<Page>
EXHIBIT INDEX ON PAGE 41
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: SEPTEMBER 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: 1-11954
------------------------------------------------------
VORNADO REALTY TRUST
------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MARYLAND 22-1657560
------------------------------------------------ --------------------------
(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
As of November 1, 2001, 88,907,904 of the registrant's common shares
of beneficial interest are outstanding.
Page 1
<Page>
INDEX
<Table>
<Caption>
PAGE NUMBER
PART I. FINANCIAL INFORMATION: -----------
Item 1. Financial Statements:
Consolidated Balance Sheets as of
September 30, 2001 and December 31, 2000.................................. 3
Consolidated Statements of Income for the Three and Nine Months Ended
September 30, 2001 and September 30, 2000................................. 4
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2001 and September 30, 2000................................. 5
Notes to Consolidated Financial Statements................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................. 20
Item 3. Quantitative and Qualitative Disclosures About Market Risks............... 38
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings......................................................... 39
Item 6. Exhibits and Reports on Form 8-K.......................................... 39
Signatures .......................................................................... 40
Exhibit Index ......................................................................... 41
</Table>
Page 2
<Page>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VORNADO REALTY TRUST
CONSOLIDATED BALANCE SHEETS
(amounts in thousands except share and per share amounts)
<Table>
<Caption>
SEPTEMBER 30, DECEMBER 31,
2001 2000
----------- -----------
ASSETS
Real estate, at cost:
Land .................................... $ 892,490 $ 870,023
Buildings and improvements .............. 3,455,990 3,328,760
Development costs and construction-in-
progress ............................ 136,443 66,264
Leasehold improvements and
equipment ........................... 37,102 29,795
----------- -----------
Total ......................... 4,522,025 4,294,842
Less accumulated depreciation and
amortization ........................ (487,513) (393,787)
----------- -----------
Real estate, net ........................ 4,034,512 3,901,055
Cash and cash equivalents, including U.S.
government obligations under repurchase
agreements of $6,965 and $27,793 ........ 187,878 136,989
Escrow deposits and restricted cash .......... 200,650 214,359
Marketable securities ........................ 111,950 120,340
Investments and advances to partially-owned
entities, including Alexander's of
$188,549 and $178,413 ................... 1,289,036 1,459,211
Due from officers ............................ 19,092 20,549
Accounts receivable, net of allowance for
doubtful accounts of $9,278 and $9,343 .. 62,424 47,937
Notes and mortgage loans receivable .......... 216,496 188,722
Receivable arising from the straight-lining of
rents ................................... 134,911 111,504
Other assets ................................. 272,887 169,648
----------- -----------
TOTAL ASSETS ................................. $ 6,529,836 $ 6,370,314
=========== ===========
</Table>
<Table>
<Caption>
SEPTEMBER 30, DECEMBER 31,
2001 2000
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes and mortgages payable ....................... $ 2,356,438 $ 2,231,897
Revolving credit facility ......................... 330,000 425,000
Accounts payable and accrued expenses ............. 146,832 130,464
Officers' compensation payable .................... 42,880 38,424
Deferred leasing fee income ....................... 7,467 7,852
Other liabilities ................................. 1,493 1,798
----------- -----------
Total liabilities .................. 2,885,110 2,835,435
----------- -----------
Minority interest of unitholders in the
Operating Partnership ......................... 1,468,170 1,456,159
----------- -----------
Commitments and contingencies
Shareholders' equity:
Preferred shares of beneficial interest:
no par value per share; authorized,
45,000,000 shares;
Series A: liquidation preference $50.00
per share; issued 5,727,952 and
5,788,855 shares ..................... 286,401 288,507
Series B: liquidation preference $25.00
per share; issued 3,400,000 shares ... 81,805 81,805
Series C: liquidation preference $25.00
per share; issued 4,600,000 shares ... 111,148 111,148
Common shares of beneficial interest:
$.04 par value per share; authorized,
150,000,000 shares; issued and
outstanding 88,896,330 and
86,803,770 shares .................. 3,556 3,472
Additional capital .......................... 1,774,679 1,709,284
Accumulated deficit ......................... (62,369) (90,366)
----------- -----------
2,195,220 2,103,850
Accumulated other comprehensive loss ........ (13,960) (20,426)
Due from officers for purchase of common
shares of beneficial interest .......... (4,704) (4,704)
----------- -----------
Total shareholders' equity ........ 2,176,556 2,078,720
----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY ........................ $ 6,529,836 $ 6,370,314
=========== ===========
</Table>
See notes to consolidated financial statements.
Page 3
<Page>
VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands except per share amounts)
<Table>
<Caption>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------ ------------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Revenues:
Rentals .................................................... $ 211,541 $ 178,617 $ 628,511 $ 514,626
Expense reimbursements ..................................... 36,216 34,083 102,851 89,303
Other income (including fee income
from related parties of $250 and $637 in each three month
period and $1,134 and $1,304 in each nine month period) . 2,508 2,795 7,588 5,310
--------- --------- --------- ---------
Total revenues ............................................... 250,265 215,495 738,950 609,239
--------- --------- --------- ---------
Expenses:
Operating .................................................. 102,222 82,700 299,436 233,371
Depreciation and amortization .............................. 29,275 25,026 91,226 72,966
General and administrative ................................. 15,043 13,304 51,706 34,271
Costs of acquisitions not consummated ...................... -- -- 5,000 --
--------- --------- --------- ---------
Total expenses ............................................... 146,540 121,030 447,368 340,608
--------- --------- --------- ---------
Operating income ............................................. 103,725 94,465 291,582 268,631
Income applicable to Alexander's ............................. 4,442 2,516 21,422 11,081
Income from partially-owned entities ......................... 18,856 25,758 62,074 71,269
Interest and other investment income ......................... 14,584 7,571 43,931 18,269
Interest and debt expense .................................... (43,054) (42,558) (136,443) (121,240)
Net gain on disposition of wholly-owned and
partially-owned assets ..................................... 6,495 8,405 3,706 10,965
Minority interest:
Perpetual preferred unit distributions ..................... (17,594) (17,140) (52,245) (44,949)
Minority limited partnership earnings ...................... (9,951) (10,494) (30,195) (29,163)
Partially-owned entities ................................... (723) (404) (1,491) (1,470)
--------- --------- --------- ---------
Income before cumulative effect of change in accounting
principle and extraordinary item ........................... 76,780 68,119 202,341 183,393
Cumulative effect of change in accounting principle .......... -- -- (4,110) --
Extraordinary item ........................................... -- -- 1,170 (1,125)
--------- --------- --------- ---------
Net income ................................................... 76,780 68,119 199,401 182,268
Preferred stock dividends (including accretion of issuance
expenses of $0 and $719 in each three month period
and $958 and $2,156 in each nine month period) ............. (8,904) (9,672) (27,769) (29,017)
--------- --------- --------- ---------
NET INCOME applicable to common shares ....................... $ 67,876 $ 58,447 $ 171,632 $ 153,251
========= ========= ========= =========
NET INCOME PER COMMON SHARE - BASIC .......................... $ .76 $ .68 $ 1.96 $ 1.77
========= ========= ========= =========
NET INCOME PER COMMON SHARE - DILUTED ........................ $ .74 $ .65 $ 1.90 $ 1.73
========= ========= ========= =========
DIVIDENDS PER COMMON SHARE ................................... $ .59 $ .48 $ 1.65 $ 1.44
========= ========= ========= =========
</Table>
See notes to consolidated financial statements.
Page 4
<Page>
VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
<Table>
<Caption>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------
2001 2000
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ......................................................... $ 199,401 $ 182,268
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 ............................................. 83,931 75,582
Net gain on disposition of wholly-owned and
partially-owned assets ...................................... (3,706) (10,965)
Depreciation and amortization ................................. 91,226 72,966
Straight-lining of rental income .............................. (23,987) (25,368)
Equity in income of Alexander's ............................... (21,422) 1,467
Equity in income of partially-owned entities .................. (62,074) (74,447)
Changes in operating assets and liabilities ................... (5,074) (77,480)
----------- -----------
Net cash provided by operating activities .......................... 261,235 145,148
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Development costs and construction in progress ..................... (68,152) (34,293)
Proceeds from sale of real estate .................................. 146,197 46,832
Investments in partially-owned entities ............................ (68,145) (74,694)
Distributions from partially-owned entities ........................ 102,404 14,870
Investment in notes and mortgage loans receivable .................. (36,831) (142,251)
Repayment of notes and mortgage loans receivable ................... 9,057 4,222
Cash restricted for tenant improvements ............................ 13,709 (183,379)
Additions to real estate ........................................... (63,687) (72,286)
Purchases of marketable securities ................................. (9,657) (25,861)
Acquisitions of real estate and other .............................. (11,574) (27,360)
Proceeds from sale of marketable securities ........................ 1,640 --
Real estate deposits and other ..................................... 2,764 (9,225)
----------- -----------
Net cash provided by (used in) investing activities ................ 17,725 (503,425)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings ........................................... 347,853 1,048,036
Repayments of borrowings ........................................... (388,319) (629,891)
Debt issuance costs ................................................ -- (18,319)
Proceeds from issuance of preferred units .......................... 52,673 195,847
Distributions to minority partners ................................. (79,452) (53,548)
Dividends paid on common shares .................................... (143,544) (124,501)
Dividends paid on preferred shares ................................. (26,811) (17,907)
Exercise of stock options .......................................... 9,529 10,214
----------- -----------
Net cash (used in) provided by financing activities ................ (228,071) 409,931
----------- -----------
Net increase in cash and cash equivalents .......................... 50,889 51,654
Cash and cash equivalents at beginning of period ................... 136,989 112,630
----------- -----------
Cash and cash equivalents at end of period ......................... $ 187,878 $ 164,284
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments for interest (including capitalized interest of $9,495
in 2001 and $5,646 in 2000) ..................................... $ 133,051 $ 120,045
=========== ===========
NON-CASH TRANSACTIONS:
Financing assumed in acquisitions .................................. $ -- $ 36,640
Unrealized gain on securities available for sale ................... 2,356 14,680
</Table>
See notes to consolidated financial statements.
Page 5
<Page>
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Vornado Realty Trust is a fully-integrated real estate investment trust
("REIT"). Vornado conducts its business through Vornado Realty L.P., a Delaware
limited partnership (the "Operating Partnership"). Vornado is the sole general
partner of, and owned approximately 86% of the common limited partnership
interest in, the Operating Partnership at September 30, 2001. All references
to the "Company" and "Vornado" refer to Vornado Realty Trust and its
consolidated subsidiaries, including the Operating Partnership.
2. BASIS OF PRESENTATION
The consolidated balance sheet as of September 30, 2001, the consolidated
statements of income for the three and nine months ended September 30, 2001 and
2000 and the consolidated statements of changes in cash flows for the nine
months ended September 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 Vornado'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 nine months ended
September 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 Trust and its majority-owned subsidiary, 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 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
<Page>
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
3. RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board ("FASB") 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.
In August 2001, FASB issued SFAS No. 143, ACCOUNTING FOR ASSET RETIREMENT
OBLIGATIONS (effective January 1, 2003) and SFAS No. 144 ACCOUNTING FOR THE
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS (effective January 1, 2002). SFAS
No. 143 requires the recording of the fair value of a liability for an asset
retirement obligation in the period which it is incurred. SFAS No. 144
supercedes current accounting literature and now provides for a single
accounting model for long lived-assets to be disposed of by sale and requires
discontinued operations presentation for disposals of a "component" of an
entity. The Company is in the process of evaluating the financial statement
impact of the adoption of SFAS No. 143 and 144.
4. ACQUISITIONS, DISPOSITIONS AND FINANCINGS
ACQUISITIONS
CHARLES E. SMITH COMMERCIAL REALTY L.P.
Vornado currently owns a 34% interest in Charles E. Smith Commercial
Realty L.P. ("CESCR"). On October 19, 2001, the Company entered into a
definitive agreement to acquire the remaining 66% of CESCR. See Note 14 -
Subsequent Events for details of this pending acquisition.
DISPOSITIONS
NET GAIN ON DISPOSITION OF WHOLLY-OWNED AND PARTIALLY-OWNED ASSETS
The following table sets forth the details of net gain on disposition of
wholly-owned and partially-owned assets for the three and nine months ended
September 30, 2001 and 2000:
<Table>
<Caption>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------------ ------------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Wholly-owned Assets:
Net gain from condemnation proceedings ....... $ -- $ -- $ 3,050,000 $ --
Write-off of investments in technology
companies .................................. -- -- (18,284,000) --
Net gain on sale of other real estate ........ -- 8,405,000 -- 10,965,000
Partially-owned Assets:
After-tax net gain on sale of Park Laurel
condominium units .......................... 13,869,000 -- 13,869,000 --
Write-off of net investment in the Russian Tea
Room ("RTR") ............................... (7,374,000) -- (7,374,000) --
Net gain on sale of 570 Lexington Avenue ..... -- -- 12,445,000 --
------------ ------------ ------------ ------------
$ 6,495,000 $ 8,405,000 $ 3,706,000 $ 10,965,000
============ ============ ============ ============
</Table>
Page 7
<Page>
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
PARK LAUREL CONDOMINIUM PROJECT
In the third quarter of 2001, the Park Laurel joint venture (the "JV")
(80% owned by the Company) closed on the sale of 48 condominium units of the
total 53 units at the Park Laurel residential condominium project in New
York. The JV received proceeds of $123,700,000 and the Company recorded its
share of the after tax net gain of $13,869,000.
570 LEXINGTON AVENUE
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.
550/600 MAMARONECK AVENUE
On August 6, 2001, the Company sold its leasehold interest in 550/600
Mamaroneck Avenue for $22,500,000, which approximated its net book value.
NET GAIN FROM CONDEMNATION PROCEEDING
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.
WRITE-OFF 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.
WRITE-OFF OF NET INVESTMENT IN RTR
In the third quarter of 2001, the Company wrote-off its entire net
investment of $7,374,000 in RTR based on the operating losses and an
assessment of the value of the real estate.
FINANCINGS
888 SEVENTH AVENUE
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.
Page 8
<Page>
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
INDUSTRIAL WAREHOUSES
On September 20, 2001, the Company completed a $50,000,000 mortgage
financing, cross-collateralized by its eight industrial warehouse properties.
The loan bears interest at a fixed rate of 6.95% per annum and matures on
October 1, 2011.
OFFERING OF PREFERRED UNITS
On September 21, 2001, the Company sold an aggregate of $45,000,000 8.25%
Series D-9 Cumulative Redeemable Preferred Units in the Operating Partnership to
an institutional investor in a private placement, resulting in net proceeds of
approximately $43,875,000. The perpetual preferred units may be called without
penalty at the option of the Company commencing on September 21, 2006.
WASHINGTON DESIGN CENTER
On October 16, 2001, the Company completed a $49,000,000 refinancing of
its Washington Design Center property. The loan bears interest at a fixed rate
of 6.95% and matures on October 16, 2011. A portion of the proceeds received
were used to repay the then existing mortgage of $23,000,000.
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:
<Table>
<Caption>
INVESTMENTS AND ADVANCES
(amounts in thousands) September 30, 2001 December 31, 2000
------------------ -----------------
Temperature Controlled Logistics ................... $ 484,058 $ 469,613
Charles E. Smith Commercial Realty L.P. ("CESCR")(1) 331,638 325,328
Alexander's ........................................ 188,549 178,413
Newkirk Joint Ventures (2) ......................... 185,669 163,157
Hotel Pennsylvania (3) ............................. -- 73,531
Partially-Owned Office Buildings (4) ............... 23,339 61,002
Vornado Ceruzzi Joint Ventures ..................... 26,837 28,847
Fort Lee ........................................... 32,860 28,208
Park Laurel ........................................ 2,576 70,007
Management Companies and Other (5) ................. 13,510 61,105
---------- ----------
$1,289,036 $1,459,211
========== ==========
</Table>
----------
(1) Vornado currently owns a 34% interest in CESCR. On October 19, 2001,
the Company entered into a definitive agreement to acquire the
remaining 66% of CESCR. See Note 14 - Subsequent Events for details
of this pending acquisition.
(2) The Company's investment in and advances to Newkirk Joint Ventures
is comprised of
<Table>
<Caption>
September 30, 2001 December 31, 2000
------------------ -----------------
Investments in limited partnerships $ 139,242 $ 116,730
Mortgages and loans receivable 39,511 39,511
Other 6,916 6,916
------------ ------------
$ 185,669 $ 163,157
============ ============
</Table>
(3) As of December 31, 2000, the Company owned 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 consolidated in 2001.
(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, resulting in a
gain of $12,445 which is not included in income in the table above.
(5) On January 1, 2001, the Company acquired the common stock of the
preferred stock affiliates and converted them to taxable REIT
subsidiaries. Accordingly, the management companies are consolidated
in 2001.
Page 9
<Page>
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<Table>
<Caption>
INCOME
For The Three Months For The Nine Months
Ended September 30, Ended September 30,
(amounts in thousands) --------------------- ------------------------
2001 2000 2001 2000
-------- -------- -------- --------
Income applicable to Alexander's:
33.1% share of equity in income (loss) ... $ 592 $ (1,945) $ 8,283(1) $ (1,467)
Interest income .......................... 2,659 3,251 9,021 8,930
Management and leasing fee income ........ 1,191 1,210 4,118(1) 3,618
-------- -------- -------- --------
$ 4,442 $ 2,516 $ 21,422 $ 11,081
======== ======== ======== ========
Temperature Controlled Logistics:
60% share of equity in net income ........ $ 1,838 $ 6,964 $ 8,768 $ 20,624
Management fee (40% of 1% per annum of
Total Combined Assets, as defined) .... 1,402 1,380 4,141 4,060
-------- -------- -------- --------
3,240 8,344 12,909 24,684
-------- -------- -------- --------
CESCR-34% share of equity in income ........ 7,218 5,630 21,413 18,948
-------- -------- -------- --------
Newkirk Joint Ventures:
Equity in income of limited partnerships 6,635 6,139 19,738 12,531
Interest and other income .............. 1,273 2,548 4,098 5,894
-------- -------- -------- --------
7,908 8,687 23,836 18,425
-------- -------- -------- --------
Hotel Pennsylvania ......................... --(2) 1,911 --(2) 5,218
Partially-Owned Office Buildings (3) ....... 377 850 3,150 2,528
Management Companies and Other ............. 113 336 766 1,466
-------- -------- -------- --------
$ 18,856 $ 25,758 $ 62,074 $ 71,269
======== ======== ======== ========
</Table>
----------
(1) 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.
(2) As of December 31, 2000, the Company owned 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 consolidated in 2001.
(3) 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, resulting in a gain of $12,445 which
is not included in income in the table above.
Page 10
<Page>
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
TEMPERATURE CONTROLLED LOGISTICS
On February 22, 2001, the Vornado/Crescent Partnerships ("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's Funds from Operations), (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 nine months ended September 30, 2001 from the warehouses it leases
from the Landlord, is lower than last year by 6.5% and 4.4%, and (ii) its gross
profit before rent at these warehouses for the corresponding periods is lower
than last year by $8,445,000 (an 18.5% decline) and $18,628,000 (a 13.8%
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 income
of $5,311,000 and $7,651,000 for the quarter and nine months ended September 30,
2001 and income of $2,880,000 and $5,280,000 for the quarter and nine months
ended September 30, 2000. At September 30, 2001, the Company's balance of the
tenant's total deferred rent is $21,123,000 (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 September 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.
On August 1, 2001, the Company purchased 100 shares of preferred stock of
59th Street Corporation (a wholly-owned subsidiary of Alexander's) for
$1,200,000 in connection with tax planning for the development of Alexander's
Lexington Avenue property. The non-convertible preferred stock is redeemable at
any time at the option of 59th Street Corporation and entitles the Company to
cumulative 10% dividends payable semi-annually.
On October 5, 2001, Alexander's entered into a ground lease for its
Paramus, N.J. property with IKEA Property, Inc. The lease has a 40-year term
with an option to purchase at the end of the 20th year for $75,000,000.
Further, Alexander's has obtained a $68,000,000 interest only, non-recourse
mortgage loan on the property from a third party lender. The interest rate on
the debt is 5.92% with interest payable monthly until maturity in October,
2011. The triple net rent for each year is the sum of $700,000 plus the
amount of debt service on the mortgage loan. If the purchase option is not
exercised at the end of the 20th year, the triple net rent for the last 20
years must include debt service sufficient to fully amortize the $68,000,000
over the remaining 20 year lease period.
Page 11
<Page>
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. NOTES AND MORTGAGES RECEIVABLE
LOAN TO PRIMESTONE INVESTMENT PARTNERS, L.P.
Primestone Investment Partners, L.P. has defaulted on the repayment of its
loan from the Company which was due on October 25, 2001. The principal amount
of the loan is $62,000,000 and there is $3,958,000 of unpaid interest and
fees. The loan is secured by 7,944,893 partnership units in Prime Group
Realty L.P., the operating partnership of Prime Group Realty Trust (NYSE:PGE)
and is exchangeable into the same number of shares of PGE. It is also
guaranteed by affiliates of the borrower. The loan was subordinate to
$37,957,000 of third party indebtedness secured by the same collateral. On
October 31, 2001, the Company purchased the $37,957,000 of third party
indebtedness and has commenced foreclosure proceedings with respect to the
collateral.
LOAN TO NORTHSTAR PARTNERSHIP L.P.
On October 30, 2001, NorthStar Partnership, L.P. made a quarterly
principal payment of $2,500,000 that was due on September 28, 2001.
7. 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 $249,934 and $476,956
for the three months ended September 30, 2001 and 2000, and $1,133,600 and
$864,358 for the nine months ended September 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 $12,381,173 and $11,443,115 for the three months ended
September 30, 2001 and 2000, and $38,005,878 and $34,861,578 for the nine months
ended September 30, 2001 and 2000.
Page 12
<Page>
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. MINORITY INTEREST
The minority interest represents limited partners', other than the
Company, interests in the Operating Partnership and is comprised of:
<Table>
<Caption>
Preferred or
Outstanding Units at Per Unit Annual Conversion
September 30, December 31, Liquidation Distribution Rate Into
Unit Series 2001 2000 Preference Rate Class A Units
----------- ------------- ------------ ----------- ------------ -------------
Common:
Class A (1)...................... 5,848,023 6,456,749 -- $ 2.36 N/A
Class D.......................... -- 869,387 -- $ 2.36 1.0 (2)
Convertible Preferred:
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 (3) 1.1364
Perpetual Preferred: (4)
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
8.25% D-9 Cumulative Redeemable
Preferred...................... 1,800,000 -- $ 25.00 $ 2.0625 N/A
8.25% F-1 Cumulative
Redeemable Preferred (5)....... 400,000 -- $ 25.00 $ 2.0625 N/A
</Table>
----------
(1) 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.
(2) Class D units automatically converted into Class A units in the third
quarter of 2001. Prior to the conversion, the Class D unitholders
participated in distributions at an annual rate of $2.12, then parri
passu with the Class A units.
(3) Increases to $3.38 in March 2007.
(4) 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 September 2001).
(5) Issued in connection with the acquisition of a leasehold interest at
715 Lexington Avenue.
Page 13
<Page>
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. INCOME PER SHARE
The following table sets forth the computation of basic and diluted income
per share:
<Table>
<Caption>
For The Three Months For The Nine Months
Ended September 30, Ended September 30,
---------------------- ----------------------
2001 2000 2001 2000
--------- --------- --------- ---------
(amounts in thousands except per share amounts)
Numerator:
Income before cumulative effect of change in
accounting principle and extraordinary item ... $ 76,780 $ 68,119 $ 202,341 $ 183,393
Cumulative effect of change in accounting
principle ..................................... -- -- (4,110) --
Extraordinary item .............................. -- -- 1,170 (1,125)
--------- --------- --------- ---------
Net income ...................................... 76,780 68,119 199,401 182,268
Preferred stock dividends ....................... (8,904) (9,672) (27,769) (29,017)
--------- --------- --------- ---------
Numerator for basic and diluted income per
share - net income applicable to common shares .. $ 67,876 $ 58,447 $ 171,632 $ 153,251
========= ========= ========= =========
Denominator:
Denominator for basic income per share - weighted
average shares ................................ 88,783 86,584 87,511 86,455
Effect of dilutive securities:
Employee stock options ........................ 3,276 3,129 2,844 2,168
--------- --------- --------- ---------
Denominator for diluted income per share -
adjusted weighted average shares and
assumed conversions ........................... 92,059 89,713 90,355 88,623
========= ========= ========= =========
INCOME PER COMMON SHARE - BASIC:
Income before cumulative effect of change in
accounting principle and extraordinary item . $ .76 $ .68 $ 2.00 $ 1.78
Cumulative effect of change in accounting
principle ................................... -- -- (.05) --
Extraordinary item ............................ -- -- .01 (.01)
--------- --------- --------- ---------
Net income per common share ................... $ .76 $ .68 $ 1.96 $ 1.77
========= ========= ========= =========
INCOME PER COMMON SHARE - DILUTED:
Income before cumulative effect of change in
accounting principle and extraordinary item . $ .74 $ .65 $ 1.94 $ 1.74
Cumulative effect of change in accounting
principle .................................. -- -- (.05) --
Extraordinary item ............................ -- -- .01 (.01)
--------- --------- --------- ---------
Net income per common share ................... $ .74 $ .65 $ 1.90 $ 1.73
========= ========= ========= =========
</Table>
Page 14
<Page>
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. COMPREHENSIVE INCOME
The following table sets forth the Company's comprehensive income:
<Table>
<Caption>
(amounts in thousands) For The Three Months For The Nine Months
Ended September 30, Ended September 30,
---------------------- ---------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Net income applicable to common shares ......... $ 67,876 $ 58,447 $ 171,632 $ 153,251
Adjustment to record cumulative effect of change
in accounting principle .................... -- -- 4,110 --
Other comprehensive (loss) income .............. (6,694) (13,001)(1) 2,356 (15,257)(1)
--------- --------- --------- ---------
Comprehensive income ........................... $ 61,182 $ 45,446 $ 178,098 $ 137,994
========= ========= ========= =========
</Table>
----------
(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.
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 this acquisition not consummated.
12. COMMITMENTS AND CONTINGENCIES
At September 30, 2001, in addition to the $330,000,000 outstanding under
the Company's revolving credit facility, the Company had utilized $83,343,000 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 15
<Page>
VORNADO REALTY TRUST
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
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 effective January 1, 2001. Amounts for the
three and nine months ended September 30, 2000 have been prepared on a pro
forma basis to reflect these entities as if consolidated as of January 1,
2000.
<Table>
<Caption>
(amounts in thousands) For the Three Months Ended September 30, 2001
-----------------------------------------------------------------------------
Temperature
Merchandise Controlled
Total Office Retail Mart Logistics Other(2)
--------- --------- --------- ----------- ----------- ---------
Rentals ............................ $ 211,541 $ 117,455 $ 30,501 $ 48,394 $ -- $ 15,191
Expense reimbursements ............. 36,216 21,548 11,417 2,335 -- 916
Other income ....................... 2,508 977 562 905 -- 64
--------- --------- --------- --------- --------- ---------
Total revenues ..................... 250,265 139,980 42,480 51,634 -- 16,171
--------- --------- --------- --------- --------- ---------
Operating expenses ................. 102,222 57,410 14,352 19,633 -- 10,827
Depreciation and amortization ...... 29,275 16,851 4,259 5,750 -- 2,415
General and administrative ......... 15,043 2,857 325 4,041 -- 7,820
--------- --------- --------- --------- --------- ---------
Total expenses ..................... 146,540 77,118 18,936 29,424 -- 21,062
--------- --------- --------- --------- --------- ---------
Operating income ................... 103,725 62,862 23,544 22,210 -- (4,891)
Income applicable to Alexander's ... 4,442 -- -- -- -- 4,442
Income from partially-owned entities 18,856 7,629 617 110 3,240(7) 7,260
Interest and other investment income 14,584 1,571 104 400 -- 12,509
Interest and debt expense .......... (43,054) (13,049) (13,016) (7,880) -- (9,109)
Net gain on disposition of wholly-
owned and partially-owned assets . 6,495 -- -- -- -- 6,495
Minority interest .................. (28,268) (13,613) (3,910) (3,641) (2,469) (4,635)
--------- --------- --------- --------- --------- ---------
Net income ......................... 76,780 45,400 7,339 11,199 771 12,071
Minority interest .................. 28,268 13,613 3,910 3,641 2,469 4,635
Net gain on disposition of wholly-
owned and partially-owned assets . -- -- -- -- -- --
Interest and debt expense(4) ....... 65,772 22,960 13,680 7,880 6,712 14,540
Depreciation and amortization(4) ... 42,637 21,466 4,523 5,750 8,400 2,498
Straight-lining of rents(4) ........ (8,600) (6,242) (449) (1,483) -- (426)
Other .............................. (1,329) (1,671) -- -- 41 301(6)
--------- --------- --------- --------- --------- ---------
EBITDA(1) .......................... $ 203,528 $ 95,526 $ 29,003 $ 26,987 $ 18,393 $ 33,619
========= ========= ========= ========= ========= =========
<Caption>
(amounts in thousands) For the Three Months Ended September 30, 2000 (Pro Forma)
-----------------------------------------------------------------------------
Temperature
Merchandise Controlled
Total Office Retail Mart Logistics Other(2)
--------- --------- --------- ----------- ----------- ---------
Rentals ............................ $ 197,999 $ 107,487 $ 31,101 $ 42,182 $ -- $ 17,229
Expense reimbursements ............. 35,083 20,824 11,991 1,691 -- 577
Other income ....................... 3,316 1,300 986 739 -- 291
--------- --------- --------- --------- --------- ---------
Total revenues ..................... 236,398 129,611 44,078 44,612 -- 18,097
--------- --------- --------- --------- --------- ---------
Operating expenses ................. 100,123 55,419 12,280 20,621 -- 11,803
Depreciation and amortization ...... 25,907 14,983 4,861 3,907 -- 2,156
General and administrative ......... 14,952 3,207 (266) 2,422 -- 9,589
--------- --------- --------- --------- --------- ---------
Total expenses ..................... 140,982 73,609 16,875 26,950 -- 23,548
--------- --------- --------- --------- --------- ---------
Operating income ................... 95,416 56,002 27,203 17,662 -- (5,451)
Income applicable to Alexander's ... 1,918 -- -- -- -- 1,918
Income from partially-owned entities 26,027 6,912 488 242 8,344(7) 10,041
Interest and other investment income 8,018 2,043 -- 753 -- 5,222
Interest and debt expense .......... (43,627) (17,594) (13,346) (8,720) -- (3,967)
Net gain on disposition of wholly-
owned and partially-owned assets . 8,405 8,405 -- -- -- --
Minority interest .................. (28,038) (17,048) (3,473) (4,427) (1,599) (1,491)
--------- --------- --------- --------- --------- ---------
Net income ......................... 68,119 38,720 10,872 5,510 6,745 6,272
Minority interest .................. 28,038 17,048 3,473 4,427 1,599 1,491
Net gain on disposition of wholly-
owned and partially-owned assets . (8,405) (8,405) -- -- -- --
Interest and debt expense(4) ....... 65,196 25,809 13,993 9,955 6,909 8,530
Depreciation and amortization(4) ... 40,046 19,260 4,392 4,744 8,088 3,562
Straight-lining of rents(4) ........ (10,360) (6,531) (591) (1,759) (176) (1,303)
Other .............................. 2,983 (252) 269 -- (451) 3,417
--------- --------- --------- --------- --------- ---------
EBITDA(1) .......................... $ 185,617 $ 85,649 $ 32,408 $ 22,877 $ 22,714 $ 21,969
========= ========= ========= ========= ========= =========
</Table>
----------
See footnotes 1-7 on page 18.
Page 16
<Page>
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<Table>
<Caption>
(amounts in thousands) For The Nine Months Ended September 30,
-----------------------------------------------------------------------------
2001
-----------------------------------------------------------------------------
Temperature
Merchandise Controlled
Total Office Retail Mart Logistics Other(2)
--------- --------- --------- ----------- ----------- ---------
Rentals ........................................... $ 628,511 $ 345,575 $ 89,837 $ 145,517 $ -- $ 47,582
Expense reimbursements ............................ 102,851 56,509 33,857 10,166 -- 2,319
Other income ...................................... 7,588 2,362 2,533 2,442 -- 251
--------- --------- --------- --------- --------- --------
Total revenues .................................... 738,950 404,446 126,227 158,125 -- 50,152
--------- --------- --------- --------- --------- --------
Operating expenses ................................ 299,436 164,855 43,561 62,427 -- 28,593(5)
Depreciation and amortization ..................... 91,226 52,795 13,069 18,256 -- 7,106
General and administrative ........................ 51,706 8,864 372 13,286 -- 29,184
Costs of acquisitions not consummated ............. 5,000 -- -- -- -- 5,000
--------- --------- --------- --------- --------- --------
Total expenses .................................... 447,368 226,514 57,002 93,969 -- 69,883
--------- --------- --------- --------- --------- --------
Operating income .................................. 291,582 177,932 69,225 64,156 -- (19,731)
Income applicable to Alexander's .................. 21,422 -- -- -- -- 21,422
Income from partially-owned entities .............. 62,074 24,689 3,009 219 12,909(7) 21,248
Interest and other investment income .............. 43,931 5,766 520 1,777 -- 35,868
Interest and debt expense ......................... (136,443) (44,063) (41,429) (25,866) -- (25,085)
Net gain disposition of wholly-owned and
partially-owned assets .......................... 3,706 12,445 3,050 -- -- (11,789)
Minority interest ................................. (83,931) (41,935) (12,386) (11,410) (8,294) (9,906)
--------- --------- --------- --------- --------- --------
Income before cumulative effect of change in
accounting principle and extraordinary item ...... 202,341 134,834 21,989 28,876 4,615 12,027
Cumulative effect of change in accounting principle (4,110) -- -- -- -- (4,110)
Extraordinary item ................................ 1,170 -- -- -- -- 1,170
--------- --------- --------- --------- --------- --------
Net income ........................................ 199,401 134,834 21,984 28,876 4,615 9,087
Cumulative effect of change in accounting principle 4,110 -- -- -- -- 4,110
Extraordinary item ................................ (1,170) -- -- -- -- (1,170)
Minority interest ................................. 83,931 41,935 12,386 11,410 8,294 9,906
Net gain on disposition of wholly-owned and
partially-owned assets .......................... (15,495) (12,445) (3,050) -- -- --
Interest and debt expense(4) ...................... 206,177 75,266 43,377 25,866 20,198 41,470
Depreciation and amortization(4) .................. 136,473 67,102 13,862 18,256 25,211 12,042
Straight-lining of rents(4) ....................... (22,676) (16,247) (1,144) (3,871) -- (1,414)
Other ............................................. (8,889) (4,891) -- -- 222 (4,220)(6)
--------- --------- --------- --------- --------- --------
EBITDA(1) ......................................... $ 581,862 $ 285,554 $ 87,420 $ 80,537 $ 58,540 $ 69,811
========= ========= ========= ========= ========= ========
September 30, 2001
------------------------------------------------------------------------------
Balance sheet data:
Real estate, net.............................. $4,044,388 $2,426,958 $ 530,510 $ 882,218 $ -- $204,702
Investments and advances to
partially-owned entities................... 1,286,460 355,842 29,243 10,239 484,058 407,078
Capital expenditures:
Acquisitions............................... 11,574 11,574 -- -- -- --
Other...................................... 181,623 62,390 4,771 40,568 -- 73,894
<Caption>
(amounts in thousands) For The Nine Months Ended September 30,
-----------------------------------------------------------------------------
2000 (Pro Forma)
-----------------------------------------------------------------------------
Temperature
Merchandise Controlled
Total Office Retail Mart Logistics Other(2)
--------- --------- --------- ----------- ----------- ---------
Rentals ........................................... $ 577,143 $ 303,166 $ 94,850 $ 126,167 $ -- $ 52,960
Expense reimbursements ............................ 90,302 46,950 33,934 7,331 -- 2,087
Other income ...................................... 11,449 3,049 2,090 3,519 -- 2,791
--------- --------- --------- --------- --------- --------
Total revenues .................................... 678,894 353,165 130,874 137,017 -- 57,838
--------- --------- --------- --------- --------- --------
Operating expenses ................................ 276,002 147,303 40,379 55,513 -- 32,807
Depreciation and amortization ..................... 77,142 42,269 13,485 14,792 -- 6,596
General and administrative ........................ 46,660 9,215 213 10,588 -- 26,644
Costs of acquisitions not consummated ............. -- -- -- -- -- --
--------- --------- --------- --------- --------- --------
Total expenses .................................... 399,804 198,787 54,077 80,893 -- 66,047
--------- --------- --------- --------- --------- --------
Operating income .................................. 279,090 154,378 76,797 56,124 -- (8,209)
Income applicable to Alexander's .................. 10,483 -- -- -- -- 10,483
Income from partially-owned entities .............. 64,141 22,040 987 242 24,684(7) 16,188
Interest and other investment income .............. 18,500 2,687 8 916 -- 14,889
Interest and debt expense ......................... (124,204) (45,727) (38,002) (26,625) -- (13,850)
Net gain on disposition of wholly-owned and
partially-owned assets .......................... 10,965 8,405 2,560 -- -- --
Minority interest ................................. (75,582) (38,902) (11,307) (10,438) (7,708) (7,227)
--------- --------- --------- --------- --------- --------
Income before cumulative effect of change in
accounting principle and extraordinary item ...... 183,393 102,881 31,043 20,219 16,976 12,274
Cumulative effect of change in accounting
principle ....................................... -- -- -- -- -- --
Extraordinary item ................................ (1,125) -- (1,125) -- -- --
--------- --------- --------- --------- --------- --------
Net income ........................................ 182,268 102,881 29,918 20,219 16,976 12,274
Cumulative effect of change in accounting
principle ....................................... -- -- -- -- -- --
Extraordinary item ................................ 1,125 -- 1,125 -- -- --
Minority interest ................................. 75,582 38,902 11,307 10,438 7,708 7,227
Net gain on disposition of wholly-owned and
partially-owned assets .......................... (10,965) (8,405) (2,560) -- -- --
Interest and debt expense(4) ...................... 189,818 71,961 39,947 27,860 20,946 29,104
Depreciation and amortization(4) .................. 120,355 55,559 14,177 14,792 24,422 11,405
Straight-lining of rents(4) ....................... (24,141) (15,817) (1,977) (4,523) (985) (839)
Other ............................................. 6,964 (252) 269 -- 358 6,589
--------- --------- --------- --------- --------- --------
EBITDA(1) ......................................... $ 541,006 $ 244,829 $ 92,206 $ 68,786 $ 69,425 $ 65,760
========= ========= ========= ========= ========= ========
December 31, 2000
------------------------------------------------------------------------------
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
</Table>
----------
See footnotes 1-7 on the next page.
Page 17
<Page>
VORNADO REALTY TRUST
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 depreciable 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>
(amounts in thousands) For the Three Months For the Nine Months
Ended September 30, Ended September 30,
--------------------- ----------------------
2001 2000 2001 2000
--------- --------- --------- --------
Hotel Pennsylvania (3)......................... $ 2,886 $ 5,979 $ 14,307(5) $ 17,040
Newkirk Joint Ventures:
Equity in income of limited partnerships..... 13,749 12,666 40,457 32,592
Interest and other income.................... 1,343 2,548 4,545 5,894
Other partially-owned entities (Alexander's and
other)....................................... 1,506 274 11,145 8,928
After-tax net gain on sale of Park Laurel
condominium units.......................... 13,869 -- 13,869 --
Write-off of net investment in RTR............. (7,374) -- (7,374) --
Write-off of investments in technology
companies.................................. -- -- (18,284) --
Unallocated general and administrative
expenses................................... (8,498) (7,497) (25,218) (21,334)
Costs of acquisitions not consummated.......... -- -- (5,000) --
Investment income and other.................... 16,138 7,999 41,364 22,640
--------- --------- --------- --------
Total................................. $33,619 $21,969 $ 69,811 $ 65,760
========= ========= ========= ========
</Table>
(3) Average occupancy and REVPAR for the Hotel Pennsylvania were 65.5%
and $76.20 for the three months ended September 30, 2001 compared to
79.6% and $112.88 for the prior year's quarter. Average occupancy and
REVPAR for the Hotel Pennsylvania were 66.6% and $74.61 for the nine
months ended September 30, 2001 compared to 75.3% and $83.44 for the
prior year's nine month period.
(4) 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.
(5) Includes a $1,900 settlement from a hotel tenant for rent previously
reserved.
(6) Includes the elimination of $6,298 representing the Company's share of
Alexander's gain on sale of its Fordham Road property on January 12,
2001.
(7) Net of rent not recognized of $5,311 and $7,651 for the three and nine
months ended September 30, 2001 and $2,880 and $5,280 for the three and
nine months ended September 30, 2000.
Page 18
<Page>
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
14. SUBSEQUENT EVENTS
The Company currently owns a 34% interest in CESCR. On October 19, 2001,
the Company entered into a definitive agreement pursuant to which Charles E.
Smith Commercial Realty L.P. ("CESCR") will combine its operations with Vornado.
The consideration for the remaining 66% of CESCR is approximately
$1,593,043,000, consisting of a fixed amount of 15.7 million newly issued
Vornado Operating Partnership units (valued at $610,428,000) and $982,615,000 of
debt (66% of CESCR's total debt). The closing is expected in the first quarter
of 2002, subject to receipt of certain consents from third parties and other
customary closing conditions.
Page 19
<Page>
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
The Company's physical properties were not directly affected by the
catastrophic events of September 11th. Demand for New York City and Washington,
D.C. office space has increased as a result of the buildings damaged or
destroyed. The occupancy rate of the Company's New York City office portfolio
has increased from 95% to 97%. The Company has experienced a significant
reduction in occupancy at its Hotel Pennsylvania subsequent to September 11,
2001.
Below is a summary of net income and EBITDA(1) by segment for the three
and nine months ended September 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
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 effective January 1, 2001. Amounts for the
three and nine months ended September 30, 2000 have been prepared on a pro
forma basis to reflect these entities as if consolidated as of January 1,
2000.
<Table>
<Caption>
Three Months Ended September 30, 2001
-----------------------------------------------------------------------
Temperature
Merchandise Controlled
Total Office Retail Mart Logistics Other(2)
--------- -------- -------- ----------- ----------- --------
Rentals....................................... $211,541 $117,455 $ 30,501 $48,394 $ -- $15,191
Expense reimbursements........................ 36,216 21,548 11,417 2,335 -- 916
Other income.................................. 2,508 977 562 905 -- 64
--------- -------- -------- ------- ------- -------
Total revenues................................ 250,265 139,980 42,480 51,634 -- 16,171
--------- -------- -------- ------- ------- -------
Operating expenses............................ 102,222 57,410 14,352 19,633 -- 10,827
Depreciation and amortization................. 29,275 16,851 4,259 5,750 -- 2,415
General and administrative.................... 15,043 2,857 325 4,041 -- 7,820
--------- -------- -------- ------- ------- -------
Total expenses................................ 146,540 77,118 18,936 29,424 -- 21,062
--------- -------- -------- ------- ------- -------
Operating income.............................. 103,725 62,862 23,544 22,210 -- (4,891)
Income applicable to Alexander's.............. 4,442 -- -- -- -- 4,442
Income from partially-owned entities.......... 18,856 7,629 617 110 3,240 (5) 7,260
Interest and other investment income.......... 14,584 1,571 104 400 -- 12,509
Interest and debt expense..................... (43,054) (13,049) (13,016) (7,880) -- (9,109)
Net gain on disposition of wholly-owned and
partially-owned assets...................... 6,495 -- -- -- -- 6,495
Minority interest............................. (28,268) (13,613) (3,910) (3,641) (2,469) (4,635)
--------- -------- -------- ------- ------- -------
Net income.................................... 76,780 45,400 7,339 11,199 771 12,071
Minority interest............................. 28,268 13,613 3,910 3,641 2,469 4,635
Net gain on disposition of wholly-owned and
partially-owned assets...................... -- -- -- -- -- --
Interest and debt expense(4).................. 65,772 22,960 13,680 7,880 6,712 14,540
Depreciation and amortization(4).............. 42,637 21,466 4,523 5,750 8,400 2,498
Straight-lining of rents(4)................... (8,600) (6,242) (449) (1,483) -- (426)
Other......................................... (1,329) (1,671) -- -- 41 301 (6)
--------- -------- -------- ------- ------- -------
EBITDA(1)..................................... $203,528 $95,526 $ 29,003 $26,987 $18,393 $33,619
========= ======== ======== ======= ======= =======
</Table>
Page 20
<Page>
<Table>
<Caption>
Three Months Ended September 30, 2000 (Pro Forma)
-----------------------------------------------------------------------
Temperature
Merchandise Controlled
Total Office Retail Mart Logistics Other(2)
--------- -------- ------- ----------- ----------- --------
Rentals...................................... $197,999 $107,487 $31,101 $42,182 $ -- $17,229
Expense reimbursements....................... 35,083 20,824 11,991 1,691 -- 577
Other income................................. 3,316 1,300 986 739 -- 291
--------- -------- ------- ------- ------- -------
Total revenues............................... 236,398 129,611 44,078 44,612 -- 18,097
--------- -------- ------- ------- ------- -------
Operating expenses........................... 100,123 55,419 12,280 20,621 -- 11,803
Depreciation and amortization................ 25,907 14,983 4,861 3,907 -- 2,156
General and administrative................... 14,952 3,207 (266) 2,422 -- 9,589
--------- -------- ------- ------- ------- -------
Total expenses............................... 140,982 73,609 16,875 26,950 -- 23,548
--------- -------- ------- ------- ------- -------
Operating income............................. 95,416 56,002 27,203 17,662 -- (5,451)
Income applicable to Alexander's............. 1,918 -- -- -- -- 1,918
Income from partially-owned entities......... 26,027 6,912 488 242 8,344 (5) 10,041
Interest and other investment income......... 8,018 2,043 -- 753 -- 5,222
Interest and debt expense.................... (43,627) (17,594) (13,346) (8,720) -- (3,967)
Net gain on disposition of wholly-owned
and partially-owned assets................. 8,405 8,405 -- -- -- --
Minority interest............................ (28,038) (17,048) (3,473) (4,427) (1,599) (1,491)
--------- -------- ------- ------- ------- -------
Net income................................... 68,119 38,720 10,872 5,510 6,745 6,272
Minority interest............................ 28,038 17,048 3,473 4,427 1,599 1,491
Net gain on disposition of wholly-owned
and partially-owned assets................. (8,405) (8,405) -- -- -- --
Interest and debt expense(4)................. 65,196 25,809 13,993 9,955 6,909 8,530
Depreciation and amortization(4)............. 40,046 19,260 4,392 4,744 8,088 3,562
Straight-lining of rents(4).................. (10,360) (6,531) (591) (1,759) (176) (1,303)
Other........................................ 2,983 (252) 269 -- (451) 3,417 (6)
--------- -------- ------- ------- ------- -------
EBITDA(1).................................... $185,617 $85,649 $32,408 $22,877 $22,714 $21,969
========= ======== ======= ======= ======= =======
</Table>
--------------
(1) EBITDA represents income before interest, taxes, depreciation and
amortization, extraordinary or non-recurring items, gains or losses on
sales of depreciable 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 Three Months Ended
September 30,
-------------------------
2001 2000
----------- ----------
Hotel Pennsylvania (3)............................. $2,886 $5,979
Newkirk Joint Ventures:
Equity in income of limited partnerships......... 13,749 12,666
Interest and other income........................ 1,343 2,548
Other partially-owned entities (Alexander's
and other)....................................... 1,506 274
After-tax net gain on sale of Park Laurel condominium
units............................................ 13,869 --
Write-off of net investment in the Russian Tea Room
("RTR")........................................ (7,374) --
Unallocated general and administrative
expenses....................................... (8,498) (7,497)
Investment income and other........................ 16,138 7,999
-------- -------
Total..................................... $33,619 $21,969
======== =======
</Table>
--------------------
(3) Average occupancy and REVPAR for the Hotel Pennsylvania were 65.5% and
$76.20 for the three months ended September 30, 2001 compared to 79.6% and
$112.88 for the prior year's quarter.
(4) 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.
(5) Net of rent not recognized of $5,311 and $2,880 in the three months ended
September 30, 2001 and 2000.
(6) Includes the reversal of $607 and $1,131 of expenses incurred in
connection with a deferred compensation arrangement in the three months
ended September 30, 2001 and 2000.
Page 21
<Page>
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000
Below are the details of the changes by segment in EBITDA.
<Table>
<Caption>
Temperature
Merchandise Controlled
Total Office Retail Mart Logistics Other
--------- --------- --------- ----------- ------------ ----------
Three months ended September 30, 2000 $ 185,617 $ 85,649 $ 32,408 $ 22,877 $ 22,714 $ 21,969
2001 Operations:
Same store operations(1)........ 8,104 7,700 740 2,110 (4,321)(3) 1,875
Acquisitions, dispositions and
non-recurring income and expenses 9,807 2,177 (4,145) 2,000 -- 9,775
--------- ---------- --------- --------- --------- ---------
Three months ended September 30,
2001............................ $ 203,528 $ 95,526 (2) $ 29,003 $ 26,987 $ 18,393 $ 33,619
========= ========== ========= ========= ========= =========
% increase in same
store operations.............. 4.7% 9.0%(2) 2.3% 9.2%(4) (19.0%) 8.5%
</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 $74,955 and 10.5% for
the New York City office portfolio and $20,571 and 3.3% 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's Funds from Operations), (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 nine months ended September 30, 2001 from the warehouses it
leases from the Landlord, is lower than last year by 6.5% and 4.4%, and
(ii) its gross profit before rent at these warehouses for the
corresponding periods is lower than last year by $8,445 (an 18.5% decline)
and $18,628 (a 13.8% 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
$5,311 and $7,651 of income for the quarter and nine months ended
September 30, 2001 and $2,880 and $5,280 of income for the quarter and
nine months ended September 30, 2000. At September 30, 2001, the Company's
balance of the tenant's total deferred rent is $21,123 (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 4.2% from the adjustment of an over-accrual of real estate
taxes.
Page 22
<Page>
Revenues
The Company's revenues, which consist of property rentals, tenant
expense reimbursements, hotel revenues, trade shows revenues and other income
were $250,265 for the three months ended September 30, 2001, compared to
$236,398 in the prior year's quarter, an increase of $13,867. This increase
by segment resulted from:
<Table>
<Caption>
Date of Merchandise
Property rentals: Acquisition Total Office Retail Mart Other
Acquisitions: ------------ ------- ------ -------- ----------- -------
7 West 34th Street.......... November 2000 $3,649 $3,649 $ -- $ -- $ --
33 North Dearborn Street.... September 2000 1,313 -- -- 1,313 --
L.A. Mart................... October 2000 2,905 -- -- 2,905 --
715 Lexington Avenue........ July 2001 309 309 -- -- --
Dispositions and other......... (1,150) -- (1,150)(1) -- --
Leasing activity............... 11,171 6,010 490 4,287 384
------- ------ -------- ----------- -------
Total increase in property
rentals..................... 18,197 9,968 (660) 8,505 384
------- ------ -------- ----------- -------
Tenant expense reimbursements:
Increase in tenant expense
reimbursements due to
acquisitions/dispositions... 1,346 1,085 (165) 426 --
Other.......................... (213) (361) (409) 218 339
------- ------ -------- ----------- -------
Total increase in tenant
expense reimbursements...... 1,133 724 (574) 644 339
------- ------ -------- ----------- -------
Hotel activity................... (2,422) -- -- -- (2,422)(2)
Trade shows activity............. (785) -- -- (785) --
Other income..................... (2,256) (323) (364) (1,342) (227)
------- ------- -------- ----------- --------
Total increase in revenues....... $13,867 $10,369 $(1,598) $7,022 $(1,926)
======= ======= ======== =========== ========
</Table>
-------------------
(1) Results primarily from the 14th Street and Union Square property being
taken out of service for redevelopment on February 9, 2001.
(2) Average occupancy and REVPAR for the Hotel Pennsylvania were 65.5% and
$76.20 for the three months ended September 30, 2001 compared to 79.6% and
$112.88 for the prior year's quarter.
See supplemental information on page 33 for further details.
Page 23
<Page>
EXPENSES
The Company's expenses were $146,540 for the three months ended September
30, 2001, compared to $140,982 in the prior year's quarter, an increase of
$5,558. This increase by segment resulted from:
<Table>
<Caption>
Merchandise
Total Office Retail Mart Other
------------ ------------ ---------- -------------- ----------
Operating:
Acquisitions, dispositions
and non-recurring items.. $5,333 $1,478 $1,324 $2,531 $ --
Same store operations.... (3,234) 513 748 (3,519) (976)
------------ ------------ ---------- -------------- ----------
2,099 1,991 2,072 (988) (976)
------------ ------------ ---------- -------------- ----------
Depreciation and
amortization:
Acquisitions............. 1,274 663 96 515 --
Same store operations.... 2,094 1,205 (698) 1,328 259
------------ ------------ ---------- -------------- ----------
3,368 1,868 (602) 1,843 259
------------ ------------ ---------- -------------- ----------
General and administrative:
Appreciation in value of
Vornado shares and other
securities held in
officers' deferred
compensation trust....... (1,180) -- -- -- (1,180)
Other expenses............. 1,271 (350) 591 1,619 (589)
------------ ------------ ---------- -------------- ----------
91 (350) 591 1,619 (1,769)
------------ ------------ ---------- -------------- ----------
$5,558 $3,509 $2,061 $2,474 $(2,486)
============ ============ ========== ============== ==========
</Table>
Income applicable to Alexander's (loan interest income, equity in income
and depreciation) was $4,442 in the three months ended September 30, 2001,
compared to $1,918 in the prior year's quarter, an increase of $2,524. This
increase resulted primarily from the Company's share of $1,947 of Alexander's
stock appreciation rights compensation expense in the three months ended
September 30, 2000. No such expense occurred during 2001.
Income from partially-owned entities was $18,856 in the three months ended
September 30, 2001, compared to $26,027 in the prior year's quarter, a decrease
of $7,171. This decrease by segment resulted from:
<Table>
<Caption>
Temperature
Merchandise Controlled
Total Office Retail Mart Logistics Other
--------- --------- -------- ----------- -------------- --------
Increase (decrease) in equity in income:
Temperature Controlled
Logistics....................... $(5,104) $ -- $ -- $ -- $(5,104) $ --
Charles E. Smith
Commercial Realty L.P............. 1,588 1,588 -- -- -- --
Newkirk Joint Ventures.............. (779) -- -- -- -- (779)
Partially-owned
office buildings.................. (911) (911) -- -- -- --
Other............................... (1,965) 40 129 (132) -- (2,002)
--------- --------- -------- ----------- -------------- --------
$(7,171) $ 717 $ 129 $ (132) $(5,104) $(2,781)
========= ========= ======== =========== ============== ========
</Table>
Page 24
<Page>
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 $14,584 for the three months ended September 30,
2001, compared to $8,018 the prior year's quarter, an increase of $6,566.
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.
Primestone Investment Partners, L.P. has defaulted on the repayment of
its loan from the Company which was due on October 25, 2001. The principal
amount of the loan is $62,000 and there is $3,958 of unpaid interest and
fees. The loan is secured by 7,944,893 partnership units in Prime Group
Realty L.P., the operating partnership of Prime Group Realty Trust (NYSE:PGE)
and is exchangeable into the same number of shares of PGE. It is also
guaranteed by affiliates of the borrower. The loan was subordinate to $37,957
of third party indebtedness secured by the same collateral. On October 31,
2001, the Company purchased the $37,957 of third party indebtedness and has
commenced foreclosure proceedings with respect to the collateral.
On October 30, 2001, NorthStar Partnership, L.P. made a quarterly
principal payment of $2,500 that was due on September 28, 2001 on October 31,
2001.
Interest and debt expense was $43,054 for the three months ended
September 30, 2001, compared to $43,627 in the prior year's quarter, a
decrease of $573. This decrease resulted primarily from a $9,200 savings from
a 303 basis point reduction in weighted average interest rates of variable
rate debt, offset by interest on higher average outstanding loan balances.
Net gain on disposition of wholly-owned and partially-owned assets assets
of $6,495 for the three months ended September 30, 2001, is comprised of (i)
$13,869 of an after-tax net gain on sale of the 48 condominium units of the
total 53 units at its Park Laurel residential condominium project in New
York, partially offset by (ii) the write-off of its entire net investment of
$7,374 in RTR. Net gain on disposition of assets of $8,405 for the three
months ended September 30, 2000 related to the sale of the Company's
Westport, Connecticut office property.
Page 25
<Page>
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000
<Table>
<Caption>
For The Nine Months Ended September 30, 2001
----------------------------------------------------------------------------------
Temperature
Merchandise Controlled
Total Office Retail Mart Logistics Other(2)
-------- -------- -------- ------------ ------------ ---------
Rentals................................ $628,511 $345,575 $ 89,837 $145,517 $ -- $47,582
Expense reimbursements................. 102,851 56,509 33,857 10,166 -- 2,319
Other income........................... 7,588 2,362 2,533 2,442 -- 251
-------- -------- -------- ------------ ------------ ---------
Total revenues......................... 738,950 404,446 126,227 158,125 -- 50,152
-------- -------- -------- ------------ ------------ ---------
Operating expenses..................... 299,436 164,855 43,561 62,427 -- 28,593(5)
Depreciation and amortization.......... 91,226 52,795 13,069 18,256 -- 7,106
General and administrative............. 51,706 8,864 372 13,286 -- 29,184
Costs of acquisitions not consummated.. 5,000 -- -- -- -- 5,000
-------- -------- -------- ------------ ------------ ---------
Total expenses......................... 447,368 226,514 57,002 93,969 -- 69,883
-------- -------- -------- ------------ ------------ ---------
Operating income....................... 291,582 177,932 69,225 64,156 -- (19,731)
Income applicable to Alexander's....... 21,422 -- -- -- -- 21,422
Income from partially-owned entities... 62,074 24,689 3,009 219 12,909(7) 21,248
Interest and other investment income... 43,931 5,766 520 1,777 -- 35,868
Interest and debt expense.............. (136,443) (44,063) (41,429) (25,866) -- (25,085)
Net gain on disposition of wholly-owned
and partially-owned assets........... 3,706 12,445 3,050 -- -- (11,789)
Minority interest...................... (83,931) (41,935) (12,386) (11,410) (8,294) (9,906)
-------- -------- -------- ------------ ------------ ---------
Income before extraordinary item....... 202,341 134,834 21,989 28,876 4,615 12,027
Cumulative effect of change in accounting
principle............................. (4,110) -- -- -- -- (4,110)
Extraordinary item..................... 1,170 -- -- -- -- 1,170
-------- -------- -------- ------------ ------------ ---------
Net income............................. 199,401 134,834 21,989 28,876 4,615 9,087
Cumulative effect of change in accounting
principle............................. 4,110 -- -- -- -- 4,110
Extraordinary item..................... (1,170) -- -- -- -- (1,170)
Minority interest...................... 83,931 41,935 12,386 11,410 8,294 9,906
Net gain on disposition of wholly-owned
and partially-owned assets........... (15,495) (12,445) (3,050) -- -- --
Interest and debt expense(4)........... 206,177 75,266 43,377 25,866 20,198 41,470
Depreciation and amortization(4)....... 136,473 67,102 13,862 18,256 25,211 12,042
Straight-lining of rents(4)............ (22,676) (16,247) (1,144) (3,871) -- (1,414)
Other.................................. (8,889) (4,891) -- -- 222 (4,220)(6)
-------- -------- -------- ------------ ------------ ---------
EBITDA(1).............................. $581,862 $285,554 $87,420 $80,537 $58,540 $69,811
-------- -------- -------- ------------ ------------ ---------
-------- -------- -------- ------------ ------------ ---------
</Table>
--------------------------------
See footnotes on next page.
Page 26
<Page>
<Table>
<Caption>
For the Nine Months Ended September 30, 2000 (Pro Forma)
----------------------------------------------------------------------------------
Temperature
Merchandise Controlled
Total Office Retail Mart Logistics Other(2)
-------- -------- -------- ------------ ------------ ---------
Rentals................................ $577,143 $303,166 $94,850 $126,167 $ -- $52,960
Expense reimbursements................. 90,302 46,950 33,934 7,331 -- 2,087
Other income........................... 11,449 3,049 2,090 3,519 -- 2,791
-------- -------- -------- ------------ ------------ ---------
Total revenues......................... 678,894 353,165 130,874 137,017 -- 57,838
-------- -------- -------- ------------ ------------ ---------
Operating expenses..................... 276,002 147,303 40,379 55,513 -- 32,807
Depreciation and amortization.......... 77,142 42,269 13,485 14,792 -- 6,596
General and administrative............. 46,660 9,215 213 10,588 -- 26,644
Costs of acquisitions not consummated.. -- -- -- -- -- --
-------- -------- -------- ------------ ------------ ---------
Total expenses......................... 399,804 198,787 54,077 80,893 -- 66,047
-------- -------- -------- ------------ ------------ ---------
Operating income....................... 279,090 154,378 76,797 56,124 -- (8,209)
Income applicable to Alexander's....... 10,483 -- -- -- -- 10,483
Income from partially-owned entities... 64,141 22,040 987 242 24,684(7) 16,188
Interest and other investment income... 18,500 2,687 8 916 -- 14,889
Interest and debt expense.............. (124,204) (45,727) (38,002) (26,625) -- (13,850)
Net gain on disposition of wholly-owned
and partially-owned assets........... 10,965 8,405 2,560 -- -- --
Minority interest...................... (75,582) (38,902) (11,307) (10,438) (7,708) (7,227)
-------- -------- -------- ------------ ------------ ---------
Income before extraordinary item 183,393 102,881 31,043 20,219 16,976 12,274
Extraordinary item..................... (1,125) -- (1,125) -- -- --
-------- -------- -------- ------------ ------------ ---------
Net income............................. 182,268 102,881 29,918 20,219 16,976 12,274
Extraordinary item..................... 1,125 -- 1,125 -- -- --
Minority interest...................... 75,582 38,902 11,307 10,438 7,708 7,227
Net gain on disposition of wholly-owned
and partially-owned assets........... (10,965) (8,405) (2,560) -- -- --
Interest and debt expense(4)........... 189,818 71,961 39,947 27,860 20,946 29,104
Depreciation and amortization(4)....... 120,355 55,559 14,177 14,792 24,422 11,405
Straight-lining of rents(4)............ (24,141) (15,817) (1,977) (4,523) (985) (839)
Other.................................. 6,964 (252) 269 -- 358 6,589
-------- -------- -------- ------------ ------------ ---------
EBITDA(1).............................. $541,006 $244,829 $92,206 $68,786 $69,425 $65,760
-------- -------- -------- ------------ ------------ ---------
-------- -------- -------- ------------ ------------ ---------
</Table>
--------------------------
(1) EBITDA represents income before interest, taxes, depreciation and
amortization, extraordinary or non-recurring items, gains or losses on
sales of depreciable 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 Nine Months Ended
September 30,
------------------------
2001 2000
---------- ----------
Hotel Pennsylvania (3)................................... $ 14,307(5) $17,040
Newkirk Joint Ventures:
Equity in income of limited partnerships............... 40,457 32,592
Interest and other income.............................. 4,545 5,894
Other partially-owned entities (Alexander's and other)... 11,145 8,928
After-tax net gain on sale of Park Laurel condominium units 13,869 --
Write-off of investments in technology companies......... (18,284) --
Write-off of net investment in a RTR..................... (7,374) --
Unallocated general and administrative expenses.......... (25,218) (21,334)
Costs of acquisitions not consummated.................... (5,000) --
Investment income and other.............................. 41,364 22,640
---------- ----------
Total........................................... $69,811 $65,760
---------- ----------
---------- ----------
</Table>
(3) Average occupancy and REVPAR for the Hotel Pennsylvania were 66.6% and
$74.61 for the nine months ended September 30, 2001 compared to 75.3% and
$83.44 for the prior year's nine month period.
(4) 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.
(5) Includes a $1,900 settlement from a hotel tenant for rent previously
reserved.
(6) Includes the elimination of $6,298 representing the Company's share of
Alexander's gain on sale of its Fordham Road property on January 12, 2001.
(7) Net of rent not recognized of $7,651 and $5,280 in the three and nine
months ended September 30, 2001 and 2000.
Page 27
<Page>
Below are the details of the changes by segment in EBITDA.
<Table>
<Caption>
Temperature
Merchandise Controlled
Total Office Retail Mart Logistics Other
--------- -------- -------- ------------ ------------ --------
Nine months ended
September 30, 2000.... $541,006 $244,829 $92,206 $68,786 $69,425 $65,760
2001 Operations:
Same store operations(1). 28,701 27,533 2,131 5,351 (10,885)(3) 4,571
Acquisitions, dispositions
and non-recurring income and
expenses.................. 12,155 13,192 (6,917) 6,400 -- (520)
--------- -------- -------- ------------ ------------ --------
Nine months ended
September 30, 2001.... $581,862 $285,554(2) $87,420 $80,537 $58,540 $69,811
--------- -------- -------- ------------ ------------ --------
--------- -------- -------- ------------ ------------ --------
% increase in same
store operations.... 5.3% 11.2%(2) 2.3% 7.8% (15.7%) 7.0%
</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 $222,483 and 13.4% for
the New York City office portfolio and $63,071 and 3.8% 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's Funds from Operations), (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 nine months ended September 30, 2001 from the warehouses it
leases from the Landlord, is lower than last year by 6.5% and 4.4%, and
(ii) its gross profit before rent at these warehouses for the
corresponding periods is lower than last year by $8,445 (an 18.5% decline)
and $18,628 (a 13.8% 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
$5,311 and $7,651 of income for the quarter and nine months ended
September 30, 2001 and $2,880 and $5,280 of income for the quarter and
nine months ended September 30, 2000. At September 30, 2001, the Company's
balance of the tenant's total deferred rent is $21,123 (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).
Page 28
<Page>
REVENUES
The Company's revenues, which consist of property rentals, tenant
expense reimbursements, hotel revenues, trade shows revenues and other income
were $738,950 in the nine months ended September 30, 2001, compared to
$678,894 in the prior year's nine months, an increase of $60,056. This
increase by segment resulted from:
<Table>
<Caption>
Date of Merchandise
Property Rentals: Acquisition Total Office Retail Mart Other
-------------- ------- ------ -------- ------------ ----------
Acquisitions:
7 West 34th Street........ November 2000 $10,945 $10,945 $ -- $ -- $ --
33 North Dearborn Street.. September 2000 4,123 -- -- 4,123 --
L.A. Mart................. October 2000 8,915 -- -- 8,915 --
715 Lexington Avenue...... July 2001 309 309 -- -- --
Dispositions and non-recurring
items..................... (6,625) -- (6,625)(1) -- --
Leasing activity............. 37,954 31,155 1,612 6,312 (1,125)(2)
------- ------- ------- ------- -------
Total increase in property
rentals.................... 55,621 42,409 (5,013) 19,350 (1,125)
------- ------- ------- ------- -------
Tenant expense reimbursements:
Increase in tenant expense
reimbursements due to
acquisitions/dispositions. 3,809 3,104 (610) 1,315 --
Other........................ 8,740 6,455 533 1,520 232
------- ------- ------- ------- -------
Total increase in tenant
expense reimbursements.... 12,549 9,559 (77) 2,835 232
------- ------- ------- ------- -------
Hotel activity................ (4,253) -- -- -- (4,253)(3)
Trade shows activity.......... 1,508 -- -- 1,508 --
Other income.................. (5,369) (687) 443 (2,585) (2,540)
------- ------- ------- ------- -------
Total increase in revenues.... $60,056 $51,281 $(4,647) $21,108 $(7,686)
======= ======= ======= ======= =======
</Table>
-------------------------------------------------------------------------------
(1)Results primarily from the 14th Street and Union Square property being
taken out of service for redevelopment 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.
(3)Average occupancy and REVPAR for the Hotel Pennsylvania were 66.6%
and $74.61 for the nine months ended September 30, 2001 compared to
75.3% and $83.44 for the prior year's nine month period.
See Supplemental Informationon page 33.
EXPENSES
The Company's expenses were $447,368 in the nine months ended September
30, 2001 compared to $399,804 in the prior year's nine months, an increase of
$47,564. This increase by segment resulted from:
<Table>
<Caption>
Merchandise
Operating: Total Office Retail Mart Other
-------- ------ ------ ------------ -----
Acquisitions, dispositions
and non-recurring items... $12,655 $ 4,616 $ 727 $7,312 $ --
Same store operations..... 10,779 12,936 2,455 (398) (4,214)(1)
------- ------- ------ ------- -------
23,434 17,552 3,182 6,914 (4,214)
------- ------- ------ ------- -------
Depreciation and amortization:
Acquisitions, dispositions
and non-recurring items... 3,279 1,932 (145) 1,492 --
Same store operations..... 10,805 8,594 (271) 1,972 510
------- ------- ------ ------- -------
14,084 10,526 (416) 3,464 510
------- ------- ------ ------- -------
General and administrative:
Depreciation in value of
Vornado's shares and
other securities held
in Officers' deferred
compensation trust..... (878) -- -- -- (878)
Other expenses............ 5,924(2) (351) 159 2,698 3,418
------- ------- ------ ------- -------
5,046 (351) 159 2,698 2,540
------- ------- ------ ------- -------
Costs of acquisitions not
consummated................... 5,000(3) -- -- -- 5,000
------- ------- ------ ------- -------
$47,564 $27,727 $2,925 $13,076 $ 3,836
======= ======= ====== ======= =======
</Table>
-------------------------------------------------------------------------------
(1) Includes a $1,900 settlement from a hotel tenant for rent previously
reserved.
(2) Higher payroll expenses, partially offset by lower professional fees.
(3) Primarily associated with the World Trade Center.
Page 29
<Page>
Income applicable to Alexander's (loan interest income, equity in
income and depreciation) was $21,422 in the nine months ended September 30,
2001, compared to $10,483 in the prior year's nine months, an increase of
$10,939. 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 $62,074 in the nine months
ended September 30, 2001, compared to $64,141 in the prior year's nine
months, a decrease of $2,067. This decrease by segment resulted from:
<Table>
<Caption>
Temperature
Increase (decrease) in equity Merchandise Controlled
in income: Total Office Retail Mart Logistics Other
-------- ------ ------ ----------- ----------- --------
Temperature Controlled
Logistics............... $(11,775) $ -- $ -- $ -- $(11,775) $ --
CESCR..................... 2,465 2,465 -- -- -- --
Newkirk Joint Ventures.... 5,411 -- -- -- -- 5,411
Partially-owned office
buildings............... 184 184 -- -- -- --
Other..................... 1,648 -- 2,022 (23) -- (351)
------- ------ ------ ----- -------- ------
$(2,067) $2,649 $2,022 $ (23) $(11,775) $5,060
------- ------ ------ ----- -------- ------
------- ------ ------ ----- -------- ------
</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 $43,931 for the nine months ended September 30,
2001, compared to $18,500 in the prior year's nine months, an increase of
$25,431. 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.
Primestone Investment Partners, L.P. has defaulted on the repayment of
its loan from the Company which was due on October 25, 2001. The principal
amount of the loan is $62,000 and there is $3,958 of unpaid interest and
fees. The loan is secured by 7,944,893 partnership units in Prime Group
Realty L.P., the operating partnership of Prime Group Realty Trust (NYSE:PGE)
and is exchangeable into the same number of shares of PGE. It is also
guaranteed by affiliates of the borrower. The loan was subordinate to $37,957
of third party indebtedness secured by the same collateral. On October 31,
2001, the Company purchased the $37,957 of third party indebtedness and has
commenced foreclosure proceedings with respect to the collateral.
On October 30, 2001, NorthStar Partnership, L.P. made a quarterly
principal payment of $2,500 that was due on September 28, 2001.
Interest and debt expense was $136,443 for the nine months ended
September 30, 2001, compared to $124,204 in the prior year's nine months, an
increase of $12,239. This increase resulted primarily from interest on higher
average outstanding loan balances, partially offset by a $14,100 savings from
a 162 basis point reduction in weighted average interest rates on variable
rate debt.
Net gain on disposition of wholly-owned and partially-owned assets of
$3,706 for the nine months ended September 30, 2001 is comprised of (i)
$13,869 of an after-tax net gain on sale of the 48 condominium units of the
total 53 units at its Park Laurel residential condominium project in New
York, (ii) net gain on sale of 570 Lexington Avenue -through a
partially-owned entity of $12,445, (iii) net gain from condemnation
proceedings of $3,050, partially offset by (iv) the write-off of investments
in technology companies and (v) the write-off of its entire net investment of
$7,374 in RTR. Net gain on disposition of assets was $10,965 for the nine
months ended September 30, 2000 related to the sales of the Company's
Westport, Connecticut office property and the company's three Texas shopping
center properties.
Minority interest was $83,931 for the nine months ended September 30,
2001, compared to $75,582 in the prior year's nine months, an increase of
$8,349. This increase is primarily due to the issuance of perpetual preferred
units.
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.
Page 30
<Page>
LIQUIDITY AND CAPITAL RESOURCES
NINE MONTHS ENDED SEPTEMBER 30, 2001
Cash flows provided by operating activities of $261,235 was primarily
comprised of (i) income of $199,401, (ii) adjustments for non-cash items of
$97,442 partially offset by (iii) the net change in operating assets and
liabilities of $5,074. 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 the Company's remaining equity investments in
technology companies of $18,284, (iii) the write-off of its entire net
investment of $7,374 in the Russian Tea Room, (iv) depreciation and
amortization of $91,226, (v) minority interest of $83,931, partially offset
by (vi) the effect of straight-lining of rental income of $23,987, and (vii)
equity in net income of partially-owned entities and income applicable to
Alexander's of $83,496.
Net cash provided by investing activities of $17,725 was primarily
comprised (i) recurring capital expenditures of $36,173, (ii) non-recurring
capital expenditures of $68,152, (iii) development and redevelopment
expenditures of $68,152, (iv) investment in notes and mortgages receivable
of $36,831, (v) investments in partially-owned entities of $68,145, (vi)
acquisitions of real estate of $11,574, offset by, of (vii) proceeds from the
sale of real estate of $146,197, (viii) distributions from partially-owned
entities of $102,404, and (ix) a decrease in restricted cash arising
primarily from the repayment of mortgage escrows of $13,709.
Net cash used in financing activities of $228,071 was primarily
comprised of (i) proceeds from borrowings of $347,853, (ii) proceeds from the
issuance of preferred units of $52,673, offset by, (iii) repayments of
borrowings of $388,319, (iv) dividends paid on common shares of $143,544, (v)
dividends paid on preferred shares of $26,811, and (vi) distributions to
minority partners of $79,452.
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>
Funded by the Company
-------------------------------------------------------------
New York Merchandise CESCR
Total City Office Retail Mart Other (34% Interest)
----- ----------- ------ ----------- ------ -------------
Capital Expenditures:
Expenditures to maintain the assets:
Recurring......................... $ 13,703 $ 8,010 $1,142 $ 2,265 $ 2,286 $ 1,328
Non-recurring..................... 23,029 10,574 -- 4,812 7,643 3,911
-------- ------- ------ ------- ------- -------
36,732 18,584 1,142 7,077 9,929 5,239
-------- ------- ------ ------- ------- -------
Tenant improvements:
Recurring......................... 22,470 18,331 176 3,874 89 2,085
Non-recurring..................... 4,485 4,485 -- -- -- 37
-------- ------- ------ ------- ------- -------
26,955 22,816 176 3,874 89 2,122
-------- ------- ------ ------- ------- -------
Total................................ $ 63,687 $41,400 $1,318 $10,951 $10,018 $ 7,361
======== ======= ====== ======= ======= =======
Leasing Commissions:
Recurring......................... $ 10,978 $10,126 $442 $137 $273 $889
Non-recurring..................... 8,339 8,339 -- -- -- 11
-------- ------- ------ ------- ------- -------
$ 19,317 $18,465 $442 $137 $273 $900
======== ======= ====== ======= ======= =======
Development and Redevelopment
Expenditures: (1)
Market Square on Main Street..... $ 26,227 $ -- $ -- $26,227 $ -- $ --
Other............................ 41,925 20,990 3,453 3,390 14,092 11,590(2)
-------- ------- ------ ------- ------- -------
$ 68,152 $20,990 $3,453 $29,617 $14,092 $11,590
======== ======= ====== ======= ======= =======
</Table>
-------------------------------------------------------------------------------
(1) Does not include $51,962 of Fort Lee development costs which were funded by
a construction loan and $49,784 of Park Laurel development costs during the
nine months ended September 30, 2001.
(2) $8,747 relates to the development of Seven Skyline Place, which is 100%
leased.
Page 31
<Page>
NINE MONTHS ENDED SEPTEMBER 30, 2000
Cash flows provided by operating activities of $145,148 was primarily
comprised of (i) income of $182,268 and (ii) adjustments for non-cash items
of $32,340, offset by (iii) the net change in operating assets and
liabilities of $77,480 and (iv) the net gain on sale of real estate of
$10,965. The adjustments for non-cash items are primarily comprised of (i)
depreciation and amortization of $72,966 and (ii) minority interest of
$75,582, partially offset by (iii) the effect of straight-lining of rental
income of $25,368 and (iv) equity in net income of partially-owned entities
and income applicable to Alexander's of $72,980.
Net cash used in investing activities of $503,425 was primarily
comprised of (i) capital expenditures of $106,579, (ii) investment in notes
and mortgages receivable of $142,251, (iii) acquisitions of real estate of
$27,360, (iv) investments in partially-owned entities of $74,694, (v) cash
restricted of $183,379, of which $173,500 represents funds escrowed in
connection with a mortgage financing, partially offset by (vi) proceeds from
the sale of real estate of $46,832 and distributions from partially-owned
entities of $14,870.
Below are the details of acquisitions of real estate, investments in
partially-owned entities, investments in notes and mortgages receivable and
capital expenditures.
<Table>
<Caption>
Debt Value of
Cash Assumed Units Issued Investment
-------- --------- ------------- ------------
Acquisitions of Real Estate:
Student Housing Complex (90% interest)................ $ 6,660 $17,640 $ -- $ 24,300
33 N. Dearborn Street................................. 16,000 19,000 -- 35,000
Other................................................. 4,700 -- -- 4,700
-------- ------- ------ --------
$ 27,360 $36,640 $ -- $ 64,000
======== ======= ====== ========
Investments in Partially-Owned Entities:
Vornado Ceruzzi Joint Venture (80% interest).......... $ 18,220 $ -- $ -- $ 18,220
Additional investment in Newkirk...................... 1,231 -- 6,119 7,350
Loan to Alexander's................................... 15,000 -- -- 15,000
Funding of Development Expenditures:
Fort Lee (75% interest)............................. 9,898 -- -- 9,898
Park Laurel (80% interest).......................... 30,345 -- -- 30,345
-------- ------- ------ --------
$ 74,694 $ -- $6,119 $ 80,813
======== ======= ====== ========
Investments in Notes and Mortgages Receivable:
Loan to NorthStar Partnership L.P..................... $ 65,000 $ -- $ -- $ 65,000
Loan to Primestone Investment Partners, L.P........... 62,000 -- -- 62,000
Advances to Vornado Operating Company................. 15,251 -- -- 15,251
-------- ------- ------ --------
$142,251 $ -- $ -- $142,251
======== ======= ====== ========
</Table>
<Table>
<Caption>
New York City Merchandise
Total Office Retail Mart Other
-------- ------------- ------ ----------- --------
Capital expenditures:
Expenditures to maintain the assets....... $ 12,735 $ 8,068 $ 542 $ 4,010 $ 115
Tenant improvements....................... 42,808 36,901 2,651 3,044 212
Redevelopment and development
expenditures............................ 34,293 18,465 1,883 13,945 --
Corporate (primarily relocation of
offices)................................ 16,743 -- -- -- 16,743
-------- ------- ------ ------- -------
$106,579 $63,434 $5,076 $20,999 $17,070
======== ======= ====== ======= =======
</Table>
Net cash provided by financing activities of $409,931 was primarily
comprised of (i) proceeds from borrowings of $1,048,036, (ii) proceeds from
issuance of preferred units of $195,847, partially offset by, (iii)
repayments of borrowings of $629,891, (iv) dividends paid on common shares of
$124,501 (v) dividends paid on preferred shares of $17,907, and (vi)
distributions to minority partners of $53,548.
Page 32
<Page>
SUPPLEMENTAL INFORMATION
Below are the details of the changes by segment in EBITDA for the three
months ended September 30, 2001 from the three months ended June 30, 2001.
<Table>
<Caption>
Temperature
Merchandise Controlled
Total Office Retail Mart Logistics Other
--------- -------- -------- ----------- ----------- -------
Three months ended
June 30, 2001................... $188,693 $96,898 $29,382 $27,912 $18,966 $15,535
2001 Operations:
Same store operations(1)........ (1,747) 1,207 (379) (925)(3) (573) (1,077)(4)
Acquisitions, dispositions and
other non-recurring income and
expenses..................... 16,582 (2,579) -- -- -- 19,161(5)
-------- ------- ------- ------- ------- -------
Three months ended
September 30, 2001.............. $203,528 $95,526 $29,003 $26,987 $18,393 $33,619
======== ======= ======= ======= ======= =======
% increase in same
store operations.............. (0.9%) 1.2%(2) (1.3%) (3.3%) (3.0%) (6.9%)
</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 1.6% for the New York City office
portfolio, and a decrease of .4% for the CESCR portfolio. Reflects
reduction in occupancy rate from 97% at March 31, 2001 to 95% at June 30,
2001. The subsequent increase in the occupancy rate from 95% to 97% at
September 30, 2001 will have a positive impact beginning in the fourth
quarter.
(3) Reflects lower income from trade shows (due to the timing of the trade
shows) partially offset by an adjustment for a real estate tax accrual in
the three months ended September 30, 2001.
(4) Reflects same store decrease in the Hotel Pennsylvania EBITDA of $3,255
offset by increases in EBITDA from the Company's other investments.
Average occupancy and REVPAR at the hotel were 65.5% and $76.20 for the
three months ended September 30, 2001 compared to 76.8% and $113.78 for
the quarter ended June 30, 2001.
(5) EBITDA for the three months ended September 20, 2001 includes an after-tax
net gain on sale of Park Laurel condominiums of $13,869, offset by the
write-off of the Company's net investment in RTR of $7,374. EBITDA for the
prior quarter includes a write-off of all of the Company's remaining
investments in technology companies of $13,561.
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
-------------------- ------------------------
CESCR Temperature
New York (34% Controlled
City interest) Retail Office(1) Showroom(1) Logistics
-------- -------- ------ --------- ----------- -----------
As of September 30, 2001:
Square feet.............................. 14,246 4,249 11,301 2,869 5,044 17,695
Cubic feet............................... -- -- -- -- -- 445,200
Number of properties..................... 21 50 55 9 9 89
Occupancy rate........................... 97% 97% 91% 92% 97% 82%(5)
Leasing Activity:
For the quarter ended
September 30, 2001:
Square feet...................... 762 68 78(3) 24 215 --
Rent per square foot:
Initial rent (2)............... $47.58 $29.72 $12.04 $21.38 $21.10 --
Prior escalated rent........... $28.44 $26.55 $9.08 $19.99 $19.82 --
Percentage increase............ 67.3% 11.9% 32.6% 7.0% 6.5% --
For the nine months ended
September 30, 2001:
Square feet...................... 1,272(4) 497 326(3) 50 418 --
Rent per square foot:
Initial rent (2)............... $47.10 $31.28 $16.55 $23.65 $19.98 --
Prior escalated rent........... $29.62 $25.26 $14.89 $21.55 $18.25 --
Percentage increase............ 59.0% 23.8 11.1% 9.7% 9.5% --
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)
Page 33
<Page>
<Caption>
Office Merchandise Mart
-------------------- ------------------------
CESCR Temperature
New York (34% Controlled
City interest) Retail Office(1) Showroom(1) Logistics
-------- -------- ------ --------- ----------- -----------
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)
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%
</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,
Giant Foods, 85,000 square feet and Bed, Bath & Beyond, 94,000 square feet)
of three 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 nine months ended September 30, 2001 from the warehouses it
leases from the Landlord, is lower than last year by 6.5% and 4.4%, and
(ii) its gross profit before rent at these warehouses for the corresponding
periods is lower than last year by $8,445 (an 18.5% decline) and $18,628
(a 13.8% decline). These decreases are attributable to a reduction in total
customer inventory stored at the warehouses and customer inventory turns.
Page 34
<Page>
FUNDS FROM OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001
AND 2000
Funds from operations was $104,607 in the three months ended September 30,
2001, compared to $84,629 in the prior year's quarter, an increase of $19,978.
Funds from operations for the three months ended September 30, 2001, includes
(i) a $13,869 after-tax net gain on sale of Park Laurel condominiums units and
(ii) $7,374 for the write-off of the Company's entire net investment in the
Russian Tea Room. Funds from operations before these items and after minority
interest was $99,054, a $14,425 increase over the prior year, a 13.8% increase
on a per share basis.
Funds from operations was $270,445 in the nine months ended September 30,
2001, compared to $247,808 in the prior year's nine months, an increase of
$22,637. Funds from operations for the nine months ended September 30, 2001,
includes (i) the gain, net of the impairment loss noted above for the quarter of
$6,495 (ii) a charge of $5,000 for the write-off of costs associated with two
acquisitions which were not consummated and (iii) a charge of $18,284 resulting
from the write-off of all of the Company's investments in technology companies.
Funds from operations before these items and after minority interest was
$284,800, a $36,992 increase over the prior year, a 12.8% increase on a per
share basis.
The following table reconciles funds from operations and net income:
<Table>
<Caption>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Net income applicable to common shares........ $67,876 $58,447 $171,632 $153,251
Cumulative effect of a change in accounting
principle................................. -- -- 4,110 --
Extraordinary item............................ -- -- (1,170) 1,125
Depreciation and amortization of real property 28,342 24,587 88,423 71,665
Straight-lining of property rentals for
rent escalations.......................... (7,952) (9,429) (21,026) (22,466)
Leasing fees received in excess of income
recognized................................ (124) 409 (372) 1,379
Appreciation of securities held in officer's
deferred compensation trus................ 607 2,183 1,276 3,673
Net gain on sale of 570 Lexington Avenue -
through a partially-owned entity.......... -- -- (12,445) --
Net gain from condemnation proceeding......... -- -- (3,050) --
Proportionate share of adjustments to equity
in net income of partially-owned entities
to arrive at funds from operations:
Depreciation and amortization of real
property............................ 16,612 15,182 48,219 47,367
Net gain on sale of real estate
(Alexander's Fordham Road
property)........................... -- -- (6,298) --
Other................................. (540) (362) (1,290) (2,171)
Net gain on sale of other depreciable real
estate.................................... -- (8,405) -- (10,965)
Minority interest in excess of preferential
distributions............................. (4,869) (3,405) (12,585) (11,317)
-------- ------- -------- --------
99,952 79,207 255,424 231,541
Series A preferred shares..................... 4,655 5,422 15,021 16,267
-------- ------- -------- --------
Funds from operations--diluted (1)............ $104,607 $84,629 $270,445 $247,808
======== ======= ======== ========
</Table>
The number of shares that should be used for determining funds from
operations per share is as follows:
<Table>
<Caption>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Weighted average shares used for determining
diluted income per share................. 92,059 89,713 90,355 88,624
Series A preferred shares................ 7,933 8,018 7,933 8,018
-------- ------- -------- --------
Shares used for determining diluted
funds from operations per share (1)...... 99,992 97,731 98,288 96,642
======== ======= ======== ========
</Table>
Page 35
<Page>
Funds from operations does not represent cash generated from operating
activities in accordance with accounting principles generally accepted in the
United States of America and is not necessarily indicative of cash available to
fund cash needs which is disclosed in the Consolidated Statements of Cash Flows
for the applicable periods. There are no material legal or functional
restrictions on the use of funds from operations. Funds from operations should
not be considered as an alternative to net income as an indicator of the
Company's operating performance or as an alternative to cash flows as a measure
of liquidity. Management considers funds from operations a supplemental measure
of operating performance and along with cash flow from operating activities,
financing activities and investing activities, it provides investors with an
indication of the ability of the Company to incur and service debt, to make
capital expenditures and to fund other cash needs. Funds from operations may not
be comparable to similarly titled measures reported by other REITs since a
number of REITs, including the Company, calculate funds from operations in a
manner different from that used by NAREIT. Funds from operations, as defined by
NAREIT, represents net income applicable to common shares before depreciation
and amortization, extraordinary items and gains or losses on sales of real
estate. Funds from operations as disclosed above has been modified from this
definition to adjust primarily for (i) the effect of straight-lining of property
rentals for rent escalations and leasing fee income, and (ii) the reversal of
income taxes (benefit) which are considered non-recurring because of the
conversion of Temperature Controlled Logistics Companies to REITs in 2000.
Below are the cash flows provided by (used in) operating, investing and
financing activities:
<Table>
<Caption>
For the Nine Months Ended
September 30,
-------------------------------
2001 2000
---------- ----------
Operating activities................. $261,235 $145,148
---------- ----------
---------- ----------
Investing activities................. $17,725 $(503,425)
---------- ----------
---------- ----------
Financing activities................. $(228,071) $409,931
---------- ----------
---------- ----------
</Table>
----------------------
(1) Assuming all of the convertible units of the Operating Partnership
were converted to shares, the minority interest in partnership
earnings would not be deducted in calculating funds from operations
and the shares used in calculating funds from operations per share
would be increased to reflect the conversion. Funds from operations
per share would not change. The following table reconciles funds from
operations as shown above, to the Operating Partnership's funds from
operations for the three and nine months ended September 30, 2001:
<Table>
<Caption>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Funds from operations, as above.............. $104,607 $84,629 $270,445 $247,808
Addback of minority interest reflected as
equity in the Operating Partnership......... 13,831 13,019 38,519 38,301
---------- ---------- ---------- ----------
Operating Partnership funds from operations.. $118,438 $97,648 $308,964 $286,109
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</Table>
The number of shares that should be used for determining Operating
Partnership funds from operations per share is as follows:
<Table>
Shares used for determining diluted funds from
operations per share, as above.............. 99,992 97,731 98,288 96,642
Convertible units:
Non-Vornado owned Class A units.......... 5,453 6,397 6,231 6,300
Class D units............................ -- 869 -- 869
B-1 units................................ 822 822 822 822
B-2 units................................ 411 411 411 411
C-1 units................................ 855 855 855 855
E-1 units................................ 5,680 5,680 5,680 5,680
---------- ---------- ---------- ----------
Shares used for determining Operating Partnership
diluted funds from operations per share..... 113,213 112,765 112,287 111,579
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</Table>
Page 36
<Page>
ACQUISITIONS
The Company currently owns a 34% interest in CESCR. On October 19, 2001,
the Company entered into a definitive agreement pursuant to which Charles E.
Smith Commercial Realty L.P. ("CESCR") will combine its operations with Vornado.
The consideration for the remaining 66% of CESCR is approximately $1,593,043,
consisting of a fixed amount of 15.7 million newly issued Vornado Operating
Partnership units (valued at $610,428) and $982,615 of debt (66% of CESCR's
total debt). The closing is expected in the first quarter of 2002, subject to
receipt of certain consents from third parties and other customary closing
conditions.
FINANCINGS
888 SEVENTH AVENUE
On January 11, 2001, the Company completed a $105,000 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.
INDUSTRIAL WAREHOUSES
On September 20, 2001, the Company completed a $50,000 mortgage financing,
cross-collateralized by its eight industrial warehouse properties. The loan
bears interest at a fixed rate of 6.95% per annum and matures on October 1,
2011.
OFFERING OF PREFERRED UNITS
On September 21, 2001, the Company sold an aggregate of $45,000 8.25%
Series D-9 Cumulative Redeemable Preferred Units in the Operating Partnership to
an institutional investor in a private placement, resulting in net proceeds of
approximately $43,875. The perpetual preferred units may be called without
penalty at the option of the Company commencing on September 21, 2006.
WASHINGTON DESIGN CENTER
On October 16, 2001, the Company completed a $49,000 refinancing of its
Washington Design Center property. The loan bears interest at a fixed rate of
6.95% and matures on October 16, 2011. A portion of the proceeds received were
used to repay the then existing mortgage of $23,000.
The Company anticipates that cash from continuing operations will be
adequate to fund business operations and the payment of dividends and
distributions on an on-going basis for more than the next twelve months;
however, capital outlays for significant acquisitions would require funding from
borrowings or equity offerings.
Page 37
<Page>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company's exposure to a change in interest rates on its wholly-owned
and partially-owned debt (all of which arises out of non-trading activity) is as
follows:
<Table>
<Caption>
($ in thousands, except per share amounts)
September 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.................. $ 1,438,879 4.64% $ 13,153 $ 1,593,751 8.00%
Fixed rate..................... 1,247,559 7.55% -- 1,063,146 7.61%
------------ ---------- ------------
$ 2,686,438 5.99% 13,153 $ 2,656,897
============ ---------- ============
Partially-owned debt:
Variable rate.................. $ 161,108 6.21% 1,611 $ 204,462 8.40%
Fixed rate..................... 1,214,943 7.50% -- 1,123,926 7.54%
------------ ---------- ------------
$ 1,376,051 7.41% 1,611 $ 1,328,388
============ ---------- ============
Minority interest..................... (2,141)
----------
Total decrease in the
Company's annual net income......... $ 12,623
==========
Per share-diluted................ $ .14
==========
</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 38
<Page>
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 September 30, 2001, Vornado Realty Trust did
not file any reports on Form 8-K.
Page 39
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VORNADO REALTY TRUST
----------------------------------------
(Registrant)
Date: November 1, 2001 By: /s/ Joseph Macnow
----------------------------------------
Joseph Macnow, Executive Vice President-
Finance and Administration and
Chief Financial Officer
Page 40
<Page>
EXHIBIT INDEX
<Table>
<Caption>
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.......................................................................... *
</Table>
---------------
* Incorporated by reference
Page 41
<Page>
<Table>
<Caption>
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
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 -- Articles Supplementary to Declaration of Trust of Vornado Realty Trust with respect to the
Series D-9 Preferred Shares, dated September 21, 2001, as filed with the State Department of
Assessments and Taxation of Maryland on September 25, 2001 - incorporated by reference to
Exhibit 3.1 of Vornado's Current Report on Form 8-K dated September 21, 2001
(File No. 001-11954), filed on October 12, 2001................................................ *
3.19 -- 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..................................................... *
3.20 -- 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").... *
3.21 -- 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. *
</Table>
---------------
* Incorporated by reference
Page 42
<Page>
<Table>
<Caption>
EXHIBIT
NO.
-------
3.22 -- 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..... *
3.23 -- 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.............................................................................. *
3.24 -- 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...................................................................... *
3.25 -- 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............................................................................... *
3.26 -- 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.. *
3.27 -- 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....................................................................................... *
3.28 -- 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................................................................................... *
3.29 -- 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..... *
3.30 -- 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..... *
3.31 -- 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........................................................................................... *
3.32 -- 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........................................................................................... *
</Table>
---------------
* Incorporated by reference
Page 43
<Page>
<Table>
<Caption>
EXHIBIT
NO.
-------
3.33 -- 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.............................................................................. *
3.34 -- 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...... *
3.35 -- 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.... *
3.36 -- 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.............................................................................. *
3.37 -- Fifteenth Amendment to Second Amended and Restated Agreement of Limited Partnership of
Vornado Realty L.P., dated as of December 15, 2000 - incorporated by reference to Exhibit 4.35
of Vornado's registration statement on Form S-8 (File No. 333-68462), filed on August 27,
2001........................................................................................... *
3.38 -- Sixteenth Amendment to Second Amended and Restated Agreement of Limited Partnership of
Vornado Realty L.P., dated as of July 25, 2001 - incorporated by reference to Exhibit 3.3 of
Vornado's Current Report on Form 8-K dated September 21, 2001 (File No. 001-11954), filed on
October 12, 2001............................................................................... *
3.39 -- Seventeenth Amendment to Second Amended and Restated Agreement of Limited Partnership of
Vornado Realty L.P., dated as of September 21, 2001 - incorporated by reference to Exhibit 3.4
of Vornado's Current Report on Form 8-K dated September 21, 2001 of Vornado Realty Trust
(File No. 001-11954), filed on October 12, 2001. *
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............................ *
</Table>
---------------
* Incorporated by reference
Page 44
<Page>
<Table>
<Caption>
EXHIBIT
NO.
-------
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................................... *
</Table>
---------------
* Incorporated by reference
Page 45