled Logistics
On February 22, 2001, the Landlord restructured the AmeriCold Logistics
leases to among other things, (i) reduce 2001's contractual rent to
$146,000,000 (the same amount recognized as rental income in 2000), (ii) reduce
2002's contractual rent to $150,000,000 (plus additional contingent rent in
certain circumstances), (iii) increase the Landlord's share of annual
maintenance capital expenditures by $4,500,000 to $9,500,000 effective
January 1, 2000 and (iv) extend the deferred rent period to December 31, 2003
from March 11, 2002.
The tenant has advised the Landlord that (i) its revenue for the current
quarter and six months ended June 30, 2001 from the warehouses it leases from
the Landlord, is lower than last year by 1.1% and 3.3%, and (ii) its gross
profit before rent at these warehouses for the corresponding periods is lower
than last year by $5,971,000 (a 13.2% decline) and $10,183,000 (an 11.4%
decline). These decreases are attributable to a reduction in total customer
inventory stored at the warehouses and customer inventory turns.
Based on the Company's policy of recognizing rental income when earned and
collection is assured or cash is received, the Company did not recognize
$2,340,000 of income for the quarter and six months ended June 30, 2001 and
$2,400,000 of income for the quarter and six months ended June 30, 2000. At June
30, 2001, the Company's balance of the tenant's total deferred rent is
$15,806,000 (Does not include $1,174,000 applicable to the receivable arising
from the straight-lining of rents which was deferred in the year ended December
31, 2000).
Alexander's
Alexander's is managed by and its properties are leased by the Company,
pursuant to agreements with a one-year term expiring in March of each year which
are automatically renewable.
At June 30, 2001, the Company has loans receivable from Alexander's of
$119,000,000, including $24,000,000 under the $50,000,000 line of credit the
Company granted to Alexander's on August 1, 2000. On March 15, 2001, the
interest rate on these loans was reset from 15.72% to 13.74%, using the same
spread to treasuries as previously used.
On January 12, 2001, Alexander's sold its Fordham Road property for
$25,500,000, which resulted in a gain of $19,026,000, of which the Company's
share was $6,298,000. In addition, Alexander's paid off the mortgage on this
property at a discount, which resulted in an extraordinary gain from the early
extinguishment of debt of $3,534,000, of which the Company's share was
$1,170,000. The Company also received a commission of $520,000 in connection
with this sale.
On June 1, 2001, Alexander's completed a $223,000,000 ten-year mortgage
loan collateralized by its Kings Plaza Shopping Center. The note bears interest
at a rate of 7.46%. A portion of the proceeds was used to repay the existing
$115,210,000 mortgage loan.
6. OTHER RELATED PARTY TRANSACTIONS
The Company currently manages and leases the real estate assets of
Interstate Properties pursuant to a management agreement. Management fees earned
by the Company pursuant to the management agreement were $514,000 and $200,000
for the three months ended June 30, 2001 and 2000, and $884,000 and $387,000 for
the six months ended June 30, 2001 and 2000.
The Mendik Group owns an entity, which provides cleaning and related
services and security services to office properties, including the Company's
Manhattan office properties. The Company was charged fees in connection with
these contracts of $12,725,000 and $11,485,000 for the three months ended June
30, 2001 and 2000, and $25,625,000 and $23,418,000 for the six months ended June
30, 2001 and 2000.
Page 9
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
7. PARTNERS'S CAPITAL
The following table sets forth the details of partners' capital at June
30, 2001 and December 31, 2000.
Outstanding Units at Preferred
---------------------------- Per Unit or Annual Conversion
June 31, December 31, Liquidation Distribution Rate Into
Unit Series 2001 2000 Preference Rate Class A Units
------------ ------------- ----------- ------------ -------------
Convertible Preferred:
Series A......................... 5,788,855 5,789,239 $ 50.00 $ 3.25 --
5.0% B-1 Convertible Preferred... 899,566 899,566 $ 50.00 $ 2.50 .914
8.0% B-2 Convertible Preferred... 449,783 449,783 $ 50.00 $ 4.00 .914
6.5% C-1 Convertible Preferred... 747,912 747,912 $ 50.00 $ 3.25 1.1431
6.5% E-1 Convertible Preferred... 4,998,000 4,998,000 $ 50.00 $ 3.25(a) 1.1364
Perpetual Preferred: (b)
Series B......................... 3,400,000 3,400,000 $ 25.00 $ 2.125 --
Series C......................... 4,600,000 4,600,000 $ 25.00 $ 2.125 --
8.5% D-1 Cumulative
Redeemable Preferred........... 3,500,000 3,500,000 $ 25.00 $ 2.125 N/A
8.375% D-2 Cumulative Redeemable
Preferred...................... 549,336 549,336 $ 50.00 $ 4.1875 N/A
8.25% D-3 Cumulative Redeemable
Preferred...................... 8,000,000 8,000,000 $ 25.00 $ 2.0625 N/A
8.25% D-4 Cumulative Redeemable
Preferred...................... 5,000,000 5,000,000 $ 25.00 $ 2.0625 N/A
8.25% D-5 Cumulative Redeemable
Preferred...................... 7,480,000 7,480,000 $ 25.00 $ 2.0625 N/A
8.25% D-6 Cumulative Redeemable
Preferred...................... 840,000 840,000 $ 25.00 $ 2.0625 N/A
8.25% D-7 Cumulative Redeemable
Preferred...................... 7,200,000 7,200,000 $ 25.00 $ 2.0625 N/A
8.25% D-8 Cumulative Redeemable
Preferred...................... 360,000 360,000 $ 25.00 $ 2.0625 N/A
---------- ----------
53,813,452 53,813,836
========== ==========
General Partnership Interest (c)
Limited Partnership Units:
Class A (d)...................... 95,289,218(e) 93,260,519(e) -- $ 2.12 N/A
Class D.......................... 864,259 869,387 -- $ 2.12 1.0 (f)
---------- ----------
96,153,477 94,129,906
========== ==========
- ----------
(a) Increases to $3.38 in March 2007.
(b) Convertible at the option of the holder for an equivalent amount of the
Company's preferred shares and redeemable at the Company's option after
the 5th anniversary of the date of issuance (ranging from December 1998 to
December 2000).
(c) Vornado is the sole general partner.
(d) Class A units are redeemable at the option of the holder for common shares
of beneficial interest in Vornado, on a one-for-one basis, or at the
Company's option for cash.
(e) Included in Class A units are 88,661,224 and 86,803,770 units owned by the
general partner at June 30, 2001 and December 31, 2000, respectively.
(f) Class D unitholders participate in distributions at an annual rate of
$2.12, then pari passu with Class A. Based on the current level of
dividends, Class D units will convert into Class A units in the third
quarter of 2001.
Page 10
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
8. INCOME PER CLASS A UNIT
The following table sets forth the computation of basic and diluted income
per Class A unit:
For The Three Months For The Six Months
Ended June 30, Ended June 30,
------------------------- ----------------------
2001 2000 2001 2000
------------- ---------- ------------ --------
(amounts in thousands except per unit amounts)
Numerator:
Income before cumulative effect of change in
accounting principle and extraordinary item....... $ 94,052 $ 81,088 $ 180,456 $ 161,751
Cumulative effect of change in accounting
principle......................................... -- -- (4,110) --
Extraordinary item.................................. -- -- 1,170 (1,125)
----------- ----------- --------- ----------
Net income.......................................... 94,052 81,088 177,516 160,626
Preferential allocations............................ (23,576) (21,125) (46,885) (40,467)
Unit distributions.................................. (9,192) (9,672) (18,865) (19,345)
----------- ----------- --------- ----------
Numerator for basic and diluted income per
Class A unit - net income applicable to Class A units $ 61,284 $ 50,291 $ 111,766 $ 100,814
=========== =========== ========= ==========
Denominator:
Denominator for basic income per Class A unit -
weighted average units............................ 93,638 92,651 93,591 92,039
Effect of dilutive securities:
Employee unit options............................. 2,701 2,347 2,637 1,689
----------- ----------- --------- ----------
Denominator for diluted income per Class A unit -
adjusted weighted average units and
assumed conversions............................... 96,339 94,998 96,228 93,728
=========== =========== ======== =========
INCOME PER CLASS A UNIT- BASIC:
Income before cumulative effect of change in
accounting principle and extraordinary item..... $ .65 $ .55 $ 1.23 $ 1.11
Cumulative effect of change in accounting
principle....................................... -- -- (.05) --
Extraordinary item................................ -- -- .01 (.01)
----------- ----------- --------- ----------
Net income per Class A unit....................... $ .65 $ .55 1.19 1.10
=========== =========== ======== ==========
INCOME PER CLASS A UNIT- DILUTED:
Income before cumulative effect of change in
accounting principle and extraordinary item..... $ .64 $ .53 $ 1.20 $ 1.09
Cumulative effect of change in accounting
principle...................................... -- -- (.05) --
Extraordinary item................................ -- -- .01 (.01)
----------- ----------- -------- ----------
Net income per Class A unit....................... $ .64 $ .53 $ 1.16 $ 1.08
=========== ============ ======== ==========
Page 11
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
9. COMPREHENSIVE INCOME
The following table sets forth the Company's comprehensive income:
(amounts in thousands) For The Three Months For The Six Months
Ended June 30, Ended June 30,
------------------------ ----------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Net income applicable to Class A units................. $ 61,284 $ 50,291 $ 111,766 $ 100,814
Adjustment to record cumulative effect of change
in accounting principle............................ -- -- 4,110 --
Other comprehensive income............................. 8,532 (54,456)(1) 9,050 (2,256)(1)
----------- -------- --------- ---------
Comprehensive income................................... $ 69,816 $ (4,165) $ 124,926 $ $98,558
=========== ======== ========= =========
- ----------
(1) Primarily reflects the fluctuations in the market value of Vornado's
investments in companies that provide fiber-optic networks and broadband
access to the Company's Office division tenants. In the first quarter of
2000, the Company was required to record the unrealized appreciation on
such securities of $52,779. In the second quarter of 2000, the value of
these securities decreased by $54,456 and accordingly, the Company was
required to record such decrease.
10. WRITE-OFF OF EQUITY INVESTMENTS IN TECHNOLOGY COMPANIES
In the first quarter of 2001, the Company recorded a charge of $4,723,000
resulting from the write-off of an equity investment in a technology company. In
the second quarter of 2001, the Company recorded an additional charge of
$13,561,000 resulting from the write-off of all of its remaining equity
investments in technology companies due to both the deterioration of the
financial condition of these companies and the lack of acceptance by the market
of certain of their products and services.
11. COSTS OF ACQUISITIONS NOT CONSUMMATED
The Company was unable to reach a final agreement with the Port Authority
of NY & NJ to conclude a net lease of the World Trade Center. In the three
months ended March 31, 2001, the Company wrote-off costs of $5,000,000 primarily
associated with the World Trade Center.
12. COMMITMENTS AND CONTINGENCIES
At June 30, 2001, in addition to the $450 million outstanding under the
Company's revolving credit facility, the Company had utilized $84.7 million of
availability under the facility for letters of credit and guarantees.
Each of the Company's properties has been subjected to varying degrees of
environmental assessment at various times. The environmental assessments did not
reveal any material environmental contamination. However, there can be no
assurance that the identification of new areas of contamination, changes in the
extent or known scope of contamination, the discovery of additional sites, or
changes in cleanup requirements would not result in significant costs to the
Company.
From time-to-time, the Company has disposed of substantial amounts of real
estate to third parties for which, as to certain properties, it remains
contingently liable for rent payments or mortgage indebtedness.
There are various legal actions against the Company in the ordinary course
of business. In the opinion of management, after consultation with legal
counsel, the outcome of such matters will not have a material effect on the
Company's financial condition, results of operations or cash flow.
Page 12
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
13. SEGMENT INFORMATION
The Company has four business segments: Office, Retail, Merchandise Mart
Properties and Temperature Controlled Logistics. Prior to this year, income from
the Company's preferred stock affiliates was included in Income from
partially-owned entities. On January 1, 2001, the Company acquired the common
stock of its preferred stock affiliates and converted these entities to taxable
REIT subsidiaries. Accordingly, the Hotel portion of the Hotel Pennsylvania, the
Company's investment in the Park Laurel (including the minority interest for the
20% the Company does not own) and the management companies (which provide
services to the Company's business segments and operate the Trade Show business
of the Merchandise Mart division) have been consolidated. Net income and EBITDA
for the three and six months ended June 30, 2000 have been restated on a pro
forma basis to reflect these entities as if consolidated as of January 1, 2000.
For The Three Months Ended June 30,
------------------------------------------------------
(amounts in thousands) 2001
-------------------------------------------------------
Merchandise
Total Office Retail Mart
------------ --------- ---------- --------------
Rentals......................... $212,252 $ 114,260 $ 30,232 $ 50,118
Expense reimbursements.......... 31,543 15,920 11,145 3,858
Other income.................... 2,280 813 542 818
-------- --------- --------- ----------
Total revenues.................. 246,075 130,993 41,919 54,794
-------- --------- --------- ----------
Operating expenses.............. 96,831 51,684 13,797 21,662
Depreciation and amortization... 30,086 17,300 4,347 6,064
General and administrative...... 22,415 2,637 24 4,650
-------- --------- --------- ----------
Total expenses.................. 149,332 71,621 18,168 32,376
-------- --------- --------- ----------
Operating income................ 96,743 59,372 23,751 22,418
Income applicable to Alexander's 4,676 -- -- --
Income from partially-owned
entities....................... 19,228 8,365 495 (4)
Interest and other investment
income......................... 15,874 1,897 416 714
Write-off of investments in
technology companies........... (13,561) -- -- --
Interest and debt expense....... (43,994) (14,407) (14,264) (8,317)
Net gain on sale of real
estate and partially-owned
entities....................... 12,445 12,445 -- --
Net gain from condemnation
proceeding..................... 3,050 -- 3,050 --
Minority Interest............... (409) (409) -- --
-------- --------- --------- ----------
Net Income...................... 94,052 67,263 13,448 14,811
Minority Interest............... 409 409 -- --
Net gain on sale of real estate
and partially-owned entities .. (12,445) (12,445) -- --
Net gain from condemnation
proceeding..................... (3,050) -- (3,050) --
Interest and debt expense(3) ... 67,151 24,859 14,906 8,317
Depreciation and amortization(3) 45,918 21,992 4,612 6,064
Straight-lining of rents(3) ... (6,339) (4,050) (534) (1,280)
Other.......................... 2,997 (1,130) -- --
-------- --------- --------- ----------
EBITDA(1)...................... $188,693 $ 96,898 $ 29,382 $ 27,912
======== ========= ========= ==========
For The Three Months Ended June 30,
----------------------------------------------------------------------------------------------
(amounts in thousands) 2001 2000 (Pro Forma)
------------------------ -------------------------------------------------------------------
Temperature Temperature
Controlled Merchandise Controlled
Logistics Other(2) Total Office Retail Mart Logistics Other(2)
---------- ---------- -------- ------- -------- -------------- ------------ -------
Rentals........................ $ -- $17,642 $196,600 $98,651 $31,784 $ 46,113 $ -- $20,052
Expense reimbursements......... -- 620 28,412 14,194 10,404 2,649 -- 1,165
Other income................... -- 107 4,109 724 848 1,182 -- 1,355
---------- ------- -------- ------- ------- ----------- ----------- -------
Total revenues................. -- 18,369 229,121 113,569 43,036 49,944 -- 22,572
---------- ------- -------- ------- ------- ----------- ----------- -------
Operating expenses............. -- 9,688 90,981 45,743 13,427 20,567 -- 11,244
Depreciation and amortization . -- 2,375 26,387 13,934 4,635 5,448 -- 2,370
General and administrative..... -- 15,104 17,280 3,244 418 4,680 -- 8,938
---------- ------- -------- ------- ------- ----------- ----------- -------
Total expenses................. -- 27,167 134,648 62,921 18,480 30,695 -- 22,552
---------- ------- -------- ------- ------- ----------- ----------- -------
Operating income............... -- (8,798) 94,473 50,648 24,556 19,249 -- 20
Income applicable to Alexander's -- 4,676 4,458 -- -- -- -- 4,458
Income from partially-owned
entities...................... 3,721(6) 6,651 18,261 7,403 222 -- 6,942(6) 3,694
Interest and other investment
income........................ -- 12,847 4,694 260 5 52 -- 4,377
Write-off of investments in
technology companies.......... -- (13,561) -- -- -- -- -- --
Interest and debt expense...... -- (7,006) (40,221) (13,810) (13,851) (9,558) -- (3,002)
Net gain on sale of real
estate and partially-owned
entities...................... -- -- -- -- -- -- -- --
Net gain from condemnation
proceeding.................... -- -- -- -- -- -- -- --
Minority Interest.............. -- -- (577) (577) -- -- -- --
---------- ------- -------- ------- ------- ----------- ----------- -------
Net Income..................... 3,721 (5,191) 81,088 43,924 10,932 9,743 6,942 9,547
Minority Interest.............. -- -- 577 577 -- -- -- --
Net gain on sale of real estate
and partially-owned entities . -- -- -- -- -- -- -- --
Net gain from condemnation
proceeding.................... -- -- -- -- -- -- -- --
Interest and debt expense(3)... 6,773 12,296 62,962 22,964 14,494 9,558 7,307 8,639
Depreciation and amortization(3) 8,403 4,847 40,932 18,343 5,483 5,021 8,005 4,080
Straight-lining of rents(3).... -- (475) (6,349) (3,985) (709) (1,485) (282) 112
Other.......................... 69 4,058 2,707 -- -- -- 294 2,413
---------- ------- -------- ------- ------- --------- ---------- -------
EBITDA(1)...................... $ 18,966 $15,535 $181,917 $81,823 $30,200 $ 22,837 $ 22,266 $24,791
========== ======= ======== ======= ======= ========= ========== =======
- -----------
See footnotes 1-6 on page 15.
Page 13
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
For The Six Months Ended June 30,
----------------------------------------------------------------------------
(amounts in thousands) 2001
----------------------------------------------------------------------------
Temperature
Merchandise Controlled
Total Office Retail Mart Logistics Other(2)
---------- ---------- --------- ----------- ----------- ---------
Rentals........................ $ 416,970 $ 228,120 $ 59,336 $ 97,123 $ -- $ 32,391
Expense reimbursements......... 66,635 34,961 22,440 7,831 -- 1,403
Other income................... 5,080 1,385 1,971 1,537 -- 187
---------- ---------- --------- ----------- ----------- ---------
Total revenues................. 488,685 264,466 83,747 106,491 -- 33,981
---------- ---------- --------- ----------- ----------- ---------
Operating expenses............. 197,214 107,445 29,209 42,794 -- 17,766(4)
Depreciation and amortization.. 61,951 35,944 8,810 12,506 -- 4,691
General and administrative..... 36,663 6,007 47 9,245 -- 21,364
Costs of acquisitions not
consummated................ 5,000 -- -- -- -- 5,000
---------- ---------- --------- ----------- ----------- ---------
Total expenses................. 300,828 149,396 38,066 64,545 -- 48,821
---------- ---------- --------- ----------- ----------- ---------
Operating income............... 187,857 115,070 45,681 41,946 -- (14,840)
Income applicable to
Alexander's................... 16,980 -- -- -- -- 16,980
Income from partially-owned
entities...................... 43,218 17,060 2,392 109 9,669(6) 13,988
Interest and other investment
income........................ 29,347 4,195 416 1,377 -- 23,359
Write-off of investments in
technology companies.......... (18,284) -- -- -- -- (18,284)
Interest and debt expense...... (93,389) (31,014) (28,413) (17,986) -- (15,976)
Net gain on sale of real estate
and partially-owned entities.. 12,445 12,445 -- -- -- --
Net gain from condemnation
proceeding................... 3,050 -- 3,050 -- -- --
Minority Interest.............. (768) (768) -- -- -- --
---------- ---------- --------- ----------- ----------- ---------
Income before cumulative effect
of change in accounting
principle and extraordinary
item.......................... 180,456 116,988 23,126 25,446 9,669 5,227
Cumulative effect of change in
accounting principle.......... (4,110) -- -- -- -- (4,110)
Extraordinary item............. 1,170 -- -- -- -- 1,170
---------- ---------- --------- ----------- ----------- ---------
Net income..................... 177,516 116,988 23,126 25,446 9,669 2,287
Cumulative effect of change in
accounting principle.......... 4,110 -- -- -- -- 4,110
Extraordinary item............. (1,170) -- -- -- -- (1,170)
Minority Interest.............. 768 768 -- -- -- --
Net gain on sale of real estate
and partially-owned entities.. (12,445) (12,445) -- -- -- --
Net gain from condemnation
proceeding................... (3,050) -- (3,050) -- -- --
Interest and debt expense(3)... 140,405 52,306 29,697 17,986 13,486 26,930
Depreciation and
amortization(3)............... 93,836 45,636 9,339 12,506 16,811 9,544
Straight-lining of rents(3).... (14,076) (10,005) (695) (2,388) -- (988)
Other.......................... (7,560) (3,220) -- -- 181 (4,521)(5)
---------- ---------- --------- ----------- ----------- ---------
EBITDA(1)...................... $378,334 $ 190,028 $ 58,417 $ 53,550 $ 40,147 $ 36,192
========== ========== ========= =========== =========== =========
<Caption>
June 30, 2001
------------------------------------------------------------------------------
Temperature
Merchandise Controlled
Total Office Retail Mart Logistics Other(2)
---------- ---------- --------- ----------- ----------- ---------
Balance sheet data:
Real estate, net........... $4,134,190 $2,436,196 $ 621,998 $ 873,666 $ -- $ 202,330
Investments and advances to
partially-owned entities. 1,279,468 353,512 29,758 6,684 480,455 409,059
Capital expenditures
Acquisitions............. -- -- -- -- -- --
Other.................... 124,182 48,488 2,641 26,621 -- 46,432
For The Six Months Ended June 30,
--------------------------------------------------------------------------------
(amounts in thousands) 2000 (Pro Forma)
--------------------------------------------------------------------------------
Temperature
Merchandise Controlled
Total Office Retail Mart Logistics Other(2)
---------- -------- -------- ---------- ------------- ----------
Rentals........................ $379,144 $195,679 $ 63,749 $ 83,985 $ -- $ 35,731
Expense reimbursements......... 55,219 26,126 21,943 5,640 -- 1,510
Other income................... 8,193 1,749 1,164 2,780 -- 2,500
---------- -------- -------- ---------- ------------- ----------
Total revenues................. 442,556 223,554 86,856 92,405 -- 39,741
---------- -------- -------- ---------- ------------- ----------
Operating expenses............. 175,939 91,884 28,159 34,892 -- 21,004
Depreciation and amortization.. 51,235 27,286 8,624 10,885 -- 4,440
General and administrative..... 31,708 6,008 479 8,166 -- 17,055
Costs of acquisitions not
consummated................ -- -- -- -- -- --
---------- -------- -------- ---------- ------------- ----------
Total expenses................. 258,882 125,178 37,262 53,943 -- 42,499
---------- -------- -------- ---------- ------------- ----------
Operating income............... 183,674 98,376 49,594 38,462 -- (2,758)
Income applicable to Alexander's 8,565 -- -- -- -- 8,565
Income from partially-owned
entities...................... 38,114 15,128 499 -- 16,340(6) 6,147
Interest and other investment
income....................... 10,482 644 8 163 -- 9,667
Write-off of investments in
technology companies.......... -- -- -- -- -- --
Interest and debt expense...... (80,577) (28,133) (24,656) (17,905) -- (9,883)
Net gain on sale of real estate
and partially-owned entities.. 2,560 -- 2,560 -- -- --
Net gain from condemnation
proceeding................... -- -- -- -- -- --
Minority Interest.............. (1,067) (1,067) -- -- -- --
---------- -------- -------- ---------- ------------- ----------
Income before cumulative effect
of change in accounting
principle and extraordinary item 161,751 84,948 28,005 20,720 16,340 11,738
Cumulative effect of change in
accounting principle.......... -- -- -- -- -- --
Extraordinary item............. (1,125) -- (1,125) -- -- --
---------- -------- -------- ---------- ------------- ----------
Net income..................... 160,626 84,948 26,880 20,720 16,340 11,738
Cumulative effect of change in
accounting principle.......... 1,125 -- 1,125 -- -- --
Extraordinary item............. -- -- -- -- -- --
Minority Interest.............. 1,067 1,067 -- -- -- --
Net gain on sale of real estate
and partially-owned entities.. (2,560) -- (2,560) -- -- --
Net gain from condemnation
proceeding................... -- -- -- -- -- --
Interest and debt expense(3)... 124,622 46,152 25,954 17,905 14,037 20,574
Depreciation and amortization(3) 80,309 36,299 9,785 10,048 16,334 7,843
Straight-lining of rents(3).... (13,781) (9,286) (1,386) (2,764) (809) 464
Other.......................... 3,981 -- -- -- 809 3,172
--------- -------- -------- ---------- ----------- ----------
EBITDA(1)...................... $355,389 $159,180 $ 59,798 $ 45,909 $ 46,711 $ 43,791
========= ======== ======== ========= =========== ==========
<Caption>
December 31, 2000
-------------------------------------------------------------------------------
Temperature
Merchandise Controlled
Total Office Retail Mart Logistics Other(2)
---------- ---------- --------- ----------- ----------- ---------
Balance sheet data:
Real estate, net........... $3,901,055 $2,388,393 551,183 $ 862,003 $ -- $ 99,476
Investments and advances to
partially-owned entities. 1,459,211 394,089 31,660 41,670 469,613 522,179
Capital expenditures
Acquisitions............. 246,500 128,000 -- 89,000 -- 29,500
Other.................... 200,181 106,689 7,251 37,362 28,582 20,297
- ----------
See footnotes 1-6 on the next page.
Page 14
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Notes to segment information:
(1) EBITDA represents income before interest, taxes, depreciation and
amortization, extraordinary or non-recurring items, gains or losses
on sales of real estate, the effect of straight-lining of property
rentals for rent escalations and minority interest. Management
considers EBITDA a supplemental measure for making decisions and
assessing the performance of its segments. EBITDA may not be
comparable to similarly titled measures employed by other companies.
(2) Other EBITDA is comprised of:
(amounts in thousands) For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------- -------------------
2001 2000 2001 2000
----------- -------- --------- -------
Hotel Pennsylvania............................. $ 6,141 $ 7,634 $ 11,421(4) $11,061
Newkirk Joint Ventures:
Equity in income of limited partnerships..... 12,107 9,514 26,708 19,926
Interest and other income.................... 1,590 2,025 3,202 3,346
Other partially-owned entities (Alexander's and
other)....................................... 4,834 3,987 9,639 8,654
Write-off of investments in technology
companies.................................. (13,561) -- (18,284) --
Unallocated general and administrative
expenses................................... (9,187) (8,025) (16,720) (13,837)
Costs of acquisitions not consummated.......... -- -- (5,000) --
Investment income and other.................... 13,611 9,656 25,226 14,641
------- -------- -------- -------
Total................................. $15,535 $24,791 $36,192 $43,791
======= ======== ======== =======
(3) Interest and debt expense, depreciation and amortization and
straight-lining of rents included in the reconciliation of net
income to EBITDA reflects amounts which are netted in income from
partially-owned entities.
(4) Includes a $1,900 settlement from a tenant for rent previously
reserved.
(5) Includes the reversal of $6,298 representing the Company's share of
Alexander's gain on sale of its Fordham Road property on January 12,
2001.
(6) Net of rent not recognized of $2,340 for the three and six months
ended June 30, 2001 and $2,400 for the three and six months ended
June 30, 2000.
Page 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(All of the amounts presented are in thousands, except share amounts and
percentages)
Certain statements contained herein constitute forward-looking statements
as such term is defined in Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Certain factors could cause actual results to differ materially from those in
the forward-looking statements. Factors that might cause such a material
difference include, but are not limited to, (a) changes in the general economic
climate, (b) local conditions such as an oversupply of space or a reduction in
demand for real estate in the area, (c) conditions of tenants, (d) competition
from other available space, (e) increased operating costs and interest expense,
(f) the timing of and costs associated with property improvements, (g) changes
in taxation or zoning laws, (h) government regulations, (i) failure of Vornado
to continue to qualify as a REIT, (j) availability of financing on acceptable
terms, (k) potential liability under environmental or other laws or regulations,
and (l) general competitive factors.
OVERVIEW
Below is a summary of net income and EBITDA(1) by segment for the three and
six months ended June 30, 2001 and 2000. Prior to this year, income from the
Company's preferred stock affiliates was included in income from partially-owned
entities. On January 1, 2001, the Company acquired the common stock of its
preferred stock affiliates and converted these entities to taxable REIT
subsidiaries. Accordingly, the Hotel portion of the Hotel Pennsylvania, the
Company's investment in the Park Laurel (including the minority interest for the
20% the Company does not own) and the management companies (which provide
services to the Company's business segments and operate the Trade Show business
of the Merchandise Mart division) have been consolidated. Net income and EBITDA
for the three and six months ended June 30, 2000 have been restated on a pro
forma basis to reflect these entities as if consolidated as of January 1, 2000.
Three Months Ended June 30, 2001
--------------------------------------------------------------------------------
Temperature Other(2)
Merchandise Controlled
Total Office Retail Mart Logistics
-------- ------- ------- ----------- ------------ ---------
Rentals....................................... $212,252 $114,260 $30,232 $ 50,118 $ -- $17,642
Expense reimbursements........................ 31,543 15,920 11,145 3,858 -- 620
Other income.................................. 2,280 813 542 818 -- 107
-------- -------- ------- ----------- ------------ ---------
Total revenues................................ 246,075 130,993 41,919 54,794 -- 18,369
-------- -------- ------- ----------- ------------ ---------
Operating expenses............................ 96,831 51,684 13,797 21,662 -- 9,688
Depreciation and amortization................. 30,086 17,300 4,347 6,064 -- 2,375
General and administrative.................... 22,415 2,637 24 4,650 -- 15,104
-------- -------- ------- ----------- ------------ ---------
Total expenses................................ 149,332 71,621 18,168 32,376 -- 27,167
-------- -------- ------- ----------- ------------ ---------
Operating income.............................. 96,743 59,372 23,751 22,418 -- (8,798)
Income applicable to Alexander's.............. 4,676 -- -- -- -- 4,676
Income from partially-owned entities.......... 19,228 8,365 495 (4) 3,721(4) 6,651
Interest and other investment income.......... 15,874 1,897 416 714 -- 12,847
Write-off of investments in technology
companies.................................... (13,561) -- -- -- -- (13,561)
Interest and debt expense..................... (43,994) (14,407) (14,264) (8,317) -- (7,006)
Net gain on sale of real estate and partially-
owned entities............................... 12,445 12,445 -- -- -- --
Net gain from condemnation proceeding......... 3,050 -- 3,050 -- -- --
Minority interest............................. (409) (409) -- -- -- --
-------- -------- ------- ----------- ------------ ------
Net income.................................... 94,052 67,263 13,448 14,811 3,721 (5,191)
Minority interest............................. 409 409 -- -- -- --
Net gain on sale of real estate and partially-
owned entities............................... (12,445) (12,445) -- -- -- --
Net gain from condemnation proceeding......... (3,050) -- (3,050) -- -- --
Interest and debt expense(3).................. 67,151 24,859 14,906 8,317 6,773 12,296
Depreciation and amortization(3).............. 45,918 21,992 4,612 6,064 8,403 4,847
Straight-lining of rents(3)................... (6,339) (4,050) (534) (1,280) -- (475)
Other......................................... 2,997 (1,130) -- -- 69 4,058(5)
-------- -------- ------- ----------- ------------ -------
EBITDA(1)..................................... $188,693 $96,898 $29,382 $ 27,912 $ 18,966 $15,535
======== ========= ======= ========= =========== =======
Page 16
Three Months Ended June 30, 2000 (Pro Forma)
------------------------------------------------------------------------------
Temperature
Merchandise Controlled
Total Office Retail Mart Logistics Other(2)
-------- ------- -------- ----------- ----------- --------
Rentals......................................... $196,600 $98,651 $ 31,784 $ 46,113 $ -- $ 20,052
Expense reimbursements.......................... 28,412 14,194 10,404 2,649 -- 1,165
Other income.................................... 4,109 724 848 1,182 -- 1,355
-------- ------- -------- -------- ------- --------
Total revenues.................................. 229,121 113,569 43,036 49,944 -- 22,572
-------- ------- -------- -------- ------- --------
Operating expenses.............................. 90,981 45,743 13,427 20,567 -- 11,244
Depreciation and amortization................... 26,387 13,934 4,635 5,448 -- 2,370
General and administrative...................... 17,280 3,244 418 4,680 -- 8,938
-------- ------- -------- -------- ------- --------
Total expenses.................................. 134,648 62,921 18,480 30,695 -- 22,552
-------- ------- -------- -------- ------- --------
Operating income................................ 94,473 50,648 24,556 19,249 -- 20
Income applicable to Alexander's................ 4,458 -- -- -- -- 4,458
Income from partially-owned entities............ 18,261 7,403 222 -- 6,942(4) 3,694
Interest and other investment income............ 4,694 260 5 52 -- 4,377
Interest and debt expense....................... (40,221) (13,810) (13,851) (9,558) -- (3,002)
Minority Interest............................... (577) (577) -- -- -- --
-------- ------- -------- -------- ------- --------
Net Income...................................... 81,088 43,924 10,932 9,743 6,942 9,547
Minority Interest............................... 577 577 -- -- -- --
Interest and debt expense(3).................... 62,962 22,964 14,494 9,558 7,307 8,639
Depreciation and amortization(3)................ 40,932 18,343 5,483 5,021 8,005 4,080
Straight-lining of rents(3)..................... (6,349) (3,985) (709) (1,485) (282) 112
Other........................................... 2,707 -- -- -- 294 2,413
-------- ------- -------- -------- ------- --------
EBITDA(1)....................................... $181,917 $81,823 $ 30,200 $ 22,837 $22,266 $ 24,791
======== ======= ======== ======== ======= ========
- ----------
(1) EBITDA represents income before interest, taxes, depreciation and
amortization, extraordinary or non-recurring items, gains or losses on
sales of real estate, the effect of straight-lining of property rentals
for rent escalations and minority interest. Management considers EBITDA a
supplemental measure for making decisions and assessing the performance of
its segments. EBITDA may not be comparable to similarly titled measures
employed by other companies.
(2) Other EBITDA is comprised of:
For the Three Months Ended
June 30,
--------------------------
2001 2000
-------- --------
Hotel Pennsylvania............................ $ 6,141 $ 7,634
Newkirk Joint Ventures:
Equity in income of limited partnerships..... 12,107 9,514
Interest and other income.................... 1,590 2,025
Other partially-owned entities (Alexander's
and other).................................. 4,834 3,987
Write-off of investments in technology companies (13,561) --
Unallocated general and administrative
expenses.................................. (9,187) (8,025)
Investment income and other................... 13,611 9,656
-------- --------
Total................................ $ 15,535 $ 24,791
======== ========
(3) Interest and debt expense, depreciation and amortization and
straight-lining of rents included in the reconciliation of net income to
EBITDA reflects amounts which are netted in income from partially-owned
entities.
(4) Net of rent not recognized of $2,340 in the three and six months ended
June 30, 2001 and $2,400 in the three and six months ended June 30, 2000.
(5) Includes the reversal of $2,952 of expenses incurred in connection with a
deferred compensation arrangement.
Page 17
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2001 AND JUNE 30, 2000
Below are the details of the changes by segment in EBITDA.
Temperature
Merchandise Controlled
Total Office Retail Mart Logistics Other
-------- -------- -------- ----------- ----------- --------
Three months ended June 30, 2000..... $181,917 $ 81,823 $ 30,200 $ 22,837 $ 22,266 $ 24,791
2001 Operations:
Same store operations(1)........ 10,725 10,243 695 1,600 (3,300)(3) 1,487
Acquisitions, dispositions and
non-recurring income
and expenses................. (3,949) 4,832 (1,513) 3,475 -- (10,743)(4)
-------- -------- -------- -------- -------- --------
Three months ended June 30, 2001..... $188,693 $ 96,898(2) $ 29,382 $ 27,912 $ 18,966 $15,535
======== ======== ======== ======== ======== ========
% increase in same
store operations.............. 5.9% 12.5%(2) 2.3% 7.0% (14.8%)(3) 6.0%
- -----------
(1) Represents operations which were owned for the same period in each year
and excludes non-recurring income and expenses.
(2) EBITDA and the same store percentage increase was $75,998 and 15.0% for the
New York City office portfolio and $20,900 and 3.7% for the CESCR
portfolio.
(3) The Company reflects its 60% share of the Vornado/Crescent Partnerships'
("the Landlord") equity in the rental income it receives from AmeriCold
Logistics, its tenant, which leases the underlying temperature controlled
warehouses used in its business. On February 22, 2001, the Landlord
restructured the AmeriCold Logistics leases to among other things, (i)
reduce 2001's contractual rent to $146,000 (the same amount recognized as
rental income in 2000), (ii) reduce 2002's contractual rent to $150,000
(plus additional contingent rent in certain circumstances), (iii) increase
the Landlord's share of annual maintenance capital expenditures by $4,500
to $9,500 effective January 1, 2000 and (iv) extend the deferred rent
period to December 31, 2003 from March 11, 2002.
The tenant has advised the Landlord that (i) its revenue for the current
quarter and six months ended June 30, 2001 from the warehouses it leases
from the Landlord, is lower than last year by 1.1% and 3.3%, and (ii) its
gross profit before rent at these warehouses for the corresponding periods
is lower than last year by $5,971 (a 13.2% decline) and $10,183 (an 11.4%
decline). These decreases are attributable to a reduction in total customer
inventory stored at the warehouses and customer inventory turns.
Based on the Company's policy of recognizing rental income when earned and
collection is assured or cash is received, the Company did not recognize
$2,340 of income for the quarter and six months ended June 30, 2001 and
$2,400 of income for the quarter and six months ended June 30, 2000. At
June 30, 2001, the Company's balance of the tenant's total deferred rent is
$15,806 (Does not include $1,174 applicable to the receivable arising from
the straight-lining of rents which was deferred in the year ended December
31, 2000).
(4) Includes $13,561 resulting from the write-off of all of the Company's
remaining equity investments in technology companies.
Page 18
Revenues
The Company's revenues, which consist of property rentals, tenant expense
reimbursements, hotel revenues, trade shows revenues and other income were
$246,075 for the three months ended June 30, 2001, compared to $229,121 in the
prior year's quarter, an increase of $16,954. This increase by segment resulted
from:
Date of Merchandise
Property Rentals: Acquisition Total Office Retail Mart Other
----------- -------- ------- -------- ----------- ----------
Acquisitions:
7 West 34th Street.......... November 2000 $ 3,648 $ 3,648 $ -- $ -- $ --
33 North Dearborn Street.... September 2000 1,395 -- -- 1,395 --
L.A. Mart................... October 2000 2,971 -- -- 2,971 --
Dispositions and other......... (2,419) -- (2,419)(1) -- --
Leasing activity............... 12,908 11,961 867 577 (497)(2)
-------- -------- -------- -------- -------
Total increase in property
Rentals..................... 18,503 15,609 (1,552) 4,943 (497)
-------- -------- -------- -------- -------
Tenant expense reimbursements:
Increase in tenant expense
reimbursements due to
acquisitions/dispositions... 1,736 1,176 (445) 1,005 --
Other.......................... 1,395 550 1,186 204 (545)(2)
-------- -------- -------- -------- -------
Total increase in tenant
expense reimbursements...... 3,131 1,726 741 1,209 (545)
-------- -------- -------- -------- -------
Hotel activity................... (1,913) -- -- -- (1,913)
Trade shows activity............. (938) -- -- (938) --
Other income..................... (1,829) 89 (306) (364) (1,248)
-------- -------- -------- -------- -------
Total increase in revenues....... $ 16,954 $ 17,424 $ (1,117) $ 4,850 $(4,203)
======== ======== ======== ======== =======
- ----------
(1) Results primarily from Bradlees rejection of its lease at the 14th Street
and Union Square property on February 9, 2001.
(2) Results primarily from the termination of the Sports Authority lease at the
Hotel Pennsylvania in January 2001.
See supplemental information on page 29 for further details.
Page 19
Expenses
The Company's expenses were $149,332 for the three months ended June 30,
2001, compared to $134,648 in the prior year's quarter, an increase of $14,684.
This increase by segment resulted from:
Merchandise
Total Office Retail Mart Other
----- ------ ------ ---- -----
Operating:
Acquisitions............. $ 2,922 $ 1,644 $ (597) $ 1,875 $ --
Same store operations.... 2,928 4,297 967 (780) (1,556)
-------- --------- ------- -------- ---------
5,850 5,941 370 1,095 (1,556)
======== ========= ======= ======== =========
Depreciation and
amortization:
Acquisitions............. 938 683 (241) 496 --
Same store operations.... 2,761 2,683 (47) 120 5
-------- --------- ------- -------- ---------
3,699 3,366 (288) 616 5
======== ========= ======= ======== =========
General and administrative:
Appreciation in value of
Vornado shares and other
securities held in
officer's deferred
compensation trust....... 4,162 -- -- -- 4,162
Other expenses............. 973 (607) (394) (30) 2,004
-------- --------- ------- -------- ---------
5,135 (607) (394) (30) 6,166
-------- --------- ------- -------- ---------
$ 14,684 $ 8,700 $ (312) $ 1,681 $ 4,615
======== ========= ======= ======== =========
</Table>
Income from partially-owned entities was $19,228 in the three months ended
June 30, 2001, compared to $18,261 in the prior year's quarter, an increase of
$967. This increase by segment resulted from:
<Table>
<Caption>
Temperature
Merchandise Controlled
Total Office Retail Mart Logistics Other
----- ------ ------ ---- --------- -----
Increase (decrease) in equity in income:
Temperature Controlled
Logistics....................... $ (3,221) $ -- $ -- $ -- $ (3,221) $ --
Charles E. Smith
Commercial Realty L.P............. 239 239 -- -- -- --
Newkirk Joint Ventures.............. 2,559 -- -- -- -- 2,559
Partially-owned
office buildings.................. 531 531 -- -- -- --
Other............................... 859 192 273 (4) -- 398
-------- ------- ------ --------- ---------- -------
$ 967 $ 962 $ 273 $ (4) $ (3,221) $ 2,957
======== ======= ====== ========= ========== =======
</Table>
Page 20
Interest and other investment income (interest income on mortgage loans
receivable, other interest income, dividend income and net gains on sale of
marketable securities) was $15,874 for the three months ended June 30, 2001,
compared to $4,694 the prior year's quarter, an increase of $11,180. This
increase resulted primarily from the acquisition of NorthStar subordinated
unsecured debt (22% effective rate) on September 19, 2000 and a loan to
Primestone Investment Partners, L.P. (20% effective rate) on September 28, 2000.
In the three months ended June 30, 2001, the Company recorded a charge of
$13,561 resulting from the write-off of all of its remaining equity investments
in technology companies due to both the deterioration of the financial condition
of these companies and the lack of acceptance by the market of certain of their
products and services.
Interest and debt expense was $43,994 for the three months ended June 30,
2001, compared to $40,221 in the prior year's quarter, an increase of $3,773.
This increase resulted from interest on higher average outstanding loan
balances, partially offset by a $6,148 savings from a 90 basis point reduction
in weighted average interest rates of variable rate debt.
In June 2001, the Company recorded a net gain of $12,445 on the sale of
its 50% interest in 570 Lexington Avenue and a net gain of $3,050 in connection
with the final settlement of the 1998 condemnation of its Atlantic City
Property.
Preferential allocations were $23,576 for the three months ended June 30,
2001, compared to $21,125 in the prior year's quarter, an increase of $2,451.
This increase is primarily due to the issuance of perpetual preferred units in
connection with acquisitions.
Page 21
Six Months Ended June 30, 2001 and June 30, 2000
<Table>
<Caption>
For The Six Months Ended June 30, 2001
-----------------------------------------------------------------------------
Temperature
Merchandise Controlled
Total Office Retail Mart Logistics Other(2)
----- ------ ------ ---- --------- --------
Rentals ................................. $ 416,970 $ 228,120 $ 59,336 $ 97,123 $ -- $ 32,391
Expense reimbursements .................. 66,635 34,961 22,440 7,831 -- 1,403
Other income ............................ 5,080 1,385 1,971 1,537 -- 187
--------- --------- --------- --------- --------- ---------
Total revenues .......................... 488,685 264,466 83,747 106,491 -- 33,981
--------- --------- --------- --------- --------- ---------
Operating expenses ...................... 197,214 107,445 29,209 42,794 -- 17,766(4)
Depreciation and amortization ........... 61,951 35,944 8,810 12,506 -- 4,691
General and administrative .............. 36,663 6,007 47 9,245 -- 21,364
Costs of acquisitions not consummated ... 5,000 -- -- -- -- 5,000
--------- --------- --------- --------- --------- ---------
Total expenses .......................... 300,828 149,396 38,066 64,545 -- 48,821
--------- --------- --------- --------- --------- ---------
Operating income ........................ 187,857 115,070 45,681 41,946 -- (14,840)
Income applicable to Alexander's ........ 16,980 -- -- -- -- 16,980
Income from partially-owned entities .... 43,218 17,060 2,392 109 9,669(6) 13,988
Interest and other investment income .... 29,347 4,195 416 1,377 -- 23,359
Write-off of investments in technology
companies .............................. (18,284) -- -- -- -- (18,284)
Interest and debt expense ............... (93,389) (31,014) (28,413) (17,986) -- (15,976)
Net gain on sale of real estate and
partially-owned entities .............. 12,445 12,445 -- -- -- --
Net gain from condemnation
proceeding ............................ 3,050 -- 3,050 -- -- --
Minority Interest ....................... (768) (768) -- -- -- --
--------- --------- --------- --------- --------- ---------
Income before cumulative effect of change
in accounting principle and
extraordinary item ..................... 180,456 116,988 23,126 25,446 9,669 5,227
Cumulative effect of change in accounting
principle .............................. (4,110) -- -- -- -- (4,110)
Extraordinary item ...................... 1,170 -- -- -- -- 1,170
--------- --------- --------- --------- --------- ---------
Net Income .............................. 177,516 116,988 23,126 25,446 9,669 2,287
Cumulative effect of change in
accounting principle ................... 4,110 -- -- -- -- 4,110
Extraordinary item ...................... (1,170) -- -- -- -- (1,170)
Minority Interest ....................... 768 768 -- -- -- --
Net gain on sale of real estate and
partially-owned entities .............. (12,445) (12,445) -- -- -- --
Net gain from condemnation
proceeding ............................ (3,050) -- (3,050) -- -- --
Interest and debt expense(3) ............ 140,405 52,306 29,697 17,986 13,486 26,930
Depreciation and amortization(3) ........ 93,836 45,636 9,339 12,506 16,811 9,544
Straight-lining of rents(3) ............. (14,076) (10,005) (695) (2,388) -- (988)
Other ................................... (7,560) (3,220) -- -- 181 (4,521)(5)
--------- --------- --------- --------- --------- ---------
EBITDA(1) ............................... $ 378,334 $ 190,028 $ 58,417 $ 53,550 $ 40,147 $ 36,192
========= ========= ========= ========= ========= =========
</Table>
- -----------
See footnotes on page 23.
Page 22
<Table>
<Caption>
For the Six Months Ended June 30, 2000 (Pro Forma)
----------------------------------------------------------------------------
Temperature
Merchandise Controlled
Total Office Retail Mart Logistics Other(2)
----- ------ ------ ---- --------- --------
Rentals ................................. $ 379,144 $ 195,679 $ 63,749 $ 83,985 $ -- $ 35,731
Expense reimbursements .................. 55,219 26,126 21,943 5,640 -- 1,510
Other income ............................ 8,193 1,749 1,164 2,780 -- 2,500
--------- --------- --------- --------- --------- ---------
Total revenues .......................... 442,556 223,554 86,856 92,405 -- 39,741
--------- --------- --------- --------- --------- ---------
Operating expenses ...................... 175,939 91,884 28,159 34,892 -- 21,004
Depreciation and amortization ........... 51,235 27,286 8,624 10,885 -- 4,440
General and administrative .............. 31,708 6,008 479 8,166 -- 17,055
Costs of acquisitions not consummated ... -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Total expenses .......................... 258,882 125,178 37,262 53,943 -- 42,499
--------- --------- --------- --------- --------- ---------
Operating income ........................ 183,674 98,376 49,594 38,462 -- (2,758)
Income applicable to Alexander's ........ 8,565 -- -- -- -- 8,565
Income from partially-owned entities .... 38,114 15,128 499 -- 16,340(6) 6,147
Interest and other investment income .... 10,482 644 8 163 -- 9,667
Interest and debt expense ............... (80,577) (28,133) (24,656) (17,905) -- (9,883)
Net gain on sale of real estate ......... 2,560 -- 2,560 -- -- --
Minority Interest ....................... (1,067) (1,067) -- -- -- --
--------- --------- --------- --------- --------- ---------
Income before cumulative effect of change
in accounting principle and
extraordinary item ..................... 161,751 84,948 28,005 20,720 16,340 11,738
Cumulative effect of change in accounting
principle .............................. -- -- -- -- -- --
Extraordinary item ...................... (1,125) -- (1,125) -- -- --
--------- --------- --------- --------- --------- ---------
Net Income .............................. 160,626 84,948 26,880 20,720 16,340 11,738
Extraordinary item ...................... 1,125 -- 1,125 -- -- --
Cumulative effect of change in accounting
principle ........................... -- -- -- -- -- --
Minority Interest ....................... 1,067 1,067 -- -- -- --
Net gain on sale of real estate ......... (2,560) -- (2,560) -- -- --
Interest and debt expense(3) ............ 124,622 46,152 25,954 17,905 14,037 20,574
Depreciation and amortization(3) ........ 80,309 36,299 9,785 10,048 16,334 7,843
Straight-lining of rents(3) ............. (13,781) (9,286) (1,386) (2,764) (809) 464
Other ................................... 3,981 -- -- -- 809 3,172
--------- --------- --------- --------- --------- ---------
EBITDA(1) ............................... $ 355,389 $ 159,180 $ 59,798 $ 45,909 $ 46,711 $ 43,791
========= ========= ========= ========= ========= =========
</Table>
- ----------
(1) EBITDA represents income before interest, taxes, depreciation and
amortization, extraordinary or non-recurring items, gains or losses on
sales of real estate, the effect of straight-lining of property rentals
for rent escalations and minority interest. Management considers EBITDA a
supplemental measure for making decisions and assessing the performance of
its segments. EBITDA may not be comparable to similarly titled measures
employed by other companies.
(2) Other EBITDA is comprised of:
<Table>
<Caption>
For the Six Months Ended
June 30,
------------------------
2001 2000
----------- ----------
Hotel Pennsylvania....................................... $ 11,421(4) $ 11,061
Newkirk Joint Ventures:
Equity in income of limited partnerships............... 26,708 19,926
Interest and other income.............................. 3,202 3,346
Other partially-owned entities (Alexander's and other)... 9,639 8,654
Write-off of investments in technology companies......... (18,284) --
Unallocated general and administrative expenses.......... (16,720) (13,837)
Costs of acquisitions not consummated.................... (5,000) --
Investment income and other.............................. 25,226 14,641
--------- ---------
Total........................................... $ 36,192 $ 43,791
========= =========
</Table>
(3) Interest and debt expense, depreciation and amortization and
straight-lining of rents included in the reconciliation of net income to
EBITDA reflects amounts which are netted in income from partially-owned
entities.
(4) Includes a $1,900 settlement from a tenant for rent previously reserved.
(5) Includes the reversal of $6,298 representing the Company's share of
Alexander's gain on sale of its Fordham Road property on January 12, 2001.
(6) Net of rent not recognized of $2,340 in the three and six months ended
June 30, 2001 and $2,400 in the three and six months ended June 30, 2000.
Page 23
Below are the details of the changes by segment in EBITDA.
<Table>
<Caption>
Temperature
Merchandise Controlled
Total Office Retail Mart Logistics Other
----- ------ ------ ---- --------- -----
Six months ended
June 30, 2000 ........ $355,389 $159,180 $ 59,798 $ 45,909 $ 46,711 $ 43,791
2000 Operations:
Same store operations(1) 20,600 19,833 1,394 3,241 (6,564)(3) 2,696
Acquisitions and other .. 2,345 11,015 (2,775) 4,400 -- (10,295)(4)
-------- -------- -------- -------- -------- --------
Six months ended
June 30, 2001 ........ $378,334 $190,028(2) $ 58,417 $ 53,550 $ 40,147 $ 36,192
======== ======== ======== ======== ======== ========
% increase in same
store operations ... 5.8% 12.5%(2) 2.3% 7.1% (14.1%)(3) 6.2%
</Table>
- ----------
(1) Represents operations which were owned for the same period in each year
and excludes non-recurring income and expenses.
(2) EBITDA and the same store percentage increase was $147,528 and 14.9% for
the New York City office portfolio and $42,500 and 4.0% for the CESCR
portfolio.
(3) The Company reflects its 60% share of the Vornado/Crescent Partnerships'
("the Landlord") equity in the rental income it receives from AmeriCold
Logistics, its tenant, which leases the underlying temperature controlled
warehouses used in its business. On February 22, 2001, the Landlord
restructured the AmeriCold Logistics leases to among other things, (i)
reduce 2001's contractual rent to $146,000 (the same amount recognized as
rental income in 2000), (ii) reduce 2002's contractual rent to $150,000
(plus additional contingent rent in certain circumstances), (iii) increase
the Landlord's share of annual maintenance capital expenditures by $4,500
to $9,500 effective January 1, 2000 and (iv) extend the deferred rent
period to December 31, 2003 from March 11, 2002.
The tenant has advised the Landlord that (i) its revenue for the current
quarter and six months ended June 30, 2001 from the warehouses it leases
from the Landlord, is lower than last year by 1.1% and 3.3%, and (ii) its
gross profit before rent at these warehouses for the corresponding periods
is lower than last year by $5,971 (a 13.2% decline) and $10,183 (an 11.4%
decline). These decreases are attributable to a reduction in total
customer inventory stored at the warehouses and customer inventory turns.
Based on the Company's policy of recognizing rental income when earned and
collection is assured or cash is received, the Company did not recognize
$2,340 of income for the quarter and six months ended June 30, 2001 and
$2,400 of income for the quarter and six months ended June 30, 2000. At
June 30, 2001, the Company's balance of the tenant's total deferred rent
is $15,806 (Does not include $1,174 applicable to the receivable arising
from the straight-lining of rents which was deferred in the year ended
December 31, 2000).
(4) Includes $18,284 resulting from the write-off of all of the Company's
remaining equity investments in technology companies.
Page 24
Revenues
The Company's revenues, which consist of property rentals, tenant expense
reimbursements, hotel revenues, trade shows revenues and other income were
$488,685 in the six months ended June 30, 2001, compared to $442,556 in the
prior year's six months, an increase of $46,129. This increase by segment
resulted from:
<Table>
<Caption>
Date of Merchandise
Acquisition Total Office Retail Mart Other
----------- ----- ------ ------ ---- -----
Property Rentals:
Acquisitions:
7 West 34th Street........ November 2000 $ 7,296 $ 7,296 $ -- $ -- $ --
33 North Dearborn Street.. September 2000 2,810 -- -- 2,810 --
L.A. Mart................. October 2000 6,010 -- -- 6,010 --
Dispositions and other....... (5,475) -- (5,475)(1) -- --
Leasing activity............. 26,723 25,145 1,062 2,025 (1,509)
-------- -------- -------- ----------- --------
Total increase in property
rentals.................... 37,364 32,441 (4,413) 10,845 (1,509)(2)
-------- -------- -------- ----------- --------
Tenant expense reimbursements:
Increase in tenant expense
reimbursements due to
acquisitions/dispositions. 2,463 2,019 (445)(1) 889 --
Other........................ 8,953 6,816 942 1,302 (107)
-------- -------- -------- ----------- --------
Total increase in tenant
expense reimbursements.... 11,416 8,835 497 2,191 (107)
-------- -------- -------- ----------- --------
Hotel activity................ (1,831) -- -- -- (1,831)
Trade shows activity.......... 2,293 -- -- 2,293 --
Other income.................. (3,113) (364) 807 (1,243) (2,313)
-------- -------- -------- ----------- --------
Total increase in revenues.... $ 46,129 $ 40,912 $ (3,109) $ 14,086 $ (5,760)
======== ========= ======== =========== ========
</Table>
- ----------
(1) Results primarily from Bradlees rejection of its lease at 14th Street and
Union Square on February 9, 2001 and the sale of the Company's Texas
properties on March 2, 2000.
(2) Results primarily from the termination of the Sports Authority lease at
the Hotel Pennsylvania in January 2001.
See Supplemental Information on page 29.
Expenses
The Company's expenses were $300,828 in the six months ended June 30, 2001
compared to $258,882 in the prior year's six months, an increase of $41,946.
This increase by segment resulted from:
<Table>
<Caption>
Merchandise
Total Office Retail Mart Other
----- ------ ------ ---- -----
Operating:
Acquisitions.............. $ 7,322 $ 3,138 $ (597) $ 4,781 $ --
Same store operations..... 13,953 12,423 1,647 3,121 (3,238)(1)
-------- -------- ------- --------- ---------
21,275 15,561 1,050 7,902 (3,238)
-------- -------- ------- --------- ---------
Depreciation and
amortization:
Acquisitions.............. 2,005 1,269 (241) 977 --
Same store operations..... 8,711 7,389 427 644 251
-------- -------- ------- --------- ---------
10,716 8,658 186 1,621 251
-------- -------- ------- --------- ---------
General and administrative:
Depreciation in value of
Vornado's shares and other
securities held in Officer's
deferred compensation
trust..................... 302 -- -- -- 302
Other expenses............... 4,653(2) (1) (432) 1,079 4,007
-------- -------- ------- --------- ---------
4,955 (1) (432) 1,079 4,309
-------- -------- ------- --------- ---------
Costs of acquisitions not
consummated.................. 5,000 -- -- -- 5,000(3)
-------- -------- ------- --------- ---------
$ 41,946 $ 24,218 $ 804 $ 10,602 $ 6,322
======== ======== ======= ========= =========
</Table>
- ----------
(1) Includes a $1,900 settlement from a tenant for rent previously reserved.
(2) Higher payroll expenses, partially offset by lower professional fees.
(3) Primarily associated with the World Trade Center.
Page 25
Income applicable to Alexander's (loan interest income, equity in income
and depreciation) was $16,980 in the six months ended June 30, 2001, compared to
$8,565 in the prior year's six months, an increase of $8,415. This increase
resulted primarily from the Company's share of Alexander's gain on sale of its
Fordham Road property on January 12, 2001.
Income from partially-owned entities was $43,218 in the six months ended
June 30, 2001, compared to $38,114 in the prior year's six months, an increase
of $5,104. This increase by segment resulted from:
<Table>
<Caption>
Temperature
Merchandise Controlled
Total Office Retail Mart Logistics Other
----- ------ ------ ---- --------- -----
Increase (decrease) in equity
in income:
Temperature Controlled
Logistics............... $(6,671) $ -- $ -- $ -- $ (6,671) $ --
CESCR..................... 877 877 -- -- -- --
Newkirk Joint Ventures.... 6,190 -- -- -- -- 6,190
Partially-owned office
buildings............... 1,095 1,095 -- -- -- --
Other..................... 3,613 (40) 1,893 109 -- 1,651
------- ------ ------ -------- ---------- ------
$ 5,104 $1,932 $1,893 $ 109 $ (6,671) $7,841
======= ====== ====== ======== ========== ======
</Table>
Interest and other investment income (interest income on mortgage loans
receivable, other interest income, dividend income and net gains on sale of
marketable securities) was $29,347 for the six months ended June 30, 2001,
compared to $10,482 in the prior year's six months, an increase of $18,865. This
increase resulted primarily from the acquisition of NorthStar subordinated
unsecured debt (22% effective rate) on September 19, 2000 and a loan to
Primestone Investment Partners, L.P. (20% effective rate) on September 28, 2000.
The Company recorded a charge of $18,284 this year resulting from the
write-off of all of its remaining equity investments in technology companies due
to both the deterioration of the financial condition of these companies and the
lack of acceptance by the market of certain of their products and services.
Interest and debt expense was $93,389 for the six months ended June 30,
2001, compared to $80,577 in the prior year's six months, an increase of
$12,812. This increase resulted from interest on higher average outstanding loan
balances, partially offset by a $8,219 savings from a 60 basis point reduction
in weighted average interest rates on variable rate debt.
In June 2001, the Company recorded a net gain of $12,445 on the sale of
its 50% interest in 570 Lexington Avenue and a net gain of $3,050 in connection
with the final settlement of the 1998 condemnation of its Atlantic City
property.
The Company recorded the cumulative effect of a change in accounting
principle of $4,110 in the first quarter of 2001. The Company had previously
marked-to-market changes in value of stock purchase warrants through accumulated
other comprehensive loss. Under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended, those changes are recognized
through earnings, and accordingly, the Company has reclassed $4,110 from
accumulated other comprehensive loss to the consolidated statement of income as
of January 1, 2001. Future changes in value of such securities will be recorded
through earnings.
The Company recorded an extraordinary item of $1,170 in the first quarter
of 2001 representing the Company's share of Alexander's extraordinary gain from
early extinguishment of debt. The Company incurred an extraordinary loss of
$1,125 in the first quarter of 2000 due to the write-off of unamortized
financing costs in connection with the prepayment of debt.
Preferential allocations were $46,885 for the six months ended June 30,
2000, compared to $40,467 in the prior year's six months, an increase of $6,418.
This increase is primarily due to the issuance of perpetual preferred units.
Page 26
LIQUIDITY AND CAPITAL RESOURCES
SIX MONTHS ENDED JUNE 30, 2001
Cash flows provided by operating activities of $192,866 was primarily
comprised of (i) income of $177,516 and (ii) adjustments for non-cash items of
$9,203 and (iii) the net change in operating assets and liabilities of $21,642.
The adjustments for non-cash items are primarily comprised of (i) cumulative
effect of change in accounting principle of $4,110, (ii) the write-off of equity
investments in technology of $18,284, (iii) depreciation and amortization of
$61,951 and (iv) minority interest of $768, partially offset by (v) the effect
of straight-lining of rental income of $14,542 and (vi) equity in net income of
partially-owned entities and income applicable to Alexander's of $60,198.
Net cash used in investing activities of $59,966 was primarily comprised
of (i) recurring capital expenditures of $26,490, (ii) non-recurring capital
expenditures of $22,836 (iii) development and redevelopment expenditures of
$74,856, (iv) investment in notes and mortgages receivable of $30,767, (v)
investments in partially-owned entities of $25,221 partially offset by, (vi)
distributions from partially-owned entities of $93,032 and (vii) a decrease in
restricted cash arising primarily from the repayment of mortgage escrows of
$27,851.
Net cash used in financing activities of $149,969 was primarily comprised
of (i) proceeds from borrowings of $118,853, partially offset by, (ii)
repayments of borrowings of $111,748, (iii) dividends paid on common shares of
$90,992, (iv) dividends paid on preferred shares of $17,926, and (v)
distributions to minority partners of $53,710.
Below are the details of capital expenditures, leasing commissions and
development and redevelopment expenditures.
Capital expenditures are categorized as follows:
Recurring -- capital improvements expended to maintain a property's
competitive position within the market and tenant improvements and leasing
commissions for costs to release expiring leases or renew or extend
existing leases.
Non-recurring -- capital improvements completed in the year of
acquisition and the following two years (which were planned at the time of
acquisition) and tenant improvements and leasing commissions for space
which was vacant at the time of acquisition of a property.
Development and Redevelopment expenditures include all hard and soft costs
associated with the development or redevelopment of a property, including tenant
improvements, leasing commissions and capitalized interest and operating costs
until the property is substantially complete and ready for its intended use.
<Table>
<Caption>
New York City Merchandise
Total Office Retail Mart Other
----- ------ ------ ---- -----
Capital Expenditures:
Expenditures to maintain the
assets:
Recurring ................... $ 8,268 $ 4,937 $ 412 $ 1,187 $ 1,732
Non-recurring ............... 19,732 10,523 -- 3,259 5,950
------- ------- ------- ------- -------
28,000 15,460 412 4,446 7,682
------- ------- ------- ------- -------
Tenant improvements:
Recurring ................... 18,222 15,242 265 2,715 --
Non-recurring ............... 3,104 3,104 -- -- --
------- ------- ------- ------- -------
21,326 18,346 265 2,715 --
------- ------- ------- ------- -------
Total .......................... $49,326 $33,806 $ 677 $ 7,161 $ 7,682
======= ======= ======= ======= =======
Leasing Commissions:
Recurring ................... $ 6,090 $ 5,710 $ 195 $ 48 $ 137
Non-recurring ............... -- -- -- -- --
------- ------- ------- ------- -------
$ 6,090 $ 5,710 $ 195 $ 48 $ 137
======= ======= ======= ======= =======
Development and Redevelopment:
Expenditures: (1)
Park Laurel (80% interest) . $29,212 $ -- $-- $ -- $29,212
Market Square on Main Street 17,597 -- -- 17,597 --
Other ...................... 28,047 14,682 1,964 1,863 9,538
------- ------- ------- ------- -------
$74,856 $14,682 $ 1,964 $19,460 $38,750
======= ======= ======= ======= =======
</Table>
- -----------
(1) Does not include $60,951 of Fort Lee development costs during the six
months ended June 30, 2001, which were funded by a construction loan.
Page 27
SIX MONTHS ENDED JUNE 30, 2000
Cash flows provided by operating activities of $104,551 was primarily
comprised of (i) income of $160,626 offset by (ii) adjustments for non-cash
items of $18,847 and (iii) the net change in operating assets and liabilities of
$34,669. The adjustments for non-cash items are primarily comprised of (i)
depreciation and amortization of $47,940 and (ii) minority interest of $1,067,
partially offset by (iii) the effect of straight-lining of rental income of
$15,183 and (iv) equity in net income of partially-owned entities and income
applicable to Alexander's of $53,796.
Net cash used in investing activities of $120,856 was primarily comprised
of (i) capital expenditures of $73,771 (see detail below), (ii) investment in
notes and mortgages receivable of $7,595 (loan to Vornado Operating Company),
(iii) acquisitions of real estate of $6,660 (see detail below), (iv) investments
in partially-owned entities of $45,450 (see detail below), partially offset by
(vi) proceeds from the sale of real estate of $23,992 and distributions from
partially-owned entities of $17,705.
Acquisitions of real estate and investments in partially-owned entities
are comprised of:
<Table>
<Caption>
Debt
Cash Assumed Investment
---- ------- ----------
Real Estate:
Student Housing Complex (90% Interest) ..... $ 6,660 $17,640 $24,300
======= ======= =======
Investments in Partially-Owned Entities:
Vornado Ceruzzi Joint Venture (80% interest) $18,220 $ -- $18,220
Funding of Development Expenditures:
Fort Lee ................................. 8,875 -- 8,875
Park Laurel .............................. 15,587 -- 15,587
Other ...................................... 2,768 -- 2,768
------- ------- -------
$45,450 $ -- $45,450
======= ======= =======
<Caption>
Capital expenditures were comprised of:
New York Merchandise
Total City Office Retail Mart Other
----- ----------- ------ ---- -----
Expenditures to maintain the assets ......... $ 8,068 $ 5,182 $ 331 $ 2,195 $ 360
Tenant allowances ........................... 31,672 27,080 2,497 2,095 --
Redevelopment expenditures .................. 24,655 13,759 1,585 9,311 --
Corporate (primarily relocation of offices) . 9,376 -- -- -- 9,376
------- ------- ------- ------- -------
$73,771 $46,021 $ 4,413 $13,601 $ 9,736
======= ======= ======= ======= =======
</Table>
Net cash provided by financing activities of $2,812 was primarily
comprised of (i) proceeds from borrowings of $590,000, (ii) proceeds from
issuance of preferred units of $195,639, partially offset by, (iii) repayments
of borrowings of $619,444, (iv) dividends paid on common shares of $82,051, (v)
dividends paid on preferred shares of $17,907, and (vi) distributions to
minority partners of $47,144.
Page 28
SUPPLEMENTAL INFORMATION
Below are the details of the changes by segment in EBITDA for the three
months ended June 30, 2001 and March 31, 2001.
<Table>
<Caption>
Temperature
Merchandise Controlled
Total Office Retail Mart Logistics Other
----- ------ ------ ---- --------- -----
Three months ended
March 31, 2001 .................. $ 189,641 $ 93,130 $ 29,035 $ 25,638 $ 21,181 $ 20,657
2001 Operations:
Same store operations(1) ........ 7,588 6,543 347 2,274(3) (2,215) 639(3)
Acquisitions, dispositions and
other non-recurring income and
expenses ..................... (8,536) (2,775) -- -- -- (5,761)
--------- --------- --------- --------- --------- ---------
Three months ended
June 30, 2001 ................... $ 188,693 $ 96,898(2) $ 29,382 $ 27,912 $ 18,966 $ 15,535
========= ========= ========= ========= ========= =========
% increase in same
store operations .............. 4.0% 7.0%(2) 1.2% 8.9% (10.5%) 3.1%
</Table>
(1) Represents operations which were owned for the same period in each year
and excludes non-recurring income and expenses.
(2) Same store percentage increase was 8.5% for the New York City office
portfolio, and 2.2% for the CESCR portfolio.
(3) Reflects seasonality of the Merchandise Mart trade show business and the
Hotel Pennsylvania which is included in Other.
The following table sets forth certain information for the properties the
Company owns directly or indirectly, including leasing activity for space
previously occupied:
<Table>
<Caption>
Office Merchandise Mart
--------------------- ----------------------- Temperature
New York Controlled
City CESCR Retail Office(1) Showroom(1) Logistics
---- ----- ------ --------- ----------- ---------
As of June 30, 2001:
Square feet ............................... 14,465 4,249 11,301 2,869 5,044 17,569
Cubic feet ................................ -- -- -- -- -- 440,200
Number of properties ...................... 22 50 55 9 9 88
Occupancy rate ............................ 95% 96% 92% 90% 97% 74%(5)
Leasing Activity:
For the quarter ended
June 30, 2001:
Square feet ....................... 116 108 161(3) -- 58 --
Rent per square foot:
Initial rent (2) ................ $ 43.19 $ 32.55 $ 13.32 -- $ 24.28 --
Prior escalated rent ............ $ 31.30 $ 27.05 $ 13.22 -- $ 22.33 --
Percentage increase ............. 38% 20% 1% -- 9% --
For the six months ended June 30, 2001:
Square feet ....................... 510(4) 430 248(3) 10 162 --
Rent per square foot:
Initial rent (2) ................ $ 46.93 $ 31.50 $ 15.90 $ 28.35 $ 23.37 --
Prior escalated rent ............ $ 31.37 $ 25.06 $ 15.16 $ 24.78 $ 20.67 --
Percentage increase ............. 50% 26% 5% 14% 13% --
As of March 31, 2001:
Square feet ............................... 14,410 4,248 11,300 2,869 5,044 17,495
Cubic feet ................................ -- -- -- -- -- 438,900
Number of properties ...................... 22 50 55 9 9 88
Occupancy rate ............................ 97% 98% 92% 91% 98% 73%(5)
</Table>
Page 29
<Table>
As of December 31, 2000:
Square feet .......... 14,396 4,248 11,293 2,869 5,044 17,495
Cubic feet ........... -- -- -- -- -- 438,900
Number of properties . 22 50 55 9 9 88
Occupancy rate ....... 96% 98% 92% 90% 98% 82%
As of June 30, 2000:
Square feet .......... 14,200 3,782 11,960 2,739 4,317 18,073
Cubic feet ........... -- -- -- -- -- 454,500
Number of properties . 22 41 56 7 7 92
Occupancy rate ....... 97% 98% 94% 89% 99% 82%
</Table>
- ----------
(1) The office and showroom space is contained in the same mixed-use
properties.
(2) Most leases include periodic step-ups in rent, which are not reflected in
the initial rent per square foot leased.
(3) Does not reflect the assignment to new tenants (Kohls, 83,000 square feet,
and Giant Foods, 85,000 square feet) of two former Bradlees leases, which
continue to be subject to the guarantee of Stop & Shop Companies, Inc.,
under a Master Agreement and Guaranty, dated May 1, 1992.
(4) In addition to the above, the Company leased 27,000 square feet of retail
space at $221.03 per square foot.
(5) The tenant has advised the Landlord that (i) its revenue for the current
quarter and six months ended June 30, 2001 from the warehouses it leases
from the Landlord, is lower than last year by 1.1% and 3.3%, and (ii) its
gross profit before rent at these warehouses for the corresponding periods
is lower than last year by $5,971 (a 13.2% decline) and $10,183 (an 11.4%
decline). These decreases are attributable to a reduction in total
customer inventory stored at the warehouses and customer inventory turns.
Page 30
Below are the cash flows provided by (used in) operating, investing and
financing activities:
<Table>
<Caption>
For the Six Months Ended June 30,
----------------------------------
2001 2000
------------ -----------
Operating activities................. $ 192,866 $ 104,551
=========== ===========
Investing activities................. $ (59,966) $ (120,856)
=========== ===========
Financing activities................. $ (149,969) $ 2,812
=========== ===========
</Table>
FINANCINGS
The Company anticipates that cash from continuing operations will be
adequate to fund business operations and the payment of dividends and
distributions on an on-going basis for more than the next twelve months;
however, capital outlays for significant acquisitions would require funding from
borrowings or equity offerings.
Page 31
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company's exposure to a change in interest rates on its wholly-owned
and partially-owned debt (all of which arises out of non-trading activity) is as
follows:
($ in thousands, except per unit amounts)
<Table>
<Caption>
June 30, 2001 December 31, 2000
--------------------------------------------- --------------------------
Weighted Effect of 1% Weighted
Average Change In Average
Balance Interest Rate Base Rates Balance Interest Rate
------- ------------- ---------- ------- -------------
Wholly-owned debt:
Variable rate.................. $ 1,581,042 5.23% $ 14,575(1) $ 1,593,751 8.00%
Fixed rate..................... 1,152,967 7.57% -- 1,063,146 7.61%
------------ ----------- -----------
$ 2,734,009 6.22% 14,575 $ 2,656,897
============ ----------- ===========
Partially-owned debt:
Variable rate.................. $ 144,671 6.53% 1,447 $ 204,462 8.40%
Fixed rate..................... 1,197,976 7.08% -- 1,123,926 7.54%
------------ ----------- -----------
$ 1,342,647 7.02% 1,447 $ 1,328,388
=========== ----------- ===========
Preferential allocations.............. (2,323)
-----------
Total decrease in the
Company's annual net income......... $ 13,699
===========
Per Class A unit-diluted......... $ .15
===========
</Table>
- -----------
(1) Excludes the effect of a $123,500 mortgage financing, cross-collateralized
by the Company's 770 Broadway and 595 Madison Avenue office properties, as the
proceeds are in a restricted mortgage escrow account which bears interest at the
same rate as the loan.
Page 32
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is from time to time involved in legal actions arising in the
ordinary course of its business. In the opinion of management, after
consultation with legal counsel, the outcome of such matters will not have a
material adverse effect on the Company's financial condition, results of
operations or cash flows.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K are incorporated herein by
reference and are listed in the attached Exhibit Index.
(b) Reports on Form 8-K
During the quarter ended June 30, 2001, Vornado Realty Trust did not file
any reports on Form 8-K.
Page 33
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 L.P.
-----------------------------------------
(Registrant)
Date: August 10, 2001 By: /s/ Joseph Macnow
------------------------------------------
Joseph Macnow, Executive Vice President -
Finance and Administration and
Chief Financial Officer
Page 34
EXHIBIT INDEX
EXHIBIT
NO.
- -------
3.1 -- Amended and Restated Declaration of Trust of Vornado, amended
April 3, 1997--Incorporated by reference to Exhibit 3.1 of
Vornado's Registration Statement on Form S-8 (File No. 333-29011),
filed on June 12, 1997.......................................... *
3.2 -- Articles of Amendment of Declaration of Trust of Vornado, as filed
with the State Department of Assessments and Taxation of Maryland on
October 14, 1997 - Incorporated by reference to Exhibit 3.2 of
Vornado's Registration Statement on Form S-3 (File No. 333-36080),
filed on May 2, 2000............................................ *
3.3 -- Articles of Amendment of Declaration of Trust of Vornado, as filed
with the State Department of Assessments and Taxation of Maryland on
April 22, 1998 - Incorporated by reference to Exhibit 3.1 of
Vornado's Current Report on Form 8-K, dated April 22, 1998 (File No.
001-11954), filed on April 28, 1998............................. *
3.4 -- Articles of Amendment of Declaration of Trust of Vornado, as filed
with the State Department of Assessments and Taxation of Maryland on
November 24, 1999 - Incorporated by reference to Exhibit 3.4 of
Vornado's Registration Statement on Form S-3 (File No. 333-36080),
filed on May 2, 2000............................................ *
3.5 -- Articles of Amendment of Declaration of Trust of Vornado, as filed
with the State Department of Assessments and Taxation of Maryland on
April 20, 2000 - Incorporated by reference to Exhibit 3.5 of
Vornado's Registration Statement on Form S-3 (File No. 333-36080),
filed on May 2, 2000............................................ *
3.6 -- Articles Supplementary Classifying Vornado's $3.25 Series A
Preferred Shares of Beneficial Interest, liquidation preference
$50.00 per share - Incorporated by reference to Exhibit 4.1 of
Vornado's Current Report on Form 8-K, dated April 3, 1997 (File No.
001-11954), filed on April 8, 1997.............................. *
3.7 -- Articles Supplementary Classifying Vornado's Series D-1 8.5%
Cumulative Redeemable Preferred Shares of Beneficial Interest, no
par value (the "Series D-1 Preferred Shares") - Incorporated by
reference to Exhibit 3.1 of Vornado's Current Report on Form 8-K,
dated November 12, 1998 (File No. 001-11954), filed on November 30,
1998............................................................ *
3.8 -- Articles Supplementary Classifying Additional Series D-1 Preferred
Shares - Incorporated by reference to Exhibit 3.2 of Vornado's
Current Report on Form 8-K/A, dated November 12, 1998 (File No.
001-11954), filed on February 9, 1999........................... *
3.9 -- Articles Supplementary Classifying 8.5% Series B Cumulative
Redeemable Preferred Shares of Beneficial Interest, liquidation
preference $25.00 per share, no par value - Incorporated by
reference to Exhibit 3.3 of Vornado's Current Report on Form 8-K,
dated March 3, 1999 (File No. 001-11954), filed on March 17,
1999............................................................ *
3.10 -- Articles Supplementary Classifying Vornado's Series C Preferred
Shares - Incorporated by reference to Exhibit 3.7 of Vornado's
Registration Statement on Form 8-A (File No. 001-11954), filed on
May 19, 1999.................................................... *
- ----------
* Incorporated by reference
Page 35
<Page>
EXHIBIT
NO.
- -------
3.11 -- Articles Supplementary Classifying Vornado Realty Trust's Series D-2
Preferred Shares, dated as of May 27, 1999, as filed with the
State Department of Assessments and Taxation of Maryland on
May 27, 1999 - Incorporated by reference to Exhibit 3.1 of Vornado's
Current Report on Form by 8-K, dated May 27, 1999 (File
No. 001-11954), filed on July 7, 1999............................ *
3.12 -- Articles Supplementary Classifying Vornado's Series D-3 Preferred
Shares, dated September 3, 1999, as filed with the State Department
of Assessments and Taxation of Maryland on September 3, 1999 -
Incorporated by reference to Exhibit 3.1 of Vornado's Current Report
on Form 8-K, dated September 3, 1999 (File No. 001-11954), filed on
October 25, 1999................................................. *
3.13 -- Articles Supplementary Classifying Vornado's Series D-4 Preferred
Shares, dated September 3, 1999, as filed with the State Department
of Assessments and Taxation of Maryland on September 3, 1999 -
Incorporated by reference to Exhibit 3.2 of Vornado's Current Report
on Form 8-K, dated September 3, 1999 (File No. 001-11954), filed on
October 25, 1999................................................. *
3.14 -- Articles Supplementary Classifying Vornado's Series D-5 Preferred
Shares - Incorporated by reference to Exhibit 3.1 of Vornado's
Current Report on Form 8-K, dated November 24, 1999 (File No.
001-11954), filed on December 23, 1999........................... *
3.15 -- Articles Supplementary to Declaration of Trust of Vornado Realty
Trust with respect to the Series D-6 Preferred Shares, dated May 1,
2000, as filed with the State Department of Assessments and Taxation
of Maryland on May 1, 2000 - Incorporated by reference to Exhibit
3.1 of Vornado's Current Report on Form 8-K, dated May 1, 2000 (File
No. 001-11954), filed May 19, 2000............................... *
3.16 -- Articles Supplementary to Declaration of Trust of Vornado Realty
Trust with respect to the Series D-7 Preferred Shares, dated May 25,
2000, as filed with the State Department of Assessments and Taxation
of Maryland on June 1, 2000 - Incorporated by reference to Exhibit
3.1 of Vornado's Current Report on Form 8-K, dated May 25, 2000
(File No. 001-11954), filed on June 16, 2000..................... *
3.17 -- Articles Supplementary to Declaration of Trust of Vornado Realty
Trust with respect to the Series D-8 Preferred Shares - Incorporated
by reference to Exhibit 3.1 of Vornado's Current Report on Form 8-K,
dated December 8, 2000 (File No. 1-11954), filed on December 28,
2000............................................................. *
3.18 -- Amended and Restated Bylaws of Vornado, as amended on March 2, 2000
- Incorporated by reference to Exhibit 3.12 of Vornado's Annual
Report on Form 10-K for the period ended December 31, 1999 (File No.
1-11954), filed on March 9, 2000................................. *
3.19 -- Second Amended and Restated Agreement of Limited Partnership of the
Operating Partnership, dated as of October 20, 1997 - Incorporated
by reference to Exhibit 3.4 of Vornado's Annual Report on Form 10-K
for the year ended December 31, 1997 filed on March 31, 1998 (the
"1997 10-K")...................................................... *
3.20 -- Amendment to Second Amended and Restated Agreement of Limited
Partnership of Vornado Realty L.P., dated as of December 16,
1997--Incorporated by reference to Exhibit 3.5 of the 1997 10-K... *
3.21 -- Second Amendment to Second Amended and Restated Agreement of Limited
Partnership of the Operating Partnership, dated as of April 1, 1998
- Incorporated by reference to Exhibit 3.5 of Vornado's Registration
Statement on Form S-3 (File No. 333-50095), filed on April 14,
1998............................................................. *
- ----------
* Incorporated by reference
Page 36
<Page>
EXHIBIT
NO.
- -------
3.22 -- Third Amendment to Second Amended and Restated Agreement of Limited
Partnership of the Operating Partnership, dated as of November 12,
1998 - Incorporated by reference to Exhibit 3.2 of Vornado's Current
Report on Form 8-K, dated November 12, 1998 (File No. 001-11954),
filed on November 30, 1998....................................... *
3.23 -- Fourth Amendment to Second Amended and Restated Agreement of Limited
Partnership of the Operating Partnership, dated as of November 30,
1998 - Incorporated by reference to Exhibit 3.1 of Vornado's Current
Report on Form 8-K, dated December 1, 1998 (File No. 001-11954),
filed on February 9, 1999........................................ *
3.24 -- Exhibit A, dated as of December 22, 1998, to Second Amended and
Restated Agreement of Limited Partnership of the Operating
Partnership - Incorporated by reference to Exhibit 3.4 of Vornado's
Current Report on Form 8-K/A, dated November 12, 1998 (File No.
001-11954), filed on February 9, 1999............................ *
3.25 -- Fifth Amendment to Second Amended and Restated Agreement of Limited
Partnership of the Operating Partnership, dated as of March 3, 1999
- Incorporated by reference to Exhibit 3.1 of Vornado's Current
Report on Form 8-K, dated March 3, 1999 (File No. 001-11954), filed
on March 17, 1999................................................ *
3.26 -- Exhibit A to Second Amended and Restated Agreement of Limited
Partnership of the Operating Partnership, dated as of March 11, 1999
- Incorporated by reference to Exhibit 3.2 of Vornado's Current
Report on Form 8-K, dated March 3, 1999 (File No. 001-11954), filed
on March 17, 1999................................................ *
3.27 -- Sixth Amendment to Second Amended and Restated Agreement of Limited
Partnership of Vornado Realty L.P., dated as of March 17, 1999 -
Incorporated by reference to Exhibit 3.2 of Vornado's Current Report
on Form 8-K, dated May 27, 1999 (File No. 001-11954), filed on July
7, 1999.......................................................... *
3.28 -- Seventh Amendment to Second Amended and Restated Agreement of
Limited Partnership of Vornado Realty L.P., dated as of May 20, 1999
- Incorporated by reference to Exhibit 3.3 of Vornado's Current
Report on Form 8-K, dated May 27, 1999 (File No. 001-11954), filed
on July 7, 1999.................................................. *
3.29 -- Eighth Amendment to Second Amended and Restated Agreement of Limited
Partnership of Vornado Realty L.P., dated as of May 20, 1999 -
Incorporated by reference to Exhibit 3.4 of Vornado's Current Report
on Form 8-K, dated May 27, 1999 (File No. 001-11954), filed on July
7, 1999.......................................................... *
3.30 -- Ninth Amendment to Second Amended and Restated Agreement of Limited
Partnership of Vornado Realty L.P., dated as of May 20, 1999 -
Incorporated by reference to Exhibit 3.3 of Vornado's Current Report
on Form 8-K, dated September 3, 1999 (File No. 001-11954), filed on
October 25, 1999................................................. *
3.31 -- Tenth Amendment to Second Amended and Restated Agreement of Limited
Partnership of Vornado Realty L.P., dated as of May 20, 1999 -
Incorporated by reference to Exhibit 3.4 of Vornado's Current Report
on Form 8-K, dated September 3, 1999 (File No. 001-11954), filed on
October 25, 1999................................................. *
3.32 -- Eleventh Amendment to Second Amended and Restated Agreement of
Limited Partnership of Vornado Realty L.P., dated as of November 24,
1999 - Incorporated by reference to Exhibit 3.2 of Vornado's Current
Report on Form 8-K, dated November 24, 1999 (File No. 001-11954),
filed on December 23, 1999....................................... *
- ----------
* Incorporated by reference
Page 37
<Page>
EXHIBIT
NO.
- -------
3.33 -- Twelfth Amendment to Second Amended and Restated Agreement of
Limited Partnership of Vornado Realty L.P., dated as of May 1,
2000 - Incorporated by reference to Exhibit 3.2 of Vornado's
Current Report on Form 8-K, dated May 1, 2000 (File No. 001-11954),
filed on May 19, 2000............................................ *
3.34 -- Thirteenth Amendment to Second Amended and Restated Agreement of
Limited Partnership of Vornado Realty L.P., dated as of May 25, 2000
- Incorporated by reference to Exhibit 3.2 of Vornado's Current
Report on Form 8-K, dated May 25, 2000 (File No. 001-11954), filed
on June 16, 2000................................................. *
3.35 -- Fourteenth Amendment to Second Amended and Restated Agreement of
Limited Partnership of Vornado Realty L.P., dated as of December 8,
2000 - Incorporated by reference to Exhibit 3.2 of Vornado's Current
Report on Form 8-K, dated December 8, 2000 (File No. 001-11954),
filed on December 28, 2000....................................... *
4.1 -- Instruments defining the rights of security holders (see Exhibits
3.1 through 3.18 of this Quarterly Report on Form 10-Q).......... *
4.2 -- Indenture dated as of November 24, 1993 between Vornado Finance
Corp. and Bankers Trust Company, as Trustee - Incorporated by
reference to Vornado's current Report on Form 8-K dated November 24,
1993 (File No. 001-11954), filed December 1, 1993................ *
4.3 -- Specimen certificate representing Vornado's Common Shares of
Beneficial Interest, par value $0.04 per share - Incorporated by
reference to Exhibit 4.1 of Amendment No. 1 to Registration
Statement on Form S-3 (File No. 33-62395), filed on October 26,
1995............................................................. *
4.4 -- Specimen certificate representing Vornado's $3.25 Series A Preferred
Shares of Beneficial Interest, liquidation preference $50.00 per
share - Incorporated by reference to Exhibit 4.2 of Vornado's
Current Report on Form 8-K, dated April 3, 1997 (File No.
001-11954), filed on April 8, 1997............................... *
4.5 -- Specimen certificate evidencing Vornado's Series B 8.5% Cumulative
Redeemable Preferred Shares of Beneficial Interest - Incorporated by
reference to Exhibit 4.2 of Vornado's Registration Statement on Form
8-A (File No. 001-11954), filed on March 15, 1999................ *
4.6 -- Specimen certificate evidencing Vornado's 8.5% Series C Cumulative
Redeemable Preferred Shares of Beneficial Interest, liquidation
preferences $25.00 per share, no par value - Incorporated by
reference to Exhibit 4.2 of Vornado's Registration Statement on Form
8-A (File No. 001-11954), filed May 19, 1999..................... *
4.7 -- Indenture and Servicing Agreement, dated as of March 1, 2000, among
Vornado, Lasalle Bank National Association, ABN Amro Bank N.V. and
Midland Loan Services, Inc. - Incorporated by reference to Exhibit
10.48 of Vornado's Annual Report on Form 10-K for the period ended
December 31, 1999 (File No. 1-11954), filed on March 9, 2000..... *
- ----------
* Incorporated by reference
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